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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________to_______________
Commission File Number: 333-54003-06 Commission File Number: 000-25206
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LIN HOLDINGS CORP. LIN TELEVISION CORPORATION
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(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
DELAWARE DELAWARE
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(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
75-2733097 13-3581627
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(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
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FOUR RICHMOND SQUARE, SUITE 400, PROVIDENCE, RHODE ISLAND 02906
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(Address of principal executive offices) (Zip Code)
(401) 454-2880
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
8-3/8% Senior Subordinated Notes due 2008
10% Senior Discount Notes due 2008
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form. [X]
NOTE:
This 10-K currently presents results for two companies rather than just the
parent company on a fully consolidated basis.
1,000 shares of LIN Holdings Corp.'s Common Stock, par value $.01 per share, and
1000 shares of LIN Television Corporation's Common Stock, par value $.01 per
share, were outstanding as of March 30, 2000.
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TABLE OF CONTENTS
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PAGE NO.
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PART I
Item 1. Business.......................................................... 1
Item 2. Properties........................................................ 20
Item 3. Legal Proceedings................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders............... 20
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 20
Item 6. Selected Financial Data........................................... 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 22
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk............................................ 31
Item 8. Financial Statements and Supplementary Data....................... 32
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 89
PART III
Item 10. Directors and Executive Officers of the Registrant................ 89
Item 11. Executive Compensation............................................ 92
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................ 95
Item 13. Certain Relationships and Related Transactions.................... 95
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................. 98
Schedule I. LIN Holdings Corp. - Condensed Financial Information of
the Registrant.................................................... F-1
Schedule II. LIN Holdings Corp. - Valuation and Qualifying Accounts............ F-5
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PART I
ITEM 1: BUSINESS
GENERAL:
LIN Holdings Corp ("LIN Holdings") and its subsidiaries, including LIN
Television Corporation ("LIN Television") (collectively, the "Company"), have
been engaged in commercial television broadcasting since 1966. LIN Holdings, a
Delaware corporation incorporated in July of 1997, is a holding company which
conducts all of its operations through its subsidiaries. LIN Television is a
Delaware corporation incorporated in June of 1990. The principal executive
offices of both companies are located at Four Richmond Square, Providence, Rhode
Island, 02906 and the telephone number for each is (401) 454-2880. LIN Holdings
is an indirect wholly-owned subsidiary of Ranger Equity Holdings Corporation
("Ranger"), which is a holding company controlled by Hicks, Muse, Tate and Furst
Incorporated ("Hicks, Muse").
The Company is a television station group operator in the United States and
Puerto Rico that owns and operates nine television stations, eight of which are
network-affiliated television stations. Additionally, the Company has local
marketing agreements ("LMAs"), under which it programs four other stations in
the markets in which it operates. An LMA is a programming agreement between two
separately owned television stations serving a common service area. Under this
agreement the licensee of one station provides substantial portions of the
broadcast programming for airing on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the second licensee,
and sells advertising time during those programming segments. Eight of the
Company's stations are in the top 50 of the January 1, 2000 designated market
area ("DMA") rankings of the Nielsen Station Index. The Nielsen rankings rank
geographically defined television markets in the United States by size according
to various factors based upon actual or potential audience. The Company's
presence in the top 50 DMAs includes Indianapolis, Indiana; New Haven-Hartford,
Connecticut; Grand Rapids-Kalamazoo-Battle Creek, Michigan; Norfolk-Portsmouth,
Virginia; and Buffalo, New York. The Company's stations have an aggregate United
States household reach of approximately 4.9%.
The Company believes that its television station portfolio (the "Stations")
is well diversified in terms of network affiliations, geographic coverage, net
revenues and cash flow. The Company owns and operates three CBS affiliates,
three NBC affiliates, two ABC affiliates and one independent station
(collectively, the "LIN Core Stations"). The Company also programs four
additional network-affiliated television stations pursuant to LMAs (the "LIN LMA
Stations"). Additionally, the Company holds an approximate 20% equity interest
in a joint venture with NBC (the "NBC Joint Venture"). The NBC Joint Venture
owns two stations: KXAS-TV, an NBC affiliate station in Dallas-Fort Worth, Texas
and KNSD-TV, an NBC affiliate in San Diego, California. NBC operates the
stations owned by the NBC Joint Venture pursuant to a management agreement. In
addition, the Company and 21st Century Group LLC ("21st Century"), announced the
formation of a television station joint venture ("Banks Broadcasting Joint
Venture"). The Company and 21st Century also announced the first transaction of
the Bank Broadcasting Joint Venture, the entry into a local marketing agreement
to build and develop a new WB affiliate serving the Wichita, Kansas market. The
Company is also the owner and operator of 28 low-power television stations
("LPTV's").
The following table provides information regarding the stations and other
programming outlets owned and or programmed by the Company including the
stations owned in joint ventures, as of December 31, 1999.
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FCC Licence
Expiration Date DMA
Market Status Channel (9) Network Affiliation RANK (5)
- ---------------------------------------- -------- ----------- --------------- ------------------------------ --------
Expiration Date
Network (10)
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Indianapolis, IN
WISH-TV O&O (1) 8 (VHF) 8/1/05 CBS 11/15/04 26
WIIH-LP (Satellite) O&O 11 (VHF) 8/1/05 CBS
Local Weather Station O&O Cable n/a
New Haven-Hartford, CT
WTNH-TV O&O 8 (VHF) 4/1/05 ABC 9/4/05 27
WBNE-TV LMA (2) 59 (UHF) 4/1/05 WB Note 12
Grand Rapids-Kalamazoo-Battle Creek, MI
WOOD-TV O&O 10/1/05 NBC 12/31/10 38
WOTV-TV LMA 10/1/05 ABC 9/4/05
Low Power Network (4) O&O Various IND
Norfolk-Portsmouth,VA
WAVY-TV O&O 10 (VHF) 10/1/04 NBC 12/31/10 42
WVBT-TV LMA 43 (UHF) 10/1/04 FOX 8/31/08
Low Power Network O&O Various IND
Buffalo, NY
WIVB-TV O&O 4 (VHF) 6/1/05 CBS 12/31/05 44
Austin, TX
KXAN-TV O&O 36 (UHF) 8/1/06 NBC 12/31/10 61
KXAM-TV (Satellite) O&O 14 (VHF) 8/1/06 NBC
KNVA-TV LMA 54 (UHF) 8/1/06 WB Note 12
Low Power Network O&O Various IND
Local Weather Station O&O Cable n/a
Decatur-Champaign, IL
WAND-TV O&O 17 (UHF) 12/1/05 ABC 12/31/05 83
Local Weather Station O&O Cable n/a
Low Power Network O&O Various IND
Fort Wayne, IN
WANE-TV O&O 15 (UHF) 8/1/05 CBS 12/31/05 103
Local Weather Station O&O Cable n/a
San Juan, Puerto Rico
WAPA-TV O&O 4 (VHF) 6/1/04 IND (3) n/a n/a
WTIN-TV (Satellite) LMA 14 (UHF) IND
WNJX-TV (Satellite) LMA 22 (UHF) IND
Low Power Network O&O Various IND
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Operated Under NBC Joint Venture
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Dallas-Fort Worth, TX
KXAS-TV JV 8 (VHF) NBC 7
San Diego, CA
KNSD-TV JV 26 (UHF) NBC 25
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Pending Finalization of Joint Venture with 21st Century Croup, LLC.
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Wichita, KS
KWCV-TV JV/LMA 33(UHF) 2/1/05 WB 6/30/02 65
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DMA TVHH (in % of DMA No. of Commercial
Market 000s) (6) TVHH (11) Stations in Market(7)
- ---------------------------------------- ------------ --------- ---------------------
VHF(14) UHF(14)
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<S> <C> <C> <C> <C>
Indianapolis, IN
WISH-TV 963,320 0.96% 4 7
WIIH-LP (Satellite)
Local Weather Station
New Haven-Hartford, CT
WTNH-TV 915,940 0.91% 2 5
WBNE-TV
Grand Rapids-Kalamazoo-Battle Creek, MI
WOOD-TV 671,320 0.67% 3 5
WOTV-TV
Low Power Network (4)
Norfolk-Portsmouth,VA
WAVY-TV 629,100 0.62% 3 4
WVBT-TV
Low Power Network
Buffalo, NY
WIVB-TV 621,460 0.62% 3 2
Austin, TX
KXAN-TV 472,780 0.47% 1 4
KXAM-TV (Satellite)
KNVA-TV
Low Power Network
Local Weather Station
Decatur-Champaign, IL
WAND-TV 341,990 0.34% 1 5
Local Weather Station
Low Power Network
Fort Wayne, IN
WANE-TV 249,350 0.25% 0 5
Local Weather Station
San Juan, Puerto Rico
WAPA-TV 1,200,307 n/a 5 2
WTIN-TV (Satellite)
WNJX-TV (Satellite)
Low Power Network
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Operated Under NBC Joint Venture
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Dallas-Fort Worth, TX
KXAS-TV 2,018,120 2.00% 4 9
San Diego, CA
KNSD-TV 980,620 0.97% 2 4
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Pending Finalization of Joint Venture with 21st Century Croup, LLC.
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Wichita, KS
KWCV-TV 443,690 0.44% 3 2
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(1.) "O&O" refers to stations owned and operated by the Company.
(2.) "LMA" refers to a station to which the Company provides services under
a local market agreement.
(3.) "IND" refers to stations without any network affiliation.
(4.) Low Power Television Stations ("LPTVs") and satellite broadcasting
facilities provide simultaneous broadcasting of the network programming
of the station serving the same market, unless a different network
affiliation for the LPTV is indicated.
(5.) Rankings are based on the relative size of a station's market among the
210 generally recognized television markets in the United States.
Source: Nielsen Station Index DMA Market Rankings, January 2000, A.C.
Nielsen Company.
(6.) Estimated Television Households ("TVHH") in each market. Source:
Nielsen Station Index Market Rankings, January 2000.
(7.) The number of stations in a market excludes LPTVs and satellite
broadcasting facilities.
(8.) Station KXAM-TV, Channel 14 in Llano, Texas, is operated as a satellite
station of KXAN-TV to extend that stations service area.
(9.) Applications for renewal of FCC licenses must be filed with the FCC
four months before the expiration date of the license. FCC regulations
permit successive renewals of FCC licenses.
(10.) Network affiliation contracts are generally renewable by their terms
for successive periods (unless notice of termination is provided in
advance of its expiration date).
(11.) There are 100,801,720 television households in the top 210 DMA defined
television markets. Source: Nielsen Station Index Market Rankings,
January 2000 A.C. Nielsen Company.
(12.) The term of the WB Television Network affiliation agreement with WBNE
and KNVA is open-ended with a 60-day notice of termination clause to
either party. The WBNE WB affiliation is expected to expire in the
current year, at which time the station is expected to change its
affiliation to the UPN network.
(13.) WAPA-TV LMA's are currently programmed as satellite stations of WAPA-TV
unlike the Companies other LMA's. Puerto Rico TVHH estimates from
Mediafax, Inc. Television Audience Measure for the Puerto Rico
Television Market, October 1999.
(14.) "VHF" refers to a station with Very High Frequency; "UHF" refers to a
station with Ultra High Frequency.
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BUSINESS OF THE COMPANY:
COMPANY STRATEGY
The Company's business strategy is to maximize its broadcast cash flow
through both revenue growth and the implementation of effective cost controls.
Broadcast Cash Flow ("BCF") is defined as operating income plus corporate
expenses, depreciation and amortization, including both tangible and intangible
assets and program rights and other non-cash items, less payments for program
rights. To achieve this goal, the Company seeks, among other things, to:
Maximize Revenue Shares. From 1995 to 1999, the Company increased its
broadcast television advertising revenue market share from 24.9% to 27.2%, by
targeting audiences with favorable demographic profiles, creating auxiliary
revenue streams and cultivating strong network affiliations.
The Company attempts to maximize each station's revenue share through a
quarterly "entitlement review process." This process involves the benchmarking
of each station's advertising revenues against an index that weighs various
demographic attributes according to their relative advertising revenue value.
The Company's revenue shares also benefit from long-term affiliations
with its three core networks -- CBS, NBC and ABC --which provide the Company's
television stations affiliated with these networks with competitive programming,
including coverage of political events and high profile sporting events such as
the Olympic Games, Super Bowl and NCAA Men's Basketball Tournament. The Company
also has stations affiliated with Fox and Warner Brothers ("WB"), which further
enhances its ability to grow its revenue shares through access to their
competitive programming.
Emphasize Leading Local News. The LIN Core Stations are ranked number
one or two in late news in all but Puerto Rico and the Company's smallest
market. Management believes that a successful news operation is critical to the
success of a television station because news audiences generally have the best
demographic profiles from an advertising sales perspective. In addition, news
programming:
- - enables the Company to purchase less syndicated programming and thereby
maintain tight control over programming costs;
- - serves as a strong lead-in to other programming; and
- - fosters a high profile in the local community, which is critical to maximizing
local advertising sales.
The Company has increased the hours of news programming produced per week from
81 hours in 1989 to 239 in 1999 on a pro forma basis.
Execute a Multi-Channel Strategy. The Company's management was one of
the pioneers of the "multi-channel strategy," which involves the combination of
an owned and operated television station with an LMA station and/or a Local
Weather Station in the same market. Management has pursued this strategy in all
but two of the Company's markets. Execution of the multi-channel strategy has
been a factor in the Company's ability to generate incremental cash flow. The
advantages of the multi-channel strategy are:
- - the ability to capitalize on management's expertise;
- - additional advertising inventory in each market;
- - greater programming flexibility;
- - enhanced ability to leverage fixed operating costs over a larger revenue base;
- - improved negotiating positions with respect to suppliers of syndicated
programming, advertisers and the networks;
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- - increased share of actual viewers;
- - the opportunity to affiliate with the emerging networks; and
- - enhanced opportunities for cross-promotion.
Control Costs. In addition to concentrating on maximizing advertising
revenues in its local markets, management focuses on controlling costs to
maximize BCF. In many markets, the Company believes that it operates with fewer
personnel than its competitors. In addition, management typically buys
syndicated programming on a company-wide basis and performs detailed
profitability analyses for all programming purchases. As a result, management
believes that the Company's margins are among the highest in the industry for
stations in markets of comparable size.
Pursue Selective Acquisitions. The Company intends to pursue selective
acquisitions of television stations with the goal of improving their operating
performance by applying management's business strategy. Targeted stations
generally will share many of the following characteristics:
- - attractive acquisition terms;
- - opportunities to implement effective cost controls;
- - opportunities for increased audience share through improved newscasts and
programming; and
- - market locations that are projected to have attractive growth in advertising
revenues.
The Company intends to primarily target network-affiliated stations
located in the 50 largest DMAs, which stations typically have established
audiences for their news, sports and entertainment programming.
Invest in Digital Technology. Management believes that the Company,
having recently initiated digital operations in Indianapolis, New Haven and
Grand Rapids, is well positioned for the transition to digital broadcasting. The
Company is among the first television broadcasters in the United States to
transmit digital signals. The Company has already invested approximately $21.0
million to fully prepare its towers and transmitter buildings for the
transition. The Company estimates that an additional $35.0 million will be
required over the next three years for other necessary capital expenditures such
as the purchase of antennae, transmitters, studio equipment and news gathering
equipment. In accordance with FCC regulations, all commercial broadcasters will
be required to transmit a digital signal by May 1, 2002.
INDUSTRY OVERVIEW:
Broadcasting Revenues. Local television stations derive revenues from
the sale of advertising time for spot advertisements, which usually vary from 10
seconds to 60 seconds in length, and from the sale of program sponsorships to
national and local advertisers. Advertising contracts are generally short in
duration and may usually be canceled upon two weeks notice. Each of the
Company's television stations is represented by a national firm for the sale of
spot advertising to national customers, but each station has local sales
personnel covering the service area in which it is located. National
representatives are compensated by a commission based on net advertising
revenues from national customers.
The following table shows the approximate percentage of the Company's
net television broadcasting revenues by source for each of the past three years:
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1999 1998 1997
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<S> <C> <C> <C>
Local Times Sales .................... 49% 46% 47%
National Times Sales ................. 40% 39% 41%
Network Compensation ................. 5% 5% 6%
Other ................................ 6% 10% 6%
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Networks. The majority of commercial television stations in the United
States are affiliated with one of the major national networks: ABC, NBC, CBS,
and Fox. Stations that operate without network affiliations are commonly
referred to as "independent" stations. The amount of programming each network
offers varies. ABC, NBC and CBS offer approximately 12 hours of programming per
day. Fox presently provides its affiliates with approximately 47 hours of
programming per week. WB and United-Paramount Network ("UPN") have each launched
a new television network, currently offering programming on a limited basis. The
Company is unable to predict the effect, if any, that these or any other new
networks, or the expansion of programming provided by Fox, UPN, or WB networks,
will have on the future results of the Company's operations.
Network-affiliated television broadcast stations generally operate
under affiliation agreements that provide the affiliated station with the right
to broadcast all programs transmitted by the network with which the station is
affiliated. The major networks typically negotiate the right to sell a majority
of the advertising time during network broadcasts. The network then pays the
affiliated station a network compensation fee for every hour of network
programming that the station broadcasts. Generally, the fees paid by the
networks vary according to type of programming and the time of day the
programming is broadcast.
The networks, pursuant to affiliation agreements, supply a significant
portion of the Company's daily programming. During such network time periods,
the Stations are dependent on the performance of the network programs in
attracting viewers. During time periods in which programming is not supplied by
the networks, the Stations broadcast their own or syndicated non-network
programs, as well as news, sports, public affairs and other entertainment
programming.
The Company believes that its network affiliations provide the Stations
with competitive programming at a lower cost than is otherwise available. Under
the network affiliation agreements, certain advertising time during network
programs is available to the Stations for sale to national and local
advertisers. The programming strength of its network may affect a
network-affiliated Station's competitive position. Nonetheless, the Company
believes that local programming, particularly local news coverage, and community
involvement and promotion can augment network programming to improve a Station's
audience share and financial performance. A network's termination of, or refusal
to renew, one or more of the affiliation agreements could have a material
adverse effect on the Company depending on which Stations were affected and
whether and upon what terms other network affiliations may be available in the
Station's market.
Local Marketing Agreements. In four of its markets, the Company has
entered into LMAs with the owners of stand-alone UHF stations, each of which is
for a 10-year period. Stand-alone independent UHF stations often do not have the
management expertise or operating efficiencies available to multiple-station
group broadcasters such as the Company. Accordingly, these stand-alone UHF
stations often operate at minimal profit or at a loss. In addition to providing
the Company with an additional revenue stream, the Company's LMA strategy is
intended to permit stations that otherwise might "go dark" or operate marginally
to add local news and public affairs and contribute to diversity in their
respective markets.
Under its LMAs the Company provides marketing services and programming
to stations KNVA-TV, Austin, Texas; WBNE-TV, New Haven-Hartford, Connecticut:
WVBT-TV, Norfolk-Portsmouth, Virginia: and WOTV-TV, Battle Creek, Michigan. The
Company has also entered into option and put agreements that enable or require
the Company to purchase such stations under certain conditions. The Company
intends to seek additional LMA opportunities in the future.
Under its LMAs, the Company is required to pay fixed periodic fees and
incur programming and operating costs relating to its LMA stations, but retains
all advertising revenues. The Company believes that it can increase the
likelihood of financial viability of the stations served pursuant to an LMA by
using
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the Company's negotiating expertise, operating efficiencies, and an experienced
and skilled management team, which provides programming and marketing support to
the LMA stations
In accordance with Federal Communications Commission ("FCC") rules,
regulations and policies, all of the Company's LMAs allow preemptions of the
Company's programming by the owner-operator and FCC licensee of each station
with which the Company has an LMA. Accordingly, the Company cannot be assured
that it will be able to air all of the programming expected to be aired on those
stations with which it has an LMA or that the Company will receive the
anticipated advertising revenue from the sale of advertising spots in such
programming. Although the Company believes that the terms and conditions of each
of its LMAs will enable the Company to air its programming and utilize the
programming and other non-broadcast license assets acquired for use on the LMA
stations, there can be no assurance that early terminations of the LMAs or
unanticipated terminations of all or a significant portion of the programming by
the owner-operator and FCC licensee will not occur. An early termination of one
of the Company's LMAs, or repeated and material preemption of programming
thereunder, could have an adverse affect on the Company's operations.
Low-Power Television Stations. The Company owns and operates, and is
currently constructing, LPTVs in several of its markets. LPTVs broadcast at
lower transmitting power than other stations and, accordingly, their
over-the-air signals cover a much smaller geographic area than the signals of
other stations. LPTVs are secondary services which, under FCC rules, must
protect full power television stations in their markets from interference and
which may not receive rights to convert to digital broadcast in the future. By
operating a network of multiple LPTVs in one market, the Company may also be
able to achieve over-the-air signal coverage of all, or nearly all, of certain
of the television markets served by the Stations. The Company owns and operates
an LPTV network in its Austin, Texas, Norfolk-Portsmouth, Virginia, Grand
Rapids, Michigan, and Indianapolis, Indiana markets. The advent of digital
television has resulted in the "displacement" and possible loss or reduction in
service area of some of the Company's LPTV's. Recent legislation may have also
granted additional service area protection to most of the Company's LPTV's. See
"Licensing and Regulation - Advanced Television Technology."
Local Weather Station. In 1994, the Company launched the Local Weather
Station ("LWS"), a programming service, which provides Doppler radar or local
travel and aviation forecasts, weather trends and features. LWS is offered in
all of the Company's television markets, except New Haven-Hartford, Connecticut
and Buffalo, New York, over local cable systems. The Company receives monthly
payments from certain contracting cable systems based on the number of
subscribers to such cable systems, as well as a share of each cable system's
advertising revenues, if any, generated by LWS.
COMPETITION
Competition in the television industry is intense and takes place on
several levels: competition for audience, competition for programming (including
news) and competition for advertisers. Factors that are material to a television
station's competitive position include network affiliation, quality of
programming, signal coverage and assigned frequency. The broadcasting industry
is faced with technological change and innovation, the possible rise in
popularity of competing entertainment and communications media, and governmental
restrictions or actions of federal regulatory bodies, including the FCC and the
Federal Trade Commission ("FTC"), any of which could have a material adverse
effect on the Company's business and operations.
Audience. Stations compete for audience on the basis of program
popularity, which directly affects advertising rates. The development of methods
of television transmission other than over-the-air broadcasting and, in
particular, the growth of cable television and Direct Broadcast Satellite
("DBS") companies has significantly altered competition for audience in the
television broadcasting industry. As the technology of satellite program
delivery to cable systems advanced in the late 1970s, development of programming
for cable television accelerated dramatically, resulting in the emergence of
multiple,
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national-scale program alternatives and the rapid expansion of cable television
and higher subscriber growth rates. Historically, cable operators and DBS
companies have not sought to compete with broadcasting stations for a share of
the local news audience. Recently, however, certain cable operators have elected
to compete for such audiences and new technology could give DBS companies the
ability to do so.
Other sources of audience competition include home entertainment
systems (including DVD's, videocassette recorder and playback systems, and
television game devices), wireless cable, satellite master antenna television
systems, computer on-line services, the internet, telephone company video
systems, LPTVs, low-power satellite-to-home video distribution services, and
other entertainment and advertising media. The Stations also face competition
from high-powered direct broadcast satellite services that can transmit
programming directly to homes equipped with special receiving devices. Several
DBS companies provide nationwide service.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now in use with DBS and
in development for cable and "wireless cable," are expected to permit greater
numbers of channels to be carried with existing bandwidth. These compression
techniques, as well as other technological developments, are applicable to all
video delivery systems, including over-the-air broadcasting, and have the
potential to provide expanded programming to highly targeted audiences. A
reduction in the cost of creating additional channel capacity could lower entry
barriers for new channels and encourage the development of increasingly
specialized "niche" programming. This ability to reach very specific audiences
is expected to alter the competitive dynamics for advertising expenditures and
could have a material adverse effect on the Company's ability to generate
revenues.
Programming. Competition for programming involves negotiating with
national program distributors or syndicators that sell first-run and rerun
programming. The Stations compete against in-market television broadcasting
station competitors for exclusive access to off-network reruns (such as Friends)
and first-run products (such as Wheel of Fortune) in their respective markets.
There is no assurance that the Company will not be exposed to volatile or
increased programming costs that may adversely affect the Company's operating
results. Further, because syndicated programs are generally purchased well in
advance of being broadcast, the Company may not accurately predict how a program
will perform. The Company minimizes this risk by generally limiting its
commitments for unproven syndicated non-network programming to short time
periods. Syndicated programs may be purchased for cash, for cash and barter, or
for barter only. Under a barter arrangement, a national program syndicator
receives advertising time in exchange for the programming it supplies, and the
station pays a reduced cash fee or no fee for such programming. Cable systems
generally do not compete with local stations for programming, although various
national cable networks have acquired programs that would have otherwise been
offered to local television broadcasting stations. Competition also occurs for
exclusive news stories and features and local sports programming.
Advertising. Television broadcasting stations compete for advertising
revenues with other stations in their respective markets, as well as with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, internet, direct mail and local
cable systems. Competition for advertising dollars in the broadcasting industry
occurs primarily in individual markets. Generally, a television broadcasting
station in one market does not compete with stations in other markets.
The television broadcasting industry is undergoing a period of
consolidation and significant change. Many of the Company's current and
potential competitors have significantly greater financial, marketing,
programming and broadcasting resources than the Company. The Company, however,
believes that its local news programming, network affiliations and management of
its sales resources have
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to date enabled it to compete effectively in its markets. Nonetheless, there is
no assurance that the Company's strategy will continue to be effective or that
the introduction of new competitors for television audiences will not have a
material adverse effect on the Company's financial condition and results of
operations.
LICENSING AND REGULATION:
The following is a brief discussion of certain provisions of the
Communications Act of 1934, as amended (the "Communications Act"), and of FCC
regulations and policies that affect the business operations of television
broadcasting stations. Reference should be made to the Communications Act, FCC
rules and the public notices and rulings of the FCC, on which this discussion is
based, for further information concerning the nature and extent of FCC
regulation of television broadcasting stations.
FCC Regulation. The ownership, operation and sale of television
stations are subject to the jurisdiction of the FCC by authority granted it
under the Communications Act. Matters subject to FCC oversight include, but are
not limited to:
- - the assignment of frequency bands of broadcast television;
- - the approval of a television station's frequency, location and operating
power;
- - the issuance, renewal, revocation or modification of a television station's
FCC license;
- - the approval of changes in the ownership or control of a television station's
licensee;
- - the regulation of equipment used by television stations; and
- - the adoption and implementation of regulations and policies concerning the
ownership and operation of television stations.
The FCC has the power to impose penalties, including fines or license
revocations, upon a licensee of a television station for violations of the FCC's
rules and regulations.
License Renewal, Assignments and Transfers. Television broadcast
licenses are granted for a maximum term of eight years and are subject to
renewal upon application to the FCC. The FCC prohibits the assignment of a
license or the transfer of control of a broadcasting licensee without prior FCC
approval. In determining whether to grant or renew a broadcasting license, the
FCC considers a number of factors pertaining to the applicant, including
compliance with a variety of ownership limitations and compliance with character
and technical standards. During certain limited periods when a renewal
application is pending, petitions to deny a license renewal may be filed by
interested parties, including members of the public. Such petitions may raise
various issues before the FCC. The FCC is required to hold evidentiary,
trial-type hearings on renewal applications if a petition to deny renewal of
such license raises a "substantial and material question of fact" as to whether
the grant of the renewal application would be inconsistent with the public
interest, convenience and necessity. The FCC must grant the renewal application
if, after notice and opportunity for a hearing, it finds that the incumbent has
served the public interest and has not committed any serious violation of FCC
requirements. If the incumbent fails to meet that standard, and if it does not
show other mitigating factors warranting a lesser sanction, the FCC has
authority to deny the renewal application and consider a competing application.
Multiple-and Cross-Ownership Rules. On a national level, the FCC rules
generally prevent an entity or individual from having an "attributable" interest
in television stations with an aggregate audience reach in excess of 35% of all
U.S. households. For this purpose only 50% of the television households in a
market are counted towards the 35% national restriction if the station is a UHF
station. An FCC rulemaking is under way to address how to measure audience
reach, including the "UHF discount," as part of the FCC's biennial review of the
broadcast rules mandated by the Telecom Act. The television homes that the
Company's stations reach is well below the 35% national limit.
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On the local level, the FCC's "duopoly" rule prohibits or restricts
attributable interests in two or more television stations with overlapping
service areas. In November 1999, the FCC significantly relaxed the "duopoly"
rule to permit ownership of two television stations in a local market under
certain circumstances, primarily where a party is seeking to combine two
stations where at least one of the stations is not among the top four in
audience and there are a sufficient number of post-merger independently owned
television operations. Waivers of the rule are also available where one of the
stations is either "failing" or "unbuilt" and in as yet unspecified
circumstances where there are extraordinary public interest benefits from the
combination. The FCC also determined that television local marketing agreements
(LMAs) were equivalent to ownership for purposes of the local ownership rules
and thus permissible only where ownership was permissible. The FCC grandfathered
television LMAs entered into prior to November 5, 1996, until at least after the
conclusion of a rulemaking to be initiated no sooner than 2004, examining
whether it would be in the public interest to permit such combinations to
continue. The FCC permitted the free transferability of grandfathered LMAs
during the grandfather period but held that dual licenses may be transferred
only where the two-station combination continues to qualify under the revised
duopoly rule.
The new rules are still subject to potentially significant amendments
in response to numerous petitions for reconsideration from parties seeking on
the one hand to make them more restrictive and on the other to relax them
further, and are expected to be the subject of a variety of judicial challenges.
The Company sought reconsideration of the limitation on the transferability of
dual-license facilities. As the rules are currently formulated, the Company
believes that the four LMAs the Company has entered into in the Grand Rapids,
New Haven, Austin and Norfolk markets are grandfathered and that these four
combinations are likely eligible for waivers of the duopoly rule. Thus the
Company believes that it will likely be able to convert those LMAs to ownership
interests through the exercise of option rights prior to the expiration of the
grandfather period. There can be no assurances, however, that the rules will be
implemented or interpreted in such a manner. The Company is still evaluating
whether and when to exercise its options to purchase each of the LMA stations.
In November 1999, the FCC also modified its radio-television
cross-ownership rules to permit the possession of "attributable" ownership
interests in a maximum of two television stations and six radio stations in
larger markets and two television and four radio stations in smaller markets.
The FCC did not change additional cross-ownership restrictions generally
prohibiting new broadcast/daily newspaper or television/cable combinations in
the same market.
The FCC generally applies its ownership limits only to "attributable"
interests held by an individual, corporation, partnership or other association.
