1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2001.
[ ] 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: 333-54003-06 Commission File Number: 000-25206
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LIN HOLDINGS CORP. LIN TELEVISION CORPORATION
------------------ --------------------------
(Exact name of registrant (Exact name of registrant
specified in its charter) as specified in its charter)
DELAWARE DELAWARE
-------- --------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
75-2733097 13-3581627
---------- ----------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1 RICHMOND SQUARE, SUITE 230E, PROVIDENCE, RHODE ISLAND 02906
-------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(401) 454-2880
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed all reports 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 registrants were
required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
NOTE:
- -----
10-Q presents results for the two registrants rather than just the parent
company on a fully consolidated basis.
1,000 Shares of LIN Holdings Corp.'s Common Stock, par value $.01 per share, and
1,000 shares of LIN Television Corporation's Common Stock, par value $.01 per
share, were outstanding as of March 31, 2001.
2
LIN HOLDINGS CORP. AND LIN TELEVISION CORPORATION
This Amendment on Form 10-Q/A is being filed to adjust the Consolidated
Financial Statements of LIN Holdings Corp. and LIN Television Corporation
(together, the "Company") for the quarter ended March 31, 2001. Adjustments to
the Consolidated Financial Statements for the quarter ended March 31, 2001 have
no impact on previously reported net revenues or net cash flows for the period.
The amendment to the financial statements herein is being filed to record and
disclose the marking-to-market of certain interest rate collar and cap
arrangements, held by the Company to manage exposure to interest rate risks,
under the guidance of Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities. The impact on the
Consolidated Statements of Operations and Consolidated Balance Sheets as a
result of the above adjustment is to increase the reported Net Loss by
$1.2 million and to increase Other Liabilities by $1.9 million and decrease
Deferred Income taxes by $671,000.
TABLE OF CONTENTS
PAGE
----
Part I. Financial Information
Item 1. Financial Statements
LIN HOLDINGS CORP.
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
LIN TELEVISION CORPORATION
Condensed Consolidated Balance Sheets 10
Condensed Consolidated Statements of Operations 11
Condensed Consolidated Statements of Cash Flows 12
Notes to Condensed Consolidated Financial Statements 13
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 26
Part II. Other Information
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 27
3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
LIN HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
2001 2000
(unaudited)
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,935 $ 7,832
Accounts receivable, less allowance for doubtful accounts
(2001 - $1,552; 2000 - $1,679) 44,116 58,826
Program rights 15,513 13,614
Other current assets 4,235 4,302
----------- -----------
Total current assets 70,799 84,574
Property and equipment, net 162,505 164,738
Deferred financing costs 34,978 36,298
Equity investments 85,623 91,798
Investment in SSDB
Investment in Southwest Sports Group,
at cost plus accrued interest 53,750 53,000
Program rights 3,486 4,155
Intangible assets, net 1,591,626 1,600,882
Other assets 9,918 9,918
----------- -----------
Total Assets $ 2,012,685 $ 2,045,363
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,691 $ 7,226
Program obligations 14,788 13,491
Accrued income taxes 5,281 5,578
Current portion of long-term debt 22,337 19,572
Accrued interest expense 4,362 10,809
Accrued sales volume discount 601 4,728
Other accrued expenses 14,080 16,604
----------- -----------
Total current liabilities 66,140 78,008
Long-term debt, excluding current portion 972,195 968,685
Deferred income taxes 517,407 521,494
Program obligations 3,661 3,984
Other liabilities 8,867 7,002
----------- -----------
Total liabilities 1,568,270 1,579,173
----------- -----------
Commitments and Contingencies (Note 7)
Stockholders' equity:
Common stock, $0.01 par value: 1,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 561,669 561,669
Accumulated deficit (117,254) (95,479)
----------- -----------
Total stockholders' equity 444,415 466,190
----------- -----------
Total liabilities and stockholders' equity $ 2,012,685 $ 2,045,363
=========== ===========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
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4
LIN HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
-------- --------
Net revenues $ 58,028 $ 59,274
Operating costs and expenses:
Direct operating 19,737 18,073
Selling, general and administrative 15,647 14,043
Corporate 2,390 2,516
Amortization of program rights 5,366 4,996
Depreciation and amortization of intangible assets 16,266 15,355
-------- --------
Total operating costs and expenses 59,406 54,983
-------- --------
Operating income (loss) (1,378) 4,291
Other (income) expense:
Interest expense 24,273 19,774
Investment income (930) (1,016)
Share of loss in equity investments 1,386 1,021
Other, net (205) 25
-------- --------
Total other expense, net 24,524 19,804
-------- --------
Loss before provision for
(benefit from) income taxes (25,902) (15,513)
Provision for (benefit from) income taxes (4,127) 7,053
-------- --------
Net loss $(21,775) $(22,566)
======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
5
LIN HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended March 31,
----------------------------
2001 2000
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (834) $ 5,426
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (3,624) (4,701)
Capital distributions from equity investments 4,789 --
Acquisition of WWLP-TV, net of cash acquired -- (125,878)
Other investments (1,015) --
Local marketing agreement expenditures -- (3,250)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 150 (133,829)
--------- ---------
FINANCING ACTIVITIES:
Net payments on exercises of phantom stock units and issuance
of employee stock purchase plan shares -- (61)
Proceeds from revolver debt 5,000 10,000
Principal payments on long-term debt (5,213) (16,112)
Proceeds from long-term debt related to acquisition of WWLP-TV -- 128,000
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (213) 121,827
--------- ---------
Net decrease in cash and cash equivalents (897) (6,576)
Cash and cash equivalents at the beginning of the period 7,832 17,699
--------- ---------
Cash and cash equivalents at the end of the period $ 6,935 $ 11,123
========= =========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATATION
In March 2000, WGRC, Inc., a subsidiary of WWLP Holdings, Inc., acquired
WWLP-TV for approximately $128.0 million. For accounting purposes only,
the cash flows of WWLP Holdings, Inc. and its consolidated subsidiaries are
included in these condensed consolidated financial statements. In conjunction
with this acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 128,635
Cash paid (128,000)
---------
Liabilities assumed $ 635
=========
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6
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
REVISION - The Company has revised its Consolidated Financial Statements
for the quarter ended March 31, 2001 to record and disclose the
marking-to-market of certain interest rate collar and cap arrangements, held by
the Company to manage exposure to interest rate risks, under the guidance of
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The impact on the Consolidated Statement of
Operations and Consolidated Balance Sheet as a result of the above adjustment is
to increase the reported Net Loss by $1.2 million and to increase Other
Liabilities by $1.9 million and decrease Deferred Income taxes by $671,000.
LIN Holdings Corp. ("LIN Holdings"), together with its subsidiaries,
including LIN Television Corporation ("LIN Television") (together, the
"Company"), is a television station group operator in the United States and
Puerto Rico that owns ten television stations, nine of which are
network-affiliated television stations. Additionally, the Company has local
marketing agreements ("LMAs") under which it programs five other stations in the
markets in which it operates. LIN Holdings and its subsidiaries are affiliates
of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse").
