10-Q 1 b37235lhe10-q.txt LIN HOLDINGS CORPORATION 1 As filed with the Securities and Exchange Commission on November 14, 2000. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2000. [ ] 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 ------------ --------- LIN HOLDINGS CORP. LIN TELEVISION CORPORATION ---------------------------- ---------------------------- (Exact name of registrant as (Exact name of registrant as specified in its charter) specified in its charter) DELAWARE DELAWARE -------- -------- (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 75-2733097 13-3581627 ---------- ---------- (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 1 RICHMOND SQUARE, SUITE 230E, PROVIDENCE, RHODE ISLAND 02906 ------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (401) 454-2880 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. [X] Yes [ ] No NOTE: 10-Q presents results for the two registrants 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 1,000 shares of LIN Television Corporation's Common Stock, par value $.01 per share, were outstanding as of November 14, 2000. 2 TABLE OF CONTENTS Page ---- Part I. Financial Information Item 1. Financial Statements LIN HOLDINGS CORP. Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Operations 2 Condensed Consolidated Statements of Cash Flows 3 Notes to Condensed Consolidated Financial Statements 4 LIN TELEVISION CORPORATION Condensed Consolidated Balance Sheets 10 Condensed Consolidated Statements of Operations 11 Condensed Consolidated Statements of Cash Flows 12 Notes to Condensed Consolidated Financial Statements 13 Item 2. Management's Discussion and Analysis of Results of Operations And Financial Condition 19 Item 3. Quantitative and Qualitative Disclosures about Market Risk 23 Part II. Other Information Item 1. Legal Proceedings 24 Item 6. Exhibits and Reports on Form 8-K 24 3 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS LIN HOLDINGS CORP. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
September 30, December 31, 2000 1999 ------------- ----------- ASSETS Current assets: Cash and cash equivalents $ 15,980 $ 17,699 Accounts receivable, less allowance for doubtful accounts (2000 - $1,791; 1999 - $1,918) 58,790 55,515 Program rights 17,945 13,601 Other current assets 3,952 6,988 ----------- ----------- Total current assets 96,667 93,803 Property and equipment, net 160,646 144,882 Deferred financing costs 37,618 41,553 Investment in joint ventures 88,692 65,771 Investment in Southwest Sports Group, at cost plus accrued interest 52,250 50,000 Program rights 4,203 4,552 Intangible assets, net 1,608,295 1,546,392 Other assets 6,964 5,732 ----------- ----------- Total Assets $ 2,055,335 $ 1,952,685 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,855 $ 7,477 Program obligations 17,498 13,336 Accrued income taxes 4,267 4,750 Current portion of long-term debt 18,721 15,805 Accrued interest expense 4,615 10,494 Other accruals 18,421 21,895 ----------- ----------- Total current liabilities 75,377 73,757 Long-term debt, excluding current portion 980,698 841,821 Deferred income taxes 524,239 524,323 Program obligations 4,795 5,819 Other liabilities 6,822 7,050 ----------- ----------- Total liabilities 1,591,931 1,452,770 ----------- ----------- Commitments and Contingencies (Note 7) Stockholders' equity: Preferred stock, $0.01 par value: No Shares Authorized -- -- Common stock, $0.01 par value: 1,000 shares authorized, issued and outstanding -- -- Additional paid-in capital 561,192 561,200 Accumulated deficit (97,788) (61,285) ----------- ----------- Total stockholders' equity 463,404 499,915 ----------- ----------- Total liabilities and stockholders' equity $ 2,055,335 $ 1,952,685 =========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements. 1 4 LIN HOLDINGS CORP. Condensed Consolidated Statements of Operations (In thousands) (Unaudited)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net revenues $ 72,094 $ 52,377 $ 209,166 $ 153,616 Operating costs and expenses: Direct operating 20,209 14,325 57,961 40,964 Selling, general and administrative 15,872 11,187 46,989 35,337 Corporate 2,630 2,440 7,166 6,353 KXTX management fee - - - 1,178 Amortization of program rights 5,395 3,340 15,736 9,970 Depreciation and amortization of intangible assets 16,784 14,752 48,095 42,754 -------- -------- --------- --------- Total operating costs and expenses 60,890 46,044 175,947 136,556 -------- -------- --------- --------- Operating income 11,204 6,333 33,219 17,060 Other (income) expense: Interest expense 24,926 17,040 68,070 49,171 Investment income (958) (938) (3,010) (2,237) Share of (income) loss in joint ventures (401) 1,693 36 3,811 Loss on exchange of WAND-TV - - 2,720 - Loss on disposition of KXTX-TV - - - 2,212 Other, net (160) 137 (148) (157) -------- -------- --------- --------- Total other expense, net 23,407 17,932 67,668 52,800 -------- -------- --------- --------- Loss before provision for (benefit from) income taxes (12,203) (11,599) (34,449) (35,740) Provision for (benefit from) income taxes (4,872) (937) 2,054 (3,109) -------- -------- --------- --------- Net loss $ (7,331) $(10,662) $ (36,503) $ (32,631) ======== ======== ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 2 5 LIN HOLDINGS CORP. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Nine Months Nine Months Ended Ended September 30, 2000 September 30, 1999 ------------------ ------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES $ 31,296 $ 6,883 INVESTING ACTIVITIES: Capital expenditures (20,058) (14,403) Proceeds from asset disposals -- 6,560 Liquidating dividend on investment in SSDB -- 5,066 Investment in Banks Broadcasting, Inc. (7,625) (2,229) Acquisition of WWLP-TV, net of cash acquired (125,878) -- Acquisition of WOOD-TV and WOTV-TV, net of cash acquired -- (118,100) Local Marketing Agreement Expenditures (3,250) -- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (156,811) (123,106) --------- --------- FINANCING ACTIVITIES: Net payments on exercises of phantom stock units and issuance of employee stock purchase plan shares (8) (171) Principal payments on long-term debt (24,196) (16,209) Proceeds from long-term debt 20,000 111,000 Proceeds from long-term debt related to the acquisition of WWLP-TV 128,000 -- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 123,796 94,620 --------- --------- Net decrease in cash and cash equivalents (1,719) (21,603) Cash and cash equivalents at the beginning of the period 17,699 41,349 --------- --------- Cash and cash equivalents at the end of the period $ 15,980 $ 19,746 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Value of preferred units received on disposal of KXTX-TV $ -- $ 47,000 ========= ========= In March 2000, WGRC, Inc., a subsidiary of WWLP Holdings, Inc., acquired WWLP-TV for approximately $128.0 million. For accounting purposes only, the cash flows of WWLP Holdings, Inc. and its consolidated subsidiaries are included in these condensed consolidated financial statements. