<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 SEPTEMBER 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 incorporation (I.R.S. Employer
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 November 7, 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
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at
December 31, 1995 and September 30, 1996
(Unaudited)................................. 3
Condensed Consolidated Statements of
Operations for the three and nine months
ended September 30, 1995 and 1996
(Unaudited)................................. 5
Condensed Consolidated Statement of
Stockholders' Equity for the nine months
ended September 30, 1996 (Unaudited)........ 6
Condensed Consolidated Statements of Cash
Flows for the nine months ended
September 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............................ 18
Item 2. Changes in Securities........................ 18
Item 3. Defaults Upon Senior Securities.............. 18
Item 4. Submission of Matters to a Vote of Security
Holders..................................... 18
Item 5. Other Information............................ 18
Item 6. Exhibits and Reports on Form 8-K............. 18
SIGNATURES...................................................... 19
<PAGE>
ARGYLE TELEVISION, INC.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
(UNAUDITED)
--------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,206 $ 3,667
Accounts receivable, net 11,362 12,856
Barter program rights 5,102 6,171
Program rights 4,611 4,596
Other 1,139 1,116
--------------------------------------
Total current assets 24,420 28,406
Property, plant, and equipment, net 32,634 39,208
Intangible assets:
FCC licenses 112,634 127,574
Network affiliation agreements 107,126 121,249
Other intangible assets 10,495 12,995
--------------------------------------
230,255 261,818
Less accumulated amortization (9,880) (23,350)
--------------------------------------
220,375 238,468
Other assets:
Deferred acquisition and financing
costs, net 6,251 5,761
Barter program rights, noncurrent 2,249 5,404
Program rights, noncurrent 3,299 4,030
Other 1,913 15,383
--------------------------------------
Total assets $291,141 $336,660
======================================
</TABLE>
See accompanying notes.
3
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
(UNAUDITED)
--------------------------------------
(In thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 7,019 $ 10,362
Barter program rights payable 5,270 6,387
Program rights payable 3,659 5,010
Other 647 236
--------------------------------------
Total current liabilities 16,595 21,995
Barter program rights payable 2,249 5,404
Program rights payable 3,650 3,871
Other liabilities 2,354 701
Long-term debt 150,000 171,500
Deferred tax liability - 2,326
Stockholders' equity:
Series A common stock, par value
$.01 per share, 35,000,000 shares
authorized 3,619,260 and 3,846,914
shares issued and outstanding,
respectively 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 at September 30, 1996 - 1
Series B preferred stock, par value
$.01 per share, 1,000,000 shares
authorized, 10,938 shares issued and
outstanding at September 30, 1996 - 1
Additional paid-in capital 132,039 159,642
Retained earnings (deficit) (15,857) (28,894)
--------------------------------------
Total stockholders' equity 116,293 130,863
--------------------------------------
Total liabilities and stockholders'
equity $291,141 $336,660
======================================
</TABLE>
See accompanying notes.
4
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30
-----------------------------------------
1995 1996 1995 1996
-----------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenues $13,140 $17,439 $32,091 $ 51,496
Station operating expenses 6,465 9,172 15,811 27,544
Amortization of program rights 970 1,137 2,736 3,708
Depreciation and amortization 3,199 6,503 7,727 17,227
-----------------------------------------
Station operating income 2,506 627 5,817 3,017
Corporate general and administrative
expenses 573 1,636 1,428 3,503
Non-cash compensation expense 170 169 200 506
-----------------------------------------
Operating income (loss) 1,763 (1,178) 4,189 (992)
Interest expense, net 3,058 4,741 7,147 12,045
-----------------------------------------
Loss before extraordinary item (1,295) (5,919) (2,958) (13,037)
Extraordinary item, loss on early
retirement of debt - - (2,708) -
-----------------------------------------
Net loss $(1,295) $(5,919) $(5,666) $(13,037)
Less: preferred stock dividends - $ (356) - $ (474)
Net loss attributable to common
shareholders $(1,295) $(6,275) $(5,666) $(13,511)
=========================================
Loss from continuing operations per
common share N/A $(.55) N/A $(1.21)
Number of shares used in calculation N/A 11,347 N/A 11,212
</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 - 506 - 506
Dividends paid - (474) - (474)
Net loss - (13,037) (13,037)
-------------------------------------------
Balances at September 30, 1996 $115 $159,642 $(28,894) $130,863
===========================================
</TABLE>
See accompanying notes.
