Document/Exhibit Description Pages Size
1: 10-Q Paxson Communications Corporation Form 10-Q 23 162K
2: EX-4.2 3rd Amendment to Union Bank Credit Agreement 6 22K
3: EX-10.168 Whct Construction Agreement 13 33K
4: EX-10.169 Roberts Broadcasting Asset Purchase Agreement 34 148K
5: EX-10.170 Fant Broadcasting Amended Asset Purchase Agreement 45 155K
6: EX-10.171 American Radio Systems Asset Purchase Agreement 47 116K
7: EX-10.172 Dove Broadcasting Option Agreement 12 36K
8: EX-10.172.1 Dove Broadcasting Loan Agreement 21 66K
9: EX-10.173 Vine and Branch Asset Purchase Agreement 40 173K
10: EX-10.174 Whrc Loan Agreement 29 108K
11: EX-10.175 Landmark Communications Asset Acquisition Agmt. 48 192K
12: EX-10.176 Channel 56 of Orlando Asset Purchase Agreement 39 159K
13: EX-10.177 Roberts of Albuquerque Loan Agreement 24 94K
14: EX-10.178 Riklis Asset Purchase Agreement (Chapter 11) 45 181K
15: EX-27 Financial Data Schedule 1 8K
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
------------------------------
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 1-13452
PAXSON COMMUNICATIONS CORPORATION
--------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-3212788
------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
601 CLEARWATER PARK ROAD
WEST PALM BEACH, FLORIDA 33401
------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 659-4122
--------------
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 Act of 1934 during the
proceeding 12 months (or for 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of August 5, 1997:
CLASS OF STOCK NUMBER OF SHARES
--------------------------- -----------------------
COMMON STOCK-CLASS A, $0.001
PAR VALUE PER SHARE --------------------- 49,604,750
COMMON STOCK-CLASS B, $0.001
PAR VALUE PER SHARE ---------------------- 8,311,639
PAXSON COMMUNICATIONS CORPORATION
INDEX
[Download Table]
Page
----
Part I - Financial Information
Item 1. Financial Statements
--------------------
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Operations
Three Months Ended June 30, 1997 and 1996 5
Consolidated Statements of Changes in
Common Stockholders' Equity 6
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 7-8
Notes to Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-20
Part II - Other Information
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21-22
Signatures 23
2
PAXSON COMMUNICATIONS CORPORATION
Consolidated Balance Sheets
[Enlarge/Download Table]
June 30, December 31,
1997 1996
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 35,270,986 $ 61,748,788
Accounts receivable, less allowance for doubtful
accounts of $1,234,648 and $1,576,593 respectively 27,769,670 29,860,998
Note receivable from related party 10,000,000 --
Prepaid expenses and other current assets 4,026,706 2,713,565
Current program rights 697,235 1,512,019
------------- -------------
Total current assets 77,764,597 95,835,370
Property and equipment, net 149,668,039 144,415,412
Intangible assets, net 319,788,909 220,409,421
Investments in broadcast properties 93,560,555 53,297,022
Program rights, net 491,307 1,075,536
Other assets, net 59,115,445 28,149,699
------------- -------------
Total assets $ 700,388,852 $ 543,182,460
============= =============
LIABILITIES, REDEEMABLE SECURITIES AND COMMON STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 15,693,028 $ 10,676,692
Accrued interest 8,077,327 6,684,373
Current portion of program rights payable 812,878 1,628,959
Current portion of long-term debt 650,969 644,509
------------- -------------
Total current liabilities 25,234,202 19,634,533
Program rights payable 381,211 1,000,260
Deferred gain 12,100,000 --
Long-term debt 108,052,762 3,407,688
Senior subordinated notes, net 227,799,903 227,655,096
Redeemable Cumulative Compounding Junior preferred
stock, $0.001 par value; 12% dividend rate per annum,
33,000 shares authorized, issued and outstanding 39,620,366 36,780,496
Redeemable Exchangeable Preferred stock, $0.001 par value;
12.5% dividend rate per annum, 440,000 shares authorized,
150,000 shares issued and outstanding 157,737,583 147,929,150
Class A common stock, $0.001 par value; one vote per share;
150,000,000 shares authorized, 42,621,629 shares issued
and outstanding 42,621 40,442
Class B common stock, $0.001 par value; ten votes per
share, 35,000,000 shares authorized, 8,311,639 shares
issued and outstanding 8,312 8,312
Class C common stock, $0.001 par value; non-voting;
12,500,000 shares authorized, 0 shares issued and
outstanding -- --
Class A & B common stock warrants 6,862,647 6,862,647
Class C common stock warrants -- 2,335,528
Stock subscription notes receivable (2,813,250) (1,873,139)
Additional paid-in capital 212,969,799 209,621,241
Deferred option plan compensation (5,147,429) (6,397,916)
Accumulated deficit (82,459,875) (103,821,878)
------------- -------------
Commitments and contingencies
Total liabilities, redeemable securities and
common stockholders' equity $ 700,388,852 $ 543,182,460
============= =============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
3
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statements of Operations
[Enlarge/Download Table]
For the Six Months
Ended June 30,
----------------------------
1997 1996
------------ ------------
(Unaudited)
Revenue:
Local and national advertising $ 36,344,260 $ 27,068,544
Other 1,079,164 878,946
Trade and barter 50,915 99,561
------------ ------------
Total revenue 37,474,339 28,047,051
Operating expenses:
Direct 6,716,577 4,572,686
Programming 1,962,192 1,048,609
Sales and promotion 1,595,906 1,481,821
Technical 4,065,445 1,774,248
General and administrative 11,970,586 8,428,075
Trade and barter 51,743 1,849
Time brokerage agreement fees 2,400,695 1,240,911
Option plan compensation 1,431,837 2,037,666
Depreciation and amortization 8,933,749 4,971,998
------------ ------------
Total operating expenses 39,128,730 25,557,863
------------ ------------
Operating (loss) income (1,654,391) 2,489,188
Other income (expense):
Interest expense (17,931,024) (15,047,085)
Interest income 2,693,274 4,033,464
Other expense, net (621,827) (614,563)
------------ ------------
Loss from continuing operations (17,513,968) (9,138,996)
Discontinued operations:
Income (loss) from discontinued operations, net of
applicable income taxes (631,186) 1,133,667
Gain on sale, net of applicable income taxes 52,204,780 --
------------ ------------
Income from discontinued operations 51,573,594 1,133,667
------------ ------------
Net income (loss) 34,059,626 (8,005,329)
Dividends and accretion on preferred stock and common stock
warrants (12,697,623) (7,414,034)
------------ ------------
Net income (loss) attributable to common stock and common
stock equivalents $ 21,362,003 $(15,419,363)
============ ============
Income (loss) per common share:
Loss from continuing operations $ (0.31) $ (0.23)
Income from discontinued operations 0.92 0.03
------------ ------------
Net income (loss) 0.61 (0.20)
Dividends and accretion on preferred stock and
common stock warrants (0.23) (0.18)
------------ ------------
Net income (loss) attributable to common stock and
common stock equivalents $ 0.38 $ (0.38)
============ ============
Weighted average common stock and common stock equivalents
outstanding 56,017,672 40,566,865
============ ============
The accompanying Notes to Consolidated Financial
Statements are an integral part of the consolidated financial
statements.
