<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Form 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 0-19728
GRANITE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3458782
(State of Incorporation) (I.R.S. Employer
Identification No.)
767 Third Avenue, 34th Floor
New York, New York 10017
(212) 826-2530
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock (Nonvoting), $.01 par value per share
Cumulative Convertible Exchangeable Preferred Stock, $.01 par value per share
----------
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 10, 1997, 8,582,091 shares of Granite Broadcasting Corporation
Common Stock (Nonvoting) and 1,819,500 shares of Granite Broadcasting
Corporation Cumulative Convertible Exchangeable Preferred Stock were
outstanding. The aggregate market value (based upon the last reported sale price
on the Nasdaq National Market on March 10, 1997) of the shares of Common Stock
(Nonvoting) held by non-affiliates was approximately $82,148,005. The aggregate
market value (based upon the last reported sale price on the Nasdaq National
Market on March 10, 1997) of shares of Cumulative Convertible Exchangeable
Preferred Stock held by non-affiliates was approximately $97,337,287. (For
purposes of calculating the preceding amounts only, all directors and executive
officers of the registrant are assumed to be affiliates.) As of March 10, 1997,
178,500 shares of Granite Broadcasting Corporation Class A Voting Common Stock
were outstanding, all of which were held by affiliates.
----------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Item 14 of Part IV are incorporated by reference to: Granite
Broadcasting Corporation's Registration Statement No. 33-43770, filed on
November 5, 1991; Granite Broadcasting Corporation's Registration Statement
No. 33-52988, filed on October 6, 1992; Granite Broadcasting Corporation's
Current Report on Form 8-K, filed on June 25, 1993; Granite Broadcasting
Corporation's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993, filed on November 15, 1993; Amendment No. 2 to Granite Broadcasting
Corporation's Registration Statement No. 33-71172, filed on December 16,
1993; Granite Broadcasting Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994, filed on November 14, 1994; Granite
Broadcasting Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994, filed on March 29, 1995; Granite Broadcasting
Corporation's Current Report on Form 8-K, filed on May 19, 1995; Granite
Broadcasting Corporation's Current Report on Form 8-K, filed on July 14,
1995; Granite Broadcasting Corporation's Registration Statement No. 33-94862,
filed on July 21, 1995; Amendment No. 2 to Granite Broadcasting Corporation's
Registration Statement No. 33-94862, filed on October 6, 1995; Granite
Broadcasting Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995, filed on March 28, 1996; Granite Broadcasting
Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996, filed on August 13, 1996; Granite Broadcasting Corporation's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, filed on
November 14, 1996; and Granite Broadcasting Corporation's Current Report on
Form 8-K, filed on December 17, 1996.
<PAGE>
PART II
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with the
consolidated financial statements and notes thereto included at Item 8 herein.
The selected consolidated financial data for the years ended December 31, 1992,
1993, 1994, 1995 and 1996 are derived from the Company's audited Consolidated
Financial Statements.
The acquisitions by the Company of its operating properties during the
periods reflected in the following selected financial data materially affect the
comparability of such data from one period to another.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data: 1992 1993 1994 1995 1996
- ---------------------------------------------------- ---------- --------- --------- -------------- ----------
<CAPTION>
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue......................................... $ 35,957 $ 37,499 $ 62,856 $ 99,895 $ 129,164
Station operating expenses.......................... 21,638 22,790 37,764 55,399 72,089
Time brokerage agreement fees....................... -- -- -- -- 150
Depreciation........................................ 2,279 2,398 3,420 4,514 6,144
Amortization........................................ 3,678 3,359 3,873 7,592 9,737
Corporate expense................................... 1,192 1,375 2,162 3,132 4,800
Non-cash compensation............................... -- 123 282 363 496
---------- --------- --------- -------------- ----------
Operating income.................................... 7,170 7,454 15,355 28,895 35,748
Other expenses...................................... 487 479 309 798 1,034
Equity in net loss (income) of investee............. -- -- -- (439) 995
Interest expense, net............................... 11,675 10,977 10,707 27,026 36,765
Non-cash interest expense........................... 305 505 842 1,738 2,087
---------- --------- --------- -------------- ----------
Income (loss) before income taxes and extraordinary
item.............................................. (5,297) (4,507) 3,497 (228) (5,133)
(Provision) benefit for income tax.................. 471 472 (450) (555) (761)
---------- --------- --------- -------------- ----------
Income (loss) before extraordinary item............. (4,826) (4,035) 3,047 (783) (5,894)
Extraordinary loss on extinguishment of debt........ (5,709) (1,007) -- -- (2,891)
---------- --------- --------- -------------- ----------
Net income (loss)................................... $ (10,535) $ (5,042) $ 3,047 $ (783) $ (8,785)
---------- --------- --------- -------------- ----------
---------- --------- --------- -------------- ----------
Net loss attributable to common shareholders........ $ (10,628) $ (5,278) $ (688) $ (4,368) $ (12,310)
---------- --------- --------- -------------- ----------
---------- --------- --------- -------------- ----------
Loss before extraordinary item per common share..... $ (1.22) $ (0.98) $ (0.15) $ (0.74) $(1.09)
---------- --------- --------- -------------- ----------
---------- --------- --------- -------------- ----------
Net loss per common share........................... $ (2.63) $ (1.21) $ (0.15) $ (0.74) $(1.43)
---------- --------- --------- -------------- ----------
---------- --------- --------- -------------- ----------
Weighted average common shares outstanding ......... 4,041 4,365 4,498 5,920 8,612
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
Selected Balance Sheet data: 1992 1993 1994 1995 1996
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets......................................... $ 140,948 $ 191,517 $ 189,881 $ 452,221 $ 452,563
Total debt........................................... 101,611 99,000 99,250 341,000 351,561
Redeemable preferred stock........................... 1,574 49,139 49,171 45,488 45,488
Stockholders' (deficit) equity....................... 17,211 12,075 11,729 8,868 (3,135)
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The consolidated financial statements of the Company reflect increases
between the years ended December 31, 1994, 1995 and 1996 in substantially all
line items. The principal reasons for such increases are the acquisition of KEYE
on February 1, 1995, the acquisition of WWMT on June 1, 1995 and the acquisition
of WKBW on June 29, 1995.
The Company's revenues are derived principally from local and national
advertising and, to a lesser extent, from network compensation for the broadcast
of programming and revenues from studio rental and commercial production
activities. The primary operating expenses involved in owning and operating
television stations are employee salaries, depreciation and amortization,
programming and advertising and promotion expenses. Numbers referred to in the
following discussion have been rounded to the nearest thousand.
The Company's operating revenues are generally lower in the first calendar
quarter and generally higher in the fourth calendar quarter than in the other
two quarters, due in part to increases in retail advertising in the fall months
in preparation for the holiday season, and in election years due to increased
political advertising.
The following table sets forth certain operating data for the three years
ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------- ------------- -------------
Operating income.................................... $ 15,354,000 $ 28,895,000 $ 35,748,000
Add:
Time brokerage agreement fees...................... -- -- 150,000
Depreciation and amortization...................... 7,294,000 12,105,000 15,881,000
Corporate expense.................................. 2,162,000 3,132,000 4,800,000
Non-cash compensation.............................. 282,000 363,000 496,000
------------- ------------- -------------
Broadcast cash flow................................. $ 25,092,000 $ 44,495,000 $ 57,075,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
"Broadcast cash flow" means operating income plus time brokerage agreement
fees, depreciation, amortization, corporate expense and non-cash compensation.
The Company has included broadcast cash flow data because such data are commonly
used as a measure of performance for broadcast companies and are also used by
investors to measure a company's ability to service debt. Broadcast cash flow is
not, and should not be used as, an indicator or alternative to operating income,
net income or cash flow from operations as reflected in the Consolidated
Financial Statements, is not a measure of financial performance under generally
accepted accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
The Company has elected as provided under Statement of Financial Accounting
Standards No. 123 (Accounting for Stock-Based Compensation) to continue to
account for stock-based employee compensation under Accounting Principles Board
Opinion No. 25.
-2-
<PAGE>
Years Ended December 31, 1996 and 1995
Net revenue for the year ended December 31, 1996 totaled $129,164,000, an
increase of $29,269,000, or 29.3% compared to net revenue of $99,895,000 for
the year ended December 31, 1995. Of this increase, $21,262,000 resulted from
the inclusion of one additional month of operations of KEYE, five additional
months of operations of WWMT and six additional months of operations of
WKBW in 1996. The remaining increase was primarily a result of increased
local and national advertising, political spending and increased network
compensation.
Station operating expenses for the year ended December 31, 1996 totaled
$72,089,000, an increase of $16,690,000, or 30.1% compared to station
operating expenses of $55,399,000 in the prior year. Of this increase,
$10,648,000 was due to the inclusion of one additional month of operating
expenses of KEYE, five additional months of operating expenses of WWMT and
six additional months of operating expenses of WKBW. The remaining increase
was primarily due to higher programming expenses and increased news expenses
associated with the launch of a news operation at KEYE.
Broadcast cash flow totaled $57,075,000 during the year ended December 31,
1996 compared to $44,495,000 during 1995, an increase of $12,580,000, or 28.3%.
Of the increase, $10,614,000 was due to the inclusion of one additional month of
operations of KEYE, five additional months of operations of WWMT and six
additional months of operations of WKBW.
Depreciation and amortization increased by $3,776,000, or 31.2% during
the year ended December 31, 1996 compared to 1995 primarily due to the
inclusion of one additional month of operations of KEYE, five additional
months of operations of WWMT and six additional months of operations of
WKBW. Corporate expense increased $1,668,000, or 53.3% during the year ended
December 31, 1996 compared to 1995, primarily due to higher administrative
costs associated with the expansion of the Company's corporate office to
manage its expanded station group. Non-cash compensation expense increased
$133,000 during the year ended December 31, 1996 compared to 1995 due to the
granting of additional awards payable in Common Stock (Nonvoting) to certain
executive employees under the Company's Management Stock Plan.
As a result of the factors discussed above, operating income increased
$6,853,000 or 23.7% during the year ended December 31, 1996 compared to 1995.
