-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K+lTPdFhceq9MlCV6SgAz1tfRUPJRgoSJOWtNXliuObyNljCjSA4ABNHuWAKXqci qqgWrAVX2CyD+72ZVgT6Xw== 0000895759-96-000035.txt : 19960401 0000895759-96-000035.hdr.sgml : 19960401 ACCESSION NUMBER: 0000895759-96-000035 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BHC COMMUNICATIONS INC CENTRAL INDEX KEY: 0000855433 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 592104168 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10342 FILM NUMBER: 96541123 BUSINESS ADDRESS: STREET 1: 767 FIFTH AVE 46TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10153 BUSINESS PHONE: 2124210200 MAIL ADDRESS: STREET 1: 767 FIFTH AVE STREET 2: 46TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10153 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission file number 1-10342 BHC COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) Delaware 59-2104168 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 767 Fifth Avenue, New York, New York 10153 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 421-0200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each Exchange on which registered Class A Common Stock $0.01 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X] The aggregate market value of the voting stock held by non- affiliates of the registrant, as of February 29, 1996, was approximately $563,500,000. As of February 29, 1996, there were 6,101,505 shares of the registrant's Class A Common Stock and 18,000,000 shares of the registrant's Class B Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The documents incorporated by reference into this Form 10-K and the Parts hereof into which such documents are incorporated are listed below: Document Part Those portions of the registrant's annual II report to stockholders for the fiscal year ended December 31, 1995 (the "Annual Report") that are specifically identified herein as incorporated by reference into this Form 10-K. Those portions of the registrant's proxy III statement for the registrant's 1996 Annual Meeting (the "Proxy Statement") that are specifically identified herein as incorporated by reference into this Form 10-K. 2 PART I ITEM 1. BUSINESS. General BHC Communications, Inc. ("BHC"), the majority owned (74.4% at Feb- ruary 29, 1996) television broadcasting subsidiary of Chris-Craft Industries, Inc. ("Chris-Craft"), was organized in Delaware in 1977 under the name "BHC, Inc." and changed its name to BHC Communications, Inc. on August 4, 1989. BHC's principal business is television broadcasting, conducted through its wholly owned subsidiaries, Chris-Craft Television, Inc. ("CCTV") and Pine- lands, Inc. ("Pinelands"), and its majority owned (57.1% at February 29, 1996) subsidiary, United Television, Inc. ("UTV"). At February 29, 1996, BHC, solely through subsidiaries, had 1,028 full-time employees and 108 part-time employees. In July, 1994, BHC, along with Viacom Inc.'s Paramount Television Group ("Paramount"), formed the United Paramount Network ("UPN"), a fifth broadcast television network which premiered in January 1995. Television Broadcasting BHC operates six very high frequency ("VHF") television stations and two ultra high frequency ("UHF") television stations, together constituting Chris-Craft's Television Division. Commercial television broadcasting in the United States is conducted on 68 channels numbered 2 through 69. Channels 2 through 13 are in the VHF band, and channels 14 through 69 are in the UHF band. In general, UHF stations are at a disadvantage relative to VHF stations, because UHF frequencies are more difficult for households to receive. This disadvantage is eliminated when a viewer receives the UHF station through a cable system. Commercial broadcast television stations may be either affiliated with one of the three major national networks (ABC, NBC and CBS); three more recently established national networks (Fox Broadcasting Company ("Fox"), UPN, and The WB Network ("WB")), which provide substantially fewer hours of programming; or may be independent. UPN, formed by BHC, along with Paramount, began broadcasting a total of four hours of original prime time programming over two nights per week in January 1995 and expanded to a third night in March 1996. UPN currently has 151 affiliates in markets reaching 91% of all U.S. house- holds, including all of BHC's and Paramount's previously independent stations, and UPN continues to seek additional affiliates to expand its household reach. UPN is still in its infancy, and because of the intense competition that characterizes the broadcast television network business, the cost of develop- ing UPN is expected to remain significant for several years. The following table sets forth certain information with respect to BHC stations and their respective markets: 3
Total Commercial DMA TV Stations DMA Station and House- DMA Operating in Cable TV Location (a) Channel Holds (b) Rank (b) Market (c) Penetration (d) - ------------ ------- --------- -------- ------------ --------------- KCOP 13 4,917,550 2nd 7VHF 61% Los Angeles 10UHF WWOR (e) 9 6,695,140 1st 6VHF 68% Secaucus 14UHF KPTV 12 933,440 24th 4VHF 61% Portland 2UHF KMSP 9 1,412,030 14th 4VHF 50% Minneapolis/ 3UHF St. Paul KTVX 4 656,060 36th 4VHF 54% Salt Lake City 2UHF KMOL 4 638,080 37th 3VHF 64% San Antonio 3UHF KBHK 44 2,257,210 5th 4VHF 70% San Francisco 10UHF KUTP 45 1,169,530 17th 4VHF 57% Phoenix 4UHF
_______________ (a) KCOP and KPTV are owned by CCTV; WWOR is owned by Pinelands; the remaining stations are owned by UTV. All stations are UPN affiliates, except for KTVX, an ABC affiliate, and KMOL, an NBC affiliate. (b) Designated Market Area ("DMA") is an exclusive geographic area consisting of all counties in which the home-market commercial stations received a preponderance of total viewing hours. The ranking shown is the nationwide rank, in terms of television households in DMA, of the market served by the station. Source: Nielsen Media Research television households uni- verse estimates. (c) Additional channels have been allocated by the Federal Communications Commission ("FCC") for activation as commercial television stations in certain of these markets. Also, additional stations may be located within the respective DMAs of BHC stations but outside the greater metropolitan television markets in which BHC stations operate. (d) Cable penetration refers to the percentage of DMA television viewing households receiving cable television service, as estimated by Nielsen Media Research. (e) WWOR broadcasts across a tri-state area including the entire New York City metropolitan area. Its broadcast signal is also carried as a "superstation" on numerous cable television systems throughout the United States. 4 Television stations derive their revenues primarily from selling advertising time. The television advertising sales market consists primarily of national network advertising, national spot advertising and local spot advertising. An advertiser wishing to reach a nationwide audience usually purchases advertising time directly from the national networks, "superstations" (i.e., broadcast stations carried by cable operators in areas outside their broadcast coverage area), barter program syndicators, national basic cable networks, or "unwired" networks (groups of otherwise unrelated stations whose advertising time is combined for national sale). A national advertiser wishing to reach a particular regional or local audience usually buys advertising time from local stations through national advertising sales representative firms having contractual arrangements with local stations to solicit such advertising. Local businesses generally purchase advertising from the stations' local sales staffs. Television stations compete for television advertising revenue primarily with other television stations serving the same DMA. There are 211 DMAs in the United States. DMAs are ranked annually by the estimated number of households owning a television set within the DMA. Advertising rates that a television station can command vary in part with the size, in terms of television households, of the DMA served by the station. Within a DMA, the advertising rates charged by competing stations depend primarily on three factors: the stations' program ratings, the time of day the advertising will run, and the demographic qualities of a program's viewers (primarily age and sex). Ratings data for television markets are measured by A.C. Nielsen Co. ("Nielsen"). This rating service uses two terms to quantify a station's audience: rating points and share points. A rating point represents one percent of all television households in the entire DMA tuned to a particular station, and a share point represents one percent of all television households within the DMA actually using at least one tele- vision set at the time of measurement and tuned to the station in question. Because the major networks regularly provide first-run programming during prime time viewing hours (in general, 8:00 P.M. to 11:00 P.M. Eastern/ Pacific time), their affiliates generally (but do not always) achieve higher audience shares, but have substantially less advertising time ("inventory") to sell, during those hours, than affiliates of the newer networks or independent stations, since the major networks use almost all of their affiliates' prime time inventory for network shows. Although the newer networks generally use the same amount of their affiliates' inventory during network broadcasts, the newer networks provide less programming; accordingly, their affiliates, as well as non-affiliated stations, generally have substantially more inventory for sale than the major-network affiliates. The newer network affiliates' and independent stations' smaller audiences and greater inventory during prime time hours generally result in lower advertising rates charged and more advertising time sold during those hours, as compared with major affiliates' larger audiences and limited inventory, which generally allow the major-network affiliates to charge higher advertising rates for prime time programming. By selling more advertising time, the new-network or independent station typically achieves a share of advertising revenues in its market greater than its audience ratings. On the other hand, total programming costs for such a station, because it broadcasts more syndicated programming than a major-network affiliate, are generally higher than those of a major- network affiliate in the same market. These differences have been reduced by the growth of the Fox network, which currently provides 15 weekly hours of programming during prime time and additional programming in other periods, and would be reduced further if the other newer networks should be successful in providing expanded schedules of programming. In July 1995, the FCC repealed, effective August 30, 1996, its prime time access rule, which limited broadcasts, by major-network affiliates in the 50 largest markets, of "off network" entertainment programming. Among other effects, elimination of this rule is expected to increase the competition faced by new-network affiliates and independent stations in bidding for the rights to popular "off network" shows. 5 Programming BHC's UPN stations depend heavily on independent third parties for programming, as do KTVX and KMOL for their non-network broadcasts. Recog- nizing the need to have a more direct influence on the quality of programming available to its stations, and desiring to participate in potential profits through national syndication of programming, BHC has joined in the formation of UPN, and, additionally, has begun to invest directly in the development of original programming. The aggregate amount invested in original programming through December 31, 1995 was not significant to BHC's financial posi- tion. BHC television stations also produce programming directed to meet the needs and interests of the area served, such as local news and events, public affairs programming, children's programming and sports. Programs obtained from independent sources consist principally of syndicated television shows, many of which have been shown previously on a major network, and syndicated feature films, which were either made for net- work television or have been exhibited previously in motion picture theaters (most of which films have been shown previously on network or cable tele- vision). Syndicated programs are sold to individual stations to be broadcast one or more times. Television stations not affiliated with a major network generally have large numbers of syndication contracts; each contract is a license for a particular series or program that usually prohibits licensing the same programming to other television stations in the same market. A single syndication source may provide a number of different series or programs. Licenses for syndicated programs are often offered for cash sale (i.e., without any barter element) to stations; however, some are offered on a barter or cash plus barter basis. In the case of a cash sale, the station purchases the right to broadcast the program, or a series of programs, and sells advertising time during the broadcast. The cash price of such program- ming varies, depending on the perceived desirability of the program and whether it comes with commercials that must be broadcast (i.e., on a cash plus barter basis). Barter programming is offered to stations for no cash consideration, but comes with a greater number of commercials that must be broadcast, and therefore, with less inventory. In recent years, the amount of barter and cash plus barter program- ming broadcast both industry-wide and by BHC stations has increased sub- stantially. Barter and cash plus barter programming reduce both the amount of cash required for program purchases and the amount of time available for sale. Although