In the case of corporations holding broadcast licenses, the interest of
officers, directors and those who, directly or indirectly, have the right to
vote 5% or more of the corporation's voting stock (or 20% or more of such stock
in the case of insurance companies, mutual funds, bank trust departments and
certain other passive investors that are holding stock for investment purposes
only) are generally deemed to be attributable, as are positions as an officer or
director of a corporate parent of a broadcast licensee. Debt and nonvoting stock
are generally nonattributable interests. Moreover, where there is a single
majority shareholder with more than 50% of a corporation's voting stock, all
other ownership interests are generally nonattributable. However, under the
recently adopted "equity/debt plus" rule, the holder of an otherwise
nonattributable stock or debt interest in a licensee which is in excess of 33%
of the total assets of the licensee will nonetheless be attributable where the
holder is either a major program supplier to that licensee or the holder has an
attributable interest in another broadcast station, cable system or newspaper in
the same market.
Because of these multiple and cross-ownership rules, a purchaser of the
Company's common stock which acquires an attributable interest in the Company
may violate the FCC's rules if that purchaser also has an attributable interest
in other television or radio stations, or in daily newspapers or cable
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systems, depending on the number and location of those radio or television
stations or daily newspapers or cable systems. Such a purchaser also may be
restricted in the companies in which it may invest to the extent that those
investments give rise to an attributable interest. If an attributable
stockholder of the Company violates any of these ownership rules or if a
proposed acquisition by the Company would cause such a violation, the Company
may be unable to obtain from the FCC one or more authorizations needed to
conduct its television station business and may be unable to obtain FCC consents
for certain future acquisitions.
In addition to having an attributable interest in the Company, Hicks
Muse and certain Hicks, Muse principals, including Thomas O. Hicks, have
attributable interests in Sunrise Television Corp. and the Banks Broadcasting
Joint Venture, each of which owns or proposes to acquire attributable interests
in a number of television stations in several markets. Hicks, Muse and certain
of its principals, including Thomas O. Hicks, also have attributable ownership
interests in AMFM, Inc., which owns more than 400 radio stations. In September
1999, AMFM announced its intention to merge with Clear Channel Communications,
Inc., a company that owns more than 500 radio stations and 19 television
stations. The television and radio interests owned by the proposed combined
entity would also be attributable to the Hicks, Muse for purposes of the
radio-television cross-ownership rule and the television duopoly rule.
The rules permit the continued cross-ownership by the Company and AMFM
Inc., respectively, of the television and radio stations currently owned by
those companies in the Grand Rapids, Hartford-New Haven, Austin, and
Indianapolis markets. The merger of Clear Channel and AMFM, however, would
result in television/radio and television/television combinations in other
markets that may not be permissible under the revised ownership rules. Clear
Channel has announced its intention to make whatever divestitures are necessary
to bring it into compliance with the FCC's ownership rules prior to the merger.
The ownership interests of Hicks, Muse and/or Thomas O. Hicks and other
principals in Clear Channel Communications, Inc, Sunrise Television Corp. and
the Banks Broadcasting Inc, could in the future limit the ability of the Company
to acquire more television stations. On January 21, 2000, Thomas O. Hicks and
Hicks, Muse filed an application at the FCC proposing to restructure the
ownership of the Company in a manner which the Company and the applicants
believe would render the ownership interests of Hicks, Muse, Thomas O. Hicks and
other Hicks, Muse principals nonattributable for purposes of the FCC rules (See
Hicks Muse Restructuring). The Company is unable to predict when this
application will be acted upon by the FCC.
Alien Ownership. Under the Communications Act, broadcast licenses may
not be granted to or held by any corporation having more than one-fifth of its
capital stock owned of record or voted by non-U.S. citizens (including a
non-U.S. corporation), foreign governments or their representatives
(collectively, "Aliens") or having an Alien as an officer or director. The
Communications Act also prohibits a corporation, without an FCC public interest
finding, from holding a broadcast license if that corporation is controlled,
directly or indirectly, by another corporation, any officer of which is an
Alien, or more than one-fourth of the directors of which are Aliens, or more
than one-fourth of the capital stock of which is owned of record or voted by
Aliens, unless the FCC finds that such ownership would be in the public
interest. The FCC has issued interpretations of existing law under which these
restrictions in modified form apply to other forms of business organizations,
including general and limited partnerships. As a result of these provisions, the
Company, which serves as a holding company for its various television station
licensee subsidiaries, cannot have more than 25% of its capital stock owned of
record or voted by Aliens, cannot have an officer who is an Alien and cannot
have more than one-fourth of the Company Board consisting of Aliens. The
Certificate of Incorporation and By-Laws provide for certain stock transfer
legends and procedures designed to prevent a violation of these requirements.
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Programming and Operation. The Communications Act requires broadcasters
to serve the "public interest." Since the late 1970s, the FCC gradually has
relaxed or eliminated many of the more formalized procedures it had developed to
promote the broadcast of certain types of programming responsive to the needs of
a station's community of license. Broadcast station licensees continue, however,
to be required to present programming that is responsive to community problems,
needs and interests and to maintain certain records demonstrating such
responsiveness. Complaints from viewers concerning a station's programming may
be considered by the FCC when it evaluates license renewal applications,
although such complaints may be filed, and generally may be considered by the
FCC, at any time. Stations also must follow various rules promulgated under the
Communications Act that regulate, among other things, children's television
programming, political advertising, sponsorship identifications, contest and
lottery advertising, obscene and indecent broadcasts, programming rating
guidelines and technical operations. The FCC's rules implementing the Children's
Television Act of 1990 require television stations to present programming
specifically directed to the "educational and informational" needs of children.
The FCC has also adopted standards for the exposure of the public and workers to
potentially harmful radio frequency radiation emitted by broadcast station
transmitting facilities.
Restrictions on Broadcast Advertising. The advertising of cigarettes on
broadcast stations has been banned for many years. The broadcast advertising of
smokeless tobacco products has more recently been banned by Congress. Certain
Congressional committees have examined legislative proposals to eliminate or
severely restrict the advertising of beer and wine. The Company cannot predict
whether any or all of the present proposals will be enacted into law and, if so,
what the final form of such law might be. The elimination of all beer and wine
advertising could have an adverse effect on the Stations' revenues and operating
profits as well as the revenues and operating profits of other stations that
carry beer and wine advertising. In 1996, some television stations began airing
hard liquor advertising. In the past, this group of advertisers had a
self-imposed ban on TV advertising. None of the Company's Stations have aired
this type of advertising. The Company cannot predict the effect the airing of
these advertisements on competing stations will have on the Company's operating
results.
Cable "Must-Carry" or "Retransmission Consent" Rights. The 1992 Cable
Act requires television broadcasters to make an election to exercise either
certain "must-carry" or "retransmission consent" rights in connection with their
carriage by cable television systems in the station's local market. If a
broadcaster chooses to exercise its must-carry rights, it may demand carriage on
a specified channel on cable systems within its DMA. Must-carry rights are not
absolute, and their exercise is dependent on variables such as the number of
activated channels on, and the location and size of, the cable system, and the
amount of duplicative programming on a broadcast station. Under certain
circumstances, a cable system may decline to carry a given station. If a
broadcaster chooses to exercise its retransmission consent rights, it may
prohibit cable systems from carrying its signal, or permit carriage under a
negotiated compensation arrangement. The Stations have negotiated retransmission
consent agreements with cable television systems in their markets, with terms
generally ranging from three to 10 years, which in most instances provide for
carriage of the Station's signal and the Local Weather Station. The licensees of
the LMAs generally have opted for must-carry status. From time to time, various
of the Stations and/or LMAs have been unable to reach agreement with cable
operators and have been carried pursuant to short-term agreements and in a few
instances have not been carried on those cable systems for periods ranging from
a few days to two years.
Network Affiliate Issues. Several FCC rules impose restrictions on
network affiliation agreements. Among other things, those rules prohibit a
television station from entering into any affiliation agreement that:
- - Requires the station to clear time for network programming that the station
had previously scheduled for other use; or
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- - Precludes the preemption of any network programs that the station believes are
unsuitable for its audience and the substitution of network programming a
program that it believes is of greater local or national importance (the
"right to reject rule").
The FCC is currently reviewing several of these rules governing the
relationship between broadcast television networks and their affiliates.
Specifically, the FCC is reviewing the following four rules:
- - The "right to reject rule;"
- - The "time option rule," which prohibits arrangements whereby a network
reserves an option to use specified amounts of an affiliate's broadcast time;
- - The "exclusive affiliation rule," which prohibits arrangements that forbid an
affiliate from broadcasting the programming of another network; and
- - The "network territorial exclusivity rule," which prescribes arrangements
whereby a network affiliate may prevent other stations in its community from
broadcasting programming the affiliate rejects, and arrangements that inhibit
the ability of stations outside of the affiliate's community to broadcast
network programming.
- - The Company is unable to predict when and how the Commission will resolve
these proceedings.
Advanced Television Technology. At present, U.S. television stations
broadcast signals using the "NTSC" system, an analog transmission system named
for the National Television Systems Committee, an industry group established in
1940 to develop the first U.S. television technical broadcast standards. The FCC
in late 1996 approved a new digital television ("DTV") technical standard to be
used by television broadcasters, television set manufacturers, the computer
industry and the motion picture industry. This digital television standard will
allow the simultaneous transmission of multiple streams of video programming and
data on the bandwidth presently used by a single analog channel. On the multiple
channels allowed by DTV, it will be possible to broadcast one "high definition"
channel ("HDTV") with visual and sound quality superior to present-day
television or several "standard definition" channels ("SDTV") with digital sound
and pictures of a quality slightly better than present television; or to provide
interactive data services, including visual or audio transmission; or to provide
some combination of these possibilities.
The FCC has already allocated to every existing television broadcaster
one additional channel to be used for DTV during the transition between
present-day analog television and DTV and has established a timetable by which
every current station must initiate DTV operations. See "Risk Factors -
Potential Effects on Licenses and Ownership of Regulation of the Radio and
Television Broadcasting Industry." Broadcasters will not be required to pay for
this new DTV channel, but will be required to relinquish one of their two
channels when the transition to DTV is complete, unless it is using the channel
for data services.
The FCC presently plans for the DTV transition period to end by 2006.
At that time, broadcasters will be required to discontinue analog operations and
to return the channel to the FCC. Moreover, under current law the FCC is
required to auction the returned channels by 2002, four years before they must
be relinquished. The FCC has already undertaken to relocate all broadcast
stations from Channels 60-69 and is to auction off that spectrum to
non-broadcast users later this year. The FCC has also proposed to "clear" and
auction Channels 52-59.
The FCC has already begun issuing construction permits to build DTV
stations. The Company has built three such stations in Indianapolis, New Haven
and Grand Rapids. The FCC has issued regulations with respect to DTV allocations
and interference criteria which are not yet final, and other important aspects
of the DTV regulatory framework have not yet been established. The FCC recently
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rejected a petition supported by a number of other broadcast companies which
requested that the FCC adopt a different DTV transmission standard which some
companies believe would provide better coverage. However, the FCC agreed to
review and continue to analyze the adequacy of the current standard. The Company
is unable to predict the timing or outcome of this analysis.
The FCC recently initiated a rulemaking to determine what, if any,
additional public interest obligations, including programming, should be imposed
on DTV broadcasters. Pursuant to the Telecom Act, the FCC has already imposed
certain fees upon broadcasters if they choose to use the DTV channel to provide
paid subscription services to the public. The FCC has also initiated a
rulemaking proceeding to determine whether and to what extent cable systems will
be required to carry broadcast DTV signals. The Company is unable to predict the
timing or outcome of these proceedings.
In some cases, conversion to DTV operations may reduce a station's
geographical coverage area. Moreover, some of the Company's stations have
channels that are in the spectrum to be "cleared" for resale by the Commission
and there is no guarantee that the replacement channels will fully replicate
existing service. In other instances, the digital service may exceed current
service. In addition, the FCC's current implementation plan would maintain the
secondary status of low-power stations with respect to DTV operations and many
low-power stations, particularly in major markets, will be displaced. The
Company has already filed displacement applications seeking new channel
allotments for thirteen of its low-power stations, which will be at least
partially displaced by DTV channels. Some of these applications face mutually
exclusive applications from other applicants, and there is no assurance that any
of these applications will be granted by the FCC.
Congress also recently enacted legislation granting additional
interference and displacement protection to certain LPTV's that produce local
programming. A significant number of the Company's LPTV's may qualify for this
status. While the Commission has proposed that these new protections remain
subordinate to DTV operations, it is unclear whether these operations will in
fact further impede DTV implementation.
In addition, it is not yet clear:
- When and to what extent DTV or other digital technology will
become available through the various media;
- Whether and how television broadcast stations will be able
to avail themselves of or profit by the transition to DTV;
- The extent of any potential interference to and from other
digital and analog channels;
- Whether viewing audiences will make choices among services
upon the basis of such differences;
- Whether and how quickly the viewing public will embrace the
cost of new digital television sets and monitors;
- To what extent the DTV standard will be compatible with the
digital standards adopted by cable and other multi-channel
video programming services;
- Whether a satisfactory copy protection technology will be
developed for broadcasting and whether that technology will
be compatible with copy protection systems developed for
cable and other media;
- Whether cable systems will be required to carry DTV signals
or, in the absence of such mandate, broadcasters will
succeed in negotiating voluntary cable carriage
arrangements;
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- Whether significant additional expensive equipment will be
required for television stations to provide digital service,
including HDTV and supplemental or ancillary data
transmission services; or
- What additional public interest obligations digital
broadcasters will be required to fulfill.
Pursuant to the Telecom Act, the FCC must conduct a ten-year evaluation
regarding the public interest in advanced television, alternative uses for the
spectrum and reduction of the amount of spectrum each licensee utilizes. Many
segments of the industry are also intensely studying these advanced
technologies. There can be no assurances as to the answers to these questions or
the nature of future FCC regulation.
Direct Broadcast Satellite Systems. There are currently in operation
two DBS systems that serve the United States (DirecTV and Echostar), and it is
anticipated that additional systems may become operational over the next several
years. DBS systems provide programming on a subscription basis to those who have
purchased and installed a satellite signal receiving dish and associated decoder
equipment. DBS systems claim to provide visual picture quality comparable to
that found in movie theaters and aural quality comparable to digital audio
compact discs. Until recently, DBS systems did not have sufficient channel
capacity to carry local television stations and carried only a few network
affiliates which were distributed to dishes in every market and thus were
potential competitors of the local affiliates.
In 1988, Congress passed the Satellite Home Viewer Act ("SHVA"), which
granted DBS a limited "compulsory copyright license" with respect to broadcast
signals. Under this license, in exchange for a relatively modest license fee set
by the Copyright Office, satellite operators have the right to provide non-local
network television signals but only to "unserved households". To be an unserved
household with respect to a particular network, the household must not be able
to receive, using a conventional rooftop antenna, the television signal of the
network's local affiliate at a specified intensity. Several broadcast companies
and organizations have sued satellite carriers in various federal courts
charging that the carriers have routinely and flagrantly violated the unserved
household restriction. Two courts have agreed, making findings which could have
significantly reduced the number of DBS households receiving distant network
stations.
Congress also recently amended the SHVA in a number of important
respects. DBS operators now have the channel capacity to carry local signals in
the largest television markets and in the next few years will be able to utilize
additional satellite capacity and new "spot beam" technologies to extend the
transmission of local signals to most of the households in the country. To
facilitate this development, Congress extended the compulsory copyright license
to cover "local into local" transmissions, i.e., satellite transmission of local
stations to households in, and only in, the local markets of those stations.
Broadcasters were given the right to negotiate retransmission consent for these
"local" transmissions, provided that such negotiations are in "good faith" (with
the FCC to determine the precise scope of this restriction by rulemaking).
Moreover, starting in 2002, in any market where one station is carried, all have
the right to be carried. The amended law also grandfathered many of the
households currently receiving distant signals until they are able to receive
local-into-local service. The law modified the signal intensity standard to be
considered in qualifying unserved households and instructed the FCC within the
next year to reexamine and advise Congress as to what the standard should be
going forward.
DBS companies have initiated carriage of local signals in the largest
markets in the country but have not yet initiated carriage of any of the
Company's stations. The Company is unable to predict when such carriage will
begin or under what terms retransmission consent will be negotiated or, more
generally, what the results of the judicial, regulatory, and legislative acts
will be, or what effect they will have on the Company's television broadcasting
business.
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Recent Development, Proposed Legislation and Regulation. Congress and
the FCC currently have under consideration, and may in the future adopt, new
laws, regulations and policies regarding a wide variety of matters that could
affect, directly or indirectly, the operation and ownership of the Company's
broadcast properties. In addition to the changes and proposed changes noted
above, these matters include, for example, spectrum use fees, political
advertising rates, potential restrictions on the advertising of certain products
like hard liquor, beer and wine, and revised rules and policies governing equal
employment opportunity. Other matters that could affect the stations include
technological innovations and development generally affecting competition in the
mass communications industry.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act, the Telecom Act, or of the regulations and
policies of the FCC under either act. Proposals for additional or revised
regulations and requirements are pending before and are being considered by
Congress and federal regulatory agencies from time to time. The Company is
unable at this time to predict the outcome of any of the pending FCC rulemaking
proceedings referenced above, the outcome of any reconsideration or appellate
proceedings concerning any changes in FCC rules or policies noted above, the
possible outcome of any proposed or pending Congressional legislation, or the
impact of any of those changes on the Company's stations.
EMPLOYEES:
As of December 31, 1999, the Company employed 1,369 full-time and 85
part-time employees. Of these employees, unions represented 318. The Company
believes that its employee relations are generally good.
RISKS ASSOCIATED WITH BUSINESS ACTIVITIES:
Potential Negative Consequences of Substantial Indebtedness. As of
December 31, 1999, LIN Holdings had approximately $858 million of consolidated
indebtedness and approximately $500 million of consolidated common stockholders'
equity, and LIN Television had approximately $619 million of consolidated
indebtedness and approximately $714 million of consolidated common stockholder's
equity. Both LIN Holdings and LIN Television are substantially leveraged under
the following arrangements:
- - On March 3, 1998, the Company entered into a credit agreement (the "Senior
Credit Facilities") 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 (collectively, the "Senior
Credit Facilities").
- - On March 3, 1998, the Company issued $300 million aggregate principal amount
of 8 3/8% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes")
for net proceeds of $290.3 million. The net proceeds were used to finance a
portion of the Acquisition.
- - On March 3, 1998, LIN Holdings issued $325 million aggregate principal amount
of 10% Senior Discount Notes due 2008 (the "Senior Discount Notes") for net
proceeds of $192.6 million. The net proceeds were used to finance a portion of
the Acquisition.
- - On March 3, 1998, General Electric Capital Corporation ("GECC") provided debt
financing for the NBC 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 NBC Joint
Venture.
The level of indebtedness of LIN Holdings and LIN Television could have
several negative consequences to holders of the Senior Subordinated Notes and
the Senior Discount Notes (collectively the "Notes"), including, but not limited
to, the following:
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- - a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal, premium (if any) and interest on their
respective indebtedness, thereby reducing the funds available for operations,
distributions to LIN Holdings for payments with respect to the Senior Discount
Notes, future business opportunities and other purposes and increasing the
vulnerability of LIN Holdings and LIN Television to adverse general economic
and industry conditions;
- - the ability of the Company to obtain additional financing in the future may be
limited;
- - certain of the Company's borrowings (including, without limitation, amounts
borrowed under the Senior Credit Facilities) will be at variable rates of
interest, which will expose the Company to increases in interest rates;
- - all of the indebtedness incurred in connection with the Senior Credit
Facilities will be secured and is scheduled to become due prior to the time
the principal payments on the Notes are scheduled to become due; and
- - the mandatory principal redemption amount (expected to be $125 million as
defined in the indenture governing the Senior Discount Notes) of the Senior
Discount Notes will become due and payable in a lump sum on March 1, 2003.
LIN Holdings' and LIN Television's respective abilities to make
scheduled payments of the principal of, or to pay interest on, or to refinance
their respective indebtedness will depend on the future performance of the
Company and its subsidiaries, which to a certain extent will be subject to
economic, financial, regulatory, competitive and other factors beyond the
Company's control. Based upon the Company's current operations and anticipated
growth, management believes that future cash flow from operations, together with
the Company's available borrowings under the Senior Credit Facilities, will be
adequate to meet LIN Holdings' and LIN Television's respective anticipated
requirements for capital expenditures, interest payments and scheduled principal
payments. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources." There
can be no assurance that the Company's business will continue to generate
sufficient cash flow from operations in the future to service the Company's
respective indebtedness and make necessary capital expenditures. If unable to do
so, the Company may be required to refinance all or a portion of its respective
indebtedness, including the Notes, or sell assets or to obtain additional
financing. There can be no assurance that any such refinancing would be
possible, that any assets could be sold (or, if sold, of the timing of such
sales and the amount of proceeds realized therefrom) or that additional
financing could be obtained.
Restrictions Imposed on the Company by Terms of Indebtedness. The
credit agreement governing the Senior Credit Facilities and the indentures
governing the Notes contain covenants that restrict LIN Holdings' and LIN
Television's respective abilities to:
- - incur indebtedness;
- - pay dividends;
- - create liens;
- - sell assets;
- - engage in certain mergers and acquisitions; and
- - refinance indebtedness.
The credit agreement governing the Senior Credit Facilities requires
LIN Television to maintain certain financial ratios. If LIN Holdings or LIN
Television fails to comply with the various covenants contained in the credit
agreement governing the Senior Credit Facilities or the indentures governing the
Notes, as applicable, it would be in default. In any such case, the maturity of
substantially all of its long-
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term indebtedness could be accelerated. A default under either of the indentures
would also constitute an event of default under the Senior Credit Facilities. If
LIN Television were unable to repay amounts outstanding under the credit
agreement, the lenders thereunder could proceed against the collateral granted
to them to secure the indebtedness. If the amounts outstanding under the credit
agreement were accelerated, there can be no assurance that the assets of LIN
Television and its subsidiaries would be sufficient to repay the amount in full.
Structural Subordination of LIN Holdings. LIN Holdings is a holding
company, which conducts all of its operations through its subsidiaries and whose
only material asset is the capital stock of LIN Television. Consequently, LIN
Holdings depends on distributions from LIN Television to meet its debt service
obligations. Because of the substantial leverage of LIN Television, and the
dependence of LIN Holdings upon the operating performance of LIN Television to
generate distributions to LIN Holdings, there can be no assurance that LIN
Holdings will have adequate funds to fulfill its obligations in respect of the
Senior Discount Notes when due. In addition, the credit agreement governing the
Senior Credit Facilities, the indenture governing the Senior Subordinated Notes
and applicable federal and state law impose restrictions on the payment of
dividends and the making of loans by LIN Television to LIN Holdings. As a result
of the foregoing restrictions, LIN Holdings may be unable to gain access to the
cash flow or assets of LIN Television in amounts sufficient to pay the mandatory
principal redemption amount when due on March 1, 2003, and cash interest on the
Senior Discount Notes on and after March 1, 2003, the date on which cash
interest thereon first becomes payable, and principal of the Senior Discount
Notes when due. In such event, LIN Holdings may be required to:
- - refinance the Senior Discount Notes;
- - seek additional debt or equity financing;
- - cause LIN Television to refinance all or a portion of LIN Television's
indebtedness with indebtedness containing covenants allowing LIN Holdings to
gain access to LIN Television's cash flow or assets;
- - cause LIN Television to obtain modifications of the covenants restricting LIN
Holdings' access to cash flow or assets of LIN Television contained in LIN
Television's financing documents (including, without limitation, the credit
agreement and the indenture governing the Senior Subordinated Notes); or
- - pursue a combination of the foregoing actions.
No assurance can be given that any of the foregoing measures could be
accomplished.
Control of the Company. Thomas O. Hicks and affiliates of Hicks Muse
indirectly control a majority of the common stock of LIN Holdings. Thomas O.
Hicks is the controlling stockholder of Hicks Muse and serves as its Chairman of
the Board. Accordingly, Thomas O. Hicks has a great deal of influence over the
management and policies of the Company and all matters submitted to a vote of
the holders of common stock of the Company, including the election of all
members of the Board of Directors of the Company. The interests of Hicks Muse
and its affiliates may differ from the interests of holders of the Notes.
If an event of default occurs under the GECC Note, and GECC is unable
to collect all obligations owed to it after exhausting all commercially
reasonable remedies against the NBC Joint Venture (including during the pendency
of any bankruptcy involving the NBC Joint Venture), GECC may proceed against
Ranger Equity Holdings B Corp., one of LIN Holdings' two corporate parents and
the guarantor of the GECC Note ("Ranger B"), to collect any deficiency. If
Ranger B does not otherwise satisfy its obligations under the guaranty, GECC
could attempt to claim all or a portion of the common stock of LIN Holdings
owned by Ranger B (approximately 63% of the outstanding common stock of LIN
Holdings) through an insolvency proceeding or otherwise. If such an event were
to occur, GECC could obtain control of LIN Holdings and, as a result, LIN
Television.
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Potential Conflicts of Interest as a Result of Cross-Ownership. Each of
Thomas O Hicks, John R. Muse, and Eric C. Neuman, all members of the Board of
Directors of LIN Holdings and LIN Television, is a shareholder, director,
principal, managing director or executive officer of some or all of the Hicks
Muse Companies. Each of these companies is in the business of making significant
investments in the broadcasting business and may compete with the Company for
advertising revenues and broadcast related businesses that would be
complementary to the business of the Company. As a result of this
cross-ownership of various broadcasting businesses and future ownership of
television and radio broadcast stations by affiliates of Hicks Muse, regulatory
and other restrictions may prevent the Company from acquiring television
stations in markets where the Hicks Muse Companies or other affiliates of Hicks
Muse own or operate broadcasting businesses (see "--Licensing and
Regulation--Competitor-Multiple-and Cross-Ownership Rules"). In addition, Hicks
Muse and its affiliates may from time to time identify, pursue and consummate
acquisitions of television stations or other broadcast related businesses that
may be complementary to the business of the Company and, therefore, such
acquisition opportunities may not be available to the Company.
Growth Through Acquisitions; Future Capital Requirements. The Company
intends to pursue selective acquisitions of television stations with the goal of
improving their operating performance by applying management's business
strategy. Inherent in any future acquisitions are certain risks such as
increasing leverage and debt service requirements and combining company cultures
and facilities which could have a material adverse effect on the Company's
operating results, particularly during the period immediately following such
acquisitions. Additional debt or equity capital may be required to complete
future acquisitions, and there can be no assurance the Company will be able to
raise the required capital. Moreover, there can be no assurances that with
respect to any acquired station, the Company will be able to successfully
implement effective cost controls, increase advertising revenues or increase its
audience share.
Dependence on Certain External Factors. The Company's operating results
are primarily dependent on advertising revenues which, in turn, depend on
national and local economic conditions, coverage of political events and high
profile sporting events (e.g., the Olympics, Super Bowl and NCAA Men's
Basketball Tournament), the relative popularity of the Company's programming
(which in many cases, is dependent on the relative popularity of the relevant
network's programming), the demographic characteristics of the Company's
markets, the activities of competitors and other factors which are outside the
Company's control. The television industry is cyclical in nature, and the
Company's revenues could be adversely affected by a future local, regional or
national recession.
Reliance on Syndicated Programming. The Company's most significant
operating cost is syndicated programming. There can be no assurance that the
Company will not be exposed in the future to increased syndicated programming
costs which may adversely affect the Company's operating results. Acquisitions
of program rights are often made two or three years in advance, making it
difficult to accurately predict how a program will perform. In some instances,
programs must be replaced before their costs have been fully amortized,
resulting in write-offs that increase station operating costs.
Non-Renewal or Termination of Affiliation Agreements. The non-renewal
or termination of a network affiliation agreement could have a material adverse
effect on the Company's operations. Three of the Company's owned and operated
stations are affiliated with CBS, three with NBC, and two with ABC. Each of
these networks generally provides these stations with up to 22 hours of prime
time programming per week. In return, the stations broadcast network-inserted
commercials during such programming and receive cash network compensation.
Although network affiliates generally have achieved higher ratings than
unaffiliated independent stations in the same market, there can be no assurance
as to the future success of each network's programming or the continuation of
such programming. The Company's network affiliation agreements are subject to
termination by such networks under certain circumstances.
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The Company believes that it enjoys a good relationship with each of
CBS, NBC and ABC, as well as the other networks with which it has affiliation
agreements.
Certain of the networks with which the Company's stations are
affiliated have required other broadcast groups, upon renewal of affiliation
agreements to reduce or eliminate network affiliation compensation and to accept
other material modifications of existing affiliation agreements. However, there
can be no assurance that such affiliation agreements will remain in place or
that each network will continue to provide programming or compensation to
affiliates on the same basis as it currently provides programming or
compensation.
Two of the Companies LMAs are affiliated with the WB Network and its
LPTV network in Grand Rapids is affiliated with the UPN Network. The WB
affiliation in New Haven-Hartford is expected to expire at the end of this year
with the station becoming a UPN affiliate at that time. This change is not
expected to have a material adverse effect on the Company's revenues.
Competition for Advertising Revenues and Audience Ratings. The
television broadcasting industry is a highly competitive business and is
undergoing a period of consolidation and significant change. Many of the
Company's current and potential competitors have greater financial, marketing,
programming and broadcasting resources than the Company. Technological
innovation and the resulting proliferation of programming alternatives, such as
cable television, wireless cable, satellite-to-home distribution services,
internet, pay-per-view and home video and entertainment systems, have
fractionalized television viewing audiences and have subjected free over-the-air
television broadcast stations to new types of competition. In addition, as a
result of the Telecom Act, the legislative ban on telephone cable ownership has
been repealed and telephone companies are now permitted to seek FCC approval to
provide video services to homes under specified circumstances. Consequently, the
Company may not be able to maintain or increase its current audience ratings or
advertising revenues.
Potential Effects of Television Broadcasting Regulation on License
Renewals and Ownership. The broadcasting industry is subject to regulation by
various governmental agencies. In particular, under the Communications Act, the
FCC licenses television stations and extensively regulates their ownership and
operation. The Company depends on its ability to hold television broadcast
licenses from the FCC, which are ordinarily issued for maximum terms of eight
years and are renewable. Although it is rare for the FCC to deny a license
renewal application, there can be no assurance that the Company's television
broadcasting licenses or the licenses owned by the owner-operators of the
stations currently programmed by the Company under LMAs will be renewed or that
if renewed the renewals will not include restrictive conditions or
qualifications. In addition, limitations on the ownership of radio stations
under the FCC's current rules, or under revised rules being considered by the
FCC, could restrict the ability of the Company to consummate future transactions
in certain circumstances and could require that some television stations be
sold. See "--Licensing and Regulation."
Dependence on Key Personnel. The Company believes that its success is
dependent upon its ability to attract and retain skilled managers and other
personnel, including its present officers and general managers. The loss of the
services of Gary R. Chapman, the President and Chief Executive Officer of LIN
Holdings and LIN Television, could have a material adverse effect on the
operations of the Company. Mr. Chapman's current employment agreement with LIN
Television will automatically renew for an additional year on December 31, 2000
unless otherwise terminated by either party by notice 90 days prior to this
date.
