<PAGE>
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 29, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____to____ Commission file number 33-99622
BUSSE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2750516
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
141 East Michigan Avenue, Suite 300
Kalamazoo, Michigan 49007
(Address of principal executive offices)
(616) 388-8019
(Registrant's telephone number, including area code)
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
---- ----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of August 11, 1997, 107,700 shares of the Common Stock of Busse
Broadcasting Corporation were outstanding. None of the outstanding shares
were held by non-affiliates.
- -----------------------------------------------------------------------------
<PAGE>
BUSSE BROADCASTING CORPORATION
FORM 10-Q TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BUSSE BROADCASTING CORPORATION
Condensed Consolidated Balance Sheets as of June 29, 1997
(Unaudited) and December 29, 1996 (Audited) 3
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended June 29, 1997 and June 30, 1996 4
Unaudited Condensed Consolidated Statements of Operations for the
Six Months Ended June 29, 1997 and June 30, 1996 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 29, 1997 and June 30, 1996 6
Notes to Unaudited Condensed Consolidated Financial Statements for the
Six Months Ended June 29, 1997 7
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
Condensed Consolidated Balance Sheets as of June 29, 1997
(Unaudited) and December 29, 1996 (Audited) 14
Unaudited Condensed Consolidated Statements of Operations and
Stockholder's Equity for the Three Months Ended
June 29, 1997 and June 30, 1996 15
Unaudited Condensed Consolidated Statements of Operations and
Stockholder's Equity for the Six Months Ended
June 29, 1997 and June 30, 1996 16
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 29, 1997 and June 30, 1996 17
Notes to Unaudited Condensed Consolidated Financial Statements for the
Six Months Ended June 29, 1997 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 28
SIGNATURES 29
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Busse Broadcasting Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1997 1996
UNAUDITED AUDITED
-----------------------------
<S> <C> <C>
ASSETS (NOTE 1)
Current assets:
Cash and cash equivalents (NOTE 3) $8,488,555 $ 7,989,805
Receivables, net 3,827,640 3,848,990
Other current assets 353,964 856,200
-----------------------------
Total current assets 12,670,159 12,694,995
Property, plant and equipment, net 13,745,953 14,327,392
Deferred charges and other assets 2,118,976 2,424,312
Intangible assets and excess reorganization value 50,717,219 52,707,124
-----------------------------
Total assets $79,252,307 $82,153,823
-----------------------------
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE 1)
Current liabilities:
Accounts payable and accrued expenses $ 3,081,510 $ 3,174,795
-----------------------------
Total current liabilities 3,081,510 3,174,795
Long-term debt (NOTE 3) 60,684,381 60,464,182
Other long-term liabilities 411,048 941,501
Stockholders' equity:
Series A cumulative convertible preferred stock (non-voting) -
$.01 par value, $1,000 per share liquidation preference;
65,524.41 shares authorized, issued and outstanding; including
dividends in arrears of $7,074,697 and $4,663,471 at June 29,
1997 and December 29, 1996, respectively 24,405,357 21,994,131
Common stock (voting) - $.01 par value; 2,154,000 shares
authorized, and 107,700 shares issued and outstanding 1,077 1,077
Additional paid-in capital - common stock 9,185,772 9,185,772
Accumulated deficit (18,516,838) (13,607,635)
-----------------------------
Total stockholders' equity 15,075,368 17,573,345
-----------------------------
Total liabilities and stockholders' equity $79,252,307 $82,153,823
-----------------------------
-----------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
Busse Broadcasting Corporation
Condensed Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
JUNE 29, 1997 JUNE 30, 1996
---------------------------------
<S> <C> <C>
Net revenue from continuing operations $5,284,833 $ 4,907,765
Operating costs and expenses, excluding depreciation
and amortization 2,180,756 2,088,990
Depreciation 530,269 504,496
Amortization of intangibles and excess reorganization value 977,126 960,409
---------------------------------
Total operating costs and expenses of continuing operations 3,688,151 3,553,895
Corporate expenses 387,601 420,652
---------------------------------
Income from continuing operations 1,209,081 933,218
Other income (expense) from continuing operations:
Interest expense (2,084,508) (2,064,998)
Interest income 90,062 51,217
Gain on disposition of assets 370 1,416
Other income (expense) (3,916) 5,220
---------------------------------
Other expense from continuing operations (1,997,992) (2,007,145)
---------------------------------
Loss from continuing operations before income taxes (788,911) (1,073,927)
Provision for current income taxes (NOTE 4) -- --
---------------------------------
Loss from continuing operations (788,911) (1,073,927)
Discontinued operations (Note 2):
Income from operations -- 36,678
---------------------------------
Net loss (788,911) (1,037,249)
Charges to stockholders' equity for Series A preferred stock
dividends in arrears (1,205,613) (1,205,614)
---------------------------------
Net loss attributable to common stockholders $(1,994,524) $(2,242,863)
---------------------------------
---------------------------------
Per common share (Note 1):
Loss from continuing operations $ (7.33) $ (9.97)
Income from discontinued operations -- 0.34
Series A preferred stock dividends in arrears (11.19) (11.19)
---------------------------------
Net loss attributable to common stockholders $ (18.52) $ (20.82)
---------------------------------
---------------------------------
Weighted average common shares outstanding 107,700 107,700
---------------------------------
---------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
Busse Broadcasting Corporation
Condensed Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------
JUNE 29, 1997 JUNE 30, 1996
-----------------------------------
<S> <C> <C>
Net revenue from continuing operations $9,549,775 $9,419,405
Operating costs and expenses, excluding depreciation and amortization 4,345,637 4,276,221
Depreciation 1,060,538 1,009,084
Amortization of intangibles and excess reorganization value 1,989,904 1,936,416
-----------------------------------
Total operating costs and expenses of continuing operations 7,396,079 7,221,721
Corporate expenses 740,554 824,337
-----------------------------------
Income from continuing operations 1,413,142 1,373,347
Other income (expense) from continuing operations:
Interest expense (4,163,284) (4,263,755)
Interest income 186,576 147,236
Gain on disposition of assets 390 1,416
