<PAGE>
----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER:
BENEDEK COMMUNICATIONS CORPORATION 333-09529
------------------
BENEDEK COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BENEDEK COMMUNICATIONS CORPORATION
<TABLE>
<S> <C>
DELAWARE 36-4076007
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
------------------
100 PARK AVENUE 61101
ROCKFORD, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 815-987-5350
------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED:
NONE NONE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
100% of the voting common stock of Benedek Communications Corporation is owned
by affiliates.
Indicate the number of shares outstanding of each of Benedek Communications
Corporation's classes of common stock, as of the latest practicable date: At
October 31, 1999, there were outstanding 7,400,000 shares of Class B common
stock, $0.01 par value, and no shares of Class A common stock, $0.01 par value.
===============================================================================
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
ITEM
NUMBER PART I - FINANCIAL STATEMENTS PAGE
- ------ ----
<S> <C>
Item 1. Financial Statements
Introductory Comments ............................................... 2
Benedek Communications Corporation and Subsidiaries Consolidated
Balance Sheets as of December 31, 1998 and September 30, 1999 .. 3
Consolidated Statements of Operations for the Three Months Ended
September 30, 1998 and 1999 ................................... 4
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1998 and 1999 ................................... 5
Consolidated Statements of Stockholders' (Deficit) for the Nine
Months Ended September 30, 1999 ................................ 6
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1999 .................................... 7
Notes to Consolidated Financial Statements .......................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................... 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 23
Item 6. Exhibits and Reports on Form 8-K...................................... 23
Signatures ....................................................................... 24
</TABLE>
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPORTANT EXPLANATORY NOTE:
This Form 10-Q is filed, without audit, pursuant to the Securities Exchange
Act of 1934, as amended, for Benedek Communications Corporation ("Benedek
Communications"). Unless the context otherwise requires, references to the
"Company" refer to Benedek Communications and its wholly-owned subsidiaries,
Benedek Broadcasting Corporation ("Benedek Broadcasting"), Benedek License
Corporation ("BLC"), The WMTV Trust and its subsidiary, WMTV License Co., LLC
("WMTV LLC") and Benedek Cable, Inc. ("BCI"), a non-recourse subsidiary. Benedek
Communications is a holding company with minimal separate operations from its
operating subsidiary, Benedek Broadcasting. All significant intercompany
accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
It is suggested that these Financial Statements be read in conjunction with the
financial information set forth in the Annual Reports on Form 10-K of Benedek
Communications and Benedek Broadcasting, for the fiscal year ended December 31,
1998.
-2-
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
----------------- ------------------
(Unaudited)
(In thousands, except share
ASSETS and per share data)
<S> <C> <C>
Current Assets
Cash and cash equivalents ...................................... $ 4,291 $ 4,052
Receivables.....................................................
Trade, net ................................................. 25,984 24,921
Other ...................................................... 1,389 1,789
Current portion of program broadcast rights .................... 4,878 7,738
Prepaid expenses ............................................... 1,623 2,094
Deferred income taxes .......................................... 1,191 1,001
--------- ---------
Total current assets .............................. 39,356 41,595
--------- ---------
Property and equipment ............................................... 62,627 62,917
--------- ---------
Intangible assets .................................................... 335,634 347,741
--------- ---------
Other assets
Program broadcast rights, less current portion ................. 1,198 2,220
Deferred loan costs ............................................ 8,475 6,849
Land held for sale ............................................. 109 109
Other .......................................................... 63 63
--------- ---------
9,845 9,241
--------- ---------
$ 447,462 $ 461,494
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities
Current maturities of notes payable ............................ $ 15,911 $ 1,179
Current program broadcast rights payable ....................... 6,994 9,792
Accounts payable and accrued expenses .......................... 11,977 7,162
Deferred revenue ............................................... 644 555
--------- ---------
Total current liabilities ......................... 35,526 18,688
--------- ---------
Long-Term Obligations
Notes and leases payable ....................................... 358,905 417,962
Program broadcast rights payable ............................... 891 1,983
Deferred revenue ............................................... 2,994 2,550
Deferred income taxes .......................................... 33,765 24,901
--------- ---------
396,555 447,396
--------- ---------
Exchangeable redeemable senior preferred stock ....................... 107,596 118,323
--------- ---------
Seller junior discount preferred stock ............................... 55,048 58,383
--------- ---------
Stockholders' (Deficit)
Common stock, Class A $0.01 par value, 10,000,000
authorized, none issued or outstanding ..................... -- --
Common stock, Class B $0.01 par value, 10,000,000
authorized, 7,400,000 issued and outstanding ............... 74 74
Additional paid-in capital ..................................... (59,549) (63,838)
Accumulated deficit ............................................ (87,200) (116,919)
Stockholder's note receivable .................................. (588) (613)
--------- ---------
(147,263) (181,296)
--------- ---------
$ 447,462 $ 461,494
========= ==========
</TABLE>
-3-
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------
1998 1999
-------------------- -----------------
(Unaudited)
(In thousands, except share
and per share data)
<S> <C> <C>
Net revenues ......................................................... $ 31,889 $ 33,208
----------- -----------
Operating expenses:
Selling, technical and program expenses ........................
