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1
PAXSON
COMMUNICATIONS
CORPORATION
1995
ANNUAL REPORT
FORM 10-K
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities 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 (I.R.S. 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: (407) 659-4122
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Class A Common Stock, $0.001 par value American Stock Exchange
11 5/8% Senior Subordinated Notes American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates as of
March 27, 1996 is $28,196,626, computed by reference to the closing price for
such shares on the American Stock Exchange.
The number of shares outstanding of each of the registrant's classes
of common stock, as of March 27, 1996 are: 26,262,854 shares of Class A Common
Stock $.001 par value, and 8,311,639 shares of Class B Common Stock, $.001 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the definitive Proxy Statement for the Registrant's Annual
Meeting of Stockholders to be held on May 16, 1996.
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TABLE OF CONTENTS
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Submission of Matters to Vote
of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Market for Registrant's
Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Financial Statements and
Supplementary Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Changes in and Disagreements
With Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Directors and Executive
Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Security Ownership of Certain
Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Certain Relationships and
Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Exhibits, Financial Statement
Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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PART I
ITEM 1. BUSINESS
GENERAL
Paxson Communications Corporation (the "Company") has created a
network of television stations dedicated to the airing of infomercial
programming (the "Infomall TV Network" or "inTV"). In addition, the Company has
a significant radio and network-affiliated television broadcasting presence in
the state of Florida. The Company owns 16 radio stations in the four largest
Florida cities, and will own 19 such stations upon completion of the Proposed
Acquisitions (as defined), and owns one network-affiliated television station
and operates another pursuant to a time brokerage agreement in the West Palm
Beach market.
The Company introduced its Infomall TV Network in January 1995 with
four television stations. inTV has expanded rapidly and currently
consists of 24 owned, operated pursuant to a time brokerage agreement or
affiliated inTV stations. Upon completion of the Proposed Acquisitions, the
Company will have 28 owned or operated inTV stations and four affiliated inTV
stations operating in 30 television markets, 20 of which are among the 30
largest in the United States. The Company expects to complete the Proposed
Acquisitions by the end of the first quarter of 1997, subject to receipt of
regulatory approvals.
The Company was founded in 1991 by Lowell W. "Bud" Paxson. Mr. Paxson
has been at the forefront of several innovative broadcasting concepts over the
last decade, including his leadership role in the creation and early growth of
electronic retailing as the creator and co-founder of Home Shopping Network,
Inc. and Silver King Communications, Inc.
SIGNIFICANT DEVELOPMENTS
The Company has agreements to purchase the assets of, or finance the
acquisition of assets of and enter into time brokerage agreements with respect
to, a number of additional radio and television stations (the "Proposed
Acquisitions"), information with respect to which is included in the notes to
the financial statements of the Company appearing elsewhere in this report. In
addition, the Company intends to exercise options to acquire six additional
television stations being operated by the Company pursuant to time brokerage
agreements (the "Station Options"), the acquisition of which by the Company
became permissible with the enactment of the Telecommunications Act of 1996.
The Company has registered an offering of an aggregate of 13,500,000
shares (excluding shares which may be sold upon exercise of the underwriters'
over-allotment option) of Class A Common Stock (the "Offering"), 10,300,000 of
which are being offered and sold by the Company and the balance by certain
stockholders of the Company. The Company expects the Offering to be completed
by April 3, 1996.
INFOMALL TV NETWORK
In January 1995, the Company introduced the Infomall TV Network in
order to capitalize on what the Company believes to be a rapidly growing
industry. The Company has assembled 20 owned or operated stations dedicated to
inTV programming and has entered into agreements to own or operate eight
additional inTV stations in seven additional markets. In addition, the Company
has affiliation agreements with four independently owned and operated
television stations. Upon completion of the Proposed Acquisitions, the Company
will have 32 owned, operated or affiliated inTV stations operating in 30
television markets, 20 of which are among the 30 largest in the
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United States. The Company believes that its network of inTV stations is the
only group of broadcast television stations in the United States that offers
infomercial advertisers significant national, regional and local distribution
capability and airtime during each of the popular morning, daytime and prime
time viewing hours.
The television stations acquired by the Company and converted to inTV
stations are typically non-network-affiliated stations with marginal operating
results that can be acquired at a relatively low cost compared to network-
affiliated stations. Certain of these stations are licensed to communities
outside the center of major television markets, but within such markets'
designated market area ("DMA"), and thus, by virtue of the "must carry" rules
of the Federal Communications Commission ("FCC"), are generally entitled to
carriage on cable systems within such DMA. Through the exercise of federal
"must carry" rights and the improvement of its stations' over-the-air signals,
the Company intends to continue its efforts to maximize its cable household
coverage within its markets beyond the 53.7% achieved as of January 1996. The
Company's goal is to reach approximately 85% of the cable homes in its markets
(although there can be no assurance that the Company will reach such goal). See
"Federal Regulation of Broadcasting - "Must Carry"/Retransmission Consent." The
Company believes that it also reaches a significant number of over-the-air
television households that do not receive cable television. The Company
continues to evaluate the acquisition of or affiliation with additional
independent television stations to further extend the national distribution
reach of its Infomall TV Network.
Industry Background
During recent years, advertisers have evaluated the benefits of
television and cable advertising, with many sophisticated consumer product and
service advertisers now recognizing the effectiveness and reasonable cost of
long-form programming, or infomercials. An infomercial is an advertisement,
usually approximately one half-hour in length and often produced in an
entertainment format, that is paid for by the advertiser on the basis of
air-time, market size and past results from airing on a particular television
station. Regardless of the presentation format, the viewers are provided
information that can be used to make informed purchasing decisions from the
comfort of their home without the pressure of a salesperson or the crowds of a
shopping mall.
Increasingly, advertisers are recognizing the benefits of infomercials
as a powerful marketing tool. Infomercials provide advertisers with a
cost-effective medium through which to deliver sales messages, product
introductions or demonstrations to an interested target audience. Advertisers
are recognizing that infomercials can increase a company's or product's brand
awareness and loyalty while educating uninformed potential new customers. Due
to the direct response nature of many infomercials, advertisers are afforded
the ability to evaluate their efficiency on an immediate basis.
The Company believes that the infomercial industry has grown rapidly
during the past several years. Historically, and to a large extent currently,
long-form informational programming occupied time slots that were otherwise
unprofitable for broadcasters. Increasingly, infomercials are being placed in
more expensive and attractive time periods such as daytime, early fringe and
prime time. In addition, the quality of the infomercial advertiser has
improved. Today, infomercials are being used to promote major consumer
brandnames:
Apple Computers Compaq Mastercard Procter & Gamble
Avon Products Estee Lauder Mattel Saturn
Bank of America Fidelity Investments Mercedes Benz Sears Roebuck
Bell Atlanta Ford Microsoft Sega of America
Black & Decker General Motors Motorola Toyota
Braun GTE NBC Visa
Cadillac Lexus Nissan Volvo
Coca-Cola Magnavox Philips Consumer Electronics Warner Music
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The production quality of infomercial programming by these major
advertisers has also brought increased credibility to the infomercial industry.
In addition, infomercials have recently been successfully utilized to promote
newly introduced network television series and full length feature movies. The
Company believes that as the benefits of infomercial programming become more
widely understood, the number of advertisers and the volume of infomercial
programming will continue to grow. In terms of demand for airtime, major
corporate advertisers who use long-form "advertorials", or image building
programs rather than direct selling messages, may ultimately surpass
infomercial programmers who rely on immediate sales to viewers via telephone
response. Currently, the funds spent on advertorials by major corporations are
a relatively small part of their overall advertising budget. The Company
believes that such advertorial expenditures will continue to increase.
Infomercials are one type of long-form paid programming. Other types
include religious, ethnic and political paid programming. In certain of the
Company's markets, such as Los Angeles and Miami, the demand for airtime by
foreign language ethnic programmers has steadily increased. Political long-form
paid programming has been used as a method of reaching voters. In general,
religious, ethnic and political paid programs have produced revenues for
particular time periods (e.g., Sundays for religious programming and weekday
mornings for certain ethnic programming) which are higher than otherwise
available from infomercial advertisers during such time periods.
Operating Strategy
By purchasing independent television stations, entering into time
brokerage agreements, signing affiliate stations, and extending its stations'
broadcast reach on cable via "must carry" requirements, the Company has created
a television network dedicated to providing long-form, paid entertainment and
information programming. The Company plans to continue the expansion of the
Infomall TV Network through the purchase or operation of, or affiliation with,
independent television stations in major United States television markets. As of
January 1996, the markets to be served by the Company's inTV stations upon
completion of the Proposed Acquisitions contained approximately 44.2 million
television households, of which 28.6 million were served by cable television.
Shortly after the Company acquires a television station or commences
operating a television station pursuant to a time brokerage agreement, the
Company replaces the existing programming with infomercial programming. The
Company's infomercial programming format allows it to eliminate substantially
all programming expenses and achieve significant reductions in other operating
expenses. Unlike traditional television stations, inTV programming is paid for
by the advertiser as opposed to the broadcaster. The Company centralizes many
accounting, traffic and national sales functions at its headquarters,
minimizing the staff required at each station location. The Company's inTV
stations are connected through a wide area computer network enabling them to
utilize common computerized financial and sales systems. Engineering functions
are standardized through the purchase of similar equipment at each location for
editing, playback-to-air and signal transmission, thereby reducing maintenance
expense. As a result, the Company's inTV stations are operated by an average of
15 people, compared to network and independent television stations, which
average over 100 and 60 people, respectively, in markets of similar size to the
Company's.
inTV programming time is sold on a local, national and network basis.
Local programming time is sold by each station's local sales force and is
offered to merchants and businesses operating within a station's local market,
including medical clinics, automobile dealers and general merchandisers.
National and network programming time is sold by national advertising placement
agencies and the Company's own in-house national and network sales force.
National and network programming times appeal to advertisers who desire to
reach viewers in targeted inTV markets and all inTV markets. The Company
maintains national sales offices in New York, Los Angeles, Chicago, and at the
Company's headquarters in West Palm Beach. Support and administration of the
Infomall TV Network is also centralized at the Company's West Palm Beach
headquarters, including most accounting and personnel functions as well as
administration of the inTV programming traffic scheduling systems.
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The Company seeks to realize the benefits of the Infomall TV Network by
making accessible relatively more desirable broadcast time periods
(e.g."prime-time") generally unavailable to infomercial and other paid
programmers at reasonable rates on traditional television stations. The Company
believes that attractive rates and further growth of inTV's audience reach
should continue to attract a greater breadth of advertising clients. Moreover,
as infomercial scheduling information and promotional support (through radio,
television and print advertising as well as other media) become more available,
the Company believes that the viewing population will further increase.
The Company seeks to increase the percentage of time sold to local
infomercial and other long-form paid programmers. Such local advertisers and
paid programmers have the potential to be consistent, long-term clients in each
of the Company's inTV markets. Because such advertising can be complementary to
local retailing outlets and professional businesses, and may result in
increased store traffic as well as immediate sales via telephone, the Company
believes that the rates paid by such advertisers have the potential to exceed
those paid by national direct marketers who lack a local store presence.
When the Company commences operation of an inTV station, revenues are
derived primarily from national infomercial advertisers. Such revenues enable
new inTV stations to quickly cover operating costs. As the Company's inTV
stations mature, however, a local sales staff is developed, generally
consisting of two sales persons and a manager. The Company's experience with
its more mature inTV stations is that local sales can increase to become
significant, increasing the overall demand for airtime and, therefore,
resulting in higher average advertising rates.
Expansion Strategy
The Company has to date assembled its Infomall TV Network primarily
through the conversion of independent television stations to inTV stations. In
most cases, those stations were non-network-affiliated stations with marginal
operating results. Certain stations are licensed to communities outside the
center of major television markets, but within such markets' DMA, and by virtue
of the FCC's "must carry" rules, are therefore entitled to carriage on cable
systems within such DMA. After converting a station to an inTV format, the
Company extends the station's reach to a substantial percentage of such DMA's
cable households through the exercise of federal "must carry" rights. See
"Federal Regulation of Broadcasting - "Must Carry"/Retransmission Consent."
As of the end of the first quarter of 1996, the Company had paid an
aggregate of $145.2 million (including capital expenditures) to assemble its
inTV network, with an additional $59.4 million committed for inTV stations
included in the Proposed Acquisitions or to be acquired pursuant to the
exercise of the Station Options and for capital expenditures on existing inTV
stations and inTV stations included in the Proposed Acquisitions. The Company
intends to continue to evaluate the acquisition of or affiliation with
independent television stations to further extend the national distribution
system for its Infomall TV Network.
In order to increase cable household penetration by its existing and
proposed stations, the Company is studying the employment of various
distribution-enhancing technologies. Such technologies include signal
transmission through fiber optic lines either alone or along with microwave
transmission, as well as low power television ("LPTV") broadcast signal
transmission and television signal compression and satellite technology. The
Company envisions that implementation of one or more of these technologies could
increase the households reached in several of its largest existing and proposed
inTV markets, including New York, Los Angeles, San Francisco, Boston,
Washington, D.C., Phoenix and St. Louis.
The Company may also selectively consider joint venture or other
relationships with established members of the infomercial and electronic
retailing industries with whom the Company can further exploit both its
infomercial distribution system and its knowledge of the infomercial and
telemarketing industries generally.
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The Company has entered into an agreement to acquire from the City of
West Palm Beach a 19 acre tract of land on which it plans to construct an
office, studio and warehouse facility currently targeted for completion during
the first quarter of 1997. This newly constructed facility is expected to
contain production studios and inbound and outbound telemarketing capabilities,
all of which the Company expects will be utilized to fully exploit future
telemarketing and infomercial businesses it may develop.
The Company is planning to launch its Infomall Netsite during 1996.
The Company's presence on the World Wide Web through the Infomall Netsite will
provide both the Company and Infomall TV Network advertisers with a
complimentary outlet to provide additional product or service information to a
growing audience to augment their inTV infomercial sales. It is envisioned that
infomercials aired on the Company's Infomall TV Network stations will promote
and guide viewers and customers to the Infomall Netsite. Information with
regard to the Infomall Netsite will be provided on inTV infomercials.
Infomall Properties
The stations included in the Company's Infomall TV Network are either
(i) owned by the Company, (ii) operated by the Company pursuant to time
brokerage agreements entered into with the FCC licensee, or (iii) owned by
independent television station operators that enter into affiliation agreements
with the Company. After giving effect to the Proposed Acquisitions, the Company
will own or operate 28 inTV stations, and have affiliation agreements with four
independently owned and operated stations that are currently dedicated to inTV.
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INFOMALL TV NETWORK
The following table lists those inTV properties that the Company owns,
operates or is affiliated with, and those properties which the Company expects
to add to inTV upon consummation of agreements to acquire or operate such
properties, as identified under "Proposed inTV Stations" below. (Television
and cable households in thousands.)
Actual or
National Anticipated inTV Cable Current
TV Commence- Carriage at Current inTV Total inTV Total
Market ment of Commence- Cable Market Cable Cable Market TV
Market(1) Rank(2) Station Operations ment(3) Carriage(4) Households(5) Carriage(6) Household(7)
- --------- ------- ------- ----------- --------- ----------- ------------- ----------- ------------
Owned or Operated
New York, NY . . . . . . 1 WHAI-TV 3/96 626 626 4,529 13.8% 6,695
Los Angeles, CA . . . . . 2 KZKI-TV 5/95 1,453 2,002 2,997 66.8 4,918
Philadelphia, PA . . . . 4 WTGI-TV 2/95 1,225 1,436 1,961 73.2 2,646
San Francisco, CA . . . . 5 KLXV-TV 6/95 650 796 1,578 50.4 2,257
Boston, MA . . . . . . . 6 WGOT-TV 5/95 604 841 1,625 51.8 2,122
Washington, DC . . . . . 7 WYVN-TV (8) 4/96 0 0 1,238 0.0 1,884
Atlanta, GA . . . . . . . 10 WTLK-TV 4/94 300 919 1,015 90.5 1,584
Houston, TX . . . . . . . 11 KTFH-TV 3/95 647 776 867 89.6 1,574
Cleveland, OH* . . . . . 13 WOAC-TV 10/95 332 336 966 34.8 1,452
Cleveland, OH . . . . . . 13 WAKC-TV 3/96 560 560 966 58.0 1,452
Tampa, FL . . . . . . . . 15 WFCT-TV (9) 8/94 0 831 976 85.1 1,395
Miami, FL . . . . . . . . 16 WCTD-TV (9) 4/94 396 868 922 94.1 1,341
Denver, CO . . . . . . . 18 KUBD-TV (9) 8/95 430 433 699 61.9 1,160
Phoenix, AZ . . . . . . . 19 KWBF-TV (9) 1/96 23 23 661 3.5 1,170
St. Louis, MO . . . . . . 20 WCEE-TV (9) 1/96 227 227 569 39.9 1,108
Orlando, FL* . . . . . . 22 WIRB-TV 12/94 468 482 741 65.0 998
Hartford, CT* . . . . . . 26 WTWS-TV (10) 3/95 661 719 770 93.4 911
Raleigh, NC . . . . . . . 32 WRMY-TV (9)(11) 6/96 0 0 481 0.0 792
Dayton, OH . . . . . . . 53 WTJC-TV (9) 10/95 298 312 341 91.5 501
San Juan, PR . . . . . . NR WSJN-TV (9)(12) 2/96 285 285 298 95.6 1,064
--- --- --- -----
Total Owned or Operated(7) 9,185 12,472 23,234 53.7% 35,572
----- ------ ------ ------
Affiliates
Sacramento, CA . . . . . 21 KCMY-TV 7/95 624 640 688 93.1 1,101
Indianapolis, IN . . . . 24 WIIB-TV 1/96 401 418 580 72.1 925
Norfolk, VA . . . . . . . 40 WJCB-TV 8/95 343 354 446 79.4 619
Fresno, CA . . . . . . . 57 KGMC-TV 1/96 179 179 256 69.8 482
--- --- --- ---
Total Affiliates . . . 1,547 1,591 1,970 80.8% 3,127
----- ----- ----- -----
Total Owned, Operated and Affiliates (7) 10,732 14,063 25,204 53.3% 38,699
------ ------ ------ ------
Proposed inTV Stations
Dallas, TX . . . . . . . 8 Channel 68 12/96 924 1,822
Atlanta, GA* . . . . . . 10 WNGM-TV 4/96 1,015 1,584
Milwaukee, WI* . . . . . 29 WHKE-TV 1/97 438 783
Salt Lake City, UT . . . 37 KZAR-TV (12) 12/96 359 656
Grand Rapids, MI . . . . 38 WJUE-TV (13) 6/96 390 637
West Palm Beach, FL . . . 45 WHBI-TV (14) 7/96 468 576
Providence, RI . . . . . 46 WOST-TV (12) 12/96 412 577
Albany, NY . . . . . . . 52 WOCD-TV 5/96 357 507
--- ---
Total Proposed inTV Stations(7) 4,363 7,122
----- -----
TOTAL inTV NETWORK 10,732 14,063 28,552 44,237
- -------------------------------- ====== ====== ====== ======
* Operated or to be operated pursuant to a time brokerage agreement.
(1) Each station is licensed by the FCC to serve a specific community,
which is included in the listed market.
(2) Source: A.C. Nielsen.
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(3) Cable households reached at commencement of station's operations.
(4) Estimated cable households reached at 1/96 based on cable operators'
information.
(5) Source: A.C. Nielsen. San Juan cable households provided by J. Walter
Thompson Latin America, June 1995.
(6) Cable households reached at 1/96 as a percent of the market's total
cable households. Source: A.C. Nielsen.
(7) Figures represent total television households in each market only and
are not necessarily indicative of the number of television households
reached by each station in its market; totals do not double count
markets where the Company has more than one station. San Juan cable
households provided by J. Walter Thompson Latin America, June 1995.
(8) Station is not currently on the air.
(9) Operated pursuant to a time brokerage agreement pending completion of
the Proposed Acquisitions and exercise of the Station Options.
(10) To be operated pursuant to a time brokerage agreement upon completion
of an FCC-required restructuring of the Company's investment in such
station in connection with the Company's acquisition of WHAI-TV.
(11) Option to acquire 40% ownership interest.
(12) 50% ownership interest to be acquired.
(13) 70% ownership interest to be acquired.
(14) inTV affiliate upon acquisition by Cocola Media Corporation of
Florida. See "Time Brokerage Agreements, Joint Sales Agreements and
Other Interests in Broadcast Stations."
PAXSON RADIO
Upon completion of the Proposed Acquisitions, the Company will own and
operate 24 radio stations (13 FM and 11 AM stations). The Company operates two
FM and two AM stations, commonly referred to as a "duopoly" serving Florida's
four most populous cities (Miami, Tampa, Orlando and Jacksonville), and has
agreed to acquire two additional FM stations in the Miami market and an
additional FM station in the Jacksonville market. In addition, the Company owns
and operates an AM/FM combination in Cookeville, Tennessee and has agreed to
acquire an additional AM/FM combination in that market, and has a JSA with an
AM station in Miami in which the Company owns a 49% interest. The Company's
radio stations employ broadly diversified programming formats, including News,
Talk, Sports, Country, Soft Adult Contemporary, Smooth Jazz, Album Oriented
Rock, Mainstream AOR, Alternative Rock, Spanish Sports, Spanish Adult
Contemporary and Spanish Salsa/Merengue. The Company operates six radio
networks, primarily in the southeastern United States, that provide daily
statewide news segments, sports programming and satellite distribution of
play-by-play broadcasts of professional and collegiate sports teams for 338
affiliated stations throughout the eastern and southeastern United States and
controls 67 billboard locations (161 faces) in the Tampa and Orlando markets
that support the Company's radio station operations and provide advertising
revenue.
The Company believes that it has an established position among the
leading radio broadcast groups in several attractive Florida markets. According
to industry data, the Miami, Tampa, Orlando and Jacksonville markets are among
the fastest growing radio markets within the top 100 DMAs, with average
compound annual growth for the three years ended December 31, 1995 of 10.3%.
Radio Broadcasting
The Company was one of the first radio broadcasters to capitalize on
changes in federal regulations permitting radio market duopolies, and
subsequently assembled eight duopolies, two in each of Florida's four most
populous cities, in addition to an AM/FM combination in Cookeville, Tennessee.
The Company initially pursued a strategy of entering into time brokerage
agreements with, and concurrently obtaining an option to purchase, stations in
markets in which the Company already owns a station in the same radio service
(AM or FM), and following changes in the FCC's rules regarding multiple
ownership of radio stations in September 1992, the Company was able to exercise
such purchase options. Upon completion of the Proposed Acquisitions, the
Company will have the leading audience share in the Miami market, Florida's
largest radio market, and an additional AM/FM duopoly in Cookeville. The
Company will continue to consider additional radio acquisition opportunities.
During 1995, several changes were instituted by management of Paxson
Radio to strengthen performance. These changes included a new sales approach
whereby each sales person sells time primarily for one particular station to
more effectively capture advertising revenue. In addition, the Company also
instituted changes in
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individual markets including (i) a management change at the station general
manager and sales manager positions in the Miami and Orlando markets, (ii) a
change in the morning drive personalities in the Miami and Jacksonville
markets, and (iii) an FM format change in Jacksonville.
The Telecommunications Act of 1996 significantly liberalized radio
station ownership rules, which now permit the Company to increase the number of
radio stations its owns in each of the Miami, Orlando, Tampa and Jacksonville
markets. The liberalized ownership rules are not exclusively applicable to the
Company, and will permit other radio station owners to increase station
ownership as well. See "Federal Regulation of Broadcasting." Subsequent to
enactment of the Telecommunications Act of 1996, the Company agreed to acquire
two additional FM stations in the Miami market. The Company has also agreed to
acquire an additional FM station serving the Jacksonville market and an AM/FM
combination serving the Cookeville, Tennessee market. The Company plans to
opportunistically pursue additional in-market acquisitions to capitalize on the
inherent leverage in operating multiple stations in a single market.
Operating Strategy
The Company seeks to continue to improve cash flow growth from its
radio properties through the integration of recent duopoly acquisitions and
enhanced station performance. The Company believes that the geographic
proximity of its FM and AM duopolies throughout Florida give it the ability to
realize synergistic revenue and promotional opportunities as well as
significant cost efficiencies. Through advertising on the Company's group of
Florida stations, an advertiser is able to cover an entire geographic region,
while effectively reaching targeted demographic groups. Various cross-market
promotional opportunities exist, such as the ability to provide listeners with
tickets to another market's sporting events or local entertainment attractions.
Personnel and technical costs can be minimized by virtue of the ability to
service markets in close proximity to one another. The stations' geographic
concentration allows management to more easily and rapidly respond to market
developments.
The Company believes that its experienced management team is one of
its strongest assets. Local managers are responsible for the day-to-day
operations of their respective stations. The Company believes that the autonomy
of its station management and its incentive-based compensation enable it to
attract and retain skilled and experienced managers capable of implementing the
Company's aggressive marketing and promotion strategy. Local managers have
incentive compensation linked to the station's broadcast cash flow performance.
Corporate management is responsible for long-range planning,
establishment of primary policies and procedures, resource allocation,
accounting and auditing, regulatory and legal compliance, license renewals and
the evaluation of potential acquisitions. Corporate management reviews sales
pacing reports from each station on a daily basis. In addition, members of
senior management visit the Company's stations on a regular basis to review
performance and to assist local management with its programming, sales and
recruiting efforts, as well as to develop overall station operating and
marketing strategies.
The principal elements of the Company's operating strategy include:
Targeted Programming and Extensive Market Research. The Company
provides programming designed to appeal to targeted demographic groups, and
seeks to convert its rating shares into disproportionately large shares of each
market's advertising dollars. The Company believes that effective programming
is a key element in sustaining and improving audience shares within its
targeted demographic groups, and uses extensive ongoing research to refine each
station's programming. For example, the Company decided to operate News and
Sports formats in all four of its Florida markets following extensive research
demonstrating the popularity of each format with an upscale male audience.
Similarly, in July 1995, after conducting programming research, Tampa's WSJT-FM
began broadcasting a Smooth Jazz format, designed to appeal to adults aged
25-54 (a demographic group attractive
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to advertisers). The Company will continue to identify and refine programming
to enhance its stations' audience and advertiser appeal.
Aggressive Marketing and Promotion. The Company believes that
effective marketing and promotion play a significant role in maximizing each
station's performance. The Company utilizes local television, print media,
outbound telemarketing and billboards to promote its stations. In the Orlando
and Tampa markets, the Company's unsold billboard locations are used to promote
its stations. The Company also believes that community involvement is
particularly important in creating public awareness and its stations
participate in numerous community programs and activities.
