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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 1-10321
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THE ACKERLEY GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 91-1043807
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1301 Fifth Avenue, Suite 4000
Seattle, Washington 98101
(Address of principal executive offices) (Zip code)
(206) 624-2888
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock New York Stock Exchange, Inc.
Title of each class Name of exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
N/A
(Title of class)
----------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant on March 15, 1999 was $184,432,163.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 15, 1999 was:
<TABLE>
<S> <C>
Title of Class Number of Shares Outstanding
Common Stock, $.01 Par Value 20,577,268 shares
Class B Common Stock, $.01 Par Value 11,051,230 shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the annual Meeting of
Shareholders to be held on May 11, 1999, are incorporated by reference under
Part III of this Report.
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PART I
ITEM 1--BUSINESS
General Information
The Ackerley Group, Inc. was founded in 1975 as a Washington corporation. In
1978, we were reincorporated under Delaware law. We are a diversified media and
entertainment company which engages in four principal businesses: out-of-home
media, television broadcasting, radio broadcasting, and sports & entertainment.
. Out-of-Home Media. We engage in outdoor advertising in Florida,
Massachusetts, and the Pacific Northwest. At December 31, 1998, we had
8,522 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
leading positions in outdoor advertising in each of these markets, based
upon the number of outdoor advertising displays.
. Television Broadcasting. We engage in television broadcasting. Assuming
completion of all pending transactions, we would own twelve television
stations and operate two additional television stations under time
brokerage agreements.
. Radio Broadcasting. We also engage in radio broadcasting. Assuming
completion of all pending transactions, we would own and operate six
radio stations.
. Sports & Entertainment. Our sports & entertainment business includes
ownership of the Seattle SuperSonics, the National Basketball
Association's Pacific Division Champions for the past three NBA seasons.
In addition, we engage in sports marketing and promotion of the
SuperSonics through our Full House Sports & Entertainment division.
Business 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 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 out-of-home 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 out-of-home
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 certain
competitive advantages:
Leading Market Position in Outdoor Markets Served. We believe that we own
the most outdoor advertising display faces in each of the five geographic
markets in which we operate, based on the Traffic Audit Bureau's most recent
Summary of Audited Markets, issued in October 1998. Our five outdoor
advertising markets are Seattle/Tacoma, Washington; Portland, Oregon;
Boston/Worcester, Massachusetts; Miami/Fort Lauderdale, Florida; and West Palm
Beach/Fort Pierce, Florida.
Focus on Local News Leadership as Driver of Broadcast Revenue. We believe
local news leadership is an important contributor to audience and revenue
growth for our television stations, and we seek to be the market leader in
terms of local news ratings points delivered in the geographic markets served
by our television
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stations. We favor investing in the production of our own local news
programming over the purchase of syndicated programming because we believe we
have greater ability to improve the ratings of local news programming. For
example, after we acquired KGET(TV) in Bakersfield, California and WIXT(TV) in
Syracuse, New York, they both improved to be the first-ranked stations in their
respective markets, in terms of local news ratings points delivered (the ratio
of the number of viewers of a station's local news program to total viewers)
according to the November 1998 Nielsen Station Index. Of the six network-
affiliated television stations we currently own, three ranked number one in
local news ratings points delivered, according to the November 1998 Nielsen
Station Index. Over the last three years, we have increased local news
programming at eight of the television stations we own or operate by one to
three and a half hours per weekday. We believe that this has contributed to the
improved financial performance of those stations, and we continue to invest in
local news programming.
Diversified Portfolio of Television Stations. Our television station
portfolio is diversified across networks, including stations affiliated with
major networks, and across geographic regions. We believe such diversification
is beneficial, as it reduces our reliance upon any one network's programming,
and mitigates our exposure to the economic cycles of any one geographic market.
Strength in Seattle/Tacoma Radio Market. We have developed a strong presence
in the Seattle/Tacoma radio market through our ownership and operation of four
radio stations in the area. One of those stations, KUBE(FM), is the leading
station in the market in terms of audience share, according to the Fall 1998
Arbitron Radio Market Report. We also seek to use our ownership of the Seattle
SuperSonics to increase the audience share of these radio stations, as
discussed in the paragraph below.
Ownership of the Seattle SuperSonics. The Seattle SuperSonics have the
second best aggregate regular season win/loss record of any NBA team over the
past five completed seasons. We believe that our ownership of the Seattle
SuperSonics enhances the effectiveness of our media operations by (i) providing
regionally significant programming, (ii) generating listener loyalty for our
radio stations, and (iii) 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 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 business can
offer advertisers greater choice than a single outlet entity. We believe this
helps our advertisers to more effectively reach their target audiences.
Low Reliance Upon Tobacco Advertisers. Over the past several years, the U.S.
Food and Drug Administration ("FDA") and other governmental entities have
become more active in their regulation and scrutiny of tobacco, including its
advertising. We expect that such increased scrutiny will continue, and will
lead to additional restrictions or prohibition of outdoor advertising of
tobacco products. We are proactively seeking to reduce our reliance upon
tobacco advertising. Outdoor tobacco advertising represented approximately 3%
of our consolidated revenue in 1998, down from 5% of our consolidated revenue
in 1997.
Leadership of Company Founder. 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 &
entertainment well before the current trend toward consolidation among these
industries.
Experienced Corporate Management. While Mr. Ackerley remains significantly
involved in our operations, and is the single largest stockholder in the
Company, he has developed an experienced corporate management team to help us
achieve the desired synergies among our business units. Four of our five
executive
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officers have worked together for eight years, and collectively have an
aggregate of 98 years of experience in the various industries in which we are
involved.
Decentralized Management Structure; Experienced Management. We have granted
the management of our operating units the authority and autonomy necessary to
run each unit as a business and to respond effectively to changes in each
market environment. Experienced local managers enhance our ability to respond
to local market changes rapidly and effectively. The average experience of our
13 division managers in their respective industries is approximately 17 years.
We aim to continue improving our operating performance through our team of
experienced local managers and corporate staff.
Out-of-Home Media
Our out-of-home media business sells advertising space on outdoor displays.
Until our airport advertising operations were sold on June 30, 1998, we sold
advertising space on displays located in airport terminals. National
advertisers generally categorize outdoor and airport advertising as "out-of-
home media" because, unlike radio and television broadcasting, newspapers, and
magazines, such advertising is disseminated outside the home.
Outdoor Advertising
Industry Overview. During the nineteenth century, companies began to lease
out space on wooden boards for advertising messages, or "bills." Today, outdoor
advertising extends nationwide, providing advertisers with a relatively low-
cost means of reaching large audiences. Outdoor advertising is used by large
national advertisers as part of multi-media and other advertising campaigns, as
well as by local and regional advertisers seeking to reach local and regional
markets.
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). Displays provide
advertisers with advertising targeted at a specified percentage of the general
population and are generally placed in appropriate well-traveled areas
throughout a geographic area. This results in the advertisement's broad
exposure within a market.
Outdoor advertising companies generally establish and publish "rate cards"
periodically, typically once a year, which list monthly rates for bulletins,
posters, and junior posters. Rates are based, in part, on surveys made by
independent traffic audits that determine a given display's exposure to the
public. Actual rates charged to customers are subject to negotiation.
Advertising contracts relating to bulletins, posters, and junior posters
usually have terms of one year or less.
While outdoor advertising has been a stable source of revenue over the last
five years, the number and diversity of 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
telecommunications companies.
Operations. We operate primarily in the greater metropolitan areas of
Seattle and Tacoma, Washington; Portland, Oregon; Boston and Worcester,
Massachusetts; and Miami, Fort Lauderdale, West Palm Beach and Fort Pierce,
Florida. For purposes of defining our out-of-home markets, we consider
Seattle/Tacoma, Boston/Worcester, Miami/Fort Lauderdale, and West Palm
Beach/Fort Pierce to be single markets. Based on the Traffic Audit Bureau's
Summary of Audited Markets issued in October 1998, we had more outdoor
advertising displays in each of these markets than any other outdoor
advertising company.
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
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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
will result primarily through diversification of our customer base, increased
demand brought about by creative marketing, and increased rates.
Our outdoor advertising operations involve the sale of space on advertising
display faces. They also include, in many cases, the design of advertisements
and the construction of outdoor structures that carry those displays. Our
principal outdoor advertising display is the billboard, of which there are
three standard sizes:
. Bulletins: Bulletins are generally 14 feet high and 48 feet wide.
Generally, bulletins are covered with a single sheet of vinyl, called
"Superflex," on which an image has been printed by computer. The
Superflex is then transported to the site of the billboard and mounted to
the face of the display. To attract more attention, panels may extend
beyond the linear edges of the display face and may include three-
dimensional embellishments. Bulletins are usually located near major
highways for maximum impact. Space is usually sold to advertisers for
periods of four to twelve months.
. Posters: The most common type of billboard, posters are generally 12 feet
high by 25 feet wide. Lithographed or silk-screened paper sheets are
typically supplied by the advertiser and arrive prepasted and packaged in
airtight bags. They are applied like wallpaper to the face of the
display. Posters are usually located on major traffic arteries. Space is
usually sold to advertisers for periods of one to twelve months.
. Junior posters: Junior posters are generally 6 feet high by 12 feet wide.
These displays are prepared and mounted in the same manner as posters.
Most junior posters, because of their smaller size, are concentrated on
city streets and are targeted to pedestrian traffic. Space on junior
posters usually is sold to advertisers for periods of one to twelve
months.
At December 31, 1998, we had 1,418 bulletins, 5,784 posters, and 1,320
junior posters. The following chart itemizes markets we serve and their
designated market area (DMA) rank:
<TABLE>
<CAPTION>
DMA Junior
Market Rank(1) Bulletins Posters Posters
------ ------ --------- ------- -------
<S> <C> <C> <C> <C>
Northwest:
Seattle/Tacoma.......................... 12 224 1,613 316
Portland................................ 24 153 1,023 0
Boston:
Boston/Worcester........................ 6 334 1,707 75
Florida:
Miami/Fort Lauderdale................... 16 515 1,111 929
West Palm Beach/Fort Pierce............. 43 192 330 0
</TABLE>
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(1) Source: Television & Cable Factbook, 1998 Edition. DMA rank is a measure of
market size in the United States based on population as reported by the
Nielsen Rating Service.
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.
Sales and Marketing. We sell advertising space directly to advertisers and
also sell to advertising agencies and specialized media buying services. These
agencies charge us a commission for their services. In recent years, we have
focused increasingly on selling directly to local and regional advertisers.
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A broad cross-section of advertisers utilize our outdoor advertising
displays, including tobacco, food and beverage, financial service, automotive
and retail 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.
Competition. We compete directly with other out-of-home advertising
companies, and with other types of advertising media companies, including
television, radio, newspapers, magazines, transit advertising, yellow page
directories, direct mail, local cable systems, and satellite broadcasting
systems. Substantial competition exists among all advertising media on a cost-
per-rating-point basis 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.
Regulation. Outdoor advertising displays are subject to governmental
regulation at the federal, state, and local levels. These regulations, in some
cases, limit the height, size, location, and operation of outdoor displays and,
in some circumstances, regulate the content of the advertising copy displayed
on outdoor displays. Certain jurisdictions have recently proposed or enacted
regulations restricting or banning outdoor advertising of tobacco or liquor.
Likewise, regulations in certain jurisdictions prohibit the construction of new
outdoor displays or the replacement, relocation, enlargement, or upgrading of
existing structures.
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. Some states and
localities have also enacted restrictions on the content of outdoor advertising
signs.
Advertising for tobacco products has increasingly been the subject of
regulation. 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. On November
23, 1998, 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 terminate all cigarette advertising on outdoor advertising
within 150 days. The consent judgment affects our operations in Massachusetts,
Oregon and Washington (other than King County). In 1997, we voluntarily agreed
to eliminate tobacco advertising on displays located in King County
(Washington) effective January 1, 1998. In addition, the State of Florida
previously entered into a settlement agreement with the tobacco industry that
eliminated tobacco advertising on billboards throughout the state. As a result
of these and other factors, it is likely that our advertising revenue from
tobacco companies will continue to decrease.
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.
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. The 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.
Our policy, when a governmental entity seeks to remove one of our outdoor
advertising displays, is to actively resist unless adequate compensation is
paid.
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Acquisition. On February 19, 1999, we purchased substantially all of the
assets of an out-of-home advertising company in the Boston/Worcester,
Massachusetts market for approximately $11.0 million.
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. Prior to
the sale, we engaged in airport advertising for 18 years.
Television Broadcasting
Our television broadcasting operations involve the sale of air time to a
broad range of national, regional, and local advertisers. We operate eleven
television stations in markets that offer a large and affluent population base
that is attractive to many advertisers.
Industry Overview. Television stations in the United States are either "very
high frequency" or "VHF" stations, transmitting on channels 2 through 13, or
"ultra high frequency" or "UHF" stations, transmitting on channels 14 through
69. Broadcast licenses are issued by the Federal Communications Commission
("FCC"). Television station revenue comes primarily from local, regional and
national advertising. Revenue also comes, to a lesser extent, from network
compensation and from studio rental and commercial production activities.
Advertising rates are based upon (1) a program's popularity among the
viewers whom an advertiser wishes to attract, (2) the number of advertisers
competing for the available time, (3) the size and demographic makeup of the
market, and (4) the availability of alternative advertising media in the market
area. The size of a television station's audience is measured and reported by
independent rating service surveys.
Affiliation with a major network (e.g., ABC, NBC, CBS, or FOX) can have a
significant impact on a station's revenue, expenses and operations. A typical
affiliate receives the majority of its daily programming from a network.
Networks provide programming, together with cash payments, to the affiliate in
exchange for a substantial majority of the advertising time during network
programs. The network sells this advertising time and retains the revenues.
Operations. Assuming completion of all pending transactions, we would own 11
television stations and would operate two additional television stations under
time brokerage agreements. We currently own nine television stations and
operate three stations 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.
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<TABLE>
<CAPTION>
No. of
Commercial
TV
DMA Stations
Call Date Acquired Network Market Ranked in
Market Letters or Affiliated Affiliation Rank(1) Market(2) Frequency
------ ------- ----------------- ----------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Central New York
Syracuse, New York WIXT May 1982 ABC VHF 72 3 VHF
(owned).................... 2 UHF(3)
Rochester, New York WOKR -- (4) ABC VHF 75 3 VHF
(pending acquisition)...... 1 UHF
Binghamton, New York WIVT July 1997(5) ABC UHF 154 1 VHF
(owned).................... 2 UHF
Utica, New York (time 1 VHF
brokerage agreement)....... WUTR June 1997(6) ABC UHF 169 2 UHF
California
Santa Barbara/Santa
Maria/San Luis Obispo,
California (pending
acquisition; interim time
brokerage agreement)....... KCOY January 1999(7) CBS VHF 115 3 VHF
Salinas/Monterey,
California (owned; pending
sale; future time
brokerage agreement)....... KCBA June 1986(8) FOX UHF 121 1 VHF
3 UHF(9)
Salinas/Monterey,
California (pending
acquisition; interim time
brokerage agreement)....... KION April 1996(10) CBS UHF 121 1 VHF
3 UHF(9)
Bakersfield, California
(owned).................... KGET October 1983 NBC UHF 131 4 UHF(11)
Eureka, California
(owned).................... KVIQ July 1998(12) CBS VHF 189 2 VHF
2 UHF
Santa Rosa, California
(owned).................... KFTY April 1996 None UHF -- (13) 6 VHF
11 UHF
Other
Colorado Springs/Pueblo,
Colorado (owned; pending
sale; purchaser operates
under time brokerage
agreement)................. KKTV January 1983(14) CBS VHF 94 3 VHF
1 UHF(15)
Eugene, Oregon (owned)...... KMTR December 1998(16) NBC VHF 120 3 VHF
6 UHF
Fairbanks, Alaska (pending
acquisition)............... KTVF -- (17) NBC/UPN VHF 205 4 VHF
Vancouver, British Columbia
and portions of Seattle,
Washington (owned)......... KVOS June 1985 None VHF -- (18) -- (18)
</TABLE>
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(1) Source: Television & Cable Fact Book, 1998 Edition.
