<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER: 333-29555
---------
STC BROADCASTING, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 75-2676358
--------------------------------------------- ----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
720 2nd AVENUE SOUTH (727) 821-7900
---------------------------------------- ----------------------------
ST. PETERSBURG, FLORIDA 33701 (Registrant's telephone
(Address of principal executive offices) number, including area code)
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 [ ]
As of November 8, 2000, the registrant had 1000 shares of common stock, par
value $.01 outstanding.
<PAGE> 2
STC BROADCASTING, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3 - 4
Consolidated Statements of Operations for
the Three Months Ended September 30, 2000
and 1999, and the Nine Months Ended
September 30, 2000 and 1999 5
Consolidated Statement of Stockholder's Equity
for the Nine Months Ended September 30, 2000 6
Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 2000
and 1999, and the Nine Months Ended
September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8 - 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15 - 26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 26
ITEM 5. OTHER INFORMATION 26 - 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27 - 28
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
STC BROADCASTING, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,492 $ 3,909
Accounts receivable, net 12,787 15,195
Current portion of program rights 7,036 6,356
Other current assets 1,305 1,407
-------- --------
Total current assets 24,620 26,867
-------- --------
PROPERTY AND EQUIPMENT, net 65,255 72,705
-------- --------
INTANGIBLE ASSETS, net
FCC licenses 79,398 84,107
Network affiliation agreements 166,844 177,131
Other 2,706 2,958
-------- --------
Net intangible assets 248,948 264,196
-------- --------
OTHER ASSETS
Deferred financing and acquisition costs, net 8,200 10,082
Program rights, net of current portion 6,750 10,323
-------- --------
Total other assets 14,950 20,405
-------- --------
Total assets $353,773 $384,173
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
STC BROADCASTING, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets (continued)
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,864 $ 5,443
Accrued expenses 2,317 2,454
Accrued interest expense 519 3,291
Current portion of long-term debt 7,250 5,000
Current portion of program rights payable 7,264 6,534
--------- ---------
Total current liabilities 20,214 22,722
--------- ---------
LONG-TERM DEBT 190,750 194,750
DEFERRED INCOME TAXES 4,953 17,960
PROGRAM RIGHTS PAYABLE, net of current portion 6,862 10,815
REDEEMABLE PREFERRED STOCK
Series A 48,116 43,196
Series B 27,097 24,305
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share, 1,000 shares
authorized, issued and outstanding -- --
Additional paid-in capital 112,212 112,212
Accumulated deficit (56,431) (41,787)
--------- ---------
Net stockholder's equity 55,781 70,425
--------- ---------
Total liabilities and stockholder's equity $ 353,773 $ 384,173
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
STC BROADCASTING, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(dollars in thousands, except for share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES $ 18,815 $ 18,223 $ 59,138 $ 59,844
OPERATING EXPENSES:
Station operating 5,017 6,063 16,857 19,047
Selling, general and administrative 4,417 4,496 14,655 14,943
Trade and barter 538 671 1,962 2,026
Depreciation of property and equipment 3,533 3,194 10,422 9,901
Amortization of intangibles and other assets 5,681 5,616 17,042 17,108
Corporate expenses 859 858 2,575 2,347
-------- -------- -------- --------
Total operating expenses 20,045 20,898 63,513 65,372
-------- -------- -------- --------
OPERATING LOSS (1,230) (2,675) (4,375) (5,528)
OTHER EXPENSE:
Interest expense (4,767) (5,038) (14,201) (15,016)
Expenses incurred in cancelled debt offering -- -- -- (850)
Expenses incurred in cancelled acquisition
of Sinclair Stations -- -- (875) --
Other, net (29) (182) (581) (215)
-------- -------- -------- --------
NET LOSS BEFORE INCOME TAX BENEFIT (6,026) (7,895) (20,032) (21,609)
INCOME TAX BENEFIT 9,100 2,494 13,100 7,876
-------- -------- -------- --------
NET INCOME (LOSS) 3,074 (5,401) (6,932) (13,733)
REDEEMABLE PREFERRED STOCK
DIVIDENDS AND ACCRETION:
SERIES A (1,695) (1,482) (4,920) (4,300)
SERIES B (962) (674) (2,792) (1,591)
-------- -------- -------- --------
TOTAL DIVIDENDS AND ACCRETION (2,657) (2,156) (7,712) (5,891)
-------- -------- -------- --------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDER $ 417 $ (7,557) $(14,644) $(19,624)
======== ======== ======== ========
BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE $ 417 $ (7,557) $(14,644) $(19,624)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,000 1,000 1,000 1,000
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 6
STC BROADCASTING, INC. AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholder's Equity
For the Nine Months Ended September 30, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
Net
Common Additional Accumulated Stockholder's
Stock Paid-In Capital Deficit Equity
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ -- $112,212 $(41,787) $ 70,425
Net loss applicable to
common shareholder -- -- (14,644) (14,644)
--------------- -------- -------- --------
Balance, September 30, 2000 $ -- $112,212 $(56,431) $ 55,781
=============== ======== ======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
STC BROADCASTING, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,074 $ (5,401) $ (6,932) $(13,733)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation of property and equipment 3,533 3,194 10,422 9,901
Amortization of intangibles and other assets 5,681 5,616 17,042 17,108
Amortization of program rights 1,148 1,420 4,078 4,705
Payments on program rights (1,259) (1,455) (4,361) (4,857)
Deferred tax benefit (9,100) (2,309) (13,100) (7,716)
Loss on disposal of property and equipment 94 264 675 383
Proceeds on surrender of insurance policy -- -- 107 --
Change in operating assets and liabilities net of effects from
acquired and disposed stations:
Accounts receivable 2,906 3,194 2,408 403
Other current assets 4 157 102 (864)
Accounts payable and accrued expenses (4,337) (3,892) (5,488) (6,774)
------- -------- -------- --------
Net cash provided by (used in) operating activities 1,744 788 4,953 (1,444)
------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of WUPW-TV -- (39) -- (74,487)
Capital expenditures (795) (1,474) (3,676) (3,862)
Other, net (70) (5) 56 94
------- -------- -------- --------