Strict Cost Controls. Management believes that it is critical to
maintain the lowest possible cost structure compatible with its operating
strategy. Strict financial reporting standards and cost control measures are
implemented to ensure a focus on improvements in operating results throughout
Paxson Radio. Management regularly receives operating reports that track
station performance, thereby enabling better monitoring by management and
establishing greater accountability throughout the station group. In addition,
since local management incentive programs are tied to increasing broadcast cash
flow, local managers are focused on minimizing costs and exceeding budgeted
cash flow results.
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Radio Properties
The following table sets forth certain information about the Company's
current radio stations:
National % of
Radio Market Station Power Audience
Markets(1) Rank(2) Station Format Frequency (Watts) Share(3)
---------- --------- ------- ------ --------- ------- --------
Miami/Ft. Lauderdale . . . 11 WLVE-FM Smooth Jazz 93.9 100,000 4.2
WZTA-FM Mainstream AOR 94.9 100,000 3.6
WRMA-FM(4) Spanish Adult Contemporary 106.7 100,000 6.8
WXDJ-FM(4) Spanish Salsa/Merengue 95.7 46,000 4.7
WINZ-AM News and Sports 940 50,000(day) 1.4
10,000(night)
WFTL-AM Talk and Sports 1400 1,000 0.3
WACC-AM(5) Spanish Sports 830 1,000 n/a
Tampa/St. Petersburg . . . 21 WHPT-FM Rock Adult Contemporary 102.5 100,000 5.9
WSJT-FM Smooth Jazz 94.1 100,000 5.4
WHNZ-AM News and Sports 570 5,000(day) 0.6
10,000(night)
WNZE-AM Sports 820 50,000(day) 0.4
1,000(night)
Orlando . . . . . . . . . . 35 WMGF-FM Soft Adult Contemporary 107.9 100,000 7.1
WJRR-FM Modern Rock 101.1 100,000 4.5
WWNZ-AM News 740 50,000 1.3
WWZN-AM Sports 540 50,000 0.7
Jacksonville . . . . . . . 50 WROO-FM Young Country 107.3 100,000 5.4
WPLA-FM Alternative Rock 93.3 50,000 3.8
WFSJ-FM(4)(6) Smooth Jazz 97.9 50,000 3.9
WNZS-AM Sports 930 5,000 2.8
WZNZ-AM News 1460 5,000 0.3
Cookeville . . . . . . . . n/c WGSQ-FM Country 94.7 100,000 n/c
WHUB-FM(4) Adult Contemporary 98.5 50,000 n/c
WPTN-AM Talk 780 1,000 n/c
WHUB-AM(4) Country 1400 1,000 n/c
__________
(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 Fall 1995
Arbitron Radio Market Reports.
(4) Included in the Proposed Acquisitions.
(5) Company provides services to the station under a JSA; Company owns a 49%
interest.
(6) Company provides services to the station under a JSA.
n/a Insignificant share.
n/c Market not covered by Arbitron; revenue not independently reported.
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Market Overviews
Miami/Ft. Lauderdale, FL. The Company owns and operates radio stations
WLVE-FM, WZTA-FM, WINZ-AM and WFTL-AM in the Miami/Ft. Lauderdale radio market,
the 11th largest radio market in the United States. The Company also owns a 49%
interest in WACC-AM and provides certain sales and marketing services to this
station through a joint sales agreement, and has agreed to acquire WRMA-FM and
WXDJ-FM in this market. The Miami/Ft. Lauderdale radio market had advertising
revenue of $136.3 million in 1995, a 9.9% increase over 1994. Including the
Proposed Acquisitions, the Company's Miami/Ft. Lauderdale radio stations had a
21.0% combined audience share in the Miami/Ft. Lauderdale 25-54 year old
demographic category, according to the Fall 1995 Arbitron ratings survey.
WLVE-FM is programmed in a Smooth Jazz format, playing a blend of
contemporary jazz and vocals, targeting the upscale 25-54 year old audience.
WLVE-FM does not have a direct competitor within the format category. WZTA-FM
became the only Mainstream AOR station in the Miami market when its former
competitor changed formats to Alternative Rock in May 1995. The Company's
acquisition of stations WRMA-FM and WXDJ-FM in the Miami market will enable the
Company to expand its reach to Spanish speaking demographic groups. WRMA-FM is
programmed in a Spanish Adult Contemporary format, while WXDJ-FM carries
Spanish Salsa/Merengue programming and WACC-AM carries Spanish language sports.
WINZ-AM is the only station in the Miami market with an All News format
throughout the daytime hours. After 7:00 p.m. WINZ-AM carries sports
programming with broadcast rights to the Miami Heat NBA basketball team and the
University of Miami football games. WFTL-AM located in Broward County has a
talk radio format and through a simulcast with WINZ-AM increases the Company's
broadcast reach of the Miami Heat.
Tampa/St. Petersburg, FL. The Company owns and operates radio stations
WHPT-FM, WSJT-FM, WHNZ-AM and WNZE-AM in the Tampa/St. Petersburg radio market,
the 21st largest radio market in the United States. The Tampa/St. Petersburg
radio market had advertising revenue of $77.4 million in 1995, a 9.8% increase
over 1994. The Company's Tampa/St. Petersburg stations had a 12.3% combined
audience share in the Fall 1995 Arbitron ratings survey, including WSJT-FM
which commenced broadcasting in July 1995.
WHPT-FM is formatted with a distinctive blend of music categorized as
Rock Adult Contemporary targeted toward white-collar, adult listeners. The
Company purchased WEZY-FM in Lakeland, Florida in March 1995 and subsequently
moved the station to the Tampa market. The Company reformatted the station as
WSJT-FM, a Smooth Jazz station targeted to adults in the 25-54 year old
demographic category. WHPT-FM and WSJT-FM have two of the strongest signals in
the State of Florida. WHNZ-AM is the only radio station in the Tampa market
with an All News format throughout the daytime hours. After 7:00 p.m. the
station carries sports talk and play-by-play sports programming, including
University of Florida football and basketball games. WNZE-AM is one of two AM
radio stations in the Tampa market that provides an All Sports format,
including play-by-play coverage of the Florida State football and basketball
games. In addition, WNZE-AM achieves economies by utilizing satellite
programming.
Orlando, FL. The Company owns and operates radio stations WMGF-FM,
WJRR-FM, WWNZ-AM and WWZN-AM in Orlando, the 35th largest radio market in the
United States. The Orlando radio market had advertising revenue of $63.5
million in 1995, a 10.7% increase over 1994. The Company's Orlando radio
stations had a 13.6% combined audience share in the Orlando 25-54 year old
demographic category, according to the Fall 1995 Arbitron ratings survey.
WMGF-FM is a Soft Adult Contemporary format appealing to the 35-54
audience. WJRR-FM, a Modern Rock station, complements WMGF-FM by appealing
primarily to the 18-49 year old male audience. WWNZ-AM is the only station in
the market with an All News format. WWZN-AM is the only All Sports radio
station in the Orlando market, and includes play-by-play programming and
sports talk shows. Cost savings are obtained through the utilization of
satellite programming, which is used to augment the station's sports-talk
programming.
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Jacksonville, FL. The Company owns and operates radio stations
WROO-FM, WPLA-FM, WNZS-AM and WZNZ-AM in Jacksonville, the 50th largest radio
market in the United States. The Company also provides certain sales and
marketing services to WFSJ-FM under a joint sales agreement, and has recently
agreed to purchase this station for $5.0 million. See "Time Brokerage
Agreements, Joint Sales Agreements and Other Interests in Broadcast Stations."
The Jacksonville radio market had advertising revenue of $34.7 million in 1995,
an 8.4% increase over 1994. The Company's radio stations had a 16.2% combined
audience share in the 25-54 year old demographic category, according to the
Fall 1995 Arbitron ratings survey.
WROO-FM broadcasts a Young Country format that appeals to the 18-49
year old demographic category. WPLA-FM was recently reformatted as an
Alternative Rock radio station, designed to appeal to a younger 18-34 target
audience. WFSJ-FM is a Smooth Jazz formatted station targeted to adults in the
25-54 year old demographic. WNZS-AM broadcasts an All Sports format, including
the leading sports talk show in the market, and carries live play-by-play
sports broadcasts, including Florida State University mens' football and
basketball games. WZNZ-AM has an all News format consisting of
satellite-delivered CNN Headline News programming.
Cookeville, TN. The Company owns and operates WGSQ-FM and WPTN-AM in
the Cookeville, Tennessee radio market, serving the Upper Cumberland region
between Nashville and Knoxville (ranked the 45th and 70th largest markets,
respectively) and has agreed to acquire WHUB-FM and WHUB-AM in this market.
WGSQ-FM and WHUB-FM are the two highest rated stations in this market, and all
four of such stations are first on a combined basis within this market in all
categories of listenership. WGSQ-FM and WHUB-AM each feature a country format.
WHUB-FM programs an Adult Contemporary format and WPTN-AM programs an All Talk
format featuring various local and nationally-syndicated personalities,
including Rush Limbaugh. The four stations have a combined 56.6% share of the
12+ demographic group in Arbitron's most recent county-by-county survey.
Radio Networks
The Company operates six radio networks that serve approximately 338
affiliates. The programs produced and distributed by the Company's radio
networks include news broadcasts, sports play-by-play and sports talk shows,
and business and agricultural news and information. In addition to providing
radio programming, the Company also offers its affiliates printed script for
news, sports and weather information, that the Company either generates
internally or consolidates from wire services and other sources. The Company
believes radio networks are attractive to advertisers because they provide an
opportunity to advertise simultaneously on multiple stations. In addition, the
Company's networks provide certain programming to the Company's radio broadcast
stations.
In December 1992, the Company purchased the Florida Radio Network in
order to build statewide advertising sales. The network produces daily news
segments for 56 affiliated stations in Florida, thereby giving the Company a
presence in almost every market in Florida. On November 4, 1994, the Company
merged with The American Network Group, Inc. ("ANG"), significantly expanding
the Company's radio network holdings. As a result of the merger, the Company
owns and operates a radio network in Tennessee, as well as several collegiate
sports radio networks. Such radio networks currently produce and distribute
news, sports play-by-play and other programs, giving the Company 79 affiliated
radio stations in Tennessee. In January 1995, the Company acquired the Alabama
Radio Network, which produces and distributes news, sports and other programs
to 74 affiliates in Alabama. The Company has the exclusive rights to produce
and broadcast the men's football and basketball games and weekly coaches' radio
shows of the University of Florida Gators through 53 affiliates, the University
of Miami Hurricanes through 25 affiliates, and Pennsylvania State University
Nittany Lions through 51 affiliates. The broadcasts are distributed to radio
stations that have subscribed for them pursuant to affiliate agreements.
Certain affiliates of the Company's sports networks are also affiliates of its
state radio networks.
During 1995, the Company upgraded the technical facilities at each of
its radio news networks with digital sound programming. The Company believes
that such quality improvements will enable it to maintain its network presence
in each of the states in which it has networks.
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Billboard Properties
The Company currently owns 67 billboard locations, including 55
billboards with 113 faces in the Tampa market, and 12 billboard locations at
which the Company will have 48 faces in the Orlando market. While the Company
will sell the use of the billboards to a broad group of potential advertisers,
the Company takes advantage of the relationships it has with its radio
advertisers to broaden its billboard client base, as well as expand the
Company's share of the advertiser's media purchases within a market. In
addition, as broadcasters are major users of billboard advertising campaigns,
the Company can control its own billboard promotional expenditures through the
use of its unsold billboards, as well as assure full use of all its owned
billboards. As opportunities are presented to the Company, it will consider the
acquisition of additional billboards in markets in which it owns broadcasting
properties.
PAXSON NETWORK-AFFILIATED TELEVISION
Paxson Communications owns and operates an ABC-TV affiliate, WPBF-TV,
in the West Palm Beach market. Pursuant to a time brokerage agreement, the
Company provides programming and markets commercial time for a second
television station, WTVX-TV (a combined United Paramount Network and Warner
Brothers Network affiliate), which is also in the West Palm Beach market. The
West Palm Beach television market is one of the fastest growing markets in the
country, as evidenced by its increased market ranking from 65th in 1985 to 45th
in 1995. Television advertising expenditures in the West Palm Beach market
totalled $88.2 million in 1995, an increase of 2.6%.
The Company acquired WPBF-TV in July 1994 for approximately $32.5
million and began operating WTVX-TV under a time brokerage agreement in August
1995. The Company has a long-term option to acquire WTVX-TV for approximately
$19 million. After the acquisition of WPBF-TV, the Company installed its
management team, implemented a program of cost rationalization measures
consisting of, among other things, a reduction in program rights payments, an
increase in salesperson commissions related to additional staffing and higher
revenues, and increased local news expenses to generate higher audience
ratings.
Operating Strategy
The Company's television operating strategy is similar to its radio
operating strategy as the Company seeks to capitalize on the revenue enhancing
and cost saving opportunities from operating two television stations in one
market from a single studio facility.
WPBF-TV (channel 25) is the ABC-TV affiliate in the West Palm Beach,
Florida market. The station achieved a 10 share of household audience in the
November 1995 Nielsen ratings survey, tied for third place in the market.
WPBF-TV airs ninety minutes of local news each weekday and an hour each
Saturday and Sunday. In addition, the station's current schedule includes the
following syndicated programs: Hard Copy, A Current Affair, Coach, Geraldo!,
Jerry Springer and Sally Jessy Raphael. The highly rated Montel Williams Show
will join WPBF's lineup in the fall of 1996. WTVX-TV airs second runs of
certain programs aired on WPBF-TV at no net cost to WTVX-TV, as they
were included in WPBF's negotiations for these programs. WTVX-TV is a leading
provider of children's programming in the West Palm Beach market with the
following syndicated programs: Flintstones, Mighty Max, Goof Troop, Bonkers and
Animaniacs. The station also airs off network and original syndicated
family-oriented programming such as Family Matters, Step by Step, Baywatch,
Highlander, Kung Fu, Land's End, High Tide and Renegade. This fall, WTVX-TV
will add the NBC network sitcom Mad About You to its program lineup. WTVX-TV
achieved a four share of household audience in the November 1995 Nielsen
ratings, ranking fifth in the market. WPBF-TV and WTVX-TV will
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Paxson Communications Corporation 15
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continue to carry Southeastern Conference and Atlantic Coast Conference college
football games, featuring among other teams the University of Florida Gators
and the Florida State University Seminoles.
ADVERTISING
Virtually all the Company's broadcasting revenue is derived from
local, regional and national advertising. Advertising rates charged by radio
and network television stations are based on a station's ability to attract
audiences in the demographic groups that advertisers wish to reach, and the
number of stations competing in the market area. A station's audience is
reflected in rating surveys of the number of listeners tuned to the station and
the time spent listening. The Company believes that its regional presence in
Florida's most populous markets and its targeted demographic groups in those
markets make it attractive to national, regional and local radio and television
advertisers. The Company strives to maximize radio revenue by constantly
managing the number of commercials available and all broadcast revenue by
adjusting prices based upon demand by advertisers to reach the Company's
stations' target demographic groups. In addition to the sales of advertising
time for cash, stations typically exchange advertising time for goods or
services that can be used by the station in its business operations, including
radio, television and billboard advertising and such items as travel and
entertainment services. The Company generally limits the use of such trade
transactions to promotional items or services for which the Company would
otherwise have paid cash. In addition, it is the Company's general policy not
to preempt advertising spots paid for in cash with advertising spots paid for
in trade.
inTV advertising rates are primarily based on the number of cable
households reached, the effectiveness of infomercials, the nature of the
advertiser, the nature of the advertisement (local, national or network), and
ultimately the demand for available infomercial time. The Company attempts to
maximize revenue by increasing the number of cable homes reached providing
advertisers with increased viewership. The Company increases the number of
cable households reached both by increasing the reach of each of its stations
through the exercise of "must carry" rights and by acquiring broadcast stations
in additional markets. In addition, certain advertisers can measure the success
of an infomercial program almost immediately after a show is broadcast. The
Company believes the success of infomercials with viewers continues to drive
advertisers to use infomercials. As such, the demand for infomercials continues
to increase.
COMPETITION
The Company's radio and television stations compete with the other
radio and television broadcasting stations in their respective market areas, as
well as with other advertising media, including newspapers, television,
magazines, outdoor advertising, transit advertising and direct mail marketing.
Competition within the radio and television broadcasting industries occurs
primarily in individual market areas, so a station in one market does not
generally compete with stations in other market areas. In each of its markets,
the Company's radio and television stations face competition from other
stations with substantial financial resources, including, in certain instances,
stations whose programming is directed to the same demographic groups. In
addition to management experience, factors that are material to competitive
positions include a station's rank in its market, authorized power, assigned
frequency or station (as applicable), audience characteristics, local program
acceptance and the programming characteristics of other stations in the market
area. The Company attempts to improve its radio station's competitive position
with extensive research and promotional campaigns aimed at the demographic
groups targeted by its stations, and through sales efforts designed to attract
advertisers, including those who have done little or no radio advertising, by
emphasizing the effectiveness of radio advertising in increasing the
advertisers' revenue. Recent changes in the FCC's policies and rules permit
increased joint ownership and joint operation of local radio stations.
Stations, such as those owned by the Company, taking advantage of these joint
arrangements may in certain instances have lower operating costs and may be
able to offer advertisers more attractive rates and services. The Company
attempts to improve its television stations' competitive positions with local
tie-in promotions and strong local news segments. Although the Company believes
that each of the Company's radio and television stations can
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16 Paxson Communications Corporation
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compete effectively in its market, there can be no assurance that any of the
Company's radio or television stations will be able to maintain or increase its
current audience rating or advertising revenue market share.
Although the radio and television broadcasting industries are highly
competitive, some barriers to entry exist. The operation of a radio or
television broadcasting station requires a license from the FCC, and the number
of radio and television stations that can operate in a given market is limited
by the availability of the FM and AM radio frequencies or stations (as
applicable) that the FCC will license in that market. The radio and television
broadcasting industries historically have grown in terms of total revenue,
despite the introduction of new technologies for the delivery of entertainment
and information, such as cable, audio tapes and compact discs. The Company
believes that radio's portability makes it less vulnerable than other media to
competition from new methods of distribution or other technological advances.
There can be no assurance, however, that the involvement or introduction in the
future of any new media technology will not have an adverse effect on the radio
or television broadcasting industries.
The Company's development of inTV and creation of a national long-form
paid programming distribution system is a relatively new concept, and there can
be no assurance of its success. The concept is subject to competition from
several sources. The Company's inTV stations face significant competition from
established broadcasting stations and cable television. Various television
networks carry blocks of infomercials and local cable operators also sell
blocks of time to long-form advertisers. To the extent that the Infomall TV
Network is successful, it is likely that the Company will face competition from
new market entrants, some of which could have significantly greater financial
resources than the Company. In addition, the Company could encounter
competition as a result of technological developments. The Company believes,
however, that it can compete on a favorable basis because it contains the only
group of television stations in the United States that currently offers
infomercial advertisers both significant national and regional distribution
capabilities and inventory availability during popular morning, daytime and
prime time hours.
TIME BROKERAGE AGREEMENTS, JOINT SALES AGREEMENTS AND OTHER INTERESTS IN
BROADCAST STATIONS
The Company has made certain investments in broadcast properties with
third parties consisting of time brokerage agreements and joint sales
agreements, as well as the co-ownership of certain television stations and
radio stations. These investments in broadcast properties permit the Company to
have a presence in additional markets and to enjoy many, but not all, of the
benefits of ownership while at the same time remaining in compliance with FCC
regulations.
Time Brokerage Agreements. The Company has entered into time brokerage
agreements with third parties pursuant to which the Company enjoys many, but
not all, of the benefits of operating a television station while not owning
such station. The Company may in the future enter into other time brokerage
agreements to operate stations prior to their acquisition or to enable the
Company to operate additional television stations that it might not be able to
own itself under current FCC multiple station ownership restrictions.
As a result of the enactment of the Telecommunications Act of 1996,
certain of the FCC's ownership limitations have been relaxed and, to take
advantage of such changes, the Company intends to exercise the Station Options
and acquire WCTD-TV, WFCT-TV, KUBD-TV, WTJC-TV, WCEE-TV and KWBF-TV, which
stations have been operated pursuant to time brokerage agreements with The
Christian Network, Inc. ("CNI"). In addition, the Company is currently
operating stations WSJN-TV and WRMY-TV pursuant to time brokerage agreements
pending the consummation of the Company's investment in such stations.
Upon consummation of the Proposed Acquisitions and the Station
Options, the Company will operate each of WTVX-TV, WOAC-TV, WNGM-TV, WHKE-TV
and WIRB-TV under the time brokerage agreements. Three of such stations
(WTVX-TV, WOAC-TV and WNGM-TV) will be operated pursuant to time brokerage
agreements with Whitehead Media, Inc. and two (WHKE-TV and WIRB-TV) will be
operated pursuant to time brokerage
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Paxson Communications Corporation 17
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agreements with subsidiaries of CNI. In addition, in connection with the
Company's acquisition of WHAI-TV, the Company was required by the FCC to
restructure its investment in WTWS-TV within six months of its acquisition of
WHAI-TV, in order to divest itself of an attributable interest, for FCC
multiple station ownership purposes, in WTWS-TV. The Company intends that, upon
the consummation of such restructured investment, WTWS-TV will be owned by an
entity owned by Steven Roberts and Michael Roberts (each of the entities owned
or controlled by Steven Roberts and Michael Roberts jointly and with which the
Company has an agreement is referred to herein as "Roberts Broadcasting"), and
the Company will operate WTWS-TV pursuant to a time brokerage agreement. With
certain limited exceptions, the time brokerage agreements of the Company
entered into other than in anticipation of the consummation of an acquisition
involve a basic transaction structure. The Company (i) finances the acquisition
by the third party of some or all of the assets of the brokered stations and
secures such financing by encumbering such assets including, to the extent
permitted under FCC rules and regulations, the FCC license and all of the
capital stock of the acquiring company; and (ii) enters into a time brokerage
agreement with such third party which allows the Company to operate the
brokered station, in accordance with FCC guidelines. In the case of Whitehead
Media, the Company initially financed the acquisition by Whitehead Media of
each of WTVX-TV and WOAC-TV. Whitehead Media subsequently obtained third party
financing, a portion of the proceeds of which was used to repay the debt owed
by Whitehead Media to the Company. In general, payments made to the FCC
licensee under the time brokerage agreement are established, and renegotiated
from time to time, based upon increases in expenses for which the FCC licensee
must, in accordance with FCC regulations, remain primarily liable, including
servicing the indebtedness owed by such FCC licensee to the Company or, in the
case of Whitehead Media, to third parties. In certain circumstances, the
Company may acquire certain tangible assets useful in the construction or
operation of the brokered station and lease such assets to the brokered
station. In addition, unless prohibited by FCC rules and regulations, the FCC
licensee also grants to the Company an option to purchase the station for an
amount payable in cash together with the forgiveness of all outstanding
indebtedness. Upon consummation of the Proposed Acquisitions and the exercise
of the Station Options, the Company will have options to purchase four
(WTVX-TV, WOAC-TV, WNGM-TV and WHKE-TV) of the six stations which the Company
will operate pursuant to time brokerage agreements. The Company has no
ownership interest in Whitehead Media, CNI or Roberts Broadcasting.
Other Investments in Television Properties. The Company is currently
operating WSJN-TV pursuant to a time brokerage agreement pending its
acquisition of a 50% interest in S&E Network, Inc. for approximately
$4,000,000. S&E Network, Inc., a Puerto Rican corporation, is the licensee of
the station and is currently 100% owned by Housing Development Associates, S.A.
("HDA"). The Company's investment in WSJN-TV will be consummated upon the
receipt of regulatory approvals and thereafter, the Company will control
substantially all of the programming time and other operations of the station
pursuant to a management agreement with HDA.
The Company is currently operating station WRMY-TV pursuant to a time
brokerage agreement pending the consummation of the Offering, and has also
agreed to lend to Roberts Broadcasting Company of Raleigh-Durham, L.P., a
limited partnership which is the licensee of the station and of which Roberts
Broadcasting is the sole general partner, up to $4,000,000 to relocate and
upgrade the station's transmitter facilities. The Company has an option to
convert a portion of its investment in WRMY-TV into a 40% limited partnership
interest, with Roberts Broadcasting holding the remaining 60% partnership
interest. The limited partnership agreement that governs the Company's
partnership interest in WRMY-TV provides the Company the right to approve
substantially all of the programming to be aired on the station and to
participate in certain fundamental decisions concerning the operation and
management of the station, including, for example, the approval of station
budgets.
The Company has agreed to acquire for $850,000 a 50% interest in
Roberts Broadcasting of Salt Lake City, L.L.C., a Delaware limited liability
company which will be the licensee of KZAR-TV and of which Roberts Broadcasting
will be the sole other member, and to loan the station up to $3,180,000 to
relocate and upgrade its transmitter facilities. Similarly, the Company has
agreed to acquire for $1,000,000 a 50% interest in Offshore Television Company,
L.L.C., a Delaware limited liability company which will be the licensee of
WOST-TV and of which Offshore Broadcasting Corporation will be the sole other
member, and to loan the station up to $2,500,000
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to relocate and upgrade its transmitter facilities. The business of each of the
limited liability companies which will own and operate KZAR-TV and WOST-TV will
be managed under the terms of an operating agreement between the Company and,
respectively, Roberts Broadcasting and Offshore Broadcasting Corporation. The
Company expects that each of such operating agreements will provide it and the
other member of such limited liability company the right to approve programming
and other decisions concerning the operation of the station.
The loan and security documents governing the terms and conditions of
the loans extended by the Company to each of WRMY-TV, KZAR-TV and WOST-TV
contain customary negative and affirmative covenants made for the benefit of
the Company as a lender to such stations, including limitations on the
incurrence of indebtedness, restrictions on liens, prohibitions on sales of
assets and the Company's prior approval of significant contracts and
agreements.
The Company has also extended financing to Cocola Media Corporation of
Florida ("Cocola"), which has in turn financed the construction by WPB
Communications, Inc. of television station WHBI-TV, which is licensed to
Hispanic Broadcasting, Inc. WPB Communications, Inc. is the holder of an option
to acquire WHBI-TV from Hispanic Broadcasting, Inc after the station commences
broadcast operations. After the consummation of the acquisition by WPB
Communications, Inc., Cocola has an option to acquire the station and, pending
the consummation of such option acquisition, the right to operate WHBI-TV
pursuant to a time brokerage agreement. The Company expects to enter an
affiliation agreement with Cocola after Cocola acquires WHBI-TV, pursuant to
which WHBI-TV would air inTV programming. The Company does not have any
ownership interest in Cocola, WPB Communications, Inc. or Hispanic
Broadcasting, Inc.
