<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] 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)
DELAWARE 75-2676358
(State of Incorporation) (I.R.S. Employer Identification No.)
720 2nd Avenue South
St. Petersburg, FL 33701
(727) 821-7900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 1, 2000, STC Broadcasting, Inc. had 1000 shares of common stock par
value $.01 issued and outstanding all of which is held by an affiliate of the
registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
THE COMPANY
The Company is an operator of television stations located in middle to
small markets, ranging generally from the 50th to the 150th largest DMAs in the
United States. Since the Company's formation in March 1997, it has undergone
rapid and significant growth. This growth has resulted primarily from a series
of carefully selected acquisitions and dispositions of network-affiliated
television stations and the implementation of the Company's business
strategies. Since January 1998, the Company has grown from five stations to 13
stations, including satellite stations.
History
The Company was organized by its current management and Hicks Muse in
1997 with the goal of becoming a leading owner and operator of
network-affiliated television stations, serving select middle-to-small markets
(i.e., those DMAs ranked from approximately 50 to 150 by Nielsen). The
following chart sets forth certain information regarding the Company's
currently owned and operated broadcast stations (collectively, the Stations):
<TABLE>
<CAPTION>
Network
Station Acquisition Date Market Affiliation
------- ---------------- ------ -----------
<S> <C> <C> <C>
WEYI March 1, 1997 Flint, Saginaw-Bay City, Michigan NBC
WTOV March 1, 1997 Wheeling, West Virginia and
Steubenville, Ohio NBC
WJAC October 1, 1997 Johnstown, Altoona, State College,
Pennsylvania NBC
KRBC/KACB April 1, 1998 Abilene-Sweetwater, Texas and
San Angelo, Texas NBC
WDTN June 1, 1998 Dayton, Ohio ABC
WNAC June 1, 1998 Providence, Rhode Island and
New Bedford, Massachusetts FOX
KVLY November 1, 1998 Fargo-Valley City, North Dakota NBC
KFYR, KMOT,
KUMV and
KQCD November 1, 1998 Minot-Bismarck-Dickinson, North Dakota NBC
WUPW February 1, 1999 Toledo, Ohio FOX
</TABLE>
The Company acquired WEYI, WTOV, WROC and KSBW (together, the
Jupiter/Smith Stations) from Jupiter/Smith TV Holdings, L.P. (Jupiter/Smith)
and Smith Broadcasting Partners, L.P. (SBP) for approximately $163.2 million.
SBP is a partnership between Smith Broadcasting Group, Inc. (SBG), Sandy
DiPasquale, John Purcell, and David Fitz. The majority owner of SBG is Robert
Smith. These four individuals operated the Jupiter/Smith Stations from January
1996 until the sale to the Company on March 1, 1997. All four individuals
continue as senior management of the Company.
The Company acquired all of the outstanding stock of WJAC,
Incorporated on October 1, 1997 for approximately $36.1 million including
working capital of $1.4 million. WJAC, Incorporated owned and operated WJAC,
the NBC affiliate for Johnstown, Pennsylvania.
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On April 1, 1998, the Company acquired 100% of the outstanding stock
of Abilene Radio and Television Company (ARTC) for approximately $8.2 million.
ARTC operated television stations KRBC and KACB, NBC affiliates for Abilene and
San Angelo, Texas.
In a series of transactions, the Company acquired certain assets from
Hearst-Argyle Stations, Inc., (Hearst) through transactions structured as an
exchange of assets (the Hearst Transaction). On February 3, 1998, the Company
acquired WPTZ, WNNE, and a local marketing agreement (LMA) for WFFF from
Sinclair Broadcast Group, Inc. for $72.0 million, with the intention of using
these assets in the Hearst Transaction. WPTZ and WNNE are the NBC affiliates
and WFFF is the FOX affiliate serving the Burlington, Vermont, and Plattsburgh,
New York television market. On February 18, 1998, the Company agreed with
Hearst to trade KSBW, the NBC affiliate for Salinas, California, WPTZ, and WNNE
for WDTN, the ABC affiliate in Dayton, Ohio, WNAC, the FOX affiliate in
Providence, Rhode Island, WNAC's interest in a Joint Marketing Programming
Agreement with WPRI, the CBS affiliate in Providence, Rhode Island, and
approximately $22.0 million in cash. On April 24, 1998, the Company completed a
purchase of the non-license assets (all operating assets other than FCC
licenses and other minor equipment) of WPTZ, WNNE, and WFFF for $70.0 million.
WFFF was sold by the Company to a related party on April 24, 1998 (see Item 13
"Certain Relationships and Related Transactions"). Funds to complete this
acquisition were provided by Hearst. The assets acquired were pledged to Hearst
under the related loan agreement and the loan was repaid on July 3, 1998.
Effective June 1, 1998, the Company received via contract rights the
benefits of the operation of stations WDTN and WNAC and WNAC's joint operating
agreement with WPRI. The Company recorded a book gain of approximately $17.5
million on the asset swap. On July 3, 1998 the Company consummated the Hearst
transaction.
On November 1, 1998, the Company acquired substantially all of the
assets of KVLY, KFYR, KUMV, KMOT, and KQCD (the Meyer Stations) from Meyer
Broadcasting for approximately $65.3 million. The Meyer Stations are all NBC
affiliates serving Fargo, Bismarck, Williston, Minot, and Dickinson, North
Dakota.
On February 5, 1999, the Company acquired substantially all the assets
of WUPW from Raycom Media, Inc. for approximately $74.4 million, including fees
and expenses. WUPW, Channel 36, is the FOX-affiliated station serving Toledo,
Ohio.
On March 3, 1999, the Company, STC License Company, a subsidiary of
the Company, and Nexstar Broadcasting of Rochester, Inc. (Nexstar) entered
into an asset purchase agreement (the Rochester Agreement) pursuant to which
the Company would sell to Nexstar the television broadcast license and
operating assets of WROC, Rochester, New York for approximately $46.0 million
subject to adjustment for certain customary proration amounts. On April 1,
1999, the Company completed the non-license sale of WROC assets to Nexstar for
$43.0 million and entered into a Time Brokerage Agreement with Nexstar under
which Nexstar programmed most of the available time of WROC and retained the
revenues from the sale of advertising time through the license closing on
December 23, 1999. The Company recognized a gain of $4.5 million from the
transaction.
THE STATIONS
The markets in which the Company currently operates offer geographic
diversity that reduces the impact on the Company of changes in respective
market economies and provide favorable competitive operating environments. The
Company believes that the Stations are well positioned to achieve long-term
growth in audience share and revenue share because of: (i) the limited
competition for viewers from other over-the-air television broadcasters in
these markets; (ii) the strength of the Company's management; and (iii) the
Stations' favorable and/or improving rankings within their DMAs. Management
believes that the limited number of other television broadcast stations in
these markets enables the Company to purchase syndicated programming at
favorable rates.
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The following table summarizes additional information regarding each
Station and its respective DMA.
<TABLE>
<CAPTION>
Number of
Market Commercial Station
Station/Channel: DMA Revenue TV Stations Rank in Net
DMA Rank (1) Rank (1) in DMA (1) DMA (2) Revenues
- ---------------------------------------- -------- -------- ----------- ------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
WNAC/64 50 54 6 4 $ 3,622 (4)
Providence, Rhode Island and
New Bedford, Massachusetts
WDTN/2 56 52 5 2 19,186
Dayton, Ohio
WEYI/25
Flint-Saginaw-Bay City, Michigan 64 68 4 3 8,782
WUPW-TV/36
Toledo, Ohio 67 66 5 4 10,221
WJAC/8
Johnstown, Pennsylvania 95 113 4 2 9,893
KVLY/11
Fargo, North Dakota 119 128 4 3 6,379
WTOV/9
Wheeling, West Virginia and
Steubenville, Ohio 140 152 2 1 7,815
KFYR and satellites
Minot-Bismarck-Dickinson,
North Dakota 152 149 (3) 3 1 8,659
KRBC/9
Abilene, Texas 163 161 4 3 4,002 (5)
KACB/3
San Angelo, Texas 196 174 4 3
</TABLE>
(1) BIA's Investing in Television 1999, 4th Edition
(2) As of November 1999, Sunday through Saturday 6 a.m to 2 a.m. Nielsen
Household Shares
(3) Satellite stations are counted as one with the main station
(4) Represents approximately 50% of the broadcast cash flow of WNAC and WPRI
less certain adjustments
(5) Includes KRBC and KACB
MARKET PROFILES
The following household trends for various stations in the market
profiles are found in the Nielsen rating books for the time period 7:00 AM to
1:00 AM Monday through Sunday. Information included in the market overview is
provided by BIA's Investing in Television 1999 4th Edition.
WNAC/WPRI (Providence, Rhode-Island - New Bedford, Massachusetts)
Market Overview. Providence, Rhode Island-New Bedford, Massachusetts
is the 50th largest DMA in the United States, with a population of
approximately 1,502,000 and approximately 565,000 television households. Cable
penetration in the Providence-New Bedford market is estimated to be 78%. The
Providence-New Bedford market experienced compound annual revenue growth of
approximately 5.9% from 1992 through 1998, and BIA has projected this market to
grow at a compound annual rate of 4.2% from 1998 through 2002. Average
household income was approximately $43,000.
The table below provides an overview of the competitive stations
serving the Providence-New Bedford market.
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- --------- ------- ----------- -------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WNAC Providence UHF FOX STC Broadcasting/Clear Channel 6 5 5 5
WPRI Providence VHF CBS Clear Channel 10 10 10 12
WLNE New Bedford VHF ABC Freedom Communications Inc. 7 7 7 7
WJAR Providence VHF NBC NBC (GE) 18 18 18 20
</TABLE>
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WDTN (Dayton, Ohio)
Market Overview. Dayton, Ohio is the 56th largest DMA in the United
States with a population of approximately 1,334,000 and approximately 508,000
television households. Cable penetration in the Dayton market is estimated to
be 71%. The Dayton market experienced compound annual revenue growth of
approximately 4.6% from 1992 through 1998, and BIA has projected this market to
grow at a compound annual rate of 2.0% from 1998 through 2002. Average
household income was approximately $43,000.
The table below provides an overview of the competitive stations
serving the Dayton market:
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- -------- ------- ----------- -------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WDTN Dayton VHF ABC STC Broadcasting 16 15 14 15
WHIO Dayton VHF CBS Cox Broadcasting 25 26 24 23
WKEF Dayton UHF NBC Sinclair 8 9 10 10
WRGT Dayton UHF FOX Glencairn Ltd. 6 5 6 6
</TABLE>
WEYI (Flint-Saginaw-Bay City, Michigan)
Market Overview. Flint-Saginaw-Bay City, Michigan is the 64th largest
DMA in the United States, with a population of approximately 1,194,000 and
approximately 446,000 television households. Cable penetration in the
Flint-Saginaw-Bay City market is estimated to be 65%. The Flint-Saginaw-Bay
City market experienced compound annual revenue growth of approximately 6.4%
from 1992 through 1998, and BIA has projected this market to grow at a compound
annual rate of 2.7% from 1998 through 2002. Average household income was
approximately $37,000.
The table below provides an overview of the competitive stations
serving the Flint-Saginaw-Bay City market:
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- --------- ------- ----------- -------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WEYI Saginaw UHF NBC STC Broadcasting 11 11 11 10
WNEM Bay City VHF CBS Meredith Corp 18 16 17 15
WJRT Flint VHF ABC ABC Inc. 18 16 18 22
WSMH Flint UHF FOX Sinclair 7 7 6 7
</TABLE>
WUPW (Toledo, Ohio)
Market Overview. Toledo, Ohio is the 67th largest DMA in the United
States, with a population of approximately 1,106,000 and approximately 412,000
television households. Cable penetration in the Toledo market is estimated to
be 68%. The Toledo market experienced compound annual revenue growth of
approximately 5.6% from 1992 through 1998, and BIA has projected this market to
grow at a compound annual rate of 4.5% from 1998 through 2002. Average
household income was approximately $42,000.
The table below provides an overview of the competitive stations
serving the Toledo market.
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- -------- ------- ----------- -------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WUPW Toledo UHF FOX STC Broadcasting 7 7 7 8
WTOL Toledo VHF CBS Cosmos Broadcasting 24 24 24 21
WTVG Toledo VHF ABC ABC Inc. 16 13 13 17
WNWO Toledo UHF NBC Raycom Media, Inc. 12 12 12 11
</TABLE>
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WJAC (Johnstown-Altoona, Pennsylvania)
Market Overview. Johnstown-Altoona, Pennsylvania is the 95th largest
DMA in the United States, with a population of approximately 783,000 and
approximately 294,000 television households. Cable penetration in the
Johnstown-Altoona market is estimated to be 81%. The Johnstown-Altoona market
experienced compound annual revenue growth of approximately 6.5% from 1992
through 1998, and BIA projects this market to grow at a compound annual rate of
5.6% from 1998 through 2002. Average household income was approximately
$36,000.
The table below provides an overview of the competitive stations
serving the Johnstown-Altoona market.
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- --------- ------- ----------- -------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WJAC Johnstown VHF NBC STC Broadcasting 18 19 19 17
WWCP Johnstown VHF FOX Peak Media LLC 5 5 5 5
WTAJ Altoona VHF CBS Gateway Comm 20 20 20 21
WATM Altoona UHF ABC Palm Broadcasting 6 6 6 8
</TABLE>
KVLY (Fargo-Valley City, North Dakota)
Market Overview. Fargo-Valley City, North Dakota is the 119th largest
DMA in the United States, with a population of approximately 584,000 and
approximately 224,000 television households. Cable penetration in the
Fargo-Valley City market is estimated to be 63%. The Fargo-Valley City market
experienced compound annual revenue growth of approximately 6.2% from 1992
through 1998, and BIA projects this market to grow at a compound annual rate of
4.2% from 1998 through 2002. Average household income was approximately
$36,000.
The table below provides an overview of the competitive stations
serving the Fargo-Valley City market.
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- --------- ------- ----------- -------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KVLY Fargo VHF NBC STC Broadcasting 18 19 18 17
KXJB Valley City VHF CBS Catamount Bcst Group 17 17 17 17
WDAY Fargo VHF ABC Forum Publishing Co 17 16 18 19
KVRR Fargo UHF FOX Red River Broadcast Corp 9 7 5 8
</TABLE>
WTOV (Wheeling, West Virginia-Steubenville, Ohio)
Market Overview. Wheeling, West Virginia-Steubenville, Ohio is the
140th largest DMA in the United States, with a population of approximately
404,000 and approximately 159,000 television households. Cable penetration in
the Wheeling, West Virginia-Steubenville, Ohio market is estimated to be 78%.
The Wheeling, West Virginia-Steubenville, Ohio market experienced compound
annual revenue growth of approximately 6.2% from 1992 through 1998, and BIA
projects this market to grow at a compound annual rate of 5.7% from 1998
through 2002. Average household income was approximately $33,000.
The table below provides an overview of the competitive station
serving the Wheeling, West Virginia-Steubenville, Ohio market:
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- --------- ------- ----------- -------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WTOV Steubenville VHF NBC (1) STC Broadcasting 21 20 23 18
WTRF Wheeling VHF CBS (1) Benedek Broadcasting 18 17 17 16
</TABLE>
(1) In addition, WTOV and the CBS affiliate are secondary ABC affiliates.
However, WTOV has the right of first refusal to carry ABC programming
events.
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KFYR (Minot-Bismarck-Dickinson, North Dakota)
Market Overview. Minot-Bismarck-Dickinson, North Dakota is the 152nd
largest DMA in the United States, with a population of approximately 353,000
and approximately 136,000 television households. Cable penetration in the
Minot-Bismarck-Dickinson market is estimated to be 63%. The
Minot-Bismarck-Dickinson market experienced compound annual revenue growth of
approximately 6.3% from 1992 through 1998, and BIA projects this market to grow
at a compound annual rate of 4.0% from 1998 through 2002. Average household
income was approximately $39,000.
The table below provides an overview of the competitive stations
serving the Minot-Bismarck-Dickinson market.
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- --------- ------- ----------- -------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KFYR Bismarck VHF NBC STC Broadcasting 28 27 28 26
KXMC Minot VHF CBS Reiten Television 18 16 19 18
KBMY Bismarck UHF ABC Forum Publishings Co 5 5 4 5
</TABLE>
KRBC (Abilene-Sweetwater, Texas)
Market Overview. Abilene-Sweetwater, Texas is the 163rd largest DMA in
the United States, with a population of approximately 304,000 and approximately
114,000 television households. Cable penetration in the Abilene-Sweetwater
market is estimated to be 72%. The Abilene-Sweetwater market experienced
compound annual revenue growth of approximately 6.3% from 1992 through 1998,
and BIA projects this market to grow at a compound annual rate of 3.0% from
1998 through 2002. Average household income was approximately $32,000.
The table below provides an overview of the competitive stations
serving the Abilene-Sweetwater market:
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- --------- ------- ----------- -------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KRBC Abilene VHF NBC STC Broadcasting 12 13 13 12
KTXS Sweetwater VHF ABC Lamco Communications 14 15 13 14
KTAB Abilene UHF CBS Nexstar Broadcasting 18 18 17 19
KIDZ Abilene UHF FOX/UPN Sage Broadcasting 5 3 2 4
</TABLE>
KACB (San Angelo, Texas)
Market Overview. San Angelo, Texas is the 196th largest DMA in the
United States, with a population of approximately 142,000 and approximately
51,000 television households. Cable penetration in the San Angelo market is
estimated to be 77%. The San Angelo market experienced compound annual revenue
growth of approximately 12.9% from 1992 through 1998, and BIA projects this
market to grow at a compound annual rate of 4.7% from 1998 through 2002.
Average household income was approximately $37,000.
The table below provides an overview of the competitive stations
serving the San Angelo market:
<TABLE>
<CAPTION>
Audience Share
City of --------------
Call License VHF/UHF Affiliation Owner/Operator Nov 98 Feb 99 May 99 Nov 99
---- --------- ------- ----------- -------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KACB San Angelo VHF NBC STC Broadcasting 7 10 9 7
KIDY San Angelo VHF FOX/UPN Sage Broadcasting 9 6 5 9
KLST San Angelo VHF CBS Jewell TV Corp 25 26 27 23
KTXE-LP San Angelo UHF ABC Lamco Communications 5 5 4 7
</TABLE>
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BUSINESS STRATEGY
The Company's business strategy is to acquire and operate television
broadcast stations and maximize operating cash flow through both revenue growth
and improved cost control. The Company believes that revenue growth and cost
control may be achieved simultaneously, principally because many of the costs
associated with operating a television station are fixed. Key components of the
Company's business strategy include:
Management.
The Company believes that one of its most important assets is its
experienced management team. The Stations' general managers are responsible for
the day-to-day operations of their respective stations. The Company believes
that the autonomy of its station management enables it to attract top quality
managers capable of implementing an aggressive marketing strategy and reacting
to competition in the local markets. As an incentive, a portion of each station
general manager's compensation is based on the performance of the station for
which he or she is responsible.
Controlling Costs.
The Company seeks to selectively reduce costs at newly acquired
stations without adversely affecting growth. After acquiring a station,
management implements a cost control strategy stressing the elimination of
unnecessary costs, budgeting, accountability and disciplined credit and
collection procedures. The Company's management believes that it can create an
operating structure that will accommodate both revenue growth and cost
reductions.
Intensifying Sales Efforts.
The Company implements an aggressive approach to sales and marketing
designed to increase market revenue share. The Company's management believes
that increases in revenue share are not necessarily dependent on increases in
audience share.
Building on Local News Franchises.
The Company seeks to increase revenues by developing a highly-rated,
well-differentiated local news product designed to build viewer loyalty and
target specific demographic audiences that appeal to advertisers.
Managing Program Selection.
Each Station seeks to cost effectively purchase first-run and
off-network syndicated programming to target specific demographic audiences.
The Stations have been able to purchase syndicated programming at rates that
Company's management believes are attractive, in part because of the limited
competition for such programming in the Stations' DMAs.
Positioning and Branding Stations.
The Company seeks to increase revenues by developing and maintaining a
unique, local "brand image" for each Station within its respective market with
which viewers and advertisers can identify. This strategy integrates local
news, programming, promotion, and sales efforts for each Station based on its
market's demographics, competition, dynamics, and opportunities.
Pursuing Selective Acquisitions.
The Company actively seeks to acquire television stations that
management believes can benefit from its business strategy. Targeted stations
generally have one or more of the following characteristics: (i) attractive
acquisition terms, which may include station-for-station exchanges; (ii)
opportunities to implement effective cost controls; (iii) opportunities for
increased advertising revenue; (iv) opportunities
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for increased audience share through improved newscasts and programming; (v)
limited competition from other television broadcasters; and (vi) market
locations that possess attractive projected growth in advertising revenues. The
Company generally targets network-affiliated stations, which typically have
established audiences for their news, sports and entertainment programming,
located in DMAs generally ranked from 50 to 150.
NETWORK AFFILIATIONS.
Each of the Stations is affiliated with a major broadcast network
pursuant to a long-term affiliation agreement. Each affiliation agreement
generally provides the Station with the right to broadcast all programs
transmitted by the network with which the Station is affiliated. In return, the
network has the right to sell a substantial amount of the advertising time
during its broadcasts in exchange, in the case of networks other than FOX, for
a specified network compensation fee payable to the Station. These payments are
negotiated on a station-by-station basis and are subject to increases or
decreases by the network during the term of an affiliation agreement with
provisions for advance notice and a right of termination by the Station in the
event of a reduction. The agreements generally are long-term in nature, and
contain customary renewal provisions, which generally provide for automatic
renewal for successive terms, subject to either party's right to terminate the
agreement at the end of any term upon proper notice.
During 1999, each of the major networks publicly indicated that it is
reviewing the economic and other terms under which it provides programming to
network affiliates like the Stations. Proposed changes (which could be
implemented during the term of pending affiliation agreements) that have been
publicly discussed include: (i) reducing or eliminating the cash payments paid
by networks to affiliates, (ii) reducing the period of exclusivity with respect
to popular programming, (iii) reducing the amount of advertising time made
available for sale by affiliates during network programming and (iv) requiring
affiliates to share part of the costs of producing popular or special
programming. In response to declining revenues, some networks have suggested
that they may search for alternative methods of distribution for their
programming, such as satellite and cable channels. Any of such changes could
materially adversely affect the Company's asset values and operating margins.
The following table summarizes the network affiliation agreements for
the Stations, as well as for WPRI:
<TABLE>
<CAPTION>
Station Network Expiration Date
------- ------- ---------------
<S> <C> <C>
WNAC-TV/WPRI-TV FOX/CBS 1998 (1)/June 2006
WDTN-TV ABC August 29, 2004
WEYI-TV NBC December 31, 2010
WUPW-TV FOX October 11, 2001
WJAC-TV NBC December 31, 2010
KVLY-TV NBC March 28, 2002
WTOV-TV NBC December 31, 2010
KFYR-TV & satellites NBC December 31, 2001
KRBC-TV NBC December 31, 2010
KACB-TV NBC December 31, 2010
</TABLE>
(1) The Company is negotiating with FOX on renewal of the WNAC affiliation
agreement. The contract remains in effect while negotiations proceed.
ADVERTISING SALES
General.
Television station revenues are primarily derived from the sale of
local and national advertising. Television stations compete for advertising
revenues primarily with other broadcast television stations, radio stations,
cable system operators and programmers, and newspapers serving the same market.
All
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network-affiliated stations are required to carry spot advertising sold by
their networks which reduces the amount of advertising spots available for sale
by the Stations. The Stations directly sell all of the remaining advertising to
be inserted in network programming and all of the advertising in non-network
programming, retaining all of the revenues received from these sales. A
national syndicated program distributor typically retains a portion of the
available advertising time for programming it supplies in exchange for no fees
or reduced fees charged to the stations for such programming.
Advertisers wishing to reach a national audience usually purchase time
directly from the networks, or advertise nationwide on an ad hoc basis.
National advertisers who wish to reach a particular region or local audience
often buy advertising time directly from local stations through national
advertising sales representative firms. Local businesses purchase advertising
time directly from the stations' local sales staffs.
Advertising rates are based upon a program's popularity among the
viewers that an advertiser wishes to target, the number of advertisers
competing for the available time, the size and the demographic composition of
the market served by the station, the availability of alternative advertising
media in the market area, and the effectiveness of the stations' sales force.
Advertising rates are also determined by a station's overall ability to attract
viewers in its market area, as well as the station's ability to attract viewers
among particular demographic groups that an advertiser may be targeting.
Advertising revenues are positively affected by strong local economies,
national and regional political election campaigns, and certain events such as
the Olympic Games or the Super Bowl. Because television broadcast stations rely
on advertising revenues, declines in advertising budgets, particularly in
recessionary periods, adversely affect the broadcast industry, and as a result
may contribute to a decrease in the revenues of broadcast television stations.
Conversely, increases in advertising budgets targeting specific demographic
groups are based upon superior coverage or the dominant competitive position of
the Stations. The Company seeks to manage its advertising spot inventory
efficiently to maximize advertising revenues and its return on programming
costs.
Local Sales.
Local advertising time is sold by each Station's local sales staff who
call upon advertising agencies and local businesses, which typically include
car dealerships, retail stores and restaurants. Compared to revenues from
national advertising accounts, revenues from local advertising generally are
more stable and, due to a lower cost of sales, more profitable. The Company
seeks to attract new advertisers to television, and to increase the amount of
advertising time sold to existing local advertisers by relying on experienced
local sales forces with strong community ties, producing news and other
programming with local advertising appeal and sponsoring or co-promoting local
events and activities. The Company places a strong emphasis on experience of
its local sales staff and maintains an on-going training program for sales
personnel. To increase accountability of the Stations' sales forces, management
has implemented initiatives whereby sales managers are responsible for the
effective management of commercial inventory using input from account
executives who are responsible for preparing detailed reports and projections.
National Sales.
National advertising time is sold through national sales
representative firms which call upon businesses, which typically include
automobile manufacturers and dealer groups, telecommunications companies, fast
food franchisers, and national retailers (some of which may advertise locally).
Each Station has a manager assigned to work with the national sales
representative to increase advertising expenditures with the Stations.
INDUSTRY BACKGROUND
General.
Commercial television broadcasting began in the United States on a
regular basis in the 1940s over a portion of the broadcast spectrum commonly
known as the "VHF Band" (very-high frequency
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broadcast channels numbered 2 through 13). Television channels were later
assigned by the FCC under additional broadcast spectrum commonly known as the
"UHF Band" (ultra-high frequency broadcast channels numbered 14 through 83;
channels 70 through 83 have since been reallocated to non-broadcast services).
The license to operate a broadcast station is granted by the FCC, and due to
spacing requirements and other considerations, the number of licenses allocated
to any one market is limited.
Although UHF and VHF stations compete in the same market, UHF stations
historically have suffered a competitive disadvantage, in part because: (i)
receivers of many households were originally designed only for VHF reception;
(ii) UHF signals were more affected by terrain and other obstructions than VHF
signals; and (iii) VHF stations were able to provide higher quality signals to
a wider area. This historic disadvantage of UHF stations has gradually declined
through: (a) carriage on cable system; (b) improvements in television
receivers; (c) improvement in television transmitters; (d) wider use of all
channel antennae; (e) increased availability of programming; and (f) the
development of new networks such as FOX, UPN and the WB, which typically
broadcast through UHF stations.
All television stations throughout the United States are grouped into
211 generally recognized DMAs, which are ranked in size according to various
formulae based upon actual or potential audience. Each DMA is defined as an
exclusive geographic area consisting of all counties in which the home-market
commercial stations receive the greatest percentage of total viewing hours.
Television Networks.
A majority of commercial television stations in the United States are
affiliated with ABC, CBS, FOX, or NBC. The affiliation by a station with one of
the four major networks has a significant impact on the composition of the
station's programming, revenues, expenses, and operations. ABC, CBS, and NBC
provide the majority of its affiliates' programming each day without charge in
exchange for nearly all of the available advertising time in the programs
supplied, and sells this advertising time, and retains the revenues. The
affiliate receives compensation from the three networks and retains the revenue
from time sold by the affiliate during breaks in and between network programs
and in programming the affiliate produces or purchases from non-network
sources.
FOX has established an affiliation of independent stations which
operates on a basis similar to ABC, CBS and NBC. However, the number of hours
per week of programming supplied by FOX to its affiliates is significantly less
than the number of hours supplied by ABC, CBS, and NBC, and the network
compensation, if any, is normally less. As a result, FOX affiliates retain a
significantly higher portion of the available inventory of broadcast time for
their own use but must, however, purchase or produce a greater amount of their
own programming, resulting in generally higher programming costs.
In contrast to stations affiliated with major networks, an independent
station supplies over-the-air programming through the acquisition of broadcast
programs through syndication. This syndicated programming is generally acquired
by the independent stations for cash and/or barter. Independent stations that
acquire a program through syndication are usually given exclusive rights to
show the program in the station's market for either a period of years or a
number of episodes agreed upon between the independent station and the
syndicator of the programming. Types of syndicated programs aired on the
independent stations include feature films, popular series previously shown on
network television, and series produced for direct distribution to television
stations.
During 1994, UPN and WB each established a network of independent
stations that began broadcasting in January 1995 and operating on a basis
similar to FOX. However, UPN and WB currently supply fewer hours of programming
per week to their affiliates than any of the four major networks. As a result,
UPN and WB affiliates retain a significantly higher portion of the available
inventory of broadcast time for their own use than affiliates of any of the
four major networks.
Television Viewing Audience.
Nielsen is a national audience measuring service that periodically
publishes data on estimated
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audiences for television stations in various DMAs throughout the country. The
estimates are expressed in terms of the percentage of the total potential
audience in the DMA viewing a station, referred to as the station's "rating,"
and of the percentage of the audience actually watching the television station,
referred to as the station's "share." This rating service provides such data on
the basis of total television households and of selected demographic groupings
in the media markets being measured. Nielsen uses one of two methods to measure
the station's actual viewership. In larger DMAs, ratings are determined by a
combination of meters connected directly to selected television sets, and
periodic surveys of television viewing, while in smaller DMAs only periodic
surveys are completed. During 1999, all of the DMAs in which the Company
operated were survey markets except Providence, Rhode Island.
COMPETITION
Competition in the television industry exists on several levels,
including competition for audience, advertisers, and programming (including
local news). Competition is continually affected by technological change and
innovation, fluctuation in the popularity of competing entertainment and
communications media (including newspapers, magazine, internet, and direct
mail), and governmental restrictions or actions by Congress and federal
regulatory bodies. Any of these factors could have a material adverse effect on
the Company's operations. Competition in the television broadcasting industry
occurs primarily in individual DMAs. Generally, a television broadcast station
in one DMA does not compete with television broadcast stations in other DMAs.
Certain market competitors who are part of larger organizations have
substantially greater financial, technical, and programming resources than the
Company.
Audience.
Stations compete for audience share primarily on the basis of program
popularity, which has a direct effect on advertising rates. A large amount of
the Stations' prime time programming is supplied by the networks, and is
therefore dependent upon the performance of such network programs in attracting
viewers. Non-network time periods are programmed by the Station primarily with
syndicated programs, and locally produced news.
The development of methods of video transmission other than
over-the-air broadcasting has significantly altered competition for audience
share in the television industry. These other transmission methods can increase
competition faced by a broadcast station by bringing into its market distant
broadcasting signals not otherwise available to the station's audience, and by
serving as a distribution system for programming that originates on the cable
and satellite systems.
