<PAGE> 1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): May 6, 1998
EMMIS BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 0-23264 35-1542018
(State or jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
950 North Meridian Street, Suite 1200
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 266-0100
Not applicable
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS OF BUSINESSES TO BE ACQUIRED:
SF BROADCASTING OF WISCONSIN, INC. AND SF MULTISTATIONS, INC. AND
SUBSIDIARIES
Report of Independent Auditors
Combined Balance Sheets as of March 29, 1998 and December 28, 1997 and
December 29, 1996.
Combined Statements of Operations for the three months ended March 29,
1998 and March 30, 1997 (unaudited) and for the years ended December 28,
1997, December 29, 1996, and December 31, 1995.
Combined Statements of Stockholders' Equity for the years ended December
28, 1997, December 29, 1996, and December 31, 1995 and for the three
months ended March 29, 1998 (unaudited).
Combined Statements of Cash Flows for the three months ended March 29,
1998 and March 30, 1997 (unaudited) and for the years ended December 28,
1997, December 29, 1996, and December 31, 1995.
Notes to Combined Financial Statements.
TRIBUNE NEW YORK RADIO, INC.
Report of Independent Public Accountants.
Balance Sheets, December 28, 1997 and December 29, 1996.
Statements of Operations and Retained Earnings for the years ended
December 28, 1997 and December 29, 1996.
Statements of Cash Flows for the years ended December 28, 1997 and
December 29, 1996.
Notes to Financial Statements, December 28, 1997 and December 29, 1996.
Condensed Balance Sheets, March 29, 1998 (unaudited) and December 28, 1997.
Condensed Statements of Operations and Retained Earnings for the three
months ended March 29, 1998 and March 30, 1997 (unaudited).
Condensed Statements of Cash Flows for the three months ended March 29,
1998 and March 30, 1997 (unaudited).
Notes to Condensed Financial Statements, March 29, 1998 (unaudited).
<PAGE> 3
Report of Independent Auditors
Board of Directors and Stockholders
SF Broadcasting of Wisconsin, Inc.
SF Multistations, Inc.
We have audited the accompanying combined balance sheets of SF Broadcasting of
Wisconsin, Inc. and SF Multistations, Inc. and subsidiaries as of December 28,
1997 and December 29, 1996, and the related combined statements of operations,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended December 28, 1997. These financial statements are the
responsibility of the Companies' 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 financial statements referred to above present fairly, in
all material respects, the combined financial position of SF Broadcasting of
Wisconsin, Inc. and SF Multistations, Inc. and subsidiaries at December 28,
1997 and December 29, 1996, and the combined results of their operations and
their cash flows for each of the three fiscal years in the period ended
December 28, 1997 in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 20, 1998,
except for Note 10, as to which the
date is March 18, 1998
1
<PAGE> 4
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Combined Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 28, DECEMBER 29,
1998 1997 1996
---------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 765 $ 670 $ 1,259
Accounts receivable, net of allowance for doubtful accounts of
$507, $514 and $332 10,935 13,595 13,609
Due from stockholders (Note 8) - 834 880
Current portion of program license rights, net (Note 3) 4,305 5,781 4,023
Prepaid expenses and other 888 638 943
------------------------------------
Total current assets 16,893 21,518 20,714
Fixed assets, net of accumulated depreciation of $5,704, $5,004
and $2,712 (Note 2) 15,751 15,425 14,443
Program license rights, excluding current portion (Note 3) 1,588 1,455 242
Broadcast licenses, net of accumulated amortization of $17,380,
$15,732 and $9,124 246,938 248,590 255,198
Deferred charges, net of accumulated amortization of $2,858,
$2,752 and $1,968 1,524 1,629 2,413
------------------------------------
Total assets $282,694 $288,617 $293,010
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,330 $ 3,728 $ 3,672
Due to related party 2,328 - -
Current portion of program license rights payable (Note 3) 5,719 7,465 5,011
Broadcast Facility, current portion (Note 4) 12,944 11,734 22,656
Other 346 288 100
------------------------------------
Total current liabilities 23,667 23,215 31,439
Program license rights payable, excluding current portion (Note 3) 2,018 2,448 1,012
Deferred income taxes (Note 6) 4,754 4,754 3,239
Broadcast Facility, excluding current portion (Note 4) 54,571 58,110 69,844
Notes payable to stockholders, including accrued interest of
$135, $115 and $33 (Note 8) 1,135 1,115 1,033
Other liabilities 4,225 4,401 5,292
------------------------------------
Total liabilities 90,370 94,043 111,859
Commitments and contingencies (Notes 3 and 7)
Stockholders' equity (Note 5):
Class A Common Stock, $.01 par value; 1,100 shares authorized,
550 issued and outstanding - - -
Class B Common Stock, $.01 par value; 550 shares authorized, 550
issued and outstanding - - -
Preferred Stock, $.01 par value; 3,000 shares authorized, issued
and outstanding, liquidation preference of $0 per share - - -
Class A Preferred Stock, $.01 par value; 26,000 shares
authorized, issued and outstanding, liquidation preference of
$1,000 per share - - -
Class B Preferred Stock, $.01 par value; 10,000 shares
authorized, issued and outstanding, liquidation preference of
$1,000 per share - - -
Additional paid-in capital 212,426 211,994 192,054
Deficit (20,102) (17,420) (10,903)
------------------------------------
Total stockholders' equity 192,324 194,574 181,151
------------------------------------
Total liabilities and stockholders' equity $282,694 $288,617 $293,010
====================================
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 5
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Combined Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 29, MARCH 30, DECEMBER 28, DECEMBER 29, DECEMBER 31,
1998 1997 1997 1996 1995
--------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Broadcasting revenues $12,589 $12,581 $57,112 $ 54,894 $27,816
Other revenues 898 974 3,597 3,447 1,765
------------------------------------------------------------
Gross revenues 13,487 13,555 60,709 58,341 29,581
Less agency commissions (1,668) (1,735) (7,775) (7,662) (3,762)
------------------------------------------------------------
Net revenues 11,819 11,820 52,934 50,679 25,819
Operating expenses:
Selling, general and administrative 2,938 3,137 11,864 11,433 4,560
Operating 6,196 5,946 23,383 22,494 8,866
Amortization of program license
rights 935 721 4,199 2,721 1,072
Depreciation and amortization 2,452 2,286 9,304 9,028 3,412
Corporate overhead 432 547 1,940 2,460 1,593
------------------------------------------------------------
12,953 12,637 50,690 48,136 19,503
------------------------------------------------------------
Operating income (1,134) (817) 2,244 2,543 6,316
Other income (expense):
Gain on disposal of fixed assets - - - 69 -
Interest income 21 9 55 80 107
Amortization of deferred financing
costs and non-cash interest (92) (122) (421) (706) (240)
Interest expense (1,477) (1,836) (6,530) (10,015) (4,609)
------------------------------------------------------------
