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, 1999
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 29, 2000, was approximately $718,000,000.
As of February 29, 2000, 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 II
report to stockholders for the
fiscal year ended December 31, 1999
(the "Annual Report") that are
specifically identified herein as
incorporated by reference into this
Form 10-K.
Those portions of the registrant's proxy III
statement for the registrant's
2000 Annual Meeting (the "Proxy
Statement") that are specifically
identified herein as incorporated by
reference into this Form 10-K.
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL
BHC Communications, Inc. ("BHC"), the majority owned (80% at February 29,
2000) 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% at February 29, 2000) subsidiary,
United Television, Inc. ("UTV").
At February 29, 2000, BHC, solely through subsidiaries, had 1,135
full-time employees and 134 part-time employees.
TELEVISION BROADCASTING
BHC operates six very high frequency ("VHF") television stations and
four 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 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.
On March 20, 2000, BHC elected to sell its 50% interest in UPN for
$5,000,000 to Viacom, Inc., UPN's other 50% owner, under the "buy-sell"
provisions of the UPN Joint Venture Agreement, which Viacom had triggered. On
March 16, 2000, a New York Supreme Court upheld Viacom's exercise of the
buy-sell in a lawsuit brought by BHC that sought to enjoin the Viacom-CBS merger
as a violation of the non-compete provision of the Joint Venture Agreement. The
sale is expected to close by March 31, 2000.
As a result of the sale, BHC will have no further ownership interest in
the network or obligation to fund UPN's operations. BHC's eight television
stations that are currently affiliated with UPN will remain affiliates after the
sale. BHC expects to record a loss of approximately $10,000,000 in connection
with the sale, to be reflected in results of operations for the three months
ended March 31, 2000.
The following table sets forth certain information with respect to BHC
stations and their respective markets:
<PAGE> 4
Total
Commercial
Network Af- DMA TV Stations DMA
Station and filiation/ House- DMA Operating in Cable TV
Location(1) Channel holds(2) Rank(2) Market(3) Penetration(4)
- ----------- ----------- ---------- -------- ------------ --------------
WWOR(5) UPN 9 6,874,990 1st 6VHF 74%
Secaucus 14UHF
KCOP UPN 13 5,234,690 2nd 7VHF 65%
Los Angeles 10UHF
KPTV UPN 12 1,004,140 23rd 4VHF 62%
Portland 2UHF
KMSP UPN 9 1,481,050 14th 4 VHF 54%
Minne- 3 UHF
apolis/
St. Paul
KTVX ABC 4 720,860 36th 4 VHF 53%
Salt 2 UHF
Lake City
KMOL NBC 4 684,730 37th 3 VHF 66%
San 3 UHF
Antonio
KBHK UPN 44 2,423,120 5th 4 VHF 72%
San 10 UHF
Francisco
KUTP UPN 45 1,390,750 17th 4 VHF 59%
Phoenix 4 UHF
WRBW UPN 65 1,101,920 22nd 3 VHF 76%
Orlando 9 UHF
WUTB UPN 24 999,200 24th 3 VHF 68%
Baltimore 3 UHF
- ------------
(1) KCOP and KPTV are owned by CCTV; WWOR is owned by Pinelands; the
remaining stations are owned by UTV.
(2) 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.
(3) 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 UTV stations but outside
the greater metropolitan television markets in which UTV stations operate.
(4) Cable penetration refers to the percentage of DMA television viewing
households receiving cable television service, as estimated by Nielsen Media
Research.
(5) WWOR UPN 9 broadcasts across a tri-state area including the entire
New York City metropolitan area.
<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 invests directly in the development of
original programming. The aggregate amount invested in original programming
through December 31, 1999 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 $151,369,000 as of December 31, 1999. The stations were committed
for film and sports rights contracts aggregating $278,000,000 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. 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. 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. 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.
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.
<PAGE> 7
For each hour of programming broadcast by the affiliate, the major
networks generally have paid their affiliates a fee, specified in the agreement
(although subject to change by the network), which varies in amount depending on
the time of day during which the program is broadcast and other factors. Prime
time programming generally earns the highest fee. A network may, and sometimes
does, designate certain programs to be broadcast with no compensation to the
station.
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. Most advertising contracts are short-term.
The relative contributions of national and local advertising to BHC's gross cash
advertising revenues vary from time to time.
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"), which
represents nine of the ten 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 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 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 February 11, 2000 and is
due to expire on April 1, 2006. 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 April 20, 1999 and is due to expire on October 1, 2006. 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 7, 1999 and is due to expire on
June 1, 2007. WUTB UPN 24's license was assigned to UTV of
<PAGE> 8
Baltimore, Inc., a subsidiary of UTV, on January 20, 1998 and is due to expire
on October 1, 2001. WRBW UPN 65's license was assigned to UTV of Orlando, Inc.,
a subsidiary of UTV, on July 7, 1999 and is due to expire on February 1, 2005.
On August 5, 1999, the FCC adopted changes in several of its broadcast
ownership rules (collectively, the "FCC Ownership Rules"). These rule changes
became effective on November 16, 1999; however, several petitions have been
filed with the FCC seeking reconsideration of the new rules, so the rules may
change.
Among other changes, the FCC relaxed its "television duopoly" rule,
which barred any entity from having an attributable interest in more than one
television station with overlapping service areas. Under the new rules, one
entity may have attributable interests in two television stations in the same
DMA, provided that (1) one of the two stations is not among the top four in
audience share, and (2) at least eight independently owned and operated
commercial and noncommercial television stations will remain in the DMA, if the
proposed transaction is consummated. The new rules also permit common ownership
of television stations in the same DMA, if one of the stations to be commonly
owned has failed, is failing or is unbuilt, or if extraordinary public interest
factors are present. To transfer ownership in two commonly owned television
stations in the same DMA, it will be necessary to again demonstrate compliance
with the new rules. Lastly, the new rules authorize the common ownership of
television stations with overlapping signal contours as long as the stations to
be commonly owned are located in different DMAs.
Similarly, the FCC relaxed its "one-to-a-market" rule, which restricts
the common ownership of television and radio stations in the same market. One
entity now may own up to two television stations and six radio stations or one
television station and seven radio stations in the same market, provided that
(1) 20 independent media voices (including certain newspapers and a single cable
system) will remain in the relevant market following consummation of the
proposed transaction, and (2) the proposed combination is consistent with the
television duopoly and local radio ownership rules. If fewer than 20 but more
than 9 independent voices will remain in a market following a proposed
transaction, and the proposed combination is otherwise consistent with the FCC's
rules, a single entity may have attributable interests in up to two television
stations and four radio stations. If these various "independent voices" tests
are not met, a party generally may have an attributable interest in no more than
one television station and one radio station in a market.
The FCC made other changes to its rules that determine what constitutes
an "attributable interest" in applying the FCC Ownership Rules. Under the new
rules, a party will be deemed to have an attributable interest in a television
or radio station, cable system, or daily newspaper that triggers the FCC's
cross-ownership restrictions, if (1) it is a non-passive investor, and it owns
5% or more of the voting stock in the media outlet or its controlling parent;
(2) it is a passive investor (i.e., bank trust department, insurance company or
mutual fund) and it owns 20% or more of the voting stock; or (3) its interests
(which may be in the form of debt or equity (even if non-voting), or both)
exceeds 33% of the total asset value of the media outlet, and it either (i)
supplies at least 15% of a station's weekly broadcast hours or (ii) has an
attributable interest in another media outlet in the same market.
The FCC also declared that local marketing agreements, or "LMAs", now
will be attributable interests for purposes of the FCC Ownership Rules. The FCC
will grandfather LMAs that were in effect prior to November 5, 1996, until it
has completed the review of its attribution regulations in 2004. Parties may
seek the permanent grandfathering of such an LMA, on a non-transferable basis,
by demonstrating that the LMA is in the public interest and that it otherwise
complies with FCC Ownership Rules.
