<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 September 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 November 14, 2000; Common Stock (Nonvoting), par value $.01 per
share - 18,259,646 shares outstanding at November 14, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,510,340 $ 5,453,542
Accounts receivable, net 26,751,765 33,017,344
Film contract rights 20,147,116 17,510,909
Other assets 13,445,012 10,399,749
------------ ------------
Total current assets 64,854,233 66,381,544
Property and equipment, net 42,382,327 39,176,169
Film contract rights 8,961,182 11,125,490
Other non-current assets 15 511 659 3,142,422
Deferred financing fees, net 5,405,071 8,209,537
Intangible assets, net 582,504,311 602,555,693
------------ ------------
Total Assets $719,618,783 $730,590,855
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,476,113 $ 3,120,875
Accrued interest 7,406,147 3,487,384
Income taxes payable 1,609,427 3,912,027
Other accrued liabilities 5,245,116 3,867,448
Film contract rights 17,743,415 22,049,869
Other current liabilities 4,949,095 6,473,693
------------ ------------
Total current liabilities 39,429,313 42,911,296
Long-term debt 299,381,845 303,874,304
Film contract rights payable 26,204,190 18,000,393
Deferred tax liability 84,252,884 84,117,915
Cumulative Exchangeable Preferred Stock, net of offering costs 231,891,383 210,708,780
Other non-current liabilities 18,058,169 20,894,010
------------ ------------
Total liabilities 699,217,784 680,506,698
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 7,869,332 17,909,802
Accumulated earnings 14,830,945 35,123,239
Less: Unearned compensation (1,299,784) (1,946,434)
Treasury stock (297,000) (297,000)
Note receivable from officer (886,875) (886,875)
------------ ------------
Total stockholders' equity 20,400,999 50,084,157
------------ ------------
Total liabilities and stockholders' equity $719,618,783 $730,590,855
============ ============
</TABLE>
See accompanying notes.
-1-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 32,238,416 $ 35,578,729 $ 103,153,475 $ 110,378,956
Station operating expenses 25,311,888 22,884,702 75,065,005 68,043,639
Write-off of film contracts 1,716,535 -- 1,716,535 --
Depreciation expense 1,486,325 1,447,013 4,293,606 4,247,228
Amortization expense 6,546,074 6,696,536 20,318,521 19,539,434
Corporate Expense 2,210,084 1,817,541 7,693,200 6,524,565
Non-cash compensation expense 215,550 204,193 646,650 727,901
------------ ------------- ------------- -------------
Operating (loss) income (5,248,040) 2,528,744 (6,580,042) 11,296,189
Other expenses:
Equity in net loss of investee -- -- -- 133,603
Interest expense, net 7,214,096 9,232,562 21,641,674 29,231,335
Non-cash interest expense 600,514 663,900 2,099,313 2,124,366
Gain on station sales -- (101,291,854) -- (101,291,854)
Gain from insurance settlement -- -- (1,247,105) (2,655,408)
Other 505,532 725,893 1,333,516 1,396,597
------------ ------------- ------------- -------------
(Loss) income before income taxes and extraordinary item (13,568,182) 93,198,243 (30,407,440) 82,357,550
(Benefit) provision for income taxes (2,728,968) 37,953,269 (6,404,942) 34,488,279
------------ ------------- ------------- -------------
(Loss) income before extraordinary item (10,839,214) 55,244,974 (24,002,498) 47,869,271
Extraordinary (loss) gain on early extinguishment
of debt, net of tax -- (892,980) 3,710,204 (892,980)
------------ ------------- ------------- -------------
Net (loss) income $(10,839,214) $ 54,351,994 $ (20,292,294) $ 46,976,291
============ ============= ============= =============
Net (loss) income attributable to common shareholders $(18,041,457) $ 47,482,936 $ (41,474,897) $ 26,536,992
============ ============= ============= =============
Per basic common share:
(Loss) income before extraordinary item $ (0.98) $ 3.49 $ (2.45) $ 2.17
Extraordinary (loss) gain -- (0.06) .20 (0.06)
------------ ------------- ------------- -------------
Net (loss) income $ (0.98) $ 3.43 $ (2.25) $ 2.11
============ ============= ============= =============
Weighted average common shares outstanding 18,438,000 13,846,000 18,393,000 12,578,000
Net (loss) income attributable to common
shareholders assuming dilution $(18,041,457) $ 47,972,605 $ (41,474,897) $ 28,212,941
============ ============= ============= =============
Per common share assuming dilution:
(Loss) income before extraordinary item $ (0.98) $ 2.53 $ 2.45 $ 1.55
Extraordinary (loss) gain -- (0.05) .20 (0.05)
------------ ------------- ------------- -------------
