SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 1-10342
BHC COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2104168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
767 Fifth Avenue, New York, New York 10153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-0200
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
Class A Common Stock
$0.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of February 28, 1998, was approximately $653,700,000.
As of February 28, 1998, there were 4,738,305 shares of the registrant's
Class A Common Stock and 18,000,000 shares of the registrant's Class B Common
Stock outstanding.
2
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
Those portions of the II
registrant's annual
report to stockholders
for the fiscal year ended
December 31, 1997 (the
"Annual Report") that are
specifically identified
herein as incorporated by
reference into this Form
10-K.
Those portions of the III
registrant's proxy
statement for the
registrant's 1998 Annual
Meeting (the "Proxy
Statement") that are
specifically identified
herein as incorporated by
reference into this Form
10-K.
2
<PAGE>
PART I
ITEM 1. BUSINESS.
General
BHC Communications, Inc. ("BHC"), the majority owned (78.8% at February
28, 1998) television broadcasting subsidiary of Chris-Craft Industries, Inc.
("Chris-Craft"), was organized in Delaware in 1977 under the name "BHC, Inc."
and changed its name to BHC Communications, Inc. in 1989. BHC's principal
business is television broadcasting, conducted through its wholly owned
subsidiaries, Chris-Craft Television, Inc. ("CCTV") and Pinelands, Inc.
("Pinelands"), and its majority owned (58.8% at February 28, 1998) subsidiary,
United Television, Inc. ("UTV").
At February 28, 1998, BHC, solely through subsidiaries, had 1,055 full-time
employees and 126 part-time employees.
On January 20, 1998, UTV acquired the assets of a UHF television station in
Baltimore, Maryland, at which time the station's call letters were changed to
WUTB, and the station became an affiliate of the United Paramount Network
("UPN"), a fifth broadcast television network which is 50%-owned by BHC. In
October 1997, UTV agreed to purchase the assets of UHF television station WRBW
in Orlando, Florida, for $60,000,000 and possible further consideration. The
acquisition is subject to approval by the Federal Communications Commission and
other conditions.
Television Broadcasting
BHC operates six very high frequency ("VHF") television stations and three
ultra high frequency ("UHF") television stations, together constituting Chris-
Craft's Television Division. Commercial television broadcasting in the United
States is conducted on 68 channels numbered 2 through 69. Channels 2 through
13 are in the VHF band, and channels 14 through 69 are in the UHF band. In
general, UHF stations are at a disadvantage relative to VHF stations, because
UHF frequencies are more difficult for households to receive. This
disadvantage is eliminated when a viewer receives the UHF station through a
cable system.
Commercial broadcast television stations may be either affiliated with one
of the three major national networks (ABC, NBC and CBS); three more recently
established national networks (Fox Broadcasting Company ("Fox"), UPN, and The
WB Network ("WB")), which provide substantially fewer hours of programming; or
may be independent.
The following table sets forth certain information with respect to BHC
stations and their respective markets:
3
<PAGE>
Total
Commercial
Network DMA TV Stations DMA Cable
Station and Affiliation/ House- DMA Operating in TV Pene-
Location (a) Channel Holds(b) Rank (b) Market (c) tration(d)
- ------------ ------------ -------- -------- ------------ ----------
KCOP
Los Angeles UPN 13 5,009,230 2nd 7VHF 63%
10UHF
WWOR (e)
Secaucus UPN 9 6,755,510 1st 6VHF 71%
14UHF
KPTV
Portland UPN 12 976,190 24th 4VHF 63%
2UHF
KMSP
Minneapolis/
St. Paul UPN 9 1,448,100 14th 4VHF 52%
3UHF
KTVX
Salt Lake
City ABC 4 690,310 36th 4VHF 56%
2UHF
KMOL
San Antonio NBC 4 648,550 38th 3VHF 65%
3UHF
KBHK
San Francisco UPN 44 2,297,880 5th 4VHF 71%
10UHF
WUTB
Baltimore UPN 24 988,040 23rd 3VHF 65%
3UHF
KUTP
Phoenix UPN 45 1,289,210 17th 4VHF 59%
4UHF
_______________
(a) KCOP and KPTV are owned by CCTV; WWOR is owned by Pinelands; the
remaining stations are owned by UTV.
(b) Designated Market Area ("DMA") is an exclusive geographic area
consisting of all counties in which the home-market commercial stations
received a preponderance of total viewing hours. The ranking shown is
the nationwide rank, in terms of television households in DMA, of the
market served by the station. Source: Nielsen Media Research
television households universe estimates.
(c) Additional channels have been allocated by the Federal Communications
Commission ("FCC") for activation as commercial television stations in
certain of these markets. Also, additional stations may be located
within the respective DMAs of BHC stations but outside the greater
metropolitan television markets in which BHC stations operate.
(d) Cable penetration refers to the percentage of DMA television viewing
households receiving cable television service, as estimated by Nielsen
Media Research.
(e) WWOR UPN 9 broadcasts across a tri-state area including the entire New
York City metropolitan area.
4
<PAGE>
Television stations derive their revenues primarily from selling
advertising time. The television advertising sales market consists primarily
of national network advertising, national spot advertising and local spot
advertising. An advertiser wishing to reach a nationwide audience usually
purchases advertising time directly from the national networks, "superstations"
(i.e., broadcast stations carried by cable operators in areas outside their
broadcast coverage area), barter program syndicators, national basic cable
networks, or "unwired" networks (groups of otherwise unrelated stations whose
advertising time is combined for national sale). A national advertiser wishing
to reach a particular regional or local audience usually buys advertising time
from local stations through national advertising sales representative firms
having contractual arrangements with local stations to solicit such
advertising. Local businesses generally purchase advertising from the
stations' local sales staffs.
Television stations compete for television advertising revenue primarily
with other television stations and cable television channels serving the same
DMA. There are 211 DMAs in the United States. DMAs are ranked annually by the
estimated number of households owning a television set within the DMA.
Advertising rates that a television station can command vary in part with the
size, in terms of television households, of the DMA served by the station.
Within a DMA, the advertising rates charged by competing stations depend
primarily on four factors: the stations' program ratings, the time of day the
advertising will run, the demographic qualities of a program's viewers
(primarily age and sex), and the amount of each station's inventory. Ratings
data for television markets are measured by A.C. Nielsen Company ("Nielsen").
This rating service uses two terms to quantify a station's audience: rating
points and share points. A rating point represents one percent of all
television households in the entire DMA tuned to a particular station, and a
share point represents one percent of all television households within the DMA
actually using at least one television set at the time of measurement and tuned
to the station in question.
Because the major networks regularly provide first-run programming
during prime time viewing hours (in general, 8:00 P.M. to 11:00 P.M.
Eastern/Pacific time), their affiliates generally (but do not always) achieve
higher audience shares, but have substantially less advertising time
("inventory") to sell, during those hours than affiliates of the newer networks
or independent stations, since the major networks use almost all of their
affiliates' prime time inventory for network programming. Although the newer
networks generally use the same amount of their affiliates' inventory during
network broadcasts, the newer networks provide less programming; accordingly,
their affiliates, as well as non-affiliated stations, generally have
substantially more inventory for sale than the major-network affiliates. The
newer network affiliates' and independent stations' smaller audiences and
greater inventory during prime time hours generally result in lower advertising
rates charged and more advertising time sold during those hours, as compared
with major affiliates' larger audiences and limited inventory, which generally
allow the major-network affiliates to charge higher advertising rates for prime
time programming. By selling more advertising time, the new-network or
independent station typically achieves a share of advertising revenues in its
market greater than its audience ratings. On the other hand, total programming
costs for such a station, because it broadcasts more syndicated programming
than a major-network affiliate, are generally higher than those of a major-
network affiliate in the same market. These differences have been reduced by
the growth of the Fox network, which currently provides 15 weekly hours of
programming during prime time and additional programming in other periods, and
are being reduced further as the other newer networks provide expanded
schedules of programming.
5
Programming
BHC's UPN stations depend heavily on independent third parties for
programming, as do KTVX and KMOL for their non-network broadcasts. Recognizing
the need to have a more direct influence on the quality of programming
available to its stations, and desiring to participate in potential profits
through national syndication of programming, BHC has joined in the formation of
UPN, and, additionally, has begun to invest directly in the development of
original programming. The aggregate amount invested in original programming
through December 31, 1997 was not significant to BHC's financial position. BHC
television stations also produce programming directed to meet the needs and
interests of the area served, such as local news and events, public affairs
programming, children's programming and sports.
Programs obtained from independent sources consist principally of
syndicated television shows, many of which have been shown previously on a
major network, and syndicated feature films, which were either made for network
television or have been exhibited previously in motion picture theaters (most
of which films have been shown previously on network or cable television).
Syndicated programs are sold to individual stations to be broadcast one or more
times. Television stations not affiliated with a major network generally have
large numbers of syndication contracts; each contract is a license for a
particular series or program that usually prohibits licensing the same
programming to other television stations in the same market. A single
syndication source may provide a number of different series or programs.
Licenses for syndicated programs are often offered for cash sale (i.e.,
without any barter element) to stations; however, some are offered on a barter
or cash plus barter basis. In the case of a cash sale, the station purchases
the right to broadcast the program, or a series of programs, and sells
advertising time during the broadcast. The cash price of such programming
varies, depending on the perceived desirability of the program and whether it
comes with commercials that must be broadcast (i.e., on a cash plus barter
basis). Barter programming is offered to stations for no cash consideration,
but comes with a greater number of commercials that must be broadcast and,
therefore, with less inventory.
Barter and cash plus barter programming reduce both the amount of cash
required for program purchases and the amount of time available for sale.
Although the direct impact on broadcasters' operating income generally is
believed to be neutral, program distributors that acquire barter air time
compete with television stations and broadcasting networks for sales of air
time. BHC believes that the effect of barter on its television stations is not
significantly different from its impact on the industry as a whole.
BHC television stations are frequently required to make substantial
financial commitments to obtain syndicated programming while such programming
is still being broadcast by another network and before it is available for
broadcast by BHC stations, or even before it has been produced. Generally,
syndication contracts require the station to acquire an entire program series,
before the number of episodes of original showings that will be produced has
been determined. While analyses of network audiences are used in estimating
the value and potential profitability of such programming, there is no
assurance that a successful network program will continue to be successful or
profitable when broadcast after initial network airing.
Pursuant to generally accepted accounting principles, commitments for
programming not available for broadcast are not recorded as liabilities until
the programming becomes available for broadcast, at which time the related
contract right is also recorded as an asset. BHC television stations had
unamortized film contract rights for programming available for telecasting, and
deposits on film contracts for programming not available for telecasting
aggregating $121,977,000 as of December 31, 1997. The stations were committed
for film and sports rights contracts aggregating $178,100,000 for programming
not available for broadcasting as of that date. License periods for particular
programs or films generally run from one to five years. Long-term contracts
for the broadcast of syndicated television series generally provide for an
initial telecast and subsequent reruns for a period of years, with full payment
to be made by the station over a period of time shorter than the rerun period.
See Notes 1(C) and 7 of Notes to Consolidated Financial Statements.
6
<PAGE>
KTVX and KMOL are primary affiliates of their respective networks.
Network programs are produced either by the networks themselves or by
independent production companies and are transmitted by the networks to their
affiliated stations for broadcast.
Most networks have begun to enter into affiliation agreements for terms
as long as ten years. UTV has entered into a 10-year affiliation agreement for
KTVX. The term of KMOL's affiliation agreement automatically renews for two
year periods, unless either party notifies the other that the term will not be
renewed. Current FCC rules do not limit the duration of affiliation
agreements.
An affiliation agreement gives the affiliate the right to broadcast all
programs transmitted by the network. The affiliate must run in its entirety,
together with all network commercials, any network programming the affiliate
elects or is required to broadcast, and is allowed to broadcast a limited
number of commercials it has sold. For each hour of programming broadcast by
the affiliate, the major networks generally have paid their affiliates a fee,
specified in the agreement (although subject to change by the network), which
varies in amount depending on the time of day during which the program is
broadcast and other factors. Prime time programming generally earns the highest
fee. A network may, and sometimes does, designate certain programs to be
broadcast with no compensation to the station.
Subject to certain limitations contained in the affiliation agreement,
an affiliate may accept or reject a program offered by the network and instead
broadcast programming from another source. Rejection of a program may give the
network the right to offer that program to another station in the area.
