<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 14, 1999 (March 18, 1999)
------------
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) 887-6800
--------------
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
As previously reported on Hearst-Argyle Television, Inc.'s (the "Company")
Current Report on Form 8-K filed on March 26, 1999 (which is being amended by
this Amendment No. 1), on that date the Company completed its acquisition of the
television and radio broadcast business operations of Pulitzer Publishing
Company, a Delaware corporation ("Pulitzer"), pursuant to the Amended and
Restated Agreement and Plan of Merger, dated as of May 25, 1998, by and among
the Company, Pulitzer and Pulitzer Inc., a Delaware corporation and wholly-owned
subsidiary of Pulitzer. Attached hereto are the consolidated financial
statements of Pulitzer Broadcasting Company and the unaudited pro forma combined
condensed financial information of the Company which are required to be filed by
Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(a) Financial statements of businesses acquired.
Pulitzer Broadcasting Company and Subsidiaries consolidated financial
statements as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998.
(b) Pro forma financial information.
Unaudited Pro Forma Combined Condensed Financial Statements of
Hearst-Argyle Television, Inc. (giving effect to the Merger, as of
December 31, 1998).
(c) Exhibits
23.1 Consent of Deloitte & Touche LLP.
99.1 Pulitzer Broadcasting Company and Subsidiaries consolidated
financial statements as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998,
1997 and 1996.
99.2 Unaudited Pro Forma Combined Condensed Financial Statements of
Hearst-Argyle Television, Inc. (giving effect to the Merger, as
of December 31, 1998).
<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: May 14, 1999
<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, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998.
99.2 Unaudited Pro Forma Combined Condensed Financial Statements of
Hearst-Argyle Television, Inc. (giving effect to the Merger,
as of December 31, 1998).
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 333-
61101, as amended, and 333-35051 of Hearst-Argyle Television Inc. on Form S-3
and Registration Statement Nos. 333-35043 and 333-75709 on Form S-8 of our
report dated March 18, 1999 relating to the financial statements of Pulitzer
Broadcasting Company and Subsidiaries, appearing in the Current Report on
Form 8-K/A of Hearst-Argyle Television Inc. dated May 14, 1999, and to the
reference to us under the heading "Experts" in Registration Statement No. 333-
61101, as amended.
DELOITTE & TOUCHE LLP
May 14, 1999
St. Louis, Missouri
<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, 1998
Statements of Consolidated Financial Position at December 31, 1998 and 1997
Statements of Consolidated Stockholder's Equity (Deficit) for each of the
Three Years in the Period Ended December 31, 1998
Statements of Consolidated Cash Flows for each of the Three Years in the
Period Ended December 31, 1998
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Pulitzer Broadcasting 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, 1998 and 1997, 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, 1998.
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, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
March 18, 1999
2
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
OPERATING REVENUES - NET $239,746 $227,016 $224,992
------------ ------------ ------------
OPERATING EXPENSES:
Operations 72,438 69,205 66,626
Selling, general and administrative 55,601 55,885 56,535
Depreciation and amortization 21,048 23,447 22,442
------------ ------------ ------------
Total operating expenses 149,087 148,537 145,603
------------ ------------ ------------
Operating income 90,659 78,479 79,389
Interest expense (13,503) (16,081) (13,592)
Net other income 10 434
------------ ------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 77,156 62,408 66,231
PROVISION FOR INCOME TAXES (Note10) 30,147 24,387 25,876
------------ ------------ ------------
NET INCOME $ 47,009 $ 38,021 $ 40,355
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
<S> <C> <C>
ASSETS (In thousands, except share data)
CURRENT ASSETS:
Trade accounts receivable (less allowance for
doubtful accounts of $597 and $785) $ 47,244 $ 50,880
Program rights 8,425 7,866
Prepaid expenses and other 1,115 1,260
-------------- --------------
Total current assets 56,784 60,006
-------------- --------------
PROPERTIES:
Land 10,254 10,163
Buildings 48,508 44,769
Machinery and equipment 138,351 135,629
Construction in progress 2,177 3,282
-------------- --------------
Total 199,290 193,843
Less accumulated depreciation 115,776 106,826
-------------- --------------
Properties - net 83,514 87,017
-------------- --------------
INTANGIBLE AND OTHER ASSETS:
Intangible assets - net of amortization (Note 5) 94,817 102,493
Other 8,348 7,172
-------------- --------------
Total intangible and other assets 103,165 109,665
-------------- --------------
TOTAL $ 243,463 $256,688
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 4,175 $ 3,966
Current portion of long-term debt (Note 6) 12,705 12,705
Salaries, wages and commissions 3,438 4,709
Interest payable 5,301 5,677
Program contracts payable 7,955 7,907
Other 1,642 1,551
-------------- --------------
Total current liabilities 35,216 36,515
-------------- --------------
LONG-TERM DEBT (Note 6) 160,000 172,705
-------------- --------------
PENSION OBLIGATIONS (Note 7) 6,951 5,544
-------------- --------------
POSTRETIREMENT BENEFIT OBLIGATIONS (Note 8) 2,762 2,556
-------------- --------------
OTHER LONG-TERM LIABILITIES 2,817 3,299
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDER'S EQUITY:
Common stock, $100 par value; 1,000 shares authorized;
issued - 100 shares 10 10
Additional paid-in capital 11,924 11,924
Retained earnings 128,618 81,609
Intercompany balance (Note 3) (104,835) (57,474)
-------------- --------------
Total stockholder's equity 35,717 36,069
-------------- --------------
TOTAL $ 243,463 $256,688
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1998 1997 1996
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 47,009 $ 38,021 $ 40,355