Joint Sales Agreements and other Radio Investments. The Company
currently provides sales and marketing services under a joint sales agreement
for each of radio stations WACC-AM, serving the Miami radio market, and
WFSJ-FM, serving the Jacksonville radio market, while the owner of each such
station provides the programming for such radio station. The Company owns a 49%
interest in WACC-AM and has agreed to acquire WFSJ-FM for a total consideration
of $5 million, consisting of $1.7 million in Company common stock, cancellation
of $1.75 million in indebtedness to the Company, and assumption and repayment
by the Company of a $1.55 million note to Mr. Paxson.
FEDERAL REGULATION OF BROADCASTING
The FCC regulates radio and television broadcast stations pursuant to
the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act permits the operation of radio and television broadcast
stations only in accordance with a license issued by the FCC upon a finding
that the grant of such license would serve the public interest, convenience and
necessity. The Communications Act provides for the FCC to exercise its
licensing authority to provide a fair, efficient and equitable distribution of
broadcast service throughout the United States.
The Communications Act empowers the FCC, among other things, to
determine the frequencies, location and power of broadcast stations; to issue,
modify, renew and revoke station licenses; to approve the assignment or
transfer of control of broadcast licenses; to regulate the equipment used by
stations; to impose fees for processing applications; to adopt regulations to
implement the provisions of the Communications Act; and to impose penalties for
violations of the Communications Act or FCC regulations. The FCC may revoke
licenses for, among other things, false statements made to the FCC or willful
or repeated violations of the Communications Act or of FCC rules. Legislation
has been introduced from time to time to amend the Communications Act in
various respects and the FCC from time to time considers new regulations or
amendments to its existing regulations. On February 8, 1996, the President
signed into law the Telecommunications Act of 1996 (the "1996 Act"). The 1996
Act changes many provisions of the Communications Act and requires the FCC to
change its existing rules and adopt new rules in several areas affecting
broadcasting. The Company cannot predict whether Congress will enact any
further such legislation, whether the FCC will adopt new or amend existing
regulations (although the 1996 Act requires the FCC
21
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to institute a rule making proceeding to amend broadcast rules), or what the
effect of such actions would be on the Company.
The following is a brief summary of certain provisions of the
Communications Act and the rules of the FCC. Reference should be made to the
Communications Act and the rules, orders, decisions and published policies of
the FCC for further information on FCC regulation of television and radio
broadcast stations.
License Renewal. The Communications Act provides that a broadcast
station license may be granted to an applicant if the public interest,
convenience and necessity will be served thereby, subject to certain
limitations. In making licensing determinations, the FCC considers an
applicant's legal, technical, financial and other qualifications. Broadcast
station licenses are granted for specific, limited periods, and, upon
application, are renewable for additional terms. Prior to recent amendments to
the Communications Act in the 1996 Act, the Communications Act provided for
radio broadcast station licenses to be granted for a maximum term of seven
years, and television station licenses to be granted for a maximum term of five
years. The 1996 Act extends the license term for both television and radio
broadcast stations to eight years. The FCC has not yet proposed regulations to
implement the new license terms. In addition, the 1996 Act provides that, if a
broadcast station fails to transmit broadcast signals for any consecutive
12-month period, the station license expires at the end of that 12-month period
without regard to the stated term of the license. The Company's current
licenses, and the licenses of stations with which the Company has time
brokerage agreements expire on the following dates:
RADIO STATIONS MARKET(a) LICENSE EXPIRATION
-------------- --------- ------------------
WLVE-FM . . . . . . . . . . . . . . Miami/Ft. Lauderdale February 1, 2003
WZTA-FM . . . . . . . . . . . . . . Miami/Ft. Lauderdale February 1, 1996
WINZ-AM . . . . . . . . . . . . . . Miami/Ft. Lauderdale February 1, 1996
WFTL-AM . . . . . . . . . . . . . . Miami/Ft. Lauderdale February 1, 1996
WHPT-FM . . . . . . . . . . . . . . Tampa/St. Petersburg February 1, 1996
WSJT-FM . . . . . . . . . . . . . . Tampa/St. Petersburg February 1, 1996
WHNZ-AM . . . . . . . . . . . . . . Tampa/St. Petersburg February 1, 1996
WNZE-AM . . . . . . . . . . . . . . Tampa/St. Petersburg February 1, 1996
WJRR-FM . . . . . . . . . . . . . . Orlando February 1, 2003
WMGF-FM . . . . . . . . . . . . . . Orlando February 1, 1996
WWNZ-AM . . . . . . . . . . . . . . Orlando February 1, 1996
WWZN-AM . . . . . . . . . . . . . . Orlando February 1, 1996
WPLA-FM . . . . . . . . . . . . . . Jacksonville February 1, 1996
WROO-FM . . . . . . . . . . . . . . Jacksonville February 1, 1996
WNZS-AM . . . . . . . . . . . . . . Jacksonville February 1, 1996
WZNZ-AM . . . . . . . . . . . . . . Jacksonville February 1, 1996
WPTN-AM . . . . . . . . . . . . . . Cookeville August 1, 1996
WGSQ-FM . . . . . . . . . . . . . . Cookeville August 1, 1996
OWNED TELEVISION STATIONS MARKET(a) LICENSE EXPIRATION
------------------------- --------- ------------------
WHAI . . . . . . . . . . . . . . . New York April 1, 1999
KZKI . . . . . . . . . . . . . . . Los Angeles December 1, 1998
WTGI . . . . . . . . . . . . . . . Philadelphia August 1, 1999
KLXV . . . . . . . . . . . . . . . San Francisco December 1, 1998
WGOT . . . . . . . . . . . . . . . Boston April 1, 1999
WYVN . . . . . . . . . . . . . . . Washington, D.C. October 1, 1996
WTLK . . . . . . . . . . . . . . . Atlanta April 1, 1997
KTFH . . . . . . . . . . . . . . . Houston August 1, 1998
WAKC . . . . . . . . . . . . . . . Cleveland October 1, 1997
WTWS . . . . . . . . . . . . . . . Hartford/New Haven April 1, 1999
WPBF . . . . . . . . . . . . . . . West Palm Beach February 1, 1997
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TIME BROKERAGE
TELEVISION STATIONS MARKET(a) LICENSE EXPIRATION
------------------- --------- ------------------
WOAC . . . . . . . . . . . . . . . Cleveland October 1, 1997
WFCT (b) . . . . . . . . . . . . . Tampa/St. Petersburg February 1, 1997
WCTD (b) . . . . . . . . . . . . . Miami/Ft. Lauderdale February 1, 1997
KUBD (b) . . . . . . . . . . . . . Denver April 1, 1998
KWBF (b) . . . . . . . . . . . . . Phoenix October 1, 1998
WCEE (b) . . . . . . . . . . . . . St. Louis December 1, 1997
WIRB . . . . . . . . . . . . . . . Orlando February 1, 1997
WRMY . . . . . . . . . . . . . . . Raleigh December 1, 1996
WTVX . . . . . . . . . . . . . . . West Palm Beach February 1, 1997
WTJC (b) . . . . . . . . . . . . . Dayton October 1, 1997
WSJN . . . . . . . . . . . . . . . San Juan February 1, 1997
- ------------
(a) Each station is licensed by the FCC to serve a specific community
which is included in the listed market.
(b) Operated pursuant to a time brokerage agreement pending exercise
of the Station Options.
The Company timely filed license renewal applications for all of its
Florida radio stations with the FCC which renewal applications were required to
be filed on or before October 1, 1995. These applications are subject to public
comment and interested third parties could have filed formal petitions to deny
each license renewal application with the FCC on or before January 2, 1996. No
such petitions were filed. Two of such station licenses (WLVE-FM and WJRR-FM)
were renewed through February 1, 2003. While the license for each of the
Florida radio stations other than WLVE-FM and WJRR-FM expired on February 1,
1996, the Communications Act provides that, because the FCC has not acted on
such applications, such station licenses shall automatically continue in force
until the pending renewal applications have been acted upon. Based upon its
review of FCC records, the Company is not aware of any petitions or other
informal objections filed against any one of its pending radio station license
renewal applications. The Company expects its pending renewal applications for
its Florida radio station licenses to be acted upon favorably by the FCC and
for such licenses to be renewed through February 1, 2003.
Generally, the FCC renews licenses without a hearing. The
Communications Act authorizes the filing of petitions to deny and of competing
applications against license renewal applications during specified periods
after the renewal applications have been filed. Interested parties, including
members of the public, may file petitions to deny as a means to raise issues
concerning the renewal applicant's qualifications. The 1996 Act removed the
opportunity for the filing of competing applications against an incumbent
licensee at renewal time. Instead, the FCC will renew broadcast licenses if the
incumbent meets three requirements: (1) the station has served the public
interest, convenience and necessity; (2) the licensee has not seriously
violated the Communications Act or the FCC's rules; and (3) there have been no
other violations, which, taken together, would constitute a pattern of abuse.
If an applicant for renewal fails to satisfy this tripartite standard, the FCC
nevertheless may renew the license on appropriate terms and conditions,
including renewal for less than a full license term. The FCC may not consider
applications for the channel by other parties until it first has decided to
deny renewal to the incumbent. Before denying renewal to an incumbent, the FCC
must first allow the licensee a hearing on the licensee's alleged failure to
satisfy the statutory standard. The Communications Act, as amended, now
prohibits the FCC from considering whether another licensee would be preferable
until it first has determined that the incumbent does not qualify for renewal.
In recent years, there have been a number of petitions to deny filed
with respect to broadcast license renewal applications, but in the vast
majority of cases the FCC has renewed incumbent operators' station licenses.
Ownership Matters. The Communications Act requires the prior approval
of the FCC for the assignment of a broadcast license or the transfer of control
of a corporation or other entity holding a license. In determining
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whether to approve an assignment of a broadcast license or a transfer of
control of a broadcast licensee, the FCC considers, among other things, the
financial and legal qualifications of the prospective assignee or transferee,
including compliance with FCC restrictions on alien ownership and control,
compliance with rules limiting the common ownership of certain attributable
interests in broadcast, cable and newspaper properties, and the character
qualifications of the transferee or assignee and the individuals or entities
holding attributable interests in them.
The FCC generally applies its ownership limits to attributable
interests held by an individual, corporation, partnership, or other association
or entity. In the case of corporations holding broadcast licenses, the
interests of officers, directors, and those who, directly or indirectly, have
the right to vote five percent or more of the corporation's stock are generally
attributable, as are positions of an officer or director of a corporate parent
of a broadcast licensee. The FCC treats all partnership interests as
attributable, except for those limited partnership interests that are insulated
under FCC policies. For insurance companies, certain regulated investment
companies and bank trust departments that hold stock for investment purposes
only, such interests become attributable with the ownership of ten percent or
more of the stock of the corporation holding broadcast licenses. The FCC's
rules specify exceptions to the general principles for attribution. For
example, in a corporation with a single majority shareholder, such as the
Company. Generally no other shareholder is deemed to hold an attributable
interest.
The 1996 Act substantially relaxed and restructured ownership rules
applicable to broadcast entities by removing restrictions on the number of
television stations a single entity may own or control nationwide and
increasing the nationwide audience reach ceiling for television ownership.
Under the new rules, an entity will be able to hold an attributable interest in
television stations reaching up to 35% of the United States television
households. The 1996 Act also removes entirely the nationwide limits on the
number of radio broadcast stations in which a single entity may hold an
attributable interest. In addition, the 1996 Act changed the local radio
ownership rules to increase the number of radio stations a single entity may
own in a single market:
If there are fourteen or fewer stations in a market, a single
entity may own as many as five stations and three same-service
stations (that is, AM or FM), except that a single entity may
not own, operate or control more than 50% of the stations in a
market with fourteen or fewer commercial radio broadcast
stations;
In a market with between fifteen and twenty-nine stations, a
single entity may own or control six stations and four
stations in the same service;
In a market with thirty to forty-four stations, a single
entity may own or control a total of seven stations and four
same-service stations; and
In a market of forty-five or more stations, a single entity
may own or control a total of eight stations with up to five
same-service stations.
The FCC also has rules that limit the number of co-located radio or
television broadcast stations in which a single entity may own an attributable
interest. Certain of these rules also will change because of the 1996 Act. For
television, no single entity may hold an attributable interest in television
stations with overlapping Grade B service contours. The 1996 Act directs the
FCC to conduct a rule making proceeding to determine whether these rules should
be retained. The Grade B contour is a predicted signal strength contour that
generally approximates the area within which a viewer can receive off-the-air a
signal adequate for normal viewing. The local ownership restrictions for radio
broadcast stations vary based on market size.
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Under local radio ownership rules, an entity with an attributable
interest in one radio station is considered also to have an attributable
interest in any other radio station in the same market for which the first
radio station provides the programming for more than 15% of the broadcast time,
on a weekly basis. As a result, such programming arrangements may not be
entered into by radio station combinations that could not be commonly owned
under FCC rules.
The FCC's cross-ownership rules prohibit the common ownership of
attributable interests in certain combinations of media outlets serving the
same geographic area. Under these rules, a single entity may not have an
attributable interest in: (i) both a radio station and a television station
that serve specified overlapping areas; (ii) a daily newspaper and either a
radio station or a television station that serve specified overlapping areas;
or (iii) a television station and a cable television system that serve
specified overlapping areas. (The 1996 Act deleted the statutory prohibition on
a single entity owning both a television station and a cable television system
in the same market, but did not require the FCC to change its rule that imposes
this restriction.) The FCC has established a liberal waiver policy to permit
common ownership of a radio station and a television station in any of the
nation's 25 largest markets, and in some circumstances involving failed
stations and in other situations where more stringent waiver standards can be
met. The 1996 Act extends this waiver policy to the top 50 markets. In
addition, legislative proposals have been made from time to time to liberalize
or strengthen these prohibitions. See "Proposed Changes."
In cases involving competing media in the same market, FCC policy in
certain instances prohibits common ownership interests under its cross-interest
policy even if the interests involved are non-voting or other non-attributable
interests not specifically forbidden under the FCC's cross-ownership rules. The
FCC has initiated proceedings to inquire whether it should change or eliminate
this policy, covering joint ventures and common key employees. The policy does
not necessarily prohibit these interests, but may require that the FCC consider
whether they could have a significant adverse affect on programming diversity
and competition in the market. See "Proposed Changes."
In cases where one person or entity (such as Mr. Paxson in the case of
the Company) holds more than 50% of the combined voting power of the common
stock of a broadcasting corporation, a minority shareholder of the corporation
generally would not acquire an attributable interest in the corporation. Any
attributable interest by any shareholder in another broadcast station or daily
newspaper in a market where such a corporation owns or seeks to acquire a
station may still be subject to review by the FCC under its cross-interest
policy, and could result in the Company's being unable to obtain from the FCC
one or more authorizations needed to acquire other broadcast stations.
Furthermore, if a majority shareholder of a company (such as Mr. Paxson in the
case of the Company) were no longer to hold more than 50% of the combined
voting power of the common stock of the Company, the interests of minority
shareholders that had theretofore been considered non-attributable could become
attributable, with the result that any other media interests held by such
shareholders would be combined with the media interests of such company for
purposes of determining the shareholders' compliance with FCC ownership rules.
In the event of any noncompliance, steps required to achieve compliance could
include divestitures by either the shareholder or the affected company.
Furthermore, other media interests of shareholders having or acquiring an
attributable interest in such a company could result in the company's being
unable to obtain FCC consents for future acquisitions. Conversely, the
Company's media interests could operate to restrict other media investments by
shareholders having or acquiring an interest in the Company.
Under the Communications Act, no FCC broadcast license may be held by a
corporation of which more than one-fifth of its capital stock is owned of record
or voted by aliens or their representatives or by a foreign government or
representative thereof, or by any corporation organized under the laws of a
foreign country (collectively "Aliens"). Furthermore, the Communications Act
provides that no FCC broadcast license may be granted to any corporation
directly or indirectly controlled by any other corporation of which more than
one-fourth of its capital stock is owned of record or voted by Aliens if the FCC
should find that the public interest would be served by the refusal of such
license. Restrictions on alien ownership also apply, in modified form, to other
types of business organizations, including partnerships.
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Programming and Operation. The Communications Act requires
broadcasters to serve the public interest. Since the late 1970's, the FCC
gradually has relaxed or eliminated many of the more formalized procedures it
developed to promote the broadcast of certain types of programming responsive
to the needs of a station's market. Nevertheless, broadcast licensees continue
to be required to present programming that responds to community problems,
needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from listeners or viewers about a broadcast
station's programming often will be considered by the FCC when it evaluates
renewal applications of a licensee, although such complaints may be filed at
any time.
Broadcast of obscene or indecent material is regulated by the FCC as
well as by state and federal law. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other things,
political advertising, sponsorship identifications, the advertising of contests
and lotteries, and technical operations, including limits on radio frequency
radiation. In addition, licensees must develop and implement affirmative action
programs designed to promote equal employment opportunities, and must submit
reports to the FCC with respect to these matters on an annual basis and in
connection with a renewal application. Pursuant to the Children's Television
Act of 1990, the FCC has adopted rules limiting advertising in children's
television programming and required that television broadcast stations serve
the educational and informational needs of children. The Children's Television
Act specifically requires that the FCC consider compliance with these
obligations in deciding whether to renew a television broadcast license.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
short term renewals or, for particularly egregious violations, the denial of a
license renewal application or the revocation of a license.
Time Brokerage Agreements. Over the past several years a significant
number of radio broadcast licensees, including certain of the Company's
subsidiaries, have entered into time brokerage agreements. While these
agreements may take varying forms, under a typical time brokerage agreement
separately-owned and licensed radio stations agree to enter into arrangements
of varying sorts, subject to compliance with the requirements of antitrust laws
and with the FCC's rules and policies. These arrangements are subject under FCC
rules and regulations to maintenance by the licensee of each station of
independent control over the programming and station operations of its own
station.
Typically, a time brokerage agreement is a programming agreement
between two separately owned radio stations serving a common service area,
whereby the licensee of one station programs substantial parts of the broadcast
day on the other licensee's station, subject to ultimate editorial and other
controls being exercised by the licensee of the brokered station. The broker
then sells advertising time during such program segments for its own account.
Such arrangements are an extension of the concept of time brokerage, under
which a licensee of a station sells the right to broadcast blocks of time on
its station to an entity or entities which program the blocks of time and sell
their own commercial advertising for their own account during the time periods
in question.
The FCC has determined that issues of joint advertising sales should
be left to antitrust enforcement. In addition, it has specifically exempted
time brokerage agreements from its cross-interest policy. Furthermore, the FCC
and the staff of the FCC's Mass Media Bureau have held that time brokerage
agreements do not per se constitute a transfer of control and are not contrary
to the Communications Act provided that the licensee of the station maintains
ultimate responsibility for and control over operations of its broadcast
station (including, specifically, control over station finances, licensee
personnel and programming) and complies with applicable FCC rules and with
antitrust laws. Thus far, the FCC has not considered what relevance, if any, a
time brokerage agreement may have upon its evaluation of a licensee's
performance at renewal time.
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Under certain circumstances, the FCC will consider a station brokering
time on another radio station serving the same market to have an attributable
ownership interest in the brokered station for purposes of the FCC's radio
local ownership rules. In particular, a radio broadcast station is not
permitted to enter into a time brokerage agreement giving it the right to
program more than 15% of the broadcast time, on a weekly basis, of another
local station that it could not own under the FCC's revised local radio duopoly
multiple ownership rules. Nevertheless, radio time brokerage agreements entered
into before September 16, 1992 are generally grandfathered. The FCC has no
present rules on the attribution of television time brokerage agreements as it
does with radio time brokerage agreements. The FCC has adopted an interim
policy on the grant of transfer and assignment applications that include
television time brokerage agreements and the FCC is now considering whether to
adopt rules governing television time brokerage agreements. The 1996 Act
grandfathered time brokerage agreements existing at the time of its passage and
included a provision that the broadcast ownership section of the Act is not to
be construed to prohibit the origination, continuation or renewal of any
television time brokerage agreement that complies with FCC regulations. See
"Proposed Changes."
The FCC rules also prohibit a radio broadcast licensee from
simulcasting more than 25% of its programming on another station in the same
radio broadcast service (that is, AM-AM or FM-FM) whether it owns both stations
or operates both through a time brokerage agreement if the brokered and
brokering stations serve substantially the same geographic area.
"Must Carry"/Retransmission Consent. Some provisions of the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") and the implementing rules adopted by the FCC, such as signal and
carriage and equal employment opportunity requirements, directly affect
television broadcasting. Other provisions, although focused exclusively on the
regulation of cable television, may indirectly affect the Company because of
the competition between over-the-air television stations and cable systems.
The 1992 Cable Act contains broadcast signal carriage requirements
that allow local commercial television broadcast stations to elect once every
three years to require a cable system to carry the station on certain
designated cable channels subject to certain exceptions, or to negotiate for
retransmission consent to carry the station. A cable system generally is
required to devote up to one-third of its activated channel capacity for the
mandatory carriage of local commercial television stations. Local
non-commercial television stations are also given mandatory carriage rights;
however, such stations are not given the option to negotiate retransmission
consent for the carriage of their signals by cable systems. Additionally, cable
systems are required to obtain retransmission consent for all distant
commercial television stations (except for commercial satellite-delivered
independent super stations such as WTBS), commercial radio stations and certain
low power television stations carried by such systems after October 6, 1993.
On April 8, 1993, a special three-judge federal district court issued
a decision upholding the constitutional validity of the mandatory signal
carriage requirements. In June 1994, the United States Supreme Court vacated
this decision and remanded it to the district court to determine, among other
matters, whether the statutory carriage requirements are necessary to preserve
the economic viability of the broadcast industry. On December 12, 1995, a
three-judge federal district court panel again upheld the constitutional
validity of the mandatory signal carriage requirements, ruling that reasonable
evidence supported Congress' conclusion that "must carry" rules are necessary
to preserve the economic viability of the broadcast industry. The district
court's decision has been appealed to the Supreme Court, but the mandatory
broadcast signal carriage requirements will remain in effect pending the
outcome of the further proceedings. The Company cannot predict whether the
Supreme Court will ultimately uphold or strike down the mandatory signal
carriage requirements. If a station is not carried by a cable system in its
area or is shifted to an undesirable channel on such cable system, the station
could experience a decline in viewership that could adversely affect its
revenue, particularly revenue from stations carried on a cable system solely to
comply with the "must carry" law (for example, if the Infomall programming
competes with the cable system's own, similar non-broadcast offering).
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The 1996 Act allows for telephone companies to provide video
programming as an "Open Video System." The FCC is required to adopt regulations
mandating "must carry" for commercial and noncommercial stations and
retransmission consent for these operators.
The 1996 Act modified the way in which markets for carriage will be
determined for purposes of the "must-carry" rules. The 1996 Act provides that,
instead of using markets previously defined by the Arbitron ratings service,
the FCC will determine a broadcast station's market by using commercial
publications that delineate television markets based on viewing patterns. This
modification will allow the FCC to use A.C. Nielsen's DMAs to delineate
markets. The FCC is authorized to entertain requests for expansion or other
modification of television station markets, and is now required to resolve any
market modification request within 120 days after the request is filed or
within 120 days of enactment of the 1996 Act, whichever is later. The grant of
such requests by a licensee to extend its "must carry" rights into another DMA
may fractionalize the viewing audience of other television stations already
classified as entitled to "must carry" rights within the DMA.
The 1996 Act also directs the FCC to adopt regulations to allow local
exchange telephone companies to provide video programming either as cable
operators or under the newly-established category of "Open Video Systems." If a
local exchange telephone company decides to provide video programming as a
cable operator, it will be subject to the same "must-carry"/retransmission
consent requirements as a cable operator. The FCC also is directed to adopt
rules requiring operators of Open Video Systems to be subject to regulations
regarding "must carry" for commercial and noncommercial broadcast stations,
network nonduplication, syndicated exclusivity protection and retransmission
consent options. Operators of Open Video Systems will be required to carry
identification of broadcast stations on any navigational device, guide, or menu
that they have on their System.
Equal Employment Opportunity Requirements. The 1992 Cable Act also
codified the FCC's existing equal employment opportunity ("EEO") regulations
and reporting forms used by television broadcast stations. In addition, as
required by the 1992 Cable Act, the FCC has adopted rules providing for a
review of the EEO performance of each television station at the mid-point in
its license term (in addition to an examination at renewal time) and for the
FCC to inform the licensee of any improvements in recruiting practices that may
be needed as a result of the review. The FCC recently proposed rules that would
reduce the EEO record keeping and filing requirements of certain categories of
stations. The FCC has also proposed to give broadcasters credit for using the
recruiting resources of a central source, such as a state broadcast
association, and has proposed to adopt guidelines for imposing forfeitures for
EEO violations.
Syndicated Exclusivity/Territorial Exclusivity. The FCC has imposed on
cable operators syndicated exclusivity rules and expanded existing network
non-duplication rules. These syndicated exclusivity rules allow local broadcast
stations to require that cable operators black out certain syndicated
non-network programming carried on distant signals (that is, signals of
broadcast stations, including so-called super stations, which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network affiliates to require that
cable operators black out duplicating network broadcast programming carried on
more distant signals that are not significantly viewed over the air.
Prime Time Access Rules. The FCC's prime time access rule places
programming restrictions on affiliates of major national television networks.
In the past, this rule restricted affiliates of networks in the 50 largest
television markets (as defined by the rule) generally to no more than three
hours of network programming during the four hours of prime time. Recently, the
FCC changed its definition of network to include those entities that deliver
more than 15 hours of prime time programming (a term defined in those rules) to
affiliates reaching 75% of the nation's television homes. Under this
definition, certain national television networks are not subject to the prime
time access rule. In July 1995, the FCC issued an order repealing the prime
time access rules, subject to a one-year transition period during which the
rules will continue in effect. If the order is not modified or overturned, the
prime time access rules will terminate on August 30, 1996. The Company cannot
predict what effect the repeal
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26 Paxson Communications Corporation
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of the rules may have on the operation of its network-affiliated television
stations or the market for syndicated television programming.
V-Chip. The 1996 Act encourages the industry to establish a ratings
system for video programming. If the industry fails to establish such a ratings
system within one year, the FCC is directed to appoint a Committee to recommend
a ratings system. The 1996 Act also requires the inclusion of an electronic
device (the "V-Chip") in new television sets, which will enable parents to
block programming that contains a certain rating.
Television and radio broadcast stations also may be subject to a
number of other federal, state and local regulation, including regulations of
the Federal Aviation Administration affecting tower height and marking, and
federal, state and local environmental and land use restrictions and general
business regulation, and a variety of local regulatory concerns.
Proposed Changes. The Congress and the FCC have under consideration,
and in the future may consider and adopt, new laws, regulations and policies
involving a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's broadcast stations,
result in the loss of audience and advertising revenue for the Company's
broadcast stations and affect the ability of the Company to acquire additional
broadcast stations or finance such acquisitions.
