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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 NO. 0-25206
- - --------------------------------------------------------------------------------
LIN TELEVISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3581627
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
FOUR RICHMOND SQUARE, SUITE 200
PROVIDENCE, RHODE ISLAND 02906
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(401) 454-2880
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The number of shares outstanding of the registrant's Common Stock was
29,764,091 as of March 17, 1996. The aggregate market value of the voting stock
held by non-affiliates of the registrant was $561,198,368 as of March 17, 1996.
(The term "affiliates" is deemed, for this purpose only, to refer only to the
directors of the registrant, Cook Inlet Communications, Inc. and to AT&T Corp.)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to its 1996 annual
meeting of stockholders are incorporated by reference into Part III hereof. Such
Proxy Statement will be filed with the Securities and Exchange Commission no
later than 120 days after the registrant's fiscal year ended December 31, 1996.
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<TABLE>
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business ................................................................. 1
Item 2. Properties ............................................................... 15
Item 3. Legal Proceedings ........................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders ...................... 16
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holders Matters ................................................. 17
Item 6. Selected Consolidated Financial Data ..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 20
Item 8. Financial Statements and Supplementary Data .............................. 32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................... 32
PART III
Item 10. Directors and Executive Officers of the Registrant ....................... 33
Item 11. Executive Compensation ................................................... 33
Item 12. Security Ownership of Certain Beneficial Owners and Management ........... 33
Item 13. Certain Relationships and Related Transactions ........................... 33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......... 34
</TABLE>
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ITEM 1. BUSINESS
INTRODUCTION AND RECENT DEVELOPMENTS
LIN Television Corporation (the "Company"), with its predecessors, has been
engaged in commercial television broadcasting since 1966. The Company is a
Delaware corporation incorporated in 1990. Its principal executive office is at
4 Richmond Square, Floor 2, Providence, Rhode Island 02906. Its telephone number
is (401)454-2880.
The Spin-Off. For substantially all of 1994, the Company operated as an
indirect wholly-owned subsidiary of LIN Broadcasting Corporation ("LIN
Broadcasting"), which was engaged in the cellular communications business. On
December 28, 1994 the Company became an independent public entity when its
common stock was distributed to LIN Broadcasting shareholders on a tax-free
basis (the "Spin-Off"). LIN Broadcasting shareholders received one share of the
Company's common stock for every two shares of LIN Broadcasting common stock.
Acquisition of Station WTNH-TV. At the time of the Spin-Off, LIN
Broadcasting and the Company closed an asset purchase with Cook Inlet
Communications, Inc. and its subsidiary, Cook Inlet Communications Corp.
(together "Cook Inlet") pursuant to which the Company purchased station WTNH-TV,
New Haven-Hartford, Connecticut, for approximately $120.2 million in cash plus
approximately 3.4 million shares of the Company's common stock (the "WTNH
Acquisition").
After the Spin-Off and the WTNH-TV Acquisition were completed on December
28, 1994, AT&T Wireless Services, Inc. ("AT&T Wireless"), a wholly-owned
subsidiary of AT&T Corp. ("AT&T"), became the Company's largest stockholder.
AT&T currently holds approximately 45.4% of the outstanding shares of the
Company's common stock. Cook Inlet owns approximately 5.7% of the Company's
common stock.
Acquisition of Station WIVB-TV. On October 2, 1995, the Company acquired
station WIVB-TV, Buffalo, New York from King World Productions, Inc. ("King
World") for approximately $100.7 million in cash (the "WIVB-TV Acquisition").
WVBT-TV Fox Affiliation Agreement. The Company's local marketing agreement
affiliate in Virginia Beach, Virginia, WVBT-TV, has secured the Fox affiliation
for its television market, effective September, 1998.
Form 13-D. On December 9, 1996, AT&T issued a press release and filed an
amended Form 13-D stating that AT&T will review its investment in the Company
and will evaluate alternatives which could result in the disposition, either
through private or public sales of some or all of the shares of the Company's
Common Stock held by AT&T Wireless.
BUSINESS OF THE COMPANY
The Company owns and operates eight network-affiliated television stations,
including five in the 40 largest domestic television markets. In addition to
network programming, each of the Company's Stations devotes segments of its
broadcasting day to news, local live programming, talk shows, and syndicated and
off-network programs. News and community-oriented programs are emphasized and
play an important role in the Stations' service to their viewers. Additional
programming outlets are served through programming and marketing services
provided to four other stations pursuant to local marketing agreements ("LMAs")
and through the operation of low-power television stations ("LPTVs") and
satellite broadcasting facilities.
Over-the-air television broadcasting in the United States is conducted on
68 channels numbered "2" through "69." Channels "2" through "13" are in the very
high frequency ("VHF") band and "14" through "69" are in the ultrahigh frequency
("UHF") band. UHF stations have historically been at a disadvantage because of
relatively weaker reception of UHF transmissions by many viewers. This
disadvantage is lessening, however, with the increased installed base of cable
television. Furthermore, in markets where no or only one VHF station can be
received, the disadvantage is relatively less significant. The following table
summarizes certain information regarding the Company's stations (the "Stations")
and its operations.
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<TABLE>
<CAPTION>
No. of
Estimated Commercial
Market, Stations Network Market Market Stations
and Other Outlets Status Channel Affiliation Rank Population in Market
- - ----------------- ------ ------- ----------- ---- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dallas-Fort Worth, Tx
KXAS-TV O&O 5 (VHF) NBC 8 4,787,000 4 VHF/9 UHF
KXTX-TV LMA 39(UHF) Ind.
Local Weather Station O&O Cable n/a
Indianapolis, IN
WISH-TV O&O 8 (VHF) CBS 25 2,346,000 4 VHF/7 UHF
WIIH-LP (SATELLITE) O&O 11(VHF) CBS
Local Weather Station O&O Cable n/a
New Haven-Hartford, CT
WTNH-TV O&O 8 (VHF) ABC 27 2,297,000 2 VHF/5 UHF
WBNE-TV LMA 59(UHF) WB
Buffalo, NY
WIVB-TV O&O 4(VHF) CBS 39 1,577,000 3 VHF/2 UHF
Norfolk-Portsmouth, VA
WAVY-TV O&O 10(VHF) NBC 40 1,644,000 3 VHF/4 UHF
WVBT-TV LMA 43(UHF) WB/Fox
Low Power Network O&O Various Ind.
Local Weather Station O&O Cable n/a
Austin, TX
KXAN-TV O&O 36(UHF) NBC 63 1,071,000 1 VHF/4 UHF
KXAM-TV (SATELLITE) O&O 14(UHF) NBC
KNVA-TV LMA 54(UHF) WB
Low Power Network O&O Various UPN
Local Weather Station O&O Cable n/a
Champaign, Springfield, Decatur, IL
WAND-TV O&O 17(UHF) ABC 82 788,000 1 VHF/5 UHF
Local Weather Station O&O Cable n/a
Fort Wayne, IN
WANE-TV O&O 15(UHF) CBS 103 625,000 4 UHF
Local Weather Station O&O Cable n/a
<FN>
(1) "O&O" refers to stations owned and operated by the Company. "LMA" refers to
a station to which the Company provides services under a local marketing
agreement. "Ind" refers to stations without any network affiliation.
(2) LPTVs and satellite broadcasting facilities provide simultaneous
broadcasting of the network programming of the station serving the same
market, unless a different network affiliation for the LPTV is indicated.
(3) Rankings are based on the relative size of a station's "market" among the
211 generally recognized television markets in the United States. Source:
Nielsen Station Index DMA Market Ratings - November 1996, A.C. Nielsen
Company.
(4) Estimated Market Population based on estimates of "total persons 2+" in
each stations DMA. Source: Nielsen Station Index DMA Market Ratings -
November 1996 A.C. Nielsen Company.
(5) The number of stations in a market excludes LPTVs and satellite
broadcasting facilities.
(6) Station KXAM-TV, Channel 14 (UHF), Llano, Texas, is operated as a satellite
station of KXAN-TV to increase KXAN-TV's coverage.
</TABLE>
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There has been substantial consolidation in the television broadcast
industry and the Company believes that recent regulatory developments will
accelerate this trend. Broadcast operators compete to leverage their group
management, programming, marketing and sales resources. The Company historically
has made a number of station acquisitions and intends to actively explore future
acquisition opportunities, primarily for network-affiliated stations in the
fifty largest markets, where the Company believes it can successfully apply its
operating strategy and such stations can be acquired on economically attractive
terms. The Company currently has no understandings, agreements, or commitments
with respect to any acquisition transaction and there can be no assurance that
one will be entered into in the future.
THE STATIONS
The following descriptions contain certain information with respect to each
of the Company's Stations, including the respective expiration dates of their
FCC licenses and network affiliation contracts. Applications for renewal of FCC
licenses must be filed with the FCC four months before the expiration date of
the license. FCC regulations permit successive renewals of FCC licenses. Network
affiliation contracts are generally renewable by their terms for successive
periods (unless notice of termination is provided in advance of its expiration
date). (All population estimates contained herein were obtained from the Nielsen
Station Index Market Ratings - November 1996.)
KXAS-TV was acquired by the Company in May 1974 and is affiliated with the
NBC network pursuant to a network affiliation agreement which expires on
November 15, 2004. The Station's FCC license expires on August 1, 1998. The
Dallas-Fort Worth market, with a population of approximately 4,787,000, is
served by three other commercial VHF stations, by two noncommercial VHF stations
(stations which do not accept advertising), and by nine commercial UHF stations.
Approximately 42% of KXAS-TV's 24 hours of daily broadcasting time consists of
programming that is either locally produced or purchased from non-network
sources.
The Company also provides programming and advertising services, pursuant to
a local marketing agreement, to KXTX-TV, an independent station in the
Dallas-Fort Worth market operating on UHF Channel 39. Approximately 97% of
KXTX-TV's hours of broadcasting time consists of programming that is either
locally produced or purchased from non-network sources.
WISH-TV was acquired by the Company in February 1984 and is affiliated with
the CBS network pursuant to a network affiliation agreement which expires on
November 15, 2004. The Station's FCC license expires on August 1, 1997. The
Indianapolis market, with a population of approximately 2,346,000, is served by
three other commercial VHF television stations, by seven commercial UHF
television stations and by three noncommercial UHF television stations. In
addition, there are two LPTVs operating in the Indianapolis market, one of which
simulcasts WISH-TV's programming and one which simulcasts for the NBC affiliate.
Approximately 52% of WISH-TV's 24 hours of daily broadcasting time consists of
programming that is either locally produced or purchased from non-network
sources.
WTNH-TV was acquired by the Company in December 1994 and is affiliated with
the ABC network pursuant to a network affiliation contract which expires on
February 28, 1998. The Company, however, has reached a preliminary agreement
with ABC as to a long-term extension. The Station's FCC license expires on April
1, 1999. The New Haven-Hartford, Connecticut, market, with a population of
approximately 2,297,000, is served by one other commercial VHF television
station, five commercial UHF television stations, and one noncommercial UHF
television station. Approximately 45% of WTNH-TV's 24 hours of daily
broadcasting time consists of programming that is either locally produced or
purchased from non-network sources.
In December 1994, the Company and station WTNH-TV entered into a local
marketing agreement with WBNE-TV, a UHF station which began servicing the New
Haven-Hartford, Connecticut market area in April 1995. The Company has also
entered into an affiliation contract with the WB Network pursuant to which WB
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network programming will be carried on WBNE-TV through October, 1997.
Approximately 90% of WBNE-TV's broadcast time consists of programming either
locally produced or purchased from non-network sources.
WIVB-TV was acquired by the Company on October 2, 1995 and is affiliated
with the CBS network pursuant to a network affiliation agreement which expires
on December 31, 2005. The station's FCC license expires on June 1, 1999. The
Buffalo market, with a population of approximately 1,577,000, is served by two
other commercial VHF stations and two commercial UHF stations. This market is
also served by two noncommercial UHF stations. Approximately 50% of WIVB-TV's 24
hours of daily broadcasting time consists of programming that is either locally
produced or purchased from non-network sources.
WAVY-TV was acquired by the Company in April 1968 and is affiliated with
the NBC network. The Station's network affiliation agreement expires on November
15, 2004. The Station's FCC license expires on October 1, 2001. The
Norfolk-Portsmouth market, with a population of approximately 1,644,000, is
served by two other commercial VHF television stations, by three UHF television
stations and by one noncommercial UHF station. Approximately 43% of WAVY-TV's 24
hours of daily broadcasting time consists of programming that is either locally
produced or purchased from non-network sources.
In December 1994, the Company entered into a local marketing agreement with
WVBT-TV, a UHF station that began serving the Norfolk-Portsmouth market area in
February 1995. The Company also owns and operates a network of LPTVs in the
Norfolk-Portsmouth market. Approximately 88% of WVBT-TV's broadcast time
consists of programming that is either locally produced or purchased from
non-network sources. Programming is also supplied to the station by the WB
Network; however, in November 1995, the Company entered into an affiliation
agreement with the Fox Network ("Fox") to carry Fox programming on WVBT-TV for a
ten-year term commencing on September 1, 1998.
KXAN-TV was acquired by the Company in May 1979 and is affiliated with the
NBC network pursuant to a network affiliation agreement which expires on
November 15, 2004. The Station's FCC license expires on August 1, 1998. The
Austin market, with a population of approximately 1,071,000, is served by one
commercial VHF station, three other commercial UHF stations, and one
noncommercial UHF station. Approximately 39% of KXAN-TV's 24 hours of daily
broadcasting time consists of programming that is either locally produced or
purchased from non-network sources. The Company operates KXAM-TV, Channel 14, in
Llano, Texas. This full power station operates as a satellite of KXAN-TV with
the majority of its programming duplicating that of KXAN-TV. However, a separate
news bureau has been established to produce local news reports specific to the
KXAM-TV audience. The Company also owns and operates a network of LPTVs in the
Austin, Texas market.
The Company and KXAN-TV also provide programming and advertising services
pursuant to a local marketing agreement to KNVA-TV, Austin, Texas, which
operates on UHF channel 54. The Company has entered into an affiliation
agreement with the WB network by which WB programming will be carried on KNVA-TV
through October, 1997. Approximately 92% of KNVA-TV's hours of broadcasting time
consists of programming that is either locally produced or purchased from other
non-network sources.
WAND-TV, located in Decatur, was acquired by the Company in January 1966
and is affiliated with the ABC network pursuant to a network affiliation
agreement which expired on June 30, 1996. The Company, however, has reached a
preliminary agreement with ABC as to a long-term extension. The Station's FCC
license expires on December 1, 1997. The Decatur-Champaign market, with a
population of approximately 788,000, is served by one commercial VHF television
station whose coverage is supplemented by a UHF satellite located in
Springfield, and four other UHF television stations, all of which are located in
Springfield and Champaign. This market is also served by one noncommercial VHF,
and two noncommercial UHF television stations. Approximately 47% of WAND-TV's 24
hours of daily broadcasting time consists of programming that is either locally
produced or purchased from non-network sources.
WANE-TV was acquired by the Company in February 1984 and is affiliated
with the CBS network pursuant to a network affiliation agreement which expires
on December 31, 2005. The Station's FCC license expires on August 1, 1997. The
Fort Wayne market, with a population of approximately 625,000, is served by
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three other commercial UHF stations. This market is also served by one
noncommercial UHF station. Approximately 47% of WANE-TV's 24 hours of daily
broadcasting time consists of programming that is either locally produced or
purchased from non-network sources.
Three of the Company's Stations, KXAN-TV, WAND-TV, and WANE-TV, are UHF
stations, but the disadvantages of operating on the UHF band in their markets
are mitigated since only two VHF stations transmit in the area served by
KXAN-TV, only one VHF station transmits in the area served by WAND-TV, and only
UHF stations operate in the area served by WANE-TV.
INDUSTRY FACTORS
Broadcasting Revenues. Local television stations derive revenues from the
sale of advertising time for spot advertisements, which usually vary from 10
seconds to 60 seconds in length, and from the sale of program sponsorships to
national and local advertisers. Advertising contracts are generally short in
duration and may usually be canceled upon two weeks' notice. Each of the
Company's television stations is represented by a national firm for the sale of
spot advertising to national customers, but each station has local sales
personnel covering the service area in which it is located. National
representatives are compensated by a commission based on net advertising
revenues from national customers.
<TABLE>
The following table shows the approximate percentage of the Company's net
television broadcasting revenues by source for each of the past three years:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Local 50% 50% 52%
National spot 44% 44% 46%
Network 6% 6% 2%
</TABLE>
In 1995, the Company entered into a five-year agreement with the Texas
Rangers Baseball Club, LP, pursuant to which the Company obtained the exclusive
telecast rights to the Texas Rangers games throughout the Rangers Territory,
which encompasses Texas and parts of Louisiana, Oklahoma, Arkansas, and New
Mexico. In the 1996 season, the Company aired 138 Rangers games in the
Dallas-Fort Worth market on KXAS-TV and KXTX-TV, and in the Austin market on
KXAN-TV and KNVA-TV. In addition, the games were distributed by broadcast
stations and cable systems throughout the rest of the Rangers Territory. The
Company has now entered into an agreement with Fox Sports Southwest, effective
in 1997, whereby certain of the Rangers games will be carried on cable systems
in the Dallas-Fort Worth market and/or throughout the Rangers Territory for the
next four years.
Networks. The majority of commercial television stations in the United
States are affiliated with one of the major national networks: ABC, NBC, CBS,
and Fox. Stations that operate without network affiliations are commonly
referred to as "independent" stations. The amount of programming each network
offers varies. ABC, NBC and CBS offer approximately 12 hours of programming per
day. Fox presently provides its affiliates with approximately 47 hours of
programming per week. Warner Brothers ("WB") and United-Paramount Network
("UPN") have each launched a new television network, currently offering
programming on a limited basis. The Company is unable to predict the effect, if
any, that these or any other new networks, or the expansion of programming
provided by the Fox network, will have on the future results of the Company's
operations.
Network-affiliated television broadcast stations generally operate under
affiliation agreements that provide the affiliated station with the right to
broadcast all programs transmitted by the network with which the station is
affiliated. The major networks typically negotiate the right to sell a majority
of the advertising time during network broadcasts. The network then pays the
affiliated station a network compensation fee for every hour of network
programming that the station broadcasts. Generally, the fees paid by the
networks vary according to type of programming and the time of day the
programming is broadcast.
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A significant portion of the Company's daily programming is supplied by the
networks pursuant to affiliation agreements. During such network time periods,
the Stations are dependent on the performance of the network programs in
attracting viewers. During time periods in which programming is not supplied by
the networks, the Stations broadcast their own or syndicated non-network
programs as well as news, sports, public affairs and other entertainment
programming.
The Company believes that its network affiliations provide the Stations
with competitive programming at a lower cost than is otherwise available. Under
the Affiliation Agreements, certain advertising time during network programs is
available to the Stations for sale to national and local advertisers. The
programming strength of its network may affect a network-affiliated Station's
competitive position. Nonetheless, the Company believes that local programming,
particularly local news coverage, and community involvement and promotion can
augment network programming to improve a Station's audience share and financial
performance. A network's termination of or refusal to renew one or more of the
Affiliation Agreements could have a material adverse effect on the Company
depending on which Stations were affected and whether and upon what terms other
network affiliations were available in the Station's market.
Local Weather Station. In 1994, the Company launched the Local Weather
Station which provides either Doppler radar or local travel and aviation
forecasts, weather trends and features. This station is offered in all of the
Company's television markets, except New Haven-Hartford, Connecticut and
Buffalo, New York, over local cable systems. The Company receives monthly
payments from certain contracting cable systems based on the number of
subscribers to such cable systems, as well as a share of each cable system's
advertising revenues, if any, generated by this new programming service.
Various cable companies have filed legal challenges to the 1992 Cable Act
(the "Cable Act") on the grounds that the Cable Act's requirement that cable
systems carry all local stations ("Must-Carry Requirements") infringes their
constitutional rights. In 1994, these challenges were remanded by the Supreme
Court to a lower federal court with instructions to hold further evidentiary
proceedings on the question whether lack of the Must-Carry Requirements would
harm local broadcasting. In 1995, the lower court again upheld the
constitutionality of must-carry requirements after reviewing the required
evidence. The Supreme Court is expected to rule again on the case in 1997.