Loss before income taxes and
extraordinary item (2,682) (2,766) (4,652) (8,029) 1,574
Income taxes (Note 6) - (396) 1,515 2,585 654
------------------------------------------------------------
Loss before extraordinary item (2,682) (3,162) (6,167) (10,614) 920
Extraordinary item (Note 4) - (350) (350) (1,048) -
------------------------------------------------------------
Net loss $(2,682) $(3,512) $(6,517) $(11,662) $ 920
============================================================
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE> 6
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Combined Statements of Stockholders' Equity
(In thousands, except share amounts)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------
CLASS A CLASS B PREFERRED STOCK
------------------- ------------------- ----------------------
SHARES SHARES SHARES
ISSUED AND ISSUED AND ISSUED AND
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 - $- - $- - $-
Issuance of common stock 825 - 275 - - -
Issuance of preferred stock - - - - 3,000 -
Capital contributions - - - - - -
Net income - - - - - -
----------------------------------------------------------------
Balance at December 31, 1996 825 - 275 - 3,000 -
Exercise of exchange options (275) - 275 - - -
Capital contributions - - - - - -
Net loss - - - - - -
----------------------------------------------------------------
Balance at December 29, 1996 550 - 550 - 3,000 -
Capital contributions - - - - - -
Net loss - - - - - -
----------------------------------------------------------------
Balance at December 28, 1997 550 - 550 - 3,000 -
Capital contributions - - - - - -
Net loss - - - - - -
----------------------------------------------------------------
Balance at March 29, 1998 550 $- 550 $- 3,000 $-
================================================================
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 7
<TABLE>
<CAPTION>
CLASS A PREFERRED CLASS B PREFERRED
--------------------- ---------------------
SHARES SHARES ADDITIONAL RETAINED
ISSUED AND ISSUED AND PAID-IN EARNINGS
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL (DEFICIT) TOTAL
--------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- $- - $- $ - $ (161) $ (161)
- - - - 110,000 - 110,00
26,000 - 10,000 - 39,000 - 39,000
- - - - 1,593 - 1,593
- - - - - 920 920
----------------------------------------------------------------------------------
26,000 - 10,000 - 150,593 759 151,352
- - - - - - -
- - - - 41,461 - 41,461
- - - - - (11,662) (11,662)
----------------------------------------------------------------------------------
26,000 - 10,000 - 192,054 (10,903) 181,151
- - - - 19,940 - 19,940
- - - - - (6,517) (6,517)
----------------------------------------------------------------------------------
26,000 $- 10,000 $- $211,994 $(17,420) $194,574
- - - - 432 - 432
- - - - - (2,682) (2,682)
----------------------------------------------------------------------------------
26,000 $- 10,000 $- $212,426 $(20,102) $192,324
==================================================================================
</TABLE>
5
<PAGE> 8
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Combined Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 29, MARCH 30, DECEMBER 28, DECEMBER 29, DECEMBER 31,
1998 1997 1997 1996 1995
----------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,682) $(3,513) $(6,517) $(11,662) $ 920
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,452 2,286 9,304 9,028 3,412
Amortization of programming license rights 935 721 4,199 2,721 1,072
Amortization of deferred financing costs and
non-cash interest 92 122 421 706 240
Extraordinary item - 350 350 1,048 -
Deferred income taxes - 396 1,515 2,585 654
Program license rights payments (1,548) (653) (3,030) (2,547) (529)
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,660 2,258 14 496 (1,747)
Decrease in due from stockholders 903 (547) 46 188 (1,068)
Decrease (increase) in prepaid expenses
and other (713) (584) 48 (467) (553)
Increase (decrease) in accounts payable
and accrued expenses 861 (449) 56 (1,098) (14,472)
Decrease in other liabilities 57 186 (1,005) (2,410) (1,578)
------------------------------------------------------------
Net cash provided by (used in) operating activities 3,017 573 5,401 (1,412) (13,649)
INVESTING ACTIVITIES
Purchases of fixed assets (1,025) (942) (3,274) (1,376) (493)
Acquisition of stations, net - - - - (264,821)
------------------------------------------------------------
Net cash used in investing activities (1,025) (942) (3,274) (1,376) (265,314)
FINANCING ACTIVITIES
Payments under Broadcast Facility (2,329) (18,000) (22,656) (41,500) 134,000
Borrowings from stockholders - - 1,000 -
Payment of financing costs - - - - (2,654)
Proceeds from the issuance of common stock - - - - 110,000
Proceeds from the issuance of preferred stock - - - - 39,000
Capital contributions 432 18,547 19,940 41,461 1,593
------------------------------------------------------------
Net cash (used in) provided by financing activities (1,897) 547 (2,716) 961 281,939
------------------------------------------------------------
Net decrease in cash and cash equivalents 95 178 (589) (1,827) 2,976
Cash and cash equivalents at beginning of period 670 1,259 1,259 3,086 110
------------------------------------------------------------
Cash and cash equivalents at end of period $ 765 $ 1,437 $ 670 $ 1,259 $ 3,086
============================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 1,344 $ 1,925 $ 6,448 $ 10,330 $ 3,645
============================================================
</TABLE>
See accompanying notes to combined financial statements.
6
<PAGE> 9
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements
March 29, 1998
1. ACCOUNTING POLICIES AND BACKGROUND
DESCRIPTION OF BUSINESS
SF Broadcasting of Green Bay, Inc., SF Broadcasting of New Orleans, Inc., SF
Broadcasting of Mobile, Inc. and SF Broadcasting of Honolulu, Inc.
(collectively, the "SF Broadcasting Operating Subsidiaries") were formed on
October 7, 1994 to engage in the ownership and operation of television
broadcast stations. Each operating subsidiary is the 100% owner of a related
license subsidiary: SF Green Bay License Subsidiary, Inc., SF New Orleans
License Subsidiary, Inc., SF Mobile License Subsidiary, Inc. and SF Honolulu
License Subsidiary, Inc.
SF Broadcasting of Green Bay, Inc. is a wholly-owned subsidiary of SF
Broadcasting of Wisconsin, Inc. and SF Broadcasting of New Orleans, Inc., SF
Broadcasting of Mobile, Inc. and SF Broadcasting of Honolulu, Inc. are
wholly-owned subsidiaries of SF Multistations, Inc. (collectively, "SF
Broadcasting" or the "Company"). Savoy Stations, Inc. ("Savoy") and Fox
Television Stations, Inc. ("Fox") each own 50% of the Company (see Note 5).
Savoy is a wholly owned subsidiary of USA Networks, Inc. ("USAi," formerly HSN,
Inc., formerly Silver King Communications, Inc.). The Company acquired four
VHF television stations for a total of $267 million, plus working capital:
WLUK-TV in Green Bay, Wisconsin ("WLUK"); WVUE-TV in New Orleans, Louisiana
("WVUE"); WALA-TV in Mobile, Alabama ("WALA"); and KHON-TV in Honolulu, Hawaii
(including McHale Videofilm and satellite stations KAII-TV, Wailuku, Hawaii,
and KHAW-TV, Hilo, Hawaii) ("KHON"). The Company has accounted for the
acquisition of the stations under the purchase method of accounting.