General and administrative ..................................... 5,013 5,655
Depreciation and amortization .................................. 7,642 5,464
Corporate ...................................................... 1,080 1,089
----------- -----------
13,735 12,208
----------- -----------
Operating income .................................. 2,102 5,318
----------- -----------
Financial income (expense):
Interest expense
Cash interest .............................................. (6,751) (5,730)
Other interest ............................................. (4,306) (5,518)
----------- -----------
(11,057) (11,248)
Interest income ................................................ 34 80
----------- -----------
(11,023) (11,168)
Loss on sale of satellite station .................................... -- (220)
----------- -----------
(Loss) before income tax benefit and extraordinary item ........ (8,921) (6,070)
Income tax benefit (expense) ......................................... 2,799 (60)
----------- -----------
(Loss) before extraordinary item ............................... (6,122) (6,130)
Extraordinary item, loss on early extinguishment of debt
less applicable income taxes of $1 ......................... -- (2)
----------- -----------
Net (loss) ..................................................... (6,122) (6,132)
Preferred stock dividends and accretion .............................. (3,936) (4,697)
----------- -----------
Net (loss) applicable to common stock ................................ $ (10,058) $ (10,829)
=========== ===========
Basic and diluted (loss) per common share:
(Loss) before extraordinary item ............................... $ (1.36) $ (1.46)
Extraordinary item ............................................. -- --
----------- -----------
(Loss) per common share ........................................ $ (1.36) $ (1.46)
=========== ===========
Weighted-average common shares outstanding ........................... 7,400,000 7,400,000
=========== ===========
</TABLE>
-4-
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
1998 1999
------------------- -----------------
(Unaudited)
(In thousands, except share
and per share data)
<S> <C> <C>
Net revenues ............................................................ $ 98,896 $ 102,727
----------- -----------
Operating expenses:
Selling, technical and program expenses ........................... 47,444 46,777
General and administrative ........................................ 15,315 17,766
Depreciation and amortization ..................................... 23,075 20,037
Corporate ......................................................... 3,671 3,416
----------- -----------
89,505 87,996
----------- -----------
Operating income .................................... 9,391 14,731
----------- -----------
Financial income (expense)
Interest expense
Cash interest ................................................ (20,428) (19,300)
Other interest ............................................... (12,562) (13,750)
----------- -----------
(32,990) (33,050)
Interest income ................................................... 457 153
----------- -----------
(32,533) (32,897)
Gain on sale of stations, net ........................................... -- 13,303
----------- -----------
(Loss) before income tax benefit and extraordinary item ........... (23,142) (4,863)
Income tax benefit ...................................................... 7,890 30
----------- -----------
(Loss) before extraordinary item .................................. (15,252) (4,833)
Extraordinary item, loss on early extinguishment of debt
less applicable income taxes of $8,121 ....................... -- (12,182)
----------- -----------
Net (loss) ........................................................ (15,252) (17,015)
Preferred stock dividends and accretion ................................. (25,813) (14,063)
----------- -----------
Net (loss) applicable to common stock ................................... $ (41,065) $ (31,078)
=========== ===========
Basic and diluted (loss) per common share:
(Loss) before extraordinary item .................................. $ (5.55) $ (2.55)
Extraordinary item ................................................ -- (1.65)
----------- -----------
(Loss) per common share ........................................... $ (5.55) $ (4.20)
=========== ===========
Weighted-average common shares outstanding .............................. 7,400,000 7,400,000
=========== ===========
</TABLE>
-5-
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Additional Stockholder's
Common Paid-In Accumulated Note
Stock Capital Deficit Receivable Total
---------- ----------- ------------- -------------- -------------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ................ $ 74 $ (59,549) $ (87,200) $ (588) $ (147,263)
Accretion to exchangeable
redeemable senior preferred
stock ............................ -- (1,358) -- -- (1,358)
Dividends on preferred stock .......... -- -- (12,704) -- (12,704)
Financial costs related to the sale
of preferred stock ............... -- (1) -- -- (1)
Purchase and retirement of warrants ... -- (2,955) -- -- (2,955)
Accrued interest on note receivable ... -- 25 -- (25) --
Net (loss) ............................ -- -- (17,015) -- (17,015)
--------- --------- ----------- ------------- ---------
Balance at September 30, 1999 ............... $ 74 $ (63,838) $(116,919) $ (613) $ (181,296)
========= ========= =========== ============= =========
</TABLE>
-6-
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1998 1999
------------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from operating activities
Net (loss) ................................................................... $ (15,252) $ (17,015)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Amortization of program broadcast rights ....................... 4,992 5,858
Depreciation and amortization .................................. 15,815 12,669
Amortization and write-offs of intangibles and
deferred loan costs ........................................ 8,758 8,802
Loss on early extinguishment of debt ........................... -- 20,302
Gain on sale of stations, net .................................. -- (13,303)
Amortization of note discount .................................. 11,103 12,778
Deferred income taxes .......................................... (7,994) (8,671)
Other .......................................................... (564) (137)
Changes in operating assets liabilities, net of effects of acquisitions
Receivables .................................................................. 4,245 662
Prepaid expenses and other ................................................... (156) (471)
Payments on program broadcast rights payable ................................. (4,888) (5,841)
Accounts payable and accrued expenses ........................................ (4,926) (4,786)
Deferred revenue ............................................................. (516) (534)
----------------- ---------
Net cash provided by operating activities ...................... 10,617 10,313
----------------- ---------
Cash flows from investing activities
Purchase of property and equipment ........................................... (5,094) (6,376)
Payment for acquisition of station ........................................... -- (9,501)
Proceeds from sale of station ................................................ -- 215
Other ........................................................................ 117 46
----------------- ---------
Net cash (used in) investing activities ........................ (4,977) (15,616)
----------------- ---------
Cash flows from financing activities
Principal payments on notes payable .......................................... (2,285) (903)
Net borrowings (payments) on long-term revolver .............................. (6,000) 55,000
Proceeds from senior preferred stock ......................................... 100,000 --
Payoff of senior preferred stock ............................................. (92,768) --
Issuance of term loan ........................................................ -- 220,000
Redemption of Senior Secured Notes ........................................... -- (149,936)
Payment of existing term loan ................................................ -- (108,317)
Redemption of discount notes ................................................. -- (2,591)
Redemption of warrants ....................................................... -- (2,955)
Payment of debt and preferred stock acquisition costs ........................ (4,297) (5,234)
----------------- ---------
Net cash provided by (used in) financing activities ............ (5,350) 5,064
----------------- ---------
Increase (decrease) in cash and cash equivalents ............... 290 (239)
Cash and cash equivalents:
Beginning .................................................................... 2,648 4,291
----------------- ---------
Ending ....................................................................... $ 2,938 $ 4,052
----------------- ---------
</TABLE>
-7-
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1999
-------- ----------
(Unaudited)
(In thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash payments for interest ................................... $ 24,489 $ 24,322
Cash payments for income taxes ............................... 307 588
======== ========
Supplemental schedule of noncash investing and financing activities:
Acquisition of program broadcast rights ...................... $ 6,050 $ 9,371
Notes payable incurred for purchase of equipment ............. 2,667 3,358
Equipment acquired by barter transactions .................... 775 156
Dividends accrued on redeemable preferred stock .............. 11,764 12,704
Accrued interest on note receivable stockholder
added to additional paid-in capital ...................... -- 25
Accretion to exchangeable redeemable senior
preferred stock .......................................... 14,019 1,358
-------- --------
Stock options exercised in exchange for note receivable ...... 571 --
======== ========
Total purchase price ............................................... $ -- $ 33,832
Less:
Amount paid in 1998 ...................................... -- (59)
Fair market value of KCOY-TV ............................. -- (24,272)
-------- --------
Payment for acquisition of station .................. $ -- $ 9,501
======== ========
Property and equipment acquired at fair market value ............... $ -- $ 6,255
Intangible assets acquired ......................................... -- 27,577
-------- --------
Less: ........................................................ -- 33,832
Amount paid in 1998 ...................................... -- (59)
Fair market value of KCOY-TV ............................. -- (24,272)
-------- --------
$ -- $ 9,501
======== ========
</TABLE>
-8-
<PAGE>
BENEDEK COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE A) - NATURE OF BUSINESS AND BASIS OF PRESENTATION
NATURE OF BUSINESS
Benedek Communications is a holding company with minimal operations other
than from its wholly-owned subsidiary, Benedek Broadcasting. Benedek
Broadcasting owns and operates twenty-three television stations (the "Stations")
located throughout the United States. The operating revenues of the Stations are
derived primarily from the sale of advertising time and, to a lesser extent,
from compensation paid by the networks for broadcasting network programming and
barter transactions for goods and services. The Stations sell commercial time
during the programs to national, regional and local advertisers. The networks
also sell commercial time during the programs to national advertisers. Credit
arrangements are determined on an individual customer basis. Segment information
is not presented since all of the Company's revenue is attributed to a single
reportable segment.
