<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): January 31, 1997
ARGYLE TELEVISION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-27000 74-2717523
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number Identification Number)
200 Concord Plaza, Suite 700, San Antonio, Texas 78216
(Address of principal executive offices)
(210) 828-1700
(Registrant's Telephone No.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
------------------------------------
As previously reported on the Company's Current Report Form 8-K dated
January 31, 1997 (which is being amended by this Amendment No.1), on that date
the Company completed its exchange with Gannett Co., Inc. ("Gannett") of the
Company's WZZM-TV, the ABC affiliate in Grand Rapids, Michigan, and WGRZ-TV, the
NBC affiliate in Buffalo, New York, for Gannett's WLWT-TV, the NBC affiliate in
Cincinnati, Ohio ("WLWT"), and KOCO-TV, the ABC affiliate in Oklahoma City,
Oklahoma ("KOCO"). As part of that exchange, the Company also paid Gannett $20
million.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
------------------------------------------------------------------
a. Financial Statements.
--------------------
Set forth below are the Report of Independent Accountants, Combined
Balance Sheets at December 31, 1995 and December 29, 1996, the
Combined Statements of Operations for the years ended December 25,
1994, December 31, 1995 and December 29, 1996, and the Combined
Statements of Cash Flows for the years ended December 25, 1994,
December 31, 1995, and December 29, 1996 for the Selected Gannett
Television Stations (as defined in Note 1 thereto). Also set forth
below are the Report of Independent Accountants, Balance Sheets at
December 31, 1994 and December 3, 1995 the Statements of Operations
for the year ended December 31, 1994 and the period from January 1,
1995 through December 3, 1995, and the Statements of Cash Flows for
the year ended December 31, 1994 and the period from January 1,
1995 through December 3, 1995 for Multimedia Entertainment, Inc.
(d/b/a WLWT-TV), subsidiary of Multimedia, Inc.
<PAGE>
[LOGO OF PRICE WATERHOUSE LLP APPEARS HERE]
SELECTED GANNETT
TELEVISION STATIONS
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND DECEMBER 29, 1996
<PAGE>
[LETTERHEAD OF PRICE WATERHOUSE LLP APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
February 7, 1997
To the Board of Directors and Shareholders
of Gannett Co., Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the financial position of the Selected Gannett Television
Stations (as defined in Note 1) at December 31, 1995 and December 29, 1996 and
the results of their operations and their cash flows for each of the three years
in the period ended December 29, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
COMBINED BALANCE SHEETS
(in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash $ 292 $ 113
Accounts receivable, net of allowance
for doubtful accounts of $439 and $415 10,100 10,457
Program rights 2,543 2,356
Prepaid expenses and other current assets 74 122
-------- --------
Total current assets 13,009 13,048
Intercompany receivable from Parent 855 19,194
Program rights, net of current portion 170 140
Property and equipment, net 28,082 26,535
Intangible assets, net 102,684 100,264
-------- --------
$144,800 $159,181
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Cash overdraft $ 207 $ 355
Accounts payable 671 603
Accrued expenses 1,670 1,948
Income tax payable to Parent 1,760 7,499
Program rights payable 2,694 2,502
-------- --------
Total current liabilities 7,002 12,907
Deferred tax liability to Parent 7,643 7,553
Commitments and contingencies
Shareholder's equity
Common stock of KOCO-TV, $10 par value,
50,000 shares authorized, issued
and outstanding 500 500
Common stock of WLWT-TV, $1,000 par value,
1 share authorized, issued and outstanding 1 1
Additional paid-in capital 122,360 122,360
Retained earnings 7,294 15,860
-------- --------
Total shareholder's equity 130,155 138,721
-------- --------
$144,800 $159,181
======== ========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December 25, December 31, December 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues, net $18,572 $20,397 $50,088
Expenses
Station operating expenses 10,143 11,330 24,933
Amortization of program rights 3,464 2,160 3,396
Depreciation and amortization 823 1,247 4,701
------- ------- -------
14,430 14,737 33,030
Station operating income 4,142 5,660 17,058
Corporate general and
administrative expenses 363 2,463 1,083
------- ------- -------
Operating income before taxes 3,779 3,197 15,975
Provision for income taxes 1,530 1,819 7,409
------- ------- -------
Net income 2,249 1,378 8,566
Retained earnings at beginning
of period 3,667 5,916 7,294
------- ------- -------
Retained earnings at end of period $ 5,916 $ 7,294 $15,860
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the
combined financial statements.
