<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 0-19728
GRANITE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3458782
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
767 Third Avenue
34th Floor
New York, New York 10017
Telephone number: (212) 826-2530
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
---- ----
(APPLICABLE ONLY TO CORPORATE ISSUERS:)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class A Voting Common Stock, par value $.01 per share - 178,500 shares
outstanding at August 14, 2000; Common Stock (Nonvoting), par value $.01 per
share - 18,259,646 shares outstanding at August 14, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------ ---------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,587,096 $ 5,453,542
Accounts receivable, net 32,274,645 33,017,344
Film contract rights 10,439,720 17,510,909
Other assets 11,070,811 10,399,749
---------------- ----------------
Total current assets 55,372,272 66,381,544
Property and equipment, net 42,546,478 39,176,169
Film contract rights and other noncurrent assets 23,045,243 14,267,912
Deferred financing fees, net 5,670,624 8,209,537
Intangible assets, net 589,045,009 602,555,693
---------------- ----------------
$ 715,679,626 $ 730,590,855
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,166,698 $ 3,120,875
Income taxes payable 2,550,680 3,912,027
Accrued interest 2,716,837 3,487,384
Other accrued liabilities 4,808,311 3,867,448
Film contract rights 18,817,240 22,049,869
Other current liabilities 6,740,227 6,473,693
---------------- ----------------
Total current liabilities 37,799,993 42,911,296
Long-term debt 299,372,776 303,874,304
Film contract rights payable 11,927,646 18,000,393
Deferred tax liability 84,146,636 84,117,915
Other noncurrent liabilities 19,504,181 20,894,010
Cumulative Exchangeable Preferred Stock, net of offering costs 224,689,137 210,708,780
Stockholders' equity:
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 Class A Common Stock
and 18,259,646 shares of Common Stock (Nonvoting) (17,964,081
shares at December 31,1999) issued and outstanding 184,381 181,425
Additional paid-in capital 15,083,926 17,909,802
Retained earnings 25,670,159 35,123,239
Less: Unearned compensation (1,515,334) (1,946,434)
Treasury stock (297,000) (297,000)
Note receivable from officer (886,875) (886,875)
---------------- ----------------
Total stockholders' equity 38,239,257 50,084,157
---------------- ----------------
$ 715,679,626 $ 730,590,855
================= ==================
</TABLE>
See accompanying notes.
-1-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ -------------------------------------
2000 1999 2000 1999
------------------ ----------------- ------------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 37,575,779 40,925,410 $ 70,915,059 $74,800,227
Station operating expenses 24,354,250 22,633,953 49,753,117 45,158,937
Depreciation expense 1,429,319 1,412,958 2,807,281 2,800,215
Amortization expense 6,890,027 6,434,383 13,772,447 12,842,898
Corporate expense 2,408,547 2,734,886 5,483,116 4,707,024
Non-cash compensation expense 215,550 259,610 431,100 523,708
------------------- ------------------ ----------------- ------------------
Operating income (loss) 2,278,086 7,449,620 (1,332,002) 8,767,445
Other expenses:
Interest expense, net 7,116,291 10,000,997 14,427,578 19,998,773
Non-cash interest expense 759,324 753,239 1,498,799 1,460,466
Gain from insurance settlement (1,247,105) (2,655,408) (1,247,105) (2,655,408)
Other 493,623 327,064 827,984 804,307
------------------- ------------------ ----------------- ------------------
Loss before income taxes and extraordinary item (4,844,047) (976,272) (16,839,258) (10,840,693)
Benefit for income taxes (492,054) (23,990) (3,675,974) (3,464,990)
------------------- ------------------ ----------------- ------------------
Loss before extraordinary item (4,351,993) (952,282) (13,163,284) (7,375,703)
Extraordinary gain on early extinguishment
of debt, net of tax 1,926,736 --- 3,710,204 ---
------------------ ------------------ ----------------- ------------------
Net loss $(2,425,257) $ (952,282) $ (9,453,080) $(7,375,703)
=================== ================== ================= ==================
Net loss attributable to common shareholders $(9,627,500) $ (7,924,234) $(23,433,439) $(20,945,944)
=================== ================== ================= ==================
Per common share:
Basic and diluted loss before extraordinary item $ (0.62) $ (0.66) $ (1.48) $ (1.75)
Basic and diluted extraordinary loss 0.10 --- 0.20 ---
=================== ================== ================= ==================
Basic and diluted net loss $ (0.52) $ (0.66) $ (1.28) $ (1.75)
=================== ================== ================= ==================
Basic and diluted weighted average common shares
outstanding 18,438,062 11,997,847 18,369,962 11,944,296
=================== ================== ================= ==================
</TABLE>
See accompanying notes.
