<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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: 0-27000
ARGYLE TELEVISION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2717523
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 CONCORD PLAZA, SUITE 700 (210) 828-1700
SAN ANTONIO, TEXAS 78216 (Registrant's telephone number,
(Address of principal executive offices) including area code)
-------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
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
As of August 14, 1996, the registrant had 11,346,914 shares of common stock
outstanding, consisting of 3,846,914 shares of Series A Common Stock, par value
$.01 per share, 200,000 shares of Series B Common Stock, par value $.01 per
share, and 7,300,000 shares of Series C Common Stock, par value $.01 per share.
<PAGE>
ARGYLE TELEVISION, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at
December 31, 1995 and June 30, 1996
(Unaudited)........................................ 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1995
and 1996 (Unaudited)............................... 5
Condensed Consolidated Statement of
Stockholders' Equity for the six months
ended June 30, 1996 (Unaudited).................... 6
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1995 and 1996
(Unaudited)........................................ 7
Notes to Condensed Consolidated Financial
Statements (Unaudited)............................. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................... 17
Item 2. Changes in Securities............................... 17
Item 3. Defaults Upon Senior Securities..................... 17
Item 4. Submission of Matters to a Vote of Security
Holders............................................. 17
Item 5. Other Information................................... 17
Item 6. Exhibits and Reports on Form 8-K.................... 17
SIGNATURES........................................................ 18
</TABLE>
2
<PAGE>
ARGYLE TELEVISION, INC.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
(UNAUDITED)
---------------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,206 $ 2,878
Accounts receivable, net 11,362 15,518
Barter program rights 5,102 4,416
Program rights 4,611 3,165
Other 1,139 1,279
---------------------------------
Total current assets 24,420 27,256
Property, plant, and equipment, net 32,634 38,707
Intangible assets:
FCC licenses 112,634 121,521
Network affiliation agreements 107,126 124,255
Other intangible assets 10,495 16,321
---------------------------------
230,255 262,097
Less accumulated amortization (9,880) (18,445)
---------------------------------
220,375 243,652
Other assets:
Deferred acquisition and financing
costs, net 6,251 6,037
Barter program rights, noncurrent 2,249 2,554
Program rights, noncurrent 3,299 2,937
Other 1,913 1,743
---------------------------------
Total assets $291,141 $322,886
=================================
</TABLE>
See accompanying notes.
3
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
(UNAUDITED)
-----------------------------------
(In Thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 7,019 $ 7,486
Barter program rights payable 5,270 4,666
Program rights payable 3,659 3,520
Other 647 395
-----------------------------------
Total current liabilities 16,595 16,067
Barter program rights payable 2,249 2,554
Program rights payable 3,650 2,641
Other liabilities 2,354 829
Long-term debt 150,000 161,500
Deferred tax liability - 2,326
Stockholders' equity:
Series A common stock, par value $.01 per
share,35,000,000 shares authorized
3,846,914 shares issued and outstanding 36 38
Series B common stock, par value $.01 per
share, 200,000 shares authorized 200,000
shares issued and outstanding 2 2
Series C common stock, par value $.01 per
share, 14,800,000 shares authorized
7,300,000 shares issued and outstanding 73 73
Series A preferred stock, par value $.01 per
share, 1,000,000 shares authorized, 10,938
shares issued and outstanding - 1
Series B preferred stock, par value $.01 per
share, 1,000,000 shares authorized, 10,938
shares issued and outstanding - 1
Additional paid-in capital 132,039 159,829
Retained earnings (deficit) (15,857) (22,975)
-----------------------------------
Total stockholders' equity 116,293 136,969
-----------------------------------
Total liabilities and stockholders' $291,141 $322,886
equity ===================================
</TABLE>
See accompanying notes.