However, management does not expect the outcome of this case to have a material
impact on the Company's cable contracts relating to the Local Weather Station.
Local Marketing Agreements. Stand-alone independent UHF stations often do
not have the management expertise or operating efficiencies available to
multiple-station group broadcasters such as the Company. Accordingly, these
stand-alone UHF stations often operate at minimal profit or at a loss. In four
of its markets, the Company has entered into LMAs with the owners of stand-alone
UHF stations. In addition to providing the Company with an additional revenue
stream, the Company's LMA strategy is intended to permit stations that otherwise
might "go dark" or operate marginally to add local news and public affairs and
contribute to diversity in their respective markets.
The Company has entered into 10-year LMAs pursuant to which the Company
provides marketing services and programming to stations KXTX-TV, Dallas-Fort
Worth, Texas, KNVA-TV, Austin, Texas, WBNE-TV, New Haven-Hartford, Connecticut,
and WVBT-TV, Norfolk-Portsmouth, Virginia. The Company has also entered into
option and put agreements that would enable or require the Company to purchase
such stations under certain conditions, including a change by the FCC in its
"duopoly" rules to permit such acquisitions. The licensee of KXTX-TV has the
right to put the Station's license and certain assets to the Company in May,
1998. If the FCC's rules are not amended to permit the Company to own the
license, the Company may be required to make alternative arrangements. The
Company can not predict whether it will be able to make such arrangements or
whether those arrangements will be financially advantageous. The Company intends
to seek additional LMA opportunities in the future.
Under its LMAs, the Company is required to pay fixed periodic fees and
incur programming and operating costs relating to its LMA stations, but retains
all advertising revenues. The Company believes that it can increase the
likelihood of financial viability of the stations served pursuant to an LMA by
using the Company's
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negotiating expertise, operating efficiencies, and an experienced and skilled
management team, which provides programming and marketing support to the LMA
stations. The Company also benefits from the cross-marketing of programming, or
the ability to time-shift certain programming, for example, to rebroadcast a
local news program at an earlier or later time to appeal to additional viewers.
In accordance with FCC rules, regulations and policies, all of the
Company's LMAs allow preemptions of the Company's programming by the
owner-operator and FCC licensee of each station with which the Company has an
LMA. Accordingly, the Company cannot be assured that it will be able to air all
of the programming expected to be aired on those stations with which it has an
LMA or that the Company will receive the anticipated advertising revenue from
the sale of advertising spots in such programming. Although the Company believes
that the terms and conditions of each of its LMAs will enable the Company to air
its programming and utilize the programming and other non-broadcast license
assets acquired for use on the LMA stations, there can be no assurance that
early terminations of the LMAs or unanticipated terminations of all or a
significant portion of the programming by the owner-operator and FCC licensee
will not occur. An early termination of one of the Company's LMAs, or repeated
and material preemptions of programming thereunder, could adversely affect the
Company's operations.
Low-Power Television Stations. The Company owns and operates, and is
currently constructing, LPTVs in several of its markets. LPTVs broadcast at
lower transmitting power than other stations and, accordingly, their
over-the-air signals cover a much smaller geographic area than the signals of
other stations. LPTVs are secondary services which, under FCC rules, must
protect full power television stations in their markets from interference and
which may not receive rights to convert to digital broadcast in the future. By
operating a network of multiple LPTVs in one market, the Company may also be
able to achieve over-the-air signal coverage of all, or nearly all, of certain
of the television markets served by the Stations.
The Company owns and operates an LPTV network in both its Austin, Texas,
and Norfolk-Portsmouth, Virginia, markets. The Company also owns and operates an
LPTV in its Indianapolis, Indiana market.
Investments in New Broadcasting Technologies. The Company has invested in
Datacast, L.L.C. ("Datacast"). Datacast is developing a national data network to
insert high speed digital data into conventional television signals. When fully
deployed, Datacast's broadcasting system is intended to permit digital content
(e.g. text, audio, photographs, video, data and virtually any other information
that can be converted into digital form) to be transmitted by broadcast
television stations using the Vestigial Side Band ("VSB") of the television
signal without affecting audio or video reception on conventional television
sets. Datacast's partners include, in addition to the Company, Chris Craft's BHC
Communications (AMEX: BHC), Granite Broadcasting Corporation (Nasdaq: GBTVK),
and Schurz Communications, Inc. The Company may seek to enter into other joint
ventures as a way to share risks and research and development costs in the
exploitation of new broadcasting technologies.
COMPETITION
Competition in the television industry is intense and takes place on
several levels: competition for audience, competition for programming (including
news) and competition for advertisers. Factors that are material to a television
station's competitive position include network affiliation, quality of
programming, signal coverage and assigned frequency. The broadcasting industry
is continually faced with technological change and innovation, the possible rise
in popularity of competing entertainment and communications media, and
governmental restrictions or actions of federal regulatory bodies, including the
FCC and the FTC, any of which could have a material adverse effect on the
Company's business and operations.
Audience. Stations compete for audience on the basis of program
popularity, which has a direct effect on advertising rates. The development of
methods of television transmission other than over-the-air broadcasting and, in
particular, the growth of cable television have significantly altered
competition for audience in the television broadcasting industry. As the
technology of satellite program delivery to cable systems advanced in the late
1970s, development of programming for cable television accelerated dramatically,
resulting in the emergence of multiple, national-scale program alternatives and
the rapid expansion of cable television and higher subscriber growth rates.
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Historically, cable operators have not sought to compete with broadcasting
stations for a share of the local news audience. Recently, however, certain
cable operators have elected to compete for such audiences.
Other sources of audience competition include home entertainment systems
(including videocassette recorder and playback systems, videodiscs and
television game devices), wireless cable, satellite master antenna television
systems, LPTVs, low-power satellite-to-home video distribution services, and
telephone company video systems, computer on-line services and other
entertainment and advertising media. The Stations also face competition from
high-powered direct broadcast satellite services that can transmit programming
directly to homes equipped with special receiving devices. Several direct
broadcast satellite ("DBS") companies provide nationwide service.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now in use with DBS and
in development for cable and "wireless cable," are expected to permit greater
numbers of channels to be carried with existing bandwidth. These compression
techniques, as well as other technological developments, are applicable to all
video delivery systems, including over-the-air broadcasting, and have the
potential to provide expanded programming to highly targeted audiences. A
reduction in the cost of creating additional channel capacity could lower entry
barriers for new channels and encourage the development of increasingly
specialized "niche" programming. This ability to reach very specific audiences
is expected to alter the competitive dynamics for advertising expenditures and
could have a material adverse effect on the Company's ability to generate
revenues.
Programming. Competition for programming involves negotiating with national
program distributors or syndicators that sell first-run and rerun programming.
The Stations compete against in-market television broadcasting station
competitors for exclusive access to off-network reruns (such as Friends) and
first-run products (such as Wheel of Fortune) in their respective markets. There
is no assurance that the Company will not be exposed to volatile or increased
programming costs that may adversely affect the Company's operating results.
Further, because syndicated programs are generally purchased in advance of being
broadcast, the Company may not accurately predict how a program will perform.
The Company minimizes this risk by generally limiting its commitments for
unproven syndicated non-network programming to short time periods. Syndicated
programs may be purchased for cash, for cash and barter, or for barter only.
Under a barter arrangement, a national program syndicator receives advertising
time in exchange for the programming it supplies, and the station pays a reduced
cash fee or no fee for such programming. Cable systems generally do not compete
with local stations for programming, although various national cable networks
have acquired programs that would have otherwise been offered to local
television broadcasting stations. Competition also occurs for exclusive news
stories and features and local sports programming.
Advertising. Television broadcasting stations compete for advertising
revenues with other stations in their respective markets, as well as with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, direct mail and local cable
systems. Competition for advertising dollars in the broadcasting industry occurs
primarily in individual markets. Generally, a television broadcasting station in
one market does not compete with stations in other markets.
In January 1995, each of WB and the UPN launched new broadcast networks
which have subsequently entered into affiliation agreements with formerly
independent television stations. The amount of programming supplied by WB and
UPN to their affiliates is limited, but both WB and UPN have announced their
intentions to expand their programming over time to seven nights per week. In
certain of the Company's markets (e.g., New Haven, Austin, Norfolk), the Company
has obtained the WB and/or UPN affiliation for its LMA operation. In other
markets (e.g., Dallas), the WB and UPN affiliations have been obtained by
competing stations. Other attempts to establish new networks may also be
undertaken in the future. The Company cannot predict the impact of the
development of these new networks on the Company's business.
The television broadcasting industry is undergoing a period of
consolidation and significant change. Many of the Company's current and
potential competitors have significantly greater financial, marketing,
programming and broadcasting resources than the Company. The Company, however,
believes that its local news
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programming, network affiliations and management of its sales resources have to
date enabled it to compete effectively in its markets. Nonetheless, there is no
assurance that the Company's strategy will continue to be effective or that the
introduction of new competitors for television audiences will not have a
material adverse effect on the Company's financial condition and results of
operations.
LICENSING AND REGULATION
The following is a brief discussion of certain provisions of the
Communications Act of 1934, as amended (the "Communications Act"), and of FCC
regulations and policies that affect the business operations of television
broadcasting stations. Reference should be made to the Communications Act, FCC
rules and the public notices and rulings of the FCC, on which this discussion is
based, for further information concerning the nature and extent of FCC
regulation of television broadcasting stations.
License Renewal, Assignments and Transfers. Television broadcast licenses
are granted for a maximum term of eight years (five years prior to 1996) and are
subject to renewal upon application to the FCC. The FCC prohibits the assignment
of a license or the transfer of control of a broadcasting licensee without prior
FCC approval. In determining whether to grant or renew a broadcasting license,
the FCC considers a number of factors pertaining to the applicant, including
compliance with a variety of ownership limitations and compliance with character
and technical standards. During certain limited periods when a renewal
application is pending, petitions to deny a license renewal may be filed by
interested parties, including members of the public. Such petitions may raise
various issues before the FCC. The FCC is required to hold evidentiary,
trial-type hearings on renewal applications if a petition to deny renewal of
such license raises a "substantial and material question of fact" as to whether
the grant of the renewal application would be inconsistent with the public
interest, convenience and necessity. The FCC must grant the renewal application
if, after notice and opportunity for a hearing, it finds that the incumbent has
served the public interest and has not committed any serious violation of FCC
requirements. If the incumbent fails to meet that standard, and if it does not
show other mitigating factors warranting a lesser sanction, the FCC has
authority to deny the renewal application and consider a competing application.
Failure to observe FCC rules and policies, including, but not limited to,
those discussed above, can result in the imposition of various sanctions,
including monetary forfeitures, the grant of short-term license renewals or, for
particularly egregious violations, the denial of a license renewal application
or revocation of a license.
Multiple and Cross-Ownership Rules. On a national level, the FCC rules
generally prevent an entity or individual from having an attributable interest
in television stations with an aggregate audience reach in excess of 35% of all
U.S. households. On a local level, the "duopoly" rules prohibit or restrict such
interests in two or more television stations with overlapping service areas.
Additional cross-ownership restrictions generally prohibit new television/radio,
broadcast/daily newspaper or television/cable combinations in the same market.
The FCC generally applies its ownership limits only to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding broadcast licenses, the interest of officers,
directors and those who, directly or indirectly, have the right to vote 5% or
more of the corporation's voting stock (or 10% or more of such stock in the case
of insurance companies, mutual funds, bank trust departments and certain other
passive investors that are holding stock for investment purposes only) are
generally deemed to be attributable, as are positions as an officer or director
of a corporate parent of a broadcast licensee. In light of these rules, an
exemption was sought from and granted by the FCC with respect to certain
interests otherwise attributable to AT&T by virtue of positions held by
directors of AT&T as directors of other companies with media interests.
Because of these multiple and cross-ownership rules, a purchaser of the
Company's Common Stock who acquires an attributable interest in the Company may
violate the FCC's rules if that purchaser also has an attributable interest in
other television or radio stations, or in daily newspapers or cable systems,
depending on the number and location of those radio or television stations or
daily newspapers or cable systems. Such a purchaser also may be restricted in
the companies in which it may invest to the extent that those investments give
rise to an attributable interest. If an attributable stockholder of the Company
violates any of these ownership rules or if a proposed acquisition by the
Company would cause such a violation, the Company may be unable to obtain from
the FCC one or more authorizations needed to conduct its television station
business and may be unable to obtain FCC
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consents for certain future acquisitions. Based on their direct or indirect
ownership of the Company's Common Stock, acquisitions by either AT&T and Cook
Inlet might have the effect of limiting future acquisitions by the Company. The
Company has agreed with LIN Broadcasting not to acquire additional television
broadcasting stations if such acquisition would cause AT&T to violate applicable
FCC multiple ownership rules due to their attributed ownership of television
broadcasting stations retained by LIN Broadcasting on the Spin-Off and the
Stations. This obligation will terminate upon the earlier of the completion of
the sale of the Company to AT&T pursuant to the Private Market Value Guarantee
("PMVG") or a determination by AT&T not to offer to purchase the Company
pursuant to the PMVG. See "Business-Private Market Value Guarantee".
The FCC has initiated rulemaking proceedings to consider proposals to relax
its television ownership restrictions, including proposals that would permit the
ownership, in some circumstances, of two television stations with overlapping
service areas and relaxing the rules prohibiting cross-ownership of radio and
television stations in the same market. The FCC is also considering in these
proceedings whether to adopt new restrictions on television LMAs. The "duopoly"
rules currently prevent the Company from acquiring the FCC licenses of its LMA
stations, thereby preventing the Company from directly fulfilling its
obligations under put options that such LMA stations have with the Company. If
the Company should be unable to fulfill its obligation under a put option, it
would be required to find an assignee who could perform such obligation. There
is no assurance that the Company could find an assignee to fulfill the Company's
obligations under the put options on favorable terms. Under the
Telecommunications Act of 1996 (the "Act"), the Company's LMAs were
"grandfathered". The precise extent to which the FCC may nevertheless restrict
existing LMAs or make them attributable ownership interests is uncertain. In the
rulemakings, the FCC has proposed, for example, to make LMAs fully attributable
ownership interests and thus prohibited unless the two stations would qualify
for dual ownership under certain specified criteria (e.g., VHF-UHF or UHF-UHF
combinations; second station is a start-up , failed or failing station) on a
case-by-case basis. "Grandfathering" rights for current LMAs which do not
qualify for conversion to ownership would be limited to fulfilling the current
lease term, with renewal rights and transferability rights eliminated. The
Company's LMAs all involve leased stations which are UHF stations and which were
either start-up stations or existing stations which were failing financially and
would appear to qualify for conversion to ownership under the proposed
standards. Nevertheless, it is possible that the FCC could deny the Company the
ability to convert its LMAs to full ownership or require the Company to modify
its LMAs in ways which impair their viability. Further, if the FCC were to find
that one of the Company's LMA stations failed to maintain control over its
operations, the licensee of the LMA station and/or the Company could be fined.
The Company is unable to predict the ultimate outcome of possible changes to
these FCC rules and the impact such FCC rules may have on its broadcasting
operations.
The Congress and the FCC have under consideration, and in the future may
consider and adopt, other new laws, regulations and policies regarding a wide
variety of matters that could affect, directly or indirectly, the operation,
ownership and profitability of the Company's broadcast stations, result in the
loss of audience share and advertising revenues for the Company's broadcast
stations, and affect the ability of the Company to acquire additional broadcast
stations or finance such acquisitions.
Alien Ownership. Under the Communications Act, broadcast licenses may not
be granted to or held by any corporation having more than one-fifth of its
capital stock owned of record or voted by non-U.S. citizens (including a
non-U.S. corporation), foreign governments or their representatives
(collectively, "Aliens") or having an Alien as an officer or director. The
Communications Act also prohibits a corporation, without an FCC public interest
finding, from holding a broadcast license if that corporation is controlled,
directly or indirectly, by another corporation, any officer of which is an
Alien, or more than one-fourth of the directors of which are Aliens, or more
than one-fourth of the capital stock of which is owned of record or voted by
Aliens, unless the FCC finds that such ownership would be in the public
interest. The FCC has issued interpretations of existing law under which these
restrictions in modified form apply to other forms of business organizations,
including general and limited partnerships. As a result of these provisions, the
Company, which serves as a holding company for its various television station
licensee subsidiaries, cannot have more than 25% of its capital stock owned of
record or voted by Aliens, cannot have an officer who is an Alien and cannot
have more than one-fourth of the Company Board consisting of Aliens. The
Certificate of Incorporation and By-Laws provide for certain stock transfer
legends and procedures designed to prevent a violation of these requirements.
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Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized procedures it had developed to promote
the broadcast of certain types of programming responsive to the needs of a
station's community of license. Broadcast station licensees continue, however,
to be required to present programming that is responsive to community problems,
needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from viewers concerning a station's programming may
be considered by the FCC when it evaluates license renewal applications,
although such complaints may be filed, and generally may be considered by the
FCC, at any time. Stations also must follow various rules promulgated under the
Communications Act that regulate, among other things, children's television
programming, political advertising, sponsorship identifications, contest and
lottery advertising, obscene and indecent broadcasts, and technical operations,
including limits on radio frequency radiation. In addition, broadcast licensees
must develop and implement affirmative action programs designed to promote equal
employment opportunities, and must submit reports to the FCC with respect to
these matters on an annual basis and in connection with a license renewal
application.
Syndicated Exclusivity/Territorial Exclusivity. Effective January 1, 1990,
the FCC reimposed syndicated exclusivity rules and expanded the existing network
nonduplication rules. The syndicated exclusivity rules allow local broadcast
stations to require that cable operators black out certain syndicated,
non-network programming carried on "distant signals" (i.e., signals of broadcast
stations, including so-called super stations, that serve areas substantially
removed from the cable system's local community). Under certain circumstances,
the network nonduplication rules allow local broadcast network affiliates to
demand that cable operators black out duplicative network broadcast programming
carried on more distant signals.
Restrictions on Broadcast Advertising. The advertising of cigarettes on
broadcast stations has been banned for many years. The broadcast advertising of
smokeless tobacco products has more recently been banned by Congress. Certain
Congressional committees have examined legislative proposals to eliminate or
severely restrict the advertising of beer and wine. The Company cannot predict
whether any or all of the present proposals will be enacted into law and, if so,
what the final form of such law might be. The elimination of all beer and wine
advertising could have an adverse effect on the Stations' revenues and operating
profits as well as the revenues and operating profits of other stations that
carry beer and wine advertising. In 1996, some television stations began airing
hard liquor advertising. In the past, this group of advertisers had a
self-imposed ban on TV advertising. None of the Company's Stations have aired
this type of advertising. The Company cannot predict the effect the airing of
these advertisements on competing stations will have on the Company's operating
results.
Other Programming Restrictions. The Telecommunications Act of 1996, signed
into law on February 8, 1996, directs the FCC to establish, if the broadcast
industry does not do so on a voluntary basis, guidelines and procedures for
rating programming that contains sexual, violent, or other indecent material so
as to inform parents. A multi-industry task force has developed a ratings plan
which was submitted to the FCC in January 1997 and put out for public comment by
the FCC. The FCC could either ratify the industry proposal or issue its own
guidelines later this year. The Act also requires the FCC to issue rules that
require TV set manufacturers to include in the sets that they manufacture
appropriate technology (a "V-Chip" that can block programming based on an
electronically encoded rating) to facilitate the implementation of the new
rating guidelines.
Cable "Must-Carry" or "Retransmission Consent" Rights. The 1992 Cable
Act, enacted in October 1992, requires television broadcasters to make an
election to exercise either certain "must-carry" or "retransmission consent"
rights in connection with their carriage by cable television systems in the
station's local market. If a broadcaster chooses to exercise its must-carry
rights, it may demand carriage on a specified channel on cable systems within
its DMA. Must-carry rights are not absolute, and their exercise is dependent on
variables such as the number of activated channels on, and the location and size
of, the cable system and the amount of duplicative programming on a broadcast
station. Under certain circumstances, a cable system may decline to carry a
given station. If a broadcaster chooses to exercise its retransmission consent
rights, it may prohibit cable systems from carrying its signal, or permit
carriage under a negotiated compensation arrangement. Generally, the Stations
have negotiated retransmission consent agreements with cable television systems
in their markets, with terms generally
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ranging from three to 10 years, which provide for carriage of the Station's
signal and the Local Weather Station. The licensees of the LMAs generally have
opted for must-carry status.
