<PAGE> 1
UNITED STATES
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
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] 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: 333-29555
---------
STC BROADCASTING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2676358
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
3839 4th STREET NORTH, SUITE 420 (813) 821-7900
ST. PETERSBURG, FLORIDA 33703 (Registrant's telephone
(Address of principal executive offices) number, including area code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
As of November 12, 1997, the registrant had 1000 shares of common stock, par
value $.01 outstanding.
<PAGE> 2
STC BROADCASTING, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 1, 1997
and September 30, 1997 2 - 3
Consolidated Statements of Operations for the
Seven Months and Three Months Ended
September 30, 1997 4
Proforma Combined Statements of Operations for the
Three Months Ended September 30, 1997 and 1996 5
Proforma Combined Statements of Operations for the
Nine Months Ended September 30, 1997 and 1996 6
Consolidated Statement of Stockholders' Equity
for the Seven Months Ended September 30, 1997 7
Consolidated Statement of Cash Flows for the
Seven Months Ended September 30, 1997 8
Notes to Unaudited Consolidated Financial Statements 9 - 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11 - 16
PART II OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES 17
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURE 18
</TABLE>
1
<PAGE> 3
Item 1. Financial Statements
STC BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS September 30, 1997 March 1, 1997
------------------ -------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 7,248,854 $ 879,455
------------ -------------
Accounts receivable, net of allowance for doubtful
accounts of $277,000 at September 30 and
$297,000 at March 1 7,025,487 6,967,985
Program rights 3,642,941 3,623,712
Other current assets 1,262,322 508,812
------------ -------------
Total Current Assets 19,179,604 11,979,964
PROPERTY & EQUIPMENT, net 25,989,469 26,920,478
------------ -------------
INTANGIBLE ASSETS, net
FCC licenses 29,659,173 30,858,162
Network affiliation agreements 93,920,716 97,717,514
Other 1,843,536 1,889,276
------------ -------------
Net Intangible Assets 125,423,425 130,464,952
------------ -------------
OTHER ASSETS
Deferred acquisition and financing costs
net of accumulated amortization of
$709,782 at September 30 7,896,343 4,164,490
Program rights 5,315,187 7,116,358
------------ -------------
Total Other Assets 13,211,530 11,280,848
------------ -------------
Total Assets $183,804,028 $180,646,242
============ ============
</TABLE>
See accompanying notes
2
<PAGE> 4
STC BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
September 30, 1997 March 1, 1997
------------------ -------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,406,439 $ 755,940
Accrued interest 458,361 --
Accrued compensation 547,025 76,210
Accrued other 441,962 376,610
Revolving Credit Facility -- 90,800,000
Program rights payable 3,689,775 3,623,441
------------ ------------
Total Current Liabilities 6,543,562 95,632,201
SENIOR SUBORDINATED NOTES 100,000,000 --
PROGRAM RIGHTS PAYABLE 5,619,850 7,502,059
REDEEMABLE PREFERRED STOCK 31,029,546 28,500,000
STOCKHOLDER'S EQUITY
Common stock, par value $.01 per share
Authorized, issued and outstanding 1,000 shares 10 10
Additional paid in capital 49,011,972 49,011,972
Accumulated deficit (8,400,912) --
------------ ------------
Total Stockholder's Equity 40,611,070 49,011,982
------------ ------------
Total Liabilities & Stockholder's Equity $183,804,028 $180,646,242
============ ============
</TABLE>
See accompanying notes
3
<PAGE> 5
STC BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
For the Seven Months and Three Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Seven Months Three Months
Ended Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net revenues $ 22,560,428 $ 9,121,730
Operating expenses 5,343,813 2,421,672
Amortization of program rights 2,126,703 914,095