4
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30
----------------------------------------
1995 1996 1995 1996
----------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenues $10,464 $18,562 $18,951 $34,057
Station operating expenses 4,471 9,474 9,346 18,372
Amortization of program rights 854 1,282 1,766 2,571
Depreciation and amortization 2,656 5,738 4,528 10,724
----------------------------------------
Station operating income 2,483 2,068 3,311 2,390
Corporate general and administrative
expenses 349 884 855 1,867
Non-cash compensation expense 30 168 30 337
----------------------------------------
Operating income 2,104 1,016 2,426 186
Interest expense, net 2,184 3,804 4,093 7,304
----------------------------------------
(Loss) before extraordinary item (80) (2,788) (1,667) (7,118)
Extraordinary item, loss on early
retirement of debt 2,704 - 2,704 -
----------------------------------------
Net (loss) $(2,784) $(2,788) $(4,371) $(7,118)
========================================
Less: preferred stock dividends - $ 118 - $ 118
----------------------------------------
Net (loss) attributable to common
shareholders - $(2,906) - $(7,236)
========================================
(Loss) from continuing operations per
common share N/A $ (0.26) N/A $ (0.65)
Number of shares used in calculation N/A 11,169 N/A 11,144
</TABLE>
See accompanying notes.
5
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON
AND ADDITIONAL RETAINED
PREFERRED PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
-------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $111 $132,039 $(15,857) $116,293
Issuance of 227,654 shares of Series A
common stock 2 5,719 - 5,721
Issuance of 10,938 shares of Series A
preferred stock 1 10,938 - 10,939
Issuance of 10,938 shares of Series B
preferred stock 1 10,938 - 10,939
Costs relating to issuance of common
stock - (24) - (24)
Compensation element of stock
options - 337 - 337
Dividends paid - (118) - (118)
Net loss - - (7,118) (7,118)
-------------------------------------------
Balances at June 30, 1996 $115 $159,829 $(22,975) $136,969
===========================================
</TABLE>
See accompanying notes.
6
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------
1995 1996
-----------------------
OPERATING ACTIVITIES (In Thousands)
<S> <C> <C>
Net (loss) $ (4,371) $ (7,118)
Adjustments to reconcile net
(loss) to net cash provided by
(used in) operating activities:
Extraordinary item, loss on
early retirement of debt 2,704 -
Depreciation 597 2,117
Amortization of intangible
assets 3,931 8,607
Amortization of deferred
financing costs 310 372
Amortization of program rights 1,766 2,571
Program payments (1,642) (1,909)
Compensation element of stock
options 30 337
Fair value adjustments of
interest rate protection
agreements - 1,021
Changes in operating assets and
liabilities, net (626) (6,120)
-----------------------
Net cash provided by (used in)
operating activities 2,699 (122)
INVESTING ACTIVITIES
Acquisition of stations (135,545) (5,889)
Purchases of property, plant and
equipment, net (554) (3,590)
Partial payment on relocation of studio - (927)
Acquisition costs (282) (44)
Escrow deposit (Buffalo acquisition) (5,225) -
-----------------------
Net cash (used in) investing activities (141,606) (10,450)
FINANCING ACTIVITIES
Financing costs (8,349) (114)
Issuance of common stock 74,999 (24)
Proceeds from issuance of long-term debt 168,750 15,500
Payment of long-term debt (81,500) (4,000)
Dividends paid - (118)
----------------------
Net cash provided by financing
activities 153,900 11,244
Increase in cash and cash equivalents 14,993 672
Cash at beginning of period 2 2,206
----------------------
Cash and cash equivalents at end of
period $ 14,995 $ 2,878
======================
SUPPLEMENTAL CASH FLOW INFORMATION:
Finalization of purchase price
valuation affecting equipment and FCC
licenses $ - $ 1,277
Businesses acquired in purchase
transaction:
Fair market value of assets acquired $183,420 $ 38,259
Liabilities assumed (13,328) (4,773)
Note payable issued to seller (34,547) -
Issuance of preferred stock - (21,876)
Issuance of common stock - (5,721)
----------------------
Net cash paid for acquisitions $135,545 $ 5,889
======================
</TABLE>
See accompanying notes.
7
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
1. SUMMARY OF ACCOUNTING POLICIES
The condensed consolidated financial statements include the accounts of
Argyle Television, Inc. ("Company") and its wholly owned subsidiaries. All
significant intercompany accounts have been eliminated in consolidation.
References herein to the Company include its subsidiaries, unless the context
requires otherwise.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
three or six-month periods ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996.
2. ACQUISITIONS
On June 11, 1996, the Company acquired KHBS and its S-2 satellite KHOG
("Arkansas Stations"). As consideration, the Company issued (i) 227,654 shares
of the Company's Series A Common Stock and (ii) 10,938 shares of the Company's
Series A and 10,938 shares of Series B Preferred Stock (see Note 5). The
Company also paid approximately $5.9 million in cash for certain real estate, a
non-competition covenant, and affiliated debt associated with this acquisition.
