Document/Exhibit Description Pages Size
1: 10-Q Paxson Communications Corporation Form 10-Q 23 151K
2: EX-4.2 Fourth Amend. to Amended & Restated Credit Agrmt. 9 29K
3: EX-4.3 Credit Agreement 343 1.08M
4: EX-10.181 Asset Purchase Agreement 42 168K
5: EX-10.182 Stock Purchase Agreement 127 410K
6: EX-10.183 Stock Purchase Agreement 139 439K
7: EX-10.184 Asset Purchase Agreement 42 173K
8: EX-10.185 Asset Purchase Agreement 103 442K
9: EX-27 Financial Data Schedule 1 7K
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 September 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 October 31, 1997:
CLASS OF STOCK NUMBER OF SHARES
---------------------------- ----------------------
COMMON STOCK-CLASS A, $0.001
PAR VALUE PER SHARE ----------------------- 50,651,000
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
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations
Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Operations
Three Months Ended September 30, 1997 and 1996 5
Consolidated Statement of Changes in
Common Stockholders' Equity 6
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 7-8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-20
Part II - Other Information
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21-22
Signatures 23
2
PAXSON COMMUNICATIONS CORPORATION
Consolidated Balance Sheets
[Enlarge/Download Table]
September 30, December 31,
1997 1996
------------- -------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 23,716,665 $ 61,748,788
Accounts receivable, less allowance for doubtful
accounts of $1,654,697 and $1,576,593 respectively 22,958,176 29,860,998
Prepaid expenses and other current assets 3,638,350 2,713,565
Current program rights -- 1,512,019
------------- -------------
Total current assets 50,313,191 95,835,370
Property and equipment, net 150,845,360 144,415,412
Intangible assets, net 386,572,723 220,409,421
Investments in broadcast properties 83,392,463 53,297,022
Investment in cable network 57,587,882 --
Program rights, net -- 1,075,536
Other assets, net 54,525,470 28,149,699
------------- -------------
Total assets $ 783,237,089 $ 543,182,460
============= =============
LIABILITIES, REDEEMABLE SECURITIES AND
COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 10,686,896 $ 10,676,692
Accrued interest 14,950,695 6,684,373
Current portion of program rights payable -- 1,628,959
Current portion of long-term debt 635,067 644,509
------------- -------------
Total current liabilities 26,272,658 19,634,533
Program rights payable -- 1,000,260
Deferred gain 12,100,000 --
Long-term debt 122,722,666 3,407,688
Senior subordinated notes, net 227,877,914 227,655,096
Redeemable Cumulative Compounding Junior preferred
stock, $0.001 par value; 12% dividend rate per annum,
33,000 shares authorized, issued and outstanding 41,115,514 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 162,968,468 147,929,150
Class A common stock, $0.001 par value; one vote per share;
150,000,000 shares authorized, 50,638,000 shares issued
and outstanding 50,638 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 2,316,225 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 284,261,419 209,621,241
Deferred option plan compensation (4,200,970) (6,397,916)
Accumulated deficit (89,442,505) (103,821,878)
Commitments and contingencies
------------- -------------
Total liabilities, redeemable securities and
common stockholders' equity
$ 783,237,089 $ 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 Nine Months
Ended September 30,
----------------------------
1997 1996
------------ ------------
(Unaudited)
Revenue:
Local and national advertising $ 60,134,884 $ 41,799,175
Other 1,003,364 1,079,003
Trade and barter 114,935 119,380
------------ ------------
Total revenue 61,253,183 42,997,558
Operating expenses:
Direct 10,184,929 7,328,668
Programming 2,860,906 1,724,135
Sales and promotion 3,209,806 2,515,029
Technical 6,475,845 3,000,227
General and administrative 17,902,283 13,682,638
Trade and barter 214,719 1,849
Time brokerage agreement fees 8,279,699 2,035,859
Option plan compensation 2,154,003 2,345,866
Depreciation and amortization 14,787,998 8,548,508
------------ ------------
Total operating expenses 66,070,188 41,182,779
------------ ------------
Operating (loss) income (4,817,005) 1,814,779
Other income (expense):
Interest expense (27,695,908) (22,287,251)
Interest income 3,316,238 5,323,929
Other expense, net (3,127,364) (689,189)
------------ ------------
Loss from continuing operations (32,324,039) (15,837,732)
Discontinued operations:
Income (loss) from discontinued operations, net of
applicable income taxes (63,224) 2,128,786
Gain on sale, net of applicable income taxes 66,190,291 --
------------ ------------
Income from discontinued operations 66,127,067 2,128,786
------------ ------------
Net income (loss) 33,803,028 (13,708,946)
Dividends and accretion on preferred stock and common stock
warrants (19,423,655) (9,877,126)
------------ ------------
Net income (loss) attributable to common stock and common
stock equivalents $ 14,379,373 $(23,586,072)
============ ============
Income (loss) per common share:
Loss from continuing operations $ (0.56) $ (0.37)
Income from discontinued operations 1.14 0.05
------------ ------------
Net income (loss) 0.58 (0.32)
Dividends and accretion on preferred stock and
common stock warrants (0.33) (0.23)
------------ ------------
Net income (loss) attributable to common stock and
common stock equivalents $ 0.25 $ (0.55)
============ ============
Weighted average common stock and common stock equivalents
outstanding 57,896,733 42,721,280
============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
4
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statements of Operations
[Download Table]
For the Three Months
Ended September 30,
----------------------------
1997 1996
------------ ------------
(Unaudited)
Revenue:
Local and national advertising $ 23,499,947 $ 14,571,696
Other 214,877 358,992
Trade and barter 64,020 19,819
------------ ------------
Total revenue 23,778,844 14,950,507
Operating expenses:
Direct 3,468,352 2,755,982
Programming 898,714 675,526
Sales and promotion 1,613,900 1,033,208
Technical 2,410,400 1,225,979
General and administrative 5,931,697 5,254,563
Trade and barter 162,976 --
Time brokerage agreement fees 5,879,004 794,948
Option plan compensation 722,166 308,200
Depreciation and amortization 5,854,249 3,576,510
------------ ------------
Total operating expenses 26,941,458 15,624,916
------------ ------------
Operating loss (3,162,614) (674,409)
Other income (expense):
Interest expense (9,764,884) (7,240,166)
Interest income 622,964 1,290,465
Other expense, net (2,505,537) (74,626)
------------ ------------
Loss from continuing operations (14,810,071) (6,698,736)
Discontinued operations:
Income from discontinued operations, net of
applicable income taxes 567,962 995,119
Gain on sale, net of applicable income taxes 13,985,511 --
