<PAGE>
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
SEPTEMBER 29, 1998
------------------
Date of Report (Date of earliest event reported)
HEARST-ARGYLE TELEVISION, INC.
------------------------------
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-27000 74-271753
-------- --------- ---------
(State of Organization) (Commission File Number) (IRS Employer Identification No.)
</TABLE>
888 SEVENTH AVENUE
NEW YORK, NEW YORK 10106
------------------------
(Address of Registrant's Principal Executive Office) (Zip Code)
(212) 649-2300
--------------
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events.
------------
As reported by Hearst-Argyle Television, Inc. (the "Company") on a Current
Report on Form 8-K, dated May 26, 1998, the Company agreed to purchase the
television and radio business operations of Pulitzer Publishing Company
("Pulitzer") in exchange for shares of the Company's Series A Common Stock, par
value $.01 per share (the "Series A Common Stock"), worth $1.15 billion, subject
to certain closing adjustments. Pursuant to the Agreement and Plan of Merger
dated as of May 25, 1998 (the "Pulitzer Merger Agreement"), by and among the
Company, Pulitzer and Pulitzer Inc., a wholly owned subsidiary of Pulitzer ("New
Pulitzer"), Pulitzer will contribute all of its publishing assets and the net
proceeds of $700 million of new debt into New Pulitzer and distribute shares of
capital stock of New Pulitzer to the current stockholders of Pulitzer. As a
result Pulitzer, with its remaining broadcast operations, will then be merged
with and into the Company in exchange for $1.15 billion of the Company's Series
A Common Stock and the assumption of $700 million of new debt (the "Pulitzer
Merger"). The Company expects the Pulitzer Merger to close by the end of 1998,
subject to shareholder and regulatory approvals and certain other conditions.
Currently, Pulitzer's television and radio business operations are held in
Pulitzer Broadcasting Company, a wholly owned subsidiary of Pulitzer ("Pulitzer
Broadcasting"), and certain subsidiaries of Pulitzer Broadcasting. Attached
hereto as Exhibit 99.1 are the consolidated financial statements of Pulitzer
Broadcasting and Subsidiaries as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997 and as of June 30, 1998
and for the six months ended June 30, 1998 and 1997.
In addition, as reported by the Company on a Current Report on Form 8-K,
dated September 17, 1998, the Company has entered into an agreement to acquire,
through a merger transaction, all of the partnership interests in Kelly
Broadcasting Co., a California limited partnership ("Kelly Broadcasting"), in
exchange for cash consideration in the amount of $520 million, subject to
certain closing adjustments (the "Kelly Transaction"). Kelly Broadcasting owns
and operates television broadcast station KCRA-TV, Sacramento, California
("KCRA-TV"), and provides programming for television broadcast station KQCA-TV,
Sacramento, California, pursuant to a Time Brokerage Agreement with Channel 58,
Inc., a California corporation. Pursuant to the Kelly Broadcasting Co.
Agreement and Plan of Merger, dated as of August 21, 1998, by and among the
Company, Kelly Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of the Company ("Merger Sub"), Kelly Broadcasting, J.S. Kelly L.L.C.,
a Delaware limited liability company, G.G. Kelly L.L.C., a Delaware limited
liability company, and Robert E. Kelly, Kelly Broadcasting will be merged with
and into Merger Sub, with Merger Sub as the surviving entity. The Company
expects the Kelly Transaction to close in early 1999, subject to regulatory
approvals and other customary closing conditions.
Attached hereto as Exhibit 99.2 are the Company's Unaudited Pro Forma
Combined Condensed Financial Statements giving effect to the Pulitzer Merger and
the Kelly Transaction.
2
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(c) Exhibits.
23.1 Consent of Deloitte & Touche LLP.
99.1 Pulitzer Broadcasting Company and Subsidiaries consolidated
financial statements as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31,
1997 and as of June 30, 1998 and for the six months ended
June 30, 1998 and 1997.
99.2 Unaudited Pro Forma Combined Condensed Financial Statements
of Hearst-Argyle Television, Inc. (giving effect to the
Pulitzer Merger and the Kelly Transaction).
3
<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.
HEARST-ARGYLE TELEVISION, INC.
By: /s/ Dean H. Blythe
-----------------------------------------
Dean H. Blythe
Senior Vice President-
Corporate Development, Secretary
and General Counsel
Date: September 29, 1998
4
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ---------- -------
23.1 Consent of Deloitte & Touche LLP.
99.1 Pulitzer Broadcasting Company and Subsidiaries consolidated
financial statements as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 and
as of June 30, 1998 and for the six months ended June 30, 1998
and 1997.
99.2 Unaudited Pro Forma Combined Condensed Financial Statements of
Hearst-Argyle Television, Inc. (giving effect to the Pulitzer
Merger and the Kelly Transaction).
<PAGE>
EXHIBIT 23.1
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Argyle Television Inc. and Hearst-Argyle Television Inc. on Form S-3 (No. 333-
35051 and No. 333-61101, respectively) of our report dated July 17, 1998
relating to the financial statements of Pulitzer Broadcasting Company and
Subsidiaries, appearing in the Current Report on Form 8-K of Hearst-Argyle
Television Inc. dated September 29, 1998.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
September 29, 1998
<PAGE>
EXHIBIT 99.1
PULITZER BROADCASTING COMPANY
AND SUBSIDIARIES
TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Statements of Consolidated Income for each of the Three Years in the Period
Ended December 31, 1997
Statements of Consolidated Income for each of the Six-Month Periods
Ended June 30, 1998 and 1997 (Unaudited)
Statements of Consolidated Financial Position at December 31, 1997 and 1996
Statements of Consolidated Financial Position at June 30, 1998 (Unaudited)
Statements of Consolidated Stockholder's Equity (Deficit) for each of the
Three Years in the Period Ended December 31, 1997
Statement of Consolidated Stockholder's Equity for the Six-Month Period
Ended June 30, 1998 (Unaudited)
Statements of Consolidated Cash Flows for each of the Three Years in the
Period Ended December 31, 1997
Statements of Consolidated Cash Flows for each of the Six-Month Periods
Ended June 30, 1998 and 1997 (Unaudited)
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Pulitzer Publishing Company:
We have audited the accompanying statements of consolidated financial position
of Pulitzer Broadcasting Company, a wholly-owned subsidiary of Pulitzer
Publishing Company, and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholder's equity (deficit), and
cash flows for each of the three years in the period ended December 31, 1997.
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 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 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies at December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
July 17, 1998
2
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, Years Ended December 31,
--------------------------------- ------------------------------------------------
1998 1997 1997 1996 1995
(Unaudited)
(In thousands)
OPERATING REVENUES - NET $119,773 $111,264 $227,016 $224,992 $202,939
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Operations 36,045 33,989 69,205 66,626 64,202
Selling, general and administrative 28,267 27,862 55,885 56,535 53,707
Depreciation and amortization 11,051 11,684 23,447 22,442 22,843
Total operating expenses 75,363 73,535 148,537 145,603 140,752
------- -------- -------- -------- -------
Operating income 44,410 37,729 78,479 79,389 62,187
Interest expense (6,925) (8,699) (16,081) (13,592) (10,171)
Net other income (expense) 5 5 10 434 (4)
------- -------- -------- -------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES 37,490 29,035 62,408 66,231 52,012
PROVISION FOR INCOME TAXES (Note11) 14,645 11,346 24,387 25,876 19,433
------- -------- -------- -------- -------
NET INCOME $ 22,845 $ 17,689 $ 38,021 $ 40,355 $ 32,579
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
JUNE 30, ---------------------------
1998 1997 1996
(Unaudited)
(In thousands, except share data)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Trade accounts receivable (less allowance for
doubtful accounts of $871, $785 and $991) $ 50,863 $ 50,880 $ 47,700
Program rights 3,054 7,866 8,452
Prepaid expenses and other 1,306 1,260 1,277
-------- -------- --------
Total current assets 55,223 60,006 57,429
-------- -------- --------
PROPERTIES:
Land 10,069 10,163 9,342
Buildings 44,881 44,769 43,827
Machinery and equipment 137,250 135,629 125,806
Construction in progress 5,794 3,282 1,735
-------- -------- --------
Total 197,994 193,843 180,710
Less accumulated depreciation 113,922 106,826 91,816
-------- -------- --------
Properties - net 84,072 87,017 88,894
-------- -------- --------
INTANGIBLE AND OTHER ASSETS:
Intangible assets - net of amortization (Note 6) 98,670 102,493 107,934
Other 7,904 7,172 6,021
-------- -------- --------
Total intangible and other assets 106,574 109,665 113,955
-------- -------- --------
TOTAL $245,869 $256,688 $260,278
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 4,113 $ 3,966 $ 3,724
Current portion of long-term debt (Note 7) 12,705 12,705 14,705
Salaries, wages and commissions 4,053 4,709 4,806
Interest payable 5,640 5,677 7,177
Program contracts payable 2,728 7,907 8,916
Other 2,169 1,551 1,698
-------- -------- --------
Total current liabilities 31,408 36,515 41,026
-------- -------- --------
LONG-TERM DEBT (Note 7) 172,500 172,705 235,410
-------- -------- --------
PENSION OBLIGATIONS (Note 8) 6,242 5,544 4,149
-------- -------- --------
POSTRETIREMENT BENEFIT OBLIGATIONS (Note 9) 2,659 2,556 2,618
-------- -------- --------
OTHER LONG-TERM LIABILITIES 2,522 3,299 5,842
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, $100 par value; 1,000 shares authorized;
issued 100 shares 10 10 10
Additional paid-in capital 11,924 11,924 11,924
Retained earnings 104,454 81,609 43,588
Intercompany balance (Note 4) (85,850) (57,474) (84,289)
-------- -------- --------
Total stockholder's equity (deficit) 30,538 36,069 (28,767)
-------- -------- --------
TOTAL $245,869 $256,688 $260,278
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, Years Ended December 31,
------------------------------ ------------------------------------
1998 1997 1997 1996 1995
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,845 $ 17,689 $ 38,021 $ 40,355 $ 32,579
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,157 7,817 15,709 14,811 15,191
Amortization 3,894 3,867 7,738 7,631 7,652
Deferred income taxes (659) (654) (2,039) (844) (1,506)
Gain on sale of assets (421)
Changes in assets and liabilities which
provided (used) cash:
Trade accounts receivable 17 (839) (3,180) (5,658) (3,014)
Other assets (164) 24 (386) (597) 414
Trade accounts payable and other liabilities 867 (394) (356) 4,751 1,608
-------- -------- -------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 33,957 27,510 55,507 60,028 52,924
-------- -------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,376) (5,540) (12,976) (11,354) (16,307)
Purchase of broadcast assets (1,849) (3,141) (5,187)
Investment in limited partnership (1,000) (1,500) (1,500) (1,750) (1,750)
Sale of assets 1,999