The acquisition will be accounted for using the purchase method of
accounting. The Company has not yet determined the final allocation of the
purchase price and, accordingly, the amounts included in the financial
statements may differ from the amounts ultimately determined.
Unaudited pro forma results of operations, reflecting combined historical
results for the Northstar Stations, and Hawaii Stations, the Buffalo Station and
the Arkansas Stations ("Six Stations") as if the acquisitions occurred at the
beginning of the respective periods are as follows:
<TABLE>
<CAPTION>
SIX STATIONS
SIX MONTHS ENDED JUNE 30
------------------------
1995 1996
------------------------
(In Thousands)
<S> <C> <C>
Total revenues $37,261 $37,519
(Loss) from continuing operations
attributable to common shareholders $(9,516) $(8,182)
Net (loss) from continuing operations
per share attributable to common
shareholders $ (0.84) $ (0.72)
Weighted average number of shares used
in calculations 11,347 11,347
</TABLE>
8
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
The above pro forma results are presented in response to applicable
accounting rules relating to business acquisitions and are not necessarily
indicative of the actual results that would be achieved had each of the stations
been acquired at the beginning of the periods presented, nor are they indicative
of future results of operations.
3. LONG-TERM DEBT
Under the Old Bank Credit Agreement and its subsequent amendments and
restatements and under the terms of the October 1995 Credit Agreement, the
Company is required to enter into interest rate protection agreements to modify
the interest characteristics of a portion (approximately 50%) of its outstanding
borrowings thereunder from a floating rate to a fixed rate. SEE ITEM 2.
LIQUIDITY AND CAPITAL RESOURCES.
Additional information regarding these interest rate protection agreements in
effect at June 30, 1996 follows:
<TABLE>
<CAPTION>
Notional Average Average
Amount of Receive Pay
Agreements Rate Rate Fair Value
---------------------------------------------------------
Interest rate swap
agreements:
<S> <C> <C> <C> <C>
Fixed rate agreement $20,000,000 8.00% minus - $ 263,524
LIBOR
Floating rate agreement $20,000,000 LIBOR minus 8.00% minus $(270,387)
8.50% LIBOR
Fixed rate agreements $35,000,000 LIBOR 6.99% $(671,736)
</TABLE>
In compliance with FASB Statement 119, the fair values of these agreements,
$263,524 and $942,123 are included in other assets and other liabilities,
respectively. In addition, approximately $11.5 million of the notional amount of
the agreements was recorded using hedge accounting.
The Company is exposed to credit loss in the event the other parties on the
above agreements do not perform, but the Company does not anticipate non-
performance by any of these counter parties, all of which are major financial
institutions. The amount of such exposure is generally the unrecognized gains.
9
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
4. INCOME TAXES
The Company has recorded a deferred tax liability to account for the tax
effects of differences between assigned values and tax bases of assets acquired
from the Arkansas Stations in the purchase business combination. The deferred
tax liability related to the acquisition is approximately $10.75 million. A
$95,154 deferred tax benefit related to this liability was realized in the
current period.
The Company has deferred tax assets related to acquired intangible assets and
net operating loss carryforwards of approximately $320,000 and $8.0 million,
respectively. The Company sustained a net operating loss for tax purposes of
approximately $7.75 million in the six months ended June 30, 1996. Net operating
loss carryforwards of approximately $14.0 million and $7.75 million will expire
in 2010 and 2011, respectively. The decrease in the valuation allowance from
approximately $8.3 million to zero recognizes the Company's ability to offset
the realization of the deferred tax liability related to the acquisition of the
Arkansas Stations.
5. COMMON AND PREFERRED STOCK
On June 11, 1996, the Company issued 227,654 shares of the Company's Series A
Common Stock, 10,938 shares of the Company's newly created Series A Preferred
Stock, and 10,938 shares of the Company's Series B Preferred Stock in connection
with the acquisition of the Arkansas Stations.
