SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 33-98436
SULLIVAN BROADCASTING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1719496
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
18 Newbury Street, Boston, MA 02116
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (617) 369-7755
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No ___ .
As of March 31, 1996, the Company had 520,105 shares of Common Stock
outstanding. The Company's Common Stock is not publicly traded and does not
have a quantifiable market value.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (SEE NOTE 1)
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
The Company
Predecessor -----------------------------
December 31, December 31, March 31,
1995 1995 1996
- ---------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,584 $ -- $ 20,184
Restricted cash -- 126,916 --
Due from related party -- 390 --
Accounts receivable, net of
allowance for doubtful
accounts of $983 and
$1,159 28,943 -- 21,388
Current portion of
programming rights 8,943 -- 18,199
Current deferred tax asset -- -- 7,986
Prepaid expenses and other
current assets 213 -- 910
- ------------------------------------------------------------------------------
Total current assets 41,683 127,306 68,667
Property and equipment, net 20,399 -- 43,940
Programming rights, net of
current portion 10,852 -- 18,113
Deferred loan costs, net of
accumulated amortization of
$2,219, $21 and $502 3,769 7,439 12,075
Deferred tax asset 7,326 236 --
Other assets and intangible
assets, net 50,797 -- 570,199
- ------------------------------------------------------------------------------
Total assets $134,826 $134,981 $712,994
==============================================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of program-
ming contracts payable $ 12,788 $ -- $ 16,973
Current portion of senior
debt 24,078 -- 5,500
Current income taxes
payable 1,961 4 1,795
Interest payable 515 356 8,451
Due to related parties -- 2,184 7,998
Accounts payable 1,482 -- 1,598
Accrued expenses 4,239 3,289 4,233
- ------------------------------------------------------------------------------
Total current liabilities 45,063 5,833 46,548
Senior debt, net of current
portion 38,898 -- 214,500
Borrowings under revolving
line of credit -- -- 15,000
Subordinated debt 100,000 125,000 125,185
Programming contracts
payable, net of current
portion 12,542 -- 16,077
Deferred tax liability -- -- 96,502
Other liabilities 450 -- --
- ------------------------------------------------------------------------------
Total liabilities 196,953 130,833 513,812
- ------------------------------------------------------------------------------
Preferred stock (Predecessor) 26,386 -- --
- ------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity (deficit):
Common stock
(Predecessor) 16 -- --
Common stock, $.01 par
value; 800,000 shares
authorized; 520,105
shares issued and
outstanding -- 5 5
Additional paid-in capital 3,767 5,196 206,797
Accumulated deficit (92,296) (1,053) (7,620)
- ------------------------------------------------------------------------------
Total shareholders'
equity (deficit) (88,513) 4,148 199,182
- ------------------------------------------------------------------------------
Total liabilities and
shareholders' equity
(deficit) $134,826 $134,981 $712,994
==============================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
Predecessor Company
1995 1996
- --------------------------------------------------------------------
<S> <C> <C>
Revenues (excluding barter) $22,245 $26,042
Less - commissions (3,845) (4,329)
- -----------------------------------------------------------------
Net revenues (excluding barter) 18,400 21,713
Barter revenues 1,670 2,546
- -----------------------------------------------------------------
Total net revenues 20,070 24,259
- -----------------------------------------------------------------
Expenses
Operating expenses 4,135 6,184
Selling, general and administrative 5,486 5,544
Amortization of programming rights 2,871 3,010
Depreciation and amortization 3,086 11,588
- -----------------------------------------------------------------
15,578 26,326
- -----------------------------------------------------------------
Operating income (loss) 4,492 (2,067)
Interest expense, including
amortization of debt discount
and deferred loan costs 4,626 8,130
Other expenses 15 12
- -----------------------------------------------------------------
Loss before benefit
for income taxes (149) (10,209)
Benefit for income taxes 15 3,642
- -----------------------------------------------------------------
Net loss $ (134) $ (6,567)
=================================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited-dollars in thousands)
<TABLE>
<CAPTION>
Class B-2 Additional Total
Common stock paid-in Accumulated shareholders'
Shares Amount capital deficit equity
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (Company) 520,105 $5 $ 5,196 $(1,053) $ 4,148
Additional investment by shareholder - - 201,601 - 201,601
Net loss (Unaudited) - - - (6,567) (6,567)
- -----------------------------------------------------------------------------------------------------
Balance at March 31, 1996 520,105 $5 $206,797 $(7,620) $199,182
=====================================================================================================
</TABLE>
The accompanying notes to Consolidated Financial Statements are an
integral part of these financial statements.