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 128,635 $ -- Cash paid (128,000) -- --------- --------- Liabilities assumed $ 635 $ -- ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 6 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 1 - BASIS OF PRESENTATION: LIN Holdings Corp. ("LIN Holdings"), together with its subsidiaries, including LIN Television Corporation ("LIN Television") (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. LIN Holdings and its subsidiaries are affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"). All of the Company's direct and indirect consolidated subsidiaries fully and unconditionally guarantee the Company's Senior Subordinated Notes on a joint and several basis. These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended December 31, 1999. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to summarize fairly the financial position, results of operations and cash flows of the Company for the periods presented. The interim results of operations are not necessarily indicative of the results to be expected for the full year. The Company's preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Estimates are used when accounting for the collectability of accounts receivable and valuing intangible assets, deferred tax assets and net assets of businesses acquired. Actual results could differ from these estimates. NOTE 2 - BUSINESS COMBINATIONS: WAND-TV EXCHANGE. On April 1, 2000, the Company exchanged, with Blade Communications Inc. ("Blade"), a 66.6% interest in certain assets of its television station WAND-TV, including its FCC license and network affiliation agreement, for substantially all of the assets and certain liabilities of WLFI-TV, Inc. The exchange was accounted for as a business combination under the purchase method of accounting and, accordingly, the acquired assets of WLFI-TV have been recorded at fair value. The excess of the fair value of the acquired assets and liabilities of $23.7 million over the book value of the interest in the assets of WAND-TV of $26.4 million has been recorded as a non-operating loss. This loss totaled $2.7 million in the period ended September 30, 2000. In connection with the exchange, the Company has indemnified the seller for certain contingencies. 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): 4 7 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) Assets acquired and liabilities assumed (unaudited) Working capital................................................... $ (75) Property and equipment............................................ 4,406 Other noncurrent assets, net...................................... 76 FCC license and network affiliation............................... 19,338 ------- Total acquisition................................................. $23,745 ======= Immediately after the WAND-TV exchange the Company and Blade contributed their respective interests in the WAND-TV assets to a new joint venture, with the Company receiving a 33.3% interest in the joint venture. The Company accounts for its interest using the equity method, as the Company does not have a controlling interest. In addition, the Company has entered into a management services agreement with the WAND-TV joint venture to provide certain management, engineering, and related services for a fixed fee. The following presents the summarized financial information of the WAND-TV joint venture (in thousands): April 1 - September 30, 2000 (unaudited) ------------- Net revenues............... $ 4,072 Operating income........... 445 Net income................. 445 September 30, 2000 (unaudited) ------------- Current assets............. $ 3,432 Non-current assets......... 35,123 Current liabilities........ 2,293 WWLP HOLDINGS, INC. Pursuant to a Guarantee and Collateral Agreement with Chase Manhattan Bank, as administrative agent, and the lenders named therein, dated March 31, 2000, the Company is the guarantor of a $75 million credit facility to WWLP, Inc. of which $50 million was outstanding as of September 30, 2000. WWLP Holdings Inc., and its subsidiaries WWLP, Inc. and WGRC, Inc. (together, "WWLP Holdings"), companies formed by Gary R. Chapman, President and CEO of LIN Television, acquired the broadcast license and operating assets of WWLP-TV, a station previously operated by Benedek Broadcasting Corporation, on March 31, 2000. The acquisition was accounted for as a purchase by WWLP Holdings and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. These estimates are subject to adjustment when additional information concerning tangible asset and liability valuations is finalized. As of the date of these financial statements, the Company did not own or control the assets or FCC license of WGRC, Inc. (See Note 8 - Subsequent Events). Pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving Special Purpose Entities," WWLP Holdings satisfied the definition of a special purpose entity and the Company was deemed to be the sponsor of WWLP Holdings. Accordingly, the financial results of operations of WWLP Holdings are consolidated with those of the Company in these condensed consolidated financial statements. In addition, the Company has entered into a management service agreement as an independent contractor with WGRC, Inc. whereby the Company provides services related to the management and operations of WGRC, Inc. 5 8 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) Mr. Chapman granted to the Company an option to acquire the stock of WWLP Holdings at an amount equal to Mr. Chapman's' investment in WWLP Holdings. The Company subsequently exercised this option and acquired the station on November 10, 2000 (See Note 8 - Subsequent Events). The transaction is summarized as follows (in thousands): Assets acquired and liabilities assumed (unaudited) Working capital, including cash of $2,122........................... $ 4,664 Property and equipment.............................................. 9,600 FCC license and network affiliation................................. 113,736 -------- Total acquisition................................................... $128,000 ======== UNAUDITED PRO FORMA RESULTS OF ACQUISITIONS. The following summarizes unaudited pro forma consolidated results of operations as if the acquisition of WLFI-TV and the acquisition of WWLP-TV had taken place as of the beginning of the periods presented (in thousands): Nine months ended Nine months ended September 30, 2000 September 30, 1999 (unaudited) (unaudited) ------------------ ------------------ Net revenues....................... $ 213,923 $ 167,728 Operating income................... 