-2-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Class A Common Additional
Common Stock Paid-in Retained Unearned Note Receivable Treasury
Stock (Nonvoting) Capital Earnings Compensation from Officer Stock
------ ----------- ------- --------- ------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $1,785 $179,640 $17,909,802 $35,123,239 $(1,946,434) $(886,875) $(297,000)
Dividends on Cumulative
Exchangable Preferred Stock (13,730,285)
Accretion of offering costs
related to Cumulative
Exchangeable Preferred Stock (250,074)
Exercise of stock options 2,303 (971,461)
Issuance of Common Stock
(Nonvoting) 653 (653)
Stock expense related to
stock plans (23,243) 431,100
Issuance of Warrants 12,149,840
Net loss (9,453,080)
------ -------- ----------- ----------- ----------- --------- ---------
Balance at June 30, 2000 $1,785 $182,596 $15,083,926 $25,670,159 $(1,515,334) $(886,875) $(297,000)
====== ======== =========== =========== =========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
Balance at December 31, 1999 $50,084,157
Dividends on Cumulative
Exchangable Preferred Stock (13,730,285)
Accretion of offering costs
related to Cumulative
Exchangeable Preferred Stock (250,074)
Exercise of stock options (969,158)
Issuance of Common Stock
(Nonvoting) --
Stock expense related to
stock plans 407,857
Issuance of Warrants 12,149,840
Net loss (9,453,080)
----------
Balance at June 30, 2000 $38,239,257
===========
</TABLE>
See accompanying notes.
-3-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
---------- ----------
Cash flows from operating activities: (Unaudited)
<S> <C> <C>
Net loss $ (9,453,080) $ (7,375,703)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of intangible assets 13,772,447 12,842,898
Depreciation 2,807,281 2,800,215
Non-cash compensation expense 431,100 523,708
Non-cash interest expense 1,498,799 1,460,466
Equity in net loss of investee --- 133,603
Deferred tax expense (benefit) 28,722 (3,614,942)
Gain from insurance proceeds (1,247,105) (2,655,408)
Extraordinary gain (6,183,674) ---
Change in assets and liabilities:
Decrease (increase) in accounts receivable, net 742,699 (1,769,175)
(Decrease) increase in accounts payable and accrued liabilities (1,881,455) 107,948
Decrease in film contract rights and other non current assets 10,615,831 6,045,726
Decrease in film contract rights and other current liabilities (9,506,617) (7,025,860)
Decrease in other noncurrent liabilities (181,291) (1,099,762)
Increase in other assets (2,194,212) (3,551,759)
--------------- ----------------
Net cash used in operating activities (750,555) (3,178,045)
Cash flows from investing activities:
Insurance proceeds received 1,327,572 5,868,363
WB affiliation payment (1,512,225) (709,908)
Investments (258,041) (133,603)
Capital expenditures (6,072,783) (5,958,642)
--------------- ----------------
Net cash used in investing activities (6,515,477) (933,790)
Cash flows from financing activities:
Proceeds from bank borrowings 95,000,000 20,500,000
Repayment of bank debt (10,327,572) (13,000,000)
Retirement of senior subordinated notes (81,019,763) ---
Dividends paid --- (1,188,112)
Payment of deferred financing fees (249,998) (503,965)
Other financing activities (3,081) 49,506
--------------- ----------------
Net cash provided by financing activities 3,399,586 5,857,429
--------------- ----------------
Net (decrease) increase in cash and cash equivalents (3,866,446) 1,745,594
Cash and cash equivalents, beginning of period 5,453,542 762,392
--------------- ----------------
Cash and cash equivalents, end of period $ 1,587,096 $ 2,507,986
=============== ================
Supplemental information:
Cash paid for interest $ 15,457,000 $ 20,061,000
Income taxes paid 134,000 1,659,000
Non-cash capital expenditures 105,000 46,000
Non-cash dividend 13,730,000 11,759,000
Value of warrants issued 12,150,000 ---
</TABLE>
See accompanying notes.
-4-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Granite Broadcasting Corporation and its subsidiaries (the
"Company"), have been prepared in accordance with the instructions to Form 10-Q
and do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. Operating results for the three and six month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information, refer to the Company's
consolidated financial statements and notes thereto for the year ended December
31, 1999 which were included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999. All significant intercompany accounts and
transactions have been eliminated. Data at and for the year ended December 31,
1999 are derived from the Company's audited consolidated financial statements.
