1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 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
LIN HOLDINGS CORP. LIN TELEVISION CORPORATION
(Exact name of registrant as (Exact name of registrant as
specified in its charter) 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 June 30, 2001.
2
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements
LIN HOLDINGS CORP.
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
LIN TELEVISION CORPORATION
Condensed Consolidated Balance Sheets 11
Condensed Consolidated Statements of Operations 12
Condensed Consolidated Statements of Cash Flows 13
Notes to Condensed Consolidated Financial Statements 14
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
Part II. Other Information
Item 1. Legal Proceedings 30
Item 6. Exhibits and Reports on Form 8-K 30
3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
LIN HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
2001 2000
ASSETS (unaudited)
----------- ------------
Current assets:
Cash and cash equivalents $ 49,955 $ 7,832
Accounts receivable, less allowance for doubtful accounts
(2001 - $1,477; 2000 - $1,679) 55,773 58,826
Program rights 12,123 13,614
Other current assets 4,435 4,302
----------- -----------
Total current assets 122,286 84,574
Property and equipment, net 160,527 164,738
Deferred financing costs 38,059 36,298
Equity investments 85,623 91,798
Investment in Southwest Sports Group, at cost plus
accrued interest 54,500 53,000
Program rights 2,957 4,155
Intangible assets, net 1,583,440 1,600,882
Other assets 9,918 9,918
----------- -----------
Total Assets $ 2,057,310 $ 2,045,363
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,453 $ 7,226
Program obligations 10,997 13,491
Accrued income taxes 4,810 5,578
Current portion of long-term debt -- 19,572
Accrued interest expense 11,497 10,809
Accrued sales volume discount 1,473 4,728
Other accrued expenses 13,288 16,604
----------- -----------
Total current liabilities 46,518 78,008
Long-term debt, excluding current portion 1,055,036 968,685
Deferred income taxes 510,999 521,494
Program obligations 3,216 3,984
Other liabilities 8,986 7,002
----------- -----------
Total liabilities 1,624,755 1,579,173
----------- -----------
Commitments and Contingencies (Note 8)
Stockholders' equity:
Common stock, $0.01 par value: 1,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 561,808 561,669
Accumulated deficit (129,253) (95,479)
----------- -----------
Total stockholders' equity 432,555 466,190
----------- -----------
Total liabilities and stockholders' equity $ 2,057,310 $ 2,045,363
=========== ===========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
1
4
LIN HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2001 2000 2001 2000
-------- -------- --------- ---------
Net revenues $ 73,046 $ 77,798 $ 131,074 $ 137,072
Operating costs and expenses:
Direct operating 20,857 19,679 40,594 37,752
Selling, general and administrative 16,345 17,074 31,992 31,117
Corporate 2,094 2,020 4,484 4,536
Amortization of program rights 5,433 5,345 10,799 10,341
Depreciation and amortization of
intangible assets 17,049 15,956 33,315 31,311
-------- -------- --------- ---------
Total operating costs and expenses 61,778 60,074 121,184 115,057
-------- -------- --------- ---------
Operating income 11,268 17,724 9,890 22,015
Other (income) expense:
Interest expense 23,905 23,370 48,178 43,144
Investment income (979) (1,036) (1,909) (2,052)
Share of (income) loss in equity investments (132) (584) 1,254 437
Loss on WAND-TV exchange -- 2,720 -- 2,720
Other, net (12) (13) (217) 12
-------- -------- --------- ---------
Total other expense, net 22,782 24,457 47,306 44,261
-------- -------- --------- ---------
Loss before provision for (benefit from)
income taxes and extraordinary item (11,514) (6,733) (37,416) (22,246)
Provision for (benefit from) income taxes (3,925) (127) (8,052) 6,926
-------- -------- --------- ---------
Loss before extraordinary item (7,589) (6,606) (29,364) (29,172)
Extraordinary loss due to extinguishment of
debt, net of tax benefit of $2,400 4,410 -- 4,410 --
-------- -------- --------- ---------
Net loss $(11,999) $ (6,606) $ (33,774) $ (29,172)
======== ======== ========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
2
5
LIN HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
---------------------------
2001 2000
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,460 $ 17,318
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (7,786) (12,080)
Investment in Banks Broadcasting, Inc. (1,500) --
Capital distributions from equity investments 6,419 --
Acquisition of WWLP-TV, net of cash acquired -- (125,878)
Acquisition of WNAC-TV (2,500) --
Other investments (1,236) --
Local marketing agreement expenditures -- (3,250)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (6,603) (141,208)
--------- ---------
FINANCING ACTIVITIES:
Net payments on exercises of phantom stock units and issuance
of employee stock purchase plan shares -- 12
Proceeds from long-term debt related to acquisition of WNAC-TV 2,500 --
Proceeds from revolver debt, net 13,000 --
Proceeds from long-term debt related to acquisition of WWLP-TV -- 128,000
Proceeds from long-term debt 276,055 15,000
Principal payments on long-term debt (238,389) (20,154)
Financing costs incurred on issuance of long-term debt (6,900) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 46,266 122,858
--------- ---------
Net increase (decrease) in cash and cash equivalents 42,123 (1,032)
Cash and cash equivalents at the beginning of the period 7,832 17,699
--------- ---------
Cash and cash equivalents at the end of the period $ 49,955 $ 16,667
========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
6
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
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. 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 Block 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.