Accordingly, the total cost to acquire the stations has been allocated to the
respective assets and liabilities acquired based on their fair values at the
time of the acquisitions. The operating results of the Stations are included in
the combined statements of income beginning in the year ended December 29, 1995
from the respective dates of their acquisition. The Company financed the
purchase of the stations through acquisition loans of approximately $135
million under the Broadcast Facility (see Note 4) and common and preferred
equity contributions (see Note 5).
7
<PAGE> 10
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
1. ACCOUNTING POLICIES AND BACKGROUND (CONTINUED)
PRINCIPLES OF COMBINATION
The financial statements combine SF Wisconsin, Inc. and SF Multistations, Inc.
Significant intercompany accounts and transactions have been eliminated.
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.
The accompanying unaudited combined quarterly financial information includes
the accounts of SF Broadcasting for the three months ended March 29, 1998 and
March 30, 1997, and have been prepared in accordance with generally accepted
accounting principles for interim financial information and the rules and
regulations of the Securities and Exchange Commission. The combined financial
statements presented herein for the three months ended March 29, 1998 and
March 30, 1997 include all material adjustments (consisting of normal and
recurring matters) which are, in the opinion of management, necessary for a
fair presentation of the financial position, results of operations and cash
flows for such periods. However, these results are not necessarily indicative
of results for any other interim period or for the results that may be expected
for the full year. Certain information and footnote disclosures in connection
with the unaudited combined quarterly financial information that would normally
be included in financial statements in accordance with generally accepted
accounting principles have been omitted pursuant to the rules and regulations
of the Securities and Exchange Commission.
FISCAL PERIODS
The Company's fiscal year is the 52/53 week broadcast year ending on the last
Sunday in December. Fiscal quarters end on the last Sunday in the quarter.
References herein to annual and quarterly information are to the Company's
fiscal years and quarters.
8
<PAGE> 11
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
1. ACCOUNTING POLICIES AND BACKGROUND (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company provides advertising air time to national, regional and local
advertisers within the geographic areas in which the Company operates. These
sales comprise the majority of the Company's outstanding accounts receivable
balance at December 28, 1997 and December 29, 1996. Credit is extended based on
an evaluation of the customer's financial condition, and advance payment or
collateral is generally not required. Credit losses, which have historically
been insignificant, are provided for in the financial statements.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
RECOGNITION OF REVENUES
Advertising revenues are recognized when advertisements are broadcast. Revenues
from other sources are recognized in the period when the services are provided.
PROGRAM LICENSE RIGHTS
Program license rights are stated at the lower of unamortized cost or estimated
net realizable value. Program license rights acquired as part of a station
acquisition are recorded at fair value. Program license rights, together with
the related liabilities, are recorded when the license period begins and the
program becomes available for broadcast. Program license rights are amortized
using the greater of the straight-line per year method or the straight-line per
run method. Program license rights expected to be amortized in the succeeding
year and program license rights payable due within one year are classified as
current assets and current liabilities, respectively.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
computed by the straight-line method for financial reporting purposes based
upon the remaining economic life of the assets and by accelerated methods for
income tax purposes.
9
<PAGE> 12
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
1. ACCOUNTING POLICIES AND BACKGROUND (CONTINUED)
BROADCAST LICENSES
Broadcast licenses, which are carried at an allocated cost based on appraisals
less accumulated amortization, represent the excess of cost over the fair
values assigned to the net tangible assets acquired. Broadcast licenses are
amortized on a straight-line basis over 40 years.
The Company's accounting policy regarding the assessment of the recoverability
of the carrying value of broadcast licenses is to review the carrying value of
broadcast licenses if the facts and circumstances suggest that they may be
impaired. If this review indicates that broadcast licenses will not be
recoverable, as determined based on the undiscounted future cash flows of the
Company, the carrying value of broadcast licenses will be reduced to its
estimated fair value.
DEFERRED CHARGES
Deferred charges include capitalized debt issuance costs and organizational
costs. Deferred financing costs are generally amortized over the term of the
Broadcast Facility (see Note 4) and organizational costs are amortized over
five years.
BARTER ARRANGEMENTS
The Company, in the ordinary course of business, provides advertising air time
to certain customers in exchange for products or services. Barter transactions
are recorded on the basis of the estimated fair market value of the products or
services received. Revenue is recognized as the related advertising is
broadcast and expenses are recognized when the merchandise or services are
consumed or utilized. The Company has entered into barter agreements with
program syndicators (recorded as assets and liabilities) with an estimated fair
market value of approximately $2.9 million and $1.5 million at December 28,
1997 and December 29, 1996, respectively. During 1997 and 1996, the Company
recorded barter revenue and amortization of $2,196,000 and $1,621,000,
respectively.
10
<PAGE> 13
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
1. ACCOUNTING POLICIES AND BACKGROUND (CONTINUED)
INCOME TAXES
SF Broadcasting of Wisconsin, Inc. and SF Multistations, Inc. each file
separate consolidated federal income tax returns. The Company files separate
state income tax returns for each of its subsidiaries. All income tax amounts
and balances have been computed in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income
taxes result from temporary differences between the amounts reported for
financial reporting and income tax purposes.
RECLASSIFICATION
Certain prior year account balances have been reclassified to conform with the
current year presentation.
2. FIXED ASSETS
Fixed assets are comprised of the following at December 28, 1997 and December
29, 1996:
<TABLE>
<CAPTION>
1997 1996
-----------------
(In thousands)
<S> <C> <C>
Equipment and computer software $14,534 $11,503
Land, building and improvements 5,273 5,273
Leasehold improvements 432 203
Furniture and fixtures 190 176
-----------------
20,429 17,155
Less accumulated depreciation 5,004 2,712
-----------------
$15,425 $14,443
=================
</TABLE>
Depreciation expense amounted to $2,292,000 and $1,879,000 for 1997 and 1996,
respectively.
11
<PAGE> 14
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
3. PROGRAM LICENSE RIGHTS AND LIABILITIES
Program license rights, together with the related liabilities, of approximately
$6.5 million and $3.0 million became available and were recorded during 1997
and 1996, respectively.
The obligation for programming that has been contracted for but not recorded in
the accompanying balance sheets because the program license rights were not
currently available for airing aggregated approximately $12.1 million and $8.2
million at December 28, 1997 and December 29, 1996, respectively.
4. BROADCAST FACILITY
The Company financed its purchase of television stations, in part, through $135
million of acquisition loans under a $145 million broadcast facility (the
"Broadcast Facility"). The Broadcast Facility was originally comprised of (i)
$135 million in acquisition loans and (ii) $10 million of revolving working
capital loans. Borrowings under the Broadcast Facility are secured by
substantially all of the assets of the Company. In November 1996, the Company
terminated the availability of working capital loans under the Broadcast
Facility.