Other sources of competition for audience include home entertainment
systems (including video cassette recorder and playback systems, videodiscs and
television game devices), multichannel multipoint distribution systems, and
internet services. Stations face competition from high-powered direct broadcast
satellite services that transmit programming directly to homes equipped with
special receiving antennas or to cable television systems for transmission to
their subscribers.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable channels and direct broadcast satellites, are
expected to reduce the bandwidth required for television signal transmission.
These compression techniques, as well as other technological developments, are
applicable to all video delivery systems, including over-the-air broadcasting,
and have the potential to provide vastly expanded programming to highly
targeted audiences. Reduction in the cost of creating additional channel
capacity could lower entry barriers for new channels and encourage the
development of increasingly specialized "niche" programming. This ability to
reach very defined audiences may alter the competitive dynamics for advertising
expenditures. The Company is unable to predict the effect that technological
changes will have on the broadcast television industry or the future results of
the Company's operations.
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Advertising.
Stations compete for advertising revenues, primarily with other
broadcast television stations and, to a lesser extent, with radio stations,
cable system operators and programmers, and newspapers serving the same market.
Advertising revenues and advertising rates are based upon factors that include
the size of the DMA in which the station operates, a program's popularity among
the viewers that an advertiser wishes to attract, the number of advertisers
competing for the available time, the demographic makeup of the DMA served by
the station, the availability of alternative advertising media in the DMA,
aggressive and knowledgeable sales forces and developments of projects,
features and programs that tie advertiser messages to programming.
Historically, cable operators generally have not sought to compete
with over-the-air broadcast stations for a share of the local news audience in
the size of the markets that the Company targets. To the extent they elect to
do so, increased competition from cable operators for local news audiences
could have a material adverse effect on the Company's advertising revenues.
Cable operators have, however, started competing with the Stations by selling
advertising spots on certain cable channels. Cable penetration in each of the
Company's markets generally exceeds 60%.
As cable-originated programming has emerged as a competitor for
viewers of over-the-air broadcast television programming, the advertising share
of cable networks has increased significantly, although no single cable
programming network regularly attains audience levels amounting to more than a
small fraction of any over-the-air programming. Notwithstanding such increases
in cable viewership and advertising, over-the-air broadcasting remains the
dominant distribution system for mass market television advertising.
Programming.
The Company competes for programming, which involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. The Stations compete for exclusive access to those
programs against in-market broadcast station competitors for syndicated
products. Cable systems generally do not compete with local stations for
programming, although various national cable networks have become more active
in acquiring programs that would have otherwise been offered to local
television stations. In addition, a television station may acquire programming
through barter arrangements. Under barter arrangements, which are becoming
increasingly popular with both network affiliates and independents, a national
program distributor can receive advertising time in exchange for the
programming it supplies, with the station paying no fee or a reduced fee for
such programming.
FEDERAL REGULATION OF TELEVISION BROADCASTING
General.
The ownership, operation and sale of television stations are subject
to the jurisdiction of the Federal Communications Commission (FCC) which acts
under authority granted by the Communications Act of 1934, as amended
(Communications Act). Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
regulates equipment used by stations; adopts and implements regulations and
policies that directly or indirectly affect the ownership and operation of
stations; and has the power to impose penalties for violations of its rules or
the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act, the Telecommunications Act of 1996 (the Telecommunications
Act) and specific FCC regulations and policies. Further information concerning
the nature and extent of federal regulation of broadcast stations is found in
the Communications Act, the Telecommunications Act, FCC rules and the public
notices and rulings of the FCC.
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License Grant and Renewal.
Television stations operate pursuant to broadcasting licenses that
usually are granted by the FCC for a maximum permitted term of eight years.
Television licenses are subject to renewal upon application to the
FCC. Under the Communications Act, the FCC is required to grant a renewal
application if it finds that (1) the station has served the public interest,
convenience and necessity; (2) there have been no serious violations by the
licensee of the Communications Act or the rules and regulations of the FCC; and
(3) there have been no other violations by the licensee of the Communications
Act or the rules and regulations of the FCC that, when taken together, would
constitute a pattern of abuse.
All of the Stations are presently operating under licenses with terms
expiring as follows: April 1, 2007 (WNAC), August 1, 2007 (WJAC), October 1,
2005 (WEYI, WDTN, WTOV, WUPW), April 1, 2006 (KFYR, KMOT, KQCD, KUMV, KVLY) and
August 1, 2006 (KRBC, KACB). WPRI's license expires April 1, 2007. There can be
no assurance that any of the licenses of such stations will be renewed.
Ownership Matters
FCC Issues.
On August 5, 1999, the FCC adopted changes in several of its broadcast
ownership rules (collectively, the FCC Ownership Rules). These rule changes
became effective on November 16, 1999; however, several petitions have been
filed with the FCC seeking reconsideration of the new rules, so the rules may
change. While the following discussion does not describe all of the ownership
rules or rule changes, it attempts to summarize those rules that appear to be
most relevant to the Company.
The FCC relaxed its "television duopoly" rule, which barred any entity
from having an attributable interest in more than one television station with
overlapping service areas. Under the new rules, one entity may have
attributable interests in two television stations in the same Nielsen
Designated Market Area (DMA) provided that: (1) one of the two stations is not
among the top four in audience share and (2) at least eight independently owned
and operated commercial and noncommercial television stations will remain in
the DMA if the proposed transaction is consummated. The new rules also permit
common ownership of television stations in the same DMA where one of the
stations to be commonly owned has failed, is failing or is unbuilt or where
extraordinary public interest factors are present. In order to transfer
ownership in two commonly owned television stations in the same DMA, it will be
necessary to once again demonstrate compliance with the new rules. Lastly, the
new rules authorize the common ownership of television stations with
overlapping signal contours as long as the stations to be commonly owned are
located in different DMAs.
Similarly, the FCC relaxed its "one-to-a-market" rule, which restricts
the common ownership of television and radio stations in the same market. One
entity now may own up to two television stations and six radio stations or one
television station and seven radio stations in the same market provided that
(1) 20 independent media voices (including certain newspapers and a single
cable system) will remain in the relevant market following consummation of the
proposed transaction, and (2) the proposed combination is consistent with the
television duopoly and local radio ownership rules. If fewer than 20 but more
than 9 independent voices will remain in a market following a proposed
transaction, and the proposed combination is otherwise consistent with the
Commission's rules, a single entity may have attributable interests in up to
two television stations and four radio stations. If these various "independent
voices" tests are not met, a party generally may have an attributable interest
in no more than one television station and one radio station in a market.
The FCC made other changes to its rules that determine what
constitutes "cognizable interest" in applying the FCC Ownership Rules (the
Attribution Rules). Under the new Attribution Rules, a party will be deemed to
have a cognizable interest in a television or radio station, cable system or
daily newspaper that triggers the FCC's cross-ownership restrictions if (1) it
is a non-passive investor and it owns 5% or more of the voting stock in the
media outlet; (2) it is a passive investor (i.e., bank trust department,
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insurance company or mutual fund) and it owns 20% or more of the voting stock;
or (3) its interests (which may be in the form of debt or equity (even if
non-voting), or both) exceeds 33% of the total asset value of the media outlet
and it either (i) supplies at least 15% of a station's weekly broadcast hours
or (ii) has an attributable interest in another media outlet in the same
market.
The FCC also declared that local marketing agreements (LMAs) now will
be attributable interests for purposes of the FCC Ownership Rules. The FCC will
grandfather LMAs that were in effect prior to November 5, 1996, until it has
completed the review of its attribution regulations in 2004. Parties may seek
the permanent grandfathering of such an LMA, on a non-transferable basis, by
demonstrating that the LMA is in the public interest and that it otherwise
complies with FCC Rules.
Finally, the FCC eliminated its "cross interest" policy, which had
prohibited common ownership of a cognizable interest in one media outlet and a
"meaningful" non-cognizable interest in another media outlet serving
essentially the same market.
It is difficult to assess how these changes in the FCC ownership
restrictions will affect the Company's broadcast business.
The recent changes to the FCC Ownership Rules may affect the Company's
relationship with Smith Acquisition Company (SAC). The Company owns a
substantial non-voting equity stake in SAC, which, together with a wholly owned
subsidiary, owns WNAC-TV, Providence, Rhode Island, and WTOV-TV, Steubenville,
Ohio. Under the new FCC Ownership Rules, the Company's formerly
non-attributable interest in SAC has become attributable. Accordingly, the
Company, and parties to the Company, must consider whether its other broadcast
interests, when viewed in combination with those of SAC, are consistent with
all relevant FCC Ownership Rules. The Company is in the process of conducting
that review. To the extent the recent changes require the Company to modify its
broadcast interests or ownership structure, the Company expects to act as
necessary to remain in compliance with all relevant FCC Ownership Rules.
With the changes in the FCC Ownership Rules, the Company no longer
needs to maintain its waiver to own both KRBC-TV, Abilene, Texas, and KACB-TV,
San Angelo, Texas, as the common ownership of these stations is now consistent
with the Commission's Rules.
On October 2, 1999, AMFM Inc. (AMFM) entered into an Agreement and
Plan of Merger with Clear Channel Communications, Inc. (Clear Channel) and CCU
Merger Sub, Inc. (Merger Sub), pursuant to which AMFM will be merged with and
into Merger Sub and will become a wholly-owned subsidiary of Clear Channel (the
AMFM Merger). Thomas O. Hicks, who is the Company's ultimate controlling
shareholder, has an attributable interest in AMFM and currently is the Chairman
and Chief Executive Officer of AMFM. AMFM and Clear Channel have announced that
Mr. Hicks will serve as Vice Chairman of the combined entity. The Company is in
the process of analyzing the impact of this AMFM Merger on the Company's
operations and regulatory obligations.
Alien Ownership.
The Communications Act prohibits the issuance of broadcast licenses
to, or the holding of a broadcast license by, any corporation of which more
than 20% of the capital stock is beneficially or nominally owned or voted by
non-U.S. citizens or their representatives or by a foreign government or a
representative thereof, or by any corporation organized under the laws of a
foreign country (collectively, Aliens). The Communications Act also authorizes
the FCC, if the FCC determines that it would be in the public interest, to
prohibit the issuance of a broadcast license to, or the holding of a broadcast
license by, any corporation directly or indirectly controlled by any other
corporation of which more than 25% of the capital stock is beneficially or
nominally owned or voted by Aliens. The FCC has issued interpretations of
existing law under which these restrictions in modified form apply to other
forms of business organizations, including partnerships. The Company and its
subsidiaries are domestic corporations, and the Company's ultimate controlling
stockholder is a United States citizen. The Certificate of Incorporation of
each of the Company and Sunrise contain limitations on Alien ownership and
control that are substantially similar to those contained in the Communications
Act. Pursuant to the Certificate of Incorporation, the Company,
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has the right to purchase any Alien-owned shares of the Company's capital stock
at their fair market value to the extent necessary, in the judgment of the
Board of Directors, to comply with the Alien ownership restrictions.
Local Television/Cable Cross-Ownership Rule.
While the Telecommunications Act eliminated a previous statutory
prohibition against the common ownership of a television broadcast station and
a cable system that serves the same local market, the Telecommunications Act
left a similar FCC rule in place. The legislative history of the Act indicates
that its repeal of the statutory ban should not prejudge the outcome of any FCC
review of the rule. The FCC has pending a rulemaking proceeding in which it has
solicited comment on retention of its proscription on television-cable
cross-ownership.
OTHER MATTERS
Must-Carry Retransmission Consent.
Pursuant to the Cable Act of 1992, television broadcasters are
required to make triennial elections to exercise either "must-carry" or
"retransmission consent" rights in connection with their carriage by cable
systems in each broadcaster's local market. By electing must-carry rights, a
broadcaster demands carriage on a specified channel on cable systems within its
DMA, as defined by the Nielson 1997-98 DMA Market and Demographic Rank Report.
These must-carry rights are not absolute, and their exercise is dependent on
variables such as: (i) the number of activated channels on a cable system; (ii)
the location and size of a cable system; and (iii) the amount of programming on
a broadcast station that duplicates the programming of another broadcast
station carried by the cable station. Alternatively, if a broadcaster chooses
to exercise retransmission consent rights, it can prohibit cable systems from
carrying its signal or grant the appropriate cable system the authority to
retransmit the broadcast signal for a fee or other consideration.
The most recent election date for must-carry or retransmission consent
was October 1, 1999, such election to be effective for the three-year period
from January 1, 2000 through December 31, 2002.
The FCC currently is conducting a rulemaking proceeding to determine
carriage requirements for digital broadcast television stations on cable
systems during and following the transition from analog to digital
broadcasting, including carriage requirements with respect to ancillary and
supplementary services that may be provided by broadcast stations over their
digital spectrum.
SHVIA.
On November 29, 1999, the President signed the Satellite Home
Improvement Act (SHVIA). Among other things, SHVIA provides for a statutory
copyright license to enable satellite carriers to retransmit local television
broadcast stations into the stations' respective local markets. After May 27,
2000, satellite carriers will be prohibited from delivering a local signal into
its local markets - so called "local-into-local" service - without the consent
or must-carry election of such station, but stations will be obligated to
engage in good faith retransmission consent negotiations with the carriers.
SHVIA does not require satellite carriers to carry local stations, but provides
that carriers that choose to do so must comply with certain mandatory signal
carriage requirements by a date certain, as defined by the Act or as-yet to be
drafted FCC regulations. Further, the Act authorizes satellite carriers to
continue to provide certain network signals to unserved households, as defined
in SHVIA and FCC rules, except that carriers may not provide more than two
same-network stations to a household in a single day. Also, households that do
not receive a signal of Grade A intensity from any of a particular network's
affiliates may continue to receive distant station signals for that network
until December 31, 2004, under certain conditions. The FCC has initiated
several rule making proceedings, as required by SHVIA, to implement certain
aspects of the act, such as standards for good faith retransmission consent
negotiations, must-carry procedures, exclusivity protection for local stations
against certain distant signals, and enforcement.
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Digital Television.
The FCC has taken a number of steps to implement digital television
service (DTV) (including high-definition television) in the United States. On
February 17, 1998, the FCC adopted a final table of digital channel allotments
and rules for the implementation of DTV. The table of digital allotments
provides each existing television station licensee or permittee with a second
broadcast channel to be used during the transition to DTV, conditioned upon the
surrender of one of the channels at the end of the DTV transition period.
Implementation of DTV will improve the technical quality of television.
Furthermore, the implementing rules permit broadcasters to use their assigned
digital spectrum flexibly to provide either standard or high definition video
signals and additional services, including, for example, data transfer,
subscription video, interactive materials, and audio signals subject to the
requirement that they continue to provide at least one free, over the air
television service. Conversion to DTV may reduce the geographic reach of the
Company's stations or result in increased interference, with, in either case, a
corresponding loss of population coverage. DTV implementation will impose
additional costs on the Company, primarily due to the capital costs associated
with construction of DTV facilities and increased operating costs both during
and after the transition period. The FCC has adopted rules that require
broadcasters to pay a fee of 5% of gross revenues received from ancillary or
supplementary uses of the digital spectrum for which they receive subscription
fees or compensation other than advertising revenues derived from free
over-the-air broadcasting services. Pursuant to the FCC's rules, the Company's
Stations filed DTV construction permit applications on or before the November
1, 1999 deadline. The Company plans to complete construction of DTV facilities
by the May 1, 2002 deadline. The FCC has set a target date of 2006 for
expiration of the transition period, subject to biennial reviews to evaluate
the progress of DTV, including the rate of consumer acceptance. Management of
the Company believes that its conversion to DTV will commence in 2000 for all
of the Company's markets. Future capital expenditures by the Company will be
compatible with the new technology requirements to the extent they are not
constrained by financial debt covenants included in the Company's debt
agreements. Presently, no Company Station is broadcasting in DTV format.
PROGRAMMING AND OPERATION
General.
The Communications Act requires broadcasters to serve the "public
interest." The FCC has relaxed or eliminated many of the more formalized
procedures it had developed in the past to promote the broadcast of certain
types of programming responsive to the needs of a station's community of
license. FCC licensees continue to be required, however, to present programming
that is responsive to community issues, and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming often will be considered by the FCC when it evaluates
renewal applications of a licensee, although such complaints may be filed at
any time and generally may be considered by the FCC at any time. Stations also
must pay regulatory and application fees, and follow various rules promulgated
under the Communications Act that regulate, among other things, political
advertising, sponsorship identifications, the advertisement of contests and
lotteries, obscene and indecent broadcasts, and technical operations, including
limits on radiofrequency radiation. In addition, pursuant to FCC rules which
became effective on February 16, 1999, broadcast licensees will be required to
disclose on a biennial basis information regarding the race, ethnic background
and gender of persons with attributable positions or ownership interests in the
licensee. Failure to observe these or other rules and policies can result in
the imposition of various sanctions, including monetary forfeitures, or the
grant of a "short" (i.e., less than the full) license renewal term or, for
particularly egregious violations, the denial of a license renewal application
or the revocation of a license.
Children's Television Programming.
Pursuant to legislation enacted in 1990, the amount of commercial
matter broadcast during programming designated for children 12 years of age and
under is limited to 12.0 minutes per hour on weekdays and 10.5 minutes per hour
on weekends. In addition, television stations are required to broadcast a
minimum of three hours per week of "core" children's educational programming,
which, among other things, must have a significant purpose of servicing the
educational and informational needs
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of children 16 years of age and under. A television station found not to have
complied with the "core" programming requirements or the children's commercial
limitations could face sanctions, including monetary fines and the possible
non-renewal of its broadcasting license. The FCC has indicated its intent to
enforce its children's television rules strictly.
Television Violence.
Pursuant to a directive in the Telecommunications Act, the broadcast
and cable television industries have adopted, and the FCC has approved, a
voluntary content ratings system which, when used in conjunction with V-Chip
technology, would permit the blocking of programs with a common rating. The FCC
has directed that all television receiver models with picture screens 13 inches
or greater be equipped with V-Chip technology under a phased implementation
beginning on July 1, 1999. The Company cannot predict how the implementation of
the ratings system and V-Chip technology will affect the Company's business.
Closed Captioning.
Under rules which became effective January 1, 1998, programming
distributors, including television stations, are generally responsible for
compliance with an on-screen captioning requirement with respect to the vast
majority of video programming. The rules divide programming into two groups:
pre-rule programming (which is defined to be programming that was first
published or exhibited on or before January 1, 1998 by any distribution method)
and new programming (programming that was first published or exhibited after
that date). Pre-rule programming is subject to no specific requirements until
the first calendar quarter of 2003. In that quarter, 30% of all pre-rule
programming actually aired is required to be captioned. In the first quarter of
2008, the percentage of pre-rule programming that must be captioned will rise
to 75%. In the first calendar quarter of 2000, new programming that is not
otherwise exempt from captioning requirements became subject to a series of
increasing quarterly benchmarks, until January 1, 2006, when 100% of all new
non-exempt programming is to be captioned.
EEO.
On January 20, 2000, the Commission approved new equal employment
opportunity and outreach requirements that will apply to all broadcast
licensees (and cable operators). Although the Commission has not yet released
the text of these rules, the key elements are: (1) licensees will be required
to implement a minority outreach program; (2) licensees with five or more
full-time employees must place a report regarding their outreach efforts in
their public inspection file annually, and, if they have more than 10 full-time
employees, they must submit the last four years of these reports to the
Commission at the halfway point and endpoint of their license terms, which will
be subject to Commission review; (3) licensees with five or more full-time
employees also must file with the Commission a "Statement of Compliance" with
regard to their outreach efforts every two years; and (4) licensees with five
or more full-time employees also must file annual employment reports, of the
sort filed prior to 1998, which the Commission will use only to monitor
minority employment.
Proposed Changes.
The United States Congress and the FCC have under consideration, and
in the future may consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's broadcast stations,
result in the loss of audience share and advertising revenues for the Stations,
and affect the ability of the Company to acquire additional broadcast stations
or finance such acquisitions. In addition to the changes and proposed changes
noted above, such matters include, for example, spectrum use fees, political
advertising rates, potential restrictions on the advertising of certain
products (beer, wine and hard liquor, for example), and the rules and policies
to be applied in enforcing the FCC's equal employment opportunity regulations.
Other matters that could affect the Company's broadcast properties include
technological innovations and developments generally affecting competition in
the mass communications industry, such as radio and television direct broadcast
satellite service, the continued establishment of wireless cable systems and
low power television stations, digital television and radio technologies, and
the
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advent of telephone company participation in the provision of video programming
service.
The Telecommunications Act eliminated the overall ban on the offering
of video services by telephone companies and eliminated the prohibition on the
ownership of cable television companies by telephone companies in their service
areas (or vice versa) in certain circumstances. Telephone companies providing
such video services will be regulated according to the transmission technology
they use. The Telecommunications Act also permits telephone companies to hold
an ownership interest in the programming carried over such systems. Although
the Company cannot predict the effect of the removal of these barriers to
telephone company participation in the video services industry, it may have the
effect of increasing competition in the television broadcasting industry in
which the Company operates.
Other Considerations.
The foregoing summary does not purport to be a complete discussion of
all provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, other congressional acts, and regulations
and public notices promulgated from time to time by the FCC. There are
additional regulations and policies of the FCC and other federal agencies that
govern political broadcasts, public affairs programming, equal opportunity
employment and other matters affecting the Company's business and operations.
EMPLOYEES
As of December 31, 1999, the Company had approximately 623 full-time
and 81 part-time employees. WEYI has a contract with United Auto Workers that
expires on September 30, 2002 with respect to 42 employees. WTOV has a contract
with AFTRA that expires January 29, 2002 and a contract with International
Brotherhood of Electrical Workers (IBEW) that expires on November 30, 2000 with
respect to 27 and 18 employees, respectively. WJAC has a contract with
International Alliance of Theatrical Stage Employees that expires on September
30, 2002 with respect to 50 employees. WDTN has a contract with the IBEW that
expires July 1, 2003 with respect to 52 employees. KFYR has a contract with
IBEW that expires on September 9, 2003 with respect to 10 employees. No
significant labor problems have been experienced by the Stations. The Company
considers its overall labor relations to be good. However, there can be no
assurance that the Company's collective bargaining agreements will be renewed
in the future or that the Company will not experience a prolonged labor
dispute, which could have a material adverse effect on the Company's business,
financial condition, or results of operations.
ENVIRONMENTAL REGULATION
Prior to the Company's ownership or operation of its facilities,
substances or wastes that are or might be considered hazardous under applicable
environmental laws may have been generated, used, stored or disposed of at
certain of those facilities. In addition, environmental conditions relating to
the soil and groundwater at or under the Company's facilities may be affected
by the proximity of nearby properties that have generated, used, stored, or
disposed of hazardous substances. As a result, it is possible that the Company
could become subject to environmental liabilities in the future in connection
with these facilities under applicable environmental laws and regulations.
Although the Company believes that it is in substantial compliance with such
environmental requirements, and has not in the past been required to incur
significant costs in connection therewith, there can be no assurance that the
Company's costs to comply with such requirements will not increase in the
future. The Company presently believes that none of its properties have any
condition that is likely to have a material adverse effect on the Company's
financial condition or results of operations.
PENDING ACQUISITION
On March 16, 1999, the Company and Sinclair Communications, Inc.
(Sinclair) entered into a purchase agreement (the Sinclair Agreement). Pursuant
to the Sinclair Agreement, the Company agreed to
19
<PAGE> 20
purchase from Sinclair: WICS, Channel 20, Springfield, Illinois; WICD, Channel
15, Champaign, Illinois; and KGAN, Channel 2, Cedar Rapids, Iowa for a total
purchase price of $87.0 million, including working capital, fees and expenses.
WICS and WICD are NBC affiliates and KGAN is a CBS affiliate. Closing of this
purchase is subject to customary conditions, including review by the Department
of Justice and the Federal Communications Commission (FCC). In April 1999, the
Antitrust Division of the United States Department of Justice (DOJ) issued
various requests for additional information under the Hart-Scott-Rodino
Antitrust Improvement Act (HSR Act) in connection with the acquisition. The
Company and Sinclair are in discussions with the DOJ regarding this transaction,
and the waiting period under the HSR Act has been extended pending completion of
these discussions. While the resolution of these discussions remains uncertain,
it appears likely that, if the acquisition is consummated as contemplated under
the Sinclair Agreement, the Company would be required by the DOJ to sell, or
enter into a local marketing agreement with respect to, WICS and WICD
substantially concurrently with the closing of the acquisition of those
stations, if it occurs at all. Under the terms of the Sinclair Agreement, either
the Company or Sinclair (to the extent they are not in breach) may terminate the
Sinclair Agreement if the closing has not occurred on or prior to March 16,
2000. The Company is presently exploring a variety of alternatives, including
possibly a sale of WICS and WICD, but cannot be sure of the terms on which this
transaction will be completed, if at all.
The Company has assigned the right to acquire the broadcast licenses
and other license assets of the Sinclair Stations to SDF Television License
Corp. (SDF), an entity separate from the Company, but owned by members of the
Company's senior management team. On April 2, 1999, SDF filed applications
seeking FCC consent to the assignment of the licenses of WICS, WICD and KGAN.
The application has been accepted for filing, and no petitions to deny were
filed by the May 13, 1999 deadline, although informal objections advocating
denial of the applications may be filed up until the date that the FCC grants
the applications. The application is still pending before the FCC, and
accordingly, the Company cannot be sure when the application will be granted, if
at all.
ITEM 2. PROPERTIES
Each Station's real properties generally include main offices, studios
and transmitter/antenna sites. The transmitter/antenna sites generally are
located to provide maximum signal strength and market coverage. The Company
generally considers its facilities and equipment to be suitable for its current
operations, and generally in good condition. The Company does not anticipate
any difficulties leasing or purchasing additional space. The Company continues
to evaluate potential upgrades in its facilities and equipment.
The principal executive offices of the Company are located at 720 2nd
Avenue South, St. Petersburg, Florida 33701. The telephone number of the
Company at that address is (727) 821-7900. The following table generally
describes the Company's principal properties in each of the markets of
operation:
<TABLE>
<CAPTION>
Approximate
Station and Property Type of Owned Size Expiration
Location Facility and Use or Leased (Square Feet) of Lease
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WEYI:
Clio, Michigan......................Main Office/Studio Owned 17,500(1) --
Tower/Antenna Site Owned 17,500(1) --
Saginaw, Michigan...................Satellite Sales Office Leased 1,200 02/14/2000
WTOV:
Steubenville, Township, Ohio........Main Office/Studio Owned 12,750(1) --
Tower/Antenna Site Owned 12,750(1) --
Pultney Township, Ohio..............Microwave/Relay Owned 450 --
Wheeling, West Virginia.............Satellite Sales Office Leased 973 08/31/2000
WJAC:
Johnstown, Pennsylvania.............Main Office/Studio Owned 40,000 --
Laurel Hill, Pennsylvania...........Tower/Antenna Site Owned 3,600 --
Altoona, Pennsylvania...............News and Sales Office Leased 1,100 06/30/2002
Bedford, Pennsylvania...............News Office Leased 364 03/31/2002
State College, Pennsylvania.........News and Sales Office Leased 865 10/31/2001
KRBC:
Abilene, Texas......................Main Office/Studio Owned 19,312 --
Cedar Gap Mountain, Texas...........Tower/Antenna Site Owned 1,600 --
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Approximate
Station and Property Type of Owned Size Expiration
Location Facility and Use or Leased (Square Feet) of Lease
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KACB:
San Angelo, Texas................Main Office/Studio Leased 3,470 04/30/2001
San Angelo, Texas................Tower/Antenna Site Leased 1,134 05/15/2003
Runnels County, Texas............Relay Site Leased 500 10/31/2004
WDTN:
Dayton, Ohio.....................Main Office/Studio Owned 43,500 --
Dayton, Ohio.....................Tower/Antenna Site Owned 1,800 --
WNAC-TV
Rehoboth, Massachusetts..........Main Office/Studio Owned 14,000 (1 + 2) --
Tower/Antenna Site Owned 14,000 (1 + 2) --
KFYR: (3)
Bismarck, North Dakota...........Main Office/Studio Owned 19,600 --
Saint Anthony, North Dakota .....Tower/Antenna Site Owned 3,840 --
KMOT: (3)
Minot, North Dakota..............Main Office/Studio Owned 9,676(1) --
Tower/Antenna Site Owned 9,676(1) --
KUMV: (3)
Williston, North Dakota..........Main Office/Studio Owned 7,884 --
Judson Township,
North Dakota................Tower/Antenna Site Owned 3,168 --
KQCD: (3)
Dickinson, North Dakota..........Main Office/Studio Owned 3,600 --
Stark County, North Dakota.......Tower/Antenna Site Owned 2,400 --
KVLY: (3)
Fargo, North Dakota..............Main Office/Studio Owned 15,200 --
Blanchard, North Dakota..........Tower/Antenna Site Owned 4,320 --
Grand Forks, North Dakota........Sales and News Office Leased 1,500 06/30/2000
WUPW:
Toledo, Ohio.....................Main Office/Studio Leased 15,100 06/30/2007
Toledo, Ohio.....................Tower/Antenna Site Leased 800 12/20/2089
Corporate:
St. Petersburg, Florida..........Office Leased 5,500 06/30/2003
Wichita, Kansas..................Office Leased 4,068 08/31/2005
</TABLE>
(1) Main office/studio and tower/antenna site are at the same location.
(2) WNAC owns significant additional assets that are co-located at WPRI studio
site in Providence, Rhode Island.
(3) The North Dakota Stations are interconnected with a significant number of
microwave towers.
ITEM 3. LEGAL PROCEEDINGS
Lawsuits and claims are filed against the Company from time to time in
the ordinary course of business. Management believes that the outcome of any
such pending matters will not materially affect the financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common
stock, par value $0.01 per share (the Common Stock). All of the Company's
Common Stock is held by Sunrise Television Corp. (Sunrise). The Company has
never paid a cash dividend with respect to its Common Stock. The
21
<PAGE> 22
Company's Senior Credit Agreement generally prohibits the Company from paying
dividends on its Common Stock.
On February 24, 1997, the Company issued 1,000 shares of its Common
Stock to Sunrise in a private transaction for a cash purchase price of $50.0
million in reliance on the exemption, set forth in Section 4(2) of the
Securities Act of 1933, as amended (the Securities Act), from the registration
requirement set forth in Section 5 of the Securities Act.
On February 28, 1997, the Company sold 300,000 shares of its 14%
Redeemable Preferred Stock Series A in a private placement in reliance on
Section 4(2) of the Securities Act for a cash purchase price of $28.95 million,
with an aggregate liquidation preference of $30.0 million, or $100 per share,
in connection with the acquisition of the Jupiter/Smith Stations. These shares
are entitled to quarterly dividends and accrue at a rate per annum of 14%.
Prior to February 28, 2002, dividends may be paid in either additional whole
shares of Redeemable Preferred Stock Series A or cash, at the Company's option,
and only in cash following that date.
On March 25, 1997, the Company sold $100.0 million aggregate principal
amount of its 11% Senior Subordinated Notes due 2007 (the Notes) in reliance on
Rule 144A of the Securities Act to Chase Securities, Inc., NationsBanc Capital
Markets, Inc., and Schroder Wertheim & Co. as the initial purchasers. The
Company paid discounts to the initial purchasers of 3% of the aggregate
principal amount of the Notes sold.