Do Not Place Undue Reliance on Forward-Looking Statements. This Annual
Report on Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words "anticipate," "believe," "expect," "plan,"
"intend," "estimate," "project," "foresee," "will," "could," "may" and similar
expressions are intended to identify forward-looking statements. All statements
other than statements of historical facts
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<PAGE> 22
included in this Annual Report on Form 10-K, including those regarding the
Company's financial position, business strategy, projected costs and objectives
of management for future operations are forward-looking statements. The matters
discussed in this Risks Associated with Business Activities section and other
factors noted throughout this Annual Report on Form 10-K are cautionary
statements identifying factors with respect to any such forward-looking
statements that could cause actual results to differ materially from those in
such forward-looking statements. All forward-looking statements contained herein
are expressly qualified in their entirety by such cautionary statements. The
reader is cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which this Annual Report on Form
10-K is filed.
ITEM 2. PROPERTIES:
The Company maintains its corporate headquarters in Providence, Rhode
Island. Each of the Company's stations has facilities consisting of offices,
studios, sales offices and transmitter and tower sites. Transmitter and tower
sites are located to provide coverage to each of the Company's markets.
The Company owns the offices where its stations are located and
generally owns the property where its towers and primary transmitters are
located. The Company leases the remaining properties, consisting primarily of
sales office locations and microwave transmitter sites. While none of the
properties owned or leased by the Company is individually material to the
Company's operations, if the Company were required to relocate any of its
towers, the cost could be significant because the number of sites in any
geographic area that permit a tower of reasonable height to provide good
coverage of the market is limited, and zoning and other land use restrictions,
as well as Federal Aviation Administration regulations, limit the number of
alternative sites or increase the cost of acquiring them for tower siting.
See Note 13 - "Commitments and Contingencies" in Notes to Consolidated
Financial Statements for information concerning the Company's obligations under
all operating leases as of December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS:
LIN Television was named as a defendant in four lawsuits regarding the
then proposed merger of LIN Television with LIN Holdings Corp. The plaintiffs in
each of these 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.
In addition, the Company is involved in various claims and lawsuits
that are generally incidental to its business. The Company is vigorously
contesting all of these matters and believes that their ultimate resolution will
not have a material adverse effect in its consolidated financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of security holders for the quarter
ended December 31, 1999.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
The common stocks of LIN Holdings and LIN Television have not been
registered under the Securities Act of 1933 or the Securities Exchange Act of
1934 and are not listed on any national securities exchange. As of December 31,
1999, there was no established public trading market for the common stock of LIN
Holdings or LIN Television. All of the outstanding common stock of LIN Holdings
is held by Ranger Equity Holdings A Corp. ("Ranger A") and Ranger B, which are
wholly-owned subsidiaries of Ranger. All of the outstanding common stock of LIN
Television is held by LIN Holdings.
Neither LIN Holdings nor LIN Television have declared or paid dividends
on their common stock for 1999, 1998 or 1997.
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LIN Holdings is a holding company with no significant assets other than
the capital stock of its direct and indirect subsidiaries. Consequently, the
sole source of cash for LIN Holdings from which to make dividend payments will
be dividends distributed or other payments made to it by its operating
subsidiaries. The right of LIN Holdings to participate in any distribution of
earnings or assets of its subsidiaries is subject to the prior claims of
creditors of its subsidiaries. The Senior Credit Facilities, the Senior
Subordinated Notes and the Senior Discount Notes contain certain covenants that
restrict or prohibit the Company's ability to pay dividends and make other
distributions.
ITEM 6. SELECTED FINANCIAL DATA:
On March 3, 1998, LIN Holdings acquired LIN Television by merging LIN
Acquisition, its wholly-owned subsidiary, with and into LIN Television, with LIN
Television surviving the merger and becoming a direct, wholly-owned subsidiary
of LIN Holdings.
Set forth below is selected consolidated financial and operating data
of the Company and its predecessor, LIN Television (the "Predecessor") as of and
for the five-year period ended December 31, 1999. The selected financial data as
of December 31, 1999 and 1998, and for the period from March 3, 1998 to December
31, 1998 and the year ended December 31, 1999, is derived from the consolidated
financial statements of the Company that appear elsewhere in this filing. The
selected financial data for the period from January 1, 1998 to March 2, 1998, is
derived from the consolidated financial statements of LIN Television that appear
elsewhere in this filing. The selected financial data for the years ended
December 31, 1997, 1996 and 1995, was derived from the consolidated financial
statements of LIN Television which, for the year ended December 31, 1997, appear
elsewhere in this filing. The selected financial data should be read in
conjunction with Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical consolidated financial
statements of the Company and LIN Television, and the notes thereto. Because of
the revaluation of assets and liabilities, and the related impact to the balance
sheet and statement of operations, as a result of the acquisition of the Company
by Hicks Muse on March 3, 1998, the financial statements of the Predecessor for
the periods prior to March 3, 1998 are not directly comparable to those of the
Company subsequent to that date. The historical results presented are not
necessarily indicative of future results.
Broadcast Cash Flow ("BCF"), which is commonly used as a measure of
performance of broadcast companies, is defined as operating income plus
corporate expenses, depreciation and amortization, including both tangible and
intangible assets and program rights, and certain other non-cash items, less
cash payments for program rights. Cash program payments represent cash payments
for current program payables, and do not necessarily correspond to program
usage. Broadcast cash flow does not purport to represent cash provided by
operating activities, as reflected in the Company's consolidated statements of
cash flows, is not a measure of financial performance under generally accepted
accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.
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<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------------------------------------------------
Predecessor
Period from Period from
Year Ended March 3 - January 1 - Predecessor
December 31, December 31, March 2, Year ended December 31,
------------ ------------ ------------ ---------------------------------------
1999 1998 1998 1997 1996 1995
----------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenues .......................... $ 224,446 $ 189,536 $ 43,804 $ 291,519 $ 273,367 $ 217,247
Operating costs and expenses:
Direct operating .................... 57,292 48,812 11,117 70,746 68,954 49,342
Selling, general and
administrative .................... 49,123 42,168 11,701 63,473 59,974 47,646
Corporate ........................... 7,900 7,130 1,170 6,763 6,998 5,747
KXTX management fee ................. 1,178 8,033 -- -- -- --
Amortization of program rights ...... 15,029 10,712 2,743 15,596 14,464 12,357
Depreciation and amortization ....... 57,934 45,199 4,581 24,789 23,817 17,127
Tower write-offs .................... -- -- -- 2,697 -- --
-------------------------------------------------------------------------------------
Total operating costs and expenses .... 188,456 162,054 31,312 184,064 174,207 132,219
-------------------------------------------------------------------------------------
Operating income ...................... 35,990 27,482 12,492 107,455 99,160 85,028
Total other expense, net .............. (73,055) (58,393) (11,526) (28,746) (26,223) (25,324)
Provision for (benefit from) income
taxes ............................... (3,039) (3,652) 3,710 30,602 26,476 21,674
-------------------------------------------------------------------------------------
Net income (loss) ..................... $ (34,026) $ (27,259) $ (2,744) $ 48,107 $ 46,461 $ 38,030
=====================================================================================
Consolidated Balance Sheet Data:
Cash and cash equivalents ............. $ 17,699 $ 41,349 $ 8,046 $ 27,952 $ 18,025
Total assets .......................... 1,952,685 1,800,890 569,326 595,944 587,256
Long-term debt ........................ 841,821 668,517 260,000 350,000 387,000
Total stockholders' equity ............ 499,915 532,409 192,565 138,448 86,434
Other Data:
Broadcast cash flow ................... $ 103,379 $ 88,553 $ 17,104 $ 145,471 $ 130,399 $ 106,749
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is a television station group operator in the United States
and Puerto Rico that owns nine television stations, eight of which are
network-affiliated television stations. Additionally, the Company has LMAs under
which it programs four other stations in the markets in which it operates.
The Company owns and operates three CBS affiliates, three NBC
affiliates, two ABC affiliates and one independent station in San Juan, Puerto
Rico. Additionally, a subsidiary of the Company holds an approximate 20% equity
interest in a joint venture with NBC. The NBC Joint Venture consists of KXAS-TV,
an NBC affiliate station in Dallas-Fort Worth, and KNSD-TV, an NBC affiliate in
San Diego, California. NBC operates the stations owned by the NBC joint venture
pursuant to a management agreement.
BUSINESS COMBINATIONS AND DISPOSITIONS
LIN Holdings and LIN Acquisition, both affiliates of 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 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.
In connection with the Acquisition, LIN Television and NBC formed a
television station joint venture. The NBC 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 NBC Joint Venture (the "NBC General Partner") and NBC operates the
stations owned by the NBC Joint Venture. The NBC General Partner holds an
approximate 80% equity interest and LIN Television holds an approximate 20%
equity interest in the NBC Joint Venture.
On June 3, 1999, LIN Television of Texas, a subsidiary of LIN
Television ("LIN Texas") contributed all of the assets of KXTX-TV to Southwest
Sports Group Holdings LLC, Inc. ("SSG Holdings" or "SSG"), a Texas limited
liability company and an entity in which a partner of Hicks Muse has a
substantial economic interest. In exchange, LIN Texas received 500,000 units of
SSG's Series A Preferred Units, par value $100.00 per unit ("SSG Preferred
Units"). The Company has assigned a value of $47.0 million to the SSG Preferred
Units. The SSG Preferred Units are entitled to receive non-liquidating
distributions prior to any junior ranked units of SSG Holdings in an amount
equal to $100 per
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Preferred Unit, minus the amount of previously made distributions, plus an
amount of interest thereon at a rate of 6% per annum compounded annually
beginning January 1, 1999. From June 3, 1999 to December 31, 1999, the Company
recorded $3.0 million of interest on the Series A Preferred Units. As of
December 31, 1999, no distributions have been made with respect to the preferred
units.
On June 30, 1999, the Company acquired 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 had previously provided management services to the Grand Rapids Stations
pursuant to a consulting agreement with AT&T. The total purchase price for the
Grand Rapids Acquisition was approximately $142.4 million, including direct
costs of the acquisition. The Grand Rapids Acquisition was funded by the
combination of operating funds and $93.0 million of borrowing under the
Company's term loan facility.
In August 1999, the Company and 21st Century Group LLC ("21st Century"), an
entity in which Hicks Muse has a substantial economic interest, announced the
formation of a television station joint venture, Banks Broadcasting, LLC. The
Company and 21st Century also announced the first transaction of the Banks
Broadcasting Joint Venture, the entry into a local marketing agreement to build
and develop a new WB affiliate serving the Wichita, Kansas DMA. As of December
31, 1999, the Company has provided funding of $4.5 million in the form of an
investment of $2.2 million and an advance of $2.3 million, to the Banks
Broadcasting Joint Venture.
On October 19, 1999 the Company acquired from NBC and GECC, 100% of NBC's
and GECC's interest in Pegasus Broadcasting of San Juan, L.L.C. ("Pegasus
Broadcasting"), the owner and operator of WAPA-TV, an independent station
located in San Juan, Puerto Rico (the "Pegasus Acquisition"). The total purchase
price for the Pegasus Acquisition was approximately $71.8 million in cash,
including direct costs of the acquisition. The Pegasus Acquisition was funded by
a combination of operating funds and $60.0 million of borrowing under the
Company's term loan facility.
PENDING TRANSACTIONS
WAND-TV Exchange. On December 13, 1999, the Company entered into an
agreement whereby the Company will exchange with Blade Communications Inc. a 67%
interest in the assets of its television station WAND-TV, Decatur, Illinois for
substantially all of the assets of WLFI-TV Inc. (the "WAND-TV Exchange"). Blade
Communications Inc. owns and operates, and is the licensee of television station
WLFI-TV, Lafayette, Indiana. This transaction is intended to qualify as a
"like-kind exchange" for non-recognition of taxable income under Section 1031 of
the Internal Revenue Code of 1986. This transaction is expected to close
effective April 1, 2000.
WGRC, Inc. Guarantee. On December 20, 1999 the Company entered into an
Amended and Restated Guarantee and Collateral Agreement (the "Guarantee
Agreement") with Chase Manhattan Bank, as administrative agent, and the lenders
named therein. Pursuant to the Guarantee Agreement, the Company will initially
guaranteed a $50 million credit facility of WWLP, Inc. ("WWLP, Inc"). At
December 31, 1999, no amount was outstanding under this credit facility. WWLP,
Inc is one of several companies recently formed by Gary R. Chapman, President
and CEO of LIN Television, the purpose of which are to acquire the broadcast
license and operating assets of WWLP-TV from Benedek Broadcasting Corporation.
The Company currently intends to enter into a management agreement with WGRC,
Inc. to manage the station.
Hicks Muse Restructuring. On January 21, 2000, Thomas O. Hicks and Hicks,
Muse filed an application with the FCC proposing to restructure the ownership of
the Company in a manner in which the Company and the applicants believe would
render the ownership interests of Thomas O. Hicks and
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<PAGE> 26
other Hicks Muse principals nonattributable for the purposes of FCC ownership
rules. See "Licensing and Regulation."
In accordance with the application, Ranger intends to complete a
recapitalization of its outstanding capital stock pursuant to which each issued
and outstanding share of common stock of Ranger will be converted into a share
of nonvoting common stock, except that 500,000 shares of common stock held by
each of Carson/LIN SBS, L.P. and Fojtasek Capital Ltd., current stockholders of
Ranger (collectively, the "Holders"), will be converted into a like number of
shares of voting common stock of Ranger, such that upon completion of the
recapitalization each of the Holders will own fifty percent (50%) of the
outstanding voting common stock of Ranger. In addition, all Hicks Muse partners
will resign as Officers and Directors of the Company. The Company expects that
the current attribution issues associated with the Hicks Muse ownership
interests will be resolved upon the completion of the recapitalization.
GENERAL FACTORS AFFECTING THE COMPANY'S BUSINESS
The operating results of the Company depend primarily on advertising
revenues, which in turn depend on the economic conditions of the markets in
which the Company operates, the demographic makeup of those markets and the
marketing strategy and efforts of the Company's stations in those markets. The
Company experiences quarterly fluctuations in operating results, generally
reporting its highest revenues during the fourth quarter each year due to
advertisers' anticipation of higher consumer spending during the holiday season.
The Company also experiences annual fluctuations in operating results due
substantially to political spending in major election years, such as 1998. The
Olympic Games also cause cyclical fluctuations in the Company's operating
results, the size of such fluctuations depending on which network is televising
the Olympic Games and which of the Company's stations are affiliated with that
network. The Company also depends on automotive-related advertising.
Approximately 26% of the Company's gross advertising revenues for the year ended
December 31, 1999 consisted of automotive advertising compared to 24% for the
years ended December 31, 1998 and 1997. A significant decrease in such
advertising could have a material adverse affect on the Company's operating
results. For other factors that may affect the Company's business, see "Forward
Looking Statements" and "Risk Factors."
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1999 COMPARED TO COMBINED YEAR
ENDED DECEMBER 31, 1998.
Set forth below are the significant factors that contributed to the
operating results of the Company and its Predecessor for the years ended
December 31, 1999 and 1998. The Company's results of operations from year to
year are not historically comparable because of the impact of various
acquisitions and dispositions that the Company has completed. The results of
operations of LIN Holdings on a stand-alone basis prior to March 3, 1998 are
immaterial in comparison to the Predecessor or the results of operations of the
Company after March 3, 1998, and are not separately described.
Net Revenues
Net revenues consist primarily of national and local air 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 revenue. Total net revenues for the year ended December 31, 1999
decreased approximately 3.8% to $224.4 million from $233.3 million for the same
period last year. The decrease is primarily due to the disposition of KXTX-TV.
Approximately 89% of the Company's total net revenues for the year
ended December 31, 1999, was derived from net advertising time sales compared to
85% in 1998. Net advertising revenues for the
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<PAGE> 27
year ended December 31, 1999 increased by approximately 1% compared to 1998. The
increase is primarily due to net advertising growth at the LMA stations offset
by a decrease in political advertising.
Network revenue represents amounts paid to the Company for broadcasting
network programming provided by CBS, NBC and ABC. Network revenue for year ended
December 31, 1999 decreased 15.3% to $10.0 million compared to $11.8 million in
1998. The decrease is primarily the result of the loss of compensation resulting
from the contribution of KXAS to the NBC Joint Venture in connection with the
Acquisition on March 3, 1998.
Operating Costs and Expenses
Direct operating expenses, consisting primarily of news, engineering,
programming and music licensing costs, decreased 4.4% to $ 57.3 million for the
year ended December 31, 1999, from $59.9 million in 1998. The decrease is
primarily driven by the disposition of KXTX-TV and partially offset by the
subsequent acquisition of WOOD-TV, WAPA-TV and the LMA rights to WOTV-TV in
1999.
Selling, general and administrative expenses consist primarily of
employee salaries, sales commissions and other employee benefit costs,
advertising and promotional expenses, and other expenses such as rent, utilities
and insurance. Selling, general and administrative expenses decreased 8.8% to
$49.1 million for the year ended December 31, 1999, compared to $53.9 million
for the same period last year. The decrease is primarily driven by the
disposition of KXTX-TV and partially offset by the subsequent acquisition of
WOOD-TV, WAPA-TV and the LMA rights to WOTV-TV in 1999, as well as selling
expense savings associated with certain renegotiated contracts.
Corporate expenses, representing costs associated with the centralized
management of the Company's stations, decreased 4.8% to $7.9 million for the
year ended December 31, 1999, from $8.3 million in 1998. The decrease was
primarily due to decreases in expenses for systems related issues, including the
year 2000 issue, for which a majority of the expenses were incurred in 1998.
The KXTX management fee, representing fees paid to SSG for the
management and sub-programming of KXTX-TV, decreased to $1.2 million for the
year ended December 31, 1999 from $8.0 million in 1998, as a result of the
disposition of KXTX on June 3, 1999.
Amortization of program rights represents costs associated with the
acquisition of syndicated programming, features and specials. Amortization of
program rights increased 11.7% to $15.0 million for the year ended December 31,
1999, compared to $13.5 million for the same period last year. The increase was
primarily due to the impact of the acquisitions of WOOD-TV, WAPA-TV and the LMA
rights to WOTV-TV in 1999.
Depreciation and amortization of intangible assets increased 16.4% to
$57.9 million for the year ended December 31, 1999 from $49.8 million for the
same period last year. The increase was principally driven by the amortization
of goodwill and other intangible assets associated with the acquisitions of
WOOD-TV, WAPA-TV and the LMA rights to WOTV-TV in 1999, and increased
depreciation associated with equipment acquired in connection with the upcoming
transition to digital broadcasting.
Other Expenses
Interest expense increased $12.4 million to $68.7 million for the year
ended December 31, 1999, compared to $56.3 million for the same period last
year. The increase for the year ended December 31, 1999 was the result of
increased borrowings associated with the acquisitions of WOOD-TV, WOTV-TV, and
WAPA-TV in 1999. The increase was also the result of new borrowings under the
Senior Credit Facilities and the issuance of the Senior Subordinated Notes in
connection with the Merger, which did not have a full year's impact in 1998.
25
<PAGE> 28
The Company's share of losses in joint ventures decreased to $5.5
million for the year ended December 31, 1999, compared to $6.3 million for the
same period last year. The decrease is primarily the result of the improved
operating performance of the stations included in the NBC Joint Venture.
During the first half of 1998, LIN Television incurred financial and
legal advisory fees and regulatory filing fees of $8.6 million in connection
with the merger with the Company. These costs are reflected on the Predecessor's
Consolidated Statement of operations as merger expense.
The Company's benefit from income taxes increased approximately $3.1
million to $3.0 million for the year ended December 31, 1999, compared to a
provision of $58,000 for the same period last year. The increase was primarily
due to an increase in the amount of deductible interest expense.
RESULTS OF OPERATIONS - COMBINED YEAR ENDED DECEMBER 31, 1998 COMPARED TO
PREDECESSOR YEAR ENDED DECEMBER 31, 1997.
Set forth below are the significant factors that contributed to the
operating results of the Company and its Predecessor for the years ended
December 31, 1998 and 1997. The Company's and its Predecessor's results of
operations from year to year are not historically comparable because of the
impact of various acquisitions and dispositions that the Company has completed.
The results of operations of LIN Holdings on a stand-alone basis prior to March
3, 1998 are immaterial in comparison to the Predecessor or the results of
operations of the Company after March 3, 1998, and are not separately described.
Net Revenues
Total net revenues for the year ended December 31, 1998, decreased
approximately 20.0% to $233.3 million, compared to $291.5 million in 1997. The
decreases were primarily due to the contribution of KXAS to the NBC Joint
Venture in connection with the Acquisition on March 3, 1998, offset in part by
the recognition of approximately $1.9 million in insurance proceeds related to
the KXTX tower loss.
Approximately 85% of the Company's total net revenues for the year
ended December 31, 1998 was derived from net advertising time sales compared to
87% in 1997. Net advertising revenues for year ended December 31, 1998 decreased
22% compared to 1997, primarily due to the contribution of KXAS to the NBC Joint
Venture in connection with the Acquisition on March 3, 1998. The decrease is
partially off-set by 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, the Company's CBS affiliated stations' net
advertising revenues include incremental revenues from broadcasting the 1998
Winter Olympics.
Network revenue for year ended December 31, 1998 decreased 33% to $11.8
million compared to $17.6 million in 1997. The decrease was primarily due to the
contribution of KXAS to the NBC Joint Venture in connection with the Acquisition
on March 3, 1998.
Revenues from the Local Weather Station increased $1.0 million for year
ended December 31, 1998, when compared to 1997. The Company provides LWS to
cable operators in all of its markets except New Haven-Hartford, Buffalo and
Puerto Rico. Local Weather Station income increased for the year as a result of
the retroactive recognition of revenue with a cable operator in several of the
Company's markets in the second quarter of 1998.
Operating Expenses
Direct operating expenses decreased 15.3% to $59.9 million for the year
ended December 31, 1998, compared to $70.7 million in 1997. The decrease was
primarily due to the contribution of KXAS to the NBC Joint Venture in connection
with the Acquisition on March 3, 1998.
26
<PAGE> 29
Selling, general and administrative expenses decreased 15.1% to $53.9
million for the year ended December 31, 1998, compared to $63.5 million in 1997.
The decrease was primarily due to the contribution of KXAS to the NBC Joint
Venture in connection with the Acquisition on March 3, 1998.
Total corporate expenses increased $1.5 million for the year ended
December 31, 1998, compared to 1997. The increase was due primarily to fees paid
to Hicks Muse pursuant to the Monitoring and Oversight Agreement.
The KXTX management fee represents fees paid to SSG for the management
and sub-programming of KXTX-TV pursuant to a Sub-Programming Agreement. For the
year ended December 31, 1998, the total management fee expense was $8.0 million.
Amortization of program rights decreased 13.7% to $13.5 million for the
year ended December 31, 1998, compared to $15.6 million for 1997. The decrease
was primarily due to the contribution of KXAS to the NBC Joint Venture in
connection with the Acquisition on March 3, 1998, and to a change in the
syndicated/barter programming mix at WTNH-TV and syndicated film write-downs at
stations WAND-TV and WBNE-TV.
Depreciation and amortization of intangible assets increased $25.0
million for the year ended December 31, 1998, compared to 1997, primarily as a
result of the amortization of goodwill and other intangible assets recognized in
connection with the Acquisition 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 FCC licenses and network
affiliations, and goodwill.
Other Expenses
The Company's interest expense increased approximately $35.0 million
for the year ended December 31, 1998, compared to 1997. The increase was a
result of new borrowings under the Senior Credit Facilities and the issuance of
the Senior Subordinated Notes in connection with the Acquisition. In addition,
LIN Holdings incurred $18.0 million of non-cash interest expense for the period
from March 3, 1998 through December 31, 1998, due to the issuance of its Senior
Discount Notes.
The Company's share of losses in joint ventures increased to $6.3
million for the year ended December 31, 1998, compared to $1.5 million for the
same period in 1997. The increase is primarily the result of the contribution of
KXAS-TV to the NBC Joint Venture in connection with the Acquisition on March 3,
1998.
During the first quarter of 1998, LIN Television incurred financial,
legal advisory and regulatory filing fees of $8.6 million in connection with the
merger with LIN Holdings.
The Company's provision for income taxes decreased approximately $30.5
million for the year ended December 31, 1998, compared to 1997. The decrease was
due to net operating losses, resulting from increased interest expense, offset
by a change in the Company'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 the Company's policy to carefully monitor the state of its
business, cash requirements and capital structure. From time to time, the
Company may enter into transactions, pursuant to which debt is extinguished,
including sales of assets or equity, joint ventures, reorganizations or
recapitalizations. There can be no assurance that any such transactions will be
undertaken or, if undertaken, will be favorable to stockholders.
The Company's principal sources of funds are its operations and its
Senior Credit Facilities. Net cash provided by operating activities for the year
ended December 31, 1999, totaled $21.9 million compared to $73.7 million in 1998
and $81.7 million in 1997. The decrease in cash provided by
27
<PAGE> 30
operating activities in 1999 is primarily due to the amounts paid for interest
and the contribution of KXAS to the NBC Joint Venture in connection with the
Acquisition on March 3, 1998. Net cash used in investing activities was $197.3
million for the year ended December 31, 1999, compared to $1,755.3 million for
the same period in 1998 and $15.1 million in 1997, as a result of the
acquisition of LIN Television in March 1998 partially offset by the contribution
of KXAS to the NBC Joint Venture in 1998. Net cash provided by financing
activities for the year ended December 31, 1999 was $151.7 million, compared to
$1,731.0 million and cash used of $86.5 million for the years ended December 31,
1998 and 1997, respectively. This fluctuation is due primarily to the 1998
issuance of the Senior Subordinated Notes, the issuance of the Senior Discount
Notes and the equity contribution by Hicks Muse in connection with the
Acquisition, partially offset by a principal payment of $260.0 million to retire
old debt.
The Company presently has indebtedness outstanding of $319.6 million
under the Senior Credit Facilities. In addition to debt service requirements
under the Senior Credit Facilities, the Company is making semi-annual interest
payments on its Senior Subordinated Notes. The Senior Discount Notes do not
require cash interest payments to be made until after March 1, 2003. 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
Senior Discount Notes and the Senior Subordinated Notes and interest payments
and amortization with respect to the Senior Credit Facilities represent
significant liquidity requirements for the Company. The Senior Subordinated
Notes funded in connection with the Acquisition will require annual interest
payments of approximately $25.1 million. Beginning September 1, 2003, annual
interest payments of approximately $20.0 million will be paid under the Senior
Discount Notes. The Company 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 December 31, 1999, the Company was in
compliance with all covenants. Assuming continued compliance with these
financial covenants, the Company has available credit of approximately $42.0
million under the Senior Credit Facilities.
The Company's capital expenditures primarily include purchases of
broadcasting equipment, studio equipment, vehicles and office equipment to
improve the efficiency and quality of television broadcasting operations. The
Company's capital expenditures for the year ended December 31, 1999, were $18.2
million, compared to $22.7 million and $20.6 million for the same periods in
1998 and 1997, respectively. The Company has invested approximately $21.0
million over the past three years to fully prepare its towers and transmitter
buildings for the upcoming digital transition. The Company expects that an
additional $35.0 million will be required through 2002 to complete the
transition to digital broadcasting. The Company anticipates that it will be able
to meet its capital expenditure requirements with internally generated funds.
Management believes, based on current operations and projected growth,
that its cash flow from operations, together with borrowings available under its
senior credit facilities, will be sufficient to meet its future requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments.
The Company's future operating performance and ability to service or
refinance the Senior Discount Notes and Senior Subordinated 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 the Company's ability to make capital expenditures and limit the Company's
ability to incur additional indebtedness. Such restrictions could limit the
Company's ability to respond to market conditions, to provide for unanticipated
capital investments or to take advantage of business or acquisition
opportunities. The
28
<PAGE> 31
covenants contained in the Senior Credit Facilities and the indentures governing
the Senior Discount Notes and the Senior Subordinated Notes also, among other
things, limit the ability of the Company 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 is a holding company whose only material asset is the
capital stock of LIN Television. LIN Holdings 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 upon the operating performance of LIN Television to generate
distributions to LIN Holdings with respect to LIN Television's common stock,
there can be no assurance that LIN Holdings will have adequate funds to fulfill
its obligations with respect to the Senior Discount Notes. In addition, the
credit agreement governing the Senior Credit Facilities, the indenture governing
the Senior Subordinated Notes 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.
Accordingly, LIN Holdings' 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' 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. The Notes mature on
March 1, 2008.
GECC provided debt financing for the NBC 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 Company expects that the interest payments
on the GECC Note will be serviced solely by the cash flow of the NBC 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 NBC
Joint Venture and LIN Texas was simultaneously released from all obligations
under the GECC Note. The GECC Note is not an obligation of LIN Holdings, LIN
Television, or any of their respective subsidiaries and is recourse only to the
NBC Joint Venture, LIN Television's equity interests therein and Ranger B,
pursuant to a guarantee. Ranger B owns 63% of LIN Holdings. If the NBC Joint
Venture were unable to pay principal or interest on the GECC Note and GECC could
not otherwise get its money back from the NBC Joint Venture, GECC could require
Ranger B to pay the shortfall of any outstanding amounts under the GECC Note. If
this happened, the Company could experience material adverse consequences,
including:
- - since Ranger B has no assets other than its 63% ownership of LIN Holdings,
GECC could sell the stock of LIN Holdings to satisfy outstanding amounts under
the GECC Note;
- - if more than 50% of the ownership of LIN Holdings had to be sold to satisfy
the GECC Note, it could cause an acceleration of the Senior Credit Facilities
Notes; and
- - if the GECC Note is prepaid because of an acceleration on default or
otherwise, the Company may incur a substantial tax liability.
The NBC Joint Venture is approximately 80% owned by NBC, and NBC
controls the operations of the stations through a management contract.
Therefore, the operation and profitability of those
29
<PAGE> 32
stations, the amount of cash to be received in the future as distributions on
the approximately 20% interest, and the likelihood of a default under the GECC
Note are primarily within NBC's control.
YEAR 2000 ISSUE:
The Company relies on various technologies throughout its business
operations that could be affected by the date change to the Year 2000. The
Company has completed a comprehensive program intended to evaluate and address
the impact of the Year 2000 issue on its operational, traffic, and financial
reporting computer systems, equipment with embedded technology, and the Year
2000 risks associated with its vendors. The Company implemented a project team
utilizing both internal and external resources to complete its Year 2000
initiative, which has involved upgrading affected computer systems, software and
equipment with embedded chips, and preparing contingency and disaster recovery
plans. Areas of concern that have been addressed include possible service
interruptions in satellite feeds providing news, weather and syndicated shows
for broadcast; potential failure of equipment with embedded chips, including
master clocks, studio equipment, master control automation systems, transmission
equipment, telephone, security and environmental control systems.
As of the date of this report, the Company has not experienced any Year
2000 related business interruptions. The Company will continue to engage in an
ongoing Year 2000 assessment, but has not yet identified any Year 2000 issues.