The interest rate on borrowings under the Broadcast Facility is equal to the
Alternative Base Rate (as defined) plus a margin or the Eurodollar Rate (as
defined) plus a margin. A commitment fee of 3/8 of 1% is payable on the average
Available Commitment (as defined). The average interest rate on borrowings
under the Broadcast Facility was 7.8% and 8.3% during 1997 and 1996,
respectively. The Broadcast Facility contains various covenants including (i)
various limitations on debt to cash flow; (ii) minimum requirements for cash
flow to interest expense and fixed charges; (iii) a limit on the annual amount
of capital expenditures; (iv) a limit on the amount and nature of indebtedness
and (v) limitations on the payment of dividends. The acquisition loans under
the Broadcast Facility are payable in 20 consecutive quarterly installments
which commenced on September 30, 1997, and are subject to mandatory prepayment
out of excess cash flow (as defined). The approximate minimum repayments are
$11.7 million, $14.5 million, $15.8 million, $18.1 million, and $9.7 million in
1998, 1999, 2000, 2001 and 2002, respectively. The carrying amount of the
Broadcast Facility approximates fair value.
12
<PAGE> 15
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
4. BROADCAST FACILITY (CONTINUED)
During 1997 and 1996, Savoy and Fox each made capital contributions of $9
million and $19.5 million, respectively, to the Company. These contributions
were used to repay borrowings under the Broadcast Facility. In connection with
the repayment of borrowings under the Broadcast Facility in 1997 and 1996, the
Company recorded extraordinary items to write off deferred financing costs of
$350,000 and $1,048,000, respectively.
5. STOCKHOLDERS' EQUITY
On April 28, 1995, SF Broadcasting of Wisconsin, Inc. issued 75 shares of Class
A Common Stock with a par value of $.01 for $9,375,000 and 25 shares of Class B
Common Stock with a par value of $.01 for $5,625,000. On August 22, 1995, SF
Multistations, Inc. issued 750 shares of Class A Common Stock with a par value
of $.01 for $71,250,000 and 250 shares of Class B Common Stock with a par value
of $.01 for $23,750,000. As a result, and until the exercise of the Exchange
Options (as described below), Savoy owned 75% of the common equity and 100% of
the voting stock of the Company and Fox owned a 25% nonvoting interest in the
Company.
Each outstanding share of Class A Common Stock shall be entitled to vote on
each matter on which the stockholders of the Company shall be entitled to vote.
Each outstanding share of Class B Common Stock shall not be entitled to vote on
any matter on which the stockholders of the Company shall be entitled to vote.
Fox owns options, subject to FCC approval, to convert its nonvoting interests
into voting interests.
In addition, on April 28, 1995, SF Broadcasting of Wisconsin, Inc. issued 3,000
shares of Preferred Stock with a par value of $.01 for $3,000,000 (the
"Preferred Stock"). The Preferred Stock is not entitled to vote on any matter
or in any proceeding and is not entitled to any payment of dividends. The
Preferred Stock is redeemable by the Company at the end of each calendar year
based upon certain criteria as specified under the terms of the Preferred
Stock.
On August 22, 1995, SF Multistations, Inc. issued 26,000 shares of Class A
Non-Convertible Preferred Stock with a par value of $.01 per share for
$26,000,000 ("Class A Preferred") and 10,000 shares of Class B Non-Convertible
Preferred Stock with a par value of $.01 per share for $10,000,000 ("Class B
Preferred," collectively, the "Non-Convertible Preferred Stock"). The
Non-Convertible Preferred Stock is not entitled to vote or to be represented on
any matter or in any proceeding.
13
<PAGE> 16
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Each outstanding share of Class A Preferred and Class B Preferred accrues
dividends at a rate equal to 6% per annum times the Non-Convertible Preferred
Stock Redemption Price of $1,000 per share. Undeclared and unpaid dividends in
arrears at December 28, 1997 for the Class A Preferred and Class B Preferred
amounted to approximately $3,680,000 and $1,415,000, respectively. Undeclared
and unpaid dividends in arrears at December 29, 1996 for the Class A Preferred
and Class B Preferred amounted to approximately $2,120,000 and $815,000,
respectively.
At the end of each calendar year, based upon certain criteria as specified
under the terms of the Non-Convertible Preferred Stock, the Company may be
required to declare dividends and/or redeem certain shares of the
Non-Convertible Preferred Stock. In addition, upon a change of control of the
Company, the Company may also be required to declare dividends and/or redeem
shares of the Non-Convertible Preferred Stock.
Based on the operating results of the Company to date, no dividends or
redemptions are currently due.
On June 13, 1996 and September 11, 1996, Fox increased its non-voting interest
in SF Wisconsin, Inc. and SF Multistations, Inc., respectively, to 50% of the
common equity (non-voting), through the exercise of options (collectively, such
options are referred to herein as the "Exchange Options"). Fox purchased 25
shares of its Class B Common Stock in SF Wisconsin, Inc. and 250 shares of its
Class B Common Stock in SF Multistations, Inc. for an equal number of Savoy
shares of Class A Common Stock in the respective companies.
14
<PAGE> 17
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
6. INCOME TAXES
Federal, state and local income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------
(in thousands)
<S> <C> <C> <C>
Deferred:
Federal $1,241 $2,117 $520
State and local 274 468 134
---------------------
$1,515 $2,585 $654
=====================
</TABLE>
At December 28, 1997, December 29, 1996 and December 31, 1995, the Company had
net operating loss carryforwards of approximately $45.0 million, $24.9 million
and $5.1 million, respectively, for federal income tax purposes that expire in
the years 2010 through 2012. Approximately $28 million of the Company's net
operating loss carryforwards as of December 28, 1997, December 29, 1996 and
December 31, 1995 are from periods prior to the Savoy Merger and are subject to
certain tax loss limitations. Accordingly, the Company has established a
valuation allowance for those pre-acquisition losses. 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. Significant components of the Company's
deferred tax assets and liabilities as of December 28, 1997 and December 29,
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $15,733 $10,345
Other assets 3,153 173
Valuation allowance for deferred tax assets (9,664) (5,887)
----------------
Net deferred tax asset 9,222 4,631
Deferred tax liabilities:
Broadcast licenses and other intangibles $ 8,560 $ 7,029
Fixed assets 1,132 841
Other liabilities 4,284 -
----------------
Total deferred tax liabilities 13,976 7,870
----------------
Net deferred tax liability $ 4,754 $ 3,239
================
</TABLE>
15
<PAGE> 18
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
A reconciliation of the difference between the federal statutory rate and the
effective tax rate is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 29, MARCH 30, DECEMBER 28, DECEMBER 29, DECEMBER 31,
1998 1997 1997 1996 1995
---------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statutory federal rate (34%) (34%) (34%) (34%) 34%
Valuation allowance 34% 34% 34% 34% -
Amortization of broadcast licenses - 13% 30% 36% -
State taxes - - - (2%) 9%
Other - - - (6%) (1%)
---------------------------------------------------------------
- 13% 30% 28% 42%
===============================================================
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases various office and television facilities under
noncancellable operating leases. Future minimum payments under these leases
with initial terms of one year or more consisted of the following at December
28, 1997 (in thousands):
<TABLE>
<S> <C>
1998 $430
1999 269
2000 140
2001 58
2002 and thereafter 94
----
Total $991
====
</TABLE>
Rent expense paid by the Company during 1997, 1996 and 1995 amounted to
$559,000, $522,000 and $167,000, respectively.