6
<PAGE>
ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
1995 1996
-----------------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,666) $(13,037)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Extraordinary item, loss on
early retirement of debt 2,708 -
Depreciation 1,125 3,369
Amortization of intangible
assets 6,602 13,858
Amortization of deferred
financing costs 601 680
Amortization of program rights 2,736 3,708
Program payments (2,448) (2,761)
Compensation element of stock
options 200 506
Fair value adjustments of
interest rate protection
agreements - 1,082
Changes in operating assets and
liabilities, net (1,520) (933)
-----------------------
Net cash provided by operating
activities 4,338 6,472
INVESTING ACTIVITIES
Clear Channel Venture payment - (13,031)
Acquisition of stations (135,545) (5,889)
Purchases of property, plant and
equipment, net (2,598) (5,328)
Partial payment on relocation of studio - (1,854)
Acquisition costs (469) -
Other - 190
Escrow deposit (Buffalo acquisition) (5,950) -
-----------------------
Net cash (used in) investing activities (144,562) (25,912)
FINANCING ACTIVITIES
Financing costs (7,949) (101)
Issuance of common stock 74,999 (24)
Proceeds from issuance of long-term debt 170,250 28,500
Payment of long-term debt (91,500) (7,000)
Dividends paid - (474)
-----------------------
Net cash provided by financing
activities 145,800 20,901
Increase in cash and cash equivalents 5,576 1,461
Cash at beginning of period 2 2,206
-----------------------
Cash and cash equivalents at end of
period $ 5,578 $ 3,667
=======================
SUPPLEMENTAL CASH FLOW INFORMATION:
Finalization of purchase price - $ 1,277
valuation affecting equipment and FCC
licenses
Finalization of purchase price - 279
valuation affecting intangibles and
working capital
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)
SEPTEMBER 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 nine-month periods ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996.
2. ACQUISITIONS AND OTHER TRANSACTIONS
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 has been 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.
On July 1, 1996, the Company entered into a Joint Marketing and Programming
Agreement ("Clear Channel Venture") with Clear Channel Communications, Inc.
("Clear Channel") involving WNAC and WPRI, the CBS affiliate in Providence,
Rhode Island, owned by Clear Channel.
Under the agreement, Clear Channel will program certain air time, including
news programming, on WNAC and will manage the sale of commercial air time on
both stations for an initial period of 10 years. The Company and Clear Channel
each will receive 50% of the broadcast cash flows generated by the two stations
subject to certain adjustments. The Company's share of the Clear Channel
Venture broadcast cash flows is included in total revenues.
8
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
In connection with this agreement, the Company paid Clear Channel
approximately $13 million.
Unaudited pro forma results of operations, reflecting combined historical
results for WZZM, WAPT, KITV, WGRZ, the Arkansas Stations and the Company's
share of the combined broadcast cash flows from the Clear Channel Venture ("Six
Stations") as if the acquisitions and the Clear Channel Venture occurred at the
beginning of the respective periods are as follows:
<TABLE>
<CAPTION>
SIX STATIONS
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1995 1996
------------------------------
(In thousands)
<S> <C> <C>
Total revenues $ 52,080 $ 53,115
Loss from continuing operations
attributable to common shareholders $(14,062) $(14,161)
Net loss from continuing operations per
share attributable to common shareholders $ (1.24) $ (1.25)
Weighted average number of shares used
in calculations 11,347 11,347
</TABLE>
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.)
9
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
Additional information regarding these interest rate protection agreements
in effect at September 30, 1996 follows:
<TABLE>
<CAPTION>
Notional
Amount of Average Average
Agreements Receive Rate Pay Rate Fair Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swap
agreements:
Fixed rate agreement $20,000,000 8.00% minus - $ 154,353
LIBOR
Floating rate agreement $20,000,000 LIBOR minus 8.00% minus $ (94,706)
8.50% LIBOR
Fixed rate agreements $35,000,000 LIBOR 6.99% $(684,373)
</TABLE>
In compliance with FASB Statement 119, the fair values of these agreements,
net of the proportionate amounts recorded using hedge accounting, are included
in other assets and other liabilities.