United Paramount Network
UPN, owned 50% by BHC and 50% by Viacom Inc.'s Paramount Television
Group ("Paramount"), broadcasts six hours of original prime time programming on
three nights per week. The network also broadcasts two hours of previously
exhibited movies on Saturday afternoons and two hours of children's programming
on Sunday mornings. UPN intends to expand its prime time programming to five
nights per week as soon as practicable, as well as to begin broadcasting in
other day parts over the next several years.
UPN licenses its programming on the same bases as are customary in the
industry. UPN seeks license or ownership rights for programming from all
available sources on arms-length terms.
As of February 13, 1998, UPN's programming was carried by 178
affiliates, in markets covering a total of 90.1% of all U.S. households. Of
these station affiliates, 95 are primary affiliates, including all of BHC's and
Paramount's previously independent stations, in markets covering 71.5% of U.S.
households, and 83 are secondary affiliates in markets covering an additional
18.6% of such households. UPN continues to seek additional affiliates to
expand its household reach. The terms of UPN's primary affiliate station
agreements range up to ten and a half years and provide commercial time for
sale by the stations as consideration for broadcasting the network's
programming.
In January 1997, Paramount completed the exercise of its option to
acquire an interest in UPN equal to that of BHC, which, until then, owned 100%
of the network and bore all UPN costs. UPN funding requirements, shared
equally by BHC and Paramount, are expected to continue to be significant for
the next several years. See Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 2 of Notes to Consolidated
Financial Statements.
7
<PAGE>
Sources of Revenue
The principal source of revenues for BHC stations is the sale of
advertising time to national and local advertisers. Such time sales are
represented by spot announcements purchased to run between programs and program
segments and by program sponsorship. The relative contributions of national
and local advertising to BHC's gross cash advertising revenues vary from time
to time. Most advertising contracts are short-term. Like that of the
television broadcasting business generally, BHC's television business is
seasonal. In terms of revenues, generally the fourth quarter is strongest,
followed by the second, third and first.
Advertising is generally placed with BHC stations through advertising
agencies, which are allowed a commission generally equal to 15% of the price of
advertising placed. National advertising time is usually sold through a
national sales representative, which also receives a commission, while local
advertising time is sold by each station's sales staff. UTV has established a
national sales representative organization, United Television Sales, Inc.
("UTS"), to represent, initially, all BHC stations. Practices with respect to
sale of advertising time do not differ markedly between BHC's major network and
UPN stations, although the major-network affiliated stations have less
inventory to sell.
Government Regulation
Television broadcasting operations are subject to the jurisdiction of
the FCC under the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act empowers the FCC, among other things, to issue,
revoke or modify broadcast licenses, to assign frequencies, to determine the
locations of stations, to regulate the broadcasting equipment used by stations,
to establish areas to be served, to adopt such regulations as may be necessary
to carry out the provisions of the Communications Act and to impose certain
penalties for violation of its regulations. BHC television stations are
subject to a wide range of technical, reporting and operational requirements
imposed by the Communications Act or by FCC rules and policies. The
Communications Act was recently and substantially amended by the
Telecommunications Act of 1996 (the "Telecom Act") and by the Budget
Reconciliation Act of 1997, some provisions of which have been incorporated
into the FCC's rules and regulations during the past year, and other provisions
of which will be incorporated over the next several months.
The Communications Act provides that a license may be granted to any
applicant if the public interest, convenience and necessity will be served
thereby, subject to certain limitations, including the requirement that the FCC
allocate licenses, frequencies, hours of operation and power in a manner that
will provide a fair, efficient and equitable distribution of service throughout
the United States. Television licenses generally have been issued for five-
year terms, but the Telecom Act permits the FCC to issue such licenses and
their renewals for up to eight years. Upon application, and in the absence of
adverse questions as to the licensee's qualifications or operations, television
licenses have usually been renewed for additional terms without a hearing by
the FCC. An existing license automatically continues in effect once a timely
renewal application has been filed until a final FCC decision is issued.
KMSP UPN 9's license renewal was granted on April 15, 1993, and is due
to expire on April 1, 1998. A renewal application for KMSP was timely filed on
December 1, 1997, and remains pending. On March 2, 1998, Lakeland Group
Television, Inc., licensee of television station KGLT, Minneapolis, Minnesota,
filed a petition to deny the KMSP renewal unless and until UTV permits KGLT's
antenna to remain on UTV's television tower on reasonable and equitable terms.
UTV intends to vigorously oppose the petition, which it does not believe will
have a material adverse effect on UTV's license for KMSP. KTVX's license
renewal was granted on September 29, 1993, and is due to expire on October 1,
1998. KUTP UPN 45's license renewal was granted on March 28, 1994, and is due
to expire on October 1, 1998. KCOP UPN 13's license renewal was granted on
April 18, 1994, and is due to expire on December 1, 1998. KBHK UPN 44's
license renewal was granted on October 2, 1995, and is due to expire on
December 1, 1998. KPTV UPN 12's license renewal was granted on August 9, 1995,
and is due to expire on February 1, 1999. KMOL's license renewal was granted
on August 18, 1995, and is due to expire
8
<PAGE>
on August 1, 1998; its renewal application is due to be filed on April 1, 1998.
WWOR UPN 9's license renewal was granted on July 16, 1996 and is due to expire
on June 1, 1999. WUTB UPN 24's license was assigned to UTV of Baltimore, Inc.,
a subsidiary of UTV, on January 20, 1998 and is due to expire on October 1,
2001.
Under existing FCC regulations governing multiple ownership of broadcast
stations, a license to operate a television station generally will not be
granted to any party (or parties under common control), if such party directly
or indirectly owns, operates, controls or has an attributable interest in
another television or radio station serving the same market or area. The FCC,
however, is favorably disposed to grant waivers of this rule for radio station-
television station ownership combinations in the top 25 television markets, in
which there will be at least 30 separately owned, operated and controlled
broadcast stations, and in certain other circumstances. The Telecom Act
directs the FCC to extend this waiver policy to the top 50 markets, consistent
with the public interest, and to conduct a rule-making proceeding to determine
whether to retain or modify the current restriction on same-market multiple
television station ownership.
FCC regulations further provide that a broadcast license will not be
granted if that grant would result in a concentration of control of radio and
television broadcasting in a manner inconsistent with the public interest,
convenience or necessity. FCC rules deem such concentration of control to
exist if any party, or any of its officers, directors or stockholders, directly
or indirectly, owned, operated, controlled or had an attributable interest in
television stations capable of reaching, in the aggregate, a maximum of 35% of
the national audience. This percentage is determined by the DMA market
rankings of the percentage of the nation's television households considered
within each market. Because of certain limitations of the UHF signal, however,
the FCC will attribute only 50% of a market's DMA reach to owners of UHF
stations for the purpose of calculating the audience reach limits. Applying
the 50% reach attribution rule to UHF stations KBHK UPN 44, KUTP UPN 45 and
WUTB UPN 24, the nine BHC stations are deemed to reach approximately 18% of the
nation's television households. The FCC is considering whether to eliminate
the 50% attribution reduction under this rule for UHF stations.
The FCC's multiple ownership rules require the attribution of the
licenses held by a broadcasting company to its officers, directors and certain
of its stockholders, so there would ordinarily be a violation of FCC
regulations where an officer, director or such a stockholder and a television
broadcasting company together hold interests in stations exceeding the maximum
audience reach or more than one station that serves the same area. In the case
of a corporation controlling or operating television stations, such as BHC,
there is attribution only to stockholders who own 5% or more of the voting
stock, except for institutional investors, including mutual funds, insurance
companies and banks acting in a fiduciary capacity, which may own up to 10% of
the voting stock without being subject to such attribution, provided that such
entities exercise no control over the management or policies of the
broadcasting company.
The FCC has begun a proceeding to consider modification of the various
TV ownership restrictions described above, as well as changes in the rules for
attributing the licenses held by an enterprise to various parties. BHC cannot
predict the outcome of the FCC proceedings.
FCC regulations currently prevent a national sales representative
organization, such as UTS, which is commonly owned with a national network such
as UPN, from representing affiliates of that network other than affiliates that
are also under common ownership with the network. FCC regulations also place
restrictions on provisions of agreements between networks and their affiliates
relating to network exclusivity, territorial exclusivity, time optioning, and
pre-emption rights. The FCC is conducting rule-making proceedings to consider
whether to retain, modify, or eliminate these regulations. BHC is unable to
predict the outcome of these proceedings.
As required by the Telecom Act, the FCC recently amended another of its
regulations, the dual network rule, which generally had prohibited common
ownership or control of two television broadcast networks. Ownership and
control of two or more such networks will now be permitted, except for common
ownership or control between two of ABC, NBC, CBS, and Fox, or any one of those
four networks and either UPN or WB.
9
<PAGE>
The Telecom Act directed the FCC to conduct a rule-making proceeding to
require the inclusion, in all television sets 13 inches or larger, of a feature
(commonly referred to as the V-Chip) designed to enable viewers to block
display of programs carrying a common rating and authorized the FCC to
establish an advisory committee to recommend a system for rating video
programming that contains sexual, violent, or other indecent material about
which parents should be informed, before it is displayed to children, if the
television industry does not establish a satisfactory voluntary rating system
of its own. On March 12, 1998, the FCC voted to accept an industry proposal
providing for a voluntary ratings system of "TV Parental Guidelines" under
which all video programming will be designated in one of six categories to
permit the electronic blocking of selected video programming. The FCC has
begun a separate proceeding to address technical issues related to the "V-
Chip." The FCC has directed that all television receiver models with picture
screens 13 inches or greater be equipped with "V-Chip" technology under a
phased implementation beginning on July 1, 1999. BHC cannot predict how
changes in the implementation of the ratings system and "V-Chip" technology
will affect BHC's business. The Telecom Act also directed the FCC to adopt
regulations requiring increased closed-captioning of video programming, and the
FCC recently did so. Subject to various exemptions, television stations will
be required to begin broadcasting specified amounts or a specified percentage
of new programs with closed captioning in the year 2000 and specified
percentages of pre-rule programming commencing in the year 2008.
FCC regulations prohibit the holder of an attributable interest in a
television station from having an attributable interest in a cable television
system located within the predicted coverage area of that station. FCC
regulations also prohibit the holder of an attributable interest in a
television station from having an attributable interest in a daily newspaper
located within the predicted coverage area of that station. The FCC intends to
conduct a rule-making proceeding to consider possible modification of this
latter regulation.
FCC regulations implementing the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") require each television
broadcaster to elect, at three-year intervals beginning June 17, 1993, either
to (i) require carriage of its signal by cable systems in the station's market
("must-carry") or (ii) negotiate the terms on which such broadcast station
would permit transmission of its signal by the cable systems within its market
("retransmission consent"). In June 1997, the U.S. Supreme Court upheld the
constitutionality of the must-carry provisions.
On August 8, 1996, under the Children's Television Act of 1990 (the
"CTA"), the FCC amended its rules to establish a "processing guideline" for
broadcast television stations, of at least three hours per week, averaged over
a six-month period, of "programming that furthers the educational and
informational needs of children 16 and under in any respect, including the
child's intellectual/cognitive or social/emotional needs." Children's "Core
Programming" has been defined as educational and informational programming
that, among other things (i) has serving the educational and informational
needs of children "as a significant purpose," (ii) has a specified educational
and informational objective and a specified target child audience, (iii) is
regularly scheduled, weekly programming, (iv) is at least 30 minutes in length,
and (v) airs between 7:00 a.m. and 10:00 p.m. Any station that satisfied the
processing guideline by broadcasting at least three weekly hours of Core
Programming will receive FCC staff-level approval of the portion of its license
renewal application pertaining to the CTA. Alternatively, a station may
qualify for staff-level approval even if it broadcasts "somewhat less" than
three hours per week of Core Programming by demonstrating that it has aired a
weekly package of different types of educational and informational programming
that is "at least equivalent" to three hours of Core Programming. Non-Core
Programming that can qualify under this alternative includes specials, public
service announcements, short-form programs and regularly scheduled non-weekly
programs, with "a significant purpose of educating and informing children." A
licensee that does not meet the processing guidelines under either of these
alternatives will be referred by the FCC's staff to the Commissioners of the
FCC, who will evaluate the licensee's compliance with the CTA on the basis of
both its programming and its other efforts related to children's educational
and informational programming, e.g., its sponsorship of Core Programming on
other stations in the market, or nonbroadcast activities "which enhance the
value" of such programming. A television station ultimately found not to have
complied with the CTA could face sanctions including monetary fines and the
possible non-renewal of its broadcast license. BHC believes that each of its
stations currently meets the three-hour programming guideline.