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.
4
7
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
WNAC-TV: On June 5, 2001, the Company acquired the broadcast license
and certain related assets of WNAC-TV, the Fox affiliate serving the
Providence-New Bedford market. Simultaneously with the acquisition, the Company
assumed an existing LMA agreement with STC Broadcasting, Inc., an entity in
which Hicks Muse has a substantial economic interest, under which STC
Broadcasting, Inc. will operate WNAC-TV. As a result of this LMA, the Company
does not generate revenues or incur expenses from the operation of this station
but, instead receives an annual fee of $100,000 from STC Broadcasting, Inc. The
total purchase price was approximately $2.5 million. The acquisition was funded
with a note payable to STC Broadcasting. The Company has accounted for the
business combination under the purchase method of accounting. The acquisition is
summarized as follows (in thousands):
Property and equipment $ 16
FCC license and network affiliation 2,484
------
Total acquisition $2,500
======
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):
5
8
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenues $ 41,454 $ 45,687 $ 76,470 $ 82,937
Operating income 17,932 19,657 28,325 32,213
Net loss 1,800 3,624 (3,776) (508)
June 30, 2001 June 30, 2000
------------- -------------
Current assets $ 7,851 $ 15,839
Non-current assets 242,310 245,540
Current liabilities 725 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 following presents the summarized financial
information of Banks Broadcasting, Inc. (in thousands):
Three months Six months ended
ended June 30, June 30,
2001 2001
-------------- ----------------
Net revenues $ 1,054 $ 2,125
Operating loss (703) (872)
Net loss (452) (798)
June 30, 2001
-------------
Current assets $ 3,105
Non-current assets 27,323
Current liabilities 1,510
Non-current liabilities 582
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 June 30, Six months ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenues $1,720 $2,120 $ 3,302 $2,120
Operating income (loss) 25 51 (138) 51
Net income (loss) 40 51 (123) 51
June 30, 2001 June 30, 2000
------------- -------------
Current assets $ 3,283 $ 2,178
Non-current assets 34,346 35,207
Current liabilities 641 1,518
6
9
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consisted of the following at (in thousands):
June 30, 2001 December 31, 2000
------------- -----------------
FCC licenses and network affiliations $ 1,059,275 $ 1,055,653
Goodwill 652,508 652,508
LMA purchase options 1,725 1,125
----------- -----------
1,713,508 1,709,286
Less accumulated amortization (130,068) (108,404)
----------- -----------
$ 1,583,440 $ 1,600,882
=========== ===========
NOTE 5 - DERIVATIVE INSTRUMENTS:
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended, which requires that all derivative
instruments be reported on the balance sheet as 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 exposure 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 impacts of
these exposures.
The Company uses interest rate collar, cap and swap arrangements, not
designated as hedging instruments under SFAS 133, in the notional amount of
$160.0 million at June 30, 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 arrangements at June 30, 2001 was a liability of
$2.0 million. Interest expense for the three and six-month periods ended June
30, 2001 includes a loss of $119,000 and $2.0 million, respectively, from the
marking-to-market of these derivative instruments.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consisted of the following at (in thousands):
7
10
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
June 30, 2001 December 31, 2000
------------- -----------------
Senior Credit Facilities $ 200,301 $ 425,690
$300,000, 8 3/8% Senior Subordinated Notes
due 2008 (net of a discount of $530 as of
June 30, 2001) 299,470 299,442
$325,000, 10% Senior Discount Notes
due 2008 (net of a discount of $48,718 as
of June 30, 2001) 276,282 263,125
$210,000, 8% Senior Subordinated Notes
due 2008 (net of discount of $7,747 as of
June 30, 2001) 202,253 --
$100,000, 10% Senior Discount Notes
due 2008 (net of discount of $25,769 as of
June 30, 2001) 74,230 --
$2,500 7% STC Broadcasting Note 2,500 --
due 2006
---------- ---------
Total debt 1,055,036 988,257
Less current portion -- (19,572)
---------- ---------
Total long-term debt $1,055,036 $ 968,685
========== =========
On June 14, 2001, LIN Holdings Corp. issued $100 million aggregate
principal amount at maturity of 10% Senior Discount Notes due 2008 in a private
placement. The Senior Discount Notes were issued at a discount to yield 12.5%
and generated net proceeds of $73.9 million. Financing costs of $2.4 million
were incurred in connection with the issuance and will be amortized over the
term of the debt. The Senior Discount Notes are unsecured senior obligations of
LIN Holdings and are not guaranteed. Cash interest will not accrue or be payable
on the Senior Discount Notes prior to March 1, 2003. Thereafter, cash interest
will accrue at a rate of 10% per annum and will be payable semi-annually in
arrears commencing on September 1, 2003. The Company is subject to compliance
with certain financial covenants and other conditions set forth in offering
memorandum. The Notes are subject to early redemption provisions in the event of
a change of control.
On June 14, 2001, LIN Television issued $210 million aggregate
principal amount at maturity of 8% Senior Notes due 2008 in a private placement.