the direct impact on broadcasters' operating income generally is believed to be neutral, program distributors that acquire barter air time compete with television stations and broadcasting networks for sales of air time. BHC believes that the effect of barter on its television stations is not significantly different from its impact on the industry as a whole. BHC television stations are frequently required to make substantial financial commitments to obtain syndicated programming while such programming is still being broadcast by another network and before it is available for broadcast by BHC stations or even before it has been produced. Generally, syndication contracts require the station to acquire an entire program series, before the number of episodes of original showings that will be produced has been determined. While analyses of network audiences are used in estimating the value and potential profitability of such programming, there is no assur- ance that a successful network program will continue to be successful or profitable when broadcast after initial network airing. FCC rules limiting the ability of major networks to acquire financial interests in independently produced programming or prohibiting such networks from syndicating programs terminated in 1995. Elimination of the restraints is expected to result in increased competition by the major networks for production and syndication of first-run programming. Pursuant to generally accepted accounting principles, commitments for programming not available for broadcast are not recorded as liabilities until the programming becomes available for broadcast, at which time the related contract right is also recorded as an asset. BHC television stations had prepaid broadcast rights, unamortized film contract rights for programming available for telecasting, and deposits on film contracts for programming not available for telecasting aggregating $145,902,000 as of December 31, 1995. The stations were committed for film and sports rights contracts aggregating $166,200,000 for programming not available for broadcasting as of that date. 6 License periods for particular programs or films generally run from one to five years. Long-term contracts for the broadcast of syndicated television series generally provide for an initial telecast and subsequent reruns for a period of years, with full payment to be made by the station over a period of time shorter than the rerun period. See Notes 1(C) and 8 of Notes to Consolidated Financial Statements. KTVX and KMOL are primary affiliates of their respective networks. Network programs are produced either by the networks themselves or by independent production companies and are transmitted by the networks to their affiliated stations for broadcast. Generally, in the past, major network primary affiliation agreements were automatically renewed for two-year periods (unless advance written notice of termination was given by either the affiliate or the network). More recently, however, most networks have begun to enter into affiliation agree- ments for terms as long as ten years. BHC is discussing long-term affiliation agreements for KTVX and KMOL. Current FCC rules do not limit the duration of such agreements. An affiliation agreement gives the affiliate the right to broadcast all programs transmitted by the network. The affiliate must run in its entirety, together with all network commercials, any network programming the affiliate elects or is required to broadcast, and is allowed to broadcast a limited number of commercials it has sold. For each hour of programming broad- cast by the affiliate, the major networks generally have paid their affiliates a fee, specified in the agreement (although subject to change by the network), which varies in amount depending on the time of day during which the program is broadcast and other factors. Prime time programming generally earns the highest fee. A network may, and sometimes does, designate certain programs to be broadcast with no compensation to the station. Subject to certain limitations contained in the affiliation agreement, an affiliate may accept or reject a program offered by the network and instead broadcast programming from another source. Rejection of a program gives the network the right to offer that program to another station in the area. United Paramount Network In January 1995, UPN began broadcasting four hours of original prime time programming per week, of which one hour consists of Star Trek: Voyager, a science fiction adventure. In March 1996, UPN increased its weekly prime time programming to six hours. The network also broadcasts two hours of previously exhibited movies on Saturday afternoons and one hour of original children's programming on Sunday mornings, which it plans to increase to two hours commencing in September 1996. UPN intends, over the next several years, to expand its prime time programming to five nights per week, as well as to begin broadcasting in other day parts. UPN licenses most of its current programming on the same bases as are customary in the industry. UPN seeks license or ownership rights for all other programming from all available sources on arms-length terms. UPN's primary affiliate station agreements have three year terms and provide commercial time to the stations as consideration for broadcasting the network's programming. BHC currently owns 100% of UPN, and Paramount has an option exer- cisable through January 15, 1997 to acquire an interest in the network equal to that of BHC. The option price is equivalent to approximately one-half of BHC's aggregate cash contributions to UPN through the exercise date, plus interest. Payment may be deferred through the option expiration date. BHC expenditures for UPN have been substantial, and UPN funding requirements are expected to continue to be significant for the next several years. See Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2 of Notes to Consolidated Financial Statements. 7 Sources of Revenue The principal source of revenues for BHC stations is the sale of advertising time to national and local advertisers. Such time sales are represented by spot announcements purchased to run between programs and program segments and by program sponsorship. The relative contributions of national and local advertising to BHC's gross cash advertising revenues vary from time to time. During the year ended December 31, 1995, national advertising contributed 37%, and local advertising contributed 63%, of total gross cash advertising revenues. Most advertising contracts are short-term. Like that of the television broadcasting business generally, BHC's television business is seasonal. In terms of revenues, generally the fourth quarter is strongest, followed by the second, third and first. Advertising is generally placed with BHC stations through advertising agencies, which are allowed a commission generally equal to 15% of the price of advertising placed. National advertising time is usually sold through a national sales representative, which also receives a commission, while local advertising time is sold by each station's sales staff. In July 1995, UTV established a national sales representative organization, United Television Sales, Inc. ("UTS"), to represent, initially, all BHC stations. Practices with respect to sale of advertising time do not differ markedly between BHC's major network and UPN stations, although the major-network affiliated stations have less inventory to sell. Government Regulation Television broadcasting operations are subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act empowers the FCC, among other things, to issue, revoke or modify broadcast licenses, to assign frequencies, to determine the locations of stations, to regulate the broadcasting equipment used by stations, to establish areas to be served, to adopt such regulations as may be necessary to carry out the provisions of the Communications Act and to impose certain penalties for violation of its regulations. BHC television stations are sub- ject to a wide range of technical, reporting and operational requirements imposed by the Communications Act or by FCC rules and policies. The Communi- cations Act was recently and substantially amended by the Telecommunications Act of 1996 (the "Telecom Act"), some provisions of which have been incorp- orated into the FCC's rules and regulations during the past month, and other provisions of which will be incorporated over the next several months. The Communications Act provides that a license may be granted to any applicant if the public interest, convenience and necessity will be served thereby, subject to certain limitations, including the requirement that the FCC allocate licenses, frequencies, hours of operation and power in a manner that will provide a fair, efficient and equitable distribution of service throughout the United States. Television licenses generally have been issued for five- year terms, but the Telecom Act permits the FCC to issue such licenses and their renewals for up to eight years. Upon application, and in the absence of adverse questions as to the licensee's qualifications or operations, tele- vision licenses have usually been renewed for additional terms without a hearing by the FCC. An existing license automatically continues in effect once a timely renewal application has been filed until a final FCC decision is issued. KMSP's license renewal was granted on April 15, 1993, and is due to expire on April 1, 1998. KTVX's license renewal was granted on September 29, 1993, and is due to expire on October 1, 1998. KUTP's license renewal was granted on March 28, 1994, and is due to expire on October 1, 1998. KCOP's license renewal was granted on April 18, 1994, and is due to expire on December 1, 1998. KBHK's license renewal was granted on October 2, 1995, and is due to expire on December 1, 1998. KPTV's license renewal was granted on August 9, 1995, and is due to expire on February 1, 1999. KMOL's license renewal was granted on August 18, 1995, and is due to expire on August 1, 1998. In September 1995, an administrative appeal of the grant of KMOL's renewal was filed, challenging the FCC staff's determination that KMOL had complied with FCC requirements concerning equal employment opportunity. KMOL has vigorously opposed this appeal, which BHC believes is without merit. 8 WWOR's latest license renewal was granted on January 22, 1992. The current license renewal of WWOR has been opposed by a petition challenging its compliance with FCC requirements concerning equal employment opportunity. The station has vigorously opposed the petition, and BHC believes that the petition is without merit. WWOR's license remains in effect pending the resolution of the petition. Under existing FCC regulations governing multiple ownership of broad- cast stations, a license to operate a television station generally will not be granted to any party (or parties under common control), if such party directly or indirectly owns, operates, controls or has an attributable interest in another television or radio station serving the same market or area. The FCC, however, is favorably disposed to grant waivers of this rule for radio station- television station ownership combinations in the top 25 television markets, in which there will be at least 30 separately owned, operated and controlled broadcast stations, and in certain other circumstances. The Telecom Act di- rects the FCC to extend this waiver policy to the top 50 markets, consistent with the public interest, and to conduct a rule-making proceeding to determine whether to retain or modify the current restriction on same-market multiple television station ownership. FCC regulations further provide that a broadcast license will not be granted if that grant would result in a concentration of control of radio and television broadcasting in a manner inconsistent with the public interest, convenience or necessity. Prior to adoption of the Telecom Act, FCC rules had deemed such concentration of control to exist if any party, or any of its officers, directors or stockholders, directly or indirectly, owned, operated, controlled or had an attributable interest in more than 12 television stations, or in television stations capable of reaching, in the aggregate, a maximum of 25% of the national audience. This percentage is determined by the DMA market rankings of the percentage of the nation's television households considered within each market. Because of certain limitations of the UHF signal, however, the FCC will attribute only 50% of a market's DMA reach to owners of UHF sta- tions for the purpose of calculating the audience reach limits. Applying the 50% reach attribution rule to UHF stations KBHK and KUTP, the eight BHC sta- tions are deemed to reach approximately 18% of the nation's television house- holds. The Telecom Act directed the FCC to eliminate the numerical limita- tion on television station ownership and to increase the maximum national audience reach limit to 35%, and the FCC has adopted such changes. The FCC is also considering whether to eliminate the 50% attribution reduction under this rule for UHF stations. The FCC's multiple ownership rules require the attribution of the licenses held by a broadcasting company to its officers, directors and certain of its stockholders, so there would ordinarily be a violation of FCC regulations where an officer, director or such a stockholder and a television broadcasting company together hold interests in more than the permitted number of stations or more than one station that serves the same area. In the case of a corpora- tion controlling or operating television stations, such as BHC, there is attribution only to stockholders who own 5% or more of the voting stock, except for institutional investors, including mutual funds, insurance companies and banks acting in a fiduciary capacity, which may own up to 10% of the voting stock without being subject to such attribution, provided that such entities exercise no control over the management or policies of the broadcasting company. The FCC has begun a proceeding to consider modification of the various TV ownership restrictions described above, as well as changes in the rules for attributing the licenses held by an enterprise to various parties. BHC cannot predict the outcome of the FCC proceedings. FCC regulations currently prevent a national sales representative organization, such as UTS, which is commonly owned with a national network such as UPN, from representing affiliates of that network other than affiliates that are also under common ownership with the network. FCC regulations also place restrictions on provisions of agreements between networks and their affiliates relating to network exclusivity, territorial exclusivity, time optioning, and pre-emption rights. The FCC is conducting rule-making proceedings to consider whether to retain, modify, or eliminate these regulations. BHC is unable to predict the outcome of these proceedings. 