The preferred stock pays a cash dividend at 6.5% annually. Series A
Preferred Stock is convertible at the option of the holders into Series A Common
Stock of the Company at a conversion price of $35 per share of Series A Common
Stock. In the event the holders do not convert the Series A Preferred Stock
into shares of Series A Common Stock by June 11, 2001, the Company may redeem
such Series A Preferred Stock at its stated value. Series B Preferred Stock is
redeemable by the Company at its stated value at any time after June 11, 2001.
In the event the Company does not redeem the Series B Preferred Stock by July
11, 2001, then from and after that date the holders may convert the Series B
Preferred Stock into shares of Series A Common Stock at a conversion price equal
to the then fair market value of the Series A Common Stock.
6. RELATED PARTY TRANSACTIONS
The Company has entered into separate agreements with one of its
shareholders, Argyle Television Investors, L.P., and this shareholder's general
partner, ATI General Partner, L.P. ("Partnerships"), under which the Company
provides to the Partnerships
10
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1996
personnel, office, property, services, expertise, systems and other assets and
amenities. In consideration for such, the Partnerships are required to reimburse
the Company for expenses and costs allocated to providing these services to the
Partnerships. During the three and six months ended June 30, 1996, the Company
recognized total reimbursements of $175,000 and $350,000, respectively under
these agreements. Such reimbursements are offset against corporate general and
administrative expenses in the accompanying statements of operations.
7. SUBSEQUENT EVENTS
On July 1, 1996, the Company entered into a Joint Marketing and Programming
Agreement with Clear Channel Communications, Inc. ("Clear Channel") involving
the Company's WNAC and WPRI, the CBS affiliate in Providence, Rhode Island,
owned by Clear Channel.
Under the agreement, Clear Channel will program certain air time on WNAC and
will manage the sale of commercial air time on both stations. Clear Channel will
provide certain programming and services to WNAC, including news programming.
The Company and Clear Channel each will receive 50% of the cash flows generated
by the two stations subject to certain adjustments.
In connection with this agreement, the Company paid Clear Channel in one lump
sum payment $13 million ($1.3 million per year for 10 years).
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
During the quarter ended March 31, 1995, the Company owned three
television stations -- WZZM, WNAC and WAPT ("Northstar Stations"). The Company
acquired KITV in June 1995 and WGRZ in December 1995. In June 1996, the Company
acquired KHBS and its S-2 satellite KHOG ("Arkansas Stations").
The following discussion includes a comparison of 1995 results of
operations, which includes the Northstar Stations for the three and six months
ended June 30 and KITV from June 13 to June 30, to 1996 results of operations,
which includes the Northstar Stations, KITV and WGRZ for the three and six
months ended June 30 and the Arkansas Stations for the month of June only.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
- -----------------------------------------------------------------------------
Total Revenues. Total revenues for the three months ended June 30, 1996
were $18.6 million, as compared to $10.5 million for the three months ended June
30, 1995, an increase of $8.1 million, or 77.1%. The increase in first quarter
total revenues can be attributed to the acquisitions of KITV in June 1995, WGRZ
in December 1995 and the Arkansas Stations in June 1996, which together added
$7.9 million to total revenues for the 1996 period. This revenue gain was offset
by an intentional reduction in paid programming at the Northstar Stations.
Station Operating Expenses. Station operating expenses for the three
months ended June 30, 1996 were $9.5 million, as compared to $4.5 million for
the three months ended June 30, 1995, an increase of $5.0 million, or 111.1%.
The increase was primarily attributable to the inclusion of station expenses for
KITV and WGRZ during the 1996 period and the Arkansas Stations' expenses during
the month of June 1996 and an increase in trade and barter expenses at the
Northstar stations. Station operating expenses at the Northstar Stations were
relatively even period to period.
Depreciation and Amortization. Depreciation and amortization of
intangible assets for the three months ended June 30, 1996 was $5.7 million, as
compared to $2.7 million for the three months ended June 30, 1995, an increase
of $3.0 million, or 111.1%. This increase in depreciation and amortization of
intangible assets resulted primarily from the write-up to fair market value of
the Stations' assets upon their acquisition and the inclusion of depreciation
and amortization related to KITV and WGRZ during the 1996 period, and the
Arkansas Stations during the month of June 1996. Depreciation and amortization
of intangible assets for the Northstar Stations were relatively even period to
period.