On April 8, 1993, a three-judge panel of the United States District Court
for the District of Columbia upheld the constitutionality of the legislative
must-carry provisions. On June 27, 1994, the Supreme Court ruled that the
must-carry provisions were "content-neutral" and thus not subject to strict
scrutiny and that Congress' stated interests in preserving the benefits of free,
over-the-air local broadcast television, promoting the widespread dissemination
of information from a multiplicity of sources and promoting fair competition in
the market for television programming all qualify as important governmental
interests. However, the Court remanded to a lower federal court with
instructions to hold further proceedings with respect to evidence that lack of
the must-carry requirements would harm local broadcasting. In 1995, the lower
court again upheld the constitutionality of the must-carry requirements after
taking the required evidence. The Supreme Court is expected to rule again on the
case in the first half of 1997. Management does not, however, expect the outcome
of this case to affect the Company's cable contracts relating to the Local
Weather Station. It could, however, materially affect the degree of cable
penetration afforded the LMAs and, if adversely decided, have a negative impact
on the profitability of those stations.
Telecommunications Act of 1996. The Telecommunications Act of 1996, signed
into law on February 8, 1996, made various changes in the Communications Act
that will affect the broadcast industry. Among other things and in addition to
matters previously mentioned, the Act (i) directs the FCC to increase the
national audience reach cap for television from 25% to 35% and to eliminate the
12-station numerical limit; (ii) directs the FCC to review its local broadcast
ownership restrictions; (iii) clarifies that existing LMAs were in compliance
with applicable FCC regulations, are "grandfathered", and that future LMAs are
not inconsistent with the Act so long as they comply with applicable FCC
regulations; (iv) directs the FCC to extend its liberal policy of permitting
waivers of its television/radio cross-ownership restriction to proposed
combinations in the top 50 markets; (v) lifts the statutory ban on
cable-broadcast cross-ownership but does not direct the FCC to eliminate its
parallel FCC rule prohibition; (vi) repeals the statutory ban against telephone
companies providing video programming in their own service areas; and (vii)
permits but does not require the FCC to award to broadcasters a second channel
for Advanced Television ("ATV") and other digital services and imposes a fee on
subscription based services. Certain leaders in Congress have asked the FCC to
postpone issuing ATV licenses pending consideration of possible future
legislation that would require broadcasters to bid at auction for ATV channels
or return the existing conventional channels to the FCC on an expedited basis.
Proposed Legislation and Regulations. The FCC has proposed the adoption of
rules for implementing ATV in the United States. Implementation of ATV will
improve the technical quality of over-the-air broadcast television. Under
certain circumstances, however, conversion to ATV operations may reduce a
station's geographical coverage area. The FCC is considering an implementation
proposal that would allot a second broadcast channel to each regular commercial
television station for ATV operation. Stations would be required to phase in
their ATV operations on the second channel, with a three-year period to build
necessary ATV facilities and a consecutive three-year period in which to begin
operations. Such stations would be required to surrender their non-ATV channel
15 years after the commencement of the first three-year period. Implementation
of ATV will impose additional costs on television stations providing the new
service due to increased equipment costs. The Company estimates that the
adoption of ATV would require average capital expenditures of approximately $2
million per Station to provide facilities necessary to pass along an ATV signal.
The conversion of a Station's equipment enabling it, for example, to produce and
transmit ATV programming would be substantially more expensive. The introduction
of this new technology will require that consumers purchase new receivers
(television sets) for ATV signals or, if available by that time, adapters for
their existing receivers. The FCC has also proposed to assign to full-power ATV
stations the channels currently occupied by LPTVs and both the FCC and certain
Congressmen have proposed to "clear" a portion of the current broadcast spectrum
(e.g. channels 60-69) and auction it off to other users, proposals which could
adversely affect the Company's LPTV channels. The Company believes that it is
essential to the long-term viability of the Company and the broadcast industry
that the FCC authorize ATV in the United States, but the Company cannot
otherwise predict when such authorization might be given or the precise effect
such authorization might have on the Company's business.
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Budget legislation is being considered in both the House and Senate which
would require the FCC to raise revenue for the federal government by auctioning
radio frequencies in bands which encompass those currently licensed for use by
broadcasters, including those channels used for "auxiliary" purposes, such as
remote pickups in electronic news gathering and studio-to-transmitter links, and
which would require immediate auctioning of ATV spectrum or accelerated
give-back by broadcasters of their existing analog channels.
In addition, the FCC is conducting an inquiry to consider proposals to
increase broadcasters' obligations under its rules implementing the Children's
Television Act of 1990, which requires television stations to present
programming specifically directed to the "educational and informational" needs
of children. The FCC also is conducting a rulemaking proceeding to consider the
adoption of more restrictive standards for the exposure of the public and
workers to potentially harmful radio frequency radiation emitted by broadcast
station transmitting facilities. Other matters that could affect the Company's
broadcast properties include technological innovations affecting the mass
communications industry such as technical allocation matters, including
assignment by the FCC of channels for additional broadcast stations, LPTVs and
wireless cable systems and their relationship to and competition with full-power
television broadcasting service.
The FCC has initiated a Notice of Inquiry proceeding seeking comment on
whether the public interest would be served by establishing limits on the amount
of commercial matter broadcast by television stations. No prediction can be made
at this time as to whether the FCC will impose any commercial limits at the
conclusion of its deliberations. The Company is unable to determine what effect,
if any, the imposition of limits on the commercial matter broadcast by
television stations would have on the Company's operations.
Congress and the FCC also have under consideration, or may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of the Company and the Stations, result in the loss of
audience share and advertising revenues of the Stations, and affect the
Company's ability to acquire additional broadcast stations or finance such
acquisitions. Such matters include, for example, (i) imposition of greater
spectrum use or other governmentally imposed fees upon a licensee; (ii) changes
in the FCC's cross-interest multiple ownership, alien ownership and
cross-ownership policies; (iii) proposals to expand the FCC's equal employment
opportunity rules and other matters relating to minority and female involvement
in broadcasting; (iv) proposals to increase the benchmarks or thresholds for
attributing ownership interest in broadcast media; (v) proposals to change rules
or policies relating to political advertising; (vi) technical and frequency
allocation matters, including those relative to the implementation of ATV; (vii)
proposals to restrict or prohibit the advertising of beer, wine and other
alcoholic beverages on broadcast stations; (viii) changes to broadcast technical
requirements; and (ix) proposals to limit the tax deductibility of advertising
expenses by advertisers.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
The foregoing does not purport to be a complete discussion of all the
provisions of the Communications Act or other Congressional acts or the
regulations and policies of the FCC promulgated thereunder. Reference is made to
the Communications Act, other Congressional acts, such regulations, and the
public notices promulgated by the FCC, on which the foregoing discussion is
based, for further information. There are additional FCC regulations and
policies, and regulations and policies of other federal agencies, that govern
political broadcasts, public affairs programming, equal employment opportunities
and other areas affecting the Stations' businesses and operations.
PRIVATE MARKET VALUE GUARANTEE
The Company has entered into a Private Market Value Guarantee (the "PMVG")
with AT&T Wireless pursuant to which the directors of the LIN Broadcasting Board
initially designated three members of the Company Board to serve as independent
directors (the "Independent Directors"), each of whom will be an independent
director as determined under the New York Stock Exchange Rules (i.e.,
independent of the management of the Company and its affiliates and free of any
relationship that, in the opinion of the Company's Board of Directors,
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would interfere with the exercise of independent judgment). Thereafter, the
Independent Directors to be elected at each annual meeting of the Company's
stockholders will be nominated by the then-current Independent Directors and
elected by the affirmative vote of the holders of at least a majority of the
Company's Common Stock not owned by AT&T Wireless or any of its affiliates (the
"Public Shares") present and entitled to vote at any meeting at which the
holders of a majority of the Public Shares are present. Independent Directors
will be subject to removal only for cause, and only if a majority of the
Independent Directors approve such removal or if such removal is approved by the
affirmative vote of the holders of a majority of the Public Shares without any
solicitation of votes by AT&T Wireless.
On or about January 1, 1998 (the "Initiation Date"), the Independent
Directors will designate an investment banking firm of recognized national
standing and AT&T Wireless will designate an investment banking firm of
recognized national standing, in each case to determine the private market value
per share of the Company's Common Stock. Private market value per share is the
private market price per share of the Company's Common Stock ("Private Market
Price") (including control premium) that an unrelated third party would pay if
it were to acquire all the outstanding Common Stock of the Company (including
the Company's Common Stock held by AT&T Wireless and its affiliates) in an
arm's-length transaction, assuming that the Company was being sold in a manner
designed to attract all possible participants and to maximize stockholder value,
including, if necessary, through the sale or other disposition (including
tax-free spin-offs, if possible) of businesses prohibited by legal restrictions
to be owned by a particular buyer or class of buyers.
Once the Private Market Price is determined pursuant to the procedures
provided for in the PMVG, AT&T Wireless will have 45 days to decide whether it
desires to proceed with an acquisition of all the Public Shares (a
"Transaction") at that price. If AT&T Wireless decides to proceed with a
Transaction, it may pay the Private Market Price in cash or any combination of
cash, common equity securities and/or nonconvertible senior or subordinated
"current cash pay" debt securities that the Independent Directors, after
consultation with their investment banking firm, believe in good faith will have
an aggregate market value of not less than the Private Market Price. If AT&T
Wireless determines to proceed with a Transaction as set forth above, it will
enter into an agreement with the Company (containing customary terms and
conditions) and will cause a meeting of the Company's stockholders to be held as
soon as practicable to consider and vote thereon. A Transaction may only be
completed if it is approved by the holders of a majority of the Public Shares.
If AT&T Wireless determines not to proceed with a Transaction, or if
despite its good-faith efforts a Transaction has not been completed within 12
months following the Initiation Date (or, if a Transaction has been approved by
holders of a majority of the Public Shares and is being pursued in good faith by
AT&T Wireless but has not been completed due to regulatory delays or litigation,
20 months following the Initiation Date), AT&T Wireless will put the Company in
its entirety up for sale under the direction of the Independent Directors in a
manner intended by the Independent Directors to maximize value for all Common
Stock of the Company. The sale procedures will be set by the Independent
Directors and may include, if necessary to maximize stockholder value,
provisions for the sale or other disposition of businesses prohibited by legal
restrictions to be owned by any particular buyer or class of buyers. The
Independent Directors will select from among the proposed transactions the one
or more transactions determined by them (including tax-free spin-offs, if
possible) as being most likely to maximize value for all Common Stock of the
Company and will cause a meeting of the Company's stockholders to be held as
soon as practicable to consider and vote thereon. AT&T Wireless is required to
fully cooperate in the PMVG process and, if one or more of the transactions so
selected by the Independent Directors are approved by holders of a majority of
the Public Shares, will cause all Common Stock of the Company owned by its
affiliates to be voted in favor thereof. Any sale of the Company is subject to
receipt of FCC and other necessary regulatory approvals.
If a Transaction is presented for approval at a meeting of the Company's
stockholders as contemplated above and fails to receive the requisite approval
by holders of a majority of the Public Shares, AT&T Wireless will have no
further rights or obligations to purchase the remaining interest in the Company,
but the remainder of the PMVG will continue to apply to the extent described
therein.
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Except as described above, neither AT&T Wireless nor any of its non-Company
affiliates may engage in any material transaction (including, without
limitation, agreements that are standard in the industry) with the Company or
any of its subsidiaries (other than proportionately as a stockholder of the
Company) unless such transaction has been approved by a majority of the
Independent Directors. Except as permitted above, neither AT&T Wireless nor any
of its non-Company affiliates may purchase additional shares of the Company's
Common Stock if, after such purchase, AT&T Wireless and such affiliates would
beneficially own in the aggregate more than 75% of the outstanding Common Stock
of the Company. In addition, except as described above, neither AT&T Wireless
nor any of its non-Company affiliates may engage in a merger or consolidation
with the Company, or purchase all or substantially all of the Company's assets,
unless the transaction is approved not only by a majority of the Independent
Directors but also by the holders of a majority of the Public Shares. The
Independent Directors expect to retain independent financial advisors and
counsel to advise them with respect to any such transaction.
No transaction will be undertaken, and the Company will not take any
action, whether or not approved by a majority of the Company Board, if the
Independent Directors determine in their good-faith judgment by unanimous vote
that such transaction or action would likely depress the value of the Company on
the Initiation Date. In addition, the Company will not acquire or dispose of any
business, whether or not approved by a majority of the Company Board, if the
Independent Directors determine in their good-faith judgment by unanimous vote
that such acquisition or disposition is not in the Company's best interest.
Except pursuant to a sale of the Company as described above, neither AT&T
Wireless nor any of its non-Company affiliates may sell more than 25% of the
outstanding Common Stock of the Company to a third party or group unless that
third party or group agrees in writing to be bound by the provisions set forth
in the PMVG to the same extent as AT&T Wireless is bound.
There is no assurance that AT&T Wireless will agree to purchase the Public
Shares at private market value. Furthermore, if AT&T Wireless does not offer or
agree to purchase the Public Shares, there is no assurance that the Company will
successfully be sold in its entirety or, if it is sold, that the price obtained
will be favorable. The PMVG remains in effect as long as AT&T Wireless and its
non-Company affiliates beneficially own in the aggregate at least 25% of the
outstanding shares of the Company's Common Stock or AT&T Wireless's designees
constitute a majority of the Company Board.
On December 9, 1996 AT&T issued a press release and filed an amended Form
13-D stating that AT&T will review its investment in the Company and will
evaluate alternatives which could result in the disposition, either through
private or public sales, of some or all of the shares of the Company's Common
Stock held by AT&T Wireless.
EMPLOYEES
As of December 31, 1996, the Company employed 1,163 full-time and 96
part-time employees in its broadcasting offices. Of these employees, 224 were
represented by unions. The Company believes that its employee relations are
generally good.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Providence, Rhode
Island. Each of the Stations has facilities consisting of offices, studios,
sales offices and transmitter and tower sites. Transmitter and tower sites are
located to provide coverage of each Station's market. The Company owns the
offices where its Stations are located and owns the property where its towers
and primary transmitters are located. The Company leases the remaining
properties, consisting primarily of sales office locations and microwave
transmitter sites. While none of the properties owned or leased by the Company
is individually material to the Company's operations, if the Company were
required to relocate any of its towers, the cost could be significant because
the number of sites in any geographic area that permit a tower of reasonable
height to provide good coverage of the market is limited, and
15
<PAGE> 18
zoning and other land use restrictions, as well as Federal Aviation
Administration regulations, limit the number of alternative sites or increase
the cost of acquiring them for tower siting.
ITEM 3. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. The Company is not a party to any
lawsuit or proceeding that, in the opinion of the Company's management, is
likely to have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
No matters were submitted to a vote of security holders for the quarter
ended December 31, 1996.
16
<PAGE> 19
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
The Company's Common Stock is listed for quotation on the Nasdaq National
Market under the symbol "LNTV". The following table sets forth, for the quarters
indicated, the high and low sale prices of the Common Stock on the Nasdaq
National Market as reported in published financial sources. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<CAPTION>
Sales Price
-----------
Year High Low
- - ---- --------- -------
<S> <C> <C>
1995
First Quarter..................................................................$33 3/4 $22 1/4
Second Quarter.................................................................$39 3/4 $30 3/4
Third Quarter..................................................................$39 1/2 $29 1/4
Fourth Quarter.................................................................$33 3/4 $27 1/4
1996
First Quarter..................................................................$39 3/4 $27 1/4
Second Quarter.................................................................$37 1/2 $30 3/8
Third Quarter..................................................................$42 1/8 $35
Fourth Quarter.................................................................$44 1/2 $37 1/2
1997
First Quarter (through March 17)...............................................$43 3/4 $38 1/2
</TABLE>
As of March 17, 1997, there were approximately 1,054 holders of record of
the Common Stock (the number of holders does not include the number of
stockholders whose shares are held of record by a broker or clearing agency, but
does include such a brokerage house or clearing agency as one recordholder).
The Company has never paid cash dividends on Common Stock. The Company's
Bank Credit Facility restricts the Company from paying cash dividends to its
stockholders. The Board of Directors will determine future dividend policy based
on the Company's results of operations, financial condition, capital
requirements, restrictions imposed by any credit facility then in place, and
other circumstances. There are also restrictions on the ability of the Company's
operating subsidiaries to pay dividends to the Company. The Company does not
anticipate that any cash dividends will be paid on the Common Stock in the
foreseeable future.
17
<PAGE> 20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
Set forth below is selected consolidated financial and operating data of
the Company as of and for each of the five years in the period ended December
31, 1996. The data should be read in conjunction with the historical
consolidated financial statements of the Company, and the notes thereto,
presented elsewhere in this Form 10-K. Also set forth below are certain pro
forma operating data for the years ended December 31, 1995 and 1994. The pro
forma financial information is presented as if the Spin-Off and the WTNH-TV and
WIVB-TV Acquisitions had taken place at January 1, 1994. The pro forma financial
presentation gives effect to a full year of operations at stations WTNH-TV and
WIVB-TV and includes pro forma adjustments for additional depreciation and
amortization of intangibles related to the purchase price allocations, and
additional provisions for income taxes related to the adjustments described
above, as well as the addition of station WTNH-TV's and WIVB-TV's results of
operations. The pro forma information is not necessarily indicative of the
results of operations that would have been reported if the Spin-Off and
acquisitions had taken place on the dates specified, nor is it indicative of the
Company's future operating results. (In thousands, except per share amounts).
<CAPTION>
1996 1995 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues $273,367 $217,247 $150,523 $127,541 $ 124,496
Operating income 99,160 85,028 64,069 52,251 51,717
Income before extraordinary loss (1) 46,461 38,030 31,185 22,287 19,150
Net income 46,461 38,030 28,260 22,287 19,150
Earnings per share:
Income before extraordinary loss $ 1.54 $ 1.28 $ 1.19 $ 0.86 $ 0.74
Net income $ 1.54 $ 1.28 $ 1.08 $ 0.86 $ 0.74
Weighted average shares outstanding (2) 30,120 29,757 26,136 25,816 25,816
BALANCE SHEET DATA:
Cash and cash equivalents 27,952 18,025 17,907 19,461 17,353
Total assets 595,944 587,256 423,964 183,697 179,371
Long-term debt 350,000 387,000 295,000 176,447 222,088
Total shareholders' equity (deficit) 138,448 86,434 40,160 (99,115) (138,736)
OTHER DATA:
Broadcast cash flow (3) $130,399 $106,749 $ 77,203 $ 65,466 $ 63,095
PRO FORMA DATA:
Net revenues $233,507 $208,346
Operating income 87,736 78,894
Net income 36,780 33,712
Net income per share $ 1.24 $ 1.14
Weighted average shares outstanding (2) 29,757 29,466
OTHER PRO FORMA DATA:
Broadcast cash flow (3) $113,014 $103,284
</TABLE>
18
<PAGE> 21
NOTES TO SELECTED FINANCIAL DATA
(1) In 1994, the Company recorded a $4.5 million write-off of unamortized bank
fees and expenses related to its previous credit facility. This write-off has
been reflected as an extraordinary loss on extinguishment of debt, net of an
income tax benefit of $1.6 million, in the Company's financial statements.
(2) Net income per share for all periods is calculated based on the number of
shares of common stock outstanding, assuming the shares issued in the Spin-Off
were issued on January 1, 1992, and the dilutive effect of common stock
equivalents. Pro forma net income per share is calculated based on the number of
shares of common stock outstanding, assuming the shares issued in the WTNH-TV
Acquisition were issued on January 1, 1994, and the dilutive effect of common
stock equivalents.
(3) "Broadcast cash flow", which is commonly used as a measure of performance of
broadcast companies, is defined as operating income plus corporate expenses,
depreciation and amortization, including both tangible and intangible assets and
program rights and other non-cash items, less cash payments for program rights.