All of the Company's direct and indirect consolidated subsidiaries fully
and unconditionally guarantee the Company's Senior Subordinated Notes on a joint
and several basis.
These condensed consolidated financial statements have been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These statements should be read in conjunction with the Company's
annual report on Form 10-K for the fiscal year ended December 31, 2000.
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to summarize fairly the financial position, results of operations and
cash flows of the Company for the periods presented. The interim results of
operations are not necessarily indicative of the results to be expected for the
full year.
The Company's preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Estimates are used when accounting for the collectability of accounts
receivable and valuing intangible assets, deferred tax assets and net assets of
businesses acquired. Actual results could differ from these estimates.
NOTE 2 - BUSINESS COMBINATIONS:
WAND-TV EXCHANGE: On April 1, 2000, the Company exchanged, with Block
Communications Inc. (formerly Blade Communications Inc.), a 66.67% interest in
certain assets of its television station WAND-TV, including its FCC license and
network affiliation agreement, for substantially all of the assets and certain
liabilities of WLFI-TV, Inc. Immediately after the WAND-TV exchange the Company
and Blade Communications Inc. contributed their respective interests in the
WAND-TV assets to a partnership, with the Company receiving a 33.33% interest in
the partnership.
WWLP-TV: On November 10, 2000, the Company acquired the broadcast license
and operating assets of WWLP-TV, an NBC affiliate in Springfield, MA. The total
purchase price for the acquisition was approximately $128.0 million, including
direct costs of the acquisition. The acquisition was funded by borrowings under
the Company's incremental term loan facility. Although the Company did not own
or control the assets or FCC license of WWLP-TV prior to November 10, 2000,
pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving
Special Purpose Entities," WWLP Holdings, Inc., the parent of WWLP-TV, satisfied
the definition of a special purpose entity, as a result of a $75 million
guarantee of WWLP Holdings debt by the
5
7
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Company and other factors, and the Company was deemed to be the sponsor of WWLP
Holdings. Accordingly, the financial results of operations of WWLP Holdings have
been consolidated with those of the Company since March 31, 2000, when WWLP
Holdings, Inc. acquired WWLP-TV from Benedek Broadcasting Corporation.
UNAUDITED PRO FORMA RESULTS OF ACQUISITIONS. The following summarizes
unaudited pro forma consolidated results of operations as if acquisitions and
disposals in 2000 had taken place as of the beginning of the periods presented
(in thousands):
Three months Three months
ended March 31, ended March 31,
2001 2000
(unaudited) (unaudited)
--------------- ---------------
Net revenues $ 58,028 $ 62,089
Operating income (loss) (1,378) 4,807
Net loss (21,775) (24,136)
The pro forma data give effect to actual operating results prior to the
acquisitions and disposals and adjustments to interest expense, amortization and
income taxes. No effect has been given to cost reductions and operating
synergies in this presentation. The pro forma results do not necessarily
represent results that would have occurred if the acquisition had taken place as
of the beginning of the periods presented, nor are they necessarily indicative
of the results of future operations.
NOTE 3 - INVESTMENTS:
JOINT VENTURE WITH NBC. The Company owns a 20.38% interest in a joint
venture with NBC and accounts for its interest using the equity method, as the
Company does not have a controlling interest. The following presents the
summarized financial information of the joint venture (in thousands):
Three months Three months
ended March 31, ended March 31,
2001 2000
(unaudited) (unaudited)
--------------- --------------
Net revenues $ 35,016 $ 37,250
Operating income 18,786 12,556
Net loss (5,576) (4,132)
March 31, March 31,
2001 2000
(unaudited) (unaudited)
--------------- --------------
Current assets $ 36,462 $ 14,158
Non-current assets 230,915 237,759
Current liabilities 17,579 1,087
Non-current liabilities 815,500 815,500
6
8
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
INVESTMENT IN BANKS BROADCASTING, INC. The Company owns a 50.00% non-voting
interest in Banks Broadcasting, Inc., a company formed in August 2000, and
accounts for its interest using the equity method, as the Company does not have
a controlling interest. The following presents the summarized financial
information of Banks Broadcasting, Inc. (in thousands):
Three months
ended March 31,
2001
(unaudited)
---------------
Net revenues $ 1,071
Operating loss (169)
Net loss (346)
March 31, 2001
(unaudited)
--------------
Current assets $ 5,728
Non-current assets 21,332
Current liabilities 1,082
Non-current liabilities 189
INVESTMENT IN WAND (TV) PARTNERSHIP. The Company owns a 33.33% interest in
WAND (TV) Partnership, a partnership formed in April 2000, and accounts for its
interest using the equity method, as the Company does not have a controlling
interest. The following presents the summarized financial information of WAND
(TV) Partnership (in thousands):
Three months
ended March 31,
2001
(unaudited)
---------------
Net revenues $ 1,582
Operating income 290
Net loss (163)
March 31, 2001
(unaudited)
--------------
Current assets $ 2,937
Non-current assets 34,756
Current liabilities 744
7
9
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consisted of the following at (in thousands):
March 31, 2001 December 31, 2000
-------------- -----------------
FCC licenses and network affiliations $ 1,056,869 $ 1,055,653
Goodwill 652,508 652,508
LMA purchase options 1,425 1,125
----------- -----------
1,710,802 1,709,286
Less accumulated amortization (119,176) (108,404)
----------- -----------
$ 1,591,626 $ 1,600,882
=========== ===========
NOTE 5 - LONG-TERM DEBT:
Long-term debt consisted of the following at (in thousands):
March 31, 2001 December 31, 2000
-------------- -----------------
Senior Credit Facilities $ 425,480 $ 425,690
$300,000, 8 3/8% Senior Subordinated Notes
due 2008 (net of a discount of $545) 299,455 299,442
$325,000, 10% Senior Discount Notes
due 2008 (net of a discount of $55,403) 269,597 263,125
----------- -----------
Total debt 994,532 988,257
Less current portion (22,337) (19,572)
----------- -----------
Total long-term debt $ 972,195 $ 968,685
=========== ===========
As of April 12, 2001, the lenders to the Senior Credit Facilities approved
an amendment to allow the Company to borrow an additional $200.0 million for
acquisitions or to make the $125.0 million redemption payment due in March 2003
on the LIN Holdings Corp. Senior Discount Notes, to increase the limit on
Capital Expenditures from $30.0 million to $35.0 million and to change certain
financial ratio requirements as follows:
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
-------------------------------------------------------------------------
Maximum Leverage Ratio:
Amended 6.75x 6.75x 6.75x 6.75x 6.75x 6.75x 6.40x 6.40x
Prior 6.75x 6.75x 6.50x 6.50x 6.50x 6.50x 5.75x 5.75x
Minimum Interest Coverage Ratio:
Amended 1.70x 1.70x 1.70x 1.70x 1.75x 1.75x 1.85x 1.85x
Prior 1.95x 1.95x 1.95x 1.95x 2.05x 2.05x 2.05x 2.05x
NOTE 6 - RELATED PARTY TRANSACTIONS:
MONITORING AND OVERSIGHT AGREEMENT. The Company is party to an agreement
with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"), an affiliate of
the Company's ultimate parent, pursuant to which the Company agreed to pay Hicks
Muse Partners an annual fee (payable
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10
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
quarterly) for oversight and monitoring services. The aggregate annual fee is
adjustable, on a prospective basis, on January 1 of each calendar year to an
amount equal to 1% of the budgeted consolidated annual earnings before interest,
tax, depreciation and amortization ("EBITDA") of the Company for the then
current fiscal year. Upon the acquisition by the Company of another entity or
business, the fee is adjusted prospectively in the same manner using the pro
forma consolidated annual EBITDA of the Company. In no event shall the annual
fee be less than $1.0 million. Hicks Muse Partners is also entitled to
reimbursement for any expenses incurred by it in connection with rendering
services allocable to the Company. The fee for the three months ended March 31,
2001 and 2000 was $312,000 and $338,000, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. In the opinion of the Company's
management, none of such litigation as of March 31, 2001, is likely to have a
material adverse effect on the financial position, results of operations, or
cash flows of the Company.