Selling, general and administrative expenses 5,203,562 2,161,267
Trade and barter expense 869,080 429,382
Depreciation of property and equipment 2,144,817 902,872
Amortization of intangibles and other assets 5,782,236 2,447,389
Corporate overhead 829,898 371,695
------------ ------------
Operating income (loss) 260,319 (526,642)
------------ ------------
Interest income 252,049 130,113
Interest expense (6,308,653) (2,751,530)
Other expense, net (15,081) (14,969)
------------ ------------
Net (loss) before provision for income taxes (5,811,366) (3,163,028)
Provision for state income taxes 60,000 36,000
------------ ------------
Net (loss) after taxes (5,871,366) (3,199,028)
Preferred dividend accretion (2,529,546) (1,084,091)
------------ ------------
Net (loss) applicable to common shareholders $ (8,400,912) $ (4,283,119)
============ ============
Loss per common share $ (8,400.91) $ (4,283.12)
============ ============
Weighted average number of common shares outstanding 1,000 1,000
============ ============
</TABLE>
4
<PAGE> 6
STC BROADCASTING, INC. AND SUBSIDIARIES
Proforma Combined Statement of Operations
For the Three Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Net revenues $ 9,121,730 $ 9,033,786
Operating expenses 2,421,672 2,228,521
Amortization of program rights 914,095 897,175
Selling, general and administrative expenses 2,161,267 2,135,197
Trade and barter expense 429,382 357,375
Depreciation of property and equipment 902,872 1,257,120
Amortization of intangibles and other assets 2,447,389 1,474,250
Corporate overhead 371,695 174,997
------------ ------------
Operating income (loss) (526,642) 509,151
------------ ------------
Interest income 130,113 --
Interest expense (2,751,530) (1,514,590)
Other expense, net (14,969) (31,140)
------------ ------------
Net (loss) before provision for income taxes (3,163,028) (1,036,579)
Provision for state income taxes 36,000 --
------------ ------------
Net (loss) after taxes (3,199,028) (1,036,579)
Preferred dividend accretion (1,084,091) --
------------ ------------
Net loss applicable to common shareholders $ (4,283,119) $ (1,036,579)
============ ============
</TABLE>
Notes:
- -----
1997
- ----
STC Broadcasting, Inc. actual for the three months ended September 30, 1997.
1996
- ----
Smith/Jupiter actual for the three months ended September 30, 1996. No provision
for income taxes has been shown since income and loss of the Partnerships is
required to be reported by the partners on their respective income tax returns.
5
<PAGE> 7
STC BROADCASTING, INC. AND SUBSIDIARIES
Proforma Combined Statement of Operations
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net revenues $ 27,788,309 $ 26,433,189
Operating expenses 6,802,150 6,764,678
Amortization of program rights 2,747,119 2,679,777
Selling, general and administrative expenses 6,729,485 6,414,108
Trade and barter expense 1,050,512 759,433
Depreciation of property and equipment 2,901,816 3,545,460
Amortization of intangibles and other assets 6,759,120 4,464,915
Corporate overhead 975,898 515,136
------------ ------------
Operating loss (177,791) 1,289,682
------------ ------------
Interest income 272,711 --
Interest expense (7,271,573) (4,560,605)
Other income, net 3,441 1,483,883
------------ ------------
Net (loss) before provision for income taxes (7,173,212) (1,787,040)
Provision for state income taxes 60,000 --
------------ ------------
Net (loss) after taxes (7,233,212) (1,787,040)
Preferred dividend accretion (2,529,546) --
------------ ------------
Net loss applicable to common shareholders $ (9,762,758) $ (1,787,040)
============ ============
</TABLE>
Note:
- ----
1997
- ----
The above statement combines the seven months ended September 30, 1997 for STC
Broadcasting, Inc. and the two months ended February 28, 1997 for Jupiter/Smith.
1996
- ----
The above statement is Jupiter/Smith proforma amounts for the nine months ended
September 30, 1996 which includes KSBW-TV from January 1, 1996. No provision for
income taxes has been shown since income and loss of the Partnerships is
required to be by the partners on their respective income tax returns.
