<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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
HEARST-ARGYLE TELEVISION, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 74-2717523
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
959 EIGHTH AVENUE (212) 649-2307
NEW YORK, NY 10019 (Registrant's telephone number,
(Address of principal executive offices) including area code)
</TABLE>
--------------------------------------------------------------------
(Former name, former address, ad 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 twelve 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 May 13, 1998, the Registrant had 58,842,377 shares of common stock
outstanding. Consisting of 12,543,729 shares of Series A Common Stock,
41,298,648 shares of Series B Common Stock.
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
This amendment to Form 10-Q amends and revises Part I: Items 1 and 2 and Part
II: Item 6 on Form 10-Q for the quarter ended March 31, 1998 of Hearst-Argyle
Television, Inc. initially filed with the Securities and Exchange Commission on
May 14, 1998. Unless otherwise indicated, capitalized terms used herein shall
have the respective meanings given such terms in the Form 10-Q.
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of December 31,
1997 and March 31, 1998 (unaudited)............................................. 1
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1997
and 1998 (unaudited)............................................................ 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997
and 1998 (unaudited)............................................................ 4
Notes to Condensed Consolidated Financial Statements............................ 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 9
PART II OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K............................................ 12
Signatures........................................................................... 13
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARST-ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
1997 (UNAUDITED)
-------------------------------------------------------
(In thousands)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,759 $47,059
Accounts receivable, net 89,988 68,186
Program and barter rights 35,737 23,387
Deferred income taxes 5,975 5,975
Related party receivable 3,695 8,106
Net assets held for sale 72,019 70,603
Other 7,070 7,735
------- -------
Total current assets 227,243 231,051
------- -------
Property, plant and equipment, net 97,804 103,808
------- -------
Intangible assets, net 661,326 652,158
------- -------
Other assets:
Deferred acquisition and financing costs,
Net 27,796 28,428
Program and barter rights, noncurrent 3,511 3,382
Other 26,429 26,869
------- -------
Total other assets 57,736 58,679
------- -------
Total assets $1,044,109 $1,045,696
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
1997 (Unaudited)
---------------------------------------------------------
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $36,048 $41,743
Program and barter rights payable 35,769 23,893
Other 51 303
------- -------
Total current liabilities 71,868 65,939
------- -------
Program and barter rights payable 4,923 3,815
Long-term debt 490,000 502,596
Deferred income taxes 150,274 150,274
Other liabilities 390 993
------- -------
Total noncurrent liabilities 645,587 657,678
------- -------
Commitments and contingencies
Stockholders' equity:
Series A preferred stock 1 1
Series B preferred stock 1 1
Series A common stock 125 125
Series B common stock 413 413
Additional paid-in capital 202,152 202,067
Retained earnings 123,962 119,472
------- -------
Total stockholders' equity 326,654 322,079
------- -------
Total liabilities and stockholders' equity $1,044,109 $1,045,696
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1998
-------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Total revenues $62,053 $87,252
Station operating expenses 30,079 42,442
Amortization of program rights 9,519 10,823
Depreciation and amortization 4,088 8,841
-------- --------
Station operating income 18,367 25,146
Corporate general and administrative expenses 2,129 3,435
-------- --------
Operating income 16,238 21,711
Interest expense, net 5,101 10,960
-------- --------
Income before income taxes and extraordinary item 11,137 10,751
Income taxes 4,741 4,916
-------- --------
Income before extraordinary item 6,396 5,835
Extraordinary item, loss on early retirement of debt,
net of income tax benefit of $6,881 - (9,969)
-------- --------
Net income (loss) 6,396 (4,134)
Less preferred stock dividends - (356)
-------- --------
Income (loss) applicable to common stockholders $6,396 $(4,490)
======== ========
Earnings (loss) per common share - basic:
Before extraordinary item $0.15 $ 0.10
Extraordinary item - (0.19)
======== ========
Net income (loss) $0.15 $(0.09)
======== ========
Number of common shares used in the calculation 41,299 53,833
======== ========
Earnings (loss) per common share - diluted:
Before extraordinary loss $0.15 $0.10
Extraordinary item - (0.18)
-------- --------
Net income (loss) $0.15 $(0.08)
======== ========
Number of common shares used in the calculation 41,299 54,043
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1998