------------ ------------
Income from discontinued operations 14,553,473 995,119
------------ ------------
Net loss (256,598) (5,703,617)
Dividends and accretion on preferred stock and common
stock warrants (6,726,032) (2,463,092)
------------ ------------
Net loss attributable to common stock and common
stock equivalents $ (6,982,630) $ (8,166,709)
============ ============
Income (loss) per common share:
Loss from continuing operations $ (0.24) $ (0.14)
Income from discontinued operations 0.24 0.02
------------ ------------
Net income (loss) 0.00 (0.12)
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 $ (0.11) $ (0.17)
============ ============
Weighted average common stock and common stock
equivalents outstanding 61,546,251 46,983,274
============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
5
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statement of Changes in Common Stockholders' Equity
[Enlarge/Download Table]
Common Stock Class A&B Stock
------ ----- Common Class 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 A, B & C common
stock warrants (unaudited) 3,923 (4,546,422) (2,335,528)
Stock issued for acquisitions
(unaudited) 6,069
Stock options exercised (unaudited) 204
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 income (unaudited)
------- ------ ----- ----------- ----------- -----------
Balance at September 30, 1997
(unaudited) $50,638 $8,312 $ -- $ 2,316,225 $ -- $(2,813,250)
======= ====== ===== =========== =========== ===========
Deferred
Additional 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) 946,247 (946,247)
Option plan compensation (unaudited) 3,143,193
Exercise of Class A, B & C common
stock warrants (unaudited) 6,878,027
Stock issued for acquisitions
(unaudited) 66,118,931
Stock options exercised (unaudited) 696,973
Increase in stock subscription
receivable (unaudited)
Dividends on redeemable
preferred stock (unaudited) (18,422,373)
Accretion on Junior preferred stock
(unaudited) (499,155)
Accretion on Redeemable Exchangeable
preferred stock (unaudited) (502,127)
Net income (unaudited) 33,803,028
------------ ------------ -------------
Balance at September 30, 1997
(unaudited) $284,261,419 $ (4,200,970) $ (89,442,505)
============ ============ =============
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 Nine Months
Ended September 30,
----------------------------------
1997 1996
------------ ------------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 33,803,028 $ (13,708,946)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 28,237,081 18,378,035
Option plan compensation 3,143,193 2,727,223
Program rights amortization 703,789 1,080,430
Provision for doubtful accounts 1,272,526 799,753
Loss on sale or disposal of assets 1,296,768 61,392
Gain on sales of discontinued operations, net (66,190,291) -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 4,793,385 (5,622,924)
Increase in prepaid expenses and other current
assets (1,079,112) (1,859,823)
(Increase) decrease in other assets (8,692,047) 6,727,610
(Decrease) increase in accounts payable and
accrued liabilities (1,453,020) 7,362,422
Increase in accrued interest 8,266,322 6,436,406
------------- -------------
Net cash provided by operating activities 4,101,622 22,381,578
------------- -------------
Cash flows from investing activities:
Acquisitions of broadcast properties (196,936,733) (146,040,428)
Increase in deposits on broadcast properties (23,940,000) (8,427,000)
Increase in investments in broadcast properties (14,696,441) (22,773,992)
Purchases of property and equipment (35,820,084) (22,931,929)
Increase in investment in cable network (1,462,882) -
Deposits made on buildings and equipment (276,000) -
Proceeds from sales of discontinued operations, net 100,504,687 -
Proceeds from sales of assets 12,233,790 228,279
------------- -------------
Net cash used in investing activities (160,393,663) (199,945,070)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net - 154,800,000
Proceeds from long-term debt 120,000,000 17,700,000
Payments of long-term debt (694,464) (28,071,481)
Proceeds from exercise of common stock options, net 697,177 489,149
Increase in stock subscription notes receivable (940,111) -
Repayments of stock subscription notes receivable - 98,214
Payments for program rights (802,684) (1,150,659)
------------- -------------
Net cash provided by financing activities 118,259,918 143,865,223
------------- -------------
Decrease in cash and cash equivalents (38,032,123) (33,698,269)
------------- -------------
Cash and cash equivalents at beginning of period 61,748,788 68,070,990
------------- -------------
Cash and cash equivalents at end of period $ 23,716,665 $ 34,372,721
============= =============
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)
[Enlarge/Download Table]
For the Nine Months
Ended September 30,
--------------------------------
1997 1996
----------- -----------
(Unaudited)
Supplemental disclosures of cash flow
information:
Cash paid for interest $17,909,952 $14,694,387
=========== ===========
Cash paid for income taxes $ - $ -
=========== ===========
Non-cash operating and financing activities:
Accretion of discount on senior subordinated notes $ 222,818 $ 202,209
=========== ===========
Issuance of common stock for Travel Channel and WVVI-
TV acquisitions $66,125,000 $ -
=========== ===========
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 $18,422,373 $ 6,175,339
=========== ===========
Accretion on redeemable securities $ 1,001,282 $ 3,701,787
=========== ===========
Trade and barter revenue $ 3,549,877 $ 2,728,554
=========== ===========
Trade and barter expense $ 3,680,232 $ 2,048,538
=========== ===========
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 September 30, 1997
and for the nine and three month periods ended September 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 Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997, and the definitive proxy statement for
the annual meeting of stockholders held May 16, 1997, and Forms 8-K dated
January 10, 1997, April 29, 1997 and October 1, 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 Metroplex, Inc. and Clear Channel Metroplex
Licenses, Inc. (collectively "Clear Channel"). On August 25, 1997, the Company
entered into Asset Purchase Agreements ("Asset Purchase Agreements") with Clear
Channel and L.Paxson, Inc. ("LPI") pursuant to which the Company agreed to sell
substantially all of its radio segment assets, in five groups, and stations
under acquisition contracts for approximatley $629 million. LPI is controlled by
Lowell W. Paxson ("Mr. Paxson"), the Chairman of the Board, Chief Executive
Officer and controlling shareholder of the Company. The sale of certain of the
assets was structured as a tax free exchange, potentially permitting the Company
to defer the gain on the sale of those assets for tax purposes. The Company does
not anticipate an operating loss during the phase-out period of this segment.