6
<PAGE> 8
STC BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholder's Equity
For the Seven Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Additional Accumulated Stockholder's
Stock Paid-in Capital Deficit Equity
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at inception $ -- $ -- $ -- $ --
Net (loss) applicable
to common shareholder -- -- (8,400,912) (8,400,912)
Issuance of common stock 10 49,011,972 -- 49,011,982
----- ----------- ----------- ------------
Balance at September 30, 1997 $ 10 $49,011,972 $(8,400,912) $ 40,611,070
===== =========== =========== ============
</TABLE>
7
<PAGE> 9
STC BROADCASTING, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Seven Months Ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net (loss) after taxes $ (5,871,366)
Adjustments to reconcile net (loss) after taxes
to net cash provided by operating activities:
Depreciation of property and equipment 2,144,817
Amortization of intangibles and other assets 5,782,236
Amortization of program rights 2,126,703
Payments on program rights (2,160,633)
Loss on disposal of property and equipment 13,692
Change in operating assets and liabilities
net of effects from acquired stations:
Accounts receivable (360,416)
Other current assets (1,056,711)
Accounts payable and accrued expenses 2,093,746
-------------
Net cash provided by operating activities 2,712,068
-------------
Cash Flows From Investing Activities
- ------------------------------------
Acquisition of Jupiter/Smith stations (163,141,571)
Capital expenditures (1,227,500)
-------------
Net cash used in investing activities (164,369,071)
-------------
Cash Flows from Financing Activities
- ------------------------------------
Proceeds from borrowing under credit agreement 90,800,000
Proceeds from senior subordinated notes 100,000,000
Repayment of credit agreement (90,800,000)
Proceeds from sale of preferred stock, net 28,500,000
Proceeds from sale of common stock, net 49,011,982
Deferred acquisition and debt refinancing
costs incurred (8,606,125)
-------------
Net cash provided by financing activities 168,905,857
-------------
Net increase in cash 7,248,854
Cash and cash equivalents at inception 0
-------------
Cash and cash equivalents at end of period $ 7,248,854
=============
Supplemental disclosure of cash flow information
Non cash items
Preferred dividend accretion $ 2,529,546
Exchange offer on Senior Subordinated Notes $ 100,000,000
</TABLE>
8
<PAGE> 10
STC BROADCASTING, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements at September 30, 1997
(Unaudited)
1. Principles of Consolidation
The accompanying consolidated financial statements include those of STC
Broadcasting, Inc. and its subsidiaries (the "Company"). As of September 30,
1997, the Company owned and operated the following commercial television
stations.
<TABLE>
<CAPTION>
Network
Station Market Affiliation
- ------- ------ -----------
<S> <C> <C>
WEYI-TV Flint, Saginaw-Bay City, Michigan NBC
WROC-TV Rochester, New York CBS
KSBW-TV Salinas and Monterey, California NBC
WTOV-TV Wheeling, West Virginia and
Steubenville, Ohio NBC
</TABLE>
All common shares of the Company are owned by Sunrise Television Corp.
("Sunrise"). The Company was incorporated on November 1, 1996 and acquired the
above stations on March 1, 1997. Significant intercompany transactions and
accounts have been eliminated. As permitted under the applicable rules and
regulations of the Securities and Exchange Commission, the accompanying
consolidated financial statements are condensed interim financial statements and
do not include all disclosures and footnotes required by general accepted
accounting principles for complete financial statements and should be read in
conjunction with the consolidated financial statements and notes thereto as of
March 1, 1997 included in the previously filed Company's Registration Statement
on Form S-1. The interim financial statements are unaudited but include all
adjustments, which are of a normal recurring nature, that the Company considers
necessary for a fair presentation of results for such period. Operating results
of interim periods are not necessarily indicative of results for a full year.
2. Acquisitions
On March 1, 1997, the Company acquired four television stations (the "Stations")
from Jupiter/Smith TV Holdings, L.P. and Smith Broadcasting Partners, L.P. for
approximately $163,142,000 including working capital. The financial statements
reflect the acquisition of the Stations under the purchase method of accounting.
Accordingly, the acquired assets and assumed liabilities were recorded at fair
value as of the date of acquisition. The acquisition price was allocated as
follows:
<TABLE>
<S> <C>
Property & Equipment $ 26,920,000
Intangible $ 130,500,000
Working Capital $ 5,722,000
--------------
$ 163,142,000
==============
</TABLE>
The transaction was funded by $90,800,000 borrowing under the Credit Agreement
(as defined below) and the sale of preferred and common stock in the approximate
amount of $77,500,000, which is net of approximately $1,000,000 in expenses.