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December 25, December 31, December 29,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,249 $ 1,378 $ 8,566
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 823 1,040 2,281
Amortization of intangible assets - 207 2,420
Amortization of program rights 3,464 2,160 3,396
Payments on program rights payable (2,496) (2,292) (3,369)
Provision for bad debts - - 78
Deferred income tax expense (benefit) - 59 (90)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (140) 400 (435)
(Increase) in other assets - (47) (50)
Increase (decrease) in accounts payable
and cash overdraft 436 (607) 80
Increase (decrease) in accrued expenses (266) (394) 278
Increase in income tax payable to Parent 444 230 5,739
------- ------- --------
Net cash provided by operating activities 4,514 2,134 18,894
Cash flows used in investing activities
Purchases of property and equipment (1,543) (992) (734)
Cash flows used in financing activities
Net funds remitted to Parent (2,815) (1,020) (18,339)
------- ------- --------
Increase (decrease) in cash 156 122 (179)
Cash at beginning of period - 170 292
------- ------- --------
Cash at end of period $ 156 $ 292 $ 113
======= ======= ========
Supplemental cash flow information
Program rights acquired through assumption
of program rights payable $ 2,324 $ 1,588 $ 3,228
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The combined financial statements include the operations of two of Gannett
Co., Inc.'s (Gannett or the Parent) wholly-owned television stations,
Multimedia Entertainment, Inc., d.b.a. WLWT-TV, an NBC affiliate in
Cincinnati, Ohio and Combined Communications Corporation of Oklahoma, Inc.,
d.b.a. KOCO-TV, an ABC affiliate in Oklahoma City, Oklahoma (the Selected
Gannett Television Stations or the Stations). WLWT-TV was acquired by
Gannett on December 4, 1995 as part of the acquisition of Multimedia, Inc.
The acquisition has been accounted for as a purchase combination in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations", whereby approximately $120 million of the total $2.3 billion
cost to acquire Multimedia, Inc. was allocated to WLWT-TV based on relative
fair value. As a result, the accompanying combined financial statements
include the operations of WLWT-TV from the date of acquisition (December 4,
1995) through December 29, 1996. KOCO-TV was acquired by Gannett as part of
the merger with Combined Communications Corporation in a pooling of
interests transaction in 1979. The Stations' principal business is the
airing of network programming and the production of local news and
entertainment programming, and the sale of advertising time during such
programming to local, regional and national advertisers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FISCAL YEAR
The Stations' fiscal year is the same as Gannett, which ends on the last
Sunday of each calendar year. The Stations' 1994, 1995 and 1996 fiscal
years ended on December 25, December 31, and December 29, respectively, and
encompassed 52, 53 and 52 weeks, respectively.
REVENUE RECOGNITION
Advertising revenues, net of agency and national representatives'
commissions, are recognized in the period during which the time spots are
aired.
CONCENTRATION OF CREDIT RISK
A significant portion of the Stations' accounts receivable is due from
local, regional and national advertising agencies.
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROGRAM RIGHTS AND PROGRAM RIGHTS PAYABLE
Program rights, primarily in the form of syndicated programs, represent
amounts paid or payable to program suppliers for the limited right to
broadcast the suppliers' programming and are recorded when available for
use. Program rights are amortized over the lives of the underlying
contracts using either the straight-line or per-play method, whichever is
greater. Program rights expected to be amortized within one year are
classified as current.
Program rights payable represent the gross amounts to be paid to program
suppliers over the life of the contracts. Program rights payable at
December 31, 1995 and December 29, 1996 are carried at amounts which
approximate fair value based on the short term maturities. The portion of
program rights payable within one year is classified as current.
PROGRAM BARTER TRANSACTIONS
The Stations barter advertising time for certain program rights. These
transactions are recorded at the estimated fair value of the program rights
received or the advertising time rendered, whichever is more readily
available. Revenue is recognized when advertisements are aired; expenses
are recognized when the program rights are broadcast.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost or estimated fair
value at the date of acquisition. Depreciation is computed on the straight-
line basis over the estimated useful lives of the assets as follows:
Buildings and improvements 10-40 years
Leasehold improvements Remaining life of the lease
Broadcast equipment 4-6 years
Furniture and fixtures 5-7 years
INTANGIBLE ASSETS
Intangible assets consist principally of FCC license, network affiliation
and the excess purchase price over the fair value of net assets acquired at
acquisition date. Intangible assets acquired after October 31, 1970 are
being amortized on a straight-line basis over forty years. Goodwill in the
amount of $6,090,784 at KOCO-TV was acquired prior to October 31, 1970 and
is not being amortized.