Finally, the FCC eliminated its "cross interest" policy, which had
prohibited common ownership of a cognizable interest in one media outlet and a
"meaningful" non-cognizable interest in another media outlet serving essentially
the same market.
It is difficult to assess how these changes in the FCC ownership
restrictions will affect BHC's broadcast business.
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,
<PAGE> 9
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 four UHF stations, the 10 BHC stations are deemed to
reach approximately 19% of the nation's television households. The FCC is
considering whether to eliminate the 50% attribution reduction under this rule
for UHF stations.
FCC regulations also prohibit common ownership or control between two
of ABC, NBC, CBS, and Fox, or any one of those four networks and, under current
interpretation, either UPN or WB. The FCC is considering whether to modify or
eliminate this rule.
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 FCC recently adopted regulations requiring increased
closed-captioning of video programming. 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 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.
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; WUTB, channel
41; and WRBW, channel 41. Implementation of DTV is expected to improve the
technical quality of television. Furthermore, the implementing rules permit
broadcasters to use their assigned digital spectrum flexibly to provide either
standard or
<PAGE> 10
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 that have not been subjected to extensive
field testing and that, 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. 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.
Some of BHC's television stations began broadcasting on their DTV
channels, in addition to their analog broadcasts, in 1999. BHC has filed
applications with the FCC for permits to construct DTV facilities for each of
its other stations, except WRBW, for which an extension of time has been
granted. Future capital expenditures by BHC will be compatible with the new
technology whenever possible.
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 relaxing 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.
On January 20, 2000, the FCC approved new equal employment opportunity
and outreach requirements that will apply to all broadcast licensees (and cable
operators). Although the FCC has not yet released the text of these rules, the
key elements are: (1) licensees will be required to implement a minority
outreach program; (2) licensees with five or more full-time employees must place
a report regarding their outreach efforts in their public inspection file
annually, and, if they have more than 10 full-time employees, they must submit
the last four years of these reports to the FCC at the halfway point and
endpoint of their license terms, which will be subject to FCC review; (3)
licensees with five or more full-time employees also must file with the FCC a
"Statement of Compliance" with regard to their outreach efforts every two years;
and (4) licensees with five or more full-time employees also must file annual
employment reports, of the sort filed prior to 1998, which the FCC will use only
to monitor minority employment.
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.
<PAGE> 11
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, has a viewing audience the same size as
the Fox UHF affiliate, and has a larger viewing audience than the other two
stations, both 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 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. WRBW UPN 65 generally ranks sixth in terms of
audience share, of the twelve commercial stations in the Orlando market. In
Baltimore, WUTB UPN 24 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
(3) 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.
<PAGE> 12
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 1999, there
were approximately 60,000 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 five years, to approximately 13.1 million, as of December 1999.
On November 29, 1999, the President signed the Satellite Home Viewer
Improvement Act ("SHVIA"). Among other things, SHVIA provides for a statutory
copyright license to enable satellite carriers to retransmit local television
broadcast stations' programming into the stations' respective local markets.
After May 27, 2000, satellite carriers will be prohibited from delivering a
local signal into their local markets - so called "local-into-local" service -
without the consent or must-carry election of such stations, but stations will
be obligated to engage in good faith retransmission consent negotiations with
the carriers. SHVIA does not require satellite carriers to, but provides that
carriers that choose to do so must, comply with certain mandatory signal
carriage requirements by a date certain, as defined by the Act, or as-yet to be
drafted FCC regulations. Further, the Act authorizes satellite carriers to
continue to provide certain network signals to unserved households, as defined
in SHVIA and FCC rules, except that carriers may not provide more than two
same-network stations to a household in a single day. Also, households that do
not receive a signal of Grade A intensity from any of a particular network's
affiliates may continue to receive distant station signals for that network
until December 31, 2004, under certain conditions. The FCC has initiated several
rule making proceedings, as required by SHVIA, to implement certain aspects of
the Act, such as standards for good faith retransmission consent negotiations,
must-carry procedures, exclusivity protection for local stations against certain
distant signals, and enforcement.
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 1999, wireless cable systems
served about 1.5 million subscribers.
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.
<PAGE> 13
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.
Physical facilities consisting of offices and studio facilities are
owned by UTV in Minneapolis, San Antonio and Phoenix and are leased in
Baltimore, Orlando, Salt Lake City and San Francisco. The Baltimore lease
expires in April 2005 and is renewable, at increased rental, for two five-year
periods. The Orlando lease expires in March 2004. The Salt Lake City lease
expired in August 1999, but has been extended on a month-to-month basis through
April 2000. UTV has acquired a 6.03 acre site in Salt Lake City, on which UTV is
completing construction of a new, approximately 48,000 square foot, 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 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. The Orlando
facility is approximately 8,750 square feet and is located at Universal Studios
in Orlando. The Baltimore facility is approximately 11,700 square feet and is
located in an office park in a suburb of Baltimore. Smaller buildings containing
transmission equipment are owned by UTV at sites separate from the studio
facilities.
UTV owns a 55-acre tract in Shoreview, Minnesota, of which 40 acres are
used by KMSP for transmitter facilities and tower.
KTVX's transmitter facilities and tower are located at a site on Mt.
Nelson, close to Salt Lake City, under a lease that expires in 2004. KTVX also
maintains back-up transmitter facilities and tower at a site on nearby Mt.
Vision under a lease that expires in July 2002 and is renewable, at no increase
in rental, for a 50-year period.
KMOL's transmitter facilities are located at a site near San Antonio on
land and on a tower owned by Texas Tall Tower Corporation, a corporation owned
in equal shares by UTV and another television station that also transmits from
the same tower.
KBHK's transmitter is located on Mt. Sutro, as part of the Sutro Tower
complex, which also houses equipment for other San Francisco television stations
and many of its FM radio stations. The lease for the Mt. Sutro facilities
expires in 2005 and is renewable for two five-year periods.
KUTP's transmitter facilities and tower are located on a site within
South Mountain Park, a communications park owned by the City of Phoenix, which
also contains transmitter facilities and towers for the other television
stations in Phoenix as well as facilities for several FM radio stations. The
license for this space expires in 2012.
WRBW's transmitter facilities are located on a site near Orlando. The
building containing the transmitter and the tower on which the antenna is
mounted are shared with another television station as well as several FM radio
stations. The lease for the tower and building expires in September 2001, and is
renewable for two five-year periods.
<PAGE> 14
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 2004 and is renewable for a five-year period.
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 29, 2000, are as follows:
POSITIONS WITH BHC; HAS SERVED
PRINCIPAL OCCUPATION; AS OFFICER
NAME AND AGE AS OF FEBRUARY 29, 2000 SINCE
---- ------------------------------- ----------
Herbert J. Siegel Chairman of the Board; Chairman 1977
of the Board and
President, Chris-Craft; 71
William D. Siegel President; Executive Vice 1981
President, Chris-Craft; 45
Joelen K. Merkel Senior Vice President and 1980
Treasurer; Senior Vice
President and Treasurer,
Chris-Craft; 48
Brian C. Kelly Senior Vice President and General 1992
Counsel and Secretary; Senior
Vice President and General Counsel
and Secretary, Chris-Craft; 48
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 58, 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
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information appearing in the Annual Report under the caption STOCK
PRICE, DIVIDEND AND RELATED INFORMATION is incorporated herein by this
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing in the Annual Report under the caption
SELECTED FINANCIAL DATA is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information appearing in the Annual Report under the caption
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ("MD&A") is incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information appearing in the MD&A under the caption QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK is 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 o
Employment Agreement dated January 1, 1994 between Herbert J.
Siegel and Chris-Craft.
* Employment Agreement dated January 1, 1994 between Evan C
Thompson and Chris-Craft, as amended September 28, 1999.