Net cash used in investing activities (865) (1,518) (3,620) (78,255)
------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing under senior credit agreement -- 21,000 2,000 62,000
Repayment of senior credit agreement (1,250) (1,000) (3,750) (43,000)
Deferred acquisition and debt refinancing
costs incurred -- (20) -- (183)
Retirement of Preferred Stock Series B -- (37,500) -- (37,500)
Payment of Preferred Stock Dividend Series B -- (291) -- (1,191)
Capital contribution by parent -- 15,000 -- 15,000
Proceeds from sale of WROC, net of deferred gain -- (3) -- 44,967
Proceeds from sale of Redeemable
Preferred Stock Series B, net of expenses -- -- -- 37,100
------- -------- -------- --------
Net cash (used in) provided by financing activities (1,250) (2,814) (1,750) 77,193
------- -------- -------- --------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (371) (3,544) (417) (2,506)
CASH AND CASH EQUIVALENTS,
BEGINNING BALANCE 3,863 6,385 3,909 5,347
------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
ENDING BALANCE $ 3,492 $ 2,841 $ 3,492 $ 2,841
======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non cash items
Preferred dividends and accretion $ 2,657 $ 1,865 $ 7,712 $ 4,700
New program contracts $ 530 $ 1,058 $ 2,077 $ 5,835
Cash paid for interest $ 7,517 $ 7,850 $ 16,973 $ 17,827
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
STC BROADCASTING, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 2000
(dollars in thousands, except for share data and percentages)
1. PRINCIPLES OF CONSOLIDATION:
The accompanying unaudited consolidated financial statements present
the consolidated financial statements of STC Broadcasting, Inc. ("STC") and
Subsidiaries (the "Company"). STC is a wholly owned subsidiary of Sunrise
Television Corp. ("Sunrise"). All of the voting common stock of Sunrise, one
share, is owned by Smith Broadcasting Partners, LP ("SBPLP"). SBPLP is a limited
partnership owned by the four senior managers of the Company and is 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. All of
the non voting common stock of Sunrise (891,499 shares) is owned by Sunrise
Television Partners, L.P., of which the managing general partner is controlled
by Thomas O. Hicks, an affiliate of Hicks, Muse, Tate and Furst, Incorporated
("Hicks Muse") (see note 8). At September 30, 2000, the Company owned the
following commercial television stations (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 (1) March 1, 1997 Wheeling, West Virginia and
Steubenville, Ohio NBC
WJAC (1) October 1, 1997 Johnstown, Altoona, State College,
Pennsylvania NBC
KRBC April 1, 1998 Abilene-Sweetwater, Texas NBC
KACB April 1, 1998 San Angelo, Texas NBC
WDTN June 1, 1998 Dayton, Ohio ABC
WNAC (2) June 1, 1998 Providence, Rhode Island and
New Bedford, Massachusetts FOX
KVLY November 1, 1998 Fargo-Valley City, North Dakota NBC
KFYR November 1, 1998 Minot-Bismarck-Dickinson, North Dakota NBC
KUMV November 1, 1998 Minot-Bismarck-Dickinson, North Dakota NBC
KQCD November 1, 1998 Minot-Bismarck-Dickinson, North Dakota NBC
KMOT November 1, 1998 Minot-Bismarck-Dickinson, North Dakota NBC
WUPW February 1, 1999 Toledo, Ohio FOX
</TABLE>
(1) See footnote 9 for information on the pending sale of stations.
(2) See footnote 10 for information on pending acquisition in the Providence
market.
The Company and various subsidiaries hold the assets of the Stations.
One subsidiary, Smith Acquisition Company ("SAC") has a one percent equity
interest controlled by SBPLP. SAC holds the assets relating to WTOV and WNAC.
SBPLP's interest in SAC represents an immaterial portion of the Company's total
assets.
Significant intercompany transactions and accounts have been
eliminated. As permitted under the applicable rules and regulations of the
Securities and Exchange Commission, these financial statements are condensed
interim financial statements and do not include all disclosures and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto as of December 31, 1999
included in the Company's previously filed Annual Report on Form 10-K. The
interim financial statements are unaudited but include all material adjustments
that the Company considers necessary for a fair presentation of results of
operations for the periods presented. Operating results of interim periods may
not necessarily be indicative of results for a full year.
8
<PAGE> 9
2. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Senior Subordinated Notes $ 100,000 $ 100,000
Senior Credit Agreement 98,000 99,750
--------- ---------
Total long-term debt 198,000 199,750
Less: current portion (7,250) (5,000)
--------- ---------
Long-term debt, net of current portion $ 190,750 $ 194,750
========= =========
</TABLE>
The following table shows interest expense for the periods indicated:
Nine Months Ended
September 30,
--------------------------
2000 1999
------- -------
Senior Subordinated Notes $ 8,250 $ 8,250
Senior Credit Agreement 5,951 6,766
------- -------
Total $14,201 $15,016
======= =======
In 1997, the Company completed a private placement of $100,000
principal amount of its 11% Senior Subordinated Notes ("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
which provides a $100,000 term loan facility and a $65,000 revolving credit
facility. The term loan facility is payable in quarterly installments commencing
on September 30, 1999 and ending June 30, 2006. The revolving loan facility
requires scheduled annual reductions of the commitment amount commencing on
September 30, 2001. The loan under the Senior Credit Agreement bears interest at
floating rates based upon the interest rate option selected by the Company. The
Company has entered into interest rate swap agreements to reduce the impact of
changing interest rates on $95,000 of its variable rate borrowing under the
Senior Credit Agreement. The base interest rate was fixed at 5.00% to 5.15% plus
the applicable borrowing margin (currently 2.125%) for an overall borrowing rate
of 7.125% to 7.275% at September 30, 2000.
The Senior Credit Agreement provides for a first priority security
interest in all of the tangible and intangible assets of the Company and its
subsidiaries. Loans under the Senior Credit Agreement are guaranteed by Sunrise
and the Company's subsidiaries. The Senior Credit Agreement and the Senior
Subordinated Notes contain certain financial and operating maintenance covenants
including a maximum consolidated leverage ratio (currently 6.75:1), a
consolidated fixed charge coverage ratio (currently 1.05:1), and a consolidated
interest coverage ratio (currently 1.50:1). The Company is limited in the amount
of annual payments that may be made for corporate expenses and capital
expenditures.
