-----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, Eyfp3cBHSzh4W5iz1Z8j79aH3XvbA4qGkBXTDAnTDSL1xr2cPA9W+kjMQA8rgSrS wp7X+/v4fKNZQuE/eaQIsA== 0000895759-97-000078.txt : 19970401 0000895759-97-000078.hdr.sgml : 19970401 ACCESSION NUMBER: 0000895759-97-000078 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 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: 97569705 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 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 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: Name of each Exchange Title of each class on which registered Class A Common Stock American Stock Exchange $0.01 par value 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 28, 1997, was approximately $567,100,000. As of February 28, 1997, there were 5,561,105 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, 1996 (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 1997 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 (76.1% at February 28, 1997) 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. in 1989. BHC's principal business is television broadcasting, conducted through its wholly owned sub- sidiaries, Chris-Craft Television, Inc. ("CCTV") and Pinelands, Inc. ("Pine- lands"), and its majority owned (58.8% at February 28, 1997) subsidiary, United Television, Inc. ("UTV"). At February 28, 1997, BHC, solely through subsidiaries, had 1,065 full- time employees and 134 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. In January 1997, Paramount completed the exercise of its option to acquire an interest in UPN equal to that of BHC, which had the effect of reimbursing BHC for one-half of its aggregate investment in UPN, plus interest, and funding UPN with addi- tional cash for ongoing expenditures. 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. The following table sets forth certain information with respect to BHC stations and their respective markets: 3
Total DMA Network Commercial Cable Affili- DMA TV Stations TV Station and ation/ House- DMA Operating in Penetra- Location(a) Channel Holds(b) Rank(b) Market(c) tion(d) - ------------ ------- --------- -------- ------------ -------- KCOP Los Angeles UPN 13 4,942,440 2nd 7VHF 62% 10UHF WWOR (e) Secaucus UPN 9 6,711,450 1st 6VHF 69% 14UHF KPTV Portland UPN 12 952,690 24th 4VHF 63% 2UHF KMSP Minneapolis/ St. Paul UPN 9 1,428,100 14th 4VHF 51% 3UHF KTVX Salt Lake City ABC 4 670,650 36th 4VHF 56% 2UHF KMOL San Antonio NBC 4 641,740 38th 3VHF 65% 3UHF KBHK San Francisco UPN 44 2,278,480 5th 4VHF 71% 10UHF KUTP Phoenix UPN 45 1,212,850 17th 4VHF 57% 4UHF _______________ (a) KCOP and KPTV are owned by CCTV; WWOR is owned by Pinelands; the remaining stations are owned by UTV. (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 universe 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 UPN 9 broadcasts across a tri-state area including the entire New York City metropolitan area.
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 and cable television channels 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 four factors: the stations' program ratings, the time of day the advertising will run, the demographic qualities of a program's viewers (primarily age and sex), and the amount of each station's inventory. Ratings data for television markets are measured by A.C. Nielsen Company ("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 tele- vision 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 television 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 sta- tions, since the major networks use almost all of their affiliates' prime time inventory for network programming. 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 sta- tion, 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 are being reduced further as the other newer networks provide 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. Recognizing the need to have a more direct influence on the quality of programming avail- able 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, 1996 was not significant to BHC's financial position. 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 syndi- cated television shows, many of which have been shown previously on a major network, and syndicated feature films, which were either made for network tele- vision or have been exhibited previously in motion picture theaters (most of which films have been shown previously on network or cable television). Syndi- cated 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 syndica- tion 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 adver- tising time during the broadcast. The cash price of such programming 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 there- fore, with less inventory. In recent years, the amount of barter and cash plus barter programming broadcast both industry-wide and by BHC stations has increased substantially. 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 tele- vision stations and broadcasting networks for sales of air time. BHC believes that the effect of barter on its television stations is not signifi- cantly different from its impact on the industry as a whole. BHC television stations are frequently required to make substantial finan- cial commitments to obtain syndicated programming while such programming is still being broadcast by another network and before it is available for broad- cast by BHC stations or even before it has been produced. Generally, syndi- cation 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 assurance that a successful network program will continue to be successful or profitable when broadcast after initial network airing. Pursuant to generally accepted accounting principles, commitments for pro- gramming 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 broad- cast rights, unamortized film contract rights for programming available for telecasting, and deposits on film contracts for programming not available for telecasting aggregating $144,034,000 as of December 31, 1996. The stations were committed for film and sports rights contracts aggregating $177,800,000 for programming not available for broadcasting as of that date. 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 6 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 9 of Notes to Consolidated Financial Statements. KTVX and KMOL are primary affiliates of their respective networks. Net- work 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 agreements for terms as long as ten years. UTV has entered into a 10-year affiliation agreement for KTVX. 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 broadcast 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, which UPN increased to six hours, on three nights, in March 1996. The network also broadcasts two hours of previously exhibited movies on Saturday afternoons and two hours of original children's programming on Sunday mornings. UPN has announced plans to program a one-hour Monday through Friday block of teen programming, beginning in the fall of 1997, and to expand to a fourth night in 1998. 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 currently has 165 affiliates in markets containing 92% of all U.S. households, including all of BHC's and Paramount's previously independent sta- tions, and UPN continues to seek additional affiliates to expand its household reach. UPN's primary affiliate station agreements have three year terms and provide commercial time for sale by the stations as consideration for broad- casting the network's programming. In January 1997, Paramount completed the exercise of its option to acquire an interest in UPN equal to that of BHC, which, until then, owned 100% of the network and bore all UPN costs. UPN funding requirements, to be shared equally by BHC and Paramount, since Paramount exercised its option, are expected to continue to be significant for the next several years. See Management's Dis- cussion 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 adver- tising time to national and local advertisers. Such time sales are repre- sented 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, 1996, national advertising contrib- uted 37%, and local advertising contributed 63%, of total gross cash adver- tising revenues. Most advertising contracts are short-term. Like that of the television broadcasting business generally, BHC's television business is sea- sonal. In terms of revenues, generally the fourth quarter is strongest, fol- lowed 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 deter- mine 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 subject to a wide range of technical, reporting and operational requirements imposed by the Communications Act or by FCC rules and policies. The Communications Act was recently and substantially amended by the Tele- communications Act of 1996 (the "Telecom Act"), some provisions of which have been incorporated into the FCC's rules and regulations during the past year, 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, television 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 UPN 9'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 UPN 45's license renewal was granted on March 28, 1994, and is due to expire on October 1, 1998. KCOP UPN 13's license renewal was granted on April 18, 1994, and is due to expire on December 1, 1998. KBHK UPN 44's license renewal was granted on October 2, 1995, and is due to expire on December 1, 1998. KPTV UPN 12'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. WWOR UPN 9's license renewal was granted July 16, 1996 and is due to expire June 1, 1999. 