Other income (expense) 65,199 (5,699)
-----------------------------------
Other expense from continuing operations (3,911,119) (4,120,802)
-----------------------------------
Loss from continuing operations before income taxes (2,497,977) (2,747,455)
Provision for current income taxes (NOTE 4) -- (25,000)
-----------------------------------
Loss from continuing operations (2,497,977) (2,772,455)
Discontinued operations (Note 2):
Income from operations -- 117,375
-----------------------------------
Net loss (2,497,977) (2,655,080)
Charges to stockholders' equity for Series A preferred stock
dividends in arrears (2,411,226) (2,252,245)
-----------------------------------
Net loss attributable to common stockholders $(4,909,203) $(4,907,325)
-----------------------------------
-----------------------------------
Per common share (Note 1):
Loss from continuing operations $ (23.19) $ (25.74)
Income from discontinued operations -- 1.09
Series A preferred stock dividends in arrears (22.39) (20.91)
-----------------------------------
Net loss attributable to common stockholders $ (45.58) $ (45.56)
-----------------------------------
-----------------------------------
Weighted average common shares outstanding 107,700 107,700
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
Busse Broadcasting Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------
JUNE 29, 1997 JUNE 30, 1996
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,497,977) $(2,655,080)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 3,050,442 3,092,518
Noncash interest expense 220,199 238,904
Amortization of deferred financing costs 308,703 295,849
Program payments over program amortization (2,085) (15,528)
Gain on disposition of property, plant and equipment (390) (17,166)
Deferred compensation expense 174,520 182,830
Pension expense 60,000 80,000
Change in current assets and liabilities:
Receivables 21,350 388,158
Other current assets 15,782 307,994
Accounts payable and accrued expenses (369,718) 620,518
------------------------------------
Net cash provided by operating activities 980,826 2,518,997
INVESTING ACTIVITIES:
Capital expenditures (479,099) (1,132,977)
Proceeds from disposition of assets 390 17,016
(Increase) decrease in other assets (3,367) 884
------------------------------------
Net cash used in investing activities (482,076) (1,115,077)
FINANCING ACTIVITIES:
Payments on indebtedness -- (35,213,216)
Payment of deferred financing costs -- (178,934)
------------------------------------
Net cash used in financing activities -- (35,392,150)
------------------------------------
Net increase (decrease) in cash and cash equivalents 498,750 (33,988,230)
Cash and cash equivalents at beginning of period 7,989,805 38,893,959
------------------------------------
Cash and cash equivalents at end of period $8,488,555 $4,905,729
------------------------------------
------------------------------------
Supplemental disclosure of cash flow information:
Interest paid during the period $3,634,382 $3,643,821
------------------------------------
------------------------------------
Income taxes paid during the period $ -- $ --
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
June 29, 1997
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include Busse Broadcasting
Corporation and its wholly owned subsidiaries (collectively, "BBC" or the
"Company") engaged in the following businesses:
TELEVISION:
KOLN/KGIN-TV CBS Affiliate Lincoln/Grand Island, Nebraska
WEAU-TV NBC Affiliate Eau Claire/La Crosse, Wisconsin
PRINTING:
Winnebago Color Press Menasha, Wisconsin
(Sold December 27, 1996)
All intercompany accounts and transactions have been eliminated in
consolidation.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. As the Company
currently has no stock options, the impact of Statement No. 128 on the
calculation of primary and fully diluted earnings per share for the three and
six months ended June 29, 1997 and June 30, 1996, respectively, is not
expected to be material.
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to be financial statements reflect, in the
opinion of the Company, all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the Company's financial position and
results of operations for the unaudited interim periods. Results for such
interim periods are not necessarily indicative of the results for the
respective entire years.
7
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the audited financial statements and notes thereto of Busse Broadcasting
Corporation included in the Company's 1996 Annual Report on Form 10-K.
The Company and its wholly-owned subsidiary filed voluntary petitions for a
joint plan of reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Plan") on March 10, 1995. On April 20, 1995 the United States
Bankruptcy Court for the district of Delaware (the "Court") confirmed the
Plan, such Plan became effective May 3, 1995 (the "Effective Date") and the
respective Chapter 11 cases were closed by the Court on September 21, 1995.
2. DISCONTINUED OPERATIONS--SALE OF WINNEBAGO COLOR PRESS
On December 27, 1996, the Company sold substantially all of the assets of its
Winnebago Color Press ("Winnebago") division to Winnebago Color Press, Inc.,
an entity owned in part by Mr. Lawrence A. Busse, the Chairman and Chief
Executive Officer of BBC, for $3,327,856 in cash plus the assumption of
certain liabilities totaling $369,638 and, after payment of certain selling
costs, realized net proceeds of $3,242,235 from such sale. The Company's
utilization of such net proceeds is restricted under the terms of a certain
indenture relating to the Company's 11 5/8% Senior Secured Notes due October
15, 2000 (see Note 3). In connection with the sale of Winnebago, the Company
received an opinion from an investment banking firm that the transaction was
fair to the Company and its stockholders. Winnebago was the Company's only
operation within its printing segment and accordingly, because of the sale,
this segment has been presented as a discontinued operation. The operations
of Winnebago for the three and six months ended June 30, 1996 are classified
as income from discontinued operations. The net revenues of Winnebago
included in the condensed consolidated statements of operations were
$1,598,786 and $3,157,641 for the three and six months ended June 30, 1996,
respectively.
Corporate expenses and interest income, net of interest expense, have been
allocated to income from discontinued operations only if such were directly
attributable to Winnebago. For the three months ended June 30, 1996 the
corporate expenses and interest income, net of interest expense, allocated to
income from discontinued operations were $2,876 and $1,311, respectively. For
the six months ended June 30, 1996 the corporate expenses and interest
income, net of interest expense, allocated to income from discontinued
operations were $5,753 and $573, respectively.