9
<PAGE> 11
On October 1, 1997, the Company consummated the acquisition of WJAC,
Incorporated ("WJAC") for approximately $36,000,000 including working capital.
The transaction was funded by $17,000,000 of borrowing under the Credit
Agreement (as defined below), $15,000,000 of additional equity contribution
provided by Sunrise and available cash.
3. Long Term Debt
On March 25, 1997, the Company completed a private placement of $100,000,000
principal amount of its 11% Senior Subordinated Notes (the "Old Notes") due
March 15, 2007. Proceeds from the sale of the Old Notes were used to repay all
outstanding term loan and revolving credit borrowings under the Company's
existing bank credit agreement (the "Credit Agreement"). The remaining net
proceeds from the sale of the Old Notes were used to acquire WJAC and general
working capital purposes.
On September 26, 1997, the Company completed an exchange offer in which all of
the Old Notes were exchanged for registered 11% Senior Subordinated Notes (the
"New Notes") of the Company having substantially the identical terms as the Old
Notes.
The Company's Credit Agreement currently provides for borrowing up to
$35,000,000 under the secured revolving credit facility, which can be used for
acquisitions, working capital and for general corporate expenses. There were no
outstanding balances under the Credit Agreement as of September 30, 1997.
4. Pending Acquisitions
On July 8, 1997, the Company entered into a purchase agreement ("ARTC Purchase
Agreement") with Abilene Radio and Television Company ("ARTC") to acquire all of
its outstanding common stock for a price of $8,500,000 plus an adjustment for
working capital at closing. ARTC owns KRBC-TV, channel 9, the NBC affiliate for
Abilene, Texas, and KACB-TV, channel 3, the NBC affiliate for San Angelo, Texas.
The transaction is expected to close in early 1998. The Company intends to
finance this transaction with additional borrowing under the Credit Agreement
and the proceeds of future debt and/or equity financing. The ARTC Purchase
Agreement is subject to customary conditions and no assurances can be given as
to whether, or on what terms, such transaction or such financing will be
consummated by the Company.
10
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The operating revenues of the Stations are derived primarily from advertising
revenues and, to a much lesser extent, from compensation paid by the networks to
the Stations for broadcasting network programming. The Stations' primary
operating expenses are for employee compensation, news gathering, production,
programming and promotion costs. A significant proportion of the operating
expenses of the Stations are fixed.
Advertising is sold for placement within and adjoining a Station's network and
locally originated programming. Advertising is sold in time increments and is
priced primarily on the basis of a program's popularity among the specific
audience that an advertiser desires to reach, as measured principally by
periodic audience surveys. In addition, advertising rates are affected by the
number of advertisers competing for the available advertising media in the
market area. Rates are highest during the most desirable viewing hours, with
corresponding reductions during other hours. The ratings of a local station
affiliated with a national television network can be affected by ratings of
network programming.
Most advertising contracts are short-term, and generally run only for a few
weeks. The Company estimates that approximately 56% of the annual gross spot
revenues of the Stations is generated from local advertising, which is sold by a
Station's sales staff directly to local accounts, and approximately 41% of the
annual gross spot advertising revenue is generated by national advertising,
which is sold by a national advertising sales representative. The above
estimates exclude political spot revenues. The Stations generally pay
commissions to advertising agencies on local, regional and national advertising,
and on national advertising, the stations also pay commissions to the national
sales representative.
The advertising revenues of the Stations are generally highest in the second and
fourth quarters of each year, due in part to increases in consumer advertising
in the spring and retail advertising in the period leading up to and including
the holiday season. In addition, advertising revenues are generally higher
during even numbered election years due to spending by political candidates,
which spending typically is heaviest during the fourth quarter.