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 13,261 15,709 14,811
Amortization 7,787 7,738 7,631
Deferred income taxes (264) (2,039) (844)
Gain on sale of assets (421)
Changes in assets and liabilities which
provided (used) cash:
Trade accounts receivable 3,636 (3,180) (5,658)
Other assets 229 (386) (597)
Trade accounts payable and other liabilities (662) (356) 4,751
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 70,996 55,507 60,028
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,930) (12,976) (11,354)
Purchase of broadcast assets (3,141) (5,187)
Investment in limited partnership (1,000) (1,500) (1,750)
Sale of assets 1,999
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (10,930) (17,617) (16,292)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 135,000
Repayments of long-term debt (12,705) (64,705) (15,205)
Net transactions with Pulitzer Publishing Company (47,361) 26,815 (163,531)
------------- ------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (60,066) (37,890) (43,736)
------------- ------------- -------------
NET INCREASE IN CASH $ - $ - $ -
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 13,789 $ 17,469 $ 9,716
</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, 1996 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, 100 10 11,924 43,588 (84,289) (28,767)
1996
Net Income 38,021 38,021
Net transactions with
Pulitzer Publishing
Company 26,815 26,815
--------- -------------- ---------------- --------------- --------------- ---------------
Balances at December 31, 100 10 11,924 81,609 (57,474) 36,069
1997
Net Income 47,009 47,009
Net transactions with
Pulitzer Publishing
Company (47,361) (47,361)
--------- -------------- ---------------- --------------- --------------- ---------------
Balances at December 31, 100 $10 $11,924 $128,618 $(104,835) $ 35,717
1998
========= ============== ================ =============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
PULITZER BROADCASTING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Pulitzer Broadcasting 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.
Prior to the Merger (as defined below) on March 18, 1999, Pulitzer Broadcasting
Company was a wholly-owned subsidiary of Pulitzer Publishing Company
("Pulitzer"). As a result of the Merger, Pulitzer Broadcasting is a wholly-
owned subsidiary of Hearst-Argyle Television, Inc. ("Hearst-Argyle").
Pulitzer, Pulitzer Inc., (a wholly-owned subsidiary of Pulitzer), and Hearst-
Argyle entered into an Amended and Restated Agreement and Plan of Merger, dated
as of May 25, 1998 (the "Merger Agreement"), pursuant to which Hearst-Argyle
agreed to acquire Pulitzer's Broadcasting Business (the "Merger"). On March 17,
1999, the stockholders of Pulitzer and Hearst-Argyle approved the Merger
Agreement and related proposals concerning the Spin-off (as defined below) and
the Merger (the Spin-off and Merger are collectively referred to as the
"Transactions"). On March 18, 1999, in connection with the Transactions,
Pulitzer prepaid its existing long-term debt borrowings (see Note 6) and paid
certain transaction costs using a portion of the proceeds from $700 million of
New Debt (as defined in Note 6). Pulitzer then contributed the balance of the
proceeds of the New Debt, together with its newspaper publishing and related new
media assets and liabilities, to Pulitzer Inc. pursuant to a Contribution and
Assumption Agreement (the "Contribution").
Immediately following the Contribution, Pulitzer distributed to each holder of
Pulitzer common stock one fully-paid and nonassessable share of Pulitzer Inc.
common stock for each share of Pulitzer common stock held and to each holder of
Pulitzer Class B common stock one fully-paid and nonassessable share of Pulitzer
Inc. Class B common stock for each share of Pulitzer Class B common stock held
(the "Distribution"). The Contribution and Distribution collectively constitute
the "Spin-off."
Immediately following the Spin-off, Pulitzer, consisting of the Broadcasting
Business and the New Debt, was merged with and into Hearst-Argyle. Pursuant to
the Merger Agreement, Hearst-Argyle agreed to assume the New Debt in connection
with the Merger.
2. 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.
Fiscal Year - Broadcasting's fiscal year ends on the last Sunday of the calendar
year. For ease of presentation, Broadcasting has used December 31 as the year-
end.
Program Rights - Program rights represent license agreements for the right to
broadcast feature programs, program series and other syndicated programs over
limited license periods and are presented in the consolidated balance sheet at
the lower of unamortized cost or estimated net realizable value. The total
gross cost of each agreement is recorded as an asset and liability when the
license period begins and all of the following conditions have been met: (a) the
cost of the agreement is known or reasonably determinable, (b) the program
material has been accepted in accordance with the conditions of the license
agreement and (c) the program is available for broadcast. Payments are made in
installments as provided for in the license
7
<PAGE>
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.
Program rights covering periods of less than one year are amortized on a
straight-line basis as the programs are broadcast. Program rights covering
periods greater than one year are generally amortized as a package or series
over the license period using an accelerated method. When a determination is
made that either the unamortized cost of a program exceeds its estimated net
realizable value or a program will not be used prior to the expiration of the
license agreement, appropriate adjustments are made to charge unamortized
amounts to operations.
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 - Broadcasting considers the possible impairment of its
properties and intangible assets 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 undiscounted 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
8
<PAGE>
subsequent to December 31, 1994. Broadcasting continues to recognize and measure
compensation for its participation in the Pulitzer stock option plans in
accordance with the existing provisions of APB 25.