BASIS OF PRESENTATION
The consolidated financial statements of Benedek Communications include the
accounts of Benedek Communications and its wholly-owned subsidiaries, Benedek
Broadcasting, BLC, BCI and The WMTV Trust and its subsidiary. All significant
intercompany items and transactions have been eliminated in the consolidated
financial statements.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for the fair presentation of the
financial positions as of September 30, 1999 and the results of operations for
the three months and nine months ended September 30, 1999 have been included.
Operating results for the three months and nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Annual
Report on Form 10-K of the Company for the year ended December 31, 1998.
(NOTE B) - STATION SWAP AND SALE OF SATELLITE STATION
On December 30, 1998, the Company entered into an Asset Exchange Agreement
with The Ackerley Group, Inc. ("Ackerley") pursuant to which the Company
exchanged the television broadcast assets of KCOY-TV, in Santa Maria, California
("KCOY-TV") for the television broadcast assets of KKTV, Ackerley's station in
Colorado Springs, Colorado ("KKTV"). Both KCOY-TV and KKTV are CBS affiliates.
The exchange was completed on May 1, 1999.
The parties entered into a time brokerage agreement for each station, in
effect from January 1, 1999 until April 30, 1999. During the time brokerage
period, the revenue and expenses of each station went to the account of the
buyer, net of applicable time brokerage fees. The net time brokerage fee expense
was $508,000 for the nine months ended September 30, 1999.
-9-
<PAGE>
The total purchase price for KKTV was $33,832,000 which consisted of the
fair market value of KCOY-TV of $24,272,000, cash payment of $9,000,000 and fees
of $560,000. The transaction was recorded as a purchase. The purchase price was
allocated to fixed assets in the amount of $6,255,000 and intangibles in the
amount of $27,577,000.
A gain on sale of station in the amount of $13,511,000 was recorded to
reflect the transfer of assets to Ackerley of KCOY-TV which consisted of the net
of the fair market value of the KCOY-TV assets of $24,272,000 less their book
value of $10,749,000 and fees associated with the transaction.
During September 1999, a loss in the amount of $208,000 was recorded to
reflect the sale of KTVS-TV, Sterling, Colorado ("KTVS-TV") which was a
satellite operation of KGWN-TV Cheyenne, Wyoming ("KGWN-TV"). The Company sold
KTVS-TV due to the fact that KTVS-TV is outside of the KGWN-TV designated market
area and to reduce costs.
(NOTE C) - LOSS ON EARLY EXTINGUISHMENT OF DEBT
On April 16, 1999, the Company commenced a tender offer and consent
solicitation (the "Offer") for any and all of the $135,000,000 in outstanding
principal amount of its 11 7/8% Senior Secured Notes due 2005 ("the Notes"). The
total consideration for each of $1,000 principal of Notes was $1,105.78 which
consisted of the Offer price per $1,000 principal of Notes of $1,075.78 and a
consent payment of $30 per $1,000 principal amount of Notes.
On May 20, 1999, the Company redeemed all of the outstanding Notes. The
offer was financed through a new senior credit facility. A total of $12,182,000
(net of $8,121,000 of applicable income taxes) was reflected as a loss on the
early extinguishment of debt which was comprised of prepayment premiums, consent
payments, expenses of the transaction and a write-off of unamortized fees
associated with the Notes.
(NOTE D) - REFINANCING
On May 20, 1999, the Company borrowed $275,000,000 against a new credit
facility (the "Credit Facility") with an aggregate borrowing limit of
$310,000,000. The proceeds were used by the Company to finance the tender Offer
of the Notes and pay-off its existing credit facility.
The Credit Facility includes a $220,000,000 term loan (the "Term Loan") and
a $90,000,000 revolver (the "Revolver") of which $35,000,000 was unused at
September 30, 1999. The Term Loan and the Revolver bear interest initially at
the Company's option, at a base rate plus 2.25% and 1.75%, respectively or at a
LIBOR rate plus 3.25% or 2.75%, respectively. The margins above the base rate
and the LIBOR rate at which the Term Loans and the Revolver bear interest are
subject to reductions based on certain leverage ratios. The unused portion of
the Revolver is subject to a commitment fee ranging from 0.75% per annum to
0.375% per annum based on certain leverage ratios.
The Company is required to make scheduled amortization payments on the Term
Loan, as follows: 2002- $1,650,000; 2003-$2,200,000; 2004 - $2,200,000; 2005 -
$2,200,000; 2006 - $2,200,000 and 2007 - $209,550,000. In addition, the Company
is required to make prepayments on the Term Loan and the Revolver under certain
circumstances, including upon the sale of certain assets and the issuance of
certain debt or equity securities. Beginning in 2002, the Company is required to
make prepayments on the Term Loan and the Revolver in an amount equal to 50% of
excess cash flow (as defined).
-10-
<PAGE>
The commitment under the Revolver will be permanently reduced over the
period from June 2002 to maturity in 2007, as follows: 2002 - $10,125,000; 2003
- - $13,500,000; 2004 - $16,875,000; 2005 - $21,375,000; 2006 - $22,500,000 and
2007 - $5,625,000. In addition, the commitment under the Revolver will be
permanently reduced in certain circumstances including upon the sales of certain
assets and the issuance of certain debt or equity securities and excess cash
flow (as defined). The Company has the right to pay the Revolver without penalty
in increments of $1,000,000, at which time the commitment will be permanently
reduced.
The Credit Facility contains certain financial covenants, including, but
not limited to, covenants related to interest coverage, total and senior
leverage ratios and fixed charge ratio. In addition, the Credit Facility
contains other affirmative and negative covenants relating to (among other
things) liens, payments on other debt, restricted junior payments (excluding
distributions from Benedek Broadcasting to Benedek Communications) transactions
with affiliates, mergers and acquisitions, sales of assets, guarantees and
investments. The Credit Facility contains customary events of default for
highly-leveraged financings, including certain changes in ownership or control
of the Company.
The Credit Facility is secured by certain of the Company's present and
future property and assets. The Credit Facility is also guaranteed by BLC, a
wholly-owned subsidiary of Benedek Broadcasting that holds the FCC licenses and
authorizations for the stations, and is secured by all of the common stock of
BLC. The Credit Facility is also guaranteed by WMTV LLC, a wholly owned
subsidiary of the WMTV Trust. WMTV LLC holds the FCC license for WMTV, Madison,
Wisconsin.
