<PAGE> 1
As filed with the Securities and Exchange Commission on September 2, 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from_______________to_______________
Commission File Number: 0-25206
<TABLE>
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<S> <C>
LIN HOLDINGS CORP. LIN TELEVISION CORPORATION
- ------------------------------------------------------ ------------------------------------------------------
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
DELAWARE DELAWARE
------------------------------- -------------------------------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
75-2733097 13-3581627
------------------------------------ ------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
</TABLE>
1 RICHMOND SQUARE, SUITE 230E, PROVIDENCE, RHODE ISLAND 02906
------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(401) 454-2880
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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
NOTE:
10-Q currently presents results for two companies rather than just the parent
company on a fully consolidated basis.
<PAGE> 2
Table of Contents
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Page
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Part I. Financial Information
Item 1. Financial Statements
LIN HOLDINGS CORP.
Condensed Consolidated Balance Sheets (unaudited) 2
Condensed Consolidated Statements of Operations (unaudited) 3
Condensed Consolidated Statements of Cash Flows (unaudited) 4
Notes to Condensed Consolidated Financial Statements (unaudited) 5
LIN TELEVISION CORPORATION
Condensed Consolidated Balance Sheets (unaudited) 13
Condensed Consolidated Statements of Operations (unaudited) 14
Condensed Consolidated Statements of Cash Flows (unaudited) 15
Notes to Condensed Consolidated Financial Statements (unaudited) 16
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 23
Part II. Other Information
Item 1. Legal Proceedings 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Contingent Matters 32
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIN HOLDINGS CORP.
Condensed Consolidated Balance Sheets
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Holdings Predecessor
--------------------------- -----------------
June 30,1998 December 31,
(unaudited) 1997 December 31, 1997
------------ ------------ -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,735 $ - $ 8,046
Accounts receivable, less allowance for doubtful
accounts (1998 - $2,141, 1997 (predecessor) - $2,197) 42,100 - 57,645
Program rights 3,592 - 9,916
Other current assets 16,652 1 1,865
---------- ---- --------
Total current assets 92,079 1 77,472
Property and equipment, less accumulated
depreciation and amortization 122,190 - 107,593
Deferred financing costs 49,474 - 5,421
Equity in joint venture 74,567 - 473
Intangible assets, less accumulated amortization 1,460,458 - 369,588
Program rights and other noncurrent assets 4,417 - 8,779
---------- ---- --------
Total assets $1,803,185 $ 1 $569,326
========== ==== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,465 $ - $ 7,553
Program obligations 3,982 - 11,320
Accrued income taxes 1,905 - 3,444
Current portion of long-term debt 5,837 - -
Accrued interest expense 10,675 - 265
Other accruals 20,199 - 20,624
---------- ---- --------
Total current liabilities 51,063 - 43,206
Long-term debt, excluding current portion 670,131 - 260,000
Deferred income taxes 523,676 - 65,248
Other noncurrent liabilities 8,232 - 8,307
---------- ---- --------
Total Liabilities 1,253,102 - 376,761
========== ==== ========
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares - (1998 - none, 1997 - none,
1997 (predecessor) - 15,000,000)
Issued and outstanding shares - none - - -
Common stock, $0.01 par value:
Authorized shares - (1998 - 1,000, 1997 -
1,000, 1997 (predecessor) - 90,000,000)
Issued and outstanding shares - (1998 - 1,000;
1997 - 1,000 1997 (predecessor) - 29,857,000) - - 299
Treasury stock (79 shares at cost) - - (3)
Additional paid-in capital 559,048 1 283,177
Accumulated deficit (8,965) - (90,908)
---------- ---- --------
Total stockholders' equity 550,083 1 192,565
---------- ---- --------
Total liabilities and stockholders' equity $1,803,185 $ 1 $569,326
========== ==== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
NOTE - The December 31, 1997 information was derived from
the audited financial statements at that date.
2
<PAGE> 4
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
LIN HOLDINGS CORP.
Condensed Consolidated Statements of Operations
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Holdings Predecessor Holdings Predecessor Predecessor
------------- ------------- ------------- ------------- -------------
Three Months Three Months Period from Period from Six Months
Ended Ended March 3 - January 1 - Ended
June 30, 1998 June 30, 1997 June 30, 1998 March 2, 1998 June 30, 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues $61,777 $83,305 $77,988 $43,804 $144,967
Operating costs and expenses
Direct operating 17,000 20,465 20,730 11,117 36,533
Selling, general and administrative 14,068 17,918 18,364 11,701 34,243
Corporate 2,296 1,852 2,754 1,170 3,550
Amortization of program rights 3,041 3,601 4,056 2,743 7,659
Depreciation and amortization of
intangible assets 13,631 6,304 18,105 4,581 12,700
Tower write-offs - 2,697 - - 2,697
------- ------- ------- ------- --------
Total operating costs and expenses 50,036 52,837 64,009 31,312 97,382
------- ------- ------- ------- --------
Operating income 11,741 30,468 13,979 12,492 47,585
Other (income) expense:
Interest expense 16,421 5,505 21,691 2,764 11,223
Investment income (237) (300) (287) (98) (687)
Equity in joint venture 1,700 462 2,162 244 865
Merger expenses - - - 8,616 -
------- ------- ------- ------- --------
Total other expense 17,884 5,667 23,566 11,526 11,401
------- ------- ------- ------- --------
Income (loss) before provision for
(benefit from) income taxes (6,143) 24,801 (9,587) 966 36,184
Provision for (benefit from) income taxes (407) 9,251 (622) 3,710 13,497
------- ------- ------- ------- --------
Net income (loss) $(5,736) $15,550 $(8,965) $(2,744) $22,687
======= ======= ======= ======= =======
</TABLE>
The accompany notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 5
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
LIN HOLDINGS CORP.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Holdings Predecessor Predecessor
------------- ------------- -------------
Period from Period from Six Months
March 3 - January 1 - Ended
June 30, 1998 March 2, 1998 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (8,965) $ (2,744) $ 22,687
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization (includes amortization
of financing costs and discounts on notes) 26,881 4,714 13,150
Amortization of program rights 4,056 2,743 7,659
Tax benefit from exercises of stock options - 10,714 -
Deferred income taxes 127 149 1,915
Net loss (gain) on disposition of assets (54) 19 2,255
Program payments (3,708) (4,157) (7,068)
Equity in joint venture 2,162 244 865
Provision for doubtful accounts 153 98 145
Changes in operating assets & liabilities:
net of acquisitions & disposals:
Accounts receivable (9,257) 7,695 (10,272)
Program rights net of program obligations 29 (45) 6
Other current assets 4,414 (19,102) (6,162)
Accounts payable 777 1,187 1,396
Accrued income taxes (1,464) 1,777 (422)
Accured interest expense 10,675 74 53
Other accruals (1,790) 5,050 4,297
----------- -------- --------
Net cash provided by operating activities 24,036 8,416 30,504
----------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (2,702) (1,221) (10,307)
Proceeds from asset dispositions 41 3 3,126
Investment in joint venture (250) (250) (750)
Contribution of KXAS-TV to station joint venture 815,500 - -
Acquisition of LIN Television Corporation (1,723,656) - -
----------- -------- --------
Net cash used in investing activities (911,067) (1,468) (7,931)
----------- -------- --------
FINANCING ACTIVITIES:
Proceeds from exercises of stock options
and sale of Employee Stock Purchase Plan shares - 1,071 2,023
Treasury stock purchases - - (596)
Principal payments on long-term debt (260,000) - (35,000)
Proceeds from long-term debt 668,929 - -
Loan fees incurred on long-term debt (51,211) - -
Proceeds from sale of Common Stock 558,123 - -
Proceeds from capital contributions 1,000 - -
Cash exercise of options (75) - -
----------- -------- --------
Net cash provided by (used in) financing activities 916,766 1,071 (33,573)
----------- -------- --------
Net increase (decrease) in cash and cash equivalents 29,735 8,019 (11,000)
----------- -------- --------
Cash and cash equivalents at the beginning of the period - 8,046 27,952
----------- -------- --------
Cash and cash equivalents at the end of the period $ 29,735 $ 16,065 $ 16,952
=========== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 2,239 $ 2,895 $ 10,827
Income taxes $ 989 $ 46 $ 15,263
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
4
<PAGE> 6
PART I. FINANCIAL INFORMATION
ITEM. 1 FINANCIAL STATEMENT (CONTINUED)
LIN Holdings Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
LIN Holdings Corp. ("Holdings") was formed on July 18, 1997. On the
same date, LIN Acquisition Company ("LIN Acquisition") was formed as a
wholly-owned subsidiary of Holdings to acquire LIN Television Corporation ("LIN
Television" or "Predecessor" prior to the Merger (as defined), and the "Company"
following the Merger, pursuant to the Merger Agreement (as defined), see Note 2.
The condensed consolidated financial statements have been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows of Holdings and its subsidiaries for the periods
presented. The interim results of operations are not necessarily indicative of
the results to be expected for the full year.
The consolidated financial statements include the accounts of Holdings
and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
All of the Company's direct and indirect consolidated subsidiaries
fully and unconditionally guarantee the Company's Senior Subordinated Notes (as
defined) on a joint and several basis. Holdings and the Company conduct their
business through their subsidiaries, and have no operations or assets other than
their investments in their subsidiaries. Accordingly, no separate or additional
financial information about the subsidiaries is provided.
NOTE 2 - MERGER:
Holdings and LIN Acquisition, two newly formed affiliates of Hicks,
Muse, Tate & Furst Incorporated ("Hicks Muse"), entered into an Agreement and
Plan of Merger with LIN Television on August 12, 1997 (as amended, the "Merger
Agreement").
Pursuant to, and upon the terms and conditions of, the Merger
Agreement, Holdings acquired LIN Television (the "Acquisition") on March 3, 1998
by merging LIN Acquisition, its wholly-owned subsidiary, with and into LIN
Television (the "Merger"), with LIN Television surviving the merger and becoming
a direct, wholly-owned subsidiary of Holdings. The total purchase price for the
common equity of LIN Television was approximately $1.7 billion. In addition, the
Company refinanced $260.2 million of LIN Television's indebtedness and incurred
acquisition costs of approximately $32.2 million.
