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Ion Media Networks Inc. – ‘10-Q’ for 3/31/97

As of:  Thursday, 5/15/97   ·   For:  3/31/97   ·   Accession #:  950144-97-6036   ·   File #:  1-13452

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/15/97  Ion Media Networks Inc.           10-Q        3/31/97   13:897K                                   Bowne of Atlanta Inc/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Paxson Communications Form 10-Q                       22    143K 
 2: EX-4.2      Second Amendment, Dated May 2, 1997 With Respect       7     21K 
 3: EX-10.158   Loan Agreement by and Between Paxson Communication    22     82K 
 4: EX-10.159   Asset Purchase Agreement by and Between Paxson        33    123K 
 5: EX-10.160   Asset Purchase Agreement Dated May 5, 1997 by         41    169K 
 6: EX-10.161   Asset Purchase Agreement Dated April 15, 1997         32    126K 
 7: EX-10.162   Assignment and Acceptance Agreement Dated April 18    20     59K 
 8: EX-10.164   Asset Purchase Agreement Dated April 22, 1997         39    157K 
 9: EX-10.165   Asset Purchase Agreement Dated April 22, 1997         39    162K 
10: EX-10.166   Asset Purchase Agreement Dated, April 30, 1997        40    168K 
11: EX-10.167   Asset Purchase Agreement Dated May 12, 1997           50    147K 
12: EX-10.167.1  Time Brokerage Agreement, Dated May, 1997            20     84K 
13: EX-27       Financial Data Schedule                                1      8K 


10-Q   —   Paxson Communications Form 10-Q
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Financial Statements
"Item 2. Management's Discussion and Analysis of
"Item 6. Exhibits and Reports on Form 8-K 21-22
10Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
11Announced inTV stations
20Item 1. Legal Proceedings
"Item 6. Exhibits and Reports on Form 8-K
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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 March 31, 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 April 30, 1997: [Download Table] CLASS OF STOCK NUMBER OF SHARES ---------------------------- ---------------- COMMON STOCK-CLASS A, $0.001 PAR VALUE PER SHARE ........................ 40,481,482 COMMON STOCK-CLASS B, $0.001 PAR VALUE PER SHARE ........................ 8,311,639
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PAXSON COMMUNICATIONS CORPORATION INDEX [Download Table] Page ---- Part I - Financial Information Item 1. Financial Statements -------------------- Consolidated Balance Sheets March 31, 1997 and December 31, 1996 3 Consolidated Statements of Operations Three Months Ended March 31, 1997 and 1996 4 Consolidated Statements of Changes in Common Stockholders' Equity 5 Consolidated Statements of Cash Flows Three Months Ended March 31, 1997 and 1996 6-7 Notes to Consolidated Financial Statements 8-9 Item 2. Management's Discussion and Analysis of --------------------------------------- Financial Condition and Results of Operations 10-20 --------------------------------------------- Part II - Other Information Item 1. Legal Proceedings 21 ----------------- Item 6. Exhibits and Reports on Form 8-K 21-22 -------------------------------- Signatures 23 2
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PAXSON COMMUNICATIONS CORPORATION Consolidated Balance Sheets [Enlarge/Download Table] March 31, December 31, 1997 1996 ------------- ------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 42,914,912 $ 61,748,788 Accounts receivable, less allowance for doubtful accounts of $1,418,284 and $1,576,593 respectively 26,499,352 29,860,998 Prepaid expenses and other current assets 4,164,169 2,713,565 Current program rights 1,383,524 1,512,019 ------------- ------------- Total current assets 74,961,957 95,835,370 Property and equipment, net 153,105,125 144,415,412 Intangible assets, net 306,084,264 220,409,421 Investments in broadcast properties 73,159,860 53,297,022 Program rights, net 796,693 1,075,536 Other assets, net 26,230,157 28,149,699 ------------- ------------- Total assets $ 634,338,056 $ 543,182,460 ============= ============= LIABILITIES, REDEEMABLE SECURITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 10,469,748 $ 10,676,692 Accrued interest 14,693,070 6,684,373 Current portion of program rights payable 1,420,247 1,628,959 Current portion of long-term debt 649,302 644,509 ------------- ------------- Total current liabilities 27,232,367 19,634,533 Program rights payable 765,561 1,000,260 Deferred gain 12,100,000 -- Long-term debt 83,208,980 3,407,688 Senior subordinated notes, net 227,728,199 227,655,096 Redeemable Cumulative Compounding Junior preferred stock, $0.001 par value; 12% dividend rate per annum, 33,000 shares authorized, issued and outstanding 38,200,431 36,780,496 Redeemable Exchangeable Preferred stock, $.001 par value; 12.5% dividend rate per annum, 440,000 shares authorized, 150,000 shares issued and outstanding 152,731,836 147,929,150 Class A common stock, $0.001 par value; one vote per share; 150,000,000 shares authorized, 40,480,482 shares issued and outstanding 40,480 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 2,335,528 Stock subscription notes receivable (2,713,250) (1,873,139) Additional paid-in capital 209,751,163 209,621,241 Deferred option plan compensation (5,361,685) (6,397,916) Accumulated deficit (118,552,513) (103,821,878) Commitments and contingencies ------------- ------------- Total liabilities, redeemable securities and common stockholders' equity $ 634,338,056 $ 543,182,460 ============= ============= The accompanying Notes to Consolidated Financial Statements are an integral part of the consolidated financial statements. 3