8
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1997 1996
-------------------------------
<S> <C> <C>
Senior Secured Notes, net of unamortized original issue
discount of $1,842,619 and $2,062,818 at June 29, 1997
and December 29, 1996, respectively $60,684,381 $60,464,182
-------------------------------
-------------------------------
</TABLE>
On October 26, 1995 the Company issued $62,527,000 principal amount of 11 5/8%
Senior Secured Notes due October 15, 2000 ("Senior Notes") at a price of
95.96% of the aggregate principal amount thereof and received net proceeds of
$58,125,099 after payment of underwriting discounts and commissions of
$1,875,810. The net proceeds from the issuance of the Senior Notes, and the
interest earnings thereon, were used by the Company to redeem certain of the
Company's outstanding indebtedness in October 1995 and in January 1996.
Interest on the Senior Notes is payable semiannually in arrears on April 15
and October 15 of each year, commencing April 15, 1996. Interest is computed
on the basis of a 360-day year comprised of twelve 30-day months.
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all
existing and future senior indebtedness of the Company. The Senior Notes are
secured by all of the Company's equity interests in, and certain intercompany
indebtedness of, its subsidiaries, including the subsidiaries which hold the
Federal Communications Commission ("FCC") licenses of the Company's two
television stations, certain agreements and contract rights related to such
television stations (including network affiliation agreements), certain
machinery, equipment and fixtures, certain general intangibles, mortgages on
substantially all of the owned and certain of the leased real property of the
Company and its subsidiaries, and proceeds thereof. In addition, the
Company's subsidiaries (collectively, the "Guarantors") have fully and
unconditionally guaranteed the Senior Notes on a joint and several and senior
secured basis and each such guarantee ranks senior in right of payment to all
existing and future subordinated indebtedness of such Guarantor and ranks
pari passu with all existing and future senior indebtedness of such Guarantor.
9
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
The Senior Notes may not, except in certain circumstances, be redeemed by the
Company before October 15, 1998. Thereafter, the Senior Notes will be subject
to redemption at the option of the Company, in whole or in part, at the
redemption prices of 106% and 103% (expressed as percentages of the face
amount of the Senior Notes), plus accrued and unpaid interest to the date of
redemption, if redeemed during the twelve-month period beginning on October
15 of 1998 and 1999, respectively.
The indenture relating to the Senior Notes (the "Indenture") restricts the
use of the net proceeds from the sale of Winnebago (which net proceeds
consisted of $3,207,000, as determined in accordance with the Indenture).
Pursuant to the Indenture, on February 12, 1997 the Company commenced an
offer to purchase up to $3,207,000 of aggregate principal amount of Senior
Notes with the net proceeds of the sale of Winnebago. The Company's offer to
purchase expired, by its terms, on March 14, 1997 with no Senior Notes having
been tendered by their respective holders and, consequently, no Senior Notes
were purchased by the Company. Under the terms of the Indenture, the Company
may utilize the $3,207,000, and the interest earnings thereon, only to make
investments in or acquire properties and assets directly related to
television and/or radio broadcasting. Pending any such investment or
acquisition, such net proceeds may be invested in certain permitted cash
equivalents in accordance with the terms of the Indenture.
The Indenture contains various convenants and restrictions on the Company and
its subsidiaries including, but not limited to, incurring additional
indebtedness, issuing certain disqualified capital stock, making dividend
payments or certain other restricted payments, consummating certain asset
sales, incurring liens, entering into certain transactions with affiliates,
creating or acquiring additional subsidiaries, merging or consolidating with
any other person, or selling, assigning, transferring, leasing, conveying or
otherwise disposing of all or substantially all of the assets of the Company
or its subsidiaries.
The Indenture does not restrict the ability of a subsidiary to pay dividends
or make loans or advances to the Company.
10
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
4. INCOME TAXES
The Company has analyzed its current and deferred tax assets and liabilities
and has concluded that no provision for current or deferred federal or state
taxes is required for the three and six months ended June 29, 1997 and for
the three months ended June 30, 1996. The income tax provision for the six
months ended June 30, 1996 provides for current state taxes.
As of December 29, 1996 the Company had approximately $60.8 million of
federal net operating loss carryforwards ("NOL's") which will begin to expire
in 2005. Subsequent to the Effective Date (see Note 1), the Company elected
treatment under Section 382 (l) (5) of the Internal Revenue Code, as amended.
This treatment will allow the Company to utilize, subject to certain
restrictions, its NOL's to offset taxable income incurred after the Effective
Date. Utilization of a portion of these NOL's are assumed in the Company's
calculation of Post-Effective Date deferred taxes.
5. CORPORATE REORGANIZATION/SUBSIDIARY GUARANTORS
The Senior Notes are fully and unconditionally guaranteed, on a joint and
several and senior secured basis, by all of the Company's direct and indirect
subsidiaries, each of which is wholly-owned. To facilitate the collateral
arrangements required by the Senior Notes the Company effected the following
transactions on October 20, 1995:
1. The FCC licenses relating to the operation of WEAU-TV were conveyed to a
wholly-owned subsidiary, WEAU License, Inc., in exchange for a $4,880,000
note payable to Busse Broadcasting Corporation and 100% of the stock of the
subsidiary;
2. The assets and liabilities relating to the operation of KOLN/KGIN-TV were
conveyed to a wholly-owned subsidiary, KOLN/KGIN, Inc. (formerly known as
Busse Management, Inc. which was formerly known as WWMT, Inc.); and
3. KOLN/KGIN, Inc. conveyed the FCC licenses relating to the operation of
KOLN/KGIN-TV to its wholly-owned subsidiary, KOLN/KGIN License, Inc., in
exchange for all of the capital stock of the subsidiary.
11
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
5. CORPORATE REORGANIZATION/SUBSIDIARY GUARANTORS (CONTINUED)
The following tables present summarized combined balance sheet and operating
statement information for (i) KOLN/KGIN, Inc., (ii) KOLN/KGIN License, Inc.
and (iii) WEAU License, Inc. Separate financial statements of KOLN/KGIN, Inc.
immediately follow these notes to condensed consolidated financial statements
of Busse Broadcasting Corporation. Separate financial statements and other
disclosures concerning KOLN/KGIN License, Inc. and WEAU License, Inc. have
not been presented because management has determined that such financial
statements would not be material to investors.
