<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
REGISTRATION NO. 333-49711
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
(AMENDMENT NO. 2)
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE ACKERLEY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 91-1043807
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or reinvestment plans, please check the following box. [ ]
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, other
than securities offered only in connection with dividend and reinvestment plans,
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share..... 4,830,000 shares $19.25 $92,977,500 $25,847.75
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 630,000 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.
(3) Previously paid.
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> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 12, 1999
PROSPECTUS [ACKERLEY GROUP LOGO]
THE ACKERLEY GROUP, INC.
4,200,000 SHARES
COMMON STOCK
$ PER SHARE
-------------------------
The Ackerley Group, Inc. is selling 3,000,000 shares of its common stock
and the selling stockholders named in this prospectus are selling 1,200,000
shares of common stock. The Ackerley Group will not receive any proceeds from
the sale of the shares by the selling stockholders. The underwriters named in
this prospectus may purchase up to 630,000 additional shares of common stock
from The Ackerley Group under certain circumstances.
The common stock is listed on the New York Stock Exchange under the symbol
"AK." The last reported sale price of the common stock on the New York Stock
Exchange on July 8, 1999 was $18 13/16 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 14.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public Offering Price $ $
Underwriting Discount $ $
Proceeds to The Ackerley Group (before expenses) $ $
Proceeds to the Selling Stockholders (before expenses) $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 1999.
-------------------------
SALOMON SMITH BARNEY
FIRST UNION CAPITAL MARKETS CORP.
MERRILL LYNCH & CO.
, 1999
<PAGE> 3
[THE ACKERLEY GROUP LOGO]
THE ACKERLEY GROUP
OUTSTANDING MEDIA &
ENTERTAINMENT COMPANIES
[MAP OF UNITED STATES SHOWING LOCATIONS OF OPERATIONS]
[TV12 LOGO] [NEWS CHANNEL 50 LOGO]
KVOS-TV Santa Rosa, CA
Bellingham, WA
portions of Seattle, WA
Vancouver, B.C.
[FULL HOUSE AND SEATTLE SUPERSONICS LOGOS] [NEWS SOURCE 12 LOGO]
Full House Sports & Entertainment Santa Maria, CA
Seattle SuperSonics
Seattle, WA
[ACTION 6 NEWS LOGO] [NEWS SOURCE 13 LOGO]
Eureka, CA Rochester, NY
[FOX 35 NEWS** AND NEWS CHANNEL 46* [NEWS CHANNEL 9 LOGO]
LOGOS] Syracuse, NY
Monterey-Salinas, CA
[17 NEWS LOGO] [NEWS CHANNEL 20 LOGO]
Bakersfield, CA Utica, NY
[KTVF 11 FAIRBANKS* LOGO] [AK MEDIA LOGO]
Fairbanks, AK AK MEDIA/MA
Boston-Worcester, MA
[KJR 95.7 FM, KUBE 93 FM, KJR AM SPORTS [NEWS CHANNEL 34 LOGO]
RADIO AND NEW CENTUREY MEDIA Binghamton, NY
LOGOS]
Seattle-Tacoma, WA
[AK MEDIA LOGOS] [AK MEDIA LOGO]
AK MEDIA/NW AND AK MEDIAPRINT AK MEDIA/FL
Seattle-Tacoma, WA Miami-Ft. Lauderdale, FL
Portland, OR W. Palm Beach-Ft. Pierce, FL
[NEWS SOURCE 16 LOGO]
Eugene, OR
* Pending acquisition.
** Pending sale.
All other broadcasting stations shown above are either owned by the Company or
operated by the Company under time brokerage agreements.
2
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements.................................. 4
Prospectus Summary.......................................... 5
Risk Factors................................................ 14
Use of Proceeds............................................. 30
Price Range of Common Stock................................. 30
Dividend Policy............................................. 31
Capitalization.............................................. 32
Selected Consolidated Financial Data........................ 33
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................... 35
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 40
Business.................................................... 54
Management.................................................. 68
Principal and Selling Stockholders.......................... 71
Description of Capital Stock................................ 72
Underwriting................................................ 76
Legal Matters............................................... 78
Experts..................................................... 78
Where You Can Find More Information......................... 78
Index to Financial Statements............................... F-1
</TABLE>
3
<PAGE> 5
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any such
forward-looking statements contained or incorporated by reference 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," "pro forma," "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 matters set forth below and discussed elsewhere in this prospectus and
the documents incorporated by reference herein. As a result of the foregoing, no
assurance can be given as to our future results of operations or financial
condition. We undertake 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.
Important factors that could cause actual results to differ materially from
those expressed in such forward-looking statements include the matters discussed
elsewhere herein under the caption "Risk Factors" and elsewhere in this
prospectus and in the documents incorporated by reference herein, as well as the
following:
- adverse changes in general economic conditions, including changes in
inflation and interest rates;
- changes in laws and regulations affecting the outdoor advertising and
television and radio broadcasting businesses, including changes in the
Federal Communications Commission's ("FCC") treatment of time brokerage
agreements and related matters, and the possible inability to obtain FCC
consent to proposed or pending acquisitions or dispositions of
broadcasting stations;
- competitive factors in the outdoor advertising, television and radio
broadcasting, and sports and entertainment businesses;
- material changes to accounting standards;
- expiration or non-renewal of broadcasting licenses and time brokerage
agreements;
- labor matters, including the effects of the National Basketball
Association ("NBA") lockout, changes in labor costs, renegotiation of
labor contracts, and risk of work stoppages or strikes;
- matters relating to our level of indebtedness, including restrictions
imposed by financial covenants;
- 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
- recessionary influences in the regional markets that we serve.
4
<PAGE> 6
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and financial data, including the financial statements and related notes,
included and incorporated by reference in this prospectus. Unless otherwise
expressly stated or the context otherwise requires, (i) all references to "we,"
"our," "us," the "Company" and "The Ackerley Group" mean The Ackerley Group,
Inc., a Delaware corporation, and its subsidiaries on a consolidated basis, (ii)
all information in this prospectus assumes that the underwriters' over-allotment
option has not been exercised; and (iii) all information in this prospectus
reflects a two-for-one stock split which we effected on October 15, 1996. 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; 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; and references to
"Share" of a radio broadcasting market refer to the percentage of those
listening to radio in a particular Metro Survey Area ("MSA") who are listening
to a particular radio station, as reported upon by The Arbitron Company.
THE COMPANY
We are a diversified media and entertainment company which engages in four
principal businesses: outdoor media, television broadcasting, radio
broadcasting, and sports & entertainment. Our outdoor media, television
broadcasting, radio broadcasting, and sports & entertainment segments accounted
for approximately 42%, 27%, 10%, and 21%, respectively, of our net revenue for
the year ended December 31, 1998.
Outdoor Media. We engage in outdoor advertising in selected markets in
Florida, Massachusetts, and the Pacific Northwest. At March 31, 1999, we had
9,353 outdoor displays in the markets of Miami-Fort Lauderdale and West Palm
Beach-Fort Pierce, Florida; Boston-Worcester, Massachusetts; Seattle-Tacoma,
Washington; and Portland, Oregon. We believe that we have the leading position
in outdoor advertising in each of these markets, based upon the number of
outdoor advertising displays.
Television Broadcasting. We engage in television broadcasting in New York,
California, Oregon, and Washington, and have agreed to acquire a television
station in Fairbanks, Alaska. Assuming completion of all pending acquisitions
and dispositions, we would own eleven television stations and operate two
additional television stations under time brokerage agreements. Consistent with
our strategy of local news leadership, eight of the ten network-affiliated
television stations we own or operate ranked first or second in their DMAs, in
terms of local news ratings points delivered, according to the February 1999
Nielsen Station Index.
Radio Broadcasting. We own and operate four radio stations in the
Seattle-Tacoma, Washington market, including KUBE(FM), the leading FM station in
the market in terms of Share of its MSA, according to the Winter 1999 Arbitron
Radio Market Report, and KJR(AM), the only sports talk station in the market.
KJR(AM) is tied for first place as the highest ranked sports talk radio station
in the United States in terms of Share of its MSA, according to the Winter 1999
Arbitron Radio Market Report.
Sports & Entertainment. Our sports & entertainment segment includes
ownership of the professional men's basketball franchise in Seattle, the Seattle
SuperSonics. The Seattle Supersonics have been the NBA's Pacific Division
Champions for three of the last four
5
<PAGE> 7
NBA seasons. Our Full House Sports & Entertainment division provides marketing
and promotional support for the Seattle SuperSonics and coordinates related
cross-media activities within our company. We also are considering other
investments in other Seattle-area sports and entertainment activities which
would utilize our marketing and promotional infrastructure. For instance, we
have been conditionally awarded operating rights to a Women's National
Basketball Association ("WNBA") expansion team in Seattle.
We summarize our segment operations by market in the following table.
<TABLE>
<CAPTION>
COMPANY SEGMENT
--------------------------------------------
SPORTS &
GEOGRAPHIC GROUP DMA(1) OUTDOOR TELEVISION RADIO ENTERTAINMENT
---------------- ------ ------- ---------- ----- -------------
<S> <C> <C> <C> <C> <C>
New York
Syracuse, NY........................... 74 X
Rochester, NY.......................... 77 X
Binghamton, NY......................... 154 X
Utica, NY(2)........................... 168 X
Central Coast
Santa Barbara-Santa Maria-San Luis 116 X
Obispo...............................
Monterey-Salinas, CA(3)................ 119 X
Bakersfield, CA........................ 130 X
North Coast
Eugene, OR............................. 121 X
Eureka, CA............................. 191 X
Santa Rosa, CA......................... --(4) X
Pacific Northwest
Seattle-Tacoma, WA..................... 12 X X X
Portland, OR........................... 23 X
Fairbanks, AK (pending 203 X
acquisition)(5)......................
Vancouver, BC.......................... --(6) X
Massachusetts
Boston-Worcester, MA................... 6(7) X
Florida
Miami-Fort Lauderdale, FL.............. 16 X
West Palm Beach-Fort Pierce, FL........ 44 X
</TABLE>
- ---------------
(1) DMA rankings are from the Television & Cable Factbook, 1999 Edition.
(2) We operate our Utica, New York television station under a time brokerage
agreement.
(3) Of our two television stations in the Monterey-Salinas, California area, we
own one station and we operate the second station under a time brokerage
agreement. See "Business--Television Broadcasting."
(4) While our Santa Rosa, California television station, KFTY, is included in
the San Francisco-Oakland-San Jose market, which has a DMA rank of 5, the
station principally serves the community of Santa Rosa, which is not
separately ranked.
(5) We have entered into an agreement to purchase KTVF(TV), licensed to
Fairbanks, Alaska. We do not currently own or operate KTVF(TV).
(6) Our Bellingham, Washington television station, KVOS, serves primarily the
Vancouver, British Columbia market (located in size, according to the
Nielsen Rating Service as of February 1999, 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 of
12) and the Whatcom County, Washington market. The station's primary
competition consists of five Canadian stations.
(7) Reflects the DMA rank for the Boston market.
6
<PAGE> 8
We have our principal executive offices at 1301 Fifth Avenue, Suite 4000,
Seattle, Washington 98101, and our telephone number is (206) 624-2888.
STRATEGY
Our primary strategy is to develop and acquire media assets which enable us
to offer advertisers a choice of media outlets for distributing their marketing
messages. To this end, we have assembled a diverse portfolio of media assets. We
believe our 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 outdoor media display. Further, we seek to exploit the
operating synergies which we believe exist from our ownership of both
distribution (the television broadcasting, radio broadcasting, and outdoor media
businesses) and content (the sports & entertainment business) assets.
We seek to grow by investing in the expansion of our existing operations
through additions and upgrades to our facilities and programming. We also look
to grow through opportunistic acquisitions in our existing business lines and by
exploring new synergistic business ventures. We target markets where we see an
opportunity to improve market share, take advantage of regional efficiencies,
and develop our television stations into local news franchises.
We believe the following elements of our strategy provide us with
competitive advantages:
Maintain and Develop Leadership Positions in Markets Served. We seek to be
a leader in each of our markets. In our outdoor segment, we believe we own the
most outdoor advertising display faces in each of the five geographic markets in
which we operate, based upon the Traffic Audit Bureau's most recent Summary of
Audited Markets issued in October 1998. Eight of the ten network-affiliated
television stations we own or operate ranked first or second in their DMAs, in
terms of local news ratings points delivered, according to the February 1999
Nielsen Station Index. Our four radio stations include KUBE(FM), the leading FM
station in the Seattle-Tacoma market in terms of Share of its MSA, according to
the Winter 1999 Arbitron Radio Market Report, and KJR(AM), the only sports talk
station in the market. KJR(AM) is tied for first place as the highest ranked
sports talk radio station in the United States in terms of Share of its MSA,
according to the Winter 1999 Arbitron Radio Market Report. We believe this
market leadership enables us to provide advertisers a cost-effective means of
delivering a quality message to their targeted audience.
Use Advanced Communications Technology to Create Regional Television
Groups. On April 6, 1999, we announced the launch of Digital CentralCasting, a
digital broadcast system which will allow us to operate multiple television
stations using the back-office functions of a single station. The system
contemplates that all of our television stations in a geographic area will be
linked through a fiber-optic based communications network, and that the stations
themselves will switch from analog to digital broadcasting equipment. This will
permit the stations to share digital programming and other data along the fiber-
optic network, as well as allowing a single station within the geographic area
to perform back-office functions such as operations, programming and advertising
scheduling, and accounting for all of our television stations in the area. To
implement this strategy, we have organized ten of the television stations we own
and operate into the following three regional station groups: New York (WIXT,
WIVT, WUTR, and WOKR), Central Coast (KGET, KCBA, KION, and KCOY), and North
Coast (KFTY, KVIQ, and KMTR).
7
<PAGE> 9
While the advantages of owning multiple stations in a market are evident in
radio broadcasting, current television station ownership rules prohibit the
ownership of more than one station in a designated market, with some exceptions.
We believe that the confluence of falling prices for fiber-optic based
communications services and the advancement of digital transmission technology
has created an opportunity to realize the benefits of multi-station ownership by
linking several distinct television markets into one regional group. We expect
to implement Digital CentralCasting for all of our television station groups
over the next twelve months, and believe we are among the first companies to
introduce this technology in our industry. We anticipate that Digital
CentralCasting will enhance our operational efficiency through economies of
scale and the sharing of resources and programming among our stations. However,
we cannot guarantee that the implementation of Digital CentralCasting will be
achieved in a timely or effective manner and can give no assurance as to the
timing or extent of the anticipated benefits.
Capitalize Upon Our Ownership of the Seattle SuperSonics. We believe that
our ownership of the Seattle SuperSonics enhances the effectiveness of our media
operations by (1) providing regionally significant programming, (2) generating
listener loyalty for our radio stations, and (3) increasing the number of
individuals exposed to the advertising we provide. We seek to extract additional
value from our 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 Seattle SuperSonics games. We
also receive revenue from our interest in activities coordinated by the NBA,
such as advertising on nationally televised games and other licensing
arrangements. As a result of our ownership of different media outlets, our
sports & entertainment segment can offer advertisers greater choice than a
single outlet entity. We believe this helps our advertisers to more effectively
reach their target audiences.
Utilize the Regional Marketing and Promotional Expertise of Our Sports &
Entertainment Segment. Historically, our sports & entertainment segment has
provided marketing and promotional support solely for the Seattle SuperSonics.
We plan to pursue additional opportunities to provide marketing and promotional
services for other regional events and entertainment, capitalizing upon the
expertise developed from our experience with the Seattle SuperSonics. For
instance, we have been conditionally awarded operating rights to a WNBA
expansion team in Seattle.
Experienced Management; Decentralized Management Structure. We believe that
our efficient management structure and the experience of our management team
enable us to respond effectively to competitive challenges across our markets
and our business segments. We have granted the management of our operating units
the authority and autonomy necessary to run each unit as a business and to
respond to changes in each market environment. Experienced local managers
enhance our ability to respond to local market changes rapidly and effectively.
The average experience of our 11 division managers in their respective
industries is approximately 17 years. These local managers are supported and
guided by an experienced and cohesive corporate executive team. Four of our five
executive officers have worked together for eight years. Our five executive
officers collectively have an aggregate of 103 years of experience in the
various industries in which we are involved.
8
<PAGE> 10
Barry A. Ackerley, one of our founders and our current Chairman and Chief
Executive Officer, has been actively involved with the Company since our
inception in 1975. Early in our history, Mr. Ackerley recognized the synergies
that could be achieved through ownership of outdoor advertising, television and
radio broadcasting, and sports & entertainment assets. With this vision, Mr.
Ackerley led our expansion from outdoor advertising into television and radio
broadcasting and sports and entertainment well before the current trend toward
consolidation among these industries.
RECENT DEVELOPMENTS
Second Quarter Results. Net revenue for the quarter ended June 30, 1999 was
$71.4 million compared to $75.8 million for the second quarter of 1998. On a
"same stores" basis, net revenue for the quarter ended June 30 1999 was $64.1
million compared to $64.8 million for the same period in 1998. The "same stores"
basis excludes (1) our airport advertising operations, which we sold in June
1998, (2) television stations WOKR, KVIQ, KMTR, and KCOY, which we acquired in
1999, and (3) television station KKTV, which we sold in 1999.
"Same stores" net revenue for the second quarter of 1999 was $25.7 million
for the outdoor media segment, an increase of 4% from the comparable period in
the prior year. "Same stores" net revenue for the television broadcasting
segment for the second quarter of 1999 decreased 3% from the second quarter of
1998 to $14.1 million due primarily to the lack of political advertising revenue
in 1999. Net revenue in our radio broadcasting segment for the second quarter of
1999 increased 8% from the second quarter of 1998 to $6.9 million, while net
revenue in our sports & entertainment segment for the second quarter of 1999
decreased 9% from the second quarter of 1998 to $17.3 million due primarily to
the effects of the NBA lock-out.
Operating Cash Flow for the quarter ended June 30, 1999 was $13.5 million
compared to $13.9 million for the second quarter of 1998. On a "same stores"
basis, Operating Cash Flow was $12.0 million for the second quarter of 1999
compared to $12.4 million for the second quarter of 1998. We define Operating
Cash Flow as net revenue less operating expenses before amortization,
depreciation, interest, litigation, and stock compensation expenses and gain on
disposition of assets.
"Same stores" Operating Cash Flow for the outdoor media segment for the
second quarter of 1999 decreased 3% from the second quarter of 1998 to $11.7
million due primarily to the loss of tobacco advertising revenue and expenses
related to increased national sales efforts. "Same stores" Operating Cash Flow
for the television broadcasting segment decreased from $2.4 million in the
second quarter of 1998 to $1.3 million in the second quarter of 1999 due
primarily to a restructuring charge taken in the second quarter of 1999 in
connection with our ongoing implementation of Digital CentralCasting. This
restructuring charge consisted primarily of costs associated with employee staff
reductions. Operating Cash Flow for the radio broadcasting segment was $3.0
million for the second quarter of 1999, an increase of 6% from the second
quarter of 1998, while Operating Cash Flow for the sports & entertainment
segment for the second quarter of 1999 was negative $0.2 million, unchanged from
the comparable period in the prior year. Second quarter 1999 Operating Cash Flow
for our sports & entertainment segment was adversely affected by reduced
revenues (after expenses) from the failure of the Seattle SuperSonics to
participate in the 1999 NBA playoffs (in contrast to the prior season, when they
participated in the first two rounds of the 1998 NBA playoffs) and lower than
anticipated revenues from NBA related activities due primarily to the NBA
lock-out, offset, in part,
9
<PAGE> 11
by additional revenue (after expenses) generated by the extension of the NBA's
1998-99 regular season into the second quarter of 1999 to make up for some of
the games cancelled as a result of the lock-out. Corporate overhead decreased
from $4.6 million in the second quarter of 1998 to $3.8 million in the second
quarter of 1999.
Net income for the second quarter of 1999 was $22.2 million compared to
$22.4 million for the second quarter of 1998. This includes pre-tax gains on
dispositions of assets of $27.3 in the second quarter of 1999 and $33.0 million
in the second quarter of 1998, resulting primarily from the sale of television
station KKTV in 1999 and the sale of our airport advertising operations in 1998.
Acquisition of WOKR(TV). On April 12, 1999, we purchased substantially all
of the assets, and assumed certain liabilities, of WOKR(TV), the ABC affiliate
licensed to Rochester, New York, for approximately $128.2 million. In September
1998, we paid $12.5 million of the purchase price into an escrow account, with
the balance paid at closing. We recorded net assets with estimated fair values
aggregating $9.8 million and goodwill of $118.4 million in connection with this
transaction.
For a discussion of other events that have occurred since March 31, 1999,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Subsequent Events."
THE OFFERING
Common Stock offered by The Ackerley Group..... 3,000,000 shares
Common Stock offered by the Selling
Stockholders................................... 1,200,000 shares(1)
Common Stock to be outstanding after the
offering....................................... 23,578,141 shares(2)(3)
Class B Common Stock to be outstanding after
the offering................................... 11,051,230 shares(2)(3)
Use of Proceeds................................ To repay outstanding
indebtedness under the 1999
Credit Agreement (as defined
below). We may from time to
time thereafter make further
revolving credit borrowings
under the 1999 Credit
Agreement, subject to
compliance with financial
covenants and conditions to
borrowing. See "Use of
Proceeds."
New York Stock Exchange Symbol................... "AK"
- -------------------------
(1) Includes 1,000,000 shares of our Common Stock, par value $.01 per share (the
"Common Stock"), to be sold by Barry A. Ackerley and 200,000 shares of
Common Stock to be sold by The Ginger and Barry Ackerley Foundation. See
"Principal and Selling Stockholders."
(2) Based on shares outstanding at June 1, 1999. Does not include 990,250 shares
of Common Stock reserved for issuance under our Employees Stock Option Plan;
37,500 shares of Common Stock and 37,500 shares of our Class B Common Stock,
par value $.01 per share (the "Class B Common Stock"), reserved for issuance
under certain stock purchase agreements; and 90,481 shares of Common Stock
reserved for issuance under our Nonemployee-Directors' Equity Compensation
Plan, in each case at June 1, 1999.
(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."
10
<PAGE> 12
SUMMARY FINANCIAL DATA
The following historical consolidated statement of operations and other
data for each of the three years in the period ended December 31, 1998, and the
following historical consolidated balance sheet data at December 31, 1998 and
1997, are derived from our consolidated financial statements and notes thereto
as of December 31, 1998 and 1997 and for the three years ended December 31, 1998
included herein (the "1998 Financial Statements") that have been audited by
Ernst & Young LLP, independent auditors, and are qualified by reference to such
1998 Financial Statements. The following historical consolidated statement of
operations and other data for the years ended December 31, 1995 and 1994 and the
following historical consolidated balance sheet data at December 31, 1996, 1995,
and 1994 are derived from our audited financial statements not included in this
prospectus. The historical consolidated financial data as of and for the
three-month periods ended March 31, 1999 and 1998 are unaudited but, in the
opinion of management of the Company, include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
results of such periods. The results of operations for the three-month period
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full fiscal year. The following historical consolidated
financial data is qualified in its entirety by reference to, and should be read
in conjunction with, our consolidated financial statements and notes thereto,
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," and other financial information included and incorporated by
reference in this prospectus.
The following pro forma financial data reflects the sale of substantially
all of the assets of our wholly-owned subsidiary, Ackerley Airport Advertising,
Inc. ("Airport"), on June 30, 1998 for approximately $42.9 million and our
acquisition of substantially all of the assets of WOKR(TV) for approximately
$128.2 million, plus the assumption of certain liabilities, on April 12, 1999 as
if those transactions had occurred on the first day of the periods presented
below (in the case of statement of operations data and other data) and as if the
acquisition of WOKR(TV) had occurred as of March 31, 1999 (in the case of
balance sheet data). The following pro forma financial data is subject to a
number of estimates, assumptions and uncertainties and does not purport to
reflect the financial condition or results of operations that would have existed
or occurred had such transactions taken place on the dates indicated, nor does
it purport to reflect the financial condition or results of operations that will
exist or occur in the future. See "Unaudited Pro Forma Condensed Consolidated
Financial Information." The following pro forma financial data is qualified in
its entirety by reference to, and should be read in conjunction with, the
unaudited pro forma condensed consolidated financial information included herein
and the historical financial statements and notes thereto of the Company and
WOKR(TV) included and incorporated by reference herein.
11
<PAGE> 13
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
THREE-MONTH THREE-MONTH PERIOD
PERIOD ENDED YEAR ENDED ENDED MARCH 31,
MARCH 31, DECEMBER 31, -------------------
1999 1998 1999 1998
------------ ------------ -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue.................. $ 71,594 $258,738 $ 67,696 $ 81,046
Operating expenses........... 62,716 204,543 60,164 69,388
Depreciation and amortization
expenses................... 6,923 23,530 4,723 3,843
Gain on disposition of
assets..................... -- 127 (1,626) 0
Other non-cash expenses(1)... 244 452 244 0
Interest expense............. 9,531 32,611 7,311 6,510
-------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item....................... $ (7,820) $ (2,525) $ (3,120) $ 1,305
======== ======== ======== ========
Net income (loss) applicable
to common shares........... $ (6,850) $ (6,683) $ (3,921) $ 809
======== ======== ======== ========
Per common share--assuming
dilution(2)(3):
Income (loss) before
extraordinary item....... $ (0.17) $ (0.07) $ (0.08) $ 0.03
Extraordinary item......... (0.04) (0.14) (0.04) 0.00
-------- -------- -------- --------
Net income (loss).......... $ (0.21) $ (0.21) $ (0.12) $ 0.03
======== ======== ======== ========
Weighted average number of
shares--assuming
dilution................... 31,882 31,883 31,882 31,692
Dividends per common
share(2)................... $ 0.02 $ 0.02 $ 0.02 $ 0.02
BALANCE SHEET DATA:
Working capital.............. $ 26,743 $ 24,903 $ 16,341
Total assets................. 487,602 366,798 282,898
Total debt(4)................ 448,513(5) 334,682 255,089
Stockholders' deficiency..... (30,149) (30,149) (44,661)
OTHER DATA:
Segment Operating Cash
Flow(6).................... $ 12,690 $ 68,686 $ 11,344 $ 14,715
Corporate overhead expense... (3,812) (14,491) (3,812) (3,057)
-------- -------- -------- --------
EBITDA(7).................... $ 8,878 $ 54,195 $ 7,532 $ 11,658
======== ======== ======== ========
After-Tax Cash Flow(8)....... $ 1,446 $ 21,272 $ 1,167 $ 4,652
After-Tax Cash Flow per
common share -- assuming
dilution(2)(3)(8).......... $ 0.05 $ 0.67 $ 0.04 $ 0.15
Capital expenditures......... 5,919 11,976
Cash flow from operating
activities................. (13,130) (751)
Cash flow from investing
activities................. (46,682) (23,169)
Cash flow from financing
activities................. 57,729 24,343
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue.................. $256,651 $271,175 $247,298 $207,397 $186,102
Operating expenses........... 209,030 210,752 186,954 156,343 142,812
Depreciation and amortization
expenses................... 16,574 16,103 16,996 13,243 10,883
Gain on disposition of
assets..................... (33,524) 0 0 0 (2,506)
Other non-cash expenses(1)... 452 4,344 0 14,200 0
Interest expense............. 25,109 26,219 24,461 25,010 25,909
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item....................... $ 39,010 $ 13,757 $ 18,887 $ (1,399) $ 9,004
======== ======== ======== ======== ========
Net income (loss) applicable
to common shares........... $ 19,177 $ 32,929 $ 15,774 $ (2,914) $ 6,832
======== ======== ======== ======== ========
Per common share--assuming
dilution(2)(3):
Income (loss) before
extraordinary item....... $ 0.74 $ 1.04 $ 0.51 $ (0.09) $ 0.28
Extraordinary item......... (0.14) 0.00 (0.01) 0.00 (0.06)
-------- -------- -------- -------- --------
Net income (loss).......... $ 0.60 $ 1.04 $ 0.50 $ (0.09) $ 0.22
======== ======== ======== ======== ========
Weighted average number of
shares--assuming
dilution................... 31,883 31,652 31,760 31,052 31,483
Dividends per common
share(2)................... $ 0.02 $ 0.02 $ 0.02 $ 0.015 $ 0.00
BALANCE SHEET DATA:
Working capital.............. $ 15,706 $ 12,019 $ 11,154 $ 15,110 $ 16,783
Total assets................. 316,126 266,385 224,912 189,882 170,783
Total debt(4)................ 270,100 229,424 235,141 220,147 228,646
Stockholders' deficiency..... (25,841) (44,909) (83,839) (99,093) (95,958)
OTHER DATA:
Segment Operating Cash
Flow(6).................... $ 62,112 $ 70,436 $ 68,577 $ 58,571 $ 49,342
Corporate overhead expense... (14,491) (10,013) (8,233) (7,517) (6,052)
-------- -------- -------- -------- --------
EBITDA(7).................... $ 47,621 $ 60,423 $ 60,344 $ 51,054 $ 43,290
======== ======== ======== ======== ========
After-Tax Cash Flow(8)....... $ 19,312 $ 26,397 $ 33,125 $ 19,133 $ 18,260
After-Tax Cash Flow per
common share -- assuming
dilution(2)(3)(8).......... $ 0.61 $ 0.83 $ 1.04 $ 0.62 $ 0.58
Capital expenditures......... 32,719 17,593 13,124 15,098 8,794
Cash flow from operating
activities................. 14,844 28,010 16,337 36,338 11,667
Cash flow from investing
activities................. (46,947) (19,801) (32,095) (14,620) (19,047)
Cash flow from financing
activities................. 33,077 (7,463) 12,247 (17,585) 2,936
</TABLE>
12
<PAGE> 14
- ---------------
(1) Includes litigation expense (credit) and stock compensation expense.
(2) The shares of Common Stock and Class B Common Stock are entitled to share
ratably in such dividends as may be declared by our Board of Directors from
time to time and in assets available for distribution to stockholders in the
event of a liquidation, dissolution, or winding up of The Ackerley Group.
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.
(3) Historical data for 1994 have been restated to conform with Financial
Accounting Standards Board Statement No. 128. See Note 1 to the 1998
Financial Statements.
(4) Historical data reflects total debt, including current portion of long-term
debt. Historical data as of December 31, 1995 and 1994 have been restated to
conform to the current presentation.
(5) Includes the current portion of pro forma long-term debt, which was $5.0
million at March 31, 1999. On a pro forma basis, long-term debt (net of
current portion) at March 31, 1999 was $443.5 million.
(6) Operating Cash Flow is defined as net revenue less operating expenses before
amortization, depreciation, interest, litigation, and stock compensation
expenses and gain on disposition of assets. Operating Cash Flow is the same
as EBITDA, as defined below. Segment Operating Cash Flow is defined as
Operating Cash Flow before corporate overhead. Operating Cash Flow and
Segment Operating Cash Flow are not to be considered as alternatives to net
income (loss) as an indicator of our operating performance or to cash flow
as a measure of our liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
(7) EBITDA means, in general, the sum of consolidated net income (loss),
consolidated depreciation and amortization expense, consolidated interest
expense and consolidated income tax expense (benefit), consolidated non-cash
charges, and extraordinary or non-recurring items. EBITDA has been included
solely because we understand that it is used by certain investors and
financial analysts as one measure of a company's historical ability to
service its debt. EBITDA is the same as Operating Cash Flow and is not to be
considered as an alternative to net income (loss) as an indicator of our
operating performance or to cash flow as a measure of our liquidity.
(8) After-Tax Cash Flow means, in general, the sum of consolidated net income
(loss), consolidated depreciation and amortization expense, and
extraordinary or non-recurring items, including after-tax gain on
disposition of assets. After-Tax Cash Flow has been included solely because
we understand that it is used by certain investors and financial analysts as
a measure of a company's historical ability to service its debt. After-Tax
Cash Flow is not to be considered as an alternative to net income (loss) as
an indicator of our operating performance or to cash flow as a measure of
our liquidity. In 1997, After-Tax Cash Flow excluded a $19.5 million tax
benefit for the change in valuation account.
13
<PAGE> 15
RISK FACTORS
You should carefully consider the following factors as well as the other
matters described or incorporated by reference in this Prospectus.
ADVERSE IMPACT OF CERTAIN EVENTS ON SECOND QUARTER RESULTS
In connection with the ongoing implementation of Digital CentralCasting, we
recognized a restructuring charge of approximately $1.0 million in the second
quarter of 1999, consisting primarily of costs associated with employee staff
reductions. See "Prospectus Summary--Strategy--Use Advanced Communications
Technology to Create Regional Television Groups." In addition, our sports &
entertainment Segment Operating Cash Flow for the second quarter of 1999 was
adversely affected by reduced revenues (after expenses) from the failure of the
Seattle SuperSonics to participate in the 1999 NBA playoffs (in contrast to the
prior season, when they participated in the first two rounds of the 1998 NBA
playoffs) and lower than anticipated revenues from NBA related activities due
primarily to the NBA lock-out, offset, in part, by additional revenue (after
expenses) generated by the extension of the NBA's 1998-99 regular season into
the second quarter of 1999 to make up for some of the games cancelled as a
result of the lock-out. See "Prospectus Summary--Recent Developments--Second
Quarter Results," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Risk Factors--Sports & Entertainment--NBA
Lockout; Labor Relations in Professional Sports." The foregoing factors, as well
as the continuing effect of matters relating to the NBA lock-out, may also
adversely affect our results of operations in the future. For more information
regarding NBA activities, see "Business--Sports & Entertainment."
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, our Chairman of the Board and Chief Executive
Officer, will beneficially own approximately 37.7% of the outstanding shares of
Common Stock and approximately 99.1% of the outstanding shares of Class B Common
Stock, giving him approximately 88.3% of the combined voting power of our voting
securities. See "Principal and Selling Stockholders."
As a director, the Chairman and Chief Executive Officer, and the majority
stockholder of The Ackerley Group, 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 our voting securities, he will have the power to elect all of our 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 delay or prevent any
other person or entity from acquiring or taking control of The Ackerley Group
without his approval, whether or not the transaction could provide stockholders
with a premium over the then-prevailing market price of their shares or would
otherwise be in their best interests. See "Description of Capital Stock--Common
Stock and Class B Common Stock--Voting Rights."
14
<PAGE> 16
RESTRICTIONS ON THE OWNERSHIP AND TRANSFER OF COMMON STOCK
We are a member of the NBA and are subject to its Constitution and Bylaws.
See "--Sports & Entertainment--League Membership Risks." The Constitution and
Bylaws of the NBA impose limitations on the transfer and ownership of our Common
Stock. In particular, so long as we have more than 500 stockholders, NBA
approval is required for, among other things, any transfer of any "interest" in
The Ackerley Group if (1) the interest proposed to be transferred represents a
direct or indirect interest of 5% or more in The Ackerley Group, (2) the
transfer would result in any person or entity (or group of persons or entities
acting in concert) that has not been approved by the NBA directly or indirectly
owning a 5% or greater interest in The Ackerley Group, or (3) the effect of such
proposed transfer is or may be to change the ownership or effective control of
The Ackerley Group. As used in these restrictions, references to an "interest"
in The Ackerley Group include Common Stock and Class B Common Stock and,
although the matter is not free from doubt, we believe that the number of
outstanding shares of Common Stock and Class B Common Stock should be aggregated
for purposes of determining whether a 5% or greater interest has been
transferred or acquired. Other similar restrictions would apply if we have less
than 500 stockholders. The foregoing limitations may adversely affect the
ability of investors to acquire, sell or otherwise transfer our Common Stock. In
that regard, we have received NBA approval to make the offering contemplated
hereby. However, that NBA approval will not apply to subsequent acquisitions,
sales, or other transfers of Common Stock by investors. Any violation of the
foregoing restrictions could result in the termination of our NBA franchise and
other sanctions by the NBA, which could have a material adverse effect on our
business, financial condition, or results of operations. In addition, the
Communications Act of 1934 (the "Communications Act") and FCC rules prohibit
aliens from owning of record or voting 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. Our Bylaws provide that none of our shares of capital stock may be
issued or transferred to any person where such issuance or transfer will result
in a violation of the Communications Act or any regulations promulgated
thereunder, and that any purported transfer in violation of those restrictions
is void. The foregoing restrictions in our Bylaws, as well as certain related
provisions in our Certificate of Incorporation, may adversely affect the ability
of investors to acquire, hold, or otherwise transfer our Common Stock. See
"Description of Capital Stock--Common Stock and Class B Common
Stock--Restrictions on Ownership and Transfer of Common Stock and Class B Common
Stock."
LEVERAGE; RESTRICTIONS UNDER DEBT INSTRUMENTS; COVENANT COMPLIANCE
Financial Leverage. As of March 31, 1999, on a pro forma basis after giving
effect to (1) the issuance of the Common Stock offered hereby (assuming a public
offering price of $18.8125 per share) and the application of the estimated net
proceeds we receive therefrom to repay indebtedness and (2) the acquisition of
WOKR(TV), as if such acquisition had occurred on March 31, 1999, we would have
had approximately $395.4 million of outstanding indebtedness. In addition, as of
March 31, 1999, on a historical basis we had a stockholders' deficit of
approximately $30.1 million. See "Capitalization." This stockholders' deficit
resulted primarily from net losses that were incurred during the fiscal years
1982 through 1991, which were caused primarily by (1) high levels of interest
expense and depreciation and (2) amortization of fixed assets and acquired
intangibles related to acquisitions. The stockholders' deficit declined by
approximately $38.9 million in fiscal year 1997 and $19.1 million in fiscal year
1998,
15
<PAGE> 17
primarily as a result of net earnings, although the deficit increased by $4.3
million as a result of a net loss in the first quarter of 1999. In that regard,
the recent acquisition of WOKR(TV) as described under "Prospectus
Summary--Recent Developments," substantially increased our indebtedness and, on
a pro forma basis, would have substantially increased our net loss for the first
quarter of 1999 and would have resulted in a net loss for 1998.
In addition, we intend to continue to acquire additional outdoor media and
television and radio broadcasting businesses, subject to the availability of
required financing. We may assume the indebtedness of businesses that we
acquire. We may also make acquisitions or capital expenditures that are financed
with the proceeds from borrowings. As a result of such acquisitions, our
outstanding indebtedness and interest expense will increase, perhaps
substantially. Likewise, further acquisitions will likely increase our
depreciation and amortization expenses, perhaps substantially.
Our degree of leverage could have important consequences to investors,
including the following:
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes,
or other purposes may be impaired;
- restrictive covenants in debt instruments, as well as the need to apply
cash to make debt service payments, may limit payment of dividends on our
outstanding Common Stock and Class B Common Stock;
- Operating Cash Flow (defined as net revenue less operating expenses
before amortization, depreciation, interest, litigation, and stock
compensation expenses and gain on disposition of assets) available for
purposes other than payment of principal and interest on indebtedness may
be reduced;
- we may be exposed to the risk of increased interest rates since a portion
of our borrowings, including borrowings under the 1999 Credit Agreement
(as defined below), bear interest at floating rates;
- we may be at a competitive disadvantage compared to competitors that are
less leveraged than we are;
- we may have limited ability to adjust to changing market conditions;
- we may have decreased ability to withstand competitive pressures; and
- we may have increased vulnerability to a downturn in general economic
conditions or its business.
Our ability to make scheduled payments on or to refinance our indebtedness
will depend on our financial and operating performance, which in turn will be
subject to economic conditions and to financial, business, and other factors
beyond our control. In order to fund our debt service and other obligations, we
may be forced to reduce or delay planned expansion and capital expenditures,
sell assets, obtain additional equity capital or debt financing (if available),
or restructure our debt. Accordingly, we cannot guarantee that our operating
results, Operating Cash Flow, and capital resources will be sufficient for
future payments of our indebtedness, to make planned capital expenditures, to
finance acquisitions or to pay our other obligations.
16
<PAGE> 18
Restrictions Imposed by Debt Instruments; Pledge of Assets. We are subject
to a number of significant operating and financial restrictions that are set
forth in (1) our $325.0 million bank credit agreement with various lending
banks, dated January 22, 1999 (the "1999 Credit Agreement") and (2) an indenture
dated December 14, 1998 (the "Indenture") relating to $200.0 million aggregate
principal amount of our outstanding 9% Senior Subordinated Notes due 2009 (the
"9% Senior Subordinated Notes"). These covenants restrict our operations,
including, among other things, our ability to:
- incur additional indebtedness;
- declare and pay dividends on, or redeem or repurchase, our capital stock
or make investments;
- issue or allow any person to own any preferred stock of restricted
subsidiaries;
- enter into sale and leaseback transactions;
- incur or permit to exist certain liens;
- sell assets;
- in the case of our subsidiaries (other than unrestricted subsidiaries),
guarantee indebtedness;
- engage in transactions with affiliates;
- enter into new lines of business; and
- consolidate, merge, or transfer all or substantially all of our assets
and the assets of our subsidiaries on a consolidated basis.
In addition, we are required to maintain specified financial ratios,
including a maximum leverage ratio, minimum interest coverage ratio, and minimum
fixed charge coverage ratio. Our ability to comply with such covenants and
financial ratios may be affected by events beyond our control. See "--Covenant
Compliance" below.
The 1999 Credit Agreement also requires, subject to certain exceptions,
that we apply 50% of the net cash proceeds (as defined in the 1999 Credit
Agreement) received by us from the sale of our capital stock, 100% of the net
cash proceeds received by us from the sale of our debt securities, 100% of the
net cash proceeds received by us from certain asset dispositions, and, under
certain circumstances, up to 50% of our excess cash flow (as defined in the 1999
Credit Agreement) to repay borrowings under the 1999 Credit Agreement. It
further provides that the amount of borrowings available under the 1999 Credit
Agreement will be permanently reduced by the amount of such repayments. As
discussed under "Use of Proceeds," we intend to use all of the net proceeds from
this offering to repay borrowings under the 1999 Credit Agreement. However, we
obtained a waiver of the provision in the 1999 Credit Agreement which otherwise
would require that the amount of borrowings available thereunder be permanently
reduced by the amount of such repayments.