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.
4. INCOME TAXES
The Company sustained a net operating loss for tax purposes of
approximately $15.35 million in the nine months ended September 30, 1996. Net
operating loss carryforwards of approximately $13.35 million and $15.35 million
will expire in 2010 and 2011, respectively.
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 newly created Series B Preferred Stock
in connection with the acquisition of the Arkansas Stations.
10
<PAGE>
ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1996
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 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
nine months ended September 30, 1996, the Company recognized total
reimbursements of $175,000 and $525,000, respectively under these agreements.
Such reimbursements are offset against corporate general and administrative
expenses in the accompanying statements of operations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
In January 1995, the Company acquired 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"). On July 1, 1996, the Company entered into
a Joint Marketing and Programming Agreement ("Clear Channel Venture") with Clear
Channel Communications, Inc. ("Clear Channel") involving WNAC and WPRI, the CBS
affiliate in Providence, Rhode Island, owned by Clear Channel. (See Note 2. to
the financial statements.)
The following discussion includes a comparison of 1995 results of
operations, which includes the Northstar Stations for the three and nine months
ended September 30, 1995, and KITV from June 13 to September 30, 1995 to 1996
results of operations, which includes WZZM, WAPT, KITV and WGRZ for the three
and nine months ended September 30, 1996; the Arkansas Stations from June 1 to
September 30, 1996; WNAC for the six months ended June 30, 1996; and the
Company's share of the Clear Channel Venture for the three months ended
September 30, 1996. The Company's share of the Clear Channel Venture broadcast
cash flows is included in total revenues.
Three Months Ended September 30, 1996 Compared to Three Months Ended September
- ------------------------------------------------------------------------------
30, 1995
- --------
Total Revenues. Total revenues for the three months ended September 30,
1996 were $17.4 million, as compared to $13.1 million for the three months ended
September 30, 1995, an increase of $4.3 million, or 32.7%. The increase in
third quarter total revenues can be attributed to the acquisitions of WGRZ in
December 1995 and the Arkansas Stations in June 1996, which together increased
total revenues by $5.3 million for the 1996 period. WZZM, WAPT and KITV total
revenues increased by $0.5 million period to period due to an increase in local
advertising sales. These revenue gains were offset by a $1.2 million decrease
in total revenues resulting from the method of reporting total revenues from the
Clear Channel Venture, which accounts for the Company's share of the Venture's
broadcast cash flow as total revenues. Also, the Northstar Stations and KITV
experienced a slight decrease in trade and barter revenues.
Station Operating Expenses. Station operating expenses for the three
months ended September 30, 1996 were $9.2 million, as compared to $6.5 million
for the three months ended September 30, 1995, an increase of $2.7 million, or
41.9%. The increase was primarily attributable to the acquisitions of WGRZ in
December 1995 and the Arkansas Stations in June 1996, which together added $3.4
million to station operating expenses. This was offset by the Clear Channel
Venture, which accounts for a $0.7 million decrease in station operating
expenses as a result of expenses being netted against total revenues.
12
<PAGE>
Depreciation and Amortization. Depreciation and amortization of
intangible assets for the three months ended September 30, 1996 was $6.5
million, as compared to $3.2 million for the three months ended September 30,
1995, an increase of $3.3 million, or 103.3%. This increase in depreciation and
amortization of intangible assets resulted primarily from the write-up of the
stations' assets to fair market value upon their acquisition and the inclusion
of depreciation and amortization related to WGRZ and the Arkansas Stations
during the 1996 period. Also, depreciation and amortization of intangible
assets for the Northstar Stations and KITV increased period to period mainly due
to fixed asset purchases throughout 1995 and 1996.
Station Operating Income. Station operating income for the three months
ended September 30, 1996 was $0.6 million, as compared to $2.5 million for the
three months ended September 30, 1995, a decrease of $1.9 million, or 75.0%.
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 total revenues.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses were $1.6 million in the three months ended September
30, 1996, as compared to $0.6 million in the three months ended September 30,
1995, an increase of $1.0 million, or 185.5%. The increase is attributable
primarily to incentive compensation. To a lesser extent, the increase is
attributable to expenses associated with transaction activities, the acquisition
of KITV and WGRZ during 1995, incremental expenses associated with being a new
company during 1995 and becoming a public company following the Company's
initial public offering of its common stock in October 1995. The Company does
not believe the significant increase in third quarter corporate general and
administrative expenses will continue into the fourth quarter.