Barter Transactions - Broadcasting's barter transactions primarily represent the
exchange of commercial air time for non-network programming. Typically, the
commercials exchanged are broadcast during the program that is received in the
barter transaction. In general, an equal amount of barter revenue and expense
is recorded at the estimated fair value of commercial air time relinquished when
the commercials are broadcast. Due to the nature of Broadcasting's barter
transactions, barter receivables and payables are not significant.
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 years ended December 31, 1998 and 1997.
Recently Adopted Accounting Standards - Effective January 1, 1998, Broadcasting
adopted Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards for reporting
and display of comprehensive income in a full set of general-purpose financial
statements. In addition to displaying an amount for net income, Broadcasting is
now required to display other comprehensive income, which includes other changes
in stockholder's equity. There were no items of other comprehensive income;
therefore, net income and comprehensive income for the years ended December 31,
1998, 1997 and 1996 were the same.
During 1998, Broadcasting also adopted Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. This statement revises employers' disclosures about
pensions and other postretirement benefit plans but does not change the
measurement or recognition of those plans. (see Notes 7 and 8)
Derivative Instruments and Hedging Activities - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 provides comprehensive and consistent standards for the
recognition and measurement of derivative and hedging activities. It requires
that derivatives be recorded on the statement of consolidated financial position
at fair value and establishes criteria for hedges of changes in the fair value
of assets, liabilities or firm commitments, hedges of variable cash flows of
forecasted transactions, and hedges of foreign currency exposures of net
investments in foreign operations. Changes in the fair value of derivatives
that do not meet the criteria for hedges would be recognized in the statement of
consolidated income. This statement will be effective for Broadcasting
beginning January 1, 2000. Broadcasting is evaluating SFAS No. 133 and has not
determined its effect on the consolidated financial statements.
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.
3. 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.
9
<PAGE>
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.
Pension Plans - Pulitzer sponsors various noncontributory defined benefit
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
$3,703,000, $3,701,000 and $3,857,000 in the years ended December 31, 1998,
1997, and 1996, respectively. These costs are included within the Statements of
Consolidated Income.
4. 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.
Since 1995, Broadcasting has 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.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
(In thousands)
<S> <C> <C> <C>
FCC licenses and network affiliations $114,403 $114,376
Goodwill 6,960 6,960
Other 42,491 42,491
------------- -------------
Total 163,854 163,827
Less accumulated amortization 69,037 61,334
------------- -------------
Total intangible assets - net $ 94,817 $102,493
============= =============
</TABLE>
10
<PAGE>
6. LONG-TERM DEBT
On March 17, 1999, Pulitzer borrowed $700,000,000 from Chase Manhattan Bank
pursuant to a short-term borrowing agreement (the "New Debt"). On March 18,
1999, Pulitzer used a portion of the proceeds from the New Debt to repay its
existing long-term debt with the Prudential Insurance Company of America
("Prudential Debt") and to pay a related prepayment penalty of approximately
$17,207,000. The New Debt was initially secured by the cash proceeds of the
$700,000,000 loan and, upon payment of the Prudential Debt and the occurrence of
Spin-off, the lien on the cash was released and replaced by a pledge of all of
the issued and outstanding shares of capital stock of Pulitzer Broadcasting
Company and its wholly-owned subsidiaries. The New Debt was subsequently
assumed by Hearst-Argyle at the time of the Merger. Accordingly, all long-term
debt balances and related interest expense of Pulitzer prior to the Transactions
have been allocated to the Broadcasting (see Note 1).
Long-term debt of Pulitzer allocated to Broadcasting consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
<S> <C> <C>
(In thousands)
Credit Agreement $ - $ -
Senior notes maturing in substantially
equal annual installments:
6.76% due 1998-2001 37,500 50,000
7.22% due 2002-2005 50,000 50,000
7.86% due 2001-2008 85,000 85,000
Other 205 410
------------- -------------
Total 172,705 185,410
Less current portion 12,705 12,705
------------- -------------
Total long-term debt $160,000 $172,705
============= =============
</TABLE>
At December 31, 1998 and 1997, Pulitzer's fixed-rate senior note borrowings were
with The Prudential Insurance Company of America.
In January 1999, Pulitzer terminated its credit agreement with The First
National Bank of Chicago, as Agent, for a group of lenders, that provided for a
$50,000,000 variable rate revolving credit facility ("Credit Agreement"). The
Credit Agreement provided the option to repay any borrowings and terminate the
Credit Agreement, without penalty, prior to its scheduled maturity. Pulitzer
had no borrowings under the Credit Agreement subsequent to November 1997.
11
<PAGE>
7. PENSION PLANS
Prior to the Transactions, Pulitzer sponsored two defined benefit pension plans
in which Broadcasting employees may have been 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:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
(In thousands)
Service cost for benefits earned during the year $ 2,608 $ 2,272 $ 2,215
Interest cost on projected benefit obligation 3,886 3,531 3,046
Expected return on plan assets (3,633) (3,125) (2,499)
Amortization of prior service credits (23) (23) (23)
Amortization of transition obligation 156 156 156
Amortization of loss 36 8
--------------- --------------- ---------------
Net periodic pension cost $ 3,030 $ 2,811 $ 2,903
=============== =============== ===============
</TABLE>
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 $1,408,000, $1,395,000, and $1,474,000 for
1998, 1997 and 1996, respectively. Pursuant to the Merger Agreement, Hearst-
Argyle will assume the ongoing liabilities related to Broadcasting active
employees as of the date of the Merger. Future pension costs for Broadcasting
after the Spin-off are likely to be different when compared to allocated
historical amounts.