9 As required by the Telecom Act, the FCC recently amended another of its regulations, the dual network rule, which generally had prohibited common ownership or control of two television broadcast networks. Ownership and control of two or more such networks will now be permitted, except for common ownership or control between two of ABC, NBC, CBS, and Fox, or any one of those four networks and either UPN or WB. The Telecom Act directs the FCC to conduct a rule-making proceeding to require the inclusion, in all television sets 13 inches or larger, of a feature (commonly referred to as the V-chip) designed to enable viewers to block display of programs carrying a common rating and authorizes the FCC to establish an advisory committee to recommend a system for rating video programming that contains sexual, violent, or other indecent material about which parents should be informed, before it is displayed to children, if the television industry does not establish a satisfactory voluntary rating system of its own. Industry leaders have announced their intention to establish a voluntary rating system by the end of 1996. The Telecom Act also directs the FCC to adopt regulations requiring increased closed-captioning of video pro- gramming and to conduct an inquiry into the use of audio-narrated descriptions of video programming that could increase the accessibility of such programming to persons with visual impairments. FCC regulations prohibit the holder of an attributable interest in a television station from having an attributable interest in a cable television system located within the predicted coverage area of that station. FCC regu- lations also prohibit the holder of an attributable interest in a television station from having an attributable interest in a daily newspaper located within the predicted coverage area of that station. The FCC intends to conduct a rule-making proceeding to consider possible modification of this latter regulation. The Communications Act limits the amount of capital stock that aliens (including their representatives, foreign governments, their representatives, and entities organized under the laws of a foreign country) may own in a tele- vision station licensee or any corporation directly or indirectly controlling such licensee. No more than 20% of a licensee's capital stock and, if the FCC so determines, no more than 25% of the capital stock of a company controlling a licensee, may be owned, directly or indirectly, or voted by aliens or their representatives. Should alien ownership exceed this limit, the FCC may revoke or refuse to grant or renew a television station license or approve the assignment or transfer of such license. BHC believes the ownership by aliens of its stock and that of UTV to be below the applicable limit. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a licensee without the prior approval of the FCC. Legislation was introduced in the past that would impose a transfer fee on sales of broadcast properties. Although that legislation was not adopted, similar proposals, or a general spectrum licensing fee, may be advanced and adopted in the future. Recent legislation has imposed annual regulatory fees applicable to BHC stations, currently ranging as high as $22,400 per station. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act or regulations and policies of the FCC thereunder. Reference is made to the Communications Act, such regulations and the public notices promulgated by the FCC for further information. Other Federal agencies, including principally the Federal Trade Com- mission, also impose a variety of requirements that affect the business and operations of broadcast stations. Proposals for additional or revised require- ments are considered by the FCC, other Federal agencies or Congress from time to time. BHC cannot predict what new or revised Federal requirements may result from such consideration or what impact, if any, such requirements might have upon the operation of BHC television stations. 10 Competition BHC television stations compete for advertising revenue in their respective markets, primarily with other broadcast television stations and cable television channels, and compete with other advertising media as well. Such competition is intense. 10 In addition to programming, management ability and experience, tech- nical factors and television network affiliations are important in determining competitive position. Competitive success of a television station depends primarily on public response to the programs broadcast by the station in rela- tion to competing entertainment, and the results of this competition affect the advertising revenues earned by the station from the sale of advertising time. Audience ratings provided by Nielsen have a direct bearing on the competitive position of television stations. In general, major network pro- grams achieve higher ratings than programs of other stations. There are at least five other commercial television stations in each market served by a BHC station. BHC believes that the three VHF major- network affiliates and the two other VHF stations in New York City generally attract a larger viewing audience than does WWOR, and that WWOR generally at- tracts a viewing audience larger than the audiences attracted by the UHF sta- tions in the New York City market. In Los Angeles, the three VHF major- network affiliates and two other VHF stations generally attract a larger view- ing audience than does KCOP, and KCOP generally attracts a viewing audience larger than one other VHF station and the ten UHF stations in Los Angeles. In Portland, the three VHF major-network affiliated stations generally attract a larger audience than does KPTV, which generally attracts a larger audience than the other independent stations, both of which are UHF stations. BHC believes that, in Minneapolis/St. Paul, KMSP generally attracts a smaller viewing audience than the three major VHF network-affiliated stations, but a larger viewing audience than the other three stations, all of which are UHF stations. In Salt Lake City, KTVX generally ranks first of the six tele- vision stations in terms of audience share. In San Antonio, KMOL generally ranks first of the six stations in terms of audience share. Of the 14 com- mercial television stations in San Francisco, KBHK generally ranks fifth in terms of audience share, behind the three major network-affiliated VHF television stations, and the VHF Fox affiliate. KUTP generally ranks sixth in terms of audience share, of the eight commercial stations in the Phoenix market. In late 1995, KCOP received two Civil Investigative Demands ( "CIDs") from the Antitrust Division of the U.S. Department of Justice seeking production of documents in connection with a civil investigation by the Division of the television advertising business in the Los Angeles market. KCOP has responded to both CIDs, and several KCOP employees have given deposition testimony in the matter. All of the VHF television stations in the Los Angeles market have received similar CIDs seeking document production and deposition testimony. It is not known at this time what further pro- ceedings, if any, may occur. BHC stations may face increased competition in the future from additional television stations that may enter their respective markets. See note (c) to the table under Television Broadcasting. Cable television has become a major competitor of television broad- casting stations. Because cable television systems operate in each market served by a BHC station, the stations are affected by rules governing cable operations. If a station is not widely accessible by cable in those markets having strong cable penetration, it may lose effective access to a significant portion of the local audience. Even if a television station is carried on a local cable system, an unfavorable channel position on the cable system may adversely affect the station's audience ratings and, in some circumstances, a television set's ability to receive the station being carried on an unfavorable channel position. Some cable system operators may be inclined to place broad- cast stations in unfavorable channel locations. Similar competitive effects may be expected from video delivery systems offered by local telephone companies, as permitted by the provisions of the Telecom Act. FCC regulations requiring cable television stations to carry or re- serve channels for retransmission of local broadcast signals have twice been invalidated in Federal court. In October 1992, Congress enacted legislation 11 designed to provide television broadcast stations the right to be carried on cable television stations (and to be carried on specific cable channel positions), or (at the broadcaster's election) to prohibit cable carriage of the television broadcast station without its consent. This law is currently being challenged in the Federal courts, and BHC cannot predict the outcome. The Telecom Act extends the must-carry requirements to the video delivery systems of local telephone companies, and these extended requirements may also be affected by the pending court challenge. While Federal law has until re- cently generally prohibited local telephone companies from providing video programming to subscribers in their service areas, this restriction has been held constitutionally invalid by eight federal district courts. Two such rulings have been affirmed by the United States Court of Appeals, one by the Fourth Circuit and one by the Ninth Circuit, and the Supreme Court has heard oral argument with respect to the Fourth Circuit case. This prohibition has been substantially eliminated by the Telecom Act, and the Supreme Court has consequently remanded the case to the Circuit Court for further consideration. The FCC has also initiated a rule-making proceeding to consider rules for "Open Video Systems" -- a new structure of video delivery system authorized by the Telecom Act for provision by local telephone companies and, if permitted by the FCC, others. BHC is unable to predict the outcome or effect of these developments. "Syndicated exclusivity" rules allow television stations to prevent local cable operators from importing distant television programming that duplicates syndicated programming in which local stations have acquired ex- clusive rights. In conjunction with these rules, network nonduplication rules protect the exclusivity of major-network broadcast programming within the local video marketplace. The FCC is also reviewing its "territorial exclusivity" rule, which limits the area in which a broadcaster can obtain exclusive rights to video programming. BHC believes that the competitive position of BHC stations would likely be enhanced by an expansion of broadcasters' permitted zones of exclusivity. Alternative technologies could increase competition in the areas served by BHC stations and, consequently, could adversely affect their profitability. Two direct broadcast satellite ("DBS") systems currently provide service, and others are expected to begin service later in 1996. The number of subscribers to DBS services more than doubled during 1995, from approximately 600,000 at the end of 1994, to approximately 1.7 million. An additional challenge is now posed by wireless cable systems, including multichannel distribution services ("MDS"). At the end of 1994, wireless cable systems served about 800,000 subscribers. Two four-channel MDS licenses have been granted in most television markets. MDS operation can provide commercial pro- gramming on a paid basis. A similar service can also be offered using the instructional television fixed service ("ITFS"). The FCC now allows the educational entities that hold ITFS licenses to lease their "excess" capacity for commercial purposes. The multichannel capacity of ITFS could be combined with either an existing single channel MDS or a newer multichannel multi-point distribution service to increase the number of available channels offered by an individual operator. The emergence of home satellite dish antennas has also made it possible for individuals to receive a host of video programming options via satellite transmission. Technological developments in television transmission have created the possibility that one or more of the broadcast and nonbroadcast television media will provide enhanced or "high definition" pictures and sound to the public of a quality that is technically superior to that of the pictures and sound currently available. It is not yet clear when and to what extent technology of this kind will be available to the various television media; whether and how television broadcast stations will be able to avail themselves of these