8 Under existing FCC regulations governing multiple ownership of broadcast 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 directs the FCC to extend this waiver policy to the top 50 markets, con- sistent 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. FCC rules deem 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 television stations capable of reaching, in the aggregate, a maximum of 35% of the national audience. This percentage is determined by the DMA market rankings of the percentage of the nation's television house- holds 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 stations for the purpose of calculating the audience reach limits. Applying the 50% reach attribution rule to UHF stations KBHK UPN 44 and KUTP UPN 45, the eight BHC stations are deemed to reach approximately 18% of the nation's television households. The FCC is 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 stations exceeding the maximum audience reach or more than one station that serves the same area. In the case of a corporation 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 organi- zation, 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. 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 9 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 announced establishment of a voluntary rating system in January 1997. The Telecom Act also directs the FCC to adopt regu- lations requiring increased closed-captioning of video programming 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 tele- vision 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. FCC regulations implementing the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") require each television broad- caster to elect, at three-year intervals beginning June 17, 1993, either to (i) require carriage of its signal by cable systems in the station's market ("must- carry") or (ii) negotiate the terms on which such broadcast station would permit transmission of its signal by the cable systems within its market ("retransmission consent"). In a 2-1 decision issued on December 13, 1995, a special three-judge panel of the U.S. District Court for the District of Columbia upheld the constitutionality of the must-carry provisions. The District Court's decision has been appealed to the U.S. Supreme Court, which has heard the appeal and is expected to issue a decision prior to June 30, 1997. In the meantime, the FCC's must-carry regulations implementing the 1992 Cable Act remain in effect. BHC cannot predict the outcome of the Supreme Court review of the case. On August 8, 1996, under the Children's Television Act of 1990 (the "CTA"), the FCC amended its rules to establish a "processing guideline" for broadcast television stations, of at least three hours per week, averaged over a six-month period, of "programming that furthers the educational and inform- ational needs of children 16 and under in any respect, including the child's intellectual/cognitive or social/emotional needs." Children's "Core Programming" has been defined as educational and informational programming that, among other things (i) has serving the educational and informational needs of children "as a significant purpose," (ii) has a specified educa- tional and informational objective and a specified target child audience, (iii) is regularly scheduled, weekly programming, (iv) is at least 30 minutes in length, and (v) airs between 7:00 a.m. and 10:00 p.m. Any station that satisfied the processing guideline by broadcasting at least three weekly hours of Core Programming will receive FCC staff-level approval of the portion of its license renewal application pertaining to the CTA. Alterna- tively, a station may qualify for staff-level approval even if it broadcasts "somewhat less" than three hours per week of Core Programming by demon- strating that it has aired a weekly package of different types of educational and informational programming that is "at least equivalent" to three hours of Core Programming. Non-Core Programming that can qualify under this alterna- tive includes specials, public service announcements, short-form programs and regularly scheduled non-weekly programs, with "a significant purpose of educating and informing children." A licensee that does not meet the pro- cessing guidelines under either of these alternatives will be referred by the FCC's staff to the Commissioners of the FCC, who will evaluate the licensee's compliance with the CTA on the basis of both its programming and its other efforts related to children's educational and informational pro- gramming, e.g., its sponsorship of Core Programming on other stations in the market, or nonbroadcast activities "which enhance the value" of such pro- gramming. A television station ultimately found not to have complied with the CTA could face sanctions including monetary fines and the possible non- renewal of its broadcast license. The FCC is conducting a rulemaking proceeding to devise a table of channel allotments in connection with the introduction of digital television service ("DTV"). The FCC has preliminarily decided to assign a second broadcast channel to each full-power commercial television station for DTV operation. According to this preliminary decision, stations would be permitted to phase in their DTV operations over a period of several years following adoption of a final table of allotments, after which they would be required to surrender their non-DTV channels. Meanwhile, Congress is considering proposals that would require incumbent broadcasters to bid at auctions for the additional spectrum required to effect a transition to DTV, or, alternatively, would assign additional DTV spectrum to incumbent broadcasters and require the early surrender of this non-DTV channel for sale by public 10 auction. BHC cannot predict if, or when, any of these proposals will be adopted or the effect, if any, adoption of such proposals would have on BHC. The FCC currently is reviewing certain of its rules governing the rela- tionship between broadcast television networks, including UPN, and their affiliated stations. In a rulemaking proceeding, the FCC is examining its rules prohibiting broadcast television networks from representing their affiliated stations for the sale of non-network advertising time and from influencing or controlling the rates set by their affiliates for the sale of such time. Separately, the FCC is conducting a rulemaking proceeding to consider the relaxing or elimination of its rules prohibiting broadcast networks from (i) restricting their affiliates' rights to reject network programming, (ii) reserving an option to use specified amounts of their affiliates' broadcast time, and (iii) forbidding their affiliates from broadcasting the programming of another network; and to consider the relaxation of its rule prohibiting network affiliated stations from preventing other stations from broadcasting the programming of their network. 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 BHC and 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 pro- visions of the Communications Act or regulations and policies of the FCC there- under. 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 Commis- sion, also impose a variety of requirements that affect the business and operations of broadcast stations. Proposals for additional or revised requirements 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. 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. In addition to programming, management ability and experience, technical 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 other programs. 