4
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statements of Operations
[Enlarge/Download Table]
For the Three Months
Ended June 30,
----------------------------
1997 1996
------------ ------------
(Unaudited)
Revenue:
Local and national advertising $ 17,920,364 $ 14,420,955
Other 591,560 511,777
Trade and barter 25,075 61,910
------------ ------------
Total revenue 18,536,999 14,994,642
Operating expenses:
Direct 3,378,818 2,461,996
Programming 980,312 556,062
Sales and promotion 750,561 781,962
Technical 2,029,279 994,257
General and administrative 5,616,193 4,504,936
Trade and barter 39,583 --
Time brokerage agreement fees 1,375,191 762,364
Option plan compensation 717,832 312,702
Depreciation and amortization 4,854,019 2,636,273
------------ ------------
Total operating expenses 19,741,788 13,010,552
------------ ------------
Operating (loss) income (1,204,789) 1,984,090
Other income (expense):
Interest expense (9,195,582) (7,348,429)
Interest income 1,377,392 3,202,568
Other expense, net (767,569) (607,424)
------------ ------------
Loss from continuing operations (9,790,548) (2,769,195)
Discontinued operations:
Income from discontinued operations, net of applicable
income taxes
104,390 1,382,526
Gain on sale, net of applicable income taxes 52,204,780 --
------------ ------------
Income from discontinued operations 52,309,170 1,382,526
------------ ------------
Net income (loss) 42,518,622 (1,386,669)
Dividends and accretion on preferred stock and common stock
warrants (6,425,984) (2,466,085)
------------ ------------
Net income (loss) attributable to common stock and common stock equivalents
$ 36,092,638 $ (3,852,754)
============ ============
Income (loss) per common share:
Loss from continuing operations $ (0.17) $ (0.06)
Income from discontinued operations 0.93 0.03
------------ ------------
Net income (loss) 0.76 (0.03)
Dividends and accretion on preferred stock and
common stock warrants (0.11) (0.05)
------------ ------------
Net income (loss) attributable to common stock and
common stock equivalents $ 0.65 $ (0.08)
============ ============
Weighted average common stock and common stock equivalents
outstanding 56,188,787 46,570,794
============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
5
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statements of Changes in Common Stockholders' Equity
[Enlarge/Download Table]
Common Stock ClassA&B Class Stock
Common C Subscription
Class Class Class Stock Common Stock Notes
A B C Warrants Warrants Receivable
---------------------------------------------------------------------------
Balance at December 31, 1995 26,227 $8,312 $-- $ -- $ 5,338,952 $ (115,714)
Release of Put option on Class A&B
common stock warrants 9,116,399
Issuance of common stock, net of
issuance costs 10,300
Exercise of Class A,B&C common stock
warrants 3,623 (2,253,752) (3,003,424)
Stock issued for Todd Communications
acquisition 139
Deferred option plan compensation
Option plan compensation
Increase in stock subscription notes
receivable (1,873,139)
Stock options exercised 153
Repayment of stock subscription note
receivable 115,714
Dividends on redeemable preferred
stock
Accretion on Senior redeemable
preferred stock
Accretion on Series B preferred stock
Accretion on Junior preferred stock
Accretion on Redeemable Exchangeable
preferred stock
Accretion on Class A & B common
stock warrants
Net loss
------- ------ --- ----------- ----------- -----------
Balance at December 31, 1996 40,442 8,312 - 6,862,647 2,335,528 (1,873,139)
Deferred option plan compensation
(unaudited)
Option plan compensation (unaudited)
Exercise of Class C common stock
warrants (unaudited) 2,123 (2,335,528)
Stock options exercised (unaudited) 56
Increase in stock subscription
receivable (unaudited) (940,111)
Dividends on redeemable
preferred stock (unaudited)
Accretion on Junior preferred stock
(unaudited)
Accretion on Redeemable Exchangeable
preferred stock (unaudited)
Net loss (unaudited)
------- ------ --- ----------- ----------- -----------
Balance at June 30, 1997 (unaudited) $42,621 $8,312 $ - $ 6,862,647 $ - $(2,813,250)
======= ====== === =========== =========== ===========
Additional Deferred Option
Paid-in Plan Accumulated
Capital Compensation Deficit
------------------------------------------------------
Balance at December 31, 1995 $ 34,342,086 $(1,384,267) $(55,694,393)
Release of Put option on Class A&B
common stock warrants
Issuance of common stock, net of
issuance costs 154,789,700
Exercise of Class A,B&C common stock
warrants 5,253,548
Stock issued for Todd Communications
acquisition 1,534,967
Deferred option plan compensation 12,932,506 (12,932,506)
Option plan compensation 7,918,857
Increase in stock subscription notes
receivable
Stock options exercised 768,434
Repayment of stock subscription note
receivable
Dividends on redeemable preferred
stock (13,223,227)
Accretion on Senior redeemable
preferred stock (1,805,599)
Accretion on Series B preferred stock (3,418,615)
Accretion on Junior preferred stock (650,084)
Accretion on Redeemable Exchangeable
preferred stock (159,977)
Accretion on Class A & B common
stock warrants (2,651,082)
Net loss (26,218,901)
------------ ----------- ------------
Balance at December 31, 1996 209,621,241 (6,397,916) (103,821,878)
Deferred option plan compensation
(unaudited) 823,362 (823,362)
Option plan compensation (unaudited) 2,073,849
Exercise of Class C common stock
warrants (unaudited) 2,333,390
Stock options exercised (unaudited) 191,806
Increase in stock subscription
receivable (unaudited)
Dividends on redeemable
preferred stock (unaudited) (12,029,325)
Accretion on Junior preferred stock (332,770)
(unaudited)
Accretion on Redeemable Exchangeable
preferred stock (unaudited) (335,528)
Net loss (unaudited) 34,059,626
------------ ----------- -------------
Balance at June 30, 1997 (unaudited) $212,969,799 $(5,147,429) $ (82,459,875)
============ =========== =============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
6
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statements of Cash Flows
[Enlarge/Download Table]
For the Six Months
Ended June 30,
------------------------------
1997 1996
--------- -------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 34,059,626 $ (8,005,329)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 18,090,587 11,736,929
Option plan compensation 2,073,849 2,291,917
Program rights amortization 603,277 721,802
Provision for doubtful accounts 789,636 427,256
Loss on sale or disposal of assets 1,342,012 13,651
Gain on sale of television station (52,204,780) --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 1,301,692 (2,055,044)
Increase in prepaid expenses and other current
assets (1,391,823) (1,516,165)
Increase in other assets (3,999,847) (1,863,879)
Increase in accounts payable and accrued
liabilities 310,833 1,806,130
Increase (decrease) in accrued interest 1,392,954 (202,292)
------------- -------------
Net cash provided by operating activities 2,368,016 3,354,976
------------- -------------
Cash flows from investing activities:
Acquisitions of broadcast properties (130,364,496) (61,965,301)
Increase in deposits on broadcast properties (27,525,000) (6,907,000)
Increase in investments in broadcast properties (25,263,534) (17,695,363)
Purchases of property and equipment (24,664,492) (13,936,104)
Deposits made on buildings and equipment (136,027) --
Proceeds from sale of television station 75,000,000 --
Proceeds from sale of fixed assets 911,644 228,279
------------- -------------
Net cash used in investing activities (132,041,905) (100,275,489)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- 154,911,521
Proceeds from long-term debt 105,000,000 17,700,000
Payments of long-term debt (348,466) (27,930,270)
Proceeds from exercise of common stock options, net 191,862 465,893
Increase in stock subscription notes receivable (940,111) --
Repayments of stock subscription notes receivable -- 98,214
Payments for program rights (707,198) (818,706)
------------- -------------
Net cash provided by financing activities 103,196,087 144,426,652
------------- -------------
(Decrease) increase in cash and cash equivalents (26,477,802) 47,506,139
------------- -------------
Cash and cash equivalents at beginning of period 61,748,788 68,070,990
------------- -------------
Cash and cash equivalents at end of period $ 35,270,986 $ 115,577,129
============= =============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
7
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statements of Cash Flows (continued)
[Download Table]
For the Six Months
Ended June 30,
------------------------
1997 1996
----------- ----------
(Unaudited)
Supplemental disclosures of cash flow
information:
Cash paid for interest $15,498,665 $14,478,551
=========== ===========
Cash paid for income taxes $ - $ -
=========== ===========
Non-cash operating and financing activities:
Accretion of discount on senior subordinated notes $ 144,807 $ 132,544
=========== ===========
Issuance of common stock for Todd Communications
acquisition $ - $ 1,535,106
=========== ===========
Note payable incurred for WOCD-TV Acquisition $ - $ 1,650,000
=========== ===========
Dividends accreted on redeemable preferred stock $12,029,325 $ 4,062,482
=========== ===========
Accretion on redeemable securities $ 668,298 $ 3,351,552
=========== ===========
Trade and barter revenue $ 2,301,511 $ 1,767,993
=========== ===========
Trade and barter expense $ 2,257,659 $ 1,357,018
=========== ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
8
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Paxson Communications Corporation's (the "Company") financial information
contained in the financial statements and notes thereto as of June 30, 1997 and
for the six and three month periods ended June 30, 1997 and 1996, are unaudited.