The 1999 Credit Agreement also provides that it is an event of default
thereunder if The Ackerley Family (as defined in the 1999 Credit Agreement) owns
less than 51% of our outstanding voting stock. Similarly, upon a Change of
Control (as defined in the Indenture), the holders of the 9% Senior Subordinated
Notes may require us to repurchase their Notes.
17
<PAGE> 19
The breach by us of any of the covenants described above would result in a
default under either or both of the 1999 Credit Agreement or the Indenture. In
the event of any such default, the bank lenders under the 1999 Credit Agreement,
or the holders of the 9% Senior Subordinated Notes, as the case may be, could
elect to declare all amounts outstanding under the 1999 Credit Agreement or the
9% Senior Subordinated Notes, as the case may be, together with accrued
interest, to be due and payable. Likewise, because of cross-default provisions
in our debt instruments, a default under the 1999 Credit Agreement or the 9%
Senior Subordinated Notes could result in acceleration of indebtedness
outstanding under these or other debt instruments. In addition, nearly all of
our subsidiaries have guaranteed our obligations under the 1999 Credit Agreement
and the Indenture.
We have pledged substantially all of the stock and assets of our
subsidiaries to secure our obligations under the 1999 Credit Agreement. If we
were unable to repay any amounts due under the 1999 Credit Agreement when due
(whether upon acceleration or otherwise), the bank lenders would be entitled to
take possession of and sell substantially all of our subsidiaries and their
assets. There can be no assurance that we would be able to obtain funds
necessary to repay borrowings under the 1999 Credit Agreement or the 9% Senior
Subordinated Notes upon such an acceleration or if holders of the 9% Senior
Subordinated Notes were to require repayment thereof following a Change of
Control.
As a result, default by us under the 1999 Credit Agreement or the Indenture
could have a material adverse effect on our business, financial conditions, or
results of operations. If the indebtedness under any of these debt instruments
were accelerated, there can be no assurance that we would be able to repay such
indebtedness.
Covenant Compliance. As a result of the matters which adversely affected
our second quarter 1999 results of operations (as discussed above under
"--Adverse Impact of Certain Events on Second Quarter Results"), as well as
certain other factors adversely affecting our business, we obtained an amendment
to certain provisions of the 1999 Credit Agreement in order to remain in
compliance with the financial covenants thereunder. There can be no assurance
that we will not be required to seek additional waivers or amendments under our
debt instruments in the future. Any failure to obtain a necessary amendment or
waiver could result in a default under the relevant debt instrument, which could
have the consequences described above.
OUTDOOR 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.
Advertising for tobacco products has increasingly been the subject of
regulation. 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
major tobacco companies and the Attorneys General of 46 states entered into a
broad-based consent judgment in which, among other things, these companies
agreed to eliminate all cigarette advertising on outdoor advertising displays.
In addition, the State of Florida previously entered into a settlement agreement
with the tobacco industry that eliminated
18
<PAGE> 20
tobacco advertising on billboards throughout the state. These settlement
agreements, which, in addition to Florida, include the states of Massachusetts,
Oregon, and Washington, have eliminated tobacco advertising on outdoor displays
in the markets where our outdoor media segment operates. Although approximately
5% and 3% of our consolidated net revenue for the years ended December 31, 1997
and 1998, respectively, came from the tobacco products industry, as of April 23,
1999 we no longer receive advertising revenue from tobacco companies for the
advertising of tobacco products as a result of the settlement agreements and
other factors.
In addition to tobacco, certain jurisdictions have recently proposed or
enacted regulations restricting or banning outdoor advertising of liquor and
have enacted other restrictions on the content of outdoor advertising signs.
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, we cannot guarantee that existing or future
laws or regulations relating to outdoor advertising will not have a material
adverse effect on our business, financial condition, or results of operations.
Our 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 our 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 we have been successful in the past in challenging circumstances
in which our displays have been subject to removal, we cannot predict whether we
will be successful in the future and what effect, if any, such regulations may
have on our operations. In addition, we are 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 above, 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 our business,
financial condition, or results of operations.
Federal law also imposes additional regulations upon our 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.
TELEVISION AND RADIO BROADCASTING
Government Regulation of Broadcasting Industry. Pursuant to the
Communications Act, the domestic broadcasting industry is subject to extensive
federal regulation. Among other things, federal law requires approval by the FCC
for the issuance, renewal, transfer, and assignment of broadcasting station
operating licenses, and limits, among other things,
19
<PAGE> 21
the number of broadcasting properties we may acquire in any market. In addition,
our television station, KVOS, which is located in Bellingham, Washington and
broadcasts into Vancouver, British Columbia, is 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 (TV)
sells advertising time in Canada at a discounted rate. In addition, Canadian law
limits KVOS (TV)'s ability to broadcast certain programming. The restrictions
and obligations imposed by these laws and regulations, including their
amendment, interpretation, or enforcement, could have a material adverse effect
on our business, financial condition, or results of operations.
Renewal of Broadcasting Licenses. Our business will continue to be
dependent upon acquiring and maintaining broadcasting licenses issued by the
FCC. Such licenses are currently issued for a term of eight years. We own and
operate ten television stations, operate two television stations under time
brokerage agreements, and own and operate four radio stations. License renewal
applications for KION(TV) and KCBA(TV) are currently pending. As a result, the
renewal of these licenses, as well as the renewal of licenses for our other
broadcasting stations, is crucial to our 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. In addition, the FCC 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. Historically, we have been able to renew our broadcast
licenses on a regular basis. However, we cannot guarantee that pending or future
applications to acquire or renew broadcasting licenses will be approved, or will
not include conditions or qualifications adversely affecting our operations, any
of which could have a material adverse effect on the Company. Moreover,
governmental regulations and policies may change over time and we cannot
guarantee that such changes would not have a material adverse impact on our
business, financial condition, or results of operations.
Approval of Purchase and Sale Transactions. We are seeking FCC approval to
acquire the broadcasting license for one television station 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. In addition, the filing by third parties of petitions to deny,
informal objections or comments to a proposed transaction can result in
significant delays to, as well as denial of, FCC action on a particular
application. On May 21, 1996, certain local persons filed a Petition for
Emergency Relief with the FCC, seeking an order terminating our existing time
brokerage agreement for KION(TV) and the purchase option pursuant to which we
are seeking to acquire KION(TV). This Petition for Emergency Relief is still
pending before the FCC. The petitioners have filed comments in connection with
the KCBA(TV) and KION(TV) assignment and license renewal applications noting the
pendency of their petition. Also, a Petition to Deny the Company's application
to acquire KTVF(TV) was filed by a local radio station owner. See
"Business--Television Broadcasting." As a result, we cannot guarantee that the
FCC will approve our application for the broadcasting licenses we are seeking or
in the future may seek to acquire. Likewise, we are seeking to sell one
television station, which requires FCC
20
<PAGE> 22
approval as discussed above. Accordingly, there can be no assurance that the FCC
will approve our disposition of broadcasting stations we are seeking or in the
future may seek to sell. Failure to obtain FCC approval to transfer broadcasting
licenses in connection with such transactions could adversely affect our
business, financial condition, or results of operations.
Time Brokerage Agreements. Currently, the FCC's Duopoly Rule prevents the
common ownership of more than one television station in a single market, or in
two different markets if the stations have significantly overlapping service
areas. Without regard to the Duopoly Rule, however, the FCC does permit a
television station owner to program significant amounts of the broadcast time of
another station 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. In addition, the FCC currently has a policy of granting
waivers of the Duopoly Rule to permit common ownership of two stations with
overlapping service areas in certain circumstances, provided the stations are
located in different markets. However, the FCC is currently reviewing its
television ownership rules, and all such waivers are subject to the condition
that stations come into compliance with any new rules adopted by the FCC.
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 (which we expect
would be at least six months) 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 or with
overlapping service areas. We cannot predict whether or when the FCC will change
these rules or whether Congress will take action which impacts these rules.
Currently, the only areas in which we both own a television station and
operate another television station under a time brokerage agreement are (1) the
Syracuse-Utica, New York area, where we own and operate WIXT(TV) in Syracuse and
operate WUTR(TV) in Utica under a time brokerage agreement, and (2) the
Monterey-Salinas, California area, where we own and operate KCBA(TV) in Salinas
and operate KION(TV) in Monterey under a time brokerage agreement. We have
applications pending with the FCC to acquire KION(TV) and to sell KCBA(TV). We
also have a time brokerage agreement with the purchaser of KCBA(TV) which
provides for us to operate KCBA(TV) following its sale. Thus, if the FCC were to
treat time brokerage agreements as equivalent to outright station ownership
without eliminating the Duopoly Rule or grandfathering our time brokerage
agreements, we would be required to dispose of our 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 our
business, financial condition, or results of operations. If, prior to the time
it acts on the KCBA(TV) application, the FCC changes its rules to prohibit time
brokerage agreements with stations in the same markets, it is not certain that
we would be permitted to operate KCBA(TV) under a time brokerage agreement
following the sale.
In August 1998 we acquired television station WIVT in Binghamton, New York.
Since the service areas of the Binghamton station and our television station
WIXT in
21
<PAGE> 23
Syracuse, New York overlap, we obtained a waiver of the Duopoly Rule conditioned
on the outcome of the FCC's review of its television ownership rules. Similarly,
the service areas of WOKR(TV) in Rochester, New York and WIXT(TV) overlap and we
obtained a conditional waiver of the Duopoly Rule in connection with the
acquisition of WOKR(TV). Also, the service areas of KCOY(TV), Santa Maria,
California and KGET(TV), Bakersfield, California overlap and we obtained a
conditional waiver of the Duopoly Rule in connection with our acquisition of
KCOY(TV). If the FCC decides to retain its current Duopoly Rule, we would be
required to dispose of our interest in one of the stations in each of the areas
where we have an overlap, which could have a material adverse effect on our
business, financial condition, or results of operations.
New Technologies. The Telecommunications Act of 1996 (the
"Telecommunications Act") requires the FCC to oversee the transition from
current analog television broadcasting to digital television ("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. Our 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.
We are unable to predict the effect any such new technology will have on
the Company. However, DTV will impose additional costs on our television
broadcasting operations, due to increased equipment and operating costs. In
addition, conversion to DTV may reduce the geographical coverage area of our
television stations. The increased costs of DTV for us and its potential
limitations on geographical coverage may have a material adverse effect on our
business, financial condition, or results of operations.
Microradio. On January 28, 1999, the FCC proposed to license new 1000 watt
and 100 watt low power FM ("LPFM") radio stations throughout the U.S., and
sought comment on also establishing a third "microradio" class at power levels
from 1-10 watts. We cannot predict what effect such LPFM or microradio stations,
if authorized by the FCC, would have on our business, financial condition, or
results of operations.
KJR(AM) Transmission Facilities. One of our radio stations, KJR(AM),
broadcasts from transmission facilities located on property leased from the Port
of Seattle, currently on a month-to-month basis. We have filed an application
with the FCC to co-locate KJR(AM)'s transmission facilities with KHHO's
facilities in Tacoma, Washington. On May 5, 1998 the FCC issued a construction
permit granting us authority to begin construction of the transmission
facilities at the KHHO site, and construction is underway. We are 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, we do not expect that KJR(AM) will be able to broadcast from the
KHHO site for at least one to two years. The Port of Seattle has recently
advised us that it may object to KJR's broadcasting from the present site after
January 1, 2000. Accordingly, we may not be able to broadcast from the present
site after that date, although we are in the process of negotiations with the
Port of Seattle with respect to this matter. We are exploring our legal options
in the event that the Port of Seattle attempts to evict us from the current site
before we are able to use the new site. While management expects to successfully
resolve this matter, there can be no assurance that it will do so or
22
<PAGE> 24
that this matter will not have a material adverse effect on our business,
financial condition, or results of operations.
SPORTS & ENTERTAINMENT
NBA Lockout; Labor Relations in Professional Sports. 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, which was originally scheduled to expire on June 30, 2001. As a
result, the collective bargaining agreement expired on June 30, 1998 and the
players were locked out. Preseason and regular season games scheduled through
February 4, 1999 were cancelled, which adversely affected our results of
operations for fiscal 1998 and the first quarter of 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." On
January 20, 1999, the NBA Board of Governors and the National Basketball Players
Association entered into a new six-year collective bargaining agreement.
Consequently, the 1998-99 NBA season started on February 5, 1999 and ended May
4, 1999. The 1998-99 NBA season consisted of a shortened regular season in which
each team played 50 games (25 at home and 25 on the road). Playoffs were in the
usual NBA format. In a full-length NBA season, each team plays 82 regular-season
games (41 at home and 41 on the road).
The shortened 1998-99 season and other effects of NBA lockout adversely
affected our results for second quarter 1999 and may adversely affect our future
results of operations. See "--Adverse Impact of Certain Events on Second Quarter
Results." 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 our business, financial condition, or results
of operations.
We share equally with the other NBA members in revenues generated by the
NBA as a whole. Contracts between the NBA and two major television networks (NBC
and TBS/ TNT) accounted for a total of approximately $12.0 million of our net
revenue for fiscal year 1997. In 1998, the NBA renewed its contracts with NBC
and TBS/TNT through the 2001-02 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. Over the course of
the year, fees are paid by NBC in five installments and by TBS/TNT in six
installments. However, as a result of the NBA lockout, the NBA may not receive
the full $2.6 billion over the life of these contracts (due to the contract
provisions described below and other factors), which could have a material
adverse effect on our business, financial condition, or results of operations.
Under these contracts, the NBA continued to receive scheduled fees during
the lockout. However, fees received from the networks during the lockout are
considered to be loans to the NBA and must be repaid as described below. In
addition, the NBA is required to pay interest on certain of the fee payments
made during the lockout at the rate of 4% per annum. The NBA is required under
the TBS/TNT contract to repay the loans and accrued interest through equal
deductions from the fee payments due from the networks over the remaining term
of the contract (currently due to expire at the end of the 2001-02 season).
Under the NBC contract, the NBA is required to repay the loans and accrued
interest through equal deductions from the first ten fee installments due from
NBC after the end of the lockout. Accordingly, these loan repayments will, and
any future
23
<PAGE> 25
adjustments made to the terms of the contract may, reduce the amount that we and
the NBA otherwise would have received under the television contracts.
Dependence on Competitive Success. Our financial results and those of our
sports & entertainment segment 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, we can receive
significant additional revenue from ticket sales for home playoff games and from
selling advertising during broadcasts of playoff games. In that regard, the
Seattle SuperSonics qualified for the NBA playoffs in their 1995-96, 1996-97,
and 1997-98 seasons, which substantially increased our net revenue and Operating
Cash Flow, as well as the net revenue and Operating Cash Flow for our sports &
entertainment segment, for fiscal years 1996, 1997, and 1998. However, the
Seattle SuperSonics did not quality for the NBA playoffs for the 1998-99 season.
Our results of operations and those for our sports & entertainment segment were
adversely affected for the second quarter of 1999 and may be adversely affected
for fiscal year 1999 by the fact that the Seattle SuperSonics did not qualify
for the NBA playoffs for the 1998-99 season, and may also be adversely affected
in future years by poor performance by the Seattle SuperSonics in subsequent
seasons, and there can be no assurance that the Seattle SuperSonics will perform
well or qualify for the playoffs in the future. See "--Adverse Impact of Certain
Events on Second Quarter Results" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Subsequent Events."
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 other liabilities of the NBA. Any failure of other
members of the NBA to pay their pro rata share of any such debts and other
liabilities could adversely affect our business, financial condition, or results
of operations. 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, as a member of the NBA we must abide by a number of rules,
regulations, and agreements, including the Constitution and Bylaws of the NBA,
national television contracts, and collective bargaining agreements, and the NBA
Board of Governors' interpretation and implementation of those matters. For
example, the NBA Constitution requires that the sale of any NBA franchise, or
the transfer of an equity interest of more than 5% in an NBA member, is subject
to the approval of the NBA. See "--Restrictions on the Ownership and Transfer of
Common Stock." The 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 (1) arbitrate disputes between
franchises, (2) assure that the conduct of franchises, players, and officials is
in accordance with the NBA Constitution and Bylaws, (3) review and authorize
player transactions between franchises and (4) impose sanctions (including fines
and suspensions) on members, players, and officials who are found to have
breached NBA rules. The Commissioner's 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 rights or
claims against other member clubs, or to seek resolution of any dispute or
controversy between member clubs. Instead, all such matters will be decided by
the Commissioner of the NBA without any right of appeal to the courts or
otherwise. Any interpretations of or changes to these rules, regulations, and
agreements adopted by the NBA will be binding upon us regardless of whether we
agree or disagree
24
<PAGE> 26
with them, and it is possible that any such interpretations or changes could
adversely affect our business, financial condition, or results of operations.
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 our business, financial condition, or results of
operations.
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 their 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, we would be obligated to pay all or a portion, as the
case may be, of the injured player's salary. In addition, if we acquire a new
player to replace the injured player, we would also be required to pay the
salary of the replacement player. To the extent that our financial results 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 our
business, financial condition, or results of operations.
COMPETITION
Our four business segments are in highly competitive industries. Our
broadcasting and outdoor media businesses compete for audiences and advertising
revenue with other broadcasting stations and outdoor media advertising
companies, as well as with other media forms. Such other media forms may include
newspapers, magazines, transit advertising, yellow page directories, direct
mail, local cable systems, and satellite broadcasting systems. Audience ratings
and market shares are subject to many variables. Any change, and any adverse
change in a particular market, could have a material adverse effect on our
business, financial condition, or results of operations. Changes which could
have an adverse effect on us include 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
25
<PAGE> 27
and actions of federal regulatory bodies. There can be no assurance that we will
be able to maintain or increase our current audience ratings and advertising
revenue. In this respect, the entrance of a new television station in the
Vancouver, British Columbia market in October 1997 has adversely affected the
financial performance of our television station in Bellingham, Washington
(KVOS).
Certain of our competitors, including a few outdoor advertising companies
that are substantially larger than our outdoor advertising operations, have
significantly greater financial, marketing, sales and other resources than we
have. There can be no assurance that we will be able to compete successfully
against our competitors in the future.
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 professional baseball (the Seattle Mariners). In addition,
the colleges and universities in the region 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.
LEGAL PROCEEDINGS
We become involved, from time to time, in various claims and lawsuits
incidental to the ordinary course of our operations, including such matters as
contract and lease disputes and complaints alleging employment discrimination.
In addition, we participate in various governmental and administrative
proceedings relating to, among other things, condemnation of outdoor advertising
structures without payment of just compensation 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 on 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 our
subsidiaries filed a complaint in King County (Washington) Superior Court
against two of our wholly-owned subsidiaries at the time, Seattle SuperSonics,
Inc. and Full House Sports & Entertainment, Inc., and two of our officers, Barry
A. Ackerley, Chairman and Chief Executive Officer, and William N. Ackerley,
former Co-President and Chief Operating Officer. 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 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
26
<PAGE> 28
and punitive damages against the defendants of $12.0 million. Following
post-trial motions, the court reduced the punitive damages award to $4.2
million, comprised of $1.4 million against each of Barry A. Ackerley and William
N. Ackerley, and $1.4 million 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.
On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit issued
an opinion ruling in our favor, holding that the plaintiffs did not have a valid
claim under the U.S. Fair Labor Standards Act and striking the award of damages,
including all punitive damages that had been entered by the District Court. The
Court of Appeals further reversed the lower court's award of $75,000 in
emotional distress damages. Finally, the Court of Appeals remanded the cases for
further consideration of whether or not the plaintiffs had a valid claim under
the Washington State Fair Labor Standards Act and whether, if such were the
case, the corporate officers named in the suit could have individual liability
separate from the Company under State law. Subsequently, the plaintiffs filed a
Motion for Rehearing or Reconsideration en banc.
On March 9, 1999, the Court of Appeals issued an order referring the case
to an 11-judge panel for a new hearing, which was held on April 23, 1999. On
June 10, 1999, the Court of Appeals reinstated the District Court verdict in
favor of the plaintiffs. We intend to petition for review of this decision by
the U.S. Supreme Court and we anticipate that the U.S. Supreme Court would
decide whether or not to grant our petition for review before the end of 1999.
If the Court does not grant our petition for review, we will be required to pay
the awarded damages, accrued interest thereon, and plaintiff's attorney's fees
(which, at June 1, 1999, totaled approximately $7.2 million, including estimated
attorney's fees). The foregoing amount includes damages payable by Barry A.
Ackerley and William N. Ackerley, which we will pay on their behalf unless our
Board of Directors determines that Barry A. Ackerley and William N. Ackerley are
not covered by the indemnification provisions of our Certificate of
Incorporation or otherwise entitled to be indemnified by us with respect to this
matter. If the Court grants our petition for review, we anticipate that a final
decision in this case would be rendered during 2000.
Van Alstyne v. The Ackerley Group, Inc. On June 7, 1996, a former sales
manager for television station WIXT, Syracuse, New York filed a complaint in the
U.S. District Court for the Northern District of New York against The Ackerley
Group, Inc., 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. We have filed a motion for summary judgment which has not
yet been decided. In the event that this motion is not successful, a trial date
will be set. We believe that a trial is not likely to take place prior to
September 1999.
RSA Media Inc. v. AK Media Group, Inc. On June 4, 1997, RSA Media Inc., a
supplier of outdoor advertising in Massachusetts, filed a complaint in the U.S.
District Court for the District of Massachusetts (the "Court") alleging that we
have 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 $20.0 million in
damages. On May 22, 1998, the Court, in a ruling from the bench, dismissed the
count of plaintiff's complaint that alleged that the existence
27
<PAGE> 29
of leases between us and landowners restricted the landowners' ability to lease
that same space to the plaintiff in violation of the Sherman Antitrust Act. We
have filed a motion for summary judgment with respect to the remaining counts
which is currently pending.
DEPENDENCE ON MANAGEMENT
Certain of our executive officers and divisional managers, including Barry
A. Ackerley, are especially important to our direction and management. The loss
of the services of such persons could have a material adverse effect on the
Company, and there can be no assurance that we 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 us 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 June 1, 1999, 10,517,454 shares of Common Stock and 10,967,517 shares
of Class B Common Stock were held by officers and directors who are considered
to be our "affiliates" for purposes of Rule 144 under the Securities Act. As
noted above, each share of Class B Common Stock is convertible by the holder at
any time into one share of Common Stock. Our affiliates 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 under the
Securities Act. The Ackerley Group, our executive officers and directors,
certain of our employees, 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 Salomon Smith Barney Inc., sell or otherwise dispose of
any shares of Common Stock or Class B Common Stock, or any securities
convertible into or exchangeable for Common Stock or Class B Common Stock except
for the shares of Common Stock offered hereby. Salomon Smith Barney Inc. in its
sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice. 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. Management has
completed an assessment of our automated systems and has implemented a program
to complete all steps necessary to resolve identified issues. Our compliance
program has several phases, including (1) project management, (2) assessment,
(3) testing, and (4) remediation and implementation.
28
<PAGE> 30
We formed a Year 2000 compliance team in December 1997. All of our mission-
critical software programs have been identified, and the assessment phase is
essentially complete. Our primary software vendors and business partners were
also assessed during this phase, and vendors/business partners who provide
mission-critical software have been contacted. In most cases, the
vendors/business partners that are not already compliant have planned new Year
2000 compliant software releases to be available by the third quarter of 1999.
Updating and testing of our automated systems is currently underway and we
anticipate that testing will be complete by August 31, 1999. The remediation and
implementation process for in-house software applications and hardware will
continue through 1999.
The total financial impact that Year 2000 issues will have on us cannot be
predicted with certainty at this time. In fact, in spite of all efforts being
made to rectify these issues, the success of our efforts will not be known for
sure until the Year 2000 actually arrives. However, based on our assessment to
date, we do not believe that expenses related to meeting Year 2000 challenges
will exceed $750,000, of which approximately $360,000 has been expended as of
June 1, 1999, although there can be no assurance in this regard.
The year 2000 poses certain risks to us and our operations. Some of these
risks are present because we purchase technology and information systems
applications from other parties who face Year 2000 challenges. Other risks are
present simply because we transact business with organizations who also face
Year 2000 challenges. Although it is impossible to identify all possible risks
that we may face moving into the next millennium, management has identified the
following significant potential risks:
The functions performed by our mission-critical software that are primarily
at risk from Year 2000 challenges generally involve the scheduling of
advertising and programming in our television broadcasting, radio broadcasting,
and sports & entertainment segments, the scheduling of advertising in our
outdoor media segment, and the scheduling of events in our sports &
entertainment segment. In all of these cases, Year 2000 challenges could impact
our ability to deliver our product with the same efficiency as we do now.
Our operations, like those of many other organizations, can be adversely
affected by Year 2000 triggered failures of other companies upon whom we depend.
As described above, we have identified our mission-critical vendors and are
monitoring their Year 2000 compliance programs. We have not determined the state
of compliance of certain third-party suppliers of services such as phone
companies, long distance carriers, financial institutions, and electric
companies, the failure of any one of which could severely disrupt our ability to
carry on our business.
We have developed contingency plans related to Year 2000 issues covering
approximately 80% of our systems. As we continue the testing phase, and based on
future ongoing assessment of the readiness of vendors and service providers, we
intend to develop appropriate contingency plans for our remaining systems. It is
possible that certain circumstances may occur for which there are no completely
satisfactory contingency plans. As a result, there can be no assurance that Year
2000 issues will not have a material adverse effect on our business, financial
condition, or results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000."
29
<PAGE> 31
USE OF PROCEEDS
The net proceeds to us from the offering, after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
approximately $53.1 million (approximately $64.4 million if the underwriters'
over-allotment option is exercised in full), based on an assumed public offering
price of $18.8125 per share. We will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders.
We plan to use all of the net proceeds received by us in this offering to
repay revolving credit borrowings outstanding under the 1999 Credit Agreement.
Revolving credit borrowings under the 1999 Credit Agreement have been used for
general corporate purposes, including acquisitions. As of June 1, 1999, the
annual weighted average interest rate on borrowings under the 1999 Credit
Agreement was approximately 7.74%. Subject to the terms of the 1999 Credit
Agreement, including compliance with financial covenants and customary
conditions to borrowing, we will thereafter be entitled to make further
revolving credit borrowings under the 1999 Credit Agreement in the future and
use such borrowings for general corporate purposes which may include funding
capital expenditures and funding possible future acquisitions. For a summary of
certain provisions of the 1999 Credit Agreement, including interest rates and
maturity dates, see "Risk Factors--Leverage; Restrictions Under Debt
Instruments; Covenant Compliance," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
and "Business--Restrictions On Our 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, our Common Stock became listed and began trading on
the New York Stock Exchange under the symbol "AK." The Common Stock previously
traded on the American Stock Exchange under the same symbol.
The table below sets forth the high and low sales prices of the Common
Stock for the periods shown according to the American Stock Exchange until
December 15, 1997, and from and after such date according to the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1997
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
1998
First Quarter....................... $24 3/8 $14 5/8
Second Quarter...................... $22 1/2 $19 7/16
Third Quarter....................... $24 7/8 $19 1/2
Fourth Quarter...................... $21 1/16 $16 1/2
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1999
First Quarter....................... $19 1/4 $16 1/2
Second Quarter...................... $20 $16 5/8
Third Quarter (through July 8,
1999)............................ $19 1/16 $18 5/16
</TABLE>
The last reported sale price of the Common Stock on the New York Stock
Exchange 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 our 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."
DIVIDEND POLICY
Our 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, 1997, and
1998, the Board of Directors declared an annual cash dividend of $.02 per share.
Recently, the Board of Directors declared an annual cash dividend of $.02 per
share that was paid on April 15, 1999 to shareholders of record on March 25,
1999. 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 our results of operations and financial condition, capital
requirements, and general economic conditions. In addition, the 1999 Credit
Agreement and the Indenture impose certain limits upon our ability to pay
dividends and make other distributions. See "Risk Factors--Leverage;
Restrictions Under Debt Instruments; Covenant Compliance." We also are subject
to the Delaware General Corporation Law ("DGCL"), which restricts our ability to
pay dividends in certain circumstances.
31
<PAGE> 33
CAPITALIZATION
The following table sets forth, as of March 31, 1999, our consolidated
capitalization (i) on an actual basis, (ii) on a pro forma basis after giving
effect to our acquisition of WOKR(TV) as if it had occurred on that date, and
(iii) on a pro forma as adjusted basis after giving effect to our acquisition of
WOKR(TV), the sale of Common Stock offered by us in this offering at an assumed
public offering price of $18.8125 per share, and the application of the
estimated net cash proceeds to be received by us from the sale of such Common
Stock to repay borrowings under the 1999 Credit Agreement. See "Use of
Proceeds." This table should be read in conjunction with the financial
statements and notes thereto included and incorporated by reference herein and
the information set forth herein under "Unaudited Pro Forma Condensed
Consolidated Financial Information."
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Credit Agreement(1)............................... $111,000 $224,831 $171,730
9% Senior Subordinated Notes due 2009............. 200,000 200,000 200,000
Other............................................. 23,682 23,682 23,682
Less current maturities........................... (4,973) (4,973) (4,973)
-------- -------- --------
Total long-term debt......................... $329,709 $443,540 $390,439
Stockholders' equity (deficiency):
Common stock, $.01 par value per share; 50,000,000
shares authorized; 21,952,214 shares issued and
20,577,268 shares outstanding, actual and pro
forma; and 24,952,214 shares issued and
23,577,268 shares outstanding, pro forma as
adjusted(2).................................... 219 219 249
Class B common stock, $.01 par value per share;
11,406,510 shares authorized; 11,051,230 shares
issued, actual, pro forma and pro forma as
adjusted(2).................................... 111 111 111
Capital in excess of par value.................... 10,584 10,584 63,655
Deficit........................................... (30,974) (30,974) (30,974)
Less common stock in treasury, at cost (1,374,946
shares)........................................ (10,089) (10,089) (10,089)
-------- -------- --------
Total stockholders' equity (deficiency)...... $(30,149) $(30,149) $ 22,952
-------- -------- --------
Total capitalization...................... $299,560 $413,391 $413,391
======== ======== ========
</TABLE>
- -------------------------
(1) As of June 1, 1999, borrowings of $229.0 million were outstanding under the
1999 Credit Agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(2) Does not include 490,250 shares of Common Stock reserved for issuance under
our Employees 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 91,354 shares of Common Stock reserved for issuance
under our Nonemployee-Directors' Equity Compensation Plan, in each case at
March 31, 1999. For information as to shares outstanding as of June 1, 1999,
see "Prospectus Summary--The Offering" and "Description of Capital Stock."
32
<PAGE> 34
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical consolidated statement of operations and other
data for each of the three years in the period ended December 31, 1998, and the
following historical consolidated balance sheet data at December 31, 1998 and
1997, are derived from the 1998 Financial Statements included herein that have
been audited by Ernst & Young LLP, independent auditors, and are qualified by
reference to such 1998 Financial Statements. The following historical
consolidated statement of operations and other data for the years ended December
31, 1995 and 1994 and the following historical consolidated balance sheet data
at December 31, 1996, 1995, and 1994 are derived from our audited financial
statements not included in this prospectus. The historical consolidated
financial data as of and for the three-month periods ended March 31, 1999 and
1998 are unaudited but, in the opinion of management of the Company, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of such periods. The results of operations for
the three-month period ended March 31, 1999 are not necessarily indicative of
the results to be expected for the full fiscal year. The following historical
consolidated financial data is qualified in its entirety by reference to, and
should be read in conjunction with, our consolidated financial statements and
notes thereto, "Management's Discussion and Analysis of Financial Conditions and
Results of Operations," and other financial information included and
incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue................................... $ 67,696 $ 81,046 $256,651 $271,175 $247,298 $207,397 $186,102
Operating expenses............................ 60,164 69,388 209,030 210,752 186,954 156,343 142,812
Depreciation and amortization expenses........ 4,723 3,843 16,574 16,103 16,996 13,243 10,883
Gain on disposition of assets................. (1,626) 0 (33,524) 0 0 0 (2,506)
Other non-cash expenses(1).................... 244 0 452 4,344 0 14,200 0
Interest expense.............................. 7,311 6,510 25,109 26,219 24,461 25,010 25,909
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item.......................... $ (3,120) $ 1,305 $ 39,010 $ 13,757 $ 18,887 $ (1,399) $ 9,004
======== ======== ======== ======== ======== ======== ========
Net income (loss) applicable to common
shares...................................... $ (3,921) $ 809 $ 19,177 $ 32,929 $ 15,774 $ (2,914) $ 6,832
======== ======== ======== ======== ======== ======== ========
Per common share--assuming dilution(2)(3):
Income (loss) before extraordinary item..... $ (0.08) $ 0.03 $ 0.74 $ 1.04 $ 0.51 $ (0.09) $ 0.28
Extraordinary item.......................... (0.04) 0.00 (0.14) 0.00 (0.01) 0.00 (0.06)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........................... $ (0.12) $ 0.03 $ 0.60 $ 1.04 $ 0.50 $ (0.09) $ 0.22
======== ======== ======== ======== ======== ======== ========
Weighted average number of shares--assuming
dilution.................................... 31,882 31,692 31,883 31,652 31,760 31,052 31,483
Dividends per common share(2)................. $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.015 $ 0.00
BALANCE SHEET DATA:
Working capital............................... $ 24,903 $ 16,341 $ 15,706 $ 12,019 $ 11,154 $ 15,110 $ 16,783
Total assets.................................. 366,798 282,898 316,126 266,385 224,912 189,882 170,783
Total debt(4)................................. 334,682 255,089 270,100 229,424 235,141 220,147 228,646
Stockholders' deficiency...................... (30,149) (44,661) (25,841) (44,909) (83,839) (99,093) (95,958)
OTHER DATA:
Segment Operating Cash Flow(5)................ $ 11,344 $ 14,715 $ 62,112 $ 70,436 $ 68,577 $ 58,571 $ 49,342
Corporate overhead expense.................... (3,812) (3,057) (14,491) (10,013) (8,233) (7,517) (6,052)
-------- -------- -------- -------- -------- -------- --------
EBITDA(6)..................................... $ 7,532 $ 11,658 $ 47,621 $ 60,423 $ 60,344 $ 51,054 $ 43,290
======== ======== ======== ======== ======== ======== ========
After-Tax Cash Flow(7)........................ $ 1,167 $ 4,652 $ 19,312 $ 26,397 $ 33,125 $ 19,133 $ 18,260
After-Tax Cash Flow per common
share -- assuming dilution(2)(3)(7)......... $ 0.04 $ 0.15 $ 0.61 $ 0.83 $ 1.04 $ 0.62 $ 0.58
Capital expenditures.......................... 5,919 11,976 32,719 17,593 13,124 15,098 8,794
Cash flow from operating activities........... (13,130) (751) 14,844 28,010 16,337 36,338 11,667
Cash flow from investing activities........... (46,682) (23,169) (46,947) (19,801) (32,095) (14,620) (19,047)
Cash flow from financing activities........... 57,729 24,343 33,077 (7,463) 12,247 (17,585) 2,936
</TABLE>
33
<PAGE> 35
- -------------------------
(1) Includes litigation expense (credit) and stock compensation expense.
(2) The shares of Common Stock and Class B Common Stock are entitled to share
ratably in such dividends as may be declared by our Board of Directors from
time to time and in assets available for distribution to stockholders in the
event of a liquidation, dissolution, or winding up of The Ackerley Group.
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.
(3) Historical data for 1994 have been restated to conform with Financial
Accounting Standards Board Statement No. 128. See Note 1 to the 1998
Financial Statements.
(4) Historical data reflects total debt, including current portion of long-term
debt. Historical data as of December 31, 1995 and 1994 have been restated to
conform to the current presentation.
(5) Operating Cash Flow is defined as net revenue less operating expenses before
amortization, depreciation, interest, litigation, and stock compensation
expenses and gain on disposition of assets. Operating Cash Flow is the same
as EBITDA, as defined below. Segment Operating Cash Flow is defined as
Operating Cash Flow before corporate overhead. Operating Cash Flow and
Segment Operating Cash Flow are not to be considered as alternatives to net
income (loss) as an indicator of our operating performance or to cash flow
as a measure of our liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
(6) EBITDA means, in general, the sum of consolidated net income (loss),
consolidated depreciation and amortization expense, consolidated interest
expense and consolidated income tax expense (benefit), consolidated non-cash
charges, and extraordinary or non-recurring items. EBITDA has been included
solely because we understand that it is used by certain investors and
financial analysts as one measure of a company's historical ability to
service its debt. EBITDA is the same as Operating Cash Flow and is not to be
considered as an alternative to net income (loss) as an indicator of our
operating performance or to cash flow as a measure of our liquidity.
(7) After-Tax Cash Flow means, in general, the sum of consolidated net income
(loss), consolidated depreciation and amortization expense, and
extraordinary or non-recurring items, including after-tax gain on
disposition of assets. After-Tax Cash Flow has been included solely because
we understand that it is used by certain investors and financial analysts as
a measure of a company's historical ability to service its debt. After-Tax
Cash Flow is not to be considered as an alternative to net income (loss) as
an indicator of our operating performance or to cash flow as a measure of
our liquidity. In 1997, After-Tax Cash Flow excluded a $19.5 million tax
benefit for the change in valuation account.
34
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
On June 30, 1998, we sold substantially all of the assets of our
wholly-owned subsidiary, Ackerley Airport Advertising, Inc. ("Airport"). The
sale price consisted of a base cash price of $40.0 million, paid on the closing
date of the transaction, and a post-closing contingent payment of approximately
$2.9 million, of which $1.2 million was paid in December 1998 and the remainder
was paid in January 1999. We recorded a gain from this transaction of $35.3
million, before taxes.
On April 12, 1999, we purchased substantially all of the assets of
WOKR(TV), the ABC affiliate licensed to Rochester, New York, for approximately
$128.2 million plus the assumption of certain liabilities. In September 1998, we
paid $12.5 million of the purchase price into an escrow account, with the
balance paid at closing. The purchase price is subject to potential post-closing
adjustments, which could result in a requirement that we make additional
payments to the seller. We recorded net assets with estimated fair values
aggregating $9.8 million and goodwill of $118.4 million in connection with this
transaction.
The following unaudited pro forma condensed consolidated financial
information consists of an unaudited pro forma condensed consolidated balance
sheet as of March 31, 1999, and unaudited pro forma condensed consolidated
statements of operations for the three month period ended March 31, 1999 and
year ended December 31, 1998 and related notes (collectively, the "Unaudited Pro
Forma Condensed Consolidated Financial Statements"). The pro forma condensed
consolidated balance sheet has been prepared assuming the acquisition of
WOKR(TV) occurred on March 31, 1999 and the pro forma condensed consolidated
statements of operations have been prepared assuming the acquisition of WOKR(TV)
and the sale of Airport both occurred on the first day of each period. The
Unaudited Pro Forma Condensed Consolidated Financial Statements are subject to a
number of estimates, assumptions and uncertainties and do not purport to reflect
the financial condition or results of operations that would have existed or
occurred had such transactions taken place on the dates indicated, nor do they
purport to reflect the financial condition or results of operations that will
exist or occur in the future. In particular, because we financed the acquisition
of WOKR(TV) with borrowings under the 1999 Credit Agreement, the pro forma
interest expense resulting therefrom is based upon the historical interest rate
on borrowings under the 1999 Credit Agreement. Likewise, the acquisition of
WOKR(TV) will be accounted for using the purchase method of accounting. The
total purchase price will be allocated to the tangible and intangible assets and
liabilities acquired based on their respective fair values. The allocation of
the purchase price reflected in the Unaudited Pro Forma Condensed Consolidated
Financial Statements is preliminary and is subject to adjustment, upon receipt
of, among other things, certain appraisals of the acquired assets and
liabilities. Finally, the accuracy of the Unaudited Pro Forma Condensed
Consolidated Financial Statements depends in large part upon the accuracy of the
historical financial data on which such pro forma financial statements are
based. In that regard, the historical financial data for WOKR(TV) as of March
31, 1999 and for the three months then ended has not been independently verified
by us nor has it been separately audited by any accounting firm. The Unaudited
Pro Forma Condensed Consolidated Financial Statements should be read in
conjunction with the historical financial statements and notes thereto of The
Ackerley Group and WOKR(TV) included and incorporated by reference herein.