(NOTE E) - INTEREST RATE CAP
During August 1999, the Company entered into an interest rate cap agreement
which matures in September 2001, to reduce the impact of changes in interest
rates on its floating-rate long-term debt. That agreement effectively entitles
the Company to receive from a financial institution the amount, if any, by which
the British Bankers' Association interest settlement rates for U.S. dollar
deposits exceeds 8.0% on a notional amount totaling $70,000,000 subject to an
amortization schedule. The $168,000 premium paid for this interest rate cap is
being amortized ratably to interest expense over the 24-month term of the cap,
and is reported as another asset in the accompanying consolidated balance
sheets.
Although the Company is exposed to credit loss in the event of
nonperformance by the counterparty on the interest rate cap, management does not
expect nonperformance by the counterparty.
(NOTE F) - REPURCHASE OF DISCOUNT NOTES
During July 1999, the Company acquired a portion of its 13 1/4% Senior
Subordinated Discount Notes (the "Discount Notes") with a face amount of
$3,000,000. The Discount Notes had an accreted value of $2,371,000 and were
purchased for a total of $2,591,000.
(NOTE G) - REPURCHASE OF WARRANTS
During September 1999, the Company acquired its warrants to purchase an
aggregate of 185,000 shares of the Class A Common Stock (the "Warrants") for an
aggregate amount of $2,955,000. At September 30, 1999 there remained 365,000
outstanding Warrants which expire July 1, 2007. Each Warrant entitles the holder
thereof to purchase one share of Class A common stock at an exercise price of
$0.01 per share.
-11-
<PAGE>
(NOTE H) - STOCK OPTION PLAN
In December 1998, the Company's Board of Directors (the "Board") adopted
the 1999 Stock Option Plan (the "Plan") whereby from time to time on or before
December 31, 2008, options to purchase shares of Class B Common Stock may be
granted to employees, directors or consultants and advisors of the Company and
its subsidiaries. The aggregate number of shares of common stock which may be
purchased pursuant to options granted at any time under the Plan shall not
exceed 240,000. The purchase price per share shall be the fair market value, as
defined by the Plan, or an amount determined by the Board.
On January 1, 1999, the Board granted options to purchase a total of
165,000 shares of Class B Common Stock at a price of $15 per share to several
key employees. The options vest over six years at 10% for the first three years,
20% in 2002 and 25% for each of 2003 and 2004.
(NOTE I) - PENDING ADOPTION OF ACCOUNTING STANDARD
The FASB (Financial Accounting Standards Board) has issued FASB statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities" which the
Company will be required to adopt for its year ending December 31, 2001, as
amended by FASB statement No. 137. This pronouncement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This pronouncement is not
expected to have a significant impact on the Company's financial statements.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. Wherever possible, the Company has identified
these forward looking statements by words such as "anticipates," "believes,"
"estimates," " expects" and similar expressions. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including changes in national and regional economies,
competition in the television business, pricing fluctuations in local and
national advertising, program ratings and changes in programming costs, among
other factors. The Company assumes no obligation to update publicly any forward
looking statements, whether as a result of new information, future events or
otherwise.
Except as otherwise provided, the financial data set forth below is derived
from the historical financial statements of the Company prepared in accordance
with generally accepted accounting principles. Such historical financial data
includes the results of operations of KKTV which was operated under a time
brokerage agreement (a "TBA") with Ackerley from January 1, 1999 until closing,
net of the fees associated with such TBA. The historical financial data also
includes the limited operating results and TBA fee revenue of KCOY-TV which was
being operated by Ackerley under a TBA from January 1, 1999 until closing.
KCOY-TV was exchanged for KKTV in a transaction which closed on May 1, 1999. As
used herein, "Same Station" data refers to the historical results of operations
of all 23 television stations currently operated by the Company as if such
stations were owned by the Company throughout the periods indicated with pro
forma adjustments only for TBA fees and revenue. Same Station information
excludes the results of BCI, a nonrecourse subsidiary. Same Station information
does not purport to represent what the Company's results of operations would
have been if such transactions had been effected at the beginning of such
periods and does not purport to project results of operations of the Company in
any future period.
Broadcast cash flow is defined as operating income, excluding net income of
nonrecourse subsidiaries, before financial income as derived from the
consolidated statements of operations plus depreciation and amortization,
amortization of program broadcast rights, corporate expenses and noncash
compensation less payments for program broadcast rights. The Company has
included broadcast cash flow data because (i) the information is a measurement
utilized by lenders to measure the Company's ability to service its debt and pay
for capital expenditures, (ii) the information is a measurement utilized by
industry analysts to determine a market value of the Company's television
stations and (iii) the information is a measurement industry analysts utilize
when evaluating and comparing the operating performance of the Company.
Broadcast cash flow does not purport to represent cash provided by operating
activities as reflected in the Company's Consolidated Financial Statements, is
not a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. Broadcast cash flow is also not reflected in the
Company's consolidated statements of cash flows; but it is a common and
meaningful measure for comparison to other companies in the broadcast industry.
The amounts excluded from broadcast cash flow are significant components in
understanding and assessing the Company's results of operations and cash flows.
The term "broadcast cash flow" may not be the same terminology utilized by other
companies in the presentation of similar information.
Adjusted EBITDA is defined as operating income, excluding net income of
nonrecourse subsidiaries, before financial income as derived from the
consolidated statements of operations plus depreciation and amortization,
amortization of program broadcast rights and noncash compensation less payments
for program broadcast rights. The Company has included Adjusted EBITDA data
because (i) the information is a measurement utilized by lenders to measure the
Company's ability to service its debt and
-13-
<PAGE>
pay for capital expenditures, (ii) the information is a measurement utilized by
industry analysts to determine a private market value of the Company's
television stations and (iii) the information is a measurement industry analysts
utilize when evaluating and comparing the operating performance of the Company.
Adjusted EBITDA does not purport to represent cash provided by operating
activities as reflected in the Company's Consolidated Financial Statements, is
not a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. Adjusted EBITDA is also not reflected in the Company's
consolidated statements of cash flows; but it is a common and meaningful measure
for comparison to other companies in the broadcast industry. The amounts
excluded from Adjusted EBITDA are significant components in understanding and
assessing the Company's results of operations and cash flows. The term "Adjusted
EBITDA" may not be the same terminology utilized by other companies in the
presentation of similar information.
The Company believes that Adjusted EBITDA and broadcast cash flow
information discussed below provide meaningful information as to the performance
of the television stations owned by the Company, particularly information that
is presented on a Same Station basis. Changes from year to year indicate how the
Company has performed in its efforts to increase net sales and manage expenses
on an operating basis.
The Company owns 23 network-affiliated television stations (the "Stations")
in the United States. The Stations are diverse in geographic and network
affiliation, serve small to medium-sized markets and, in the aggregate, reach
communities in 24 states. The Company's broadcast signals reach approximately
2.9 million households, representing more than 20% of all television households
in the markets above 100. Twelve of the Stations are affiliated with CBS, nine
are affiliated with ABC, four are affiliated with NBC, and one is affiliated
with Fox.