34,242 20,501 Net loss........................... (38,187) (37,449) The pro forma data give effect to actual operating results prior to the acquisition and adjustments to interest expense, amortization and income taxes. No effect has been given to cost reductions and operating synergies in this presentation. The pro forma results do not necessarily represent results that would have occurred if the acquisition had taken place as of the beginning of the periods presented, nor are they necessarily indicative of the results of future operations. NOTE 3 - INVESTMENTS: JOINT VENTURE WITH NBC. The Company owns a 20.38% interest in a joint venture with NBC 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 joint venture (in thousands): Nine months ended Nine months ended September 30, 2000 September 30, 1999 (unaudited) (unaudited) ------------------ ------------------ Net revenues...................... $ 127,184 $ 100,630 Operating income.................. 50,659 29,867 Net income (loss)................. 1,906 (17,918) 6 9 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) September 30, 2000 December 31, 1999 (unaudited) (unaudited) ------------------ ----------------- Current assets.................... $ 30,431 $ 159 Non-current assets................ 239,199 249,692 Current liabilities............... 1,087 725 Non-current liabilities........... 815,500 815,500 INVESTMENT IN BANKS BROADCASTING, INC. In August 2000, the Company, 21st Century Group LLC ("21st Century"), an entity in which Hicks Muse has a substantial economic interest, and BancAmerica Capital Investors SBIC I, L.P. ("BankAmerica") acquired non-voting Series A Convertible Preferred Stock in Banks Broadcasting, Inc. ("Banks Broadcasting"). The non-voting Series A Convertible Preferred Stock is convertible to voting common stock on a one-for-one basis in the event of the sale of Banks Broadcasting, a public offering meeting certain financial criteria, or a merger of Banks Broadcasting into another entity. Banks Broadcasting is a broadcast station operator that has local marketing agreements for a WB affiliate serving the Wichita, Kansas DMA and a UPN affiliate serving the Boise, Idaho DMA. Banks Broadcasting has also entered into option agreements that would enable it to purchase the stations under certain conditions. Banks Broadcasting recently exercised its option to purchase the Wichita station and, subject to regulatory approvals, expects to close by year-end. In addition, Banks expects to exercise its option to acquire the Boise station during the first half of 2001. The total investment in Banks Broadcasting was approximately $9.8 million as of September 30, 2000. The Company's preferred stock gives it a 50% non-voting interest in Banks Broadcasting. The Company is able to exercise significant, but not controlling, influence over the activities of Banks Broadcasting through representation on the Board of Directors and, therefore, accounts for its investment using the equity method. The Company has also entered into a management services agreement with Banks Broadcasting to provide certain management, engineering, and related services for a fixed fee. Included in this is a cash management arrangement and at September 30, 2000 the amount due to the Company from Banks Broadcasting under this arrangement was approximately $760,000. Other financial information of Banks Broadcasting is not material for all periods presented. NOTE 4 - INTANGIBLE ASSETS: Intangible assets consisted of the following at (in thousands): September 30, 2000 December 31, 1999 (Unaudited) ------------------ ----------------- FCC licenses and network affiliations... $1,048,307 $ 944,020 Goodwill................................ 657,614 670,397 ---------- ---------- 1,705,921 1,614,417 Less accumulated amortization........... (97,626) (68,025) ---------- ---------- $1,608,295 $1,546,392 ========== ========== 7 10 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 5 - LONG-TERM DEBT: Long-term debt consisted of the following at (in thousands):
September 30, 2000 December 31, 1999 (Unaudited) ------------- ------------ Senior Credit Facilities......................... $315,233 $319,579 Credit facilities of WWLP Holdings, Inc. and its consolidated subsidiaries...................... 128,000 -- $300,000, 8 3/8% Senior Subordinated Notes due 2008 (net of a discount of $573)........... 299,427 299,387 $325,000, 10% Senior Discount Notes due 2008 (net of a discount of $68,241)........ 256,759 238,660 -------- -------- Total debt....................................... 999,419 857,626 Less current portion............................. (18,721) (15,805) -------- -------- Total long-term debt............................. $980,698 $841,821 ======== ========
NOTE 6 - RELATED PARTY TRANSACTIONS: MONITORING AND OVERSIGHT AGREEMENT. In 1998 LIN Holdings and LIN Television (collectively, the "Clients") entered into a ten-year 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 $1,000,000. Hicks Muse Partners is also entitled to reimbursement for any expenses incurred by it in connection with rendering services allocable to LIN Holdings or LIN Television. The fee for the three and nine months ended September 30, 2000 was $312,000 and $936,000, respectively. The fee for the three and nine months ended September 30, 1999 was $275,000 and $775,000, respectively. NOTE 7 - COMMITMENTS AND CONTINGENCIES: CHANGES IN FCC OWNERSHIP RULES. Effective November 16, 1999, the Federal Communications Commission (the "FCC") significantly revised certain of its broadcast ownership regulations. The new rules are still subject to potentially significant amendments in response to numerous petitions for reconsideration. As the rules are currently formulated, the Company 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. 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. HICKS MUSE RESTRUCTURING. On August 30, 2000, the FCC approved the application of Thomas O. Hicks and Hicks Muse, to restructure the ownership of the Company in a manner in 8 11 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) which would render the ownership interests of Thomas O. Hicks and other Hicks Muse principals nonattributable to the Company for the purposes of FCC ownership rules. OTHER CONTINGENCIES. 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 September 30, 2000 is likely to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. NOTE 8 - SUBSEQUENT EVENTS: WWLP HOLDINGS, INC. On November 10, 2000, the Company acquired WWLP Holdings from Gary R. Chapman for an amount equal to Mr. Chapman's investment in WWLP Holdings. The total purchase price was $128.0 million, including assumed liabilities. The Company intends to account for the business combination using the purchase method of accounting. Simultaneous with the acquisition of WWLP Holdings, the Company refinanced the debt of WWLP Holdings into long-term facilities under the Company's existing senior credit facilities. ACQUISITION OF WNEQ-TV. On November 7, 2000, the Company agreed to acquire from the Western New York Public Broadcasting Association certain assets of WNEQ-TV, a non-commercial independent broadcast television station located in the Buffalo DMA. Effective January 2, 2001 and subject to obtaining certain regulatory approvals, the Company will manage and operate this station as a newly formed LMA in the interim period prior to closing on the acquisition. The total purchase price is approximately $26.2 million, and will be funded by a combination of operating funds and additional term loans. The Company intends to account for the business combination under the purchase method of accounting. NOTE 9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequences of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations In September 2000, the FASB issued SFAS No. 140 ("SFAS 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125." SFAS 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS No. 