(2) Source: Television & Cable Fact Book, 1998 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.
(3) 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.
(4) In September 1998, we entered into an agreement to purchase WOKR.
(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.
(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 would exchange KKTV for KCOY and a cash payment. Pending
approval of this transaction by the FCC, we are operating KCOY under a
time brokerage agreement with the current owner. The date in this column
reflects the date that the time brokerage agreement was entered into.
(footnotes continued on next page)
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(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 Salinas/Monterey
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) In December 1998, we entered into an asset exchange agreement, pursuant
to which we would exchange KKTV for KCOY and a cash payment. Pending
approval of this transaction by the FCC, the purchaser is operating KKTV
under a time brokerage agreement.
(15) Two additional UHF channels have been allocated in the Colorado
Springs/Pueblo market; however, there has been no construction activity
to date with respect to these channels.
(16) 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 includes the assets
of two satellite stations, KMTX (Roseburg, Oregon) and KMTZ (Coos Bay,
Oregon), and one low power station, KMOR-LP (Eugene, Oregon).
(17) In August 1998, we entered into an agreement to purchase KTVF.
(18) 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, 1998 Edition.
Programming. 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. The
networks offer our network-affiliated stations a variety of programs. Our
network-affiliated stations have a right of first refusal to broadcast network
programs before those programs can be offered to any other television station
in the same market.
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.
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, 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, 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 transactions are subject to, among other
things, FCC approval. 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 and the two radio stations for
$0.8 million, plus certain additional payments. The option may be
exercised at any time beginning on the
8
<PAGE>
third anniversary of our acquisition of the stations 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.
. On September 25, 1998, we 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. We have paid $12.5 million of the purchase price into an
escrow account, 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
Gannett Communications and the receipt of approval from the FCC, which we
have requested. We anticipate that the closing will occur in the second
quarter of 1999. Either party may terminate the purchase agreement,
subject to certain conditions, if closing has not occurred by September
4, 1999.
. 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 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 the Company's 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.
. On December 30, 1998, we entered into an asset exchange agreement with
Benedek Broadcasting Corporation. Under the agreement, Benedek
Broadcasting Corporation would acquire substantially all of the assets,
and assume certain liabilities, of KKTV(TV), our CBS affiliate licensed
to Colorado Springs, Colorado. In exchange, we 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
adjustments). Closing is subject to, among other things, approval of the
FCC. We anticipate closing will take place in the second quarter of 1999.
Also on December 30, 1998, we 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.
. Effective January 1, 1999, we 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, we operated the station pursuant to a time brokerage
agreement with the former owner.
. Effective March 16, 1999, we 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, we operated the
stations pursuant to a time brokerage agreement with the former owner
since December 1, 1998.
Sales and Marketing. We receive revenues from our television broadcasting
operations from the sale of advertising time, usually in the form of local,
regional, and national spot or schedule advertising, and, to a much lesser
extent, network compensation. Spot or schedule advertising consists of short
announcements and sponsored programs either on behalf of advertisers in the
immediate area served by the station or on behalf of national and regional
advertisers.
During 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
9
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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.
Competition. We compete directly with other television stations, and
indirectly with other types of advertising media companies, including radio,
magazines, newspapers, outdoor advertising, transit advertising, yellow page
directories, direct mail marketing, local cable systems, and satellite
broadcasting systems. Substantial competition exists among all advertising
media on a cost-per-rating-point basis and on the ability to effectively reach
a particular demographic section of the market. As a general matter,
competition is confined to defined geographic markets.
Maintenance of 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.
In addition, our television stations compete for both audience and
advertising with cable television and other news and entertainment media
serving the same markets. Cable television systems, which operate generally on
a subscriber-payment basis, compete by carrying television signals from outside
the broadcast market and by distributing programming originated exclusively for
cable systems. Historically, cable operators have not competed with local
broadcast stations for a share of the local news audience. If they do, however,
the increased competition for local news audiences could have an adverse effect
on our advertising revenue.
We also face competition from high-powered direct broadcast satellite
services which transmit programming directly to homes equipped with special
receiving antennas or to cable television systems for transmission to their
subscribers. In addition, our television stations compete with other forms of
home entertainment, such as home videotape and video disc players. Moreover,
the television industry is continually faced with technological change and
innovation, the possible rise in popularity of competing entertainment and
communications media, and changes in labor conditions and government
regulations.
We believe that the advertising revenues generated by our television
stations are significantly influenced by rankings of their local news programs
in their respective markets. Three of the seven network-affiliated television
stations we currently own rank number one in their respective geographic
markets in local news ratings points delivered, according to the November 1998
Nielsen Station Index.
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.
We own and operate four radio stations in the Seattle/Tacoma area.
Industry Overview. Radio stations in the United States operate either on the
"amplitude modulation" ("AM") band, comprising 107 different frequencies
located between 540 and 1700 kilohertz ("KHz") in the low frequency band of the
electromagnetic spectrum, or the "frequency modulation" ("FM") band, comprising
approximately 100 different frequencies located between 88 and 108 megahertz
("MHz") in the very high frequency band of the electromagnetic spectrum. FM
radio stations have captured a high percentage
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of the listening audience, in part because of the public's perception that
stereo broadcasting, which until recently was only available on FM radio
stations, provides enhanced sound quality.
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. The principal costs
incurred in the operation of radio stations are salaries, programming,
promotion and advertising, sports broadcasting rights fees, rental of premises
for studios, costs of transmitting equipment, and music license royalty fees.
Operations. We own four radio stations, which consist of KHHO(AM) in Tacoma,
Washington and KJR(AM), KJR-FM and KUBE(FM) in Seattle, Washington. In
addition, we have entered into an agreement to acquire radio stations KXLR(FM)
and KCBF(AM) in Fairbanks, Alaska.
The following table sets forth information about our portfolio of radio
stations (including radio stations we plan to acquire).
<TABLE>
<CAPTION>
No. of
MSA Commercial Radio Station Format
Call Market Radio Stations and Primary
Market Letters Date Acquired Rank(1) in Market(1) Demographic Target
------ -------- ------------- ------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Seattle/Tacoma,
Washington (owned) KJR(AM) May 1984 14 9 AM Sports Talk;
(2) Men 25-54
(3)
KJR-FM October 1987 19 FM Classic Hits;
(4) (2) Adults 25-54
KUBE(FM) July 1994 Top 40 Contemporary
(5) Hit Radio;
Persons 18-34
KHHO(AM) March 1998 Sports Talk;
Men 24-54
Fairbanks, Alaska KXLR(FM) --(6) --(7) 7 FM Oldies; Classic Rock;
(pending acquisition) (8) Persons 25-49 (8)
KCBF(AM) --(6) 3 AM Oldies;
(8) Persons 35-54 (8)
</TABLE>
- --------
(1) Source: Fall 1998 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.
(6) On August 4, 1998, we entered into an agreement to acquire these stations.
(7) Not ranked.
(8) Source: Broadcasting & Cable Yearbook, 1997 Edition.
Sales and Marketing. Most of our radio broadcasting revenue comes from the
sale of air time to local advertisers. Each station's advertising rates depend
upon, among other things, (1) the station's ability to attract audiences in its
target demographic group, and (2) the number of stations competing in the
market area. The size of a radio station's audience is measured by independent
rating service surveys.
Much like our television broadcasting stations, the radio stations sell
local spot or schedule advertising. During 1998, such advertising accounted for
approximately 71% of the radio stations' revenue. In contrast,
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approximately 26% of the radio stations' 1998 revenue was received from
national spot or schedule advertising, which is sold primarily through national
sales representative firms on a commission-only basis. The remaining revenue
consisted of tower rentals and production fees.
Competition. We compete directly with other radio stations, and indirectly
with other types of advertising media companies, including television,
newspapers, magazines, outdoor advertising, transit advertising, yellow page
directories, direct mail, local cable systems, and satellite broadcasting
systems. Substantial competition exists among all advertising media on a cost-
per-rating-point basis and on the ability to effectively reach a particular
demographic section of the market. As a general matter, competition is confined
to defined geographic markets.
A radio station's ability to maintain its competitive position in a market
is dependent upon a number of factors, including (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 changing formats.
Acquisitions. On August 4, 1998, we 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 transactions are subject to, among other
things, FCC approval.
Television and Radio Broadcasting Regulation
General. Our television and radio operations are heavily regulated under the
Communications Act of 1934 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.
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.
Ownership. FCC rules limit the number and type of broadcasting properties
that we may own in the same geographic market. Thus, in a particular geographic
market, we cannot own the following combinations: more than one television
station; a cable system and a television station; or a radio station and a
daily newspaper. In addition, there are limitations, which vary according to
the size of the market, on the number of radio stations that we may own in a
market.
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,
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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.
These waivers are conditioned upon the outcome of the FCC's review of its
television ownership rules.
The FCC is considering whether to eliminate or amend the Duopoly Rule and
whether to treat the programming of more than 15% of another station's weekly
broadcast time under a time brokerage agreement as outright ownership of that
station in counting the number of stations the programmer owns. The FCC has
indicated that if it ultimately decides to treat time brokerage agreements as
equivalent to ownership, it will either grandfather time brokerage agreements
entered into before a specific date or provide a period of time for station
owners to comply with the new rules by disposing of their interests in
television stations and/or brokerage agreements for television stations
operating in the same markets or with overlapping service areas.
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 addition, in August 1998 we acquired a television station (WIVT) in
Binghamton, New York. Since the service areas of the Binghamton station and our
television station (WIXT) in 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) and
WIXT(TV) overlap and we have requested a waiver of the Duopoly Rule in
connection with the acquisition of WOKR(TV). If the FCC decides to retain its
current Duopoly Rule, we would be required to dispose of our interest in one of
these stations.
Programming and Advertising. 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.
Affirmative Action. FCC rules require us to develop and implement programs
designed to promote equal employment opportunities. We must submit annual
reports to the FCC documenting our compliance with those rules.
Cable Television. In many parts of the country, cable television operators
rebroadcast television signals via cable. In connection with cable rebroadcasts
of those signals, each television station is granted, pursuant to the Cable
Television Consumer Protection and Competition Act of 1992, either "must-carry
rights" or "retransmission consent rights." Each television broadcaster must
choose either must-carry rights or retransmission consent rights with regard to
its local cable operators.
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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 seven network-affiliated television stations (KKTV, KCBA, KGET, KVIQ,
KMTR, WIVT, and WIXT) that we own have chosen retransmission consent rights,
rather than must-carry rights, within their respective markets. These stations
have granted consents to their local cable operators for the rebroadcast of
their signals. The three network-affiliated stations that we operate under time
brokerage agreements (KION, WUTR, and KCOY) have chosen retransmission consent
rights within their respective markets.
Digital Television. 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.
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 broadcasting operations.
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;
. amend the FCC's 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.
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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.
Purchase and Sale Transactions. We are seeking FCC approval to acquire the
broadcasting licenses for four television stations and two radio stations 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 under "Renewal of Broadcasting Licenses" below. 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),
KXLR(FM), and KCBF(AM) has been filed by a competing radio station owner.
Likewise, we are seeking to sell two television stations (KCBA and KKTV), which
require that the purchasers obtain FCC approval as discussed above. 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.
Renewal of Broadcasting Licenses. Our broadcasting operations' success
depends upon our ability to renew our broadcasting licenses, and the ability of
the station owners to renew the licenses for the stations we operate under time
brokerage agreements. Television and radio licenses (including renewals)
currently are issued for terms of eight years.
In considering whether to renew a license, the FCC considers several
factors, including the licensee's compliance with the FCC's children's
television rules, the FCC's equal employment opportunity rules, and the FCC's
radio frequency rules. The FCC also considers the Communications Act's
limitations on license ownership by foreign individuals and foreign companies,
and rules limiting common ownership of broadcast, cable and newspaper
properties. The FCC also considers the licensee's general character, including
the character of persons holding interests in the licensee. In addition, the
FCC considers complaints from the public concerning the license holder, and
applications from third parties to acquire an existing license.
The FCC usually renews a license holder's broadcasting license. Because the
FCC may not grant renewal, however, we have no assurance that any of our
broadcasting licenses will be renewed, especially if third parties challenge
our renewal applications or file competing applications to acquire our
licenses.
The following chart lists our broadcasting licenses, and broadcasting
licenses owned by the owners of television stations we operate under time
brokerage agreements, which are subject to renewal within the next two years:
<TABLE>
<CAPTION>
Expiration
Broadcasting License Date
-------------------- ----------
<S> <C>
KVOS(1)....................... 3/1/99
KMTR(1)....................... 3/1/99
WIXT(1)....................... 6/1/99
WITV(1)....................... 6/1/99
WUTR(1)(2).................... 6/1/99
</TABLE>
- --------
(1) Renewal applications for these stations are currently pending with the FCC.
(2) We do not own this station, but we operate it pursuant to a time brokerage
agreement.
15
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No challenges or competing applications have been filed with respect to any
of the broadcasting licenses set forth in the above table.
Sports & Entertainment
Our sports and entertainment business consists of ownership of our
professional sports franchise, the Seattle SuperSonics, and our sports
marketing business, Full House Sports & Entertainment ("Full House").
The SuperSonics franchise is one of 29 members of the National Basketball
Association, or "NBA." 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 and consists of a shortened regular season in which each team
will play 50 games (25 at home and 25 on the road) and 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. The SuperSonics have
qualified for post-season play in each of the last five years and played for
the NBA championship in 1996.
Industry Overview. We are a member of the NBA by virtue of our ownership of
the SuperSonics franchise. 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.
As a member of the NBA, we must abide by the NBA's Constitution and Bylaws,
NBA rules, and by the NBA Board of Governors' implementation of those
regulations. 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 (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 sale of any NBA franchise is subject to the approval of a
majority of the NBA's franchise owners.
Operations. The NBA granted Seattle an NBA franchise in 1966. The
SuperSonics, throughout their history, have played in the Seattle/Tacoma area.
In November 1995, the team began using the Key Arena, a 17,100-seat events
facility, under a 15-year lease with the City of Seattle.
We acquired the SuperSonics in 1983. The SuperSonics franchise, as permitted
by the NBA's Constitution and Bylaws, is authorized to operate for an
indefinite term of years, so long as we maintain our NBA membership in good
standing.
Currently, the SuperSonics maintain a full roster of 12 active players. The
minimum roster under NBA rules is 11 players. The SuperSonics acquire new
players primarily through the college draft, by signing veteran free agents
uncommitted to another NBA franchise or by trading players with another
franchise. NBA rules limit the aggregate annual salaries payable by each team
to its players. In addition, the SuperSonics' operations are subject to a NBA
collective bargaining agreement, which is discussed under "Employees" below.
Sales and Marketing. All sales and marketing activities for the SuperSonics
are managed by Full House. 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 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.
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A major source of revenue is ticket sales for home games. We receive
substantially all of the revenue from SuperSonics ticket sales. Revenue from
ticket sales depends highly on the SuperSonics win/loss record. Average paid
attendance per game increased from 15,277 for the 1995-96 regular season to
15,632 for the 1996-97 regular season, and decreased to 15,424 for the 1997-98
regular season. We believe that overall growth in average paid attendance since
the 1995-96 season was mainly due to the team's improved win/loss record and
the team's move to the new Key Arena.