(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 29, 2000
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 29, 2000
- -------------------------------------------
Herbert J. Siegel
Chairman and Director
(principal executive officer)
WILLIAM D. SIEGEL March 29, 2000
- -------------------------------------------
William D. Siegel
President and Director
(principal financial officer)
JOELEN K. MERKEL March 29, 2000
- -------------------------------------------
Joelen K. Merkel
Senior Vice President, Treasurer and
Director (principal accounting
officer)
JOHN L. EASTMAN March 29, 2000
- -------------------------------------------
John L. Eastman
Director
BARRY S. GREENE March 29, 2000
- -------------------------------------------
Barry S. Greene
Director
LAURENCE M. KASHDIN March 29, 2000
- -------------------------------------------
Laurence M. Kashdin
Director
<PAGE> 19
MORGAN L. MILLER March 29, 2000
- -------------------------------------------
Morgan L. Miller
Director
JOHN C. SIEGEL March 29, 2000
- -------------------------------------------
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, 1999 and 1998
Consolidated Statements of Income - For the Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flows - For the Years Ended December
31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Investment - For the Years
Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
SCHEDULES:
UPN Financial Statements --
Report of Independent Accountants
Balance Sheets - December 31, 1999 and 1998
Statements of Operations - For the Years
Ended December 31, 1999, 1998 and 1997
Statements of Changes in Partners' Capital (Deficit) - For the
Years Ended December 31, 1999, 1998 and 1997
Statements of Cash Flows - For the Years Ended December 31,
1999, 1998 and 1997
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.,
BHC Network Partner IV, PCI Network Partner Inc. and
PCI Network Partner II Inc.)
Report and Financial Statements
December 31, 1999, 1998 and 1997
Report of Independent Accountants
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 ("UPN", a partnership
between BHC Network Partner, Inc., BHC Network Partner II, Inc., BHC
Network Partner III, Inc., BHC Network Partner IV, PCI Network Partner
Inc., and PCI Network Partner II Inc.) at December 31, 1999 and 1998,
and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, 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.
As discussed in Note 2 to the financial statements, UPN changed its
method of accounting for start-up costs to comply with Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities".
The accompanying financial statements have been prepared assuming that
UPN will continue as a going concern. As discussed in Note 7 to the
financial statements, on March 20, 2000 the partners of UPN entered
into a transaction which will result in UPN being owned by two of the
partners, which are under common ownership. As a result of this
transaction, the resulting owner of UPN may be in violation of certain
Federal Communication Commission ("FCC") rules and may not be able to
operate UPN in its present form. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Century City, California
January 31, 2000 except as to Note 7, which is as of March 20, 2000
<PAGE>
United Paramount Network
Balance Sheets
December 31, 1999 and 1998
- --------------------------------------------------------------------
(in thousands)
1999 1998
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 9,699 $ 24,704
Accounts receivable (net of allowance
for doubtful accounts of $430 and
$430, respectively) 33,748 18,787
Program rights and development costs
(net of reserve for abandonment of
$4,215 and $5,055, respectively) 37,080 46,893
Other current assets 5,004 2,550
----------- -----------
Total current assets 85,531 92,934
----------- -----------
Restricted investments 3,769 5,340
Furniture, fixtures, computer
equipment, at cost (net of
accumulated depreciation of
$2,194 and $1,454, respectively) 1,650 1,949
Intangible assets (net of accumulated
amortization of $7,166 and $2,972,
respectively) - 4,194
Other assets 25,407 15,822
----------- -----------
$ 116,357 $ 120,239
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable $ 12,470 $ 11,654
Accrued program costs 58,274 73,130
Accrued expenses and other liabilities 25,971 34,224
----------- -----------
Total current liabilities 96,715 119,008
----------- -----------
Commitments and contingencies (Note 6)
Partners' capital (deficit):
BHC Network Partner (3,961) (4,192)
BHC Network Partner II - (4,072)
BHC Network Partner III - 8,879
BHC Network Partner IV 13,782 -
PCI Network Partner 7,857 492
PCI Network Partner II 1,964 124
----------- -----------
Total partners' capital 19,642 1,231
----------- -----------
$ 116,357 $ 120,239
=========== ===========
<PAGE>
United Paramount Network
Statements of Operations
For the Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------
(in thousands)
1999 1998 1997
----------- ----------- -----------
Net revenues $ 134,127 $ 96,401 $ 89,997
Operating costs and expenses:
Operating expenses 229,499 182,225 177,874
Selling, general and
administrative expenses 95,595 90,871 82,294
Depreciation and
amortization 751 2,069 1,794
----------- ----------- -----------
325,845 275,165 261,962
----------- ----------- -----------
Operating loss (191,718) (178,764) (171,965)
----------- ----------- -----------
Other income (expense):
Other expense (188) - -
Interest and other income 1,412 1,571 1,736
Net income on investment
in joint venture - - 32
1,224 1,571 1,768
----------- ----------- -----------
Loss before cumulative effect
of change in accounting
principle (190,494) (177,193) (170,197)
Cumulative effect of change
in accounting principle (4,194) - -
----------- ----------- -----------
Net loss $ (194,688) $ (177,193) $ (170,197)
=========== =========== ===========
<PAGE>
<TABLE>
United Paramount Network
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------
(in thousands)
<CAPTION>
BHC BHC BHC BHC PCI PCI
Network Network Network Network Network Network
Partner Partner II Partner III Partner IV Partner Partner II Total
----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $ (4,172) $ (3,703) $ 9,269 $ - $ - $ - $ 1,394
Exercise of options
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
Capital contributions 2,664 40,114 42,225 21,547 85,240 21,309 213,099
Transfer of interest - 3,979 (8,978) 4,999 - - -
Allocation of 1999
net loss (2,433) (40,021) (42,126) (12,764) (77,875) (19,469) (194,688)
----------- ----------- ----------- ----------- ----------- ----------- ---------
Balance at
December 31, 1999 $ (3,961) $ - $ - $ 13,782 $ 7,857 $ 1,964 $ 19,642
=========== =========== =========== =========== =========== =========== ============
</TABLE>
<PAGE>
United Paramount Network
Notes to Financial Statements
For the Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------
(in thousands)
1999 1998 1997
---------- ---------- ----------
Cash flows from operating activities:
Net loss $ (194,688) $ (177,193) $ (170,197)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Amortization of program
costs 221,866 177,771 169,771
Payments for programming (229,897) (195,580) (118,912)
Depreciation and amortization 751 2,069 1,794
Abandonment reserve (840) (2,666) 2,108
Cumulative effect of change
in accounting principle 4,194 - -
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable (14,961) 20,500 (14,230)
Increase (decrease) in
accounts payable,
accrued expenses and
other current
liabilities (3,609) 1,468 8,470
Increase in other assets (5,737) (3,329) (12,110)
---------- ---------- ----------
Net cash used in
operating activities (222,921) (176,960) (133,306)
---------- ---------- ----------
Cash flows from investing activities:
Additions to property and
equipment (454) (1,565) (467)
Cash removed from (placed in)
restricted account 1,571 3,415 (7,598)
Loans to network affiliates (6,300) - -
Net investment in joint venture - (8) 304
---------- ---------- ----------
Net cash provided by (used in)
investing activities (5,183) 1,842 (7,761)
---------- ---------- ----------
Cash flows from financing activities:
Exercise of option by PCI
Partners - - 186,873
Capital contributions 213,099 176,200 93,520
Distributions to partners - - (116,261)
---------- ---------- ----------
Net cash provided by
financing activities 213,099 176,200 164,132
---------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents (15,005) 1,082 23,065
Cash and cash equivalents:
Beginning of year 24,704 23,622 557
---------- ---------- ----------
End of year $ 9,699 $ 24,704 $ 23,622
========== ========== ==========
Supplemental schedule of non-cash items:
Non-cash additions to
program costs $ - $ 9,822 $ 51,748
========== ========== ==========
Start-up costs incurred
by PCI Partners and
contributed to the
partnership $ - $ - $ 6,895
========== ========== ==========
<PAGE>
United Paramount Network
Notes to Financial Statements
For the Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------
1. Organization
In July 1994, BHC Network Partner, Inc. ("BHC/NP"), a then wholly
owned subsidiary of Chris-Craft Industries, Inc.'s ("Chris-Craft")
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. In November 1999, BHC/NP II and BHC/NP III transferred all
of their respective partnership interests to BHC Network Partner IV
("BHC/NP IV"), a wholly owned partnership. (See also Note 7)
UPN began providing programming for broadcast in January 1995. At
December 31, 1999, 1998 and 1997, the Network had 181 affiliates in
markets covering approximately 97%, 185 affiliates in markets covering
approximately 95%, and 187 affiliates in markets covering
approximately 97% 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, including BHC/NP IV, 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.