The equity in net loss of investee of $995,000 for the year ended December
31, 1996 resulted from the Company recognizing its pro rata share of the losses
of Datacast LLC accounted for under the equity method of accounting. The equity
in net income of investee of $439,000 for the year ended December 31, 1995
resulted from the Company recognizing its pro rata share of the earnings of
Queen City III Limited Partnership, the ultimate parent of WKBW, under the
equity method of accounting. On June 29, 1995, the Company acquired the
remaining interest in Queen City III Limited Partnership.
Net interest expense totaled $36,765,000 during the year ended December
31, 1996, an increase of $9,739,000, or 36% compared to net interest expense
of $27,026,000 during the year ended December 31, 1995, primarily due to
higher levels of outstanding indebtedness as a result of the acquisitions of
WWMT and WKBW in June of 1995.
Non-cash interest expense totaled $2,087,000 for the year ended December 31,
1996, an increase of $348,000, or 20% compared to the same period a year
earlier, due to the amortization of deferred financing fees incurred in
connection with the issuance of the Company's 9 3/8% Notes (as defined below) in
February 1996.
During 1996, the Company incurred an extraordinary loss of $2,891,000 on the
early extinguishment of debt.
-3-
<PAGE>
Net loss totaled $8,785,000 during the year ended December 31, 1996 compared
to net loss of $783,000 during 1995, an increase of $8,002,000. This change was
primarily due to the changes in the line items discussed above.
Years Ended December 31, 1995 and 1994
Net revenue for the year ended December 31, 1995 totaled $99,895,000, an
increase of $37,039,000, or 58.9% compared to net revenue of $62,856,000 for
the year ended December 31, 1994. Of this increase, $36,324,000 was due to
the inclusion of eleven months of operations of KEYE, seven months of
operations of WWMT and six months of operations of WKBW. The remaining
increase of $715,000 resulted from a strong advertising environment in the
first six months of the year and increased network compensation, offset, in
part, by lower political advertising in a non-election year. Net revenue at
the Company's nine stations (including revenue derived by KEYE, WWMT and
WKBW prior to their acquisition by the Company) increased $2,316,000, or 2.0%
during the year ended December 31, 1995 as compared to the same period in
1994.
Station operating expenses for the year ended December 31, 1995 totaled
$55,399,000, an increase of $17,635,000, or 46.7% compared to station
operating expenses of $37,764,000 for the same period a year earlier. Of this
increase, $16,589,000 was due to the inclusion of eleven months of operations
of KEYE, seven months of operations of WWMT and six months of operations
of WKBW. The remaining increase of $1,046,000 was primarily due to increased
news and sales development costs. Station operating expenses at the Company's
nine stations (including station operating expenses of KEYE, WWMT and WKBW
prior to their acquisition by the Company) decreased $1,779,000, or 2.7%
during the year ended December 31, 1995 as compared to the same period in
1994.
Broadcast cash flow totaled $44,495,000 during the year ended December
31, 1995 compared to $25,092,000 during the same period a year earlier, an
increase of $19,403,000, or 77.3%. Of this increase, $19,735,000 was due to
the inclusion of eleven months of operations of KEYE, seven months of
operations of WWMT and six months of operations of WKBW, which was offset,
in part, by a decrease in broadcast cash flow from the Company's initial six
stations (the "Initial Six Stations"). Broadcast cash flow at the Company's
nine stations (including broadcast cash flow of KEYE, WWMT and WKBW prior
to their acquisition by the Company) increased $537,000, or 1.0% during the
year ended December 31, 1995 as compared to the same period in 1994.
Depreciation and amortization increased by $4,811,000, or 66% during the
year ended December 31, 1995 compared to the same period a year earlier
primarily due to the inclusion of eleven months of operations of KEYE, seven
months of operations of WWMT and six months of operations of WKBW. Corporate
expense increased $970,000, or 44.9% during the year ended December 31, 1995
compared to the same period a year earlier, primarily due to higher
administrative costs associated with the expansion of the Company's corporate
office to manage its expanded station group. Non-cash compensation expense
increased $81,000 during the year ended December 31, 1995 compared to the same
period a year earlier due to the granting of additional awards payable in Common
Stock (Nonvoting) to certain executive employees under the Company's Management
Stock Plan.
As a result of the factors discussed above, operating income increased
$13,541,000 or 88.2% during the year ended December 31, 1995 compared to the
same period a year earlier.
Net interest expense totaled $27,026,000 during the year ended December
31, 1995, an increase of $16,319,000, or 152.4% compared to net interest
expense of $10,707,000 during the same period a year earlier, primarily due
to higher levels of outstanding indebtedness as a result of the acquisitions
of KEYE, WWMT and WKBW.
Non-cash interest expense totaled $1,739,000 for the year ended December 31,
1995, an increase of $897,000, or 107% compared to the same period a year
earlier due to the amortization of deferred financing fees incurred in
connection with the issuance of the Company's 10 3/8% Notes (as defined below)
on May 19, 1995.
-4-
<PAGE>
Other expenses increased by $490,000 during the year ended December 31, 1995
compared to the same period a year earlier primarily due to the incurrence of a
charge to terminate and change certain service contracts.
Net loss totaled $783,000 during the year ended December 31, 1995 compared
to net income of $3,047,000 during the same period a year earlier, a decrease of
$3,830,000. This change is primarily due to the changes in the line items
discussed above.
Liquidity and Capital Resources
On February 22, 1996, the Company completed an offering of $110,000,000
principal amount of its 9 3/8% Senior Subordinated Notes due December 2005
(the "9 3/8% Notes"). Proceeds from the sale of the 9 3/8% Notes were used to
repay all outstanding term loan and revolving credit borrowings under the
Company's then existing bank credit agreement and for general working capital
purposes. In connection with the repayment of the term loan (which is not
subject to being reborrowed), the Company incurred an extraordinary loss on
the early extinguishment of debt of $3,510,000 related to the write-off of
deferred financing fees. During the second quarter, the Company purchased
$2,000,000 face amount of its 10 3/8% Senior Subordinated Notes due May 2005
and $13,500,000 face amount of its 9 3/8% Notes at a discount. As a result of
these transactions, the Company recognized a net extraordinary loss for the
year ended December 31, 1996 of $2,891,000.
In September 1996, the Company amended and restated its existing credit
agreement to increase the total amount of committed revolving credit borrowings
available thereunder from $60,000,000 to $200,000,000 and to permit borrowings
of up to $300,000,000 in the aggregate. The revolving credit facility can be
used to fund future acquisitions of broadcast stations and for general corporate
purposes. As of February 28, 1997, subject to compliance with financial
covenants, the Company had $149,000,000 of the revolving credit facility
borrowings available under the credit agreement available for acquisitions and
working capital purposes.
In October 1996, the Company entered into agreements with the owner of WLAJ,
the ABC affiliate serving Lansing, Michigan, including a time brokerage
agreement pursuant to which the Company operates WLAJ and an agreement to
acquire substantially all the assets used in the operation of WLAJ for
approximately $19.4 million in cash and the assumption of certain liabilities.
The Company anticipates financing the acquisition of WLAJ with borrowings under
the credit agreement. In connection with these agreements, the Company agreed to
provide a loan guarantee of up to $12,000,000 in favor of the owner of WLAJ.
On January 31, 1997, the Company acquired substantially all of the assets of
WXON, the WB affiliate serving Detroit, Michigan for $175,000,000 and the
assumption of certain liabilities. The Company financed the WXON Acquisition
using the proceeds from the sale of its 12 3/4% Cumulative Exchangeable
Preferred Stock (See Note 8 to the Company's Consolidated Financial Statements)
and borrowings of approximately $27,500,000 under the credit agreement.
Cash flows provided by operating activities were $13,291,000 during the year
ended December 31, 1996 compared to $8,806,000 during the year ended December
31, 1995 and $5,808,000 during the year ended December 31, 1994. The increases
from year to year resulted primarily from higher broadcast cash flow offset, in
part, by higher cash interest expense.
Cash flows used in investing activities were $14,435,000 during the year
ended December 31, 1996, compared to $236,343,000 during the year ended December
31, 1995 and $2,628,000 during the year ended December 31, 1994. Cash flows used
in investing activities during the year ended December 31, 1996 related to
capital expenditures, the deposit relating to the WXON Acquisition and other
capitalized acquisition costs and an investment in Datacast LLC. Cash flows used
in investing activities during the year ended December 31, 1995 related
primarily to the acquisitions of KEYE, WWMT and WKBW while cash flows used in
investing activities during the year ended December 31, 1994 were related
entirely to capital expenditures.
-5-
<PAGE>
Cash flows provided by financing activities were $1,565,000 during the year
ended December 31, 1996 compared to cash flows provided by financing activities
of $225,685,000 during the year ended December 31, 1995 and cash flows used in
financing activities of $2,780,000 in 1994. The decrease from 1995 to 1996
resulted primarily from a decrease in net borrowings offset in part by a
decrease in payments for deferred financing fees. The increase from 1994 to 1995
resulted primarily from a net increase in bank borrowings and the proceeds from
the sale of the 10 3/8% Notes, partially offset by higher deferred financing
fees and the redemption of the Company's adjustable rate preferred stock.
The Company may recognize significant taxable income as a result of the
acquisition in 1995 of WKBW. Such taxable income would reduce the Company's
net operating losses for federal income tax purposes. For financial reporting
purposes, in accordance with Statement of Financial Accounting Standards No.
109, any taxable income arising from the consummation of the acquisition of
WKBW is considered additional purchase price, which will be amortized in
future periods. See Note 10 to the Company's Consolidated Financial
Statements.
The Company believes that internally generated funds from operations and
borrowings under the credit agreement's revolving credit facility will be
sufficient to satisfy the Company's cash requirements for its operations for the
next twelve months and for the foreseeable future thereafter. The Company
expects that any additional acquisitions of television stations would be
financed through funds generated from operations, borrowings under the credit
agreement's revolving credit facility and additional debt and equity financings.