improvements; whether all television broadcast stations will be afforded sufficient spectrum to do so; what channels will be assigned to each of them to permit them to do so; whether viewing audiences will make choices among services upon the basis of such differences; or, if they would, whether significant additional expense would be required for television sta- tions to provide such services. Many segments of the television industry are intensively studying enhanced and "high definition" television tech- nology. A proceeding is under way at the FCC regarding policies concerning advanced television service, including "high definition" service. The Tele- com Act, as well as proposed federal legislation, addresses several of these issues, and some members of Congress support auctioning or otherwise charging broadcasters for use of spectrum designated for "high definition" television use. The Telecom Act, in particular, authorizes the FCC, if it chooses, to issue the initial licenses for new advanced television broad- cast stations exclusively to existing television station licensees and per- mittees, provided that they are required to surrender either their old or new 12 licenses after a period of time to be specified by the FCC. The Telecom Act also directs the FCC to adopt regulations regarding ancillary uses of such new licenses and the collection of fees for certain ancillary uses. BHC is unable to predict the outcome of these legislative proposals or rule-making proceedings. The broadcasting industry is continuously faced with technological changes, competing entertainment and communications media and governmental restrictions or actions of Federal regulatory bodies, including the FCC. These technological changes may include the introduction of digital compression by cable systems that would significantly increase the number and availability of cable program services with which BHC stations compete for audience and revenue, the establishment of interactive video services, and the offering of multimedia services that include data networks and other computer technologies. Such factors have affected, and will continue to affect, the revenue growth and profitability of BHC. ITEM 2. PROPERTIES. KCOP owns its studios and offices in two buildings in Los Angeles containing a total of approximately 54,000 square feet located on adjacent sites having a total area of approximately 1.93 acres. KCOP's transmitter is located atop Mt. Wilson on property utilized pursuant to a permit issued by the United States Forest Service. KPTV owns its studios and offices in a building in Portland, Oregon, containing approximately 45,252 square feet located on a site of approximately 2.0 acres. Its transmitter is located on its own property at a separate site containing approximately 16.18 acres. WWOR owns office and studio facilities in Secaucus, New Jersey, containing approximately 110,000 square feet on approximately 3.5 acres and leases additional office space in New York City. Along with almost all of the television stations licensed to the New York market, WWOR's transmitter is located on top of the World Trade Center in New York City pursuant to a lease agreement which expires in 2004, unless terminated by WWOR in 1999. Physical facilities consisting of offices and studio facilities are owned by UTV in Minneapolis, San Antonio and Phoenix and are leased in Salt Lake City and San Francisco. The Salt Lake City lease agreement expires in 1999 and is renewable, at an increased rental, for two five-year periods. The San Francisco lease expires in 2007. The Minneapolis facility includes approximately 49,700 square feet of space on a 5.63-acre site. The Salt Lake City facility is approximately 30,400 square feet on a 2.53-acre site. The San Antonio facility is approx- imately 41,000 square feet on a .92-acre site. The San Francisco facility is approximately 27,700 square feet in downtown San Francisco. The Phoenix facility is approximately 26,400 square feet on a 3.03-acre site. Smaller buildings containing transmission equipment are owned by UTV at sites separate from the studio facilities. UTV owns a 55-acre tract in Shoreview, Minnesota, of which 40 acres are used by KMSP for transmitter facilities and tower. KTVX's transmitter facilities and tower are located at a site on Mt. Nelson, close to Salt Lake City, under a lease that expires in 2004. KTVX also maintains back-up transmitter facilities and tower at a site on nearby Mt. Vision under a lease that expires in 2002 and is renewable, at no increase in rental, for a 50-year period. KMOL's transmitter facilities are located at a site near San Antonio on land and on a tower owned by Texas Tall Tower Corporation, a corporation owned in equal shares by UTV and another television station that also transmits from the same tower. KBHK's transmitter is located on Mt. Sutro, as part of the Sutro Tower complex, which also houses equipment for other San Francisco television sta- tions and many of its FM radio stations. The lease for the Mt. Sutro facili- ties expires in February 2005 and is renewable for two five-year periods. 13 KUTP's transmitter facilities and tower are located on a site within South Mountain Park, a communications park owned by the City of Phoenix, which also contains transmitter facilities and towers for the other television sta- tions in Phoenix as well as facilities for several FM radio stations. The license for this space expires in 2012. BHC believes its properties are adequate for their present uses. ITEM 3. LEGAL PROCEEDINGS. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 14 EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of BHC, as of February 29, 1996, are as follows: Has served Positions with BHC; principal occupation; as officer Name and age as of February 29, 1996 since ---- ----------------------------------------- ---------- Herbert J. Siegel Chairman of the Board and President; Chairman of the Board and President, Chris- Craft; 67 1977 John C. Siegel Senior Vice President; Senior Vice President, Chris-Craft; 43 1981 William D. Siegel Senior Vice President; Senior Vice President, Chris-Craft; 41 1981 Joelen K. Merkel Vice President and Treasurer; Vice President and Treasurer, Chris-Craft; 44 1980 Brian C. Kelly General Counsel and Secretary; General Counsel and Secretary, Chris-Craft; 44 1992 Chris-Craft, through its majority ownership of BHC, is principally engaged in television broadcasting. The principal occupation of each of the individuals for the past five years is stated in the foregoing table, except that prior to being elected General Counsel and Secretary of BHC on December 14, 1992, Brian C. Kelly served as President of Finevest Foods, Inc. ("Finevest") from July 1992 through December 13, 1992, served as Executive Vice President, General Counsel and Secretary of Finevest from March 1992 until July 1992 and served as Vice President, General Counsel and Secretary of Finevest until February 1992. Finevest filed a Chapter 11 bankruptcy petition on February 11, 1991, and emerged from bankruptcy on July 9, 1992 pursuant to a confirmed reorganization plan. All officers hold office until the meeting of the Board following the next annual meeting of stockholders or until removed by the Board. Evan C Thompson, age 53, is Executive Vice President of Chris-Craft. Although not an officer of BHC, as President of UTV and Chris-Craft's Television Division for more than the past five years, Mr. Thompson may be considered an executive officer of BHC within the Securities and Exchange Commission definition of the term. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information appearing in the Annual Report under the caption STOCK PRICE, DIVIDEND AND RELATED INFORMATION is incorporated herein by this reference. ITEM 6. SELECTED FINANCIAL DATA. The information appearing in the Annual Report under the caption SELECTED FINANCIAL DATA is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information appearing in the Annual Report under the caption MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS is incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements, Notes thereto, Report of Independent Accountants thereon and Quarterly Financial Information (unaudited) appearing in the Annual Report are incorporated herein by this reference. Except as specifically set forth herein and elsewhere in this Form 10-K, no information appearing in the Annual Report is incorporated by reference into this report nor is the Annual Report deemed to be filed, as part of this report or otherwise, pursuant to the Securities Exchange Act of 1934. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information appearing in the Proxy Statement under the caption ELECTION OF DIRECTORS--Nominees of the Board of Directors is incorporated herein by this reference. Information relating to BHC's executive officers is set forth in Part I under the caption EXECUTIVE OFFICERS OF THE REGISTRANT. ITEM 11. EXECUTIVE COMPENSATION. The information appearing in the Proxy Statement under the caption ELECTION OF DIRECTORS--Executive Compensation is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information appearing in the Proxy Statement under the caption ELECTION OF DIRECTORS--Voting Securities of Certain Beneficial Owners and Management is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information appearing in the Proxy Statement under the caption ELECTION OF DIRECTORS--Certain Relationships and Related Transactions is incorporated herein by this reference. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: 1. The financial statements and quarterly financial information incorporated by reference from the Annual Report pursuant to Item 8. 2. The financial statements of UPN and report thereon listed under the caption Schedules in the Index to Consolidated Financial Statements and Schedules. 3. Exhibits listed in the Exhibit Index, including the com- pensatory plans listed below: Chris-Craft's Benefit Equalization Plan Employment Agreement dated as of January 1, 1994 between Herbert J. Siegel and Chris-Craft Employment Agreement dated as of January 1, 1994 between Evan C Thompson and Chris-Craft (b) No reports on Form 8-K were filed by the registrant during the last quarter of the period covered by this report. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 29, 1996 BHC COMMUNICATIONS, INC. ------------------------ (Registrant) By: WILLIAM D. SIEGEL ----------------- William D. Siegel Senior Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date HERBERT J. SIEGEL March 29, 1996 ----------------- Herbert J. Siegel Chairman, President and Director (principal executive officer) WILLIAM D. SIEGEL March 29, 1996 ----------------- William D. Siegel Senior Vice President and Director (principal financial officer) JOELEN K. MERKEL March 29, 1996 ---------------- Joelen K. Merkel Vice President, Treasurer and Director (principal accounting officer) 19 JOHN L. EASTMAN March 29, 1996 --------------- John L. Eastman Director BARRY S. GREENE March 29, 1996 --------------- Barry S. Greene Director LAURENCE M. KASHDIN March 29, 1996 ------------------- Laurence M. Kashdin Director MORGAN L. MILLER March 29, 1996 ---------------- Morgan L. Miller Director JOHN C. SIEGEL March 29, 1996 -------------- John C. Siegel Director 20 BHC COMMUNICATIONS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Accountants Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Income - For the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Investment - For the Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements SCHEDULES: UPN Financial Statements -- Report of Independent Accountants Balance Sheet - December 31, 1995 Statement of Operations and Statement of Changes in Partners' Capital (Deficit) - For the Year Ended December 31, 1995 Statement of Cash Flows - For the Year Ended December 31, 1995 Notes to Financial Statements 21 Report of Independent Accountants February 14, 1996 To the Partners of United Paramount Network In our opinion, the accompanying balance sheet and the related statements of operations, of changes in Partners' capital (deficit) and of cash flows present fairly, in all material respects, the financial position of United Paramount Network (a partnership between BHC Network Partner, Inc. and BHC Network Partner II, Inc.) at December 31, 1995, and the results of its operations and its cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of United Paramount Network's manage- ment; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the ac- counting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. Price Waterhouse LLP Century City United Paramount Network Balance Sheet December 31, 1995 - --------------------------------------------------------------- (in thousands) Assets Current assets: Cash and cash equivalents $ 74 Accounts receivable (net of allowance for doubtful accounts of $178) 9,040 Program rights and development costs (net of reserve for abandonment of $4,631) 12,893 Other current assets 609 ------ Total current assets 22,616 Restricted cash 974 Property and equipment, at cost: Furniture, fixtures and computer equipment 1,082 Leasehold improvements and other 341 ------ 1,423 Less accumulated depreciation 198 ------ 1,225 Intangible asset (net of accumulated amortization of $54) 217 Investment in joint venture 2,750 ----- Total assets $ 27,782 ======== Liabilities and Partners' Capital (Deficit) Current liabilities: Accounts payable $ 3,224 Accrued program costs 10,587 Accrued expenses and other liabilities 11,850 ------- Total current liabilities 25,661 Due to related party 109,935 -------- Total liabilities 135,596 Commitments and contingencies (Note 6) Partners' capital (deficit): Network Partner (8,942) Network Partner II (98,872) -------- Total partners' deficit (107,814) Total liabilities and partners' capital $ 27,782 ========= The