A majority of the SuperSonics games are broadcast on 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.
We share equally with the other NBA franchises in revenues generated by the
NBA as a whole. A large portion of these revenues consist of broadcast licenses
granted to networks. Such broadcast rights have increased significantly in
recent years and are expected to become a more significant portion of total NBA
revenue, primarily due to the growth of cable television. In the spring of
1993, the NBA entered into new contracts with NBC and TBS/TNT providing for the
television broadcast of certain league games through the 1997-98 season. These
contracts provide for minimum total payments to the NBA over the four-year
contract period of $1.1 billion. Recently, 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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" below.
Competition. We 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.
Employees
As of December 31, 1998, we employed 1,308 full-time persons. The following
table sets forth a breakdown of employment in each of our operating segments
and our corporate offices:
<TABLE>
<CAPTION>
Operating Segment/Corporate Office Persons Employed
---------------------------------- ----------------
<S> <C>
Out-of-Home Media....................................... 305
Television Broadcasting................................. 774
Radio Broadcasting...................................... 72
Sports & Entertainment.................................. 101
Corporate Offices....................................... 56
</TABLE>
Approximately 346 of our employees are represented by unions under 13
collective bargaining agreements. Collective bargaining agreements covering
approximately 8% of our employees are terminable during 1999. We believe that
these collective bargaining agreements will be renegotiated or automatically
extended and that any renegotiation will not materially adversely affect our
operations.
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. On
17
<PAGE>
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.
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.
Our operations are subject to restrictions imposed by (i) a credit agreement
with various lending banks, dated January 22, 1999 (the "1999 Credit
Agreement"), and (ii) an indenture (the "Indenture"), dated December 14, 1998,
respecting our 9% Senior Subordinated Notes due 2009 (the "9% Senior
Subordinated Notes"). Some of those provisions restrict our ability to:
. apply cash flow in excess of certain levels, or use proceeds from our
sale of capital stock, debt securities or certain asset dispositions;
. incur additional indebtedness;
. pay dividends on, 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;
. in the case of our subsidiaries (other than unrestricted subsidiaries),
create or permit to exist dividend or payment restrictions with respect
to The Ackerley Group, Inc.;
. 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 maximum leverage ratios, a minimum interest 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 material assets of our
subsidiaries to secure our obligations under the 1999 Credit Agreement. In
addition, nearly all of our subsidiaries are in the process of providing
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 all or a portion of our
subsidiaries 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 Consolidated Financial Statements.
18
<PAGE>
Financial Information Regarding Business Segments
Financial information concerning each of our business segments is set forth
in Note 14 to the Consolidated Financial Statements.
ITEM 2--PROPERTIES
Our principal executive offices are located at 1301 Fifth Avenue, Suite
4000, Seattle, Washington 98101. We lease the offices, which consist of
approximately 16,800 square feet, pursuant to a lease that expires in 2006.
The following table sets forth certain information regarding our facilities
as of December 31, 1998:
<TABLE>
<CAPTION>
Approximate
Square Footage Approximate Square
Location Nature of Facility Owned Footage Leased
-------- ------------------ -------------- ------------------
<S> <C> <C> <C>
Out-of-Home Media
Seattle, Washington
(Outdoor Advertising).. Plant 35,889 1,185
Boston Massachusetts
(Outdoor Advertising).. Plant 31,882 4,900
Miami, Florida (Outdoor
Advertising)........... Plant 242,980 --
Television Broadcasting
Syracuse, New York
(WIXT)................. Station Operations 40,000 --
Binghamton, New York
(WIVT)................. Station Operations 10,819 --
Utica, New York (WUTR)
(1).................... Station Operations 12,148 --
Colorado Springs,
Colorado (KKTV)........ Station Operations 31,100 753
Bakersfield, California
(KGET)................. Station Operations 30,450 --
Eureka, California
(KVIQ)(1).............. Station Operations -- 10,162
Bellingham, Washington
(KVOS)................. Station Operations 13,130 11,856
Salinas/Monterey,
California (KION(1),
KCBA).................. Station Operations 30,000 20,841
Santa Rosa, California
(KFTY)................. Station Operations 13,000 700
Radio Broadcasting
Seattle, Washington
(KJR(AM), KJR-FM,
KUBE(FM)).............. Station Operations -- 16,082
Tacoma, Washington
(KHHO(AM))............. Station Operations -- 4,252
Sports & Entertainment
Seattle, Washington..... Office & Operating 30,000 27,246
Facilities
Other
Seattle, Washington
(Corporate Offices).... Offices -- 16,814
New York, New York
(National Sales
Offices)............... Offices -- 11,359
Los Angeles, California
(National Sales
Offices)............... Offices -- 1,841
</TABLE>
- --------
(1) As of December 31, 1998, we operated these stations under time brokerage
agreements. Accordingly, this table reflects data for the properties which
are owned or leased by the station owners for whom we operate the
stations.
In general, we believe that our facilities are adequate for our present
business and that additional space is generally available for expansion without
significant delay. In 1998, we paid aggregate annual rentals on office space
and operating facilities of approximately $3.5 million.
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. We are negotiating with the Port of
Seattle to continue broadcasting from the present tower location or from an
alternative site 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. We are exploring our legal options in the event that the Port
of Seattle attempts to eject us from the current site before we are able to use
the new site.
19
<PAGE>
Effective October 1, 1995, we entered into a fifteen-year lease with the
City of Seattle for the Key Arena, a 17,100-seat events facility. It was first
occupied and used by the SuperSonics in November 1995, the beginning of the
1995-1996 season.
At December 31, 1998, we owned 291 vehicles and leased 117 vehicles of
various types for use in our operations. We own a variety of broadcast-related
equipment, including broadcast towers, transmitters, generators, microwave
systems and audio and video equipment used in our broadcasting business. We
presently lease, under a private carrier agreement, a Learjet that is used for
executive travel between our facilities. In February 1998, we purchased a
Boeing 727 jet aircraft to replace the BAC 1-11 that we previously leased,
which we use for travel involving the SuperSonics.
We believe that all of our buildings and equipment are adequately insured in
accordance with industry practice.
Item 3--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.
Lambert v. Ackerley. In December 1994, six former employees of one of our
subsidiaries filed a complaint in King County (Washington) Superior Court
against Seattle SuperSonics, Inc. and Full House Sports & Entertainment, Inc.,
both of which were, at that time, our wholly-owned subsidiaries, 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 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 plaintiffs did not have a valid
claim under the federal 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 was
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.
20
<PAGE>
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.
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. A trial date has not been set,
but is not likely to take place before December 1999.
RSA Media Inc. v. AK Media Group, Inc. On June 4, 1997, RSA Media Inc., a
supplier of out-of-home advertising in Massachusetts, filed a complaint in the
U.S. District Court for the District of Massachusetts (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 count 2 of plaintiff's complaint, which alleged that the
existence 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 which is currently
pending.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Barry A. Ackerley.............. 64 Chairman and Chief Executive Officer
Gail A. Ackerley............... 61 Co-Chairman and Co-President
Denis M. Curley................ 51 Co-President and Chief Financial Officer,
Secretary and Treasurer
Christopher H. Ackerley........ 29 Executive Vice President, Operations and
Development
Keith W. Ritzmann.............. 46 Senior Vice President and Chief Information
Officer, Assistant Secretary and
Controller
</TABLE>
Mr. Barry A. Ackerley, one of our founders, has been the Chief Executive
Officer and a director of the Company and its predecessor and subsidiary
companies since 1975. He 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 1997. Ms. Ackerley has served as our Chairman of
Ackerley Corporate Giving since 1986, supervising our charitable activities.
Mr. Denis M. Curley, who joined us in December 1984, was elected as one of
our Co-Presidents in November 1997. Previously, he served as Executive Vice
President from March 1995 until his election as one of our Co-Presidents.
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 our
Secretary and Treasurer.
Mr. Christopher H. Ackerley joined the Company in 1995. He was elected Vice
President for Marketing and Development in May 1998, and was elected Executive
Vice President, Operations and Development in December 1998.
21
<PAGE>
Mr. Keith W. Ritzmann was named Senior Vice President and Chief Information
Officer in January 1998. Before then, he served as a Vice President from
January 1990 through the date of his election as Senior Vice President. He also
presently serves as our Assistant Secretary and Controller.
Barry A. Ackerley and Gail A. Ackerley are husband and wife. Christopher H.
Ackerley is their son. There are no other family relationships among any of our
directors and executive officers. All officers serve at the pleasure of our
Board of Directors.
PART II
ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On October 15, 1996, we effected a two-for-one stock split. All share and
per share data in this report have been restated to reflect the split.
As of March 15, 1999, 31,628,498 shares of our common stock were issued and
outstanding, of which 20,577,268 shares were Common Stock and 11,051,230 shares
were Class B Common Stock. The Common Stock was held by 566 shareholders of
record; the Class B Common Stock was held by 31 shareholders of record.
Our Board of Directors declared a cash dividend of $.02 per share in each of
1997 and 1998. Recently, the Board declared a cash dividend of $.02 per share
payable 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 conditions. Among other things, dividend payments depend
upon our results of operations and financial condition, capital requirements
and general economic conditions. The 1999 Credit Agreement and the Indenture
impose certain limits upon our ability to pay dividends and make other
distributions. In addition, we are subject to the General Corporation Law of
Delaware, which restricts our ability to pay dividends in certain
circumstances.
Common Stock
On December 15, 1997, our Common Stock became listed and began trading on
the New York Stock Exchange under the symbol "AK." Our Common Stock previously
traded on the American Stock Exchange.
The table below sets forth the high and low sales prices of our Common Stock
for each full quarterly period in the two most recent fiscal years according to
the American Stock Exchange, for the period ending December 14, 1997, and
according to the New York Stock Exchange, for the period beginning December 15,
1997.
<TABLE>
<CAPTION>
1998 High Low 1997 High Low
---- ---- --- ---- ---- ---
<S> <C> <C> <C> <C> <C>
First Quarter $24 3/8 $14 5/8 First Quarter $13 3/4 $10 5/8
Second Quarter $22 1/2 $19 7/16 Second Quarter $13 7/8 $10
Third Quarter $24 7/8 $19 1/2 Third Quarter $18 1/2 $11
Fourth Quarter $21 1/16 $16 1/2 Fourth Quarter $18 1/8 $14
</TABLE>
On March 15, 1999, the high and low sales prices of our Common Stock,
according to the New York Stock Exchange, were $18 1/4 and $18 1/16,
respectively.
Class B Common Stock
Our Class B Common Stock, which we initially issued in June 1987, is not
publicly traded. Persons owning shares of our 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 our Class B Common Stock.
22
<PAGE>
ITEM 6--SELECTED FINANCIAL DATA
The table below sets forth selected consolidated financial data regarding
our operations. The information in the table has been derived from the audited
consolidated financial statements.
You should read the information in the table in conjunction with the
sections titled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements (and
Notes) included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue................. $292,907 $306,169 $279,662 $235,820 $211,728
Less agency
commissions and
discounts............. 36,256 (34,994) (32,364) (28,423) (25,626)
-------- -------- -------- -------- --------
Net revenue............. 256,651 271,175 247,298 207,397 186,102
Expenses (other income):
Operating expenses..... 209,030 210,752 186,954 156,343 142,812
Depreciation and
amortization.......... 16,574 16,103 16,996 13,243 10,883
Interest expense....... 25,109 26,219 24,461 25,010 25,909
Stock compensation
expense............... 452 9,344(1) -- -- --
Gain on disposition of
assets................ (33,524)(2) -- -- -- (2,506)
Litigation expense
(adjustment).......... -- (5,000)(3) -- 14,200(3) --
-------- -------- -------- -------- --------
Total expenses and
income.............. 217,641 257,418 228,411 208,796 177,098
-------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... 39,010 13,757 18,887 (1,399) 9,004
Income tax benefit
(expense).............. (15,487) 19,172(4) (2,758) (1,515) (73)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item..... 23,523 32,929 16,129 (2,914) 8,931
Extraordinary item--loss
on extinguishment of
debt in 1998, 1996 and
1994................... (4,346) -- (355) -- (2,099)
-------- -------- -------- -------- --------
Net income (loss)
applicable to common
shares................. $ 19,177 $ 32,929 $ 15,774 $ (2,914) $ 6,832
======== ======== ======== ======== ========
Per common share:
Income (loss) before
extraordinary item.... $ .75 $ 1.05 $ .52 $ (.09) $ .29
Extraordinary item..... (.14) -- (.01) -- (.07)
-------- -------- -------- -------- --------
Net income (loss)...... $ .61 $ 1.05 $ .51 $ (.09) $ .22
======== ======== ======== ======== ========
Common shares used in
per share
computation........... 31,627 31,345 31,166 31,052 30,929
Per common share--
assuming dilution:
Income (loss) before
extraordinary item.... $ .74 $ 1.04 $ .51 $ (.09) $ .28
Extraordinary item..... (.14) -- (.01) -- (.06)
-------- -------- -------- -------- --------
Net income (loss)...... $ .60 $ 1.04 $ .50 $ (.09) $ .22
======== ======== ======== ======== ========
Common shares used in
per share
computation--assuming
dilution.............. 31,883 31,652 31,760 31,052 31,483
Dividends............... $ .02 $ .02 $ .02 $ .015 $ --
======== ======== ======== ======== ========
Consolidated Balance
Sheet Data (at end of
period):
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 long-term debt.... 266,999 213,294 229,350 215,328 225,613
Total debt.............. 270,100 229,424 235,141 220,147 228,646
Stockholder's
deficiency............. (25,841) (44,909) (83,839) (99,093) (95,958)
</TABLE>
- --------
(1) See Note 11 to the Consolidated Financial Statements.
(2) See Note 3 to the Consolidated Financial Statements.
(3) See Note 13 to the Consolidated Financial Statements.
(4) See Note 8 to the Consolidated Financial Statements.
23
<PAGE>
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
Statements appearing in this section, Management's Discussion and Analysis
of Financial Condition and Results of Operations, which are not historical in
nature (including the discussions of the effects of recent acquisitions,
business transactions, and similar information), are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. We
caution our shareholders and potential investors that any forward-looking
statements or projections set forth in this section are subject to risks and
uncertainties which may cause actual results to differ materially from those
projected. After the date of this Annual Report, we will not make any public
announcements updating any forward looking statement contained in this section.
Important factors that could cause the results to differ materially from
those expressed in this section include:
. material 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
FCC's 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 broadcasting,
radio broadcasting, and sports & entertainment businesses;
. material changes to accounting standards;
. expiration or non-renewal of broadcasting licenses and time brokerage
agreements;
. labor matters, including the aftereffects of the 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 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.
Overview
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 (as defined below) in our television
broadcasting and sports & entertainment segments and an increase in income tax
expense, offset by a $3.6 million increase in Operating Cash Flow in our out-
of-home 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 $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.
Refinancing. In January 1998, we replaced our $77.5 million credit
agreement (the "1996 Credit Agreement") with a $265.0 million credit agreement
(the "1998 Credit Agreement"). We replaced the 1998 Credit Agreement with the
new $325.0 million 1999 Credit Agreement in January 1999.
24
<PAGE>
In October 1998, we used borrowings under the term loan facility of the 1998
Credit Agreement to redeem our $120.0 million 10.75% Senior Secured Notes due
2003 (the "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.