-6-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Granite Broadcasting Corporation
We have audited the accompanying consolidated balance sheets of Granite
Broadcasting Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and the schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Granite
Broadcasting Corporation at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
January 24, 1997
7
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------- ------------- --------------
Net revenue........................................................ $ 62,856,425 $ 99,894,627 $ 129,164,353
Station operating expenses......................................... 37,763,732 55,398,930 72,089,368
Time brokerage agreement fees...................................... -- -- 150,000
Depreciation....................................................... 3,420,850 4,513,919 6,144,193
Amortization....................................................... 3,873,152 7,590,885 9,737,136
Corporate expense.................................................. 2,162,621 3,131,943 4,799,984
Non-cash compensation expense...................................... 281,896 363,384 495,819
------------- ------------- --------------
Operating income................................................. 15,354,174 28,895,566 35,747,853
Other (income) expenses:
Equity in net (income) loss of investee.......................... -- (439,033) 995,019
Interest expense, net............................................ 10,707,147 27,026,680 36,765,306
Non-cash interest expense........................................ 841,569 1,738,559 2,086,639
Other............................................................ 307,929 797,576 1,034,351
------------- ------------- --------------
Income (loss) before income taxes and extraordinary item......... 3,497,529 (228,216) (5,133,462)
Provision for income taxes....................................... 450,125 554,884 761,000
------------- ------------- --------------
Income (loss) before extraordinary item............................ 3,047,404 (783,100) (5,894,462)
Extraordinary loss................................................. -- -- (2,891,250)
------------- ------------- --------------
Net income (loss)................................................ $ 3,047,404 $ (783,100) $ (8,785,712)
------------- ------------- --------------
------------- ------------- --------------
Net loss attributable to common shareholders....................... $ (687,730) $ (4,368,486) $ (12,310,993)
------------- ------------- --------------
------------- ------------- --------------
Per common share:
Loss before extraordinary item................................. $ (0.15) $ (0.74) $ (1.09)
Extraordinary loss............................................. -- -- (0.34)
------------- ------------- --------------
Net loss..................................................... $ (0.15) $ (0.74) $ (1.43)
------------- ------------- --------------
------------- ------------- --------------
Weighted average common shares outstanding......................... 4,497,758 5,920,294 8,611,606
</TABLE>
See accompanying notes.
8
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
ASSETS 1995 1996
------ ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents............................... $ 95,123 $ 555,753
Accounts receivable, less allowance for doubtful
accounts ($505,759 in 1995 and $391,910 in 1996)...... 26,186,579 27,057,451
Film contract rights.................................... 5,813,366 6,276,660
Other current assets.................................... 3,854,774 9,784,966
------------ ------------
TOTAL CURRENT ASSETS................................ 35,949,842 43,674,830
PROPERTY AND EQUIPMENT, NET............................... 32,132,126 33,562,019
FILM CONTRACT RIGHTS AND OTHER NONCURRENT ASSETS.......... 3,725,612 4,284,578
DEFERRED FINANCING FEES, less accumulated amortization
($2,947,833 in 1995 and $4,049,724 in 1996)............. 14,849,529 14,181,662
INTANGIBLE ASSETS, NET.................................... 365,564,029 356,860,115
------------ -------------
$452,221,138 $452,563,204
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable........................................ $ 5,285,619 $ 4,016,964
Accrued interest........................................ 5,595,610 6,071,378
Other accrued liabilities............................... 3,500,066 4,497,534
Film contract rights payable and other current
liabilities........................................... 6,946,068 9,578,365
------------ -------------
TOTAL CURRENT LIABILITIES........................... 21,327,363 24,164,241
LONG-TERM DEBT............................................ 341,000,000 351,560,900
FILM CONTRACT RIGHTS PAYABLE.............................. 3,669,534 3,383,428
DEFERRED TAX LIABILITY AND OTHER NONCURRENT LIABILITIES... 31,869,240 31,102,272
COMMITMENTS
REDEEMABLE PREFERRED STOCK................................ 45,487,500 45,487,500
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock: 41,000,000 shares authorized consisting
of 1,000,000 shares of Class A Common Stock, $.01 par
value, and 40,000,000 shares of Common Stock
(Nonvoting), $.01 par value; 178,500 shares of Voting
Common Stock and 8,499,716 shares of Common Stock
(Nonvoting) (8,218,240 shares at December 31, 1995)
issued and outstanding................................ 83,967 86,782
Additional paid-in capital.............................. 46,864,202 45,547,145
Accumulated deficit..................................... (36,590,198) (45,375,910)
Less: Unearned compensation............................. (1,490,470) (2,506,279)
Note receivable from officer...................... -- (886,875)
------------ --------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)................ 8,867,501 (3,135,137)
------------ --------------
$452,221,138 $452,563,204
============ ==============
</TABLE>
See accompanying notes.
9
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
CLASS A COMMON SERIES B SERIES C ADDITIONAL
COMMON STOCK PREFERRED PREFERRED PAID-IN (ACCUMULATED
STOCK (NONVOTING) STOCK STOCK CAPITAL DEFICIT)
------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993...................... $1,785 $42,546 $ 5,006 $ 10,181 $51,362,550 $(38,854,502)
Accretion of and dividends on Series A Redeemable
Preferred Stock................................. (91,895 )
Conversion of Redeemable Preferred Stock and
Series B and Series C Preferred Stock into
Common Stock (Nonvoting)........................ 1,080 (373) (102) 59,359
Dividend on Cumulative Convertible Exchangeable
Preferred Stock and Adjustable Rate Preferred
Stock........................................... (3,643,239 )
Issuance of 34,000 shares of Common Stock
(Nonvoting)..................................... 340 (340)
Grant of Stock Award under Management Stock
Plan............................................ 1,002,000
Stock expense related to Management Stock Plan....
Net income........................................ 3,047,404
------ ------- ------ ------- ----------- -----------
Balance at December 31, 1994...................... 1,785 43,966 4,633 10,079 48,688,435 (35,807,098)
Accretion of and dividends on Series A Redeemable
Preferred Stock................................. (35,116 )
<CAPTION>
NOTE TOTAL
UNEARNED RECEIVABLE STOCKHOLDERS'
COMPENSATION FROM OFFICER EQUITY (DEFICIT)
------------ ------------ ----------------
<S> <C> <C> <C>
Balance at December 31, 1993...................... $ (493,000) $ -- $12,074,566
Accretion of and dividends on Series A Redeemable
Preferred Stock................................. (91,895)
Conversion of Redeemable Preferred Stock and
Series B and Series C Preferred Stock into
Common Stock (Nonvoting)........................ 59,964
Dividend on Cumulative Convertible Exchangeable
Preferred Stock and Adjustable Rate Preferred
Stock........................................... (3,643,239)
Issuance of 34,000 shares of Common Stock
(Nonvoting)..................................... --
Grant of Stock Award under Management Stock
Plan............................................ (1,002,000)
Stock expense related to Management Stock Plan.... 281,896 281,896
Net income........................................ 3,047,404
---------- -------- -----------
Balance at December 31, 1994...................... (1,213,104) -- 11,728,696
Accretion of and dividends on Series A Redeemable
Preferred Stock................................. (35,116)
</TABLE>
<TABLE>
<CAPTION>
CLASS A COMMON SERIES B SERIES C ADDITIONAL
COMMON STOCK PREFERRED PREFERRED PAID-IN (ACCUMULATED
STOCK (NONVOTING) STOCK STOCK CAPITAL DEFICIT)
------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Conversion of Series A Redeemable Preferred Stock
and Series B and C Preferred Stock into
Common Stock (Nonvoting)........................ 36,069 (4,633) (10,079) 1,200,518
Dividend on Cumulative Convertible Exchangeable
Preferred Stock and Adjustable Rate Preferred
Stock........................................... (3,550,281 )
Exercise of Stock Options......................... 1,574 31,376
Issuance of Common Stock (Nonvoting) ............. 573 (573 )
Grant of Stock Award under Management Stock
Plan............................................ 640,750
Stock expense related to Management Stock Plan.... (110,907)
Net loss.......................................... (783,100 )
------- ----------- --------- --------- ----------- ------------
Balance at December 31, 1995...................... 1,785 82,182 -- -- 46,864,202 (36,590,198)
Dividend on Cumulative Convertible
Exchangeable Preferred Stock...................... (3,525,281 )
Exercise of Stock Options......................... 2,008 888,805
Issuance of Common Stock (Nonvoting) ............. 807 (807 )
Grant of Stock Award under Management Stock
Plan............................................ 1,511,628
<CAPTION>
NOTE TOTAL
UNEARNED RECEIVABLE STOCKHOLDERS'
COMPENSATION FROM OFFICER EQUITY (DEFICIT)
------------ ------------ ----------------
<S> <C> <C> <C>
Conversion of Series A Redeemable Preferred Stock
and Series B and C Preferred Stock into
Common Stock (Nonvoting)........................ 1,221,875
Dividend on Cumulative Convertible Exchangeable
Preferred Stock and Adjustable Rate Preferred
Stock........................................... (3,550,281)
Exercise of Stock Options......................... 32,950
Issuance of Common Stock (Nonvoting) ............. --
Grant of Stock Award under Management Stock
Plan............................................ (640,750) --
Stock expense related to Management Stock Plan.... 363,384 252,477
Net loss.......................................... (783,100)
------------ ------------ ----------------
Balance at December 31, 1995...................... (1,490,470) -- 8,867,501
Dividend on Cumulative Convertible
Exchangeable Preferred Stock...................... (3,525,281)
Exercise of Stock Options......................... (886,875) 3,938
Issuance of Common Stock (Nonvoting) ............. --
Grant of Stock Award under Management Stock
Plan............................................ (1,511,628) --
</TABLE>
<TABLE>
<CAPTION>
CLASS A COMMON SERIES B SERIES C ADDITIONAL
COMMON STOCK PREFERRED PREFERRED PAID-IN (ACCUMULATED
STOCK (NONVOTING) STOCK STOCK CAPITAL DEFICIT)
------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stock Expense Related to Management Stock Plan.... (191,402 )
Net loss.......................................... (8,785,712 )
------- ----------- --------- --------- ----------- ------------
Balance at December 31, 1996...................... $1,785 $84,997 $ -- $ -- $45,547,145 $(45,375,910)
------- ----------- --------- --------- ----------- ------------
------- ----------- --------- --------- ----------- ------------
<CAPTION>
NOTE TOTAL
UNEARNED RECEIVABLE STOCKHOLDERS'
COMPENSATION FROM OFFICER EQUITY (DEFICIT)
------------ ------------ ----------------
<S> <C> <C> <C>
Stock Expense Related to Management Stock Plan.. 495,819 304,417
Net loss.......................................... (8,785,712)
------------ ------------ ----------------
Balance at December 31, 1996...................... $(2,506,279) $(886,875) $(3,135,137)
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>
See accompanying notes.