10
<PAGE>
The FCC has taken a number of steps to implement digital television
service ("DTV") (including high definition) in the United States. In December
1996, the FCC adopted a DTV broadcast standard. On February 17, 1998, the FCC
affirmed an amended table of digital channel allotments and rules for the
implementation of DTV, initially adopted in 1997. The digital table of
allotments provides each existing television station licensee or permittee with
a second broadcast channel to be used during the transition to DTV, conditioned
upon the surrender of one of the channels at the end of the DTV transition
period. The DTV channels assigned to BHC television stations are as follows:
KCOP, channel 66; KBHK, channel 45; KMSP, channel 26; WWOR, channel 38; KPTV,
channel 30; KMOL, channel 58; KTVX, channel 40; KUTP, channel 26; and WUTB,
channel 41. Implementation of DTV will improve the technical quality of
television. Furthermore, the implementing rules permit broadcasters to use
their assigned digital spectrum flexibly to provide either standard or high-
definition video signals and additional services, including, for example, data
transfer, subscription video, interactive materials, and audio signals as long
as they continue to provide at least one free, over-the-air television service.
However, the digital table of allotments was devised on the basis of certain
technical assumptions which have not been subjected to extensive field testing
and which, along with specific digital channel assignments, may be subjected to
further administrative and judicial review. Conversion to DTV may reduce the
geographic reach of the BHC television stations or result in increased
interference, with, in either case, a corresponding loss of population
coverage. DTV implementation will impose additional costs on BHC television
stations, primarily due to the capital costs associated with construction of
DTV facilities and increased operating costs both during and after the
transition period. In addition, the Telecommunications Act requires the FCC to
assess and collect a fee for any use of a broadcaster's DTV channel for which
it receives subscription fees or other compensation other than advertising
revenue. The FCC has set a target date of 2006 for expiration of the
transition period, subject to biennial reviews to evaluate the progress of DTV,
including the rate of consumer acceptance. BHC expects that, during 1998,
BHC's television stations will begin converting to DTV. Future capital
expenditures by BHC will be compatible with the new technology whenever
possible.
The FCC currently is reviewing certain of its rules governing the
relationship between broadcast television networks, including UPN, and their
affiliated stations. In a rulemaking proceeding, the FCC is examining its
rules prohibiting broadcast television networks from representing their
affiliated stations for the sale of non-network advertising time and from
influencing or controlling the rates set by their affiliates for the sale of
such time. Separately, the FCC is conducting a rulemaking proceeding to
consider relaxing or eliminating its rules prohibiting broadcast networks from
(i) restricting their affiliates' rights to reject network programming, (ii)
reserving an option to use specified amounts of their affiliates' broadcast
time, and (iii) forbidding their affiliates from broadcasting the programming
of another network; and to consider the relaxation of its rule prohibiting
network affiliated stations from preventing other stations from broadcasting
the programming of their network.
The Communications Act limits the amount of capital stock that aliens
(including their representatives, foreign governments, their representatives,
and entities organized under the laws of a foreign country) may own in a
television station licensee or any corporation directly or indirectly
controlling such licensee. No more than 20% of a licensee's capital stock and,
if the FCC so determines, no more than 25% of the capital stock of a company
controlling a licensee, may be owned, directly or indirectly, or voted by
aliens or their representatives. Should alien ownership exceed this limit, the
FCC may revoke or refuse to grant or renew a television station license or
approve the assignment or transfer of such license. BHC believes the ownership
by aliens of its stock and that of UTV to be below the applicable limit.
The Communications Act prohibits the assignment of a broadcast license
or the transfer of control of a licensee without the prior approval of the FCC.
Legislation was introduced in the past that would impose a transfer fee on
sales of broadcast properties. Although that legislation was not adopted,
similar proposals, or a general spectrum licensing fee, may be advanced and
adopted in the future. Recent legislation has imposed annual regulatory fees
applicable to BHC stations, currently ranging as high as $35,025 per station.
11
<PAGE>
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act or regulations and policies of the FCC
thereunder. Reference is made to the Communications Act, such regulations and
the public notices promulgated by the FCC for further information.
Other Federal agencies, including principally the Federal Trade
Commission, also impose a variety of requirements that affect the business and
operations of broadcast stations. Proposals for additional or revised
requirements are considered by the FCC, other Federal agencies or Congress from
time to time. BHC cannot predict what new or revised Federal requirements may
result from such consideration or what impact, if any, such requirements might
have upon the operation of BHC television stations.
Competition
BHC television stations compete for advertising revenue in their
respective markets, primarily with other broadcast television stations and
cable television channels, and compete with other advertising media as well.
Such competition is intense.
In addition to programming, management ability and experience, technical
factors and television network affiliations are important in determining
competitive position. Competitive success of a television station depends
primarily on public response to the programs broadcast by the station in
relation to competing entertainment, and the results of this competition affect
the advertising revenues earned by the station from the sale of advertising
time.
Audience ratings provided by Nielsen have a direct bearing on the
competitive position of television stations. In general, major network
programs achieve higher ratings than other programs.
There are at least five other commercial television stations in each
market served by a BHC station. BHC believes that the three VHF major-network
affiliates and the two other VHF stations in New York City generally attract a
larger viewing audience than does WWOR UPN 9, and that WWOR UPN 9 generally
attracts a viewing audience larger than the audiences attracted by the UHF
stations in the New York City market. In Los Angeles, the three VHF major-
network affiliates and three other VHF stations generally attract a larger
viewing audience than does KCOP UPN 13, and KCOP UPN 13 generally attracts a
viewing audience equal to one UHF station but larger than the other nine UHF
stations in Los Angeles. In Portland, the three VHF major-network affiliated
stations generally attract a larger audience than does KPTV UPN 12, which
generally attracts a larger audience than the other independent stations, both
of which are UHF stations. BHC believes that, in Minneapolis/St. Paul, KMSP
UPN 9 generally attracts a smaller viewing audience than the three major
network-affiliated VHF stations, but a larger viewing audience than the other
three stations, all of which are UHF stations. In Salt Lake City, in 1997,
KTVX ranked second of the six television stations in terms of audience share.
In San Antonio, in 1997, KMOL ranked second of the six stations in terms of
audience share. Of the 14 commercial television stations in San Francisco,
KBHK UPN 44, generally ranks fifth in terms of audience share, behind the three
major network-affiliated VHF television stations, and the VHF Fox affiliate.
KUTP UPN 45 generally ranks sixth in terms of audience share, of the eight
commercial stations in the Phoenix market. The Baltimore station, prior to its
acquisition by UTV in January 1998, operated as a Home Shopping Network
affiliate. As such, it did not compete in the Baltimore market for advertising
revenue.
BHC stations may face increased competition in the future from
additional television stations that may enter their respective markets. See
note (c) to the table under Television Broadcasting.
Cable television is a major competitor of television broadcasting
stations. Because cable television systems operate in each market served by a
BHC station, the stations are affected by rules governing cable operations. If
a station is not widely accessible by cable in those markets having strong
cable penetration, it may lose effective access to a significant portion of the
local audience. Even if a television station is carried on a local cable
system, an unfavorable channel or service tier position on the cable system may
adversely affect the station's audience ratings and, in some circumstances, a
television set's ability to receive the station being carried on an unfavorable
12
<PAGE>
channel position. Some cable system operators may be inclined to place
broadcast stations in unfavorable channel locations.
While Federal law has until recently generally prohibited local
telephone companies from providing video programming to subscribers in their
service areas, this prohibition has been substantially eliminated by the
Telecom Act. The FCC has also recently adopted rules for "Open Video Systems"
- -- a new structure of video delivery system authorized by the Telecom Act for
provision by local telephone companies and, if permitted by the FCC, others.
BHC is unable to predict the outcome or effect of these developments.
"Syndicated exclusivity" rules allow television stations to prevent
local cable operators from importing distant television programming that
duplicates syndicated programming in which local stations have acquired
exclusive rights. In conjunction with these rules, network nonduplication
rules protect the exclusivity of major-network broadcast programming within the
local video marketplace. The FCC is also reviewing its "territorial
exclusivity" rule, which limits the area in which a broadcaster can obtain
exclusive rights to video programming. BHC believes that the competitive
position of BHC stations would likely be enhanced by an expansion of
broadcasters' permitted zones of exclusivity.
Alternative technologies could increase competition in the areas served
by BHC stations and, consequently, could adversely affect their profitability.
Four direct broadcast satellite ("DBS") systems currently provide service. The
number of subscribers to DBS services increased substantially during the past
three years, from approximately 600,000 at the end of 1994, to approximately
6.7 million as of February 1998. The emergence of home satellite dish antennas
has also made it possible for individuals to receive a host of video
programming options via satellite transmission. An additional challenge is now
posed by wireless cable systems, including multichannel distribution services
("MDS"). At the end of 1997, wireless cable systems served about 1.1 million
subscribers. Two four-channel MDS licenses have been granted in most
television markets. MDS operation can provide commercial programming on a paid
basis. A similar service can also be offered using the instructional
television fixed service ("ITFS"). The FCC now allows the educational entities
that hold ITFS licenses to lease their "excess" capacity for commercial
purposes. The multichannel capacity of ITFS could be combined with either an
existing single channel MDS or a newer multichannel multi-point distribution
service to increase the number of available channels offered by an individual
operator.
Technological developments in television transmission have created the
probability that one or more of the broadcast and nonbroadcast television media
will provide enhanced or "high definition" pictures and sound to the public of
a quality that is technically superior to that of the pictures and sound
currently available. It is not yet clear when and to what extent technology of
this kind will be available to the various television media; whether and how
television broadcast stations will be able to avail themselves of these various
improvements; whether all television broadcast stations will be afforded
sufficient spectrum to do so; whether viewing audiences will make choices among
services upon the basis of such differences; or, if they would, whether
significant additional expense would be required for television stations to
provide such services. Many segments of the television industry are
intensively studying digital television technology. BHC is unable to predict
the outcome of these developments.
The broadcasting industry is continuously faced with technological
changes, competing entertainment and communications media and governmental
restrictions or actions of Federal regulatory bodies, including the FCC. These
technological changes may include the introduction of digital compression by
cable systems that would significantly increase the number and availability of
cable program services with which BHC stations compete for audience and
revenue, the establishment of interactive video services, and the offering of
multimedia services that include data networks and other computer technologies.
Such factors have affected, and will continue to affect, the revenue growth and
profitability of BHC.
13
<PAGE>
ITEM 2. PROPERTIES.
KCOP owns its studios and offices in two buildings in Los Angeles
containing a total of approximately 54,000 square feet located on adjacent
sites having a total area of approximately 1.93 acres. KCOP's transmitter is
located atop Mt. Wilson on property utilized pursuant to a permit issued by the
United States Forest Service.
KPTV owns its studios and offices in a building in Portland, Oregon,
containing approximately 45,300 square feet located on a site of approximately
2.0 acres. Its transmitter is located on its own property at a separate site
containing approximately 16.18 acres.
WWOR owns office and studio facilities in Secaucus, New Jersey,
containing approximately 110,000 square feet on approximately 3.5 acres and
leases additional office space in New York City. Along with almost all of the
television stations licensed to the New York market, WWOR's transmitter is
located on top of the World Trade Center in New York City pursuant to a lease
agreement which expires in 2004, unless terminated by WWOR in May 1999.
Physical facilities consisting of offices and studio facilities are
owned by UTV in Minneapolis, San Antonio and Phoenix and are leased in
Baltimore, Salt Lake City and San Francisco. The Baltimore lease expires in
March 2000. The Salt Lake City lease expires in August 1999 and is renewable,
at an increased rental, for two five-year periods. The San Francisco lease
expires in 2007.
The Minneapolis facility includes approximately 49,700 square feet of
space on a 5.63-acre site. The Salt Lake City facility is approximately 30,400
square feet on a 2.53-acre site. The Baltimore facility is approximately 7,800
square feet and is located in an office park in a suburb of Baltimore. The San
Antonio facility is approximately 41,000 square feet on a .92-acre site. The
San Francisco facility is approximately 27,700 square feet in downtown San
Francisco. The Phoenix facility is approximately 26,400 square feet on a 3.03-
acre site. Smaller buildings containing transmission equipment are owned by
UTV at sites separate from the studio facilities.
UTV owns a 55-acre tract in Shoreview, Minnesota, of which 40 acres are
used by KMSP for transmitter facilities and tower.