The Stations periodically evaluate the realizability of intangible assets.
The Stations believe that no impairment exists at December 29, 1996.
INCOME TAXES
The Stations' operating results are included in the consolidated tax
returns of the Parent. Income tax expense has been allocated by the Parent
by applying the statutory rates to the Stations' pre-tax income. Deferred
tax assets and liabilities are allocated by the Parent based on the
estimated future tax effects of differences between financial reporting and
tax bases of the Stations' assets and liabilities in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------ ------------
<S> <C> <C>
Land and improvements $ 754 $ 754
Buildings and improvements 9,150 9,255
Broadcast equipment 27,574 27,029
Furniture and fixtures 1,146 1,161
-------- --------
38,624 38,199
Less accumulated depreciation (10,855) (11,725)
-------- --------
27,769 26,474
Construction in progress 313 61
-------- --------
$ 28,082 $ 26,535
======== ========
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------- -------------
<S> <C> <C>
WLWT-TV $ 96,800 $ 96,800
KOCO-TV 6,091 6,091
-------- --------
102,891 102,891
Less accumulated amortization (207) (2,627)
-------- --------
$102,684 $100,264
======== ========
</TABLE>
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------ ------------
<S> <C> <C>
Salaries and employee benefits $ 619 $ 894
Vacation 364 364
Music license fees 199 199
Legal 128 175
Other 360 316
------ ------
$1,670 $1,948
====== ======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
PENSION PLANS
Employees of WLWT-TV are eligible for a noncontributory pension plan which
covers substantially all non-union employees of the Station who meet age
and service requirements. The pension plan provides defined benefits that
are based on years of credited service, average compensation and the
primary social security benefit. Expenses of this plan related to WLWT-TV
are allocated to the Station and are recorded through the intercompany
account. Expenses recorded in fiscal year 1996 were approximately $469,000.
The Pension Plan for Hourly-Rated Employees of Multimedia Entertainment,
Inc. is a defined benefit plan which provides benefits to eligible union
employees of WLWT-TV. As of the latest actuarial valuation date (January 1,
1996) the accumulated benefit obligation exceeded the fair value of plan
assets by $173,109. The pension obligation has been reflected in the
accompanying financial statements in accrued expenses.
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table sets forth the amounts recognized as pension expense in
the Station's financial statements for fiscal years 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Service cost $ 16 $ 25
Interest cost 67 69
Actual return on plan assets (58) (84)
Other components 9 15
----- -----
Net pension expense $ 34 $ 25
===== =====
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8% in 1995 and 7.125%
in 1996. The expected long-term rate of return on assets was 8% in 1995 and
10% in 1996.
Employees of KOCO-TV are eligible for various retirement and profit sharing
plans, provided by Gannett, under which substantially all full-time
employees are covered. Benefits under the Gannett Retirement Plan, a
defined benefit pension plan, are based on years of service and final
average pay. KOCO-TV's pension expense was approximately $241,600, $251,300
and $261,400 in fiscal years 1994, 1995, and 1996, respectively.
THRIFT PLANS
Eligible employees of WLWT-TV may participate in a salary deferral thrift
plan. The Parent matches contributions by employees up to 2% of their
salaries. Expenses allocated by the Parent to WLWT-TV were approximately
$4,000 and $52,000, respectively, in the period from December 4, 1995
through December 31, 1995, and for fiscal year 1996.
Employees (other than those covered by a collective bargaining agreement)
of KOCO-TV who are scheduled to work at least 1,000 hours during each year
of employment may participate in Gannett's 401(k) Savings Plan. Most
employees are eligible to participate in the Plan. Expenses allocated by
the Parent were approximately $31,000, $27,000 and $28,000 in fiscal years
1994, 1995 and 1996, respectively.
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. RELATED PARTY TRANSACTIONS
Corporate general and administrative expenses are allocated through the
intercompany accounts to the Stations by the Parent. Such costs consist of
administrative salaries, interest and other costs related to corporate
overhead. These costs are allocated to the Stations each year based on the
relative revenue at the Stations compared to the Parent's consolidated
revenues, which management believes is a reasonable method of allocation.
Amounts allocated are not necessarily indicative of the costs which would
be required to operate the Stations on a stand-alone basis.
Excess cash on hand at the Stations is transferred through the intercompany
accounts to the Parent on a daily basis. No interest income on these
amounts has been recorded in the accompanying financial statements.
During fiscal year 1996, the Stations made payments of approximately
$475,000 for program rights purchased from a subsidiary of the Parent.
