SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 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.
Page 1 of 21 pages
<PAGE> 1
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, 1995 December 31, 1995 June 30, 1996
----------------- ----------------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,584 $ -- $ 6,589
Restricted cash -- 126,916 --
Due from related party -- 390 --
Accounts receivable, net of allowance for
doubtful accounts of $983 and $1,297 28,943 -- 24,273
Current portion of programming rights 8,943 -- 18,664
Current deferred tax asset -- -- 7,986
Prepaid expenses and other current assets 213 -- 1,265
--------------------------------------------------
Total current assets 41,683 127,306 58,777
Property and equipment, net 20,399 -- 43,348
Programming rights, net of current portion 10,852 -- 13,280
Deferred loan costs, net of accumulated
amortization of $2,219, $21 and $819 3,769 7,439 11,956
Deferred tax asset 7,326 236 --
Other assets and intangible assets, net 50,797 -- 578,943
--------------------------------------------------
Total assets $134,826 $134,981 $706,304
==================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE> 2
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (cont.)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
The Company
Predecessor -----------------------------------
December 31, 1995 December 31, 1995 June 30, 1996
----------------- ----------------- -------------
(unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of programming contracts
payable $ 12,788 $ -- $ 12,863
Current portion of senior debt 24,078 -- 12,001
Current income taxes payable 1,961 4 1,795
Interest payable 515 356 3,525
Due to related parties -- 2,184 7,724
Accounts payable 1,482 -- 1,904
Accrued expenses 4,239 3,289 3,506
--------------------------------------------------
Total current liabilities 45,063 5,833 43,318
Senior debt, net of current portion 38,898 -- 207,999
Borrowings under revolving line of credit -- -- 22,000
Subordinated debt 100,000 125,000 125,185
Programming contracts payable, net of
current portion 12,542 -- 16,224
Deferred tax liability -- -- 94,653
Other liabilities 450 -- 189
--------------------------------------------------
Total liabilities 196,953 130,833 509,568
--------------------------------------------------
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) (10,066)
-------------------------------------------
Total shareholders' equity (deficit) (88,513) 4,148 196,736
-------------------------------------------
Total liabilities and shareholders'
equity (deficit) $134,826 $134,981 $706,304
===========================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE> 3
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
Predecessor Company Predecessor Company
1995 1996 1995 1996
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues (excluding barter) $ 27,085 $ 31,828 $ 49,329 $ 57,870
Less - commissions (4,862) (5,330) (8,706) (9,659)
-----------------------------------------------------
Net revenues (excluding barter) 22,223 26,498 40,623 48,211
Barter revenues 1,840 4,487 3,510 7,033
-----------------------------------------------------
Total net revenues 24,063 30,985 44,133 55,244
Expenses
Operating expenses 2,478 4,134 5,026 7,899
Selling, general and administrative 5,284 5,582 10,770 11,126
Amortization of programming rights 3,965 6,587 8,423 12,016
Depreciation and amortization 3,051 10,483 6,137 22,071
-----------------------------------------------------
14,778 26,786 30,356 53,112
-----------------------------------------------------
Operating income (loss) 9,285 4,199 13,777 2,132
Interest expense, including
amortization of debt discount
and deferred loan costs 4,344 8,453 8,970 16,583
Other expenses (income) 13 (12) 28 0
-----------------------------------------------------
Income (loss) before income taxes 4,928 (4,242) 4,779 (14,451)
Income tax (expense) benefit (469) 1,796 (454) 5,438
-----------------------------------------------------
Net income (loss) $ 4,459 $ (2,446) $ 4,325 $ (9,013)
=====================================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE> 4
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited-dollars in thousands)
<TABLE>
<CAPTION>
Class B-2
Common stock Additional Total
----------------- 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) -- -- -- (9,013) (9,013)
Balance at June 30, 1996 520,105 $ 5 $206,797 $ (10,066) $ 196,736
</TABLE>
The accompanying notes to Consolidated Financial Statements are an integral part
of these financial statements.
<PAGE> 5
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited-dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
Predecessor Company
1995 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 4,325 $ (9,013)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Deferred income taxes -- (5,302)
Depreciation of property, plant and equipment 1,485 3,621
Amortization of intangible assets 4,652 18,450
Amortization of programming rights (excluding
barter) 5,088 5,476
Payments for programming rights (4,661) (4,269)
Amortization of deferred loan costs 445 798
Loss on disposal of fixed assets 11 --
Changes in assets and liabilities:
Decrease in accounts receivable 6,232 4,670
Increase in prepaid expenses and other assets (44) (1,052)
Increase in intangible assets (7,174) --
Increase in due to related parties -- 5,930
Increase (decrease) in income taxes payable 89 (962)
Increase in interest payable -- 3,169
Decrease in accounts payable and other
accrued liabilities (1,482) (3,600)
-----------------------
Net cash provided by operating activities 8,966 17,916
-----------------------
Cash flows from investing activities:
Decrease in restricted cash -- 126,916
Increase in other assets -- (17,252)
Acquisition of Act III Broadcasting, Inc.,
net of cash acquired -- (550,045)
Payment for purchase options -- (2,800)
Acquisition of WFXV assets -- (650)
Capital expenditures (2,165) (1,129)
-----------------------
Net cash used for investing activities (2,165) (444,960)
-----------------------
Cash flows from financing activities:
Payment of principal amounts (7,235) --
Proceeds from term debt -- 220,000
Proceeds from revolver borrowings -- 22,000
Proceeds from stockholder contribution -- 201,601
Advance buydown of programming rights -- (4,396)
Payment of debt issuance costs -- (5,572)
-----------------------
Net cash (used) provided by financing activities (7,235) 433,633
Net (decrease) increase in cash and cash equivalents (434) 6,589
Cash and cash equivalents, beginning of period 3,295 --
-----------------------
Cash and cash equivalents, end of period $ 2,861 $ 6,589
=======================
</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.