The Senior Notes were issued at a discount to yield 8-3/4% and generated net
proceeds of $202.2 million. The Senior Notes are unsecured senior obligations of
LIN Television without collateral rights, subordinated in right of payment to
all existing and any future senior indebtedness of LIN Television and are not
guaranteed. Financing costs of $4.5 million were incurred in connection with the
issuance and will be amortized over the term of the debt. Cash interest on the
Senior Notes accrues at a rate of 8% per annum and will be payable semi-annually
in arrears commencing on January 15, 2002. LIN Television is subject to
compliance with certain financial covenants and other conditions set forth in
offering memorandum. The Notes are subject to early redemption provisions in the
event of a change of control.
A portion of the proceeds from the Senior Discount Notes and the Senior
Notes less certain transactional costs were used to repay $233.2 million of the
Company's existing Senior Credit Facilities.
The extraordinary item in the period ending June 30, 2001 of $4.4
million, net of a tax benefit of $2.4 million, relates to the write-off of
unamortized deferred financing costs related to the early settlement of this
debt.
Simultaneously with the consummation of the offering of the new Senior
Discount Notes and the new Senior Notes, the Company obtained certain amendments
to its existing Senior Credit Facilities which (i) provided for the adjustment
of certain financial covenants and ratio tests, (ii) provided that $100 million
of the $160 million revolving portion of the Senior Credit Facilities may be
used to fund the $125 million mandatory redemption payment on the existing
Senior Discount Notes due on March 1, 2003 or, subsequent to the funding of the
mandatory redemption payment, to make interest payments
8
11
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
on the existing Senior Discount Notes and (iii) increased certain fees and
interest rate spreads. As a result of the repayment of the term loans under the
Senior Credit Facilities, there is expected to be no required scheduled
amortization payments until December 2005.
The following are the adjustments made to the financial covenant and
ratio tests:
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
---- ---- ---- ---- ---- ---- ---- ----
Maximum Leverage Ratio:
Amended 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x
Prior 6.75x 6.75x 6.75x 6.75x 6.75x 6.75x 6.40x 6.40x
Minimum Interest Coverage Ratio:
Amended 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x
Prior 1.70x 1.70x 1.70x 1.70x 1.75x 1.75x 1.85x 1.85x
NOTE 7 - 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 and six months ended June 30, 2001 was $314,000 and
$626,000, respectively. The fee for the three and six months ended June 30, 2000
was $286,000 and $624,000, respectively.
NOTE 8 - 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 June 30, 2001, is likely to have a
material adverse effect on the financial position, results of operations, or
cash flows of the Company.
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 Communication 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 borrowings from the revolving credit facility.
NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires
9
12
LIN HOLDINGS CORP.
Notes to Condensed Consolidated Financial Statements
(unaudited)
the purchase method of accounting to be applied for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company does not expect the application of SFAS 141 to have a material
impact on its financial position or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is
generally effective for the Company from January 1, 2002. SFAS 142 requires,
among other things, the discontinuance of goodwill amortization and the
introduction of impairment testing in its place. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test six months from the date of
adoption. The Company is currently assessing, but has not yet determined, the
impact of SFAS 142 on its financial position and results of operations.
NOTE 10 - SUBSEQUENT EVENTS:
WNLO-TV: On July 25, 2001, the Company acquired the broadcast license
and operating assets of WNLO-TV (formerly called WNEQ-TV), an independent
broadcast television station located in Buffalo, New York. The Company has been
operating WNLO-TV since January 29, 2001 under a LMA agreement. The total
purchase price is approximately $26.2 million, and will be funded by available
cash. The Company intends to account for the business combination under the
purchase method of accounting.
WJPX-TV, WKPV-TV, AND WJWN-TV: On August 2, 2001, the Company acquired
the broadcast license and operating assets of WJPX-TV, an independent television
station in San Juan, Puerto Rico, WKPV-TV, an independent television station in
Ponce, Puerto Rico and WJWN-TV, an independent television station in San
Sebastian, Puerto Rico. WKPV-TV and WJWN-TV currently rebroadcast the
programming carried on WJPX-TV. The total purchase price of the three stations
is approximately $11.2 million, and will be funded by available cash. The
Company intends to account for the business combination under the purchase
method of accounting.