8. COMMITMENTS AND CONTINGENCIES
The Stations have operating lease agreements which expire on various dates
through 2000. Future minimum annual payments due under the noncancellable
operating leases as of December 29, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $31
1998 24
1999 12
2000 8
---
75
Less sublease income (52)
---
$23
===
</TABLE>
Total rent expense, including cancellable and noncancellable operating
leases, was $100,043, $87,805 and $111,896 for fiscal years 1994, 1995 and
1996, respectively.
<PAGE>
SELECTED GANNETT TELEVISION STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Stations have employment contracts with certain talent at the Stations
which expire in twelve to eighteen months. The Stations have committed to
pay approximately $1.7 million in 1997 on these contracts.
At December 29, 1996, the Stations have executed contracts for program
rights totaling approximately $6.5 million. As the broadcast license period
has not yet begun, the asset and related liability are not recorded at
December 29, 1996.
The Stations are party to various legal proceedings. In the opinion of
management, all such matters are adequately covered by insurance or if not
so covered would not have a significant effect on the financial position or
results of operations of the Stations if disposed of unfavorably.
9. SUBSEQUENT EVENT
On November 20, 1996, Argyle Television, Inc. (Argyle) entered into an
asset exchange agreement with Gannett to exchange Argyle's WZZM-TV, the ABC
affiliate television station in Grand Rapids, Michigan, and WGRZ-TV, the
NBC affiliate television station in Buffalo, New York, plus certain other
consideration, for WLWT-TV and KOCO-TV. This transaction became effective
on January 31, 1997.
<PAGE>
[LOGO OF PRICE WATERHOUSE LLP APPEARS HERE]
MULTIMEDIA
ENTERTAINMENT, INC.
D.B.A WLWT-TV
(A SUBSIDIARY OF MULTIMEDIA, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND DECEMBER 3, 1995
<PAGE>
[LETTERHEAD OF PRICE WATERHOUSE LLP APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
February 7, 1997
To the Board of Directors and Shareholders
of Gannett Co., Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Multimedia Entertainment, Inc. (d.b.a. WLWT-TV), a
subsidiary of Multimedia, Inc., at December 31, 1994 and December 3, 1995, and
the results of its operations and its cash flows for the year ended December 31,
1994 and the period from January 1, 1995 through December 3, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
On December 4, 1995 Multimedia Entertainment, Inc. (d.b.a. WLWT-TV) and its
parent company were acquired by Gannett Co., Inc.
/s/ Price Waterhouse LLP
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
BALANCE SHEETS
(in thousands, except share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 3,
1994 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 14 $ 14
Accounts receivable, net of allowance for
doubtful accounts of $300 and $350 5,159 6,904
Program rights 1,125 1,272
Prepaid expenses and other current assets 256 24
------- -------
Total current assets 6,554 8,214
Intercompany receivable from Parent 19,533 19,741
Property and equipment, net 6,654 6,158
Goodwill 2,614 2,614
Less accumulated amortization (1,227) (1,287)
------- -------
1,387 1,327
------- -------
$34,128 $35,440
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable $ 265 $ 543
Accrued expenses 1,071 1,533
Program rights payable 1,206 1,381
Income tax payable to Parent 1,627 852
------- -------
Total current liabilities 4,169 4,309
Deferred tax liability to Parent 238 238
Commitments and contingencies
Shareholder's equity
Common stock, $1,000 par value, 1 share
authorized, issued and outstanding 1 1
Retained earnings 29,720 30,892
------- -------
Total shareholder's equity 29,721 30,893
------- -------
$34,128 $35,440
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
STATEMENTS OF OPERATIONS
(in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
period from
For the January 1, 1995
year ended through
December 31, December 3,
1994 1995
------------ ---------------
<S> <C> <C>
Revenues, net $24,360 $25,546
Expenses
Station operating expenses 15,997 16,800
Amortization of program rights 1,536 1,428
Depreciation and amortization 1,135 1,037
------- -------
18,668 19,265
Station operating income 5,692 6,281
Corporate general and administrative expenses 1,858 4,222
------- -------
Operating income 3,834 2,059
Other income (expense), net 15 (35)
------- -------
Income before taxes 3,849 2,024
Provision for income taxes 1,627 852
------- -------
Net income 2,222 1,172
Retained earnings at beginning of period 27,498 29,720
------- -------
Retained earnings at end of period $29,720 $30,892
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
STATEMENTS OF CASH FLOWS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
period from
For the January 1, 1995
year ended through
December 31, December 3,
1994 1995
------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,222 $ 1,172
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 1,070 977
Amortization of intangibles 65 60
Amortization of program rights 1,536 1,428
Payments on program rights payable (1,616) (1,403)
Provision for bad debts 105 152
Loss on disposition of property and equipment 15 35
Changes in operating assets and liabilities
(Increase) in accounts receivable (834) (1,897)
(Increase) decrease in other assets (382) 235
Increase in accounts payable 58 278
Increase (decrease) in accrued expenses (148) 462
(Decrease) in income tax payable to Parent - (775)
------- -------
Net cash provided by operating activities 2,091 724
Cash flows used in investing activities
Purchases of property and equipment, net (950) (516)
Cash flows used in financing activities
Net funds remitted to Parent (1,149) (208)
------- -------
Net decrease in cash (8) -
Cash at beginning of period 22 14
------- -------
Cash at end of period $ 14 $ 14
======= =======
Supplemental cash flow information
Program rights acquired through the
assumption of program rights payable $ 1,514 $ 1,522
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Multimedia Entertainment, Inc., a wholly-owned subsidiary of Multimedia,
Inc. (Multimedia or the Parent), is the licensee of and owns and operates
the NBC affiliate television broadcast station WLWT-TV in Cincinnati, Ohio
(WLWT or the Station). The Station's principal business is the airing of
network programming and the production of local news and entertainment
programming, and the sale of advertising time during such programming to
local, regional and national advertisers.