11 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 UPN 9, and that WWOR UPN 9 generally attracts a viewing audience larger than the audiences attracted by the UHF stations in the New York City market. In Los Angeles, the three VHF major-network affiliates and three other VHF stations generally attract a larger viewing audience than does KCOP UPN 13, and KCOP UPN 13 generally attracts a viewing audience larger than the ten UHF stations in Los Angeles. In Portland, the three VHF major-network affiliated stations generally attract a larger audience than does KPTV UPN 12, 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 UPN 9 generally attracts a smaller viewing audience than the three major network-affiliated VHF 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 television 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 commercial television stations in San Francisco, KBHK UPN 44 generally ranks fifth in terms of audience share, behind the three major network-affiliated VHF television stations, and the VHF Fox affiliate. KUTP UPN 45 generally ranks sixth in terms of audience share, of the eight commercial stations in the Phoenix market. 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 broadcasting 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 or service tier 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 broadcast stations in unfavorable channel locations. Similar competi- tive effects may be expected from video delivery systems offered by local telephone companies, as permitted by the provisions of the Telecom Act. While Federal law has until recently generally prohibited local telephone companies from providing video programming to subscribers in their service areas, this prohibition has been substantially eliminated by the Telecom Act. The FCC has also recently adopted 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 exclusive 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. Five direct broadcast satellite ("DBS") systems currently provide service, and others are expected to begin service during the next two years. The number of subscribers to DBS services increased substantially during the past two years, from approximately 600,000 at the end of 1994, to approximately 4.3 million at the end of 1996. 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. An additional challenge is now posed by wireless cable systems, including multichannel distribution services ("MDS"). At the end of 1994, 12 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 programming 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. 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 stations to provide such services. Many segments of the television industry are intensively studying digital television technology. A proceeding is under way at the FCC regarding digital television service policies, including "high definition" television service. The Telecom Act, as well as proposed federal legislation, addresses several of these issues. BHC is unable to predict the outcome of these developments. 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 compres- sion 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 45,300 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. 13 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 approxi- mately 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 stations and many of its FM radio stations. The lease for the Mt. Sutro facilities expires in February 2005 and is renewable for two five-year periods. 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 stations 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 28, 1997, are as follows: Has served Positions with BHC; principal occupation; as officer Name and age as of February 28, 1997 since - ---- ----------------------------------------- ---------- Herbert J. Siegel Chairman of the Board; Chairman of the 1977 Board and President, Chris-Craft; 68 William D. Siegel President; Senior Vice President, Chris- 1981 Craft; 42 Joelen K. Merkel Vice President and Treasurer; Vice 1980 President and Treasurer, Chris-Craft; 45 Brian C. Kelly General Counsel and Secretary; General 1992 Counsel and Secretary, Chris-Craft; 45 Chris-Craft, through its majority ownership of BHC, is principally engaged in television broadcasting. The principal occupation of each of the indi- viduals 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 prior to February 1992. 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 54, is Executive Vice President of Chris-Craft. Although not an officer of BHC, as President of UTV and Chris-Craft's Tele- vision 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 compensatory 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 28, 1997 BHC COMMUNICATIONS, INC. (Registrant) By: WILLIAM D. SIEGEL William D. Siegel 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 28, 1997 Herbert J. Siegel Chairman and Director (principal executive officer) WILLIAM D. SIEGEL March 28, 1997 William D. Siegel President and Director (principal financial officer) JOELEN K. MERKEL March 28, 1997 Joelen K. Merkel Vice President, Treasurer and Director (principal accounting officer) 19 JOHN L. EASTMAN March 28, 1997 John L. Eastman Director BARRY S. GREENE March 28, 1997 Barry S. Greene Director LAURENCE M. KASHDIN March 28, 1997 Laurence M. Kashdin Director MORGAN L. MILLER March 28, 1997 Morgan L. Miller Director JOHN C. SIEGEL March 28, 1997 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, 1996 and 1995 Consolidated Statements of Income - For the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - For the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Investment - For the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements SCHEDULES: UPN Financial Statements -- Report of Independent Accountants Balance Sheets - December 31, 1996 and 1995 Statements of Operations - For the Years Ended December 31, 1996 and 1995 Statements of Changes in Partners' Capital (Deficit) - For the Years Ended December 31, 1996 and 1995 Statements of Cash Flows - For the Years Ended December 31, 1996 and 1995 Notes to Financial Statements 21 United Paramount Network (a partnership between BHC Network Partner, Inc., BHC Network Partner II, Inc. and BHC Network Partner III, Inc.) Report and Financial Statements December 31, 1996 and 1995 Report of Independent Accountants January 31, 1997 To the Partners of United Paramount Network In our opinion, the accompanying balance sheets 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., BHC Network Partner II, Inc. and BHC Network Partner III, Inc.) at December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of United Paramount Net- work's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence sup- porting 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. United Paramount Network Balance Sheets (in thousands)
December 31, 1996 1995 Assets Current assets: Cash and cash equivalents $ 557 $ 74 Accounts receivable (net of allowance for doubtful accounts of $430 and $178, respectively) 25,057 9,040 Program rights and development costs (net of reserve for abandonment of $5,613 and $4,631, respectively) 17,815 12,893 Other current assets 402 609 ------- -------- Total current assets 43,831 22,616 ------- -------- Restricted cash 1,157 974 Property and equipment, at cost: ------- -------- Furniture, fixtures and computer equipment 1,065 1,065 Leasehold improvements and other 358 358 ------- -------- 1,423 1,423 Less accumulated depreciation 508 198 ------- -------- 915 1,225 ------- -------- Intangible asset (net of accumulated amortization of $108 and $54, respectively) 163 217 Investment in joint venture (net of reserve of $2,158 and $0, respectively) 2,827 2,750 ------- -------- $48,893 $ 27,782 ======= ========= Liabilities and Partners' Capital (Deficit) Current liabilities: Accounts payable $ 4,027 $ 3,224 Accrued program costs 18,168 10,587 Accrued expenses and other liabilities 25,304 11,844 ------- -------- Total current liabilities 47,499 25,655 ------- -------- Due to related party -- 109,941 ------- --------_ Total liabilities 47,499 135,596 Commitments and contingencies (Note 6) Partners' capital (deficit): Network Partner (4,172) (8,942) Network Partner II (3,703) (98,872) Network Partner III 9,269 -- ------- -------- Total partners' capital (deficit) 1,394 (107,814) ------- -------- $ 48,893 $ 27,782 ======== ========= The accompanying notes are an integral part of these financial statements. United Paramount Network Statement of Operations (in thousands)