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.
Pursuant to certain of the Asset Purchase Agreements, on October 1, 1997, the
Company sold its interests in its radio networks and Orlando, Florida billboard
operations to Clear Channel for $25.7 million and sold its interests in 23 of
its 42 radio stations to LPI for approximately $369.4 million in cash and a note
issued by LPI in the amount of $58.9 million. The note bears interest at 7% and
is payable upon the earlier of (i) eighteen months from the date of issuance or
(ii) the closing of the sale of the LPI owned radio stations to Clear Channel
under the Asset Purchase Agreements. The Company will receive $6.3 million in
interest on the note if the note is outstanding for the eighteen months or in
the form of a prepayment penalty if the note is paid before maturity. Also, on
October 1, 1997, Clear Channel began operating the Company's remaining 19 radio
stations and all of LPI's radio stations pursuant to Time Brokerage or Time
Sales Agreements. The Company's and LPI's radio station assets are expected to
be sold to Clear Channel in the fourth quarter of 1997 upon receipt of
regulatory approvals. In addition to payment of the aforementioned LPI note, the
Company expects to receive additional consideration of approximately $140.2
million upon the sale of the remaining radio station assets.
The Company previously contracted to purchase three radio stations in West Palm
Beach, Florida. The Company's rights pursuant to these agreements and its
obligations to sell these stations to Clear Channel under the Asset Purchase
Agreements were assigned to LWP Radio, Inc. ("LWP"). LWP is also controlled by
Mr. Paxson. LWP purchased the assets of these radio stations for approximately
$28.6 million using funds loaned by Clear Channel for the acquisitions and Clear
Channel began operating these radio stations pursuant to Time Brokerage
Agreements on October 3, 1997. These station assets are expected to be sold to
Clear Channel by LWP at their cost of approximately $28.6 million in the fourth
quarter of 1997 upon receipt of regulatory approvals.
LPI and LWP are not expected to realize any direct financial benefit from these
transactions with the Company.
During October 1997, the Company sold the remainder of its billboard assets
located in Tampa, Florida to Universal Outdoor, Inc. for total consideration of
approximately $4.5 million.
9
The Company intends to use the proceeds of the previously described
transactions primarily to complete announced television station acquisitions and
for programming payments as discussed elsewhere herein.
The following table sets forth the actual and pro forma selected balance sheet
amounts of the Company as of September 30, 1997. Pro forma amounts give effect
to the sale of the radio segment.
[Download Table]
As of September 30, 1997
------------------------
Actual Pro forma
-------- ---------
Assets (in thousands)
Cash and cash equivalents $ 23,717 $ 194,111
Other current assets 26,596 7,283
-------- ----------
Total current assets 50,313 201,394
-------- ----------
Property and equipment, net 150,845 96,996
Intangible assets, net 386,573 178,755
Cash held by qualified intermediary - 434,606
Investments and Other assets 195,506 189,557
-------- ----------
Total assets $783,237 $1,101,308
======== ==========
Total current liabilities $ 26,273 $ 41,302
Deferred income taxes - 115,260
(Accumulated deficit) Retained earnings (89,443) 98,614
Other liabilities and equity 846,407 846,132
-------- ----------
Total liabilities and equity $783,237 $1,101,308
======== ==========
For additional discussion and explanation of significant pro forma
adjustments, see the Company's Form 8-K dated October 1, 1997 filed with the
United States Securities and Exchange Commission.
The Paxson Radio operations generated revenues of approximately $78,190,000 and
$52,481,000, and $26,978,000 and $20,854,000, for the nine and three month
periods ended September 30, 1997 and 1996, respectively.
During the third quarter the Company completed the sale of its Network
Affiliated Television operations. Aggregate consideration of $119 million was
received in conjunction with these sales during the second and third quarters of
1997.
The Paxson Network Affiliated Television operations generated revenues of
approximately $12,319,000 and $14,023,000, and $1,540,000 and $4,326,000 for the
nine and three month periods ended September 30, 1997 and 1996, respectively.