5
<PAGE> 7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
The Acquisition was funded by (i) $6.9 million of excess cash on the
LIN Television balance sheet; (ii) $50.0 million aggregate principal amount of
senior secured Tranche A term loans ("Tranche A Term Loans"); (iii) $120.0
million aggregate principal of senior secured Tranche B term loans ("Tranche B
Term Loans"); (iv) $299.3 million of gross proceeds from the issuance of $300.0
million aggregate principal amount of unregistered 8 3/8% senior subordinated
notes due 2008 (the "Old Senior Subordinated Notes"); (v) $199.6 million of
gross proceeds from the issuance by Holdings of $325.0 million aggregate
principal amount at maturity of unregistered 10% senior discount notes due 2008
(the "Old Senior Discount Notes"), which proceeds were contributed by Holdings
to the common equity of the Company; (vi) $815.5 million of proceeds of the GECC
Note (as defined); and (vii) $558.1 million of common equity provided by
affiliates of Hicks Muse, management and other co-investors to the equity of the
corporate parents of Holdings, which in turn, through Holdings, contributed such
amount to the common equity of the Company. (collectively, the "Financings").
In connection with the Acquisition, Hicks Muse and NBC formed a
television station joint venture (the "Joint Venture"). The Joint Venture
consists of KXAS-TV, formerly LIN Television's Dallas-Fort Worth NBC affiliate,
and KNSD-TV, formerly NBC's San Diego station. A wholly-owned subsidiary of NBC
is the general partner of the Joint Venture (the "NBC General Partner") and NBC
operates the stations owned by the Joint Venture. The NBC General Partner holds
an approximate 80% equity interest and the Company holds an approximate 20%
equity interest in the Joint Venture (see Note 6). General Electric Capital
Corporation ("GECC") provided debt financing for the Joint Venture in the form
of an $815.5 million 25-year non-amortizing senior secured note bearing an
initial interest rate of 8.0% per annum (the "GECC Note"). The Company expects
that the interest payments on the GECC Note will be serviced solely by the cash
flows of the Joint Venture.
The GECC Note was issued by LIN Television of Texas, L.P., the
Company's indirect wholly- owned partnership ("LIN Texas"), which distributed
the proceeds to the Company to finance a portion of the cost of the Acquisition.
The obligations to GECC under the GECC Note were assumed by the Joint Venture
and LIN Texas was simultaneously released from all obligations under the GECC
Note. The GECC Note is not an obligation of Holdings, the Company or any of
their respective subsidiaries, and has recourse only to the Joint Venture, the
Company's equity interest therein and to one of Holdings two corporate parents
pursuant to a guarantee.
In connection with the formation of the Joint Venture, the Company
received an extension of its NBC network affiliation agreements to 2010 and the
option (exercisable through December 31, 1999) to purchase WVTM-TV, the NBC
affiliate in Birmingham, Alabama.
The Acquisition was accounted for as a purchase and accordingly, the
purchase price has been allocated to the assets and liabilities acquired based
upon their fair values at the date of acquisition. The excess of purchase price
over the fair value of net tangible assets acquired is allocated to intangible
assets, primarily to FCC licenses, network affiliations and goodwill. The
results of operations associated with the acquired assets and liabilities have
been included in the accompanying statements from the date of acquisition on
March 3, 1998 through June 30, 1998.
6
<PAGE> 8
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
The Acquisition is summarized as follows:
Assets acquired and liabilities assumed (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Working capital, including cash of $9,185.......................... $ 23,646
Property and equipment............................................. 124,752
Other noncurrent assets............................................ 81,114
Intangible assets.................................................. 1,472,304
Deferred tax liability............................................. (523,549)
Other noncurrent liabilities....................................... (1,908)
----------
Total acquisition.................................................. $1,176,359
==========
</TABLE>
The following summarizes pro forma consolidated results of operations for the
three and six month period ended June 30, 1998 and 1997 as if the Acquisition
and the Joint Venture had taken place on January 1, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1998 1997 1998 1997
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenue............ $61,777 $55,771 $108,539 $96,789
Operating Income....... $11,741 $ 3,958 $ 14,017 $ 869
Net Loss............... ($ 5,736) ($ 9,679) ($ 20,875) ($26,065)
</TABLE>
The pro forma results do not necessarily represent results that would
have occurred if the Acquisition and Joint Venture had taken place on the dates
indicated nor are they necessarily indicative of the results of future
operations.
Later this year, the Company expects to acquire from AT&T Corporation
("AT&T") the assets of WOOD-TV and the LMA rights related to WOTV-TV
(collectively, the "Grand Rapids Stations"), both of which stations are located
in the Grand Rapids-Kalamazoo-Battle Creek market (the "Grand Rapids
Acquisition"). The Company currently provides services to the Grand Rapids
Stations pursuant to a consulting agreement with AT&T. The total purchase price
for the Grand Rapids Acquisition will be approximately $125.5 million, plus
accretion of 8.0% interest which commenced on March 1, 1998. The Grand Rapids
Acquisition is expected to be funded by $125.0 million of additional Tranche A
Term Loans. For the fiscal year ended December 31, 1997, the Grand Rapids
Stations generated net revenues and operating income of $28.4 million and $8.2
million, respectively. The historical and pro forma financial information
provided above does not give effect to the Grand Rapids Acquisition.
In July 1998, Ranger Equity Holdings Corporation ("Ranger"), the
indirect parent company of Holdings and the Company, and Chancellor Media
Corporation ("Chancellor"), entered into an Agreement and Plan of Merger (the
"Chancellor Merger Agreement"). Pursuant to the Chancellor Merger Agreement,
Ranger will be merged with and into Chancellor (the "Chancellor Merger"), with
Chancellor continuing as the surviving corporation. Following the Chancellor
Merger, Holdings and the Company will become indirect, wholly owned subsidiaries
of Chancellor. The Chancellor Merger is subject to regulatory and shareholder
approval.
7
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - RELATED PARTY TRANSACTIONS:
In connection with the Acquisition, Holdings, the Company and certain
of their respective affiliates (collectively, the "Clients") entered into a
ten-year agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse &
Co. Partners, L.P., ("Hicks Muse Partners"), an affiliate of Hicks Muse,
pursuant to which the Clients have agreed to pay Hicks Muse Partners an annual
fee (payable quarterly) for oversight and monitoring services to the Clients.
The aggregate annual fee is adjustable on January 1 of each calendar year to an
amount equal to 1.0% of the budgeted consolidated annual EBITDA of Holdings and
its subsidiaries for the then-current fiscal year. Upon the acquisition by
Holdings and its subsidiaries of another entity or business, the fee shall be
adjusted prospectively in the same manner using the pro forma consolidated
annual EBITDA of Holdings and it subsidiaries. In no event shall the annual fee
be less than $1,000,000. Hicks Muse Partners is also entitled to reimbursement
for any expenses incurred by it in connection with rendering services allocable
to the Company and Holdings. In connection with the Chancellor Merger Agreement,
Hicks Muse Partners has agreed to terminate the Monitoring and Oversight
Agreement for a one-time cash payment of $11.0 million due at closing of the
Chancellor Merger.
In connection with the Acquisition, the Clients entered into a ten-year
agreement (the "Financial Advisory Agreement") with Hicks Muse Partners,
pursuant to which Hicks Muse Partners received a financial advisory fee at the
closing of the Acquisition as compensation for its services as financial advisor
to the Clients in connection with the Acquisition. Hicks Muse Partners will
receive a fee from LIN Television of $11.0 million in cash at the closing of the
Chancellor Merger as compensation for its services as financial advisor to the
Clients in connection with the Chancellor Merger. Following the Chancellor
Merger, Hicks Muse Partners also will be entitled to receive a "market fee" for
the services it provides in each subsequent transaction in which a Client is
involved.
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consisted of the following at (dollars in thousands):
<TABLE>
<CAPTION>
Predecessor
Holdings December 31,
June 30, 1998 1997
------------- ------------
<S> <C> <C>
FCC licenses and network affiliations.... $ 807,029 $312,450
Goodwill................................. 666,259 128,043
---------- --------
1,473,288 440,493
---------- --------
Less accumulated amortization............ (12,830) (70,905)
$1,460,458 $369,588
========== ========
</TABLE>
Intangible assets represent the excess of the purchase price over the
estimated fair value of identifiable assets acquired in business acquisitions,
and are being amortized straight-line over 40 years. The Company periodically
evaluates intangible assets for potential impairment. At this time, in the
opinion of the management, no impairment has occurred.
8
<PAGE> 10
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - LONG-TERM DEBT:
Long-term debt consisted of the following at (dollars in thousands):
<TABLE>
<CAPTION>
Predecessor
Holdings December 31,
June 30, 1998 1997
------------- ------------
<S> <C> <C>
Senior Credit Facilities..................... $170,000 $260,000
8 3/8% Senior Subordinated Notes due 2008.... 299,502 -
10% Senior Discount Notes due 2008........... 206,466 -
-------- ---------
Total debt................................... $675,968 $260,000
Less current portion......................... (5,837) -
-------- ---------
Total long-term debt......................... 463,665 $260,000
======== =========
</TABLE>
SENIOR CREDIT FACILITIES
On March 3, 1998, Holdings and the Company entered into a credit
agreement (the "Credit Agreement") with the Chase Manhattan Bank, as
administrative agent (the "Agent"), and the lenders named therein. Under the
Credit Agreement, the Company established a $295 million term loan facility, a
$50 million revolving facility, and a $225 million incremental term loan
facility (collectively, the "Senior Credit Facilities"). Borrowings under the
Senior Credit Facilities and part of the proceeds from the 8 3/8% Senior
Subordinated Notes were used to repay LIN Television's existing debt.
Borrowings under the Senior Credit Facilities bear interest at a rate
based, at the option of the Company, on an adjusted London rates, certificate of
deposits rate plus 1.00%, or the Federal Funds effective rate plus 1/2 of 1.00%
(the "Alternate Base Rate"), plus an incremental rate based on the Company's
financial performance. At June 30, 1998, the interest rates on the $50 million
Tranche A term loan and the $120 million Tranche B term loan were 7.22% and
7.69%, respectively, based on the Adjusted LIBOR. The Company is required to pay
quarterly commitment fees ranging from 0.25% to 0.50%, based upon the Company's
leverage ratio for that particular quarter on the unused portion of the loan
commitment, in addition to annual agency and other administration fees.
The obligations of the Company under the Senior Credit Facilities will
be unconditionally and irrevocably guaranteed, jointly and severally, by
Holdings and by each existing and subsequently acquired or organized subsidiary
of the Company. In addition, substantially all of the assets of the Company and
its subsidiaries are pledged to secure the performance of these obligations.
Required principal repayments of amounts outstanding under the Senior Credit
Facilities commence on December 31, 1998. The Company's ability to make
additional borrowings under the Senior Credit Facilities is subject to
compliance with certain financial covenants and other conditions set forth in
the Credit Agreement. As of June 30, 1998, the Company was in compliance with
all covenants under the Credit Agreement.