----------------------------------------------
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $6,396 $(4,134)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Extraordinary item, loss on early retirement of debt - 16,850
Depreciation 1,800 2,827
Amortization of intangible assets 2,288 6,014
Amortization of deferred financing costs - 631
Amortization of program rights 9,519 10,823
Program payments (9,644) (11,123)
Fair value adjustments of interest rate protection agreements - 546
Changes in operating assets and liabilities, net 3,979 22,744
----------------------------------------------
Net cash provided by operating activities 14,338 45,178
----------------------------------------------
INVESTING ACTIVITIES
Acquisition costs - (186)
Purchases of property, plant, and equipment:
Special projects/buildings - (1,837)
Digital - (1,007)
Maintenance (1,419) (2,058)
----------------------------------------------
Net cash used in investing activities (1,419) (5,088)
----------------------------------------------
FINANCING ACTIVITIES
Financing costs and other - (4,154)
Issuance of Senior Notes - 200,000
Repayment of Senior Subordinated Notes - (116,280)
Dividends paid on preferred stock - (356)
Payment of long-term debt - (85,000)
Due to Hearst (12,041) -
----------------------------------------------
Net cash used in financing activities (12,041) (5,790)
----------------------------------------------
Increase in cash and cash equivalents 878 34,300
Cash and cash equivalents at beginning of period 2,882 12,759
----------------------------------------------
Cash and cash equivalents at end of period $3,760 $47,059
==============================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
On August 29, 1997, effective September 1, 1997 for accounting purposes, The
Hearst Corporation ("Hearst") contributed its television broadcast group and
related broadcast operations (the "Hearst Broadcast Group") to Argyle
Television, Inc. ("Argyle") and merged a wholly-owned subsidiary of Hearst with
and into Argyle, with Argyle as the surviving corporation (renamed "Hearst-
Argyle Television, Inc."). The merger transaction is referred to as "the Hearst
Transaction". As a result of the Hearst Transaction, Hearst owned approximately
41.3 million shares of the Company's Series B Common Stock, comprising
approximately 77% of the total outstanding common stock of the Company.
The merger was accounted for as a purchase of Argyle by Hearst in a reverse
acquisition. The assets and liabilities of Argyle have been adjusted to the
extent acquired by Hearst to their estimated fair values based upon preliminary
purchase price allocations. The net assets of the Hearst Broadcast Group have
been reflected at their historical cost basis. In a reverse acquisition, the
accounting treatment differs from the legal form of the transaction, as the
continuing legal parent company (Argyle), is not assumed to be the acquiror and
the historical financial statements of the entity become those of the accounting
acquiror (Hearst Broadcast Group). Consequently, the presentation of the
Company's consolidated financial statements prior to September 1, 1997 has been
revised to reflect the financial statements of the Hearst Broadcast Group. In
addition, the divisional equity of the Hearst Broadcast Group, which includes
the amounts due to Hearst and affiliates, has been reclassified retroactively to
reflect the par value of the approximately 41.3 million shares received by
Hearst in the Hearst Transaction in the accompanying financial statements for
periods ending prior to September 1, 1997. See Note 2.
GENERAL
The condensed consolidated financial statements include the accounts of Hearst-
Argyle Television, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany accounts have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1997 and 1998 are not
necessarily indicative of the results that may be expected for a full year.
2. ACQUISITIONS
The acquisition of Argyle was accounted for as a purchase and accordingly, the
purchase price and related acquisition costs have been allocated to the acquired
assets and liabilities based upon their preliminarily determined fair market
value. The excess of the purchase price over the net fair market value of the
tangible assets acquired and the liabilities assumed was allocated to
identifiable intangible assets including FCC licenses, network affiliation
agreements and goodwill. The final asset and liability fair values may differ
from those set forth in the accompanying condensed consolidated balance sheets
at December 31, 1997 and March 31, 1998; however, the changes, if any, are not
expected to have a material effect on the condensed consolidated financial
statements of the Company. The condensed consolidated financial statements
include the results of operations of Argyle since the date of the acquisition.
On February 19, 1998, the Company announced that it agreed to exchange its WDTN
and WNAC stations with STC Broadcasting, Inc. ("STC") for KSBW, the NBC
affiliate serving the Monterey Salinas, CA, television market, and WPTZ/WNNE,
the NBC affiliates serving the Burlington, VT Plattsburgh, NY, television
market. In addition, the Company will pay STC approximately $21 million. The
Company anticipates the transaction will close during the second quarter of
1998.