Non-cash Compensation Expense. Non-cash compensation expense of $0.2
million in the three months ended September 30, 1996 and September 30, 1995
represents stock option compensation expense recorded in compliance with FASB
Statement 123.
Interest Expense, Net. Interest expense, net was $4.7 million for the
three months ended September 30, 1996, as compared to $3.1 million for the three
months ended September 30, 1995, an increase of $1.6 million, or 55.0%. This
increase in interest expense, net was attributable primarily to a larger
outstanding debt balance in 1996 than 1995, which was the result of the
acquisitions and related financings of KITV, WGRZ, the Arkansas Stations and the
Clear Channel Venture. Interest expense, net for the three months ended
September 30, 1996 was reduced by $0.1 million, which reflects the change in the
fair market value of interest rate protection agreements since June 30, 1996.
Net Loss. As a result of the factors discussed above, the net loss for
the three months ended September 30, 1996 was $5.9 million and for the three
months ended September 30, 1995 was $1.3 million.
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 $7.4 million for the three
months ended September 30, 1996 as compared to $5.9 million for the three months
ended September 30, 1995, an
13
<PAGE>
increase of $1.5 million, or 26.3%. The broadcast cash flow increase resulted
primarily from the inclusion of WGRZ and the Arkansas Stations during the 1996
period.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1995
- ----
Total Revenues. Total revenues for the nine months ended September 30,
1996 were $51.5 million, as compared to $32.1 million for the nine months ended
September 30, 1995, an increase of $19.4 million, or 60.5%. 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
increased total revenues by $20.9 million for the 1996 period. These revenue
gains were offset by a $1.2 million decrease in total revenues resulting from
the method of reporting total revenues from the Clear Channel Venture, which
accounts for the Company's share of the Venture's broadcast cash flows as total
revenues. Also, the Northstar Stations experienced a slight decrease in trade
and barter revenues.
Station Operating Expenses. Station operating expenses for the nine months
ended September 30, 1996 were $27.5 million, as compared to $15.8 million for
the nine months ended September 30, 1995, an increase of $11.7 million, or
74.2%. The increase was attributable primarily to the inclusion of station
expenses for KITV and WGRZ during the entire 1996 period and the Arkansas
Stations from June 1 to September 30, 1996. Together these stations added $12.5
million to station operating expenses during the period. This was offset by the
Clear Channel Venture, which accounts for a $0.6 million decrease in station
operating expenses as a result of expenses being netted against total revenues.
Station operating expenses at WZZM and WAPT were slightly lower period to
period.
Depreciation and Amortization. Depreciation and amortization of intangible
assets for the nine months ended September 30, 1996 was $17.2 million, as
compared to $7.7 million for the nine months ended September 30, 1995, an
increase of $9.5 million, or 122.9%. This increase in depreciation and
amortization of intangible assets resulted primarily from the write-up of the
stations' assets to fair market value upon their acquisition and the inclusion
of depreciation and amortization related to KITV and WGRZ during the entire 1996
period and the Arkansas Stations from June 1 to September 30, 1996. Depreciation
and amortization of intangible assets for the Northstar Stations only, for the
nine months ended September 30, 1996 was $3.8 million, as compared to $3.5
million for the nine months ended September 30, 1995, an increase of $0.3
million, or 8.6%. This increase was attributable primarily to fixed asset
purchases at the Northstar Stations throughout 1995 and 1996.
Station Operating Income. Station operating income for the nine months
ended September 30, 1996 was $3.0 million, as compared to $5.8 million for the
nine months ended September 30, 1995, a decrease of $2.8 million, or 48.1%.
This decrease was attributable primarily to the increase in station operating
expenses and depreciation and amortization of intangible assets, which more than
offset the increase in total revenues.