The Company believes that modifications and conversions of its internal systems
and equipment has allowed it to be Year 2000 compliant. There can be no
assurance, however, that the Company's internal systems or equipment or those of
third parties on which the Company relies is completely Year 2000 compliant or
that Year 2000 problems will not occur in the future. The failure of the systems
or equipment of the Company or third parties could have a material adverse
effect on the Company's business, financial position and results of operations.
The Company has incurred capital expenditures and internal staff costs
related to this initiative. The Company estimates the total remediation costs to
be approximately $3.2 million. The Company does not anticipate further Year 2000
costs.
INFLATION:
The Company believes that its businesses are affected by inflation to
an extent no greater than other businesses generally.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1998, the FASB issued Statement of Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 was amended on July 7, 1999 by the issuance of Statement of Accounting
Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
an amendment of FASB Statement No. 133." SFAS 137 defers the implementation of
SFAS 133 by one year. SFAS 133, as amended, is effective for fiscal quarters
beginning after January 1, 2001 for the Company and its adoption is not expected
to have a material impact on the Company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". This bulletin summarizes certain views of the staff on applying
generally accepted accounting principals to revenue recognition in financial
statements. The staff believes that revenue is realized or realizable and earned
when all of the following criteria are met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the
seller's price to the buyer is fixed or determinable; and collectibility is
reasonably assured. The Company believes that its current revenue recognition
policy complies with the SEC's guidelines.
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<PAGE> 33
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest
rates primarily through its investing activities. In addition, the Company's
ability to finance future acquisition transactions may be impacted if it is
unable to obtain appropriate financing at acceptable rates. The Company's
investment portfolio consists solely of investments in high-grade commercial
bank money market accounts. The Company does not use derivative financial
instruments for speculative or trading purposes.
THIS SPACE INTENTIONALLY LEFT BLANK
31
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LIN HOLDINGS CORP.
Reports of Independent Accountants....................................... 33
Consolidated Balance Sheets.............................................. 36
Consolidated Statements of Operations.................................... 37
Consolidated Statements of Stockholders' Equity.......................... 38
Consolidated Statements of Cash Flows.................................... 39
Notes to Consolidated Financial Statements............................... 40
LIN TELEVISION CORPORATION
Reports of Independent Accountants....................................... 61
Consolidated Balance Sheets.............................................. 64
Consolidated Statements of Operations.................................... 65
Consolidated Statements of Stockholders' Equity.......................... 66
Consolidated Statements of Cash Flows.................................... 67
Notes to Consolidated Financial Statements............................... 68
</TABLE>
32
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of LIN Holdings Corp.:
In our opinion, the consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of LIN Holdings
Corp. and its subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for the year ended December 31, 1999 and
for the period from March 3, 1998 (date of acquisition) to December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the accompanying financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 4, 2000
33
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of LIN Television Corporation:
In our opinion, the accompanying consolidated statements of operations and
of cash flows present fairly, in all material respects, the results of
operations and cash flows of LIN Television Corporation and its subsidiaries
(the "Predecessor") for the period from January 1, 1998 to March 2, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the accompanying financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 1999
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<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LIN TELEVISION CORPORATION
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of LIN Television Corporation for the year
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of LIN Television Corporation for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Fort Worth, Texas
January 19, 1998
35
<PAGE> 38
LIN HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,699 $ 41,349
Accounts receivable, less allowance for doubtful accounts (1999 - $1,918;
1998 - $1,880) 55,515 40,917
Program rights 13,601 9,671
Other current assets 6,988 916
----------- -----------
Total current assets 93,803 92,853
Property and equipment, net 144,882 131,758
Deferred financing costs 41,553 46,821
Investment in joint ventures 65,771 70,692
Investment in SSDB -- 7,125
Investment in Southwest Sports Group, at cost plus accrued interest 50,000 --
Program rights 4,552 4,636
Intangible assets, net 1,546,392 1,444,600
Other noncurrent assets 5,732 2,405
----------- -----------
Total Assets $ 1,952,685 $ 1,800,890
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,477 $ 8,917
Program obligations 13,336 9,990
Accrued income taxes 4,750 3,735
Current portion of long-term debt 15,805 15,063
KXTX Management fee payable -- 4,175
Accrued interest expense 10,494 9,154
Other accruals 21,895 18,548
----------- -----------
Total current liabilities 73,757 69,582
Long-term debt, excluding current portion 841,821 668,517
Deferred income taxes 524,323 519,207
Program obligations 5,819 4,640
Other noncurrent liabilities 7,050 6,535
----------- -----------
Total liabilities 1,452,770 1,268,481
----------- -----------
Commitments and Contingencies (Note 5, Note 13 and Note 14)
Stockholders' equity:
Preferred stock, $0.01 par value: No Shares Authorized -- --
Common stock, $0.01 par value: Authorized, issued and outstanding shares -
(1999 - 1,000, 1998 - 1,000) -- --
Additional paid-in capital 561,200 559,668
Accumulated deficit (61,285) (27,259)
----------- -----------
Total stockholders' equity 499,915 532,409
----------- -----------
Total liabilities and stockholders' equity $ 1,952,685 $ 1,800,890
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
36
<PAGE> 39
LIN HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Predecessor
------------- -------------------
Period from Period from
Year Ended March 3 - January 1 - Year Ended
December 31, 1999 December 31, 1998 March 2, 1998 December 31, 1997
----------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Net revenues $ 224,446 $ 189,536 $ 43,804 $ 291,519
Operating costs and expenses:
Direct operating 57,292 48,812 11,117 70,746
Selling, general and administrative 49,123 42,168 11,701 63,473
Corporate 7,900 7,130 1,170 6,763
KXTX management fee 1,178 8,033 -- --
Amortization of program rights 15,029 10,712 2,743 15,596
Depreciation and amortization of intangible assets 57,934 45,199 4,581 24,789
Tower write-offs -- -- -- 2,697
--------- --------- -------- ---------
Total operating costs and expenses 188,456 162,054 31,312 184,064
--------- --------- -------- ---------
Operating income 35,990 27,482 12,492 107,455
Other (income) expense:
Interest expense 68,689 53,576 2,764 21,340
Investment income (3,280) (1,220) (98) (1,332)
Share of loss in joint ventures 5,488 6,037 244 1,532
Loss on disposition of KXTX-TV 2,212 -- -- --
Merger expense -- -- 8,616 7,206
Other, net (54) -- -- --
--------- --------- -------- ---------
Total other expense, net 73,055 58,393 11,526 28,746
--------- --------- -------- ---------
Income (loss) before provision for (benefit from)
Income taxes (37,065) (30,911) 966 78,709
Provision for (benefit from) income taxes (3,039) (3,652) 3,710 30,602
--------- --------- -------- ---------
Net income (loss) $ (34,026) $ (27,259) $ (2,744) $ 48,107
========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
37
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LIN HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Treasury Paid-in Accumulated Stockholders'
Shares Amount Stock Capital Deficit Equity
--------- ------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 (Predecessor) 29,717 $ 297 $ 276,997 $(138,846) $ 138,448
Net income -- -- -- 48,107 48,107
Treasury stock purchases -- -- $ (816) -- -- (816)
Treasury stock reissuances -- -- 813 -- (169) 644
Proceeds from exercises of stock options
and issuance of Employee Stock
Purchase Plan shares 140 2 -- 3,633 -- 3,635
Tax benefit from exercises of stock
options -- -- -- 2,547 -- 2,547
------- ----- --------- --------- --------- ---------
Balance at December 31, 1997 (Predecessor) 29,857 299 (3) 283,177 (90,908) 192,565
Net loss (Jan 1-Mar 2) -- -- -- -- (2,744) (2,744)
Proceeds from exercises of stock options
and issuance of Employee Stock
Purchase Plan shares (Jan 1-Mar 2) 29 -- -- 1,071 -- 1,071
Tax benefit from exercises of stock
options (Jan 1-Mar 2) -- -- -- 10,714 -- 10,714
------- ----- --------- --------- --------- ---------
Balance at March 2, 1998 (Predecessor) 29,886 299 (3) 294,962 (93,652) 201,606
Net loss -- -- -- -- (27,259) (27,259)
Acquisition of LIN Television Corporation
and contribution of KXAS-TV to NBC
Joint Venture (29,886) (299) 3 (294,962) 93,652 (201,606)
Proceeds from sale of Common Stock 1 -- -- 558,123 -- 558,123
Proceeds from capital contribution -- -- -- 1,000 -- 1,000
Payments on exercises of phantom stock units -- -- -- (95) -- (95)
Tax benefit from exercises of stock
options -- -- -- 640 -- 640
------- ----- --------- --------- --------- ---------
Balance at December 31, 1998 1 -- -- 559,668 (27,259) 532,409
Net loss -- -- -- -- (34,026) (34,026)
Payments on exercises of phantom stock units -- -- -- (171) -- (171)
Tax benefit from exercises of stock
options -- -- -- 1,703 -- 1,703
------- ----- --------- --------- --------- ---------
Balance at December 31, 1999 1 $ -- $ -- $ 561,200 $ (61,285) $ 499,915
======= ===== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
38
<PAGE> 41
LIN HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Predecessor
----------- -----------
Period from Period From
Year Ended March 3 - January 1 - Year Ended
December 31,1999 December 31,1998 March 2, 1998 December 31,1997
---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ (34,026) $ (27,259) $ (2,744) $ 48,107
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization (including
amortization of financing costs and note discounts) 85,346 66,563 4,714 25,688
Amortization of program rights 15,029 10,712 2,743 15,596
Interest on SSG preferred units (3,000) -- -- --
Loss on disposition of KXTX-TV 2,212 -- -- --
Tax benefit from exercises of stock options 1,703 640 10,714 2,547
Deferred income taxes (8,537) (4,792) 1,907 54
Net loss (gain) on disposition of assets (545) (49) 19 3,067
Program payments (15,293) (10,497) (4,157) (13,179)
Share of loss in joint ventures 5,488 6,037 244 1,532
Provision for doubtful accounts 38 (108) 98 237
Changes in operating assets and liabilities, net of
acquisitions and disposals:
Accounts receivable (10,786) (7,836) 7,695 (5,216)
Program rights, net of program obligations (247) 436 (45) 4
Other assets (15,837) 20,163 (19,102) (3,980)
Accounts payable (1,606) 1,209 1,187 178
Accrued income taxes (5,326) 366 1,777 926
Accrued interest expense (194) 9,154 74 (166)
KXTX Management Fee Payable (4,175) 4,175 --
Other accruals 11,644 (3,623) 3,292 6,296
--------- ----------- -------- --------
Net cash provided by operating activities 21,888 65,291 8,416 81,691
--------- ----------- -------- --------
Investing activities:
Capital expenditures (18,191) (21,498) (1,221) (20,605)
Proceeds from asset disposals 6,560 64 3 7,045
Investment in SSDB 7,125 (7,125) -- --
Investment in joint ventures (2,229) (250) (250) (1,500)
Acquisition of WOOD-TV and WOTV-TV, net of cash acquired (119,985) -- -- --
Acquisition of WAPA-TV, net of cash acquired (69,909) -- -- --
Acquisition of LIN Television Corporation, net of cash acquired -- (1,724,281) -- --
Local Marketing Agreement Expenditures (640) (775)
--------- ----------- -------- --------
Net cash used in investing activities (197,269) (1,753,865) (1,468) (15,060)
--------- ----------- -------- --------
Financing activities:
Proceeds (payments) on exercises of stock options and phantom
stock units and issuance of employee stock purchase plan shares (171) (95) 1,071 4,279
Principal payments on long-term debt (19,098) (262,323) -- (90,000)
Proceeds from long-term debt 171,000 668,929 -- --
Loan fees incurred on long-term debt -- (51,211) -- --
Proceeds from GECC note -- 815,500 -- --
Proceeds (payments) for sale (purchase) of common stock -- 558,123 -- (816)
Proceeds from capital contribution -- 1,000 -- --
--------- ----------- -------- --------
Net cash provided by financing activities 151,731 1,729,923 1,071 (86,537)
--------- ----------- -------- --------
Net increase (decrease) in cash and cash equivalents (23,650) 41,349 8,019 (19,906)
Cash and cash equivalents at the beginning of the period 41,349 -- 8,046 27,952
--------- ----------- -------- --------
Cash and cash equivalents at the end of the period $ 17,699 $ 41,349 $ 16,065 $ 8,046
========= =========== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
39
<PAGE> 42
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
NOTE 1 - BACKGROUND:
LIN Holdings Corp. ("LIN Holdings"), together with its subsidiaries,
including LIN Television Corporation ("LIN Television"), the predecessor
business prior to the acquisition described in Note 3, (together, except with
respect to the notes to the condensed consolidated financial statements for LIN
Television, the "Company") is a television station group operator in the United
States and Puerto Rico that owns nine television stations, eight of which are
network-affiliated television stations. Additionally, the Company has local
marketing agreements ("LMAs") under which it programs four other stations in the
markets in which it operates.
The Company owns and operates three CBS affiliates, three NBC
affiliates, two ABC affiliates and one independent station in San Juan, Puerto
Rico (collectively, the "LIN Core Stations"). The Company also programs four
additional network-affiliated television stations pursuant to LMAs (the "LIN LMA
Stations"). Additionally, the Company holds an approximate 20% equity interest
in a joint venture with NBC (the "NBC Joint Venture"). The NBC Joint Venture
consists of KXAS-TV, an NBC affiliate station in Dallas-Fort Worth, Texas and
KNSD-TV, an NBC affiliate in San Diego, California. NBC operates the stations
owned by the NBC joint venture pursuant to a management agreement. The Company
is also the owner and operator of 28 low-power television stations ("LPTV's").
LIN Holdings was formed on July 18, 1997. On March 3, 1998, LIN
Holdings, through its wholly-owned subsidiary LIN Acquisition Corporation ("LIN
Acquisition"), acquired LIN Television Corporation.
All of the Company's consolidated subsidiaries fully and
unconditionally guarantee the Company's Senior Subordinated Notes and Senior
Credit Facilities (see Note 9) on a joint and several basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements reflect the
application of certain significant accounting policies as described below:
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts
of LIN Holdings and its subsidiaries, all of which are wholly-owned. All
significant intercompany accounts and transactions have been eliminated. The
Company conducts its business through its subsidiaries and has no operations or
significant assets other than its investment in its subsidiaries. Accordingly,
no separate or additional financial information about the subsidiaries is
provided.
Use of Estimates:
The management of the Company is required, in certain instances, to use
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and the notes thereto, in order to conform with generally
accepted accounting principles. The Company's actual results could differ from
these estimates.
Cash and Cash Equivalents:
Cash equivalents consist of highly liquid, short-term investments that
have an original maturity of three months or less when purchased. The Company's
excess cash is invested primarily in commercial paper.
40
<PAGE> 43
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
Property and Equipment:
Property and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets, generally 20
to 30 years for buildings and fixtures, and 3 to 15 years for broadcast and
other equipment. The Company recorded amortization and depreciation expense in
the amount of $19.2 million in 1999, $2.3 million for the period from January 1,
1998 to March 2, 1998, $14.5 million for the period from March 3, 1998 to
December 31, 1998, and $12.3 million in 1997.
Joint Ventures:
The Company's investments in joint ventures are accounted for on the
equity method, as the Company does not have a controlling interest. Accordingly,
the Company's share of the net losses of its joint ventures is included
in consolidated net income (loss).
Revenue Recognition:
Broadcast revenue is recognized during the period in which advertising
is aired. Barter revenue is recognized based on the estimated fair value of the
product or service rendered.
Advertising Expense:
The cost of advertising is expensed as incurred. The Company incurred
advertising costs in the amount of $4.2 million in 1999, $1.7 million for the
period from January 1, 1998 to March 2, 1998, $3.1 million for the period from
March 3, 1998 to December 31, 1998, and $5.6 million in 1997.
Intangible Assets:
Intangible assets include FCC licenses, network affiliations and
goodwill, all of which are being amortized over a period of 40 years.
Long Lived-Assets:
The Company periodically evaluates the net realizable value of
long-lived assets, including tangible and intangible assets, relying on a number
of factors including operating results, business plans, economic projections and
anticipated future cash flows. An impairment in the carrying value of an asset
is recognized when the expected future operating cash flow derived from the
asset is less than its carrying value.
Program Rights:
Program rights are recorded as assets when the license period begins
and the programs are available for broadcasting. Costs incurred in connection
with the purchase of programs to be broadcast within one year are classified as
current assets, while costs of those programs to be broadcast subsequently are
considered noncurrent. The program costs are charged to operations over their
estimated broadcast periods using the straight-line method. Program obligations
are classified as current or noncurrent in accordance with the payment terms of
the license agreement.
Accounting For Stock-Based Compensation:
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of the underlying common stock at the date of
grant. The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (see Note 10).
41
<PAGE> 44
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
Income Taxes:
Deferred income taxes are recognized based on temporary differences
between the financial statement and tax bases of assets and liabilities using
current statutory rates. A valuation allowance is applied against net deferred
tax assets if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. Concentration of credit risk with respect to cash and
cash equivalents is limited as the Company maintains its primary banking
relationships with only large nationally recognized institutions. Credit risk
with respect to trade receivables is limited, as the trade receivables are
primarily from advertising revenues generated from a large diversified group of
local and nationally recognized advertisers. The Company does not require
collateral or other security against trade receivable balances; however, it does
maintain reserves for potential credit losses and such losses have been within
management's expectations for all years presented.
Fair Value of Financial Instruments:
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and debt are carried in the consolidated financial
statements at amounts that approximate fair value at December 31, 1999 and 1998,
unless otherwise disclosed. Fair values are based on quoted market prices and
assumption concerning the amount and timing of estimated future cash flows and
assumed discount rates, reflecting varying degrees of perceived risk.
Reclassification:
Certain reclassifications have been made to the prior period financial
statements to conform to the current period financial statement presentation.
Recently Issued Accounting Standards:
In June 1998, the FASB issued Statement of Accounting Standards No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 was amended on July 7, 1999 by the issuance of
Statement of Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an amendment of FASB Statement No. 133." SFAS No.
137 defers the implementation of SFAS No. 133 by one year. SFAS No. 133, as
amended, is effective for fiscal quarters beginning after January 1, 2001 for
the Company and its adoption is not expected to have a material impact on the
Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principals to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
Company believes that its current revenue recognition policy complies with the
Commission's guidelines.
42
<PAGE> 45
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
NOTE 3 - BUSINESS COMBINATIONS AND DISPOSITIONS:
LIN TELEVISION. LIN Holdings and LIN Acquisition, both 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 acquired LIN Television (the "Acquisition") on
March 3, 1998 by merging LIN Acquisition with and into LIN Television (the
"Merger"), with LIN Television surviving the merger and becoming a direct,
wholly-owned subsidiary of LIN 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.
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 8 3/8% senior
subordinated notes due 2008 ("Senior Subordinated Notes");
(v) $199.6 million of gross proceeds from the issuance by LIN
Holdings of $325.0 million aggregate principal amount at
maturity of 10% senior discount notes due 2008 ("Senior
Discount Notes"), which proceeds were contributed by LIN
Holdings to the common equity of the Company;
(vi) $815.5 million of proceeds of the GECC Note (as defined
below); 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, which in turn, through
LIN Holdings, contributed such amount to the common equity of
LIN Television (collectively, the "Financings").
The Senior Subordinated Notes and the Senior Discount Notes were
subsequently registered with the Securities and Exchange Commission (the "SEC").
In connection with the Acquisition, LIN Television and NBC formed the
NBC Joint Venture. The NBC 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
NBC Joint Venture (the "NBC General Partner") and NBC operates the stations
owned by the NBC Joint Venture. The NBC General Partner holds an approximate 80%
equity interest and the Company holds an approximate 20% equity interest in the
NBC Joint Venture (see Note 6). General Electric Capital Corporation ("GECC")
provided debt financing for the NBC 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 NBC
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 NBC Joint
Venture and LIN Texas was simultaneously released from all obligations under the
GECC Note. The GECC Note is not an obligation of the Company or any of its
respective subsidiaries, and has
43
<PAGE> 46
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
recourse only to the NBC Joint Venture, the Company's equity interest therein
and to Ranger Equity Holdings B Corp. ("Ranger B"), a parent company, pursuant
to a guarantee.
In connection with the formation of the NBC Joint Venture, the Company
received an extension of its NBC network affiliation agreements (for stations
WAVY-TV, KXAN-TV and WOOD-TV) to 2010.
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. The
acquisition is summarized as follows (in thousands):
Assets acquired and liabilities assumed
<TABLE>
<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>
WOOD-TV AND WOTV-TV. On June 30, 1999, the Company acquired 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 had provided management services to the Grand Rapids
Stations pursuant to a consulting agreement with AT&T. The total purchase price
for the Grand Rapids Acquisition was approximately $142.4 million, including
direct costs of the acquisition. The Grand Rapids Acquisition was funded by a
combination of operating funds and $93.0 million of additional Tranche A term
loan (see Note 9).
The acquisition was accounted for as a purchase and accordingly, the
purchase price, including direct costs of the acquisition, was allocated to the
assets acquired and liabilities assumed based on their fair values at the date
of the acquisition. The excess of the purchase price over the fair value of the
net tangible assets acquired has been allocated to intangible assets, primarily
FCC licenses and network affiliations. The result of operations associated with
the acquired assets and liabilities has been included in the accompanying
consolidated financial statements from the date of acquisition. The acquisition
is summarized as follows (in thousands):
Assets acquired and liabilities assumed
<TABLE>
<S> <C>
Working capital, including cash of $22,400 ......... $ 15,443
Property and equipment ............................. 18,422
Other noncurrent assets, net ....................... 424
Intangible assets .................................. 108,096
--------
Total acquisition .................................. $142,385
========
</TABLE>
PEGASUS BROADCASTING L.L.C. On October 19, 1999 the Company acquired
from NBC and GECC, 100% of NBC's interest in Pegasus Broadcasting of San Juan,
L.L.C. ("Pegasus Broadcasting"),
44
<PAGE> 47
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
the owner and operator of WAPA-TV, an independent station located in San Juan,
Puerto Rico (the "Pegasus Acquisition"). The total purchase price for the
Pegasus Acquisition was approximately $71.8 million in cash, including direct
costs of the acquisition. As part of the acquisition, the Company assumed the
LMA Agreements of WTIN-TV and WNJX-TV. These stations are currently programmed
as satellite stations of WAPA-TV and are not separately programmed, similar to
the Company's other LMA agreements. The Pegasus Acquisition was funded by a
combination of operating funds and $60.0 million of borrowing under the
Company's Tranche A incremental term loan facility (see Note 9). The acquisition
was accounted for as a purchase and accordingly, the purchase price, including
direct costs of the acquisition, was allocated to the assets acquired and
liabilities assumed based on their fair values at the date of the acquisition.
The result of operations associated with the acquired assets and liabilities has
been included in the accompanying consolidated financial statements from the
date of acquisition. The acquisition is summarized as follows (in thousands):
Assets acquired and liabilities assumed
<TABLE>
<S> <C>
Working capital, including cash of $1,891 ......... $ 4,239
Property and equipment ............................ 16,290
Noncurrent liabilities ............................ (1,946)
Intangible assets ................................. 53,217
--------
Total acquisition ................................. $ 71,800
========
</TABLE>
UNAUDITED PRO FORMA RESULTS OF ACQUISITIONS. The following summarizes
unaudited pro forma consolidated results of operations as if the acquisition of
LIN Television, the formation of the NBC Joint Venture, the Grand Rapids
Acquisition, and the Pegasus Acquisition had taken place as of the beginning of
the periods presented (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net revenues .............................. $ 267,581 $ 283,507
Operating income .......................... 41,620 37,183
Net loss .................................. (33,839) (38,326)
</TABLE>
The pro forma data gives effect to actual operating results prior to
the acquisition of LIN Television, the formation of the NBC Joint Venture, the
Grand Rapids Acquisition, and the Pegasus Acquisition and adjustments to
interest expense, amortization and income taxes. No effect has been given to
cost reductions or operating synergies in this presentation. The pro forma
results do not necessarily represent results that would have occurred if the
acquisitions had taken place as of the beginning of the periods presented, nor
are they necessarily indicative of the results of future operations.
KXTX-TV. On June 3, 1999, LIN Texas contributed all of the assets of
KXTX-TV to Southwest Sports Group Holdings LLC, Inc. ("SSG"), a Texas limited
liability company and an entity in which a partner of Hicks Muse has a
substantial economic interest. In exchange, LIN Texas received 500,000 units of
SSG's Series A Preferred Units, par value $100 per unit ("SSG Preferred Units").
The Company assigned a value of $47.0 million to the SSG Preferred Units at the
time of the transaction. The SSG Preferred Units are entitled to receive
non-liquidating distributions prior to any junior ranked units of SSG in an
amount equal to $100 per Preferred Unit, minus the amount of previously made
distributions, plus an amount of interest thereon at a rate of 6% per annum
compounded annually beginning January 1, 1999. The Company has recorded $3.0
million of interest on the Series A Preferred Units. As of December 31, 1999, no
distributions have been made with respect to the preferred units.
45
<PAGE> 48
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
SSG has the option at any time to redeem in whole or in part the
outstanding Series A Preferred Units for an amount equal to par plus imputed
interest at the rate of 6% from January 1, 1999 to the redemption date. The
Company has the right to convert its Series A Preferred Units into Class A Units
at the earlier of (a) the date of consummation by SSG of an underwritten initial
public offering of the Class A units, (b) a change of control, or (c) the date
that is three years following the date of the first issuance of the Series A
Preferred Units.
On August 1, 1998, LIN Texas and Southwest Sports Television Inc. ("SST"),
an affiliate of SSG, entered into a Sub-Programming Agreement pursuant to which
SST rendered certain services with respect to KXTX-TV in exchange for a
management fee equal to the cash receipts of the station less operating and
other expenses. Management fee expenses for 1999 and 1998 were $1.2 million and
$8.0 million, respectively. The Sub-Programming Agreement terminated on June 3,
1999.
NOTE 4- BUSINESS DEVELOPMENTS:
NETWORK AFFILIATIONS. On July 15, 1999, the Company entered into an
amendment to its existing network agreement with American Broadcasting Company
("ABC"). This amendment calls for the Company to make payments to ABC for the
rights to broadcast National Football League games. In exchange, the Company
will receive eight additional prime time program spots per week. The Company
operates three stations affiliated with ABC - WAND in Decatur, Illinois, WTNH in
New Haven, Connecticut, and WOTV, an LMA station in Battle Creek, Michigan.
On April 6, 1999, Fox Broadcasting Company ("Fox") informed the Company of
its plan to reduce the inventory of the commercial time in Fox prime time
programming allocated to its affiliates by approximately 22%, or to allow the
affiliates to buy-back that inventory plus additional network inventory. The
Company has one station affiliated with Fox -- WVBT, an LMA station in Norfolk,
Virginia. WVBT-TV has elected to buy additional commercial time from Fox.
WAND-TV EXCHANGE. On December 13, 1999, the Company entered into an
agreement whereby the Company will exchange with Blade Communications Inc. a 67%
interest in the assets of its television station WAND-TV, Decatur, Illinois for
substantially all of the assets of WLFI-TV Inc. (the "WAND-TV Exchange"). Blade
Communications Inc. owns and operates, and is the licensee of television station
WLFI-TV, Lafayette, Indiana. This transaction is intended to qualify as a
"like-kind exchange" for non-recognition of taxable income under Section 1031 of
the Internal Revenue Code of 1986. This transaction is expected to close
effective April 1, 2000.
NOTE 5 - RELATED PARTY TRANSACTIONS:
ACQUISITION OF LIN TELEVISION. In connection with the Acquisition (see Note
3), LIN Holdings and LIN Television (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 agreed to pay Hicks Muse Partners an annual fee
(payable quarterly) for oversight and monitoring services. 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 earnings before interest, tax, depreciation
and amortization ("EBITDA") of LIN Holdings and its subsidiaries for the then
current fiscal year. Upon the acquisition by LIN Holdings and its subsidiaries
of another entity or business, the fee is adjusted prospectively in the same
manner using the pro forma consolidated annual EBITDA of LIN Holdings and it
subsidiaries. In no event shall the annual fee be less than $1.0 million. Hicks
Muse Partners is also entitled to reimbursement for any expenses incurred by it
in connection with rendering services allocable to LIN Holdings or LIN
Television. The fee for the year ended December
46
<PAGE> 49
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
31, 1999 was $1.1 million. The fee for the period from March 3, 1998 to December
31, 1998 was $833,000.
In connection with the Acquisition, the Clients also 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 also is entitled to receive a fee equal to 1.5% of the "transaction
value" (as defined below) for each "subsequent transaction" (as defined below)
in which either LIN Holdings or LIN Television is involved. The term
"transaction value" means the total value of the subsequent transaction,
including without limitation, the aggregate amount of the funds required to
complete the subsequent transaction (excluding any fees payable pursuant to the
Financial Advisory Agreement), including the amount of any indebtedness,
preferred stock or similar obligations assumed (or remaining outstanding). The
term "subsequent transaction" means any future proposal for a tender offer,
acquisition, sale, merger, exchange offer, recapitalization, restructuring or
other similar transaction directly involving LIN Holdings or any of its
subsidiaries, and any other person or entity. This fee for the year ended
December 31, 1999 was approximately $3.0 million, related to the Grand Rapids
Acquisition and Pegasus Acquisition, and was included in the total cost of these
acquisitions. There were no such transaction fees in 1998.
Prior to June 1999, LIN Holdings leased an aircraft to AMFM Inc., a
related party and an entity in which Hicks Muse has a substantial economic
interest, pursuant to an existing lease agreement. In June 1999, LIN Holdings
sold the aircraft to AMFM Inc. for approximately $6.6 million and terminated the
lease agreement. The transaction with AMFM Inc. reimbursed LIN Holdings for all
costs associated with the plane, including the original purchase price.
INVESTMENT IN SPECIAL SERVICES DELAWARE B, INC. In October 1998, the
Company invested $7.1 million for 25% of the capital stock of Special Services
Delaware B, Inc. ("SSDB"), a company that owned and leased an aircraft to AMFM
Inc., an entity in which Hicks Muse has a substantial economic interest. Ranger
Equity Holdings A Corp. ("Ranger A"), a subsidiary of Ranger Equity Holdings
Corporation, ("Ranger"), a parent company, invested $21.4 million for the
remaining 75% capital stock of SSDB. The Company accounts for its interest in
SSDB using the equity method, as the company does not have a controlling
interest. In June 1999, SSDB sold the aircraft to a third party and terminated
the lease agreement with AMFM Inc. The sales proceeds from the aircraft were
distributed to the shareholders as a liquidating dividend in proportion to their
equity interests. The Company's portion of the liquidating dividend was $5.1
million. In addition, the Company received $2.1 million from AMFM Inc. that was
recorded to other income net of the $2.0 million loss resulting from the write
off of the balance of its investment.
