-----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, Q8bfi8rnrot8FhR27xRIXQxGZXBrIHQXiD/+E2jbrunyA4Wx6P49A1udsET0G1zB xiMM2u+ZRqpac0/aDi76Jg== 0001005150-96-000316.txt : 19960906 0001005150-96-000316.hdr.sgml : 19960906 ACCESSION NUMBER: 0001005150-96-000316 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960509 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960905 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SINCLAIR BROADCAST GROUP INC CENTRAL INDEX KEY: 0000912752 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 521494660 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26076 FILM NUMBER: 96626231 BUSINESS ADDRESS: STREET 1: 2000 WEST 41ST ST CITY: BALTIMORE STATE: MD ZIP: 21211 BUSINESS PHONE: 4104675005 MAIL ADDRESS: STREET 1: 2000 W 41ST ST CITY: BALTIMORE STATE: MD ZIP: 21211 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 May 9, 1996 ---------------------------- (Date of earliest event reported) SINCLAIR BROADCAST GROUP, INC. (Exact name of Registrant as specified in its charter) Maryland 000-26076 52-1494660 (State of incorporation) (Commission File Number) (IRS Employer Identification Number) 2000 W. 41st Street, Baltimore, Maryland 21211-1420 --------------------------------------------------- (Address of principal executive offices)(Zip code) Registrant's telephone number, including area code: (410) 467-5005 -------------- Item 2. Acquisition or Disposition of Assets. In its original filing on Form 8-K, the Company reported as pending the acquisition of certain assets from (as previously amended) Kansas City TV 62 Limited Partnership ("KSMO"), Cincinnati TV 64 Limited Partnership ("WSTR") and River City Broadcasting ("RCB"). The Company completed the acquisition of assets from RCB on May 31, 1996, and entered into an Amended and Restated Asset Purchase Agreement, a Group I Option and a Columbus Option reflecting certain amendments, as described in the original filing, to the original agreements. The Company completed the acquisition of KSMO on July 1, 1996 and completed the acquisition of WSTR on August 1, 1996. ITEM 7. Financial Statements and Exhibits. (a) Financial statements of businesses acquired. The following financial statements are filed with this report: *KANSAS CITY TV 62 LIMITED PARTNERSHIP Balance Sheet as of June 30, 1996 Statements of Operations for the Three and Six Months Ended June 30, 1995 and June 30, 1996 Statement of Cash Flows for the Six Months Ended June 30, 1995 and June 30, 1996 Notes to Financial Statements *CINCINNATI TV 64 LIMITED PARTNERSHIP Balance Sheet as of June 30, 1996 Statements of Operations for the Three and Six Months Ended June 30, 1995 and June 30, 1996 Statement of Cash Flows for the Six Months Ended June 30, 1995 and June 30, 1996 Notes to Financial Statements Financial statements of businesses acquired (previously filed as amended herein) *SUPERIOR COMMUNICATIONS GROUP, INC. Independent Auditors Report Consolidated Balance Sheets as of December 31, 1995 and December 31, 1994 Consolidated Statements of Operations for the Years Ended December 31, 1995 and December 31, 1994 Consolidated Statements of Stockholder's Equity for the Years Ended December 31, 1995 and December 31, 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and December 31, 1994 Notes to Consolidated Financial Statements *PARAMOUNT STATIONS GROUP OF KERVILLE, INC. Report of Independent Public Accountants Consolidated Balance sheets as of August 3, 1995 and December 31, 1994 Consolidated Statements of Operations for the period from January 1, 1995 through August 3, 1995 and the Year Ended December 31, 1994 Consolidated Statements of Stockholders' Equity for the Period from January 1, 1995 through August 3, 1995 and the Year Ended December 31, 1994 Consolidated Statements of Cash Flows for the Period from January 1, 1995 through August 3, 1995 and the Year Ended December 31, 1994 Notes to Consolidated Financial Statements *KRRT, Inc. Report of Independent Public Accountants Balance Sheet as of December 31, 1995 Statement of Operations for the Period from July, 25 1995 through December 31, 1995 Statements of Changes in Stockholders' Equity for the Period from July 25, 1995 through December 31, 1995 Statements of Cash Flows for the Period from July 25, 1995 through December 31, 1995 Notes to Financial Statements *RIVER CITY BROADCASTING L.P. Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1994 and December 31, 1995 Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 Consolidated Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1993, 1994 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 Notes to Consolidated Financial Statements Supplementary Information-Consolidating Balance Sheet as of December 31, 1995 Supplementary Information-Consolidating Schedule of Operations for the Year Ended December 31, 1995 KANSAS CITY TV 62 LIMITED PARTNERSHIP Report of Independent Accountants Balance Sheets as of December 31, 1995 and December 31, 1994 Statements of Operations for the Years Ended December 31, 1995 and December 31, 1994 Statements of Cash Flows for the Years Ended December 31, 1995 and December 31, 1994 Statements of Changes is Partners' Capital for the Years Ended December 31, 1995 and December 31, 1994 Notes to Financial Statements CINCINNATI TV 64 LIMITED PARTNERSHIP Report of Independent Accountants Balance Sheets as of December 31, 1995 and December 31, 1994 Statements of Operations for the Years Ended December 31, 1995 and December 31, 1994 Statements of Changes in Partners' Capital for the Years Ended December 31, 1995 and December 31, 1994 Statements of Cash Flows for the Years Ended December 31, 1995 and December 31, 1994 Notes to Financial Statements (b) Pro forma financial information Pro forma financial statements as of June 30, 1996 and for the six months ended June 30, 1996 and the year ended December 31, 1995 are filed with this report. (c) Exhibits 10.71 Amended and Restated Asset Purchase Agreement dated as of May 31, 1996 by and between River City Broadcasting, L.P. and Sinclair Broadcast Group, Inc.