<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 3, 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.)
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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a. Financial Statements.
--------------------
Not applicable.
b. Pro Forma Financial Information.
-------------------------------
Not applicable.
c. Exhibits.
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99.1 Financial Statements of Sigma Broadcasting, Inc. for the
year ended December 31, 1995 with Report of Independent
Auditors
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<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: January 3, 1997 By: /s/ DEAN H. BLYTHE
-------------------------------
Dean H. Blythe, Vice President,
Secretary and General Counsel
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
99.1 Financial Statements of Sigma Broadcasting, Inc. for
the year ended December 31, 1995 with Report of
Independent Auditors
<PAGE>
EXHIBIT 99.1
Sigma Broadcasting, Inc.
Financial Statements
Year Ended December 31, 1995
with Report of Independent Auditors
<PAGE>
Sigma Broadcasting, Inc.
Financial Statements
Year Ended December 31, 1995
CONTENTS
Report of Independent Auditors............................................. 1
Financial Statements
Balance Sheet.............................................................. 2
Statement of Operations.................................................... 4
Statement of Stockholders' Equity.......................................... 5
Statement of Cash Flows.................................................... 6
Notes to Financial Statements.............................................. 7
<PAGE>
Report of Independent Auditors
Board of Directors
Argyle Television, Inc.
We have audited the balance sheet of Sigma Broadcasting, Inc. as of December 31,
1995, and the related statements of operations, stockholders' equity, and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of a material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sigma Broadcasting, Inc. at
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
July 26, 1996
1
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Sigma Broadcasting, Inc.
Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 143,924
Accounts receivable, net 1,407,697
Program rights 253,969
Prepaid expenses 157,811
----------
Total current assets 1,963,401
Property and equipment:
Land and improvements 39,938
Broadcasting equipment 7,810,202
Office furniture, equipment, and other 843,729
----------
8,693,869
Less accumulated depreciation 6,619,986
----------
2,073,883
Other assets:
Goodwill, net of accumulated 450,788
amortization of $523,921
Program rights, noncurrent 265,680
Other 14,218
----------
Total assets $4,767,970
==========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 126,460
Accrued liabilities 76,655
Program rights payable 253,969
Current maturities of long-term debt 1,986,577
----------
Total current liabilities 2,443,661
Program rights payable 265,680
Long-term debt 308,584
Stockholders' equity:
Common stock, par value $1.00 per
share, 5,000 shares authorized, 1,000 shares
issued and outstanding 1,000
Additional paid-in capital 226,106
Retained earnings 1,522,939
----------
Total stockholders' equity 1,750,045
----------
Total liabilities and stockholders' equity $4,767,970
==========
</TABLE>
See accompanying notes.
3
<PAGE>
Sigma Broadcasting, Inc.
Statement of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Total revenues $7,894,762
Station operating expenses 5,532,591
Amortization of program rights 163,211
Depreciation and amortization 814,736
----------
Station operating income 1,384,224
Corporate general and administrative expenses 152,345
----------
Operating income 1,231,879
Interest expense and other, net 161,863
----------
Income before income taxes 1,070,016
Income taxes 435,554
----------
Net income $ 634,462
==========
</TABLE>
See accompanying notes.
4
<PAGE>
Sigma Broadcasting, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31,
1994 $1,000 $226,106 $ 888,477 $1,115,583
Net income -- -- 634,462 634,462
----------------------------------------------------
Balance at December 31,
1995 $1,000 $226,106 $1,522,939 $1,750,045
====================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Sigma Broadcasting, Inc.
Statement of Cash Flows
Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net income $ 634,462
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 814,736
Amortization of program rights 163,211
Decrease in accounts receivable 122,276
Program payments (163,211)
Gain on sale of assets (16,502)
Increase in prepaid expenses (373,272)
Decrease in accounts payable (55,303)
Decrease in accrued liabilities 33,573
----------
Net cash provided by operating activities 1,159,970
INVESTING ACTIVITIES
Purchases of equipment (623,316)
Proceeds from sale of equipment 2,400
Other (12,600)
----------
Net cash used by investing activities (633,516)
FINANCING ACTIVITIES
Payments on long-term debt (542,022)
----------
Net cash used by financing activities (542,022)
----------
Net decrease in cash and cash equivalents (15,568)
Cash and cash equivalents at beginning of year 159,492
----------
Cash and cash equivalents at end of year $ 143,924
==========
</TABLE>
See accompanying notes.