10
13
LIN TELEVISION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares)
June 30, December 31,
2001 2000
ASSETS (unaudited)
----------- ------------
Current assets:
Cash and cash equivalents $ 49,955 $ 7,832
Accounts receivable, less allowance for doubtful accounts
(2001 - $1,477; 2000 - $1,679) 55,773 58,826
Program rights 12,123 13,614
Other current assets 4,435 4,302
----------- -----------
Total current assets 122,286 84,574
Property and equipment, net 160,527 164,738
Deferred financing costs 27,146 27,142
Equity investments 85,623 91,798
Investment in Southwest Sports Group, at cost plus accrued interest 54,500 53,000
Program rights 2,957 4,155
Intangible assets, net 1,583,440 1,600,882
Other assets 9,918 9,918
----------- -----------
Total Assets $ 2,046,397 $ 2,036,207
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,453 $ 7,226
Program obligations 10,997 13,491
Accrued income taxes 4,810 5,578
Current portion of long-term debt 0 19,572
Accrued interest expense 11,497 10,809
Accrued sales volume discount 1,473 4,728
Other accrued expenses 13,288 16,604
----------- -----------
Total current liabilities 46,518 78,008
Long-term debt, excluding current portion 704,524 705,560
Deferred income taxes 532,388 536,619
LIN Holdings tax sharing obligations 8,365 8,364
Program obligations 3,216 3,984
Other liabilities 8,986 7,002
----------- -----------
Total liabilities 1,303,997 1,339,537
----------- -----------
Commitments and Contingencies (Note 8)
Stockholders' equity:
Common stock, $0.01 par value: 1,000 shares authorized,
issued and outstanding -- --
Additional paid-in capital 820,102 748,523
Accumulated deficit (77,702) (51,853)
----------- -----------
Total stockholders' equity 742,400 696,670
----------- -----------
Total liabilities and stockholders' equity $ 2,046,397 $ 2,036,207
=========== ===========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
11
14
LIN TELEVISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -----------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenues $ 73,046 $ 77,798 $ 131,074 $ 137,072
-------- -------- --------- ---------
Operating costs and expenses:
Direct operating 20,857 19,679 40,594 37,752
Selling, general and administrative 16,345 17,074 31,992 31,117
Corporate 2,094 2,020 4,484 4,536
Amortization of program rights 5,433 5,345 10,799 10,341
Depreciation and amortization of intangible assets 17,049 15,956 33,315 31,311
-------- -------- --------- ---------
Total operating costs and expenses 61,778 60,074 121,184 115,057
-------- -------- --------- ---------
Operating income 11,268 17,724 9,890 22,015
Other (income) expense:
Interest expense 16,505 16,987 33,987 30,571
Investment income (979) (1,036) (1,909) (2,052)
Share of (income) loss in equity investments (132) (584) 1,254 437
Loss on WAND-TV exchange -- 2,720 -- 2,720
Other, net (12) (13) (217) 12
-------- -------- --------- ---------
Total other expense, net 15,382 18,074 33,115 31,688
-------- -------- --------- ---------
Loss before provision for (benefit from)
income taxes and extraordinary item (4,114) (350) (23,225) (9,673)
Provision for (benefit from) income taxes (4,086) 2,820 (1,786) (5,414)
-------- -------- --------- ---------
Loss before extraordinary item (28) (3,170) (21,439) (4,259)
Extraordinary loss due to extinguishment of debt,
net of tax benefit of $2,400 4,410 -- 4,410 --
-------- -------- --------- ---------
Net loss $ (4,438) $ (3,170) $ (25,849) $ (4,259)
======== ======== ========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
12
15
LIN TELEVISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
-----------------------------
2001 2000
---- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,460 17,318
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (7,786) (12,080)
Investment in Banks Broadcasting, Inc. (1,500)
Capital distributions from equity investments 6,419 --
Acquisition of WWLP-TV, net of cash acquired -- (125,878)
Acquisition of WNAC-TV (2,500) --
Other investments (1,236) --
Local marketing agreement expenditures -- (3,250)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (6,603) (141,208)
--------- ---------
FINANCING ACTIVITIES:
Net payments on exercises of phantom stock units and issuance
of employee stock purchase plan shares -- 12
Capital contribution from LIN Holdings 71,450 --
Proceeds from long-term debt related to acquisition of WNAC-TV 2,500 --
Proceeds from revolver debt, net 13,000 --
Proceeds from long-term debt related to acquisition of WWLP-TV -- 128,000
Proceeds from long-term debt 202,205 15,000
Principal payments on long-term debt (238,389) (20,154)
Financing costs incurred on issuance of long-term debt (4,500) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 46,266 122,858
--------- ---------
Net increase (decrease) in cash and cash equivalents 42,123 (1,032)
Cash and cash equivalents at the beginning of the period 7,832 17,699
--------- ---------
Cash and cash equivalents at the end of the period $ 49,955 $ 16,667
========= =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
13
16
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
LIN Television Corporation (together with its subsidiaries, the
"Company" or "LIN Television") is a television station group operator in the
United States and Puerto Rico. LIN Television and its subsidiaries are
affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") and are
directly owned by LIN Holdings Corporation ("LIN Holdings").
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 norma l 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 Block 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.
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.
WNAC-TV: On June 5, 2001, the Company acquired the broadcast license
and certain related assets of WNAC-TV, the Fox affiliate serving the
Providence-New Bedford market. Simultaneously with
14
17
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
the acquisition, the Company assumed an existing LMA agreement with STC
Broadcasting, Inc., an entity in which Hicks Muse has a substantial economic
interest, under which STC Broadcasting, Inc. will operate WNAC-TV. As a result
of this LMA, the Company does not generate revenues or incur expenses from the
operation of this station, but instead receives an annual fee of $100,000 from
STC Broadcasting, Inc. The total purchase price was approximately $2.5 million.