We issued 9% Senior Subordinated Notes in the aggregate principal amounts of
$175.0 million in December 1998 and $25.0 million in February 1999.
In March 1999, we redeemed the $20.0 million outstanding principal of our
10.48% Senior Subordinated Notes due December 15, 2000 (the "10.48% Senior
Subordinated Notes"). This resulted in a charge of approximately $0.8 million
net of applicable taxes of $0.4 million, consisting primarily of prepayment
fees.
For more information regarding these refinancing transactions, please see "-
Liquidity and Capital Resources" and "- Subsequent Events" below.
Disposition of Assets. In June 1998, we sold substantially all of the
assets of our airport advertising operations for 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. We recorded a gain from this transaction
of $33.5 million in 1998.
Acquisitions and Time Brokerage Agreements. We have acquired or entered
into agreements to acquire several television and radio stations, or to operate
the stations under time brokerage agreements. The transactions are more fully
described in "Item 1--Business" and Note 3 to the Consolidated Financial
Statements.
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) is an
appropriate measure of our financial performance. Similarly, we believe that
Segment Operating Cash Flow (defined as Operating Cash Flow 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 as an indicator of our operating
performance or to cash flows as a measure of our liquidity.
25
<PAGE>
Results of Operations
The following tables set forth certain historical financial and operating
data for the three-year period ended December 31, 1998, including net revenue,
operating expenses, and Operating Cash Flow information by segment:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
As % of As % of As % of
Net Net Net
Amount Revenue Amount Revenue Amount Revenue
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $256,651 100.0% $271,175 100.0% $247,298 100.0%
Segment operating
expenses............... 194,539 75.8 200,739 74.0 178,721 72.3
Corporate overhead...... 14,491 5.6 10,013 3.7 8,233 3.3
-------- -------- --------
Total operating
expenses............. 209,030 81.4 210,752 77.7 186,954 75.6
-------- -------- --------
Operating Cash Flow..... 47,621 18.6 60,423 22.3 60,344 24.4
Other expenses and
(income):
Depreciation and
amortization......... 16,574 6.5 16,103 5.9 16,996 6.9
Interest expense...... 25,109 9.8 26,219 9.7 24,461 9.9
Stock compensation
expense.............. 452 0.2 9,344 3.4 -- --
Gain on disposition of
assets............... (33,524) (13.1) -- -- -- --
Litigation exp.
(adjustment)......... -- -- (5,000) (1.8) -- --
-------- -------- --------
Total other expenses
and (income)....... 8,611 3.4 46,666 17.2 41,457 16.8
Income before income
taxes and extraordinary
item................... 39,010 15.2 13,757 5.1 18,887 7.6
Income tax benefit
(expense).............. (15,487) (6.0) 19,172 7.1 (2,758) (1.1)
Income before
extraordinary item 23,523 9.2 32,929 12.1 16,129 6.5
Extraordinary item...... (4,346) (1.7) -- -- (355) (0.1)
-------- -------- --------
Net income.............. $ 19,177 7.5 $ 32,929 12.1 $ 15,774 6.4
======== ======== ========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Net revenue:
Out-of-home media............................. $108,560 $113,162 $ 99,833
Television broadcasting....................... 68,467 63,611 57,863
Radio broadcasting............................ 24,474 20,970 17,955
Sports & entertainment........................ 55,150 73,432 71,647
-------- -------- --------
Total net revenue........................... $256,651 $271,175 $247,298
======== ======== ========
Segment operating expenses:
Out-of-home media............................. $ 65,605 $ 72,159 $ 63,924
Television broadcasting....................... 55,996 46,935 42,137
Radio broadcasting............................ 14,819 12,983 10,844
Sports & entertainment........................ 58,119 68,662 61,816
-------- -------- --------
Total segment operating expenses:........... $194,539 $200,739 $178,721
======== ======== ========
Operating Cash Flow:
Out-of-home media............................. $ 42,955 $ 41,003 $ 35,909
Television broadcasting....................... 12,471 16,676 15,726
Radio broadcasting............................ 9,655 7,987 7,111
Sports & entertainment........................ (2,969) 4,770 9,831
-------- -------- --------
Total Segment Operating Cash Flow........... 62,112 70,436 68,577
Corporate overhead............................ (14,491) (10,013) (8,233)
-------- -------- --------
Operating Cash Flow......................... $ 47,621 $ 60,423 $ 60,344
======== ======== ========
Change in net revenue from prior period:
Out-of-home media............................. (4.1)% 13.4% 7.1%
Television broadcasting....................... 7.6 9.9 20.6
Radio broadcasting............................ 16.7 16.8 21.9
Sports & entertainment........................ (24.9) 2.5 39.1
Change in total net revenue................. (5.4) 9.7 19.2
Operating data as a % of net revenue:
Segment operating expenses as a % of net
revenue:
Out-of-home media........................... 60.4% 63.8% 64.0%
Television broadcasting..................... 81.8 73.8 72.8
Radio broadcasting.......................... 60.5 61.9 60.4
Sports & entertainment...................... 105.4 93.5 86.3
Total segment operating expenses as a % of
total net revenue: 75.8 74.0 72.3
Operating Cash Flow as a % of net revenue:
Out-of-home media........................... 39.6% 36.2% 36.0%
Television broadcasting..................... 18.2 26.2 27.2
Radio broadcasting.......................... 39.5 38.1 39.6
Sports & entertainment...................... (5.4) 6.5 13.7
Operating Cash Flow as a % of total net
revenue.................................... 18.6 22.3 24.4
</TABLE>
1998 Compared with 1997
Net Revenue. Our 1998 net revenue was $256.7 million. This represents a
decrease of $14.5 million, or 5%, from $271.2 million in 1997. Changes in net
revenue were as follows:
. Out-of-Home Media. Our 1998 net revenue from our out-of-home media
segment decreased by $4.6 million, or 4%, from 1997. This decrease was
mainly due to the absence of airport advertising
27
<PAGE>
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) and WIVT(TV), 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 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 were $194.5 million. This represents a decrease of $6.2
million, or 3%, from $200.7 in 1997. Changes in segment operating expenses
(excluding corporate overhead) were as follows:
. Out-of-Home Media. Our 1998 operating expenses from our out-of-home
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 due to the NBA lockout, partially offset by increased basketball
operating expenses related to team costs during the 1997-98 basketball
season.
Corporate Overhead. Our corporate overhead expenses were $14.5 million in
1998. This represents 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 to $47.6 million. 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 out-of-home 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.
28
<PAGE>
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 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, 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.
1997 Compared with 1996
Net Revenue. Our 1997 net revenue was $271.2 million. This represents an
increase of $23.9 million, or 10%, from $247.3 million in 1996. Changes in net
revenue were as follows:
. Out-of-Home Media. Our 1997 net revenue from our out-of-home segment
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 and KION.
. 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
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 segment
operating expenses were $200.7 million. This represents an increase of $22.0
million, or 12%, from $178.7 million in 1996. Changes in our segment operating
expenses (excluding corporate overhead) were as follows:
. Out-of-Home Media. Our 1997 operating expenses from our out-of-home
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.
29
<PAGE>
. 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 the 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 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 represents an increase of $1.8 million, or 22%, from 1996. This
increase was mainly due to increased utilization of outside services, primarily
for public relations, and insurance costs.
Operating Cash Flow. Our Operating Cash Flow increased slightly from 1996 to
$60.4 million. The increase in Operating Cash Flow in our out-of-home,
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 represents a decrease of $0.9
million, or 5%, from $17.0 million in 1996. This decrease is mainly due to
certain intangible assets becoming fully amortized in 1997.
Interest Expense. Our interest expenses were $26.2 million in 1997. This
represents an increase of $1.7 million, or 7%, from $24.5 million in 1996. This
increase is 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 "Legal
Proceedings" above. 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
Consolidated Financial Statements. We did not recognize any stock compensation
expense in 1996.
Income Tax 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. Our management expects to recognize income tax expense at
approximately statutory rates in 1999. This forward looking statement is,
however, subject to the qualifications set forth under "Forward Looking
Statements" above.
Extraordinary Item. In 1996, as a result of entering into the 1996 Credit
Agreement, we wrote off deferred costs of $0.4 million related to the previous
credit agreement. There were no extraordinary items in 1997.
30
<PAGE>
Net Income. Our net income was $32.9 million in 1997. This represents an
increase of $17.2 million, or 109%, from 1996. The increase was mainly due to
the combination of the recognition of a deferred tax asset and the adjustment
to the litigation accrual, offset in part by the recognition of stock
compensation expense. Our net income as a percentage of net revenue increased
to 12% in 1997 from 6% in 1996.
Liquidity and Capital Resources
On January 28, 1998, we replaced our existing $77.5 million 1996 Credit
Agreement with the $265.0 million 1998 Credit Agreement. In addition, in
February 1998 the Partnership replaced its previous credit agreement with a new
credit agreement providing for borrowings up to $35.0 million (the "Partnership
Credit Agreement").
On October 1, 1998, we used borrowings under the term loan facility of the
1998 Credit Agreement to redeem our $120.0 million 10.75% Senior Secured Notes.
This resulted in a charge of approximately $4.3 million, net of applicable
taxes, consisting of prepayment fees and the write-off of deferred financing
costs. Also on October 1, 1998, we repaid all amounts outstanding under the
Partnership Credit Agreement with proceeds from the revolving credit facility
of the 1998 Credit Agreement.
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. 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.
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
Consolidated Financial Statements.
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 $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.
For the fiscal years 1996 through 1998, we have financed our working capital
needs primarily from cash provided by operating activities. Over that period,
our long-term liquidity needs, including for acquisitions, 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 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.
Subsequent Events
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 revolving credit facility (the
"Revolver"), which includes up to $10.0 million in standby letters of credit.
Under the 1999
31
<PAGE>
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 March 15, 1999, the annual interest rate of borrowings
under the 1999 credit agreement was approximately 7.75%.
As of March 15, 1999, we had borrowed $65.0 million of the Term Loan and
$20.0 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.
On February 24, 1999, we issued additional 9% Senior Subordinated Notes
under the Indenture in the aggregate principal amount of $25.0 million. The
total aggregate principal amount of 9% Senior Subordinated Notes issued and
outstanding is $200.0 million.
On March 15, 1999, we redeemed the $20.0 million outstanding principal of
our 10.48% Senior Subordinated Notes with borrowings under our 1999 Credit
Agreement's 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 are in the process
of providing our bank lenders and the holders of the 9% Senior Subordinated
Notes with guarantees by certain of our subsidiaries of our obligations under
the 1999 Credit Agreement and the Indenture.
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 some or substantially all of our subsidiaries.
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 "Item 1--Business--Restrictions on Our Operations."
In 1999, we have purchased the assets of an out-of-home advertising company
in the Boston/Worcester, Massachusetts market and television stations KVIQ and
KMTR. These acquisitions were financed with borrowings under the 1998 and 1999
Credit Agreements. We also have several pending television station acquisitions
which we intend to finance with borrowings under the 1999 Credit Agreement. See
"Item 1--Business."
In 1999, we will launch Digital CentralCasting, a digital broadcasting
system which will allow us to consolidate back-office functions such as
operations, traffic, programming, and accounting for several television
stations at one location. To implement this strategy, we have organized our
television stations into the following three regional station groups: Central
New York (WIXT, WIVT, WUTR, and WOKR), Central California (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. We believe this strategy will enhance
our operational efficiency through economies of scale and the sharing of
resources and information among our stations. In addition, we will
significantly enhance the quality of the picture that is seen by our viewers by
taking advantage of digital technology. We plan to invest a portion of the
anticipated cost savings in our stations' local news programming to increase
its quality and quantity, and to increase our stations' presence in their
communities.
We expect to implement Digital CentralCasting in the Central New York
regional station group by July 1, 1999, the Central California regional station
group in the fourth quarter of 1999, and the North Coast regional station group
in the first quarter of 2000. We believe this strategy will result in
significant margin improvement in our television broadcasting segment within
approximately two years of implementation. However, we cannot guarantee that
the implementation of Digital CentralCasting will be achieved in a timely or
effective manner, and, accordingly, we can give no assurance as to the timing
or extent of the anticipated benefits.
32
<PAGE>
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.
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 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 early
in 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 April 30, 1999. Upon
completion, we will 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 our company
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.
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
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 out-
of-home 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 it does now. However, we
believe these functions can be performed manually or by other alternative
means, as necessary, for an
33
<PAGE>
indefinite period of time. In fact, we have had to perform these functions
using alternative means in the past due to natural disasters, such as a
tornadoes and hurricanes. In these instances, we were able to recover such that
there were no material adverse effects on its operations.
Our operations, like those of many other organizations, can be adversely
affected by Year 2000 triggered failures of other companies upon whom we depend
for the functioning of our mission-critical automated systems. As described
above, we have identified our mission-critical vendors and are monitoring their
Year 2000 compliance programs.
Contingency Plans
We have not yet developed specific contingency plans related to Year 2000
issues, other than those described above. As we continue the testing phase, and
based on future ongoing assessment of the readiness of vendors and service
providers, we will develop appropriate contingency plans. 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, 1999. Because of our
minimum 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.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income and expense are most sensitive to changes in the general
level of interest rates. In this regard, changes in LIBOR and U.S. interest
rates affect the interest earned on our cash equivalents as well as interest
paid on our debt. To mitigate the impact of fluctuations in interest rates, we
generally maintain a portion of our debt as fixed rate in nature either by
borrowing on a long-term basis or entering into interest rate swap
transactions.
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, which consist of interest rate swaps and debt obligations. For
debt obligations, the table presents principal cash flows and related weighted
average interest
34
<PAGE>
rates by maturity dates. For interest rate swaps, the table presents notional
amounts and weighted average interest rates by expected (contractual) maturity
dates. Notional amounts are used to calculate the contractual payments to be
exchanged under the contracts.
INTEREST RATE SENSITIVITY
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
<TABLE>
<CAPTION>
Fair
Value
1999 2000 2001 2002 2003 Thereafter Total 12/31/98
-------- ------ ------- ------- ------ ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt,
including current
portion
Fixed rate............. $ 20,000 -- -- -- -- $175,000 $195,000 $195,875
Average interest rate.. 10.48% -- -- -- -- 9.00%
Variable rate.......... -- $7,500 $15,000 $22,500 $6,811 -- $ 51,811 $ 51,811
Average Interest Rate.. -- (a) (a) (a) (a) --
Interest rate swaps
Pay fixed/receive
variable.............. $200,000 -- -- -- -- -- $200,000 $ 2,706
Average pay rate....... 4.61% -- -- -- -- --
Average receive rate... 5.20% -- -- -- -- --
</TABLE>
- --------
(a) The interest rate is based on a base rate or LIBOR plus defined margins
which vary based on our total leverage ratio.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is included in Item 14, pages F-1
through F-21.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning our directors and certain executive officers, see
the sections entitled "Item 1--Election of Directors" and "Management
Information" in our definitive Proxy Statement dated March 30, 1999, which is
incorporated into this section by reference and "Executive Officers of the
Registrant" under Part I of this report.
ITEM 11--EXECUTIVE COMPENSATION
For information concerning executive compensation, see the sections entitled
"Item 1--Election of Directors" and "Management Information" in our definitive
Proxy Statement dated March 30, 1999, which information is incorporated into
this section by reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 1999, Barry A. Ackerley and Gabelli Funds, Inc. were the
only persons, to our knowledge, owning beneficially more than 5% of the
outstanding shares of Common Stock and Class B Common Stock. For information
concerning these shareholders' holdings as well as the security ownership of
management, see the section entitled "Management Information--Share Ownership"
in our definitive Proxy Statement dated March 30, 1999, which information is
incorporated into this section by reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related transactions,
see the Section entitled "Management Information--Certain Relationships and
Related Transactions" in our definitive Proxy Statement dated March 30, 1999,
which information is incorporated into this section by reference.
