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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-10342
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 AMERICAN STOCK EXCHANGE
$0.01 PAR VALUE
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. [x]
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of February 28, 1999, was approximately $516,500,000.
As of February 28, 1999, there were 4,511,605 shares of the registrant's
Class A Common Stock and 18,000,000 shares of the registrant's Class B Common
Stock outstanding.
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 registrant's
annual report to stockholders for
the fiscal year ended December 31,
1998 (the "Annual Report") that are
specifically identified herein as
incorporated by reference into this
Form 10-K. II
Those portions of the registrant's
proxy statement for the
registrant's 1999 Annual Meeting
(the "Proxy Statement") that are
specifically identified herein
as incorporated by reference into
this Form 10-K. III
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL
BHC Communications, Inc. ("BHC"), the majority owned (79.96% at February
28, 1999) 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 (58.5% at February 28, 1999) subsidiary,
United Television, Inc. ("UTV").
At February 28, 1999, BHC, solely through subsidiaries, had 1,073 full-time
employees and 129 part-time employees.
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"), United
Paramount Network ("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:
<PAGE> 4
<TABLE>
<CAPTION>
Total DMA
DMA Commercial Cable
Network TV Stations TV
Station and Affiliation/ House- DMA Operating in Penetra-
Location(a) Channel holds(b) Rank (b) Market (c) tion(d)
- ----------- ------------ -------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
WWOR (e) UPN 9 6,812,540 1st 6VHF 73%
Secaucus 14UHF
KCOP UPN 13 5,135,140 2nd 7VHF 63%
Los Angeles 10UHF
KPTV UPN 12 993,540 23rd 4VHF 62%
Portland 2UHF
KMSP UPN 9 1,457,130 15th 4VHF 52%
Minneapolis/ 3UHF
St. Paul
KTVX ABC 4 707,070 36th 4VHF 54%
Salt Lake 2UHF
City
KMOL NBC 4 667,750 37th 3VHF 65%
San Antonio 3UHF
KBHK UPN 44 2,368,970 5th 4VHF 71%
San Francisco 10UHF
KUTP UPN 45 1,343,090 17th 4VHF 58%
Phoenix 4UHF
WUTB UPN 24 991,610 24th 3VHF 67%
Baltimore 3UHF
<FN>
- ------------
(a) KCOP and KPTV are owned by CCTV; WWOR is owned by Pinelands; the remaining
stations are owned by UTV.
In October 1997, UTV agreed to purchase the assets of UHF television
station WRBW in Orlando, Florida, for $60,000,000 and possible future
consideration. The acquisition is subject to approval by the Federal
Communications Commission ("FCC") and other conditions.
(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 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.
</FN>
</TABLE>
<PAGE> 5
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 210 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.
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, invests directly in the development of original programming.
The aggregate amount invested in original programming through December 31, 1998
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.
<PAGE> 6
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 $123,502,000 as of December 31, 1998. The stations were committed
for film and sports rights contracts aggregating $337,800,000 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.
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 10-year affiliation agreements for
KTVX and KMOL. 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
<PAGE> 7
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 ten hours of original prime time programming on
five nights per week. The network also broadcasts two hours of previously
exhibited movies on Saturday afternoons, and two hours of children's programming
plus a one-hour rerun of Star Trek: Voyager on Sundays. UPN intends to expand
its non-prime time programming 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 March 19, 1999, UPN's programming was carried by 186 affiliates,
in markets covering a total of 95.0% of all U.S. households. Of these station
affiliates, 113 are primary affiliates, including all of BHC's and Paramount's
previously independent stations, in markets covering 80.8% of U.S. households,
and 73 are secondary affiliates in markets covering an additional 14.2% 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.
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.
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. BHC's television business is
seasonal, like that of the television broadcasting business generally. 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 the 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
<PAGE> 8
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.
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. Prior to 1998, television licenses generally were issued for
five-year terms, but such licenses and their renewals are now normally issued
for 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 was 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 has opposed the petition, which it does not believe will have a material
adverse effect on UTV's license for KMSP; the license remains in effect pending
FCC action on the renewal application. KTVX's license renewal was granted on
October 9, 1998, and is due to expire on October 1, 2006. KUTP UPN 45's license
renewal was granted on March 28, 1994, and was due to expire on October 1, 1998.
A renewal application for KUTP was timely filed on June 1, 1998 and is still
pending. KCOP UPN 13's license renewal was granted on January 8, 1999, and is
due to expire on December 1, 2006. KBHK UPN 44's license renewal was granted on
January 8, 1999, and is due to expire on December 1, 2006. KPTV UPN 12's license
renewal was granted on January 28, 1999, and is due to expire on February 1,
2006. KMOL's license renewal was granted on November 12, 1998, and is due to
expire on August 1, 2006; WWOR UPN 9's license renewal was granted on July 16,
1996 and is due to expire on June 1, 1999. A renewal application for WWOR was
timely filed on February 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 BHC's three UHF stations, the nine BHC stations are deemed
to
<PAGE> 9
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 also prohibit common ownership or control between two
of ABC, NBC, CBS, and Fox, or any one of those four networks and either UPN or
WB.
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
<PAGE> 10
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.
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 1999, some of BHC's television stations will begin
broadcasting on their DTV channels, in addition to their analog broadcasts.
Future capital expenditures by BHC will be compatible with the new technology
whenever possible. The FCC is also conducting a rule making proceeding to
determine whether and the extent to which cable television systems should be
obligated to carry the signals of broadcast DTV stations.
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 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 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
<PAGE> 11
of its rule prohibiting network affiliated stations from preventing other
stations from broadcasting the programming of their network. BHC is unable to
predict the outcome of these proceedings.
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.
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, three other VHF stations, and one UHF station
generally attract a larger viewing audience than does KCOP UPN 13, and KCOP UPN
13 generally attracts a viewing audience 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 an audience equal to one and larger than the other of the 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, KTVX
generally ranks second of the six television stations in terms of audience
share. In San Antonio, KMOL generally
<PAGE> 12
ranks first 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. Prior to its acquisition by UTV in January 1998, WUTB, the
Baltimore station, operated as a Home Shopping Network affiliate. It now
generally ranks sixth of the six commercial stations in terms of audience share.