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, transactions outside the
ordinary course of business, amendments or waivers of certain specified
agreements and the issuance of guarantees or other credit enhancements. At
September 30, 2000, the Company was in
9
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compliance with the financing and operating covenants of both the Senior Credit
Agreement and the Senior Subordinated Notes.
3. REDEEMABLE PREFERRED STOCK:
Series A
In March 1997, 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 Credit
Agreement and Senior Subordinated Notes prohibit the payment of cash dividends
until May 31, 2002. At September 30, 2000, dividends have been accrued but are
unpaid on the Redeemable Preferred Stock Series A.
The Redeemable Preferred Stock Series A is subject to mandatory
redemption 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
Subordinated 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 Subordinated
Notes.
Series B
On February 5, 1999, the Company entered into a $90,000 Redeemable
Preferred Stock Series B bridge financing agreement ("Preferred Agreement").
Upon the acquisition of WUPW (see note 4), the Company sold $37,500 of
Redeemable Preferred Stock Series B to investors to fund the acquisition and an
escrow account for dividends. The Redeemable Preferred Stock Series B had a par
value of $0.01 per share with a liquidation preference of $1,000 per share. Cash
dividends were paid monthly at LIBOR for the applicable dividend period plus 125
basis points.
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 contribution from Sunrise in the form of a capital contribution, and
$1,500 of available cash. The availability for selling additional preferred
stock under the Preferred Agreement was cancelled.
10
<PAGE> 11
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. At September
30, 2000, dividends have been accrued but are unpaid on the Redeemable Preferred
Stock Series B.
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.
4. ACQUISITIONS AND DISPOSITION
2000 Transactions
During the first nine months of 2000, the Company did not acquire or
dispose of any material assets. See footnote 9 for information relating to the
potential sale of WTOV and WJAC; and footnote 10 for information relating to the
potential purchase of WPRI, the CBS affiliate in the Providence, Rhode Island,
and New Bedford, Massachusetts, market.
1999 Transactions
Toledo Acquisition
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 Company financed the acquisition with $40,000 of borrowings
under the Senior Credit Agreement and the sale of $35,000 of Redeemable
Preferred Stock Series B.
Rochester Disposition
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
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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.
5. SEGMENT INFORMATION
Currently, the Company has 10 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 accounting policies of the segments are the same as those described
in the summary of significant accounting policies (see Note 2 to the Company's
December 31, 1999 Annual Report on Form 10-K).
The Company has no significant intersegment revenues or transfers other
than that interest is allocated to subsidiaries of the Company but not
divisions. All segments have local distinct management separate from senior
corporate management. Each management team is evaluated based upon the results
of operations of their station.
The following table sets forth the aggregate information by segment
groups and reconciles segment information to consolidated financial statements.
<TABLE>
<CAPTION>
Net Revenues Net Income (Loss)
---------------------------- ------------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
Segment Groups Period September 30 September 30 September 30 September 30
-------------- ------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
50 - 75 DMA 2000 $10,842 $ 32,322 $ (2,274) $ (6,949)
1999 $ 9,788 $ 30,411 $ (1,845) $ (3,426)
76 - 125 DMA 2000 3,219 11,407 (1,343) (4,739)
1999 3,713 14,337 (1,677) (3,680)
126 and above DMA 2000 4,754 15,409 (1,717) (5,423)
1999 4,722 15,096 (1,367) (4,745)
License Companies 2000 0 0 2,970 8,909
1999 0 0 878 2,638
Corporate 2000 0 0 5,438 1,270
1999 0 0 (1,390) (4,520)
------- -------- -------- --------
Company Totals 2000 $18,815 $ 59,138 $ 3,074 $ (6,932)
1999 $18,223 $ 59,844 $ (5,401) $(13,733)
======= ======== ======== ========
</TABLE>
6. TERMINATED SINCLAIR 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 acquire from Sinclair:
WICS, Channel 20, Springfield, Illinois; WICD, Channel 15, Champaign, Illinois;
and KGAN, Channel 2, Cedar Rapids, Iowa (collectively, the "Sinclair Stations")
for a total purchase price of $87,000 including working capital, fees, and
expenses. Closing of the purchase was subject to customary conditions, including
review by the Department of Justice and the Federal Communications Commission
("FCC"). In April 1999, and at various other times, the Antitrust Division of
the United States Department of Justice ("DOJ") issued various requests for
additional information under the Hart-Scott-Rodino Antitrust Improvements Act in
connection with the acquisition.
On March 14, 2000, the Company entered into a Termination Agreement
with Sinclair thereby ending the
12
<PAGE> 13
Company's plan to acquire the Sinclair Stations. The approval by the Antitrust
Division of the DOJ was not received on a timely basis. Attempts were made to
comply with various information requests of the DOJ, numerous compromises were
offered to the DOJ and offers the Company deemed reasonable were found
unacceptable by the DOJ.
The Company incurred a one time charge of $875 in the first quarter
2000 related to its efforts to purchase the Sinclair Stations, respond to the
information requests of the DOJ, its extended negotiation with the DOJ and the
Company's subsequent effort to remarket WICS and WICD in an attempt to reach a
reasonable compromise with the DOJ.
7. CANCELLED PRIVATE PLACEMENT
During 1999, the Company and Sunrise intended to sell debt securities
of Sunrise or preferred stock of the Company in a private placement to complete
the Sinclair Agreement and to repay the outstanding amounts under the Preferred
Agreement. Sunrise and the Company subsequently determined that they would fund
the Sinclair Agreement through an additional borrowing under the Senior Credit
Agreement and by additional capital contributions by Sunrise. The results of
operations for the nine months ended September 30, 1999 include a charge of $850
for expenses incurred in the cancelled private placement.
8. CONTINGENCIES
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 final 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 will 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.
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, or "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
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<PAGE> 14
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 would have affected the
Company's relationship with Smith Acquisition Company ("SAC"). Prior to August
30, 2000, the Company owned a substantial non-voting equity stake in SAC, which,
with a wholly owned subsidiary, owned WNAC, Providence, Rhode Island, and WTOV,
Steubenville, Ohio. Under the new FCC Ownership Rules, the Company's formerly
non-attributable interest in SAC was attributable. The Company concluded that a
change was required to retain its interest in both WNAC and WTOV. See below for
actions taken by the Company and Hicks Muse.