35
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules.
The following documents are being filed as part of this Report:
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Ernst & Young, LLP, independent auditors..................... F-1
Consolidated balance sheets as of December 31, 1998 and 1997........... F-2
Consolidated statements of operations for the years ended December 31,
1998, 1997 and 1996................................................... F-3
Consolidated statements of stockholders' deficiency for the years ended
December 31, 1998, 1997 and 1996...................................... F-4
Consolidated statements of cash flows for the years ended December 31,
1998, 1997 and 1996................................................... F-5
Notes to consolidated financial statements............................. F-7
</TABLE>
Schedules are omitted for the reason that they are not required or are not
applicable, or the required information is shown in the consolidated financial
statements or notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
3.1 Fourth Restated Certificate of Incorporation. (1)
3.2 Amended and Restated Bylaws. (2)
10.1 Credit Agreement dated January 22, 1999, by and among The Ackerley
Group, Inc., First Union National Bank, Fleet Bank, N.A., Union Bank
of California, N.A., KeyBank National Association, and Bank of
Montreal, Chicago Branch. (3)
10.2 Security Agreement dated January 22, 1999 between The Ackerley Group,
Inc. and First Union National Bank, as administrative agent. (3)
10.3 Pledge Agreement dated January 22, 1999 between The Ackerley Group,
Inc. and First Union National Bank, as administrative agent. (3)
10.4 Composite Conformed Copies of Note Agreement between the Company and
certain insurance companies, dated as of December 1, 1989. (4)
10.5 Amendment No. 1 dated October 18, 1991 to Note Agreements dated
December 1, 1988 and December 1, 1989. (5)
10.6 Agreements of Waiver and Amendment dated as of September 30, 1990,
relating to the Note Agreements. (6)
10.7 Implementation and Waiver Agreement dated October 18, 1991. (5)
10.8 The Company's Employee Stock Option Plan, as amended and restated on
March 4, 1996. (7)
10.9 Nonemployee-Director's Equity Compensation Plan.(8)
10.10 Premises Use and Occupancy Agreement between The City of Seattle and
SSI Sports, Inc. dated March 2, 1994. (9)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
10.11 Purchase and Sale Agreement between Sky Sites, Inc. and Ackerley
Airport Advertising, Inc., dated as of May 19, 1998. (10)
10.12 Asset Purchase Agreement between Sinclair Communications, Inc. and The
Ackerley Group, Inc., dated September 25, 1998 (relating to WOKR(TV),
Rochester, New York). (11)
10.13 Acquisition Agreement between Wicks Broadcast Group Limited
Partnership and AK Media Group, Inc., dated as of November 30, 1998
(relating to KMTR(TV), Eugene, Oregon). (12)
10.14 Asset Exchange Agreement among Benedek Broadcasting Corporation,
Benedek License Corporation and AK Media Group, Inc., dated December
30, 1998 (relating to KKTV(TV), Colorado Springs, Colorado, and
KCOY(TV), Santa Maria, California). (12)
10.15 Indenture dated December 14, 1998 between The Ackerley Group, Inc. and
The Bank of New York, as Trustee, relating to the 9% Senior
Subordinated Notes due 2009. (12)
10.16 Registration Rights Agreement dated December 14, 1998 among The
Ackerley Group, Inc. and the Initial Purchasers named therein. (12)
10.17 Registration Rights Agreement dated February 24, 1999 between The
Ackerley Group, Inc. and First Union Capital Markets.
21 Subsidiaries of the Company. (12)
24 Power of Attorney for each of Barry A. Ackerley, Gail A. Ackerley,
Deborah L. Bevier, M. Ian G. Gilchrist and Michel C. Thielen dated
March 24, 1999.
27 Financial Data Schedule.
</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 10.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
(3) Incorporated by reference to Exhibits 10.1, 10.2, 10.3, and 21 to
Amendment No. 1 to the Company's Registration Statement on Form S-4,
filed March 10, 1999, File No. 333-71583.
(4) Incorporated by reference to Exhibits 10.13 and 10.16, respectively, to
the Company's 1989 Annual Report on Form 10-K.
(5) Incorporated by reference to Exhibits 10.9, 10.10 and 10.16,
respectively, to the Company's 1991 Annual Report on Form 10-K.
(6) Incorporated by reference to Exhibit 10.20 to the Company's 1990 Annual
Report on Form 10-K.
(7) Incorporated by reference to Exhibit 10.10 to the Company's 1995 Annual
Report on Form 10-K.
(8) Incorporated by reference to Exhibit 99.1 to the Company's Registration
Statement on Form S-8, filed on May 14, 1996.
(9) Incorporated by reference to Exhibit 10.22 to the Company's 1994 Annual
Report of Form 10-K.
(10) Incorporated by reference to Exhibit 10 to the Company's Current Report
on Form 8-K, filed on July 15, 1998.
(11) Incorporated by reference to Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the quarter ending September 30, 1998.
(12) Incorporated by reference to Exhibits 4.1, 4.3, 10.13, 10.14, and 21 to
the Company's registration statement on Form S-4, filed February 2, 1999
(Reg. No. 333-71583).
(b) Reports on Form 8-K.
(1) Current Report on Form 8-K, filed December 7, 1998, reporting under Item
5 a proposed issuance and sale by the Company of its senior subordinated notes.
(c) Exhibits required by Item 601 of Regulation S-K are being filed herewith.
See Item 14(a)(3) above.
(d) Financial statements required by Regulation S-X are being filed herewith.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1999.
THE ACKERLEY GROUP, INC.
/s/ Barry A. Ackerley
By: _________________________________
Barry A. Ackerley, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated, on the 30th day of March,
1999.
A Majority of the Board of Directors: Principal Executive Officer:
/s/ Barry A. Ackerley /s/ Barry A. Ackerley
_____________________________________ By: _________________________________
Barry A. Ackerley, Chairman Barry A. Ackerley, Chairman of the
Board and Chief Executive Officer
/s/ Gail A. Ackerley*
_____________________________________ Principal Executive Officer:
Gail A. Ackerley, Co-Chairman
/s/ Denis M. Curley
/s/ Deborah L. Bevier* By: _________________________________
_____________________________________ Denis M. Curley, Co-President and
Deborah L. Bevier, Director Chief Financial Officer, Treasurer
and Secretary
/s/ M. Ian G. Gilchrist*
_____________________________________ Principal Executive Officer:
M. Ian G. Gilchrist, Director
/s/ Keith W. Ritzmann
/s/ Michael C. Thielen* By: _________________________________
_____________________________________ Keith W. Ritzmann, Senior Vice
Michael C. Thielen, Director President and Chief Information
Officer, Assistant Secretary and
Controller
/s/ Denis M. Curley
*By: ________________________________
Attorney-in-Fact
38
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
The Ackerley Group, Inc.
We have audited the accompanying consolidated balance sheets of The Ackerley
Group, Inc. as of December 31, 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-1
<PAGE>
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-2
<PAGE>
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-3
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(in thousands, except share information)
<TABLE>
<CAPTION>
Class B common Capital Common
Common stock stock in excess stock in
----------------- ------------------ of par treasuury
Shares Amount Shares Amount 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-4
<PAGE>
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-5
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
(a) Organization--The Ackerley Group, Inc. and its subsidiaries (the
"Company") is a diversified media and entertainment company that engages in
four principal business segments: (i) out-of-home 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--Out-of-home display advertising revenue is
recognized ratably on a monthly basis over the period in which advertisement
displays are posted on the advertising structures or in the display units.
Broadcast revenue is recognized in the period in which the advertisements are
aired. Payments from clients received in excess of one month's advertising are
recorded as deferred revenue. Ticket payments are recorded as deferred revenue
when received and recognized as revenue ratably as home games are played.
(d) Barter transactions--The Company engages in nonmonetary trades of
advertising space or time in exchange for goods or services. These barter
transactions are recorded at the estimated fair value of the asset or service
received in accordance with Financial 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
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
F-6
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
F-7
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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
F-8
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 Gannett 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
F-9
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Acquisition of Out-of-Home Advertising Company in Boston, Massachusetts. On
February 19, 1999, the company purchased substantially all of the assets of an
out-of-home 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
useful
1998 1997 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-10
<PAGE>
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.
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-annual in January and July. Principal is payable in
full in January 2009.
F-11
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-12
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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-13
<PAGE>
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 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.
F-14
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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-
Remaining Average
Options Contractual Exercise
Range of Exercise Price Outstanding Life 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
F-15
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1995
------- ------- -------
<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.
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>
Broadcast
Equipment/Facilities 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>
F-16
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
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.
Selected financial information for these segments for the years ended
December 31, 1998, 1997 and 1996 is presented as follows:
F-17
<PAGE>
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>
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
=========
<CAPTION>
1996:
<S> <C> <C> <C> <C> <C>
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>
F-18
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Summary of quarterly financial data (unaudited)
The Company's results of operations may vary from quarter to quarter due in
part to the timing of acquisitions and to seasonal variations in the operations
of the broadcasting segment. In particular, the Company's net revenue and
Operating Cash Flow historically have been affected positively during the NBA
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.
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
------- ------- ------- -------
1998
<S> <C> <C> <C> <C>
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)
<CAPTION>
1997
<S> <C> <C> <C> <C>
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-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
3.1 Fourth Restated Certificate of Incorporation. (1)
3.2 Amended and Restated Bylaws. (2)
10.1 Credit Agreement dated January 22, 1999, by and among The Ackerley
Group, Inc., First Union National Bank, Fleet Bank, N.A., Union Bank
of California, N.A., KeyBank National Association, and Bank of
Montreal, Chicago Branch. (3)
10.2 Security Agreement dated January 22, 1999 between The Ackerley Group,
Inc. and First Union National Bank, as administrative agent. (3)
10.3 Pledge Agreement dated January 22, 1999 between The Ackerley Group,
Inc. and First Union National Bank, as administrative agent. (3)
10.4 Composite Conformed Copies of Note Agreement between the Company and
certain insurance companies, dated as of December 1, 1989. (4)
10.5 Amendment No. 1 dated October 18, 1991 to Note Agreements dated
December 1, 1988 and December 1, 1989. (5)
10.6 Agreements of Waiver and Amendment dated as of September 30, 1990,
relating to the Note Agreements. (6)
10.7 Implementation and Waiver Agreement dated October 18, 1991. (5)
10.8 The Company's Employee Stock Option Plan, as amended and restated on
March 4, 1996. (7)
10.9 Nonemployee-Director's Equity Compensation Plan.(8)
10.10 Premises Use and Occupancy Agreement between The City of Seattle and
SSI Sports, Inc. dated March 2, 1994. (9)
10.11 Purchase and Sale Agreement between Sky Sites, Inc. and Ackerley
Airport Advertising, Inc., dated as of May 19, 1998. (10)
10.12 Asset Purchase Agreement between Sinclair Communications, Inc. and The
Ackerley Group, Inc., dated September 25, 1998 (relating to WOKR(TV),
Rochester, New York). (11)
10.13 Acquisition Agreement between Wicks Broadcast Group Limited
Partnership and AK Media Group, Inc., dated as of November 30, 1998
(relating to KMTR(TV), Eugene, Oregon). (12)
10.14 Asset Exchange Agreement among Benedek Broadcasting Corporation,
Benedek License Corporation and AK Media Group, Inc., dated December
30, 1998 (relating to KKTV(TV), Colorado Springs, Colorado, and
KCOY(TV), Santa Maria, California). (12)
10.15 Indenture dated December 14, 1998 between The Ackerley Group, Inc. and
The Bank of New York, as Trustee, relating to the 9% Senior
Subordinated Notes due 2009. (12)
10.16 Registration Rights Agreement dated December 14, 1998 among The
Ackerley Group, Inc. and the Initial Purchasers named therein. (12)
10.17 Registration Rights Agreement dated February 24, 1999 between The
Ackerley Group, Inc. and First Union Capital Markets.
21 Subsidiaries of the Company. (12)
24 Power of Attorney for each of Barry A. Ackerley, Gail A. Ackerley,
Deborah L. Bevier, M. Ian G. Gilchrist and Michel C. Thielen dated
March 24, 1999.
27 Financial Data Schedule.
</TABLE>
<PAGE>
- --------
(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 10.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
(3) Incorporated by reference to Exhibits 10.1, 10.2, 10.3, and 21 to
Amendment No. 1 to the Company's Registration Statement on Form S-4,
filed March 10, 1999, File No. 333-71583.
(4) Incorporated by reference to Exhibits 10.13 and 10.16, respectively, to
the Company's 1989 Annual Report on Form 10-K.
(5) Incorporated by reference to Exhibits 10.9, 10.10 and 10.16,
respectively, to the Company's 1991 Annual Report on Form 10-K.
(6) Incorporated by reference to Exhibit 10.20 to the Company's 1990 Annual
Report on Form 10-K.
(7) Incorporated by reference to Exhibit 10.10 to the Company's 1995 Annual
Report on Form 10-K.
(8) Incorporated by reference to Exhibit 99.1 to the Company's Registration
Statement on Form S-8, filed on May 14, 1996.
(9) Incorporated by reference to Exhibit 10.22 to the Company's 1994 Annual
Report of Form 10-K.
(10) Incorporated by reference to Exhibit 10 to the Company's Current Report
on Form 8-K, filed on July 15, 1998.
(11) Incorporated by reference to Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the quarter ending September 30, 1998.
(12) Incorporated by reference to Exhibits 4.1, 4.3, 10.13, 10.14, and 21 to
the Company's registration statement on Form S-4, filed February 2, 1999
(Reg. No. 333-71583).
<PAGE>
Exhibit 10.17
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of February 24, 1999
by and among
THE ACKERLEY GROUP, INC.
and
FIRST UNION CAPITAL MARKETS CORP.,
as Initial Purchaser
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of February 24, 1999 by and among THE ACKERLEY GROUP, INC., a Delaware
corporation (the "Company"), and FIRST UNION CAPITAL CORP. ("Union" or "Initial
Purchaser").
This Agreement is made pursuant to the Purchase Agreement dated as of
February 17, 1999 by and among the Company and the Initial Purchaser (the
"Purchase Agreement"), which provides for, among other things, the sale by the
Company to the Initial Purchaser of an aggregate of $25,000,000 principal amount
of the Company's 9% Senior Subordinated Notes Due 2009 (the "Notes"). A prior
registration rights agreement (the "Prior Agreement") was made and entered into
as of December 14, 1998 by and among the Company and SALOMON SMITH BARNEY INC.
("Salomon"), First Union, FLEET SECURITIES, INC. ("Fleet" and together with
Salomon and First Union, the "Prior Initial Purchasers") pursuant to a Purchase
Agreement dated as of December 9, 1998 by and among the Company and the Prior
Initial Purchasers (the "Prior Purchase Agreement") which purchase agreement
provides for, among other things, the sale by the Company to the Prior Initial
Purchasers of an aggregate of $175,000,000 principal amount of the Notes. In
order to induce the Initial Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide to the Initial Purchaser and its direct and
indirect transferees the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the closing under the
Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"Additional Interest" see Section 2(e) hereof.
"Advice" see the last paragraph of Section 3 hereof.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"Applicable Period" see Section 3(s) hereof.
"Business Day" shall mean a day that is not a Saturday, a Sunday, or a
day on which banking institutions in New York, New York are required to be
closed.
"Closing Date" shall mean the Closing Date as defined in the Purchase
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and also includes the Company's successors and permitted assigns.