In the opinion of management, all adjustments necessary for the fair
presentation of such financial information have been included. These adjustments
are of a normal recurring nature. There have been no changes in accounting
policies since the period ended December 31, 1996. The composition of accounts
has significantly changed since December 31, 1996 to reflect the operations of
acquisitions discussed elsewhere herein and as a result of operations sold or to
be sold as discussed below.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Certain reclassifications have been made to the
prior year's financial statements to conform with the 1997 presentation. These
financial statements, footnotes, and discussions should be read in conjunction
with the December 31, 1996 financial statements and related footnotes and
discussions contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, the definitive proxy statement for the annual meeting of
stockholders held May 2, 1997, and Forms 8-K dated January 10, 1997 and
April 29, 1997, all of which were filed with the United States Securities and
Exchange Commission.
2. Discontinued Operations
On June 23, 1997, the Company announced that it entered into a letter of intent
to sell its radio segment, including radio stations currently under acquisition
contracts, to Clear Channel Communications, Inc. ("Clear Channel"), subject to,
among other things, the negotiation and execution of definitive documentation
and the receipt of various regulatory approvals. The Company and Clear Channel
are currently negotiating definitive agreements to provide for the sale
of substantially all of the radio segment. In order to comply with certain
regulatory requirements, and other considerations, it is currently contemplated
that the Company will retain ownership of a limited amount of assets included
in the radio segment located in Miami, Tampa, West Palm Beach and Pensacola
markets. The sale is being structured in part as a tax free exchange,
permitting the Company to defer a portion of the gain on the radio sale for tax
purposes. If a definitive agreement with Clear Channel is entered into, the
radio segment sale would be expected to be consummated during the second half
of 1997 after, among other things, receipt of all necessary Federal
Communications Commission and other regulatory approvals. The Company does not
anticipate an operating loss during the phase-out period of this segment. If a
definitive agreement is not entered into with Clear Channel, the Company
currently expects to discuss the potential sale of its radio segment with other
potential buyers. Because of the decision to sell substantially all of the
radio segment, the results of operations for Paxson Radio, net of applicable
income tax, have been presented as discontinued operations in the accompanying
Consolidated Statements of Operations for all periods presented. There can be
no assurance that an agreement will be reached with Clear Channel or that the
Company will reach an agreement with another potential buyer on terms
acceptable to the Company.
The Paxson Radio operations generated revenues of approximately $51,212,000 and
$31,627,000, and $27,074,000 and $17,091,000, for the six and three month
periods ended June 30, 1997 and 1996, respectively.
On February 19, 1997, the Company entered into a definitive agreement to sell
its interests in WTVX-TV. In addition, on March 25, 1997, the Company entered
into a definitive agreement to sell WPBF-TV. Because of the decision to sell
both stations, the results of operations for the Paxson Network Affiliated
Television operations, net of applicable income tax, have been reclassified and
presented as discontinued operations in the accompanying Consolidated
Statements of Operations for all periods presented. The assets comprising the
Paxson Network Affiliated Television segment were sold as of July 31, 1997 for
aggregate consideration of approximately $119 million. The sale of the
Company's interest in WTVX-TV was consummated on July 31, 1997 and resulted in
a pre-tax gain of approximately $13 million. The Company sold WPBF-TV as
discussed in the following paragraphs. The Company did not experience an
operating loss during the phase-out period of this segment.
Two wholly-owned subsidiaries of the Company owned and operated WPBF-TV, the
West Palm Beach, Florida ABC Network affiliate. On March 27, 1997, such
subsidiaries, Paxson Communications of West Palm Beach-25, Inc. ("WPBF-25") and
Paxson West Palm Beach License, Inc. ("Palm Beach License" and together with
WPBF-25, "WPBF Sellers"), entered into an asset purchase agreement (the "Asset
Sale Agreement") with The Hearst Corporation ("Hearst") pursuant to which the
subsidiaries agreed to sell substantially all of their assets relating to
WPBF-TV to Hearst for $85 million.
On April 29, 1997, the Company transferred, by merger, its interests in WPBF
Sellers to WPBF Exchange, Inc. ("WPBF Exchange"), for consideration payable to
Paxson Communications of Florida, Inc., a wholly-owned subsidiary of the
Company, of $85 million, consisting of $75 million cash and a subordinated
promissory note (the "Note") in the principal amount of $10 million
(collectively, the "Merger"). WPBF Exchange is controlled by Lowell W. Paxson
("Mr. Paxson"),
9
the Chairman of the Board and Chief Executive Officer of the
Company. WPBF Merger and WPBF License obtained a loan to finance the Merger from
Banque Paribas. Neither the Company nor any of its Subsidiaries were liable for
the repayment of such loan.
As a result of the Merger, the Company received a majority of the consideration
payable in connection with the sale of WPBF-TV on April 29, 1997 rather than
July 31, 1997. This sale resulted in a pre-tax gain to the Company of
approximately $52 million. No tax effect has been included related to the
WPBF-TV sale gain as the Company has sufficient net operating loss
carryforwards for utilization to offset the taxable income generated by the gain
on the sale of WPBF-TV in its entirety. The Company used approximately $52
million of such net operating loss carryforwards to offset the gain on the sale
of WPBF-TV (and the Company has reversed a portion of its valuation allowance on
its deferred tax asset related to the net operating losses to be used to offset
such taxable gain) leaving approximately $11.8 million of net operating loss
carryforwards remaining. Because the utilization of the net operating loss
resulted from the gain on discontinued operations, the deferred tax benefit
arising from the reversal of the valuation allowance has been included in the
calculation of such gain. A portion of the net operating losses remaining,
amounting to approximately $7.9 million, were acquired in the acquisition of
The American Network Group, Inc. ("ANG") and are limited to annual utilization
as a result of the change in ownership. The deferred tax assets associated with
these net operating loss carryforwards have been fully reserved in the past as
a result of prior uncertainty surrounding their recoverability. The Company
anticipates utilizing the remaining non-ANG loss carryforwards to reduce the
tax liability from the WTVX-TV sale gain in the third quarter of 1997. The
deferred tax benefit arising from the reversal of the valuation allowance on
the deferred tax asset resutling from such net operating losses will be
included in the calculation of the gain on the sale of WTVX-TV when such gain
is realized.
The Asset Sale Agreement between WPBF Sellers and Hearst was consummated on
July 31, 1997. Upon consummation of this transaction, WPBF Sellers paid the
$10 million note to the Company using proceeds from the asset sale. Mr. Paxson
realized no direct financial benefit from this transaction.
The Paxson Network Affiliated Television operations generated revenues of
approximately $10,779,000 and $9,696,000, and $5,495,000 and $5,156,000 for the
six and three month periods ended June 30, 1997 and 1996, respectively.
The components of net assets of discontinued operations (both Radio and
Television) included in the consolidated balance sheets at June 30, 1997 and
December 31, 1996, are as follows:
[Download Table]
1997 1996
----- ----
Current assets $ 20,995,995 $ 23,017,001
Noncurrent assets 237,313,241 180,194,830
------------ ------------
Total assets 258,309,236 203,211,831
============ ============
Current liabilities 7,124,012 8,344,163
Noncurrent liabilities 854,864 1,576,467
------------ ------------
Total liabilities 7,978,876 9,920,630
------------ ------------
Total net assets $250,330,360 $193,291,201
============ ============
Net assets of discontinued operations at June 30, 1997 and December 31, 1996
excludes cash and cash equivalents and accounts receivable of Paxson Network
Affiliated Television which will be retained by the Company. Additionally,
Senior Subordinated Notes, the related deferred loan origination costs and
accrued interest payable have been excluded from the net assets of the
discontinued operations as the Senior Subordinated Notes will not be assumed by
the buyers of the discontinued operations.
3. Common Stock Warrants
During the quarter ended June 30, 1997 2,123,243 Class C common stock warrants
were exercised for approximately 2,123,047 shares of Class A common stock. At
June 30, 1997 no Class C common stock warrants are outstanding.
In July 1997, the holders of the Company's Class A and B common stock warrants
exercised 32.5083 warrants for 900,000 shares of Class A common stock. The
Company has 65.6373 redeemable common stock warrants still outstanding which
entitle the holders to purchase 1,363,883 Class A common shares and 454,627
Class B common shares.