* 10.72 Group I Option Agreement dated as of May 31, 1996 by and among River City Broadcasting, L.P., River City License Partnership and Sinclair Broadcast Group, Inc.* 10.73 Columbus Option dated as of May 31, 1996 by and among River City Broadcasting, L.P., River City License Partnership and Sinclair Broadcast Group, Inc.* - ---------- * Previously Filed Report of Independent Accountants March 22, 1996 To the Partners of Kansas City TV 62 Limited Partnership In our opinion, the accompanying balance sheet and the related statements of operations, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of Kansas City TV 62 Limited Partnership at December 31, 1995 and 1994, 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 the Partnership'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. Price Waterhouse LLP Kansas City TV 62 Limited Partnership Balance Sheet - --------------------------------------------------------------------------------
December 31, 1995 1994 (in thousands) Assets Current assets: Cash and cash equivalents $ 590 $ 978 Accounts receivable, less allowance for doubtful accounts of $236 and $122 in 1995 and in 1994 3,953 3,052 Broadcast rights 3,380 2,864 Prepaid expenses 21 16 ----- ----- Total current assets 7,944 6,910 Property and equipment - net 734 1,305 Broadcast rights 3,286 3,305 Goodwill and other intangible assets 3,817 4,027 ----- ----- $ 15,781 $ 15,547 ====== ====== Liabilities and Partners' Capital Current liabilities: Current portion of long-term debt $ 6,998 $ 338 Subordinated note payable to Seller 7,816 - Accounts payable and accrued expenses 1,578 1,714 Interest payable 733 1,943 Due to related parties - 40 Broadcast rights payable 4,020 3,837 ----- ----- Total current liabilities 21,145 7,872 Broadcast rights payable 3,107 3,569 Long-term debt - 9,273 Subordinated note payable to Seller 921 7,730 Partners' capital (9,392) (12,897) Commitments and contingencies (Note 8) ------ ------ $ 15,781 $ 15,547 ======== ========
The accompanying notes are an integral part of these financial statements. Kansas City TV 62 Limited Partnership Statement of Operations - ------------------------------------------------------------------------------- Year ended December 31, 1995 1994 (in thousands) Revenues - net of agency and national representative commissions $ 17,484 $ 14,052 Costs and expenses: Programming, production and engineering 3,347 4,533 Amortization of broadcast rights 4,007 4,581 Sales, promotion and marketing 2,476 2,716 General and administrative 1,898 1,834 Depreciation and amortization 842 805 Interest expense, net 2,039 1,983 Other income (630) - ------------ ------------ Net income (loss) $ 3,505 $ (2,400) =========== =========== The accompanying notes are an integral part of these financial statements. Kansas City TV 62 Limited Partnership Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents - --------------------------------------------------------------------------------
Year ended December 31, 1995 1994 (in thousands) Cash flows from operating activities: Net income (loss) $ 3,505 $ (2,400) Adjustments to reconcile net income (loss) to net cash provided (used) for operating activities: Depreciation 632 595 Amortization of goodwill and other intangible assets 210 210 Amortization of broadcast rights, net of barter 1,206 2,122 Accretion of subordinated debt principal 210 197 Gain on forgiveness of debt (398) - Increase in accounts receivable (901) (655) Increase in prepaid expenses (5) (6) Decrease in accounts payable and accrued expenses 262 (396) (Decrease) increase in interest payable (413) 1,806 Decrease in due to related parties (40) (236) Decrease in broadcast rights payable, net of barter (1,982) (1,745) ------------ ------------ Net cash provided (used) for operating activities 2,286 (508) ------------ ------------ Cash flows from investing activities: Additions to property and equipment (61) (35) ------------ ------------ Cash flows from financing activities: Repayment of long-term debt (2,613) - Partner's contribution of capital - 1,400 ------------ ----------- Net cash (used) provided by financing activities (2,613) 1,400 ------------ ---------- Net (decrease) increase in cash (388) 857 Cash and cash equivalents at beginning of year 978 121 ------------ ---------- Cash and cash equivalents at end of year $ 590 $ 978 ============ =========== Supplemental schedule of noncash activities: Film contracts acquired $ 4,055 $ 2,834 =========== =========== Film contract liability additions $ 4,055 $ 2,834 =========== =========== Capitalized subordinated debt interest $ 797 $ 884 =========== ===========
The accompanying notes are an integral part of these financial statements. Kansas City TV 62 Limited Partnership Statement of Changes in Partners' Capital For the Years Ended December 31, 1995 and 1994 - -------------------------------------------------------------------------------
General Limited Partner Partner Total (in thousands) Balance at December 31, 1993 $ (11,897) - $ (11,897) Capital contribution 1,400 - 1,400 Net loss for the year ended December 31, 1994 (2,400) - (2,400) ---------- --------- ---------- Balance at December 31, 1994 $ (12,897) $ - $ (12,897) Net income for the year ended December 31, 1995 3,505 - 3,505 ------------- --------- --------- Balance at December 31, 1995 $ (9,392) $ - $ (9,392) ========= ========= ==========