--Implementation of Amendments to the Communications Act. The 1996 Act
is one of the most significant changes to the Communications Act since its
adoption in 1934. The 1996 Act expressly requires the FCC to change its rules
in many significant respects, and additional rule making proceedings may be
required to adapt present FCC requirements to the new law. As the 1996 Act only
recently has been passed and become law and the FCC has not yet begun the
proceedings that the 1996 Act requires, it remains to be seen how the FCC will
interpret certain provisions of the 1996 Act. Although the focus of the 1996
Act is on telephony, the Act will result in changes to several provisions of
the law relating to broadcasters.
--FCC Proceedings to Revise Broadcast Ownership Rules. The FCC has
several pending rule making proceedings to consider aspects of its ownership
rules affecting broadcasting that predate the enactment of the 1996 Act. The
passage of the 1996 Act will affect the outcome of these proceedings, and the
FCC may initiate new or further proceedings to consider some of these matters
in view of the new amendments to the Communications Act. In January 1995, the
FCC issued a further notice of proposed rule making which proposed the
following changes in regulations governing television broadcasting: (i)
modifying the reach discount as it applies to UHF stations; (ii) narrowing the
geographic area where common ownership restrictions would be triggered by
limiting it to overlapping Grade A contours rather than Grade B contours and by
permitting (or granting waivers in particular cases or markets) certain UHF/UHF
or UHF/VHF overlaps; (iii) relaxing the rules prohibiting cross-ownership of
radio and television stations in the same market to allow certain combinations
where there remain alternative outlets and suppliers to ensure diversity; and
(iv) treating television time brokerage agreements the same as radio time
brokerage agreements which would presently preclude certain television time
brokerage agreements where the programmer owns or has an attributable interest
in another television station in the same market. In June 1995, the FCC
announced an interim policy for processing television transfer and assignment
application that include time brokerage agreements. Pending the adoption of new
rules, the FCC has stated that it will not grant applications that propose a
time brokerage arrangement if the arrangement also includes both debt financing
by the time broker and an option for the time broker to purchase the brokered
station. The FCC has stated that it will continue to grant applications with
time-brokerage arrangement if they include only one of those elements (that is,
either debt financing by the broker or an option of the time broker to
purchase). Adoption of the most restrictive proposals in this proceeding could
limit the Company's alternatives for entering into new time brokerage
agreements and making new broadcast acquisitions and, if existing arrangements
are not grandfathered, could require the Company to modify or terminate certain
of its time brokerage agreements.
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In January 1995, the FCC issued a further notice of proposed rule
making that combined several long-pending proceedings to consider changes in
its ownership rules and policies. In the new proceeding, the FCC is
considering, among other things, (i) whether to make non-voting stock interests
attributable; (ii) whether to change attribution thresholds; (iii) how to treat
limited liability companies for purposes of attribution; (iv) whether to extend
the cross-interest policy to require review of multi-layered business
relationships, including debt relationships, that now are not subject to
scrutiny; and (v) whether to change the insulation standards for
non-attribution of limited partnership interests. Adoption of the most
restrictive alternatives available to the FCC could require that the Company,
in assessing acquisition and compliance strategies, take into account
additional interests in itself and its principals that are now exempt from FCC
ownership regulation, and potentially divest or restructure some interests.
In a second notice of proposed rule making the FCC is seeking comment
on whether the FCC should relax attribution and other rules to facilitate
greater minority and female ownership.
The 1996 Act directs the FCC to conduct biannual review of its
broadcast ownership rules, to determine whether the rules continue to be in the
public interest, and to repeal or modify regulations found to no longer serve
the public interest.
--FCC Inquiry on Broadcast of Commercial Matter. The FCC also has
initiated a notice of inquiry proceeding seeking comment on whether the public
interest would be served by establishing limits on the amount of commercial
matter broadcast by television stations. No prediction can be made at this time
as to whether the FCC will propose any limits on commercial advertising at the
conclusion of its deliberation or the effect the imposition of limits on the
commercial matter broadcast by television stations would have upon the
Company's operations.
--Digital Audio Broadcasting. The FCC recently has allocated spectrum
to a new technology, digital audio broadcasting ("DAB"), to deliver
satellite-based audio programming to a national or regional audience and is
considering rules for a DAB service. DAB may provide a medium for the delivery
by satellite or terrestrial means of multiple new audio programming formats
with compact disc quality sound to local and national audiences. It is not
known at this time whether this technology also may be used in the future by
existing radio broadcast stations either on existing or alternate broadcasting
frequencies. In addition, applications by several entities currently are
pending at the FCC for authority to offer multiple channels of digital,
satellite-delivered S-Band aural services that could compete with conventional
terrestrial radio broadcasting. These satellite radio services use technology
that may permit higher sound quality than is possible with conventional AM and
FM terrestrial radio broadcasting. Thus far, the FCC has not granted the
pending requests for authorizations to offer satellite radio, nor has it
adopted rules for the proposed satellite radio service. Implementation of DAB
would provide an additional audio programming service that could compete with
the Company's radio stations for listeners, but the effect upon the Company
cannot be predicted.
--Advanced High Definition Television System. The FCC has also begun
to adopt rules for implementing advanced (high definition) television ("ATV")
in the United States. Implementation of ATV service should improve the
technical quality of television broadcasts. In anticipation of the
implementation of ATV operations, the 1996 Act directs the FCC to adopt ATV
technical standards and other rules necessary to protect the public interest.
The FCC is authorized (but not required) to establish minimum hours of ATV
operation. The 1996 Act also provides for the FCC to limit the eligibility for
ATV licenses to existing television licensees and permittees. The FCC is
directed to condition ATV licenses on recapture of either the new ATV spectrum
or television licensees' initial spectrum, but neither the timetable nor the
subsequent use of recaptured spectrum is specified. Ten years after it first
issues ATV licenses, however, the FCC must evaluate its regulation and public
acceptance of ATV, including possible alternative uses of and reduction in ATV
spectrum.
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The FCC is required to adopt rules permitting ATV licensees to offer
"ancillary or supplementary services" on newly-available ATV spectrum, so long
as such services are consistent with the FCC's ATV standards; do not derogate
required ATV services, including high definition television; and are regulated
in the same manner as similar non-ATV services. Ancillary or supplementary
services will not have "must-carry" rights on cable television systems. All
services using ATV spectrum must be consistent with the public interest and
renewal applicants will be required to establish that all conventional and ATV
program services are in the public interest. Failure to comply with FCC
requirements governing ancillary or supplementary ATV services will reflect
adversely on renewal qualifications.
Licensees which use ATV frequencies to provide ancillary or
supplementary services on a subscription or similar paid basis
(commercially-supported non-subscription broadcasting is excluded) will be
required to pay annual fees, based on the amount of spectrum being used and the
time it is used for ancillary and supplementary services. The fee is not to
exceed the amount which would have been received had the spectrum been
auctioned for similar uses.
The FCC has decided that it will set aside specific new channel
allotments for ATV service. Initial eligibility for these channels will be
limited to existing television licensees. The FCC has not yet adopted a new
technical standard for ATV, nor has it adopted a new Table of Allotments for
ATV channels.
Under the FCC's current plan for phasing in ATV service, each
television station would be able to continue to provide conventional television
service on its regular channel until advanced television service has become the
prevalent medium. In August 1995, the FCC issued its Fourth Further Notice of
Proposed Rule Making and Third Notice of Inquiry in its ATV proceeding. The
notice and inquiry requested public comment on a number of issues in connection
with the establishment of ATV television broadcasting, including: (i)
procedures and timetables for existing broadcasters to move to ATV channels and
relinquish their present spectrum; (ii) restrictions on the use of ATV channels
during the transition period; (iii) the effect of conversion to digital
transmission on a broadcaster's public interest obligations; (iv) incentives
for the rapid adoption of ATV transmission technologies by broadcasters and by
the public, and (v) the impact of ATV on cable television carriage or
retransmission consent. Fifteen years after the start date, television
broadcasters would be required to surrender their conventional television
licenses. Implementation of ATV service is likely to impose additional costs on
television stations providing new service due to increased equipment costs.
While the Company believes the FCC will authorize ATV, the Company cannot
predict when such authorization might be given or the effect such authorization
might have on the Company's business.
Other changes that may result from matters under consideration by the
FCC or the Congress include: (i) spectrum use or other fees on FCC licensees;
(ii) the FCC's EEO rules and other matters relating to female or minority
involvement in the broadcasting industry; (iii) rules relating to political
broadcasting; (iv) technical and frequency allocation matters; (v) changes in
the FCC's cross-interest, multiple ownership and cross-ownership rules and
policies; (vi) changes in the tax deductibility of advertising expenses; (vii)
changes in standards governing the evaluation and regulation of television
programming directed toward children, and violent or indecent programming; and
(viii) changes in regulation of the relationship between major television
networks and their affiliates.
The foregoing is only a brief summary of certain provisions of the
Communications Act and of specific FCC and other regulations. Reference is made
to the Communications Act, FCC regulations, and the public notices and rulings
of the FCC for further information concerning the nature and extent of federal
regulation of broadcast stations.
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Paxson Communications Corporation 29
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EMPLOYEES
As of December 31, 1995, the Company had approximately 714 full-time
employees and approximately 202 part-time employees, for a total of 916
employees. None of its employees is represented by a labor union. The Company
considers its relations with its employees to be good.
SEASONALITY
Seasonal revenue fluctuations are common within the radio and
television broadcasting industry and result primarily from fluctuations in
advertising expenditures by local retailers. Paxson Radio and Paxson
Network-Affiliated Television generally experience their lowest revenue for the
year in the first quarter, whereas the highest revenue for the year generally
occurs in the fourth fiscal quarter. Because of the short operating history,
the Company's ability to assess the effects of seasonality on inTV is limited.
It appears, however, that inTV may experience its highest revenues during the
first and fourth quarters.
PATENTS AND TRADEMARKS
The Company has 21 registered trademarks and 11 trademark
registrations pending relating to its business. It does not own any patents or
patent applications. The Company does not believe that any of its trademarks
are material to its business or operations.
ITEM 2. PROPERTIES
The following table sets forth information with respect to the
Company's offices and its studios and broadcast tower locations. Management
believes that the Company's properties are in good condition and are suitable
for its operations.
MARKET(A) PROPERTY OWNED/LEASED LEASE EXPIRATION
--------- -------- ------------ ----------------
Miami, FL . . . . . . . . . . . . Studio/Offices Owned
WLVE-FM Tower Leased January 2000
WZTA-FM Tower Leased April 2007
WINZ-AM Tower Owned
WFTL-AM Tower Owned
Tampa, FL . . . . . . . . . . . . Studio/Offices Leased May 1998
WHNZ-AM Tower Owned
WHPT-FM Tower Owned
WNZE-AM Tower Owned
WSJT-FM Tower Owned
Orlando, FL . . . . . . . . . . . Studio/Offices Leased March 2002
WJRR-FM Tower Leased April 2000
WMGF-FM Tower Leased February 2001
WWNZ-AM Tower Owned
WWZN-AM Tower Owned
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MARKET(A) PROPERTY OWNED/LEASED LEASE EXPIRATION
--------- -------- ------------ ----------------
Jacksonville, FL . . . . . . . . Studio/Offices Leased February 1999
WROO-FM Tower Leased March 1999
WPLA-FM Tower Owned
WNZS-AM Tower Leased Perpetual
WZNZ-AM Tower Owned
Cookeville, TN . . . . . . . . . Studio/Offices Leased December 1998
WGSQ-FM Tower Leased July 2007
WPTN-AM Tower Owned
Los Angeles, CA . . . . . . . . . Studio/Offices Leased October 1998
Tower Leased June 2005
Sales Office Leased July 1998
Philadelphia, PA . . . . . . . . Studio Leased September 2000
Tower Owned
San Francisco, CA . . . . . . . . Studio/Offices Leased June 2005
Tower Leased June 2020
Boston, MA . . . . . . . . . . . Studio/Offices Leased February 2006
Tower Leased June 2026
Atlanta, GA . . . . . . . . . . . Studio/Offices Leased June 2001
Tower Leased October 2015
Houston, TX . . . . . . . . . . . Studio/Offices Leased October 1998
KTFH-TV Tower Owned
K33DB Tower Leased January 1997
Hartford, CT . . . . . . . . . . Studio Leased October 1999
Tower Leased October 2035
West Palm Beach, FL . . . . . . . Studio/Offices Leased October 1998
Tower Owned
Headquarters Owned
Cleveland, OH . . . . . . . . . . Studio Owned
Tower Owned
Washington, D.C. . . . . . . . . Studio Owned
Tower Owned
New York, NY . . . . . . . . . . Studio Leased March 2001
Tower Leased March 2006
______________
(a) Market listed may differ from actual location.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the
ordinary course of its business. In the opinion of management, no material
legal proceedings are pending to which the Company or any of its property is
subject.
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Paxson Communications Corporation 31
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ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the period covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
In November 1994, the Company's Class A Common Stock became publicly-held
through its merger with The American Network Group, Inc. and beginning November
7, 1994, the Class A Common Stock was listed on the Nasdaq Small-Cap Market.
Since July 10, 1995, the Class A Common Stock has been listed on the American
Stock Exchange under the symbol PXN. The following table sets forth for the
periods indicated, the high and low last sales price per share for the Class A
Common Stock, as reported on the Nasdaq Small-Cap Market (until July 7, 1995)
and the closing sale price per share for the Class A Common Stock on the
American Stock Exchange thereafter.
HIGH LOW
---- ---
1994
Fourth quarter (beginning November 7, 1994) 16 10 5/8
1995
First Quarter 12 5/8 9
Second Quarter 14 8
Third Quarter 15 3/4 12
Fourth Quarter 16 3/8 11 1/2
1996
First Quarter (through March 29) 21 1/4 13 7/8
On March 29, 1996, the closing price of the Class A Common Stock on
the American Stock Exchange was $15.625 per share. As of that date, there were
approximately 195 holders of record of the Class A Common Stock. Because of the
limited trading activity in the Class A Common Stock, the preceding prices may
not be indicative of the actual value of the Class A Common Stock or of the
trading prices that would result from a more seasoned market.
The Company has not paid cash dividends and does not intend for the
foreseeable future to declare or pay any cash dividends on its Common Stock and
intends to retain earnings, if any, for the future operation and expansion of
the Company's business. Any determination to declare or pay dividends will be
at the discretion of the Company's board of directors and will depend upon the
Company's future earnings, results of operations, financial condition, capital
requirements, contractual restrictions under the Company's debt instruments,
considerations imposed by applicable law and other factors deemed relevant by
the board of directors. In addition, the terms of the outstanding shares of the
Company's preferred stock contain restrictions on the declaration of dividends
with respect to the Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data as
of and for each of the years in the five year period ended December 31, 1995.
This information is qualified in its entirety by, and should be read in
conjunction with, the consolidated financial statements and the notes thereto
which are included elsewhere in this report.
For the Year Ended December 31,
-------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Total Revenue . . . . . . . . . . . . . . $103,073,912 $ 62,067,443 $ 32,062,031 $17,061,837 $ 829,533
Loss from operations . . . . . . . . . . (8,551,403) (1,562,037) (6,161,230) (6,837,152) (1,385,786)
Net loss . . . . . . . . . . . . . . . . (33,473,290) (4,762,074) (11,409,000) (7,855,039) (1,428,008)
Net loss attributable to common stock (a) (46,770,496) (8,147,530) (11,560,367) - -
Net loss per common share (b) . . . . . . $(0.97) $(0.14) $(0.36)
Net loss attributable to common
stock per common share (b) . . . . . . . (1.36) (0.24) (0.37)
Cash dividends declared . . . . . . . . . - - -
Weighted average shares outstanding -
primary and fully diluted (b) . . . . . 34,429,517 33,430,116 31,581,948
BALANCE SHEET-DATA:
Working Capital . . . . . . . . . . . . . $ 74,338,086 $ 26,392,082 $ 12,894,569 $ 9,031,611 $ 546,929
Total assets . . . . . . . . . . . . . . 293,832,077 152,670,381 66,574,608 37,067,084 12,353,227
Current portion of debt . . . . . . . . . 430,590 6,393,415 401,632 1,363 -
Long term debt and notes . . . . . . . . 239,858,935 76,013,542 32,206,770 21,508,402 2,594,352
Total redeemable preferred
stock and common stock warrants . . . . 57,175,963 43,878,757 13,798,540 0 0
Total common stockholders' equity . . . . (17,478,797) 17,019,390 16,119,257 14,327,956 9,422,885
- ------------------------------
(a) Includes dividends and accretion for redeemable preferred stock
and redeemable common stock warrants.
(b) Loss per share data and weighted average shares outstanding for
the years ended December 31, 1994 and 1993 give a pro forma effect to (i) the
Company's amended capital structure related to the merger with ANG; and (ii) a
stock dividend on common shares outstanding on January 1, 1995. For periods
prior to January 1, 1993, loss per share data and weighted average shares
outstanding were not computed as such amounts were not relevant.
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Paxson Communications Corporation 33
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company commenced Paxson Radio operations in September 1991
following the acquisition of three radio stations in Florida. The Company has
since expanded Paxson Radio primarily through the acquisition of 15 additional
stations, the execution of joint sales agreements for two additional stations
in Florida (in one of which the Company owns a 49% interest and the other of
which the Company has agreed to acquire), and significant internal growth of
acquired stations, and has agreed to acquire two additional radio stations in
Miami, one station in Jacksonville and two stations in Tennessee. Paxson Radio
includes the operation of six radio networks and outdoor billboards which have
operating and financial characteristics different from those of radio stations.
These operations, however, are not material to the radio group or to the
Company overall. The billboards serve to increase awareness of the Company's
radio operations and the radio networks are utilized in part to provide sports
and other programming to certain of the Company's radio stations and to 338
affiliates in the eastern and southeastern United States.
The Company commenced Paxson Network-Affiliated Television operations
in July 1994, following the acquisition of WPBF-TV, an ABC affiliate, in West
Palm Beach, Florida. The Company expanded its network affiliated television
operations in August 1995 with the execution of a time brokerage agreement for
WTVX-TV, a combined Warner/UPN affiliate, also in West Palm Beach.
The Company commenced its Infomall TV Network operations with four
inTV stations in January 1995. The Company has since expanded the Infomall TV
Network to a total of 24 owned, operated or affiliated inTV stations. The
Company has agreements to acquire or operate an additional eight stations,
seven of which are anticipated to close in 1996, following completion of the
Offering and the receipt of the net proceeds therefrom. Upon completion of the
Proposed Acquisitions, the Company will have 32 owned, operated or affiliated
inTV stations which provide a national distribution network currently dedicated
to airing of infomercial programming.
The Company's operating data throughout the periods discussed have
been impacted significantly by the timing and mix of radio, television and inTV
acquisitions throughout such periods. 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 and Paxson
Network-Affiliated Television 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 network or independent television station
operation. As a result, the Company's inTV stations usually contribute to
operating profit within a short time frame. 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 Company's
television stations are dependent upon "must carry" regulations for carriage on
cable systems in each market. The constitutionality of "must carry" regulations
is currently being litigated in the U.S. Supreme Court and if such regulations
were invalidated, the Company could suffer decreased revenues or increased
carriage expenses if the Company's stations lose cable carriage or are forced
to pay cable systems for carriage. The broadcasting industry continues to
undergo rapid technological change which may increase competition within the
Company's markets as new delivery systems, such
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34 Paxson Communications Corporation
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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.
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 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
December 31, 1995. 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. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of the Company's financial statements.
The Company's operations as a public company commenced in November
1994 as a result of the Company's merger with ANG, a company primarily involved
in the operation of radio networks. The former operations of ANG are no longer
material to the Company.
The Company currently expects to continue acquiring additional
stations which may have similar effects on the comparability of revenues,
operating expenses, interest expense and broadcast cash flow as those described
above.
RESULTS OF OPERATIONS
Years Ended December 31, 1995 and 1994
Consolidated revenues for 1995 increased 66% (or $41.0 million) to
$103.1 million from $62.1 million for 1994. This increase was primarily due to
the new television station acquisitions and time brokerage operations ($19.2
million), acquisition of WPBF-TV on July 1, 1994 ($7.1 million) and increased
revenues from existing television stations ($9.1 million).
Operating expenses for 1995 increased 75% (or $48.0 million) to $111.6
million from $63.6 million in 1994. The increase was primarily due to higher
direct expenses such as commissions which rise in proportion to revenues ($8.1
million), other non-direct costs of operating newly acquired and operated
television stations ($5.5 million), higher corporate overhead ($6.3 million),
option plan compensation ($10.8 million), higher depreciation and amortization
related to assets acquired ($6.3 million), and increased expenses from a full
year of operating existing television stations ($1.6 million).
Interest expense for 1995 increased to $16.3 million from $5.2
million for 1994, an increase of 213%, primarily due to a greater level of
long-term debt throughout the period and higher borrowing rates. As a result of
acquisitions, at December 31, 1995, total long-term debt and senior
subordinated notes was $240 million, or 191% higher than the $82.4 million
outstanding a year prior.
The Company has accumulated $35.7 million of taxable losses. The
Company recognized $1.3 million of income tax benefit which resulted primarily
from the 1995 net loss and reversal of deferred taxes associated with the 1993
tax provision resulting from the change in tax status.
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Paxson Communications Corporation 35
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Broadcast cash flow for 1995 increased 108% (or $15.6 million) to
$30.0 million, from $14.4 million for 1994. The increase in broadcast cash
flow was a direct result of new television station acquisitions and time
brokerage operations ($9.1 million), acquisition of WPBF-TV on July 1, 1994
($1.7 million), and improved performance of existing television properties
($5.5 million). "Broadcast cash flow" is defined as Income (Loss) from
Operations plus non-cash expenses and non-broadcast operating results, less
scheduled broadcast rights payments and non-cash revenues. The Company has
included broadcast cash flow data because such data is commonly used as a
measure of performance for broadcast companies and is also used by investors to
measure a company's ability to service debt. Broadcast 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.
Years Ended December 31, 1994 and 1993
Consolidated revenues for 1994 increased 93% (or $30.0 million) to
$62.1 million from $32.1 million in 1993. This increase was primarily due to
the acquisition of WPBF-TV on July 1, 1994 ($7.5 million), revenue received
under the time brokerage agreement for WTLK-TV beginning April 4, 1994 ($2.2
million) and the subsequent purchase thereof on July 13, 1994, the
consolidation of the ANG operations beginning April 14, 1994 ($8.4 million),
and improved market conditions and better sales management within the Company's
existing properties ($10.8 million). In addition, revenue increased because of
the time brokerages of WCTD-TV beginning April 1, 1994 and WFCT-TV beginning
August 1, 1994 (totalling $1.1 million).
Operating expenses for 1994 increased 66% (or $25.4 million) to $63.6
million from $38.2 million in 1993. The increase was primarily due to direct
expenses such as commissions which rise in proportion to revenue ($7.3
million), other non-direct costs of operating WPBF-TV and WTLK-TV ($4.1
million), the consolidation of ANG ($6.3 million), higher costs for the
Company's existing properties ($3.4 million), and higher depreciation and
amortization related to assets acquired ($3.0 million). In addition, operating
expenses increased because of the time brokerages of WCTD-TV and WFCT-TV and
related fees ($1.3 million).
Interest expense increased to $5.2 million from $2.1 million, an
increase of 148%, primarily due to a greater level of long-term debt throughout
the year and higher borrowing rates. As a result of acquisitions, at December
31, 1994, long-term debt was $82.4 million, or 153% higher than the $32.6
million outstanding a year prior.
The Company recognized $1.7 million of income tax benefit which
resulted primarily from the 1994 net loss and related reversal of deferred
taxes associated with the 1993 tax provision.
Broadcast cash flow for 1994 increased 112% (or $7.6 million) to $14.4
million, from $6.8 million in 1993. The increase in broadcast cash flow was a
direct result of acquisitions, revenue growth and continued expense controls.
38
36 Paxson Communications Corporation
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The following tables set forth, for the periods indicated, selected
financial information as a percentage of revenues and the period-to-period
changes in such information.
STATEMENT OF OPERATIONS
For the Year Ended December 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
TOTAL REVENUE 100.0% 100.0% 100.0%
Operating Expenses:
Direct 24.2% 27.1% 29.6%
Programming 12.4 14.1 16.5
Sales & promotion 8.8 9.3 10.9
Technical 4.8 3.4 4.8
General & administrative 21.5 18.8 22.8
Trade and barter 2.5 3.9 3.2
Time brokerage agreement fees 1.0 0.8 2.2
Sports rights fees 2.7 3.8 0.0
Option plan compensation 10.5 0 0
Program rights amortization 1.7 1.3 0.0
Depreciation and amortization 18.2 20.0 29.2
----- ----- -----
TOTAL OPERATING EXPENSES 108.3 102.5 119.2
----- ----- -----
LOSS FROM OPERATIONS (8.3) (2.5) (19.2)
----- ----- -----
Other income (expense):
Interest expense (15.8) (8.4) (6.4)
Interest income 1.7 0.5 0.4
Gain on sale of radio
broadcasting station 0.0 0.1 1.3
Other income (expense), net (1.0) (0.1) (1.0)
----- ----- -----
LOSS BEFORE BENEFIT (PROVISION) FOR
INCOME TAXES AND EXTRAORDINARY ITEM (23.4) (10.4) (24.9)
Benefit (provision) for income taxes 1.2 2.7 (9.2)
----- ----- -----
Loss before extraordinary item (22.2%) (7.7%) (34.2%)
Extraordinary item (10.3%) - (1.4%)
----- ----- -----
NET LOSS (32.5%) (7.7%) (35.6%)
===== ====== =====
LIQUIDITY AND CAPITAL RESOURCES
On September 28, 1995, the Company sold $230 million aggregate
principal amount of 11 5/8% Senior Subordinated Notes (the "Notes") at a
discount, receiving $227.3 million in proceeds before approximately $8.6
million of transaction costs. These transaction costs have been classified as
"other assets" and are being amortized as interest expense over the term of the
Notes. The Notes mature in 2002 with interest payable semiannually on April 1
and October 1. In connection with the issuance of the Notes, the Company repaid
approximately $170 million in outstanding balances under its then-existing
senior credit facilities. In conjunction with the repayment of these debt
facilities approximately $10.6 million of loan origination costs were written
off as an extraordinary expense.
The Company's working capital at December 31, 1995 and December 31,
1994 was $74.3 million and $26.4 million, respectively, and the ratio of
current assets to current liabilities was 6.37:1 and 3.11:1 on such dates,
respectively. Working capital increased primarily due to proceeds from the
Notes net of debt repaid and acquisitions previously discussed.