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company does not expect the application of SFAS 140 to have a material impact on its financial position or results of operations. 9 12 LIN TELEVISION CORPORATION Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except number of shares) September 30, December 31, 2000 1999 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 15,980 $ 17,699 Accounts receivable, less allowance for doubtful accounts (2000 - $1,554; 1999 - $1,918) 58,790 55,515 Program rights 17,945 13,601 Other current assets 3,952 6,988 ----------- ----------- Total current assets 96,667 93,803 Property and equipment, net 160,646 144,882 Deferred financing costs 28,141 31,120 Investment in joint ventures 88,692 65,771 Investment in Southwest Sports Group, at cost plus accrued interest 52,250 50,000 Program rights 4,203 4,552 Intangible assets, net 1,608,295 1,546,392 Other assets 6,964 5,732 ----------- ----------- Total Assets $ 2,045,858 $ 1,942,252 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,855 $ 7,477 Program obligations 17,498 13,336 Accrued income taxes 4,267 4,750 Current portion of long-term debt 18,721 15,805 Accrued interest expense 4,615 10,494 Other accruals 18,421 27,389 ----------- ----------- Total current liabilities 75,377 79,251 Long-term debt, excluding current portion 723,939 603,161 Deferred income taxes 575,088 533,309 Program obligations 4,795 5,819 Other liabilities 6,822 7,050 ----------- ----------- Total liabilities 1,386,021 1,228,590 ----------- ----------- Commitments and Contingencies (Note 7) Stockholders' equity: Preferred stock, $0.01 par value: No Shares Authorized -- -- Common stock, $0.01 par value: 1,000 shares authorized, issued and outstanding -- -- Additional paid-in capital 748,047 748,054 Accumulated deficit (88,210) (34,392) ----------- ----------- Total stockholders' equity 659,837 713,662 ----------- ----------- Total liabilities and stockholders' equity $ 2,045,858 $ 1,942,252 =========== =========== The accompanying notes are an integral part of the condensed consolidated financial statements. 10 13 LIN TELEVISION CORPORATION Condensed Consolidated Statements of Operations (Unaudited) (In thousands)
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net revenues $ 72,094 $ 52,377 $ 209,166 $ 153,616 Operating costs and expenses: Direct operating 20,209 14,325 57,961 40,964 Selling, general and administrative 15,872 11,187 46,989 35,337 Corporate 2,630 2,440 7,166 6,353 KXTX management fee -- -- -- 1,178 Amortization of program rights 5,395 3,340 15,736 9,970 Depreciation and amortization of intangible assets 16,784 14,752 48,095 42,754 -------- -------- --------- --------- Total operating costs and expenses 60,890 46,044 175,947 136,556 -------- -------- --------- --------- Operating income 11,204 6,333 33,219 17,060 Other (income) expense: Interest expense 18,443 11,227 49,014 31,987 Investment income (958) (938) (3,010) (2,237) Share of (income) loss in joint ventures (401) 1,693 36 3,811 Loss on exchange of WAND-TV -- -- 2,720 -- Loss on disposition of KXTX-TV -- -- -- 2,212 Other, net (160) 137 (148) (157) -------- -------- --------- --------- Total other expense, net 16,924 12,119 48,612 35,616 -------- -------- --------- --------- Loss before provision for (benefit from) income taxes (5,720) (5,786) (15,393) (18,556) Provision for (benefit from) income taxes 43,839 5,104 38,425 8,132 -------- -------- --------- --------- Net loss $(49,559) $(10,890) $ (53,818) $ (26,688) ======== ======== ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 11 14 LIN TELEVISION CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Nine Months Nine Months Ended Ended September 30, 2000 September 30, 1999 ------------------ ------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES $ 31,296 $ 6,883 INVESTING ACTIVITIES: Capital expenditures (20,058) (14,403) Proceeds from asset disposals -- 6,560 Investment in SSDB -- 5,066 Investment in joint ventures (7,625) (2,229) Acquisition of WWLP-TV, net of cash acquired (125,878) -- Acquisition of WOOD-TV and WOTV-TV, net of cash acquired -- (118,100) Local Marketing Agreement Expenditures (3,250) -- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (156,811) (123,106) --------- --------- FINANCING ACTIVITIES: Net payments on exercises of phantom stock units and issuance of employee stock purchase plan shares (8) (171) Principal payments on long-term debt (24,196) (16,209) Proceeds from long-term debt 20,000 111,000 Proceeds from long-term debt related to the acquisition of WWLP-TV 128,000 -- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 123,796 94,620 --------- --------- Net decrease in cash and cash equivalents (1,719) (21,603) Cash and cash equivalents at the beginning of the period 17,699 41,349 --------- --------- Cash and cash equivalents at the end of the period $ 15,980 $ 19,746 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Value of preferred units received on disposal of KXTX-TV $ -- $ 47,000 ========= ========= In March 2000, WGRC, Inc., a subsidiary of WWLP Holdings, Inc., acquired WWLP-TV for approximately $128.0 million. For accounting purposes only, the cash flows of WWLP Holdings, Inc. and its consolidated subsidiaries are included in these condensed consolidated financial statements In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 128,635 $ -- Cash paid (128,000) -- --------- --------- Liabilities assumed $ 635 $ -- ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 12 15 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 1 - BASIS OF PRESENTATION: LIN Television Corporation, together with its subsidiaries (together, the "Company" or "LIN Television"), 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. LIN Television is an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"). All of the Company's direct and indirect consolidated subsidiaries fully and unconditionally guarantee the Company's Senior Subordinated Notes on a joint and several basis. These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended December 31, 1999. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to summarize fairly the financial position, results of operations and cash flows of the Company for the periods presented. The interim results of operations are not necessarily indicative of the results to be expected for the full year. The Company's preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Estimates are used when accounting for the collectability of accounts receivable and valuing intangible assets, deferred tax assets and net assets of businesses acquired. Actual results could differ from these estimates. NOTE 2 - BUSINESS COMBINATIONS: WAND-TV EXCHANGE. On April 1, 2000, the Company exchanged, with Blade Communications Inc. ("Blade"), a 66.6% interest in certain assets of its television station WAND-TV, including its FCC license and network affiliation agreement, for substantially all of the assets and certain liabilities of WLFI-TV, Inc. The exchange was accounted for as a business combination under the purchase method of accounting and, accordingly, the acquired assets of WLFI-TV have been recorded at their fair market value. The excess of the fair value of the acquired assets of $23.7 million over the book value of the interest in the assets of WAND-TV of $26.4 million has been recorded as a non-operating loss. This loss totaled $2.7 million in the period ended September 30, 2000. In connection with the acquisition, the Company has indemnified the seller for certain contingencies. 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): 13 16 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) Assets acquired and liabilities assumed (unaudited) Working capital............................ $ (75) Property and equipment..................... 4,406 Other noncurrent assets, net............... 76 FCC license and network affiliation........ 19,338 -------- Total acquisition.......................... $ 23,745 ======== Immediately after the WAND-TV exchange the Company and Blade contributed their respective interests in the WAND-TV assets to a new joint venture, with the Company receiving a 33.3% interest in the joint venture. The Company accounts for its interest using the equity method, as the Company does not have a controlling interest. In addition, the Company has entered into a management services agreement with the WAND-TV joint venture to provide certain management, engineering, and related services for a fixed fee. The following presents the summarized financial information of the WAND-TV joint venture (in thousands): April 1 - September 30, 2000 (unaudited) ------------------ Net revenues................ $ 4,072 Operating income............ 445 Net income.................. 445 September 30, 2000 (unaudited) ------------------ Current assets.............. $ 3,432 Non-current assets.......... 35,123 Current liabilities......... 2,293 WWLP HOLDINGS, INC. Pursuant to a Guarantee and Collateral Agreement with Chase Manhattan Bank, as administrative agent, and the lenders named therein, dated March 31, 2000, the Company is the guarantor of a $75 million credit facility to WWLP, Inc. of which $50 million was outstanding as of September 30, 2000. WWLP Holdings Inc., and its subsidiaries WWLP, Inc. and WGRC, Inc. (together, "WWLP Holdings"), companies formed by Gary R. Chapman, President and CEO of LIN Television, acquired the broadcast license and operating assets of WWLP-TV, a station previously operated by Benedek Broadcasting Corporation, on March 31, 2000. The acquisition was accounted for as a purchase by WWLP Holdings and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. These estimates are subject to adjustment when additional information concerning tangible asset and liability valuations is finalized. As of the date of these financial statements, the Company did not own or control the assets or FCC license of WGRC, Inc. (See Note 8 - Subsequent Events). Pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving Special Purpose Entities," WWLP Holdings satisfied the definition of a special purpose entity and the Company was deemed to be the sponsor of WWLP Holdings. Accordingly, the financial results of operations of WWLP Holdings are consolidated with those of the Company in these condensed consolidated financial statements. In addition, the Company has entered into a management service agreement as an independent contractor with WGRC, Inc. whereby the Company provides services related to the management and operations of WGRC, Inc. 14 17 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) Mr. Chapman granted to the Company an option to acquire the stock of WWLP Holdings at an amount equal to Mr. Chapman's investment in WWLP Holdings. The Company subsequently exercised this option and acquired the station on November 10, 2000 (See Note 8 - Subsequent Events). The transaction is summarized as follows (in thousands): Assets acquired and liabilities assumed (unaudited) Working capital, including cash of $2,122.... $ 4,664 Property and equipment....................... 9,600 FCC license and network affiliation.......... 113,736 --------- Total acquisition............................ $ 128,000 ========= UNAUDITED PRO FORMA RESULTS OF ACQUISITIONS. The following summarizes unaudited pro forma consolidated results of operations as if the acquisition of WLFI-TV and the acquisition of WWLP-TV had taken place as of the beginning of the periods presented (in thousands): Nine months ended Nine months ended September 30, 2000 September 30, 1999 (unaudited) (unaudited) ------------------ ------------------ Net revenues..................... $ 213,923 $ 167,728 Operating income................. 34,242 20,501 Net loss......................... (55,502) (31,506) The pro forma data give effect to actual operating results prior to the acquisition and adjustments to interest expense, amortization and income taxes. No effect has been given to cost reductions and operating synergies in this presentation. The pro forma results do not necessarily represent results that would have occurred if the acquisition had taken place as of the beginning of the periods presented, nor are they necessarily indicative of the results of future operations. NOTE 3 - INVESTMENTS: JOINT VENTURE WITH NBC. The Company owns a 20.38% interest in a joint venture with NBC 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 joint venture (in thousands): Nine months ended Nine months ended September 30, 2000 September 30, 1999 (unaudited) (unaudited) ------------------ ------------------ Net revenues..................... $ 127,184 $ 100,630 Operating income................. 50,659 29,867 Net income (loss)................ 1,906 (17,918) 15 18 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) September 30, 2000 December 31, 1999 (unaudited) (unaudited) ------------------ ----------------- Current assets.................... $ 30,431 $ 159 Non-current assets................ 239,199 249,692 Current liabilities............... 1,087 725 Non-current liabilities........... 