9
<PAGE> 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
SENIOR SUBORDINATED NOTES
On March 3, 1998, the Company issued $300 million aggregate principal
amount of 8 3/8% Senior Subordinated Notes due 2008 ("Senior Subordinated
Notes") in a private placement for net proceeds of $290.3 million. Such Senior
Subordinated Notes were subsequently registered with the Securities and Exchange
Commission (the "SEC") pursuant to a Registration Statement filed on August 12,
1998. The Senior Subordinated Notes are unsecured obligations of the Company,
subordinated in right of payment to all existing and any future senior
indebtedness of the Company. The Senior Subordinated Notes are fully and
unconditionally guaranteed, on a joint and several basis, by all wholly-owned
subsidiaries of the Company. Interest on the Senior Subordinated Notes accrues
at a rate of 8 3/8% per annum and is payable in cash, semi-annually in arrears,
commencing on September 1, 1998.
SENIOR DISCOUNT NOTES
In connection with the Merger on March 3, 1998, Holdings issued
$325 million aggregate principal amount at maturity of 10% Senior Discount Notes
due 2008 ("Senior Discount Notes") in a private placement. Such Senior Discount
Notes were registered with the SEC pursuant to a Registration Statement filed on
August 12, 1998. The Senior Discount Notes were issued at a discount and
generated net proceeds of $192.6 million to Holdings. The Senior Discount Notes
are unsecured senior obligations of Holdings, and are not guaranteed. Cash
interest will not accrue or be payable on the Senior Discount Notes prior to
March 1, 2003. Thereafter, cash interest will accrue at a rate of 10% per annum
and will be payable semi-annually in arrears commencing on September 1, 2003.
NOTE 6 - SUMMARIZED FINANCIAL INFORMATION OF THE JOINT VENTURE:
The Company owns 20% of the Joint Venture and accounts for its interest
using the equity method. The following presents the summarized financial
information of the Joint Venture (dollars in thousands):
<TABLE>
<CAPTION>
Three Months For the Period From
Ended June 30, March 3 through
1998 June 30, 1998
-------------- -------------------
<S> <C> <C>
Net Revenues................. $39,281 $49,817
Operating Income............. 8,734 11,592
Net (loss) .................. $(7,624) $(9,659)
</TABLE>
NOTE 7 - INCOME TAXES:
The provision for (benefit from) income taxes differs from the amount
computed by applying the federal statutory income tax rate of 35% to income
before income taxes due to the effects of state income taxes and certain
expenses not deductible for tax purposes, primarily the amortization of
goodwill.
10
<PAGE> 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
On September 4, 1997, the Company announced that it had learned of four
lawsuits regarding the then proposed Merger. The Company and some or all of its
then present directors are defendants in all of the lawsuits. AT&T is a
defendant in three of the lawsuits, and an AT&T affiliate and Hicks Muse are
defendants in one of the lawsuits. Each of the lawsuits was filed by a purported
shareholder of the Company seeking to represent a putative class of all the
Company's public shareholders. Three of the four lawsuits were filed in Delaware
Chancery Court, while the fourth lawsuit was filed in New York Supreme Court.
While the allegations of the complaints are not identical, all of the
lawsuits basically assert that the terms of the original merger agreement were
not in the best interests of the Company's public shareholders. All of the
complaints allege breach of fiduciary duty in approving the merger agreement.
Two of the complaints also allege breach of fiduciary duty in connection with
the proposed sale of the television station WOOD-TV by AT&T to Hicks Muse and
the amendment to a Private Market Value Guarantee Agreement that was entered
into simultaneously with the first merger agreement. The complaints seek the
preliminary and permanent enjoinment of the merger or alternatively seek damages
in an unspecified amount. The complaints have not been amended to reflect the
terms of the merger itself.
The plaintiffs in each of the actions have agreed to an indefinite
extension of time for each of the defendants served to respond to the respective
complaints. No discovery has taken place.
Chancellor and its directors have been named as defendants in a
derivative lawsuit filed in the Delaware Chancery Court. The lawsuit seeks,
among other things, to enjoin the consummation of the Chancellor Merger (See
Note 2). Ranger has been named as an additional defendant in such lawsuit. At
the current time, the outcome of such litigation is uncertain.
While the Company believes each lawsuit is without merit, the Company
is unable to determine the likelihood and possible impact on the Company's
financial condition or results of operations of unfavorable outcomes.
In addition, the Company currently and from time to time is involved in
litigation incidental to the conduct of its business. In the opinion of the
Company's management, none of such litigation as of June 30, 1998 is likely to
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
NOTE 9 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" effective for years beginning after December 15, 1997.
SFAS 130 requires that a company report items of other comprehensive income
either below the total for net income in the income statement, or in a statement
of changes in equity, and to disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. SFAS 130 was adopted
during the first quarter of 1998 and was applied to prior period financial
statements on a retroactive basis. The adoption of SFAS 130 has no impact on the
reported results of operations.
11
<PAGE> 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" effective for years beginning after
December 15, 1997. SFAS 131 requires that a company report financial and
descriptive information about its reportable operating segments pursuant to
criteria that differ from current accounting practice. Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The financial information to be reported includes segment profit or
loss, certain revenue and expense items and segment assets and reconciliations
to corresponding amounts in the general purpose financial statements. SFAS 131
also requires revenues from products or services, countries where the company
has operations or assets and major customers. Management does not believe the
implementation of SFAS 131 will have a material impact on its consolidated
financial statements.
In April 1998, Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") effective for fiscal years beginning after
December 15, 1998. This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires that costs of start-up
activities and organization costs be expensed as incurred. Initial application
of SOP 98-5 should be reported as the cumulative effect of a change in
accounting principle, as described in Accounting Principles Board (APB) Opinion
No. 20, "Accounting Changes". When adopting this SOP, entities are not required
to report the pro forma effects of retroactive application. Management does not
believe the implementation of SOP 98-5 will have a material impact on its
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective for years beginning after June 15,
1999. SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. If certain conditions
are met, a derivative may be specifically designated as a fair value hedge, a
cash flow hedge, or a foreign currency hedge. A specific accounting treatment
applies to each type of hedge. Management does not believe the implementation of
SFAS 133 will have a material impact on its consolidated financial results.
12
<PAGE> 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
LIN TELEVISION CORPORATION
Condensed Consolidated Balance Sheets
(In thousands, except number of shares)
<TABLE>
<CAPTION>
Company Predecessor
------------ -----------
June 30,1998 December
(unaudited) 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,735 $ 8,046
Accounts receivable, less allowance for doubtful
accounts (1998 - $2,141, 1997 (predecessor) - $2,197) 42,100 57,645
Program rights 3,592 9,916
Other current assets 16,652 1,865
---------- --------
Total current assets 92,079 77,472
Property and equipment, less accumulated
depreciation and amortization 122,190 107,593
Program rights and other noncurrent assets 4,416 8,778
Deferred financing costs 37,123 5,421
Equity in joint venture 74,568 473
Intangible assets, less accumulated amortization 1,460,458 369,588
---------- --------
Total assets $1,790,834 $569,326
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,465 $ 7,553
Program obligations 3,982 11,320
Accrued income taxes 2,033 3,444
Current portion of long-term debt 5,837 0
Accrued interest expense 10,675 265
Other accruals 20,199 20,624
---------- --------
Total current liabilities 51,191 43,206
Long-term debt, excluding current portion 463,665 260,000
Deferred income taxes 526,936 65,248
Other noncurrent liabilities 8,232 8,307
---------- --------
Total Liabilities $1,050,024 $376,761
========== ========
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares - (1998 - none, 1997
(predecessor) - 15,000,000)
Issued and outstanding shares - none - -
Common stock, $0.01 par value:
Authorized shares - (1998 - 1,000,
1997 (predecessor) - 90,000,000)
Issued and outstanding shares - (1998 - 1,000;
1997 - 29,857,000) - 299
Treasury stock (79 shares at cost) - (3)
Additional paid-in capital 745,902 283,177
Accumulated deficit (5,092) (90,908)
---------- --------
Total stockholders' equity 740,810 192,565
---------- --------
Total liabilities and stockholders' equity $1,790,834 $569,326
========== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
NOTE - The December 31, 1997 information was derived from
the audited financial statements at that date.
13
<PAGE> 15
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
LIN TELEVISION CORPORATION
Condensed Consolidated Statements of Operations
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Company Predecessor Company Predecessor Predecessor
------------- ------------- ------------- ------------- -------------
Three Months Three Months Period from Period from Six Months
Ended Ended March 3 - January 1 - Ended
June 30, 1998 June 30, 1997 June 30, 1998 March 2, 1998 June 30, 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues $61,777 $83,305 $77,988 $43,804 $144,967
Operating costs and expenses
Direct operating 17,000 20,465 20,730 11,117 36,533
Selling, general and administrative 14,068 17,918 18,364 11,701 34,243
Corporate 2,296 1,852 2,754 1,170 3,550
Amortization of program rights 3,041 3,601 4,056 2,743 7,659
Depreciation and amortization of
intangible assets 13,631 6,304 18,105 4,581 12,700
Tower write-offs - 2,697 - - 2,697
------- ------- ------- ------- --------
Total operating costs and expenses 50,036 52,837 64,009 31,312 97,382
------- ------- ------- ------- --------
Operating income 11,741 30,468 13,979 12,492 47,585
Other (income) expense:
Interest expense 10,895 5,505 14,430 2,764 11,223
Investment income (237) (300) (287) (98) (687)
Equity in joint venture 1,700 462 2,162 244 865
Merger expenses - - - 8,616 -
------- ------- ------- ------- --------
Total other expense 12,358 5,667 16,305 11,526 11,401
------- ------- ------- ------- --------
Income (loss) before provision for
(benefit from) income taxes (617) 24,801 (2,326) 966 36,184
Provision for (benefit from) income taxes 747 9,251 2,766 3,710 13,497
------- ------- ------- ------- --------
Net income (loss) $(1,364) $15,550 $(5,092) $(2,744) $22,687
======= ======= ======= ======= =======
</TABLE>
The accompany notes are an integral part of the condensed consolidated
financial statements.