35
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
ACKERLEY GROUP WOKR ADJUSTMENTS ACKERLEY GROUP
-------------- ---------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets.............. $ 77,113 $ 4,441 $ (15)(a) $ 81,539
Property and equipment,
net....................... 120,551 6,709 646 127,906
Intangibles, net............ 114,562 43,812 74,430(a) 232,804
Other assets................ 54,572 3,281 (12,500)(a) 45,353
-------- ------- -------- --------
Total assets........... $366,798 $58,243 $ 62,561 $487,602
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities......... $ 52,210 $ 2,586 $ -- $ 54,796
Long-term debt, net of
current portion........... 329,709 -- 113,831(b) 443,540
Other long-term
liabilities............... 15,028 55,657 (51,270)(a) 19,415
Stockholders' deficiency.... (30,149) -- -- (30,149)
-------- ------- -------- --------
Total liabilities and
stockholders'
deficiency........... $366,798 $58,243 $ 62,561 $487,602
======== ======= ======== ========
</TABLE>
36
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL PRO FORMA PRO FORMA
ACKERLEY GROUP WOKR AIRPORT ADJUSTMENTS ACKERLEY GROUP
-------------- ---------- ---------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenue.............. $67,696 $3,898 $ -- $ -- $71,594
Operating expenses....... 60,164 2,552 -- -- 62,716
Depreciation and
amortization
expenses............... 4,723 1,136 -- 1,064(c) 6,923
Gain on disposition of
assets................. (1,626) -- (1,626) -- --
Other non-cash
expenses............... 244 -- -- -- 244
Interest expense......... 7,311 -- -- 2,220(d) 9,531
------- ------ ------- ------- -------
Total
expenses.... $70,816 $3,688 $(1,626) $ 3,284 79,414
------- ------ ------- ------- -------
Income (loss) before
income taxes and
extraordinary item..... (3,120) 210 1,626 (3,284) (7,820)
Income tax (benefit)
expense................ (572) 95(e) 618 (1,248)(e) (2,343)
------- ------ ------- ------- -------
Income (loss) before
extraordinary item..... (2,548) 115 1,008 (2,036) (5,477)
Extraordinary item....... (1,373) -- -- -- (1,373)
------- ------ ------- ------- -------
Net income (loss)
applicable to common
shares................. $(3,921) $ 115 $ 1,008 $(2,036) $(6,850)
======= ====== ======= ======= =======
Per common share:
Income (loss) before
extraordinary
item................ $ (0.08) $ -- $ 0.03 $ (0.06) $ (0.17)
Extraordinary item..... (0.04) -- -- -- (0.04)
------- ------ ------- ------- -------
Net income (loss)........ $ (0.12) $ -- $ 0.03 $ (0.06) $ (0.21)
======= ====== ======= ======= =======
Per common share--
assuming dilution:
Income (loss) before
extraordinary
item................ $ (0.08) $ -- $ 0.03 $ (0.06) $ (0.17)
Extraordinary item..... (0.04) -- -- -- (0.04)
------- ------ ------- ------- -------
Net income (loss)........ $ (0.12) $ -- $ 0.03 $ (0.06) $ (0.21)
======= ====== ======= ======= =======
</TABLE>
37
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL PRO FORMA PRO FORMA
ACKERLEY GROUP WOKR AIRPORT ADJUSTMENTS ACKERLEY GROUP
-------------- ---------- ---------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenue............ $256,651 $18,291 $ 16,204 $ -- $258,738
Operating expenses..... 209,030 10,364 14,851 -- 204,543
Depreciation and
amortization
expenses............. 16,574 4,658 921 3,219(c) 23,530
Gain on disposition of
assets............... (33,524) -- (33,651) -- 127
Other non-cash
expenses............. 452 -- -- -- 452
Interest expense....... 25,109 -- -- 7,502(d) 32,611
-------- ------- -------- -------- --------
Total
expenses... 217,641 15,022 (17,879) 10,721 261,263
-------- ------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item... 39,010 3,269 34,083 (10,721) (2,525)
Income tax (benefit)
expense.............. 15,487 1,351(e) 12,952(e) (4,074)(e) (188)
-------- ------- -------- -------- --------
Income (loss) before
extraordinary item... 23,523 1,918 21,131 (6,647) (2,337)
Extraordinary item..... (4,346) -- -- -- (4,346)
-------- ------- -------- -------- --------
Net income (loss)
applicable to common
shares............... $ 19,177 $ 1,918 $ 21,131 $ (6,647) $ (6,683)
======== ======= ======== ======== ========
Per common share:
Income (loss) before
extraordinary
item.............. $ 0.75 $ 0.06 $ 0.67 $ (0.21) $ (0.07)
Extraordinary item... $ (0.14) -- -- -- (0.14)
-------- ------- -------- -------- --------
Net income (loss)...... $ 0.61 $ 0.06 $ 0.67 $ (0.21) $ (0.21)
======== ======= ======== ======== ========
Per common share--
assuming dilution:
Income (loss) before
extraordinary
item.............. $ 0.74 $ 0.06 $ 0.66 $ (0.21) $ (0.07)
Extraordinary item... (0.14) -- -- -- (0.14)
-------- ------- -------- -------- --------
Net income (loss)...... $ 0.60 $ 0.06 $ 0.66 $ (0.21) $ (0.21)
======== ======= ======== ======== ========
</TABLE>
38
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Unaudited Pro Forma Condensed Consolidated Financial
Statements consist of the consolidated historical financial statements of the
Company and WOKR(TV), less the historical financial statement of Airport,
adjusted for certain pro forma adjustments, as described below:
(a) Balance sheet adjustments give effect to the elimination of the
historical net assets of WOKR(TV) not acquired by the Company and to the
recording of goodwill associated with the acquisition.
(b) Reflects borrowings for the purchase price of WOKR(TV), less $12.5
million in escrow at September 30, 1998.
(c) Represents the change in depreciation and amortization based on
the estimated allocation of the purchase price of WOKR(TV) to tangible and
intangible assets. The estimated useful lives of the assets acquired are as
follows:
<TABLE>
<S> <C>
Building and improvements.................... 25 years
Broadcast equipment.......................... 10 years
Other equipment.............................. 7 years
Intangible assets............................ 15 years
</TABLE>
(d) Represents the change in interest expense, assuming cash proceeds
of $42.9 million from the sale of Airport are applied to the reduction of
the Company's borrowings under our former $265.0 million credit agreement
(the "1998 Credit Agreement") and the purchase of WOKR(TV) for $128.2
million is financed from borrowings under the 1999 Credit Agreement. The
impact on interest expense is based on the Company's historical annual
interest rate on borrowings under the 1998 Credit Agreement.
(e) Represents income tax expense based on the Company's estimated
statutory income tax rate.
39
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We reported a net loss of $3.9 million for the first three months of 1999,
compared to net income of $0.8 million for the first three months of 1998. Net
revenues for the first three months of 1999 decreased over the same period last
year by $13.3 million, or 16%, while our Operating Cash Flow (as defined below)
decreased by $4.2 million, or 36%. On April 15, 1999, we paid an annual cash
dividend of $.02 per share.
We reported net income of $19.2 million in 1998, compared to $32.9 million
in 1997. This decrease in net income primarily reflects the $11.9 million
decrease in Operating Cash Flow in our television broadcasting and sports &
entertainment segments and an increase in income tax expense, partially offset
by a $3.6 million increase in Operating Cash Flow in our outdoor media and radio
broadcasting segments and a $33.5 million gain on the sale of our airport
advertising operations in 1998. The 1998 decrease also reflects higher net
income in 1997 that included a $19.2 million income tax benefit, resulting from
recognition of our deferred tax asset, and a $5.0 million reduction for
litigation expenses, partially offset by a $9.3 million charge for stock
compensation expense. Operating Cash Flow was $47.6 million in 1998, compared to
$60.4 million in 1997.
On June 30, 1998, we sold substantially all of the assets of our airport
advertising operations. This has caused our results of operations and financial
condition for periods and dates subsequent to the sale to differ in certain
respects from our results of operations and financial condition for periods and
dates prior to the sale. See "Unaudited Pro Forma Condensed Consolidated
Financial Information."
As with many media companies that have grown through acquisitions, our
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, our management believes that Operating Cash Flow
(defined as net revenue less operating expenses before amortization,
depreciation, interest, litigation, and stock compensation expenses and gain on
disposition of assets) is an appropriate measure of our financial performance.
Similarly, we believe that Segment Operating Cash Flow (defined as Operating
Cash Flow of the relevant segment or segments before corporate overhead) is an
appropriate measure of our segments' financial performance. These measures
exclude certain expenses that management does not consider to be costs of
ongoing operations. We use Operating Cash Flow to pay interest and principal on
our 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 our operating performance
or to cash flows as a measure of our liquidity.
As noted under "Prospectus Summary--Recent Developments--Second Quarter
Results" and "Risk Factors--Adverse Impact of Certain Events on Second Quarter
Results," our results of operations for the second quarter of 1999 have been
adversely affected by certain matters.
40
<PAGE> 42
RESULTS OF OPERATIONS
The following tables set forth certain historical financial and operating
data for the three-month periods ended March 31, 1999 and March 31, 1998 and
each of the three years in the period ended December 31, 1998, including net
revenue, operating expenses, and Operating Cash Flow information by segment:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------- ------------------------------------------------------------
1999 1998 1998 1997 1996
----------------- ----------------- ------------------ ------------------ ------------------
AS % OF AS % OF AS % OF AS % OF AS % OF
NET NET NET NET NET
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
------- ------- ------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue................ $67,696 100.0% $81,046 100.0% $256,651 100.0% $271,175 100.0% $247,298 100.0%
Segment operating
expenses.................. 56,352 83.2 66,331 81.8 194,539 75.8 200,739 74.0 178,721 72.3
Corporate overhead......... 3,812 5.6 3,057 3.8 14,491 5.6 10,013 3.7 8,233 3.3
------- ------- -------- -------- --------
Total operating
expenses............ 60,164 88.9 69,388 85.6 209,030 81.4 210,752 77.7 186,954 75.6
------- ------- -------- -------- --------
Operating Cash Flow........ 7,532 11.1 11,658 14.4 47,621 18.6 60,423 22.3 60,344 24.4
Other expenses (income):
Depreciation and
amortization............ 4,723 7.0 3,843 4.7 16,574 6.5 16,103 5.9 16,996 6.9
Interest expense.......... 7,311 10.8 6,510 8.0 25,109 9.8 26,219 9.7 24,461 9.9
Stock compensation
expense................. 244 0.4 -- -- 452 0.2 9,344 3.4 -- --
Gain on disposition of
assets.................. (1,626) (2.4) -- -- (33,524) (13.1) -- -- -- --
Litigation expense
(adjustment)............ -- -- -- (5,000) (1.8) -- --
------- ------- -------- -------- ----- -------- -----
Total other expenses
(income)............ 10,652 15.7 10.353 12.8 8,611 3.4 46,666 17.2 41,457 16.8
------- ------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item...................... (3,120) (4.6) 1,305 1.6 39,010 15.2 13,757 5.1 18,887 7.6
Income tax benefit
(expense)............. 572 0.8 (496) (0.6) (15,487) (6.0) 19,172 7.1 (2,758) (1.1)
Income (loss) before
extraordinary item........ (2,548) (3.8) 809 1.0 23,523 9.2 32,929 12.1 16,129 6.5
Extraordinary item......... (1,373) (2.0) -- -- (4,346) (1.7) -- -- (355) (0.1)
------- ------- -------- -------- --------
Net income (loss).......... $(3,921) (5.8) $ 809 1.0 $ 19,177 7.5 $ 32,929 12.1 $ 15,774 6.4
======= ======= ======== ======== ========
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET REVENUE:
Outdoor media.............. $19,990 $26,467 $108,560 $113,162 $ 99,833
Television broadcasting.... 16,251 14,536 68,467 63,611 57,863
Radio broadcasting......... 5,221 4,956 24,474 20,970 17,955
Sports & entertainment..... 26,234 35,087 55,150 73,432 71,647
------- ------- -------- -------- --------
Total net revenue..... $67,696 $81,046 $256,651 $271,175 $247,298
======= ======= ======== ======== ========
OPERATING CASH FLOW:
Outdoor media.............. $ 7,033 $ 7,505 $ 42,955 $ 41,003 $ 35,909
Television broadcasting.... (40) 885 12,471 16,676 15,726
Radio broadcasting......... 1,769 1,454 9,655 7,987 7,111
Sports & entertainment..... 2,582 4,871 (2,969) 4,770 9,831
------- ------- -------- -------- --------
Total Segment Operating
Cash Flow............. 11,344 14,715 62,112 70,436 68,577
Corporate overhead......... (3,812) (3,057) (14,491) (10,013) (8,233)
------- ------- -------- -------- --------
Operating Cash Flow... $ 7,532 $11,658 $ 47,621 $ 60,423 $ 60,344
======= ======= ======== ======== ========
CHANGE IN NET REVENUE FROM
PRIOR PERIOD:
Outdoor media.............. (24.5)% 6.3% (4.1)% 13.4% 7.1%
Television broadcasting.... 11.8 7.5 7.6 9.9 20.6
Radio broadcasting......... 5.3 20.1 16.7 16.8 21.9
Sports & entertainment..... (25.2) 21.4 (24.9) 2.5 39.1
------- ------- -------- -------- --------
Change in total net
revenue............... (16.5)% 13.4% (5.4)% 9.7% 19.2%
SEGMENT OPERATING CASH FLOW
AS A % OF NET REVENUE BY
SEGMENT:
Outdoor media........... 35.2% 28.4% 39.6% 36.2% 36.0%
Television
broadcasting.......... (0.2) 6.1 18.2 26.2 27.2
Radio broadcasting...... 33.9 29.3 39.5 38.1 39.6
Sports &
entertainment......... 9.8 13.9 (5.4) 6.5 13.7
OPERATING CASH FLOW AS A % OF
TOTAL NET REVENUE.......... 11.1% 14.4% 18.6% 22.3% 24.4%
</TABLE>
THREE-MONTH PERIOD ENDED MARCH 31, 1999 COMPARED WITH THREE-MONTH PERIOD ENDED
MARCH 31, 1998
Net Revenue. Our net revenue for the first quarter of 1999 was $67.7
million. This represented a decrease of $13.3 million, or 16%, compared to $81.0
million for the first quarter of 1998. Changes in net revenue were as follows:
- Outdoor Media. Our net revenue for the first quarter of 1999 from our
outdoor media segment decreased by $6.5 million, or 25%, compared to the
first quarter of 1998. This decrease was primarily due to the absence of
our airport advertising operations, which we sold in June 1998, partially
offset by increased national sales. Excluding our airport advertising
operations, our net revenue for the first quarter of 1999 from our
outdoor media segment increased by $1.0 million, or 5%, compared to the
first quarter of 1998.
42
<PAGE> 44
- Television Broadcasting. Our net revenue for the first quarter of 1999
from our television broadcasting segment increased by $1.8 million, or
12%, compared to the first quarter of 1998. This increase was mainly due
to the addition of stations KVIQ in July 1998 and KMTR in December 1998,
and the exchange of station KKTV for station KCOY in January 1999.
Excluding these transactions, our net revenue for the first quarter of
1999 from our television broadcasting segment was $12.3 million for the
first quarter of both 1999 and 1998.
- Radio Broadcasting. Our net revenue for the first quarter of 1999 from
our radio broadcasting segment increased by $0.2 million, or 5%, compared
to the first quarter of 1998. This increase was mainly due to higher
national and local sales.
- Sports & Entertainment. Our net revenue for the first quarter of 1999
from our sports & entertainment segment decreased by $8.9 million, or
25%, compared to the first quarter of 1998. This decrease primarily
represented decreased ticket and sponsorship sales for the first quarter
of 1999 as a result of the NBA lockout.
Segment Operating Expenses (Excluding Corporate Overhead). Our operating
expenses (excluding corporate overhead) for the first quarter of 1999 were $56.4
million. This represented a decrease of $9.9 million, or 15%, compared to $66.3
million for the first quarter of 1998. Changes in operating expenses (excluding
corporate overhead) were as follows:
- Outdoor Media. Our operating expenses for the first quarter of 1999 from
our outdoor media segment decreased by $6.0 million, or 32%, compared to
the first quarter of 1998. This decrease was primarily due to the absence
of our airport advertising operations which we sold in June 1998,
partially offset by higher employment-related expenses. Excluding our
airport advertising operations, our operating expenses for the first
quarter of 1999 from our outdoor media segment increased by $0.9 million,
or 7%, compared to the first quarter of 1998.
- Television Broadcasting. Our operating expenses for the first quarter of
1999 from our television broadcasting segment increased by $2.6 million,
or 19%, compared to the first quarter of 1998. This increase was
primarily due to the addition of stations KVIQ in July 1998 and KMTR in
December 1998, the exchange of station KKTV for station KCOY in January
1999, and higher program, promotion, and production expenses relating to
the expansion of local news. Excluding these transactions, our operating
expenses for the first quarter of 1999 from our television broadcasting
segment increased by $0.4 million, or 3%, compared to the first quarter
of 1998.
- Radio Broadcasting. Our operating expenses for the first quarter of 1999
from our radio broadcasting segment was $3.5 million for the first
quarter of both 1999 and 1998.
- Sports & Entertainment. Our operating expenses for the first quarter of
1999 from our sports & entertainment segment decreased by $6.5 million,
or 22%, compared to the first quarter of 1998. This decrease was mainly
attributable to decreased expenses in the first quarter of 1999 due to
the NBA lockout.
Corporate Overhead. Our corporate overhead expenses were $3.8 million for
the first quarter of 1999. This represented an increase of $0.7 million, or 23%,
compared to the first quarter of 1998. This increase was primarily due to higher
utilization of outside services and increased marketing costs.
43
<PAGE> 45
Operating Cash Flow. Our Operating Cash Flow decreased by $4.2 million to
$7.5 million for the first quarter of 1999 compared to $11.7 million for the
first quarter of 1998. The decrease in Operating Cash Flow from our outdoor
media, television broadcasting, and sports & entertainment segments and the
increase in our corporate overhead expenses were partially offset by the
increase in Operating Cash Flow from our radio broadcasting segment. Operating
Cash Flow as a percentage of total net revenue decreased to 11% for the first
quarter of 1999 compared to 14% from the first quarter of 1998.
Depreciation and Amortization Expense. Our depreciation and amortization
expense was $4.7 million for the first quarter of 1999. This represented an
increase of $0.9 million, or 24%, compared to the first quarter of 1998. This
increase mainly resulted from amortization expense relating to our business
acquisitions during 1998 and depreciation expense on our new Seattle SuperSonics
aircraft, which was placed in service in December 1998.
Interest Expense. Our interest expense was $7.3 million for the first
quarter of 1999. This represented an increase of $0.8 million, or 12%, compared
to the first quarter of 1998. This increase was primarily due to higher average
debt balances during the first quarter of 1999.
Stock Compensation Expense. For the first quarter of 1999, we recognized
stock compensation expense of $0.2 million, primarily relating to the amendment
of a stock option agreement. There was no stock compensation expense in the
first quarter of 1998.
Gain on Disposition of Assets. For the first quarter of 1999, we recognized
a gain on disposition of assets of $1.6 million, which represented the final
cash payment received on the sale of our airport advertising operations in June
1998.
Income Tax Benefit (Expense). We recorded an income tax benefit of $0.6
million for the first quarter of 1999, primarily as a result of our loss before
income taxes of $3.1 million. For the first quarter of 1998, our income tax
expense was $0.5 million.
Extraordinary Item. For the first quarter of 1999, we replaced the 1998
Credit Agreement with the $325.0 million 1999 Credit Agreement and redeemed our
$20.0 million 10.48% Senior Subordinated Notes. These transactions resulted in
an aggregate charge of $1.4 million, net of taxes, primarily consisting of the
write-off of deferred financing costs and prepayment fees.
Net Income (Loss). Our net loss was $3.9 million for the first quarter of
1999. This represented a $4.7 million decrease from our net income of $0.8
million for the first quarter of 1998. This decrease primarily resulted from the
decrease in Operating Cash Flow and the recognition of the extraordinary loss
related to debt extinguishment, partially offset by the gain on disposition of
assets in the first quarter of 1999. Net loss as a percentage of net revenue was
6% for the first quarter of 1999, which represented a decrease from net income
as a percentage of net revenue of 1% for the first quarter of 1998.
44
<PAGE> 46
1998 COMPARED WITH 1997
Net Revenue. Our 1998 net revenue was $256.7 million. This represented a
decrease of $14.5 million, or 5%, from $271.2 million in 1997. Changes in net
revenue were as follows:
- Outdoor Media. Our 1998 net revenue from our outdoor media segment
decreased by $4.6 million, or 4%, from 1997. This decrease was mainly due
to the absence of airport advertising operations in the third and fourth
quarters of 1998, partially offset by increased national advertising
sales.
- Television Broadcasting. Our 1998 net revenue from our television
broadcasting segment increased by $4.9 million, or 8%, from 1997. This
increase resulted primarily from the addition of television station KVIQ
in July 1998, the completion of a full 12 months of operations at
WUTR(TV) (which we began operating under a time brokerage agreement in
June 1997) and WIVT(TV) (which we acquired in July 1997), higher
political advertising, and higher national and local sales.
- Radio Broadcasting. Our 1998 net revenue from our radio broadcasting
segment increased by $3.5 million, or 17%, from 1997. This increase was
primarily due to an increase in both national and local sales.
- Sports & Entertainment. Our 1998 net revenue from our sports &
entertainment segment decreased by $18.2 million, or 25%, from 1997. This
decrease was primarily due to decreased revenue in the fourth quarter of
1998 as a result of the NBA lockout, partially offset by increased ticket
and sponsorship sales during the 1997-98 basketball season.
Segment Operating Expenses (Excluding Corporate Overhead). Our 1998
operating expenses (excluding corporate overhead) were $194.5 million. This
represented a decrease of $6.2 million, or 3%, from $200.7 million in 1997.
Changes in operating expenses (excluding corporate overhead) were as follows:
- Outdoor Media. Our 1998 operating expenses from our outdoor media segment
decreased by $6.6 million, or 9%, from 1997. This decrease was due mainly
to the absence of airport advertising operations in the third and fourth
quarters of 1998, partially offset by higher expenses related to
increased sales activity.
- Television Broadcasting. Our 1998 operating expenses from our television
broadcasting segment increased by $9.1 million, or 19%, from 1997. This
increase was primarily a result of the addition of television station
KVIQ in July 1998, the completion of a full 12 months of operations at
WUTR(TV) and WIVT(TV), and higher program, promotion, and production
expenses in conjunction with the expansion of local news programming.
- Radio Broadcasting. Our 1998 operating expenses from our radio
broadcasting segment increased by $1.8 million, or 14%, from 1997. This
increase primarily resulted from higher expenses related to increased
sales activity.
- Sports & Entertainment. Our 1998 operating expenses from our sports &
entertainment segment decreased by $10.6 million, or 15%, from 1997. This
decrease is mainly attributable to decreased expenses in the fourth
quarter of 1998 due to the NBA lockout, partially offset by increased
basketball operating expenses related to team costs during the 1997-98
basketball season.
45
<PAGE> 47
Corporate Overhead. Our corporate overhead expenses were $14.5 million in
1998. This represented an increase of $4.5 million, or 45%, from 1997. This
increase was mainly due to personnel costs, travel and entertainment, insurance,
and the utilization of outside services, primarily for public relations.
Operating Cash Flow. As a result of the above, our Operating Cash Flow
decreased from $60.4 million in 1997 to $47.6 million in 1998. The decrease in
Operating Cash Flow from our television broadcasting and sports & entertainment
segments and the increase in our corporate overhead expenses were partially
offset by the increase in our Operating Cash Flow from our outdoor media and
radio broadcasting segments. Operating Cash Flow as a percentage of net revenue
decreased to 19% in 1998 from 22% in 1997.
Depreciation and Amortization Expense. Our depreciation and amortization
expenses were $16.6 million in 1998. This represents an increase of $0.5
million, or 3%, from 1997.
Interest Expense. Our interest expense was $25.1 million in 1998. This
represents a decrease of $1.1 million, or 4%, from 1997. This decrease is
primarily due to lower average interest rates and interest income from our
interest rate swap agreements in 1998.
Stock Compensation Expense. In 1998, we recognized stock compensation
expense of $0.5 million, primarily relating to the amendments of certain stock
option agreements. In 1997, we recognized stock compensation expense of $9.3
million, which was primarily due to the conversion of certain incentive stock
options into nonqualified stock options.
Gain on Disposition of Assets. In 1998, we recognized a gain of $33.5
million relating to the sale of our airport advertising operations. There was no
gain on disposition of assets in 1997.
Litigation Expense Adjustment. In 1997, we reduced an accrual for
litigation expense by $5.0 million. There was no such adjustment in 1998.
Income Tax (Benefit) Expense. Our income tax expense was $15.5 million in
1998. In 1997, we incurred an income tax benefit of $19.2 million, which
primarily resulted from the recognition of our deferred tax asset.
Extraordinary Item. In October 1998, we redeemed our 10.75% Senior Secured
Notes with proceeds under the 1998 Credit Agreement. This resulted in a charge
of $4.3 million, net of applicable income taxes, consisting of prepayment fees
and the write-off of deferred financing costs. There were no extraordinary items
in 1997.
Net Income. Our net income was $19.2 million in 1998. This represents a
decrease of $13.7 million, or 42%, from 1997. This decrease was primarily due to
decreased Operating Cash Flow and increased income tax expense in 1998, the
litigation expense adjustment in 1997, and the recognition of our deferred tax
asset in 1997, partially offset by the gain on the sale of our airport
advertising operations in 1998 and stock compensation expense in 1997. Net
income as a percentage of net revenue decreased to 8% in 1998 from 12% in 1997.
46
<PAGE> 48
1997 COMPARED WITH 1996
Net Revenue. Our 1997 net revenue was $271.2 million. This represented an
increase of $23.9 million, or 10%, from $247.3 million in 1996. Changes in net
revenue were as follows:
- Outdoor Media. Our 1997 net revenue from our outdoor media segment
(which, for both 1997 and 1996, included our 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.
- Television Broadcasting. Our 1997 net revenue from our television
broadcasting segment increased by $5.7 million, or 10%, 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, and the completion of a full 12 months of
operations at television stations KFTY (which was acquired in April 1996)
and KION (which we began operating under a time brokerage agreement in
April 1996).
- Radio Broadcasting. Our 1997 net revenue from our radio broadcasting
segment increased by $3.0 million, or 17%, from 1996. This increase was
primarily due to an increase in both national and local sales.
- Sports & Entertainment. Our 1997 net revenue from our sports &
entertainment segment increased by $1.8 million, or 3%, from 1996. This
increase was primarily due to the combination of increased sponsorship
and ticket sales, offset primarily by decreased revenues due to the
Seattle SuperSonics participating in 12 games of the 1997 NBA playoffs
compared to 21 games in the 1996 playoffs.
Segment Operating Expenses (Excluding Corporate Overhead). Our 1997
operating expenses (excluding corporate overhead) were $200.7 million. This
represented an increase of $22.0 million, or 12%, from $178.7 million in 1996.
Changes in our operating expenses (excluding corporate overhead) were as
follows:
- Outdoor Media. Our 1997 operating expenses from our outdoor media segment
increased by $8.2 million, or 13%, from 1996, to $72.2 million. This
increase was primarily due to expenses related to increased sales
activity.
- Television Broadcasting. Our 1997 operating expenses from our television
broadcasting segment increased by $4.8 million from 1996, or 11%, to
$46.9 million. This increase was primarily due to the effects of higher
programming, promotion, and production expenses primarily reflecting the
development and expansion of our local news programming. The addition of
time brokerage agreements with television stations WUTR and WITV, and a
full 12 months of operations at television stations KFTY and KION, also
contributed to the increase in operating expenses.
- Radio Broadcasting. Our 1997 operating expenses from our radio
broadcasting segment increased by $2.2 million from 1996, or 20%, to
$13.0 million. This increase primarily resulted from higher expenses
related to increased sales activity.
- Sports & Entertainment. Our 1997 operating expenses from our sports &
entertainment segment increased by $6.9 million from 1996, or 11%, to
$68.7 million. This increase was primarily due to the combination of
expenses related to increased team costs, offset in part by lower costs
associated with the
47
<PAGE> 49
Seattle SuperSonics participating in 12 games of the 1997 NBA playoffs
instead of 21 games in the 1996 NBA playoffs.
Corporate Overhead. Our corporate overhead expenses were $10.0 million in
1997. This represented 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. Our Operating Cash Flow increased slightly from 1996
to $60.4 million in 1997. The increase in Operating Cash Flow in our outdoor,
television broadcasting, and radio broadcasting segments offset the decrease 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. Our depreciation and amortization
expenses were $16.1 million in 1997. This represented a decrease of $0.9
million, or 5%, from $17.0 million in 1996. This decrease was mainly due to
certain intangible assets becoming fully amortized in 1997.
Interest Expense. Our interest expenses were $26.2 million in 1997. This
represented an increase of $1.7 million, or 7%, from $24.5 million in 1996. This
increase was primarily due to higher average debt balances during 1997.
Litigation Expense. In 1997, we 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 "Risk
Factors--Legal Proceedings." No such adjustment was made in 1996.
Stock Compensation Expense. In 1997, we 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
1998 Financial Statements. We did not recognize any stock compensation expense
in 1996.
Income Tax (Benefit) Expense. In 1997, we 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. We are unable to predict whether income tax expense will be
recognized at statutory rates in 1999.
Extraordinary Item. In 1996, as a result of entering into a new bank credit
agreement, we wrote off deferred costs of $0.4 million related to the previous
credit agreement. There were no extraordinary items in 1997.
Net Income. Our net income was $32.9 million in 1997. This represented 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. Our net income as a percentage of net revenue increased to 12% in 1997
from 6% in 1996.
48
<PAGE> 50
LIQUIDITY AND CAPITAL RESOURCES
On December 14, 1998, we issued 9% Senior Subordinated Notes in the
aggregate principal amount of $175.0 million. These notes were issued under the
Indenture, which allows for an aggregate principal amount of up to $250.0
million of 9% Senior Subordinated Notes. On February 24, 1999, we issued
additional 9% Senior Subordinated Notes in the aggregate principal amount of
$25.0 million. The total aggregate amount of 9% Senior Subordinated Notes issued
and outstanding is $200.0 million. The 9% Senior Subordinated Notes bear
interest at 9%, which is payable semi-annually in January and July. Principal is
payable in full in January 2009.
On January 22, 1999, we replaced the 1998 Credit Agreement with the new
$325.0 million 1999 Credit Agreement, consisting of a $150.0 million term loan
facility (the "Term Loan") and a $175.0 million revolving credit facility (the
"Revolver"), which includes up to $10.0 million in standby letters of credit.
Under the 1999 Credit Agreement, we can choose to have interest calculated at
rates based on either a base rate or LIBOR plus defined margins which vary based
on our total leverage ratio. As of June 1, 1999, the annual weighted average
interest rate of borrowings under the 1999 Credit Agreement was approximately
7.74%.
On March 15, 1999, we redeemed the $20.0 million outstanding principal of
our 10.48% Senior Subordinated Notes with borrowings under the Revolver. This
resulted in a charge of approximately $0.8 million, net of applicable taxes,
consisting of prepayment fees and the write-off of deferred financing costs. As
a result of this redemption, we provided our bank lenders and the holders of the
9% Senior Subordinated Notes with guarantees by substantially all of our
subsidiaries of our obligations under the 1999 Credit Agreement and the
Indenture.
As of March 31, 1999, we had borrowed $65.0 million of the Term Loan and
$46.0 million of the Revolver. Principal repayments under the Term Loan are due
quarterly from March 31, 2000 through December 31, 2005. The Revolver requires
scheduled annual commitment reductions, with required principal prepayments of
outstanding amounts in excess of the commitment levels, quarterly beginning
March 31, 2001.
In connection with our time brokerage agreements with the owners of
television stations WUTR and KION, we have guaranteed certain bank loan
obligations of the station owners. The aggregate principal balance outstanding
on such obligations was $10.5 million at December 31, 1998. See Note 12 to the
1998 Financial Statements.
We have pledged substantially all of our subsidiaries' outstanding stock
and assets as collateral for amounts due under the 1999 Credit Agreement. Thus,
if we default under the 1999 Credit Agreement, the lenders may take possession
of and sell substantially all of our subsidiaries and their assets.
In addition, the 1999 Credit Agreement and the 9% Senior Subordinated Notes
restrict, among other things, our ability to borrow, pay dividends, repurchase
outstanding shares of our stock, and sell or transfer our assets. They also
contain restrictive covenants requiring us to maintain certain financial ratios.
See "Business--Restrictions On Our Operations."
In 1999, we have purchased the assets of an outdoor advertising company in
the Boston-Worcester, Massachusetts market and television stations KVIQ, KMTR,
WOKR
49
<PAGE> 51
and KCOY. These acquisitions were financed with borrowings under our 1998 and
1999 Credit Agreements. We intend to finance the pending acquisition of
television station KTVF with borrowings under the 1999 Credit Agreement. See
"Business--Television Broadcasting."
Our working capital increased to $24.9 million at March 31, 1999 from $15.7
million at December 31, 1998 primarily due to a reduction of deferred revenue
resulting from the NBA lockout, partially offset by an increase in accrued
interest resulting from the refinancing activity in the fourth quarter of 1998
and first quarter of 1999. Our working capital was $15.7 million as of December
31, 1998, $12.0 million as of December 31, 1997, and $11.2 million as of
December 31, 1996.
We expended $5.9 million for capital expenditures in the first quarter of
1999, compared to $12.0 million in the corresponding quarter in 1998. Capital
expenditures in the first quarter of 1999 were primarily for broadcasting
equipment and advertising signs. We expended $32.7 million, $17.6 million, and
$13.1 million for capital expenditures in 1998, 1997 and 1996, respectively. Our
capital expenditures in 1998 included the acquisition and refurbishment of a new
aircraft for the Seattle SuperSonics. This capital expenditure was financed by
separate aircraft loans in the aggregate principal amount of $16.0 million, of
which $15.4 million was outstanding as of December 31, 1998. Our management
anticipates that 1999 capital expenditures, consisting primarily of construction
and maintenance of billboard structures, broadcasting equipment, and other
capital additions, will be between $10.0 million and $15.0 million. This forward
looking statement is, however, subject to the qualifications set forth under
"Forward-Looking Statements" above, and these amounts do not include amounts
that may be expended in connection with acquisitions, if any.
Historically, we have financed our working capital needs primarily from
cash provided by operating activities and bank borrowings. Over that period, our
long-term liquidity needs, including for acquisitions and to refinance our
indebtedness, have been financed through additions to our long-term debt,
principally through bank borrowings and the sale of senior and subordinated debt
securities. Capital expenditures for new property and equipment have been
financed with both cash provided by operating activities and long-term debt.
Cash used in operating activities for the first quarter of 1999 was $13.1
million, an increase from cash used in operating activities of $0.8 million for
the first quarter of 1998. Cash provided by operating activities for 1998
decreased to $14.8 million from $28.0 million in 1997. This decrease is mainly
due to the decrease in Operating Cash Flow for 1998, as described above.
On April 15, 1999, we paid our shareholders an annual cash dividend of $.02
per share.
SUBSEQUENT EVENTS
Digital CentralCasting. On April 6, 1999, we announced the launch of
Digital CentralCasting, a digital broadcasting system which will allow us to
consolidate back-office functions such as operations, programming and
advertising scheduling, and accounting for all of our television stations within
a regional group at one station. See "Prospectus Summary--Strategy--Use Advanced
Communications Technology to Create Regional Television Groups." In addition, we
recorded a $1.0 million restructuring charge in the second quarter of 1999
relating to the ongoing implementation of Digital CentralCasting.
50
<PAGE> 52
See "Prospectus Summary--Recent Developments--Second Quarter Results" and "Risk
Factors--Adverse Impact of Certain Events on Second Quarter Results."
Acquisition of WOKR (TV). On April 12, 1999, we purchased substantially all
of the assets and assumed certain liabilities of WOKR (TV). See "Prospectus
Summary--Recent Developments."
Pending Acquisition of KTVF(TV). In April 1999, we amended our agreement to
purchase the assets of KTVF(TV), a NBC affiliate, and two radio stations,
KXLR(FM) and KCBF(AM), each of which is licensed to Fairbanks, Alaska. The
amended agreement now provides for our purchase only of the assets of KTVF(TV)
for $7.2 million. We similarly amended the option granted to a third party to
purchase from us the assets of KTVF(TV). See "Business--Television
Broadcasting--Acquisitions and Time Brokerage Agreements." The acquisition is
subject to conditions, including receipt of approval by the FCC, which we
received on June 29, 1999. See "Risk Factors--Television and Radio
Broadcasting--Approval of Purchase and Sale Transactions." Accordingly, we
cannot guarantee that the transaction will be completed. We expect this
transaction will close in the third quarter of 1999.
Exchange of KKTV(TV) for KCOY(TV). On May 1, 1999, we exchanged
substantially all of the assets plus certain liabilities of KKTV(TV), our former
CBS affiliate licensed to Colorado Springs, Colorado, for substantially all of
the assets plus certain liabilities of KCOY(TV), the CBS affiliate licensed to
Santa Maria, California. In conjunction with the transaction, we received a cash
payment of approximately $9.0 million. Pending closing of the transaction, we
operated KCOY(TV) and the former owner of KCOY(TV) operated KKTV(TV) pursuant to
time brokerage agreements. We recorded net assets with estimated fair values
aggregating $7.2 million and goodwill of $16.8 million in connection with this
transaction.
Sports & Entertainment. Our sports & entertainment segment's Operating Cash
Flow for the second quarter of 1999 was adversely affected by reduced revenues
(after expenses) from the failure of the Seattle SuperSonics to participate in
the 1999 NBA playoffs (in contrast to the prior season, when they participated
in the first two rounds of the NBA playoffs) and lower than anticipated revenues
from NBA-related activities primarily due to the NBA lockout, offset, in part,
by additional revenue (after expenses) generated by the extension of the 1999
regular season into the second quarter of 1999 to make up for some of the games
cancelled as a result of the lock-out. See "Prospectus Summary--Recent
Developments--Second Quarter Results" and "Risk Factors--Adverse Impact of
Certain Events on Second Quarter Results."
YEAR 2000
Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the Year 2000, these
date code fields will need to accept four-digit entries to distinguish
twenty-first century dates from twentieth century dates. The issue is not
limited to computer systems. Year 2000 issues may affect any system or equipment
that has an embedded microchip that processes date sensitive information.
51
<PAGE> 53
State of Readiness
We are committed to addressing the Year 2000 issue in a prompt and
responsible manner, and have dedicated the resources to do so. Our management
has completed an assessment of its automated systems and has implemented a
program to complete all steps necessary to resolve identified issues. Our
compliance program has several phases, including (1) project management; (2)
assessment; (3) testing; and (4) remediation and implementation.
Project Management: We formed a Year 2000 compliance team in December 1997.
The team meets generally on a semi-monthly basis to discuss project status,
assign tasks, determine priorities, and monitor progress. The team also reports
to senior management on a regular basis.
Assessment: All of our mission-critical software programs have been
identified. This phase is essentially complete. Our primary software vendors and
business partners were also assessed during this phase, and vendors/business
partners who provide mission-critical software have been contacted. In most
cases, the vendors/business partners that are not already compliant have planned
new Year 2000 compliant releases to be available by the third quarter of 1999.
We will continue to monitor and work with vendors and business partners to
ensure that appropriate upgrades and/or testing is completed.
Testing: Updating and testing of our automated systems is currently
underway and we anticipate that testing will be complete by August 31, 1999.
Upon completion, we expect to be able to identify any in-house developed
computer systems that remain non-compliant.
Remediation and Implementation: This phase involves obtaining and
implementing renovated Year 2000 compliant software applications provided by our
vendors and performing the necessary programming to render in-house developed
systems Year 2000 compliant. This process also involves replacing non-compliant
hardware. The remediation and implementation process will continue through 1999.
Costs
The total financial impact that Year 2000 issues will have on us cannot be
predicted with certainty at this time. In fact, in spite of all efforts being
made to rectify these issues, the success of our efforts will not be known for
sure until the Year 2000 actually arrives. However, based on our assessment to
date, we do not believe that expenses related to meeting Year 2000 challenges
will exceed $750,000, of which approximately $360,000 had been expended as of
June 1, 1999, although there can be no assurance in this regard.
Risks Related to Year 2000 Issues
The Year 2000 poses certain risks to our company and our operations. Some
of these risks are present because we purchase technology and information
systems applications from other parties who face Year 2000 challenges. Other
risks are present simply because we transact business with organizations who
also face Year 2000 challenges. Although it is impossible to identify all
possible risks that we may face moving into the next millennium, our management
has identified certain potential risks described above in the section entitled
"Risk Factors--Year 2000."
52
<PAGE> 54
Contingency Plans
We have developed contingency plans related to Year 2000 issues covering
approximately 80% of our systems. As we continue the testing phase, and based on
future ongoing assessment of the readiness of vendors and service providers, we
intend to develop appropriate contingency plans for our remaining systems. It is
possible that certain circumstances may occur for which there are no completely
satisfactory contingency plans.
QUARTERLY VARIATIONS
Our 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
television broadcasting, radio broadcasting, and sports & entertainment
segments. In particular, our net revenue and Operating Cash Flow historically
have been affected positively during the NBA basketball season (the first,
second, and fourth quarters) and by increased advertising activity in the second
and fourth quarters.
TAXES
At December 31, 1998, we had a net operating loss carryforward for federal
income tax purposes of approximately $15.7 million that expires in the years
2006 and 2007, and an alternative minimum tax credit carryforward of
approximately $2.3 million.
INFLATION
The effects of inflation on our costs generally have been offset by our
ability to correspondingly increase our 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, we do not engage in any transactions that would result in
the reporting of comprehensive income.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 2000. Because of our
minimal use of derivatives, our management does not anticipate that the adoption
of the new Statement will have a significant effect on our earnings or financial
position.
53
<PAGE> 55
BUSINESS
GENERAL INFORMATION
The Ackerley Group, Inc. was founded in 1975 as a Washington corporation.
We are a diversified media and entertainment company which engages in four
principal businesses: outdoor media, television broadcasting, radio
broadcasting, and sports & entertainment. Our outdoor media, television
broadcasting, radio broadcasting, and sports & entertainment segments accounted
for approximately 42%, 27%, 10%, and 21%, respectively, of our net revenue for
the year ended December 31, 1998.
Outdoor Media. We engage in outdoor advertising in selected markets in
Florida, Massachusetts, and the Pacific Northwest. At March 31, 1999, we had
9,353 outdoor displays in the markets of Miami-Fort Lauderdale and West Palm
Beach-Fort Pierce, Florida; Boston-Worcester, Massachusetts; Seattle-Tacoma,
Washington; and Portland, Oregon. We believe that we have the leading position
in outdoor advertising in each of these markets, based upon the number of
outdoor advertising displays.
Television Broadcasting. We engage in television broadcasting in New York,
California, Oregon, and Washington, and have agreed to acquire a television
station in Fairbanks, Alaska. Assuming completion of all pending acquisitions
and dispositions, we would own eleven television stations and operate two
additional television stations under time brokerage agreements. Consistent with
our strategy of local news leadership, eight of the ten network-affiliated
television stations we own or operate ranked first or second in their DMAs, in
terms of local news ratings points delivered, according to the February 1999
Nielsen Station Index.
Radio Broadcasting. We own and operate four radio stations in the
Seattle-Tacoma, Washington market, including KUBE(FM), the leading FM station in
the market in terms of Share of its MSA, according to the Winter 1999 Arbitron
Radio Market Report, and KJR(AM), the only sports talk station in the market.
KJR(AM) is tied for first place as the highest ranked sports talk radio station
in the United States in terms of Share of its MSA, according to the Winter 1999
Arbitron Radio Market Report.
Sports & Entertainment. Our sports & entertainment segment includes
ownership of the professional men's basketball franchise in Seattle, the Seattle
SuperSonics. The Seattle Supersonics have been the NBA's Pacific Division
Champions for three of the last four NBA seasons. Our Full House Sports &
Entertainment division provides marketing and promotional support for the
Seattle SuperSonics and coordinates related cross-media activities within our
company. We also are considering other investments in other Seattle-area sports
and entertainment activities which would utilize our marketing and promotional
infrastructure. For instance, we have been conditionally awarded operating
rights to a WNBA expansion team in Seattle.