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 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. As of June 1998, there
were approximately 66,000 subscribers to OVS systems.
"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 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.
The emergence of home satellite dish antennas has made it possible for
individuals to receive a host of video programming options via satellite
transmission. Four direct to home satellite systems ("DTH") currently provide
service. The number of subscribers to DTH services increased substantially
during the past four years, to approximately 10.6 million as of December 1998.
An additional challenge is now posed by wireless cable systems, including
multichannel distribution services ("MDS"). 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. At the end of 1998, wireless cable systems served about 1.0
million subscribers.
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 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.
<PAGE> 13
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.
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
April 2005. The Salt Lake City lease expires in August 1999, but can be extended
through April 2000. UTV has acquired a 6.03 acre site in Salt Lake City, on
which UTV has begun construction of a new studio facility. The San Francisco
lease expires in 2007. UTV also occupies leased facilities in various cities
throughout the country.
The Minneapolis facility includes approximately 49,700 square feet of
space on a 5.63-acre site. The current Salt Lake City facility is approximately
30,400 square feet on a 2.53-acre site. The Baltimore facility is approximately
11,700 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.
<PAGE> 14
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.
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, 1999, are as follows:
HAS SERVED
POSITIONS WITH BHC; PRINCIPAL OCCUPATION; AS OFFICER
NAME AND AGE AS OF FEBRUARY 28, 1999 SINCE
- ---- ----------------------------------------- ----------
Herbert J. Siegel Chairman of the Board; Chairman of the Board and 1977
President, Chris-Craft; 70
William D. Siegel President; Senior Vice President, Chris-Craft; 44 1981
Joelen K. Merkel Vice President and Treasurer; Vice President and 1980
Treasurer, Chris-Craft; 47
Brian C. Kelly Vice President and General Counsel and Secretary; Vice 1992
President and General Counsel and Secretary,
Chris-Craft; 47
Chris-Craft, through its majority ownership of BHC, is principally
engaged in television broadcasting.
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 56, 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.
<PAGE> 15
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 ("MD&A") is incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The last two paragraphs before the subcaption RESULTS OF OPERATIONS -
1998 Versus 1997 in the MD&A are incorporated herein by this reference.
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.
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing in the Proxy Statement under the captions
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.
<PAGE> 17
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
or arrangements 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.
<PAGE> 18
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 26, 1999
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 26, 1999
Herbert J. Siegel
Chairman and Director
(principal executive officer)
WILLIAM D. SIEGEL March 26, 1999
William D. Siegel
President and Director
(principal financial officer)
JOELEN K. MERKEL March 26, 1999
Joelen K. Merkel
Vice President, Treasurer
and Director (principal
accounting officer)
<PAGE> 19
MORGAN L. MILLER March 26, 1999
Morgan L. Miller
Director
JOHN C. SIEGEL March 26, 1999
John C. Siegel
Director
<PAGE> 20
BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - For the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flows - For the Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Investment - For the Years
Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
SCHEDULES:
UPN Financial Statements --
Report of Independent Accountants
Balance Sheets - December 31, 1998 and 1997
Statements of Operations - For the Years
Ended December 31, 1998, 1997 and 1996
Statements of Changes in Partners' Capital (Deficit) - For the
Years Ended December 31, 1998, 1997 and 1996
Statements of Cash Flows - For the Years Ended December 31,
1998, 1997 and 1996
Notes to Financial Statements
<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, 1998, 1997 and 1996
<PAGE>
Report of Independent Accountants
January 29, 1999
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, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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,
----------------------
1998 1997
Assets --------- ---------
- ------
Current assets:
Cash and cash equivalents $ 24,704 $ 23,622
Accounts receivable (net of allowance
for doubtful accounts of $430 and
$430, respectively) 18,787 39,287
Program rights and development costs (net
of reserve for abandonment of $5,055 and
$7,721, respectively) 46,893 16,596
Other current assets 2,550 512
--------- ---------
Total current assets 92,934 80,017
--------- ---------
Restricted investments 5,340 8,755
Property and equipment, at cost:
Furniture, fixtures, computer equipment
and other (net of accumulated depreciation
of $1,454 and $901, respectively) 1,949 966
Intangible assets (net of accumulated
amortization of $2,972 and $1,484,
respectively) 4,194 5,682
Other assets 15,822 14,523
--------- ---------
$ 120,239 $ 109,943
========= =========
Liabilities and Partners' Capital (Deficit)
- ------------------------------------------
Current liabilities:
Accounts payable $ 11,654 $ 16,258
Accrued program costs 73,130 61,040
Accrued expenses and other liabilities 34,224 30,421
--------- ---------
Total current liabilities 119,008 107,719
--------- ---------
Commitments and contingencies (Note 7)
Partners' capital (deficit):
BHC Network Partner (4,192) (4,179)
BHC Network Partner II (4,072) (3,837)
BHC Network Partner III 8,879 9,128
PCI Network Partner 492 890
PCI Network Partner II 124 222
--------- ---------
Total partners' capital 1,231 2,224
--------- ---------
$ 120,239 $ 109,943
========= =========
The accompanying notes are an integral part of these financial
statements.