14
<PAGE> 16
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (CONTINUED)
LIN TELEVISION CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Company Predecessor Predecessor
------------- ------------- -------------
Period from Period from Six Months
March 3 - January 1 - Ended
June 30, 1998 March 2, 1998 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (5,092) $ (2,744) $ 22,687
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of program rights 4,056 2,743 7,659
Depreciation and amortization (includes amortization
of financing costs and discounts on notes) 19,620 4,714 13,150
Tax benefit from exercises of stock options - 10,714 -
Deferred income taxes 3,387 149 1,915
Net loss (gain) on disposition of assets (54) 19 2,255
Program payments (3,708) (4,157) (7,068)
Equity in joint venture 2,162 244 865
Provision for doubtful accounts 153 98 145
Changes in operating assets & liabilities:
net of acquisitions & disposals:
Accounts receivable (9,257) 7,695 (10,272)
Program rights net of program obligations 29 (45) 6
Other current assets 4,414 (19,102) (6,162)
Accounts payable 777 1,187 1,396
Accrued income taxes (1,464) 1,777 (422)
Accured interest expense 10,675 74 53
Other accruals (1,662) 5,050 4,297
----------- -------- --------
Net cash provided by operating activities 24,036 8,416 30,504
----------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (2,702) (1,221) (10,307)
Proceeds from asset dispositions 41 3 3,126
Investment in joint venture (250) (250) (750)
Contribution of KXAS-TV to station joint venture 815,500 - -
Acquisition of LIN Television Corporation (1,723,656) - -
----------- -------- --------
Net cash used in investing activities (911,067) (1,468) (7,931)
----------- -------- --------
FINANCING ACTIVITIES:
Proceeds from exercises of stock options
and sale of Employee Stock Purchase Plan shares - 1,071 2,023
Treasury stock purchases - - (596)
Principal payments on long-term debt (260,000) - (35,000)
Proceeds from long-term debt 469,298 - -
Loan fees incurred on long-term debt (38,434) - -
Equity Contribution 744,977 - -
Proceeds from capital contributions 1,000 - -
Common stock exercise (75) - -
----------- -------- --------
Net cash provided by (used in) financing activities 916,766 1,071 (33,573)
----------- -------- --------
Net increase (decrease) in cash and cash equivalents 29,735 8,019 (11,000)
----------- -------- --------
Cash and cash equivalents at the beginning of the period - 8,046 27,952
----------- -------- --------
Cash and cash equivalents at the end of the period $ 29,735 $ 16,065 $ 16,952
=========== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 2,239 $ 2,895 $ 10,827
Income taxes $ 989 $ 46 $ 15,263
</TABLE>
The accompanying notes are an integral
part of the condensed consolidated financial statements.
15
<PAGE> 17
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
LIN TELEVISION CORPORATION
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
LIN Holdings Corp. ("Holdings") was formed on July 18, 1997. On the
same date, LIN Acquisition Company ("LIN Acquisition") was formed as a
wholly-owned subsidiary of Holdings to acquire LIN Television Corporation ("LIN
Television" or the "Predecessor" prior to the Merger (as defined) and the
"Company" following the Merger, pursuant to the Merger Agreement (as defined),
see Note 2.
The condensed consolidated financial statements have been prepared
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the accompanying unaudited interim
financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows of the Company and its subsidiaries for the periods
presented. The interim results of operations are not necessarily indicative of
the results to be expected for the full year.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
All of the Company's direct and indirect consolidated subsidiaries
fully and unconditionally guarantee the Company's Senior Subordinated Notes (as
defined) on a joint and several basis. Holdings and the Company conduct their
business through their subsidiaries, and have no operations or assets other than
their investments in their subsidiaries. Accordingly, no separate or additional
financial information about the subsidiaries is provided.
NOTE 2 - MERGER:
Holdings and LIN Acquisition, two newly formed affiliates of Hicks,
Muse, Tate & Furst Incorporated ("Hicks Muse"), entered into an Agreement and
Plan of Merger with LIN Television on August 12, 1997 (as amended, the "Merger
Agreement").
Pursuant to, and upon the terms and conditions of, the Merger
Agreement, Holdings acquired LIN Television (the "Acquisition") on March 3, 1998
by merging LIN Acquisition, its wholly-owned subsidiary, with and into LIN
Television (the "Merger"), with LIN Television surviving the merger and becoming
a direct, wholly-owned subsidiary of Holdings. The total purchase price for the
common equity of LIN Television was approximately $1.7 billion. In addition, the
Company refinanced $260.0 million of LIN Television's indebtedness and incurred
acquisition costs of approximately $32.2 million.
16
<PAGE> 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
The Acquisition was funded by (i) $6.9 million of excess cash on the
LIN Television balance sheet; (ii) $50.0 million aggregate principal amount of
senior secured Tranche A term loans ("Tranche A Term Loans"); (iii) $120.0
million aggregate principal of senior secured Tranche B term loans ("Tranche B
Term Loans"); (iv) $299.3 million of gross proceeds from the issuance of $300.0
million aggregate principal amount of unregistered 8 3/8% senior subordinated
notes due 2008 (the "Old Senior Subordinated Notes"); (v) $199.6 million of
gross proceeds from the issuance by Holdings of $325.0 million aggregate
principal amount at maturity of unregistered 10% senior discount notes due 2008
(the "Old Senior Discount Notes"), which proceeds were contributed by Holdings
to the common equity of the Company; (vi) $815.5 million of proceeds of the GECC
Note (as defined); and (vii) $558.1 million of common equity provided by
affiliates of Hicks Muse, management and other co-investors to the equity of the
corporate parents of Holdings, which in turn, through Holdings, contributed such
amount to the common equity of the Company. (collectively, the "Financings").
In connection with the Acquisition, Hicks Muse and NBC formed a
television station joint venture (the "Joint Venture"). The Joint Venture
consists of KXAS-TV, formerly LIN Television's Dallas-Fort Worth NBC affiliate,
and KNSD-TV, formerly NBC's San Diego station. A wholly-owned subsidiary of NBC
is the general partner of the Joint Venture (the "NBC General Partner") and NBC
operates the stations owned by the Joint Venture. The NBC General Partner holds
an approximate 80% equity interest and the Company holds an approximate 20%
equity interest in the Joint Venture (see Note 6). General Electric Capital
Corporation ("GECC") provided debt financing for the Joint Venture in the form
of an $815.5 million 25-year non-amortizing senior secured note bearing an
initial interest rate of 8.0% per annum (the "GECC Note"). The Company expects
that the interest payments on the GECC Note will be serviced solely by the cash
flows of the Joint Venture.
The GECC Note was issued by LIN Television of Texas, L.P., the
Company's indirect wholly owned partnership ("LIN Texas"), which distributed the
proceeds to the Company to finance a portion of the cost of the Acquisition. The
obligations to GECC under the GECC Note were assumed by the Joint Venture and
LIN Texas was simultaneously released from all obligations under the GECC Note.
The GECC Note is not an obligation of Holdings, the Company or any of their
respective subsidiaries, and has recourse only to the Joint Venture, the
Company's equity interest therein and to one of Holdings two corporate parents
pursuant to a guarantee.
In connection with the formation of the Joint Venture, the Company
received an extension of its NBC network affiliation agreements to 2010 and the
option (exercisable through December 31, 1999) to purchase WVTM-TV, the NBC
affiliate in Birmingham, Alabama.
The Acquisition was accounted for as a purchase and accordingly, the
purchase price has been allocated to the assets and liabilities acquired based
upon their fair values at the date of acquisition. The excess of purchase price
over the fair value of net tangible assets acquired is allocated to intangible
assets, primarily to FCC licenses, network affiliations and goodwill. The
results of operations associated with the acquired assets and liabilities have
been included in the accompanying statements from the date of acquisition on
March 3, 1998 through June 30, 1998.
17
<PAGE> 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
The Acquisition is summarized as follows:
Assets acquired and liabilities assumed (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Working capital, including cash of $9,185.......................... $ 23,646
Property and equipment............................................. 124,752
Other noncurrent assets............................................ 81,114
Intangible assets.................................................. 1,472,304
Deferred tax liability............................................. (523,549)
Other noncurrent liabilities....................................... (1,908)
----------
Total acquisition.................................................. 1,176,359
==========
</TABLE>
The following summarizes pro forma consolidated results of operations
for the three and six month periods ended June 30, 1998 and 1997 as if the
Acquisition and the Joint Venture had taken place on January 1, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1998 1997 1998 1997
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Revenue............ $61,777 $55,771 $108,539 $96,789
Operating Income....... $11,741 $3,958 $14,017 $869
Net Loss............... ($1,364) ($6,192) ($12,767) ($19,171)
</TABLE>
The pro forma results do not necessarily represent results that would
have occurred if the Acquisition and Joint Venture had taken place on the dates
indicated nor are they necessarily indicative of future operations.
Later this year, the Company expects to acquire from AT&T Corporation
("AT&T") the assets of WOOD-TV and the LMA rights related to WOTV-TV
(collectively, the "Grand Rapids Stations"), both of which stations are located
in the Grand Rapids-Kalamazoo-Battle Creek market (the "Grand Rapids
Acquisition"). The Company currently provides services to the Grand Rapids
Stations pursuant to a consulting agreement with AT&T. The total purchase price
for the Grand Rapids Acquisition will be approximately $125.5 million, plus
accretion of 8.0% interest which commenced on March 1, 1998. The Grand Rapids
Acquisition is expected to be funded by $125.0 million of additional Tranche A
Term Loans. For the fiscal year ended December 31, 1997, the Grand Rapids
Stations generated net revenues and operating income of $28.4 million and $8.2
million, respectively. The historical and pro forma financial information
provided above does not give effect to the Grand Rapids Acquisition.
In July 1998, Ranger Equity Holdings Corporation ("Ranger"), the
indirect parent company of Holdings and the Company, and Chancellor Media
Corporation ("Chancellor"), entered into an Agreement and Plan of Merger (the
"Chancellor Merger Agreement"). Pursuant to the Chancellor Merger Agreement,
Ranger will be merged with and into Chancellor ("Chancellor Merger"), with
Chancellor continuing as the surviving corporation. Following the Chancellor
Merger, Holdings and the Company will become indirect, wholly owned subsidiaries
of Chancellor. The Chancellor Merger is subject to regulatory and shareholder
approval.
18
<PAGE> 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - RELATED PARTY TRANSACTIONS:
In connection with the Acquisition, Holdings, the Company and certain
of their respective affiliates (collectively, the "Clients") entered into a
ten-year agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse &
Co. Partners, L.P., ("Hicks Muse Partners"), an affiliate of Hicks Muse,
pursuant to which the Clients have agreed to pay Hicks Muse Partners an annual
fee (payable quarterly) for oversight and monitoring services to the Clients.
The aggregate annual fee is adjustable on January 1 of each calendar year to an
amount equal to 1.0% of the budgeted consolidated annual EBITDA of Holdings and
its subsidiaries for the then-current fiscal year. Upon the acquisition by
Holdings and its subsidiaries of another entity or business, the fee shall be
adjusted prospectively in the same manner using the pro forma consolidated
annual EBITDA of Holdings and it subsidiaries. In no event shall the annual fee
be less than $1,000,000. Hicks Muse Partners is also entitled to reimbursement
for any expenses incurred by it in connection with rendering services allocable
to the Company and Holdings. In connection with the Chancellor Merger Agreement,
Hicks Muse Partners has agreed to terminate the Monitoring and Oversight
Agreement for a one-time cash payment of $11.0 million due at closing of the
Chancellor Merger.