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited-dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
Predecessor Company
1995 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ (134) $ (6,567)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Deferred income taxes - (3,642)
Depreciation of property, plant
and equipment 757 1,780
Amortization of intangible assets 2,329 9,306
Amortization of programming rights 2,871 3,010
Payments for programming rights (2,303) (2,208)
Amortization of debt discount and
deferred loan costs 222 502
Loss on disposal of fixed assets 4 -
Changes in assets and liabilities:
Decrease in accounts receivable 8,526 7,555
Increase in prepaid expenses
and other assets (20) (697)
Increase in due to related parties - 6,204
Decrease in income taxes payable (104) (962)
Increase in interest payable - 8,095
Increase (decrease) in accounts payable
and other accrued liabilities 2,168 (3,179)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 14,316 19,197
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in restricted cash - 126,916
Acquisition of Act III Broadcasting, Inc.,
net of cash acquired - (549,259)
Payment for purchase options - (2,800)
Acquisition of WFXV assets - (400)
Capital expenditures (507) (280)
- -----------------------------------------------------------------------------
Net cash used for investing activities (507) (425,823)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Payment of principal amounts (14,000) -
Proceeds from term debt - 220,000
Proceeds from revolver borrowings - 15,000
Proceeds from stockholder contribution - 201,601
Advance buydown of programming rights - (4,396)
Payment of debt issuance costs - (5,395)
- -----------------------------------------------------------------------------
Net cash (used) provided by financing activities (14,000) 426,810
Net (decrease) increase in cash and cash equivalents (191) 20,184
Cash and cash equivalents, beginning of period 3,295 -
- -----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 3,104 $ 20,184
=============================================================================
</TABLE>
For supplemental disclosures of cash flow information see Note 5 to
Consolidated Financial Statements.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On January 4, 1996, all of the outstanding capital stock of Act III
Broadcasting, Inc. ("Act III" or the "Predecessor") was purchased by and Act
III was merged with and into A-3 Acquisition, Inc. ("A-3"), with Act III
surviving such merger (the "Acquisition"). Act III then changed its name to
Sullivan Broadcasting Company, Inc. (together with its subsidiaries, the
"Company"). The Acquisition was accounted for by the purchase method of
accounting. The results of operations of Act III for the period from January
1, 1996 through January 4, 1996 have been included in the results of
operations of the Company for the three months ended March 31, 1996 due to the
immateriality of such results in relation to the Company's financial
statements taken as a whole. Such results are as follows:
<TABLE>
<S> <C>
Net revenues $832,000
Operating expenses 178,000
Selling, general & administrative expenses 219,000
Operating income 435,000
</TABLE>
The accompanying consolidated financial statements as of and for the
three months ended March 31, 1996 have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures herein are
adequate and that the information presented is not misleading. It is
suggested that these consolidated financial statements be read in conjunction
with the financial statements and the notes thereto included in A-3's latest
annual report on Form 10-K for the year ended December 31, 1995. The
information furnished reflects all adjustments (consisting only of normal,
recurring adjustments) which are, in the opinion of management, necessary to
make a fair statement of the results for the interim period. Certain amounts
recorded in connection with accounting for the Acquisition are subject to
adjustment based upon the final valuation of certain assets and liabilities
acquired. Such adjustments are not expected to be material to the
consolidated financial statements. The results for these interim periods are
not necessarily indicative of results to be expected for the full fiscal year,
due to seasonal factors, among others.