Effective December 4, 1995, the Station and its Parent were acquired by
Gannett Co., Inc. (Gannett). As a result, the accompanying financial
statements have been prepared through the date of the acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Advertising revenues, net of agency and national representatives'
commissions, are recognized in the period during which the time spots are
aired.
CONCENTRATION OF CREDIT RISK
A significant portion of the Station's accounts receivable is due from
local, regional and national advertising agencies.
PROGRAM RIGHTS AND PROGRAM RIGHTS PAYABLE
Program rights, primarily in the form of syndicated programs, represent
amounts paid or payable to program suppliers for the limited right to
broadcast the suppliers' programming and are recorded when available for
use. Program rights are amortized over the lives of the underlying
contracts using either the straight-line or per-play method, whichever is
greater. Program rights expected to be amortized within one year are
classified as current.
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Program rights payable represent the gross amounts to be paid to program
suppliers over the life of the contracts. Program rights payable at
December 31, 1994 and December 3, 1995 are carried at amounts which
approximate fair value based on the short-term maturities. The portion of
program rights payable within one year is classified as current.
PROGRAM BARTER TRANSACTIONS
The Station barters advertising time for certain program rights. These
transactions are recorded at the estimated fair value of the program rights
received or the advertising time rendered, whichever is more readily
available. Revenue is recognized when advertisements are aired; expenses
are recognized when the program rights are broadcast.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost or estimated fair
value at the date of acquisition. Depreciation is computed on the straight-
line basis over the estimated useful lives of the assets as follows:
Building and improvements 25-30 years
Leasehold improvements Remaining life of the lease
Broadcast equipment 5 years
Furniture and fixtures 7 years
GOODWILL
Goodwill represents the excess purchase price over the net assets acquired
and is being amortized on a straight-line basis over forty years.
INCOME TAXES
The Station's operating results are included in the consolidated tax
returns of the Parent. Income tax expense has been allocated by the Parent
by applying the statutory rates to the Station's pre-tax income. Deferred
tax assets and liabilities are allocated by the Parent based on the
estimated future tax effects of differences between financial reporting and
tax bases of the Station's assets and liabilities in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 3,
1994 1995
------------- ------------
<S> <C> <C>
Land and improvements $ 429 $ 429
Building and leasehold improvements 3,753 3,760
Broadcast equipment 13,863 13,590
Furniture and fixtures 3,217 3,178
-------- --------
21,262 20,957
Less accumulated depreciation (14,761) (14,882)
-------- --------
6,501 6,075
Construction in progress 153 83
-------- --------
$ 6,654 $ 6,158
======== ========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 3,
1994 1995
------------ -----------
<S> <C> <C>
Vacation $ 369 $ 366
Music license fees 204 199
Salaries and employee benefits 333 624
Other 165 344
-------- --------
$1,071 $1,533
-------- --------
</TABLE>
5. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Parent has a noncontributory pension plan which covers substantially
all non-union employees of the Station who meet age and service
requirements. The pension plan provides defined benefits that are based on
years of credited service, average compensation and the primary social
security benefits. Expenses of this plan related to WLWT have been
allocated by the Parent to the Station through the intercompany account and
were insignificant for 1994 and 1995.