In connection with the Acquisition, the Clients entered into a ten-year
agreement (the "Financial Advisory Agreement") with Hicks Muse Partners,
pursuant to which Hicks Muse Partners received a financial advisory fee at the
closing of the Acquisition as compensation for its services as financial advisor
to the Clients in connection with the Acquisition. Hicks Muse Partners will
receive a fee from LIN Television of $11.0 million in cash at the closing of the
Chancellor Merger as compensation for its services as financial advisor to the
Clients in connection with the Chancellor Merger. Following the Chancellor
Merger, Hicks Muse Partners also will be entitled to receive a "market fee" for
the services it provides in each subsequent transaction in which a Client is
involved.
NOTE 4 - INTANGIBLE ASSETS:
Intangible assets consisted of the following at (dollars in thousands):
<TABLE>
<CAPTION>
Predecessor
Holdings December 31,
June 30, 1998 1997
------------- ------------
<S> <C> <C>
FCC licenses and network affiliations.... $ 807,029 $312,450
Goodwill................................. 666,259 128,043
---------- --------
1,473,288 440,493
Less accumulated amortization............ (12,830) (70,905)
---------- --------
$1,460,458 $369,588
========== ========
</TABLE>
Intangible assets represent the excess of the purchase price over the
estimated fair value of identifiable assets acquired in business acquisitions,
and are being amortized straight-line over 40 years. The Company periodically
evaluates intangible assets for potential impairment. At this time, in the
opinion of the management, no impairment has occurred.
19
<PAGE> 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - LONG-TERM DEBT:
Long-term debt consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
Predecessor
Company June 30, December 31,
1998 1997
---------------- ------------
<S> <C> <C>
Senior Credit Facilities..................... $170,000 $260,000
8 3/8% Senior Subordinated Notes due 2008.... 299,502 -
-------- --------
Total debt................................... 469,502 $260,000
Less current portion......................... (5,837) -
-------- --------
Total long-term debt......................... 463,665 $260,000
======== ========
</TABLE>
SENIOR CREDIT FACILITIES
On March 3, 1998, Holdings and the Company entered into a credit
agreement (the "Credit Agreement") with the Chase Manhattan Bank, as
administrative agent (the "Agent"), and the lenders named therein. Under the
Credit Agreement, the Company established a $295 million term loan facility, a
$50 million revolving facility, and a $225 million incremental term loan
facility (collectively, the "Senior Credit Facilities"). Borrowings under the
Senior Credit Facilities and part of the proceeds from the 8 3/8% Senior
Subordinated Notes were used to repay LIN Television's existing debt.
Borrowings under the Senior Credit Facilities bear interest at a rate
based, at the option of the Company, on an adjusted London interbank offered
rate ("Adjusted LIBOR"), or the highest of the Agent's prime rates, a
certificate of deposit rate plus 1.00%, or the Federal Funds effective rate plus
1/2 of 1.00% (the "Alternate Base Rate"), plus an incremental rate based on the
Company's financial performance. At June 30, 1998, the interest rates on the $50
million Tranche A term loan and the $120 million Tranche B term loan were 7.22%
and 7.69%, respectively, based on the Adjusted LIBOR. The Company is required to
pay quarterly commitment fees ranging from 0.25% to 0.50%, based upon the
Company's leverage ratio for that particular quarter on the unused portion of
the loan commitment, in addition to annual agency and other administration fees.
The obligations of the Company under the Senior Credit Facilities will
be unconditionally and irrevocably guaranteed, jointly and severally, by
Holdings and by each existing and subsequently acquired or organized subsidiary
of the Company. In addition, substantially all of its subsidiaries are pledged
to secure the performance of these obligations. Required principal repayments of
amounts outstanding under the Senior Credit Facilities commence on December 31,
1998. The Company's ability to make additional borrowings under the Senior
Credit Facilities is subject to compliance with certain financial covenants and
other conditions set forth in the Senior Credit Facilities. As of June 30, 1998,
the Company was in compliance with all covenants.
SENIOR SUBORDINATED NOTES
On March 3, 1998, the Company issued $300 million aggregate principal
amount of 8 3/8% Senior Subordinated Notes due 2008 ("Senior Subordinated
Notes") in a private placement for net proceeds of $290.3 million. Such Senior
Subordinated Notes were subsequently registered with the Securities and Exchange
Commission (the "SEC") pursuant to a Registration Statement filed on August 12,
1998. The Senior Subordinated Notes are unsecured obligations of the Company,
subordinated in right of payment to all existing and any future senior
indebtedness of the Company. The Senior Subordinated Notes are fully and
unconditionally guaranteed, on a joint and several basis, by all wholly-owned
subsidiaries of the
20
<PAGE> 22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Company. Interest on the Senior Subordinated Notes accrues at a rate of 8 3/8%
per annum and is payable in cash, semi-annually in arrears, commencing on
September 1, 1998.
NOTE 6 - SUMMARIZED FINANCIAL INFORMATION OF THE JOINT VENTURE:
The Company owns 20% of the Joint Venture and accounts for its interest
using the equity method. The following presents the summarized financial
information of the Joint Venture (dollars in thousands):
<TABLE>
<CAPTION>
Three Months For the Period From
Ended June 30, March 3 through
1998 June 30, 1998
-------------- -------------------
<S> <C> <C>
Net Revenues................. $39,281 $49,817
Operating Income............. 8,734 11,592
Net (loss) .................. $(7,624) $(9,659)
</TABLE>
NOTE 7 - INCOME TAXES:
The provision for (benefit from) income taxes differs from the amount
computed by applying the federal statutory income tax rate of 35% to income
before income taxes due to the effects of state income taxes and certain
expenses not deductible for tax purposes, primarily the amortization of
goodwill.
The current and deferred income taxes of the Company are calculated by
applying Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" to the Company as if it were a separate taxpayer.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
On September 4, 1997, the Company announced that it had learned of four
lawsuits regarding the then proposed Merger. The Company and some or all of its
then present directors are defendants in all of the lawsuits. AT&T is a
defendant in three of the lawsuits, and an AT&T affiliate and Hicks Muse are
defendants in one of the lawsuits. Each of the lawsuits was filed by a purported
shareholder of the Company seeking to represent a putative class of all the
Company's public shareholders. Three of the four lawsuits were filed in Delaware
Chancery Court, while the fourth lawsuit was filed in New York Supreme Court.
While the allegations of the complaints are not identical, all of the
lawsuits basically assert that the terms of the original merger agreement were
not in the best interests of the Company's public shareholders. All of the
complaints allege breach of fiduciary duty in approving the merger agreement.
Two of the complaints also allege breach of fiduciary duty in connection with
the proposed sale of the television station WOOD-TV by AT&T to Hicks Muse and
the amendment to a Private Market Value Guarantee Agreement that was entered
into simultaneously with the first merger agreement. The complaints seek the
preliminary and permanent enjoinment of the merger or alternatively seek damages
in an unspecified amount. The complaints have not been amended to reflect the
terms of the merger itself.
The plaintiffs in each of the actions have agreed to an indefinite
extension of time for each of the defendants served to respond to the respective
complaints. No discovery has taken place.
Chancellor and its directors have been named as defendants in a
derivative lawsuit filed in the Delaware Chancery Court. The lawsuit seeks,
among other things, to enjoin the consummation of the
21
<PAGE> 23
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
Chancellor Merger (See Note 2). Ranger has been named as an additional defendant
in such lawsuit. At the current time, the outcome of such litigation is
uncertain.
While the Company believes each lawsuit is without merit, the Company
is unable to determine the likelihood and possible impact on the Company's
financial condition or results of operations of unfavorable outcomes.
In addition, the Company currently and from time to time is involved in
litigation incidental to the conduct of its business. In the opinion of the
Company's management, none of such litigation is likely to have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
NOTE 9 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" effective for years beginning after December 15, 1997.
SFAS 130 requires that a company report items of other comprehensive income
either below the total for net income in the income statement, or in a statement
of changes in equity, and to disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. SFAS 130 was adopted
during the first quarter of 1998 and was applied to prior period financial
statements on a retroactive basis. The adoption of SFAS 130 has no impact on the
reported results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" effective for years beginning after
December 15, 1997. SFAS 131 requires that a company report financial and
descriptive information about its reportable operating segments pursuant to
criteria that differ from current accounting practice. Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The financial information to be reported includes segment profit or
loss, certain revenue and expense items and segment assets and reconciliations
to corresponding amounts in the general purpose financial statements. SFAS 131
also requires information about revenues from products or services, countries
where the company has operations or assets and major customers. Management does
not believe the implementation of SFAS 131 will have a material impact on its
consolidated financial statements.
In April 1998, Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") effective for fiscal years beginning after
December 15, 1998. This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires that costs of start-up
activities and organization costs be expensed as incurred. Initial application
of SOP 98-5 should be reported as the cumulative effect of a change in
accounting principle, as described in Accounting Principles Board (APB) Opinion
No. 20, "Accounting Changes". When adopting this SOP, entities are not required
to report the pro forma effects of retroactive application. Management does not
believe the implementation of SOP 98-5 will have a material impact on its
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective for years beginning after June 15,
1999. SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. If certain conditions
are met, a derivative may be specifically designated as a fair value hedge, a
cash flow hedge, or a foreign currency hedge. A specific accounting treatment
applies to each type of hedge. Management does not believe the implementation of
SFAS 133 will have a material impact on its consolidated financial results.
22
<PAGE> 24
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
BUSINESS:
LIN Holdings Corp. and its subsidiaries (together, the "Company") is
engaged in the commercial television broadcasting business and currently owns
and operates seven network affiliated television stations, two low power
television (LPTV) networks and two LPTV stations. The Company also provides
programming and advertising services to four stations pursuant to local
marketing agreements (LMAs). LMA stations provide the Company with additional
broadcasting outlets and promote diversity in news, programming and community
service in the markets served by the Company's stations (the "Stations").
RECENT DEVELOPMENTS:
LIN Holdings Corp. and LIN Acquisition, two newly formed affiliates of
Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), entered into an Agreement
and Plan of Merger with LIN Television on August 12, 1997 (as amended, the
"Merger Agreement").
Pursuant to, and upon the terms and conditions of, the Merger
Agreement, LIN Holdings Corp. acquired LIN Television (the "Acquisition") on
March 3, 1998 by merging LIN Acquisition, its wholly-owned subsidiary, with and
into LIN Television (the "Merger"), with LIN Television surviving the merger and
becoming a direct, wholly-owned subsidiary of LIN Holdings Corp. The total
purchase price for the common equity of LIN Television was approximately $1.7
billion. In addition, the Company refinanced $260.0 million of LIN Television's
indebtedness and incurred acquisition costs of approximately $32.2 million.