JOINT VENTURE WITH 21ST CENTURY GROUP LLC. In August 1999, the Company
and 21st Century Group LLC ("21st Century"), an entity in which Hicks Muse has a
substantial economic interest, announced the formation of a television station
joint venture, Banks Broadcasting, LLC (the "Banks Broadcasting Joint Venture".)
The Company and 21st Century also announced the first transaction of the Banks
Broadcasting Joint Venture, the entry into a local marketing agreement to build
and develop a new WB affiliate serving the Wichita, Kansas DMA. As of December
31, 1999, the Company has provided funding of $4.5 million in the form of an
investment of $2.2 million and an advance of $2.3 million, to the Banks
Broadcasting Joint Venture.
WGRC, INC GUARANTEE. On December 20, 1999 the Company entered into an
Amended and Restated Guarantee and Collateral Agreement (the "Guarantee
Agreement") with Chase Manhattan Bank, as administrative agent, and the lenders
named therein. Pursuant to the Guarantee Agreement, the
47
<PAGE> 50
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
Company will initially guaranteed a $50 million credit facility of WWLP, Inc.
("WWLP, Inc"). At December 31, 1999, no amount was outstanding under this credit
facility. WWLP, Inc is one of several companies recently formed by Gary R.
Chapman, President and CEO of LIN Television, the purpose of which are to
acquire the broadcast license and operating assets of WWLP-TV from Benedek
Broadcasting Corporation. The Company currently intends to enter into a
management agreement with WGRC, Inc. to manage the station.
HICKS MUSE RESTRUCTURING. On January 21, 2000, Thomas O. Hicks and
Hicks, Muse filed an application with the FCC proposing to restructure the
ownership of the Company in a manner in which the Company and the applicants
believe would render the ownership interests of Thomas O. Hicks and other Hicks
Muse principals nonattributable for the purposes of FCC ownership rules. The
Company expects that the current attribution issues associated with the Hicks
Muse ownership interests will be resolved upon the completion of the
recapitalization.
NOTE 6 - JOINT VENTURE WITH NBC:
The Company owns a 20% interest in the NBC Joint Venture (see Note 3)
and accounts for its interest using the equity method, as the Company does not
have a controlling interest. The following presents the summarized financial
information of the NBC Joint Venture (in thousands):
<TABLE>
<CAPTION>
Period From
Year Ended March 3 to
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net revenues ................. $ 142,578 $ 119,849
Operating income ............. 40,830 28,438
Net loss ..................... (24,144) (26,044)
</TABLE>
<TABLE>
<CAPTION>
As of As of
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Current assets ............... $ 159 $ 2,507
Non-current assets ........... 249,692 249,441
Current liabilities .......... 725 --
Non-current liabilities ...... 815,500 816,050
</TABLE>
The financial position and operating results of the Company's other joint
ventures are immaterial for all periods presented.
48
<PAGE> 51
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
NOTE 7- PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land and Land Improvements ......................... $ 10,555 $ 8,266
Buildings .......................................... 47,039 29,789
Broadcasting equipment ............................. 117,224 108,169
----------- -----------
174,818 146,224
Less Accumulated depreciation ...................... (29,936) (14,466)
----------- -----------
$ 144,882 $ 131,758
=========== ===========
</TABLE>
NOTE 8 - INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
FCC licenses and network affiliations .............. $ 944,020 $ 807,029
Goodwill ........................................... 670,397 668,272
----------- -----------
1,614,417 1,475,301
Less accumulated amortization ...................... (68,025) (30,701)
----------- -----------
$ 1,546,392 $ 1,444,600
=========== ===========
</TABLE>
NOTE 9- LONG-TERM DEBT:
Long-term debt consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Senior Credit Facilities ........................... $ 319,579 $ 167,678
$300,000 8 3/8% Senior Subordinated Notes
due 2008 (net of a discount of $613) ............... 299,387 299,337
$325,000 10% Senior Discount Notes
due 2008 (net of a discount of $86,340) ............ 238,660 216,565
----------- -----------
Total debt ........................................ 857,626 683,580
Less current portion ............................... (15,805) (15,063)
----------- -----------
Total long-term debt ............................... $ 841,821 $ 668,517
=========== ===========
</TABLE>
Interest rates associated with the Company's long-term debt are based
on the prevailing prime rate or LIBOR rate plus an applicable margin. Interest
is fixed for a period ranging from one month to 12 months, depending on
availability of the interest basis selected, except if the Company selects a
prime-based loan, in which case the interest rate will fluctuate during the
period as the prime rate fluctuates. Due to the frequent repricing of the
borrowings, the book values of the liabilities at December 31, 1999 approximate
market values.
SENIOR CREDIT FACILITIES:
On March 3, 1998, 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").
49
<PAGE> 52
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
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 LIBOR rate ("Adjusted
LIBOR"), or the highest of the Agent's prime 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. As of December 31, 1999, the interest rates on the $18
million revolving facility, $130 million Tranche A term loan, $60 million
Tranche A incremental term loan and $114 million Tranche B term loan ranged from
7.00% to 8.35%, 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 are
unconditionally and irrevocably guaranteed, jointly and severally, by LIN
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 as collateral against the performance of these
obligations. Required principal repayments of amounts outstanding under the
Senior Credit Facilities commenced 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, such as consolidated leverage and
interest coverage, and other conditions set forth in the Credit Agreement.
SENIOR SUBORDINATED NOTES:
On March 3, 1998, LIN Television issued $300 million aggregate
principal amount of 8 3/8% Senior Subordinated Notes due 2008 in a private
placement for net proceeds of $290.3 million. Such Senior Subordinated Notes
were subsequently registered with the SEC pursuant to a Registration Statement
filed on August 12, 1998. The Senior Subordinated Notes are unsecured
obligations of LIN Television without collateral rights, subordinated in right
of payment to all existing and any future senior indebtedness of LIN Television.
The Senior Subordinated Notes are fully and unconditionally guaranteed, on a
joint and several basis, by all wholly-owned subsidiaries of LIN Television.
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. The effective interest rate of the Senior Subordinated Notes is 8.9% on an
annual basis.
SENIOR DISCOUNT NOTES:
In connection with the Merger on March 3, 1998, LIN Holdings issued
$325 million aggregate principal amount at maturity of 10% Senior Discount Notes
due 2008 in a private placement. Such Senior Discount Notes were subsequently
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. The Senior Discount Notes are unsecured senior
obligations 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. The effective interest rate of the
Senior Discount Notes is 11.0% on an annual basis.
The fair values of the Company's long-term debt are estimated based on
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
50
<PAGE> 53
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
The carrying amounts and fair values of long-term debt at
December 31, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Carrying amount ............ 857,626 683,580
Fair value ................. 824,142 695,241
</TABLE>
NOTE 10 - STOCKHOLDERS' EQUITY:
Common Stock:
The Company's capital structure includes one class of common stock with
a par value of $.01 per share. All of the common stock is owned indirectly by
Ranger. The common equity of Ranger is owned by affiliates of Hicks Muse,
management and other co-investors.
Stock Option Plan:
The Company participates in the Ranger Equity Holdings Corporation 1998
Stock Option Plan (the "1998 Option Plan"). Pursuant to the 1998 Option Plan
nonqualified options have been granted to certain directors, officers and key
employees of the Company in 1998 and 1999. Prior to March 2, 1998, nonqualified
options in the stock of LIN Television were granted to certain directors,
officers and key employees of the Predecessor pursuant to the LIN Television
1994 Adjustment Stock Incentive Plan, the LIN Television Amended and Restated
1994 Stock Incentive Plan and the LIN Television 1994 Nonemployee Director Stock
Incentive, each of which were terminated, and all options granted under each
cancelled, effective March 2, 1998.
Options granted pursuant to the 1998 Option Plan are generally not
exercisable until one year after the date of grant, have vesting terms of four
to five years and expire ten years from the date of grant.
Pro Forma information regarding net income as required by SFAS No. 123
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for grants
in 1997: a risk free interest rate of 5.92%; a volatility factor of .30; and a
weighted-average expected life of the options of seven years. If the Company had
elected to adopt the optional recognition provisions of SFAS No. 123 for its
stock option grants, net income (loss) would have been changed to the pro forma
amounts indicated below (in thousands):
<TABLE>
<CAPTION>
Period From Predecessor Predecessor
Year Ended March 3 - Period From Year Ended
December 31, December 31, January 1- December 31,
1999 1998 March 2, 1998 1997
----------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Pro forma net income (loss) $ (34,026) $ (27,259) $ (2,744) $ 45,532
</TABLE>
A summary of the Company's stock option activity and related information for the
period from January 1 to March 2, 1998, and the year ended December 31, 1997, is
as follows:
51
<PAGE> 54
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Period from
January 1 - Year ended
March 2, 1998 December 31, 1997
---------------------------- -----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Options outstanding beginning of period ... 2,372,433 $26.75 1,859,798 $26.75
Granted ................................... -- -- 662,400 41.08
Exercised ................................. -- -- (120,995) 23.32
Acquisition of LIN Television ............. (2,372,433) 26.75 -- --
Canceled or expired ....................... -- -- (28,770) 22.28
--------- ------ --------- ------
Options outstanding end of period ......... -- -- 2,372,433 31.02
========= ====== ========= ======
Exercisable at end of period .............. -- -- 1,013,187 $25.96
</TABLE>
The weighted average fair value of options granted during 1997 was $18.61
per share. As of December 31, 1997, 1,681,867 options were available for grant
under the Predecessor's option plans.
The Company participates in the Ranger Equity Holdings Corporation 1998
Stock Option Plan, administered by its parent company Ranger. During the period
from March 3, 1998 to December 31, 1999, 50,901,376 options and phantom stock
units underlying the stock of Ranger were granted to certain of the Company's
employees and directors. As of December 31, 1999 and 1998, 49,552,858 and
49,452,858 options and phantom stock units, respectively, each with a weighted
average exercise price $0.61 remained outstanding. As of December 31, 1999,
25,677,132 options and phantom stock units with an average exercise price of
$0.61 were exercisable. As of December 31, 1998, 13,952,747 options and phantom
stock units with an average exercise price of $0.61 were exercisable.
NOTE 11 - INCOME TAXES:
Subsequent to the Merger, the Company was included in the consolidated
federal income tax return filed by Ranger. Pursuant to the tax-sharing agreement
between the Company and Ranger, tax liabilities and benefits were determined as
if Ranger and the Company were each separate and independent entities. As of
December 31, 1999 no amounts were due to or receivable from the Company under
the tax sharing agreement.
52
<PAGE> 55
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
Provision for (benefit from) income taxes included in the accompanying
consolidated statements of operations consisted of the following at December 31
(in thousands):
<TABLE>
<CAPTION>
Period From Predecessor Predecessor
Year Ended March 3 - Period from Year Ended
December 31, December 31, January 1- December 31,
1999 1998 March 2, 1998 1997
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Current:
Federal .................................. $ -- $ -- $ 1,740 $ 29,325
State .................................... 340 1,140 63 1,223
------- ------- ------- --------
340 1,140 1,803 30,548
------- ------- ------- --------
Deferred:
Federal .................................. (3,550) (4,197) 1,815 210
State .................................... (825) (595) 92 (156)
Foreign .................................. 996 -- -- --
------- ------- ------- --------
(3,379) (4,792) 1,907 54
------- ------- ------- --------
$(3,039) $(3,652) $ 3,710 $ 30,602
======= ======= ======= ========
</TABLE>
The following table reconciles the amount that would be provided (benefited) by
applying the 35% federal statutory rate to income (loss) before provision for
(benefit from) income taxes to the actual provision for (benefit from) income
taxes (in thousands):
<TABLE>
<CAPTION>
Period From Predecessor Predecessor
Year Ended March 3 - Period from Year Ended
December 31, December 31, January 1- December 31,
1999 1998 March 2, 1998 1997
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Provision (benefit) assuming federal statutory
rate ......................................... $(12,973) $(10,693) $ 338 $27,548
State taxes, net of federal tax benefit ...... (315) 354 41 846
Amortization ................................. 9,379 5,431 180 1,077
Merger expenses .............................. -- -- 3,017 --
Other ........................................ 870 1,256 134 1,131
-------- -------- ------- -------
$ (3,039) $ (3,652) $ 3,710 $30,602
======== ======== ======= =======
</TABLE>
53
<PAGE> 56
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
The components of the deferred tax liability are as follows at
December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Deferred tax liabilities
Intangible assets .................... $ 506,376 $ 502,898
Property and equipment ............... 21,834 21,924
Investments .......................... 11,208 --
--------- ---------
539,418 524,822
--------- ---------
Deferred tax assets
Net operating loss carryforwards ..... (16,647) --
Valuation allowance .................. 7,661 --
Other ................................ (6,109) (5,615)
--------- ---------
(15,095) (5,615)
--------- ---------
Net deferred tax liabilities ......... $ 524,323 $ 519,207
========= =========
</TABLE>
Deferred taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax basis of assets
and liabilities given the provisions of enacted tax laws.
A valuation allowance of approximately $7.7 million was established
against the Company's deferred tax assets during 1999. The valuation allowance
relates to certain acquired net operating loss carryovers in Puerto Rico
resulting from the Pegasus Acquisition. The Company has determined that it is
more likely than not that these deferred tax assets will not be realized.
At December 31, 1999, the Company had a federal net operating loss
carryforward of approximately $25.7 million that begins to expire in 2019. The
net operating loss carryforward in Puerto Rico of approximately $19.6 million
will expire between 2000 and 2005. The loss carryovers in Puerto Rico have been
fully offset by a valuation allowance.
NOTE 12 - RETIREMENT PLANS:
The Company is the sponsor of the LIN Television Corporation Retirement
Plan (the"Retirement Plan"). The Retirement Plan is a noncontributory defined
benefit retirement plan covering employees of the Company who meet certain
requirements, including length of service and age. Pension benefits vest on
completion of five years of service and are computed, subject to certain
adjustments, by multiplying 1.25% of the employee's last three years' average
annual compensation by the number of years of credited service. The assets of
the pension plan are invested primarily in long-term fixed income securities,
large and small cap U.S. equities, and international equities. The Company's
policy is to fund at least the minimum requirement and is further based on legal
requirements and tax considerations. No funding was required for the Retirement
Plan during 1999, 1998 and 1997.
The components of the net pension expense included in the financial
statements and information with respect to the change in benefit obligation,
change in plan assets, the funded status of the Retirement Plan and underlying
assumptions are as follows:
54
<PAGE> 57
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
RETIREMENT PLAN
(amounts in thousands, except percentages)
<TABLE>
<CAPTION>
Period from Predecessor Predecessor
Year Ended March 3 - Period from Year Ended
December 31, December 31, January 1 - December 31,
1999 1998 March 2, 1998 1997
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation, beginning of period $ 60,048 $ 53,253 $ 52,440 $ 47,339
Service cost ........................... 955 614 176 820
Interest cost .......................... 3,942 3,044 600 3,398
Plan amendments ........................ -- -- -- (496)
Actuarial loss (gain) .................. (10,052) 5,298 296 2,875
Curtailments ........................... -- (682) -- --
Benefits paid .......................... (1,468) (1,479) (260) (1,496)
-------- -------- -------- --------
Benefit obligation, end of period ...... $ 53,425 $ 60,048 $ 53,252 $ 52,440
======== ======== ======== ========
Change in plan assets
Fair value of plan assets, beginning of
period ................................. $ 63,965 $ 61,686 $ 58,015 $ 50,631
Actual return on plan assets ........... 6,782 3,758 3,931 8,880
Benefits paid .......................... (1,468) (1,479) (260) (1,496)
-------- -------- -------- --------
Fair value of plan assets, end of period $ 69,279 $ 63,965 $ 61,686 $ 58,015
======== ======== ======== ========
Funded status of the plan .............. $ 15,854 $ 3,917 $ 8,434 $ 5,575
Unrecognized actuarial gain ............ (19,363) (7,039) (11,898) (8,913)
Unrecognized prior service cost ........ 9 228 988 1,124
Unrecognized net transition asset ...... (627) (940) (1,201) (1,253)
-------- -------- -------- --------
Total amount recognized ................ $ (4,127) $ (3,834) $ (3,677) $(3,467)
======== ======== ======== ========
Accrued benefit liability .............. $ (4,127) $ (3,834) $ (3,677) $ (3,467)
======== ======== ======== ========
Assumptions as of period end
Discount rate .......................... 7.50% 6.50% 7.00% 7.00%
Expected return on plan assets ......... 8.25% 8.25% 8.00% 8.00%
Rate of compensation increase .......... 5.00% 5.00% 5.00% 5.00%
Health care cost trend rate ............ n/a n/a n/a n/a
Net periodic cost
Service cost ........................... $ 955 $ 614 $ 176 $ 820
Interest cost .......................... 3,942 3,044 600 3,398
Expected return on assets .............. (4,510) (3,318) (650) (3,655)
Prior service cost amortization ........ 219 503 136 815
Transition amount recognized ........... (313) (261) (52) (313)
Curtailment gain ....................... -- (426) --
-------- -------- -------- --------
Net periodic cost ...................... $ 293 $ 156 $ 210 $ 1,065
======== ======== ======== ========
</TABLE>
55
<PAGE> 58
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
SUPPLEMENTAL BENEFITS RETIREMENT PLAN
(amounts in thousands, except percentages)
<TABLE>
<CAPTION>
Period from Predecessor Predecessor
Year Ended March 3 - Period from Year Ended
December 31, December 31, January 1 - December 31,
1999 1998 March 2, 1998 1997
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation, beginning of period ... $ 1,891 $ 1,987 $ 1,801 $ 1,168
Service cost .............................. 180 118 34 143
Interest cost ............................. 127 93 22 113
Actuarial loss (gain) ..................... (510) 204 130 377
Curtailments .............................. -- (511) -- --
------- ------- ------- -------
Benefit obligation, end of period ......... $ 1,688 $ 1,891 $ 1,987 $ 1,801
======= ======= ======= =======
Funded status of the plan ................. $(1,688) $(1,891) $(1,987) $(1,801)
Unrecognized actuarial gain ............... (58) 468 785 665
Unrecognized prior service cost ........... 6 8 12 12
Unrecognized net transition asset ......... (33) (49) (62) (65)
------- ------- ------- -------
Total amount recognized ................... $(1,773) $(1,464) $(1,252) $(1,189)
======= ======= ======= =======
Accrued benefit liability ................. $(1,773) $(1,464) $(1,252) $(1,189)
======= ======= ======= =======
Assumptions as of period end
Discount rate ............................. 7.50% 6.50% 7.00% 7.00%
Expected return on plan assets ............ 8.25% 8.25% 8.00% 8.00%
Rate of compensation increase ............. 5.00% 5.00% 5.00% 5.00%
Health care cost trend rate ............... n/a n/a n/a n/a
Net periodic cost
Service cost .............................. $ 180 $ 118 $ 34 $ 143
Interest cost ............................. 127 92 22 113
Prior service cost amortization ........... 2 3 -- 2
Actuarial Loss (Gain) Recognized .......... 16 10 10 42
Transition amount recognized .............. (16) (14) (3) (16)
Curtailment gain .......................... -- 3 -- --
------- ------- ------- -------
Net periodic cost ......................... $ 309 $ 212 $ 63 $ 284
======= ======= ======= =======
</TABLE>
56
<PAGE> 59
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
NOTE 13 - COMMITMENTS & CONTINGENCIES:
Commitments:
The Company leases land, buildings, vehicles and equipment under
noncancelable operating lease agreements that expire at various dates through
2016. Commitments for noncancelable operating lease payments are as follows (in
thousands):
<TABLE>
<CAPTION>
Year
- ------
<S> <C>
2000 ................................. $1,610
2001 ................................. 1,490
2002 ................................. 1,379
2003 ................................. 1,341
2004 ................................. 997
Thereafter ........................... 2,867
------
$9,684
======
</TABLE>
Rent expense included in the consolidated statements of operations was
$1.4 million for the year ended December 31, 1999, $100,000 for the period from
January 1, 1998 to March 2, 1998, $1.1 million for the period from March 3, 1998
to December 31, 1998, and $1.2 million for the year ended December 31, 1997.
The Company has also entered into commitments for future syndicated
news, entertainment, and sports programming. Future payments associated with
these commitments are as follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
2000 ......................... $ 3,200
2001 ......................... 7,268
2002 ......................... 6,545
2003 ......................... 4,501
2004 ......................... 3,962
Thereafter ................... 3,130
-------
$28,606
=======
</TABLE>
Contingencies:
Changes in FCC ownership rules. Effective November 16, 1999, the
Federal Communications Commission (the "FCC") significantly revised certain of
its broadcast ownership regulations. Among the FCC actions were: 1) relaxing the
current "duopoly" rule to permit substantially more frequent waivers of the rule
and permitting ownership of two television stations in a local market under
certain circumstances; 2) determining that television local marketing agreements
(LMAs) were equivalent to ownership for purposes of the local ownership rules
and thus permissible only where ownership was permissible; 3) grandfathering
television LMAs entered into prior to November 5, 1996, until at least after the
conclusion of a rulemaking to be initiated no sooner than 2004 examining whether
it would be in the public interest to permit such combinations to continue; 4)
permitting the free transferability of grandfathered LMAs during the grandfather
period but limiting the transferability of television duopolies where one entity
owns both stations; and 5) modifying the FCC's radio-television cross-ownership
rules to permit the possession of "attributable" ownership interests in a
maximum of two television stations and six radio stations in larger markets and
two television and four radio stations in smaller markets.
57
<PAGE> 60
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
The new rules are still subject to potentially significant amendments
in response to numerous petitions for reconsideration from parties seeking on
the one hand to make them more restrictive and on the other to relax them
further, and are expected to be the subject of a variety of judicial challenges.
As the rules are currently formulated, management believes that: 1) the four
LMAs the Company has entered into in the Grand Rapids, New Haven, Austin and
Norfolk markets are grandfathered; 2) these four combinations are probably
eligible for waivers of the duopoly rule and the Company will likely be able to
convert those LMAs to ownership interests through the exercise of option rights
with respect to each of those stations prior to the expiration of the
grandfather period; and 3) the rules permit the continued cross-ownership by the
Company and AMFM Inc., respectively, of the television and radio stations
currently owned by those companies in the Grand Rapids, Hartford-New Haven,
Austin, and Indianapolis markets. (Stations owned by the Company and AMFM Inc.
are each attributable to the other company for purposes of the radio-television
cross-ownership rule.) There can be no assurances however that the rules will be
implemented or interpreted in such a manner. The Company is still evaluating
whether and when to exercise its options to purchase each of the LMA stations.
Other Contingencies. In September 1999, AMFM Inc., which owns more than
400 radio stations, announced its intention to merge with Clear Channel
Communications Inc ("Clear Channel"), a company that owns more than 500 radio
stations and 19 television stations. The television and radio interests owned by
the proposed combined entity would also be attributable to the Company for
purposes of the radio-television cross-ownership rule and the television duopoly
rule. Clear Channel has announced its intention to make whatever divestitures
are necessary to bring it into compliance with the FCC's ownership rules prior
to the merger but the ownership interests of Clear Channel could in the future
limit the ability of the Company to acquire more television stations. In
addition, Hicks, Muse has agreed to restructure its ownership interests in LIN
in a manner that the Company believes will render those interests
nonattributable for purposes of FCC regulations (See Hicks Muse Restructuring).
Litigation. On September 4, 1997, the Company announced that it had
learned of four lawsuits regarding the then proposed acquisition of LIN
Television. The Company and 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 stockholders. Three of
the four lawsuits were filed in the Delaware Court of Chancery, while the fourth
lawsuit was filed in the 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 stockholders. 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 sale of the television station WOOD-TV by AT&T to LIN Television 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.
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 December 31, 1999 is likely
to have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
58
<PAGE> 61
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
NOTE 14 - LOCAL MARKETING AGREEMENTS:
The Company entered into LMAs with the owners of KNVA-TV in Austin,
Texas in August 1994; WBNE-TV in New Haven-Hartford, Connecticut in December
1994; WVBT-TV in Norfolk-Portsmouth, Virginia in December 1994; WOTV-TV in Grand
Rapids-Kalamazoo-Battle Creek, Michigan in June 1999; and WTIN-TV and WJNX-TV in
San Juan, Puerto Rico in October 1999. The LMA's in Puerto Rico are currently
programmed as satellite stations of WAPA-TV and are not separately programmed
similar to the Company's other LMA agreements. Under the LMAs, the Company is
required to pay fixed periodic fees and incur programming and operating costs
relating to the LMA stations, but retains all advertising revenues.
The Company has also entered into option and put agreements that would
enable or require the Company to purchase the stations for a fixed amount under
certain conditions. The aggregate purchase price for the purchase options was
approximately $1.5 million. Given the recent changes in FCC ownership rules, the
Company, at the option of the parties involved in the LMA contracts, could be
required to purchase certain of the LMA stations. Potential commitments for
fulfilling the put options totaled a maximum of $12.2 million, subject to
adjustments for monthly rental payments and outstanding loans, at December 31,
1999.
Future minimum fees required under all six of these LMAs are as
follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
2000 $ 2,303
2001 2,315
2002 2,217
2003 1,559
2004 1,055
Thereafter 684
-------
Total $10,133
=======
</TABLE>
59
<PAGE> 62
LIN HOLDINGS CORP.
Notes to Consolidated Financial Statements
NOTE 15 - UNAUDITED QUARTERLY DATA (in thousands):
<TABLE>
<CAPTION>
Second Third Fourth
First Quarter Quarter Quarter Quarter
------------- ------- ------- -------
<S> <C> <C> <C> <C>
1999 - COMPANY
Net revenues ........................ $ 44,610 $ 56,629 $ 52,377 $ 70,830
Operating income (loss) ............. (1,011) 11,738 6,333 18,930
Net loss ............................ $(15,171) $ (6,797) $(10,662) $ (1,396)
1998 - COMBINED COMPANY / PREDECESSOR
Net revenues ........................ $ 60,015 $ 61,777 $ 55,778 $ 55,770
Operating income .................... 14,730 11,741 4,566 8,937
Net loss ............................ $ (5,973) $ (5,736) $(12,987) $ (5,307)
1997 - PREDECESSOR
Net revenues ........................ $ 61,662 $ 83,305 $ 71,911 $ 74,641
Operating income .................... 17,117 30,468 25,129 34,741
Net income .......................... $ 7,137 $ 15,550 $ 9,935 $ 15,485
</TABLE>
NOTE 16 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Predecessor Predecessor
Period from Period From
Year Ended March 3 - January 1 - Year Ended
December 31,1999 December 31,1998 March 2, 1998 December 31,1997
---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Cash paid for interest .................................... $ 43,732 $ 23,059 $2,895 $20,608
Cash paid for income taxes ................................ 599 1,075 46 26,092
SCHEDULE OF NONCASH INVESTING ACTIVITIES
Value of preferred units received on disposal of KXTX-TV... 47,000 --
In March 1998, Ranger acquired LIN Television Corporation
for approximately $1.7 billion. In conjunction with this
acquisition, liabilities were assumed as follows:
Fair value of assets acquired and
intangible assets .................................... -- $ 1,798,652 -- --
Cash paid ............................................... -- (1,176,359) -- --
--------- ----------- ------ -------
Liabilities assumed .................................. -- $ 622,293 -- --
========= =========== ====== =======
In June 1999, the Company acquired WOOD-TV and the LMA
rights related to WOTV-TV for approximately $142.4 million.