39
Paxson Communications Corporation 37
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Cash provided by operations of $10.9, $5.1 and $2.8 million for 1995,
1994 and 1993, respectively, primarily reflects the improvement in operating
results of existing properties, acquisitions and time brokerage properties net
of increased interest expense. Cash used for investing activities of $105.6,
$66.8 and $30.8 million for 1995, 1994 and 1993, respectively, primarily
reflects acquisitions of and investments in broadcast properties and purchases
of equipment for these and existing properties net of the proceeds from station
or asset sales. Cash provided by financing activities of $141.1, $76.3 and
$34.4 million in 1995, 1994 and 1993, respectively, primarily reflects the
proceeds from the issuance of the Notes and the incurrence of long-term debt
net of debt repaid and loan origination costs incurred. Non-cash activity
relates to depreciation and amortization, option plan compensation and
reciprocal trade and barter advertising revenue and expense, as well as
dividends and accretion on the redeemable preferred stock and common stock
warrants.
The Company has issued options to purchase shares of Class A Common
Stock to certain members of management during 1995 under its stock compensation
plan. There are currently 1,744,205 options outstanding under this plan.
Further, the Company recognized option plan compensation expense of
approximately $10.8 million in 1995, and expects that approximately $1.4
million of compensation expense will be recognized over the remaining vesting
period of the outstanding options. The Company intends to retain the intrinsic
value method of accounting for stock-based compensation, which will result in
the Company disclosing related required pro forma information in the notes to
certain future financial statements.
The Company was initially funded primarily by Mr. Paxson, who has made
equity investments in the Company since its inception totaling in excess of $33
million. Beginning in 1992, the Company has also utilized senior long-term debt
provided to its principal operating subsidiaries by consortiums of financial
institutions. Proceeds from the issuance of the Notes were used to retire the
Company's then existing senior indebtedness. On December 19, 1995, the Company
entered into a credit facility providing for a senior secured revolving line of
credit in an aggregate principal amount of $100 million maturing on June 30,
2002 (the "New Credit Facility").
The Company's primary capital requirements are interest and principal
payments on indebtedness. The Notes require semi-annual interest payments at a
fixed rate. Borrowings under the New Credit Facility bear interest at floating
rates and require interest payments on varying dates depending on the interest
rate option selected by the Company. In addition to debt service, the Company's
principal cash requirements will be for capital expenditures and, if
appropriate opportunities arise, the acquisition of additional broadcasting
stations or assets. The Company estimates that, in addition to the $22.1
million of capital expenditures associated with the Proposed Acquisitions, it
will spend approximately $20 million for property and equipment for its
existing operations.
The Company believes that the proceeds of the Offering, cash flow from
operations, existing cash balances and available borrowings under the New
Credit Facility will be sufficient to consummate the Proposed Acquisitions
(including the expected capital expenditures associated therewith), to exercise
the Station Options and to meet its anticipated short term and long term
working capital requirements for its existing properties and those to be
acquired upon completion of the Proposed Acquisitions and the exercise of the
Station Options. Pro forma for the Proposed Acquisitions and the exercise of
the Station Options, the Company would have approximately $57 million in
borrowing capacity under the New Credit Facility, $27.7 million of which is
currently outstanding. To the extent that the Company pursues future
acquisitions or requires additional working capital, the Company may be
required to obtain additional financing. There can be no assurance that the
Company will be able to obtain such financing on terms acceptable to it. 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, its liquidity could become insufficient on a short term
basis due to diminished borrowing capacity under the New Credit Facility and on
a long term basis, the Company could have insufficient resources to repay
indebtedness under the New Credit Facility or the Notes when due.
40
38 Paxson Communications Corporation
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The response to this item is submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None required to be reported.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item regarding directors and officers is
incorporated by reference from the definitive Proxy Statement being filed by
the Company for the Annual Meeting of Stockholders to be held May 16, 1996.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item regarding compensation of offices
and directors is incorporated by reference from the definitive Proxy Statement,
being filed by the Company for the Annual Meeting of Stockholders to be held
May 16, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from
the definitive Proxy Statement being filed by the Company for the Annual
Meeting of Stockholders to be held May 16, 1996.
ITEMS 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from
the definitive Proxy Statement being filed by the Company for the Annual
Meeting of Stockholders to be held May 16, 1996.
41
Paxson Communications Corporation 39
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of the report:
1. and 2. The financial statements filed as part of this
report are listed separately in the index to Financial
Statements beginning on page F-1 of this report.
3. For Exhibits see Item 14(c), below. Each management
contract or compensatory plan or arrangement required to be
filed as an exhibit hereto is listed in Exhibits Nos. 10.26,
10.27 and 10.28 of Item 14(c) below.
(b) No reports on Form 8-K have been filed by the Company during
the final quarter of the period covered by this report.
(c) 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 15% Cumulative Compounding Redeemable
Preferred Stock*
3.1.3 The Company's Certificate of Designations of the Company's Series B 15% Cumulative Compounding
Redeemable Preferred Stock**
3.1.4 The Company's Certificate of Designations of the Company's Junior Cumulative Compounding Redeemable
Preferred Stock**
3.1.5 Bylaws of the Company+
4.1 Form of Stock Certificate of Class A Common Stock being registered*
9 Amended and Restated Stockholders Agreement, dated as of December 22, 1994, by and among the Company
and certain stockholders thereof**
9.1 Agreement, dated March 26, 1996, amending the Amended and Restated Stockholders Agreement, dated as of
December 22, 1994, by and among the Company and certain stockholders thereof and certain related
agreements+
10.1 Securities Purchase Agreement, dated as of September 22, 1995, by and among the Company, the Guarantors
named therein and the Initial Purchasers named therein*******
10.2 Stock Purchase Agreement, dated as of December 15, 1993, by and among the Company and certain
purchasers of the Company securities**
42
40 Paxson Communications Corporation
- --------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.3 Stock Purchase Agreement, dated as of December 22, 1994, by and among the Company and certain
purchasers of the Company securities**
10.4 Amended and Restated Stockholders Agreement, dated as of December 22, 1994, by and among the Company
and certain stockholders thereof (incorporated by reference to Exhibit 9)
10.4.1 Agreement, dated March 26, 1996 amending the Amended and Restated Stockholders Agreement, by and among
the Company and certain stockholders thereof and certain related agreements (incorporated by reference
to Exhibit 9.1)
10.5 Exchange and Consent Agreement, dated as of December 22, 1994 by and among the Company and certain
stockholders thereof**
10.9 Asset Purchase Agreement, dated as of March 10, 1994, by and between Phipps-Potamkin Television
Partners and the Company*
10.10 Asset Purchase Agreement, dated as of March 31, 1994, by and between Paxson Communications of Atlanta-
14, Inc. and TV-14, Inc.*
10.12 Asset Purchase Agreement between Delaware Valley Broadcasters Limited Partnership and the Company,
dated October 14, 1994**
10.13 Asset Purchase Agreement between Paxson Communications of New London-26, Inc. and R&R Media Corp.,
dated November 25, 1994**
10.14 Asset Purchase Agreement between the Company and Sandino Telecasters, Inc., dated December 5, 1994**
10.15 Asset Purchase Agreement by and among Paxson Communications of San Jose-65, Inc. and Friendly Bible
Church, Inc. and United Christian Broadcasting, Inc., dated December 21, 1994**
10.16 Asset Purchase Agreement by and among Channel 56 of Orlando, Inc., Treasure Coast Communications, Inc.
and the Company, dated December 23, 1994**
10.17 Asset Purchase Agreement by and among the Company and San Jacinto Television Corp. and DuPont
Investment Group 85, Ltd., dated January 20, 1995**
10.18 Asset Purchase Agreement by and among Paxson Communications of Boston-60, Inc. and Paugus Television,
Inc. and The Roger L. Putnam Trust and The Estate of Percival Lowell, dated January 20, 1995**
10.19 First Amendment, dated as of May 17, 1995, to Asset Purchase Agreement by and between Paxson
Communications of Boston-60, Inc., Paugus Television, Inc., The Roger L. Putnam Trust and The Estate of
Percival Lowell, dated as of January 20, 1995****
10.20 Warrant Agreement, dated as of December 15, 1993, by and among the Company and William Watson as
Warrant Agent*
43
Paxson Communications Corporation 41
- --------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.21 Asset Purchase Agreement by and among Paxson Broadcasting of Tampa, L.P. and Largo Broadcasting
Company, dated July 20, 1994**
10.22 Asset Purchase Agreement between Paxson Broadcasting of Orlando, L.P. and Florida Media, Inc., dated
September 23, 1994**
10.23 Asset Purchase Agreement between the Company and Tri-Talk Radio, L.C., dated February 24, 1995**
10.24 Agreement between United Broadcast Group, Ltd. and Paxson Communications of Dallas-68, Inc., dated
December 14, 1994, and related Joint Request for Approval of Settlement Agreement**
10.25 Warrant Agreement, dated as of December 22, 1994, by and among the Company and William Watson as
Warrant Agent**
10.26 Employment Agreement, dated as of June 30, 1994, by and between the Company and Lowell W. Paxson*
10.27 Paxson Communications Corp. Profit Sharing Plan*
10.28 Paxson Communications Corp. Stock Incentive Plan*
10.29 Asset Purchase Agreement, dated as of March 31, 1995, by and among The Christian Network, Inc. and
LeSea Broadcasting Corporation and the Company***
10.30 Stock Purchase Agreement, dated as of April 30, 1995, by and among Channel 59 of Denver, Inc. and David
M. Drucker and Charles Ergen and the Company***
10.31 Asset Purchase Agreement, dated as of April 30, 1995, by and among Channel 59 of Denver, Inc. and
Echonet Corporation and the Company***
10.32 First Letter Agreement, dated as of December 2, 1994, to Asset Purchase Agreement by and between Paxson
Communications Corp. and Sandino Telecasters, Inc., dated as of December 5, 1994****
10.33 Second Letter Agreement, dated as of December 5, 1994, to Asset Purchase Agreement by and between
Paxson Communications Corp. and Sandino Telecasters, Inc., dated as of December 5, 1994****
10.34 Third Amendment, dated as of May 17, 1995, to Asset Purchase Agreement by and between Paxson
Communications Corp. and Sandino Telecasters, Inc., dated as of December 5, 1994****
10.35 Asset Purchase Agreement, dated January 31, 1995, between Gary A. Rosen in his capacity as Bankruptcy
Trustee for Flying A Communications, Inc. and Paxson Communications Corp.*****
10.36 Real Estate Sale and Purchase Agreement, dated as of May 18, 1995, by and between F&M Bank --
Martinsburg and Paxson Communications of Washington-60, Inc.*****
44
42 Paxson Communications Corporation
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EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.37 Asset Purchase Agreement, dated as of June 1, 1995, by and between Channel 26 of Dayton, Inc. and Video
Mall Communications, Inc. for Television Station WTJC-TV, Springfield, Ohio*****
10.38 Asset Purchase Agreement, dated as of May 23, 1995, by and among Whitehead Media, Inc., Morton J. Kent
and Canton, Inc. for Television Station WOAC(TV) Canton, Ohio*****
10.39 Option Agreement, dated December 29, 1995 by and among Whitehead Media, Inc., Whitehead Media of Ohio,
Inc. and Paxson Communications of Cleveland-67, Inc. for WOAC (TV), Channel 67, Canton, Ohio*******
10.40 Time Brokerage Agreement, dated October 30, 1995. between Whitehead Media, Inc. and Paxson
Communications of Cleveland-67, Inc. for WOAC (TV), Channel 67, Canton, Ohio*******
10.41 Amendment to Time Brokerage Agreement, dated December 29, 1995, between Whitehead Media, Inc. and
Paxson Communications of Cleveland-67, Inc. for WOAC (TV), Channel 67, Canton, Ohio******
10.42 Time Brokerage Agreement, dated September 22, 1994, effective as of August 4, 1995, between Whitehead
Media, Inc. and Paxson Communications Corporation for Television Station WTVX-TV Fort Pierce,
Florida******
10.43 Amendment to Time Brokerage Agreement, dated as of April 19, 1995, between Whitehead Media, Inc. and
Paxson Communications Corporation for Television Station WTVX-TV Fort Pierce, Florida******
10.44 Amendment to Time Brokerage Agreement, dated December 29, 1995, by and between Whitehead Media, Inc.
and Paxson Communications of Ft. Pierce-34, Inc. for Television Station WTVX-TV, Ft. Pierce,
Florida*******
10.45 Option Agreement, dated December 29, 1995, by and among Whitehead Media, Inc., Whitehead Media of
Florida, Inc., and Paxson Communications of Ft. Pierce-34, Inc. for Television Station WTVX-TV Ft.
Pierce, Florida+
10.46 Non-compete Agreement, dated August 18, 1995, between Paxson Communications Corporation and Lowell W.
Paxson*******
10.47 Asset Purchase Agreement, dated as of August 23, 1995, by and among Valuevision International, Inc.,
VVI Bridgeport, Inc., VVI Akron, Inc., and Paxson Communications Corporation*******
10.48 Time Brokerage Agreement, dated August 31, 1995, by and between Channel 56 of Orlando, Inc. and Paxson
Communications of Orlando-56 Inc. for Television Station WIRB(TV), Melbourne, Florida*******
10.49 Loan Agreement, dated August 31, 1995, among Paxson Communications of Orlando-56, Inc. and Channel 56
of Orlando, Inc.*******
10.50 Time Brokerage Agreement, dated August 31, 1995, by and between UHF Channel 59 Corp. and Paxson
Communications of Denver-59, Inc. for Television Station KUBD(TV), Denver, Colorado*******
45
Paxson Communications Corporation 43
- --------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.51 Loan Agreement, dated August 31, 1995, by and between Paxson Communications of Denver-59, Inc. and
Channel 59 of Denver, Inc.*******
10.52 Option Agreement, dated August 31, 1995, by and among Paxson Communications of Denver-59, Inc., Channel
59 of Denver, Inc., and UHF Channel 59 Corp.*******
10.53 Asset Purchase Agreement, dated August 31, 1995, by and between Channel 13 of Flagstaff, Inc., Michael
C. Gelfand, and Del Ray Television Company, Inc.*******
10.53.1 Option Agreement, dated January 24, 1996, by and between Channel 13 of Flagstaff, Inc. and Paxson
Communications of Flagstaff-13, Inc. for television station KWFB-TV+
10.54 Indenture, dated as of September 28, 1995, among the Company, the Bank of New York, as Trustee, and the
Guarantors named therein (the indenture)*******
10.55 Original Note No. 1 for $115,000,000 CUSIP No. 704231-AA-7, with Guarantee of Guarantors listed
therein*******
10.56 Original Note No. 2 for $115,000,000, CUSIP No. 704231-AA-7, with Guarantee of Guarantors listed
therein*******
10.57 Form of New Note with Form of New Guarantee*******
10.58 Registration Rights Agreement, dated as of September 28, 1995, by and among the Company, the Guarantors
named therein and each of the Purchasers referred to therein*******
10.59 Asset Purchase Agreement, dated October 2, 1995 by and between Whitehead Media, Inc. and NGM Television
Partners, Limited for Television Station WNGM-TV, Athens, Georgia*******
10.60 Option Agreement dated December 29, 1995, by and between Whitehead Media, Inc., Whitehead Media of
Georgia, Inc. and Paxson Communications of Atlanta-14, Inc. for WNGM (TV), Channel 34, Athens,
Georgia*******
10.61 Time Brokerage Agreement, dated December 29, 1995, by and between Whitehead Media of Georgia, Inc. and
Paxson Communications of Atlanta-14, Inc. for WNGM (TV), Athens, Georgia*******
10.62 Time Brokerage Agreement, dated October 16, 1995, by and between Channel 26 of Dayton, Inc. and Paxson
Communications of Dayton-26, Inc. for Television Station WTJC(TV), Springfield, Ohio*******
10.63 Loan Agreement, dated October 6, 1995, by and among Paxson Communications of Dayton-26, Inc. and
Channel 26 of Dayton, Inc.*******
10.64 Option Agreement, dated October 6, 1995, by and between Paxson Communications of Dayton-26, Inc. and
Channel 26 of Dayton, Inc.*******
46
44 Paxson Communications Corporation
- --------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.65 Asset Purchase Agreement, dated August 25, 1995, by and between Channel 13 of St. Louis, Inc. and
McEntee Broadcasting, Inc., for Television Station WCEE-TV, Mt. Vernon, Illinois*******
10.65.1 Time Brokerage Agreement, dated January 26, 1996, between Channel 13 of St. Louis, Inc. and Paxson
Communications of St. Louis-13, Inc. for television station WCEE-TV, Mt. Vernon, Illinois+
10.65.2 Option Agreement, dated January 26, 1996, by and between Channel 13 of St. Louis, Inc. and Paxson
Communications of St. Louis, Inc+
10.65.3 Letter Exercising Option, dated February 21, 1996, by and between Channel 13 of St. Louis, Inc. and
Paxson Communications of St. Louis-13, Inc. for television station WCEE-TV+
10.66 Credit Agreement. dated as of December 19, 1995, among PCC, the Lenders named therein, Union Bank, as
Agent*******
10.67 Letter of Intent, dated February 24, 1996, among the Company, New Age Broadcasting, Inc. and The
Seventies Broadcasting Corporation+
10.68 Time Brokerage Agreement, dated December 17, 1993, by and between Bradenton Broadcast Television Company,
Ltd., and The Christian Network, Inc. regarding television station WFCT-TV+
10.69 Loan and Option Agreement, dated December 17, 1993, between Bradenton Broadcast Television Company,
Ltd. and The Christian Network, Inc. for Channel 66+
10.69.1 Partial Assignment of Loan and Option Agreement, dated May 15, 1994, between Bradenton Broadcast
Television Company, Ltd., The Christian Network, Inc. and Paxson Communications of Tampa-66, Inc. for
Channel 66+
10.70 Partial Assignment of Time Brokerage Agreement, dated May 15, 1994, between Bradenton Broadcast
Television Company, Ltd., The Christian Network, Inc. and Paxson Communications of Tampa-66, Inc.+
10.71 Letter Exercising Option, dated February 22, 1996, by Paxson Broadcasting of Tampa-66, Inc. to exercise
option on WFCT-TV+
10.72 Time Brokerage Agreement, dated April 1, 1994, by and between Channel 35 of Miami, Inc. and Paxson
Communications of Miami-35, Inc. regarding television station WCTD-TV+
10.73 Option Agreement, dated April 1, 1994, by and between Channel 35 of Miami, Inc. and Paxson
Communications of Miami-35, Inc. regarding television station WCTD-TV+
10.74 Time Brokerage Agreement, dated January 31, 1996, by and between S&E Network, Inc. and Paxson
Communications of San Juan, Inc. for television station WSJN-TV+
10.74.1 Stock Purchase Agreement, by and between S&E Network, Inc. and Paxson Com Communications of San Juan,
Inc. for television station WSJN-TV+
47
Paxson Communications Corporation 45
- --------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.75 Time Brokerage Agreement, dated October 31, 1995, by and between Roberts Broadcasting Company of
Raleigh-Durham, L.P. and Paxson Communications of Raleigh Durham-47, Inc. for television station WRMY-
TV+
10.76 Option Agreement dated October 31, 1995, between Roberts Broadcasting Company of Raleigh-Durham, L.P.
and Paxson Communications of Raleigh-Durham-47, Inc. for interest in WRMY-TV+
10.77 Loan Agreement, dated October 31, 1995, between Roberts Broadcasting Company of Raleigh-Durham, L.P.
and Paxson Communications Corporation for $4,000,000+
10.78 Letter of Intent, dated November 14, 1995, with Offshore Broadcasting Company regarding television
station WOST-TV+
10.79 Letter of Intent, dated February 22, 1996, with Roberts Broadcasting Company of Salt Lake City LLC
regarding television station KZAR-TV+
10.80 Loan Agreement, dated March 23, 1995, with Cocola Media Corporation of Florida for construction of
facilities for WHBI-TV+
10.81 Asset Purchase Agreement, dated January 31, 1996 between TeleSouth Communications, Inc., Paxson
Networks, Inc. and Lowell W. Paxson in connection with the sale of South Carolina Radio Network+
10.82 Asset Purchase Agreement, dated January 1, 1996, between the Company and Lowell W. Paxson in connection
with the sale of World Travelers Network+
10.83 Lease Agreement, dated June 14, 1994, between Paxson Communications of Tampa-66, Inc. and The Christian
Network, Inc. for lease of production and distribution facilities at WFCT-TV+
10.84 Replacement Promissory Note, dated October 20, 1995, from Channel 55 of Dallas, Inc., assigned to the
Company for $1,000,000 regarding KLDT-TV+
10.85 Letter of Intent, dated September 22, 1995, from The Christian Network, Inc. to Western Michigan Family
Broadcasting, Inc. for television station WJUE-TV, Battle Creek, Michigan+
10.86 Letter of Intent, dated October 4, 1995, from The Christian Network, Inc. to Cornerstone Television,
Inc. for television station WOCD-TV, Amsterdam, New York+
21 Subsidiaries of the Company+
23 Consent of Price Waterhouse LLP, independent certified public accountants
27 Financial Data Schedule (for SEC use only)
99.1 Tax Exemption Savings Agreement between the Company and The Christian Network, Inc., dated May 15,
1994+
- ----------
* Filed with the Company's Registration Statement of Form S-4,
filed September 26, 1994, Registration No. 33-84416 and
incorporated herein by reference.
48
46 Paxson Communications Corporation
- --------------------------------------------------------------------------------
** 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 Quarterly Report on Form 10-Q, dated
May 12, 1995 and incorporated herein by reference.
**** Filed with the Company's Report on Form 8-K dated June 1, 1995
and incorporated herein by reference.
***** Filed with the Company's Quarterly Report on Form 10-Q, dated
August 14, 1995 and incorporated herein by reference.
****** Filed with the Company's Report on Form 8-K, dated August 21,
1995 and incorporated herein by reference.
******* Filed with the Company's Registration Statement on Form S-4,
as amended, filed January 23, 1996, Registration No. 33-63765
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.
(d) The financial statement schedule filed as part of this report
follows the signature page of this report.
49
Paxson Communications Corporation S-1
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of West
Palm Beach, State of Florida, on March 29, 1996.
PAXSON COMMUNICATIONS CORPORATION
By: /s/ Lowell W. Paxson
---------------------------------
Lowell W. Paxson
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Lowell W. Paxson Chairman of the Board, Chief Executive Officer, March 29, 1996
- ----------------------------- and Director (Principal Executive Officer)
Lowell W. Paxson
/s/ Arthur D. Tek Vice President, Chief Financial Officer, March 29, 1996
- ----------------------------- and Director (Principal Financial Officer)
Arthur D. Tek
/s/ Kenneth M. Gamache Controller (Principal Accounting Officer) March 29, 1996
- -----------------------------
Kenneth M. Gamache
/s/ James B. Bocock President and Chief Operating Officer, March 29, 1996
- ----------------------------- Director
James B. Bocock
/s/ Michael J. Marocco Director March 29, 1996
- -----------------------------
Michael J. Marocco
/s/ John A. Kornreich Director March 29, 1996
- -----------------------------
John A. Kornreich
/s/ J. Patrick Michaels, Jr. Director March 29, 1996
- -----------------------------
J. Patrick Michaels, Jr.
/s/ S. William Scott Director March 29, 1996
- -----------------------------
S. William Scott
/s/ Bruce L. Burnham Director March 29, 1996
- -----------------------------
Bruce L. Burnham
50
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Paxson Communications Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 28, 1996 appearing in this Form 10-K of Paxson Communications
Corporation also included an audit of the Financial Statement Schedule listed
in Item 14 of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Tampa, Florida
February 28, 1996
51
SCHEDULE II
PAXSON COMMUNICATIONS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- --------------------- -------- --------
ADDITIONS
---------------------
BALANCES AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF YEAR EXPENSES OTHER DEDUCTIONS YEAR
------- --------- ----- ---------- ----
For the year ended December 31, 1995
Allowance for doubtful accounts . . . . . . . . . . . $ 556,950 $1,098,181 $ - $(745,418)(1) $ 909,713
========== ========== =========== ========== ===========
Deferred tax assets valuation allowance . . . . . . . $4,126,507 $ - $10,882,493(2) $ - $15,009,000
========== ========== =========== ========= ===========
For the year ended December 31, 1994
Allowance for doubtful accounts . . . . . . . . . . . $ 212,244 $ 344,706 $ - $ - $ 556,950
========== ========== =========== ========= ===========
Deferred tax assets valuation allowance . . . . . . . $ - $ - $ 4,126,507(2) $ - $ 4,126,507
========== ========== =========== ========= ===========
For the year ended December 31, 1993
Allowance for doubtful accounts . . . . . . . . . . . $ 122,563 $ 89,681 $ - $ - $ 212,244
========== ========== =========== ========= ===========
Deferred tax assets valuation allowance . . . . . . . $ - $ - $ - $ - $ -
========== ========== =========== ========= ===========
- ------------
(1) Write off of uncollectible receivables.
(2) A valuation allowance related to deferred tax assets.