OUTDOOR MEDIA
Our outdoor media business sells advertising space on outdoor displays and
often participates in the design of advertisements and the construction of
outdoor structures that carry those displays. Until our airport advertising
operations were sold on June 30, 1998, we also sold advertising space on
displays located in airport terminals.
54
<PAGE> 56
At March 31, 1999, we had 1,547 bulletins, 6,478 posters, and 1,328 junior
posters. The following chart itemizes the markets we serve and their designated
market area (DMA) rank:
<TABLE>
<CAPTION>
DMA JUNIOR
MARKET RANK(1) BULLETINS(2) POSTERS(2) POSTERS(2)
------ ------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
NORTHWEST:
Seattle-Tacoma....................... 12 243 1,696 292
Portland............................. 23 174 1,112 0
BOSTON:
Boston-Worcester..................... 6(3) 371 2,186 83
FLORIDA:
Miami-Fort Lauderdale................ 16 541 1,139 953
West Palm Beach-Fort Pierce.......... 44 218 345 0
</TABLE>
- -------------------------
(1) Source: Television & Cable Factbook, 1999 Edition. DMA rank is a measure of
market size in the United States based on population as reported by the
Nielsen Rating Service.
(2) Bulletins are generally fourteen feet high and forty-eight feet wide.
Posters, the most common type of billboard, are generally twelve feet high
by twenty-five feet wide. Junior posters are generally six feet high by
twelve feet wide.
(3) Reflects the DMA rank for the Boston market.
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.
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. We believe 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).
While outdoor advertising has been a stable source of revenue for us over
the last five years, the number and diversity of our advertisers have increased.
For example, we have seen an increase in outdoor advertising revenues from
retail, real estate, entertainment, media, and financial services companies. In
addition, we have seen an increase in customers who have not traditionally used
outdoor advertising, such as fashion designers, internet service providers and
internet-based businesses, and telecommunications companies.
We have actively sought to reduce the percentage of our revenue
attributable to tobacco products and to any individual company. As a result of
these efforts, no single outdoor advertiser accounted for more than 1% of our
consolidated revenue in 1998. In addition, outdoor tobacco advertising accounted
for approximately 3% of our consolidated revenue for that year. See
"-- Regulation" below.
We believe that our presence in large markets, the geographic diversity of
our operations, and our emphasis on local advertisers within each of our markets
lend stability to our revenue base, reduce our 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,
we anticipate that future growth in our outdoor advertising business
55
<PAGE> 57
will result primarily through diversification of our customer base, increased
demand brought about by creative marketing, and increased rates.
We own substantially all of our 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 leases may be terminated, such as where the property owner
develops or sells the property. If a lease is terminated, we generally seek to
relocate the display in order to maintain our inventory of advertising displays
in the particular geographic region. Display relocation is typically subject to
local zoning laws.
In August 1998, we announced the launch of AK MediaPrint, our in-house
large format printing business for vinyl billboards and other types of large
format signs. AK MediaPrint allows us to digitally design and produce artwork
which was once laid out by hand. AK MediaPrint's digital systems allow us to
produce a superior product that is brighter in color and sharper in text than
signs produced by traditional methods, to streamline the production process, and
to offer our clients a faster turnaround. In addition to producing signs and
billboards for our operating segments (which had previously been produced
externally), we intend to market AK MediaPrint's services to advertising and
other companies.
Acquisition. Our acquisition strategy for the outdoor media segment is to
acquire outdoor advertising companies with operations in and near our current
markets. On an opportunistic basis, we may also consider acquisitions outside
our current markets where such acquisitions meet a variety of operational and
financial criteria. On February 19, 1999, we purchased substantially all of the
assets of an outdoor advertising company in the Boston-Worcester, Massachusetts
market for approximately $11.0 million. We financed the acquisition with
borrowings under the 1999 Credit Agreement.
Airport Advertising
On June 30, 1998, we sold substantially all of the assets of our airport
advertising operations to Sky Sites, Inc., a subsidiary of Havas, S.A., pursuant
to an agreement dated May 19, 1998. The sale price consisted of a base cash
price of $40.0 million, paid on the closing date of the transaction, and an
additional cash payment of approximately $2.9 million, of which $1.2 million was
paid in December 1998 and the remainder was paid in January 1999. The pretax
gain on the transaction was approximately $35.3 million. The asset sale
agreement contained customary indemnification provisions by us and the buyer,
and also contains a noncompetition agreement whereby we have agreed not to
engage in the airport advertising business for a period of five years after the
closing date of the transaction. Prior to the sale, we engaged in airport
advertising for 18 years.
TELEVISION BROADCASTING
Our television broadcasting operations provide programming, sales, and
administrative services to our television stations and the sale of air time to a
broad range of national, regional, and local advertisers.
Assuming completion of all pending acquisitions and dispositions, we would
own eleven television stations and would operate two additional television
stations under time brokerage agreements. We currently own ten television
stations and operate two stations
56
<PAGE> 58
under time brokerage agreements. The following tables sets forth information
about our portfolio of television stations (including television stations we
plan to acquire and television stations operated under time brokerage
agreements) and the markets in which they operate.
<TABLE>
<CAPTION>
NO. OF
DATE COMMERCIAL
ACQUIRED PROPOSED DMA TV STATIONS
CALL OR NETWORK NTSC DIGITAL MARKET RANKED IN
DESIGNATED MARKET AREA LETTERS AFFILIATED AFFILIATION CHANNEL(1) CHANNEL RANK(2) MARKET(3)
- ---------------------- ------- ------------ ----------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW YORK
Syracuse, New York
(owned).............. WIXT May 1982 ABC 9 17 74 3 VHF
2 UHF(4)
Rochester, New York
(owned).............. WOKR April 1999 ABC 13 59 77 3 VHF
1 UHF
Binghamton, New York
(owned).............. WIVT July 1997 ABC 34 4 154 1 VHF
(5) 2 UHF
Utica, New York (time
brokerage
agreement)........... WUTR June 1997 ABC 20 30 168 1 VHF
(6) 2 UHF
CENTRAL COAST
Santa Barbara-Santa
Maria-San Luis
Obispo, California
(owned).............. KCOY January 1999 CBS 12 19 116 3 VHF
(7)
Monterey-Salinas,
California (owned;
pending sale; future
time brokerage
agreement)........... KCBA June 1986 FOX 35 13 119 1 VHF(9)
(8) 3 UHF
Monterey-Salinas,
California (pending
acquisition; interim
time brokerage
agreement)........... KION April 1996 CBS 46 32 119 1 VHF(9)
(10) 3 UHF
Bakersfield, California
(owned).............. KGET October 1983 NBC 17 25 130 4 UHF(11)
NORTH COAST
Eureka, California
(owned).............. KVIQ July 1998 CBS 6 17 191 2 VHF
(12) 2 UHF
Santa Rosa, California
(owned).............. KFTY April 1996 None 50 54 --(13) 6 VHF
12 UHF
Eugene, Oregon
(owned).............. KMTR December NBC 16 17 121 2 VHF
1998 (14) 3 UHF
PACIFIC NORTHWEST
Fairbanks, Alaska
(pending
acquisition)......... KTVF --(15) NBC/UPN 11 26 203 4 VHF
Vancouver, British
Columbia and portions
of Seattle,
Washington (owned)... KVOS June 1985 None 12 35 --(16) --(16)
</TABLE>
- -------------------------
(1) Refers to the current analog channel used by such station.
(2) Source: Television & Cable Fact Book, 1999 Edition.
(3) Source: Television & Cable Fact Book, 1999 Edition. The number of stations
listed does not include digital television stations, 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.
(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) We acquired WIVT in August 1998. Pending approval of the acquisition by the
FCC, we operated the station under a time brokerage agreement with the
previous owner. The date in this column reflects the date the time
brokerage agreement was entered into.
57
<PAGE> 59
(6) We do not own WUTR but operate 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.
(7) In December 1998, we entered into an asset exchange agreement, pursuant to
which we agreed to exchange KKTV, our former CBS affiliate licensed to
Colorado Springs, Colorado, for KCOY and a cash payment. From January 1,
1999 until closing of the asset exchange agreement on May 1, 1999, we
operated KCOY under a time brokerage agreement with the previous owner. The
date in this column reflects the date that the time brokerage agreement was
entered into.
(8) In November 1998, we entered into an agreement to sell substantially all
the assets of KCBA. Subject to FCC approval, we would continue to operate
the station after the sale pursuant to a time brokerage agreement with the
purchaser.
(9) One additional UHF channel has been allocated in the Monterey-Salinas
market; however, there has been no construction activity to date with
respect to this channel.
(10) In November 1998, we entered into a purchase agreement to acquire KION. The
purchase of this station is contingent upon our sale of KCBA, as described
in footnote (8). Pending approval of this acquisition by the FCC, we are
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.
(11) 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.
(12) We acquired KVIQ in January 1999. Pending approval of this acquisition by
the FCC, we operated the station under a time brokerage agreement with the
former owner. The date in this column reflects the date this time brokerage
agreement was entered into.
(13) 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.
(14) We acquired KMTR in March 1999. Pending approval of this acquisition by the
FCC, we operated the station under a time brokerage agreement with the
former owner. The date in this column reflects the date the time brokerage
agreement was entered into. The acquisition included the assets of two full
power satellite stations, KMTX (Roseburg, Oregon) and KMTZ (Coos Bay,
Oregon), and one low power station, KMOR-LP (Eugene, Oregon), all of which
we currently own.
(15) In August 1998, we entered into an agreement to purchase KTVF.
(16) KVOS, located in Bellingham, Washington, serves primarily the Vancouver,
British Columbia market (located in size, according to the Nielsen Rating
Service as of February 1999, 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
Television & Cable Factbook, 1999 Edition.
Acquisitions and Time Brokerage Agreements. We seek to acquire television
broadcast stations generally in DMA markets ranking from 50 to 200. We also
enter into time brokerage agreements with owners of television stations. Under
those agreements, we provide programming and sales services and make monthly
payments to station owners in exchange for the right to receive revenues from
network compensation and advertising sold by the stations. Over the past year,
we have acquired, sold, or entered into time brokerage agreements to operate the
following stations:
- On August 4, 1998, we entered into an agreement to purchase the assets of
KTVF(TV), a NBC affiliate licensed to Fairbanks, Alaska, for $7.2
million. The transaction is subject to, among other things, FCC approval,
which we received on June 29, 1999. We expect that this transaction will
close in the third quarter of 1999. In conjunction with this agreement,
on August 5, 1998, we granted an option to a third party for $0.5 million
to purchase the assets of KTVF(TV) for $6.7 million, plus certain
additional payments. The option may be exercised at any
58
<PAGE> 60
time beginning on the third anniversary of our acquisition of the station
through the seventh anniversary of the acquisition, subject to earlier
termination under certain circumstances. In addition, the optionee may
require us to repurchase the option for $0.5 million under certain
circumstances. The agreement and the option were recently amended as
described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Subsequent Events."
- On November 2, 1998, we entered into an agreement to purchase
substantially all of the assets of KION(TV), a CBS affiliate licensed to
Monterey, California, for $7.7 million, subject to certain reductions.
The purchase of this station is subject to FCC approval and closing prior
to December 31, 1999, and is contingent upon our sale of KCBA(TV) as
described below. Pending FCC approval of this transaction, we are
operating the station pursuant to a time brokerage agreement with the
current owner.
- On November 3, 1998, we entered into an agreement to sell substantially
all of the assets of KCBA(TV), our FOX affiliate licensed to Salinas,
California, for $11.0 million. This transaction is subject to FCC
approval and is contingent upon our purchase of KION(TV), as described
above. Subject to FCC approval, we would continue to operate the station
after the sale pursuant to a time brokerage agreement with the purchaser.
- Effective January 5, 1999, we purchased substantially all of the assets
of KVIQ(TV), the CBS affiliate licensed to Eureka, California, for
approximately $5.5 million, pursuant to an agreement dated July 15, 1998.
Pending closing of the transaction, we operated the station pursuant to a
time brokerage agreement with the former owner. The Company recorded net
assets with estimated fair values aggregating $0.5 million and goodwill
of $5.0 million in connection with the transaction.
- Effective March 16, 1999, we purchased substantially all of the assets of
KMTR(TV), the NBC affiliate licensed to Eugene, Oregon, together with two
satellite stations licensed to Roseburg and Coos Bay, Oregon and a low
power station licensed to Eugene. The purchase price was approximately
$26.0 million. Pending closing of the transaction, we operated the
stations pursuant to a time brokerage agreement with the former owner
since December 1, 1998. The Company recorded net assets with estimated
fair values aggregating $3.0 million and goodwill of $23.0 million in
connection with the transaction.
- On April 12, 1999, we purchased substantially all of the assets of
WOKR(TV), the ABC affiliate licensed to Rochester, New York, for
approximately $128.2 million. In September 1998, we paid $12.5 million of
the purchase price into an escrow account, with the balance paid at
closing. We recorded net assets with estimated fair values aggregating
$9.8 million and goodwill of $118.4 million in connection with the
transaction.
- On May 1, 1999, we exchanged substantially all of the assets plus certain
liabilities of KKTV(TV), our former CBS affiliate licensed to Colorado
Springs, Colorado, for substantially all of the assets plus certain
liabilities of KCOY(TV), the CBS affiliate licensed to Santa Maria,
California. In conjunction with the transaction, we also received a cash
payment of approximately $9.0 million. Pending closing of the
transaction, we operated KCOY(TV) and the former owner of KCOY(TV)
59
<PAGE> 61
operated KKTV(TV) pursuant to time brokerage agreements. We recorded net
assets with estimated fair values aggregating $7.2 million and goodwill
of $16.8 million in connection with the transaction.
Programming. The programming that each of our stations broadcasts depends
in part upon whether that station is affiliated with a major television network.
The television networks offer our network-affiliated stations a variety of
programs, and grant us a right of first refusal to broadcast network programs
before those programs can be offered to any other television station in the same
market. Our network-affiliated television stations operate under standard
contracts. These standard contracts are automatically renewed for successive
terms unless we or the network exercises cancellation rights. During the
broadcast of network programming, we have less commercial time available to sell
on our own behalf.
Our network-affiliated stations often pre-empt network programming with
alternative programming. By emphasizing non-network programming during certain
time periods, we increase the amount of commercial time available to us. 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(TV), 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(TV) is able to increase the
amount of time it is on the air in the Vancouver market.
Sales and Marketing. We receive revenues from the sale of advertising time
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 1998, local spot or schedule advertising, which is sold by our
personnel at each broadcast station, accounted for approximately 42% of our
television stations' total 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 our television
stations' total revenue.
We also receive revenue from our network affiliations. The networks pay us
an hourly rate that is tied to the number of network programs that our
television stations broadcast. Hourly rates are established in our agreements
with the networks and are subject to change by the networks. We have 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 our television stations' total revenue for 1998.
Digital CentralCasting. On April 6, 1999, we announced the launch of
Digital CentralCasting, a digital broadcasting system which will allow us to
consolidate back-office functions such as operations, programming and
advertising scheduling, and accounting for several television stations within a
regional group at one station. See "Prospectus Summary--Strategy--Use Advanced
Communications Technology to Create Regional Television Groups."
60
<PAGE> 62
RADIO BROADCASTING
Our radio broadcasting operations involve the sale of air time to a broad
range of national, regional, and local advertisers. In addition, we earn revenue
from the sale of sponsorships to a variety of events, such as concerts.
The following table sets forth information about our portfolio of radio
stations.
<TABLE>
<CAPTION>
NO. OF
MSA COMMERCIAL RADIO STATION FORMAT
MARKET RADIO STATIONS AND PRIMARY
MARKET CALL LETTERS DATE ACQUIRED RANK(1) IN MARKET(1) DEMOGRAPHIC TARGET
------ ------------ ------------- ------- -------------- -----------------------
<S> <C> <C> <C> <C> <C>
Seattle-Tacoma,...... KJR(AM) May 1984 14 9 AM Sports Talk;
Washington (2) Men 25-54
(owned) (3)
KJR-FM October 1987 20 FM Classic Hits;
(4) (2) Adults 25-54
KUBE(FM) July 1994 Top 40 Contemporary Hit
(5) Radio;
Persons 18-34
KHHO(AM) March 1998 Sports Talk;
Men 24-54
</TABLE>
- -------------------------
(1) Source: Winter 1999 Arbitron Radio Market Report. Metro Service Area ("MSA")
market rank is based on population as reported upon by The Arbitron Company.
(2) Reflects the dates on which we originally acquired the stations. We
contributed the stations' assets to New Century Seattle Partners L.P., a
Delaware limited partnership ("the Partnership") in 1994. We first acquired
a limited partnership interest in the Partnership in 1994 and, in 1998, the
Partnership became a wholly-owned subsidiary. Since then, the broadcast
licenses have been transferred to one of our other subsidiaries, and the
Partnership has been dissolved.
(3) KJR(AM) serves as the Seattle SuperSonics' flagship radio station.
(4) Formerly KLTX(FM).
(5) The date shown in the column reflects the date on which the Partnership
acquired the station from Cook Inlet, Inc.
Our radio stations derive most of their revenue from local, regional, and
national advertising and, to a lesser extent, from network compensation. In
1998, approximately 71% of our radio broadcasting 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.
Approximately 26% of the radio stations' 1998 revenue was received from
national spot or schedule advertising, which is sold primarily through national
independent sales representative firms on a commission-only basis. The remaining
revenue consisted of tower rentals and production fees.
SPORTS & ENTERTAINMENT
Our sports and entertainment business consists of ownership of our
professional sports franchise, the Seattle SuperSonics, and our marketing and
promotions business, Full House Sports & Entertainment ("Full House"). We are
also considering other investments in Seattle-area sports and entertainment
activities. For instance, we have been awarded operating rights to a WNBA
expansion team in Seattle, subject to advance sale of at least
61
<PAGE> 63
5,500 season tickets by December 31, 1999 and various other conditions regarding
operation of the team. Although we anticipate that these conditions will be
satisfied, there can be no assurance in this regard.
The SuperSonics franchise is one of 29 members of the National Basketball
Association, or "NBA." By virtue of our ownership of the Seattle SuperSonics
franchise we are a member of the NBA. Thus, we share in profits generated by the
NBA as a whole, and share joint and several liability for the NBA's debts and
other obligations. Revenues shared equally by NBA members include profits from
television broadcasting agreements, merchandising, the award of new NBA
franchises, and related activities.
A large portion of these revenues consist 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, although there can be
no assurance in this regard. Last year, the NBA renewed its contracts with NBC
and TBS/TNT through the 2001-2002 season. These contracts provided for minimum
total payments to the NBA over the four-year contract period of $2.6 billion.
However, as a result of the NBA lockout, the NBA may not receive the full $2.6
billion over the life of these contracts. In addition, we recognize certain
revenues from the NBA generally on a straight-line basis over the number of
regular season games played. The actual payments from the NBA for our share of
league revenues from merchandising and related activities occur subsequent to
the end of the basketball season, so our revenue accruals during the season are
based upon our estimate of such revenues, which in turn are calculated on the
basis of historical results and revenue estimates provided to us by the NBA. As
such, the actual revenues we receive from the NBA can and do differ from the
amounts we accrue based on our estimates. Due to the NBA lockout and related
factors, we expect that the actual revenues we will receive from the NBA for the
1998-99 season will be lower than the revenues we recognized in the first
quarter of 1999, and, accordingly we have reduced second quarter 1999 revenues
for the sports & entertainment segment by the estimated amount of this
shortfall. To the extent that the actual amount of the shortfall is greater than
our estimate, there will be a corresponding reduction in revenues in subsequent
quarters. See "Risk Factors--Adverse Impact of Certain Events on Second Quarter
Results," "Risk Factors--Sports & Entertainment" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Seattle SuperSonics have played in the Seattle-Tacoma area since the
NBA granted Seattle an NBA franchise in 1966. In November 1995, the team began
using the Key Arena, a 17,100-seat events facility, under a 15-year lease with
the City of Seattle. We acquired the Seattle SuperSonics in 1983.
Currently, the Seattle SuperSonics maintain a full roster of 12 active
players. The minimum roster under NBA rules is 11 players. The Seattle
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.
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 collective bargaining agreement expired on
June 30, 1998 and the players were locked out. Preseason and regular season
games scheduled through February 4, 1999 were cancelled.
62
<PAGE> 64
On January 7, 1999, the NBA Board of Governors ratified a new six-year
collective bargaining agreement between the NBA and the National Basketball
Players Association.
NBA teams play a regular season schedule of 82 games from November through
April, in addition to several preseason exhibition games. Due to the NBA
lockout, however, the 1998-99 NBA preseason and regular season games scheduled
through February 4, 1999 were cancelled. The season resumed on February 5, 1999,
ended May 4, 1999, and consisted of a shortened regular season in which each
team played 50 games (25 at home and 25 on the road), with playoffs in the usual
NBA format. Based on their regular season records, 16 teams qualify for
post-season play, which culminates in the NBA championship. Although the
SuperSonics did not participate in the 1998-99 playoffs, they have qualified for
post-season play in each of the prior five seasons and played for the NBA
championship in 1996.
Our revenues from the SuperSonics come from (1) our own activities, such as
ticket sales, merchandising, concessions, and multi-media advertising packages
(called sponsorship packages) that include local television and radio broadcast
advertising and display and sign advertising in Key Arena, and (2) our share of
NBA revenues, such as network television broadcasting rights, merchandising, and
the granting of new NBA franchises to new cities. In addition, Full House
manages sales and operations of the luxury suites and concessions for all events
at Key Arena.
A major source of revenue is ticket sales for home games. We receive
substantially all of the revenue from Seattle SuperSonics ticket sales. Revenue
from ticket sales depends highly on the Seattle SuperSonics win/loss record.
Average paid attendance per game was 14,451 in the 1998-99 season, down from
15,424 in the prior season primarily due to the NBA lockout.
A majority of the Seattle SuperSonics games are broadcast on three
Seattle-Tacoma area television stations, KSTW, KONG and KTZZ, and one cable
station, FOX. All of the SuperSonics' games are broadcast exclusively in the
Seattle-Tacoma area over radio stations KJR(AM) and KHHO(AM), which we own. We
also license radio stations owned by other broadcasting companies to carry
SuperSonics games.
For additional information regarding our sports & entertainment segment's
operations and NBA-related matters, see "Risk Factors--Sports & Entertainment."
COMPETITION
We compete directly with other advertising media companies, including
providers of outdoor advertising, 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 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.
The outdoor advertising industry is highly fragmented, although several
large outdoor advertising and media companies with operations in multiple
markets exist. However, the predominant basis of competition in outdoor
advertising is local. Within our outdoor advertising markets, we believe we are
well positioned versus our competition due to our significant presence in such
markets, the quality of our displays, and our emphasis on sales and customer
service.
63
<PAGE> 65
With respect to our television broadcasting operations, maintenance of our
competitive positions in our broadcast markets generally depends upon 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.
Historically, cable television system operators and high-powered direct
broadcast satellite service producers have not competed with local television
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 our advertising revenue.
With respect to our radio broadcasting operations, maintenance of the
competitive position of each of our radio stations is dependent upon a number of
factors, including (1) the station's rank within the market, (2) transmitter
power, (3) assigned frequency, (4) audience characteristics, (5) audience
acceptance of the station's local programming, and (6) 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, our radio stations' ratings are regularly
affected by these factors and changing formats.
Our Sports & Entertainment operations compete directly with other
professional and amateur sporting franchises and events, both in the
Seattle-Tacoma market area and nationally via sports broadcasting. We also
compete indirectly with other types of entertainment, including television,
radio, newspapers, live performances, and other events. Because we own the only
NBA franchise located in the Seattle-Tacoma metropolitan area, we experience no
significant local competition involving professional basketball. We compete with
professional football and baseball franchises located in the Seattle-Tacoma
metropolitan area, as well as with local college sporting events.
REGULATION
Outdoor Media. 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. Most jurisdictions have recently proposed or enacted
regulations restricting or banning outdoor advertising of tobacco or liquor,
while the major tobacco companies and the Attorneys General of 46 states
recently entered into agreements which eliminate all cigarette advertising on
outdoor displays. Likewise, regulations in certain jurisdictions prohibit the
construction of new outdoor displays or the replacement, relocation,
enlargement, or upgrading of existing structures.
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. Our policy, when
a governmental entity seeks to remove one of our outdoor advertising displays,
is to actively resist such removal unless adequate compensation is paid.
For additional information regarding the regulation of outdoor advertising,
see "Risk Factors--Outdoor Media--Regulation of Outdoor Advertising."
64
<PAGE> 66
Television and Radio Broadcasting. Our 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
we 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, our television and radio broadcasting operations are
primarily regulated by the FCC. The FCC, for example, approves all transfers,
assignments and renewals of our broadcasting properties.
The Communications Act requires broadcasters to serve the public interest.
Thus, our television and radio stations are required to present some programming
that is responsive to community problems, needs, and interests. We must also
broadcast informational and educational programming for children, and limit the
amount of commercials aired during children's programming. We are also required
to maintain records demonstrating our broadcasting of public interest
programming. FCC rules impose restrictions on the broadcasting of political
advertising, sponsorship identifications, and the advertisement of contests and
lotteries.
KVOS(TV), which derives much of its revenue from the Vancouver, British
Columbia market, 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(TV) sells advertising time in
Canada at a discounted rate. In addition, Canadian law limits KVOS(TV)'s ability
to broadcast certain programming.
Affirmative Action. Until recently, FCC rules required us to develop and
implement programs designed to promote equal employment opportunities. A federal
court struck down the FCC's equal employment opportunity rules, and the FCC has
proposed revised rules. There are currently no such FCC rules in effect.
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 (1) prohibit a cable operator from carrying its signal, or (2)
consent to a cable operator's rebroadcast of the broadcaster's signal, either
without compensation or pursuant to a negotiated compensation arrangement.
The eight network-affiliated television stations (KCBA, KGET, KVIQ, KMTR,
KCOY, WIVT, WIXT and WOKR) that we own have chosen retransmission consent
65
<PAGE> 67
rights, rather than must-carry rights, for substantially all of the cable
systems within their respective markets. These stations have granted consents to
their local cable operators for the rebroadcast of their signals. The two
network-affiliated stations that we operate under time brokerage agreements
(KION and WUTR) also have chosen retransmission consent rights within their
respective markets.
The FCC has initiated a rulemaking proceeding to consider whether to apply
must-carry rules to require cable companies to carry both the analog and digital
signals of local broadcasters during the digital television ("DTV") transition
period between 2002 and 2006 when television stations will be broadcasting both
signals. If the FCC does not implement DTV must-carry rules, cable customers in
our broadcast markets may not receive the station's digital signal, which could
have an adverse affect on our business.
FCC Rule Changes. Communications laws and FCC rules are subject to change.
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 our broadcasting
operations.
Congress and the FCC are currently considering many new laws, regulations,
and policies that could affect our broadcasting operations. For instance,
Congress and/or the FCC currently are considering proposals to:
- impose spectrum use or other fees upon broadcasters;
- adopt revised FCC equal employment opportunity rules and other rules
relating to minority and female employment in the broadcasting industry;
- revise rules governing political broadcasting, which may require stations
to provide free advertising time to political candidates;
- permit expanded use of FM translator stations or the creation of
microradio stations;
- restrict or prohibit broadcast advertising of alcoholic beverages;
- change broadcast technical requirements;
- auction the right to use radio and television broadcast spectrum;
- expand the operating hours of daytime-only stations; and
- revise the FCC's television ownership and attribution rules.
We cannot predict the likelihood of Congress or the FCC adopting any of
these proposals. If any should be adopted, we cannot assess their impact on our
broadcasting operations. In addition, we cannot predict the other changes that
Congress or the FCC might consider in the future.
For additional information regarding the regulation of television and radio
broadcasting, see "Risk Factors--Television and Radio Broadcasting."
66
<PAGE> 68
RESTRICTIONS ON OUR OPERATIONS
In addition to restrictions on our operations imposed by governmental
regulations, franchise relationships and other restrictions discussed above, our
operations are subject to additional restrictions imposed by our current
financing arrangements. See "Risk Factors--Leverage; Restrictions Under Debt
Instruments; Covenant Compliance--Restrictions Imposed by Debt Instruments;
Pledge of Assets."
In addition, we are required to maintain specified financial ratios,
including maximum leverage ratios, a minimum interest coverage ratio, and a
minimum fixed charge coverage ratio. The 1999 Credit Agreement also provides
that it is an event of default thereunder if the Ackerley family (as defined)
owns less than a 51% of the outstanding voting stock of our company. Similarly,
upon a Change of Control (as defined in the Indenture), the 9% Senior
Subordinated Note holders may require us to repurchase their notes.
We have pledged substantially all of the stock and assets of our
subsidiaries to secure our obligations under the 1999 Credit Agreement. In
addition, nearly all of our subsidiaries have provided guarantees of our
obligations under the 1999 Credit Agreement and the Indenture. In the event of a
default under the 1999 Credit Agreement, the bank lenders could demand immediate
payment of the principal of and interest on all such indebtedness, and could
force a sale of substantially all of our subsidiaries and their assets to
satisfy our obligations. Likewise, because of cross-default provisions in our
debt instruments, a default under the 1999 Credit Agreement or the Indenture
could result in acceleration of indebtedness outstanding under other debt
instruments.
Additional information concerning the 1999 Credit Agreement and the
Indenture is set forth in Note 7 to the 1998 Financial Statements.
FINANCIAL INFORMATION REGARDING BUSINESS SEGMENTS
Financial information concerning each of our business segments is set forth
in Note 14 to the 1998 Financial Statements.
LEGAL PROCEEDINGS
We become involved, from time to time, in various claims and lawsuits
incidental to the ordinary course of our operations, including such matters as
contract and lease disputes and complaints alleging employment discrimination.
In addition, we participate in various governmental and administrative
proceedings relating to, among other things, condemnation of outdoor advertising
structures without payment of just compensation and matters affecting the
operation of broadcasting facilities. For further information regarding certain
legal proceedings in which we are currently involved, see "Risk Factors--Legal
Proceedings."
67
<PAGE> 69
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and positions of individuals
who are serving as our directors and executive officers. 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....... 65 Chairman and Chief Executive Officer
Gail A. Ackerley........ 61 Co-Chairman and Co-President
Deborah L. Bevier....... 48 Director
M. Ian G. Gilchrist..... 49 Director
Michel C. Thielen....... 65 Director
Denis M. Curley......... 51 Co-President and Chief Financial Officer,
Secretary, and Treasurer
Christopher H. 30 Executive Vice President, Operations and
Ackerley.............. Development
Keith W. Ritzmann....... 47 Senior Vice President and Chief Information
Officer, Assistant Secretary, and Controller
</TABLE>
Mr. Barry A. Ackerley, one of our founders, assumed the responsibilities of
President and Chief Operating Officer following the resignation of Donald E.
Carter effective March 1991 and served until April 1991. He has been the Chief
Executive Officer and a director of The Ackerley Group and its predecessor and
subsidiary companies since 1975. He also currently serves as our Chairman.
Ms. Gail A. Ackerley was elected to our Board of Directors in May 1995. She
became Co-Chairman in September 1996, and was elected as one of our
Co-Presidents in November 1996. Ms. Ackerley has served as Chair of Ackerley
Corporate Giving since 1986, supervising the Company's charitable activities.
Ms. Deborah L. Bevier is the Chief Executive Officer and President of Laird
Norton Trust Company, a personal investment and trust services company. She also
serves as a member of the Board of Directors of Laird Norton Trust Company and
the Laird Norton Financial Group. Prior to joining Laird Norton Trust Company in
1996, she served as Chairman and Chief Executive Officer of Key Bank of
Washington and Northwest Region Executive for Key Private Bank.
Mr. M. Ian G. Gilchrist was elected to the Board of Directors in May 1995.
He is a Managing Director of Salomon Smith Barney Inc., an investment banking
firm. Prior to joining a predecessor to that company in May 1995, Mr. Gilchrist
was a Managing Director of CS First Boston Corporation.
Mr. Michel C. Thielen has served as one of our directors 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. Denis M. Curley, who joined us 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 our Chief Financial Officer since May
1988. Mr. Curley also presently serves as Secretary and Treasurer.
68
<PAGE> 70
Mr. Christopher H. Ackerley joined us in 1995. He was elected Vice
President for Marketing and Development in May 1998, and was elected Executive
Vice President, Operations and Development in January 1999.
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.
DIVISION MANAGEMENT
The following table sets forth information concerning the senior managers
of our principal operating divisions.
<TABLE>
<CAPTION>
NAME POSITION(S)
---- -----------
<S> <C>
Outdoor Media:
Randal G. Swain.................. Senior Vice President, AK Media Group, Inc.,
and President, AK Media Northwest
Television Broadcasting:
Steve Kimatian................... Senior Vice President, AK Media Group, Inc.,
Senior Vice President, Central NY News, Inc.,
and General Manager, WIXT(TV)
Radio Broadcasting:
Michele Grosenick................ President and General Manager, New Century
Media
Sports & Entertainment:
John Dresel...................... President, Full House Sports & Entertainment
Walter F. ("Wally") Walker....... President, Seattle SuperSonics
</TABLE>
Mr. Randal G. Swain was named Senior Vice President of AK Media Group, Inc.
in December 1998. He has served as President of the Company's Northwest outdoor
division, AK Media Northwest, since 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. Steve Kimatian was named Senior Vice President of AK Media Group, Inc.
in May 1999. In addition, Mr. Kimatian serves as Senior Vice President of
Central NY News, Inc. and the General Manager of our Syracuse ABC affiliate,
WIXT, a position he has held since 1995. Prior to joining WIXT, Mr. Kimatian was
President and General Manager of ABC affiliates WJZ-TV, Baltimore and WKBW-TV,
Buffalo and the six-station network of Maryland Public Television. He has 27
years of industry experience.
Ms. Michele Grosenick was named President and General Manager of New
Century Media in May 1999. As President and General Manager, Ms. Grosenick
oversees the operations of radio stations KJR(AM), KHHO(AM), KJR-FM and
KUBE(FM). Prior to becoming President and General Manager, Ms. Grosenick was the
Director of Sales for New Century Media. Ms. Grosenick has worked at KUBE since
she started in 1980 as a sales associate. She has 19 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),
69
<PAGE> 71
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.
70
<PAGE> 72
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock and Class B Common Stock as of June 1, 1999, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby,
with respect to (1) each person known by us to own beneficially more than 5% of
the outstanding shares of Common Stock or Class B Common Stock, (2) Barry A.
Ackerley, our Chairman and Chief Executive Officer, and The Ginger and Barry
Ackerley Foundation (collectively, the "Selling Stockholders"), (3) each of our
executive officers and directors, and (4) all of our executive 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.
<TABLE>
<CAPTION>
COMMON STOCK CLASS B COMMON STOCK
-------------------------------------------------------------------- ------------------------------
NUMBER OF SHARES
NUMBER OF PERCENT OF BENEFICIALLY OWNED NUMBER OF PERCENT OF
SHARES CLASS AFTER THE OFFERING SHARES CLASS
BENEFICIALLY BENEFICIALLY SHARES BEING ------------------- BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED(1) OWNED(1) OFFERED NUMBER % OWNED(1) OWNED(1)
---------------- ------------ --------------- ------------ ----------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Barry A. Ackerley.... 9,894,043(2) 48.1% 1,000,000 8,894,043 37.7% 10,954,699(2) 99.1%
Gail A. Ackerley..... 9,894,043(3) 48.1% -- 8,894,043 37.7% 10,954,699(3) 99.1%
Deborah L. Bevier.... 569 * -- 569 * -- --
M. Ian G.
Gilchrist.......... 569 * -- 569 * -- --
Michel C. Thielen.... 4,256 * -- 4,256 * -- --
Denis M. Curley...... 58,423 * -- 58,423 * -- --
Christopher H.
Ackerley........... 18,928 * -- 18,928 * 12,618 *
Keith W. Ritzmann.... 11,854 * -- 11,854 * 200 *
Gabelli Funds,
Inc................ 3,392,200 16.5% -- 3,392,200 14.4% -- --
One Corporate
Center
Rye, NY 10580-1434
The Ginger and Barry
Ackerley
Foundation....... 528,812 2.6% 200,000 328,812 1.4% -- --
All Directors and
Executive Officers
as
a group (8
persons)......... 9,988,642 48.5% -- 8,988,642 38.1% 10,967,517 99.2%
</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. The amount
shown 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 9,886,779 shares of Common Stock and 10,954,435 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.
71
<PAGE> 73
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of Common Stock
and 11,406,510 shares of Class B Common Stock. At June 1, 1999, 20,578,141
shares of Common Stock and 11,051,230 shares of Class B Common Stock were
outstanding. After giving effect to the issuance and sale of the Common Stock
being offered hereby, we will have outstanding 23,578,141 shares of Common Stock
and 11,051,230 shares of Class B Common Stock, based on shares outstanding at
June 1, 1999.
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 our 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 our 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, our
Chairman of the Board and Chief Executive Officer, will beneficially own
approximately 37.7% of the outstanding shares of Common Stock and approximately
99.1% of the outstanding shares of Class B Common Stock, giving him
approximately 88.3% of the combined voting power of our voting securities. So
long as Mr. Ackerley continues to own or control stock having a majority of the
combined voting power of our voting securities, he will have the power to elect
all of our 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
delay or prevent any other person or entity from acquiring or taking control of
The Ackerley Group without his approval, whether or not the transaction could
provide stockholders with a premium over the then-prevailing market price of
their shares or would otherwise be in their best interests. 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 our
Board of Directors 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, subject to any applicable
governmental ownership, control, or voting restrictions.
Restrictions on Ownership and Transfer of Common Stock and Class B Common
Stock. Our Bylaws provide that no shares shall be issued or transferred to any
person
72
<PAGE> 74
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, our
Certificate of Incorporation provides that, so long as we or any of our
subsidiaries hold authority from the FCC (or any successor thereto) to operate
any television or radio broadcast station, if we have reason to believe that the
ownership, or proposed ownership, of shares of our capital stock by any
stockholder or any person presenting any shares of our capital stock for
transfer into his name (a "Proposed Transferee") may be inconsistent with, or in
violation of, any Federal Communications Laws (as defined therein), such
stockholder or Proposed Transferee, upon our request, is required to furnish
such information (including, without limitation, information with respect to
citizenship, other ownership interests and affiliations) as we shall reasonably
request to determine whether the ownership of, or the exercise of any rights
with respect to, shares of our capital stock by such stockholder or Proposed
Transferee is inconsistent with, or in violation of, the Federal Communications
Laws. If any stockholder or Proposed Transferee from whom such information is
requested shall fail to respond to such request, or if we 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, we 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 we have
determined that such transfer, or the exercise of such suspended rights, as the
case may be, is permissible under the Federal Communications Laws. We 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.
The ownership and transfer of Common Stock and Class B Common Stock is also
subject to restrictions under the Constitution and Bylaws of the NBA. See "Risk
Factors--Restrictions on the Ownership and Transfer of Common Stock." These
restrictions, as well as those set forth in our Bylaws and Certificate of
Incorporation and the Communications Act, could adversely affect the ability of
investors to own or transfer our Common Stock.
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 (1) spouses
and former spouses of the current holder, and the current holders' estates; (2)
the original holders of the Class B
73
<PAGE> 75
Common Stock, their spouses and former spouses, and their lineal descendants
(including lineal descendants of their spouses and former spouses); (3) entities
controlled by, or solely benefitting, the current holder or a Permitted
Transferee (such as trusts, corporations, charitable organizations, and
partnerships); and (4) our 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 Ackerley Group, 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. None of our stockholders has preemptive or other rights to subscribe
for additional shares of our stock. All outstanding shares of Common Stock and
Class B Common Stock are, and the shares of Common Stock to be sold by us in the
offering hereby will be, fully paid and nonassessable.
Our Certificate of Incorporation provides that, if we subdivide or combine
the outstanding shares of Common Stock or Class B Common Stock, we are required
to proportionately subdivide or combine the outstanding shares of the other
class of capital stock.
Our Certificate of Incorporation eliminates, in certain circumstances, the
liability of our directors and former directors for monetary damages for breach
of their fiduciary duty as directors. This provision does not eliminate or limit
the liability of a director (1) for a breach of the director's duty of loyalty
to us or our stockholders; (2) for acts or omissions by the director not in good
faith or which involve intentional misconduct or a knowing violation of law; (3)
for a willful or negligent declaration and payment of an unlawful dividend,
stock purchase or redemption; (4) for transactions from which the director
derived an improper personal benefit; or (5) for any act or omission which
occurred before such section of our Certificate of Incorporation became
effective.
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 (1) 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; (2) 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 (3) 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
74
<PAGE> 76
certificate of incorporation may exclude such corporation from the restrictions
imposed by Section 203, our Certificate of Incorporation does not exclude us
from those restrictions.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is First Union
National Bank.
75
<PAGE> 77
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and The Ackerley Group and the Selling Stockholders have agreed to
sell to such underwriter, the number of shares set forth opposite the name of
such underwriter.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Salomon Smith Barney Inc....................................
First Union Capital Markets Corp............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
---------
Total............................................. 4,200,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., First Union Capital
Markets Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting
as representatives, propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share on
sales to certain other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and the
other selling terms.
The Ackerley Group has granted to the underwriters an option, exercisable
for 30 days from the date of this prospectus, to purchase up to 630,000
additional shares of Common Stock at the public offering price less the
underwriting discount. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent such option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares
approximately proportionate to such underwriter's initial purchase commitment.
The Ackerley Group, our executive officers and directors, certain of our
employees, 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 Salomon Smith Barney Inc., sell or otherwise dispose of any shares of
Common Stock or Class B Common Stock or any securities convertible into or
exchangeable for Common Stock or Class B Common Stock, other than the shares to
be sold in this offering. Salomon Smith Barney Inc. in its
76
<PAGE> 78
sole discretion may release any of the securities subject to these lock-up
agreements at any time without notice.
The Common Stock is listed on the New York Stock Exchange under the symbol
"AK."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by The Ackerley Group and the Selling Stockholders in
connection with this offering. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional shares of
Common Stock.