<PAGE> 6
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 six
months ended June 30, 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:
Net revenues $ 832,000
Operating expenses 178,000
Selling, general & administrative expenses 219,000
Operating income 435,000
The accompanying consolidated financial statements 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 and the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1996. 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 six months ended June 30, 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 six month period ended June 30, 1995.
<PAGE> 7
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ ------------
<S> <C> <C>
Land $ 1,771,000 $ 1,366,000
Broadcasting equipment 32,335,000 35,231,000
Buildings and improvements 8,006,000 5,734,000
Furniture and other equipment 4,144,000 2,605,000
Construction in progress 1,457,000 2,036,000
-----------------------------
47,713,000 46,972,000
Less: Accumulated depreciation and amortization (27,314,000) (3,624,000)
-----------------------------
$ 20,399,000 $ 43,348,000
=============================
</TABLE>
3. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
Amortization December 31, June 30,
Period 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Goodwill 40 Years $ 25,919,000 $192,093,000
Affiliation agreements 10 Years 18,260,000 91,174,000
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 -- 131,844,000
FCC licenses 15 years -- 75,465,000
Other intangible assets 5 - 15 Years 21,931,000 30,565,000
------------------------------
109,811,000 580,141,000
Less: Accumulated amortization (59,157,000) (18,450,000)
------------------------------
$ 50,654,000 $561,691,000
==============================
</TABLE>
<PAGE> 8
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 future repayments of the term loan are as follows:
1996 $ 5,500,000
1997 13,002,000
1998 21,010,000
1999 33,000,000
2000 44,000,000
Thereafter 103,488,000
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 June 30, 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 June 30, 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 June 30, 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 and net operating losses generated during the period give rise to the
net deferred tax asset and liability recorded at June 30, 1996.
<PAGE> 9
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $8,486,000 and $12,520,000 during the periods ended
June 30, 1995 and June 30, 1996, respectively.
During the periods ended June 30, 1995 and June 30, 1996, programming rights
increased $1,559,000 and $2,080,000 respectively, due to the assumption of
programming liabilities.
During the periods ended June 30, 1995 and June 30, 1996, the Company paid
approximately $385,000 and $962,000 respectively, for state and local income
taxes.
7. COMMITMENTS AND CONTINGENCIES
The Company has executed contracts for programming rights totaling approximately
$21,905,000 and $14,401,000 at December 31, 1995 and June 30, 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 $335,000 and $96,000 for the periods ending June 30, 1995 and June
30, 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.
<PAGE> 10
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 this acquisition was $400,000. In addition, the Company paid
$2,600,000 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 June 24, 1996
the acquisition of the remaining assets was consumated subsequent to the receipt
of FCC approval and the payment of $250,000.
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 paid $200,000 for an option 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. Subsequent to FCC
approval, this transaction was consumated on July 1, 1996.
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 six month period ended June
30, 1995 adjusted to give effect to the Acquisition as if it had occurred on
January 1, 1995:
Net revenue $44,616
Net loss 11,164
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.
<PAGE> 11
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 June 30, 1995 of Act III (the "1995 Three Months") Compared
to Three Months Ended June 30, 1996 of the Company (the "1996 Three Months")
Set forth below are selected consolidated financial data for the three months
ended June 30, 1995 of Act III and June 30, 1996 of the Company and the
percentage changes between the periods.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
Predecessor Company
1995 1996 Percentage
(in thousands) Change
------------------------ ----------
<S> <C> <C> <C>
Net revenues (excluding barter) $ 22,223 $ 26,498 19.2 %
Barter revenues 1,840 4,487 143.9
Total net revenues 24,063 30,985 28.8
Operating expenses 2,478 4,134 66.8
Selling, general and administrative expenses 5,284 5,582 5.6
Depreciation and amortization 7,016 17,070 143.3
Operating income 9,285 4,199 (54.8)
Interest expense 4,344 8,453 94.6
Net income (loss) 4,459 (2,446) (154.9)
Payments for programming rights 2,358 2,061 (12.6)
Broadcast Cash Flow 12,962 15,514 19.7
</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 $26,498,000 in the 1996 Three Months from
$22,223,000 in the 1995 Three Months, an increase of $4,275,000 or 19.2%. 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 47.6% from
local advertising sales and 52.4% 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 $14,961,000 in the 1996 Three Months from $11,373,000 in
the 1995 Three Months, an increase of $3,588,000, or 31.5%. The increase was
primarily due to increased ratings as well as strong advertising demand.
<PAGE> 12
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 $16,448,000 in the 1996 Three Months
from $15,333,000 in the 1995 Three Months, an increase of $1,115,000, or 7.3%.
As with local revenues, national/Canadian revenues increased primarily due to
improved ratings and strong advertising demand.
Barter revenues increased to $4,487,000 in the 1996 Three Months from
$1,840,000 in the 1995 Three Months, an increase of $2,647,000, or 143.9%. 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. Operating expenses increased to $4,134,000 in
the 1996 Three Months from $2,478,000 in the 1995 Three Months, an increase of
$1,656,000. 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 $426,000 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 $5,582,000 in the 1996 Three
Months from $5,284,000 in the 1995 Three Months, an increase of $298,000, or
5.6%. 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 $17,070,000 in the 1996 Three Months
from $7,016,000 in the 1995 Three Months, an increase of $10,054,000, or 143.3%,
due to the increase in value of all fixed assets, programming rights and
intangible assets in conjunction with the Acquisition.
Operating income decreased to $4,199,000 in the 1996 Three Months from
$9,285,000 in the 1995 Three Months, a decrease of $5,086,000, 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
$4,109,000 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 income decreased to a net loss of $2,446,000 in the 1996 Three Months
compared to net income of $4,459,000 in the 1995 Three Months, a decrease of
$6,905,000, due to the reasons discussed above.
<PAGE> 13
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Payments for programming rights decreased to $2,061,000 in the 1996 Three
Months from $2,358,000 in the 1995 Three Months, a decrease of $297,000, or
12.6%. 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 $15,514,000 in the 1996 Three Months from
$12,962,000 in the 1995 Three Months, an increase of $2,552,000, 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.