"Broadcast cash flow" is defined as station operating income (loss), plus
depreciation of property and amortization of intangible assets and other assets
and amortization of program rights, minus payments on program obligations. The
Company has included broadcast cash flow data because such data are commonly
used as a measure of performance for broadcast companies and are also used by
investors to measure a company's ability to service debt. Broadcast cash flow is
not, and should not be used as, an indicator or alternative to operating income,
net loss or cash flow as reflected in the Consolidated Financial Statements, is
not intended to represent funds available for debt service, dividends,
reinvestment or other discretionary uses, 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.
This quarterly Report on Form 10-Q contains forward-looking statements that
involve a number of risks and uncertainties. When used in this Quarterly Report
on Form 10-Q the words "believes," anticipated" and similar expressions are
intended to identify forward-looking statements. There are a number of factors
that could cause the Company's actual results to differ materially from those
forecasted or projected in such forward-looking statements. These factors
include, without limitation, competition from other local free over-the-air
broadcast stations, acquisition of additional broadcast properties, and future
debt service obligations, as well as those set forth under the caption "Risk
Factors" in the Company's recently filed prospectus and Form S-1. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligations to
publicly release the result of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
11
<PAGE> 13
The following table sets forth certain operating data for the Stations for the
three and nine months ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------------------- ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Station Operating Income (loss) $ (155) $ 684 $ 798 $ 1,805
Add:
Amortization of program rights 914 897 2,747 2,680
Depreciation of property and equipment 903 1,257 2,902 3,545
Amortization of intangibles 2,447 1,474 6,759 4,465
Less:
Payments for program rights (930) (898) (2,782) (2,676)
------- ------- -------- -------
Broadcast cash flow $ 3,179 $ 3,414 $ 10,424 $ 9,819
======= ======= ======== =======
Percent of increase (decrease) 1997 from 1996 (6.88%) 6.16%
======= ========
</TABLE>
Television Revenues
Set forth below are the principal types of television revenues that the Stations
have generated for the periods indicated and the percentage contribution of each
to the Stations total revenues.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------------------------------- ------------------------------------
$ % of $ % of $ % of $ % of
Revenues Revenues Revenues Revenues
----- -------- ---- -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Local 5,110 47.94 5,175 48.89 15,761 48.43 14,485 46.68
National 4,182 39.22 3,712 35.07 12,832 39.43 11,993 38.65
Political 11 .10 568 5.37 11 .03 1,238 3.99
Network 733 6.87 624 5.90 2,171 6.67 2,062 6.64
Barter 464 4.35 295 2.79 1,167 3.59 769 2.48
Other 162 1.52 210 1.98 603 1.85 464 1.56
------ ------ ------ ------ ------ ------ ------ ------
Total 10,662 100.00 10,584 100.00 32,545 100.00 31,031 100.00
Agency and national
representative
commissions 1,540 14.44 1,550 14.64 4,757 14.61 4,598 14.82
------ ------ ------ ------ ------ ------ ------ ------
Net revenue 9,122 85.56 9,034 85.36 27,788 85.39 26,433 85.18
------ ------ ------ ------ ------ ------ ------ ------
Percent increase from
1996 .97% 5.13%
------ ------
Percent increase from
1996, excluding
political 7.62% 10.25%
------ ------
</TABLE>
12
<PAGE> 14
Results of Operations
Set forth below is a summary of the operations of the Stations for the periods
indicated and their percentages of net revenue.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------------------------------- --------------------------------------
$ % of $ % of $ % of $ % of
Revenues Revenues Revenues Revenues
----- -------- ---- -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues 9,122 100.00 9,034 100.00 27,788 100.00 26,433 100.00
Engineering Expense 417 4.57 390 4.32 1,239 4.46 1,356 5.13
Program/Production expense 774 8.49 732 8.10 2,039 7.34 1,986 7.52
News expense 1,231 13.49 1,106 12.24 3,525 12.68 3,422 12.95
Sales/Traffic expense 810 8.88 856 9.48 2,551 9.18 2,463 9.31
Promotion expense 103 1.13 85 .94 396 1.42 291 1.10
General & administrative expense 1,248 13.68 1,194 13.22 3,782 13.61 3,660 13.84