The accompanying notes are an integral part of these financial statements. Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - ------------------------------------------------------------------------------- 1. Organization Kansas City TV 62 Limited Partnership (the "Partnership") is a joint venture of ABRY Communications III, L.P., the general partner, and Copley Place Capital Group, the limited partner. The Partnership was organized under the laws of the State of Delaware on April 18, 1990. On September 21, 1990 the Partnership acquired the business and certain assets of Kansas City Television, Inc. (the "Seller"). The Partnership is a television broadcaster serving the Kansas City area through station KSMO on UHF Channel 62. 2. Summary of Significant Accounting Policies Allocation of Partnership Results to Partners' Capital Accounts Net losses of the Partnership are allocated among the capital accounts of the partners based on their relative partnership interests until the limited partner's capital has been exhausted. Thereafter, net losses are allocated solely to the general partner. Net income is allocated in proportion to previously allocated net losses in reverse chronological order. Thereafter, net income is allocated to partners based on their relative partnership interests, as defined in the agreement. Broadcast Rights Broadcast rights are stated at the lower of unamortized cost or estimated net realizable value. Broadcast rights and the related liabilities are recorded at the contract value when the license period begins and the right is available for use. Broadcast rights are amortized using the straight-line method over the number of showings or license period. The net realizable value of broadcast rights for which the Partnership is contractually committed is reviewed annually and revisions to amortization rates or write-downs to net realizable value may occur. The current portion of broadcast rights represents those rights available for broadcast which will be amortized in the succeeding year. Property and Equipment Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets on a straight-line basis. Major renewals and betterments are capitalized and ordinary repairs and maintenance are charged to expense in the period incurred. Goodwill and Other Intangible Assets Goodwill aggregating $4,144 is amortized over 40 years using the straight-line method. Legal and accounting fees associated with the acquisition of loans, aggregating $555 and organization of the Partnership, aggregating $59 are capitalized and amortized over the term of the related debt and five years, respectively. Other intangible assets, aggregating $119 are amortized over their estimated useful life. At December 31, 1995 and 1994, accumulated amortization aggregated $1,060 and $850, respectively. Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - ------------------------------------------------------------------------------- Barter Transactions Revenue from barter transactions is recognized when advertisements are broadcast and services or merchandise received are charged to expense when received or used. Revenues arising from barter and trade transactions aggregated $2,907 and $2,654 in 1995 and 1994, respectively. Income Taxes The financial statements of the Partnership do not include any provision for federal or state income taxes. All Partnership income, losses, tax credits and deductions are allocated among the partners. Each partner is responsible to report its distributed share of Partnership results in its federal and state income tax returns. Cash and Cash Equivalents The Partnership considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. The Partnership invests its cash in money market funds and in short-term government securities that are subject to minimal market and credit risk. At December 31, 1995, the Partnership's cash equivalents include $544 of money market funds. Effective January 1, 1994, the Partnership adopted Statement of Financial Accounting Standards No. 115 (FAS 115), "Accounting for Certain Investments in Debt and Equity Securities". Under this standard, the Partnership is required to classify its investments in debt and equity securities into one or more of the following categories: held-to-maturity, trading or available for sale. Adoption of this standard had no impact on the Partnership's financial position or results of operations at the date of adoption. Concentration of Credit Risk Financial instruments which potentially expose the Partnership to a concentration of credit risk include cash, cash equivalents and accounts receivable. A significant amount of the Partnership's cash and cash equivalents are held by one financial institution at December 31, 1995. The Partnership does not believe that such deposits are subject to any unusual credit risk beyond the normal credit risk associated with operating its business. The Partnership maintains reserves for potential credit losses and such losses, in the aggregate, have not historically exceeded management's expectations. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - ------------------------------------------------------------------------------- 3. Related Party Transactions Prior to 1995, ABRY Communications III, L.P., provided certain administrative and support services to the Partnership for which it was paid a management fee. Management fees charged to operations aggregated $276 in 1994. No management fees were charged during 1995. 3 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - -------------------------------------------------------------------------------- 4. Property and Equipment Property and equipment consists of the following:
Estimated useful life December 31, (years) 1995 1994 Studio equipment 2-7 $ 1,855 $ 1,824 Transmission equipment 7-8 1,206 1,184 Vehicles, office equipment and furniture 5-7 396 388 Leasehold improvements 8 297 297 ------------ ------------ 3,754 3,693 Less - accumulated depreciation and amortization 3,020 2,388 ------------ ------------ $ 734 $ 1,305 ============ ============ 5. Broadcast Rights The Partnership purchases the right to broadcast programs through fixed term license agreements. Broadcast rights consist of the following: December 31, 1995 1994 Aggregate cost $ 16,564 $14,350 Less - accumulated amortization 9,898 8,181 ------------ ----------- 6,666 6,169 Less - current portion 3,380 2,864 ------------ ----------- $ 3,286 $ 3,305 ============ ===========