<TABLE>
<CAPTION>
PAID BY PAID BY SELLING
THE ACKERLEY GROUP STOCKHOLDERS
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share...................... $ $ $ $
Total.......................... $ $ $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of Common Stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of Common Stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the Common Stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of Common Stock made for the purpose of preventing or retarding a
decline in the market price of the Common Stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the Common Stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the New York
Stock Exchange or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
The Ackerley Group estimates that the total expenses of this offering will
be $515,000.
The Ackerley Group and the Selling Stockholders have agreed to indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the underwriters may be
required to make in respect of any of those liabilities.
Some of the underwriters and their affiliates have provided certain
investment banking, commercial banking, transfer agent, and advisory services
for The Ackerley Group from time to time, and may in the future provide similar
services for The Ackerley Group.
M. Ian G. Gilchrist, a Managing Director of Salomon Smith Barney Inc., one
of the representatives, serves as one of our directors. See "Management."
77
<PAGE> 79
As described under "Use of Proceeds," The Ackerley Group intends to use the
net proceeds from the offering of the Common Stock to repay indebtedness
outstanding under the 1999 Credit Agreement. Certain of the lenders under the
1999 Credit Agreement include affiliates of certain of the underwriters. These
lenders may in the aggregate receive more than 10% of the net proceeds from the
offering of the Common Stock in the form of repayment of borrowings outstanding
under the 1999 Credit Agreement. Accordingly, the offering of the Common Stock
is being made pursuant to Conduct Rule 2710(c)(8) 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 Ackerley Group and the Selling Stockholders by Graham & Dunn
PC, Seattle, Washington. Certain legal matters will be passed upon for the
Selling Stockholders by Jonathan Lapin, Esq., special New York counsel to the
Selling Stockholders. Graham & Dunn PC will rely, as to certain matters of New
York law, on the opinion of Jonathan Lapin, Esq. Certain legal matters
concerning federal communications law and other legal matters are being passed
upon for The Ackerley Group by Rubin, Winston, Diercks, Harris & Cooke, L.L.P.,
Washington, D.C. and by Eric M. Rubin, our General Counsel. Mr. Rubin, our
General Counsel and a partner in Rubin, Winston, Diercks, Harris & Cooke,
L.L.P., beneficially owns 54,600 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, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998 and the financial statements of WOKR(TV) at December 31, 1998
and for the year then ended appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), covering the shares of Common Stock offered hereby. This
prospectus does not contain all of the information included in the registration
statement. Any statement made in this prospectus concerning the contents of any
contract, agreement or other document is not necessarily complete. If we have
filed any such contract, agreement or other document as an exhibit to the
registration statement, you should read the exhibit for a more complete
understanding of the document or matter involved. Each statement regarding a
contract, agreement or other document is qualified in its entirety by reference
to the actual document. We are required to file periodic reports and other
information with
78
<PAGE> 80
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Accordingly, we file reports and other information with the SEC.
You may read and copy the registration statement, including the attached
exhibits, and any reports, statements or other information that we file, at the
SEC's public reference room at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549-1004, and at the SEC's Midwest Regional Office located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and
its Northeast Regional Office located at 7 World Trade Center, Suite 1300, New
York, New York 10048. You can request copies of these documents, upon payment of
a duplicating fee, by writing to the SEC at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549-1004. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC's Internet site
(http://www.sec.gov).
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. These incorporated documents contain important
business and financial information about us that is not included in or delivered
with this prospectus. The information incorporated by reference is considered to
be part of this prospectus. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superceded for purposes of this prospectus to the extent that a
statement herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supercedes such
statement. Any such statement so modified or superceded shall not be deemed,
except as so modified or superceded, to constitute a part of this prospectus.
The following documents which we have filed with the SEC, and all other
documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this prospectus and prior to the
termination of the offering of Common Stock made hereby, are incorporated by
reference into this prospectus:
(1) Our Annual Report on Form 10-K for the year ended December 31,
1998;
(2) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
1999; and
(3) Our Current Reports on Form 8-K filed March 2, April 21, April 27,
June 17, and July 12, 1999.
These filings are available at the SEC's offices and internet site
described above. They are also available to any person to whom a copy of this
prospectus is delivered, without charge, directly from us. To obtain such
materials, please contact Denis M. Curley, The Ackerley Group, Inc., 1301 Fifth
Avenue, Suite 4000, Seattle, Washington 98101. Our telephone number is (206)
624-2888.
79
<PAGE> 81
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
THE ACKERLEY GROUP, INC.
Report of Ernst & Young LLP, independent auditors........... F-2
Consolidated balance sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated statements of income for the years ended
December 31, 1998, 1997, and 1996......................... F-4
Consolidated statements of stockholders' deficiency for the
years ended December 31, 1998, 1997, and 1996............. F-5
Consolidated statements of cash flows for the years ended
December 31, 1998, 1997, and 1996......................... F-6
Notes to consolidated financial statements.................. F-7
Condensed consolidated balance sheets as of March 31, 1999
and December 31, 1998..................................... F-25
Condensed consolidated statements of operations for the
three month periods ended March 31, 1999 and 1998......... F-26
Condensed consolidated statements of cash flows for the
three month periods ended March 31, 1999 and 1998......... F-27
Notes to condensed consolidated financial statements........ F-28
WOKR(TV)
Report of Ernst & Young LLP, independent auditors........... F-33
Balance sheet as of December 31, 1998....................... F-34
Statement of income for the year ended December 31, 1998.... F-35
Statement of cash flows for the year ended December 31,
1998...................................................... F-36
Notes to financial statements............................... F-37
Balance sheets as of March 31, 1999 and December 31, 1998... F-42
Statement of income for the three-month period ended March
31, 1999.................................................. F-43
Statement of cash flows for the three-month period ended
March 31, 1999............................................ F-44
Notes to first quarter 1999 financial statements............ F-45
</TABLE>
F-1
<PAGE> 82
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, 1998 and 1997, and the related
consolidated statements of income, stockholders' deficiency, and cash flows for
each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Seattle, Washington
March 16, 1999
F-2
<PAGE> 83
THE ACKERLEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 4,630 $ 3,656
Accounts receivable, net of allowance ($1,435 in 1998,
$1,498 in 1997)......................................... 44,680 52,923
Current portion of broadcast rights....................... 7,339 7,349
Prepaid expenses.......................................... 10,212 12,360
Deferred tax asset........................................ 4,497 11,499
Other current assets...................................... 3,883 4,734
-------- --------
Total current assets............................... 75,241 92,521
Property and equipment, net................................. 113,108 94,968
Goodwill, net............................................... 70,034 33,279
Other intangibles, net...................................... 7,780 9,039
Other assets................................................ 49,963 36,578
-------- --------
Total assets....................................... $316,126 $266,385
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable.......................................... $ 8,004 $ 9,103
Accrued interest.......................................... 694 3,995
Other accrued liabilities................................. 11,861 19,071
Deferred revenue.......................................... 27,736 23,857
Current portion of broadcasting obligations............... 8,139 8,346
Current portion of long-term debt......................... 3,101 16,130
-------- --------
Total current liabilities.......................... 59,535 80,502
Long-term debt, less current portion........................ 266,999 213,294
Litigation accrual.......................................... 8,016 8,072
Other long-term liabilities................................. 7,417 9,426
-------- --------
Total liabilities.................................. 341,967 311,294
Commitments and contingencies
Stockholders' deficiency:
Common stock, par value $.01 per share--authorized
50,000,000 shares; issued 21,951,380 and 21,855,398
shares at December 31, 1998 and 1997 respectively; and
outstanding 20,576,434 and 20,480,452 shares at December
31, 1998 and 1997 respectively.......................... 219 218
Class B common stock, par value $.01 per share--authorized
11,406,510 shares; issued and outstanding 11,051,230 and
11,053,510 shares at December 31, 1998 and 1997
respectively............................................ 111 111
Capital in excess of par value.............................. 10,339 9,816
Deficit..................................................... (26,421) (44,965)
Less common stock in treasury, at cost (1,374,946 shares)... (10,089) (10,089)
-------- --------
Total stockholders' deficiency..................... (25,841) (44,909)
-------- --------
Total liabilities and stockholders' deficiency..... $316,126 $266,385
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 84
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue............................................... $292,907 $306,169 $279,662
Less agency commissions and discounts................. 36,256 34,994 32,364
-------- -------- --------
Net revenue........................................... 256,651 271,175 247,298
Expenses (other income):
Operating expenses.................................. 209,030 210,752 186,954
Amortization........................................ 4,839 4,146 6,404
Depreciation........................................ 11,735 11,957 10,592
Interest expense.................................... 25,109 26,219 24,461
Stock compensation expense.......................... 452 9,344 --
Gain on disposition of assets....................... (33,524) -- --
Litigation expense (adjustment)..................... -- (5,000) --
-------- -------- --------
Total expenses and other income.............. 217,641 257,418 228,411
Income before income taxes and extraordinary item..... 39,010 13,757 18,887
Income tax benefit (expense).......................... (15,487) 19,172 (2,758)
-------- -------- --------
Income before extraordinary item...................... 23,523 32,929 16,129
Extraordinary item: loss on debt extinguishment....... (4,346) -- (355)
-------- -------- --------
Net income............................................ $ 19,177 $ 32,929 $ 15,774
======== ======== ========
Earnings per common share:
Income per common share, before extraordinary item.... $ .75 $ 1.05 $ .52
Extraordinary item: loss on debt extinguishment....... (.14) -- (.01)
-------- -------- --------
Net income per common share........................... $ .61 $ 1.05 $ .51
======== ======== ========
Earnings per common share--assuming dilution:
Income per common share, before extraordinary item.... $ .74 $ 1.04 $ .51
Extraordinary item: loss on debt extinguishment....... (.14) -- (.01)
-------- -------- --------
Net income per common share........................... $ .60 $ 1.04 $ .50
======== ======== ========
Weighted average number of shares..................... 31,627 31,345 31,166
Weighted average number of shares--assuming
dilution............................................ 31,883 31,652 31,760
</TABLE>
See accompanying notes.
F-4
<PAGE> 85
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
CLASS B COMMON
COMMON STOCK COMMON STOCK 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, 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)
Stock compensation,
exercise of stock
options and stock
conversions........... 663,964 6 (300,300) (3) 6,561 -- --
Stock issued to
directors............. 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)
---------- ---- ---------- ---- ------- -------- --------
Stock compensation,
exercise of stock
options and stock
conversions........... 92,880 1 (2,280) -- 463 -- --
Stock issued to
directors............. 3,102 -- -- -- 60 -- --
Cash dividend, $0.02 per
share................. -- -- -- -- -- (633) --
Net income.............. -- -- -- -- -- 19,177 --
---------- ---- ---------- ---- ------- -------- --------
Balance, December 31,
1998.................. 21,951,380 $219 11,051,230 $111 $10,339 $(26,421) $(10,089)
========== ==== ========== ==== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 86
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Reconciliation of net income to net cash provided by
operating activities:
Net income................................................ $ 19,177 $ 32,929 $ 15,774
Adjustment to reconcile net income to net cash provided by
operating activities:
Litigation expense adjustment........................... -- (5,000) --
Stock compensation expense.............................. 452 9,344 --
Deferred tax expense (benefit).......................... 15,130 (19,798) --
Debt extinguishment, net of taxes....................... (394) -- 355
Depreciation and amortization........................... 16,574 16,103 16,996
Amortization of deferred financing costs................ 713 1,790 1,379
Gain on disposition of assets........................... (33,524) (155) (423)
Amortization of broadcast rights........................ 10,283 8,957 8,765
Income from barter transactions......................... (1,645) (1,535) (2,480)
Change in assets and liabilities:
Accounts receivable..................................... 7,760 (9,169) (164)
Prepaid expenses........................................ 1,958 976 (6,236)
Other current assets and other assets................... (3,545) (3,418) (14,411)
Accounts payable and accrued interest................... (4,483) 4,120 1,066
Other accrued liabilities and other long-term
liabilities........................................... (6,038) (1,663) 2,147
Deferred revenues....................................... 3,879 3,807 1,781
Current portion of broadcast obligations................ (11,453) (9,278) (8,212)
--------- -------- --------
Net cash provided by operating activities................. 14,844 28,010 16,337
Cash flows from investing activities:
Proceeds from disposition of assets....................... 41,237 -- --
Proceeds from sale of property and equipment.............. 294 275 1,474
Payments for acquisitions................................. (55,759) (2,483) (20,445)
Capital expenditures...................................... (32,719) (17,593) (13,124)
--------- -------- --------
Net cash used in investing activities.............. (46,947) (19,801) (32,095)
Cash flows from financing activities:
Borrowings under credit agreements........................ 461,100 27,000 38,000
Repayments under credit agreements........................ (419,588) (33,283) (23,825)
Payments under capital lease obligations.................. (765) (817) (714)
Dividends paid............................................ (633) (623) (623)
Payments of deferred financing costs...................... (7,109) -- (694)
Proceeds from the issuance of stock....................... 72 260 103
--------- -------- --------
Net cash provided (used in) financing activities... 33,077 (7,463) 12,247
--------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 974 746 (3,511)
Cash and cash equivalents at beginning of period............ 3,656 2,910 6,421
--------- -------- --------
Cash and cash equivalents at end of period................ $ 4,630 $ 3,656 $ 2,910
========= ======== ========
Supplemental cash flow information:
Interest paid, net of capitalized interest................ $ 27,697 $ 23,163 $ 21,524
Income taxes paid......................................... 1,069 836 2,157
Noncash transactions:
Broadcast rights acquired and broadcast obligations
assumed............................................... $ 8,828 $ 12,201 $ 9,165
Assets acquired through barter.......................... 1,234 1,053 1,342
</TABLE>
See accompanying notes.
F-6
<PAGE> 87
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 four
principal business segments: (i) outdoor media, including outdoor and, prior to
June 30, 1998, airport advertising; (ii) television broadcasting; (iii) radio
broadcasting; and (iv) 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, Portland, Boston, Miami, Ft. Lauderdale, and West Palm Beach markets,
whereas airport advertising operations were conducted in airports throughout the
United States. The markets served by the Company's television stations and their
affiliations are as follows: Syracuse, New York (ABC); Utica, New York (ABC
through a time brokerage agreement); Binghamton, New York (ABC); Colorado
Springs, Colorado (CBS); Santa Rosa, California (independent); Bakersfield,
California (NBC); Salinas/Monterey, California (CBS through a time brokerage
agreement); Eureka, California (CBS through a time brokerage agreement and FOX);
Eugene, Oregon (NBC through a time brokerage agreement); and Bellingham,
Washington/Vancouver, British Columbia (independent). Radio broadcasting
consists of two AM and two FM stations serving the Seattle/Tacoma area.
(b) Principles of consolidation--The accompanying financial statements
consolidate the accounts of The Ackerley Group, Inc. and its subsidiaries, all
of which are wholly-owned. All significant intercompany transactions have been
eliminated in consolidation.
(c) Revenue recognition--Outdoor 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 Accounting Standard 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 are
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 are recorded in other accrued liabilities.
(e) Property and equipment--Property and equipment are carried at cost. The
Company depreciates groups of large number 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
F-7
<PAGE> 88
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 at cost and 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.
(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 for the gross amount
of the contract at the time the rights are available for broadcasting. Broadcast
rights 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) Earnings per share--The Company presents earnings per share in
accordance with Financial Accounting Standard No. 128, Earnings Per Share.
Earnings per common 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. Earnings per common share, assuming dilution reflect
the potential dilution that could occur if options and rights to purchase common
stock were exercised.
The dilutive effects of the weighted-average number of shares representing
options and rights included in the calculation of earnings per common share,
assuming dilution were 256,079 shares, 306,982 shares, and 594,283 shares in
1998, 1997, and 1996, respectively. There were no differences between net income
amounts used to calculate earnings per common share and earnings per common
share, assuming dilution for any of the periods presented.
(j) 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.
(k) 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
F-8
<PAGE> 89
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 fair value at December 31, 1998.
The Company uses interest rate swap agreements to modify the interest rate
characteristics of its long-term debt. Each interest rate swap agreement is
designated with all or a portion of the principal balance and term of a specific
debt obligation. These agreements generally involve the exchange of floating for
fixed-rate payment obligations over the life of the agreement without an
exchange of underlying principal amount. The differential to be paid or received
is accrued as interest rates change and is recognized as an adjustment to
interest expense related to the debt (the accrual accounting method). The
related net amount payable to or receivable from counterparties is included in
other current liabilities or assets. The fair values of the swap agreements and
changes in their fair value as a result of changes in market interest rates are
not recognized in the financial statements.
(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 1998 presentation.
2. NEW ACCOUNTING STANDARDS
The Company adopted Financial Accounting Standard 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. The Company had no other comprehensive income for any
of the periods presented.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Management does
not anticipate that the adoption of the new Statement will have a significant
effect on the earnings or financial position of the Company.
3. ACQUISITIONS AND DISPOSITIONS
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.
The Company's wholly-owned subsidiary, KJR Radio, Inc., was a limited
partner in New Century Seattle Partners, L.P. (the "Partnership") which owned
and operated radio
F-9
<PAGE> 90
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stations in the Seattle/Tacoma area. The Company accounted for this investment
using the consolidation method.
On February 17, 1998, the Partnership redeemed the limited partnership
interests and satisfied certain other obligations of the former limited partners
for $18.0 million. Effective April 30, 1998, the Partnership redeemed all the
interests of Century Management, Inc., its general partner, for approximately
$17.8 million. Upon closing, KJR Radio, Inc., a wholly-owned subsidiary of the
Company, became the Partnership's sole general partner and licensee of the radio
stations held by the Partnership and at that same time, AK Media Group, Inc.,
the Company's principal operating subsidiary, became the Partnership's nominal
and sole limited partner. Effective December 31, 1998, the Partnership was
dissolved and KJR Radio, Inc. was merged into AK Media Group, Inc.
Sale of Airport Advertising Operations. On June 30, 1998, the Company sold
substantially all of the assets of its airport advertising operations to Sky
Sites, Inc., a subsidiary of Havas, S.A., pursuant to an agreement dated May 19,
1998. The sale price consisted of a base cash price of $40.0 million, paid on
the closing date of the transaction, and an additional cash payment of
approximately $2.9 million (the "Contingent Payment"), of which $1.2 million was
paid in December 1998 and the remainder was paid in January 1999. The pre-tax
gain recognized in 1998 from this transaction (after giving effect to the
Contingent Payment) was approximately $33.5 million.
Pending Acquisition of KTVF(TV), KXLR(FM), and KCBF(AM). On August 4, 1998,
the Company entered into an agreement to purchase the assets of KTVF-TV, a NBC
affiliate, for $7.2 million, and two radio stations, KXLR(FM) and KCBF(AM), for
$0.8 million. All three stations are licensed to Fairbanks, Alaska. The
transaction is currently pending FCC approval, which must be obtained separately
for the television and radio stations. The purchase of the radio stations is
contingent on the purchase of the television station. In conjunction with this
agreement, on August 5, 1998, the Company granted an option to a third party
(the "Optionee") for $0.5 million to purchase from the Company the assets of
KTVF(TV) for $6.7 million and the two radio stations for $0.8 million, plus a
15% annual return based on the actual purchase price for the Company's
acquisition of the stations. The option may be exercised at any time starting on
the third anniversary of the Company's acquisition of the stations through the
seventh anniversary of such acquisition. The option may terminate earlier if the
FCC makes certain changes to certain of its ownership rules. In addition, the
Optionee may require the Company to repurchase the option for $0.5 million under
certain circumstances.
Acquisition of WIVT(TV). On August 31, 1998, the Company exercised its
option to purchase the assets of WIVT(TV), an ABC affiliate licensed to
Binghamton, New York, for $9.0 million. The Company recorded net assets with
estimated fair values aggregating $1.2 million and goodwill of $7.8 million. The
Company previously operated the station under a time brokerage agreement.
Acquisition of Out-of-Home Advertising Company in Miami, Florida. On
September 4, 1998, the Company purchased substantially all of the assets of an
out-of-home advertising company in Miami, Florida for approximately $2.4
million.
F-10
<PAGE> 91
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pending Acquisition of WOKR(TV). On September 25, 1998, the Company entered
into a purchase agreement with Sinclair Communications, Inc. to acquire
substantially all of the assets of WOKR(TV), an ABC affiliate licensed to
Rochester, New York. The purchase price is approximately $125.0 million, subject
to possible adjustments under the terms of the purchase agreement, plus the
assumption of certain liabilities. The Company has paid $12.5 million of the
purchase price into an escrow account, which is recorded in other assets, with
the balance due at closing. Closing of the transaction is subject to a number of
conditions, including the acquisition of the station by Sinclair Communications,
Inc. from Guy Gannet Communications and the receipt of approval from the FCC,
which has been requested. Either party may terminate the purchase agreement,
subject to certain conditions, if closing has not occurred by September 4, 1999.
Pending Sale of KCBA(TV) and Acquisition of KION(TV). On November 2, 1998,
the Company entered into an agreement to purchase substantially all of the
assets of KION(TV), a CBS affiliate licensed to Monterey, California, for $7.7
million, subject to certain reductions. The purchase of this station is subject
to FCC approval and is contingent upon the sale of KCBA(TV) as described below.
Pending FCC approval of this transaction, the Company is operating the station
pursuant to a time brokerage agreement with the current owner.
On November 3, 1998, the Company entered into an agreement to sell
substantially all of the assets of KCBA(TV), a FOX affiliate licensed to
Salinas, California, for $11.0 million. This transaction is subject to FCC
approval and is contingent upon the Company's purchase of KION(TV), as described
above. Subject to FCC approval, the Company would continue to operate the
station after the sale pursuant to a time brokerage agreement with the
purchaser.
Pending Exchange of KKTV(TV) for KCOY(TV). On December 30, 1998, the
Company entered into an asset exchange agreement with Benedek Broadcasting
Corporation ("Benedek"). Under the agreement, Benedek would acquire
substantially all of the assets, and assume certain liabilities, of KKTV(TV), a
CBS affiliate licensed to Colorado Springs, Colorado. In exchange, the Company
would (i) acquire substantially all of the assets, and assume certain
liabilities, of KCOY(TV), a CBS affiliate licensed to Santa Maria, California,
and (ii) receive a cash payment of approximately $9.0 million (subject to
certain adjustment). Closing is subject to, among other things, approval of the
FCC and expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. Also on December 30, 1998, the Company entered into a
time brokerage agreement to operate KCOY(TV) until closing and a time brokerage
agreement for Benedek to operate KKTV(TV) until closing.
Acquisition of KVIQ(TV). Effective January 1, 1999, the Company purchased
substantially all of the assets of KVIQ(TV), a CBS affiliate licensed to Eureka,
California, for $5.5 million, pursuant to an agreement dated July 15, 1998.
Pending closing of the transaction, the Company operated the station pursuant to
a time brokerage agreement with the former owner. The Company recorded net
assets with estimated fair values aggregating $0.5 million and goodwill of $5.0
million.
F-11
<PAGE> 92
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Acquisition of Out-of-Home Advertising Company in Boston, Massachusetts. On
February 19, 1999, the company purchased substantially all of the assets of an
outdoor advertising company in the Boston/Worcester, Massachusetts market for
approximately $11.0 million.
Acquisition of KMTR(TV). Effective March 16, 1999, the Company purchased
substantially all of the assets of KMTR(TV), a NBC affiliate licensed to Eugene,
Oregon, together with two satellite stations licensed to Roseburg and Coos Bay,
Oregon and a low power station licensed to Eugene. The purchase price was
approximately $26.0 million. Pending closing of the transaction, the Company
operated the stations pursuant to a time brokerage agreement with the former
owner since December 1, 1998. The Company recorded net assets with estimated
fair values aggregating $3.0 million and goodwill of $23.0 million.
4. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
As of December 31, 1998 and 1997, accounts receivable includes employee
receivables of $2.4 million and $2.9 million, respectively.
The activity in the allowance for doubtful accounts is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Balance at beginning of year...................... $ 1,498 $1,426 $ 1,163
Additions charged to operating expense............ 1,023 814 1,386
Write-offs of receivables, net of recoveries...... (1,086) (742) (1,123)
------- ------ -------
Balance at end of year............................ $ 1,435 $1,498 $ 1,426
======= ====== =======
</TABLE>
5. PROPERTY AND EQUIPMENT
At December 31, 1998 and 1997, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
ESTIMATED
1998 1997 USEFUL LIFE
-------- -------- -----------
<S> <C> <C> <C>
Land......................... $ 7,719 $ 7,468
Advertising structures....... 82,789 86,737 6-20 years
Broadcast equipment.......... 57,891 56,065 6-20 years
Building and improvements.... 40,387 38,351 3-40 years
Office furniture and
equipment.................. 26,909 25,482 5-10 years
Transportation and other
equipment.................. 29,573 10,335 5-6 years
Equipment under capital
leases..................... 8,008 7,982 10 years
-------- --------
253,276 232,420
Less accumulated
depreciation............... 140,168 137,452
-------- --------
$113,108 $ 94,968
======== ========
</TABLE>
F-12
<PAGE> 93
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INTANGIBLES
At December 31, 1998 and 1997, intangibles consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
1998 1997 USEFUL LIFE
-------- ------- -----------
<S> <C> <C> <C>
Goodwill..................... $ 84,032 $46,229 15-40 years
Favorable leases and
contracts.................. 17,462 17,462 20 years
Broadcasting agreements...... 4,000 4,000 15 years
Other........................ 6,196 6,196 5-30 years
-------- -------
111,690 73,887
Less accumulated
amortization............... 33,876 31,569
-------- -------
$ 77,814 $42,318
======== =======
</TABLE>
The increase in intangibles in 1998 is primarily due to the recording of
goodwill related to the Partnership redemption and acquisition of WIVT(TV), as
discussed in Note 3.
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.
In January 1998, the Company replaced the 1996 Credit Agreement with a
$265.0 million credit agreement (the "1998 Credit Agreement") and in October
1998 used borrowings therefrom to redeem its $120.0 million 10.75% Senior
Secured Notes. This resulted in a charge of approximately $4.3 million, net of
applicable taxes of $2.5 million, consisting of prepayment fees and the
write-off of deferred financing costs.
On January 22, 1999, the Company replaced the 1998 Credit Agreement with a
new $325.0 million credit agreement (the "1999 Credit Agreement"), consisting of
a $150.0 million term loan facility (the "Term Loan") and a $175.0 million
revolving credit facility (the "Revolver"), which includes up to $10.0 million
in standby letters of credit. At closing of this transaction, the Company had
available borrowings of $85.0 million under the Term Loan and $166.3 million
under the Revolver. The commitment fees under the Revolver are payable quarterly
at a rate based on the Company's total leverage ratio. The Company can choose to
have interest calculated under the 1999 Credit Agreement at rates based on
either a base rate or LIBOR plus defined margins which vary based on the
Company's total leverage ratio. At January 22, 1999, the interest rate under the
1999 Credit Agreement was LIBOR (5.00%) plus 2.75%.
Principal repayments under the Term Loan are due quarterly from March 31,
2000 through December 31, 2005. The Revolver requires scheduled annual
commitment reductions, with required principal prepayments of outstanding
amounts in excess of the commitment levels, quarterly beginning March 31, 2001
through December 31, 2005.
F-13
<PAGE> 94
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 14, 1998, the Company issued 9% Senior Subordinated Notes due
2009 (the "9% Senior Subordinated Notes") in the aggregate principal amount of
$175.0 million. These notes were issued under an indenture which allows for an
aggregate principal amount of up to $250.0 million. On February 24, 1999, the
Company issued additional 9% Senior Subordinated Notes under the indenture in
the aggregate amount of $25.0 million, for a total aggregate amount of 9% Senior
Subordinated Notes issued of $200.0 million. These notes bear interest at 9%
which is payable semi-annually in January and July. Principal is payable in full
in January 2009.
At December 31, 1998 and 1997, outstanding balances under letter of credit
agreements totaled $3.8 million and $1.1 million, respectively.
At December 31, 1998, senior subordinated notes consisted of $175.0 million
of the 9% Senior Subordinated Notes and $20.0 million 10.48% Senior Subordinated
Notes due December 15, 2000 payable to several insurance companies (the "10.48%
Senior Subordinated Notes"). On March 15, 1999, the 10.48% Senior Subordinated
Notes were repaid with borrowings under the 1999 Credit Agreement Revolver. This
transaction resulted in a charge of approximately $0.8 million, net of
applicable taxes, consisting of prepayment fees and the write-off of deferred
financing costs.
Other debt consists primarily of notes payable related to the acquisition
of a new aircraft for the Seattle SuperSonics in 1998 and obligations under
deferred compensation agreements in 1998 and 1997.
At December 31, 1998 and 1997, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Credit agreements......................... $ 51,811 $ 59,000
Senior notes.............................. -- 120,000
Senior subordinated notes................. 195,000 32,500
Partnership debt.......................... -- 8,888
Capital lease obligation (net of imputed
interest of $987 in 1998 and $1,434 in
1997)................................... 5,686 6,451
Other debt................................ 17,603 2,585
-------- --------
270,100 229,424
Less amounts classified as current........ 3,101 16,130
-------- --------
$266,999 $213,294
======== ========
</TABLE>
Approximately $0.8 million of interest was capitalized in 1998. There was
no capitalized interest in 1997 or 1996.
F-14
<PAGE> 95
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate annual payments of long-term debt during the next five years,
reflecting the terms of the 1999 Credit Agreement and the repayment of the
10.48% Senior Subordinated Notes are as follows:
<TABLE>
<CAPTION>
CREDIT
AGREEMENT CAPITAL LEASE
AND NOTES OTHER OBLIGATION TOTAL
--------- ------- ------------- --------
<S> <C> <C> <C> <C>
1999................. $ -- $ 2,198 $ 903 $ 3,101
2000................. 7,500 2,482 963 10,945
2001................. 15,000 2,546 1,027 18,573
2002................. 22,500 2,775 1,094 26,369
2003................. 6,811 3,012 1,699 11,522
Later years.......... 195,000 4,590 -- 199,590
-------- ------- ------ --------
Total.............. $246,811 $17,603 $5,686 $270,100
======== ======= ====== ========
</TABLE>
Substantially all of the outstanding stock and material assets of the
Company's subsidiaries are pledged as collateral under the 1999 Credit
Agreement. In addition, the 1999 Credit Agreement and the Indenture 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.
At December 31, 1998, the Company had outstanding interest rate contacts
with financial institutions which involve the exchange of fixed for floating
rate of LIBOR (5.688% at December 27, 1998) on a notional principal amount of
$200.0 million. The Company's risk in this transaction is the cost of replacing,
at current market rates, the contracts in the event of default by the
counterparties. At December 31, 1998, the fair value of the contracts, as quoted
by the counterparties, were $2.7 million. Management believes the risk of
incurring a loss as a result of non-performance by the counterparties is remote
as the contracts are with major financial institutions.
F-15
<PAGE> 96
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1998 and
1997 significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......... $ 5,497 $14,579
Litigation accrual....................... 3,046 3,067
Tax credit carryforwards................. 2,346 2,133
Capital lease obligation................. 2,160 2,451
Deferred NBA expansion revenue........... -- 772
Deferred compensation agreements......... 828 730
Other.................................... 3,095 5,494
------- -------
Total deferred tax assets.................. 16,972 29,226
Deferred tax liabilities:
Tax over book depreciation............... 7,562 7,131
Other.................................... 348 297
------- -------
Total deferred tax liabilities............. 7,910 7,428
------- -------
Net deferred tax assets.................... $ 9,062 $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
elimination of the remaining balance due to improved recent and anticipated
future operating results.
Significant components of the income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- ------
<S> <C> <C> <C>
Current:
Federal........................ $ 387 $ 263 $1,561
State.......................... (30) 363 1,197
------- -------- ------
357 626 2,758
Deferred:
Federal........................ 14,094 (18,235) --
State.......................... 1,036 (1,563) --
------- -------- ------
15,130 (19,798) --
------- -------- ------
Income tax expense (benefit)..... $15,487 $(19,172) $2,758
======= ======== ======
</TABLE>
F-16
<PAGE> 97
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Tax at U.S. statutory rate...... $13,654 $ 4,815 $ 6,422
Non-deductible expenses......... 831 929 582
State taxes and other........... 1,002 363 1,197
Net operating loss
carryforwards................. -- (5,744) (7,004)
Alternative minimum tax......... -- -- 1,561
Change in valuation account..... -- (19,535) --
------- -------- -------
Provision (benefit) for income
taxes......................... $15,487 $(19,172) $ 2,758
======= ======== =======
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $15.7 million that expire in the years 2006 and 2007 and
alternative minimum tax credit carryforwards of approximately $2.3 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 $1.4 million in 1998, $1.1 million
in 1997, and $1.1 million in 1996.
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 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, 1998 and 1997, there were an aggregate of 37,500 and 52,500 shares,
respectively, 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. In 1998, 15,000
shares of common stock and 15,000 shares of Class B common stock were purchased
under these agreements. No shares were purchased under these agreements in 1997
and 1996.
The Company's Nonemployee-Directors' Equity Compensation Plan (the
"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
F-17
<PAGE> 98
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1998, the Company had 11,051,230 shares of common stock
reserved for conversion of Class B common stock, 490,250 shares reserved under
the Employee Stock Option Plan, 75,000 shares reserved under stock purchase
agreements, and 92,188 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. As of December 31, 1998
and 1997, there were 230,250 shares of common stock available for future grants
under the Plan.
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 1998, the Company recognized stock compensation expense of $0.4 million
primarily due to the amendments of certain stock option agreements.
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>
1998 1997 1996
------------------ -------------------- ------------------
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.............................. 320,600 $4.75 658,000 $2.96 690,000 $2.97
Granted............................. -- -- 70,000 0.69 -- --
Exercised........................... (60,600) 0.69 (367,400) 0.69 (32,000) 3.23
Canceled............................ -- -- (40,000) 5.53 -- --
------- ----- --------- ----- ------- -----
Options outstanding at end of
year.............................. 260,000 $5.69 320,600 $4.75 658,000 $2.96
Exercisable at end of year.......... -- -- 60,600 $0.69 -- --
Weighted average fair value of
options granted during year....... -- $ 14.00 --
</TABLE>
F-18
<PAGE> 99
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exercise prices for options outstanding at December 31, 1998 ranged from
$3.44 to $7.63. A summary of options outstanding as of December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
RANGE OF OPTIONS REMAINING AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE
- -------------- ----------- ---------------- -------------- -----------
<S> <C> <C> <C> <C>
$0.70 - 3.44 120,000 6.1 $3.44 --
3.45 - 7.63 140,000 7.0 7.63 --
-------
$0.70 - $7.63 260,000 6.6 years $5.69
</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 (there were
no grants in 1998 and 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>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Pro forma net income..................... $18,971 $32,742 $15,554
Pro forma net income per common share.... $ 0.60 $ 1.04 $ 0.50
Pro forma net income per common share,
assuming dilution...................... $ 0.60 $ 1.03 $ 0.49
</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 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.
F-19
<PAGE> 100
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has employment contracts with certain employees, including
basketball coaches and players of the Seattle SuperSonics, extending beyond
December 31, 1998. 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>
<S> <C>
1999.................................................. $27,535
2000.................................................. 25,947
2001.................................................. 22,048
2002.................................................. 13,625
2003.................................................. 8,542
Later years........................................... --
-------
$97,697
=======
</TABLE>
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 be required to meet its
guaranteed obligations in the event of permanent or total disability of its key
players.
The Company is required to make minimum payments for equipment and
facilities under non-cancelable operating lease agreements and broadcast
agreements which expire in more than one year as follows:
<TABLE>
<CAPTION>
EQUIPMENT/FACILITIES BROADCAST OBLIGATIONS
-------------------- ---------------------
<S> <C> <C>
1999.................. $ 4,376 $ 8,753
2000.................. 3,608 3,897
2001.................. 3,241 2,063
2002.................. 2,673 816
2003.................. 2,382 --
Later years........... 9,820 --
------- -------
$26,100 $15,529
======= =======
</TABLE>
Rent expense for operating leases aggregated $5.5 million in 1998, $5.4
million in 1997, and $4.5 million in 1996. Broadcasting film and programming
expense aggregated $10.3 million in 1998, $8.3 million in 1997, and $8.2 million
in 1996.
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, 1998, maturing in December 2001. To date, there
has been no default under the bank loan obligation and revenues 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
F-20
<PAGE> 101
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
maturing in December 1999. At December 31, 1998 and 1997, the outstanding
principal amount of the bank loan obligation under the guarantee was $2.6
million and $3.7 million, respectively. To date, there has been no default under
the bank loan obligation and revenues from KION have been and are expected to
continue to service the bank loan obligation.
The Company has incurred transportation costs of $1.3 million in 1998, $2.0
million in 1997, and $2.0 million in 1996, and made advance payments of $0.3
million at December 31, 1998, to a company controlled by the Company's major
stockholder. At December 31, 1998, principal amounts outstanding on loans to the
Company's major stockholder were $2.0 million.
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, and in 1997, the Company reduced the accrual related
to this litigation by $5.0 million, leaving a total accrual of approximately
$8.0 million.
On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit ruled
in the Company's favor, holding that the plaintiffs did not have a valid claim
under the Federal Fair Labor Standards Act and striking the award of damages,
including all punitive damages. The Court of Appeals remanded the case for
further consideration of whether the plaintiffs have a valid claim under the
Washington State Fair Labor Standards Act.
On March 9, 1999, the Court of Appeals issued an order referring the case
to an 11-judge panel for a new hearing. A hearing has been set for April 22,
1999. A decision from the hearing has not yet been rendered.
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 revenues are generated. Segment information has been restated to
present the out-of-home media, television broadcasting, radio 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-21
<PAGE> 102
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Selected financial information for these segments for the years ended
December 31, 1998, 1997 and 1996 is presented as follows:
<TABLE>
<CAPTION>
OUT-OF-HOME TELEVISION RADIO SPORTS &
MEDIA BROADCASTING BROADCASTING ENTERTAINMENT CONSOLIDATED
----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1998:
Net revenue................... $108,560 $ 68,467 $ 24,474 $ 55,150 $ 256,651
Segment operating expenses.... (65,605) (55,996) (14,819) (58,119) (194,539)
-------- -------- -------- -------- ---------
Segment Operating Cash Flow... $ 42,955 $ 12,471 $ 9,655 $ (2,969) 62,112
======== ======== ======== ========
Corporate overhead............ (14,491)
---------
Operating Cash Flow........... 47,621
Other expenses:
Depreciation and
amortization.............. 16,574
Interest expense............ 25,109
Stock compensation
expense................... 452
Gain on disposition of
assets.................... (33,524)
---------
Income before income taxes and
extraordinary item.......... $ 39,010
=========
Segment assets................ $ 75,113 $ 87,308 $ 59,650 $ 31,546 $ 253,617
======== ======== ======== ========
Corporate assets.............. 62,509
---------
Total assets.................. $ 316,126
=========
Capital expenditures.......... $ 6,986 $ 4,415 $ 1,389 $ 238 $ 13,028
======== ======== ======== ========
Corporate capital
expenditures................ 19,691
---------
Total capital expenditures.... $ 32,719
=========
1997:
Net revenue................... $113,162 $ 63,611 $ 20,970 $ 73,432 $ 271,175
Segment operating expenses.... (72,159) (46,935) (12,983) (68,662) (200,739)
-------- -------- -------- -------- ---------
Segment Operating Cash Flow... $ 41,003 $ 16,676 $ 7,987 $ 4,770 70,436
======== ======== ======== ========
Corporate overhead............ (10,013)
---------
Operating Cash Flow........... 60,423
Other expenses:
Depreciation and
amortization.............. (16,103)
Interest expense............ (26,219)
Litigation credit........... 5,000
Stock compensation
expense................... (9,344)
---------
Income before income taxes and
extraordinary item.......... $ 13,757
=========
Segment assets................ $ 79,208 $ 75,955 $ 29,568 $ 45,261 $ 229,992
======== ======== ======== ========
Corporate assets.............. 36,393
---------
Total assets.................. $ 266,385
=========
Capital expenditures.......... $ 6,523 $ 7,211 $ 873 $ 1,706 $ 16,313
======== ======== ======== ========
Corporate capital
expenditures................ 1,280
---------
Total capital expenditures.... $ 17,593
=========
</TABLE>
F-22
<PAGE> 103
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OUT-OF-HOME TELEVISION RADIO SPORTS &
MEDIA BROADCASTING BROADCASTING ENTERTAINMENT CONSOLIDATED
----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1996:
Net revenue................... $ 99,833 $ 57,863 $ 17,955 $ 71,647 $ 247,298
Segment operating expenses.... (63,924) (42,137) (10,844) (61,816) (178,721)
-------- -------- -------- -------- ---------
Segment Operating Cash Flow... $ 35,909 $ 15,726 $ 7,111 $ 9,831 68,577
======== ======== ======== ========
Corporate overhead............ (8,233)
---------
Operating Cash Flow........... 60,344
Other expenses:
Depreciation and
amortization.............. (16,996)
Interest expense............ (24,461)
---------
Income before income taxes and
extraordinary item.......... $ 18,887
=========
Segment assets................ $ 67,918 $ 62,915 $ 31,925 $ 49,546 $ 212,304
======== ======== ======== ========
Corporate assets.............. 12,608
---------
Total assets.................. $ 224,912
=========
Capital expenditures.......... $ 4,674 $ 3,770 $ 393 $ 1,652 $ 10,489
======== ======== ======== ======== =========
Corporate capital
expenditures................ 2,635
---------
Total capital expenditures.... $ 13,124
=========
</TABLE>
15. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's results of operations may vary from quarter to quarter due in
part to the timing of acquisitions and to seasonal variations in the operations
of the broadcasting segment. In particular, the Company's net revenue and
Operating Cash Flow historically have been affected positively during the NBA
basketball season (the first, second, and fourth quarters) and by increased
advertising activity in the second and fourth quarters. For the fourth quarter
of 1998, net revenue and Operating Cash Flow were adversely affected by the NBA
lockout.