On February 5, 1999, the Company entered into a $90.0 million
Redeemable Preferred Stock Series B bridge financing agreement (Preferred
Agreement) with three purchasers, two of which are participants in the Senior
Credit Agreement and sold $37.5 million of Redeemable Preferred Stock Series B
to fund the WUPW purchase in a private transaction for cash in reliance on the
exemption set forth in Section 4(2) of the Securities Act from the registration
requirement set forth in Section 5 of the Securities Act. On August 5, 1999,
the Company repaid all amounts outstanding under the Preferred Agreement, and
the availability for selling additional preferred stock under the Preferred
Agreement was cancelled.
On December 30, 1999, the Company issued and sold 25,000 shares of its
14% Redeemable Preferred Stock Series B to Sunrise in a private transaction for
an aggregate cash purchase price of $25.0 million in reliance on the exemption
set forth in Section 4(2) of the Securities Act from the registration
requirement set forth in Section 5 of the Securities Act.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth the selected historical information of
the Company as of the dates and for the periods indicated. Information for the
Company for the two years ended December 31, 1999 and 1998 and the ten months
ended December 31, 1997 was derived from the financial statements of the
Company, which have been audited by Arthur Andersen, LLP and are included in
Item 8 (excluding the consolidated balance sheet as of December 31, 1997, which
was previously filed). Predecessor historical information for the two months
ended February 28, 1997 and the year ended December 31, 1996 were derived from
the audited financial statements of the Jupiter/Smith Stations which have been
audited by Arthur Andersen, LLP and included in Item 8. Predecessor historical
financial information for the year ended December 31, 1995, has been derived
from the audited financials of the Jupiter/Smith Stations, which were audited
by Arthur Andersen, LLP. Statement of Operations Data below station operating
income, as well as Balance Sheet Data, for the Jupiter/Smith Stations for the
year ended December 31, 1995 have not been presented because such information
is not meaningful for the following reasons: (i) during such period the
Stations were owned and/or operated by persons other than the Company and/or
management; (ii) they were not owned or operated as a single unit for any such
periods; and (iii) they were operated as part of larger units and therefore,
allocations of corporate expenses, interest, and long term debt cannot be made
to the Stations.
22
<PAGE> 23
<TABLE>
<CAPTION>
COMBINED OPERATIONS | HISTORICAL
PREDECESSOR(1) | STC BROADCASTING, INC.
|
Two Months | Ten Months
Year Ended Ended | Year Ended Year Ended
December 31, February 28, | December 31, December 31,
1995 1996(2) 1997(2) | 1997 1998 1999
--------- --------- ----------- | ------------ --------- --------
(Dollars in thousands) | (Dollars in thousands)
Statement of Operations Data: |
- ---------------------------- |
|
<S> <C> <C> <C> | <C> <C> <C>
Net revenues (3) $ 32,905 $ 37,559 $ 5,228 | $ 36,231 $ 67,123 $ 81,157
Operating expenses: |
Station expenses (4) 23,910 22,145 3,786 | 21,141 38,058 47,413
Depreciation 3,121 4,286 757 | 3,475 8,207 13,405
Amortization 998 5,860 977 | 9,159 16,826 22,984
--------- --------- --------- | --------- --------- --------
Station operating income (loss) $ 4,876 $ 5,268 $ (292) | 2,456 4,032 (2,645)
Corporate expenses ========= 840 146 | 1,402 2,347 3,499
--------- --------- | --------- --------- --------
Operating income (loss) 4,428 (438) | 1,054 1,685 (6,144)
|
Gain on asset swap (5) -- -- | -- 17,457 --
Gain on Sale of WROC-TV -- -- | -- -- 4,500
Interest expense (6,072) (963) | (9,502) (16,301) (20,635)
Other income (expense) (6) 1,552 39 | 329 42 (1,127)
--------- --------- --------- | --------- --------- --------
Income (loss) before income tax (92) (1,362) | (8,119) 2,883 (23,406)
Income tax (provision) benefit -- -- | 299 (1,823) 7,525
--------- --------- --------- | --------- --------- --------
|
Net income (loss) before extraordinary item (92) (1,362) | (7,820) 1,060 (15,881)
Extraordinary loss from early retirement of debt, |
net of income tax benefit -- -- | -- (2,860) --
--------- --------- --------- | --------- --------- --------
Net loss (92) (1,362) | (7,820) (1,800) (15,881)
Dividends and accretion on |
Redeemable Preferred Stock (7) -- -- | (3,763) (5,100) (7,423)
--------- --------- --------- | --------- --------- --------
Net loss applicable to |
common stock $ (92) $ (1,362) | $ (11,583) $ (6,900) $ (23,304)
========= ========= ========= | ========= ========= =========
Other Financial Data: |
- -------------------- |
Net cash provided by (used in): |
Operating activities $ 6,898 $ 9,557 $ 1,632 | $ 5,106 $ 13,880 $ 6,087
Investing activities (750) (108,298) (233) | (201,986) (137,257) (33,989)
Financing activities (5,978) 101,405 -- | 198,512 127,092 26,464
Broadcast cash flow (8) 8,624 15,405 1,441 | 14,990 29,082 33,564
Broadcast cash flow margins (9) 26.21% 41.02% 27.60% | 41.37% 43.33% 41.36%
EBITDA (10) $ -- $ 14,565 $ 1,295 | $ 13,588 $ 26,735 $ 30,065
Capital expenditures 750 2,966 264 | 2,848 5,573 5,781
Amortization of film payments 3,181 3,581 620 | 3,214 5,696 6,178
Payments for program rights 3,552 3,590 621 | 3,314 5,679 6,358
Ratio of earnings to fixed charges (11) | (11,882) (6,803) (30,829)
|
Balance Sheet Data: |
- ------------------ |
|
Cash and cash equivalents | 1,632 5,347 3,909
Total assets | 240,791 384,512 384,173
Long term debt (including current portion): |
Senior Credit Agreement | 14,500 111,000 99,750
Senior Subordinated Debt | 100,000 100,000 100,000
Redeemable Preferred Stock |
Series A | 32,263 37,364 43,196
Series B | -- -- 24,305
Stockholder's equity | 52,429 78,729 70,425
</TABLE>
23
<PAGE> 24
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(Dollars in thousands)
(1) Financial statements for periods presented are at the various predecessor
cost bases.
(2) Financial information for the year ended December 31, 1996 and the two
months ended February 28, 1997 refers to the period that the Jupiter/Smith
Stations were owned by Jupiter and operated by SBP, an affiliate of Robert N.
Smith.
(3) Includes revenues resulting from the Joint Marketing Agreement between the
Company and Clear Channel Communications (CCC) pursuant to which CCC operates
both WNAC, which is owned by the Company and WPRI, which is owned by CCC. The
Company and CCC share equally the cash flow from these stations subject to
certain adjustments.
(4) Includes amortization of program rights.
(5) Represents book gain on the swap of television stations WPTZ, WNNE, and
KSBW with Hearst-Argyle Stations, Inc. for television stations WDTN and WNAC
and the interest of WNAC in the Joint Marketing Agreement with CCC.
(6) Consists primarily of approximately $1.5 million of non-recurring
revenues for consulting services provided during 1996 and $825 expenses
incurred in cancelled debt offering in 1999.
(7) Reflects dividend requirement and accretion on the Series A and Series B
redeemable preferred stock.
(8) Broadcast cash flow consists of operating income (loss) plus depreciation
of property and equipment, amortization of intangible assets and other assets,
amortization of program rights, and corporate expense minus payments on program
rights.
(9) Broadcast cash flow margin is broadcast cash flow divided by net revenues
expressed as a percentage.
(10) EBITDA is defined as broadcast cash flow less corporate expenses.
(11) For purposes of this calculation, "earnings" consist of net loss
applicable to common stock before income tax (benefit) and fixed charges.
"Fixed charges" consist of interest expense, amortization of deferred financing
costs, the component of rental expense believed by management to be
representative of the interest factor thereon and preferred stock dividend
requirements and related accretion. If the ratio is less than 1.0x, the
deficiency is shown.
ITEM 7. 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, compensation paid by the
networks to the Stations for broadcasting network programming. The Stations'
primary operating expenses are employee compensation and related benefits, news
gathering costs, film and syndicated programming expenditures and promotional
costs. A significant proportion of the operating expenses of the Stations are
fixed.
The Stations receive revenues from advertising sold for placement
within and adjoining its local programming and network programming. Advertising
is sold in time increments and is priced primarily on the basis of a program's
popularity within the demographic group an advertiser desires to reach, as
measured principally by audience surveys conducted in February, May and
November of each year. The ratings of local television stations affiliated with
a national television network can be affected by ratings of network
programming. Advertising rates are affected by the number of advertisers
competing for the available time, the size and demographic makeup of the
markets served by the television station and the availability of alternative
advertising media in the market areas. Advertising rates are highest during the
most desirable viewing hours, generally during local news programming, access
(the hour before prime time), early fringe (3:00 p.m. to 5:00 p.m.) and prime
time.
24
<PAGE> 25
Most advertising contracts are short-term and generally run for only a
few weeks. A majority of the revenues of the Stations are generated from local
advertising, which is sold primarily by a Station's sales staff, and the
remainder of the advertising revenues represents national advertising, which is
sold by independent national advertising sales representatives. The Stations
generally pay commissions to advertising agencies on local and national
advertising, and on national advertising the Stations pay commissions to the
national sales representatives operating under 9 agreements that provide for
exclusive representation within the particular Station market. In 1999, local
advertising comprised 62.0% of the Company's gross spot revenues (excluding
political advertising), and national advertising comprised 38.0% of the
Company's gross spot revenues (excluding political advertising). The gross spot
broadcast 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. Advertising spending by political candidates is typically
heaviest during the fourth quarter. In 1998, the Stations' advertising revenues
benefited from local and congressional elections and the Winter Olympic Games
on CBS.
"Broadcast Cash Flow" is defined as operating income (loss) plus
depreciation of property and equipment, amortization of intangible assets and
other assets, amortization of program rights, and corporate expenses less
payments for program rights. EBITDA is defined as Broadcast Cash Flow less
corporate expenses. The Company has included Broadcast Cash Flow and EBITDA
data because such data are commonly used as a measure of performance for
broadcast companies and are used by investors to measure a company's ability to
service debt. Broadcast Cash Flow and EBITDA are not, and should not be used as
an indicator or alternative to operating income, net loss or cash flow as
reflected in the accompanying 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 Annual Report on Form 10-K contains forward-looking statements.
All statements other than statements of historical facts included herein may
constitute forward-looking statements. The Company has based these
forward-looking statements on our current expectations and projections about
future events. Although we believe that our assumptions made in connection with
the forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations will prove to have been correct. These
forward-looking statements are subject to various risks, uncertainties and
assumptions including increased competition, increased costs, changes in
network compensation agreements, impact of future acquisitions and
dispositions, loss or retirement of key members of management, inability to
realize our acquisition strategy, increases in costs of borrowings,
unavailability of additional debt and equity capital, adverse state or federal
legislation or changes in Federal Communications Commissions policies, and
changes in general economic conditions. 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 obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
25
<PAGE> 26
HISTORICAL PERFORMANCE
(ALL DOLLARS PRESENTED IN TABLES ARE SHOWN IN THOUSANDS)
BROADCAST CASH FLOW
The following table sets forth certain data for the three years ended
December 31, 1999.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Operating Income (Loss) $ 616 $ 1,685 $ (6,144)
Add:
Amortization of Program Rights 3,834 5,696 6,178
Depreciation of Property and Equipment 4,232 8,207 13,405
Amortization of Intangibles 10,136 16,826 22,984
Corporate Expenses 1,548 2,347 3,499
Less: Payments for Program Rights (3,935) (5,679) (6,358)
-------- -------- --------
Broadcast Cash Flow 16,431 29,082 33,564
Less: Corporate Expenses (1,548) (2,347) (3,499)
-------- -------- --------
EBITDA $ 14,883 $ 26,735 $ 30,065
======== ======== ========
Margins:
Broadcast Cash Flow 39.6% 43.3% 41.4%
======== ======== ========
EBITDA 35.9% 39.8% 37.0%
======== ======== ========
</TABLE>
NET REVENUES
Set forth below are the principal types of television revenues that
the Company has generated for the periods indicated and the percentage
contribution of each to total revenues.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1998 1999
------------------ ------------------ ------------------
$ % $ % $ %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Gross revenues:
Local $23,768 48.9% $37,959 48.5% $49,121 52.7%
National 18,847 38.8 24,350 31.1 30,161 32.4
Political 300 0.7 5,721 7.3 462 .5
Network Compensation 3,078 6.3 4,808 6.1 5,340 5.7
Joint Operating Agreement (1) -- -- 2,522 3.2 3,622 3.9
Trade and Barter 1,731 3.6 1,999 2.6 2,913 3.1
Other 839 1.7 926 1.2 1,618 1.7
------- ----- ------- ----- ------- -----
Total Gross 48,563 100.0% 78,285 100.0% 93,237 100.0%
Agency and National
Representative Commissions 7,105 14.6 11,162 14.3 12,080 13.0
------- ----- ------- ----- ------- -----
Net Revenue $41,458 85.4% $67,123 85.7% $81,157 87.0%
======= ===== ======= ===== ======= =====
</TABLE>
(1) Represents approximately 50% of the broadcast cash flow of WNAC and WPRI
less certain adjustments.
26
<PAGE> 27
RESULTS OF OPERATIONS
Set forth below is a summary of the operations of the Company for the
years indicated and their percentages of net revenues.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1998 1999
-----------------------------------------------------------------------
$ % of Net $ % of Net $ % of Net
Revenues Revenues Revenues
------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues: $41,458 100.0% $67,123 100.0% $ 81,157 100.0%
Operating Expenses:
Station Operating 13,617 32.9 20,696 30.8 25,144 31.0
Selling, General and Administrative 9,738 23.5 15,447 23.0 19,322 23.8
Trade and Barter 1,571 3.8 1,915 2.9 2,947 3.6
Depreciation 4,232 10.2 8,207 12.2 13,405 16.5
Amortization 10,136 24.4 16,826 25.1 22,984 28.3
Corporate Expenses 1,548 3.7 2,347 3.5 3,499 4.4
------- ----- ------- ----- -------- -----
Operating Income (Loss) $ 616 1.5% $ 1,685 2.5% $ (6,144) (7.6)%
======= ===== ======= ===== ======== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
In the discussion comparing the years ended December 31, 1999 and
1998, WTOV, WEYI, and WJAC will be referred to as the Core Stations. The
acquisition of television stations KVLY, KFYR, KUMV, KQCD, KMOT (the Meyer
Stations), and KRBC, KACB and WUPW will be referred to as the Station
Acquisitions. The KRBC and KACB acquisition closed on April 1, 1998, the Meyer
Stations acquisition closed on November 1, 1998, and the WUPW acquisition
closed on February 1, 1999. The Company continues to own all of the stations
acquired in the Station Acquisitions. The acquisition of WPTZ and WNNE from
Sinclair, and the transfer to Hearst-Argyle Television, Inc. (Hearst) of KSBW,
WPTZ and WNNE in exchange for WDTN, WNAC and WNAC's interest in a Joint
Marketing Agreement with WPRI, will be referred to as the Swap Transaction. The
sale of the non-license assets of WROC, and the entering into of a time
brokerage agreement, will be referred to as the WROC Sale.
The following table details how the above transactions affected
operating income.
<TABLE>
<CAPTION>
Core Swap Station WROC
Stations Transaction Acquisitions Sale Total
-------- ----------- ------------ ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues $(1,505) $ 1,369 $23,224 $(9,054) $14,034
Operating Expenses:
Station Operating 37 964 7,111 (3,664) 4,448
Selling, General and Administrative (229) (209) 6,357 (2,044) 3,875
Trade and Barter 127 16 1,245 (356) (1,032)
Depreciation 200 580 5,238 (820) 5,198
Amortization (343) 1,633 6,877 (2,009) 6,158
Corporate Expenses 1,152 0 0 0 1,152
------- ------- ------- ------- -------
Operating Income $(2,449) $(1,615) $(3,604) $ (161) $(7,829)
======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 28
Core Stations
A decrease of $1.1 million in net sales was the result of less
political sales during 1999 compared to 1998. The remaining decrease in sales in
1999 was due to a decrease in General Motors advertising and market specific
softness. A decrease of $0.2 million in selling, general and administrative
expense is a result of decreased sales costs. An increase of $0.2 million in
depreciation is attributable to the increased capital spending and the $0.3
million reduction in amortization is attributable to the write off of loan costs
during 1998. Corporate expenses increased by $1.2 million due to higher salary
costs, additional staff and related benefits, new office space and increased
professional service costs.
Interest Expense
Interest expense increased by $4.3 million to $20.6 million for the
year ended December 31, 1999 from $16.3 million for the year ended December 31,
1998. An increase of $5.3 million is due to higher outstanding balances on the
Senior Loan Agreement and higher interest rates. A decrease of approximately
$0.9 million was due to no 1999 comparable amounts outstanding under the
Hearst-Argyle loan.
Gain on Sale of WROC
Gain on the sale of WROC was $4.5 million for the year ended December
31, 1999 with no amount for the year ended December 31, 1998.
Expenses Incurred in Cancelled Debt Offering
During the second quarter of 1999, the Company and Sunrise
contemplated selling either debt securities of Sunrise or preferred stock of
the Company in a private placement to fund the acquisition under the Sinclair
Agreement and repay the outstanding amounts under the Preferred Agreement.
Sunrise and the Company subsequently determined that they would attempt to fund
the Sinclair Agreement through an additional borrowing under the Senior Credit
Agreement and by an additional capital contribution by Sunrise. The year ended
December 31, 1999 includes an $0.8 million charge for the cancelled offering.
Income Tax Benefit
Income tax benefit increased by $9.3 million to $7.5 million for the
year ended December 31, 1999 from an expense of $1.8 million for the year ended
December 31, 1998. This increase is mainly attributable to deferred tax assets
being generated by the Company's net operating loss carryforwards.
Redeemable Preferred Stock Dividends and Accretion
Redeemable preferred stock dividends and accretion increased $2.3
million to $7.4 million for the year ended December 31, 1999 from $5.1 million
for the year ended December 31, 1998. An increase of $1.6 million is a result
of the initial issuance of the Series B preferred stock during 1999 and the
remainder of the increase resulted from higher outstanding balances on the
Series A preferred stock.
Net Loss Applicable to Common Stock
Net loss applicable to common stock increased by $13.6 million to
$20.5 million for the year ended December 31, 1999 from a loss of $6.9 million
for the period ended December 31, 1998 due to the reasons outlined above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
In the discussion comparing the year ended December 31, 1998 to 1997,
WTOV, WEYI and
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<PAGE> 29
WROC will be referred to as the Core Stations. The effect of the acquisition of
television stations WJAC, KRBC, KACB, and the Meyer Stations will be referred
to as the Station Acquisitions. The WJAC acquisition closed on October 1, 1997,
KRBC and KACB acquisition closed on April 1, 1998, and the Meyer acquisition
closed on November 1, 1998. The net change resulting from the transactions with
Sinclair and Hearst (acquisition of WDTN, WNAC and its joint operating
agreement with WPRI, and the disposition of KSBW, WPTZ and WNNE) will be
referred to as the Swap Transaction.
The Jupiter/Smith Stations operations are presented on a pre-
acquisition cost basis and are not comparable with the Company's operations for
periods subsequent to March 1, 1997. The 1997 financial information is a
combination of the Company financial statements of the ten months ended
December 31, 1997, and the Jupiter/Smith Stations financial statements for the
two months ended February 28, 1997.
The following table details how the above transactions affected
operating income.
<TABLE>
<CAPTION>
Core Swap Station
Stations Transaction Acquisition Total
-------- ----------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net Revenues $2,409 $9,805 $13,451 $25,665
Operating Expenses:
Station Operating 494 2,561 4,024 7,079
Selling, General and Administrative 360 980 4,369 5,709
Trade and Barter 121 (49) 272 344
Depreciation 208 1,190 2,577 3,975
Amortization 162 3,082 3,446 6,690
Corporate Expenses 799 0 0 799
------ ------ ------- -------
Operating Income $ 265 $2,041 $(1,237) $ 1,069
====== ====== ======= =======
</TABLE>
Core Stations.
An increase of $2.3 million in net revenue is a result of political
advertising revenue. An increase of $0.5 million in station operating expense
is attributable to increased costs at WEYI and WROC for expanded spending on
news. An increase of $0.4 million in selling, general and administrative
expenses was a result of increased sales costs and promotion. An increase of
$0.2 million in depreciation expense is attributable to increased capital
expenditures and an increase of $0.2 million in amortization is attributable to
the revaluation of assets at the time of purchase by the Company on March 1,
1997. Corporate expenses increased by $0.8 million related to higher salary
costs, additional staff and related benefits.
Operating Income.
Operating income increased by $1.1 million or 154.5% to $1.7 million
for the year ended December 31, 1998 from $0.6 million for the year ended
December 31, 1997 due to the reasons outlined above.
Interest Expense.
Interest expense increased by $5.8 million to $16.3 million for the
year ended December 31, 1998 from $10.5 million for the year ended December 31,
1997. An increase of $1.8 million is due to higher average outstanding balances
of the Senior Subordinated Notes resulting from the issuance in March of 1997.
An increase of $2.0 million is due to higher outstanding balances on the Senior
Credit Agreement resulting from Station Acquisitions, an increase of $0.9
million is due to interest payable to Hearst on the purchase of WPTZ, WNNE, and
WFFF and operations of the stations through closing on May 31, 1998, and an
increase of $1.1 million resulting from the Swap Transactions.
29
<PAGE> 30
Income Tax.
Income tax increased by $2.1 million to $1.8 million for the year
ended December 31, 1998 from a benefit of $0.3 million for the year ended
December 31, 1997. This increase is attributable to the acquisition of WJAC,
KRBC, and KACB, and the related amortization of the step up in basis of their
assets for purchase accounting offset by the gain on asset swap.
Gain on Asset Swap.
Gain on asset swap was $17.5 million for the year ended December 31,
1998 with no gain for the year ended December 31, 1997. $7.9 million of the
gain is attributable to the non-license assets of KSBW, $1.6 million is
attributable to the non-license assets of WPTZ and WNNE, and $8.0 million is
attributable to the FCC licenses of KSBW, WPTZ, and WNNE.
Extraordinary Item.
Extraordinary charge for early retirement of debt was $2.9 million for
the year ended December 31, 1998 with no extraordinary item for the period
ended December 31, 1997. The charge consists of $2.4 million of write offs
related to the unamortized costs incurred on the issuance of the former Bank
Credit Agreement and $2.2 million of fees incurred on the issuance of the
Senior Credit Agreement, net of $1.7 million of taxes.
Redeemable Preferred Stock Dividends and Accretion.
Redeemable preferred stock dividends and accretion increased by $1.3
million to $5.1 million for the year ended December 31, 1998 from $3.8 million
for the period ended December 31, 1997. The increase is attributable to twelve
months in 1998 versus ten months in 1997 and higher average outstanding
balances during 1998.
Net Loss Applicable to Common Stock.
Net loss applicable to common stock decreased by $4.7 million to $6.9
million for the year ended December 31, 1998 from a loss of $11.6 million for
the period ended December 31, 1997 due to the reasons outlined above.
Liquidity and Capital Resources
As of December 31, 1999, the Company had $3.9 million in cash balances
and net working capital of approximately $4.1 million. The Company's primary
sources of liquidity are cash provided by operations, availability under the
Senior Credit Agreement and the equity contributions by Sunrise.
Net cash flows provided by operating activities decreased by $7.8
million to $6.1 million for the year ended December 31, 1999 from $13.9 million
for the year ended December 31, 1998. The Company made interest and film
payments of $20.6 million and $6.4 million, respectively, during the year ended
December 31, 1999 compared to $16.3 million and $5.7 million, respectively for
the year ended December 31, 1998.
Net cash flows used in investing activities decreased by $103.3
million to $34.0 million for the year ended December 31, 1999 from $137.3
million for the year ended December 31, 1998. In 1999, the Company purchased
WUPW for approximately $74.5 million, spent $5.8 million on capital
expenditures and generated $46.0 million for the sale of WROC.
Net cash flows provided by financing activities decreased by $100.6
million to $26.5 million for the year ended December 31, 1999 from $127.1
million for the year ended December 31, 1998. In 1999, the Company received a
capital contribution of $15.0 million from Sunrise, sold $61.4 million of
redeemable preferred stock Series B, redeemed $37.5 million of redeemable
preferred stock Series B, paid $1.2
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<PAGE> 31
million of dividends on redeemable preferred stock Series B and decreased
borrowings under the Senior Credit Agreement by a net of $11.3 million.
The Company's liquidity needs consist primarily of debt service
requirements for the Senior Credit Agreement and the 11% Senior Subordinated
Notes (Senior Subordinated Notes), working capital needs, the funding of
capital expenditures and potential acquisitions. The Company may incur
additional indebtedness in the future, subject to certain limitations contained
in the Senior Credit Agreement and the Senior Subordinated Notes and intends to
do so in order to fund future acquisitions as part of its business strategy.
The Company has historically funded acquisitions through a combination of
borrowings and the receipt of capital contributions from Sunrise.
Principal and interest payments under the Senior Credit Agreement and
the Senior Subordinated Notes will represent significant liquidity requirements
for the Company in the future. Loans under the Senior Credit Agreement bear
interest at floating rates based upon the interest rate option selected by the
Company. The Senior Credit Agreement and the Senior Subordinated Notes limit
the Company's ability to pay cash dividends prior to 2002. The Senior Credit
Agreement and the Senior Subordinated Notes impose certain limitations on the
ability of the Company and its subsidiaries to, among other things, pay
dividends or make restricted payments, consummate certain asset sales, enter
into transactions with affiliates, incur liens, impose restrictions on the
ability of a subsidiary to pay dividends or make certain payments to Sunrise,
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.
In 1997, the Company completed a private placement of $100.0 million
principal amount of its Senior Subordinated Notes, which subsequently were
exchanged for registered Senior Subordinated Notes having substantially
identical terms. Interest on the Senior Subordinated Notes is payable on March
15 and September 15 of each year.
On July 2, 1998, the Company entered into a Senior Credit Agreement
with various lenders which provides a $100.0 million Term Loan Facility and
$65.0 million Revolving Credit Facility. The term loan facility is payable in
quarterly installments commencing on September 30, 1999 and ending June 3,
2006. The revolving loan facility requires scheduled annual reductions of the
commitment amount commencing on September 30, 2001. At December 31, 1999, the
Company had outstanding $98.5 million on the term loan facility and $1.25
million under the revolving loan facility.
The Senior Credit Agreement provides for first priority security
interest in all of the tangible and intangible assets of the Company and its
direct and indirect subsidiaries. Any loans under the Senior Credit Agreement
are guaranteed by Sunrise and the Company's current direct and indirect and any
future subsidiaries. The Senior Credit Agreement and the Senior Subordinated
Notes contain certain financial operating maintenance covenants including a
maximum consolidation leverage ratio (currently 7.0:1), a minimum consolidated
fixed charge coverage ratio (currently 1.05:1), and a consolidated interest
coverage ratio (currently 1.3:1). The Company is limited in the amount of
annual payments that may be made for capital expenditures and corporate
overheard.
The operating covenants of the Senior Credit Agreement and the Senior
Subordinated Notes include limitations on the ability of the Company to (i)
incur additional indebtedness, other than certain permitted indebtedness; (ii)
permit additional liens or encumbrances, other than certain permitted liens;
(iii) make any investments in other persons, other than certain permitted
investments; (iv) become obligated with respect to contingent obligations,
other than certain permitted contingent obligations; and (v) make restricted
payments (including dividends on its common stock). The operating covenants
include restrictions on certain specified fundamental changes, such as mergers
and asset sales, transactions with shareholders and affiliates and transactions
outside the ordinary course of business as currently conducted, amendments or
waivers of certain specified agreements and the issuance of guarantees or other
credit enhancements. At December 31, 1999, the Company was in compliance with
the financing and operating covenants of both the Senior Credit Agreement and
the Senior Subordinated Notes.
On March 1, 1997, the Company issued 300,000 shares of Redeemable
Preferred Stock Series A
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<PAGE> 32
with an aggregate liquidation preference of $30.0 million, or $100 per share,
which are entitled to quarterly dividends that will accrue at a rate per annum
of 14%. Prior to February 28, 2002, dividends may be paid in either additional
whole shares of Redeemable Preferred Stock Series A or cash, at the Company's
option, and only in cash following that date. The Senior Subordinated Notes and
the Senior Credit Agreement prohibit the payment of cash dividends until May
31, 2002.
On February 5, 1999, the Company entered into an agreement (the
Preferred Agreement) to sell up to $90.0 million of Redeemable Preferred Stock
Series B to finance acquisitions by the Company from time to time. An aggregate
of $37.5 million of Redeemable Preferred Stock was sold on February 5, 1999 to
finance the acquisition of WUPW ($35.0 million) and to fund an escrow account
($2.5 million) to pay dividends on such Redeemable Preferred Stock Series B. On
August 5, 1999, the Company repaid all amounts outstanding under the Preferred
Agreement by borrowing $21.0 million under the Senior Credit Agreement,
receiving a $15.0 million capital contribution from Sunrise and using $1.5
million in available cash. The borrowing availability under the Preferred
Agreement was cancelled.
On December 30, 1999, the Company issued and sold to Sunrise 25,000
shares of Redeemable Preferred Stock Series B with an aggregate liquidation
preference of $25.0 million. Each share is entitled to quarterly dividends that
will accrue at a 14% rate per annum. The Company's Senior Credit Agreement and
Senior Subordinated Notes prohibit the payment of cash dividends until May 31,
2002.
The Certificates of Designation for the Redeemable Preferred Stock
Series A and B contain covenants customary for comparable securities including
covenants that restrict the ability of the Company and its subsidiaries to
incur additional indebtedness, pay dividends and make certain other restricted
payments, to merge or consolidate with any other person or to sell, assign,
transfer, lease, convey, or otherwise dispose of all or substantially all of
the assets of the Company. Such covenants are substantially identical to those
covenants contained in the Senior Subordinated Notes.
Based on the current level of operations, anticipated future
internally generated growth, additional borrowings under the Senior Credit
Agreement and additional equity contributions from Sunrise, the Company
anticipates that it will have sufficient funds to meet its anticipated
requirements for working capital, capital expenditures, interest payments, and
have funds available for additional acquisitions. The Company's future
operating performance and ability to service or refinance the Senior
Subordinate Notes and to extend or refinance the Senior Credit Agreement and
Redeemable Preferred Stock Series A and B will be subject to future economic
conditions and to financial, business, and other factors, many of which are
beyond the control of the Company. The ability of the Company to implement its
business strategy, and to consummate future acquisitions will require
additional debt and significant 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.
Credit and Interest Rate Risks
The Company's financial instruments that constitute exposed credit
risks consist primarily of cash equivalents and trade receivables. The
Company's cash equivalents consist solely of high quality securities.
Concentrations of credit risks with respect to receivables are somewhat limited
due to the large number of customers and to their dispersion across the
geographic areas served by the Stations. No single customer amounts to 10% of
the Company's total outstanding receivables.