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 Standard 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.
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 requires costs of start-up activities and organization costs to be
expensed as incurred. The Network adopted SOP 98-5 during the first
quarter of 1999 and wrote-off unamortized start-up costs of $4,194,000
as a cumulative change in accounting principle.
Other Assets
Other assets include primarily an investment in a joint venture with
Saban Entertainment, deferred network costs, and loans to network
affiliates. 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.
Interest rates on loans to network affiliates are generally current
market rates. Accordingly, the carrying value and fair value of the
loans approximate one another.
Long-Lived Assets
The carrying value of long-lived assets, primarily consisting of
investments, loans to affiliates, deferred network costs, and property
and equipment, is periodically reviewed by management. The Network
reviews the carrying value of long-lived assets for impairment
whenever events or changes in circumstances indicate the carrying
value may not be recoverable. Measurement of any impairment would
include a comparison of estimated future cash flows anticipated to be
generated during the remaining life of the long-lived asset to the net
carrying value of the long-lived asset.
Revenue Recognition
Revenues are recognized at contractual rates as advertisements are
aired.
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.
Stock Appreciation Rights
Stock appreciation rights entitle an employee to receive, at a
specified future date or dates, the excess of the quoted market price
of a specified number of shares of a company's stock over the quoted
market price at the date of grant. On February 16, 1999, the Network
granted stock appreciation rights in 30,000 shares of both Viacom and
Chris-Craft stock, at a grant price of $83.50 and $42.81,
respectively. Due to a Viacom 2 for 1 stock split and a Chris-Craft
3% stock dividend, the adjusted granted appreciation rights in shares
of Viacom and Chris-Craft stock are 60,000 and 30,900, respectively,
and the adjusted grant prices are $41.75 and $41.57, respectively.
The stock appreciation rights vest equally over a three-year period.
The Network recognized $1,080,000 in compensation expense relating to
these stock appreciation rights during 1999.
3. Other Assets
At December 31, 1999 and 1998, other assets are comprised of deferred
network costs of $15,912,000 and $12,966,000, respectively, loans to
network affiliates of $6,964,000 and $325,000, respectively, and
investment in joint venture of $2,531,000 and $2,531,000,
respectively. The investment in joint venture is presented net of
reserves of $2,119,000 at December 31, 1999 and 1998.
Included in loans to network affiliates is a $6,000,000 note
receivable and $248,000 interest receivable from WOWL, UPN's affiliate
in Florence/Huntsville, Alabama. The loan bears a rate of interest
equal to the greater of 8% or the prime rate. WOWL is required to
begin making semi-annual payments to UPN on November 1, 2000 through
the maturity date of October 28, 2004 and is secured by the station's
assets. WOWL's current ownership group includes UPN's parents.
4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
(in thousands)
December 31,
1999 1998
--------- ---------
Accrued advertising and marketing costs $ 13,701 $ 24,123
Accrued compensation 7,561 5,135
Other accrued expenses 4,709 4,966
--------- ---------
$ 25,971 $ 34,224
========= =========
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.
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 1999 and
1998, additions to capitalized programming costs from related parties
totaled $115,073,000 and $120,335,000, 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 1999 and 1998, payments for these
services totaled approximately $3,237,000 and $3,240,000,
respectively.
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. In 1999, UPN extended the lease for an additional three years.
The lease calls for certain penalty payments upon cancellation after
three years. Rental expense was $729,000, $802,000 and $766,000 for
the years ended December 31, 1999, 1998 and 1997, 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 $371,000 and $354,000 for the years ended December
31, 1999 and 1998, respectively. 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, 1999, the future minimum rental payments under
operating leases are as follows:
2000 $ 1,241,000
2001 1,380,000
2002 1,406,000
2003 1,028,000
2004 444,000
Thereafter 1,469,000
---------------
Total $ 6,968,000
===============
During the normal course of business, the Network enters into
contracts for programming, which are not currently available for
telecasting. The aggregate amounts of the payments required under
these agreements totaled approximately $112,310,000 and $87,083,000 at
December 31, 1999 and 1998, respectively.
During the normal course of business, the Network enters into various
affiliate agreements, which will require the Network to make future
promotional payments to its affiliate stations. The aggregate amounts
of the payments required under these agreements totaled approximately
$22,823,000 and $30,838,000 at December 31, 1999 and 1998,
respectively.
During the normal course of business, the Network enters into various
co-op advertising agreements with its affiliate stations, which will
require the Network to make payments to these affiliates for its share
of future advertising costs. The aggregate amounts of the payments
required under these agreements totaled approximately $2,657,000 and
$3,635,000 at December 31, 1999 and 1998, respectively.
The Network has contractual agreements with several key employees. As
of December 31, 1999, estimated future payments relating to these
agreements are as follows:
2000 $ 11,961,000
2001 6,179,000
2002 2,705,000
Thereafter -
----------------
Total $ 20,845,000
================
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.
7. Subsequent Events
On September 7, 1999, Viacom announced its intent to merge with the
CBS Corporation. The combined company would then own the CBS
television broadcast network as well as its interest in UPN via its
ownership of The Paramount Television Group. The Viacom/CBS merger
awaits clearance from the Federal Communications Commission ("FCC").
Viacom's and CBS's shareholders have already voted to approve the
merger.
On February 3, 2000, Viacom initiated a buy-sell offer to BHC for $5.0
million, offering to either sell its 50% interest or to buy BHC's 50%
interest in UPN. On March 20, 2000, BHC elected to sell its 50%
interest in UPN to Viacom per the terms of the "buy-sell" provision of
the UPN Joint Venture Agreement. The sale is expected to close by
March 31, 2000. As a result of the sale, BHC will have no further
ownership interest in the Network or obligations to fund UPN's
operations.
Under the current FCC "dual network rule" the major broadcast networks
(ABC, CBS, NBC, FOX) are prohibited from merging and/or acquiring
another network (including UPN and the WB). Therefore, Viacom's
ownership of CBS and UPN will require that the FCC waive and/or modify
the existing rule. If the FCC will not allow Viacom to own two
networks, the future of the Network is uncertain. The financial
statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should UPN
be unable to continue as a going concern.
<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 10.9 [9] 10.9 Amendment thereto dated September
28, 1999
Exhibit 11(H) [3] 10.10 Chris-Craft's Benefit Equalization
Exhibit 10(B)(1)[6] Plan, as amended
Exhibit 10.3 [8]
Exhibit 10.10[7]] 10.11 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.