F-23
<PAGE> 104
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Net revenue........................... $81,046 $75,837 $48,087 $51,681
Operating Cash Flow................... 11,658 13,940 10,903 11,120
Income before extraordinary item...... 809 22,398* 229 87
Extraordinary loss.................... -- -- -- (4,346)
Net income............................ 809 22,398 229 (4,259)
Net income per share.................. .03 .71 .01 (.14)
Net income per share--assuming
dilution............................ .03 .70 .01 (.14)
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
</TABLE>
- -------------------------
* Includes a gain on the sale of the Company's airport advertising operations.
** 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-24
<PAGE> 105
THE ACKERLEY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,547 $ 4,630
Accounts receivable, net of allowance.............. 46,832 44,680
Current portion of broadcast rights................ 6,719 7,339
Prepaid expenses................................... 12,954 10,212
Deferred tax asset................................. 4,497 4,497
Other current assets............................... 3,564 3,883
-------- --------
Total current assets....................... 77,113 75,241
Property and equipment, net.......................... 120,551 113,108
Goodwill, net........................................ 107,028 70,034
Other intangibles, net............................... 7,534 7,780
Other assets......................................... 54,572 49,963
-------- --------
Total assets............................... $366,798 $316,126
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable................................... $ 4,703 $ 8,004
Accrued interest................................... 6,320 694
Other accrued liabilities.......................... 17,105 11,861
Deferred revenue................................... 12,046 27,736
Current portion of broadcasting obligations........ 7,063 8,139
Current portion of long-term debt.................. 4,973 3,101
-------- --------
Total current liabilities.................. 52,210 59,535
Long-term debt, less current portion................. 329,709 266,999
Litigation accrual................................... 7,999 8,016
Other long-term liabilities.......................... 7,029 7,417
-------- --------
Total liabilities.......................... 396,947 341,967
Stockholders' deficiency:
Common stock, par value $.01 per
share -- authorized 50,000,000 shares; issued
21,952,214 shares at March 31, 1999 and
21,951,380 shares at December 31, 1998; and
outstanding 20,577,268 shares at March 31, 1999
and 20,576,434 shares at December 31, 1998...... 219 219
Class B common stock, par value $.01 per share --
authorized 11,406,510 shares; and issued and
outstanding 11,051,230 shares at March 31, 1999
and December 31, 1998........................... 111 111
Capital in excess of par value....................... 10,584 10,339
Deficit.............................................. (30,974) (26,421)
Less common stock in treasury, at cost............... (10,089) (10,089)
-------- --------
Total stockholders' deficiency............. (30,149) (25,841)
-------- --------
Total liabilities and stockholders'
deficiency.............................. $366,798 $316,126
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-25
<PAGE> 106
THE ACKERLEY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIODS ENDED
MARCH 31,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenue.................................................... $75,117 $89,629
Less agency commissions and discounts...................... (7,421) (8,583)
------- -------
Net revenue................................................ 67,696 81,046
Expenses (other income):
Operating expenses....................................... 60,164 69,388
Depreciation and amortization expense.................... 4,723 3,843
Interest expense......................................... 7,311 6,510
Stock compensation expense............................... 244 --
Gain on disposition of assets............................ (1,626) --
------- -------
Total expenses and other income....................... 70,816 79,741
------- -------
Income (loss) before income taxes.......................... (3,120) 1,305
Income tax benefit (expense)............................... 572 (496)
------- -------
Income (loss) before extraordinary item.................... (2,548) 809
Extraordinary item; loss on debt extinguishment............ (1,373) --
------- -------
Net income (loss).......................................... $(3,921) $ 809
======= =======
Income (loss) per common share, before extraordinary
item..................................................... $ (0.08) $ 0.03
Extraordinary item; loss on debt extinguishment............ (0.04) --
------- -------
Net income (loss) per common share......................... $ (0.12) $ 0.03
======= =======
Income (loss) per common share, assuming dilution, before
extraordinary item....................................... $ (0.08) $ 0.03
Extraordinary item; loss on debt extinguishment............ (0.04) --
------- -------
Net income (loss) per common share, assuming dilution...... $ (0.12) $ 0.03
======= =======
Dividends per common share................................. $ 0.02 $ 0.02
======= =======
Dividends per common share, assuming dilution.............. $ 0.02 $ 0.02
======= =======
Weighted average number of common shares................... 31,627 31,458
Weighted average number of common shares, assuming
dilution................................................. 31,882 31,692
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-26
<PAGE> 107
THE ACKERLEY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIODS ENDED MARCH 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities;
Reconciliation of net income (loss) to net cash used in
operating activities:
Net income (loss)....................................... $ (3,921) $ 809
Adjustment to reconcile net income (loss) to net cash
used in operating activities:
Stock compensation expense........................... 244 --
Deferred tax expense (benefit)....................... (1,092) 290
Debt extinguishment, net of taxes.................... 1,373 --
Depreciation and amortization........................ 4,723 3,843
Amortization of deferred financing costs............. 429 130
Gain on disposition of assets........................ (1,626) --
Gain on sale of property and equipment............... -- (25)
Amortization of broadcast rights..................... 2,727 2,781
Income from barter transactions...................... (576) (545)
Change in assets and liabilities:
Accounts receivable.................................. (2,152) 4,262
Prepaid expenses..................................... (2,742) 102
Other current assets and other assets................ 1,211 (4,051)
Accounts payable and accrued interest................ 2,325 4,972
Other accrued liabilities and other long-term
liabilities........................................ 4,926 1,631
Deferred revenues.................................... (15,690) (12,168)
Current portion of broadcast obligations............. (3,289) (2,782)
-------- --------
Net cash used in operating activities................... (13,130) (751)
Cash flows from investing activities
Proceeds from disposition of assets....................... 1,626 --
Proceeds from sale of property and equipment.............. 175 76
Capital expenditures...................................... (5,919) (11,976)
Payments for acquisitions................................. (42,564) (10,756)
Other, net................................................ -- (513)
-------- --------
Net cash used in investing activities..................... (46,682) (23,169)
Cash flows from financing activities:
Borrowings under credit agreements........................ 169,063 171,750
Payments under credit agreements.......................... (104,274) (145,924)
Payments under capital lease obligations.................. (220) (210)
Note redemption prepayment fees........................... (1,208) --
Payments of deferred financing costs...................... (5,632) (1,345)
Proceeds from stock issuance.............................. -- 72
-------- --------
Net cash provided by financing activities................. 57,729 24,343
Net increase (decrease) in cash and cash equivalents........ (2,083) 423
Cash and cash equivalents at beginning of period............ 4,630 3,656
-------- --------
Cash and cash equivalents at end of period.................. $ 2,547 $ 4,079
======== ========
Supplemental disclosure of noncash transactions:
Broadcast rights acquired and broadcast obligations
assumed.............................................. $ 1,567 $ 29
Property and equipment acquired through barter.............. 606 602
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-27
<PAGE> 108
THE ACKERLEY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF REPRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. The balance sheet at December 31, 1998 has been derived
from the audited consolidated financial statements at that date. The
accompanying condensed consolidated financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
normal and recurring adjustments necessary for a fair presentation of the
financial position and the results of operations for such periods have been
included. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
The results of operations for any interim period are not necessarily
indicative of anticipated results for the full year. The Company's results of
operations may vary from quarter to quarter due in part to the timing of
acquisitions and to seasonal variations in the operations of the television
broadcasting, radio broadcasting, and sports & entertainment segments. In
particular, the Company's net revenue and net income historically have been
affected positively during the NBA basketball season (the first, second, and
fourth quarters) and by increased advertising activity in the second and fourth
quarters.
Certain prior year's amounts have been reclassified to conform to the 1999
presentation.
NOTE 2. DEBT
On January 22, 1999, the Company replaced its $300.0 million credit
agreement with a new $325.0 million credit agreement (the "1999 Credit
Agreement"), consisting of a $150.0 million term loan facility (the "Term Loan")
and a $175.0 million revolving credit facility (the "Revolver"). The Revolver
includes up to $10.0 million in standby letters of credit. The transaction
resulted in a charge of approximately $0.6 million, net of applicable taxes,
consisting of the write-off of deferred financing costs.
Principal repayments under the Term Loan are due quarterly from March 31,
2000 through December 31, 2005. The Revolver requires scheduled annual
commitment reductions, with required principal repayments of outstanding amounts
in excess of the commitment levels, quarterly beginning March 31, 2001 through
December 31, 2005.
The Company can choose to have interest calculated at rates based on either
a base rate or LIBOR plus defined margins which vary based on the Company's
total leverage ratio. The commitment fees under the Revolver are payable
quarterly at a rate based on the Company's total leverage ratio.
F-28
<PAGE> 109
THE ACKERLEY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On February 24, 1999, the Company issued additional 9% Senior Subordinated
Notes due 2009 (the "9% Senior Subordinated Notes") in the aggregate amount of
$25.0 million. The total aggregate amount of 9% Senior Subordinated Notes issued
and outstanding is $200.0 million. These notes bear interest at 9% which is
payable semi-annually in January and July. Principal is payable in full in
January 2009.
On March 15, 1999, the Company redeemed its $20.0 million outstanding
principal of the 10.48% Senior Subordinated Notes due 2000 (the "10.48% Senior
Subordinated Notes") with borrowings under the Revolver. This transaction
resulted in a charge of approximately $0.8 million, net of applicable taxes,
consisting of prepayment fees and the write-off of deferred financing costs.
NOTE 3. ACQUISITIONS
On January 5, 1999, the Company purchased substantially all of the assets
of KVIQ(TV), the CBS affiliate licensed to Eureka, California, for approximately
$5.5 million, pursuant to an agreement dated July 15, 1998. Pending closing of
the transaction, the Company operated the station pursuant to a time brokerage
agreement with the former owner. The Company recorded net assets with estimated
fair values aggregating $0.5 million and goodwill of $5.0 million.
On February 19, 1999, the Company purchased substantially all of the assets
of an outdoor advertising company in the Boston/Worcester, Massachusetts market
for approximately $11.0 million. The Company recorded net assets with estimated
fair values aggregating $0.6 million and goodwill of $10.4 million.
On March 16, 1999, the Company purchased substantially all of the assets of
KMTR(TV), the NBC affiliate licensed to Eugene, Oregon, together with two
satellite stations licensed to Roseburg and Coos Bay, Oregon, and a low power
station licensed to Eugene. The purchase price was approximately $26.0 million.
From December 1, 1998 until closing of the transaction, the Company operated the
stations pursuant to a time brokerage agreement with the former owner. The
Company recorded net assets with estimated fair values aggregating $3.0 million
and goodwill of $23.0 million.
On April 12, 1999, the Company purchased substantially all of the assets of
WOKR(TV), the ABC affiliate licensed to Rochester, New York, for approximately
$128.2 million. In September 1998, the Company paid $12.5 million of the
purchase price into an escrow account, with the balance paid at closing. The
Company recorded net assets with estimated fair values aggregating $9.8 million
and goodwill of $118.4 million.
The following table summarizes, on an unaudited pro forma basis, the
consolidated results of operations of the Company for the three month periods
ended March 31, 1999 and 1998, giving pro forma effect to the acquisition of
WOKR(TV) as if the acquisition had been made at the beginning of the periods
presented. These pro forma consolidated
F-29
<PAGE> 110
THE ACKERLEY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
statements do not necessarily reflect the results of operations which would have
occurred had such an acquisition taken place on the date indicated.
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIODS ENDED MARCH 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenue.............................................. $ 71,606 $ 84,741
Operating expenses....................................... (62,728) (71,737)
Income (loss) before extraordinary item.................. (2,337) 781
Net income (loss)........................................ (3,710) 781
Net income (loss) per common share....................... (0.12) 0.02
Net income (loss) per common share, assuming dilution.... (0.12) 0.02
</TABLE>
On May 1, 1999, the Company exchanged substantially all of the assets plus
certain liabilities of KKTV(TV), a CBS affiliate licensed to Colorado Springs,
Colorado, for substantially all of the assets plus certain liabilities of
KCOY(TV), a CBS affiliate licensed to Santa Maria, California. In conjunction
with the transaction, the Company received a cash payment of approximately $9.0
million (subject to certain adjustments). Pending closing of the transaction,
the Company operated KCOY(TV) and the former of KCOY(TV) operated KKTV(TV)
pursuant to time brokerage agreements. The Company recorded net assets with
estimated fair values aggregating $7.2 million and goodwill of $16.8 million.
NOTE 4. TELEVISION BROADCASTING SEGMENT RESTRUCTURING
On April 6, 1999, the Company announced the launch of Digital
CentralCasting, a digital broadcasting system which allows the Company to
consolidate back-office functions such as operations, traffic, programming, and
accounting for several television stations at one location. To implement this
strategy, the Company has organized the television stations it owns and operates
into the following three regional station groups: New York (WIXT, WIVT, WUTR,
and WOKR), Central Coast (KGET, KCBA, KION, and KCOY), and North Coast (KFTY,
KVIQ, and KMTR). Using Digital CentralCasting, one station will perform the
back-office functions for all of the stations in a regional station group.
The Company expects to implement Digital CentralCasting in the New York
station group by July 1, 1999, the Central Coast station group in the fourth
quarter of 1999, and the North Coast station group in the first quarter of 2000.
The Company will accrue the costs related to the implementation when the amount
of these costs becomes reasonably determinable.
F-30
<PAGE> 111
THE ACKERLEY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5. 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, and in 1997, the Company reduced the accrual related
to this litigation by $5.0 million, leaving a total accrual of approximately
$8.0 million.
On October 1, 1998, the U.S. Court of Appeals for the Ninth Circuit ruled
in the Company's favor, holding that the plaintiffs did not have a valid claim
under the Federal Fair Labor Standards Act and striking the award of damages,
including all punitive damages. The Court of Appeals remanded the case for
further consideration of whether the plaintiff have a valid claim under the
Washington State Fair Labor Standards Act.
On March 9, 1999, the Court of Appeals issued an order referring the case
to an 11-judge panel for a new hearing, which was held on April 23, 1999. On
June 10, 1999, the Court of Appeals reinstated the District Court verdict in
favor of the plaintiffs. We intend to petition for review of this decision by
the U.S. Supreme Court.
NOTE 6. INDUSTRY SEGMENT INFORMATION
The Company organizes its segments based on the products and services from
which revenues are generated. 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 depreciation,
amortization, interest, disposition of assets, and stock compensation expenses.
Segment Operating Cash Flow is defined as Operating Cash Flow before corporate
overhead.
F-31
<PAGE> 112
THE ACKERLEY GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Selected financial information for these segments for the three month
periods ended March 31, 1999 and 1998 is presented as follows:
<TABLE>
<CAPTION>
OUTDOOR TELEVISION RADIO SPORTS &
MEDIA BROADCASTING BROADCASTING ENTERTAINMENT CONSOLIDATED
-------- ------------ ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
THREE MONTH PERIOD ENDED MARCH
31, 1999:
Net revenue...................... $ 19,990 $ 16,251 $ 5,221 $ 26,234 $ 67,696
Segment operating expenses....... (12,957) (16,291) (3,452) (23,652) (56,352)
-------- -------- ------- -------- --------
Segment Operating Cash Flow...... $ 7,033 $ (40) $ 1,769 $ 2,582 $ 11,344
======== ======== ======= ========
Corporate Overhead............... (3,812)
--------
Operating Cash Flow.............. 7,532
Other (expenses) income:
Depreciation and
amortization................. (4,723)
Interest expense............... (7,311)
Stock compensation expense..... (244)
Gain on disposition of
assets....................... 1,626
--------
Income before income taxes and
extraordinary item............. $ (3,120)
========
Segment assets................... $ 88,114 $115,644 $57,964 $ 39,343 $301,065
======== ======== ======= ========
Corporate assets................. 65,733
--------
Total assets..................... $366,798
========
THREE MONTH PERIOD ENDED MARCH
31, 1998:
Net revenue...................... $ 26,467 $ 14,536 $ 4,956 $ 35,087 $ 81,046
Segment operating expenses....... (18,962) (13,651) (3,502) (30,216) (66,331)
-------- -------- ------- -------- --------
Segment Operating Cash Flow...... $ 7,505 $ 885 $ 1,454 $ 4,871 $ 14,715
======== ======== ======= ========
Corporate Overhead............... (3,057)
--------
Operating Cash Flow.............. 11,658
Other (expenses) income:
Depreciation and
amortization................. (3,843)
Interest expense............... (6,510)
--------
Income before income taxes and
extraordinary item............. $ (1,305)
========
</TABLE>
The increase in assets from the outdoor media and television broadcasting
segments as of March 31, 1999 compared to December 31, 1998 is primarily due to
the acquisitions of an outdoor advertising company for $11.0 million and
television stations KMTR for $26.0 million and KVIQ for $5.5 million, as
discussed in Note 3.
F-32
<PAGE> 113
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The Ackerley Group, Inc.
We have audited the accompanying balance sheet of WOKR(TV) (a division of
Guy Gannett Communications) as of December 31, 1998 and the related statements
of income and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WOKR(TV) at December 31,
1998 and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Seattle, Washington
April 12, 1999
F-33
<PAGE> 114
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 174,791
Accounts receivable, net of allowance for doubtful
accounts of $95,000.................................... 3,454,586
Prepaid expenses and other current assets................. 120,854
Deferred tax assets....................................... 88,367
Current portion of broadcast rights....................... 1,199,727
-----------
Total current assets.............................. 5,038,325
Property and equipment, net (Note 3)........................ 7,140,138
Intangible assets, net (Note 4)............................. 44,498,036
Broadcast rights, less current portion...................... 3,387,946
-----------
Total assets...................................... $60,064,445
===========
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 94,612
Income taxes payable...................................... 830,096
Other accrued liabilities................................. 580,537
Current portion of broadcast obligations.................. 1,253,628
-----------
Total current liabilities......................... 2,758,873
Broadcast obligations, less current portion................. 3,953,044
Deferred tax liabilities.................................... 455,233
Other long-term obligations................................. 90,000
Guy Gannett investment in WOKR(TV).......................... 52,807,295
-----------
Total liabilities................................. $60,064,445
===========
</TABLE>
See accompanying notes.
F-34
<PAGE> 115
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenue..................................................... $21,567,347
Less agency commissions..................................... (3,276,732)
-----------
Net revenue................................................. 18,290,615
Expenses:
Sales and community affairs............................... 2,228,993
News...................................................... 2,779,507
Programming............................................... 1,515,430
Creative services......................................... 990,799
Engineering............................................... 980,478
General and administrative................................ 1,869,195
Depreciation and amortization............................. 4,658,018
-----------
Total expenses.............................................. 15,022,420
-----------
Income before income taxes.................................. 3,268,195
Provision for income taxes.................................. 1,350,649
-----------
Net income.................................................. $ 1,917,546
===========
</TABLE>
See accompanying notes.
F-35
<PAGE> 116
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Reconciliation of net income to net cash provided by
operating activities:
Net income................................................ $1,917,546
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income tax expense............................ 520,553
Depreciation and amortization.......................... 4,658,018
Amortization of broadcast rights....................... 1,222,919
Net expense from barter transactions................... 11,801
Change in assets and liabilities:
Accounts receivable.................................. 469,666
Prepaid expenses and other current assets............ 43,989
Accounts payable..................................... (63,222)
Income taxes payable................................. 830,096
Other accrued liabilities............................ 146,420
Broadcast obligations................................ (1,388,781)
Other long-term obligations.......................... 20,000
----------
Net cash provided by operating activities................... 8,389,005
INVESTING ACTIVITY -- capital expenditures.................. (702,629)
----------
FINANCING ACTIVITY -- payments to Guy Gannett
Communications............................................ (7,511,585)
Net increase in cash and cash equivalents................... 174,791
Cash and cash equivalents at beginning of year.............. --
----------
Cash and cash equivalents at end of year.................... $ 174,791
==========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION
Broadcast rights acquired and broadcast obligations
assumed................................................... $5,045,036
==========
</TABLE>
See accompanying notes.
F-36
<PAGE> 117
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
WOKR(TV) (the Company) operates an ABC-affiliated television station
licensed to Rochester, New York. Prior to 1998, the Company operated as a
partnership in which Guy Gannett Communications (Gannett) was the general
partner. Effective December 31, 1997, Gannett purchased the interest of the
other general partner, dissolved the partnership, and began operating the
Company as an operating division.
On September 4, 1998, Gannett entered into a sales agreement with Sinclair
Communications, Inc. (Sinclair) to sell substantially all of the assets and
certain liabilities of the Company along with various other television stations
owned by Gannett. On September 25, 1998, Sinclair separately entered into an
agreement with The Ackerley Group, Inc. (Ackerley) to sell substantially all of
the assets and certain liabilities of the Company to Ackerley. The transactions
closed on April 12, 1999.
The accompanying financial statements were prepared from the books and
records maintained by Gannett which were used to prepare Gannett's annual
financial statements. As such, income taxes were not allocated at the division
level by Gannett. For purposes of preparing the accompanying separate financial
statements of the Company, however, income taxes have been allocated as if the
Company filed a separate return.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers investments in highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Purchases of property and equipment are capitalized at cost and depreciated
using the straight-line method over their estimated useful lives.
INTANGIBLE ASSETS
The excess of cost over the fair value of acquired net assets has been
recorded as goodwill. Intangible assets include the acquired fair value of the
Company's ABC network agreement and FCC licenses. Goodwill and other intangible
assets are amortized on a straight-line basis over their estimated useful lives
ranging from 5 to 20 years.
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 for the gross amount of the contract when the rights are
acquired. Broadcast rights are amortized on an accelerated basis over the
contract period or the estimated number of showings,
F-37
<PAGE> 118
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
REVENUE RECOGNITION
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.
BARTER TRANSACTIONS
The Company engages in nonmonetary trades of advertising 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 Accounting
Principles Board Opinion 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 are 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 are recorded in other accrued liabilities.
CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS
The Company sells advertising services 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 that management believes is
sufficient to cover potential credit losses. The carrying value of financial
instruments, which includes cash, receivables, and payables, approximates fair
value at December 31, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-38
<PAGE> 119
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. PROPERTY AND EQUIPMENT
As of December 31, 1998, property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
------------
<S> <C> <C>
Land................................................ $ 394,040
Broadcasting towers and equipment................... 7,671,176 5 - 15 years
Studio, office furniture, and equipment............. 3,812,061 1 - 10 years
Buildings and leasehold improvements................ 3,732,053 5 - 20 years
Vehicles and other.................................. 292,631 3 years
-----------
15,901,961
Less accumulated depreciation....................... (8,761,823)
-----------
$ 7,140,138
===========
</TABLE>
4. INTANGIBLE ASSETS
As of December 31, 1998, intangible assets consisted of the following:
<TABLE>
<S> <C>
Goodwill.................................................... $ 774,506
FCC license................................................. 12,963,604
ABC network affiliation..................................... 41,051,413
------------
54,789,523
Less accumulated amortization............................... (10,291,487)
------------
Intangible assets, net...................................... $ 44,498,036
============
</TABLE>
5. RELATED-PARTY TRANSACTIONS
The Company's excess cash is deposited on a daily basis into Gannett's bank
accounts. Gannett charges the Company for its allocated share of certain
corporate expenses. These costs aggregated $14,385 in 1998. Amounts recorded in
excess of allocated corporate expenses are recorded in the Guy Gannett
investment in WOKR(TV) account. Gannett does not charge or credit interest on
the balance. The Company does not have significant transactions with other
affiliated companies owned by Gannett.
6. EMPLOYEE BENEFIT PLAN
The Company has a voluntary defined contribution 401(k) plan for the
benefit of all employees who may contribute from 1% to 15% of their
compensation, annually, subject to Internal Revenue Service limitations.
Employee contributions, plus a matching amount of up to 2% of compensation
provided by the Company ($87,622 in 1998), are contributed to the plan. The
Company may also make an additional voluntary contribution to the plan.
F-39
<PAGE> 120
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. INCOME TAXES
The operations of the Company are included in the federal and state income
tax returns filed by Gannett. The liability method is used in accounting for
income taxes. The Company's financial statements have been presented as if the
Company filed its own tax return. Gannett does not charge nor give credit for
the tax effects of its individual stations, including the Company. Therefore,
while presentation is required, the tax effects included in the accompanying
financial statements will not result in any tax liability or benefit being paid
or received by the Company. If the financial statements did not reflect income
taxes as if the Company filed its own tax return, Guy Gannett investment in
WOKR(TV) account would be increased by the amount of income tax expense.
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. As of December 31, 1998,
significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Book-over-tax depreciation of property and equipment...... $ 708,169
Book-over-tax film program expense........................ 269,484
Other..................................................... 127,067
----------
Total deferred tax assets.............................. 1,104,720
Deferred tax liabilities:
Tax-over-book amortization of intangible assets........... 1,471,586
----------
Net deferred tax liabilities................................ $ 366,866
==========
</TABLE>
As of December 31, 1998, significant components of the provision for income
taxes are as follows:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 643,044
State..................................................... 187,052
----------
830,096
Deferred:
Federal................................................... 411,600
State..................................................... 108,953
----------
520,553
----------
$1,350,649
==========
</TABLE>
F-40
<PAGE> 121
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. INCOME TAXES (CONTINUED)
The reconciliation of income taxes computed at the U.S. federal statutory
rate to income tax expense is as follows:
<TABLE>
<S> <C>
Provision for income taxes at statutory rate (34%).......... $1,111,186
Tax effect on state income taxes............................ 195,363
Other....................................................... 44,100
----------
$1,350,649
==========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company is required to make minimum payments for equipment and
facilities under noncancelable operating lease agreements, which expire in more
than one year as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
-----------
<S> <C>
1999................................................... $ 88,556
2000................................................... 58,803
2001................................................... 32,276
2002................................................... 9,579
2003................................................... --
Later years............................................ --
--------
$189,214
========
</TABLE>
Rent expense incurred under operating leases totaled $81,265 in 1998.
9. YEAR 2000 (UNAUDITED)
Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. The issue is not limited to computer
systems. Year 2000 issues may affect any system or equipment that has an
embedded microchip that processes date-sensitive information.
As described in Note 1, Ackerley acquired substantially all of the
Company's assets and certain liabilities on April 12, 1999. Accordingly,
Ackerley has expanded the scope of its year 2000 compliance program to include
the computer systems and equipment of the Company that it acquired. In addition,
it is likely that Ackerley will replace many of the Company's computer systems
with new systems that are compatible with those of Ackerley. Ackerley is
committed to addressing the Year 2000 issue in a prompt and responsible manner,
and has dedicated the resources to do so. Ackerley management has implemented a
program to complete all steps necessary to resolve identified Year 2000 issues.
F-41
<PAGE> 122
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 14,838 $ 174,791
Accounts receivable, net of allowance for doubtful
accounts ($113,750 in 1999, $95,000 in 1998)... 3,097,598 3,454,586
Prepaid expenses and other current assets......... 253,194 120,854
Deferred tax assets............................... 96,709 88,367
Current portion of broadcast rights............... 978,711 1,199,727
----------- -----------
Total current assets................................ 4,441,050 5,038,325
Property and equipment, net......................... 6,708,862 7,140,138
Intangible assets, net.............................. 43,811,937 44,498,036
Broadcast rights, less current portion.............. 3,281,004 3,387,946
----------- -----------
Total assets........................................ $58,242,853 $60,064,445
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable.................................. $ 60,680 $ 94,612
Income taxes payable.............................. 794,847 830,096
Other accrued liabilities......................... 661,031 580,537
Current portion of broadcast obligations.......... 1,068,949 1,253,628
----------- -----------
Total current liabilities........................... 2,585,507 2,758,873
Broadcast obligations, less current portion......... 3,793,348 3,953,044
Deferred tax liabilities............................ 594,285 455,233
Other long-term obligations......................... 90,000 90,000
Guy Gannett investment in WOKR(TV).................. 51,179,713 52,807,295
----------- -----------
Total liabilities................................... $58,242,853 $60,064,445
=========== ===========
</TABLE>
See accompanying notes.
F-42
<PAGE> 123
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
STATEMENT OF INCOME
THREE-MONTH PERIOD ENDED MARCH 31, 1999
<TABLE>
<S> <C>
Revenue..................................................... $4,563,183
Less agency commissions..................................... (664,884)
----------
Net revenue................................................. 3,898,299
Expenses:
Sales and community affairs............................... 499,952
News...................................................... 690,278
Programming............................................... 407,445
Creative services......................................... 226,183
Engineering............................................... 247,256
General and administrative................................ 480,554
Depreciation and amortization............................. 1,136,099
----------
Total expenses......................................... 3,687,767
----------
Income before income taxes.................................. 210,532
Provision for income taxes.................................. 95,461
----------
Net income.................................................. $ 115,071
==========
</TABLE>
See accompanying notes.
F-43
<PAGE> 124
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
STATEMENT OF CASH FLOWS
THREE-MONTH PERIOD ENDED MARCH 31, 1999
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Reconciliation of net income to net cash provided by
operating activities:
Net income................................................ $ 115,071
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income tax expense............................ 130,710
Depreciation and amortization.......................... 1,136,099
Amortization of broadcast rights....................... 329,458
Net expense from barter transactions................... 1,039
Change in assets and liabilities:
Accounts receivable.................................. 356,988
Prepaid expenses and other current assets............ (63,747)
Accounts payable..................................... (33,932)
Income taxes payable................................. (35,249)
Other accrued liabilities............................ 9,362
Broadcast obligations................................ (344,375)
-----------
Net cash provided by operating activities................... 1,601,424
INVESTING ACTIVITY -- capital expenditures.................. (18,724)
FINANCING ACTIVITY -- payments to Guy Gannett
Communications............................................ (1,742,653)
-----------
Net decrease in cash and cash equivalents................... (159,953)
Cash and cash equivalents at beginning of period............ 174,791
-----------
Cash and cash equivalents at end of period.................. $ 14,838
===========
</TABLE>
See accompanying notes.
F-44
<PAGE> 125
WOKR(TV)
(A DIVISION OF GUY GANNETT COMMUNICATIONS)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. The balance sheet at December 31,
1998 has been derived from the audited financial statements at that date. The
accompanying financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal and recurring
adjustments necessary for a fair presentation of the financial position, the
results of its operations and its cash flows for such period have been included.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1998.
The results of operations for any interim period are not necessarily
indicative of anticipated results for the year. The Company's results of
operations may vary from quarter to quarter due in part to seasonal variations
in its operations. In particular, the Company's net revenue and net income have
been historically affected by increased advertising activity in the second and
fourth quarters.
2. ACQUISITION OF THE COMPANY
On September 4, 1998, Guy Gannett Communications (Gannett) entered into a
sales agreement with Sinclair Communications, Inc. (Sinclair) to sell
substantially all of the assets of the Company along with various other
television stations owned by Gannett. On September 25, 1998, Sinclair separately
entered into an agreement with The Ackerley Group, Inc. (Ackerley) to sell
substantially all of the assets and certain liabilities of the Company to
Ackerley. The transactions closed on April 12, 1999.
3. YEAR 2000
Many computer systems were originally designed to recognize calendar years
by the last two digits in the date code field. Beginning in the year 2000, these
date code fields will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. The issue is not limited to computer
systems. Year 2000 issues may affect any system or equipment that has an
embedded microchip that processes date-sensitive information.
As described in Note 2, Ackerley acquired substantially all of the
Company's assets and certain liabilities on April 12, 1999. Accordingly,
Ackerley has expanded the scope of its year 2000 compliance program to include
the computer systems and equipment of the Company that it acquired. In addition,
it is likely that Ackerley will replace many of the Company's computer systems
with new systems that are compatible with those of Ackerley. Ackerley is
committed to addressing the Year 2000 issue in a prompt and responsible manner,
and has dedicated the resources to do so. Ackerley management has implemented a
program to complete all steps necessary to resolve identified Year 2000 issues.
F-45
<PAGE> 126
[PHOTO OF BILLBOARD]
[PHOTO OF MAN WORKING ON BILLBOARD]
[PHOTO OF LARGE FORMAT PRINTING OPERATION]
OUTDOOR MEDIA
[THE ACKERLEY GROUP LOGO]
THE ACKERLEY GROUP
OUTSTANDING MEDIA &
ENTERTAINMENT COMPANIES
SPORTS & ENTERTAINMENT
[PHOTO OF SEATTLE SUPERSONICS TEAM SHOP]
[PHOTO OF SEATTLE SUPERSONICS GAME]
RADIO
[PHOTO OF PROMOTIONAL CAR]
[PHOTO OF RADIO PERSONALITY ON-AIR]
TELEVISION
[PHOTO OF TELEVISION REPORTER]
[PHOTO OF TELEVISION PROGRAMMING OPERATIONS]
<PAGE> 127
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,200,000 SHARES
THE ACKERLEY GROUP, INC.
COMMON STOCK
[ACKERLEY GROUP LOGO]
------------------
PROSPECTUS
, 1999
------------------
SALOMON SMITH BARNEY
FIRST UNION CAPITAL MARKETS CORP.
MERRILL LYNCH & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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......... $ 25,850
NASD Filing Fee............................................. $ 9,800
New York Stock Exchange Listing Fee......................... $ 12,700
Printing and Engraving Expenses............................. $130,000
Legal Fees and Expenses..................................... $250,000
Accounting Fees and Expenses................................ $ 50,000
Blue Sky Fees and Expenses (including fees of counsel)...... $ 10,000
Transfer Agent and Registrar Fee............................ $ 1,500
Miscellaneous Expenses...................................... $ 25,150
--------
Total.................................................. $515,000
========
</TABLE>
ITEM 15. 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 indemnify 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 or Bylaws 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.
II-1
<PAGE> 129
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Fourth Restated Certificate of Incorporation(1)
4.2 Amended and Restated Bylaws(2)
5.1 Opinion of Graham & Dunn PC as to legality of securities
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, Deborah L. Bevier, M. Ian G. Gilchrist, Michel
C. Thielen, Denis M. Curley and Keith W. Ritzmann
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit 3.0 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998.
(2) Incorporated by reference to Exhibit 3.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
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.
(c) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual
II-2
<PAGE> 130
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.
II-3
<PAGE> 131
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND 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 JULY 9, 1999.
THE ACKERLEY GROUP, INC.
By: /s/ KEITH W. RITZMANN
-----------------------------------
Keith W. Ritzmann
Senior Vice President and
Chief Information Officer,
Assistant Secretary and Controller
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman and Chief Executive July 9, 1999
- --------------------------------------------- Officer and Director
Barry A. Ackerley (Principal Executive Officer)
* Co-Chairman and Co-President July 9, 1999
- --------------------------------------------- and Director
Gail A. Ackerley
* Co-President and Chief July 9, 1999
- --------------------------------------------- Financial Officer, Secretary
Denis M. Curley and Treasurer (Principal
Financial Officer)
/s/ KEITH W. RITZMANN Senior Vice President and July 9, 1999
- --------------------------------------------- Chief Information Officer,
Keith W. Ritzmann Assistant Secretary and
Controller
(Principal Accounting Officer)
* Director July 9, 1999
- ---------------------------------------------
Deborah L. Bevier
* Director July 9, 1999
- ---------------------------------------------
M. Ian G. Gilchrist
</TABLE>
II-4
<PAGE> 132
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director July 9, 1999
- ---------------------------------------------
Michel C. Thielen
*By: /s/ KEITH W. RITZMANN July 9, 1999
- ---------------------------------------------
Attorney-In-Fact
</TABLE>
II-5
<PAGE> 133
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Fourth Restated Certificate of Incorporation(1)
4.2 Amended and Restated Bylaws(2)
5.1 Opinion of Graham & Dunn PC as to legality of securities
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, Deborah L. Bevier, M. Ian G. Gilchrist, Michel
C. Thielen, Denis M. Curley and Keith W. Ritzmann
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit 3.0 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998.
(2) Incorporated by reference to Exhibit 3.5 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
<PAGE> 1
EXHIBIT 1.1
The Ackerley Group, Inc.
[ ] Shares*
Common Stock
($.01 par value)
Underwriting Agreement
New York, New York
[ ] , 1999
Salomon Smith Barney Inc.
First Union Capital Markets Corp.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
The Ackerley Group, Inc., a Delaware corporation (the "Company"),
proposes to sell to the several underwriters named in Schedule I hereto (the
"Underwriters"), for whom you (the "Representatives") are acting as
representatives, [ ] shares of Common Stock, $.01 par value ("Common Stock"), of
the Company and the persons named in Schedule II hereto (the "Selling
Stockholders") propose to sell to the several Underwriters [ ] shares of Common
Stock (said shares to be issued and sold by the Company and said shares to be
sold by the Selling Stockholders collectively being hereinafter called the
"Underwritten Securities"). The Company also proposes to grant to the
Underwriters an option to purchase up to [ ] additional shares of Common Stock
to cover over-allotments (the "Option Securities"; the Option Securities,
together with the Underwritten Securities, being hereinafter called the
"Securities"). The Underwritten Securities to be sold by the Company, together
with the Option Securities, are hereinafter sometimes called the "Company
Securities"; and the Underwritten Securities to be sold by the Selling
Stockholders are hereinafter sometimes called the "Stockholder Securities". To
the extent there are no additional Underwriters listed on Schedule I other than
you, the term Representatives as used herein shall mean you, as Underwriters,
and the terms Representatives and Underwriters shall mean either the singular or
plural as the context requires. In addition, to
- --------
* Plus an option to purchase from The Ackerley Group, Inc. up to [ ]
additional shares to cover over-allotments.
<PAGE> 2
the extent that there is not more than one Selling Stockholder named in Schedule
II, the term Selling Stockholder shall mean either the singular or plural. The
use of the neuter in this Agreement shall include the feminine and masculine
wherever appropriate. Any reference herein to the Registration Statement, a
Preliminary Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated or deemed to be incorporated by reference therein
pursuant to Item 12 of Form S-3 which were filed under the Exchange Act on or
before the Effective Date of the Registration Statement or the issue date of
such Preliminary Prospectus or the Prospectus, as the case may be; and any
reference herein to the terms "amend", "amendment" or "supplement" with respect
to the Registration Statement, any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and include the filing of any document under the
Exchange Act after the Effective Date of the Registration Statement, or the
issue date of any Preliminary Prospectus or the Prospectus, as the case may be,
that is deemed to be incorporated therein by reference. Certain terms used
herein are defined in Section 17 hereof.
1. Representations and Warranties.
(i) The Company and the Selling Stockholders jointly and severally
represent and warrant to, and agree with, each Underwriter as set forth below in
this Section 1.
(a) The Company meets the requirements for use of Form S-3
under the Act and has prepared and filed with the Commission a
registration statement (file number 333-49711) originally on Form S-1,
including a related preliminary prospectus, for the registration under
the Act of the offering and sale of the Securities. The Company has
filed one or more amendments thereto, each including a related
preliminary prospectus, and which amendments, among other things,
amended such registration statement on Form S-1 to a registration
statement on Form S-3, each of which has previously been furnished to
you. The Company will next file with the Commission one of the
following: either (1) prior to the Effective Date of such registration
statement, a further amendment to such registration statement (including
the form of final prospectus) or (2) after the Effective Date of such
registration statement, a final prospectus in accordance with Rules 430A
and 424(b). In the case of clause (2), the Company has included in such
registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and
the rules thereunder to be included in such registration statement and
the Prospectus. As filed, such amendment and form of final prospectus,
or such final prospectus, shall contain all Rule 430A Information,
together with all other such required information, and, except to the
extent the Representatives shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior
to the Execution Time or, to the extent not completed at the Execution
Time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as
the Company has advised you, prior to the Execution Time, will be
included or made therein.
(b) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in accordance
with Rule 424(b) and on the Closing Date (as defined herein) and on any
date on which Option Securities are purchased, if such date is not the
Closing Date (a "settlement date"), the Prospectus (and any supplements
thereto) will, comply in all material respects with the applicable
2
<PAGE> 3
requirements of the Act and the Exchange Act and the respective rules
thereunder; on the Effective Date and at the Execution Time, the
Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date and any settlement date,
the Prospectus (together with any amendment or supplement thereto) will
not, include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the Company and the Selling Stockholders make no
representations or warranties as to the information contained in or
omitted from the Registration Statement or the Prospectus (or any
supplement thereto) in reliance upon and in conformity with information
furnished herein or in writing to the Company by or on behalf of any
Underwriter through the Representatives specifically for inclusion in
the Registration Statement or the Prospectus (or any supplement
thereto).
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered, with full
power and authority as a corporation to own and lease and to operate its
properties and to conduct its business as described in the Prospectus
(exclusive of any amendments or supplements thereto), and is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction where the nature of its
properties or the conduct of its business requires such qualification,
except in any case in which the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries,
taken as a whole.
(d) All of the Company's subsidiaries are corporations and a
true, complete and correct list of all of the Company's subsidiaries and
Material Subsidiaries (as defined below), together with their respective
jurisdictions of incorporation or organization, as the case may be, is
set forth on Exhibit C hereto. Assuming that the sale by the Company of
substantially all of the assets of Ackerley Airport Advertising, Inc.
and the acquisition by the Company of substantially all of the assets of
WOKR (TV) (as such term is defined in Section 17 of this Agreement) had
occurred (in the case of revenue and net income data) on the first day
of the periods referred to below in this sentence and that the
acquisition of substantially all of the assets of WOKR (TV) had occurred
as of March 31, 1999 (in the case of balance sheet data), the Company
and the Material Subsidiaries would represent, on a pro forma
consolidated basis in accordance with generally accepted accounting
principles (but excluding in such consolidation any subsidiary of a
Material Subsidiary unless such subsidiary is itself a Material
Subsidiary), not less than 90.0% of each of the total revenues and net
income of the Company and its subsidiaries determined on a pro forma
consolidated basis in accordance with generally accepted accounting
principles for the year ended December 31, 1998 and not less than 90.0%
of the total assets, revenues and net income of the Company and its
subsidiaries determined on a pro forma consolidated basis in accordance
with generally accepted accounting principles as
3
<PAGE> 4
of and for the three-month period ended March 31, 1999. All the
outstanding shares of capital stock of each such subsidiary have been
duly and validly authorized and issued and are fully paid and
nonassessable and are owned by the Company, either directly or through
wholly owned subsidiaries and, except as set forth in the Prospectus,
free and clear of any perfected security interest or any other security
interests, claims, liens or encumbrances. As used herein, the term
"Material Subsidiaries" means those subsidiaries of the Company which
are designated as "Material Subsidiaries" on Exhibit C hereto.