The components of net assets of discontinued operations (both Radio and Network
Affiliated Television) included in the consolidated balance sheets at September
30, 1997 and December 31, 1996, are as follows:
[Download Table]
1997 1996
---- ----
Current assets $ 19,313,796 $ 23,017,001
Noncurrent assets 266,853,825 180,194,830
------------ ------------
Total assets $286,167,621 $203,211,831
============ ============
Current liabilities 4,971,783 8,344,163
Noncurrent liabilities 274,995 1,576,467
------------ ------------
Total liabilities 5,246,778 9,920,630
------------ ------------
Total net assets $280,920,843 $193,291,201
============ ============
Net assets of discontinued operations at September 30, 1997 and December 31,
1996 excludes cash and cash equivalents and accounts receivable of Paxson
Network Affiliated Television which were 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. Investment in Cable Network
On July 11, 1997, the Company through a wholly-owned unconsolidated subsidiary
acquired the assets of The Travel Channel from Landmark Communications, Inc. for
aggregate consideration of $75,000,000, including $55,000,000 of the Company's
class A common stock (4,773,097 shares issued at closing) and $20,000,000 in
cash. The Company also issued 97,632 shares ($1,125,000) of its class A common
stock to Communications Equity Associates, Inc. in connection with their role as
financial advisor in the Travel Channel transaction. The $20,000,000 in cash was
obtained by the Company's unconsolidated subsidiary through a loan secured by
its investment in the Travel Channel ("Acquisition Loan"). The unconsolidated
subsidiary has borrowed an additional $1,000,000 under this
10
loan facility for working capital requirements. The results of operations of the
Travel Channel have been included in the Company's consolidated statements of
operations for the nine and three months ended September 30, 1997 using the
equity method of accounting and as such, the $21,000,000 in outstanding loans
obtained by the Company's unconsolidated subsidiary have not been included in
the Company's consolidated balance sheets at September 30, 1997. The investment
in cable network balance on the Company's September 30, 1997 consolidated
balance sheet reflects the Company's issuance of common stock in connection with
the acquisition as discussed above and advances made to date to the Travel
Channel.
During September 1997, the Company announced that it had entered into a letter
of intent with Discovery Communications, Inc. ("DCI") under which DCI will
acquire a 70% controlling interest in a new cable television service partnership
formed by the Company and DCI. The Company will contribute its cable television
network, The Travel Channel, to this new partnership. The Company's
unconsolidated subsidiary will receive $20 million in cash, a 30% ownership
interest in the new partnership and an annual consulting fee of $300,000. The
Company's unconsolidated subsidiary will receive a priority credit of
$55,000,000 to its capital account and DCI will receive a $20,000,000 priority
credit. The Company's unconsolidated subsidiary intends to use the $20,000,000
that it will receive from this transaction to repay the Acquisition Loan. DCI
will serve as the managing partner with its Discovery Networks US unit
overseeing all operations of the cable television service partnership including
administration, programming, affiliate sales, advertising sales and marketing.
The following unaudited information of The Travel Channel is presented for the
three month period ended September 30, 1997:
[Download Table]
Current assets $ 4,347,000
Noncurrent assets 76,170,000
-----------
Total assets $80,517,000
===========
Current liabilities 22,757,000
===========
Common stockholders equity 57,760,000
-----------
Total liabilities and common stockholders equity $80,517,000
===========
Net revenues $ 4,584,000
===========
Operating income $ 612,000
===========
Net income $ 172,000
===========
4. Common Stock Warrants
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. In
September 1997, the holders of the Company's Class A and B common stock warrants
exercised 32.5121 warrants for 900,000 shares of Class A common stock. The
Company has 33.1252 redeemable common stock warrants still outstanding which
entitle the holders to purchase 688,312 Class A common shares and 229,437 Class
B common shares.
5. Income (Loss) Per Share Data
Computations of the weighted average common stock and common stock equivalents
outstanding are as follows:
[Download Table]
For the Nine Months For the Three Months
ended September 30, ended September 30,
----------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
Weighted average Class A and
Class B common stock outstanding 52,065,681 42,721,280 56,835,119 46,983,274
---------- ---------- ---------- ----------
Weighted average of options
outstanding assumed exercised 2,489,928 * 2,670,034 *
---------- ---------- ---------- ----------
Weighted average of common stock
warrants outstanding assumed
exercised 3,341,124 * 2,041,098 *
---------- ---------- ---------- ----------
Weighted average common stock and
common stock equivalents
outstanding 57,896,733 42,721,280 61,546,251 46,983,274
========== ========== ========== ==========
* In accordance with Accounting Principles Board Opinion No.15, because the
effect of the Company's common stock equivalents was anti-dilutive, they have
been excluded from the Company's per share calculations. Additionally, the
Company does not present fully diluted EPS in the Consolidated Statements of
Operations because the effect of the Company's common stock equivalents resulted
in a less than 3% dilution for the periods presented.
In February 1997, the Financial Accounting Standards Board adopted Statement of
Financial
11
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.
12
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 and 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 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. The Company also operates through an unconsolidated subsidiary The
Travel Channel, a 24 hour per day cable television network dedicated to travel
related programming acquired by the Company on July 11, 1997. During September
1997, the Company entered into a letter of intent to contribute its investment
in The Travel Channel to a new joint venture partnership with Discovery
Communications, Inc. ("DCI") which will be managed by DCI. See the cable
television network joint venture discussion elsewhere herein. The operations of
The Travel Channel have been included in the consolidated statements of
operations using the equity method of accounting. 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 decisions made during 1997 to sell these segments. See Note 2 of the
Notes to Consolidated Financial Statements.