[9] Chris-Craft's Annual Report on Form 10-K for the year ended December 31,
1999.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
----------------------------
(In Thousands Except per Share Data) 1999 1998 1997
- ---------------------------------------------------------------------
Operating Revenues $469,347 $445,850 $443,499
=====================================================================
Operating Expenses:
Television expenses 219,936 210,947 212,183
Selling, general and administrative 147,255 138,174 129,978
- ---------------------------------------------------------------------
367,191 349,121 342,161
- ---------------------------------------------------------------------
Operating income 102,156 96,729 101,338
- ---------------------------------------------------------------------
Other Income (Expense):
Interest and other income 105,805 79,366 82,809
Equity in United Paramount Network loss (97,344) (88,597) (87,430)
Gain on change of ownership in United
Paramount Network - - 153,933
- ---------------------------------------------------------------------
8,461 (9,231) 149,312
- ---------------------------------------------------------------------
Income before provision for income
taxes and minority interest 110,617 87,498 250,650
Provision for Income Taxes 41,900 31,500 101,000
- ---------------------------------------------------------------------
Income before minority interest 68,717 55,998 149,650
Minority Interest 18,184 16,425 18,473
- ---------------------------------------------------------------------
Net income $ 50,533 $ 39,573 $131,177
=====================================================================
Weighted Average Common
Shares Outstanding 22,512 22,614 23,333
=====================================================================
Earnings per share -
Basic $ 2.24 $ 1.75 $ 5.62
Diluted $ 2.24 $ 1.75 $ 5.61
=====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED BALANCE SHEETS
December 31,
(In Thousands of Dollars)
-----------------------------
1999 1998
Assets
- ------
Current Assets:
Cash and cash equivalents $ 117,184 $ 201,175
Marketable securities (substantially
all U.S. Government securities) 1,219,144 1,202,070
Accounts receivable, less allowance for
doubtful accounts of $4,466 and $4,751 99,264 85,252
Film contract rights 111,819 99,883
Prepaid expenses and other
current assets 49,429 37,952
- --------------------------------------------------------------------
Total current assets 1,596,840 1,626,332
- --------------------------------------------------------------------
Investments 101,371 67,299
- --------------------------------------------------------------------
Film Contract Rights,
including deposits, less estimated
portion to be used within one year 39,550 23,619
- --------------------------------------------------------------------
Property and Equipment, at cost:
Land, buildings and improvements 48,247 43,090
Equipment 126,862 110,358
- --------------------------------------------------------------------
175,109 153,448
Less - Accumulated depreciation 113,231 104,601
- --------------------------------------------------------------------
61,878 48,847
- --------------------------------------------------------------------
Intangible Assets 417,420 370,394
- --------------------------------------------------------------------
Other Assets 7,389 6,110
- --------------------------------------------------------------------
$2,224,448 $2,142,601
====================================================================
December 31,
-----------------------------
1999 1998
Liabilities and Shareholders' Investment
- ----------------------------------------
Current Liabilities:
Film contracts payable within one year $ 102,737 $ 96,595
Accounts payable and accrued expenses 108,435 93,253
Income taxes payable 38,696 36,955
- --------------------------------------------------------------------
Total current liabilities 249,868 226,803
- --------------------------------------------------------------------
Film Contracts Payable after One Year 84,372 62,050
- --------------------------------------------------------------------
Other Long-Term Liabilities 15,176 17,545
- --------------------------------------------------------------------
Minority Interest 160,550 139,876
- --------------------------------------------------------------------
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 shares 45 45
Class B common stock-par value $.01 per
share; authorized 200,000,000 shares;
outstanding 18,000,000 shares 180 180
Retained earnings 1,705,841 1,675,976
Accumulated other comprehensive income 8,416 20,126
- --------------------------------------------------------------------
1,714,482 1,696,327
- --------------------------------------------------------------------
$2,224,448 $2,142,601
====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------------
(In Thousands of Dollars) 1999 1998 1997
- ----------------------------------------------------------------------
Cash Flows from Operating
Activities:
Net income $ 50,533 $ 39,573 $ 131,177
Adjustments to reconcile net
income to net cash provided
from operating activities:
Film contract amortization 99,735 88,507 95,244
Film contract payments (100,834) (100,824) (99,513)
Prepaid broadcast rights - - 21,114
Depreciation and other
amortization 22,393 21,278 19,187
Equity in United Paramount
Network loss 97,344 88,597 87,430
Gain on sale of marketable
securities (33,123) (5,316) (1,079)
Gain on change of ownership
in United Paramount Network - - (153,933)
Minority interest 18,184 16,425 18,473
Other (4,891) 1,207 2,661
Changes in assets and
liabilities:
Accounts receivable (12,715) 946 1,261
Other assets (2,651) 6,559 (7,738)
Accounts payable and
other liabilities 14,609 5,953 4,640
Income taxes 5,739 7,503 22,238
- ---------------------------------------------------------------------
Net cash provided from
operating activities 154,323 170,408 141,162
- ---------------------------------------------------------------------
Cash Flows from Investing
Activities:
Disposition of marketable
securities 463,317 414,133 1,002,103
Purchase of marketable
securities (472,472) (389,720) (944,113)
Station acquisitions (includes
$58,903 and $77,646 of
intangible assets) (61,269) (80,214) -
Distribution from United
Paramount Network - - 116,261
Investment in United Paramount
Network (106,550) (88,100) (48,185)
Other investments (21,247) (22,107) (3,345)
Capital expenditures, net (19,633) (11,298) (7,040)
Other (15) (23) (1,334)
- ---------------------------------------------------------------------
Net cash (used in)
provided from investing
activities (217,869) (177,329) 114,347
- ---------------------------------------------------------------------
Cash Flows from Financing
Activities:
Payment of special dividend (22,512) (22,738) (23,599)
Purchase of treasury stock - (46,305) (95,408)
Capital transactions of
subsidiary 2,067 (5,365) (749)
- ---------------------------------------------------------------------
Net cash used in
financing activities (20,445) (74,408) (119,756)
- ---------------------------------------------------------------------
Net (Decrease) Increase in Cash
and Cash Equivalents (83,991) (81,329) 135,753
Cash and Cash Equivalents at
Beginning of Year 201,175 282,504 146,751
- ---------------------------------------------------------------------
Cash and Cash Equivalents at End
of Year $ 117,184 $ 201,175 $ 282,504
=====================================================================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Treasury
Outstanding Shares Shares Dollar Amount (In Thousands)
Accumulated
Other
Class A Class B Class A Class A Class B Retained Treasury Comprehensive Comprehensive
Common Common Common Common Common Earnings Stock Income Income
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Comprehensive income:
Net income - - - - - 50,533 - - $ 50,533
Other comprehensive --------
income:
Unrealized net gain
on securities (net
of tax of $4,840) - - - - - - - - 9,044
Reclassification
adjustment (net of
tax of $11,020) - - - - - - - - (20,754)
Other comprehensive --------
loss, net of tax - - - - - - (11,710) (11,710)
--------
Total comprehensive income - - - - - - - - $ 38,823
Dividend on common ========
stock - $1.00 per share - - - - - (22,511) - -
Capital transactions
of subsidiary - - - - - 1,843 - -
- ------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1999 4,511,605 18,000,000 - $45 $180 $1,705,841 $ - $8,416
============================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
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 (80.0% at December
31, 1999 and 79.96% at December 31, 1998) 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 (58.1% at December 31,
1999 and 58.5% at December 31, 1998) United Television, Inc. (UTV),
which operates seven television stations, one of which was acquired in
July 1999.
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. On March 20, 2000, BHC elected to sell its
50% interest in UPN to Viacom, and expects to close the transaction by
March 31, 2000. As a result of the sale, BHC will have no further
ownership interest in the network or obligation to fund UPN's
operations. See Note 10.
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 has
elected to present Comprehensive Income 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 and assumptions. Actual
results could differ. Certain prior year amounts have been restated
to conform with the 1999 presentation.
(B) FINANCIAL INSTRUMENTS
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, 1999:
U.S. Government
securities $1,149,089 $ 35 $2,520 $1,146,604
Other 54,126 21,089 2,675 72,540
- ---------------------------------------------------------------------
$1,203,215 $21,124 $5,195 $1,219,144
=====================================================================
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
=====================================================================
Of the U.S. Government securities held at December 31, 1999, 98%
mature within one year and all within 16 months.