12
<PAGE>
Station Operating Income. Station operating income for the three months
ended June 30, 1996 was $2.1 million, as compared to $2.5 million for the three
months ended June 30, 1995, a decrease of $0.4 million, or 16.0%. This decrease
was primarily attributable to the increase in station operating expenses and
depreciation and amortization of intangible assets, which more than offset the
increase in revenues.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses were $0.9 million in the three months ended June 30,
1996, as compared to $0.3 million in the three months ended June 30, 1995, an
increase of $0.6 million, or 200.0%. The increase is primarily attributable to
the acquisition of KITV and WGRZ during 1995 and incremental expenses associated
with being a new company during 1995 and a public company following the
Company's initial public offering of its common stock in October 1995.
Non-cash Compensation Expense. Non-cash compensation expense of $0.2
million in the three months ended June 30, 1996 and $0.03 million in the three
months ended June 30, 1995 represents stock option compensation expense recorded
in compliance with FASB Statement 123.
Interest Expense, Net. Interest expense, net was $3.8 million for the
three months ended June 30, 1996, as compared to $2.2 million for the three
months ended June 30, 1995, an increase of $1.6 million, or 72.7%. This increase
in interest expense, net was primarily attributable to a larger outstanding debt
balance in 1996 than 1995, which was the result of the acquisitions and related
financings of KITV and WGRZ. Interest expense, net for the three months ended
June 30, 1996 was reduced by $0.4 million, which reflects the change in the fair
market value of interest rate protection agreements since March 31, 1996.
Net (Loss). As a result of the factors discussed above, the net loss for
the three months ended June 30, 1996 and for the three months ended June 30,
1995 was $2.8 million. Also, during the three months ended June 30, 1995, the
company recognized a $2.7 million extraordinary loss related to the amendment
and restatement of the Old Bank Credit Agreement.
Broadcast Cash Flow. Broadcast cash flow is defined as station operating
income, plus depreciation and amortization, plus amortization of program rights,
minus program payments. Broadcast cash flow was $7.9 million for the three
months ended June 30, 1996 as compared to $5.2 million for the three months
ended June 30, 1995, an increase of $2.7 million, or 51.9%. The broadcast cash
flow increase resulted primarily from the inclusion of KITV and WGRZ during the
1996 period and the Arkansas Stations during the month of June 1996.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
- -------------------------------------------------------------------------
Total Revenues. Total revenues for the six months ended June 30, 1996
were $34.1 million, as compared to $19.0 million for the six months ended June
30, 1995, an increase of $15.1 million, or 79.5%. The increase in total
revenues can be attributed to the acquisitions of KITV in June 1995, WGRZ in
December 1995 and the Arkansas Stations in June 1996, which together added
$15.4 million to total revenues for the 1996 period.
13
<PAGE>
This revenue gain was offset by a decrease in trade and barter revenues and an
intentional reduction in paid programming at the Northstar Stations.
Station Operating Expenses. Station operating expenses for the six months
ended June 30, 1996 were $18.4 million, as compared to $9.3 million for the six
months ended June 30, 1995, an increase of $9.1 million, or 97.8%. The increase
was primarily attributable to the inclusion of KITV and WGRZ during the 1996
period and the Arkansas Stations expenses during the month of June 1996.
Station operating expenses at the Northstar Stations were relatively even period
to period.
Depreciation and Amortization. Depreciation and amortization of
intangible assets for the six months ended June 30, 1996 was $10.7 million, as
compared to $4.5 million for the six months ended June 30, 1995, an increase of
$6.2 million, or 137.8%. This increase in depreciation and amortization of
intangible assets resulted primarily from the write-up to fair market value of
the Stations' assets upon their acquisition and the inclusion of depreciation
and amortization related to KITV and WGRZ during the 1996 period and the
Arkansas Stations during the month of June 1996. Depreciation and amortization
of intangible assets for the Northstar Stations only, for the six months ended
June 30, 1996 was $4.5 million, as compared to $4.3 million for the six months
ended June 30, 1995, an increase of $0.2 million, or 4.7%. This increase was
primarily attributable to fixed asset purchases at the Northstar Stations
throughout 1995 and the 1996 period.
