-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJH3iI67L3Mr2ZsEhG3qgD1dJ/egL/KWK2bXqNrjhi/hX1aF4QoxaZT8reXRWLRn v6Oa4mO95QT39aXqVVM71A== 0000950130-00-001763.txt : 20000331 0000950130-00-001763.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950130-00-001763 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEARST ARGYLE TELEVISION INC CENTRAL INDEX KEY: 0000949536 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 742717523 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-14776 FILM NUMBER: 585872 BUSINESS ADDRESS: STREET 1: 888 SEVENTH AVE CITY: NEW YORK STATE: NY ZIP: 10106 BUSINESS PHONE: 2126492300 MAIL ADDRESS: STREET 1: 200 CONCORD PLAZA STREET 2: STE 700 CITY: SAN ANTONIO STATE: TX ZIP: 78216 FORMER COMPANY: FORMER CONFORMED NAME: ARGYLE TELEVISION INC DATE OF NAME CHANGE: 19951006 10-K405 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Form 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 or [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-2700 Hearst-Argyle Television, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 74-2717523 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 888 Seventh Avenue New York, NY 10106 (Address of principal executive Offices) (Zip code)
Registrant's telephone number, including area code: (212) 887-6800 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Each Class Name of Each Exchange On Which Registered ------------------- ----------------------------------------- Series A Common Stock, par value New York Stock Exchange $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 12 months (or for 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. [X] The aggregate market value of the Registrant's voting stock held by nonaffiliates on March 27, 2000, based on the closing price for the Registrant's Series A Common Stock on such date as reported on the New York Stock Exchange (the "NYSE"), was approximately $693,008,654. Shares of Common Stock outstanding as of March 27, 2000: 92,791,200 shares (consisting of 51,492,552 shares of Series A Common Stock and 41,298,648 shares of Series B Common Stock). DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Proxy Statement relating to the 2000 Annual Meeting of Stockholders are incorporated by reference into Part III (Items 10, 11, 12 and 13). - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT, CONCERNING, AMONG OTHER THINGS, INCREASES IN NET REVENUES AND BROADCAST CASH FLOW (AS DEFINED HEREIN) AND REDUCTIONS IN OPERATING EXPENSES, INVOLVE RISKS AND UNCERTAINTIES, AND ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS, INCLUDING THE IMPACT OF CHANGES IN NATIONAL AND REGIONAL ECONOMIES, SUCCESSFUL INTEGRATION OF ACQUIRED TELEVISION STATIONS (INCLUDING ACHIEVEMENT OF SYNERGIES AND COST REDUCTIONS), PRICING FLUCTUATIONS IN LOCAL AND NATIONAL ADVERTISING AND VOLATILITY IN PROGRAMMING COSTS. PART I ITEM 1. BUSINESS As of March 27, 2000, Hearst-Argyle Television, Inc. (the "Company") owned or managed 26 television stations that reached approximately 17.5% of U.S. television households, and seven radio stations. The Company is one of the country's largest independent, or non-network-owned, TV station groups. The Company is also the largest ABC affiliate group and the second largest NBC affiliate group. The Company was formed in 1994 as a Delaware corporation under the name Argyle Television, Inc. ("Argyle"), and its business operations began in January 1995 with the consummation of its acquisition of three television stations. Pursuant to a merger transaction that was consummated on August 29, 1997 and effective September 1, 1997 (the "Hearst Transaction"), The Hearst Corporation ("Hearst") contributed its television broadcast group and related broadcast operations (the "Hearst Broadcast Group") to Argyle and merged a wholly owned subsidiary of Hearst with and into Argyle, with Argyle as the surviving corporation (renamed "Hearst-Argyle Television, Inc."). The merger, however, was accounted for as a purchase of Argyle by Hearst in a reverse acquisition. Effective June 1, 1998, the Company completed a tax-deferred exchange (the "STC Swap") with STC Broadcasting, Inc. and certain related entities (collectively, "STC") whereby the Company exchanged its television stations WNAC-TV, Providence, Rhode Island, and WDTN-TV, Dayton, Ohio, for STC's television stations KSBW-TV, Monterey-Salinas, California, and WPTZ-TV/WNNE- TV, Plattsburgh, New York-- Burlington, Vermont. Divestiture of WNAC and WDTN was required under the order of the Federal Communications Commission (the "FCC") approving the Hearst Transaction. On January 5, 1999 (effective January 1, 1999 for accounting purposes) the Company acquired, through a merger transaction (the "Kelly Merger") with Kelly Broadcasting Co., a California limited partnership ("Kelly Broadcasting"), television broadcast station KCRA-TV, Sacramento, California and the programming rights under an existing Time Brokerage Agreement with Channel 58, Inc., a California corporation ("Channel 58"), with respect to KQCA-TV, Sacramento, California. In addition, the Company acquired substantially all of the assets and certain of the liabilities of Kelleproductions, Inc., a California corporation ("Kelleproductions" and together with the Kelly Merger, the "Kelly Transactions"). Further, on March 18, 1999, the Company acquired, through a merger transaction (the "Pulitzer Merger") with Pulitzer Publishing Company, a Delaware corporation ("Pulitzer"), television stations WESH-TV, Orlando, Florida, WYFF-TV, Greenville, South Carolina, WDSU-TV, New Orleans, Louisiana, WGAL-TV, Lancaster, Pennsylvania, WXII-TV, Greensboro, North Carolina, WLKY- TV, Louisville, Kentucky, KOAT-TV, Albuquerque, New Mexico, KCCI-TV, Des Moines, Iowa, and KETV-TV, Omaha, Nebraska; and radio stations KTAR-AM, KMVP- AM and KKLT-FM, Phoenix, Arizona, WXII-AM, Greensboro, North Carolina, and WLKY-AM, Louisville, Kentucky. In September 1999, the Company invested $2 million in Geocast Network Systems, Inc. ("Geocast") in return for an equity interest in Geocast. Geocast will use a portion of the Company's stations' digital broadcast spectrum as part of a new digital network infrastructure to deliver a program service, which includes the local stations' content and other national content and services, to personal computer users. The Company has agreed to provide a portion of this local station content to Geocast pursuant to an agreement between the Company and Geocast. In December 1999, the Company invested $20 million of cash in Internet Broadcasting Systems, Inc. ("IBS") in exchange for an equity interest in IBS. As of December 31, 1999, the Company had a 26% equivalent interest in IBS. The Company and IBS have also formed a series of local partnerships for the development and management of local news/information/entertainment portal websites. As of March 27, 2000, Hearst owned through its wholly owned subsidiaries, Hearst Holdings, Inc., a Delaware corporation ("Hearst Holdings"), and Hearst Broadcasting, Inc., a Delaware corporation ("Hearst Broadcasting"), 100% of the issued and outstanding shares of Series B Common Stock, par value $.01 per share, of the Company (the "Series B Common Stock," and together with the Series A Common Stock, par value $.01 per share, of the Company, the "Series A Common Stock," the "Common Stock") and approximately 27.4% of the issued and outstanding shares of the Series A Common Stock, representing in the aggregate approximately 59.7% of the outstanding voting power of the Common Stock. Through its ownership of the Series B Common Stock, Hearst Broadcasting is entitled to elect as a class all but two members of the Board of Directors of the Company (the "Board"). Holders of the Series A Common Stock, together with the Company's Series A Preferred Stock, par value $.01 per share, and Series B Preferred Stock, par value $.01 per share, are entitled to elect the remaining two members of the Company's Board. In connection with Hearst's contribution of its broadcast group to Argyle on August 29, 1997, Hearst agreed that, for as long as it held any shares of Series B Common Stock and to the extent that Hearst during such time also held any shares of Series A Common Stock, it would vote its shares of Series A Common Stock with respect to the election of directors only in the same proportion as the shares of Series A Common Stock not held by Hearst are so voted. The Series A Common Stock is listed on the NYSE under the symbol "HTV." The Company is organized under the laws of the State of Delaware and its principal executive offices are located at 888 Seventh Avenue, New York, New York 10106, (212) 887-6800. Recent Developments Following is a brief description of the developments of the Company's business since January 1, 2000: Acquisition of KQCA. On January 31, 2000, the Company acquired, pursuant to a Stock Purchase Agreement, dated November 30, 1999, by and among the Company and the shareholders of Channel 58, all of the outstanding shares of Channel 58 for $850,000. Channel 58 owned the television station KQCA-TV, to which the Company had the right to provide programming since January 5, 1999, pursuant to a Time Brokerage Agreement. Additional Investment in Geocast. On February 25, 2000, the Company invested an additional $8 million of cash in Geocast in return for an additional equity investment in Geocast. Investment in CFN. In March 2000, the Company invested $25 million in Consumer Financial Network, Inc. ("CFN"). CFN, an online provider of consumer financial information, will become a content provider and advertiser on the Company's stations and local websites. The Stations Of the 26 television stations the Company owns or manages, 19 are in the top 50 of the 211 generally recognized geographic designated market areas ("DMAs") according to A.C. Nielsen Co. ("Nielsen") estimates for the 1999-2000 television broadcasting season. The Company owns 23 television stations and five radio stations. In addition, the Company manages two television stations (WMOR-TV in the Tampa, Florida market (formerly known as WWWB-TV) and WPBF-TV in the West Palm Beach, Florida market) and two radio stations (WBAL(AM) and WIYY(FM) in Baltimore, Maryland), that are owned by Hearst. The Company also provides management services to Hearst in order to allow Hearst to fulfill its obligations under a Program Service and 2 Time Brokerage Agreement between Hearst and the licensee of KCWE-TV in Kansas City, Missouri (the "Missouri LMA"). Prior to the Company's purchase of all of the outstanding stock of Channel 58 on January 31, 2000, the Company also programmed and sold a portion of the air time on KQCA-TV (Sacramento, CA) under a Time Brokerage Agreement with Channel 58, the then-licensee of KQCA-TV (the "California LMA"). For the year ended December 31, 1999, on a pro forma basis, the Company's total revenues and broadcast cash flow were $707.8 million and $323.3 million, respectively. The following table sets forth certain information for each of the Company's owned and managed television stations:
Percentage of U.S. Market Television Network Television Market Rank(1) Station Affiliation Channel Households(2) ------ ------ ---------- ----------- ------- ------------ Boston, MA............... 6 WCVB ABC 5 2.20% Tampa, FL(3)............. 13 WMOR IND 32 1.47% Sacramento, CA........... 19 KCRA NBC 3 1.15% Sacramento, CA........... 19 KQCA WB 58 -- Pittsburgh, PA........... 20 WTAE ABC 4 1.13% Orlando, FL.............. 22 WESH NBC 2 1.09% Baltimore, MD............ 24 WBAL NBC 11 1.00% Kansas City, MO.......... 31 KMBC ABC 9 0.81% Kansas City, MO(3)....... 31 KCWE UPN 29 -- Cincinnati, OH........... 32 WLWT NBC 5 0.81% Milwaukee, WI............ 33 WISN ABC 12 0.81% Greenville, SC........... 35 WYFF NBC 4 0.73% New Orleans, LA.......... 41 WDSU NBC 6 0.63% West Palm Beach, FL(3)... 43 WPBF ABC 25 0.62% Oklahoma City, OK........ 45 KOCO ABC 5 0.60% Lancaster, PA............ 46 WGAL NBC 8 0.60% Greensboro-Winston Salem, NC...................... 47 WXII NBC 12 0.59% Louisville, KY........... 48 WLKY CBS 32 0.57% Albuquerque, NM.......... 49 KOAT ABC 7 0.57% Des Moines, IA........... 70 KCCI CBS 8 0.39% Honolulu, HI............. 71 KITV ABC 4 0.38% Omaha, NE................ 73 KETV ABC 7 0.37% Jackson, MS.............. 89 WAPT ABC 16 0.30% Burlington, VT/Plattsburgh, NY...... 91 WPTZ/WNNE NBC 5/31 0.29% Monterey-Salinas, CA..... 112 KSBW NBC 8 0.22% Ft. Smith/Fayetteville, AR...................... 118 KHBS/KHOG ABC/ABC 40/29 0.23% ----- Total................. 17.56% =====
- -------- (1) Market rank is based on the relative size of the DMAs (defined by Nielsen as geographic markets for the sale of national "spot" and local advertising time) among the 211 generally recognized DMAs in the U.S., based on Nielsen estimates for the 1999-2000 season. (2) Based on Nielsen estimates for the 1999-2000 season. (3) WMOR-TV and WPBF-TV television stations are managed by the Company under a management agreement with Hearst. In addition, the Company provides certain management services to Hearst in order to allow Hearst to fulfill its obligations under a Program Services and Time Brokerage Agreement between Hearst and the licensee of KCWE-TV in Kansas City, Missouri. 3 The following table sets forth certain information for each of the Company's owned and managed radio stations:
Market Radio Market Rank(1) Station Format ------ ------- --------- ------------------- Phoenix, AR.......................... 15 KTAR-(AM) News KMVP-(AM) Sports KKLT-(FM) Light Rock Baltimore, MD(2)..................... 20 WBAL-(AM) News WIYY-(FM) Album Oriented Rock Greensboro-Winston Salem, NC......... 42 WXII-(AM) News Louisville, KY....................... 53 WLKY-(AM) News
- -------- (1) Market rank is based on Duncan's 1999 Radio Market Guide. (2) WBAL-(AM) and WIYY-(FM) radio stations are managed by the Company under a management agreement with Hearst. The Company has an option to acquire WMOR-TV and Hearst's interests and option with respect to KCWE-TV (together with WMOR-TV, the "Option Properties"), as well as a right of first refusal until approximately August 2000 with respect to WPBF-TV (if such station is proposed by Hearst to be sold to a third party). The option period for each Option Property commenced in February 1999 and terminates in August 2000 and the purchase price is the fair market value of the station as determined by the parties, or an independent third-party appraisal, subject to certain specified parameters. If Hearst elects to sell an Option Property prior to the commencement of, or during, the option period, the Company will have a right of first refusal to acquire such Option Property. The exercise of the option and the right of first refusal will be by action of the independent directors of the Company, and any option exercise may be withdrawn by the Company after receipt of the third-party appraisal. Network Affiliation Agreements and Relationship General. Each of the Company's owned or managed television stations (collectively, the "Stations") is affiliated with one of the following major networks pursuant to a network affiliation agreement: ABC, NBC, CBS, UPN and WB (each, a "Network"), except WMOR-TV, in Tampa, Florida which is currently operating as an independent station. Each affiliation agreement provides the affiliated Station with the right to rebroadcast all programs transmitted by the Network with which the Station is affiliated. In return, the Network has the right to sell a substantial majority of the advertising time during such broadcasts. Generally, in exchange for every hour that a Station broadcasts network programming, the Network pays the Station a specified network compensation payment, which varies with the time of day. Typically, prime-time programming generates the highest hourly network compensation payments. Eleven of the Stations have network affiliation agreements with ABC, 10 of the Stations have agreements with NBC, two of the Stations have agreements with CBS, one of the Stations has an agreement with WB and one of the Stations has an agreement with UPN. In addition, three of the Company's radio stations have affiliation agreements with networks that provide certain content (i.e., news, sports, etc.) for such stations. The Company's radio stations are less dependent on their affiliation agreements for programming. Although the Company does not expect that its network affiliation agreements will be terminated and expects to continue to be able to renew its network affiliation agreements, no assurance can be given that such agreements will not be terminated or that renewals will be obtained on as favorable terms or at all. ABC. Generally, the term of each affiliation agreement with ABC is two years, renewable for successive two-year periods, and each affiliation agreement is subject to cancellation by either party upon six months notice to the other party. In the case of WTAE, the affiliation agreement is not subject to cancellation on six months notice, and the term of the affiliation agreement will be successively renewed unless either party gives the other notice of non-renewal six months prior to the end of the then current term. In the case of KITV, the affiliation agreement is not expressly renewable but is effective through January 2005. In the case of WAPT, the affiliation 4 agreement is for a term of 10 years (through March 5, 2005). In the case of WPBF, the affiliation agreement is for a term of 8 years (through August 30, 2003). In the case of KETV and KOAT, the affiliation agreements are each for a term of 10 years (through November 1, 2004). In the case of KOCO, the term of affiliation has been extended through December 31, 2004. In 1994 negotiations commenced to renew the ABC affiliation agreements relating to the ABC affiliates acquired in the Hearst Transaction to provide for, among other things, 10-year terms and increased compensation. Such agreements are still in the process of negotiation and documentation has not yet been finalized, although the Company is receiving its increased compensation. In addition, the Company has agreed to certain modifications in the compensation package with ABC as a result of the Monday Night Football package. NBC. The term of the NBC affiliation agreement with WBAL is a period of seven years (through January 1, 2003) and is subject to successive three-year renewals unless either party gives the other notice of non-renewal 12 months prior to the end of the then current term. The NBC affiliation agreement for WLWT is for an initial term of six years (through August 28, 2000) and is renewable for successive four-year terms unless either party gives notice of intent not to renew at least six months prior to the end of the initial or any successive term. The NBC affiliation agreement with KCRA is for an initial term of six years (through January 1, 2001) and is subject to successive five year renewals unless either party gives notice of intent not to renew at least 12 months prior to the end of the initial or any successive term. In order to avoid automatic renewals, NBC has given the Company notice of non-renewal with respect to the affiliation agreements for WBAL, WLWT and KCRA. The Company has commenced discussions with NBC to renew these affiliation agreements. The NBC affiliation agreements for WDSU, WYFF, WXII, WGAL and WESH are for an initial term of 10 years (commencing January 1, 1995) and are subject to successive five year renewals unless either party gives notice of intent not to renew at least 12 months prior to the end of the initial or any successive term. The NBC affiliation agreements with WPTZ and WNNE are for an initial term of seven years (commencing January 1, 1995) and are subject to successive three year renewals unless either party gives notice of intent not to renew at least 12 months prior to the end of the initial or any successive term. The term of the NBC affiliation agreement with KSBW is from January 17, 1996 to December 31, 2005 and is subject to successive five year renewals unless either party gives notice of intent not to renew at least 12 months prior to the end of the initial or any successive term. CBS. The term of the CBS affiliation agreements with KCCI and WLKY are for an initial term of 10 years (through June 30, 2005) and are subject to successive five year renewals unless either party gives notice of intent not to renew at least six months prior to the end of the initial or any successive term. UPN and WB. The UPN affiliation agreement with KCWE is for an initial 10- year term (through August 31, 2008). The WB affiliation agreement with KQCA is for a term of five years (through September 30, 2003). Unlike affiliates of ABC or NBC, WB affiliates may be required to pay the network compensation based upon ratings generated by the station in return for the broadcast rights to the network's programming. Both UPN and WB have the right to terminate their affiliation agreements in the event of a material breach of such agreement by a station and in certain other circumstances. The Commercial Television Broadcasting Industry General. Commercial television broadcasting began in the United States on a regular basis in the 1940s. Currently, a limited number of channels are available for broadcasting in any one geographic area, and a license to operate a television station must be granted by the FCC. Television stations that broadcast over the VHF band (channels 2-13) of the spectrum generally have some competitive advantage over television stations that broadcast over the UHF band (channels above 13) of the spectrum because the former usually have better signal coverage and operate at a lower transmission cost. The improvement of UHF transmitters and receivers, the complete elimination from the marketplace of VHF-only receivers and the expansion of cable television systems, however, have reduced to some extent the VHF signal advantage. All television stations in the country are grouped by Nielsen, a national audience measuring service, into 211 generally recognized television markets that are ranked in size according to various formulae based upon actual or potential audience. Each market is designated as an exclusive geographic area consisting of all counties 5 in which the home-market commercial stations receive the greatest percentage of total viewing hours. These specific geographic markets are referred to by Nielsen as "designated market areas" ("DMAs"). Nielsen periodically publishes data on estimated audiences for the television stations in the various markets throughout the country. The estimates are expressed in terms of the percentage of the total potential audience in the market viewing a station (the station's "rating") and of the percentage of households using television actually viewing the station (the station's "share"). Nielsen provides such data on the basis of total television households and selected demographic groupings in the market. Nielsen uses two methods of determining a station's ability to attract viewers. In larger geographic markets, ratings are determined by a combination of meters connected directly to selected television sets and weekly diaries of television viewing, while in smaller markets only weekly diaries are utilized. Historically, three major broadcast networks--ABC, NBC and CBS--dominated broadcast television. In recent years, however, Fox effectively has evolved into the fourth major network, even though it produces seven hours less of prime time programming than the other major networks. In addition, UPN, The WB and, more recently, PaxTV have been launched as television networks. Stations that operate without network affiliations are referred to as "independent" stations. All of the Stations are affiliated with networks, except WMOR, which became an independent station as of October 1, 1999. It is unclear as to how certain proposed transactions involving ownership of networks (e.g. a proposed CBS/Viacom transaction) would, if consummated, affect broadcast television. The affiliation by a station with one of the four major networks has a significant impact on the composition of the station's programming, revenues, expenses and operations. A typical affiliate of a major network receives the majority of each day's programming from the network. This programming, along with cash payments ("Network Compensation"), is provided to the affiliate by the network in exchange for a substantial majority of the advertising time sold during the airing of network programs. The network then sells this advertising time for its own account. The affiliate retains the revenues from time sold during breaks in and between network programs and during programs produced by the affiliate or purchased from non-network sources. In acquiring programming to supplement programming supplied by the affiliated network, network affiliates compete primarily with other affiliates and independent stations in their markets. Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that otherwise would have been offered to local television stations. In addition, a television station may acquire programming though barter arrangements. Under barter arrangements, a national program distributor may receive advertising time in exchange for the programming it supplies, with the station paying either a reduced fee or no fee for such programming. A fully independent station, unlike a network-affiliated station, purchases or produces all of the programming that it broadcasts, resulting in generally higher programming costs. The independent station, however, may retain its entire inventory of advertising time and all of the revenues obtained therefrom. Television station revenues are derived primarily from local, regional and national advertising and, to a much lesser extent, from Network Compensation and revenues from studio or tower rental and commercial production activities. Advertising rates are set based upon a variety of factors, including a program's popularity among the viewers an advertiser wishes to attract, the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Rates also are determined by a station's overall ratings and share in its market, as well as the station's ratings and share among particular demographic groups that an advertiser may be targeting. Because broadcast television stations rely on advertising revenues, they are sensitive to cyclical changes in the economy. The size of advertisers' budgets, which are affected by broad economic trends, affect the broadcast industry in general and the revenues of individual broadcast television stations. The advertising revenues of the stations are generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to and including the holiday season. Additionally, advertising revenues in even-numbered years benefit from advertising placed 6 by candidates for political offices, and demand for advertising time in Olympic broadcasts. From time to time, proposals have been advanced in the U.S. Congress and at the FCC to require television broadcast stations to provide advertising time to political candidates at no or reduced charge, which would eliminate in whole or in part advertising revenues from political candidates. Through the 1970s, network television broadcasting enjoyed virtual dominance in viewership and television advertising revenues, because network-affiliated stations competed only with each other in local markets. Beginning in the 1980s, this level of dominance began to change, as the FCC authorized more local stations and marketplace choices expanded with the growth of independent stations and cable television services. Cable television systems were first installed in significant numbers in the 1970s and were initially used primarily to retransmit broadcast television programming to paying subscribers in areas with poor broadcast signal reception. In the aggregate, cable- originated programming has emerged as a significant competitor for viewers of broadcast television programming, although no single cable programming network regularly attains audience levels equivalent to any of the major broadcast networks and, collectively, the broadcast originated signals still constitute the majority of viewing in most cable homes. The advertising share of cable networks has increased during the 1970s, 1980s and 1990s as a result of the growth in cable penetration (the percentage of television households that are connected to a cable system). Notwithstanding such increases in cable viewership and advertising, over-the-air broadcasting remains the dominant distribution system for mass market television advertising. Competition. The television broadcast industry is highly competitive. Some of the stations that compete with the Stations are owned and operated by large national or regional companies that may have greater resources, including financial resources, than the Company. Competition in the television industry takes place on several levels: competition for audience, competition for programming (including news) and competition for advertisers. Additional factors material to a television station's competitive position include signal coverage and assigned frequency. Further advances in technology may increase competition for household audiences and advertisers. Video compression techniques, now in use with direct broadcast satellites and, potentially soon, in development for cable and wireless cable, are expected to permit greater numbers of channels to be carried within existing bandwidth. These compression techniques, as well as other technological developments, are applicable to all video delivery systems, including over-the-air broadcasting, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel capacity could lower entry barriers for new channels and encourage the development of increasingly specialized niche programming. This ability to reach very narrowly defined audiences is expected to alter the competitive dynamics for advertising expenditures. The Company is unable to predict the effect that technological changes will have on the broadcast television industry or the future results of the Stations. The television broadcasting industry continually is faced with such technological change and innovation, the possible rise in popularity of competing entertainment and communications media and governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission, any of which could have a material effect on the Stations. Technological innovation, and the resulting proliferation of programming alternatives such as cable, direct satellite-to-home services, pay-per-view and home video and entertainment systems have fractionalized television viewing audiences and subjected television broadcast stations to new types of competition. Over the past decade, cable television has captured an increasing market share, while the aggregate viewership of the major television networks has declined. In addition, the expansion of cable television and other industry changes have increased, and may continue to increase, competitive demand for programming. Such increased demand, together with rising production costs, may in the future increase the Company's programming costs or impair its ability to acquire programming. The Stations compete for audience on the basis of program popularity, which has a direct effect on advertising rates. A majority of the daily programming on the Stations is supplied by the network with which each such station is affiliated. In time periods in which the network provides programming, the Stations are 7 primarily dependent upon the performance of the network programs in attracting viewers. Each Station competes in non-network time periods based on the performance of its programming during such time periods, using a combination of self-produced news, public affairs and other entertainment programming, including news and syndicated programs, that such station believes will be attractive to viewers. The Stations compete for television viewership share against local network- affiliated and independent stations, as well as against cable and alternate methods of television transmission. These other transmission methods can increase competition for a station by bringing into its market distant broadcasting signals not otherwise available to the station's audience and also by serving as a distribution system for non-broadcast programming originated on the cable system. Other sources of competition for the Stations include home entertainment systems (including video cassette recorder and playback systems, videodiscs and television game devices), the Internet, multipoint distribution systems, multichannel multipoint distribution systems or "wireless cable" satellite master antenna television systems and some low power, in-home satellite services. The Stations also face competition from high-powered direct broadcast satellite services, such as EchoStar and DIRECTV, which transmit programming directly to homes equipped with special receiving antennas. The Stations compete with these services both on the basis of service and product performance (quality of reception and number of channels that may be offered) and price (the relative cost to utilize these systems compared to broadcast television viewing). Programming is a significant factor in determining the overall profitability of any television broadcast station. Competition for non-network programming involves negotiating with national program distributors or syndicators that sell first-run and off-network packages of programming. The Stations compete against in-market broadcast stations for exclusive access to off-network reruns (such as Seinfeld) and first-run product (such as the Oprah Winfrey Show). Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that otherwise would have been offered to local television stations. Advertising rates are based upon the size of the market in which a station operates, a program's popularity among the viewers an advertiser wishes to attract, the number of advertisers competing for the available time, the demographic makeup of the market served by the station, the availability of alternative advertising media in the market area, the aggressiveness and knowledgeability of sales forces and the development of projects, features and programs that tie advertiser messages to programming. Advertising rates also are determined by a station's overall ability to attract viewers in its market, as well as the station's ability to attract viewers among particular demographic groups that an advertiser may be targeting. Broadcast television stations compete for advertising revenues with other broadcast television stations and with the print media, radio stations and cable system operators serving the same market. Additional competitors for advertising revenues include a variety of other media, including direct marketing. Since greater amounts of advertising time are available for sale by independent stations, independent stations typically achieve a greater proportion of television market advertising revenues relative to their share of the market's audience. Public broadcasting outlets in most communities compete with commercial broadcasters for viewers but not for advertising dollars. Federal Regulation of Television Broadcasting General. Broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"), most recently amended further by the Telecommunications Act of 1996 (the "Telecommunications Act"). The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC and empowers the FCC, among other actions, to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and, impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license 8 or the transfer of control of a licensee without prior approval of the FCC. Under the Communications Act, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcast stations. Pulitzer Merger. On March 18, 1999, pursuant to authority granted to it by the FCC, the Company consummated its acquisition of the Pulitzer Stations. Because the Company's acquisition of certain of the Pulitzer Stations was not in compliance with the FCC's then-existing television duopoly rule, which prohibited the common ownership of television broadcast stations with overlapping Grade B signal contours, the FCC's consent to the Pulitzer Transaction was subject to certain conditions. First, because WGAL(TV), Lancaster, Pennsylvania, and WBAL-TV, Baltimore, Maryland, have overlapping Grade A signal contours, the FCC granted the Company a six-month waiver of the then-current television duopoly rule to allow for the temporary common ownership of WGAL and WBAL-TV. Accordingly, absent a modification of the TV duopoly rule to permit the common ownership of those stations or an extension of the temporary waiver period, the Company would have been required to file an application with the FCC by September 18, 1999 to divest either WGAL or WBAL-TV. Second, certain of the other stations acquired pursuant to the Pulitzer transaction have Grade B, but not Grade A, signal contour overlap with other of the Company's stations. Because it had initially proposed to change the duopoly rule standard to allow the common ownership of such stations, the FCC granted the Company waivers, conditioned upon the outcome of the FCC's then-pending rulemaking proceeding, of its then- existing TV duopoly rule to enable the Company to commonly own: (a) WMOR-TV, Lakeland, Florida (then WWWB-TV), and WESH-TV, Daytona Beach, Florida; and (b) WLWT-TV, Cincinnati, Ohio, and WLKY-TV, Louisville, Kentucky. On August 5, 1999, the FCC adopted a Report and Order announcing certain changes to its broadcast ownership rules. The rule changes, which became effective on November 16, 1999, permit the common ownership of television stations regardless of signal contour overlap provided that the stations are in separate DMAs. On November 16, 1999, the Company filed with the FCC showings demonstrating that the common ownership of WGAL and WBAL-TV, WMOR-TV and WESH-TV, and WLWT-TV and WLKY-TV is permissible under the new ownership rules. On February 29, 2000, the FCC confirmed that the Company's ownership of all of these stations is in full compliance with the revised ownership rules. Kelly Transaction. The Company consummated its acquisition of KCRA-TV, and the rights under the KQCA Time Brokerage Agreement, from Kelly Broadcasting on January 5, 1999. Because the Grade A contour of KCRA-TV overlaps with the Grade A contour of the Company's KSBW-TV, Salinas, California, the FCC's consent to the acquisition of KCRA-TV was conditioned upon (a) the Company completing, by October 5, 1999, a modification of the KSBW facilities that would have eliminated the Grade A signal contour overlap between the stations; and (b) the outcome of the FCC's then-pending rulemaking considering changes to the TV duopoly rule that would allow the common ownership of KCRA-TV and the modified KSBW-TV. Because KCRA-TV and KSBW-TV are located in separate DMAs, their common ownership is permissible under the FCC's revised ownership rules. Accordingly, in a November 16, 1999 filing with the FCC, the Company demonstrated that the common ownership of the stations is in accord with the new ownership rules. On February 29, 2000, the FCC confirmed that the Company's ownership of KCRA-TV and KSBW-TV is in full compliance with the new ownership rules. In addition, because the FCC's revised TV duopoly rule now permits the ownership of two television stations in the same DMA if at least eight independently owned and operating full-power television stations remain in the market and at least one of the two stations is not among the top four-ranked stations in the market based on audience share, the Company was able to acquire KQCA(TV) which, along with the Company's KCRA-TV, is located in the Sacramento, California, market. The KQCA acquisition was consummated on January 31, 2000. As noted above, the Company had been providing programming to KQCA(TV) pursuant to the KQCA Time Brokerage Agreement since January 5, 1999. License Renewals. The process for renewal of broadcast station licenses as set forth under the Communications Act has undergone significant change as a result of the Telecommunications Act. Prior to the 9 passage of the Telecommunications Act, television broadcasting licenses generally were granted or renewed for a period of five years upon a finding by the FCC that the "public interest, convenience and necessity" would be served thereby. Under the Telecommunications Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant broadcast licenses for terms of up to eight years. The Telecommunications Act requires renewal of a broadcast license if the FCC finds that (i) the station has served the public interest, convenience and necessity; (ii) there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and (iii) there have been no other serious violations that taken together constitute a pattern of abuse. In making its determination, the FCC may consider petitions to deny but cannot consider whether the public interest would be better served by a person other than the renewal applicant. Under the Telecommunications Act, competing applications for the same frequency may be accepted only after the FCC has denied an incumbent's application for renewal of license. The following table provides the expiration dates for the main station licenses of the Company's television stations:
Station Expiration of FCC License ------- ------------------------- WCVB............................................ April 1, 2007 WMOR............................................ February 1, 2005 KCRA............................................ December 1, 2006 KQCA............................................ December 1, 2006 WTAE............................................ August 1, 2007 WESH............................................ February 1, 2005 WBAL............................................ October 1, 2004 KMBC............................................ February 1, 2006 KCWE*........................................... February 1, 2006 WLWT............................................ October 1, 2005 WISN............................................ December 1, 2005 WYFF............................................ December 1, 2004 WDSU............................................ June 1, 2005 WPBF............................................ February 1, 2005 KOCO............................................ June 1, 2006 WGAL............................................ August 1, 2007 WXII............................................ December 1, 2004 WLKY............................................ August 1, 2005 KOAT............................................ October 1, 2006 KOCT (satellite station of KOAT)................ October 1, 2006 KOVT (satellite station of KOAT)................ October 1, 2006 KCCI............................................ February 1, 2006 KITV............................................ February 1, 2007 KHVO (satellite station of KITV)................ February 1, 2007 KMAU (satellite station of KITV)................ February 1, 2007 KETV............................................ June 1, 2006 WAPT............................................ June 1, 2005 WPTZ............................................ June 1, 2007 WNNE............................................ April 1, 2007 KSBW............................................ December 1, 2006 KHBS............................................ June 1, 2005 KHOG (satellite station of KHBS)................ June 1, 2005
- -------- * The Company provides certain management services to Hearst pursuant to a Management Agreement which allows Hearst to fulfill its obligations under a certain Programming Services and Time Brokerage Agreement between Hearst and KCWE-TV, Inc., the licensee of KCWE. 10 Ownership Regulation. The Communications Act, FCC rules and regulations and the Telecommunications Act also regulate broadcast ownership. The FCC has promulgated rules that, among other matters, limit the ability of individuals and entities to own or have an official position or ownership interest above a certain level (an "attributable" interest) in broadcast stations as well as other specified mass media entities. As detailed below, in August 1999, the FCC substantially revised a number of its multiple ownership and attribution rules. In three separate orders, the FCC revised its rules regarding measurements of and limitations on national television ownership, restrictions of local television ownership and radio-television cross-ownership, and attribution of broadcast ownership interests. The three orders, which resolve a number of rulemaking proceedings launched at the beginning of the decade, take into consideration mandates included in the Telecommunications Act, which liberalized the radio ownership rules and directed the FCC to consider similar deregulation for television. The FCC's various broadcast ownership rules, inclusive of the recent revisions, are summarized below. Local Radio Ownership. With respect to radio licenses, the maximum allowable number of stations that can be commonly owned in a market varies depending on the number of radio stations within that market, as determined using a method prescribed by the FCC. In markets with more than 45 stations, one company may own, operate or control eight stations, with no more than five in any one service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in any one service; in markets of 15-29 stations, one entity may own six stations, with no more than four in any one service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in any one service. Local Television Ownership. The FCC's new TV duopoly rule permits parties to own two television stations without regard to signal contour overlap provided they are located in separate DMAs. In addition, the new rules permit parties in larger markets to own up to two TV stations in the same DMA so long as at least eight independently owned and operating full-power television stations remain in the market at the time of acquisition and at least one of the two stations is not among the top four-ranked stations in the market based on audience share. In addition, without regard to numbers of remaining or independently owned television stations, the FCC will permit television duopolies within the same DMA so long as certain signal contours of the stations involved do not overlap. Satellite stations that simply rebroadcast the programming of a "parent" station will continue to be exempt from the duopoly rule if located in the same DMA as the "parent" station. The duopoly rule also applies to same-market local marketing agreements ("LMAs") involving more than 15% of the brokered station's program time, although current LMAs will be exempt from the television duopoly rule for a limited period of time of either two or five years, depending on the LMA's date of adoption. Further, the FCC may grant a waiver of the television duopoly rule if one of the two television stations is a "failed" or "failing" station, or the proposed transaction would result in the construction of a new television station. The Company is currently in full compliance with the FCC's television duopoly rule and the Missouri LMA, pursuant to which programming is provided to KCWE in Kansas City, Missouri has been grandfathered until the conclusion of the FCC's biennial review of its broadcast ownership rules in 2004. National Television Ownership Cap. On the national level, the FCC imposes a 35% national audience reach cap for television ownership, under which one party may have an attributable interest in television stations which reach no more than 35% of all U.S. television households. The FCC discounts the audience reach of a UHF station for this purpose by 50%. The FCC will consider whether to change the national ownership cap and the "UHF Discount" as part of the biennial review of its broadcast ownership rules initiated in 1998. Additionally, under the new FCC rules, for entities that have attributable interests in two stations in the same market, the FCC counts the audience reach of that market only once for national cap purposes. Radio-Television Cross Ownership. The so-called "one-to-a-market" rule has until recently prohibited common ownership or control of a radio station, whether AM, FM or both, and a television station in the same market, subject to waivers in some circumstances. The FCC's new radio-television cross- ownership rule embodies a graduated test based on the number of independently owned media voices in the local market. In large markets, i.e., markets with at least 20 independently owned media voices, a single entity can own up to one television station and seven radio stations or, if permissible under the new TV duopoly rule, two television stations and six radio stations. 11 Waivers of the new radio-television cross-ownership rule will be granted only under the failed station test. Unlike under the TV duopoly rule, the FCC will not waive the radio-television cross-ownership rules in situations of failing or unbuilt stations. Newspaper-Broadcast Cross-Ownership. The FCC's rules prohibit the licensee of an AM, FM, or TV station from directly or indirectly owning, operating, or controlling a daily newspaper if the station's specified service contour encompasses the entire community where the newspaper is published. A waiver of the newspaper cross-ownership restriction may be obtained where application of the rule would be "unduly harsh." In 1996, the FCC opened an inquiry to review specifically the newspaper/radio waiver policy, and in 1997 the Newspaper Association of America ("NAA") filed a Petition for Rulemaking, seeking complete elimination of the newspaper cross-ownership restrictions. This rule is also part of the FCC's broad 1998 biennial review of ownership rules. The FCC has not, however, indicated a timetable for action in any of these proceedings. With all of these proceedings still pending after the FCC has opened the door to numerous media consolidations under the three August 1999 orders, NAA filed an emergency petition in August 1999 seeking immediate action suspending enforcement of the newspaper cross-ownership rule, or temporarily relaxing its waiver policy. Cable-Television Cross-Ownership. The FCC's rules prohibit common control of a television station and a cable television system that serves a community encompassed in whole or in part by the television station's predicted Grade B signal contour. These cross-ownership restrictions will be considered in the FCC's biennial review. The FCC's revised attribution rules for broadcast ownership (detailed below) also apply to the cable-television cross-ownership provision. Attribution of Ownership. Under the FCC's recently revised attribution rules, the following relationships and interests generally are attributable for purposes of the agency's broadcast ownership restrictions: . all officers and directors of a licensee and its direct or indirect parent(s); . voting stock interests of at least 5% (however, equity interests up to 49% are nonattributable if the licensee is controlled by a single majority shareholder and the interest holder is not otherwise attributable under the "equity/debt plus" standard set forth below); . voting stock interests of at least 20%, if the holder is a passive institutional investor (investment companies, banks, insurance companies); . any equity interest in a limited partnership or limited liability company, unless properly "insulated" from management activities; and . equity and/or debt interests which in the aggregate exceed 33% of a licensee's total assets, if the interest holder supplies more than 15% of the station's total weekly programming, or is a same-market broadcast company, cable operator or newspaper. Importantly, all non-conforming interests acquired before November 7, 1996 are permanently grandfathered and thus do not constitute attributable ownership interests. Alien Ownership. The Communications Act restricts the ability of foreign entities or individuals to own or hold interests in broadcast licenses. Non- U.S. citizens, collectively, may directly or indirectly own or vote up to 20% of the capital stock of a corporate licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such affirmative finding only in limited circumstances. 12 Local Marketing Agreements. Under LMAs, the licensee of one station provides the programming for another licensee's station. Under the FCC's rules, an entity that owns a television station and programs more than 15% of the broadcast time on another television station in the same market is now required to count the LMA station toward its television ownership limits even though it does not own the station. Thus, in the future with respect to markets in which the Company owns television stations, the Company generally will not be able to enter into an LMA with another television station in the same market if it cannot acquire that station under the revised television duopoly rule. In adopting these new rules concerning television LMAs, however, the FCC provided "grandfathering" relief for LMAs that were in effect at the time of the rule change. Television LMAs that were in place at the time of the new rules and were entered into before November 5, 1996, were allowed to continue at least through 2004, when the FCC is scheduled to undertake a comprehensive review and re-evaluation of its broadcast ownership rules. The Missouri LMA, pursuant to which programming is provided to KCWE in Kansas City, Missouri has been grandfathered until the conclusion of the FCC's biennial review of its broadcast ownership rules in 2004. Other Regulations, Legislation and Recent Developments Affecting Broadcast Stations General. The FCC has reduced significantly its regulation of the programming and other operations of broadcast stations, including elimination of formal ascertainment requirements and guidelines concerning the amounts of certain types of programming and commercial matter that may be broadcast. There are, however, FCC rules and policies, and rules and policies of other federal agencies, that regulate matters such as network-affiliate relations, cable systems' carriage of syndicated and network programming on distant stations, political advertising practices, obscene and indecent programming, application procedures and other areas affecting the business or operations of broadcast stations. Children's Television Programming. The FCC has also adopted rules to implement the Children's Television Act of 1990, which, among other matters, limit the permissible amount of commercial matter in children's programs and require each television station to present "educational and informational" children's programming. The FCC has adopted renewal processing guidelines that effectively require television stations to broadcast an average of three hours per week of children's educational programming. Closed Captioning. The FCC has adopted rules requiring closed captioning of all broadcast television programming. The rules require generally that (i) 95% of all new programming first published or exhibited on or after January 1, 1998 must be closed captioned within eight years, and (ii) 75% of "old" programming which first aired prior to January 1, 1998 must be closed captioned within 10 years, subject to certain exemptions. Television Violence. The Telecommunications Act contains a number of provisions relating to television violence. First, pursuant to the Telecommunications Act, the television industry has developed a ratings system which the FCC has approved. Furthermore, also pursuant to the Telecommunications Act, the FCC has adopted rules requiring certain television sets to include the so-called "V-chip," a computer chip that allows blocking of rated programming. Under these rules, all television receiver models with picture screens 13 inches or greater were required to have the "V-chip" by January 1, 2000. In addition, the Telecommunications Act requires that all television license renewal applications filed after May 1, 1995 contain summaries of written comments and suggestions received by the station from the public regarding violent programming. Equal Employment Opportunity. In April 1998, the U.S. Court of Appeals for the D.C. Circuit concluded that the FCC's Equal Employment Opportunity ("EEO") regulations were unconstitutional. The FCC responded to the court's ruling in September 1998 by suspending certain reporting requirements and commencing a proceeding to consider new rules that would not be subject to the court's constitutional objections. In January 2000, the FCC adopted new EEO rules, which: . require broadcast licensees to widely disseminate information about job openings to all segments of the community; and 13 . give broadcasters the choice of implementing two FCC-suggested supplemental recruitment measures or, alternatively, designing their own broad recruitment/outreach programs. The FCC also reinstated its former requirement that broadcasters file annual employment reports with the FCC. The new rules are the subject of appeals which have been consolidated in the U.S. Court of Appeals for the D.C. Circuit. The 1992 Cable Act. The FCC has adopted various regulations to implement certain provisions of the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") which, among other matters, includes provisions respecting the carriage of television stations' signals by cable systems. The signal carriage, or "must carry," provisions of the 1992 Cable Act generally require cable operators to devote up to one-third of their activated channel capacity to the carriage of local commercial television stations. The 1992 Cable Act also included a retransmission consent provision that prohibits cable operators and other multi-channel video programming distributors from carrying broadcast signals without obtaining the station's consent in certain circumstances. The "must carry" and retransmission consent provisions are related in that a local television broadcaster, on a cable system-by-cable system basis, must make a choice once every three years whether to proceed under the "must carry" rules or to waive the right to mandatory but uncompensated carriage and negotiate a grant of retransmission consent to permit the cable system to carry the station's signal, in most cases in exchange for some form of consideration from the cable operator. The Company has entered into an agreement with Lifetime Entertainment Services ("Lifetime"), an entity owned 50% by an affiliate of Hearst and 50% by ABC, whereby Lifetime has the right to negotiate the grant of retransmission consent rights on behalf of the Company's owned and managed television stations in return for compensation to be paid to the Company by Lifetime in respect thereof. The Telecommunications Act amended the 1992 Cable Act in certain important respects. Most notably, the Telecommunications Act repealed the cross- ownership ban between cable and telephone entities, and established certain means by which common carriers may enter into the video programming marketplace (including common carriage of video traffic, as cable system operators and as operators of open video systems). These actions, among other regulatory developments, permit involvement by telephone companies and cable companies in providing video services. Digital Television Service. The FCC has taken a number of steps to implement digital television broadcasting service in the United States. The FCC has adopted a digital television table of allotments that provides all authorized television stations with a second channel on which to broadcast a digital television signal. The FCC has attempted to provide digital television coverage areas that are comparable to stations' existing service areas. The FCC has ruled that television broadcast licensees may use their digital channels for a wide variety of services such as high-definition television, multiple channels of standard definition television programming, audio, data, and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard. Digital television channels will generally be located in the range of channels from channel 2 through channel 51. The FCC has required affiliates of ABC, NBC, CBS and Fox in the top 30 markets to begin digital broadcasting by November 1, 1999, and all other broadcasters must follow suit by May 1, 2002. 14 The Company's digital television implementation schedule is as follows:
FCC Mandated Timetable For Market Analog DTV Construction of Station (Affiliation) Rank(1) Channel Channel DTV Facilities --------------------- ------- ------- ------- --------------- WCVB, Boston, MA (ABC)........... 6 5 20 May 1, 1999 WMOR, Tampa, FL (Independent)(2)................ 13 32 19 May 1, 2002 KCRA, Sacramento, CA (NBC)....... 19 3 35 Nov. 1, 1999 KQCA, Sacramento, CA (WB)........ 19 58 46 May 1, 2002 WTAE, Pittsburgh, PA (ABC)....... 20 4 51 Nov. 1, 1999 WESH, Orlando, FL (NBC)(3)....... 22 2 11 Nov. 1, 1999 WBAL, Baltimore, MD (NBC)........ 24 11 59 Nov. 1, 1999 KMBC, Kansas City, MO (ABC)...... 31 9 14 May 1, 2002 KCWE, Kansas City, MO (WB)(2).... 31 29 31 May 1, 2002 WLWT, Cincinnati, OH (NBC)....... 32 5 35 Nov. 1, 1999 WISN, Milwaukee, WI (ABC)........ 33 12 34 May 1, 2002 WYFF, Greenville, SC (NBC)....... 35 4 59 May 1, 2002 WDSU, New Orleans, LA (NBC)...... 41 6 43 May 1, 2002 WPBF, West Palm Beach, FL (ABC)(2)........................ 43 25 16 May 1, 2002 KOCO, Oklahoma City, OK (ABC).... 45 5 16 May 1, 2002 WGAL, Lancaster, PA (NBC)........ 46 8 58 May 1, 2002 WXII, Winston-Salem, NC (NBC).... 47 12 31 May 1, 2002 WLKY, Louisville, KY (CBS)....... 48 32 26 May 1, 2002 KOAT, Albuquerque, NM (ABC)...... 49 7 21 May 1, 2002 KOCT, Carlsbad, NM (ABC)......... 49 6 19 May 1, 2002 KOVT, Silver City, NM (ABC)...... 49 10 12 May 1, 2002 KOFT, Farmington, NM (ABC)....... 49 3 8 May 1, 2002 KCCI, Des Moines, IA (CBS)....... 70 8 31 May 1, 2002 KITV, Honolulu, HI (ABC)......... 71 4 40 May 1, 2002 KMAU, Wailuku, HI (ABC).......... 71 12 29 May 1, 2002 KHVO, Hilo, HI (ABC)............. 71 13 18 May 1, 2002 KETV, Omaha, NE (ABC)............ 73 7 20 May 1, 2002 WAPT, Jackson, MS (ABC).......... 89 16 21 May 1, 2002 WPTZ, Plattsburgh, NY (NBC)...... 91 5 14 May 1, 2002 WNNE, Hartford, VT (NBC)......... 91 31 25 May 1, 2002 KSBW, Monterey, CA (NBC)......... 112 8 43 May 1, 2002 KHBS, Fort Smith, AR (ABC)....... 118 40 21 May 1, 2002 KHOG, Fayetteville, AR (ABC)..... 118 29 15 May 1, 2002
- -------- (1) Market rank is based on the relative size of the DMA among the 211 generally recognized DMAs in the U.S., based on Nielsen estimates for the 1999-2000 season. (2) WMOR-TV and WPBF-TV are managed by the Company under the Management Agreement with Hearst. In addition, the Company provides certain management services to Hearst in order to allow Hearst to fulfill its obligations under Program Services and Time Brokerage Agreement with KCWE-TV, Inc., the licensee of KCWE-TV. (3) WESH-TV has not commenced digital broadcasting. The Company has obtained an extension from the FCC regarding the commencement of digital broadcasting at WESH-TV. The FCC's plan calls for the digital television transition period to end in the year 2006, at which time the FCC expects that television broadcasters will cease non-digital broadcasting and return one of their two channels to the government, allowing that spectrum to be recovered for other uses. Under the Balanced Budget Act, however, the FCC is authorized to extend the December 31, 2006 deadline for reclamation of a television station's non-digital channel if, in any given market one or more television stations affiliated with ABC, NBC, CBS and Fox is not broadcasting digitally, and the FCC determines that such stations have "exercised due diligence" in attempting to convert to digital broadcasting; or less than 85% of the television households in the 15 station's market subscribe to a multichannel video service that carries at least one digital channel from each of the local stations in that market, and less than 85% of the television households in the market can receive digital signals off the air using either a set-top converter box for an analog television set or a new digital television set. The FCC is currently considering whether cable television system operators should be required to carry stations' digital television signals in addition to the currently required carriage of stations' analog signals. In July 1998, the FCC issued a Notice of Proposed Rulemaking posing several different options for the carriage of digital signals and solicited comments from all interested parties. The FCC has yet to issue a decision on this matter. The FCC also is considering the impact of low power television ("LPTV") stations on digital broadcasting. Currently, stations in the LPTV service are authorized with "secondary" frequency use status, and, as such, may not cause interference to, and must accept interference from, full service television stations. With the conversion to digital television now underway, LPTV stations, which already were required to protect existing analog television stations, are now required to protect the new digital television stations and allotments as well. Thus, if an LPTV station causes interference to a new digital television station, the LPTV station must either find a suitable replacement channel or, if unable to do so, cease operating. In recognition of the consequences the digital television transition could have on many LPTV stations, Congress enacted a law in November 1999 creating a new "Class A" LPTV service that will afford some measure of primary status (i.e., interference protection) to certain qualifying LPTV stations. Thus, in the future, full service television stations will have to provide interference protection to all LPTV stations certified as Class A. In accordance with the recently enacted law, in January 2000, the FCC sought comment on proposed rules for the new Class A television service. Congress has directed the FCC to finalize its rules by March 28, 2000. The Company cannot predict the form of the new rules or the impact of such rules on the Company's operation. In December 1999, the FCC commenced a proceeding seeking comment on the public interest obligations of television broadcast licensees. Specifically, the FCC is requesting information in four general areas: (1) the new flexibility and capabilities of digital television, such as multiple channel transmission; (2) service to local communities in terms of providing information on public interest activities and disaster relief; (3) enhancing access to the media by persons with disabilities and using digital television to encourage diversity in the digital era; and (4) enhancing the quality of political discourse. The FCC stated that it was not proposing new rules or policies, but merely seeking to create a forum for public debate on how broadcasters can best serve the public interest during and after the transition to digital television. The implementation of digital television will also impose substantial additional costs on television stations because of the need to replace equipment and because some stations will need to operate at higher utility cost. There can be no assurance that the Company's television stations will be able to increase revenue to offset such costs. In addition, the Telecommunications Act allows the FCC to charge a spectrum fee to broadcasters who use the digital spectrum for purposes other than broadcasting. The FCC has adopted rules that require broadcasters to pay a fee of 5% of gross revenues received from ancillary or supplementary uses of the digital spectrum for which they charge subscription fees, excluding revenues from the sale of commercial time. The Company cannot predict what future actions the FCC might take with respect to digital television, nor can the Company predict the effect of the FCC's present digital television implementation plan or such future actions on the Company's business. The Company will incur considerable expense in the conversion of digital television and is unable to predict the extent or timing of consumer demand for any such digital television services. Direct Broadcast Satellite Systems. There are currently in operation several direct broadcast satellite systems that serve the United States. Direct broadcast satellite systems provide programming on a subscription basis to those who have purchased and installed a satellite signal receiving dish and associated decoder equipment. Direct broadcast satellite systems claim to provide visual picture quality comparable to that found in movie theaters and aural quality comparable to digital audio compact disks. The Company cannot predict the impact of direct broadcast satellite systems on the Company's business. In November 1999, Congress enacted the Satellite Home Viewer Improvement Act of 1999 ("SHVIA"), which established a copyright licensing system for limited distribution of television network programming to 16 DBS viewers and directed the FCC to initiate rulemaking proceedings to implement the new system. Under SHVIA, satellite carriers are permitted to retransmit local signals of television broadcasters for a period of six months from the November 29, 1999 enactment of SHVIA, without receiving retransmission consent. After the six-month period, satellite carriers will be required to enter into retransmission consent agreements to allow for satellite carriage of local television stations. The agreement between the Company and Lifetime also applies to the grant of DBS retransmission consent rights, for which Lifetime will also compensate the Company. SHVIA also contemplates a market-specific requirement for mandatory carriage of local television stations, similar to that applicable to cable systems, for those markets in which a satellite carrier chooses to provide any local signal, beginning January 1, 2002. In addition, SHVIA extended the compulsory license allowing the satellite distribution of distant network signals to unserved households (i.e., those that do not receive a Grade B signal from a local network affiliate). Digital Audio Radio Service. The FCC has authorized or is considering various digital audio radio services ("DARS"). In January 1995, the FCC adopted rules to allocate spectrum for satellite DARS. The FCC has issued two authorizations to launch and operate satellite DARS service. The FCC also has undertaken an inquiry into the terrestrial broadcast of DARS signals. On November 1, 1999, the FCC issued a Notice of Proposed Rulemaking on the subject which solicits comments or proposals to implement terrestrial DARS, including a conversion to in-band on-channel transmissions by existing radio broadcasters addressing, among other things, the need for spectrum outside the existing FM band and the role of existing broadcasters. The Company cannot predict the impact of either satellite DARS service or terrestrial DARS service on its business. Low Power FM. In January 2000, the FCC created two new classes of noncommercial low power FM radio stations ("LPFM"). One class (LP100) will operate with a maximum power of 100 watts and a service radius of about 3.5 miles. The other class (LP10) will operate with a maximum power of 10 watts and a service radius of about 1 to 2 miles. In establishing the new LPFM service, the FCC said that its goal is to create a class of radio stations designed "to serve very localized communities or underrepresented groups within communities." The Company cannot predict the impact of low power FM radio stations on our business. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act or the regulations and policies of the FCC thereunder. Proposals for additional or revised regulations and requirements are pending before and are considered by Congress and federal regulatory agencies from time to time. The Company cannot predict the effect of existing and proposed federal legislation, regulations and policies on its broadcast business. Also, certain of the foregoing matters are now, or may become, the subject of court litigation, and the Company cannot predict the outcome of any such litigation or the impact on its broadcast business. Employees As of December 31, 1999, the Company had approximately 3,018 full-time employees and 348 part-time employees. A total of approximately 904 employees are represented by four unions (the American Federation of Television and Radio Artists, the International Brotherhood of Electrical Workers, the International Alliance of Theatrical Stage Employees, and the Directors Guild of America). The Company has not experienced any significant labor problems, and it believes that its relations with its employees are satisfactory. 17 ITEM 2. PROPERTIES The Company's principal executive offices are located at 888 Seventh Avenue, New York, New York 10106. Each Station's real properties generally include owned or leased offices, studios, transmitter sites and antenna sites. Typically, offices and main studios are located together, while transmitters and antenna sites are in a separate location that is more suitable for optimizing signal strength and coverage. Set forth below are the Stations' principal facilities as of December 31, 1999. In addition to the property listed below, the Company and the Stations also lease other property primarily for communications equipment.
Station/Property Owned or Approximate Location Use Leased Size ---------------- --- -------- ----------- Corporate Washington D.C. Office Leased 3,191 sq. ft. New York Office Leased 39,864 sq. ft. San Antonio Office Leased 2,547 sq. ft. WCVB Office and studio Owned 90,002 sq. ft. Boston, MA Office and studio Leased 5,337 sq. ft. Office and studio Leased 8,600 sq. ft. KCRA/KQCA Office, studio and tower Owned 75,000 sq. ft. Sacramento, CA Tower and transmitter Owned 2,400 sq. ft. Tower and transmitter Leased 1,200 sq. ft. Office Leased 3,910 sq. ft. WTAE Office and studio Owned 68,033 sq. ft. Pittsburgh, PA Tower and transmitter Owned 37 acres Office Leased 609 sq. ft. WESH Studio, transmitter, tower Owned 61,300 sq. ft. Orlando, FL Office Leased 1,310 sq. ft. Daytona Beach, FL Studio and office Owned 26,000 sq. ft. Tower (under construction) Partnership 190 acres WBAL Office and studio Owned 63,000 sq. ft. Baltimore, MD Tower and transmitter Partnership 3.5 acres KMBC Office and studio Leased 58,514 sq. ft. Kansas City, MO Tower and transmitter Owned 11.6 acres WLWT Office and studio Owned 54,000 sq. ft. Cincinnati, OH Tower and transmitter Owned 4.2 acres WISN Office and studio Owned 88,000 sq. ft. Milwaukee, WI Tower and transmitter Owned 5.5 acres WYFF Office and studio Owned 50,856 sq. ft. Greenville, SC Tower and transmitter Owned 1.5 acres WDSU Office and studio Owned 50,525 sq. ft. New Orleans, LA Transmitter Owned 8.3 acres KOCO Office and studio Owned 28,000 sq. ft. Oklahoma City, OK Tower and transmitter Owned 85 acres WGAL Studio and tower Owned 58,900 sq. ft. Lancaster, PA Office Leased 2,380 sq. ft. WXII Office and studio Owned 38,027 sq. ft. Winston-Salem, NC Tower and transmitter Owned 3,747 sq. ft. Office Leased 550 sq. ft.
18
Owned or Approximate Station/Property Location Use Leased Size ------------------------- --- -------- ----------- WLKY Office and studio Owned 37,842 sq. ft. Louisville, KY Tower and transmitter Owned 57.4 acres KOAT Office and studio Owned 37,315 sq. ft. Albuquerque, NM Tower and transmitter Leased 330.5 acres KCCI Office and studio Owned 52,000 sq. ft. Des Moines, IO Tower and transmitter Owned 119.5 acres KITV Office and studio Owned 35,000 sq. ft. Honolulu, HI Tower and trasmitter Leased 130 sq. ft. Tower and trasmitter Leased 300 acres Tower and trasmitter Leased 13 acres KETV Office and studio Owned 35,231 sq. ft. Omaha, NE Tower and transmitter Owned 23.3 acres WAPT Office and studio Owned 8,600 sq. ft. Jackson, MS Tower and transmitter Owned 24 acres WPTZ Office and studio Owned 12,800 sq. ft. Plattsburgh, NY Office Leased 3,900 sq. ft. Tower and transmitter Owned 13.25 acres WNNE Office and studio Leased 5,600 sq. ft. Burlington, VT Tower and transmitter Leased -- KSBW Office and studio Owned 85,726 sq. ft. Monterey-Salinas, CA Tower and transmitter Owned 160.2 acres Office Leased 1,150 sq. ft. KHBS/KHOG Office and studio Owned 47,004 sq. ft. Fort Smith/Fayetteville, AR Office and studio Leased 1,110 sq. ft. Tower and transmitter Leased 2.5 acres Tower and transmitter Owned 26.7 acres KTAR-AM/KMVP-AM/ Office and studio Owned 22,000 sq. ft. KKLT-FM Transmitter Owned 1,450 sq. ft. Studio Leased 1,130 sq. ft.
ITEM 3. LEGAL PROCEEDINGS From time to time, the Company becomes involved in various claims and lawsuits that are incidental to its business. In the opinion of the Company, there are no legal proceedings pending against the Company or any of its subsidiaries that are likely to have a material adverse effect on the Company's consolidated financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 19 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Series A Common Stock has been listed on the NYSE under the symbol "HTV" since July 22, 1998. Prior to listing on NYSE the Series A Common Stock was quoted on the Nasdaq National Market under the Symbol "HATV." The table below sets forth, for the calendar quarters indicated, the reported high and low sales prices of the Series A Common Stock on the Nasdaq National Market or the NYSE, as the case may be.