JUNE 29, DECEMBER 29,
1997 1996
-----------------------------
ASSETS
Current assets $ 2,921,998 $ 3,258,170
Non-current assets 47,288,283 49,097,117
-----------------------------
$50,210,281 $52,355,287
-----------------------------
-----------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities $ 665,841 $ 1,090,989
Non-current liabilities 6,536,685 6,703,675
Stockholder's equity 43,007,755 44,560,623
-----------------------------
Total liabilities and stockholder's equity $50,210,281 $52,355,287
-----------------------------
-----------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -----------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net revenue $3,342,150 $2,916,964 $ 6,161,283 $ 5,816,712
Total operating costs and
expenses 2,600,245 2,475,377 5,215,201 5,065,003
Income from operations 741,905 441,587 946,082 751,709
Net loss (605,977) (243,869) (1,552,868) (1,056,405)
</TABLE>
12
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
6. PENSION PLAN TERMINATION
On July 1, 1997 the Company amended its defined benefit plan (the "Pension
Plan") to freeze all benefit and service accruals thereunder and to terminate
the Pension Plan effective as of September 28, 1997. An application for
determination and notification with the Pension Benefit Guaranty Corporation
(the "PBGC") will be filed pursuant to PBGC regulations. The Company
anticipates that the Internal Revenue Service will rule that the Pension Plan
qualifies under Section 401(a) of the Internal Revenue Code and, therefore,
will not be subject to tax under present income tax laws. The termination
will allow participants to purchase annuities, accept a lump sum or roll over
benefits into the Company's 401(k) Savings Plan. A full distribution of plan
assets is expected during 1998.
The Pension Plan's available net assets will be allocated to benefits as
prescribed by ERISA, generally in the following order:
a) Certain annuity benefits that former employees or their beneficiaries are
receiving or that employees eligible for retirement would have been
receiving had they retired;
b) Other vested benefits insured by the PBGC, as discussed below;
c) All other vested benefits; and
d) All nonvested benefits.
The PBGC guarantees most, but not all, vested retirement benefits and certain
disability and survivor pensions for plan terminations.
13
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29,
1997 1996
UNAUDITED AUDITED
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 135,246 $ 299,008
Receivables, net 2,479,970 2,343,022
Program contract rights 126,995 438,219
Other current assets 31,786 29,919
-------------------------------
Total current assets 2,773,997 3,110,168
Property, plant and equipment, net 7,870,919 8,213,165
Due from Parent 308,534 237,465
Deferred charges and other assets 5,038 5,038
Intangible assets and excess reorganization value 33,693,454 34,992,682
-------------------------------
Total assets $44,651,942 $46,558,518
-------------------------------
-------------------------------
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 498,870 $ 609,878
Program contracts payable 51,828 364,094
-------------------------------
Total current liabilities 550,698 973,972
Deferred income tax liabilities 1,867,000 1,958,000
Stockholder's equity:
Common stock (voting) - $.01 par value, 1,000 shares
authorized, issued and outstanding 10 10
Additional paid-in capital 46,568,577 46,568,577
Accumulated deficit (4,334,343) (2,942,041)
-------------------------------
Total stockholder's equity 42,234,244 43,626,546
-------------------------------
Total liabilities and stockholder's equity $44,651,942 $46,558,518
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Operations and Stockholder's Equity
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
JUNE 29, JUNE 30,
1997 1996
--------------------------------
<S> <C> <C>
Net revenue $ 3,164,150 $ 2,736,964
Operating costs and expenses, excluding depreciation and
amortization 1,350,136 1,265,677
Depreciation 274,525 265,950
Amortization of intangibles and excess reorganization value 649,614 649,610
Corporate expenses 224,582 211,810
--------------------------------
Total operating costs and expenses 2,498,857 2,393,047
--------------------------------
Income from operations 665,293 343,917
Other income (expense):
Interest income 4,981 6,360
Other expense (7,756) (73)
--------------------------------
Other income (expense) (2,775) 6,287
--------------------------------
Income before income taxes 662,518 350,204
(Provision) benefit for income taxes:
Current (1,250,000) (1,065,000)
Deferred 45,000 70,000
--------------------------------
(1,205,000) (995,000)
--------------------------------
Net loss (542,482) (644,796)
Stockholder's equity at beginning of period 42,776,726 45,554,883
--------------------------------
Stockholder's equity at end of the period $42,234,244 $44,910,087
--------------------------------
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Operations and Stockholder's Equity
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 29, JUNE 30,
1997 1996
------------------------------
<S> <C> <C>
Net revenue $5,801,283 $5,460,712
Operating costs and expenses, excluding depreciation and
amortization 2,685,051 2,610,375
Depreciation 549,050 532,060
Amortization of intangibles and excess reorganization value 1,299,228 1,299,220
Corporate expenses 443,443 438,398
------------------------------
Total operating costs and expenses 4,976,772 4,880,053
------------------------------
Income from operations 824,511 580,659
Other income (expense):
Interest income 9,943 11,857
Other expense (7,756) (7,833)
------------------------------
Other income (expense) 2,187 4,024
------------------------------
Income before income taxes 826,698 584,683
(Provision) benefit for income taxes:
Current (2,310,000) (2,065,000)
Deferred 91,000 94,000
------------------------------
(2,219,000) (1,971,000)
------------------------------
Net loss (1,392,302) (1,386,317)
Stockholder's equity at beginning of period 43,626,546 46,296,404
------------------------------
Stockholder's equity at end of the period $42,234,244 $44,910,087
------------------------------
------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
JUNE 29, JUNE 30,
1997 1996
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,392,302) $(1,386,317)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,848,278 1,831,280
Program payments over program amortization (1,042) (17,953)
Deferred income taxes (91,000) (94,000)
Change in current assets and liabilities:
Receivables (136,948) 115,443
Other current assets (1,867) 27,560
Accounts payable and accrued expenses (111,008) (159,661)
--------------------------------
Net cash provided by operating activities 114,111 316,352
INVESTING ACTIVITIES:
Capital expenditures (206,804) (219,811)
Decrease in other assets -- 882
--------------------------------
Net cash used in investing activities (206,804) (218,929)
FINANCING ACTIVITIES:
(Increase) decrease in due from Parent (71,069) 5,133
--------------------------------
Net cash used in financing activities (71,069) 5,133
--------------------------------
Net increase (decrease) in cash and cash equivalents (163,762) 102,556
Cash and cash equivalents at beginning of period 299,008 380,938
--------------------------------
Cash and cash equivalents at end of period $ 135,246 $ 483,494
--------------------------------
--------------------------------
Supplemental information
Income taxes paid $2,310,000 $2,065,000
--------------------------------
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements
Unaudited
June 29, 1997
1. BASIS OF PRESENTATION
The financial statements present the financial position, results of
operations and stockholder's equity, and cash flows of KOLN/KGIN, Inc., a
wholly-owned subsidiary of Busse Broadcasting Corporation (the "Company" or
"Parent"). KOLN/KGIN, Inc. owns and operates KOLN/KGIN-TV, a CBS affiliate
operating channels 10 and 11 in the Lincoln - Hastings - Kearney, Nebraska
television market.