On November 7, 2000, the Company agreed to acquire from the Western New
York Public Broadcasting Association certain assets of WNEQ-TV, previously a
non-commercial independent broadcast television station located in Buffalo, New
York. On January 29, 2001, the Company began operating WNEQ-TV under a LMA
agreement and subsequently changed the station's call letters to WNLO-TV. The
Company expects to close on the acquisition of WNLO-TV during 2001. The total
purchase price is approximately $26.2 million, and will be funded by a
combination of operating funds and additional term loans. The Company intends to
account for the business combination under the purchase method of accounting.
On January 3, 2001, the Company and STC Broadcasting, Inc., an entity in
which Hicks Muse has a substantial economic interest, and its affiliates, Smith
Acquisition Company, Smith Acquisition License Company and STC License Company,
executed an Asset Purchase Agreement whereby the Company will acquire the FCC
license and certain related assets of WNAC-TV, the Fox affiliate serving the
Providence-New Bedford market. The total purchase price is approximately $2.5
million. After the Company acquires WNAC-TV, the station will be operated by STC
Broadcasting, Inc. under an existing LMA agreement dated June 10, 1996. The
transaction will be entirely financed through a Loan Agreement with STC
Broadcasting, Inc. and the Company. The Company expects to close on the
acquisition of WNAC-TV during 2001. The Company intends to account for the
acquisition under the purchase method of accounting.
On March 30, 2001, the Company exercised its option to acquire the FCC
licenses of two of the Company's LMA stations, WCTX-TV and WOTV-TV. The Company
expects to close on the acquisitions of WCTX-TV and WOTV-TV upon the regulatory
approval of the Federal Communications Commission. The combined purchase price
is approximately $7.3 million, of which $4.0 million has been pre-paid. The
balance of $3.3 million will be funded by a combination of operating funds and
additional term loans.
NOTE 8 - DERIVATIVE INSTRUMENTS:
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS No. 133"), as amended, which requires that all derivative instruments be
reported on the balance sheet at fair value and that changes in a derivative's
fair value be recognized currently in earnings unless specific hedge criteria
are met.
The Company uses derivative instruments to manage exposures to interest rate
risks. The Company's objective for holding derivatives is to minimize these
risks using the most effective methods to eliminate or reduce the impact of
these exposures.
The Company uses interest rate collar and cap arrangements, not designated as
hedging instruments under SFAS No. 133, in the notional amount of $160 million
at March 31, 2001, to mitigate the impact of the variability in interest rates
in connection with its variable rate senior credit facility. The aggregate fair
value of the interest rate collar and cap arrangements at March 31, 2001 was a
liability of $1.9 million. Interest expense for the three months ended March 31,
2001 includes a loss of $1.9 million from the marking-to-market of these
derivative instruments.
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11
LIN TELEVISION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares)
March 31, December 31,
2001 2000
(unaudited)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,935 $ 7,832
Accounts receivable, less allowance for doubtful accounts
(2001 - $1,552; 2000 - $1,679) 44,116 58,826
Program rights 15,513 13,614
Other current assets 4,235 4,302
----------- -----------
Total current assets 70,799 84,574
Property and equipment, net 162,505 164,738
Deferred financing costs 26,140 27,142
Equity investments 85,623 91,798
Investment in SSDB
Investment in Southwest Sports Group, at cost plus
accrued interest 53,750 53,000
Program rights 3,486 4,155
Intangible assets, net 1,591,626 1,600,882
Other assets 9,918 9,918
----------- -----------
Total Assets $ 2,003,847 $ 2,036,207
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,691 $ 7,226
Program obligations 14,788 13,491
Accrued income taxes 5,281 5,578
Current portion of long-term debt 22,337 19,572
Accrued interest expense 4,362 10,809
Accrued sales volume discount 601 4,728
Other accrued expenses 14,080 16,604
----------- -----------
Total current liabilities 66,140 78,008
Long-term debt, excluding current portion 702,598 705,560
Deferred income taxes 538,959 536,619
LIN Holdings tax sharing obligations 8,364 8,364
Program obligations 3,661 3,984
Other liabilities 8,865 7,002
----------- -----------
Total liabilities 1,328,587 1,339,537
----------- -----------
Commitments and Contingencies (Note 7)
Stockholders' equity:
Common stock, $0.01 par value: 1,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 748,524 748,523
Accumulated deficit (73,264) (51,853)
----------- -----------
Total stockholders' equity 675,260 696,670
----------- -----------
Total liabilities and stockholders' equity $ 2,003,847 $ 2,036,207
=========== ===========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
10
12
LIN TELEVISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended March 31,
----------------------------
2001 2000
-------- --------
Net revenues $ 58,028 $ 59,274
Operating costs and expenses:
Direct operating 19,737 18,073
Selling, general and administrative 15,647 14,043
Corporate 2,390 2,516
Amortization of program rights 5,366 4,996
Depreciation and amortization of intangible assets 16,266 15,355
--------- --------
Total operating costs and expenses 59,406 54,983
--------- --------
Operating income (loss) (1,378) 4,291
Other (income) expense:
Interest expense 17,482 13,584
Investment income (930) (1,016)
Share of loss in joint equity investments 1,386 1,021
Other, net (205) 25
--------- --------
Total other expense, net 17,733 13,614
--------- --------
Loss before provision for
(benefit from) income taxes (19,111) (9,323)
Provision for (benefit from) income taxes 2,300 (8,234)
--------- --------
Net loss $ (21,411) $ (1,089)
========= ========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
11
13
LIN TELEVISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (834) $ 5,426
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (3,624) (4,701)
Capital distributions from equity investments 4,789 --
Acquisition of WWLP-TV, net of cash acquired -- (125,878)
Other investments (1,015) --
Local marketing agreement expenditures -- (3,250)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 150 (133,829)
--------- ---------
FINANCING ACTIVITIES:
Net payments on exercises of phantom stock units and issuance
of employee stock purchase plan shares -- (61)
Proceeds from revolver debt 5,000 10,000
Principal payments on long-term debt (5,213) (16,112)
Proceeds from long-term debt related to acquisition of WWLP-TV -- 128,000
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (213) 121,827
--------- ---------
Net decrease in cash and cash equivalents (897) (6,576)
Cash and cash equivalents at the beginning of the period 7,832 17,699
--------- ---------
Cash and cash equivalents at the end of the period $ 6,935 $ 11,123
========= =========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATATION
In March 2000, WGRC, Inc., a subsidiary of WWLP Holdings, Inc., acquired
WWLP-TV for approximately $128.0 million. For accounting purposes only,
the cash flows of WWLP Holdings, Inc. and its consolidated subsidiaries are
included in these condensed consolidated financial statements. In conjunction
with this acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 128,635
Cash paid (128,000)
---------
Liabilities assumed $ 635
=========
12
14
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
REVISION - The Company has revised its Consolidated Financial Statements
for the quarter ended March 31, 2001 to record and disclose the
marking-to-market of certain interest rate collar and cap arrangements, held by
the Company to manage exposure to interest rate risks, under the guidance of
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The impact on the Consolidated Statement of
Operations and Consolidated Balance Sheet as a result of the above adjustment is
to increase the reported Net Loss by $1.2 million and to increase Other
Liabilities by $1.9 million and decrease Deferred Income taxes
by $671,000.