-------- -------- -------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (5,376) (8,889) (17,617) (16,292) (18,057)
-------- -------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 135,000
Repayments of long-term debt (205) (26,705) (64,705) (15,205) (14,250)
Net transactions with Pulitzer Publishing Company (28,376) 8,084 26,815 (163,531) (20,617)
-------- -------- -------- --------- ---------
NET CASH USED IN FINANCING ACTIVITES (28,581) (18,621) (37,890) (43,736) (34,867)
-------- -------- -------- --------- ---------
NET INCREASE IN CASH $ -- $ -- $ -- $ -- $ --
======== ======== ======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 6,872 $ 9,513 $ 17,469 $ 9,716 $ 10,147
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Shares (In thousands)
--------- ------------------------------------------------------------------
Total
Additional Stockholder's
Common Common Paid-in Retained Intercompany Equity
Stock Stock Capital Earnings Balance (Deficit)
----- ----- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 100 $10 $11,924 $ 43,588 $ 26,925 $ 82,447
Net Income 32,579 32,579
Dividends declared (32,579) 32,579
Net transactions with
Pulitzer Publishing Company (20,617) (20,617)
----- ----- ------- -------- ------- ---------
Balances at December 31, 1995 100 10 11,924 43,588 38,887 94,409
Net Income 40,355 40,355
Dividends declared (40,355) 40,355
Net transactions with
Pulitzer Publishing Company (163,531) (163,531)
----- ----- ------- -------- ------- ---------
Balances at December 31, 1996 100 10 11,924 43,588 (84,289) (28,767)
Net Income 38,021 38,021
Net transactions with
Pulitzer Publishing Company 26,815 26,815
----- ----- ------- -------- ------ ---------
Balances at December 31, 1997 100 10 11,924 81,609 (57,474) 36,069
Net Income (Unaudited) 22,845 22,845
Net transactions with
Pulitzer Publishing
Company (Unaudited) (28,376) (28,376)
----- ----- ------- -------- ------- ---------
Balances at June 30, 1998
(Unaudited) 100 $10 $11,924 $104,454 $ (85,850) $ 30,538
===== ===== ======= ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On May 25, 1998, Pulitzer Publishing Company (the "Company" or "Pulitzer"),
Pulitzer Inc., (a newly-organized wholly-owned subsidiary of the Company
("Newco")), and Hearst-Argyle Television, Inc. ("Hearst-Argyle") entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Hearst-
Argyle will acquire the Company's Broadcasting Business (see Note 2) (the
"Merger"). Prior to the Spin-off (as defined below), the Company intends to
borrow $700 million, which may be secured by the assets of the Broadcasting
Business. Out of the proceeds of this new debt, the Company will pay the
existing Company debt (see Note 7) and any costs arising as a result of the
Merger and related transactions. Prior to the Merger, the balance of the
proceeds of this new debt, together with the Company's publishing assets and
liabilities, will be contributed by the Company to Newco pursuant to a
Contribution and Assumption Agreement (the "Contribution"). Pursuant to the
Merger Agreement, Hearst-Argyle will assume the new debt following the
consummation of the Spin-off and Merger.
Immediately following the Contribution, the Company will distribute to each
holder of Company Common Stock one fully-paid and nonassessable share of Newco
Common Stock for each share of Company Common Stock held and to each holder of
Company Class B Common Stock one fully-paid and nonassessable share of Newco
Class B Common Stock for each share of Company Class B Common Stock held (the
"Distribution"). The Contribution and Distribution collectively constitute the
"Spin-off."
The Company's obligation to consummate the Spin-off and the Merger is subject to
the fulfillment of various regulatory approvals and approval by the stockholders
of both the Company and Hearst-Argyle. The controlling stockholders of both
Hearst-Argyle and the Company have agreed to vote in favor of the Merger and
related transactions. The Spin-off and Merger are anticipated to be completed
by year-end 1998.
Following the consummation of the Spin-off and Merger, Newco will be engaged
primarily in the business of newspaper publishing. For financial reporting
purposes, Newco is the continuing stockholder interest and will retain the
Pulitzer name.
2. BROADCASTING BUSINESS
Pulitzer Broadcasting Company, a wholly-owned subsidiary of the Company, and its
wholly-owned subsidiaries, WESH Television, Inc.; WDSU Television, Inc.; and
KCCI Television, Inc.; (collectively "Broadcasting" or "Broadcasting Business"),
own and operate nine network-affiliated television stations and five radio
stations. Broadcasting's television properties represent market sizes from
Omaha, Nebraska to Orlando, Florida and include operations in the northeast,
southeast, midwest and southwest. Three of Broadcasting's five radio stations,
representing the significant portion of its radio operations, are located in
Phoenix, Arizona.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation - The consolidated financial statements include the
accounts of Broadcasting. All significant intercompany transactions have been
eliminated from the consolidated financial statements.
Unaudited Interim Financial Information - In the opinion of management, the
accompanying unaudited interim financial information contains all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
Broadcasting's financial position as of June 30, 1998 and the results of
operations and cash flows for the six-month periods ended June 30, 1998 and
1997. These financial statements should be read in conjunction with Pulitzer's
consolidated financial statements and related notes thereto included as Exhibit
99-1 to this Current Report on Form 8-K. Results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year.
Fiscal Year - Broadcasting's fiscal year ends on the last Sunday of the
calendar year, which in 1995 resulted in a 14-week fourth quarter and a 53-week
year. In 1997 and 1996, the fourth quarter was 13 weeks and the year was 52
weeks. Broadcasting's six-month periods ended June 30, 1998 and 1997 end on
the last Sunday coincident with or prior to June 30. For ease of presentation,
Broadcasting has used December 31 as the year-end and June 30, as the six-month
period end.
Program Rights - Program rights represent license agreements for the right to
broadcast programs over license periods which generally run from one to five
years. The total cost of each agreement is recorded as an asset and liability
when the license period begins and the program is available for broadcast.
7
<PAGE>
Program rights covering periods greater than one year are amortized over the
license period using an accelerated method as the programs are broadcast. In
the event that a determination is made that programs will not be used prior to
the expiration of the license agreement, unamortized amounts are then charged to
operations. Payments are made in installments as provided for in the license
agreements. Program rights expected to be amortized in the succeeding year and
payments due within one year are classified as current assets and current
liabilities, respectively.
Property and Depreciation - Property is recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
individual assets. Buildings are depreciated over 30 to 35 years and all other
property over lives ranging from 3 to 15 years.
Intangible Assets - Intangibles consisting of goodwill, FCC licenses and network
affiliations acquired subsequent to the effective date of Accounting Principles
Board Opinion No. 17 ("Opinion No. 17") are being amortized over lives of either
15 or 40 years while all other intangible assets are being amortized over lives
ranging from 8 to 21 years. Intangibles in the amount of $1,520,000, related to
acquisitions prior to the effective date of Opinion No. 17, are not being
amortized because, in the opinion of management, their value is of
undeterminable duration.
Long-Lived Assets - The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of, in March 1995. This
statement became effective for Broadcasting's 1996 fiscal year. The general
requirements of this statement are applicable to the properties and intangible
assets of Broadcasting and require impairment to be considered whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Management periodically evaluates the recoverability of
long-lived assets by reviewing the current and projected cash flows of each of
its properties. If a permanent impairment is deemed to exist, any write-down
would be charged to operations. For the periods presented, there has been no
impairment.
Postretirement Benefit Plans - Broadcasting provides retiree medical and life
insurance benefits under varying postretirement plans at several of its
operating locations. Broadcasting's liability and related expense for benefits
under the postretirement plans are recorded over the service period of active
employees based upon annual actuarial calculations. All of Broadcasting's
postretirement benefits are funded on a pay-as-you-go basis.
Income Taxes - Broadcasting's financial results are included in Pulitzer's
consolidated federal income tax return. The tax provisions included in the
consolidated financial statements were computed as if Broadcasting was a
separate company. Deferred tax assets and liabilities are recorded for the
expected future tax consequences of events that have been included in either
financial statements or tax returns. Under this asset and liability approach,
deferred tax assets and liabilities are determined based on temporary
differences between the financial statement and tax bases of assets and
liabilities by applying enacted statutory tax rates applicable to future years
in which the differences are expected to reverse.
Stock-Based Compensation Plans - Effective January 1, 1996, Broadcasting adopted
the disclosure requirements of Statement of Financial Accounting Standards No.
123 ("SFAS 123"), Accounting for Stock-Based Compensation. The new standard
defines a fair value method of accounting for stock options and similar equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to the new
standard, companies are encouraged, but not required, to adopt the fair value
method of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to
Employees, but are required to disclose pro forma net income and, if presented,
earnings per share as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption, whereas the
disclosure requirements apply to all awards granted subsequent to December 31,
1994. Broadcasting continues to recognize and measure compensation for its
participation in the Pulitzer restricted stock option plans in accordance with
the existing provisions of APB 25.
Comprehensive Income - Effective January 1, 1998, Broadcasting adopted Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income, with
no effect on Broadcasting's financial statements for the six-month periods ended
June 30, 1998 and 1997.
Dividends - Dividends, when declared, are recorded in the "Intercompany Balance"
in the Statements of Consolidated Financial Position. The payment and amount of
future dividends remains within the discretion of the Board of Directors. No
dividends were declared for the six-month period ended June 30, 1998 or the year
ended December 31, 1997.
Use of Management Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make certain 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. The reported amounts of
revenues and expenses during the reporting period may also be affected by the
estimates and assumptions management is required to make. Actual results may
differ from those estimates.