52
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Common Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
of Paxson Communications Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in common
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of Paxson Communications Corporation and its subsidiaries
(the "Company") at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
- --------------------------
PRICE WATERHOUSE LLP
Tampa, Florida
February 28, 1996
F-2
54
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 68,070,990 $ 21,571,658
Accounts receivable, less allowance for doubtful accounts of $909,713 and $556,950,
respectively........................................................................ 17,726,415 13,569,198
Prepaid expenses and other current assets............................................. 971,363 1,579,954
Current deferred income taxes......................................................... -- 194,940
Current program rights................................................................ 1,412,544 1,980,000
------------ ------------
Total current assets............................................................ 88,181,312 38,895,750
Property and equipment, net............................................................. 79,859,080 45,350,430
Intangible assets, net.................................................................. 84,318,147 53,350,967
Other assets, net....................................................................... 19,896,694 13,078,346
Investments in broadcast properties..................................................... 21,192,030 1,750,000
Program rights, net..................................................................... 384,814 244,888
------------ ------------
Total assets.................................................................... $293,832,077 $152,670,381
=========== ===========
LIABILITIES, REDEEMABLE SECURITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities........................................ $ 5,030,692 $ 4,899,163
Accrued interest...................................................................... 6,932,342 224,528
Current portion of program rights payable............................................. 1,449,602 986,562
Current portion of long-term debt..................................................... 430,590 6,393,415
------------ ------------
Total current liabilities....................................................... 13,843,226 12,503,668
Program rights payable.................................................................. 432,750 562,770
Deferred income taxes................................................................... -- 1,474,940
Long-term debt.......................................................................... 12,484,024 76,013,542
Senior subordinated notes, net.......................................................... 227,374,911 --
Minority interest....................................................................... -- 1,217,314
Redeemable Cumulative Compounding Senior preferred stock, $0.001 par value; 15%
dividend rate per annum, 2,000 shares authorized, issued and outstanding................ 16,824,082 14,060,054
Redeemable Class A & B common stock warrants............................................ 6,465,317 1,735,979
Redeemable Cumulative Compounding Series B preferred stock, $0.001 par value; 15%
dividend rate per annum, 714.286 shares authorized, issued and outstanding............ 2,352,654 1,274,671
Redeemable Cumulative Compounding Junior preferred stock, $0.001 par value; 12%
dividend rate per annum, 33,000 shares authorized, issued and outstanding............... 31,533,910 26,808,053
Class A common stock, $0.001 par value; one vote per share; 150,000,000 shares
authorized, 26,226,826 and 26,042,561 shares issued and outstanding in 1995 and 1994,
respectively.......................................................................... 26,227 26,042
Class B common stock, $0.001 par value; ten votes per share; 35,000,000 shares
authorized and 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; no
shares issued and outstanding......................................................... -- --
Class C common stock warrants........................................................... 5,338,952 5,338,952
Stock subscription notes receivable..................................................... (115,714) (77,666)
Additional paid-in capital.............................................................. 34,342,086 20,647,647
Deferred option plan compensation....................................................... (1,384,267) --
Accumulated deficit..................................................................... (55,694,393) (8,923,897)
Commitments and contingencies (Note 17)
------------ ------------
Total liabilities, redeemable securities and common stockholders' equity........ $293,832,077 $152,670,381
============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-3
55
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ----------- ------------
Revenues:
Local and national advertising...................... $ 94,653,514 $56,668,983 $ 29,405,559
Retail and other.................................... 5,352,044 2,779,215 1,655,155
Trade and barter.................................... 3,068,354 2,619,245 1,001,317
------------ ----------- ------------
Total revenues.............................. 103,073,912 62,067,443 32,062,031
------------ ----------- ------------
Operating expenses:
Direct.............................................. 24,921,653 16,789,757 9,479,408
Programming......................................... 12,822,813 8,750,624 5,291,237
Sales and promotion................................. 9,093,769 5,753,025 3,507,480
Technical........................................... 4,955,588 2,113,117 1,543,583
General and administrative.......................... 22,138,236 11,689,343 7,323,352
Trade and barter.................................... 2,604,950 2,426,118 1,029,105
Time brokerage agreement fees....................... 993,893 503,698 698,463
Sports rights fees.................................. 2,806,121 2,379,516 --
Option plan compensation............................ 10,803,241 -- --
Program rights amortization......................... 1,765,942 820,754 --
Depreciation and amortization....................... 18,719,109 12,403,528 9,350,633
------------ ----------- ------------
Total operating expenses.................... 111,625,315 63,629,480 38,223,261
------------ ----------- ------------
Loss from operations.................................. (8,551,403) (1,562,037) (6,161,230)
Other income (expense):
Interest expense.................................... (16,302,641) (5,210,148) (2,052,406)
Interest income..................................... 1,708,942 335,438 112,719
Gain on sale of radio broadcasting station.......... -- 28,105 427,397
Other income (expense), net......................... (982,461) (33,432) (318,333)
------------ ----------- ------------
Loss before benefit (provision) for income taxes and
extraordinary item.................................. (24,127,563) (6,442,074) (7,991,853)
Benefit (provision) for income taxes.................. 1,280,000 1,680,000 (2,960,000)
------------ ----------- ------------
Loss before extraordinary item........................ (22,847,563) (4,762,074) (10,951,853)
Extraordinary item.................................... (10,625,727) -- (457,147)
------------ ----------- ------------
Net loss.............................................. (33,473,290) (4,762,074) (11,409,000)
Dividends and accretion on preferred stock and common
stock warrants...................................... (13,297,206) (3,385,456) (151,367)
------------ ----------- ------------
Net loss attributable to common stock................. $(46,770,496) $(8,147,530) $(11,560,367)
=========== ========== ===========
Per share data (Note 1):
Loss before extraordinary item...................... $ (0.66) $ (0.14) $ (0.35)
Extraordinary item.................................. (0.31) -- (0.01)
------------ ----------- ------------
Net loss............................................ (0.97) (0.14) (0.36)
Dividends and accretion on preferred stock and
common stock warrants............................ (0.39) (0.10) (0.01)
------------ ----------- ------------
Net loss attributable to common stock................. $ (1.36) $ (0.24) $ (0.37)
============ =========== ============
Weighted average shares outstanding -- primary &
fully diluted......................................... 34,429,517 33,430,116 31,581,948
============ =========== ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-4
56
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
CLASS C STOCK
COMMON STOCK COMMON SUBSCRIPTION ADDITIONAL DEFERRED
--------------------------- COMMON STOCK NOTES PAID-IN OPTION PLAN ACCUMULATED
CLASS A CLASS B CLASS C STOCK WARRANTS RECEIVABLE CAPITAL COMPENSATION DEFICIT
------- ------- ------- ------ ---------- ------------ ----------- ------------ ------------
Balance at
December 31,
1992............ $1 $23,611,002 $ (9,283,047)
Stockholder
capital
contributions... 13,351,668
Net loss prior to
reorganization
on December 15,
1993............ (10,784,000)
Reclassification
of undistributed
deficit prior to
reorganization... (20,067,047) 20,067,047
Dividends on
redeemable
preferred
stock........... (97,808)
Accretion on
Senior
redeemable
preferred
stock........... (15,144)
Accretion on Class
A & B common
stock
warrants........ (38,415)
Net loss
subsequent to
reorganization
on December 15,
1993............ (625,000)
------- ------- ------- ------ ---------- ------------ ----------- ------------ ------------
Balance at
December 31,
1993............ -- -- -- 1 -- -- 16,895,623 -- (776,367)
Recapitalization
of common
stock........... $15,791 $ 5,264 (1) (21,054)
Stock issued for
ANG
acquisition..... 1,570 277 $ (77,666) 3,784,530
Net proceeds from
issuance of
common stock
warrants........ $5,338,952
Dividends on
redeemable
preferred
stock........... (2,216,137)
Accretion on
Senior
redeemable
preferred
stock........... (325,147)
Accretion on
Series B
preferred
stock........... (7,968)
Accretion on
Junior preferred
stock........... (15,648)
Accretion on Class
A & B common
stock
warrants........ (820,556)
Net loss.......... (4,762,074)
Stock dividend.... 8,681 2,771 (11,452)
------- ------- ------- ------ ---------- ------------ ----------- ------------ ------------
Balance at
December 31,
1994............ 26,042 8,312 -- -- 5,338,952 (77,666) 20,647,647 -- (8,923,897)
Stock issued for
Cookeville
acquisition..... 95 1,199,905
Deferred option
plan
compensation.... 12,187,508 $(12,187,508)
Option plan
compensation.... 10,803,241
Stock options
exercised....... 90 307,026
Increase in stock
subscription
receivable...... (48,029)
Repayments of
stock
subscription
receivable...... 9,981
Dividends on
redeemable
preferred
stock........... (7,275,516)
Accretion on
Senior
redeemable
preferred
stock........... (332,156)
Accretion on
Series B
preferred
stock........... (325,208)
Accretion on
Junior preferred
stock........... (634,988)
Accretion on Class
A & B common
stock
warrants........ (4,729,338)
Net loss.......... (33,473,290)
------- ------- ------- ------ ---------- ------------ ----------- ------------ ------------
Balance at
December 31,
1995............ $26,227 $ 8,312 $ -- $ -- $5,338,952 $ (115,714) $34,342,086 $ (1,384,267) $(55,694,393)
====== ======= ======= ====== ========== ============ =========== ============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-5
57
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
------------- ------------ ------------
Cash flows from operating activities:
Net loss................................................................ $ (33,473,290) $ (4,762,074) $(11,409,000)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization......................................... 18,719,109 12,403,528 9,350,633
Option plan compensation.............................................. 10,803,241 -- --
Program rights amortization........................................... 1,765,942 820,754 --
Provision for doubtful accounts....................................... 1,098,181 344,706 89,681
Deferred income taxes................................................. (1,280,000) (1,680,000) 2,960,000
(Gain) loss on sale of assets......................................... 145,857 (28,105) (427,397)
Loss on extinguishment of long-term debt.............................. 10,625,727 -- 457,147
Decrease (increase) in accounts receivable............................ (5,255,398) (1,683,664) 470,942
Decrease in prepaid expenses and other current assets................. 608,591 234,301 1,308,404
Decrease (increase) in intangible assets.............................. (1,200,000) -- 175,452
Decrease (increase) in other assets................................... 1,564,822 (392,504) (20,731)
(Decrease) increase in accounts payable and other accrued
liabilities......................................................... 131,529 (313,225) (138,259)
Increase in accrued interest.......................................... 6,707,814 135,683 28,768
------------- ------------ ------------
Net cash provided by operating activities......................... 10,962,125 5,079,400 2,845,640
------------- ------------ ------------
Cash flows from investing activities:
Acquisitions of broadcasting properties................................. (58,510,509) (56,143,061) (32,145,000)
Increase in investments in broadcast properties......................... (19,442,030) -- (1,750,000)
Deposits on broadcasting properties..................................... (2,381,619) (4,291,241) --
Purchases of property and equipment..................................... (25,016,816) (5,916,512) (1,962,553)
Deposits on buildings and equipment..................................... (735,074) (642,890) --
Proceeds from sale of radio broadcasting station........................ -- 200,000 5,010,000
Proceeds from sale of fixed assets...................................... 466,820 -- --
------------- ------------ ------------
Net cash used in investing activities............................. (105,619,228) (66,793,704) (30,847,553)
------------- ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt, net....................................... 327,539,000 50,000,000 38,100,000
Payments of long-term debt.............................................. (169,722,340) (401,500) (27,001,362)
Accretion of discount on senior subordinated notes...................... 65,911 -- --
Payments of loan origination costs...................................... (15,896,473) (5,030,352) (3,730,836)
Payments for program rights............................................. (1,098,731) (335,646) --
Net proceeds from issuance of redeemable preferred stock................ -- 26,694,761 11,521,955
Net proceeds from issuance of common stock warrants..................... -- 5,338,952 2,125,218
Net stockholder capital contributions................................... -- -- 13,351,668
Proceeds from exercise of common stock options.......................... 307,116 -- --
Increase in stock subscription notes receivable......................... (48,029) -- --
Repayments of stock subscription notes receivable....................... 9,981 -- - --
------------- ------------ ------------
Net cash provided by financing activities......................... 141,156,435 76,266,215 34,366,643
------------- ------------ ------------
Increase in cash and cash equivalents..................................... 46,499,332 14,551,911 6,364,730
Cash and cash equivalents at beginning of year............................ 21,571,658 7,019,747 655,017
------------- ------------ ------------
Cash and cash equivalents at end of year.................................. $ 68,070,990 $ 21,571,658 $ 7,019,747
============= ============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest.................................................. $ 8,292,274 $ 4,765,800 $ 2,321,400
============= ============ ============
Cash paid for income taxes.............................................. $ -- $ -- $ --
============= ============ ============
Non-cash operating and financing activities:
Issuance of common stock in connection with the merger with ANG......... $ -- $ 3,786,377 $ --
============= ============ ============
Issuance of common stock for Cookeville acquisition..................... $ 1,200,000 $ -- $ --
============= ============ ============
Dividends accreted on redeemable preferred stock........................ $ 7,275,516 $ 2,216,137 $ 97,808
============= ============ ============
Accretion on redeemable securities...................................... $ 6,021,690 $ 1,169,319 $ 53,559
============= ============ ============
Issuance of Series B preferred stock.................................... $ -- $ 1,248,209 $ --
============= ============ ============
Trade and barter revenue................................................ $ 3,068,354 $ 2,619,245 $ 1,001,317
============= ============ ============
Trade and barter expense................................................ $ 2,604,950 $ 2,426,118 $ 1,029,105
============= ============ ============
The accompanying Notes to Consolidated Financial Statements
are an integral part of the consolidated financial statements.
F-6
58
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Paxson Communications Corporation (the "Company"), a Delaware corporation,
was organized in December 1993 for the purpose of owning and operating radio and
television broadcasting stations and networks. In January 1995, the Company
began operating its Infomall Television Network (the "Infomall TV Network" or
"inTV"). The radio broadcasting activities were previously operated by
businesses under common control of Mr. Lowell W. Paxson which were reorganized
into the Company on December 15, 1993, in exchange for Company common stock. The
reorganization was accounted for in a manner similar to the pooling of interests
accounting method which included the operating results prior to December 15,
1993 because the transactions took place among entities under common control.
On April 14, 1994, the Company acquired 68.1% of the common voting stock of
The American Network Group, Inc. ("ANG"), a Nasdaq Small-Cap Market traded
company. The Company has consolidated the financial results of ANG since that
time. On November 4, 1994, ANG stockholders approved the merger of ANG into the
Company through an exchange of common stock, which resulted in the Company's
Class A common stock becoming publicly-held. In connection with the merger with
ANG, the Company amended its capital structure to provide two classes of common
voting stock, Class A common stock and Class B common stock. The per share pro
forma effect of the merger and recapitalization has been presented on the
Company's statement of operations for the two years ended December 31, 1994
based on the weighted average common shares outstanding (Note 15).
Operations
The Company operates three business segments: (1) the Infomall TV Network
is a nationwide network of owned, operated and affiliated television stations
dedicated to the airing of long form paid programming, consisting primarily of
infomercials; (2) Paxson Radio consists of radio broadcasting stations, radio
news and sports networks and billboard operations; and (3) Paxson
Network-Affiliated Television includes network-affiliated television
broadcasting stations in West Palm Beach, Florida. See Note 18 for a listing of
stations which the Company began operating subsequent to year end. At December
31, 1995, operations were comprised of the following stations:
INFOMALL TV NETWORK
COMMENCEMENT
OF
TV MARKET SERVED(1) STATION OPERATIONS OWNERSHIP
------------------------- -------- ------------ ---------------
Owned or TBA Operated:
Los Angeles, CA........ KZKI-TV 1995 Owned
Philadelphia, PA....... WTGI-TV 1995 Owned
San Francisco, CA...... KLXV-TV 1995 Owned
Boston, MA............. WGOT-TV 1995 Owned
Washington, D.C........ WYVN-TV 1996 Owned
Atlanta, GA............ WTLK-TV 1994 Owned
Houston, TX............ KTFH-TV 1995 Owned
Cleveland, OH.......... WOAC-TV 1995 Time Brokerage
Tampa, FL.............. WFCT-TV 1994 Time Brokerage
Miami, FL.............. WCTD-TV 1994 Time Brokerage
Denver, CO............. KUBD-TV 1995 Time Brokerage
Orlando, FL............ WIRB-TV 1994 Time Brokerage
Hartford, CT........... WTWS-TV 1995 Owned
Dayton, OH............. WTJC-TV 1995 Time Brokerage
F-7
59
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFOMALL TV NETWORK
COMMENCEMENT
OF
TV MARKET SERVED(1) STATION OPERATIONS OWNERSHIP
------------------------- -------- ------------ ---------------
Affiliated:
Sacramento, CA......... KCMY-TV 1995 Affiliate
Norfolk, VA............ WJCB-TV 1995 Affiliate
PAXSON RADIO
RADIO MARKET SERVED(1) FORMAT
------------------------- ---------
Miami, FL................ WLVE-FM Smooth Jazz 1993 Owned
WZTA-FM Modern Rock 1992 Owned
WINZ-AM News/Sports 1992 Owned
WFTL-AM Talk/Sports 1995 Owned
Tampa, FL................ WHPT-FM Rock AC 1991 Owned
WSJT-FM Smooth Jazz 1995 Owned
WHNZ-AM News/Sports 1991 Owned
WNZE-AM Sports 1994 Owned
Orlando, FL.............. WMGF-FM Soft AC 1992 Owned
WJRR-FM Modern Rock 1992 Owned
WWNZ-AM News 1992 Owned
WWZN-AM Sports 1994 Owned
Jacksonville, FL......... WROO-FM Young Country 1991 Owned
WPLA-FM Alternative Rock 1992 Owned
WNZS-AM Sports 1993 Owned
WZNZ-AM News 1992 Owned
Cookeville, TN........... WGSQ-FM Country 1994 Owned
WPTN-AM Talk 1994 Owned
RADIO NETWORK
-------------------------
Alabama Radio Network.... News 1995 Owned
Florida Radio Network.... News 1993 Owned
South Carolina Radio
Network(2)............. News 1994 Owned
Tennessee Radio
Network................ News 1994 Owned
University of Florida
Sports Network......... Sports 1994 Owned
Miami Sports Network..... Sports 1995 Owned
Penn State Sports
Network................ Sports 1994 Owned
Virginia Tech Sports
Network(2)............. Sports 1994 Owned
PAXSON NETWORK-AFFILIATED
TELEVISION
TV MARKET SERVED(1) AFFILIATION
------------------------- -----------
Owned or TBA Operated:
West Palm Beach, FL...... WPBF-TV ABC 1994 Owned
West Palm Beach, FL...... WTVX-TV Warner/UPN 1995 Time Brokerage
- ---------------
(1) Each station is licensed by the Federal Communications Commission to serve a
specific community, which is included in the listed market.
(2) The Company sold the South Carolina Radio Network in January 1996 and will
not renew the rights to Virginia Tech Sports Network which will expire in
March 1996.
F-8
60
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principles of Consolidation
The consolidated financial statements include accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances and transactions have
been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the effect of which was immaterial. At December 31, 1995,
approximately $58 million of debt securities, all classified as held to maturity
and consisting of money market accounts, commercial paper and overnight
repurchase agreements, were included in cash and cash equivalents because they
had original maturities of three months or less.
Property and Equipment
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
Broadcasting towers and equipment..................................... 6-13 years
Office furniture and equipment........................................ 6-10 years
Buildings and building improvements................................... 40 years
Leasehold improvements................................................ Term of lease
Vehicles and other.................................................... 5 years
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Intangible Assets
The excess of cost over the fair value of acquired net assets has been
capitalized as goodwill. Intangible assets are being amortized using the
straight-line method over their estimated useful lives as follows (Note 5):
FCC licenses.......................................................... 25 years
Covenants not to compete.............................................. Contract term
Favorable lease and other contracts................................... Contract term
Goodwill.............................................................. 25 years
Investments in Broadcast Properties
Investments in broadcast properties represent the Company's financing of
television and radio station acquisitions by third parties. The Company has
entered into time brokerage agreements ("TBAs") with such third parties for the
television station operations and has written options to purchase certain of the
related station assets and Federal Communications Commission ("FCC") licenses at
various amounts and terms (Notes 7 and 18).
Program Rights
The Company obtains licenses for program rights which allow the Company to
broadcast program material in accordance with contractual agreements. Pursuant
to a licensing agreement, an asset is recorded
F-9
61
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for the program rights acquired and a liability is recorded for the obligation
incurred, at the gross amount of the liability when available to air. Program
rights are amortized on a method that approximates the straight-line basis over
the related term. Program rights which will not be aired are charged to expense.
Current program rights represent programs which will be amortized during the
next year; current liabilities represent program rights which will be paid
within the next year under contractual arrangements (Note 8).
Other Assets
Loan origination costs are stated at cost and are amortized to interest
expense over the life of the loan or agreement using the effective interest
method. Escrow funds represent funds held in escrow on acquisitions pending FCC
approval. Other assets are stated at cost (Note 6).
SFAS 121 Impairment of Long-Lived Assets and Identifiable Intangibles
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of", the effect of which was immaterial. The
Company reviews long-lived assets, identifiable intangibles and goodwill and
will reserve for impairment whenever events or changes in circumstances indicate
the carrying amount of the assets may not be fully recoverable.
Minority Interest
Minority interest at December 31, 1994 represented the third party's
limited partner's interest in the radio broadcasting stations located in
Cookeville, Tennessee. The Company purchased this minority interest in 1995
(Note 2).
Stock Subscription Notes Receivable
Stock subscription notes receivable were assumed in conjunction with the
merger with ANG. Stock subscription notes receivable also include employee
receivables issued upon exercise of stock options in conjunction with the
Company's stock incentive plan (Note 12).
Revenue Recognition
Revenue is recognized as advertising air time is broadcast.
Trade and Barter Agreements
The Company enters into trade and barter agreements which give rise to
sales of advertising air time in exchange for products, services and
programming. Sales from trade and barter agreements are recognized at the fair
market value of products, services or programs received as the related
advertising air time is broadcast. Products, services and programs received are
expensed when used or when programs are broadcast. If the Company uses trade
products or services before advertising air time is provided, a trade liability
is recognized. At times, the Company trades air time for property and equipment.
Time Brokerage Agreements
The Company operates certain stations under a time brokerage agreement
("TBA") whereby the Company has agreed to purchase from the broadcast station
licensee certain broadcast time on the station and to provide programming to and
sell advertising on the station during the purchased time. Accordingly, the
Company receives all the revenue derived from the advertising sold during the
purchased time, pays certain expenses of the station and performs other
functions. The broadcast station licensee retains responsibility for
F-10
62
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ultimate control of the station in accordance with FCC policies. At December 31,
1995, the Company operated seven stations under TBAs which expire from April
1999 through October 2005.
Stock Based Compensation
The Company will adopt Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") during 1996. Upon
adoption of SFAS 123, the Company intends to retain the intrinsic value method
of accounting for stock based compensation and disclose pro forma net loss and
loss per share amounts.
Income Taxes
Provisions are made to record deferred income taxes for items reported in
different periods for financial reporting purposes than for federal and state
income tax purposes. The Company records deferred income taxes using the
liability method in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes".
Extraordinary Item
The extraordinary item for the years ended December 31, 1995 and 1993
relates to the write-off of loan origination costs associated with the
extinguishment of certain debt agreements. See a description of the tax effect
in Note 11.
Per Share Data
Per share data for the years ended December 31, 1994 and 1993 give a pro
forma effect to the Company's amended capital structure related to the merger
with ANG and the stock dividend on common shares outstanding on January 1, 1995
(Note 15). Due to net losses, the effect of stock options and warrants is anti-
dilutive and therefore these common stock equivalents are not included in the
calculation of weighted average shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the 1995 presentation.
F-11
63
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS, INVESTMENTS AND DISPOSITIONS:
Acquisitions and investments:
During 1995 and 1994, the Company acquired the assets of certain broadcast
properties. Purchases were accounted for using the purchase method of accounting
and the financial results of TBA operated stations have been included in the
Company's statement of operations since the commencement of the TBA.
Acquisitions and investments closed subsequent to December 31, 1995 are outlined
in Note 18. Acquisitions, investments and dispositions during 1995 and 1994 are
as follows:
ACQUISITION PRICE/
STATION/ INVESTMENT
ACQUISITION/TBA DATE NETWORK MARKET (1) AMOUNT(2)
- -------------------- ------------------------------------ -------------------- ------------------
Owned:
October 1995 WYVN-TV(3) Washington, D.C. $ 1,900,000
June 1995 KLXV-TV San Francisco, CA 5,000,000
June 1995 WFTL-AM Miami, FL 2,000,000
May 1995 KZKI-TV Los Angeles, CA 18,000,000
May 1995 WGOT-TV Boston, MA 3,050,000
July/March 1995 KTFH-TV Houston, TX 7,900,000
March 1995 WTWS-TV Hartford, CT 2,700,000
March/February 1995 WSJT-FM Tampa, FL 4,675,000
February 1995 WTGI-TV Philadelphia, PA 10,200,000
January 1995 Alabama Radio Network Alabama 750,000
August 1994 WNZE-AM Tampa, FL 1,100,000
December 1994 WWZN-AM Orlando, FL 1,550,000
July 1994 WPBF-TV West Palm Beach, FL 32,500,000
July/April 1994 WTLK-TV Atlanta, GA 9,500,000
April 1994 WGSQ-FM(4) Cookeville, TN --
April 1994 WPTN-AM(4) Cookeville, TN --
April 1994 Florida Sports Network(5) Florida --
April 1994 Tennessee Radio Network(5) Tennessee --
April 1994 South Carolina Radio Network(5)(6) South Carolina --
April 1994 Penn State Sports Network(5) Pennsylvania --
April 1994 Virginia Tech Sports Network(5)(6) Virginia --
April 1994 Georgia Sports Network(5) Georgia --
TBA Operated:
October 1995 WOAC-TV(7) Cleveland, OH --
October 1995 WTJC-TV(7) Dayton, OH 3,500,000
August 1995 KUBD-TV(7) Denver, CO 6,500,000
August 1995 WTVX-TV(7) West Palm Beach, FL --
December 1994 WIRB-TV Orlando, FL 3,800,000
August 1994 WFCT-TV(7) Tampa, FL 1,120,000
April 1994 WCTD-TV(7)(8) Miami, FL 3,300,000
- ---------------
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) Represents the purchase price paid by the Company for owned stations or the
initial amount of financing provided to the broadcast station licensee for
TBA operated stations with outstanding financings at December 31, 1995. The
outstanding financings at December 31, 1995 are reflected in investments in
broadcast properties (Note 7).
(3) Station is not currently on the air.
F-12
64
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) A minority interest was acquired in connection with the merger with ANG
(Note 1). The remaining interest was purchased during 1995 for
approximately $3.4 million which consisted of cash paid, stock issued and
the forgiveness of outstanding debt.
(5) Acquired in conjunction with the merger with ANG (Note 1).
(6) The Company sold the South Carolina Radio Network in January 1996 and will
not renew the rights to Virginia Tech Sports Network which will expire in
March 1996. (Note 3)
(7) The Company currently holds an option to purchase the station from the
licensee (Note 7).
(8) Investment amount reflects the price paid by the Company for fixed assets
acquired.
Dispositions:
During 1995, the Company abandoned certain ancillary operations and did not
renew the rights to the Georgia Sports Network. The Company included the results
of operations of an aggregate net loss of $799,000 in the consolidated statement
of operations for such abandoned operations. During 1994, the Company disposed
of the assets of WWZN-AM for $300,000, resulting in a gain on disposition of
approximately $28,000. During 1993, the Company disposed of the assets of
WWNZ-FM for $5,010,000, resulting in a gain on disposition of approximately
$427,000.
Pro Forma (unaudited):
The Company's results of operations for the years ended December 31, 1995
and 1994 include the results of operations for acquisitions and investments in
broadcast properties from their respective dates of commencement. The following
unaudited pro forma statement of operations data give effect to significant
business acquisitions, investments or dispositions since January 1, 1994 as if
they had occurred on January 1, 1994. In addition, depreciation and amortization
has been increased each period to reflect initial purchase price allocation on
all acquisitions and investments (whether businesses or assets), and interest
expense on associated debt financing as if such transactions and debt had
occurred on January 1, 1994.