The Company was exposed to minimal market risk related to interest
rates as of December 31, 1999. The Company's Senior Subordinate Debt is fixed
at 11% and is due and payable on March 15, 2007. On September 11, 1998, the
Company entered into a three year interest rate swap agreement to reduce the
impact of changing interest rates on $70.0 million of its variable rate
borrowings under the Senior Credit Agreement. The base interest rate was fixed
at 5.15% plus the applicable borrowing margin (currently 2.125%) for an overall
borrowing rate of 7.275% at December 31, 1999. On February 9, 1999, the Company
entered into a two-year interest rate swap agreement, which was extendable by
either party for an additional two years, to reduce the impact of changing
interest rates on $40.0 million of its floating
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<PAGE> 33
rate borrowings from the Senior Credit Agreement. The interest rate was fixed
at 5.06% plus applicable borrowing margin. Due to the issuance by the Company
on December 30, 1999 of $25.0 million of Redeemable Preferred Stock Series B to
Sunrise and the subsequent reduction in outstanding balances under the Senior
Credit Agreement, the Company terminated the swap agreement, but simultaneously
entered into a new swap agreement that fixed the interest rate on $25.0 million
of its floating rate borrowings for 18 months at 5%, plus the applicable
borrowing margin (currently 2.125%), for an overall borrowing rate of 7.125% at
December 31, 1999. The variable interest rates on these interest rate swap
contracts are based upon the three month London Interbank Offered Rate (LIBOR)
and the measurement and settlement is performed quarterly. The quarterly
settlements of this agreement will be recorded as an adjustment to interest
expense and are not anticipated to have a material effect on the operations of
the Company. The counter party to the new interest rate swap agreement is one
of the lenders under the Senior Credit Agreement.
Capital Expenditures
Capital expenditures were $5.8 million and $5.6 million for the years
ended December 31, 1999 and 1998, respectively. Maintenance capital
expenditures for the Company are estimated to be approximately $6.0 million per
year beginning in 2000. In addition, we anticipate that the adoption of digital
television will require a minimum capital expenditure of approximately $1.5 to
$2.5 million per station to develop facilities necessary for transmitting a
digital signal with the initial expenditures beginning in 2000.
Depreciation, Amortization and Interest
Because the Company has incurred substantial indebtedness in the
acquisition of stations, 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,
equipment, and intangibles that were acquired in the multiple station
acquisitions, the Company expects that it will report net losses for the
foreseeable future.
Inflation
The Company believes that its business is affected by inflation to an
extent no greater than other businesses are generally affected.
Current Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement 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. SFAS No. 133, as amended by SFAS No. 137, is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
has not determined what effect this statement will have on the Company's
consolidated financial statements.
Network Affiliation Agreements
In July 1999, the FOX Network entered into an agreement with WNAC and
WUPW which required these affiliates to buy prime time spots from the FOX
network. The Company's agreements with Fox Network commenced on July 15, 1999
and will terminate on June 30, 2002. Finalization of WNAC's network agreement
is pending. As a result of these agreements, the Company does not expect its
operating income with respect to such stations to decrease by a significant
amount.
In July 1999, the ABC Network entered into an agreement with WDTN-TV
which required that WDTN contribute approximately $0.3 million to the network
in return for additional prime time spots. The agreement contains certain
additional items related to children clearances, NFL inventory, the Soap
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<PAGE> 34
Channel cable revenue sharing, entertainment, sports and news exclusivity. The
agreement has a term of three years beginning August 1, 1999. As a result of
this agreement, the Company does not expect its operating income with respect
to WDTN to decrease by a significant amount.
FCC Issues
On August 5, 1999, the FCC adopted changes in several of its broadcast
ownership rules (collectively, the FCC Ownership Rules). These rule changes
became effective on November 16, 1999; however, several petitions have been
filed with the FCC seeking reconsideration of the new rules, so the rules may
change. While the following discussion does not describe all of the ownership
rules or rule changes, it attempts to summarize those rules that appear to be
most relevant to the Company.
The FCC relaxed its "television duopoly" rule, which barred any entity
from having an attributable interest in more than one television station with
overlapping service areas. Under the new rules, one entity may have
attributable interests in two television stations in the same Nielsen
Designated Market Area (DMA) provided that: (1) one of the two stations is not
among the top four in audience share and (2) at least eight independently owned
and operated commercial and noncommercial television stations will remain in
the DMA if the proposed transaction is consummated. The new rules also permit
common ownership of television stations in the same DMA where one of the
stations to be commonly owned has failed, is failing or is unbuilt or where
extraordinary public interest factors are present. In order to transfer
ownership in two commonly owned television stations in the same DMA, it will be
necessary to once again demonstrate compliance with the new rules. Lastly, the
new rules authorize the common ownership of television stations with
overlapping signal contours as long as the stations to be commonly owned are
located in different DMAs.
Similarly, the FCC relaxed its "one-to-a-market" rule, which restricts
the common ownership of television and radio stations in the same market. One
entity now may own up to two television stations and six radio stations or one
television station and seven radio stations in the same market provided that
(1) 20 independent media voices (including certain newspapers and a single
cable system) will remain in the relevant market following consummation of the
proposed transaction, and (2) the proposed combination is consistent with the
television duopoly and local radio ownership rules. If fewer than 20 but more
than 9 independent voices will remain in a market following a proposed
transaction, and the proposed combination is otherwise consistent with the
Commission's rules, a single entity may have attributable interests in up to
two television stations and four radio stations. If these various "independent
voices" tests are not met, a party generally may have an attributable interest
in no more than one television station and one radio station in a market.
The FCC made other changes to its rules that determine what
constitutes "cognizable interest" in applying the FCC Ownership Rules (the
Attribution Rules). Under the new Attribution Rules, a party will be deemed to
have a cognizable interest in a television or radio station, cable system or
daily newspaper that triggers the FCC's cross-ownership restrictions if (1) it
is a non-passive investor and it owns 5% or more of the voting stock in the
media outlet; (2) it is a passive investor (i.e., bank trust department,
insurance company or mutual fund) and it owns 20% or more of the voting stock;
or (3) its interests (which may be in the form of debt or equity (even if
non-voting), or both) exceeds 33% of the total asset value of the media outlet
and it either (i) supplies at least 15% of a station's weekly broadcast hours
or (ii) has an attributable interest in another media outlet in the same
market.
The FCC also declared that local marketing agreements (LMAs) now will
be attributable interests for purposes of the FCC Ownership Rules. The FCC will
grandfather LMAs that were in effect prior to November 5, 1996, until it has
completed the review of its attribution regulations in 2004. Parties may seek
the permanent grandfathering of such an LMA, on a non-transferable basis, by
demonstrating that the LMA is in the public interest and that it otherwise
complies with FCC Rules.
Finally, the FCC eliminated its "cross interest" policy, which had
prohibited common ownership of a cognizable interest in one media outlet and a
"meaningful" non-cognizable interest in another media outlet serving
essentially the same market.
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<PAGE> 35
It is difficult to assess how these changes in the FCC ownership
restrictions will affect the Company's broadcast business.
The recent changes to the FCC Ownership Rules may effect the Company's
relationship with Smith Acquisition Company (SAC). The Company owns a
substantial non-voting equity stake in SAC, which, together with a wholly owned
subsidiary, owns WNAC-TV, Providence, Rhode Island, and WTOV-TV, Steubenville,
Ohio. Under the new FCC Ownership Rules, the Company's formerly
non-attributable interest in SAC has become attributable. Accordingly, the
Company, and parties to the Company, must consider whether its other broadcast
interests, when viewed in combination with those of SAC, are consistent with
all relevant FCC Ownership Rules. The Company is in the process of conducting
that review. To the extent the recent changes require the Company to modify its
broadcast interests or ownership structure, the Company expects to act as
necessary to remain in compliance with all relevant FCC Ownership Rules.
With the changes in the FCC Ownership Rules, the Company no longer
needs to maintain its waiver to own both KRBC-TV, Abilene, Texas, and KACB-TV,
San Angelo, Texas, as the common ownership of these stations is now consistent
with the Commission's Rules.
On October 2, 1999, AMFM Inc. (AMFM) entered into an Agreement and
Plan of Merger with Clear Channel Communications, Inc. (Clear Channel) and CCU
Merger Sub, Inc. (Merger Sub), pursuant to which AMFM will be merged with and
into Merger Sub and will become a wholly-owned subsidiary of Clear Channel (the
AMFM Merger). Thomas O. Hicks, who is the Company's ultimate controlling
shareholder, has an attributable interest in AMFM and currently is the Chairman
and Chief Executive Officer of AMFM. AMFM and Clear Channel have announced that
Mr. Hicks will serve as Vice Chairman of the combined entity. The Company is in
the process of analyzing the impact of this AMFM Merger on the Company's
operations and regulatory obligations.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failures that may create an inability for the Stations to broadcast
their daily programming and generate revenues.
Since its inception, the Company has been replacing and enhancing its
computer systems acquired in station acquisitions to gain significant
operational efficiencies and, through these same efforts, year 2000 compliant
equipment and applications have been installed.
In October of 1998, Company management initiated a company-wide
program to prepare the Company's operations for the year 2000. The Company's
program consisted of two phases. The first phase was an assessment of the
Company's systems with respect to year 2000 compliance and the formulation of
an action plan. During the assessment phase, the Company reviewed individual
applications, as well as the computer hardware and satellite delivery systems.
The assessment included information technology ("IT") and non-information
technology systems. A comprehensive review and inventory was completed in the
first quarter of 1999. This phase involved an assessment of the readiness of
third party vendors and suppliers. The Company issued year 2000 readiness
questionnaires to vendors. However, responses to these inquiries were limited
or qualified. The assessment of the Company's IT and non-IT systems, and an
action plan for remediation was substantially completed by June 30, 1999. The
second phase of the Company's program was the implementation and testing of the
remediations required based upon the conclusions reached from the assessments
completed during the first phase.
It is difficult for the Company to estimate all costs incurred to date
related specifically to remediating year 2000 issues, since the Company has
been replacing and enhancing its computer systems in the ordinary course of
business. Total expenditures at December 31, 1999 amount to less
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<PAGE> 36
than $2.0 million for the replacement and enhancement of these systems.
Estimated future costs of remediation, if any, are not considered material to
the Company's financial position and results of operations.
To date, the Company has not experienced any significant computer or
system problems during the first months of the year 2000 and has not recorded
any reserve for future liability related to year 2000 readiness.
The preceding Year 2000 disclosure is designated a "Year 2000
Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure
Act.
PRO FORMA BASIS
The pro forma financial information presents the results of operations
of the Stations owned by the Company at December 31, 1999. The following pro
forma financial information is not indicative of the actual results that would
have been achieved had each station been owned on January 1, 1998, nor is it
indicative of future results of operations.
Pro Forma Net Revenues.
Set forth below are the principal types of pro forma television
revenues that the Company has generated for the periods indicated and the
percentage contribution of each to total revenues.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998
---- ----
$ % $ %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Gross revenues:
Local $ 48,260 53.0% $ 50,216 51.6%
National 29,277 32.1% 27,863 28.6%
Political 462 .5% 4,594 4.7%
Network Compensation 5,214 5.7% 5,497 5.7%
Joint Operating Agreements 3,622 4.0% 4,300 4.4%
Trade and Barter 2,833 3.1% 3,188 3.3%
Other 1,440 1.6% 1,663 1.7%
-------- ----- -------- -----
Total Gross 91,108 100.0% 97,321 100.0%
Agency and National
Representative Commissions (11,778) (12.9%) (12,847) (13.2%)
-------- ----- -------- -----
Net Revenues $ 79,330 87.1% $ 84,474 86.8%
======== ===== ======== =====
</TABLE>
Pro Forma Results of Operations
Set forth below is a summary of the pro forma results of operations of
the Company for the periods indicated and their percentages of net revenue.
36
<PAGE> 37
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998
---- ----
% of Net % of Net
$ Revenues $ Revenues
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Revenues: $ 79,330 100.0% $ 84,474 100.0%
Operating Expenses:
Station Operating 24,170 30.5% 23,908 28.3%
Selling, General and Administrative 18,866 23.8% 19,726 23.4%
Trade and Barter 2,896 3.7% 2,969 3.5%
Depreciation 13,182 16.6% 12,318 14.6%
Amortization 22,718 28.6% 22,113 26.2%
Corporate Expenses 3,500 4.4% 3,500 4.1%
-------- ----- -------- -----
Total Operating Expenses 85,332 107.6% 84,534 100.1%
-------- ----- -------- -----
Operating Loss $ (6,002) (7.6)% $ (60) (0.1)%
======== ===== ======== =====
</TABLE>
Pro Forma Broadcast Cash Flow and EBITDA:
The following table sets forth a computation of pro forma Broadcast
Cash Flow and EBITDA.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Operating Loss $ (6,002) $ (60)
Add:
Amortization of Program Rights 5,818 6,034
Depreciation of Property and Equipment 13,182 12,318
Amortization of Intangibles 22,718 22,113
Corporate Expenses 3,500 3,500
Less: Payments for Program Rights (5,938) (6,471)
-------- --------
Broadcast Cash Flow 33,278 37,434
Less: Corporate Expenses (3,500) (3,500)
-------- --------
EBITDA $ 29,778 $ 33,934
======== ========
Margins:
Broadcast Cash Flow 41.9% 44.3%
======== ========
EBITDA 37.5% 40.2%
======== ========
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
On September 11, 1998, the Company entered into a three year interest
rate swap agreement to reduce the impact of changing interest rates on $70.0
million of its variable rate borrowings under the Senior Credit Agreement. The
base interest rate was fixed at 5.15% plus the applicable borrowing margin
(currently 2.125%) for an overall borrowing rate of 7.275% at December 31,
1999.
37
<PAGE> 38
On February 9, 1999, the Company entered into a two-year interest rate
swap agreement, which was extendable by either party for an additional two
years, to reduce the impact of changing interest rates on $40.0 million of its
floating rate borrowings from the Senior Credit Agreement. The interest rate
was fixed at 5.06% plus applicable borrowing margin. Due to the issuance by the
Company on December 30, 1999 of $25.0 million of Redeemable Preferred Stock
Series B to Sunrise and the subsequent reduction in outstanding balances under
the Senior Credit agreement, the Company was forced to terminate the swap
agreement, but simultaneously entered into a new swap agreement that fixed the
interest rate on $25.0 million of its floating rate borrowings for 18 months at
5% plus the applicable borrowing margin (currently 2.125%) for an overall
borrowing rate of 7.125% at December 31, 1999.
The variable interest rates on both contracts are based upon the three
month LIBOR and the measurement and settlement is performed quarterly. The
quarterly settlements of this agreement will be recorded as an adjustment to
interest expense and are not anticipated to have a material effect on the
consolidated financial statements of the Company. The counter party to this
agreement is one of the lenders under the Senior Credit Agreement.
38
<PAGE> 39
PART III
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountants
To the Stockholder of STC Broadcasting, Inc.:
We have audited the accompanying consolidated balance sheets of STC
Broadcasting, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholder's equity and cash
flows for the years ended December 31, 1999 and 1998, and the ten months ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of STC Broadcasting,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for the years ended December 31, 1999 and
1998 and the ten months ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida
February 18, 2000
39
<PAGE> 40
STC BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,909 $ 5,347
Accounts receivable, net of allowance for
doubtful accounts of approximately $546
and $504, respectively 15,195 16,198
Current portion of program rights 6,356 7,770
Other current assets 1,407 1,191
--------- ---------
Total current assets 26,867 30,506
PROPERTY AND EQUIPMENT, net 72,705 82,179
INTANGIBLE ASSETS, net 264,196 250,644
OTHER ASSETS, net 20,405 21,183
--------- ---------
Total assets $ 384,173 $ 384,512
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,443 $ 6,812
Accrued expenses 5,745 6,075
Current portion of long-term debt 5,000 1,500
Current portion of program rights payable 6,534 8,230
--------- ---------
Total current liabilities 22,722 22,617
LONG-TERM DEBT, net of current portion 194,750 209,500
DEFERRED TAXES 17,960 25,485
PROGRAM RIGHTS PAYABLE, net of current portion 10,815 10,817
REDEEMABLE PREFERRED STOCK 67,501 37,364
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share, 1,000 shares
authorized, issued and outstanding -- --
Additional paid-in capital 112,212 97,212
Accumulated deficit (41,787) (18,483)
--------- ---------
Total stockholder's equity 70,425 78,729
--------- ---------
Total liabilities and stockholder's equity $ 384,173 $ 384,512
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 41
STC BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended Ten Months Ended
----------- ----------------
December 31, December 31,
------------ ------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET REVENUES:
Broadcasting spot revenues, net of agency and
national representative commissions of
$12,080, $11,162 and $6,244, respectively $ 67,664 $ 56,867 $ 31,450
Network compensation 5,340 4,809 2,612
Income from joint operating agreement 3,622 2,522 --
Trade and barter 2,913 1,999 1,518
Other 1,618 926 651
-------- -------- --------
Total net revenues 81,157 67,123 36,231
-------- -------- --------
OPERATING EXPENSES:
Station operating 25,144 20,696 11,539
Selling, general and administrative 19,322 15,447 8,212
Trade and barter 2,947 1,915 1,390
Depreciation of property and equipment 13,405 8,207 3,475
Amortization of intangibles and other assets 22,984 16,826 9,159
Corporate expenses 3,499 2,347 1,402
-------- -------- --------
Total operating expenses 87,301 65,438 35,177
-------- -------- --------
OPERATING INCOME (LOSS) (6,144) 1,685 1,054
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (20,635) (16,301) (9,502)
Gain on sale of WROC-TV 4,500 -- --
Gain on asset swap -- 17,457 --
Expenses incurred in cancelled debt offering (825) -- --
Other (expense) income, net (302) 42 329
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
AND EXTRAORDINARY ITEM (23,406) 2,883 (8,119)
INCOME TAX (PROVISION) BENEFIT 7,525 (1,823) 299
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (15,881) 1,060 (7,820)
EXTRAORDINARY LOSS FROM EARLY RETIREMENT
OF DEBT, NET OF INCOME TAX BENEFIT
OF $1,726 -- (2,860) --
-------- -------- --------
NET LOSS (15,881) (1,800) (7,820)
REDEEMABLE PREFERRED STOCK
DIVIDENDS AND ACCRETION (7,423) (5,100) (3,763)
-------- -------- --------
NET LOSS APPLICABLE TO COMMON STOCK $(23,304) $ (6,900) $(11,583)
======== ======== ========
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Loss applicable to common stock excluding
extraordinary item $(23,304) $ (4,040) $(11,583)
Extraordinary item -- (2,860) --
-------- -------- --------
NET LOSS APPLICABLE TO COMMON STOCK $(23,304) $ (6,900) $(11,583)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,000 1,000 1,000
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 42
STC BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Common Additional Accumulated Stockholder's
Stock Paid-in Capital Deficit Equity
-------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $ -- $ -- $ -- $ --
Net loss applicable to common
stock for the ten months
ended December 31, 1997 -- -- (11,583) (11,583)
Issuance of common stock,
net of expenses -- 49,012 -- 49,012
Capital contribution by Sunrise
Television Corp. -- 15,000 -- 15,000
------ -------- -------- --------
Balance, December 31, 1997 -- 64,012 (11,583) 52,429
Net loss applicable to common
stock for the year ended
December 31, 1998 -- -- (6,900) (6,900)
Capital contribution by
Sunrise Television Corp.,
net of expenses -- 33,200 -- 33,200
------ -------- -------- --------
Balance, December 31, 1998 -- 97,212 (18,483) 78,729
Net loss applicable to common
stock for the year ended
December 31, 1999 -- -- (23,304) (23,304)
Capital contribution by
Sunrise Television Corp.,
net of expenses -- 15,000 -- 15,000
------ -------- -------- --------
Balance, December 31, 1999 $ -- $112,212 $(41,787) $ 70,425
====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 43
STC BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended Ten Months Ended
December 31, December 31,
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(15,881) $ (1,800) $ (7,820)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation of property and equipment 13,405 8,207 3,475
Amortization of intangibles and other assets 22,984 16,826 9,159
Amortization of program rights 6,178 5,696 3,214
Payments on program rights payable (6,358) (5,679) (3,314)
Gain on sale of WROC (4,500) --
Gain on asset swap -- (17,457) --
Loss (gain) on disposal of property and equipment 387 144 (46)
Extraordinary loss on early retirement of debt -- 4,586 --
Deferred income tax provision (benefit) (7,525) 97 (299)
Changes in operating assets and liabilities, net of effects
from acquired stations:
Accounts receivable 1,667 1,134 (2,430)
Other current assets (606) 812 (660)
Accounts payable and accrued expenses (3,664) 1,314 3,827
-------- --------- ---------
Net cash provided by operating activities 6,087 13,880 5,106
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Jupiter/Smith stations -- -- (163,176)
Acquisition of WJAC, Incorporated -- -- (36,077)
Net assets acquired in Hearst transactions -- (58,408) --
Acquisition of KRBC/KACB -- (8,172) --
Acquisition of Meyer stations -- (65,259) --
Acquisition of WUPW (74,487) -- --
Proceeds from sale of WROC 46,000 -- --
Capital expenditures (5,781) (5,573) (2,848)
Proceeds from the disposal of property and equipment 242 63 115
Other 37 92 --
-------- --------- ---------
Net cash used in investing activities (33,989) (137,257) (201,986)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing under senior credit agreement 62,000 128,000 107,800
Proceeds from senior subordinated notes -- -- 100,000
Repayment of senior credit agreement (73,250) (31,500) (93,300)
Proceeds from sale of redeemable preferred stock Series A, net -- -- 28,500
Proceeds from sale of common stock, net -- -- 49,012
Capital contribution of cash by parent, net 15,000 33,200 15,000
Proceeds from Hearst loan -- 70,000 --
Repayment of Hearst loan -- (70,000) --
Deferred debt financing costs and
corporate organization costs -- (443) (8,500)
Payment of loan fees on senior credit agreement -- (2,165) --
Proceeds from sale of redeemable preferred stock
Series B, net of expenses 61,405 -- --
Payment of redeemable preferred stock dividend Series B (1,191) -- --
Retirement of redeemable preferred stock Series B (37,500) -- --
-------- --------- ---------
Net cash provided by financing activities 26,464 127,092 198,512
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,438) 3,715 1,632
CASH AND CASH EQUIVALENTS, beginning balance 5,347 1,632 --
-------- --------- ---------
CASH AND CASH EQUIVALENTS, ending balance $ 3,909 $ 5,347 $ 1,632
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non cash items:
Accrued preferred dividends and accretion $ 6,233 $ 5,100 $ 3,763
Exchange offer on Senior Subordinated Notes $ -- $ -- $ 100,000
New program contracts $ 6,112 $ 1,219 $ 3,707
Cash paid for interest $ 20,613 $ 16,305 $ 6,229
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 44
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. ORGANIZATION AND NATURE OF OPERATIONS:
The accompanying financial statements present the consolidated
financial statements of STC Broadcasting, Inc. and subsidiaries (the Company).
STC Broadcasting, Inc. was incorporated on November 1, 1996, in the state of
Delaware, commenced operations on March 1, 1997, and is a wholly owned
subsidiary of Sunrise Television Corp. (Sunrise). All of the common stock of
Sunrise is owned by Sunrise Television Partners, L.P., of which the managing
general partner is Thomas O. Hicks, an affiliate of Hicks, Muse, Tate and
Furst, Incorporated (Hicks Muse). The Company operates the following commercial
television stations (the Stations) at December 31, 1999:
<TABLE>
<CAPTION>
STATION ACQUISITION DATE DESIGNATED MARKET AREA NETWORK AFFILIATION
- ------- ---------------- ---------------------- -------------------
<S> <C> <C> <C>
WEYI March 1, 1997 Flint-Saginaw-Bay City, NBC
Michigan
WTOV March 1, 1997 Wheeling, West Virginia NBC
and Steubenville, Ohio
WJAC October 1, 1997 Johnstown, Altoona, State NBC
College, Pennsylvania
KRBC April 1, 1998 Abilene-Sweetwater, Texas NBC
KACB April 1, 1998 San Angelo, Texas NBC
WDTN June 1, 1998 Dayton, Ohio ABC
WNAC June 1, 1998 Providence, Rhode Island and
New Bedford, Massachusetts FOX
KVLY November 1, 1998 Fargo, North Dakota NBC
KFYR November 1, 1998 Bismarck, North Dakota NBC
KUMV November 1, 1998 Williston, North Dakota NBC
KMOT November 1, 1998 Minot, North Dakota NBC
KQCD November 1, 1998 Dickinson, North Dakota NBC
WUPW February 1, 1999 Toledo, Ohio FOX
</TABLE>
Various subsidiaries hold the assets of the Stations. One subsidiary,
Smith Acquisition Company (SAC) has a one percent equity interest controlled by
Smith Broadcasting Group, Inc., (SBG). SBG is controlled by Robert N. Smith,
the Chief Executive Officer and a Director of Sunrise and the Company. SBG's
interest in SAC, which includes the assets of WTOV and WNAC, represents an
insignificant portion of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements include the
consolidated accounts of the Company. All material intercompany items and
transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997
financial statements to conform to the current year's presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
44
<PAGE> 45
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Concentration of Risk and Accounts Receivable
The Company serves the markets shown in Note 1 and accordingly, the
revenue potential of the Company is dependent on the economy in these markets.
The Company monitors the collectibility of its accounts receivable through
continuing credit evaluations. Credit risk is limited due to the large number
of customers comprising the Company's customer base and their dispersion across
different geographic areas. Total provision for losses on doubtful accounts
amounted to approximately $403, $351 and $34 for the years ended December 31,
1999 and 1998, and the ten months ended December 31, 1997, respectively.
Program Rights
The Company has agreements with distributors for the rights to
television programming over contract periods which generally run from one to
four years. Each contract is recorded as an asset and liability when the
license agreement is signed or committed to by the Company. Program rights and
the corresponding obligation are classified as current or long-term based on
the estimated usage and payment terms.
The capitalized cost of program rights for one-time only programs is
amortized on a straight-line basis over the period of the program rights
agreements. The capitalized cost of program rights for multiple showing
syndicated program material is amortized on an accelerated basis over the
period of the program rights agreements. Program rights are reflected in the
consolidated balance sheets at the lower of unamortized cost or estimated net
realizable value. Estimated net realizable values are based upon management's
expectation of future advertising revenues, net of sales commissions, to be
generated by the program material. Payments of program rights liabilities are
typically paid on a scheduled basis and are not affected by adjustments for
amortization or estimated net realizable value.
Program Barter and Trade Transactions
The Company purchases certain programming, which includes advertising
time of the syndicator during the airing of the programs. The estimated fair
value of advertising revenue received in program barter transactions is
recognized as revenue and a corresponding program cost when the airtime is used
by the advertiser. The Company broadcasts certain customers' advertising in
exchange for equipment, merchandise, or services. The estimated fair value of
the equipment, merchandise or services received is recorded as deferred trade
costs, the corresponding obligation to broadcast advertising is recorded as
deferred trade revenues, resulting in a net current asset or net current
liability. The deferred trade costs are expensed or capitalized as they are
used, consumed or received. Deferred trade revenues are recognized as the
related advertising is aired.
The following table summarizes program barter revenue and trade
revenue.
<TABLE>
<CAPTION>
Years Ended Ten Month
----------- ---------
December 31, Period Ended
------------ ------------
1999 1998 December 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
Program barter revenue $1,835 $1,261 $ 937
Trade revenue 1,078 738 581
------ ------ ------
Total $2,913 $1,999 $1,518
====== ====== ======
</TABLE>
45
<PAGE> 46
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Property and Equipment
Property and equipment of the Stations acquired were recorded at the
estimate of fair value based upon independent appraisals, and property and
equipment acquired subsequent thereto is recorded at cost. Property and
equipment is depreciated using the straight-line method over the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings and improvements 20-39 years
Broadcast equipment 5-15 years
Vehicles 3 years
Furniture and computers 5 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred, whereas expenditures for renewals and betterments are capitalized.
The major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Land and improvements $ 3,313 $ 3,932
Buildings and improvements 12,746 13,729
Broadcast equipment 69,799 68,083
Vehicles 2,155 1,767
Furniture and computers 5,487 4,537
-------- --------
93,500 92,048
Less: accumulated depreciation and amortization (20,795) (9,869)
-------- --------
Property and equipment, net $ 72,705 $ 82,179
======== ========
</TABLE>
Intangible Assets
Intangible assets consist principally of values assigned to the
Federal Communications Commission (FCC) licenses and network affiliation
agreements of the Stations. Intangible assets are being amortized on the
straight-line basis over 15 years.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
FCC licenses $ 93,868 $ 76,438
Network affiliations 201,285 189,813
Other 3,343 3,773
-------- --------
298,496 270,024
Less: Accumulated amortization (34,300) (19,380)
-------- --------
Intangible assets, net $264,196 $250,644
======== ========
</TABLE>
Other Assets
Other assets consist of values assigned to deferred financing and
acquisition costs and the non-current portion of program rights. Deferred
financing costs are amortized over the applicable loan period (seven or ten
years) on a straight-line basis, and deferred acquisition and organization
costs are amortized over a five year period on a straight-line basis.
46
<PAGE> 47
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Deferred financing and acquisition costs, net
of accumulated amortization of $4,754
and $2,270, respectively $ 10,082 $ 11,016
Program rights, net of current portion 10,323 10,167
-------- --------
$ 20,405 $ 21,183
======== ========
</TABLE>
Revenue Recognition
The Company's primary source of revenue is the sale of television time
to advertisers. Revenue is recorded when the advertisements are broadcast and
are net of agency and national representative commissions.
Joint Operating Agreement
The Company has a Joint Marketing and Programming Agreement with Clear
Channel Communications (CCC) under which CCC programs certain airtime,
including news programming for WNAC and manages the sale of commercial air time
on WNAC and WPRI, the CBS station in Providence, for an initial period of ten
years commencing July 1, 1996. The Company and CCC each receive 50% of the
broadcast cash flow generated by the two stations subject to certain
adjustments, as defined. This amount is recorded by the Company in income from
joint operating agreement in the accompanying consolidated statements of
operations.
Income Taxes
Income taxes are provided using the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes."
Long-Lived Assets
Long-lived assets and identifiable intangibles are reviewed
periodically for impairment if events or changes in circumstances indicate that
the carrying amount should be addressed. The Company has determined that there
has been no impairment in the carrying value of long-lived assets of the
Stations, as of December 31, 1999 and 1998.
Fair Value of Financial Instruments
The book value of all financial instruments approximates their fair
value as of December 31, 1999 and 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Basic and Diluted Net Loss per Common Share
Net loss per common share is computed as net loss applicable to common
stockholder divided by
47
<PAGE> 48
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the weighted average number of shares of common stock outstanding.
Current Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
SFAS 133 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. SFAS 133, as amended by SFAS No. 137, is effective for all fiscal
years beginning after June 15, 2000. Management has not determined what effect
this statement will have on the Company's consolidated financial statements.