<PAGE>
UNITED PARAMOUNT NETWORK
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------
(in thousands)
For the Year Ended
December 31,
------------------------------
1998 1997 1996
-------- -------- --------
Net revenues $ 96,401 $ 89,997 $ 56,948
Operating costs and expenses:
Operating expenses 182,225 177,874 132,593
Selling, general and
administrative expenses 90,871 82,294 67,359
Depreciation and amortization 2,069 1,794 364
-------- -------- --------
275,165 261,962 200,316
-------- -------- --------
Operating loss (178,764) (171,965) (143,368)
-------- -------- --------
Other income (expense):
Interest expense to related parties - - (14,147)
Interest and other income 1,571 1,736 193
Net income (loss) on investment
in joint venture - 32 (3,138)
-------- -------- --------
1,571 1,768 (17,092)
-------- -------- --------
Net loss ($177,193) ($170,197) ($160,460)
======== ======== ========
<PAGE>
UNITED PARAMOUNT NETWORK
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
- ---------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
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, 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 Partners - - - 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
Capital
contributions 2,202 41,848 44,050 70,480 17,620 176,200
Allocation of 1998
net loss (2,215) (42,083) (44,299) (70,878) (17,718) (177,193)
--------- ---------- ----------- --------- ---------- ----------
Balance at
December 31, 1998 $ (4,192) $ (4,072) $ 8,879 $ 492 $ 124 $ 1,231
========= ========= =========== ========= ========= ==========
</TABLE>
<PAGE>
UNITED PARAMOUNT NETWORK
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(177,193) $(170,197) $(160,460)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of program costs 177,771 169,771 126,793
Payments for programming (195,580) (118,912) (121,822)
Depreciation and amortization 2,069 1,794 364
Abandonment reserve (2,666) 2,108 982
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable 20,500 (14,230) (16,017)
Increase in accounts payable,
accrued expenses and other current
liabilities 1,468 8,470 25,116
(Increase) decrease in other assets (3,329) (12,110) 207
--------- --------- ---------
Net cash used in operating activities (176,960) (133,306) (144,837)
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (1,565) (467) -
Cash removed from (placed in)
restricted account 3,415 (7,598) (183)
Net investment in joint venture (8) 304 (77)
--------- --------- ---------
Net cash used in investing activities 1,842 (7,761) (260)
--------- --------- ---------
Cash flows from financing activities:
Advances from related party - - 125,580
Exercise of option by PCI Partners - 186,873 -
Capital contributions 176,200 93,520 20,000
Distributions to partners - (116,261) -
--------- --------- ---------
Net cash provided by financing activities 176,200 164,132 145,580
--------- --------- ---------
Net increase in cash and cash equivalents 1,082 23,065 483
Cash and cash equivalents:
Beginning of year 23,622 557 74
--------- --------- ---------
End of year $ 24,704 $ 23,622 $ 557
========= ========= =========
Supplemental schedule of non-cash items:
Non-cash additions to program costs $ 9,822 $ 51,748 $ 10,875
========= ========= =========
Start-up costs incurred by PCI Partners
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>
<PAGE>
UNITED PARAMOUNT NETWORK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------
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 and PCI Network Partner
II, Inc., a wholly owned indirect subsidiary of Viacom, (collectively
referred to as the "PCI Partners") completed the exercise of the
option in accordance with the terms of the option agreement and became
equal partners 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, 1998, 1997 and 1996, the Network had 185 affiliates in
markets covering approximately 95%, 187 affiliates in markets covering
approximately 97%, and 164 affiliates in markets covering over 92% 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 Partners
(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 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.
Program Rights and Development Costs
------------------------------------
Network programming rights and related liabilities are recorded
at the contractual amounts when the programming becomes available for
telecasting. Program costs are recorded at the lower of cost or net
realizable value. Capitalized program costs are amortized over the
estimated number of showings, using accelerated methods based on
management's estimate of the flow of revenues. Management assesses
the net realizable value of program rights on a day-part basis. 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.
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 sheets. 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 cost.
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.
Intangible Assets
-----------------
Intangible assets represent primarily the costs incurred by PCI
Partners during the start up phase of the Network and contributed to
the partnership as a result of the acquisition by PCI Partners of an
interest in the partnership (Note 1). Also included in intangible
assets are costs associated with logo design and development. The
assets have been amortized on a straight-line basis over five years.
See New Accounting Pronouncements for information relating to the
future treatment of these costs.
Other Assets
------------
Other assets represent primarily an investment in a joint venture
with Saban Entertainment and deferred network costs. The joint
venture was entered into for the purpose of developing, producing, and
distributing children's television programming. Under terms of the
joint 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 joint
venture using the equity method. Network costs are amortized over the
same period as the related agreements.
Revenue Recognition
-------------------
Revenues are recognized as advertisements are aired, at
contractual rates.
Use of Estimates in Preparation of Financial Statements
-------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
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.
New Accounting Pronouncements
-----------------------------
In April 1998, the American Institute of Certified Public
Accountants Accounting Standards Executive Committee issued Statement
of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities". This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. Initial
application of this SOP will be reported as a cumulative change in
accounting principles, as described in Accounting Principles Board
Opinion No. 20, "Accounting Changes". The SOP is effective for the
Network for the year ending December 31, 1999. The Network will adopt
the SOP during the first quarter of 1999. Adoption of this SOP will
require the Network to write-off unamortized start-up costs of
$4,194,000 as of December 31, 1998, incurred by PCI Partners during
the start-up phase of the Network and contributed to the Network.
NOTE 3 - OTHER ASSETS
At December 31, 1998 and 1997, other assets are comprised of
deferred network costs of $13,291,000 and $12,000,000, respectively,
and investment in joint venture of $2,531,000 and $2,523,000,
respectively. The investment in joint venture is presented net of
reserves of $2,119,000 at December 31, 1998 and 1997.
NOTE 4 - ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
(in thousands) December 31,
----------------------
1998 1997
--------- ---------
Accrued advertising and
marketing costs $ 24,123 $ 19,907
Accrued compensation 5,135 4,917
Other accrued expenses 4,966 5,597
--------- ---------
$ 34,224 $ 30,421
========= =========
NOTE 5 - 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
1998 and 1997, additions to capitalized programming costs from related
parties totaled $120,335,000 and $71,663,000, respectively.
Prior to September 1997, with respect to certain of its
programming provided by Viacom, UPN derived no revenue and incurred no
programming expense.
During the normal course of business, various services are
provided to the Network by related parties. In 1998 and 1997,
payments for these services totaled approximately $3,240,000 and
$2,404,000, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
During 1995, UPN entered into a five year lease obligation for
its office space with an option to extend for an additional period of
five years. The lease calls for certain penalty payments upon
cancellation after three years. Rental expense was $802,000, $766,000
and $766,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
During 1998, UPN entered into a nine year and ten month lease
obligation for its New York office space with an option to extend for
an additional period of five years. The lease is noncancelable for
six years and three months and calls for a cancellation fee if the
early cancellation clause is utilized. Rental expense was $354,000
for the year ended December 31, 1998. Additionally, as required by
the lease agreement, UPN obtained an irrevocable letter of credit in
the amount of $1,200,000 on behalf of the lessor.