Trade and barter expense 429 4.70 358 3.96 1,050 3.78 760 2.88
----- ------ ----- ------ ------ ------ ------ ------
Total station operating
expenses 5,012 54.94 4,721 52.26 14,582 52.47 13,938 52.73
----- ------ ----- ------ ------ ------ ------ ------
Amortization of program rights 914 10.02 897 9.93 2,747 9.89 2,680 10.14
Depreciation and
amortization expense 3,351 36.74 2,732 30.24 9,661 34.77 8,010 30.31
----- ------ ----- ------ ------ ------ ------ ------
Station operating income (155) (1.70) 684 7.57 798 2.87 1,805 6.82
===== ====== ===== ====== ====== ====== ====== ======
Broadcast cash flow 3,179 34.85 3,414 37.79 10,424 37.51 9,819 37.15
===== ====== ===== ====== ====== ====== ====== ======
</TABLE>
Three months ended September 30, 1997 compared to three months ended September
30, 1996
Net Revenues
Net revenues increased by $0.1 million or .97% to $9.1 million for the three
months ended September 30, 1997 from $9.0 million for the three months ended
September 30, 1996. Local revenue was down 1.3% and national revenue was up
12.7% over the prior comparative period. Local revenue was higher in 1996 due
primarily to the Olympic Games on the three NBC stations. The majority of the
increase in national revenue was generated by KSBW, WROC and WEYI and resulted
from sales initiatives started in 1996. The quarter ended September 30, 1996 had
approximately $0.6 million of political revenues compared to a minor amount in
the quarter ended September 30, 1997.
Station Operating Expenses
Station operating expenses were $5.0 million for the three months ended
September 30, 1997 compared to $4.7 million for the three months ended September
30, 1996, an increase of 6.1% over the comparable period. This increase reflects
additional news costs at WTOV for coverage of the ten month steel strike,
increased costs at WEYI for improvements in news personnel and services and
additional news expenditures at WROC. Trade and barter expenses were up 19.8%
over 1996, but trade and barter revenues were up a corresponding 57.2%.
Amortization of Program Rights
Amortization of program rights increased by 1.9% in 1997 over the comparable
period in 1996. This increase reflects the increased costs of continuing
programs.
13
<PAGE> 15
Depreciation
Depreciation decreased by $0.4 million to $0.9 million for the three months
ended September 30, 1997 from $1.3 million for the comparable period in 1996,
due to the revaluation of assets at the time of the purchase of the Stations by
the Company on March 1, 1997.
Amortization
Amortization increased by $0.9 million to $2.4 million for the three months
ended September 30, 1997 from $1.5 million for the comparable period in 1996,
due to the revaluation of assets at the time of the purchase of the Stations by
the Company on March 1, 1997.
Station Operating Income
Station operating income decreased by $0.8 million to a loss of $0.2 million for
the three months ended September 30, 1997 from an income of $0.7 million for the
three months ended September 30, 1996, due to the reasons outlined above.
Nine Months ended September 30, 1997 compared to nine months ended September 30,
1996
Net Revenues
Net revenues increased by $1.4 million or 5.1% to $27.8 million for the nine
months ended September 30, 1997 from $26.4 million for the nine months ended
September 30, 1996. Local and national revenues were up 8.8% and 7.0%,
respectively, over the prior comparative period. Net local revenues were
favorably impacted by the Olympic Games in 1996. The majority of the revenue
increase was generated by KSBW and WEYI and resulted from sales initiatives
started in 1996. WROC and WTOV revenues increased slightly in 1997 from the
prior year. The nine months ended September 30, 1996 had approximately $1.2
million of political revenues compared to minor amounts in the nine months ended
September 30, 1997.
Stations Operating Expenses
Station operating expenses were $14.6 million for the nine months ended
September 30, 1997 compared to $13.9 million for the nine months ended September
30, 1996. Expenses increased 4.6%. A majority of the expense increase related to
higher costs (approximately $0.3 million) assigned to barter film contracts (see
related increase in barter revenue for the period of $0.4 million), increased
sales expense due to the full staff at WROC, increased commissions on increased
local sales, increased costs at WEYI for improvements in news personnel and
services, additional news expenditures at WROC and costs at WTOV for news
coverage of the ten month steel strike.