Cash program payments represent cash payments for current program payables, and
do not necessarily correspond to program usage. Broadcast cash flow does not
purport to represent cash provided by operating activities, as reflected in the
Company's consolidated statement of cash flow, 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.
19
<PAGE> 22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL FACTORS AFFECTING THE COMPANY'S BUSINESS
The operating results of the Company depend primarily on advertising
revenues which reflect the economic conditions of the markets in which the
Company operates, the demographic makeup of those markets and the marketing
strategy and efforts of the Company's stations in those markets. The Company
experiences seasonal quarterly fluctuations in operating results with the fourth
quarter of each year generally reporting the highest revenues due to
advertisers' anticipation of higher consumer spending during the holiday season.
The Company also experiences cyclical annual fluctuations in operating results
due substantially to political spending in major election years such as 1994 and
1996. Years in which the Olympic Games are held also cause cyclical fluctuations
in operating results depending on which network is carrying the Olympic coverage
and which of the Company's stations are affiliated with that network. The
Company's expenses are spread evenly throughout the year so that the fluctuation
in operating results is generally related to the fluctuation in the revenue
cycle.
Stations in larger markets traditionally command higher revenues than
stations in smaller markets due to a larger audience. Station KXAS-TV, in the
Dallas-Fort Worth market, generates a substantial portion of the Company's net
revenues. Approximately 34%, 36% and 45% of the Company's 1996, 1995, and 1994
net revenues, respectively, were attributable to KXAS-TV. A significant downturn
in the economy of that station's market could substantially affect the operating
results of the Company. The Company is also dependent on automotive-related
advertising. Approximately 24% of the Company's gross advertising revenues for
the years ended December 31, 1996 and 1995, and 21% for the year ended December
31, 1994, consisted of automotive advertising. A significant decrease in such
advertising could materially and adversely effect the Company's operating
results.
Set forth below are the significant factors that contributed to the
operating results of the Company for each of the three years in the period ended
December 31, 1996. The 1994 results reported below, unless otherwise
specifically stated, include station WTNH-TV only from the date of its
acquisition by the Company (i.e., from December 28, 1994). The 1995 results
reported below, unless otherwise specifically stated, include station WIVB-TV
only from the date of its acquisition by the Company (i.e., from October 2,
1995). The following commentary should be read in conjunction with the Company's
consolidated financial statements, the unaudited pro forma consolidated
financial statements, and the notes thereto, presented elsewhere in this Form
10-K. The Spin-Off, the WTNH-TV and WIVB-TV Acquisitions, and, to a lesser
extent, the operation of the Company's four LMAs, affect the year-to-year
comparability of the Company's financial results reported below.
This Annual Report on Form 10-K contains forward-looking statements that
involve a number of risks and uncertainties. When used in this Annual Report on
Form 10-K the words "believes," "anticipated," and similar expressions are
intended to identify forward-looking statements. There are a number of factors
that could cause the Company's actual results to differ materially from those
forecast or projected in such forward-looking statements. These factors include,
without limitation, the Company's outstanding indebtedness and substantial
leverage, the restrictions imposed by the terms of the Company's indebtedness,
the impact of significant competition from both over-the-air broadcast stations
and programming alternatives such as cable television, wireless cable, in home
satellite distribution service and pay-per-view and home video and entertainment
services, the impact of new technologies and changes in FCC regulations, those
factors set forth above and those set forth below under the caption "Certain
Factors That May Affect Future Results". Readers are cautioned not to place undo
reliance on these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
20
<PAGE> 23
RESULTS OF OPERATIONS
- - ---------------------
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Total net revenues consist of national and local time sales, net of sales
adjustments and agency commissions, network compensation, barter revenues,
revenue from the production of local commercials and sports programming, tower
rental, Local Weather Station revenues, and cable retransmission income. Total
net revenues increased approximately 26% for the year ended December 31, 1996
compared to the same period last year. Nearly 89% of the Company's total net
revenues for 1996 were derived from net national and net local advertising time
sales.
The WIVB-TV Acquisition and the operation of the LMAs accounted for
approximately $23.3 million of the net national and net local revenue increase
for the year ended December 31, 1996. The Stations' advertising revenue increase
for 1996 was also attributable to approximately $4.5 million in incremental
revenues resulting from the telecast of the 1996 Summer Olympics on the NBC
affiliated stations, which led to a more complete sale of inventory and
increased advertising rates for those stations. The increase was also the result
of strong political sales growth of approximately $7.2 million in 1996.
Advertising revenue increases were also driven by the continued steady demand
for television advertising time which began in 1994, reflecting strong economic
activity in most of the Stations' markets.
Increased network revenues of $3.4 million for the year ended December 31,
1996, also contributed to the total revenue increase. The Company negotiated a
new network compensation agreement for the ABC affiliate station WTNH-TV in 1996
effective September 1995. WTNH-TV's network compensation increased $2.3 million
in 1996 as a result of this new agreement. Network revenue also increased as a
result of a full year of operations at station WIVB-TV.
Other broadcast revenues increased $1.8 million for the year ended December
31, 1996 due substantially to increases in sports programming production, local
spot production and Local Weather Station revenues. As a result of the
acquisition of the Texas Rangers Baseball broadcast rights, the Company launched
a new production facility to produce these on-air broadcasts. A substantial
portion of the increase in other broadcast revenues resulted from this new
production facility. Increased revenues from the Local Weather Station also
contributed to the increase in other broadcast income. The Company provides the
Local Weather Station to cable operators in all of its markets except New
Haven-Hartford and Buffalo and presently intends to expand this service to
additional markets in the future.
OPERATING EXPENSES
Direct operating expenses for the year ended December 31, 1996 increased
approximately 40% over the same period in 1995 due primarily to the WIVB-TV
Acquisition, an increase in the amortization of sports programming rights, news
expansion and a change in the syndicated/ barter programming mix. The increase
in amortization of sports programming rights resulted from the acquisition of
Texas Rangers Baseball in 1996. Due to the Company's continued emphasis on
increasing its news presence, direct operating expenses at stations KXAS-TV and
WTNH-TV increased approximately $1.7 million for the expansion of news coverage
in those markets. To a lesser extent, direct operating expenses increased
approximately $0.8 million as a result of increased barter programming at
station WTNH-TV.
Selling, general and administrative ("SG&A") expenses increased
approximately 26% for the year ended December 31, 1996, compared to the same
period in 1995. The increase was due to the WIVB-TV Acquisition, expenses
associated with the new production facility, the operation of the LMAs and, to a
lesser extent, to increased salespersons' commissions at most of the stations
related to the net revenue increase in 1996. SG&A expenses also increased
approximately $1.0 million in 1996 as a result of increased sales and
promotional efforts at the Company's LMAs in order to increase their market
presence.
21
<PAGE> 24
Corporate expenses are comprised primarily of costs associated with the
centralized management of the stations. Corporate expenses increased
approximately $1.2 million for the year ended December 31, 1996, compared to
1995, related primarily to expenses associated with the Company's continuing
effort to actively explore acquisition opportunities.
The amortization of programming rights, which reflects the expenses related
to the acquisition of syndicated programming, features and specials purchased to
air on the Company's television stations, for the year ended December 31, 1996
rose approximately $2.1 million comprised of a $1.3 million increase due to the
WIVB-TV Acquisition coupled with a change in the syndicated/barter programming
mix at WAVY-TV.
Depreciation and the amortization of intangible assets increased $6.7
million for the year ended December 31, 1996, compared to the same period last
year. This increase is primarily related to the WIVB-TV Acquisition. Excluding
the WIVB-TV Acquisition, the Company has also experienced a $3.1 million
increase in depreciation expense primarily as a result of capital expenditures
aimed at maintaining a high quality on-air product at each of the Company's
stations and, to a lesser extent, to the operation of the new production
facility.
OPERATING INCOME
For the reasons discussed above, the Company reported an increase in
operating income of $14.1 million or approximately 17% for the year ended
December 31, 1996, compared to the same period last year.
Interest expense, comprised of interest payable on funds borrowed under the
Company's long-term bank credit facility (the "Bank Credit Facility"), increased
moderately for the year ended December 31, 1996, compared to the same period
last year, due substantially to interest on the additional funds borrowed for
the WIVB-TV Acquisition, offset by somewhat lower interest rates. See "Note 4 -
Long Term Debt" of the Company's Consolidated Financial Statements.
The Company's provision for income taxes increased approximately 22% for
the year ended December 31, 1996, compared to the same period last year, due to
higher income before taxes.
PRO FORMA
The following discussion of results of operations for the year ended
December 31, 1996, compared to the pro forma results for the same period in 1995
assumes the closing of the WIVB-TV Acquisition as of January 1, 1995.
Net revenues increased approximately 17% for the year ended December 31,
1996, compared to pro forma net revenues for the same period in 1995, as a
result of the same factors that increased the Company's actual net revenues for
the year. Net revenues at station WIVB-TV remained relatively flat from year to
year on a pro forma basis.
Direct operating expenses increased approximately 28% for the year ended
December 31, 1996, due to the factors discussed above in the Company's actual
results of operations, coupled with an increase of approximately 24% at station
WIVB-TV. The increase was due, substantially, to costs associated with news
expansion and upgrading the technical facilities in 1996.
SG&A expenses increased approximately 17% for the year ended December 31,
1996, compared to pro forma SG&A expenses for the same period in 1995, as a
result of the factors that affected the Company's actual results for the
associated periods. SG&A expenses at station WIVB-TV remained relatively flat
from year to year on a pro forma basis.
22
<PAGE> 25
Corporate expenses for the year ended December 31, 1996 increased due to
the same factors as discussed above in the Company's actual results of
operations. The financial results of WIVB-TV do not include a comparable
allocation of corporate expenses as a component of operating expenses.
Amortization of program rights increased approximately 3% for the year
ended December 31, 1996. This increase is due to the same factors discussed in
the Company's actual results of operations, offset, in part, by a decrease of
$0.4 million at station WIVB-TV due to a change in valuation of acquisition film
products.
Depreciation and amortization of intangible assets increased approximately
16% for the year ended December 31, 1996, compared to pro forma depreciation and
amortization for the same period in 1995, primarily due to higher levels of
property and equipment in service at all of the Company's stations, including
WIVB-TV.
For the reasons discussed above, the Company's operating income increased
approximately 13% to $99.1 million for the year ended December 31, 1996,
compared to pro forma results of $87.7 million for the same period last year.
Interest expense for the year ended December 31, 1996 decreased due to the
additional borrowings incurred for the WIVB-TV Acquisition being outstanding for
the entire period at a lower effective interest rate than the Company
experienced in the prior period.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES
Total net revenues increased approximately 44% for the year ended December
31, 1995 compared to the same period last year. The Stations' spot revenues
grew, even when compared to strong political sales in 1994, as a result of
increasing demand for advertising time, which led to a more complete sale of
inventory and increased advertising rates. The WTNH-TV and WIVB-TV Acquisitions
and the operation of the LMAs accounted for approximately 76% of the total net
revenue increase for the year ended December 31, 1995.
Increased network revenues of $10.9 million for the year ended December 31,
1995, also contributed to the total revenue increase. The new ten-year NBC
network compensation agreement, as previously reported, and, to a lesser extent,
the additional network revenue at stations WTNH-TV and WIVB-TV, account for this
increase.
Other broadcast income increased for the year ended December 31, 1995 due
to increases in local spot production, rental income, and Local Weather Station
revenues offset, in part, by increased rent expense. The $0.5 million increase
in local spot production is attributable, substantially, to the WTNH-TV and
WIVB-TV Acquisitions. Rental income, which is derived from the leasing of
certain Stations' tower space to other broadcasters, increased $0.3 million for
the year as a result of the WTNH-TV and WIVB-TV Acquisitions, and a full year of
operations at KXTX-TV. Revenues from the Local Weather Station increased $0.3
million for the year, compared to 1994. The $1.0 million increase in rent
expense is primarily attributable to the costs of operating the LMAs.
OPERATING EXPENSES
Direct operating expenses for the year ended December 31, 1995 increased
approximately 46% over the same period in 1994 due primarily to the WTNH-TV and
WIVB-TV Acquisitions and the operation of the four LMAs. The increase in direct
operating expenses was also attributable to a 1994 reversal of approximately
$1.3 million in accrued music license fees. This reversal was the result of a
settlement between the broadcasting industry and Broadcast Music Incorporated
("BMI") as to the level of music license payments from 1983 through 1994.
SG&A expenses increased approximately 48% for the year ended December 31,
1995, compared to the same period in 1994. The increase was due to the WTNH-TV
and WIVB-TV Acquisitions and the operation of the
23
<PAGE> 26
LMAs and, to a lesser extent, to increased commissions at all stations except
WAND-TV related to the net revenue increase in 1995. SG&A expenses also
increased in 1995 due to increased sales and promotional efforts at stations
KXAS-TV and KXAN-TV during the July and November sweeps in order to capitalize
on the affiliation switches among competing stations in each of the respective
markets.
Total corporate expenses increased approximately $1.4 million for the year
ended December 31, 1995, compared to 1994, related to additional corporate
personnel and expenses associated with doing business as a public company.
Amortization of program rights for the year ended December 31, 1995 rose
approximately 70.%, comprised of a $2.6 million and $0.7 million increase due to
the WTNH-TV and WIVB-TV Acquisitions, respectively, coupled with a $2.1 million
increase due to the operation of the four LMAs, offset by a change in the
syndicated/barter programming mix at KXAS-TV, and syndicated programming
write-offs at WAVY-TV. As independents or Warner Brothers affiliates, the LMAs
have substantially more syndicated programming than comparable network
affiliated stations in the group.
Depreciation and the amortization of intangible assets increased $8.3
million for the year ended December 31, 1995, compared to the same period in
1994. Substantially all of this increase is related to the WTNH-TV and WIVB-TV
Acquisitions, and, to a lesser extent, to the operation of the two Texas LMAs,
KXTX-TV and KNVA-TV. The Company has also experienced a $1.1 million increase in
depreciation expense primarily as a result of 1995 capital expenditures aimed at
maintaining a high quality on-air product at each of the Company's stations.
OPERATING INCOME
For the reasons discussed above, the Company reported an increase in
operating income of $21.0 million or approximately 33% for the year ended
December 31, 1995, compared to the same period in 1994.
Interest expense, comprised of interest payable on funds borrowed under the
Company's Bank Credit Facility, increased approximately 95% for the year ended
December 31, 1995, compared to the same period in 1994, due substantially to
interest on the additional funds borrowed for the Spin-Off and WTNH-TV and
WIVB-TV Acquisitions, coupled with somewhat higher interest rates.
The Company's provision for income taxes increased for the year ended
December 31, 1995, compared to the same period in 1994, due to higher income
before taxes, offset, slightly, by a lower effective tax rate. Prior to the
Spin-Off, the Company participated in a tax-sharing agreement with LIN
Broadcasting pursuant to which the Company benefited from the allocation of a
net operating loss carryforward of $140.5 million as of January 1, 1990. As a
result, federal tax liabilities were deemed to be forgiven and were credited to
paid-in capital through 1994. Since the Spin-Off, the Company is no longer a
party to this tax-sharing agreement and, subsequently, is fully responsible for
the payment of all related tax expenses.
PRO FORMA
The following discussion of pro forma results of operations for the year
ended December 31, 1995, compared to the same period in 1994 assumes the closing
of both the WTNH-TV and WIVB-TV Acquisitions as of the beginning of 1994.
Pro forma net revenues increased approximately 12% for the year ended
December 31, 1995, compared to the same period in 1994, due to the same factors
that increased the Company's actual net revenues for the year, coupled with an
increase of approximately 5% in net revenues at station WIVB-TV, offset by a
decrease of approximately 4% at station WTNH-TV. Network compensation at station
WIVB-TV increased by $1.2 million from year to year on a pro forma basis. Prior
to the WIVB-TV Acquisition the station negotiated a new long-term, 10-year
network affiliation agreement that increased the compensation rate and provided
for additional network programming. Pro forma net revenues at station WTNH-TV
decreased in 1995 due to a reduction in revenues
24
<PAGE> 27
from political advertising in 1995 compared to 1994 (which was an election
year), offset by a $0.6 million increase in net national and net local
advertising revenues.
Pro forma direct operating expenses increased approximately 19% for the
year ended December 31, 1995, due to the factors discussed above in the
Company's actual results of operations, coupled with approximately 7% and 38%
increases at stations WIVB-TV and WTNH-TV, respectively. The increase at both
stations was due, substantially, to increased costs in news and technical
expenses related to increasing the scope of the station's on-air news product.
Pro forma direct operating expenses also increased $1.0 million due to a
non-recurring reversal of accrued music license fees in 1994 at station WTNH-TV.
Pro forma SG&A expenses increased approximately 7% for the year ended
December 31, 1995, compared to the same period in 1994, as a result of the
factors that affected the Company's actual results for the associated periods,
offset by a decrease of $3.0 million at station WTNH-TV related to non-recurring
contractual settlements in 1994 resulting from the station's acquisition. SG&A
expenses at station WIVB-TV remained relatively flat from year to year on a pro
forma basis.
Pro forma corporate expenses for the year ended December 31, 1995 increased
$1.4 million over the same period in 1994, the same amount as is reflected in
the actual results for the same period, due to the same factors as discussed
previously. The financial results of WTNH-TV and WIVB-TV do not include a
comparable allocation of corporate expenses as a component of operating
expenses.
Pro forma amortization of program rights increased approximately 10% for
the year ended December 31, 1995. This increase is due to the same factors
discussed in the Company's actual results of operations, offset, partially, by a
$0.5 million decrease at station WTNH-TV due to contractual savings resulting
from the acquisition.
Pro forma depreciation and amortization of intangible assets increased
approximately 8% for the year ended December 31, 1995, compared to the same
period in 1994, primarily due to higher levels of property and equipment in
service at all of the Company's stations, including WTNH-TV.
For the reasons discussed above, the Company's pro forma operating income
increased approximately 11% to $87.7 million for the year ended December 31,
1995, compared to pro forma results of $78.9 million for the same period in
1994.
Pro forma interest expense for the year ended December 31, 1995 increased
due to the additional borrowings incurred for both the WTNH-TV Acquisition and
the WIVB-TV Acquisition being outstanding for the entire period at higher
effective interest rates than the Company experienced in the prior period.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
It is the Company's policy to carefully monitor the state of its business,
cash requirements and capital structure. From time to time, the Company may
enter into transactions pursuant to which debt is extinguished, including sales
of assets or equity, joint ventures, reorganizations or recapitalizations. There
can be no assurance that any such transactions will be undertaken or, if
undertaken, will be favorable to stockholders. The Company's principal source of
funds have historically been its operations and credit facilities.
Net cash provided by operating activities totaled $66.1 million, $55.2
million, and $49.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The increase in net cash provided by operating activities for the
years ended December 31, 1996 and 1995, respectively, was due primarily to
improved operating results, offset, in part, by an increase in amounts paid for
interest, income taxes and program payments. Net cash used in investing
activities decreased for the year ended December 31, 1996 due to costs related
to the acquisitions in 1995. Net cash used in investing activities for the year
ended December 31, 1995 decreased primarily due to the costs related to the
acquisitions in 1994, offset by increased capital expenditures in 1995 to
upgrade some of the stations' facilities. Net cash used in financing activities
increased for the year ended December 31, 1996 as a result of reduced borrowings
under the Bank Credit Facility and an increase in principal payments on
long-term debt.
25
<PAGE> 28
Net cash provided by financing activities for the year ended December 31, 1995,
decreased as a result of reduced borrowings under the Bank Credit Facility,
offset by a decrease in principal payments on long-term debt. As of December 31,
1996, the Company had a working capital surplus of $56.6 million compared to a
surplus of $34.0 million in 1995, and a surplus of $7.3 million in 1994. The
1996 increase in working capital is attributable to improved cash flow and a
reduction of programming liabilities. The 1995 increase was a result of an
increase in accounts receivable, due substantially to the WTNH-TV and WIVB-TV
Acquisitions, and a reduction in the current portion of the long-term debt.
The Company continually evaluates its reserves for uncollectible accounts
in light of the aging of its receivables, general economic conditions and, if
appropriate, any specific information with respect to large creditors.