As of December 31, 1998 the future minimum rental payments under
operating leases are as follows:
1999 $1,164,000
2000 839,000
2001 403,000
2002 403,000
2003 435,000
Thereafter 1,912,000
----------
Total $5,156,000
==========
As of December 31, 1998, 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
$121,556,000 and $168,807,000 at December 31, 1998 and 1997,
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.
<PAGE>
EXHIBIT INDEX
INCORPORATED BY
REFERENCE TO: EXHIBIT 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 Chris-Craft and
William D. Siegel
Exhibit 10(D) [5] 10.7 Split-Dollar Agreement dated January
6, 1994 between Chris-Craft and John
D. 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 Benefit Equalization
Exhibit 10(B)(1)[6] Plan, as amended
Exhibit 10.3 [8]
Exhibit 10.10[7]] 10.10 Option Agreement dated July 19, 1994
between BHC Network Partner, Inc.
and PCI Network Partner, Inc.
* 13 Portions of the Annual Report
incorporated by reference
* 21 Subsidiaries of registrant
* 27 Financial Data Schedule
<PAGE>
- -------------------------
* 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.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
---------------------------------
(In Thousands Except
per Share Data)
1998 1997 1996
- --------------------------------------------------------------------
Operating Revenues $ 445,850 $ 443,499 $ 446,292
- --------------------------------------------------------------------
Operating Expenses:
Television expenses 210,947 212,183 217,928
Selling, general and
administrative 138,174 129,978 121,216
- --------------------------------------------------------------------
349,121 342,161 339,144
- --------------------------------------------------------------------
Operating income 96,729 101,338 107,148
- --------------------------------------------------------------------
Other Income (Expense):
Interest and other income 79,366 82,809 81,849
Equity in United Paramount
Network loss (88,597) (87,430) (146,313)
Gain on change of ownership in
United Paramount Network - 153,933 -
- --------------------------------------------------------------------
(9,231) 149,312 (64,464)
- --------------------------------------------------------------------
Income before provision for
income taxes and minority
interest 87,498 250,650 42,684
Provision for Income Taxes 31,500 101,000 21,000
- --------------------------------------------------------------------
Income before minority
interest 55,998 149,650 21,684
Minority Interest 16,425 18,473 17,448
- --------------------------------------------------------------------
Net income $ 39,573 $ 131,177 $ 4,236
=====================================================================
Weighted Average Common
Shares Outstanding 22,614 23,333 23,987
=====================================================================
Earnings per share -
Basic $ 1.75 $ 5.62 $ .18
Diluted $ 1.75 $ 5.61 $ .17
=====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
(In Thousands of Dollars) 1998 1997
- ---------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 201,175 $ 282,504
Marketable securities (substantially
all U.S. Government securities) 1,202,070 1,204,776
Accounts receivable, less allowance for
doubtful accounts of $4,751 and $5,499 85,252 86,198
Film contract rights 99,883 95,859
Prepaid expenses and other current assets 37,952 44,533
- ---------------------------------------------------------------------
Total current assets 1,626,332 1,713,870
- ---------------------------------------------------------------------
Investments 67,299 47,594
- ---------------------------------------------------------------------
Film Contract Rights,
including deposits, less estimated portion
to be used within one year 23,619 26,118
- ---------------------------------------------------------------------
Property and Equipment, at cost:
Land, buildings and improvements 43,090 41,255
Equipment 110,358 101,699
- ---------------------------------------------------------------------
153,448 142,954
Less - Accumulated depreciation 104,601 97,774
- ---------------------------------------------------------------------
48,847 45,180
- ---------------------------------------------------------------------
Intangible Assets 370,394 303,827
- ---------------------------------------------------------------------
Other Assets 6,110 5,899
- ---------------------------------------------------------------------
$2,142,601 $2,142,488
=====================================================================
<PAGE>
December 31,
------------------------
1998 1997
- ---------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Film contracts payable within one year $ 96,595 $ 98,033
Accounts payable and accrued expenses 93,253 87,768
Income taxes payable 36,955 28,129
- ---------------------------------------------------------------------
Total current liabilities 226,803 213,930
- ---------------------------------------------------------------------
Film Contracts Payable after One Year 62,050 70,934
- ---------------------------------------------------------------------
Other Long-Term Liabilities 17,545 17,197
- ---------------------------------------------------------------------
Minority Interest 139,876 115,473
- ---------------------------------------------------------------------
Commitments and Contingencies (Note 7)
Shareholders' Investment:
Class A common stock-par value $.01 per share;
authorized 200,000,000 shares; outstanding
4,511,605 and 5,026,108 shares 45 50
Class B common stock-par value $.01 per
share; authorized 200,000,000 shares;
outstanding 18,000,000 shares 180 180
Retained earnings 1,675,976 1,723,402
Treasury stock - 132,504 Class A common
shares, at cost - (6,627)
Accumulated other comprehensive income 20,126 7,949
- ---------------------------------------------------------------------
1,696,327 1,724,954
- ---------------------------------------------------------------------
$2,142,601 $2,142,488
=====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
-------------------------------
(In Thousands of Dollars) 1998 1997 1996
- ---------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 39,573 $ 131,177 $ 4,236
Adjustments to reconcile net income
to net cash provided from
operating activities:
Film contract amortization 88,507 95,244 95,291
Film contract payments (100,824) (99,513) (90,802)
Prepaid broadcast rights - 21,114 5,252
Depreciation and other
amortization 21,278 19,187 19,451
Equity in United Paramount
Network loss 88,597 87,430 146,313
Gain on change of ownership in
United Paramount Network - (153,933) -
Minority interest 16,425 18,473 17,448
Other (4,109) 1,582 (2,315)
Changes in assets and liabilities:
Accounts receivable 946 1,261 2,529
Other assets 6,559 (7,738) 178
Accounts payable and other
liabilities 5,953 4,640 1,193
Income taxes 7,503 22,238 (4,859)
- ---------------------------------------------------------------------
Net cash provided from
operating activities 170,408 141,162 193,915