Six Months Ended June 30, 1995 of Act III (the "1995 Six Months") Compared to
Six Months Ended June 30, 1996 of the Company (the "1996 Six Months")
Set forth below are selected consolidated financial data for the six months
ended June 30, 1995 of Act III and June 30, 1996 of the Company and the
percentage changes between the periods.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Predecessor Company
1995 1996 Percentage
(in thousands) Change
----------------------- ----------
<S> <C> <C> <C>
Net revenues (excluding barter) $ 40,623 $ 48,211 18.7 %
Barter revenues 3,510 7,033 100.4
Total net revenues 44,133 55,244 25.2
Operating expenses 5,026 7,899 57.2
Selling, general and administrative expenses 10,770 11,126 3.3
Depreciation and amortization 14,560 34,087 134.1
Operating income 13,777 2,132 (84.5)
Interest expense 8,970 16,583 84.9
Net income (loss) 4,325 (9,013) (308.4)
Payments for programming rights 4,661 4,269 (8.4)
Broadcast Cash Flow 22,022 26,540 20.5
</TABLE>
<PAGE> 14
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Net revenues (excluding barter) are net of commissions and primarily
include local and national/Canadian spot advertising sales. Net revenues
(excluding barter) increased to $48,211,000 in the 1996 Six Months from
$40,623,000 in the 1995 Six Months, an increase of $7,588,000 or 18.7%. 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 Six Months were comprised of 47.3% from local
advertising sales and 52.7% 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 $26,892,000 in the 1996 Six Months from $21,193,000 in the
1995 Six Months, an increase of $5,699,000, or 26.9%. 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 $29,981,000 in the 1996 Six Months from
$27,106,000 in the 1995 Six Months, an increase of $2,875,000 or 10.6%. As with
local revenues, national/Canadian revenues increased primarily due to improved
ratings and strong advertising demand.
Barter revenues increased to $7,033,000 in the 1996 Six Months from
$3,510,000 in the 1995 Six Months, an increase of $3,523,000, or 100.4%. This
increase was primarily due to the increase in the value of barter programming
rights related to the application of purchase accounting and resulting increase
in the revenue recognized therefrom.
Operating expenses include engineering, promotion, production, programming
operations and barter expenses. Operating expenses increased to $7,899,000 in
the 1996 Six Months from $5,026,000 in the 1995 Six Months, an increase of
$2,873,000. 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 $902,000 during the 1996 Six 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 Six Months.
Selling, general and administrative expenses include sales, salaries,
commissions, insurance, supplies and general management salaries. Selling,
general and administrative expenses increased to $11,126,000 in the 1996 Six
Months from $10,770,000 in the 1995 Six Months, an increase of $356,000, or
3.3%. This increase is the result of higher salary costs due to an overall
headcount increase, offset somewhat by reduced corporate overhead.
<PAGE> 15
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Depreciation and amortization includes depreciation of property and
equipment, amortization of programming rights and amortization of intangibles.
Depreciation and amortization increased to $34,087,000 in the 1996 Six Months
from $14,560,000 in the 1995 Six Months, an increase of $19,527,000, or 134.1%,
due to the increase in value of all fixed assets, programming rights and
intangible assets in conjunction with the Acquisition.
Operating income decreased to $2,132,000 in the 1996 Six Months from
$13,777,000 in the 1995 Six Months, a decrease of $11,645,000, 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
$7,613,000 increase for the 1996 Six Months as compared to the 1995 Six Months
is the result of interest costs incurred on the debt utilized to fund the
Acquisition.
Net income decreased to a net loss of $9,013,000 in the 1996 Six Months
compared to net income of $4,325,000 in the 1995 Six Months, a decrease of
$13,338,000, due to the reasons discussed above.
Payments for programming rights decreased to $4,269,000 in the 1996 Six
Months from $4,661,000 in the 1995 Six Months, a decrease of $392,000, or 8.4%.
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 $26,540,000 in the 1996 Six Months from
$22,022,000 in the 1995 Six Months, an increase of $4,518,000, 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 Six Months was $17,916,000 compared
to $8,966,000 in the 1995 Six 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.
<PAGE> 16
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Cash provided by operations is after payments for programming rights, which
amounted to $4,269,000 and $4,661,000, respectively, for the 1996 Six Months and
the 1995 Six Months. The Company has program payment commitments (including
contracts not yet recordable as assets) of $46,345,000, which are payable in
installments of $7,550,000 in 1996, $11,735,000 in 1997, $10,298,000 in 1998,
$8,502,000 in 1999, $4,949,000 in 2000 and $3,311,000 thereafter.
The Company's primary capital requirements have been for capital
expenditures and acquisitions. Capital expenditures totaled $1,129,000 for the
1996 Six Months compared to $2,165,000 for the 1995 Six Months. The larger
expenditures in 1995 includes the construction of a news facility at WXLV.
As of June 30, 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 $22,000,000 was
outstanding, and a $75,000,000 acquisition credit facility (the "Acquisition
Credit Facility") (collectively, the "Senior Credit Facility"), with no
borrowings outstanding at June 30, 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.
<PAGE> 17
SULLIVAN BROADCASTING COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-Q
(a) Exhibits
The following exhibits are filed as part of this Quarterly Report on
Form 10-Q.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<C> <S>
10.1 Sixth Supplemental Indenture dated as of June 30, 1996 between Sullivan
Broadcasting Company, Inc. (as successor to A-3) and State Street Bank
and Trust Company as trustee (the "Trustee") relating to the Notes
10.2 First Amendment to Credit Agreement and Limited Waiver and Consent
dated as of May 24, 1996 by and among Sullivan Broadcasting Company,
Inc. as successor to A-3 Holdings, Nations Bank of Texas, N.A. and
certain other lenders.