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 merged with and into
Merger Sub and became a wholly-owned subsidiary of Clear Channel (the "AMFM
Merger"). Thomas O. Hicks, who previously was 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 and Mr. Hicks will
have a continuing attributable interest. The AMFM Merger was consummated on
August 30, 2000. Because of the changes in FCC Ownership Rules and the AMFM
Merger, the Company has taken certain actions to ensure that the Company remains
in compliance with the FCC Ownership Rules.
On March 14, 2000, STC License Company filed an application with the
FCC for consent to the transfer of control of Sunrise to Smith Broadcasting
Partners, L.P. which is controlled by Robert N. Smith. This application for
transfer was approved on July 12, 2000, and was consummated on August 30, 2000.
The transfer of control of Sunrise by Hicks Muse to Smith Broadcasting Partners,
L.P. resulted in Smith Broadcasting Partners, L.P. holding all of the voting
stock of Sunrise. On April 28, 2000, Hicks Muse entered into an agreement to
sell to an unrelated party its interest in the Redeemable Preferred Stock Series
A of the Company and Hicks Muse's interest in Senior Subordinate Notes of
Sunrise. This transaction was consummated on August 30, 2000. Upon the transfer
of control to Smith Broadcasting Partners, L.P. and the sale of these interests
by Hicks Muse, Hicks Muse's interest in Sunrise and the Company became no longer
attributable under the FCC Ownership Rules.
On March 24, 2000, the Company filed an application with the FCC to
convert its non voting shares of SAC capital stock into voting shares of SAC
capital stock. The application for transfer was approved on July 12, 2000, and
was consummated on August 30, 2000. A principal effect of this transaction will
allow SAC to file a consolidated tax return with Sunrise and the Company.
9. SALE OF WJAC AND WTOV
On July 6, 2000, the Company entered into an agreement with Cox
Communications, Inc. ("Cox") to sell Cox all of the capital stock of WJAC,
Incorporated for $70,000. WJAC, Incorporated owns WJAC, the NBC affiliate in
Johnstown, Pennsylvania. In a related transaction, SAC and Smith Acquisition
License Company, subsidiaries of the Company, entered into an agreement with Cox
to sell the assets of WTOV, the NBC affiliate in Steubenville, Ohio, to Cox for
$58,000. These transactions are subject to adjustment for certain customary
proration amounts and closing of these transactions is subject to customary
conditions, including approval by the FCC. On August 4, 2000, the Company
entered into Time Brokerage Agreements ("TBAs") with Cox under which Cox
programs most of the available time on WJAC and WTOV and retains the revenues
from such sales of advertising time. Cox pays the Company a $750 monthly fee
under the two TBAs plus reimburses the Company for out of pocket costs.
Beginning August 4, 2000, and as a result of the TBAs, the Company only records
nonreimbursable expenses of WJAC and WTOV in the accompanying financial
statements. The parties expect the WJAC and WTOV transaction to be consummated
in early 2001.
10. PURCHASE OF WPRI
On November 3, 2000, the Company entered into an Asset Purchase
Agreement with Clear Channel Communications, Inc. to acquire the assets of WPRI,
the CBS affiliate in the Providence, Rhode Island and New
14
<PAGE> 15
Bedford, Massachusetts market for a purchase price of $50,000. This transaction
is subject to adjustment for certain customary proration amounts and closing of
the purchase is subject to satisfaction of customary conditions, including
review and approval by the DOJ and the FCC and transfer of the WNAC FCC license
to an unrelated party.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The operating revenues of the Stations are derived primarily from
advertising revenues and, to a much lesser extent, 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, 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 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 are 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
stations 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.
Most spot 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 national advertising sales representatives. The Stations generally pay
commissions to advertising agencies on local and national advertising, and on
national advertising the Stations pay additional commissions to the national
sales representatives operating under an agreement that provides for exclusive
representation within the particular market of the Station. The 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
second and fourth quarters in the even years (e.g. 1998 and 2000).
"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, pay interest and make capital expenditures. 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 Quarterly Report on Form 10-Q 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 Commission (the "FCC") policies, and changes in general
15
<PAGE> 16
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.
In the discussion comparing the three months and nine months ended
September 30, 2000 and 1999, WEYI, KRBC, KACB, WDTN, WNAC, KVLY, KFYR, KMOT,
KUMV, and KQCD will be referred to as Core Stations. WTOV and WJAC will be
referred to as the Cox Stations. See footnote 9 to the financial statements for
information on pending sale of these stations to Cox Communications, Inc. and
the assumption of certain operating expenses. The acquisition of television
station WUPW closed on February 1, 1999. 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 and was effective April 1, 1999, and the WROC license closing
was on December 23, 1999.
HISTORICAL PERFORMANCE
All dollars presented in table form are shown in thousands.
BROADCAST CASH FLOW AND EBITDA:
The following table sets forth a computation of Broadcast Cash Flow and EBITDA
for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Operating Loss $ (1,230) $ (2,675) $ (4,375) $ (5,528)
Add: Amortization of program rights 1,148 1,420 4,078 4,705
Depreciation of property and equipment 3,533 3,194 10,422 9,901
Amortization of intangibles 5,681 5,616 17,042 17,108
Corporate expenses 859 858 2,575 2,347
Less: Payments for program rights (1,259) (1,455) (4,361) (4,857)
------- -------- -------- ---------
Broadcast Cash Flow 8,732 6,958 25,381 23,676
Less: Corporate expenses (859) (858) (2,575) (2,347)
------- -------- ------- ---------
EBITDA $ 7,873 $ 6,100 $22,806 $ 21,329
======= ======== ======= =========
Broadcast Cash Flow Margin 46.4% 38.2% 42.9% 39.6%
======= ======== ======= =========
EBITDA Margin 41.8% 33.5% 38.6% 35.6%
======= ======== ======= =========
</TABLE>
16
<PAGE> 17
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>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------------------- -------------------- -------------------- --------------------
$ % $ % $ % $ %
-------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Revenues:
Local $ 9,770 45.7% $ 11,151 53.5% $ 33,615 49.7% $ 35,934 52.2%
National 5,426 25.4% 6,667 31.9% 20,011 29.6% 23,050 33.5%
Political 1,814 8.5% 50 0.2% 2,924 4.3% 218 0.3%
Network Compensation 913 4.3% 1,329 6.4% 3,326 4.9% 4,118 6.0%
Joint Operating Agreements 2,573 12.0% 638 3.1% 4,489 6.6% 2,263 3.2%
Trade and barter 597 2.8% 656 3.1% 2,060 3.0% 2,035 3.0%
Other 264 1.3% 382 1.8% 1,197 1.9% 1,281 1.8%
-------- ----- -------- ----- -------- ----- -------- -----
Total 21,357 100.0% 20,873 100.0% 67,622 100.0% 68,899 100.0%
Agency and national
representative commissions (2,542) (11.9%) (2,650) (12.7%) (8,484) (12.5%) (9,055) (13.1%)
-------- ----- -------- ----- -------- ----- -------- -----
Net revenue $ 18,815 88.1% $ 18,223 87.3% $ 59,138 87.5% $ 59,844 86.9%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
RESULTS OF OPERATIONS.