16
<PAGE> 19
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has entered into employment agreements with certain key employees.
Such agreements have remaining terms ranging from two to 13 years. Future
minimum payments approximate $11,719,000, payable in the following years (in
thousands):
<TABLE>
<S> <C>
1998 $2,396
1999 1,843
2000 1,099
2001 916
2002 and thereafter 5,465
-------
Total $11,719
=======
</TABLE>
The Company is involved in certain legal proceedings arising in the ordinary
course of business. The Company believes that the outcome of these matters will
not have a material adverse effect on the financial position of the Company or
its results of operations.
8. RELATED PARTIES
Upon the written request of the Company, Savoy and Fox are obligated, in
accordance with a stockholders' agreement, to reimburse the Company for
corporate overhead expenses based upon their respective equity interests. At
December 28, 1997 and December 29, 1996, amounts due from stockholders amounted
to $834,000 and $880,000, respectively, for unreimbursed corporate overhead
expenses.
17
<PAGE> 20
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
8. RELATED PARTIES (CONTINUED)
On August 2, 1996, the Company issued a demand note payable ("Note") to Savoy
with a principle amount of $1,000,000 bearing interest at the same rate as the
Broadcast Facility, payable quarterly. In September 1996, Savoy assigned 50% of
the Note to Fox in exchange for $500,000. Interest expense recorded under the
Note was $82,000 and $33,000 during 1997 and 1996, respectively.
USAi made a Broadcast Facility payment on behalf of SF Broadcasting of
$2,328,000 during the quarter ended March 29, 1998.
9. EMPLOYEE BENEFIT PLAN
Effective March 15, 1996, the Company became party to a Defined Contribution
Master Plan ("Plan") which qualifies under Section 401(k) of the Internal
Revenue Code. The Plan covers all employees who are at least 21 years of age
and who have been employed at the Company for at least three months. The Plan
does not cover those employees who participate in another retirement plan
pursuant to a collective bargaining agreement. Under the terms of the Plan, an
employee is allowed to contribute up to 15% of compensation on a before-tax
basis, with a maximum of $9,500 per year for 1997 and 1996, on a before-tax
basis. The Company may make matching contributions in an amount equal to a
percentage the Company from time to time may deem advisable. During 1997, the
Company made matching contributions equal to 50% of the employee contributions,
up to a maximum of 2.5% of the participating employee's annual salary. Total
expense for the Plan was $333,000 and $301,000 in 1997 and 1996, respectively.
10. SUBSEQUENT EVENT
On March 18, 1998, the Company entered into an Amendment and Waiver to the
Broadcast Facility which provided, among other things, a waiver of default of
certain covenants for the quarter ended December 31, 1997 and amended the debt
leverage, interest coverage and fixed charges ratios for 1998. In connection
with the Amendment and Waiver, USAi entered into a Guarantee Agreement which
provides that USAi guarantee principle obligations of the Broadcast Facility
totaling $11.7 million during 1998.
18
<PAGE> 21
SF Broadcasting of Wisconsin, Inc.
and SF Multistations, Inc. and Subsidiaries
Notes to Combined Financial Statements (continued)
11. QUARTERLY FINANCIAL SUMMARY AND YEAR 2000 (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 30 JUNE 29 SEPTEMBER 29 DECEMBER 28
---------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Fiscal year ended December 28, 1997
Net revenues $11,820 $13,228 $12,596 $15,290
Operating income (loss) (818) 1,080 (50) 2,032
Loss before extraordinary item (3,163) (1,047) (2,087) 130
Net income (loss) $(3,513) $(1,047) $(2,087) $130
</TABLE>
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 29 DECEMBER 29
---------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Fiscal year ended December 29, 1996
Net revenues $10,722 $12,301 $12,350 $15,306
Operating income (loss) (912) 927 242 2,286
Loss before extraordinary item (3,099) (1,592) (2,548) (3,375)
Net loss $(3,099) $(1,592) $(2,548) $(4,423)
</TABLE>
The Company has not completed its assessment of the extent to which it will
need to modify or replace portions of its software so that its computer system
will function properly with respect to dates in the year 2000 and beyond. The
Company is currently unable to determine if Year 2000 compliance initiatives
will have a material effect on the Company's results of operations or financial
position. Further, there can be no guarantee that the systems of other
companies in which the Company's systems and operations rely will be converted
on a timely basis and will not have a material effect on the Company.
12. SUBSEQUENT EVENT (UNAUDITED)
In an agreement dated March 30, 1998, Emmis Broadcasting Corporation agreed to
acquire all the assets of the SF Broadcasting Operating Subsidiaries.
19
<PAGE> 22
TRIBUNE NEW YORK RADIO, INC.
===============================================================================
FINANCIAL STATEMENTS
AS OF DECEMBER 28, 1997 AND DECEMBER 29, 1996
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Tribune New York Radio, Inc.:
We have audited the accompanying balance sheets of TRIBUNE NEW YORK RADIO, INC.
(a Delaware corporation) as of December 28, 1997 and December 29, 1996, and the
related statements of operations and retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 financial statements referred to above present fairly, in
all material respects, the financial position of Tribune New York Radio, Inc.
as of December 28, 1997 and December 29, 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
May 1, 1998.
<PAGE> 24
TRIBUNE NEW YORK RADIO, INC.