For comparative purposes, the December 31, 1995 balance sheet of both
Act III and A-3 have been included. In addition, the results of operations
and of cash flows for the three months ended March 31, 1995 for Act III have
also been presented. A-3 was not incorporated until June 1995 and did not
have any operations for a comparable three month period ended March 31, 1995.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
-----------------------------------------------------------------
<S> <C> <C>
Land $ 1,771,000 $ 1,366,000
Broadcasting equipment 32,335,000 34,803,000
Buildings and improvements 8,006,000 5,637,000
Furniture and other equipment 4,144,000 2,556,000
Construction in progress 1,457,000 1,341,000
-----------------------------------------------------------------
47,713,000 45,703,000
Less: Accumulated depreciation
and amortization (27,314,000) (1,763,000)
- --------------------------------------------------------------------
$ 20,399,000 $ 43,940,000
====================================================================
</TABLE>
3. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
Amortization December 31, March 31,
Period 1995 1996
---------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill 40 Years $ 25,919,000 $ 190,451,000
Affiliation agreements 10 Years 18,260,000 90,681,000
Non-competition agreements 5 - 10 Years 20,875,000 --
Canadian cable rights 10 Years 22,826,000 59,000,000
Commercial advertising
contracts 15 years -- 131,131,000
FCC licenses 15 years -- 75,057,000
Other intangible assets 5 - 15 Years 21,931,000 33,185,000
---------------------------------------------------------------------------
109,811,000 579,505,000
Less: Accumulated amortization (59,157,000) (9,306,000)
---------------------------------------------------------------------------
$ 50,654,000 $570,199,000
===========================================================================
</TABLE>
4. LONG TERM DEBT
On January 4, 1996, concurrent with the Acquisition, the Company
borrowed $220,000,000 under a term loan and $4,000,000 under a revolving
credit facility to finance the Acquisition. Both the term loan and the
revolving credit facility bear interest at LIBOR plus an applicable margin
determined quarterly based upon the Company's leverage ratio for the preceding
quarter.
The revolving credit facility provides for borrowings up to $30,000,000
for working capital purposes, and is due on December 31, 2003 or upon
repayment of the term loan.
The term loan is payable in varying quarterly installments beginning
December 31, 1996 through 2003. The repayment of the term loan are as
follows:
<TABLE>
<S> <C>
1996 $ 5,500,000
1997 13,002,000
1998 21,010,000
1999 33,000,000
2000 44,000,000
Thereafter 103,488,000
</TABLE>
In addition, certain mandatory prepayments of the term loan are required
if the Company achieves certain financial results at the end of the fiscal
year. No such mandatory prepayments are payable at March 31, 1996.
In January 1996, the Company entered into various interest rate
protection agreements based upon LIBOR rates and a notional value equal to the
anticipated outstanding term debt levels through the year 2000.
In connection with the term loan and the revolving credit facility, the
Company also has a $75,000,000 line of credit available for future
acquisitions (collectively, the "Senior Credit Facility"). At March 31, 1996,
there were no borrowings outstanding on the acquisition line of credit.
The Senior Credit Facility requires the Company to comply with certain
covenants. At March 31, 1996, the Company was in compliance with all
covenants.
5. INCOME TAXES
The provisions for taxes for the interim periods were based on
projections of total year pre-tax income.
As discussed in Note 1, the Acquisition was accounted for by the
purchase method of accounting which requires that all assets acquired and
liabilities assumed be recorded at their fair value. For tax purposes, the
assets acquired and liabilities assumed retain their historical basis
resulting in a basis differential. The resulting basis differential and
acquired net operating loss carryforwards together with changes in deferred
tax assets and liabilities for the period give rise to the net deferred tax
asset and liability recorded at March 31, 1996.
At the date of the Acquisition, the Company had net operating loss
carryforwards of approximately $94,344,000 for federal income tax purposes,
available to reduce future taxable income. To the extent not used, federal
net operating loss carryforwards expire in varying amounts beginning in 2002.
In addition, the Company had net operating loss carryforwards of approximately
$79,189,000 for state and local income tax purposes in various jurisdictions.
An entity that undergoes a "change in ownership" pursuant to Section 382
of the Internal Revenue Code is subject to limitations on the amount of its
net operating loss carryforwards which may be used in the future. The
Acquisition resulted in a change in ownership pursuant to Section 382.
Management has estimated that the limitation on the net operating loss
carryforwards will not have a material adverse impact on the Company's
consolidated financial position or results of operation.
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid interest of $746,000 during the period ended March 31,
1995 and no interest during the period ended March 31, 1996.
During the periods ended March 31, 1995 and March 31, 1996, programming
rights increased $884,000 and $859,000, respectively, due to the assumption of
programming liabilities.
During the periods ended March 31, 1995 and March 31, 1996, the Company
paid approximately $89,000 and $962,000, respectively, for state and local
income taxes.
7. COMMITMENTS AND CONTINGENCIES
The Company has executed contracts for programming rights totaling
approximately $18,961,000 and $18,004,000 at December 31, 1995 and March 31,
1996, respectively, for which the broadcast period has not begun.
Accordingly, the asset and related liability are not recorded at such dates.