For the Year Ended December 31, 1996 1995 Net revenues $ 56,948 $ 30,376 Operating costs and expenses: Operating expenses 132,593 99,940 Selling, general and administrative expenses 67,359 58,924 Depreciation and amortization 364 252 --------- --------- 200,316 159,116 --------- --------- Operating loss (143,368) (128,740) --------- --------- Other income (expense): Interest expense to related parties (14,147) (4,535) --------- --------- Interest and other income 193 62 Net loss on investment in joint venture (3,138) (625) --------- --------- (17,092) (5,098) --------- --------- Net loss $(160,460) $(133,838) ========== ==========
The accompanying notes are an integral part of these financial statements. United Paramount Network Statements of Changes in Partners' Capital (Deficit) (in thousands)
Network Network Network Partner Partner Partner II III 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) Capital contributions -- -- 20,000 20,000 Conversion of debt to equity 8,398 164,101 63,016 235,515 Conversion of accrued interest to equity 12 9,500 4,641 14,153 Allocation of 1996 net loss (3,640) (78,432) (78,388) (160,460) -------- --------- -------- --------- Balance at December 31, 1996 $(4,172) $ (3,703) $ 9,269 $ 1,394 ======== ========== ======== =========
The accompanying notes are an integral part of these financial statements. United Paramount Network Statements of Cash Flows (in thousands)
For the Year Ended December 31, 1996 1995 Cash flows from operating activities: Net loss $(160,460) $(133,838) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of program costs 126,793 91,744 Payments for programming (121,822) (98,420) Depreciation and amortization 364 252 Abandonment reserve 982 4,631 Changes in assets and liabilities: Increase in accounts receivable, net (16,017) (9,025) Increase in accounts payable, accrued expenses and other current liabilities 25,116 12,546 Decrease in other assets 207 3,052 --------- --------- Net cash used in operating activities (144,837) (129,058) --------- --------- Cash flows from investing activities: Additions to property and equipment -- (1,113) Cash placed in restricted account (183) (974) Increase in intangible asset -- (271) Net investment in joint venture (77) (2,750) --------- --------- Net cash used in investing activities (260) (5,108) --------- --------- Cash flows from financing activities: Advances from related party 125,580 109,935 Capital contributions 20,000 23,186 --------- --------- Net cash provided by financing activities 145,580 133,121 --------- --------- Net increase (decrease) in cash and cash equivalents 483 (1,045) Cash and cash equivalents: Beginning of year 74 1,119 --------- --------- End of year $ 557 $ 74 ========= ========= Supplemental Cash Flow Information: Cash paid for interest $ -- $ 4,530 ========= ========= Supplemental schedule of non-cash financing activities: Advances from related party converted to equity $ 235,521 $ -- ========= ========= Accrued interest converted to equity $ 14,147 $ -- ========= =========
The accompanying notes are an integral part of these financial statements. United Paramount Network Notes to Financial Statements For the Years Ended December 31, 1996 and 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 broad- cast television network. UPN was organized as a partnership in December 1994 between Network Partner and BHC Network Partner II, Inc. ("Network Partner II"), a wholly owned indirect subsidiary of BHC. BHC Network Partner III, Inc. ("Network Partner III"), a wholly owned indirect subsidiary of BHC, became a partner in 1996. PCI/NP had an option to acquire an interest in UPN equal to that of Network Partner, Network Partner II, and Network Partner III (collectively referred to as the "Partners"). The option price included approximately one-half of the Partners' aggregate cash contributions to UPN through the exercise date, plus interest, and additional cash available for ongoing UPN expenditures (see Note 7). UPN began providing programming for broadcast in January 1995. At December 31, 1996 and 1995, the Network had 164 affiliates reaching over 92% and 150 affiliates reaching over 90% of U.S. television households, respectively. The Network's revenues are derived entirely from providing television program- ming and are, therefore, subject to fluctuations in the advertising industry. Operating costs of the Network have been funded through capital contributions and loans made by the Partners and the sale of advertising. Profits or losses are allocated between the Partners in accordance with the partnership agree- ment. During the years ended December 31, 1996 and 1995, UPN incurred operating losses of $143,368,000 and $128,740,000 and negative cash flows from operations of $144,837,000 and $129,058,000, respectively. UPN is still in its early development and the cost of developing and expanding its program- ming is expected to remain significant for several years. The Partners intend to continue funding UPN 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, "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, there- fore, has been classified as non-current in the accompanying balance sheets. NOTE 2 (continued) Property and Equipment Property and equipment is recorded at cost. Depreciation of furniture, fixtures and computer equipment is computed on the straight-line method over the estimated useful lives of the assets which range from three to five years. Amortization of leasehold improvements is computed on a straight-line basis over the life of the lease. 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 sheets, 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., which is a subsidiary of Viacom Inc. (Note 1). Revenues are recognized substantially as advertisements 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 income tax benefit is included in the accompanying financial statements. Reclassifications Certain amounts for 1995 have been reclassified to conform to the 1996 presentation. NOTE 3 - Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following: (in thousands) December 31, 1996 1995 Accrued advertising costs $16,930 $ 6,215 Accrued compensation 3,453 2,388 Accrued sales commissions 1,807 1,395 Other accrued expenses 3,114 1,846 ------- ------- $25,304 $11,844 ======= ======= 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 1996 and 1995, the Partners made loans to UPN totalling $125,580,000 and $109,935,000, respectively. The related party balance as of December 31, 1995 of $109,941,000 includes accrued interest. The loans bore interest at the prime rate (8.25% and 8.50% at December 30, 1996 and December 31, 1995, respectively), payable annually. On December 30, 1996, all loans and accrued interest of $14,153,000 were converted to partnership equity. NOTE 6 - Commitments and Contingencies The aggregate amount payable by UPN under contracts for programming not currently available for telecasting and, accordingly, not included in accrued program costs in the accompanying balance sheets totalled approximately $71,000,000 and $62,000,000 at December 31, 1996 and 1995, respectively. During 1995, UPN entered into a five year lease obligation for its office space. The lease is noncancellable for three years and calls for certain penalty payments upon cancellation thereafter. Rental expense was $562,000 and $427,000 for the years ended December 31, 1996 and 1995, respectively. Aggregate future minimum lease payments at December 31, 1996 are $2,768,000, with amounts of $755,000 due in each of the years 1997 through 1999 and $503,000 due in 2000. Additionally, as required 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. NOTE 7 - Subsequent Events On January 15, 1997, PCI/NP completed its exercise of its option in accordance with the terms of the option agreement (Note 1) and became an equal partner with BHC in UPN. The net result of the exercise was an increase of approxi- mately $77 million of additional capital contributed to UPN by both the Partners and PCI/NP. Certain of the amounts contributed by PCI/NP were distributed to the Partners in accordance with the option agreement. 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-13 2 CONSOLIDATED STATEMENTS OF INCOME - ---------------------------------------------------------------------- BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