Net (loss) income $ (0.98) $ 2.48 $ (2.25) $ 1.50
============ ============= ============= =============
Weighted average common shares outstanding assuming
dilution 18,438,000 19,369,000 18,393,000 18,770,000
</TABLE>
See Accompanying Notes
-2-
<PAGE>
<TABLE>
<CAPTION>
Class A Common Additional
Common Stock Paid-in Retained
Stock (Nonvoting) Capital Earnings
------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $1,785 $179,640 $17,909,802 $35,123,239
Dividends on Cumulative
Exchangable Preferred Stock (20,807,492)
Accretion of offering costs
related to Cumulative
Exchangeable Preferred Stock (375,111)
Exercise of stock options 2,303 (971,461)
Issuance of Common Stock
(Nonvoting) 653 (653)
Stock expense related to
stock plans (35,593)
Issuance of Warrants 12,149,840
Net loss (20,292,294)
------- ----------- ------------- -----------
Balance at September 30, 2000 $1,785 $182,596 $7,869,332 $14,830,945
======= =========== ============= ===========
<CAPTION>
Total
Unearned Note Receivable Treasury Stockholders'
Compensation from Officer Stock Equity
------------ --------------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $(1,946,434) $(886,875) $(297,000) $50,084,157
Dividends on Cumulative
Exchangable Preferred Stock (20,807,492)
Accretion of offering costs
related to Cumulative
Exchangeable Preferred Stock (375,111)
Exercise of stock options (969,158)
Issuance of Common Stock
(Nonvoting) -
Stock expense related to
stock plans 646,650 611,057
Issuance of Warrants 12,149,840
Net loss (20,292,294)
------------ --------------- ---------- -------------
Balance at September 30, 2000 $(1,299,784) $(886,875) $(297,000) $20,400,999
============ =============== ========== =============
</TABLE>
-3-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(20,292,294) $ 46,976,291
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets 20,318,521 19,539,434
Depreciation 4,293,606 4,247,228
Non-cash compensation expense 646,650 727,901
Non-cash interest expense 2,099,313 2,124,366
Equity in net loss of investee -- 133,603
Deferred tax expense 134,969 8,455,521
Net gain on disposition of assets -- (101,291,854)
Gain from insurance proceeds (1,247,105) (2,655,408)
Extraordinary (gain) loss (6,183,674) 1,373,815
Change in assets and liabilities net of amounts disposed:
Decrease in accounts receivable, net 6,265,579 4,338,206
Increase in accounts payable and accrued liabilities 3,673,211 5,925,860
Increase in income taxes payable 170,870 23,353,730
Increase in film contract rights and other non-current assets (3,944,822) (29,912,752)
Increase in film contract rights payable and other current liabilities 4,656,989 24,007,617
Decrease other non-current liabilities (246,938) (1,529,915)
Increase in other assets (4,442,078) (123,786)
------------ -------------
Net cash provided by operating activities 5,902,797 5,689,857
Cash flows from investing activities:
Proceeds from disposition of assets, net -- 171,308,975
Insurance proceeds received 1,627,572 6,747,789
WB affiliation payment (4,143,582) (4,243,921)
Investments (258,917) (133,603)
Capital expenditures (7,353,240) (10,315,767)
------------ -------------
Net cash (used in) provided by investing activities (10,128,167) 163,363,473
Cash flows from financing activities:
Proceeds from bank loan 95,000,000 54,500,000
Repayment of bank debt (10,327,572) (135,000,000)
Retirement of senior subordinated notes (81,019,763) (32,065,000)
Dividends paid -- (1,776,629)
Payment of deferred financing fees (367,416) (503,965)
Other financing activities (3,081) 68,109
------------ -------------
Net cash provided by (used in) financing activities 3,282,168 (114,777,485)
------------ -------------
Net (decrease) increase in cash and cash equivalents (943,202) 54,275,845
Cash and cash equivalents, beginning of period 5,453,542 762,392
------------ -------------
Cash and cash equivalents, end of period $ 4,510,340 $ 55,038,237
============ =============
Supplemental information:
Cash paid for interest $ 18,111,000 $ 23,400,000
Income taxes paid 190,000 1,691,000
Non-cash capital expenditures 147,000 88,000
Non-cash dividend 20,807,500 18,389,000
Valuation of Warrants 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 nine month periods ended
September 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 inter-company
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
agreement. As of May 31, 2000, the Company signed definitive agreements 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.