The acquisition was funded with a note payable to STC Broadcasting. The Company
has accounted for the business combination under the purchase method of
accounting. The acquisition is summarized as follows (in thousands):
Property and equipment $ 16
FCC license and network affiliation 2,484
------
Total acquisition $2,500
======
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):
15
18
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenues $ 41,454 $ 45,687 $ 76,470 $ 82,937
Operating income 17,932 19,657 28,325 32,213
Net income (loss) 1,800 3,624 (3,776) (508)
June 30, 2001 June 30, 2000
------------- -------------
Current assets $ 7,851 $ 15,839
Non-current assets 242,310 245,540
Current liabilities 725 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 following presents the summarized financial
information of Banks Broadcasting, Inc. (in thousands):
Three months Six months ended
ended June 30, June 30,
2001 2001
-------------- ----------------
Net revenues $ 1,054 $ 2,125
Operating loss (703) (872)
Net loss (452) (798)
June 30, 2001
-------------
Current assets $ 3,105
Non-current assets 27,323
Current liabilities 1,510
Non-current liabilities 582
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):
16
19
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenues $ 1,720 $ 2,120 $ 3,302 $ 2,120
Operating income (loss) 25 51 (138) 51
Net income (loss) 40 51 (123) 51
June 30, 2001 June 30, 2000
------------- -------------
Current assets $ 3,283 $ 2,178
Non-current assets 34,346 35,207
Current liabilities 641 1,518
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consisted of the following at (in thousands):
June 30, 2001 December 31, 2000
------------- -----------------
FCC licenses and network affiliations $ 1,059,275 $ 1,055,653
Goodwill 652,508 652,508
LMA purchase options 1,725 1,125
----------- -----------
1,713,508 1,709,286
Less accumulated amortization (130,068) (108,404)
----------- -----------
$ 1,583,440 $ 1,600,882
=========== ===========
NOTE 5 - DERIVATIVE INSTRUMENTS:
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended, which requires that all derivative
instruments be reported on the balance sheet as 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 exposure 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 impacts of
these exposures.
The Company uses interest rate collar, cap and swap arrangements, not
designated as hedging instruments under SFAS 133, in the notional amount of
$160.0 million at June 30, 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 arrangements at June 30, 2001 was a liability of
$2.0 million. Interest expense for the three and six-month periods ended June
30, 2001 includes a loss of $119,000 and $2.0 million, respectively, from the
marking-to-market of these derivative instruments.
NOTE 6 - LONG-TERM DEBT:
Long-term debt consisted of the following at (in thousands):
17
20
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
June 30, 2001 December 31, 2000
------------- -----------------
Senior Credit Facilities $ 200,301 $ 425,690
$300,000, 8 3/8% Senior Subordinated Notes
due 2008 (net of discount of $530 as of
June 30, 2001) 299,470 299,442
$210,000 8% Senior Subordinated Notes
due 2008 (net of discount of $7,747 as of
June 30, 2001) 202,253 --
$2,500 7% STC Broadcasting Note
due 2006 2,500 --
--------- ---------
Total debt 704,524 725,132
Less current portion -- (19,572)
--------- ---------
Total long-term debt $ 704,524 $ 705,560
========= =========
On June 14, 2001, LIN Television issued $210 million aggregate
principal amount at maturity of 8% Senior Notes due 2008 in a private placement.
The Senior Notes were issued at a discount to yield 8 3/4% and generated net
proceeds of $202.2 million. The Senior Notes are unsecured senior obligations of
LIN Television without collateral rights, subordinated in right of payment to
all existing and any future senior indebtedness of LIN Television and are not
guaranteed. Financing costs of $4.5 million were incurred in connection with the
issuance and will be amortized over the term of the debt. Cash interest on the
Senior Notes accrues at a rate of 8% per annum and will be payable semi-annually
in arrears commencing on January 15, 2002. LIN Television is subject to
compliance with certain financial covenants and other conditions set forth in
offering memorandum. The Notes are subject to early redemption provisions in the
event of a change of control.
A portion of the proceeds from the Senior Notes, less certain
transactional costs, and a capital contribution from LIN Holdings (see Note 9 -
Capital Contribution) were used to repay $233.2 million of the Company's
existing Senior Credit Facilities.
The extraordinary item in the period ending June 30, 2001 of $4.4
million, net of a tax benefit of $2.4 million, relates to the write-off of
unamortized deferred financing costs related to the early settlement of this
debt.
Simultaneously with the consummation of the offering of the new Senior
Notes, the Company obtained certain amendments to its existing Senior Credit
Facilities which (i) provided for the adjustment of certain financial covenants
and ratio tests and (ii) increased certain fees and interest rate spreads. As a
result of the repayment of the term loans under the Senior Credit Facilities,
there is expected to be no required scheduled amortization payments until
December 2005.
The following are the adjustments made to the financial covenant and
ratio tests:
1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
---- ---- ---- ---- ---- ---- ---- ----
Maximum Leverage Ratio:
Amended 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x
Prior 6.75x 6.75x 6.75x 6.75x 6.75x 6.75x 6.40x 6.40x
Minimum Interest Coverage Ratio:
Amended 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x
Prior 1.70x 1.70x 1.70x 1.70x 1.75x 1.75x 1.85x 1.85x
18
21
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 7 - 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 and six months ended June 30, 2001 was $314,000 and $626,000,
respectively. The fee for the three and six months ended June 30, 2000 was
$286,000 and $624,000, respectively.