- ---------------------------------------------------------------------
Cash Flows from Investing Activities:
Disposition of marketable securities 414,133 1,002,103 1,067,658
Purchase of marketable securities (389,720) (944,113) (898,897)
Station acquisition (includes
$77,646 of intangible assets) (80,214) - -
Distribution from United
Paramount Network - 116,261 -
Investment in United Paramount
Network (88,100) (48,185) (145,580)
Other investments (22,107) (3,345) (39,173)
Capital expenditures, net (11,298) (7,040) (9,870)
Other (23) (1,334) (44)
- ---------------------------------------------------------------------
Net cash (used in)
provided from investing
activities (177,329) 114,347 (25,906)
- ---------------------------------------------------------------------
Cash Flows from Financing Activities:
Purchase of treasury stock (46,305) (95,408) (62,639)
Payment of special dividend (22,738) (23,599) -
Capital transactions of subsidiary (5,365) (749) (30,798)
- ---------------------------------------------------------------------
Net cash used in financing
activities (74,408) (119,756) (93,437)
- ---------------------------------------------------------------------
Net (Decrease) Increase in Cash
and Cash Equivalents (81,329) 135,753 74,572
Cash and Cash Equivalents
at Beginning of Year 282,504 146,751 72,179
- ---------------------------------------------------------------------
Cash and Cash Equivalents
at End of Year $ 201,175 $ 282,504 $ 146,751
=====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury
Outstanding Shares Shares Dollar Amount (In Thousands)
------------------- -------- -------------------------------------------------------------------
Accumulated
Other Comprehensive
Class A Class B Class A Class A Class B Retained Treasury Comprehensive Income
Common Common Common Common Common Earnings Stock Income (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 6,492,808 18,000,000 (129,786) $65 $180 $1,779,560 $ (6,493) $ 8,581
Comprehensive income:
Net income - - - - - 4,236 - - $ 4,236
--------
Other comprehensive loss:
Unrealized net loss on
securities (net of tax
of $2,994) - - - - - - - - (4,730)
Reclassification
adjustment (net of tax
of $1,210) - - - - - - - - (2,202)
--------
Other comprehensive loss,
net of tax - - - - - - - (6,932) (6,932)
--------
Total comprehensive loss - - - - - - - - $ (2,696)
========
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) -
- ---------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 5,839,508 18,000,000 (133,636) 58 180 1,710,323 (6,677) 1,649
Comprehensive income:
Net income - - - - - 131,177 - - $131,177
--------
Other comprehensive income:
Unrealized net gain on
securities (net of tax
of $4,619) - - - - - - - - 6,870
Reclassification
adjustment (net of tax
of $397) - - - - - - - - (570)
--------
Other comprehensive income,
net of tax - - - - - - - 6,300 6,300
--------
Total comprehensive income - - - - - - - - $137,477
========
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 -
- ---------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 5,026,108 18,000,000 (132,504) 50 180 1,723,402 (6,627) 7,949
Comprehensive income:
Net income - - - - - 39,573 - - $ 39,573
--------
Other comprehensive income:
Unrealized net gain on
securities (net of tax
of $9,028) - - - - - - - - 15,296
Reclassification
adjustment (net of tax
of $1,887) - - - - - - - - (3,119)
--------
Other comprehensive income,
net of tax - - - - - - - 12,177 12,177
--------
Total comprehensive income - - - - - - - - $ 51,750
========
Dividend on common
stock - $1.00 per share - - - - - (22,831) - -
Acquisition of treasury
stock - - (514,503) - - - (62,984) -
Retirement of treasury
stock (514,503) - 514,503 (5) - (62,979) 62,984 -
Capital transactions
of subsidiary - - 132,504 - - (1,189) 6,627 -
- ---------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 4,511,605 18,000,000 - $45 $180 $1,675,976 $ - $20,126
==================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
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 (79.96% at December
31, 1998 and 78.6% at December 31, 1997) 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,
1998 and December 31, 1997) United Television, Inc. (UTV), which
operates six television stations, one of which was acquired in January
1998.
BHC accounts for its interest in the partnership that operates
the United Paramount Network (UPN), a 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. BHC adopted
Statement of Financial Accounting Standards (SFAS) 130, "Reporting
Comprehensive Income," in 1998 and has elected to present this
information in the Consolidated Statements of Shareholders'
Investment. Such amounts have been presented net of income taxes and
minority interest. 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 1998 presentation.
(B) FINANCIAL INSTRUMENTS
Cash and cash equivalents totalled $201,175,000 at December 31,
1998 and $282,504,000 at December 31, 1997. 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, 1998:
U.S. Government
securities $1,093,744 $ 1,656 $ 27 $1,095,373
Other 74,670 33,034 1,007 106,697
- ---------------------------------------------------------------
$1,168,414 $ 34,690 $ 1,034 $1,202,070
===============================================================
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
===============================================================
Of the U.S. Government securities held at December 31, 1998, 98%
mature within one year and all within 15 months.
Certain additional information related to BHC's marketable
securities as of and for the years ended December 31, 1998, 1997 and
1996 is as follows:
(In Thousands) 1998 1997 1996
- ---------------------------------------------------------------
Sales proceeds $414,133 $1,002,103 $1,067,658
Realized gains 6,018 1,256 3,909
Realized losses 702 177 466
Net unrealized gain 33,656 13,603 2,036
Adjustment for unrealized
gain, net of deferred
income taxes and
minority interest $ 20,126 $ 7,949 $ 1,649
===============================================================
For purposes of computing realized 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, 1998. 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, 1998 are $39,064,000, $20,296,000, $1,735,000 and $955,000 in
2000, 2001, 2002 and thereafter, respectively. The net present value
at December 31, 1998 of such payments, based on a 7.75% discount rate,
was approximately $53,400,000. 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, ranging from three to 40 years, 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 television station WUTB, the assets of which
were acquired in 1998, and are being amortized on a straight-line
basis over 40-year periods. Accumulated amortization of intangible
assets totalled $76,984,000 at December 31, 1998 and $65,905,000 at
December 31, 1997.
(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 $47,654,000 in 1998, $43,944,000
in 1997 and $40,853,000 in 1996. Barter expense in each year
approximated barter revenue.