High Low -------- --------- 1998 First Quarter....................................... $38 $27 1/4 Second Quarter...................................... 41 1/4 32 5/8 Third Quarter....................................... 40 1/4 31 5/8 Fourth Quarter...................................... 33 1/4 24 1999 First Quarter....................................... $35 1/4 $21 Second Quarter...................................... 29 1/2 22 1/16 Third Quarter....................................... 27 3/8 20 Fourth Quarter...................................... 27 1/16 19 15/16
On March 27, 2000, the closing price for the Series A Common Stock on the NYSE was $22 11/16, and the approximate number of shareholders of record of the Series A Common Stock at the close of business on such date was 862. The Company has not paid any dividends on the Series A Common Stock or the Series B Common Stock since inception and does not expect to pay any dividends on either class in the immediate future. The Company's Credit Facilities with The Chase Manhattan Bank limit the ability of the Company to pay dividends under certain conditions. The Company issued 100% of the Series B Common Stock to Hearst in 1997 as part of the Hearst Transaction and related transactions. Of the shares of the Series B Common Stock, the Company issued 38,611,002 on August 29, 1997 and 2,687,646 shares on December 30, 1997. The Company issued the Series B Common Stock pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended. The Company issued the Series B Common Stock to Hearst as consideration for the contribution of the assets and properties of Hearst Broadcast Group and the assumption of $275 million of Hearst's long-term debt. Each share of Series B Common Stock is immediately convertible into one share of Series A Common Stock. All of the outstanding shares of the Series B Common Stock are required to be held by Hearst or a Permitted Transferee (as defined below). All such shares are currently held by Hearst Broadcasting, a wholly owned subsidiary of Hearst Holdings, which is in turn a wholly owned subsidiary of Hearst. No holder of shares of the Series B Common Stock may transfer any such shares to any person other than to (i) Hearst; (ii) any corporation into which Hearst is merged or consolidated or to which all or substantially all of Hearst's assets are transferred; or, (iii) any entity controlled by Hearst (each a "Permitted Transferee"). The Series B Common Stock, however, may be converted at any time into Series A Common Stock and freely transferred, subject to the terms and conditions of the Company's Amended and Restated Certificate of Incorporation and to applicable securities laws limitations. If at any time the Permitted Transferees first hold in the aggregate less than 20% of all shares of the Common Stock that are then issued and outstanding, then each issued and outstanding share of the Series B Common Stock automatically will be converted into one fully paid and nonassessable share of Series A Common Stock, and the Company will not be authorized to issue any additional shares of Series B Common Stock. Notwithstanding any other provision to the contrary, no holder of Series B Common Stock shall (i) transfer any 20 shares of Series B Common Stock; (ii) convert Series B Common Stock; or, (iii) be entitled to receive any cash, stock, other securities or other property with respect to or in exchange for any shares of Series B Common Stock in connection with any merger or consolidation or sale or conveyance of all or substantially all of the property or business of the Company as an entity, unless all necessary approvals of the FCC as required by the Communications Act, and the rules and regulations thereunder have been obtained or waived. ITEM 6. SELECTED FINANCIAL DATA The selected financial data should be read in conjunction with the historical financial statements and notes thereto included elsewhere herein and in "Management's Discussion and Analysis of Financial Condition and Results of Operations." As discussed herein and in the notes to the accompanying consolidated financial statements, on August 29, 1997 (effective September 1, 1997 for accounting purposes) The Hearst Corporation ("Hearst") contributed its television broadcast group and related broadcast operations, Hearst Broadcast Group, to Argyle Television, Inc. ("Argyle") and merged the wholly-owned subsidiary of Hearst with and into Argyle, with Argyle as the surviving corporation (renamed Hearst-Argyle Television, Inc., "Hearst-Argyle" or the "Company") (the "Hearst Transaction"). The merger was accounted for as a purchase of Argyle by Hearst in a reverse acquisition. The presentation of the historical consolidated financial statements prior to September 1, 1997 reflects the combined financial statements of the Hearst Broadcast Group, the accounting acquiror. Effective June 1, 1998, the Company exchanged its WDTN and WNAC/WPRI stations with STC Broadcasting, Inc. and certain related entities (collectively "STC") for KSBW, the NBC affiliate serving the Monterey--Salinas, CA, television market, and WPTZ/WNNE, the NBC affiliates serving the Plattsburgh, NY--Burlington, VT, television market (the "STC Swap") (see Note 3 of the notes to the consolidated financial statements). On January 5, 1999 (effective January 1, 1999 for accounting purposes) the Company acquired, through a merger transaction, all of the partnership interests in Kelly Broadcasting Co., which includes KCRA, the Sacramento station, and the related time-brokerage agreement for another station, KQCA, (the "Kelly Broadcasting Business"), and Kelleproductions, Inc. (the "Kelly Transaction") (see Note 3 of the notes to the consolidated financial statements). On March 18, 1999, the Company acquired the nine television and five radio stations ("Pulitzer Broadcasting Company") of Pulitzer Publishing Company ("Pulitzer") in a merger transaction (the "Pulitzer Merger"). In connection with the Pulitzer Merger, the Company issued approximately 37.1 million shares of the Company's Series A Common Stock to the Pulitzer shareholders (the "Pulitzer Issuance"). See Notes 3 and 9 of the notes to the consolidated financial statements. Additionally, in connection with the Kelly Transaction and the Pulitzer Merger, the Company drew-down $725 million from the Revolving Credit Facility (the "Financing") (see Note 6 of the notes to the consolidated financial statements). On June 30, 1999 the Company issued approximately 3.7 million shares of the Company's Series A Common Stock to Hearst for $100 million (the "Hearst Issuance") (see Note 9 of the notes to the consolidated financial statements). The pro forma consolidated financial data for the year ended December 31, 1999 has been prepared as if the Pulitzer Merger, the Pulitzer Issuance, the Financing and the Hearst Issuance had been completed as of January 1, 1999. Such pro forma data is not necessarily indicative of the actual results that would have occurred nor of results that may occur. 21 Hearst-Argyle Television, Inc. (In thousands, except per share data)
Historical ------------------------------------------------------- Years Ended December 31, ------------------------------------------------------- Pro Forma 1995 1996 1997(a) 1998(b) 1999(c) 1999(d) -------- -------- ---------- ---------- ----------- ---------- Statement of income data: Total revenues............. $279,340 $283,971 $ 333,661 $ 407,313 $ 661,386 $ 707,812 Station operating expenses.................. 117,535 121,501 142,096 173,880 300,420 325,827 Amortization of program rights.................... 38,619 40,297 40,129 42,344 60,009 62,687 Depreciation and amortization.............. 22,134 16,971 22,924 36,420 108,039 122,026 -------- -------- ---------- ---------- ----------- ---------- Station operating income... 101,052 105,202 128,512 154,669 192,918 197,272 Corporate expenses......... 7,857 7,658 9,527 12,635 17,034 17,034 -------- -------- ---------- ---------- ----------- ---------- Operating income........... 93,195 97,544 118,985 142,034 175,884 180,238 Interest expense, net...... 22,218 21,235 32,484 39,555 106,892 114,550 Equity in loss of affiliate (e)....................... -- -- -- -- 279 279 -------- -------- ---------- ---------- ----------- ---------- Income before income taxes and extraordinary item.... 70,977 76,309 86,501 102,479 68,713 65,409 Income taxes............... 30,182 31,907 35,363 42,796 33,311 33,358 -------- -------- ---------- ---------- ----------- ---------- Income before extraordinary item...................... 40,795 44,402 51,138 59,683 35,402 32,051 Extraordinary item (f)..... -- -- (16,212) (10,826) (3,092) -- -------- -------- ---------- ---------- ----------- ---------- Net income................. 40,795 44,402 34,926 48,857 32,310 32,051 Less preferred stock dividends (g)............. -- -- (711) (1,422) (1,422) (1,422) -------- -------- ---------- ---------- ----------- ---------- Income applicable to common stockholders.............. $ 40,795 $ 44,402 $ 34,215 $ 47,435 $ 30,888 $ 30,629 ======== ======== ========== ========== =========== ========== Income per common share-- basic: Before extraordinary item.. $ 0.99 $ 1.08 $ 1.13 $ 1.09 $ 0.41 $ 0.33 ======== ======== ========== ========== =========== ========== Net income................. $ 0.99 $ 1.08 $ 0.77 $ 0.89 $ 0.37 $ 0.33 ======== ======== ========== ========== =========== ========== Number of shares used in the calculation (h).......... 41,299 41,299 44,632 53,483 83,189 92,832 ======== ======== ========== ========== =========== ========== Income per common share-- diluted: Before extraordinary item.. $ 0.99 $ 1.08 $ 1.13 $ 1.08 $ 0.41 $ 0.33 ======== ======== ========== ========== =========== ========== Net income................. $ 0.99 $ 1.08 $ 0.77 $ 0.88 $ 0.37 $ 0.33 ======== ======== ========== ========== =========== ========== Number of shares used in the calculation (h) 41,299 41,299 44,674 53,699 83,229 92,871 ======== ======== ========== ========== =========== ========== Other data: Broadcast cash flow (i).... $123,038 $117,947 $ 150,972 $ 190,486 $ 304,564 $ 323,254 Broadcast cash flow margin (j)....................... 44.0% 41.5% 45.2% 46.8% 46.0% 45.7% Operating cash flow (k).... $117,087 $109,457 $ 141,445 $ 177,851 $ 287,530 $ 306,220 Operating cash flow margin (l)....................... 41.9% 38.5% 42.4% 43.7% 43.5% 43.3% After-tax cash flow (m).... $ 62,929 $ 61,373 $ 74,062 $ 96,103 $ 143,441 $ 154,077 Cash flow provided by operating activities...... $ 61,185 $ 65,801 $ 67,689 $ 133,638 $ 138,914 $ 138,933 Cash flow used in investing activities................ $ (8,621) $ (7,764) $ (131,973) $ (47,531) $(1,317,922) (n) Cash flow provided by (used in) financing activities.. $(52,020) $(58,145) $ 74,161 $ 282,114 $ 803,660 (n) Capital expenditures....... $ 8,621 $ 7,764 $ 21,897 $ 22,722 $ 52,402 N/A Program payments........... $ 38,767 $ 44,523 $ 40,593 $ 42,947 $ 56,402 $ 58,731 Balance sheet data (at year end): Cash and cash equivalents.. $ 2,990 $ 2,882 $ 12,759 $ 380,980 $ 5,632 $ 5,632 Total assets............... $385,406 $366,956 $1,044,482 $1,421,140 $ 3,913,227 $3,913,227 Total debt (including current portion).......... N/A N/A $ 490,000 $ 842,596 $ 1,563,596 $1,563,596 Divisional/Stockholders' equity (o)................ $272,762 $259,020 $ 326,654 $ 324,390 $ 1,416,791 $1,416,791
See notes on the following pages. 22 Notes to Selected Financial Data (a) The Hearst Transaction was consummated on August 29, 1997. The selected financial data includes results from (i) WCVB, WTAE, WBAL, WISN, KMBC and WDTN for the entire period presented; (ii) WAPT, KITV, KHBS/KHOG, WLWT, KOCO and the Company's share of the 1996 Joint Marketing and Programming Agreement relating to the television station WNAC/WPRI with the owner of another television station in the same market (the "Clear Channel Venture") from September 1 through December 31, 1997; and, (iii) management fees derived by the Company from WMOR (formerly WWWB), WPBF, KCWE and WBAL-AM and WIYY-FM (the "Managed Stations") from September 1 through December 31, 1997. (b) Includes results from (i) WAPT, KITV, KHBS/KHOG, WLWT, KOCO, WCVB, WTAE, WBAL, WISN and KMBC for the entire period presented; (ii) fees derived by the Company from the Managed Stations for the entire period presented; and, (iii) WDTN and the Company's share of the Clear Channel Venture (WNAC/WPRI) from January 1 through May 31, 1998 and KSBW and WPTZ/WNNE from June 1 through December 31, 1998 (the "STC Swap"). (c) Includes results from (i) WAPT, KITV, KHBS/KHOG, WLWT, KOCO, WCVB, WTAE, WBAL, WISN, KMBC, KSBW, WPTZ/WNNE for the entire period presented; (ii) fees derived by the Company from the Managed Stations for the entire period presented; (iii) the Kelly Broadcasting Business for the entire period presented; and, (iv) the Pulitzer Broadcasting Business which includes nine television stations and five radio stations from March 19 through December 31, 1999. (d) Includes results of Argyle, the Hearst Broadcast Group, the management fees derived by the Company from the Managed Stations, the Kelly Broadcasting Business and Pulitzer Broadcasting Business on a combined pro forma basis, as if the Pulitzer Merger, the Pulitzer Issuance, the Financing and the Hearst Issuance had occurred at the beginning of the period presented. (e) Represents the Company's share of the loss of Internet Broadcasting Systems, Inc. for the Company's equity investment (see Note 3 of the notes to the consolidated financial statements). (f) Represents the write-off of unamortized financing costs and premiums paid upon early extinguishment of Hearst-Argyle debt. (g) Gives effect to dividends on the Preferred Stock issued in connection with the acquisition of KHBS/KHOG. (h) The number of shares used in the per share calculation reflects retroactively approximately 41.3 million shares received by Hearst in the Hearst Transaction for all periods prior to September 1, 1997. (i) Broadcast cash flow is defined as station operating income, plus depreciation and amortization and write-down of intangible assets plus amortization of program rights, minus program payments. The Company has included broadcast cash flow data because management believes that such data are commonly used as a measure of performance among companies in the broadcast industry. Broadcast cash flow is also frequently used by investors, analysts, valuation firms and lenders as one of the important determinants of underlying asset value. Broadcast cash flow should not be considered in isolation or as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the entity's operating performance, or to cash flow from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. This measure is believed to be, but may not be, comparable to similarly titled measures used by other companies. (j) Broadcast cash flow margin is broadcast cash flow divided by total revenues, expressed as a percentage. This measure may not be comparable to similarly titled measures used by other companies. (k) Operating cash flow is defined as operating income, plus depreciation and amortization, write-down of intangible assets and amortization of program rights, minus program payments, plus non-cash compensation. The Company has included operating cash flow data, also known as EBITDA, because management believes that such data are commonly used as a measure of performance among companies in the broadcast industry. Operating cash flow is also used by investors, analysts, rating agencies and lenders to measure a company's ability to service debt. Operating cash flow should not be considered in isolation or as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the entity's operating performance, or to cash flow from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. This measure is believed to be, but may not be, comparable to similarly titled measures used by other companies. 23 Notes to Selected Financial Data (Continued) (l) Operating cash flow margin is operating cash flow divided by total revenues, expressed as a percentage. This measure may not be comparable to similarly titled measures used by other companies. (m) After-tax cash flow is defined as income before extraordinary item plus depreciation and amortization. The Company has included after-tax cash flow data because management believes that such data are commonly used by investors, analysts, rating agencies and lenders to measure a company's ability to service debt and as an alternative determinant of enterprise value. After-tax cash flow should not be considered in isolation or as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the entity's operating performance, or to cash flow from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. This measure is believed to be, but may not be, comparable to similarly titled measures used by other companies. (n) The cash flow data for investing activities and financing activities is not determinable for pro forma purposes. (o) Divisional / Stockholders' equity includes net amounts due to Hearst and affiliates for the periods prior to September 1, 1997. Hearst-Argyle has not paid any dividends on its Common Stock since inception. 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations On August 29, 1997, effective September 1, 1997 for accounting purposes, The Hearst Corporation ("Hearst") contributed its television broadcast group and related broadcast operations (the "Hearst Broadcast Group") to Argyle Television, Inc. ("Argyle") and merged a wholly-owned subsidiary of Hearst with and into Argyle, with Argyle as the surviving corporation (renamed "Hearst-Argyle Television, Inc.") (the "Company"). The merger transaction is referred to as the "Hearst Transaction". The merger was accounted for as a purchase of Argyle by Hearst in a reverse acquisition. In a reverse acquisition, the accounting treatment differs from the legal form of the transaction, as the continuing legal parent company (Argyle), is not assumed to be the acquiror and the historical financial statements of the entity become those of the accounting acquiror (Hearst Broadcast Group). Consequently, the presentation of the Company's consolidated financial statements prior to September 1, 1997 reflects the financial statements of the Hearst Broadcast Group. In addition, the Company agreed to provide management services with respect to WMOR (formerly WWWB), WPBF, KCWE and WBAL-AM and WIYY-FM (the "Managed Stations"), three of which stations are owned by Hearst and the other of which Hearst provides certain services to under a local marketing agreement, in exchange for a management fee. See Note 13 of the notes to the consolidated financial statements. Effective June 1, 1998, the Company exchanged its WDTN and WNAC/WPRI stations with STC Broadcasting, Inc. and certain related entities (collectively "STC") for KSBW, the NBC affiliate serving the Monterey-- Salinas, CA, television market, and WPTZ/WNNE, the NBC affiliates serving the Plattsburgh, NY-- Burlington, VT, television market (the "STC Swap"). See Note 3 of the notes to the consolidated financial statements. On January 5, 1999, effective January 1, 1999 for accounting purposes, the Company acquired, through a merger transaction, all of the partnership interests in Kelly Broadcasting Co., which includes KCRA, the Sacramento station, and the related time-brokerage agreement for another station, KQCA, (the "Kelly Broadcasting Business"), and Kelleproductions, Inc. (the "Kelly Transaction") (see Note 3 of the notes to the consolidated financial statements). On March 18, 1999, the Company acquired the nine television and five radio stations ("Pulitzer Broadcasting Company") of Pulitzer Publishing Company ("Pulitzer") in a merger transaction (the "Pulitzer Merger"). In connection with the Pulitzer Merger, the Company issued approximately 37.1 million shares of the Company's Series A Common Stock to the Pulitzer shareholders (the "Pulitzer Issuance"). See Notes 3 and 9 of the notes to the consolidated financial statements. Additionally, in connection with the Kelly Transaction and the Pulitzer Merger, the Company drew-down $725 million from the Revolving Credit Facility (the "Financing") (see Note 6 of the notes to the consolidated financial statements). On June 30, 1999 the Company issued approximately 3.7 million shares of the Company's Series A Common Stock to Hearst for $100 million (the "Hearst Issuance") (see Note 9 of the notes to the consolidated financial statements). The following discussion of results of operations does not include the full- year pro forma effects of the Hearst Transaction (for 1997), the STC Swap (for 1997 and 1998), the Kelly Transaction (for 1997 and 1998), the Pulitzer Merger and the related Pulitzer Issuance and Financing (for 1997, 1998 and 1999) or the Hearst Issuance (for 1997, 1998 and 1999). Results of operations for the year ended December 31, 1999 include results from (i) WCVB, WTAE, WBAL, WISN, KMBC, WAPT, KITV, KHBS/KHOG, WLWT, KOCO, KSBW, WPTZ/WNNE and management fees derived by the Company from the Managed Stations for the entire period; (ii) the Kelly Broadcasting Business for the entire period presented; and, (iii) the Pulitzer Broadcasting Business which includes nine television stations and five radio stations from March 19 through December 31, 1999. Results of operations for 25 the year ended December 31, 1998 include: (i) WCVB, WTAE, WBAL, WISN, KMBC, WAPT, KITV, KHBS/KHOG, WLWT, KOCO and management fees derived by the Company from the Managed Stations for the entire period; (ii) WDTN and the Company's share of the Clear Channel Venture (WNAC/WPRI) from January 1 through May 31, 1998; and, (iii) KSBW and WPTZ/WNNE from June 1 through December 31, 1998. Results of operations for the year ended December 31, 1997 include: (i) the Hearst Broadcast Group for the entire period presented; and, (ii) WAPT, KITV, KHBS/KHOG, WLWT, KOCO; the Company's share of the Clear Channel Venture and management fees derived by the Company from the Managed Stations from September 1 through December 31, 1997. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Total revenues. Total revenues includes (i) cash and barter advertising revenues, net of agency and national representatives' commissions, (ii) network compensation and (iii) other revenues. Total revenues in the year ended December 31, 1999 were $661.4 million, as compared to $407.3 million in the year ended December 31, 1998, an increase of $254.1 million or 62.4%. The increase was primarily attributable to the Pulitzer Merger and the Kelly Transaction, which added $190.2 million and $69.8 million, respectively, to 1999 total revenues. This increase was offset by a decrease in political advertising revenues of $18.3 million during 1999. Station operating expenses. Station operating expenses in the year ended December 31, 1999 were $300.4 million, as compared to $173.9 million in the year ended December 31, 1998, an increase of $126.5 million or 72.7%. The increase was primarily attributable to the Pulitzer Merger and the Kelly Transaction, which added $91.5 million and $29.6 million, respectively, to 1999 station operating expenses. Amortization of program rights. Amortization of program rights in the year ended December 31, 1999 was $60 million, as compared to $42.3 million in the year ended December 31, 1998, an increase of $17.7 million or 41.8%. The increase was primarily attributable to the Kelly Transaction and the Pulitzer Merger, which added $10 million and $9.5 million, respectively, to 1999 amortization of program rights. The increase was offset by a decrease in amortization of program rights of (i) $1.4 million due to lower-cost replacement programming in several markets and (ii) $0.6 million due to the net effect of the STC Swap. Depreciation and amortization. Depreciation and amortization of intangible assets was $108 million in the year ended December 31, 1999, as compared to $36.4 million in the year ended December 31, 1998, an increase of approximately $71.6 million or 196.7%. The increase was primarily attributable to the Pulitzer Merger and the Kelly Transaction, which added $52.3 million and $17.4 million, respectively, to 1999 depreciation and amortization of intangible assets. Station operating income. Station operating income in the year ended December 31, 1999 was $192.9 million, as compared to $154.7 million in the year ended December 31, 1998, an increase of $38.2 million or 24.7%, due to the items discussed above. Corporate general and administrative expenses. Corporate general and administrative expenses were $17 million in the year ended December 31, 1999, as compared to $12.6 million in the year ended December 31, 1998, an increase of $4.4 million or 34.9%. The increase in corporate general and administrative expenses was primarily attributable to the increase in corporate staff because of the Pulitzer Merger and other costs associated with the Kelly Transaction and the Pulitzer Merger. Interest expense, net. Interest expense, net, was $106.9 million in the year ended December 31, 1999, as compared to $39.6 million in the year ended December 31, 1998, an increase of $67.3 million or 169.9%. The increase in interest expense, net, was primarily attributable to a larger outstanding debt balance during the 1999 period due to the Kelly Transaction and the Pulitzer Merger. Equity in loss of affiliate. The Company recorded an equity loss of affiliate of $0.3 million in the year ended December 31, 1999. This loss represents the Company's equity interest in Internet Broadcasting Systems, Inc. ("IBS"). 26 Income taxes. Income tax expense was $33.3 million for the year ended December 31, 1999, as compared to $42.8 million for the year ended December 31, 1998, a decrease of $9.5 million or 22.2%. The effective rate was 48.5% for the year ended December 31, 1999, as compared to 41.8% for the year ended December 31, 1998. This represents federal and state income taxes as calculated on the Company's net income before taxes and extraordinary item for the years ended December 31, 1999 and 1998. The increase in the effective rate relates primarily to the non-tax-deductible goodwill amortization related to the Pulitzer Merger. Management believes that the Company's effective rate should decrease as future pre-tax income increases and the effect of such non- deductible expenses decreases. Extraordinary item. The Company recorded an extraordinary item of $3.1 million, net of the related income tax benefit, in 1999. The 1999 extraordinary item, which resulted from the early retirement of the Company's Revolving Credit Facility, includes the write-off of the unamortized deferred financing costs associated with the Revolving Credit Facility. The Company recorded an extraordinary item of $10.8 million, net of the related income tax benefit, in 1998. This extraordinary item resulted from an early repayment of $102.4 million of the Company's Senior Subordinated Notes. The 1998 extraordinary item includes the write-off of unamortized deferred financing costs associated with the Senior Subordinated Notes, the payment of a premium for the early repayment and the related expenses incurred. Net income. Net income totaled $32.3 million in the year ended December 31, 1999, as compared to $48.9 million in the year ended December 31, 1998, a decrease of $16.6 million or 33.9%, due to the items discussed above. Broadcast Cash Flow. Broadcast cash flow totaled $304.6 million in the year ended December 31, 1999, as compared to $190.5 million in the year ended December 31, 1998, an increase of $114.1 million or 59.9%. The increase in broadcast cash flow was primarily attributable to the Pulitzer Merger and the Kelly Transaction, which added $89.8 million and $33.6 million, respectively, to 1999 broadcast cash flow. This increase was offset by a decrease in broadcast cash flow of $18.3 million primarily due to a decrease in 1999 political advertising revenues. Broadcast cash flow is defined as station operating income, plus depreciation and amortization, plus amortization of program rights, minus program payments. The Company has included broadcast cash flow data because management believes that such data are commonly used as a measure of performance among companies in the broadcast industry. Broadcast cash flow is also frequently used by investors, analysts, valuation firms and lenders as one of the important determinants of underlying asset value. Broadcast cash flow should not be considered in isolation or as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the entity's operating performance, or to cash flow from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. This measure is believed to be, but may not be, comparable to similarly titled measures used by other companies in the broadcast industry. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Total revenues. Total revenues includes (i) cash and barter advertising revenues, net of agency and national representatives' commissions, (ii) network compensation and (iii) other revenues. Total revenues in the year ended December 31, 1998 were $407.3 million, as compared to $333.7 million in the year ended December 31, 1997, an increase of $73.6 million or 22.1%. The increase was primarily attributable to (i) the Hearst Transaction and the net effect of the STC Swap, which added $56.6 million and $3.1 million, respectively, to 1998 total revenues and (ii) an increase in political advertising revenues of $15.6 million, which was offset by a decrease in national advertising revenues of $3.7 million. Station operating expenses. Station operating expenses in the year ended December 31, 1998 were $173.9 million, as compared to $142.1 million in the year ended December 31, 1997, an increase of $31.8 million or 22.4%. The increase was primarily attributable to the Hearst Transaction and to the net effect of the STC Swap, which added $28.4 million and $1.2 million, respectively, to 1998 station operating expenses. 27 Amortization of program rights. Amortization of program rights in the year ended December 31, 1998 was $42.3 million, as compared to $40.1 million in the year ended December 31, 1997, an increase of $2.2 million or 5.5%. The increase is primarily attributable to (i) the Hearst Transaction and (ii) new programs purchased for favorable time-slots (late fringe time periods) in certain central time zone markets which added $3.3 million and $ 0.4 million, respectively, to amortization of program rights during 1998. This increase was offset by a decrease in amortization of program rights of (i) $0.7 million due to the net effect of the STC Swap and (ii) $1 million due to lower-cost replacement programming in several markets. Depreciation and amortization. Depreciation and amortization of intangible assets was $36.4 million in the year ended December 31, 1998, as compared to $22.9 million in the year ended December 31, 1997, an increase of approximately $13.5 million or 59%. This increase is primarily attributable to the Hearst Transaction, which added $12.8 million to 1998 depreciation and amortization of intangible assets. Station operating income. Station operating income in the year ended December 31, 1998 was $154.7 million, as compared to $128.5 million in the year ended December 31, 1997, an increase of $26.2 million or 20.4%, due to the items discussed above. Corporate general and administrative expenses. Corporate general and administrative expenses were $12.6 million in the year ended December 31, 1998, as compared to $9.5 million in the year ended December 31, 1997, an increase of $3.1 million or 32.6%. The increase was attributable to the increase in corporate staff following the Hearst Transaction and other costs associated with the Hearst Transaction. Interest expense, net. Interest expense, net, was $39.6 million in the year ended December 31, 1998, as compared to $32.5 million in the year ended December 31, 1997, an increase of $7.1 million or 21.8%. This increase in interest expense, net, was attributable to a larger outstanding debt balance in 1998 than in 1997, which was the result of the Hearst Transaction. In addition, interest expense, net was decreased in the year ended December 31, 1998 due to approximately $0.9 million in interest income recorded relating to the note receivable from the STC Swap. See Note 3 of the notes to the consolidated financial statements. Income taxes. Income tax expense was $42.8 million for the year ended December 31, 1998, as compared to $35.4 million for the year ended December 31, 1997, an increase of $7.4 million or 20.9%. The effective rate was 41.8% for the year ended December 31, 1998 as compared to 40.9% for the year ended December 31, 1997. This represents federal and state income taxes as calculated on the Company's net income before taxes and extraordinary item for the years ended December 31, 1998 and 1997. The increase in the effective rate relates primarily to the non-tax-deductible goodwill amortization related to the Hearst Transaction and the increase in the state and local income tax provision. Extraordinary item. The Company recorded an extraordinary item of $10.8 million, net of the related income tax benefit, in 1998. This extraordinary item resulted from an early repayment of $102.4 million of the Company's Senior Subordinated Notes. The 1998 extraordinary item includes the write-off of unamortized deferred financing costs associated with the Senior Subordinated Notes, the payment of a premium for the early repayment and the related expenses incurred. The Company recorded an extraordinary item of $16.2 million, net of the related income tax benefit, in 1997. This extraordinary item resulted from a refinancing of the Company's $275 million private placement debt (assumed in connection with the Hearst Transaction) and $45 million of the Company's Senior Subordinated Notes in December 1997. The 1997 extraordinary item includes the write-off of the pro rata portion of the unamortized financing costs associated with the Senior Subordinated Notes and the payment of a premium for both refinancings. Net income. Net income totaled $48.9 million in the year ended December 31, 1998, as compared to $34.9 million in the year ended December 31,1997, an increase of $14 million or 40.1%, due to the items discussed above. Broadcast Cash Flow. Broadcast cash flow totaled $190.5 million in the year ended December 31, 1998, as compared to $151 million in the year ended December 31, 1997, an increase of $39.5 million or 26.2%. The 28 increase in broadcast cash flow resulted primarily from (i) the Hearst Transaction and the STC Swap, which added $24.7 million and $2.6 million, respectively, to broadcast cash flow during 1998 and (ii) an increase in political advertising revenues of $15.6 million period to period which was partially offset by a decrease in national advertising of $3.7 million period to period. Broadcast cash flow margin increased to 46.8% in 1998 from 45.2% in 1997. Broadcast cash flow is defined as station operating income, plus depreciation and amortization and write down of intangible assets plus amortization of program rights, and minus program payments. The Company has included broadcast cash flow data because management believes that such data are commonly used as a measure of performance among companies in the broadcast industry. Broadcast cash flow is also frequently used by investors, analysts, valuation firms and lenders as one of the important determinants of underlying asset value. Broadcast cash flow should not be considered in isolation or as an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the entity's operating performance, or to cash flow from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity. This measure is believed to be, but may not be, comparable to similarly titled measures used by other companies. Liquidity and Capital Resources Upon completion of the Hearst Transaction on August 29, 1997, the Company entered into a $1 billion syndicated credit facility with the Chase Manhattan Bank (the "Revolving Credit Facility"). On April 12, 1999, the Company retired its Revolving Credit Facility and replaced it with two new revolving credit facilities (the "New Credit Facilities") with the Chase Manhattan Bank as the administrative agent for a consortium of banks. The New Credit Facilities of $1 billion and $250 million will mature on April 12, 2004 and April 12, 2003, respectively. The Company may borrow amounts under the New Credit Facilities from time to time for additional acquisitions, capital expenditures and working capital, subject to the satisfaction of certain conditions on the date of borrowing. There was $611 million outstanding under the New Credit Facilities as of December 31, 1999. See Note 6 of the notes to the consolidated financial statements. In connection with the Kelly Transaction, the Company issued $340 million and $110 million in senior notes ("Private Placement Debt") in December 1998 and January 1999, respectively. The remainder of the Kelly Transaction purchase price was funded using a combination of borrowings under the Revolving Credit Facility and available cash. See Notes 3 and 6 of the notes to the consolidated financial statements. In connection with the Pulitzer Merger, the Company issued 37.1 million shares of Series A Common Stock to Pulitzer shareholders, assumed $700 million in debt and paid $5 million for the interest in the Arizona Diamondbacks. The Company borrowed approximately $715 million under the Revolving Credit Facility to refinance the assumed debt and pay related transaction expenses. See Notes 3 and 6 of the notes to the consolidated financial statements. On June 30, 1999 the Company issued to The Hearst Corporation 3.7 million shares of the Company's Series A Common Stock for $100 million (the "Hearst Issuance"). The Company used the net proceeds of this $100 million equity issuance to repay a portion of the outstanding balance under its New Credit Facilities, thereby reducing the Company's overall debt leverage ratio and future interest expense. See Note 9 of the notes to the consolidated financial statements. In December 1999, the Company invested $20 million of cash in IBS for an equity interest in IBS. In September 1999 and February 2000, the Company invested $2 million and $8 million, respectively, in Geocast Network Systems, Inc. ("Geocast") for an equity interest in Geocast. In March 2000, the Company invested $25 million in Consumer Financial Network, Inc. ("CFN") for an equity interest in CFN. See Notes 3 and 19 of the notes to the consolidated financial statements. These equity investments were primarily funded through drawdowns from the New Credit Facilities. Borrowings related to the Kelly Transaction and the Pulitzer Merger will increase the Company's interest expense by approximately $78.3 million per year based on the borrowings at the time of the transactions. 29 Borrowings related to the equity investments will increase the Company's interest expense by approximately $3.7 million per year based on the borrowings at the time of the investments. This increase in interest expense will decrease as the debt balance is reduced by cash flows from operations. Additionally, this increase will be offset by a decrease in interest expense of $6.3 million per year due to the Hearst Issuance. The net increase in interest expense will be funded from the increase in cash flow from operations due to the Kelly Transaction and the Pulitzer Merger. The Company implemented an employee stock purchase plan (the "Stock Purchase Plan") during April of 1999. The Stock Purchase Plan allows employees to purchase shares of the Company's Series A Common Stock through after-tax payroll deductions. The Company reserved and made available for issuance and purchases under the Stock Purchase Plan 5,000,000 shares of Series A Common Stock. Employees purchased 82,555 shares for aggregate proceeds of approximately $1.8 million through December 31, 1999. See Note 12 of the notes to the consolidated financial statements. The Stock Purchase Plan is intended to comply with the provisions of Section 423 of the Internal Revenue Code of 1986, as amended. Capital expenditures were $52.3 million and $22.7 million in 1999 and 1998, respectively. The Company invested approximately $25.0 million in special projects/buildings including its new station facilities at WCVB and WLWT, approximately $19.1 million in maintenance projects and approximately $8.2 million in digital conversion projects at various stations during 1999. The Company expects to spend approximately $38.9 million for the year ending December 31, 2000, including approximately (i) $24.4 million in maintenance projects, (ii) $9.2 million in digital projects and (iii) $5.3 million in special projects. The Company anticipates that its primary sources of cash, those being, current cash balances, operating cash flow and amounts available under the New Credit Facilities, will be sufficient to finance the operating and working capital requirements of its stations, the Company's debt service requirements and anticipated capital expenditures of the Company for both the next 12 months and the foreseeable future thereafter. Impact of Inflation The impact of inflation on the Company's operations has not been significant to date. There can be no assurance, however, that a high rate of inflation in the future would not have an adverse impact on the Company's operating results. Forward-Looking Statements This report contains certain forward-looking statements concerning the Company's operations, economic performance and financial condition. These statements are based upon a number of assumptions and estimates, which are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company, and reflect future business decisions, which are subject to change. Some of the assumptions may not materialize and unanticipated events may occur which can affect the Company's results. Year 2000 The Company undertook various initiatives intended to ensure that its information assets ("IT Assets") and non-IT Assets with embedded microprocessors would function properly with respect to dates in the Year 2000 and thereafter. The Company implemented a comprehensive plan (the "Plan") including the following phases: (i) the identification of mission-critical operating systems and applications and the inventory of all hardware and software at risk of being date sensitive to Year 2000 related problems (collectively, "Year 2000 problems"); (ii) assessment and evaluation of these systems including prioritization; (iii) modification, upgrading and replacement of the affected systems; and, (iv) compliance testing of the systems. The Plan's goal resulted in the certification of systems as Year 2000 compliant or determined and funded the correction of the affected systems. The Company established Year 2000 teams that were responsible for analyzing the Year 2000 impact on operations and for formulating appropriate strategies to overcome and resolve the Year 2000 problems. There was no interruption or disruption to the normal operation of the Company's operations and there has been no evidence of suppliers or customers' ability to transact business. 30 The majority of costs associated with the Company's Year 2000 problems were for systems that were fully depreciated and obsolete and which were scheduled for replacement prior to the Year 2000. These replacement systems were installed to provide users with enhanced capabilities and functionality, not solely to bring systems into Year 2000 compliance. Through December 31, 1999, the Company has spent approximately $2.5 million on these replacement systems. Through December 31, 1999, the Company has spent approximately $9 million for systems with accelerated replacement schedules due to Year 2000 problems. These costs have been included in the capital expenditure disclosure in the Liquidity and Capital Resources section. The Company does not anticipate making any additional Year 2000 expenditures after December 31, 1999. An assessment was made of the newly acquired Pulitzer Broadcasting Company and Kelly Broadcasting Co. systems, and systems potentially affected by Year 2000 problems were identified (see Note 3 of the notes to the consolidated financial statements). Included were systems that were fully depreciated, obsolete and scheduled for replacement. From the date of the Kelly Transaction and the Pulitzer Merger, respectively, through December 31, 1999, the Company spent approximately $1.3 million on these replacement systems, approximately $0.4 million for systems with accelerated replacement schedules due to Year 2000 problems and approximately $0.2 million for remediation of equipment and systems with Year 2000 problems. The Company does not anticipate making any additional Year 2000 expenditures after December 31, 1999. These costs are in addition to the costs discussed above. However, these costs have been included in the capital expenditure disclosure in the Liquidity and Capital Resources section. The Company believes that the completed compliance modifications and conversions of its internal systems and equipment have resulted in Year 2000 compliance. However, there can be no assurance that the Company's or its suppliers' current systems do not contain undetected errors associated with Year 2000 date functions. The failure of the systems or equipment of the Company or third parties (which the Company believes is the most reasonably likely worst case scenario) could effect the broadcast of advertisements and programming and could have a material effect on the Company's business or consolidated financial statements. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective for all quarters of all fiscal years beginning after June 15, 1999. SFAS 133 requires that derivative instruments be measured at fair value and recognized as assets or liabilities in a company's statement of financial position. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amended the effective date for SFAS 133 from June 15, 1999 to June 15, 2000 which becomes effective for the Company's consolidated financial statements for the year ending December 31, 2001. Based on the Company's current use of derivative instruments and hedging activities, the adoption of this statement will not have a material effect on the Company's consolidated financial statements. 31 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has long-term debt obligations at December 31, 1999 that are sensitive to changes in interest rates. See Notes 2 and 6 of the notes to the consolidated financial statements. For long-term debt obligations, the following table presents the fair value at December 31, 1998 and 1999 and the future cash flows by expected maturity dates based on debt balances at December 31, 1999.