PRO FORMA
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
(UNAUDITED) (UNAUDITED)
Revenues.......................................................... $108,106,000 $ 79,595,000
=========== ===========
Loss from operations.............................................. $ (7,612,000) $ (6,054,000)
=========== ===========
Loss before extraordinary item.................................... $(35,289,000) $(34,052,000)
=========== ===========
Net loss attributable to common stock............................. $(59,212,000) $(57,143,000)
=========== ===========
Net loss per share attributable to common stock................... $ (1.72) $ (1.71)
=========== ===========
Pro forma weighted average shares outstanding..................... 34,429,517 33,430,116
=========== ===========
3. CERTAIN TRANSACTIONS:
The Company enters into and maintains certain operating and financing
transactions with related parties as described below.
Christian Network, Inc.
The Company has entered into several agreements with The Christian Network,
Inc. and certain of its for profit subsidiaries (individually and collectively
referred to herein as "CNI"). The Christian Network, Inc. is
F-13
65
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a section 501(c)(3) not-for-profit corporation to which Mr. Paxson was a
substantial contributor and was a director.
Investment in Broadcast Properties. At December 31, 1995, the Company had
investments in broadcast properties of $16,481,345 related to the Company's
financing of certain broadcasting acquisitions for CNI. In conjunction with
these financings, the Company has obtained TBAs with these stations and has
obtained options to purchase certain of these stations (Note 7).
KLDT-TV. During 1995, in connection with CNI securing the rights to
acquire television station KLDT-TV in Dallas, Texas and, prior to such
acquisition, operate the station pursuant to a TBA, Mr. Paxson initially loaned
CNI $1,000,000 to make a deposit in respect to such acquisition and guaranteed
the obligations of CNI under the purchase agreement and the TBA. On January 9,
1996, the Company purchased such note from Mr. Paxson at its face value.
CNI Agreement. The Company and CNI entered into an agreement in May 1994
(the "CNI Agreement") under which the Company agreed that, if the tax exempt
status of CNI were jeopardized by virtue of its relationships with the Company
and its subsidiaries, the Company would take certain actions to try and ensure
that CNI's tax exempt status would no longer be so jeopardized. Such steps could
include, but not be limited to, rescission of one or more transactions or
payment of additional funds by the Company. The Company believes that all of its
agreements with CNI have been on terms at least as favorable to CNI as it would
obtain in arm's length transactions. The Company intends any future agreements
with CNI to be at least as favorable to CNI as CNI would obtain in arm's length
transactions. Accordingly, if the Company's activities with CNI are consistent
with the terms governing their relationship, the Company believes that it will
not be required to take any actions under the CNI Agreement. However, there can
be no assurance that the Company will not be required to take any actions under
the CNI Agreement at a material cost to the Company.
WFCT-TV Transactions. On December 17, 1993, Bradenton Broadcast
Television, Ltd. ("BBTC") entered into an agreement whereby CNI would make
available to BBTC up to $3,120,000 for certain expenses in connection with the
redemption of a limited partnership interest in BBTC and the construction of
television station WFCT-TV, Bradenton, Florida (the "BBTC Loan Agreement"). In
connection with the loan, BBTC granted to CNI an irrevocable, exclusive option
to purchase the assets owned by BBTC that are used or useful in the construction
or operation of WFCT-TV, including the license issued by the FCC for WFCT-TV,
subject to the satisfaction of certain conditions and the receipt of necessary
regulatory approvals. CNI's option may be exercised, subject to the prior
approval of the FCC, at any time during the ten year period beginning on the
first anniversary of the completion of construction of WFCT-TV. The price
payable to BBTC upon exercise of the option is $91,000 in cash and the
forgiveness of all outstanding indebtedness under the loan of $1,120,000.
WFCT-TV commenced broadcasting operations on August 1, 1994. The Company leases
certain broadcasting assets to BBTC for fees of $60,000 per annum. Additionally,
the Company entered into a partial TBA with BBTC and CNI, whereby the Company
purchases up to twelve hours per day of broadcasting time from BBTC for a
monthly fee of approximately $3,500. In connection with the foregoing
transactions, Mr. Paxson agreed to lend CNI up to $3,120,000 to fund the loan to
BBTC. On June 15, 1994, CNI and BBTC revised the BBTC Loan Agreement to reduce
the maximum amount of the loan from $3,120,000 to $1,400,000, and to provide
that BBTC lease rather than purchase the equipment and related tangible personal
property required to construct WFCT-TV from the Company. Mr. Paxson assigned his
rights and interests in the CNI loan to the Company in the amount of $1,120,000
(representing the then outstanding principal balance owed by CNI), and CNI
agreed that the maximum principal amount of the loan would be reduced from
$3,120,000 to $1,400,000. On June 15, 1994, CNI assigned to the Company the
option to acquire the WFCT-TV assets from CNI for $191,000 after CNI exercises
its option to purchase such assets from BBTC. On June 15, 1994, CNI assigned to
the Company its rights and interests under the TBA to provide up to twelve hours
per day of programming on WFCT-TV.
F-14
66
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Worship Channel Studio. On January 1, 1993, Mr. Paxson agreed to lend CNI
up to $2,500,000 to fund CNI's acquisition of certain equipment and related
tangible property used in the production of television programming. Mr. Paxson
assigned his rights and interests under the loan to the Company, in
consideration for the Company's promissory note in the principal amount of
$2,500,000, which the Company subsequently repaid. In accordance with the terms
of an agreement dated as of June 15, 1994, CNI sold to the Company CNI's
production assets in consideration for the cancellation of CNI's $2,500,000
promissory note held by the Company. CNI and the Company have also contracted,
effective as of August 1, 1994, for Paxson-66 to lease CNI's television
production and distribution facility to the Company for the purpose of producing
television programming for the Infomall TV Network.
Airplane
During 1994, the Company purchased an aircraft for $250,000 from a company
controlled by Mr. Paxson. The Company believes that the terms of such
transaction were at least as favorable as they would have been if obtained in an
arm's length transaction with an unaffiliated third party.
Whitehead Media, Inc.
The Company initially financed the acquisition by Whitehead Media, Inc.
("Whitehead Media") of WTVX-TV and WOAC-TV. Whitehead Media subsequently
obtained financing from Banque Paribas, an affiliate of a holder of the
Company's Junior preferred stock, the proceeds of which were used to repay the
debt owed by Whitehead Media to the Company and will be used to fund Whitehead
Media's acquisition of WNGM-TV. The third party financing provided to Whitehead
Media is unconditionally guaranteed by Mr. Paxson and Second Crystal Diamond,
Limited Partnership ("Second Crystal") an affiliate controlled by Mr. Paxson and
through which he beneficially owns and controls a substantial portion of the
Company's Class A common stock and Class B common stock. Such guarantees are
secured by a pledge of a significant portion of Second Crystal's Class A common
stock. The Company is permitted to operate stations WTVX-TV and WOAC-TV pursuant
to TBAs and as a result of the third party financing to Whitehead Media has an
option to purchase each of such stations, which options to purchase would
otherwise be prohibited under FCC rules and regulations because each of such
stations serves a market in which the Company has or will own another television
station.
Home Shopping Network, Inc.
In connection with the departure in 1990 of Mr. Paxson from Home Shopping
Network, Inc. ("HSN"), he executed a consulting agreement containing various
restrictions upon activities by him that might be considered competitive with
HSN, including activities as an investor in competitive and other enterprises.
Although Mr. Paxson's consulting services to HSN terminated in 1994, certain of
the restrictions survived. As the Company's business evolved, the possible
effect of the consulting agreement upon Mr. Paxson's role as the Company's chief
executive officer and controlling stockholder became unclear. The Company
considered it advisable to eliminate doubts concerning, among other matters, Mr.
Paxson's role as a chief executive officer and controlling stockholder as the
Company's business developed, and the scope of HSN's rights under the consulting
agreement. Accordingly, on August 25, 1995, the Company and Mr. Paxson agreed
with HSN to, among other things, terminate HSN's rights under the consulting
agreement in consideration of a payment to HSN by the Company of $1,200,000. In
conjunction with this transaction Mr. Paxson advanced $1,200,000 to the Company
in the form of a note bearing interest at 6%. The Company repaid the note in
October 1995. Shortly before the transaction with HSN, Mr. Paxson agreed with
the Company that upon termination of HSN's rights under the consulting
agreement, he will not compete with the Company for a period ending on
F-15
67
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999 (the date that the HSN consulting agreement would have
otherwise terminated) or the date of a change in control (as defined with
respect thereto) of the Company. An intangible asset has been recorded for
$1,200,000 which will be amortized through maturity of the agreement.
Todd Communications, Inc.
In 1993, Mr. Paxson contributed to the Company, a demand note receivable in
the amount of $1,750,000 from Todd Communications, Inc. ("Todd Communications"),
a company which owns WFSJ-FM (St. Augustine, Florida) and is beneficially owned
by a member of Mr. Paxson's family. The note receivable accrues interest at the
short-term annual applicable federal rate prescribed by the Internal Revenue
Service with the balance of principal and interest due upon demand. Interest
income recognized related to the note aggregated approximately $110,000, $70,900
and $6,560 for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company also performs limited sales support and administrative functions for
Todd Communications under a joint sales agreement. Todd Communications is billed
for efforts expended on terms comparable to those generally available from
unaffiliated third parties (Note 18).
World Travelers Network
On January 1, 1996, Mr. Paxson purchased the assets of the World Travelers
Network from the Company at their net book value of approximately $70,000.
South Carolina Radio Network
Effective January 1, 1996, Mr. Paxson purchased the assets of the South
Carolina Radio Network from the Company at their net book value of approximately
$45,000. Mr. Paxson subsequently sold such assets to a third party for $150,000,
with the excess over $45,000 being paid to the Company in accordance with the
parties' agreement.
Board of Directors
The Company has entered into transactions with certain members of its Board
of Directors.
Communications Equity Associates, Inc. ("CEA"). The Chairman of the Board
and Chief Executive Officer of CEA has been a director of the Company since
February 1995. The Company engaged CEA as a financial advisor in connection with
certain private placements and various other lending relationships. Fees paid to
CEA for these services totaled approximately $1,300,000, $1,855,000 and
$1,060,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Stockholder Agreements. Certain redeemable preferred stock and common
stock warrants are held by entities controlled by Mr. Paxson and entities which
are affiliates of two directors of the Company (Notes 13 and 14).
S. William Scott. S. William Scott, a director of the Company since
February 1995, has an arrangement with the Company to provide consulting
services to the Company with respect to the development of its news programming
for its radio and television broadcast business and its radio network business.
Mr. Scott was paid approximately $80,000, $84,000 and $84,000 for such services
during the years ended December 31, 1995, 1994 and 1993, respectively.
Additionally, Mr. Scott received benefits under the Company's health and
benefits plan and was granted options to purchase 10,000 shares of stock under
the Company's stock incentive plan.
F-16
68
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
Broadcasting towers and equipment......................... $ 70,179,364 $ 39,445,071
Office furniture and equipment............................ 8,370,232 5,075,412
Buildings and leasehold improvements...................... 9,447,395 4,302,476
Land and land improvements................................ 7,418,039 3,142,532
Vehicles and other........................................ 4,851,576 3,877,851
------------ ------------
100,266,606 55,843,342
Accumulated depreciation.................................. (20,407,526) (10,492,912)
------------ ------------
Property and equipment, net............................... $ 79,859,080 $ 45,350,430
============ ============
Depreciation expense aggregated $10,083,135, $5,433,038 and $2,804,157 for
the years ended December 31, 1995, 1994 and 1993, respectively.
5. INTANGIBLE ASSETS:
Intangible assets consist of the following:
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
FCC licenses.............................................. $ 76,313,074 $ 42,332,125
Covenants not to compete.................................. 14,502,375 11,811,375
Favorable lease and other contracts....................... 6,801,433 6,514,507
Goodwill.................................................. 9,444,500 7,819,778
------------ ------------
107,061,382 68,477,785
Accumulated amortization.................................. (22,743,235) (15,126,818)
------------ ------------
Intangible assets, net.................................... $ 84,318,147 $ 53,350,967
============ ============
Amortization expense related to intangible assets aggregated $7,621,848,
$5,940,575 and $5,927,744 for the years ended December 31, 1995, 1994 and 1993,
respectively.
6. OTHER ASSETS:
Other assets consist of the following:
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
Loan origination costs...................................... $10,722,939 $ 7,739,288
Escrow funds for station acquisitions....................... 6,672,860 4,291,241
Deposits on building and equipment.......................... 1,377,964 642,890
Organization costs.......................................... 768,307 407,672
Other assets................................................ 917,361 1,708,638
----------- -----------
20,459,431 14,789,729
Accumulated amortization.................................... (562,737) (1,711,383)
----------- -----------
Other assets, net........................................... $19,896,694 $13,078,346
=========== ===========
F-17
69
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization expense related to other assets aggregated $1,014,126,
$1,029,915 and $618,732 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Loan origination costs of $10,625,727 associated with debt extinguished
through proceeds from the senior subordinated notes are reflected in the 1995
statement of operations as an extraordinary item.
7. INVESTMENTS IN BROADCAST PROPERTIES:
Investments in broadcast properties represent the Company's financing of
broadcasting asset acquisitions by third party licensees, including CNI and Todd
Communications (Note 3). In conjunction with the financings, the Company has
obtained the right to provide programming for the related stations pursuant to
TBAs and has obtained options to purchase certain stations. Interest rates range
from LIBOR plus 1/2% (6.18% at December 31, 1995) to 12 1/8% with loans
maturing in five to seven years. Unpaid principal balances will be applied
toward the acquisition cost upon exercise of purchase options. The Company
records interest on certain investments as received. Investments in broadcast
properties at December 31, 1995 consist of:
INVESTMENT OPTION OPTION
INVESTMENT TO/STATION AMOUNT EXPIRATION PRICE
----------------------------------------------- ----------- ------------- --------
CNI: $16,481,345
WTJC-TV(1)(*)................................ October 2005 $100,000
WFCT-TV(1)(*)................................ December 2003 191,000
WCTD-TV(1)(2)(*)............................. April 1999 100,000
KUBD-TV(1)(*)................................ August 2005 100,000
WCEE-TV(1)(3)(*)............................. January 2006 100,000
WIRB-TV...................................... -- --
WHITEHEAD MEDIA:
WOAC-TV(4)................................... December 2000 1,000
WTVX-TV(4)................................... December 2000 1,000
TODD COMMUNICATIONS: 1,750,000
WFSJ-FM...................................... -- --
OTHER: 2,960,685
WRMY-TV(5)................................... -- --
WHBI-TV(6)................................... -- --
WACC-AM(7)................................... -- --
-----------
$21,192,030
===========
- ---------------
(1) Upon exercise of the option, the Company will apply the unpaid principal
balance towards the acquisition price.
(2) Upon exercise of the option, the Company will repay the remaining principal
balance on a third party note payable (Note 3).
(3) Purchase transaction consummated in 1996. Investment at December 31, 1995
represents initial advances.
(4) The Company initially financed the acquisition which was subsequently repaid
(Note 3). In addition to the option price, the Company will pay Whitehead
Media $500,000 for each station, plus the value of the station based upon
certain calculations.
(5) Investment represents financings for the construction of the station in
1996. Upon consummation of the transaction, the Company will have acquired a
40% interest in the station for $1,500,000.
(6) The station is not currently on the air. The investment relates to financed
expenditures for the build-out of the station.
(7) The Company has an option to purchase a 49% interest in exchange for its
initial advance to this station.
(*) The Company intends to exercise these options which became permissible with
the recent enactment of the Telecommunications Act of 1996.
F-18
70
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PROGRAM RIGHTS:
Program rights relate to the broadcast operations of Paxson
Network-Affiliated Television stations as follows:
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
Program rights.............................................. $ 4,290,715 $ 3,045,642
Accumulated amortization.................................... (2,493,357) (820,754)
----------- -----------
1,797,358 2,224,888
Less current program rights................................. (1,412,544) (1,980,000)
----------- -----------
Program Rights, net......................................... $ 384,814 $ 244,888
=========== ===========
Program rights amortization expense aggregated $1,765,942, $820,754 and $0
for the years ended December 31, 1995, 1994 and 1993, respectively.
Program rights payable represent the obligation incurred to secure the
right to broadcast program material in accordance with related contractual
agreements. Future minimum annual payments under these contractual agreements as
of December 31, 1995, are as follows:
BROADCAST RIGHTS BARTER RIGHTS TOTAL
PAYMENTS EXPIRATION RIGHTS
---------------- ------------- ----------
1996............................................ $1,139,402 $ 310,200 $1,449,602
1997............................................ 235,853 -- 235,853
1998............................................ 196,897 -- 196,897
---------- --------- ----------
$1,572,152 $ 310,200 $1,882,352
========== ========= ==========
9. LONG-TERM DEBT:
Long-term debt consists of the following:
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
Revolving credit loans, total commitment of $150,000,000,
interest at LIBOR plus 2.75%, extinguished in September
1995...................................................... $ -- $82,000,000
Revolving credit facility, total commitment of $100,000,000,
interest at LIBOR plus 3.25% (8.93% at December 31,
1995)..................................................... 10,000,000 --
Mortgage note payable, $200,055 principal, interest at 10%,
principal and interest payment of $3,000 due monthly
through April 1999, remaining balance due April 1999...... 184,705 200,055
Mortgage note payable, $825,000 principal, interest at
8.83%, principal and interest payment of $8,284 due
monthly from June 1995 to May 2010........................ 812,083 --
F-19
71
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
Notes payable, $2,155,000 aggregate principal, interest at
8% to 9.325%, aggregate principal and interest payments of
$41,646 due monthly, maturing at varying dates through
April 2001, secured by purchased assets................... $ 1,917,826 --
Mortgage note payable, $211,000 principal, interest at
9.75%, extinguished in August 1995........................ -- $ 206,902
----------- -----------
12,914,614 82,406,957
Less current portion........................................ (430,590) (6,393,415)
----------- -----------
$12,484,024 $76,013,542
=========== ===========
In September 1995, the Company extinguished its $150,000,000 revolving
credit agreement utilizing proceeds from the issuance of senior subordinated
notes. Additionally during 1995, the Company executed and subsequently
extinguished a $75,000,000 revolving credit agreement utilizing proceeds from
the issuance of senior subordinated notes (Note 10).
On December 19, 1995, the Company executed a $100,000,000 senior secured
revolving credit facility. The aggregate revolving commitment under the credit
facility will decrease by $10 million on December 31, 1997 and by $3.75 million
to $7.5 million each subsequent quarter thereafter until the termination of the
credit facility on June 30, 2002. Borrowings under the revolving credit facility
will bear interest at a rate equal to, at the option of the Company, either (i)
the base rate (which is defined as the higher of 1/2% plus the Federal Funds
rate or the prime rate most recently announced by the agent under the credit
facility) or (ii) LIBOR, in each case plus an applicable margin determined by
reference to the ratio of total debt to cash flow of the Company. Interest on
the current amounts drawn under the facility accrues at an initial rate of LIBOR
plus 3.25%. This revolving credit facility is secured by substantially all of
the Company's assets (as well as a negative pledge on all real property
interests) and subsidiary guarantees.
The reducing revolving credit facility contains a number of covenants that
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, make investments, pay dividends or make other
restricted payments, consummate certain asset sales, consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company. Prior to making any advance
under the new credit facility, the Company will be required to be in compliance
with all financial and operating covenants. Certain acquisitions to be funded
under the new credit facility are expected to require approval by 66 2/3% of the
lenders thereunder. The lenders under the new credit facility will be paid a
commitment fee at the rate of 0.5% per year on unused commitments, payable
quarterly.
Aggregate maturities of long-term debt at December 31, 1995 are as follows:
1996........................................................ $ 430,590
1997........................................................ 482,952
1998........................................................ 503,993
1999........................................................ 636,785
2000........................................................ 220,372
Thereafter.................................................. 10,639,922
-----------
$12,914,614
===========
F-20
72
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SENIOR SUBORDINATED NOTES:
On September 28, 1995, the Company issued $230,000,000 of senior
subordinated notes (the "Notes") at a discount, netting proceeds of $227,309,000
to the Company. The Company accretes the original issue discount over the term
of the Notes using the effective interest method. At December 31, 1995, the
discount was $2,625,089. Interest on the Notes accrues at 11.625% to yield an
effective rate of 11.875%. Interest payments are payable semiannually on each
April 1 and October 1, commencing on April 1, 1996. The principal balance is due
at maturity on October 1, 2002. As part of the Note agreement, the Company filed
a registration statement relating to the Notes with the Securities and Exchange
Commission (the "SEC"), and commenced an offer to exchange the registered notes
for the Notes beginning January 24, 1996.
The Notes contain certain covenants which, among other things, restrict
additional indebtedness, payment of dividends, stock issuance of subsidiaries,
certain investments and transfers or sales of assets, and provide for the
repurchase of the Notes in the event of a change in control of the Company. The
Notes are general unsecured obligations of the Company subordinate in right of
payment to all existing and future senior indebtedness of the Company and senior
in right to all future subordinated indebtedness of the Company.
The Notes become redeemable at the option of the Company on October 1,
1999, 2000 and 2001 at a redemption price of 104%, 102% and 100%, respectively,
of the outstanding principal amount, plus accrued interest. Additionally, the
Company may redeem up to 25% of the original principal amount of the Notes with
proceeds from certain sales of Company stock or assets at any time prior to
October 1, 1998 at a redemption price of 110% of the outstanding principal
amount, plus accrued interest. There are no mandatory redemption requirements.
11. INCOME TAXES:
Prior to the reorganization and consolidation on December 15, 1993, the
Company's businesses operated in the form of partnerships and S corporations for
federal and state income tax purposes. Therefore, all income and losses prior to
that date were taxed at the partner and stockholder level and no provision for
income taxes was recorded.
As a result of the reorganization and consolidation on December 15, 1993,
the tax status of the Company changed to a taxable entity. Reflected in the 1993
tax provision for continuing operations is the cumulative difference between the
tax bases and book bases of assets and liabilities arising prior to this date.
Significant components of the (benefit) provision for income taxes are as
follows:
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
----------- ----------- ----------
Current tax expense
Federal.................................... $ -- $ -- $ --
State...................................... -- -- --
----------- ----------- ----------
Total current...................... -- -- --
----------- ----------- ----------
Deferred tax (benefit) expense
Federal.................................... (1,152,000) (1,503,200) 2,674,000
State...................................... (128,000) (176,800) 286,000
----------- ----------- ----------
Total deferred..................... (1,280,000) (1,680,000) 2,960,000
----------- ----------- ----------
Total (benefit) provision.......... $(1,280,000) $(1,680,000) $2,960,000
=========== =========== ==========
F-21
73
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and deferred tax liabilities reflect the tax effect of
the following differences between financial statement carrying amounts and tax
bases of assets and liabilities:
DECEMBER 31,
----------------------------
1995 1994
------------ -----------
Deferred tax assets:
Allowance for doubtful accounts........................ $ 385,000 $ 194,940
Net operating loss carryforwards....................... 13,599,000 4,126,507
Deferred compensation.................................. 3,725,000 --
------------ -----------
17,709,000 4,321,447
Deferred tax asset valuation allowance for net
operating loss carryforwards and deferred
compensation........................................ (15,009,000) (4,126,507)
------------ -----------
Deferred tax assets, net............................... 2,700,000 194,940
Deferred tax liabilities:
Tax over book depreciation and amortization............ (2,700,000) (1,474,940)
------------ -----------
Total.......................................... $ -- $(1,280,000)
============ ===========
A valuation allowance has been provided when management believes it is more
likely than not that a portion of the deferred tax asset will not be realized. A
portion of the net operating losses were acquired in the acquisition of ANG.
Future recognition of the benefit from these acquired losses will be applied
first to reduce goodwill related to the acquisition, then to reduce other
non-current intangible assets related to the acquisition and then to reduce
income tax expense.
The Company and its subsidiaries have filed consolidated tax returns for
all periods subsequent to December 15, 1993.
A pro forma provision for income taxes to reflect the effect on the
statement of operations for the year ended December 31, 1993 had the Company's
business operations filed a consolidated income tax return for 1993, prior to
December 15, 1993, would result in a tax benefit of approximately $3,159,000 for
net operating losses and a corresponding valuation allowance resulting in no pro
forma provision for income taxes.
The reconciliation of income tax benefit attributable to continuing
operations, computed at U.S. Federal Statutory tax rates, to the provision for
income taxes is:
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ----------- -----------
Tax benefit at U.S. Federal Statutory tax
rates........................................ $(11,417,000) $(2,190,305) $(2,717,230)
State income tax benefit, net of federal tax... (1,343,000) (257,682) (290,104)
Tax benefits attributable to losses recognized
for book purposes in periods that the Company
operated as non-taxable entities............. -- -- 3,397,783
Deferred taxes attributable to income
recognized on accrual basis for book
purposes, in period that the Company
operated as non-taxable entities, but
recognized for tax purposes after
reorganization............................... -- -- 2,334,364
Non-deductible items........................... 597,000 83,000 --
Valuation allowance............................ 10,883,000 684,987 235,187
------------ ----------- -----------
(Benefit) provision for income taxes........... $ (1,280,000) $(1,680,000) $ 2,960,000
============ =========== ===========
F-22
74
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The extraordinary items relate to debt retirements. The 1993 retirements
occurred in the period before the Company reorganized on December 15, 1993, were
taxable at the stockholder level and, accordingly, are not tax affected. No tax
effect has been included related to the 1995 debt retirement as the
extraordinary item is included in the Company's net operating loss carryforward
for which a valuation allowance has been provided.
The Company has net operating loss carryforwards for income tax purposes
subject to certain carryforward limitations of approximately $35,700,000 at
December 31, 1995 expiring through 2010. A portion of the net operating losses
relate to ANG and are limited to annual utilization as a result of the change in
ownership.
12. EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS:
Savings and Profit Sharing Plan
The Company has retirement savings and cafeteria plans pursuant to Sections
401(k) and 125 of the Internal Revenue Code which cover substantially all of the
Company's employees. Employer contributions to the retirement savings plan are
discretionary. The Company elected not to make retirement savings contributions
for the three plan years ended December 31, 1995. Under the cafeteria plan,
employees may elect to participate in health, dental, life and disability
insurance benefit plans funded through employee payroll deductions.
Stock Incentive Plan
In November 1994, the Company established the Stock Incentive Plan (the
"Plan") to provide incentives to officers and other employees through the
issuance of options and restricted stock. The number of options, exercise prices
and exercise dates granted under the Plan are at the discretion of the Company's
Compensation Committee and may be in the form of either incentive or
non-qualified stock options or awards of restricted stock. At December 31, 1995,
301,370 shares of Class A common stock were available for issuance under the
Plan. When options are granted, a non-cash charge representing the difference
between the exercise price and the fair market value of the vested options on
the date of grant is recorded as option plan compensation expense. For the year
ended December 31, 1995, the Company recognized approximately $10,800,000 of
option plan compensation expense and expects to recognize approximately an
additional $1,400,000 of expense over the next five years as such options vest.