BALANCE SHEETS
DECEMBER 28, 1997 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
A S S E T S
-----------
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 12,551
Accounts receivable - trade, net of 86,297 4,348,354
allowance for doubtful accounts of
$ -0- and $148,193, respectively
Accounts receivable - other 1,452,561 44,478
Accounts receivable - affiliate - 869,531
Income taxes receivable - 225,909
Prepaid expenses and other - 22,549
---------- -----------
Total current assets 1,538,858 5,523,372
---------- -----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 4,308,870 4,308,870
Broadcasting equipment 2,541,700 2,541,700
Furniture and fixtures 1,687,489 1,687,489
---------- -----------
8,538,059 8,538,059
Less - Accumulated depreciation (2,612,385) (1,697,176)
---------- -----------
5,925,674 6,840,883
---------- -----------
Non-refundable deposit associated with
exchange transaction (Note 2) 1,000,000 -
Other non-current assets - 10,148
---------- -----------
Total assets $8,464,532 $12,374,403
========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
1997 1996
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 7,107 $ 365,198
Accounts payable - affiliate 1,765,985 5,516,137
Accrued salaries and commissions 68,625 400,977
Income taxes payable 252,837 -
Other accrued liabilities 148,492 251,224
---------- -----------
Total current liabilities 2,243,046 6,533,536
---------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDER'S EQUITY:
Common stock, $.10 par value, 10,000 shares authorized
1,000 shares issued and outstanding 100 100
Additional paid-in capital 3,720,560 3,720,560
Retained earnings 2,500,826 2,120,207
---------- -----------
Total stockholder's equity 6,221,486 5,840,867
---------- -----------
---------- -----------
Total liabilities and stockholder's equity $8,464,532 $12,374,403
========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE> 25
TRIBUNE NEW YORK RADIO, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET BROADCASTING REVENUES $ 9,250,441 $ 15,145,550
BROADCASTING OPERATING EXPENSES 5,492,280 8,847,355
CORPORATE EXPENSES 28,000 57,000
DEPRECIATION 915,209 758,341
TIME BROKERAGE FEE INCOME 4,249,998 -
------------ ------------
OPERATING INCOME 7,064,950 5,482,854
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (115,578) (66,764)
Interest income - 37,114
Other income 305,247 225,178
------------ ------------
Total other income (expense) 189,669 195,528
------------ ------------
INCOME BEFORE INCOME TAXES 7,254,619 5,678,382
Provision for income taxes (3,374,000) (2,670,000)
------------ ------------
NET INCOME 3,880,619 3,008,382
Retained earnings, beginning of year 2,120,207 2,111,825
Dividends paid to stockholder (3,500,000) (3,000,000)
------------ ------------
Retained earnings, end of year $ 2,500,826 $ 2,120,207
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE> 26
TRIBUNE NEW YORK RADIO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,880,619 $ 3,008,382
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation 915,209 758,341
Change in assets and liabilities -
Account receivable - trade, net 4,262,057 (850,310)
Accounts receivable - other (1,408,083) 32,757
Income taxes receivable 225,909 (144,268)
Prepaid expenses and other 32,697 5,512
Accounts payable (358,091) (548,917)
Accrued salaries and commissions (332,352) 63,131
Income taxes payable 252,837 -
Other accrued liabilities (102,732) (208,863)
----------- -----------
Net cash provided by operating activities 7,368,070 2,115,765
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (3,249,056)
Non-refundable deposit associated with exchange transaction (1,000,000) -
----------- -----------
Net cash used in investing activities (1,000,000) (3,249,056)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments to) borrowings from affiliate (2,880,621) 4,145,842
Dividend paid (3,500,000) (3,000,000)
----------- -----------
Net cash (used in) provided by financing activities (6,380,621) 1,145,842
----------- -----------
NET (DECREASE) INCREASE IN CASH (12,551) 12,551
CASH at beginning of period 12,551 -
----------- -----------
CASH at end of period $ - $ 12,551
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE> 27
TRIBUNE NEW YORK RADIO, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1997 AND DECEMBER 29, 1996
1. ORGANIZATION
Prior to the events discussed in Note 2, Tribune New York Radio, Inc.
(the Company) owned and operated WQCD - FM located in New York City. The
Company is a wholly owned subsidiary of Tribune Company (Tribune).
2. PROPOSED SALE OF STATION
On May 15, 1997 and as a result of the subsequent exercise of an option
by the Company in December 1997, the Company agreed to exchange the
majority of the assets of the Company, $13,000,000 and the assumption of
certain liabilities totalling approximately $38,000,000 for the assets of
two TV stations; one serving the Grand Rapid-Kalamazoo-Battle Creek,
Michigan area; the other station serving the Seattle-Tacoma, Washington
area. The transaction is currently pending FCC approval. In connection
with this agreement, the Company entered into a time brokerage agreement
which permitted Emmis Broadcasting Corporation (Emmis) to begin operating
the radio station effective July 1, 1997. This time brokerage agreement
expires upon the closing of the exchange transaction with Emmis. In
consideration for the time brokerage agreement, the company receives a
monthly fee of approximately $700,000. Accounts receivable - other in
the accompanying balance sheet represents time brokerage fee receivables
from Emmis. As a result of the time brokerage agreement, the
accompanying statement of operations includes the operating results of
WQCD-FM for the period from December 30, 1996 through June 30, 1997.
Included on the Company's balance sheet at December 28, 1997 is a
non-refundable deposit of $1,000,000 associated with the exchange
transaction.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired and is
recorded net of advertising agency commissions.
B. Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. Barter
transactions are recorded at the estimated fair value of the goods or
services received. Broadcast revenue from barter transactions is
recognized when advertisements are aired. The appropriate expense or
asset is recognized when goods or services are used or received. Barter
revenue included in net broadcasting revenues was approximately $189,000
and $174,000 for the years ended December 28, 1997 and December 29, 1996,
respectively.
<PAGE> 28
C. Publication Activities
Included in other income (expense) in the accompanying statements of
operations are net expenses associated with publication activities which
approximated $71,000 for the year ended December 29, 1996, respectively.
No publication activity occurred in 1997.
D. Property and Equipment
The Company leases space and owns certain assets that are being utilized
by affiliated companies. The Company charged fees for space and certain
assets utilized by affiliates which total approximately $305,000 and
$232,000 for 1997 and 1996, respectively, and are reflected in other
income (expense) in the accompanying statements of operations.
Property and equipment are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the
estimated useful lives of the related assets which are 5 to 15 years for
broadcasting equipment and 7 years for furniture and fixtures. Leasehold
improvements are capitalized and amortized using the straight-line method
over the lesser of the terms of the related leases or the estimated
useful lives of the assets. Maintenance, repairs and minor renewals are
expensed. On a continuing basis, the Company reviews the financial
statement carrying value of property and equipment for impairment. If
events or changes in circumstances were to indicate that the carrying
value of certain assets may not be recoverable, a writedown of the assets
would be recorded through a charge to operations.
E. Income Taxes
The Company's operations are included in Tribune's consolidated United
States federal and state income tax returns. Based on Tribune's
tax-sharing policy, the Company computes taxes as if it were filing
separate tax returns. Income taxes are provided based on the liability
method of accounting pursuant to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The liability method
measures the expected tax impact of future taxable income or deductions
resulting from differences in the tax and financial reporting bases of
assets and liabilities reflected in the balance sheets and the expected
tax impact of carryforwards for tax purposes.
F. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Certain expenses incurred by Tribune have been allocated to
the Company (Notes 4, 5 and 9) on various bases which, in
<PAGE> 29
the opinion of management, are reasonable. However, such expenses are
not necessarily indicative of, and it is not practicable for management
to estimate, the nature and level of expenses which might have been
incurred had the Company operated as a stand-alone company.
G. Statements of Cash Flows
Information related to cash paid for interest and taxes has been omitted
since these costs are paid to Tribune by the Company.