KTVX's transmitter facilities and tower are located at a site on Mt.
Nelson, close to Salt Lake City, under a lease that expires in 2004. KTVX also
maintains back-up transmitter facilities and tower at a site on nearby Mt.
Vision under a lease that expires in July 2002 and is renewable, at no increase
in rental, for a 50-year period.
KMOL's transmitter facilities are located at a site near San Antonio on
land and on a tower owned by Texas Tall Tower Corporation, a corporation owned
in equal shares by UTV and another television station that also transmits from
the same tower.
KBHK's transmitter is located on Mt. Sutro, as part of the Sutro Tower
complex, which also houses equipment for other San Francisco television
stations and many of its FM radio stations. The lease for the Mt. Sutro
facilities expires in 2005 and is renewable for two five-year periods.
KUTP's transmitter facilities and tower are located on a site within
South Mountain Park, a communications park owned by the City of Phoenix, which
also contains transmitter facilities and towers for the other television
stations in Phoenix as well as facilities for several FM radio stations. The
license for this space expires in 2012.
WUTB's transmitter facilities are located on a site near Baltimore. The
building containing the transmitter and the tower on which the antenna is
mounted, are shared with another television station. The lease for the tower
and building expires in December 1999 and is renewable for two five-year
periods.
BHC believes its properties are adequate for their present uses.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of BHC, as of February 28, 1998, are as
follows:
Has served
Positions with BHC; principal occupation; as officer
Name and age as of February 28, 1998 since
Herbert J. Siegel Chairman of the Board; Chairman of the
Board and President, Chris-Craft; 69 1977
William D. Siegel President; Senior Vice President,
Chris-Craft; 43 1981
Joelen K. Merkel Vice President and Treasurer; Vice
President and Treasurer, Chris-Craft;
46 1980
Brian C. Kelly General Counsel and Secretary; General
Counsel and Secretary, Chris-Craft; 46 1992
Chris-Craft, through its majority ownership of BHC, is principally engaged
in television broadcasting. The principal occupation of each of the individuals
for the past five years is stated in the foregoing table.
All officers hold office until the meeting of the Board following the next
annual meeting of stockholders or until removed by the Board.
Evan C Thompson, age 55, is Executive Vice President of Chris-Craft.
Although not an officer of BHC, as President of UTV and Chris-Craft's Television
Division for more than the past five years, Mr. Thompson may be considered an
executive officer of BHC within the Securities and Exchange Commission
definition of the term.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information appearing in the Annual Report under the caption
STOCK PRICE, DIVIDEND AND RELATED INFORMATION is incorporated herein by this
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing in the Annual Report under the caption
SELECTED FINANCIAL DATA is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information appearing in the Annual Report under the caption
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS is incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, Notes thereto, Report of
Independent Accountants thereon and Quarterly Financial Information
(unaudited) appearing in the Annual Report are incorporated herein by this
reference. Except as specifically set forth herein and elsewhere in this
Form 10-K, no information appearing in the Annual Report is incorporated by
reference into this report, nor is the Annual Report, deemed to be filed, as
part of this report or otherwise, pursuant to the Securities Exchange Act of
1934.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
16
PART III
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS -- Nominees of the Board of Directors and ELECTION OF
DIRECTORS -- Section 16(a) Beneficial Ownership Compliance is incorporated
herein by this reference. Information relating to BHC's executive officers is
set forth in Part I under the caption EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS -- Executive Compensation is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS -- Voting Securities of Certain Beneficial Owners and
Management is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS -- Certain Relationships and Related Transactions is
incorporated herein by this reference.
17
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. The financial statements and quarterly financial information
incorporated by reference from the Annual Report pursuant to
Item 8.
2. The financial statements of UPN and report thereon listed
under the caption Schedules in the Index to Consolidated
Financial Statements and Schedules.
3. Exhibits listed in the Exhibit Index, including the
compensatory plans listed below:
* Chris-Craft's Benefit Equalization Plan
* Employment Agreement dated as of January 1, 1994 between
Herbert J. Siegel and Chris-Craft
* Employment Agreement dated as of January 1, 1994 between
Evan C Thompson and Chris-Craft
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this report.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 27, 1998
BHC COMMUNICATIONS, INC.
(Registrant)
By: WILLIAM D. SIEGEL
William D. Siegel
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature and Title Date
HERBERT J. SIEGEL March 27, 1998
Herbert J. Siegel
Chairman and Director
(principal executive
officer)
WILLIAM D. SIEGEL March 27, 1998
William D. Siegel
President and
Director (principal
financial officer)
JOELEN K. MERKEL March 27, 1998
Joelen K. Merkel
Vice President, Treasurer
and Director (principal
accounting officer)
19
<PAGE>
JOHN L. EASTMAN March 27, 1998
John L. Eastman
Director
BARRY S. GREENE March 27, 1998
Barry S. Greene
Director
LAURENCE M. KASHDIN March 27, 1998
Laurence M. Kashdin
Director
MORGAN L. MILLER March 27, 1998
Morgan L. Miller
Director
JOHN C. SIEGEL March 27, 1998
John C. Siegel
Director
20
<PAGE>
BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Income - For the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - For the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Investment - For
the Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
SCHEDULES:
UPN Financial Statements --
Report of Independent Accountants
Balance Sheets - December 31, 1997 and 1996
Statements of Operations - For the Years
Ended December 31, 1997, 1996 and 1995
Statements of Changes in Partners'
Capital (Deficit) - For the Years
Ended December 31, 1997, 1996 and 1995
Statements of Cash Flows - For the Years
Ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
21
<PAGE>
United Paramount Network
(a partnership between BHC Network
Partner, Inc., BHC Network Partner II, Inc.,
BHC Network Partner III, Inc.,
PCI Network Partner Inc. and
PCI Network Partner II Inc.)
Report and Financial Statements
December 31, 1997, 1996 and 1995
<PAGE>
Report of Independent Accountants
February 6, 1998
To the Partners
of United Paramount Network
In our opinion, the accompanying balance sheets and the related
statements of operations, of changes in partners' capital (deficit)
and of cash flows present fairly, in all material respects, the
financial position of United Paramount Network (a partnership between
BHC Network Partner, Inc., BHC Network Partner II, Inc., BHC Network
Partner III, Inc., PCI Network Partner Inc., and PCI Network Partner
II Inc.) at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of United Paramount Network's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audits 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,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
<PAGE>
UNITED PARAMOUNT NETWORK
BALANCE SHEETS
(in thousands) December 31,
---------------------
1997 1996
---------- ---------
Assets
Current assets:
Cash and cash equivalents $ 23,622 $ 557
Accounts receivable (net of allowance for
doubtful accounts of $430 and $430,
respectively) 39,287 25,057
Program rights and development costs (net of
reserve for abandonment of $7,721 and
$5,613, respectively) 16,596 17,815
Other current assets 512 402
--------- ---------
Total current assets 80,017 43,831
--------- ---------
Restricted investments 8,755 1,157
Property and equipment, at cost:
Furniture, fixtures, computer equipment and
other (net of accumulated depreciation of
$901 and $508, respectively) 966 915
Intangible assets (net of accumulated
amortization of $1,484 and $108, respectively) 5,682 163
Other assets 14,523 2,827
--------- ---------
$ 109,943 $ 48,893
========= =========
Liabilities and Partners Capital (Deficit)
Current liabilities:
Accounts payable $ 16,258 $ 4,027
Accrued program costs 61,040 18,168
Accrued expenses and other liabilities 30,421 25,304
--------- ---------
Total current liabilities 107,719 47,499
--------- ---------
Commitments and contingencies (Note 7)
Partners' capital (deficit):
BHC Network Partner (4,179) (4,172)
BHC Network Partner II (3,837) (3,703)
BHC Network Partner III 9,128 9,269
PCI Network Partner 890 -
PCI Network Partner II 222 -
--------- ---------
Total partners capital 2,224 1,394
--------- ---------
$ 109,943 $ 48,893
========= =========
The accompanying notes are an integral part of these financial
statements.
UNITED PARAMOUNT NETWORK
STATEMENTS OF OPERATIONS
(in thousands)
For the Year Ended
December 31,
-------------------------------
1997 1996 1995
--------- ---------- ---------
Net revenues $ 89,997 $ 56,948 $ 30,376
Operating costs and expenses:
Operating expenses 177,874 132,593 99,940
Selling, general and administrative
expenses 82,294 67,359 58,924
Depreciation and amortization 1,794 364 252
--------- --------- ---------
261,962 200,316 159,116
--------- --------- ---------
Operating loss (171,965) (143,368) (128,740)
--------- --------- ---------
Other income (expense):
Interest expense to related parties - (14,147) (4,535)
Interest and other income 1,736 193 62
Net income (loss) on investment in
joint venture 32 (3,138) (625)
--------- --------- ---------
1,768 (17,092) (5,098)
--------- --------- ---------
Net loss $(170,197) $(160,460) $(133,838)
========= ========= =========
The accompanying notes are an integral part of these financial
statements.
UNITED PARAMOUNT NETWORK
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
BHC BHC BHC PCI PCI
Network Network Network Network Network
Partner Partner II Partner III Partner Partner II Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $ 1,500 $ 1,338 $ - $ - $ - $ 2,838
Capital
contributions - 23,186 - - - 23,186
Capital transfers
between partners (3,977) 3,977 - - - -
Allocation of 1995
net loss (6,465) (127,373) - - - (133,838)
- ---------------------------------------------------------------------------------
Balance at
December 31, 1995 (8,942) (98,872) - - - (107,814)
Capital
contributions - - 20,000 - - 20,000
Conversion of
debt to equity 8,398 164,101 63,016 - - 235,515
Conversion of
accrued interest
to equity 12 9,500 4,641 - - 14,153
Allocation of 1996
net loss (3,640) (78,432) (78,388) - - (160,460)
- ---------------------------------------------------------------------------------
Balance at
December 31, 1996 (4,172) (3,703) 9,269 - - 1,394
Exercise of
option by PCI/NP - - - 155,014 38,754 193,768
Allocation of
option exercise 3,881 73,731 77,612 (124,178) (31,046) -
Distribution to
partners (2,907) (55,224) (58,130) - - (116,261)
Capital
contributions 1,205 22,888 24,092 36,268 9,067 93,520
Allocation of 1997
net loss (2,186) (41,529) (43,715) (66,214) (16,553) (170,197)
- ---------------------------------------------------------------------------------
Balance at
December 31, 1997 $(4,179) $ (3,837) $ 9,128 $ 890 $ 222 $ 2,224
=================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
UNITED PARAMOUNT NETWORK
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
For the Year Ended
December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(170,197) $(160,460) $(133,838)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of program costs 169,771 126,793 91,744
Payments for programming (118,912) (121,822) (98,420)
Depreciation and amortization 1,794 364 252
Abandonment reserve 2,108 982 4,631
Changes in assets and liabilities:
Increase in accounts receivable (14,230) (16,017) (9,025)
Increase in accounts payable, accrued
expenses and other current liabilities 8,470 25,116 12,546
(Increase) decrease in other assets (12,110) 207 3,052
--------- --------- ---------
Net cash used in operating activities (133,306) (144,837) (129,058)
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (467) - (1,113)
Cash placed in restricted account (7,598) (183) (974)
Increase in intangible asset - - (271)
Net investment in joint venture 304 (77) (2,750)
--------- --------- ---------
Net cash used in investing activities (7,761) (260) (5,108)
--------- --------- ---------
Cash flows from financing activities:
Advances from related party - 125,580 109,935
Exercise of option by PCI/NP 186,873 - -
Capital contributions 93,520 20,000 23,186
Distributions to partners (116,261) - -
--------- --------- ---------
Net cash provided by financing activities 164,132 145,580 133,121
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 23,065 483 (1,045)
Cash and cash equivalents:
Beginning of year 557 74 1,119
--------- --------- ---------
End of year $ 23,622 $ 557 $ 74
========= ========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ - $ - $ 4,530
========= ========= =========
Supplemental schedule of non-cash
financing activities:
Start-up costs incurred by PCI/NP and
contributed to the partnership $ 6,895 $ - $ -
========= ========= =========
Advances from related party converted
to equity $ - $ 235,515 $ -
========= ========= =========
Accrued interest converted to equity $ - $ 14,153 $ -
========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
UNITED PARAMOUNT NETWORK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ---------------------------------------------------------------------
Note 1 - Organization
In July 1994, BHC Network Partner, Inc. ("BHC/NP"), a then wholly
owned subsidiary of Chris-Craft Industries, Inc.'s majority owned
subsidiary, BHC Communications, Inc. ("BHC"), along with PCI Network
Partner, Inc. ("PCI/NP"), a wholly owned indirect subsidiary of Viacom
Inc.'s Paramount Television Group ("Viacom"), formed the United
Paramount Network ("UPN" or the "Network"), a broadcast television
network.