NOTE 8 - 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 June 30, 2001, is likely to have a
material adverse effect on the financial position, results of operations, or
cash flows of the Company.
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 Communication 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 borrowings from the revolving credit facility.
NOTE 9 - CAPITAL CONTRIBUTION:
On June 14, 2001, and in connection with the issuance of the Senior
Discount Notes, LIN Holdings transferred $71.5 million to the Company in the
form of a capital contribution.
NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting to be applied
for business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company does not expect the application of SFAS
141 to have a material impact on its financial position or results of
operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is generally
effective for the Company from January 1, 2002. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization and the introduction of
impairment testing in its place. In addition, the standard includes provisions
for the reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported
19
22
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test six months from the date of
adoption. The Company is currently assessing, but has not yet determined, the
impact of SFAS 142 on its financial position and results of operations.
NOTE 11 - SUBSEQUENT EVENTS:
WNLO-TV: On July 25, 2001, the Company acquired the broadcast license and
operating assets of WNLO-TV (formerly called WNEQ-TV), an independent broadcast
television station located in Buffalo, New York. The Company has been operating
WNLO-TV since January 29, 2001 under a LMA agreement. The total purchase price
is approximately $26.2 million, and will be funded by available cash. The
Company intends to account for the business combination under the purchase
method of accounting.
WJPX-TV, WKPV-TV,and WJWN-TV: On August 2, 2001, the Company acquired the
broadcast license and operating assets of WJPX-TV, an independent television
station in San Juan, Puerto Rico, WKPV-TV, an independent television station in
Ponce, Puerto Rico and WJWN-TV, an independent television station in San
Sebastian, Puerto Rico. WKPV-TV and WJWN-TV currently rebroadcast the
programming carried on WJPX-TV. The total purchase price of the three stations
is approximately $11.2 million, and will be funded by available cash. The
Company intends to account for the business combination under the purchase
method of accounting.
20
23
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
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. LIN Holdings and its subsidiaries are affiliates of Hicks, Muse,
Tate & Furst Incorporated ("Hicks Muse").
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 Block 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. 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.
WNAC-TV: On June 5, 2001, the Company acquired the broadcast license and
certain related assets of WNAC-TV, the Fox affiliate serving the Providence-New
Bedford market. Simultaneously with the acquisition, the Company assumed an
existing LMA agreement with STC Broadcasting, Inc., an entity in
21
24
which Hicks Muse has a substantial economic interest, under which STC
Broadcasting, Inc. will operate WNAC-TV. The total purchase price was
approximately $2.5 million. The acquisition was funded with a note payable to
STC Broadcasting.
In connection with acquisitions accounted for under the purchase method of
accounting, we do not separately value acquired FCC broadcasting licenses and
network affiliation agreements as they do not represent separately identifiable
intangible assets but rather have a value that is inseparably linked. The future
value of our FCC licenses could be significantly impaired by the loss of
corresponding network affiliation agreements, or vice versa.
Results of Operations
Set forth below are the significant factors that contributed to the
operating results of the Company for the three and six-month periods ended June
30, 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.
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenues $ 73,046 $ 77,798 $131,074 $137,072
Operating costs and expenses:
Direct operating 20,857 19,679 40,594 37,752
Selling, general and administrative 16,345 17,074 31,992 31,117
Corporate 2,094 2,020 4,484 4,536
Amortization of program rights 5,433 5,345 10,799 10,341
Depreciation and amortization of
intangible assets 17,049 15,956 33,315 31,311
-------- -------- -------- --------
Total operating costs and expenses 61,778 60,074 121,184 115,057
-------- -------- -------- --------
Operating income $ 11,268 $ 17,724 $ 9,890 $ 22,015
-------- -------- -------- --------
Net revenues consist primarily of national and local airtime sales, net of
sales adjustments and agency commissions. Additional but less significant
amounts are generated from network compensation, Internet revenues, barter
revenues, production revenues and rental income. Total net revenues for the
three and six-month periods ended June 30, 2001 decreased 6.1% to $73.0 million
and 4.4% to $131.0 million, respectively, compared to net revenue of $77.8
million and $137.1 million, respectively, for the same periods last year. The
decrease in the three and six-month periods ended June 30, 2001 was primarily
due to a decrease of $1.0 million and $2.3 million respectively, in political
advertising due to the campaign election cycle and a decrease of $5.0 million
and $7.3 million, respectively, in demand for national advertising that began in
the third quarter of 2000 and has continued into the third quarter of 2001.
Direct operating expenses, consisting primarily of news, engineering,
programming and music licensing costs for the three and six-month periods ended
June 30, 2001 increased 6.0% to $20.9 million and increased 7.5% to $40.6
million, respectively, compared to direct operating expenses of $19.7 million
and $37.8 million, respectively, for the same periods last year. The increase in
the three and six-month periods ended June 30, 2001 is primarily due to the
startup costs of the low power television stations in Grand Rapids, Michigan and
the LMA in Buffalo, New York of $332,000 and $656,000, respectively, and to the
impact of the acquisitions of WLFI-TV and WWLP-TV, partially offset by the
disposition of WAND-TV, a net impact of $1.2 million and $2.0 million for the
three and six-month periods ended June 30, 2001, respectively.