The accompanying financial statements include the accounts of KOLN/KGIN
License, Inc., a wholly-owned subsidiary of KOLN/KGIN, Inc. All intercompany
accounts and transactions have been eliminated in consolidation.
Net intercompany balances reflected in the due from Parent account are
primarily the result of KOLN/KGIN, Inc.'s participation in the Company's
central cash management program, wherein the month-end cash balances in
excess of certain levels are remitted to the Company. Other transactions
include the allocation of corporate expenses to KOLN/KGIN, Inc. and the
current income taxes that would have been due to the Company. There are no
terms of settlement or interest related to these balances which averaged
$272,999 and $164,162 due from the Parent during the six months ended June
29, 1997 and June 30, 1996, respectively.
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to the financial statements reflect, in
the opinion of KOLN/KGIN, Inc., all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly KOLN/KGIN, Inc.'s
financial position and results of operations for the unaudited interim
periods. Results for such interim periods are not necessarily indicative of
the results for the respective entire years.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the audited financial statements and notes thereto of KOLN/KGIN, Inc.
included in the Parent's 1996 Annual Report on Form 10-K.
18
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The Company and its wholly-owned subsidiary, KOLN/KGIN, Inc. (then named
WWMT, Inc.), filed voluntary petitions for a joint plan of reorganization
under Chapter 11 of the United States Bankruptcy Code (the "Plan") on March
10, 1995. On April 20, 1995 the United States Bankruptcy Court for the
district of Delaware (the "Court") confirmed the Plan, such Plan became
effective May 3, 1995 (the "Effective Date") and the respective Chapter 11
cases were closed by the Court on September 21, 1995.
2. GUARANTEE OF PARENT'S SENIOR NOTES
On October 26, 1995 the Company issued $62,527,000 principal amount of 11 5/8%
Senior Secured Notes due October 15, 2000 ("Senior Notes") at a price of
95.96% of the aggregate principal amount thereof.
To facilitate the collateral arrangements required by the Senior Notes the
Company effected the following transactions on October 20, 1995:
1. The assets and liabilities relating to the operation of KOLN/KGIN-TV were
conveyed to a wholly-owned subsidiary, KOLN/KGIN, Inc.; and
2. KOLN/KGIN, Inc. transferred the FCC licenses relating to the operation of
KOLN/KGIN-TV to its wholly-owned subsidiary, KOLN/KGIN License, Inc., in
exchange for all of the capital stock of the subsidiary.
Interest on the Senior Notes is payable semiannually in arrears on April 15
and October 15 of each year, commencing April 15, 1996. Interest is computed
on the basis of a 360-day year comprised of twelve 30-day months.
19
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
2. GUARANTEE OF PARENT'S SENIOR NOTES (CONTINUED)
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all
existing and future senior indebtedness of the Company. The Senior Notes are
secured by all of the Company's equity interests in, and certain intercompany
indebtedness of, its subsidiaries, including the respective subsidiaries
which own KOLN/KGIN-TV and hold the FCC licenses of KOLN/KGIN-TV, certain
agreements and contract rights related to such television station (including
network affiliation agreements), certain machinery, equipment and fixtures,
certain general intangibles, mortgages on substantially all of the owned and
certain of the leased real property of the Company and its subsidiaries, and
proceeds thereof. In addition, the Company's subsidiaries (collectively, the
"Guarantors") have fully and unconditionally guaranteed the Senior Notes on a
joint and several and senior secured basis and each such guarantee ranks
senior in right of payment to all existing and future subordinated
indebtedness of such Guarantor and ranks pari passu with all existing and
future senior indebtedness of such Guarantor.
The indenture relating to the Senior Notes (the "Indenture") contains various
convenants and restrictions on the Company and its subsidiaries, including,
but not limited to, incurring additional indebtedness, issuing certain
disqualified capital stock, making dividend payments or certain other
restricted payments, consummating certain asset sales, incurring liens,
entering into certain transactions with affiliates, creating or acquiring
additional subsidiaries, merging or consolidating with any other person, or
selling, assigning, transferring, leasing, conveying or otherwise disposing
of all or substantially all of the assets of the Company or its subsidiaries.
The Indenture does not restrict the ability of a subsidiary to pay dividends
or make loans or advances to the Company.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements of the Company and notes thereto
included at Item 1, "Financial Statements," which provide additional
information regarding the Company's financial activities and condition. The
accompanying unaudited Condensed Consolidated Financial Statements, together
with the related notes to such financial statements, reflect, in the opinion
of the Company, all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the Company's financial position and
results of operations for the unaudited interim periods. Results of such
interim periods are not necessarily indicative of the results for the
respective entire fiscal years.