In the opinion of management, all adjustments of a normal recurring nature,
which are necessary for a fair presentation of the results for the interim
periods have been made.
NOTE 2 - LONG TERM DEBT
In 2000, the Company repurchased $53,535,000 face amount of its 8 7/8% Senior
Subordinated Notes due May 15, 2008 (the "8 7/8% Notes"); $4,100,000 face amount
of its 9 3/8% Senior Subordinated Notes due December 1, 2005 (the "9 3/8%
Notes"); and $31,703,000 face amount of its 10 3/8% Senior Subordinated Notes
due May 15, 2005 (the "10 3/8% Notes"). As a result of the aforementioned
repurchases, the Company incurred an extraordinary gain after the write-off of
related deferred financing fees, net of tax, of approximately $3,710,000
NOTE 3 - RECENT DEVELOPMENTS
In July 1999, the Company and the American Broadcasting Companies, Inc.
("ABC") agreed to terminate the ABC affiliation for KNTV, effective July 1,
2000. The Company received $14,000,000 in cash on September 1, 1999 in
accordance with the agreements. As of May 31, 2000, the Company signed
definitive agreement forming a strategic alliance (the "Strategic Alliance")
with the National Broadcasting Company, Inc. ("NBC"). Pursuant to the
Strategic Alliance, KNTV will become the NBC affiliate in the San
Francisco-Oakland-San Jose California television market for a ten-year term
commencing on January 1, 2002 (the "San Francisco Affiliation"). The Company
also extended the affiliation agreements of its three existing NBC affiliated
stations, KSEE-TV, serving Fresno-Visalia, California; WEEK-TV, serving
Peoria-Bloomington, Illinois and KBJR-TV, serving Duluth, Minnesota-Superior,
Wisconsin until December 31, 2011. As part of such extension, NBC shall pay
the Company a total of $2,430,000 in affiliate compensation in equal
semi-annual installments, through December 31, 2001, at which time the
affiliation payments terminate. The Company has received permission from the
FCC to increase KNTV's signal coverage, and began broadcasting at increased
power in May 2000. The Company is also seeking to reach all cable homes in
the San Francisco-Oakland-San Jose DMA through expanded cable coverage.
-5-
<PAGE>
The Company will pay NBC $362,000,000 in nine annual installments, with the
initial payment in the amount of $61,000,000 being due January 1, 2002. In
addition, the Company has agreed to pay not less than $1,800,000 during 2001
in promotion expenses in connection with KNTV's affiliation switch to NBC.
Other terms of the agreement include a right of first refusal in favor of NBC
on the sale of KNTV, and an NBC right to purchase KNTV upon an uncured event
of default by the Company, at a value to be determined by an independent
appraiser. In addition, NBC will have the right to terminate the San
Francisco Affiliation if it elects to acquire an attributable interest in
another station in the San Francisco-Oakland-San Jose television market upon
payment to Granite of a fee of $14,500,000.
Additionally on May 31, 2000, in consideration for the San Francisco
Affiliation, the Company granted NBC a warrant to acquire 2,500,000 shares of
the Company's Common Stock (Nonvoting), par value $0.01 per share (the
"Common Stock (Nonvoting)"), at an exercise price of $12.50 per share (the "A
Warrant") and a warrant to purchase 2,000,000 shares of Common Stock
(Nonvoting) at an exercise price of $15.00 per share (the "B Warrant"). The A
Warrant vests in full on December 31, 2000 and expires on December 31, 2011.
The B Warrant vests in full on January 1, 2002, if the San Francisco
Affiliation is in effect on that date, and expires on December 31, 2011 or on
any date prior to January 1, 2007 on which the San Francisco Affiliation is
terminated. Each warrant may be exercised for cash or surrender of a portion
of a then exercisable warrant. The aggregate number of shares issuable upon
exercise of the warrants (assuming they are exercised for cash) would
represent approximately 20 percent of the Common Stock (Nonvoting)
outstanding as of June 30, 2000 after giving effect to their issuance. The
Company determined the fair value of the warrants in accordance with FASB
Statement 123, "Accounting and Disclosure of Stock Based Compensation," using
the Black Scholes model. The fair value, estimated to be $12,150,000, has
been recorded as a long-term asset and will be expensed on a straight-line
basis over the life of the 10-year affiliation beginning January 1, 2002.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain sections of this Form 10-Q contain various forward looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, which
represent the Company's expectations or beliefs concerning future events. The
forward-looking statements include, without limitation, the Company's ability to
meet its future liquidity needs and its disclosure concerning Year 2000 issues.