815,500 815,500 INVESTMENT IN BANKS BROADCASTING, INC. In August 2000, the Company, 21st Century Group LLC ("21st Century"), an entity in which Hicks Muse has a substantial economic interest, and BancAmerica Capital Investors SBIC I, L.P. ("BankAmerica") acquired non-voting Series A Convertible Preferred Stock in Banks Broadcasting, Inc. ("Banks Broadcasting"). The non-voting Series A Convertible Preferred Stock is convertible to voting common stock on a one-for-one basis in the event of the sale of Banks Broadcasting, a public offering meeting certain financial criteria, or a merger of Banks Broadcasting into another entity. Banks Broadcasting is a broadcast station operator that has local marketing agreements for a WB affiliate serving the Wichita, Kansas DMA and a UPN affiliate serving the Boise, Idaho DMA. Banks Broadcasting has also entered into option agreements that would enable it to purchase the stations under certain conditions. Banks Broadcasting recently exercised its option to purchase the Wichita station and, subject to regulatory approvals, expects to close by year-end. In addition, Banks expects to exercise its option to acquire the Boise station during the first half of 2001. The total investment in Banks Broadcasting was approximately $9.8 million as of September 30, 2000. The Company's preferred stock gives it a 50% non-voting interest in Banks Broadcasting. The Company is able to exercise significant, but not controlling, influence over the activities of Banks Broadcasting through representation on the Board of Directors and, therefore, accounts for its investment using the equity method. The Company has also entered into a management services agreement with Banks Broadcasting to provide certain management, engineering, and related services for a fixed fee. Included in this is a cash management arrangement and at September 30, 2000 the amount due to the Company from Banks Broadcasting under this arrangement was approximately $760,000. Other financial information of Banks Broadcasting is not material for all periods presented. NOTE 4 - INTANGIBLE ASSETS: Intangible assets consisted of the following at (in thousands): September 30, 2000 December 31, 1999 (Unaudited) ------------------ ----------------- FCC licenses and network affiliations... $ 1,048,307 $ 944,020 Goodwill................................ 657,614 670,397 ----------- ----------- 1,705,921 1,614,417 Less accumulated amortization........... (97,626) (68,025) ----------- ----------- $ 1,608,295 $ 1,546,392 =========== =========== 16 19 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 5 - LONG-TERM DEBT: Long-term debt consisted of the following at (in thousands): September 30, 2000 December 31, 1999 (Unaudited) ------------------ ----------------- Senior Credit Facilities................... $ 315,233 $ 319,579 Credit facilities of WWLP Holdings, Inc. and its consolidated subsidiaries........ 128,000 -- $300,000, 8 3/8% Senior Subordinated Notes due 2008 (net of a discount of $573)..... 299,427 299,387 --------- --------- Total debt................................. 742,660 618,966 Less current portion....................... (18,721) (15,805) --------- --------- Total long-term debt....................... $ 723,939 $ 603,161 ========= ========= NOTE 6 - RELATED PARTY TRANSACTIONS: MONITORING AND OVERSIGHT AGREEMENT. In 1998 LIN Holdings and LIN Television (collectively, the "Clients") entered into a ten-year 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 $1,000,000. Hicks Muse Partners is also entitled to reimbursement for any expenses incurred by it in connection with rendering services allocable to LIN Holdings or LIN Television. The fee for the three and nine months ended September 30, 2000 was $312,000 and $936,000, respectively. The fee for the three and nine months ended September 30, 1999 was $275,000 and $775,000, respectively. NOTE 7 - COMMITMENTS AND CONTINGENCIES: CHANGES IN FCC OWNERSHIP RULES. Effective November 16, 1999, the Federal Communications Commission (the "FCC") significantly revised certain of its broadcast ownership regulations. The new rules are still subject to potentially significant amendments in response to numerous petitions for reconsideration. As the rules are currently formulated, the Company 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. 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. HICKS MUSE RESTRUCTURING. On August 30, 2000, the FCC approved the application of Thomas O. Hicks and Hicks Muse, to restructure the ownership of the Company in a manner in which would render the ownership interests of Thomas O. Hicks and other Hicks Muse principals nonattributable to the Company for the purposes of FCC ownership rules. 17 20 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) OTHER CONTINGENCIES. 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 September 30, 2000 is likely to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. NOTE 8 - SUBSEQUENT EVENTS: WWLP HOLDINGS, INC. On November 10, 2000, the Company acquired WWLP Holdings from Gary R. Chapman for an amount equal to Mr. Chapman's investment in WWLP Holdings. The total purchase price was $128.0 million, including assumed liabilities. The Company intends to account for the business combination using the purchase method of accounting. Simultaneous with the acquisition of WWLP Holdings, the Company refinanced the debt of WWLP Holdings into long-term facilities under the Company's existing senior credit facilities. ACQUISITION OF WNEQ-TV. On November 7, 2000, the Company agreed to acquire from the Western New York Public Broadcasting Association certain assets of WNEQ-TV, a non-commercial independent broadcast television station located in the Buffalo DMA. Effective January 2, 2001 and subject to obtaining certain regulatory approvals, the Company will manage and operate this station as a newly formed LMA in the interim period prior to closing on the acquisition. The total purchase price is approximately $26.2 million, and will be funded by a combination of operating funds and additional term loans. The Company intends to account for the business combination under the purchase method of accounting. NOTE 9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequences of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. In September 2000, the FASB issued SFAS No. 140 ("SFAS 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125." SFAS 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of SFAS No. 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company does not expect the application of SFAS 140 to have a material impact on its financial position or results of operations. 