3. ACQUISITIONS AND DISPOSALS:
1999 Transactions
On February 5, 1999, the Company acquired substantially all of the
assets related to WUPW from Raycom Media, Inc. for approximately $74,487. WUPW,
Channel 36, is the UHF FOX-affiliated television station serving the Toledo,
Ohio market. The accompanying consolidated financial statements reflect the
acquisition under the purchase method of accounting and include the results of
operations from February 5, 1999. The acquired assets and assumed liabilities
were recorded at fair value as of the date of acquisition. The approximate
purchase price was allocated as follows:
<TABLE>
<S> <C>
Property and equipment $ 4,688
Intangibles 70,119
Working Capital (320)
-------
$74,487
=======
</TABLE>
The acquisition was funded with $40,000 of borrowing under the Senior
Credit Agreement (see Note 6) and the sale of $35,000 Redeemable Preferred
Stock Series B (see Note 7).
On March 3, 1999, the Company, STC License Company, a subsidiary of
the Company, and Nexstar Broadcasting of Rochester, Inc. (Nexstar) entered into
an asset purchase agreement (the Rochester Agreement) to sell to Nexstar the
television broadcast license and operating assets of WROC, Rochester New York
for approximately $46,000 subject to adjustment for certain customary proration
amounts. On April 1, 1999, the Company completed the non-license sale of WROC
assets to Nexstar for $43,000 and entered into a Time Brokerage Agreement with
Nexstar under which Nexstar programmed most of the available time of WROC and
retained the revenues from the sale of advertising time through the license
closing on December 23, 1999. The Company recognized a gain of $4,500 from the
sale.
The results of operations for the years ended December 31, 1999 and
1998, include operations of each station acquired from the respective date of
acquisition and exclude operations after stations have been disposed. The
following table summarizes the unaudited condensed consolidated pro forma
results of operations for the years ended December 31, 1999 and 1998 assuming
the WUPW acquisition and the WROC sale had occurred on January 1, 1998.
48
<PAGE> 49
<TABLE>
<CAPTION>
Unaudited Unaudited
1999 1998
---- ----
<S> <C> <C>
Net revenues $ 79,330 $ 67,141
Operating income (loss) $ (6,002) $ 2,387
Net income (loss) after tax benefit $(19,030) $ 814
Net loss applicable to common stock $(26,635) $ (6,561)
Net loss per share $(26,635) $ (6,561)
Average share outstanding 1,000 1,000
</TABLE>
The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had each of the
Stations been acquired at the beginning of 1998, nor is it indicative of the
future results of operations.
1998 Transactions
On April 1, 1998, the Company acquired 100% of the outstanding stock
of Abilene Radio and Television Company (ARTC) for approximately $8,172. ARTC
operated television stations KRBC and KACB, NBC affiliates for Abilene and San
Angelo, Texas. The accompanying consolidated financial statements reflect the
acquisition under the purchase method of accounting and include the results of
operations from April 1, 1998. The acquired assets and assumed liabilities were
recorded at fair value as of the date of acquisition. The approximate purchase
price was allocated as follows:
<TABLE>
<S> <C>
Property and equipment $ 5,503
Intangible assets 6,570
Working capital 303
Deferred taxes (4,204)
-------
$ 8,172
=======
</TABLE>
The acquisition was funded by borrowings under the Credit Agreement
(see Note 6).
In a series of transactions, the Company acquired certain assets from
Hearst-Argyle Stations, Inc., (Hearst) through transactions structured as an
exchange of assets (the Hearst Transaction). On February 3, 1998, the Company
agreed to acquire WPTZ, WNNE, and a local marketing agreement (LMA) for WFFF
from Sinclair Broadcast Group, Inc. for $72,000, with the intention of using
these assets in the Hearst Transaction. WPTZ and WNNE are the NBC affiliates
and WFFF is the FOX affiliate serving the Burlington, Vermont and Plattsburgh,
New York television market. On February 18, 1998, the Company agreed with
Hearst to trade KSBW, the NBC affiliate in Salinas, California, WPTZ and WNNE
for WDTN, the ABC affiliate in Dayton, Ohio, WNAC, the FOX affiliate in
Providence, Rhode Island, WNAC's interest in a Joint Marketing Programming
Agreement with WPRI, the CBS affiliate in Providence, Rhode Island, and
approximately $22,000 in cash. On April 24, 1998, the Company completed a
purchase of non-license assets (all operating assets other than FCC licenses
and other minor equipment) of WPTZ, WNNE and WFFF for $70,000. WFFF was sold by
the Company to a related party on April 24, 1998 (see Note 8). Under the
purchase method of accounting, the accompanying financial statements reflect
the results of operations of WPTZ and WNNE for the period April 24, 1998 to May
31, 1998. Funds to complete the acquisition of WPTZ, WNNE, and WFFF were
provided by Hearst. The assets acquired were pledged to Hearst under the
related loan agreement which was repaid on July 3, 1998, the date the
transaction closed.
On June 1, 1998, the Company contractually received the benefits of
the operation of stations WDTN, and WNAC and WNAC's joint operating agreement
with WPRI. The accompanying consolidated financial statements reflect the asset
swap using the purchase method of accounting and include the
49
<PAGE> 50
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
results of operations from June 1, 1998. The Company recorded a book gain of
approximately $17,457 on the asset swap.
The fair value of the WDTN and WNAC assets were allocated as follows:
<TABLE>
<S> <C>
Property and equipment $ 19,615
Intangible assets 93,892
Working capital 3,084
--------
$116,591
========
</TABLE>
The asset swap was funded by borrowings of $72,500 under the Senior
Credit Agreement, $10,400 of additional contributed capital from Sunrise and
available cash.
On November 1, 1998, the Company acquired substantially all of the
assets of KVLY, KFYR, KUMV, KMOT, and KQCD (the Meyer Stations) from Meyer
Broadcasting for approximately $65,259. The accompanying consolidated financial
statements reflect the acquisition under the purchase method of accounting and
include results of operations from November 1, 1998. The acquired assets and
assumed liabilities were recorded at fair value as of the date of acquisition.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Property and equipment $32,615
Intangible assets 33,568
Working capital (924)
-------
$65,259
=======
</TABLE>
The acquisition was funded by $43,500 of borrowing under the Senior
Credit Agreement, $22,800 of additional contributed capital from Sunrise and
available cash on hand.
1997 Transactions
On March 1, 1997 , the Company acquired substantially all of the
assets of WEYI, WROC, KSBW, and WTOV (the Jupiter/Smith Stations) from
Jupiter/Smith TV Holdings, L.P. and Smith Broadcasting Partners, L.P. for
approximately $163,176. The accompanying consolidated financial statements
reflect the acquisition 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 purchase price was allocated as follows:
<TABLE>
<S> <C>
Property and equipment $ 26,921
Intangible assets 130,530
Working capital 5,725
--------
$163,176
========
</TABLE>
The acquisition was funded by $90,800 in borrowings under the Credit
Agreement and the sale of preferred and common stock in the approximate amount
of $77,500.
On October 1, 1997, the Company acquired 100% of the outstanding stock
of WJAC, Incorporated (WJAC) for approximately $36,078. The accompanying
consolidated financial statements reflect the acquisition under the purchase
method of accounting. Accordingly, the acquired assets and assumed
50
<PAGE> 51
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
liabilities were recorded at fair value as of the date of acquisition. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Property and equipment $ 9,777
Intangible assets 48,534
Working capital (825)
Deferred taxes (21,408)
-------
$36,078
=======
</TABLE>
The acquisition was funded by $17,000 of borrowing under the Credit
Agreement, $15,000 of additional contributed capital from Sunrise, and
available cash on hand.
4. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Interest $ 3,291 $ 3,269
Compensation 1,483 1,530
National representative fees 120 316
Property taxes 363 346
Professional fees 221 210
Other 267 404
-------- --------
Total $ 5,745 $ 6,075
======== ========
</TABLE>
5. OBLIGATIONS FOR PROGRAM RIGHTS:
The aggregate scheduled maturities of program rights obligations
subsequent to December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000 $ 6,534
2001 4,565
2002 3,326
2003 1,296
2004 968
Thereafter 660
-------
17,349
Less: Current portion 6,534
-------
Long-term portion of
program rights payable $10,815
=======
</TABLE>
6. LONG-TERM DEBT:
To finance the Jupiter/Smith acquisition described in Note 3, the
Company entered into a Credit Agreement with Chase Manhattan Bank and
NationsBank of Texas, N.A., (the Credit Agreement), as agents for borrowings up
to $95,000. The Credit Agreement provided for: (i) a seven-year term loan
facility in the amount of $60,000 (the Term Loan Facility); and (ii) a
seven-year revolving credit facility in the amount of $35,000 (the Revolving
Credit Facility) both expiring on February 27, 2004. On March 25,
51
<PAGE> 52
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1997, the Company completed a private placement of $100,000 principal amount of
its 11% Senior Subordinated Notes due March 15, 2007. Proceeds from the sale
were used to repay all outstanding borrowings under the Credit Agreement and
the Term Loan Facility was cancelled. The remaining net proceeds were available
for general working capital purposes. On September 26, 1997, the Company
completed an exchange offer in which all the original notes were exchanged for
registered 11% Senior Subordinated Notes (Senior Subordinated Notes) of the
Company having substantially the identical terms.
On July 2, 1998, the Company entered into an Amended and Restated
Credit Agreement (the Senior Credit Agreement) with various lenders which
provides a $100,000 term loan facility and $65,000 revolving credit facility.
On July 3, 1998, the Company borrowed $72,500 from the Senior Credit Agreement
to fund the amounts owed Hearst under the Hearst Transaction, retire
outstanding amounts under the Credit Agreement, pay transaction fees and
provide for working capital needs. The Company recorded a pretax extraordinary
loss of $4,586 on the retirement of the Credit Agreement. The loss consisted of
$2,422 of previously unamortized costs incurred on the Credit Agreement and
$2,164 of financing fees paid to the lenders of the Senior Credit Agreement.
The Senior Credit Agreement bears interest at an annual rate, at the
Company's option, equal to the applicable borrowing rate plus the applicable
margin as defined in the Senior Credit Agreement (9.375% at December 31, 1999),
or the Eurodollar Rate plus the applicable margin as defined in the Senior
Credit Agreement (8.305% at December 31, 1999). Interest rates may be reduced
in the event the Company meets certain financial tests relating to consolidated
leverage.
The Senior Credit Agreement provides for first priority security
interests in all of the tangible and intangible assets of the Company and its
direct and indirect subsidiaries. In addition, the loans under the Senior
Credit Agreement are guaranteed by Sunrise and the Company's current direct and
indirect and any future subsidiaries. The Senior Credit Agreement and the
Senior Subordinate Notes contain certain financial and operating maintenance
covenants including a maximum consolidation leverage ratio (currently 7.0:1), a
minimum consolidated fixed charge coverage ratio (currently 1.05:1), and a
consolidated interest coverage ratio (currently 1.3:1). The Company is limited
in the amount of annual payments that may be made for capital expenditures and
corporate expenses.
The operating covenants of the Senior Credit Agreement and the Senior
Subordinate Notes include limitations on the ability of the Company to: (i)
incur additional indebtedness, other than certain permitted indebtedness; (ii)
permit additional liens or encumbrances, other than certain permitted liens;
(iii) make any investments in other persons, other than certain permitted
investments; (iv) become obligated with respect to contingent obligations,
other than certain permitted contingent obligations; and (v) make restricted
payments (including dividends on its common stock). The operating covenants
also include restrictions on certain specified fundamental changes, such as
mergers and asset sales, transactions with shareholders and affiliates and
transactions outside the ordinary course of business as currently conducted,
amendments or waivers of certain specified agreements and the issuance of
guarantees or other credit enhancements. At December 31, 1999, the Company was
in compliance with the financing and operating covenants of both the Senior
Credit Agreement and the Senior Subordinate Notes.
On September 11, 1998, the Company entered into a three year interest
rate swap agreement to reduce the impact of changing interest rates on $70,000
of its variable rate borrowings under the Senior Credit Agreement. The base
interest rate was fixed at 5.15% plus the applicable borrowing margin
(currently 2.125%) for an overall borrowing rate of 7.275% at December 31,
1999. On February 9, 1999, the Company entered into a two year interest rate
swap agreement, which was extendable by the other party for an additional two
years, to reduce the impact of changing interest rates on $40,000 of its
floating rate borrowings from the Senior Credit Agreement. The interest rate
was fixed at 5.06% plus the applicable borrowing margin. Due to the issuance by
the Company on December 30, 1999 of $25,000 of Redeemable Preferred Stock
Series B to Sunrise and the subsequent reduction in outstanding balances under
the Senior Credit agreement, the Company terminated the swap agreement, but
simultaneously
52
<PAGE> 53
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
entered into a new swap agreement that fixed the interest rate on $25,000 of
its floating rate borrowings for 18 months at 5%, plus the applicable borrowing
margin (currently 2.125%), an overall borrowing rate of 7.125% at December 31,
1999. The variable interest rates on these contracts are based upon the three
month London Inter Bank Offered Rate (LIBOR) and the measurement and settlement
is performed quarterly. The quarterly settlements of this agreement will be
recorded as an adjustment to interest expense and are not anticipated to have a
material effect on the consolidated financial statements of the Company. The
counter party to the new interest rate swap agreement is one of the lenders
under the Senior Credit Agreement.
Interest on the Senior Subordinate Notes is payable semiannually on
March 15 and September 15 of each year. The Senior Subordinate Notes will
mature on March 15, 2007. Except as described below, the Company may not redeem
the Senior Subordinate Notes prior to March 15, 2002. On and after such date,
the Company may redeem the Senior Subordinate Notes, in whole or in part,
together with accrued and unpaid interest, if any, to the redemption date. In
addition, at any time on or prior to March 15, 2000, the Company may, subject
to certain requirements, redeem up to 25% of the aggregate principal amount of
the Senior Subordinate Notes with the net cash proceeds from one or more Public
Equity Offerings at a redemption price equal to 111% of the principal amount
thereof plus accrued and unpaid interest, if any, to the redemption date,
provided that after any such redemption, at least 75% of the aggregate
principal amount of the Senior Subordinate Notes originally issued remain
outstanding immediately after each such redemption. The Senior Subordinate
Notes will not be subject to any sinking fund requirements. Upon a change of
control, as defined, the Company will have the option, at any time on or prior
to March 15, 2002, to redeem the Senior Subordinate Notes, in whole but not in
part, at a redemption price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest plus the applicable premium and if the Senior
Subordinate Notes are not redeemed or if such change of control occurs after
March 15, 2002, the Company will be required to offer to repurchase the Senior
Subordinate Notes at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the repurchase date.
The Senior Subordinate Notes are unsecured and subordinated in right
of payment to all existing and future senior indebtedness of the Company. The
Senior Subordinate Notes rank pari passu with any future senior subordinated
indebtedness of the Company and will rank senior to all other subordinated
indebtedness of the Company. The indenture under which the Senior Subordinate
Notes were issued permits the Company to incur additional indebtedness,
including senior indebtedness subject to certain limitations.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Senior Credit Agreement:
Term Loan $ 98,500 $100,000
Revolving Credit Facility 1,250 11,000
Senior Subordinate Notes 100,000 100,000
-------- --------
Total long-term debt 199,750 211,000
Less: current portion 5,000 1,500
-------- --------
Long-term debt, net of current portion $194,750 $209,500
======== ========
</TABLE>
53
<PAGE> 54
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table shows scheduled payments on long-term debt:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000 $ 5,000
2001 8,000
2002 12,500
2003 17,500
2004 20,000
Thereafter 136,750
--------
$199,750
========
</TABLE>
The following table shows interest expense for the periods indicated:
<TABLE>
<CAPTION>
Years Ended Ten Months Ended
----------- ----------------
December 31, December 31,
------------ ------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
New Notes $11,000 $11,000 $8,464
Credit Agreements 9,635 4,358 1,030
Hearst-Argyle loan (see Note 3) -- 943 --
Other -- -- 8
------- ------- ------
Total $20,635 $16,301 $9,502
======= ======= ======
</TABLE>
7. REDEEMABLE PREFERRED STOCK:
Redeemable Preferred Stock consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Series A $43,196 $37,364
Series B 24,305 --
------- -------
$67,501 $37,364
======= =======
</TABLE>
Redeemable Preferred Stock dividend and accretion consisted of the
following:
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
---------- ----------------
December 31, December 31,
------------ ------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Series A
Accrued Dividends $5,696 $4,964 $3,650
Accretion 136 136 113
Series B
Dividends Paid 1,191 -- --
Accretion 400 -- --
------ ------ ------
$7,423 $5,100 $3,763
====== ====== ======
</TABLE>
54
<PAGE> 55
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Series A
In connection with the Jupiter/Smith Stations acquisition, the Company
issued 300,000 shares of Redeemable Preferred Stock Series A with an aggregate
liquidation preference of $30,000, or $100 per share, which is entitled to
quarterly dividends that will accrue at a rate per annum of 14%. Prior to
February 28, 2002, dividends may be paid in either additional whole shares of
Redeemable Preferred Stock Series A or cash, at the Company's option, and only
in cash following that date. The Senior Subordinate Notes and the Senior Credit
Agreement prohibit the payment of cash dividends until May 31, 2002.
The Redeemable Preferred Stock Series A is subject to mandatory
redemption (subject to contractual and other restrictions with respect thereto
and to the legal availability of funds therefor) in whole on February 28, 2008,
at a price equal to the then effective liquidation preference thereof, plus all
accumulated and unpaid dividends to the date of redemption. Prior to February
28, 2008, the Company has various options on redemption of the Redeemable
Preferred Stock Series A at various redemption prices exceeding the liquidation
preference.
The Company may, at its option, subject to certain conditions,
including its ability to incur additional indebtedness under the Senior
Subordinate Notes and the Senior Credit Agreement, on any scheduled dividend
payment date, exchange the Redeemable Preferred Stock Series A, in whole but
not in part, for the Company's 14% subordinated exchange debentures due 2008
(the Exchange Debentures). Holders of the Redeemable Preferred Stock Series A
will be entitled to receive $1.00 principal amount of Exchange Debentures for
each $1.00 in liquidation preference of Redeemable Preferred Stock Series A.
Holders of the Redeemable Preferred Stock Series A have no voting
rights, except as otherwise required by law; however, the holders of the
Redeemable Preferred Stock Series A, voting together as a single class, shall
have the right to elect the lesser of the two directors or 25% of the total
number of directors constituting the Board of Directors of the Company upon the
occurrence of certain events, including but not limited to, the failure by the
Company on or after February 28, 2002, to pay cash dividends in full on the
Redeemable Preferred Stock Series A for six or more quarterly dividend periods,
the failure by the Company to discharge any mandatory redemption or repayment
obligation with respect to the Redeemable Preferred Stock Series A, the breach
or violation of one or more of the covenants contained in the Certificate of
Designation, or the failure by the Company to repay at final stated maturity,
or the acceleration of the final stated maturity of, certain indebtedness of
the Company.
The Certificate of Designation for the Redeemable Preferred Stock
Series A and the indenture for the Exchange Debentures contain covenants
customary for securities comparable to the Redeemable Preferred Stock Series A
and the Exchange Debentures, including covenants that restrict the ability of
the Company and its subsidiaries to incur additional indebtedness, pay
dividends and make certain other restricted payments, to merge or consolidate
with any other person or to sell, assign, transfer, lease, convey, or otherwise
dispose of all or substantially all of the assets of the Company. Such
covenants are substantially identical to those covenants contained in the
Senior Subordinate Notes.
Series B
On February 5, 1999, the Company entered into a $90,000 Redeemable
Preferred Stock Series B bridge financing agreement (the Preferred Agreement)
with three purchasers, two of which are participants in the Senior Credit
Agreement, and sold $35,000 or 35,000 shares of Redeemable Preferred Stock
Series B to fund the WUPW purchase, and $2,500 or 2,500 shares to fund an
escrow account to pay dividends on the stock.
55
<PAGE> 56
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On August 5, 1999, the Company repaid all amounts outstanding under
the Preferred Agreement by a borrowing of $21,000 under the Senior Credit
Agreement, a $15,000 capital contribution from Sunrise, and $1,500 of available
cash. The availability for selling additional preferred stock under the
Preferred Agreement was cancelled.
On December 30, 1999, the Company sold to Sunrise 25,000 shares of
Redeemable Preferred Stock Series B with an aggregate liquidation preference of
$25,000. Each share is entitled to quarterly dividends that will accrue at 14%
rate per annum. The Company's Senior Credit Agreement and Senior Subordinated
Notes prohibit the payment of cash dividends until May 31, 2002.
The Redeemable Preferred Stock Series B is subject to mandatory
redemption in whole on February 28, 2008 at a price equal to the then effective
liquidation preference per share plus an amount in cash equal to all
accumulated and unpaid dividends per share. Prior to February 28, 2008, the
Company can redeem the Redeemable Preferred Stock Series B at the then
effective liquidation preference per share plus an amount in cash equal to all
accumulated and unpaid dividend per share. In the event of a Change of Control
(as defined in the Certificate of Designation for the Redeemable Preferred
Stock Series B), the Company must offer to purchase all outstanding shares at
the then effective liquidation preference per share plus an amount in cash
equal to all accumulated and unpaid dividends per share.
With respect to dividends and distributions upon liquidation,
winding-up and dissolution of the Company, the Redeemable Preferred Stock
Series B ranks senior to all classes of common stock of the Company and the
Redeemable Preferred Stock Series A of the Company.
Holders of the Redeemable Preferred Stock Series B have no voting
rights, except as otherwise required by law or as expressly provided in the
Certificate of Designation for the Redeemable Preferred Stock Series B;
however, the holders of the Redeemable Preferred Stock Series B, voting
together as a single class, shall have the right to elect the lesser of two
directors or 25% of the total number of directors constituting the Board of
Directors of the Company upon the occurrence of certain events, including but
not limited to, the failure by the Company on or after February 28, 2002, to
pay cash dividends in full on the Redeemable Preferred Stock Series B for six
or more quarterly dividend periods or the failure by the Company to discharge
any mandatory redemption or repayment obligation with respect to the Redeemable
Preferred Stock Series B or the breach or violation of one or more of the
covenants contained in the Certificate of Designation or the failure by the
Company to repay at final stated maturity, or the acceleration of the final
stated maturity of, certain indebtedness of the Company.
The Certificate of Designation for the Redeemable Preferred Stock
Series B contains covenants customary for securities comparable to the
Redeemable Preferred Stock Series B, including covenants that restrict the
ability of the Company and its subsidiaries to incur additional indebtedness,
pay dividends and make certain other restricted payments, to merge or
consolidate with any other person or to sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of the assets of the Company.
Such covenants are substantially identical to those covenants contained in the
Senior Subordinated Notes.
8. TRANSACTIONS WITH AFFILIATES:
On March 1, 1997, Sunrise and the Company entered into a ten-year
agreement (the Monitoring and Oversight Agreement) with an affiliate of Hicks
Muse (Hicks Muse Partners) pursuant to which Sunrise and the Company have
agreed to pay Hicks Muse Partners an annual fee payable quarterly for oversight
and monitoring services to the Company. The annual fee is adjustable on January
1, of each calendar year to an amount equal to 0.2% of the budgeted
consolidated annual net revenues of the Company and its subsidiaries for the
then-current fiscal year plus reimbursement of certain expenses.
56
<PAGE> 57
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Monitoring and Oversight Agreement makes available the resources
of Hicks Muse Partners concerning a variety of financial and operational
matters. The Company does not believe that the services that have been, and
will continue to be, provided to the Company by Hicks Muse Partners could
otherwise be obtained by the Company without the addition of personnel or the
engagement of outside professional advisors. In the Company's opinion, the fees
provided for under the Monitoring and Oversight Agreement reasonably reflect
the benefits received, and to be received, by Sunrise and the Company. Total
payments related to this agreement amounted to approximately $233, $201 and
$139 for the years ended December 31, 1999, 1998 and the ten months ended
December 31, 1997, respectively.
On March 1, 1997, Sunrise and the Company entered into a ten-year
agreement (the Financial Advisory Agreement) pursuant to which Hicks Muse
Partners received a financial advisory fee of 1.5% of the transaction value at
the closing of the Jupiter/Smith acquisition as compensation for its services
as financial advisor to the Company. Hicks Muse Partners is entitled to receive
a fee equal to 1.5% of the "transaction value" for each "add-on transaction" in
which the Company is involved. The term "transaction value" means the total
value of the add-on transaction including, without limitation, the aggregate
amount of the funds required to complete the add-on transaction (excluding any
fees payable pursuant to the Financial Advisory Agreement), including the
amount of any indebtedness, preferred stock or similar terms assumed (or
remaining outstanding). The term "add-on transaction" means any future proposal
for a tender offer, acquisition, sale, merger, exchange offer,
recapitalization, restructuring or other similar transaction directly involving
the Company or any of its subsidiaries, and any other person or entity. The
Financial Advisory Agreement makes available the resources of Hicks Muse
Partners concerning a variety of financial and operational matters. The Company
does not believe that the services that have been, and will continue to be
provided by Hicks Muse Partners could otherwise be obtained by the Company
without the addition of personnel or the engagement of outside professional
advisors. In the Company's opinion, the fees provided for under the Financial
Advisory Agreement reasonably reflect the benefits received and to be received
by the Company. Total fees paid under this agreement for the years ended
December 31, 1999, 1998 and the ten month period ended December 31, 1997 were
$1,764, $2,723 and $3,356, respectively, and were capitalized as cost of
acquisition or netted against preferred stock.
On March 1, 1997, affiliates of Hicks Muse purchased 250,000 shares of
the Redeemable Preferred Stock Series A for a purchase price of approximately
$24,100 (or 96.5% of the initial liquidation preference of such shares) and
received in connection therewith warrants to purchase shares of common stock of
Sunrise. The Hicks Muse affiliates, along with the other purchaser of the
Redeemable Preferred Stock Series A and warrants, received certain registration
rights with respect to the shares of common stock of Sunrise issuable upon
exercise of the warrants.
The Company has elected to participate in a Hicks Muse affiliate
insurance program which covers vehicles, buildings, equipment, libel and
slander, liability and earthquake damage. The Company pays actual invoice costs
and no employee of Hicks Muse is compensated for these services other than
through the above Monitoring and Oversight Agreement. Management believes the
amounts paid are representative of the services provided.
The Company has elected to participate in the Sunrise health, life,
vision and dental program, long and short-term disability, travel accident and
long-term care program. Management believes the amounts paid are representative
of the services provided.
A defined contribution 401(k) savings plan is provided to employees of
the Company by Sunrise. Employees of the Company who have been employed for six
months and who have attained the age of 21 years are generally eligible to
participate. Certain employees represented by one union have elected not to
participate in the Plan and have established their own plan. Total contributions
by the
57
<PAGE> 58
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company to the defined contribution 401(k) savings plan were approximately
$492, $341 and $135 for the years ended December 31, 1999 and 1998, and the ten
months ended December 31, 1997, respectively.
The Company has contracts with national representation firms to sell
advertising time. During 1998, entities controlled by Hicks Muse acquired
certain of these firms. In 1999, the Company entered into extensions of certain
of these contracts in the normal course of business on terms and conditions
which the Company considered representative of current market conditions.
On April 24, 1998, the Company sold to Robert N. Smith the assets and
certain rights and obligations related to WFFF for $500. The purchase price was
secured by a note and liens on all of the assets sold and on July 23, 1998, the
Company received full payment on the note.
9. PENSION PLAN:
In October 1997, the Company approved the termination of two WJAC
non-contributory, defined benefit pension plans (the Plans) covering
principally all full-time salaried and hourly employees and certain part-time
employees of WJAC. Effective December 31, 1997, the Company froze pension
benefits at the current level and suspended future benefit accruals. The
Company terminated the Plans during 1998. Final distribution to current and
former employees and expenses related to the termination were paid out of the
Plans' assets in 1998.
10. INCOME TAXES:
STC Broadcasting, Inc. files a consolidated federal income tax return
with all qualified subsidiaries. All nonqualifying subsidiaries file a separate
federal income tax return. STC Broadcasting, Inc. and certain subsidiaries file
separate state income tax returns. The provision (benefit) for income taxes
consists of the following for the years ended December 31, 1999 and 1998 and
the ten months ended December 31, 1997:
<TABLE>
<CAPTION>
Years Ended Ten Months Ended
----------- ----------------
December 31, December 31,
------------ ------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Deferred Provision (Benefit):
Federal $(6,408) $1,659 $(269)
State (1,117) 164 (30)
------- ------ -----
Total Income Tax Provision (Benefit) $(7,525) $1,823 $(299)
======= ====== =====
</TABLE>
Deferred taxes reflect the tax effect on temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Components of the Company's net
deferred tax liability as of December 31, 1999 and 1998, are as follows:
58
<PAGE> 59
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C> <C>
Deferred Tax Assets:
Net operating loss (NOL) carryforward $ 15,224 $ 4,734
Deferred debt costs 1,332 1,573
Post retirement benefit obligations -- 198
Allowance for doubtful accounts 215 232
Other 115 222
-------- --------
16,886 6,959
-------- --------
Deferred Tax Liabilities:
Intangible assets (19,492) (21,222)
Deferred gain on asset exchange (5,166) (5,664)
Property and equipment (7,699) (4,578)
-------- --------
(32,357) (31,464)
-------- --------
Net deferred tax liability (15,471) (24,505)
Less: valuation allowance (2,489) (980)
-------- --------
$(17,960) $(25,485)
======== ========
</TABLE>
The Company has federal and state NOL carryforwards which expire from
2012 through 2019. During the years ended December 31, 1999 and 1998 and the
ten months ended December 31, 1997, the Company created $1,509, $588, and $392,
respectively, of valuation allowance to reserve for deferred tax assets
resulting from nonqualifying subsidiaries' NOLs for the tax reporting period
and for other deferred tax assets.
During 1997, the Company created approximately $2,453 in valuation
allowance to reserve for deferred tax assets created as a result of STC
Broadcasting, Inc. and qualified subsidiaries' NOLs. This valuation allowance
was reversed as a result of the WJAC acquisition and the reversal was charged
against the intangible assets of WJAC in accordance with the provisions of SFAS
No. 109 "Accounting for Income Taxes."
The reconciliation of the income tax provision (benefit) based on the
federal statutory income tax rate (34 percent) to the Company's income tax
provision (benefit) is as follows for the years ended December 31, 1999 and
1998 and for the ten months ended December 31, 1997:
<TABLE>
<CAPTION>
Years Ended Ten Months Ended
----------- ----------------
December 31, December 31,
------------ ------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax provision (benefit) at the statutory rate $(7,958) $ 980 $ (2,760)
State income tax provision (benefit),
net of federal tax effect (1,131) 202 (417)
Valuation allowance 1,509 588 2,845
Other 55 53 33
------- ------- -------
$(7,525) $ 1,823 $ (299)
======= ======= =======
</TABLE>
11. COMMITMENT AND CONTINGENCIES:
Legal Proceedings
The Company is subject to legal proceedings and claims in the normal
course of business. In the opinion of management, after discussion with legal
counsel, the amount of ultimate liability with respect to these actions will
not materially affect the financial position or results of operations of the
Company.
Management Contracts
On March 1, 1997, the Company entered into five-year employment
agreements with four members of senior management for minimum base compensation
of $250 and an annual bonus
59
<PAGE> 60
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
based upon criteria established by the Board of Directors. If prior to the
fourth anniversary of the executive officers employment date, the executive
officer terminates his employment for good reason, as defined, or Sunrise or
the Company terminate his employment for any reason other than for cause, as
defined, then such executive officer shall be paid his salary and shall
continue to be covered by certain employee benefit plans for 12 months or until
the third anniversary of the employment date, whichever period is longer;
provided, however, that continued coverage under any employee benefit plan of
Sunrise or the Company shall terminate upon such executive officer becoming
eligible for comparable benefits pursuant to new employment. In the event of a
change of control (as defined in the employment agreements) prior to the fourth
anniversary of the employment date, either Sunrise, the Company, or the
executive officer may terminate the employment agreement concurrently with sale
and receive the salary and benefits on the same terms described in the
preceding sentence.