In consideration for the San Francisco affiliation, the Company agreed to 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 spend not less than $1,800,000 prior to or after January 1, 2002 in
advertising expense to promote 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.
-5-
<PAGE>
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 September 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 component of other non-current assets 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. 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 owns and operates nine television
stations diversified in geography, network affiliation and growth
characteristics. Six of the Company's television stations are affiliated with
ABC, NBC and CBS, two stations are affiliated with the WB Network and KNTV is a
news-oriented independent station. The Company and ABC agreed to terminate the
ABC affiliation for KNTV effective July 1, 2000. As a result, KNTV is operating
as an independent television station until January 1, 2002, when it will become
the NBC affiliate serving the San Francisco-Oakland-San Jose television market.
During this transition period, KNTV will experience revenue declines due to the
absence of a network affiliation and increased expenses in local news and
syndicated programming.
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 between the three
and nine months ended September 30, 1999 and 2000 have been affected by the
following:
* the sale of KEYE-TV, the CBS affiliate serving Austin, Texas, in
August 1999.
* significant increases in local news and programming expense at KNTV.
* significant increases in programming expense at the WB affiliates.
It is anticipated that comparisons of the Company's consolidated financial
statements for the year ended December 31, 2000 against the prior period will be
affected by the above. The Company further anticipates that results for the year
ended December 31, 2001 will continue to be adversely impacted by the changes at
KNTV discussed above.
The following table sets forth certain operating data for the three and
nine-month periods ended September 30, 1999 and 2000:
-7-
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ---------------------------------
1999 2000 1999 2000
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Operating income (loss) $ 2,529,000 $(5,248,000) $ 11,296,000 $ (6,580,000)
Depreciation and amortization 8,144,000 8,032,000 23,786,000 24,612,000
Write-off of film contract rights -- 1,716,000 -- 1,716,000
Corporate expense 1,818,000 2,210,000 6,525,000 7,693,000
Non-cash compensation 204,000 216,000 728,000 647,000
Program amortization 3,420,000 5,320,000 9,463,000 16,303,000
Program payments (3,236,000) (5,504,000) (10,455,000) (15,128,000)
------------ ----------- ------------ ------------
Broadcast cash flow $ 12,879,000 $ 6,742,000 $ 41,343,000 $ 29,263,000
============ =========== ============ ============
</TABLE>
"Broadcast cash flow" is defined as operating income (loss) plus time brokerage
agreement fees, depreciation and amortization, write-off of film contract
rights, 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.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net revenue totaled $32,238,000 for the three months ended September 30, 2000, a
decrease of $3,341,000 or 9 percent, compared to $35,579,000 for the same period
last year. The decrease was primarily due to reduced revenue of $2,616,000
resulting from the sale of the Austin station in August 1999 and lower national
revenue, primarily at the WB affiliates of $2,304,000 offset, in part, by an
increase of $1,696,000 in political advertising.
Station operating expenses totaled $25,312,000 for the three months ended
September 30, 2000, an increase of $2,427,000 or 11 percent, compared to
$22,885,000 for the same period last year. The increase was due to increased
expense in local news, primarily at KNTV, of $1,243,000 and increased program
expense, primarily at KNTV and the WB affiliates of $1,800,000, offset in part
by decreased operating expenses of $1,382,000 resulting from the sale of the
Austin station.