Write-offs at the acquisition station WTNH-TV resulted in a decrease in the
reserve for uncollectible amounts in 1996 and 1995.
As a result of the WTNH-TV and WIVB-TV Acquisitions, the Company's
intangible assets increased by approximately $310.0 million and is attributable
to FCC licenses, network affiliations and goodwill.
The Company's capital expenditures primarily include purchases of
broadcasting equipment, studio equipment, vehicles and office equipment to
improve the efficiency and quality of television broadcasting operations. The
Company's capital expenditures for the full year of 1996 were $27.6 million,
compared with $27.7 million in 1995. The Company anticipates that it will be
able to meet its capital expenditure requirements with internally generated
funds and borrowings under its Bank Credit Facility.
In August 1996, the Company renegotiated the terms of its Bank Credit
Facility primarily to reduce the interest rate attributable to outstanding debt.
The Bank Credit Facility, as amended, permits the Company to borrow up to $600
million of an eight-year, reducing revolving credit facility (the "Facility").
The Company has indebtedness outstanding of $350 million and funds of $250
million available under the Facility as of December 31, 1996 (See Note 4 -
"Long-Term Debt" in the Company's "Notes to the Consolidated Financial
Statements").
The commitment of the Facility will begin to reduce in semi-annual
installments commencing June 30, 1999 such that the annual commitment reduction
will be $15 million in 1999, $60 million per year in years 2000 through 2003,
and the remaining $45 million in 2004. As of December 31, 1996, the Company
would be required, in 2001, to begin making payments to the extent that the
balance outstanding under the Facility exceeded the reduced commitment available
and continue making semi-annual installments under the revolving facility
through December 31, 2004, at which time the debt will be fully repaid. The
Company is required to apply cash proceeds from certain sales of assets which
are not reinvested in similar assets to the prepayment of loans. The Bank Credit
Facility, as amended, also permits the Company to solicit commitments for an
incremental $300 million, eight-year, reducing revolving credit facility (the
"Incremental Facility"). Aggregate commitments to the Incremental Facility, if
any, will reduce in eight equal semi-annual amounts beginning 2001 and ending
2004. The Company made principal payments of $37.0 million and $25.0 million in
1996 and 1995 respectively.
The Company's current and future debt service obligations could have
adverse consequences to holders of the Company's common stock, including the
following: (i) the Company's ability to obtain financing for future working
capital needs or additional acquisitions or other purposes may be limited; (ii)
a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing funds available for operations; and (iii) the Company may be more
vulnerable to adverse economic conditions than less leveraged competitors and,
thus, may be limited in its ability to withstand competitive pressures.
The Company expects to be able to satisfy its future debt service
obligations and other commitments with cash flow from operations. However, there
can be no assurance that the future cash flow of the Company will be sufficient
to meet such obligations and commitments. If the Company is unable to generate
sufficient cash flow from operations in the future to service its indebtedness
and to meet its other commitments, it may be required to refinance all or a
portion of its existing indebtedness or to obtain additional financing. There
can be no assurance that any such refinancing or additional financing could be
obtained on acceptable terms. If the Company is unable
26
<PAGE> 29
to service or refinance its indebtedness, it may be required to sell one or more
of its stations to reduce debt service obligations.
The Company has never paid dividends on its common stock and has no present
intention of paying dividends on its common stock in the foreseeable future. It
has been the Company's policy to retain earnings in order to finance its
business. In addition, the Bank Credit Facility restricts the Company from
paying cash dividends. Any future dividends will be dependent upon the Company's
results of operations, financial condition, capital requirements, restrictions
imposed by any credit facility then in place and other factors which the
Company's management and Board of Directors deem relevant.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
- - ----------------------------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (Statement 121), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairments are present and the undiscounted cash flows estimated to be
generated by those assets are less than the asset's carrying value. Statement
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted Statement 121 in the first quarter of 1996 and,
to date, adoption has had no material impact on the Company's financial results.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation (Statement 123), which provides an alternative to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (Opinion 25), in accounting for stock-based compensation issued to
employees. Statement 123 allows for a fair value based method of accounting for
employee stock options and similar equity instruments. However, for companies
that continue to account for stock-based compensation arrangements under Opinion
25, Statement 123 requires disclosure of the pro forma effect on net income and
earnings per share of its fair value based accounting for those arrangements.
These disclosure requirements are effective for fiscal years beginning after
December 15, 1995, or upon initial adoption of the Statement, if earlier. The
Company has elected to continue accounting for stock options under the
provisions of Opinion 25.
INFLATION
- - ---------
The Company believes that its businesses are affected by inflation to an
extent no greater than other businesses are generally affected.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
- - ----------------------------------------------
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
Annual Report on Form 10-K and presented elsewhere by management from time to
time.
Outstanding Indebtedness and Substantial Leverage. The Company has, and will
continue to have, consolidated indebtedness that is substantial in relation to
its total stockholders' equity.
In August 1996, the Company renegotiated the terms of its long-term bank
credit facility (the "Bank Credit Facility") primarily to reduce the
interest attributable to outstanding debt. The Bank Credit Facility, as
amended, permits the Company to borrow up to $600 million of an eight-year,
reducing revolving credit facility. The Company had outstanding indebtedness as
of December 31, 1996 of $350 million under the Bank Credit Facility. The
Company is required to repay the indebtedness outstanding through semi-annual
installments under the revolving facility, commencing on December 31, 2001 and
continuing through December 31, 2004, at which time the debt will be fully
repaid. The Company is required to apply cash proceeds from certain sales of
assets which are not reinvested in similar assets and excess cash flow to the
prepayment of loans. The Bank Credit Facility, as amended, also permits the
Company to solicit commitments for an incremental $300 million, eight-
27
<PAGE> 30
year, reducing revolving credit facility (the "Incremental Facility"). Aggregate
commitments to the Incremental Facility, if any, will reduce in eight equal
semi-annual amounts beginning 2001 and ending 2004.
The Company has and will continue to have significant cash interest expense
relating to the Bank Credit Facility, and a significant amount of the Company's
cash flow will be required to service its debt. The Company, on a consolidated
basis, reported interest expense of $26.6 million for the year ended December
31, 1996.
The Company's current and future debt service obligations could have
adverse consequences to holders of the Company's Common Stock, including the
following: (i) the Company's ability to obtain financing for future working
capital needs or additional acquisitions or other purposes may be limited; (ii)
a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing funds available for operations; and (iii) the Company may be more
vulnerable to adverse economic conditions than less leveraged competitors and,
thus, may be limited in its ability to withstand competitive pressures.
The Company expects to be able to satisfy its future debt service
obligations and other commitments with cash flow from operations. However, there
can be no assurance that the future cash flow of the Company will be sufficient
to meet such obligations and commitments. If the Company is unable to generate
sufficient cash flow from operations in the future to service its indebtedness
and to meet its other commitments, it may be required to refinance all or a
portion of its existing indebtedness or to obtain additional financing. There
can be no assurance that any such refinancing or additional financing could be
obtained on acceptable terms. If the Company is unable to service or refinance
its indebtedness, it may be required to sell one or more of its stations to
reduce debt service obligations.
Restrictions Imposed by the Terms of Indebtedness. The Bank Credit Facility
contains covenants restricting or limiting certain activities, including (i)
acquisitions and investments, (ii) incurrence of debt, (iii) distributions and
dividends to stockholders, (iv) mergers and sales of assets, (v) prepayments and
subordinated indebtedness, and (vi) creations of liens. As security under the
Bank Credit Facility, the Company has given a negative pledge on the assets and
capital stock of each of its subsidiaries, which own all of the Company's
television properties. Such subsidiaries are restricted from making certain
distributions or payments to the Company. Under the Bank Credit Facility, the
Company must remain in compliance with a series of financial covenants, which
compare the levels of the company's indebtedness to its cash flows as of the end
of each quarter. The Company's ability to meet these financial ratios and
financial condition tests can be affected by events beyond its control, and
there can be no assurance that the Company will meet those tests. As of December
31, 1996, the Company was in compliance with all covenants. The breach of any of
these covenants could result in a default under the Bank Credit Agreement. In
addition, an event of default will occur if any person or group other than AT&T
Wireless acquires the ability to elect a majority of the members of the
Company's Board, absent the consent of lenders holding a majority of the
principal balance outstanding. In the event of a default under the Bank Credit
Facility, the lenders could seek to declare all amounts outstanding under the
Bank Credit Facility, together with accrued and unpaid interest, to be
immediately due and payable. If the Company were unable to repay those amounts,
the lenders under the Bank Credit Facility could proceed against the collateral
granted to them to secure that indebtedness. If the indebtedness under the Bank
Credit Facility were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full that indebtedness and
the other indebtedness of the Company. Substantially all of the assets of the
Company and its Subsidiaries are pledged as security under the Bank Credit
Facility.
Dependence Upon Key Personnel. The Company believes that its success will
continue to be dependent upon its ability to attract and retain skilled managers
and other personnel, including its present officers, regional directors and
general managers. The loss of the services of the Company's President and Chief
Executive Officer, Gary R. Chapman, may have a material adverse effect on the
operations of the Company.
Growth through Acquisitions; Future Capital Requirements. The Company intends to
actively explore strategic opportunities for the acquisition of additional
broadcast properties. Inherent in any future acquisitions are certain risks such
as increasing leverage and debt service requirements and combining company
cultures and facilities which could have a material adverse effect on the
Company's operating results, particularly during the period
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<PAGE> 31
immediately following such acquisitions. Additional debt or capital may be
required to complete future acquisitions, and there can be no assurance the
Company will be able to obtain such financing or raise the required capital.
Dependence on Certain External Factors. The Company's operating results are
primarily dependent on advertising revenues which, in turn, depend on national
and local economic conditions, the relative popularity of the Company's
programming, the demographic characteristics of the Company's markets, the
activities of competitors and other factors which are outside the Company's
control. The television industry is cyclical in nature, and the Company's
revenues could be adversely affected by a future local, regional or national
recessionary environment.
Reliance on Programming. The Company's most significant operating cost is
syndicated programming. There can be no assurance that the Company will not be
exposed in the future to increased syndicated programming costs which may
adversely affect the Company's operating results. Acquisition of program rights
are often made two or three years in advance, making it difficult to accurately
predict how a program will perform. In some instances, programs must be replaced
before their costs have been fully amortized, resulting in write-offs that
increase station operating costs.
Certain Affiliation Agreements. Three of the Company's existing owned and
operated stations are affiliated with NBC, three with CBS, and two with ABC.
Each of these networks generally provide these stations with up to 22 hours of
prime time programming per week. In return, the stations broadcast
network-inserted commercials in these programs. Although network affiliates
generally have achieved higher ratings than unaffiliated independent stations in
the same market, there can be no assurance as to the future success of each
network's programming or the continuation of such programming. The Company's
network affiliation agreements are subject to termination by such networks under
certain circumstances. The Company believes it presently enjoys a good
relationship with each of the three networks. However, there can be no assurance
that such affiliation agreements will remain in place or that each network will
continue to provide programming to affiliates on the same basis that currently
exists. The non-renewal or termination of a network affiliation agreement could
have a material adverse effect on the Company's operations.
Competition. The television broadcasting industry is highly competitive and is
undergoing a period of consolidation and significant change. Many of the
Company's current and potential competitors have significantly greater
financial, marketing, programming and broadcasting resources than the Company.
Technological innovation and the resulting proliferation of programming
alternatives, such as cable television, wireless cable, in home
satellite-to-home distribution services, pay-per- view and home video and
entertainment systems, have fractionalized television viewing audiences and have
subjected free over-the-air television broadcast stations to new types of
competition.
The Company's stations face strong competition for market share and
advertising revenues in their respective markets from other local free
over-the-air broadcast stations, cable television, over-the-air wireless cable
television, radio stations, newspapers, periodicals and other entertainment
media. Some competitors are part of larger companies with greater resources than
the Company. In addition, the FCC has adopted rules which permit telephone
companies to provide video services to homes on a common-carrier basis, and
proposed legislation could relax or repeal the telephone cable ownership
prohibition for all systems.
Impact of New Technologies. The Federal Communications Commission (the "FCC")
has proposed the adoption of rules for implementing Advanced Television ("ATV")
in the United States. Implementation of ATV will improve the technical quality
of over-the-air broadcast television. Under certain circumstances, however,
conversion to ATV operations may reduce a station's geographical coverage area.
The FCC is considering an implementation proposal that would allot a second
broadcast channel to each regular commercial television station for ATV
operation. Stations would be required to phase in their ATV operations on the
second channel, with a three-year period to build necessary ATV facilities and a
consecutive three-year period in which to begin operations. Such stations would
be required to surrender their non-ATV channel 15 years after the commencement
of the first three-year period. Implementation of ATV will impose additional
costs on television stations providing the new
29
<PAGE> 32
service due to increased equipment costs. The Company estimates that the
adoption of ATV would require average capital expenditures of approximately $2
million per Station to provide facilities necessary to pass along an ATV signal.
The conversion of a Station's equipment enabling it, for example, to produce and
transmit ATV programming would be substantially more expensive. The introduction
of this new technology will require that consumers purchase new receivers
(television sets) for ATV signals or, if available by that time, adapters for
their existing receivers. The FCC has also proposed to assign to full-power ATV
stations the channels currently occupied by LPTVs, which could adversely affect
the Company's LPTV channels. The Company believes that it is essential to the
long-term viability of the Company and the broadcast industry that the FCC
authorize ATV in the United States, but the Company cannot otherwise predict
when such authorization might be given or the precise effect such authorization
might have on the Company's business.
Budget legislation has been proposed in both the House and Senate which
would require the FCC to raise revenue for the federal government by auctioning
radio frequencies in bands which encompass those currently licensed for use by
broadcasters, including those channels used for "auxiliary" purposes, such as
remote pickups in electronic news gathering and studio-to-transmitter links, and
which would require immediate auctioning of ATV spectrum or accelerated
give-back by broadcasters of their existing analog channels.
Further advances in technology may also increase competition for household
audiences and advertisers. The video compression techniques now under
development for use with current cable television channels or direct broadcast
satellites which do not carry local television signals (some of which commenced
operation in 1994) are expected to reduce the bandwidth which is required for
television signal transmission. These compression techniques, as well as other
technological developments, are applicable to all video delivery systems,
including over-the-air broadcasting, and have the potential to provide vastly
expanded programming to highly targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers for new channels
and encourage the development of increasingly specialized "niche" programming.
This ability to reach a very defined audience may alter the competitive dynamics
for advertising expenditures. The Company is unable to predict the effect that
technological changes will have on the broadcast television industry or the
future results of the Company's operations.
Governmental Regulations. The broadcasting industry is subject to regulation by
the FCC pursuant to the Communications Act of 1934, as amended (the
"Communications Act"). Approval by the FCC is required for the issuance, renewal
and assignment of station operating licenses and the transfer of control of
station licensees. In particular, the Company's business will be dependent upon
its continuing to hold television broadcast licenses from the FCC that are
issued for maximum terms of five years. While in the vast majority of cases such
licenses are renewed by the FCC, there can be no assurance that the Company's
licenses or the licenses owned by the owner-operators of the stations with which
the Company has LMAs will be renewed at their expiration dates. All of the
Company's stations are presently operating under regular five-year FCC licenses.
Control by Principal Shareholder; Private Market Value Guarantee. AT&T, through
its indirect wholly owned subsidiary AT&T Wireless, holds approximately 45.4% of
the outstanding Common Stock. The Company, AT&T Wireless and CICC have entered
into a Stockholders Agreement pursuant to which the parties have agreed to take
all necessary action to cause the Company's Board of Directors to consist of 10
members, six of whom will be designated by AT&T Wireless so long as AT&T
Wireless beneficially owns at least 25% of the outstanding Common Stock, one of
whom will be designated by CICC so long as CICC holds at least 3 1/2% of the
outstanding Common Stock and three of whom will be independent directors in
accordance with the PMVG (as defined below). As a result of the Stockholders
Agreement, AT&T, through AT&T Wireless, controls the election of a majority of
the Board of Directors and the direction of the affairs of the Company.
The Company and AT&T Wireless have entered into a Private Market Value
Guarantee (the "PMVG"), which places certain obligations on AT&T Wireless for
the benefit of the Company's stockholders other than AT&T Wireless and its
affiliates. Under the PMVG, AT&T Wireless may, under certain circumstances and
subject to approval by the Company's stockholders (other than AT&T Wireless),
offer to acquire the remaining publicly owned shares of the Company's Common
Stock in 1998 for their "private market value," as then determined pursuant to
an appraisal process. If AT&T Wireless does not agree to acquire such remaining
shares,
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<PAGE> 33
the Company will be offered for sale in its entirety in a manner intended to
maximize stockholder value. There is no assurance that AT&T Wireless will agree
to acquire shares of the Company's Common Stock for private market value. If
AT&T Wireless does not offer to acquire such shares, there is no assurance that
the Company will be sold in its entirety or, if sold, that the consideration
obtained will be considered favorable by holders of shares of the Company's
Common Stock. The obligations of AT&T Wireless under the PMVG remains in effect
so long as AT&T Wireless and its affiliates (other than the Company)
beneficially own in the aggregate at least 25% of the outstanding shares of the
Company's Common Stock or AT&T Wireless designees constitute a majority of the
Company's Board of Directors.
On December 9, 1996, AT&T issued a press release stating that AT&T will
review its investment in the Company and will evaluate alternatives which could
result in the disposition, either through private or public sales of some or all
of the shares of the Company's Common Stock held by AT&T Wireless.
Volatility of Stock Price and Depth of Trading Market. The Common Stock is
traded on the Nasdaq National Market. The stock market in general and the market
price of the Common Stock, like the shares of many other companies, has been and
may continue to be volatile and experience significant price fluctuations. These
broad market and industry fluctuations may adversely affect the market price of
the Common Stock. Factors such as changes in government regulations and general
conditions in the industry may have a significant impact on the market price of
the Common Stock. In addition, the market price of the Common Stock may be
affected by quarterly fluctuations in the Company's results of operations, which
may be expected to occur due to the seasonality of advertisers' purchases of
advertising time.
Multiple Ownership Rules and Effect on LMAs. The FCC has initiated rulemaking
proceedings to consider proposals to relax its television ownership
restrictions, including proposals that would permit the ownership, in some
circumstances, of two television stations with overlapping service areas. The
FCC may also consider in these proceedings whether to adopt new restrictions on
television LMAs. The "duopoly" rules currently prevent the Company from
acquiring the FCC licenses of its LMA stations, thereby preventing the Company
from directly fulfilling its obligations under put options that such LMA
stations have with the Company. If the Company should be unable to fulfill its
obligation under a put option, it would be required to find an assignee who
could perform such obligation. There is no assurance that the Company could find
an assignee to fulfill the Company's obligations under the put options on
favorable terms. Under the Telecommunications Act of 1996, the Company's LMAs
were "grandfathered." The precise extent to which the FCC may nevertheless
restrict existing LMAs or make them attributable ownership interests is
uncertain. In the rulemaking, the FCC has proposed, for example, to make LMAs
fully attributable ownership interests and thus prohibited unless the two
stations would qualify for dual ownership under certain specified criteria
(e.g., VHF-UHF or UHF-UHF combinations; start-up stations; failed or failing
stations) on a case-by-case basis. "Grandfathering" rights for current LMAs
which do not qualify for conversion to ownership would be limited to fulfilling
the current lease term, with renewal rights and transferability rights
eliminated. The Company's LMAs all involve leased stations which are UHF
stations and which were either start-up stations or existing stations which were
failing financially and would appear to qualify for conversion to ownership
under the proposed standards. Nevertheless, it is possible that the FCC could
deny the Company the ability to convert its LMAs to full ownership or require
the Company to modify its LMAs in ways which impair their viability. Further, if
the FCC were to find that the licensee of one of the Company's LMA stations
failed to maintain control over their operations, the licensee of the LMA
station and/or the Company could be fined. The Company is unable to predict the
ultimate outcome of possible changes to these FCC rules and the impact such FCC
rules may have on its broadcasting operations.