LIN Television Corporation, together with its subsidiaries (together, the
"Company" or "LIN Television"), is a television station group operator in the
United States and Puerto Rico that owns ten television stations, nine of which
are network-affiliated television stations. Additionally, the Company has local
marketing agreements ("LMAs") under which it programs five other stations in the
markets in which it operates. LIN Television is an affiliate of Hicks, Muse,
Tate & Furst Incorporated ("Hicks Muse").
All of the Company's direct and indirect consolidated subsidiaries fully
and unconditionally guarantee the Company's Senior Subordinated Notes on a joint
and several basis.
These condensed consolidated financial statements have been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These statements should be read in conjunction with the Company's
annual report on Form 10-K for the fiscal year ended December 31, 2000.
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to summarize fairly the financial position, results of operations and
cash flows of the Company for the periods presented. The interim results of
operations are not necessarily indicative of the results to be expected for the
full year.
The Company's preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Estimates are used when accounting for the collectability of accounts
receivable and valuing intangible assets, deferred tax assets and net assets of
businesses acquired. Actual results could differ from these estimates.
NOTE 2 - BUSINESS COMBINATIONS:
WAND-TV EXCHANGE: On April 1, 2000, the Company exchanged, with Block
Communications Inc. (formerly Blade Communications Inc.), a 66.67% interest in
certain assets of its television station WAND-TV, including its FCC license and
network affiliation agreement, for substantially all of the assets and certain
liabilities of WLFI-TV, Inc. Immediately after the WAND-TV exchange the Company
and Blade Communications Inc. contributed their respective interests in the
WAND-TV assets to a partnership, with the Company receiving a 33.33% interest in
the partnership.
WWLP-TV: On November 10, 2000, the Company acquired the broadcast license
and operating assets of WWLP-TV, an NBC affiliate in Springfield, MA. The total
purchase price for the acquisition was approximately $128.0 million, including
direct costs of the acquisition. The acquisition was funded by borrowings under
the Company's incremental term loan facility. Although the Company did not own
or control the assets or FCC license of WWLP-TV prior to November 10, 2000,
pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving
Special Purpose Entities," WWLP Holdings, Inc., the parent of WWLP-TV, satisfied
the definition of a special purpose entity, as a result of a $75 million
guarantee of WWLP Holdings debt by the Company and other factors, and the
Company was deemed to be the sponsor of WWLP Holdings.
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LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Accordingly, the financial results of operations of WWLP Holdings have been
consolidated with those of the Company since March 31, 2000, when WWLP Holdings,
Inc. acquired WWLP-TV from Benedek Broadcasting Corporation.
UNAUDITED PRO FORMA RESULTS OF ACQUISITIONS. The following summarizes
unaudited pro forma consolidated results of operations as if acquisitions and
disposals in 2000 had taken place as of the beginning of the periods presented
(in thousands):
Three months Three months
ended March 31, ended March 31,
2001 2000
(unaudited) (unaudited)
--------------- ---------------
Net revenues $ 58,028 $ 62,089
Operating income (loss) (1,378) 4,807
Net loss (21,411) (24,136)
The pro forma data give effect to actual operating results prior to the
acquisitions and disposals and adjustments to interest expense, amortization and
income taxes. No effect has been given to cost reductions and operating
synergies in this presentation. The pro forma results do not necessarily
represent results that would have occurred if the acquisition had taken place as
of the beginning of the periods presented, nor are they necessarily indicative
of the results of future operations.
NOTE 3 - INVESTMENTS:
JOINT VENTURE WITH NBC. The Company owns a 20.38% interest in a joint
venture with NBC and accounts for its interest using the equity method, as the
Company does not have a controlling interest. The following presents the
summarized financial information of the joint venture (in thousands):
Three months Three months
ended March 31, ended March 31,
2001 2000
(unaudited) (unaudited)
--------------- --------------
Net revenues $ 35,016 $ 37,250
Operating income 18,786 12,556
Net loss (5,576) (4,132)
March 31, March 31,
2001 2000
(unaudited) (unaudited)
--------------- --------------
Current assets $ 36,462 $ 14,158
Non-current assets 230,915 237,759
Current liabilities 17,579 1,087
Non-current liabilities 815,500 815,500
INVESTMENT IN BANKS BROADCASTING, INC. The Company owns a 50.00% non-voting
interest in Banks Broadcasting, Inc., a company formed in August 2000, and
accounts for its interest using the equity method, as the Company does not have
a controlling interest. The
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LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
following presents the summarized financial information of Banks Broadcasting,
Inc. (in thousands):
Three months
ended March 31,
2001
(unaudited)
---------------
Net revenues $ 1,071
Operating loss (169)
Net loss (346)
March 31, 2001
(unaudited)
--------------
Current assets $ 5,728
Non-current assets 21,332
Current liabilities 1,082
Non-current liabilities 189
INVESTMENT IN WAND (TV) PARTNERSHIP. The Company owns a 33.33% interest in WAND
(TV) Partnership, a partnership formed in April 2000, and accounts for its
interest using the equity method, as the Company does not have a controlling
interest. The following presents the summarized financial information of WAND
(TV) Partnership (in thousands):
Three months
ended March 31,
2001
(unaudited)
---------------
Net revenues $ 1,582
Operating income 290
Net loss (163)
March 31, 2001
(unaudited)
--------------
Current assets $ 2,937
Non-current assets 34,756
Current liabilities 744
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consisted of the following at (in thousands):
March 31, 2001 December 31, 2000
-------------- -----------------
FCC licenses and network affiliations $ 1,056,869 $ 1,055,653
Goodwill 652,508 652,508
LMA purchase options 1,425 1,125
----------- -----------
1,710,802 1,709,286
Less accumulated amortization (119,176) (108,404)
----------- -----------
$ 1,591,626 $ 1,600,882
=========== ===========
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LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 5 - LONG-TERM DEBT:
Long-term debt consisted of the following at (in thousands):
March 31, 2001 December 31, 2000
-------------- -----------------
Senior Credit Facilities $ 425,480 $ 425,690
$300,000, 8 3/8% Senior Subordinated Notes
due 2008 (net of a discount of $545) 299,455 299,442
----------- -----------
Total debt 724,935 725,132
Less current portion (22,337) (19,572)
----------- -----------
Total long-term debt $ 702,598 $ 705,560
=========== ===========
As of April 12, 2001, the lenders to the Senior Credit Facilities
approved an amendment to allow the Company to borrow an additional $200.0
million for acquisitions or to make the $125.0 million redemption payment due in
March 2003 on the LIN Holdings Corp. Senior Discount Notes, to increase the
limit on Capital Expenditures from $30.0 million to $35.0 million and to change
certain financial ratio requirements as follows:
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
-------------------------------------------------------------------------