UPN was organized as a partnership in December 1994 between BHC/NP and
BHC Network Partner II, Inc. ("BHC/NP II"), a wholly owned indirect
subsidiary of BHC. BHC Network Partner III, Inc. ("BHC/NP III"), a
wholly owned indirect subsidiary of BHC, became a partner in 1996. On
December 30, 1996, all advances from related parties and related
accrued interest were converted to partnership equity. PCI/NP had an
option to acquire an interest in UPN equal to that of BHC/NP, BHC/NP
II, and BHC/NP III (collectively referred to as the "BHC Partners").
The option price included approximately one-half of the BHC Partners'
aggregate cash contributions to UPN through the exercise date, plus
interest, and additional cash available for ongoing UPN expenditures.
On January 15, 1997, PCI/NP completed its exercise of its option in
accordance with the terms of the option agreement and, together with
PCI Network Partner II, Inc., a wholly owned indirect subsidiary of
Viacom, became an equal partner with BHC Partners in UPN. In
accordance with the option agreement, BHC Partners received
distributions amounting to approximately $116 million.
UPN began providing programming for broadcast in January 1995. At
December 31, 1997, 1996 and 1995, the Network had 187 affiliates in
markets covering approximately 97%, 164 affiliates in markets covering
over 92% and 150 affiliates in markets covering over 90% of U.S.
television households, respectively. The Network's revenues are
derived primarily from providing television programming and are,
therefore, subject to fluctuations in the advertising industry.
Operating costs of the Network have been funded through capital
contributions and loans made by BHC Partners and PCI/NP (collectively
known as "Partners") and the sale of advertising. Profits or losses
are allocated between the Partners in accordance with the partnership
agreement. UPN is still in its early development and the cost of
developing and expanding its programming is expected to remain
significant for several years. The Partners intend to continue
funding UPN as UPN incurs obligations arising through the normal
course of its business.
Note 2 - Accounting Policies
Financial Instruments
Cash equivalents are securities having maturities at time of purchase
not exceeding three months.
Intangible Assets
Intangible assets represent primarily the costs incurred by PCI/NP
during the start up phase of the network and contributed to the
partnership as a result of the acquisition by PCI/NP of an interest in
the partnership (Note 1). Also included in intangible assets are
costs associated with logo design and development. The assets are
being amortized on a straight line basis over five years.
Property and Equipment
Property and equipment is recorded at cost. Depreciation of
furniture, fixtures and computer equipment is computed on the
straight-line method over the estimated useful lives of the assets
which range from three to five years. Amortization of leasehold
improvements is computed on a straight-line basis over the life of the
lease.
Program Rights and Development Costs
Network programming rights and related liabilities are recorded at the
contractual amounts when the programming becomes available for
telecasting. Capitalized program costs are amortized over the
estimated number of showings, using accelerated methods based on
management s estimate of the flow of revenues. The estimated costs of
recorded program rights to be charged to income within one year are
included in current assets; payments on such program rights due within
one year are included in current liabilities.
Costs incurred for the development of programs are capitalized and
included in the accompanying balance sheets, net of reserves
established for projects which may be terminated prior to being placed
into production.
Revenue Recognition
Revenues are recognized substantially as advertisements are aired, at
contractual rates.
Use of Estimates in Preparation of Financial Statements
Preparation of financial statements in accordance with generally
accepted accounting principles requires the use of management
estimates.
Income Taxes
As a general partnership, the Network's losses are allocated to, and
reported by, the individual Partners. Therefore, no income tax
benefit is included in the accompanying financial statements.
NOTE 3 - Restricted Investments
Restricted investments consist of cash and marketable securities
placed in an account as a security deposit and as collateral for a
loan to a third party. The restricted investments are not available
for current operations of the Network and, therefore, have been
classified as non-current in the accompanying balance sheet. In
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
marketable securities have been classified as held-to-maturity and are
therefore carried at amortized costs.
NOTE 4 - Other Assets
Included in other assets at December 31, 1997 are deferred network
costs of $12,000,000 and investment in joint venture of $2,523,000.
At December 31, 1996, other assets are comprised of investment in
joint venture of $2,827,000. Network costs are amortized over the
same period as the related agreements. In 1995, UPN entered into a
joint venture (the "Venture") with Saban Entertainment for the purpose
of developing, producing and distributing children's television
programming. Under terms of the Venture agreement, UPN funded certain
programming costs in return for certain distribution rights to such
programming and a share of aggregate revenue. UPN accounts for its
interest in the Venture using the equity method. The investment in
the Venture is presented net of reserves of $2,119,000 and $2,158,000
at December 31, 1997 and 1996, respectively.
NOTE 5 - Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
(in thousands)
December 31,
-------------------------
1997 1996
--------- ---------
Accrued advertising costs $ 18,976 $ 16,930
Accrued compensation 4,917 3,453
Accrued sales commissions 224 1,807
Other accrued expenses 6,304 3,114
--------- ---------
$ 30,421 $ 25,304
========= =========
NOTE 6 - Related Party Transactions
Prior to September 1997, advertising time was sold through Premier
Advertising Sales ("Premier") a wholly owned subsidiary of Paramount
Communications, Inc., which is a subsidiary of Viacom Inc. (Note 1).
Net revenues for sales made by Premier totaled $43,019,000 in 1997 and
at December 31, 1997, the Network had an accounts receivable balance
with Premier of $1,825,000. In September 1997, the Network
established its own sales force which sells advertising time for
broadcast on UPN programs.
During the normal course of business, the Network enters into various
contracts to purchase programming from related parties. In 1997,
capitalized programming costs from related parties totaled
$71,663,000.
Prior to September 1997, with respect to certain of its programming
provided by Viacom, UPN derived no revenue and incurred no programming
expense.
NOTE 7 - Commitments and Contingencies
During 1995, UPN entered into a five year lease obligation for its
office space. The lease is noncancellable for three years and calls
for certain penalty payments upon cancellation thereafter. Rental
expense was $594,000, $562,000 and $427,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
As of December 31, 1997, the future minimal rental payments under
operating leases are as follows:
1998 $ 720,000
1999 701,000
2000 503,000
Thereafter -
-----------
Total $ 1,924,000
===========
As of December 31, 1997, the Network had entered into various network
related agreements and contracts for programming which was not
currently available for telecasting. The aggregate amounts of the
payments required under these agreements totaled approximately
$168,807,000 and $71,000,000 at December 31, 1997 and 1996,
respectively.
In the normal course of business, the Network is at times subject to
pending and threatened legal actions. In management's opinion, any
liabilities or benefits resulting from these matters will not have a
material effect on the financial position or results of operations of
the Network.
EXHIBIT INDEX
Incorporated by Exhibit
Reference to: No. Exhibit
- --------------- ------- --------
Exhibit 3(a) [1] 3.1 Restated Certificate
of Incorporation
Exhibit 3(b) [1] 3.2 Restated By-laws
Exhibit 10(c) [1] 10.1 Management Agreement
between registrant
and Chris-Craft
dated July 21, 1989
Exhibit 19 [4] 10.2 Amendment No. 1
thereto dated
October 31, 1991
Exhibit 10(H)(2) [5] 10.3 Amendment No. 2
thereto dated March
24, 1994
Exhibit 10(E) [2] 10.4 Form of Agreement
under Chris-Craft's
Executive Deferred
Income Plan
Exhibit 10(B) [5] 10.5 Employment Agreement
dated January 1,
1994 between Chris-
Craft and Herbert J.
Siegel
Exhibit 10(C) [5] 10.6 Split-Dollar
Agreement dated
January 6, 1994
between registrant
and William D.
Siegel
Exhibit 10(D) [5] 10.7 Split-Dollar
Agreement dated
January 6, 1994
between registrant
and John C. Siegel
Exhibit 10(F) [5] 10.8 Employment Agreement
dated January 1,
1994 between Chris-
Craft and Evan C
Thompson
Exhibit 11(H) [3] 10.9 Chris-Craft's
Exhibit 10(B)(1) [6] Benefit
Exhibit 10.3 [8] Equalization Plan,
as amended
Exhibit 10.10[7] 10.10 Option Agreement
dated July 19, 1994
between BHC Network
Partner, Inc. and
PCI Network Partner,
Inc.
22
<PAGE>
* 13 Portions of the
Annual Report
incorporated by
reference
* 21 Subsidiaries of
registrant
* 27 Financial Data
Schedule
_______________________
* Filed herewith.
[1] Registrant's Registration Statement on Form S-1 (Regis. No. 33-
31091).
[2] Chris-Craft's Annual Report on Form 10-K for the year ended
August 31, 1983 (File No. 1-2999).
[3] Chris-Craft's Registration Statement on Form S-1 (Regis. No. 2-
65906).
[4] Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1991.
[5] Chris-Craft's Annual Report on Form 10-K for the year ended
December 31, 1993.
[6] Chris-Craft's Annual Report on Form 10-K for the year ended
December 31, 1989.
[7] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
[8] Chris-Craft's Annual Report on Form 10-K for the year ended
December 31, 1994.
23
BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------
Year ended December 31,
(In Thousands Except ------------------------------------------
per Share Data) 1997 1996 1995
- --------------------------------------------------------------------
Operating Revenues $ 443,499 $ 446,292 $ 454,702
- --------------------------------------------------------------------
Operating Expenses:
Television expenses 212,183 217,928 214,223
Selling, general and
administrative 129,978 121,216 121,900
- --------------------------------------------------------------------
342,161 339,144 336,123
- --------------------------------------------------------------------
Operating income 101,338 107,148 118,579
- --------------------------------------------------------------------
Other Income (Expense):
Gain on change of
ownership in United
Paramount Network 153,933 - -
Interest and other
income 82,809 81,849 82,483
Equity in United
Paramount Network loss (87,430) (146,313) (129,303)
- --------------------------------------------------------------------
149,312 (64,464) (46,820)
- --------------------------------------------------------------------
Income before provision
for income taxes and
minority interest 250,650 42,684 71,759
Provision for Income Taxes 101,000 21,000 18,800
- --------------------------------------------------------------------
Income before minority
interest 149,650 21,684 52,959
Minority Interest 18,473 17,448 15,902
- --------------------------------------------------------------------
Net income $ 131,177 $ 4,236 $ 37,057
====================================================================
Weighted Average Common
Shares Outstanding 23,333 23,987 24,549
====================================================================
Earnings per share
Basic $ 5.62 $ .18 $ 1.51
Diluted $ 5.61 $ .17 $ 1.50
====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------
December 31,
-----------------------------------
(In Thousands of Dollars) 1997 1996
- ---------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 282,504 $ 146,751
Marketable securities
(substantially all U.S.