18 21 PART I: FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Forward-Looking Statements Certain statements in this Section and elsewhere in this report are forward-looking in nature and relate to trends and events that may affect the future financial position and operating results of LIN Holdings Corp. ("LIN Holdings") and its subsidiaries, including LIN Television Corporation ("LIN Television"), together, the "Company." When used in this report, the words "believes," "anticipates," "intends," and similar expressions are intended to identify forward-looking statements. There are a number of risks, uncertainties and factors that could cause the Company's actual results to differ materially from those forecasted or projected in such forwarding-looking statements. These factors include, without limitation, the promulgation of the new FCC's broadcast ownership regulations and other regulatory changes, changes in advertising, demand, technological changes, acquisitions and dispositions, as well as other risks detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. The Company undertakes no obligation to update publicly forward-looking statements, whether as a result of new information, future events or otherwise. Business 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 provides programming for four other stations in the markets in which it operates. Business Combinations and Dispositions 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. In exchange, LIN Texas received 500,000 units of SSG's Series A Preferred Units, par value $100.00 per unit. On June 30, 1999, the Company acquired the assets of WOOD-TV and the LMA rights related to WOTV-TV, both of which stations are located in the Grand Rapids-Kalamazoo-Battle Creek market (the "Grand Rapids Acquisition"). 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 borrowings under the Company's term loan facility. On October 19, 1999, the Company acquired Pegasus Broadcasting of San Juan, L.L.C., 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, including direct costs of the acquisition. The Pegasus Acquisition was funded by a combination of operating funds and $60.0 million of borrowings under the Company's term loan facility. Pursuant to a Guarantee and Collateral Agreement with Chase Manhattan Bank, as administrative agent, and the lenders named therein, dated March 31, 2000, the Company is the 19 22 guarantor of a $75 million credit facility to WWLP, Inc. of which $50 million was outstanding as of September 30, 2000. WWLP Holdings Inc., and its subsidiaries WWLP, Inc. and WGRC, Inc. (together, "WWLP Holdings"), companies formed by Gary R. Chapman, President and CEO of LIN Television, acquired the broadcast license and operating assets of WWLP-TV, a station previously operated by Benedek Broadcasting Corporation, on March 31, 2000. The acquisition was accounted for as a purchase by WWLP Holdings and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. These estimates are subject to adjustment when additional information concerning tangible asset and liability valuations is finalized. As of the date of these financial statements, the Company did not own or control the assets or FCC license of WGRC, Inc. Pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving Special Purpose Entities," WWLP Holdings satisfied the definition of a special purpose entity and the Company was deemed to be the sponsor of WWLP Holdings. Accordingly, the financial results of operations of WWLP Holdings are consolidated with those of the Company in these condensed consolidated financial statements. Mr. Chapman granted to the Company an option to acquire the stock of WWLP Holdings at an amount equal to Mr. Chapman's' investment in WWLP Holdings. The Company subsequently exercised this option and acquired the station on November 10, 2000. The Company intends to account for this business combination using the purchase method of accounting. On April 1, 2000, the Company exchanged, with Blade Communications Inc. ("Blade"), a 66.6% interest in certain assets of its television station WAND-TV, including its FCC license and network affiliation agreement, for substantially all of the assets and certain liabilities of WLFI-TV, Inc. The excess of the fair value of the acquired assets of $23.7 million over the book value of the interest in the assets of WAND-TV of $26.4 million has been recorded as a non-operating loss. This loss totaled $2.7 million in the period ended September 30, 2000. Immediately after the WAND-TV exchange the Company and Blade contributed their respective interests in the WAND-TV assets to a new joint venture, with the Company receiving a 33.3% interest in the joint venture. 20 23 Results of Operations Set forth below are the significant factors that contributed to the operating results of the Company for the three and nine-month periods ended September 30, 2000 and 1999. The Company's results from operations from period to period are not directly comparable because of the impact of acquisitions and disposals, including the acquisitions of WOOD-TV, WOTV-TV and WAPA-TV in 1999, and WWLP-TV and WLFI-TV in 2000, and the disposition of KXTX-TV in 1999 and the disposition of WAND-TV in 2000.
Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999 ------------------ ------------------ ------------------ ------------------ Net revenues $ 72,094 $ 52,377 $ 209,166 $ 153,616 Operating costs and expenses: Direct operating 20,209 14,325 57,961 40,964 Selling, general and administrative 15,872 11,187 46,989 35,337 Corporate 2,630 2,440 7,166 6,353 KXTX management fee -- -- -- 1,178 Amoritzation of program rights 5,395 3,340 15,736 9,970 Depreciation and amortization of intagible assets 16,784 14,752 48,095 42,754 ------------------ ------------------ ------------------ ------------------ Total operating costs and expenses 60,890 46,044 175,947 136,556 ------------------ ------------------ ------------------ ------------------ Operating income $ 11,204 $ 6,333 $ 33,219 $ 17,060 ================== ================== ================== ==================
Net revenues consist primarily of national and local air time sales, net of sales adjustments and agency commissions, network compensation, barter revenues and revenues from the production of local commercials and sports programming. Total net revenues for the three and nine-month periods ended September 30, 2000 increased approximately 37.6% to $72.1 million and 36.2% to $209.2 million, respectively, compared to net revenue of $52.4 million and $153.6 million, respectively, for the same periods last year. The increase is primarily due to the increase in political advertising in 2000, as well as the impact of the acquisitions of WOOD-TV, WOTV-TV, WAPA-TV, WLFI-TV and WWLP-TV partially offset by the dispositions of KXTX-TV and WAND-TV. In addition, the increase is also the result of the continued growth of the Company's LMA stations. Direct operating expenses, consisting primarily of news, engineering, programming and music licensing costs, increased approximately 41.1% to $20.2 million and 41.5% to $58.0 million, for the three and nine-month periods ended September 30, 2000, respectively, compared to direct operating expenses of $14.3 million and $41.0 million for the same period last year. The increase is primarily due to the impact of the acquisitions of WOOD-TV, WOTV-TV, WAPA-TV, WLFI-TV and WWLP-TV partially offset by the dispositions of KXTX-TV and WAND-TV. Selling, general and administrative expenses, consisting primarily of employee salaries, sales commissions and other employee benefit costs, advertising and promotional expenses, increased approximately 41.9% to $15.9 million and 33.0% to $47.0 million, respectively, for the three and nine-month periods ended September 30, 2000, compared to selling, general and administrative expenses of $11.2 million and $35.3 million, respectively, for the same periods last year. The