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
<S> <C> <C>
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $55,298 $47,461
Service cost 2,608 2,271
Interest cost 3,886 3,531
Actuarial loss 4,714 3,272
Benefits paid (1,568) (1,237)
--------------- ---------------
Benefit obligation at end of year 64,938 55,298
--------------- ---------------
Change in plan assets:
Fair value of plan assets at beginning of year 43,495 37,349
Actual return on plan assets 6,337 7,212
Employer contributions 184 172
Benefits paid (1,568) (1,237)
--------------- ---------------
Fair value of plan assets at end of year 48,448 43,496
--------------- ---------------
Funded status--benefit obligation in
excess of plan assets 16,490 11,802
Unrecognized net actuarial gain 1,540 3,515
Unrecognized prior service (cost) credits (587) 189
Unrecognized transition asset (obligation) 54 (856)
--------------- ---------------
Net amount recognized $17,497 $14,650
=============== ===============
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plan with an accumulated benefit obligation in
excess of plan assets were $14,019,000,
12
<PAGE>
$12,546,000 and $0, respectively, at December 31, 1998 and $11,472,000,
$9,979,000 and $0, respectively, at December 31, 1997.
The portion of pension obligations allocated to Broadcasting employees and
included in the Statements of Consolidated Financial Position amounted to
$6,951,000 and $5,544,000 as of December 31, 1998 and 1997, respectively.
Pursuant to the Merger Agreement, actuarial calculations will be performed to
separate Broadcasting active employees from the pension plans as of the date of
the Merger. The pension obligations computed for Broadcasting active employees
and a proportionate share of pension plan assets will then be transferred to
Hearst-Argyle. 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
6.5%, 7% and 7.5% at December 31, 1998, 1997 and 1996, respectively. The
expected long-term rate of return on plan assets was 8.5% for 1998, 1997 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% for 1998, 4.5% for 1997, and 5% for 1996.
Pulitzer also sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all employees.
Contributions related only to Broadcasting employees amounted to approximately
$704,000, $698,000 and $626,000 for 1998, 1997 and 1996, respectively.
8. 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 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
(In thousands)
Service cost for benefits earned during the year $ 141 $ 131 $ 118
Interest cost on projected benefit obligation 134 139 151
Amortization of prior service credits (38) (39) (42)
Amortization of net gain (30) (35) (30)
-------------- -------------- --------------
Net periodic postretirement benefit cost $ 207 $ 196 $ 197
============== ============== ==============
</TABLE>
The status of Broadcasting's postretirement benefit plans is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
<S> <C> <C> <C>
(In thousands)
Benefit obligation at beginning $1,916 $1,858
of year
Service cost 141 131
Interest cost 134 139
Actuarial (gain)/loss 191 (212)
------------ -------------
Benefit obligation at end of year 2,382 1,916
------------ -------------
Plan assets at beginning and end -- --
of year
------------ -------------
Funded status 2,382 1,916
Unrecognized net actuarial gain 154 192
Unrecognized prior service credits 226 448
------------ -------------
Accrued benefit cost $2,762 $2,556
============ =============
</TABLE>
13
<PAGE>
For 1998 measurement purposes, health care cost trend rates of 9%, 8% and 6%
were assumed for indemnity plans, PPO plans and HMO plans, respectively. The
rates assumed for 1997 were 9%, 7% and 5%, respectively. For 1998, these rates
were assumed to decrease gradually to 4.5% through the year 2010 and remain at
that level thereafter. For 1997, the rates were assumed to decrease gradually
to 5% through the year 2010 and remain at that level thereafter.
Administrative costs related to indemnity plans were assumed to increase at a
constant annual rate of 6% for 1998, 1997 and 1996. The assumed discount rate
used in estimating the accumulated postretirement benefit obligation was 6.5%,
7% and 7.5% for 1998, 1997 and 1996, respectively.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects on reported
amounts for 1998:
<TABLE>
<CAPTION>
1-Percentage Point
--------------------------------
Increase Decrease
-------------- --------------
<S> <C> <C> <C>
(In thousands)
Effect on total of service and interest
components $ 36 $ (29)
Effect on postretirement benefit
obligation 278 (231)
</TABLE>
9. COMMON STOCK PLANS
Since 1986, Broadcasting participated in Pulitzer's employee stock option plans
("Option Plans") that provided for the issuance of incentive stock options to
key employees and outside directors. On March 18, 1999, immediately prior to
the Transactions and pursuant to the Merger Agreement, the Company redeemed all
outstanding stock options, whether or not vested, and terminated the Option
Plans.
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:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Expected Life (years) 7 7 7
Risk-free interest rate 5.7% 5.8% 6.4%
Volatility 35.4% 23.6% 22.5%
Dividend yield 1.0% 1.1% 1.2%
</TABLE>
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:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
(In thousands)
Net Income:
As reported $47,009 $38,021 $40,355
Pro forma 45,756 37,333 40,045
</TABLE>
14
<PAGE>
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 participated in the Pulitzer Publishing Company 1997 Employee
Stock Purchase Plan, adopted April 24, 1997 (the "Plan"). The Plan provided for
eligible employees to authorize payroll deductions for the quarterly purchase of
Pulitzer 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 Pulitzer and its subsidiaries were eligible to participate in the Plan after
completing at least one year of service. In anticipation of the Transactions,
purchases under the Plan were suspended on September 30, 1998 and the Plan was
terminated on March 18, 1999, immediately prior to the Transactions.