10
4. Income (Loss) Per Share Data
Computations of the weighted average common stock and common stock equivalents
outstanding are as follows:
[Enlarge/Download Table]
.................... FOR THE SIX MONTHS FOR THE THREE MONTHS
.................... ENDED JUNE 30, ENDED JUNE 30,
------------------------- --------------------
.................... 1997 1996 1997 1996
---- ---- ---- ----
Weighted average Class A and
Class B common stock outstanding 49,641,437 40,566,865 50,495,490 46,570,794
Weighted average of options
outstanding assumed exercised 2,385,100 * 2,550,147 *
Weighted average of common stock
warrants outstanding assumed
exercised 3,991,135 * 3,143,150 *
---------- ---------- ---------- ----------
Weighted average common stock and
common stock equivalents
outstanding 56,017,672 40,566,865 56,188,787 46,570,794
========== ========== ========== ==========
* In accordance with Accounting Principles Board Opinion No.15, the Company does
not present fully diluted EPS in the Consolidated Statements of Operations
because the Company's common stock equivalents were anti-dilutive or resulted in
a less than 3% dilution for the periods presented.
5. New Financial Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") adopted
Statement of Financial Standards ("SFAS") No.128, "Earnings per Share". The
Statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock. The Statement is effective for financial statements issued for periods
ending after December 15, 1997 and earlier application is not permitted. The
adoption of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share computation.
In February 1997, the FASB adopted SFAS No.129, "Disclosure of Information about
Capital Structure". The Statement establishes standards for disclosing
information about an entity's capital structure. The Statement is effective for
periods ending after December 15, 1997 and earlier application is not permitted.
The adoption of SFAS No. 129 is not expected to affect the Company's capital
structure disclosure.
In June 1997, the FASB adopted SFAS No.130, "Reporting Comprehensive Income".
The Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. The Statement is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The adoption of SFAS No. 130 will not affect the Company's financial statements.
In June 1997, the FASB adopted SFAS No.131, "Disclosures about Segments of an
Enterprise and Related Information". The Statement establishes standards for the
way that a public business enterprise reports information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim reports issued
to shareholders. The Statement is effective for periods beginning after December
31, 1997. Restatement of earlier periods provided for comparative purposes is
required in the year of application. The adoption of SFAS No. 131 will not
affect the Company's segment reporting disclosure.
11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since its inception in 1991, the Company has grown primarily through the
acquisition or management of radio and television broadcast stations and radio
networks, as well as the subsequent improvement of these properties' operations.
Certain of the Company's television stations were and continue to be operated
pursuant to time brokerage agreements for various periods. Under time brokerage
agreements, the stations' operating revenues and expenses are controlled by the
Company and are included in the consolidated statements of operations. The
Company currently operates two business segments: (1)Paxson Television, a
nationwide network of owned, operated or affiliated television stations carrying
its proprietary network, which presently broadcasts long form paid programming
consisting primarily of infomercials; and (2) The Travel Channel, a 24 hour per
day cable television network dedicated to travel related programming acquired
by the Company on July 11, 1997. Two other business segments, Paxson Radio and
Paxson Network-Affiliated Television have been classified as discontinued
operations for financial reporting purposes as a result of the Company's
decision made during 1997 to sell these segments. See Note 2 of the Notes to
Consolidated Financial Statements incorporated by reference herein.
The Company's operating results throughout the periods discussed have been
affected significantly by the timing of television acquisitions and sales.
Operating revenues are derived from the sale of advertising to local and
national advertisers. The operation of these stations involves low operating
expenses relative to traditional television station operation and does not vary
significantly with revenue, with the exception of costs associated with sales
commissions and agency fees. As such, upon obtaining a certain level of revenue
sufficient to cover fixed costs, additional revenue levels have a significant
impact on the operating results of an individual station.
The Company's past results are not necessarily indicative of future performance
due to various risks and uncertainties which may significantly reduce revenues
and increase operating expenses. For example, a reduction in expenditures by
national or local television advertisers in the Company's markets may result in
lower revenues. The Company may be unable to reduce expenses, including certain
variable expenses, in an amount sufficient in the short term to offset lost
revenues caused by poor market conditions. The broadcasting industry continues
to undergo rapid technological change which may increase competition within the
Company's markets as new delivery systems, such as direct broadcast satellite
and computer networks, attract customers. The changing nature of audience tastes
and viewing habits may affect the continued attractiveness of the Company's
broadcasting stations to advertisers, upon whom the Company is dependent for its
revenue. The concentration of the Company's assets in its television stations
operations increases the Company's exposure to the above risks and
uncertainties.
The Company currently expects to continue acquiring additional television
stations which may have similar effects on the comparability of revenues,
operating expenses, interest expense and operating cash flow as those described
above. Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount (contingent or otherwise) of assets and liabilities
at the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. The fair values of the Company's long-term
debt and the senior subordinated notes were estimated based on market rates and
instruments with similar risks and maturities. The fair value estimates
presented are based on pertinent information available to management as of June
30, 1997. As a result of the foregoing, the estimates presented in the Company's
financial statements are not necessarily indicative of the amounts that the
Company could realize in a current market exchange and have not been
comprehensively revalued for purposes of the Company's financial statements.
The Company believes that its network of television stations comprise a valuable
national television broadcasting distribution infrastructure, the value of which
could potentially be greater if employed to air programming other than, or in
addition to, the long form paid programming which is currently being aired. The
Company is presently negotiating strategic alternatives with respect to these
television stations, including the creation of a new television network in
tandem with a major broadcast television network, Hollywood television and movie
studio, television programming syndicator or cable network programmer, who would
purchase time on and provide their programming to Paxson television. The Company
has not entered into any binding agreements or commitments relating to a change
in the use or character of its group of television stations.
This report contains forward-looking statements which are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995.
Statements as to what the Company "believes", "intends", "expects" or
"anticipates", and other similarly anticipatory expressions, are generally
forward-looking and are made only as of the date of this Report. Readers of this
Report are cautioned not to place undue reliance on such
12
forward-looking statements, as they are subject to risks and uncertainties which
could cause actual results to differ materially from those discussed in the
forward-looking statements and from historical results of operations. Among the
risks and uncertainties which could cause such a difference are those relating
to the Company's high level of indebtedness and the restrictions placed on the
Company's business and operations by the terms of its indebtedness and its
outstanding preferred stock, the risks relating to the comprehensive
governmental regulation of the Company's businesses, including the restrictions
on multiple broadcast property ownership, the broadcast licensing renewal
requirements, the risks of industry and economic conditions which could
adversely affect the Company's business operations, the risk that the radio sale
is not consummated and the other factors described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
The following table lists those television properties that the Company owns,
operates or is affiliated with, and those properties which the Company has
agreements to acquire or operate, as identified under "Announced TV
Acquisitions" below. (Television and cable households in thousands.)