Amortization of Program Rights
Amortization of program rights increased by 2.5% in 1997 over the comparable
period in 1996. This increase reflects the increased costs of continuing
programs.
Depreciation
Depreciation decreased by $0.6 million to $2.9 million for the nine months ended
September 30, 1997 from $3.5 million for the comparable period in 1996, due to
the revaluation of assets at the time of the purchase of the Stations by the
Company on March 1, 1997.
Amortization
Amortization increased by $2.3 million to $6.8 million for the nine
months ended September 30, 1997 from $4.5 million for the comparable period
in 1996, due to the revaluation of assets at the time of the purchase of the
Stations by the Company on March 1, 1997.
14
<PAGE> 16
Station Operating Income
Station operating income decreased by $1.0 million to an income of $0.8 million
for the nine months ended September 30, 1997 from an income of $1.8 million for
the nine months ended September 30, 1996, due to the reasons outlined above.
Liquidity and Capital Resources
On March 25, 1997, the Company completed a private placement of $100,000,000
principal amount of its 11% Senior Subordinated Notes (the "Old Notes") due
March 15, 2007. The proceeds from the sale of the Old Notes were used to repay
all outstanding term loan and revolving credit borrowings under the Company's
existing bank credit agreement (the "Credit Agreement"). The remaining net
proceeds from the sale of the Old Notes were used to fund the purchase of WJAC,
Incorporated ("WJAC") and for general working capital purposes. Interest is
payable on March 15 and September 15 of each year. On September 26, 1997, the
Company completed an exchange offer in which all of the Old Notes were exchanged
for registered 11% Senior Subordinated Notes (the "New Notes") of the Company
having substantially identical terms as the Old Notes. The Indenture imposes
certain limitations on the ability of the Company and certain of its
subsidiaries to, among other things, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur liens, impose restrictions on the ability of
a subsidiary to pay dividends or make certain payments to the Company, merge or
consolidate with any person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company.
The Company's Credit Agreement currently provides for borrowings up to $35.0
million under the secured revolving credit facility, which matures on February
27, 2004, with reducing availability beginning in January of 2000. Undrawn
amounts under such facility are available for acquisitions, working capital and
general corporate purposes. There were no outstanding balances under the Credit
Agreement at September 30, 1997. On October 1, 1997, the Company acquired WJAC.
The transaction was funded in part by $17.0 million of borrowing under the
Credit Agreement. It is anticipated that additional borrowings will be made to
partially fund the purchase of ARTC.
Interest payments under the Credit Agreement and the New Notes represent
significant liquidity requirements for the Company. Loans under the Credit
Agreement bear interest at floating rates based upon the interest rate option
selected by the Company. In addition, the Company's 14% Redeemable Preferred
Stock (the "Redeemable Preferred Stock") is cumulative, with dividends payable
quarterly, and prior to 2002 may, at the option of the Company, be paid in
additional shares of Redeemable Preferred Stock. In the event dividends on the
Redeemable Preferred Stock are paid in cash, dividends would amount to $4.2
million annually. The Credit Agreement and the Indenture will limit the
Company's ability to pay cash dividends prior to 2002 and the Company's ability
to exchange the Redeemable Preferred Stock for debt of the Company.
Based on the current level of operations and anticipated future growth
(both internally generated as well as through acquisitions), the Company
anticipates that its cash from operations, together with borrowings under the
Credit Agreement and additional equity contributions from Sunrise should be
sufficient to meet its anticipated requirements for working capital, capital
expenditures and interest payments. The Company's future operating performance
and ability to service or refinance the Notes and to extend or refinance the
Credit Agreement will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond control of the Company. The
ability of the Company to implement its business strategy and to consummate
future acquisitions will require significant additional debt and/or equity
capital and no assurance can be given as to whether, and on what terms, such
additional debt and/or equity capital will be available, including additional
equity contributions from Sunrise. The degree to which the Company is leveraged
could have a significant effect on its results of operations. The Company
regularly enters into program contracts for the right to broadcast television
programs produced by others and program commitments for the right to broadcast
programs in the future. Such programming commitments are generally made to
replace expiring or canceled program rights. Payments under such contracts are
made in cash or the concession of advertising spots to the program provider to
resell, or a combination of both.