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Pension Plan for Hourly-Rated Employees of Multimedia Entertainment,
Inc. is a defined benefit plan which provides benefits to eligible union
employees of WLWT. As of the latest actuarial valuation date (January 1,
1995) the accumulated benefit obligation exceeded the fair value of plan
assets by $248,478. The pension obligation has been reflected in the
accompanying financial statements in accrued expenses. The following table
sets forth the amounts recognized as pension expense in the Station's
financial statements for the year ended December 31, 1994, and for the
period from January 1, 1995 through December 3, 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Service cost $ 14 $ 16
Interest cost 57 67
Actual return on plan assets 26 (58)
Other components (74) 9
---- ----
Net pension expense $ 23 $ 34
==== ====
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8% in 1994 and 1995.
The expected long-term rate of return on assets was 8% in 1994 and 1995.
THRIFT PLAN
The Parent has a salary deferral thrift plan for all eligible employees.
The Parent and the Station match contributions by employees up to 2% of
their salaries. Expenses allocated by the Parent were approximately $37,000
and $39,000, respectively, for the year ended December 31, 1994 and the
period from January 1, 1995 through December 3, 1995.
6. RELATED PARTY TRANSACTIONS
Corporate general and administrative expenses are allocated through the
intercompany account to the Station by the Parent. Such costs consist of
corporate management and administrative salaries, interest, and other costs
related to corporate overhead. These costs are allocated to the Station
each year based on the relative revenue at the Station compared to the
Parent's consolidated revenues, which management believes is a reasonable
method of allocation. Amounts allocated are not necessarily indicative of
the costs which would be required to operate the Station on a stand-alone
basis.
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Excess cash on hand at the Station is transferred through the intercompany
account to the Parent on a daily basis. The Station does not record
interest income on these amounts.
During the year ended December 31, 1994 and the period from January 1, 1995
through December 3, 1995, the Station paid approximately $775,000 and
$500,000, respectively, for program rights purchased from the Parent.
7. COMMITMENTS AND CONTINGENCIES
The Station leases the building used in its operations. Future minimum
annual payments due under this noncancellable operating lease as of
December 3, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $19
1997 19
1998 13
</TABLE>
Total rent expense, including the noncancellable operating leases, was
$19,260 and $17,655 for the year ended December 31, 1994 and for the period
from January 1, 1995 through December 3, 1995, respectively.
The Station has several employment contracts with certain talent of the
Station which expire in twelve to eighteen months. The Station has
committed to pay approximately $1.3 million in 1996 on these contracts.
At December 3, 1995, the Station has executed contracts for film broadcast
rights totaling approximately $1.3 million. As the broadcast license period
has not yet begun, the asset and related liability are not recorded as of
December 3, 1995.
The Station is party to various legal proceedings. In the opinion of
management, all such matters are adequately covered by insurance or if not
so covered involve amounts that would not have a significant effect on the
financial position or results of operations of the Station if disposed of
unfavorably.
<PAGE>
MULTIMEDIA ENTERTAINMENT, INC.
D.B.A. WLWT-TV
(a subsidiary of Multimedia, Inc.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. SUBSEQUENT EVENTS
On December 4, 1995, the Station and its Parent were acquired by Gannett
Co., Inc.
On November 20, 1996, Argyle Television, Inc. (Argyle) entered into an
asset exchange agreement with Gannett to exchange WLWT and KOCO-TV,
Gannett's ABC affiliate in Oklahoma City, Oklahoma, for Argyle's WZZM-TV,
the ABC affiliate television station in Grand Rapids, Michigan, and WGRZ-
TV, the NBC affiliate television station in Buffalo, New York, and certain
other consideration. This transaction became effective on January 31, 1997.
<PAGE>
b. Pro Forma Financial Information
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited Pro Forma Condensed Consolidated Statement of Operations of the
Company for the year ended December 31, 1996 and the unaudited Pro Forma
Condensed Consolidated Balance Sheet of the Company as of December 31, 1996
(collectively, the "Pro Forma Statements") have been prepared as if the
acquisition of the Arkansas Stations and the Clear Channel Venture and the
Gannett Swap transactions had been completed in the case of the statement of
operations as of the beginning of the period presented and as of December 31,
1996 in the case of the balance sheet data. The acquisitions of the Stations
and the Clear Channel Venture and the Gannett Swap transactions are accounted
for using the purchase method of accounting. The Pro Forma Statements presented
herein are not necessarily indicative of the Company's financial condition or
results of operations that might have occurred had such transactions been
completed at the beginning of the period indicated or as of the date specified
and do not purport to indicate the Company's consolidated financial position or
results of operations for any future date or period.