Year ended December 31, (In Thousands Except per Share Data) 1996 1995 1994 - -------------------------------------------------------------------------------------- OPERATING REVENUES $ 446,292 $ 454,702 $ 457,533 - -------------------------------------------------------------------------------------- OPERATING EXPENSES: Television expenses 217,928 214,223 232,635 Selling, general and administrative 121,216 121,900 111,916 - -------------------------------------------------------------------------------------- 339,144 336,123 344,551 - -------------------------------------------------------------------------------------- Operating income 107,148 118,579 112,982 - -------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest and other income 81,849 82,483 57,644 Equity in United Paramount Network loss (146,313) (129,303) (3,977) - -------------------------------------------------------------------------------------- (64,464) (46,820) 53,667 - -------------------------------------------------------------------------------------- Income before provision for income taxes and minority interest 42,684 71,759 166,649 PROVISION FOR INCOME TAXES 21,000 18,800 57,900 - -------------------------------------------------------------------------------------- Income before minority interest 21,684 52,959 108,749 MINORITY INTEREST 17,448 15,902 15,872 - -------------------------------------------------------------------------------------- Net income $ 4,236 $ 37,057 $ 92,877 ====================================================================================== NET INCOME PER SHARE $ .18 $ 1.51 $ 3.71 ====================================================================================== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 23,987 24,549 25,007 ======================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------- BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
December 31, (In Thousands of Dollars) 1996 1995 - ------------------------------------------------------------------------------ ASSETS Current Assets: Cash and cash equivalents $ 146,751 $ 72,179 Marketable securities (substantially all U.S. Government securities) 1,245,241 1,427,186 Accounts receivable, less allowance for doubtful accounts of $5,770 and $5,643 87,459 89,988 Film contract and prepaid broadcast rights 115,498 95,541 Prepaid expenses and other current assets 52,354 32,545 - ------------------------------------------------------------------------------ Total current assets 1,647,303 1,717,439 - ------------------------------------------------------------------------------ INVESTMENTS 45,550 7,938 - ------------------------------------------------------------------------------ FILM CONTRACT RIGHTS, including deposits, less estimated portion to be used within one year 28,536 50,361 - ------------------------------------------------------------------------------ PROPERTY AND EQUIPMENT, at cost: Land, buildings and improvements 41,289 36,626 Equipment 97,730 95,740 - ------------------------------------------------------------------------------ 139,019 132,366 Less-Accumulated depreciation 90,942 84,028 - ------------------------------------------------------------------------------ 48,077 48,338 - ------------------------------------------------------------------------------ INTANGIBLE ASSETS 313,079 323,752 - ------------------------------------------------------------------------------ OTHER ASSETS 14,718 11,182 - ------------------------------------------------------------------------------ $ 2,097,263 $ 2,159,010 ==============================================================================
December 31, 1996 1995 - ------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Film contracts payable within one year $ 97,222 $ 87,634 Accounts payable and accrued expenses 77,477 72,906 Income taxes payable 35,543 28,429 - ------------------------------------------------------------------------------ Total current liabilities 210,242 188,969 - ------------------------------------------------------------------------------ FILM CONTRACTS PAYABLE AFTER ONE YEAR 80,837 86,392 - ------------------------------------------------------------------------------ OTHER LONG-TERM LIABILITIES 5,424 6,504 - ------------------------------------------------------------------------------ MINORITY INTEREST 95,227 95,252 - ------------------------------------------------------------------------------ COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS' INVESTMENT: Class A common stock-par value $.01 per share; authorized 200,000,000 shares; outstanding 5,839,508 and 6,492,808 shares 58 65 Class B common stock-par value $.01 per share; authorized 200,000,000 shares; outstanding 18,000,000 shares 180 180 Retained earnings 1,710,323 1,779,560 Treasury stock-133,636 and 129,786 Class A common shares, at cost (6,677) (6,493) Increase to reflect marketable securities at market value 1,649 8,581 - ------------------------------------------------------------------------------ 1,705,533 1,781,893 - ------------------------------------------------------------------------------ $ 2,097,263 $ 2,159,010 ==============================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------- BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
Year ended December 31, (In Thousands of Dollars) 1996 1995 1994 - -------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,236 $ 37,057 $ 92,877 Adjustments to reconcile net income to net cash provided from operating activities: Film contract amortization 95,291 89,321 101,869 Film contract payments (90,802) (90,994) (117,928) Prepaid broadcast rights 5,252 4,249 8,166 Depreciation and other amortization 19,451 19,833 20,355 Equity in United Paramount Network loss 146,313 129,303 3,977 Minority interest 17,448 15,902 15,872 Other (2,315) 1,543 4,167 Changes in assets and liabilities: Accounts receivable 2,529 6,693 (11,305) Other assets 178 643 682 Accounts payable and other liabilities 1,193 5,728 4,932 Income taxes (4,859) (22,028) 4,996 - -------------------------------------------------------------------------------------- Net cash provided from operating activities 193,915 197,250 128,660 - -------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Disposition of marketable securities 1,067,658 697,079 1,097,409 Purchase of marketable securities (898,897) (811,540) (941,400) Investment in United Paramount Network (145,580) (128,585) (6,815) Other investments (39,173) (8,748) (377) Capital expenditures, net (9,870) (9,839) (8,242) Other (44) (34) (52) - -------------------------------------------------------------------------------------- Net cash provided from (used in) investing activities (25,906) (261,667) 140,523 - -------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (62,639) (30,504) (73,449) Capital transactions of subsidiary (30,798) (30,597) (8,904) Payment of special dividend - (24,504) - - -------------------------------------------------------------------------------------- Net cash used in financing activities (93,437) (85,605) (82,353) - -------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 74,572 (150,022) 186,830 Cash and Cash Equivalents at Beginning of Year 72,179 222,201 35,371 - -------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 146,751 $ 72,179 $ 222,201 ======================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS INVESTMENT - ---------------------------------------------------------------------- BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