increase is primarily the result of higher sales commission costs associated with the advertising revenue increase. Corporate expenses, representing costs associated with the centralized management of the Company's stations, increased 7.8% to $2.6 million and 12.8% to $7.2 million, respectively, for the three and nine-month periods ended September 30, 2000, compared to corporate expenses of $2.4 million and $6.4 million, respectively, for the same periods last year. The increase is primarily driven by increases in corporate development expenses and management bonuses. The KXTX management fee, representing fees paid to SSG for the management and sub-programming of KXTX-TV, ceased on June 3, 1999 as a result of the disposition of KXTX. Amortization of program rights, representing costs associated with the acquisition of syndicated programming, features and specials increased 61.5% to $5.4 million and 57.8% to $15.7 million, respectively, for the three and nine-month periods ended September 30, 2000, compared to amortization of program rights of $3.3 million and $10.0 million, respectively, for the same periods last year. The increase is primarily due to the impact of the acquisitions of WOOD-TV, WOTV-TV, WAPA-TV, WLFI-TV and WWLP-TV partially offset by the dispositions of KXTX-TV and WAND-TV. Depreciation and amortization of intangible assets increased 13.8% to $16.8 million and 12.5% to $48.1 million, respectively, for the three and nine-month periods ended September 30, 21 24 2000, compared to depreciation and amortization of intangible assets of $14.8 million and $42.8 million, respectively, for the same periods last year. The increase is primarily due to the increase in equipment and intangible assets associated with the acquisitions of WOOD-TV, WOTV-TV, WAPA-TV, and WWLP-TV. Other Expenses Interest expense increased $7.9 million to $24.9 million and $18.9 million to $68.1 million, respectively, for the three and nine-month periods ended September 30, 2000, compared to interest expense of $17.0 million and $49.2 million, respectively, for the same periods last year. The increase is primarily the result of increased borrowings associated with the acquisitions of WOOD-TV, WOTV-TV, WAPA-TV, and WWLP-TV. Interest expense for LIN Television Corporation increased $7.2 million to $18.4 million and $17.0 million to $49.0 million, respectively, for the three and nine-month periods ended September 30, 2000, compared to interest expense of $11.2 million and $32.0 million, respectively, for the same periods last year. The increase is primarily the result of increased borrowings associated with the acquisitions of WOOD-TV, WOTV-TV, WAPA-TV, and WWLP-TV. The Company's benefit from income taxes increased approximately $3.9 million to a benefit of approximately $4.9 million for the three-month period ended September 30, 2000, compared to a benefit of approximately $937,000 for the same period last year. The provision for income taxes increased $5.2 million to $2.1 million for the nine-month period ended September 30, 2000, compared to a benefit of $3.1 million for the same period last year. These changes were primarily due to the disproportionate impact of non-deductible goodwill relative to the projected annual pretax net loss from period to period. LIN Television Corporation's provision for income taxes increased approximately $38.7 million to a provision of approximately $43.8 million for the three-month period ended September 30, 2000 compared to a provision of approximately $5.1 million for the same period last year. The provision for the income taxes increased $30.3 million to $38.4 million, for the nine-month period ended September 30, 2000, compared to a provision of $8.1 million for the same period last year. These changes were primarily due to the disproportionate impact of non-deductible goodwill relative to the projected annual pretax net loss from period to period. Liquidity and Capital Resources Net cash provided by operating activities for the nine months ended September 30, 2000 was $31.3 million compared to net cash provided by operating activities of $6.9 million for the same period last year. The increase is primarily the result of increases in operating income, partially offset by an increase in interest expense. Net cash used in investing activities was $156.8 million for the nine-months ended September 30, 2000, compared to $123.1 million for the same period last year. The change is primarily due to amounts paid related to the WWLP-TV transaction in the first quarter of 2000 and the acquisition of WOOD-TV and WOTV-TV in the second quarter of 1999. Net cash provided by financing activities for the nine months ended September 30, 2000 was $123.8 million compared to cash provided by financing activities of $94.6 million for the same period last year. The change in cash provided is primarily due to proceeds from a credit facility provided to WWLP Holdings, Inc. and its subsidiaries in connection with the WWLP-TV transaction in the first quarter of 2000 and the increased borrowings related to the acquisition of WOOD-TV and WOTV-TV in the second quarter of 1999. Based on the current level of operations and anticipated future growth (both internally generated as well as through acquisitions), the Company believes that its cash flows from operations, together with available borrowings under its credit facilities, will be sufficient to meet its anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for at least the next year. 22 25 PART I: FINANCIAL INFORMATION ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates principally with respect to its senior credit facility, which is priced based on certain interest rate alternatives. The Company's Senior Subordinated and Senior Discount Notes are fixed rate instruments (see Note 5 of the notes to the condensed consolidated financial statements.) The Company does not believe that its interest rate risks are material to its operations. 23 26 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As previously reported, LIN Television was named as a defendant in four lawsuits regarding the then proposed merger of LIN Television with LIN Holdings. 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 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 at September 30, 2000 is likely to have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS: 27.1 Financial Data Schedule for LIN Holdings Corp. for the three months ended September 30, 2000. 27.2 Financial Data Schedule for LIN Television Corporation for the three months ended September 30, 2000. REPORTS ON FORM 8-K: None. 24 27 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrants have duly caused this report to be signed on each of their respective behalf by the undersigned thereunto duly authorized. LIN HOLDINGS CORP. LIN TELEVISION CORPORATION (Registrant) (Registrant) DATED: NOVEMBER 14, 2000 /s/ Peter E. Maloney -------------------------------- Peter E. Maloney Vice President of Finance (Principal Financial and Accounting Officer.) 25