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 station
operations increases the Company's exposure to the above risks and
uncertainties. The Company currently expects to continue acquiring additional
television stations and to review programming opportunities for broadcast on its
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
September 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 engaged in discussions with a variety of television and cable networks,
studios, programmers and others concerning various alternative methods of
utilizing its television broadcasting distribution assets. The Company
considered many alternatives, including selling large blocks of air time
to third parties that would select programming to be aired during such blocks of
time and sell the spot advertising for such blocks. The Company recently made a
determination to evaluate and obtain programming and sell spot advertising
during such programming on its own. The Company believes that this strategy
will provide an opportunity to achieve greater long term shareholder value than
other alternative uses of its broadcasting distribution infrastructure that it
considered. In October and November, 1997, the Company entered into
programming contracts to air syndicated television shows
13
"Touched By An Angel", "Dave's World", "Promised Land", "Sisters", "Life Goes
On", "I'll Fly Away", "The New Land", "Medical Center", "Dr. Quinn, Medicine
Woman", "Christy" and "Neon Rider" from 1998 to 2004. The Company has also
entered into programming contracts to air feature films from 1998 to 2001. Such
programming contracts require collective payments by the Company of $243.9
million over such period. See "Programming Commitments" elsewhere herein. The
Company continues to evaluate additional programming and currently plans to
start airing its programming nationwide over its television stations in the fall
of 1998. The Company expects that under the new format the selling expenses
willremain proportionate to revenues and that revenues as well as promotional
and programming expenses will increase significantly. The Company currently
expects that programming amortization costs will average less than $1,000,000
annually per market served by its new network, an amount it believes is
substantially less than such costs incurred on average by other commercial
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 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 remaining
portion of 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. In addition, the Company's recent decision to obtain on its own and air
more conventional programming during certain portions of the day on its
nationwide network of television stations entails certain additional risks and
uncertainties, including, those risks associated with the launch of a new
television network, the ability to obtain desirable programming at a
financially-feasible cost, the ability to successfully and profitably sell
advertising spots during such programming.
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 CURRENT TOTAL CURRENT
TV COMMENCEMENT STATION 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 4,449 4,825 92.2% 6,756
New York, NY 1 WHAI TV 43 3/96 626 761 4,825 15.8% 6,756
Los Angeles, CA 2 KZKI TV 30 5/95 1,453 2,598 3,133 82.9% 5,009
Philadelphia, PA 4 WTGI TV 61 2/95 1,225 1,702 2,033 83.7% 2,659
San Francisco, CA 5 KLXV TV 65 6/95 650 1,308 1,640 79.8% 2,298
Boston, MA 6 WGOT TV 60 5/95 604 1,051 1,694 62.0% 2,174
Boston, MA* 6 WHRC TV(5) 46 4/97 0 272 1,694 16.0% 2,174
Washington, D.C. 7 WVVI TV 66 8/97 940 993 1,331 74.6% 1,928
Dallas, TX 8 KINZ TV 68 12/96 0 683 989 69.1% 1,899
Atlanta, GA 10 WTLK TV 14 4/94 300 998 1,144 87.3% 1,675
Atlanta, GA* 10 WNGM TV 34 4/96 182 312 1,144 27.2% 1,675
Houston, TX 11 KTFH TV 49 3/95 647 846 918 92.2% 1,624
Cleveland, OH 13 WAKC TV 23 3/96 560 817 1,026 79.6% 1,469
Cleveland, OH* 13 WOAC TV 67 10/95 332 370 1,026 36.0% 1,469
Minneapolis, MN 14 KXLI TV 41 10/96 605 664 746 89.0% 1,448
Tampa, FL* 15 WFCT TV 66 8/94 0 968 1,043 92.8% 1,436
Miami, FL* 16 WCTD TV 35 4/94 396 1,019 1,019 100.0% 1,386
Phoenix, AZ 17 KWBF TV 13 3/96 23 28 755 3.7% 1,289
Phoenix, AZ 17 KAJW TV(4)(8) 51 12/97 0 0 755 0.0% 1,289
Denver, CO 18 KUBD TV 59 8/95 430 463 741 62.4% 1,199
Sacramento, CA* 20 KCMY TV 29 7/95 624 640 726 88.0% 1,127
St. Louis, MO 21 WCEE TV(6)(10) 13 1/96 23 65 585 11.2% 1,109
Orlando, FL* 22 WIRB TV 56 12/94 468 777 796 97.6% 1,041
Hartford, CT* 27 WTWS TV(5) 26 3/95 661 854 792 107.9% 916
Kansas City, MO 31 KINB TV 50 5/97 397 433 518 83.5% 792
Milwaukee, WI 32 WHKE TV 55 7/96 257 345 477 72.4% 791
Salt Lake City, UT 36 KOOG TV 30 7/97 200 200 387 51.6% 690
Grand Rapids, MI 37 WILV TV(6)(10) 43 9/96 0 383 412 93.1% 659
14
[Enlarge/Download Table]
Norfolk, VA* 39 WJCB TV 49 8/95 343 404 474 85.3% 636
Oklahoma City, OK 44 KMNZ TV 62 10/96 0 230 374 61.5% 593
Greensboro, NC 46 WAAP TV 16 7/96 323 337 367 92.1% 577
Wilkes Barre, PA* 47 WSWB TV(4)(8) 64 12/97 0 0 452 0.0% 566
Providence, RI 49 WOST TV(4)(7) 69 12/97 0 0 433 0.0% 559
Birmingham, AL 51 WNAL TV 44 10/96 31 88 363 24.2% 547
Albany, NY 52 WOCD TV 55 5/96 251 274 376 72.8% 509
Dayton, OH 53 WTJC TV 26 10/95 298 306 351 87.3% 503
Fresno, CA* 55 KKAG TV 61 6/97 195 222 263 84.5% 496
Little Rock, AR* 56 KVUT TV(4)(8) 42 8/97 0 0 301 0.0% 481
Tulsa, OK 58 KGLB TV 44 7/97 0 1 299 0.2% 468
Roanoke, VA 68 WEFC TV 38 12/97 182 182 263 69.3% 402
Green Bay, WI 70 WSCO TV 14 12/97 0 226 226 100.0% 381
Cedar Rapids, IA* 87 KTVC TV 48 5/97 0 11 198 5.7% 308
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
San Juan, PR NR WSJN TV(11) 24 2/96 285 285 298 95.6% 1,064
---- ---- ---- ----- -----
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TOTAL OWNED OR OPERATED(9) 17,653 26,567 32,769 81.1% 49,463