2
<PAGE>
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company pursuant to the applicable provisions
of the Indenture; provided, however, that such depositary must have an
address in the Borough of Manhattan, in The City of New York.
"Effectiveness Period" see Section 2(b) hereof.
"Effectiveness Target Date" see Section 2(e) hereof.
"Event Date" see Section 2(e) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and the rules and regulations of the SEC promulgated thereunder.
"Exchange Notes" shall mean the 9% Senior Subordinated Notes Due 2009,
Series B issued by the Company under the Indenture containing terms
identical to the Notes (except that (i) interest thereon shall accrue from
the last date on which interest was paid on the Notes or, if no such
interest has been paid, from [December 14, 1998], (ii) the transfer
restrictions with respect to the Notes and all registration rights in
respect thereof shall be eliminated and (iii) the provisions relating to
Additional Interest shall be eliminated) to be offered to Holders of Notes
in exchange for Notes pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the
Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-1, S-3 or S-4 (or, if applicable, on
another appropriate form), and all amendments and supplements to such
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Exchange Period" see Section 2(a) hereof.
"Holders" shall mean the Initial Purchaser and the Prior Initial
Purchasers, for so long as they own any Transfer Restricted Notes, each of
their direct and indirect successors, assigns and transferees who become
registered owners of Transfer Restricted Notes under the Indenture and each
Participating Broker-Dealer that holds Exchange Notes for so long as such
Participating Broker-Dealer is required to deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes.
3
<PAGE>
"Indenture" shall mean the Indenture relating to the Notes dated as of
December 14, 1998 between the Company, and The Bank of New York, as
trustee, as the same may be amended from time to time in accordance with
the terms thereof.
"Initial Purchaser" shall have the meaning set forth in the preamble
to this Agreement.
"Inspectors" see Section 3(m) hereof.
"Issue Date" shall mean December 14, 1998.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Transfer Restricted Notes.
"Notes" shall have the meaning set forth in the preamble to this
Agreement.
"Participating Broker-Dealer" shall have the meaning set forth in
Section 3(s) hereof.
"Person" shall mean an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or
a government or agency or political subdivision thereof.
"Prior Agreement" shall have the meaning set forth in the preamble to
this Agreement.
"Prior Closing Date" shall mean the Closing Date as defined in the
Prior Purchase Agreement.
"Prior Initial Purchasers" shall have the meaning set forth in the
preamble to this Agreement.
"Prior Purchase Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Private Exchange" see Section 2(a) hereof.
"Private Exchange Notes" see Section 2(a) hereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Transfer Restricted Notes covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
4
<PAGE>
"Purchase Agreement" shall have the meaning set forth in the preamble
to this Agreement.
"Records" see Section 3(m) hereof.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all applicable SEC, stock exchange or National
Association of Securities Dealers, Inc. (the "NASD") registration and
filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable
fees and disbursements of one counsel for Holders that are either the
Initial Purchaser or the Prior Initial Purchasers in connection with blue
sky qualification of any of the Exchange Notes or Transfer Restricted
Notes) and compliance with the rules of the NASD, (iii) all applicable
expenses incurred by the Company in preparing or assisting in preparing,
word processing, printing and distributing any Registration Statement, any
Prospectus and any amendments or supplements thereto, and in preparing or
assisting in preparing any other documents relating to the performance of
and compliance with this Agreement, (iv) all rating agency fees, if any,
(v) the fees and disbursements of counsel for the Company, (vii) all fees
and expenses incurred in connection with the listing, if any, of any of the
Transfer Restricted Notes on any securities exchange or exchanges, if the
Company, in its discretion, elects to make any such listing; but excluding
fees of counsel to the Holders and underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of Transfer
Restricted Notes by a Holder.
"Registration Statement" shall mean any registration statement
(including, without limitation, the Exchange Offer Registration Statement
and the Shelf Registration Statement) of the Company which covers any of
the Exchange Notes or Transfer Restricted Notes pursuant to the provisions
of this Agreement or the Prior Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Event Date" see Section 2(b).
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) hereof
which covers all of the Transfer Restricted Notes or all of the Private
Exchange Notes, as the case may be, on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be
5
<PAGE>
adopted by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Target Consummation Date" see Section 2(a).
"Target Effectiveness Date" see Section 2(a).
"TIA" shall have the meaning set forth in Section 3(k) hereof.
"Transfer Restricted Notes" means each Note until (i) the date on
which such Note has been exchanged by a person other than a broker-dealer
for an Exchange Note in the Exchange Offer, (ii) following the exchange by
a broker-dealer in the Exchange Offer of a Note for an Exchange Note, the
date on which such Exchange Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii)
the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement, (iv) the date on which such Note is distributed to the public
pursuant to Rule 144(k) under the Securities Act (or any similar provision
then in force, but not Rule 144A under the Securities Act), (v) such Note
shall have been otherwise transferred by the holder thereof and a new Note
not bearing a legend restricting further transfer shall have been delivered
by the Company and subsequent disposition of such Note shall not require
registration or qualification under the Securities Act or any similar state
law then in force or (vi) such Note ceases to be outstanding.
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture or any successor appointed in accordance with the terms thereof.
2. Registration Under the Securities Act.
(a) Exchange Offer. The Company shall, for the benefit of the Holders, at
the Company's cost, (i) unless the Exchange Offer would not be permitted by
applicable law or SEC policy, file with the SEC within 90 days after the Prior
Closing Date an amendment to the Exchange Offer Registration Statement on an
appropriate form under the Securities Act covering the offer by the Company to
the Holders to exchange all of the Transfer Restricted Notes (other than Private
Exchange Notes (as defined below)) which aggregate amount of Transfer Restricted
Notes shall expressly include the $25,000,000 principal amount of the Notes sold
to the Initial Purchaser pursuant to the Purchase Agreement for a like principal
amount of Exchange Notes, (ii) unless the Exchange Offer would not be permitted
by applicable law or SEC policy, use its best efforts to have such Exchange
Offer Registration Statement declared effective under the Securities Act by the
SEC not later than the date which is 120 days after the Prior Closing Date (the
"Target Effectiveness Date"), (iii) have such Registration Statement remain
effective until the closing of the Exchange Offer and (iv) unless the Exchange
Offer would not be permitted by applicable law or SEC policy, commence the
Exchange Offer and use its best efforts to issue, on or prior to the date which
is 30 days after the date on which the Exchange Offer Registration
6
<PAGE>
Statement was declared effective by the SEC (the "Target Consummation Date"),
Exchange Notes in exchange for all Notes tendered prior thereto in the Exchange
Offer. Upon the effectiveness of the Exchange Offer Registration Statement, the
Company shall promptly commence the Exchange Offer, it being the objective of
such Exchange Offer to enable each Holder eligible and electing to exchange
Transfer Restricted Notes for Exchange Notes (assuming that such Holder is not
an affiliate of the Company within the meaning of Rule 405 under the Securities
Act and is not a broker-dealer tendering Transfer Restricted Notes acquired
directly from the Company for its own account, acquires the Exchange Notes in
the ordinary course of such Holder's business and has no arrangements or
understandings with any Person to participate in the Exchange Offer for the
purpose of distributing (within the meaning of the Securities Act) the Exchange
Notes) and to transfer such Exchange Notes from and after their receipt without
any limitations or restrictions under the Securities Act and under state
securities or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a period of not
less than 20 Business Days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
(iii) utilize the services of the Depositary for the Exchange Offer;
(iv) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last Business Day of the
Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Notes delivered for exchange, and a
statement that such Holder is withdrawing his election to have such Notes
exchanged; and
(v) otherwise comply in all material respects with all applicable
laws relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer the Initial Purchaser holds
or the Prior Initial Purchasers hold any Notes acquired by them and having the
status of an unsold allotment in the respective initial distributions, the
Company upon the request of the Initial Purchaser or any Prior Initial Purchaser
shall, simultaneously with the delivery of the Exchange Notes in the Exchange
Offer, issue and deliver to such Initial Purchaser or any such Prior Initial
Purchaser in exchange (the "Private Exchange") for the Notes held by such
Initial Purchaser or such Prior Initial Purchaser, a like principal amount of
debt securities of the Company that are identical (except that such securities
shall bear appropriate transfer restrictions and shall provide for the payment
of Additional Interest) to the Exchange Notes (the "Private Exchange Notes").
7
<PAGE>
The Exchange Notes and the Private Exchange Notes shall be issued under (i)
the Indenture or (ii) an indenture identical to all material respects to the
Indenture and which, in either case, has been qualified under the TIA or is
exempt from such qualification and shall provide that the Exchange Notes shall
not be subject to the transfer restrictions set forth in the Indenture. The
Indenture or such indenture shall provide that the Exchange Notes, the Private
Exchange Notes and the Notes shall vote and consent together on all matters as
one class and that none of the Exchange Notes, the Private Exchange Notes or the
Notes will have the right to vote or consent as a separate class on any matter.
The Private Exchange Notes shall be of the same series as and the Company shall
use all commercially reasonable efforts to have the Private Exchange Notes bear
the same CUSIP number as the Exchange Notes. The Company shall not have any
liability under this Agreement solely as a result of such Private Exchange Notes
not bearing the same CUSIP number as the Exchange Notes.
The Exchange Offer and the Private Exchange shall not be subject to any
conditions, other than that (i) the Exchange Offer or Private Exchange, as the
case may be, does not violate applicable law or any applicable interpretation of
the staff of the SEC (ii) no action or proceeding shall have been instituted or
threatened in any court or by any governmental agency which might materially
impair the ability of the Company to proceed with the Exchange Offer or the
Private Exchange, and no material adverse development shall have occurred in any
existing action or proceeding with respect to the Company and (iii) all
governmental approvals shall have been obtained, which approvals the Company
deems necessary for the consummation of the Exchange Offer or Private Exchange.
As soon as practicable after the close of the Exchange Offer and/or the Private
Exchange, as the case may be, the Company shall:
(i) accept for exchange all Transfer Restricted Notes or portions
thereof properly tendered and not validly withdrawn pursuant to the
Exchange Offer in accordance with the terms of the Exchange Offer
Registration Statement and the letter of transmittal which is an exhibit
thereto;
(ii) accept for exchange all Notes properly tendered pursuant to the
Private Exchange; and
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation all Transfer Restricted Notes or portions thereof so accepted
for exchange by the Company, and issue, and cause the Trustee under the
Indenture to promptly authenticate and deliver to each Holder, a new
Exchange Note or Private Exchange Note, as the case may be, equal in
principal amount to the principal amount of the Transfer Restricted Notes
surrendered by such Holder and accepted for exchange.
To the extent not prohibited by any law or applicable interpretation of the
staff of the SEC, the Company shall use its best efforts to complete the
Exchange Offer as provided above, and shall comply with the applicable
requirements of the Securities Act, the Exchange Act and other applicable laws
in connection with the Exchange Offer. The Exchange Offer shall not be subject
to any conditions, other than those set forth in the immediately preceding
paragraph. Each Holder of Transfer Restricted Notes who wishes to exchange such
Transfer Restricted
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Notes for Exchange Notes in the Exchange Offer will be required to make certain
customary representations in connection therewith, including representations
that such Holder is not an affiliate of the Company within the meaning of Rule
405 under the Securities Act, that any Exchange Notes to be received by it will
be acquired in the ordinary course of business and that at the time of the
commencement of the Exchange Offer it has no arrangement with any Person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. The Company shall inform the Initial Purchaser and the Prior
Initial Purchasers of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchaser and the Initial Purchasers
shall have the right to contact such Holders and otherwise facilitate the tender
of Transfer Restricted Notes in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with this Section
2(a), the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Transfer Restricted Notes that are Private
Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the
Company shall have no further obligation to register Transfer Restricted Notes
(other than Private Exchange Notes) pursuant to Section 2(b) hereof.
(b) Shelf Registration. If (i) the Company is not permitted consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
SEC policy, (ii) the Exchange Offer is not for any other reason consummated by
the Target Consummation Date, (iii) any holder of Notes notifies the Company
within a specified time period that (a) due to a change in law or policy, in the
opinion of counsel, it is not entitled to participate in the Exchange Offer, (b)
due to a change in law or policy, in the opinion of counsel, it may not resell
the Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and (x) the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
holder and (y) such prospectus is not promptly amended or modified in order to
be suitable for use in connection with such resales for such holder and all
similarly situated holders or (c) it is a broker-dealer and owns Notes acquired
directly from the Company or an affiliate of the Company, (iv) the holders of a
majority of the Notes may not resell the Exchange Notes acquired by them in the
Exchange Offer to the public without restriction under the Securities Act and
without restriction under applicable blue sky or state securities laws or (v)
the Exchange Offer shall not have been consummated within 150 days after the
Issue Date (the date of any of (i)-(v), the "Shelf Registration Event Date"),
then the Company shall, at its cost, use its best efforts to cause to be filed a
Shelf Registration Statement prior to the later of (A) 30 days after the Shelf
Registration Event Date or (B) 120 days after the Issue Date and use its best
efforts to cause the Shelf Registration Statement to be declared effective by
the SEC on or prior to 60 days after such obligation arises. Each Holder as to
which any Shelf Registration is being effected agrees to furnish to the Company
all information with respect to such Holder necessary to make any information
previously furnished to the Company by such Holder not materially misleading.
The Company agrees to use its best efforts to keep the Shelf Registration
Statement continuously effective for a period of two years from the Issue Date
(subject to extension pursuant to the last paragraph of Section 3 hereof) (or
such shorter period that will terminate when all of the Transfer Restricted
Notes covered by such Shelf Registration Statement have
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<PAGE>
been sold pursuant thereto) or cease to be outstanding (the "Effectiveness
Period"); provided, however, that the Effectiveness Period in respect of the
Shelf Registration Statement shall be extended to the extent required to permit
dealers to comply with the applicable prospectus delivery requirements of Rule
174 under the Securities Act and as otherwise provided herein. The Company shall
not permit any securities other than Transfer Restricted Notes to be included in
the Shelf Registration. The Company further agrees, if necessary, to supplement
or amend the Shelf Registration Statement, if required by the rules, regulations
or instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for shelf registrations, and the Company agrees to
furnish to the Holders of Transfer Restricted Notes copies of any such
supplement or amendment promptly after its being used or filed with the SEC.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or 2(b) hereof and the
reasonable fees and expenses of one counsel, if any, designated in writing by
the Majority Holders to act as counsel for the Holders of the Transfer
Restricted Notes in connection with a Shelf Registration Statement. Except as
provided in the preceding sentence, each Holder shall pay all expenses of its
counsel, underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Transfer Restricted Notes
pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer Registration
Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement
pursuant to Section 2(b) hereof will not be deemed to have become effective
unless it has been declared effective by the SEC; provided, however, that if,
after it has been declared effective, the offering of Transfer Restricted Notes
pursuant to a Shelf Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, such Registration Statement will be deemed not to have been
effective during the period of such interference, until the offering of Transfer
Restricted Notes may legally resume. The Company will be deemed not to have used
its best efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if it voluntarily takes any action that would result
in any such Registration Statement not being declared effective or in the
Holders of Transfer Restricted Notes covered thereby not being able to exchange
or offer and sell such Transfer Restricted Notes during that period, unless such
action is required by applicable law and except as otherwise provided in the
second paragraph of Section 2(e) below.