</TABLE>
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 14, 1996 By: /s/ PATRICK BRATTON
----------------------------------
Patrick Bratton
Vice President - Finance
(Principal Financial and Chief
Accounting Officer)
- ----------------------------------------------------------------------------
SULLIVAN BROADCASTING COMPANY, INC.
(formerly known as ACT III BROADCASTING, INC.)
As Issuer,
----------
TO
STATE STREET BANK AND TRUST COMPANY,
(as successor to
THE FIRST NATIONAL BANK OF BOSTON),
as Trustee,
-----------
AND
THE GUARANTORS NAMED HEREIN
(formerly known as the Guarantors named therein)
As Guarantors
-------------------------------------------------
SIXTH SUPPLEMENTAL INDENTURE
Dated as of June 30, 1996
-------------------------------------------------
Supplemental to the Indenture
among
Act III Broadcasting, Inc.,
State Street Bank and Trust Company
and
the Guarantors named therein
Dated as of December 15, 1993,
as Supplemented by the
First Supplemental Indenture
dated as of November 10, 1994,
the Second Supplemental
Indenture dated as of October 24, 1995,
the Third Supplemental
Indenture dated as of November 21, 1995
the Fourth Supplemental
Indenture dated as of January 5, 1996
and the Fifth Supplemental
Indenture dated as of February 7, 1996
- ----------------------------------------------------------------------------
SIXTH SUPPLEMENTAL INDENTURE
SIXTH SUPPLEMENTAL INDENTURE, dated as of June 30, 1996, among
SULLIVAN BROADCASTING COMPANY, INC., a corporation duly organized and
existing under the laws of the State of Delaware (formerly known as Act III
Broadcasting, Inc. and herein called the "Company"), having its principal
office at 18 Newbury Street, Boston, Massachusetts 02116, STATE STREET BANK
AND TRUST COMPANY, a Massachusetts trust company (herein called the
"Trustee"), as successor Trustee to The First National Bank of Boston, a
national banking association duly organized and existing under the laws of
the United States, under the Indenture, dated as of December 15, 1993, among
the Company, the Trustee and the Guarantors named therein (as supplemented
and amended, the "Indenture"), and SULLIVAN BROADCASTING OF BUFFALO, INC., a
corporation duly organized and existing under the laws of the State of
Delaware, SULLIVAN BROADCASTING OF CHARLESTON, INC., a corporation duly
organized and existing under the laws of the State of Delaware, SULLIVAN
BROADCASTING OF DAYTON, INC., a corporation duly organized and existing
under the laws of the State of Delaware, SULLIVAN BROADCASTING OF NASHVILLE,
INC., a corporation duly organized and existing under the laws of the State
of Tennessee, SULLIVAN BROADCASTING OF NEVADA, INC., a corporation duly
organized and existing under the laws of the State of Nevada, SULLIVAN
BROADCASTING OF RICHMOND, INC., a corporation duly organized and existing
under the laws of the State of Delaware, SULLIVAN BROADCASTING OF ROCHESTER,
INC., a corporation duly organized and existing under the laws of the State
of Delaware, SULLIVAN BROADCASTING OF UTICA, INC., a corporation duly
organized and existing under the laws of the State of Delaware, SULLIVAN
BROADCASTING OF WEST VIRGINIA, INC., a corporation duly organized and
existing under the laws of the State of Delaware, SULLIVAN BROADCASTING
MANAGEMENT SERVICES, INC., a corporation duly organized and existing under
the laws of the State of Delaware, and SULLIVAN BROADCASTING LICENSE CORP.,
a corporation duly organized and existing under the laws of the State of
Delaware (collectively, the "Guarantors"), the Guarantors being all of the
Subsidiaries of the Company and were formerly known by the names set forth
in the Indenture, each having its principal office at 18 Newbury Street,
Boston, Massachusetts 02116, except for Sullivan Broadcasting of Nevada,
Inc., whose principal office is 1325 Airmotive Way, Suite 130, Reno, Nevada
89502 and SULLIVAN BROADCASTING OF TENNESSEE, INC., a corporation duly
organized and existing under the laws of the State of Delaware
("Tennessee").
RECITAL OF THE TRUSTEE
WHEREAS, the Company, the Guarantors and the Trustee are parties to
that certain Indenture, dated as of December 15, 1993, as supplemented by
the First Supplemental Indenture thereto dated as of November 10, 1994, the
Second Supplemental Indenture thereto dated as of October 24, 1995, the
Third Supplemental Indenture thereto dated as of November 21, 1995, the
Fourth Supplemental Indenture thereto dated as of January 5, 1996 and the
Fifth Supplemental Indenture thereto dated as of February 7, 1996 (as so
supplemented, the "Indenture"), pertaining to $100,000,000 principal amount
of the Company's 9 % Senior Subordinated Notes due 2003 (including the
related guarantees, the "Securities").
RECITALS OF THE COMPANY, THE GUARANTORS AND TENNESSEE
WHEREAS, Tennessee is a newly formed, wholly-owned subsidiary of the
Company;
WHEREAS, the Company, the Guarantors and Tennessee desire, pursuant to
Section 901 of the Indenture, to execute this Supplemental Indenture in
order to comply with Section 1017 of the Indenture; and
WHEREAS, the Company, the Guarantors and Tennessee have duly
authorized the execution and delivery of this Supplemental Indenture in
order for Tennessee to assume all the obligations of a Subsidiary Guarantor
under the Securities and the Indenture.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree for the equal and proportionate
benefit of all Holders of the Securities, as follows:
Section 1. Tennessee hereby assumes all the obligations of a
Guarantor, under the Securities and the Indenture; and Tennessee may
exercise every right and power of a Guarantor under the Indenture with the
same effect as if Tennessee had been named as a Guarantor therein.
Section 2. Any notice or communication by the Trustee to Tennessee
shall be addressed as follows:
Sullivan Broadcasting of Tennessee, Inc.