(e) The Company's authorized, issued and outstanding
capitalization is as set forth in the Prospectus (except for shares of
Common Stock and shares of the Company's Class B Common Stock, $.01 par
value (the "Class B Common Stock") issued pursuant to employee and
director stock option plans or stock purchase agreements referred to in
the Prospectus, exclusive of any amendments or supplements thereto); the
capital stock of the Company conforms to the description thereof
contained in the Prospectus; all of the outstanding shares of Common
Stock (including, without limitation, the Stockholder Securities) and
all of the outstanding shares of the Company's Class B Common Stock,
have been duly and validly authorized and issued and are fully paid and
nonassessable and were not issued in violation of any preemptive or
other similar rights (whether provided contractually or pursuant to any
Organizational Document (as defined below) or arising by operation of
law or otherwise); the Company Securities have been duly and validly
authorized, and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the certificates for the Securities are in valid and
sufficient form; the holders of outstanding shares of capital stock of
the Company are not entitled to preemptive or other similar rights
(whether provided contractually or pursuant to any Organizational
Document or arising by operation of law or otherwise) to subscribe for
the Securities or any other capital stock of the Company; and, except as
set forth in the Prospectus, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or rights to convert
any obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding.
(f) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not described
or filed as required; and the statements in the Prospectus under the
headings "Risk Factors - Restrictions on Ownership and Transfer of
Common Stock," "Risk Factors - Leverage; Restrictions Under Debt
Instruments; Covenant Compliance," "Risk Factors--Outdoor Media," "Risk
Factors--Television and Radio Broadcasting," "Risk Factors--Sports &
Entertainment," "Risk Factors - Legal Proceedings," "Risk Factors -
Shares Eligible for Future Sale," "Business - Sports & Entertainment,"
"Business--Regulation," "Business--Restrictions on Our Operations,"
"Business--Legal Proceedings" and "Description of Capital Stock" and in
the Company's Form 10-K for the year ended December 31, 1998 (the "1998
Form 10K") under the headings "Business--Out-of-Home Media--Outdoor
Advertising--Regulation," "Business--Television and Radio Broadcasting
Regulation," "Business--Television Broadcasting--Programming" and
"Business--Television Broadcasting--Acquisitions and Time Brokerage
Agreements" and "Legal Proceedings," (except, in the case of any such
information set forth in the 1998 Form 10-K, to the extent that such
4
<PAGE> 5
information has been superseded by information in the Prospectus
(excluding the documents incorporated by reference therein)) fairly
summarize the matters therein described in all material respects.
(g) This Agreement has been duly authorized, executed and
delivered by the Company and the Selling Stockholders and constitutes a
valid and binding obligation of the Company and the Selling Stockholders
enforceable in accordance with its terms.
(h) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
from the sale of the Securities as described in the Prospectus under the
heading "Use of Proceeds", will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(i) No consent, approval, resolution, authorization or order
of, or filing or registration with, any court or governmental agency or
body or any NBA Person is required in connection with the consummation
of the transactions contemplated herein by the Company or the Selling
Stockholders or in connection with the purchase, public offering or sale
of the Securities by the Underwriters, except (i) such as have been
obtained under the Act, (ii) such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectus and (iii) the NBA Approval (as
defined below); the only such consent, approval, resolution,
authorization or order of, or filing or registration with, any NBA
Person that is so required are the resolutions of the NBA and the other
NBA Entities approving the offering contemplated hereby (the "NBA
Approval") (which resolutions have been duly adopted by the NBA and the
NBA Entities and a true, complete and correct copy of which has been
delivered to the Representatives); and the only instrument, agreement or
other document that the Company or the Selling Stockholders or any of
their respective subsidiaries or affiliates is required to execute or
deliver to any NBA Person in connection with the transactions
contemplated hereby is an Agreement and Undertaking (the "Indemnity
Agreement") by the Company, SSI, Inc., the Selling Stockholders and [ ]
; the Indemnity Agreement has been duly authorized, executed and
delivered by the Company, SSI, Inc., the Selling Stockholders and [ ]
and is satisfactory to the Commissioner of the NBA, the appropriate
officers of the NBA Entities and counsel to each of the NBA Entities and
a true, correct and complete copy of the Indemnity Agreement has been
delivered to the Representatives; and there are no conditions to the NBA
Approval other than execution and delivery of the Indemnity Agreement,
which condition has been satisfied.
(j) Neither the execution, delivery or performance by the
Company or the Selling Stockholders of this Agreement nor the issue and
sale by the Company of the Securities to be issued and sold by it
hereunder, nor the sale by the Selling Stockholders of the Securities to
be sold by them hereunder, nor the consummation of any other of the
transactions herein contemplated, nor the fulfillment of the terms
hereof will conflict with, or constitute or result in a breach or
violation of any of the terms or provisions of, or constitute a default
(or an event which, with notice or lapse of time or both, would
constitute a default) under, or give rise to any right to accelerate the
maturity or require the prepayment of any indebtedness under, or result
in the creation or imposition of any
5
<PAGE> 6
lien, charge or encumbrance upon any property or assets of the Company
or any of its subsidiaries pursuant to, (i) the charter or by-laws of
the Company or the charter or by-laws or other organizational documents
of any of its subsidiaries (the documents referred to in this clause (i)
are herein called, collectively, "Organizational Documents"), (ii) the
terms of any Subject Document (as defined below) or of any other
indenture, contract, lease, mortgage, deed of trust, note agreement,
loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or any of its subsidiaries is a party or
bound or to which its or their property is subject, (iii) the terms of
any license or franchise (including the NBA franchise or any
broadcasting license) granted to or held by the Company or any of its
subsidiaries or the terms of any broadcasting or similar license granted
to or held by a third party with respect to a television or radio
station operated but not owned by the Company or any of its
subsidiaries, (iv) any statute, law, rule, regulation, judgment, order
or decree applicable to the Company or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or
any of its subsidiaries or any of its or their properties or (v) any
provision of the constitution or by-laws of the NBA or any rule or
regulation of the NBA or any other NBA Person. As used herein, "Subject
Documents" means the Bank Credit Agreement, the Indenture, and the
Guarantees (as such terms are defined below) and the other instruments,
agreements and documents listed as Exhibits 10.1, 10.2, 10.3 and 10.8
through 10.17, inclusive to the 1998 Form 10-K, in each case including
all amendments and supplements to such instruments, agreements and other
documents; and "Subject Document" means any of the Subject Documents.
(k) There are no persons with registration or other similar
rights to have any securities registered by the Company under the Act
and there are no persons who have rights to the registration of such
securities under the Registration Statement or to include any such
securities in the offering made by the Prospectus.
(l) The consolidated historical financial statements and
schedules of the Company and its consolidated subsidiaries and of WOKR
(TV) included in and incorporated by reference in the Prospectus and the
Registration Statement present fairly in all material respects the
financial condition, results of operations and cash flows of the Company
and its consolidated subsidiaries and of WOKR (TV), respectively, as of
the dates and for the periods indicated, comply as to form with the
applicable accounting requirements of the Act and the Exchange Act and
have been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as otherwise noted therein). The financial data set
forth under the captions "Prospectus Summary--Summary Financial Data"
and "Selected Consolidated Financial Data" in the Prospectus and
Registration Statement fairly present, on the basis stated in the
Prospectus and the Registration Statement, the information included
therein. The unaudited pro forma financial statements included and
incorporated by reference in the Prospectus and the Registration
Statement include assumptions that provide a reasonable basis for
presenting the significant effects directly attributable to the
transactions and events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro
forma adjustments reflect the proper application of those adjustments to
the historical financial statement
6
<PAGE> 7
amounts in the pro forma financial statements included and incorporated
by reference in the Prospectus and the Registration Statement. The
unaudited pro forma financial statements included and incorporated by
reference in the Prospectus and the Registration Statement comply as to
form with the applicable accounting requirements of Regulation S-X under
the Act and the pro forma adjustments have been properly applied to the
historical amounts in the compilation of those statements.
(m) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending
or, to the best knowledge of the Company, threatened that, individually
or in the aggregate, (i) could reasonably be expected to have a material
adverse effect on the performance of this Agreement or the consummation
of any of the transactions contemplated hereby or (ii) except as
disclosed in the Prospectus (exclusive of any amendments or supplements
thereto), could reasonably be expected to have a material adverse effect
on the condition (financial or otherwise), prospects, earnings, business
or properties of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business.
(n) Except as disclosed in the Prospectus (exclusive of any
amendments or supplements thereto), each of the Company and each of its
subsidiaries owns or leases all such properties as are necessary to the
conduct of its operations as presently conducted, except in any case in
which the failure to own or lease such properties would not, either
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole.
(o) Neither the Company nor any subsidiary of the Company is
in violation or default of (i) any provision of its Organizational
Documents, (ii) the terms of any Subject Document, (iii) terms of any
other indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its
property is subject, (iv) the terms of any license or franchise
(including the NBA franchise or any broadcasting license) granted to or
held by the Company or any of its subsidiaries or the terms of any
broadcasting license granted to or held by a third party with respect to
a television or radio station operated but not owned by the Company or
any of its subsidiaries, or (v) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any such subsidiary or any of its
properties, as applicable, except in the case of clauses (iii), (iv) and
(v) of this paragraph, for such violations or defaults which either
individually or in the aggregate, with all other violations or defaults
would not have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole. Without limitation to the
foregoing, each of the Company and its subsidiaries is in compliance in
all material respects with all applicable statutes, rules, regulations
and orders of and licenses granted by the Federal Communications
Commission (the "FCC"), and the issuance of the Securities by the
Company and the sale by the Company and the Selling Stockholders of the
Securities pursuant to this
7
<PAGE> 8
Agreement do not and will not constitute the transfer, assignment or
disposition in any manner, voluntarily or involuntarily, directly or
indirectly, of any license granted the FCC or the transfer of control of
the Company or any of its subsidiaries within the meaning of Section
310(d) of the Communications Act of 1934, as amended, and do not and
will not otherwise contravene or violate any law, rule or regulation
applicable to the Company or any of its subsidiaries with respect to
telecommunications or broadcasting.
(p) Ernst & Young LLP, who have audited certain financial
statements of the Company and its consolidated subsidiaries and of WOKR
(TV) and delivered their reports with respect to the audited
consolidated financial statements and schedules included in the
Prospectus, are independent auditors with respect to the Company and
WOKR (TV) within the meaning of the Act and the Exchange Act and the
respective applicable published rules and regulations thereunder.
(q) Other than any New York State stock transfer taxes
applicable to the sale of the Stockholder Securities, there are no
transfer taxes or other similar fees or charges under federal law or the
laws of any state, or any political subdivision thereof, required to be
paid in connection with the execution and delivery of this Agreement or
the issuance by the Company of the Company Securities or the sale by the
Company or the Selling Stockholders of the Securities.
(r) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file
would not, individually or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole), and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of
the foregoing is due and payable, except for any such assessments, fines
or penalties that are currently being contested in good faith or as
would not, individually or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole.
(s) No labor problem or dispute with the employees of the
Company or any of its subsidiaries exists or is threatened or imminent,
and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or its subsidiaries'
principal suppliers, contractors or customers, that could have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, except as set forth in or contemplated
in the Prospectus (exclusive of any amendments or supplements thereto).
(t) The Company and each of the subsidiaries maintain
insurance of the types and in the amounts that are reasonable for the
business operated by them, including, but not limited to, insurance
covering real and personal property owned and leased by the Company and
the subsidiaries against theft, damage, destruction, acts of vandalism
and liability, all of which insurance is in full force and effect; and
neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing
8
<PAGE> 9
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not, individually or in the aggregate,
have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole.
(u) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends or making any advances
to the Company, from making any other distribution on such subsidiary's
capital stock, from repaying to the Company any loans or advances to
such subsidiary from the Company or from transferring any of such
subsidiary's property or assets to the Company or any other subsidiary
of the Company, except as disclosed in the Prospectus (exclusive of any
amendments or supplements thereto) with respect to the pledge of certain
assets to secure amounts owing under the Bank Credit Agreement and
except for transfer restrictions arising (i) as a result of other liens
on assets, which assets are, in the aggregate, not material to the
Company and its subsidiaries taken as a whole, (ii) under leases
existing on the date of this Agreement or (iii) under applicable law or
franchises (such as the NBA franchise) that may require prior approval
of any transfer.
(v) The Company and its subsidiaries possess all licenses,
franchises, certificates, permits and other authorizations issued by the
appropriate federal, state or foreign regulatory authorities or granted
by the NBA or any other NBA Person necessary to conduct their respective
businesses in the manner described in the Prospectus (exclusive of any
amendments or supplements thereto) and, in the case of television or
radio stations operated but not owned by the Company and its
subsidiaries, the owners of such stations possess all necessary
broadcasting and similar licenses with respect to such stations, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
license, franchise, certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business.
(w) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) Neither the Company nor any of the Selling Stockholders
has taken, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in,
under the Exchange Act or otherwise,
9
<PAGE> 10
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities. Neither the
Company nor any of the Selling Stockholders has paid or agreed to pay to
any person any compensation for soliciting another to purchase any
securities of the Company (except as contemplated by this Agreement).
(y) The Company and its subsidiaries are (i) in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received and are in
compliance with all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) have not received notice of any actual or potential
liability for the investigation or remediation of any disposal or
release of hazardous or toxic substances or wastes, pollutants or
contaminants, except where such non-compliance with Environmental Laws,
failure to receive required permits, licenses or other approvals, or
liability would not, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any amendments or supplements thereto).
Except as set forth in the Prospectus (exclusive of any amendments or
supplements thereto), neither the Company nor any of the subsidiaries
has been named as a "potentially responsible party" under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended.
(z) Each of the Company and its subsidiaries has fulfilled
its obligations, if any, under the minimum funding standards of Section
302 of the United States Employee Retirement Income Security Act of 1974
("ERISA") and the regulations and published interpretations thereunder
with respect to each "plan" (as defined in Section 3(3) of ERISA and
such regulations and published interpretations) in which employees of
the Company and its subsidiaries are eligible to participate and each
such plan is in compliance in all material respects with the presently
applicable provisions of ERISA and such regulations and published
interpretations. The Company and its subsidiaries have not incurred any
unpaid liability to the Pension Benefit Guaranty Corporation (other than
for the payment of premiums in the ordinary course) or to any such plan
under Title IV of ERISA.
(aa) No person or entity, together with its affiliates, will
receive from the Company and/or the Selling Stockholders 10% or more of
the net proceeds from the offering of the Securities except the lending
banks under the Bank Credit Agreement. No person or entity, together
with its affiliates, owns 10% or more of the outstanding shares of Class
B Stock, other than Barry A. Ackerley and Gail A. Ackerley or more than
10% of the outstanding shares of Common Stock, other than Barry A.
Ackerley, Gail A. Ackerley and the Gabelli Funds, Inc.
(bb) The Company, through a wholly-owned subsidiary, holds
all right, title and interest in and to the NBA franchise for the
Seattle Supersonics basketball team.
10
<PAGE> 11
(cc) The statistical and market-related data included in the
Prospectus are based on or derived from independent sources which the
Company believes to be reliable and accurate or represent the Company's
good faith estimates that are made on the basis of data derived from
such sources.
(dd) The financial statements of WOKR (TV) included and
incorporated by reference in the Prospectus and the Registration
Statement, and the financial information set forth under the columns
"Historical WOKR" which appear under the caption "Unaudited Pro Forma
Condensed Consolidated Financial Information" in the Prospectus, (i)
present fairly in all material respects the financial condition and
results of operations of WOKR (TV) as of March 31, 1999 and for the year
and three months ended December 31, 1998 and March 31, 1999,
respectively, (ii) fairly and accurately reflect all of the assets
acquired and all of the liabilities assumed by the Company pursuant to
the Acquisition Agreement (as such term is defined in Section 17 of this
Agreement) as of the dates specified, (iii) present fairly the financial
condition and results of operations of WOKR (TV) as of the dates and for
the periods indicated and (iv) have been prepared in conformity with
GAAP applied on a consistent basis throughout the periods involved.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a joint and several representation
and warranty by the Company and the Selling Stockholders, as to matters covered
thereby, to each Underwriter.
(ii) Each Selling Stockholder represents and warrants to, and agrees
with, each Underwriter that:
(a) Such Selling Stockholder is the record and beneficial
owner of the Securities to be sold by it hereunder free and clear of all
liens, encumbrances, equities and claims and has duly indorsed such
Securities in blank, and, assuming that each Underwriter acquires its
interest in the Securities it has purchased from such Selling
Stockholder without notice of any adverse claim (within the meaning of
Section 8-105 of the New York Uniform Commercial Code ("UCC")), each
Underwriter that has purchased such Securities delivered on the Closing
Date to the Depository Trust Company or other securities intermediary,
by making payment therefor as provided herein, and that has had such
Securities credited to the securities account or accounts of such
Underwriter maintained with The Depository Trust Company or such other
securities intermediary, will have acquired a security entitlement
(within the meaning of Section 8-102(a)(17) of the UCC) to such
Securities purchased by such Underwriter, and no action based on an
adverse claim (within the meaning of Section 8-102(a)(1) of the UCC) may
be asserted against such Underwriter with respect to such Securities.
(b) Such Selling Stockholder has not taken, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Exchange Act
or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Securities.
11
<PAGE> 12
(c) Certificates in negotiable form for such Selling
Stockholder's Securities have been placed in custody, for delivery
pursuant to the terms of this Agreement, under a Custody Agreement and
Power of Attorney duly authorized (if applicable), executed and
delivered by such Selling Stockholder, in the form heretofore furnished
to you (a "Custody Agreement") with First Union National Bank, N.A., as
Custodian (the "Custodian"), pursuant to the Custody Agreement, each of
Denis M. Curley, Christopher H. Ackerley and Keith W. Ritzmann has been
duly appointed as the attorney-in-fact (each, an "Attorney-in-Fact") of
such Selling Stockholder; such Custody Agreement constitutes a valid and
binding agreement of such Selling Stockholder, enforceable against such
Selling Stockholder in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles, the Securities
represented by the certificates so held in custody for each Selling
Stockholder are subject to the interests hereunder of the Underwriters;
the arrangements for custody and delivery of such certificates made by
such Selling Stockholder hereunder and under the Custody Agreement are
not subject to termination by any acts of such Selling Stockholder or by
operation of law, whether by the death or incapacity, if applicable, of
such Selling Stockholder or the occurrence of any other event; if any
such death or incapacity, if applicable, or any other such event shall
occur before the delivery of the Securities to be sold by such Selling
Stockholder hereunder, such certificates for the Securities will be
delivered by the Custodian in accordance with the terms and conditions
of this Agreement and the Custody Agreement as if such death, incapacity
or other event had not occurred, regardless of whether or not the
Custodian shall have received notice of such death, incapacity or other
event; and the Custodian is authorized to deliver the Securities to be
sold by such Selling Stockholder under this Agreement, to accept payment
therefor from the Underwriters and to execute and deliver a receipt for
such payment. For purposes of this Agreement, references to its "Custody
Agreement", when used with respect to any Selling Stockholder, means the
Custody Agreement which has been executed by such Selling Stockholder.
(d) Such Selling Stockholder (if not a natural person) has
been duly organized and is validly existing and in good standing under
the laws of the jurisdiction of its organization. Such Selling
Stockholder has full right, power and authority to execute, deliver and
perform its obligations under this Agreement and its Custody Agreement,
and to sell, transfer and delivery the Securities to be sold by such
Selling Stockholder under this Agreement. Neither the sale of the
Securities being sold by such Selling Stockholder nor the consummation
of any other of the transactions herein contemplated by such Selling
Stockholder nor the fulfillment of the terms hereof by such Selling
Stockholder nor the execution, delivery or performance by such Selling
Stockholder of its Custody Agreement will conflict with, result in a
breach or violation of, or constitute a default under any law or (if
applicable) the charter or by-laws, partnership agreement, trust
agreement or other organizational documents of such Selling Stockholder
or the terms of any indenture or other agreement or instrument to which
such Selling Stockholder is a party or bound, or any judgment, order or
decree applicable to such Selling Stockholder of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder. Such Selling Stockholder
does not have any direct or indirect subsidiaries.
12
<PAGE> 13
(e) All of the representations and warranties made by the
other Selling Stockholder in this Section 1(ii) are true, complete and
correct.
(f) Any certificate signed by or on behalf of any Selling
Stockholder (including any certificate signed on behalf of a Selling
Stockholder by any Attorney-in-Fact) and delivered to the
Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a joint and several
representation and warranty by the Company and the Selling Stockholders,
as to matters covered thereby, to each Underwriter.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company and the
Selling Stockholders agree, severally and not jointly, to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Company and the Selling Stockholders, at a purchase
price of $ [ ] per share, the number of the Underwritten Securities set
forth opposite such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby
grants an option to the several Underwriters to purchase, severally and
not jointly, up to [ ] Option Securities at the same purchase price per
share as the Underwriters shall pay for the Underwritten Securities;
provided that the purchase price per share for any Option Securities
shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Underwritten
Securities but not payable on the Option Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or
in part at any time (but not more than once) on or before the 30th day
after the date of the Prospectus upon written, telecopied or telegraphic
notice by the Representatives to the Company setting forth the number of
shares of the Option Securities as to which the several Underwriters are
exercising the option and the settlement date. Delivery of certificates
for the shares of Option Securities by the Company, and payment therefor
to the Company, shall be made as provided in Section 3 hereof. The
number of shares of the Option Securities to be purchased by each
Underwriter shall be the same percentage of the total number of shares
of the Option Securities to be purchased by the several Underwriters as
such Underwriter is purchasing of the Underwritten Securities, subject
to such adjustments as you in your absolute discretion shall make to
eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
[ ] , 1999, or at such time on such later date not more than three Business Days
after the foregoing date as the Representatives shall designate, which date and
time may be postponed by agreement among the Representatives, the Company and
the Selling Stockholders or as provided in Section 9 hereof (such date and time
of delivery and payment for the Securities being herein called the "Closing
Date"). Delivery of the Securities shall be made to the Representatives for the
respective accounts of the several Underwriters
13
<PAGE> 14
against payment by the several Underwriters through the Representatives of the
purchase price thereof to or upon the order of the Company and the Selling
Stockholders by wire transfer payable in same-day funds to an account specified
by the Company and the Selling Stockholders. The Selling Stockholders agree that
payment for the Securities sold by them may be made to the Custodian on their
behalf. Delivery of the Underwritten Securities and the Option Securities shall
be made through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
Each Selling Stockholder will pay all applicable state transfer taxes,
if any, involved in the transfer to the several Underwriters of the Securities
to be purchased by them from such Selling Stockholder and the respective
Underwriters will pay any additional stock transfer taxes involved in further
transfers.
If the option provided for in Section 2(b) hereof is exercised after the
third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives, at 388
Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by wire transfer payable in
same-day funds to an account specified by the Company. If settlement for the
Option Securities occurs after the Closing Date, the Company will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates, comfort
letters and other documents confirming as of such date the opinions,
certificates and letters delivered on the Closing Date pursuant to Section 6
hereof, as well as such other certificates and documents as the Representatives
may reasonably request in connection therewith.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements.
(i) The Company agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus or any Rule
462(b) Registration Statement unless the Company has furnished you a
copy for your review prior to filing and will not file any such proposed
amendment or supplement to which you reasonably object. Subject to the
foregoing sentence, if the Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will cause the
Prospectus, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence satisfactory
to the Representatives of such timely
14
<PAGE> 15
filing. The Company will promptly advise the Representatives (1) when
the Registration Statement, if not effective at the Execution Time,
shall have become effective, (2) when the Prospectus, and any supplement
thereto, shall have been filed (if required) with the Commission
pursuant to Rule 424(b) or when any Rule 462(b) Registration Statement
shall have been filed with the Commission, (3) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (4) of
any request by the Commission or its staff for any amendment of the
Registration Statement, or any Rule 462(b) Registration Statement, or
for any supplement to the Prospectus or for any additional information,
(5) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (6) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the
institution or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such
stop order or the suspension of any such qualification and, if issued,
to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will (1) notify the Representatives of such event, (2) prepare
and file with the Commission, subject to the second sentence of
paragraph (i)(a) of this Section 5, an amendment or supplement which
will correct such statement or omission or effect such compliance and
(3) supply any supplemented Prospectus to you in such quantities as you
may reasonably request.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an earnings
statement or statements of the Company and its subsidiaries which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under
the Act.
(d) The Company will furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits
thereto) and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of each Preliminary
Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request. The Company will pay the
expenses of printing or other production of all documents relating to
the offering.
(e) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of such
jurisdictions as the Representatives may designate, will maintain such
qualifications in effect so long as required for the distribution of the
Securities and will pay any fee of the National Association of
15
<PAGE> 16
Securities Dealers, Inc. in connection with its review of the offering;
provided that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to
take any action that would subject it to service of process in suits,
other than those arising out of the offering or sale of the Securities,
in any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent
of Salomon Smith Barney Inc., for a period of 90 days following the date
of this Agreement, offer, sell or contract to sell, or otherwise dispose
of (or enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or any affiliate of the Company or any person
in privity with the Company or any affiliate of the Company), directly
or indirectly, including the filing (or participation in the filing) of
a registration statement with the Commission in respect of, or establish
or increase a put equivalent position or liquidate or decrease a call
equivalent position within the meaning of Section 16 of the Exchange Act
with respect to, any shares of Common Stock or any shares of Class B
Stock or any securities convertible into, or exchangeable or exercisable
for, shares of Common Stock or Class B Stock or publicly announce an
intention to effect any such transaction; provided, however, that the
Company may issue and sell Common Stock pursuant to any director or
employee stock option or stock ownership plan or dividend reinvestment
plan of the Company in effect at the Execution Time and the Company may
issue Common Stock issuable upon the conversion of securities or the
exercise of warrants outstanding at the Execution Time and may issue
shares of Common Stock to the Underwriters pursuant to this Agreement.
(g) The Company will not take, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses
relating to the following matters: (i) the preparation, printing or
reproduction and filing with the Commission of the Registration
Statement (including financial statements and exhibits thereto), each
Preliminary Prospectus, the Prospectus, and each amendment or supplement
to any of them; (ii) the printing (or reproduction) and delivery
(including postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, and all amendments or
supplements to any of them, as may, in each case, be reasonably
requested for use in connection with the offering and sale of the
Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp or
transfer taxes in connection with the original issuance and sale of the
Securities; (iv) the printing (or reproduction) and delivery of this
Agreement, any blue sky memorandum and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of
the Securities; (v) the registration of the Securities under the
Exchange Act and the listing of the Securities on the New York Stock
Exchange; (vi) any registration or qualification of the Securities for
offer and sale under the securities or blue sky laws of the several
states (including filing fees and the
16
<PAGE> 17
reasonable fees and expenses of counsel for the Underwriters relating to
such registration and qualification); (vii) any filings required to be
made with the National Association of Securities Dealers, Inc.
(including filing fees and the reasonable fees and expenses of counsel
for the Underwriters relating to such filings); (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective
purchasers of the Securities; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including
local and special counsel) for the Company and the Selling Stockholders;
and (x) all other costs and expenses incident to the performance by the
Company and the Selling Stockholders of their obligations hereunder.
(ii) Each Selling Stockholder agrees with the several Underwriters
that:
(a) Such Selling Stockholder will not, without the prior
written consent of Salomon Smith Barney, offer, sell, contract to sell,
pledge or otherwise dispose of (or enter into any transaction which is
designed to, or might reasonably be expected to, result in the
disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by such Selling
Stockholder or any affiliate of such Selling Stockholder or any person
in privity with such Selling Stockholder or any affiliate of such
Selling Stockholder) directly or indirectly, or file (or participate in
the filing of) a registration statement with the Commission in respect
of, or establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16 of
the Exchange Act with respect to, any shares of Common Stock, Class B
Common Stock or other capital stock of the Company, or any securities
convertible into or exercisable or exchangeable for shares of Common
Stock, Class B Common Stock or other capital stock of the Company, or
publicly announce an intention to effect any such transaction, for a
period of 90 days after the date of this Agreement, other than shares of
Common Stock disposed of as bona fide gifts approved in advance in
writing by Salomon Smith Barney and other than shares of Common Stock
sold to the Underwriters pursuant to this Agreement.
(b) Such Selling Stockholder will not take any action
designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(c) Such Selling Stockholder will advise you promptly, and
if requested by you, will confirm such advice in writing, so long as
delivery of a prospectus relating to the Securities by an underwriter or
dealer may be required under the Act, of (i) any material change in the
Company's condition (financial or otherwise), prospects, earnings,
business or properties, (ii) any change in information in the
Registration Statement or the Prospectus relating to such Selling
Stockholder or (iii) any new material information relating to the
Company or relating to any matter stated in the Prospectus which comes
to the attention of such Selling Stockholder.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may
17
<PAGE> 18
be, shall be subject to the accuracy of the representations and warranties on
the part of the Company and the Selling Stockholders contained herein as of the
Execution Time, the Closing Date and any settlement date pursuant to Section 3
hereof, to the accuracy of the statements of the Company and the Selling
Stockholders made in any certificates pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives agree in writing
to a later time, the Registration Statement will become effective not
later than (i) 6:00 PM New York City time on the date of determination
of the public offering price, if such determination occurred at or prior
to 3:00 PM New York City time on such date or (ii) 9:30 AM on the
Business Day following the day on which the public offering price was
determined, if such determination occurred after 3:00 PM New York City
time on such date; if filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b), the Prospectus, and any
such supplement, will be filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the Representatives
the opinion of Graham & Dunn PC, counsel for the Company, dated the
Closing Date and addressed to the Representatives, to the effect that:
(i) each of the Company and the Material
Subsidiaries has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the
jurisdiction in which it is chartered, with full power and
authority as a corporation to own and lease and to operate its
properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns
or leases material properties or conducts material business,
except where the failure to be so qualified or in good standing
would not, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and
its subsidiaries, taken as a whole; and without limitation to
the foregoing, the Company is duly qualified to do business as a
foreign corporation and is in good standing under the laws of
the State of Washington;
(ii) all the outstanding shares of capital stock of
each Material Subsidiary have been duly and validly authorized
and issued and are fully paid and nonassessable; and all
outstanding shares of capital stock of the Material Subsidiaries
are owned of record by the Company or by one or more of its
wholly owned subsidiaries, free and clear, except as set forth
in the Prospectus, of any perfected security interests and, to
the knowledge of such counsel, any other security interests,
claims, liens or encumbrances;
18
<PAGE> 19
(iii) the authorized, issued and outstanding
capitalization of the Company is as set forth in the Prospectus
under the caption "Capitalization" (except for shares of capital
stock issued pursuant to employee or director plans and certain
stock purchase agreements referred to in the Prospectus); the
capital stock of the Company conforms in all material respects
to the description thereof contained in the Prospectus; all of
the outstanding shares of Common Stock (including the
Stockholder Securities) and Class B Stock have been duly
authorized and validly issued, are fully paid and nonassessable,
and none of such shares was issued in violation of any
preemptive or other rights to subscribe for such shares arising
under the charter or by-laws of the Company or the General
Corporation Law of the State of Delaware or, to the knowledge of
such counsel, otherwise; the Company Securities have been duly
authorized, and, when issued and delivered to and paid for by
the Underwriters pursuant to this Agreement, will be validly
issued, fully paid and nonassessable; the certificates for the
Securities are in valid and sufficient form; and the holders of
outstanding shares of capital stock of the Company are not
entitled to preemptive or other rights to subscribe for the
Securities; and, except as set forth in the Prospectus, to the
knowledge of such counsel no options, warrants or other rights
to purchase, agreements or other obligations to issue, or rights
to convert any obligations into or exchange any securities for,
shares of capital stock of or ownership interests in the Company
are outstanding;
(iv) to the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding by or before
any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries or
its or their property of a character required to be disclosed in
the Registration Statement which is not adequately disclosed in
the Prospectus, and to the knowledge of such counsel there is no
franchise, contract or other document of a character required to
be described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or filed
as required; and the information in the Prospectus under the
captions "Risk Factors--Leverage; Restrictions Under Debt
Instruments; Covenant Compliance," "Risk Factors - Shares
Eligible for Future Sale," "Business--Restrictions on Our
Operations," and "Description of Capital Stock," to the extent
that it constitutes matters of law, summaries of legal matters,
summaries of the Company's charter or by-laws or other
instruments, agreements or documents, summaries of legal
proceedings, or legal conclusions, fairly summarizes the matters
therein described in all material respects;
(v) the Registration Statement has become effective
under the Act; any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b);
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued, no
proceedings for that purpose have been instituted or threatened
and the Registration Statement and the Prospectus, including the
documents incorporated or deemed to be incorporated by reference
therein (in each case other than the financial statements
19
<PAGE> 20
and other financial information contained therein, as to which
such counsel need express no opinion), comply as to form in all
material respects with the applicable requirements of the Act
and the Exchange Act and the respective rules thereunder; and
such counsel shall additionally state that it has no reason to
believe that on the Effective Date or at the Execution Time the
Registration Statement contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of its date and on the date
of such opinion included or includes any untrue statement of a
material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading
(in each case other than the financial statements and other
financial information contained therein, as to which such
counsel need express no opinion);
(vi) this Agreement has been duly authorized,
executed and delivered by the Company;
(vii) the Company is not and, after giving effect to
the offering and sale of the Securities and the application of
the proceeds from the sale of Securities as described in the
Prospectus under "Use of Proceeds", will not be an "investment
company" as defined in the Investment Company Act of 1940, as
amended;
(viii) no consent, approval, authorization or order of,
or registration or filing with, any court or governmental agency
or body is required for the execution, delivery or performance
by the Company of this Agreement or for the consummation of any
of the transactions contemplated hereby (including, without
limitation, the issuance and sale of the Securities hereunder),
except such as have been obtained under the Act and such as may
be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities
by the Underwriters in the manner contemplated in this Agreement
and in the Prospectus and such other approvals (specified in
such opinion) as have been obtained;
(ix) The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of
the transactions contemplated hereby (including, without
limitation, the issuance of the Securities to be sold by the
Company hereunder, and the sale of the Securities to be sold
hereunder) and the compliance by the Company with the terms
hereof do not and will not conflict with, or constitute or
result in a breach or violation of any of the terms or
provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default)
under, or give rise to any right to accelerate the maturity or
require the prepayment of any indebtedness under, or result in
the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its
subsidiaries pursuant to (i) the Organizational Documents of the
Company or any of its subsidiaries, (ii) the Bank Credit
Agreement, the Indenture or the Guarantees (as such terms are
defined below); (iii) the terms of any Subject Document (other
than the Bank
20
<PAGE> 21
Credit Agreement, the Indenture and the Guarantees, which are
covered in clause (ii) of this sentence), (iv) the terms of any
other indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or bound or to
which its or their property is subject (other than those related
to the NBA or to any NBA Person as to which such counsel need
express no opinion), (v) the terms of any license or franchise
(other than the NBA franchise or any broadcast license, as to
which such counsel need express no opinion) known to such
counsel granted to or held by the Company or any of its
subsidiaries, or (vi) any statute, law, rule, regulation,
judgment, order or decree applicable to the Company or any of
its subsidiaries of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any
of its or their properties except, solely in the case of clauses
(iii), (iv), (v) and (vi) above, for such violations and
defaults as would not, either individually or in the aggregate,
with all other violations and defaults referred to in clauses
(iii), (iv), (v) and (vi) (if any), have a material adverse
effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business. As used in this
Agreement, the term "Bank Credit Agreement" means, collectively,
the Credit Agreement dated January 22, 1999, by and among the
Company, First Union National Bank, Fleet Bank, N.A., and the
other parties thereto, and all amendments, security agreements,
notes, pledge agreements, consents, waiver and other agreements
executed by the Company or any of its subsidiaries pursuant
thereto; the term "Indenture" means the Indenture dated as of
December 14, 1998 among the Company, the Guarantors named
therein and the Bank of New York, as Trustee, and all
supplements thereto and all securities issued and outstanding
thereunder; and the term "Guarantees" means, collectively, all
guarantees or similar agreements issued or entered into by any
subsidiaries of the Company pursuant to or in connection with
the Bank Credit Agreement or the Indenture;
(x) To the knowledge of such counsel, there are no
persons with registration rights or similar rights to have any
securities registered by the Company under the Act and there are
no persons who have rights to the registration of such
securities under the Registration Statement or to include any
such securities in the offering made by the Prospectus; and
(xi) The Company has all requisite power and
authority to execute, deliver and perform its obligations under
this Agreement, including without limitation, to issue and sell
the Company Securities as contemplated by this Agreement.
In rendering such opinion, such counsel shall state that such
opinion covers matters involving the application of the laws of the
State of Washington, the General Corporation Law of the State of
Delaware and the federal laws of the United States (except that such
counsel may state that the opinions set forth in subparagraphs (viii)
and
21
<PAGE> 22
(ix) above exclude matters related to federal communications laws or FCC
matters), and such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of
Washington, the General Corporation Law of the State of Delaware or the
federal laws of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to
counsel for the Underwriters (provided that (x) counsel to the Company
shall state that they believe that they and the Representatives and
Underwriters are justified in relying upon each such opinion of local
counsel and (y) the opinion of each such local counsel shall be dated
the same date as such opinion of counsel to the Company, shall expressly
state that counsel to the Company may rely on such opinion in rendering
their opinion pursuant to this Agreement, that the Representatives and
the Underwriters may rely on such opinion as if such opinion were
addressed to them and that such opinion is being rendered to the
Underwriters at the request of the Company, and shall be delivered to
the Representatives on the Closing Date) and (B) as to matters of fact,
to the extent they deem proper, on certificates of responsible officers
of the Company and public officials. Such opinion shall state that, to
the extent that such opinion relates to this Agreement, such counsel has
assumed that the laws of the State of New York are identical to the laws
of the State of Washington and that, to the extent that such opinion
otherwise relates to the laws of any jurisdiction (other than the State
of Washington, the General Corporation Law of the State of Delaware and
the federal laws of the United States), such counsel has assumed that
such laws are in all relevant respects identical to the laws of the
State of Washington. References to the Prospectus in this paragraph (b)
include any supplements thereto at the date of such opinion. The opinion
of such counsel shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
(c) The Company shall have furnished to the Representatives
the opinion of Eric M. Rubin, General Counsel of the Company, dated the
Closing Date and addressed to the Representatives, to the effect that:
(i) to the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding by or before
any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries or
its or their property of a character required be disclosed in
the Registration Statement which is not adequately disclosed in
the Prospectus, and there is no franchise, contract or other
document of a character required to be described in the
Registration Statement or Prospectus, or to be filed as an
exhibit thereto, which is not described or filed as required;
(ii) the information in the Prospectus under the
captions "Risk Factors - Restrictions on Ownership and Transfer
of Our Common Stock" (other than matters relating to federal
communications laws), "Risk Factors--Outdoor Media," "Risk
Factors--Sports & Entertainment," "Risk Factors - Legal
Proceedings," "Business - Regulation - Outdoor Media," and
"Business - Legal Proceedings" and in the 1998 Form 10-K under
the captions "Business - Out-of-Home Media - Outdoor Advertising
- Regulation" and "Legal Proceedings" fairly summarizes the
matters therein described in all material respects, except, in
the
22
<PAGE> 23
case of any such information set forth in the 1998 Form 10-K, to
the extent that such information has been superseded by
information in the Prospectus (excluding the documents
incorporated by reference therein);
(iii) other than (x) the NBA Approval which has been
obtained by the Company and delivered to the Representatives and
is in full force and effect and (y) the Indemnity Agreement, no
consent, approval, resolution, authorization or order of, or
filing or registration with, the NBA or any other NBA Person is
required in connection with the transactions contemplated by
this Agreement, and all conditions in the NBA Approval have been
satisfied; and the only instrument, agreement or other document
that the Company or the Selling Stockholders or any of their
respective subsidiaries or affiliates is required to execute or
deliver to any NBA Person in connection with the transactions
contemplated by this Agreement is the Indemnity Agreement; the
Indemnity Agreement has been duly authorized, executed and
delivered by the Company, SSI, Inc., the Selling Stockholders
and such counsel has been advised by the NBA that the Indemnity
Agreement is satisfactory to the Commissioner of the NBA, the
appropriate officers of the NBA Entities and counsel to each of
the NBA Entities; and there are no conditions to the NBA
Approval other than the execution and delivery of the Indemnity
Agreement, which condition has been satisfied.
(iv) (A) the execution, delivery and performance by
the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby (including,
without limitation, the issuance and sale of the Securities by
the Company pursuant to this Agreement and the sale of the
Securities by the Selling Stockholders pursuant to this
Agreement), (B) compliance by the Company with the terms hereof
and (C) the purchase, public offering and sale of the Securities
by the Underwriters pursuant to this Agreement, do not and will
not conflict with, or result in a breach or violation of, or
imposition of any lien, charge or encumbrance upon any property
or assets of the Company or its subsidiaries pursuant to any
provision of, the constitution or by-laws of the NBA or any rule
or regulation of the NBA or any other NBA Person or the
Company's NBA franchise for the Seattle SuperSonics, except
(solely in the case of clauses (A) and (B) of this paragraph)
for such conflicts, breaches, violations or liens which would
not, either individually or in the aggregate, with all other
such conflicts, breaches, violations and liens, have a material
adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and
its subsidiaries, taken as a whole; and
(v) the Company and its subsidiaries possess all
licenses, franchises, certificates, permits and other
authorizations issued or granted by the NBA or any other NBA
Person necessary to conduct the business of owning and operating
the Seattle SuperSonics in the manner described in the
Prospectus, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such license, franchise, certificate,
authorization or permit which, singly or in the aggregate, if
the subject of an
23
<PAGE> 24
unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and
its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business.