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------- -------------- --------------
Cash flows from operating activities:
Net income (loss)................................................. $ 3,047,404 $ (783,100) $ (8,785,712)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization of intangible assets and deferred financing fees..... 4,714,721 9,329,444 11,823,775
Extraordinary loss................................................ -- -- 2,891,250
Depreciation...................................................... 3,420,850 4,513,919 6,144,193
Non-cash compensation expense..................................... 281,896 363,384 495,819
Non-cash deferred income taxes.................................... -- 1,115,000 975,000
Deferred income taxes............................................. -- (824,116) (589,000)
Equity in net (income) loss of investee........................... -- (439,033) 995,019
Change in assets and liabilities net of effects from acquisitions
of stations:
Increase in accounts receivable................................... (1,499,860) (7,528,139) (870,872)
Increase in accrued liabilities................................... 1,496,559 2,307,778 1,473,236
(Decrease) increase in accounts payable........................... (420,205) 2,689,051 (1,268,655)
Decrease (increase) in film contract rights and other noncurrent
assets.......................................................... 640,968 (3,448,429) (517,279)
(Decrease) increase in film contract rights payable and other
liabilities..................................................... (3,390,646) 3,222,796 1,193,223
Increase in other assets.......................................... (2,484,068) (1,712,859) (668,776)
------------- -------------- --------------
Net cash provided by operating activities......................... 5,807,619 8,805,696 13,291,221
------------- -------------- --------------
Cash flows from investing activities:
Deposit for station acquisition and other related costs........... -- -- (5,957,000)
Investment in Datacast, LLC....................................... -- -- (1,500,000)
Payment for acquisitions of stations, net of cash acquired........ -- (228,660,507) --
Capital expenditures.............................................. (2,627,793) (7,682,188) (6,938,477)
------------- -------------- --------------
Net cash used in investing activities............................. (2,627,793) (236,342,695) (14,395,477)
------------- -------------- --------------
Cash flows from financing activities:
Proceeds from bank loan........................................... 1,500,000 174,250,000 34,000,000
Retirement of senior subordinated notes........................... -- -- (15,500,000)
Proceeds from exercise of stock options........................... -- 32,950 3,938
Repayment of bank borrowings...................................... (1,250,000) (107,500,000) (117,500,000)
Redemption of Adjustable Rate Preferred Stock..................... -- (2,000,000) --
Payment of deferred financing fees................................ (129,771) (10,537,110) (5,363,771)
Proceeds from senior subordinated notes........................... -- 175,000,000 109,450,000
Dividends paid.................................................... (3,564,120) (3,561,280) (3,525,281)
Other financing activities........................................ 663,894 -- --
------------- -------------- --------------
Net cash provided by (used in) financing activities............... (2,779,997) 225,684,560 1,564,886
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents.............. 399,829 (1,852,439) 460,630
Cash and cash equivalents, beginning of year...................... 1,547,733 1,947,562 95,123
Cash and cash equivalents, end of year............................ $ 1,947,562 $ 95,123 $ 555,753
------------- -------------- --------------
------------- -------------- --------------
Supplemental information:
Cash paid for interest............................................ $ 10,176,398 $ 24,699,248 $ 36,451,009
Cash paid for income taxes........................................ 251,512 149,751 112,532
Non-cash investing and financing activities:
Non-cash capital expenditures..................................... 350,409 459,786 635,609
</TABLE>
See accompanying notes.
11
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain amounts in the prior years have
been reclassified to conform to the 1996 presentation. The Company accounts
for its investment in Datacast, LLC under the equity method of accounting.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of advertising at the time
the advertisements are aired.
INTANGIBLES
Intangible assets at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Goodwill..................................................... $ 75,192,619 $ 76,202,853
Network affiliations......................................... 247,941,641 247,941,641
Broadcast licenses........................................... 67,896,861 67,896,861
-------------- --------------
391,031,121 392,041,355
Accumulated amortization..................................... (25,467,092) (35,181,240)
-------------- --------------
$ 365,564,029 $ 356,860,115
-------------- --------------
-------------- --------------
</TABLE>
The intangible assets are characterized as scarce assets with long and
productive lives and are being amortized on a straight line basis over forty
years.
The Company continually reevaluates the propriety of the carrying amount
of intangible assets as well as the related amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
value and/or revised estimates of useful lives. This evaluation is based on
the Company's projections of the undiscounted cash flows over the remaining
lives of the amortization period of the related intangible asset. To the
extent such projections indicate that the undiscounted cash flows are not
expected to be adequate to recover the carrying amounts of intangible assets,
such carrying amounts will be written down to their fair market value. At
this time, the Company believes that no significant impairment of intangible
assets has occurred and that no reduction of the estimated useful lives is
warranted.
DEFERRED FINANCING FEES
The Company has incurred certain fees in connection with entering into a
bank credit agreement, the sale of 12.75% Debentures (as defined), the sale
of Cumulative Convertible Exchangeable Preferred Stock (as defined) the sale
of 10 3/8% Notes (as defined) and the sale of 9 3/8% Notes (as defined). The
deferred financing fees related to the bank credit agreement are being
amortized over seven years, ten years for the 12.75% Debentures, the 10 3/8%
-12-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Notes and the 9 3/8% Notes and twelve years for the Cumulative Convertible
Exchangeable Preferred Stock. Amortization of deferred financing fees is
classified as non-cash interest expense on the consolidated statement of
operations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives ranging from three to
32 years.
FILM CONTRACT RIGHTS
Film contract rights are recorded as assets at gross value when the
license period begins and the films are available for broadcasting, are
amortized on an accelerated basis over the estimated usage of the films, and
are classified as current or noncurrent on that basis. Film contract rights
payable are classified as current or noncurrent in accordance with the
payment terms of the various license agreements. Film contract rights are
reflected in the consolidated balance sheet at the lower of unamortized cost
or estimated net realizable value.
At December 31, 1996, the obligation for programming that had not been
recorded because the program rights were not available for broadcasting
aggregated $16,965,469.
BARTER TRANSACTIONS
Revenue from barter transactions is recognized when advertisements are
broadcast and merchandise or services received are charged to expense when
received or used.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include funds invested overnight in Eurodollar
deposits.
NET LOSS PER COMMON SHARE
Net loss per common share for each of the three years in the period ended
December 31, 1996 is calculated by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding. The
inclusion of additional shares assuming the exercise of outstanding stock
options and the conversion of convertible preferred stock would have been
antidilutive in all three years.
-13-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS
On February 1, 1995, the Company acquired substantially all of the assets
of KEYE-TV (formerly known as KBVO-TV), the CBS affiliate serving Austin,
Texas from Austin Television for $54,000,000 in cash and the assumption of
certain liabilities of KEYE-TV.
On June 1, 1995, the Company acquired substantially all of the assets and
certain liabilities of WWMT-TV, the CBS affiliate serving Grand Rapids,
Michigan from Busse Broadcasting Corporation for $98,942,000 in cash
(including $3,942,000 of working capital and other adjustments) and the
assumption of certain liabilities of WWMT-TV.
On June 29, 1995, the Company completed its acquisition of WKBW-TV, the
ABC affiliate serving Buffalo, New York. The Company paid approximately
$16,000,000 (including certain related expenses) for the equity interests it
did not already own, assumed approximately $59,000,000 of debt and received
working capital of approximately $6,760,000, of which $3,491,000 was cash.
On January 31, 1997 the Company acquired substantially all the assets
used in the operation of WXON-TV, the WB affiliate serving Detroit, Michigan
for $175,000,000 in cash and the assumption of certain liabilities.
The following table summarizes the unaudited consolidated pro forma
results of operations for the years ended December 31, 1995 and 1996 assuming
the acquisition of WXON-TV, KEYE-TV, WWMT-TV and WKBW-TV had occurred as of
January 1, 1995:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Net revenue.................................................. $ 145,532,000 $ 147,231,000
Station operating expenses................................... 74,398,000 78,577,000
Income (loss) before extraordinary item in 1996.............. 5,187,000 (1,544,000)
Loss before extraordinary item per common share.............. $ (2.95) $ (2.81)
</TABLE>
TIME BROKERAGE AGREEMENT
The Company operates WLAJ-TV, the ABC affiliate serving Lansing,
Michigan, pursuant to a time brokerage agreement. The terms of the agreement
require the Company to pay a monthly fee of $50,000 and reimburse certain
expenses in exchange for the right to provide station programming and sell
related advertising time. Nevertheless, as the holder of the FCC license, the
owner-operator retains full control and responsibility for the operation of
the station, including control over all programming broadcast on the station.
The time brokerage agreement terminates on the earlier of the date the
Company exercises its option to acquire WLAJ-TV or October 17, 2001. The time
brokerage agreement may be renewed at the Company's option for an additional
five year period. The agreement to acquire substantially all of the assets
used in the operation of WLAJ-TV is for $19,400,000 in cash and the
assumption of certain liabilities. In connection with this agreement, the
Company agreed to provide a loan guarantee of up to $12,000,000 in favor of
the owner of WLAJ-TV. The guarantee is collateralized by all of the assets of
WLAJ-TV.