The Company has operating lease agreements for land, office space,
office equipment and other property which expire on various dates through
2005. Rental expense was $163,000 and $90,000 for the periods ending March
31, 1995 and March 31, 1996, respectively.
The Company has no postretirement or postemployment benefit plans.
8. RELATED PARTY TRANSACTIONS
The Company reimburses ABRY Partners, Inc. ("ABRY"), an entity related
through common ownership, approximately $1,500 per month, representing the
Company's allocated share of rent paid by ABRY under its lease and other
general expenses including utilities, property insurance and supplies. In
addition, the Company has a management agreement with ABRY whereby the Company
pays ABRY a management fee of $250,000 annually. Such amounts have been
included in "Selling, general and administrative" expenses in the Company's
consolidated statements of operations. In addition, certain liabilities
assumed in the Acquisition were paid during the first quarter by the Company's
parent, Sullivan Broadcast Holdings, Inc.
9. SIGNIFICANT EVENTS
On February 7, 1996, the Company executed an asset purchase agreement to
acquire certain assets of Mohawk Valley Broadcasting, Inc. and Acme T.V.
Corporation, the owners/operators of two television stations in Utica, NY.
The total purchase price of the acquisition will be $400,000. In addition,
the Company paid $2,800,000 for the option to purchase the remaining assets of
the stations upon FCC approval. The Company concurrently executed a Time
Brokerage Agreement to operate the stations pending FCC approval of the
acquisition.
On February 22, 1996, the Company executed a Time Brokerage Agreement
with Central Tennessee Broadcasting Corporation pursuant to which the Company
programs WXMT-TV in Nashville, TN. In conjunction with this agreement, the
Company also executed an agreement to purchase certain assets of Central
Tennessee Broadcasting Corporation, with an option to buy the station should
applicable FCC regulations allow dual ownership in a single market.
On February 28, 1996, the Company executed a definitive purchase
agreement to acquire all the assets of Channel 47 Limited Partnership in
Madison, WI for a total purchase price of $26,500,000, pending FCC approval.
10. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data are based
upon the historical results of operations of Act III for the quarter ended
March 31, 1995 adjusted to give effect to the Acquisition as if it had
occurred on January 1, 1995:
<TABLE>
<S> <C>
Net revenue $20,309
Net loss 7,537
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company's revenues are derived principally from local and national
advertisers. Additional revenues are derived from commercial production and
rental of broadcast towers. Increased ratings and strong advertiser demand
have contributed to the Company's successful revenue growth. Also, the
Company has developed sales marketing programs, implemented to enhance the
image of the Company's television stations (the "Stations"), conducts local
"Kids Expos" and live remote broadcasts, publishes promotional advertising
print supplements and participates in joint marketing events with local
businesses and radio stations.
The Company's operating revenues are generally highest in the fourth
quarter of each year. This seasonality is primarily attributable to increased
expenditures by advertisers in anticipation of holiday retail spending and an
increase in viewership during the Fall/Winter season. Accordingly, accounts
receivable balances as of the end of each of the first three calendar quarters
are generally substantially less than the balances as of the end of the year.
Each of the Company's Stations generates positive Broadcast Cash Flow, defined
as operating income plus depreciation, amortization, barter expenses and
corporate expenses less payments for programming rights and barter revenue.
The Company's principal costs of operations are employee salaries and
commissions, programming, production, promotion and other expenses (such as
maintenance, supplies, insurance, rent and utilities). The Company has
historically experienced net losses primarily as a result of non-cash charges
attributable to amortization of intangibles that were recorded at the time of
the purchase of the Stations. The Company's amortization of programming
rights has historically exceeded the Company's payments for programming rights
due to the write-up of programming assets which occurred upon the respective
acquisitions of the Stations. This historic trend will continue with the
write-up of such assets in conjunction with the January 4, 1996 Acquisition.
In addition, the Company has paid in advance of scheduled programming
liabilities certain excess programming rights acquired as a result of the
aforementioned Acquisition.