(e) Additional Interest. In the event that (i) the Shelf Registration
Statement is not filed with the SEC on or prior to the date specified herein for
such filing, (ii) the applicable Registration Statement is not declared
effective on or prior to the date specified herein for such effectiveness after
such obligation arises (the "Effectiveness Target Date"), (iii) if the Exchange
Offer is required to be consummated hereunder, the Company fails to consummate
the Exchange Offer within 30 days of the date on which the Exchange Offer
Registration Statement is declared effective or (iv) the applicable Registration
Statement is filed and declared effective during the period effectiveness is
required by Section 2(e) and 3(a) but shall thereafter cease to be effective
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<PAGE>
or usable without being succeeded immediately by an additional Registration
Statement covering the Transfer Restricted Notes which has been filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), then the interest rate on the Transfer Restricted Notes
as to which such Registration Default relates will increase ("Additional
Interest"), with respect to the first 90-day period (or portion thereof) while a
Registration Default is continuing immediately following the occurrence of such
Registration Default in an amount equal to 0.50% per annum of the principal
amount of the Notes. The rate of Additional Interest will increase by an
additional 0.50% per annum of the principal amount of the Notes for each
subsequent 90-day period (or portion thereof) while a Registration Default is
continuing until all Registration Defaults have been cured, up to a maximum
amount of 1.50% of the principal amount of the Notes. Additional Interest shall
be computed based on the actual number of days elapsed during which any such
Registration Defaults exist. Following the cure of a Registration Default, the
accrual of Additional Interest with respect to such Registration Default will
cease.
If the Company issues a notice that the Shelf Registration Statement is
unusable due to the pendency of an announcement of a material corporate
transaction, or such notice is required under applicable securities laws to be
issued by the Company, and the aggregate number of days in any consecutive
twelve-month period for which the Shelf Registration Statement shall not be
usable due to all such notices issued or required to be issued exceeds 30 days
in the aggregate, then the interest rate borne by the Notes will be increased by
0.50% per annum of the principal amount of the Notes for the first 90-day period
(or portion thereof) beginning on the 31st such date that such Shelf
Registration Statement ceases to be usable, which rate shall be increased by an
additional 0.50% per annum of the principal amount of the Notes at the beginning
of each subsequent 90-day period, up to a maximum amount of 1.50% of the
principal amount of the Notes. Upon the Shelf Registration Statement once again
becoming usable, the interest rate borne by the Notes will be reduced to the
original interest rate if the Company is otherwise in compliance with this
Agreement at such time. Additional Interest shall be computed based on the
actual number of days elapsed in each 90-day period in which the Shelf
Registration Statement is unusable.
The Company shall notify the Trustee within three Business Days after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). Additional Interest shall be paid by
depositing with the Trustee, in trust, for the benefit of the Holders of
Transfer Restricted Notes, on or before the applicable semiannual interest
payment date, immediately available funds in sums sufficient to pay the
Additional Interest then due. The Additional Interest due shall be payable on
each interest payment date to the record Holder of Notes entitled to receive the
interest payment to be paid on such date as set forth in the Indenture. Each
obligation to pay Additional Interest shall be deemed to accrue from and
including the day following the applicable Event Date.
3. Registration Procedures. In connection with the obligations of the
Company with respect to the Registration Statements pursuant to Sections 2(a)
and 2(b) hereof, the Company shall:
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<PAGE>
(a) prepare and file with the SEC an amendment to the Exchange Offer
Registration Statement as prescribed by Section 2(a) hereof and prepare and
file with the SEC a Shelf Registration Statement as prescribed by Section
2(b) hereof, within the relevant time period specified in Section 2 hereof
on the appropriate form under the Securities Act, which form (i) shall be
selected by the Company, (ii) shall, in the case of a Shelf Registration,
be available for the sale of the Transfer Restricted Notes by the selling
Holders thereof and (iii) shall comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith; and use their best
efforts to cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof. The Company shall not file
any Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must provide information for
inclusion therein without the Holders being afforded an opportunity to
review such documentation a reasonable time prior to the filing of such
document if the Majority Holders or such Participating Broker-Dealer, as
the case may be, their counsel or the managing underwriters, if any, shall
reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the Effectiveness Period or the
Applicable Period, as the case may be; and cause each Prospectus to be
supplemented by any required prospectus supplement and as so supplemented
to be filed pursuant to Rule 424 (or any similar provision then in force)
under the Securities Act, and comply with the provisions of the Securities
Act, the Exchange Act and the rules and regulations promulgated thereunder
applicable to it with respect to the disposition of all securities covered
by each Registration Statement during the Effectiveness Period or the
Applicable Period, as the case may be, in accordance with the intended
method or methods of distribution by the selling Holders thereof described
in this Agreement (including sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Transfer Restricted Notes, at least three Business Days prior to filing,
that a Shelf Registration Statement with respect to the Transfer Restricted
Notes is being filed and advising such Holder that the distribution of
Transfer Restricted Notes will be made in accordance with the method
selected by the Majority Holders; and (ii) furnish to each Holder of
Transfer Restricted Notes, without charge, as many copies of each
Prospectus, and any amendment or supplement thereto and such other
documents as such Holder may reasonably request, in order to facilitate the
disposition of the Transfer Restricted Notes; and (iii) subject to the last
paragraph of Section 3 hereof, hereby consent to the use of the Prospectus
or any amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Notes in connection with the offering and sale of the
Transfer Restricted Notes covered by such Prospectus or any amendment or
supplement thereto subject to the limitations on the use thereof provided
in Sections 2(b) and 2(c);
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<PAGE>
(d) in the case of a Shelf Registration, use its best efforts to
register or qualify, as may be required by applicable law, the Transfer
Restricted Notes under all applicable state securities or "blue sky" laws
of such jurisdictions by the time the applicable Registration Statement is
declared effective by the SEC as any Holder of Transfer Restricted Notes
covered by a Registration Statement shall reasonably request in advance of
such date of effectiveness, and do any and all other acts and things which
may be reasonably necessary or advisable to enable such Holder to
consummate the disposition in each such jurisdiction of such Transfer
Restricted Notes owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify as a foreign corporation or as a
broker or dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (ii) file any
general consent to service of process or (iii) subject itself to taxation
in any such jurisdiction if it is not so subject;
(e) in the case of (1) a Shelf Registration or (2) Participating
Broker-Dealers who have notified the Company that they will be utilizing
the Prospectus contained in the Exchange Offer Registration Statement as
provided in Section 3(s) hereof, notify each Holder of Transfer Restricted
Notes, or such Participating Broker-Dealers, as the case may be, their
counsel, if any, promptly and confirm such notice in writing (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by
the SEC or any state securities authority for amendments and supplements to
a Registration Statement or Prospectus or for additional information after
the Registration Statement has become effective, (iii) of the issuance by
the SEC or any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if the Company receives any notification
with respect to the suspension of the qualification of the Transfer
Restricted Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction or the initiation of
any proceeding for such purpose, (v) of the happening of any event or the
failure of any event to occur or the discovery of any facts or otherwise,
during the period a Shelf Registration Statement is effective which makes
any statement made in such Registration Statement or the related Prospectus
untrue in any material respect or which causes such Registration Statement
or Prospectus to omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and (vi) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement as soon as
practicable;
(g) in the case of a Shelf Registration, furnish to each Holder of
Transfer Restricted Notes, without charge, at least one conformed copy of
each Registration Statement relating to such Shelf Registration and any
post-effective amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested);
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<PAGE>
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Transfer Restricted Notes to facilitate the timely preparation
and delivery of certificates not bearing any restrictive legends
representing Notes covered by such Shelf Registration to be sold and
relating to the subsequent transfer of such Notes; and cause such Transfer
Restricted Notes to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the selling
Holders may reasonably request at least two Business Days prior to the
closing of any sale of Transfer Restricted Notes;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance contemplated by
Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v) or 3(e)(vi) hereof, use
their best efforts to prepare a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Transfer Restricted
Notes, such Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and to notify each Holder to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and each
Holder hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission;
(j) obtain a CUSIP number for all Exchange Notes or Transfer
Restricted Notes, as the case may be, not later than the effective date of
a Registration Statement, and provide the Trustee with certificates for the
Exchange Notes or the Transfer Restricted Notes, as the case may be, in a
form eligible for deposit with the Depositary;
(k) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended, (the "TIA") in connection with the registration of the
Exchange Notes or Transfer Restricted Notes, as the case may be, cooperate
with the Trustee and the Holders to effect such changes to the Indenture as
may be required for the Indenture to be so qualified in accordance with the
terms of the TIA and execute, and use its best efforts to cause the Trustee
to execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to enable
the Indenture to be so qualified in a timely manner;
(l) in the case of a Shelf Registration, enter into such agreements
(including underwriting agreements) and take all such other appropriate
actions as are reasonably requested in order to expedite or facilitate the
registration or the disposition of such Transfer Restricted Notes, and in
such connection, (i) make such representations and warranties to Holders of
such Transfer Restricted Notes with respect to the business of the Company
and its subsidiaries as then conducted and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated
by reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates
thereof in form and substance reasonably
14
<PAGE>
satisfactory to the Holders of a majority in principal amount of the
Transfer Restricted Notes being sold, addressed to each selling Holder
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Holders; (iii) obtain "cold comfort" letters and updates
thereof from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of
any subsidiary of the Company or of any business acquired by the Company
for which financial statements and financial data are, or are required to
be, included in the Registration Statement, addressed to the selling
Holders of Transfer Restricted Notes, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings and such other matters as
reasonably requested by such selling Holders; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section
4 hereof (or such other provisions and procedures acceptable to the Company
and the Holders of a majority in aggregate principal amount of Transfer
Restricted Notes covered by such Registration with respect to all parties
to be indemnified pursuant to said Section (including, without limitation,
such selling Holders). The above shall be done at each closing in respect
of the sale of Transfer Restricted Notes, or as and to the extent required
thereunder;
(m) if (1) a Shelf Registration is filed pursuant to Section 2(b) or
(2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2(a) is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for inspection
by each such person who would be an "underwriter" as a result of either (i)
the sale by such person of Notes covered by such Shelf Registration
Statement or (ii) the sale during the Applicable Period by a Participating
Broker-Dealer of Exchange Notes (provided that a Participating Broker-
Dealer shall not be deemed to be an underwriter solely as a result of it
being required to deliver a prospectus in connection with any resale of
Exchange Notes) and any attorney, accountant or other agent retained by any
such person (collectively, the "Inspectors"), at the offices where normally
kept, during reasonable business hours, all financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary
to enable them to exercise any applicable due diligence responsibilities,
and cause the officers, directors and employees of the Company and its
subsidiaries to supply all information in each case reasonably requested by
any such Inspector in connection with such Registration Statement. Records
which the Company determines, in good faith, to be confidential and any
Records which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a material misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) the information in such Records has been made
generally available to the public. Each selling Holder of such Transfer
Restricted Notes and each such Participating Broker-Dealer will be required
to agree that information obtained by it as a result of such
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<PAGE>
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company unless
and until such is made generally available to the public. Each selling
Holder of such Transfer Restricted Notes and each such Participating
Broker-Dealer will be required to further agree that it will, upon learning
that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company at its
expense to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
(n) comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 60 days after the end of any 12-month period (or 135 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Transfer Restricted
Notes are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which
statements shall cover said 12-month periods;
(o) upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company addressed to the Trustee for
the benefit of all Holders of Transfer Restricted Notes participating in
the Exchange Offer or the Private Exchange, as the case may be, and which
includes an opinion that (i) the Company has duly authorized, executed and
delivered the Exchange Notes and Private Exchange Notes, and (ii) each of
the Exchange Notes or the Private Exchange Notes, as the case may be,
constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its respective terms (in
each case, with customary exceptions);
(p) if an Exchange Offer or a Private Exchange is to be consummated,
upon proper delivery of the Transfer Restricted Notes by Holders to the
Company (or to such other Person as directed by the Company) in exchange
for the Exchange Notes or the Private Exchange Notes, as the case may be,
the Company shall mark, or cause to be marked, on such Transfer Restricted
Notes and on the books of the Trustee, the Transfer Agent, the Registrar
and the Depositary delivered by such Holders that such Transfer Restricted
Notes are being canceled in exchange for the Exchange Notes or the Private
Exchange Notes, as the case may be; but in no event shall such Transfer
Restricted Notes be marked as paid or otherwise satisfied solely as a
result of being exchanged for Exchange Notes or Private Exchange Notes in
the Exchange Offer or the Private Exchange, as the case may be;
(q) cooperate with each seller of Transfer Restricted Notes covered by
any Registration Statement participating in the disposition of such
Transfer Restricted Notes and one counsel acting on behalf of all such
sellers in connection with the filings, if any, required to be made with
the NASD;
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<PAGE>
(r) use its best efforts to take all other steps necessary to effect
the registration of the Transfer Restricted Notes covered by a Registration
Statement contemplated hereby; and
(s) (A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution," which section shall be reasonably acceptable to
Salomon, as representative of the Initial Purchaser and the Prior Initial
Purchasers, and which shall contain a summary statement of the positions
taken or policies made by the staff of the SEC with respect to the
potential "underwriter" status of any broker-dealer (a "Participating
Broker-Dealer") that holds Transfer Restricted Notes acquired for its own
account as a result of market-making activities or other trading activities
and that will be the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of Exchange Notes to be received by such broker-dealer in the
Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in the
reasonable judgment of Salomon, as representative of the Initial Purchaser
and the Prior Initial Purchasers or such other representative, represent
the prevailing views of the staff of the SEC, including a statement that
any such broker-dealer who receives Exchange Notes for Transfer Restricted
Notes pursuant to the Exchange Offer may be deemed a statutory underwriter
and must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes, (ii) furnish to
each Participating Broker-Dealer who has delivered to the Company the
notice referred to in Section 3(e), without charge, as many copies of each
Prospectus included in the Exchange Offer Registration Statement, and any
amendment or supplement thereto, as such Participating Broker-Dealer may
reasonably request; (iii) hereby consent to the use of the Prospectus
forming part of the Exchange Offer Registration Statement or any amendment
or supplement thereto, by any Person subject to the prospectus delivery
requirements of the SEC, including all Participating Broker-Dealers, in
connection with the sale or transfer of the Exchange Notes covered by the
Prospectus or any amendment or supplement thereto, (iv) use their best
efforts to keep the Exchange Offer Registration Statement effective and to
amend and supplement the Prospectus contained therein in order to permit
such Prospectus to be lawfully delivered by all Persons subject to the
prospectus delivery requirements of the Securities Act for such period of
time as such Persons must comply with such requirements in order to resell
the Exchange Notes; provided, however, that such period shall not be
required to exceed 90 days (or such longer period if extended pursuant to
the last sentence of Section 3 hereof) (the "Applicable Period"), and (iv)
include in the transmittal letter or similar documentation to be executed
by an exchange offeree in order to participate in the Exchange Offer (x)
the following provision:
"If the exchange offeree is a broker-dealer holding Transfer
Restricted Notes acquired for its own account as a result of market-
making activities or other trading activities, it will deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes received in respect of
such Transfer Restricted Notes pursuant to the Exchange Offer";
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<PAGE>
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Transfer Restricted Notes, such broker-
dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act; and
(B) in the case of any Exchange Offer Registration Statement, the
Company agrees to deliver, upon request, to the Trustee or to Participating
Broker-Dealers upon consummation of the Exchange Offer (i) an opinion of
counsel substantially in the form attached hereto as Exhibit A, and (ii) an
officers' certificate containing certifications substantially similar to
those set forth in Section 6(e) of the Purchase Agreement.