INDEX TO PRO FORMA STATEMENTS
Argyle Television, Inc.
Pro Forma Statement of Operations for the Year Ended
December 31, 1996 (Unaudited).....................................
Pro Forma Balance Sheet as of December 31, 1996 (Unaudited)............
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Arkansas
January 1 Clear Channel
Historical to May 31, Acquisition Venture Gannett Swap The Company
(a) 1996 Adjustments Adjustments Adjustments Pro Forma
---------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 73,294 $3,462 ($1,843) (f) $ 8,597 (g) $ 84,243
733 (b)
Station operating expenses 37,639 2,677 (459) (b) (1,973) (b)(f) 5,475 (g) 41,772
(1,587)(b)
Amortization of program
rights 4,725 88 412 (d) 5,225
Depreciation and
amortization 23,965 1,198 (c) 912 (c) 26,075
--------------------------------------- ------ ------ --------
Station operating income 6,965 697 (739) 863 3,385 11,171
Corporate general and
administrative expenses 4,285 4,285
Non-cash compensation 675 675
--------------------------------------- ------ ------ --------
Operating income (loss) 2,005 697 (739) 863 3,385 6,211
Interest expense, net 16,566 1,553 (e) 18,119
--------------------------------------- ------ ------ --------
Income (loss) from
continuing operations $(14,561) $ 697 $(739) $ 863 $1,832 $(11,908)
======================================= ======= ====== ========
</TABLE>
See explanations on the following page.
<PAGE>
(a) Includes the results of operations of the Company, the results of WZZM,
WAPT, KITV, WGRZ; the Arkansas Stations from June 1; WNAC from January 1 to
June 30; and the Company's share of broadcast cash flows from the Clear
Channel Venture from July 1.
(b) Reflects the elimination of certain expenses relating to employees who have
either been terminated or will be terminated and not replaced and certain
other expenses which would have been eliminated under the Company's
management and transition plan.
(c) Reflects change in depreciation expense due to purchase accounting
adjustments to equipment and buildings, net of depreciation already recorded
in the historical financial statements. The estimated useful lives used for
equipment range from 5 to 25 years and the estimated useful life used for
buildings range from 25 to 39 years.
(d) Reflects amortization of intangible assets resulting from purchase
accounting adjustments, net of amortization already recorded in the
historical financial statements. The estimated useful lives used for these
intangible assets were as follows: FCC licenses and network affiliation
agreements - 15 years; other intangibles -- 2 to 5 years
(e) Reflects interest expense recorded in conjunction with FASB Statement No.
119 relating to interest rate protection agreements, interest expense on the
pro forma debt and the amortization of deferred financing costs over the
period of the related financings.
<TABLE>
<CAPTION>
1996
-------
<S> <C>
THE NOTES AT AN INTEREST RATE OF 9.75% $14,625
FAIR VALUE ADJUSTMENTS OF INTEREST RATE
PROTECTION AGREEMENTS -- NON-CASH (1,151)
AMORTIZATION OF DEFERRED FINANCING COSTS 988
BANK CREDIT AGREEMENT AT AN ASSUMED
INTEREST RATE OF 8.5%, NET OF INTEREST
INCOME 3,657
-------
$18,119
=======
</TABLE>
(f) Reflects the inclusion of the Company's share of WNAC/WPRI broadcast cash
flow in miscellaneous revenues.
(g) Reflects the inclusion of WLWT and KOCO and the exclusion of WZZM and WGRZ
results of operations from the beginning of the period.