Employees
At December 31, 1999, the Company had 623 full time and 81 part time
employees. The Company had 199 employees represented by six different union
locals with these union contracts expiring as follows: two in 2000, three in
2002, and one in 2003. No significant labor problems have been experienced by
the Stations. The Company considers its overall labor relations to be good,
however, there can be no assurance that the Company's collective bargaining
agreements will be renewed in the future or that the Company will not experience
a prolonged labor dispute which could have a material adverse effect on the
Company's business, financial position and/or results of operations.
FCC Issues
On August 5, 1999, the FCC adopted changes in several of its broadcast
ownership rules (collectively, the FCC Ownership Rules). These rule changes
became effective on November 16, 1999; however, several petitions have been
filed with the FCC seeking reconsideration of the new rules, so the rules may
change. While the following discussion does not describe all of the ownership
rules or rule changes, it attempts to summarize those rules that appear to be
most relevant to the Company.
The FCC relaxed its "television duopoly" rule, which barred any entity
from having an attributable interest in more than one television station with
overlapping service areas. Under the new rules, one entity may have
attributable interests in two television stations in the same Nielsen
Designated Market Area (DMA) provided that: (1) one of the two stations is not
among the top four in audience share and (2) at least eight independently owned
and operated commercial and noncommercial television stations will remain in
the DMA if the proposed transaction is consummated. The new rules also permit
common ownership of television stations in the same DMA where one of the
stations to be commonly owned has failed, is failing or is unbuilt or where
extraordinary public interest factors are present. In order to transfer
ownership in two commonly owned television stations in the same DMA, it will be
necessary to once again demonstrate compliance with the new rules. Lastly, the
new rules authorize the common ownership of television stations with
overlapping signal contours as long as the stations to be commonly owned are
located in different DMAs.
Similarly, the FCC relaxed its "one-to-a-market" rule, which restricts
the common ownership of television and radio stations in the same market. One
entity now may own up to two television stations and six radio stations or one
television station and seven radio stations in the same market provided that
(1) 20 independent media voices (including certain newspapers and a single
cable system) will remain in the relevant market following consummation of the
proposed transaction, and (2) the proposed combination is consistent with the
television duopoly and local radio ownership rules. If fewer than 20 but more
than 9 independent voices will remain in a market following a proposed
transaction, and the proposed combination is otherwise consistent with the
FCC's rules, a single entity may have
60
<PAGE> 61
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
attributable interests in up to two television stations and four radio
stations. If these various "independent voices" tests are not met, a party
generally may have an attributable interest in no more than one television
station and one radio station in a market.
The FCC made other changes to its rules that determine what
constitutes "cognizable interest" in applying the FCC Ownership Rules (the
Attribution Rules). Under the Attribution Rules, a party will be deemed to have
a cognizable interest in a television or radio station, cable system or daily
newspaper that triggers the FCC's cross-ownership restrictions if: (1) it is a
non-passive investor and it owns 5% or more of the voting stock in the media
outlet; (2) it is a passive investor (i.e., bank trust department, insurance
company or mutual fund) and it owns 20% or more of the voting stock; or (3) its
interests (which may be in the form of debt or equity (even if non-voting), or
both) exceeds 33% of the total asset value of the media outlet and it either
(i) supplies at least 15% of a station's weekly broadcast hours or (ii) has an
attributable interest in another media outlet in the same market.
The FCC also declared that local marketing agreements (LMAs) now will
be attributable interests for purposes of the FCC Ownership Rules. The FCC will
grandfather LMAs that were in effect prior to November 5, 1996, until it has
completed the review of its attribution regulations in 2004. Parties may seek
the permanent grandfathering of such an LMA, on a non-transferable basis, by
demonstrating that the LMA is in the public interest and that it otherwise
complies with FCC Rules.
Finally, the FCC eliminated its "cross interest" policy, which had
prohibited common ownership of a cognizable interest in one media outlet and a
"meaningful" non-cognizable interest in another media outlet serving
essentially the same market.
The recent changes to the FCC Ownership Rules may effect the Company's
relationship with Smith Acquisition Company (SAC). The Company owns a
substantial non-voting equity stake in SAC, which, together with a wholly owned
subsidiary, owns WNAC-TV, Providence, Rhode Island, and WTOV-TV, Steubenville,
Ohio. Under the new FCC Ownership Rules, the Company's formerly
non-attributable interest in SAC has become attributable. Accordingly, the
Company, and parties to the Company, must consider whether its other broadcast
interests, when viewed in combination with those of SAC, are consistent with
all relevant FCC Ownership Rules. The Company is in the process of conducting
that review. To the extent the recent changes require the Company to modify its
broadcast interests or ownership structure, the Company expects to act as
necessary to remain in compliance with all relevant FCC Ownership Rules.
With the changes in the FCC Ownership Rules, the Company no longer
needs to maintain its waiver to own both KRBC-TV, Abilene, Texas, and KACB-TV,
San Angelo, Texas, as the common ownership of these stations is now consistent
with the FCC's Rules.
On October 2, 1999, AMFM Inc. (AMFM) entered into an Agreement and
Plan of Merger with CCC and CCU Merger Sub, Inc. (Merger Sub), pursuant to
which AMFM will be merged with and into Merger Sub and will become a
wholly-owned subsidiary of CCC (the AMFM Merger). Thomas O. Hicks, who is the
Company's ultimate controlling shareholder, has an attributable interest in
AMFM and currently is the Chairman and Chief Executive Officer of AMFM. AMFM
and CCC have announced that Mr. Hicks will serve as Vice Chairman of the
combined entity. The Company is in the process of analyzing the impact of this
AMFM Merger on the Company's operations and regulatory obligations.
61
<PAGE> 62
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Lease Commitments
The Company leases certain tower and studio facilities, satellite
sales and news offices and corporate offices. Total rental expense was
approximately $421, $132 and $98 for the years ended December 31, 1999 and
1998, and the ten months ended December 31, 1997, respectively.
At December 31, 1999, the total minimum annual rental commitments
under non cancelable leases for studio, transmitter, satellite sales and news
offices, and corporate offices excluding minor translator sites, are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000 $ 519
2001 481
2002 472
2003 441
2004 371
Thereafter 1,922
------
Total $4,206
======
</TABLE>
The lease on the WUPW transmitter site is a 99 year lease with an end
date of December 2, 2089. The Company has an option to purchase the property on
August 1, 2018 at fair market value. The above lease commitment disclosure
includes the monthly payments, (presently $5 a month plus an annual 3%
increase) through the option date.
13. CANCELLED PRIVATE PLACEMENT
During 1999, the Company and Sunrise had plans to sell debt securities
of Sunrise or preferred stock of the Company in a private placement to complete
the Sinclair Agreement (see Note 15) and repay the outstanding amounts under
the Preferred Agreement. Sunrise and the Company subsequently determined that
they would attempt to fund the Sinclair Agreement through an additional
borrowing under the Senior Credit Agreement and by an additional capital
contribution by Sunrise. The results of operations for the year ended December
31, 1999 include a charge of $825 for expenses incurred in the cancelled
private placement.
14. SEGMENT INFORMATION
The Company has 11 reportable segments, two license corporations and a
corporate office in accordance with SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." These segments are television stations in
designated market areas (DMA) as defined by A. C. Nielsen Company. The majority
of each segments' revenues are broadcast related.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on operating income before interest income,
interest expense, income taxes, nonrecurring gains and losses, and
extraordinary items.
The Company has no significant intersegment sales or transfers other
than interest that is allocated to subsidiaries but not divisions. All segments
have local distinct management separate from corporate management. Each
management team is evaluated based upon the results of operations of their
station.
62
<PAGE> 63
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following tables set forth information by segments, aggregated
with segments that have similar economic characteristics, and reconciles
segment information to the consolidated financial statements.
<TABLE>
<CAPTION>
Year Net Net Total Capital Depreciation New Program
Revenues Income Assets Expenditures and Program Amortization
(Loss) Amortization Rights
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Segment Groups
50 - 75 DMA 1999 $ 41,811 $ (8,527) $ 49,632 $ 1,775 $ 5,615 $3,891 $4,023
1998 24,311 1,177 120,602 1,213 6,924 392 2,083
1997 7,042 541 30,685 813 2,025 267 346
76 - 125 DMA 1999 18,870 (5,427) 26,207 1,635 4,144 801 1,307
1998 29,327 4,139 103,316 1,584 9,945 241 3,020
1997 22,526 (743) 136,480 1,655 5,818 3,016 2,546
126 and above DMA 1999 20,476 (7,743) 38,660 1,954 5,585 1,420 848
1998 13,485 (1,137) 80,044 2,759 3,513 586 593
1997 6,663 (1,070) 24,728 322 1,590 424 322
License Corporations 1999 0 15,638 261,241 0 20,271 0 0
1998 0 10,417 71,657 0 3,725 0 0
1997 0 1,828 40,251 0 2,208 0 0
Corporate 1999 0 (9,822) 8,433 417 774 0 0
1998 0 (16,396) 8,893 17 926 0 0
1997 0 (8,376) 8,647 58 993 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Company Totals: 1999 81,157 (15,881) 384,173 5,781 36,389 6,112 6,178
1998 67,123 (1,800) 384,512 5,573 25,033 1,219 5,696
1997 36,231 (7,820) 240,791 2,848 12,634 3,707 3,214
====================================================================================================================================
</TABLE>
63
<PAGE> 64
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Year Program Income tax Gain Gain Cancelled Interest
Payments Provision on Asset on Sale Private Expense (2)
(Benefit)(1) Swap of WROC Placement
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Segment Groups
50 - 75 DMA 1999 $ 4,047 $ 0 0 0 0 $ 2,560
1998 2,116 0 0 0 0 1,493
1997 404 0 0 0 0 0
76 - 125 DMA 1999 1,451 0 0 979 0 2,080
1998 3,000 0 9,457 0 0 2,080
1997 2,590 0 0 0 0 1,031
126 and above DMA 1999 860 0 0 0 0 2,304
1998 563 0 0 0 0 2,128
1997 320 0 0 0 0 1,659
License Corporations 1999 0 0 0 3,521 0 0
1998 0 0 8,000 0 0 0
1997 0 0 0 0 0 0
Corporate 1999 0 (7,525) 0 0 825 13,691
1998 0 97 0 0 0 10,600
1997 0 (299) 0 0 0 6,812
- -----------------------------------------------------------------------------------------------------------
Company Totals: 1999 6,358 (7,525) 0 4,500 825 20,635
1998 5,679 97 17,457 0 0 16,301
1997 3,314 (299) 0 0 0 9,502
===========================================================================================================
</TABLE>
(1) The extraordinary loss of early retirement of debt and tax provision and
benefit were allocated entirely to the corporate office.
(2) Interest expense is allocated to various subsidiaries, which own WJAC,
KRBC, KACB, WTOV and WNAC.
64
<PAGE> 65
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. PENDING SINCLAIR ACQUISITIONS:
On March 16, 1999, the Company and Sinclair Communications, Inc.
(Sinclair) entered into a purchase agreement (the Sinclair Agreement). Pursuant
to the Sinclair Agreement, the Company agreed to purchase from Sinclair: WICS,
Channel 20, Springfield, Illinois; WICD, Channel 15, Champaign, Illinois; and
KGAN, Channel 2, Cedar Rapids, Iowa for a total purchase price of $87.0
million, including working capital, fees and expenses. WICS and WICD are NBC
affiliates and KGAN is a CBS affiliate. Closing of this purchase is subject to
customary conditions, including review by the Department of Justice and the
Federal Communications Commission (FCC). In April 1999, the Antitrust Division
of the United States Department of Justice (DOJ) issued various requests for
additional information under the Hart-Scott-Rodino Antitrust Improvement Act
(HSR Act) in connection with the acquisition. The Company and Sinclair are in
discussions with the DOJ regarding this transaction, and the waiting period
under the HSR Act has been extended pending completion of these discussions.
While the resolution of these discussions remains uncertain, it appears likely
that, if the acquisition is consummated as contemplated under the Sinclair
Agreement, the Company would be required by the DOJ to sell, or enter into a
local marketing agreement with respect to, WICS and WICD substantially
concurrently with the closing of the acquisition of those stations, if it occurs
at all. Under the terms of the Sinclair Agreement, either the Company or
Sinclair (to the extent they are not in breach) may terminate the Sinclair
Agreement if the closing has not occurred on or prior to March 16, 2000. The
Company is presently exploring a variety of alternatives, including possibly a
sale of WICS and WICD, but cannot be sure of the terms on which this
transaction will be completed, if at all.
The Company has assigned the right to acquire the broadcast licenses
and other license assets of the Sinclair Stations to SDF Television License
Corp. (SDF), an entity separate from the Company, but owned by members of the
Company's senior management team. On April 2, 1999, SDF filed applications
seeking FCC consent to the assignment of the licenses of WICS, WICD and KGAN.
The application has been accepted for filing, and no petitions to deny were
filed by the May 13, 1999 deadline, although informal objections advocating
denial of the applications may be filed up until the date that the FCC grants
the applications. The application is still pending before the FCC, and
accordingly, the Company cannot be sure when the application will be granted,
if at all.
65
<PAGE> 66
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Jupiter/Smith TV Holdings, L.P.:
We have audited the accompanying combined statements of operations,
partners' equity and cash flows of Smith Television of Michigan, L.P., Smith
Television of Rochester, L.P., Smith Television - WTOV, L.P. and Smith
Television of Salinas-Monterey, L.P., and their respective licensed
subsidiaries, (collectively, the Partnerships) for the two months ended
February 28, 1997, and the year ended December 31, 1996. These financial
statements are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the results of the Partnerships'
operations and cash flows for the two months ended February 28, 1997, and the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 2, on March 1, 1997, Jupiter/Smith TV Holdings,
LP. and Smith Broadcasting Partners, L.P. sold substantially all of the assets
of the Partnerships to STC Broadcasting, Inc. and Smith Acquisition Company.
Arthur Andersen, LLP
Tampa, Florida
February 18, 1998
66
<PAGE> 67
SMITH TELEVISION OF MICHIGAN, L.P.
SMITH TELEVISION OF ROCHESTER, L.P.
SMITH TELEVISION - WTOV, L.P., AND
SMITH TELEVISION OF SALINAS-MONTEREY, L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year For the Two Months
Ended Ended
December 31, 1996 February 28, 1997
----------------- ------------------
<S> <C> <C>
REVENUES:
Broadcasting spot revenues, net of agency and national
representative commissions of $6,605,677 and
$861,100, respectively ...................................... $ 33,094,978 $ 4,360,352
Network compensation ........................................... 2,752,359 465,400
Trade and barter ............................................... 968,460 213,396
Other revenue .................................................. 742,995 188,733
------------ ------------
Net revenues ............................................ 37,558,792 5,227,881
------------ ------------
EXPENSES:
Station operating .............................................. 12,572,516 2,078,753
Selling, general and administrative ............................ 8,513,562 1,525,923
Trade and barter ............................................... 1,058,676 181,432
Depreciation of property and equipment ......................... 4,285,734 756,999
Amortization of intangibles .................................... 5,860,048 976,884
Corporate expense .............................................. 840,135 146,000
------------ ------------
Total operating expenses ................................ 33,130,671 5,665,991
------------ ------------
Operating income (loss) ................................. 4,428,121 (438,110)
INTEREST INCOME .................................................. 92,882 20,662
INTEREST EXPENSE ................................................. (6,072,477) (962,920)
OTHER INCOME, net (note 6) ....................................... 1,459,770 18,522
------------ ------------
NET LOSS ......................................................... $ (91,704) $ (1,361,846)
============ ============
</TABLE>
See accompanying notes to combined financial statements.
67
<PAGE> 68
SMITH TELEVISION OF MICHIGAN, L.P.
SMITH TELEVISION OF ROCHESTER, L.P.
SMITH TELEVISION - WTOV, L.P., AND
SMITH TELEVISION OF SALINAS-MONTEREY, L.P.
COMBINED STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
For the Year For the Two Months
Ended Ended
December 31, 1996 February 28, 1997
----------------- ------------------
<S> <C> <C>
PARTNERS' EQUITY, beginning of period ............................ -- $ 36,313,296
Partners' contributions ........................................ $ 36,405,000 --
Net loss ....................................................... (91,704) (1,361,846)
------------ ------------
PARTNERS' EQUITY, end of period .................................. $ 36,313,296 $ 34,951,450
============ ============
</TABLE>
See accompanying notes to combined financial statements.
68
<PAGE> 69
SMITH TELEVISION OF MICHIGAN, L.P.
SMITH TELEVISION OF ROCHESTER, L.P.
SMITH TELEVISION - WTOV, L.P., AND
SMITH TELEVISION OF SALINAS-MONTEREY, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Two Months
Ended Ended
December 31, 1996 February 28, 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................... $ (91,704) $ (1,361,846)
Adjustments to reconcile net loss to net cash provided
by operating activities -
Depreciation of property and equipment ....................... 4,285,734 756,999
Amortization of intangibles .................................. 5,860,048 976,884
Amortization of program rights ............................... 3,580,799 620,416
Payments on syndicated program and film obligations .......... (3,590,265) (621,037)
(Increase) decrease in accounts receivable ................... (1,292,494) 1,210,423
Increase in other current assets ............................. (398,791) (246,862)
Increase in accounts payable and accrued expenses ............ 1,259,338 297,410
Loss on disposal of property and equipment ................... 33,118 --
------------ ------------
Net cash provided by operating activities ............... 9,645,783 1,632,387
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of television stations ............................ (105,353,237) --
Capital expenditures ........................................... (2,965,697) (263,644)
Proceeds from disposal of property and equipment ............... 65,889 --
Other .......................................................... (45,104) 31,101
------------ ------------
Net cash used in investing activities ................... (108,298,149) (232,543)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit agreement ................................. 68,300,000 --
Principal payments on credit agreement ......................... (3,300,000) --
Partners' contributions ........................................ 36,405,000 --
----------- ------------
Net cash provided by financing activities ............... 101,405,000 --
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................ 2,752,634 1,399,844
CASH AND CASH EQUIVALENTS, beginning of period ................... -- 2,752,634
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ......................... $ 2,752,634 $ 4,152,478
============ ============
</TABLE>
See accompanying notes to combined financial statements.
69
<PAGE> 70
SMITH TELEVISION OF MICHIGAN, L.P.
SMITH TELEVISION OF ROCHESTER, L.P.
SMITH TELEVISION - WTOV, L.P., AND
SMITH TELEVISION OF SALINAS-MONTEREY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND FEBRUARY 28, 1997
1. ORGANIZATION AND NATURE OF OPERATIONS:
The accompanying financial statements present the combined results of
operations, partners' equity, and cash flows for the year ended December 31,
1996 and the two months ended February 28, 1997 of four limited partnerships:
Smith Television of Michigan, L.P., Smith Television of Rochester, L.P., Smith
Television - WTOV, L.P. and Smith Television of Salinas-Monterey, L.P., and
their respective licensed subsidiaries, (collectively, the Partnerships). The
Partnerships own the following commercial television stations: WEYI, Saginaw,
Flint and Bay City, Michigan; WROC, Rochester, New York; WTOV, Wheeling, West
Virginia and Steubenville, Ohio; and KSBW, Monterey-Salinas, California
(collectively, the Stations). Stations WEYI, WTOV and KSBW are NBC affiliates
and station WROC is a CBS affiliate. The Partnerships are controlled by
Jupiter/Smith TV Holdings, L.P. (Jupiter/Smith) and Smith Broadcasting
Partners, L.P. (SBP). Under the terms of the Partnerships' agreements, SBP is
the managing general partner. Income and loss is generally allocated based on
capital contribution percentages. The Partnerships were formed on December 13,
1995 and acquired the Stations in January 1996 for a total purchase price of
approximately $105,400,000, including transaction fees and working capital.
The combined financial statements reflect the acquisitions of the
Stations under the purchase method of accounting. Accordingly, the acquired
assets and liabilities were recorded at fair value as of the date of
acquisition. The acquisition price of approximately $105,400,000 was allocated
based upon appraised values resulting in approximately $27,600,000, $71,800,000
and $6,000,000 being assigned to property and equipment, intangibles (including
deferred financing and organizational costs), and working capital,
respectively. The transaction was funded by the Credit Agreement and partners'
contributions. Management does not consider the results of operations of the
Stations from January 1, 1996, to the dates the Stations were acquired to be
significant.
2. SALE OF THE ASSETS OF THE PARTNERSHIPS:
On March 1, 1997, Jupiter/Smith and SBP completed the sale of
substantially all of the assets of the Partnerships to STC Broadcasting, Inc.
(STC) and Smith Acquisition Company (SAC) for an aggregate sales price of
approximately $157,000,000. In connection with the sale, STC and SAC will
assume the Partnerships' television programming obligations, certain accounts
payable and accrued liabilities, and certain other obligations relating to the
operations of the Stations after the closing date. The Partnerships will retain
all other liabilities of the Partnerships, including the Credit Agreement with
Chase Manhattan Bank.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying financial statements include the combined accounts of
the Partnerships. The Partnerships are combined because of common ownership,
management and relationship of operations. All material items and transactions
between the Partnerships have been eliminated.
Cash and Cash Equivalents
The Partnerships consider all highly liquid investments with a
maturity of three months or less to be cash equivalents.
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SMITH TELEVISION OF MICHIGAN, L.P.
SMITH TELEVISION OF ROCHESTER, L.P.
SMITH TELEVISION - WTOV, L.P., AND
SMITH TELEVISION OF SALINAS-MONTEREY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Concentration of Risk and Accounts Receivable
The Partnerships serve the Saginaw, Flint and Bay City, Michigan;
Rochester, New York; Wheeling, West Virginia and Steubenville, Ohio; and
Monterey and Salinas, California, demographic areas. Accordingly, the revenue
potential of the Partnerships is dependent on the economy in these diverse
areas. The Partnerships monitor their accounts receivable through continuing
credit evaluations. Historically, the Partnerships have not had significant
uncollectible accounts.
Program Rights
The Partnerships have agreements with distributors for the rights to
television programming over contract periods which generally run from one to
four years. Each contract is recorded as an asset and liability when the
license agreement is signed. The capitalized cost of program rights for
one-time only programs is amortized on a straight-line basis over the period of
the program rights agreements. The capitalized cost of program rights for
multiple showing syndicated program material is amortized on an accelerated
basis over the period of the program rights agreement. Program rights are
reflected in the consolidated financial statements at the lower of unamortized
cost or estimated net expectation of future advertising revenues net of sales
commissions to be generated by the program material.
Property and Equipment
Property and equipment acquired in purchase transactions are recorded
at the estimate of fair value based upon independent appraisals and property
and equipment acquired subsequent thereto are recorded at cost. Property and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
Buildings........................................ 39 years
Broadcast equipment.............................. 5 - 15 years
Automobiles...................................... 3 years
Furniture and computers.......................... 5 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred, whereas expenditures for renewals and betterments are capitalized.
Intangible Assets
Intangible assets consist principally of values assigned to the
Federal Communications Commission (FCC) licenses and network affiliation
agreements of the Stations. Intangible assets are being amortized on the
straight-line basis primarily over 15 years.
Revenue Recognition
The Company's primary source of revenue is the sale of television time
to advertisers. Revenue is recorded when the advertisements are broadcast.
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<PAGE> 72
SMITH TELEVISION OF MICHIGAN L.P.
SMITH TELEVISION OF ROCHESTER, L.P.
SMITH TELEVISION - WTOV, L.P. AND
SMITH TELEVISION OF SALINAS-MONTEREY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
Impairment of Long-Lived Assets
Long-lived assets and identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount should be addressed. The Partnerships have determined there has
been no impairment in the carrying value of long-lived assets of Stations as of
December 31, 1996 or February 28, 1997.
Deferred Charges
Deferred charges are being amortized over the applicable loan period
(84 month period) on a straight-line basis, and organization costs are being
amortized over a 60-month period on a straight-line basis.
Trade/Barter Transactions
Trade/barter transactions involve the exchange of advertising time for
products and/or services. Trade/barter transactions are recorded based on the
fair market value of the products and/or services received. Revenue is recorded
when advertising schedules air and expense is recognized when products and/or
services are used or received.
Income Taxes
No income tax provision has been included in the financial statements
since income or loss of the Partnerships is required to be reported by the
partners on their respective income tax returns.
Allocation of Partnerships' Loss
The Partnerships' loss for the year ended December 31, 1996 and the
two months ended February 28, 1997, is allocated as described by the
Partnership Agreement.
Supplemental Cash Flow Disclosures
Cash paid for interest during 1996 was $5,974,847 and $0 for the two
months ended February 28, 1997. In addition, the Partnerships acquired new
contracts for television program obligations in the amount of $698,861 during
1996 and $0 for the two months ended February 28, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. The
preparation of financial statements in conformity with generally accepted
accounting principles also requires management to make estimates and
assumptions that affect the disclosures of contingent assets and liabilities at
the date of the financial statements. Actual results could differ from those
estimates.
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<PAGE> 73
SMITH TELEVISION OF MICHIGAN L.P.
SMITH TELEVISION OF ROCHESTER, L.P.
SMITH TELEVISION - WTOV, L.P. AND
SMITH TELEVISION OF SALINAS-MONTEREY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
4. CREDIT AGREEMENT
To finance the acquisitions described in Note 1 and to provide for
future operating capital, the Partnerships entered into a Credit Agreement with
Chase Manhattan Bank, N.A. (the Credit Agreement), as administrative agent for
borrowings of up to $72,000,000. The borrowings are collateralized by all of
the Partnerships' assets and outstanding Partnership interests.
Under the Credit Agreement, the Partnerships have the option to
maintain domestic and Eurodollar loans. Interest on borrowings under this
agreement are at varying rates based, at the Partnerships' option, on the
banks' prime rate or the London Interbank Offering Rate (LIBOR), plus a fixed
percent, and are adjusted based upon the ratio of total debt to earnings before
interest, taxes, depreciation, and amortization. The weighted average interest
rate during 1996 and the two months ended February 28, 1997, was 9.08% and
8.9%, respectively. Additionally, commitment fees of 0.5% are payable
quarterly.
Under the existing Credit Agreement, the Partnerships agree to abide
by restrictive covenants which place limitations upon payments of cash
distributions, issuance of Partnership interest, investment transactions and
the incurrence of additional obligations. In addition, the Partnerships must
maintain specified levels of operating cash flow and comply with other
financial covenants.
Upon the sale of assets on February 28, 1997, the Credit Agreement was
paid in full from the proceeds.
5. AFFILIATE TRANSACTIONS:
The Partnerships pay SBP, the general partner of the Partnerships, to
provide certain management services. The Partnerships recorded expense of
$840,135 in 1996 and $146,000 for the two months ended February 28, 1997 for
these services. Management believes these amounts are reasonable and
representative of the services provided. The agreement terminates upon the sale
of the Stations' assets.
The Partnerships have elected to participate in an affiliate insurance
program which covers automobiles, buildings, equipment, libel and slander,
liability and earthquake damage. The Partnerships pay actual invoice costs and
no employee of the affiliate or SBP is compensated for these services other
than through the above management fee. Management believes the amounts paid are
reasonable and representative of the services provided.
The Partnerships have elected to participate in an affiliate health,
life, vision and dental program, long and short term disability, travel
accident and long-term care program. The Partnerships are charged the same
costs as any other participating affiliate. No employee of the affiliate or SBP
is compensated for these services other than through the above management fee.
Management believes the amounts paid are reasonable and representative of the
services provided.
A defined contribution savings plan (401k) (the Plan) is provided to
employees of the Partnerships by an affiliate. Employees of the Partnerships
who have been employed for six months, who have attained the age of 21 years
and who have completed 1,000 hours of service are generally eligible to
participate. Certain employees represented by various unions have elected not
to participate in the Plan
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<PAGE> 74
SMITH TELEVISION OF MICHIGAN L.P.
SMITH TELEVISION OF ROCHESTER, L.P.
SMITH TELEVISION - WTOV, L.P. AND
SMITH TELEVISION OF SALINAS-MONTEREY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS - (CONTINUED)
or have established their own plans. Amounts contributed to the Plan by the
Partnerships amounted to $131,429 in 1996 and $35,682 for the two months ended
February 28, 1997.
Management believes the costs incurred in connection with the above
affiliate programs approximate the costs that would be incurred if the
Partnerships procured such services on a stand-alone basis.
OTHER INCOME:
Other income for the periods indicated consisted of the following:
<TABLE>
<CAPTION>
For the Year For the Two Months
Ended Ended
December 31, 1996 February 28, 1997
----------------- ------------------
<S> <C> <C>
Payment received from an unaffiliated network, net ............... $ 1,500,000 $ --
Loss on disposal of equipment .................................... (33,118) --
Other ............................................................ (7,112) 18,522
------------ ------------
$ 1,459,770 $ 18,522
============ ============
</TABLE>
During 1996, the Partnerships agreed to provide certain services to an
unaffiliated national television network and agreed to potentially swap one of
its Stations for one of the unaffiliated network's stations. The Partnerships
have provided all services required by the network. The Partnerships received
$1,500,000 for these services.
7. CONTINGENCIES:
The Partnerships are subject to legal proceedings and claims in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Partnerships.
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SCHEDULE II
STC BROADCASTING, INC. AND SUBSIDIARIES
TELEVISION STATIONS WEYI, WROC, WTOV AND KSBW
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
STC BROADCASTING, INC.
Allowance for doubtful accounts
Year ended December 31, 1999 $ 504 $ 403 -- $ 361 $ 546
Year ended December 31, 1998 $ 286 $ 351 $ 192 (1) $ 325 $ 504
Ten months ended December 31, 1997 $ -- $ 34 $ 346 (1) $ (94) $ 286
TELEVISION STATIONS WEYI,
WROC, WTOV, and KSBW
Allowance for doubtful accounts
Two months ended February 28, 1997 $ 223 $ 16 $ -- $ (21) $ 218
</TABLE>
(1) Amounts represent allowance for doubtful account balances purchased in
connection with the acquisition of certain television stations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None to Report
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers and directors of Sunrise and the Company as of March 1, 1999.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Robert N. Smith 55 President of Sunrise and Chief Executive Officer and
Director of Sunrise and the Company
Sandy DiPasquale 52 President and Chief Operating Officer of the Company
and Executive Vice President and Chief Operating
Officer of Sunrise
David A. Fitz 55 Senior Vice President and Chief Financial Officer
of Sunrise and the Company
John M. Purcell 57 Regional Vice President of Sunrise and the Company
John R. Muse 48 Chairman of the Board of Directors of Sunrise and
the Company
Michael J. Levitt 40 Director of Sunrise and the Company
John H. Massey 59 Director of Sunrise and the Company
Eric C. Neuman 54 Director of Sunrise and the Company
</TABLE>
ROBERT N. SMITH has served in the broadcast industry for 20 years and
served as President of Sunrise and Chief Executive Officer and Director of
Sunrise and the Company since their formation.