6
<PAGE>
Sigma Broadcasting, Inc.
Notes to Financial Statements
December 31, 1995
1. NATURE OF OPERATIONS
Sigma Broadcasting, Inc. (Company) owns and operates KHBS-TV and its S-2
satellite KHOG-TV which serve as ABC Affiliates in Fort Smith and Fayetteville,
Arkansas, respectively. The Company operates in one business segment,
commercial television broadcasting.
2. SUMMARY OF ACCOUNTING POLICIES AND USE OF ESTIMATES
CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
ACCOUNTS RECEIVABLE
It is the policy of the Company to charge uncollectible accounts receivable to
expense at the time management determines the account to be uncollectible. Bad
debts written off totaled $24,558 for the year ended December 31, 1995. The
Company believes that the direct write-off method approximates the allowance
method of accounting for bad debt expense.
PROGRAM RIGHTS
Program rights and the corresponding contractual obligations are recorded when
the license period begins and the programs are available for use. Costs are
amortized based on the number of showings or license period. Program rights and
the corresponding contractual obligations are classified as current or long-term
based on estimated usage and payment terms, respectively.
BARTER AND TRADE TRANSACTIONS
Barter transactions represent the exchange of commercial air time for
programming. Trade transactions represent the exchange of commercial air time
for merchandise or services. Barter transactions are generally recorded at the
fair market value of the commercial air time relinquished. Trade transactions
are generally recorded at the fair
7
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Sigma Broadcasting, Inc.
Notes to Financial Statements (continued)
December 31, 1995
2. SUMMARY OF ACCOUNTING POLICIES AND USE OF ESTIMATES (CONTINUED)
market value of the merchandise or services received. Revenue is recognized on
barter and trade transactions when the commercials are broadcast; expenses are
recorded when the merchandise or service received is utilized. Barter and trade
revenues for the year ended December 31, 1995 were $398,229 and are included in
total revenues. Barter and trade expenses for the year ended December 31, 1995
were $365,862 and are included in station operating expenses.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The cost of such items retired or
replaced is removed from the appropriate asset account and the accumulated
appreciation thereon is removed from the accumulated depreciation account. Any
resulting gain or loss, representing the difference between the sales price and
depreciated cost, is credited or charged to income.
Depreciation expense using primarily the modified accelerated cost recovery
system method, which approximates the straight-line method, was $765,998 for the
year ended December 31, 1995. Depreciation was based on the following estimated
useful lives:
ASSET CATEGORY YEARS
- --------------------------------------------------------------------------------
Broadcasting equipment 5-7
Office furniture, equipment, and other 3-7
Leasehold improvements 10-31
GOODWILL
Goodwill represents the excess of purchase price above the fair market value of
the assets purchased. Goodwill is being amortized over 20 years using the
straight-line method. The carrying value of goodwill will be reviewed if the
facts and circumstances suggest that they may be impaired. If this review
indicates that goodwill will not be recoverable, the Company's carrying value of
the goodwill would be reduced by the estimated shortfall of future undiscounted
cash flows.
8
<PAGE>
Sigma Broadcasting, Inc.
Notes to Financial Statements (continued)
December 31, 1995
2. SUMMARY OF ACCOUNTING POLICIES AND USE OF ESTIMATES (CONTINUED)
INCOME TAXES
Income taxes are provided using the liability method in accordance with FASB
Statement No. 109.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the FASB issued Statement No.121, "Accounting for the Impairment
of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of" (Statement
121), which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in 1996 and, based on current circumstances, does not believe the effect of
adoption will be material.
3. GOODWILL
In March 1985, the Company purchased the operating assets of KHBS-TV and KHOG-TV
television stations. The excess of purchase price above the fair market value
of the assets purchased was recorded as goodwill in the amount of $974,709.
Amortization expense for the year ended December 31, 1995 was $48,738.
9
<PAGE>
Sigma Broadcasting, Inc.