During September 1998, the Company began delivering The Warner Bros.
Television Network programming to local cable companies in 15 of the Company's
20 markets which rank above market 100 as measured by Nielsen surveys. These
local affiliates are called the "WeB" and are operated by a newly-formed
wholly-owned subsidiary of Benedek Broadcasting called BCI. The WeB is a 24
hour, seven day a week television channel which broadcasts The Warner Bros.
Television Network prime time programming, WB Kids children's programming and
syndicated programming of Warner Bros. and others. The Company is continuing its
negotiations with cable systems in its markets for the carriage of WeB
programming to all households within its WeB markets. The WeB's impact on the
Company's operations for the three months and the nine months ended September
30, 1999 was insignificant and is expected to be insignificant for the balance
of 1999. For purposes of the Company's Adjusted EBITDA, the results of
operations of BCI are excluded due to its status as a nonrecourse subsidiary.
On December 30, 1998, the Company entered into an Asset Exchange Agreement
with Ackerley pursuant to which it agreed to exchange the television broadcast
assets of KCOY-TV for the television broadcast assets of KKTV. Both KCOY-TV and
KKTV are CBS affiliates. The exchange was completed on May 1, 1999. The
transaction was structured, to the extent feasible, as a tax-free exchange
pursuant to Section 1031 of the Internal Revenue Code. The parties also entered
into a time brokerage agreement for each station, in effect from January 1, 1999
until the closing. During the time brokerage period, the revenues and expenses
of each station went to the account of the buyer, net of applicable time
brokerage fees. The net time brokerage fee expense was $0.5 million for the nine
months ended
-14-
<PAGE>
September 30, 1999. The total purchase price for KKTV was $33.8 million which
consisted of the fair market value of KCOY-TV of $24.3 million, cash payment of
$9.0 million, and fees of $0.5 million. The transaction was recorded as a
purchase. The purchase price was allocated to fixed assets in the amount of $6.2
million and intangibles in the amount of $27.6 million. A gain in the amount of
$13.5 million was recorded to reflect the transfer of assets to Ackerley of
KCOY-TV which consisted of the fair market value of the KCOY-TV assets of $24.3
million less their book value of $10.8 million and fees associated with the
transaction.
During October 1998, the Company transferred WMTV-TV, the Company's station
in Madison, Wisconsin to a trust (the "WMTV Trust") due to the Grade A broadcast
signal overlap between WMTV-TV and WIFR-TV, the Company's station in Rockford,
Illinois. Under the trust arrangement, the Company relinquished control of
WMTV-TV to a trustee while retaining the economic risks and benefits of
ownership. On August 5, 1999, the FCC approved new duopoly rules which will
enable the company to own both WMTV-TV and WIFR-TV. As a result, the Company
anticipates terminating the WMTV Trust upon FCC approval of the Company's
application which cannot be filed prior to November 1999 pursuant to an FCC
administrative ruling.
The operating revenues of the Company are derived primarily from the sale
of advertising time and, to a lesser extent, from compensation paid by the
networks for broadcasting network programming and barter transactions for goods
and services. Revenue depends on the ability of the Company to provide popular
programming which attracts audiences in the demographic groups targeted by
advertisers, thereby allowing the Company to sell advertising time at
satisfactory rates. Revenue also depends significantly on factors such as the
national and local economy and the level of local competition.
The Company's primary operating expenses are employee compensation,
programming, depreciation and amortization. Changes in compensation expense
result primarily from adjustments to fixed salaries based on employee
performance and inflation and, to a lesser extent, from changes in sales
commissions paid based on levels of advertising revenues. Programming expense
consists primarily of amortization of program rights. The Company purchases
first run and off-network syndicated programming on an ongoing basis. Under its
contract with the network, a network-affiliated station receives approximately
two-thirds of its daily programming from its network and in turn is compensated,
in most cases, by its network for carrying such programming with the network's
commercial content intact.
For the three months ended September 30, 1999, the Company reported net
revenues of $33.2 million compared to net revenues of $31.9 million for the
three months ended September 30, 1998. The Company had a net loss of $6.1
million for the three months ended September 30, 1999, compared to a net loss of
$6.1 million for the three months ended September 30, 1998. Adjusted EBITDA for
the three months ended September 30, 1999 was $10.9 million as compared to $10.0
million for the three months ended September 30, 1998.
For the nine months ended September 30, 1999, the Company reported net
revenues of $102.7 million compared to net revenues of $98.9 million for the
nine months ended September 30, 1998. The Company had a net loss of $17.0
million for the nine months ended September 30, 1999, compared to a net loss of
$15.3 million for the nine months ended September 30, 1998. Adjusted EBITDA for
the nine months ended September 30, 1999 was $33.6 million as compared to $33.7
million for the nine months ended September 30, 1998.
-15-
<PAGE>
The following table sets forth certain historical results of the operations
and operating data for the periods indicated. The table reflects the operating
effects of the TBA's associated with the exchange of KCOY-TV for KKTV (the
"Station Swap") only since January 1, 1999.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------- ---------------------------------
1998 1999 1998 1999
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Operating income ................................. $ 2,102 $ 5,318 $ 9,391 $ 14,731
Add:
Amortization of program broadcast
rights ............................ 1,672 1,975 4,993 5,858
Depreciation and amortization .......... 7,641 5,465 23,074 20,037
Corporate expenses ..................... 1,081 1,089 3,671 3,416
Operating loss of nonrecourse subsidiary -- 41 -- 135
Less:
Payment for program
broadcast liabilities ............. (1,361) (1,851) (4,887) (5,841)
-------- -------- -------- --------
Broadcast cash flow(1)............................ $ 11,135 $ 12,037 $ 36,242 $ 38,336
======== ======== ======== ========
</TABLE>
(1) Excludes BCI, a nonrecourse subsidiary
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
The following table provides both historical information and Same Station
information for the three months ended September 30, 1998 and 1999. The Same
Station information gives effect to the Station Swap as if the exchange was
consummated on January 1, 1998.