Selling, general and administrative expenses, consisting primarily of
employee salaries, sales commissions and other employee benefit costs,
advertising and promotional expenses for the three and six-month periods ending
June 30, 2001 decreased 4.3% to $16.3 million and increased 2.8% to $32.0
million, respectively, compared to selling, general and administrative expenses
of $17.1 million and $31.1 million,
22
25
respectively, for the same periods last year. The decrease is primarily due to
favorable terms on an operating agreement of $765,000 and $1.5 million for the
three and six-month periods ended June 30, 2001, respectively, offset by an
increase of $339,000 in advertising costs associated with the network
affiliation switch from the WB network to the UPN network of WCTX-TV in New
Haven, Connecticut for the three and six-month periods ended June 30, 2001,
respectively, as well the impact of the acquisitions of WLFI-TV and WWLP-TV,
partially offset by the disposition of WAND-TV, a net impact of $1.3 million and
$2.0 million for the three and six-month periods ended June 30, 2001.
Corporate expenses, representing costs associated with the centralized
management of the Company's stations for the three and six-month periods ending
June 30, 2001 increased 3.7% to $2.1 million and decreased 1.1% to $4.5 million,
respectively, compared to corporate expenses of $2.0 million and $4.5 million,
respectively, for the same periods last year.
Amortization of program rights, representing costs associated with the
acquisition of syndicated programming, features and specials for the three and
six-month periods ending June 30, 2001 increased 1.6% to $5.4 million and 4.4%
to $10.8 million, respectively, compared to amortization of program rights of
$5.3 million and $10.3 million, respectively, for the same periods last year.
The increase is primarily due to the acquisitions of WLFI-TV and WWLP-TV
partially offset by the disposition of WAND-TV.
Depreciation and amortization of intangible assets for the three and
six-month periods ending June 30, 2001 increased 6.8% to $17.0 million and
increased 6.4% to $33.3 million, respectively, compared to depreciation and
amortization of intangible assets of $16.0 million and $31.3 million,
respectively, for the same periods 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 for the three and six-month periods ended June 30, 2001
increased 2.3% to $23.9 million and increased 11.7% to $48.2 million,
respectively, compared to interest expense of $23.4 million and $43.1 million,
respectively, for the same periods last year. The increase is primarily the
result of losses of $119,000 and $2.0 million on derivative instruments for the
three and six-month periods ended June 30, 2001, respectively, and increased
borrowings associated with the acquisition of WWLP-TV on March 31, 2000.
Interest expense for LIN Television Corporation for the three and
six-month periods ended June 30, 2001 decreased 2.8% to $16.5 million and
increased 11.2% to $34.0 million, respectively, compared to interest expense of
$17.0 million and $30.6 million, respectively, for the same periods last year.
The increase is primarily the result of losses of $119,000 and $2.0 million on
derivative instruments for the three and six-month periods ended June 30, 2001,
respectively, and increased borrowings associated with the acquisition of
WWLP-TV on March 31, 2000.
The Company's provision for income taxes for the three-month period ended
June 30, 2001 changed to a benefit of approximately $3.9 million compared to a
benefit of $127,000 for the same period last year. The provision for income
taxes for the six-month period ended June 30, 2001 changed to a benefit of $8.1
million compared to a provision of $6.9 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 for the three and
six-month periods ended June 30, 2001 is approximately $4.1 million and $1.8
million, respectively, compared to a provision of approximately $2.8 million and
a benefit of $5.4 million for the same periods 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.
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Liquidity and Capital Resources
At June 30, 2001, the Company had cash and cash equivalents of $50.0
million and total debt of $1.1 billion.
Net cash provided by operating activities for the six months ended June
30, 2001 was $2.5 million compared to $17.3 million for the same period last
year. The decrease is primarily the result of the noted decrease in national and
political revenues and increase in operating and interest expenses.
Net cash provided by investing activities was $6.6 million for the six
months ended June 30, 2001, compared to net cash used in investing activities of
$141.2 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.
Net cash used in financing activities for the six months ended June 30,
2001 was $46.3 million compared to net cash provided by financing activities of
$122.9 million for the same period last year. The change is primarily due to the
proceeds from long-term debt (net of partial repayment of the Senior Credit
Facilities) in 2001 and proceeds from a draw down of a credit facility in
connection with the WWLP-TV transaction in 2000.
On June 14, 2001, LIN Holdings Corp. issued $100 million aggregate
principal amount at maturity of 10% Senior Discount Notes due 2008 in a private
placement. The Senior Discount Notes were issued at a discount to yield 12.5%
and generated net proceeds of $73.9 million. Financing costs of $2.4 million
were incurred in connection with the issuance and will be amortized over the
term of the debt. The Senior Discount Notes are unsecured senior obligations of
LIN Holdings and are not guaranteed. Cash interest will not accrue or be payable
on the Senior Discount Notes prior to March 1, 2003. Thereafter, cash interest
will accrue at a rate of 10% per annum and will be payable semi-annually in
arrears commencing on September 1, 2003. The Company is subject to compliance
with certain financial covenants and other conditions set forth in offering
memorandum.The Notes are subject to early redemption provisions in the event of
a change of control.