Notes to Financial Statements (continued)
December 31, 1995
4. NOTES PAYABLE
Notes payable at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable stockholder, unsecured,
with principal payments of $25,000
per month and interest paid annually
at 7.19% $1,422,041
Note payable stockholder, unsecured,
with principal payments of $5,000
per month and interest paid annually
at 7.19% 377,561
Note payable stockholder, unsecured,
with monthly payments including
interest of $1,661 and interest paid
monthly at 9% 14,401
Note payable individual, secured by
certain equipment, with monthly
payments including interest of
$14,638 and interest paid annually
at 6.01% 481,158
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$2,295,161
==========
</TABLE>
The Company paid interest totaling $203,292 for the year ended December 31,
1995.
10
<PAGE>
Sigma Broadcasting, Inc.
Notes to Financial Statements (continued)
December 31, 1995
5. INCOME TAXES
Income tax expense was $435,554 for the year ended December 31, 1995 as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal income taxes $361,616
Arkansas state income taxes 73,938
--------
$435,554
========
The Company's effective income tax rate was 40.7% computed as follows:
1995 PERCENT
------------------------
Federal income tax at statutory tax rates $363,805 34.0%
State income tax net of federal tax benefit 48,799 4.6%
Effect of nondeductible expenses 22,950 2.1%
------------------------
$435,554 40.7%
========================
</TABLE>
Income taxes paid during the current year totaled $555,529.
6. RELATED PARTY TRANSACTIONS
The Company leases certain operating facilities from Sigma Properties, a related
party, by virtue of common officers and owners. Rentals paid by the Company to
Sigma Properties was $130,800 for the year ended December 31, 1995 (see Note 8).
The majority stockholder is paid an $11,000 per month consulting fee for
consulting services rendered. Total consulting fees paid totaled $132,000 for
the year ended December 31, 1995.
11
<PAGE>
Sigma Broadcasting, Inc.
Notes to Financial Statements (continued)
December 31, 1995
6. RELATED PARTY TRANSACTIONS (CONTINUED)
The stockholders have made various loans to the Company for equipment and
working capital needs (see Note 4).
The Company makes a monthly note payment totaling $14,678, including interest,
to the father of the stockholders of the Company. This note was for the initial
purchase of the Company's primary broadcast tower (see Note 4).
Management of the Company is of the opinion that these related party
transactions are comparable to those which would be incurred with independent
third parties for similar facility and services.
7. RETIREMENT PLAN
The Company has established a 401(k) plan for the benefit of its employees.
Qualified employees may contribute from 2% to 15% of their compensation up to
certain dollar amounts. The Company matches 50% of the first 6% of employees'
contributions. The Company's contributions to the plan were $39,038 for the
year ended December 31, 1995. The Company expenses these contributions as they
are incurred.
8. COMMITMENTS
The Company has entered into various operating leases as follows:
The Company leases its real estate, buildings, and operating facilities from
Sigma Properties Partnership, a related party (see Note 6). The monthly lease
amount is $10,900 per month. The lease is a one-year lease renewing each
January 1. Either party may cancel the lease for the subsequent year with
written notice served to the other party by December 1, annually.
The Company leases land for four different tower sites. The current monthly
lease amount is approximately $746 per month with scheduled increases through
2014.
Rent expense incurred for the year ended December 31, 1995 was $130,800.
12
<PAGE>
Sigma Broadcasting, Inc.
Notes to Financial Statements (continued)
December 31, 1995
8. COMMITMENTS (CONTINUED)
Following is a summary of future minimum payments under operating lease
agreements that have remaining noncancelable lease terms in excess of one year
at December 31, 1995, as well as future minimum payments under terms of various
agreements relating to employment contracts for key employees:
<TABLE>
<CAPTION>
OPERATING EMPLOYMENT
LEASES CONTRACTS
--------------------------------
<S> <C> <C>
1996 $ 139,752 $228,517
1997 139,752 66,625
1998 140,752 21,667
1999 140,812 --
2000 140,872 --
Years subsequent to 2000 1,972,208 --
--------------------------------
$2,674,148 $316,809
================================
</TABLE>
9. SUBSEQUENT EVENT
In June 1996, the Company and certain related assets were sold to Argyle
Television, Inc. for total consideration of approximately $33.5 million. The
accompanying financial statements do not reflect any adjustment resulting from
the sale.
13