<TABLE>
<CAPTION>
Historical Same Station
Three Months Ended September 30, Three Months Ended September 30,
---------------------------------------- --------------------------------------
% %
1998 1999 Change 1998 1999 Change
---- ---- ------ ---- ---- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Local/regional .................... $ 19,401 $ 22,121 14.0% $ 20,198 $ 22,019 9.0%
National .......................... 9,627 11,614 20.6 10,542 11,587 9.9
Political ......................... 2,626 347 (86.8) 2,584 347 (86.6)
Other ............................. 5,005 4,336 (13.4) 4,997 4,323 (13.5)
-------- -------- ----- ------- -------- -----
36,659 38,418 4.8 38,321 38,276 (0.1)
Direct costs ...................... 4,770 5,210 9.2 5,065 5,175 2.2
-------- -------- ----- ------- -------- -----
Net revenues ...................... 31,889 33,208 4.1 33,256 33,101 (0.5)
Operating expenses:
Selling, technical and
program expenses ....... 16,052 15,682 (2.3) 16,578 15,564 (6.1)
General and administrative .. 5,013 5,655 12.8 5,215 5,624 7.8
Depreciation and amortization 7,642 5,464 28.5 7,512 5,465 (27.2)
Corporate ................... 1,080 1,089 0.8 1,087 1,089 0.2
-------- -------- ----- ------- -------- -----
29,787 27,890 (6.4) 30,392 27,742 (8.7)
-------- -------- ----- ------- -------- -----
Operating income ............ $ 2,102 $ 5,318 153.0% $ 2,864 $ 5,359 87.2%
======== ======== ===== ======== ======== =====
Broadcast cash flow(1)............. $ 11,135 $ 12,037 8.1% $ 11,754 $ 12,037 2.4%
Broadcast cash flow margin ........ 34.9% 36.2% 35.3% 36.2%
Adjusted EBITDA(1)................. $ 10,055 $ 10,948 8.9% $ 10,667 $ 10,948 2.6%
Adjusted EBITDA margin(1).......... 31.5% 33.0% 32.1% 33.0%
</TABLE>
(1) Excludes BCI, a nonrecourse subsidiary
-16-
<PAGE>
Net revenues for the three months ended September 30, 1999 increased $1.3
million or 4.1% to $33.2 million from $31.9 million for the three months ended
September 30, 1998. Net revenues excluding political advertising revenue
increased $3.6 million or 12.3% to $32.9 million from $29.3 million for the
three months ended September 30, 1999. The increase was primarily caused by the
effect of the Station Swap and an increase in advertising demand which offset
the decline in political advertising. On a Same Station basis, net revenues for
the three months ended September, 1999 were $33.1 million as compared to $33.3
million for the three months ended September 30, 1998 despite a decline of $2.2
million in political advertising revenue.
Operating expenses for the three months ended September 30, 1999 decreased
$1.9 million or 6.4% to $27.9 million from $29.8 million for the three months
ended September 30, 1998. The decrease in operating expenses was attributable
primarily to reductions in depreciation and amortization and decreased
payroll-related costs which were offset in part by the effect of the Station
Swap. On a Same Station basis, operating expenses for the three months ended
September 30, 1999 decreased $2.7 million or 8.9% to $27.7 million from $30.4
million for the three months ended September 30, 1998 resulting primarily from
decreased payroll-related costs and depreciation and amortization.
Operating income for the three months ended September 30, 1999 increased
$3.2 million or 153.0% to $5.3 million from $2.1 million for the three months
ended September 30, 1998. On a Same Station basis, operating income for the
three months ended September 30, 1999 increased $2.5 million or 87.2% to $5.4
million from $2.9 million for the three months ended September 30, 1998.
Financial (expenses), net for the three months ended September 30, 1999
increased $0.2 million or 1.8% to $11.2 million from $11.0 million for the
three months ended September 30, 1998.
Loss on satellite station sale of $0.2 million was primarily the result of
the sale of KTVS-TV which was sold during September 1999. KTVS-TV was a
satellite operation of KGWN-TV. The Company sold KTVS-TV due to the fact that
KTVS-TV is outside of the designated market area (as defined by A. C. Nielsen
Company) and to reduce costs.
Income tax expense for the Company for the three months ended September 30,
1999 was $0.1 million compared to a $2.8 million income tax benefit for the
three months ended September 30, 1998.
Net loss for the Company for the three months ended September 30, 1999
was $6.1 million as compared to $6.1 million net loss for the three months
ended September 30, 1998.
Broadcast cash flow for the three months ended September 30, 1999 increased
$0.9 million or 8.1% to $12.0 million from $11.1 million for the three months
ended September 30, 1998. As a percentage of net revenues, broadcast cash flow
margin increased to 36.2% for the three months ended September 30, 1999 from
34.9% for the three months ended September 30, 1998.
On a Same Station basis, broadcast cash flow for the three months ended
September 30, 1999 increased $0.4 million or 2.4% to $12.0 million from $11.8
million for the three months ended September 30, 1998. As a percentage of net
revenues, broadcast cash flow margin on a Same Station basis increased to 36.2%
for the three months ended September 30, 1999 from 35.3% for the three months
ended September 30, 1998.
-17-
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
The following table provides both historical information and Same Station
information for the nine months ended September 30, 1998 and 1999. The Same
Station information gives effect to the Station Swap as if the exchange was
consummated on January 1, 1998.
<TABLE>
<CAPTION>
Historical Same Station
Nine Months Ended September 30, Nine Months Ended September 30,
------------------------------- --------------------------------
% %
1998 1999 Change 1998 1999 Change
---- ---- ------ ---- ---- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Local/regional .............................. $ 62,450 $ 67,231 7.7% $ 64,676 $ 67,055 3.7%
National .................................... 31,470 36,390 15.6 33,946 36,352 7.1
Political ................................... 4,731 721 (84.8) 4,032 721 (82.1)
Other ....................................... 15,010 14,306 (4.7) 14,969 13,461 (10.1)
--------- --------- ----- -------- -------- -----
113,661 118,648 4.4 117,623 117,589 0.0
Direct costs ................................ 14,765 15,921 7.8 15,442 15,860 2.7
--------- --------- ----- -------- -------- -----
Net revenues ................................ 98,896 102,727 3.9 102,181 101,729 (0.4)
Operating expenses:
Selling, technical & program
expenses .......................... 47,444 46,777 (1.4) 49,181 46,755 (4.9)
General and administrative ............ 15,315 17,766 16.0 15,724 16,067 2.2
Depreciation and amortization ......... 23,075 20,037 (13.2) 22,664 19,709 (13.0)
Corporate ............................. 3,671 3,416 (6.9) 3,690 3,416 (7.4)
--------- --------- ----- -------- -------- -----
89,505 87,996 (1.7) 91,259 85,947 (5.8)
--------- --------- ----- -------- -------- -----
Operating income ......... $ 9,391 $ 14,731 56.9% $10,922 $ 15,782 44.5%
========= ========= ===== ======== ======== =====
Broadcast cash flow(1) ...................... $ 36,242 $ 38,336 5.8% $37,372 $ 38,976 4.3%
Broadcast cash flow margin(1) ............... 36.6% 37.3% 36.6% 38.3%
Adjusted EBITDA(1) .......................... $ 32,570 $ 34,920 7.2% $33,681 $ 35,560 5.6%
Adjusted EBITDA margin(1) ................... 32.9% 34.0% 33.0% 35.0%
(1) Excludes BCI, a nonrecourse subsidiary
</TABLE>
Net revenues for the nine months ended September 30, 1999 increased $3.7
million or 3.9% to $102.7 million from $99.0 million for the nine months ended
September 30, 1998. Net revenues excluding political advertising revenue
increased $7.8 million or 8.3% to $102.0 million from $94.2 million for the nine
months ended September 30, 1999. On a Same Station basis, net revenues for the
nine months ended September 30, 1999 were $101.7 million as compared to $102.2
million for the nine months ended September 30, 1998. Net revenues for the nine
months ended September 30, 1999 reflected an increase in advertising demand
which offset the absence of Winter Olympics on the Company's 12 CBS stations and
a decline in political advertising both of which positively affected the nine
months ended September 30, 1998.