5
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
MARCH 31, 1998
2. ACQUISITIONS (CONTINUED)
On April 24, 1998, the Company loaned STC $70.5 million. The loan, which bears
interest at 7.75% per year and is collateralized by the stock of the STC
subsidiary that owns the assets comprising WPTZ/WNNE, is due upon the closing of
the exchange transaction, discussed above.
Giving effect to the Hearst Transaction, unaudited pro forma results of
operations reflect the acquisitions and financings (See Note 3) as having
occurred as of January 1, 1997, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1998
----------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Total revenues $81,321 $87,252
Net income $4,603 $7,051
Earnings from continuing operations applicable to common stockholders $4,247 $6,695
Earnings per common share - basic $0.08 $0.12
======= =======
- diluted $0.08 $0.12
======= =======
Pro forma number of shares used in calculations - basic 53,833 53,833
======= =======
- diluted 54,043 54,043
======= =======
</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
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------------------------------------
(In thousands)
<S> <C> <C>
Credit Facility dated August 29, 1997:
Revolving credit facility $85,000 --
Senior Notes 300,000 $500,000
Senior Subordinated Notes 105,000 2,596
--------------------------------------
$490,000 $502,596
======================================
</TABLE>
6
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
MARCH 31, 1998
3. LONG-TERM DEBT (CONTINUED)
SENIOR SUBORDINATED NOTES
During February 1998, the Company repaid $102.4 million of the Senior
Subordinated Notes ("Notes") at a premium of approximately $13.9 million. In
addition, the Company wrote-off the remaining deferred financing fees related to
the Notes. Both the premium paid and the deferred financing fees relating to
the Notes were classified as an extraordinary item in the accompanying condensed
consolidated statement of operations for the three months ended March 31, 1998.
SENIOR NOTES
On January 13, 1998 the Company issued $200 million aggregate principal amount
of 7.0% Senior Notes Due 2018 (the "$200 million Senior Notes"). The $200
million Senior Notes are senior and unsecured obligations of the Company. In
addition, the indenture governing the Senior Notes imposes various conditions,
restrictions and limitations on the Company and its subsidiaries. Proceeds from
the $200 million Senior Notes offering were used to repay existing indebtedness
of the Company (See Senior Subordinated Notes, above).
INTEREST RATE RISK MANAGEMENT
The Company has two interest rate protection agreements effectively fixing the
Company's interest rate at approximately 7% on $35 million of its borrowings
under the Credit Facility until June 1999.
Additional information regarding these interest rate protection agreements in
effect at March 31, 1998 follows:
<TABLE>
<CAPTION>
AVERAGE AVERAGE ESTIMATED FAIR
NOTIONAL AMOUNT RECEIVE RATE PAY RATE VALUE
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swap agreements:
Fixed rate agreement $20,000,000 LIBOR 7.01% $(311,023)
Fixed rate agreement $15,000,000 LIBOR 6.98% $(235,673)
</TABLE>
The Company is exposed to credit risk in the event of nonperformance by
counterparties to its interest rate swap agreements. Credit risk is limited by
entering into such agreements with primary dealers only; therefore, the Company
does not anticipate that nonperformance by counterparties will occur.
Notwithstanding this, the Company's treasury department monitors counterparty
credit ratings at least quarterly through reviewing independent credit agency
reports. Both current and potential exposures are evaluated, as necessary, by
obtaining replacement cost information from alternative dealers. Potential loss
to the Company from credit risk on these agreements is limited to amounts
receivable, if any. The Company enters into these agreements solely to hedge
its interest rate risk.
7
<PAGE>
HEARST-ARGYLE TELEVISION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
MARCH 31, 1998
4. NET ASSETS HELD FOR SALE
Upon completion of the Hearst Transaction, the Company owns television stations
in two areas (Boston and Providence, and Dayton and Cincinnati) with overlapping
service contours in violation of the FCC's local ownership rules. The FCC's
rules prohibit the ownership of two stations in the same geographic area whose
service contours overlap. To comply with these rules, the Company is required
to divest one station in each of the aforementioned areas. Included in the
caption Net Assets Held for Sale on the accompanying condensed consolidated
balance sheets as of December 31, 1997 and March 31, 1998, are the net assets of
the stations located in Providence and Dayton at their carrying values. The
Company has agreed to exchange these assets during the second quarter of 1998,
for two television stations in markets without overlapping service contours (See
Note 2).