Maximum Leverage Ratio:
Amended 6.75x 6.75x 6.75x 6.75x 6.75x 6.75x 6.40x 6.40x
Prior 6.75x 6.75x 6.50x 6.50x 6.50x 6.50x 5.75x 5.75x
Minimum Interest Coverage Ratio:
Amended 1.70x 1.70x 1.70x 1.70x 1.75x 1.75x 1.85x 1.85x
Prior 1.95x 1.95x 1.95x 1.95x 2.05x 2.05x 2.05x 2.05x
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LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 6 - RELATED PARTY TRANSACTIONS:
MONITORING AND OVERSIGHT AGREEMENT. The Company is party to an agreement
with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"), an affiliate of
the Company's ultimate parent, pursuant to which the Company agreed to pay Hicks
Muse Partners an annual fee (payable quarterly) for oversight and monitoring
services. The aggregate annual fee is adjustable, on a prospective basis, on
January 1 of each calendar year to an amount equal to 1% of the budgeted
consolidated annual earnings before interest, tax, depreciation and amortization
("EBITDA") of the Company for the then current fiscal year. Upon the acquisition
by the Company of another entity or business, the fee is adjusted prospectively
in the same manner using the pro forma consolidated annual EBITDA of the
Company. In no event shall the annual fee be less than $1.0 million. Hicks Muse
Partners is also entitled to reimbursement for any expenses incurred by it in
connection with rendering services allocable to the Company. The fee for the
three months ended March 31, 2001 and 2000 was $312,000 and $338,000,
respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. In the opinion of the Company's
management, none of such litigation as of March 31, 2001, is likely to have a
material adverse effect on the financial position, results of operations, or
cash flows of the Company.
On November 7, 2000, the Company agreed to acquire from the Western New
York Public Broadcasting Association certain assets of WNEQ-TV, previously a
non-commercial independent broadcast television station located in Buffalo, New
York. On January 29, 2001, the Company began operating WNEQ-TV under a LMA
agreement and subsequently changed the station's call letters to WNLO-TV. The
Company expects to close on the acquisition of WNLO-TV during 2001. The total
purchase price is approximately $26.2 million, and will be funded by a
combination of operating funds and additional term loans. The Company intends to
account for the business combination under the purchase method of accounting.
On January 3, 2001, the Company and STC Broadcasting, Inc., an entity in
which Hicks Muse has a substantial economic interest, and its affiliates, Smith
Acquisition Company, Smith Acquisition License Company and STC License Company,
executed an Asset Purchase Agreement whereby the Company will acquire the FCC
license and certain related assets of WNAC-TV, the Fox affiliate serving the
Providence-New Bedford market. The total purchase price is approximately $2.5
million. After the Company acquires WNAC-TV, the station will be operated by STC
Broadcasting, Inc. under an existing LMA agreement dated June 10, 1996. The
transaction will be entirely financed through a Loan Agreement with STC
Broadcasting, Inc. and the Company. The Company expects to close on the
acquisition of WNAC-TV during 2001. The Company intends to account for the
acquisition under the purchase method of accounting.
On March 30, 2001, the Company exercised its option to acquire the FCC
licenses of two of the Company's LMA stations, WCTX-TV and WOTV-TV. The Company
expects to close on the acquisitions of WCTX-TV and WOTV-TV upon the regulatory
approval of the Federal Communications Commission. The combined purchase price
is approximately $7.3 million, of which $4.0 million has been pre-paid. The
balance of $3.3 million will be funded by a combination of operating funds and
additional term loans.
NOTE 8 - DERIVATIVE INSTRUMENTS:
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS No. 133"), as amended, which requires that all derivative instruments be
reported on the balance sheet at fair value and that changes in a derivative's
fair value be recognized currently in earnings unless specific hedge criteria
are met.
The Company uses derivative instruments to manage exposures to interest rate
risks. The Company's objective for holding derivatives is to minimize these
risks using the most effective methods to eliminate or reduce the impact of
these exposures.
The Company uses interest rate collar and cap arrangements, not designated as
hedging instruments under SFAS No. 133, in the notional amount of $160 million
at March 31, 2001, to mitigate the impact of the variability in interest rates
in connection with its variable rate senior credit facility. The aggregate fair
value of the interest rate collar and cap arrangements at March 31, 2001 was a
liability of $1.9 million. Interest expense for the three months ended March 31,
2001 includes a loss of $1.9 million from the marking-to-market of these
derivative instruments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
DO NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS. This Quarterly
Report on Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. The words "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "foresee," "will,"
"could," "may" and similar expressions are intended to identify forward-looking
statements. All statements other than statements of historical facts included in
this Quarterly Report on Form 10-Q, including those regarding the Company's
financial position, business strategy, projected costs and objectives of
management for future operations are forward-looking statements. The reader is
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date on which this Quarterly Report on Form 10-Q is filed.
These factors include, without limitation, the promulgation of the new FCC's
broadcast ownership regulations and other regulatory changes, changes in
advertising, demand, technological changes, acquisitions and dispositions, as
well as other risks detailed in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, including those set forth under the heading "Risks
Associated with Business Activity" in Item I. The matters discussed in the
"Risks Associated with Business Activities" below and other factors noted
throughout this Quarterly Report on Form 10-Q are cautionary statements
identifying factors with respect to any such forward-looking statements that
could cause actual results to differ materially from those in such
forward-looking statements. All forward-looking statements contained herein are
expressly qualified in their entirety by such cautionary statements.
The Company undertakes no obligation to update publicly forward-looking
statements, whether as a result of new information, future events or otherwise.
BUSINESS
The Company is a television station group operator in the United States and
Puerto Rico that owns ten television stations, nine of which are
network-affiliated television stations. Additionally, the Company has local
marketing agreements ("LMAs") under which it programs five other stations in the
markets in which it operates. LIN Holdings and its subsidiaries are affiliates
of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse").
On January 3, 2001, the Company and STC Broadcasting, Inc., an entity in
which Hicks Muse has a substantial economic interest, and its affiliates, Smith
Acquisition Company, Smith Acquisition License Company and STC License Company,
executed an Asset Purchase Agreement whereby the Company will acquire the FCC
license and certain related assets of WNAC-TV, the Fox affiliate serving the
Providence-New Bedford market. The total purchase price is approximately
$2.5 million. After the Company acquires WNAC-TV, the station will be operated
by STC Broadcasting, Inc. under an existing LMA agreement dated June 10, 1996.