accompanying notes are an integral part of these financial statements. United Paramount Network Statement of Operations and Statement of Changes in Partners' Capital (Deficit) For the Year Ended December 31, 1995 - ---------------------------------------------------------------- Statement of Operations (in thousands) Net revenues $ 30,376 Operating costs and expenses: Operating expenses 99,940 Selling, general and administrative expenses 58,924 Depreciation and amortization 252 -------- 159,116 Operating loss (128,740) Other income (expense): Interest expense to related parties (4,535) Interest and other income 62 Net loss on investment in joint venture (625) --------- (5,098) Net loss $(133,838) ========= Statement of Changes in Partners' Capital (Deficit) (in thousands) Network Network Partner Partner II Total ------- ---------- ----- Balance at December 31, 1994 $ 1,500 $ 1,338 $ 2,838 Capital contributions - 23,186 23,186 Capital transfers between partners (3,977) 3,977 - Allocation of 1995 net loss (6,465) (127,373) (133,838) -------- --------- --------- Balance at December 31, 1995 $ (8,942) $ (98,872) $(107,814) ======= ======== ========= The accompanying notes are an integral part of these financial statements. United Paramount Network Statement of Cash Flows For the Year Ended December 31, 1995 - ---------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net loss $(133,838) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of program costs 91,744 Payments for programming (98,420) Depreciation and amortization 252 Abandonment reserve 4,631 Changes in assets and liabilities: Increase in accounts receivable, net (9,025) Increase in accounts payable, accrued expenses and other current liabilities 12,546 Decrease in other assets 3,052 -------- Net cash used in operating activities (129,058) -------- Cash flows from investing activities: Additions to property and equipment (1,113) Cash placed in restricted account (974) Increase in intangible asset (271) Net investment in joint venture (2,750) -------- Net cash used in investing activities (5,108) -------- Cash flows from financing activities: Advances from related party 109,935 Capital contributions 23,186 ------- Net cash provided by financing activities 133,121 ------- Net decrease in cash and cash equivalents (1,045) Cash and cash equivalents: Beginning of period 1,119 ------- End of period $ 74 ======== Supplemental Cash Flow Information: Cash paid for interest $ 4,530 ======== The accompanying notes are an integral part of these financial statements. United Paramount Network Notes to Financial Statements For the Year Ended December 31, 1995 - ---------------------------------------------------------------- Note 1 - Organization In July 1994, BHC Network Partner, Inc. ("Network Partner"), a wholly owned subsidiary of Chris-Craft Industries, Inc.'s majority owned subsidiary, BHC Communications, Inc. ("BHC"), along with PCI Network Partner, Inc. ("PCI/NP"), a wholly owned indirect subsidiary of Viacom Inc.'s Paramount Television Group, formed the United Paramount Network ("UPN" or the "Network"), a fifth broad- cast television network. UPN was organized as a partnership in December 1994 between Network Partner and BHC Network Partner II, Inc., a wholly owned indirect subsidiary of BHC, ("Network Partner II", collectively referred to as the "Partners"). PCI/NP has an option exercisable through January 15, 1997 to acquire an interest in UPN equal to that of the Partners. The option price is equivalent to approxi- mately one-half of the Partners' aggregate cash contributions to UPN through the exercise date, plus interest; payment may be deferred through the option expiration date. UPN began providing programming for broadcast in January 1995. At December 31, 1995, the Network had 150 affiliates reaching over 90% of U.S. television house- holds. The Network's revenues are derived entirely from providing television programming and are, therefore, subject to the vagaries of the advertising industry. Operating costs of the Network are funded through capital contributions and loans made by the Partners. Profits or losses are allocated between the Partners in accordance with the partnership agreement. During the year ended December 31, 1995, UPN incurred operating losses of $128,740,000 and negative cash flows from operations of $129,058,000. UPN is still in its infancy and the cost of developing and expanding its programming is expected to remain significant for several years. The Partners intend to continue funding UPN through capital contributions and loans, as UPN incurs obligations arising through the normal course of its business. Note 2 - Accounting Policies Financial Instruments Restricted cash consists of cash and marketable securities having maturities at time of purchase not exceeding one year, all of which are U.S. government securities. In accordance with Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities," marketable securities have been classified as held-to-maturity. The fair value of restricted cash approximates its amortized cost, reflecting the short maturities. Restricted cash has been placed in an account as a security deposit, is not available for current operations of the Network and, therefore, has been classified as non-current in the accompanying balance sheet. Property and Equipment Property and equipment is recorded at cost. Depreciation of furniture, fix- tures and computer equipment is computed on the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed on a straight-line basis over the life of the lease. NOTE 2 (continued) Program Rights and Development Costs Costs for program production are capitalized as incurred. Other Network programming rights and related liabilities are recorded at the contractual amounts when the programming becomes available for telecasting. Capitalized program costs are amortized over the estimated number of showings, using accelerated methods based on management's estimate of the flow of revenues. The estimated costs of recorded program rights to be charged to income within one year are included in current assets; payments on such program rights due within one year are included in current liabilities. Costs incurred for the development of programs are capitalized and included in the accompanying balance sheet, net of reserves established for projects which may be terminated prior to being placed into production. Revenue Recognition The Network sells advertising time for broadcast on UPN programs through Premier Advertising Sales ("Premier") a wholly owned subsidiary of Paramount Communications, Inc. (Note 6). Revenues are recognized substantially as adver- tisements are aired, at contractual rates as reported to UPN by Premier. With respect to certain of its programming, UPN derives no revenue and incurs no programming expense. Use of Estimates in Preparation of Financial Statements Preparation of financial statements in accordance with generally accepted accounting principles requires the use of management estimates. Income Taxes As a general partnership, the Network's losses are allocated to, and reported by, the individual Partners. Therefore, no credit for income tax benefit is included in the accompanying financial statements. NOTE 3 - Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following: (in thousands) Accrued advertising cost $ 6,215 Accrued compensation 2,388 Accrued sales commission 1,395 Other accrued expenses 1,852 ------ $11,850 ====== NOTE 4 - Investment in Joint Venture In January 1995, UPN entered into a joint venture (the "Venture") with Saban Entertainment for the purpose of developing, producing and distributing children's television programming. Under terms of the Venture agreement, UPN funds certain programming costs in return for certain distribution rights to such programming and a share of aggregate revenue. UPN accounts for its interest in the Venture using the equity method. NOTE 5 - Due to Related Party During 1995 the Partners made loans to UPN totalling $109,935,000 at December 31, 1995. The loans bear interest at the prime rate (8.5% at December 31, 1995), payable annually. The loans are to be repaid from cash provided by the Network's operations, as available. NOTE 6 - Commitments and Contingencies The aggregate amount payable by UPN under contracts for programming not cur- rently available for telecasting and, accordingly, not included in accrued program costs in the accompanying balance sheet totalled approximately $62,000,000 at December 31, 1995. At December 31, 1995 UPN was obligated under a five year lease for its office space. The lease is noncancellable for three years and calls for certain penalty payments upon cancellation thereafter. Rental expense for the year ended December 31, 1995 was $427,000. Aggregate future minimum lease payments at December 31, 1995 are $3,523,000, with amounts of $755,000 due in each of the years 1996 through 1999 and $503,000 due in 2000. Additionally, as re- quired by the lease agreement, UPN obtained an irrevocable letter of credit in the amount of $1,220,000 on behalf of the lessor. The obligation under the letter of credit is required to be reduced annually over the lease term. EXHIBIT INDEX Incorporated by Exhibit Reference to: No. Exhibit Exhibit 3(a) [1] 3.1 Restated Certificate of Incorporation Exhibit 3(b) [1] 3.2 Restated By-laws Exhibit 10(c) [1] 10.1 Management Agreement between registrant and Chris-Craft dated July 21, 1989 Exhibit 19 [4] 10.2 Amendment No. 1 thereto dated October 31, 1991 Exhibit 10(H)(2) [5] 10.3 Amendment No. 2 thereto dated March 24, 1994 Exhibit 10(E) [2] 10.4 Form of Agreement under Chris-Craft's Executive Deferred Income Plan Exhibit 10(B) [5] 10.5 Employment Agreement dated January 1, 1994 between Chris- Craft and Herbert J. Siegel Exhibit 10(C) [5] 10.6 Split-Dollar Agreement dated January 6, 1994 between registrant and William D. Siegel Exhibit 10(D) [5] 10.7 Split-Dollar Agreement dated January 6, 1994 between registrant and John C. Siegel Exhibit 10(F) [5] 10.8 Employment Agreement dated January 1, 1994 between Chris- Craft and Evan C Thompson Exhibit 11(H) [3] 10.9 Chris-Craft's Exhibit 10(B)(1) [6] Benefit Exhibit 10.3 [8] Equalization Plan, as amended Exhibit 10.10[7] 10.10 Option Agreement dated July 19, 1994 between BHC Network Partner, Inc. and PCI Network Partner, Inc. * 13 Portions of the Annual Report incorporated by reference * 21 Subsidiaries of registrant * 27 Financial Data Schedule _______________________ * Filed herewith. [1] Registrant's Registration Statement on Form S-1 (Regis. No. 33- 31091). [2] Chris-Craft's Annual Report on Form 10-K for the year ended August 31, 1983 (File No. 1-2999). [3] Chris-Craft's Registration Statement on Form S-1 (Regis. No. 2- 65906). [4] Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1991. [5] Chris-Craft's Annual Report on Form 10-K for the year ended December 31, 1993. [6] Chris-Craft's Annual Report on Form 10-K for the year ended December 31, 1989. [7] Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. [8] Chris-Craft's Annual Report on Form 10-K for the year ended December 31, 1994. EX-21 2 Exhibit 21 The following were the registrant's subsidiaries as of December 31, 1995, other than subsidiaries that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary at such date: Jurisdiction of Name of Subsidiary Incorporation BHC Network Partner, Inc. Delaware Chris-Craft Television, Inc. Delaware BHC Network Partner II, Inc. Delaware KCOP Television, Inc. California Oregon Television, Inc. Oregon Pinelands, Inc. Delaware United Television, Inc. Delaware UTV of San Francisco, Inc. California UTV of San Antonio, Inc. Texas EX-27 3 BHC FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS INCORPORATED BY REFERENCE INTO REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED 31 DECEMBER 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 U.S. DOLLARS DEC-31-1995 DEC-31-1995 YEAR 1 72179 1427186 95631 5643 0 1717439 132366 84028 2159010 188,969 0 0 0 245 1781648 2159010 0 454702 0 336123 0 0 0 71759 18800 37057 0 0 0 37057 1.51 0
EX-13 4 1 EXHIBIT 13 BHC Communications, Inc. and Subsidiaries Stock Price, Dividend and Related Information - --------------------------------------------- BHC Class A common stock is traded on the American Stock Exchange. The high and low sales prices of these shares are shown below for the periods indicated. At February 21, 1996, there were 6,935 holders of record of Class A common stock. All BHC Class B common shares, which in general are nontransferable, are held by Chris-Craft Industries, Inc., and, accordingly, there is no trading market for such shares. First Second Third Fourth Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------- 1995 High 75 3/4 81 1/4 93 1/4 95 Low 71 7/8 71 3/4 80 88 1/2 - ---------------------------------------------------------------------------------- 1994 High 81 3/4 78 1/4 81 3/4 80 1/4 Low 73 5/8 72 1/2 75 3/4 70 1/8 - ----------------------------------------------------------------------------------
BHC paid a special cash dividend of $1.00 per share in April 1995. BHC has no plan to pay regular dividends. Quarterly Financial Information (Unaudited) - -------------------------------------------
First Second Third Fourth (In Thousands of Dollars Except per Share Data) Quarter Quarter Quarter Quarter Year - --------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995 Operating revenues $ 104,475 $ 120,953 $ 111,551 $ 117,723 $ 454,702 Operating income 24,105 39,188 22,269 33,017 118,579 Equity in United Paramount Network loss (38,403) (28,709) (28,722) (33,469) (129,303) Income before income taxes and minority interest 6,299 29,218 13,957 22,285 71,759 Net income 390 11,254 17,825 7,588 37,057 Net income per share $ .02 $ .46 $ .73 $ .31 $ 1.51 YEAR ENDED DECEMBER 31, 1994 Operating revenues $ 95,968 $ 119,832 $ 107,259 $ 134,474 $ 457,533 Operating income 15,134 34,647 23,020 40,181 112,982 Equity in United Paramount Network loss- - - (159) (3,818) (3,977) Income before income taxes and minority interest 28,582 49,506 39,160 49,401 166,649 Net income 13,668 24,691 32,609 21,909 92,877 Net income per share $ .54 $ .99 $ 1.31 $ .88 $ 3.71