Operating expenses for the nine months ended September 30, 1999 decreased
$1.5 million or 1.7% to $88.0 million from $89.5 million for the nine months
ended September 30, 1998. The decrease in operating expenses was attributable to
a decrease in depreciation and amortization and payroll-related costs which were
offset in part by increased costs due to the effect of the Station Swap. On a
Same Station basis, operating expenses for the nine months ended September 30,
1999 decreased $5.4 million or 5.8% to $85.9 million from $91.3 million for the
nine months ended September 30, 1998 resulting primarily from decreased
payroll-related costs and a reduction in depreciation and amortization.
-18-
<PAGE>
Operating income for the nine months ended September 30, 1999 increased
$5.3 million or 56.9% to $14.7 million from $9.4 million for the nine months
ended September 30, 1998. On a Same Station basis, operating income for the nine
months ended September 30, 1999 increased $4.9 million or 44.5% to $15.8 million
from $10.9 million for the nine months ended September 30, 1998.
Financial (expenses), net for the nine months ended September 30, 1999
increased $0.4 million or 1.2% to $32.9 million from $32.5 million for the nine
months ended September 30, 1998.
Gain on sale of stations, net of $13.5 million was primarily the result of
the Station Swap where the fair market value of the assets of KCOY-TV in the
amount of $24.3 million was exchanged for the assets of KKTV. The book
value of the KCOY-TV assets were $10.8 million.
Income tax benefit for the Company for the nine months ended September 30,
1999 was none compared to $7.9 million for the nine months ended September 30,
1998. The decrease in the income tax benefit is due to the $13.5 million gain on
the sale of KCOY-TV.
Extraordinary loss was $12.2 million for the nine months ended September
30, 1999 net of applicable income taxes of $8.1 million. The loss was reflected
as a result of the early extinguishment of debt associated with the completion
of the tender offer for $135.0 million of outstanding Notes. Total consideration
of $149.9 million, fees of the transaction and a write-off of deferred loan
costs caused the loss.
Net loss for the Company for the nine months ended September 30, 1999 was
$17.0 million as compared to $15.2 million net loss for the nine months ended
September 30, 1998.
Broadcast cash flow for the nine months ended September 30, 1999 increased
$2.1 million or 5.8% to $38.3 million from $36.2 million for the nine months
ended September 30, 1998. As a percentage of net revenues, broadcast cash flow
margin increased to 37.3% for the nine months ended September 30, 1999 from
36.6% for the nine months ended September 30, 1998.
On a Same Station basis, broadcast cash flow for the nine months ended
September 30, 1999 increased $2.4 million or 4.3% to $39.0 million from $37.4
million for the nine months ended September 30, 1998. As a percentage of net
revenues, broadcast cash flow margin on a Same Station basis increased to 38.3%
for the nine months ended September 30, 1999 from 36.6% for the nine months
ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities is the primary source of liquidity for
the Company and were $10.3 million for the nine months ended September 30, 1999
compared to $10.5 million for the nine months ended September 30, 1998. The
change in cash flows from operating activities was the result primarily of
increased operating income.
Cash Flows from Investing Activities were $(15.6) million for the nine
months ended September 30, 1999, as compared to $(4.9) million for the nine
months ended September 30, 1998. The change in cash flows from investing
activities for the nine months ended September 30, 1999, was primarily the
result of a $9.5 million cash outlay for the purchase of KKTV.
-19-
<PAGE>
Cash Flows from Financing Activities were $5.1 million for the nine months
ended September 30, 1999 compared to $(5.4) million for the nine months ended
September 30, 1998. For the nine months ended September 30, 1999, the Company
issued the Term Loan in the amount of $220.0 million, drew on the Revolver in
the amount of $55.0 million, paid off the existing term loans for $108.3 million
and redeemed the Notes for $149.9 million. The Company also repurchased a
portion of its Discount Notes with a face amount of $3.0 million for $2.6
million. In addition, the Company acquired its warrants to purchase an aggregate
of 185,000 shares of Class A Common Stock for $3.0 million.
For the nine months ended September 30, 1998, cash flows from financing
activities included $100.0 million of proceeds from the Company's 11 1/2%
Exchangeable Senior Preferred Stock issued during the quarter ended June 30,
1998. The proceeds were used to redeem the Company's 15.0% Exchangeable
Redeemable Senior Preferred Stock due 2007 totaling $92.8 million and to pay
fees and expenses totaling $4.1 million associated with the offering.
At September 30, 1999, the Company could have borrowed approximately an
additional $18.5 million under its $90.0 million Revolver. During the nine
months ended September 30, 1999, the highest outstanding balance under the
Revolver was $55.0 million.
On April 16, 1999, the Company commenced the Offer for any and all of the
$135.0 million in outstanding principal amount of its Notes. The total
consideration for each of $1,000 principal of Notes was $1,105.78 which
consisted of the offer price per $1,000 of principal of $1,075.78 and a consent
payment of $30 per $1,000 amount of Notes. On May 20, 1999, the Company redeemed
all of the outstanding Notes.
On May 20, 1999, the Company borrowed $275.0 million against a new credit
facility (the "Credit Facility") with an aggregate borrowing limit of $310.0
million. The proceeds were used to finance the Offer of the Notes and pay off
its existing credit facility.
The Credit Facility includes a $220.0 million Term Loan and a $90.0 million
Revolver. The Term Loan and the Revolver bear interest initially at the
Company's option, at a base rate plus 2.25% and 1.75%, respectively or at a
LIBOR rate plus 3.25% and 2.75%, respectively. The margins above the base rate
and the LIBOR rate at which the Term Loan and the Revolver bear interest are
subject to reductions based on certain leverage ratios. The unused portion of
the Revolver is subject to a commitment fee ranging from 0.75% per annum to
0.375% per annum based on certain leverage ratios.
The Company is required to make scheduled amortization payments on the Term
Loan, as follows: 2002 - $1.7 million; 2003-$2.2 million; 2004 - $2.2 million;
2005 - $2.2 million; 2006 - $2.2 million and 2007 - $209.6 million. In addition,
the Company is required to make prepayments on the Term Loan and the Revolver
under certain circumstances, including upon the sale of certain assets and the
issuance of certain debt on equity securities. Beginning in 2002, the Company is
required to make prepayments on the Term Loan and the Revolver in an amount
equal to 50% of excess cash flow (as defined).