Government securities) 1,204,776 1,245,241
Accounts receivable,
less allowance for doubtful
accounts of $5,499 and $5,770 86,198 87,459
Film contract and, in 1996,
prepaid broadcast rights 95,859 115,498
Prepaid expenses and other
current assets 44,533 52,354
- --------------------------------------------------------------------
Total current assets 1,713,870 1,647,303
- --------------------------------------------------------------------
Investments 47,594 46,944
Film Contract Rights,
including deposits, less
estimated portion to be used
within one year 26,118 28,536
Property and Equipment, at cost:
Land, buildings and improvements 41,255 41,289
Equipment 101,699 97,730
- --------------------------------------------------------------------
142,954 139,019
Less-Accumulated depreciation 97,774 90,942
- --------------------------------------------------------------------
45,180 48,077
- --------------------------------------------------------------------
Intangible Assets 303,827 313,079
- --------------------------------------------------------------------
Other Assets 5,899 13,324
- --------------------------------------------------------------------
$ 2,142,488 $ 2,097,263
====================================================================
<PAGE>
Liabilities and Shareholders' Investment
Current Liabilities:
Film contracts payable
within one year $ 98,033 $ 97,222
Accounts payable and accrued
expenses 87,768 77,477
Income taxes payable 28,129 35,543
- ---------------------------------------------------------------------
Total current liabilities 213,930 210,242
- ---------------------------------------------------------------------
Film Contracts Payable after
One Year 70,934 80,837
- ---------------------------------------------------------------------
Other Long-Term Liabilities 17,197 5,424
- ---------------------------------------------------------------------
Minority Interest 115,473 95,227
- ---------------------------------------------------------------------
Commitments and Contingencies (Note 7)
Shareholders Investment:
Class A common stock-par value
$.01 per share; authorized
200,000,000 shares; outstanding
5,026,108 and 5,839,508 shares 50 58
Class B common stock-par value
$.01 per share; authorized
200,000,000 shares; outstanding
18,000,000 shares 180 180
Retained earnings 1,723,402 1,710,323
Treasury stock 132,504 and
133,636 Class A common shares,
at cost (6,627) (6,677)
Increase to reflect marketable
securities at market value 7,949 1,649
- ---------------------------------------------------------------------
1,724,954 1,705,533
- ---------------------------------------------------------------------
$ 2,142,488 $ 2,097,263
=====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------
Year ended December 31,
-------------------------------------
(In Thousands of Dollars) 1997 1996 1995
- ---------------------------------------------------------------------
Cash Flows from Operating
Activities:
Net income $ 131,177 $ 4,236 $ 37,057
Adjustments to reconcile
net income to net cash
provided from operating
activities:
Film contract amortization 95,244 95,291 89,321
Film contract payments (99,513) (90,802) (90,994)
Prepaid broadcast rights 21,114 5,252 4,249
Depreciation and other
amortization 19,187 19,451 19,833
Equity in United Paramount
Network loss 87,430 146,313 129,303
Gain on change of ownership
in United Paramount Network (153,933) - -
Minority interest 18,473 17,448 15,902
Other 1,582 (2,315) 1,543
Changes in assets
and liabilities:
Accounts receivable 1,261 2,529 6,693
Other assets (7,738) 178 643
Accounts payable and
other liabilities 4,640 1,193 5,728
Income taxes 22,238 (4,859) (22,028)
- ---------------------------------------------------------------------
Net cash provided from
operating activities 141,162 193,915 197,250
- ---------------------------------------------------------------------
Cash Flows from Investing
Activities:
Disposition of marketable
securities 1,002,103 1,067,658 697,079
Purchase of marketable
securities (944,113) (898,897) (811,540)
Distribution from United
Paramount Network 116,261 - -
Investment in United
Paramount Network (48,185) (145,580) (128,585)
Other investments (3,345) (39,173) (8,748)
Capital expenditures, net (7,040) (9,870) (9,839)
Other (1,334) (44) (34)
- ---------------------------------------------------------------------
Net cash provided from (used in)
investing activities 114,347 (25,906) (261,667)
- ---------------------------------------------------------------------
Cash Flows from Financing
Activities:
Purchase of treasury stock (95,408) (62,639) (30,504)
Payment of special dividend (23,599) - (24,504)
Capital transactions
of subsidiary (749) (30,798) (30,597)
- ---------------------------------------------------------------------
Net cash used in financing
activities (119,756) (93,437) (85,605)
- ---------------------------------------------------------------------
Net Increase (Decrease) in
Cash and Cash Equivalents 135,753 74,572 (150,022)
Cash and Cash Equivalents
at Beginning of Year 146,751 72,179 222,201
- ---------------------------------------------------------------------
Cash and Cash Equivalents
at End of Year $ 282,504 $ 146,751 $ 72,179
=====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury
Outstanding Shares Shares Dollar Amount (In Thousands)
------------------- --------- --------------------------------------------------------
Market
Class A Class B Class A Class A Class B Capital Retained Treasury Valuation
Common Common Common Common Common Surplus Earnings Stock Account
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 6,877,518 18,000,000 (125,030) $69 $180 $29,611 $1,779,409 $ (6,254) $(13,131)
Net income - - - - - - 37,057 - -
Dividend on common
stock $1.00
per share - - - - - - (24,604) - -
Acquisition of
treasury stock - - (384,710) - - - - (31,279) -
Retirement of
treasury stock (384,710) - 384,710 (4) - (18,973) (12,302) 31,279 -
Capital transactions
of subsidiary - - (4,756) - - (10,638) - (239) -
Marketable
securities
valuation
adjustment - - - - - - - - 21,712
- ------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 6,492,808 18,000,000 (129,786) 65 180 - 1,779,560 (6,493) 8,581
Net income - - - - - - 4,236 - -
Acquisition of
treasury stock - - (653,300) - - - - (61,717) -
Retirement of
treasury stock (653,300) - 653,300 (7) - - (61,710) 61,717 -
Capital transactions
of subsidiary - - (3,850) - - - (11,763) (184) -
Marketable
securities
valuation
adjustment - - - - - - - - (6,932)
- -------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 5,839,508 18,000,000 (133,636) 58 180 - 1,710,323 (6,677) 1,649
Net income - - - - - - 131,177 - -
Dividend on common
stock $1.00
per share - - - - - - (23,693) - -
Acquisition of
treasury stock - - (813,400) - - - - (95,306) -
Retirement of
treasury stock (813,400) - 813,400 (8) - - (95,298) 95,306 -
Capital transactions
of subsidiary - - 1,132 - - - 893 50 -
Marketable
securities
valuation
adjustment - - - - - - - - 6,300
- -------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 5,026,108 18,000,000 (132,504) $50 $180 $ - $1,723,402 $(6,627) $ 7,949
=============================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------
Note 1
- --------------------------------------------------------------------
Summary of Significant Accounting Policies:
(A) BUSINESS AND BASIS OF PRESENTATION
BHC Communications, Inc. is a majority owned (78.6% at December
31, 1997 and 75.9% at December 31, 1996) subsidiary of Chris-Craft
Industries, Inc. BHC s primary business is television broadcasting,
conducted through wholly owned subsidiaries, which operate three
television stations, and through majority owned (58.5% at December 31,
1997 and 59.0% at December 31, 1996) United Television, Inc. (UTV),
which operates six television stations, one of which was acquired in
January 1998. See Note 9.
BHC accounts for its interest in the partnership that operates
the United Paramount Network (UPN), a fifth broadcast television
network which premiered in January 1995, under the equity method. BHC
recorded 100% of UPN s start-up losses from the network s 1994
inception through January 15, 1997, when Viacom Inc. completed its
acquisition of a 50% interest in the partnership. Thereafter, BHC has
recorded 50% of UPN s start-up losses.
The accompanying consolidated financial statements include the
accounts of BHC and its subsidiaries, after elimination of all
significant intercompany accounts and transactions. The interest of
UTV shareholders other than BHC in the net income and net assets of
UTV is set forth as Minority Interest in the Consolidated Statements
of Income and Consolidated Balance Sheets, respectively. Preparation
of financial statements in accordance with generally accepted
accounting principles requires the use of management estimates.
Certain prior year amounts have been restated to conform with the 1997
presentation.
(B) FINANCIAL INSTRUMENTS
Cash and cash equivalents totalled $282,504,000 at December 31,
1997 and $146,751,000 at December 31, 1996. Cash equivalents are
securities having maturities at time of purchase not exceeding three
months. The fair value of cash equivalents approximates carrying
value, reflecting their short maturities.
All of BHC s marketable securities have been categorized as available
for sale and are carried at fair market value. Since marketable
securities are available for current operations, all are included in
current assets, as follows:
Gross Unrealized
----------------
(In Thousands) Cost Gains Losses Fair Value
- ---------------------------------------------------------------
December 31, 1997:
U.S. Government
securities $1,097,346 $ 619 $ 182 $1,097,783
Other 93,827 16,831 3,665 106,993
- ---------------------------------------------------------------
$1,191,173 $17,450 $3,847 $1,204,776
===============================================================
December 31, 1996:
U.S. Government
securities $1,151,818 $ 884 $ 868 $1,151,834
Other 91,387 7,413 5,393 93,407
- ---------------------------------------------------------------
$1,243,205 $ 8,297 $6,261 $1,245,241
===============================================================
All U.S. Government securities held at December 31, 1997 mature
within one year.
Certain additional information related to BHC s marketable
securities as of and for the years ended December 31, 1997, 1996 and
1995 is as follows:
(In Thousands) 1997 1996 1995
- ---------------------------------------------------------------
Sales proceeds $1,002,103 $1,067,658 $697,079
Realized gains 1,256 3,909 2,356
Realized losses 177 466 4,690
Net unrealized gain 13,603 2,036 13,721
Adjustment for
unrealized gain,
net of deferred income
taxes and minority
interest $ 7,949 $ 1,649 $ 8,581
================================================================
For purposes of computing gains and losses, cost was determined
using the specific identification method.
(C) FILM CONTRACTS
BHC s television stations own film contract rights which allow
generally for limited showings of films and syndicated programs. Film
contract rights and related liabilities are recorded when the
programming becomes available for telecasting.
Contracts are amortized over the estimated number of showings,
using primarily accelerated methods as films are used, based on
management s estimates of the flow of revenue and the ultimate total
cost for each contract. In the opinion of management, future revenue
derived from airing programming will be sufficient to cover related
unamortized rights balances at December 31, 1997. The estimated costs
of recorded film contract rights to be charged to income within one
year are included in current assets; payments on such contracts due
within one year are included in current liabilities. The approximate
future maturities of film contracts payable after one year at December
31, 1997 are $44,077,000, $21,013,000, $3,973,000 and $1,871,000 in
1999, 2000, 2001 and thereafter, respectively. The net present value
at December 31, 1997 of such payments, based on an 8.5% discount rate,
was approximately $60,000,000. See Note 7.
(D) DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is generally provided on
the straight-line method over the estimated useful lives of the
assets, except that leasehold improvements are amortized over the
lives of the respective leases, if shorter.
(E) INTANGIBLE ASSETS
Intangible assets reflect the excess of the purchase prices of
businesses acquired over net tangible assets at dates of acquisition.
Amounts primarily relate to television station WWOR, which was
acquired in 1992, and are being amortized on a straight-line basis
over 40 year periods. Accumulated amortization of intangible assets
totalled $65,905,000 at December 31, 1997 and $56,653,000 at December
31, 1996.
(F) REVENUE RECOGNITION AND BARTER TRANSACTIONS
Revenue is recognized upon broadcast of television advertising.
The estimated fair value of goods or services received in barter
(nonmonetary) transactions, most of which relate to the acquisition of
programming, is recognized as revenue when the air time is used by the
advertiser. Barter revenue totalled $43,944,000 in 1997, $40,853,000
in 1996 and $46,039,000 in 1995. Barter expense in each year
approximated barter revenue.
(G) EARNINGS PER SHARE
BHC has adopted Statement of Financial Accounting Standards No.
128, Earnings per Share . Basic per share amounts have been computed
by dividing net income by the weighted average number of common shares
outstanding during each year. Diluted per share amounts have been
computed by dividing net income, less the adjustment for dilution of
UTV net income ($179,000 in 1997, $241,000 in 1996 and $243,000 in
1995) resulting from the assumed conversion of UTV stock options, by
the weighted average number of common shares outstanding each year.
BHC has no securities outstanding other than its common shares.
(H) STOCK-BASED COMPENSATION
BHC itself has no stock-based employee compensation plan, but UTV
has stock option plans under which options to purchase shares of UTV
common stock may be granted to UTV and BHC employees and to UTV
directors. UTV has adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). This statement encourages but does not require the recording of
compensation cost for stock-based employee compensation plans at fair
value. UTV has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees .
If UTV had elected to recognize compensation expense based upon
the fair value at the grant date for awards under its plans using the
methodology prescribed by SFAS 123, BHC net income would have been
reduced by $398,000, or $.02 per share ($.01 per share diluted), in
1997, $369,000, or $.02 per share ($.02 per share diluted), in 1996
and by $281,000, or $.01 per share ($.01 per share diluted), in 1995.
Such pro forma amounts are based on fair value estimates using the
Black-Scholes option pricing model, and may not be representative of
the pro forma effect on net income in future years, since the
estimated fair value of stock options is amortized over the vesting
period, pro forma compensation expense related to grants made prior to
1995 is not considered and additional options may be granted in future
years.
(I) SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NONCASH
INVESTING ACTIVITIES
Cash paid for income taxes totalled $79,500,000 in 1997,
$29,000,000 in 1996 and $46,300,000 in 1995.
The 1997 distribution from UPN to BHC was net of approximately
$38,800,000, representing additional BHC capital contributions.