1 2 BHC Communications, Inc. and Subsidiaries Report of Independent Accountants - --------------------------------- [PRICE WATERHOUSE LLP LOGO] February 14, 1996 1177 Avenue of the Americas New York, NY 10036 To the Board of Directors and Shareholders of BHC Communications, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' investment and cash flows present fairly, in all material respects, the financial position of BHC Communications, Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP 2 3 Consolidated Balance Sheets - ---------------------------
December 31, -------------------------- (In Thousands of Dollars) 1995 1994 - ------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 72,179 $ 222,201 Marketable securities (substantially all U.S. Government securities) 1,427,186 1,274,244 Accounts receivable, less allowance for doubtful accounts of $5,643 and $6,742 89,988 96,681 Film contract and prepaid broadcast rights 95,541 89,245 Prepaid expenses and other current assets 32,545 54,153 - ------------------------------------------------------------------------------- Total current assets 1,717,439 1,736,524 - ------------------------------------------------------------------------------- FILM CONTRACT RIGHTS, including deposits, less estimated portion to be used within one year 50,361 59,228 - ------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, at cost: Land, buildings and improvements 36,626 35,465 Equipment 95,740 91,467 - ------------------------------------------------------------------------------- 132,366 126,932 Less-Accumulated depreciation 84,028 77,917 - ------------------------------------------------------------------------------- 48,338 49,015 - ------------------------------------------------------------------------------- INTANGIBLE ASSETS 323,752 333,074 - ------------------------------------------------------------------------------- OTHER ASSETS 19,120 10,622 - ------------------------------------------------------------------------------- $2,159,010 $2,188,463 ===============================================================================
3 4 BHC Communications, Inc. and Subsidiaries
December 31, ------------------------ 1995 1994 - ------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Film contracts payable within one year $ 87,634 $ 81,696 Accounts payable and accrued expenses 72,906 70,834 Income taxes payable 28,429 55,782 - ------------------------------------------------------------------------------- Total current liabilities 188,969 208,312 - ------------------------------------------------------------------------------- FILM CONTRACTS PAYABLE AFTER ONE YEAR 86,392 89,048 - ------------------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES 6,504 5,655 - ------------------------------------------------------------------------------- MINORITY INTEREST 95,252 95,564 - ------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTE 8) SHAREHOLDERS' INVESTMENT: Class A common stock-par value $.01 per share; authorized 200,000,000 shares; outstanding 6,492,808 and 6,877,518 shares 65 69 Class B common stock-par value $.01 per share; authorized 200,000,000 shares; outstanding 18,000,000 shares 180 180 Capital surplus - 29,611 Retained earnings 1,779,560 1,779,409 Treasury stock-129,786 and 125,030 Class A common shares, at cost (6,493) (6,254) Adjustment to reflect marketable securities at market value 8,581 (13,131) - ------------------------------------------------------------------------------- 1,781,893 1,789,884 - ------------------------------------------------------------------------------- $2,159,010 $2,188,463 ===============================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 4 5 BHC Communications, Inc. and Subsidiaries Consolidated Statements of Income - ---------------------------------
Year ended December 31, --------------------------------------------------------- (In Thousands Except per Share Data) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES $ 454,702 $ 457,533 $ 411,999 - --------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Television expenses 214,223 232,635 230,088 Selling, general and administrative 121,900 111,916 102,649 - ---------------------------------------------------------------------------------------------------------------------------- 336,123 344,551 332,737 - ---------------------------------------------------------------------------------------------------------------------------- Operating income 118,579 112,982 79,262 - ---------------------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest and other income 82,483 57,644 55,340 Equity in United Paramount Network loss (129,303) (3,977) - Income associated with Time Warner Inc. securities - - 256,622 - ---------------------------------------------------------------------------------------------------------------------------- (46,820) 53,667 311,962 - ---------------------------------------------------------------------------------------------------------------------------- Income before provision for income taxes and minority interest 71,759 166,649 391,224 PROVISION FOR INCOME TAXES 18,800 57,900 146,900 - ---------------------------------------------------------------------------------------------------------------------------- Income before minority interest 52,959 108,749 244,324 MINORITY INTEREST 15,902 15,872 20,038 - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 37,057 $ 92,877 $ 224,286 - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME PER SHARE $ 1.51 $ 3.71 $ 8.67 - ---------------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 24,549 25,007 25,882 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these statements. 5 6 BHC Communications, Inc. and Subsidiaries Consolidated Statements of Cash Flows - -------------------------------------
Year ended December 31, --------------------------------------------------------- (In Thousands Except per Share Data) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 37,057 $ 92,877 $ 224,286 Adjustments to reconcile net income to net cash provided from (used in) operating activities: Film contract amortization 89,321 101,869 102,768 Film contract payments (90,994) (117,928) (147,557) Prepaid broadcast rights 4,249 8,166 (34,426) Depreciation and other amortization 19,833 20,355 20,430 Equity in United Paramount Network loss 129,303 3,977 - Gain on disposition of Time Warner Inc. securities - - (219,373) Minority interest 15,902 15,872 20,038 Other 1,543 4,167 (12,441) Changes in assets and liabilities: Accounts receivable 6,693 (11,305) (7,996) Other assets 643 682 (828) Accounts payable and other liabilities 5,728 4,932 1,384 Income taxes (22,028) 4,996 4,688 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used in) operating activities 197,250 128,660 (49,027) - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Disposition of marketable securities 697,079 1,097,409 947,015 Purchase of marketable securities (811,540) (941,400) (927,268) Investment in United Paramount Network (128,585) (6,815) - Capital expenditures, net (9,839) (8,242) (10,835) Other (8,782) (429) (11,315) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used in) investing activities (261,667) 140,523 (2,403) - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (30,504) (73,449) (25,428) Capital transactions of subsidiary (30,597) (8,904) (8,760) Payment of special dividend (24,504) - (51,893) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (85,605) (82,353) (86,081) - ---------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (150,022) 186,830 (137,511) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 222,201 35,371 172,882 - ---------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 72,179 $ 222,201 $ 35,371 ============================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 6 7 BHC Communications, Inc. and Subsidiaries Consolidated Statements of Shareholders' Investment - ---------------------------------------------------
Treasury Outstanding Shares Shares Dollar Amount (In Thousands) ------------------------------- ---------------------------------------------------------------- Market Class A Class B Class A Class A Class B Capital Retained Treasury Valuation Common Common Common Common Common Surplus Earnings Stock Account - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1992 8,172,808 18,000,000 (119,820) $82 $180 $133,934 $1,462,246 $ (5,994) $ - Net income - - - - - - 224,286 - - Acquisition of treasury stock - - (449,390) - - - - (33,307) - Retirement of treasury stock (449,390) - 449,390 (5) - (33,302) - 33,307 - Capital transactions of subsidiary - - (3,171) - - (2,450) - (156) - - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1993 7,723,418 18,000,000 (122,991) 77 180 98,182 1,686,532 (6,150) - Net income - - - - - - 92,877 - - Acquisition of treasury stock - - (845,900) - - - - (65,818) - Retirement of treasury stock (845,900) - 845,900 (8) - (65,810) - 65,818 - Capital transactions of subsidiary - - (2,039) - - (2,761) - (104) - Marketable securities valuation adjustment - - - - - - - (13,131) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1994 6,877,518 18,000,000 (125,030) 69 180 29,611 1,779,409 (6,254) (13,131) Net income - - - - - - 37,057 - - Dividend on common stock - $1.00 per share - - - - - - (24,604) - - Acquisition of treasury stock - - (384,710) - - - - (31,279) - Retirement of treasury stock (384,710) - 384,710 (4) - (18,973) (12,302) 31,279 - Capital transactions of subsidiary - - (4,756) - - (10,638) - (239) - Marketable securities valuation adjustment - - - - - - - - 21,712 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1995 6,492,808 18,000,000 (129,786) $65 $180 $ - $1,779,560 $ (6,493) $ 8,581 ====================================================================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. 7 8 BHC Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements - ------------------------------------------ NOTE 1 - ------------------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (A) BUSINESS AND BASIS OF PRESENTATION BHC Communications, Inc. is a majority owned (73.9% at December 31, 1995 and 72.7% at December 31, 1994) subsidiary of Chris-Craft Industries, Inc. BHC's primary business is television broadcasting, conducted through wholly owned subsidiaries, which operate three television stations, and through majority owned (57.3% at December 31, 1995 and 55.2% at December 31, 1994) United Television, Inc. (UTV), which operates five television stations. BHC, through subsidiaries, currently owns 100% of the partnership that operates the United Paramount Network (UPN), a fifth broadcast network which premiered in January 1995. Viacom Inc.'s Paramount Television Group has an option to acquire an interest in UPN equal to that of BHC, and BHC accordingly accounts for its UPN partnership interest under the equity method. The accompanying consolidated financial statements include the accounts of BHC and its subsidiaries, after elimination of all significant intercompany accounts and transactions. The interest of UTV shareholders other than BHC in the net income and net assets of UTV is set forth as minority interest in the Consolidated Statements of Income and Consolidated Balance Sheets, respectively. Preparation of financial statements in accordance with generally accepted accounting principles requires the use of management estimates. Certain prior year amounts have been restated to conform with the 1995 presentation. (B) FINANCIAL INSTRUMENTS Cash and cash equivalents totalled $72,179,000 at December 31, 1995 and $222,201,000 at December 31, 1994. Cash equivalents are money market securities having maturities at time of purchase not exceeding three months. The fair value of cash equivalents approximates carrying value, reflecting their short maturities. Effective January 1, 1994, BHC adopted Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities". Under SFAS 115, all of BHC's marketable securities have been categorized as available for sale and are carried at fair market value. Since marketable securities are available for current operations, all are included in current assets as follows:
Gross Unrealized (In Thousands) Cost Gains Losses Fair Value - -------------------------------------------------------------------------- December 31, 1995: U.S. Government securities $1,328,855 $ 4,986 $ 925 $1,332,916 Other 84,610 9,870 210 94,270 - -------------------------------------------------------------------------- $1,413,465 $14,856 $ 1,135 $1,427,186 ========================================================================== December 31, 1994: U.S. Government securities $1,239,691 $ 87 $23,611 $1,216,167 Other 59,631 439 1,993 58,077 - -------------------------------------------------------------------------- $1,299,322 $ 526 $25,604 $1,274,244 ==========================================================================
Of the U.S. Government securities held at December 31, 1995, 83% mature within one year, 96% within two years, and all within four years. Certain additional information related to BHC's marketable securities as of and for the years ended December 31, 1995 and 1994 is as follows:
- -------------------------------------------------------------------------- (In Thousands) 1995 1994 --------------------------- Sales proceeds $697,079 $1,097,409 Realized gains 2,356 1,193 Realized losses 4,690 7,734 Net unrealized gain (loss) 13,721 (25,078) Adjustment for unrealized gain (loss), net of deferred income taxes and minority interest $ 8,581 $ (13,131) ==========================================================================