The Company's fiscal year is the 52/53 week period ending on the
Sunday nearest to December 31 of each year. The Company's first three fiscal
quarters are each comprised of 13 consecutive weeks. Unless otherwise
indicated, references herein to 1997 and/or 1996 refer to the three or six
month period ended June 29, 1997 or June 30, 1996, respectively.
RESULTS OF OPERATIONS
The net revenues of KOLN/KGIN-TV and WEAU-TV (collectively, the
"Stations") are derived primarily from advertising revenues and, to a much
lesser extent, from compensation paid by the networks to the Stations for
broadcasting network programming and revenues derived from other operations
incidental to television broadcasting. The Stations' primary operating
expenses are employee compensation and related benefits, programming, news
gathering, newscast production and promotional expenses.
In general, a television station receives revenues for advertising
sold for placement within and adjoining its locally originated programming
and adjoining national network programming. Advertising is sold in time
increments and is priced primarily on the basis of a program's popularity
within the demographic group an advertiser desires to reach, as measured
principally by quarterly audience surveys. In addition, advertising rates
are affected by the number of advertisers competing for the available time,
the size of the demographic make-up of the markets served by the television
station and the availability of alternate advertising media in the market
areas. Advertising rates are highest during the most desirable viewing hours
with corresponding reductions during other hours. The ratings of local
television stations affiliated with a national television network can be
affected by the ratings of the network programming.
21
<PAGE>
Most advertising contracts are short-term and generally have a
duration running a few days to a few weeks. A large portion of the Stations'
revenues is generated from local and regional advertising, which is sold
primarily by the Stations' sales staff. The remainder of the advertising
revenues consists of national advertising, which is sold by an independent
national advertising sales representative. The Stations generally pay
commissions to advertising agencies on local, regional, and national
advertising, and on national advertising the Stations also generally pay
commissions to the national sales representative.
The advertising revenues of the Stations are generally highest in the
second and fourth quarters of each year, due in part to increases in consumer
advertising in the spring and retail advertising in the period leading up to
and including the holiday season. In addition, advertising revenues are
generally higher during election years due to spending by political
candidates, which spending typically is heaviest during the fourth quarter.
Operating expenses of the Stations are generally consistent throughout the
fiscal year.
The Company's sale of Winnebago on December 27, 1996 ended all
Company operations within its printing segment. The results of operations
for the three and six months ended June 30, 1996 account for Winnebago as a
discontinued operation. See Note 2 to Notes to Condensed Consolidated
Financial Statements (Unaudited) included in "Financial Statements" at Item 1.
COMPARISON OF THE THREE MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 1996
Net revenue increased $377,068, or 7.7%, to $5,284,833 from
$4,907,765 for the three months ended June 29, 1997 compared to the three
months ended June 30, 1996. Such increase was primarily attributable to
KOLN/KGIN-TV recording a year-to-year increase in net local and national time
sales, excluding net political revenues, of approximately 26.7% and 23.0%,
respectively, due to a general increase in advertising demand for commercial
time by clients within that station's market. WEAU-TV's net local time
sales, excluding net political revenues, were substantially unchanged during
the three month period ended June 29, 1997 compared to the three months ended
June 30, 1996 while, for the same period, net national time sales,
excluding net political revenues, decreased approximately 4.4% due to
decreased advertiser demand within that station's market. Net political
revenue for the Stations during the three months ended June 29, 1997
decreased by approximately $190,000, or 89.2%, to $23,000 from $213,000
between the fiscal periods reflecting 1997 as the "off-year" of the biannual
election cycle. Network compensation for the Stations was consistent between
the respective fiscal periods.
Operating expenses, excluding depreciation and amortization expenses,
increased $91,766, or 4.4%, to $2,180,756 for the three months ended June 29,
1997 from $2,088,990 for the comparable 1996 period reflecting, in part,
increases in certain performance incentive compensation costs associated with
KOLN/KGIN-TV.
22
<PAGE>
Depreciation expenses increased $25,773, or 5.1%, to $530,269 for the
three months ended June 29, 1997 from $504,496 for the comparable 1996
period, reflecting depreciation related to capital assets acquired since June
30, 1996.
Amortization expenses increased $16,717, or 1.7%, to $977,126 for the
three months ended June 29, 1997 from $960,409 for the comparable 1996 period.
Corporate expenses decreased $33,051, or 7.9%, to $387,601 during the
three months ended June 29, 1997 from $420,652 for the comparable 1996 period
reflecting, in part, differences in the incurrence of charges for
professional services between the respective fiscal periods.
Income from continuing operations increased $275,863, or 29.6%, to
$1,209,081 for the three months ended June 29, 1997 from $933,218 for the
comparable 1996 period reflecting the increased net revenues, as partially
offset by the increased operating expenses, both as discussed above.
Interest expense increased $19,510, or 1.0%, to $2,084,508 for the
three months ended June 29, 1997 from $2,064,998 for the comparable 1996
period reflecting, in part, increasing amortization of the original issue
discount related to the Senior Notes.
Interest income for the three months ended June 29, 1997 increased
$38,845, or 75.9% to $90,062 from $51,217 for the comparable 1996 period
primarily due to interest earnings on the net proceeds from the sale of
Winnebago on December 27, 1996.
The Company has analyzed its current and deferred tax assets and
liabilities and has concluded that no provision for current or deferred
federal or state taxes is required for the three months ended June 29, 1997.
Income from discontinued operations for the three months ended June
30, 1996 reflects the results for Winnebago, accounted for as a discontinued
operation for the 1996 period and includes $1,598,786 of net revenue for the
three months then ended. Winnebago was sold December 27, 1996. See Note 2
to Notes to Condensed Consolidated Financial Statements (Unaudited) included
in "Financial Statements" at Item 1.