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PAXSON COMMUNICATIONS CORPORATION Consolidated Statements of Operations [Enlarge/Download Table] For the Three Months Ended March 31, ---------------------------------- 1997 1996 ------------ ------------ (Unaudited) ----------- Revenue: Local and national advertising $ 41,006,119 $ 26,035,309 Other 1,207,880 866,803 Trade and barter 861,896 685,987 ------------ ------------ Total revenue 43,075,895 27,588,099 Operating expenses: Direct 9,929,765 6,077,210 Programming 5,853,899 3,184,957 Sales and promotion 3,278,965 2,175,058 Technical 3,077,169 1,392,600 General and administrative 10,491,044 6,022,966 Trade and barter 659,574 511,419 Time brokerage agreement fees 1,251,780 478,547 Sports rights fees 794,395 758,961 Option plan compensation 1,027,471 1,758,368 Depreciation and amortization 7,982,145 4,924,751 ------------ ------------ Total operating expenses 44,346,207 27,284,837 ------------ ------------ Operating (loss) income (1,270,312) 303,262 Other income (expense): Interest expense (8,749,416) (7,724,778) Interest income 1,443,232 831,072 Other income, net 107,696 (43,186) ------------ ------------ Loss from continuing operations (8,468,800) (6,547,258) Income (loss) from discontinued operations 9,804 (71,402) ------------ ------------ Net loss (8,458,996) (6,618,660) Dividends and accretion on preferred stock and common stock warrants (6,271,639) (4,947,949) ------------ ------------ Net loss attributable to common stock and common stock equivalents $(14,730,635) $(11,566,609) ============ ============ Per share data: Loss from continuing operations $ (0.17) $ (0.19) Income (loss) from discontinued operations -- -- ------------ ------------ Net loss (0.17) (0.19) Dividends and accretion on preferred stock and common stock warrants (0.13) (0.14) ------------ ------------ Net loss attributable to common stock and common stock equivalents $ (0.30) $ (0.33) ============ ============ Weighted average shares outstanding; primary and fully diluted 48,777,893 34,556,861 ============ ============ The accompanying Notes to Consolidated Financial Statements are an integral part of the consolidated financial statements. 4
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PAXSON COMMUNICATIONS CORPORATION Consolidated Statements of Changes in Common Stockholders' Equity [Enlarge/Download Table] Class Common Stock A & B Class Stock Deferred -------------- Common C Subscription Additional Option Class Class Class Stock Stock Notes Paid-in Plan Accumulated A B C Warrants Warrants Receivable Capital Compensation Deficit ------- ------ ---- ---------- ---------- ----------- ------------ ----------- ------------- Balance at December 31, 1995 $26,227 $8,312 $ -- $ -- $5,338,952 $ (115,714) $ 34,342,086 $(1,384,267) $ (55,694,393) Release of Put option on Class A&B common stock warrants 9,116,399 Issuance of common stock, net of issuance costs 10,300 154,789,700 Exercise of Class A,B&C common stock warrants 3,623 (2,253,752) (3,003,424) 5,253,548 Stock issued for Todd Communications acquisition 139 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 (1,873,139) Stock options exercised 153 768,434 Repayment of stock subscription note receivable 115,714 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 40,442 8,312 -- 6,862,647 2,335,528 (1,873,139) 209,621,241 (6,397,916) (103,821,878) Option plan compensation (unaudited) 1,036,231 Stock options exercised (unaudited) 38 129,922 Increase in stock subscription receivable (unaudited) (840,111) Dividends on redeemable preferred stock (unaudited) (5,941,050) Accretion on Junior preferred stock (unaudited) (166,385) Accretion on Redeemable Exchangeable preferred stock (unaudited) (164,204) Net loss (unaudited) (8,458,996) Balance at March 31, 1997 (unaudited) ------- ------ ----- ---------- ---------- ----------- ------------ ----------- ------------- $40,480 $8,312 $ -- $6,862,647 $2,335,528 $(2,713,250) $209,751,163 $(5,361,685) $(118,552,513) ======= ====== ==== ========== ========== =========== ============ =========== ============= The accompanying Notes to Consolidated Financial Statements are an integral part of the consolidated financial statements. 5
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PAXSON COMMUNICATIONS CORPORATION Consolidated Statements of Cash Flows [Enlarge/Download Table] For the Three Months Ended March 31, ----------------------------- 1997 1996 ------------- ------------ (Unaudited) Cash flows from operating activities: Net loss $ (8,458,996) $ (6,618,660) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 8,738,098 5,671,742 Option plan compensation 1,036,231 1,758,368 Program rights amortization 302,825 386,671 Provision for doubtful accounts 356,485 174,223 Gain on sale of assets (153,577) (133,883) Decrease in accounts receivable 3,005,161 1,357,174 Increase in prepaid expenses and other current assets (1,450,604) (783,405) Increase in other assets (2,399,573) (160,663) Decrease (increase) in accounts payable and accrued liabilities (373,334) 658,636 Increase in accrued interest 8,008,697 6,871,342 ------------- ------------ Net cash provided by operating activities 8,611,413 9,181,545 ------------- ------------ Cash flows from investing activities: Acquisitions of broadcast properties (94,184,131) (42,960,785) Decrease in deposits on broadcast properties 4,200,000 1,890,000 Proceeds from sale of fixed assets 751,050 220,622 Increase in investments in broadcast properties (4,862,838) (8,376,376) Purchase of property and equipment (12,106,406) (2,639,383) ------------- ------------ Net cash used in investing activities (106,202,325) (51,865,922) ------------- ------------ Cash flows from financing activities: Proceeds from long-term debt 80,000,000 17,700,000 Payments of long-term debt (193,915) (108,061) Payments of loan origination costs -- (516,232) Proceeds from exercise of common stock options 129,960 92,527 Increase in stock subscription notes receivable (840,111) -- Repayments of stock subscription notes receivable -- 53,747 Payments for program rights (338,898) (383,904) ------------- ------------ Net cash provided by financing activities 78,757,036 16,838,077 ------------- ------------ Decrease in cash and cash equivalents (18,833,876) (25,846,300) ------------- ------------ Cash and cash equivalents at beginning of period 61,748,788 68,070,990 ------------- ------------ Cash and cash equivalents at end of period $ 42,914,912 $ 42,224,690 ============= ============ The accompanying Notes to Consolidated Financial Statements are an integral part of the consolidated financial statements. 6
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PAXSON COMMUNICATIONS CORPORATION Consolidated Statements of Cash Flows (continued) [Download Table] For the Three Months Ended March 31, ------------------------ 1997 1996 ----------- ---------- (Unaudited) Supplemental disclosures of cash flow information: Cash paid for interest $ 245,082 $ 429,399 =========== ========== Cash paid for income taxes $ -- $ -- =========== ========== Non-cash operating and financing activities: Accretion of discount on senior subordinated notes $ 73,103 $ 60,371 =========== ========== Dividends accreted on redeemable preferred stock $ 5,941,050 $2,031,241 =========== ========== Accretion on redeemable securities $ 330,589 $2,916,708 =========== ========== Trade and barter revenue $ 1,012,528 $ 835,462 =========== ========== Trade and barter expense $ 983,841 $ 644,979 =========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of the consolidated financial statements. 7
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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 March 31, 1997 and for the three month periods ended March 31, 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. 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, which was filed with the United States Securities and Exchange Commission. 2. Discontinued Operations 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 and thus discontinue the operations of the Paxson Network Affiliated Television segment. Because of the decision to sell both stations, the results of operations for the Paxson Network Affiliated Television segment, 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 Paxson Network Affiliated Television segment is expected to be sold for aggregate consideration of approximately $119,000,000. The Company sold WPBF-TV as discussed in the following paragraph. The WTVX-TV transaction is expected to close during the third quarter of 1997 subject to the receipt of all necessary regulatory approvals and will result in a pre-tax gain to the Company of approximately $13,000,000. The Company does not anticipate a 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"), 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 to Hearst for $85 million. The Asset Sale Agreement is 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. On April 29, 1997, the Company sold its interests in WPBF-TV, which sale was consummated through a merger of WPBF-25 with and into WPBF Merger, Inc. ("WPBF Merger"), and the merger of Palm Beach License with and into WPBF License, Inc. ("WPBF License"), a wholly-owned subsidiary of WPBF Merger, 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"). The Note bears interest at the Federal Funds Rate plus three percent and is payable upon the earlier of (i) April 29, 2007 and (ii) or the closing of the sale of WPBF-TV to Hearst under the Asset Sale Agreement. WPBF Merger is controlled by Lowell W. Paxson ("Mr. Paxson"), 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 is liable for the repayment of such loan. In connection with the Merger, the Company entered into a time brokerage agreement with WPBF Merger pursuant to which the Company acquired the right to sell substantially all of the air-time of WPBF-TV and agreed to provide certain management and other services to WPBF Merger. The amounts payable under such time brokerage agreement are expected to approximate WPBF-TV's operating costs and the interest and fees payable in connection with 8
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the aforementioned loan until the Asset Sale Agreement is closed. An effect of the Merger was the Company received a majority of the consideration payable in connection with the sale of WPBF-TV on April 29, 1997 rather than some time in the second half of 1997 or later. This sale will result in a pre-tax gain to the Company of approximately $56,000,000. The Paxson Network Affiliated Television operations generated revenues of approximately $5,284,000 and $4,541,000 for the three months ended March 31, 1997 and 1996, respectively. The components of net assets of discontinued operations included in the consolidated balance sheets at March 31, 1997 and December 31, 1996, are as follows: [Download Table] 1997 1996 ---- ---- Current assets $ 1,496,753 $ 1,580,249 Noncurrent assets 28,035,286 28,878,167 ----------- ----------- Total assets 29,532,039 30,458,416 =========== =========== Current liabilities 1,962,996 2,610,503 Noncurrent liabilities 765,561 1,000,260 Total liabilities 2,728,557 3,610,763 ---------- ----------- Total net assets $26,803,482 $26,847,653 =========== =========== Net assets of discontinued operations at March 31, 1997 and December 31, 1996 excludes cash and cash equivalents and accounts receivable 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. Long-Term Debt In connection with the WPBF-TV merger transaction discussed above, the Company was released from its unconditional guarantee of Whitehead Media, Inc.'s ("Whitehead") third party financing by Banque Paribas of Whitehead's acquisitions of WTVX-TV, WOAC-TV and WNGM-TV. The Company operates these stations pursuant to time brokerage agreements and as a result of the third party financing provided to Whitehead, has an option to purchase each of these stations, which options to purchase would otherwise be prohibited under FCC rules and regulations as each of such stations serves a market in which the Company owns another television station serving the same market. During February and March 1997, the Company contracted to sell its interests in these stations as discussed elsewhere herein. 9
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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 radio and 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 operates three business segments: (1) inTV, a nationwide network of owned, operated or affiliated television stations carrying its proprietary network, which broadcasts long form paid programming consisting primarily of infomercials; (2) Paxson Radio, consisting of radio broadcasting stations, radio news and sports networks and billboard operations; and (3) Paxson Network-Affiliated Television, consisting of network-affiliated television broadcasting stations in West Palm Beach, Florida. As a result of the agreements entered into in February and March 1997 to sell WPBF-TV and WTVX-TV, the Paxson Network Affiliated Television segment has been classified as discontinued operations for financial reporting purposes. 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 and mix of radio, television and inTV acquisitions. Operating revenues are derived from the sale of advertising to local and national advertisers. The Company's primary operating expenses involved in owning and operating Paxson Radio are syndicated program rights fees, commissions on revenues, employee salaries, news gathering, promotion and administrative expenses. Comparatively, operation of an inTV station involves low operating expenses relative to traditional television station operation. The costs of operating an inTV station do 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 inTV 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 radio and 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 and listening habits may affect the continued attractiveness of the Company's broadcasting stations to advertisers, upon whom the Company is dependent for its revenue. The Company currently expects to continue acquiring additional 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 value of the Company's investments in broadcast properties and programming rights payable were based upon the net present value of applicable estimated future cash flows using a discounted rate approximating market rates. 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 March 31, 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 inTV network 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 considering strategic alternatives with respect to these television stations, including the possible creation of a new television network in tandem with a major programming provider as well as a national cable multiple system operator. The Company is in a preliminary stage of this process, however, and has not entered into any binding agreements or commitments relating to a change in the use or character of its group of television stations. 10
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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 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 businesses 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 business, including the restrictions on multiple broadcast property ownership, the broadcast licensing renewal requirements and the status of the Federal Communications Commission's "must carry" regulations, the risks of industry and economic conditions which could adversely affect the Company's business operations, 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 inTV 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 inTV stations" below. (Television and cable households in thousands.) [Enlarge/Download Table] NATIONAL STATION CABLE CURRENT TOTAL CURRENT TOTAL TV MARKET COMMENCEMENT CARRIAGE AT STATION CABLE MARKET CABLE STATION CABLE MARKET TV MARKET (1) RANK STATION OF OPERATIONS COMMENCEMENT(2) CARRIAGE(3) HOUSEHOLDS CARRIAGE %(3) HOUSEHOLDS ------ ---- ------- ------------- ------------ -------- ---------- ---------- ---------- Owned or Operated New York, NY 1 WHAI TV 3/96 626 785 4,663 16.8% 6,712 Los Angeles, CA 2 KZKI TV 5/95 1,453 2,445 3,049 80.2% 4,942 Philadelphia, PA 4 WTGI TV 2/95 1,225 1,644 2,015 81.6% 2,654 San Francisco, CA 5 KLXV TV 6/95 650 1,189 1,620 73.4% 2,279 Boston, MA 6 WGOT TV 5/95 604 949 1,665 57.0% 2,150 Boston, MA* 6 WHRC TV(5) 6/97 0 0 1,665 0.0% 2,150 Washington, D.C. 7 WSHE TV(6)(10) 10/96 0 118 1,301 9.1% 1,909 Dallas, TX 8 KINZ TV 12/96 0 634 954 66.5% 1,849 Atlanta, GA 10 WTLK TV 4/94 300 964 1,089 88.5% 1,625 Atlanta, GA* 10 WNGM TV(10) 4/96 182 247 1,089 22.7% 1,625 Houston, TX 11 KTFH TV 3/95 647 829 894 92.7% 1,595 Cleveland, OH 13 WAKC TV 3/96 