For purposes of computing gains and losses, cost was determined using the specific identification method. 8 9 BHC Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements - ------------------------------------------ (C) FILM CONTRACTS BHC's television stations own film contract rights which allow generally for limited showings of films and syndicated programs. Film contract rights and related liabilities are recorded when the programming becomes available for telecasting. Contracts are amortized over the estimated number of showings, using primarily accelerated methods as films are used, based on management's estimates of the flow of revenue and ultimate total cost for each contract. In the opinion of management, future revenue derived from airing programming will be sufficient to cover related unamortized rights balances at December 31, 1995. The estimated costs of recorded film contract rights to be charged to income within one year are included in current assets; payments on such contracts due within one year are included in current liabilities. The approximate future maturities of film contracts payable after one year at December 31, 1995, are $50,784,000, $24,272,000, $7,551,000 and $3,785,000 in 1997, 1998, 1999 and thereafter, respectively. The net present value at December 31, 1995, of such payments, based on an 8.5% discount rate, was approximately $72,330,000. See Note 8. (D) DEPRECIATION AND AMORTIZATION Depreciation of property and equipment is generally provided on the straight-line method over the estimated useful lives of the assets, except that leasehold improvements are amortized over the lives of the respective leases, if shorter. (E) INTANGIBLE ASSETS Intangible assets reflect the excess of the purchase prices of businesses acquired over net tangible assets at dates of acquisition. Amounts primarily relate to television station WWOR, which was acquired in 1992, and are being amortized on a straight-line basis over 40 year periods. Accumulated amortization of intangible assets totalled $47,333,000 at December 31, 1995 and $38,011,000 at December 31, 1994. (F) REVENUE RECOGNITION AND BARTER TRANSACTIONS Revenue is recognized upon broadcast of television advertising. The estimated fair value of goods or services received in barter (nonmonetary) transactions, most of which relate to the acquisition of programming, is recognized as revenue when the air time is used by the advertiser. Barter revenue totalled $46,039,000 in 1995, $47,201,000 in 1994 and $43,231,000 in 1993. Barter expense in each year approximated barter revenue. (G) SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for income taxes totalled $46,300,000 in 1995, $52,900,000 in 1994 and $142,074,000 in 1993. NOTE 2 - ------------------------------------------------------------------------------- UNITED PARAMOUNT NETWORK: In July 1994, BHC, along with Viacom Inc.'s Paramount Television Group, formed the United Paramount Network, a fifth broadcast television network which premiered in January 1995. BHC currently owns 100% of UPN, and Paramount has an option exercisable through January 15, 1997 to acquire an interest in UPN equal to that of BHC. The option price is equivalent to approximately one-half of BHC's aggregate cash contributions to UPN through the exercise date, plus interest; payment may be deferred through the option expiration date. UPN has been organized as a partnership, and BHC accounts for its partner interest under the equity method. The carrying value of such interest, which reflects BHC fundings of $128,585,000 in 1995 and $6,815,000 in 1994, less UPN losses, totalled $2,121,000 at December 31, 1995 and $2,838,000 at December 31, 1994, and is included in Other Assets on the accompanying Consolidated Balance Sheets. UPN is still in its infancy, and the cost of developing UPN is expected to remain significant for several years. 9 10 BHC Communications, Inc. and Subsidiaries Condensed consolidated financial statements of UPN as of and for the year ended December 31, 1995 are as follows:
(In Thousands) - ------------------------------------------------------- BALANCE SHEET Current assets $ 22,616 Property and equipment, net 1,225 Other assets 3,941 - ------------------------------------------------------- $ 27,782 ======================================================= Current liabilities $ 25,661 Advances due BHC 109,935 Partners' deficit (107,814) - ------------------------------------------------------- $ 27,782 ======================================================= - ------------------------------------------------------- STATEMENT OF OPERATIONS Operating revenues* $ 30,376 Operating expenses* 159,116 - ------------------------------------------------------- Operating loss (128,740) Other expenses (563) - ------------------------------------------------------- Loss before interest on BHC advances (129,303) Interest on BHC advances (eliminated in consolidation) (4,535) - ------------------------------------------------------- Net loss $(133,838) =======================================================
* With respect to certain of its programming, UPN derives no revenue and incurs no programming expense. NOTE 3 - ------------------------------------------------------------------------------- INTERESTS IN WARNER COMMUNICATIONS INC. AND TIME WARNER INC.: From 1984 to 1989, BHC was the largest shareholder of Warner Communications Inc. Pursuant to the merger of Warner and Time Warner Inc., BHC in 1989 and 1990 disposed of its Warner interest for cash and Time Warner securities, and BHC recorded pretax gains totalling $1.9 billion on those dispositions. In 1993, BHC disposed of its then remaining Time Warner securities, and income associated with such securities is included in the accompanying 1993 Consolidated Statement of Income as follows:
(In Thousands) - ------------------------------------------------------------- Gain on disposition, after expense of $2,905 $219,373 Dividend income 14,672 Interest income 22,577 - ------------------------------------------------------------- $256,622 =============================================================
Expense deducted from the gain on disposition consists of Chris-Craft compensation expense reimbursed by BHC pursuant to its management agreement with Chris-Craft. NOTE 4 - ------------------------------------------------------------------------------- ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consist of the following:
December 31, ----------------------------- (In Thousands) 1995 1994 - ------------------------------------------------------------------------------- Accounts payable $ 9,114 $ 8,799 Payable for securities purchased 1,023 248 Accrued expenses- Deferred barter revenue 29,660 32,601 Payroll and compensation 16,992 15,042 Other 16,117 14,144 - ------------------------------------------------------------------------------- $72,906 $70,834 ===============================================================================
NOTE 5 - ------------------------------------------------------------------------------- SHAREHOLDERS' INVESTMENT: Each share of Class B common stock, all of which is held by Chris-Craft, entitles the holder to ten votes (Class A common stock entitles the holder to one vote per share), is convertible at all times into Class A common stock on a share-for-share basis, is not transferable except to specified persons and in general carries the same per share dividend 10 11 BHC Communications, Inc. and Subsidiaries Notes to Consolidated Financial Statements - ------------------------------------------ and liquidation rights as Class A common stock, except that the Board of Directors may in its discretion declare greater cash dividends per share on the Class A common stock than on the Class B common stock. From 1990, when BHC became a public company, through December 31, 1995, BHC purchased 4,914,387 shares of its Class A common stock at an aggregate cost of $296,496,000. Chris-Craft's ownership interest in BHC during that period accordingly increased to 73.9% (representing 96.6% of BHC's voting power) from 60%. At December 31, 1995, 585,613 Class A common shares were authorized for purchase, and an additional 1,300,000 shares subsequently have been authorized for purchase. Capital transactions of subsidiary, as set forth in the accompanying Consolidated Statements of Cash Flows and Consolidated Statements of Shareholders' Investment, reflect purchases by UTV of its common shares totalling $28,440,000 in 1995, $8,904,000 in 1994 and $8,760,000 in 1993, net of proceeds from the exercise of stock options, as well as UTV's 1995 dividend of $.50 per share, all net of intercompany eliminations and minority interest. NOTE 6 - ------------------------------------------------------------------------------- RETIREMENT PLANS: Chris-Craft and UTV maintain noncontributory defined benefit pension plans covering substantially all their employees. Benefits accrue annually based on compensation paid to participants each year. The funding policy is to contribute annually to the plans amounts sufficient to fund current service costs and to amortize any unfunded accrued liability over periods not to exceed 30 years. BHC pension expense, including amounts accrued in Chris-Craft and UTV nonqualified plans for retirement benefits in excess of statutory limitations, totalled $3,096,000 in 1995, $2,021,000 in 1994, and $1,654,000 in 1993. It is not practical to determine which assets of the Chris-Craft pension plan relate to BHC. The estimated funded status of the Chris-Craft and UTV plans in which BHC participates was as follows:
December 31, ------------------------------- (In Thousands) 1995 1994 - ----------------------------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $(26,210) $(23,261) Nonvested benefit obligation (1,932) (1,558) - ----------------------------------------------------------------------------------------- Accumulated benefit obligation (28,142) (24,819) Effect of projected compensation increases (11,513) (7,655) - ----------------------------------------------------------------------------------------- Projected benefit obligation (39,655) (32,474) Fair value of plan assets (primarily listed securities and temporary investments) 24,366 19,774 - ----------------------------------------------------------------------------------------- Excess (15,289) (12,700) Unrecognized net asset at date of initial application of SFAS No. 87, being amortized over 15 years (234) (283) Unrecognized net loss from past experience being amortized over 15 years 2,090 2,637 - ----------------------------------------------------------------------------------------- Pension liability $(13,433) $(10,346) =========================================================================================
Assumptions used in accounting for pension plans for each year presented are as follows: - ----------------------------------------------------------------------------------------- Discount rate at end of year 7.25% Rate of increase in future compensation levels 4.50% Expected long-term rate of return on assets 7.75%
The aggregate BHC expense of other retirement plans in which its employees participate, primarily stock purchase and profit sharing plans of Chris-Craft and UTV and related accruals in the nonqualified retirement plans mentioned above, totalled $6,307,000 in 1995, $4,877,000 in 1994 and $4,977,000 in 1993. 11 12 BHC Communications, Inc. and Subsidiaries NOTE 7 - -------------------------------------------------------------------------------- INCOME TAXES: Effective January 1, 1993, BHC adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", under which deferred income tax amounts reflect the expected future tax consequences arising from temporary differences in the bases of assets and liabilities for financial accounting and income tax purposes. The cumulative effect of adoption of SFAS 109, the amount of which is immaterial, is included in the 1993 provision for income taxes. Income taxes are provided in the accompanying Consolidated Statements of Income as follows:
Year Ended December 31, ------------------------------------------- (In Thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------- Current (including effect of adoption in 1993): Federal $ 23,300 $48,625 $127,450 State (13,700) (8,600) 15,975 - ----------------------------------------------------------------------------------------------- 9,600 40,025 143,425 - ----------------------------------------------------------------------------------------------- Deferred: Federal 8,200 16,275 1,450 State 1,000 1,600 2,025 - ----------------------------------------------------------------------------------------------- 9,200 17,875 3,475 - ----------------------------------------------------------------------------------------------- $ 18,800 $57,900 $146,900 ===============================================================================================
Following the favorable resolution of routine audits in each year, state income taxes in 1995 and 1994 reflect $20,000,000 reversals of amounts accrued in 1989 and 1990. Differences between income taxes at the federal statutory income tax rate and total income taxes provided are as follows:
December 31, ------------------------------------------- (In Thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------- Taxes at federal statutory rate $25,115 $58,327 $136,928 State income taxes, net (8,223) (4,559) 11,692 Amortization of intangible assets 3,151 3,151 3,198 Dividend exclusion (764) (447) (3,984) Enacted rate change (to 35% from 34%) - - (1,129) Other (479) 1,428 195 - ----------------------------------------------------------------------------------------------- $18,800 $57,900 $146,900 ===============================================================================================