The Company cautions that these forward-looking statements are further qualified
by important factors that could cause actual results to differ materially from
those in the forward looking statements. Such factors include, without
limitation, general economic conditions, competition in the markets in which the
Company's stations are located, technological change and innovation in the
broadcasting industry and proposed legislation.
INTRODUCTION
The Company is a group broadcaster that operates eight network-affiliated
television stations and one independent television station. 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. The Company's operating revenues are
generally lower in the first quarter and generally higher in the fourth
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.
Comparisons of the Company's consolidated financial statements for the three
and six months ended June 30, 2000 against prior periods have been affected
by the sale of KEYE-TV, the CBS affiliate serving Austin, Texas, on August
31, 1999, and the significant investment the Company is making in local news
and syndicated programming at KNTV. It is anticipated that comparisons of the
Company's consolidated financial statements for the year ended December 31,
2000 against prior periods will also be affected by the aforementioned. Numbers
referred to in the following discussion have been rounded to the nearest
thousand.
The following table sets forth certain operating data for the three and six
months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income (loss) $ 2,278,000 $ 7,449,000 $ (1,332,000) $ 8,767,000
Add:
Depreciation and amortization 8,319,000 7,847,000 16,579,000 15,643,000
Corporate expense 2,409,000 2,735,000 5,483,000 4,707,000
Non-cash compensation 216,000 260,000 431,000 524,000
Program amortization 5,340,000 2,974,000 10,983,000 6,041,000
Program payments (5,651,000) (3,504,000) (9,624,000) (7,218,000)
----------------- ----------------- ------------ ----------------
Broadcast cash flow $ 12,911,000 $ 17,761,000 $ 22,520,000 $ 28,464,000
================= ================ ================ ================
</TABLE>
"Broadcast cash flow" is defined as operating income (loss) plus depreciation,
amortization, corporate expense, non-cash compensation and program amortization,
less program payments. The Company has included broadcast cash flow data because
such data is commonly used as a measure of performance for broadcast companies
and is 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 as reflected in the
consolidated financial statements. It 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.
-7-
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Net revenue totaled $37,576,000; a decrease of $3,349,000 or 8 percent compared
to $40,925,000 for the three months ended June 30, 1999. The decrease was
primarily due to the sale of the Austin station in August 1999, offset in part,
by increases in local and political advertising revenue.
Station operating expenses totaled $24,354,000; an increase of $1,720,000 or 8
percent compared to $22,634,000 for the three months ended June 30, 1999. The
increase was primarily due to increases in programming expense at the Company's
Warner Brothers Television Network (the "WB") affiliates and increased news
expense at KNTV, the Company's San Jose station, offset in part, by decreased
operating expenses as a result of the sale of the Austin station
Broadcast cash flow totaled $12,911,000; a decrease of $4,850,000 or 27 percent
compared to $17,761,000 for the three months ended June 30, 1999. The decrease
was primarily due to the decrease in net revenue and the increase in station
operating expenses discussed above.
Amortization expense increased $456,000 or 7 percent primarily due to additional
intangible amortization expense related to the acquisition of the San Francisco
WB affiliate, offset in part, by the lower amortization expense resulting from
the sale of the Austin station. Corporate expense decreased $326,000 or 12
percent primarily due to the earlier incurrence of certain expenses in the
second quarter of 1999.
Net interest expense decreased $2,885,000 or 29 percent during the three
months ended June 30, 2000 as compared to the same period a year earlier
primarily due to lower levels of outstanding indebtedness. The Company used
the net proceeds from the sale of the Austin station to repay $129,000,000 of
debt during the third and fourth quarters of 1999. In addition, during the
second quarter of 2000 the Company repurchased $52,948,000 face amount of its
senior subordinated notes at various discounts, further reducing its debt
outstanding. In connection with these repurchases, the Company recognized an
extraordinary gain after the write-off of related deferred financing fees,
net of tax, of $1,927,000.