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------------------
NATIONAL STATION CURRENT TOTAL CURRENT
TV COMMENCEMENT CABLE STATION MARKET STATION TOTAL
MARKET OF CARRIAGE AT CABLE CABLE CABLE MARKET TV
MARKET (1) RANK STATION CH OPERATIONS COMMENCEMENT(2) CARRIAGE(3) HOUSEHOLDS CARRIAGE%(3) HOUSEHOLDS
------ ---- ------- -- ---------- ------------ -------- ---------- --------- ----------
OWNED OR OPERATED
New York, NY* 1 WPXN TV 31 7/97 4,141 4,170 4,663 89.4% 6,712
New York, NY 1 WHAI TV 43 3/96 626 790 4,663 16.9% 6,712
Los Angeles, CA 2 KZKI TV 30 5/95 1,453 2,457 3,049 80.6% 4,942
Philadelphia, PA 4 WTGI TV 61 2/95 1,225 1,689 2,015 83.8% 2,654
San Francisco, CA 5 KLXV TV 65 6/95 650 1,309 1,620 80.8% 2,279
Boston, MA 6 WGOT TV 60 5/95 604 997 1,665 59.9% 2,150
Boston, MA* 6 WHRC TV(5) 46 4/97 0 30 1,665 1.8% 2,150
Washington, D.C. 7 WVVI TV 66 7/97 940 940 1,301 72.2% 1,909
Dallas, TX 8 KINZ TV 68 12/96 0 667 954 69.9% 1,849
Atlanta, GA 10 WTLK TV 14 4/94 300 971 1,089 89.1% 1,625
Atlanta, GA* 10 WNGM TV 34 4/96 182 312 1,089 28.6% 1,625
Houston, TX 11 KTFH TV 49 3/95 647 845 894 94.5% 1,595
Cleveland, OH 13 WAKC TV 23 3/96 560 729 1,001 72.8% 1,461
Cleveland, OH* 13 WOAC TV(10) 67 10/95 332 369 1,001 36.8% 1,461
Minneapolis, MN 14 KXLI TV 41 10/96 605 664 722 92.0% 1,428
Tampa, FL* 15 WFCT TV 66 8/94 0 968 1,014 95.5% 1,411
Miami, FL* 16 WCTD TV 35 4/94 396 1,014 1,014 100.0% 1,363
Phoenix, AZ 17 KWBF TV 13 3/96 23 26 694 3.8% 1,213
Phoenix, AZ 17 KAJW 51 12/97 0 0 694 0.0% 1,213
TV(4)(8)
Denver, CO 18 KUBD TV 59 8/95 430 472 725 65.1% 1,185
Sacramento, CA* 20 KCMY TV 29 7/95 624 640 711 90.0% 1,116
St. Louis, MO 21 WCEE 13 1/96 23 67 583 11.4% 1,110
TV(6)(10)
Orlando, FL* 22 WIRB TV 56 12/94 468 757 779 97.2% 1,022
Hartford, CT* 27 WTWS TV(5) 26 3/95 661 778 790 98.5% 916
Milwaukee, WI 31 WHKE TV 55 7/96 257 329 468 70.3% 787
Kansas City, MO 32 KINB TV 50 5/97 397 397 515 77.1% 787
Salt Lake City, UT 36 KOOG TV 30 7/97 200 200 372 53.7% 671
Grand Rapids, MI 37 WILV 43 9/96 0 303 404 74.9% 648
TV(6)(10)
Oklahoma City, OK 43 KMNZ TV 62 10/96 0 94 367 25.6% 588
Greensboro, NC 46 WAAP TV 16 7/96 323 338 357 94.7% 568
Providence, RI 47 WOST 69 12/97 0 0 423 0.0% 558
TV(4)(7)
Birmingham, AL* 51 WNAL TV 44 10/96 31 88 347 25.3% 526
Albany, NY 52 WOCD TV 55 5/96 251 272 368 74.0% 507
Dayton, OH 53 WTJC TV 26 10/95 298 310 349 88.9% 503
Fresno, CA* 55 KKAG TV 61 6/97 195 222 265 83.9% 491
Little Rock, AR* 57 KVUT 42 8/97 0 0 298 0.0% 480
TV(4)(8)
Tulsa, OK* 58 KGLB TV(8) 44 7/97 0 0 288 0.0% 461
Cedar Rapids, IA* 86 KTVC TV 48 5/97 0 0 199 0.0% 307
San Sebastian, PR NR WJWN TV 38 2/96 0 0 0 0.0% 0
Ponce, PR NR WKPV TV 20 2/96 0 0 0 0.0% 0
13
[Enlarge/Download Table]
San Juan, PR NR WSJN TV(11) 24 2/96 285 285 298 95.6% 1,064
--- ---- ---- ---- -----
---------------------------------------------------------------------------------------------------------------------------
TOTAL OWNED OR OPERATED(9) 17,127 24,496 30,602 80.0% 46,886
---------------------------------------------------------------------------------------------------------------------------
AFFILIATES
Philadelphia, PA 4 WTVE TV 51 10/96 414 644 2,015 32.0% 2,654
Washington, D.C. 7 WSHE TV 60 10/96 0 122 1,301 9.4% 1,909
Indianapolis, IN 25 WIIB TV 63 1/96 401 424 606 69.9% 939
Hartford, CT 27 WHCT TV 18 7/97 0 0 790 0.0% 916
Raleigh, NC 29 WRMY TV 47 6/96 0 313 505 61.9% 815
Norfolk, VA 40 WJCB TV 49 8/95 343 404 467 86.5% 632
Fresno, CA 55 KGMC TV 43 1/96 179 164 265 61.9% 491
---- ---- ---- ----- ----
TOTAL AFFILIATES 1,336 2,070 5,949 34.8% 8,355
---------------------------------------------------------------------------------------------------------------------------
TOTAL OWNED, OPERATED AND AFFILIATES(9) 18,050 26,566 32,180 82.6% 49,271
---------------------------------------------------------------------------------------------------------------------------
ANNOUNCED TV ACQUISITIONS
San Fransisco, CA 5 KWOK 68 1,620 2,279
TV(4)(6)
Detroit, MI 9 WBSX TV 31 1,174 1,772
Seattle, WA 12 KBCB TV(4) 24 1,071 1,492
Pittsburgh, PA 19 Channel 40 40 987 1,149
Nashville, TN 33 WKZX TV 28 483 783
Buffalo, NY 39 WAQF TV(4) 51 464 633
West Palm Beach, FL 44 WHBI TV 67 486 587
Albuquerque, NM 48 Channel 14 14 327 554
Wilkes Barre, PA 49 WSWB TV(4) 64 444 553
Roanoke, VA 67 WEFC TV 38 255 399
Honolulu, HI 69 KAPA TV(4) 66 331 383
Green Bay, WI 70 WSCO TV 14 216 376
Santa Barbara, CA 115 KADY TV 63 183 214
---- ----
---------------------------------------------------------------------------------------------------------------------------
TOTAL ANNOUNCED TV STATIONS(9) 6,238 8,681
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
TOTAL TV NETWORK(9) 38,418 57,952
---------------------------------------------------------------------------------------------------------------------------
*Operated or to be operated pursuant to a time brokerage agreement; except as
noted, the Company has an agreement and/or option to acquire a 100% ownership
interest.
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) Cable households reached at commencement of station's operations.
(3) Cable households reached at 7/97, to be billed in 8/97, and as a percentage
of the total market cable households.
(4) Station is currently under construction or not operating commercially.
(5) No option to acquire.
(6) Pending affiliate.
(7) 50% ownership interest.
(8) 49% ownership interest with remaining 51% to be acquired.
(9) Market Household totals do not double count markets where the Company has
more than one station.
(10)Under contract to sell.
(11)Includes the household numbers for the three markets in Puerto Rico.
Purchases of Broadcast Properties:
During May 1997, the Company completed its purchase of KINB-TV (formerly
KYFC-TV) for cash consideration of $16,400,000 and also acquired a 50% interest
in WOST-TV for cash consideration of $1,000,000.
During May 1997, the Company entered into agreements to purchase radio stations
WKGR-FM, WOLL-FM, WBZT-AM and WEAT-AM serving the West Palm Beach, Florida
market for aggregate cash consideration of $33,000,000. The Company also
entered into agreements to purchase television stations WEFC-TV and KAPA-TV
serving the Roanoke, Virginia and Honolulu, Hawaii markets for $5,500,000 and
$5,000,000, respectively.
During June 1997, the Company completed its purchases of KOOG-TV for cash
consideration of $7,500,000. The Company also acquired 49% interests in WSWB-TV
and KGLB-TV for $52,000 and $421,000, respectively. The Company entered into an
agreement to purchase television station WIRB-TV from The Christian Network,
Inc. ("CNI") for $13,162,000. As part of the purchase consideration for WIRB-TV
outstanding loans owed by CNI to the Company aggregating approximately
$4,058,000 at June 30, 1997, shall be applied against the purchase price. The
Company financed the
14
CNI acquisition of television station WHRC-TV for $15,000,000 and has entered
into a seven year time brokerage agreement to operate the station. The Company
began operating WHRC-TV in April 1997 pursuant to a time brokerage agreement
with the prior owner. The Company began operating WPXN-TV (formerly WBIS-TV) in
New York, New York pursuant to a time brokerage agreement on June 30, 1997
pending completion of its acquisition.
During June 1997, the Company entered into an agreement to purchase The Travel
Channel from Landmark Communications, Inc. ("Landmark") for aggregate
consideration of $75,000,000, including $55,000,000 in the Company's class A
common stock (4,773,097 shares issued at closing) and $20,000,000 in cash. The
Company consummated the Travel Channel acquisition on July 11, 1997. The
Company also issued 97,632 shares to Communications Equity Associates, Inc.
("CEA") in connection with their role as financial advisor in the Travel
Channel transaction. The Chairman of the Board and Chief Executive Officer of
CEA has been a director of the Company since February 1995. The shares issued
to Landmark and CEA are entitled to piggyback registration rights in the event
of certain offerings of shares to the public.
Also during June 1997, the Company entered into agreements to purchase
television stations KADY-TV and WKZX-TV and a construction permit for
television station Channel 14 serving, respectively, the Santa Barbara,
California, Nashville, Tennessee and Albuquerque, New Mexico markets for,
respectively, $8,000,000, $4,200,000 and $4,900,000.
During July, the Company completed the purchase of radio station WKES-FM for
$35,323,000 and television station WVVI-TV from ValueVision International for
$40,000,000, including $10,000,000 in the Company's class A common stock
(1,197,892 shares issued at closing). The shares issued to ValueVision
International are entitled to piggyback registration rights in the event of
certain offerings of shares to the public.