In connection with the changes at KNTV discussed above, the station's designated
market area was changed from Salinas Monterey to San Francisco-Oakland-San Jose
on September 1, 2000. As a result, KNTV will no longer be able to broadcast
certain syndicated programs because such programs are currently licensed to
other stations in the San Francisco-Oakland-San Jose market. Consequently, the
Company wrote-off the book value of these programs totaling $1,716,000 during
the three months ended September 30, 2000.
Corporate expense totaled $2,210,000 for the three months ended September 30,
2000, an increase of $392,000 or 22 percent compared to $1,818,000 for the same
period last year. The increase was primarily due to increased professional fees
and timing of certain expenses incurred in 2000 compared to 1999.
Net interest expense totaled $7,214,000 for the three months ended September 30,
2000, a decrease of $2,019,000 or 22 percent compared to $9,233,000 for the same
period last year. The decrease was primarily due to the use of a portion of the
net proceeds from the sale of the Austin station in August 1999 to reduce
outstanding indebtedness. In addition, during the first six months of 2000 the
Company used bank
-8-
<PAGE>
borrowings to repurchase $89,338,000 face amount of its subordinated notes at
various discounts, further reducing its debt outstanding.
The gain on the sale of assets of $101,292,000 in 1999 resulted from the sale of
the Austin station.
During the three months ended September 30, 1999, the Company repurchased
$32,065,000 of subordinated notes at various premiums, resulting in a net
extraordinary loss of $893,000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net revenue totaled $103,153,000 for the nine months ended September 30, 2000, a
decrease of $7,226,000 or 7 percent, compared to $110,379,000 for the same
period last year. The decrease was primarily due to reduced revenue of
$10,352,000 resulting from the sale of the Austin station in August 1999 offset,
in part, by an increase of $4,489,000 in political advertising.
Station operating expenses totaled $75,065,000 for the nine months ended
September 30, 2000, an increase of $7,021,000 or 10 percent, compared to
$68,044,000 for the same period last year. The increase was primarily due to
additional investments made in local news, primarily at KNTV, of $7,120,000 and
increased program expense, primarily at KNTV and the WB affiliates of
$2,838,000, offset in part by decreased operating expenses of $5,549,000
resulting from the sale of the Austin station.
In connection with the changes at KNTV discussed above, the station's designated
market area was changed from Salinas Monterey to San Francisco-Oakland-San Jose
on September 1, 2000. As a result, KNTV will no longer be able to broadcast
certain syndicated programs because such programs are currently licensed to
other stations in the San Francisco-Oakland-San Jose market. Consequently, the
Company wrote-off the book value of these programs totaling $1,716,000 during
the nine months ended September 30, 2000.
Corporate expense increased $1,168,000 or 18 percent during the nine months
ended September 30, 2000 as compared to the same period last year primarily due
to an increase in professional fees, which includes the costs associated with
the planned acquisition of the Buffalo UPN affiliate that was not consummated.
Net interest expense totaled $21,642,000 for the nine months ended September 30,
2000, a decrease of $7,589,000 or 26 percent compared to $29,231,000 for the
same period last year. The decrease was primarily due to the use of a portion of
the net proceeds from the sale of the Austin station in August 1999 to reduce
outstanding indebtedness. In addition, during the first six months of 2000 the
Company used bank borrowings to repurchase $89,338,000 face amount of its
subordinated notes at various discounts, further reducing its debt outstanding.
The gain on the sale of assets of $101,292,000 in 1999 resulted from the sale of
the Austin station. The Company sustained severe damage to certain assets in
Duluth, Minnesota resulting from an ice storm that occurred in 1999. The Company
wrote-off the book balances of the destroyed assets and received insurance
proceeds for replacement assets during 1999, resulting in a gain of $2,655,000.
Additional insurance proceeds were received in 2000 resulting in a gain of
$1,247,000.