Treasury Outstanding Shares Shares ------------------------ ----------- Class A Class B Class A Common Common Common - -------------------------------------------------------------------------------------- Balance at December 31, 1993 7,723,418 18,000,000 (122,991) Net income - - - Acquisition of treasury stock - - (845,900) Retirement of treasury stock (845,900) - 845,900 Capital transactions of subsidiary - - (2,039) Marketable securities valuation adjustment - - - - -------------------------------------------------------------------------------------- Balance at December 31, 1994 6,877,518 18,000,000 (125,030) Net income - - - Dividend on common stock - $1.00 per share - - - Acquisition of treasury stock - - (384,710) Retirement of treasury stock (384,710) - 384,710 Capital transactions of subsidiary - - (4,756) Marketable securities valuation adjustment - - - - -------------------------------------------------------------------------------------- Balance at December 31, 1995 6,492,808 18,000,000 (129,786) Net income - - - Acquisition of treasury stock - - (653,300) Retirement of treasury stock (653,300) - 653,300 Capital transactions of subsidiary - - (3,850) Marketable securities valuation adjustment - - - - -------------------------------------------------------------------------------------- Balance at December 31, 1996 5,839,508 18,000,000 (133,636) ====================================================================================== Dollar Amount (In Thousands) - -------------------------------------------------------------------------------------- Market Class A Class B Capital Retained Treasury Valuation Common Common Surplus Earnings Stock Account - -------------------------------------------------------------------------------------- $ 77 $ 180 $ 98,182 $1,686,532 $ (6,150) $ - - - - 92,877 - - - - - - (65,818) - (8) - (65,810) - 65,818 - - - (2,761) - (104) - - - - - - (13,131) - -------------------------------------------------------------------------------------- 69 180 29,611 1,779,409 (6,254) (13,131) - - - 37,057 - - - - - (24,604) - - - - - - (31,279) - (4) - (18,973) (12,302) 31,279 - - - (10,638) - (239) - - - - - - 21,712 - ------------------------------------------------------------------------------------- 65 180 - 1,779,560 (6,493) 8,581 - - - 4,236 - - - - - - (61,717) - (7) - - (61,710) 61,717 - - - - (11,763) (184) - - - - - - (6,932) - -------------------------------------------------------------------------------------- $ 58 $ 180 $ - $1,710,323 $ (6,677) $ 1,649 ======================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BHC COMMUNICATIONS, INC. AND SUBSIDIARIES Note 1 - ---------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (A) BUSINESS AND BASIS OF PRESENTATION BHC Communications, Inc. is a majority owned (75.9% at December 31, 1996 and 73.9% at December 31, 1995) 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 (59.0% at December 31, 1996 and 57.3% at December 31, 1995) United Television, Inc. (UTV), which operates five television stations. BHC accounts for its interest in the partnership that operates the United Paramount Network (UPN), a fifth broadcast network which premiered in January 1995, under the equity method. BHC recorded 100% of UPN's start-up losses from the network's 1994 inception through December 31, 1996, consistent with BHC's sole ownership of the partnership during that period. In January 1997, Viacom Inc. completed its acquisition of a 50% interest in the partnership, and future BHC operating results will accordingly reflect BHC's then pro rata interest in UPN. 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 1996 presentation. (B) FINANCIAL INSTRUMENTS Cash and cash equivalents totalled $146,751,000 at December 31, 1996 and $72,179,000 at December 31, 1995. 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. 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, 1996: U.S. Government securities $1,151,818 $ 884 $ 868 $1,151,834 Other 91,387 7,413 5,393 93,407 - ---------------------------------------------------------------------- $1,243,205 $ 8,297 $ 6,261 $1,245,241 ====================================================================== 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 ====================================================================== Of the U.S. Government securities held at December 31, 1996, 87% mature within one year and all within two years. Certain additional information related to BHC's marketable securities as of and for the years ended December 31, 1996, 1995 and 1994 is as follows: (In Thousands) 1996 1995 1994 - ---------------------------------------------------------------------- Sales proceeds $ 1,067,658 $ 697,079 $ 1,097,409 Realized gains 3,909 2,356 1,193 Realized losses 466 4,690 7,734 Net unrealized gain (loss) 2,036 13,721 (25,078) Adjustment for unrealized gain (loss), net of deferred income taxes and minority interest $ 1,649 $ 8,581 $ (13,131) For purposes of computing gains and losses, cost was determined using the specific identification method. (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, 1996. 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, 1996 are $48,755,000, $23,967,000, $5,869,000 and $2,246,000 in 1998, 1999, 2000 and thereafter, respectively. The net present value at December 31, 1996 of such payments, based on an 8.5% discount rate, was approximately $68,000,000. See Note 7. (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 $56,653,000 at December 31, 1996 and $47,333,000 at December 31, 1995. (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 $40,853,000 in 1996, $46,039,000 in 1995 and $47,201,000 in 1994. Barter expense in each year approximated barter revenue. (G) STOCK-BASED COMPENSATION BHC itself has no stock-based employee compensation plan, but UTV has stock option plans under which options to purchase shares of UTV common stock may be granted to UTV and BHC employees and to UTV directors. UTV has adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). This statement encourages but does not require the recording of compensation cost for stock-based employee compensation plans at fair value. UTV has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees . If UTV had elected to recognize compensation expense based upon the fair value at the grant date for awards under its plans, using the methodology prescribed by SFAS 123, BHC net income would have been reduced by $369,000, or $.02 per share, in 1996 and by $281,000, or $.01 per share, in 1995. Such pro forma amounts are based on fair value estimates using the Black-Scholes option pricing model, and may not be representative of the pro forma effect on net income in future years, since the estimated fair value of stock options is amortized over the vesting period, pro forma compensation expense related to grants made prior to 1995 is not considered and additional options may be granted in future years. (H) SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for income taxes totalled $29,000,000 in 1996, $46,300,000 in 1995 and $52,900,000 in 1994. 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 owned 100% of UPN from its inception through January 15, 1997, when Viacom completed the exercise of its option to acquire a 50% interest in UPN. The option price included approximately one-half of BHC's aggregate cash contributions to UPN through the exercise date, plus interest, and additional cash available for ongoing UPN expenditures. UPN distributed approximately $116,000,000 to BHC pursuant to the option exercise, and BHC realized a pretax gain on the exercise of approximately $150,000,000, which will be recorded in the first quarter of 1997. BHC and Viacom now share equally in UPN funding requirements and in UPN losses. UPN has been organized as a partnership, and BHC accounts for its partnership interest under the equity method. The carrying value of such interest, which reflects BHC funding of $145,580,000 in 1996 and $128,585,000 in 1995, less BHC's then 100% interest in UPN losses in those years, totalled $1,394,000 at December 31, 1996 and $2,127,000 at December 31, 1995, and is included in Other Assets on the accompanying Consolidated Balance Sheets. UPN is still in its early development and is expected to continue to incur significant start-up losses and to require significant funding for the next several years. However, BHC believes that the substantial portion of its share of such funding requirements in 1997 and 1998 will be offset by the proceeds of the Viacom option exercise. Condensed consolidated financial statements of UPN as of and for the years ended December 31, 1996 and 1995 are as follows: (In Thousands) 1996 1995 - ---------------------------------------------------------------------- BALANCE SHEETS Current assets $ 43,831 $ 22,616 Property and equipment, net 915 1,225 Other assets 4,147 3,941 - ---------------------------------------------------------------------- $ 48,893 $ 27,782 ====================================================================== Current liabilities $ 47,499 $ 25,655 Advances and interest due BHC - 109,941 Partners capital (deficit) 1,394 (107,814) - ---------------------------------------------------------------------- $ 48,893 $ 27,782 ====================================================================== - ---------------------------------------------------------------------- STATEMENTS OF OPERATIONS Operating revenues* $ 56,948 $ 30,376 Operating expenses* 200,316 159,116 - ---------------------------------------------------------------------- Operating loss (143,368) (128,740) Other expenses, net (2,945) (563) - ---------------------------------------------------------------------- Loss before interest on BHC advances (146,313) (129,303) Interest