Certain additional information related to BHC's marketable
securities as of and for the years ended December 31, 1999, 1998 and
1997 is as follows:
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------
Sales proceeds $463,317 $414,133 $1,002,103
Realized gains 33,153 6,018 1,256
Realized losses 30 702 177
Net unrealized gain 15,929 33,656 13,603
Adjustment for unrealized
gain, net of deferred income
taxes and minority interest $ 8,416 $ 20,126 $ 7,949
======================================================================
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, 1999. 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, 1999 are $45,997,000, $26,548,000, $11,331,000 and $496,000 in
2001, 2002, 2003 and thereafter, respectively. The net present value
at December 31, 1999 of such payments, based on an 8.5% discount rate,
was approximately $68,400,000. 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 stations WRBW and WUTB, the
assets of which were acquired in 1999 and 1998, respectively, and are
being amortized on a straight-line basis over 40-year periods.
Accumulated amortization of intangible assets totalled $88,861,000 at
December 31, 1999 and $76,984,000 at December 31, 1998.
(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 $44,222,000 in 1999, $47,654,000
in 1998 and $43,944,000 in 1997. Barter expense in each year
approximated barter revenue.
(G) EARNINGS PER SHARE
Basic per share amounts have been computed by dividing net income
by the weighted average number of common shares outstanding during
each year. Diluted per share amounts have been computed by dividing
net income, less the adjustment for dilution of UTV net income
($94,000 in 1999, $103,000 in 1998 and $179,000 in 1997) resulting
from the assumed exercise 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 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 Statement of Financial Accounting Standards
(SFAS) 123, BHC net income would have decreased by $545,000, or $.02
per share ($.02 per share diluted), in 1999, increased by $290,000, or
$.01 per share ($.01 per share diluted), in 1998 and decreased by
$398,000, or $.02 per share ($.01 per share diluted), in 1997. 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 dditional options may be granted in future years.
(I) SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURE OF NONCASH
INVESTING ACTIVITIES
Cash paid for income taxes totalled $35,900,000 in 1999,
$31,000,000 in 1998 and $79,500,000 in 1997.
The 1997 distribution from UPN to BHC was net of approximately
$38,800,000, representing additional BHC Capital contributions.
NOTE 2
- ----------------------------------------------------------------------
UNITED PARAMOUNT NETWORK:
In July 1994, BHC, along with Viacom Inc.'s Paramount Television
Group, formed the United Paramount Network, a 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. On
March 20, 2000, BHC elected to sell its 50% interest in UPN to Viacom,
and expects to close the transaction by March 31, 2000. As a result of
the sale, BHC will have no further ownership interest in the network
or obligation to fund UPN's operations. See Note 10.
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 $106,550,000 in 1999 and
$88,100,000 in 1998, and BHC's pro rata share of UPN losses in those
years, totalled $9,821,000 at December 31, 1999 and $615,000 at
December 31, 1998, and is included in Investments on the accompanying
Consolidated Balance Sheets. Condensed consolidated financial
statements of UPN are as follows:
Balance Sheets
December 31,
-------------------------
(In Thousands) 1999 1998
- -------------------------------------------------------------------
Current assets $ 85,531 $ 92,934
Other assets 30,826 27,305
- -------------------------------------------------------------------
$116,357 $120,239
===================================================================
Current liabilities $ 96,715 $119,008
Partners capital 19,642 1,231
- -------------------------------------------------------------------
$116,357 $120,239
===================================================================
Statements of Operations
Year ended December 31,
------------------------------------
(In Thousands) 1999 1998 1997
- --------------------------------------------------------------------
Operating revenues* $134,127 $ 96,401 $ 89,997
Operating expenses* 325,845 275,165 261,962
- --------------------------------------------------------------------
Operating loss (191,718) (178,764) (171,965)
Other income (expense), net (2,970) 1,571 1,768
- --------------------------------------------------------------------
Net loss $(194,688) $(177,193) $(170,197)
====================================================================
* 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) 1999 1998 1997
- ---------------------------------------------------------------------
Depreciation and amortization $751 $2,069 $1,794
Capital expenditures $454 $1,565 $ 467
NOTE 3
- ----------------------------------------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
December 31,
-------------------------
(In Thousands) 1999 1998
- -------------------------------------------------------
Accounts payable $ 6,485 $ 6,490
Accrued expenses -
Deferred barter revenue 39,754 38,824
Payroll and compensation 34,931 27,584
Other 27,265 20,355
- -------------------------------------------------------
$ 108,435 $ 93,253
=======================================================
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 increased to 80% (representing 97.6% of BHC's voting power)
from 60%. No additional shares were acquired by BHC during 1999. At
December 31, 1999, 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
$828,000 in 1999, $7,010,000 in 1998 and $2,755,000 in 1997, proceeds
to UTV of $4,849,000 in 1999, $3,579,000 in 1998 and $3,939,000 in
1997 from the exercise of stock options, and UTV dividend payments of
$4,708,000 in 1999, $4,688,000 in 1998 and $4,687,000 in 1997,
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 $3,999,000 in 1999, $3,888,000 in 1998 and $3,434,000 in
1997.
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) 1999 1998
- -----------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 59,181 $ 49,681
Service cost 4,065 4,187
Interest cost 3,931 3,574
Actuarial (gain)/loss (7,825) 2,156
Amendments - 471
Benefits paid (2,430) (888)
- -----------------------------------------------------------------
Benefit obligation at end of year 56,922 59,181
- -----------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year 37,219 32,633
Actual return on plan assets 3,082 3,649
Employer contributions 4,139 1,825
Benefits paid (2,430) (888)
- -----------------------------------------------------------------
Fair value of plan assets at
end of year 42,010 37,219
- -----------------------------------------------------------------
Plan assets less than projected
benefit obligation (14,912) (21,962)
Unrecognized initial net asset (34) (84)
Unrecognized prior service cost 699 746
Unrecognized net actuarial gain (9,308) (1,313)
- -----------------------------------------------------------------
Pension liability $(23,555) $(22,613)
=================================================================
Assumptions used in accounting for pension plans for each year are as
follows:
1999 1998 1997
Discount rate at end of year 7.50% 6.75% 7.25%
Rate of increase in future compensation
levels 4.00% 4.00% 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 $10,456,000, $13,972,000, and $0, respectively, at
December 31, 1999, and $27,464,000, $35,883,000, and $14,973,000,
respectively, at December 31, 1998.
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 $10,959,000 in 1999,
$5,212,000 in 1998 and $8,811,000 in 1997.
NOTE 6
- ----------------------------------------------------------------------
INCOME TAXES:
Income taxes are provided in the accompanying Consolidated
Statements of Income as follows:
Year ended December 31,
---------------------------------
(In Thousands) 1999 1998 1997
- --------------------------------------------------------------------
Current:
Federal $ 34,300 $ 24,700 $ 61,900
State 9,700 8,300 18,400
- --------------------------------------------------------------------
44,000 33,000 80,300
- --------------------------------------------------------------------
Deferred:
Federal (2,300) (2,000) 20,600
State 200 500 100
- --------------------------------------------------------------------
(2,100) (1,500) 20,700
- --------------------------------------------------------------------
$ 41,900 $ 31,500 $101,000
====================================================================
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) 1999 1998 1997
- ----------------------------------------------------------------------
Taxes at federal statutory rate $ 38,716 $ 30,625 $ 87,727
State income taxes, net 6,435 5,720 12,025
Amortization of intangible assets 3,125 3,125 3,127
Realization of tax benefit (6,500) (8,500) -
Other 124 530 (1,879)
- ----------------------------------------------------------------------
$ 41,900 $ 31,500 $101,000
======================================================================
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) 1999 1998
- ---------------------------------------------------------------------
Accrued liabilities not deductible until paid $19,664 $18,142
Film contract rights 8,254 8,325
- ----------------------------------------------------------------------
Deferred tax assets 27,918 26,467
- ----------------------------------------------------------------------
Investments (16,919) (18,772)
Other intangibles (3,324) (1,589)
Property and equipment (2,158) (2,380)
SFAS 115 adjustment (5,851) (12,031)
- ----------------------------------------------------------------------
Deferred tax liabilities (28,252) (34,772)
- ----------------------------------------------------------------------
Net deferred tax liabilities $ (334) $(8,305)
======================================================================
During 1999, BHC became a member of the Chris-Craft affiliated
group and, accordingly, will be included in Chris-Craft's consolidated
federal income tax return. Pursuant to the terms of a tax sharing
agreement with Chris-Craft, BHC's federal income tax provision
continues to be computed on a separate company basis. The related
benefits or liabilities which are ultimately realized through Chris-
Craft are included in the income tax accounts set forth in the
accompanying Consolidated Balance Sheets. As of December 31, 1999, the
federal obligation payable to Chris-Craft was approximately $10.6
million.