5. RELATED PARTY TRANSACTIONS
Prior to September 1, 1997, Hearst provided certain management services to the
Company. Such services include data processing, legal, tax, treasury, internal
audit, risk management, and other support services. For the three months ended
March 31, 1997, the Company was allocated expenses of approximately $499,000
related to these services. In addition, Hearst allocated interest expense to
the Company which was based on the average balance of divisional equity at an
interest rate of 8% per annum. Allocated expenses are based on the Hearst's
estimate of expenses related to the services provided to the Company in relation
to those provided to other divisions or subsidiaries of Hearst. Management
believes that these allocations were made on reasonable basis. However, the
allocations are not necessarily indicative of the level of expenses that might
have been incurred had the Company contracted directly with third parties. In
addition, certain costs (principally salaries, fringe benefits and incentive
compensation) were incurred by the Company, paid by Hearst and charged to the
Company for the three months ended March 31, 1997 in the amount of approximately
$2.0 million.
The Company recorded revenues of approximately $430,000 relating to the
Management Agreement (whereby the Company provides certain management services,
such as sales, news, programming and financial and accounting management
services, with respect to certain Hearst owned or operated television and radio
stations); and expenses of approximately $574,000 relating to the Services
Agreement (whereby Hearst provides the Company certain administrative services
such as accounting, financial, legal, tax, insurance, data processing and
employee benefits), during the three months ended March 31, 1998. The Company
believes that the terms of all these agreements are reasonable to both sides;
there can be no assurance, however, that more favorable terms would not be
available from third parties.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
--------------
RESULTS OF OPERATIONS
On August 29, 1997, effective September 1, 1997 for accounting purposes, The
Hearst Corporation ("Hearst") contributed its television broadcast group and
related broadcast operations (the "Hearst Broadcast Group") to Argyle
Television, Inc. ("Argyle") and merged a wholly-owned subsidiary of Hearst with
and into Argyle, with Argyle as the surviving corporation (renamed "Hearst-
Argyle Television, Inc."). The merger transaction is referred to as the "Hearst
Transaction." The merger was accounted for as a purchase of Argyle by Hearst in
a reverse acquisition. In a reverse acquisition, the accounting treatment
differs from the legal form of the transaction, as the continuing legal parent
company (Argyle), is not assumed to be the acquiror and the historical financial
statements of the entity become those of the accounting acquiror (Hearst
Broadcast Group). Consequently, the presentation of the Company's consolidated
financial statements prior to September 1, 1997 represents the financial
statements of the Hearst Broadcast Group. In addition, the Company agreed to
provide management services with respect to WWWB, WPBF, KCWE and WBAL-AM and
WIYY-FM (The "Managed Stations"), three of which stations are owned by Hearst
and the other of which Hearst Provides certain services to under a local
marketing agreement, in exchange for a management fee (See Notes 1, 2 and 5 to
the condensed consolidated financial statements).
The following discussion of results of operations does not include the pro forma
effects of the Hearst Transaction for the three months ended March 31, 1997.
Results of operations for the three months ended March 31, 1998 include: (i) the
Hearst Broadcast Group, KITV, WAPT, KHBS/KHOG, the Company's share of broadcast
cash flows from the Clear Channel Venture, WLWT, KOCO, and, (ii) fees derived by
the Company from the Managed Stations. Results of operations for the three
months ended March 31, 1997 include the Hearst Broadcast Group for the entire
period.
Three Months Ended March 31, 1998
Compared to Three Months Ended March 31, 1997
Total revenues. Total revenues in the three months ended March 31, 1998 were
$87.3 million, as compared to $62.1 million in the three months ended March 31,
1997, an increase of $25.2 million or 40.6%. The increase was primarily
attributable to the Hearst Transaction, which added $19.6 million to 1998 total
revenues. In addition, the increase is attributable to: (i) an increase in
telecommunications and automotive advertising, which added approximately $2.1
million to the 1998 period; (ii) political advertising, which added
approximately $0.4 million to the 1998 period; and, (iii) the Superbowl on the
NBC stations, which added approximately $0.4 million to the 1998 period.
Station operating expenses. Station operating expenses in the three months
ended March 31, 1998 were $42.4 million, as compared to $30.1 million in the
three months ended March 31, 1997, an increase of $12.3 million or 40.9%. The
increase was primarily attributable to the Hearst Transaction, which added $11.2
million to station operating expenses during 1998.