The commitment under the Revolver will be permanently reduced over the
period from June 2002 to maturity in 2007, as follows: 2002 - $10.1 million;
2003 - $13.5 million; 2004 - $16.9 million; 2005 - $21.4 million; 2006 - $22.5
million and 2007 - $5.6 million. In addition, the commitment under the Revolver
will be permanently reduced in certain circumstances including upon the sales of
certain assets and the issuance of certain debt or equity securities and excess
cash flow (as defined). The Company has the right to pay the Revolver without
penalty in increments of $1.0 million at which time the commitment will be
permanently reduced.
-20-
<PAGE>
The Credit Facility contains certain financial covenants, including, but
not limited to, covenants related to interest coverage, total and senior
leverage ratios and fixed charge ratio. In addition, Credit Facility contains
other affirmative and negative covenants relating to (among other things) liens,
payments on other debt, restricted junior payments (excluding distributions from
Benedek Broadcasting to Benedek Communications) transactions with affiliates,
mergers and acquisitions, sales of assets, guarantees and investments. The
Credit Facility contains customary events of default for highly-leveraged
financings, including certain changes in ownership or control of Benedek
Broadcasting or the Company.
The Company entered into an interest rate cap agreement which matures in
September 2001 to reduce the impact of changes in interest rates on its
floating-rate long-term debt. That agreement effectively entitles the Company to
receive from a financial institution the amount, if any, by which the British
Bankers' Association interest settlement rates for U.S. dollar deposits exceeds
8.0% on a notional amount totaling $70.0 million subject to an amortization
schedule. Although Benedek Broadcasting is exposed to credit loss in the event
of nonperformance by the counterparty on the interest rate cap, management does
not expect nonperformance by the counterparty.
YEAR 2000
The Year 2000 ("Y2K") issue is a result of computer programs using a two
digit format, as opposed to four digits, to indicate the year. These computer
systems will then be unable to read dates beyond the year 1999, which could
cause a system failure or other computer errors. The worst possible outcome for
the Company is that its television stations would be unable to broadcast their
daily programming in which advertising revenue is generated.
The Company is actively managing projects in the remediation, testing and
contingency planning phases of its Y2K initiative. Such projects are focused on
its mission-critical internal information technology ("IT") and non-IT
("non-IT") systems. Non-IT systems include but are not limited to systems such
as broadcast equipment, editing equipment, cameras, microphones, telephone/PBX
systems, fax machines and certain other equipment.
The Company receives network and first-run syndicated programming via
satellite. The Company's receipt of that programming is dependent upon the ABC,
NBC, CBS and Fox television networks and program syndicators resolving their Y2K
issues. Based upon communications from the television networks the Company does
not currently anticipate any disruptions in receiving programming from the
networks. The Company has made inquiries of program syndicators as to their Y2K
status. In the event of any programming disruptions, the Company has certain
alternative programming options that it can consider.
The Company uses advertising inventory management software to manage,
schedule and bill advertising at each of the Company's television stations. This
software is licensed from two vendors who have warranted the system for Y2K
compliance and advised the Company of the satisfactory completion of a Y2K test
of the software by other users.
The Company utilizes equipment and software to automate the insertion of
advertising into program breaks. This equipment and software at certain of the
Company's television stations is in the process of being upgraded in order to be
Y2K compliant. The Company expects to complete installation of the upgrades by
the end of Fiscal 1999. Failure of this software or equipment would not
materially disrupt the Company's business operations as this process can be
performed manually.
-21-
<PAGE>
The Company uses various broadcast and studio equipment to produce and
transmit its broadcast signals. The Company is currently communicating with
third party vendors and testing the equipment with respect to embedded
technology. The results of the procedures thus far have given the Company no
reason to believe that the equipment will not continue to function after 1999.
If such procedures indicate that any of the equipment will be impacted by the
Y2K issue, upgrades or replacements could be necessary.
The Company uses financial software that is licensed from a single vendor.
This software was upgraded in October 1999 to a version which has been warranted
for Y2K compliance.
To date, costs toward achieving Y2K compliance, including capital
expenditures, have not been material to the Company's results of operations, its
cash flow or its financial position, and such costs are not expected to be
material during 1999 or 2000. Such costs have been, and are expected to be,
principally for upgrades to current systems.
The Company is in the process of polling key suppliers and customers to
gain an understanding of their Y2K readiness. The Company cannot guarantee that
Y2K compliance problems of third parties with which it has a material
relationship will not have a material adverse effect on the Company's business,
results of operations and financial condition. The Company will continue to
evaluate the nature of these risks, but at this time management is unable to
determine the probability that any such risk will occur, or if it does occur,
what the nature length or other effects it may have on the Company, if any.
Although the Company has not yet formulated a formal overall contingency plan to
address difficulties that may arise from Y2K noncompliance of its IT and non-IT
systems or those of key third parties, it has assessed and will continue to
consider its alternatives as the process continues.
PENDING ADOPTION OF ACCOUNTING STANDARD
The FASB (Financial Accounting Standards Board) has issued FASB statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities" which the
Company will be required to adopt for its year ending December 31, 2001, as
amended by FASB statement No. 137. This pronouncement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This pronouncement is not
expected to have a significant impact on the Company's financial statements.
-22-
<PAGE>
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. The Company is not currently a party
to any lawsuit or proceeding which, in the opinion of management, is likely to
have a material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(3) Exhibits.
10.1 - Loan agreement dated as of May 20, 1999 by and among Benedek
Communications Corporation, as parent; Benedek Broadcasting
Corporation, as borrower; the financial institutions signatory
thereto, as lenders; and Toronto Dominion (Texas), Inc. as
administrative agent and collateral agent for the Lenders with TD
Securities (USA) Inc., as lead arranger, incorporated by reference to
Exhibit 10.1 to Benedek Communications Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999 (the "Second Quarter
1999 10-Q").
10.2 - First Amendment to loan agreement dated as of September 18, 1999 by
and among Benedek Communications Corporation, as parent; Benedek
Broadcasting Corporation, as borrower; the lender (as defined) and
Toronto Dominion (Texas), Inc., as administrative agent and
collateral agent, incorporated by reference to Exhibit 10.2 to the
Second Quarter 1999 10-Q.
*27 - Financial Data Schedule pursuant to Article 5 of Regulation S-X
with respect to Benedek Communications Corporation.
*Filed herewith
(b) Reports on Form 8-K
None
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BENEDEK COMMUNICATIONS CORPORATION
(REGISTRANT)
By: /s/ RONALD L. LINDWALL
----------------------------
RONALD L. LINDWALL
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Authorized Officer and Principal
Accounting Officer)
DATE: November 11, 1999
-24-
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