December 31, 1998 December 31, 1999 ----------------- ----------------------------------------------- Expected Maturities Carrying Fair -------------------------------------- Fair Value Value 2000-2003 2004 Thereafter Total Value -------- -------- --------- -------- ---------- -------- -------- (In thousands) Long-term debt: Variable rate New Credit Facilities........... -- -- -- $611,000 -- $611,000 $649,401 Fixed rate Senior Notes.......... $500,000 $516,842 -- -- $500,000 $500,000 $468,356 Senior Subordinated Notes................ $ 2,596 $ 2,939 -- -- $ 2,596 $ 2,596 $ 2,737 Private Placement Debt................. $340,000 $350,531 -- -- $450,000 $450,000 $451,998
The Company's annualized weighted average interest rate for variable rate long-term debt for the year ended December 31, 1999 is 6.5%. The annualized weighted average interest rate for fixed rate long-term debt is 7.7% and 7.2% for the years ended December 31, 1998 and 1999, respectively. The Company's New Credit Facilities are sensitive to interest rates. The Company's interest-rate swap agreements expired in May and June of 1999. At December 31, 1998, the estimated fair value of these interest-rate swap agreements was $321,170. See Notes 2 and 6 of the notes to the consolidated financial statements. As of December 31, 1999, the Company is not involved in any derivative financial instruments. However, the Company may consider certain interest rate risk strategies in the future. 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO HISTORICAL FINANCIAL STATEMENTS
Page ---- Hearst-Argyle Television, Inc. Report of Deloitte & Touche LLP........................................... 34 Consolidated Balance Sheets as of December 31, 1998 and 1999.............. 35 Consolidated Statements of Income for the Years Ended December 31, 1997, 1998 and 1999......................................... 36 Consolidated Statements of Divisional/Stockholders' Equity for the Years Ended December 31, 1997, 1998 and 1999......................................... 37 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999......................................... 38 Notes to Consolidated Financial Statements................................ 41
33 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Hearst-Argyle Television, Inc. We have audited the accompanying consolidated balance sheets of Hearst-Argyle Television, Inc. and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of income, divisional/stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP New York, New York February 25, 2000 (March 22, 2000 as to Note 19) 34 HEARST-ARGYLE TELEVISION, INC. Consolidated Balance Sheets
December 31, December 31, 1998 1999 ------------ ------------ (In thousands) Assets Current assets: Cash and cash equivalents........................... $ 380,980 $ 5,632 Accounts receivable, net of allowance for doubtful accounts of $2,026 and $2,862 in 1998 and 1999, respectively....................................... 91,608 159,395 Program and barter rights........................... 35,408 56,393 Deferred income taxes............................... 2,166 3,905 Other............................................... 5,087 11,809 ---------- ---------- Total current assets.............................. 515,249 237,134 ---------- ---------- Property, plant and equipment: Land, building and improvements..................... 43,325 137,545 Broadcasting equipment.............................. 154,013 251,484 Office furniture, equipment and other............... 18,177 31,221 Construction in progress............................ 17,594 10,289 ---------- ---------- 233,109 430,539 Less accumulated depreciation....................... (103,496) (87,875) ---------- ---------- Property, plant and equipment, net................... 129,613 342,664 ---------- ---------- Intangible assets, net............................... 711,409 3,230,842 ---------- ---------- Other assets: Deferred acquisition and financing costs, net of accumulated amortization of $2,843 and $4,591 in 1998 and 1999, respectively........................ 31,302 30,836 Investments......................................... -- 29,938 Program and barter rights, noncurrent............... 3,584 5,072 Other............................................... 29,983 36,741 ---------- ---------- Total other assets................................ 64,869 102,587 ---------- ---------- Total assets...................................... $1,421,140 $3,913,227 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable.................................... $ 5,094 $ 16,289 Accrued liabilities................................. 34,432 39,649 Program and barter rights payable................... 35,411 56,715 Related party payable............................... 12,218 9,343 Other............................................... 1,692 1,669 ---------- ---------- Total current liabilities......................... 88,847 123,665 ---------- ---------- Program and barter rights payable, noncurrent........ 3,752 5,386 Long-term debt....................................... 842,596 1,563,596 Deferred income taxes................................ 158,449 787,358 Other liabilities.................................... 3,106 16,431 ---------- ---------- Total noncurrent liabilities...................... 1,007,903 2,372,771 ---------- ---------- Commitments and contingencies Stockholders' equity: Series A preferred stock, 10,938 shares issued and outstanding in 1998 and 1999 (aggregate liquidation preference of $10,938).............................. 1 1 Series B preferred stock, 10,938 shares issued and outstanding in 1998 and 1999 (aggregate liquidation preference of $10,938).............................. 1 1 Series A common stock, par value $.01 per share, 100,000,000 and 200,000,000 shares authorized in 1998 and 1999, respectively, and 12,574,872 and 53,485,287 shares issued and outstanding in 1998 and 1999, respectively.................................. 126 535 Series B common stock, par value $.01 per share, 100,000,000 shares authorized in 1998 and 1999 and 41,298,648 shares issued and outstanding in 1998 and 1999................................................ 413 413 Additional paid-in capital........................... 203,105 1,271,666 Retained earnings.................................... 171,397 202,285 Treasury stock, at cost, 1,736,515 and 2,037,015 shares of Series A common stock in 1998 and 1999, respectively........................................ (50,653) (58,110) ---------- ---------- Total stockholders' equity........................ 324,390 1,416,791 ---------- ---------- Total liabilities and stockholders' equity........ $1,421,140 $3,913,227 ========== ==========
See notes to consolidated financial statements. 35 HEARST-ARGYLE TELEVISION, INC. Consolidated Statements of Income
Years Ended December 31, ---------------------------- 1997 1998 1999 -------- -------- -------- (In thousands, except per share data) Total revenues.................................. $333,661 $407,313 $661,386 Station operating expenses...................... 142,096 173,880 300,420 Amortization of program rights.................. 40,129 42,344 60,009 Depreciation and amortization................... 22,924 36,420 108,039 -------- -------- -------- Station operating income........................ 128,512 154,669 192,918 Corporate general and administrative expenses... 9,527 12,635 17,034 -------- -------- -------- Operating income................................ 118,985 142,034 175,884 Interest expense, net........................... 32,484 39,555 106,892 Equity in loss of affiliate..................... -- -- 279 -------- -------- -------- Income before income taxes and extraordinary item........................................... 86,501 102,479 68,713 Income taxes.................................... 35,363 42,796 33,311 -------- -------- -------- Income before extraordinary item................ 51,138 59,683 35,402 Extraordinary item, loss on early retirement of debt, net of income tax benefit of $10,372, $6,448 and $2,041 in 1997, 1998 and 1999, respectively (16,212) (10,826) (3,092) -------- -------- -------- Net income...................................... 34,926 48,857 32,310 Less preferred stock dividends.................. (711) (1,422) (1,422) -------- -------- -------- Income applicable to common stockholders........ $ 34,215 $ 47,435 $ 30,888 ======== ======== ======== Income per common share--basic: Before extraordinary item..................... $ 1.13 $ 1.09 $ 0.41 Extraordinary item............................ (0.36) (0.20) (0.04) -------- -------- -------- Net income.................................... $ 0.77 $ 0.89 $ 0.37 ======== ======== ======== Number of common shares used in the calculation.................................... 44,632 53,483 83,189 ======== ======== ======== Income per common share--diluted: Before extraordinary item..................... $ 1.13 $ 1.08 $ 0.41 Extraordinary item............................ (0.36) (0.20) (0.04) -------- -------- -------- Net income.................................... $ 0.77 $ 0.88 $ 0.37 ======== ======== ======== Number of common shares used in the calculation.................................... 44,674 53,699 83,229 ======== ======== ========
See notes to consolidated financial statements. 36 HEARST-ARGYLE TELEVISION, INC. Consolidated Statements of Divisional/Stockholders' Equity
Common Stock ----------------- Retained Additional Earnings/ Preferred Paid-In Divisional Treasury Series A Series B Stock Capital Equity Stock Total -------- -------- --------- ---------- ---------- -------- ---------- (In thousands, except share data) Balances at January 1, 1997................... $-- $413 $-- $ -- $258,607 $ -- $ 259,020 Transfers to Hearst and affiliated companies, net.................... -- -- -- -- (168,860) -- (168,860) Net income.............. -- -- -- -- 34,926 -- 34,926 Shares issued in connection with the Hearst Transaction..... 82 -- 2 93,971 -- -- 94,055 Issuance of 4,252,100 shares of Series A Common Stock for cash.. 43 -- -- 108,181 -- -- 108,224 Dividends paid on preferred stock........ -- -- -- -- (711) -- (711) ---- ---- ---- ---------- -------- -------- ---------- Balances at December 31, 1997................... 125 413 2 202,152 123,962 -- 326,654 Net income.............. -- -- -- -- 48,857 -- 48,857 Dividends paid on preferred stock........ -- -- -- -- (1,422) -- (1,422) Stock options exercised.............. 1 -- -- 897 -- -- 898 Treasury stock purchased--Series A Common Stock (1,736,515 shares) -- -- -- -- -- (50,653) (50,653) Other................... -- -- -- 56 -- -- 56 ---- ---- ---- ---------- -------- -------- ---------- Balances at December 31, 1998................... 126 413 2 203,105 171,397 (50,653) 324,390 Net income.............. -- -- -- -- 32,310 -- 32,310 Shares issued in connection with the Pulitzer Merger........ 371 -- -- 966,464 -- -- 966,835 Issuance of 3,686,636 shares of Series A Common Stock to Hearst for cash............... 37 -- -- 99,432 -- -- 99,469 Dividends paid on preferred stock........ -- -- -- -- (1,422) -- (1,422) Employee stock purchase plan proceeds.......... 1 -- -- 1,783 -- -- 1,784 Stock options exercised.............. -- -- -- 882 -- -- 882 Treasury stock purchased--Series A Common Stock (300,500 shares)................ -- -- -- -- -- (7,457) (7,457) ---- ---- ---- ---------- -------- -------- ---------- Balances at December 31, 1999................... $535 $413 $2 $1,271,666 $202,285 $(58,110) $1,416,791 ==== ==== ==== ========== ======== ======== ==========
See notes to consolidated financial statements. 37 HEARST-ARGYLE TELEVISION, INC. Consolidated Statements of Cash Flows
Years Ended December 31, -------------------------------- 1997 1998 1999 --------- -------- ----------- (In thousands) Operating Activities Net income.................................. $ 34,926 $ 48,857 $ 32,310 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item, loss on early retirement of debt....................... 26,584 17,274 5,133 Depreciation.............................. 8,405 14,317 32,520 Amortization of intangible assets......... 14,519 22,103 75,519 Amortization of deferred financing costs.. 635 2,416 3,200 Amortization of program rights............ 40,129 42,344 60,009 Program payments.......................... (40,593) (42,947) (56,402) Deferred income taxes..................... 17,765 8,225 1,314 Provision for doubtful accounts........... 1,316 1,119 1,563 Equity in loss of affiliate............... -- -- 279 Changes in operating assets and liabilities: Accounts receivable..................... (15,250) (149) (17,255) Other assets............................ (13,173) 2,164 (9,838) Accounts payable and accrued liabilities............................ (7,574) 5,771 2,552 Fair value adjustment interest rate protection agreement................... -- 321 (321) Other liabilities....................... -- 11,823 8,331 --------- -------- ----------- Net cash provided by operating activities... 67,689 133,638 138,914 --------- -------- ----------- Investing Activities Acquisition of Pulitzer Broadcasting Company.................................... -- -- (712,301) Acquisition of Kelly Broadcasting Co. and Kelleproductions, Inc...................... -- -- (530,073) Merger with the Hearst Broadcast Group...... (110,076) -- -- Swap Transaction with STC................... -- (22,084) -- Investment in Internet Broadcasting Systems, Inc........................................ -- -- (20,101) Investment in Geocast Network Systems, Inc........................................ -- -- (2,052) Capital call--Arizona Diamondbacks.......... -- -- (982) Acquisition costs........................... -- (3,115) (399) Issuance of STC note receivable............. -- (70,500) -- Repayment of STC note receivable............ -- 70,500 -- Proceeds from sale of equipment............. -- 390 388 Purchases of property, plant, and equipment: Special projects / buildings.............. (16,816) (8,831) (25,017) Digital................................... -- (3,892) (8,244) Maintenance............................... (5,081) (9,999) (19,141) --------- -------- ----------- Net cash used in investing activities....... (131,973) (47,531) (1,317,922) --------- -------- -----------
See notes to consolidated financial statements. 38 HEARST-ARGYLE TELEVISION, INC. Consolidated Statements of Cash Flows
Years Ended December 31, -------------------------------- 1997 1998 1999 --------- --------- ---------- (In thousands) Financing Activities Issuance of Private Placement Debt.......... $ -- $ 340,000 $ 110,000 Issuance of Senior Notes.................... 300,000 200,000 -- Repayment of Hearst Private Placement Debt.. (295,895) -- -- Repayment of Senior Subordinated Notes...... (49,388) (116,705) -- Revolving Credit Facility: Proceeds from issuance of long-term debt.. 185,000 42,000 912,000 Repayment of long-term debt............... (155,000) (127,000) (912,000) New Credit Facilities: Proceeds from issuance of long-term debt.. -- -- 1,007,000 Repayment of long-term debt............... -- -- (396,000) Series A Common Stock: Issuances................................. 108,935 -- 99,469 Repurchases............................... -- (50,653) (7,457) Financing costs and other................... (19,868) (5,004) (10,596) Proceeds from employee stock purchase plan.. -- -- 1,784 Dividends paid on preferred stock........... (711) (1,422) (1,422) Exercise of stock options................... -- 898 882 Due to Hearst............................... 1,088 -- -- --------- --------- ---------- Net cash provided by financing activities... 74,161 282,114 803,660 --------- --------- ---------- Increase (decrease) in cash and cash equivalents................................ 9,877 368,221 (375,348) Cash and cash equivalents at beginning of period..................................... 2,882 12,759 380,980 --------- --------- ---------- Cash and cash equivalents at end of period.. $ 12,759 $ 380,980 $ 5,632 ========= ========= ========== Supplemental Cash Flow Information: Businesses acquired in purchase transaction: Hearst Transaction Fair market value of assets acquired........ $ 610,762 Fair market value of liabilities assumed.... (333,903) Issuance of Series A Common Stock........... (166,783) --------- Net cash paid for acquisition............... $ 110,076 ========= STC Swap Fair market value of assets acquired, net... $ 83,131 Fair market value of liabilities assumed, net........................................ (735) Net carrying value of assets exchanged...... (60,312) --------- Net cash paid for acquisition............... $ 22,084 ========= Pulitzer Merger Fair market value of assets acquired........ $2,323,096 Fair market value of liabilities assumed.... (643,960) Issuance of Series A Common Stock........... (966,835) ---------- Net cash paid for acquisition............... $ 712,301 ========== Kelly Transaction Fair market value of assets acquired........ $ 548,121 Fair market value of liabilities assumed.... (18,048) ---------- Net cash paid for acquisition............... $ 530,073 ==========
See notes to consolidated financial statements 39 HEARST-ARGYLE TELEVISION, INC. Consolidated Statements of Cash Flows
Years Ended December 31, ------------------------- 1997 1998 1999 -------- ------- -------- (In thousands) Non-cash investing and financing activities: Purchase of pension fund assets for stock........... $ 25,101 ======== Assumption of Hearst Private Placement Debt......... $275,000 ======== Net purchase price valuation adjustment affecting equipment, intangible assets, deferred income taxes and working capital $12,736 ======= Cash paid during the year for: Interest............................................ $ 27,813 $33,848 $105,189 ======== ======= ========
See notes to consolidated financial statements. 40 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements 1. Nature of Operations Hearst-Argyle Television, Inc. and subsidiaries (the "Company") owns and operates 22 network-affiliated television stations and five radio stations in geographically diverse markets in the United States. Ten of the stations are affiliates of the National Broadcasting Company, Inc. (NBC), ten of the stations are affiliates of the American Broadcasting Companies (ABC) and two of the stations are affiliates of Columbia Broadcasting Systems (CBS). Additionally, the Company provides management services to two network- affiliated and one independent television stations and two radio stations (the "Managed Stations") Based upon regular assessments of the Company's operations performed by key management, the Company has determined that its material reportable segment is commercial television broadcasting. The economic characteristics, services, production process customer type and distribution methods for the Company's operations are substantially similar and have therefore been aggregated as one reportable segment. See Notes 2 and 3. 2. Summary of Accounting Policies and Use of Estimates Basis of Presentation On August 29, 1997, effective September 1, 1997 for accounting purposes, The Hearst Corporation ("Hearst") contributed its television broadcast group and related broadcast operations (the "Hearst Broadcast Group") to Argyle Television, Inc. ("Argyle") and merged a wholly-owned subsidiary of Hearst with and into Argyle, with Argyle as the surviving corporation (renamed "Hearst-Argyle Television, Inc."). The merger transaction is referred to as the "Hearst Transaction". As a result of the Hearst Transaction, Hearst owned approximately 41.3 million shares of the Company's Series B Common Stock, comprising approximately 77% of the total outstanding common stock of the Company as of December 31, 1997. During 1998, Hearst purchased approximately 3.7 million shares of the Company's outstanding Series A Common Stock, increasing its ownership to approximately 86% as of December 31, 1998. During 1999, Hearst purchased approximately 5.6 million outstanding shares and 3.7 million newly issued shares of the Company's Series A Common Stock (see Note 9). These 1999 purchases, offset by the issuance of approximately 37.1 million shares of Series A Common Stock to Pulitzer Publishing Company ("Pulitzer") shareholders in connection with the acquisition of Pulitzer Broadcasting Company in 1999 (see Note 3 and Note 9), decreased Hearst's ownership of the Company to approximately 58.5% as of December 31, 1999. The Hearst Transaction was accounted for as a purchase of Argyle by Hearst in a reverse acquisition. The assets and liabilities of Argyle have been adjusted to the extent acquired by Hearst to their estimated fair values based upon purchase price allocations. The net assets of the Hearst Broadcast Group have been reflected at their historical cost basis. In a reverse acquisition, the accounting treatment differs from the legal form of the transaction, as the continuing legal parent company (Argyle), is not assumed to be the acquiror and the historical financial statements of the entity become those of the accounting acquiror (Hearst Broadcast Group). Consequently, the presentation of the Company's consolidated financial statements prior to September 1, 1997 reflects the financial statements of the Hearst Broadcast Group. In addition, the divisional equity of the Hearst Broadcast Group, which includes net amounts due to Hearst and affiliates, has been reclassified retroactively to reflect the par value of approximately 41.3 million shares received by Hearst in the Hearst Transaction in the accompanying financial statements for periods ending prior to September 1, 1997. See Note 3. General The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts have been eliminated in consolidation. Cash Equivalents All highly liquid investments with maturities of three months or less when purchased are considered to be cash equivalents. 41 HEARST-ARGYLE TELEVISION. INC. Notes to Consolidated Financial Statements--(Continued) Accounts Receivable Concentration of credit risk with respect to accounts receivable is limited due to the large number of geographically diverse customers, individually small balances and short payment terms. Program Rights Program rights and the corresponding contractual obligations are recorded when the license period begins and the programs are available for use. Program rights are carried at the lower of unamortized cost or estimated net realizable value on a program by program basis and such amounts are not discounted. Any reduction in unamortized costs to net realizable value is included in amortization of program rights in the accompanying consolidated statements of income. Such reductions in unamortized costs for the years-ended 1997, 1998 and 1999 were not material. Costs of off-network syndicated product, first run programming, feature films and cartoons are amortized on the future number of showings on an accelerated basis contemplating the estimated revenue to be earned per showing, but generally not exceeding five years. Program rights and the corresponding contractual obligations are classified as current or long-term based on estimated usage and payment terms, respectively. Barter and Trade Transactions Barter transactions represent the exchange of commercial air time for programming. Trade transactions represent the exchange of commercial air time for merchandise or services. Barter transactions are generally recorded at the fair market value of the commercial air time relinquished. Trade transactions are generally recorded at the fair market value of the merchandise or services received. Barter program rights and payables are recorded for barter transactions based upon the availability of the broadcast property. Revenue is recognized on barter and trade transactions when the commercials are broadcast; expenses are recorded when the merchandise or service received is utilized. Barter and trade revenues for the years ended December 31, 1997, 1998 and 1999, were approximately $10,382,000, $13,559,000, and $26,260,000 respectively, and are included in total revenues. Barter and trade expenses for the years ended December 31, 1997, 1998 and 1999, were approximately $10,315,000, $13,267,000, and $25,856,000 respectively, and are included in station operating expenses. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is calculated on the straight-line method over the estimated useful lives as follows: buildings--25 to 40 years; broadcasting equipment--5 to 20 years; office furniture, equipment and other--three to eight years. Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Intangible Assets Intangible assets are recorded at cost. Amortization is calculated on the straight-line method over the estimated lives as follows: FCC licenses, network affiliation agreements, and goodwill--40 years; other intangible assets--3 to 40 years. The recoverability of the carrying values of the excess of the purchase price over the net assets acquired and intangible assets is evaluated quarterly to determine if an impairment in value has occurred. An impairment in value will be considered to have occurred when it is determined that the undiscounted future operating cash flows generated by the acquired businesses are not sufficient to recover the carrying values of such intangible assets. If it has been determined that an impairment in value has occurred, the excess of the purchase price over the net assets acquired and intangible assets would be written down to an amount which will be equivalent to the present value of the estimated future operating cash flows to be generated by the acquired businesses. At December 31, 1999, it was determined that there had been no impairment of intangible assets. 42 HEARST-ARGYLE TELEVISION. INC. Notes to Consolidated Financial Statements--(Continued) Deferred Acquisition and Financing Costs Acquisition costs are capitalized and will be included in the purchase price of the acquired stations. Financing costs are deferred and are amortized using the interest method over the term of the related debt when funded. Investments Investments in 20% to 50% owned affiliates are accounted for under the equity method and investments in less than 20% owned affiliates are accounted for under the cost method. Revenue Recognition Advertising revenues, net of agency and national representatives' commissions, are recognized in the period during which the time spots are aired. Total revenues includes (i) cash and barter advertising revenues, net of agency and national representatives' commissions, (ii) network compensation and (iii) other revenues. Income Taxes Prior to the acquisition of Pulitzer Broadcasting Company on March 18, 1999 (see Note 3), the Company is included in the consolidated federal income tax return of Hearst. Pursuant to the regulations under the Internal Revenue Code, the Company's pro rata share of the consolidated federal income tax liability of Hearst is allocated to the Company on a separate return basis. Federal income taxes currently payable through March 18, 1999 are paid directly to Hearst. Subsequent to March 18, 1999, the Company will file a stand-alone federal income tax return, as Hearst's ownership percentage fell below the 80% ownership threshold required to file a consolidated return. Federal income taxes currently payable are paid directly to the Internal Revenue Service. Federal and state income taxes for 1997 and federal income taxes for 1998 were paid to Hearst via the related party payable. Cash payments for state income taxes were $4.2 million and for federal and state income taxes were $37.2 million in 1998 and 1999, respectively. The Company files separate income tax returns in states where a consolidated return is not permitted. The provision for income taxes in the accompanying consolidated financial statements has been determined on a stand-alone basis. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", deferred income tax assets and liabilities are measured based upon the difference between the financial accounting and tax basis of assets and liabilities. Earnings Per Share ("EPS") Basic EPS is calculated by dividing net income less preferred stock dividends by the weighted average common shares outstanding. Diluted EPS is calculated similarly, except that it includes the dilutive effect of shares issuable under the Company's stock option plan (see Note 11). The weighted average common shares outstanding for basic EPS and diluted EPS for all periods prior to September 1, 1997 represent the shares received by Hearst in the Hearst Transaction, approximately 41.3 million shares. All per share amounts included in the notes are the same for basic and diluted earnings per share unless otherwise noted. Interest Rate Agreements The Company is not currently involved in any interest-rate agreements. However, the Company previously entered into interest-rate swap agreements, which expired during 1999, to modify the interest characteristics of its outstanding debt. These agreements involved the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is 43 HEARST-ARGYLE TELEVISION. INC. Notes to Consolidated Financial Statements--(Continued) recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from counterparties is included in other liabilities or assets in 1998. Gains and losses on terminations of interest-rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. In the event of the early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment. Any swap agreements that are not designated with outstanding debt or notional amounts of interest-rate swap agreements in excess of the principal amounts of the underlying debt obligations are recorded as an asset or liability at fair value, with changes in fair value recorded as an adjustment to interest expense. See Note 6. Stock-Based Compensation The Company accounts for employee stock-based compensation under APB No. 25 and related interpretations. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective for all quarters of all fiscal years beginning after June 15, 1999. SFAS 133 requires that derivative instruments be measured at fair value and recognized as assets or liabilities in a company's statement of financial position. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amended the effective date for SFAS 133 from June 15, 1999 to June 15, 2000 which becomes effective for the Company's consolidated financial statements for the year ending December 31, 2001. Based on the Company's current use of derivative instruments and hedging activities, the adoption of this statement will not have a material effect on the Company's consolidated financial statements. Prior Year Reclassifications Certain reclassifications have been made to conform to current year presentation. 3. Acquisitions and Investments The acquisition of Argyle was accounted for as a purchase and, accordingly, the purchase price and related acquisition costs have been allocated to the acquired assets and liabilities based upon their fair market values. The excess of the purchase price over the net fair market value of the tangible assets acquired and the liabilities assumed was allocated to identifiable intangible assets, including FCC licenses and network affiliation agreements, and goodwill. The consolidated financial statements include the results of operations of Argyle since the date of the acquisition. 44 HEARST-ARGYLE TELEVISION. INC. Notes to Consolidated Financial Statements--(Continued) On April 24, 1998, the Company loaned STC Broadcasting, Inc. ("STC") $70.5 million ("STC Note Receivable"). The loan bore interest at 7.75% per year and was collateralized by the stock of the STC subsidiary that owned the assets comprising WPTZ/WNNE. On July 2, 1998, STC repaid this $70.5 million loan along with accrued interest. Effective June 1, 1998, the Company exchanged its WDTN and WNAC stations (the "Exchanged Stations") with STC for KSBW, the NBC affiliate serving the Monterey--Salinas, CA, television market, and WPTZ/WNNE, the NBC affiliates serving the Plattsburgh, NY--Burlington, VT, television market (the "Acquired Stations") and cash of approximately $20.5 million (the "STC Swap"), net of a working capital adjustment which totaled approximately $1.4 million. The STC Swap was accounted for under the purchase method of accounting and, accordingly, the purchase consideration and related acquisition costs of approximately $1.6 million have been allocated to the acquired assets and liabilities based upon their fair market values. The excess of the cash and the Company's carrying value of the Exchanged Stations over the net fair market value of the tangible assets acquired and liabilities assumed of the Acquired Stations was allocated to identifiable intangible assets, including FCC licenses and network affiliation agreements, and goodwill. On January 5, 1999, effective January 1, 1999, for accounting purposes, the Company acquired through a merger transaction all of the partnership interests in Kelly Broadcasting Co., in exchange for approximately $520.4 million in cash, including a working capital adjustment of $0.4 million. As a result of this transaction, the Company acquired television broadcast station KCRA-TV, Sacramento, California and the programming rights under an existing Time Brokerage Agreement, with respect to KQCA-TV, Sacramento, California. In addition, the Company acquired substantially all of the assets and certain of the liabilities of Kelleproductions, Inc., for approximately $10 million in cash. The merger and acquisition are collectively referred to as the "Kelly Transaction". The Kelly Transaction was accounted for under the purchase method of accounting and, accordingly, the purchase price and related acquisition costs of approximately $1.1 million have been allocated to the acquired assets and liabilities based upon their preliminarily determined fair market values. The excess of the purchase price and acquisition costs over the fair market value of the tangible assets acquired less the liabilities assumed was allocated to FCC licenses and goodwill. On March 18, 1999, the Company acquired the nine television and five radio stations ("Pulitzer Broadcasting Company") of Pulitzer and a 3.5% interest in the Arizona Diamondbacks in a merger transaction (the "Pulitzer Merger"). In connection with the transaction, the Company issued 37.1 million shares of Series A Common Stock (quoted market value of $26.0625 on March 18, 1999) to Pulitzer shareholders (the "Pulitzer Issuance") and assumed $700 million in debt, which was repaid on the acquisition date using the Company's Revolving Credit Facility (the "Financing"), and paid $5 million for the interest in the Arizona Diamondbacks. In addition, the transaction was subject to an adjustment, which guaranteed the Company $41 million in working capital. The Pulitzer Merger was accounted for under the purchase method of accounting and, accordingly, the purchase price (including acquisition costs) of approximately $1.7 billion has been allocated to the acquired assets and liabilities based upon their preliminarily determined fair market values. The excess of the purchase price and acquisition costs over the fair market value of the tangible assets acquired less the liabilities assumed was allocated to FCC licenses. The final fair values may differ from those set forth in the accompanying consolidated balance sheet at December 31, 1999; however, the changes, if any, are not expected to have a material effect on the consolidated financial statements of the Company. Giving effect to the STC Swap, the Kelly Transaction, the Pulitzer Merger, the Pulitzer Issuance, the Financing and the issuance of 3.7 million shares of Series A Common Stock to Hearst for $100 million (see Note 9), unaudited pro forma results of operations reflecting combined historical results for the Company's 22 owned television stations, five radio stations and fees for providing management services to the Company's 45 HEARST-ARGYLE TELEVISION. INC. Notes to Consolidated Financial Statements--(Continued) Managed Stations WMOR (formerly WWWB), KCWE, WPBF, WBAL-AM and WIYY-FM pursuant to a management agreement (See Note 13), as if all acquisitions occurred as of January 1, 1998, are as follows.
Years Ended December 31, --------------------- 1998 1999 ---------- ---------- (In thousands, except per share data) (Unaudited) Total revenues.......................................... $ 727,939 $ 707,812 Income before extraordinary item........................ $ 45,475 $ 32,051 Income applicable to common stockholders................ $ 33,227 $ 27,537 Net income per common share--basic and diluted.......... $ 0.36 $ 0.30 Pro forma number of shares used in calculations --basic...................................... 92,832 92,832 --diluted.................................... 92,871 92,871
The above unaudited pro forma results are presented in response to applicable accounting rules relating to business acquisitions and are not necessarily indicative of the actual results that would be achieved had each of the stations been acquired at the beginning of the periods presented, nor are they indicative of future results of operations. In September 1999, the Company invested $2 million of cash in Geocast Network Systems, Inc. ("Geocast") in return for an equity interest in Geocast. Geocast will use a portion of the Company's stations' digital broadcast spectrum as part of a new digital network infrastructure to deliver a program service, which includes the local stations' content and other national content and services, to personal computer users. As this investment represents less than a 10% interest, the investment is accounted for using the cost method. See Note 19. In December 1999, the Company invested $20 million of cash in Internet Broadcasting Systems, Inc. ("IBS") in exchange for an equity interest in IBS. The Company and IBS will form a series of local partnerships for the development and management of local news/information/entertainment portal websites. As of December 31, 1999, the Company has a 26% equivalent interest in IBS, therefore, this investment is accounted for using the equity method. The Company's share of the loss of IBS is included in Equity in loss of affiliate in the accompanying consolidated statement of income for the year ended December 31, 1999. 4. Intangible Assets Intangible assets at December 31, 1998 and 1999 consist of the following:
1998 1999 ---- ---- (In thousands) FCC licenses....................................... $ 403,463 $2,381,616 Cost in excess of net assets acquired.............. 166,294 791,833 Network affiliation agreement...................... 95,301 95,493 Advertiser client base asset....................... 122,828 122,828 Favorable studio and office space.................. 23,638 23,638 Other.............................................. 24,868 22,420 --------- ---------- 836,392 3,437,828 Accumulated amortization........................... (124,983) (206,986) --------- ---------- Total intangible assets, net....................... $ 711,409 $3,230,842 ========= ==========
46 HEARST-ARGYLE TELEVISION. INC. Notes to Consolidated Financial Statements--(Continued) 5. Accrued Liabilities Accrued liabilities at December 31, 1998 and 1999 consist of the following:
1998 1999 ---- ---- (In thousands) Accrued interest......................................... $10,378 $12,081 Payroll, benefits and related costs...................... 6,913 9,729 Accrued vacation......................................... 2,360 5,242 Accrued payables......................................... 1,452 1,753 Other taxes payable...................................... 2,149 1,258 Other accrued liabilities................................ 11,180 9,586 ------- ------- Total accrued liabilities.............................. $34,432 $39,649 ======= =======
6. Long-Term Debt Long-term debt at December 31, 1998 and 1999 consists of the following:
1998 1999 -------- ---------- (In thousands) Revolving Credit Facility............................ $ -- $ -- New Credit Facilities................................ -- 611,000 Senior Notes......................................... 500,000 500,000 Private Placement Debt............................... 340,000 450,000 Senior Subordinated Notes............................ 2,596 2,596 -------- ---------- Total long-term debt............................... $842,596 $1,563,596 ======== ==========
Credit Facility Upon consummation of the Hearst Transaction, the Company entered into a $1 billion credit facility (the "Revolving Credit Facility") with the Chase Manhattan Bank ("Chase"). For the years ended December 31, 1997, 1998 and 1999, the effective interest rate on borrowings from the Revolving Credit Facility outstanding during the year was 6.2%, 6.9% and 5.3%, respectively. On April 12, 1999, the Company retired its Revolving Credit Facility and replaced it with two new revolving credit facilities (the "New Credit Facilities") with Chase, as the administrative agent for a consortium of banks. The deferred financing fees relating to the Revolving Credit Facility, of approximately $5.1 million before income tax benefit, were classified as an extraordinary item in the accompanying consolidated statement of income for the year ended December 31, 1999. The New Credit Facilities of $1 billion (the "$1 Billion Facility") and $250 million (the "$250 Million Facility") mature on April 12, 2004 and April 12, 2003, respectively. There was $611 million outstanding under the New Credit Facilities at December 31, 1999. Outstanding principal balances under the New Credit Facilities bear interest at either, at the Company's option, LIBOR or the alternate base rate ("ABR"), plus the "applicable margin". The "applicable margin" for ABR loans is zero. The "applicable margin" for LIBOR loans varies between 0.75% and 1.25% depending on the ratio of the Company's total debt to operating cash flow ("leverage ratio"). The ABR is the higher of (i) Chase's prime rate; (ii) 1% plus the secondary market rate for three month certificates of deposit; or, (iii) 0.5% plus the rates on overnight federal funds transactions with members of the Federal Reserve System. The Company is required to pay an annual commitment fee based on the unused portion of the New Credit Facilities. 47 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) The commitment fee ranges from 0.2% to 0.3% and from .15% to .25% for the $1 Billion Facility and the $250 Million Facility, respectively. For the year ended December 31, 1999, the effective interest rate on borrowings from the New Credit Facilities outstanding during the year was 6.5%. The New Credit Facilities contain certain financial and other covenants and restrictions on the Company that, among other things, (i) limit the Company's ratio of total debt to operating cash flow to not greater than 5.5 through December 30, 2001; 5.0 from December 31, 2001 through December 30, 2002; 4.5 from December 31, 2002 through December 30, 2003; and 4.0 from December 31, 2003 through the Maturity Date; (ii) require the Company to maintain a ratio of operating cash flow to interest expense of not less than 2.0 through September 30, 2001, and not less than 2.5 thereafter; (iii) require the Company to maintain a ratio of operating cash flow to "fixed charges" (generally, interest expense, scheduled repayments of principal, taxes and capital expenditures) of not less than 1.1; (iv) at such times when the ratio of total debt to operating cash flow is greater than or equal to 4.0, restrict the payment of dividends, the repurchase of stock and the purchase of ownership interests (investments) to the sum of (x) $150 million; (y) proceeds from future stock issuances; and, (z) one-third of cash provided by operations in excess of fixed charges; and, (v) require the Company to maintain a consolidated net worth of the sum of (x) $249,259,000; (y) 75% of the amount the consolidated net worth increased upon the consummations of both the Kelly Transaction and the Pulitzer Merger (see Note 3); and, (z) 25% of consolidated net income for each fiscal year beginning with the year ended December 31, 1999. As of December 31, 1999, the Company is in compliance with the aforementioned financial and other covenants and restrictions. The New Credit Facilities also provides that all outstanding balances will become due and payable at such time as Hearst's (and certain of its affiliates') equity ownership in the Company becomes less than 35% of the total equity of the Company and Hearst and such affiliates no longer have the right to elect a majority of the members of the Company's Board. Private Placement Debt As part of the Hearst Transaction, the Company assumed $275 million of debt (the "Hearst Private Placement Debt"). The Company repaid the Hearst Private Placement Debt and a related "make-whole" premium of approximately $20.9 million during December 1997. On December 15, 1998 and January 14, 1999, the Company issued $340 million and $110 million, respectively, principal amount of senior notes to institutional investors (collectively, the "Private Placement Debt"). The Private Placement Debt has a maturity of 12 years, with an average life of 10 years and bears interest at 7.18% per annum. The Company used the proceeds from the Private Placement Debt to partially fund the Kelly Transaction. See Note 3. Senior Subordinated Notes In October 1995, Argyle issued $150,000,000 of senior subordinated notes (the "Notes"). The Notes are due in 2005 and bear interest at 9.75% payable semi-annually. The Notes are general unsecured obligations of the Company. In addition, the indenture governing the Notes imposes various conditions, restrictions and limitations on the Company and its subsidiaries. During December 1997, the Company repaid $45 million of the Notes at a premium of approximately $4.4 million using proceeds from the Senior Notes offering. In addition, the Company wrote-off the pro-rata share of deferred financing fees related to the Notes which were repaid. The write-off of deferred financing fees relating to the Notes and the make- whole premium relating to the Hearst Private Placement Debt and the premium relating to the Notes, aggregated approximately $26.6 million before income tax benefit, were classified as an extraordinary item in the accompanying consolidated statement of income for the year ended December 31, 1997. 48 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) During February 1998, the Company repaid $102.4 million of the Notes at a premium of approximately $13.9 million. In addition, the Company wrote-off the remaining deferred financing fees related to the Notes and incurred expenses related to the repayment of the Notes. The premium paid, the deferred financing fees relating to the Notes and the expenses incurred, aggregated approximately $17.3 million before income tax benefit, were classified as an extraordinary item in the accompanying consolidated statement of income for the year ended December 31, 1998. The outstanding balance of the Notes was $2.6 million at December 31, 1999. Senior Notes The Company issued $125 million principal amount of 7.0% senior notes due 2007, priced at 99.616% of par, and $175 million principal amount of 7.5% debentures due 2027, priced at 98.823% of par, on November 7, 1997 and $200 million principal amount of 7.0% senior notes due 2018, priced at 98.887% of par, on January 13, 1998 (collectively, the "Senior Notes"). The Senior Notes are senior and unsecured obligations of the Company. In addition, the indenture governing the Senior Notes imposes various conditions, restrictions and limitations on the Company and its subsidiaries. Proceeds from the Senior Notes offerings were used to repay existing indebtedness of the Company. See Private Placement Debt and Senior Subordinated Notes, above. Interest Rate Risk Management The Company had two interest-rate protection agreements which expired in May and June of 1999. These interest-rate protection agreements effectively fixed the Company's interest rate at approximately 7% on $35 million of its borrowings under the Revolving Credit Facility and the New Credit Facilities. The Company entered into these agreements solely to hedge its floating interest rate risk. The Company entered into various forward treasury lock agreements ("Treasury Lock Agreements") during August 1997 in connection with the offering of $300 million Senior Notes. The Treasury Lock Agreements were settled simultaneous with the closing of the Senior Notes on November 12, 1997. The average coupon rate and treasury yield was 6.375% and 6.648%, respectively. The Company paid the related institutions approximately $13.0 million, which was capitalized in Deferred Acquisition and Financing Costs in the consolidated balance sheet, and is being amortized over the life of the Senior Notes. Interest expense, net for the years ended December 31, 1997, 1998 and 1999 consists of the following:
1997 1998 1999 ------- ------- -------- Interest on borrowings: Revolving Credit Facility...................... $ 2,089 $ 2,262 $ 3,840 New Credit Facilities.......................... -- -- 32,271 Senior Notes................................... 2,917 35,409 35,875 Private Placement Debt......................... 7,325 1,084 32,025 Senior Subordinated Notes...................... 4,851 2,250 253 Amortization of deferred financings costs and other......................................... 635 2,416 3,200 ------- ------- -------- 17,817 43,421 107,464 Due to Hearst (See Note 13)...................... 16,654 -- -- Interest rate swap agreements: Changes in fair value for agreements with optional amounts in excess of outstanding borrowings.................................... 176 778 3 ------- ------- -------- Total interest expense....................... 34,647 44,199 107,467 Interest income.................................. 2,163 4,644 575 ------- ------- -------- Total interest expense, net...................... $32,484 $39,555 $106,892 ======= ======= ========
49 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) 7. Earnings Per Share The following tables set forth a reconciliation between basic EPS and diluted EPS in accordance with SFAS 128. See Note 2.