In conjunction with this acquisition, liabilities were
assumed as follows:
Fair value of assets acquired and intangible assets...... $ 158,146 -- -- --
Cash paid ............................................... (142,385) -- -- --
--------- ----------- ------ -------
Liabilities assumed .................................. $ 15,761 -- -- --
========= =========== ====== =======
In October 1999, the Company acquired Pegasus Broadcasting
of San Juan, LLC. for approximately $71.8 million In
conjunction with this acquisition, liabilities were assumed
as follows:
Fair value of assets acquired and intangible assets...... $ 89,575 -- -- --
Cash paid ............................................... (71,800) -- -- --
--------- ----------- ------ -------
Liabilities assumed .................................. $ 17,775 -- -- --
========= =========== ====== =======
</TABLE>
60
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of LIN Television Corporation:
In our opinion, the consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of LIN
Television Corporation and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for the year ended December
31, 1999 and for the period from March 3, 1998 (date of acquisition) to December
31, 1998, in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the accompanying financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 4, 2000
61
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of LIN Television Corporation:
In our opinion, the accompanying consolidated statements of operations
and of cash flows present fairly, in all material respects, the results of
operations and cash flows of LIN Television Corporation and its subsidiaries
(the "Predecessor") for the period from January 1, 1998 to March 2, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the accompanying financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 1999
62
<PAGE> 65
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LIN TELEVISION CORPORATION
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of LIN Television Corporation for the year
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of LIN Television Corporation for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Fort Worth, Texas
January 19, 1998
63
<PAGE> 66
LIN TELEVISION CORPORATION
Consolidated Balance Sheets
(In thousands, except number of shares)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,699 $ 41,349
Accounts receivable, less allowance for doubtful accounts (1999 - $1,918;
1998 - $1,880) 55,515 40,917
Program rights 13,601 9,671
Other current assets 6,988 916
----------- -----------
Total current assets 93,803 92,853
Property and equipment, net 144,882 131,758
Deferred financing costs 31,120 35,109
Investment in joint ventures 65,771 70,692
Investment in SSDB -- 7,125
Investment in Southwest Sports Group, at cost plus accrued interest 50,000 --
Program rights 4,552 4,636
Intangible assets, net 1,546,392 1,444,600
Other noncurrent assets 5,732 2,405
----------- -----------
Total Assets $ 1,942,252 $ 1,789,178
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,477 $ 8,917
Program obligations 13,336 9,990
Accrued income taxes 4,750 10,035
Current portion of long-term debt 15,805 15,063
KXTX Management fee payable -- 4,175
Accrued interest expense 10,494 9,154
Other accruals 27,389 18,548
----------- -----------
Total current liabilities 79,251 75,882
Long-term debt, excluding current portion 603,161 451,952
Deferred income taxes 533,309 519,207
Program obligations 5,819 4,640
Other noncurrent liabilities 7,050 6,535
----------- -----------
Total liabilities 1,228,590 1,058,216
----------- -----------
Commitments and Contingencies (Note 5, Note 13 and Note 14)
Stockholders' equity:
Preferred stock, $0.01 par value: No Shares Authorized -- --
Common stock, $0.01 par value: Authorized, issued and outstanding shares -
(1999 - 1,000, 1998 - 1,000) -- --
Additional paid-in capital 748,054 746,522
Accumulated deficit (34,392) (15,560)
----------- -----------
Total stockholders' equity 713,662 730,962
----------- -----------
Total liabilities and stockholders' equity $ 1,942,252 $ 1,789,178
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
64
<PAGE> 67
LIN TELEVISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Predecessor
------------- -----------------
Period from Period from
Year Ended March 3 - January 1 - Year Ended
December 31, 1999 December 31, 1998 March 2, 1998 December 31, 1997
----------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Net revenues ............................................ $224,446 $189,536 $43,804 $291,519
Operating costs and expenses:
Direct operating ..................................... 57,292 48,812 11,117 70,746
Selling, general and administrative .................. 49,123 42,168 11,701 63,473
Corporate ............................................ 7,900 7,130 1,170 6,763
KXTX management fee .................................. 1,178 8,033 -- --
Amortization of program rights ....................... 15,029 10,712 2,743 15,596
Depreciation and amortization of intangible assets ... 57,934 45,199 4,581 24,789
Tower write-offs ..................................... -- -- -- 2,697
-------- -------- ------- --------
Total operating costs and expenses ...................... 188,456 162,054 31,312 184,064
-------- -------- ------- --------
Operating income ........................................ 35,990 27,482 12,492 107,455
Other (income) expense:
Interest expense ..................................... 45,315 35,577 2,764 21,340
Investment income .................................... (3,280) (1,220) (98) (1,332)
Share of loss in joint ventures ...................... 5,488 6,037 244 1,532
Loss on disposition of KXTX-TV ....................... 2,212 -- -- --
Merger expense ....................................... -- -- 8,616 7,206
Other, net ........................................... (54) -- -- --
-------- -------- ------- --------
Total other expense, net ................................ 49,681 40,394 11,526 28,746
-------- -------- ------- --------
Income (loss) before provision for
Income taxes ......................................... (13,691) (12,912) 966 78,709
Provision for income taxes .............................. 5,141 2,648 3,710 30,602
-------- -------- ------- --------
Net income (loss) ....................................... $(18,832) $(15,560) $(2,744) $ 48,107
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
65
<PAGE> 68
LIN TELEVISION CORPORATION
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------- Treasury Paid-in Accumulated Stockholders'
Shares Amount Stock Capital Deficit Equity
------ ------ ----- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 (Predecessor) 29,717 297 276,997 (138,846) 138,448
Net income -- -- -- 48,107 48,107
Treasury stock purchases -- -- $ (816) -- -- (816)
Treasury stock reissuances -- -- 813 -- (169) 644
Proceeds from exercises of stock options
and issuance of Employee Stock
Purchase Plan shares 140 2 -- 3,633 -- 3,635
Tax benefit from exercises of stock
options -- -- -- 2,547 -- 2,547
------ ------- --------- --------- --------- ---------
Balance at December 31, 1997 (Predecessor) 29,857 299 (3) 283,177 (90,908) 192,565
Net loss (Jan 1-Mar 2) -- -- -- -- (2,744) (2,744)
Proceeds from exercises of stock options
and issuance of Employee Stock
Purchase Plan shares (Jan 1-Mar 2) 29 -- -- 1,071 -- 1,071
Tax benefit from exercises of stock
options (Jan 1-Mar 2) -- -- -- 10,714 -- 10,714
------ ------- --------- --------- --------- ---------
Balance at March 2, 1998 (Predecessor) 29,886 299 (3) 294,962 (93,652) 201,606
Net loss -- -- -- -- (15,560) (15,560)
Acquisition of LIN Television Corporation
and contribution of KXAS-TV to NBC
Joint Venture (29,886) (299) 3 (294,962) 93,652 (201,606)
Equity contribution 1 -- -- 744,977 -- 744,977
Proceeds from capital contributions -- -- -- 1,000 -- 1,000
Payments on exercises of phantom stock units -- -- -- (95) -- (95)
Tax benefit from exercises of stock
options -- -- -- 640 -- 640
------ ------- --------- --------- --------- ---------
Balance at December 31, 1998 1 -- -- 746,522 (15,560) 730,962
Net loss -- -- -- -- (18,832) (18,832)
Payments on exercises of phantom stock units -- -- -- (171) -- (171)
Tax benefit from exercises of stock
options -- -- -- 1,703 -- 1,703
------ ------- --------- --------- --------- ---------
Balance at December 31, 1999 1 $ -- $ -- $ 748,054 $ (34,392) $ 713,662
====== ======= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
66
<PAGE> 69
LIN TELEVISION CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Predecessor Predecessor
----------- -----------
Period from Period From
Year Ended March 3 - January 1 - Year Ended
December 31, 1999 December 31, 1998 March 2, 1998 December 31, 1997
----------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) $ (18,832) $ (15,560) $ (2,744) $ 48,107
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization (including amortization
of financing costs and note discounts) 62,073 48,564 4,714 25,688
Amortization of program rights 15,029 10,712 2,743 15,596
Interest on SSG preferred units (3,000) -- -- --
Loss on disposition of KXTX-TV 2,212 -- -- --
Tax benefit from exercises of stock options 1,703 640 10,714 2,547
Deferred income taxes (8,537) (4,112) 1,907 54
Net loss (gain) on disposition of assets (545) (49) 19 3,067
Program payments (15,293) (10,497) (4,157) (13,179)
Share of loss in joint ventures 5,488 6,037 244 1,532
Provision for doubtful accounts 38 (108) 98 237
Changes in operating assets and liabilities, net of
acquisitions and disposals:
Accounts receivable (10,786) (7,836) 7,695 (5,216)
Program rights, net of program obligations (247) 436 (45) 4
Other assets (15,837) 20,163 (19,102) (3,980)
Accounts payable (1,606) 1,209 1,187 178
Accrued income taxes (2,741) 6,666 1,777 926
Accrued interest expense (194) 4,175 74 (166)
KXTX Management Fee Payable (4,175) 9,154 -- --
Other accruals 17,138 (4,303) 3,292 6,296
--------- ----------- -------- --------
Net cash provided by operating activities 21,888 65,291 8,416 81,691
--------- ----------- -------- --------
Investing activities:
Capital expenditures (18,191) (21,498) (1,221) (20,605)
Proceeds from asset disposals 6,560 64 3 7,045
Investment in SSDB 7,125 (7,125) -- --
Investment in joint ventures (2,229) (250) (250) (1,500)
Acquisition of WOOD-TV and WOTV-TV, net of cash acquired (119,985) -- -- --
Acquisition of WAPA-TV, net of cash acquired (69,909) -- -- --
Acquisition of LIN Television Corporation, net of cash
acquired -- (1,724,281) -- --
Local Marketing Agreement Expenditures (640) (775) -- --
--------- ----------- -------- --------
Net cash used in investing activities (197,269) (1,753,865) (1,468) (15,060)
--------- ----------- -------- --------
Financing activities:
Proceeds (payments) on exercises of stock options and
phantom stock units and issuance of employee stock purchase
plan shares (171) (95) 1,071 4,279
Principal payments on long-term debt (19,098) (262,323) -- (90,000)
Proceeds from long-term debt 171,000 469,298 -- --
Loan fees incurred on long-term debt -- (38,434) -- --
Proceeds from GECC note -- 815,500 -- --
Proceeds (payments) for sale (purchase) of common stock -- 744,977 -- (816)
Proceeds from capital contribution -- 1,000 -- --
--------- ----------- -------- --------
Net cash provided by financing activities 151,731 1,729,923 1,071 (86,537)
--------- ----------- -------- --------
Net increase (decrease) in cash and cash equivalents (23,650) 41,349 8,019 (19,906)
Cash and cash equivalents at the beginning of the period 41,349 -- 8,046 27,952
--------- ----------- -------- --------
Cash and cash equivalents at the end of the period $ 17,699 $ 41,349 $ 16,065 $ 8,046
========= =========== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
67
<PAGE> 70
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - BACKGROUND:
LIN Television Corporation ("LIN Television"), together with its
subsidiaries (together, the "Company"), is a television station group operator
in the United States and Puerto Rico that owns nine television stations, eight
of which are network-affiliated television stations. Additionally, the Company
has local marketing agreements ("LMAs") under which it programs four other
stations in the markets in which it operates.
The Company owns and operates three CBS affiliates, three NBC
affiliates, two ABC affiliates and one independent station in San Juan, Puerto
Rico (collectively, the "LIN Core Stations"). The Company also programs four
additional network-affiliated television stations pursuant to LMAs (the "LIN LMA
Stations"). Additionally, the Company holds an approximate 20% equity interest
in a joint venture with NBC (the "NBC Joint Venture"). The NBC Joint Venture
consists of KXAS-TV, an NBC affiliate station in Dallas-Fort Worth, Texas and
KNSD-TV, an NBC affiliate in San Diego, California. NBC operates the stations
owned by the NBC joint venture pursuant to a management agreement. The Company
is also the owner and operator of 28 low-power television stations ("LPTV's").
LIN Holdings was formed on July 18, 1997. On March 3, 1998, LIN
Holdings, through its wholly-owned subsidiary LIN Acquisition Corporation ("LIN
Acquisition"), acquired LIN Television Corporation.
All of the Company's consolidated subsidiaries fully and
unconditionally guarantee the Company's Senior Subordinated Notes and the Senior
Credit Facilities (see Note 9) on a joint and several basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements reflect the
application of certain significant accounting policies as described below:
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts
of LIN Holdings and its subsidiaries, all of which are wholly-owned. All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates:
The management of the Company is required, in certain instances, to use
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and the notes thereto, in order to conform with generally
accepted accounting principles. The Company's actual results could differ from
these estimates.
Cash and Cash Equivalents:
Cash equivalents consist of highly liquid, short-term investments that
have maturity of three months or less when purchased. The Company's excess cash
is invested primarily in commercial paper.
Property and Equipment:
Property and equipment is recorded at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets, generally 20
to 30 years for buildings and fixtures, and 3 to 15 years for broadcast and
other equipment. The Company recorded amortization and depreciation expense in
the amount of $19.2 million in 1999, $2.3 million for the period from January 1,
1998 to March 2, 1998, $14.5 million for the period from March 3, 1998 to
December 31, 1998, and $12.3 million in 1997.
68
<PAGE> 71
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
Joint Ventures:
The Company's investments in joint ventures are accounted for on the
equity method, as the Company does not have a controlling interest. Accordingly,
the Company's share of the net losses of its joint ventures is included
in consolidated net income (loss).
Revenue Recognition:
Broadcast revenue is recognized during the period in which advertising
is aired. Barter revenue is recognized based on the estimated fair value of the
product or service rendered.
Advertising Expense:
The cost of advertising is included in selling, general and
administrative costs and is expensed as incurred. The Company incurred
advertising costs in the amount of $4.2 million in 1999, $1.7 million for the
period from January 1, 1998 to March 2, 1998, $3.1 million for the period from
March 3, 1998 to December 31, 1998, and $5.6 million in 1997.
Intangible Assets:
Intangible assets include FCC licenses, network affiliations and
goodwill, all of which are being amortized over a period of 40 years.
Long Lived-Assets
The Company periodically evaluates the net realizable value of
long-lived assets, including tangible and intangible assets, relying on a number
of factors including operating results, business plans, economic projections and
anticipated future cash flows. An impairment in the carrying value of an asset
is recognized when the expected future operating cash flow derived from the
asset is less than its carrying value.
Program Rights:
Program rights are recorded as assets when the license period begins
and the programs are available for broadcasting. Costs incurred in connection
with the purchase of programs to be broadcast within one year are classified as
current assets, while costs of those programs to be broadcast subsequently are
considered noncurrent. The program costs are charged to operations over their
estimated broadcast periods using the straight-line method. Program obligations
are classified as current or noncurrent in accordance with the payment terms of
the license agreement.
Accounting For Stock-Based Compensation:
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of the underlying common stock at the date of
grant. The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (see Note 10).
Income Taxes:
Deferred income taxes are recognized based on temporary differences
between the financial statement and tax bases of assets and liabilities using
current statutory rates. A valuation allowance is applied against net deferred
tax assets if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
69
<PAGE> 72
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
Concentrations of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. Concentration of credit risk with respect to cash and
cash equivalents is limited, as the Company maintains its primary banking
relationships with only large nationally recognized institutions. Credit risk
with respect to trade receivables is limited, as the trade receivables are
primarily from advertising revenues generated from a large diversified group of
local and nationally recognized advertisers. The Company does not require
collateral or other security against trade receivable balances; however, it does
maintain reserves for potential credit losses and such losses have been within
management's expectations for all years presented.
Fair Value of Financial Instruments:
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and debt are carried in the consolidated financial
statements at amounts that approximate fair value at December 31, 1999 and 1998,
unless otherwise disclosed. Fair values are based on quoted market prices and
assumption concerning the amount and timing of estimated future cash flows and
assumed discount rates, reflecting varying degrees of perceived risk.
Reclassification:
Certain reclassifications have been made to the prior period financial
statements to conform to the current period financial statement presentation.
Recently Issued Accounting Standards:
In June 1998, the FASB issued Statement of Accounting Standards No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 was amended on July 7, 1999 by the issuance of
Statement of Accounting Standards No. 137 ("SFAS No. 137"), "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an amendment of FASB Statement No. 133." SFAS No.
137 defers the implementation of SFAS No. 133 by one year. SFAS No. 133, as
amended, is effective for fiscal quarters beginning after January 1, 2001 for
the Company and its adoption is not expected to have a material impact on the
Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
bulletin summarizes certain views of the staff on applying generally accepted
accounting principals to revenue recognition in financial statements. The staff
believes that revenue is realized or realizable and earned when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred or services have been rendered; the seller's price to the
buyer is fixed or determinable; and collectibility is reasonably assured. The
Company believes that its current revenue recognition policy complies with the
Commission's guidelines.
NOTE 3 - BUSINESS COMBINATIONS AND DISPOSITIONS:
LIN TELEVISION. LIN Holdings and LIN Acquisition, both 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 acquired LIN Television (the "Acquisition") on
March 3, 1998 by merging LIN Acquisition with and into LIN Television (the
"Merger"), with LIN Television surviving the merger and becoming a direct,
wholly-owned subsidiary of LIN Holdings. The total purchase price for the common
equity of LIN Television was approximately $1.7 billion. In addition, the
Company
70
<PAGE> 73
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
refinanced $260.2 million of LIN Television's indebtedness and incurred
acquisition costs of approximately $32.2 million.
The Acquisition was funded by:
(viii) $6.9 million of excess cash on the LIN Television balance
sheet;
(ix) $50.0 million aggregate principal amount of senior secured
Tranche A term loans ("Tranche A Term Loans");
(x) $120.0 million aggregate principal of senior secured Tranche B
term loans ("Tranche B Term Loans");
(xi) $299.3 million of gross proceeds from the issuance of $300.0
million aggregate principal amount of 8 3/8% senior
subordinated notes due 2008 ("Senior Subordinated Notes");
(xii) $199.6 million of gross proceeds from the issuance by LIN
Holdings of $325.0 million aggregate principal amount at
maturity of 10% senior discount notes due 2008 ("Senior
Discount Notes"), which proceeds were contributed by LIN
Holdings to the common equity of the Company;
(xiii) $815.5 million of proceeds of the GECC Note (as defined
below); and
(xiv) $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, which in turn, through
LIN Holdings, contributed such amount to the common equity of
LIN Television (collectively, the "Financings").
The Senior Subordinated Notes and the Senior Discount Notes were
subsequently registered with the Securities and Exchange Commission (the "SEC").
In connection with the Acquisition, LIN Television and NBC formed the
NBC Joint Venture. The NBC 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
NBC Joint Venture (the "NBC General Partner") and NBC operates the stations
owned by the NBC Joint Venture. The NBC General Partner holds an approximate 80%
equity interest and the Company holds an approximate 20% equity interest in the
NBC Joint Venture (see Note 6). General Electric Capital Corporation ("GECC")
provided debt financing for the NBC 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 NBC
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 NBC Joint
Venture and LIN Texas was simultaneously released from all obligations under the
GECC Note. The GECC Note is not an obligation of the Company or any of its
respective subsidiaries, and has recourse only to the NBC Joint Venture, the
Company's equity interest therein and to Ranger Equity Holdings B Corp. ("Ranger
B"), a parent company, pursuant to a guarantee.
In connection with the formation of the NBC Joint Venture, the Company
received an extension of its NBC network affiliation agreements (for stations
WAVY-TV, KXAN-TV and WOOD-TV) to 2010.
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
71
<PAGE> 74
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
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. The acquisition is
summarized as follows (in thousands):
Assets acquired and liabilities assumed
<TABLE>
<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>
WOOD-TV AND WOTV-TV. On June 30, 1999, the Company acquired 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 had provided management services to the Grand Rapids
Stations pursuant to a consulting agreement with AT&T. The total purchase price
for the Grand Rapids Acquisition was approximately $142.4 million, including
direct costs of the acquisition. The Grand Rapids Acquisition was funded by a
combination of operating funds and $93.0 million of additional Tranche A term
loan (see Note 9).
The acquisition was accounted for as a purchase and accordingly, the
purchase price, including direct costs of the acquisition, was allocated to the
assets acquired and liabilities assumed based on their fair values at the date
of the acquisition. The excess of the purchase price over the fair value of the
net tangible assets acquired has been allocated to intangible assets, primarily
FCC licenses and network affiliations. The result of operations associated with
the acquired assets and liabilities has been included in the accompanying
consolidated financial statements from the date of acquisition. The acquisition
is summarized as follows (in thousands):
Assets acquired and liabilities assumed
<TABLE>
<S> <C>
Working capital, including cash of $22,400 ................. $ 15,443
Property and equipment ..................................... 18,422
Other noncurrent assets, net ............................... 424
Intangible assets .......................................... 108,096
--------
Total acquisition .......................................... $142,385
========
</TABLE>
PEGASUS BROADCASTING L.L.C. On October 19, 1999 the Company acquired
from NBC and GECC, 100% of NBC's interest in Pegasus Broadcasting of San Juan,
L.L.C. ("Pegasus Broadcasting"), the owner and operator of WAPA-TV, an
independent station located in San Juan, Puerto Rico (the "Pegasus
Acquisition"). The total purchase price for the Pegasus Acquisition was
approximately $71.8 million in cash, including direct costs of the acquisition.
As part of the acquisition, the Company assumed the LMA Agreements of WTIN-TV
and WNJX-TV. These stations are currently programmed as satellite stations of
WAPA-TV and are not separately programmed, similar to the Company's other LMA
agreements. The Pegasus Acquisition was funded by a combination of operating
funds and $60.0 million of borrowing under the Company's Tranche A incremental
term loan facility (see Note 9). The acquisition was accounted for as a purchase
and accordingly, the purchase price, including direct costs of the acquisition,
was allocated to the assets acquired and liabilities assumed based on their fair
values at
72
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LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
the date of the acquisition. The result of operations associated with the
acquired assets and liabilities has been included in the accompanying
consolidated financial statements from the date of acquisition. The acquisition
is summarized as follows (in thousands):
Assets acquired and liabilities assumed
<TABLE>
<S> <C>
Working capital, including cash of $1,891 ................. $ 4,239
Property and equipment .................................... 16,290
Noncurrent liabilities .................................... (1,946)
Intangible assets ......................................... 53,217
--------
Total acquisition ......................................... $ 71,800
========
</TABLE>
UNAUDITED PRO FORMA RESULTS OF ACQUISITIONS. The following summarizes
unaudited pro forma consolidated results of operations as if the acquisition of
LIN Television, the formation of the NBC Joint Venture, the Grand Rapids
Acquisition, and the Pegasus Acquisition had taken place as of the beginning of
the periods presented (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net revenues ..................... $ 267,581 $ 283,507
Operating income ................. 41,620 37,183
Net loss ......................... (18,645) (22,391)
</TABLE>
The pro forma data gives effect to actual operating results prior to
the acquisition of LIN Television, the formation of the NBC Joint Venture, the
Grand Rapids Acquisition, and the Pegasus Acquisition and adjustments to
interest expense, amortization and income taxes. No effect has been given to
cost reductions or operating synergies in this presentation. The pro forma
results do not necessarily represent results that would have occurred if the
acquisitions had taken place as of the beginning of the periods presented, nor
are they necessarily indicative of the results of future operations.
KXTX-TV. On June 3, 1999, LIN Texas contributed all of the assets of
KXTX-TV to Southwest Sports Group Holdings LLC, Inc. ("SSG"), a Texas limited
liability company and an entity in which a partner of Hicks Muse has a
substantial economic interest. In exchange, LIN Texas received 500,000 units of
SSG's Series A Preferred Units, par value $100 per unit ("SSG Preferred Units").
The Company assigned a value of $47.0 million to the SSG Preferred Units at the
time of the transaction. The SSG Preferred Units are entitled to receive
non-liquidating distributions prior to any junior ranked units of SSG in an
amount equal to $100 per Preferred Unit, minus the amount of previously made
distributions, plus an amount of interest thereon at a rate of 6% per annum
compounded annually beginning January 1, 1999. The Company has recorded $3.0
million of interest on the Series A Preferred Units. As of December 31, 1999, no
distributions have been made with respect to the preferred units.
SSG has the option at any time to redeem in whole or in part the
outstanding Series A Preferred Units for an amount equal to par plus imputed
interest at the rate of 6% from January 1, 1999 to the redemption date. The
Company has the right to convert its Series A Preferred Units into Class A Units
at the earlier of (a) the date of consummation by SSG of an underwritten initial
public offering of the Class A units, (b) a change of control, or (c) the date
that is three years following the date of the first issuance of the Series A
Preferred Units.
On August 1, 1998, LIN Texas and Southwest Sports Television Inc.
("SST"), an affiliate of SSG, entered into a Sub-Programming Agreement pursuant
to which SST rendered certain services with respect to KXTX-TV in exchange for a
management fee equal to the cash receipts of the station less operating and
73
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LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
other expenses. Management fee expenses for 1999 and 1998 were $1.2 million and
$8.0 million, respectively. The Sub-Programming Agreement terminated on June 3,
1999.
NOTE 4- BUSINESS DEVELOPMENTS:
NETWORK AFFILIATIONS. On July 15, 1999, the Company entered into an
amendment to its existing network agreement with American Broadcasting Company
("ABC"). This amendment calls for the Company to make payments to ABC for the
rights to broadcast National Football League games. In exchange, the Company
will receive eight additional prime time program spots per week. The Company
operates three stations affiliated with ABC - WAND in Decatur, Illinois, WTNH in
New Haven, Connecticut, and WOTV, an LMA station in Battle Creek, Michigan.
On April 6, 1999, Fox Broadcasting Company ("Fox") informed the Company of
its plan to reduce the inventory of the commercial time in Fox prime time
programming allocated to its affiliates by approximately 22%, or to allow the
affiliates to buy-back that inventory plus additional network inventory. The
Company has one station affiliated with Fox -- WVBT, an LMA station in Norfolk,
Virginia. WVBT-TV has elected to buy additional commercial time from Fox.
WAND-TV EXCHANGE. On December 13, 1999, the Company entered into an
agreement whereby the Company will exchange with Blade Communications Inc. a 67%
interest in the assets of its television station WAND-TV, Decatur, Illinois for
substantially all of the assets of WLFI-TV Inc. (the "WAND-TV Exchange"). Blade
Communications Inc. owns and operates, and is the licensee of television station
WLFI-TV, Lafayette, Indiana. This transaction is intended to qualify as a
"like-kind exchange" for non-recognition of taxable income under Section 1031 of
the Internal Revenue Code of 1986. This transaction is expected to close
effective April 1, 2000.
NOTE 5 - RELATED PARTY TRANSACTIONS:
ACQUISITION OF LIN TELEVISION. In connection with the Acquisition (see Note
3), LIN Holdings and LIN Television (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 agreed to pay Hicks Muse Partners an annual fee
(payable quarterly) for oversight and monitoring services. 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 earnings before interest, tax, depreciation
and amortization ("EBITDA") of LIN Holdings and its subsidiaries for the then
current fiscal year. Upon the acquisition by LIN Holdings and its subsidiaries
of another entity or business, the fee is adjusted prospectively in the same
manner using the pro forma consolidated annual EBITDA of LIN Holdings and it
subsidiaries. In no event shall the annual fee be less than $1.0 million. Hicks
Muse Partners is also entitled to reimbursement for any expenses incurred by it
in connection with rendering services allocable to LIN Holdings or LIN
Television. The fee for the year ended December 31, 1999 was $1.1 million. The
fee for the period from March 3, 1998 to December 31, 1998 was $833,000.
In connection with the Acquisition, the Clients also 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 also is entitled to receive a fee equal to 1.5% of the "transaction
value" (as defined below) for each "subsequent transaction" (as defined below)
in which either LIN Holdings or LIN Television is involved. The term
"transaction value" means the total value of the subsequent transaction,
including without limitation, the aggregate amount of the funds required to
complete the subsequent transaction (excluding any fees
74
<PAGE> 77
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
payable pursuant to the Financial Advisory Agreement), including the amount of
any indebtedness, preferred stock or similar obligations assumed (or remaining
outstanding). The term "subsequent transaction" means any future proposal for a
tender offer, acquisition, sale, merger, exchange offer, recapitalization,
restructuring or other similar transaction directly involving LIN Holdings or
any of its subsidiaries, and any other person or entity. This fee for the year
ended December 31, 1999 was approximately $3.0 million, related to the Grand
Rapids Acquisition and Pegasus Acquisition, and was included in the total cost
of these acquisitions. There were no such transaction fees in 1998.
Prior to June 1999, LIN Holdings leased an aircraft to AMFM Inc., a related
party and an entity in which Hicks Muse has a substantial economic interest,
pursuant to an existing lease agreement. In June 1999, LIN Holdings sold the
aircraft to AMFM Inc. for approximately $6.6 million and terminated the lease
agreement. The transaction with AMFM Inc. reimbursed LIN Holdings for all costs
associated with the plane, including the original purchase price.
INVESTMENT IN SPECIAL SERVICES DELAWARE B, INC. In October 1998, the
Company invested $7.1 million for 25% of the capital stock of Special Services
Delaware B, Inc. ("SSDB"), a company that owned and leased an aircraft to AMFM
Inc., an entity in which Hicks Muse has a substantial economic interest. Ranger
Equity Holdings A Corp. ("Ranger A"), a subsidiary of Ranger Equity Holdings
Corporation, ("Ranger"), a parent company, invested $21.4 million for the
remaining 75% capital stock of SSDB. The Company accounts for its interest in
SSDB using the equity method, as the company does not have a controlling
interest. In June 1999, SSDB sold the aircraft to a third party and terminated
the lease agreement with AMFM Inc. The sales proceeds from the aircraft were
distributed to the shareholders as a liquidating dividend in proportion to their
equity interests. The Company's portion of the liquidating dividend was $5.1
million. In addition, the Company received $2.1 million from AMFM Inc. that was
recorded to other income net of the $2.0 million loss resulting from the write
off of the balance of its investment.
JOINT VENTURE WITH 21ST CENTURY GROUP LLC. In August 1999, the Company and
21st Century Group LLC ("21st Century"), an entity in which Hicks Muse has a
substantial economic interest, announced the formation of a television station
joint venture, Banks Broadcasting, LLC (the "Banks Broadcasting Joint Venture".)
The Company and 21st Century also announced the first transaction of the Banks
Broadcasting Joint Venture, the entry into a local marketing agreement to build
and develop a new WB affiliate serving the Wichita, Kansas DMA. As of December
31, 1999, the Company has provided funding of $4.5 million in the form of an
investment of $2.2 million and an advance of $2.3 million, to the Banks
Broadcasting Joint Venture.
WGRC, INC GUARANTEE. On December 20, 1999 the Company entered into an
Amended and Restated Guarantee and Collateral Agreement (the "Guarantee
Agreement") with Chase Manhattan Bank, as administrative agent, and the lenders
named therein. Pursuant to the Guarantee Agreement, the Company will initially
guaranteed a $50 million credit facility of WWLP, Inc. ("WWLP, Inc"). At
December 31, 1999, no amount was outstanding under this credit facility. WWLP,
Inc is one of several companies recently formed by Gary R. Chapman, President
and CEO of LIN Television, the purpose of which are to acquire the broadcast
license and operating assets of WWLP-TV from Benedek Broadcasting Corporation.
The Company currently intends to enter into a management agreement with WGRC,
Inc. to manage the station.
HICKS MUSE RESTRUCTURING. On January 21, 2000, Thomas O. Hicks and Hicks,
Muse filed an application with the FCC proposing to restructure the ownership of
the Company in a manner in which the Company and the applicants believe would
render the ownership interests of Thomas O. Hicks and other Hicks Muse
principals nonattributable for the purposes of FCC ownership rules. The Company
expects that the current attribution issues associated with the Hicks Muse
ownership interests will be resolved upon the completion of the
recapitalization.
75
<PAGE> 78
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
NOTE 6 - JOINT VENTURE WITH NBC:
The Company owns a 20% interest in a Joint Venture with NBC (see Note 3)
and accounts for its interest using the equity method, as the Company does not
have a controlling interest. The following presents the summarized financial
information of the NBC Joint Venture (in thousands):
<TABLE>
<CAPTION>
Period From
Year Ended March 3 to
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net revenues ..................... $ 142,578 $ 119,849
Operating income ................. 40,830 28,438
Net loss ......................... (24,144) (26,044)
</TABLE>
<TABLE>
<CAPTION>
As of As of
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Current assets ....................... $ 159 $ 2,507
Non-current assets ................... 249,692 249,441
Current liabilities .................. 725 --
Non-current liabilities .............. 815,500 816,050
</TABLE>
The financial position and operating results of the Company's other joint
ventures are immaterial for all periods presented.
NOTE 7- PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land and Land Improvements ................... $ 10,555 $ 8,266
Buildings .................................... 47,039 29,789
Broadcasting equipment ....................... 117,224 108,169
----------- -----------
174,818 146,224
Less Accumulated depreciation ................ (29,936) (14,466)
----------- -----------
$ 144,882 $ 131,758
=========== ===========
</TABLE>
76
<PAGE> 79
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
NOTE 8 - INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
FCC licenses and network affiliations ........ $ 944,020 $ 807,029
Goodwill ..................................... 670,397 668,272
----------- -----------
1,614,417 1,475,301
Less accumulated amortization ................ (68,025) (30,701)
----------- -----------
$ 1,546,392 $ 1,444,600
=========== ===========
</TABLE>
NOTE 9- LONG-TERM DEBT:
Long-term debt consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Senior Credit Facilities ..................... $ 319,579 $ 167,678
$300,000 8 3/8% Senior Subordinated Notes
due 2008 (net of discount of $613) ......... 299,387 299,337
----------- -----------
Total debt ................................... 618,966 467,015
Less current portion ......................... (15,805) (15,063)
----------- -----------
Total long-term debt ......................... $ 603,161 $ 451,952
=========== ===========
</TABLE>
Interest rates associated with the Company's long-term debt are based
on the prevailing prime rate or LIBOR rate plus an applicable margin. Interest
is fixed for a period ranging from one month to 12 months, depending on
availability of the interest basis selected, except if the Company selects a
prime-based loan, in which case the interest rate will fluctuate during the
period as the prime rate fluctuates. Due to the frequent repricing of the
borrowings, the book values of the liabilities at December 31, 1998 approximate
market values.
SENIOR CREDIT FACILITIES:
On March 3, 1998, 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.