18 Newbury Street
Boston, Massachusetts 02116
Attn: President
Section 3. From and after the date hereof, the Indenture, as
supplemented by this Supplemental Indenture, shall be read, taken and
construed as one and the same instrument with respect to the Securities.
Section 4. This Supplemental Indenture may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and
the same instruments.
* * * * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year above written.
SULLIVAN BROADCASTING COMPANY, INC.
SULLIVAN BROADCASTING OF TENNESSEE, INC.,
as Guarantor
SULLIVAN BROADCASTING OF BUFFALO, INC.,
as Guarantor
SULLIVAN BROADCASTING OF CHARLESTON, INC.,
as Guarantor
SULLIVAN BROADCASTING OF DAYTON, INC.,
as Guarantor
SULLIVAN BROADCASTING OF NASHVILLE, INC.,
as Guarantor
SULLIVAN BROADCASTING OF NEVADA, INC.,
as Guarantor
SULLIVAN BROADCASTING OF RICHMOND, INC.,
as Guarantor
SULLIVAN BROADCASTING OF ROCHESTER, INC.,
as Guarantor
SULLIVAN BROADCASTING OF UTICA, INC.,
as Guarantor
SULLIVAN BROADCASTING OF WEST VIRGINIA, INC.,
as Guarantor
SULLIVAN BROADCASTING MANAGEMENT
SERVICES, INC., as Guarantor
SULLIVAN BROADCASTING LICENSE CORP.,
as Guarantor
By: /s/ J. Daniel Sullivan
Title: President
Attest:
/s/ Royce Yudkoff
Title: Secretary
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Jill Olsen
Title: Assistant Vice President
Attest:
/s/ Todd R. DiNezza
Title: Assistant Secretary
STATE OF ) ___________________
) ss:
COUNTY OF ) ___________________
On this 30th day of June, 1996, before me, a Notary Public in and for
said County and State, personally appeared the within named J. Daniel
Sullivan, to me known, who being first duly and severally sworn did say that
he, said J. Daniel Sullivan, is the President of SULLIVAN BROADCASTING
COMPANY, INC., SULLIVAN BROADCASTING OF TENNESSEE, INC., SULLIVAN
BROADCASTING OF BUFFALO, INC., SULLIVAN BROADCASTING OF CHARLESTON, INC.,
SULLIVAN BROADCASTING OF DAYTON, INC., SULLIVAN BROADCASTING OF NASHVILLE,
INC., SULLIVAN BROADCASTING OF NEVADA, INC., SULLIVAN BROADCASTING OF
RICHMOND, INC., SULLIVAN BROADCASTING OF ROCHESTER, INC., SULLIVAN
BROADCASTING OF UTICA, INC., SULLIVAN BROADCASTING OF WEST VIRGINIA, INC.,
SULLIVAN BROADCASTING MANAGEMENT SERVICES, INC. AND SULLIVAN BROADCASTING
LICENSE CORP.; that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors; and that J. Daniel
Sullivan acknowledges the execution of said instrument to be the free act
and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the date first hereinabove written.
/s/ Lisa Burr
Notary Public, State of Tennessee
[SEAL]
STATE OF ) Massachusetts
) ss:
COUNTY OF ) Suffolk
On this 30th day of June, 1996, before me, a Notary Public in and for
said County and State, personally appeared the within named Royce Yudkoff,
to me known, who being first duly and severally sworn did say that he, said
Royce Yudkoff, is the Secretary of SULLIVAN BROADCASTING COMPANY, INC.,
SULLIVAN BROADCASTING OF TENNESSEE, INC., SULLIVAN BROADCASTING OF BUFFALO,
INC., SULLIVAN BROADCASTING OF CHARLESTON, INC., SULLIVAN BROADCASTING OF
DAYTON, INC., SULLIVAN BROADCASTING OF NASHVILLE, INC., SULLIVAN
BROADCASTING OF NEVADA, INC., SULLIVAN BROADCASTING OF RICHMOND, INC.,
SULLIVAN BROADCASTING OF ROCHESTER, INC., SULLIVAN BROADCASTING OF UTICA,
INC., SULLIVAN BROADCASTING OF WEST VIRGINIA, INC., SULLIVAN BROADCASTING
MANAGEMENT SERVICES, INC. AND SULLIVAN BROADCASTING LICENSE CORP.; that said
instrument was signed and sealed in behalf of said corporation by authority
of its Board of Directors; and that Royce Yudkoff acknowledges the execution
of said instrument to be the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the date first hereinabove written.
Kelly Goggin
Notary Public, State of Massachusetts
[SEAL]
COMMONWEALTH OF ) Boston
MASSACHUSETTS )
) ss:
COUNTY OF SUFFOLK ) __________________
On this 21st day of June, 1996, before me, a Notary Public in and for
said County and State, personally appeared the within named Jill Olson, to
me known, who each being first duly and severally sworn did say that s/he,
is the Assistant Vice President of STATE STREET BANK AND TRUST COMPANY; that
the seal affixed to the foregoing instrument is the seal of said
corporation; that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors; and that s/he
acknowledges the execution of said instrument to be the free act and deed of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the date first hereinabove written.
Cecil A. Gilbert
Notary Public, Commonwealth of
Massachusetts
Cecil A. Gilbert
Notary Public
My Commission Expires July 12, 2002
[SEAL]
FIRST AMENDMENT TO CREDIT AGREEMENT
AND LIMITED WAIVER AND CONSENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER AND
CONSENT (this "Amendment and Waiver"), dated as of May 24, 1996, is entered
into by and among Sullivan Broadcasting Company, Inc., a Delaware
corporation formerly known as Act III Broadcasting, Inc. and successor by
merger to A-3 Acquisition, Inc. ("SBC"), Sullivan Broadcast Holdings, Inc.,
a Delaware corporation formerly known as A-3 Holdings, Inc., the Lenders
parties hereto, and NationsBank of Texas, N.A., as Administrative Agent for
the Lenders and as a Lender, with reference to the hereinafter described
Credit Agreement. Capitalized terms used and not otherwise defined herein
shall have the meanings ascribed to them in such Credit Agreement.