10. INCOME TAXES
Provisions for income taxes (benefits) consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
(In thousands)
Current:
Federal $25,524 $22,329 $22,818
State and local 4,887 4,097 3,902
Deferred:
Federal (222) (1,723) (721)
State and local (42) (316) (123)
-------------- -------------- --------------
Total $30,147 $24,387 $25,876
============== ============== ==============
</TABLE>
Factors causing the effective tax rate to differ from the statutory Federal
income tax rate are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
State and local income taxes, net of U.S. Federal
income tax benefit 4 4 4
---------- ---------- ----------
Effective rate 39% 39% 39%
========== ========== ==========
</TABLE>
15
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
<S> <C> <C>
Deferred tax assets: (In thousands)
Pensions and employee benefits $3,650 $3,268
Postretirement benefit costs 1,080 1,000
Other 554
------------ ------------
Total 4,730 4,822
------------ ------------
Deferred tax liabilities:
Depreciation 5,760 6,318
Amortization 335 477
Other 344
------------ ------------
Total 6,439 6,795
------------ ------------
Net deferred tax liability $1,709 $1,973
============ ============
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, Broadcasting and its subsidiaries had construction and
equipment commitments of approximately $1,497,000 and commitments for program
contracts payable and license fees of approximately $20,737,000, respectively.
Broadcasting and its subsidiaries are involved, from time to time, in various
claims and lawsuits incidental to the ordinary course of its business, including
such maters as libel, slander and defamation actions and complaints alleging
discrimination. While the results of litigation cannot be predicted, management
believes the ultimate outcome of such existing litigation will not have a
material adverse effect on the consolidated financial statements of Broadcasting
and its subsidiaries.
12. 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 December
31, 1998 and 1997 were $180,000,000 and $196,000,000, respectively.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1998 and 1997. 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.
* * * * * *
16
<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 2 OF THE COMPANY'S FORM 8-K, DATED MARCH 26, 1999.
The following unaudited pro forma combined condensed financial statements
of the Company (the "Pro Forma Statements") give effect to the Pulitzer Merger,
pursuant to which the Company issued to the stockholders of Pulitzer
Publishing Company ("Pulitzer") 37,096,774 shares of the Company's Series A
Common Stock (the "Hearst-Argyle Merger Stock") and assumed $700 million of
new debt (the "New Debt").
The Pulitzer Merger was accounted for by the Company using the purchase
method with the Company as the acquiror of Pulitzer Broadcasting (as defined in
Item 2 of the Company's Form 8-K, dated March 26, 1999. Accordingly, the
Pulitzer Broadcasting assets and liabilities have been adjusted to their
estimated fair values based upon preliminary purchase price allocations which
have been made solely for the purposes of developing the unaudited pro forma
combined condensed financial statements. The results of operations of Pulitzer
Broadcasting were included in the consolidated financial statements of the
Company subsequent to its date of acquisition, March 18, 1999.
The unaudited pro forma combined condensed statements of operations for the
year ended December 31, 1998 give effect to the Pulitzer Merger as if the
transaction had been completed at the beginning of the period. The unaudited pro
forma combined condensed statements of operations of the Company, including the
estimated impact of the Pulitzer Merger, 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 historical
statements of operations of Pulitzer Broadcasting. The unaudited pro forma
combined condensed statements of operations of the Company for the year ended
December 31, 1998, excluding the estimated impact of the Pulitzer Merger, give
effect to the transaction effective June 1, 1998, 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"), and the
transaction consummated on January 5, 1999, effective January 1, 1999 for
accounting purposes, in which the Company acquired, through a merger
transaction, all of the partnership interests in Kelly Broadcasting Co. (the
"Kelly Transaction") as if all such transactions had occurred at the beginning
of 1998.
The unaudited pro forma combined condensed balance sheet at December 31,
1998 gives effect to the Kelly Transaction and the Pulitzer Merger as if the
Kelly Transaction and the Pulitzer Merger, using the actual market price of
Hearst-Argyle Series A Common Stock on the date the closing of the Pulitzer
Merger occurred (the "Closing Date") of $26.0625 per share, had occurred on
December 31, 1998, and is based upon the historical consolidated balance sheets
of the Company, Kelly Broadcasting and Pulitzer Broadcasting.