All of the Company's LMAs allow, in accordance with FCC rules, regulations
and policies, preemptions of the Company's programming by the owner-operator and
FCC licensee of each station with which the Company has an LMA. Accordingly, the
Company cannot be assured that it will be able to air all of the programming
expected to be aired on those stations with which it has an LMA or that the
Company will receive the anticipated advertising revenue from the sale of
advertising spots in such programming. Although the Company believes that the
terms and conditions of each of its LMAs should enable the Company to air its
programming and utilize the programming and other non-broadcast license assets
acquired for use on the LMA stations, there can be no assurance that early
terminations of the LMAs or unanticipated preemptions of all or a significant
portion of the
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<PAGE> 34
programming by the owner-operator and FCC licensee of such stations will not
occur. An early termination of one of the Company's LMAs, or repeated and
material preemptions of programming thereunder, could adversely affect the
Company's operations.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
Dividend Restriction. The terms of the Company's Bank Credit Facility
restrict the Company from paying dividends on its Common Stock. The Company does
not expect to pay dividends on its Common Stock in the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and supplementary data,
together with the report of Ernst & Young LLP, independent auditors, are
included elsewhere herein. Reference is made to the "Index to Financial
Statements" immediately preceding page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information in the Company's
Proxy Statement relating to its 1996 annual meeting of stockholders, a copy of
which will be filed with the Commission no later than 120 days after the end of
1996 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information in the Proxy
Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements Filed
- Report of Ernst & Young LLP, Independent Auditors
- Consolidated Balance Sheets at December 31, 1996 and 1995
- Consolidated Statements of Income for the Years Ended December 31,
1996, 1995, and 1994
- Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994
- Consolidated Statements of Cash Flows for the Years Ended December
31, 1996, 1995, and 1994
- Notes to the Consolidated Statements
(a)(2) Financial Statement Schedules Filed
I -Condensed Financial Information of Registrant
II-Valuation of Qualifying Accounts for Fiscal Years Ended December 31,
1996, 1995, and 1994
All other schedules have been omitted because the information is not
required or is not applicable, or because the information required is included
in the financial statements or the notes thereto.
<TABLE>
(a)(3) Exhibits
<CAPTION>
Exhibit No. Description of Exhibit
----------- -----------------------------------------------------------------------------------
<C> <S>
* 3.1 -- Restated Certificate of Incorporation of the Registrant.
* 3.2 -- Restated Bylaws of the Registrant.
*10.1 -- LIN Television Corporation Amended and Restated 1994 Stock Incentive Plan.
*10.2 -- LIN Television Corporation 1994 Adjustment Stock Incentive Plan.
*10.3 -- LIN Television Corporation 1994 Nonemployee Director Stock Incentive Plan.
*10.4 -- LIN Television Corporation Employee Stock Purchase Plan.
*10.5 -- Supplemental Benefit Retirement Plan of LIN Television Corporation
and Subsidiary Companies, as amended and restated.
*10.6 -- LIN Television Corporation Profit Sharing Plan, as amended and restated.
*10.7 -- LIN Television Corporation Retirement Plan, as amended and restated.
*10.8 -- LIN Television Corporation 401(k) Plan and Trust.
*10.9 -- Television Affiliation Agreement for WAND-TV with American Broadcasting
Companies, Inc., dated February 8, 1990 as amended.
*10.10 -- Television Affiliation Agreement for WANE-TV with CBS, Inc., dated November 1, 1992.
*10.11 -- Television Affiliation Agreement for WISH-TV with CBS, Inc., dated November 1, 1992,
as amended.
</TABLE>
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<PAGE> 37
<TABLE>
<C> <S>
*10.12 -- Television Affiliation Agreement for WTNH-TV with American Broadcasting
Companies, Inc., dated February 17, 1993, as amended.
***10.13 -- Television Affiliation Agreement for KXAS-TV with the National Broadcasting
Company, Inc., dated April 12, 1995.
***10.14 -- Television Affiliation Agreement for KXAN-TV with National Broadcasting
Company, Inc., dated April 12, 1995.
***10.15 -- Amendments to Television Affiliation Agreements for KXAS-TV and KXAN-TV with
National Broadcasting Company, Inc., dated April 12, 1995.
***10.16 -- Television Affiliation Agreement for WOOD-TV with National Broadcasting
Company, Inc., dated April 12, 1995.
***10.17 -- Television Affiliation Agreement for WAVY-TV with National Broadcasting
Company, Inc., dated April 12, 1995.
***10.18 -- Amendment to Television Affiliation Agreement for WAVY-TV with National
Broadcasting Company, Inc., dated April 12, 1995.
10.19 -- LIN Television Corporation Stockholders Agreement among the Company, McCaw
Cellular Communications, Inc. and Cook Inlet Communications Corp., dated as of
December 28, 1994 (incorporated by reference to Exhibit 99.7 to the LIN Broadcasting
Corporation's Report on Form 8-K dated December 28, 1994).
*10.20 -- Credit Agreement dated November 30, 1994 among LWWI Broadcasting, Inc., LIN
Television Corporation, Barclays Bank, PLC, Nations Bank of Texas, N.A., The
Bank of Nova Scotia, The Bank of New York, The Chase Manhattan Bank, N.A.,
Citicorp Securities, Inc., Toronto-Dominion (New York), Inc. and Toronto-Dominion
(Texas), Inc.
**10.21 -- Registration Rights Agreement dated December 28, 1994 between LIN Television
Corporation and Cook Inlet Communications Corp., as amended.
10.22 -- Amendment No. 1 dated as of December 29, 1995 to the Credit Agreement dated
as of November 30, 1994 among LWWI Broadcasting, Inc., LIN Television
Corporation, Barclays Bank, PLC, Nations Bank of Texas, N.A., The Bank of Nova
Scotia, The Bank of New York, The Chase Manhattan Bank, N.A., Citicorp Securities,
Inc., Toronto-Dominion (New York), Inc. and Toronto-Dominion (Texas), Inc.
(incorporated by reference to Exhibit 10.23 to the LIN Television Corporation's Report on
Form 10-K for the year ended December 31, 1995).
10.23 -- Severance Compensation Agreement dated as of September 5, 1996, between LIN
Television Corporation and Gary R. Chapman (incorporated by reference to Exhibit
10.24 to the LIN Television Corporation's Report on Form 10-Q dated November 12,
1996).
10.24 -- Employment Agreement dated as of September 5, 1996, between LIN Television
Corporation and Gary R. Chapman (incorporated by reference to Exhibit 10.25 to the LIN
Television Corporation's Report on Form 10-Q dated November 12, 1996).
10.25 -- Severance Compensation Agreement dated as of September 5, 1996, between LIN
Television Corporation and Deborah R. Jacobson (incorporated by reference to Exhibit
10.26 to the LIN Television Corporation's Report on Form 10-Q dated November 12,
1996).
10.26 -- Severance Compensation Agreement dated as of September 5, 1996, between LIN
Television Corporation and Paul Karpowicz (incorporated by reference to Exhibit 10.27 to
</TABLE>
35
<PAGE> 38
<TABLE>
<C> <S>
the LIN Television Corporation's Report on Form 10-Q dated November 12, 1996).
10.27 -- Severance Compensation Agreement dated as of September 5, 1996, between LIN
Television Corporation and C. Robert Ogren, Jr (incorporated by reference to Exhibit
10.28 to the LIN Television Corporation's Report on Form 10-Q dated November 12,
1996).
10.28 -- Severance Compensation Agreement dated as of September 5, 1996, between LIN
Television Corporation and Gregory M. Schmidt (incorporated by reference to Exhibit
10.29 to the LIN Television Corporation's Report on Form 10-Q dated November 12,
1996).
10.29 -- Credit Agreement dated as of November 30, 1994 as amended and restated as of
September 26, 1996 among LWWI Broadcasting, Inc., LIN Television Corporation,
Barclays Bank, PLC, Nations Bank of Texas, N.A., The Bank of Nova Scotia, The Bank
of New York, The Chase Manhattan Bank, N.A., Citicorp Securities, Inc., Toronto-
Dominion (New York), Inc. and Toronto-Dominion (Texas), Inc. (incorporated by
reference to Exhibit 10.30 to the LIN Television Corporation's Report on Form 10-Q dated
November 12, 1996).
11.1 -- Statement re: Computation of Earnings Per Share
**21.1 -- Subsidiaries of LIN Television Corporation.
23.1 -- Consent of Ernst & Young LLP.
24 -- Power of Attorney (contained in the signature page to this Annual Report on Form 10-K)
27 -- Financial Data Schedule
- - ------------------
<FN>
* Incorporated by reference to the Registration Statement on Form S-1 of LIN
Broadcasting Corporation, File No. 33-84718.
** Incorporated by reference to the Registration Statement on Form S-1 of LIN
Television Corporation, File No. 33-98702.
*** Incorporated by reference to the Registrant's 10-Q filed with the SEC on
May 15, 1995, File No. 0-2481.
</TABLE>
(b) Reports on Form 8-K
No report on form 8-K was filed by the registrant during the quarter ended
December 31, 1996.
36
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Providence, Rhode
Island, on the 21st day of March, 1997.
LIN TELEVISION CORPORATION
By: /s/ Gary R. Chapman
-------------------------------------
Gary R. Chapman
President and Chief Executive Officer
37
<PAGE> 40
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of LIN Television Corporation,
hereby severally constitute and appoint Gary R. Chapman, Peter E. Maloney,
Gregory M. Schmidt, David Sylvester and Thomas S. Ward, and each of them singly,
our true and lawful attorneys with full power to them, and each of them singly,
to sign for us and in our names in the capacities indicated below, the Annual
Report on Form 10-K filed herewith, and generally to do all such things in our
names and behalf in our capacities as officers and directors to enable LIN
Television Corporation, to comply with the provisions of the Securities Act of
1933, as amended, and the requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to said Annual Report on Form 10-K.
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Annual
Report on Form 10-K has been signed by the following persons in the capacities
and on the dates indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary R. Chapman President, Chief Executive Officer, and Director March 5, 1997
- - -------------------------- (Principal Executive Officer)
Gary R. Chapman
/s/ Peter E. Maloney Vice President of Finance March 4, 1997
- - -------------------------- (Principal Financial Officer)
Peter E. Maloney
/s/ Beverly Key Controller March 5, 1997
- - -------------------------- (Principal Accounting Officer)
Beverly Key
/s/ Dennis J. Carey Chairman of the Board of Directors March 11, 1997
- - --------------------------
Dennis J. Carey
/s/ Richard S. Bodman Director March 10, 1997
- - --------------------------
Richard S. Bodman
/s/ James D. Daniell Director March 10, 1997
- - --------------------------
James D. Daniell
/s/ Errol A. Harris Director March 10, 1997
- - --------------------------
Errol A. Harris
/s/ Roy Huhndorf Director March 5, 1997
- - --------------------------
Roy Huhndorf
/s/ William G. Herbster Director March 5, 1997
- - --------------------------
William G. Herbster
/s/ Wilma H. Jordan Director March 5, 1997
- - --------------------------
Wilma H. Jordan
/s/ Richard W. Kislik Director March 10, 1997
- - --------------------------
Richard W. Kislik
/s/ Gary A. Swenson Director March 11, 1997
- - --------------------------
Gary A. Swenson
</TABLE>
38
<PAGE> 41
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Report of Ernst & Young LLP, Independent Auditors............................... F-1
Consolidated Balance Sheets..................................................... F-2
Consolidated Statements of Income............................................... F-3
Consolidated Statements of Stockholders' Equity ................................ F-4
Consolidated Statements of Cash Flows........................................... F-5
Notes to the Consolidated Financial Statements.................................. F-6
Financial Statement Schedules
I -Condensed Financial Information of Registrant.............................. S-1
II -Valuation and Qualifying Accounts for the Years Ended
December 31, 1996, 1995, and 1994.......................................... S-5
</TABLE>
<PAGE> 42
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LIN Television Corporation
We have audited the accompanying consolidated balance sheets of LIN Television
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedules listed in the index at Item 14 (a) (2). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of LIN
Television Corporation at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Fort Worth, Texas
January 17, 1997
F-1
<PAGE> 43
LIN TELEVISION CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
ASSETS December 31,
1996 1995
------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,952 $ 18,025
Accounts receivable, less allowance for
doubtful accounts (1996-$1,960; 1995-$1,964) 52,666 50,732
Program rights 10,133 10,218
Other current assets 6,675 7,076
------------------------
Total current assets 97,426 86,051
Property and equipment, less accumulated
depreciation 106,441 95,570
Program rights and other noncurrent assets 10,427 12,433
Equity in joint venture 505 500
Intangible assets, less accumulated
amortization (1996-$59,348; 1995-$47,791) 381,145 392,702
------------------------
Total assets $ 595,944 $ 587,256
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,593 $ 9,198
Program obligations 10,724 12,651
Accrued income taxes 2,518 8,461
Other accruals 20,023 21,725
------------------------
Total current liabilities 40,858 52,035
Long-term debt 350,000 387,000
Deferred income taxes 64,211 57,811
Other noncurrent liabilities 2,427 3,976
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - none -- --
Common stock, $0.01 par value:
Authorized shares - 90,000,000
Issued and outstanding shares -
1996-29,717,000;1995-29,489,000 297 295
Additional paid-in capital 276,997 271,446
Accumulated deficit (138,846) (185,307)
------------------------
Total stockholders' equity 138,448 86,434
------------------------
Total liabilities and stockholders' equity $ 595,944 $ 587,256
========================
</TABLE>
See accompanying notes.
F-2
<PAGE> 44
LIN TELEVISION CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Net revenues $273,367 $217,247 $150,523
Operating costs and expenses:
Direct operating 68,954 49,342 33,859
Selling, general & administrative 59,974 47,646 32,142
Corporate 6,998 5,747 4,330
Amortization of program rights 14,464 12,357 7,274
Depreciation and amortization
of intangible assets 23,817 17,127 8,849
------------------------------------
Total operating costs and expenses 174,207 132,219 86,454
------------------------------------
Operating income 99,160 85,028 64,069
Other (income) expense:
Interest expense 26,582 26,262 13,451
Investment income (1,354) (1,258) (813)
Other expense -- 320 520
Equity in loss of joint venture 995 -- --
------------------------------------
Total other expense 26,223 25,324 13,158
------------------------------------
Income before provision for
income taxes and extraordinary item 72,937 59,704 50,911
Provision for income taxes 26,476 21,674 19,726
------------------------------------
Income before extraordinary item 46,461 38,030 31,185
Extraordinary item: loss on
extinguishment of debt, net of
income tax benefit of $1,575 -- -- (2,925)
------------------------------------
Net income $ 46,461 $ 38,030 $ 28,260
====================================
Net income per share:
Income before extraordinary item $ 1.54 $ 1.28 $ 1.19
Extraordinary loss, net of income
tax benefit -- -- (0.11)
------------------------------------
Net income $ 1.54 $ 1.28 $ 1.08
====================================
Weighted average shares outstanding 30,120 29,757 26,136
====================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 45
LIN TELEVISION CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Total
Additional Stockholders'
Common Stock Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 25,816 $258 $152,177 $(251,550) $(99,115)
Net income -- -- 28,260 28,260
LIN Broadcasting corporate service
charges contributed to capital -- 3,752 -- 3,752
Forgiveness of intercompany taxes
payable to LIN Broadcasting -- 24,796 -- 24,796
Proceeds from exercises of stock options 9 -- 116 -- 116
Contribution of capital -- 547 (47) 500
Acquisition of station WTNH-TV 3,358 34 81,817 -- 81,851
-----------------------------------------------------------------
Balance at December 31, 1994 29,183 292 263,205 (223,337) 40,160
Net income -- -- 38,030 38,030
Proceeds from exercises of stock options
and issuance of Employee Stock
Purchase Plan shares 306 3 5,144 -- 5,147
Adjustment of prior year LIN
Broadcasting corporate service charges -- (365) -- (365)
Tax benefit from exercises of stock
options -- 3,462 -- 3,462
-----------------------------------------------------------------
Balance at December 31, 1995 29,489 $295 $271,446 $(185,307) $ 86,434
Net income -- -- 46,461 46,461
Proceeds from exercises of stock options
and issuance of Employee Stock
Purchase Plan shares 228 2 4,800 -- 4,802
Tax benefit from exercises of stock
options -- 751 -- 751
-----------------------------------------------------------------
Balance at December 31, 1996 29,717 $297 $276,997 $(138,846) $138,448
=================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 46
LIN TELEVISION CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 46,461 38,030 $ 28,260
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization (includes amortization of
financing costs) 24,818 18,242 10,041
Extraordinary loss on extinguishment of debt -- -- 2,925
LIN Broadcasting corporate service charges forgiven -- (365) 4,252
Federal income taxes forgiven -- -- 24,796
Tax benefit from exercises of stock options 751 3,462 --
Deferred income taxes 3,127 2,719 (9,769)
Amortization of program rights 14,464 12,357 7,274
Program payments (15,536) (14,311) (8,387)
Equity in joint venture (5) (500)
Changes in operating assets and liabilities:
Accounts receivable (1,934) (4,954) (5,106)
Other assets (377) (3,148) (3,729)
Liabilities (5,703) 3,676 (903)
--------------------------------------
Total adjustments 19,605 17,178 21,394
--------------------------------------
Net cash provided by operating activities 66,066 55,208 49,654
INVESTING ACTIVITIES
Capital expenditures (27,557) (27,715) (20,406)
Acquisitions -- (97,563) (120,234)
Local Marketing Agreement expenditures -- (2,001) (1,619)
Asset dispositions 4,426 388 91
--------------------------------------
Net cash used in investing activities (23,131) (126,891) (142,168)
FINANCING ACTIVITIES
Proceeds from exercise of stock options and sale
of Employee Stock Purchase Plan shares 4,802 5,147 116
Principal payments on long-term debt (37,000) (25,000) (222,088)
Proceeds from long-term debt -- 92,000 320,000
Purchase of interest rate caps -- (346) --
Loan fees incurred on long-term debt (810) -- (7,068)
--------------------------------------
Net cash provided by (used in) financing activities (33,008) 71,801 90,960
--------------------------------------
Net increase (decrease) in cash and cash equivalents 9,927 118 (1,554)
Cash and cash equivalents at beginning of the year 18,025 17,907 19,461
--------------------------------------
Cash and cash equivalents at end of the year $ 27,952 $ 18,025 $ 17,907
======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 28,866 $ 21,733 $ 12,073
Income taxes $ 25,285 $ 14,175 $ 4,605
Noncash investing and financing activity:
Common stock issued to purchase WTNH-TV $ -- $ -- $ 81,851
</TABLE>
See accompanying notes.
F-5
<PAGE> 47
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company owns and operates eight network-affiliated television stations,
including five in the forty largest domestic television markets. Additional
programming outlets are served through programming and marketing services
provided to four other stations pursuant to local marketing agreements and
through operation of low-power television stations and satellite broadcasting
facilities. The Company, with its predecessors, has been engaged in commercial
television broadcasting since 1966.
Stations in larger markets traditionally command higher revenues than stations
in smaller markets due to a larger audience. Station KXAS-TV, in the Dallas-Fort
Worth market, generates a substantial portion of the Company's net revenues.
Approximately 34%, 36% and 45% of the Company's 1996, 1995, and 1994 net
revenues, respectively, were attributable to KXAS-TV. A significant downturn in
the economy of that station's market could substantially affect the operating
results of the Company. The Company is also dependent on automotive-related
advertising. Approximately 24% of the Company's gross advertising revenues for
the years ended December 31, 1996 and 1995, and 21% for the year ended December
31, 1994, consisted of automotive advertising. A significant decrease in such
advertising could materially effect the Company's operating results.
<TABLE>
The Company currently owns the following network-affiliated television
broadcasting stations:
<CAPTION>
Station and Location Channel Network Affiliation
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
KXAS-TV, Fort Worth-Dallas, TX 5 (VHF) NBC
WISH-TV, Indianapolis, IN 8 (VHF) CBS
WTNH-TV, New Haven-Hartford, CT 8 (VHF) ABC
WIVB-TV, Buffalo, NY 4 (VHF) CBS
WAVY-TV, Portsmouth-Norfolk, VA 10 (VHF) NBC
KXAN-TV, Austin, TX 36 (UHF) NBC
WAND-TV, Decatur, IL 17 (UHF) ABC
WANE-TV, Fort Wayne, IN 15 (UHF) CBS
</TABLE>
<TABLE>
The Company also provides programming and marketing services to the following
stations pursuant to Local Marketing Agreements ("LMAs"):
<CAPTION>
Station and Location Channel Network Affiliation
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
KXTX-TV, Fort Worth-Dallas, TX 39 (UHF) Ind.