Results of Operations
Three Months Ended March 31, 1995 of Act III (the "1995 Three Months")
Compared to Three Months Ended March 31, 1996 of the Company (the "1996 Three
Months")
Set forth below are selected consolidated financial data for the three
months ended March 31, 1995 of Act III and March 31, 1996 of the Company and
the percentage changes between the periods.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Predecessor Company
1995 1996 Percentage
(in thousands) Change
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues (excluding barter) $18,400 $21,713 18.0%
Barter revenues 1,670 2,546 52.5
Total net revenues 20,070 24,259 20.9
Operating expenses 4,135 6,184 49.6
Selling, general
and administrative expenses 5,486 5,544 1.1
Depreciation and amortization 5,957 14,598 145.1
Operating income (loss) 4,492 (2,067) (146.0)
Interest expense 4,626 8,130 75.7
Net loss (134) (6,567) (4,800.7)
Payments for programming rights 2,303 2,208 (4.1)
Broadcast Cash Flow 9,060 11,026 21.7
</TABLE>
Net revenues (excluding barter) are net of commissions and primarily
include local and national/Canadian spot advertising sales. Net revenues
(excluding barter) increased to $21,713,000 in the 1996 Three Months from
$18,400,000 in the 1995 Three Months, an increase of $3,313,000 or 18.0%.
This increase is due to reduced national sales representative commission rates
which commenced concurrent with the Acquisition and increasing advertising
spot rates. Advertising revenues for the 1996 Three Months were comprised of
46.9% from local advertising sales and 53.1% from national/Canadian
advertising sales.
Local revenues include gross revenues before commissions from local or
regional advertisers or their representative agencies. Local and regional
areas encompass a station's designated market area and its outlying areas.
Local revenues increased to $11,931,000 in the 1996 Three Months from
$9,820,000 in the 1995 Three Months, an increase of $2,111,000, or 21.5%. The
increase was primarily due to increased ratings as well as strong advertising
demand.
National/Canadian revenues include gross revenues before commissions
from national and Canadian advertisers or their representative agencies.
National advertisers are advertisers outside of a station's local market or
region. National/Canadian revenues increased to $13,533,000 in the 1996 Three
Months from $11,773,000 in the 1995 Three Months, an increase of $1,760,000,
or 15.0%. As with local revenues, national/Canadian revenues increased
primarily due to improved ratings and strong advertising demand.
Barter revenues increased to $2,546,000 in the 1996 Three Months from
$1,670,000 in the 1995 Three Months, an increase of $876,000, or 52.5%. This
increase was primarily due to the increase in the value of barter programming
rights related to the purchase accounting and resulting increase in the
revenue recognized therefrom.
Operating expenses include engineering, promotion, production,
programming operations and barter expenses. The Company barters advertising
time for certain program material. These transactions are included as
operating expenses at management's estimate of the value of the advertising
time exchanged, which approximates the fair value of the program material
received. Operating expenses increased to $6,184,000 in the 1996 Three Months
from $4,135,000 in the 1995 Three Months, an increase of $2,049,000. The
increase is due to the WXLV affiliation switch from Fox Broadcasting Company
to the American Broadcasting Company, Inc. in September 1995, as the Company
is now producing local news at WXLV, which increased operating expenses by
$476,000 during the 1996 Three Months. Additionally, the increase in employee
headcount resulting from the execution of the two Time Brokerage Agreements
executed in February 1996 further increased operating expenses as compared to
the 1995 Three Months.
Selling, general and administrative expenses include sales, salaries,
commissions, insurance, supplies and general management salaries. Selling,
general and administrative expenses increased to $5,544,000 in the 1996 Three
Months from $5,486,000 in the 1995 Three Months, an increase of $58,000, or
1.1%. This increase is the result of higher salary costs due to an overall
headcount increase, offset somewhat by reduced corporate overhead.
Depreciation and amortization includes depreciation of property and
equipment, amortization of programming rights and amortization of intangibles.
Depreciation and amortization increased to $14,598,000 in the 1996 Three
Months from $5,957,000 in the 1995 Three Months, an increase of $8,641,000, or
145.1%, due to the increase in value of all fixed assets, programming rights
and intangible assets in conjunction with the Acquisition.
Operating income decreased to a loss of $2,067,000 in the 1996 Three
Months from operating income of $4,492,000 in the 1995 Three Months, a
decrease of $6,559,000, due to the reasons discussed above.
Interest expense includes interest charged on all outstanding debt and
the amortization of debt issuance costs over the life of the underlying debt.
The $3,504,000 increase for the 1996 Three Months as compared to the 1995
Three Months is the result of interest costs incurred on the debt utilized to
fund the Acquisition.
Net loss increased to a loss of $6,567,000 in the 1996 Three Months from
a loss of $134,000 in the 1995 Three Months, an increase in the loss of
$6,433,000, due to the reasons discussed above.