The Acquisition was funded by (i) $6.9 million of excess cash on the
Company's balance sheet; (ii) $50.0 million aggregate principal amount of senior
secured Tranche A term loans ("Tranche A Term Loans"); (iii) $120.0 million
aggregate principal of senior secured Tranche B term loans ("Tranche B Term
Loans"); (iv) $299.3 million of gross proceeds from the issuance of $300.0
million aggregate principal amount of unregistered 8 3/8% senior subordinated
notes due 2008 (the "Old Senior Subordinated Notes"); (v) $199.6 million of
gross proceeds from the issuance by LIN Holdings Corp. of $325.0 million
aggregate principal amount at maturity of unregistered 10% senior discount notes
due 2008 (the "Old Senior Discount Notes"), which proceeds were contributed by
LIN Holdings Corp. to the common equity of LIN Television; (vi) $815.5 million
of proceeds of the GECC Note (as defined); and (vii) $558.1 million of common
equity provided by affiliates of Hicks Muse, management and other co-investors
to the equity of the corporate parents of LIN Holdings Corp., which in turn,
through LIN Holdings Corp., contributed such amount to the common equity of LIN
Television. (collectively, the "Financings").
In connection with the Acquisition, Hicks Muse and NBC formed a
television station joint venture (the "Joint Venture"). The Joint Venture
consists of KXAS-TV, formerly LIN Television's Dallas-Fort Worth NBC affiliate,
and KNSD-TV, formerly NBC's San Diego station. A wholly-owned subsidiary of NBC
is the general partner of the Joint Venture (the "NBC General Partner") and NBC
operates the stations owned by the Joint Venture. The NBC General Partner holds
an approximate 80% equity interest and LIN Television holds an approximate 20%
equity interest in the Joint Venture (see Note 6). General Electric Capital
Corporation ("GECC") provided debt financing for the Joint Venture in the form
of an $815.5 million 25-year non-amortizing senior secured note bearing an
initial interest rate of 8.0% per annum (the "GECC Note"). LIN Television
expects that the interest payments on the GECC Note will be serviced solely by
the cash flow of the Joint Venture.
The GECC Note was issued by LIN Television of Texas, L.P., LIN
Television's indirect wholly owned partnership ("LIN Texas"), which distributed
the proceeds to LIN Television to finance a portion of the cost of the
Acquisition. The obligations to GECC under the GECC Note were assumed by the
Joint Venture and LIN Texas was simultaneously released from all obligations
under the GECC Note. The
23
<PAGE> 25
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED):
GECC Note is not an obligation of LIN Holdings Corp., LIN Television,
or any of their respective subsidiaries and is recourse only to the Joint
Venture, LIN Television's equity interests therein and one of LIN Holdings Corp.
two corporate parents pursuant to a guarantee.
In connection with the formation of the Joint Venture, LIN Television
received an extension of its NBC network affiliation agreements to 2010 and the
option (exercisable through December 31, 1999) to purchase WVTM-TV, the NBC
affiliate in Birmingham, Alabama.
This Quarterly Report contains forward-looking statements that involve
a number of risks and uncertainties. When used in this Quarterly Report on Form
10-Q the words "believes," "anticipated" and similar expressions are intended to
identify forward-looking statements. There are a number of factors that could
cause the LIN Television's actual results to differ materially from those
forecasted or projected in such forwarding-looking statements. These factors
include, without limitation, competition from other local free over-the-air
broadcast stations, acquisitions of additional broadcast properties, and future
debt service obligations. Additional risk factors include, without limitation,
substantial leverage; substantial restrictions and covenants; ranking of the
notes and guarantees; structural subordination of LIN Holdings Corp.;
encumbrances on assets to secure Senior Credit Facilities, obligations upon a
change of control; control of LIN Holdings Corp. and LIN Television; potential
conflicts of interest; dependence upon key personnel; dependence upon certain
external factors; reliance on programming; certain affiliation agreements;
impact of new technologies; lack of control over the Joint Venture; defaults
under the GECC Note; renewal of FCC licenses; multiple ownership rules and
effect on LMA's; fraudulent conveyance; original issue discount consequences of
new Senior Discount Notes and lack of public market for the new notes. These
factors are more fully described in the Proxy Statement dated November 19, 1997,
and other SEC filings. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof. LIN
Television undertakes no obligations 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.
On August 1, 1998, LIN Television of Texas, L.P. ("LIN Texas") and
Southwest Sports Group, Inc., a Delaware corporation ("SSG"), entered into an
Asset Purchase Agreement (the "SSG Agreement") pursuant to which LIN Texas will
sell KXTX-TV to SSG. In exchange, LIN Texas will receive 500,000 shares of SSG's
Series A Convertible Preferred Stock, par value $100.00 per share ("SSG
Preferred Stock"). LIN Texas will be entitled to receive dividends at the per
annum rate of 6% of par value prior to the payment by SSG of any dividend in
respect of its common stock ("SSG Common Stock") or any other junior securities.
At the option of SSG, dividends will be payable either in kind or in cash. LIN
Texas will have the right, upon the earlier of (I) the third anniversary of the
issuance of the SSG Preferred Stock and (ii) an initial public offering of SSG
Common Stock, to convert its shares of SSG Preferred Stock into shares of SSG
Common Stock at a conversion rate equal to the par value per share of the SSG
Preferred Stock ( plus accrued and unpaid dividends thereon) divided by the fair
market value per share of the SSG Common Stock. SSG will have the right, at its
sole option, to redeem the SSG Preferred Stock at a par value (plus accrued and
unpaid dividends thereon) at any time. The Company does not expect to realize a
significant gain or loss as a result of this transaction.
Subject to the terms of the SSG Agreement and the satisfaction of
certain conditions, including the receipt of National Hockey League and Major
League Baseball approvals and SSG's consummation of certain other business
acquisitions, it is expected that the sale of KXTX-TV will be consummated by the
end of 1998. In 1997, KXTX-TV generated broadcast cash flow of $6.8 million.
24
<PAGE> 26
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED):
RESULTS OF OPERATIONS:
Set forth below is the significant factors that contributed to the
operating results of LIN Television for the three and six month periods ending
June 30, 1998 and 1997. LIN Televison's results of operations from period to
period are not historically comparable because of the impact of the transactions
described under "Recent Developments". Pro forma comparisons assuming the
acquisition of LIN Television and the formation of the joint venture with NBC
had taken place on January 1, 1997, have been included where appropriate.
REVENUES:
Total net revenues consist primarily of national and local time sales,
net of sales adjustments and agency commissions, network compensation, barter
revenues, revenues from the production of local commercials and sports
programming, tower rental revenues, Local Weather Station revenues, and cable
retransmission income. Total net revenues for the three and six month periods
ended June 30, 1998 decreased approximately 25.8% to $61.8 million and 16.0% to
$121.8 million, respectively, compared to $83.3 million and $145.0 million for
the same periods last year. The decreases were primarily due to the contribution
of KXAS to the Joint Venture in connection with the Merger on March 3, 1998. On
a pro forma basis, net revenues for the three and six month periods increased
10.6% to $61.7 million and 12.1% to $108.5 million compared to $55.8 million and
$96.8 million for the same periods last year.
Approximately 83.0% and 85.1% of LIN Television's total net revenues
for the three and six month periods ended June 30, 1998, respectively, were
derived from net advertising time sales compared to 87.0% and 86.9% in the same
periods in the previous year. Net advertising periods ended June 30, 1998
decreased 29.3% and 17.7% compared to the same periods in the prior year,
primarily due to the contribution of KXAS to the Joint Venture in connection
with the Merger on March 3, 1998. On a pro forma basis, for the three and six
month periods ended June 30, 1998 approximately 83.0% and 85.1% of LIN
Television's total net revenues, respectively, were derived from net advertising
time sales. Pro forma advertising revenue for the three and six months ended
June 30, 1998 %. increased 23.0% to $51.3 million and 12.0% to $92.3 million
respectively when compared to $41.7 and $82.4 million for the same periods in
the prior year. The increase was due primarily to the continued improvement in
the local economy in the markets in which WTNH-TV and KXAN-TV operate, and to
the net advertising growth at the LMA stations. Additionally, LIN Television's
CBS affiliated stations had revenues from broadcasting the 1998 Winter Olympics.
Network revenue represents amounts paid to LIN Television for
broadcasting network programming provided by CBS, NBC, and ABC. Network revenue
for the three and six months periods ended June 30, 1998 decreased 31.7% to $2.8
million and 17.4% to $7.1 million, respectively, compared to $4.1 million and
$8.6 million for the same periods in the prior year. The decrease was primarily
due to the contribution of KXAS to the Joint Venture in connection with the
Merger on March 3, 1998. On a pro forma basis, network revenue for the three and
six month periods ended June 30, 1998 was relatively flat when compared to the
same period in the prior year.
Revenues from the Local Weather Station increased $0.8 million and for
the three and six month periods ended June 30, 1998 when compared to the same
period in the prior year. LIN Television provides Local Weather Stations to
cable operators in all of its markets except New Haven-Hartford and Buffalo. LIN
Television intends to provide this service to all markets in the future. On both
an historical and pro forma basis Local Weather Station income increased as a
result of the retroactive recognition of revenue with a cable operator in
several of LIN Television's markets.
25
<PAGE> 27
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED):
OPERATING EXPENSES:
Direct operating expenses, consisting primarily of news, engineering,
programming and music licensing costs, decreased approximately 17.0% to $17.0
million and 12.9% to $31.8 million for the three and six month periods ended
June 30, 1998 compared to $20.5 million and $36.5 million for the same periods
in the prior year. The decrease was primarily due to the contribution of KXAS to
the Joint Venture in connection with the Merger on March 3, 1998. On a pro forma
basis, direct operating expenses for the three and six month periods ended June
30, 1998 increased 3.0% to $17.0 million and 2.1% to $29.6 million compared to
$16.5 million and $29.0 million for the same period in the prior year, due
primarily to a change in the syndicated/barter programming mix in the Hartford,
Indianapolis and Austin markets coupled with the news expansion at station
WISH-TV in Indianapolis. Maintaining a strong local news program is an integral
part of LIN Television's operating strategy.