-14-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
<S> <C> <C>
1995 1996
------------- -------------
Land............................................ $ 2,527,708 $ 2,527,708
Buildings and improvements...................... 14,729,378 16,607,496
Furniture and fixtures.......................... 4,380,475 5,691,019
Technical equipment and other................... 27,711,903 31,924,360
------------- -------------
49,349,464 56,750,583
Less:Accumulated depreciation................... 17,217,338 23,188,564
------------- -------------
Net property and equipment...................... $ 32,132,126 $ 33,562,019
------------- -------------
------------- -------------
</TABLE>
NOTE 4--OTHER ACCRUED LIABILITIES
Other accrued liabilities are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
Compensation and benefits......................................... $ 2,001,193 $ 2,367,808
Other............................................................. 1,498,873 2,129,726
------------ ------------
Total............................................................. $ 3,500,066 $ 4,497,534
------------ ------------
------------ ------------
</TABLE>
NOTE 5--OTHER CURRENT ASSETS
Other current assets are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
Barter and other receivables...................................... $ 2,542,824 $ 2,400,386
Escrow deposit related to station acquisition and other related
costs........................................................... -- 5,957,000
Other............................................................. 1,311,950 1,427,580
------------ ------------
Total............................................................. $ 3,854,774 $ 9,784,966
------------ ------------
------------ ------------
</TABLE>
-15-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT
The carrying amounts and fair values of the Company's long-term debt at
December 31, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------------- --------------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Senior Bank Debt.............. $106,000,000 $ 106,000,000 $ 22,500,000 $ 22,500,000
9 3/8% Senior Subordinated
Notes, net of unamortized
discount.................... -- -- 96,060,900 94,087,500
10 3/8% Senior Subordinated
Notes....................... 175,000,000 180,278,000 173,000,000 178,622,500
12.75% Senior Subordinated
Notes....................... 60,000,000 65,559,600 60,000,000 65,625,000
------------ -------------- ---------------- --------------
Total......................... $341,000,000 $ 351,837,600 $ 351,560,900 $ 360,835,000
------------ -------------- ---------------- --------------
------------ -------------- ---------------- --------------
</TABLE>
The fair value of the Company's Senior Subordinated Notes is estimated
based on quoted market prices. The carrying amount of the Company's
borrowings under its credit facility approximates fair value.
SENIOR BANK DEBT
The Company's existing bank credit agreement was amended and restated on
February 1, 1995 (as amended and restated the "Amended and Restated Credit
Agreement") to permit term borrowings of up to $100,000,000 plus a revolving
working capital facility permitting borrowings of up to $15,000,000. The
Amended and Restated Credit Agreement was amended and restated on May 19,
1995 (as amended and restated the "Second Amended and Restated Credit
Agreement") to permit term borrowings of up to $102,000,000 plus a revolving
working capital facility permitting borrowings of up to $60,000,000. Proceeds
from the incremental borrowings under the Second Amended and Restated Credit
Agreement along with the proceeds from the sale of $175,000,000 principal
amount of the Company's 10 3/8% Senior Subordinated Notes due May 15, 2005
(the "10 3/8% Notes") were used to fund the acquisition of WWMT-TV and
WKBW-TV and to pay fees and expenses incurred in connection with the offering
of the 10 3/8% Notes and the Second Amended and Restated Credit Agreement.
The Second Amended and Restated Credit Agreement was further amended and
restated on September 4, 1996 (as amended and restated the "Third Amended and
Restated Credit Agreement") to create a reducing revolving credit facility of
up to $200,000,000 and permits borrowings of up to $300,000,000 in the
aggregate. The proceeds from this facility are available for acquisitions and
for general working capital purposes as defined in the agreement.
Outstanding principal balances under the Third Amended and Restated
Credit Agreement bear interest at floating rates equal to LIBOR (the "LIBOR
Rate") plus marginal rates between 1.125% and 2.375% or the prime rate plus
marginal rates between 0.0% and 1.125%. The LIBOR Rate was 5.6875% plus a
marginal rate of 2.375% at December 31, 1996. The LIBOR Rate was
5.75%--5.938% plus a marginal rate of 2.50% at December 31, 1995. The
marginal rate is subject to change based upon changes in the ratio of
outstanding principal balances to operating cash flow. The principal amount
of the revolving loans are subject to reduction in installments commencing
December 31, 1998 through December 31, 2003, when the final payment is due.
-16-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT--(Continued)
The Third Amended and Restated Credit Agreement is secured by
substantially all of the assets of the Company, as well as a pledge of all
issued and outstanding shares of capital stock of the Company's present and
future subsidiaries and guaranteed by all present and future subsidiaries of
the Company. The Third Amended and Restated Credit Agreement requires the
Company to maintain compliance with certain financial ratios. Other
provisions place limitations on the incurrence of additional debt, payments
for capital expenditures, prepayment of subordinated debt, merger or
consolidation with or acquisition of another entity, the declaration or
payment of cash dividends other than on the Cumulative Convertible
Exchangeable Preferred Stock and other transactions by the Company.
SENIOR SUBORDINATED DEBENTURES
The Company has outstanding $60,000,000 aggregate principal amount of its
12.75% Senior Subordinated Debentures (the "12.75% Debentures") due September
1, 2002.
The 12.75% Debentures are redeemable after September 1, 1997, at the
option of the Company, in whole or in part from time to time, at certain
prices declining annually to 100% of the principal amount on or after
September 1, 1999, plus accrued interest. The Company is required to offer to
repurchase all outstanding 12.75% Debentures at 101% of the principal amount
plus accrued interest in the event of a Change of Control (as defined in the
Indenture governing the 12.75% Debentures).
The 12.75% Debentures are subordinated in right of payment to the Third
Amended and Restated Credit Agreement and to future Senior Debt (as defined
in the Indenture governing the 12.75% Debentures) and rank pari passu with
all senior subordinated debt and senior to all subordinated debt of the
Company. The Indenture governing the 12.75% Debentures contains certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur debt, pay cash dividends on or repurchase capital
stock, enter into agreements prohibiting the creation of liens or restricting
the ability of a subsidiary to pay money or transfer assets to the Company,
enter into certain transactions with their affiliates, dispose of certain
assets and engage in mergers and consolidations.
SENIOR SUBORDINATED NOTES
The Company issued $175,000,000 aggregate principal amount of its 10 3/8%
Senior Subordinated Notes (the "10 3/8% Notes") due May 15, 2005. On May 6,
1996, the Company purchased $2,000,000 face amount of its 10 3/8% Notes at a
discount and recognized an extraordinary loss, after the write-off of a
portion of related deferred financing fees, of $44,150.
The 10 3/8% Notes will be redeemable in the event that on or before May
15, 1998 the Company receives net proceeds from the sale of its Capital Stock
(other than Disqualified Stock (each as defined in the Indenture governing
the 10 3/8% Notes)), in which case the Company may, at its option and from
time to time, use all or a portion of any such net proceeds to redeem certain
amounts of the 10 3/8% Notes with certain limitations. In addition, the 10 3/8%
Notes are redeemable at any time on or after May 15, 2000, at the option of
the Company, in whole or in part from time to time, at certain prices
declining annually to 100% of the principal amount on or after May 15, 2002,
plus accrued interest. The Company is required to offer to purchase all
outstanding 10 3/8% Notes at 101% of the principal amount plus accrued
interest in the event of a Change of Control (as defined in the Indenture
governing the 10 3/8% Notes).
-17-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LONG-TERM DEBT (CONTINUED)
The 10 3/8% Notes are subordinated in right of payment to the Third
Amended and Restated Credit Agreement and to future Senior Debt (as defined
in the Indenture governing the 10 3/8% Notes) and rank pari passu with all
senior subordinated debt and senior to all subordinated debt of the Company.
The Indenture governing the 10 3/8% Notes contains certain covenants that,
among other things, limit the ability of the Company and its subsidiaries to
incur debt, pay cash dividends on or repurchase capital stock, enter into
agreements prohibiting the creation of liens or restricting the ability of a
subsidiary to pay money or transfer assets to the Company, enter into certain
transactions with their affiliates, dispose of certain assets and engage in
mergers and consolidations.
On February 22, 1996, the Company completed an offering of $110,000,000
principal amount of its 9 3/8% Senior Subordinated Notes (the "9 3/8% Notes")
due December 1, 2005. Proceeds from the sale of the 9 3/8% Notes were used to
repay all outstanding term loan and revolving credit borrowings under the
Company's then existing bank credit agreement and for general working capital
purposes. In connection with the repayment of the term loan, the Company
incurred an extraordinary loss on the early extinguishment of debt of
$3,510,152 related to the write-off of deferred financing fees.
The 9 3/8% Notes will be redeemable in the event that on or before
February 22, 1999 the Company receives proceeds from any sale of its Capital
Stock (other than Disqualified Stock) in one or more offerings, in which case
the Company may, at its option and from time to time, use all or a portion of
any such net proceeds within 75 days of receipt to redeem certain amounts of
the 9 3/8% Notes with certain limitations. In addition, the 9 3/8% Notes are
redeemable at any time on or after December 1, 2000, at the option of the
Company, in whole or in part, at certain prices declining annually to 100% of
the principal amount on or after December 1, 2002, plus accrued interest. The
Company is required to offer to purchase all outstanding 9 3/8% Notes at 101%
of the principal amount plus accrued interest in the event of a Change of
Control (as defined in the Indenture governing the 9 3/8% Notes).
The 9 3/8% Notes are subordinate in right of payment to all existing and
future Senior Debt (as defined in the Indenture) and rank pari passu with all
senior subordinated debt and senior to all subordinated debt. The provisions
of the Indenture contains certain covenants that, among other things, limit
the ability of the Company and its subsidiaries to incur debt, make certain
restricted payments, enter into certain transactions with their affiliates,
dispose of certain assets, incur liens securing subordinated debt of the
Company, engage in mergers and consolidations and restrict the ability of the
subsidiaries of the Company to make distributions and transfers to the
Company.
On June 19, 1996, the Company purchased $13,500,000 face amount of its 9
3/8% Notes at a discount and recognized an extraordinary gain, after the
write-off of a portion of related deferred financing fees, of $663,052.
There are no scheduled principal maturities on all long-term debt for the
five years subsequent to December 31, 1996.