NOTE 7
- ----------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES:
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 $278,000,000 at December 31, 1999 (including $78,300,000
applicable to UTV).
At December 31, 1999, UTV remains obligated for possible future
consideration relating to the purchase of WRBW of up to $25,000,000.
In April 1999, a jury awarded damages totalling $7.3 million
(approximately $8.4 million including legal fees and interest through
March 2000) to a former WWOR employee who filed suit alleging
discrimination by the station. The station and its counsel believe the
award to be unjustified and have filed an appeal which is expected to
be heard in late 2000. It is not possible to reasonably estimate the
amount, if any, which ultimately will be paid. Accordingly, no amount
has been reserved in BHC's financial statements relating to this
matter.
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 considered reasonable and paid Chris-Craft of
$12,000,000 in 1999, 1998 and 1997, 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,
its television business, 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.
NOTE 10
- ----------------------------------------------------------------------
SUBSEQUENT EVENT:
On March 20, 2000, BHC elected to sell its 50% interest in UPN to
Viacom for a $5,000,000 cash payment, under the "buy-sell" provisions
of the UPN Joint Venture Agreement, which Viacom had triggered. On
March 16, 2000, a New York State Supreme Court upheld Viaco's exercise
of the buy-sell in a lawsuit brought by BHC that sought to enjoin the
Viacom- CBS merger as a violation of the non-compete provision of the
Joint Venture Agreement. The sale is expected to close by March 31,
2000.
As a result of the sale, BHC will have no further ownership
interest in the network or obligation to fund UPN's operations. BHC's
eight television stations that are currently affiliated with UPN will
remain affiliates after the sale. BHC expects to record a loss of
approximately $10,000,000 in connection with the sale, to be reflected
in results of operations for the three months ended March 31, 2000.
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in
the United States. 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
auditing standards generally accepted in the United States 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.
February 14, 2000, except as to Note 10 which is as of March 20, 2000
/s/ PricewaterhouseCoopers
SELECTED
FINANCIAL DATA
<TABLE>
<CAPTION>
(In Thousands of
Dollars Except As of and for the Year ended December 31,
per Share Data) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operating revenues $ 469,347 $ 445,850 $ 443,499 $ 446,292 $ 454,702
================================================================================
Operating income $ 102,156 $ 96,729 $ 101,338 $ 107,148 $ 118,579
Interest and other
income 105,805 79,366 82,809 81,849 82,483
Equity in United
Paramount Network
loss (97,344) (88,597) (87,430) (146,313) (129,303)
Gain on change of
ownership in United
Paramount Network - - 153,933 - -
Income taxes (41,900) (31,500) (101,000) (21,000) (18,800)
Minority interest (18,184) (16,425) (18,473) (17,448) (15,902)
- --------------------------------------------------------------------------------
Net income $ 50,533 $ 39,573 $ 131,177 $ 4,236 $ 37,057
================================================================================
Earnings per share -
Basic $ 2.24 $ 1.75 $ 5.62 $ .18 $ 1.51
Diluted 2.24 1.75 5.61 .17 1.50
Cash dividends
declared per share 1.00 1.00 1.00 - 1.00
Cash and marketable
securities 1,336,328 1,403,245 1,487,280 1,391,992 1,499,365
Film contract rights 151,369 123,502 121,977 144,034 145,902
Investments 101,371 67,299 47,594 46,944 10,065
Total assets 2,224,448 2,142,601 2,142,488 2,097,263 2,159,010
Long-term debt - - - - -
Minority interest 160,550 139,876 115,473 95,227 95,252
Shareholders'
investment 1,714,482 1,696,327 1,724,954 1,705,533 1,781,893
Book value per share $ 76.16 $ 75.35 $ 75.35 $ 71.95 $ 73.14
</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 29, 2000, there were
6,118 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
- ----------------------------------------------------------------------
1999
High 129 132 1/8 139 5/8 169
Low 107 111 1/2 123 1/4 138
- ----------------------------------------------------------------------
1998
High 142 145 5/16 140 3/4 122
Low 125 3/8 135 1/8 108 102 9/16
- ----------------------------------------------------------------------
BHC paid special cash dividends of $2.00 per share in February
2000 and $1.00 per share in February 1999. 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, 1999
Operating revenues $106,495 $118,369 $114,293 $130,190 $469,347
Operating income 20,231 30,026 25,611 26,288 102,156
Interest and other income 18,746 24,173 18,357 44,529 105,805
Equity in United Paramount
Network loss (30,150) (27,188) (16,900) (23,106) (97,344)
Income before income taxes
and minority interest 8,827 27,011 27,068 47,711 110,617
Net income 1,980 10,718 11,742 26,093 50,533
Earnings per share -
Basic .09 .48 .52 1.16 2.24
Diluted $ .09 $ .47 $ .52 $ 1.16 $ 2.24
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
</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 totaled $1.34 billion at
December 31, 1999, 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 $1.1 million in 1999 and by $12.3
million in 1998), and is dependent upon the mix of programs aired and
payment terms of the stations' contracts. Reflecting such amounts,
broadcast cash flow in 1999 increased 17%, while station earnings
increased 7%, as explained below. Although broadcast cash flow is
often used in the broadcast television industry as an ancillary
measure, it is not synonymous with operating cash flow computed in
accordance with generally accepted accounting principles, and should
not be considered alone or as a substitute for measures of performance
computed in accordance with generally accepted accounting principles.
BHC's cash flow additionally reflects earnings associated with
its cash and marketable securities, which balances declined slightly,
to $1.34 billion at December 31, 1999 from $1.40 billion at December
31, 1998. Such $66.9 million decline was incurred despite 1999
operating cash flow of $154.3 million, primarily due to the $61.3
million cash acquisition of television station WRBR, UPN funding
totalling $106.6 million, capital expenditures totalling $19.6 million
and the payment by BHC of a special dividend totalling $22.5 million.
A special $2.00 per share cash dividend, aggregating $45.0
million, was paid in February 2000. Special cash dividends of $1.00
per share 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.
During the period from April 1990 through December 31, 1998, BHC
expended $516.5 million to purchase 6,895,590 of its Class A common
shares, including 226,503 shares in 1998 from United Television, Inc.,
BHC's 58% owned subsidiary. No additional shares have been purchased
by BHC in 1999, and 185,497 Class A shares remained authorized for
purchase at December 31, 1999. During the four year period ended
December 31, 1999, UTV expended $43.4 million acquiring its own common
shares, of which $0.8 million was expended in 1999, and, at December
31, 1999, 721,249 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 July 1999, UTV purchased the assets of UHF
television station WRBW, Channel 65, a UPN affiliate in Orlando,
Florida, for $61.3 million in cash and possible future consideration.
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. Since then, BHC and Viacom have shared equally
UPN's losses and funding requirements. On March 20, 2000, BHC elected
to sell its 50% interest in UPN to Viacom, and expects to close the
transaction by March 31, 2000. As a result of the sale, BHC will have
no further ownership interest in the network or obligation to fund
UPN's operations. See Note 10. UPN incurred start-up losses
of $194.7 million in 1999, $177.2 million in 1998, $170.2 million
in 1997, $146.3 million in 1996 and $129.3 million in 1995. BHC
funding of UPN totalled $106.6 million in 1999, $88.1 million in 1998
and $48.2 million in 1997.
BHC's television stations make commitments for programming that
will not be available for telecasting until future dates. At December
31, 1999, commitments for such programming totalled approximately
$278.0 million, including $78.3 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, 1999 (including any related to UPN) were not material.