77
<PAGE> 80
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
Borrowings under the Senior Credit Facilities bear interest at a rate
based, at the option of the Company, on an adjusted LIBOR rate ("Adjusted
LIBOR"), or the highest of the Agent's prime 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. As of December 31, 1999, the interest rates on the $18
million revolving facility, $130 million Tranche A term loan, $60 million
Tranche A incremental term loan and $114 million Tranche B term loan ranged from
7.00% to 8.35%, 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 are
unconditionally and irrevocably guaranteed, jointly and severally, by LIN
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 as collateral against the performance of these
obligations. Required principal repayments of amounts outstanding under the
Senior Credit Facilities commenced 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, such as consolidated leverage and
interest coverage, and other conditions set forth in the Credit Agreement.
SENIOR SUBORDINATED NOTES:
On March 3, 1998, LIN Television issued $300 million aggregate
principal amount of 8 3/8% Senior Subordinated Notes due 2008 in a private
placement for net proceeds of $290.3 million. Such Senior Subordinated Notes
were subsequently registered with the SEC pursuant to a Registration Statement
filed on August 12, 1998. The Senior Subordinated Notes are unsecured
obligations of LIN Television, subordinated in right of payment to all existing
and any future senior indebtedness of LIN Television. The Senior Subordinated
Notes are fully and unconditionally guaranteed, on a joint and several basis, by
all wholly-owned subsidiaries of LIN Television. 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. The effective
interest rate of the Senior Subordinated Notes is 8.9% on an annual basis.
The fair values of the Company's long-term debt are estimated based on
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
The carrying amounts and fair values of long-term debt at December 31,
1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Carrying amount .............................. 618,966 467,015
Fair value ................................... 602,329 466,928
</TABLE>
NOTE 10 - STOCKHOLDERS' EQUITY:
Common Stock:
The Company's capital structure includes one class of common stock with
a par value of $.01 per share. All of the common stock is owned indirectly by
Ranger. The common equity of Ranger is owned by affiliates of Hicks Muse,
management and other co-investors.
78
<PAGE> 81
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
Stock Option Plan:
The Company participates in the Ranger Equity Holdings Corporation 1998
Stock Option Plan (the "1998 Option Plan"). Pursuant to the 1998 Option Plan
nonqualified options have been granted to certain directors, officers and key
employees of the Company in 1998 and 1999. Prior to March 2, 1998, nonqualified
options in the stock of LIN Television were granted to certain directors,
officers and key employees of the Predecessor pursuant to the LIN Television
1994 Adjustment Stock Incentive Plan, the LIN Television Amended and Restated
1994 Stock Incentive Plan and the LIN Television 1994 Nonemployee Director Stock
Incentive, each of which were terminated, and all options granted under each
cancelled, effective March 2, 1998.
Options granted pursuant to the 1998 Option Plan are generally not
exercisable until one year after the date of grant, have vesting terms of four
to five years and expire ten years from the date of grant.
Pro Forma information regarding net income as required by SFAS No. 123
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for grants
in 1997: a risk free interest rate of 5.92%; a volatility factor of .30; and a
weighted-average expected life of the options of seven years. If the Company had
elected to adopt the optional recognition provisions of SFAS No. 123 for its
stock option grants, net income (loss) would have been changed to the pro forma
amounts indicated below (in thousands):
<TABLE>
<CAPTION>
Period From Predecessor Predecessor
Year Ended March 3 - Period From Year Ended
December 31, December 31, January 1- December 31,
1999 1998 March 2, 1998 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Pro forma net income (loss) ... $(18,832) $(15,560) $ (2,744) $ 45,532
</TABLE>
A summary of the Company's stock option activity and related
information for the period from January 1 to March 2, 1998, and the year ended
December 31, 1997, is as follows:
<TABLE>
<CAPTION>
Period from
January 1 - Year ended
March 2, 1998 December 31, 1997
------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- ----- ------- -----
<S> <C> <C> <C> <C>
Options outstanding beginning of period ... 2,372,433 $26.75 1,859,798 $26.75
Granted ................................... -- -- 662,400 41.08
Exercised ................................. -- -- (120,995) 23.32
Acquisition of LIN Television ............. (2,372,433) 26.75 -- --
Canceled or expired ....................... -- -- (28,770) 22.28
--------- ------ --------- ------
Options outstanding end of period ......... -- -- 2,372,433 31.02
========= ====== ========= ======
Exercisable at end of period .............. -- -- 1,013,187 $25.96
</TABLE>
79
<PAGE> 82
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
The weighted average fair value of options granted during 1997 was $18.61
per share. As of December 31, 1997, 1,681,867 options were available for grant
under the Predecessor's option plans.
The Company participates in the Ranger Equity Holdings Corporation 1998
Stock Option Plan, administered by its parent company Ranger. During the period
from March 3, 1998 to December 31, 1999, 50,901,376 options and phantom stock
units underlying the stock of Ranger were granted to certain of the Company's
employees and directors. As of December 31, 1999, 49,552,858 and 49,452,858
options and phantom stock units, respectively, each with a weighted average
exercise price $0.61 remained outstanding. As of December 31, 1999, 25,677,132
options and phantom stock units with an average exercise price of $0.61 were
exercisable. As of December 31, 1998, 13,952,747 options and phantom stock units
with an average exercise price of $0.61 were exercisable.
NOTE 11 - INCOME TAXES:
Subsequent to the Merger, the Company was included in the consolidated
federal income tax return filed by Ranger. Pursuant to the tax-sharing agreement
between the Company and Ranger, tax liabilities and benefits were determined as
if Ranger and the Company were each separate and independent entities. As of
December 31, 1999 no amounts were due to or receivable from the Company under
the tax sharing agreement.
80
<PAGE> 83
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
Provision for income taxes included in the accompanying consolidated
statements of income consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
Period From Predecessor Predecessor
Year Ended March 3 - Period from Year Ended
December 31, December 31 January 1- December 31,
Current: 1999 1998 March 2, 1998 1997
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Federal ............................................ $ 3,389 $ 5,620 $ 1,740 $ 29,325
State .............................................. 340 1,140 63 1,223
-------- -------- -------- --------
3,729 6,760 1,803 30,548
-------- -------- -------- --------
Deferred:
Federal ............................................ 1,241 (3,517) 1,815 210
State .............................................. (825) (595) 92 (156)
Foreign ............................................ 996 -- -- --
-------- -------- -------- --------
1,412 (4,112) 1,907 54
-------- -------- -------- --------
$ 5,141 $ 2,648 $ 3,710 $ 30,602
======== ======== ======== ========
</TABLE>
The following table reconciles the amount that would be provided
(benefited) by applying the 35% federal statutory rate to income (loss) before
provision for income taxes to the actual provision for income taxes (in
thousands):
<TABLE>
<CAPTION>
Period From Predecessor Predecessor
Year Ended March 3 - Period from Year Ended
December 31, December 31 January 1- December 31,
Current: 1999 1998 March 2, 1998 1997
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Provision (benefit) assuming federal statutory rate ... $ (4,793) $ (4,519) $ 338 $ 27,548
State taxes, net of federal tax benefit ............... (315) 354 41 846
Amortization .......................................... 9,379 5,431 180 1,077
Merger expenses ....................................... -- -- 3,017 --
Other ................................................. 870 1,382 134 1,131
-------- -------- -------- --------
$ 5,141 $ 2,648 $ 3,710 $ 30,602
======== ======== ======== ========
</TABLE>
81
<PAGE> 84
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
The components of the deferred tax liability are as follows at December 31,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax liabilities
Intangible assets ..................... $ 506,376 $ 502,898
Property and equipment ................ 21,834 21,924
Investments ........................... 11,208 --
--------- ---------
539,418 524,822
--------- ---------
Deferred tax assets
Net operating loss carryforwards ...... (7,661) --
Valuation allowance ................... 7,661 --
Other ................................. (6,109) (5,615)
--------- ---------
(6,109) (5,615)
--------- ---------
Net deferred tax liabilities ............. $ 533,309 $ 519,207
========= =========
</TABLE>
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax basis of assets and
liabilities given the provisions of enacted tax laws.
A valuation allowance of approximately $7.7 million was established against
the Company's deferred tax assets during 1999. The valuation allowance relates
to certain acquired net operating loss carryovers in Puerto Rico resulting from
the Pegasus Acquisition. The Company has determined that it is more likely than
not that these deferred tax assets will not be realized.
The net operating loss carryforward in Puerto Rico of approximately $19.6
million will expire between 2000 and 2005.
NOTE 12 - RETIREMENT PLANS:
The Company is the sponsor of the LIN Television Corporation Retirement
Plan (the"Retirement Plan"). The Retirement Plan is a noncontributory defined
benefit retirement plan covering employees of the Company who meet certain
requirements, including length of service and age. Pension benefits vest on
completion of five years of service and are computed, subject to certain
adjustments, by multiplying 1.25% of the employee's last three years' average
annual compensation by the number of years of credited service. The assets of
the pension plan are invested primarily in long-term fixed income securities,
large and small cap U.S. equities, and international equities. The Company's
policy is to fund at least the minimum requirement and is further based on legal
requirements and tax considerations. No funding was required for the Retirement
Plan during 1999, 1998, and 1997.
The components of the net pension expense included in the financial
statements and information with respect to the change in benefit obligation,
change in plan assets, the funded status of the Retirement Plan and underlying
assumptions are as follows:
82
<PAGE> 85
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
RETIREMENT PLAN
(amounts in thousands, except percentages)
<TABLE>
<CAPTION>
Period from Predecessor Predecessor
Year Ended March 3 - Period from Year Ended
December 31, December 31, January 1 - December 31,
1999 1998 March 2, 1998 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation, beginning of period $ 60,048 $ 53,253 $ 52,440 $ 47,339
Service cost 955 614 176 820
Interest cost 3,942 3,044 600 3,398
Plan amendments -- -- -- (496)
Actuarial loss (gain) (10,052) 5,298 296 2,875
Curtailments -- (682) -- --
Benefits paid (1,468) (1,479) (260) (1,496)
-------- -------- -------- --------
Benefit obligation, end of period $ 53,425 $ 60,048 $ 53,252 $ 52,440
======== ======== ======== ========
Change in plan assets
Fair value of plan assets, beginning of period $ 63,965 $ 61,686 $ 58,015 $ 50,631
Actual return on plan assets 6,782 3,758 3,931 8,880
Benefits paid (1,468) (1,479) (260) (1,496)
-------- -------- -------- --------
Fair value of plan assets, end of period $ 69,279 $ 63,965 $ 61,686 $ 58,015
======== ======== ======== ========
Funded status of the plan $ 15,854 $ 3,917 $ 8,434 $ 5,575
Unrecognized actuarial gain (19,363) (7,039) (11,898) (8,913)
Unrecognized prior service cost 9 228 988 1,124
Unrecognized net transition asset (627) (940) (1,201) (1,253)
-------- -------- -------- --------
Total amount recognized $ (4,127) $ (3,834) $ (3,677) $ (3,467)
======== ======== ======== ========
Accrued benefit liability $ (4,127) $ (3,834) $ (3,677) $ (3,467)
======== ======== ======== ========
Assumptions as of period end
Discount rate 7.50% 6.50% 7.00% 7.00%
Expected return on plan assets 8.25% 8.25% 8.00% 8.00%
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
Health care cost trend rate n/a n/a n/a n/a
Net periodic cost
Service cost $ 955 $ 614 $ 176 $ 820
Interest cost 3,942 3,044 600 3,398
Expected return on assets (4,510) (3,318) (650) (3,655)
Prior service cost amortization 219 503 136 815
Transition amount recognized (313) (261) (52) (313)
Curtailment gain -- (426) --
-------- -------- -------- --------
Net periodic cost $ 293 $ 156 $ 210 $ 1,065
======== ======== ======== ========
</TABLE>
83
<PAGE> 86
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
SUPPLEMENTAL BENEFITS RETIREMENT PLAN
(amounts in thousands, except percentages)
<TABLE>
<CAPTION>
Period from Predecessor Predecessor
Year Ended March 3 - Period from Year Ended
December 31, December 31, January 1 - December 31,
1999 1998 March 2, 1998 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation, beginning of period $ 1,891 $ 1,987 $ 1,801 $ 1,168
Service cost 180 118 34 143
Interest cost 127 93 22 113
Actuarial loss (gain) (510) 204 130 377
Curtailments -- (511) -- --
-------- -------- -------- --------
Benefit obligation, end of period $ 1,688 $ 1,891 $ 1,987 $ 1,801
======== ======== ======== ========
Funded status of the plan $ (1,688) $ (1,891) $ (1,987) $ (1,801)
Unrecognized actuarial gain (58) 468 785 665
Unrecognized prior service cost 6 8 12 12
Unrecognized net transition asset (33) (49) (62) (65)
-------- -------- -------- --------
Total amount recognized $ (1,773) $ (1,464) $ (1,252) $ (1,189)
======== ======== ======== ========
Accrued benefit liability $ (1,773) $ (1,464) $ (1,252) $ (1,189)
======== ======== ======== ========
Assumptions as of period end
Discount rate 7.50% 6.50% 7.00% 7.00%
Expected return on plan assets 8.25% 8.25% 8.00% 8.00%
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
Health care cost trend rate n/a n/a n/a n/a
Net periodic cost
Service cost $ 180 $ 118 $ 34 $ 143
Interest cost 127 92 22 113
Prior service cost amortization 2 3 -- 2
Actuarial Loss (Gain) Recognized 16 10 10 42
Transition amount recognized (16) (14) (3) (16)
Curtailment gain -- 3 -- --
-------- -------- -------- --------
Net periodic cost $ 309 $ 212 $ 63 $ 284
======== ======== ======== ========
</TABLE>
84
<PAGE> 87
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
NOTE 13 - COMMITMENTS & CONTINGENCIES:
Commitments:
The Company leases land, buildings, vehicles and equipment under
noncancelable operating lease agreements that expire at various dates through
2016. Commitments for noncancelable operating lease payments are as follows (in
thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
2000 .............................................. $ 1,610
2001 .............................................. 1,490
2002 .............................................. 1,379
2003 .............................................. 1,341
2004 .............................................. 997
Thereafter ......................................... 2,867
-------
$ 9,684
=======
</TABLE>
Rent expense included in the consolidated statements of operations was
$1.4 million for the year ended December 31, 1999, $100,000 for the period from
January 1, 1998 to March 2, 1998, $1.1 million for the period from March 3, 1998
to December 31, 1998, and $1.2 million for the year ended December 31, 1997.
The Company has also entered into commitments for future syndicated
news, entertainment, and sports programming. Future payments associated with
these commitments are as follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
2000 .............................................. $ 3,200
2001 .............................................. 7,268
2002 .............................................. 6,545
2003 .............................................. 4,501
2004 .............................................. 3,962
Thereafter ......................................... 3,130
-------
$28,606
=======
</TABLE>
Contingencies:
Changes in FCC Ownership Rules. Effective November 16, 1999, the
Federal Communications Commission (the "FCC") significantly revised certain of
its broadcast ownership regulations. Among the FCC actions were: 1) relaxing the
current "duopoly" rule to permit substantially more frequent waivers of the rule
and permitting ownership of two television stations in a local market under
certain circumstances; 2) determining that television local marketing agreements
(LMAs) were equivalent to ownership for purposes of the local ownership rules
and thus permissible only where ownership was permissible; 3) grandfathering
television LMAs entered into prior to November 5, 1996, until at least after the
conclusion of a rulemaking to be initiated no sooner than 2004 examining whether
it would be in the public interest to permit such combinations to continue; 4)
permitting the free transferability of grandfathered LMAs during the grandfather
period but limiting the transferability of television duopolies where one entity
owns both stations; and 5) modifying the FCC's radio-television cross-ownership
rules to permit the possession of "attributable" ownership interests in a
maximum of two television stations and six radio stations in larger markets and
two television and four radio stations in smaller markets.
85
<PAGE> 88
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
The new rules are still subject to potentially significant amendments
in response to numerous petitions for reconsideration from parties seeking on
the one hand to make them more restrictive and on the other to relax them
further, and are expected to be the subject of a variety of judicial challenges.
As the rules are currently formulated, management believes that: 1) the four
LMAs the Company has entered into in the Grand Rapids, New Haven, Austin and
Norfolk markets are grandfathered; 2) these four combinations are probably
eligible for waivers of the duopoly rule and the Company will likely be able to
convert those LMAs to ownership interests through the exercise of option rights
with respect to each of those stations prior to the expiration of the
grandfather period; and 3) the rules permit the continued cross-ownership by the
Company and AMFM Inc., respectively, of the television and radio stations
currently owned by those companies in the Grand Rapids, Hartford-New Haven,
Austin, and Indianapolis markets. (Stations owned by the Company and AMFM Inc.
are each attributable to the other company for purposes of the radio-television
cross-ownership rule.) There can be no assurances however that the rules will be
implemented or interpreted in such a manner. The Company is still evaluating
whether and when to exercise its options to purchase each of the LMA stations.
Other Contingencies. In September 1999, AMFM Inc., which owns more than
400 radio stations, announced its intention to merge with Clear Channel
Communications ("Clear Channel"), a company which owns more than 500 radio
stations and 19 television stations. The television and radio interests owned by
the proposed combined entity would also be attributable to the Company for
purposes of the radio-television cross-ownership rule and the television duopoly
rule. Clear Channel has announced its intention to make whatever divestitures
are necessary to bring it into compliance with the FCC's ownership rules prior
to the merger but the ownership interests of Clear Channel could in the future
limit the ability of the Company to acquire more television stations. In
addition, Hicks, Muse has agreed to restructure its ownership interests in LIN
in a manner which the Company believes will render those interests
nonattributable for purposes of FCC regulations. [See Hicks Muse Restructuring.]
Litigation. On September 4, 1997, the Company announced that it had
learned of four lawsuits regarding the then proposed acquisition of LIN
Television. The Company and 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 stockholders. Three of
the four lawsuits were filed in the Delaware Court of Chancery, while the fourth
lawsuit was filed in the 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 stockholders. 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 sale of the television station WOOD-TV by AT&T to LIN Television 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.
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 December 31, 1999 is likely
to have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
86
<PAGE> 89
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
NOTE 14 - LOCAL MARKETING AGREEMENTS:
The Company entered into LMAs with the owners of KNVA-TV in Austin,
Texas in August 1994; WBNE-TV in New Haven-Hartford, Connecticut in December
1994; WVBT-TV in Norfolk-Portsmouth, Virginia in December 1994; WOTV-TV in Grand
Rapids-Kalamazoo-Battle Creek, Michigan in June 1999; and WTIN-TV and WJNX-TV in
San Juan, Puerto Rico in October 1999. The LMA's in Puerto Rico are currently
programmed as satellite stations of WAPA-TV and are not separately programmed
similar to the Company's other LMA agreements. Under the LMAs, the Company is
required to pay fixed periodic fees and incur programming and operating costs
relating to the LMA stations, but retains all advertising revenues.
The Company has also entered into option and put agreements that would
enable or require the Company to purchase the stations for a fixed amount under
certain conditions. The aggregate purchase price for the purchase options was
approximately $1.5 million. Given the recent changes in FCC ownership rules, the
Company, at the option of the parties involved in the LMA contracts, could be
required to purchase certain of the LMA stations. Potential commitments for
fulfilling the put options totaled a maximum of $12.2 million, subject to
adjustments for monthly rental payments and outstanding loans, at December 31,
1999.
Future minimum fees required under all six of these LMAs are as follows
(in thousands):
<TABLE>
<CAPTION>
Year
- ----
<S> <C>
2000 .............................................. $ 2,303
2001 .............................................. 2,315
2002 .............................................. 2,217
2003 .............................................. 1,559
2004 .............................................. 1,055
Thereafter ......................................... 684
-------
Total .............................................. $10,133
=======
</TABLE>
87
<PAGE> 90
LIN TELEVISION CORPORATION
Notes to Consolidated Financial Statements
NOTE 15 - UNAUDITED QUARTERLY DATA (in thousands):
<TABLE>
<CAPTION>
Second Third Fourth
First Quarter Quarter Quarter Quarter
------------- ------- ------- -------
<S> <C> <C> <C> <C>
1999 - COMPANY
Net revenues $ 44,610 $ 56,629 $ 52,377 $ 70,830
Operating income (loss) (1,011) 11,738 6,333 18,930
Net income (loss) $(14,846) $ (950) $(10,890) $ 7,854
1998 - COMBINED COMPANY/PREDECESSOR
Net revenues $ 60,015 $ 61,777 $ 55,778 $ 55,770
Operating income 14,730 11,741 4,566 8,937
Net loss $ (6,472) $ (1,364) $ (8,784) $ (1,684)
1997 - PREDECESSOR
Net revenues $ 61,662 $ 83,305 $ 71,911 $ 74,641
Operating income 17,117 30,468 25,129 34,741
Net income $ 7,137 $ 15,550 $ 9,935 $ 15,485
</TABLE>
NOTE 16 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Predecessor Predecess
----------- ---------
Period from Period From
Year Ended March 3 - January 1 - Year Ende
December 31, 1999 December 31, 1998 March 2, 1998 December 31,
----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash paid for interest $ 43,732 $ 23,059 $2,895 $20,608
Cash paid for income taxes 599 1,075 46 26,092
Schedule of noncash investing activities
Value of preferred units received on disposal of KXTX-TV 47,000 --
In March 1998, Ranger acquired LIN Television Corporation
for approximately $1.7 billion. In conjunction with
this acquisition, liabilities were assumed as follows:
Fair value of assets acquired and intangible assets -- $ 1,798,652 -- --
Cash paid -- (1,176,359) -- --
--------- ----------- ------ -------
Liabilities assumed -- $ 622,293 -- --
========= =========== ====== =======
In June 1999, the Company acquired WOOD-TV and the LMA rights
related to WOTV-TV for approximately $142.4 million. In
conjunction with this acquisition, liabilities were
assumed as follows:
Fair value of assets acquired and intangible assets $ 158,146 -- -- --
Cash paid (142,385) -- -- --
--------- ----------- ------ -------
Liabilities assumed $ 15,761 -- -- --
========= =========== ====== =======
In October 1999, the Company acquired Pegasus Broadcasting of
San Juan, LLC. for approximately $71.8 million. In
conjunction with this acquisition, liabilities were
assumed as follows:
Fair value of assets acquired and intangible assets $ 89,575 -- -- --
Cash paid (71,800) -- -- --
--------- ----------- ------ -------
Liabilities assumed $ 17,775 -- -- --
========= =========== ====== =======
</TABLE>
88
<PAGE> 91
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
There are no changes in or disagreements with the Accountants on any
accounting or financial disclosure.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
The following table provides the information concerning the directors
and executive officers of LIN Holdings and LIN Television as of December 31,
1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Thomas O. Hicks ....... 54 Chairman of the Board of LIN Holdings and LIN Television
John R. Muse .......... 46 Director of LIN Holdings and LIN Television
Jeffrey A. Marcus ..... 53 Director of LIN Holdings and LIN Television
C. Dean Metropoulos ... 53 Director of LIN Holdings and LIN Television
Eric C. Neuman ........ 55 Director of LIN Holdings and LIN Television
Gary R. Chapman ....... 56 Director, President and Chief Executive Officer of
LIN Holdings and LIN Television
James G. Babb, Jr ..... 68 Vice President of Industry Relations of LIN Holdings
and LIN Television
Paul Karpowicz ........ 46 Vice President of Television of LIN Holdings and LIN Television
Gregory M. Schmidt .... 49 Vice President of New Development, General Counsel and Secretary
of LIN Holdings and LIN Television
Deborah R. Jacobson ... 40 Vice President of Corporate Development and Treasurer
of LIN Holdings and LIN Television.
Peter E. Maloney ...... 45 Vice President of Finance of LIN Holdings and LIN Television
C. Robert Ogren, Jr ... 56 Vice President of Engineering and Operations of
LIN Holdings and LIN Television
Denise M. Parent ...... 36 Vice President, Deputy General Counsel of LIN Holdings
and LIN Television
William Cunningham .... 42 Vice President, Controller of LIN Holdings and LIN Television
</TABLE>
THOMAS O. HICKS is the Chairman of the Board of LIN Holdings and LIN
Television and has served in such position since co-founding the Firm in 1989
and has over 25 years of experience in leveraged acquisitions and private
investments. Mr. Hicks is a Chairman of the Board and Chief Executive Officer of
Hicks Muse, a private investment firm located in Dallas, St. Louis, New York,
Mexico City and London specializing in strategic investments, leveraged
acquisitions and recapitalizations. From 1984 to May 1989, Mr. Hicks was
Co-Chairman of the Board and Co-Chief Executive Officer of Hicks & Haas,
Incorporated, a Dallas based private investment firm. Mr. Hicks serves as the
Chairman and CEO of AMFM Inc., director of Sybron International Corporation,
Inc., Cooperative Computing, Inc., International Home Foods, Triton Energy,
D.A.C. Vision Inc. and Olympus Real Estate Corporation.
JOHN R. MUSE has been a director of LIN Holdings and LIN Television
since May 1998. Mr. Muse co-founded Hicks Muse in 1989 and is Chief Operating
Officer and a Partner of Hicks Muse. Prior to the formation of Hicks Muse, Mr.
Muse headed the investment/merchant banking activities of Prudential Securities
for the southwest region of the United States from 1984 to 1989. Mr. Muse is
Chairman of Arena Brands, Inc., Lucchese, Inc., Sunrise Television Corp. and
serves as director of Arnold Palmer Golf Management Co., Glass's Group,
International Home Foods, Inc., Olympus Real
89
<PAGE> 92
Estate Corporation, Regal Cinemas, Inc. and Suiza Foods Corporation. Mr. Muse
also serves in the Board of Directors for Goodwill Industries, SMU Edwin Cox
School of Business, the UCLA Anderson School Board of Visitors, and on the Board
of Trustees of St. Mark's School of Texas.
JEFFREY A. MARCUS has been a director of LIN Holdings and LIN
Television since March 1999. Mr. Marcus was the President and Chief Executive
Officer of AMFM Inc. from June 1, 1998 until March 1999. Mr. Marcus is currently
the managing partner of Marcus and Partners, a technology venture capital firm.
Prior to joining AMFM Inc. on June 1, 1998, Mr. Marcus served as the Chairman
and Chief Executive Officer of Marcus Cable Properties, Inc. and Marcus Company,
L.L.C. (collectively "Marcus Cable"), the ninth largest cable television
multiple system operator (MSO) in the United States, which Mr. Marcus formed in
1990. Mr. Marcus previously served as Chairman and Chief Executive Officer of
WestMarc Communications, Inc., an MSO formed through merger in 1987 of Marcus
Communications, Inc. and Western TeleCommunications, Inc. Mr. Marcus has spent
more than 31 years in the cable television business. Mr. Marcus is a minority
owner of the Texas Rangers Baseball Club and Dallas Stars Hockey Team. He serves
as a director of Brinker International, Inc. and is a director or trustee of
several charitable and civic organizations.
C. DEAN METROPOULOS has been a director of LIN Holdings and LIN
Television since May 1998. Mr. Metropoulos is the Chairman of the Board of
Directors and Chief Executive Officer of International Home Foods, Inc. and
Chief Executive Officer of C. Dean Metropoulos & Co., a management services
company. From 1993 through 1997, Mr. Metropoulos served as Chairman of the Board
and Chief Executive Officer of the Morningstar Group, Inc. From 1983 through
1993, he served as President and Chief Executive Officer of Stella Foods, Inc.
Before then, Mr. Metropoulos served in a variety of U.S. and international
executive positions with GTE Corporation, including Vice President and General
Manager -- Europe and Vice President and Controller, GTE International. Mr.
Metropoulos also serves as a Director of Suiza Foods and Atrium Companies, Inc.
ERIC C. NEUMAN is Vice President and a director of LIN Holdings and LIN
Television. Mr. Neuman will resume his position as an officer of Hicks Muse in
April 1999. Mr. Neuman was the Senior Vice President of Strategic Development
for AMFM Inc. from July 1998 to March 1999. From May 1993 to July 1, 1998, Mr.
Neuman served as an officer of Hicks Muse since 1993 and was most recently
serving as a Senior Vice President thereof. From 1985 to 1993 Mr. Neuman served
as a Managing General Partner of Communications Partner, Ltd. a Dallas-based
private investment firm specializing in media and communications businesses. Mr.
Neuman also serves as a director of AMFM Inc., and STC Broadcasting.
GARY R. CHAPMAN has been President of LIN Television since 1989 and a
director and CEO since November 1994 and became a director, the President and
CEO of the Company concurrently with the closing of the Acquisition. Mr. Chapman
served as Joint Chairman of the National Association of Broadcasters from 1991
to 1993 and serves as a board member of the Advanced Television Test Center.
Currently, Mr. Chapman serves on the Board of Directors of the Association for
Maximum Service Television and is Co-Chairman of the Advisory Board of Governors
for the National Association of Broadcasters Education Foundation.
JAMES G. BABB, Jr. has been Vice President of Industry Relations of LIN
Television since April 1996 and became the Company's Vice President of Industry
Relations concurrently with the closing of the Acquisition. Prior to joining the
Company, Mr. Babb was Chairman, CEO and President of Outlet Communication, Inc.
from May 1991 to February 1996. Mr. Babb currently serves as the Chairman of the
Television Board of the National Association of Broadcasters.
PAUL KARPOWICZ has served as Vice President of Television of LIN
Television since January 1994 and became the Vice President of Television of the
Company concurrently with the closing of the
90
<PAGE> 93
Acquisition. Prior to January 1994, Mr. Karpowicz served as general manager of
LIN Television's Indianapolis CBS Affiliate station, WISH-TV, from July 1989
through July 1995.
GREGORY M. SCHMIDT has been Vice President of New Development, General
Counsel and Secretary of LIN Television since March 1995. He became Vice
President of New Development, General Counsel and Secretary of the Company
concurrently with the closing of the Acquisition. From 1985 to 1995, he was a
partner at Covington & Burling, a Washington law firm with a high-profile
presence in regulatory and communications law.
DEBORAH R. JACOBSON has been Vice President of Corporate Development
and Treasurer of LIN Televison since February 13, 1995. She became the Vice
President of Corporate Development and Treasurer concurrently with the closing
of the Acquisition. For the period from January 6, 1999 to June 1, 1999 Ms.
Jacobson served as Vice President- Investor Relations for AMFM, Inc. From 1981
to 1995, Ms. Jacobson was employed by The Bank of New York, where most recently
she served as Senior Vice President and Division Head of the Communications,
Entertainment and Publishing Lending Division.
PETER E. MALONEY has served as Vice President of Finance of LIN
Television since January 1995 and became the Vice President of Finance of the
Company concurrently with the closing of the Acquisition. Prior to January 1995,
Mr. Maloney was employed by LIN Broadcasting as Vice President of Taxation from
June 1990 to December 1994 and as Director of Taxation and Financial Planning
from January 1983 to June 1990.
C. ROBERT OGREN, JR. has been Vice President of Engineering and
Operations of LIN Television since November 1990 and became the Vice President
of Engineering and Operations of the Company concurrently with the closing of
the Acquisition. Prior to November 1990, Mr. Ogren was Director of Engineering
at WBAL-TV from June 1989 to October 1990 and Director of Engineering for
Freedom Newspapers, Inc. from June 1984 to May 1989.