The gain on insurance proceeds of $1,247,000 in 2000 and $2,655,000 in 1999
resulted from insurance proceeds received in excess of the net book value of
assets destroyed by an ice storm and fire at the Company's Duluth station.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net revenue totaled $70,915,000 a decrease of $3,885,000 or 5 percent compared
to $74,800,000 for the six months ended June 30, 1999. The decrease was
primarily due to the sale of the Austin station, offset in part, by increases in
local, national and political advertising revenue.
Station operating expenses totaled $49,753,000; an increase of $4,594,000 or 10
percent compared to $45,159,000 for the six months ended June 30, 1999. The
increase was primarily due to increases in programming expense at the WB
affiliates and increased news expense at KNTV, the Company's San Jose station,
offset in part, by decreased operating expenses as a result of the sale of the
Austin station.
Broadcast cash flow totaled $22,520,000; a decrease of $5,944,000 or 21 percent
compared to $28,464,000 for the six months ended June 30, 1999. The decrease was
primarily due to the decrease in net revenue and the increase in station
operating expenses discussed above.
Amortization expense increased $929,000 or 7 percent primarily due to additional
intangible amortization expense related to the acquisition of the San Francisco
WB affiliate, offset in part, by lower amortization expense resulting from the
sale of the Austin station. Corporate expense increased $776,000 or 16 percent
primarily due to an increase in professional fees including those costs
associated with the termination of the acquisition of the Buffalo UPN affiliate.
-8-
<PAGE>
Net interest expense decreased $5,571,000 or 28 percent during the six months
ended June 30, 2000 as compared to the same period a year earlier primarily due
to lower levels of outstanding indebtedness. The Company used the net proceeds
from the sale of the Austin station to repay $129,000,000 of debt during the
third and fourth quarters of 1999. In addition, during the first and second
quarter of 2000 the Company repurchased $89,338,000 face amount of its senior
subordinated notes at various discounts, further reducing its debt outstanding.
In connection with these repurchases, the Company recognized an extraordinary
gain after the write-off of related deferred financing fees, net of tax, of
$3,710,000.
LIQUIDITY AND CAPITAL RESOURCES
In July 1999, the Company and ABC agreed to terminate the ABC affiliation for
KNTV, effective July 1, 2000. The Company received $14,000,000 in cash on
September 1, 1999 in accordance with the agreement. As of May 31, 2000, the
Company signed definitive agreements forming a Strategic Alliance with NBC.
Pursuant to the Strategic Alliance, KNTV will become the NBC affiliate in the
San Francisco-Oakland-San Jose, California market for a ten-year term
commencing on January 1, 2002. In addition, NBC extended the term of the
Company's NBC affiliation agreements with KSEE, WEEK and KBJR until December
31, 2011. As part of such extension, NBC shall pay the Company a total of
$2,430,000 in affiliate compensation in equal semi-annual installments
through December 31, 2001 at which time the affiliation payments terminate.
In consideration for the San Francisco Affiliation, the Company will pay NBC
$362,000,000 in nine annual installments, with the initial payment in the
amount of $61,000,000 being due January 1, 2002. The Company has also agreed
to pay not less than $1,800,000 during 2001 in promotion expenses in
connection with KNTV's affiliation switch to NBC.
On June 10, 1998, the Company entered into a bank credit agreement (the
"Credit Agreement") that provided for revolving credit borrowings of
$260,000,000 and permits borrowings of up to an additional $240,000,000 on an
uncommitted basis. On August 31, 1999, the Company sold its Austin television
station for $160,000,000, the proceeds of which were used primarily to repay
outstanding debt, including borrowings then outstanding under the Credit
Agreement. As a result of this sale, the Company had Net Cash Proceeds, as
defined in the Credit Agreement, of approximately $62,000,000. Pursuant to
the terms of the Credit Agreement, the Company was required to reduce the
revolving credit commitment by the amount of the Net Cash Proceeds.
The Credit Agreement can be used to fund future acquisitions of broadcast
stations and for general working capital purposes, subject to certain
limitations of the financial covenants thereunder. As of February 16 and
March 17, 2000, the Company amended the Credit Agreement to revise the
maximum consolidated total debt to consolidated cash flow maintenance ratio
covenant (the "Covenant") contained therein. The Company anticipates that it
will not be in compliance with the Covenant at September 30, 2000. The
Company expects to enter into a new credit agreement by September 30, 2000,
which will enable the Company to meet its short-term and long-term borrowing
needs. If the new credit agreement is not completed prior to such date, the
Company will seek to amend the Credit Agreement to be in compliance with the
Covenant.