H. Fiscal Year
The Company's fiscal year ends on the last Sunday in December. Fiscal
1997 and 1996 included 52 weeks.
4. EMPLOYEE INCENTIVE and STOCK PLANS
A. Employee Stock Ownership Plan (ESOP)
In 1988, Tribune established an ESOP as a long-term employee benefit plan
to supplement their employee pension plan. Shares of stock held by the
ESOP have been placed with the ESOP Trustee. The ESOP provides for the
award and allocation of Tribune's preferred and common stock to eligible
non-union employees annually. During the year ended December 28, 1997
and December 29, 1996, the portion of expense associated with the
Company's employees participating in this plan was approximately $71,000
and $125,000, respectively.
B. Savings Incentive Plan
Tribune maintains a qualified 401(k) savings plan, which permits eligible
employees to make voluntary contributions on a pre-tax basis. The
Savings Incentive Plan provides for uniform employer contributions to
eligible employees of $.25 for each $1.00 contributed by participants up
to 4% of the participant's eligible compensation. This plan allows
participants to invest in various investments including Tribune's common
stock. The Company's contributions to this plan for its participant's
was approximately $13,000 and $19,000 for the years ended December 28,
1997 and December 29, 1996, respectively.
C. Employee Stock Purchase Plan and Management Incentive Plan
The Tribune's Employee Stock Purchase Plan permits eligible employees to
purchase up to 8 million shares of Tribune's common stock at 85% of
market price. The Company's only expense relating to this plan is for
its administration.
The Management Incentive Plan provides bonuses to be paid to certain
employees if specified performance criteria for the station have been
met. In 1997 and 1996 the Company's portion of expenses associated with
this plan were approximately $50,000 and $182,000, respectively.
<PAGE> 30
5. OTHER EMPLOYEE BENEFIT PLANS
A. Pension Plans
In connection with the establishment of the ESOP, Tribune amended,
effective January 1989, its company-sponsored pension plan for employees
not covered by a collective bargaining agreement. This pension plan will
continue to provide substantially the same pension benefits as under the
pre-amended plan until December 1998. After that date, the plan provides
for the freezing of pension benefit credits in terms of pay and service.
It is Tribune's policy to fund pension costs in accordance with
regulations of the Employee Retirement Income Security Act of 1974. The
Company's share of pension costs for 1997 and 1996 were not significant.
The net assets of Tribune's pension plan referred to above were in excess
of the actuarially computed present value of accumulated plan benefits.
The Company contributes to a multiemployer defined contribution health
and retirement plan for employees who are members of the labor union.
During the year ended December 1997 and 1996, the Company's expense
associated with the plan was approximately $37,000 and $69,000,
respectively.
B. Postretirement Other than Pensions
Effective July 1, 1997 in conjunction with the time brokerage agreement
(Note 2), the majority of the Company's employees were terminated or
employed by Emmis. As a result, the remaining postretirement benefit is
minimal at December 28, 1997. The Company's benefit costs for 1997 and
1996 were insignificant.
C. Other Plans
The Company also participates in several Tribune-sponsored medical and
life insurance plans. Expenses allocated to the Company associated with
their participation in these plans were approximately $55,000 and $85,000
for 1997 and 1996, respectively.
6. COMMITMENTS AND CONTINGENCIES
A. Operating Leases
The Company leases two transmitter sites and various equipment under
noncancellable operating leases expiring at various dates through 2010.
Certain of these lease agreements contain renewal options and annual
rental escalation clauses (generally tied to the Consumer Price Index or
increase in the lessor's operating costs), as well as provisions for
payment of utilities and maintenance costs.
The Company leases office space in which the Company and Tribune are
co-leasees. A portion of the Company's leased space is occupied by
affiliated
<PAGE> 31
companies. The Company charges fees to the affiliates based on occupied
square footage.
Effective January 1, 1998, Tribune commenced paying 100% of the lease
obligation referred to above. Tribune's intent is to continue paying
these obligations through the expiration of the lease. The Company has
expensed the costs associated with the lease through December 28, 1997.
In addition, it is the intent of Tribune to continue utilizing the
leasehold improvements owned by the Company associated with this space
and certain furniture and fixtures no longer being used by the Company.
Accordingly, these assets continue to be reflected in the accompanying
balance sheet at their carrying value at December 28, 1997.
Total rent expense, net of reimbursements from affiliates, for 1997 and
1996 was approximately $343,000 and $651,000, respectively.
B. Litigation
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business; however, the Company is not
currently a party to any lawsuit or proceeding which, in the opinion of
management, is likely to have a material adverse effect on the financial
position or results of operations of the Company.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the current assets and liabilities approximate
fair value based on the short term nature of these instruments.
8. INCOME TAXES
The provision for income taxes (predominately currently payable) for the
years ended December 28, 1997 and December 29,1996 was $3,374,000 and
$2,670,000, respectively. The provision for income taxes approximates
47% of income before income taxes and is higher than the federal
statutory tax rate of 35% due to state income taxes.
Deferred tax assets and liabilities at December 28, 1997 and December 29,
1996 were not material.
9. OTHER RELATED PARTY TRANSACTIONS
The Company participates in Tribune's centralized cash management program
with respect to accounts receivable, accounts payable, payroll and
employee benefits. Tribune also provides the Company with certain
insurance and administrative services. Charges for these services are
based on allocations of Tribune's actual direct and indirect costs using
varying allocation bases as appropriate (e.g., payroll, headcount, etc.)
designed to estimate the actual cost incurred by Tribune to render these
services to the Company. This allocation
<PAGE> 32
process is consistent with the methodology used by Tribune to allocate
the cost of similar services provided to its other business units. The
allocated cost of these services are included in corporate expenses in
the accompanying statements of operations.
Treasury, legal and tax services provided by Tribune are not allocated to
the Company as these costs are not believed to be significant.
As part of Tribune's cash management program, interest is
charged/credited on all affiliate balances at a rate of 8% per annum.
10. RECLASSIFICATIONS
Certain prior year reclassifications have been made to conform to the
current year presentation.
<PAGE> 33
TRIBUNE NEW YORK RADIO, INC.
===============================================================================
FINANCIAL STATEMENTS
AS OF MARCH 29, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE> 34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Tribune New York Radio, Inc.:
We have reviewed the accompanying condensed balance sheet of TRIBUNE NEW YORK
RADIO, INC. (a Delaware corporation) as of March 29, 1998, and the related
condensed statements of operations and retained earnings and cash flows for the
three-month periods ended March 29, 1998 and March 30, 1997. These condensed
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists primarily of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Tribune New York Radio, Inc. as of December 28,
1997, and the related statement of operations and retained earnings and cash
flows for the year then ended (not presented separately herein), and in our
report dated May 1, 1998, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of March 29, 1998 is fairly stated, in
all material respects, in relation to the balance sheet from which it has been
derived.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
May 1, 1998.