-------------------------------------------------------------------------------------------------------------------------------
AFFILIATES
Philadelphia, PA 4 WTVE TV 51 10/96 414 700 2,033 34.4% 2,659
Washington, D.C. 7 WSHE TV 60 10/96 0 124 1,331 9.3% 1,928
Indianapolis, IN 25 WIIB TV 63 1/96 401 424 618 68.6% 957
Hartford, CT 27 WHCT TV 18 7/97 0 70 792 8.9% 916
Raleigh, NC 29 WRMY TV 47 6/96 0 317 512 61.8% 826
Fresno, CA 55 KGMC TV 43 1/96 179 164 263 62.3% 496
---- ---- ---- ----- -----
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TOTAL OWNED, OPERATED AND AFFILIATES(9) 18,646 28,365 33,899 83.7% 51,246
-------------------------------------------------------------------------------------------------------------------------------
ANNOUNCED TV ACQUISITIONS
San Fransisco, CA 5 KWOK TV(4)(6) 68 1,640 2,298
Detroit, MI 9 WBSX TV 31 1,191 1,782
Seattle, WA 12 KBCB TV(4) 24 1,104 1,514
Pittsburgh, PA 19 Channel 40 40 899 1,140
Raleigh, NC 29 WFAY TV 62 512 826
Nashville, TN 33 WKZX TV 28 496 789
Buffalo, NY 40 WAQF TV(4) 51 475 630
West Palm Beach, FL 43 WHBI TV(4)(6) 67 496 593
Charleston, WV* 57 WKRP TV(4) 29 353 480
Honolulu, HI* 71 KAPA TV(4) 66 333 380
Tucson, AZ* 78 KXGR TV(4) 46 215 356
--- ---
-------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNOUNCED TV STATIONS(9) 5,563 7,665
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
TOTAL TV NETWORK(9) 39,462 58,911
-------------------------------------------------------------------------------------------------------------------------------
* 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 10/97, to be billed in 11/97, 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.
15
Purchases of Broadcast Properties:
During August 1997, the Company entered into an agreement to purchase television
station WFAY-TV serving the Raleigh, North Carolina market for $4,500,000.
During September 1997, the Company entered into agreements to purchase
television stations WKRP-TV 29 and KXGR-TV 46 serving, respectively, the
Charleston, West Virginia and Tucson, Arizona markets for, $8,250,000 and
$4,000,000, respectively. The Company intends to initially operate both WKRP-TV
and KXGR-TV pursuant to time brokerage agreements before exercising options to
acquire both stations.
During October 1997, the Company entered into an agreement to purchase
television station WJCB-TV serving the Norfolk, Virginia market for $14,750,000.
During October 1997, the Company completed its previously announced acquisitions
of WSCO-TV in Green Bay, Wisconsin for approximately $4,750,000, WNAL-TV in
Birmingham, Alabama for approximately $10,000,000 and WEFC-TV in Roanoke,
Virginia for approximately $5,500,000.
During November 1997, the Company completed the purchase of the remaining 51% of
KGLB-TV serving the Tulsa, Oklahoma market not already owned.
Sales of Broadcast Properties:
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, Inc., a company beneficially owned by members of Mr. Paxson's family.
The Company plans to continue including these stations in its nationwide
broadcast TV network pursuant to affiliation agreements. The Company has
received approximately $3,600,000 and $5,250,000 of the purchase price for
WCEE-TV and WILV-TV, respectively. The final funds are due upon regulatory
approval and transfer of the station licenses. The Company believes that the
terms of such transactions were at least as favorable as they would have been if
obtained in an arm's length transactions with an unaffiliated third party.
Cable Television Network Joint Venture:
During September 1997, the Company announced that it had entered into a letter
of intent with DCI under which DCI will acquire a 70% controlling interest in a
new cable television service partnership formed by the Company and DCI. The
Company will contribute its cable television network, The Travel Channel, to
this new partnership. The Company's unconsolidated subsidiary will receive $20
million cash, a 30% ownership interest in the new partnership and an annual
consulting fee of $300,000. The Company's unconsolidated subsidiary will receive
a priority credit of $55 million to its capital account and DCI will receive a
$20 million priority credit. The Company's unconsolidated subsidiary intends to
use the $20 million that it will receive from this transaction to repay the
acquisition loan outstanding. See Note 3 of the Notes to Consolidated Financial
Statements. DCI will serve as the managing partner with its Discovery Networks
US unit overseeing all operations of the cable television service partnership
including administration, programming, affiliate sales, advertising sales
and marketing.
16
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 nine months For the three months
ended September 30, ended September 30,
--------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Operating Expenses:
Direct 16.6 17.0 14.6 18.4
Programming 4.7 4.0 3.8 4.5
Sales and promotion 5.2 5.9 6.8 6.9
Technical 10.6 7.0 10.1 8.2
General and administrative 29.2 31.8 25.0 35.2
Trade and barter 0.4 - 0.7 -
Time brokerage agreement fees 13.5 4.7 24.7 5.3
Option plan compensation 3.5 5.5 3.0 2.1
Depreciation and amortization 24.1 19.9 24.6 23.9
----- ----- ----- -----
Total operating expenses 107.8 95.8 113.3 104.5
----- ----- ----- -----
Operating (loss) income (7.8) 4.2 (13.3) (4.5)
Other income (expense):
Interest expense (45.2) (51.8) (41.1) (48.4)
Interest income 5.4 12.4 2.6 8.6
Other expense, net (5.1) (1.6) (10.5) (0.5)
----- ----- ----- -----
Loss from continuing operations (52.7) (36.8) (62.3) (44.8)
===== ===== ===== =====
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Consolidated revenues for the nine months ended September 30, 1997 increased 43%
(or $18.3 million) to $61.3 million from $43.0 million for the nine months ended
September 30, 1996. This increase was primarily due to television station
acquisitions and new time brokerage operations.