RECITALS
A. A-3 Acquisition, Inc., a Delaware corporation ("A-3
Acquisition"), A-3 Holdings, Inc., a Delaware corporation, the
Administrative Agent, the other members of the Agent Group and the Lenders
entered into that certain Credit Agreement, dated January 4, 1996 (as
amended, modified, restated, supplemented, renewed, extended, rearranged or
substituted from time to time, the "Credit Agreement").
B. Pursuant to the Credit Agreement, the Lenders made Loans to A-3
Acquisition to enable it to consummate the Act III Acquisition.
C. SBC and A-3 Acquisition have merged and SBC is the surviving
corporation of such merger. Pursuant to an Assumption Agreement, dated
January 4, 1996, SBC has expressly assumed and ratified all of the
obligations of A-3 Acquisition under the Credit Agreement and the other Loan
Documents to which A-3 Acquisition is a party and the due and punctual
performance and observance of all the obligations to be performed and
provisions to be observed by A-3 Acquisition under the Credit Agreement and
such other Loan Documents. Pursuant to such merger and such Assumption
Agreement, SBC is now the "Borrower" under the Credit Agreement.
D. The Borrower has caused its Wholly Owned Subsidiary, Sullivan
Broadcasting of Nashville, Inc. ("SBN"), to enter into a time brokerage
agreement with Central Tennessee Broadcasting Corporation ("CTBC"), pursuant
to which SBN is providing programming for, and selling advertising on,
broadcast television station WXMT-TV, Nashville, Tennessee ("WXMT-TV").
Such transaction was part of a restatement and restructuring of the
Nashville Acquisition referred to in the Credit Agreement, as evidenced by
the Amended and Restated Option Agreement referred to in Paragraph E below.
In connection with the consummation of the transactions contemplated by such
Amended and Restated Option Agreement, the Borrower will cause to be formed
a new indirect subsidiary of the Borrower, Sullivan Broadcasting of
Tennessee, Inc., a Delaware corporation ("SBT").
E. Pursuant to that certain Amended and Restated Option Agreement,
dated as of February 22, 1996 (the "Amended and Restated Option Agreement"),
by and among ABRY Broadcast Partners II, L.P., CTBC, M.T. Communications,
Inc., Michael P. Thompson, the Parent and the Borrower (which subsequently
assigned certain of its rights thereunder to Mission Broadcasting I, Inc.,
a Delaware corporation ("Mission I")), Mission I intends to acquire from
CTBC all of CTBC's right, title and interest in and to certain assets
relating to WXMT-TV, including, without limitation, all FCC Licenses (such
transaction is referred to herein as the "Mission I Nashville Acquisition").
As contemplated by the Amended and Restated Option Agreement, the Borrower
desires to cause (i) SBN or SBT to enter into a new time brokerage agreement
with Mission I immediately upon consummation of the Mission I Nashville
Acquisition, pursuant to which SBN or SBT will provide programming for, and
sell advertising on, WXMT-TV (such transaction is referred to herein as the
"SBN-Mission I Nashville LMA Transaction") and, immediately thereafter,
(ii) SBT to merge with CTBC, with SBT continuing as the surviving
corporation.
F. The Borrower has previously entered into a time brokerage
agreement with Guilford Telecasters, Inc.("GTI"), pursuant to which the
Borrower is providing programming for, and selling advertising on,
television broadcast station WGGT-TV, Winston-Salem, North Carolina ("WGGT-
TV").
G. Mission Broadcasting II, Inc., a Delaware corporation ("Mission
II"), as the assignee of the Borrower, is a party to that certain Option
Agreement, dated as of June 30, 1995, originally entered into by and between
GTI and Robert A. Finkelstein (who assigned his rights thereunder to the
Borrower). Pursuant to such Option Agreement, Mission II intends to acquire
from GTI all assets used or useful in the operation of WGGT-TV, including,
without limitation, all FCC Licenses (such transaction is referred to herein
as the "Mission II Winston-Salem Acquisition"). The Borrower desires to
enter into, or cause a Subsidiary of the Borrower to enter into, a new time
brokerage agreement with Mission II, pursuant to which the Borrower or such
Subsidiary will provide programming for, and sell advertising on, WGGT-TV
(such transaction is referred to herein as the "SBC-Mission II Winston-Salem
LMA Transaction").
H. NationsBank of Texas, N.A., individually and not as a Lender
under the Credit Agreement (in such capacity, "NationsBank"), has agreed,
subject to certain terms and conditions, to make (i) a term loan in the
amount of up to $3,200,000 to Mission I (the "Mission I Loan") in order to
enable it to consummate the Mission I Nashville Acquisition and (ii) a term
loan in the amount of up to $1,000,000 to Mission II (the "Mission II Loan")
in order to enable it to consummate the Mission II Winston-Salem
Acquisition. As conditions to making the Mission I Loan and Mission II
Loan, NationsBank has required, among other things, (i) that the Borrower
execute and deliver Guaranty Agreements (the "Mission Guaranty Agreements")
guarantying all obligations of Mission I and Mission II under or in
connection with the Mission I Loan and Mission II Loan, respectively, (ii)
that the Majority Lenders consent to the Borrower's execution and delivery
of such Guaranty Agreements and (iii) that the Majority Lenders acknowledge
and agree that the Borrower's obligations under such Guaranty Agreements
shall be part of the Obligations under the Credit Agreement and, as such,
shall be secured by all collateral now or hereafter securing such
Obligations.