Payments for programming rights decreased to $2,208,000 in the 1996
Three Months from $2,303,000 in the 1995 Three Months, a decrease of $95,000,
or 4.1%. This decrease is attributable to a reduction in the amount of
programming required to be purchased by the Company due to the buydown of
certain excess programming liabilities in conjunction with the Acquisition,
increased Fox and United Paramount network programming, and an overall
decrease in the cost per program due to the competitive pricing of
programming.
Broadcast Cash Flow increased to $11,026,000 in the 1996 Three Months
from $9,060,000 in the 1995 Three Months, an increase of $1,996,000, primarily
due to the aforementioned increases in revenue with a smaller proportional
increase in operating and selling, general and administrative expenses. The
Company believes that Broadcast Cash Flow is important in measuring the
Company's financial results and its ability to pay principal and interest on
its debt because broadcasting companies traditionally have large amounts of
non-cash expense attributable to amortization of programming rights and other
intangibles. Broadcast Cash Flow does not purport to represent cash provided
by operating activities as reflected in the Company's 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.
Liquidity and Capital Resources
The Company's primary source of liquidity is cash provided by
operations. Cash provided by operations during the 1996 Three Months was
$19,197,000 compared to $14,316,000 in the 1995 Three Months. The increase in
the Company's cash flow is attributable primarily due to the Company's
improved operating results, with revenue increases proportionally higher than
expense increases.
Cash provided by operations is after payments for programming rights,
which amounted to $2,208,000 and $2,303,000, respectively, for the 1996 Three
Months and the 1995 Three Months. The Company has program payment commitments
(including contracts not yet recordable as assets) of $51,054,000, which are
payable in installments of $9,509,000 in 1996, $11,812,000 in 1997,
$10,772,000 in 1998, $8,827,000 in 1999, $5,502,000 in 2000 and $4,632,000
thereafter.
The Company's primary capital requirements have been for capital
expenditures and acquisitions. Capital expenditures totaled $280,000 for the
1996 Three Months compared to $507,000 for the 1995 Three Months. The larger
expenditures in 1995 includes the construction of a news facility at WXLV.
As of March 31, 1996, the Company had outstanding a $220,000,000 senior
debt facility (the "Senior Credit Agreement"), with a $30,000,000 revolving
credit facility (the "Revolving Credit Facility"), of which $15,000,000 was
outstanding, and a $75,000,000 acquisition credit facility (the "Acquisition
Credit Facility") (collectively, the "Senior Credit Facility"), with no
borrowings outstanding at March 31, 1996. The interest rate on all borrowings
under the Senior Credit Agreement vary depending upon either LIBOR or Prime
rates, as selected by the Company, with a margin ranging between 0.0% and 1.5%
for Prime borrowings and 1.25% and 2.75% for LIBOR borrowings added based upon
the Company's leverage ratio for the past quarter. The Company has entered
into various interest rate protection agreements based upon LIBOR rates and a
notional amount equal to the full value of the senior debt facility to protect
against significant fluctuations in interest rates through 2000. The Company
also has outstanding $125,000,000 of 10-1/4% senior subordinated notes due
December 2005.
The Company believes that it will be able to meet its required principal
payments in the future through funds generated from its operations. If the
funds generated from the Company's operations are insufficient to meet its
required principal payments, the Company will explore other financing
alternatives.
The indenture to the senior subordinated notes and the Senior Credit
Facility of the Company contain covenants which, among other restrictions,
require the maintenance of certain financial ratios (including cash flow
ratios), restrict asset purchases and the encumbrances of existing assets,
require lender approval for proposed acquisitions, and limit the incurrence of
additional indebtedness and the payment of dividends.
Based upon current operations, the Company anticipates the cash flow
from operations combined with the cash on hand will be adequate to meet its
requirements for current and foreseeable levels of operation. There can,
however, be no assurance that future developments or economic trends will not
adversely affect the Company's operations.
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q
(a) Exhibits
Previously filed in the original Form 10-Q on May 17, 1996.
(b) Reports on Form 8-K
Previously filed in the original Form 10-Q on May 17, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SULLIVAN BROADCASTING COMPANY, INC.
(Registrant)
August 13, 1996 By: /S/ Patrick Bratton
Patrick Bratton
Vice President - Finance
(Principal Financial and
Chief Accounting Officer)
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