Operating expenses for the nine months ended September 30, 1997 increased 60.4%
(or $24.9 million) to $66.1 million from $41.2 million for the nine months ended
September 30, 1996. The increase was primarily due to higher direct expenses
such as commissions which rise in proportion to revenues ($2.9 million), other
non-direct costs, which are primarily due to operating new television stations
($9.5 million), higher depreciation and amortization, primarily related to
assets acquired ($6.2 million), and increased time brokerage agreement fees,
primarily related to new time brokerage operations ($6.2 million).
Operating cash flow for the nine months ended September 30, 1997 increased 40.2%
(or $5.9 million) to $20.5 million, from $14.6 million for the nine months ended
September 30, 1996. The increase in operating cash flow was primarily a result
of television station acquisitions and new time brokerage operations. "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
of 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.
Interest expense for the nine months ended September 30, 1997 increased to $27.7
million from $22.3 million for the nine months ended September 30, 1996, an
increase of 24.3% primarily due to a greater level of senior debt throughout the
period. As a result of acquisitions, at September 30, 1997, total long-term debt
and senior subordinated notes were $351.2 million, compared with the balance of
$231.8 million outstanding a year prior.
Interest income for the nine months ended September 30, 1997 decreased to $3.3
million from $5.3 million, primarily due to lower levels of cash and cash
equivalents invested throughout the period.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Consolidated revenues for the three months ended September 30, 1997 increased
59% (or $8.9 million) to $23.8 million from $14.9 million for the three months
ended September 30, 1996. This increase was primarily due to television station
acquisitions and new time brokerage operations.
17
Operating expenses for the three months ended September 30, 1997 increased 72.4%
(or $11.3 million) to $26.9 million from $15.6 million for the three months
ended September 30, 1996. The increase was primarily due to higher direct
expenses such as commissions which rise in proportion to revenues ($0.7
million), other non-direct costs, which are primarily due to operating new
television stations ($2.7 million), higher depreciation and amortization,
primarily related to assets acquired ($2.3 million), increased time brokerage
agreement fees, primarily related to new time brokerage operations ($5.1
million), and increased option plan compensation costs ($.4 million).
Operating cash flow for the three months ended September 30, 1997 increased
135.7% (or $5.4 million) to $9.4 million, from $4.0 million for the three months
ended September 30, 1996. The increase in operating cash flow was primarily a
result of television station acquisitions and new time brokerage operations.
Interest expense for the three months ended September 30, 1997 increased to $9.8
million from $7.2 million for the three months ended September 30, 1996, an
increase of 34.9% primarily due to a greater level of senior debt throughout the
period. As a result of acquisitions, at September 30, 1997, total long-term debt
and senior subordinated notes were $351.2 million, compared with the balance of
$231.8 million outstanding a year prior.
Interest income for the three months ended September 30, 1997 decreased to $0.6
million from $1.3 million, primarily due to lower levels of cash and cash
equivalents invested throughout the period.
LIQUIDITY AND CAPITAL RESOURCES
On October 1, 1997, the Company completed the first phase of its radio segment
sale resulting in gross proceeds of approximately $395.1 million. Additional
consideration to be received by the Company upon the sale of the remaining radio
station assets is approximately $205.4 million including the LPI note and
interest. Also during October 1997, the Company sold its Tampa billboard
operations for approximately $4.5 million and assigned its rights to purchase
three radio stations in West Palm Beach, Florida to LWP Radio, Inc., which
completed these purchases. See Note 2 of the Notes to Consolidated Financial
Statements for a discussion of the above transactions. The Company anticipates
that the proceeds from the radio segment sales will be primarily utilized to
fund the television station acquisitions and programming payments discussed
below along with related capital requirements. 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's working capital at September 30, 1997 and December 31, 1996 was
$24 million and $76.2 million, respectively, and the ratio of current assets to
current liabilities was 1.92:1 and 4.88:1 on such dates, respectively. Working
capital decreased primarily due to the acquisitions previously discussed.
Cash provided by operations of $4.1 million and $22.4 million for the nine
months ended September 30, 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 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 Company has
advanced $1,530,000 to The Christian Network, Inc. ("CNI") during the nine
months ended September 30, 1997 under a demand note bearing interest at the
prime rate (currently 8.50%). At September 30, 1997 the Company had total
advances to CNI outstanding of approximately $4,523,000 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 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, programming payments
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 $120 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 the cash on hand and net proceeds from the radio
segment sales will be sufficient to complete the investments and programming
payments discussed below (including the expected capital expenditures associated
therewith and net of deposits and advances made to date), and to meet its
anticipated short term and long term working capital requirements for its
existing properties. However, should the Company suffer a
18
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.
PROGRAMMING COMMITMENTS
The Company has entered into commitments for broadcast rights related to
programs that are not currently available for broadcast and therefore not
included in the consolidated financial statements. Future minimum annual
payments under these agreements as of September 30, 1997 are as follows:
[Download Table]
1997 $ 37,622,500
1998 21,983,701
1999 57,061,934
2000 54,642,766
2001 48,814,099
2002 17,933,333
2003 3,520,000
2004 2,346,667
------------
$243,925,000
The Company has also committed to purchase additional future episodes of these
programs should they be made available.