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<PAGE> 76
Since 1985, Mr. Smith has served as President and majority stockholder of SBG,
which owns, operates and manages seven television stations in addition to the
Company's Stations, and has served as Chief Executive Officer of SBP, an
affiliate of SBG. From 1983 to 1985, Mr. Smith served as an officer, director
and part owner of Heritage Broadcasting Company, which was the licensee of
WCTI-TV, New Bern, North Carolina. Mr. Smith first became involved with the
television broadcast industry as an attorney in the Broadcast Bureau of the FCC
from 1971 to 1974. Thereafter, Mr. Smith's career included substantial
government service, including serving on the White House Staff in 1977 and as
Assistant Director for Community Services Administration from 1977 to 1979,
prior to returning full time to the broadcast industry in 1983.
SANDY DIPASQUALE has served in the broadcast industry for 20 years and
served as President of the Company and Executive Vice President and Chief
Operating Officer of Sunrise since their formation. From January of 1996
through February of 1997, Mr. DiPasquale served as Chief Operating Officer of
SBP and was responsible for the day-to-day operations and from November 1994 to
January 1996 was associated with SBG. From 1989 to 1994, Mr. DiPasquale served
as President, Chief Executive Officer and was a part owner of SD
Communications, Inc., KBS, Limited Partnership and KBS, Inc., which were the
owners of KWCH-TV, Wichita, Kansas, and its affiliated stations in Hays,
Goodland and Dodge City, Kansas. From 1986 to 1988, Mr. DiPasquale served as
President and General Manager and was a partner in WGRZ-TV, Buffalo, New York.
Prior to such time, Mr. DiPasquale served in sales and management positions at
various television broadcast stations in the Buffalo area.
DAVID A. FITZ has served in the broadcast industry for 22 years and
served as Senior Vice President and Chief Financial Officer of Sunrise and the
Company since their formation. From January 1996 through February 1997, Mr.
Fitz served as Chief Financial Officer of SBP and as an officer and director of
each of the SBG affiliated companies. Mr. Fitz has held various positions with
SBG affiliated companies since 1986. Prior to joining SBG, Mr. Fitz served for
nine years as Executive Vice President and Chief Financial Officer of the
Broadcast Division of Gulf Broadcast Company, which at that time owned six
television and eight radio broadcast stations. Prior to that time, Mr. Fitz was
a manager with KPMG Peat Marwick, which he joined in 1969.
JOHN M. PURCELL has served in the broadcast industry for 37 years and
served as Regional Vice President of Sunrise and the Company and as General
Manager of WROC-TV, Rochester, New York, from March 1997 to April 1, 1999. From
January 1996, through February 1997, Mr. Purcell served as Senior Vice
President of SBP and General Manager of WROC-TV, Rochester, New York. From
November 1994, to January 1996, Mr. Purcell was associated with SBG. From 1986
to September 1994, Mr. Purcell served as Vice President and General Manager of
WHTM-TV, Harrisburg, Pennsylvania, an SBG-owned station. Prior to such time,
Mr. Purcell served as President and General Manager of WGHP-TV, Greensboro,
North Carolina, and as Vice President and Director of Sales of WTSP-TV,
Tampa/St. Petersburg, Florida.
JOHN R. MUSE has served as Chairman of the Board of Directors of the
Company and Sunrise since its formation. Mr. Muse is Chief Operating Officer and
Partner of Hicks, Muse, and co-founded the firm in 1989. At Hicks, Muse, Mr.
Muse has been actively involved in originating, structuring, and monitoring
Hicks Muse's investments. From 1984 to 1989, Mr. Muse headed the
merchant/investment banking operations of Prudential Securities for the
Southwestern region of the United States. From 1980 to 1984, Mr. Muse served as
Senior Vice President and a Director of Schneider, Bernet & Hickman, Inc., in
Dallas, and was responsible for that firm's investment banking activities. Mr.
Muse serves as a director of Premier International Foods plc, Financlare Movlins
de Champagne, Glass's Information Services, Arnold Palmer Gold Management Co.,
LIN Television, Media Capital Soc. Gestora de Participacoes Sociasi, S.A., G.H.
Mumm & Cie, Champagne Perrier-Jouet, Premier International Foods plc, Hillsdown
Holdings plc, Glass's Information Services, Regal Cinemas, Inc., and Suiza Food
Corporation. Mr. Muse also serves on the Board of Directors for Goodwill
Industries, SMU Edwin L. Cox School of Business, the UCLA Anderson School Board
of Visitors and the Board of Trustees of St. Mark's School of Texas.
MICHAEL J. LEVITT has served as a director of the Company and Sunrise
since its formation. Mr. Levitt has been a partner of Hicks Muse since 1996,
and is involved in originating, structuring, executing,
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<PAGE> 77
and monitoring Hicks Muse's investments as well as building relationships with
investment and commercial banking firms. Prior to joining Hicks Muse, Mr. Levitt
served as a Managing Director and Deputy Head of Investment Banking with Smith
Barney, Inc. from 1993 through 1995. He was also a member of the investment
committee of Greenwich State Capital, the merchant banking arm of the Travelers
Group. From 1986 through 1995, Mr. Levitt was a Managing Director with Morgan
Stanley & Co. responsible for corporate finance, merger and acquisition and high
yield activities with leveraged buyout firms and non-investment grade companies.
Mr. Levitt serves as director of AMFM Corp., AMFMi Corp., Award.com Inc., El
Sitio, Inc., G.H. Mumm/Perrier Jouet & Cie., Globix Corporation, iParty Corp.,
Ibero American Media Partners, L.P., International Home Foods, Inc., PeopleLink,
Inc., RCN Corporation, RealPulse.com, Inc., StreetZebra.com, Inc. and Rhythms
NetConnections, Inc. In addition, Mr. Levitt has been named interim Chief
Executive Officer of AMFMi Corp. Mr. Levitt is the Chairman of the Make-A-Wish
Foundation of Metro New York, a member of the Board of the Hope and Heroes
Children's Cancer Fund, and a Trustee of the Elizabeth Morrow School.
JOHN H. MASSEY has served as a director of the Company and Sunrise
since its formation. Until August 2, 1996, Mr. Massey served as the Chairman of
the Board and Chief Executive Officer of Life Partners Group, Inc., an insurance
holding company, having assumed those offices in October 1994. Prior to joining
Life Partners, he served, since 1992, as the Chairman of the Board of, and
currently serves as a director of, FSW Holdings, Inc., a regional investment
banking firm. Since 1986, Mr. Massey has served as a director of Gulf-California
Broadcast Company, a private holding company, that was sold in May 1996. From
1986 to 1992, he also was President of Gulf-California Broadcast Company. From
1976 to 1986, Mr. Massey was President of Gulf Broadcast Company, which owned
and operated 6 television stations and 11 radio stations in major markets in the
United States. Mr. Massey currently serves as a director of AMFM Corp., Central
Texas Bankshare Holdings, Inc., Hill Bank and Trust Co., Hill Bancshares
Holdings, Inc., Bank of the Southwest of Dallas, Texas, Columbus State Bank,
Columbine JDS Systems, Inc., and the Paragon Group, Inc.
ERIC C. NEUMAN has served as a director of Sunrise and STC
Broadcasting since May 1999. Mr. Neuman is Vice President and a director of LIN
Television. Mr. Neuman resumed his position as an officer of Hicks Muse in
April 1999 and currently serves as a Principal. Mr. Neuman was the Senior Vice
President of Strategic Development for Chancellor from July 1998 to March 1999.
From May 1993 to July 1, 1998, Mr. Neuman served as an officer of Hicks Muse.
From 1985 to 1993 Mr. Neuman served as a Managing General Partner of
Communications Partner, Ltd., a Dallas-based private investment firm
specializing in media and communications businesses.
All directors hold office for one year terms and until their
successors are duly elected and qualified. The Board of Directors of the
Company established an Executive Committee to which Messrs. Massey, Muse and
Levitt have been appointed, and an Audit Committee and Compensation Committee
to which Messrs. Levitt, Massey and Muse have been appointed. Directors of the
Company are elected by Sunrise, the sole stockholder of the Company.
Director Compensation
Directors of Sunrise who are employees of Sunrise, STC Broadcasting or
Hicks Muse serve without additional compensation. Independent directors receive
an annual retainer of $12,000. These independent directors receive an
additional $1,000 for each meeting of the Board of Directors and each committee
meeting attended. Independent directors are reimbursed for any expenses
incurred in connection with their attendance at such meetings. Currently, John
H. Massey is Sunrise's only independent director.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to
its Chief Executive Officer and each of its four most highly compensated
executive officers.
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<PAGE> 78
<TABLE>
<CAPTION>
Other All Other
Name and Principal Position Salary Bonus Compensation(1) Compensation(2)
- --------------------------- ------ ----- ----------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Robert N. Smith(4) 1999 $400 $ 50 $ 5 $ 3
Chief Executive Officer 1998 300 100 5 3
1997 202 50 4 2
Sandy DiPasquale 1999 400 50 5 3
Chief Operating Officer 1998 300 100 6 3
1997 202 50 4 2
David A. Fitz 1999 350 50 5 3
Chief Financial Officer 1998 275 100 5 3
1997 202 50 5 2
John M. Purcell 1999 264 50 5 3
Regional Vice President 1998 259 8 3 --
1997 209 -- 9 2
David LaFrance 1999 224 40 101(3) 3
Vice President and 1998 215 20 59(3) 3
General Manager WDTN 1997 141 25 -- 2
</TABLE>
(1) Dollar value of premiums for life insurance reimbursed by the Company.
(2) Represents amounts contributed by the Company to the Sunrise 401(k) Savings
Plan.
(3) Represents amount of deferred compensation included in employment
letter.
Employment Agreements
On March 1, 1997, Sunrise and the Company entered into five-year
employment agreements with Robert Smith, Sandy DiPasquale, David Fitz and John
Purcell. Each employment agreement is subject to automatic successive one-year
renewal terms that take effect unless notice of non-renewal is given by either
party to the agreement at least 120 days prior to the expiration of the initial
term or annual extension, as the case may be. The compensation provided Messrs.
Smith, DiPasquale, Fitz and Purcell under their respective agreements includes
minimum annual base salary of $250,000 each, subject to adjustment at the sole
discretion of the Board of Directors of Sunrise, and an annual bonus based upon
criteria to be established by the Board of Directors at the beginning of each
fiscal year. These executives are entitled to participate in certain benefit
plans. If prior to the fourth anniversary of the Employment Date, the executive
officer terminates his employment for good reason (as defined) or Sunrise or
the Company terminate his employment for any reason other than for cause (as
defined), then such executive officer shall be paid his salary and shall
continue to be covered by certain employee benefit plans for 12 months. In the
event of a change of control (as defined in the agreements) prior to the fourth
anniversary of the Employment Date, either Sunrise, the Company or the
executive officer may terminate the employment agreement concurrently with sale
and receive the salary and benefits on the same terms described in the
preceding sentence.
Mr. Smith's employment agreement requires him to devote his best
efforts and such time, attention, knowledge and skill to the operation of the
Stations as is necessary to manage and supervise the Stations and the Company.
Mr. Fitz's employment agreement requires him to devote his best efforts and his
working time, attention, knowledge and skill solely to the operation of the
Stations; provided, however, that Mr. Fitz is permitted to devote reasonable
time in advisory services and oversight duties in connection with Mr. Smith's
investments in other business enterprises having an interest in or operating a
television station within certain excluded markets in which Mr. Smith currently
holds an interest in a television station (the Excluded Markets) and any
acquisition or investment in up to three additional excluded stations (the
Excluded Stations).
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Each employment agreement contains a noncompetition provision, which
provides that during the term of each agreement and for a period of two years
thereafter (or one year, if Hicks Muse or its affiliates cease to own any of
the Stations) and during any period in which the executive officer is receiving
severance payments pursuant to the employment agreement, such executive officer
will not engage in the television broadcast business within the DMA of any
Station. Mr. Smith's employment agreement permits him to invest in, become
employed by or otherwise render services to or for (i) another business
enterprise (other than the Company) having an interest in or operating a
television station within the Excluded Markets and (ii) after an opportunity to
acquire or invest shall have been presented to the Company and the Company
shall have declined in writing to make such acquisition or investment, the
Excluded Stations.
401(k) Savings Plan
Effective as of March 1, 1997, the Company became a participating
subsidiary in the Sunrise 401(k) Savings Plan (the Plan), which covers
employees of the Company and subsidiaries who have attained the age of 21, and
completed six months of service. An employee may contribute up to an aggregate
of 15% of annual compensation to the Plan, subject to statutory limitations and
top heavy limitations. The Company will match 100% of each employee's
contribution up to 3% of employee compensation or $3,000 which ever is less.
Contributions are allocated to each employee's individual account, which is
intended to be invested in various funds according to the direction of the
employee. All five highly compensated executive officers participate in the
Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has 1000 shares of Common Stock, $0.01 par value per
share, issued and outstanding, all of which are owned by Sunrise, whose address
is 720 2nd Avenue South, St. Petersburg, Florida 33701. All of the capital
stock of Sunrise is owned by Sunrise Television Partners, L.P. (the
Partnership) of which the ultimate managing partner is Thomas O. Hicks, an
affiliate of Hicks Muse.
Affiliates of Hicks Muse have purchased $25.0 million of the Company's
Redeemable Preferred Stock Series A for a price of approximately $24.1 million
(or 96.5% of the initial liquidation preferences of such shares) and received,
in connection therewith, warrants to purchase shares of common stock of
Sunrise. The Hicks Muse affiliates, along with the other purchasers of the
Redeemable Preferred Stock Series A and warrants, received certain registration
rights with respect to the shares of common stock of Sunrise issuable upon
exercise of the warrants.
Robert N. Smith (through SBG), Sandy DiPasquale, David A. Fitz and
John M. Purcell own 100% of the Class B limited partnership interest in the
Partnership, and together with others have invested $2.7 million in Class A
interest of the Partnership. The return on the Class B ownership interest is
based on the performance of Sunrise and the Company. Neither the Class A nor
Class B interest owned by limited partners have any rights to participate in
the management or control of the Partnership or its business.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 1, 1997, Sunrise and the Company entered into a ten-year
agreement (the Monitoring and Oversight Agreement) with an affiliate of Hicks
Muse (Hicks Muse Partners) pursuant to which Sunrise and the Company have
agreed to pay Hicks Muse Partners an annual fee payable quarterly for oversight
and monitoring services to the Company. The annual fee is adjustable on January
1, of each calendar year to an amount equal to 0.2% of the budgeted
consolidated annual net revenues of the Company and its subsidiaries for the
then-current fiscal year plus reimbursement of certain expenses.
The Monitoring and Oversight Agreement makes available the resources
of Hicks Muse Partners concerning a variety of financial and operational
matters. The Company does not believe that the services that have been, and
will continue to be provided to the Company by Hicks Muse Partners could
otherwise be obtained by the Company without the addition of personnel or the
engagement of outside professional advisors. In the Company's opinion, the fees
provided for under the Monitoring and Oversight Agreement reasonably reflect
the benefits received, and to be received, by Sunrise and the
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<PAGE> 80
Company. Total payments related to this agreement amount to $0.2 million, $0.2
million and $0.1 million for the years ended December 31, 1999 and 1998, and
the ten months ended December 31, 1997, respectively.
On March 1, 1997, Sunrise and the Company entered into a ten-year
agreement (the Financial Advisory Agreement) pursuant to which Hicks Muse
Partners received a financial advisory fee of 1.5% of the transaction value at
the closing of the Jupiter/Smith acquisition as compensation for its services
as financial advisor to the Company. Hicks Muse Partners is entitled to receive
a fee equal to 1.5% of the "transaction value" for each "add-on transaction" in
which the Company is involved. The term "transaction value" means the total
value of the add-on transaction including, without limitation, the aggregate
amount of the funds required to complete the add-on transaction (excluding any
fees payable pursuant to the Financial Advisory Agreement), including the
amount of any indebtedness, preferred stock or similar terms assumed (or
remaining outstanding). The term "add-on transaction" means any future proposal
for a tender offer, acquisition, sale, merger, exchange offer,
recapitalization, restructuring or other similar transaction directly involving
the Company or any of its subsidiaries, and any other person or entity. The
Financial Advisory Agreement makes available the resources of Hicks Muse
Partners concerning a variety of financial and operational matters. The Company
does not believe that the services that have been, and will continue to be
provided by Hicks Muse Partners could otherwise be obtained by the Company
without the addition of personnel or the engagement of outside professional
advisors. In the Company's opinion, the fees provided for under the Financial
Advisory Agreement reasonably reflect the benefits received and to be received
by the Company. Total fees paid under this agreement for the years ended
December 31, 1999 and 1998, and the ten month period ended December 31, 1997
were $1.8 million, $2.7 million and $3.4 million, respectively, and were
capitalized as cost of acquisition or netted against preferred stock.
On March 1, 1997, affiliates of Hicks Muse purchased $25.0 million of
the Redeemable Preferred Stock Series A for a purchase price of approximately
$24.1 million (or 96.5% of the initial liquidation preference of such shares)
and received in connection therewith warrants to purchase shares of common
stock of Sunrise. The Hicks Muse affiliates, along with the other purchaser of
the Redeemable Preferred Stock Series A and warrants, received certain
registration rights with respect to the shares of common stock of Sunrise
issuable upon exercise of the warrants.
The Company has elected to participate in a Hicks Muse affiliate
insurance program which covers vehicles, buildings, equipment, libel and
slander, liability and earthquake damage. The Company pays actual invoice costs
and no employee of Hicks Muse is compensated for these services other than
through the above Monitoring and Oversight Agreement. Management believes the
amounts paid are attractive and representative of the services provided.
The Company has elected to participate in the Sunrise health, life,
vision and dental program, long and short-term disability, travel accident and
long-term care program. Management believes the amounts paid are attractive and
representative of the services provided.
A defined contribution 401(k) savings plan is provided to employees of
the Company by Sunrise. Employees of the Company who have been employed for six
months and who have attained the age of 21 years are generally eligible to
participate. Certain employees represented by various unions have elected not
to participate in the Plan or have established their own plans. Total
contributions by the Company to defined contribution 401(k) savings plan were
approximately $0.5 million, $0.3 million and $0.1 million for the years ended
December 31, 1999 and 1998, and the ten months ended December 31, 1997,
respectively.
The Company has contracts with national representation firms to sell
advertising time. During 1998, entities controlled by Hicks Muse acquired
certain of these firms. In 1999, the Company entered into extensions of certain
of these contracts in the normal course of business on terms and conditions
which the Company considered attractive and representative of current market
conditions.
On April 24, 1998, the Company sold to Robert N. Smith, the Chief
Executive Officer and a Director of Sunrise and the Company, the assets and
certain rights and obligations related to WFFF for
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<PAGE> 81
$0.5 million. The purchase price was secured by a note and liens on all of the
assets sold and on July 23, 1998, the Company received full payment on the
note.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) 1.
Financial Statements
STC Broadcasting, Inc.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999 and 1998 and ten months ended December 31, 1997
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1999 and 1998 and ten months ended December 31, 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998 and ten months ended December 31, 1997
Notes to Consolidated Financial Statements
Smith Television of Michigan, L.P.
Smith Television of Rochester, L.P.
Smith Television - WTOV, L.P.
Smith Television of Salinas-Monterey, L.P.
Report of Independent Certified Public Accountants
Combined Statements of Operations for the year ended December 31, 1996
and the two months ended February 28, 1997
Combined Statements of Partners' Equity for the year ended December 31,
1996 and the two months ended February 28, 1997
Combined Statements of Cash Flows for the year ended December 31,1996
and the two months ended February 28,1997
Notes to Combined Financial Statements
a(2)
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
a(3)
Exhibits
2.1 Asset Purchase Agreement by and between Elcom of Ohio, Inc., and
STC Broadcasting, Inc. dated as of July 24, 1998. (1)
2.2 Asset Purchase Agreement by and among STC Broadcasting, Inc. and
STC License Company and Nexstar Broadcasting of Rochester, Inc. dated
March 3, 1999. (2)
2.3 Purchase Agreement by and among Sinclair Communications, Inc.,
and STC Broadcasting, Inc., dated March 16, 1999 (2)
3.1 Certificate of Designation of the Powers, Preferences and
Relative Participating, optional and other special rights of Preferred
Stock, Series B dated February 5, 1999. (2)
3.2 Certificate of Elimination with respect to the Preferred Stock,
Series B of STC Broadcasting, Inc. dated December 28, 1999. (3)
81
<PAGE> 82
3.3 Certificate of Designation of the Powers, Preferences and
Relative Participating, Optical and Other Special Rights of Preferred
Stock, Series B and Qualifications, Limitations and Restrictions
thereof of STC Broadcasting, Inc. dated December 28, 1999. (3)
10.1 Securities Purchase Agreement by and among the Company and Chase
Manhattan Corporation, Credit Suisse First Boston Corporation, and
Salomon Brothers Holding Company, Inc. dated February 5, 1999 (2)
10.2 Fourth Amendment to the Amended and Restated Credit Agreement
dated as of December 21, 1999. (3)
10.3 Preferred Stock Purchase Agreement dated December 30, 1999 by
and between Sunrise Television Corp. and STC Broadcasting, Inc. (3)
10.4 Senior Subordinated Note Purchase Agreement by and among Sunrise
Television Corp. and Hicks Muse, Tate & Furst Equity Fund III, L.P.,
HM3 Coinvestors, L.P. and Chase Equity Associates, L.P. dated
December 30, 1999. (3)
10.5 Agreement between STC Broadcasting, Inc. and the International
Brotherhood of Electrical Workers dated September 15, 1999
representing certain employees of television station KFYR in Bismarck,
North Dakota. (4)
12 Statement of fixed charge ratio (4)
21.1 Subsidiaries of STC Broadcasting, Inc. (4)
27.2 Financial Data Schedule (4)
(1) Incorporated by reference to the Form 10-Q of STC Broadcasting, Inc.
for the period April 1, 1998 to June 30, 1998.
(2) Incorporated by reference to the Form 10K of STC Broadcasting, Inc. for
the year ended December 31, 1998.
(3) Incorporated by reference to the Form 8K of STC Broadcasting, Inc.
dated January 6, 2000.
(4) Filed herewith.
Reports on Form 8-K
Nothing to report for period October 1, 1999 to December 31, 1999. The Company
filed an 8K report on January 6, 2000 related to the license closing on the
sale of WROC and the sale of $25.0 million of Redeemable Preferred Stock Series
B.
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<PAGE> 83
SIGNATURES
Pursuant to the requirement 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, in the City of St.
Petersburg, State of Florida, on the 1st day of March, 2000.
STC Broadcasting, Inc.
By: /s/ Robert N. Smith
-------------------
Robert N. Smith
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Robert N. Smith
- --------------------------- Chief Executive Officer March 1, 2000
Robert N. Smith (Principal Executive Officer)
and Director
/s/ Sandy DiPasquale
- --------------------------- President and March 1, 2000
Sandy DiPasquale Chief Operating Officer
/s/ David A. Fitz Chief Financial Officer March 1, 2000
- ---------------------------
David A. Fitz
/s/ John R. Muse Chairman of the Board of March 1, 2000
- --------------------------- Directors
John R. Muse
/s/ Eric C. Neuman Director March 1, 2000
- ---------------------------
Eric C. Neuman
/s/ Michael J. Levitt Director March 1, 2000
- ---------------------------
Michael J. Levitt
/s/ John H. Massey Director March 1, 2000
- ---------------------------
John H. Massey
</TABLE>
83
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Document
--- -----------------------
<S> <C>
2.1 Asset Purchase Agreement by and between Elcom of Ohio, Inc., and
STC Broadcasting, Inc. dated as of July 24, 1998. (1)
2.2 Asset Purchase Agreement by and among STC Broadcasting, Inc. and
STC License Company and Nexstar Broadcasting of Rochester, Inc.
dated March 3, 1999. (2)
2.3 Purchase Agreement by and among Sinclair Communications, Inc.,
and STC Broadcasting, Inc., dated March 16, 1999 (2)
3.1 Certificate of Designation of the Powers, Preferences and
Relative Participating, optional and other special rights of
Preferred Stock, Series B dated February 5, 1999. (2)
3.2 Certificate of Elimination with respect to the Preferred Stock,
Series B of STC Broadcasting, Inc. dated December 28, 1999. (3)
3.3 Certificate of Designation of the Powers, Preferences and
Relative Participating, Optical and Other Special Rights of
Preferred Stock, Series B and Qualifications, Limitations and
Restrictions thereof of STC Broadcasting, Inc. dated December
28, 1999. (3)
10.1 Securities Purchase Agreement by and among the Company and Chase
Manhattan Corporation, Credit Suisse First Boston Corporation,
and Salomon Brothers Holding Company, Inc. dated February 5,
1999 (2)
10.2 Fourth Amendment to the Amended and Restated Credit Agreement
dated as of December 21, 1999. (3)
10.3 Preferred Stock Purchase Agreement dated December 30, 1999 by
and between Sunrise Television Corp. and STC Broadcasting, Inc. (3)
10.4 Senior Subordinated Note Purchase Agreement by and among Sunrise
Television Corp. and Hicks Muse, Tate & Furst Equity Fund III,
L.P.., HM3 Coinvestors, L.P. and Chase Equity Associates, L.P.
dated December 30, 1999. (3)
10.5 Agreement between STC Broadcasting, Inc. and the International
Brotherhood of Electrical Workers dated September 15, 1999
representing certain employees of television station KFYR in
Bismarck, North Dakota. (4)
12 Statement of fixed charge ratio (4)
21.1 Subsidiaries of STC Broadcasting, Inc. (4)
27.2 Financial Data Schedule (for SEC use only) (4)
</TABLE>
(1) Incorporated by reference to the Form 10-Q of STC Broadcasting, Inc.
for the period April 1, 1998 to June 30, 1998.
(2) Incorporated by reference to the Form 10K of STC Broadcasting, Inc. for
the year ended December 31, 1998.
(3) Incorporated by reference to the Form 8K of STC Broadcasting, Inc.
dated January 6, 2000.
(4) Filed herewith.
84
<PAGE> 1
EXHIBIT 10.5
AGREEMENT
THIS AGREEMENT is entered into this 15th day of September 1999 by and
between STC BROADCASTING INC., OWNER AND OPERATOR OF TELEVISION STATIONS
KFYR-TV, BISMARCK; KQCD-TV, DICKINSON; KUMV-TV, WILLISTON, AND KMOT-TV, MINOT
(hereinafter referred to as the "Company"), and LOCAL UNION NO. 714,
INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO (hereinafter referred
to as the "Union"). This entire Agreement supersedes and replaces any and all
previous Agreements, if any exist.
ARTICLE 1
RECOGNITION AND SCOPE OF WORK
1.1. The Company recognizes the Union as the sole and exclusive
bargaining agent with respect to rates of pay, wages, hours and all other
conditions of employment for all employees covered by this Agreement.
1.2. The term "Employee" as used in this Agreement shall mean and
include all full time and regular part-time transmitter and studio control
technicians now or hereafter employed by the Employer, its successors or
assigns during the term of this Agreement, excluding all other employees,
guards and supervisors as defined in the act.
Attached as Appendix "A" is a listing of the employees
currently covered by the Agreement. Any future or replacement employees who
regularly perform the functions of these positions for twenty (20) or more
hours per week shall be included in the bargaining unit.
ARTICLE II
PURPOSE AND DUES DEDUCTIONS
2.1. It is the intent and purpose of the parties that this
Agreement shall serve to establish and promote better understanding, harmony
and cooperation between the Company, the Union and the employees covered
hereby; to assure at all times maximum production and quality at lowest
possible costs consistent with the principle of a fair days's work for a fair
day's pay; to provide an orderly procedure for the prompt and fair disposition
of any grievances that might arise; and to set forth the sole and entire
agreement between the Company and the Union with respect to wages, hours and
all other terms and conditions of employment.
2.2 The Employer agrees, upon receipt of voluntary written
instructions by an Employee, who is a member of the local Union, to deduct
Union dues from the member's paycheck once each month and to promptly pay over
to the Financial Secretary of the Union, the gross amount deducted. It is
understood that the voluntary written instructions to the Employer authorizing
the deduction of Union dues will not be revocable for one (1) year or until the
termination date of this Agreement, whichever occurs sooner.
ARTICLE III
NONDISCRIMINATION AND NONFAVORITISM
3.1. Neither the Company nor the Union will discriminate against or
favor an
1
<PAGE> 2
employee in respect to any term or condition of employment because of the
employee's union membership, non-union membership, union activity, age, sex,
race, creed, color, marital status or national origin.
3.2. The Union agrees that neither it nor its members will solicit
Union membership on Company time or conduct on Company time any Union activity
other than the handling of grievances with the Company as provided in this
Agreement.
ARTICLE IV
MANAGEMENT'S RIGHTS
4.1 The Union recognizes and agrees that the Company reserves and
retains the sole and exclusive right to manage its business and to direct the
working force except only to the extent that express provisions of this
Agreement specifically limit or qualify this right. Except as specifically
limited by express provisions of this Agreement, the Company's right to manage
its business includes, but is not limited to, the right to hire, promote,
demote, transfer and assign and direct employees; to discipline, suspend or
discharge for just cause; to retire or relieve employees from duty because of
lack of work or other legitimate reasons including, but not limited to, failure
to meet reasonable physical standards which may be established from time to
time and which may be revised at any time; to make and enforce reasonable plant
rules of conduct and regulations not inconsistent with the provisions of this
Agreement; to increase or decrease the working force; to determine the number
of departments and the work to be performed therein; to determine the work to
be performed, products to be manufactured, if any, and the methods, processes,
equipment and materials to be employed; to determine quality; and establish
reasonable work standards; to determine the number of hours per day or per week
operations shall be carried on; to establish and change work schedules and
assignments; to subcontract; to discontinue or relocate all or any portion of
the operations now or hereafter carried on by the Company; to schedule hours of
work, including overtime; to determine job content and to maintain safety,
efficiency and order in the plant. The exercise or nonexercise of rights
retained by the Company shall not be deemed to waive any such right or the
discretion to exercise any such right.
4.2 CHANGES IN EQUIPMENT, OPERATIONS OR WORK ASSIGNMENTS.
Recognizing the employee's desire for job security, the Company agrees that
when it is planning changes in equipment, operations or work assignments that
will involve an increase or reduction in employees covered under this contract,
it will notify the Union thirty (30) days in advance of the effective date, and
if requested, meet with the Union for a discussion of the changes.
4.3. CHIEF ENGINEERS. Chief Engineers and any Maintenance
Engineers are free to do any type of work without restriction by or coverage
under this Agreement. The Company shall not designate employees as Chief
Engineers for the purpose of circumventing this Agreement.
4.4. JURISDICTION. The Company agrees that it will observe the
jurisdictional areas of the work performed by the unit employees in the past
and the work jurisdiction of the Union to the extent that such can be done
without impairing the Company's right to assign unit and non-unit employees'
work in such manner as will permit the maximum efficiency and economy in the
operations of the Company.