DENISE M. PARENT has been Vice President-Deputy General Counsel of LIN
Television since March 1997 and became Vice President-Deputy General Counsel of
the Company concurrently with the closing of the Acquisition. From 1993 to 1997,
Ms. Parent was employed by The Providence Journal Company as Senior Corporate
Counsel. Prior to 1993, Ms. Parent was employed by Adler, Pollock & Sheehan,
Incorporated, a law firm in Providence, Rhode Island.
WILLIAM CUNNINGHAM has been Vice President-Controller of LIN Television
since November 1999 and became Controller of LIN Television in July 1998. From
1987 to 1994, Mr. Cunningham was employed by Fox Television as Vice President,
Finance and from 1994 to 1996, was employed by SF Broadcasting, LLC, a joint
venture of Fox Television and Savoy Pictures, as Senior Vice President and CFO.
91
<PAGE> 94
ITEM 11. EXECUTIVE COMPENSATION:
The following table sets forth the compensation earned or paid, including
deferred compensation, by the Company to the Chief Executive Officer of LIN
Television (the "CEO"), and the five other most highly compensated executive
officers of the LIN Television for services rendered for the years ended
December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------- ---------------------------------
Other Annual
Compensation ($)
Name and Principal Position Year Salary ($) Bonus ($) (a) Options (#)
- ----------------------------------- ---- ---------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Gary R. Chapman ................... 1999 500,000 1,000,000 17,598 --
President & CEO 1998 500,000 500,000 13,863 13,248,600
1997 500,000 205,000 22,305 100,000
Paul Karpowicz .................... 1999 340,000 115,000 3,924 --
Vice President, Television 1998 330,000 135,000 1,930 4,263,500
1997 300,000 110,000 237,708 47,000
Gregary M. Schmidt ................ 1999 340,000 110,000 9,889 --
Vice President, New Development, 1998 330,000 105,000 2,619 3,763,500
General Counsel & Secretary 1997 320,000 100,000 11,559 47,000
Deborah R. Jacobson (b) ........... 1999 116,000 86,000 6,998 --
Vice President, Corporate 1998 185,000 83,000 1,439 2,238,700
Development & Treasurer 1997 180,000 65,000 11,665 35,000
Peter E. Maloney .................. 1999 190,000 86,000 5,055 --
Vice President, Finance 1998 180,000 83,000 2,112 2,738,700
1997 165,000 80,000 6,898 35,000
C. Robert Ogren, Jr ............... 1999 190,000 86,000 9,036 --
Vice President, Engineering 1998 180,000 83,000 4,150 1,738,700
and Operations 1997 165,000 80,000 10,701 35,000
</TABLE>
(a) The amount set forth in Other Annual Compensation includes as to all named
executive officers the value to executive life and disability insurance and
to most named executive officers the personal use of Company automobiles
and nonqualified pension contributions. In addition, the 1997 amount
includes an additional $212,196 tax gross-up relocation payment for Mr.
Karpowicz.
(b) Deborah R. Jacobson resigned as an officer of the Company effective January
6, 1999 simultaneously with her appointment as an officer of AMFM Inc. Ms.
Jacobson was reinstated as an officer of the Company on June 1, 1999 as a
result of the termination of the AMFM Inc. proposed merger agreement with
the Company.
The following table discloses, for the CEO and the other named executive
officers, individual exercises of options in the during the year ended December
31,1999, and the number and value of options held by such named executive
officer at December 31, 1999.
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<PAGE> 95
Aggregate Exercises During the 1999 Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Shares Value of Value of
Underlying Shares Underlying Exerciseable In- Unexerciseable In-
Shares Exerciseable Unexerciseable the-Money the-Money
Acquired on Value Realized Options At Fiscal Options At Fiscal Options at Fiscal Options at Fiscal
Name Exercise (#) ($) Year End (#) Year End (#) Year End ($) Year End ($)
- ----------------------- ------------ -------------- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Gary R. Chapman ....... - - 9,185,441 4,063,159 6,982,093 1,017,907
Paul Karpowicz ........ - - 5,735,420 1,368,800 2,210,934 298,066
Gregory M. Schmidt .... - - 2,394,700 1,368,800 1,816,542 183,456
Peter E. Maloney ...... - - 1,777,240 961,460 1,359,782 140,219
Deborah R. Jacobson ... - - 1,277,240 961,460 1,000,000 --
C. Robert Ogren Jr .... - - 777,240 961,460 500,000 --
</TABLE>
STOCK OPTION PLAN:
The Company participates in the Ranger Equity Holdings Corporation 1998
Stock Option Plan (the "1998 Option Plan"). Pursuant to the 1998 Option Plan
nonqualified options have been granted to certain directors, officers and key
employees of the Company. Prior to March 2, 1998, nonqualified options were
granted to directors, officers and key employees of the Company pursuant to the
LIN Television Corporation 1994 Adjustment Stock Incentive Plan, the Amended and
Restated 1994 Stock Incentive Plan and the 1994 Nonemployee Director Stock
Incentive each of which were terminated and all options granted under each were
exercised or cancelled on March 2, 1998.
Options granted pursuant to the 1998 Option Plan are generally not
exercisable until one year after grant, have vesting terms of four to five years
and expire ten years from the date of grant.
RETIREMENT PLANS
The Company maintains a defined benefit retirement plan (the "Pension
Plan") and a defined contribution plan (the "401(k) Plan"), each of which covers
certain employees of the Company and its subsidiaries.
The following table shows the estimated annual retirement benefits
payable under the Pension Plan and the Company's Supplemental Benefit Retirement
Plan as an annuity for life upon normal retirement for specified compensation
and years of credited service classifications, assuming retirement at age 65 on
December 31, 1999. Benefits are computed by multiplying (i) 1.25% of the
employee's average annual compensation (salary and bonus, excluding option gains
and benefits or payments received under any other benefit plan for the three
consecutive years producing the highest average) times (ii) the employee's
number of years of credited service, up to a maximum of 32 years. Sections 401
(a) (17) and 415 of the Code limit the annual benefits that may be paid from a
tax qualified retirement plan such as the Pension Plan and the Supplemental
Retirement Plan. As permitted by the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Company's Supplemental Benefit Retirement Plan
authorizes the payment out of the Company's general funds of any benefits
calculated under the provisions of the Pension Plan that may be above the limits
of Sections 401 (a)(17) and 415 of the Code.
93
<PAGE> 96
PENSION TABLE
<TABLE>
<CAPTION>
Three-Year
Average
Annual
Compensation Years of Credited Service
- ------------ ------------------------------------------------------------------
10 15 20 25 30 32
-- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
70,000 8,750 13,125 17,500 21,875 26,250 28,000
100,000 12,500 18,750 25,000 31,250 37,500 40,000
150,000 18,750 28,125 37,500 46,875 56,250 60,000
200,000 25,000 37,500 50,000 62,500 75,000 80,000
300,000 37,500 56,250 75,000 93,750 112,500 120,000
400,000 50,000 75,000 100,000 125,000 150,000 160,000
500,000 62,500 93,750 125,000 156,250 187,500 200,000
750,000 93,750 140,625 187,500 234,375 281,250 300,000
</TABLE>
As of December 31, 1999, Mr. Chapman had eleven years of credited
service under the Pension Plan, Mr. Karpowicz had ten years, Mr. Schmidt had
five years, Mr. Maloney had sixteen years, Ms. Jacobson had five years, and Mr.
Ogren had ten years of credited service. Mr. Karpowicz's several years of
employment with the Company in the late 1970s do not qualify as credited service
under the terms of the Pension Plan. Benefit amounts under the Pension Plan are
not subject to any deduction for Social Security benefits or other offset
amounts.
CHANGE IN CONTROL ARRANGEMENTS:
Severance Compensation Agreements. The Company has entered into
Severance Compensation Agreements with Mr. Chapman and the other Named Executive
Officers of the Company. Under such agreements, if employment is terminated
other than for cause (as defined in the Severance Compensation Agreements), the
employee is entitled to certain severance benefits in addition to any
compensation otherwise payable. Such severance benefits include a lump sum
payment designed to provide the equivalent to the sum of (i) an amount equal to
two times the employee's annual base salary on the Date of Termination (as
defined in the Severance Compensation Agreements); (ii) an amount equal to two
times the bonus compensation paid to the employee with respect to the last
complete fiscal year; and (iii) the present value as of the Date of Termination,
of the sum of (a) all benefits which have accrued to the employee but have not
vested under the LIN Television Corporation Retirement Plan as of the Date of
Termination and (b) all additional benefits which would have accrued to the
employee under the Retirement Plan if the employee had continued to be employed
by the Company on the same terms the employee was employed on the Date of
Termination. In addition to such cash payments, the employee is entitled to
life, health and disability and accident insurance benefits substantially
similar to those which the employee was receiving prior to the Notice of
Termination (as defined in the Severance Compensation Agreements)(or, if
greater, immediately prior to a Change in Control, as defined in the Severance
Compensation Agreements) for a period of two years.
The Company expects to enter into continuing employment and severance
agreements with Mr. Chapman and the other named executive officers of the
Company.
94
<PAGE> 97
DIRECTOR COMPENSATION:
Directors of LIN Holdings and LIN Television, who are also employees of
LIN Television or Hicks Muse serve without additional compensation. Messrs.
Marcus and Metropoulos serve as independent directors of LIN Holdings and LIN
Television. Payments made to independent directors were $11,000 in 1999 and $0
in 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The respective boards of directors of LIN Holdings and LIN Television
appointed Messrs. Hicks, Metropoulos and Neuman to the Compensation Committee
for each company with Mr. Hicks serving as Chairman. Mr. Hicks is the Chairman
of LIN Holdings and LIN Television and a principal in Hicks Muse. Mr. Neuman is
Vice President of LIN Holdings and LIN Television and an officer of Hicks Muse,
which through its affiliates controls approximately 74.7% of the outstanding
common stock of Ranger. An affiliate of Hicks Muse is a party to the Monitoring
and Oversight Agreement and the Financial Advisory Agreement, each as defined in
"Item 13. Certain Relationships and Related Transactions." Mr. Hicks is the
Chairman and CEO of AMFM Inc., and Mr. Neuman serves as a director of AMFM Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
LIN Television has 1,000 shares of common stock, par value $.01 per
share, issued and outstanding, all of which are owned by LIN Holdings. LIN
Holdings has 1,000 shares of common stock, par value $0.01 per share, issued and
outstanding, 630 of which are owned by Ranger B and 370 of which are owned by
Ranger Equity Holdings A Corp. All of the shares of capital stock of Ranger
Equity Holdings A Corp. and Ranger B are held by Ranger, which is controlled by
a limited partnership controlled by a limited liability company which is in turn
controlled by Thomas O. Hicks. For a description of the relationship between
Hicks Muse and the Company, see "Item 13. Certain Relationships and Related
Transactions."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
In connection with the Acquisition, LIN Holdings, LIN Television 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 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 earnings before
interest, tax, depreciation and amortization ("EBITDA") of LIN Holdings and its
subsidiaries for the then current fiscal year. Upon the acquisition by LIN
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 LIN 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 LIN Holdings and LIN Television.
The Clients, jointly and severally, have agreed to indemnify Hicks Muse
Partners, its affiliates, and their respective directors, officers, controlling
persons, agents and employees from and against all claims, liabilities, losses,
damages, expenses and fees related to or arising out of or in connection with
the services rendered by Hicks Muse Partners under the Monitoring and Oversight
Agreement and not resulting primarily from the bad faith, gross negligence, or
willful misconduct of Hicks Muse Partners. The Monitoring and Oversight
Agreement makes available the resources of Hicks Muse Partners concerning a
variety of financial and operational matters. LIN Holdings and LIN Television do
not believe that the services that have been and will continue to be provided to
them by Hicks Muse Partners could otherwise be obtained by them without the
addition of personnel or the engagement of outside
95
<PAGE> 98
professional advisors. In the opinion of LIN Holdings and LIN Television, the
fees provided for under the Monitoring and Oversight Agreement reasonably
reflect the benefits received and to be received by LIN Holdings and LIN
Television.
In connection with the Acquisition, the Clients also 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 also is entitled to receive a fee equal to 1.5% of the "transaction
value" (as defined below) for each "subsequent transaction" (as defined below)
in which a Client is involved. The term "transaction value" means the total
value of the subsequent transaction including without limitation, the aggregate
amount of the funds required to complete the subsequent transaction (excluding
any fees payable pursuant to the Financial Advisory Agreement), including the
amount of any indebtedness, preferred stock or similar obligations assumed (or
remaining outstanding). The term "subsequent transaction" means any future
proposal for a tender offer, acquisition, sale, merger, exchange offer,
recapitalization, restructuring or other similar transaction directly involving
LIN Holdings or any of its subsidiaries, and any other person or entity.
In addition, the Clients, jointly and severally, have agreed to
indemnify Hicks Muse Partners, its affiliates, and their respective directors,
officers, controlling persons, agents and employees from and against all claims,
liabilities, losses, damages, expenses and fees related to or arising out of or
in connection with the services rendered by Hicks Muse Partners under the
Financial Advisory Agreement and not resulting primarily from the bad faith,
gross negligence, or willful misconduct of Hicks Muse Partners. The Financial
Advisory Agreement makes available the resources of Hicks Muse Partners
concerning a variety of financial and operation matters. LIN Holdings and LIN
Television do not believe that the services that will be provided by Hicks Muse
Partners could otherwise be obtained by them without the addition of personnel
or engagement of outside professional advisors. In the opinion of LIN Holdings
and LIN Television, the fees provided for under the Financial Advisory Agreement
reasonably reflect the benefits received and to be received by LIN Holdings and
LIN Television.
Prior to June 1999, LIN Holdings leased an aircraft to AMFM Inc., a
related party and an entity in which Hicks Muse has a substantial economic
interest, pursuant to an existing lease agreement. In June 1999, LIN Holdings
sold the aircraft to AMFM Inc. for approximately $6.6 million and terminated the
lease agreement. The transaction with AMFM Inc. reimbursed LIN Holdings for all
costs associated with the plane, including the original purchase price.
In October 1998, the Company invested $7.1 million for 25% of the
capital stock of Special Services Delaware B, Inc. ("SSDB"), a company that
owned and leased an aircraft to AMFM Inc., an entity in which Hicks Muse has a
substantial economic interest. Ranger Equity Holdings A Corp., a subsidiary of
Ranger invested $21.4 million for the remaining 75% capital stock of SSDB. The
Company accounts for its interest in SSDB using the equity method, as the
company does not have a controlling interest. The results of SSDB were
immaterial for all periods presented. In June 1999, SSDB sold the aircraft to a
third party and terminated the lease agreement with AMFM Inc. The sales proceeds
from the aircraft were distributed to the shareholders as a liquidating dividend
in proportion to their equity interests. The Company's portion of the
liquidating dividend was $5.1 million. In addition, the Company received $2.1
million from AMFM Inc. that was recorded to other income net of the $2.0
million loss resulting from the write-off of the balance of its investment.
In August 1999, the Company and 21st Century Group LLC ("21st
Century"), an entity in which Hicks Muse has a substantial economic interest,
announced the formation of a television station joint venture, Banks
Broadcasting, LLC (the "Banks Broadcasting Joint Venture".) The Company and 21st
Century also announced the first transaction of the Banks Broadcasting Joint
Venture, the entry into a local marketing agreement to build and develop a new
WB affiliate serving the Wichita, Kansas DMA.
96
<PAGE> 99
As of December 31, 1999, the Company has provided funding of $4.5
million in the form of an investment of $2.2 million and an advance of $2.3
million, to the Banks Broadcasting Joint Venture.
On December 20, 1999 the Company entered into an Amended and Restated
Guarantee and Collateral Agreement (the "Guarantee Agreement") with Chase
Manhattan Bank, as administrative agent, and the lenders named therein. Pursuant
to the Guarantee Agreement, the Company initially guaranteed a $50 million
credit facility of WWLP, Inc. ("WWLP, Inc"). At December 31, 1999, no amount was
outstanding under this credit facility. WWLP, Inc is one of several companies
recently formed by Gary R. Chapman, President and CEO of LIN Television, the
purpose of which are to acquire the broadcast license and operating assets of
WWLP-TV from Benedek Broadcasting Corporation. The Company currently intends to
enter into a management agreement with WGRC, Inc. to manage the station.
On January 21, 2000, Thomas O. Hicks and Hicks, Muse filed an
application with the FCC proposing to restructure the ownership of the Company
in a manner in which the Company and the applicants believe would render the
ownership interests of Thomas O. Hicks and other Hicks Muse principals
nonattributable for the purposes of FCC ownership rules.
In accordance with the application, Ranger intends to complete a
recapitalization of its outstanding capital stock pursuant to which each issued
and outstanding share of common stock of Ranger will be converted into a share
of nonvoting common stock, except that 500,000 shares of common stock held by
each of Carson/LIN SBS, L.P. and Fojtasek Capital Ltd., current stockholders of
Ranger (collectively, the "Holders"), will be converted into a like number of
shares of voting common stock of Ranger, such that upon completion of the
recapitalization each of the Holders will own fifty percent (50%) of the
outstanding voting common stock of Ranger. In addition, all Hicks Muse partners
will resign as Officers and Directors of the Company. The Company expects that
the current attribution issues associated with the Hicks Muse ownership
interests will be resolved upon the completion of the recapitalization.
97
<PAGE> 100
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements. The financial statements of LIN Holdings Corp.
and LIN Television Corporation are set forth under Item 8 herein and are
incorporated herein by reference.
(a) (2) Financial Statement Schedules. The financial statement schedules of LIN
Holdings and LIN Television Corporation are set forth on pages F1 through
F4 hereto and are incorporated herein by reference.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by LIN Holdings or
LIN Television Corporation during the fourth quarter ended December 31,
1998.
(c) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger among Ranger Holdings Corp., Ranger
Acquisition Company and LIN Television Corporation dated as of August
12, 1997, as amended as of October 21, 1997. (1)
3.1.1 -- Certificate of Incorporation of LIN Holdings Corp. (formerly known
as Ranger Holdings Corp.). (1)
3.1.2 -- Certificate of Amendment of Certificate of Incorporation of LIN
Holdings Corp. (formerly known as Ranger Holdings Corp). (1)
3.2 -- Bylaws of LIN Holdings Corp. (1)
3.3 -- Restated Certificate of Incorporation of LIN Television Corporation.
(1)
3.4 -- Restated Bylaws of LIN Television Corporation. (1)
4.1 -- Indenture, dated as of March 3, 1998, among LIN Acquisition Company,
the Guarantors named therein, and United States Trust Company of New
York, as Trustee, relating to the Senior Subordinated Notes.(1)
4.2 -- Indenture, dated as of March 3, 1998, among LIN Holdings Corp. and
United States Trust Company of New York, as Trustee, relating to the
Senior Discount Notes.(1)
10.8 -- Television Affiliation Agreement for WAND-TV with American
Broadcasting Companies, Inc., dated February 8, 1990, as amended.(2)
10.9 -- Television Affiliation Agreement for WANE-TV with CBS, Inc., dated
November 1, 1992. (2)
10.10 -- Television Affiliation Agreement for WISH-TV with CBS, Inc., dated
November 1, 1992, as amended. (2)
10.11 -- Television Affiliation Agreement for WTNH-TV with American
Broadcasting Companies, Inc., dated February 17, 1993, as amended.(2)
10.12 -- Television Affiliation Agreement for WIVB-TV with CBS, Inc., dated
December 4, 1992.(1)
10.13.1 -- Television Affiliation Agreement for KXAN-TV with National
Broadcasting Company, Inc., dated April 12, 1995.(3)
10.13.2 -- Amendment to Television Affiliation Agreement for KXAN-TV with
National Broadcasting Company, Inc., dated March 2, 1998.(1)
10.14.1 -- Television Affiliation Agreement for WOOD-TV with National
Broadcasting Company, Inc., dated April 12, 1995.(3)
10.14.2 -- Amendment to Television Affiliation Agreement for WOOD-TV with
National Broadcasting Company, Inc., dated March 2, 1998.(1)
</TABLE>
98
<PAGE> 101
<TABLE>
<S> <C>
10.15.1 -- Television Affiliation Agreement for WAVY-TV with National
Broadcasting Company, Inc., dated April 12, 1995.(3)
10.15.2 -- Amendment to Television Affiliation Agreement for WAVY-TV with
National Broadcasting Company, Inc., dated March 2, 1998.(1)
10.16 -- Severance Compensation Agreement dated as of September 5, 1996,
between LIN Television Corporation and Gary R. Chapman.(3)+
10.17 -- Employment Agreement dated as of September 5, 1996, between LIN
Television Corporation and Gary R. Chapman.(4)+
10.18 -- Severance Compensation Agreement dated as of September 5, 1996,
between LIN Television Corporation and Paul Karpowicz.(4)+
10.19 -- Severance Compensation Agreement dated as of September 5, 1996,
between LIN Television Corporation and C. Robert Ogren, Jr.(4)+
10.20 -- Severance Compensation Agreement dated as of September 5, 1996,
between LIN Television Corporation and Gregory M. Schmidt.(4)+
10.21 -- Severance Compensation Agreement dated as of September 5, 1996,
between LIN Television Corporation and Peter E. Maloney.(1)+
10.22 -- LIN Television Corporation Amended and Restated 1994 Stock Incentive
Plan.(2)+
10.23 -- Supplemental Benefit Retirement Plan of LIN Television Corporation
and Subsidiary Companies, as amended and restated.(2)+
10.24 -- LIN Television Corporation Retirement Plan, as amended and
restated.(2)+
10.25 -- LIN Television Corporation 401 (k) Plan and Trust. (2)+
10.26 -- Ranger Equity Holdings Corporation 1998 Stock Option Plan.(6)+
10.27 -- Agreement and Plan of Merger dated as of July 7, 1998, between
Chancellor Media Corporation and Ranger Equity Holdings Corporation.(5)
21.1 -- Subsidiaries of the Registrants.(1)
27.1 -- Financial Data Schedule for LIN Holdings Corp.*
27.2 -- Financial Data Schedule for LIN Television Corporation.*
</TABLE>
+ Management contract or compensatory plan or arrangement.
* Filed herewith.
(1.) Incorporated by reference to the Registration Statement on Form S-1 of
LIN Holdings Corp. and LIN Television Corporation, dated May 29, 1998,
File No. 333-54003.
(2.) Incorporated by reference to the Registration Statement on Form S-1 of
LIN Broadcasting Corporation, dated October 4, 1994, File No. 33-84718.
(3.) Incorporated by reference to the Quarterly Report on Form 10-Q of LIN
Television Corporation for the fiscal quarter ended March 31, 1995,
File No. 0-2481.
(4.) Incorporated by reference to the Quarterly Report on form 10-Q of LIN
Television Corporation for the fiscal quarter ended September 30, 1996,
File No. 0-25206.
(5.) Incorporated by reference to the Registration Statement on Form S-1/A
of LIN Holdings Corp. and LIN Television Corporation, dated August 7,
1998, File No. 333-54003.
(6.) Incorporated by reference to the Annual Report on from 10-K of LIN
Holdings Corp. and LIN Television Corporation, dated March 31, 1999,
File No. 333-54003.
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<PAGE> 102
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, each of LIN Holdings Corp. and LIN Television Corporation, has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LIN HOLDINGS CORP.
LIN TELEVISION CORPORATION
By: /s/ Gary R. Chapman
-------------------
Gary R. Chapman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons on behalf of each of LIN Holdings Corp. and LIN
Television Corporation in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary R. Chapman President, Chief Executive Officer, and Director 3/30/00
- ----------------------- (Principal Executive Officer)
Gary R. Chapman
/s/ Paul Karpowicz Vice President of Television, and Director 3/30/00
- ----------------------- (Principal Operating Officer)
Paul Karpowicz
/s/ Peter E. Maloney Vice President of Finance 3/30/00
- ----------------------- (Principal Financial Officer)
Peter E. Maloney
/s/ Thomas O. Hicks Chairman of the Board of Directors 3/30/00
- -----------------------
Thomas O. Hicks
/s/ John R. Muse Director 3/30/00
- -----------------------
John R. Muse
/s/ Jeffrey A. Marcus Director 3/30/00
- -----------------------
Jeffrey A. Marcus
/s/ C. Dean Metropoulos Director 3/30/00
- -----------------------
C. Dean Metropoulos
/s/ Eric C. Neuman Director 3/30/00
- -----------------------
Eric C. Neuman
</TABLE>
100
<PAGE> 103
Schedule I - Condensed Financial Information of the Registrant
LIN HOLDINGS CORP.
Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Deferred financing costs $ 10,433 $ 11,712
Other non current assets 14,481 6,300
Investment in wholly owned subsidiaries 744,977 744,977
--------- ---------
Total assets $ 769,891 $ 762,989
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Long-term debt 238,660 216,565
--------- ---------
Total liabilities 238,660 216,565
--------- ---------
Stockholders' equity:
Additional paid-in capital 558,123 558,123
Accumulated deficit (26,892) (11,699)
--------- ---------
Total stockholders' equity 531,231 546,424
--------- ---------
Total liabilities and stockholder's equity $ 769,891 $ 762,989
========= =========
</TABLE>
F-1
<PAGE> 104
Schedule I -Condensed Financial Information of the Registrant
LIN HOLDINGS CORP.
Condensed Statements of Operations
(In Thousands)
<TABLE>
<CAPTION>
Period from
Year ended March 3 - December
December 31, 1999 31, 1998
----------------- ------------------
<S> <C> <C>
Other expense:
Interest expense $ 23,374 $ 17,999
-------- --------
Total other expense 23,374 17,999
-------- --------
Loss before benefit from income taxes (23,374) (17,999)
Benefit from income taxes (8,181) (6,300)
-------- --------
Net loss $(15,193) $(11,699)
======== ========
</TABLE>
F-2
<PAGE> 105
Schedule I -Condensed Financial Information of the Registrant
LIN HOLDINGS CORP.
Condensed Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------ Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1 $ -- $ 1 $ -- $ 1
---- ---- --------- --------- ---------
Balance at March 2, 1998 (Predecessor) 1 -- 1 -- 1
Acquisition of LIN Television Corporation
and contribution of KXAS-TV to NBC
Joint Venture -- -- 558,122 -- 558,122
Net loss -- -- -- (11,699) (11,699)
---- ---- --------- --------- ---------
Balance at December 31, 1998 1 -- 558,123 (11,699) 546,424
Net loss -- -- -- (15,193) (15,193)
---- ---- --------- --------- ---------
Balance at December 31, 1999 1 $ -- $ 558,123 $ (26,892) $ 531,231
==== ==== ========= ========= =========
</TABLE>
F-3
<PAGE> 106
Schedule I -Condensed Financial Information of the Registrant
LIN HOLDINGS CORP.
Condensed Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended Period from
December 31, March 3 - December 31,
1999 1998
------------ ----------------------
<S> <C> <C>
Operating activities:
Net loss $ (15,193) $ (11,699)
Amortization of financing costs and notes discount 23,374 17,999
Deferred taxes (8,181) (6,300)
--------- ---------
Net cash used in operating activities -- --
--------- ---------
Investing activities:
Investment in LIN Television Corporation $ -- $(744,977)
--------- ---------
Net cash used in investing activities -- (744,977)
--------- ---------
Financing activities:
Proceeds from long-term debt -- 199,631
Loan fees incurred on long-term debt -- (12,777)
Proceeds from capital contributions -- 558,123
--------- ---------
Net cash provided by financing activities -- 744,977
--------- ---------
Net change in cash and cash equivalents -- --
--------- ---------
Cash and cash equivalents at the beginning of the period -- --
--------- ---------
Cash and cash equivalents at the end of the period $ -- $ --
--------- ---------
</TABLE>
F-4
<PAGE> 107
Schedule II -Valuation and Qualifying Accounts
LIN Holdings Corp.
(In Thousands)
<TABLE>
<CAPTION>
Balance at
beginning of Charged to Other Balance at
period operations Deductions deductions end of period
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for Doubtful Accounts.............. $ 1,880 $ 493 $ 455 (1) $ -- $ 1,918
Period from March 3, 1998 to December 31, 1998:
Allowance for Doubtful Accounts.............. $ 2,296 $ 289 $ 397 (1) $308 (2) $ 1,880
Period from January 1, 1998 to March 2, 1998:
Allowance for Doubtful Accounts.............. $ 2,197 $ 133 $ 34 (1) $ -- $ 2,296
Year ended December 31, 1997 (Predecessor):
Allowance for Doubtful Accounts.............. $ 1,960 $ 971 $ 734 (1) $ -- $ 2,197
</TABLE>
(1) Uncollected accounts written off, net of recoveries.
(2) Contribution of KXAS-TV to NBC joint venture.
F-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM (A) LIN HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEET, AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH (B) LIN HOLDING CORP. ANNUAL REPORT ON FORM
10-K DATED DECEMBER 31, 1999
</LEGEND>
<CIK> 0001062707
<NAME> LIN HOLDINGS CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,699
<SECURITIES> 0
<RECEIVABLES> 57,433
<ALLOWANCES> 1,918
<INVENTORY> 0
<CURRENT-ASSETS> 93,803
<PP&E> 174,818
<DEPRECIATION> 29,936
<TOTAL-ASSETS> 1,952,685
<CURRENT-LIABILITIES> 73,757
<BONDS> 538,047
0
0
<COMMON> 0
<OTHER-SE> 499,915
<TOTAL-LIABILITY-AND-EQUITY> 1,952,685
<SALES> 0
<TOTAL-REVENUES> 224,446
<CGS> 0
<TOTAL-COSTS> 188,456
<OTHER-EXPENSES> 73,055
<LOSS-PROVISION> (73)
<INTEREST-EXPENSE> 68,689
<INCOME-PRETAX> (37,065)
<INCOME-TAX> (3,039)
<INCOME-CONTINUING> (34,026)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,026)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) LIN
TELEVISION CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED
BALANCE SHEET, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) LIN
TELEVISION CORPORATION ANNUAL REPORT ON FORM 10-K DATED DECEMBER 31, 1999
</LEGEND>
<CIK> 0000931058
<NAME> LIN TELEVISION CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,699
<SECURITIES> 0
<RECEIVABLES> 57,433
<ALLOWANCES> 1,918
<INVENTORY> 0
<CURRENT-ASSETS> 93,803
<PP&E> 174,818
<DEPRECIATION> 29,936
<TOTAL-ASSETS> 1,942,252
<CURRENT-LIABILITIES> 79,251
<BONDS> 299,387
0
0
<COMMON> 0
<OTHER-SE> 713,662
<TOTAL-LIABILITY-AND-EQUITY> 1,942,252
<SALES> 0
<TOTAL-REVENUES> 224,446
<CGS> 0
<TOTAL-COSTS> 188,456
<OTHER-EXPENSES> 49,680
<LOSS-PROVISION> (92)
<INTEREST-EXPENSE> 45,315
<INCOME-PRETAX> (13,691)
<INCOME-TAX> 5,141
<INCOME-CONTINUING> (18,832)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,832)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