560 708 1,001 70.7% 1,461 Cleveland, OH* 13 WOAC TV(10) 10/95 332 367 1,001 36.7% 1,461 Minneapolis, MN 14 KXLI TV 10/96 605 655 722 90.7% 1,428 Tampa, FL* 15 WFCT TV 8/94 0 975 1,014 96.2% 1,411 Miami, FL* 16 WCTD TV 4/94 396 1,009 1,009 100.0% 1,363 Phoenix, AZ 17 KWBF TV 3/96 23 26 694 3.7% 1,213 Phoenix, AZ 17 KAJW TV(4)(8) 7/97 n/a n/a 694 n/a 1,213 Denver, CO 18 KUBD TV 8/95 430 474 725 65.4% 1,185 Sacramento, CA* 20 KCMY TV 7/95 624 640 711 90.0% 1,116 St. Louis, MO 21 WCEE TV 1/96 23 91 583 15.6% 1,110 Orlando, FL* 22 WIRB TV(5) 12/94 468 757 779 97.2% 1,022 Hartford, CT* 27 WTWS TV(5) 3/95 661 775 790 98.1% 916 Raleigh, NC* 29 WRMY TV(5)(6) 6/96 0 297 505 58.8% 815 Milwaukee, WI 31 WHKE TV 7/96 257 321 468 68.6% 787 Kansas City, MO 32 KINB TV 5/97 397 397 515 77.1% 787 Grand Rapids, MI* 37 WJUE TV(8) 9/96 0 299 404 74.0% 648 Oklahoma City, OK 43 KMNZ TV 10/96 0 0 367 0.0% 588 Greensboro, NC 46 WAAP TV 7/96 323 340 357 95.2% 568 Providence, RI 47 WOST TV(4)(7) 7/97 0 0 423 0.0% 558 Birmingham, AL * 51 WNAL TV 10/96 31 79 347 22.8% 526 Albany, NY 52 WOCD TV 5/96 251 272 368 73.9% 507 Dayton, OH 53 WTJC TV 10/95 298 312 349 89.4% 503 Little Rock, AR* 57 KVUT TV(4)(8) 7/97 n/a n/a 298 n/a 480 Tulsa, OK* 58 KGLB TV(4)(8) 6/97 0 0 288 0.0% 461 Cedar Rapids, IA* 86 KTVC TV n/a n/a 191 n/a 307 Puerto Rico NR WSJN TV 2/96 285 285 298 95.6% 1,064 Puerto Rico NR WKPV TV 2/96 Puerto Rico NR WJWN TV 2/96 Total Owned or Operated(9) 11,651 18,883 30,456 62.4% 46,538 Affiliates Philadelphia, PA 4 WTVE TV 10/96 414 539 2,015 26.7% 2,654 Indianapolis, IN 25 WIIB TV 1/96 401 424 606 70.0% 939 Norfolk, VA 40 WJCB TV 8/95 343 399 467 85.4% 632 Fresno, CA 55 KGMC TV 1/96 179 164 265 61.9% 491 ------ ------ ------ ----- ------ 1,336 1,526 3,353 45.5% 4,716 ------ ------ ------ ----- ------ Total Owned, Operated and Affiliates(9) 12,574 20,409 31,794 64.6% 48,600 ====== ====== ====== ===== ====== Announced inTV Stations New York, NY 1 WBIS TV 4,663 6,712 San Francisco 5 KWOK TV(4)(6) 1,620 2,279 Washington, D.C. 7 WVVI TV 1,301 1,909 Detroit, MI 9 WBSX TV 1,174 1,772 Seattle, WA 12 KBCB TV(4) 1,071 1,492 Pittsburgh, PA 19 Channel 40 987 1,149 Salt Lake City, UT 36 KOOG TV(4) 372 671 Buffalo, NY 39 WAQF TV(4) 464 633 West Palm Beach, FL 44 WHBI TV(4)(6) 486 587 Wilkes Barre, PA 49 WSWB TV(4) 444 553 Fresno, CA 55 KKAG TV 265 491 Green Bay, WI 70 WSCO TV 216 376 ------ ------ Total Announced inTV Stations(9) 5,214 7,233 ------ ------ Total inTV Network(9) 37,008 55,833 ====== ====== * Operated or to be operated pursuant to a time brokerage agreement; except as noted, the Company has an 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. Source: A.C. Nielsen (3) Cable households reached at 4/97, to be billed in 5/97, and as a percentage of the total market cable households. Source: A.C. Nielson (4) Station is currently under construction or not operating commercially. (5) No option to acquire any ownership. (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. NR Not ranked. 11
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The following table sets forth certain information about the radio stations the Company owns or has agreements to acquire: [Enlarge/Download Table] National Radio Audience Share Market (persons 25 -54)(3) Revenue (2) Markets/Station (1) Rank (5) Format 1997 Share Rank ------------------------------------------------------------------------------------------------------------ Miami/Ft. Lauderdale 11 WZTA-FM Active Rock 3.7% WIOD-AM Hot Talk 2.7% WLVE-FM Smooth Jazz 4.9% WPLL-FM Modern Adult Contemporary 2.5% WINZ-AM News/Talk 1.3% WFTL-AM Hot Talk 0.3% ---- TOTAL MARKET 15.4% 20.9% 1 Tampa/St. Petersburg 21 WSJT-FM Smooth Jazz 4.8% WHPT-FM Rock Alternative 6.3% WZTM-AM Sports 1.3% WHNZ-AM News/Talk 0.6% WKES-FM (4) To Be Determined ---- TOTAL MARKET 13.0% 13.0% 3 Orlando 38 WMGF-FM Soft Adult Contemporary 6.9% WTKS-FM Hot Talk 6.8% WJRR-FM Active Rock 3.4% WSHE-FM Modern AC 3.2% WQTM-AM Sports 1.4% WWNZ-AM News/Talk 0.5% ---- TOTAL MARKET 22.2% 28.2% 1 Jacksonville, FL 53 WROO-FM Country 6.9% WFSJ-FM Smooth Jazz 3.0% WPLA-FM Alternative 2.8% WNZS-AM Sports 1.5% WTLK-FM Hot Talk 0.8% WZNZ-AM News 0.1% ---- TOTAL MARKET 15.1% 16.5% 3 Pensacola, FL 125 WYCL-FM Gold 6.0% WTKX-FM Active Rock 4.6% ---- TOTAL MARKET 10.6% 16.8% 3 Tallahassee, FL 167 WTNT-FM Country 9.2% WSNI-FM Gold 6.7% WXSR-FM Active Rock 3.7% WJZT-FM Smooth Jazz 2.1% WNLS-AM Sports 1.2% ---- TOTAL MARKET (6) 22.9% n/r 1 Panama City, FL 225 WPAP-FM Country 10.5% WFSY-FM Adult Contemporary 8.8% WSHF-FM Modern Adult Contemporary 4.4% WPBH-FM Gold 3.5% WDIZ-AM Adult Standards n/r ---- TOTAL MARKET (6) 27.2% n/r 1 Cookeville, TN N/C WGSQ-FM Country 27.0% WGIC-FM Soft Adult Contemporary 14.9% WPTN-AM Talk 4.1% WHUB-AM Country 4.1% ---- TOTAL MARKET(6) 50.1% n/r 1 Florida Keys N/C WFKZ-FM Hot Adult Contemporary n/c WAVK-FM Adult Contemporary n/c WKRY-FM Soft Adult Contemporary n/c TOTAL MARKET n/r 1 (1) Each station is licensed by the FCC to serve a specific community within the market, which may differ from the listed market. (2) Source: Miller, Kaplan Market Revenue Report, a monthly publication of Miller, Kaplan, Anase & Co., Certified Public Accountants ("Miller Kaplan"). (3) Adults 25-54 Monday-Sunday 6 AM-Midnight in radio market per Winter 1997 Arbitron Radio Market Reports, Fall 1996 for Pensacola and Tallahassee, Spring 1996 for Cookeville an Panama City. (4) Pending Acquisition. (5) Source: BIA's Radio Yearbook 1997. (6) Revenue shares not reported; rank based upon Company estimates. n/c Market not covered by Arbitron. n/r Revenue not independently reported.