WBNE-TV, New Haven-Hartford, CT 59 (UHF) WB
WVBT-TV, Portsmouth-Norfolk, VA 43 (UHF) WB/Fox
KNVA-TV, Austin, TX 54 (UHF) WB
</TABLE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated.
F-6
<PAGE> 48
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The management of the Company is required, in certain instances, to use
estimates and assumptions that affect the amounts reported in the financial
statements, and the notes thereto, in order to conform with generally accepted
accounting principles. The Company's actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid, short-term investments which have a
maturity of three months or less when purchased. The Company's excess cash is
invested primarily in commercial paper.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated by the
straight-line method over the estimated useful lives of the assets. The Company
recorded depreciation expense of $12.3 million, $8.2 million, and $6.1 million
during 1996, 1995, and 1994, respectively.
REVENUE RECOGNITION
Broadcast revenue is recognized during the period in which the advertising is
aired. Barter revenue is recognized based on the estimated fair value of the
product or service received.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred $4.8
million, $4.1 million, and $2.3 million in advertising costs during 1996, 1995,
and 1994, respectively.
INTANGIBLE ASSETS
Intangible assets represent the excess of the purchase price over the estimated
fair value of identifiable assets acquired in business acquisitions, and is
attributable to FCC licenses, network affiliations, and goodwill. Intangible
assets acquired subsequent to October 31, 1970, the effective date of Accounting
Principles Board Opinion No. 17, are being amortized over 40 years. Intangible
assets of $5.8 million acquired prior to October 31, 1970 are not being
amortized. The carrying value of intangible assets will be evaluated, in terms
of undiscounted cash flows, if the facts and circumstances suggest that they may
be impaired. If this review indicates that intangible assets will not be
recoverable, the Company's carrying value of the intangible assets will be
reduced to their fair value.
PROGRAM RIGHTS
Program rights are recorded as assets when the license period begins and the
programs are available for broadcasting. Costs incurred in connection with the
purchase of programs to be broadcast within one year are classified as current
assets, while costs of those programs to be broadcast subsequently are
considered noncurrent. The program costs are charged to expense over their
estimated broadcast periods using the straight-line method. Program obligations
are classified as current or noncurrent in accordance with the payment terms of
the license agreement.
F-7
<PAGE> 49
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Net income per share is based on the average number of shares of common stock
outstanding during each year, assuming the shares issued in the Spin-Off (see
Note 2) were issued on January 1, 1994, and the dilutive effect of common stock
equivalents.
RECLASSIFICATION
Certain reclassifications have been made to the prior period financial
statements to conform to the current period financial statement presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of (Statement 121), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairments are present and the undiscounted cash flows estimated to be
generated by those assets are less than the asset's carrying value. Statement
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted Statement 121 in the first quarter of 1996 with
no material impact on the Company's financial results.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation (Statement 123), which provides an alternative to Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(Opinion 25), in accounting for stock-based compensation issued to employees.
Statement 123 allows for a fair value based method of accounting for employee
stock options and similar equity instruments. However, for companies that
continue to account for stock-based compensation arrangements under Opinion 25,
Statement 123 requires disclosure of the pro forma effect on net income and
earnings per share of its fair value based accounting for those arrangements.
These disclosure requirements are effective for fiscal years beginning after
December 15, 1995, or upon initial adoption of the Statement, if earlier. The
Company has elected to continue accounting for stock options under the
provisions of Opinion 25 and the required pro forma disclosures are included in
Note 6.
2. SPIN-OFF AND ACQUISITIONS
On December 28, 1994, the Company became an independent public company when its
common stock was distributed to LIN Broadcasting shareholders on a tax-free
basis (the "Spin-Off"). The Company's common stock was distributed to the LIN
Broadcasting shareholders on the basis of one share of the Company's common
stock for every two shares of LIN Broadcasting common stock held of record as of
December 9, 1994. The shares issued in the Spin-Off have been accounted for as a
stock split and reflected in the consolidated financial statements as if they
were outstanding for all periods presented. In addition, the Company and LIN
Broadcasting simultaneously entered into an Asset Purchase Agreement with Cook
Inlet Communications, Inc. and Cook Inlet Communications Corp. (together, "Cook
Inlet"), pursuant to which the Company acquired substantially all of the assets
and assumed
F-8
<PAGE> 50
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. SPIN-OFF AND ACQUISITIONS (CONTINUED)
certain liabilities of station WTNH-TV, New Haven-Hartford, Connecticut, from
Cook Inlet (the "WTNH-TV Acquisition"). The acquisition was accounted for as a
purchase. The purchase price was $120.2 million in cash, subject to adjustments
as set forth in the Asset Purchase Agreement, and approximately 3.4 million
shares of the Company's common stock. On October 2, 1995, the Company purchased
100% of the issued and outstanding capital stock of Buffalo Management
Enterprises Co., Inc. ("Buffalo"), a wholly-owned subsidiary of King World,
which indirectly owns television station WIVB-TV, the CBS affiliate in Buffalo,
New York, in exchange for approximately $100.7 million in cash, subject to
adjustments as set forth in the Stock Purchase Agreement ("WIVB-TV Acquisition).
Buffalo owns 100% of the issued and outstanding stock of Buffalo Broadcasting
Co., Inc. ("Buffalo Broadcasting"), and holds the FCC license for station
WIVB-TV. Buffalo Broadcasting holds all of the operating assets of station
WIVB-TV.
<TABLE>
The summarized unaudited pro forma results of operations set forth below for the
year ended December 31, 1995, assume the WIVB-TV Acquisition had taken place on
January 1, 1995. The pro forma financial information presented below does not
include results of Buffalo (the Parent), as such results were immaterial (in
thousands, except per share amounts).
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Net revenues $233,507
Net income 36,780
Net income per share $ 1.24
Weighted average shares outstanding 29,757
</TABLE>
The pro forma results do not necessarily represent results which would have
occurred if the acquisitions had taken place on the dates indicated nor are they
necessarily indicative of the results of future operations.
3. PROPERTY AND EQUIPMENT
<TABLE>
The major classifications of property and equipment at December 31 were as
follows:
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Land $ 11,533 $ 11,623
Buildings 34,677 32,723
Broadcasting equipment 122,807 103,834
----------------------------
169,017 148,180
Less accumulated depreciation 62,576 52,610
----------------------------
$106,441 $ 95,570
============================
</TABLE>
4. LONG-TERM DEBT
<TABLE>
Long-term debt consisted of the following at December 31:
<CAPTION>
1996 1995
(In thousands)
<S> <C> <C>
Term credit facility $ - $175,000
Revolving credit facility 350,000 212,000
---------------------------
$350.000 $387,000
===========================
</TABLE>
F-9
<PAGE> 51
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
In August 1996, the Company renegotiated the terms of its Bank Credit Facility
primarily to reduce the interest attributable to outstanding debt. The Bank
Credit Facility, as amended, permits the Company to borrow up to $600 million of
an eight-year, reducing revolving credit facility (the "Facility"). The Company
has indebtedness outstanding of $350 million and funds of $250 million available
under the Facility as of December 31, 1996.
The Company has and will continue to have significant cash interest expense
relating to the Bank Credit Facility, and a significant amount of the Company's
cash flow will be required to service its debt. The Company, on a consolidated
basis, reported interest expense of $26.6 million, $26.3 million, and $13.5
million for the three years ended December 31, 1996, 1995, and 1994,
respectively.
In connection with the retirement of the credit facility in place prior to the
Spin-Off (the "Previous Credit Facility"), the Company wrote off approximately
$4.5 million in unamortized fees and expenses in 1994. This has been reflected
as an extraordinary loss on extinguishment of debt, net of income tax benefit of
$1.6 million, in the accompanying consolidated statements of income for that
period. The Company also incurred financing and legal fees totaling
approximately $7.1 million in connection with the Bank Credit Facility, in 1994,
which are being amortized over the contractual term of the Bank Credit Facility.
Under the renegotiated terms of the Bank Credit Facility, interest is payable,
at the Company's discretion, at the higher of the prevailing prime rate or an
adjusted Federal Funds Rate, or LIBOR, plus an applicable margin that varies
from 0.4% to 1.0% based upon the ratio of the Company's consolidated total debt
to consolidated operating cash flow.
The commitment of the Facility will begin to reduce in semi-annual installments
commencing June 30, 1999 such that the annual commitment reduction will be $15
million in 1999, $60 million per year in years 2000 through 2003, and the
remaining $45 million in 2004. As of December 31, 1996, the Company would be
required, in 2001, to begin making payments to the extent that the balance
outstanding under the Facility exceeded the reduced commitment available and
continue making semi-annual installments under the revolving facility through
December 31, 2004, at which time the debt will be fully repaid. The Company is
required to apply cash proceeds from certain sales of assets which are not
reinvested in similar assets to the prepayment of loans. The Bank Credit
Facility, as amended, also permits the Company to solicit commitments for an
incremental $300 million, eight-year, reducing revolving credit facility (the
"Incremental Facility"). Aggregate commitments to the Incremental Facility, if
any, will reduce in eight equal semi-annual amounts beginning 2001 and ending
2004.
The weighted average interest rate on outstanding borrowings was 6.16%, 6.64%
and 8.50% at December 31, 1996, 1995 and 1994, respectively. The Company is also
required to pay quarterly commitment fees ranging from 0.1875% to 0.2500%, based
upon the Company's leverage ratio for that particular quarter, on any unused
portion of the Bank Credit Facility. The Company incurred commitment fees of
approximately $449,000, $811,000, and $150,000 for the three years ended
December 31, 1996, 1995, and 1994, respectively. In order to comply with
covenants under the Bank Credit Facility, prior to the renegotiated terms, and
to provide interest rate protection, the Company purchased interest rate caps at
a cost of $346,000 during the year ended December 31, 1995. The interest rate
caps cover notional amounts totaling $190.0 million, are based on three-month
LIBOR, and have strike rates of 9%. Each of these interest rate cap agreements
terminate on December 31, 1997. The costs of the interest rate caps are
capitalized and charged to interest expense over the lives of the caps. During
the past three years, the prevailing market rates have been below the rate caps
in effect; thus, the only effect on the Company's interest expense from such
transactions has been the amortization of the cost of these caps of $124,588,
$187,073 and $47,000 during the years ended December 31, 1996, 1995 and 1994,
respectively. Under the renegotiated terms of the Bank Credit Facility the
Company is no longer required to purchase interest rate caps.
F-10
<PAGE> 52
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
The Bank Credit Facility contains covenants restricting or limiting certain
activities, including (i) acquisitions and investments, including treasury
stock, (ii) incurrence of debt, (iii) distributions and dividends to
stockholders, (iv) mergers and sales of assets, (v) prepayments and subordinated
indebtedness, and (vi) creations of liens. The Company is required to apply cash
proceeds from certain sales of assets which are not reinvested in similar assets
and excess cash flow to the prepayment of loans. As security under the Bank
Credit Facility, the Company has given a negative pledge on the assets and
capital stock of each of its subsidiaries, which own all of the Company's
television properties. Such subsidiaries are restricted from making certain
distributions or payments to the Company. Under the Bank Credit Facility, the
Company must remain in compliance with a series of financial covenants, which
compare the levels of the Company's indebtedness to its cash flows as of the end
of each quarter. As of December 31, 1996, the Company was in compliance with all
covenants.
<TABLE>
The aggregate amounts of principal maturities under the Bank Credit Facility
subsequent to December 31, 1996 are as follows:
<CAPTION>
YEAR AMOUNT
---- ------
(In thousands)
<S> <C>
1997-2000 $ -
2001 20,000
Thereafter 330,000
--------
$350,000
========
</TABLE>
5. PRIVATE MARKET VALUE GUARANTEE
AT&T Corp. ("AT&T"), through its wholly-owned subsidiary, AT&T Wireless Services
Inc. ("AT&T Wireless"), currently owns approximately 45.4% of the outstanding
common stock of the Company. AT&T Wireless has agreed, pursuant to a Private
Market Value Guarantee ("PMVG"), to either offer to purchase the remaining
shares of the Company in 1998 for the private market value (as defined) or put
the Company up for sale. If AT&T Wireless does not agree to acquire such
remaining shares, the Company will be sold in its entirety in a manner intended
to maximize shareholder value. There is no assurance that AT&T Wireless will
agree to acquire shares of the Company's Common Stock for private market value.
If AT&T Wireless does not offer to acquire such shares, there is no assurance
that the Company will be sold in its entirety, or, if sold, that the
consideration obtained will be considered favorable to holders of shares of the
Company's Common Stock. The PMVG also provides for the selection of three
independent directors (the "Independent Directors") who serve on the Company's
Board of Directors.
On December 9, 1996 AT&T issued a press release stating that AT&T will review
its investment in the Company and will evaluate alternatives which could result
in the disposition, either through private or public sales of some or all of the
shares of the Company's Common Stock held by AT&T Wireless.
6. STOCKHOLDERS' EQUITY
Pursuant to the Company's 1994 Adjustment Stock Incentive Plan, nonqualified
options have been granted to officers and key employees of the Company and LIN
Broadcasting who held options to purchase LIN Broadcasting stock at the date of
the Spin-Off. On December 28, 1994, one option to purchase stock of the Company
was granted for every two LIN Broadcasting options held, resulting in 701,175
options to purchase common stock of the Company being granted at exercise prices
ranging from $2.74 to $20.02.
F-11
<PAGE> 53
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The Company and LIN Broadcasting have agreed to divide the income tax benefits
of such stock option exercises between the two companies with such benefits
accruing to the company whose employee exercises an option. A total of
3,701,175 options to purchase common stock are authorized to be granted under
the Company's 1994 Adjustment Stock Incentive Plan, 1994 Amended and Restated
Stock Incentive Plan and the 1994 Nonemployee Director Stock Incentive Plan.
Options are generally not exercisable until one year after grant, have vesting
terms of four years or less, and expire ten years from date of grant.
Pursuant to the Company's stock option plans, in the event of a "change in
control" (as defined in the plans) of the Company, vested options at the time of
the change in control may be surrendered by officers of the Company, subject to
Section 16 of the Securities Exchange Act of 1934, as amended, in exchange for a
cash payment per share by the Company equal to the difference between the
exercise price for the option and the greater of the highest amount paid to any
holder of common stock by the acquirer in connection with the resulting change
in control or the highest selling price of the common stock during the 90-day
period prior to the date of surrender of the option. Notwithstanding the
foregoing, if a change in control results in the consolidation or merger of the
Company with AT&T or a successor to AT&T under the PMVG and AT&T or any
successor is the surviving company, or if AT&T becomes the beneficial owner of
80% or more of the Company's stock (other than pursuant to a private market
sale, as defined in the Company's PMVG with AT&T), each outstanding option shall
be converted into an option to purchase AT&T's Class A Common Stock. If a change
in control results from a private market sale, upon a vote by a majority of the
Company's Independent Directors, each outstanding option will be converted into
an option to purchase the common stock of the acquirer. If the Independent
Directors do not approve the conversion, the Company may (but is not required
to) cancel each such option in exchange for a payment per share in cash equal to
the excess of the purchase price per share in the private market sale over the
exercise price of such option.
The Company's Employee Stock Purchase Plan (the "ESPP") allows eligible
employees to purchase shares of the Company's common stock, through regular
payroll deductions, at 85% of the closing market price of the stock as of the
last trading day of each month. The ESPP restricts a participant to purchase no
more than $25,000 of stock in any calendar year. A total of 300,000 shares have
been authorized under the ESPP. Common shares of 48,280 and 48,823 were
purchased and distributed to employees participating in the plan during 1996 and
1995, respectively, at prices ranging from $26.56 to $35.38 per share in 1996
and $21.89 to $31.98 per share in 1995. No common stock was purchased and
distributed to employees during 1994 as part of this plan.
The Company has elected to follow Opinion 25 and the related Interpretations in
accounting for these plans. There has been no compensation expense associated
with these fixed-option plans recognized under Opinion 25 because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1996 and 1995: risk-free interest rates of 5.48% and
7.63% for 1996 and 1995, respectively; volatility factors of the expected market
price of the Company's Common Stock of 0.30; and a weighted-average expected
life of the option of seven years.
F-12
<PAGE> 54
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Because the rules for
pro forma disclosure under Statement 123 expressly prohibit retroactive
recognition of compensation expense, the following disclosures will not be
indicative of future compensation expense until the new rules are applied to all
outstanding nonvested awards. The Company's pro forma information follows (in
thousands except for earnings per share information):
<CAPTION>
1996 1995
<S> <C> <C>
Pro forma net income $43,611 $36,447
Pro forma earnings per share:
Primary $ 1.45 $ 1.22
Fully diluted $ 1.44 $ 1.23
</TABLE>
<TABLE>
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<CAPTION>
1996 1995
Weighted Price Weighted Price
Average Per Average Per
Options Exercise Price Share Options Exercise Price Share
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 1,621,305 $24.43 $ 4.05 - 37.50 1,282,169 $20.23 $ 2.74 - 26.63
Granted 581,311 $30.44 30.25 - 40.25 714,600 $28.05 26.63 - 37.50
Exercised (179,604) $18.61 4.05 - 30.25 (257,257) $16.37 2.74 - 20.02
Canceled or Expired (163,214) $25.93 12.95 - 26.63 (118,207) $21.68 4.05 - 33.63
--------- ---------
Outstanding-end of year 1,859,798 $26.75 $ 4.05 - 40.25 1,621,305 $24.43 $ 4.05 - 37.50
========= =========
Exercisable at end of year 722,833 $23.44 552,195 $19.95
Weighted-average fair value of
options granted during the year $13.49 $13.85
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 range from $4.05
to $40.25 with approximately 90% of those options ranging in exercise price from
$26.63 to $40.25. The weighted-average remaining contractual life of those
options is eight years. There were 722,833, 552,195, and 342,697 exercisable
options to purchase shares as of December 31, 1996, 1995, and 1994,
respectively. As of December 31, 1996, there were 1,328,266 options available
for future grants.
7. INCOME TAXES
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and the tax basis of assets and
liabilities given the provisions of enacted tax laws.
<TABLE>
The components of the deferred tax liability are as follows at December 31 (in
thousands):
<CAPTION>
1996 1995
<S> <C> <C>
Intangible assets $50,353 $48,183
Property and equipment 12,164 10,990
Other 1,694 (1,362)
-----------------------
$64,211 $57,811
=======================
</TABLE>
F-13
<PAGE> 55
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. INCOME TAXES (CONTINUED)
The Company and its subsidiaries were involved in a tax-sharing agreement with
LIN Broadcasting whereby the Company was included in the consolidated federal
income tax return filed by LIN Broadcasting through the date of the Spin-Off.
Pursuant to the tax-sharing agreement, tax liabilities and benefits were
allocated to the Company as if the Company was a separate and independent
entity, with a net operating loss carryforward of $140.5 million as of January
1, 1990. As a result of the allocated net operating loss carryforward described
above, current federal tax liabilities to LIN Broadcasting of $24.8 million for
1994 were deemed to be forgiven and were credited to paid-in capital. This
tax-sharing agreement was terminated on December 28, 1994 due to the Spin-Off.
The Company is responsible for filing its own consolidated income tax returns
subsequent to that date.
<TABLE>
Income tax expense included in the accompanying consolidated statements of
income consisted of the following:
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Current:
Federal $22,439 $18,816 $24,871
State 910 139 4,624
----------------------------------------
23,349 18,955 29,495
Deferred:
Federal 3,258 2,220 (9,738)
State (131) 499 (31)
----------------------------------------
3,127 2,719 (9,769)
----------------------------------------
$26,476 $21,674 $19,726
========================================
</TABLE>
<TABLE>
The following table reconciles the amount that would be provided by applying the
35% federal statutory rate to income before income tax expense to the actual
income tax expense:
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Expense assuming federal statutory rate $25,528 $20,896 $17,819
State taxes, net of federal tax benefit 962 793 1,226
Amortization 1,077 740 628
Other (1,091) (755) 53
-------------------------------------------
$26,476 $21,674 $19,726
===========================================
</TABLE>
8. MUSIC LICENSE SETTLEMENTS
During 1994, the Company's pretax income was increased by $1.3 million due to
the reversal of reserves which were provided with respect to music license fees.