Unaudited Interim Financial Information - In the opinion of management, the
accompanying unaudited interim financial information contains all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
Broadcasting's financial position as of June 30, 1998 and the results of
operations and cash flows for the six-month periods ended June 30, 1998 and
1997. These financial statements should be read in conjunction with Pulitzer's
consolidated financial statements and related notes thereto included as Exhibit
99-1 to this Current Report on Form 8-K.. Results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year.
4. TRANSACTIONS WITH PULITZER
Cash - The Statements of Consolidated Financial Position exclude all cash and
have reflected current payables for income taxes and other items, to the extent
paid by Pulitzer, in the intercompany balance.
Long-term Debt - Pulitzer's long-term debt balances and related interest expense
have been allocated to Broadcasting and are included in the consolidated
financial statements herein. This allocation to Broadcasting is consistent with
the terms of the Merger Agreement discussed in Note 1.
Intercompany Balance - Balance reflects the net transactions with Pulitzer,
which are not expected to be repaid.
8
<PAGE>
Pension Plans - Pulitzer sponsors various noncontributory pension plans which
cover substantially all of the Broadcasting employees. Benefits under the plans
are generally based on salary and years of service. The liability and related
expense for benefits under the plans are recorded over the service period of
active employees based upon annual actuarial calculations. Annual pension
expense for the pension plans is allocated to Broadcasting based upon payroll
expense for Broadcasting employees. Plan funding strategies are influenced by
tax regulations. Plan assets consist primarily of government bonds and
corporate equity securities.
Corporate Expenses - Broadcasting benefits from certain services provided by
Pulitzer including financial, legal, tax, employee benefit department, corporate
communications, and internal audit. These corporate costs have been allocated
to Broadcasting using a variety of factors, including revenues, property, and
payroll. Management believes that the methods of allocating costs to
Broadcasting are reasonable. Broadcasting's allocation of these costs were
$3,701,000, $3,857,000 and $3,752,000 in the years ended December 31, 1997,
1996, and 1995, respectively and $1,880,000 (unaudited) and $1,908,000
(unaudited) for the six months ended June 30, 1998 and 1997, respectively.
These costs are included within the Statements of Consolidated Income.
5. ACQUISITION OF PROPERTIES
In June 1997, Broadcasting acquired in a purchase transaction the assets of an
AM radio station in Louisville, Kentucky for approximately $1,897,000. In August
1997, Broadcasting acquired in a purchase transaction the assets of an AM radio
station in Kernersville, North Carolina for approximately $1,244,000.
In December 1996, Broadcasting acquired in a purchase transaction the assets of
an AM radio station in Phoenix, Arizona for approximately $5,187,000.
During 1995, 1996, 1997 and 1998, Broadcasting made cumulative capital
contributions of $6,000,000 for a limited partnership investment in the Major
League Baseball Franchise located in Phoenix, Arizona. The investment is
included in other non-current assets in the Statements of Consolidated Financial
Position.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31,
June 30, -------------------
1998 1997 1996
(Unaudited)
(In thousands)
FCC licenses and network affiliations $114,403 $114,376 $112,162
Goodwill 6,960 6,960 6,960
Other 33,696 33,696 33,696
-------- -------- --------
Total 155,059 155,032 152,818
Less accumulated amortization 56,389 52,539 44,884
-------- -------- --------
Total intangible assets - net $ 98,670 $102,493 $107,934
======== ======== ========
9
<PAGE>
7. LONG-TERM DEBT
Long-term debt of Pulitzer allocated to Broadcasting consists of the following:
December 31,
June 30, ---------------------
1998 1997 1996
(Unaudited)
(In thousands)
Credit Agreement $ - $ - $ 50,000
Senior notes maturing in substantially
equal annual installments:
8.8% due through 1997 14,500
6.76% due 1998-2001 50,000 50,000 50,000
7.22% due 2002-2005 50,000 50,000 50,000
7.86% due 2001-2008 85,000 85,000 85,000
Other 205 410 615
------- --------- ---------
Total 185,205 185,410 250,115
Less current portion 12,705 12,705 14,705
------- --------- ---------
Total long-term debt 172,500 $172,705 $235,410
======= ========= =========
Pulitzer's fixed-rate senior note borrowings are with The Prudential Insurance
Company of America ("Prudential"). The Senior Note Agreements with Prudential
provide for the payment of certain fees, depending on current interest rates and
remaining years to maturity, in the event of repayment prior to the notes'
scheduled maturity dates (as anticipated by the Spin-off and Merger discussed in
Note 1).
The credit agreement with The First National Bank of Chicago, as Agent, for a
group of lenders ("FNBC"), provides for a $50,000,000 variable rate revolving
credit facility ("Credit Agreement"). Loans may be borrowed, repaid and
reborrowed by Pulitzer until the Credit Agreement terminates on July 2, 2001.
Pulitzer has the option to repay any borrowings and terminate the Credit
Agreement, without penalty, prior to its scheduled maturity. As of December 31,
1997 and June 30, 1998, Pulitzer had no borrowings under the Credit Agreement.
The Credit Agreement allows Pulitzer to elect an interest rate with respect to
each borrowing under the facility equal to a daily floating rate or the
Eurodollar rate plus 0.225 percent. As of December 31, 1996, the interest rate
on the Credit Agreement borrowings with FNBC was 5.875 percent.
The terms of the various senior note agreements contain certain covenants and
conditions including the maintenance of cash flow and various other financial
ratios, limitations on the incurrence of other debt and limitations on the
amount of restricted payments (which generally includes dividends, stock
purchases and redemptions).
Under the terms of the most restrictive borrowing covenants, in general,
Pulitzer may pay annual dividends not to exceed the sum of $10,000,000, plus 75%
of consolidated net earnings commencing January 1, 1993, less the sum of all
dividends paid or declared and redemptions in excess of sales of Pulitzer stock
after December 31, 1992.
10
<PAGE>
Approximate annual maturities of long-term debt for the five years subsequent to
December 31, 1997 are as follows:
Fiscal Year (In thousands):
1998 $ 12,705
1999 12,705
2000 12,500
2001 23,125
2002 23,125
Thereafter 101,250
--------
Total $185,410
========
8. PENSION PLANS
Pulitzer sponsors two defined benefit pension plans in which Broadcasting
employees may be eligible to participate. No detailed information regarding the
funded status of the plans and components of net periodic pension cost, as it
relates to Broadcasting is available. The pension cost components for the
pension plans are as follows:
Years Ended December 31,
----------------------------
1997 1996 1995
(In thousands)
Service cost for benefits earned during the year $ 2,272 $ 2,215 $ 1,929
Interest cost on projected benefit obligation 3,531 3,046 2,849
Actual return on plan assets (7,210) (4,225) (5,364)
Net amortization and deferrals 4,218 1,867 3,577
-------- -------- --------
Net periodic pension cost $ 2,811 $ 2,903 $ 2,991
======== ======== ========
The portion of net periodic pension cost allocated, based on payroll costs, to
Broadcasting's active employees and included in the Statements of Consolidated
Income amounted to approximately $1,395,000, $1,474,000 and $1,540,000 for 1997,
1996 and 1995, respectively, and for the six months ended June 30, 1998 and 1997
was approximately $698,000 (unaudited) and $735,000 (unaudited), respectively.
Pursuant to the Merger Agreement, Broadcasting will retain the ongoing
liabilities related to its active employees. Future pension costs for
Broadcasting after the Spin-off are likely to be different when compared to
allocated historical amounts.
The funded status of the Pension Plans is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------------------- -----------------------------
Accumulated Assets Accumulated Assets
Benefits Exceed Benefits Exceed
Exceed Accumulated Exceed Accumulated
Assets Benefits Assets Benefits
(In thousands)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 9,906 $39,699 $ 8,307 $33,472
======= ======= ======= =======
Accumulated benefit obligation $ 9,979 $40,341 $ 8,343 $33,983
======= ======= ======= =======
Projected benefit obligation $11,472 $43,826 $10,251 $37,209
Plan assets at fair value 43,495 37,349
------- ------- ------- -------
Plan assets less than (greater than) projected
benefit obligation 11,472 331 10,251 (140)
Unrecognized transition asset (obligation), net (960) 104 (1,137) 125
Unrecognized net gain (loss) (1,237) 4,751 (812) 3,512
Unrecognized prior service cost (credits) (35) 224 (40) 252
Additional minimum liability 739 81
------- ------- ------- -------
Pension obligations $ 9,979 $ 5,410 $ 8,343 $ 3,749
======= ======= ======= =======
</TABLE>
11
<PAGE>
The portion of pension obligations allocated to Broadcasting employees and
included in the Statements of Consolidated Financial Position amounted to
$5,544,000 and $4,149,000 as of December 31, 1997 and 1996, respectively. As of
the date of the Merger, actuarial calculations will be performed to separate
Broadcasting active employees from the pension plans. Future pension
obligations for Broadcasting, computed in separate actuarial calculations, are
likely to be different when compared to the allocated historical amounts.
The projected benefit obligation was determined using assumed discount rates of
7%, 7.5% and 7.25% at December 31, 1997, 1996 and 1995, respectively. The
expected long-term rate of return on plan assets was 8.5% for 1997, 1996 and
1996. For those plans that pay benefits based on final compensation levels, the
actuarial assumptions for overall annual rate of increase in future salary
levels was 4.5% for 1997 and 5% for both 1996 and 1995.
Pulitzer sponsors an employee savings plan under Section 401(k) of the Internal
Revenue Code which covers substantially all Broadcasting employees. Employer
contributions for Broadcasting employees amounted to approximately $698,000,
$626,000 and $509,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, and $358,000 (unaudited) and $352,000 (unaudited) for the six-
month periods ended June 30, 1998 and 1997, respectively.
9. POSTRETIREMENT BENEFITS
Broadcasting will retain the postretirement obligation and costs related to its
active employees immediately following the Merger. The net periodic
postretirement benefit cost components for Broadcasting active employees are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Service cost (for benefits earned during the year) $ 131 $ 118 $ 128
Interest cost on accumulated postretirement
benefit obligation 139 151 185
Net amortization, deferrals and other components (74) (72) (56)
------- ------ ------
Net periodic postretirement benefit cost $ 196 $ 197 $ 257
======= ====== ======
</TABLE>
The status of Broadcasting's postretirement benefit plans related to active
employees is as follows:
December 31,
---------------------
1997 1996
(In thousands)
Actives eligible to retire $ 774 $ 784
Other actives 1,142 1,073
------ ------
Accumulated postretirement benefit 1,916 1,857
obligation
Unrecognized prior service gain 192 233
Unrecognized net gain 448 528
------ ------
Accrued postretirement benefit cost $2,556 $2,618
====== ======
For 1997 and 1996 measurement purposes, health care cost trend rates of 9%, 7%
and 5% were assumed for indemnity plans, PPO plans and HMO plans, respectively.