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Purchases of Broadcast Properties: During January 1997, the Company completed its purchases of WSJN-TV, WKPV-TV, WJWN-TV, WPLL-FM (formerly WSHE-FM), WSRF-AM and WTKS-FM for aggregate cash consideration of $89,500,000. During January 1997, the Company acquired a 49% interest in KAJW-TV for $5,400,000. During February 1997, the Company exercised its option to acquire WHKE-TV from The Christian Network, Inc. ("CNI") for $100,000 plus forgiveness of related notes and interest receivable totaling approximately $3,900,000. The Company also purchased a 50% interest in WOST-TV for $1,000,000 less prior advances of $168,000. During March 1997, the Company entered into an agreement to purchase WBSX-TV for $35,000,000. During April 1997, the Company exercised its options and entered into agreements to purchase television stations WCTD-TV and WFCT-TV from CNI for $191,000 and $100,000, respectively, and forgiveness of outstanding loans aggregating approximately $1,120,000. As part of the purchase consideration for WCTD-TV, the Company will repay the remaining principal balance on a third party note payable with an outstanding balance of approximately $510,000 at March 31, 1997. During April 1997, the Company entered into agreements to purchase television stations KKAG-TV, KTVC-TV, WAQF-TV, Channel 40 in Pittsburgh and WSCO-TV for $7,960,000, $5,000,000, $3,000,000, $35,000,000 and $4,750,000, respectively. On May 3, 1997, the Company began operating KTVC-TV pursuant to a TBA pending completion of the acquisition. During May 1997, the Company entered into an agreement to purchase WBIS-TV in New York City for $257,500,000. The Company intends to begin operating this station pursuant to a TBA on June 30, 1997. Sales of Broadcast Properties: During February 1997, the Company restructured its investment in WTWS-TV, as required by the FCC in connection with its prior acquisition of WHAI-TV, by selling WTWS-TV to Roberts Broadcasting in exchange for a $15,000,000 note receivable and entered into a five year time brokerage agreement to operate the station. The note bears interest at LIBOR plus 3.5%. Interest is payable monthly with principal payments commencing February 1998 and payable monthly in 84 equal installments. The Company expects to recognize a pre-tax gain on the sale of approximately $12,100,000 using the installment method. During March 1997, the Company entered into agreements to sell its interests in television stations WOAC-TV and WNGM-TV, each of which is currently operated under time brokerage agreements with Whitehead, for aggregate consideration of $73,500,000, in separate agreements with the same buyer. To date, the Company has only received the required escrow deposit for the WOAC-TV sale. Accordingly, the Company may have to terminate the WNGM-TV contract and seek a new buyer. These stations operate in the Cleveland and Atlanta television markets where the Company owns and will continue to operate stations WAKC-TV and WTLK-TV, respectively. During March 1997, the Company entered into an agreement to sell the assets of WSRF-AM in the Miami Radio market for aggregate consideration of approximately $500,000. The sales 12
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price includes $100,000 in cash with a note receivable for the remaining $400,000 bearing interest at 9.5% payable over 48 months in equal monthly payments of principal and interest commencing on the first day of the thirteenth month following the sale closing. The buyer began operating the station pursuant to a time brokerage agreement with the Company on May 1, 1997 pending the sale closing. The Company has also entered into an agreement to restructure its investment in WSHE-TV (formerly WYVN-TV) pursuant to which DP Media, Inc. ("DP Media") will acquire WSHE-TV for $2,470,000 in the form of a promissory note. The note bears interest at 8.25% payable monthly with the entire principal due twenty four months from the date of close. The Company plans to operate the station pursuant to an affiliation agreement. Other: The Company, DP Media and Roberts Broadcasting have entered into agreements whereby the Company will loan DP Media approximately $10,000,000 (of which approximately $7,500,000, to be assumed by DP Media, has been advanced to Roberts Broadcasting as of March 31, 1997 and has been recorded as investments in broadcast properties), allowing DP Media to purchase a 100% ownership interest in WRMY-TV. The Company plans to operate the station pursuant to an affiliation agreement. The Company has amended its agreements with Roberts Broadcasting for KZAR-TV, Salt Lake City, Utah, to terminate its option to acquire 50% of this station. In addition, Roberts Broadcasting has agreed to apply a portion of the proceeds from its sale of WRMY-TV to DP Media to repay the Company substantially all of the amounts advanced to Roberts Broadcasting as loans or option payments in respect of KZAR-TV. 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] FOR THE THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 ---- ---- Revenues 100.0% 100.0% Operating Expenses: Direct 23.1 22.0 Programming 13.6 11.5 Sales and promotion 7.6 7.9 Technical 7.1 5.0 General and administrative 24.4 21.8 Trade and barter 1.5 1.9 Time brokerage agreement fees 2.9 1.7 Sport rights fees 1.8 2.8 Option plan compensation 2.4 6.4 Depreciation and amortization 18.5 17.9 ----- ----- Total operating expenses 102.9 98.9 ----- ----- Operating income (loss) (2.9) 1.1 Other income (expense): Interest expense (20.3) (28.0) Interest income 3.3 3.0 Other income, net 0.2 0.2 ----- ----- Loss from continuing operations (19.7) (23.7) Income (loss) from discontinued operations 0.1 (0.3) ----- ----- Net loss (19.6) (24.0) ===== ===== 13
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The following sets forth, for the periods indicated, selected information for the Company's business segments: [Download Table] As of and for the three months ended March 31, ----------------------- 1997 1996 ---- ---- INTV Total revenue $ 18,524,655 $ 12,715,920 Operating expenses, less depreciation, amortization and option plan compensation 11,534,015 6,633,622 Depreciation and amortization 3,746,655 2,070,930 Option plan compensation 89,961 3,563 ------------- ------------- Operating income $ 3,154,024 $ 4,007,805 ============= ============= Operating cash flow $ 8,002,000 $ 6,525,000 ============= ============= Total identifiable assets $ 275,533,858 $ 156,675,990 ============= ============= Capital expenditures $ 8,754,303 $ 1,520,666 ============= ============= PAXSON RADIO Total revenue $ 24,138,555 $ 14,535,690 Operating expenses, less depreciation, amortization and option plan compensation 20,395,808 12,115,096 Depreciation and amortization 3,902,415 2,589,026 Option plan compensation 313,466 33,404 ------------- ------------- Operating loss $ (473,134) $ (201,836) ============= ============= Operating cash flow $ 3,780,000 $ 2,346,000 ============= ============= Total identifiable assets $ 231,454,329 $ 68,510,770 ============= ============= Capital expenditures $ 2,694,722 $ 743,357 ============= ============= 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 $ 39,363,643 $ 37,351,207 ============= ============= Capital