-18-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--COMMITMENTS
Future minimum lease payments under long-term operating leases as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997...................... $ 839,000
1998...................... 699,000
1999...................... 598,000
2000...................... 411,000
2001...................... 295,000
2002 and thereafter....... 2,402,000
----------
$5,244,000
----------
----------
</TABLE>
Rent expense, including escalation charges, was $116,000, $559,000 and
$929,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
NOTE 8--REDEEMABLE PREFERRED STOCK
SERIES A PREFERRED STOCK
The Company authorized 100,000 shares of its Series A Convertible
Preferred Stock ("Series A Stock"), par value $.01 per share, which were
issued at an aggregate price of $1,210,000. All outstanding shares of the
Series A Stock were converted into shares of the Company's Common Stock
(Nonvoting), par value $.01 per share (the "Common Stock (Nonvoting)") in
August 1995. Prior to conversion, dividends accrued on the Series A Stock at
an annual rate of $.40 per share which accumulated, without interest, if
unpaid. Accrued but unpaid dividends on the Series A Stock totaled $262,844
at December 31, 1995 and 1996. Accrued dividends are due and payable on the
later of December 31, 1999 or the date on which such dividends may be paid
under the Company's debt instruments.
CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
The Company has authorized 3,000,000 shares of its Cumulative Convertible
Exchangeable Preferred Stock (the "Cumulative Convertible Exchangeable
Preferred Stock"), par value $.01 per share, of which 1,520,000 shares were
issued on December 23, 1993 at a price of $25.00 per share. The Company also
issued on December 23, 1993 300,000 shares of its Cumulative Convertible
Exchangeable Preferred Stock valued at $7,500,000 as consideration for
acquiring certain outstanding securities of Queen City III Limited
Partnership, the ultimate parent of WKBW-TV. Holders of the Cumulative
Convertible Exchangeable Preferred Stock are entitled to receive cash
dividends at an annual rate of $1.9375 per share, payable quarterly on each
March 15, June 15, September 15 and December 15 in each year, when, as and if
declared by the Company's Board of Directors. Dividends on the Cumulative
Convertible Exchangeable Preferred Stock are cumulative and accrue without
interest, if unpaid.
Each share of Cumulative Convertible Exchangeable Preferred Stock is
convertible, at the option of the holder, into shares of Common Stock
(Nonvoting). The Cumulative Convertible Exchangeable Preferred Stock is
convertible into Common Stock (Nonvoting) on a 5 for 1 share basis. The
current conversion price of the Cumulative Convertible Exchangeable Preferred
Stock is $5.00 per share, subject to adjustment upon the occurrence of
certain events. The Cumulative Convertible Exchangeable Preferred Stock is
entitled to a preference of $25.00
-19-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--REDEEMABLE PREFERRED STOCK--(Continued)
per share plus accrued and unpaid dividends in the event of liquidation,
dissolution or winding up of the Company ($45,487,500 liquidation value at
December 31, 1996). The Company is required, to the extent permitted by loan
agreements or indentures to which the Company is then a party, the
obligations of which are senior in priority to the Cumulative Convertible
Exchangeable Preferred Stock, to redeem the Cumulative Convertible
Exchangeable Preferred Stock at a price of $25.00 per share plus accrued and
unpaid dividends on December 15, 2005.
The Cumulative Convertible Exchangeable Preferred Stock is exchangeable
in whole, but not in part, at the option of the Company, for the Company's
7.75% Junior Subordinated Convertible Exchange Debentures (the "Exchange
Debentures") on any dividend payment date beginning on December 15, 1995 at
the rate of $25.00 principal amount of Exchange Debentures for each share of
Cumulative Convertible Exchangeable Preferred Stock outstanding at the time
of the exchange. The Company may only effect such exchange if accrued and
unpaid dividends on the Cumulative Convertible Exchangeable Preferred Stock
have been paid in full.
In January 1997, the Company authorized 400,000 shares of its 12-3/4%
Cumulative Exchangeable Preferred Stock (the "New Preferred Stock"), par
value $.01 per share. In connection with the Company's acquisition of
WXON-TV, 150,000 shares of the New Preferred Stock were issued in January
1997 at a price of $1,000 per share. Holders of the New Preferred Stock are
entitled to receive dividends at an annual rate of 12-3/4% per share payable
semi-annually on April 1 and October 1 of each year. The Third Amended and
Restated Credit Agreement currently prohibits the payment of cash dividends
on the New Preferred Stock. The Company may elect to pay dividends prior to
April 1, 2002 in additional shares of New Preferred Stock. Dividends on the
New Preferred Stock are cumulative and accrue without interest, if unpaid.
The New Preferred Stock is entitled to a preference of $1,000 per share
initially, plus accumulated and unpaid dividends in the event of liquidation
or winding up of the Company. The Company is required, subject to certain
conditions, to redeem all of the New Preferred Stock outstanding on April 1,
2009, at a redemption price equal to 100% of the then effective liquidation
preference thereof, plus, without duplication, accumulated and unpaid
dividends to the date of redemption.
Subject to certain conditions, each share of the New Preferred Stock is
exchangeable, in whole or in part, at the option of the Company, for the
Company's 12-3/4% Exchange Debentures (the "New Exchange Debentures") on any
scheduled dividend payment date at the rate of $1,000 principal amount of New
Exchange Debentures for each share of New Preferred Stock outstanding at the
time of the exchange.
NOTE 9--STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
The Company has a stock option plan (the "Stock Option Plan") for
officers, directors and certain key employees. On July 25, 1995, the Stock
Option Plan was amended to increase the shares of Common Stock (Nonvoting)
subject to options available for grant to 2,000,000 from 800,000. Options may
be granted under the Stock Option Plan at an exercise price (for
tax-qualified incentive stock options) of not less than 100% of the fair
market value of the Common Stock (Nonvoting) on the date the option is
granted, or 110% of such fair market value for option recipients who hold 10%
or more of the Company's voting stock. The exercise price for non-
-20-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCKHOLDERS' EQUITY--(Continued)
qualified stock options may be less than, equal to or greater than the fair
market value of the Common Stock (Nonvoting) on the date the option is
granted. Options are normally exercisable at a rate of 20% per year beginning
on the date of grant (or the next preceding January 1) and expire ten years
after the date of grant, except for incentive stock options granted to
recipients who also own 10% or more of the Company's voting stock. At
December 31, 1994, 1995 and 1996, 204,700, 467,850 and 521,000, respectively,
options were exercisable.
On March 1, 1994, the Company adopted a Director Stock Option Plan (the
"Director Option Plan") providing for the grant, from time to time, of
non-qualified stock options to non-employee directors of the Company to
purchase an aggregate of 300,000 shares of Common Stock (Nonvoting). As of
December 31, 1995 and 1996, options granted under the Director Option Plan
were outstanding for the purchase of 101,700 and 97,200 shares of Common
Stock (Nonvoting), respectively. Under the Director Option Plan as amended in
1995, at the end of the current triennial option period and each third
anniversary thereafter all directors will automatically receive an option to
purchase 18,000 shares of Common Stock (Nonvoting) ("Automatic Director
Service Awards") as compensation for attendance at each regular quarterly
meeting ("Regular Quarterly Meeting") during the triennial option period
subsequent to the grant in lieu of cash compensation. In addition, under the
Director Option Plan, directors receive options ("Automatic Committee
Awards") for service on certain of the committees of the Board of Directors
(each a "Committee"). Options become exercisable one year (or immediately in
the case of Automatic Director Service Awards, or Automatic Committee Awards
granted after February 27, 1997) from the date of attendance by a director at
a Regular Quarterly Meeting or a Committee meeting, as applicable.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123"). Accordingly, no compensation expense has been
recognized for the stock option plans. For purposes of FAS 123 pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period, therefore, the impact on pro forma net loss
in 1995 and 1996 may not be representative of the impact in future years. The
Company's pro forma information for years ended December 31, follows:
<TABLE>
<CAPTION>
1995 1996
---------- ------------
<S> <C> <C>
Pro forma net loss...................................................................... $ 969,498 $ 9,473,649
Pro forma loss per share:
Primary................................................................................ $ (0.76) $ (1.51)
Fully diluted.......................................................................... $ (0.76) $ (1.51)
</TABLE>
The fair value for each option grant was estimated at the date of grant
using a binomial option pricing model with the following weighted-average
assumptions for the various grants made during 1995 and 1996: risk-free
interest rate of 5.77% and 5.92%; no dividend yield; expected volatility of
25%; and expected lives of two to three years.
The binomial option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
The Company's employee stock options have characteristics significantly
different from those of traded options and changes in the subjective input
assumptions can materially affect the fair value estimate.
-21-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--STOCKHOLDERS' EQUITY--(Continued)
<TABLE>
<CAPTION>
1995 1996
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
------------------------- -------------------------
<S> <C> <C> <C> <C>
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
---------- ------------- ---------- -------------
Outstanding at beginning of year.......................... 714,850 $ 4.05 1,048,950 $ 5.22
Granted................................................... 348,400 7.57 1,029,000 14.19
Exercised................................................. (7,400) 4.25 (200,750) 4.44
Forfeited................................................. (6,900) 4.87 (4,500) 7.10
---------- ----------
Outstanding at end of year................................ 1,048,950 5.22 1,872,700 10.22
---------- ----------
---------- ----------
Exercisable at end of year................................ 480,350 4.24 573,200 5.27
Weighted-average fair value of options granted during the
year.................................................... $ 1.86 $ 3.01
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ -------------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE OUTSTANDING EXERCISE
PRICES @ 12/31/96 CONTRACTUAL LIFE PRICE @ 12/31/96 PRICE
-------------- ----------- ----------------- ---------------- ------------------- ----------------
<S> <C> <S> <C> <C> <C>
$ 3--$7 800,500 7 Years $ 5.07 529,600 $ 4.71
$ 11.25--$16 1,072,200 4.7 Years $ 14.07 43,600 $ 12.80
--------- ----------
1,872,700 573,200
</TABLE>
MANAGEMENT STOCK PLAN
In April 1993, the Company adopted a Management Stock Plan providing for
the grant from time to time of awards denominated in shares of Common Stock
(Nonvoting) (the "Bonus Shares") to salaried executive employees of the
Company. The Company has set aside a reserve of 750,000 shares of Common
Stock (Nonvoting) for grant under the Management Stock Plan. Shares granted
generally vest over a five year period. As of December 31, 1996, the Company
has allocated a total of 610,875 Bonus Shares pursuant to the Management
Stock Plan, 310,175 of which had vested through December 31, 1996. For the
years ended December 31, 1994, 1995 and 1996, 84,100, 92,100 and 99,975
shares were granted pursuant to the Management Stock Plan. The
weighted-average grant-date fair value of those shares is $3.85, $4.43 and
$5.42, respectively.