Deferred tax assets and deferred tax liabilities reflect the tax effect of the following differences between financial statement carrying amounts and tax bases of assets and liabilities:
December 31, ----------------------- (In Thousands) 1995 1994 - ---------------------------------------------------------------------------------------------- Accrued liabilities not deductible until paid $ 6,976 $14,400 Allowance for doubtful accounts 2,138 2,671 Film contract rights 3,974 6,870 Investments 4,117 1,652 SFAS 115 adjustment - 9,950 Other 616 396 - ---------------------------------------------------------------------------------------------- Deferred tax assets 17,821 35,939 - ---------------------------------------------------------------------------------------------- Property and equipment (3,143) (3,698) SFAS 115 adjustment (9,044) - Other (823) (653) - ---------------------------------------------------------------------------------------------- Deferred tax liabilities (13,010) (4,351) - ---------------------------------------------------------------------------------------------- Net deferred tax assets $ 4,811 $31,588 ==============================================================================================
12 13 BHC Communciations, Inc. and Subsidiaries Notes to Consolidated Financial Statements - ------------------------------------------ NOTE 8 - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES: The aggregate amount payable by BHC's television stations under contracts for programming not currently available for telecasting and, accordingly, not included in film contracts payable and the related contract rights in the accompanying Consolidated Balance Sheet, totalled $166,200,000 at December 31, 1995 (including $40,400,000 applicable to UTV). BHC is expected to make significant expenditures developing UPN. See Note 2. BHC is a party to various pending legal proceedings arising in the ordinary course of business. In the opinion of management, after taking into account the opinion of counsel with respect thereto, the ultimate resolution of these matters should not have a material effect on BHC's consolidated financial position or results of operations. NOTE 9 - -------------------------------------------------------------------------------- RELATED PARTY TRANSACTIONS: Included in selling, general and administrative expenses are management fees BHC paid Chris-Craft of $8,000,000 in 1995, $11,000,000 in 1994 and $8,000,000 in 1993, and management and directors' fees UTV paid Chris-Craft totalling $570,000 in 1995, $570,000 in 1994 and $549,000 in 1993. The management contract between BHC and Chris-Craft additionally provides for the reimbursement by BHC to Chris-Craft of expenses incurred by Chris-Craft specifically relating to BHC, including compensation payable by Chris-Craft to its employees with respect to any extraordinary financial results of BHC. In connection with the 1993 disposition of Time Warner securities, which resulted in gains before income taxes and minority interest of approximately $219 million, BHC reimbursed Chris-Craft $2,905,000 for compensation expense payable by Chris-Craft with respect to such disposition. 13 14 BHC Communications, Inc. and Subsidiaries Selected Financial Data - -----------------------
As of and for the Year Ended December 31, --------------------------------------------------------------------- (In Thousands of Dollars Except per Share Data) 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- Operating revenues $ 454,702 $ 457,533 $ 411,999 $ 307,883 $ 262,568 ================================================================================================================================ Operating income $ 118,579 $ 112,982 $ 79,262 $ 22,362 $ 517 Interest and other income 82,483 57,644 55,340 36,374 57,311 Equity in United Paramount Network loss (129,303) (3,977) - - - Income associated with Time Warner securities - - 256,622 94,059 87,657 Income taxes (18,800) (57,900) (146,900) (36,100) (34,900) Minority interest (15,902) (15,872) (20,038) (7,400) (2,470) - -------------------------------------------------------------------------------------------------------------------------------- Net income $ 37,057 $ 92,877 $ 224,286 $ 109,295 $ 108,115 ================================================================================================================================ Net income per share $ 1.51 $ 3.71 $ 8.67 $ 4.09 $ 3.89 Cash dividends declared per share 1.00 - - 2.00 - Cash and current marketable securities 1,499,365 1,496,445 1,506,529 966,582 931,350 Film contract rights 145,902 148,473 186,079 187,518 165,029 Noncurrent marketable securities - - - 450,022 732,740 Total assets 2,159,010 2,188,463 2,241,538 2,135,038 2,012,203 Long-term debt - - - - - Shareholders' investment 1,781,893 1,789,884 1,778,821 1,590,448 1,620,860 Book value per share $ 73.14 $ 72.31 $ 69.49 $ 61.05 $ 58.88
14 15 BHC Communications, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF - --------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS - --------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES BHC's financial position is strong and highly liquid. Cash and marketable securities totalled $1.5 billion at December 31, 1995, and BHC has no debt outstanding. BHC is currently expending significant funds to develop the United Paramount Network, but cash flow provided from BHC's operating activities, $197.3 million in 1995, substantially exceeded BHC's 1995 UPN funding of $128.6 million. BHC's operating cash flow is generated primarily by its core television station group. Broadcast cash flow reflects station operating income plus depreciation and film contract amortization less film contract payments. The relationship between film contract payments and related amortization may vary greatly between periods (payments exceeded amortization by $1.7 million and $16.1 million, respectively, in 1995 and 1994), and is dependent upon the mix of programs aired and payment terms of the stations' contracts. Reflecting such $14.4 million variance between 1995 and 1994, broadcast cash flow increased 10%, to $159.3 million from $144.7 million in 1994, while station earnings rose less than 1%. Although broadcast cash flow is often used in the broadcast television industry as an ancillary measure, it is not synonymous with operating cash flow computed in accordance with generally accepted accounting principles, and should not be considered alone or as a substitute for measures of performance computed in accordance with generally accepted accounting principles. BHC's cash flow additionally reflects earnings associated with its cash and marketable securities. Cash and marketable securities totalled $1.5 billion at December 31, 1995, virtually unchanged from December 31, 1994. BHC operating cash flow of $197.3 million in 1995 was offset by UPN funding of $128.6 million, treasury stock purchases by BHC and UTV totalling $61.0 million and payment of the 1995 special dividend described below. Special cash dividends of $2.00 per share, totalling $51.9 million, and $1.00 per share, totalling $24.5 million, were paid on BHC's Class A and Class B common stock, in January 1993 and April 1995, respectively. BHC has no plan to pay regular dividends. Since April 1990, BHC's Board of Directors has authorized the purchase of up to 6,800,000 Class A common shares. Through December 31, 1995, 4,914,387 shares were purchased for a total cost of $296.5 million, including $31.3 million in 1995. From 1993 through 1995, UTV purchased 991,776 of its common shares at an aggregate cost of $51.5 million, and at December 31, 1995, 1,192,249 UTV shares remained authorized for purchase. BHC intends to expand its operations in the media, entertainment and communications industries and to explore business opportunities in other industries. BHC believes it is capable of raising significant additional capital to augment its already substantial financial resources, if desired, to fund such additional expansion. In July 1994, BHC, along with Viacom Inc.'s Paramount Television Group, formed UPN, a fifth broadcast television network which premiered in January 1995. BHC currently owns 100% of UPN, and accounts for UPN under the equity method, since Paramount has an option through January 15, 1997 to acquire an interest in UPN equal to that of BHC. The option price is equivalent to approximately one-half of BHC's aggregate cash contributions to UPN through the exercise date, plus interest. BHC expenditures related to UPN totalled $128.6 million in 1995. UPN is still in its infancy, and the cost of developing UPN is expected to remain significant for several years. BHC's television stations make commitments for programming that will not be available for telecasting until future dates. At December 31, 1995, commitments for such programming totalled approximately $166.2 million, including $40.4 million applicable to UTV. BHC also has a commitment to invest over time up to $65 million, including $40 million applicable to UTV, in management buyout limited partnerships. BHC capital expenditures generally have not been material in relation to its financial position, and the related capital expenditure commitments at December 31, 1995 (including any related to UPN) were not material. BHC expects that its expenditures for UPN, future film contract commitments and capital requirements for its present business will be satisfied primarily from operations, marketable securities or cash balances. 15 16 BHC Communications, Inc. and Subsidiaries RESULTS OF OPERATIONS 1995 VERSUS 1994 BHC 1995 operating results reflect record station group earnings and a substantial increase in interest income. However, as expected, start-up losses at BHC's United Paramount Network lowered net income to $37,057,000, or $1.51 per share, compared to $92,877,000, or $3.71 per share, in 1994. Net income excluding UPN rose 22%, to $116,660,000, or $4.75 per share, from $95,354,000, or $3.81 per share. Television station earnings rose to $151,382,000, just above 1994's record earnings of $150,647,000. A 6% reduction in station programming expenses more than offset a 2% decline in station operating revenues. The decline in full year station operating revenues, to $450,239,000 from $457,533,000 in 1994, reflects disappointing softness in the 1995 fourth quarter television advertising market, which contributed to a 14% decline in BHC stations' operating revenues in that period. While early 1996 demand for television advertising time remains sluggish, the Olympic Games and political contests in 1996 should have a positive impact on rates later in the year. BHC operating income rose 5% in 1995, to a record $118,579,000 from $112,982,000 in 1994, as the modest increase in station earnings was augmented by decreases totalling $8.5 million in program development expenses and Chris-Craft management fee expense. Operating income would have risen even further except for one-time expenses of approximately $3.7 million incurred establishing BHC's national sales representative subsidiary, United Television Sales, Inc. Interest and other income increased to $82,483,000 in 1995 from $57,644,000 in 1994, primarily reflecting higher interest rates earned on BHC's money market portfolio. UPN incurred start-up losses of $129,303,000 in 1995, about as expected, compared to the network's 1994 pre-launch loss of $3,977,000. BHC accounts for its interest in UPN under the equity method. UPN is expected to incur substantial start-up losses for several more years. Income tax provisions for 1995 and 1994 are net of $20,000,000 reversals of state income taxes accrued in 1989 and 1990, following the favorable resolution in each year of routine audits. Excluding the effect of such reversals, BHC's effective income tax rate would have been 44% in 1995 and 43% in 1994, compared with the respective actual rates of 26% and 35%. Minority interest reflects the interest of shareholders other than BHC in the net income of UTV, 57% owned at December 31, 1995 and 55% owned at December 31, 1994. Earnings per share amounts vary favorably to related dollar amounts, reflecting the reduction in average common shares outstanding, from 25,882,000 in 1993 to 25,007,000 in 1994 and 24,549,000 in 1995, resulting from open market purchases by BHC of its Class A common shares. 1994 VERSUS 1993 BHC's television station group achieved record operating results in 1994. The substantial increase in station earnings, together with a reversal of previously accrued income taxes, brought 1994 net income to $92,877,000, or $3.71 per share, 32% greater than 1993 income of $70,299,000, or $2.72 per share, excluding income associated with BHC's former holdings of Time Warner securities. Net income in 1993, including Time Warner income, was $224,286,000, or $8.67 per share. A strong national economy and heavy political spending fueled demand for television advertising in 1994. BHC's television station group posted a strong 11% increase in operating revenues, to a record $457,533,000 from $411,999,000 in 1993. After a 2% decline in their programming expenses, television station earnings increased 44%, easily surpassing 1993's record. Operating income in 1994 rose 43%, to a record $112,982,000 from 1993's $79,262,000, even after increases of approximately $12,000,000 in other operating expenses, primarily the management fee paid Chris-Craft and program development expense. Interest and other income, excluding amounts associated with Time Warner securities, rose to $57,644,000 from $55,340,000 in 1993. A significant increase in interest income, reflecting the placement of Time Warner proceeds in money market instruments, was partially offset by 1993 marketable securities gains. 16 -----END PRIVACY-ENHANCED MESSAGE-----