expenditures $ 149,560 $ 119,941 ============= ============= CORPORATE AND OTHER Total revenue $ 412,685 $ 336,489 Operating expenses, less depreciation, amortization and option plan compensation 3,406,768 1,853,000 Depreciation and amortization 333,075 264,795 Option plan compensation 624,044 1,721,401 ------------- ------------- Operating loss $ (3,951,202) $ (3,502,707) ============= ============= Operating cash flow $ (2,994,000) $ (1,517,000) ============= ============= Total identifiable assets $ 87,986,228 $ 51,438,115 ============= ============= Capital expenditures $ 507,821 $ 255,419 ============= ============= CONSOLIDATED Total revenue $ 43,075,895 $ 27,588,099 Operating expenses, less depreciation, amortization and option plan compensation 35,336,591 20,601,718 Depreciation and amortization 7,982,145 4,924,751 Option plan compensation 1,027,471 1,758,368 ------------- ------------- Operating (loss) income $ (1,270,312) $ 303,262 ============= ============= Operating cash flow $ 8,788,000 $ 7,354,000 ============= ============= Total identifiable assets $ 634,338,056 $ 313,976,082 ============= ============= Capital expenditures $ 12,106,406 $ 2,639,383 ============= ============= "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. 14
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THREE MONTHS ENDED MARCH 31, 1997 AND 1996 Consolidated revenues for the three months ended March 31, 1997 increased 56% (or $15.5 million) to $43.1 million from $27.6 million for the three months ended March 31, 1996. This increase was primarily due to new television station acquisitions and time brokerage operations ($5.0 million), new radio stations ($8.3 million) and increased revenues from existing television stations ($0.8 million) and radio stations ($1.5 million). Operating expenses for the three months ended March 31, 1997 increased 62% (or $17.0 million) to $44.3 million from $27.3 million for the three months ended March 31, 1996. The increase was primarily due to higher direct expenses such as commissions which rise in proportion to revenues ($3.9 million), other non-direct costs of operating new television stations ($2.9 million) and radio stations ($5.2 million), higher depreciation and amortization primarily related to assets acquired ($3.1 million), and increased time brokerage agreement fees ($0.8 million). Operating cash flow for the three months ended March 31, 1997 increased 19% (or $1.4 million) to $8.8 million, from $7.4 million for the three months ended March 31, 1996. The increase in operating cash flow was primarily a result of television station acquisitions and time brokerage operations ($0.9 million), new radio stations ($0.6 million) and improved performance of existing television ($0.6 million) and radio stations ($0.8 million), all of which were partially offset by increased corporate overhead and other costs. Interest expense for the three months ended March 31, 1997 increased to $8.7 million from $7.7 million for the three months ended March 31, 1996, an increase of 13% primarily due to a greater level of debt throughout the period and higher borrowing rates. As a result of acquisitions, at March 31, 1997, total long-term debt and senior subordinated notes were $311.6 million, compared with the balance of $257.9 million outstanding a year prior. Interest income for the three months ended March 31, 1997 increased to $1.4 million from $0.8 million, primarily due to greater levels of cash and cash equivalents invested throughout the period. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital at March 31, 1997 and December 31, 1996 was $47.7 million and $76.2 million, respectively, and the ratio of current assets to current liabilities was 2.75:1 and 4.88:1 on such dates, respectively. Working capital decreased primarily due to the acquisitions previously discussed and the greater accrued interest payable. Cash provided by operations of $8.6 million and $9.2 million for the three months ended March 31, 1997 and 1996, respectively, reflects the improvement in operating results of existing properties, acquisitions and time brokerage properties net of increased 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. Cash provided by financing activities primarily reflects the proceeds from the long term debt borrowings net of debt repayments. In addition, the Company has advanced $550,000 to CNI during the three months ended March 31, 1997 under a demand note bearing interest at the prime rate (currently 8.50%). At March 31, 1997 the Company had total advances to CNI outstanding of approximately $3,543,000 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 discussed elsewhere herein 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. 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 $80 million 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 it will require additional financing to complete the acquisitions discussed below (including the expected capital expenditures associated therewith), and to meet its anticipated short term and long term working capital 15
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requirements for its existing properties. The timing and amount of additional financing needs will depend, among other things, upon the completion and timing of the completion of the television station sales previously discussed, the amount of net proceeds to the Company from the television station sales (estimated to be $150 million after repayment of associated indebtedness and transaction expenses and prior to payment of taxes), whether the Company completes a sale of its billboard operations and the timing and net proceeds thereof, the timing of closings of pending acquisitions (which are dependent upon the satisfaction of closing conditions, some of which are beyond the control of the Company), and the amount of borrowing capacity available to the Company under the Senior Facility. While the Company currently has maximum additional borrowing capacity of $120 million under its Senior Facility, the amount actually available to the Company for borrowing is subject to covenant compliance, including limitations on indebtedness and other financial ratios. The Company has recently obtained an amendment to these covenant borrowing limitations and as of March 31, 1997, based upon these amended covenants, had approximately $50 million of additional borrowing capacity under the amended Senior Facility. The amount available for borrowing under the Senior Facility will be affected by changes in the Company's cash flow position, including cash flow generated by acquired stations and cash flow reductions from station sales. The anticipated proceeds of the asset sales previously discussed and the available borrowings under the Company's Senior Facility will not be adequate to fund the Company's commitments for pending acquisitions. The Company is therefore considering additional sources of financing, including public and private sales of equity and debt securities. The Company has discussed financing sources with potential underwriters and, based on those discussions and the receipt of a "highly confident letter", management believes that sufficient funds can be secured. There can be no assurance that the Company will be able to obtain additional financing which could adversely affect the Company's ability to complete such acquisitions. The Company will require additional financing to enable it to continue its acquisition strategy and to fund capital expenditures on existing and acquired properties. The failure to raise funds necessary to finance the Company's future cash requirements could adversely affect the Company's ability to pursue its business strategy. In addition, should the Company suffer a significant impairment to its cash flow from operations due to the occurrence of one or more adverse events, 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. 16