For 1997, these rates were assumed to decrease gradually to 5% through the year
2010 and remain at that level thereafter. For 1996, the indemnity and PPO rates
were assumed to decrease gradually to 5.5% through the year 2010 and remain at
that level thereafter.
12
<PAGE>
Administrative costs related to indemnity plans were assumed to increase at a
constant annual rate of 6% for 1997, 1996 and 1995. The assumed discount rate
used in estimating the accumulated postretirement benefit obligation was 7%,
7.5% and 8% for 1997, 1996 and 1995, respectively.
10. COMMON STOCK PLANS
Broadcasting participates in the Company's stock-based compensation plans which
are summarized as follows: The Pulitzer Publishing Company 1994 Stock Option
Plan, adopted May 11, 1994, (the "1994 Plan"), replaced the Pulitzer Publishing
Company 1986 Employee Stock Option Plan (the "1986 Plan"). The 1994 Plan
provides for the issuance to key employees and outside directors of incentive
stock options to purchase up to a maximum of 2,500,000 shares of common stock.
The issuance of all other options will be administered by the Compensation
Committee of the Board of Directors, subject to the 1994 Plan's terms and
conditions. Specifically, the exercise price per share may not be less than the
fair market value of a share of common stock at the date of grant. In addition,
exercise periods may not exceed ten years and the minimum vesting period is
established at six months from the date of grant. Option awards to an
individual employee may not exceed 250,000 shares in a calendar year.
Prior to 1994, the Company issued incentive stock options to key employees under
the 1986 Plan. As provided by the 1986 Plan, certain option awards were granted
with tandem stock appreciation rights which allow the employee to elect an
alternative payment equal to the appreciation of the stock value instead of
exercising the option. Outstanding options issued under the 1986 Plan have an
exercise term of ten years from the date of grant and vest in equal installments
over a three-year period.
As required by SFAS 123, Broadcasting has estimated the fair value of its option
grants since December 31, 1994 by using the binomial options pricing model with
the following assumptions:
Years Ended December 31,
-----------------------------
1997 1996 1995
Expected Life (years) 7 7 7
Risk-free interest rate 5.8% 6.4% 5.7%
Volatility 23.6% 22.5% 19.6%
Dividend yield 1.1% 1.2% 1.3%
As discussed in Note 1, Broadcasting accounts for stock option grants in
accordance with APB 25, resulting in the recognition of no compensation expense
in the Statements of Consolidated Income. Had compensation expense been
computed on the fair value of the option awards at their grant date, consistent
with the provisions of SFAS 123, Broadcasting's net income would have been
reduced to the pro forma amounts below:
Years Ended December 31,
--------------------------------------
1997 1996 1995
Net Income:
As reported $38,021 $40,355 $32,579
Pro forma 37,333 40,045 32,572
Because the provisions of SFAS 123 have not been applied to options granted
prior to January 1, 1995, the pro forma compensation cost may not be
representative of compensation cost to be incurred on a pro forma basis in
future years.
Broadcasting also participates in the Pulitzer Publishing Company 1997 Employee
Stock Purchase Plan, adopted April 24, 1997 (the "Plan"). The Plan allows
eligible employees to authorize payroll deductions for the quarterly purchase of
the Company's common stock at a price generally equal to 85 percent of the
common stock's fair market value at the end of each quarter. The Plan began
operations as of July 1, 1997. In general, other than Michael E. Pulitzer, all
employees of the Company and its subsidiaries are eligible to participate in the
Plan after completing at least one year of service. Subject to appropriate
adjustment for stock splits and other capital changes, the Company may sell a
total of 500,000 shares of its common stock under the Plan. Shares sold under
the Plan may be authorized and unissued or held by the Company in its treasury.
The Company may purchase shares for resale under the Plan.
13
<PAGE>
11. INCOME TAXES
During 1995, a state tax examination was settled favorably resulting in a
reduction of income tax expense of approximately $900,000. Provisions for
income taxes (benefits) consist of the following:
Years Ended December 31,
---------------------------------------
1997 1996 1995
(In thousands)
Current:
Federal $22,329 $ 22,818 $19,066
State and local 4,097 3,902 1,873
Deferred:
Federal (1,723) (721) (1,315)
State and local (316) (123) (191)
---------- -------- --------
Total $ 24,387 $ 25,876 $ 19,433
========== ======== ========
Factors causing the effective tax rate to differ from the statutory Federal
income tax rate are as follows:
Years Ended December 31,
-------------------------
1997 1996 1995
Statutory rate 35% 35% 35%
Favorable resolution of prior year state tax issue (2)
State and local income taxes, net of U.S. Federal
income tax benefit 4 4 4
----- ----- ------
Effective rate 39% 39% 37%
===== ===== ======
Broadcasting's deferred tax assets and liabilities, net, are included in "Other
Long-Term Liabilities" in the Statements of Consolidated Financial Position and
consist of the following:
December 31,
-----------------------
1997 1996
(In thousands)
Deferred tax assets:
Pensions and employee benefits $ 3,268 $ 2,557
Postretirement benefit costs 1,000 1,024
Other 554 681
Total 4,822 4,262
------- -------
Deferred tax liabilities:
Depreciation 6,318 6,471
Amortization 477 1,803
Total 6,795 8,274
------- -------
Net deferred tax liability $ 1,973 $ 4,012
======= =======
12. COMMITMENTS AND CONTINGENCIES
At June 30, 1998 and December 31, 1997, Broadcasting and its subsidiaries had
construction and equipment commitments of approximately $2,347,000 (unaudited)
and $4,559,000, respectively, and commitments for program contracts payable and
license fees of approximately $29,672,000 (unaudited) and $30,025,000,
respectively.
14
<PAGE>
Broadcasting and its subsidiaries are defendants in a number of lawsuits, some
of which claim substantial amounts. While the results of litigation cannot be
predicted, management believes the ultimate outcome of such litigation will not
have a material adverse effect on the consolidated financial statements of
Broadcasting and its subsidiaries.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Broadcasting has estimated the following fair value amounts for its financial
instruments using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that Broadcasting
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Accounts Receivable, Accounts Payable and Program Contracts Payable - The
carrying amounts of these items are a reasonable estimate of their fair value.
Long-Term Debt - Interest rates that are currently available to Pulitzer for
issuance of debt with similar terms and remaining maturities are used to
estimate fair value. The fair value estimates of long-term debt as of June 30,
1998, December 31, 1997 and December 31, 1996 were $200,378,000 (unaudited),
$195,969,000 and $259,958,000, respectively.
The fair value estimates presented herein are based on pertinent information
available to management as of June 30, 1998, December 31, 1997 and December 31,
1996. Although management is not aware of any facts that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date, and current estimates of fair value may differ from the amounts presented
herein.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Broadcasting's operating results for the six months ended June 30, 1998 and for
the years ended December 31, 1997 and 1996 by quarters are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES - NET:
1998 $53,170 $66,603 $ -- $ -- $119,773
1997 50,171 61,093 53,738 62,014 227,016
1996 49,517 59,053 54,048 62,374 224,992
NET INCOME:
1998 7,594 15,251 22,845
1997 5,688 12,001 7,778 12,554 38,021
1996 7,166 12,758 8,267 12,164 40,355
</TABLE>
* * * * * *
15
<PAGE>
EXHIBIT 99.2
------------
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF HEARST-ARGYLE
TELEVISION, INC. (THE "COMPANY") (GIVING EFFECT TO THE PULITZER MERGER (AS
DEFINED IN ITEM 5 OF THE COMPANY'S FORM 8-K, DATED SEPTEMBER 29, 1998) AND THE
KELLY TRANSACTION (AS DEFINED IN ITEM 5 OF THE COMPANY'S FORM 8-K, DATED
SEPTEMBER 29, 1998))
The following unaudited pro forma combined condensed financial statements
of the Company (the "Pro Forma Statements") give effect to the Pulitzer Merger
and the Kelly Transaction, pursuant to which the Company will issue to the
stockholders of Pulitzer Publishing Company ("Pulitzer") shares of the Company's
Series A Common Stock (the "Series A Common Stock") with a value of $1.15
billion calculated on the basis of an equity adjustment "collar" mechanism and
will assume $700 million of new debt (the "New Debt"). Upon consummation of the
Kelly Transaction, the Company has agreed to acquire, through a merger
transaction, all of the partnership interests in Kelly Broadcasting (as defined
in Item 5 of the Company's Form 8-k dated September 29, 1998), in exchange for
cash consideration in the amount of $520 million, subject to certain closing
adjustments.
The Pulitzer Merger and the Kelly Transaction will be accounted for by the
Company using the purchase method with the Company as the acquiror of Pulitzer
Broadcasting (as defined in Item 5 of the Company's Form 8-K, dated September
29, 1998) and Kelly Broadcasting. Accordingly, the Pulitzer Broadcasting and
the Kelly Broadcasting assets and liabilities have been adjusted to their
estimated fair values based upon preliminary purchase price allocations. The
results of operations of Pulitzer Broadcasting and Kelly Broadcasting will be
included in the consolidated financial statements of the Company subsequent to
their dates of acquisition.