During 1999, BHC stations continued the process of converting to
digital television (DTV). This conversion requires the purchase of
digital transmitting equipment to telecast over newly assigned
frequencies. KCOP in Los Angeles, KBHK in San Francisco and KTVX in
Salt Lake City made the initial conversion to DTV signal transmission
during 1999. This conversion rollout is expected to take a number of
years and will be subject to competitive market conditions. BHC
expects that its expenditures for 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.
Year 2000 issues did not have a material effect on BHC business,
results of operations, or financial condition, and the compliance cost
was immaterial.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, 1999
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 $1,149,089 $1,146,604
Equity securities $ 54,126 $ 72,540
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 of which mature in 16 months.
RESULTS OF OPERATIONS - 1999 VERSUS 1998
BHC net income in 1999 rose to $50,533,000, or $2.24
per share ($2.24 per share diluted), from net income in 1998 of
$39,573,000, or $1.75 per share ($1.75 per share diluted). The 28%
increase in net income is mostly attributable to marketable securities
gains.
Television station earnings in 1999 increased 7%, to $131,808,000
from $123,123,000, and rose 10% excluding expense associated with
stock price based retirement plans. The increase in station earnings
primarily reflects growth in station operating revenues, which more
than offset modest increases in station operating expenses. Station
operating revenues rose 5%, to $459,938,000 from $436,664,000, and
same station operating revenues rose 4%. Station operating revenues
were positively affected by generally strong demand for television
advertising time, as well as the generally positive impact of UPN's
improved competitive position on the prime time results of BHC's eight
UPN affiliates. Nonetheless, several BHC stations recorded lower
operating revenues in 1999. Station operating revenues in 1998 include
retroactive network compensation recorded by our NBC affiliate upon
finalization of a long-term affiliation agreement. Such compensation
was offset by certain copyright royalty revenues recorded in 1999.
The increase in station earnings was partially offset by a
decline, to $8,777,000 from $10,202,000, in earnings at BHC's
television production subsidiaries, and a $1.1 million increase in
corporate office expense. Operating income in 1999 accordingly rose
6%, to $102,156,000 from $96,729,000. Excluding stock price based
retirement plan expense, operating income increased 10% in 1999.
UPN's loss in 1999 widened to $194,688,000 from $177,193,000,
reflecting the expansion of the network's prime time schedule to five
weekday evenings from three during most of 1998, as well as ratings
shortfalls and expenses related to cancelled programs earlier in 1999.
BHC's 50% share of UPN's loss accordingly rose to $97,344,000 from
$88,597,000 in 1998. On March 20, 2000, BHC elected to sell its 50%
interest in UPN to Viacom, and expects to close the transaction by
March 31, 2000. As a result of the sale, BHC will have no further
ownership interest in the network or obligation to fund UPN's
operations. See Note 10.
Interest and other income, which consists mostly of amounts
earned on cash and marketable securities holdings, rose significantly
in 1999, to $105,805,000 from $79,366,000. The increase reflects a
$27.8 million increase, to approximately $33.1 million from
approximately $5.3 million, in marketable securities gains. Interest
income declined slightly in 1999, due to a modest decline in the
average amount of funds invested.
BHC's effective income tax rate reflects in both years the
realization of certain income tax benefits.
Minority interest reflects the interest of shareholders other
than BHC in the net income of UTV, 58.1% owned by BHC at December 31,
1999 and 58.5% owned by BHC at December 31, 1998 and December 31,
1997.
Earnings per share amounts prior to 1999 reflect reductions
in weighted average common shares outstanding resulting from purchases
by BHC of its Class A common shares.
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 through which BHC reduced its
UPN ownership interest to 50% from 100%. See Note 10. 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 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 costs 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.
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.
Quarterly Financial Information (Unaudited)
First Second Third Fourth
(In thousands of dollars Quarter Quarter Quarter Quarter Year
except per share data)
Year Ended December 31, 1999
- ----------------------------
Operating revenues $111,460 $123,825 $119,804 $136,458 $491,547
Operating income 19,566 27,687 24,351 22,593 94,197
Interest and other
income, net 18,676 24,464 18,190 44,853 106,183
Equity in United
Paramount Network
loss (30,150) (27,188) (16,900) (23,106) (97,344)
Income before income
taxes and minority
interest 8,092 24,963 25,641 44,340 103,036
Net income 748 6,722 7,761 27,202 42,433
Earnings per share -
Basic .02 .19 .27 .78 1.21
Diluted $ .02 $ .15 $ .18 $ .62 $ .97
Year Ended December 31, 1998
Operating revenues $104,974 $125,685 $107,352 $129,082 $467,093
Operating income 9,340 34,488 24,639 26,203 94,670
Interest and other
income, net 19,711 20,013 19,983 20,630 80,337
Equity in United
Paramount Network
loss (19,910) (22,471) (10,438) (35,778) (88,597)
Income before income
taxes and minority
interest 9,141 32,030 34,184 11,055 86,410
Net income 1,770 12,122 14,505 1,073 29,470
Earnings per share -
Basic .05 .35 .42 .03 .84
Diluted $ .04 $ .28 $ .33 $ .02 $ .67
<TABLE>
Selected Financial Data
<CAPTION>
(In thousands of
dollars except per As of and for the year ended December 31,
share data) ----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 491,547 $ 467,093 $ 464,646 $ 465,695 $ 472,081
Operating income $ 94,197 $ 94,670 $ 95,525 $ 103,268 $ 110,633
Interest and other
income, net 106,183 80,337 80,556 81,879 83,949
Equity in United
Paramount Network
loss (97,344) (88,597) (87,430) (146,313) (129,303)
Gain on change of
ownership in United
Paramount Network - - 153,933 - -
Income taxes (32,300) (32,500) (99,600) (19,500) (17,600)
Minority interest (28,303) (24,440) (49,483) (18,522) (25,714)
Net income $ 42,433 $ 29,470 $ 93,501 $ 812 $ 21,965
Earnings per share -
Basic $ 1.25 $ .87 $ 2.78 $ .01 $ .66
Diluted 1.00 .69 2.20 .01 .51
Cash and marketable
securities 1,359,668 1,415,543 1,501,929 1,395,179 1,523,438
Working capital 1,353,942 1,387,978 1,486,556 1,418,085 1,531,416
Film contract
rights 151,369 123,502 121,977 144,034 145,902
Investments 104,176 69,881 50,130 48,194 10,065
Total assets 2,345,985 2,245,423 2,226,429 2,137,259 2,203,853
Long-term debt - - - - -
Minority interest 503,447 479,820 484,268 506,260 560,326
Shareholders'
investment $1,441,803 $1,408,469 $1,383,180 $1,288,918 $1,319,020
</TABLE>
EXHIBIT 21
The following are the registrant's subsidiaries, other than
subsidiaries that, if considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary:
NAME OF SUBSIDIARY JURISDICTION
OF
INCORPORATION
Chris-Craft Television, 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
UTV of Orlando, Inc. Delaware
United Television Sales, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FORM 10K FOR THE YEAR ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 117184
<SECURITIES> 1219144
<RECEIVABLES> 103730
<ALLOWANCES> 4466
<INVENTORY> 0
<CURRENT-ASSETS> 1596840
<PP&E> 175109
<DEPRECIATION> 113231
<TOTAL-ASSETS> 2224448
<CURRENT-LIABILITIES> 249868
<BONDS> 0
0
0
<COMMON> 225
<OTHER-SE> 1714257
<TOTAL-LIABILITY-AND-EQUITY> 2224448
<SALES> 0
<TOTAL-REVENUES> 469347
<CGS> 0
<TOTAL-COSTS> 367191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 110617
<INCOME-TAX> 41900
<INCOME-CONTINUING> 50533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50533
<EPS-BASIC> 2.24
<EPS-DILUTED> 2.24
</TABLE>