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ACQUISITION 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 acquisitions 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: [Enlarge/Download Table] Property Market Served * Purchase Price -------------------------------------------------------------------------------------- inTV: WBIS-TV New York City, NY (1) $257,500,000 WVVI-TV Washington, DC (2) $ 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 KINB-TV Kansas City, MO (4) $ 16,400,000 WHRC-TV Boston, MA $ 15,000,000 WNAL-TV Birmingham, AL (5) $ 10,000,000 KBCB-TV Seattle, WA $ 8,000,000 KKAG-TV Fresno, CA $ 7,960,000 KOOG-TV Salt Lake City, UT $ 7,500,000 WHBI-TV West Palm Beach, FL (6) $ 7,000,000 KAJW-TV Phoenix, AZ (7) $ 6,600,000 WSWB-TV Wilkes-Barre, Scranton, PA $ 6,160,000 KTVC-TV Cedar Rapids, IA (8) $ 5,000,000 WSCO-TV Green Bay, WI $ 4,750,000 KWOK-TV San Francisco, CA (6) $ 4,500,000 WOST-TV Providence, RI (9) $ 3,000,000 WAQF-TV Buffalo, NY (10) $ 3,000,000 WRMY-TV Raleigh, Durham, NC $ 2,500,000 KVUT-TV Little Rock, AR (11) $ 2,500,000 WFCT-TV, WCTD-TV Tampa and Miami, FL $ 801,000 WJUE-TV Grand Rapids, MI (12) $ 500,000 KGLB-TV Tulsa, OK (7) $ 421,000 Paxson Radio: WKES-FM Tampa, FL $ 35,323,000 WFKZ-FM Plantation Key, FL (13) $ 3,500,000 WAVK-FM Marathon, FL WKRY-FM Key West, FL * 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 includes $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 completed the purchase on April 25, 1997. (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 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 March 31, 1997, the Company had advanced approximately $3,250,000 to Cocola. The Company plans to provide programming for the stations pursuant to affiliation agreements upon Cocola's acquisitions and commencement of operations. (7) The Company has acquired a 49% interest in this property; commitment represents purchase price for the remaining 51%. (8) On May 3, 1997, the Company began operating the station pursuant to a TBA. The purchase price reflects cash portion only and does not include 600,000 shares of Class A Common Stock consideration. (9) The Company has acquired a 50% ownership interest for $1,000,000 and has committed to loan up to $3 million for capital improvements and relocation of the station's tower. The station is currently being relocated. (10) Includes the purchase of two low power television stations, W69CS and W63BM. (11) Station is currently under construction. The Company purchased a 49% interest during 1996 with an option to acquire the remaining 51%. 17
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(12) The Company has a 49% interest in the property and has entered into a contract to acquire the remaining 51% for approximately $1,250,000 plus forgiveness of amounts advanced to date. At March 31, 1997, the Company had advanced approximately $1,450,000. (13) The Company completed the purchase on May 7, 1997. 18
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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 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 Second amendment, dated May 2, 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 10.158 Loan agreement, dated March 26, 1996, by and between Paxson Communications Corporation and Cocola Media Corporation of San Francisco for television station KWOK-TV, Novato, California 10.159 Asset purchase agreement, dated April 1, 1997, by and between Paxson Communications Corporation and The Kralowec Children's Family Trust and KKAK-TV, Inc. for television station KKAG(TV), Porterville, California 10.160 Asset purchase agreement, dated May 5, 1997, by and among Paxson Communications of Cedar Rapids-48, Inc., Fant Broadcasting Company of Iowa, Inc. and Paxson Communications Corporation for television station KTVC-TV, Cedar Rapids, Iowa 10.161 Asset purchase agreement, dated April 15, 1997, by and among Paxson Communications of Buffalo-51, Inc., Fant Broadcasting of New York, L.L.C., Anthony Fant and Paxson Communications Corporation for television station WAQF-TV 10.162 Assignment and acceptance agreement, dated April 18, 1997, among WQED Pittsburgh and Paxson Communications of Pittsburgh-40, Inc. 10.163 Merger agreement, dated as of April 29, 1997 among WPBF Merger, Inc. and WPBF License, Inc. and Paxson Communications of West Palm Beach-25, Inc. and Paxson West Palm Beach License, Inc. ***** 10.163.1 Paxson Communications of West Palm Beach - 25, Inc. and Paxson West Palm Beach License, Inc. Subordinated Promissory Note, dated April 29, 1997 ***** 10.163.2 Time brokerage agreement, dated April 29, 1997 by and between Paxson Communications of West Palm Beach - 25, Inc., and Paxson West Palm Beach License, Inc., and Paxson Communications of Florida, Inc. ***** 10.164 Asset purchase agreement, dated April 22, 1997, by and between Paxson Communications of Miami-35, Inc. and Channel 35 of Miami, Inc. 10.165 Asset purchase agreement, dated April 22, 1997, by and between Paxson Communications of Tampa-66, Inc. and Channel 66 of Tampa, Inc. 10.166 Asset purchase agreement, dated April 30, 1997, by and between Paxson Communications of Green Bay-14, Inc and VCY America, Inc. for television station WSCO(TV), Green Bay, Wisconsin 19
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10.167 Asset purchase agreement, dated May 12, 1997, by and between The Company, Paxson Communications of New York City, ITT-Dow Jones Television, ITT Corporation, and Dow Jones & Company for television station WBIS(TV), New York City, New York 10.167.1 Time brokerage agreement, dated May, 1997, by and between ITT-Dow Jones Television and Paxson Communications of New York-31, Inc. for Television Station WBIS(TV), New York City, New York 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. ***** Filed with the Company's Form 8-K, dated April 29, 1997, under Item 7. Financial Statements and Exhibits and incorporated herein by reference. (b) Reports on Form 8-K. The Company filed a Form 8-K, dated January 10, 1997, under Item 2, Acquisition or Disposition of Assets and Item 7. Financial Statements and Exhibits in connection with the acquisition of the Fort Lauderdale Radio Stations, WPLL-FM (formerly WSHE-FM) and WSRF-AM. 20
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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: May 15, 1997 By: /s/ James B. Bocock ----------------------------------- James B. Bocock President, Chief Operating Officer, Director Date: May 15, 1997 By: /s/ Arthur D. Tek ----------------------------------- Arthur D. Tek Vice President, Chief Financial Officer, Director 21

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