As mentioned above, the Company repurchased $89,338,000 face amount of its
senior subordinated notes at various discounts in 2000, resulting in
extraordinary gain on the early extinguishment of debt, net of tax, of
$3,710,000. During 1999, the Company repurchased $59,255,000 of subordinated
notes at various premiums, resulting in a net extraordinary loss of $893,000.
-9-
<PAGE>
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 agreements, KNTV will become the NBC affiliate in the San
Francisco-Oakland-San Jose, California market for a ten-year term commencing
January 1, 2002. In consideration for the San Francisco affiliation, the
Company agreed to 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, NBC extended the term of the Company's NBC affiliation agreements
with KSEE, WEEK and KBJR until December 31, 2011. As a 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 also agreed to
spend not less than $1,800,000 prior to or after January 1, 2002 in
advertising expense to promote 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 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 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 total
debt ratio contained therein. The Company was not in compliance with the maximum
total debt ratio and the minimum fixed charge coverage ratio at September 30,
2000, however the banks waived compliance with such ratios at September 30, 2000
until March 30, 2001. In addition, the Credit Agreement was amended to, among
other things, revise the maximum total debt ratio and minimum fixed charge ratio
through December 31, 2000 and change the maturity date of the Credit Agreement
from December 31, 2005 to March 31, 2002. The Company expects to terminate the
Credit Agreement and repay all outstanding borrowings under the Credit Agreement
with the proceeds from the sale of senior debt securities. If required, the
Company will explore other alternatives including the sale of assets or equity.
As of November 13, 2000, the Company had $101,672,000 in borrowings outstanding
under the Credit Agreement. In the event that the Company does not repay all
outstanding borrowings under the Credit Agreement prior to March 30, 2001, the
Company will be in default under the Credit Agreement unless it obtains further
waivers from the banks thereunder.
Cash flows provided by operating activities was $5,903,000 during the nine
months ended September 30, 2000 compared to $5,690,000 during the nine months
ended September 30, 1999, an increase of $213,000 or 4 percent. The decrease was
primarily due to lower cash paid for interest, offset in part by lower operating
cash flow.
Cash flows used in investing activities was $10,128,000 during the nine months
ended September 30, 2000 compared to cash flows provided by investing activities
of $163,363,000 during the nine months ended September 30, 1999, a decrease of
$173,491,000. The decrease was primarily due to the proceeds from the
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disposition of the Austin station in 1999 and reduced insurance proceeds from
the damage sustained at the Duluth station.
Cash flows provided by financing activities was $3,282,000 during the nine
months ended September 30, 2000 compared to cash used in financing activities of
$114,777,000 during the nine months ended September 30, 1999, an increase of
$118,059,000. The increase was due to significantly less net debt repayments
during 2000 and the elimination of cash dividend payments.
The Company anticipates that future requirements for capital expenditures
will include those incurred during the ordinary course of business,
approximately $13,500,000 of costs associated with the implementation of
digital television technology over the next eighteen months and costs
associated with the expansion of KNTV's studio building over the next three
years in excess of $20,000,000. The Company believes that internally
generated funds from operations and excess proceeds from the planned sale of
senior debt securities will be sufficient to satisfy the Company's cash
requirements for its existing operations for the next twelve months, and for
the forseeable future thereafter. If required, the Company will explore other
alternatives including the sale of assets or equity.
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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 6. Exhibits and Reports on Form 8-K
a. EXHIBITS
10.49 Form of Limited Waiver and Fourth Amendment, dated
November 6, 2000, to Fourth and Restated Credit
Agreement, dated as of June 10, 1998, as amended,
by and among the Company, the lenders listed
therein, and Bankers Trust Company, as
Administrative Agent, The Bank of New York as
Documentation Agent, and Goldman Sachs Credit
Partners L.P., Union Bank of California, N.A. and
ABN-Amro Bank N.V. as Co-Agents.
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 November 14, 2000 /s/ W. DON CORNWELL
------------------------------------------
(W. Don Cornwell)
Chief Executive Officer
Date November 14, 2000 /s/ LAWRENCE I. WILLS
------------------------------------------
(Lawrence I. Wills)
Vice President, Finance and Controller
(Principal Accounting Officer)
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