4 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - -------------------------------------------------------------------------------- Contractual obligations incurred in connection with the acquisition of broadcast rights are $7,127 including $3,742 of barter obligations. Future payments in connection with these contractual obligations are as follows at December 31, 1995: 1996 $ 4,058 1997 1,776 1998 1,064 1999 169 2000 23 Thereafter 37 ------------ $ 7,127 ========== The Partnership has estimated the fair value of these contractual obligations at approximately $6,800 and $6,776 at December 31, 1995 and 1994, respectively, based on future cash flows discounted at the Partnership's current borrowing rate. 6. Debt Debt consists of the following: December 31, 1995 1994 Term loan $ 1,455 $ 2,133 Revolving credit facility 5,543 7,478 ---------- -------- 6,998 9,611 Less - current portion 6,998 338 --------- -------- $ - $ 9,273 ========= ======== The term loan and revolving credit facility (the "revolver") bear interest, payable monthly, at the base rate, computed by taking the higher of the Federal Funds rate plus 1% or prime, plus a computed margin rate which ranges from 1.75% to 2.25%. The Partnership is charged a fee for the average daily unused portion of the revolver commitment at a rate of 1/2% per annum, payable quarterly. The borrowings are secured by substantially all of the Partnership's assets. The credit agreement was amended on April 21, 1995. Under the terms of the amended credit agreement, the principle amount of the term loan is payable in quarterly installments of varying amounts commencing October 1, 1995. The revolver was increased to $8,500 and will be reduced on a quarterly basis commencing April 1, 1997, until no credit facility is available at October 1, 1998. 5 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - -------------------------------------------------------------------------------- In addition to the scheduled principal and interest payments, the lender may be entitled to contingent interest payable upon early repayment of the term loan, a change in control of the Partnership or upon the occurrence of certain other events as defined in the agreement. The amount of contingent interest which will be due is determined by a formula which considers appreciation in the value of the Partnership. Based upon management's estimate of appreciation in the value of the Partnership, no accrual for contingent interest has been recorded at December 31, 1995 and 1994. The subordinated note payable to Seller is subordinated to the Partnership's term loan and revolver borrowings. The principal amount of the subordinated note payable to Seller is payable in a lump sum on September 21, 1998. Interest on the outstanding principal accrues at the rate of 10% and is payable annually. For financial reporting purposes, however, interest on the note accrues at an implicit rate of 14% per annum, and the note's original stated principal of $8 million has been discounted to reflect this yield. In January 1996, a third-party exercised its option to purchase the station (Note 9). Accordingly, all long-term debt is classified as current at December 31, 1995. In March 1996, certain subordinated note holders agreed to extend the term of their notes through October 1999 and forgave interest for the five-year period then ended. Accordingly, all subordinated debt, excluding the extended portion, is classified as current at December 31, 1995. In 1994, certain subordinated note holders forgave $680 of the subordinated note, $157 of capitalized interest and $62 of accrued interest. In consideration of the debt forgiveness, the Partnership and a related party signed a network affiliation agreement with one note holder and licensed certain programs from the other note holder. Under the terms of the affiliation agreement, the Partnership and the related party must broadcast network programming over the three-year term of the network affiliation agreement. Under the terms of the license agreement, the related party must broadcast certain programs over the one-year term of the license agreement. Accordingly, the $899 gain on the forgiveness of debt and related interest thereon was deferred and is being amortized over the term of the affiliation and program license agreements. The Partnership amortized $398 of the gain to income in 1995. The gain on forgiveness of debt is included in other income in the statement of operations. The deferred gain is included in accounts payable and accrued expenses at December 31, 1995 and 1994. Interest payments of $2,301 were made during the year ended December 31, 1995. No interest payments were made during the year ended December 31, 1994. 6 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - -------------------------------------------------------------------------------- 7. Retirement Savings Plan The Partnership has adopted a retirement savings plan under Section 401(K) of the Internal Revenue Code. This plan covers substantially all employees of the Partnership and affiliated partnerships, who meet minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pre-tax basis. Partnership contributions to the plan may be made at the discretion of the Board of Directors. No Partnership contributions were authorized for the years ended December 31, 1995 and 1994. 8. Commitments and Contingencies Employment Agreements As a result of the Partnership's execution of the Option Agreement (Note 9) in 1994, the Partnership and the general partner, ABRY Communications III, L.P., amended employment agreements which entitled certain key employees to appreciation rights payable upon either a change in control of the Partnership or the payment of certain partner cash distributions. Previously, the employees vested in these rights at the rate of 20% per year from the date the rights were granted, except that they vested fully if they were employees of the Partnership at the time the rights became payable. Amounts due to the employees in connection with those rights were determined by a formula which considers appreciation in the value of the Partnership. Under the amendments, in the event that certain key employees meet certain employment criteria, such employees will receive a payment in lieu of the appreciation rights discussed above. An accrual for compensation related to these rights for $162 was included in accrued expenses at