These reserves were no longer required as a result of a court decision resolving
litigation between the broadcasting industry and ASCAP as to the appropriate
level of music license fee payments and a similar settlement with BMI. These
amounts were credited to direct operating expense in the accompanying
consolidated statements of income.
9. RELATED-PARTY TRANSACTIONS
LIN Broadcasting provided certain managerial and administrative services to the
Company and funded certain general and administrative costs incurred by the
Company totaling $4.3 million during 1994. Under the terms of the Previous
Credit Facility, the Company was prohibited from entering into any agreement or
directly or indirectly
F-14
<PAGE> 56
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. RELATED-PARTY TRANSACTIONS (CONTINUED)
paying or becoming liable to any person other than employees for corporate
services rendered in excess of 3/4 of one percent of consolidated operating cash
flow (as defined in the Previous Credit Facility) for the previous quarter.
Pursuant to these terms, the Company was charged $580,000 by LIN Broadcasting
for corporate services during 1994. The balance of those charges of $3.7 million
was contributed to the Company's capital in 1994. LIN Broadcasting also paid, on
behalf of the Company, $850,000 during 1994 for insurance coverage.
Allocations through the date of the Spin-Off for managerial and administrative
services were based on the proportion of LIN Broadcasting's revenues, wages, and
properties allocable to the Company, which management believes provides a
reasonable basis for allocation. Subsequent to the Spin-Off, the Company is
responsible for all of its administrative charges.
The Company provided management services to station WOOD-TV in Grand Rapids,
Michigan, and indirectly to station WOTV-TV in Kalamazoo, Michigan. WOOD-TV is
owned by a subsidiary of LIN Broadcasting and WOTV-TV is party to a Local
Marketing Agreement with a subsidiary of LIN Broadcasting. Services provided to
these stations included administration, finance, and centralized programming and
services purchasing. The Company allocated expense of $490,000 during the year
ended December 31, 1994 to WOOD-TV for such services. After the Spin-Off, the
Company entered into a consulting agreement with LIN Broadcasting pursuant to
which the Company is providing management and operations consulting for WOOD-TV
and WOTV-TV. The Company received $250,000 for these services during each of the
years ended December 31, 1996 and 1995, respectively. In addition, WOOD-TV
participates in the Company's programming joint ventures. Costs are allocated to
WOOD-TV based on relative market size. Programming and service purchases are
directly charged to WOOD-TV and WOTV-TV based on the actual contract or a
relative-market-size allocation.
10. RETIREMENT PLANS
At the date of the Spin-Off, the Company and LIN Broadcasting entered into an
Employee Benefits Allocation Agreement (the "Employee Benefits Agreement")
pursuant to which the Company assumed sponsorship of the LIN Broadcasting
Corporation Profit Sharing Plan (the "Profit Sharing Plan"), the LIN
Broadcasting Corporation 401(k) Plan (the "401(k) Plan"), the LIN Broadcasting
Corporation Retirement Plan (the "Retirement Plan"), and the LIN Broadcasting
Corporation Supplemental Benefit Retirement Plan (the "Supplemental Plan")
(collectively, the "Plans"). The Employee Benefits Agreement provides that the
Company will generally be responsible for all contributions required to be made
to the Plans and any benefits payable or other obligations of LIN Broadcasting
under the Plans, including any responsibilities related to current or former
employees of LIN Broadcasting. The assets held in trust for the Profit Sharing,
401(k), and Retirement plans, all of which are funded plans, shall remain in
those plans. The Employee Benefits Agreement specifies that service with LIN
Broadcasting after the Spin-Off date is considered to be service with the
Company for purposes of vesting and eligibility for benefits, but not for
accrual of additional benefits. The Retirement Plan is a defined benefit
retirement plan covering employees of the Company who meet certain requirements,
including length of service and age. Pension benefits vest on completion of five
years of service and are computed, subject to certain adjustments, by
multiplying 1.25% of the employee's last three years' average annual
compensation by the number of years of credited service. The assets of the
pension plan are invested primarily in long-term fixed income securities, large
and small cap U.S. equities, and international equities. The Company's policy is
to fund at least the minimum requirement and is further based on legal
requirements and tax considerations. No funding was required for the Retirement
Plan during 1996.
F-15
<PAGE> 57
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. RETIREMENT PLANS (CONTINUED)
As a result of the WIVB-TV Acquisition, LIN Television Corporation assumed
sponsorship of the Buffalo Broadcasting Company Retirement Plan. On January 1,
1996, the Buffalo Broadcasting Company Retirement Plan was merged into the LIN
Television Retirement Plan.
<TABLE>
The Company's share of net pension expense is based on actuarial valuations of
the Company's employees participating in the Retirement Plan. The components of
net pension expense were as follows for the years ended December 31 (in
thousands):
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost of current period $ 891 $ 573 $ 584
Interest cost on projected
benefit obligation 3,312 2,887 2,741
Actual return on plan assets (5,960) (9,609) 479
Net amortization of unrecognized net transition assets
and deferral of variance from actual return on assets 3,253 7,017 (2,546)
---------------------------------
Net pension expense 1,496 868 1,258
Net pension expense allocated to LIN Broadcasting -- 16 178
---------------------------------
Net pension expense allocated to the Company $ 1,496 $ 852 $ 1,080
=================================
</TABLE>
<TABLE>
The following table sets forth the Retirement Plans' funded status and amounts
recognized in the Company's balance sheet at December 31 (in thousands):
<CAPTION>
1996 1995
FUNDED UNFUNDED FUNDED UNFUNDED
-----------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated plan
benefits, including vested benefits of $44,948
and $42,401 in 1996 and 1995, respectively $45,222 $ 651 $42,928 $ 449
=====================================================
Plan assets at fair value, primarily
publicly traded stocks and bonds $50,631 $ - $45,935 $ -
Less projected benefit obligation for service
rendered to date 47,338 1,167 45,038 909
-----------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 3,293 (1,167) 897 (909)
Unrecognized prior service cost 2,435 14 3,631 16
Unrecognized net (gain) loss (6,641) 330 (3,831) 284
Unrecognized net transition asset
being recognized over 15 years (1,567) (81) (1,880) (97)
-----------------------------------------------------
Accrued pension cost included in balance sheet $(2,480) $ (904) $(1,183) $(706)
=====================================================
</TABLE>
<TABLE>
The assumptions used in accounting for the Retirement Plan are as follows:
1996 1995 1994
<S> <C> <C> <C>
Weighted average assumed discount rate 7.25% 7.0% 8.0%
Assumed rate of increases in future compensation
levels 5.0% 5.0% 5.5%
Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
</TABLE>
F-16
<PAGE> 58
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. COMMITMENTS
<TABLE>
The Company leases land, buildings, vehicles, and equipment under operating
lease agreements which expire at various dates through the year 2007.
Commitments for these noncancelable operating lease payments subsequent to
December 31, 1996 are as follows:
<CAPTION>
YEAR AMOUNT
-----------------------------------------------------------
(In thousands)
<S> <C>
1997 $1,021
1998 679
1999 547
2000 335
2001 208
Thereafter 456
------
$3,246
======
</TABLE>
Rent expense included in the consolidated statements of income was $2.7 million,
$2.4 million and $1.2 million for the years ended December 31, 1996, 1995 and
1994, respectively.
<TABLE>
The Company has also entered into commitments for future syndicated news,
entertainment, and sports programming. Future payments associated with these
commitments subsequent to December 31, 1996 are as follows:
<CAPTION>
YEAR AMOUNT
-----------------------------------------------------------
(In thousands)
<S> <C>
1997 $12,313
1998 19,402
1999 16,975
2000 13,166
2001 95
Thereafter -
-------
$61,951
=======
</TABLE>
12. CONTINGENCIES
The Company currently and from time to time is involved in litigation incidental
to the conduct of its business. The Company is not a party to any lawsuit or
proceeding that, in management's opinion, is likely to have a material adverse
effect on the Company's financial condition, results of operations, or cash
flows.
13. FINANCIAL INSTRUMENTS
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
unsecured trade accounts receivable.
The Company maintains cash and cash equivalents at various financial
institutions. These financial institutions are located throughout the country.
The Company's cash equivalents consist of investments in the commercial paper of
various Companies. The Company performs periodic evaluations of the relative
credit standing of these entities.
F-17
<PAGE> 59
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13. FINANCIAL INSTRUMENTS (CONTINUED)
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of agencies comprising the Company's accounts
receivable.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents
The carrying amount of cash and cash equivalents reported in the Company's
Balance Sheet approximates fair value.
Accounts receivable and accounts payable
The carrying amounts reported in the Company's Balance Sheet for accounts
receivable and accounts payable approximates their fair value.
Long-term debt
Interest rates associated with the Company's long-term debt are, at the
discretion of the Company, based on the prevailing prime rate or LIBOR rates
plus an applicable margin. Interest is fixed for a period ranging from one month
to 12 months, depending on availability of the interest basis selected, except
if the Company selects a prime-based loan, in which case the interest rate will
fluctuate during the period as the prime rate fluctuates. Due to the frequent
repricing of the borrowings, the book values of the liabilities at December 31,
1996 approximate market values.
15. LOCAL MARKETING AGREEMENTS
The Company entered into Local Marketing Agreements ("LMAs") with the owners of
KXTX-TV in Dallas-Fort Worth, Texas in June 1994, KNVA-TV in Austin, Texas in
August 1994, WBNE-TV in New Haven-Hartford, Connecticut in December 1994 and
WVBT-TV in Norfolk-Portsmouth, Virginia in December 1994. Under the LMAs, the
Company is required to pay fixed periodic fees and incur programming and
operating costs relating to the LMA stations, but retains all advertising
revenues. All of the LMAs have 10-year terms.
In connection with the KXTX-TV and KNVA-TV LMAs, the Company purchased 4.49%
ownership interests in some of the licensees of the stations and entered into
option and put agreements that would enable or require the Company to purchase
the stations for a fixed amount under certain conditions, including a change by
the FCC in its "duopoly" rules to permit such acquisitions. The aggregate
purchase price for these interests and the purchase options was approximately
$1.6 million. The "duopoly" rules currently prevent the Company from acquiring
its LMA stations, thereby preventing the Company from directly fulfilling its
obligations under put options that such LMAs have with the Company. Should
future legislation amend the current single-market ownership limits, the
Company, at the option of the parties involved in the LMA contracts, could be
required to purchase certain of the LMA stations. Potential commitments for
fulfilling these put options totaled a maximum of $14.0 million, subject to
adjustments for monthly rental payments, at December 31, 1996.
Future minimum payments required under all four of these LMAs for the years
ending December 31 are as follows:
F-18
<PAGE> 60
LIN TELEVISION CORPORATION, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
15. LOCAL MARKETING AGREEMENTS (CONTINUED)
<CAPTION>
YEAR AMOUNT
-------------------------------------------------------------
(In thousands)
<S> <C>
1997 $ 1,451
1998 1,421
1999 1,379
2000 1,404
2001 1,404
Thereafter 3,785
-------
$10,844
=======
</TABLE>
<TABLE>
16. UNAUDITED QUARTERLY DATA
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1996
- - ----
Net revenues $57,539 $75,576 $68,780 $71,472
Operating income 15,990 28,274 22,378 32,518
Net income 5,952 13,841 9,745 16,923
Net income per share $ 0.20 $ 0.46 $ 0.32 $ 0.56
1995
- - ----
Net revenues $48,417 $55,861 $49,066 $63,903
Operating income 14,912 24,601 18,502 27,013
Net income 5,312 11,157 7,913 13,648
Net income per share $ 0.18 $ 0.37 $ 0.26 $ 0.47
1994
- - ----
Net revenues $30,981 $37,774 $36,440 $45,328
Operating income 10,411 18,289 13,769 21,600
Income before extraordinary item 5,906 7,579 6,553 11,147
Net income 5,906 7,579 6,553 8,222
Per Share:
Income before extraordinary item $ 0.23 $ 0.29 $ 0.25 $ 0.42
Net income $ 0.23 $ 0.29 $ 0.25 $ 0.31
</TABLE>
F-19
<PAGE> 61
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
LIN TELEVISION CORPORATION
<TABLE>
CONDENSED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
ASSETS December 31,
1996 1995
---------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16 $ 16
Other current assets 402 465
--------------------------
Total current assets 418 481
Property and equipment, less accumulated
depreciation 430 563
Program rights and other noncurrent assets 428 10
Investments in wholly-owned subsidiaries 137,925 86,679
--------------------------
Total assets $139,201 $87,733
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 817 $ 1,299
Deferred income taxes (64) --
Stockholders' equity:
Common stock 297 295
Other stockholders' equity 138,151 86,139
--------------------------
Total stockholders' equity 138,448 86,434
--------------------------
Total liabilities and stockholders' equity $139,201 $87,733
==========================
</TABLE>
See accompanying notes.
S-1
<PAGE> 62
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
LIN TELEVISION CORPORATION
<TABLE>
CONDENSED STATEMENTS OF INCOME
(In thousands)
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Operating revenue:
Management fees $ 7,248 $ 5,997 $ 4,330
Other operating income 16 -- --
----------------------------------------
Total operating revenue 7,264 5,997 4,330
Operating costs and expenses:
General and administrative 6,998 5,747 4,342
Depreciation expense 172 103 36
----------------------------------------
Total operating costs and expenses 7,170 5,850 4,378
----------------------------------------
Operating income (loss) 94 147 (48)
Other (income) expense:
Interest expense -- -- 13,149
Investment income -- -- (777)
Other expense -- -- 520
----------------------------------------
Total other expense -- -- 12,892
----------------------------------------
Income (loss) before provision for
income taxes and extraordinary item 94 147 (12,940)
Provision (benefit) for income taxes 150 25 (5,047)
----------------------------------------
(56) 122 (7,893)
Equity in net income of subsidiaries 46,517 37,908 39,078
----------------------------------------
Income before extraordinary item 46,461 38,030 31,185
Extraordinary item: loss on extinguishment
of debt, net of income tax benefit of $1,575 -- -- (2,925)
----------------------------------------
Net income $46,461 $38,030 $ 28,260
========================================
</TABLE>
See accompanying notes.
S-2
<PAGE> 63
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
LIN TELEVISION CORPORATION
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year Ended December 31,
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Net cash used in operating activities $ (731) $ (161) $ (14,290)
INVESTING ACTIVITIES
Capital expenditures (39) (610) (7)
Dividends received from subsidiaries -- -- 354,395
Acquisitions -- -- (120,234)
Contribution to subsidiary (4,032) (4,374) (16,391)
-----------------------------------------
Net cash provided by (used in) investing activities (4,071) (4,984) 217,763
FINANCING ACTIVITIES
Proceeds from exercise of stock options and
Employee Stock Purchase Plan shares 4,802 5,147 116
Principal payments on long-term debt -- -- (222,088)
-----------------------------------------
Net cash provided by (used in) financing activities 4,802 5,147 (221,972)
-----------------------------------------
Net increase (decrease) in cash and cash equivalents -- 2 (18,499)
Cash and cash equivalents at beginning of the year 16 14 18,513
-----------------------------------------
Cash and cash equivalents at end of the year $ 16 $ 16 $ 14
=========================================
</TABLE>
See accompanying notes.
S-3
<PAGE> 64
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
LIN TELEVISION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
In these parent-only financial statements, LIN Television Corporation's (the
"Company") investments in subsidiaries is stated at cost plus equity in the
undistributed earnings (losses) of subsidiaries since the date of their
acquisition. These parent-only financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto.
B. LONG-TERM DEBT
Immediately prior to the Spin-Off (see Note 2 to the Company's consolidated
financial statements), the Company was restructured to allow the banks in the
Bank Credit Facility to have a pledge of the stock in the borrowing entity. As a
result, LWWI Broadcasting, Inc. ("LWWI") was named the borrower under the Bank
Credit Facility and virtually all of the Company's operating assets and
liabilities were transferred to LWWI as restricted assets. The Company has
guaranteed the payment of all principle and interest under the Bank Credit
Facility.
C. DIVIDENDS FROM SUBSIDIARIES
Cash dividends paid to the Company from its subsidiaries totaled $354.4 million
in 1994.
D. INCOME TAXES
Pursuant to a tax-sharing agreement between the Company and LIN Broadcasting,
current federal tax liabilities to LIN Broadcasting of $24.8 million for 1994
were deemed to be forgiven and were credited to paid-in capital. This tax
sharing agreement was terminated on December 28, 1994 due to the Spin-Off and
the Company has filed, and will continue to file, its own consolidated income
tax returns subsequent to that date. The Company was owed amounts from its
subsidiaries for their allocated share of federal income taxes. These amounts
were contributed to the subsidiaries' capital accounts in a similar fashion.
S-4
<PAGE> 65
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
LIN TELEVISION CORPORATION
(In Thousands)
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged
Beginning of Costs and to Other Balance at End
Period Expenses Accounts Deductions of Period
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for Doubtful Accounts: $1,964 $496 $ -- $ 500 1 $1,960
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for Doubtful Accounts: $2,301 $527 $168 3 $1,032 1 $1,964
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for Doubtful Accounts: $1,703 $318 $530 2 $ 250 1 $2,301
<FN>
1 Uncollected accounts written off, net of recoveries.
2 Additions charged to Other Accounts for 1994 reflects Allowances for Bad
Debts at Acquisition of $431 for WTNH-TV and $99 related to accounts
receivable purchased as part of the Local Marketing Agreement for KXTX-TV.
3 Additions charged to Other Accounts for 1995 reflects Allowances for Bad
Debts at Acquisition of $168 for WIVB-TV.
</TABLE>
S-5
<PAGE> 1
EXHIBIT 11.1
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
----------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Primary:
Average shares outstanding 29,631 29,367 25,844
Net effect of dilutive stock options-based
on the treasury stock method using
average market price 489 390 292
-----------------------------------
Totals 30,120 29,757 26,136
===================================
Net income $46,461 $38,030 $28,260
===================================
Per share amount $ 1.54 $ 1.28 $ 1.08
===================================
Fully diluted:
Average shares outstanding 29,631 29,367 25,844
Net effect of dilutive stock options-based
on the treasury stock method
using closing market price, if higher
than average price 682 390 340
-----------------------------------
Totals 30,313 29,757 26,184
===================================
Net income $46,461 $38,030 $28,260
===================================
Per share amount $ 1.53 $ 1.28 $ 1.08
===================================
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-21471) of LIN Television Corporation and in the related Prospectus
of our report dated January 17, 1997, with respect to the consolidated financial
statements and schedules of LIN Television Corporation in this Annual Report on
Form 10-K for the year ended December 31, 1996.
Fort Worth, Texas
March 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LIN
TELEVISION CORPORATION'S CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH LIN TELEVISION
CORPORATION'S ANNUAL REPORT ON FORM 10-K - DECEMBER 31, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 27,952
<SECURITIES> 0
<RECEIVABLES> 54,626
<ALLOWANCES> 1,960
<INVENTORY> 0
<CURRENT-ASSETS> 97,426
<PP&E> 169,017
<DEPRECIATION> 62,576
<TOTAL-ASSETS> 595,944
<CURRENT-LIABILITIES> 40,858
<BONDS> 0
<COMMON> 297
0
0
<OTHER-SE> 138,151
<TOTAL-LIABILITY-AND-EQUITY> 595,944
<SALES> 0
<TOTAL-REVENUES> 273,367
<CGS> 0
<TOTAL-COSTS> 174,207
<OTHER-EXPENSES> 995
<LOSS-PROVISION> 496
<INTEREST-EXPENSE> 26,582
<INCOME-PRETAX> 72,937
<INCOME-TAX> 26,476
<INCOME-CONTINUING> 46,461
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,461
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.53
</TABLE>