The transaction will be entirely financed through a Loan Agreement with STC
Broadcasting, Inc. and the Company. The Company expects to close on the
acquisition of WNAC-TV during 2001. The Company intends to account for the
acquisition under the purchase method of accounting.
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RESULTS OF OPERATIONS
Set forth below are the significant factors that contributed to the
operating results of the Company for the three months ended March 31, 2001 and
2000. The Company's results from operations from period to period are not
directly comparable because of the impact of acquisitions and disposals,
including the acquisitions of WWLP-TV and WLFI-TV in 2000, and the disposition
of WAND-TV in 2000.
Net revenues consist primarily of national and local airtime sales, net of
sales adjustments and agency commissions, network compensation, Internet
revenues, barter revenues, production revenues and rent income. Total net
revenues for the three-month period ended March 31, 2001, decreased 2.1% to
$58.0 million compared to net revenue of $59.3 million for the same period last
year. The decrease was primarily due to the decrease in national and political
advertising due to the campaign election cycle and a general decrease in demand
for national advertising that began in the third quarter of 2000 and has
continued into the second quarter of 2001, as well as the impact of the
acquisitions of WLFI-TV and WWLP-TV partially offset by the dispositions of
WAND-TV.
March 31, 2001 December 31, 2000
-------------- -----------------
Net revenues $ 58,028 $ 59,274
Operating costs and expenses:
Direct operating 19,737 18,073
Selling, general and administrative 15,647 14,043
Corporate 2,390 2,516
Amortization of program rights 5,366 4,996
Depreciation and amortization of
intangible assets 16,266 15,355
-------- --------
Total operating costs and expenses 59,406 54,983
-------- --------
$ (1,378) $ 4,291
======== ========
Direct operating expenses, consisting primarily of news, engineering,
programming and music licensing costs, increased 9.2% to $19.7 million for the
three-month period ended March 31, 2001 compared to direct operating expenses of
$18.1 million for the same period last year. The increase is primarily due to
the startup costs of the low power television stations in Grand Rapids, Michigan
and the LMA in Buffalo, New York, and to the impact of the acquisitions of
WLFI-TV and WWLP-TV partially offset by the disposition of WAND-TV.
Selling, general and administrative expenses, consisting primarily of
employee salaries, sales commissions and other employee benefit costs,
advertising and promotional expenses, increased approximately 11.4% to $15.6
million for the three-month period ended March 31, 2001 compared to selling,
general and administrative expenses of $14.0 million for the same period last
year. The increase is primarily due to advertising costs associated with the
network affiliation switch of WCTX-TV in New Haven, Connecticut, an increase in
rating service contract costs for WIVB-TV in Buffalo, New York, the startup
costs of the low power television stations in Grand Rapids, Michigan and the LMA
in Buffalo, New York and to the impact of the acquisitions of WLFI-TV and
WWLP-TV partially offset by the disposition of WAND-TV.
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Corporate expenses, representing costs associated with the centralized
management of the Company's stations, decreased 5.0% to $2.4 million for the
three-month period ended March 31, 2001, compared to corporate expenses of $2.5
million for the same period last year.
Amortization of program rights, representing costs associated with the
acquisition of syndicated programming, features and specials increased 7.4% to
$5.4 million for the three-month period ended March 31, 2001 compared to
amortization of program rights of $5.0 million for the same period last year.
The increase is primarily due to the impact of increased syndicated costs for
WAPA-TV in Puerto Rico, and the acquisitions of WLFI-TV and WWLP-TV partially
offset by the disposition of WAND-TV.
Depreciation and amortization of intangible assets increased 5.9% to $16.3
million for the three-month period ended March 31, 2001, compared to
depreciation and amortization of intangible assets of $15.4 million for the same
period last year. The increase is primarily due to the increase in equipment and
intangible assets associated with the acquisitions of WLFI-TV and WWLP-TV
partially offset by the disposition of WAND-TV.
OTHER EXPENSES
Interest expense increased $4.5 million to $24.3 million for the
three-month period ended March 31, 2001 compared to interest expense of $19.8
million for the same period last year. The increase is primarily the result of
losses of $1.9 million on derivative instruments and increased borrowings
associated with the acquisition of WWLP-TV on March 31, 2000.
Interest expense for LIN Television Corporation increased $3.9 million to
$17.5 million for the three-month period ended March 31, 2001, compared to
interest expense of $13.6 million for the same period last year. The increase is
primarily the result of losses of $1.9 million on derivative instruments and
increased borrowings associated with the acquisition of WWLP-TV on March 31,
2000.
The Company's provision from income taxes changed to a benefit of
approximately $4.1 million for the three-month period ended March 31, 2001
compared to a provision of $7.1 million for the same period last year. These
changes were primarily due to the disproportionate impact of non-deductible
goodwill relative to the projected annual pretax net loss from period to period.
LIN Television Corporation's benefit from income taxes changed to a
provision of approximately $2.3 million for the three-month period ended March
31, 2001 compared to a benefit of approximately $8.2 million for the same period
last year. These changes were primarily due to the disproportionate impact of
non-deductible goodwill relative to the projected annual pretax net loss from
period to period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had cash and cash equivalents of $6.9
million and total debt of $994.5 million.
Net cash used in operating activities for the three months ended March 31,
2001 was $834,000 compared to net cash provided by operating activities of $5.4
million for the same period last year. The decrease is primarily the result of
decrease in national and political revenues and the increase in operating and
interest expenses.
Net cash provided by investing activities was $150,000 for the three months
ended March 31, 2001, compared to net cash used in investing activities of
$133.8 million for the same period last year. The change is primarily due to
amounts paid related to the WWLP-TV transaction in the first quarter of 2000.
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Net cash used in financing activities for the three months ended March 31,
2001 was $213,000 compared to net cash provided by financing activities of
$121.8 million for the same period last year. The change in cash provided is
primarily due to proceeds from a draw down of a credit facility in connection
with the WWLP-TV transaction in the first quarter of 2000.
In March 2001, the Company announced that, based on prevailing weakness in
the national advertising category, it expects that pro forma net revenue for the
first half of 2001 will decline compared to the same period last year.
As of April 12, 2001, the lenders to the Senior Credit Facilities approved
an amendment to allow the Company to borrow an additional $200.0 million for
acquisitions or to make the $125.0 million redemption payment due in March 2003
on the LIN Holdings Corp. Senior Discount Notes, to increase the limit on
Capital Expenditures from $30.0 million to $35.0 million and to change certain
financial ratio requirements as follows:
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
-------------------------------------------------------------------------
Maximum Leverage Ratio:
Amended 6.75x 6.75x 6.75x 6.75x 6.75x 6.75x 6.40x 6.40x
Prior 6.75x 6.75x 6.50x 6.50x 6.50x 6.50x 5.75x 5.75x
Minimum Interest Coverage Ratio:
Amended 1.70x 1.70x 1.70x 1.70x 1.75x 1.75x 1.85x 1.85x
Prior 1.95x 1.95x 1.95x 1.95x 2.05x 2.05x 2.05x 2.05x
Based on the current level of operations and anticipated future growth
(both internally generated as well as through acquisitions), the Company
believes that its cash flows from operations, together with available borrowings
under its credit facilities, will be sufficient to meet its anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments for at least the next twelve months.