Set forth below is a summary of the operations of the Company for the
periods indicated and their percentages of net revenues.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------------- --------------------- --------------------- ---------------------
$ % of $ % of $ % of $ % of
Revenues Revenues Revenues Revenues
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues: $ 18,815 100.0% $ 18,223 100.0% $ 59,138 100.0% $ 59,844 100.0%
Operating Expenses:
Station operating 5,017 26.7% 6,063 33.3% 16,857 28.5% 19,047 31.8%
Selling, General & Administrative 4,417 23.5% 4,496 24.7% 14,655 24.8% 14,943 25.0%
Trade and barter 538 2.8% 671 3.7% 1,962 3.3% 2,026 3.4%
Depreciation 3,533 18.8% 3,194 17.5% 10,422 17.6% 9,901 16.5%
Amortization 5,681 30.2% 5,616 30.8% 17,042 28.8% 17,108 28.6%
Corporate expenses 859 4.5% 858 4.7% 2,575 4.4% 2,347 3.9%
-------- ----- -------- ----- -------- ----- -------- -----
Total operating expenses 20,045 106.5% $ 20,898 114.7% 63,513 107.4% 65,372 109.2%
-------- ----- -------- ----- -------- ----- -------- -----
Operating loss $ (1,230) (6.5%) $ (2,675) (14.7%) $ (4,375) (7.4%) $ (5,528) (9.2%)
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
17
<PAGE> 18
SUMMARY INFORMATION
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999.
The following table details how the different groupings affected the
change in operating income (loss) between the three months ended September 30,
2000 and the three months ended September 30, 1999.
<TABLE>
<CAPTION>
Core WUPW WROC Cox
Stations Acquisition Sale Stations Total
-------- ----------- ---- -------- -------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,883 $ (82) $(60) $(1,149) $ 592
Operating Expenses:
Station Operating (189) 8 (10) (855) (1,046)
Selling, General and Administrative 355 48 19 (501) (79)
Trade and Barter 42 (28) 0 (147) (133)
Depreciation 247 65 0 27 339
Amortization (6) (3) 0 74 65
Corporate Expenses 1 0 0 0 1
------- ----- ---- ------- -------
Operating Income (Loss) $ 1,433 $(172) $(69) $ 253 $ 1,445
======= ===== ==== ======= =======
</TABLE>
SUMMARY INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
The following table details how the different groupings affected the
change in operating income (loss) between the nine months ended September 30,
2000 and the nine months ended September 30, 1999.
<TABLE>
<CAPTION>
Core WUPW WROC Cox
Stations Acquisition Sale Stations Total
-------- ----------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net revenues $ 2,130 $ 691 $(2,558) $(969) $ (706)
Operating Expenses:
Station Operating (484) 235 (1,210) (731) (2,190)
Selling, General and Administrative 528 379 (626) (569) (288)
Trade and Barter 95 49 (127) (81) (64)
Depreciation 533 178 (285) 95 521
Amortization (26) 407 (670) 223 (66)
Corporate Expenses 228 0 0 0 228
------- ----- ------- ----- -------
Operating Income (Loss) $ 1,256 $(557) $ 360 $ 94 $ 1,153
======= ===== ======= ===== =======
</TABLE>
OTHER ITEMS
Interest Expense
Interest expense decreased by $0.2 million to $4.8 million for the
three months ended September 30, 2000, from $5.0 million for the three months
ended September 30, 1999 and decreased by $0.8 million to $14.2 million for the
nine months ended September 30, 2000, from $15.0 million for the nine months
ended September 30, 1999. The majority of these decreases were due to lower
outstanding balances on the Senior Credit Agreement during the comparative
periods offset by slightly higher effective interest rates.
Expenses Incurred in Cancelled Acquisition of Sinclair Stations
During the first quarter of 2000, the Company wrote off $0.9 million
related to its planned acquisition of
18
<PAGE> 19
three stations from Sinclair Communications, Inc. due to not receiving an
approval from the DOJ on a timely basis.
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 fund the Sinclair Agreement through an
additional borrowing under the Senior Credit Agreement and by an additional
capital contribution by Sunrise. The nine months ended September 30, 1999
include a $0.9 million charge for the cancelled debt offering.
Income Tax Benefit
Income tax benefits increased by $6.6 million to $9.1 million for the
three months ended September 30, 2000, from $2.5 million tax benefit for the
three months ended September 30, 1999, and increased by $5.2 million to $13.1
million for the nine months ended September 30, 2000, from $7.9 million tax
benefit for the nine months ended September 30, 1999, due primarily to the
reversal of valuation allowance for deferred tax assets associated with net
operating loss carryforwards of non-qualifying subsidiaries. The Company's
former non-qualifying subsidiaries now qualify to file a consolidated federal
income tax return due to changes in the Company's ownership control.
Other, net
Other expenses, net increased by $0.4 million to $0.6 million for the
nine months ended September 30, 2000 from $0.2 million for the nine months ended
September 30, 1999. A majority of the increase is a result of loss on disposal
of assets replaced by the Company.