At December 31, 1995, 49 employees had been granted options under the Plan
pursuant to a five-year vesting cycle commencing retroactively to the employee's
date of employment or exercisable in full at the date of grant. At December 31,
1995, approximately 1,100,000 shares were vested and fully exercisable. In
January 1996, 10,000 options were granted at $3.42 per option and 8,928 were
granted at $0.01 per option. All options granted expire over a ten year period.
Transactions under the Plan are as follows:
NUMBER OF PRICE PER
OPTIONS OPTION
--------- ---------
Outstanding, December 31, 1994........................................... -- --
Granted.................................................................. 1,847,005 $3.42
Forfeited................................................................ (4,800) 3.42
Exercised................................................................ (89,800) 3.42
---------
Outstanding, December 31, 1995........................................... 1,752,405
=========
Employment Agreements
Mr. Paxson is employed under an employment agreement providing for him to
be employed through December 31, 1999, unless sooner terminated. The agreement
provides that Mr. Paxson's salary will be
F-23
75
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$385,000 in 1996, $423,500 in 1997, $465,850 in 1998 and $500,000 in 1999. In
addition to his base salary, Mr. Paxson may receive an annual bonus at the
discretion and in an amount set by members of the Compensation Committee that
are not employees of the Company.
The Company has other employment agreements with individuals under which
the individuals are paid a base salary and may receive annual incentives based
on revenue amounts and stock options based on the cash flow of the stations they
manage.
13. REDEEMABLE PREFERRED STOCK:
Redeemable Senior Preferred Stock
Redeemable Senior preferred stock was originally issued with 225 detachable
redeemable common stock purchase warrants on December 15, 1993 in exchange for
$14,000,000. The holder of preferred stock is entitled to preferential
cumulative dividends at a rate of 15% of the liquidation price, per annum,
payable quarterly commencing on December 31, 1993. On January 1 of each year,
accrued and unpaid dividends are added to the liquidation price of the stock.
The holders of the Senior preferred stock, voting as a class, are entitled to
elect 25% of the Company's Board of Directors.
The Senior preferred stock is redeemable, at the option of the holder, on
or after the seventh anniversary of the issue date (December 15, 2000) at $7,000
per share plus accrued and unpaid dividends to date. The shares may also be
redeemed, at the option of the Company, on or after the fourth anniversary of
the issue date (December 15, 1997) at $7,000 per share plus accrued and unpaid
dividends to date. The shares also provide redemption features in the event of
certain changes in ownership control of the Company, bankruptcy, and twelve
month dividend arrearages after the fifth anniversary of the issue date
(December 15, 1998).
Cumulative preferred dividends in arrears aggregated $4,644,352 and
$2,197,808 at December 31, 1995 and 1994, respectively.
Redeemable Series B Preferred Stock
Redeemable Series B preferred stock was issued on December 22, 1994 as a
result of the exercise of 94.6223 detachable redeemable common stock purchase
warrants into 1,310,779 shares of Class A common stock and 436,926 shares of
Class B common stock which were then surrendered for Series B preferred stock.
The holder of Series B preferred stock is entitled to cumulative dividends at a
per annum rate of 15% per share, payable quarterly commencing on December 31,
1994. On January 1 of each year, accrued and unpaid dividends are added to the
liquidation price of the stock. Series B preferred stock ranks prior to all
classes of Junior preferred stock.
The Series B preferred shares are redeemable, at the option of the holder,
on or after December 15, 2000 at $7,000 per share plus accrued and unpaid
dividends to date. The shares may also be redeemed at the option of the Company,
on or after December 15, 1997 at $7,000 per share plus accrued and unpaid
dividends to date.
Cumulative Series B preferred dividends in arrears aggregated $771,269 and
$18,493 at December 31, 1995 and 1994, respectively.
Redeemable Junior Preferred Stock
Redeemable Junior preferred stock was issued with 4,853,628 detachable
Class C common stock warrants (after giving effect to the stock dividend during
January 1995) on December 22, 1994 in exchange for $33,000,000. The holder of
Junior preferred stock is entitled to cumulative dividends at a rate of 12% per
annum prior to the seventh anniversary of the issue date (December 22, 2001),
13% per annum from the seventh through the eighth anniversary of the issue date
(December 22, 2002), and 14% per annum after the
F-24
76
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
eighth anniversary of the issue date. Semi-annual dividend payments are required
commencing December 31, 1999.
The Junior preferred shares are redeemable, at the option of the Company,
at $1,030 plus unpaid, deferred, and accrued dividends prior to the third
anniversary of the issue date (December 22, 1997), $1,020 plus unpaid, deferred,
and accrued dividends after the third and prior to the fourth anniversary of the
issue date (December 22, 1998), and $1,000 plus unpaid, deferred, and accrued
dividends per share on or after the fourth anniversary of the issue date. A
mandatory redemption is scheduled on the ninth anniversary of the issue date
(December 22, 2003).
Cumulative Junior preferred dividends in arrears aggregated $4,188,512 and
$97,644 at December 31, 1995 and 1994, respectively.
Redemption Features of Preferred Stock
The following table presents the redemption value of the three classes of
preferred stock should each be redeemed in the indicated year, assuming no
dividends are paid prior to redemption, unless required:
SENIOR SERIES B JUNIOR
PREFERRED(1) PREFERRED(1) PREFERRED(2)
------------ ------------ ------------
1996............................................ $ $ $ 42,775,013
1997............................................ 24,657,155 7,632,502 47,939,640
1998............................................ 28,355,728 8,777,377 53,412,616
1999............................................ 32,609,087 10,093,984 59,102,420
2000............................................ 37,500,450 11,608,082 59,102,420
- ---------------
(1) Redeemable at the option of the Company on or after December 15, 1997 and at
the option of the holder on or after December 15, 2000.
(2) Mandatorily redeemable on the ninth anniversary (December 22, 2003),
redeemable by the Company prior to that date.
14. COMMON STOCK WARRANTS:
Redeemable Common Stock Warrants
In connection with the 1993 Redeemable Senior preferred stock issuance, the
Company issued 225 detachable redeemable common stock purchase warrants
entitling the holder to purchase one common share per warrant at an exercise
price of $0.01 per share. On December 22, 1994, 94.6223 of the warrants were
exercised for 1,310,779 shares of Class A common stock and 436,926 shares of
Class B common stock and were then surrendered for the redeemable Series B
preferred stock. The remaining 130.3777 redeemable common stock purchase
warrants entitle the holders to purchase 2,709,129 Class A common shares and
903,043 Class B common shares (after giving effect to the stock dividend).
The stock purchase warrants include a put provision requiring the Company
to repurchase any warrants, at the option of the holder, at the fair market
value per share on or after the seventh anniversary of issue date (December 15,
2000). At December 31, 1995, using the fair value of the underlying stock, the
stock purchase warrants would accrete to approximately $49,600,000 at their
mandatory redemption date of December 15, 2000. The holders of the warrants are
entitled to demand registration rights and piggyback registration rights
following certain offerings of shares to the public.
Class C Common Stock Warrants
In connection with the Redeemable Junior preferred stock issuance on
December 22, 1994, the Company issued 4,853,628 detachable Class C common stock
purchase warrants (after giving effect to the stock
F-25
77
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividend), entitling the holder to purchase one Class C common share per warrant
at an exercise price of $0.001 per share. Certain holders of these purchase
warrants are entitled to demand registration rights subsequent to the third
anniversary of the issuance date and piggyback registration rights six months
following certain offerings of shares to the public.
15. COMMON STOCK:
On December 15, 1993, in connection with the reorganization and
consolidation of its radio broadcasting activities, the Company authorized 1,500
shares and issued 1,200 shares of unclassified common stock.
In November 1994, in connection with the merger with ANG, the Company
amended its capital structure to provide two classes of common voting stock,
Class A common stock (45,000,000 shares authorized) and Class B common stock
(7,000,000 shares authorized). Upon consummation of the recapitalization, the
Company's unclassified common stock outstanding was converted into 15,790,974
shares of Class A common stock and 5,263,658 shares of Class B common stock.
Upon consummation of the merger, the holders of ANG common stock received Class
A common stock in exchange for ANG common stock outstanding and such shares of
Class A common stock which where exchanged for the ANG common stock were listed
on the Nasdaq Small-Cap Market.
On December 22, 1994, the Company further amended its capital structure to
increase authorized shares of Class A common stock to 150,000,000 shares and
Class B common stock to 35,000,000 shares, and to designate a third class of
non-voting common stock, Class C common stock, 12,500,000 shares authorized.
On January 1, 1995, the Company announced a stock dividend for its common
stock of an additional one-half share for each common share outstanding for
holders of record on January 1, 1995. Weighted average shares outstanding for
the years ended December 31, 1994 and 1993 give effect to the Company's amended
capital structure related to the merger with ANG, and the stock dividend on
common shares outstanding on January 1, 1995.
On July 10, 1995, the Company's Class A common stock was listed on the
American Stock Exchange under the symbol of PXN. These publicly traded shares
represent approximately 5% of Class A common shares outstanding at December 31,
1995 and less than 2% of the Company's voting power.
Voting rights allow the voting common stockholders to elect up to 75% of
the Company's Board of Directors, but do not allow the common stockholders to
change the rights and privileges of the preferred stockholders without a
majority affirmative vote of the preferred stockholders. Class A common stock
and Class B common stock will vote as a single class in all matters submitted to
a vote of the stockholders with each share of Class A common stock entitled to
one vote and each share of Class B common stock entitled to ten votes; Class C
common stock is nonvoting. Each share of Class B common stock is convertible, at
the option of its holder, into one share of Class A common stock at any time,
and under certain circumstances, Class C common stock may be converted, at the
option of the holder, into Class A common stock.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of December 31,
1995. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and current estimates of fair value may differ significantly from the
F-26
78
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts presented herein. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses. The fair values approximate the carrying values due to
their short term nature.
Investments in broadcast properties. The fair value of investments in
broadcast properties is estimated based on the net present value of the
future cash flows using a discount rate approximating current market rates.
The fair value approximates the carrying value.
Interest rate caps. The Company's interest rate cap agreements were
originally entered into to meet covenants under variable rate revolving
credit loan agreements outstanding in prior periods, which were
extinguished during the year ended December 31, 1995, and currently do not
serve as a hedging vehicle. As a result, interest rate cap agreements
previously amortized to interest expense have been marked to market and net
losses of approximately $800,000 were recognized during the year ended
December 31, 1995 which are reflected in the consolidated statement of
operations as other income (expense). The Company has interest rate cap
agreements outstanding at December 31, 1995 with notional amounts totaling
$75 million. Variable rate debt outstanding at December 31, 1995 totaled
approximately $10 million. The interest rate cap agreements have
termination dates of March 1996 through December 1997 and result in the
Company receiving payments when the LIBOR rate exceeds between 5% and
7 1/4%.
Program rights payable. The fair value of program rights payable is
estimated based on the net present value of the future cash flows using a
discount rate approximating current market rates. The fair value
approximates the carrying value.
Long-term debt and Senior subordinated notes. The fair values of
long-term debt and senior subordinated notes are estimated based on current
market rates and instruments with the same risk and maturities. The fair
values approximate the carrying value.
Mandatorily redeemable securities. Redeemable preferred stock
(Senior, Series B and Junior) is being accreted to its respective
redemption values and redeemable common stock warrants (Class A and B) are
accreted to the estimated fair value of the underlying common stock upon
redemption. Estimated fair value at redemption is reviewed on a quarterly
basis to reflect changes in the underlying stock value.
17. COMMITMENTS AND CONTINGENCIES:
The Company incurred total expenses of approximately $5,334,000, $2,406,000
and $1,218,000 for the years ended December 31, 1995, 1994 and 1993,
respectively, under operating leases for broadcasting facilities and equipment
and for employment agreements. Future minimum annual payments under these non-
cancelable operating leases and agreements, as of December 31, 1995, are as
follows:
1996........................................................ $ 5,151,000
1997........................................................ 3,941,000
1998........................................................ 3,234,000
1999........................................................ 2,189,000
2000........................................................ 1,127,000
Thereafter.................................................. 7,150,000
-----------
$22,792,000
===========
The Company has entered into commitments for radio broadcast rights related
to sporting events that are not currently available for broadcast and are
therefore not included in the financial statements. The Company
F-27
79
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
incurred total rights expenses of approximately $2,806,000 for the year ended
December 31, 1995 and had total commitments of approximately $3,503,000 as of
December 31, 1995.
As of December 31, 1995, the Company had entered into TBAs with seven FCC
licensees which require monthly TBA payments ranging from $3,500 to $35,000 and
have termination dates ranging from seven to ten years.
As of December 31, 1995, the Company has agreements to purchase significant
assets of, provide financing for, or enter into time brokerage arrangements with
the following television stations, all of which are subject to various
conditions, including the receipt of regulatory approvals:
PURCHASE PRICE/
STATION MARKET SERVED(1) INVESTMENT AMOUNT
--------------------------------------------- -------------------- -----------------
Channel 68................................... Dallas, TX $ 3,000,000
WNGM-TV(2)................................... Atlanta, GA --
WHKE-TV(2)................................... Milwaukee, WI 4,000,000
WJUE-TV(3)................................... Grand Rapids, MI 1,000,000
WHBI-TV(4)................................... West Palm Beach, FL 6,300,000
WOCD-TV...................................... Albany, NY 2,500,000
WSJN-TV(5)................................... San Juan, PR 4,000,000
- ---------------
(1) Each station is licensed by the FCC to serve a specific community which is
included in the listed market.
(2) To be operated pursuant to a TBA.
(3) 70% ownership interest to be acquired.
(4) The Company financed certain build-out costs of the station prior to
December 31, 1995 (Note 7). The Company expects to enter into an
affiliation agreement after the construction of the station.
(5) 50% ownership interest to be acquired; station signal will be satellite
simulcast in the San Juan area on WKPV-TV and WJWN-TV, stations in which
the Company is also acquiring a 50% interest. This station is currently
being operated pursuant to a TBA.
Affiliation Agreements
During 1995, the Company entered into inTV affiliation agreements with two
television licensees. Under the agreements, the licensees agree to broadcast
programming provided by inTV during certain times of the day and are compensated
based on the monthly advertising collected and the number of cable homes covered
by the licensees. inTV may terminate these agreements with a ninety day written
notice. The minimum amounts due under these agreements at December 31, 1995
totals approximately $531,000.
Legal Proceedings
The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the Company's consolidated
financial position or results of operations and cash flows.
F-28
80
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUBSEQUENT EVENTS:
Investments in Broadcast Properties:
Subsequent to year end, the Company made the following investments in
broadcast properties through the financing of third party purchases of
television broadcasting stations. Concurrent with these transactions, the
Company executed TBAs and option purchase agreements (Note 7).
STATION MARKET SERVED(1) INVESTMENT AMOUNT
- -------------------------------------------------------- -------------------- -----------------
WRMY-TV(3).............................................. Raleigh, NC $ 5,500,000
KWBF-TV(2).............................................. Phoenix, AZ 1,400,000
WCEE-TV(2).............................................. St. Louis, MO 3,200,000
- ---------------
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) The Company currently holds an option to purchase the station from the
licensee.
(3) Investment amount consists of a $1,500,000 option to purchase a 40% interest
in the station and construction financing, of which approximately $600,000
was outstanding at December 31, 1995.
Purchases:
Subsequent to December 31, 1995, the Company entered into agreements to
purchase significant assets of or acquire ownership in the following television
and radio stations, all of which are subject to various conditions, including
receipt of regulatory approvals:
PURCHASE
PRICE/
INVESTMENT
STATION MARKET SERVED(1) AMOUNT
-------------------------------------------------- -------------------- --------------
WOST-TV(2)........................................ Providence, RI $ 1,000,000
KZAR-TV(2)........................................ Salt Lake City, UT 850,000
WHUB-FM,WHUB-AM(3)................................ Cookeville, TN 3,800,000
WFSJ-FM(4)........................................ Jacksonville, FL 5,000,000
WRMA-FM,WXDJ-FM(5)................................ Miami, FL 115,000,000
Channel 23(6)..................................... New York, NY 2,000,000
Channel-38(6)..................................... New York, NY 1,500,000
- ---------------
(1) Each station is licensed by the FCC to serve a specific community, which is
included in the listed market.
(2) The Company will acquire 50% ownership interest pursuant to a management
agreement. The station is currently under construction.
(3) The Company will acquire both the FM and AM stations.
(4) The Company will issue stock valued at approximately $1.70 million, apply
the note receivable from Todd Communications and assume the Todd
Communications note payable to Mr. Paxson of approximately $1.55 million to
acquire the station.
(5) The Company will acquire these stations simultaneously for either a cash
payment of $107,500,000 or cash of $92 million and approximately 1.3 million
shares of Company common stock at the option of the seller.
(6) The Company will acquire these "low power" stations, the signals of which
will be augmented by simulcasting the signal of WHAI-TV, a station currently
owned by the Company.
Subsequent to year end the Company purchased substantially all of the
assets of WHAI-TV, New York, NY and WAKC-TV, Cleveland, OH for approximately $22
million and $18 million, respectively.
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81
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Public Offering:
The Company intends to file a registration statement with the SEC for the
proposed sale of 11.5 million shares of its Class A common stock, 10.3 million
of which will be sold by the Company. The Company intends to use the net
proceeds to acquire or enter into TBAs with television and radio stations, make
capital expenditures and for other general corporate purposes.
Telecommunications Reform:
On February 8, 1996, new telecommunications regulations were enacted into
law, allowing, among other things, an expanded number of radio and television
stations under common ownership. As a result, the Company has exercised options
to acquire television stations WFCT-TV, WCTD-TV, WTJC-TV, KUBD-TV, WCEE-TV and
KWBF-TV from CNI (Note 7).
Other Transactions
On January 9, 1996, the Company purchased from Mr. Paxson, at its face
value, a $1 million note related to CNI's acquisition of KLDT-TV.
Subsequent to December 31, 1995, the Company entered into a joint venture
agreement with L.L. Knickerbocker Company, Inc. for the purpose of identifying
products and services for long-form advertising and developing marketing
strategies and infomercials for such products and services.
Subsequent to year end, the Company entered into two inTV affiliation
agreements with station licensees. inTV may terminate these agreements with a
ninety day written notice. The minimum amounts due under these agreements at
December 31, 1995 totals approximately $380,000.
Subsequent to December 31, 1995, the Company entered into a limited
partnership agreement as a general partner for the Bobcats, an Arena football
franchise in South Florida. Additionally, Mr. Paxson acquired a portion of the
Company's limited partnership interest in the same partnership.
19. SEGMENT DATA:
The Company operates three business segments: (1) the Infomall TV Network
is a nationwide network of owned, operated and affiliated television stations
dedicated to the airing of long form paid programming consisting primarily of
infomercials; (2) Paxson Radio consists of radio broadcasting stations, radio
news and sports networks and billboard operations; and (3) Paxson
Network-Affiliated Television includes network-affiliated television
broadcasting stations in West Palm Beach, Florida. In January 1995, four
stations which had previously aired long form paid programming were reclassified
as inTV stations. The financial information related to these four stations prior
to January 1, 1995 has been reclassified to conform with the 1995 presentation.
Corporate and other operations represent revenue earned through commissions,
non-broadcast activities, expenses incurred for such activities, and corporate
overhead expenses, including management expenses which are not allocated to the
individual segments.
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82
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Selected financial information for these segments follows:
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ------------ -----------
INFOMALL TV NETWORK
Total revenue......................................... $ 29,653,278 $ 3,287,285 $ --
Operating expenses, less depreciation, amortization
and option plan compensation........................ 16,266,563 3,401,328 --
Depreciation and amortization......................... 4,545,683 1,344,986 --
Option plan compensation.............................. 37,506 -- --
------------ ------------ -----------
Income (loss) from operations......................... $ 8,803,526 $ (1,459,029) $ --
============ ============ ===========
Total identifiable assets............................. $104,106,341 $ 16,212,828 $ --
============ ============ ===========
Capital expenditures.................................. $ 7,703,973 $ 2,527,903 $ --
============ ============ ===========
PAXSON RADIO
Total revenue......................................... $ 54,752,191 $ 50,363,294 $31,058,472
Operating expenses, less depreciation, amortization
and option plan compensation........................ 44,227,935 39,002,002 25,012,435
Depreciation and amortization......................... 10,357,042 9,124,969 9,128,847
Option plan compensation.............................. 1,751,238 -- --
------------ ------------ -----------
Income (loss) from operations......................... $ (1,584,024) $ 2,236,323 $(3,082,810)
============ ============ ===========
Total identifiable assets............................. $ 68,886,153 $ 67,201,401 $61,686,096
============ ============ ===========
Capital expenditures.................................. $ 9,610,186 $ 2,491,959 $ 1,962,553
============ ============ ===========
PAXSON NETWORK-AFFILIATED TELEVISION
Total revenue......................................... $ 16,537,406 $ 7,477,508 $ --
Operating expenses, less depreciation and
amortization........................................ 11,793,824 5,003,272 --
Depreciation and amortization......................... 3,102,665 1,542,286 --
------------ ------------ -----------
Income from operations................................ $ 1,640,917 $ 931,950 $ --
============ ============ ===========
Total identifiable assets............................. $ 37,421,642 $ 39,409,693 $ --
============ ============ ===========
Capital expenditures.................................. $ 2,825,249 $ 657,375 $ --
============ ============ ===========
CORPORATE AND OTHER
Total revenue......................................... $ 2,131,037 $ 939,356 $ 1,003,559
Operating expenses, less depreciation, amortization
and option plan compensation........................ 9,814,643 3,819,350 3,860,193
Depreciation and amortization......................... 713,719 391,287 221,786
Option plan compensation.............................. 9,014,497 -- --
------------ ------------ -----------
Loss from operations.................................. $(17,411,822) $ (3,271,281) $(3,078,420)
============ ============ ===========
Total identifiable assets............................. $ 83,417,941 $ 29,846,459 $ 4,888,512
============ ============ ===========
Capital expenditures.................................. $ 4,877,408 $ 239,275 $ --
============ ============ ===========
F-31
83
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1995 1994 1993
------------ ------------ -----------
CONSOLIDATED
Total revenue......................................... $103,073,912 $ 62,067,443 $32,062,031
Operating expenses, less depreciation, amortization
and option plan compensation........................ 82,102,965 51,225,952 28,872,628
Depreciation and amortization......................... 18,719,109 12,403,528 9,350,633
Option plan compensation.............................. 10,803,241 -- --
------------ ------------ -----------
Loss from operations.................................. $ (8,551,403) $ (1,562,037) $(6,161,230)
============ ============ ===========
Total identifiable assets............................. $293,832,077 $152,670,381 $66,574,608
============ ============ ===========
Capital expenditures.................................. $ 25,016,816 $ 5,916,512 $ 1,962,553
============ ============ ===========
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FOR THE 1995 QUARTERS ENDED
---------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
------------ ------------- ------------ -----------
Total revenue............................. $ 31,550,195 $ 27,167,369 $ 23,736,645 $20,619,703
Operating expenses, less depreciation,
amortization and option plan
compensation............................ 23,124,962 21,332,736 18,963,733 18,681,534
Depreciation and amortization............. 5,640,068 5,024,785 4,269,627 3,784,629
Option plan compensation.................. 994,136 404,976 9,404,129 --
------------ ------------- ------------ -----------
Income (loss) from operations............. $ 1,791,029 $ 404,872 $ (8,900,844) $(1,846,460)
============ ============= ============ ===========
Loss before extraordinary item............ $ (5,566,169) $ (2,851,681) $(11,176,729) $(3,252,984)
Extraordinary item(1)..................... -- (10,625,727) -- --
------------ ------------- ------------ -----------
Net loss.................................. $ (5,566,169) $ (13,477,408) $(11,176,729) $(3,252,984)
============ ============= ============ ===========
Net loss attributable to common stock..... $ (9,741,895) $ (16,734,727) $(14,849,938) $(5,443,936)
============ ============= ============ ===========
Per share data:
Loss before extraordinary item.......... $ (0.16) $ (0.08) $ (0.32) $ (0.09)
Net loss................................ $ (0.16) $ (0.39) $ (0.32) $ (0.09)
Net loss attributable to common stock... $ (0.28) $ (0.49) $ (0.43) $ (0.16)
Weighted average common shares
outstanding............................. 34,503,666 34,458,766 34,448,665 34,354,201
=========== ============ ============ ===========
Stock price(2):
High.................................... $ 16 3/8 $ 15 3/4 $ 14 $ 12 5/8
Low..................................... $ 11 1/2 $ 12 $ 8 $ 9
- ---------------
(1) Extraordinary item relates to the write-off of loan origination costs
associated with the extinguishment of certain debt agreements during the
third quarter (Note 9).
(2) The Company's Class A common stock is listed on the American Stock Exchange
under the symbol PXN. Prior to July 10, 1995, the Company's Class A common
stock was listed on the NASDAQ Small-Cap Market.
F-32
84
PAXSON COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE 1994 QUARTERS ENDED
---------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
------------ ------------- ------------ -----------
Total revenue............................. $ 22,226,226 $ 18,327,456 $ 12,148,603 $ 9,365,158
Operating expenses, less depreciation and
amortization............................ 18,413,022 14,219,712 10,268,884 8,324,334
Depreciation and amortization............. 3,845,370 3,292,245 2,855,767 2,410,146
------------ ------------- ------------ -----------
Income (loss) from operations............. $ (32,166) $ 815,499 $ (976,048) $(1,369,322)
============ ============= ============ ===========
Loss before extraordinary item............ $ (1,972,628) $ (672,445) $ (318,376) $(1,798,625)
============ ============= ============ ===========
Net loss.................................. $ (1,972,628) $ (672,445) $ (318,376) $(1,798,625)
============ ============= ============ ===========
Net loss attributable to common stock..... $ (2,950,626) $ (1,492,845) $ (1,121,630) $(2,582,429)
============ ============= ============ ===========
Pro forma per share data (Note 1):
Pro forma loss before extraordinary
item................................. $ (0.06) $ (0.02) $ (0.01) $ (0.06)
Pro forma net loss...................... $ (0.06) $ (0.02) $ (0.01) $ (0.06)
Pro forma net loss attributable to
common stock......................... $ (0.09) $ (0.04) $ (0.03) $ (0.08)
Pro forma weighted average common shares
outstanding............................. 33,430,116 33,430,116 32,506,032 31,581,948
============ ============= ============ ===========
Stock price (1):
High(2)................................. $ 16 $ -- $ -- $ --
Low(2).................................. $ 10 5/8 $ -- $ -- $ --
- ---------------
(1) The Company's Class A common stock is listed on the American Stock Exchange
under the symbol PXN. Prior to July 10, 1995, the Company's Class A common
stock was listed on the NASDAQ Small-Cap Market.
(2) Stock price after giving effect to the January 1, 1995 stock dividend (Note
15).
F-33