December 31, 1994. These obligations were satisfied during 1995 and, accordingly, no accrual has been made related to these agreements at December 31, 1995. Broadcast License Agreements Broadcast rights acquired under license agreements are recorded as an asset and a corresponding liability at the inception of the license period. In addition to these broadcast rights payable at December 31, 1995, the Partnership has $1,417 of commitments to acquire broadcast rights for which the license period has not commenced and, accordingly, for which no liability has been recorded. Future minimum payments arising from such commitments outstanding at December 31, 1995, of which $729 represents barter commitments, are as follows: 1996 $ 133 1997 356 1998 347 1999 187 2000 79 Thereafter 315 ---------- $ 1,417 7 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) - -------------------------------------------------------------------------------- Sports Rights Agreement The Partnership broadcasts certain baseball games for the Kansas City Royals Baseball Corporation (the "Royals"). Under the terms of the broadcast agreement as amended during 1995, the Partnership is obligated to pay broadcast fees and to provide advertising and promotions to the Royals through October 1, 1998. In addition, the Partnership is obligated to pay the Royals 75% of operating profits less than $500 and 50% of operating profits exceeding $500, related to such broadcasts. Future minimum annual broadcast fee payments under the agreement, as amended, are as follows: 1996 $ 1,080 1997 1,080 1998 1,080 ----------- $ 3,240 Broadcast fees are payable quarterly on July 1, October 1, January 1 and April 1 of each year. In the event the Partnership terminates the agreement before October 1, 1996 or 1997, the Partnership will be required to pay the Royals a cancellation fee of $500 or $250, respectively. The payment of all amounts due to the Royals under the agreement have been guaranteed by the Partnership's general partner and BVC Communications, III, Inc., the general partner of ABRY Communications III, L.P. Charges to operations for such broadcast fees aggregated $1,350 and $2,728 in 1995 and 1994, respectively. Operating Leases The Partnership leases its antenna site, studio and other operating equipment under noncancellable operating lease arrangements expiring through 2010. Charges to operations for such leases aggregated $154 and $146 in 1995 and 1994, respectively. Future minimum lease payments under these leases are as follows at December 31, 1995: 1996 $ 166 1997 160 1998 161 1999 124 2000 123 Thereafter 237 Total minimum lease payments $ 971 =========== During 1995, the antenna site was damaged and the Partnership received an insurance settlement of $248 for the related business interruption. The insurance settlement net of amounts relating to the repair of the antenna, are included in other income in the statement of operations. 8 Kansas City TV 62 Limited Partnership Notes to Financial Statements (in thousands) ----------------------------------------------------------------------- 9. Option Agreement On May 24, 1994, the Partnership entered into an agreement whereby the Partnership granted a third-party an option to acquire the assets of the station for an amount equal to the lesser of outstanding debt as of the exercise date, including accrued interest thereon, or $9,000. The acquiring entity will assume all other liabilities of the station. In conjunction with the option agreement, the Partnership entered into an agreement with the third-party whereby the Partnership would pay the third-party a consulting fee of $250 per year as long as the option is outstanding. Charges to operations related to this agreement were $250 in 1995 and $147 in 1994. The third-party exercised this option in January 1996. Accordingly, all debt of the station is classified as current at December 31, 1995, excluding debt for which an extension was granted, in accordance with the Partnership's loan agreements (Note 6). The transaction is subject to regulatory approval. 10 Cincinnati TV 64 Limited Partnership Financial Statements December 31, 1995 Report of Independent Accountants March 22, 1996 To the Partners of Cincinnati TV 64 Limited Partnership In our opinion, the accompanying balance sheet and the related statements of operations, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of Cincinnati TV 64 Limited Partnership at December 31, 1995 and 1994, 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 the Partnership'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. Price Waterhouse LLP Cincinnati TV 64 Limited Partnership Balance Sheet - --------------------------------------------------------------------------------
December 31, 1995 1994 (in thousands) Assets Current assets: Cash and cash equivalents $ 641 $ 482 Accounts receivable, less allowance for doubtful accounts of $86 and $64 in 1995 in 1994, respectively 3,091 2,773 Broadcast rights 4,461 3,461 Prepaid expenses 15 21 ----------- ---------- Total current assets 8,208 6,737 Property and equipment - net 5,238 5,670 Broadcast rights 4,339 3,061 Goodwill and other intangible assets 1,746 1,823 ----------- ---------- $ 19,531 $ 17,291 =========== ========== Liabilities and Partners' Capital Current liabilities: Current portion of long-term debt $ 11,883 $ 700 Subordinated note payable to Seller 7,446 - Accounts payable and accrued expenses 1,127 1,082 Interest payable 718 650 Broadcast rights payable 5,221 3,957 ----------- ---------- Total current liabilities 26,395 6,389 Broadcast rights payable 4,262 3,221 Long-term debt - 14,083 Subordinated note payable to Seller - 7,089 Partners' capital (11,126) (13,491) Commitments and contingencies (Note 8) ----------- ---------- $ 19,531 $ 17,291 =========== ==========