<PAGE> 35
TRIBUNE NEW YORK RADIO, INC.
CONDENSED BALANCE SHEETS
MARCH 29, 1998 AND DECEMBER 28, 1997
<TABLE>
<CAPTION>
A S S E T S
----------- (unaudited)
Mar-98 Dec-97
------ ------
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ -
Accounts receivable 24,132 86,297
Accounts receivable - other 2,248,627 1,452,561
----------- -----------
Total current assets 2,272,759 1,538,858
----------- -----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 4,308,870 4,308,870
Broadcasting equipment 2,541,700 2,541,700
Furniture and fixtures 1,687,489 1,687,489
----------- -----------
8,538,059 8,538,059
Less - Accumulated depreciation (2,831,383) (2,612,385)
----------- -----------
5,706,676 5,925,674
Non-refundable deposit associated with
exchange transaction (Note 2) 1,000,000 1,000,000
----------- -----------
Total assets $ 8,979,435 $ 8,464,532
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------ (unaudited)
Mar-98 Dec-97
------ ------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ - $ 7,107
Accounts payable - affiliate 641,866 1,765,985
Accrued salaries and commissions 18,625 68,625
Income taxes payable 959,835 252,837
Other accrued liabilities 148,492 148,492
----------- -----------
Total current liabilities 1,768,818 2,243,046
----------- -----------
STOCKHOLDER'S EQUITY:
Common stock, $.10 par value, 10,000 shares authorized
1,000 shares issued and outstanding 100 100
Additional paid-in capital 3,720,560 3,720,560
Retained earnings 3,489,957 2,500,826
----------- -----------
Total stockholder's equity 7,210,617 6,221,486
----------- -----------
Total liabilities and stockholder's equity $ 8,979,435 $ 8,464,532
=========== ===========
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these condensed balance sheets.
<PAGE> 36
TRIBUNE NEW YORK RADIO, INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 29, 1998 AND MARCH 30, 1997
<TABLE>
<CAPTION>
(unaudited)
Mar-98 Mar-97
------ ------
<S> <C> <C>
NET BROADCASTING REVENUES $ - $ 3,845,026
BROADCASTING OPERATING EXPENSES - 2,518,746
CORPORATE EXPENSES - 14,089
DEPRECIATION 218,998 220,770
TIME BROKERAGE FEE INCOME 2,124,999 -
----------- -----------
OPERATING INCOME 1,906,001 1,091,421
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (31,580) (68,047)
Other expense (8,290) 69,335
----------- -----------
Total other income (expense) (39,870) 1,288
----------- -----------
INCOME BEFORE INCOME TAXES 1,866,131 1,092,709
Provision for income taxes (877,000) (514,000)
----------- -----------
NET INCOME 989,131 578,709
Retained earnings, beginning of period 2,500,826 2,120,207
Dividends paid to stockholder - -
----------- -----------
Retained earnings, end of period $ 3,489,957 $ 2,698,916
=========== ===========
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these condensed statements.
<PAGE> 37
TRIBUNE NEW YORK RADIO, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 29, 1998 AND MARCH 30, 1997
<TABLE>
<CAPTION>
(unaudited)
Mar-98 Mar-97
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 989,131 $ 578,709
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation 218,998 220,770
Change in assets and liabilities -
Account receivable 62,165 525,398
Accounts receivable - other (796,066) 44,478
Prepaid expenses and other - (55,546)
Accounts payable (7,107) (38,100)
Accrued salaries and commissions (50,000) (112,110)
Income taxes payable 706,998 514,000
Other accrued liabilities - 53,309
----------- -----------
Net cash provided by operating activities 1,124,119 1,730,908
CASH FLOWS FROM INVESTING ACTIVITIES: - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments to affiliate (1,124,119) (1,743,459)
----------- -----------
NET DECREASE IN CASH - (12,551)
CASH at beginning of period - 12,551
----------- -----------
CASH at end of period $ - $ -
=========== ===========
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these condensed statements.
<PAGE> 38
TRIBUNE NEW YORK RADIO, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 29, 1998
(unaudited)
1. GENERAL
The interim condensed financial statements included herein have been
prepared in accordance with the accounting policies described in Tribune
New York Radio, Inc.'s (the Company) December 28, 1997 yearend audited
financial statements. In the opinion of management, the accompanying
interim condensed financial statements contain all material adjustments,
consisting only of normal recurring adjustments, necessary to present
fairly the financial position of the Company at March 29, 1998 and the
results of its operations and cash flows for the three months ended March
29, 1998 and March 30, 1997.
Prior to the events discussed in Note 2, the Company owned and operated
WQCD - FM located in New York City. The Company is a wholly owned
subsidiary of Tribune Company.
2. PROPOSED SALE OF STATION
On May 15, 1997 and as a result of the subsequent exercise of an option
by the Company in December 1997, the Company agreed to exchange the
majority of the assets of the Company, $13,000,000 and the assumption of
certain liabilities totalling approximately $38,000,000 for the assets of
two TV stations; one serving the Grand Rapid-Kalamazoo-Battle Creek,
Michigan area; the other station serving the Seattle-Tacoma, Washington
area. The transaction is currently pending FCC approval. In connection
with this agreement, the Company entered into a time brokerage agreement
which permitted Emmis Broadcasting Corporation (Emmis) to begin operating
the radio station effective July 1, 1997. This time brokerage agreement
expires upon the closing of the exchange transaction with Emmis. In
consideration for the time brokerage agreement, the company receives a
monthly fee of approximately $700,000. Accounts receivable - other in
the accompanying balance sheet represents time brokerage fee receivables
from Emmis. As a result of the time brokerage agreement, the
accompanying statement of operations includes the operating results of
WQCD-FM for the period from December 30, 1996 through June 30, 1997.
Included on the Company's balance sheet at March 29, 1998 and December
28, 1997 is a non-refundable deposit of $1,000,000 associated with the
exchange transaction.
3. INCOME TAXES
Income tax expense is reported during interim periods on the basis of the
estimated annual effective tax rate for the taxable jurisdictions in
which the Company operates.
<PAGE> 39
EXHIBITS:
Exhibit
Number Exhibit
- ------- -------
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
-2-
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EMMIS BROADCASTING CORPORATION
Date: May 6, 1998 By: /s/ Howard L. Schrott
------------------------
Howard L. Schrott
Vice President, Chief
Financial Officer and
Treasurer
-3-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 8-K, into the Company's previously filed
Registration Statement File Numbers 333-83890 and 333-14657.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
May 6, 1998.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, Nos. 333-83890 and 333-14657) of our report dated February 20, 1998
(except for Note 10, as to which the date is March 18, 1998), with respect to
the combined financial statements of SF Broadcasting of Wisconsin, Inc. and SF
Multistations, Inc. and subsidiaries included in this Current Report on Form
8-K.
ERNST & YOUNG LLP
New York, New York
May 5, 1998.