Sales of Broadcast Properties:
During March 1997, the Company entered into an agreement to sell its interests
in television stations WOAC-TV and WNGM-TV, each of which is currently operated
under time brokerage agreements with Whitehead Media, Inc., for aggregate
consideration of $73,500,000, in separate agreements with the same buyer. The
buyer did not make the required escrow deposit for the WNGM-TV sale, and
accordingly, the Company terminated the WNGM-TV contract. The buyer subsequently
declared bankruptcy.
During May 1997, the Company completed the sale of WSHE-TV (formerly WYVN-TV)
to DP Media, Inc. ("DP Media"), a company beneficially owned by members of
Mr. Paxson's family, for $2,470,000 in the form of a promissory note, which
note was repaid with interest from the proceeds of the bank financing secured
by DP Media and described below. The station became a Company affiliate upon
its sale to DP Media.
During July 1997, the Company entered into contracts to sell its interests in
television stations WCEE-TV and WILV-TV, serving the St. Louis, Missouri and
Grand Rapids, Michigan markets, for $4,800,000 and $7,000,000 respectively, to
DP Media. The Company plans to continue including these stations in its
nationwide broadcast TV network pursuant to affiliation agreements.
Other:
During June 1997, the Company financed DP Media's purchase of WRMY-TV from
Roberts Broadcasting through a loan to DP Media of approximately $10,000,000 (of
which approximately $7,500,000, which was assumed by DP Media, had been advanced
to Roberts Broadcasting through the date of closing). The station became a
Company affiliate upon its sale to DP Media.
The DP Media loans for WSHE-TV, WRMY-TV and WEBZ-FM were repaid to the Company
on July 30, 1997, using proceeds of third party financing obtained from Banque
Paribas, an affiliate of a holder of the Company's Junior preferred stock.
15
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected financial
information as a percentage of revenues.
Statements of Operations
[Download Table]
<Caotion>
For the six months For the three months
ended June 30, ended June 30,
---------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Operating Expenses:
Direct 17.9 16.3 18.2 16.4
Programming 5.2 3.7 5.3 3.7
Sales and promotion 4.3 5.3 4.1 5.2
Technical 10.9 6.3 10.9 6.6
General and administrative 31.9 30.1 30.3 30.1
Trade and barter 0.1 -- 0.2 --
Time brokerage agreement fees 6.4 4.4 7.4 5.1
Option plan compensation 3.8 7.3 3.9 2.1
Depreciation and amortization 23.9 17.7 26.2 17.6
----- ----- ----- -----
Total operating expenses 104.4 91.1 106.5 86.8
----- ----- ----- -----
Operating income (loss) (4.4) 8.9 (6.5) 13.2
Other income (expense):
Interest expense (47.8) (53.6) (49.6) (49.0)
Interest income 7.2 14.4 7.4 21.4
Other expense, net (1.7) (2.2) (4.1) (4.1)
----- ----- ----- -----
Loss from continuing operations (46.7) (32.5) (52.8) (18.5)
Income from discontinued operations 137.6 4.0 282.2 9.2
----- ----- ----- -----
Net income (loss) 90.9 (28.5) 229.4 (9.3)
===== ===== ===== =====
16
The following sets forth, for the periods indicated, selected information for
the Company's business segments:
[Enlarge/Download Table]
As of and for the six As of and for the three
months ended June 30, months ended June 30,
-------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
PAXSON TELEVISION
Total revenue $ 36,685,852 $ 27,327,040 $ 18,161,197 $ 14,611,120
Operating expenses, less
depreciation, amortization
and option plan compensation 23,131,245 14,482,609 11,597,230 7,848,987
Depreciation and amortization 8,089,044 4,438,053 4,342,389 2,367,123
Option plan compensation 170,112 7,238 80,151 3,675
------------ ------------ ------------ ------------
Operating income $ 5,295,451 $ 8,399,140 $ 2,141,427 $ 4,391,335
============ ============ ============ ============
Operating cash flow $ 15,956,000 $ 13,988,000 $ 7,954,000 $ 7,463,000
============ ============ ============ ============
Total identifiable assets $356,253,335 $173,354,366 $356,253,335 $173,354,366
============ ============ ============ ============
Capital expenditures $ 17,644,464 $ 6,537,552 $ 8,890,161 $ 5,016,886
============ ============ ============ ============
PAXSON RADIO
Total revenue $ - $ - $ - $ -
Operating expenses, less
depreciation, amortization
and option plan compensation - - - -
Depreciation and amortization - - - -
Option plan compensation - - - -
------------ ------------ ------------ ------------
Operating loss $ - $ - $ - $ -
============ ============ ============ ============
Operating cash flow $ - $ - $ - $ -
============ ============ ============ ============
Total identifiable assets $234,651,739 $ 84,284,513 $234,651,739 $ 84,284,513
============ ============ ============ ============
Capital expenditures $ 5,708,565 $ 1,445,034 $ 3,013,843 $ 701,677
============ ============ ============ ============
PAXSON NETWORK-AFFILIATED
TELEVISION
Total revenue $ - $ - $ - $ -
Operating expenses, less
depreciation, amortization
and option plan compensation - - - -
Depreciation and amortization - - - -
Option plan compensation - - - -
------------ ------------ ------------ ------------
Operating income $ - $ - $ - $ -
============ ============ ============ ============
Operating cash flow $ - $ - $ - $ -
============ ============ ============ ============
Total identifiable assets $ 11,684,777 $ 37,930,692 $ 11,684,777 $ 37,930,692
============ ============ ============ ============
Capital expenditures $ 284,973 $ 881,759 $ 135,413 $ 761,818
============ ============ ============ ============
CORPORATE AND OTHER
Total revenue $ 788,487 $ 720,011 $ 375,802 $ 383,522
Operating expenses, less
depreciation, amortization
and option plan compensation 5,631,899 4,065,590 2,572,707 2,212,590
Depreciation and amortization 844,705 533,945 511,630 269,150
Option plan compensation 1,261,725 2,030,428 637,681 309,027
------------ ------------ ------------- ------------
Operating loss $ (6,949,842) $ (5,909,952) $ (3,346,216) $ (2,407,245)
============ ============ ============ ============
Operating cash flow $ (6,491,000) $ (3,346,000) $ (3,497,000) $ (1,829,000)
============ ============ ============ ============
Total identifiable assets $ 97,799,001 $141,879,080 $ 97,799,001 $141,879,080
============ ============ ============ ============
Capital expenditures $ 1,026,490 $ 5,071,759 $ 518,669 $ 4,816,340
============ ============ ============ ============
CONSOLIDATED
Total revenue $ 37,474,339 $ 28,047,051 $ 18,536,999 $ 14,994,642
Operating expenses, less
depreciation, amortization
and option plan compensation 28,763,144 18,548,199 14,169,937 10,061,577
Depreciation and amortization 8,933,749 4,971,998 4,854,019 2,636,273
Option plan compensation 1,431,837 2,037,666 717,832 312,702
------------ ------------ ------------ ------------
Operating (loss) income $ (1,654,391) $ 2,489,188 $ (1,204,789) $ 1,984,090
============ ============ ============ ============
Operating cash flow $ 9,465,000 $ 10,642,000 $ 4,457,000 $ 5,634,000
============ ============ ============ ============
Total identifiable assets $700,388,852 $437,448,651 $700,388,852 $437,448,651
============ ============ ============ ============
Capital expenditures $ 24,664,492 $ 13,936,104 $ 12,558,086 $ 11,296,721
============ ============ ============ ============
"Operating cash flow" is defined as net income excluding non-cash items,
non-recurring items including terminated operations, interest, other income,
income taxes and time brokerage fees, less scheduled program rights payments.
The Company has included operating cash flow data because the financial
performance of broadcast companies is frequently evaluated based on some measure
of cash flow from operations. Operating cash flow is not, and should not be used
as an indicator or alternative to operating income, net income or cash flow as
reflected in the Consolidated Financial Statements as it is not a measure of
financial performance under generally accepted accounting principles.
17
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Consolidated revenues for the six months ended June 30, 1997 increased 34% (or
$9.5 million) to $37.5 million from $28.0 million for the six months ended June
30, 1996. This increase was primarily due to television station acquisitions and
new time brokerage operations.