The accompanying notes are an integral part of these financial statements. Cincinnati TV 64 Limited Partnership Statement of Operations - -------------------------------------------------------------------------------- Year ended December 31, 1995 1994 (in thousands) Revenues - net of agency and national representative commissions $ 15,529 $ 13,727 Costs and expenses: Programming, production and engineering 1,002 954 Amortization of broadcast rights 4,971 5,416 Sales, promotion and marketing 2,394 2,813 General and administrative 1,629 2,059 Depreciation and amortization 662 841 Interest expense, net 2,506 2,375 ----------- ----------- Net income (loss) $ 2,365 $ (731) =========== =========== The accompanying notes are an integral part of these financial statements. Cincinnati TV 64 Limited Partnership Statement of Changes in Partners' Capital For the Years Ended December 31, 1995 and 1994 - -------------------------------------------------------------------------------
General Limited Partner Partner Total (in thousands) Balance at December 31, 1993 $ (12,760) $ - $ (12,760) Net loss for the year ended December 31, 1994 (731) - (731) ---------- ------- --------- Balance at December 31, 1994 (13,491) - (13,491) Net income for the year ended December 31, 1995 2,365 - 2,365 ---------- ------- --------- Balance at December 31, 1995 $ (11,126) $ - $ (11,126) ========== ======= =========
The accompanying notes are an integral part of these financial statements. Cincinnati TV 64 Limited Partnership Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents - -------------------------------------------------------------------------------
Year ended December 31, 1995 1994 (in thousands) Cash flows from operating activities: Net income (loss) $ 2,365 $ (731) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 585 759 Amortization of goodwill and other intangible assets 77 82 Amortization of broadcast rights, net of barter 1,621 2,294 Loss on disposal of property and equipment 37 - Accretion of subordinated debt principal 357 312 Deferred interest expense on subordinated note payable - 87 Increase in accounts receivable (318) (516) (Increase) decrease in prepaid expenses 6 (6) Increase (decrease) in accounts payable and accrued expenses 45 (80) Increase in interest payable 68 650 Decrease in due to related parties - (72) Decrease in broadcast rights payable, net of barter (1,594) (1,676) ---------- ---------- Net cash provided by operating activities 3,249 1,103 ---------- ---------- Cash flows from investing activities: Additions to property and equipment (190) (18) ---------- ---------- Cash flows from financing activities: Net repayments under revolving credit facility (2,200) (750) Repayments of long-term debt (700) - ---------- ---------- Net cash used for financing activities (2,900) (750) ---------- ---------- Net increase in cash and cash equivalents 159 335 Cash and cash equivalents at beginning of year 482 147 ---------- ---------- Cash and cash equivalents at end of year $ 641 $ 482 ========== ========== Supplemental schedule of noncash activities: Film contracts acquired/obligations assumed $ 2,961 $ 2,026 ========== ==========
The accompanying notes are an integral part of these financial statements. Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - -------------------------------------------------------------------------------- 1. Organization Cincinnati TV 64 Limited Partnership (the "Partnership") is a joint venture of ABRY Communications II, L.P., the general partner (Note 3), and Copley Place Capital Group, the limited partner. The Partnership was organized under the laws of the State of Delaware on August 1, 1989. The Partnership is a television broadcaster serving the Cincinnati, Ohio area through station WSTR on UHF Channel 64. 2. Summary of Significant Accounting Policies Allocation of Partnership Results to Partners' Capital Accounts Net losses of the Partnership are allocated among the capital accounts of the partners based on their relative partnership interests until the limited partner's capital has been exhausted. Thereafter, net losses are allocated solely to the general partner. Net income is allocated in proportion to previously allocated net losses in reverse chronological order. Thereafter, net income is allocated to partners based on their relative partnership interests, as defined in the agreement. Broadcast Rights Broadcast rights are stated at the lower of unamortized cost or estimated net realizable value. Broadcast rights and the related liabilities are recorded at the contract value when the license period begins and the right is available for use. Broadcast rights are amortized using the straight-line method over the number of showings or license period. The net realizable value of broadcast rights for which the Partnership is contractually committed is reviewed annually and revisions to amortization rates or write-downs to net realizable value may occur. The current portion of broadcast rights represents those rights available for broadcast which management estimates will be amortized in the succeeding year. Property and Equipment Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets on a straight-line basis. Major renewals and betterments are capitalized and ordinary repairs and maintenance are charged to expense in the period incurred. Goodwill and Other Intangible Assets Goodwill aggregating $1,991 is amortized over 40 years using the straight-line method. Legal and accounting fees associated with the acquisition of loans aggregating $240 are capitalized and amortized over the term of the related debt. Organization costs aggregating $28 were fully amortized at December 31, 1995. Accumulated amortization aggregated $485 and $436 at December 31, 1995 and 1994, respectively. Barter Transactions Revenue from barter transactions is recognized when advertisements are broadcast and services or merchandise received are charged to expense when received or used. Revenues arising from barter and trade transactions aggregated $3,578 and $3,410 in 1995 and 1994, respectively. 