15
<PAGE> 17
Capital Expenditures
Capital expenditures were $3.0 million for the year ended December 31, 1996 and
$1.5 million for the nine month period ended September 30, 1997. Capital
expenditures are anticipated to be $3.2 million for 1997 as the Company
continues to improve the news gathering and production capabilities of WROC,
WEYI and WJAC. The Company's ability to make capital expenditures is subject to
certain restrictions under the Credit Agreement.
Depreciation, Amortization and Interest
Because the Company has incurred substantial indebtedness in the acquisitions of
its five Stations ("Acquisitions") for which it will have significant debt
service requirements, and because the Company will have significant non-cash
charges relating to the depreciation and amortization expense of the property
and equipment and intangibles that were acquired in the Acquisitions, the
Company expects that it will report net losses for the foreseeable future.
The Acquisitions are accounted for using the purchase method of accounting, and
the total purchase price will be allocated to the assets and liabilities
acquired based upon their respective fair values. As a result, the Company
expects to record depreciation and amortization expenses, as well as interest
expenses, that are significantly in excess of historical levels for the
Stations.
Recent Developments
On July 8, 1997, the Company entered into a purchase agreement ("ARTC Purchase
Agreement") with Abilene Radio and Television Company ("ARTC") to acquire all of
its outstanding common stock for a price of $8.5 million plus an adjustment for
working capital at closing. ARTC owns KRBC-TV, channel 9, the NBC affiliate for
Abilene, Texas, and KACB-TV, channel 3, the NBC affiliate for San Angelo, Texas.
The transaction is expected to close in early 1998. The Company intends to
finance this transaction with additional borrowings under the Credit Agreement
and the proceeds of future debt and/or equity financing. The ARTC Purchase
Agreement is subject to customary conditions and no assurances can be given as
to whether, or on what terms, such transaction or such financing will be
consummated by the Company.
On October 1, 1997, the Company consummated the acquisition of WJAC pursuant to
which WJAC became a wholly owned subsidiary of the Company. WJAC, channel 6, is
a VHF NBC-affiliated station serving the Johnstown/Altoona, Pennsylvania market.
The approximate purchase price was $36.0 million including certain working
capital. The transaction was funded by $17,000,000 of borrowing under the Credit
Agreement, $15,000,000 of additional equity capital provided by Sunrise
Television Corp. (the parent company of STC Broadcasting) and available cash on
hand.
Inflation
The Company believes that its business is affected by inflation to an extent no
greater than other businesses are generally affected.
16
<PAGE> 18
PART II Other Information
Item 2 Changes in Securities
On March 25, 1997, the Company completed a private placement of $100,000,000
principal amount of its 11% Senior Subordinated Notes (the "Old Notes") due
March 15, 2007. On September 26, 1997, the Company completed an exchange offer
in which the Old Notes were exchanged for registered 11% Senior Subordinated
Notes of the Company having substantially identical terms as the Old Notes.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Stock Purchase Agreement, dated as of July 28, 1997, by and
among STC Broadcasting, Inc, Abilene Radio and Television Company and
the stockholders named therein. [Incorporated by reference to Exhibit
2.4 to the Company's Registration Statement on Form S-1 (Registration
Number 333-29555).]
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On October 16, 1997, a report on Form 8-K was filed by the Registrant
with the Securities and Exchange Commission reporting under Item 2 the
Registrant's acquisition of 100% of the common stock of WJAC,
Incorporated.
17
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STC Broadcasting, Inc.
----------------------
Registrant
Date: November 12, 1997 By: /s/ David A. Fitz
--------------------------
David A. Fitz
Senior Vice-President/
Chief Financial Officer
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