The unaudited pro forma combined condensed statements of operations for the
six-months ended June 30, 1997 and 1998 and for the year ended December 31, 1997
give effect to the Pulitzer Merger and the Kelly Transaction as if both
transactions had been completed at the beginning of each period presented. The
unaudited pro forma combined condensed statements of operations of the Company,
including the estimated impact of the Pulitzer Merger and the Kelly Transaction,
have been prepared based upon the unaudited pro forma combined condensed
statements of operations of the Company, excluding the estimated impact of the
Pulitzer Merger and the Kelly Transaction, the historical statements of
operations of Pulitzer Broadcasting and the historical statements of operations
of Kelly Broadcasting. The unaudited pro forma combined condensed statements of
operations of the Company for the year ended December 31, 1997 and for the six-
months ended June 30, 1997, excluding the estimated impact of the Pulitzer
Merger and the Kelly Transaction, give effect to the transaction consummated on
January 31, 1997 in which Argyle Television, Inc. ("Argyle", predecessor to the
Company), exchanged its WZZM and WGRZ stations for Gannett Co., Inc.'s WLWT and
KOCO stations located in Cincinnati, OH and Oklahoma City, OK, respectively (the
"Gannett Swap"), the transaction consummated on August 29, 1997, in which The
Hearst Corporation, pursuant to a merger transaction, contributed its television
broadcast group to Argyle (the "Hearst Transaction"), and the transaction
consummated on July 2, 1998 (and effective as of June 1, 1998 for accounting
purposes), whereby the Company exchanged its television stations WNAC-TV and
WDTN-TV for STC Broadcastings, Inc.'s television stations KSBW-TV and WPTZ-
TV/WNNE-TV (the "STC Swap") as if all such transactions had occurred at the
beginning of 1997, and for the six-months ended June 30, 1998 excluding the
estimated impact of the Pulitzer Merger and the Kelly Transaction give effect to
the STC Swap as if such transaction had occurred at the beginning of 1998.
The unaudited pro forma combined condensed balance sheet at June 30, 1998
gives effect to the Pulitzer Merger and the Kelly Transaction as if the Pulitzer
Merger had occurred on June 30, 1998 at the minimum Collar Price of $29.75 and
at the maximum Collar Price of $38.50 and is based upon the historical
consolidated balance sheets of the Company, Pulitzer Broadcasting and Kelly
Broadcasting.
The Pro Forma Statements should be read in conjunction with the Company's
historical consolidated and unaudited pro forma combined condensed financial
statements, the Pulitzer Broadcasting and the Kelly Broadcasting historical
consolidated financial statements either included herein or filed previously by
the Company. The Pro Forma Statements are not necessarily indicative of the
actual results of operations or financial position of the Company that would
have occurred had the Pulitzer Merger, the Kelly Transaction, the Hearst
Transaction, the Gannett Swap and the STC Swap occurred on the dates indicated
nor are they necessarily indicative of future operating results or financial
position.
<PAGE>
For purposes of the Pro Forma Statements, the estimated purchase price of
Pulitzer Broadcasting was determined as follows assuming the maximum stock price
of $38.50 and the minimum stock price of $29.75 (in thousands, except share
data):
<TABLE>
<CAPTION>
SHARES ISSUED
PURCHASE PRICE MAXIMUM MINIMUM
-------------- ---------- ----------
<S> <C> <C> <C>
Value of Series A Common Stock issued to Pulitzer stockholders.. $1,150,000 29,870,130 38,655,462
New Debt assumed................................................ 700,000
Estimated transaction costs..................................... 20,000
----------
TOTAL ESTIMATED PURCHASE PRICE.................................. $1,870,000
==========
</TABLE>
For purposes of the Pro Forma Statements, the total estimated purchase
price of Pulitzer Broadcasting is allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of the Pulitzer Broadcasting net assets............. $ 117,977
Intangible assets.............................................. 1,752,023
----------
TOTAL ESTIMATED PURCHASE PRICE................................. $1,870,000
==========
</TABLE>
For purposes of the Pro Forma Statements, the estimated purchase price of
Kelly Broadcasting was determined as follows (in thousands):
<TABLE>
<S> <C>
Cash........................................................... $520,000
Estimated transaction costs.................................... 12,000
--------
TOTAL ESTIMATED PURCHASE PRICE................................. $532,000
========
</TABLE>
For purposes of the Pro Forma Statements, the total estimated purchase
price of Kelly Broadcasting is allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of the Kelly Broadcasting net assets............... $ 22,335
Intangible assets............................................. 509,665
--------
TOTAL ESTIMATED PURCHASE PRICE................................ $532,000
========
</TABLE>
The estimated purchase price and the resulting allocations are based on
management's preliminary estimations and have been made solely for purposes of
developing the Pro Forma Statements. Any subsequent adjustments and any
uncertainties affecting the pro forma presentation based upon such allocations
are not expected to be significant.
2
<PAGE>
Hearst-Argyle Television, Inc.
Unaudited Pro Forma Combined Condensed Balance Sheet
as of June 30, 1998
(Including the Pulitzer Merger and the Kelly Transaction)
(In thousands)
<TABLE>
<CAPTION>
PULITZER
KELLY KELLY PRO FORMA BROADCASTING
HEARST-ARGYLE BROADCASTING TRANSACTION KELLY BUSINESS MERGER
HISTORICAL HISTORICAL ADJUSTMENTS TRANSACTION HISTORICAL ADJUSTMENTS
-------------- ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 13,938 $ 1,826 $ 15,764
Accounts receivable, net 88,241 12,226 100,467 $ 50,863
Program rights.......... 12,567 4,608 17,175 3,054
Deferred tax asset...... 5,975 5,975
Other................... 57,558 642 58,200 1,306
---------- ------- -------- ---------- -------- ----------
Total current assets....... 178,279 19,302 197,581 55,223
Property, plant and
equipment, net............ 124,043 9,365 133,408 84,072
Intangible assets, net..... 716,736 1,860 $ (1,860)(a) 1,228,194 98,670 $ (98,670)(d)
509,665 (a) 1,752,023 (d)
1,793 (c) 677,790 (d)
Other:
Deferred acquisition
and financing
costs, net........... 28,033 28,033
Program rights,
noncurrent............. 3,904 2,976 6,880
Other assets............ 27,134 926 28,060 7,904 (6,000)(d)
5,000 (g)
---------- ------- -------- ---------- -------- ----------
Total assets............... $1,078,129 $34,429 $509,598 $1,622,156 $245,869 $2,330,143
========== ======= ======== ========== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities.... $ 41,460 $ 2,681 $ 1,793 (c) $ 47,934 $ 13,806 $ 20,520 (d)(f)(g)
2,000 (a)
Current portion of 12,705 (12,705)(d)
long-term debt.........
Program rights payable.. 13,472 3,828 17,300 2,728
Other current
liabilities............ 433 433 2,169
---------- ------- -------- ---------- -------- ----------
Total current liabilities.. 55,365 6,509 3,793 65,667 31,408 7,815
Deferred tax liability..... 152,428 152,428 677,790 (d)
291 (h)
Program rights payable,
noncurrent................ 3,755 3,617 7,372
Other liabilities.......... 630 108 738 2,522 (1,023)(d)
(291)(h)
Pension obligations........ 6,242 (1,401)(d)
Post-retirement benefit
obligations............... 2,659
Credit facility............ 29,000 271,000 (b) 300,000 700,000 (e)
Senior notes............... 500,000 500,000 172,500 (172,500)
Senior subordinated notes.. 2,596 2,596
Long-term debt............. 259,000 (b) 259,000
---------- ------- ------ ---------- -------- ----------
Total liabilities.......... 743,774 10,234 533,793 1,287,801 215,331 1,210,681
---------- ------- ------- ---------- -------- ----------
Partners' Capital.......... 24,195 (a) (24,195)(a)
Stockholders' equity
Preferred stock series A 1 1
Preferred stock series B 1 1
Series A common stock... 125 125 387 (e)
Series B common stock... 413 413
Common stock............ 10 (10)(d)
Additional paid-in
capital................ 363,093 363,093 11,924 (11,924)(d)
1,149,613 (e)
Intercompany balance.... (85,850) 85,850 (d)
Retained earnings
(deficit).............. (20,972) (20,972) 104,454 (104,454)(d)
Treasury stock............. (8,306) (8,306)
---------- ----------
Total stockholders' equity. 334,355 -- -- 334,355 30,538 1,119,462
---------- ------- -------- ---------- -------- ----------
Total liability and
stockholders' equity...... $1,078,129 $34,429 $509,598 $1,622,156 $245,869 $2,330,143
========== ======= ======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA DIVESTITURE PRO FORMA
MERGER WGAL(i) DIVESTITURE
------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 15,764 $ 15,764
Accounts receivable, net 151,330 $ (5,652) 145,678
Program rights.......... 20,229 (391) 19,838
Deferred tax asset...... 5,975 5,975
Other................... 59,506 (48) 59,458
---------- -------- ----------
Total current assets....... 252,804 (6,091) 246,713
Property, plant and
equipment, net............ 217,480 (5,776) 211,704
Intangible assets, net..... 3,658,007 (10,517) 3,647,490
Other:
Deferred acquisition
and financing
costs, net........... 28,033 28,033
Program rights,
noncurrent............. 6,880 6,880
Other assets............ 34,964 34,964
---------- -------- ----------
Total assets............... $4,198,168 $(22,384) $4,175,784
========== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities.... $ 82,260 $ (749) $ 81,511
Current portion of
long-term debt......... -- --
Program rights payable.. 20,028 (404) 19,624
Other current
liabilities............ 2,602 (324) 2,278
---------- -------- ----------
Total current liabilities.. 104,890 (1,477) 103,413
Deferred tax liability..... 830,509 2,449 832,958
Program rights payable,
noncurrent................ 7,372 7,372
Other liabilities.......... 1,946 1,946
Pension obligations........ 4,841 (488) 4,353
Post-retirement benefit
obligations............... 2,659 (911) 1,748
Credit facility............ 1,000,000 (21,957) 978,043
Senior notes............... 500,000 500,000
Senior subordinated notes.. 2,596 2,596
Long-term debt............. 259,000 259,000
---------- -------- ----------
Total liabilities.......... 2,713,813 (22,384) 2,691,429
---------- -------- ----------
Partners' Capital..........
Stockholders' equity
Preferred stock series A 1 1
Preferred stock series B 1 1
Series A common stock... 512 512
Series B common stock... 413 413
Common stock............ -- --
Additional paid-in
capital................ 1,512,706 1,512,706
Intercompany balance.... -- --
Retained earnings
(deficit).............. (20,972) (20,972)
Treasury stock............. (8,306) (8,306)
---------- -------- ----------
Total stockholders' equity. 1,484,355 -- 1,484,355
---------- -------- ----------
Total liability and $4,198,168 $(22,384) $4,175,784
stockholders' equity...... ========== ======== ==========
See notes on the following page.
</TABLE>
3
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS ADJUSTMENTS:
(a) To reflect the Kelly Transaction and the adjustment of the Kelly
Broadcasting net assets to their estimated fair values of the net assets
acquired and the elimination of partners' capital.