The Pro Forma Statements should be read in conjunction with the Company's
historical consolidated and unaudited pro forma combined condensed financial
statements, and the Kelly Broadcasting and the Pulitzer Broadcasting historical
consolidated financial statements. 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 STC Swap and the
Kelly Transaction 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 using the actual market price of
Hearst-Argyle Series A Common Stock on the Closing Date of $26.0625 (in
thousands, except share data):
<TABLE>
<CAPTION>
PURCHASE PRICE SHARES ISSUED
-------------- -------------
<S> <C> <C>
Value of Hearst-Argyle Merger Stock............................. $ 966,835 37,096,774
New Debt assumed................................................ 700,000
Estimated transaction costs..................................... 20,000
----------
TOTAL ESTIMATED PURCHASE PRICE.................................. $1,686,835
==========
</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............. $ 117,159
Intangible assets.............................................. 1,569,676
----------
TOTAL ESTIMATED PURCHASE PRICE................................. $1,686,835
==========
</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 Sheets
as of December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Hearst- Kelly Kelly
Argyle Broadcasting Transaction
Historical Historical Adjustments
------------ ------------ -----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 380,980 $ 1,057 $ (373,836) (b)
Accounts receivable, net 91,608 9,813 1,569 (a)
Program rights 35,408 7,568
Deferred tax asset 2,166
Other 5,087 1,549 (1,168) (a)
------------ ------------ -----------
Total current assets 515,249 19,987 (373,435)
Property, plant and equipment, net 129,613 14,863 27,030 (a)
Intangible assets, net 711,409 75,437 (75,437) (a)
479,342 (a)
309 (d)
Other:
Deferred acquisition and financing costs, net 31,302 (309) (d)
Program rights, noncurrent 3,584 5,131 (806) (a)
Other assets 29,983 1,284 (710) (a)
------------ ------------ -----------
Total assets $ 1,421,140 $ 116,702 $ 55,984
============ ============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 39,526 $ 2,982 $ 30,605 (a)(b)
1,236 (c)
Current portion of long-term debt
Program rights payable 35,411 6,244
Related party payable 12,218
Other current liabilities 1,692
------------ ------------ -----------
Total current liabilities 88,847 9,226 31,841
Deferred tax liability 158,449
Program rights payable, noncurrent 3,752 6,507
Other liabilities 3,106 112
Pension obligations
Postretirement benefit obligations
Credit Facility 15,000 (b)
Senior Notes 500,000
Private Placement Debt 340,000 110,000 (b)
Senior Subordinated Notes 2,596
Long-term debt 86,309 (86,309) (a)
------------ ------------ -----------
Total liabilities 1,096,750 102,154 70,532
Partners' Capital 14,548 (14,548) (a)
Stockholders' equity
Preferred stock series A 1
Preferred stock series B 1
Series A common stock 126
Series B common stock 413
Common stock
Additional paid-in capital 203,105
Intercompany balance
Retained earnings 171,397
Treasury stock (50,653)
------------ ------------ -----------
Total stockholders' equity 324,390 14,548 (14,548)
------------ ------------ -----------
Total liabilities and stockholders' equity $ 1,421,140 $ 116,702 $ 55,984
============ ============ ===========
<CAPTION>
Pulitzer
Kelleproductions Pro Forma Broadcasting Pulitzer
Inc. and Kelly Business Merger
Adjustments Transaction Historical Adjustments
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5 $ 8,206 $ - $ -
Accounts receivable, net 1,274 104,264 47,244 1,426 (g)
Program rights 42,976 8,425
Deferred tax asset 2,166
Other 316 5,784 1,115
------------ ------------ ----------- ------------
Total current assets 1,595 163,396 56,784 1,426
Property, plant and equipment, net 72 171,578 83,514
Intangible assets, net (827) 1,190,233 94,817 (94,817) (e)
1,569,676 (e)
620,703 (e)
Other:
Deferred acquisition and financing costs, net 30,993
Program rights, noncurrent 7,909
Other assets 30,557 8,348 (6,000) (e)
5,000 (h)
------------ ------------ ----------- ------------
Total assets $ 840 $ 1,594,666 $ 243,463 $ 2,095,988
============ ============ =========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 840 $ 75,189 $ 12,914 $ 9,699 (e)(h)
Current portion of long-term debt 12,705 (12,705) (e)
Program rights payable 41,655 7,955
Related party payable 12,218
Other current liabilities 1,692 1,642
------------ ------------ ----------- ------------
Total current liabilities 840 130,754 35,216 (3,006)
Deferred tax liability 158,449 620,703 (e)
1,094 (i)
Program rights payable, noncurrent 10,259
Other liabilities 3,218 2,817 (614) (e)
(1,094) (i)
Pension obligations 6,951 (2,213) (e)
Postretirement benefit obligations 2,762
Credit Facility 15,000 710,000 (f)
Senior Notes 500,000
Private Placement Debt 450,000
Senior Subordinated Notes 2,596
Long-term debt 160,000 (160,000) (e)
------------ ------------ ----------- ------------
Total liabilities 840 1,270,276 207,746 1,164,870
Partners' Capital 827
Stockholders' equity (827)
Preferred stock series A 1
Preferred stock series B 1
Series A common stock 126 371 (f)
Series B common stock 413
Common stock 10 (10) (e)
Additional paid-in capital 203,105 11,924 (11,924) (e)
966,464 (f)
Intercompany balance (104,835) 104,835 (e)
Retained earnings 171,397 128,618 (128,618) (e)
Treasury stock (50,653)
------------ ------------ ----------- ------------
Total stockholders' equity - 324,390 35,717 931,118
------------ ------------ ----------- ------------
Total liabilities and stockholders' equity $ 840 $ 1,594,666 $ 243,463 $ 2,095,988
============ ============ =========== ============
<CAPTION>
Pro Forma
Pulitzer Divestiture Pro Forma
Merger WGAL (j) Divestiture
------------ ------------ -----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,206 $ - $ 8,206
Accounts receivable, net 152,934 (5,761) 147,173
Program rights 51,401 (1,281) 50,120
Deferred tax asset 2,166 2,166
Other 6,899 (129) 6,770
------------ ------------ -----------
Total current assets 221,606 (7,171) 214,435
Property, plant and equipment, net 255,092 (5,848) 249,244
Intangible assets, net 3,380,612 3,380,612
Other:
Deferred acquisition and financing costs, net 30,993 30,993
Program rights, noncurrent 7,909 (27) 7,882
Other assets 37,905 37,905
------------ ------------ -----------
Total assets $ 3,934,117 $ (13,046) $3,921,071
============ ============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 97,802 $ (527) $ 97,275
Current portion of long-term debt
Program rights payable 49,610 (1,238) 48,372
Related party payable 12,218 12,218
Other current liabilities 3,334 (299) 3,035
------------ ------------ -----------
Total current liabilities 162,964 (2,064) 160,900
Deferred tax liability 780,246 1,847 782,093
Program rights payable, noncurrent 10,259 (22) 10,237
Other liabilities 4,327 4,327
Pension obligations 4,738 (158) 4,580
Postretirement benefit obligations 2,762 (13) 2,749
Credit Facility 725,000 (12,636) 712,364
Senior Notes 500,000 500,000
Private Placement Debt 450,000 450,000
Senior Subordinated Notes 2,596 2,596
Long-term debt
------------ ------------ -----------
Total liabilities 2,642,892 (13,046) 2,629,846
Partners' Capital
Stockholders' equity
Preferred stock series A 1 1
Preferred stock series B 1 1
Series A common stock 497 497
Series B common stock 413 413
Common stock
Additional paid-in capital 1,169,569 1,169,569
Intercompany balance
Retained earnings 171,397 171,397
Treasury stock (50,653) (50,653)
------------ ------------ -----------
Total stockholders' equity 1,291,225 - 1,291,225
------------ ------------ -----------
Total liabilities and stockholders' equity $ 3,934,117 $ (13,046) $3,921,071
============ ============ ===========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET 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, elimination of assets not acquired, existing long-term debt and
partners' capital.