14
<PAGE>
Corporate General and Administrative Expenses. Corporate general and
administrative expenses were $3.5 million for the nine months ended September
30, 1996, as compared to $1.4 million for the nine months ended September 30,
1995, an increase of $2.1 million, or 145.3%. The increase is attributable to
incentive compensation, the acquisition of KITV and WGRZ during 1995,
incremental expenses associated with being a new company during 1995 and
becoming 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 $0.5
million for the nine months ended September 30, 1996 and $0.2 million for the
nine months ended September 30, 1995 represents stock option compensation
expense recorded in compliance with FASB Statement 123.
Interest Expense, Net. Interest expense, net was $12.0 million for the
nine months ended September 30, 1996, as compared to $7.1 million for the nine
months ended September 30, 1995, an increase of $4.9 million, or 68.5%. This
increase in interest expense, net was attributable primarily to a larger
outstanding debt balance in 1996 than 1995, which was the result of the
acquisitions and related financings of KITV, WGRZ, the Arkansas Stations and the
Clear Channel Venture. Interest expense, net for the nine months ended
September 30, 1996, was reduced by $1.1 million, which reflects the 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 nine months ended September 30, 1996 was $13.0 million, as compared to $5.7
million for the nine months ended September 30, 1995. Also, during the nine
months ended September 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 $21.2 million for the nine
months ended September 30, 1996, as compared to $13.8 million for the nine
months ended September 30, 1995, an increase of $7.4 million, or 53.2%. The
broadcast cash flow increase resulted primarily from the inclusion of KITV and
WGRZ during the entire 1996 period and the Arkansas Stations from June 1 to
September 30, 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
15
<PAGE>
Agreement (as subsequently amended, the "October 1995 Credit Agreement"). The
October 1995 Credit Agreement established a senior secured credit facility in
the committed amount of $215.0 million. During August 1996, in accordance with
provisions established by the October 1995 Credit Agreement, the Company reduced
the committed amount of the facility to $50.0 million. As of September 30, 1996,
there was an $21.5 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 $150.0 million 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 1995 were $3.8 million and are $5.4 million
through September 30, 1996. Capital expenditures are anticipated to be
approximately $6.5 million in 1996, including up to $3.0 million in 1996 to be
incurred in connection with the relocation of KITV's studio. This does not
include a $1.9 million deposit made towards the construction of the new studio
for KITV, which is expected to be completed during the fourth quarter of 1997.
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.
INCOME TAXES
The Company has net operating loss carryforwards of approximately $13.35
million and $15.35 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.
16
<PAGE>
RECENT DEVELOPMENTS
On August 12, 1996, the Company announced that it was exploring strategic
alternatives to achieve for the Company's station group the benefits of the
television broadcast industry's current consolidation. Since this announcement,
the Company has had--and continues to have--discussions with various third
parties about strategic alliances and other alternatives; but, to date, no
agreements have been reached regarding any transaction. The Company intends to
continue to explore strategic alternatives that would best serve the Company and
its shareholders.
17
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - Not Applicable
-----------------
ITEM 2. CHANGES IN SECURITIES - Not Applicable
---------------------
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 27 Financial Data Schedule
18
<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
November 8, 1996 By: /s/ Harry T. Hawks
- ---------------- ----------------------------------------
Date Harry T. Hawks, Chief Financial Officer,
Assistant Secretary and Treasurer
(Principal Financial Officer)
November 8, 1996 By: /s/ Teresa D. Lopez
- ---------------- ----------------------------------------
Date Teresa D. Lopez, Controller and
Assistant Secretary
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
Exhibit 27 Financial Data Schedule
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,667
<SECURITIES> 0
<RECEIVABLES> 12,856
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,406
<PP&E> 39,208
<DEPRECIATION> 0
<TOTAL-ASSETS> 336,660
<CURRENT-LIABILITIES> 21,995
<BONDS> 150,000
0
2
<COMMON> 113
<OTHER-SE> 130,748
<TOTAL-LIABILITY-AND-EQUITY> 336,660
<SALES> 0
<TOTAL-REVENUES> 51,496
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,544
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,045
<INCOME-PRETAX> (13,037)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,037)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,037)
<EPS-PRIMARY> (1.21)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 17,439
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,741
<INCOME-PRETAX> (5,919)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,919)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,919)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 13,140
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,465
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,058
<INCOME-PRETAX> (1,295)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,295)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 32,091
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,147
<INCOME-PRETAX> (2,958)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,958)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,708
<CHANGES> 0
<NET-INCOME> (5,666)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