The Company may require each seller of Transfer Restricted Notes as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the proposed distribution of such Transfer
Restricted Notes, as the Company may from time to time reasonably request in
writing. The Company may exclude from such registration the Transfer Restricted
Notes of any seller who fails to furnish such information within a reasonable
time (not to exceed 10 Business Days) after receiving such request and shall be
under no obligation to compensate any such seller for any lost income, interest
or other opportunity forgone, or any liability incurred, as a result of the
Company's decision to exclude such seller.
In the case of (1) a Shelf Registration Statement or (2) Participating
Broker-Dealers who have notified the Company that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as provided in
Section 3(t) hereof, that are seeking to sell Exchange Notes and are required to
deliver Prospectuses, each Holder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(e)(ii), 3(e)(iii), 3(e)(v), 3(e)(vi) or 3(e)(vii) hereof, such Holder will
forthwith discontinue disposition of Transfer Restricted Notes pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies in such
Holder's possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Transfer Restricted Notes or
Exchange Notes, as the case may be, current at the time of receipt of such
notice. If the Company shall give any such notice to suspend the disposition of
Transfer Restricted Notes or Exchange Notes, as the case may be, pursuant to a
Registration Statement, the Company shall use its best efforts to file and have
declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Registration Statement and, in the case of an amendment, have
such amendment declared effective as soon as practicable and shall extend the
period during which such Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days in the period from and
including the date of the giving of such notice to and including the date when
the Company shall have made available to the Holders (x) copies of the
supplemented or amended Prospectus necessary to resume such dispositions or (y)
the Advice.
18
<PAGE>
4. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless the Initial Purchaser,
each Holder, each Participating Broker-Dealer, each underwriter who participates
in an offering of Transfer Restricted Notes, their respective affiliates, each
Person, if any, who controls any of such parties within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto), covering
Transfer Restricted Notes or Exchange Notes, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any court or governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission; provided
that (subject to Sections 4(c) and 4(d) below) any such settlement is
effected with the prior written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of one counsel (in addition to
any local counsel) chosen by Salomon, such Holder, such Participating
Broker-Dealer or any underwriter (except to the extent otherwise expressly
provided in Section 4(c) hereof)), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under subparagraph (i) or (ii) of this
Section 4(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in reliance upon and
in conformity with written information furnished in writing to the Company by or
on behalf of the Initial Purchaser, such Holder, such Participating Broker-
Dealer or any underwriter with respect to the Initial Purchaser, Holder,
Participating Broker-Dealer or underwriter, as the case may be, expressly for
use in the Registration Statement (or any amendment or supplement thereto) or
any Prospectus (or any amendment or supplement
19
<PAGE>
thereto) or (ii) contained in any preliminary prospectus if the Initial
Purchaser, such Holder, such Participating Broker-Dealer or such underwriter
failed to send or deliver a copy of the Prospectus (in the form it was first
provided to such parties for confirmation of sales) to the Person asserting such
losses, claims, damages or liabilities on or prior to the delivery of written
confirmation of any sale of securities covered thereby to such Person in any
case where the Company shall have previously furnished copies thereof to the
Initial Purchaser, such Holder, such Participating Broker-Dealer or such
underwriter, as the case may be, in accordance with this Agreement, at or prior
to the written confirmation of the sale of such Notes to such Person and the
untrue statement contained in or the omission from the preliminary prospectus
was corrected in the Final Prospectus (or any amendment or supplement thereto).
Any amounts advanced by the Company to an indemnified party pursuant to this
Section 4 as a result of such losses shall be returned to the Company if it
shall be finally determined by a court of competent jurisdiction in a judgment
not subject to appeal or final review that such indemnified party was not
entitled to indemnification by the Company.
(b) Each Holder agrees, severally and not jointly, to indemnify and hold
harmless the Company, the Initial Purchaser, each underwriter who participates
in an offering of Transfer Restricted Notes and the other selling Holders and
each of their respective directors and each Person, if any, who controls any of
the Company, the Initial Purchaser, any underwriter or any other selling Holder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
against any and all loss, liability, claim, damage and expense whatsoever
described in the indemnity contained in Section 4(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment or
supplement thereto) or any Prospectus (or any amendment or supplement thereto)
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of such selling Holder with respect to such Holder
expressly for use in the Registration Statement (or any supplement thereto), or
any such Prospectus (or any amendment thereto); provided, however, that, in the
case of the Shelf Registration Statement, no such Holder shall be liable for any
claims hereunder in excess of the amount of net proceeds received by such Holder
from the sale of Transfer Restricted Notes pursuant to the Shelf Registration
Statement; provided, further, however, that for purposes of Section 4(a)(iii),
such counsel shall (subject to Section 4(c) hereof) be chosen by the Company.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 4(a) above, one counsel to all the indemnified parties shall
be selected by Salomon, and, in the case of parties indemnified pursuant to
Section 4(b) above, counsel to all the indemnified parties shall be selected by
the Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. Notwithstanding the foregoing, if it so
elects within a reasonable time after
20
<PAGE>
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying parties
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes a full and unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
the offer and sale of any Notes and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel pursuant to Section 4(a)(iii) above, then such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 4(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, the Initial
Purchaser and the Holders, as applicable, shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity agreement incurred by the Company, the Initial Purchaser and the
Holders; provided, however, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person that was not guilty of such
fraudulent misrepresentation. As between the Company and the Initial Purchaser
and the Holders, such parties shall contribute to such aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement in such proportion as shall be appropriate to reflect the
relative fault of the Company on the one hand and of the Holder of Transfer
Restricted Notes, the Participating Broker-Dealer or the Initial Purchaser, as
the case
21
<PAGE>
may be, on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative fault of the Company on the one hand and the Holder of
Transfer Restricted Notes, the Participating Broker-Dealer or the Initial
Purchaser, as the case may be, on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, or by the Holder of Transfer
Restricted Notes, the Participating Broker-Dealer or the Initial Purchaser, as
the case may be, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders of the Transfer Restricted Notes and the
Initial Purchaser agree that it would not be just and equitable if contribution
pursuant to this Section 4 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 4.
For purposes of this Section 4, each affiliate of any Person, if any, who
controls a Holder of Transfer Restricted Notes, the Initial Purchaser or a
Participating Broker-Dealer within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as such other Person, and each director of the Company, each affiliate of the
Company, each executive officer of the Company who signed the Registration
Statement, and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Company.
5. Miscellaneous.
(a) Rule 144 and Rule 144A. The Company shall provide to each Holder such
reports as are required under Section 10.23 of the Indenture and, upon the
request of any Holder of Transfer Restricted Notes (a) make publicly available
such information as is necessary to permit sales pursuant to Rule 144 under the
Securities Act, (b) deliver such information to a prospective purchaser as is
necessary to permit sales pursuant to Rule 144A under the Securities Act and it
will take such further action as any Holder of Transfer Restricted Notes may
reasonably request, and (c) take such further action, if any, that is reasonable
in the circumstances, in each case, to the extent required from time to time to
enable such Holder to sell its Transfer Restricted Notes without registration
under the Securities Act within the limitation of the exemptions provided by (i)
Rule 144 under the Securities Act, as such rule may be amended from time to
time, (ii) Rule 144A under the Securities Act, as such rule may be amended from
time to time, or (iii) any similar rules or regulations hereafter adopted by the
SEC. Upon the reasonable request of any Holder of Transfer Restricted Notes,
the Company will deliver to such Holder a written statement as to whether they
have complied with such requirements.
(b) No Inconsistent Agreements. The rights granted to the Holders
hereunder do not, and will not for the term of this Agreement in any way
conflict with and are not, and will not
22
<PAGE>
during the term of this Agreement be inconsistent with the rights granted to the
holders of the Company's other issued and outstanding securities under any other
agreements entered into by the Company.
(c) Amendments and Waivers. The provisions of this Agreement, including
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
otherwise than with the prior written consent of the Company and the Majority
Holders; provided, however, that no amendment, modification, or supplement or
waiver or consent to the departure with respect to the provisions of Section 4
hereof shall be effective as against any Holder of Transfer Restricted Notes or
the Company unless consented to in writing by such Holder of Transfer Restricted
Notes or the Company, as the case may be.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 5(d), which address initially is, with respect to the Initial Purchaser,
the address set forth in the Purchase Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 5(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of the Initial
Purchaser, including, without limitation and without the need for an express
assignment, subsequent Holders; provided, however, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Notes in violation of the terms of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Notes, in any manner, whether by operation of law or otherwise, such Transfer
Restricted Notes shall be held subject to all of the terms of this Agreement,
and by taking and holding such Transfer Restricted Notes, such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiary. The Initial Purchaser and each Holder shall be
a third party beneficiary of the agreements made hereunder between the Company,
on the one hand, and the Initial Purchaser, on the other hand, and shall have
the right to enforce such agreements
23
<PAGE>
directly to the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
PROVISIONS RELATING TO CONFLICTS OF LAWS. Specified times of day refer to New
York City time.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Notes Held by the Company or any of its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Transfer Restricted
Notes is required hereunder, Transfer Restricted Notes held by the Company or
any of their affiliates (as such term is defined in Rule 405 under the
Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
[Signature Page Follows]
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
THE ACKERLEY GROUP, INC.
By: /s/ Keith W. Ritzmann
----------------------
Name: Keith W. Ritzmann
Title: Senior Vice President, Chief
Information Officer, Assistant
Secretary and Controller
Confirmed and accepted as of
the date first above written:
FIRST UNION CAPITAL MARKETS CORP.
By: /s/ John J. Braden
------------------------
Name: John J. Braden
Title: Managing Director
S-1
<PAGE>
Exhibit A
Form of Opinion of Counsel
1. Each of the Exchange Offer Registration Statement and the Prospectus
(other than the financial statements, notes or schedules thereto and other
financial and statistical information and supplemental schedules included or
referred to therein or omitted therefrom and the Form T-1, as to which such
counsel need express no opinion), complies as to form in all material respects
with the applicable requirements of the Securities Act and the applicable rules
and regulations promulgated under the Securities Act.
2. In the course of such counsel's review and discussion of the contents
of the Exchange Offer Registration Statement and the Prospectus with certain
officers and other representatives of the Company and representatives of the
independent certified public accountants of the Company, but without independent
check or verification or responsibility for the accuracy, completeness or
fairness of the statements contained therein, on the basis of the foregoing
(relying as to materiality to a large extent upon representations and opinions
of officers and other representatives of the Company), no facts have come to
such counsel's attention which cause such counsel to believe that the Exchange
Offer Registration Statement (other than the financial statements, notes and
schedules thereto and other financial and statistical information contained or
referred to therein and the Form T-1, as to which such counsel need express no
belief), at the time the Exchange Offer Registration Statement became effective
and at the time of the consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, or that the Prospectus (other than the financial statements, notes
and schedules thereto and other financial and statistical information contained
or referred to therein, as to which such counsel need express no belief)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
A-1
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") appoints
each of Barry A. Ackerley, Denis M. Curley, Christopher H. Ackerley, and Keith
W. Ritzmann as his or her true and lawful attorney and agent, in name and on
behalf of the undersigned, to do any and all acts and things and execute any
and all instruments which the attorney and agent may deem necessary or
advisable to cause the Corporation's Annual Report on Form 10-K for the year-
ended December 31, 1998 to be filed with the Securities and Exchange
Commission, and likewise to sign any and all amendments (the signing of any
such instrument to be conclusive evidence that the attorney considers such
instrument necessary or desirable), without the other and with full power of
substitution and revocation, and hereby ratifying all that any such attorney or
his substitute may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 24th day of March, 1999.
/s/ Barry A. Ackerley
------------------------------
Barry A. Ackerley
<PAGE>
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") appoints
each of Barry A. Ackerley, Denis M. Curley, Christopher H. Ackerley, and Keith
W. Ritzmann as his or her true and lawful attorney and agent, in name and on
behalf of the undersigned, to do any and all acts and things and execute any
and all instruments which the attorney and agent may deem necessary or
advisable to cause the Corporation's Annual Report on Form 10-K for the year-
ended December 31, 1998 to be filed with the Securities and Exchange
Commission, and likewise to sign any and all amendments (the signing of any
such instrument to be conclusive evidence that the attorney considers such
instrument necessary or desirable), without the other and with full power of
substitution and revocation, and hereby ratifying all that any such attorney or
his substitute may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 24th day of March, 1999.
/s/ Gail A. Ackerley
--------------------------
Gail A. Ackerley
<PAGE>
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") appoints
each of Barry A. Ackerley, Denis M. Curley, Christopher H. Ackerley, and Keith
W. Ritzmann as his or her true and lawful attorney and agent, in name and on
behalf of the undersigned, to do any and all acts and things and execute any
and all instruments which the attorney and agent may deem necessary or
advisable to cause the Corporation's Annual Report on Form 10-K for the year-
ended December 31, 1998 to be filed with the Securities and Exchange
Commission, and likewise to sign any and all amendments (the signing of any
such instrument to be conclusive evidence that the attorney considers such
instrument necessary or desirable), without the other and with full power of
substitution and revocation, and hereby ratifying all that any such attorney or
his substitute may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 24th day of March, 1999.
/s/ Deborah L. Bevier
-----------------------------
Deborah L. Bevier
<PAGE>
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") appoints
each of Barry A. Ackerley, Denis M. Curley, Christopher H. Ackerley, and Keith
W. Ritzmann as his or her true and lawful attorney and agent, in name and on
behalf of the undersigned, to do any and all acts and things and execute any
and all instruments which the attorney and agent may deem necessary or
advisable to cause the Corporation's Annual Report on Form 10-K for the year-
ended December 31, 1998 to be filed with the Securities and Exchange
Commission, and likewise to sign any and all amendments (the signing of any
such instrument to be conclusive evidence that the attorney considers such
instrument necessary or desirable), without the other and with full power of
substitution and revocation, and hereby ratifying all that any such attorney or
his substitute may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 24th day of March, 1999.
/s/ M. Ian G. Gilchrist
----------------------------------
M. Ian G. Gilchrist
<PAGE>
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") appoints
each of Barry A. Ackerley, Denis M. Curley, Christopher H. Ackerley, and Keith
W. Ritzmann as his or her true and lawful attorney and agent, in name and on
behalf of the undersigned, to do any and all acts and things and execute any
and all instruments which the attorney and agent may deem necessary or
advisable to cause the Corporation's Annual Report on Form 10-K for the year-
ended December 31, 1998 to be filed with the Securities and Exchange
Commission, and likewise to sign any and all amendments (the signing of any
such instrument to be conclusive evidence that the attorney considers such
instrument necessary or desirable), without the other and with full power of
substitution and revocation, and hereby ratifying all that any such attorney or
his substitute may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 24th day of March, 1999.
/s/ Michel C. Thielen
---------------------------
Michel C. Thielen
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,630
<SECURITIES> 0
<RECEIVABLES> 44,680
<ALLOWANCES> 1,435
<INVENTORY> 0
<CURRENT-ASSETS> 75,241
<PP&E> 113,108
<DEPRECIATION> 11,735
<TOTAL-ASSETS> 316,126
<CURRENT-LIABILITIES> 59,535
<BONDS> 0
0
0
<COMMON> 330
<OTHER-SE> (26,171)
<TOTAL-LIABILITY-AND-EQUITY> 316,126
<SALES> 0
<TOTAL-REVENUES> 256,651
<CGS> 0
<TOTAL-COSTS> 209,030
<OTHER-EXPENSES> 8,611
<LOSS-PROVISION> 1,023
<INTEREST-EXPENSE> 25,109
<INCOME-PRETAX> 39,010
<INCOME-TAX> 15,487
<INCOME-CONTINUING> 23,523
<DISCONTINUED> 0
<EXTRAORDINARY> (4,346)
<CHANGES> 0
<NET-INCOME> 19,177
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.60
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