COMPARISON OF THE SIX MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 1996
Net revenue increased $130,370, or 1.4%, to $9,549,775 from
$9,419,405 for the six months ended June 29, 1997 compared to the six months
ended June 30, 1996. Such increase was primarily attributable to
KOLN/KGIN-TV recording a year-to-year increase in net local and national time
sales, excluding net political revenues, of approximately 15.4% and 4.3%,
respectively, due to a general increase in advertising demand by clients
within that station's market. WEAU-TV recorded decreases of approximately
3.3% and 7.5% in net local and national time sales, excluding net political
revenues, respectively, during the six month period
23
<PAGE>
ended June 29, 1997 compared to the six months ended June 30, 1996 due to
decreased advertiser demand within that station's market. Net political
revenue for the Stations during the six months ended June 29, 1997 decreased
by approximately $256,000, or 82.2%, to $56,000 from $312,000 between the
fiscal periods reflecting 1997 as the "off-year" of the biannual election
cycle. Network compensation for the Stations was consistent between the
respective fiscal periods.
Operating expenses, excluding depreciation and amortization expenses,
increased $69,416, or 1.6%, to $4,345,637 for the six months ended June 29,
1997 from $4,276,221 for the comparable 1996 period reflecting, in part,
increases in certain performance incentive compensation costs associated with
KOLN-TV.
Depreciation expenses increased $51,454, or 5.1%, to $1,060,538 for
the six months ended June 29, 1997 from $1,009,084 for the comparable 1996
period, reflecting depreciation related to capital assets acquired since June
30, 1996.
Amortization expenses increased $53,488, or 2.8%, to $1,989,904 for
the six months ended June 29, 1997 from $1,936,416 for the comparable 1996
period.
Corporate expenses decreased $83,783, or 10.2%, to $740,554 during
the six months ended June 29, 1997 from $824,337 for the comparable 1996
period reflecting, in part, differences in the incurrence of charges for
professional services between the respective fiscal periods.
Income from continuing operations increased $39,795, or 2.9%, to
$1,413,142 for the six months ended June 29, 1997 from $1,373,347 for the
comparable 1996 period reflecting the increased net revenues, as partially
offset by the increased operating expenses, both as discussed above.
Interest expense decreased $100,471, or 2.4%, to $4,163,284 for the
six months ended June 29, 1997 from $4,263,755 for the comparable 1996 period
reflecting the Company's redemption and/or repayment of certain debt in
January and October 1996 offset, in part, by increasing amortization of the
original issue discount related to the Senior Notes.
Interest income for the six months ended June 29, 1997 increased
$39,340, or 26.7% to $186,576 from $147,236 for the comparable 1996 period
primarily due to interest earnings on the net proceeds from the sale of
Winnebago on December 27, 1996.
Other income for the six months ended June 29, 1997 includes
approximately $71,000 of income attributable to the favorable settlement of
certain property tax disputes.
The Company has analyzed its current and deferred tax assets and
liabilities and has concluded that no provision for current or deferred
federal or state taxes is required for the six months ended June 29, 1997.
24
<PAGE>
Income from discontinued operations for the six months ended June 30,
1996 reflects the results for Winnebago, accounted for as a discontinued
operation for the 1996 period and includes $3,157,641 of net revenue for the
six months then ended. Winnebago was sold December 27, 1996. See Note 2 to
Notes to Condensed Consolidated Financial Statements (Unaudited) included in
"Financial Statements" at Item 1.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at June 29, 1997 totaled
$8,488,555 compared to $7,989,805 at December 29, 1996. The Company's cash
balances at June 29, 1997 and December 29, 1996 include the net proceeds, and
the interest earnings thereon, from the sale of Winnebago of $3,289,964 and
$3,140,000, respectively. The Company's use of such net proceeds, and the
interest earnings thereon, is restricted, under the terms of the Indenture,
to making investments in or acquiring property and assets directly related to
television and/or radio broadcasting. Pending any such investment or
acquisition, such net proceeds may be invested in certain permitted cash
equivalents in accordance with the terms of the Indenture. Although the
Company has no immediate plans to use such net proceeds to invest in or
acquire assets directly related to television and/or radio broadcasting, some
or all of such proceeds may be used to fund the capital expenditures
described below, other capital expenditures, or for other permitted uses.
See Note 3 to Notes to Condensed Consolidated Financial Statements
(Unaudited) included in "Financial Statements" at Item 1. The primary
changes in the Company's cash position reflect cash provided by operating
activities offset, in part, by capital expenditures.
The Company's primary source of liquidity is cash generated by
operations. There are no contractual restrictions on the ability of the
Company's subsidiaries to pay cash dividends or make loans or advances to the
Company. The Company's net cash provided by operations (including changes in
working capital) was $980,826 and $2,518,997 for the six months ended June
29, 1997 and June 30, 1996, respectively. The decrease in net cash generated
between the respective fiscal periods is due primarily to changes in certain
working capital accounts.
The Company continues to have a significant annual cash interest
obligation of approximately $7,268,000 with respect to the Senior Notes.
Such cash interest obligation is payable in semi-annual installments of
approximately $3,634,000 due on the 15th day of April and October.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. During the six
months ended June 29, 1997 the Company's capital expenditures totaled
$479,099. The Company expects that it may incur up to approximately $600,000
of additional capital expenditures during the second half of fiscal year
1997. Such additional 1997 expenditures will be dependent on the Company's
assessment of its operational needs and evaluation of the technical
development of certain equipment systems. The Company currently anticipates
that its capital expenditure requirements for fiscal years 1998 and 1999,
excluding any expenditures for ATV as defined
25
<PAGE>
and discussed below, will approximate $1,100,000 per year with such amount
allocated approximately evenly between the Stations.
It is anticipated that significant capital expenditures may be
required in the future to implement digital advanced television systems
("ATV") at the Stations. The Federal Communications Commission ("FCC") has
determined the technical standards, the channel assignments and a time table
for implementation of ATV. The FCC has assigned the following ATV channels
to the Company's current channels:
Station Location Current Channel ATV Channel
------- -------- --------------- -----------
KOLN Lincoln, Nebraska 10 25
KGIN Grand Island, Nebraska 11 32
WEAU Eau Claire, Wisconsin 13 39
Generally, under the FCC's implementation schedule, the Company must
apply for ATV construction permits for each of its present television
stations by November 1, 1999 and then commence ATV operations by May 1, 2002.