1 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - ------------------------------------------------------------------------------- Income Taxes The financial statements of the Partnership do not include any provision for federal or state income taxes. All Partnership income, losses, tax credits and deductions are allocated among the partners. Each partner is responsible to report its distributed share of Partnership results in its federal and state income tax returns. Cash and Cash Equivalents The Partnership considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents. The Partnership invests its excess cash in short-term government securities that are subject to minimal market and credit risk. At December 31, 1995 and 1994, the Partnership's cash equivalents include $500 and $400, respectively, of short-term government securities. These securities, which are classified as available-for-sale, are recorded at market value, which approximates cost. Effective January 1, 1994, the Partnership adopted Statement of Financial Accounting Standards No. 115, (FAS 115), "Accounting for Certain Investments in Debt and Equity Securities". Under this standard, the Partnership is required to classify its investments in debt and equity securities into one or more of the following categories: held-to-maturity, trading or available for sale. Adoption of this standard had no impact on the Partnership's financial position or results of operations at the date of adoption. Concentration of Credit Risk Financial instruments which potentially expose the Partnership to a concentration of credit risk include cash, cash equivalents and accounts receivable. A significant amount of the Partnership's cash and cash equivalents are held by one financial institution at December 31, 1995. The Partnership does not believe that such deposits are subject to any unusual credit risk beyond the normal credit risk associated with operating its business. The Partnership maintains reserves for potential credit losses and such losses, in the aggregate, have not historically exceeded management's expectations. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Related Party Transactions Prior to 1995, ABRY Communications II, L.P. provided certain administrative and support services to the Partnership for which it was paid a management fee. Management fees charged to operations aggregated $319 in 1994. No management fees were charged to the Partnership during 1995. 2 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - ------------------------------------------------------------------------------- As of January 1995, the station became a network affiliate and licensed certain programs in conjunction with the forgiveness of the subordinated debt of a related party by the network and licensor. The term of the affiliation agreement and the program licenses is three years and one year, respectively. These financial statements do not include any amounts relating to such transaction. 4. Property and Equipment Property and equipment consists of the following:
Estimated useful life December 31, (years) 1995 1994 Land and improvements - $ 261 $ 261 Buildings 30 1,719 1,719 Transmission tower 30 3,226 3,226 Transmission equipment 7-8 1,832 1,919 Studio equipment 5-7 1,079 1,005 Vehicles, office equipment and furniture 5-7 240 211 --------- --------- 8,357 8,341 Less - accumulated depreciation and amortization 3,119 2,671 --------- --------- $ 5,238 $ 5,670 ========= =========
5. Broadcast Rights The Partnership purchases the right to broadcast programs through fixed term license agreements. Broadcast rights consist of the following:
December 31, 1995 1994 Aggregate cost $ 15,370 $ 14,288 Less - accumulated amortization 6,570 7,766 --------- --------- 8,800 6,522 Less - current portion 4,461 3,461 --------- --------- $ 4,339 $ 3,061 ========= ==========
3 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - ------------------------------------------------------------------------------- Contractual obligations incurred in connection with the acquisition of broadcast rights are $9,483 including $3,918 of barter obligations. Future payments in connection with these contractual obligations are as follows at December 31, 1995: 1996 $ 5,221 1997 2,502 1998 1,340 1999 381 Thereafter 39 -------- $ 9,483 ======== The Partnership has estimated the fair value of these contractual obligations at approximately $8,591 and $6,478 at December 31, 1995 and 1994, respectively, based on future cash flows discounted at the Partnership's current borrowing rate. 6. Debt Long-term debt consists of the following: December 31, 1995 1994 Term loan $ 6,650 $ 6,850 Revolving credit facility 4,772 6,972 Supplemental loan 461 961 -------- -------- 11,883 14,783 Less - current portion 11,883 700 -------- -------- $ - $ 14,083 ======== ======== The principal amount of the term loan is payable in 36 monthly installments of $17 which commenced January 1, 1995 and a final installment in an amount equal to the then outstanding principal balance is due January 1, 1998. The Partnership may borrow up to $8,350 under a revolving credit facility (the "revolver") through December 31, 1995; thereafter, the credit facility and related borrowings are reduced on a monthly basis until no credit facility is available at January 1, 1998. The term loan, revolver and supplemental loan bear interest, payable monthly, at the base rate, computed by taking the higher of the Federal Funds rate plus 1% or Prime (as defined in the agreement), plus 2.5%. 