Amortization of program rights. Amortization of program rights in the three
months ended March 31, 1998 was $10.8 million, as compared to $9.5 million in
the three months ended March 31, 1997, an increase of $1.3 million or 13.7%.
The increase was primarily attributable to the Hearst Transaction, which added
$1.2 million to amortization of program rights during 1998.
9
<PAGE>
Depreciation and amortization. Depreciation and amortization of intangible
assets was $8.8 million in the three months ended March 31, 1998, as compared to
$4.1 million in the three months ended March 31, 1997, an increase of $4.7
million or 114.6%. The increase was primarily attributable to the Hearst
Transaction, which added $5.0 million to depreciation and amortization of
intangibles during 1998.
Station operating income. Station operating income in the three months ended
March 31, 1998 was $25.1 million, as compared $18.4 million in the three months
ended March 31, 1997, an increase of $6.7 million or 36.4%. The increase in
station operating income was attributable to the items discussed above.
Corporate general and administrative expenses. Corporate general and
administrative expenses were $3.4 million for the three months ended March 31,
1998, as compared to $2.1 million for the three months ended March 31, 1997, an
increase of $1.3 million or 61.9 %. The increase was attributable to the
increase in corporate staff following the Hearst Transaction and other costs
associated with the Hearst Transaction.
Interest expense, net. Interest expense, net was $11.0 million in the three
months ended March 31, 1998, as compared to $5.1 million in the three months
ended March 31, 1997, an increase of $5.9 million or 115.7%. This increase in
interest expense was primarily attributable to a larger outstanding debt balance
in 1998 than in 1997, which was the result of the Hearst Transaction. In
addition, interest expense, net for the three months ended March 31, 1998 was
increased by $0.5 million as a result of the interest rate protection
agreements. Due to the lack of floating rate debt at March 31, 1998, the Company
was required to mark-to-market the interest rate protection agreements, in
compliance with SFAS No. 119. Interest rate protection agreements did not exist
during the 1997 period.
Income taxes. Income tax expense was $4.9 million in the three months ended
March 31, 1998, as compared to $4.7 million in the three months ended March 31,
1997, an increase of $0.2 million, or 4.3%. The effective rate was 45.7% for
the three months ended March 31, 1998 as compared to 42.6 % for the three months
ended March 31, 1997. This represents federal and state income taxes as
calculated on the Company's net income before taxes and extraordinary item. The
increase in the effective rate relates primarily to the increase in the state
and local income tax provision.
Extraordinary item. The Company recorded an extraordinary item of $10.0 million
net of the related income tax benefit, in 1998. This extraordinary item
resulted from an early repayment of the Company's $102.4 million Senior
Subordinated Notes. The extraordinary item includes the write-off of the
unamortized deferred financing costs associated with the Senior Subordinated
Notes and the payment of a premium for the early repayment.
Net income (loss). Net loss was $4.1 million in the three months ended March
31, 1998, as compared to net income of $6.4 million in the three months ended
March 31, 1997, a decrease of $10.5 million or 164.1%. This reduction in net
income was attributable primarily to the increase in depreciation and
amortization, interest expense, net and the extraordinary item, offset by the
increase in station operating income.
Broadcast Cash Flow. Broadcast cash flow was $33.7 million in the three months
ended March 31, 1998, as compared to $22.3 million in the three months ended
March 31, 1997, an increase of $11.4 million or 51.1%. The increase was
primarily attributable to the Hearst Transaction, which added $7.2 million to
broadcast cash flow during the 1998 period. In addition, the increase is
attributable to: (i) an increase in local revenues due to an increase in
telecommunications, automotive and political advertising and (ii) to a lesser
degree an increase in revenues due to the Superbowl. Broadcast cash flow margin
increased to 38.6% in 1998 from 36% in 1997. Broadcast cash flow is defined as
station operating income, plus depreciation and amortization, plus amortization
of program rights, minus program payments. Broadcast cash flow does not present
a measure of operating results and does not purport to represent cash provided
by operating activities. Broadcast cash flow should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles. This measure may not be
comparable to similarly titled measures used by other companies.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the Hearst Transaction on August 29, 1997, the Company
retired its existing credit agreement (the "Old Credit Agreement") and entered
into a $1 billion syndicated credit facility with Chase Manhattan Bank (the
"Credit Facility"). As of March 31, 1998, no amount was outstanding under the
Credit Facility. The Company may borrow amounts under the Credit Facility from
time to time for additional acquisitions, capital expenditures and working
capital, subject to the satisfaction of certain conditions on the date of
borrowing.