Note 2
- --------------------------------------------------------------------
United Paramount Network:
In July 1994, BHC, along with Viacom Inc. s Paramount Television
Group, formed the United Paramount Network, a fifth broadcast
television network which premiered in January 1995. BHC owned 100% of
UPN from its inception through January 15, 1997, when Viacom completed
the exercise of its option to acquire a 50% interest in UPN. The
option price included approximately one-half of BHC s aggregate cash
contributions to UPN through the exercise date, plus interest, and
additional cash available for ongoing UPN expenditures. UPN
distributed $116,261,000 to BHC pursuant to the option exercise, and
BHC realized a 1997 pretax gain on the exercise of $153,933,000. BHC
and Viacom now share equally in UPN funding requirements and in UPN
losses.
UPN has been organized as a partnership, and BHC accounts for its
partnership interest under the equity method. The carrying value of
such interest, which reflects BHC funding of $48,185,000 in 1997 and
$145,580,000 in 1996, plus the additional BHC capital contributions
set forth above, and BHC s pro rata share of UPN losses in those
years, totalled $1,112,000 at December 31, 1997 and $1,394,000 at
December 31, 1996, and is included in Investments on the accompanying
Consolidated Balance Sheets. UPN is still in its early development and
is expected to continue to incur significant start-up losses and to
require significant funding for the next several years. However, BHC
believes that the funds from the Viacom option exercise will
substantially offset its aggregate UPN funding for 1997 and 1998.
Condensed consolidated financial statements of UPN are as follows:
BALANCE SHEETS
December 31,
-----------------------
(In Thousands) 1997 1996
- -----------------------------------------------
Current assets $ 80,017 $ 43,831
Other assets 29,926 5,062
- -----------------------------------------------
$ 109,943 $ 48,893
===============================================
Current liabilities $ 107,719 $ 47,499
Partners capital 2,224 1,394
- -----------------------------------------------
$ 109,943 $ 48,893
===============================================
STATEMENTS OF OPERATIONS
Year ended December 31,
(In Thousands) 1997 1996 1995
- -------------------------------------------------------------
Operating revenues* $ 89,997 $ 56,948 $ 30,376
Operating expenses* 261,962 200,316 159,116
- -------------------------------------------------------------
Operating loss (171,965) (143,368) (128,740)
Other income
(expense), net 1,768 (2,945) (563)
- -------------------------------------------------------------
Loss before interest
on BHC advances (170,197) (146,313) (129,303)
Interest on BHC advances
(eliminated in
consolidation) - (14,147) (4,535)
- -------------------------------------------------------------
Net loss $ (170,197) $ (160,460) $ (133,838)
=============================================================
* With respect to certain of its programming, through August 31, 1997
UPN derived no revenue and incurred no programming expense.
Note 3
- --------------------------------------------------------------------
Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
December 31,
---------------------------
(In Thousands) 1997 1996
- ------------------------------------------------------------
Accounts payable $ 7,373 $ 9,530
Payable for securities purchased - 101
Accrued expenses-
Deferred barter revenue 38,721 33,896
Payroll and compensation 21,934 18,053
Other 19,740 15,897
- ------------------------------------------------------------
$ 87,768 $ 77,477
============================================================
Note 4
- ---------------------------------------------------------------------
Shareholders Investment:
Each share of Class B common stock, all of which is held by
Chris-Craft, entitles the holder to ten votes (Class A common stock
entitles the holder to one vote per share), is convertible at all
times into Class A common stock on a share-for-share basis, is not
transferable except to specified persons and, in general, carries the
same per share dividend and liquidation rights as Class A common
stock, except that the Board of Directors may in its discretion
declare greater cash dividends per share on the Class A common stock
than on the Class B common stock.
From 1990, when BHC became a public company, through December 31,
1997, BHC purchased 6,381,087 shares of its Class A common stock at an
aggregate cost of $453,520,000. Chris-Craft s ownership interest in
BHC during that period accordingly increased to 78.6% (representing
97.4% of BHC s voting power) from 60%. At December 31, 1997, 700,000
Class A common shares remained authorized for purchase.
Capital transactions of subsidiary, as set forth in the
accompanying Consolidated Statements of Cash Flows and Consolidated
Statements of Shareholders Investment, reflect purchases by UTV of
its common shares totalling $2,755,000 in 1997, $32,810,000 in 1996
and $30,449,000 in 1995, proceeds to UTV of $3,939,000 in 1997,
$4,008,000 in 1996 and $2,009,000 in 1995 from the exercise of stock
options, and UTV dividend payments of $4,687,000 in 1997, $4,750,000
in 1996 and $4,911,000 in 1995, adjusted for intercompany eliminations
and minority interest.
Note 5
- ---------------------------------------------------------------------
Retirement Plans:
Chris-Craft and UTV maintain noncontributory defined benefit
pension plans covering substantially all their employees. Benefits
accrue annually based on compensation paid to participants each year.
The funding policy is to contribute annually to the plans amounts
sufficient to fund current service costs and to amortize any unfunded
accrued liability over periods not to exceed 30 years. BHC pension
expense, including amounts accrued in Chris-Craft and UTV nonqualified
plans for retirement benefits in excess of statutory limitations,
totalled $3,434,000 in 1997, $3,094,000 in 1996 and $3,096,000 in
1995.
It is not practical to determine which assets of the Chris-Craft
pension plan relate to BHC. The estimated funded status of the
Chris-Craft and UTV plans in which BHC participates, including amounts
accrued in the nonqualified plans, was as follows:
December 31,
---------------------------
(In Thousands) 1997 1996
- ------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $ (34,305) $ (30,376)
Nonvested benefit obligation (2,658) (1,789)
- ------------------------------------------------------------
Accumulated benefit
obligation (36,963) (32,165)
Effect of projected
compensation increases (12,718) (12,173)
- ------------------------------------------------------------
Projected benefit obligation (49,681) (44,338)
Fair value of plan assets
(primarily listed securities
and temporary investments) 32,633 29,144
- ------------------------------------------------------------
Excess (17,048) (15,194)
Unrecognized net asset at date
of initial application of SFAS
No. 87, being amortized over
15 years (134) (184)
Unrecognized net gain from past
experience being amortized
over 15 years (2,040) (580)
- ------------------------------------------------------------
Pension liability $ (19,222) $ (15,958)
============================================================
Assumptions used in accounting for pension plans for each year
presented are as follows:
- ------------------------------------------------------------
Discount rate at end of year 7.25%
Rate of increase in future compensation levels 4.50%
Expected long-term rate of return on assets 7.75%
The aggregate BHC expense of other retirement plans in which its
employees participate, primarily stock purchase and profit sharing
plans of Chris-Craft and UTV and related accruals in the nonqualified
retirement plans mentioned above, totalled $8,811,000 in 1997,
$4,656,000 in 1996 and $6,307,000 in 1995.
Note 6
- ---------------------------------------------------------------------
Income Taxes:
Income taxes are provided in the accompanying Consolidated
Statements of Income as follows:
Year ended December 31,
----------------------------------
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------
Current:
Federal $ 61,900 $ 22,500 $ 23,300
State 18,400 5,800 (13,700)
- ------------------------------------------------------------
80,300 28,300 9,600
- ------------------------------------------------------------
Deferred:
Federal 20,600 (7,500) 8,200
State 100 200 1,000
- ------------------------------------------------------------
20,700 (7,300) 9,200
- ------------------------------------------------------------
$101,000 $ 21,000 $ 18,800
============================================================
Following the favorable resolution of routine audits, state
income taxes in 1995 reflect a $20,000,000 reversal of amounts accrued
in prior years.
Differences between income taxes at the federal statutory income
tax rate and total income taxes provided are as follows:
Year ended December 31,
----------------------------------
(In Thousands) 1997 1996 1995
- ------------------------------------------------------------
Taxes at federal
statutory rate $ 87,727 $ 14,940 $ 25,115
State income taxes, net 12,025 3,933 (8,223)
Amortization of intangible
assets 3,127 3,151 3,151
Dividend exclusion (735) (768) (764)
Other (1,144) (256) (479)
- ------------------------------------------------------------
$101,000 $ 21,000 $ 18,800
============================================================
Deferred tax assets and deferred tax liabilities reflect the tax
effect of the following differences between financial statement
carrying amounts and tax bases of assets and liabilities:
December 31,
--------------------
(In Thousands) 1997 1996
- ------------------------------------------------------------
Accrued liabilities not deductible
until paid $ 15,084 $ 10,238
Film contract rights 6,193 6,407
Investments - 7,243
Other - 418
- ------------------------------------------------------------
Deferred tax assets 21,277 24,306
- ------------------------------------------------------------
Investments (17,475) -
Property and equipment (2,670) (2,729)
SFAS 115 adjustment (4,889) (668)
Other (573) (689)
- ------------------------------------------------------------
Deferred tax liabilities (25,607) (4,086)
- ------------------------------------------------------------
Net deferred tax (liabilities) assets $ (4,330) $ 20,220
============================================================
Note 7
- ---------------------------------------------------------------------
Commitments and Contingencies:
In October 1997, UTV signed a definitive agreement to purchase
the assets of UHF television station WRBW in Orlando, Florida, from
Rainbow Broadcasting, Ltd., for $60,000,000 and possible future
consideration of up to $25,000,000. The acquisition is subject to FCC
approval and other conditions in the agreement.
The aggregate amount payable by BHC s television stations under
contracts for programming not currently available for telecasting and,
accordingly, not included in film contracts payable and the related
contract rights in the accompanying Consolidated Balance Sheets
totalled $178,100,000 at December 31, 1997 (including $79,000,000
applicable to UTV).
BHC expects to make significant expenditures developing UPN. See
Note 2.
BHC is a party to various pending legal proceedings arising in
the ordinary course of business. In the opinion of management, after
taking into account the opinion of counsel with respect thereto, the
ultimate resolution of these matters will not have a material effect
on BHC s consolidated financial position or results of operations.
Note 8
- ---------------------------------------------------------------------
Related Party Transactions:
Included in selling, general and administrative expenses are
management fees BHC paid Chris-Craft of $12,000,000 in 1997,
$8,000,000 in 1996 and $8,000,000 in 1995, and management and
directors fees UTV paid Chris-Craft totalling $570,000 in each of the
three years.
Note 9
- ---------------------------------------------------------------------
Subsequent Event:
In November 1997, UTV signed a definitive agreement to purchase
the assets of UHF television station WHSW-TV (now station WUTB, a UPN
affiliate) in Baltimore, Maryland, from SKMD Broadcasting Partnership,
for $80,000,000. The acquisition was completed on January 20, 1998,
and the purchase price was paid from working capital.