(G) EARNINGS PER SHARE
In accordance with SFAS 128, "Earnings per Share," adopted by BHC
in 1997, 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 ($103,000 in 1998, $179,000 in 1997 and $241,000 in 1996)
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 SFAS 123, "Accounting for Stock-Based
Compensation." 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 $394,000, or $.02 per share ($.02 per share diluted), in
1998, $398,000, or $.02 per share ($.01 per share diluted), in 1997
and $369,000, or $.02 per share ($.02 per share diluted), in 1996.
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 $31,000,000 in 1998,
$79,500,000 in 1997 and $29,000,000 in 1996.
The 1997 distribution from UPN to BHC was net of approximately
$38,800,000, representing additional BHC capital contributions.
(J) SEGMENT INFORMATION
In 1998, BHC adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 supersedes SFAS 14,
replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization
that is used by management for making operating decisions and
assessing performance as the source of BHC's reportable segments. The
adoption of SFAS 131 did not affect results of operations or financial
position but did affect the disclosure of segment information. See
Note 9.
Note 2
- ---------------------------------------------------------------------
United Paramount Network:
In July 1994, BHC, along with Viacom Inc.'s Paramount Television
Group, formed the United Paramount Network, a 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 $88,100,000 in 1998 and
$48,185,000 in 1997, plus the additional BHC capital contributions set
forth above, and BHC's pro rata share of UPN losses in those years,
totalled $615,000 at December 31, 1998 and $1,112,000 at December 31,
1997, and is included in Investments on the accompanying Consolidated
Balance Sheets. UPN is still in its development and is expected to
continue to incur significant start-up losses and to require
significant funding for the next several years. Condensed consolidated
financial statements of UPN are as follows:
BALANCE SHEETS
December 31,
----------------------
(In Thousands) 1998 1997
- -----------------------------------------------
Current assets $ 92,934 $ 80,017
Other assets 27,305 29,926
- -----------------------------------------------
$ 120,239 $ 109,943
===============================================
Current liabilities $ 119,008 $ 107,719
Partners' capital 1,231 2,224
- -----------------------------------------------
$ 120,239 $ 109,943
===============================================
STATEMENTS OF OPERATIONS
Year ended December 31,
----------------------------------
(In Thousands) 1998 1997 1996
- ---------------------------------------------------------------------
Operating revenues* $ 96,401 $ 89,997 $ 56,948
Operating expenses* 275,165 261,962 200,316
- ---------------------------------------------------------------------
Operating loss (178,764) (171,965) (143,368)
Other income (expense), net 1,571 1,768 (2,945)
- ---------------------------------------------------------------------
Loss before interest on
BHC advances (177,193) (170,197) (146,313)
Interest on BHC advances
(eliminated in consolidation) - - (14,147)
- ---------------------------------------------------------------------
Net loss $ (177,193) $ (170,197) $ (160,460)
=====================================================================
* With respect to certain of its programming, through August 31, 1997
UPN derived no revenue and incurred no programming expense.
The following information as it relates to UPN is provided in
accordance with SFAS 131. See Note 9.
Year ended December 31,
-------------------------
(In Thousands) 1998 1997 1996
- ---------------------------------------------------------------------
Depreciation and amortization $2,069 $1,794 $364
Capital expenditures $1,565 $ 467 $ -
Note 3
- ---------------------------------------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
December 31,
------------------------
(In Thousands) 1998 1997
- ---------------------------------------------------------------------
Accounts payable $ 6,490 $ 7,373
Accrued expenses -
Deferred barter revenue 38,824 38,721
Payroll and compensation 27,584 26,347
Other 20,355 15,327
- ---------------------------------------------------------------------
$ 93,253 $ 87,768
=====================================================================
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,
1998, BHC purchased 6,895,590 shares of its Class A common stock,
including 226,503 from UTV in 1998, at an aggregate cost of
$516,503,000. Chris-Craft's ownership interest in BHC during that
period accordingly increased to 79.96% (representing 97.6% of BHC's
voting power) from 60%. At December 31, 1998, 185,497 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 $7,010,000 in 1998, $2,755,000 in 1997 and
$32,810,000 in 1996, proceeds to UTV of $3,579,000 in 1998, $3,939,000
in 1997 and $4,008,000 in 1996 from the exercise of stock options, and
UTV dividend payments of $4,688,000 in 1998, $4,687,000 in 1997 and
$4,750,000 in 1996, 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 $3,888,000 in 1998, $3,434,000 in 1997 and $3,094,000 in
1996.
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) 1998 1997
- ---------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 49,681 $ 44,338
Service cost 4,187 3,837
Interest cost 3,574 3,122
Actuarial loss/(gain) 2,156 (859)
Amendments 471 -
Benefits paid (888) (757)
- ---------------------------------------------------------------------
Benefit obligation at end of year 59,181 49,681
- ---------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year 32,633 29,143
Actual return on plan assets 3,649 2,833
Employer contributions 1,825 1,414
Benefits paid (888) (757)
- ---------------------------------------------------------------------
Fair value of plan assets at end of year 37,219 32,633
- ---------------------------------------------------------------------
Plan assets less than projected
benefit obligation (21,962) (17,048)
Unrecognized initial net asset (84) (134)
Unrecognized prior service cost 746 323
Unrecognized net actuarial gain (1,313) (2,363)
- ---------------------------------------------------------------------
Pension liability $(22,613) $(19,222)
=====================================================================
Assumptions used in accounting for pension plans for each year
are as follows:
1998 1997 1996
- ---------------------------------------------------------------------
Discount rate at end of year 6.75% 7.25% 7.25%
Rate of increase in future compensation levels 4.00% 4.50% 4.50%
Expected long-term rate of return on assets 7.75% 7.75% 7.75%
The accumulated benefit obligation, projected benefit obligation
and fair value of plan assets for the above plans that had an
accumulated benefit obligation in excess of the fair value of plan
assets were $27,464,000, $35,883,000, and $14,973,000, respectively,
at December 31, 1998, and $21,709,000, $29,493,000, and $11,847,000,
respectively, at December 31, 1997.
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 $5,212,000 in 1998,
$8,811,000 in 1997 and $4,656,000 in 1996.