4 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - ------------------------------------------------------------------------------- The Partnership is charged a fee for the available revolving credit commitment at a rate of 1/2% per annum, payable quarterly. The borrowings are secured by substantially all of the Partnership's assets and require the Partnership to comply with certain specified financial ratios and provisions. At December 31, 1995, all long term debt is classified as a current liability as a result of a third-party's decision to exercise the option agreement (Note 9). At December 31, 1995 and 1994, the current portion of long-term debt includes principal of $750 and $500, respectively, due by April 1, 1996 and 1995 in accordance with the acceleration provisions of the loan agreement. The accelerated principal payments were made by the Partnership in April 1996 and January 1995, respectively. In addition to the scheduled principal and interest payments, the lender may be entitled to contingent interest, payable upon early repayment of the loans, a change in control of the Partnership or upon the occurrence of certain other events as defined in the agreement. The amount of contingent interest which will be due is determined by a formula which considers appreciation in the value of the Partnership. Based upon management's estimate of appreciation in the value of the Partnership, no accrual for contingent interest has been recorded at December 31, 1995 and 1994. The principal amount of the subordinated note payable to Seller is due on January 1, 1998. Interest on the outstanding principal accrues at the rate of 8.5% per annum. Interest accrued and unpaid through December 31, 1993 is due and payable on January 1, 1998. Interest accrued after December 31, 1993 is payable annually. For financial reporting purposes, however, interest on the note accrues at an implicit rate of 14.5% per annum and the note's original stated principal of $6 million has been discounted to reflect this yield. Accordingly, interest accrued through December 31, 1995 and 1994 of $2,877 and $2,790, respectively, has been added to the discounted principal amount of the note. In January 1996, a third-party exercised its option to acquire the assets of the station (Note 9). Accordingly, the note has been classified as a current liability at December 31, 1995. Interest paid during the years ended December 31, 1995 and 1994 was $1,603 and $1,348, respectively. 7. Retirement Savings Plan The Partnership has adopted a retirement savings plan under Section 401(K) of the Internal Revenue Code. This plan covers substantially all employees of the Partnership and affiliated partnerships who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Partnership contributions to the plan may be made at the discretion of the Board of Directors. No Partnership contributions were authorized for the years ended December 31, 1995 and 1994. 5 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - -------------------------------------------------------------------------------- 8. Commitments and Contingencies Employment Agreement As a result of the Partnership's execution of the Option Agreement (Note 9) in 1994, the Partnership and the general partner, ABRY Communications II, L.P., amended an employment agreement which entitled certain key employees to appreciation rights payable upon either a change in control of the Partnership or the payment of certain partner cash distributions. Previously, the employees vested in these rights at the rate of 20% per year from the date the rights were granted, except that they vested fully at the time the rights became payable. Amounts due to the employees in connection with those rights were determined by a formula which considers appreciation in the value of the Partnership. Under the amendment, such employees received payments in lieu of the appreciation rights discussed above. Compensation expense of $862 was recognized for compensation related to these rights during the year ended December 31, 1994. An accrual for $700 for compensation related to these rights which were paid in January 1995, was included in accrued expenses at December 31, 1994. Broadcast License Agreements Broadcast rights acquired under license agreements are recorded as an asset and a corresponding liability at the inception of the license period. In addition to these broadcast rights payable at December 31, 1995, the Partnership has $7,769 of commitments to acquire broadcast rights for which the license period has not commenced and, accordingly, for which no liability has been recorded. Future minimum payments arising from such commitments outstanding at December 31, 1995, of which $4,232 represents barter commitments, are as follows: 1996 $ 903 1997 2,221 1998 1,918 1999 1,517 2000 1,210 --------- $ 7,769 ========= Programming Under the terms of an agreement executed in September 1995 with a third-party, the Partnership is committed to make available certain time periods for broadcasting Cincinnati Reds baseball games during each of the 1996-1998 major league baseball seasons, in exchange for a fixed fee per game and other defined compensation. The agreement expires in December 1998 or the earliest date after April 1, 1996 on which the third-party no longer has the rights to telecast such baseball games. In 1995, the Partnership generated revenue of $25 related to this agreement. 6 Cincinnati TV 64 Limited Partnership Notes to Financial Statements (in thousands) - ------------------------------------------------------------------------------- Operating Leases The Partnership assumed a noncancellable operating lease under which property at its transmission antenna site is leased through 1998. Charges to operations for this lease aggregated $68 in 1995 and $71 in 1994. As of December 31, 1995, annual minimum lease payments under the property lease are $61 through 1997. 9. Option Agreement On May 24, 1994, the Partnership entered into an agreement whereby the Partnership granted a third-party an option to acquire the assets of the station for an amount equal to the lesser of the outstanding debt as of the exercise date, including accrued interest thereon, or $11,000. The acquiring entity will assume all other liabilities of the station. In conjunction with the option agreement, the Partnership entered into an agreement with the third-party whereby the Partnership would pay the third-party a consulting fee of $250 per year as long as the option is outstanding. Charges to operations related to this agreement were $250 in 1995 and $127 in 1994. The third-party exercised this option in January 1996. The transaction is subject to regulatory approval. As a result of the exercise of this option, all debt of the station is classified as current at December 31, 1995, in accordance with the Partnership's loan agreements (Note 6). 7 -----END PRIVACY-ENHANCED MESSAGE-----