Selling, general and administrative ("SG&A") expenses consist primarily
of employee salaries and sales commissions, advertising and promotion expenses,
and other expenses such as rent, utilities, insurance and other employee benefit
costs. SG&A expenses decreased approximately 21.2% to $14.1 million and 12.0% to
$30.1 million for the three and six month periods ended June 30, 1998 compared
to $17.9 million and $34.2 million for the same periods in the prior year. The
decrease was primarily due to the contribution of KXAS to the Joint Venture in
connection with the Merger on March 3, 1998. On a pro forma basis, SG & A
expenses for the quarter remained relatively flat when compared to the same
period in the prior year.
Total corporate expenses, which are comprised of costs associated with
the centralized management of LIN Television's stations, remained relatively
flat on both a historical and pro forma basis for the three and six month
periods ended June 30, 1998, compared to the same period in the prior year.
Amortization of program rights reflects the expenses related to the
acquisition of syndicated programming, features and specials. Amortization of
program rights decreased approximately 16.7% to compared to $3.6 million and
$7.7 million for the same periods in the prior year. The decrease was primarily
due to the contribution of KXAS to the Joint Venture in connection with the
Merger on March 3, 1998. On a pro forma basis, amortization of program rights
for the three and six month periods ended June 30, 1998 decreased 3.2% to $3.0
million and 3.0% to $6.5 million, compared to $3.1 million and $6.7 million for
the same period in the prior year. This decrease was due primarily to a change
in the syndicated/barter programming mix at WTNH-TV and syndicated film
write-down at station WAND-TV.
Depreciation and amortization of intangible assets increased
approximately $7.3 million and $10.0 million for the three and six month periods
ended June 30, 1998 compared to the same period in the prior year, primarily as
a result of the acquisition of LIN Television on March 3, 1998. The excess of
the purchase price over the estimated fair market value of the net tangible
assets acquired was allocated to intangible assets, primarily to FCC licenses
and network affiliations and goodwill.
OPERATING INCOME:
For the reasons discussed above, LIN Television reported a decrease in
operating income of $21.3 million and $21.1 million for the three and six month
periods ended June 30, 1998, compared to the same periods in the prior year. On
a pro forma basis, operating income increased $7.8 million to $11.7 million and
$13.2 million to $14.0 million for the three and six month period ended June 30,
1998 compared to the same period in the prior year.
26
<PAGE> 28
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONTINUED):
LIN Television's interest expense increased approximately $5.4 million
and $6.0 for the three and six month period ended June 30, 1998 compared to the
same periods last year, as a result of the new borrowings under the Senior
Credit Facilities and the issuance of the $300 million 8 3/8% Senior
Subordinated Notes in connection with the Merger. In addition, LIN Holdings
Corp. incurred $7.3 million of non-cash interest expense for the period from
March 3, 1998 through June 30, 1998, due to the issuance of its 10% Senior
Discount Notes.
During the first quarter of 1998, LIN Television incurred financial and
legal advisory fees and regulatory filing fees in connection with the Merger.
During the same quarter, LIN Television expensed approximately $8.6 million that
is reflected on the Predecessor's Consolidated Statements of Income as merger
expense.
LIN Television's provision for income taxes decreased approximately
$9.7 million and $10.4 million for the three and six month periods ended June
30,1998, compared to the same periods in the prior year. The decrease was due to
net operating losses, resulting from increased interest expense, offset by the
change in LIN Television's effective annual tax rate as a result of a
substantial increase in non-deductible amortization relating to intangible
assets.
LIQUIDITY AND CAPITAL RESOURCES:
It is LIN Television's policy to carefully monitor the state of its
business, cash requirements and capital structure. From time to time, LIN
Television 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.
LIN Television's principal source of funds is its operations and its
Senior Credit Facilities. Net cash provided by operating activities for the six
months ended June 30, 1998 totaled $32.5 million compared to $30.5 million in
the same period last year. The increase is primarily due to a reduction in the
amounts paid for interest and income taxes partially offset by the contribution
of KXAS to the Joint Venture in connection with the Merger on March 3, 1998. Net
cash used in investing activities was $912.5 million for the six months ended
June 30, 1998, compared to $7.9 million for the same period in 1997, as a result
of the acquisition of LIN Television in March 1998 partially offset by the
contribution of KXAS to the Joint Venture. Net cash provided by financing
activities for the period ended June 30, 1998 was $917.8 million compared to
$33.6 million of cash used in financing activities for the same period in the
prior year. This fluctuation is due primarily to the issuance of the 8 3/8%
Senior Subordinated Notes by LIN Television, the issuance of the 10% Senior
Discount Notes by LIN Holdings Corp., and the equity contribution by Hicks Muse
in connection with the Merger, partially offset by the principal payment of
$260.0 million to retire the old debt.
LIN Television presently has indebtedness outstanding of $170 million
under the Senior Credit Facilities. The total cash financing required to
consummate the Grand Rapids Acquisition is expected to be approximately $125.5
million and will be primarily funded by additional Tranche A term loans under
the Senior Credit Facilities. In addition to debt service requirements under the
Senior Credit Facilities, LIN Television is required to pay interest on the
$300.0 million at maturity Senior Subordinated Notes on a semi-annual basis
commencing on September 1, 1998. The $325.0 million at maturity Senior Discount
Notes of LIN Holdings Corp. ("Holdings") do not require cash interest payments
through March 1, 2003.
27
<PAGE> 29
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED):
Thereafter, cash interest will accrue at a rate of 10% per annum and
will be payable semi-annually in arrears commencing September 1, 2003. Interest
payments on the Notes and interest payments and amortization with respect to the
Senior Credit Facilities represent significant liquidity requirements for LIN
Television and LIN Holdings Corp. The Senior Subordinated notes and Term Loans
funded in connection with the Acquisition will require annual interest payments
of approximately $25.1 million and $13.4 million, respectively. The Company and
Holdings must remain in compliance with a series of financial covenants under
the Senior Credit Facilities, the Senior Subordinated Notes, and the Senior
Discount Notes. As of June 30, 1998, LIN Television and LIN Holdings Corp. were
in compliance with all covenants. Assuming continued compliance with these
financial covenants, LIN Television and LIN Holdings Corp. has available credit
of approximately $144.8 million under the Senior Credit Facilities.
LIN Television'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. LIN
Television's capital expenditures, for the first six-months of 1998 were $3.9
million compared to $10.3 million for the same period in 1997. LIN Television
has invested approximately $13.0 million to fully prepare its towers and
transmitter buildings for the upcoming digital transition. LIN Television
expects to spend approximately $22 million per year on capital expenditures in
1998 and 1999. After 1999, an additional $29.3 million will be required through
2002 to complete the transition to digital broadcasting. LIN Television
anticipates that it will be able to meet its capital expenditure requirements
with internally generated funds and borrowings under the Senior Credit
Facilities.
Based on the current level of operations and anticipated future growth
(both internally generated as well as through acquisitions), LIN Television
anticipates that its cash flow from operations, together with borrowings under
the Senior Credit Facilities should be sufficient to meet its anticipated
requirements for working capital, capital expenditures, interest payments and
scheduled principal payments.
LIN Television's future operating performance and ability to service or
refinance the Notes and to extend or refinance the Senior Credit Facilities will
be subject to future economic conditions and to financial, business and other
factors, many of which are beyond the company's control.
The Notes and the Senior Credit Facilities impose certain restrictions
on LIN Television's ability to make capital expenditures and limit the company's
ability to incur additional indebtedness. Such restrictions could limit LIN
Television ability to respond to market conditions, to provide for unanticipated
capital investments or to take advantage of business or acquisition
opportunities. The covenants contained in the Credit Agreement and the
Indentures also, among other things, limit the ability of LIN Television to
dispose of assets, repay indebtedness or amend other debt instruments, pay
distributions, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances and make acquisitions.
LIN Holdings Corp. is a holding company whose only material asset is
the capital stock of LIN Television Corporation. LIN Holdings Corp. does not
have any business (other than in connection with its ownership of the capital
stock of LIN Television and the performance of its obligations with respect to
the Senior Discount Notes and the Senior Credit Facilities) and will depend on
the distributions from LIN Television to meet its debt service obligations,
including, without limitation, interest and principal obligations with respect
to the Senior Discount Notes. Because of the substantial leverage of LIN
Television, and the dependence of LIN Holdings Corp. upon the operating
performance of LIN Television to generate distributions to LIN Holdings Corp.
with respect to LIN Television's common stock, there can be no assurance that
LIN Holdings Corp. will have adequate funds to fulfill its obligations with
respect to
28
<PAGE> 30
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED):
the New Senior Discount Notes when due. In addition, the Credit Agreement, the
Senior Subordinated Notes Indenture and applicable federal and state law will
impose restrictions on the payment of dividends and the making of loans by LIN
Television to LIN Holdings Corp.
Accordingly, LIN Holdings Corp.'s only source of cash to pay interest
on the principal of the Senior Discount notes is distributions with respect to
its ownership interest in LIN Television and its subsidiaries from the net
earnings and the cash flow generated by LIN Television and its subsidiaries.
Prior to March 1, 2003, LIN Holdings Corp.'s interest expense on the Senior
Discount Notes will consist solely of non-cash accretion of principal interest
and the Senior Discount Notes will not require cash interest payments. On March
1, 2003, Holdings will be required to pay the Mandatory Principal Redemption
Amount. After such time, the Senior Discount Notes will require annual cash
interest payments of $20.0 million. In addition, the Notes mature on March 1,
2008.
YEAR 2000 ISSUE:
Some of LIN Television's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using
"00"as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations, in the next millennium, causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
LIN Television has completed an assessment of the majority of its
systems and expects to complete the review of all its systems by December 31,
1998, which is prior to any anticipated impact on its operating systems. LIN
Television has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the LIN
Television's interface systems are vulnerable to the failure of those third
parties' to address their own Year 2000 issues. A majority of the systems tested
and third parties reviewed to date are Year 2000 compliant. There is no
guarantee that the systems of other companies on which the LIN Television relies
will be timely converted and would not have an adverse effect on its systems.
The cost of the evaluation, which amounts are immaterial, and the date
on which LIN Television believes it will complete the Year 2000 modifications
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources and other factors.
INFLATION:
LIN Television believes that its businesses are affected by inflation
to an extent no greater than other businesses generally.
RECENTLY-ISSUED ACCOUNTING PRINCIPLES:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" effective for years beginning after December 15, 1997.
SFAS 130 requires that a public company report items of other comprehensive
income either below the total for net income in the income statement, or in a
statement of
29
<PAGE> 31
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED):
changes in equity, and to disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. SFAS 130 was adopted
during the first quarter of 1998 and was applied to prior period financial
statements on a retroactive basis. The adoption of SFAS 130 has no impact on the
reported results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" effective for years beginning after
December 15, 1997. SFAS 131 requires that a public company report financial and
descriptive information about its reportable operating segments pursuant to
criteria that differ from current accounting practice. Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The financial information to be reported includes segment profit or
loss, certain revenue and expense items and segment assets and reconciliations
to corresponding amounts in the general purpose financial statements. Statement
131 also requires information about revenues from products or services,
countries where the company has operations or assets and major customers.