2
<PAGE> 3
4.5. LAYOFFS. Should it become necessary at any time for the
Employer to lay off any technician for any reason other than misconduct, the
Employer shall give the Employee at least twenty-four (24) hours notice, in
writing, of such layoff. In the event of a layoff, the ability and
qualifications of the technicians shall be determinative. Where ability and
qualifications are deemed to be equal between two or more technicians,
seniority shall serve as the tie-breaker, with technicians to be laid off in
inverse order of their length of service as technicians with the Company. Laid
off technicians shall receive two weeks (80 hours) pay at their regular rate of
pay, commencing with the date of notice of layoff. If the vacant position
created by the layoff is to be filled within a period of ninety (90) days from
such layoff, the technician laid off shall be given preference in filling such
vacancy at a salary commensurate with the Employee's length of service at the
time of the Employee's layoff. When re-employing technicians with seniority
rights, the Company shall be required to give the Employee and the Local Union
written notice by certified mail to the Employee's last known address of its
desire for such Employee to return to work. After five (5) working days, upon
failure to return to work, after the above requirements have been carried out
by the Company, such Employee will have forfeited his or her full seniority
rights.
ARTICLE V
PROBATIONARY EMPLOYEES
5.1 New employees, including those rehired after a break in
continuity of service, shall be considered probationary employees until they
have completed one hundred twenty (120) work days of service with the Company,
after which they shall be credited with seniority from their last date of hire.
The discharge or discipline of probationary employees shall not be subject to
notice or to the grievance and arbitration procedures of this Agreement.
5.2. Probationary time shall not be accumulated by temporary
employees, employees hired as vacation replacement, and new employees
undergoing training away from the job site. Part-time employees who perform
work under this contract for less than twenty (20) hours per week in half or
more of their work weeks shall not accumulate probationary time. Part-time
employees who perform work under this contract for more than twenty (20) hours
per week in half or more of their work weeks shall accumulate probationary time
as a part-time employee but shall not be guaranteed any number of working hours
per week regardless of any other condition in this contract. A regular
part-time employee who has served his or her probationary period, and who is
designated a full-time employee, need not repeat the probationary period. A
regular part-time employee shall not accrue seniority until designated a
full-time employee.
ARTICLE VI
HOURS
6.1. WORK WEEK. The basic work week for all covered employees
shall consist of a forty (40) hour week in five (5) days at eight (8) hours per
day with two (2) consecutive days off, or such other combination of days and
hours as deemed appropriate by the Employer (i.e., four (4) days at ten (10)
hours per day) as long as the employee is not subject to split shifts, and,
further, is scheduled so as to receive at least two (2) consecutive days off.
Additionally, no employee shall be scheduled for a shift assignment that is
less than four (4) hours nor more than
3
<PAGE> 4
twelve (12) hours. The work day shall be exclusive of a one-hour or one-half
hour unpaid lunch break, which shall be determined on a case-by-case basis by
the Department Head in consultation with the General Manager. Employees shall
not be required to take time off for overtime worked or to be worked.
6.2. MINIMUM CALL. Once an employee has left the premises at the
conclusion of his or her shift, the minimum call for all overtime work shall be
three (3) hours. Unless otherwise agreed, employees shall be required to work
the entire call when pre-scheduled.
6.3. TOUR OF DUTY. A tour of duty beginning in one day and
continuing into the following day shall be considered as one assignment and
attributed to and deemed to have been performed in total on the day when such
tour was started.
6.4. TURN AROUND. There shall be a break of at least eight (8)
hours between the termination of the employee's last work shift and the
commencement of his/her next work shift. Employees who are required to work
during their turnaround periods will receive time and one-half compensation for
the hours worked by them during the turnaround period.
6.5. PART-TIME EMPLOYEES. Part-time employees may be utilized to
perform bargaining unit work on a daily basis. Individual part-time employees
may not be normally scheduled to work more than twenty-four (24) hours in any
seven (7) day period commencing with such employee's first work day in that
period. Such part-time employees shall not be scheduled to work beyond twelve
(12) consecutive hours on any day. The Employer agrees that it will not employ
combinations of part-time employees so as to utilize them to supplant full-time
bargaining unit positions. In the event of a reduction in force, part-time
employees shall be laid off first.
6.6. PERFORMANCE OF BARGAINING UNIT WORK. Nothing shall prevent
nonbargaining unit personnel from performing bargaining unit work in the case
of emergency, instructional or training purposes, or vacation or sick leave
relief, nor shall it prevent the Station from temporarily assigning bargaining
unit employees, if qualified to perform duties associated with nonbargaining
positions or promoting same to nonbargaining unit positions.
6.7. INTERNS. The Station may utilize the services of interns or
others who qualify as persons with special needs for the purposes of broadcast
training, course credit or mentoring programs. Such persons may be utilized to
assist the Station in its operations and will perform services under the
general supervision of Station Management and bargaining unit employees.
Interns may not be used in a manner which supplants bargaining unit positions.
6.8. Employees who work in excess of forty (40) hours within the
basic work week shall be paid for such overtime work at one and one-half
(1-1/2) the straight-time rate of pay.
6.9. Any employee who works in excess of his/her scheduled shift
assignment shall receive overtime compensation at one and one-half (1 1/2)
his/her hourly rate for such overtime worked on that day.
6.10. Employees entitled to overtime pay for work performed under
two or more provisions of this Agreement shall receive the highest rate
provided for such hours of work, but overtime shall not be compounded or paid
twice for the same hours worked, and in no case shall overtime be pyramided
upon overtime.
4
<PAGE> 5
ARTICLE VII
PAY AND ALLOWANCES
7.1. INITIAL ADJUSTMENT. Any bargaining unit member who was
employed as of September 15, 1999 at a base hourly rate of less than Nine
Dollars ($9.00) shall receive a raise to Nine Dollars ($9.00) base hourly rate,
effective September 15, 1999.
7.2. CONTRACT EXECUTION BONUS.
7.2.1. Any bargaining unit Employee earning less than Nine
Dollars ($9.00) per hour base rate prior to the commencement of this Agreement
shall receive a one-time only Five Hundred Dollars ($500.00) bonus upon
execution of this Agreement.
7.2.2. All bargaining unit Employees earning more than Nine
Dollars ($9.00) per hour base rate prior to the commencement of this Agreement
shall receive a one-time only Two Hundred Fifty Dollars ($250.00) bonus upon
execution of this Agreement.
7.3. In addition, effective September 15, 1999, bargaining unit
Employees shall receive a four (4%) percent raise to the base hourly rate each
was previously receiving.
7.4. Effective September 15, 2000, bargaining unit Employees shall
receive a three (3%) percent raise to the base hourly rate each was previously
receiving.
7.5. Effective September 15, 2001, bargaining unit Employees shall
receive a three (3%) percent raise to the base hourly rate each was previously
receiving.
7.6. Effective September 15, 2002, bargaining unit Employees shall
receive a three and one-half (3.5%) percent raise to the base hourly rate each
was previously receiving.
7.7. NEW EMPLOYEES. All new replacement Employees hired after the
commencement of this Agreement shall receive a minimum entry (hiring) rate of
Eight Dollars ($8.00) per hour and thereafter, receive raises in accordance
with the above schedule of increases.
ARTICLE VIII
VACATION AND HOLIDAYS
-- VACATION --
8.1. VACATION ENTITLEMENT. Vacation benefits apply to regular
full-time employees and eligible regular part-time employees as noted below.
Temporary or seasonal employees are not eligible for paid vacation. Vacation
entitlement is based upon the Station's calendar year. Eligible employees earn
vacation according to the following scale:
<TABLE>
<CAPTION>
Length of Service
at Beginning of
Station Calendar Year Amount of Vacation
--------------------- ------------------
<S> <C>
Less than 5 years 2 weeks
5 years up to 15 years 3 weeks
15 Years or more 4 weeks
</TABLE>
Regular part-time employees who work an average of twenty
(20) hours or more per week and who have been employed for more than one (1)
year of continuous service, shall receive vacation benefits on a pro rata
basis. For example, an eligible part-time employee who has worked an average of
twenty (20) hours per week would receive two (2) weeks of vacation
5
<PAGE> 6
calculated at twenty (20) hours per week.
During the full-time employee's initial year of hire, he or
she will be entitled to vacation as follows: If he or she was hired during:
<TABLE>
<CAPTION>
<S> <C>
January through March 8 days
April through June 5 days
July through September 3 days
October through December no vacation time
</TABLE>
No vacation time may be taken within the first ninety (90)
days of employment.
Vacations cannot be accumulated and must be taken during the
calendar year granted and will be forfeited at year end unless the employee's
failure to utilize such vacation leave is caused by a change in the employer's
scheduling needs. Payment will not be made in lieu of time not taken.
8.2. VACATION PREFERENCE. Every effort shall be made to give
employees their preferred dates for vacation. However, since vacations should
be arranged for proper operation of the Station, the scheduling of vacations
will be at least sixty (60) days prior to the dates requested, or at the time
vacation schedules are requested by the Station.
8.3. VACATION RELIEF. In the event it is necessary to retain
vacation relief personnel, the Employer may do so and such relief employees
need not be employed under the terms and conditions of this Agreement unless
they work in excess of sixty (60) days in a year.
8.4. VACATION PAY AT TERMINATION. As long as an employee provides
at least two (2) weeks' advance notice of resignation in writing, he or she
shall be entitled to receive pay at termination for accrued but unused vacation
leave for that year. Similarly, if an employee has utilized more vacation days
at the time of separation than he or she has earned for the calendar year, the
Employer is authorized to deduct an amount representing such overage from the
employee's final paycheck.
8.5. OTHER. Vacations should normally be taken in units of at
least one week. Eligible bargaining unit employees may take up to one (1) week
of their vacation allotments in units of less than one (1) week (i.e., one (1)
full day at a time) subject to the scheduling needs of the Station. Any
vacation hours paid will not be considered time actually worked in the
calculation of overtime compensation unless such hours were actually worked by
the employee during the vacation period.
There will be no compensatory time off for an illness or
accident which occurs after an employee has started a regularly scheduled
vacation.
-- HOLIDAYS --
8.6. HOLIDAYS. All regular full-time employees are eligible for
the following fixed holidays:
1. New Year's Day
2. Thanksgiving Day
3. Christmas Day
6
<PAGE> 7
In addition to these scheduled holidays such employees will
receive six (6) additional floating holidays each year. Four (4) of the
floating holidays must be taken during the first three (3) quarters of the
year.
During the initial calendar year of hire, a full-time
employee will be entitled to floating holidays as follows: If the employee was
hired:
<TABLE>
<S> <C>
January through March 5 days
April through June 4 days
July through September 2 days
October through December 1 day
</TABLE>
Floating holidays are available for the observance of
religious holidays by any Station employee. Floating holidays must be scheduled
in advance as mutually agreed upon with the employee department manager.
Schedules will be established at the beginning of the year based upon
seniority. All floating holidays must be taken in whole-day increments. These
days cannot be carried over from year to year, unless the employee's failure to
utilize them is caused by a change in the employer's scheduling needs, and will
be forfeited if not taken prior to termination of employment.
8.7. HOLIDAY PAY. The following will govern holiday and overtime
pay in a week, during which a recognized (fixed) holiday falls:
8.7.1. All hours actually worked on a fixed holiday will be
paid at the rate of one and one-half (1-1/2) times the Employee's normal hourly
rate.
8.7.2. Only those employees authorized to do so will work
on holidays.
8.7.3. During the weeks in which an employee receives
holiday pay, the number of holiday hours for which the employee is paid will
not be considered as hours actually worked for the calculation of overtime
compensation in determining eligibility for overtime payment for such a week
unless such hours were actually worked by the employee on the holiday.
8.7.4. If an Employee is required to work on any of his or
her previously scheduled floating holidays, the Employee shall receive his or
her normal hourly rate for such work performed on such days plus the holiday
pay for that day. In the event that the work performed on the floating holiday
would result in the Employee exceeding forty (40) hours for that week
(excluding holiday pay), such Employee shall receive compensation at the rate
of one and one-half (1-1/2) times his or her hourly rate for such time worked
in excess of forty (40) hours for that week.
Alternatively, the Employer and Employee may
mutually agree that, in lieu of such additional payment, the Employee may
substitute another floating holiday for work performed on the floating holiday
in questions.
8.8. Regular full-time employees not working the fixed holiday
will receive straight time, eight (8) or ten (10) hours pay, depending on their
normal schedule.
8.9. If a holiday falls on a regular full-time employee's
regularly-scheduled day off, the employee will receive an additional day off in
lieu of the holiday. This additional day off will be scheduled at the
convenience of the Station and employee.
8.10. If the holiday occurs during a regular full-time employee's
vacation, an additional
7
<PAGE> 8
vacation day may be taken, provided it is authorized and scheduled in advance.
8.11. Regular full-time employees working less than eight (8) hours
will receive eight (8) hours holiday pay plus the hours actually worked, but
the eight (8) holiday hours will not count as hours actually worked for the
calculation of overtime compensation unless such hours were actually worked by
the employee on the holiday.
8.12. When a Station holiday falls on Sunday, the following Monday
will be observed as the holiday. If a holiday falls on Saturday, the preceding
Friday will be observed as the holiday.
ARTICLE IX
ABSENCES
9.1. SICK LEAVE. Sick leave is intended to provide pay for
occasional absences caused by illnesses or accidents. Sick leave is not
intended as personal days or holidays. Abuse of the sick leave benefit can
result in disciplinary action and dismissal.
As of January 1 of each year, all regular full-time
employees, will be paid their normal salary for a period of up to 80 hours, in
a calendar year. Each employee will be allowed to carry over any unused time,
up to a maximum of 80 hours (the maximum available at any January 1 would be
160 hours). During the year of hire, an employee will be entitled to sick leave
as follows:
If the employee was hired during:
<TABLE>
<S> <C>
January through March 8 days
April through June 5 days
July through September 3 days
October through December 1 day
</TABLE>
No paid sick leave may be used within the first ninety (90)
days of employment.
If an employee is absent due to an injury that is covered by
State Workers' Compensation Laws, and absent from work beyond the Station's
sick leave allowance, the Station will pay the difference between that which
Workers' Compensation will pay and the employee's basic salary for a period not
to exceed four (4) weeks.
The number of sick leave hours used will not be considered as
hours actually worked for the calculation of overtime compensation. No payment
of unused time will be made at the end of the year, at the time of termination,
or upon sale of Station. The employee's supervisor may require a physician's
signed statement of treatment for payment of sick leave. No payment will be
made under this sick leave policy for disabilities, illness or injury caused
while performing services for another employer.
9.2. EMERGENCY LEAVE. Emergency Leave is intended for an employee
who periodically needs to provide care for an immediate family member (spouse,
daughter, son, mother, father, mother-in-law, father-in-law, grandparent,
grandchild, or another relative residing in the employee's residence) who is
sick, injured or disabled due to illness or injury. Any emergency leave time
that is used will be deducted from the employee's sick leave hours. The maximum
allowable usage of sick leave for emergency leave is 40 hours in a calendar
year. The Company may require a physician's certificate verifying the need for
emergency leave. Any hours paid for emergency leave will not count as time
actually worked for the calculation of
8
<PAGE> 9
overtime compensation.
9.3. BEREAVEMENT LEAVE. Employees shall be entitled to bereavement
leave in accordance with the Employer's plan offered nonbargaining unit
employees per the Employee Handbook.
9.4. JURY DUTY. Employee shall be entitled to jury duty leave in
accordance with the Employer's plan offered nonbargaining unit employees per
the Employee Handbook.
9.5. FAMILY AND /OR MEDICAL LEAVE OF ABSENCE. Employees shall have
the right to take unpaid leaves of absence in accordance with the Employer's
policy relative to the Family and Medical Leave Act as provided to
nonbargaining unit employees as per the Employee Handbook.
9.6. MILITARY LEAVES. Employees shall have the right to take
military leave in accordance with the provisions for military leaves provided
to nonbargaining unit employees as per the Employee Handbook and in accordance
with applicable law as it relates to ordered military duty.
9.7. UNION LEAVES. The Union may designate an employee who shall
be granted a reasonable short-term unpaid leave of absence for the purpose of
attending to Union business, subject to the operational needs of the Station.
9.8. OTHER PERSONAL LEAVE. Should urgent circumstances arise,
employees may request an unpaid leave for personal reasons. All earned vacation
time must be taken before any leave begins. Personal leaves are limited to a
maximum of thirty (30) days after the full use of vacation time.
9.9. CHILD BEARING LEAVE. Employees shall have the right to take
maternity leave in accordance with the provisions for maternity leave provided
to nonbargaining unit employees as per the Employee Handbook.
9.10. REFERENCE TO EMPLOYEE HANDBOOK. Employees shall be eligible
to receive the leaves and benefits contained in Sections (2) through (9) in
accordance with the terms and conditions set forth in the Employee Handbook
(covering all employees) in use at the stations effective upon the commencement
of this Agreement.
ARTICLE X
INSURANCE AND OTHER BENEFITS
10.1. HEALTH, DENTAL AND VISION COVERAGES. During the term of this
Agreement, employees and their dependents shall receive health, dental and
vision benefits in accordance with the Employer's plans in effect as of the
execution of this Agreement. The Employer has the right to amend the plan or
carrier as long as the benefits are not significantly reduced.
The Union's designated Committee shall have the right to
review the Plan after each year and make suggestions, where appropriate,
relative to the Plan.
All eligible employees will make contributions consistent
with the nonbargaining unit employees.
10.2 LIFE INSURANCE. During the term of this Agreement, all
full-time employees shall receive, at no cost to the employee, life insurance
coverage in accordance with the Employer's coverage plans afforded to
non-bargaining unit employees at the Stations.
10.3. LONG AND SHORT-TERM DISABILITY INSURANCE. During the term of
this Agreement, the Employer shall provide, at no cost to the employee, long
and short-term
9
<PAGE> 10
disability insurance coverage for each full-time employee. Such coverages shall
be in accordance with the Employer's disability insurance plans afforded to
nonbargaining unit employees at the Station.
10.4. LONG-TERM CARE PLAN. During the term of this Agreement, the
Employer shall provide at no cost to the employee, the benefits of the
long-term care coverage plan, for each full-time employee. Such coverage shall
be in accordance with the Employer's coverage plans afforded to nonbargaining
unit employees at the Station.
10.5. TRAVEL ACCIDENT BENEFIT PLAN. During the term of this
Agreement, the Employer shall provide, at no cost to the employee, the benefits
of the travel accident benefit plan for each full-time employee. Such coverage
shall be in accordance with the Employer's coverage plans afforded to
nonbargaining unit employees at the Station.
10.6. 401(K) BENEFITS. Employees covered by this Agreement shall be
eligible to participate in the Employer's 401(k) savings plan at the same rate
and benefit levels provided to nonbargaining unit employees. All Employer and
administrative costs and expenses associated with the Plan shall be borne by
the Employer and no charges for same shall be made against participating
employee accounts.
ARTICLE XI
TOOLS AND EQUIPMENT
11.1. The Company shall furnish all tools and equipment necessary
for the installation, repair and maintenance of equipment.
ARTICLE XII
NO STRIKE OR LOCKOUTS
12.1. There shall be no strikes, sympathy strikes, work stoppages,
lockouts, interruptions or impeding of work during the term of this Agreement.
No officer or representative of the Union shall authorize, instigate, aid or
condone any such activities, and no employee shall participate in any such
activities. In the event of an unauthorized strike or work stoppage, the Union
shall take all affirmative action legally available to stop such action. The
Union will: (a) immediately notify all Union members employed under this
Agreement that the strike is unauthorized and in violation of the contract; (b)
state in writing to all Union members employed under this Agreement that the
strike is in violation of the Agreement; (c) make every effort possible to
induce its members to cease such acts.
12.2. The Company will not require any employee to cross any picket
line. If in the picket line, the Employee or his/her family is subject to
actual or threatened violence, and local police are unable to protect the
safety of the Employee and his/her family.
12.3. If either party has proposed changes to this Agreement under
Article 17.1, and ninety (90) days have elapsed after the Agreement anniversary
date without concurrence on the proposed changes by the parties, this entire
Article XII shall be suspended until an agreement shall be reached between the
parties.
ARTICLE XIII
GRIEVANCE PROCEDURE
10
<PAGE> 11
13.1. DEFINITION. For the purpose of this Agreement, the term
"grievance" is a claim by the Union or an Employee that a party is violating or
has violated a provision or provisions of the Agreement.
13.2. COMMITTEE. For the purpose of handling and processing a
grievance hereunder, the Company will recognize a committee consisting of no
more than two (2) Employees. The Union shall furnish the Company a written list
of the names of stewards and shop committee members and shall promptly give
notice of any changes in such officials.
13.3. PROCEDURE. Grievances shall be handled and processed in
accordance with the following procedure:
STEP ONE: The grievance shall be taken up with the immediate
supervisor of the aggrieved employee by the Union steward within three (3)
working days after the date of the occurrence which is the subject of the
grievance. For purposes of this section, date of occurrence in wage related
disputes shall be the date upon which the Employee received the paycheck which
is disputed. If the grievance is not satisfactorily settled within two (2)
working days after it is presented in this Step One, it shall be reduced to
writing by the Union and presented to the Employee's General Manager within
three (3) working days following the answer of the affected Employee's
immediate supervisor. The written grievance shall specify the alleged violation
of the contract and cite the section and article of the Agreement involved.
STEP TWO: A grievance presented in this Step Two shall be
discussed between the General Manager or representative and the shop committee,
within five (5) working days after being presented to the General Manager as
provided in Step One. A business representative of the Union may also be
present. Such discussion shall be held at a day and time selected by mutual
agreement. The decision on the grievance shall be rendered within three (3)
working days. In the event the grievance remains unresolved, the Union may
process it to arbitration in accordance with Article XV.
13.4. INDIVIDUAL CLAIMS. Notwithstanding any other provision of
this Agreement, any Employee shall have the right at any time to present
grievances to the Company and to have such grievances adjusted without the
intervention of the Union as long as the adjustment is not inconsistent with
the terms of this Agreement; provided, that the Union steward has been notified
of such grievance and that a Union representative has been given an opportunity
to be present at such adjustment.
13.5. No Employee, member of a shop committee, or other official of
the Union employed by the Company shall leave his/her work for the purpose of
handling or processing grievances without permission of his/her immediate
supervisor. Such permission shall not be unreasonably withheld.
13.6. Failure of the aggrieved Employee, Union or Company to comply
with any of the time limits provided in this Article XIII shall automatically
move the grievance to the next step of the grievance or arbitration procedure.
13.7. The time limits provided in this Article XIII may be extended
by mutual written consent of the parties.
ARTICLE XIV
DISCIPLINE AND DISCHARGE
11
<PAGE> 12
14.1. JUST CAUSE. No employee covered by this Agreement who has
completed his or her probationary period shall be suspended, demoted or
dismissed without just and sufficient cause. Without limitation on the
Employer's right to determine grounds for discipline or discharge, the
following items are listed as examples of just and sufficient cause for
termination:
Violation of safety or security regulations.
Excessive absenteeism or tardiness.
Falsification of records or information.
Theft of Station or another employee's property.
Possession of firearms or weapons on Station property.
Deliberate destruction of or damage to Station property,
or the property of a fellow employee.
Bringing or selling intoxicants or narcotics, having
intoxicants or narcotics in one's possession or
being under the influence of an intoxicant or
narcotic on Company property or while on Company
business.
Performing personal work on Company time.
Improper conduct, such as sexual harassment or any other
behavior recognized as improper by a reasonable and prudent
individual.
Unsatisfactory job performance or neglect of duty.
Violation of any Company rules.
Insubordination.
14.2. INTERVIEWS AND INVESTIGATIONS. The Employer will ensure that
an employee, upon his or her request, shall have the
opportunity to have a Union representative present at any interview or
investigation conducted by the Employer or its Representatives if the charges
against the employee could lead to discharge.
ARTICLE XV
ARBITRATION
15.1. Any grievance which remains unsettled after having been fully
processed pursuant to the provisions of Article XIII shall be submitted to
arbitration upon written request of either party to this Agreement. Such
request must be made within thirty (30) days after the final decision of the
Company has been given to the Union pursuant to Article XIII. This written
request shall contain a statement of the issue in dispute and the remedy of
settlement requested. If written request for arbitration is not made within the
thirty (30) day period, the grievance shall be considered settled and closed
for all purposes and the decision of the Company shall be considered as binding
upon the parties; provided, that said time limit may be extended by mutual
written consent of the parties.
15.2. PROCEDURE. A request for arbitration shall be referred to a
Board of Arbitration consisting of one (1) representative of the Employer, one
(1) representative of the Union, and a third member to be selected by these two
representatives, who shall be the Chairman. In the event the two
representatives of the Board of Arbitration shall fail to select a third member
within five (5) days, the Director of the Federal Mediation and Conciliation
Service shall be asked for a list of five (5) names of individuals who live
within five hundred (500) miles
12
<PAGE> 13
of Bismarck, North Dakota. The representative of the party requesting
arbitration shall first strike a name from the list and the representative of
the other party shall strike a name and so on until only a single name remains.
The name remaining on the list shall become the third member of the Board of
Arbitration. In the selection of the arbitrators, and the conduct of any
arbitration, either party may, if it desires, be represented by counsel.
15.3. The award of the arbitration board on any grievance subject
to arbitration as herein provided shall be final and binding upon all parties
to this Agreement; provided, that no arbitration board shall have any authority
to add to, detract from, or in any way alter the provisions of this Agreement.
The only question to be determined by the arbitration board in cases involving
disciplinary penalties shall be whether such penalties have been imposed
without just cause. If the arbitration board finds a penalty to have been
imposed without just cause, it may order the Company to take such action as
will restore the Employee any loss of pay or employee status which the Employee
may have suffered by reason of the Company's action.
15.4. MULTIPLE GRIEVANCES; EXPENSES. No more than one grievance may
be submitted to or be under review by any one arbitration board at any one time
unless by mutual agreement by the parties. Each party shall defray the expenses
of its representative on the board. The fees and expenses of the third board
member shall be determined in advance by agreement of the parties, and shall be
borne mutually by the parties. Each of the parties shall pay the full cost of
presenting its own case, including payments to technical experts engaged for
testimony and all other witnesses.
ARTICLE XVI
GENERAL PROVISIONS
16.1. The Business Representative or the Union steward
administering this Agreement shall be permitted access to the Company's
premises to inspect technical operations or discuss Union business; provided,
that prior clearance for each visit is obtained from the Company and such visit
does not unduly interfere with Company operations. Clearance for such visits
shall not be unreasonably withheld by the Company.
16.2. The parties acknowledge that during the negotiations which
resulted in this Agreement, each had unlimited right and opportunity to make
demands and proposals with respect to any subject or matter not removed by law
from the area of collective bargaining, and that the understandings and
agreements arrived at by the parties after the exercise of that right and
opportunity are set forth in this Agreement. Therefore, the Company and the
Union, for the life of this Agreement, each voluntarily and unqualifiedly
waives the right, and each agrees that the other shall not be obligated to
bargain collectively with respect to any subject or matter referred to, or
covered in this Agreement, or with respect to any subject or matter not
specifically referred to or covered in this Agreement, even though such subject
or matter may not have been within the knowledge or contemplation of either or
both of the parties at the time that they negotiated or signed this Agreement.
In the event new job classifications are added during the
term of this Agreement, either by mutual consent or by determination of the
National Labor Relations Board, the Company agrees to meet with representatives
of the Union to negotiate such new job classifications and wage rates for the
employees so affected. This provision, Section 16.2, shall
13
<PAGE> 14
not restrict the rights of the parties to propose any amendments for collective
bargaining at anniversary dates in accordance with Section 17.1. of this
Agreement.
ARTICLE XVII
DURATION AND TERMINATION
17.1. This Agreement shall take effect the 15th day of September,
1999, and remain in effect through the 14th day of September, 2003. It shall
continue in effect from year to year thereafter unless changed or terminated in
the way provided herein. After the expiration of the initial four (4) year term
of the Agreement on September 14, 2003, either party desiring to change or
terminate this Agreement shall notify the other, in writing, not less than
sixty (60) days prior to the first day of September of any year. Whenever
notice is given for changes, the exact nature of the changes must be reduced to
writing and signed by the parties hereto and shall become a part of this
Agreement. However, changes can be made at any time by mutual consent and in
writing.
STC BROADCASTING INC., INTERNATIONAL BROTHERHOOD
OWNER AND OPERATOR OF TELEVISION STATIONS OF ELECTRICAL WORKERS, LOCAL
KFYR-TV, KQCD-TV, UNION NO. 714, AFL-CIO
KUMV-TV AND KMOT-TV
By: /s/ Holly Steuart By: /s/ Dick Bergstadt
------------------ -------------------
Date: 9/30/99 Date: 9/15/99
14
<PAGE> 1
EXHIBIT 12
STC BROADCASTING, INC. AND SUBSIDIARIES
STATEMENT OF FIXED CHARGE RATIO
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
FOR THE TEN MONTHS ENDED DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss applicable to common stock $(23,304) $ (6,900) $(11,583)
Fixed charges 28,540 24,486 14,044
Income tax (benefit) provision (7,525) 97 (299)
-------- -------- --------
Earnings: $ (2,289) $ 17,683 $ 2,162
======== ======== ========
Fixed charges:
Preferred stock dividends and accretion $ 7,423 $ 5,100 $ 3,763
Interest expense 20,635 16,301 9,502
Amortization of deferred financing charges 482 664 779
Write off of deferred financing costs -- 2,421 --
Rental expense - interest factor -- -- --
-------- -------- --------
$ 28,540 $ 24,486 $ 14,044
======== ======== ========
Deficiency of earnings to fixed charges $(30,829) $ (6,803) $(11,882)
======== ======== ========
</TABLE>
<PAGE> 1
SUBSIDIARIES OF STC BROADCASTING, INC.
<TABLE>
<CAPTION>
State of
Name Incorporation Doing Business As:
- ------------------------------------- ------------- ------------------
<S> <C> <C>
Smith Acquisition Company Delaware WTOV-TV and WNAC-TV
Smith Acquisition License Company Delaware WTOV-TV and WNAC-TV
WJAC, Incorporated Delaware WJAC-TV
Web Works, Inc. Pennsylvania Inactive
STC Broadcasting of Abilene, Inc. Texas KRBC-TV/KACB-TV
STC Broadcasting of Vermont, Inc. Delaware Inactive - dissolved in 2000
STC Broadcasting of Vermont Subsidiary, Inc. Delaware Inactive - dissolved in 2000
STC License Company Inc. Delaware Same as STC Broadcasting, Inc.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF STC BROADCASTING FOR THE YEAR ENDED DECEMBER 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,909,000
<SECURITIES> 0
<RECEIVABLES> 15,741,000
<ALLOWANCES> 546,000
<INVENTORY> 0
<CURRENT-ASSETS> 26,867,000
<PP&E> 93,500,000
<DEPRECIATION> 20,795,000
<TOTAL-ASSETS> 384,173,000
<CURRENT-LIABILITIES> 22,722,000
<BONDS> 194,750,000
67,501,000
0
<COMMON> 0
<OTHER-SE> 112,212,000
<TOTAL-LIABILITY-AND-EQUITY> 384,173,000
<SALES> 81,157,000
<TOTAL-REVENUES> 81,157,000
<CGS> 47,413,000
<TOTAL-COSTS> 87,301,000
<OTHER-EXPENSES> (1,127,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,635,000
<INCOME-PRETAX> (23,406,000)
<INCOME-TAX> (7,525,000)
<INCOME-CONTINUING> (15,881,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 7,423,000<F1>
<NET-INCOME> (23,304,000)
<EPS-BASIC> (23,304)
<EPS-DILUTED> (23,304)
<FN>
<F1>REDEEMABLE PREFERRED STOCK DIVIDENDS AND ACCRETION.
</FN>
</TABLE>