RISKS ASSOCIATED WITH BUSINESS ACTIVITIES
POTENTIAL NEGATIVE CONSEQUENCES OF SUBSTANTIAL INDEBTEDNESS. As of March
31, 2001, LIN Holdings had approximately $995 million of consolidated
indebtedness and approximately $444 million of consolidated stockholders'
equity. LIN Television had approximately $725 million of consolidated
indebtedness and approximately $675 million of consolidated stockholders'
equity.
The level of indebtedness of LIN Holdings and LIN Television could have
several negative consequences to holders of the Senior Subordinated Notes and
the Senior Discount Notes (collectively the "Notes"), including, but not limited
to, the following:
- a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal, premium (if any) and interest
on their respective indebtedness, thereby reducing the funds available
for operations, distributions to LIN Holdings for payments with
respect to the Senior Discount Notes, future business opportunities
and other purposes and increasing the vulnerability of LIN Holdings
and LIN Television to adverse general economic and industry
conditions;
- the ability of the Company to obtain additional financing in the future
may be limited;
- all of the indebtedness in connection with the Credit Agreement as
amended, a credit facility with Chase Manhattan Bank, as administrative
agent, and the lenders named therein, that
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establishes a $295 million term loan facility, a $50 million revolving
facility, and a $387.5 million incremental term loan facility
(collectively, "Senior Credit Facilities"), will be secured and is
scheduled to become due prior to the time the principal payments on
the Notes are scheduled to become due;
- certain of the Company's borrowings (including, without limitation,
amounts borrowed under the Senior Credit Facilities) will be at
variable rates of interest, which will expose the Company to increases
in interest rates; and
- the mandatory principal redemption amount (expected to be $125 million as
defined in the indenture governing the Senior Discount Notes) of the
Senior Discount Notes will become due and payable in a lump sum on
March 1, 2003.
LIN Holdings' and LIN Television's respective abilities to make scheduled
payments of the principal of, or to pay interest on, or to refinance their
respective indebtedness will depend on the future performance of the Company and
its subsidiaries, which to a certain extent will be subject to economic,
financial, regulatory, competitive and other factors beyond the Company's
control. Based upon the Company's current operations and anticipated growth,
management believes that future cash flow from operations, together with the
Company's available borrowings under the Senior Credit Facilities, will be
adequate to meet LIN Holdings' and LIN Television's respective anticipated
requirements for capital expenditures, interest payments and scheduled principal
payments. There can be no assurance that the Company's business will continue to
generate sufficient cash flow from operations in the future to service the
Company's respective indebtedness and make necessary capital expenditures. If
unable to do so, the Company may be required to refinance all or a portion of
its respective indebtedness, including the Notes, or sell assets or to obtain
additional financing. There can be no assurance that any such refinancing would
be possible, that any assets could be sold (or, if sold, of the timing of such
sales and the amount of proceeds realized therefrom) or that additional
financing could be obtained.
General Electric Capital Corporation ("GECC") provided debt financing for
the NBC joint venture in the form of an $815.5 million 25-year non-amortizing
senior secured note bearing an initial interest rate of 8.0% per annum. The
Company expects that the interest payments on the GECC Note will be serviced
solely by the cash flow of the NBC joint venture. The GECC Note is not an
obligation of the Company and is recourse only to the NBC joint venture, LIN
Television's equity interests therein and Ranger Equity Holdings B Corp.
("Ranger B"), pursuant to a guarantee. Ranger B is a wholly owned subsidiary of
Ranger and is one of LIN Holdings' two corporate parents and the guarantor of
the GECC Note. Ranger B owns 63% of LIN Holdings.
If an event of default occurs under the GECC Note, and GECC is unable to
collect all obligations owed to it after exhausting all commercially reasonable
remedies against the NBC joint venture (including during the pendency of any
bankruptcy involving the NBC joint venture), GECC may proceed against Ranger B,
to collect any deficiency. If Ranger B does not otherwise satisfy its
obligations under the guaranty, GECC could attempt to claim all or a portion of
the common stock of LIN Holdings owned by Ranger B through an insolvency
proceeding or otherwise. If such an event were to occur, GECC could obtain
control of LIN Holdings and, as a result, LIN Television.
RESTRICTIONS IMPOSED ON THE COMPANY BY TERMS OF INDEBTEDNESS. The credit
agreement governing the Senior Credit Facilities and the indentures governing
the Notes contain covenants that restrict LIN Holdings' and LIN Television's
respective abilities to:
- incur indebtedness;
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- pay dividends;
- create liens;
- sell assets;
- engage in certain mergers and acquisitions; and
- refinance indebtedness.
The credit agreement governing the Senior Credit Facilities requires LIN
Television to maintain certain financial ratios. If LIN Holdings or LIN
Television fails to comply with the various covenants contained in the credit
agreement governing the Senior Credit Facilities or the indentures governing the
Notes, as applicable, each of them would be in default and the maturity of
substantially all of their respective long-term indebtedness could be
accelerated. A default under either of the indentures would also constitute an
event of default under the Senior Credit Facilities. If LIN Television were
unable to repay amounts outstanding under the credit agreement, the lenders
thereunder could proceed against the collateral granted to them to secure the
indebtedness. If the amounts outstanding under the credit agreement were
accelerated, there can be no assurance that the assets of LIN Television and its
subsidiaries would be sufficient to repay the amount in full.
The Notes and the Senior Credit Facilities impose certain restrictions on
the Company's ability to make capital expenditures and limit the Company's
ability to incur additional indebtedness. Such restrictions could limit the
Company's ability to respond to market conditions, to provide for unanticipated
capital investments or to take advantage of business or acquisition
opportunities.
STRUCTURAL SUBORDINATION OF LIN HOLDINGS. LIN Holdings is a holding
company, which conducts all of its operations through its subsidiaries and whose
only material asset is the capital stock of LIN Television. Consequently, LIN
Holdings depends on distributions from LIN Television to meet its debt service
obligations. Because of the substantial leverage of LIN Television, and the
dependence of LIN Holdings upon the operating performance of LIN Television to
generate distributions to LIN Holdings, there can be no assurance that LIN
Holdings will have adequate funds to fulfill its obligations in respect of the
Senior Discount Notes when due. In addition, the credit agreement governing the
Senior Credit Facilities, the indenture governing the Senior Subordinated Notes
and applicable federal and state law impose restrictions on the payment of
dividends and the making of loans by LIN Television to LIN Holdings. As a result
of the foregoing restrictions, LIN Holdings may be unable to gain access to the
cash flow or assets of LIN Television in amounts sufficient to pay the mandatory
principal redemption amount when due on March 1, 2003, and cash interest on the
Senior Discount Notes on and after March 1, 2003, the date on which cash
interest thereon first becomes payable, and principal of the Senior Discount
Notes when due. In such event, LIN Holdings may be required to:
- refinance the Senior Discount Notes;
- seek additional debt or equity financing;
- cause LIN Television to refinance all or a portion of LIN Television's
indebtedness with indebtedness containing covenants allowing LIN
Holdings to gain access to LIN Television's cash flow or assets;
- cause LIN Television to obtain modifications of the covenants restricting
LIN Holdings' access to cash flow or assets of LIN Television
contained in LIN
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Television's financing documents (including, without limitation, the
credit agreement and the indenture governing the Senior Subordinated
Notes); or
- pursue a combination of the foregoing actions.