I. The Borrower, the Parent and the Lenders parties hereto wish to
enter into this Amendment and Waiver in order to (i) consent to the
Borrower's execution and delivery of the Mission Guaranty Agreements and
waive the applicable Credit Agreement provision prohibiting the same, (ii)
amend the Credit Agreement to provide that the Borrower's obligations under
the Mission Guaranty Agreements shall be part of the Obligations under the
Credit Agreement and (iii) amend the Credit Agreement in certain other
respects as described hereinbelow.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
Section 1. LIMITED WAIVER AND CONSENT
Subject to the terms and conditions set forth herein, and in reliance
upon the representations and warranties of the Borrower and the Parent
herein contained, the Lenders parties hereto, who constitute not less than
the Majority Lenders, hereby (a) consent to the Borrower's execution and
delivery of the Mission Guaranty Agreements in connection with the Mission I
Loan and Mission II Loan and (b) waive the application of Section 8.2 of the
Credit Agreement, the terms of which would otherwise prohibit execution and
delivery of the Mission Guaranty Agreements; provided, that such consent and
waiver is given solely with respect to the Mission Guaranty Agreements; and
provided further, that such consent and waiver does not abrogate the
necessity that the Borrower and its Subsidiaries comply with all other terms
and conditions of the Credit Agreement and the other Loan Documents
applicable to the execution and delivery of the Mission Guaranty Agreements
and the transactions contemplated thereby.
Section 2. AMENDMENTS TO CREDIT AGREEMENT
Subject to the terms and conditions set forth herein, and in reliance
upon the representations and warranties of the Borrower and the Parent
herein contained, the Borrower, the Parent and the Lenders parties hereto,
who constitute not less than the Majority Lenders, hereby amend the Credit
Agreement as follows:
(a) Definition of "Mission Guaranty Agreements" Added. Section 1.1
of the Credit Agreement is hereby amended by adding the following new
definition thereto:
"Mission Guaranty Agreements": collectively, (a) the Guaranty Agreement
dated July ___, 1996, executed and delivered by the Borrower to guaranty
the obligations of Mission Broadcasting I, Inc. under or in connection
with that certain Term Note of even date therewith from Mission
Broadcasting I, Inc. to NationsBank of Texas, N.A. in the face principal
amount of $3,200,000 and (b) the Guaranty Agreement dated July ___, 1996,
executed and delivered by the Borrower to guaranty the obligations of
Mission Broadcasting II, Inc. under or in connection with that certain
Term Note of even date therewith from Mission Broadcasting II, Inc. to
NationsBank of Texas, N.A. in the face principal amount of $1,000,000.
(b) Definition of "Obligations" Amended. The definition of
"Obligations" set forth in Section 1.1 of the Credit Agreement is hereby
amended as follows:
(i) by deleting the term "Interest Rate Protection Agreement,"
which appears in the sixth and seventh lines thereof and again in the
tenth line thereof, and replacing it with the term "Interest Rate Hedge
Agreement;" and
(ii) by inserting the following after the parenthetical phrase
"(or any affiliate of any Lender)" in the eleventh line thereof:
, the Mission Guaranty Agreements
(c) Definition of "Termination Date" Amended. The definition of
"Termination Date" is hereby amended by deleting the text thereof in its
entirety and replacing it with the following:
The earlier of (a) December 31, 2003 and (b) the date on which the Term
Loans become due and payable in full, pursuant to acceleration or
otherwise.
(d) Clarification of Mandatory Available Acquisition Credit
Reductions. Section 4.2(c) of the Credit Agreement is hereby amended by
deleting the text thereof in its entirety and replacing it with the
following:
The Available Acquisition Credit shall automatically be permanently
reduced on the last day of each fiscal quarter of the Borrower,
commencing on March 31, 2000, and ending on December 31, 2003, based on
the following annual percentages of the original amount of the Available
Acquisition Credit, prior to any reductions made pursuant to this Section
4.2 and without consideration of any limitation to such amount pursuant
to Section 2.6(a):
Year Annual Percentage Reduction
---- ---------------------------
2000 20.00%
2001 20.00%
2002 20.00%
2003 40.00%
------
100.00%
The amount of each reduction of the Available Acquisition Credit during
any fiscal year of the Borrower shall be an amount equal to the
applicable percentage set forth above of such original amount of the
Available Acquisition Credit, divided by the number of quarterly
permanent reductions to be made during such fiscal year.
(e) Amendment of Pro Forma Adjustments to Operating Cash Flow.
Schedule 1.2 to the Credit Agreement, captioned "Pro Forma Adjustments to
Operating Cash Flow," is hereby deleted in its entirety and replaced with
the revised Schedule 1.2 attached hereto.
Section 3. REPRESENTATIONS AND WARRANTIES
The Borrower and the Parent hereby represent and warrant to the
Administrative Agent and the Lenders that the following statements are true
and correct in all material respects on and as of the date hereof:
(a) Incorporation of Credit Agreement Representations and
Warranties. The representations and warranties contained in Section 5 of
the Credit Agreement are true and correct in all material respects on and as
of the date hereof, both before and after giving effect to this Amendment
and Waiver.
(b) Absence of Default. Both before and after giving effect to this
Amendment and Waiver, no event has occurred or will occur that constitutes a
Default under the Credit Agreement.
(c) Enforceability. This Amendment and Waiver constitutes a legal,
valid, and binding obligation of the Borrower and the Parent, enforceable in
accordance with the terms hereof.
Section 4. MISCELLANEOUS
(a) Ratification and Confirmation of Loan Documents. Except as
specifically amended or waived hereby, the Credit Agreement and other Loan
Documents remain in full force and effect and are hereby ratified and
confirmed by the Borrower and the Parent, and the execution and delivery of
this Amendment and Waiver shall not, except as expressly provided herein,
operate as an amendment or waiver of any right, power or remedy of the
Administrative Agent, the Lenders or the Managing Agents under the Credit
Agreement or operate as an approval of the terms and conditions of any
agreement of the Borrower or any Subsidiary. Without limiting the
generality of the foregoing, the waiver and consent set forth in Section 1
above shall be limited precisely as set forth above, and nothing in this
Amendment and Waiver shall be deemed (a) to constitute a waiver of
compliance by the Borrower or any of the Subsidiaries with respect to any
other provision or condition of the Credit Agreement or any other Loan
Document applicable to the transactions contemplated hereby or otherwise or
(b) to prejudice any right or remedy that the Administrative Agent, the
Lenders or the Managing Agents may now have or may have in the future under
or in connection with the Credit Agreement or any other Loan Document.