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of BHC Communications, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, shareholders'
investment and cash flows present fairly, in all material respects,
the financial position of BHC Communications, Inc. and its
subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
February 12, 1998
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
As of and for the Year ended December 31,
(In Thousands of Dollars ----------------------------------------------------------------
Except per Share Data) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 443,499 $ 446,292 $ 454,702 $ 457,533 $ 411,999
===============================================================================================
Operating income $ 101,338 $ 107,148 $ 118,579 $ 112,982 $ 79,262
Gain on change of ownership in
United Paramount Network 153,933 - - - -
Interest and other income 82,809 81,849 82,483 57,644 55,340
Equity in United Paramount
Network loss (87,430) (146,313) (129,303) (3,977) -
Income associated with Time
Warner Inc. securities - - - - 256,622
Income taxes (101,000) (21,000) (18,800) (57,900) (146,900)
Minority interest (18,473) (17,448) (15,902) (15,872) (20,038)
- -----------------------------------------------------------------------------------------------
Net income $ 131,177 $ 4,236 $ 37,057 $ 92,877 $ 224,286
===============================================================================================
Earnings per share
Basic $ 5.62 $ .18 $ 1.51 $ 3.71 $ 8.67
Diluted 5.61 .17 1.50 3.71 8.66
Cash dividends declared
per share 1.00 - 1.00 - -
Cash and marketable
securities 1,487,280 1,391,992 1,499,365 1,496,445 1,506,529
Film contract rights 121,977 144,034 145,902 148,473 186,079
Investments 47,594 46,944 10,065 2,838 -
Total assets 2,142,488 2,097,263 2,159,010 2,188,463 2,241,538
Long-term debt - - - - -
Shareholders investment 1,724,954 1,705,533 1,781,893 1,789,884 1,778,821
Book value per share $ 75.35 $ 71.95 $ 73.14 $ 72.31 $ 69.49
</TABLE>
STOCK PRICE, DIVIDEND AND RELATED INFORMATION
- ---------------------------------------------------------------------
BHC Class A common stock is traded on the American Stock
Exchange. The high and low sales prices of these shares are shown
below for the periods indicated. At February 17, 1998, there were
6,921 holders of record of Class A common stock. All BHC Class B
common shares, which in general are nontransferable, are held by
Chris-Craft Industries, Inc., and, accordingly, there is no trading
market for such shares.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------
1997
High 108 1/2 122 130 1/2 133
Low 100 1/4 104 3/8 118 1/4 121 1/2
- ---------------------------------------------------------------------
1996
High 95 1/2 100 98 1/4 103 3/8
Low 89 93 1/8 91 1/2 97
- ---------------------------------------------------------------------
BHC paid special cash dividends of $1.00 per share in February
1998 and in February 1997. BHC plans to consider annually the payment
of a special dividend.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(In Thousands of Dollars First Second Third Fourth
Except per Share Data) Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Operating revenues $101,118 $118,835 $105,998 $117,548 $443,499
Operating income 17,492 33,581 20,817 29,448 101,338
Gain on change of ownership
in United Paramount Network 152,224 - - 1,709 153,933
Interest and other income 20,008 20,632 21,066 21,103 82,809
Equity in United Paramount
Network loss (17,898) (16,404) (19,579) (33,549) (87,430)
Income before income taxes
and minority interest 171,826 37,809 22,304 18,711 250,650
Net income 99,490 17,418 8,714 5,555 131,177
Earnings per share -
Basic 4.21 .74 .37 .24 5.62
Diluted $ 4.20 $ .74 $ .37 $ .24 $ 5.61
Year Ended December 31, 1996
Operating revenues $101,045 $120,920 $107,125 $117,202 $446,292
Operating income 19,193 36,601 26,695 24,659 107,148
Interest and other income 22,482 20,021 18,912 20,434 81,849
Equity in United Paramount
Network loss (32,754) (34,990) (38,909) (39,660)(146,313)
Income before income taxes
and minority interest 8,921 21,632 6,698 5,433 42,684
Net income (loss) 1,078 5,669 (1,444) (1,067) 4,236
Earnings (loss) per share -
Basic .04 .24 (.06) (.04) .18
Diluted $ .04 $ .23 $ (.06)$ (.05)$ .17
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
BHC s financial position is strong and highly liquid. Cash and
marketable securities totalled $1.49 billion at December 31, 1997, and
BHC has no debt outstanding. BHC has expended significant funds
developing United Paramount Network since UPN s inception in 1994,
but cash flow provided from BHC s operating activities has exceeded
such BHC funding of UPN. Further, BHC believes that the funds from
the 1997 Viacom option exercise, described below, will substantially
offset BHC s aggregate UPN funding for 1997 and 1998.
BHC s operating cash flow is generated primarily by its core
television station group. Broadcast cash flow reflects station
operating income plus depreciation and film contract amortization less
film contract payments. The relationship between film contract
payments and related amortization may vary greatly between periods
(payments exceeded amortization by $4.3 million in 1997, and
amortization exceeded payments by $4.5 million in 1996), and is
dependent upon the mix of programs aired and payment terms of the
stations contracts. Reflecting such amounts, broadcast cash flow in
1997 declined 8%, while station earnings declined only 3%, as
explained below. Although broadcast cash flow is often used in the
broadcast television industry as an ancillary measure, it is not
synonymous with operating cash flow computed in accordance with
generally accepted accounting principles, and should not be considered
alone or as a substitute for measures of performance computed in
accordance with generally accepted accounting principles.
BHC s cash flow additionally reflects earnings associated with
its cash and marketable securities, which increased to $1.49 billion
at December 31, 1997, from $1.39 billion at December 31, 1996. Such
increase primarily reflects the $116.3 million distribution from UPN,
described below. Operating cash flow for 1997 declined to $141.2
million from $193.9 million, primarily because 1997 income tax
payments related to the UPN distribution are reflected as a reduction
of operating cash flow, while the distribution is reported as a cash
flow from investing activities.
A special cash dividend of $1.00 per share, aggregating $23.6
million, was paid by BHC in February 1997. A similar $1.00 per share
special dividend, aggregating $22.7 million, was paid by BHC in
February 1998. BHC plans to consider annually the payment of a
special dividend.
Since April 1990, BHC s Board of Directors has authorized the
purchase of up to 7,081,087 Class A common shares. Through December
31, 1997, 6,381,087 shares were purchased for a total cost of $453.5
million, including $95.3 million in 1997. From 1993 through December
31, 1997, UTV purchased 1,385,876 of its common shares at an aggregate
cost of $87.1 million, of which $2.8 million was expended in 1997,
and, at December 31, 1997, 798,149 UTV shares remained authorized for
purchase.
In January 1998, UTV acquired the assets of UHF television
station WHSW, Channel 24, in Baltimore, Maryland for $80 million in
cash. The station s call letters were changed to WUTB and the station
became a UPN affiliate. UTV has signed a definitive agreement to
purchase the assets of WRBW in Orlando, Florida, for approximately $60
million and possible future consideration of up to $25 million. UTV
expects to use a portion of available cash and marketable securities
balances to complete this transaction, which is subject to FCC
approval as well as satisfaction of certain other conditions. BHC
intends to further expand its operations in the media, entertainment
and communications industries and to explore business opportunities in
other industries. BHC believes it is capable of raising significant
additional capital to augment its already substantial financial
resources, if desired, to fund such additional expansion.
In July 1994, BHC, along with Viacom Inc. s Paramount Television
Group, formed UPN, a fifth broadcast television network which
premiered in January 1995. BHC owned 100% of UPN from its inception
through January 15, 1997, when Viacom completed the exercise of its
option to acquire a 50% interest in UPN. The option price included
$155 million in cash (an amount equal to one-half of BHC s aggregate
cash contributions to UPN through the exercise date, plus interest),
additional cash available for ongoing UPN expenditures, as well as a
non-cash contribution of UPN development costs previously incurred by
Viacom. UPN distributed $116.3 million to BHC following the closing,
and BHC recorded a 1997 pretax gain of $153.9 million on the
transaction. BHC and Viacom now share equally in UPN losses and
funding requirements. BHC funding of UPN totalled $48.2 million in
1997 and $145.6 million in 1996. UPN is still in its early
development, and is expected for the next several years to continue to
incur substantial start-up losses and to require significant funding.
However, BHC believes that the substantial portion of its aggregate
share of such funding requirements for 1997 and 1998 will be offset by
the funds from the Viacom option exercise.
BHC s television stations make commitments for programming that
will not be available for telecasting until future dates. At December
31, 1997, commitments for such programming totalled approximately
$178.1 million, including $79.0 million applicable to UTV. BHC also
has a remaining commitment to invest over time up to $30.6 million,
including $19.8 million applicable to UTV, in management buyout
limited partnerships. BHC capital expenditures generally have not
been material in relation to its financial position, and the related
capital expenditure commitments at December 31, 1997 (including any
related to UPN) were not material. BHC expects that its expenditures
for UPN, future film contract commitments and capital requirements for
its present business will be satisfied primarily from operations,
marketable securities or cash balances.
RESULTS OF OPERATIONS - 1997 VERSUS 1996
BHC 1997 net income rose to $131,177,000, or $5.62 per share
($5.61 per share diluted), from $4,236,000, or $.18 per share ($.17
per share diluted), in 1996. The substantial increase in net income
is primarily due to the pretax gain of $153,933,000 on Viacom's
acquisition of its UPN interest. In addition, the amount of UPN
start-up losses included in BHC's operating results was reduced
significantly in 1997, reflecting the reduction, to 50% from 100%, in
BHC's ownership interest in UPN.
Varying economic and competitive factors in the markets served by
BHC s station group produced uneven station results in 1997. Station
operating revenues declined to $434,729,000 from $437,287,000, less
than 1%. Station programming expenses declined slightly, but total
station operating expenses rose about 1%, due to a $3.5 million
increase in expense associated with stock price based retirement
plans. As a result, station group operating income declined 3% in
1997, to $125,966,000 from $130,450,000 in 1996. That decline was
almost fully offset by the increase in earnings at BHC s television
production subsidiaries, to $7,098,000 in 1997 from $3,267,000 in
1996. However, after higher corporate office expenses, which
primarily reflects an increase, to $12 million from $8 million, in the
annual management fee paid to Chris-Craft Industries, Inc., BHC
consolidated operating income declined 5%, to $101,338,000 from
$107,148,000.
UPN's start-up loss widened in 1997, to $170,197,000 from
$146,313,000 in 1996, mainly due to expenses associated with the
expansion of UPN's schedule and with the ongoing development of the
network's programming strategy. The UPN equity loss recorded in BHC's
financial statements nonetheless declined significantly, to
$87,430,000 from $146,313,000 in 1996, reflecting the 1997 reduction
in BHC s ownership interest. UPN is still in its early development
and is expected for the next several years to continue to incur
substantial start-up losses.
Interest and other income consists mostly of amounts earned on
BHC s cash and marketable securities holdings. Interest and other
income rose to $82,809,000 from $81,849,000 in 1996. An increase in
interest income was only partially offset by a decline in marketable
securities gains.
BHC s effective income tax rate declined to 40.3% in 1997 from
49.2% in 1996. Nondeductible goodwill amortization had an abnormal
impact on BHC s effective tax rate in 1996 because of the low level of
BHC s pretax earnings.
Minority interest reflects the interest of shareholders other
than BHC in the net income of UTV, 59% owned by BHC at December 31,
1997 and 1996 and 57% owned by BHC at December 31, 1995.
Earnings per share amounts reflect annual reductions in average
common shares outstanding, resulting from open market purchases by BHC
of its Class A common shares.
RESULTS OF OPERATIONS 1996 VERSUS 1995
BHC 1996 net income declined to $4,236,000, or $.18 per share
($.17 per share diluted), from 1995 net income of $37,057,000, or
$1.51 per share ($1.50 per share diluted). UPN start-up losses
increased, as expected, and earnings at BHC s core television station
group declined from 1995 s record level.
Television station revenues declined 3% in 1996, to $437,287,000
from $450,239,000 in 1995, reflecting lackluster advertising demand
and lower share in several key markets. BHC in recent years
determined not to acquire certain expensive and popular syndicated
programs at several stations because their high prices appeared to
make acceptable profit unlikely. Accordingly, certain revenues were
foregone, reducing market share at those stations, but BHC believes
those decisions promoted the overall profitability of its station
group.
Station programming expenses rose only 5% in 1996, and all other
station expenses declined 1%. Total station income was the third
highest in BHC history, but declined 14% to $130,450,000 from 1995 s
record $151,382,000. BHC operating income declined only 10% in 1996,
to $107,148,000 from $118,579,000, reflecting improved results at
BHC s television production subsidiaries, as well as the recording in
1995 of one-time expenses totalling approximately $3,700,000 incurred
in establishing a national sales representation subsidiary.
BHC's equity in UPN start-up losses increased, as expected, to
$146,313,000 in 1996 from $129,303,000 in 1995. The increase
primarily reflects the expansion in 1996 of the network's prime time
schedule from two to three weekday evenings. BHC recorded 100% of
UPN's losses in 1996 and 1995, consistent with its sole ownership of
the network during those years.
The following were the registrant's subsidiaries as of December 31, 1997,
other than subsidiaries that, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary at such date:
Jurisdiction
of
Name of Subsidiary Incorporation
Chris-Craft Television, Inc. Delaware
BHC Network Partner, Inc. Delaware
BHC Network Partner II, Inc. Delaware
BHC Network Partner III, Inc. Delaware
KCOP Television, Inc. California
Oregon Television, Inc. Oregon
Pinelands, Inc. Delaware
United Television, Inc. Delaware
UTV of San Francisco, Inc. California
UTV of San Antonio, Inc. Texas
UTV of Baltimore, Inc. Delaware
United Television Sales, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM REGISTRANT'S FORM
10-K FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 282504
<SECURITIES> 1204776
<RECEIVABLES> 91697
<ALLOWANCES> 5499
<INVENTORY> 0
<CURRENT-ASSETS> 1713870
<PP&E> 142954
<DEPRECIATION> 97774
<TOTAL-ASSETS> 2142488
<CURRENT-LIABILITIES> 213930
<BONDS> 0
0
0
<COMMON> 230
<OTHER-SE> 1724724
<TOTAL-LIABILITY-AND-EQUITY> 2142488
<SALES> 0
<TOTAL-REVENUES> 443499
<CGS> 0
<TOTAL-COSTS> 342161
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 250650
<INCOME-TAX> 101000
<INCOME-CONTINUING> 131177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131177
<EPS-PRIMARY> 5.62
<EPS-DILUTED> 5.61
</TABLE>