on BHC advances (eliminated in consolidation) (14,147) (4,535) - ---------------------------------------------------------------------- Net loss $ (160,460) $ (133,838) ====================================================================== * With respect to certain of its programming, UPN derives no revenue and incurs no programming expense. Note 3 - ---------------------------------------------------------------------- ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consist of the following: December 31, (In Thousands) 1996 1995 - ---------------------------------------------------------------------- Accounts payable $ 9,530 $ 9,114 Payable for securities purchased 101 1,023 Accrued expenses- Deferred barter revenue 33,896 29,660 Payroll and compensation 18,053 16,992 Other 15,897 16,117 - ---------------------------------------------------------------------- $ 77,477 $ 72,906 ====================================================================== Note 4 - ---------------------------------------------------------------------- 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 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, 1996, BHC purchased 5,567,687 shares of its Class A common stock at an aggregate cost of $358,213,000. Chris-Craft's ownership interest in BHC during that period accordingly increased to 75.9% (representing 97.0% of BHC's voting power) from 60%. At December 31, 1996, 1,232,313 Class A common shares were 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 $32,810,000 in 1996, $30,449,000 in 1995 and $9,901,000 in 1994, net of proceeds to UTV of $4,008,000 in 1996, $2,009,000 in 1995 and $997,000 in 1994 from the exercise of stock options and UTV dividend payments of $4,750,000 in 1996 and $4,911,000 in 1995, adjusted for intercompany eliminations and minority interest. Note 5 - ---------------------------------------------------------------------- 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 $3,094,000 in 1996, $3,096,000 in 1995, and $2,021,000 in 1994. 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, including amounts accrued in the nonqualified plans, was as follows: December 31, (In Thousands) 1996 1995 - ---------------------------------------------------------------------- Actuarial present value of: Vested benefit obligation $ (30,376) $ (26,210) Nonvested benefit obligation (1,789) (1,932) - ---------------------------------------------------------------------- Accumulated benefit obligation (32,165) (28,142) Effect of projected compensation increases (12,173) (11,513) - ---------------------------------------------------------------------- Projected benefit obligation (44,338) (39,655) Fair value of plan assets (primarily listed securities and temporary investments) 29,144 24,366 - ---------------------------------------------------------------------- Excess (15,194) (15,289) Unrecognized net asset at date of initial application of SFAS No. 87, being amortized over 15 years (184) (234) Unrecognized net (gain) loss from past experience being amortized over 15 years (580) 2,090 - ---------------------------------------------------------------------- Pension liability $ (15,958) $ (13,433) ====================================================================== 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 $4,656,000 in 1996, $6,307,000 in 1995 and $4,877,000 in 1994. Note 6 - ---------------------------------------------------------------------- INCOME TAXES: Income taxes are provided in the accompanying Consolidated Statements of Income as follows: Year ended December 31, (In Thousands) 1996 1995 1994 - ---------------------------------------------------------------------- Current: Federal $ 22,500 $ 23,300 $ 48,625 State 5,800 (13,700) (8,600) - ---------------------------------------------------------------------- 28,300 9,600 40,025 - ---------------------------------------------------------------------- Deferred: Federal (7,500) 8,200 16,275 State 200 1,000 1,600 - ---------------------------------------------------------------------- (7,300) 9,200 17,875 - ---------------------------------------------------------------------- $ 21,000 $ 18,800 $ 57,900 ====================================================================== Following the favorable resolution of routine audits in 1995 and 1994, state income taxes in those years 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: Year ended December 31, (In Thousands) 1996 1995 1994 - ---------------------------------------------------------------------- Taxes at federal statutory rate $ 14,940 $ 25,115 $ 58,327 State income taxes, net 3,933 (8,223) (4,559) Amortization of intangible assets 3,151 3,151 3,151 Dividend exclusion (768) (764) (447) Other (256) (479) 1,428 - ---------------------------------------------------------------------- $ 21,000 $ 18,800 $ 57,900 ====================================================================== 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) 1996 1995 - ---------------------------------------------------------------------- Accrued liabilities not deductible until paid $ 10,238 $ 9,678 Film contract rights 6,407 3,974 Investments 7,243 4,117 Other 418 52 - ---------------------------------------------------------------------- Deferred tax assets 24,306 17,821 - ---------------------------------------------------------------------- Property and equipment (2,729) (3,143) SFAS 115 adjustment (668) (4,871) Other (689) (823) - ---------------------------------------------------------------------- Deferred tax liabilities (4,086) (8,837) - ---------------------------------------------------------------------- Net deferred tax assets $ 20,220 $ 8,984 ====================================================================== Note 7 - ---------------------------------------------------------------------- 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 Sheets, totalled $177,800,000 at December 31, 1996 (including $59,000,000 applicable to UTV). BHC expects 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 will not have a material effect on BHC's consolidated financial position or results of operations. Note 8 - ---------------------------------------------------------------------- RELATED PARTY TRANSACTIONS: Included in selling, general and administrative expenses are management fees BHC paid Chris-Craft of $8,000,000 in 1996, $8,000,000 in 1995 and $11,000,000 in 1994, and management and directors fees UTV paid Chris-Craft totalling $570,000 in each of the three years. REPORT OF INDEPENDENT ACCOUNTANTS - ---------------------------------------------------------------------- February 13, 1997 PRICE WATERHOUSE LLP 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, 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. SELECTED FINANCIAL DATA - ---------------------------------------------------------------------- BHC COMMUNICATIONS, INC. AND SUBSIDIARIES
As of and for the Year Ended December 31, (In Thousands of Dollars Except per Share Data) 1996 1995 1994 1993 1992 Operating revenues $ 446,292 $ 454,702 $ 457,533 $ 411,999 $ 307,883 Operating income $ 107,148 $ 118,579 $ 112,982 $ 79,262 $ 22,362 Interest and other income 81,849 82,483 57,644 55,340 36,374 Equity in United Paramount Network loss (146,313) (129,303) (3,977) - - Income associated with Time Warner Inc. securities - - - 256,622 94,059 Income taxes (21,000) (18,800) (57,900) (146,900) (36,100) Minority interest (17,448) (15,902) (15,872) (20,038) (7,400) Net income $ 4,236 $ 37,057 $ 92,877 $ 224,286 $ 109,295 Net income per share $ .18 $ 1.51 $ 3.71 $ 8.67 $ 4.09 Cash dividends declared per share - 1.00 - - 2.00 Cash and current marketable securities 1,391,992 1,499,365 1,496,445 1,506,529 966,582 Film contract rights 144,034 145,902 148,473 186,079 187,518 Investments and noncurrent marketable securities 45,550 7,938 - - 450,022 Total assets 2,097,263 2,159,010 2,188,463 2,241,538 2,135,038 Long-term debt - - - - - Shareholders investment 1,705,533 1,781,893 1,789,884 1,778,821 1,590,448 Book value per share $ 71.95 $ 73.14 $ 72.31 $ 69.49 $ 61.05
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, 1997, there were 6,607 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 - ---------------------------------------------------------------------- 1996 High 95 1/2 100 98 1/4 103 3/8 Low 89 93 1/8 91 1/2 97 - ---------------------------------------------------------------------- 1995 High 75 3/4 81 1/4 93 1/4 95 Low 71 7/8 71 3/4 80 88 1/2 - ---------------------------------------------------------------------- BHC paid special cash dividends of $1.00 per share in February 1997 and in April 1995. BHC plans to consider annually the payment of a special dividend. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - ---------------------------------------------------------------------- BHC COMMUNICATIONS, INC. & SUBSIDIARIES