(b) Fees and Expenses. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Administrative Agent in connection with
the preparation, reproduction, execution, and delivery of this Amendment and
Waiver, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Administrative Agent.
(c) Headings. Section and subsection headings in this Amendment and
Waiver are included herein for convenience of reference only and shall not
constitute a part of this Amendment and Waiver for any other purpose or be
given any substantive effect.
(d) APPLICABLE LAW. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
(e) Counterparts. This Amendment and Waiver may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one and
the same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature
pages are physically attached to the same document.
(f) FINAL AGREEMENT. THIS AMENDMENT AND WAIVER, TOGETHER WITH THE
CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
SULLIVAN BROADCASTING COMPANY, INC.
By: /s/ Royce G. Yudkoff
Name: Royce G. Yudkoff
Title: Vice President
SULLIVAN BROADCAST HOLDINGS, INC.
By: /s/ Royce G. Yudkoff
Name: Royce G. Yudkoff
Title: Vice President
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and as a Lender
By: /s/ Gregory I. Meador
Name: Gregory I. Meador
Title: Vice President
BANKERS TRUST COMPANY,
as a Lender
By: /s/ Gina S. Thompson
Name: Gina S. Thompson
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By: /s/ M.S. Denomme
Name: M.S. Denomme
Title: Vice President
CHEMICAL BANK,
as a Lender
By: /s/ Ann B. Kerns
Name: Ann B. Kerns
Title: Vice President
HELLER FINANCIAL, INC.,
as a Lender
By: /s/ Joann L. Holman
Name: Joann L. Holman
Title: Assistant Vice President
NEW YORK LIFE INSURANCE COMPANY,
as a Lender
By: /s/ Adam G. Clemens
Name: Adam G. Clemens
Title Investment Vice President
BANK OF AMERICA ILLINOIS,
as a Lender
By: /s/ Carl F. Salas
Name: Carl F. Salas
Title: Vice President
BANK OF MONTREAL, CHICAGO BRANCH,
as a Lender
By: /s/ Allegra B. Griffiths
Name: Allegra B. Griffiths
Title: Director
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR, as a Lender
By: /s/ Brian J. Cumberland
Name: Brian J. Cumberland
Title: Assistant Treasurer
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR, as a Lender
By: /s/ Frederick K. Kammler
Name: Frederick K. Kammler
Title: Vice President
BANQUE PARIBAS,
as a Lender
By: /s/ Philippe Vuarchex
Name: Philippe Vuarchex
Title: Vice President
CIBC INC.,
as a Lender
By: /s/ P.G. Smith
Name: P.G. Smith
Title: Authorized Officer
CORESTATES BANK, N.A.,
as a Lender
By: /s/ Edward L. Kittrell
Name: Edward L. Kittrell
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC., as a Lender
By: /s/ Anthony R. Clemente
Name: Anthony R. Clemente
Title: Authorized Signatory
THE NIPPON CREDIT BANK, LTD.,
LOS ANGELES AGENCY, as a Lender
By: /s/ Bernardo E. Correa-Henschke
Name: Bernardo E. Correa-Henschke
Title: Vice President & Senior Manager
FLEET NATIONAL BANK OF CONNECTICUT,
formerly known as Shawmut Bank
Connecticut, N.A., as a Lender
By: /s/ Lynne S. Randall
Name: Lynne S. Randall
Title: Vice President
, , , ,
SOCIETE GENERALE,
as a Lender
By: /s/ John Sadik-Khan
Name: John Sadik-Khan
Title: Vice President
THE TRAVELERS INSURANCE COMPANY,
as a Lender
By:
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
successor by merger to Union Bank,
as a Lender
By: /s/ Michael K. McShane
Name: Michael K. McShane
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST, as a Lender
By: /s/ Kathleen A. Zarn
Name: Kathleen A. Zarn
Title: Vice President
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, as a Lender
By:
Name:
Title:
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION, as a Lender
By: /s/ Adam G. Clemens
Name: Adam G. Clemens
Title Investment Vice President
AERIES FINANCE LTD.,
as a Lender
By:
Name:
Title
SENIOR DEBT PORTFOLIO,
as a Lender
By: Boston Management and Research,
as Investment Advisor
By: /s/ Jeffrey S. Garner
Name: Jeffrey S. Garner
Title Vice President
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V., as a Lender
By: ABN TRUST COMPANY (NEDERLAND)
B.V., its Managing Director
By:
Name:
Title
By:
Name:
Title
NATIONSBANK, N.A. (CAROLINAS),
as a Lender
By:
Name:
Title
BANK OF AMERICA, NT & SA,
as a Lender
By: /s/ Carl F. Salas
Name: Carl F. Salas
Title: Vice President
INDOSUEZ CAPITAL FUNDING II, LIMITED,
as a Lender
By Indosuez Capital as Portfolio Advisor
By: /s/ Francoise Bertheld
Name: Francoise Bertheld
Title Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,589
<SECURITIES> 0
<RECEIVABLES> 25,570
<ALLOWANCES> (1,297)
<INVENTORY> 0
<CURRENT-ASSETS> 58,777
<PP&E> 46,972
<DEPRECIATION> (3,624)
<TOTAL-ASSETS> 706,304
<CURRENT-LIABILITIES> 43,318
<BONDS> 128,185
0
0
<COMMON> 5
<OTHER-SE> 196,736
<TOTAL-LIABILITY-AND-EQUITY> 706,304
<SALES> 57,870
<TOTAL-REVENUES> 64,903
<CGS> 0
<TOTAL-COSTS> 62,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,583
<INCOME-PRETAX> (14,451)
<INCOME-TAX> 5,438
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,013)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