(b) To record the cash paid and issuance of long-term debt to be incurred in
connection with the purchase price paid for Kelly Broadcasting and
Kelleproductions and related transaction costs. The Company used: (i)
amounts available under its Credit Facility, (ii) available cash and (iii)
the proceeds from the issuance of $450 million ($340 million issued in
December 1998 and $110 million issued in January 1999) of 7.18% Senior Notes
to institutional investors (the "Private Placement Debt") with a maturity of
12 years and average life of ten years to finance the Kelly transaction.
(c) To record the amount the Company owes Kelly Broadcasting to the extent
the actual working capital of Kelly Broadcasting as of December 31, 1998 was
greater than the estimated working capital at the closing (approximately
$1.2 million).
(d) To reclassify acquisition costs incurred prior to December 31, 1998 to
intangible assets, net.
(e) 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 the book and tax basis of
the net assets acquired.
(f) Issuance of 37,096,774 shares of Hearst-Argyle Series A Common Stock, using
the actual market price of Hearst-Argyle Series A Common Stock on the
Closing Date of $26.0625 per share, to the stockholders of Pulitzer, the
assumption of the New Debt ($700 million) (which was refinanced using the
Company's Credit Facility) for the net assets of Pulitzer Broadcasting.
Additionally, the Company used amounts available under its Credit Facility
to fund related transaction costs.
(g) To record the amount New Pulitzer will owe the Company to the extent the
estimated working capital is less than $41 million (approximately $1.4
million) which is based upon the working capital of the Pulitzer
Broadcasting as of December 31, 1998.
(h) To record the purchase of the investment in the Arizona Diamondbacks.
(i) Reclassification of Pulitzer Broadcasting account balances to conform with
the Company presentation.
(j) Upon consummation of the Pulitzer Merger, the Company owns 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 FCC, as part of its consent to the Pulitzer Merger,
required the Company to file an application to divest one of the
aforementioned stations (or propose such other action that would result in
compliance with such FCC rules) within six months following consummation of
the Pulitzer Merger. If WGAL is sold for cash, the proceeds of such sale
will be used to reduce indebtedness under the Company's Credit Agreement,
with the Chase Manhattan Bank and certain lenders party thereto (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
$12.6 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 1998 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 Company's 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, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
STC Swap Kelly Kelly
Historical Adjustments Broadcasting Transaction
Hearst-Argyle (a) and Other Historical Adjustments
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Total revenues $ 407,313 $ (120)(e) $ 75,135 $ (528)(i)
Station operating expenses 173,880 905 (e)(f) 42,312 (11,489)(h)
Amortization of program rights 42,344 (643)(e) 9,244 (h)
Depreciation and amortization 36,420 1,644 (b)(c) 8,972 8,206 (c)
------------- ------------ ------------ -----------
Station operating income 154,669 (2,026) 23,851 (6,489)
Corporate general and administrative expenses 12,635 - - 1,740 (h)
(1,740)(g)
------------- ------------ ------------ -----------
Operating income 142,034 (2,026) 23,851 (6,489)
Interest expense, net 39,555 - 7,402 30,179 (j)
------------- ------------ ------------ -----------
Income before income taxes 102,479 (2,026) 16,449 (36,668)
Income taxes 42,796 (851)(d) - (8,246)(d)
------------- ------------ ------------ -----------
Net income $ 59,683 $ (1,175) $ 16,449 $ (28,422)
============ ============ ===========
Less: preferred stock dividends (1,422)
-------------
Income applicable to common stockholders $ 58,261
=============
Basic:
Income per common share $ 1.09
=============
Number of shares used in per share calculation 53,483
Diluted:
Income per common share $ 1.08
============
Number of shares used in per share calculation 53,699
<CAPTION>
Kelleprodcutions, Pulitzer Pulitzer
Inc. and Pro Forma Broadcasting Merger
Adjustments Hearst-Argyle Business Adjustments
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues $ 3,146 $ 484,946 $ 239,746 $ 8,784 (n)
Station operating expenses 4,249 209,857 128,039 (9,407)(n)
621 (o)
Amortization of program rights - 50,945 11,352 (n)
Depreciation and amortization 7 55,249 21,048 46,936 (c)
------------ ------------ ------------ ------------
Station operating income (1,110) 168,895 90,659 (40,718)
Corporate general and administrative expenses 12,635 6,839 (n)
(3,674)(k)
------------ ------------ ------------ ------------
Operating income (1,110) 156,260 90,659 (43,883)
Interest expense, net - 77,136 13,503 29,260 (j)
------------ ------------ ------------ ------------
Income before income taxes (1,110) 79,124 77,156 (73,143)
Income taxes (466)(d) 33,233 30,147 (23,469)(d)
------------ ------------ ------------ ------------
Net income $ (644) $ 45,891 $ 47,009 $ (49,674)
============ ============ ============
Less: preferred stock dividends (1,422)
------------