Under the current FCC implementation schedule the Company would generally be
required to surrender to the government either the current channel or the ATV
channel by December 31, 2006 and continue its digital operations thereafter
on the retained channel. Recent legislation requires the FCC to extend the
December 31, 2006 surrender date with respect to certain stations within a
given television market if (i) at least one network affiliate is not
broadcasting a digital service in the given market and has exercised "due
diligence" in meeting the ATV buildout requirements for that market or (ii)
digital to analog converter technology is not generally available in the
given market or (iii) 15 percent or more of the television households in a
given market do not subscribe to a multichannel video programming distributor
that carries the digital service of each local station and those television
households do not have at least one advanced television set or at least one
digital to analog converter. The foregoing implementation schedule is subject
to review by the FCC each two years and may also be subject to future
legislation or judicial review, the effect of which cannot be predicted by the
Company.
The Company is currently studying the ATV channel assignments for the
Stations as well as the technical and capital expenditure requirements to
implement ATV at the Stations. The Company currently intends to implement
ATV at the Stations within the FCC mandated implementation period. The
Company cannot presently predict the cost of such implementation but, based
upon general industry estimates, currently believes that such costs will be
material and will require several million dollars to commence initial ATV
operations.
Although there can be no assurance that the Company will generate
earnings in the future sufficient to cover its fixed charges, including the
debt service obligations with respect to the Senior Notes, management
believes that the cash flow generated from the Company's operations and
available cash on hand should be sufficient to fund its interest
requirements, working capital needs, anticipated capital expenditures and
other operating expenses through the end of fiscal year 1999. The Company's
high degree of leverage will have important
26
<PAGE>
consequences, including the following: (i) the ability of the Company to
obtain additional financing for working capital, capital expenditures, debt
service requirements or other purposes may be impaired; (ii) a substantial
portion of the Company's operating cash flow will be required to be dedicated
to the payment of the Company's interest expense; (iii) the Company may be
more highly leveraged than companies with which it competes, which may place
it at a competitive disadvantage; and (iv) the Company may be more vulnerable
in the event of a downturn in its business. The Company's future operating
performance and ability to service or refinance the Senior Notes will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control.
The Company does not currently have additional credit availability
under any agreements and the Indenture governing the Senior Notes limits the
Company's ability to incur additional Indebtedness (as defined therein). The
limitation in the Indenture on the Company's ability to incur additional
Indebtedness, together with the highly leveraged nature of the Company, could
limit corporate and operating activities, including the Company's ability to
respond to market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
This quarterly report on Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. When used in this report, the words "believes," "expects,"
"anticipates," "estimates" and similar words and expressions are generally
intended to identify forward-looking statements. Statements that describe
the Company's future strategic plans, goals or objectives are also
forward-looking statements. Readers of this report are cautioned that any
forward-looking statements, including those regarding the intent, belief, or
current expectations of the Company or management, are not guarantees of
future performance, results or events and involve risks and uncertainties,
and that actual results and events may differ materially from those in the
forward-looking statements as a result of various factors including, but not
limited to (i) general economic conditions in the markets in which the
Company operates, (ii) competitive pressures within the industry and/or the
markets in which the Company operates, (iii) the effect of future
legislation or regulatory changes on the Company's operations and (iv) other
factors described from time to time in the Company's filings with the
Securities and Exchange Commission. The forward-looking statements included
in this report are made only as of the date hereof. The Company undertakes
no obligation to update such forward-looking statements to reflect subsequent
events or circumstances.
27
<PAGE>
INCOME TAXES
The Company estimated that its federal NOL carryover as of December
29, 1996 was approximately $60.8 million and that such NOL's will begin to
expire in 2005. The Company elected treatment under Section 382(l)(5) (the
"L5 Election") of the Internal Revenue Code, as amended (the "Code"), when it
filed its 1995 federal income tax return. The L5 Election allows the Company
to utilize, subject to certain restrictions, its Pre-Effective Date NOL of
approximately $59.8 million to offset any taxable income incurred after the
Effective Date. The Company's use of its Post-Effective Date NOL is not
restricted, absent a future "ownership change" under Section 382 of the Code.
See Note 4 of Notes to Condensed Consolidated Financial Statements
(Unaudited) included in "Financial Statements" at Item 1.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company from time to time is involved in litigation incidental to
the conduct of its business. The Company is not currently a party to any
lawsuit or proceeding which, in the opinion of the Company, could have a
material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION OF EXHIBITS
27 Financial Data Schedule for the Quarter ended June 29, 1997
(b) REPORTS ON FORM 8-K.
None.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSSE BROADCASTING CORPORATION
------------------------------
(Registrant)
DATED: August 12, 1997 BY: /s/ JAMES C. RYAN
-------------------------------
James C. Ryan
Chief Financial Officer
(Authorized Officer and
Principal Accounting Officer)
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUSSE
BROADCASTING CORPORATION UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 8,488,555
<SECURITIES> 0
<RECEIVABLES> 3,913,840
<ALLOWANCES> 86,200
<INVENTORY> 0
<CURRENT-ASSETS> 12,670,159
<PP&E> 17,905,018
<DEPRECIATION> 4,159,065
<TOTAL-ASSETS> 79,252,307
<CURRENT-LIABILITIES> 3,081,510
<BONDS> 60,684,381
0
24,405,357
<COMMON> 1,077
<OTHER-SE> (9,331,066)
<TOTAL-LIABILITY-AND-EQUITY> 79,252,307
<SALES> 9,549,775
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,136,633
<OTHER-EXPENSES> (252,165)
<LOSS-PROVISION> 20,800
<INTEREST-EXPENSE> 4,163,284
<INCOME-PRETAX> (2,497,977)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,497,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,497,977)
<EPS-PRIMARY> (45.58)
<EPS-DILUTED> 0
</TABLE>