In addition, such counsel shall state that such counsel has
participated in conferences with representatives of the Underwriters,
officers and other representatives of the Company and representatives of
the independent certified accountants of the Company, at which
conferences the contents of the Prospectus and the Registration
Statement (including the documents incorporated or deemed to be
incorporated by reference therein) and the business and affairs of the
Company and its subsidiaries were discussed, and although such counsel
has not independently verified and does not pass upon or assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Prospectus and the Registration Statement
(except to set forth in subparagraphs (i) and (ii) above), on the basis
of the foregoing, no facts have come to the attention of such counsel
which lead such counsel to believe that the Registration Statement, on
the Effective Date or at the Execution Time, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading or that the Prospectus, as of its date
or on the date of such opinion, included or includes an untrue statement
of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need not express any comment with respect
to the financial statements, including the notes thereto and supporting
schedules, or any other financial data included in the Prospectus and
the Registration Statement).
In rendering such opinion, such counsel may state that he
expresses no opinion as to matters governed by laws of any other
jurisdictions other than the District of Columbia, the General
Corporation Law of the State of Delaware and the federal laws of the
United States, and such counsel shall state that, to the extent that
such opinion relates to laws of other jurisdictions, such counsel has
assumed that such laws are in all relevant respects identical to the
laws of the District of Columbia. In rendering such opinion, such
counsel may rely as to matters of fact, to the extent he deems proper,
on certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (c) include
any supplements thereto at the date of such opinion. The opinion of such
counsel shall be rendered to the Underwriters at the request of the
Company and shall so state therein.
(d) The Company shall have furnished to the Representatives
the opinion of Rubin, Winston, Diercks, Harris & Cooke, L.L.P., counsel
for the Company, dated the Closing Date and addressed to the
Representatives, to the effect that:
(i) the information in the Prospectus under the
captions "Risk Factors - Restrictions on Ownership and Transfer
of our Common Stock (solely insofar as relates to the Federal
Communications Law (as defined below) and the Company's charter
and by-laws), "Risk Factors--Television and Radio Broadcasting,"
"Business - Regulation - Television and Radio Broadcasting,"
24
<PAGE> 25
"Description of Capital Stock - Common Stock and Class B Common
Stock - Restrictions on Ownership and Transfer of Common Stock
and Class B Common Stock" and in the 1998 Form 10-K under the
captions "Business--Television and Radio--Broadcasting
Regulation," "Business--Television Broadcasting--Programming,"
and "Business--Television Broadcasting--Acquisitions and Time
Brokerage Agreements" fairly summarizes the matters described
therein in all material respects, except, in the case of any
such information set forth in the 1998 Form 10-K, to the extent
that such information has been superseded by information in the
Prospectus (excluding the documents incorporated by reference
therein);
(ii) to the knowledge of such counsel, each of the
Company and its subsidiaries is in compliance with all Federal
Communications Law (as defined below) and the FCC Licenses (as
defined below) granted to or held by the Company or any of its
subsidiaries, except where such noncompliance would not, either
individually or in the aggregate, have a material adverse effect
on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries,
taken as a whole. As used herein, the term "FCC Licenses" means
any licenses, permits and other authorizations issued by the
FCC. As used herein, the term "Federal Communications Law" means
the Communications Act of 1934, as amended, and the rules and
regulations of the Federal Communications Commission. The
Federal Communications Laws are the only federal laws, rules or
regulations relating to radio broadcasting or television
broadcasting which are applicable to the Company's radio and
television broadcasting operations;
(iii) the issuance and sale of the Company Securities
and the sale of the Stockholders Securities pursuant to this
Agreement, do not constitute (i) the transfer, assignment or
disposition in any manner, voluntarily or involuntarily,
directly or indirectly, of any FCC License granted to or held by
the Company or any of its subsidiaries or of any FCC License
granted to or held by a third party with respect to a television
or radio station operated but not owned by the Company or any of
its subsidiaries or (ii) the transfer of control of the Company
or any of its subsidiaries within the meaning of Section 310(d)
of the Communications Act of 1934, as amended;
(iv) no consent, approval, authorization or order of,
or registration or filing with, the FCC or under Federal
Communications Law is required for the execution, delivery or
performance by the Company and the Selling Stockholders of this
Agreement or for the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance
and sale of the Company Securities and the sale of the
Stockholders Securities pursuant to this Agreement);
(v) the execution, delivery and performance by the
Company and the Selling Stockholders of this Agreement and the
consummation of the transactions contemplated hereby (including,
without limitation, the issuance and sale of the
25
<PAGE> 26
Company Securities and the sale of the Stockholders Securities
pursuant to this Agreement) and compliance by the Company and
the Selling Stockholders with the terms hereof, do not and will
not conflict with, or result in a breach or violation of, (i)
any FCC License granted to or held by the Company or any of its
subsidiaries or any FCC License granted to or held by a third
party with respect to a television or radio station operated but
not owned by the Company or any of its subsidiaries, or (ii) any
Federal Communications Law or (iii) any order or ruling of the
FCC to which the Company or any of its subsidiaries is subject
or any order, judgment or decree of any court with respect to
any Federal Communications Law, except for such conflicts,
breaches or violations which would not, either individually or
in the aggregate, have a material adverse effect on the
condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries,
taken as a whole; and
(vi) the Company and its subsidiaries possess all FCC
Licenses necessary to conduct their respective radio and
television broadcasting businesses in the manner described in
the Prospectus and, in the case of television or radio stations
operated but not owned by the Company and its subsidiaries, the
owners of such stations possess all necessary FCC Licenses with
respect to such stations, and, to the knowledge of such counsel,
neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification
of any such FCC License, which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company and its subsidiaries, taken as a whole.
In rendering such opinion, such counsel may state that such
counsel expresses no opinion as to matters governed by laws of any other
jurisdiction other than the laws of the District of Columbia and the
Federal Communications Laws, and such counsel shall state that, to the
extent that such opinion relates to laws of other jurisdictions, such
counsel has assumed that such laws are in all relevant respects
identical to the laws of the District of Columbia. In rendering such
opinion, such counsel may rely as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and
public officials. References to the Prospectus in this paragraph (d)
include any supplements thereto at the date of such opinion. The opinion
of such counsel shall be rendered to the Underwriters at the request of
the Company and shall so state therein.
(e) The Selling Stockholders shall have furnished to the
Representatives the opinion of Graham & Dunn PC, counsel for the Selling
Stockholders, dated the Closing Date and addressed to the
Representatives, to the effect that:
(i) The Ginger and Barry Ackerley Foundation (the
"Foundation") has been duly organized and is validly existing
and in good standing under the laws of the State of Washington;
each of the Selling Stockholders has full right, power and
authority to execute, deliver and perform its obligations under
this Agreement and its Custody Agreement and to sell, transfer
and deliver the Securities to be sold by such Selling
Stockholder under this Agreement.
26
<PAGE> 27
(ii) this Agreement and a Custody Agreement have been
duly authorized by the Foundation; this Agreement and a Custody
Agreement have been duly executed and delivered by each of the
Selling Stockholders; each Custody Agreement is valid and
binding on the Selling Stockholder party thereto; and each
Selling Stockholder has full legal right and authority to sell,
transfer and deliver, in the manner provided in this Agreement
and the Custody Agreement to which it is a party, the Securities
being sold by such Selling Stockholder hereunder;
(iii) assuming that each Underwriter acquires its
interest in the Securities it has purchased from the Selling
Stockholders without notice of any adverse claim (within the
meaning of Section 8-105 of the UCC), each Underwriter that has
purchased such Securities delivered on the Closing Date to The
Depository Trust Company or other securities intermediary by
making payment therefor as provided herein, and that has had
such Securities credited to the securities account or accounts
of such Underwriter maintained with The Depository Trust Company
or such securities intermediary, will have acquired a security
entitlement (within the meaning of Section 8-102(a)(17) of the
UCC) to such Securities purchased by such Underwriter, and no
action based on an adverse claim (within the meaning of Section
8-102(a)(1) of the UCC) may be asserted against such Underwriter
with respect to such Securities.
(iv) no consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by any Selling Stockholder of the transactions
contemplated herein, except such as may have been obtained under
the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters;
(v) neither the sale of the Securities being sold by
any Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by any Selling Stockholder or
the fulfillment of the terms hereof by any Selling Stockholder
will conflict with, result in a breach or violation of, or
constitute a default under any law or the charter or by-laws,
partnership agreements, trust agreement or other organizational
documents (if applicable) of any Selling Stockholder or the
terms of any indenture or other agreement or instrument known to
such counsel and to which any Selling Stockholder is a party or
bound, or any judgment, order or decree known to such counsel to
be applicable to any Selling Stockholder of any court,
regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over any Selling Stockholder; and
(vi) the Indemnity Agreement has been duly authorized
by the Foundation and has been duly executed and delivered by
the Selling Stockholders.
In rendering such opinion, such counsel shall state that such
opinion covers matters involving the application of the laws of the
State of Washington, the State of New
27
<PAGE> 28
York, and the federal laws of the United States, that such counsel has
relied, as to matters involving the application of the laws of the State
of New York, on the opinion of Jonathan Lapin, Esq. delivered pursuant
to subsection (f) below, and that such counsel believes that they and
the Representatives and the Underwriters are justified in relying on
such New York counsel. Such counsel may also rely, as to matters
involving the application of laws of any jurisdiction other than the
State of Washington, the State of New York or the federal laws of the
United States, to the extent they deem proper and specified in such
opinion, upon the opinion of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the
Underwriters (provided that (x) counsel to the Selling Stockholders
shall state that they believe that they and the Representatives and the
Underwriters are justified in relying upon such opinion of local counsel
and (y) the opinion of each such local counsel shall be dated the same
date as such opinion of counsel to the Selling Stockholders, shall
expressly state that counsel to the Company may rely on such opinion in
rendering their opinion pursuant to this Agreement, that the
Representatives and the Underwriters may rely on such opinion as if such
opinion were addressed to them and that such opinion is being rendered
to the Underwriters at the request of the Company, and shall be
delivered to the Representatives on the Closing Date); and such counsel
also may rely as to matters of fact, to the extent they deem proper, on
certificates signed by any of the Selling Stockholders who are natural
persons or by responsible officers of Selling Stockholders which are not
natural persons and on certificates of public officials. Such opinion of
counsel to the Selling Stockholders shall also state that, to the extent
that such opinion relates to the laws of any jurisdiction (other than
the State of Washington, the State of New York or the federal laws of
the United States), such counsel has assumed that such laws are in all
relevant respects identical to the laws of the State of Washington. The
opinion of such counsel shall be rendered to the Underwriters at the
request of the Company and the Selling Stockholders and shall so state
therein.
(f) The Company shall have furnished to the Representatives
the opinion of Jonathan Lapin, Esq., special New York counsel to the
Selling Stockholders, dated the Closing Date and addressed to the
Representatives, to the effect that:
(i) assuming that this Agreement and a Custody
Agreement have been duly authorized by the Foundation under the
laws of the State of Washington, this Agreement and a Custody
Agreement have been duly executed and delivered by each of the
Selling Stockholders; each Custody Agreement is a valid and
binding obligation of the Selling Stockholder party thereto and
each Selling Stockholder has full legal right and authority
under the laws of the State of New York to sell, transfer and
deliver, in the manner provided in this Agreement and the
Custody Agreement to which it is a party, the Securities being
sold by such Selling Stockholder hereunder;
(ii) assuming that each Underwriter acquires its
interest in the Securities it has purchased from the Selling
Stockholders without notice of any adverse claim (within the
meaning of Section 8-105 of the UCC), each Underwriter that has
purchased such Securities delivered on the Closing Date to The
Depository Trust Company or other securities intermediary by
making
28
<PAGE> 29
payment therefor as provided herein, and that has had such
Securities credited to the securities account or accounts of
such Underwriter maintained with The Depository Trust Company or
such securities intermediary, will have acquired a security
entitlement (within the meaning of Section 8-102(a)(17) of the
UCC) to such Securities purchased by such Underwriter, and no
action based on an adverse claim (within the meaning of Section
8-102(a)(1) of the UCC) may be asserted against such Underwriter
with respect to such Securities;
(iii) no consent, approval, authorization or order of
any court or governmental agency or body of the State of New
York is required for the consummation by any Selling Stockholder
of the transactions contemplated herein, except such as may be
required under the blue sky laws of the State of New York in
connection with the purchase and distribution of the Securities
by the Underwriters; and
(iv) neither the sale of the Securities being sold by
any Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by any Selling Stockholder or
the fulfillment of the terms hereof by any Selling Stockholder
will conflict with, result in a breach or violation of, or
constitute a default under, any law of the State of New York.
In rendering such opinion, such counsel shall state that such
opinion covers matters involving the application of the laws of the
State of New York. Such counsel may rely as to matters of fact, to the
extent he deems proper, on certificates signed by any of the Selling
Stockholders who are natural persons or by responsible officers of
Selling Stockholders which are not natural persons and on certificates
of public officials. The opinion of such counsel shall be rendered to
the Underwriters at the request of the Company and the Selling
Stockholders and shall so state therein.
(g) The Representatives shall have received from Brown &
Wood LLP, counsel for the Underwriters, such opinion or opinions, dated
the Closing Date and addressed to the Representatives, with respect to
the issuance and sale of the Securities, the Registration Statement, the
Prospectus (together with any supplements thereto) and other related
matters as the Representatives may reasonably require, and the Company
and each Selling Stockholder shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon
such matters. The opinion or opinions of such counsel shall be rendered
to the Underwriters at the request of the Company and shall so state
therein.
(h) The Company shall have furnished to the Representatives
a certificate of the Company, signed by the Chairman of the Board or a
Co-President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplements to the Prospectus and this Agreement and
that:
(i) the representations and warranties of the
Company in this Agreement are true and correct on and as of the
Closing Date with the same effect
29
<PAGE> 30
as if made on the Closing Date and the Company has complied with
all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or, to the Company's
knowledge, threatened; and
(iii) since the date of the most recent financial
statements included or incorporated by reference in the
Prospectus (exclusive of any supplement thereto), there has been
no material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the
Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(i) Each Selling Stockholder shall have furnished to the
Representatives a certificate, signed on behalf of such Selling
Stockholder by an Attorney-in-Fact, dated the Closing Date, to the
effect that such Selling Stockholder has carefully examined the
Registration Statement, the Prospectus, any supplement to the Prospectus
and this Agreement and that the representations and warranties of such
Selling Stockholder in this Agreement are true and correct on and as of
the Closing Date to the same effect as if made on the Closing Date.
(j) Prior to the Execution Time, the Company shall have
furnished to the Representatives a waiver and amendment of certain
provisions of the Bank Credit Agreement, executed by the requisite
percentage or proportion of the bank lenders thereunder and in form and
substance satisfactory to the Representatives, and such waiver and
amendment shall be in full force and effect.
(k) At the Execution Time and at the Closing Date, Ernst &
Young LLP shall have furnished to the Representatives letters, dated
respectively as of the Execution Time and as of the Closing Date, in
form and substance satisfactory to the Representatives, confirming that
they are independent auditors within the meaning of the Act and the
Exchange Act and the respective applicable rules and regulations adopted
by the Commission thereunder and that they have performed a review of
the unaudited interim financial information of the Company for the
three-month period ended March 31, 1999, and as at March 31, 1999 in
accordance with Statement on Accounting Standards No. 71, and stating in
effect that:
(i) in their opinion, the audited financial
statements of the Company and of WOKR (TV) included or
incorporated in the Registration Statement and the Prospectus
and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the Act
and the Exchange Act and the related published rules and
regulations adopted by the Commission;
30
<PAGE> 31
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the Company and
its subsidiaries; their limited review, in accordance with
standards established under Statement on Auditing Standards No.
71, of the unaudited interim financial information for the
three-month period ended March 31, 1999 and 1998, and as at
March 31, 1999 and 1998 included or incorporated in the
Registration Statement and the Prospectus; carrying out certain
specified procedures (but not an examination in accordance with
generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of
the meetings of the stockholders, directors and the audit
committee and any other committee, if any, of the Company; and
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events
subsequent to March 31, 1999, nothing came to their attention
which caused them to believe that:
(1) any unaudited financial statements
included or incorporated in the Registration Statement
and the Prospectus do not comply as to form in all
material respects with applicable accounting
requirements of the Act and the Exchange Act and with
the respective published rules and regulations of the
Commission with respect to financial statements included
or incorporated in Quarterly Reports on Form 10-Q under
the Exchange Act; and any material modifications should
be made to the unaudited financial statements for them
to be in conformity with generally accepted accounting
principles;
(2) with respect to the period subsequent to
March 31, 1999, there were, at a specified date not more
than five days prior to the date of the letter, any
changes in the consolidated capital stock of the Company
and its subsidiaries or any increases in the
consolidated long-term debt or consolidated
stockholders' deficiency of the Company and its
subsidiaries or any increases in the deficiency in net
current assets of the Company and its subsidiaries as
compared with the amounts shown on the March 31, 1999
unaudited consolidated balance sheet included in the
Registration Statement and the Prospectus, or for the
period from April 1, 1999 to such specified date there
were any decreases, as compared with the corresponding
period in the preceding year, in consolidated revenue,
consolidated net revenue, consolidated operating cash
flow, consolidated income before income taxes and
extraordinary items or in total or per share amounts
(actual and assuming dilution) of consolidated net
income of the Company and its subsidiaries, except in
all instances for changes or decreases set forth in such
letter, in which case the letter shall be accompanied by
an explanation by the Company as to the significance
thereof unless said explanation is not deemed necessary
by the Representatives;
31
<PAGE> 32
(3) the information included or incorporated
by reference in the Registration Statement and
Prospectus in response to Regulation S-K, Item 301
(Selected Financial Data) and Item 402 (Executive
Compensation) is not in conformity with the applicable
disclosure requirements of Regulation S-K; or
(4) If the interim financial statements
included in the Registration Statement and Prospectus
are supplemented by later income statement information
(so called "capsule" information), such capsule
information (which capsule information and its location
in the Prospectus shall be described in such letter) do
not agree with the amounts set forth in the unaudited
financial statements for the same periods or were not
determined on a basis substantially consistent with that
of the corresponding amounts in the audited financial
statements included in the Registration Statement and
the Prospectus; and, if the capsule information meets
the minimum disclosure requirements of APB Opinion No.
28, paragraph 30, the foregoing will be expanded also to
cover "conformity with generally accepted accounting
principles"; and
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical
information derived from the general accounting records of the
Company and its subsidiaries) set forth in the Registration
Statement and the Prospectus, including the information set
forth under the headings "Prospectus Summary-Summary Financial
Data," "Selected Consolidated Financial Data," "Unaudited Pro
Forma Condensed Consolidated Financial Information," and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Prospectus, the information set
forth in Items 1, 2, 6, 7 and 11 of the Company's 1998 Form
10-K, the information included in the Management's Discussion
and Analysis of Financial Condition and Results of Operations"
included in the Company's Quarterly Reports on Form 10-Q,
incorporated by reference in the Prospectus and the information
set forth in Item 7 in the Company's Current Reports on Form 8-K
dated April 27, 1999 and June 17, 1999, incorporated by
reference in the Prospectus, agrees with the accounting records
of the Company and its subsidiaries or with the accounting
records of WOKR (TV), excluding any questions of legal
interpretation; and
(iv) on the basis of a reading of the unaudited
condensed consolidated pro forma financial statements included
and incorporated by reference in the Registration Statement and
the Prospectus (the "pro forma financial statements"); carrying
out certain specified procedures; inquiries of certain officials
of the Company who have responsibility for financial and
accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the pro forma financial statements, nothing came to
their attention which caused them to believe that the pro forma
financial statements do
32
<PAGE> 33
not comply as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation
S-X or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of such
statements.
References to the Prospectus in this paragraph (k) include any
supplement thereto at the date of the letter.
(l) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change,
increase or decrease specified in the letter or letters referred to in
paragraph (k) of this Section 6 or (ii) any change, or any development
involving a prospective change, in or affecting the condition (financial
or otherwise), earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions
in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any amendments or
supplements thereto) the effect of which, in any case referred to in
clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities
as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(m) Subsequent to the Execution Time, there shall not have
been any decrease in the rating of any of the Company's debt securities
by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act) or any notice given
of any intended or potential decrease in any such rating or of a
possible change in any such rating that does not indicate the direction
of the possible change.
(n) The Securities shall have been listed and admitted and
authorized for trading on the New York Stock Exchange, and satisfactory
evidence of such actions shall have been provided to the
Representatives.
(o) At the Execution Time, the Company shall have furnished
to the Representatives a letter substantially in the form of Exhibit A
hereto from each person listed on Exhibit B hereto.
(p) Prior to the Closing Date, the Company and the Selling
Stockholders shall have furnished to the Representatives such further
information, certificates and documents as the Representatives may
reasonably request.
(q) Prior to the Execution Time, the Company shall have
furnished to the Representatives a true, complete and correct copy of
the NBA Approval and the Indemnity Agreement; on the Closing Date, the
NBA Approval shall be in full force and effect and all conditions set
forth in the NBA Approval shall have been satisfied.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and
33
<PAGE> 34
certificates mentioned above or elsewhere in this Agreement shall not be in all
material respects reasonably satisfactory in form and substance to the
Representatives and counsel for the Underwriters, this Agreement and all
obligations of the Underwriters hereunder may be canceled at, or at any time
prior to, the Closing Date by the Representatives. Notice of such cancellation
shall be given to the Company and the Selling Stockholders in writing or by
telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Brown & Wood LLP, counsel for the Underwriters, at
555 California Street, San Francisco, California 94104, on the Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company or any Selling
Stockholder to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally through Salomon Smith Barney Inc. on demand
for all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the proposed
purchase and sale of the Securities. If the Company is required to make any
payments to the Underwriters under this Section 7 because of any Selling
Stockholder's refusal, inability or failure to satisfy any condition to the
obligations of the Underwriters set forth in Section 6, the Selling Stockholders
pro rata in proportion to the percentage of Securities to be sold by each shall
reimburse the Company on demand for all amounts so paid.
8. Indemnification and Contribution.
(a) The Company and the Selling Stockholders jointly and severally
agree to indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person who controls any
Underwriter within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company and the Selling Stockholders will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
the
34
<PAGE> 35
Representatives specifically for inclusion therein. This indemnity agreement
will be in addition to any liability which the Company or the Selling
Stockholders may otherwise have.
(b) Each Underwriter severally and not jointly agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
signs the Registration Statement, and each person who controls the Company
within the meaning of either the Act or the Exchange Act and each Selling
Stockholder, to the same extent as the foregoing indemnity to each Underwriter,
but only with reference to written information relating to such Underwriter
furnished to the Company by or on behalf of such Underwriter through the
Representatives specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any Underwriter may otherwise have. The Company and each Selling
Stockholder acknowledge that the statements set forth in the last paragraph of
the cover page regarding delivery of the Securities, and, under the heading
"Underwriting", (i) the sentences related to concessions and reallowances and
(ii) the paragraphs related to stabilization, syndicate covering transactions
and penalty bids constitute the only information furnished in writing by or on
behalf of the several Underwriters for inclusion in any Preliminary Prospectus
or the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder
35
<PAGE> 36
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Selling Stockholders,
jointly and severally, and the Underwriters severally agree to contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company, the Selling Stockholders and one
or more of the Underwriters may be subject in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and by the Underwriters on the other from the
offering of the Securities; provided, however, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company and
the Selling Stockholders, jointly and severally, and the Underwriters severally
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Stockholders on the one hand and of the Underwriters on the other in connection
with the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received by the Company and
the Selling Stockholders shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses) received by them, and benefits
received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company or the Selling Stockholders on
the one hand or the Underwriters on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company, the Selling Stockholders
and the Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The liability of each Selling Stockholder under such Selling
Stockholder's representations and warranties contained in Section 1 hereof and
under the indemnity and contribution agreements contained in this Section 8
shall be limited to an amount equal to the
36
<PAGE> 37
initial public offering price of the Securities sold by such Selling Stockholder
to the Underwriters. The Company and the Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
9. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter, the
Selling Stockholders or the Company. In the event of a default by any
Underwriter as set forth in this Section 9, the Closing Date shall be postponed
for such period, not exceeding five Business Days, as the Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company, the Selling Stockholders and any
nondefaulting Underwriter for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
the absolute discretion of the Representatives, by notice given to the Company
prior to delivery of and payment for the Securities, if at any time prior to
such time (i) trading in the Company's Common Stock shall have been suspended by
the Commission or the New York Stock Exchange or trading in securities generally
on the New York Stock Exchange shall have been suspended or limited or minimum
prices shall have been established on such Exchange, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the sole judgment of the Representatives, impractical or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Stockholder and of the Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter,
any Selling Stockholder, or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Securities. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
37
<PAGE> 38
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Smith Barney Inc., Attention: General
Counsel (fax no.: (212) 816-7912) and confirmed to Salomon Smith Barney Inc., at
388 Greenwich Street, New York, New York 10013, Attention: General Counsel; or,
if sent to the Company, will be mailed, delivered or telefaxed to the Chief
Financial Officer (fax no.: (206) 623-7853) and confirmed to Denis M. Curley,
Co-President and Chief Financial Officer at The Ackerley Group, Inc., 1301 Fifth
Avenue, Suite 4000, Seattle, WA 98101; or if sent to any Selling Stockholder,
will be mailed, delivered or telefaxed and confirmed to such Selling Stockholder
in care of Denis M. Curley, Attorney-in-Fact (fax no.: (206) 623-7853) and
confirmed to such Selling Stockholder in care of Denis M. Curley,
Attorney-in-Fact, at The Ackerley Group, Inc., 1301 Fifth Avenue, Suite 4000,
Seattle, WA 98101.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers, directors, employees and agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience
only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
"Acquisition Agreement" shall mean the Purchase Agreement dated
as of September 25, 1998 with Sinclair Communications, Inc. ("Sinclair")
pursuant to which the Company acquired (the "Asset Acquisition")
substantially all of the assets of the television station known as WOKR
(TV) and assumed certain related liabilities.
"Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City.
"Commission" shall mean the Securities and Exchange Commission.
38
<PAGE> 39
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"NBA" means The National Basketball Association.
"NBA Entities" means, collectively, the NBA, NBA Properties,
Inc., NBA Media Ventures, LLC and NBA Development, LLC.
"NBA Persons" means the NBA, the NBA Entities, Planet Insurance,
Ltd., WNBA, LLC, WNBA Enterprises, LLC, any subsidiary of any of the
foregoing, the Commissioner of the NBA, the Board of Governors of the
NBA, and any and all members, owners, governing bodies and committees of
the NBA, its Board of Governors or any of the other NBA Entities; and
"NBA Person" means any of the NBA Persons.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(i)(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(i)(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective) and,
in the event any post-effective amendment thereto or any Rule 462(b)
Registration Statement becomes effective prior to the Closing Date,
shall also mean such registration statement as so amended or such Rule
462(b) Registration Statement, as the case may be. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under
the Act.
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the initial registration statement
referred to in Section 1(i)(a) hereof.
39
<PAGE> 40
"WOKR (TV)" shall mean the assets (including licenses and other
intangibles) acquired and the liabilities assumed by the Company
pursuant to the Acquisition Agreement.
"Salomon Smith Barney" shall mean Salomon Smith Barney Inc.
18. NBA Matters. (a) In the event that any consent, approval,
resolution, authorization or order of, or registration or filing with, the NBA
or any other NBA Person shall be required in connection with, or in the event
that any instrument, agreement or other document is required to be executed or
delivered to the NBA or any other NBA Person by the Company, any of the Selling
Stockholders or any of their respective subsidiaries or affiliates or any other
person in connection with, (i) the purchase, public offering or sale of
Securities by any of the Underwriters or any of the other transactions
contemplated by this Agreement or (ii) the ownership, sale or other disposition
by any of the Underwriters or any of their subsidiaries or affiliates of any of
the Securities purchased pursuant to this Agreement or any other shares of
Common Stock acquired in connection with stabilization or other transactions
relating to the offering of the Securities, in market-making transactions, or
otherwise in the ordinary course of business, the Company and the Selling
Stockholders, jointly and severally, agree that they will use their best efforts
to obtain such consent, approval, resolution, authorization or order, or make
such registration or filing, as the case may be, and to execute and deliver or
obtain, as the case may be, such instrument, agreement or other document, as
soon as possible and otherwise to take any and all action as may be requested at
any time by the Representatives in connection with the purchase, ownership, sale
or other disposition of any such Securities or shares of Common Stock.
(b) Without limitation to any other provision of this Agreement, the
Company and the Selling Stockholders jointly and severally agree to indemnify
and hold harmless each Underwriter, the directors, officers, employees and
agents of each Underwriter and each person who controls any Underwriter within
the meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under federal or state statutory law or regulation, at common
law, under the constitution or by-laws of the NBA or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of any failure to obtain any consent, approval, resolution, authorization or
order of, or any failure to make any registration or filing with, or to deliver
any instrument, agreement or other document to, the NBA or any other NBA Person
or any breach or violation of, or default under, or failure to comply with, or
otherwise relating to, any of the terms or provisions of the constitution,
by-laws or other governing documents or any rule or regulation of the NBA or any
other NBA Person, including reasonable fees, costs and expenses of counsel
appointed by the Representatives.
(c) The Company and the Selling Stockholders, for themselves, their
respective predecessors and successors in interest, attorneys, subsidiaries,
affiliates, assigns, directors, officers, stockholders, heirs, executors, legal
representatives, agents, servants, associates, principals, employees and
representatives (collectively, including the Company and the Selling
Stockholders, the "Subject Parties") hereby absolutely and unconditionally,
jointly and severally, release and forever discharge the Representatives and the
Underwriters and their respective predecessors and successors in interest,
attorneys, parent corporations, subsidiaries, affiliates,
40
<PAGE> 41
assigns, directors, officers, general partners, limited partners, stockholders,
heirs, executors, legal representatives, agents, servants, associates,
principals, employees and representatives from any and all Released Claims that
any of the Subject Parties, directly, indirectly, derivatively or in any other
capacity now or hereafter has or shall or may have. As used herein, "Released
Claims" means Claims directly or indirectly based upon, arising out of, or in
any manner related to, in whole or in part, (i) any failure to obtain any
consent, approval, resolution, authorization or order of, or any failure to make
any filing or registration with, or to deliver any instrument, agreement or
other document to, the NBA or any other NBA Person or (ii) any breach or
violation of, or default under, or failure to comply with, or otherwise relating
to, any of the terms or provisions of the constitution, by-laws or other
governing documents or any rule or regulation of the NBA or any other NBA Person
or (c) otherwise relating to the constitution, by-laws or other governing
documents or any rule or regulation of the NBA or any other NBA Person. "Claims"
means any and all civil (i.e. non-criminal) claims, demands, actions, suits,
causes of action, damages, rights or liabilities of any nature, including,
without limitation, civil and administrative penalties and punitive damages as
well as costs, expenses and attorneys' fees, whether known or unknown, suspected
or unsuspected, accrued or unaccrued, or legal, equitable, or statutory based
upon, arising out of, or in any manner related to past, present or future
conduct, acts or omissions.
41
<PAGE> 42
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
The Ackerley Group, Inc.
By: _____________________________________
Name:
Title:
Barry A. Ackerley
The Ginger and Barry Ackerley Foundation
By: _____________________________________
Attorney-in-Fact
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Salomon Smith Barney Inc.
First Union Capital Markets Corp.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: Salomon Smith Barney Inc.
By: _________________________________
Name:
Title:
For themselves and the other several Underwriters
named in Schedule I to the foregoing Agreement.
42
<PAGE> 43
EXHIBIT A
The Ackerley Group, Inc.
Public Offering of Common Stock
__________, 1999
Salomon Smith Barney Inc.
As a Representative of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement") between The Ackerley
Group, Inc., a Delaware corporation (the "Company"), the selling stockholders to
be named in the Underwriting Agreement, and the representative or
representatives, as the case may be (including Salomon Smith Barney Inc.), of a
group of underwriters (the "Underwriters") to be named in the Underwriting
Agreement, relating to an underwritten public offering of Common Stock, $.01 par
value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge or
otherwise dispose of (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the undersigned or an affiliate of the undersigned or any person
in privity with the undersigned or an affiliate of the undersigned) directly or
indirectly, or file (or participate in the filing of) a registration statement
with the Securities and Exchange Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder with respect to, any shares of capital stock
of the Company or any securities convertible into or exercisable or exchangeable
for such capital stock, or publicly announce an intention to effect any such
transaction, for a period of 90 days after the date of the Underwriting
Agreement, other than shares of Common Stock disposed of as bona fide gifts
approved in writing by Salomon Smith Barney Inc.
A-1
<PAGE> 44
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Yours very truly,
-----------------------------------------
Name:
Telephone No.:
Fax No.:
Address:
A-2
<PAGE> 45
EXHIBIT B
List of Persons Delivering Lock-Up Agreements
Gail A. Ackerley
William Ackerley
Christopher H. Ackerley
Deborah L. Bevier
Denis M. Curley
M. Ian C. Gilchrist
Keith W. Ritzmann
Michel C. Thielen
Eric M. Rubin
Randal G. Swain
Walter F. ("Wally") Walker
John Dresel
Michele Grosenick
Steve Kimatian
B-1
<PAGE> 46
EXHIBIT C
Subsidiaries
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Organization
------------------ ----------------------------
<S> <C>
Ackerley Airport Advertising, Inc. Washington
*AK Media Group, Inc. Washington
*Central NY News, Inc. Washington
*KJR Radio, Inc. Washington
*SSI, Inc. Washington
TC Aviation, Inc. Oregon
KVOS TV Ltd.(1) British Columbia
</TABLE>
- ----------
* Subsidiaries marked with an asterisk are Material Subsidiaries.
(1) Direct subsidiary of AK Media Group, Inc.
C-1
<PAGE> 47
SCHEDULE I
<TABLE>
<CAPTION>
Number of Underwritten
Underwriters Securities to be Purchased
------------ --------------------------
<S> <C>
Salomon Smith Barney Inc..........................................
First Union Capital Markets Corp..................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
-----------------
Total.................................................. [ ]
=================
</TABLE>
Schedule I-1
<PAGE> 48
SCHEDULE II
<TABLE>
<CAPTION>
Number of Underwritten
Selling Stockholders Securities to be Sold
-------------------- ----------------------
<S> <C>
Barry A. Ackerley
The Ginger and Barry Ackerley Foundation
-----------------
Total....................................................... [ ]
=================
</TABLE>
Schedule II-1
<PAGE> 1
EXHIBIT 5.1
July 9, 1999
The Ackerley Group, Inc.
1301 Fifth Avenue, Suite 4000
Seattle, Washington 98101
RE: THE ACKERLEY GROUP, INC.;
LEGAL OPINION REGARDING VALIDITY OF SECURITIES OFFERED
Ladies and Gentlemen:
We are acting as counsel for The Ackerley Group, Inc., a Delaware
corporation ("Company"), in connection with the registration under the
Securities Act of 1933, as amended ("Act"), of 4,830,000 shares of the Company's
common stock, $.01 par value per share ("Shares"), consisting of (1) 3,000,000
shares to be issued by the Company, including 630,000 shares to be issued upon
exercise of options to cover over-allotments ("Company Shares"), and (1)
1,200,000 shares to be sold by certain selling shareholders ("Selling
Shareholders") of the Company ("Selling Shareholders Shares").
In connection with the offering of the Shares, we have examined: (1) the
form of Underwriting Agreement between various underwriters, the Company and the
Selling Shareholders; (2) the Registration Statement; and (3) such other
documents as we have deemed necessary to form the opinion expressed below. As to
various questions of fact material to such opinion, where relevant facts were
not independently established, we have relied upon statements of officers of
Company and of the Selling Shareholders, or representations and warranties of
the Company and the Selling Shareholders contained in the form of Underwriting
Agreement.
Based and relying solely upon the foregoing, we are of the opinion that:
1. Subject to the issuance of an appropriate order by the
Commission declaring the Registration Statement effective, and the compliance
with applicable state securities and "blue sky" laws, the Company Shares will
be, upon sale and delivery thereof and receipt by the Company of full payment as
set forth in the Registration Statement, validly issued, fully paid and
nonassessable.
2. The Selling Shareholders Shares are validly issued, fully paid
and nonassessable.
<PAGE> 2
The Ackerley Group, Inc.
July 9, 1999
Page 2
Consent is hereby given to the filing of this opinion as an exhibit to
the Registration Statement and to the legal reference to this firm under the
caption "Legal Matters" as having passed upon the validity of the Shares. In
giving this consent, we do not admit that we are experts within the meaning of
the Act.
Very truly yours,
GRAHAM & DUNN
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts", "Summary of
Financial Data" and "Selected Financial Data" and to the use of our report
dated March 16, 1999, with respect to the consolidated financial statements of
The Ackerley Group, Inc. and our report dated April 12, 1999, with respect to
the financial statements of WOKR(TV) included in the Registration Statement
(Form S-3 No. 333-49711) and related Prospectus of The Ackerley Group, Inc. for
the registration of 4,830,000 shares of its common stock.
/s/ Ernst & Young LLP
Seattle, Washington
July 9, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") appoints
each of Barry A. Ackerley, Denis M. Curley and Keith W. Ritzmann his true and
lawful attorney and agent, in name and on behalf of the undersigned, in any and
all capacities, to sign and to file with the Securities and Exchange Commission
any and all registration statements (including without limitation, any
registration statement filed pursuant to Rule 462(b) promulgated under the
Securities Act 1933) and any and all amendments and post-effective amendments
and exhibits thereto in connection with the offering by the Company and/or
certain of its stockholders of shares of its common stock, and to do any and all
acts and things and execute any and all instruments which the attorney and agent
may deem necessary or advisable in connection therewith, 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 8th day of June, 1999.
/s/ GAIL A. ACKERLEY
------------------------------
Gail A. Ackerley
<PAGE> 2
POWER OF ATTORNEY
The undersigned Officer and Director of The Ackerley Group, Inc.
("Company") appoints each of Denis M. Curley and Keith W. Ritzmann his true and
lawful attorney and agent, in name and on behalf of the undersigned, in any and
all capacities, to sign and to file with the Securities and Exchange Commission
any and all registration statements (including without limitation, any
registration statement filed pursuant to Rule 462(b) promulgated under the
Securities Act 1933) and any and all amendments and post-effective amendments
and exhibits thereto in connection with the offering by the Company and/or
certain of its stockholders of shares of its common stock, and to do any and all
acts and things and execute any and all instruments which the attorney and agent
may deem necessary or advisable in connection therewith, 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 8th day of June, 1999.
/s/ BARRY A. ACKERLEY
--------------------------------
Barry A. Ackerley, Chairman of the
Board, Chief Executive Officer and
Director
<PAGE> 3
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company")
appoints each of Barry A. Ackerley, Denis M. Curley and Keith W. Ritzmann his
true and lawful attorney and agent, in name and on behalf of the undersigned,
in any and all capacities, to sign and to file with the Securities and Exchange
Commission any and all registration statements (including without limitation,
any registration statement filed pursuant to Rule 462(b) promulgated under the
Securities Act 1933) and any and all amendments and post-effective amendments
and exhibits thereto in connection with the offering by the Company and/or
certain of its stockholders of shares of its common stock, and to do any and
all acts and things and execute any and all instruments which the attorney and
agent may deem necessary or advisable in connection therewith, 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 8th day of June, 1999.
/s/ M. IAN G. GILCHRIST
-----------------------------------
M. Ian G. Gilchrist
<PAGE> 4
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") appoints
each of Barry A. Ackerley, Denis M. Curley and Keith W. Ritzmann his true and
lawful attorney and agent, in name and on behalf of the undersigned, in any and
all capacities, to sign and to file with the Securities and Exchange Commission
any and all registration statements (including without limitation, any
registration statement filed pursuant to Rule 462(b) promulgated under the
Securities Act 1933) and any and all amendments and post-effective amendments
and exhibits thereto in connection with the offering by the Company and/or
certain of its stockholders of shares of its common stock, and to do any and
all acts and things and execute any and all instruments which the attorney and
agent may deem necessary or advisable in connection therewith, 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 8th day of June, 1999.
/s/ DEBORAH L. BEVIER
---------------------------
Deborah L. Bevier
<PAGE> 5
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company")
appoints each of Barry A. Ackerley, Denis M. Curley and Keith M. Ritzmann his
true and lawful attorney and agent, in name and on behalf of the undersigned,
in any and all capacities, to sign and to file with the Securities and Exchange
Commission any and all registration statements (including without limitation,
any registration statement filed pursuant to Rule 462(b) promulgated under the
Securities Act 1933) and any and all amendments and post-effective amendments
and exhibits thereto in connection with the offering by the Company and/or
certain of its stockholders of shares of its common stock, and to do any and
all acts and things and execute any and all instruments which the attorney and
agent may deem necessary or advisable in connection therewith, 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 8th day of June, 1999.
/s/ MICHEL C. THIELEN
---------------------------
Michel C. Thielen
<PAGE> 6
POWER OF ATTORNEY
The undersigned Officer of The Ackerley Group, Inc. ("Company") appoints
each of Barry A. Ackerley and Keith W. Ritzmann his true and lawful attorney and
agent, in name and on behalf of the undersigned, in any and all capacities, to
sign and to file with the Securities and Exchange Commission any and all
registration statements (including without limitation, any registration
statement filed pursuant to Rule 462(b) promulgated under the Securities Act
1933) and any and all amendments and post-effective amendments and exhibits
thereto in connection with the offering by the Company and/or certain of its
stockholders of shares of its common stock, and to do any and all acts and
things and execute any and all instruments which the attorney and agent may deem
necessary or advisable in connection therewith, 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 8th day of June, 1999.
/s/ Denis M. Curley
-------------------------------
Denis M. Curley, Co-President
and Chief Financial Officer,
Secretary and Treasurer
<PAGE> 7
POWER OF ATTORNEY
The undersigned Officer 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, in any and all capacities, to
sign and to file with the Securities and Exchange Commission any and all
registration statements (including without limitation, any registration
statement filed pursuant to Rule 462(b) promulgated under the Securities Act
1933) and any and all amendments and post-effective amendments and exhibits
thereto in connection with the offering by the Company and/or certain of its
stockholders of shares of its common stock, and to do any and all acts and
things and execute any and all instruments which the attorney and agent may
deem necessary or advisable in connection therewith, without the other and with
full power of substitution and revocation, and hereby ratify 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 8th day of June, 1999.
/s/ KEITH W. RITZMANN
--------------------------------------------
Keith W. Ritzmann, Senior Vice President and
Chief Information Officer, Assistant
Secretary and Controller