INVESTMENT COMMITMENTS
The completion of each of the investments 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
WBSX-TV Detroit, MI $ 35,000,000
Channel 40 Pittsburgh, PA $ 35,000,000
KCMY-TV Sacramento, CA (2) $ 17,000,000
WJCB-TV Norfolk, VA $ 14,750,000
WIRB-TV Orlando, FL (3) $ 13,162,000
WNAL-TV Birmingham, AL (4) $ 10,000,000
WKRP-TV Charleston, WV $ 8,250,000
KBCB-TV Seattle, WA $ 8,000,000
KKAG-TV Fresno, CA (5) $ 7,960,000
WHBI-TV West Palm Beach, FL (6) $ 7,000,000
KAJW-TV Phoenix, AZ (7) $ 6,600,000
WSWB-TV Wilkes-Barre, Scranton, PA (7) $ 6,160,000
WEFC-TV Roanoke, VA (11) $ 5,500,000
KAPA-TV Honolulu, HI $ 5,000,000
KTVC-TV Cedar Rapids, IA (8) $ 5,000,000
WSCO-TV Green Bay, WI (11) $ 4,750,000
KWOK-TV San Francisco, CA (6) $ 4,500,000
WFAY-TV Raleigh, NC $ 4,500,000
WKZX-TV Nashville, TN $ 4,200,000
KXGR-TV Tucson, AZ $ 4,000,000
WAQF-TV Buffalo, NY (9) $ 3,000,000
WHCT-TV Hartford, CT $ 3,000,000
KVUT-TV Little Rock, AR (7) $ 1,250,000
WFCT-TV, WCTD-TV Tampa and Miami, FL $ 801,000
KGLB-TV Tulsa, OK (10) $ 421,000
Paxson Radio:
WKGR-FM, WOLL-FM West Palm Beach, FL (12) $ 28,400,000
WBZT-AM
* Each station is licensed by the FCC to serve a specific community,
which is included in the listed market.
(1) $7,500,000 of the purchase price is payable at the Company's option by
issuance of Class A Common Stock of the Company.
(2) 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.
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(3) The Company has outstanding loans at September 30, 1997 aggregating
approximately $4,065,000 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.
(4) 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 was repaid
upon closing during October 1997.
(5) The Company began operating the station pursuant to a time brokerage
agreement on June 1, 1997 pending completion of the acquisition of the
station.
(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 September
30, 1997, the Company had advanced approximately $9,164,000 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
time brokerage agreement. The purchase price reflects the cash portion
only and does not include additional consideration of 600,000 shares
of Class A Common Stock of the Company.
(9) Includes the purchase of two low power television stations, W69CS and
W63BM.
(10) The Company completed the purchase of the remaining 51% interest in
this station during November 1997.
(11) The Company completed the purchase in October 1997.
(12) The Company assigned its rights to purchase these stations to LWP
Radio as discussed elsewhere herein. LWP Radio completed the purchase
in October 1997.
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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:
[Download Table]
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 Fourth Amendment, dated September 25, 1997, to the Amended and Restated
Credit Agreement, dated as of November 19, 1996, among Paxson
Communications Corporation, the Lenders from time to time party thereto
and Union Bank of California, N.A., as Agent
4.3 Credit Amendment, dated July 11, 1997, among Travel Channel Acquisition
Corporation, the Several Lenders from Time to Time Parties Hereto and
Union Bank of California, N.A., as the Agent
10.179 Asset Purchase Agreement, dated August 25, 1997, by and among Paxson
Communications Corporation, Clear Channel Metroplex, Inc., Clear
Channel Metroplex Licenses, Inc. and Clear Channel Communications, Inc.
(filed as exhibit 2.1 with the Company's Form 8-K, dated October 1,
1997 and incorporated herein by reference)
10.180 Asset Purchase Agreement, dated August 25, 1997, by and among Paxson
Communications Corporation, L. Paxson, Inc., Clear Channel Metroplex,
Inc., Clear Channel Metroplex Licenses, Inc. and Clear Channel
Communications, Inc. (filed as exhibit 2.2 with the Company's Form 8-K,
dated October 1, 1997 and incorporated herein by reference)
10.181 Asset Purchase Agreement, dated August 29, 1997, by and among Paxson
Communications of Fayetteville-62, Inc., Fayetteville-Cumberland
Telecasters, Inc., Fayetteville-Cumberland Telecasters Inc.,
Debtor-in-Possession, and Poplar Apartments Limited Partnership for
Television station WFAY, Fayetteville, North Carolina
10.182 Stock Purchase Agreement, dated September 2, 1997, by and among Channel
29 of Charleston, Inc., Paxson Communications of Charleston-29, Inc.
and Mountaineer Broadcasting Corporation and William L. Kepper
10.183 Stock Purchase Agreement, dated September 9, 1997, by and among Channel
46 of Tucson, Inc., Paxson Communications of Tucson-46, Inc. and
Sungilt Corporation, Inc.
10.184 Asset Purchase Agreement, dated October 16, 1997, by and between Paxson
Communications Corporation and Channel 49 Acquisition Corporation for
television station WJCB-TV, Norfolk, Virginia
10.185 Asset Purchase Agreement, dated October 24, 1997, between Universal
Outdoor, Inc. and Paxson Communications Corporation
27 Financial Data Schedule (for SEC use only)
21
-------------------
* 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.
None.
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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: November 14, 1997 By: /s/ James B. Bocock
-----------------------------
James B. Bocock
President, Chief Operating
Officer, Director
Date: November 14, 1997 By: /s/ Arthur D. Tek
-----------------------------
Arthur D. Tek
Vice President, Chief
Financial Officer, Director
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Dates Referenced Herein and Documents Incorporated by Reference
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