The total number of common shares outstanding at December 31, 1996
assuming conversion of all outstanding convertible preferred stock and
exercise of all outstanding stock options is as follows:
<TABLE>
<S> <C>
Class A Common Stock............................................ 178,500
Common Stock (Nonvoting)........................................ 8,499,716
Conversion of Cumulative Convertible
Exchangeable Preferred Stock.................................... 9,097,500
---------
Stock option plans.............................................. 1,872,700
---------
---------
19,648,416
</TABLE>
22
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES
The Company files a consolidated federal income tax return for its
entities with the exception of the subsidiary that holds the investment in
WKBW-TV. For all periods presented, the Company provides for income taxes as
required under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, the
Company records income taxes using a liability approach for financial
accounting and reporting which results in the recognition and measurement of
deferred tax assets based on the likelihood of realization of tax benefits in
future years.
The provision for income taxes for the years ended December 31 consists
of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Current taxes:
Federal............................................................. $ 100,000 $ -- $ --
State............................................................... 416,125 264,000 375,000
----------- ---------- ----------
516,125 264,000 375,000
Deferred taxes:
Federal............................................................. (101,000) 154,400 285,700
State............................................................... 35,000 136,484 100,300
----------- ---------- ----------
(66,000) 290,884 386,000
----------- ---------- ----------
Provision for income taxes........................................... $ 450,125 $ 554,884 $ 761,000
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The provision for income taxes for the years ended December 31, 1995 and
1996 is comprised of a non-cash provision for income taxes, relating to
WKBW-TV of $1,100,000 and $975,000, respectively, partially offset by the
deferred tax benefit recorded on companies included in the Granite
Broadcasting Corporation U.S. consolidated income tax return. Also included
are the provisions for state and local taxes.
During 1995, the Company utilized approximately $2,800,000 of net
operating loss carryforwards relating to WKBW-TV to eliminate its income tax
liability. This tax benefit of approximately $1,100,000 reduced goodwill. The
Company has remaining net operating loss carryforwards relating to WKBW-TV of
approximately $19,000,000, which expire no sooner than December 31, 2004. The
net operating loss carryforwards are restricted to offsetting future years'
U.S. federal income tax liabilities of that subsidiary. If realized, the
benefit will be used to further reduce goodwill.
The provision for income taxes for the year ended December 31, 1994
includes a provision for federal alternative minimum tax and state and local
taxes.
-23-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES--(Continued)
Deferred income taxes reflect the tax effects of 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 deferred tax asset and liability as of December 31 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
Deferred tax liability from excess carrying value of non-
goodwill intangible assets over tax basis.................... $ 31,245,043 $ 39,648,565
Deferred tax assets:
Net operating loss carryforward................................ 15,168,786 24,293,786
Other.......................................................... 400,134 304,862
------------- -------------
Total deferred tax assets...................................... 15,568,920 24,598,648
Valuation allowance............................................ (6,542,673) (7,554,878)
------------- -------------
Net deferred tax assets........................................ 9,026,247 17,043,770
------------- -------------
Net deferred tax liability..................................... $ 22,218,796 $ 22,604,795
------------- -------------
------------- -------------
</TABLE>
The difference between the U.S. federal statutory tax rate and the
Company's effective tax rate for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S. statutory rate....................................................................... 35.0% (35.0%) (35.0%)
Nondeductible amortization................................................................ 7.4 201.4 22.2
State and local taxes..................................................................... 10.0 160.8 9.3
Alternative minimum tax................................................................... 2.9 -- --
Increase (decrease) in valuation allowance................................................ (42.4) (84.1) 18.3
--- --------- ---------
Effective tax rate........................................................................ 12.9% 243.1% 14.8%
--- --------- ---------
--- --------- ---------
</TABLE>
At December 31, 1996, the Company had a net operating loss carryforward
for federal tax purposes of approximately $49,000,000 which will expire no
sooner than December 31, 2004. The future utilization of the net operating
losses may be subject to limitation under Section 382 of the Internal Revenue
Code. This possible limitation has been reflected in the valuation allowance.
The Company has provided a valuation allowance against a portion of the net
deferred tax asset as the past history of the Company makes realization of
taxable income uncertain. During 1994, 1995 and 1996, the change in valuation
allowance relates to the utilization of or increase in net operating loss
carryforwards.
-24-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--DEFINED CONTRIBUTION PLAN
The Company has a trusteed profit sharing and savings plan (the "Plan")
covering substantially all of its employees. Contributions by the Company to
the Plan are based on a percentage of the amount of employee contributions to
the Plan and are made at the discretion of the Board of Directors. Company
contributions, which are funded quarterly, amounted to $237,000, $499,000 and
$642,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
NOTE 12--RELATED PARTY
The Company paid a company, as to which a director of Granite was the
Chairman and Chief Executive Officer until August 19, 1994, $518,257 for the
year ended December 31, 1994, relating to services rendered as the exclusive
representative and sales agent for three of the stations' national
broadcasting revenue.
In 1995, the Company lent two of its officers an aggregate of $570,000 to
pay certain personal taxes. The terms of the loans provide for an annual
interest rate of 9% payable semi-annually on December 29 and June 29 of each
year, with all principal and remaining interest due on December 29, 2004.
In 1996, the Company lent one of its officers $886,875 to pay the
exercise price incurred in connection with exercising options and $409,000 to
pay related personal income taxes. The loans are term loans which provide for
an annual interest rate of 8%, payable annually on April 23 and December 31,
respectively, of each year, with all principal and remaining interest due on
April 23 and December 31, 2001, respectively. The amount of the loan made in
connection with exercising options is shown in the balance sheet at December
31, 1996 as a reduction to stockholders' equity.
NOTE 13--PRICE RANGE OF COMMON STOCK (NONVOTING) AND CUMULATIVE CONVERTIBLE
EXCHANGEABLE PREFERRED STOCK (UNAUDITED)
The Company's Common Stock (Nonvoting) is traded in the over-the-counter
market and is quoted on the Nasdaq National Market under the symbol "GBTVK".
The following table sets forth the market price ranges per share of Common
Stock (Nonvoting) during 1995 and 1996, as reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter............................................................. $ 7-3/8 $ 6-1/8
Second Quarter............................................................ 8-3/8 6-3/4
Third Quarter............................................................. 13-1/4 7-1/2
Fourth Quarter............................................................ 11-3/4 8-5/8
1996
First Quarter............................................................. $ 12-1/8 $ 9-1/4
Second Quarter............................................................ 13-1/2 11-1/4
Third Quarter............................................................. 15 11-1/2
Fourth Quarter............................................................ 14 9-7/8
</TABLE>
-25-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--PRICE RANGE OF COMMON STOCK (NONVOTING) AND CUMULATIVE CONVERTIBLE
EXCHANGEABLE PREFERRED STOCK (UNAUDITED)--(Continued)
As of March 3, 1997, the closing price per share for the Company's Common
Stock (Nonvoting), as reported by Nasdaq was $9-5/8 per share.
The Cumulative Convertible Exchangeable Preferred Stock is traded
over-the-counter and is quoted on the Nasdaq National Market under the symbol
"GBTVP". The following table sets forth the market price ranges per share of
Cumulative Convertible Exchangeable Preferred Stock during 1995 and 1996, as
reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter............................................................ $ 40-3/8 $ 34
Second Quarter........................................................... 45 38-1/4
Third Quarter............................................................ 67-1/2 43-1/2
Fourth Quarter........................................................... 58-3/8 48
1996
First Quarter............................................................ $ 61-7/8 $ 48-1/8
Second Quarter........................................................... 68-5/8 60
Third Quarter............................................................ 75-1/2 60
Fourth Quarter........................................................... 75-1/2 50
</TABLE>
As of March 3, 1997, the closing price for the Company's Cumulative
Convertible Exchangeable Preferred Stock, as reported by Nasdaq, was $50-5/8
per share.
-26-
<PAGE>
SCHEDULE II
GRANITE BROADCASTING CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ACQUIRED
BALANCE AT ALLOWANCE FOR AMOUNT CHARGED AMOUNT BALANCE
ALLOWANCE FOR BEGINNING DOUBTFUL TO COSTS WRITTEN AT END
DOUBTFUL ACCOUNTS OF YEAR ACCOUNTS AND EXPENSES OFF1 OF YEAR
- ----------------------------------------- ---------- ---------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1994..... $ 227,365 $ -- $ 347,382 $ 318,920 $ 255,827
For the year ended December 31, 1995..... 255,827 229,171 402,619 381,858 505,759
For the year ended December 31, 1996..... 505,759 -- 212,665 326,514 391,910
</TABLE>
- ------------------------
(1) Net of recoveries.
-27-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)1 Financial Statements
GRANITE BROADCASTING CORPORATION
Report of Independent Auditors
Consolidated Statements of Operations for the Years
Ended December 31, 1994, 1995 and 1996
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
(a)2 Financial Statement Schedule
Schedule II--Granite Broadcasting Corporation:
Valuation and Qualifying Accounts
(a)3 Exhibits
1.1 Purchase Agreement, dated January 27, 1997, among Granite
Broadcasting Corporation and the Purchasers named therein.
3.1(g) Third Amended and Restated Certificate of Incorporation of the
Company, as amended.
3.2(g) Amended and Restated Bylaws of the Company, as amended.
3.3 Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of the Company's
12 3/4%, Cumulative Exchangeable Preferred Stock and Qualifications,
Limitations and Restrictions Thereof.