Operating expenses for the six months ended June 30, 1997 increased 53% (or
$13.5 million) to $39.1 million from $25.6 million for the six months ended June
30, 1996. The increase was primarily due to higher direct expenses such as
commissions which rise in proportion to revenues ($2.1 million), other
non-direct costs of operating new television stations ($5.2 million), higher
depreciation and amortization primarily related to assets acquired ($4.0
million), and increased time brokerage agreement fees ($1.2 million), all of
which were partially offset by lower option plan compensation costs ($0.6
million).
Operating cash flow for the six months ended June 30, 1997 decreased 11% (or
$1.2 million) to $9.5 million, from $10.6 million for the six months ended June
30, 1996. The decrease in operating cash flow was primarily a result of
increased corporate overhead and other costs which offset the increase in
television cash flows resulting from station acquisitions and new time brokerage
operations.
Interest expense for the six months ended June 30, 1997 increased to $17.9
million from $15.0 million for the six months ended June 30, 1996, an increase
of 19% primarily due to a greater level of debt throughout the period. As a
result of acquisitions, at June 30, 1997, total long-term debt and senior
subordinated notes were $336.5 million, compared with the balance of $231.8
million outstanding a year prior.
Interest income for the six months ended June 30, 1997 decreased to $2.7 million
from $4.0 million, primarily due to lower levels of cash and cash equivalents
invested throughout the period.
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Consolidated revenues for the three months ended June 30, 1997 increased 24% (or
$3.5 million) to $18.5 million from $15.0 million for the three months ended
June 30, 1996. This increase was primarily due to television station
acquisitions and new time brokerage operations.
Operating expenses for the three months ended June 30, 1997 increased 52% (or
$6.7 million) to $19.7 million from $13.0 million for the three months ended
June 30, 1996. The increase was primarily due to higher direct expenses such as
commissions which rise in proportion to revenues ($0.9 million), other
non-direct costs of operating new television stations ($2.2 million), higher
depreciation and amortization primarily related to assets acquired ($2.2
million), increased time brokerage agreement fees ($0.6 million), and increased
option plan compensation costs ($0.4 million).
Operating cash flow for the three months ended June 30, 1997 decreased 20% (or
$1.1 million) to $4.5 million, from $5.6 million for the three months ended June
30, 1996. The decrease in operating cash flow was primarily a result of
increased corporate overhead and other costs which offset the increase in
television cash flows resulting from station acquisitions and new time brokerage
operations.
Interest expense for the three months ended June 30, 1997 increased to $9.2
million from $7.3 million for the three months ended June 30, 1996, an increase
of 25% primarily due to a greater level of debt throughout the period. As a
result of acquisitions, at June 30, 1997, total long-term debt and senior
subordinated notes were $336.5 million, compared with the balance of $231.8
million outstanding a year prior.
Interest income for the three months ended June 30, 1997 decreased to $1.4
million from $3.2 million, primarily due to lower levels of cash and cash
equivalents invested throughout the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at June 30, 1997 and December 31, 1996 was $52.5
million and $76.2 million, respectively, and the ratio of current assets to
current liabilities was 3.08 :1 and 4.88:1 on such dates, respectively. Working
capital decreased primarily due to the acquisitions previously discussed.
Cash provided by operations of $2.4 million and $3.4 million for the six months
ended June 30, 1997 and 1996, respectively, reflects the improvement in
operating results of existing properties, acquisitions and time brokerage
properties net of increased corporate overhead, interest expense and increases
in other assets. Cash used for investing activities primarily reflects the
acquisitions and investments discussed above, and purchases of equipment for
these and existing properties net of the proceeds from the sale of network
affiliated television. Cash provided by financing activities primarily reflects
the proceeds from the long term debt borrowings net of debt repayments. In
addition, the
18
Company has advanced $1,020,000 to CNI during the six months ended
June 30, 1997 under a demand note bearing interest at the prime rate (currently
8.50%). At June 30, 1997 the Company had total advances to CNI outstanding of
approximately $4,013,000 million, which has been included in investments in
broadcast properties. Non-cash activity relates to option plan compensation,
reciprocal trade and barter advertising revenue and expense and accretion of
discount on senior subordinated notes, as well as dividends and accretion on the
redeemable preferred stock. The sale of WTWS-TV during the first quarter of 1997
was a non cash transaction and accordingly, the statement of cash flows does not
reflect the increase in investments in broadcast properties of $15 million for
the note receivable from the sale, the sale of property and equipment of
approximately $2.5 million, the accrual of transaction expenses of $0.4 million
or the deferred gain on sale of broadcast property of approximately $12.1
million. Additionally, at June 30, 1997, the Company had accrued approximately
$4.8 million for transaction expenses related to the network affiliated
television sale which is not reflected in the statement of cash flows.
The Company's primary capital requirements are for the acquisition of
broadcasting properties and related capital expenditures and interest and
principal payments on indebtedness. The Company's outstanding Senior
subordinated notes require semi-annual interest payments at a fixed rate. The
Company presently has $110 million ($105 million at June 30, 1997) of
outstanding borrowings under its $200 million senior secured revolving credit
facility ("Senior Facility"). Borrowings under the Senior Facility bear
interest at floating rates and require interest payments on varying dates, but
at least quarterly, depending on the interest rate option selected by the
Company.
The Company believes that the net proceeds from the network affiliated
television and radio segment sales will be sufficient to complete the
investments discussed below (including the expected capital expenditures
associated therewith), and to meet its anticipated short term and long term
working capital requirements for its existing properties. The Company believes
it will be able to pursue its business acquisition strategy using cash flow from
operations and the proceeds from segment sales discussed above. However, should
the Company suffer a significant impairment to its cash flow from operations due
to the occurrence of one or more adverse events, or should a radio segment
sale not occur, the Company could have insufficient resources to repay
indebtedness under the Senior Facility or the senior subordinated notes when due
or to make required payments on its preferred stock. Unless the Company enters
into a definitive agreement with Clear Channel or another party to sell its
radio segment and consummates such sale as currently contemplated, the Company
would require additional financing to enable it to complete its acquisition
strategy, capital expenditures and working capital requirements discussed
above. There can be no assurance that the Company would be able to obtain the
additional financing which could adversely affect the Company's ability to
complete its acquisition strategy.
INVESTMENT COMMITMENTS
The completion of each of the acquisitions discussed below is subject to a
variety of factors and to the satisfaction of various conditions, and there can
be no assurance that any of such investments will be completed. The Company has
agreements to purchase significant assets of, or to enter into time brokerage
and financing arrangements with respect to, the following properties, which are
subject to various conditions, including the receipt of regulatory approvals:
[Download Table]
Property Market Served * Purchase Price
--------------------------------------------------------------------------------
Television:
WPXN-TV New York City, NY (1) $257,500,000
WVVI-TV Washington, DC (2)(13) $ 40,000,000
WBSX-TV Detroit, MI $ 35,000,000
Channel 40 Pittsburgh, PA $ 35,000,000
KCMY-TV Sacramento, CA (3) $ 17,000,000
WIRB-TV Orlando, FL (4) $ 13,162,000
WNAL-TV Birmingham, AL (5) $ 10,000,000
KBCB-TV Seattle, WA $ 8,000,000
KADY-TV Santa Barbara, CA $ 8,000,000
KKAG-TV Fresno, CA (6) $ 7,960,000
WHBI-TV West Palm Beach, FL (7) $ 7,000,000
KAJW-TV Phoenix, AZ (8) $ 6,600,000
WSWB-TV Wilkes-Barre, Scranton, PA (8) $ 6,160,000
WEFC-TV Roanoke, VA $ 5,500,000
KAPA-TV Honolulu, HI $ 5,000,000
KTVC-TV Cedar Rapids, IA (9) $ 5,000,000
Channel 14 Albuquerque, NM $ 4,900,000
WSCO-TV Green Bay, WI $ 4,750,000
KWOK-TV San Francisco, CA (7) $ 4,500,000
WKZX-TV Nashville, TN $ 4,200,000
WAQF-TV Buffalo, NY (10) $ 3,000,000
WHCT-TV Hartford, CT (11) $ 3,000,000
KVUT-TV Little Rock, AR (12) $ 1,250,000
WFCT-TV, WCTD-TV Tampa and Miami, FL $ 801,000
19
[Download Table]
KGLB-TV Tulsa, OK (8) $ 421,000
Paxson Radio:
WILV-FM formerly (WKES-FM) Tampa, FL (13) $35,323,000
WKGR-FM, WOLL-FM West Palm Beach, FL $33,000,000
WBZT-AM, WEAT-AM
Other:
Travel Channel Atlanta, GA (13)(14) $75,000,000
* Each station is licensed by the FCC to serve a specific community,
which is included in the listed market.