(b) To record the issuance of long-term debt to be incurred in connection with
the purchase price paid for Kelly Broadcasting and related transaction
costs. The Company intends to use: (i) amounts available under its Credit
Agreement, dated August 29, 1997, with The Chase Manhattan Bank, as
Administrative Agent and certain lenders party thereto (the "Chase Credit
Facility"), and (ii) other public long-term debt, expected to be raised in
an offering related to a $1 billion shelf registration, currently
outstanding, to finance the Kelly Transaction.
(c) To record the amount the Company will owe Kelly Broadcasting to the extent
the estimated working capital is more than $11 million (approximately $1.8
million) which is based upon the working capital of Kelly Broadcasting as of
June 30, 1998.
(d) To reflect the Pulitzer Merger and the adjustment of Pulitzer Broadcasting
net assets to their estimated fair values of the net assets acquired,
elimination of existing long-term debt and stockholders' equity and to
record the tax effect of the differences between book and tax basis of the
net assets acquired.
(e) Issuance of 38,655,462 shares of the Company's Series A Common Stock to
the stockholders of New Pulitzer (as defined in Item 5 of the Company's Form
8-K, dated September 29, 1998) and the assumption of the $700 million of new
debt for the net assets of Pulitzer Broadcasting. The adjustment reflects
the minimum stock price or the maximum number of shares to be issued. If
the maximum stock price is used, then the minimum number of shares to be
issued is 29,870,130.
(f) To record the amount the Company will owe New Pulitzer to the extent the
difference between the Company's total current assets and total amount
liabilities (other than the New Debt, Pulitzer's existing debt and the fees
and expenses incurred by Pulitzer in connection with the Pulitzer Merger) as
of the end of the most recently available month end period immediately
preceding the effective time of the Pulitzer Merger is more than $41 million
(approximately $1.2 million) which is based upon the working capital of
Pulitzer Broadcasting as of June 30, 1998.
(g) To record the Company's purchase of Pulitzer's investment in the Major
League Baseball team, the Arizona Diamondbacks.
(h) Reclassification of Pulitzer Broadcasting account balances to conform with
the Company presentation.
(i) Upon consummation of the Pulitzer Merger, the Company will, assuming the
Federal Communications Commission (the "FCC") grants the temporary waiver
requested by the Company, own two television stations in an area (WGAL in
Lancaster, PA and WBAL in Baltimore, MD) with overlapping service contours
in violation of the FCC's current local ownership rules. The FCC's current
rules prohibit the ownership of two stations in the same geographic area
whose service contours overlap. Accordingly, the Company will be required
to divest one of the aforementioned stations. If WGAL is sold for cash, the
proceeds of such sale will be used to reduce indebtedness under the Chase
Credit Facility, and therefore the pro forma balance sheet reflects the
effect of a reduction in the Chase Credit Facility by an amount equal to
$22.0 million, the net book value of WGAL. The net book value has been used
in the unaudited pro forma combined condensed financial statements for the
divestiture of WGAL because no other valuation currently can be based on an
independent third party offer. The divestiture of WGAL at net book value
would be equivalent to selling WGAL at a price equal to less than two times
WGAL's 1997 broadcast cash flow. Given the valuations of broadcasting
properties in recent transactions, including the valuation of Pulitzer
Broadcasting implied by the shares of Series A Common Stock to be issued in
the Pulitzer Merger (the "Merger Stock"), the Company management believes
that any divestiture of WGAL would occur at a valuation significantly higher
than its net book value.
4
<PAGE>
Hearst-Argyle Television, Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 1997
(Including the Pulitzer Merger and the Kelly Transaction)
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA HISTORICAL KELLY PRO FORMA PULITZER
HEARST- KELLY TRANSACTION KELLY BROADCASTING MERGER
ARGYLE(a) BROADCASTING ADJUSTMENTS TRANSACTION BUSINESS ADJUSTMENTS
--------------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............. $388,397 $65,311 $ $453,708 $227,016 $ 9,038 (m)
Station operating expenses. 169,438 39,336 (6,484)(b) 202,290 125,090 (9,716)(f)(m)
Amortization of program
rights.................... 41,517 5,164 (b) 46,681 12,490 (m)
Depreciation and
amortization.............. 39,944 2,900 12,742 (c) 55,586 23,447 50,446 (g)
-------- ------- -------- -------- -------- --------
Station operating income... 137,498 23,075 (11,422) 149,151 78,479 (44,182)
Corporate general and
administrative expenses. 12,000 1,320 (b) 12,000 (5,354)(h)
(1,320)(h) 6,854 (m)
-------- ------- -------- -------- -------- --------
Operating income........... 125,498 23,075 (11,422) 137,151 78,479 (45,682)
Interest income (expense).. (37,228) 142 (37,242)(d) (74,328) (16,081) (32,919)(i)
Other income, net.......... 10 (10)(m)
-------- ------- -------- -------- -------- --------
Income before income taxes. 88,270 23,217 (48,664) 62,823 62,408 (78,611)
Income taxes............... 36,700 (10,943)(e) 25,757 24,387 (31,031)(j)
-------- ------- -------- -------- -------- --------
Income from continuing
operations................ 51,570 $23,217 $(37,721) $ 37,066 $ 38,021 $(47,580)
======= ======== ======== ======== ========
Less: preferred stock
dividends................. (1,422)
--------
Income applicable to
common stock.............. $ 50,148
========
Basic (Minimum):
Income per common share. $ 0.93
========
Number of shares used in
per share calculation 53,828
Basic (Maximum):
Income per common share. $ 0.93
========
Number of shares used in
per share calculation 53,828
Diluted (Minimum):
Income per common share. $ 0.93
========
Number of shares used in
per share calculation 53,873
Diluted (Maximum):
Income per common share. $ 0.93
========
Number of shares used in
per share calculation 53,873
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA DIVESTITURE PRO FORMA
MERGER WGAL(k) DIVESTITURE
------------- -------------- -------------
<S> <C> <C> <C>
Total revenues............. $ 689,762 $(29,772) $ 659,990
Station operating expenses. 317,664 (9,876) 307,788
Amortization of program
rights.................... 59,171 (1,748) 57,423
Depreciation and 129,479 (1,367) 128,112
amortization.............. --------- -------- ---------
Station operating income... 183,448 (16,781) 166,667
Corporate general and
administrative expenses. 13,500 13,500
Operating income........... 169,948 (16,781) 153,167
Interest income (expense).. (123,328) 1,537 (121,791)
Other income, net.......... --
---------
Income before income taxes. 46,620 (15,244) 31,376
Income taxes............... 19,113 (6,250) 12,863
--------- -------- ---------
Income from continuing
operations................ 27,507 $ (8,994) 18,513
========
Less: preferred stock
dividends................. (1,422) (1,422)
--------- ---------
Income applicable to
common stock.............. $ 26,085 $ 17,091
========= =========
Basic (Minimum):
Income per common share. $ 0.28 $ 0.18
========= =========
Number of shares used in
per share calculation 92,483 (l) 92,483 (1)
Basic (Maximum):
Income per common share. $ 0.31 $ 0.20 (1)
========= =========
Number of shares used in
per share calculation 89,698 (l) 83,698 (1)
Diluted (Minimum):
Income per common share. $ 0.28 $ 0.18
========= =========
Number of shares used in
per share calculation 92,528 (l) 92,528 (1)
Diluted (Maximum):
Income per common share. $ 0.31 $ 0.20
========= =========
Number of shares used in
per share calculation 83,743 (l) 83,743 (1)
</TABLE>
See notes on the following pages.
5
<PAGE>
Hearst-Argyle Television, Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations
Six Months Ended June 30, 1997
(Including the Pulitzer Merger and the Kelly Transaction)
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA HISTORICAL KELLY PRO FORMA PULITZER
HEARST- KELLY TRANSACTION KELLY BROADCASTING MERGER
ARGYLE(a) BROADCASTING ADJUSTMENTS TRANSACTION BUSINESS ADJUSTMENTS
------------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............. $185,271 $32,255 $..... $217,526 $111,264 $ 4,618 (m)
Station operating expenses. 81,145 18,235 (3,072)(b) 96,308 61,851 (4,946)(f)(m)
Amortization of program
rights.................... 20,384 2,567 (b) 22,951 6,431 (m)
Depreciation and
amortization.............. 16,961 1,223 6,371 (c) 24,555 11,684 25,183 (g)
-------- ------- -------- -------- -------- --------
Station operating income... 66,781 12,797 (5,866) 73,712 37,729 (22,050)
Corporate general and
administrative expenses. 6,554 505 (b) 6,554 (2,678)(h)
(505)(h) 3,428 (m)
-------- ------- -------- -------- -------- --------
Operating income........... 60,227 12,797 (5,866) 67,158 37,729 (22,800)
Interest (expense) income.. (18,614) 135 (18,685)(d) (37,164) (8,699) (15,801)(i)
Other income, net.......... 5 (5)(m)
-------- ------- -------- -------- -------- --------
Income before income taxes. 41,613 12,932 (24,551) 29,994 29,035 (38,606)
Income taxes............... 17,685 -- (5,387)(e) 12,298 11,346 (15,271)(j)
-------- ------- -------- -------- -------- --------
Income from continuing
operations................ 23,928 $12,932 $(19,164) $ 17,696 $ 17,689 $(23,335)
======== ======= ======== ======== ======== ========
Less: preferred stock
dividends................. (711)
--------
Income applicable to
common stock.............. $ 23,217
========
Basic (Minimum):
Income per common share. $ 0.43
========
Number of shares used in
per share calculation 53,815
Basic (Maximum):
Income per common share. $ 0.43
========
Number of shares used in
per share calculation 53,815
Diluted (Minimum):
Income per common share. $ 0.43
========
Number of shares used in
per share calculation 54,080
Diluted (Maximum):
Income per common share. $ 0.43
========
Number of shares used in
per share calculation 54,080
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA DIVESTITURE PRO FORMA
MERGER WGAL(k) DIVESTITURE
-------------- -------------- -----------
<S> <C> <C> <C>
Total revenues............. $333,408 $(14,301) $ 319,107
Station operating expenses. 153,213 (4,953) 148,260
Amortization of program
rights.................... 29,382 (893) 28,489
Depreciation and
amortization.............. 61,422 (680) 60,742
-------- -------- ----------
Station operating income... 89,391 (7,775) 81,616
Corporate general and
administrative expenses. 7,304 7,304
Operating income........... 82,087 (7,775) 74,312
Interest (expense) income.. (61,664) 768 (60,896)
Other income, net..........