Dividends
Redeemable preferred stock dividends and accretion increased by $0.5
million to $2.7 million for the three months ended September 30, 2000, from $2.2
million for the three months ended September 30, 1999, and increased $1.8
million to $7.7 million for the nine months ended September 30, 2000, from $5.9
million for the nine months ended September 30, 1999. The increases are a result
of the higher rate of interest on the Series B Preferred Stock issued in
December 1999 as compared to the initial issuance of the Series B Preferred
Stock in the first quarter of 1999 and to higher outstanding balances on the
Series A Preferred Stock.
Net Income (Loss) Applicable to Common Shareholder
Net loss decreased by $8.0 million to $0.4 million of net income for
the three months ended September 30, 2000 from a net loss of $7.6 million for
the three months ended September 30, 1999 and decreased $5.0 million to $14.6
million for the nine months ended September 30, 2000 from $19.6 million for the
nine months ended September 30, 1999 for the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had $3.5 million in cash balances
and net working capital of $4.4 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 increased by $6.4
million to $5.0 million for the nine months ended September 30, 2000 from cash
used by operations of $1.4 million for the nine months ended September 30, 1999.
The Company made interest and film payments of $17.0 million and $4.4 million,
respectively, during the nine months ended September 30, 2000 compared to
payments of $17.8 million and $4.9 million for the nine months ended September
30, 1999.
Net cash flows used in investing activities decreased by $74.7 million
to $3.6 million for the nine months ended September 30, 2000 from $78.3 million
for the nine months ended September 30, 1999. In 1999, the Company expended
$74.5 million to complete the acquisition of WUPW with no comparable activity
during the first nine months of 2000. Capital expenditures were $3.7 million and
$3.9 million for the nine months ended September 30, 2000 and 1999,
respectively.
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<PAGE> 20
Net cash flows used in financing activities increased by $79.0 million
to $1.8 million for the nine months ended September 30, 2000 from $77.2 million
provided by financing activities for the nine months ended September 30, 1999.
In 1999, the Company sold Redeemable Preferred Stock Series B for $37.1 million,
borrowed $62.0 million under the Senior Credit Agreement, received proceeds from
the sale of WROC of $45.0 million, received a capital contribution of $15.0
million from Sunrise, and repaid the Senior Credit Agreement in the amount of
$43.0 million and retired Redeemable Preferred Stock Series B of $37.5 million.
Other than net borrowings of $1.8 million under the Senior Credit Agreement,
there was no comparable activity in the first nine months of 2000.
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 receipt of additional 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. 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 will 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 September 30, 2000, the
Company had outstanding $95.3 million on the term loan facility and $2.7 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 6.75:1), a consolidated fixed
charge coverage ratio (currently 1.05:1), and a consolidated interest coverage
ratio (currently 1.5:1). The Company is limited in the amount of annual payments
that may be made for capital expenditures and corporate overhead.
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 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 September 30, 2000, 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 with an aggregate liquidation preference of $30.0
million, or $100 per share, which are entitled to quarterly dividends that
accrue at a rate per annum of 14%. Prior to February 28, 2002, dividends may be
paid in either additional
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<PAGE> 21
whole-shares of Redeemable Preferred Stock Series A or cash, at the Company's
option, and only in cash following that date.
On February 5, 1999, the Company entered into an agreement (the Series
B Agreement) to sell up to $90.0 million of Series B Redeemable Preferred Stock
to finance acquisitions by the Company from time to time. An aggregate of $37.5
million of Series B Redeemable Preferred Stock was sold on February 5, 1999 to
finance the acquisition of WUPW-TV ($35.0 million) and to fund an escrow account
($2.5 million) to pay dividends on such Series B Redeemable Preferred Stock. 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 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 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. The Company's Senior
Credit Agreement and Senior Subordinated Notes prohibit the payment of cash
dividends until May 31, 2002 on Redeemable Preferred Stock Series A and B.
Based on the current level of operations and anticipated future
internally generated growth, additional borrowings under the Senior Credit
Agreements 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 Credit Agreement and
Senior Subordinated Notes 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.
CAPITAL EXPENDITURES
Capital expenditures were $3.7 million and $3.9 million for the nine
month periods ended September 30, 2000 and 1999, respectively. Maintenance
capital expenditures are anticipated to be $5.0 million for the year ended
December 31, 2000. The Company anticipates that digital television will require
an additional minimum expenditure of between $1.5 million and $2.5 million per
station to develop facilities necessary for transmitting a digital signal with
initial expenditures beginning in 2000 in the amount of approximately $3.0 to
$4.0 million.
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 September 30, 2000. 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 September 30, 2000. On December 30, 1999, the
Company entered into another swap agreement that fixed the interest rate on an
additional $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
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<PAGE> 22
September 30, 2000. The variable interest rates on these two interest rate swap
contracts are based upon the three month London Interbank Offered Rate (LIBOR)
and the measurement and settlement are 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 this agreement is one of the lenders under the
Senior Credit Agreement.
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 substantial 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.
EMPLOYEES
As of September 30, 2000 and excluding employees of WJAC and WTOV
transferred to Cox on August 4, 2000, the Company had approximately 452
full-time and 86 part-time employees. WEYI has a contract with United Auto
Workers that expires on September 30, 2002 with respect to 40 employees. WDTN
has a contract with the IBEW that expires July 1, 2003 with respect to 54
employees. KFYR has a contract with the IBEW that expires on September 9, 2003
with respect to 9 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 current
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.
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 agreements with WNAC and
WUPW that required the affiliates to buy prime time spots from the network. The
Company's agreements with Fox Network commenced on July 15, 1999 and terminate
on June 30, 2002. The Company does not expect its broadcast cash flow, with
respect to WNAC and WUPW, to decrease a significant amount as a result of these
agreements.
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<PAGE> 23
In July 1999, the ABC Network entered into an agreement with WDTN 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 Channel
cable revenue sharing and entertainment sports and news exclusivity. The
three-year agreement began August 1, 1999. The Company does not expect its
broadcast cash flow, with respect to WDTN, to decrease by a significant amount
as a result of this agreement.
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 final 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 will 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.