Income applicable to common stockholders $ 44,469
============
Basic:
Income per common share $ 0.83
============
Number of shares used in per share calculation 53,483
Diluted:
Income per common share $ 0.83
============
Number of shares used in per share calculation 53,699
<CAPTION>
Pro Forma Historical
Pulitzer Divestiture Pro Forma
Merger WGAL (l) Divestiture
------------ ------------ ------------
<S> <C> <C> <C>
Total revenues $ 733,476 $ (30,033) $ 703,443
Station operating expenses 329,110 (9,867) 319,243
Amortization of program rights 62,297 (1,740) 60,557
Depreciation and amortization 123,233 (1,349) 121,884
------------ ------------ ------------
Station operating income 218,836 (17,077) 201,759
Corporate general and administrative expenses 15,800 15,800
------------ ------------ ------------
Operating income 203,036 (17,077) 185,959
Interest expense, net 119,899 (821) 119,078
------------ ------------ ------------
Income before income taxes 83,137 (16,256) 66,881
Income taxes 39,911 (7,803) 32,108
------------ ------------ ------------
Net income 43,226 $ (8,453) 34,773
===========
Less: preferred stock dividends (1,422) (1,422)
------------ ------------
Income applicable to common stockholders $ 41,804 $ 33,351
============ ============
Basic:
Income per common share $ 0.46 $ 0.37
============ ============
Number of shares used in per share calculation 90,580 (m) 90,580 (m)
Diluted:
Income per common share $ 0.46 $ 0.37
============ ============
Number of shares used in per share calculation 90,796 (m) 90,796 (m)
</TABLE>
See notes on the following pages.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS OF THE
COMPANY:
(a) Includes the results of operations of the Company, which includes: (i) WLWT,
KOCO, WAPT, KITV and KHBS/KHOG; (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
from June 1 through December 31, 1998.
(b) 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.
(c) 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.
(d) Estimated income tax effect of the pro forma adjustments.
(e) The inclusion of WPTZ/WNNE and KSBW and the exclusion of WDTN and WNAC
results of operations from the beginning of the periods presented.
(f) Additional expenses which would have been incurred under the Company's
management.
(g) Change in corporate expenses associated with the Kelly Broadcasting Co.'s
new organizational structure.
(h) Reclassification of Kelly Broadcasting account balances to conform with
the Company's presentation.
(i) Elimination of Kelly Broadcasting management fees charged to entities not
acquired in the Kelly Transaction.
(j) Interest expense on the pro forma debt as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
---------
<S> <C>
12/31/98
---------
Senior Notes due 2007 at an interest rate of 7.0%................ $ 8,752
Senior Notes due 2018 at an interest rate of 7.0%................ 14,000
Senior Notes due 2027 at an interest rate of 7.5%................ 13,124
Senior Subordinated Notes due 2005 at an interest rate of 9.75%.. 252
Private Placement Debt at an interest rate of 7.18%.............. 32,310
Chase Credit Facility at an interest rate of 6.5%................ 47,125
Commitment fees for the unused Chase Credit Facility............. 1,450
Non-cash interest charges........................................ 3,386
Interest income.................................................. (500)
---------
Total Interest Expense, net...................................... $ 119,899
=========
</TABLE>
(k) Change in corporate general and administrative expenses due to the Pulitzer
Merger, as a result of certain contractual agreeements expected to be
entered into upon consummation of the Pulitzer Merger, including the
Services Agreement with Hearst (which included certain adminstative services
such as accounting, financial, legal, tax, insurance, data processing and
employee benefits) which will be amended upon consummation of the Pulitzer
Merger, net of corporate general and administrative expenses recorded in the
historical financial statements of Pulitzer Broadcasting.
(l) Upon consummation of the Pulitzer Merger, the Company owns 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 FCC, as part of its consent to the Pulitzer Merger,
required the Company to file an application to divest one of the
aforementioned stations (or propose such other action that would result in
compliance with such FCC rules) within six months following consummation of
the Merger. 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 $12.6 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 1998 broadcast
cash flow. Given the valuations of broadcasting properties in recent
transactions, including the valuation of the Pulitzer Broadcasting implied
by the shares of Series A Common Stock issued in the Pulitzer Merger,
the Company's management believes that any divestiture of WGAL would occur
at a valuation significantly higher than its net book value.
(m) Includes the issuance of the shares of Series A Common Stock issued in
the Pulitzer Merger.
(n) Reclassification of Pulitzer Broadcasting account balances to conform with
the Company presentation.
(o) 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, net of pension costs
recorded in the historical consolidated financial statements.
6