Income before income taxes. 20,423 (7,007) 13,416
Income taxes............... 8,373 (2,864) 5,509
-------- -------- ----------
Income from continuing
operations................ 12,050 $ (4,143) $ 7,907
========
Less: preferred stock (711) (711)
dividends................. -------- ----------
Income applicable to
common stock.............. $ 11,339 $ 7,196
======== ==========
Basic (Minimum):
Income per common share. $ 0.12 $ 0.08
======== ==========
Number of shares used in
per share calculation 92,471 (l) 92,471 (l)
Basic (Maximum):
Income per common share. $ 0.14 $ 0.09
======== ==========
Number of shares used in
per share calculation 83,685 (l) 83,685 (l)
Diluted (Minimum):
Income per common share. $ 0.12 $ 0.08
======== ==========
Number of shares used in
per share calculation 92,735 (l) 92,735 (l)
Diluted (Maximum):
Income per common share. $ 0.14 $ 0.09
======== ==========
Number of shares used in
per share calculation 83,950 (l) 0.10 (l)
</TABLE>
See notes on the following pages.
6
<PAGE>
Unaudited Pro Forma Combined Condensed Statement of Operations
Six Months Ended June 30, 1998
(Including the Pulitzer Merger and the Kelly Transaction)
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA HISTORICAL KELLY PRO FORMA PULITZER
HEARST- KELLY TRANSACTION KELLY BROADCASTING MERGER
ARGYLE(a) BROADCASTING ADJUSTMENTS TRANSACTION BUSINESS ADJUSTMENTS
------------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues............. $197,016 $35,810 $..... $232,826 $119,773 $ 4,067 (m)
Station operating expenses. 84,851 20,122 (4,741)(b) 100,232 64,312 (5,221)(f)(m)
Amortization of program
rights.................... 21,026 4,184 (b) 25,210 6,165 (m)
Depreciation and
amortization.............. 18,820 1,309 6,371 (c) 26,500 11,051 25,156 (g)
-------- ------- -------- -------- -------- --------
Station operating income... 72,319 14,379 (5,814) 80,884 44,410 (22,033)
Corporate general and
administrative expenses. 6,554 557 (b) 6,554 (2,668)(h)
(557)(h) 3,418 (m)
-------- ------- -------- -------- -------- --------
Operating income........... 65,765 14,379 (5,814) 74,330 44,410 (22,783)
Interest (expense) income.. (18,614) 62 (18,612)(d) (37,164) (6,925) (17,575)(i)
5 (5)(m)
Other income, net.......... -------- ------- -------- -------- -------- --------
Income before income taxes. 47,151 14,441 (24,426) 37,166 37,490 (40,363)
Income taxes............... 20,154 -- (4,908)(e) 15,246 14,645 (15,823)(j)
-------- ------- -------- -------- -------- --------
Income from continuing
operations................ 26,997 $14,441 $(19,518) $ 21,920 $ 22,845 $(24,540)
======= ======== ======== ======== ========
Less: preferred stock
dividends................. (711)
--------
Income applicable to
common stock.............. $ 26,286
========
Basic (Minimum):
Income per common share. $ 0.49
========
Number of shares used in
per share calculation 53,815
Basic (Maximum):
Income per common share. $ 0.49
========
Number of shares used in
per share calculation 53,815
Diluted (Minimum):
Income per common share. $ 0.49
========
Number of shares used in
per share calculation 54,080
Diluted (Maximum):
Income per common share. $ 0.49
========
Number of shares used in
per share calculation 54,080
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA DIVESTITURE PRO FORMA
MERGER WGAL(k) DIVESTITURE
---------- -------------- -----------
<S> <C> <C> <C>
Total revenues............. $356,666 $(14,847) $ 341,819
Station operating expenses. 159,323 (5,009) 154,314
Amortization of program
rights.................... 31,375 (852) 30,523
Depreciation and
amortization.............. 62,707 (675) 62,032
-------- -------- ---------
Station operating income... 103,261 (8,311) 94,950
Corporate general and
administrative expenses. 7,304 7,304
Operating income........... 95,957 (8,311) 87,646
Interest (expense) income.. (61,664) 768 (60,896)
Other income, net.......... --
--------
Income before income taxes. 34,293 (7,543) 26,750
Income taxes............... 14,068 (3,092) 10,976
-------- -------- ---------
Income from continuing
operations................ 20,225 $ (4,451) 15,774
========
Less: preferred stock
dividends................. (711) (711)
-------- ---------
Income applicable to
common stock.............. $ 19,514 $ 15,063
======== =========
Basic (Minimum):
Income per common share. $ 0.21 $ 0.16
======== =========
Number of shares used in
per share calculation 92,471 (l) 92,471 (l)
Basic (Maximum):
Income per common share. $ 0.23 $ 0.18
======== =========
Number of shares used in
per share calculation 83,685 (l) 83,685 (l)
Diluted (Minimum):
Income per common share. $ 0.21 $ 0.16
======== =========
Number of shares used in
per share calculation 92,735 (l) 92,735 (l)
Diluted (Maximum):
Income per common share. $ 0.23 $ 0.18
======== =========
Number of shares used in
per share calculation 83,950 (l) 83,950 (l)
</TABLE>
See notes on the following pages.
7
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
ADJUSTMENTS:
(a) On a pro forma basis assuming the Gannett Swap, the Hearst Transaction and
the STC Swap had occurred as of January 1, 1997.
(b) Reclassification of Kelly Broadcasting account balances to conform with the
Company presentation.
(c) Amortization of intangible assets resulting from purchase accounting
adjustments, net of amortization recorded in the historical financial
statements of Kelly Broadcasting. The estimated useful lives for these
intangible assets were as follows: Goodwill-40 years; FCC licenses-40
years; network affiliation agreements-40 years and other intangible assets-2
to 5 years.
(d) Interest expense relating to debt issued ($530 million) for the Kelly
Transaction at an assumed interest rate of 7% which approximates the rate
the Company pays for debt, net of interest expense recorded in the
historical financial statements of Kelly Broadcasting. If the interest rate
were to increase or decrease 1/8%, the difference in interest expense would
equal $663,000.
(e) Estimated income tax effect of the above adjustments, giving effect to the
Kelly Transaction.
(f) Estimated pension costs associated with the newly-established defined
benefit pension plan to be created for the transferred Pulitzer Broadcasting
employees, including the assets to be transferred to the Company per the
terms of the Pulitzer Merger Agreement (as defined in Item 5 of the
Company's Form 8-K, dated September 29, 1998), net of pension costs recorded
in the historical consolidated financial statements.
(g) Amortization of intangible assets resulting from purchase accounting
adjustments, net of amortization recorded in the historical consolidated
financial statements of Pulitzer Broadcasting. The estimated useful lives
for these intangible assets were as follows: Goodwill - 40 years; FCC
licenses - 40 years; network affiliation agreements - 40 years and other
intangible assets 2 to 5 years.
(h) Change in corporate general and administrative expenses due to the Pulitzer
Merger and the Kelly Transaction, associated with the Company's new
organizational structure, including the increase in corporate staff and the
services agreement (which includes certain administrative services such as
accounting, financial, legal, tax, insurance data processing and employee
benefits), net of corporate general and administrative expenses recorded in
the historical financial statements of Pulitzer Broadcasting and Kelly
Broadcasting.
(i) Interest expense relating to the New Debt ($700 million) assumed in the
Pulitzer Merger at an assumed interest rate of 7% which approximates the
rate the Company pays for debt, net of interest expense recorded in the
historical consolidated financial statements of Pulitzer Broadcasting. If
the interest rate were to increase or decrease 1/8%, the difference in
interest expense would equal $875,000.
(j) Estimated income tax effect of the above adjustments, giving effect to the
Pulitzer Merger.
(k) Upon consummation of the Pulitzer Merger, the Company will, assuming the FCC
grants the temporary waiver requested by the Company, own two television
stations in an area (WGAL in Lancaster, PA and WBAL in Baltimore, MD) with
overlapping service contours in violation of the FCC's current local
ownership rules. The FCC's current rules prohibit the ownership of two
stations in the same geographic area whose service contours overlap.
Accordingly, the Company will be required to divest one of the
aforementioned stations. If WGAL is sold for cash, the proceeds of such
sale will be used to reduce indebtedness under the Chase Credit Facility and
therefore the Pro Forma Statements of operations reflects the effects of a
reduction in the Chase Credit Facility by an amount equal to $22.0 million,
the net book value of WGAL. The net book value has been used in the
unaudited pro forma combined condensed financial statements for the
divestiture of WGAL because no other valuation currently can be based on an
independent third party offer. The divestiture of WGAL at net book value
would be equivalent to selling WGAL at a price equal to less than two times
WGAL's 1997 broadcast cash flow. Given the valuations of broadcasting
properties in recent transactions, including the valuation of the Pulitzer
Broadcasting implied by the Merger Stock, the Company management believes
that any divestiture of WGAL would occur at a valuation significantly higher
than its net book value.
(l) Includes the issuance of the Company Series A Common Stock to the
stockholders of New Pulitzer.
(m) Reclassification of Pulitzer Broadcasting account balances to conform with
the Company presentation.
8
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS OF THE COMPANY
The Unaudited Pro Forma Combined Condensed Statements of Operations of the
Company for the year ended December 31, 1997 and the six-months ended June 30,
1997 and 1998 have been prepared as if the Gannett Swap, the Hearst Transaction
and the STC Swap had been completed as of the beginning of the periods
presented. The Gannett Swap, the Hearst Transaction and the STC Swap are
accounted for using the purchase method of accounting. Any subsequent
adjustments and any uncertainties affecting the pro forma presentation are not
expected to be significant. The pro forma statements of operations presented
herein are not necessarily indicative of the Company's results of operations
that might have occurred had such transactions been completed at the beginning
of the periods indicated and do not purport to represent the Company's
consolidated results of operations for any future period.