10
<PAGE>
Capital expenditures were $21.9 million in 1997 and approximately $4.9 million
during the three-months ended March 31, 1998. The Company expects to invest
approximately $12.8 million in special projects/buildings including its new
station facility at WLWT, approximately $6.2 million in digital conversion
projects at various stations and $9.4 million in maintenance projects, during
1998.
The Company anticipates that its primary sources of cash, those being, current
cash balances, operating cash flow and amounts available under the Credit
Facility, will be sufficient to finance the operating and working capital
requirements of its stations, the Company's debt service requirements and
anticipated capital expenditures for the Company for both the next 12 months and
the foreseeable future thereafter.
IMPACT OF INFLATION
The impact of inflation on the Company's operations has not been significant to
date. There can be no assurance, however, that a high rate of inflation in the
future would not have an adverse impact on the Company's operating results.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements concerning the Company's
operations, economic performance and financial condition. These statements are
based upon a number of assumptions and estimates which are inherently subject to
uncertainties and contingencies, many of which are beyond the control of the
Company, and reflect future business decisions which are subject to change.
Some of the assumptions may not materialize and unanticipated events may occur
which can affect the Company's results.
YEAR 2000
The Company has evaluated the potential impact of the situation commonly
referred to as the "Year 2000 problem." The Year 2000 problem, which is common
to most corporations, concerns the inability of information systems, primarily
computer software programs, to properly recognize and process date sensitive
information related to the year 2000. Preliminary assessment indicates that
solutions will involve a mix of modifying existing systems, replacing obsolete
systems and confirming vendor compliance. The Company currently does not
anticipate any significant incremental capital expenditures associated with the
Year 2000 problem. However, Year 2000 assessments will continue and capital
expenditure estimates could change.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for reporting certain financial and
descriptive information for reportable segments on the same basis that is used
internally for evaluating segment performance and the allocation of resources to
segments. This statement is effective for fiscal years beginning after December
15, 1997. In February 1998, the Financial Accounting Standards Board issued
SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement
Benefits", which becomes effective for the Company's 1998 consolidated financial
statements. SFAS No. 132 standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain previously
required disclosures. The adoption of these statements will not have a material
effect on the Company's consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") No. 98-5, Reporting on the Costs of Start-
Up Activities ("SOP 98-5"). SOP 98-5 requires that entities expense start-up
costs and organization costs as they are incurred. In March 1998, the AICPA
issued SOP No. 98-1, Accounting for the costs of computer software developed or
obtained for internal use ("SOP 98-1"). SOP 98-1 was issued to remedy the
diversity in the approaches to accounting for internaluse software by providing
guidance on expensing versus capitalization of costs, accounting for the costs
incurred in the upgrading and amortization of capitalized software costs. These
statements are effective for fiscal years beginning after December 15, 1998. The
Company's accounting practices are in compliance with these Statements.
11
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No.
27 Financial Data Schedule
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly cased this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hearst-Argyle Television, Inc.
December 10, 1998 By:
-----------------------------------------
Harry T. Hawks, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
December 10, 1998 By:
-----------------------------------------
Teresa D. Lopez, Vice President and Controller
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 47,059 0
<SECURITIES> 0 0
<RECEIVABLES> 68,186 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 231,051 0
<PP&E> 103,808 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,045,696 0
<CURRENT-LIABILITIES> 65,939 0
<BONDS> 502,596 0
0 0
2 0
<COMMON> 538 0
<OTHER-SE> 321,539 0
<TOTAL-LIABILITY-AND-EQUITY> 1,045,696 0
<SALES> 0 0
<TOTAL-REVENUES> 87,252 62,053
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 42,442 30,079
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,960 5,101
<INCOME-PRETAX> 10,751 11,137
<INCOME-TAX> 4,916 0
<INCOME-CONTINUING> 5,835 6,396
<DISCONTINUED> 0 0
<EXTRAORDINARY> (9,969) 0
<CHANGES> 0 0
<NET-INCOME> (4,134) 6,396
<EPS-PRIMARY> (0.09) 0.15
<EPS-DILUTED> (0.08) 0.15
</TABLE>