Station Operating Income. Station operating income for the six months
ended June 30, 1996 was $2.4 million, as compared to $3.3 million for the six
months ended June 30, 1995, a decrease of $0.9 million, or 27.3%. This decrease
was primarily attributable to the increase in station operating expenses and
depreciation and amortization of intangible assets, which more than offset the
increase in revenues.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses were $1.9 million in the six months ended June 30, 1996,
as compared to $0.9 million in the six months ended June 30, 1995, an increase
of $1.0 million, or 111.1%. The increase was primarily attributable to the
acquisition of KITV and WGRZ during 1995 and incremental expenses associated
with being a new company during 1995 and a public company following the
Company's initial public offering of its common stock in October 1995.
Non-cash Compensation Expense. Non-cash compensation expense of $0.3
million in the six months ended June 30, 1996 and $0.03 million in the six
months ended June 30, 1995 represents stock option compensation expense recorded
in compliance with FASB Statement 123.
Interest Expense, Net. Interest expense, net was $7.3 million for the six
months ended June 30, 1996, as compared to $4.1 million for the six months ended
June 30, 1995, an increase of $3.2 million, or 78.0%. This increase in interest
expense, net was primarily attributable to a larger outstanding debt balance in
1996 than 1995, which was the result of the acquisitions and related financings
of KITV and WGRZ. Interest expense, net for the six months ended June 30, 1996
was reduced by $1.0 million, which reflects the
14
<PAGE>
change in the fair market value of interest rate protection agreements since
December 31, 1995.
Net (Loss). As a result of the factors discussed above, the net loss for
the six months ended June 30, 1996 was $7.1 million, as compared to $4.4 million
for the six months ended June 30, 1995. Also, during the six months ended June
30, 1995, the company recognized a $2.7 million extraordinary loss related to
the amendment and restatement of the Old Bank Credit Agreement.
Broadcast Cash Flow. Broadcast cash flow is defined as station operating
income, plus depreciation and amortization, plus amortization of program rights,
minus program payments. Broadcast cash flow was $13.7 million for the six
months ended June 30, 1996, as compared to $8.0 million for the six months ended
June 30, 1995, an increase of $5.7 million, or 71.3%. The broadcast cash flow
increase resulted primarily from the inclusion of KITV and WGRZ during the 1996
period and the Arkansas Stations during the month of June 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are current cash balances, cash
flow from operations and borrowing capacity under an existing bank credit
agreement. Including the Company's original private placement of equity,
initial public offering of its Series A Common Stock in October 1995 and the
November 28, 1995 exercise by the underwriters of such offering of an
overallotment option granted to such underwriters in connection with such
offering, the Company has received $131.2 million in net equity capital
contributions since inception.
In October 1995, the Company and Chase Manhattan Bank entered into an
amendment to the Old Bank Credit Agreement, which comprised the October 1995
Credit Agreement (as subsequently amended, the "October 1995 Credit Agreement").
The October 1995 Credit Agreement establishes a senior secured credit facility
in the commited amount of $215.0 million. As of June 30, 1996, there was an
$11.5 million outstanding balance under the October 1995 Credit Agreement. The
Company may borrow amounts under the October 1995 Credit Agreement from time to
time for additional acquisitions, capital expenditures and working capital,
subject to the satisfaction of certain conditions on the date of borrowing.
Under the Old Bank Credit Agreement and its subsequent amendments and
restatements, the Company was required to enter into certain interest rate
protection agreements covering approximately 50% of its floating rate debt.
Accordingly, the Company, in compliance with its covenant obligations, entered
into various appropriate swap and cap agreements in February 1995. In response
to subsequent acquisition and financing transactions, modifications were made to
the underlying swap and cap agreements.
In October 1995, the Company issued $150,000,000 of its 9 3/4% Senior
Subordinated Notes due 2005 (the "Notes"). Interest on the Notes is payable
semi-annually, and no principal payments on the Notes are due prior to their
maturity on November 1, 2005. The Notes are redeemable at the option of the
Company, in whole or in part, at any time after November 1, 2000 at specified
redemption prices. The annual interest expense associated with the Notes is
$14.6 million.
Capital expenditures for the 1995 year were $3.8 million and are $3.6
million through June 30, 1996. Capital expenditures are anticipated to be
approximately $6.5 million in 1996, including approximately $3.0 million in 1996
to be incurred in connection with the relocation of KITV's studio.