Hearst-Argyle Television, Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
ARGYLE HEARST-ARGYLE HISTORICAL
EIGHT MONTHS FOUR MONTHS GANNETT HEARST HEARST
ENDED ENDED SWAP BROADCAST TRANSACTION
8/31/97(a) 12/31/97(b) ADJUSTMENTS GROUP ADJUSTMENTS
------------- ---------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............. $ 51,826 $146,440 $975 (h) $187,221 $ 1,320 (c)
Station operating expenses. 27,610 59,993 681 (d)(h) 82,103 (1,944)(p)
Amortization of program
rights.................... 2,833 14,652 16 (h) 25,477 --
Depreciation and
amortization.............. 16,955 12,150 138 (e)(f) 10,774 (3,777)(f)
-------- -------- ---- -------- -------
Station operating income... 4,428 59,645 140 68,867 7,041
Corporate general and
administrative expenses. 2,700 3,518 -- 6,009 (227)(l)
Non-cash compensation
expense................... 3,518 -- -- -- (3,518)(k)
-------- -------- ---- -------- -------
Operating income (loss).... (1,790) 56,127 140 62,858 10,786
Interest expense, net...... 12,749 15,830 -- 16,654 (8,005)(m)
-------- -------- ---- -------- -------
Income (loss) before
income taxes.............. (14,539) 40,297 140 46,204 18,791
Income taxes............... -- 16,419 -- 18,944 2,430 (g)
-------- -------- ---- -------- -------
Income (loss) from
continuing operations..... $(14,539) $ 23,878 $140 $ 27,260 $16,361
======== ======== ==== ======== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
HEARST STC SWAP PRO FORMA
TRANSACTION ADJUSTMENTS HEARST-ARGYLE
----------- ------------ -------------
<S> <C> <C> <C>
Total revenues............. $387,782 $ 615 (i) $388,397
Station operating expenses. 168,443 995 (i)(j) 169,438
Amortization of program
rights.................... 42,978 (1,461)(i) 41,517
Depreciation and
amortization.............. 36,240 3,704 (e)(f) 39,944
-------- ------- --------
Station operating income... 140,121 (2,623) 137,498
Corporate general and
administrative expenses. 12,000 -- 12,000
Non-cash compensation
expense................... -- -- --
-------- ------- --------
Operating income (loss).... 128,121 (2,623) 125,498
Interest expense, net...... 37,228 -- 37,228
-------- ------- --------
Income (loss) before
income taxes.............. 90,893 (2,623) 88,270
Income taxes............... 37,793 (1,093)(g) 36,700
-------- ------- --------
Income (loss) from
continuing operations..... $ 53,100 $(1,530) $ 51,570
======== ======= ========
</TABLE>
See notes on the following pages.
9
<PAGE>
Hearst-Argyle Television, Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations
Six Months Ended June 30, 1997
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL
GANNETT HEARST HEARST PRO FORMA
HISTORICAL SWAP BROADCAST TRANSACTION HEARST STC SWAP
ARGYLE(o) ADJUSTMENTS GROUP ADJUSTMENTS TRANSACTION ADJUSTMENTS
------------- ----------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues............. $39,765 $975 (h) $143,566 $ 1,026 (c) $185,332 $ (61)(i)
Station operating expenses. 21,367 681 (d)(h) 60,596 (1,458)(p) 81,186 (41)(i)(j)
Amortization of program
rights.................... 2,119 16 (h) 19,052 -- 21,187 (803)(i)
Depreciation and
amortization.............. 12,760 138 (e)(f) 8,190 (5,363)(f) 15,725 1,236 (e)(f)
------- ---- -------- ------- -------- ------
Station operating income... 3,519 140 55,728 7,847 67,234 (453)
Corporate general and
administrative expenses. 1,904 -- 4,467 183 (l) 6,554 --
Non-cash compensation
expense................... 503 -- -- (503)(k) -- --
------- ---- -------- ------- -------- ------
Operating income........... 1,112 140 51,261 8,167 60,680 (453)
Interest expense, net...... 9,407 -- 12,485 (3,278)(m) 18,614 --
------- ---- -------- ------- -------- ------
Income (loss) before
income taxes.............. (8,295) 140 38,776 11,445 42,066 (453)
Income taxes............... -- -- 16,054 1,631 (g) 17,685 --
------- ---- -------- ------- -------- ------
Income (loss) from
continuing
operations.............. $(8,295) $140 $ 22,722 $ 9,814 $ 24,381 $ (453)
======= ==== ======== ======= ======== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
HEARST-ARGYLE
-------------
<S> <C>
Total revenues............. $185,271
Station operating expenses. 81,145
Amortization of program
rights.................... 20,384
Depreciation and
amortization.............. 16,961
--------
Station operating income... 66,781
Corporate general and
administrative expenses. 6,554
Non-cash compensation
expense................... --
--------
Operating income........... 60,227
Interest expense, net...... 18,614
--------
Income (loss) before
income taxes.............. 41,613
Income taxes............... 17,685
--------
Income (loss) from
continuing
operations.............. $ 23,928
========
</TABLE>
See notes on the following pages.
10
<PAGE>
Hearst-Argyle Television, Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations
Six Months Ended June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
HISTORICAL STC SWAP PRO FORMA
HEARST-ARGYLE(n) ADJUSTMENTS HEARST-ARGYLE
---------------- ------------ -------------
<S> <C> <C> <C>
Total revenues..................... $196,965 $ 51 (i) $197,016
Station operating expenses......... 83,948 903 (i)(j) 84,851
Amortization of program rights..... 21,669 (643)(i) 21,026
Depreciation and amortization...... 17,641 1,179 (e)(f) 18,820
-------- ------- --------
Station operating income........... 73,707 (1,388) 72,319
Corporate general and
administrative expenses......... 6,554 -- 6,554
-------- ------- --------
Operating income................... 67,153 (1,388) 65,765
Interest expense, net.............. 19,827 (1,213)(m) 18,614
-------- ------- --------
Income before income taxes......... 47,326 (175) 47,151
Income taxes....................... 20,229 (75)(g) 20,154
-------- ------- --------
Income from continuing operations.. $ 27,097 $ (100) $ 26,997
======== ======= ========
See notes on the following pages.
</TABLE>
11
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS OF THE
COMPANY:
(a) The Hearst Transaction was consummated on August 29, 1997. Selected
financial data are presented for Argyle for the eight-months ended August
31, 1997 and for the Company for the four-months ended December 31, 1997.
Selected financial data for Argyle for the eight-months ended August 31,
1997 include the results of operations of Argyle, which include: (i) WZZM
and WGRZ for January 1997 only; (ii) WLWT and KOCO from February 1, 1997
through August 31, 1997; and, (iii) WAPT, KITV, Argyle's share of the 1996
Joint Marketing and Programming Agreement, relating to television station
WNAC, with the owner of another television station in the same market (the
"Clear Channel Venture"), and KHBS/KHOG (the "Arkansas Stations") for the
full-period presented.
(b) Includes the results of operations of the Company, which includes WLWT,
KOCO, WAPT, KITV, the Arkansas Stations, the Company's share of broadcast
cash flow from the Clear Channel Venture, WCVB, WTAE, WISN, WBAL, KMBC and
WDTN and the management fee derived by the Company from WWWB, WPBF, KCWB and
WBAL-AM/WIYY-FM (the "Managed Stations") for the full-period presented.
(c) Management fees derived by the Company from the Managed Stations from the
beginning of each period presented.
(d) Elimination of certain expenses which would not have been incurred under the
Company's management.
(e) Change in depreciation expense due to purchase accounting adjustments to
equipment and buildings, net of depreciation 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.
(f) Amortization of intangible assets resulting from purchase accounting
adjustments, net of amortization recorded in the historical financial
statements. The estimated useful lives used for these intangible assets
were as follows: FCC licenses, network affiliation agreements and goodwill -
40 years; other intangibles - 2 to 5 years.
(g) Estimated income tax effect of the pro forma adjustments.
(h) The inclusion of WLWT and KOCO and the exclusion of WZZM and WGRZ results of
operations from the beginning of the period presented.
(i) The inclusion of WPTZ/WNNE and KSBW and the exclusion of WDTN and WNAC
results of operations from the beginning of the periods presented.
(j) Additional expenses which would have been incurred under the Company's
management.
(k) Conforming the accounting policies related to stock based compensation.
(l) Change in corporate expenses associated with the Company's new
organizational structure. Including the effect of agreements for
administrative services, such as accounting, financial, legal, tax,
insurance, data processing and employee benefits and other applicable
agreements that were entered into upon the close of the Hearst Transaction.
(m) Interest expense on the pro forma debt as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
<S> <C> <C> <C>
12/31/97 6/30/97 6/30/98
--------- -------- --------
Senior Notes due 2007 at an interest rate of 7.0%................ $ 8,752 $ 4,376 $ 4,376
Senior Notes due 2008 at an interest rate of 7.0%................ 14,000 7,000 7,000
Senior Notes due 2027 at an interest rate of 7.5%................ 13,124 6,562 6,562
Senior subordinated Notes due 2005 at an interest rate of 9.75%.. 252 126 126
Commitment fees for the unused Chase Credit Facility............. 1,252 626 626
Non-cash interest charges........................................ 2,248 1,124 1,124
Interest income.................................................. (2,400) (1,200) (1,200)
--------- -------- --------
Total Interest Expense, net...................................... $ 37,228 $ 18,614 $ 18,614
========= ======== ========
</TABLE>
(n) Includes the results of operations of the Company, which includes: (i) WLWT,
KOCO, WAPT, KITV and the Arkansas Stations; (ii) WCVB, WTAE, WISN, WBAL and
KMBC; (iii) the management fee derived by the Company from the Managed
Stations for the full-period presented; (iv) the Company's share of the
Clear Channel Venture and WDTN from January 1 through May 31, 1998; and,
(iv) KSBW and WPTZ/WNNE for the month of June 1998 only.
(o) Includes the results of operations of Argyle, which includes: (i) WAPT,
KITV, the Arkansas Stations, Argyle's share of broadcast cash flows from the
Clear Channel Venture for the entire period; (ii) WZZM and WGRZ for January
1997 only; and, (iii) WLWT and KOCO from February 1 through June 30, 1997.
(p) Reduction of pension expense resulting from the actuarial valuation of the
newly-established qualified defined benefit pension plan.
12