Management does not believe the implementation of SFAS 131 will have a material
impact on its consolidated financial statements.
In April 1998, Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") effective for fiscal years beginning after
December 15, 1998. This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires that costs of start-up
activities and organization costs be expensed as incurred. Initial application
of SOP 98-5 should be reported as the cumulative effect of a change in
accounting principle, as described in Accounting Principles Board (APB) Opinion
No. 20, "Accounting Changes". When adopting this SOP, entities are not required
to report the pro forma effects of retroactive application. Management does not
believe the implementation of SOP 98-5 will have a material impact on its
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" effective for years beginning after June 15,
1999. SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. If certain conditions
are met, a derivative may be specifically designated as a fair value hedge, a
cash flow hedge, or a foreign currency hedge. A specific accounting treatment
applies to each type of hedge. Management does not believe the implementation of
SFAS 133 will have a material impact on its consolidated financial results.
30
<PAGE> 32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
On September 4, 1997, LIN Television Corporation ("LIN Television")
announced that it had learned of four lawsuits regarding the then proposed
merger of LIN Television with LIN Holdings Corp. LIN Television and some or all
of its then present directors are defendants in all of the lawsuits. AT&T is a
defendant in three of the lawsuits, and an AT&T affiliate and Hicks Muse are
defendants in one of the lawsuits. Each of the lawsuits was filed by a purported
shareholder of LIN Television seeking to represent a putative class of all LIN
Television's public shareholders. Three of the four lawsuits were filed in
Delaware Chancery Court, while the fourth lawsuit was filed in New York Supreme
Court.
While the allegations of the complaints are not identical, all of the
lawsuits basically assert that the terms of the original merger agreement were
not in the best interests of the LIN Television's public shareholders. All of
the complaints allege breach of fiduciary duty in approving the merger
agreement. Two of the complaints also allege breach of fiduciary duty in
connection with the proposed sale of the television station WOOD-TV by AT&T to
Hicks Muse and the amendment to a Private Market Value Guarantee Agreement that
was entered into simultaneously with the first merger agreement. The complaints
seek the preliminary and permanent enjoinment of the merger or alternatively
seek damages in an unspecified amount. The complaints have not been amended to
reflect the terms of the merger itself.
The plaintiffs in each of the actions have agreed to an indefinite
extension of time for each of the defendants served to respond to the respective
complaints. No discovery has taken place.
Chancellor Media Corporation ("Chancellor") and its directors have been
named as defendants in a derivative lawsuit filed in the Delaware Chancery
Court. The lawsuit seeks, among other things, to enjoin the consummation of the
merger between LIN Holdings Corp. and Chancellor (the "Chancellor Merger").
Ranger Equity Holdings Corporation ("Ranger"), the parent company of LIN
Holdings Corp., has been named as an additional defendant in such lawsuit. At
the current time, the outcome of such litigation is uncertain.
While LIN Television and LIN Holdings Corp. believes each lawsuit is
without merit, LIN Television and LIN Holdings Corp. is unable to determine the
likelihood and possible impact on LIN Television's financial condition or
results of operations of unfavorable outcomes.
In addition, LIN Television currently and from time to time is involved
in litigation incidental to the conduct of its business. In the opinion of LIN
Television's management, none of such litigation is likely to have a material
adverse effect on LIN Television's financial condition, results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
A special meeting of shareholders of LIN Television was held on January
7, 1998, in which shareholders were asked to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger, dated as of August 12,
1997 (as amended, the "Merger Agreement"). The proposal was approved with an
affirmative vote in excess of 99%.
31
<PAGE> 33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS (CONTINUED):
ITEM 5. CONTINGENT MATTERS:
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 Stations, result in the loss of
audience share and advertising revenues for the Stations, and affect the ability
of LIN Television to acquire additional broadcast stations or finance such
acquisitions.
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.
The Telecommunications Act of 1996 (the "Act"), 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) states that, in general, existing LMAs 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 digital television or Advanced Television ("ATV") and other digital services
and imposes a fee on subscription based services.
On April 3, 1997, the FCC adopted rules for implementing ATV in the
United States. These rules are subject to requests for reconsideration and
possible judicial review. In certain important respects, e.g., ATV station
construction deadlines and termination date for current analog operations, the
new ATV rules also will be subject to biennial FCC review and case-by-case
waiver requests. In addition, several important matters regarding ATV are to be
the subject of future FCC rulemakings, including the question of whether
broadcasters who receive ATV licenses shall incur additional public interest
obligations. The White House has created a government-industry committee to make
specific ATV public service recommendations to the FCC.
ATV will improve the technical quality of over-the-air broadcast
television and enable broadcasters to offer a wide variety of new services,
including high-definition television, multiple standard definition channels,
subscription services and data transmission. It may also result in reduced
service areas for some stations and interference to existing operations during
the initial transitional period. The FCC has granted an ATV license to each
commercial broadcast station to operate on a second channel during a
transitional period, until the year 2006, after which, absent extensions, either
the analog or digital channel must be returned to the government. ATV facilities
sufficient to cover each station's community of license must be constructed by
May 1, 1999, for stations in the top ten markets affiliated with the four major
networks, by November 1, 1999 for all other commercial stations in the top
thirty markets, and by May 1, 2002 for all other commercial stations. Exceptions
to the deadlines will be granted for various factors beyond the licensee's
control. The FCC issued final digital channel assignments on February 18, 1998.
32
<PAGE> 34
PART II. OTHER INFORMATION (CONTINUED)
ITEM 5. CONTINGENT MATTERS (CONTINUED)
Several parties have sought reconsideration of their assignments and/or filed
judicial appeals challenging the FCC's decision. LIN Television is in the
process of analyzing its ATV channel assignments to determine what impact, if
any, these assignments will have on its ATV coverage areas or existing service,
but will be unable to make a definitive determination until further field
testing has been completed.
Implementation of ATV will impose additional costs on television
stations providing the new service due to increased equipment costs. LIN
Television estimates that the adoption of ATV would require average capital and
operating expenditures of approximately $2 million per station to provide
facilities necessary to pass along an ATV signal transmitted by a network with
which a station is affiliated. The conversion of a station's equipment enabling
it, for example, to produce and transmit its own digital or ATV programming,
will 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 in
the radio band currently occupied by LPTVs and the FCC has proposed to "repack"
television signals into a "core" spectrum band (either channels 2-51) and
auction off the remaining channels to other users. This proposal could adversely
affect the service areas of the Stations and a substantial number of the LIN
Television's LPTV channels. LIN Television believes that the implementation of
ATV is essential to the long-term viability of LIN Television and the broadcast
industry, but cannot otherwise predict the precise effect this development might
have on the LIN Television's business.
Budget legislation passed by the House and Senate and signed by the
President requires 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. The legislation codifies the FCC's determination that broadcasters return
one of their two channels to the federal government by 2006, subject to
repacking, though it permits the FCC to grant return-date extensions in markets
without certain digital service penetration levels. The legislation requires
that the returned channels be auctioned by 2002 and provides for reallocation to
other users, e.g., public safety institutions, and/or early auctioning of
unutilized spectrum in the band now occupied by television channels 60 - 69. LIN
Television cannot predict what impact, if any, the implementation of these
measures might have on its business.
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 LIN Television from acquiring the FCC licenses
of its LMA stations, thereby preventing LIN Television from directly fulfilling
its obligations under put options that such LMA stations have with LIN
Television. If LIN Television should be unable to fulfill its obligation under a
put option, it could be required to find an assignee who could perform such
obligation. There is no assurance that LIN Television could find an assignee to
fulfill the company's obligations under the put options on favorable terms.
Under the Act, LIN Television'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. LIN
33
<PAGE> 35
PART II. OTHER INFORMATION (CONTINUED)
ITEM 5. CONTINGENT MATTERS (CONTINUED)
Television`s LMAs all involve UHF stations which were either start-up stations
or 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 LIN Television the ability to convert its LMAs to full ownership
or require LIN Television to modify its LMAs in ways which impair their
viability. Further, if the FCC were to find that one of LIN Television's LMA
stations failed to maintain control over its operations, the licensee of the LMA
station and/or LIN Television could be fined. LIN Television 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.
In accordance with FCC rules, regulations and policies, all of LIN
Television's LMAs allow preemptions of the company's programming by the
owner-operator and FCC licensee of each station with which LIN Television has an
LMA. Accordingly, LIN Television 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 LIN Television will receive the anticipated advertising revenue
from the sale of advertising spots in such programming. Although LIN Television
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 termination of the LMAs or unanticipated termination 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 LIN Television's LMAs,
or repeated and material preemption of programming thereunder, could adversely
affect the company's operations.
The FCC Chairman has announced that the Commission will also initiate
rulemakings this year looking toward revision or repeal of other cross-ownership
rules, including those restricting ownership of broadcast stations and
newspapers in the same marked and cable systems and broadcast stations in the
same market. The Commission has initiated an inquiry looking into all of its
ownership rules.
LIN Television 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
27.1 Financial Data Schedule for Lin Holdings Corp. for 6-mos
ending June 30, 1998
27.2 Financial Data Schedule for Lin Television Corp. for 6-mos
ending June 30, 1998
REPORTS ON FORM 8-K
None.
34
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LIN HOLDINGS CORPORATION LIN TELEVISION CORPORATION
(Registrant) (Registrant)
DATED: SEPTEMBER 1, 1998 /s/ Peter E. Maloney
-------------------------
Peter E. Maloney
Vice President of Finance
35
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LIN HOLDINGS
CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEET. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH LIN HOLDINGS CORP. QUARTERLY
REPORT ON FORM 10-Q DATED JUNE 30, 1998.
</LEGEND>
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<NAME> LIN HOLDINGS CORP.
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<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<ALLOWANCES> 2,141
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<CURRENT-ASSETS> 92,079
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<BONDS> 675,968
0
0
<COMMON> 0
<OTHER-SE> 550,083
<TOTAL-LIABILITY-AND-EQUITY> 1,803,185
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<TOTAL-REVENUES> 121,792
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<OTHER-EXPENSES> 10,637
<LOSS-PROVISION> 395
<INTEREST-EXPENSE> 24,455
<INCOME-PRETAX> (8,621)
<INCOME-TAX> 3,088
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<DISCONTINUED> 0
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<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LIN
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<NAME> LIN TELEVISION CORPORATION
<MULTIPLIER> 1,000
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