(In Thousands of Dollars First Second Third Fourth Except per Share Data) Quarter Quarter Quarter Quarter Year - -------------------------------------------------------------------------------------- Year Ended December 31, 1996 Operating revenues $101,045 $120,920 $107,125 $117,202 $446,292 Operating income 19,193 36,601 26,695 24,659 107,148 Equity in United Paramount Network loss (32,754) (34,990) (38,909) (39,660) (146,313) Income before income taxes and minority interest 8,921 21,632 6,698 5,433 42,684 Net income (loss) 1,078 5,669 (1,444) (1,067) 4,236 Net income (loss) per share $ .04 $ .24 $ (.06) $ (.04) $ .18 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ---------------------------------------------------------------------- BHC COMMUNICATIONS, INC. AND SUBSIDIARIES Liquidity and Capital Resources BHC's financial position is strong and highly liquid. Cash and marketable securities totalled $1.39 billion at December 31, 1996, and BHC has no debt outstanding. BHC expended significant funds in 1996 and 1995 to develop the United Paramount Network, but cash flow provided from BHC's operating activities has substantially exceeded BHC's UPN funding since the network's January 1995 launch. BHC believes that the substantial portion of its share of such funding requirements for 1997 and 1998 will be offset by the proceeds of the Viacom option exercise, described below. 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 (amortization exceeded payments by $4.5 million in 1996, and payments exceeded amortization by $1.7 million in 1995), and is dependent upon the mix of programs aired and payment terms of the stations contracts. Reflecting such $6.2 million variance between 1996 and 1995, broadcast cash flow in 1996 declined only 10% from 1995's record amount, while station earnings declined 14%, as explained below. 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, which totalled $1.39 billion at December 31, 1996, compared to $1.50 billion at December 31, 1995. While operating cash flow totalled $193.9 million in 1996, only slightly below 1995's $197.3 million, cash and marketable securities declined $107.4 million, primarily reflecting UPN funding of $145.6 million, treasury stock purchases of $62.6 million by BHC and $32.8 million by UTV, and other investment funding of $39.2 million. 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. In January 1997, BHC declared a special cash dividend of $1.00 per share, aggregating $23.6 million, which was paid in February 1997. BHC plans to consider annually the payment of a special dividend. 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, 1996, 5,567,687 shares were purchased for a total cost of $358.2 million, including $61.7 million in 1996. From 1993 through December 31, 1996, UTV purchased 1,355,276 of its common shares at an aggregate cost of $84.3 million, and at December 31, 1996, 828,749 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 owned 100% of UPN from its inception through January 15, 1997, when Viacom completed the exercise of its option to acquire a 50% interest in UPN. The option price included approximately one-half of BHC's aggregate cash contributions to UPN through the exercise date, plus interest, and additional cash available for ongoing UPN expenditures. UPN distributed approximately $116 million to BHC following the closing, and BHC realized a pretax gain of approximately $150 million on the transaction, which will be recorded in the first quarter of 1997. BHC and Viacom will now share equally in UPN losses and funding requirements. BHC funding of UPN totalled $145.6 million in 1996 and $128.6 million in 1995. UPN is still in its early development, and is expected for the next several years to continue to incur substantial start-up losses and to require significant funding. However, BHC believes that the substantial portion of its share of such funding requirements for 1997 and 1998 will be offset by the proceeds of the Viacom option exercise. BHC's television stations make commitments for programming that will not be available for telecasting until future dates. At December 31, 1996, commitments for such programming totalled approximately $177.8 million, including $59.0 million applicable to UTV. BHC also has a remaining commitment to invest over time up to $30.6 million, including $19.8 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, 1996 (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. RESULTS OF OPERATIONS 1996 VERSUS 1995 BHC 1996 net income declined to $4,236,000, or $.18 per share, from 1995 net income of $37,057,000, or $1.51 per share. UPN start-up losses increased, as expected, and earnings at BHC's core television station group declined from 1995's record level. Television station revenues declined 3% in 1996, to $437,287,000 from $450,239,000 in 1995, reflecting lackluster advertising demand and lower share in several key markets. BHC in recent years determined not to acquire certain expensive and popular syndicated programs at several stations because their high prices appear to make acceptable profit unlikely. Accordingly, certain revenues have been foregone, reducing market share at those stations, but BHC believes those decisions promote the overall profitability of its station group. Station programming expenses rose only 5% in 1996, and all other station expenses declined 1%. Total station income was the third highest in BHC history, but declined 14% to $130,450,000 from 1995 s record $151,382,000. BHC operating income declined only 10% in 1996, to $107,148,000 from $118,579,000, reflecting improved results at BHC's television production subsidiaries, as well as the recording in 1995 of one-time expenses totalling approximately $3,700,000 incurred in establishing a national sales representation subsidiary. Interest and other income totalled $81,849,000 in 1996, compared to $82,483,000 in 1995. This income consists mostly of amounts earned on BHC's cash and marketable securities holdings. BHC's equity in UPN start-up losses increased, as expected, to $146,313,000 in 1996 from $129,303,000 in 1995. The increase primarily reflects the expansion in 1996 of the network's prime time schedule from two to three weekday evenings. BHC recorded 100% of UPN's losses in 1996 and 1995, consistent with its sole ownership of the network during those years. As described above, Viacom has completed its acquisition of a 50% interest in UPN, and BHC will record its then pro rata interest in future BHC losses. UPN is still in its early development and is expected for the next several years to continue to incur substantial start-up losses. Minority interest reflects the interest of shareholders other than BHC in the net income of UTV, 59.0% owned at December 31, 1996 and 57.3% owned at December 31, 1995. Earnings per share amounts vary favorably to related dollar amounts, reflecting the reduction in average common shares outstanding, resulting from open market purchases by BHC of its Class A common shares. 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. Television station earnings rose to $151,382,000, just above 1994 s then 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. 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 $8,500,000 in program development expenses and Chris-Craft management fee expense. Operating income would have risen even further except for one-time expenses of approximately $3,700,000 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. 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 an increase in BHC's ownership of UTV from 55.2% at December 31, 1994 to 57.3% at December 31, 1995. EX-21 3 Exhibit 21 The following were the registrant's subsidiaries as of December 31, 1996, 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 BHC Network Partner III, 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 United Television Sales, Inc. Delaware EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10K DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1000 U.S. Dollars 12-MOS DEC-31-1996 DEC-31-1996 1 146751 1245241 93229 5770 0 1647303 139019 90942 2097263 210242 0 0 0 238 1705295 2097263 0 446292 0 339144 0 0 0 42684 21000 4236 0 0 0 4236 .18 0
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