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, or "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 would have affected the
Company's relationship with Smith Acquisition Company ("SAC"). Prior to August
30, 2000, the Company owned a substantial non-voting equity stake in SAC, which,
with a wholly owned subsidiary, owned WNAC, Providence, Rhode Island, and WTOV,
Steubenville, Ohio. Under the new FCC Ownership Rules, the Company's formerly
non-attributable interest in
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<PAGE> 24
SAC was attributable. The Company concluded that a change was required to retain
its interest in both WNAC and WTOV. See below for actions taken by the Company
and Hicks Muse.
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 merged with and into
Merger Sub and became a wholly-owned subsidiary of Clear Channel (the "AMFM
Merger"). Thomas O. Hicks, who previously was 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 and Mr. Hicks will
have a continuing attributable interest. The AMFM Merger was consummated on
August 30, 2000. Because of the changes in FCC Ownership Rules and the AMFM
Merger, the Company has taken certain actions to ensure that the Company remains
in compliance with the FCC Ownership Rules.
On March 14, 2000, STC License Company filed an application with the
FCC for consent to the transfer of control of Sunrise to Smith Broadcasting
Partners, L.P. which is controlled by Robert N. Smith. This application for
transfer was approved on July 12, 2000, and was consummated on August 30, 2000.
The transfer of control of Sunrise by Hicks Muse to Smith Broadcasting Partners,
L.P. resulted in Smith Broadcasting Partners, L.P. holding all of the voting
stock of Sunrise. On April 28, 2000, Hicks Muse entered into an agreement to
sell to an unrelated party its interest in the Redeemable Preferred Stock Series
A of the Company and Hicks Muse's interest in Senior Subordinate Notes of
Sunrise. This transaction was consummated on August 30, 2000. Upon the transfer
of control to Smith Broadcasting Partners, L.P. and the sale of these interests
by Hicks Muse, Hicks Muse's interest in Sunrise and the Company became no longer
attributable under the FCC Ownership Rules.
On March 24, 2000, the Company filed an application with the FCC to
convert its non voting shares of SAC capital stock into voting shares of SAC
capital stock. The application for transfer was approved on July 12, 2000, and
was consummated on August 30, 2000. A principal effect of this transaction will
allow SAC to file a consolidated tax return with Sunrise and the Company.
SALE OF WJAC AND WTOV
On July 6, 2000, the Company entered into an agreement with Cox
Communications, Inc. ("Cox") to sell to Cox all the capital stock of WJAC,
Incorporated for $70.0 million. WJAC, Incorporated owns WJAC, the NBC affiliate
in Johnstown, Pennsylvania. In a related transaction, SAC and Smith Acquisition
License Company, subsidiaries of the Company, entered into an agreement with Cox
to sell the assets of WTOV, the NBC affiliate in Steubenville, Ohio, to Cox for
$58.0 million. These transactions are subject to adjustment for certain
customary proration amounts. Closing of these transactions is subject to
customary conditions, including review by the DOJ and the FCC. On August 4,
2000, the Company entered into Time Brokerage Agreements ("TBAs") with Cox under
which Cox programs most of the available time on WJAC and WTOV and retains the
revenues from such sales of advertising time. Cox pays the Company a $0.8
million monthly fee under the two TBAs plus reimburses the Company's out of
pocket costs. The parties expect the WJAC and WTOV transaction to be consummated
in early 2001.
PURCHASE OF WPRI
On November 3, 2000, the Company entered into an Asset Purchase
Agreement with Clear Channel Communications, Inc. to acquire the assets of WPRI,
the CBS affiliate in the Providence, Rhode Island and New Bedford, Massachusetts
market for a purchase price of $50,000. This transaction is subject to
adjustment for certain customary proration amounts and closing of the purchase
is subject to satisfaction of customary conditions, including review and
approval by the DOJ and the FCC and transfer of the WNAC FCC license to an
unrelated party.
PRO FORMA BASIS
The following pro forma financial information presents the results of
operations of the Stations owned by the Company at September 30, 2000, for all
periods presented with the pro forma exclusion of WJAC and WTOV revenues and
operating expenses for 1999 and 2000. In addition, the Cox Communications, Inc.
Time Brokerage Agreement fees paid to the Company have been excluded as a
proforma adjustment for all periods presented. 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, 1999, nor is it indicative of
the future results of operations.
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<PAGE> 25
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>
Nine Months Ended Year Ended
September 30, December 31,
2000 1999 1999
-------------------- -------------------- --------------------
$ % $ % $ %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues:
Local $ 27,774 51.4% $ 27,386 52.7% $ 37,531 52.9%
National 15,862 29.4% 17,412 33.5% 23,026 32.5%
Political 2,550 4.7% 184 0.4% 379 0.6%
Network compensation 2,192 4.1% 2,527 4.9% 3,263 4.6%
Joint operating agreements 3,062 5.7% 2,263 4.4% 3,622 5.1%
Trade and barter 1,533 2.8% 1,359 2.6% 2,020 2.8%
Other 1,048 1.9% 865 1.5% 1,085 1.5%
-------- ----- -------- ----- -------- -----
Total 54,021 100.0% 51,996 100.0% 70,926 100.0%
Agency and national
representative commissions (6,904) (12.8%) (6,929) (13.3%) (9,304) (13.1%)
-------- ----- -------- ----- -------- -----
Net revenues $ 47,117 87.2% $ 45,067 86.7% $ 61,622 86.9%
======== ===== ======== ===== ======== =====
</TABLE>
Local and national revenues on a combined basis were generally flat to
slightly down in each market, except WEYI which had a more significant sales
decrease. WEYI has experienced problems within the sales management area and key
management positions have been strengthened to address these sales shortfalls.
Political revenues were up approximately $2.4 million for the nine months of
2000 as compared to the similar period in 1999.