(1) The purchase price includes $7,500,000 of Class A Common Stock.
(2) The purchase price included $10,000,000 of Class A Common Stock.
(3) The Company has loaned an aggregate of $8,500,000 to KCMY-TV and began
operating the station pursuant to a time brokerage agreement on October
1, 1996, pending completion of the acquisition of the station. The loan
will be applied to the purchase price at the date of closing.
(4) The Company has outstanding loans at June 30, 1997 aggregating
approximately $4,058,000 which will be applied against the purchase
price at the date of closing. The Company is currently operating this
station pursuant to a time brokerage agreement.
(5) In September 1996, the Company loaned $8,000,000 to WNAL-TV and began
operating the station pursuant to a time brokerage agreement pending
completion of the acquisition of the station. The loan amount of
$8,000,000 will be applied to the purchase price at the date of
closing.
(6) The Company began operating the station pursuant to a time brokerage
agreement on June 1, 1997 pending completion of the acquisition of the
station.
(7) The Company has committed to loan up to $7,000,000, and $4,500,000 to
Cocola Broadcasting ("Cocola") to finance the construction and
acquisition of stations WHBI-TV and KWOK-TV , respectively. At June 30,
1997, the Company had advanced approximately $5,654,000 to Cocola. The
Company plans to provide programming for the stations pursuant to
affiliation agreements upon Cocola's acquisitions and commencement of
operations.
(8) The Company has acquired a 49% interest in this property; commitment
represents purchase price for the remaining 51%.
(9) On May 3, 1997, the Company began operating the station pursuant to
a TBA. The purchase reflects cash portion only and does not include
600,000 shares of Class A Common Stock consideration.
(10) Includes the purchase of two low power television stations, W69CS and
W63BM.
(11) Pending affiliate.
(12) Station is currently under construction. The Company purchased a 49%
interest during 1996 with an option to acquire the remaining 51%.
(13) The Company completed the purchase in July 1997.
(14) The purchase price included $55,000,000 of Class A Common Stock.
20
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
No material legal proceedings are pending to which the Company or any of its
property is subject. To the knowledge of the Company, no such legal proceedings
are contemplated by any governmental authority.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on May 2, 1997. At the
meeting, all seven of the Company's existing directors were re-elected for one
year terms. The appointment of Price Waterhouse LLP as the Company's independent
certified public accountants was also ratified.
The number of Class A common stock votes cast for, cast against and withheld, as
well as the number of broker nonvotes with respect to the election of directors
is set forth below:
[Download Table]
Director For Withheld Broker Nonvotes Abstain
Lowell W. Paxson 34,164,764 8,500
James B. Bocock 34,160,469 12,795
Arthur D. Tek 34,164,764 8,500
J. Patrick Michaels, Jr. 32,845,869 1,327,395
S. William Scott 34,165,264 8,000
Bruce L. Burham 34,166,264 7,000
James L. Greenwald 34,163,764 9,500
There were no votes cast against the election of the above 7 directors.
The number of Class A common stock votes cast for, cast against and abstaining
as well as the number of broker nonvotes with respect to the appointment of
Price Waterhouse LLP as the Company's independent certified public accountants
is set forth below:
[Download Table]
For Against Withheld Broker Nonvotes Abstain
Accountant Appointment 34,162,173 5,596 5,795
The Company's 8,311,639 Class B common stock (83,116,390 votes) are owned by Mr.
Lowell W. Paxson, the Chairman of the Board and Chief Executive Officer of the
Company. Mr. Paxson cast all his Class B votes for the election of each of the
directors nominated and to retain Price Waterhouse as the Company's independent
certified public accountants.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits:
Exhibit No. Description
3.1.1 Certificate of Incorporation of the Company**
3.1.2 The Company's Certificate of Designations of the Company's
Junior Cumulative Compounding Redeemable Preferred Stock**
3.1.3 The Company's Certificate of Designations of the Company's
12 1/2% Cumulative Exchangeable Preferred Stock ****
3.1.4 Bylaws of the Company***
4.1 Form of Stock Certificate of Class A Common Stock*
4.2 Third Amendment, dated May 30, 1997, with respect to the
Amended and Restated Credit Agreement, dated as of November
19, 1996, among Paxson Communications Corporation, the Lenders
named therein and Union Bank of California, N.A., as Agent
10.168 Construction Agreement, dated December 23, 1996, between WHCT
Broadcasting, Inc., and Paxson Communications of Hartford-18,
Inc. for WHCT(TV), Channel 18, Hartford, Connecticut
10.169 Asset Purchase Agreement, dated April 11, 1997, by and between
Roberts Broadcasting of Cookeville, L.L.C. and Paxson
Communications of Nashville-28, Inc.
21
10.170 Amended and Restated Asset Purchase Agreement, dated April 15,
1997, by and among Paxson Communications of Buffalo-51, Inc.,
Fant Broadcasting Company of New York, L.L.C., Anthony Fant
and Paxson Communications Corporation
10.171 Asset Purchase Agreement, dated May 14, 1997, by and between
Paxson Communications of West Palm Beach, Inc. and American
Radio Systems Corporation
10.172 Option Agreement, dated May 20, 1997, by and between Paxson
Communications of Honolulu-66, Inc. and Dove Broadcasting
Company of Hawaii, Inc. for television station KAPA(TV),
Kaneohe, Hawaii
10.172.1 Loan Agreement, dated May 20, 1997, by and among Paxson
Communications of Honolulu-66, Inc., and Dove Broadcasting
Company of Hawaii
10.173 Asset Purchase Agreement, dated May 28, 1997, by and among
Paxson Communications of Roanoke-38, Inc., Vine and Branch,
Inc. and Evangel Foursquare Church for television station
WEFC, Roanoke, Virginia
10.174 Loan Agreement, dated June 10, 1997, by and between Paxson
Communications of Boston-46, Inc. and Channel 46 of Boston,
Inc. for television station WHRC(TV), Norwell, Massachusetts
10.175 Asset Acquisition Agreement, dated June 13, 1997, by and among
Landmark Communications, Inc., The Travel Channel, Inc., and
Paxson Communications
10.176 Asset Purchase Agreement, dated June 23, 1997, by and between
Paxson Communications of Orlando-56, Inc. and Channel 56 of
Orlando, Inc.
10.177 Loan Agreement, dated June 30, 1997, by and between Roberts
Broadcasting Company of Albuquerque and Paxson Communications
of Albuqurque-14, Inc. relating to television station
(Channel 14), Albuquerque, New Mexico
10.178 Asset Purchase Agreement, dated June 25, 1997, by and between
John W. Hyde, as Chapter 11 Trustee of the Chapter 11 Debtor
Estate of Riklis Broadcasting Corporation, AKA KADY-TV, AKA
Pacific Rim Video and Paxson Communications of Los Angeles-63,
Inc.
27 Financial Data Schedule (for SEC use only)
---------------
* Filed with the Company's Registration Statement on Form S-4,
filed September 26, 1994, Registration No. 33-84416 and
incorporated herein by reference.
** Filed with the Company's Annual Report on Form 10-K, dated
March 31, 1995 and incorporated herein by reference.
*** Filed with the Company's Registration Statement on Form S-1,
as amended, filed January 26, 1996, Registration No. 333-473
and incorporated herein by reference.
**** Filed with the Company's Registration Statement on Form S-3,
as amended, filed August 15, 1996, Registration No. 333-10267
and incorporated herein by reference.
(b) Reports on Form 8-K.
The Company filed a Form 8-K, dated April 29, 1997, under Item 2. Acquisition or
Disposition of Assets in connection with the Company's sale of WPBF-TV 25 in
West Palm Beach, Florida. The Form 8-K included pro forma financial information
of the Company and exhibits required under Item 7. Financial Statements and
Exhibits.
22
PAXSON COMMUNICATIONS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAXSON COMMUNICATIONS CORPORATION
Date: August 14, 1997 By: /s/ James B. Bocock
-------------------------------
James B. Bocock
President, Chief Operating
Officer, Director
Date: August 14, 1997 By: /s/ Arthur D. Tek
-------------------------------
Arthur D. Tek
Vice President, Chief
Financial Officer, Director
23
Dates Referenced Herein and Documents Incorporated by Reference
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