Note 6
- ---------------------------------------------------------------------
INCOME TAXES:
Income taxes are provided in the accompanying Consolidated
Statements of Income as follows:
Year ended December 31,
----------------------------
(In Thousands) 1998 1997 1996
- ---------------------------------------------------------------------
Current:
Federal $ 24,700 $ 61,900 $ 22,500
State 8,300 18,400 5,800
- ---------------------------------------------------------------------
33,000 80,300 28,300
- ---------------------------------------------------------------------
Deferred:
Federal (2,000) 20,600 (7,500)
State 500 100 200
- ---------------------------------------------------------------------
(1,500) 20,700 (7,300)
- ---------------------------------------------------------------------
$ 31,500 $101,000 $ 21,000
=====================================================================
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) 1998 1997 1996
- ---------------------------------------------------------------------
Taxes at federal statutory rate $ 30,625 $ 87,727 $ 14,940
State income taxes, net 5,720 12,025 3,933
Amortization of intangible assets 3,125 3,127 3,151
Dividend exclusion (347) (735) (768)
Realization of tax benefit (8,500) - -
Other 877 (1,144) (256)
- ---------------------------------------------------------------------
$ 31,500 $101,000 $ 21,000
=====================================================================
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) 1998 1997
- ---------------------------------------------------------------------
Accrued liabilities not deductible until paid $18,142 $15,084
Film contract rights 8,325 6,193
- ---------------------------------------------------------------------
Deferred tax assets 26,467 21,277
- ---------------------------------------------------------------------
Investments (18,772) (17,475)
Other intangibles (1,589) (573)
Property and equipment (2,380) (2,670)
SFAS 115 adjustment (12,031) (4,889)
- ---------------------------------------------------------------------
Deferred tax liabilities (34,772) (25,607)
- ---------------------------------------------------------------------
Net deferred tax liabilities $ (8,305) $ (4,330)
=====================================================================
Note 7
- ---------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES:
In 1997, UTV signed a definitive agreement to purchase the assets
of UHF television station WRBW in Orlando, Florida for $60,000,000 and
possible future consideration. The acquisition is subject to Federal
Communications Commission 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 $337,800,000 at December 31, 1998 (including $91,200,000
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 1998,
$12,000,000 in 1997 and $8,000,000 in 1996, and management and
directors' fees UTV paid Chris-Craft totalling $570,000 in each of the
three years.
Note 9
- ---------------------------------------------------------------------
SEGMENT REPORTING:
In 1998, BHC adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." BHC has one reportable segment,
the Television Division, which is reported in the consolidated
financial statements.
UPN, which is accounted for on the equity method, is also
considered a reportable segment under SFAS 131. However, all required
segment information is included in Note 2.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers, LLP February 10, 1999
1301 Avenue of the Americas
New York, NY 10019
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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1998, 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.
/s/ PricewaterhouseCoopers LLP
<PAGE>
SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
As of and for the Year ended December 31,
(In Thousands of Dollars ---------------------------------------------------------------
Except per Share Data) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 445,850 $ 443,499 $ 446,292 $ 454,702 $ 457,533
Operating income $ 96,729 $ 101,338 $ 107,148 $ 118,579 $ 112,982
Interest and other
income 79,366 82,809 81,849 82,483 57,644
Equity in United
Paramount Network loss (88,597) (87,430) (146,313) (129,303) (3,977)
Gain on change of
ownership in United
Paramount Network - 153,933 - - -
Income taxes (31,500) (101,000) (21,000) (18,800) (57,900)
Minority interest (16,425) (18,473) (17,448) (15,902) (15,872)
Net income $ 39,573 $ 131,177 $ 4,236 $ 37,057 $ 92,877
Earnings per share -
Basic $ 1.75 $ 5.62 $ .18 $ 1.51 $ 3.71
Diluted 1.75 5.61 .17 1.50 3.71
Cash dividends declared
per share 1.00 1.00 - 1.00 -
Cash and marketable
securities 1,403,245 1,487,280 1,391,992 1,499,365 1,496,445
Film contract rights 123,502 121,977 144,034 145,902 148,473
Investments 67,299 47,594 46,944 10,065 2,838
Total assets 2,142,601 2,142,488 2,097,263 2,159,010 2,188,463
Long-term debt - - - - -
Minority interest 139,876 115,473 95,227 95,252 95,564
Shareholders' investment 1,696,327 1,724,954 1,705,533 1,781,893 1,789,884
Book value per share $ 75.35 $ 75.35 $ 71.95 $ 73.14 $ 72.31
</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 26, 1999, there were
6,555 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
- ---------------------------------------------------------------------
1998
High 142 145 5/16 140 3/4 122
Low 125 3/8 135 1/8 108 102 9/16
- ---------------------------------------------------------------------
1997
High 108 1/2 122 130 1/2 133
Low 100 1/4 104 3/8 118 1/4 121 1/2
- ---------------------------------------------------------------------
BHC paid special cash dividends of $1.00 per share in February
1999 and in February 1998. 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, 1998
Operating revenues $ 99,575 $120,500 $102,794 $122,981 $445,850
Operating income 13,387 34,369 20,683 28,290 96,729
Interest and other income 20,054 18,742 20,168 20,402 79,366
Equity in United Paramount
Network loss (19,910) (22,471) (10,438) (35,778) (88,597)
Income before income taxes
and minority interest 13,531 30,640 30,413 12,914 87,498
Net income 5,998 14,597 15,812 3,166 39,573
Earnings per share -
Basic .26 .65 .70 .14 1.75
Diluted $ .26 $ .64 $ .70 $ .14 $ 1.75
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
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)
Gain on change of ownership
in United Paramount Network 152,224 - - 1,709 153,933
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
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ---------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
BHC's financial position continues to be strong and highly
liquid. Cash and marketable securities totalled $1.40 billion at
December 31, 1998, 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.
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 $12.3 million in 1998 and by $4.3
million in 1997), and is dependent upon the mix of programs aired and
payment terms of the stations' contracts. Reflecting such amounts,
broadcast cash flow in 1998 declined 8%, while station earnings
declined only 2%, 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 operating cash flow additionally reflects earnings
associated with its cash and marketable securities, which balances
declined to $1.40 billion at December 31, 1998, from $1.49 billion at
December 31, 1997. Such decline occurred despite an increase in
operating cash flow, primarily due to the $80.2 million television
station acquisition, described below, UPN funding, treasury stock
purchases and the payment of a special dividend. Operating cash flow
in 1998 rose to $170.4 million from $141.2 million, despite the
decline in broadcast cash flow, primarily because the 1997 amount
includes income tax payments related to the UPN distribution described
below (the distribution is reported as a cash flow from investing
activities).