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.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
2000 1999 1999
---------------------- ---------------------- ----------------------
$ % of Net $ % of Net $ % of Net
Revenues Revenues Revenues
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $ 47,117 100.0% $ 45,067 100.0% $ 61,622 100.0%
Station Operating Expenses:
Station operating 13,553 28.8% 14,052 31.2% 18,779 30.5%
Selling, general and administrative 12,008 25.5% 11,278 25.0% 14,670 23.8%
Trade and barter 1,460 3.1% 1,393 3.1% 2,068 3.4%
Depreciation 8,552 18.2% 7,899 17.5% 10,801 17.5%
Amortization 12,981 27.6% 12,857 28.5% 17,810 28.9%
Corporate expenses 2,575 5.5% 2,347 5.2% 3,499 5.7%
-------- ----- -------- ----- -------- -----
Total station operating expenses 51,129 108.7% 49,826 110.5% 67,627 109.8%
-------- ----- -------- ----- -------- -----
Operating Loss $ (4,012) (8.7%) $ (4,759) (10.5%) $ (6,005) (9.8%)
======== ===== ======== ===== ======== =====
</TABLE>
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<PAGE> 26
Station operating expenses other than depreciation, amortization and
corporate expenses increased by $0.3 million or 1.1% to $27.0 million for the
nine months ended September 30, 2000 from $26.7 million for the nine months
ended September 30, 1999.
PRO FORMA BROADCAST CASH FLOW AND EBITDA:
The following table sets forth a computation of pro forma Broadcast
Cash Flow and EBITDA.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
2000 1999 1999
-------- ------- ------------
<S> <C> <C> <C>
Operating loss $ (4,012) $(4,759) $ (6,005)
Add: Amortization of program rights 3,426 3,721 4,968
Depreciation of property and equipment 8,552 7,899 10,801
Amortization of intangibles 12,981 12,857 17,810
Corporate overhead 2,575 2,347 3,499
Less: Payments for program rights (3,728) (3,778) (5,017)
-------- ------- --------
Broadcast Cash Flow 19,794 18,287 26,056
Less: Corporate expenses (2,575) (2,347) (3,499)
-------- ------- --------
EBITDA $ 17,219 $15,940 $ 22,557
======== ======= ========
Margins:
Broadcast Cash Flow 42.0% 40.6% 42.3%
======== ======= ========
EBITDA 36.5% 35.4% 36.6%
======== ======= ========
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
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 September 30,
2000.
On December 30, 1999, the Company entered into a 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 September 30, 2000.
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 statement of the Company. The counter party to this
agreement is one of the lenders under the Senior Credit Agreement.
PART II
ITEM 1. 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 5. OTHER INFORMATION
On July 6, 2000, the Company agreed to sell WTOV and WJAC. On August
30, 2000, the voting control
26
<PAGE> 27
of Sunrise Television Corp. ("Sunrise") was transferred to Smith Broadcasting
Partners, L.P. which is controlled by Robert N. Smith. Prior to that date, Hicks
Muse Tate & Furst Incorporated controlled Sunrise. On November 3, 2000, the
Company entered into an agreement to purchase the assets of WPRI-TV, the CBS
affiliate in Providence, Rhode Island from Clear Channel Communications, Inc.
See footnotes 8, 9, and 10 to the unaudited financial statement as of September
30, 2000 for more information.
Because of the significance of the above transactions, the Company has
retained Chase Securities, Inc. to advise the Company on strategic alternatives
that might be considered in the future. Such strategic alternatives are actively
being reviewed by the Board of Directors and Sunrise's investors.
Item 6 Exhibits and Reports on Form 10-Q
(a) Exhibits
2.1 Asset Purchase Agreement by and among Smith Acquisition Company,
Smith Acquisition License Company and Cox Broadcasting, Inc. for
television station WTOV-TV, Steubenville, Ohio. (1)
2.2 Stock Purchase Agreement by and among STC Broadcasting, Inc., WJAC,
Incorporated and Cox Broadcasting, Inc. for television station WJAC-TV,
Johnstown, Pennsylvania. (1)
2.3 Asset Purchase Agreement dated November 3, 2000, among Clear
Channel Broadcasting, Inc., Clear Channel Broadcasting Licenses, Inc.
(sellers) and STC Broadcasting, Inc. (buyer) for television station
WPRI, Providence, Rhode Island (2)
3.1 Second Amended and Restated Certificate of Incorporation of Sunrise
Television Corp. (2)
3.2 Second Amended and Restated Bylaws of Sunrise Television Corp. (2)
4.1 Stock Purchase Agreement dated March 13, 2000, by and between
Sunrise Television Partners, L.P. and Smith Broadcasting Partners, L.P,
related to the purchase of voting stock in Sunrise Television Corp. (2)
4.2 First Amendment to Stock Purchase Agreement dated June 27, 2000, by
and between Sunrise Television Partners, L.P. and Smith Broadcasting
Partners, L.P. amending Stock Purchase Agreement dated March 13, 2000.
(2)
4.3 Certificate of Amendment to Certification of Designation of the 14%
Redeemable Preferred Stock. (2)
4.4 Letter agreement dated August 30, 2000 between Smith Broadcasting
Partners, L.P., Sunrise Television Corp., Smith Broadcasting Group,
Inc., Sandy DiPasquale, John Purcell and David Fitz. (2)
4.5 First Amendment to Stock Purchase Warrant #1with Hicks, Muse, Tate
& Furst Equity Fund III, L.P. (2)
4.6 First Amendment to Stock Purchase Warrant #2 with Chase Equity
Associates, L.P. (2)
4.7 First Amendment to Stock Purchase Warrant #3 with HM3 Coinvestors,
L.P. (2)
4.8 First Amendment to Stock Purchase Warrant #4 with Hicks Muse Tate &
Furst Equity Fund III, L.P. (2)
4.9 First Amendment to Stock Purchase Warrant #5 with HM3 Coinvestors,
L.P. (2)
4.10 First Amendment to Stock Purchase Warrant #6 with Chase Equity
Associates, L.P. (2)
27.1 Financial Data Schedule (2)
(1) Incorporated by reference to the Form 8-K of STC Broadcasting, Inc. filed
July 10, 2000
(2) Filed herewith
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<PAGE> 28
(b) Reports on Form 8-K
On July 10, 2000 the Company filed an 8-K relating to the sale of
WJAC-TV and WTOV-TV to Cox Communications, Inc.
28
<PAGE> 29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STC Broadcasting, Inc.
Registrant
Date: November 8, 2000 By: /s/ David A. Fitz
-----------------------
David A. Fitz
Senior Vice-President/
Chief Financial Officer