No assurance can be given that any of the foregoing measures could be
accomplished.
GROWTH THROUGH ACQUISITIONS; FUTURE CAPITAL REQUIREMENTS. The Company
intends to pursue selective acquisitions of television stations with the goal of
improving their operating performance by applying management's business
strategy. Inherent in any future acquisitions are certain risks such as
increasing leverage and debt service requirements and combining company cultures
and facilities which could have a material adverse effect on the Company's
operating results, particularly during the period immediately following such
acquisitions. Additional debt or equity capital may be required to complete
future acquisitions, and there can be no assurance the Company will be able to
raise the required capital. Moreover, there can be no assurances that with
respect to any acquired station, the Company will be able to successfully
implement effective cost controls, increase advertising revenues or increase its
audience share.
DEPENDENCE ON CERTAIN EXTERNAL FACTORS. The Company's operating results are
primarily dependent on advertising revenues which, in turn, depend on national
and local economic conditions, coverage of political events and high profile
sporting events (e.g., the Olympics, Super Bowl and NCAA Men's Basketball
Tournament), the relative popularity of the Company's programming (which in many
cases, is dependent on the relative popularity of the relevant network's
programming), the demographic characteristics of the Company's markets, the
activities of competitors and other factors which are outside the Company's
control. The television industry is cyclical in nature, and the Company's
revenues could be adversely affected by a future local, regional or national
recession.
RELIANCE ON SYNDICATED PROGRAMMING. One of the Company's most significant
operating costs is syndicated programming. There can be no assurance that the
Company will not be exposed in the future to increased syndicated programming
costs which may adversely affect the Company's operating results. Acquisitions
of program rights are often made two or three years in advance, making it
difficult to accurately predict how a program will perform. In some instances,
programs must be replaced before their costs have been fully amortized,
resulting in write-offs that increase station operating costs.
NON-RENEWAL OR TERMINATION OF AFFILIATION AGREEMENTS. The non-renewal or
termination of a network affiliation agreement could have a material adverse
effect on the Company's operations. Four of the Company's owned and operated
stations are affiliated with CBS, four with NBC, and one with ABC. Each of these
networks generally provides these stations with up to 22 hours of prime time
programming per week. In return, the stations broadcast network-inserted
commercials during such programming and receive cash network compensation.
Although network affiliates generally have achieved higher ratings than
unaffiliated independent stations in the same market, there can be no assurance
as to the future success of each network's programming or the continuation of
such programming. The Company's network affiliation agreements are subject to
termination by such networks under certain circumstances.
The Company believes that it enjoys a good relationship with each of CBS,
NBC and ABC, as well as the other networks with which it has affiliation
agreements.
Certain of the networks with which the Company's stations are affiliated
have required other broadcast groups, upon renewal of affiliation agreements, to
reduce or eliminate network affiliation compensation and to accept other
material modifications of existing affiliation agreements. However, there can be
no assurance that such affiliation agreements will remain in
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place or that each network will continue to provide programming or compensation
to affiliates on the same basis as it currently provides programming or
compensation.
WCTX-TV, a station operated under a local marketing agreement ("LMA") in
New Haven-Hartford, changed its network affiliation from the WB Network to the
UPN Network effective January 2001. This change is not expected to have a
material effect on the Company's revenues.
COMPETITION FOR ADVERTISING REVENUES AND AUDIENCE RATINGS. The television
broadcasting industry is a highly competitive business and is undergoing a
period of consolidation and significant change. Many of the Company's current
and potential competitors have greater financial, marketing, programming and
broadcasting resources than the Company. Technological innovation and the
resulting proliferation of programming alternatives, such as cable television,
wireless cable, satellite-to-home distribution services, internet, pay-per-view
and home video and entertainment systems, have fractionalized television viewing
audiences and have subjected free over-the-air television broadcast stations to
new types of competition. In addition, as a result of the Telecom Act, the
legislative ban on telephone cable ownership has been repealed and telephone
companies are now permitted to seek FCC approval to provide video services to
homes under specified circumstances. Consequently, the Company may not be able
to maintain or increase its current audience ratings or advertising revenues.
POTENTIAL EFFECTS OF TELEVISION BROADCASTING REGULATION ON LICENSE RENEWALS
AND OWNERSHIP. The broadcasting industry is subject to regulation by various
governmental agencies. In particular, under the Communications Act, the FCC
licenses television stations and extensively regulates their ownership and
operation. The Company depends on its ability to hold television broadcast
licenses from the FCC, which are ordinarily issued for maximum terms of eight
years and are renewable. Although it is rare for the FCC to deny a license
renewal application, there can be no assurance that the Company's television
broadcasting licenses or the licenses owned by the owner-operators of the
stations currently programmed by the Company under LMAs will be renewed or that
if renewed the renewals will not include restrictive conditions or
qualifications.
DEPENDENCE ON KEY PERSONNEL. The Company believes that its success is
dependent upon its ability to attract and retain skilled managers and other
personnel, including its present officers and general managers. The loss of the
services of Gary R. Chapman, the Chairman, President and Chief Executive Officer
of LIN Holdings and LIN Television, could have a material adverse effect on the
operations of the Company. Mr. Chapman's current employment agreement with LIN
Television will automatically renew for an additional year on December 31, 2001
unless otherwise terminated by either party by notice 90 days prior to this
date.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates principally
with respect with to its senior credit facility, which is priced based on
certain variable interest rate alternatives.
The Company uses derivative instruments to manage exposures to interest rate
risks. The Company's objective for holding derivatives is to minimize these
risks using the most effective methods to eliminate or reduce the impact of
these exposures.
The Company uses interest rate collar and cap arrangements, not designated as
hedging instruments under SFAS No. 133, in the notional amount of $160 million
at March 31, 2001, to mitigate the impact of the variability in interest rates
in connection with its variable rate senior credit facility. The aggregate fair
value of the interest rate collar and cap arrangements at March 31, 2001 was a
liability of $1.9 million. Interest expense for the three months ended March 31,
2001 includes a loss of $1.9 million from the marking-to-market of these
derivative instruments.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. In the opinion of the Company's
management, none of such litigation at March 31, 2001 is likely to have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrants have duly caused this report to be signed on each of their
respective behalf by the undersigned thereunto duly authorized.
LIN HOLDINGS CORP. LIN TELEVISION CORPORATION
(Registrant) (Registrant)
DATED: August 8, 2001 /s/ Peter E. Maloney
------------------------------------
Peter E. Maloney
Vice President of Finance
(Principal Financial and Accounting
Officer.)
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