<PAGE>
ARGYLE TELEVISION, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY GANNETT THE COMPANY
HISTORICAL SWAP (a) ADJUSTMENTS PRO FORMA
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents $ 949 $ (213) $ 736
Accounts receivable, net 14,937 1,284 16,221
Barter program rights 5,912 (3,481) 2,431
Program rights 3,934 491 4,425
Other 1,895 18,963 (19,195) (d) 1,663
----------------------------------------- --------
Total current assets 27,627 17,044 (19,195) 25,476
Property, plant, and equipment, net 39,213 7,439 3,306 (b) 49,958
Intangible assets, net 231,855 (41,079) 66,190 (b) 256,966
Other:
Deferred acquisition
and financing costs, net 5,788 (504) (c) 5,284
Barter program rights,
noncurrent 5,333 (4,068) 1,265
Program rights,
noncurrent 3,580 (752) 2,828
Other assets 15,212 (16) 15,196
----------------------------------------- --------
Total assets $328,608 $ (21,432) $ 49,797 $356,973
========================================= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,001 $ 736 $ 1,737
Accrued liabilities 5,612 8,181 (7,499) (d) 6,794
500 (b)
Barter program rights
payable 6,776 (3,351) 3,425
Program rights payable 4,251 35 4,286
Other current
liabilities 868 (85) (464) (b) 319
----------------------------------------- --------
Total current liabilities 18,508 5,516 (7,463) 16,561
Barter program rights payable,
noncurrent 5,333 (4,050) 1,283
Program rights payable, noncurrent 3,610 (525) 3,085
Other liabilities 505 7,511 (7,553) (d) 463
Long-term debt, net 171,500 20,000 (c) 191,500
Stockholders' equity:
Common stock 114 501 (501) (e) 114
Preferred stock (less
than $.1million) -
Additional
paid-in-capital 159,455 122,360 (122,360) (e) 159,455
Retained earnings
(deficit) (30,417) 30,788 (15,859) (e) (15,488)
----------------------------------------- --------
Total stockholders' equity 129,152 153,649 (138,720) 144,081
Total liabilities and
stockholders' equity $328,608 $ 162,101 $(133,736) $356,973
========================================= ========
</TABLE>
See explanations on the following page.
<PAGE>
(a) Reflects the inclusion of WLWT and KOCO and the exclusion of WZZM and WGRZ
12/31/96 balance sheet amounts.
(b) Reflects the Gannett Swap. The Swap was 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 shown below
may differ from the amounts ultimately determined.
The preliminary pro forma allocation is as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price and estimated
acquisition costs $ 208,180
Less historical net assets (138,720)
---------
Excess to be allocated $ 69,460
=========
Allocation of excess purchase
price based on preliminary
estimated values:
Property, plant and equipment $ 3,306
Intangible assets 66,190
Due from Gannett for working
capital, net 464
Accrued liabilities (500)
---------
$ 69,460
=========
(c) Gannett Swap purchase price is as
follows:
Borrowings under the Bank Credit
Agreement $ 20,000
Deferred acquisition costs 504
FMV of station assets given up
(WZZM/WGRZ) 187,676
---------
$ 208,180
=========
</TABLE>
(d) Reflects the elimination of intercompany balances and/or a deferred tax
liability not acquired in the transaction.
(e) Reflects the elimination of the remaining historical capital structure of
the Gannett Stations.
<PAGE>
c. Exhibits.
--------
10.1 Asset Exchange Agreement, by and among Combined Communications
Corporation of Oklahoma, Inc., Multimedia Entertainment, Inc.,
WZZM Argyle Television, Inc., Grand Rapids Argyle Television,
Inc., WGRZ Argyle Television, Inc. and Buffalo Argyle
Television, Inc. dated November 20, 1996 (the "Exchange
Agreement") incorporated by reference to Exhibit 10.1 filed with
the Company's Form 8-K dated November 20, 1996.
*10.2 Amendment No. 1 to the Exchange Agreement dated as of January
28, 1997.
*20 Press Release issued January 31, 1997.
23 Consent of Independent Accountants
________________________
* filed previously
<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 hereunto duly authorized.
ARGYLE TELEVISION, INC.
Dated: April 15, 1997 By: /s/ Dean H. Blythe
----------------------------------------------
Dean H. Blythe, Vice President,
Secretary and General Counsel
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- -------- ----------- ----
<S> <C> <C>
10.1 Asset Exchange Agreement, by and among Combined Communications
Corporation of Oklahoma, Inc., Multimedia Entertainment, Inc., WZZM
Argyle Television, Inc., Grand Rapids Argyle Television, Inc., WGRZ
Argyle Television, Inc. and Buffalo Argyle Television, Inc. dated
November 20, 1996 (the "Exchange Agreement") incorporated by reference
to Exhibit 10.1 filed with the Company's Form 8-K dated November 20,
1996.
*10.2 Amendment No. 1 to the Exchange Agreement dated as of January 28, 1997.
*20 Press Release issued January 31, 1997.
23 Consent of Independent Accountants
</TABLE>
______________________
* filed previously
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No.333-19359) of
Argyle Television, Inc. of our reports dated February 7, 1997 relating to the
combined financial statements of Selected Gannett Television Stations and the
financial statements of Multimedia Entertainment, Inc. d.b.a. WLWT-TV (a
subsidiary of Multimedia, Inc.), which appear in the Current Report on Form
8-K/A of Argyle Television, Inc. dated April 15, 1997.
PRICE WATERHOUSE LLP
Washington, DC
April 15, 1997