Year Ended December 31, 1997 ----------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------ --------- (In thousands, except per share data) Income before extraordinary item...... $51,138 Less: Preferred stock dividends....... (711) ------- Basic EPS Income before extraordinary item applicable to common stockholders.... $50,427 44,632 $1.13 Effect of Dilutive Securities Assumed exercise of stock options..... -- 42 ------- ------ Diluted EPS Income before extraordinary item applicable to common stockholders plus assumed conversions............. $50,427 44,674 $1.13 ======= ====== ===== Year Ended December 31, 1998 ----------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------ --------- (In thousands, except per share data) Income before extraordinary item...... $59,683 Less: Preferred stock dividends....... (1,422) ------- Basic EPS Income before extraordinary item applicable to common stockholders $58,261 53,483 $1.09 Effect of Dilutive Securities Assumed exercise of stock options..... -- 216 ------- ------ Diluted EPS Income before extraordinary item applicable to common stockholders plus assumed conversions............. $58,261 53,699 $1.08 ======= ====== ===== Year Ended December 31, 1999 ----------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------ --------- (In thousands, except per share data) Income before extraordinary item...... $35,402 Less: Preferred stock dividends....... (1,422) ------- ------ Basic EPS Income before extraordinary item applicable to common stockholders.... $33,980 83,189 $0.41 Effect of Dilutive Securities Assumed exercise of stock options..... -- 40 ------- ------ Diluted EPS Income before extraordinary item applicable to common stockholders plus assumed conversions............. $33,980 83,229 $0.41 ======= ====== =====
50 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) The (i) 10,938 shares of Series A Preferred Stock, outstanding at December 31, 1997, 1998 and 1999 and convertible into Series A Common Stock at a conversion price of $35 per share, and (ii) common stock options for 205,615, 224,976 and 2,414,086 shares of Series A Common Stock, outstanding as of December 31, 1997, 1998 and 1999, respectively, were not included in the computation of diluted EPS because the conversion price or exercise price was greater than the average market price of the common shares during the calculation period. The shares for the common stock options are before the application of the treasury stock method. 8. Income Taxes The provision for income taxes relating to income before extraordinary item for the years ended December 31, 1997, 1998 and 1999, consists of the following:
1997 1998 1999 ------- ------- ------- (In thousands) Current: State and local................................ $ 5,924 $ 8,034 $ 1,539 Federal........................................ 11,674 26,537 26,519 ------- ------- ------- 17,598 34,571 28,058 ------- ------- ------- Deferred: State and local................................ -- (869) 2,999 Federal........................................ 17,765 9,094 2,254 ------- ------- ------- 17,765 8,225 5,253 ------- ------- ------- Provision for income taxes....................... $35,363 $42,796 $33,311 ======= ======= =======
The effective income tax rate for the years ended December 31, 1997, 1998 and 1999 varied from the statutory U.S. Federal income tax rate due to the following:
1997 1998 1999 ---- ---- ---- Statutory U.S. Federal income tax........................ 35.0% 35.0% 35.0% State income taxes, net of Federal tax benefit........... 4.5 4.6 4.3 Other non-deductible business expenses................... 1.4 2.2 9.2 ---- ---- ---- Effective income tax rate................................ 40.9% 41.8% 48.5% ==== ==== ====
Deferred income tax liabilities and assets at December 31, 1998 and 1999 consist of the following:
1998 1999 -------- -------- (In thousands) Deferred income tax liabilities: Accelerated depreciation....................... $ 10,624 $ 49,809 Accelerated funding of pension benefit obligation.................................... 9,585 10,503 Difference between book and tax basis of intangible assets............................. 138,240 725,253 -------- -------- Total deferred income tax liabilities............ 158,449 785,565 -------- -------- Deferred income tax assets: Accrued expenses and other..................... 1,871 1,927 Operating loss carryforwards................... 5,957 12,220 -------- -------- 7,828 14,147 Less: Valuation allowance........................ (5,662) (12,035) -------- -------- Total deferred income tax assets............. 2,166 2,112 -------- -------- Net deferred income tax liabilities.............. $156,283 $783,453 ======== ========
51 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) The Company has net operating loss carryforwards for state income tax purposes of approximately $154.9 million, which expire between 2000 and 2019. The valuation allowance is the result of an evaluation of the uncertainty associated with the realization of certain deferred income tax assets. The valuation allowance is maintained in deferred income tax assets for certain unused state net operating loss carryforwards. 9. Common Stock In connection with the Hearst Transaction, the Company's Certificate of Incorporation was amended and restated pursuant to which, among other things, (i) the Company's authorized common stock was increased from 50 million to 200 million shares; (ii) Series B Common Stock was authorized and thereafter issued to Hearst in connection with the transaction; (iii) the Series B Common Stock issued to Hearst was reclassified retroactively to represent the divisional equity of Hearst Broadcast Group (see Note 2); and, (iv) the Company's existing Series A Preferred Stock and Series B Preferred Stock received voting rights. As of December 31, 1998, the Company had 200 million shares of authorized common stock, par value $.01 per share, with 100 million shares designated as Series A Common Stock and 100 million shares designated Series B Common Stock. On March 17, 1999, the Company amended and restated the Certificate of Incorporation to increase the number of authorized shares of Series A Common Stock from 100 million to 200 million, increasing the Company's total authorized shares of common stock to 300 million. Except as otherwise described below, the issued and outstanding shares of Series A Common Stock and Series B Common Stock vote together as a single class on all matters submitted to a vote of stockholders, with each issued and outstanding share of Series A Common Stock and Series B Common Stock entitling the holder thereof to one vote on all such matters. With respect to any election of directors, (i) the holders of the shares of Series A Common Stock are entitled to vote separately as a class to elect two members of the Company's Board of Directors (the Series A Directors) and (ii) the holders of the shares of the Company's Series B Common Stock are entitled to vote separately as a class to elect the balance of the Company's Board of Directors (the Series B Directors); provided, however, that the number of Series B Directors shall not constitute less than a majority of the Company's Board of Directors. All of the outstanding shares of Series B Common Stock are held by a subsidiary of Hearst. No holder of shares of Series B Common Stock may transfer any such shares to any person other than to (i) Hearst; (ii) any corporation into which Hearst is merged or consolidated or to which all or substantially all of Hearst's assets are transferred; or, (iii) any entity controlled or consolidated or to which all or substantially all of Hearst's assets are transferred; or, (iv) any entity controlled by Hearst (each a "Permitted Transferee"). Series B Common Stock, however, may be converted at any time into Series A Common Stock and freely transferred, subject to the terms and conditions of the Company's Certificate of Incorporation and to applicable securities laws limitations. On November 12, 1997, the Company sold an aggregate of 4 million shares of Series A Common Stock, par value $.01 per share at $27 per share. In connection with the offering, the underwriters exercised an over-allotment option and were sold another 232,000 shares at $27 per share. The aggregate proceeds from the offering net of expenses was $108.0 million. On December 29, 1997, the Company issued approximately 2.7 million shares of Series B Common Stock to Hearst (the "Adjustment Shares") in connection with the Hearst Transaction relating to net working capital at the date of acquisition (in excess of $30 million for the Hearst Broadcast Group) and the purchase of surplus pension fund assets. See Note 16. 52 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) During the second quarter of 1998, the Company's Board of Directors authorized the repurchase of up to $300 million of its outstanding Series A Common Stock. The Company expects such repurchases to be effected from time to time in the open market or in private transactions, subject to market conditions. During the year ended December 31, 1998, the Company spent approximately $50.7 million to repurchase approximately 1.7 million shares, of Series A Common Stock at an average price of $29.17. During the year ended December 31, 1999, the Company spent approximately $7.5 million to repurchase approximately 0.3 million shares, of Series A Common Stock at an average price of $24.81. Hearst has also notified the Company and the Securities and Exchange Commission of its intention to purchase up to 15 million shares of the Company's Series A Common Stock from time to time in the open market, in private transactions or otherwise. See Note 2. In connection with the Pulitzer Merger, the Company issued 37.1 million shares of Series A Common Stock (quoted market value of $26.0625 on March 18, 1999) to Pulitzer shareholders. See Note 3. On June 30, 1999 the Company issued to Hearst 3.7 million shares of the Company's Series A Common Stock for $100 million (the "Hearst Issuance"). The Company used the net proceeds of this $100 million equity issuance to repay a portion of the outstanding balance under its New Credit Facilities, thereby reducing the Company's overall debt leverage ratio and future interest expense. 10. Preferred Stock The Company has one million shares of authorized preferred stock, par value $.01 per share. Under the Company's Certificate of Incorporation, the Company has two issued and outstanding series of preferred stock, Series A Preferred Stock and Series B Preferred Stock (collectively, the "Preferred Stock"). Each series of Preferred Stock has 10,938 shares issued and outstanding at December 31, 1997, 1998 and 1999. The Preferred Stock has a cash dividend feature whereby each share accrues $65 per share annually, to be paid quarterly. The Series A Preferred Stock is convertible at the option of the holders, at any time, into Series A Common Stock at a conversion price of (i) on or before December 31, 2000, $35; (ii) during the calendar year ended December 31, 2001, the product of 1.1 times $35; and, (iii) during each calendar year after December 31, 2001, the product of 1.1 times the preceding year's conversion price. The Company has the option to redeem all or a portion of the Series A Preferred Stock at any time after June 11, 2001 at a price equal to $1,000 per share plus any accrued and unpaid dividends. The holders of Series B Preferred Stock have the option to convert such Series B Preferred Stock into shares of Series A Common Stock at any time after June 11, 2001 at the average of the closing prices for the Series A Common Stock for each of the 10 trading days prior to such conversion date. The Company has the option to redeem all or a portion of the Series B Preferred Stock at any time on or after June 11, 2001, at a price equal to $1,000 per share plus any accrued and unpaid dividends. 11. Stock Options 1997 Stock Option Plan The Company's Board of Directors approved the amendment and restatement of the Company's second amended and restated 1994 Stock Option Plan and adopted such plan as the resulting 1997 Stock Option Plan (the "Option Plan"). The amendment increases the number of shares reserved for issuance under the Option Plan to 3 million shares of Series A Common Stock. The stock options are granted with exercise prices at quoted market value at time of issuance. Options cliff-vest after three years commencing on the effective date of the grant and a portion of the options vest either after nine years or in one- third increments upon attainment of certain market price goals of the Company's stock. All options granted pursuant to the Option Plan will expire no later than ten years from the date of grant. 53 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) A summary of the status of the Company's Option Plan as of December 31, 1997, 1998 and 1999, and changes for the period from September 1 to December 31, 1997 and for the years ended December 31, 1998 and 1999 is presented below:
Weighted Average Options Exercise Price ---------- ---------------- Outstanding at September 1, 1997.............. 1,341,172 $12.77 Granted...................................... 1,843,215 $26.75 Exercised.................................... (20,150) $10.45 Cancelled.................................... (1,168,247) $12.35 Forfeited.................................... (2,250) $10.00 ---------- ------ Outstanding at December 31, 1997.............. 1,993,740 $25.85 Granted...................................... 178,190 $27.22 Exercised.................................... (45,668) $19.65 Forfeited.................................... (27,567) $28.03 ---------- ------ Outstanding at December 31, 1998.............. 2,098,695 $26.07 Granted...................................... 577,229 $26.48 Exercised.................................... (44,450) $23.13 Forfeited.................................... (135,613) $26.84 ---------- ------ Outstanding at December 31, 1999.............. 2,495,861 $26.18 ========== ====== Exercisable at December 31, 1997.............. 210,125 $17.89 ========== ====== Exercisable at December 31, 1998.............. 693,637 $24.40 ========== ====== Exercisable at December 31, 1999.............. 607,353 $24.62 ========== ======
The following table summarizes information about stock options outstanding and exercisable at December 31, 1999:
Options Outstanding Options Exercisable ----------------------------------------------------- -------------------------- Weighted Number Weighted Average Average Number Weighted Range of Outstanding Remaining Exercise Exercisable Average Exercise Prices at 12/31/99 Contractual Life Price At 12/31/99 Exercise Price - --------------- ----------- ---------------- -------- ----------- -------------- $10.00-- $17.63 86,375 5.4 years $11.72 75,075 $11.82 $22.75-- $25.94 194,375 8.7 years $25.82 29,000 $24.19 $26.50-- $29.00 2,193,801 8.0 years $26.68 503,278 $26.55 $35.25-- $36.44 21,310 8.5 years $36.25 -- -- --------- ------- 2,495,861 607,353 ========= =======
The Company accounts for employee stock-based compensation under APB No. 25 and related interpretations. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. 54 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model for options granted in 1997, 1998 and 1999. The weighted average fair value of options granted was $9.55, $9.55 and $12.48 in 1997, 1998 and 1999, respectively. The following assumptions were used for the period from September 1 to December 31, 1997 and for the years ended December 31, 1998 and 1999:
1997 1998 1999 ---- ---- ---- Risk-free interest rate.......... 5.5% 5.2% 5.3% Dividend yield................... 0.0% 0.0% 0.0% Volatility factor................ 27.0% 30.0% 36.9% Expected life.................... 5 and 7 years 5 and 7 years 5 and 7 years
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of SFAS No. 123 pro forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. Additionally, for purposes of this pro forma disclosure, the Company has included the amount of compensation cost, that would have been recognized in accordance with SFAS No. 123, for the discount related to shares purchased under the employee stock purchase plan (see Note 12). The Company's pro forma information is as follows:
1997 1998 1999 ------------ ------------ ------------ (In thousands, except per share data) Pro forma net income.............. $ 33,862 $ 43,014 $ 26,317 Pro forma income applicable to common stockholders.............. $ 33,151 $ 41,592 $ 24,895 Pro forma basic income per common share............................ $ 0.74 $ 0.78 $ 0.30 Pro forma diluted income per common share..................... $ 0.74 $ 0.77 $ 0.30
The Company has reserved 5.8 million shares of common stock for future issuance's in connection with the Option Plan at December 31, 1999. 12. Stock Purchase Plan The Company implemented a non-compensatory employee stock purchase plan (the "Stock Purchase Plan") during April of 1999. The Stock Purchase Plan allows employees to purchase shares of the Company's Series A Common Stock, at 85% of its market price, through after-tax payroll deductions. The Company reserved and made available for issuance and purchases under the Stock Purchase Plan 5,000,000 shares of Series A Common Stock. Employees purchased 82,555 shares for aggregate proceeds of approximately $1.8 million through December 31, 1999. 13. Related Party Transactions Prior to September 1, 1997, Hearst provided certain management services to the Company. Such services include data processing, legal, tax, treasury, internal audit, risk management, and other support services. The 55 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) Company was allocated expenses for the period January 1 to August 31, 1997 of $1,331,000, related to these services. In addition, Hearst allocated interest expense to the Company which was based on the average balance of divisional equity at an interest rate of 8% per annum. Allocated expenses are based on Hearst's estimate of expenses related to the services provided to the Company in relation to those provided to other divisions or subsidiaries of Hearst. Management believes that these allocations were made on a reasonable basis. However, the allocations are not necessarily indicative of the level of expenses that might have been incurred had the Company contracted directly with third parties. In addition, certain costs (principally salaries, fringe benefits and incentive compensation) were incurred by the Company, paid by Hearst and charged to the Company for the period January 1 to August 31, 1997 in the amount of $5,219,000. Subsequent to September 1, 1997, the Company has entered into a series of agreements with Hearst including a Management Agreement (whereby the Company provides certain management services, such as sales, news, programming and financial and accounting management services, with respect to certain Hearst owned or operated television and radio stations); an Option Agreement (whereby Hearst has granted the Company an option to acquire certain Hearst owned or operated television stations, as well as a right of first refusal with respect to another television station if Hearst proposes to sell such station within 36 months of its acquisition); a Studio Lease Agreement (whereby Hearst leases from the Company certain premises for Hearst's radio broadcast stations); a Tax Sharing Agreement (whereby Hearst and the Company have established the sharing of federal, state and local income taxes during the time the Company is part of the consolidated income tax return of Hearst (see Note 2)); a Name License Agreement (whereby Hearst permits the Company to use the Hearst name in connection with the Hearst-Argyle name and operation of its business); and a Services Agreement (whereby Hearst provides the Company certain administrative services such as accounting, financial, legal, tax, insurance, data processing and employee benefits). For the period September 1 to December 31, 1997, and the years ended December 31, 1998, and 1999, the Company recorded revenues of approximately $700,000, $3,273,000,and $4,843,000, respectively, relating to the Management Agreement and expenses of approximately $900,000, $2,144,000, and $3,330,000 respectively, relating to the Services Agreement. The Company believes that the terms of all these agreements are reasonable to both sides; there can be no assurance, however, that more favorable terms would not be available from third parties. 14. Commitments and Contingencies The Company has obligations to various program syndicators and distributors in accordance with current contracts for the rights to broadcast programs. Future payments and barter obligations as of December 31, 1999, scheduled under contracts for programs available are as follows (in thousands): 2000............................................................. $56,715 2001............................................................. 4,764 2002............................................................. 484 2003............................................................. 96 2004............................................................. 42 Thereafter....................................................... -- ------- $62,101 =======
56 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) The Company has various agreements relating to non-cancelable operating leases with an initial term of one year or more (some of which contain renewal options), future barter and program rights not available for broadcast at December 31, 1999, and employment contracts for key employees. Future minimum payments and barter obligations under terms of these agreements as of December 31, 1999 are as follows:
Deduct Net Operating Barter and Employment Operating Operating Lease Program and Talent Leases Sublease Commitments Rights Contracts --------- --------- ------------- ---------- ---------- (In thousands) 2000.................... $ 3,910 $ 740 $ 3,170 $ 24,246 $45,163 2001.................... 3,652 889 2,763 63,002 25,302 2002.................... 3,216 704 2,512 42,430 10,435 2003.................... 2,932 -- 2,932 9,999 3,034 2004.................... 3,048 -- 3,048 9,162 801 Thereafter.............. 15,929 -- 15,929 7,415 -- ------- ------ ------- -------- ------- $32,687 $2,333 $30,354 $156,254 $84,735 ======= ====== ======= ======== =======
Rent expense, net for operating leases was approximately $3,461,000, $4,239,000 and $4,599,000 for the years ended December 31, 1997, 1998 and 1999, respectively. From time to time, the Company becomes involved in various claims and lawsuits that are incidental to its business. In the opinion of the Company, there are no legal proceedings pending against the Company or any of its subsidiaries that are likely to have a material adverse effect on the Company's consolidated financial condition or results of operations. 15. Incentive Compensation Plans Hearst has a long-term incentive compensation plan that covered 13 employees of the Hearst Broadcast Group who were considered by management to be making substantial contributions to the growth and profitability of the Hearst Broadcast Group and Hearst. Grants awarded under this plan cover three-year operating cycles, with cash payouts made after the close of each three-year cycle based upon growth in operating performance. The annual amount charged to expense, which amounted to approximately $2,528,000, for the period January 1 to August 31, 1997, is determined by estimating the aggregate expense for each open three-year cycle; actual cash payouts related to the 1994--1996 cycle (paid in 1997) and to the 1995--1997 cycle (paid in 1998) resulted in disbursements (pretax) of $4,621,437 and $3,315,390, respectively. Hearst also has a short-term incentive compensation plan that covered the most senior key executives of the Hearst Broadcast Group who had the most impact on overall corporate policy, and are therefore those executives largely responsible for the growth and profitability of the Hearst Broadcast Group and Hearst's achieving specified financial performance objectives. Annual expense for the Hearst Broadcast Group amounted to approximately $259,000 for the period January 1 to August 31, 1997. Effective August 29, 1997, the Company's employees (formerly Hearst Broadcast Group employees) are no longer participants in such plans. 16. Pension and Employee Savings Plans Prior to September 1, 1997, the Hearst Broadcast Group had certain non-union employees that were eligible for participation in Hearst's noncontributory defined benefit plan (the "Retirement Plan") and Hearst's nonqualified retirement plan. Hearst also had defined benefit plans for eligible employees covered by collective 57 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) bargaining agreements. The costs of this plan were generally accrued and paid in accordance with the related agreements. These plans are collectively referred to as the "Pension Plans". In addition, the Hearst Broadcast Group contributed to a multiemployer union pension plan, for which no information for each contributing employer is available. The Hearst Broadcast Group's pension costs for these plans were allocated to the Company through divisional equity. The cost for such plans were approximately $1,583,000 for the period January 1 to August 31, 1997. Subsequent to September 1, 1997, the Company assumed the obligations of the Pension Plans of the non-union and certain union employees of the Hearst Broadcast Group and purchased the excess of the fair value of the plan's assets over the pension benefit obligation for shares of the Company's Series B Common Stock (see Note 9). Beginning January 1, 1998, the Company began to provide the noncontributory defined benefit plans to the Company's remaining non-union employees who were not included in the Pension Plans at December 31, 1997. On January 1, 1999, the Company adopted the final plan design of a supplemental retirement plan. In previous years, the Company has recorded estimated expenses for potential liabilities based on a proposed plan design. The disclosure presentation below includes the actual liabilities and expense based on the final plan design. The actual liabilities and expenses are not materially different from recorded estimated expenses for potential liabilities and are not expected to have a material effect on the consolidated financial statements of the Company. On March 18, 1999, the Company assumed liabilities for the retirement benefits of the transferring Pulitzer Broadcasting Company employees from the Pulitzer Merger (see Note 3). Immediately following the Pulitzer Merger, the Company began to provide the Retirement Plan to the Pulitzer Broadcasting Company non-union employees. Eligible transferring union employees began participation in a new defined benefit plan. As a result of the Pulitzer Merger, the Company remeasured the 1999 pension expense for the Retirement Plan using a 7.25% discount rate for the period March 19 to December 31, 1999. For the period January 1 to March 18, 1999, the 1999 pension expense was calculated based on a 6.75% discount rate. The plans described above are collectively referred to as the "Hearst-Argyle Pension Plans". Benefits under the Hearst-Argyle Pension Plans are generally based on years of credited service, age at retirement and average of the highest five consecutive year's compensation. The cost of the Hearst-Argyle Pension Plans is computed on the basis of the Project Unit Credit Actuarial Cost Method. Past service cost is amortized over the expected future service periods of the employees. The net pension benefit for the Hearst-Argyle Pension Plans and for the period from September 1 to December 31, 1997 and the years ended December 31, 1998 and 1999 in which the Company's employees participate are as follows:
Pension Benefits ------------------------- 1997 1998 1999 ---- ---- ---- (In thousands) Service cost.................................. $ 679 $ 3,141 $ 4,852 Interest cost................................. 830 2,644 3,933 Expected return on plan assets................ (1,937) (6,455) (8,352) Amortization of prior service cost............ 71 213 442 Amortization of transitional asset............ (38) (113) (113) Recognized actuarial gain..................... (183) (432) (673) ------- ------- ------- Net periodic (benefit)/cost................. (578) (1,002) 89 Curtailment gain recognized................... -- -- (155) ------- ------- ------- Net pension benefit......................... $ (578) $(1,002) $ (66) ======= ======= =======
58 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) The following schedule presents the change in benefit obligation, change in plan assets and a reconciliation of the funded status at December 31, 1998 and 1999:
Pension Benefits ----------------- 1998 1999 ---- ---- (In thousands) Change in benefit obligation: Benefit obligation at beginning of year............... $38,571 $ 44,933 Service cost........................................ 3,141 4,852 Interest cost....................................... 2,644 3,933 Participant contributions........................... 13 12 Plan amendments..................................... -- 2,581 Acquisitions/divestitures........................... 8 15,757 Benefits paid....................................... (853) (1,373) Curtailment gain.................................... -- (389) Actuarial (gain)/loss............................... 1,409 (15,487) ------- -------- Benefit obligation at end of year..................... 44,933 54,819
Change in plan assets: Fair value of plan assets at beginning of year......... 72,551 81,294 Actual return on plan assets, net.................... 8,651 17,286 Acquisitions/divestitures............................ 3 15,641 Employer contributions............................... 927 1,254 Participant contributions............................ 13 12 Benefits paid........................................ (853) (1,373) ------ -------- Fair value of plan assets end of year.................. 81,292 114,114
Reconciliation of funded status: Funded status....................................... $36,359 $ 59,295 Unrecognized actuarial gain......................... (9,976) (34,381) Unrecognized transition asset....................... (653) (540) Unrecognized prior service cost..................... 2,140 4,044 ------- -------- Net amount recognized at end of year.............. $27,870 $ 28,418 ======= ======== Amounts recognized in the statement of financial position: Other assets........................................ $28,827 $ 32,798 Other liabilities................................... (957) (4,380) ------- -------- Net amount recognized at end of year.............. $27,870 $ 28,418 ======= ======== Additional year-end information for pension plans with accumulated benefit obligations in excess of plan assets: Projected benefit obligation........................ $ 3,473 $ 6,353 Accumulated benefit obligation...................... $ 738 $ 2,970 Fair value of plan assets........................... $ 421 $ 1,101
59 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) The weighted-average assumptions used for computing the projected benefit obligation at December 31, 1998 and 1999 are as follows:
Pension Benefits ------------------ 1998 1999 -------- -------- Discount rate.......................................... 6.75% 8.25% Expected long-term rate of return on plan assets....... 9.00 9.00 Rate of compensation increase.......................... 5.50 5.50
The Hearst-Argyle Pension Plans' assets consist primarily of stocks, bonds and cash equivalents. The Company's contributions to the multiemployer union pension plan for the period from September 1 to December 31, 1997 and the years ended December 31, 1998 and 1999 were approximately $150,000, $466,000 and $470,000, respectively. The Company's qualified employees may contribute from 2% to 16% of their compensation up to certain dollar limits to a 401(k) savings plan. The Company matches one-half of the employee contribution up to 6% of the employee's compensation. The Company contributions to this plan for the years ended December 31, 1997, 1998 and 1999 were approximately $807,000, $1,185,000 and $2,182,000, respectively. 17. Fair Value of Financial Instruments The carrying amounts and the estimated fair values of the Company's financial instruments for which it is practicable to estimate fair value are as follows (in thousands):
December 31, 1998 December 31, 1999 ----------------- ----------------- Carrying Fair Carrying Fair Value Value Value Value -------- -------- -------- -------- Revolving Credit Facility............. $ -- $ -- $ -- $ -- New Credit Facilities................. -- -- 611,000 649,401 Senior Subordinated Notes............. 2,596 2,939 2,596 2,737 Senior Notes.......................... 500,000 516,842 500,000 468,356 Private Placement Debt................ 340,000 350,531 450,000 451,998 Interest rate swaps................... 321 321 -- --
The fair values of the Senior Subordinated Notes and the Senior Notes were determined based on the quoted market prices. The fair values of the New Credit Facilities, Private Placement Debt and the interest rate swap agreements were determined using discounted cash flow models. For instruments including cash and cash equivalents, accounts receivable and accounts payable the carrying amount approximates fair value because of the short maturity of these instruments. In accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" the Company believes it is not practicable to estimate the current fair value of the related party receivables and related party payables because of the related party nature of the transactions. 60 HEARST-ARGYLE TELEVISION, INC. Notes to Consolidated Financial Statements--(Continued) 18. Quarterly Information (unaudited)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------------- ----------------- ---------------- ----------------- 1998 1999 1998 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- (In thousands, except per share data) Total revenues.......... $87,252 $113,424 $109,713 $186,054 $95,045 $166,731 $115,303 $195,177 Station operating income................. 25,146 28,426 48,561 58,834 32,003 39,670 48,959 65,988 Income before extraordinary item..... 5,835 2,829 21,262 13,481 10,905 3,337 21,681 15,755 Net income (loss) (a)... (4,134) 2,829 20,454 10,389 10,856 3,337 21,681 15,755 Income (loss) applicable to common stockholders (b)....... (4,490) 2,473 20,099 10,034 10,501 2,982 21,325 15,399 Income (loss) per common share--basic: (c) Income before extraordinary item..... $ 0.10 $ 0.04 $ 0.39 $ 0.15 $ 0.20 $ 0.03 $ 0.40 $ 0.17 Net income (loss)....... $ (0.09) $ 0.04 $ 0.37 $ 0.11 $ 0.20 $ 0.03 $ 0.40 $ 0.17 Number of common shares used in the calculation 53,833 57,419 53,798 89,197 53,409 92,883 52,904 92,758 Income (loss) per common share--diluted: (c) Income before extraordinary item..... $ 0.10 $ 0.04 $ 0.39 $ 0.15 $ 0.20 $ 0.03 $ 0.40 $ 0.17 Net income (loss)....... $ (0.08) $ 0.04 $ 0.37 $ 0.11 $ 0.20 $ 0.03 $ 0.40 $ 0.17 Number of common shares used in the calculation............ 54,043 57,517 54,095 89,229 53,690 92,910 52,978 92,783
- -------- (a) Net income (loss) for the each of the first, second and third quarters of 1998 and the second quarter of 1999 includes an extraordinary item representing the write-off of unamortized financing costs and premiums paid upon early extinguishment of Hearst-Argyle Television, Inc. debt. See Note 6. (b) Net income (loss) applicable to common stockholders gives effect to dividends on the Preferred Stock issued in connection with the acquisition of KHBS/KHOG. (c) Per common share amounts for the quarters and the full years have each been calculated separately. Accordingly, quarterly amounts may not add to the annual amounts because of differences in the average common shares outstanding during each period and, with regard to diluted per common share amounts only, because of the inclusion of the effect of potentially dilutive securities only in the periods in which such effect would have been dilutive. 19. Subsequent Events On January 31, 2000 the Company exercised its fixed-price option to acquire KQCA-TV for $850,000. The Company was previously programming and selling airtime of KQCA-TV under a Time Brokerage Agreement, which was acquired as part of the Kelly Transaction. On February 25, 2000, the Company invested an additional $8 million of cash in Geocast in return for an additional equity interest in Geocast. See Note 3. This investment will continue to be accounted for under the cost method. See Note 2. On March 22, 2000, the Company invested $25 million in Consumer Financial Network, Inc. ("CFN") for an equity interest in CFN. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 61 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information called for by Item 10 is set forth under the headings "Executive Officers of the Company" and "Directors Election Proposal" in the Company's Proxy Statement relating to the 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement"), which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information called for by Item 11 is set forth under the heading "Executive Compensation and Other Matters" in the 2000 Proxy Statement, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information called for by Item 12 is set forth under the heading "Principal Stockholders" in the 2000 Proxy Statement, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information called for by Item 13 is set forth under the heading "Certain Relationships and Related Transactions" in the 2000 Proxy Statement, which is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) Financial Statements, Schedules and Exhibits (1) The financial statements listed in the Index for Item 8 hereof are filed as part of this report. (2) The financial statement schedules required by Regulation S-X are included as part of this report or are included in the information provided in the Notes to Consolidated Financial Statements, which are filed as part of this report. 62 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS HEARST-ARGYLE TELEVISION, INC.
Additions Deductions ---------- ----------- Balance at Beginning Charged to Balance at of Costs and Deductions End of Description Period Expenses Describe Period ----------- ---------- ---------- ----------- ---------- Year Ended December 31, 1997: Allowance for uncollectable accounts................... $1,693,000 $1,316,000 $ (805,000)(1) $2,204,000 Year Ended December 31, 1998: Allowance for uncollectable accounts................... $2,204,000 $1,119,000 $(1,297,000)(1) $2,026,000 Year Ended December 31, 1999: Allowance for uncollectable accounts................... $2,026,000 $2,820,000 $(1,984,000)(1) $2,862,000
- -------- (1) Net write-off of accounts receivable. (3) The following exhibits are filed as a part of this report:
Exhibit No. Description ------- ----------- 10.31 Employment Agreement, dated as of January 1, 1999, between the Company and David J. Barrett. 10.32 Employment Agreement, dated as of January 1, 1999, between the Company and Anthony J. Vinciquerra. 10.33 Employment Agreement, dated as of February 15, 1999, between the Company and Terry Mackin. 10.34 Employment Agreement, dated as of January 1, 1999, between the Company and Philip Stolz. 21.1 List of Subsidiaries of the Company. 23.1 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney (contained on signature page hereto). 27.1 Financial Data Schedule.