On June 14, 2001, LIN Television issued $210 million aggregate principal
amount at maturity of 8% Senior Notes due 2008 in a private placement. The
Senior Notes were issued at a discount to yield 8 3/4% and generated net
proceeds of $202.2 million. The Senior Notes are unsecured senior obligations of
LIN Television without collateral rights, subordinated in right of payment to
all existing and any future senior indebtedness of LIN Television and are not
guaranteed. Financing costs of $4.5 million were incurred in connection with the
issuance and will be amortized over the term of the debt. Cash interest on the
Senior Notes accrues at a rate of 8% per annum and will be payable semi-annually
in arrears commencing on January 15, 2002. LIN Television is subject to
compliance with certain financial covenants and other conditions set forth in
offering memorandum. The Notes are subject to early redemption provisions in the
event of a change of control.
Simultaneously with the consummation of the offering of the new Senior
Discount Notes and the new Senior Notes, the Company obtained certain amendments
to its existing Senior Credit Facilities which (i) provided for the adjustment
of certain financial covenants and ratio tests, (ii) provided that $100 million
of the $160 million revolving portion of the Senior Credit Facilities may be
used to fund the $125 million mandatory redemption payment on the existing
Senior Discount Notes due on March 1, 2003 or, subsequent to the funding of the
mandatory redemption payment, to make interest payments on the existing Senior
Discount Notes and (iii) increased certain fees and interest rate spreads. As a
result of the repayment of the term loans under the Senior Credit Facilities,
there is expected to be no required scheduled amortization payments until
December 2005.
The following are the adjustments made to the financial covenant and ratio
tests:
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1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
---- ---- ---- ---- ---- ---- ---- ----
Maximum Leverage Ratio:
Amended 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x 7.40x
Prior 6.75x 6.75x 6.75x 6.75x 6.75x 6.75x 6.40x 6.40x
Minimum Interest Coverage Ratio:
Amended 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x 1.50x
Prior 1.70x 1.70x 1.70x 1.70x 1.75x 1.75x 1.85x 1.85x
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 June
30, 2001, LIN Holdings had approximately $1.1 billion of consolidated
indebtedness and approximately $433.0 million of consolidated stockholders'
equity. LIN Television had approximately $704.5 million of consolidated
indebtedness and approximately $742.0 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, the
Senior Discount Notes, the new Senior Subordinated Notes, and the new 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
establishes a $173.3 million term loan facility and a $160 million
revolving 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
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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 Equity Holdings Corporation 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;
- 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 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
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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 indentures 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 Television's financing documents
(including, without limitation, the credit agreement and the
indentures 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 increasing 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
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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 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.
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.
Recent Accounting Pronouncements. In July 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method
of accounting to be applied for business combinations initiated after June 30,
2001 and eliminates the pooling-of-interest method. The Company does not expect
the application of SFAS 141 to have a material impact on its financial position
or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is generally
effective for the Company from January 1, 2002. SFAS 142 requires, among other
things, the discontinuance of goodwill amortization and the introduction of
impairment testing in its place. In addition, the standard includes provisions
for the reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential
future impairments of goodwill. SFAS 142 also requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
Company is currently assessing, but has not yet determined, the impact of SFAS
142 on its financial position and results of operations.
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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 to its senior credit facility, which is priced based on
certain variable interest rate alternatives (see "Note 8 -- Long-Term Debt" to
our consolidated financial statements for the year ended December 31, 2000).
There was approximately $200.3 million outstanding as of June 30, 2001 under
our senior credit facility.
Accordingly, we are exposed to potential losses related to increases in
interest rates. A hypothetical increase of 1 percent to the floating rate used
as the basis for the interest charged on the senior credit facility in Fiscal
2001 would result in an estimated $2.0 million increase in annualized interest
expense assuming a constant balance outstanding of $200.3 million.
The Company uses derivative instruments to manage this exposure 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
impacts of these exposures.
The Company uses interest rate collar, cap and swap arrangements, not
designated as hedging instruments under SFAS No. 133, in the notional amount of
$160.0 million at June 30, 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 arrangements at June 30, 2001
was a liability of $2.0 million. Interest expense for the three and six-month
periods ended June 30, 2001 includes a loss of $119,000 and $2.0 million,
respectively, 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 June 30, 2001 is likely to have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
10.1 Amended and Restated Credit Agreement dated June 29, 2001
among Registrant, The Chase Manhattan Bank, as administrative
agent, and lenders named therein.
10.2 Indenture dated as of June 14, 2001 among LIN Television
Corporation, as Issuer, and the Guarantors Named Herein and
United States Trust Company of New York, as Trustee.
10.3 Indenture dated as of June 14, 2001 among LIN Holdings Corp.,
as Issuer, and the Guarantors Named Herein and United States
Trust Company of New York, as Trustee.
10.4 Ranger Equity Holdings Corporation Phantom Stock Plan.
REPORTS ON FORM 8-K:
Regulation FD Disclosure on March 26, 2001
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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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