Special $1.00 per share cash dividends were paid in February
1999, aggregating $22.5 million, February 1998, aggregating $22.7
million, and February 1997, aggregating $23.6 million. 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, 1998, 6,895,590 shares were purchased, including 226,503 shares in
1998 from United Television, Inc., BHC's 58.5% owned subsidiary, for a
total cost of $516.5 million, including $63.0 million in 1998. From
January 1, 1996 through December 31, 1998, UTV purchased 462,600 of
its common shares at an aggregate cost of $42.6 million, of which $7.0
million was expended in 1998, and, at December 31, 1998, 729,649 UTV
shares remained authorized for purchase.
In January 1998, UTV purchased the assets of UHF television
station WHSW, Channel 24, in Baltimore, Maryland for $80.2 million in
cash. The station's call letters were changed to WUTB and the station
became a UPN affiliate. In 1997, UTV signed a definitive agreement to
purchase the assets of WRBW in Orlando, Florida, for approximately $60
million and possible future consideration. UTV expects to use a
portion of available cash and marketable securities balances to
complete this transaction, which is subject to Federal Communications
Commission approval, as well as satisfaction of certain 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 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.
UPN, still in its development, incurred start-up losses of $177.2
million in 1998, $170.2 million in 1997, $146.3 million in 1996 and
$129.3 million in 1995, and is expected for the next several years to
continue to incur substantial start-up losses and to require
significant funding. BHC funding of UPN totalled $88.1 million in
1998.
BHC's television stations make commitments for programming that
will not be available for telecasting until future dates. At December
31, 1998, commitments for such programming totalled approximately
$337.8 million, including $91.2 million applicable to UTV. BHC also
has a remaining commitment to invest over time up to $24.6 million, of
which $14.8 million is to be invested in management buyout limited
partnerships, including $11.0 million applicable to UTV. BHC capital
expenditures generally have not been material in relation to its
financial position, and the related capital expenditure commitments at
December 31, 1998 (including any related to UPN) were not material.
During 1998, BHC's stations began converting to digital television
(DTV). The conversion will require the purchase of digital
transmitting equipment to telecast over newly assigned frequencies.
This conversion is expected to take a number of years and will be
subject to competitive market conditions. BHC expects that its
expenditures for UPN, future film contract commitments and capital
requirements for its present business, including the cost to convert
to DTV, will be satisfied primarily from operations, marketable
securities or cash balances.
BHC has assessed year 2000 issues and believes that such issues
will not have a material effect on its business, results of
operations, or financial condition and that the estimated compliance
cost is immaterial.
BHC is subject to certain market risk relating to its marketable
securities holdings, which are all held for other than trading
purposes. The table below provides information as of December 31, 1998
about the U.S. Government securities which are subject to interest
rate sensitivity and the equity securities which are subject to equity
market sensitivity.
(In Thousands) Cost Fair Value
- --------------------------------------------------------
U.S. Government securities $1,093,744 $1,095,373
Equity securities $ 74,670 $ 106,697
All of BHC's marketable securities have been categorized as
available for sale and are comprised substantially of U.S. Government
securities, 98% of which mature in one year and all within 15 months.
See Note 1 (B).
RESULTS OF OPERATIONS - 1998 VERSUS 1997
BHC net income in 1998 declined to $39,573,000, or $1.75 per
share ($1.75 per share diluted), from net income in 1997 of
$131,177,000, or $5.62 per share ($5.61 per share diluted). The
decline in net income primarily reflects the 1997 pretax gain of
$153,933,000 recorded on the transaction described above through which
BHC reduced its UPN ownership interest to its current 50% from 100%.
Earnings at BHC's core broadcast television business declined
slightly, as did income earned on BHC's cash and marketable securities
holdings.
Television station earnings, after a small loss at recently
acquired station WUTB, were $123,123,000, down 2% from 1997 earnings
of $125,966,000. Station group earnings in 1998 reflect increased
current year and retroactive revenue resulting from a new long-term
affiliation agreement at our NBC affiliate. In addition, 1998 station
earnings reflect a reduction of approximately $3,300,000 in expense
associated with stock price based retirement plans. Total station
operating revenues rose slightly, to $436,664,000 from $434,729,000,
while same station revenues, reflecting disappointing ratings in
several key markets, declined less than 2%, after adjusting for the
prior years' network affiliation fees.
The decline in station earnings was fully offset by an increase,
to $10,202,000 from $7,098,000, in earnings at BHC's television
production subsidiaries. However, after WUTB goodwill amortization and
a non-recurring severance expense, operating income in 1998 declined
5%, to $96,729,000 from $101,338,000 in 1997.
UPN incurred a loss of $177,193,000 in 1998, compared to a loss
of $170,197,000 in 1997. The network's cost structure increased due to
the expansion of its prime time schedule to five nights a week from
three. BHC's 50% share of the loss totalled $88,597,000, compared to
its 1997 share of $87,430,000. UPN is still in its development and is
expected for the next several years to continue to record substantial
start-up losses.
Interest and other income, which consists mostly of amounts
earned on BHC's cash and marketable securities holdings, declined to
$79,366,000 in 1998 from $82,809,000 in 1997. The impact of lower
interest rates was only partially offset by an increase in gains on
dispositions of marketable securities.
BHC's effective income tax rate declined to 36.0% in 1998 from
40.3% in 1997, primarily reflecting the realization in 1998 of certain
income tax benefits.
Minority interest reflects the interest of shareholders other
than BHC in the net income of UTV, 58.5% owned by BHC at December 31,
1998 and December 31, 1997 and 59.0% owned by BHC at December 31,
1996.
Earnings per share amounts reflect annual reductions in weighted
average common shares outstanding, resulting from purchases by BHC of
its Class A common shares.
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
was 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 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.
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.
Exhibit 21
The following were the registrant's subsidiaries as of December 31,
1998, other than subsidiaries that, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary at such date:
NAME OF SUBSIDIARY JURISDICTION
OF
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
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