4.27(2) Indenture dated as of September 1, 1992 between Granite Broadcasting
Corporation and The United States Trust Company of New York, as
Trustee, relating to the Company's $60,000,000 Principal Amount
12.75% Senior Subordinated Debentures due September 1, 2002.
4.28(2) Form of 12.75% Senior Subordinated Debenture due September 1, 2002.
4.30(3) Form of Indenture relating to the Company's Junior Subordinated
Convertible Debentures issuable upon the exchange of the Company's
Cumulative Convertible Exchangeable Preferred Stock.
4.31(3) Form of Junior Subordinated Convertible Debenture.
-28-
<PAGE>
4.35(i) Third Amended and Restated Credit Agreement, dated as of September 4,
1996, among Granite Broadcasting Corporation, the Lenders named
therein, Bankers Trust Company, as Agent, and The Bank of New York,
First Union National Bank of North Carolina, Goldman Sachs Credit
Partners L.P. and Union Bank of California, as Co-Agents.
4.37(4) Indenture, dated as of May 19, 1995, between Granite Broadcasting
Corporation and United States Trust Company of New York for the
Company's $175,000,000 Principal Amount 10 3/8% Senior Subordinated
Notes due May 15, 2005.
4.38(5) Form of 10 3/8% Senior Subordinated Note due May 15, 2005.
4.39(g) Exchange and Registration Rights Agreement, dated as of February 22,
1996, by and between Granite Broadcasting Corporation and Goldman
Sachs & Co., BT Securities Corporation and Lazard Freres & Co. LLC.
4.41(g) Indenture, dated as of February 22, 1996, between Granite Broadcasting
Corporation and The Bank of New York relating to the Company's
$110,000,000 Principal Amount 9 3/8% Series A Senior Subordinated
Notes due December 1, 2005.
4.42(g) Form of 9 3/8% Series A Senior Subordinated Note due December 1, 2005.
4.43 Exchange and Registration Rights Agreement, dated as of January 31,
1997, by and between Granite Broadcasting Corporation and Goldman,
Sachs & Co., BT Securities Corporation, Lazard Freres & Co. LLC and
Salomon Brothers Inc.
4.44 Indenture, dated as of January 31, 1997, between Granite Broadcasting
Corporation and The Bank of New York for the Company's 12 3/4% Series
A Exchange Debentures and 12 3/4 Exchange Debentures due April
1, 2009.
4.45 Form of 12 3/4% Exchange Debenture due April 1, 2009 (included in the
Exhibit 4.4 Indenture filed herewith).
10.1(h) Granite Broadcasting Corporation Stock Option Plan, as amended on July
24, 1996.
10.2(1) Target Cash Flow Option Plan and Agreement dated as of October 31,
1988 among Granite Broadcasting Corporation, W. Don Cornwell and
Stuart J. Beck.
10.9(5) Network Affiliation Agreement (KBJR-TV).
10.10(5) Network Affiliation Agreement (WEEK-TV).
10.11(g) Network Affiliation Agreement (KNTV(TV)).
10.12(g) Network Affiliation Agreement (WPTA-TV).
10.13(1) Employment Agreement dated as of September 20, 1991 between Granite
Broadcasting Corporation and W. Don Cornwell.
10.14(1) Employment Agreement dated as of September 20, 1991 between Granite
Broadcasting Corporation and Stuart J. Beck.
10.15(h) Granite Broadcasting Corporation Management Stock Plan, as amended
July 24, 1996.
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<PAGE>
10.16(a) Purchase and Sale Agreement between the Company and Meredith
Corporation, dated June 15, 1993.
10.17(b) Letter Agreement between the Company and the Sellers (as defined
therein) to acquire certain securities of Queen City III Limited
Partnership dated as of October 20, 1993.
10.18(3) Letter Agreement, dated December 7, 1993, between Granite and
Meredith Corporation, amending the Purchase and Sale Agreement dated
June 15, 1993.
10.19 Granite Broadcasting Corporation Director Stock Option Plan, as
amended on February 25, 1997.
10.20(4) Network Affiliation Agreement (WTVH-TV).
10.21(5) Network Affiliation Agreement (KSEE-TV).
10.22(c) Purchase and Sale Agreement among Granite Broadcasting Corporation,
Austin Television, a Texas general partnership, Cannan
Communications, Inc. and Beard Management, Inc. dated as of
October 2, 1994.
10.23(d) Purchase and Sale Agreement, dated as of February 20, 1995, among
Granite Broadcasting Corporation, Busse Broadcasting Corporation and
WWMT, Inc.
10.24(4) Network Affiliation Agreement (KEYE-TV).
10.25(d) Granite Broadcasting Corporation Employee Stock Purchase Plan, dated
February 28, 1995.
10.26(4) Network Affiliation Agreement (WWMT).
10.27(e) Purchase Agreement, dated May 15, 1995, among Granite Broadcasting
Corporation, Queen City III Limited Partnership, Queen City
Broadcasting of New York, Inc. and the General Partners of Queen City
III Limited Partnership.
10.28(f) Network Affiliation Agreement (WKBW).
10.29(j) Purchase and Sale Agreement, dated as of December 2, 1996, by and
between Granite Broadcasting Corporation and WXON-TV, Inc.
10.30 Employment Agreement dated as of September 19, 1996 between Granite
Broadcasting Corporation and Robert E. Selwyn, Jr.
11.(k) Statement of Computation of Per Share Earnings.
21. Subsidiaries of the Company.
23. Consent of Independent Auditors (Ernst & Young LLP).
27. Financial Data Schedule.
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<PAGE>
- ---------------------------
(1) Incorporated by reference to the similarly numbered exhibits to the
Company's Registration Statement No. 33-43770 filed on November
5, 1991.
(2) Incorporated by reference to the similarly numbered exhibits to the
Company's Registration Statement No. 33-52988 filed on October 6,
1992.
(3) Incorporated by reference to the similarly numbered exhibits to
Amendment No. 2 to Registration Statement No. 33-71172 filed December
16, 1993.
(4) Incorporated by reference to the similarly numbered exhibits to the
Company's Registration Statement No. 33-94862 filed on July 21, 1995.
(5) Incorporated by reference to the similarly numbered exhibits to
Amendment No. 2 to Registration Statement No. 33-94862 filed on
October 6, 1995.
(a) Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K, filed on June 25, 1993.
(b) Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, Commission File No. 0-19728, filed on November
15, 1993.
(c) Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, Commission File No. 0-19728, filed on November
14, 1994.
(d) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, filed on March 29, 1995.
(e) Incorporated by reference to Exhibit Number 3 to the Company's
Report on Form 8-K, filed on May 19, 1995.
(f) Incorporated by reference to the similarly numbered exhibit to the
Company's Report on Form 8-K filed on July 14, 1995.
(g) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed on March 28, 1996.
(h) Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996, as filed on August 13, 1996.
(i) Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, filed on November 14, 1996.
(j) Incorporated by reference to Exhibit Number 1 to the Company's
Current Report on Form 8-K, filed on December 17, 1996.
(k) Incorporated by reference to the similarly numbered exhibit to the
Company's Amendment No. 2 to the Registration Statement on Form S-4
(Registration No. 333-24907) filed on June 24, 1997.
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<PAGE>
(b) Reports on Form 8-K.
1. Current Report on Form 8-K filed December 17, 1996, reporting a
definitive agreement entered into by and between Granite
Broadcasting Corporation and WXON-TV, Inc., a Michigan corporation,
whereby Granite Broadcasting Corporation would acquire WXON-TV, the
WB Network affiliated station serving Detroit, Michigan, for
approximately $175 million in cash. No financial statements were
filed at such time.
2. Current Report on Form 8-K filed January 15, 1997, reporting the
announcement by Granite Broadcasting Corporation of its intention to
commence a private offering of securities to raise funds to
consummate the acquisition of WXON-TV. No financial statements
were filed at such time.
3. Current Report on Form 8-K filed February 7, 1997, announcing the
completion of the acquisition by Granite Broadcasting Corporation of
substantially all of the assets used in the operation of WXON-TV.
Pro Forma Condensed Consolidated Financial Statements (unaudited)
were filed on such date.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on the 27th day of June, 1997.
GRANITE BROADCASTING CORPORATION
BY: /s/ W. DON CORNWELL
-----------------------------------------
W. Don Cornwell
Chief Executive Officr and Chairman
of the Board of Directors
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:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer
/s/ W. DON CORNWELL (Principal Executive
- ------------------------------ Officer) and Chairman of June 27, 1997
(W. Don Cornwell) the Board of Directors
/s/ STUART J. BECK President, Secretary
- ------------------------------ (Principal Financial June 27, 1997
(Stuart J. Beck) Officer) and Director
/s/ LAWRENCE I. WILLS Vice President--Finance and
- ------------------------------ Controller (Principal June 27, 1997
(Lawrence I. Wills) Accounting Officer)
/s/ MARTIN F. BECK Director
- ------------------------------ June 27, 1997
(Martin F. Beck)
/s/ JAMES L. GREENWALD Director
- ------------------------------ June 27, 1997
(James L. Greenwald)
/s/ VICKEE JORDAN ADAMS Director
- ------------------------------ June 27, 1997
(Vickee Jordan Adams)
/s/ EDWARD DUGGER III Director
- ------------------------------ June 27, 1997
(Edward Dugger III)
Director
- ------------------------------
(Thomas R. Settle)
/s/ CHARLES J. HAMILTON, JR. Director
- ------------------------------ June 27, 1997
Charles J. Hamilton, Jr.
/s/ MIKAEL SALOVAARA Director
- ------------------------------ June 27, 1997
(Mikael Salovaara)
<PAGE>
Exhibit 23
Consent Of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-91056) pertaining to the Employee Stock
Purchase Plans of Granite Broadcasting Corporation of our report dated
January 24, 1997, with respect to the consolidated financial statements
and the financial statement schedule of Granite Broadcasting Corporation
included in its Form 10-K/A for the year ended December 31, 1996, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
------------------
New York, New York
June 26, 1997