Cash flow used in operating activities was $751,000 during the six months
ended June 30, 2000 compared to cash flow used in operating activities of
$3,178,000 during the six months ended June 30, 1999, a decrease of
$2,427,000 or 76 percent. The decrease was primarily due to lower cash
interest expense and a less significant increase in net operating assets,
offset in part, by lower operating cash flow.
Cash flow used in investing activities was $6,515,000 during the six months
ended June 30, 2000 compared to $934,000 during the six months ended June 30,
1999. The increase was primarily the result of a decrease in insurance proceeds
received and an increase in WB network affiliation payments.
Cash flow provided by financing activities was $3,400,000 during the six
months ended June 30, 2000 compared to $5,857,000 during the six months ended
June 30, 1999. The decrease resulted primarily from a net reduction in
long-term debt borrowings, offset in part by a reduction in dividends paid.
The Company anticipates that future requirements for capital expenditures
will include those incurred during the ordinary course of business, which
include costs associated with the implementation of digital television
technology. The Company believes that internally generated funds from
operations and borrowings under a new credit agreement, if entered into, or
the current Credit Agreement, if an amendment is obtained, will be sufficient
to satisfy the Company's cash requirements for its existing operations for
the next twelve months and for the foreseeable future thereafter. If neither
a new credit agreement nor an amendment to the existing Credit Agreement is
obtained, the Company anticipates that it would explore other alternatives
including to sale of assets or equity.
-9-
<PAGE>
PART II
OTHER INFORMATION
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are affected by changes in short-term
interest rates as a result of its Credit Agreement. Under its
Credit Agreement, the Company pays interest at floating rates
based on Eurodollar. The Company has not entered into any
agreements to hedge such risk. Assuming the balance under the
Credit Agreement as of December 31, 1999 remains outstanding in
2000, a 2% increase in Eurodollar would increase interest expense
by $340,000. This analysis does not consider the effects of the
reduced level of overall economic activity that could exist in
such an environment. Further, in the event of an increase in
interest rates, management could potentially take actions to
mitigate its exposure to the change.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 11, 2000, the holders of all of the Company's
Voting Common Stock, acting by unanimous consent, authorized
the Company to issue to National Broadcasting Company, Inc.
(1) a warrant to acquire 2,500,000 shares of Common Stock
(Nonvoting) of the Company at an exercise price of $12.50 per
share, and (2) a warrant to acquire 2,000,000 shares of Common
Stock (Nonvoting) of the Company at an exercise price of $15.00
per share.
On May 17, 2000, the holders of all of the Company's Voting
Common Stock adopted resolutions by written consent in lieu of
an annual meeting appointing Ernst & Young LLP as independent
auditors of the Company, electing W. Don Cornwell, Stuart J.
Beck, James L. Greenwald, Martin F. Beck, Edward Dugger III,
Thomas R. Settle, Charles J. Hamilton, Jr., Robert E. Selwyn,
Jr., M. Fred Brown, Jon E. Barfield and Veronica Pollard as
directors of the Company, and approving the Company's 2000
Stock Option Plan.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
4.51 Series A Warrant to purchase 2,500,000 shares of
Common Stock of Granite Broadcsting Corporation
issued May 31, 2000 to National Broadcasting
Company, Inc.
4.52 Series B Warrant purchase 2,000,000 shares of
Common Stock of Granite Broadcasting Corporation
issued May 31, 2000 to National Broadcasting
Company, Inc.
4.53 Registration Rights Agreement, dated as of
May 31, 2000, between Granite Broadcasting
Corporation and National Broadcasting Company,
Inc.
10.47 Network Affiliation Agreement, dated as of
May 31, 2000, among Granite Broadcasting
Corporation, the Parties set forth on Schedule I
thereto, and NBC Television Network (KNTV(TV),
KSEE, KBJR-TV and WEEK-TV).
10.48 Supplemental Agreement, dated as of May 31,
2000, between Granite Broadcasting Corporation
and National Broadcasting Company, Inc.
27. Financial Data Schedule.
b. REPORTS ON FORM 8-K
NONE
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed by an officer
and the principal accounting officer on its behalf by the undersigned thereunto
duly authorized.
GRANITE BROADCASTING CORPORATION
Registrant
Date August 14, 2000 /s/ W. DON CORNWELL
----------------------------------------------
(W. Don Cornwell)
Chief Executive Officer
Date August 14, 2000 /s/ LAWRENCE I. WILLS
----------------------------------------------
(Lawrence I. Wills)
Vice President, Finance and Controller
(Principal Accounting Officer)
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