(b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1999. 63 (c) Exhibits The following documents are filed or incorporated by reference as exhibits to this report. EXHIBIT INDEX
Exhibit No. Description ------- ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of March 26, 1997, among The Hearst Corporation, HAT Merger Sub, Inc., HAT Contribution Sub, Inc. and Argyle (incorporated by reference to Exhibit 2.1 of the Company's Registration Statement on Form S-4 (File No. 333-32487)). 2.2 Amended and Restated Agreement and Plan of Merger, dated as of May 25, 1998, by and among Pulitzer Publishing Company, Pulitzer Inc. and the Company (incorporated by reference to Appendix A to the Company's Registration Statement on Form S-4 (File No. 333-72207)). 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Appendix C of The Company's Registration Statement on Form S-4 (File No. 333-32487)). 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company's Form S-4 (File No. 333-72207)). 3.3 Amendment No. 1 to the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.3 for the Company's 10-K for the fiscal year ended December 31, 1998). 4.1 Form of Indenture relating to the Senior Subordinated Notes due 2005 (including form of security) (incorporated by reference to Exhibit 4.1 of Argyle's Form 10-K for the fiscal year ending December 31, 1996). 4.2 First Supplemental Indenture, dated as of June 1, 1996, among KHBS Argyle Television, Inc, Arkansas Argyle Television, Inc. and United States Trust Company of New York (incorporated by reference to Argyle's Current Report on Form 8-K dated June 11, 1996). 4.3 Second Supplemental Indenture dated as of August 29, 1997 among KMBC Hearst-Argyle Company Television, Inc., WBAL Hearst-Argyle Television, Inc., WCVB Hearst-Argyle Television, Inc., WISN Hearst-Argyle Television, Inc., WTAE Hearst-Argyle Television, Inc. and United States Trust Company of New York (incorporated by reference to Exhibit 4.8 of the Company's Registration Statement on Form S-3 (File No. 333- 32487)). 4.4 Third Supplemental Indenture, dated as of February 26, 1998, among the Company, Hearst-Argyle Television Stations, Inc., KMBC Hearst-Argyle Television, Inc., WBAL Hearst-Argyle Television, Inc., WCVB Hearst- Argyle Television, Inc., WISN Hearst-Argyle Television, Inc., WTAE Hearst-Argyle Television, Inc., WAPT Hearst-Argyle Television, Inc., KITV Hearst-Argyle Television, Inc., KHBS Hearst-Argyle Television, Inc., Ohio/Oklahoma Hearst-Argyle Television, Inc., Jackson Hearst- Argyle Television, Inc., Hawaii Hearst-Argyle Television, Inc., Arkansas Hearst-Argyle Television, Inc. and United States Trust Company of New York (incorporated by reference to Exhibit 4.4 of the Company's Form 10-K for the fiscal year ending December 31, 1997). 4.5 Form of Note for Senior Subordinated Notes due 2005 (incorporated by reference to Exhibit 4.1 of Argyle's Form 10-K for the fiscal year ending December 31, 1996). 4.6 Indenture, dated as of November 13, 1997, between the Company and Bank of Montreal Trust Company, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K dated November 13, 1997). 4.7 First Supplemental Indenture, dated as of November 13, 1997, between the Company and Bank of Montreal Trust Company, as trustee (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K dated November 13, 1997).
64
Exhibit No. Description ------- ----------- 4.8 Global Note representing $125,000,000 of 7% Senior Notes Due November 15, 2007 (incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K dated November 13, 1997). 4.9 Global Note representing $175,000,000 of 7% Debentures Due November 15, 2027 (incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K dated January 13, 1998). 4.10 Second Supplemental Indenture, dated as of January 13, 1998, between the Company and Bank of Montreal Trust Company, as trustee (incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K dated January 13, 1998). 4.11 Specimen of the stock certificate for the Company's Series A Common Stock, $.01 par value per share (incorporated by reference to Exhibit 4.11 of the Company's 10-K for the fiscal year ended December 31, 1998). 4.12 Form of Registration Rights Agreement among the Company and the Holders (incorporated by reference to Exhibit B to Exhibit 2.1 of the Company's Registration Statement on Form S-4 (File No. 333-32487)). 4.13 Form of Note Purchase Agreement, dated December 1, 1998, by and among the Company, as issuer of the notes to be purchased thereunder and the note purchasers named therein (including issuer of the notes to be purchased thereunder and the note purchasers named therein (including form of note attached as an exhibit thereto) (incorporated by reference to Exhibit 4.13 of the Company's Form S-4 (File No. 333- 72207)). 10.1 Amended and Restated Employment Agreement of Harry T. Hawks (incorporated by reference to Exhibit 10.3(d) of Argyle's Registration Statement on Form S-1 (File No. 33-96029)). 10.2 1997 Stock Option Plan (incorporated by reference to Appendix E of the Company's Registration Statement on Form S-4 (File No. 333-22487)). 10.3 Affiliation Agreement among Multimedia, Inc., Multimedia Entertainment, Inc. (re: WLWT) and NBC (incorporated by reference to Exhibit 10.8(a) of the Company's Form 10-K for the fiscal year ending December 31, 1996). 10.4 Affiliation Agreement between combined Communications Corporation of Oklahoma, Inc. (re: KOCO) and ABC (incorporated by reference to Exhibit 10.8(b) of the Company's Form 10-K for the fiscal year ending December 31, 1996). 10.5 Affiliation Agreement between Tak Communications, Inc. (re: KITV) and ABC, dated November 4, 1994 and Satellite Television Affiliation Agreements, dated November 9, 1994 (incorporated by reference to Exhibit 10.5(d) of the Company's Registration Statement on Form S-1 (File No. 33-96029)). 10.6 Form of Affiliation Agreement between Jackson Argyle Television, Inc. (re: WAPT) and ABC (incorporated by reference to Exhibit 10.5(e) of the Company's Registration Statement on Form S-1 (File No. 33-96029)). 10.7 Affiliation Agreements between Sigma Broadcasting, Inc. (re: KHBS and KHOG) and ABC (incorporated by reference to the Company's Current Report on Form 8-K dated June 11, 1996). 10.8 Primary Television Affiliation Agreement for television Station KMBC, dated April 26, 1988, by and between Capital Cities/ABC, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.9 Primary Television Affiliation Agreement for television Station WCVB, dated November 21, 1989, by and between Capital Cities/ABC, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report for the quarter ended September 30, 1997).
65
Exhibit No. Description ------- ----------- 10.10 Primary Television Affiliation Agreement for television Station WISN, dated November 2, 1990, by and between Capital Cities/ABC, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.11 Primary Television Affiliation Agreement for television Station WTAE, dated July 14, 1989, by and between Capital Cities/ABC, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.12 Television Affiliation Agreement for Television Broadcasting Station WBAL-TV, dated January 2, 1995, by and between National Broadcasting Company, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.13 Amendment to the Television Affiliation Agreement for Television Broadcasting Station WBAL-TV, dated January 2, 1995, by and between National Broadcasting Company, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.6 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.14 Form of Amended and Restated Tax Sharing Agreement (incorporated by reference to Exhibit 10.10 of the Company's Form 10-K for the fiscal year ending December 31, 1996). 10.15 Employment Agreement, dated as of August 12, 1997, between the Company and Bob Marbut (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed October 17, 1997). 10.16 Management Services Agreement, dated as of August 29, 1997, between The Hearst Corporation and the Company (incorporated by reference to Exhibit 10.2 of Company's Current Report on Form 8-K filed October 17, 1997). 10.17 Option Agreement, dated as of August 29, 1997, between The Hearst Corporation and the Company (incorporated by reference to Exhibit 10.3 of Company's Current Report on Form 8-K filed October 17, 1997). 10.18 Studio Lease Agreement, dated as of August 29, 1997, between The Hearst Corporation and the Company (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K filed October 17, 1997). 10.19 Services Agreement, dated as of August 29, 1997, between The Hearst Corporation and the Company (incorporated by reference to Exhibit 10.5 of the Company's Current Report on Form 8-K filed October 17, 1997). 10.20 Asset Exchange Agreement between Hearst-Argyle Stations, Inc., STC Broadcasting, Inc., STC Broadcasting of Vermont, Inc., STC License Company and STC Broadcasting of Vermont Subsidiary, Inc., dated February 18, 1998 (incorporated by reference to Exhibit 10.27 of the Company's Form 10-K for the fiscal year ending December 31, 1997). 10.21 Guaranty, given as of February 18, 1998 by the Company to STC Broadcasting of Vermont, Inc., STC License Company and STC Broadcasting of Vermont Subsidiary, Inc. (incorporated by reference to Exhibit 10.28 of the Company's Form 10-K for the fiscal year ending December 31, 1997). 10.22 Board Representation Agreement, dated as of May 25, 1998, by and among the Company, Hearst Broadcasting, Inc. and Emily Raugh Pulitzer, Michael E. Pulitzer and David E. Moore (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K dated May 26, 1998). 10.23 Affiliation Agreement between Smith Television of Salinas Monterey License, L.P. (re: KSBW) and the National Broadcasting Company, Inc., dated March 20, 1996 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report for the quarter ended June 30, 1998).
66
Exhibit No. Description ------- ----------- 10.24 Affiliation Agreement between Heritage Media Corp. (re: WPTZ) and the National Broadcasting Company, Inc., dated August 28, 1995 (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report for the quarter ended June 30, 1998). 10.25 Amendment to Affiliation Agreement between Heritage Media Corp. (re: WPTZ) and the National Broadcasting Company, Inc., dated January 1, 1996 (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report for the quarter ended June 30, 1998). 10.26 Affiliation Agreement between Heritage Media Corp. (re: WNNE) and the National Broadcasting Company, Inc., dated August 28, 1995 (incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report for the quarter ended June 30, 1998). 10.27 Amendment to Affiliation Agreement between Heritage Media Corp. (re: WNNE) and the National Broadcasting Company, Inc., dated January 1, 1996 (incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report for the quarter ended June 30, 1998). 10.28 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.34 of the Company's 10-K for the fiscal year ended December 31, 1998). 10.29 Form of 364-Day Credit Agreement, dated as of April 12, 1999, between Hearst-Argyle Television, Inc., the Lenders Party Thereto, The Chase Manhattan Bank, Chase Securities Inc., The Bank of Montreal, The Bank of New York and TD Securities (USA) Inc. (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report for the quarter ended March 31, 1999). 10.30 Form of Five-Year Credit Agreement, dated as of April 12, 1999, between Hearst-Argyle Television, Inc., the Lenders Party Thereto, The Chase Manhattan Bank, Chase Securities Inc., The Bank of Montreal, The Bank of New York and TD Securities (USA) Inc. (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report for the quarter ended March 31, 1999). 10.31 Employment Agreement, dated as of January 1, 1999, between the Company and David J. Barrett. 10.32 Employment Agreement, dated as of January 1, 1999, between the Company and Anthony J. Vinciquerra. 10.33 Employment Agreement, dated as of February 15, 1999, between the Company and Terry Mackin. 10.34 Employment Agreement, dated as of January 1, 1999, between the Company and Philip Stolz. 16.1 Letter from Ernst & Young LLP to the Securities and Exchange Commission pursuant to Item 304(a)(3) of Reg. S-K (incorporated by reference to Exhibit 16.1 of the Company's Current Report on 8-K/A, dated October 20, 1997). 21.1 List of Subsidiaries of the Company. 23.1 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney (contained on signature page hereto). 27.1 Financial Data Schedule.
67 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. HEARST-ARGYLE TELEVISION, INC. By: /s/ Harry T. Hawks ---------------------------------- Name:Harry T. Hawks Title:Executive Vice President and Chief Financial Officer Dated: March 30, 2000 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and officers of Hearst-Argyle Television, Inc. hereby constitutes and appoints Bob Marbut, David J. Barrett and Harry T. Hawks, or any of them, his or her true and lawful attorney-in-fact and agent, for him or her and in his or her name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this Report, and to file each such amendment to this Report, with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorney-in-fact and agent full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney- in-fact and agent may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company in the capacities indicated on March 30, 2000.
Signature Title Date --------- ----- ---- /s/ Bob Marbut Co-Chief Executive Officer March 30, 2000 ___________________________________________ and Chairman of the Board Bob Marbut (Principal Executive Officer) /s/ David J. Barrett President, Co-Chief March 30, 2000 ___________________________________________ Executive Officer and David J. Barrett Director (Principal Executive Officer) /s/ Harry T. Hawks Executive Vice President March 30, 2000 ___________________________________________ and Chief Financial Harry T. Hawks Officer (Principal Financial and Accounting Officer) /s/ Frank A. Bennack, Jr. Director March 30, 2000 ___________________________________________ Frank A. Bennack, Jr.
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Signature Title Date --------- ----- ---- /s/ John G. Conomikes Director March 30, 2000 ___________________________________________ John G. Conomikes Director March 30, 2000 ___________________________________________ Ken J. Elkins /s/ Victor F. Ganzi Director March 30, 2000 ___________________________________________ Victor F. Ganzi /s/ George R. Hearst Director March 30, 2000 ___________________________________________ George R. Hearst /s/ William R. Hearst III Director March 30, 2000 ___________________________________________ William R. Hearst III /s/ Gilbert C. Maurer Director March 30, 2000 ___________________________________________ Gilbert C. Maurer /s/ Michael E. Pulitzer Director March 30, 2000 ___________________________________________ Michael E. Pulitzer /s/ David Pulver Director March 30, 2000 ___________________________________________ David Pulver /s/ Virginia H. Randt Director March 30, 2000 ___________________________________________ Virginia H. Randt /s/ Caroline L. Williams Director March 30, 2000 ___________________________________________ Caroline L. Williams
69 EXHIBIT INDEX
Exhibit No. Description ------- ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of March 26, 1997, among The Hearst Corporation, HAT Merger Sub, Inc., HAT Contribution Sub, Inc. and Argyle (incorporated by reference to Exhibit 2.1 of the Company's Registration Statement on Form S-4 (File No. 333-32487)). 2.2 Amended and Restated Agreement and Plan of Merger, dated as of May 25, 1998, by and among Pulitzer Publishing Company, Pulitzer Inc. and the Company (incorporated by reference to Appendix A to the Company's Registration Statement on Form S-4 (File No. 333-72207)). 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Appendix C of The Company's Registration Statement on Form S-4 (File No. 333-32487)). 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company's Form S-4 (File No. 333-72207)). 3.3 Amendment No. 1 to the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.3 of the Company's Form 10-K for the fiscal year ended December 31, 1998). 4.1 Form of Indenture relating to the Senior Subordinated Notes due 2005 (including form of security) (incorporated by reference to Exhibit 4.1 of Argyle's Form 10-K for the fiscal year ending December 31, 1996). 4.2 First Supplemental Indenture, dated as of June 1, 1996, among KHBS Argyle Television, Inc, Arkansas Argyle Television, Inc. and United States Trust Company of New York (incorporated by reference to Argyle's Current Report on Form 8-K dated June 11, 1996). 4.3 Second Supplemental Indenture dated as of August 29, 1997 among KMBC Hearst-Argyle Company Television, Inc., WBAL Hearst-Argyle Television, Inc., WCVB Hearst-Argyle Television, Inc., WISN Hearst-Argyle Television, Inc., WTAE Hearst-Argyle Television, Inc. and United States Trust Company of New York (incorporated by reference to Exhibit 4.8 of the Company's Registration Statement on Form S-3 (File No. 333- 32487)). 4.4 Third Supplemental Indenture, dated as of February 26, 1998, among the Company, Hearst-Argyle Television Stations, Inc., KMBC Hearst-Argyle Television, Inc., WBAL Hearst-Argyle Television, Inc., WCVB Hearst- Argyle Television, Inc., WISN Hearst-Argyle Television, Inc., WTAE Hearst-Argyle Television, Inc., WAPT Hearst-Argyle Television, Inc., KITV Hearst-Argyle Television, Inc., KHBS Hearst-Argyle Television, Inc., Ohio/Oklahoma Hearst-Argyle Television, Inc., Jackson Hearst- Argyle Television, Inc., Hawaii Hearst-Argyle Television, Inc., Arkansas Hearst-Argyle Television, Inc. and United States Trust Company of New York (incorporated by reference to Exhibit 4.4 of the Company's Form 10-K for the fiscal year ending December 31, 1997). 4.5 Form of Note for Senior Subordinated Notes due 2005 (incorporated by reference to Exhibit 4.1 of Argyle's Form 10-K for the fiscal year ending December 31, 1996). 4.6 Indenture, dated as of November 13, 1997, between the Company and Bank of Montreal Trust Company, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K dated November 13, 1997). 4.7 First Supplemental Indenture, dated as of November 13, 1997, between the Company and Bank of Montreal Trust Company, as trustee (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K dated November 13, 1997). 4.8 Global Note representing $125,000,000 of 7% Senior Notes Due November 15, 2007 (incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K dated November 13, 1997). 4.9 Global Note representing $175,000,000 of 7% Debentures Due November 15, 2027 (incorporated by reference to Exhibit 4.4 of the Company's Current Report on Form 8-K dated January 13, 1998).
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Exhibit No. Description ------- ----------- 4.10 Second Supplemental Indenture, dated as of January 13, 1998, between the Company and Bank of Montreal Trust Company, as trustee (incorporated by reference to Exhibit 4.3 of the Company's Current Report on Form 8-K dated January 13, 1998). 4.11 Specimen of the stock certificate for the Company's Series A Common Stock, $.01 par value per share (incorporated by reference to Exhibit 4.11 of the Company's Form 10-K for the fiscal year ended December 31, 1998). 4.12 Form of Registration Rights Agreement among the Company and the Holders (incorporated by reference to Exhibit B to Exhibit 2.1 of the Company's Registration Statement on Form S-4 (File No. 333-32487)). 4.13 Form of Note Purchase Agreement, dated December 1, 1998, by and among the Company, as issuer of the notes to be purchased thereunder and the note purchasers named therein (including issuer of the notes to be purchased thereunder and the note purchasers named therein (including form of note attached as an exhibit thereto) (incorporated by reference to Exhibit 4.13 of the Company's Form S-4 (File No. 333- 72207)). 10.1 Amended and Restated Employment Agreement of Harry T. Hawks (incorporated by reference to Exhibit 10.3(d) of Argyle's Registration Statement on Form S-1 (File No. 33-96029)). 10.2 1997 Stock Option Plan (incorporated by reference to Appendix E of the Company's Registration Statement on Form S-4 (File No. 333-22487)). 10.3 Affiliation Agreement among Multimedia, Inc., Multimedia Entertainment, Inc. (re: WLWT) and NBC (incorporated by reference to Exhibit 10.8(a) of the Company's Form 10-K for the fiscal year ending December 31, 1996). 10.4 Affiliation Agreement between combined Communications Corporation of Oklahoma, Inc. (re: KOCO) and ABC (incorporated by reference to Exhibit 10.8(b) of the Company's Form 10-K for the fiscal year ending December 31, 1996). 10.5 Affiliation Agreement between Tak Communications, Inc. (re: KITV) and ABC, dated November 4, 1994 and Satellite Television Affiliation Agreements, dated November 9, 1994 (incorporated by reference to Exhibit 10.5(d) of the Company's Registration Statement on Form S-1 (File No. 33-96029)). 10.6 Form of Affiliation Agreement between Jackson Argyle Television, Inc. (re: WAPT) and ABC (incorporated by reference to Exhibit 10.5(e) of the Company's Registration Statement on Form S-1 (File No. 33-96029)). 10.7 Affiliation Agreements between Sigma Broadcasting, Inc. (re: KHBS and KHOG) and ABC (incorporated by reference to the Company's Current Report on Form 8-K dated June 11, 1996). 10.8 Primary Television Affiliation Agreement for television Station KMBC, dated April 26, 1988, by and between Capital Cities/ABC, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.9 Primary Television Affiliation Agreement for television Station WCVB, dated November 21, 1989, by and between Capital Cities/ABC, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.10 Primary Television Affiliation Agreement for television Station WISN, dated November 2, 1990, by and between Capital Cities/ABC, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.11 Primary Television Affiliation Agreement for television Station WTAE, dated July 14, 1989, by and between Capital Cities/ABC, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report for the quarter ended September 30, 1997).
71
Exhibit No. Description ------- ----------- 10.12 Television Affiliation Agreement for Television Broadcasting Station WBAL-TV, dated January 2, 1995, by and between National Broadcasting Company, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.13 Amendment to the Television Affiliation Agreement for Television Broadcasting Station WBAL-TV, dated January 2, 1995, by and between National Broadcasting Company, Inc. and The Hearst Corporation (incorporated by reference to Exhibit 10.6 of the Company's Quarterly Report for the quarter ended September 30, 1997). 10.14 Form of Amended and Restated Tax Sharing Agreement (incorporated by reference to Exhibit 10.10 of the Company's Form 10-K for the fiscal year ending December 31, 1996). 10.15 Employment Agreement, dated as of August 12, 1997, between the Company and Bob Marbut (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed October 17, 1997). 10.16 Management Services Agreement, dated as of August 29, 1997, between The Hearst Corporation and the Company (incorporated by reference to Exhibit 10.2 of Company's Current Report on Form 8-K filed October 17, 1997). 10.17 Option Agreement, dated as of August 29, 1997, between The Hearst Corporation and the Company (incorporated by reference to Exhibit 10.3 of Company's Current Report on Form 8-K filed October 17, 1997). 10.18 Studio Lease Agreement, dated as of August 29, 1997, between The Hearst Corporation and the Company (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K filed October 17, 1997). 10.19 Services Agreement, dated as of August 29, 1997, between The Hearst Corporation and the Company (incorporated by reference to Exhibit 10.5 of the Company's Current Report on Form 8-K filed October 17, 1997). 10.20 Asset Exchange Agreement between Hearst-Argyle Stations, Inc., STC Broadcasting, Inc., STC Broadcasting of Vermont, Inc., STC License Company and STC Broadcasting of Vermont Subsidiary, Inc., dated February 18, 1998 (incorporated by reference to Exhibit 10.27 of the Company's Form 10-K for the fiscal year ending December 31, 1997). 10.21 Guaranty, given as of February 18, 1998 by the Company to STC Broadcasting of Vermont, Inc., STC License Company and STC Broadcasting of Vermont Subsidiary, Inc. (incorporated by reference to Exhibit 10.28 of the Company's Form 10-K for the fiscal year ending December 31, 1997). 10.22 Board Representation Agreement, dated as of May 25, 1998, by and among the Company, Hearst Broadcasting, Inc. and Emily Raugh Pulitzer, Michael E. Pulitzer and David E. Moore (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K dated May 26, 1998). 10.23 Affiliation Agreement between Smith Television of Salinas Monterey License, L.P. (re: KSBW) and the National Broadcasting Company, Inc., dated March 20, 1996 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report for the quarter ended June 30, 1998). 10.24 Affiliation Agreement between Heritage Media Corp. (re: WPTZ) and the National Broadcasting Company, Inc., dated August 28, 1995 (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report for the quarter ended June 30, 1998). 10.25 Amendment to Affiliation Agreement between Heritage Media Corp. (re: WPTZ) and the National Broadcasting Company, Inc., dated January 1, 1996 (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report for the quarter ended June 30, 1998). 10.26 Affiliation Agreement between Heritage Media Corp. (re: WNNE) and the National Broadcasting Company, Inc., dated August 28, 1995 (incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report for the quarter ended June 30, 1998).
72
Exhibit No. Description ------- ----------- 10.27 Amendment to Affiliation Agreement between Heritage Media Corp. (re: WNNE) and the National Broadcasting Company, Inc., dated January 1, 1996 (incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report for the quarter ended June 30, 1998). 10.28 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.34 of the Company's 10-K for the fiscal year ended December 31, 1998). 10.29 Form of 364-Day Credit Agreement, dated as of April 12, 1999, between Hearst-Argyle Television, Inc., the Lenders Party Thereto, The Chase Manhattan Bank, Chase Securities Inc., The Bank of Montreal, The Bank of New York and TD Securities (USA) Inc. (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report for the quarter ended March 31, 1999). 10.30 Form of Five-Year Credit Agreement, dated as of April 12, 1999, between Hearst-Argyle Television, Inc., the Lenders Party Thereto, The Chase Manhattan Bank, Chase Securities Inc., The Bank of Montreal, The Bank of New York and TD Securities (USA) Inc. (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report for the quarter ended March 31, 1999). 10.31 Employment Agreement, dated as of January 1, 1999, between the Company and David J. Barrett. 10.32 Employment Agreement, dated as of January 1, 1999, between the Company and Anthony J. Vinciquerra. 10.33 Employment Agreement, dated as of February 15, 1999, between the Company and Terry Mackin. 10.34 Employment Agreement, dated as of January 1, 1999, between the Company and Philip Stolz. 16.1 Letter from Ernst & Young LLP to the Securities and Exchange Commission pursuant to Item 304(a)(3) of Reg. S-K (incorporated by reference to Exhibit 16.1 of the Company's Current Report on 8-K/A, dated October 20, 1997). 21.1 List of Subsidiaries of the Company. 23.1 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney (contained on signature page hereto). 27.1 Financial Data Schedule.
73 EX-10.31 2 EMPLOYMENT AGREEMENT - DAVID J. BARRETT EXHIBIT 10.31 EMPLOYMENT AGREEMENT This Employment Agreement is executed as of January 1, 1999, by and between HEARST-ARGYLE TELEVISION, INC., a Delaware corporation ("Hearst- Argyle"), and DAVID J. BARRETT of 64 Canfield Drive, Stamford, Connecticut 06902 ("Employee"). WHEREAS, Employee possesses special, unique and original ability, and Hearst-Argyle desires to secure Employee's exclusive services for the period and on the terms hereinafter mentioned, which employment Employee desires to secure and accept, NOW, THEREFORE, in consideration of the compensation and the mutual provisions and conditions herein contained, the parties agree as follows: FIRST: Hearst-Argyle hereby employs Employee to render exclusive services to and for Hearst-Argyle as its Executive Vice President and Chief Operating Officer and Employee agrees to render services to Hearst-Argyle in such capacities, and shall so serve, subject, however, to such limitations, instructions, directions, and control as the Board of Directors of Hearst-Argyle may specify from time to time, during the period beginning on the Commencement Date, as hereinafter defined, and extending to and terminating on December 31, 2001 (the "Expiration Date") unless terminated earlier in accordance with the provisions hereof. The Commencement Date shall be January 1, 1999. Employee hereby accepts the aforesaid employment and agrees to render exclusive services hereunder on the terms and conditions herein set forth. SECOND: Hearst-Argyle agrees to pay to Employee and Employee agrees to accept from Hearst-Argyle, as basic compensation for his services hereunder, salary at the annual rate of $600,000 beginning with the Commencement Date and extending to and terminating on the Expiration Date, payable in installments in accordance with the prevailing payroll practices of Hearst-Argyle during the term hereof, but in no event less frequently than twice a month. In or about December 1999 and December 2000, Hearst-Argyle will review Employee's 1 compensation provisions herein contained for the purpose of determining whether an increase in compensation should be effected in respect of the period commencing, respectively, with the 1st day of January, 2000 to December 31, 2000, and the first day of January 2001 to the Expiration Date. As additional compensation hereunder, Employee shall be eligible to receive a bonus for each calendar year during the term of this Agreement, the amount and basis of the bonus to be determined in accordance with such criteria as shall be established by the Compensation Committee of the Board of Directors of Hearst-Argyle. It is understood and agreed that the maximum additional compensation payable in respect of each such year shall not exceed a sum equal to 90% of Employee's base compensation for that year with the "target" bonus equal to 50% of Employee's base compensation for that year, as such maximum and target percentages may be increased in the sole discretion of the Compensation Committee of the Board of Directors of Hearst-Argyle. The Compensation Committee may, in its discretion, award any special bonus to Employee that it deems appropriate, notwithstanding any other provisions set forth in this Agreement. In determining the amount of additional compensation to be paid to Employee hereunder, the books of Hearst-Argyle shall be absolute and final and shall not be open to dispute by Employee. Hearst-Argyle shall pay the additional compensation, if any, due hereunder at any time prior to March 31 of the year following each calendar year during the term of this Agreement. It is mutually understood and agreed that the additional compensation hereinbefore provided shall be due and payable only for so long as Employee shall perform services under this Agreement and, in the event Employee's employment hereunder or this Agreement shall be terminated for any cause, or should Hearst-Argyle assign this Agreement in accordance with the terms of Paragraph SIXTH hereof, Hearst-Argyle shall compute the additional compensation by limiting the amount thereof to the period commencing with the first day of the calendar year in which such termination or assignment shall take effect to and including the date of termination or 2 assignment. THIRD: To induce Hearst-Argyle to enter into this Agreement and to pay the compensation herein provided, Employee hereby represents, warrants and agrees to the following: (a) Employee will faithfully and diligently carry out Employee's duties hereunder. (b) Employee will work for, and render services to, Hearst-Argyle exclusively, and Employee will give and devote to the pursuit of Employee's duties, exclusive time, best skill, attention and energy, and that during the term of employment, Employee will not perform any work, render any services or give any advice, gratuitously or otherwise, for or to any other person, firm or corporation, that shall be inconsistent in any material respect with Employee's duties or obligations hereunder, as reasonably determined by Hearst-Argyle, without the prior consent of Hearst-Argyle in each such instance. Notwithstanding the foregoing, it is the understanding of the parties hereto that Employee shall be permitted to serve, and in certain instances to continue to serve, as a member of the board of directors of other organizations, including charitable or not-for-profit corporations and profit-making corporations, but only if such board membership does not interfere or conflict with Employee's work hereunder in any material respect and such board membership is approved in advance by Hearst-Argyle, which approval shall not be unreasonably withheld. Should there be a violation or attempted or threatened violation of this provision, Hearst-Argyle may apply for and obtain an injunction to restrain such violation or attempted or threatened violation, to which injunction Hearst- Argyle shall be entitled as a matter of right, Employee conceding that the services contemplated by this Agreement are special, unique and extraordinary, the loss of which cannot reasonably or adequately be compensated in damages in an action at law, and that the right to injunction is necessary for the protection and preservation of the rights of Hearst-Argyle and to prevent irreparable damage to Hearst-Argyle. Such injunctive relief 3 shall be in addition to such other rights and remedies as Hearst-Argyle may have against Employee arising from any breach hereof on Employee's part. (c) No impediment, contractual or otherwise, exists which limits or precludes Employee from entering into this Agreement and rendering full performance in accordance with the terms and conditions herein provided. FOURTH: During the period of, and after the expiration of, this Agreement or after the termination of Employee's employment (whether such employment is pursuant to the terms of this Agreement or otherwise), Employee will not use, divulge, sell or deliver to or for any other person, firm or corporation other than Hearst-Argyle or a successor to, or a parent (direct or indirect), or an affiliate or subsidiary of, Hearst-Argyle (hereinafter in this paragraph collectively referred to as "HEARST-ARGYLE") any and all confidential information and material (statistical or otherwise) relating to HEARST-ARGYLE'S business, including, but not limited to, confidential information and material concerning broadcasting, magazines, newspapers, cable systems operations, cable programming, books, syndication, circulation, distribution, marketing, advertising, customers, authors, employees, literary property and rights appertaining thereto, copyrights, trade names, trademarks, financial information, methods and processes incident to broadcasting, programming, publication or printing, and any other secret or confidential information. Upon the termination of Employee's employment irrespective of the time, manner or cause of termination, Employee will surrender to HEARST-ARGYLE all lists, books and records of or in connection with HEARST-ARGYLE'S business and all other property belonging to HEARST-ARGYLE. Should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph FOURTH, HEARST-ARGYLE shall be entitled to the same rights and relief by way of injunction and other remedies as are provided for under subparagraph (b) of Paragraph THIRD hereof. 4 FIFTH: Employee's employment hereunder may be terminated by Hearst- Argyle (a) by reason of a Disability, as hereinafter defined, (b) for Cause, as hereinafter defined, or (c) Without Cause, as hereinafter defined, all upon payment of the sums hereinafter set forth. Employee may terminate Employee's employment hereunder (a) voluntarily, with Good Reason, as hereinafter defined, or (b) voluntarily, without Good Reason, subject to a covenant not-to-compete as provided in Paragraph NINTH. In the event of Employee's death, this Agreement shall terminate and all rights and obligations of this Agreement shall cease except as otherwise herein provided. In the event Employee's employment is terminated due to Employee's death, Employee's legal representative or estate, as the case may be, shall be entitled to receive any compensation to which Employee was entitled, but which Employee had not yet received, at the time of Employee's death. (a) For purposes of this Paragraph FIFTH, Disability shall mean that for a period of one hundred eighty (180) consecutive days, Employee is unable to fulfill the duties and responsibilities of Employee's position because of physical or mental incapacity. If, as a result of a Disability, Employee shall have been unable to fulfill Employee's duties and responsibilities, and within thirty (30) days after written Notice of Termination, as hereinafter defined, is given, Employee shall not have returned to the performance of Employee's duties hereunder on a full-time basis, Hearst- Argyle may terminate Employee's employment. In the event of a termination due to Disability, Employee shall be entitled to receive compensation through the Date of Termination, as hereinafter defined. In the event that Employee is otherwise receiving or is entitled to receive disability benefits at the time Employee's employment is terminated, nothing herein contained shall be construed to terminate or otherwise adversely affect Employee's right to receive such benefits. (b) Employee's employment may be terminated for "Cause" by Hearst- Argyle. For 5 purposes of this Agreement, "Cause" shall mean (i) conviction of a felony; (ii) willful gross neglect or willful gross misconduct in the performance of Employee's duties hereunder; (iii) willful failure to comply with applicable laws with respect to the conduct of Hearst-Argyle's business, resulting in material economic harm to Hearst-Argyle; (iv) theft, fraud or embezzlement, resulting in substantial gain or personal enrichment, directly or indirectly, to Employee at Hearst-Argyle's expense; (v) inability to perform the duties and responsibilities of Employee's office as a result of addiction to alcohol or drugs, other than drugs legally prescribed or administered by a duly licensed physician; or (vi) continued willful failure to comply with the reasonable directions of the Board of Directors, which directions have been voted upon and approved by a majority of such Board and of which Employee has been made fully aware. A termination for Cause will be deemed to have occurred as of the date when there shall have been delivered to Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of such Board called and held for that purpose and any other purpose or purposes (after reasonable written notice to Employee, and an opportunity for Employee, together with Employee's counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Employee's conduct met the definition of termination for Cause set forth above. In the event of a termination for Cause, Employee shall be entitled to receive compensation through the Date of Termination, as hereinafter defined. (c) A termination "Without Cause" shall mean a termination of employment by Hearst-Argyle other than due to Employee's death or Disability or for Cause. In the event of a termination Without Cause, Employee shall be entitled to receive, in a lump sum payment at the time of such termination, an amount equal to Employee's salary provided in Paragraph SECOND plus an amount equal to Employee's "target" bonus, as if Employee 6 had remained an employee of Hearst-Argyle for the longer of the duration of the term of this Agreement or one year (the "Payment Period"). In the event Employee's employment is terminated Without Cause, Employee shall have no duty to mitigate damages. Notwithstanding the above, Hearst-Argyle's obligation to pay the amounts referenced hereinabove shall be conditioned on Employee's signing a general release in form satisfactory to Hearst-Argyle. (d) At any time during the term of the Agreement, Employee may voluntarily terminate Employee's employment for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean, without Employee's express written consent, the occurrence of any of the following circumstances: (i) the removal of Employee from the position of Executive Vice President and Chief Operating Officer of Hearst-Argyle; (ii) the assignment to Employee of any duties or responsibilities inconsistent with Employee's status and authority as Executive Vice President and Chief Operating Officer, or a substantial adverse alteration in the nature or status of Employee's duties or responsibilities from those in effect at the commencement of this Agreement, if such assignment or alteration reduces the duties, responsibilities, importance or scope of Employee's position, (iii) a reduction of Employee's compensation as set forth in this Agreement; (iv) a material breach of this Agreement by Hearst-Argyle; or (v) the relocation of the principal executive offices of Hearst-Argyle or of Employee's principal office to a location more than fifty (50) miles from New York City or the imposition of a requirement that Employee be based anywhere other than at such principal executive offices. Employee's right to terminate Employee's employment shall not be affected by Employee's incapacity due to physical or mental illness. Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. If Employee desires to terminate Employee's employment for Good Reason, 7 Employee shall first give Hearst-Argyle Notice of Termination, as hereinafter defined, and shall allow Hearst-Argyle no less than thirty (30) days to remedy, cure or rectify the situation giving rise to Employee's Good Reason. If Employee terminates Employee's employment for Good Reason, Employee shall receive the same compensation and benefits as if Employee was terminated by Hearst-Argyle Without Cause. Any termination of Employee's employment hereunder, whether by Hearst- Argyle or by Employee, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and, if by Hearst-Argyle for Cause or by Employee for Good Reason, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. "Date of Termination" shall mean (i) if Employee's employment is terminated by death, the date of Employee's death, (ii) if Employee's employment is terminated due to Disability, thirty (30) days after Notice of Termination is given (provided that Employee shall not have returned to the performance of Employee's duties on a full-time basis during such thirty (30) day period), (iii) if Employee's employment is terminated by Hearst-Argyle Without Cause, the date specified in the Notice of Termination, which date shall be not less than five (5) nor more than thirty (30) days from the date Notice of Termination was given, (iv) if Employee's employment is terminated by Employee for Good Reason, the date specified in the Notice of Termination, which date shall be not less than five (5) nor more than thirty (30) working days from the expiration of the time to remedy, cure or rectify the situation giving rise to Employee's Good Reason, and (v) if Employee's employment is terminated by Hearst-Argyle for Cause, the date specified in the Notice of Termination. Except as otherwise set forth in this Agreement, any payments pursuant to the 8 provisions of this Paragraph FIFTH shall be severance payments or liquidated damages or both, shall not be subject to any requirements as to mitigation or offset, except as otherwise specifically provided, and shall not be in the nature of a penalty. No payment resulting from the termination of Employee's employment shall adversely affect Employee's entitlement to benefits under any Hearst-Argyle benefit plan in which Employee was participating at the time of such termination. SIXTH: Hearst-Argyle shall have the right to transfer Employee to any property owned or controlled, directly or indirectly, by it, or constituting a part of Hearst-Argyle, and should such property be operated by a successor to, or a subsidiary or an affiliate of, Hearst-Argyle, this Agreement shall be assignable by Hearst-Argyle to such successor or to such subsidiary or affiliate. This right of transfer shall be subject however to Employee's rights under Paragraph FIFTH (d). It is further understood that this Agreement and all of the rights and benefits hereunder are personal to Employee and neither this Agreement nor any right or interest of Employee herein or arising hereunder shall be subject to voluntary or involuntary alienation, assignment, hypothecation or transfer by him. SEVENTH: Employee will accept any additional office (whether such be that of director, officer or otherwise) to which Employee may be elected or appointed in Hearst-Argyle or in any firm, association or corporation which is a successor to, or a subsidiary or an affiliate of, Hearst-Argyle or in which Hearst-Argyle holds an interest. In the event of such election or appointment, Employee agrees to serve without extra compensation. EIGHTH: Employee covenants and agrees that during the term hereof and within the two (2) year period immediately following the termination of this Agreement, regardless of the reason therefor, Employee shall not solicit, induce, aid or suggest to (i) any employee, (ii) any author, (iii) any independent contractor or other service provider, or (iv) any customer, agency or advertiser of Hearst-Argyle to leave such employ, to terminate such relationship or to cease doing 9 business with Hearst-Argyle. Employee acknowledges that the terms of this paragraph are reasonable and enforceable and that should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph EIGHTH, Hearst-Argyle shall be entitled to the same rights and relief by way of injunction as are provided for under subparagraph (b) of Paragraph THIRD hereof. In the event that this non-solicitation covenant shall be deemed by any court of competent jurisdiction, in any proceedings in which Hearst-Argyle shall be a party, to be unenforceable because of its duration, scope, or area, it shall be deemed to be and shall be amended to conform to the scope, period of time and geographical area which would permit it to be enforced. NINTH: Upon the termination of Employee's employment by Hearst- Argyle for Cause or by Employee without Good Reason, Employee agrees that, without the express approval of Hearst-Argyle, Employee shall not, for a period which is the lesser of two (2) years or the remaining term of this Agreement subsequent to such termination, engage in any activity or render service in any capacity (whether as principal, five percent (5%) shareholder, employee, consultant or otherwise) for or on behalf of any person or persons if such activity or service directly competes with the business of Hearst-Argyle. It is understood and agreed that nothing herein contained shall prevent Employee from engaging in discussions concerning business arrangements to become effective upon the expiration of the term of this covenant not to compete. In the event Hearst-Argyle shall not offer to renew this Agreement, or a termination by Hearst-Argyle Without Cause or by Employee with Good Reason, the provisions of this Paragraph NINTH shall be of no force or effect. Employee acknowledges that the terms of this paragraph are reasonable and enforceable and that should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph NINTH, Hearst-Argyle shall be entitled to the same rights and relief by way of injunction as are provided for under subparagraph (b) of Paragraph 10 THIRD hereof. In the event that this covenant not to compete shall be deemed by any court of competent jurisdiction, in any proceedings in which Hearst-Argyle shall be a party, to be unenforceable because of its duration, scope, or area, it shall be deemed to be and shall be amended to conform to the scope, period of time and geographical area which would permit it to be enforced. TENTH: Hearst-Argyle and Employee acknowledge that the terms of this Agreement are confidential and, among other things, constitute trade secrets, the disclosure of which likely would inure to the material detriment of Hearst- Argyle's business operations. Except as required by securities laws, FCC regulations, other regulatory requirements, or court order, Hearst-Argyle and Employee agree not to disclose any of the terms of this Agreement to any other person or persons, provided, however, that Employee may make a limited disclosure to Employee's legal or financial advisors, or to members of Employee's immediate family, on condition that each such person to whom disclosure is made agrees to maintain the confidentiality of such information and to refrain from making further disclosure. ELEVENTH: It is understood and agreed that this Agreement shall be interpreted, construed and enforced in accordance with the laws of the State of New York, without regard to New York's conflicts or choice of law rules. TWELFTH: It is understood and agreed that this Agreement supersedes all prior agreements and understandings, if any, between Hearst-Argyle and Employee. No provision of this Agreement may be waived, changed or otherwise modified except by a writing signed by the party to be charged with such waiver, change or modification. THIRTEENTH: Each and every covenant, provision, term and clause contained in this Agreement is severable from the others and each such covenant, provision, term and clause shall be valid and effective, notwithstanding the invalidity or unenforceability of any other such 11 covenant, provision, term or clause. FOURTEENTH: Any notice, request, demand, waiver or consent required or permitted hereunder shall be in writing and shall be given by prepaid registered or certified mail, with return receipt requested, addressed as follows: If to Hearst-Argyle: ------------------- Hearst-Argyle Television, Inc. 888 Seventh Avenue New York, New York 10106, Attention: Secretary If to Employee: -------------- David J. Barrett 64 Canfield Drive Stamford, Connecticut 06902 The date of any such notice and of service thereof shall be deemed to be the date of mailing. Either party may change its address for the purpose of notice by giving notice to the other in writing as herein provided. FIFTEENTH: This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SIXTEENTH: Hearst-Argyle and Employee agree that any claim which either party may have against the other under local, state or federal law including, but not limited to, matters of discrimination, arising out of the termination or alleged breach of this Agreement or the terms, conditions or termination of such employment, will be submitted to mediation and, if mediation is unsuccessful, to final and binding arbitration in accordance with Hearst- Argyle's Dispute Settlement Procedure ("Procedure"), of which Employee has received a copy. During the pendency of any claim under this Procedure, Hearst- Argyle and Employee agree to make no statement orally or in 12 writing regarding the existence of the claim or the facts forming the basis of such claim, or any statement orally or in writing which could impair or disparage the personal or business reputation of Hearst-Argyle or Employee. The Procedure is hereby incorporated by reference into this Agreement. IN WITNESS WHEREOF, Hearst-Argyle and Employee have executed this Agreement as of the date first written above. HEARST-ARGYLE TELEVISION, INC. By: ___________________________ EMPLOYEE By: ___________________________ David J. Barrett 13 EX-10.32 3 EMPLOYMENT AGREEMENT - ANTHONY J. VINCIQUERRA EXHIBIT 10.32 EMPLOYMENT AGREEMENT This Employment Agreement is executed as of January 1, 1999, by and between HEARST-ARGYLE TELEVISION, INC., a Delaware corporation ("Hearst- Argyle"), and ANTHONY J. VINCIQUERRA, c/o Hearst-Argyle Television, Inc., 888 Seventh Avenue, New York, New York 10106 ("Employee"). WHEREAS, Employee possesses special, unique and original ability, and Hearst-Argyle desires to secure Employee's exclusive services for the period and on the terms hereinafter mentioned, which employment Employee desires to secure and accept, NOW, THEREFORE, in consideration of the compensation and the mutual provisions and conditions herein contained, the parties agree as follows: FIRST: Hearst-Argyle hereby employs Employee to render exclusive services to and for Hearst-Argyle as its Executive Vice-President, and Employee agrees to render services to Hearst-Argyle in such capacities, and shall so serve, subject, however, to such limitations, instructions, directions, and control as the Board of Directors of Hearst-Argyle may specify from time to time, during the period beginning on the Commencement Date, as hereinafter defined, and extending to and terminating on December 31, 2000 (the "Expiration Date") unless terminated earlier in accordance with the provisions hereof. The Commencement Date shall be January 1, 1999. Employee hereby accepts the aforesaid employment and agrees to render exclusive services hereunder on the terms and conditions herein set forth. SECOND: Hearst-Argyle agrees to pay to Employee and Employee agrees to accept from Hearst-Argyle, as basic compensation for Employee's services hereunder, salary at the annual rate of $500,000 beginning with the Commencement Date and extending to and terminating on the Expiration Date, payable in installments in accordance with the prevailing payroll practices 1 of Hearst-Argyle during the term hereof, but in no event less frequently than twice a month. In or about December 1999, Hearst-Argyle will review Employee's compensation provisions herein contained for the purpose of determining whether an increase in compensation should be effected in respect of the period commencing with the 1st day of January, 1999 to the Expiration Date. As additional compensation hereunder, Employee shall be eligible to receive a bonus for each calendar year during the term of this Agreement, the amount and basis of the bonus to be determined in accordance with such criteria as shall be established by the Compensation Committee of the Board of Directors of Hearst-Argyle. It is understood and agreed that the maximum additional compensation payable in respect of each such year shall not exceed a sum equal to 75% of Employee's base compensation for that year with the "target" bonus equal to 40% of Employee's base compensation for that year, as such maximum and target percentages may be increased in the sole discretion of the Compensation Committee of the Board of Directors of Hearst-Argyle. The Compensation Committee may, in its discretion, award any special bonus to Employee that it deems appropriate, notwithstanding any other provisions set forth in this Agreement. In determining the amount of additional compensation to be paid to Employee hereunder, the books of Hearst-Argyle shall be absolute and final and shall not be open to dispute by Employee. Hearst-Argyle shall pay the additional compensation, if any, due hereunder at any time prior to March 31 of the year following each calendar year during the term of this Agreement. It is mutually understood and agreed that the additional compensation hereinbefore provided shall be due and payable only for so long as Employee shall perform services under this Agreement and, in the event Employee's employment hereunder or this Agreement shall be terminated for any cause, or should Hearst-Argyle assign this Agreement in accordance with the terms of Paragraph SIXTH hereof, Hearst-Argyle shall compute the additional compensation by 2 limiting the amount thereof to the period commencing with the first day of the calendar year in which such termination or assignment shall take effect to and including the date of termination or assignment. THIRD: To induce Hearst-Argyle to enter into this Agreement and to pay the compensation herein provided, Employee hereby represents, warrants and agrees to the following: (a) Employee will faithfully and diligently carry out Employee's duties hereunder. (b) Employee will work for, and render services to, Hearst-Argyle exclusively, and Employee will give and devote to the pursuit of Employee's duties, exclusive time, best skill, attention and energy, and that during the term of employment, Employee will not perform any work, render any services or give any advice, gratuitously or otherwise, for or to any other person, firm or corporation, that shall be inconsistent in any material respect with Employee's duties or obligations hereunder, as reasonably determined by Hearst-Argyle, without the prior consent of Hearst-Argyle in each such instance. Notwithstanding the foregoing, it is the understanding of the parties hereto that Employee shall be permitted to serve, and in certain instances to continue to serve, as a member of the board of directors of other organizations, including charitable or not-for-profit corporations and profit-making corporations, but only if such board membership does not interfere or conflict with Employee's work hereunder in any material respect and such board membership is approved in advance by Hearst-Argyle, which approval shall not be unreasonably withheld. Should there be a violation or attempted or threatened violation of this provision, Hearst-Argyle may apply for and obtain an injunction to restrain such violation or attempted or threatened violation, to which injunction Hearst- Argyle shall be entitled as a matter of right, Employee conceding that the services contemplated by this Agreement are special, unique and extraordinary, the loss of which cannot reasonably or adequately be compensated in damages in an 3 action at law, and that the right to injunction is necessary for the protection and preservation of the rights of Hearst-Argyle and to prevent irreparable damage to Hearst-Argyle. Such injunctive relief shall be in addition to such other rights and remedies as Hearst-Argyle may have against Employee arising from any breach hereof on Employee's part. (c) No impediment, contractual or otherwise, exists which limits or precludes Employee from entering into this Agreement and rendering full performance in accordance with the terms and conditions herein provided. FOURTH: During the period of, and after the expiration of, this Agreement or after the termination of Employee's employment (whether such employment is pursuant to the terms of this Agreement or otherwise), Employee will not use, divulge, sell or deliver to or for any other person, firm or corporation other than Hearst-Argyle or a successor to, or a parent (direct or indirect), or an affiliate or subsidiary of, Hearst-Argyle (hereinafter in this paragraph collectively referred to as "HEARST-ARGYLE") any and all confidential information and material (statistical or otherwise) relating to HEARST-ARGYLE'S business, including, but not limited to, confidential information and material concerning broadcasting, magazines, newspapers, cable systems operations, cable programming, books, syndication, circulation, distribution, marketing, advertising, customers, authors, employees, literary property and rights appertaining thereto, copyrights, trade names, trademarks, financial information, methods and processes incident to broadcasting, programming, publication or printing, and any other secret or confidential information. Upon the termination of Employee's employment irrespective of the time, manner or cause of termination, Employee will surrender to HEARST-ARGYLE all lists, books and records of or in connection with HEARST-ARGYLE'S business and all other property belonging to HEARST-ARGYLE. Should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph FOURTH, HEARST-ARGYLE shall be entitled to the same rights and relief by way of 4 injunction and other remedies as are provided for under subparagraph (b) of Paragraph THIRD hereof. FIFTH: Employee's employment hereunder may be terminated by Hearst- Argyle (a) by reason of a Disability, as hereinafter defined, (b) for Cause, as hereinafter defined, or (c) Without Cause, as hereinafter defined, all upon payment of the sums hereinafter set forth. Employee may terminate Employee's employment hereunder (a) voluntarily, with Good Reason, as hereinafter defined, or (b) voluntarily, without Good Reason, subject to a covenant not-to-compete as provided in Paragraph NINTH. In the event of Employee's death, this Agreement shall terminate and all rights and obligations of this Agreement shall cease except as otherwise herein provided. In the event Employee's employment is terminated due to Employee's death, Employee's legal representative or estate, as the case may be, shall be entitled to receive any compensation to which Employee was entitled, but which Employee had not yet received, at the time of Employee's death. (a) For purposes of this Paragraph FIFTH, Disability shall mean that for a period of one hundred eighty (180) consecutive days, Employee is unable to fulfill the duties and responsibilities of Employee's position because of physical or mental incapacity. If, as a result of a Disability, Employee shall have been unable to fulfill Employee's duties and responsibilities, and within thirty (30) days after written Notice of Termination, as hereinafter defined, is given, Employee shall not have returned to the performance of Employee's duties hereunder on a full-time basis, Hearst- Argyle may terminate Employee's employment. In the event of a termination due to Disability, Employee shall be entitled to receive compensation through the Date of Termination, as hereinafter defined. In the event that Employee is otherwise receiving or is entitled to receive disability benefits at the time Employee's employment is terminated, nothing herein contained shall be construed to terminate or otherwise adversely affect 5 Employee's right to receive such benefits. (b) Employee's employment may be terminated for "Cause" by Hearst- Argyle. For purposes of this Agreement, "Cause" shall mean (i) conviction of a felony; (ii) willful gross neglect or willful gross misconduct in the performance of Employee's duties hereunder; (iii) willful failure to comply with applicable laws with respect to the conduct of Hearst-Argyle's business, resulting in material economic harm to Hearst-Argyle; (iv) theft, fraud or embezzlement, resulting in substantial gain or personal enrichment, directly or indirectly, to Employee at Hearst-Argyle's expense; (v) inability to perform the duties and responsibilities of Employee's office as a result of addiction to alcohol or drugs, other than drugs legally prescribed or administered by a duly licensed physician; or (vi) continued willful failure to comply with the reasonable directions of the Board of Directors, which directions have been voted upon and approved by a majority of such Board and of which Employee has been made fully aware. A termination for Cause will be deemed to have occurred as of the date when there shall have been delivered to Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of such Board called and held for that purpose and any other purpose or purposes (after reasonable written notice to Employee, and an opportunity for Employee, together with Employee's counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Employee's conduct met the definition of termination for Cause set forth above. In the event of a termination for Cause, Employee shall be entitled to receive compensation through the Date of Termination, as hereinafter defined. (c) A termination "Without Cause" shall mean a termination of employment by Hearst-Argyle other than due to Employee's death or Disability or for Cause. In the event of a termination Without Cause, Employee shall be entitled to receive, 6 in a lump sum payment at the time of such termination, an amount equal to Employee's salary provided in Paragraph SECOND plus an amount equal to Employee's "target" bonus, as if Employee had remained an employee of Hearst- Argyle for the longer of the duration of the term of this Agreement or one year (the "Payment Period"). In the event Employee's employment is terminated Without Cause, Employee shall have no duty to mitigate damages. Notwithstanding the above, Hearst-Argyle's obligation to pay the amounts referenced hereinabove shall be conditioned on Employee's signing a general release in form satisfactory to Hearst-Argyle. (d) At any time during the term of the Agreement, Employee may voluntarily terminate Employee's employment for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean, without Employee's express written consent, the occurrence of any of the following circumstances: (i) the removal of Employee from the position of Executive Vice-President of Hearst-Argyle; (ii) the assignment to Employee of any duties or responsibilities inconsistent with Employee's status and authority as Executive Vice-President, or a substantial adverse alteration in the nature or status of Employee's duties or responsibilities from those in effect at the commencement of this Agreement, if such assignment or alteration reduces the duties, responsibilities, importance or scope of Employee's position, (iii) a reduction of Employee's compensation as set forth in this Agreement; (iv) a material breach of this Agreement by Hearst- Argyle; or (v) the relocation of the principal executive offices of Hearst- Argyle or of Employee's principal office to a location more than fifty (50) miles from New York City or the imposition of a requirement that Employee be based anywhere other than at such principal executive offices. Employee's right to terminate Employee's employment shall not be affected by Employee's incapacity due to physical or mental illness. Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. 7 If Employee desires to terminate Employee's employment for Good Reason, Employee shall first give Hearst-Argyle Notice of Termination, as hereinafter defined, and shall allow Hearst-Argyle no less than thirty (30) days to remedy, cure or rectify the situation giving rise to Employee's Good Reason. If Employee terminates Employee's employment for Good Reason, Employee shall receive the same compensation and benefits as if Employee was terminated by Hearst-Argyle Without Cause. Any termination of Employee's employment hereunder, whether by Hearst- Argyle or by Employee, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and, if by Hearst-Argyle for Cause or by Employee for Good Reason, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. "Date of Termination" shall mean (i) if Employee's employment is terminated by death, the date of Employee's death, (ii) if Employee's employment is terminated due to Disability, thirty (30) days after Notice of Termination is given (provided that Employee shall not have returned to the performance of Employee's duties on a full-time basis during such thirty (30) day period), (iii) if Employee's employment is terminated by Hearst-Argyle Without Cause, the date specified in the Notice of Termination, which date shall be not less than five (5) nor more than thirty (30) days from the date Notice of Termination was given, (iv) if Employee's employment is terminated by Employee for Good Reason, the date specified in the Notice of Termination, which date shall be not less than five (5) nor more than thirty (30) working days from the expiration of the time to remedy, cure or rectify the situation giving rise to Employee's Good Reason, and (v) if Employee's employment is terminated by Hearst-Argyle for Cause, the date specified in the Notice of Termination. 8 Except as otherwise set forth in this Agreement, any payments pursuant to the provisions of this Paragraph FIFTH shall be severance payments or liquidated damages or both, shall not be subject to any requirements as to mitigation or offset, except as otherwise specifically provided, and shall not be in the nature of a penalty. No payment resulting from the termination of Employee's employment shall adversely affect Employee's entitlement to benefits under any Hearst-Argyle benefit plan in which Employee was participating at the time of such termination. SIXTH: Hearst-Argyle shall have the right to transfer Employee to any property owned or controlled, directly or indirectly, by it, or constituting a part of Hearst-Argyle, and should such property be operated by a successor to, or a subsidiary or an affiliate of, Hearst-Argyle, this Agreement shall be assignable by Hearst-Argyle to such successor or to such subsidiary or affiliate. This right of transfer shall be subject however to Employee's rights under Paragraph FIFTH (d). It is further understood that this Agreement and all of the rights and benefits hereunder are personal to Employee and neither this Agreement nor any right or interest of Employee herein or arising hereunder shall be subject to voluntary or involuntary alienation, assignment, hypothecation or transfer by him. SEVENTH: Employee will accept any additional office (whether such be that of director, officer or otherwise) to which Employee may be elected or appointed in Hearst-Argyle or in any firm, association or corporation which is a successor to, or a subsidiary or an affiliate of, Hearst-Argyle or in which Hearst-Argyle holds an interest. In the event of such election or appointment, Employee agrees to serve without extra compensation. EIGHTH: Employee covenants and agrees that during the term hereof and within the two (2) year period immediately following the termination of this Agreement, regardless of the reason therefor, Employee shall not solicit, induce, aid or suggest to (i) any employee, (ii) any author, (iii) any independent contractor or other service provider, or (iv) any customer, agency or 9 advertiser of Hearst-Argyle to leave such employ, to terminate such relationship or to cease doing business with Hearst-Argyle. Employee acknowledges that the terms of this paragraph are reasonable and enforceable and that should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph EIGHTH, Hearst-Argyle shall be entitled to the same rights and relief by way of injunction as are provided for under subparagraph (b) of Paragraph THIRD hereof. In the event that this non- solicitation covenant shall be deemed by any court of competent jurisdiction, in any proceedings in which Hearst-Argyle shall be a party, to be unenforceable because of its duration, scope, or area, it shall be deemed to be and shall be amended to conform to the scope, period of time and geographical area which would permit it to be enforced. NINTH: Upon the termination of Employee's employment by Hearst- Argyle for Cause or by Employee without Good Reason, Employee agrees that, without the express approval of Hearst-Argyle, Employee shall not, for a period which is the lesser of two (2) years or the remaining term of this Agreement subsequent to such termination, engage in any activity or render service in any capacity (whether as principal, five percent (5%) shareholder, employee, consultant or otherwise) for or on behalf of any person or persons if such activity or service directly competes with the business of Hearst-Argyle. It is understood and agreed that nothing herein contained shall prevent Employee from engaging in discussions concerning business arrangements to become effective upon the expiration of the term of this covenant not to compete. In the event Hearst-Argyle shall not offer to renew this Agreement, or a termination by Hearst-Argyle Without Cause or by Employee with Good Reason, the provisions of this Paragraph NINTH shall be of no force or effect. Employee acknowledges that the terms of this paragraph are reasonable and enforceable and that should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph NINTH, Hearst-Argyle shall be entitled to the 10 same rights and relief by way of injunction as are provided for under subparagraph (b) of Paragraph THIRD hereof. In the event that this covenant not to compete shall be deemed by any court of competent jurisdiction, in any proceedings in which Hearst-Argyle shall be a party, to be unenforceable because of its duration, scope, or area, it shall be deemed to be and shall be amended to conform to the scope, period of time and geographical area which would permit it to be enforced. TENTH: Hearst-Argyle and Employee acknowledge that the terms of this Agreement are confidential and, among other things, constitute trade secrets, the disclosure of which likely would inure to the material detriment of Hearst- Argyle's business operations. Except as required by securities laws, FCC regulations, other regulatory requirements, or court order, Hearst-Argyle and Employee agree not to disclose any of the terms of this Agreement to any other person or persons, provided, however, that Employee may make a limited disclosure to Employee's legal or financial advisors, or to members of Employee's immediate family, on condition that each such person to whom disclosure is made agrees to maintain the confidentiality of such information and to refrain from making further disclosure. ELEVENTH: It is understood and agreed that this Agreement shall be interpreted, construed and enforced in accordance with the laws of the State of New York, without regard to New York's conflicts or choice of law rules. TWELFTH: It is understood and agreed that this Agreement supersedes all prior agreements and understandings, if any, between Hearst-Argyle and Employee. No provision of this Agreement may be waived, changed or otherwise modified except by a writing signed by the party to be charged with such waiver, change or modification. THIRTEENTH: Each and every covenant, provision, term and clause contained in this Agreement is severable from the others and each such covenant, provision, term and clause 11 shall be valid and effective, notwithstanding the invalidity or unenforceability of any other such covenant, provision, term or clause. FOURTEENTH: Any notice, request, demand, waiver or consent required or permitted hereunder shall be in writing and shall be given by prepaid registered or certified mail, with return receipt requested, addressed as follows: If to Hearst-Argyle: ------------------- Hearst-Argyle Television, Inc. 888 Seventh Avenue New York, New York 10106, Attention: Secretary If to Employee: -------------- Anthony J. Vinciquerra c/o Hearst-Argyle Television, Inc. 888 Seventh Avenue New York, New York 10106 The date of any such notice and of service thereof shall be deemed to be the date of mailing. Either party may change its address for the purpose of notice by giving notice to the other in writing as herein provided. FIFTEENTH: This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SIXTEENTH: Hearst-Argyle and Employee agree that any claim which either party may have against the other under local, state or federal law including, but not limited to, matters of discrimination, arising out of the termination or alleged breach of this Agreement or the terms, conditions or termination of such employment, will be submitted to mediation and, if mediation is unsuccessful, to final and binding arbitration in accordance with Hearst- Argyle's Dispute Settlement 12 Procedure ("Procedure"), of which Employee has received a copy. During the pendency of any claim under this Procedure, Hearst- Argyle and Employee agree to make no statement orally or in writing regarding the existence of the claim or the facts forming the basis of such claim, or any statement orally or in writing which could impair or disparage the personal or business reputation of Hearst-Argyle or Employee. The Procedure is hereby incorporated by reference into this Agreement. IN WITNESS WHEREOF, Hearst-Argyle and Employee have executed this Agreement as of the date first written above. HEARST-ARGYLE TELEVISION, INC. By: ___________________________ EMPLOYEE By: ___________________________ Anthony J. Vinciquerra 13 EX-10.33 4 EMPLOYMENT AGREEMENT - TERRY MACKIN EXHIBIT 10.33 EMPLOYMENT AGREEMENT This Employment Agreement is executed as of February 15, 1999 by and between HEARST-ARGYLE TELEVISION, INC., a Delaware corporation ("Hearst- Argyle"), and TERRY MACKIN of 888 Seventh Avenue, New York, 10106 ("Employee"). WHEREAS, Employee possesses special, unique and original ability, and Hearst-Argyle desires to secure Employee's exclusive services for the period and on the terms hereinafter mentioned, which employment Employee desires to secure and accept, NOW, THEREFORE, in consideration of the compensation and the mutual provisions and conditions herein contained, the parties agree as follows: FIRST: Hearst-Argyle hereby employs Employee to render exclusive services to and for Hearst-Argyle as its Executive Vice-President responsible for the management oversight of a group of Hearst-Argyle television stations and reporting to the Chief Operating Officer of Hearst-Argyle and Employee agrees to render services to Hearst-Argyle in such capacities, and shall so serve, subject, however, to such limitations, instructions, directions, and control as the Board of Directors of Hearst-Argyle may specify from time to time, during the period beginning on the Commencement Date, as hereinafter defined, and extending to and terminating on December 31, 2001 (the "Expiration Date") unless terminated earlier in accordance with the provisions hereof. The Commencement Date shall be a date agreed to by Hearst-Argyle and Employee; provided, however, that the Commencement Date shall not be later than June 30, 1999. In the event that Employee has not commenced employment by June 30, 1999, this Agreement shall terminate, and neither party shall have any obligations or liabilities to the other party. Employee hereby accepts the aforesaid employment and agrees to render exclusive services hereunder on the terms and conditions herein 1 set forth. SECOND: Hearst-Argyle agrees to pay to Employee and Employee agrees to accept from Hearst-Argyle, as basic compensation for Employee's services hereunder, salary at the annual rate of $500,000 beginning with the Commencement Date and extending to and terminating on December 31, 1999; salary at the annual rate of $550,000 beginning on January 1, 2000 and extending to and terminating on the December 31, 2000; and a salary at the annual rate of $600,000 beginning on January 1, 2001 and extending to and terminating on the Expiration Date, payable in installments in accordance with the prevailing payroll practices of Hearst-Argyle during the term hereof, but in no event less frequently than twice a month. Employee shall receive a one-time bonus of $125,000, payable within 10 days following the Commencement Date. As additional compensation hereunder, Employee shall be eligible to receive a bonus for each year during the term of this Agreement (with such bonus to be prorated for the period from the Commencement Date through December 31, 1999), the amount and basis of the bonus to be determined in accordance with such criteria as shall be established by the Compensation Committee of the Board of Directors of Hearst-Argyle. It is understood and agreed that the maximum additional compensation payable in respect of each such year shall not exceed a sum equal to 75% of Employee's base compensation for that year with the "target" bonus equal to 40% of Employee's base compensation for that year, as such maximum and target percentages may be increased in the sole discretion of the Compensation Committee of the Board of Directors of Hearst-Argyle. Notwithstanding the foregoing, Employee's annual bonus shall not be less than: Contract Year Amount ------------- ------ 1 $100,000 (prorated for the months employed in 1999) 2 $110,000 3 $120,000 2 The Compensation Committee may, in its discretion, award any special bonus to Employee that it deems appropriate, notwithstanding any other provisions set forth in this Agreement. In determining the amount of additional compensation to be paid to Employee hereunder, the books of Hearst-Argyle shall be absolute and final and shall not be open to dispute by Employee. Hearst-Argyle shall pay the additional compensation due hereunder at any time prior to March 31 of the year following each calendar year during the term of this Agreement. It is mutually understood and agreed that the additional compensation hereinbefore provided shall be due and payable only for so long as Employee shall perform services under this Agreement and, in the event Employee's employment hereunder or this Agreement shall be terminated for any cause, or should Hearst-Argyle assign this Agreement in accordance with the terms of Paragraph SIXTH hereof, Hearst-Argyle shall compute the additional compensation by limiting the amount thereof to the period commencing with the first day of the calendar year in which such termination or assignment shall take effect to and including the date of termination or assignment. THIRD: To induce Hearst-Argyle to enter into this Agreement and to pay the compensation herein provided, Employee hereby represents, warrants and agrees to the following: (a) Employee will faithfully and diligently carry out Employee's duties hereunder. (b) Employee will work for, and render services to, Hearst-Argyle exclusively, and Employee will give and devote to the pursuit of Employee's duties, exclusive time, best skill, attention and energy, and that during the term of employment, Employee will not perform any work, render any services or give any advice, gratuitously or otherwise, for or to any other person, firm or corporation, that shall be inconsistent in any material respect with Employee's duties or obligations 3 hereunder, as reasonably determined by Hearst-Argyle, without the prior consent of Hearst-Argyle in each such instance. Notwithstanding the foregoing, it is the understanding of the parties hereto that Employee shall be permitted to serve, and in certain instances to continue to serve, as a member of the board of directors of other organizations, including charitable or not-for-profit corporations and profit-making corporations, but only if such board membership does not interfere or conflict with Employee's work hereunder in any material respect and such board membership is approved in advance by Hearst-Argyle, which approval shall not be unreasonably withheld. Should there be a violation or attempted or threatened violation of this provision, Hearst-Argyle may apply for and obtain an injunction to restrain such violation or attempted or threatened violation, to which injunction Hearst- Argyle shall be entitled as a matter of right, Employee conceding that the services contemplated by this Agreement are special, unique and extraordinary, the loss of which cannot reasonably or adequately be compensated in damages in an action at law, and that the right to injunction is necessary for the protection and preservation of the rights of Hearst-Argyle and to prevent irreparable damage to Hearst-Argyle. Such injunctive relief shall be in addition to such other rights and remedies as Hearst-Argyle may have against Employee arising from any breach hereof on Employee's part. (c) No impediment, contractual or otherwise, exists which limits or precludes Employee from entering into this Agreement and rendering full performance in accordance with the terms and conditions herein provided. FOURTH: During the period of, and after the expiration of, this Agreement or after the termination of Employee's employment (whether such employment is pursuant to the terms of this Agreement or otherwise), Employee will not use, divulge, sell or deliver to or for any other person, firm or corporation other than Hearst-Argyle or a successor to, or a parent (direct or indirect), 4 or an affiliate or subsidiary of, Hearst-Argyle (hereinafter in this paragraph collectively referred to as "HEARST-ARGYLE") any and all confidential information and material (statistical or otherwise) relating to HEARST-ARGYLE'S business, including, but not limited to, confidential information and material concerning broadcasting, magazines, newspapers, cable systems operations, cable programming, books, syndication, circulation, distribution, marketing, advertising, customers, authors, employees, literary property and rights appertaining thereto, copyrights, trade names, trademarks, financial information, methods and processes incident to broadcasting, programming, publication or printing, and any other secret or confidential information. Upon the termination of Employee's employment irrespective of the time, manner or cause of termination, Employee will surrender to HEARST-ARGYLE all lists, books and records of or in connection with HEARST-ARGYLE'S business and all other property belonging to HEARST-ARGYLE. Should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph FOURTH, HEARST-ARGYLE shall be entitled to the same rights and relief by way of injunction and other remedies as are provided for under subparagraph (b) of Paragraph THIRD hereof. FIFTH: Employee's employment hereunder may be terminated by Hearst- Argyle (a) by reason of a Disability, as hereinafter defined, (b) for Cause, as hereinafter defined, or (c) Without Cause, as hereinafter defined, all upon payment of the sums hereinafter set forth. Employee may terminate Employee's employment hereunder (a) voluntarily, with Good Reason, as hereinafter defined, or (b) voluntarily, without Good Reason, subject to a covenant not-to-compete as provided in Paragraph NINTH. In the event of Employee's death, this Agreement shall terminate and all rights and obligations of this Agreement shall cease except as otherwise herein provided. In the event Employee's employment is terminated due to Employee's death, 5 Employee's legal representative or estate, as the case may be, shall be entitled to receive any compensation to which Employee was entitled, but which Employee had not yet received, at the time of Employee's death. (a) For purposes of this Paragraph FIFTH, Disability shall mean that for a period of one hundred eighty (180) consecutive days, Employee is unable to fulfill the duties and responsibilities of Employee's position because of physical or mental incapacity. If, as a result of a Disability, Employee shall have been unable to fulfill Employee's duties and responsibilities, and within thirty (30) days after written Notice of Termination, as hereinafter defined, is given, Employee shall not have returned to the performance of Employee's duties hereunder on a full-time basis, Hearst-Argyle may terminate Employee's employment. In the event of a termination due to Disability, Employee shall be entitled to receive compensation through the Date of Termination, as hereinafter defined. In the event that Employee is otherwise receiving or is entitled to receive disability benefits at the time Employee's employment is terminated, nothing herein contained shall be construed to terminate or otherwise adversely affect Employee's right to receive such benefits. (b) Employee's employment may be terminated for "Cause" by Hearst- Argyle. For purposes of this Agreement, "Cause" shall mean (i) conviction of a felony; (ii) willful gross neglect or willful gross misconduct in the performance of Employee's duties hereunder; (iii) willful failure to comply with applicable laws with respect to the conduct of Hearst-Argyle's business, resulting in material economic harm to Hearst-Argyle; (iv) theft, fraud or embezzlement, resulting in substantial gain or personal enrichment, directly or indirectly, to Employee at Hearst-Argyle's expense; (v) inability to perform the duties and responsibilities of Employee's office as a result of addiction to alcohol or drugs, other than drugs legally prescribed or administered by a duly licensed physician; 6 or (vi) continued willful failure to comply with the reasonable directions of the Board of Directors, which directions have been voted upon and approved by a majority of such Board and of which Employee has been made fully aware. A termination for Cause will be deemed to have occurred as of the date when there shall have been delivered to Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of such Board called and held for that purpose and any other purpose or purposes (after reasonable written notice to Employee, and an opportunity for Employee, together with Employee's counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Employee's conduct met the definition of termination for Cause set forth above. In the event of a termination for Cause, Employee shall be entitled to receive compensation through the Date of Termination, as hereinafter defined. (c) A termination "Without Cause" shall mean a termination of employment by Hearst-Argyle other than due to Employee's death or Disability or for Cause. In the event of a termination Without Cause, Employee shall be entitled to receive, in a lump sum payment at the time of such termination, an amount equal to Employee's salary provided in Paragraph SECOND plus an amount equal to Employee's "target" bonus, as if Employee had remained an employee of Hearst-Argyle for the longer of the duration of the term of this Agreement or one year (the "Payment Period"). In the event Employee's employment is terminated Without Cause, Employee shall have no duty to mitigate damages. Notwithstanding the above, Hearst-Argyle's obligation to pay the amounts referenced hereinabove shall be conditioned on Employee's signing a general release in form satisfactory to Hearst-Argyle. (d) At any time during the term of the Agreement, Employee may voluntarily 7 terminate Employee's employment for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean, without Employee's express written consent, the occurrence of any of the following circumstances: (i) the removal of Employee from the position of Executive Vice President of Hearst-Argyle; (ii) the assignment to Employee of any duties or responsibilities inconsistent with Employee's status and authority as Executive Vice President, or a substantial adverse alteration in the nature or status of Employee's duties or responsibilities from those in effect at the commencement of this Agreement, if such assignment or alteration reduces the duties, responsibilities, importance or scope of Employee's position, (iii) a reduction of Employee's compensation as set forth in this Agreement; (iv) a material breach of this Agreement by Hearst- Argyle; or (v) the relocation of the principal executive offices of Hearst- Argyle or of Employee's principal office to a location more than fifty (50) miles from New York City or the imposition of a requirement that Employee be based anywhere other than at such principal executive offices. Employee's right to terminate Employee's employment shall not be affected by Employee's incapacity due to physical or mental illness. Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. If Employee desires to terminate Employee's employment for Good Reason, Employee shall first give Hearst-Argyle Notice of Termination, as hereinafter defined, and shall allow Hearst-Argyle no less than thirty (30) days to remedy, cure or rectify the situation giving rise to Employee's Good Reason. If Employee terminates Employee's employment for Good Reason, Employee shall receive the same compensation and benefits as if Employee was terminated by Hearst-Argyle Without Cause. 8 Any termination of Employee's employment hereunder, whether by Hearst- Argyle or by Employee, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and, if by Hearst-Argyle for Cause or by Employee for Good Reason, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. "Date of Termination" shall mean (i) if Employee's employment is terminated by death, the date of Employee's death, (ii) if Employee's employment is terminated due to Disability, thirty (30) days after Notice of Termination is given (provided that Employee shall not have returned to the performance of Employee's duties on a full-time basis during such thirty (30) day period), (iii) if Employee's employment is terminated by Hearst-Argyle Without Cause, the date specified in the Notice of Termination, which date shall be not less than five (5) nor more than thirty (30) days from the date Notice of Termination was given, (iv) if Employee's employment is terminated by Employee for Good Reason, the date specified in the Notice of Termination, which date shall be not less than five (5) nor more than thirty (30) working days from the expiration of the time to remedy, cure or rectify the situation giving rise to Employee's Good Reason, and (v) if Employee's employment is terminated by Hearst-Argyle for Cause, the date specified in the Notice of Termination. Except as otherwise set forth in this Agreement, any payments pursuant to the provisions of this Paragraph FIFTH shall be severance payments or liquidated damages or both, shall not be subject to any requirements as to mitigation or offset, except as otherwise specifically provided, and shall not be in the nature of a penalty. No payment resulting from the termination of Employee's employment shall adversely affect Employee's entitlement to benefits under any Hearst-Argyle benefit plan in which Employee was participating at the time of such termination. 9 SIXTH: Hearst-Argyle shall have the right to transfer Employee to any property owned or controlled, directly or indirectly, by it, or constituting a part of Hearst-Argyle, and should such property be operated by a successor to, or a subsidiary or an affiliate of, Hearst-Argyle, this Agreement shall be assignable by Hearst-Argyle to such successor or to such subsidiary or affiliate. This right of transfer shall be subject however to Employee's rights under Paragraph FIFTH (d). It is further understood that this Agreement and all of the rights and benefits hereunder are personal to Employee and neither this Agreement nor any right or interest of Employee herein or arising hereunder shall be subject to voluntary or involuntary alienation, assignment, hypothecation or transfer by him. SEVENTH: Employee will accept any additional office (whether such be that of director, officer or otherwise) to which Employee may be elected or appointed in Hearst-Argyle or in any firm, association or corporation which is a successor to, or a subsidiary or an affiliate of, Hearst-Argyle or in which Hearst-Argyle holds an interest. In the event of such election or appointment, Employee agrees to serve without extra compensation. EIGHTH: Employee covenants and agrees that during the term hereof and within the two (2) year period immediately following the termination of this Agreement, regardless of the reason therefor, Employee shall not solicit, induce, aid or suggest to (i) any employee, (ii) any author, (iii) any independent contractor or other service provider, or (iv) any customer, agency or advertiser of Hearst-Argyle to leave such employ, to terminate such relationship or to cease doing business with Hearst-Argyle. Employee acknowledges that the terms of this paragraph are reasonable and enforceable and that should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph EIGHTH, Hearst- Argyle shall be entitled to the same rights and relief by way of injunction as are provided for under subparagraph 10 (b) of Paragraph THIRD hereof. In the event that this non-solicitation covenant shall be deemed by any court of competent jurisdiction, in any proceedings in which Hearst-Argyle shall be a party, to be unenforceable because of its duration, scope, or area, it shall be deemed to be and shall be amended to conform to the scope, period of time and geographical area which would permit it to be enforced. NINTH: Upon the termination of Employee's employment by Hearst- Argyle for Cause or by Employee without Good Reason, Employee agrees that, without the express approval of Hearst-Argyle, Employee shall not, for a period which is the lesser of two (2) years or the remaining term of this Agreement subsequent to such termination, engage in any activity or render service in any capacity (whether as principal, five percent (5%) shareholder, employee, consultant or otherwise) for or on behalf of any person or persons if such activity or service directly competes with the business of Hearst-Argyle. It is understood and agreed that nothing herein contained shall prevent Employee from engaging in discussions concerning business arrangements to become effective upon the expiration of the term of this covenant not to compete. In the event Hearst-Argyle shall not offer to renew this Agreement, or a termination by Hearst-Argyle Without Cause or by Employee with Good Reason, the provisions of this Paragraph NINTH shall be of no force or effect. Employee acknowledges that the terms of this paragraph are reasonable and enforceable and that should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph NINTH, Hearst-Argyle shall be entitled to the same rights and relief by way of injunction as are provided for under subparagraph (b) of Paragraph THIRD hereof. In the event that this covenant not to compete shall be deemed by any court of competent jurisdiction, in any proceedings in which Hearst-Argyle shall be a party, to be unenforceable because of its duration, scope, or area, it shall be deemed to be and shall be amended 11 to conform to the scope, period of time and geographical area which would permit it to be enforced. TENTH: Hearst-Argyle and Employee acknowledge that the terms of this Agreement are confidential and, among other things, constitute trade secrets, the disclosure of which likely would inure to the material detriment of Hearst- Argyle's business operations. Except as required by securities laws, FCC regulations, other regulatory requirements, or court order, Hearst-Argyle and Employee agree not to disclose any of the terms of this Agreement to any other person or persons, provided, however, that Employee may make a limited disclosure to Employee's legal or financial advisors, or to members of Employee's immediate family, on condition that each such person to whom disclosure is made agrees to maintain the confidentiality of such information and to refrain from making further disclosure. ELEVENTH: It is understood and agreed that this Agreement shall be interpreted, construed and enforced in accordance with the laws of the State of New York, without regard to New York's conflicts or choice of law rules. TWELFTH: It is understood and agreed that this Agreement supersedes all prior agreements and understandings, if any, between Hearst-Argyle and Employee. No provision of this Agreement may be waived, changed or otherwise modified except by a writing signed by the party to be charged with such waiver, change or modification. THIRTEENTH: Each and every covenant, provision, term and clause contained in this Agreement is severable from the others and each such covenant, provision, term and clause shall be valid and effective, notwithstanding the invalidity or unenforceability of any other such covenant, provision, term or clause. FOURTEENTH: Any notice, request, demand, waiver or consent required or 12 permitted hereunder shall be in writing and shall be given by prepaid registered or certified mail, with return receipt requested, addressed as follows: If to Hearst-Argyle: ------------------- Hearst-Argyle Television, Inc. 888 Seventh Avenue New York, New York 10106 Attention: Secretary If to Employee: -------------- Terry Mackin c/o Hearst-Argyle Television, Inc. 888 Seventh Avenue New York, New York 10106 The date of any such notice and of service thereof shall be deemed to be the date of mailing. Either party may change its address for the purpose of notice by giving notice to the other in writing as herein provided. FIFTEENTH: This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SIXTEENTH: Hearst-Argyle and Employee agree that any claim which either party may have against the other under local, state or federal law including, but not limited to, matters of discrimination, arising out of the termination or alleged breach of this Agreement or the terms, conditions or termination of such employment, will be submitted to mediation and, if mediation is unsuccessful, to final and binding arbitration in accordance with Hearst- Argyle's Dispute Settlement Procedure ("Procedure"), of which Employee has received a copy. During the pendency of any claim under this Procedure, Hearst- Argyle and Employee agree to make no statement orally or in writing regarding the existence of the claim or the facts forming the basis of such claim, or any 13 statement orally or in writing which could impair or disparage the personal or business reputation of Hearst-Argyle or Employee. The Procedure is hereby incorporated by reference into this Agreement. IN WITNESS WHEREOF, Hearst-Argyle and Employee have executed this Agreement as of the date first written above. HEARST-ARGYLE TELEVISION, INC. By: ___________________________ EMPLOYEE By: ___________________________ Terry Mackin 14 EX-10.34 5 EMPLOYMENT AGREEMENT - PHILIP STOLZ EXHIBIT 10.34 EMPLOYMENT AGREEMENT This Employment Agreement is executed as of January 1, 1999 by and between HEARST-ARGYLE TELEVISION, INC., a Delaware corporation ("Hearst-Argyle"), and PHILIP STOLZ of 888 Seventh Avenue, New York, NY 10106 ("Employee"). WHEREAS, Employee possesses special, unique and original ability, and Hearst-Argyle desires to secure Employee's exclusive services for the period and on the terms hereinafter mentioned, which employment Employee desires to secure and accept, NOW, THEREFORE, in consideration of the compensation and the mutual provisions and conditions herein contained, the parties agree as follows: FIRST: Hearst-Argyle hereby employs Employee to render exclusive services to and for Hearst-Argyle as its Senior Vice-President and Employee agrees to render services to Hearst-Argyle in such capacities, and shall so serve, subject, however, to such limitations, instructions, directions, and control as the Board of Directors of Hearst-Argyle may specify from time to time, during the period beginning on the Commencement Date, as hereinafter defined, and extending to and terminating on December 31, 2000 (the "Expiration Date") unless terminated earlier in accordance with the provisions hereof. The Commencement Date shall be January 1, 1999. Employee hereby accepts the aforesaid employment and agrees to render exclusive services hereunder on the terms and conditions herein set forth. SECOND: Hearst-Argyle agrees to pay to Employee and Employee agrees to accept from Hearst-Argyle, as basic compensation for Employee's services hereunder, salary at the annual rate of $380,000 beginning with the Commencement Date and extending to and terminating on December 31, 1999, and salary at the annual rate of $400,000 beginning on January 1, 2000 and 1 extending to and terminating on December 31, 2000, payable in installments in accordance with the prevailing payroll practices of Hearst-Argyle during the term hereof, but in no event less frequently than twice a month. As additional compensation hereunder, Employee shall be eligible to receive a bonus for each calendar year during the term of this Agreement, the amount and basis of the bonus to be determined in accordance with such criteria as shall be established by the Compensation Committee of the Board of Directors of Hearst-Argyle. It is understood and agreed that the maximum additional compensation payable in respect of each such year shall not exceed a sum equal to 75% of Employee's base compensation for that year with the "target" bonus equal to 40% of Employee's base compensation for that year, as such maximum and target percentages may be increased in the sole discretion of the Compensation Committee of the Board of Directors of Hearst-Argyle. The Compensation Committee may, in its discretion, award any special bonus to Employee that it deems appropriate, notwithstanding any other provisions set forth in this Agreement. In determining the amount of additional compensation to be paid to Employee hereunder, the books of Hearst-Argyle shall be absolute and final and shall not be open to dispute by Employee. Hearst-Argyle shall pay the additional compensation, if any, due hereunder at any time prior to March 31 of the year following each calendar year during the term of this Agreement. It is mutually understood and agreed that the additional compensation hereinbefore provided shall be due and payable only for so long as Employee shall perform services under this Agreement and, in the event Employee's employment hereunder or this Agreement shall be terminated for any cause, or should Hearst-Argyle assign this Agreement in accordance with the terms of Paragraph SIXTH hereof, Hearst-Argyle shall compute the additional compensation by limiting the amount thereof to the period commencing with the first day of the calendar year in 2 which such termination or assignment shall take effect to and including the date of termination or assignment. THIRD: To induce Hearst-Argyle to enter into this Agreement and to pay the compensation herein provided, Employee hereby represents, warrants and agrees to the following: (a) Employee will faithfully and diligently carry out Employee's duties hereunder. (b) Employee will work for, and render services to, Hearst-Argyle exclusively, and Employee will give and devote to the pursuit of Employee's duties, exclusive time, best skill, attention and energy, and that during the term of employment, Employee will not perform any work, render any services or give any advice, gratuitously or otherwise, for or to any other person, firm or corporation, that shall be inconsistent in any material respect with Employee's duties or obligations hereunder, as reasonably determined by Hearst-Argyle, without the prior consent of Hearst-Argyle in each such instance. Notwithstanding the foregoing, it is the understanding of the parties hereto that Employee shall be permitted to serve, and in certain instances to continue to serve, as a member of the board of directors of other organizations, including charitable or not-for-profit corporations and profit-making corporations, but only if such board membership does not interfere or conflict with Employee's work hereunder in any material respect and such board membership is approved in advance by Hearst-Argyle, which approval shall not be unreasonably withheld. Should there be a violation or attempted or threatened violation of this provision, Hearst-Argyle may apply for and obtain an injunction to restrain such violation or attempted or threatened violation, to which injunction Hearst- Argyle shall be entitled as a matter of right, Employee conceding that the services contemplated by this Agreement are special, unique and extraordinary, the loss of which cannot reasonably or adequately be compensated in damages in an 3 action at law, and that the right to injunction is necessary for the protection and preservation of the rights of Hearst-Argyle and to prevent irreparable damage to Hearst-Argyle. Such injunctive relief shall be in addition to such other rights and remedies as Hearst-Argyle may have against Employee arising from any breach hereof on Employee's part. (c) No impediment, contractual or otherwise, exists which limits or precludes Employee from entering into this Agreement and rendering full performance in accordance with the terms and conditions herein provided. FOURTH: During the period of, and after the expiration of, this Agreement or after the termination of Employee's employment (whether such employment is pursuant to the terms of this Agreement or otherwise), Employee will not use, divulge, sell or deliver to or for any other person, firm or corporation other than Hearst-Argyle or a successor to, or a parent (direct or indirect), or an affiliate or subsidiary of, Hearst-Argyle (hereinafter in this paragraph collectively referred to as "HEARST-ARGYLE") any and all confidential information and material (statistical or otherwise) relating to HEARST-ARGYLE'S business, including, but not limited to, confidential information and material concerning broadcasting, magazines, newspapers, cable systems operations, cable programming, books, syndication, circulation, distribution, marketing, advertising, customers, authors, employees, literary property and rights appertaining thereto, copyrights, trade names, trademarks, financial information, methods and processes incident to broadcasting, programming, publication or printing, and any other secret or confidential information. Upon the termination of Employee's employment irrespective of the time, manner or cause of termination, Employee will surrender to HEARST-ARGYLE all lists, books and records of or in connection with HEARST-ARGYLE'S business and all other property belonging to HEARST-ARGYLE. Should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this 4 Paragraph FOURTH, HEARST-ARGYLE shall be entitled to the same rights and relief by way of injunction and other remedies as are provided for under subparagraph (b) of Paragraph THIRD hereof. FIFTH: Employee's employment hereunder may be terminated by Hearst- Argyle (a) by reason of a Disability, as hereinafter defined, (b) for Cause, as hereinafter defined, or (c) Without Cause, as hereinafter defined, all upon payment of the sums hereinafter set forth. Employee may terminate Employee's employment hereunder (a) voluntarily, with Good Reason, as hereinafter defined, or (b) voluntarily, without Good Reason, subject to a covenant not-to-compete as provided in Paragraph NINTH. In the event of Employee's death, this Agreement shall terminate and all rights and obligations of this Agreement shall cease except as otherwise herein provided. In the event Employee's employment is terminated due to Employee's death, Employee's legal representative or estate, as the case may be, shall be entitled to receive any compensation to which Employee was entitled, but which Employee had not yet received, at the time of Employee's death. (a) For purposes of this Paragraph FIFTH, Disability shall mean that for a period of one hundred eighty (180) consecutive days, Employee is unable to fulfill the duties and responsibilities of Employee's position because of physical or mental incapacity. If, as a result of a Disability, Employee shall have been unable to fulfill Employee's duties and responsibilities, and within thirty (30) days after written Notice of Termination, as hereinafter defined, is given, Employee shall not have returned to the performance of Employee's duties hereunder on a full-time basis, Hearst-Argyle may terminate Employee's employment. In the event of a termination due to Disability, Employee shall be entitled to receive compensation through the Date of Termination, as hereinafter defined. In the event that Employee 5 is otherwise receiving or is entitled to receive disability benefits at the time Employee's employment is terminated, nothing herein contained shall be construed to terminate or otherwise adversely affect Employee's right to receive such benefits. (b) Employee's employment may be terminated for "Cause" by Hearst- Argyle. For purposes of this Agreement, "Cause" shall mean (i) conviction of a felony; (ii) willful gross neglect or willful gross misconduct in the performance of Employee's duties hereunder; (iii) willful failure to comply with applicable laws with respect to the conduct of Hearst-Argyle's business, resulting in material economic harm to Hearst-Argyle; (iv) theft, fraud or embezzlement, resulting in substantial gain or personal enrichment, directly or indirectly, to Employee at Hearst-Argyle's expense; (v) inability to perform the duties and responsibilities of Employee's office as a result of addiction to alcohol or drugs, other than drugs legally prescribed or administered by a duly licensed physician; or (vi) continued willful failure to comply with the reasonable directions of the Board of Directors, which directions have been voted upon and approved by a majority of such Board and of which Employee has been made fully aware. A termination for Cause will be deemed to have occurred as of the date when there shall have been delivered to Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of such Board called and held for that purpose and any other purpose or purposes (after reasonable written notice to Employee, and an opportunity for Employee, together with Employee's counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Employee's conduct met the definition of termination for Cause set forth above. In the event of a termination for Cause, Employee shall be entitled to receive compensation through the Date of Termination, as hereinafter defined. 6 (c) A termination "Without Cause" shall mean a termination of employment by Hearst-Argyle other than due to Employee's death or Disability or for Cause. In the event of a termination Without Cause, Employee shall be entitled to receive, in a lump sum payment at the time of such termination, an amount equal to Employee's salary provided in Paragraph SECOND plus an amount equal to Employee's "target" bonus, as if Employee had remained an employee of Hearst-Argyle for the longer of the duration of the term of this Agreement or one year (the "Payment Period"). In the event Employee's employment is terminated Without Cause, Employee shall have no duty to mitigate damages. Notwithstanding the above, Hearst-Argyle's obligation to pay the amounts referenced hereinabove shall be conditioned on Employee's signing a general release in form satisfactory to Hearst-Argyle. (d) At any time during the term of the Agreement, Employee may voluntarily terminate Employee's employment for "Good Reason". For purposes of this Agreement, "Good Reason" shall mean, without Employee's express written consent, the occurrence of any of the following circumstances: (i) the removal of Employee from the position of Senior Vice-President of Hearst-Argyle; (ii) the assignment to Employee of any duties or responsibilities inconsistent with Employee's status and authority as Senior Vice-President, or a substantial adverse alteration in the nature or status of Employee's duties or responsibilities from those in effect at the commencement of this Agreement, if such assignment or alteration reduces the duties, responsibilities, importance or scope of Employee's position, (iii) a reduction of Employee's compensation as set forth in this Agreement; (iv) a material breach of this Agreement by Hearst- Argyle; or (v) the relocation of the principal executive offices of Hearst- Argyle or of Employee's principal office to a location more than fifty (50) miles from New York City or the imposition of a requirement that Employee be based anywhere other than at such principal executive offices. 7 Employee's right to terminate Employee's employment shall not be affected by Employee's incapacity due to physical or mental illness. Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. If Employee desires to terminate Employee's employment for Good Reason, Employee shall first give Hearst-Argyle Notice of Termination, as hereinafter defined, and shall allow Hearst-Argyle no less than thirty (30) days to remedy, cure or rectify the situation giving rise to Employee's Good Reason. If Employee terminates Employee's employment for Good Reason, Employee shall receive the same compensation and benefits as if Employee was terminated by Hearst-Argyle Without Cause. Any termination of Employee's employment hereunder, whether by Hearst- Argyle or by Employee, shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and, if by Hearst-Argyle for Cause or by Employee for Good Reason, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. "Date of Termination" shall mean (i) if Employee's employment is terminated by death, the date of Employee's death, (ii) if Employee's employment is terminated due to Disability, thirty (30) days after Notice of Termination is given (provided that Employee shall not have returned to the performance of Employee's duties on a full-time basis during such thirty (30) day period), (iii) if Employee's employment is terminated by Hearst-Argyle Without Cause, the date specified in the Notice of Termination, which date shall be not less than five (5) nor more than thirty (30) days from 8 the date Notice of Termination was given, (iv) if Employee's employment is terminated by Employee for Good Reason, the date specified in the Notice of Termination, which date shall be not less than five (5) nor more than thirty (30) working days from the expiration of the time to remedy, cure or rectify the situation giving rise to Employee's Good Reason, and (v) if Employee's employment is terminated by Hearst-Argyle for Cause, the date specified in the Notice of Termination. Except as otherwise set forth in this Agreement, any payments pursuant to the provisions of this Paragraph FIFTH shall be severance payments or liquidated damages or both, shall not be subject to any requirements as to mitigation or offset, except as otherwise specifically provided, and shall not be in the nature of a penalty. No payment resulting from the termination of Employee's employment shall adversely affect Employee's entitlement to benefits under any Hearst-Argyle benefit plan in which Employee was participating at the time of such termination. SIXTH: Hearst-Argyle shall have the right to transfer Employee to any property owned or controlled, directly or indirectly, by it, or constituting a part of Hearst-Argyle, and should such property be operated by a successor to, or a subsidiary or an affiliate of, Hearst-Argyle, this Agreement shall be assignable by Hearst-Argyle to such successor or to such subsidiary or affiliate. This right of transfer shall be subject however to Employee's rights under Paragraph FIFTH (d). It is further understood that this Agreement and all of the rights and benefits hereunder are personal to Employee and neither this Agreement nor any right or interest of Employee herein or arising hereunder shall be subject to voluntary or involuntary alienation, assignment, hypothecation or transfer by him. SEVENTH: Employee will accept any additional office (whether such be that of director, officer or otherwise) to which Employee may be elected or appointed in Hearst-Argyle or in any firm, association or corporation which is a successor to, or a subsidiary or an affiliate of, 9 Hearst-Argyle or in which Hearst-Argyle holds an interest. In the event of such election or appointment, Employee agrees to serve without extra compensation. EIGHTH: Employee covenants and agrees that during the term hereof and within the two (2) year period immediately following the termination of this Agreement, regardless of the reason therefor, Employee shall not solicit, induce, aid or suggest to (i) any employee, (ii) any author, (iii) any independent contractor or other service provider, or (iv) any customer, agency or advertiser of Hearst-Argyle to leave such employ, to terminate such relationship or to cease doing business with Hearst-Argyle. Employee acknowledges that the terms of this paragraph are reasonable and enforceable and that should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph EIGHTH, Hearst- Argyle shall be entitled to the same rights and relief by way of injunction as are provided for under subparagraph (b) of Paragraph THIRD hereof. In the event that this non-solicitation covenant shall be deemed by any court of competent jurisdiction, in any proceedings in which Hearst-Argyle shall be a party, to be unenforceable because of its duration, scope, or area, it shall be deemed to be and shall be amended to conform to the scope, period of time and geographical area which would permit it to be enforced. NINTH: Upon the termination of Employee's employment by Hearst- Argyle for Cause or by Employee without Good Reason, Employee agrees that, without the express approval of Hearst-Argyle, Employee shall not, for a period which is the lesser of two (2) years or the remaining term of this Agreement subsequent to such termination, engage in any activity or render service in any capacity (whether as principal, five percent (5%) shareholder, employee, consultant or otherwise) for or on behalf of any person or persons if such activity or service directly competes with the business of Hearst-Argyle. It is understood and agreed that nothing herein 10 contained shall prevent Employee from engaging in discussions concerning business arrangements to become effective upon the expiration of the term of this covenant not to compete. In the event Hearst-Argyle shall not offer to renew this Agreement, or a termination by Hearst-Argyle Without Cause or by Employee with Good Reason, the provisions of this Paragraph NINTH shall be of no force or effect. Employee acknowledges that the terms of this paragraph are reasonable and enforceable and that should there be a violation or attempted or threatened violation by Employee of any of the provisions contained in this Paragraph NINTH, Hearst-Argyle shall be entitled to the same rights and relief by way of injunction as are provided for under subparagraph (b) of Paragraph THIRD hereof. In the event that this covenant not to compete shall be deemed by any court of competent jurisdiction, in any proceedings in which Hearst-Argyle shall be a party, to be unenforceable because of its duration, scope, or area, it shall be deemed to be and shall be amended to conform to the scope, period of time and geographical area which would permit it to be enforced. TENTH: Hearst-Argyle and Employee acknowledge that the terms of this Agreement are confidential and, among other things, constitute trade secrets, the disclosure of which likely would inure to the material detriment of Hearst- Argyle's business operations. Except as required by securities laws, FCC regulations, other regulatory requirements, or court order, Hearst-Argyle and Employee agree not to disclose any of the terms of this Agreement to any other person or persons, provided, however, that Employee may make a limited disclosure to Employee's legal or financial advisors, or to members of Employee's immediate family, on condition that each such person to whom disclosure is made agrees to maintain the confidentiality of such information and to refrain from making further disclosure. ELEVENTH: It is understood and agreed that this Agreement shall be interpreted, 11 construed and enforced in accordance with the laws of the State of New York, without regard to New York's conflicts or choice of law rules. TWELFTH: It is understood and agreed that this Agreement supersedes all prior agreements and understandings, if any, between Hearst-Argyle and Employee. No provision of this Agreement may be waived, changed or otherwise modified except by a writing signed by the party to be charged with such waiver, change or modification. THIRTEENTH: Each and every covenant, provision, term and clause contained in this Agreement is severable from the others and each such covenant, provision, term and clause shall be valid and effective, notwithstanding the invalidity or unenforceability of any other such covenant, provision, term or clause. FOURTEENTH: Any notice, request, demand, waiver or consent required or permitted hereunder shall be in writing and shall be given by prepaid registered or certified mail, with return receipt requested, addressed as follows: If to Hearst-Argyle: ------------------- Hearst-Argyle Television, Inc. 888 Seventh Avenue New York, New York 10106, Attention: Secretary If to Employee: -------------- Philip Stolz c/o Hearst-Argyle Television, Inc. 888 Seventh Avenue New York, New York 10106, The date of any such notice and of service thereof shall be deemed to be the date of mailing. Either party may change its address for the purpose of notice by giving notice to the other 12 in writing as herein provided. FIFTEENTH: This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. SIXTEENTH: Hearst-Argyle and Employee agree that any claim which either party may have against the other under local, state or federal law including, but not limited to, matters of discrimination, arising out of the termination or alleged breach of this Agreement or the terms, conditions or termination of such employment, will be submitted to mediation and, if mediation is unsuccessful, to final and binding arbitration in accordance with Hearst- Argyle's Dispute Settlement Procedure ("Procedure"), of which Employee has received a copy. During the pendency of any claim under this Procedure, Hearst- Argyle and Employee agree to make no statement orally or in writing regarding the existence of the claim or the facts forming the basis of such claim, or any statement orally or in writing which could impair or disparage the personal or business reputation of Hearst-Argyle or Employee. The Procedure is hereby incorporated by reference into this Agreement. IN WITNESS WHEREOF, Hearst-Argyle and Employee have executed this Agreement as of the date first written above. HEARST-ARGYLE TELEVISION, INC. By: ___________________________ EMPLOYEE By: ___________________________ Philip Stolz 13 EX-21.1 6 LIST OF SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE COMPANY
ENTITY NAME STATE OF INCORPORATION - ----------- ---------------------- HEARST-ARGYLE STATIONS, INC. NEVADA WAPT HEARST-ARGYLE TELEVISION, INC. CALIFORNIA KITV HEARST-ARGYLE TELEVISION, INC. CALIFORNIA KHBS HEARST-ARGYLE TELEVISION, INC. CALIFORNIA KMBC HEARST-ARGYLE TELEVISION, INC. CALIFORNIA WBAL HEARST-ARGYLE TELEVISION, INC. CALIFORNIA WCVB HEARST-ARGYLE TELEVISION, INC. CALIFORNIA WISN HEARST-ARGYLE TELEVISION, INC. CALIFORNIA WTAE HEARST-ARGYLE TELEVISION, INC. CALIFORNIA KCRA HEARST-ARGYLE TELEVISION, INC. CALIFORNIA OHIO/OKLAHOMA HEARST-ARGYLE TELEVISION, INC. NEVADA JACKSON HEARST-ARGYLE TELEVISION, INC. DELAWARE ARKANSAS HEARST-ARGYLE TELEVISION, INC. DELAWARE HEARST-ARGYLE SPORTS, INC. DELAWARE HEARST-ARGYLE PROPERTIES, INC. DELAWARE HEARST-ARGYLE INVESTMENTS, INC. DELAWARE CHANNEL 58, INC. CALIFORNIA DES MOINES HEARST-ARGYLE TELEVISION, INC. DELAWARE ORLANDO HEARST-ARGYLE TELEVISION, INC. DELAWARE NEW ORLEANS HEARST-ARGYLE TELEVISION, INC. DELAWARE WYFF HEARST-ARGYLE TELEVISION, INC. CALIFORNIA WXII HEARST-ARGYLE TELEVISION, INC. CALIFORNIA KOAT HEARST-ARGYLE TELEVISION, INC. CALIFORNIA WLKY HEARST-ARGYLE TELEVISION, INC. CALIFORNIA KETV HEARST-ARGYLE TELEVISION, INC. CALIFORNIA WGAL HEARST-ARGYLE TELEVISION, INC. CALIFORNIA
EX-23.1 7 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333-61101, as amended; and No. 333-35051 on Form S-3 of Hearst-Argyle Television, Inc. and in Registration Statement No. 333-35043 on Form S-8 of Hearst-Argyle Television, Inc. of our report dated February 25, 2000 (March 17, 2000 as to Note 19), appearing in this Annual Report on Form 10-K of Hearst-Argyle Television, Inc. for the year ended December 31, 1999. We also consent to the reference to us under the heading "Experts" in Registration Statements No. 333-61101, as amended; and No. 333-35051 on Form S-3. /S/ DELOITTE & TOUCHE LLP New York, New York March 30, 2000 EX-27 8 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 DEC-31-1999 5,632 0 162,257 2,862 0 237,134 430,539 (87,875) 3,913,227 123,665 1,563,596 0 2 948 1,415,841 3,913,227 0 661,386 0 0 468,468 0 106,892 68,713 33,311 35,402 0 (3,092) 0 32,310 0.37 0.37
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