The Company anticipates that its operating cash flow, together with
amounts available to it under the October 1995 Credit Agreement, will be
sufficient to finance the operating requirements of the Stations, debt service
requirements and anticipated capital expenditures for the Company for both the
next 12 months and the foreseeable future thereafter. As of June 30, 1996, the
Company had borrowed $11.5 million under the October 1995 Credit Agreement.
15
<PAGE>
INCOME TAXES
The Company has net operating loss carryforwards of approximately $14.0
million and $7.75 million which will expire in 2010 and 2011, respectively. The
operations of the Company and its subsidiaries will be included in a
consolidated federal income tax return filed by the Company. In accordance with
the terms of a tax sharing agreement among the Company and its subsidiaries, the
Company's federal income tax liability will be computed as if the Company were
filing a separate return. To date the Company has not paid any material amount
of income taxes.
RECENT DEVELOPMENTS
On August 12, 1996, the Company announced that its Board of Directors has
determined that it is in the best interest of the Company and its stockholders
to explore how to achieve the benefits of consolidation for the Argyle station
group through a strategic alliance, possible sale of the Company or another
alternative.
16
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - Not Applicable
-----------------
ITEM 2. CHANGES IN SECURITIES
---------------------
In connection with the acquisition of the Arkansas Stations, the
Company issued 10,938 shares of its newly-created Series A Preferred
Stock and 10,938 shares of its newly-created Series B Preferred
Stock. See Note 5 to Condensed Consolidated Financial Statements
---
for a description of the material terms of such Preferred Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
-------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not
---------------------------------------------------
Applicable
ITEM 5. OTHER INFORMATION - Not Applicable
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
Exhibit 20 Press Release issued August 12, 1996
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K dated June 11, 1996 describing the
consummation of the acquisition of the Arkansas Stations.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Argyle Television, Inc.
-----------------------
Registrant
August 14, 1996 By: /s/ HARRY T. HAWKS
- --------------- ------------------------------------
Date Harry T. Hawks, Chief Financial Officer,
Assistant Secretary, and Treasurer
(Principal Financial Officer)
August 14, 1996 By: /s/ TERESA D. LOPEZ
- --------------- ------------------------------------
Date Teresa D. Lopez, Controller and
Assistant Secretary
(Principal Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
Exhibit 20 Press Release issued August 12, 1996
Exhibit 27 Financial Data Schedule
19
<PAGE>
EXHIBIT 20
[LETTERHEAD OF ARGYLE TELEVISION, INC. APPEARS HERE]
For Release: August 12, 1996 Contact: Bob Marbut
4:30 p.m. EST 210-828-1700
Argyle Television Announces it is Exploring Strategic Alternatives
------------------------------------------------------------------
San Antonio, TX ... Argyle Television, Inc. (NASDAQ: ARGL) announced that is
exploring strategic alternatives for the Company, including a possible sale.
"Since its inception at the beginning of 1995, Argyle has built a successful
television station group by making acquisitions and then bringing more effective
management, more competitive local strategies and better technology to
reposition these stations for future growth," said Bob Marbut, chairman and
chief executive officer.
"However, because of the rapid consolidation currently underway in the broadcast
industry, there is a competitive imperative for the Argyle stations to become
part of a larger group. That's because it would be difficult under current
conditions for Argyle to get big enough fast enough to become an industry
consolidator through the traditional acquisition process that had been followed
in the past.
"For these reasons, Argyle's Board of Directors has determined that it is in the
best interests of the Company and its stockholders to explore how to achieve the
benefits of consolidation for the Argyle station group through a strategic
alliance, possible sale of the Company or another alternative," he said.
Today, Argyle Television, Inc. owns and operates network-affiliated television
stations WZZM-TV, the ABC affiliate in Grand Rapids, MI; WGRZ-TV, the NBC
affiliate in Buffalo, NY; WNAC-TV, the Fox affiliate in Providence, RI, KITV-TV,
the ABC affiliate in Honolulu, HI; WAPT-TV, the ABC affiliate in Jackson, MS;
and, KHBS, the ABC affiliate in Fort Smith, AR, and its satellite KHOG, the ABC
affiliate in Fayetteville, AR. Argyle's Series A Common Stock trades on the
Nasdaq National Market System under the symbol "ARGL".
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