**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

 

**FORM 10-Q**

 

 
| **ý**                                                                                                                                                                                                                                                                                                                                                                            |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                           |
| **For the quarterly period ended June  30, 2002**                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                           |
| **OR**                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                           |
| **o**                                                                                                                                                                                                                                                                                                                                                                                 |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                           |
| **For the transition period from                              to                           ** |
|                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                           |
| **Commission File Number  0-19728**                                                                                                                                                                                                                                                                                                                                              |

 

**GRANITE BROADCASTING CORPORATION**

(exact name ofregistrant as specified in its charter)

|                                                       |   |                |
|------------------------------------------------------------|--------|---------------------|
| **DELAWARE**                                               |   | **13-3458782**      |
| (State or other  jurisdiction of                           |   | (I.R.S. Employer    |
| incorporation or  organization)                            |   | Identification No.) |
|                                                       |   |                |
| **767 Third Avenue**                                       |
| **34th Floor**                                             |
| **New York, New York  10017**                         |
| (address of principal  executive offices) (zip code)       |
|                                                       |   |                |
| **(212) 826-2530**                                         |
| (registrant’s telephone  number, including area code) |

 

        Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

Yes   ý No   o

 

(APPLICABLE ONLYTO CORPORATE ISSUERS:)

 

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

Class A Voting Common Stock, par value $.01 per share- 178,500 shares outstanding at August 9, 2002; Common Stock (Nonvoting), parvalue $.01 per share — 18,578,810 shares outstanding at August  9, 2002.

 

 

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PART I.  FINANCIAL INFORMATION

GRANITE BROADCASTINGCORPORATION

CONSOLIDATED BALANCESHEET

 
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | **June 30,**    |        | **December  31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|-----------------|-------------|-------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                                                                                                  |   |   |   | **2002**        |        | **2001**          |   |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |   | **(Unaudited)** |        |
| Current assets:                                                                                                                                                                                                                                                                                                                                                         |   |   |   |            |        |              |   |
| Cash and cash  equivalents (including $9,286,326 of restricted cash at December 31, 2001)                                                                                                                                                                                                                                                                               |   |   |   | $               | 28,371,138  |              | $      | 29,426,856 |   |
| Accounts  receivable, net                                                                                                                                                                                                                                                                                                                                               |   |   |   | 21,561,594      |        | 22,411,572        |   |
| Film contract  rights                                                                                                                                                                                                                                                                                                                                                   |   |   |   | 11,543,817      |        | 16,077,027        |   |
| Other current  assets                                                                                                                                                                                                                                                                                                                                                   |   |   |   | 9,906,604       |        | 6,131,223         |   |
| Net assets held  for sale                                                                                                                                                                                                                                                                                                                                               |   |   |   | -               |        | 33,201,988        |   |
| Total current  assets                                                                                                                                                                                                                                                                                                                                                   |   |   |   | 71,383,153      |        | 107,248,666       |   |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |            |        |              |   |
| Non-current  assets:                                                                                                                                                                                                                                                                                                                                                    |   |   |   |            |        |              |   |
| Property and  equipment, net                                                                                                                                                                                                                                                                                                                                            |   |   |   | 34,288,285      |        | 33,611,468        |   |
| Film contract  rights and other non-current assets                                                                                                                                                                                                                                                                                                                      |   |   |   | 14,491,244      |        | 51,874,512        |   |
| Deferred  financing fees, net                                                                                                                                                                                                                                                                                                                                           |   |   |   | 4,986,815       |        | 14,887,940        |   |
| Intangible  assets, net                                                                                                                                                                                                                                                                                                                                                 |   |   |   | 309,844,725     |        | 523,474,666       |   |
| Total assets                                                                                                                                                                                                                                                                                                                                                            |   |   |   | $               | 434,994,222 |              | $      | 731,097,252 |   |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |            |        |              |   |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                                                                                                                                                                                                              |   |   |   |            |        |              |   |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |            |        |              |   |
| Current  liabilities:                                                                                                                                                                                                                                                                                                                                                   |   |   |   |            |        |              |   |
| Accounts payable                                                                                                                                                                                                                                                                                                                                                        |   |   |   | $               | 2,245,165   |              | $      | 1,704,626 |   |
| Accrued interest                                                                                                                                                                                                                                                                                                                                                        |   |   |   | 2,382,140       |        | 4,255,195         |   |
| Other accrued  liabilities                                                                                                                                                                                                                                                                                                                                              |   |   |   | 14,518,412      |        | 2,943,466         |   |
| Film contract  rights payable                                                                                                                                                                                                                                                                                                                                           |   |   |   | 23,308,667      |        | 25,133,014        |   |
| Income taxes  payable                                                                                                                                                                                                                                                                                                                                                   |   |   |   | 36,139,130      |        | 69,874            |   |
| Other current  liabilities                                                                                                                                                                                                                                                                                                                                              |   |   |   | 6,806,931       |        | 5,738,440         |   |
| Total current  liabilities                                                                                                                                                                                                                                                                                                                                              |   |   |   | 85,400,445      |        | 39,844,615        |   |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |            |        |              |   |
| Non-current  liabilities:                                                                                                                                                                                                                                                                                                                                               |   |   |   |            |        |              |   |
| Long-term debt                                                                                                                                                                                                                                                                                                                                                          |   |   |   | 232,772,900     |        | 401,206,439       |   |
| Film contract  rights payable                                                                                                                                                                                                                                                                                                                                           |   |   |   | 23,259,701      |        | 22,859,716        |   |
| Deferred tax  liability                                                                                                                                                                                                                                                                                                                                                 |   |   |   | 44,746,459      |        | 68,868,284        |   |
| Other  non-current liabilities                                                                                                                                                                                                                                                                                                                                          |   |   |   | 22,211,171      |        | 24,353,351        |   |
|                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |            |        |              |   |
| Cumulative  exchangeable preferred stock, net of offering costs                                                                                                                                                                                                                                                                                                         |   |   |   | 197,947,678     |        | 272,108,759       |   |
| Stockholders’  deficit:                                                                                                                                                                                                                                                                                                                                            |   |   |   |            |        |              |   |
| Common  Stock:  41,000,000 shares authorized  consisting of 1,000,000 shares of Class A Voting Common Stock, $.01 par  value, and 40,000,000 shares of Common Stock (Nonvoting), $.01 par value; 178,500  shares of Class A Voting Common Stock and 18,578,810 shares of Common Stock  (Nonvoting) (18,447,927 shares at December 31, 2001) issued and outstanding |   |   |   | 187,573         |        | 186,264           |   |
| Accumulated  deficit                                                                                                                                                                                                                                                                                                                                                    |   |   |   | (170,400,395    | )           | (96,703,997       | )      |
| Less:  Unearned compensation                                                                                                                                                                                                                                                                                                                                       |   |   |   | (834,310        | )           | (1,329,179        | )      |
|             Treasury stock                                                                                                                                                                                                                                                                                       |   |   |   | (297,000        | )           | (297,000          | )      |
| Total  stockholders’ deficit                                                                                                                                                                                                                                                                                                                                       |   |   |   | (171,344,132    | )           | (98,143,912       | )      |
| Total  liabilities and stockholders’ deficit                                                                                                                                                                                                                                                                                                                       |   |   |   | $               | 434,994,222 |              | $      | 731,097,252 |   |

 

See accompanying notes.

 

1

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GRANITE BROADCASTINGCORPORATION

CONSOLIDATED STATEMENT OFOPERATIONS

 
|                                                                                                               |   | **Three  Months Ended June 30,** |        | **Six Months  Ended June 30,** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-------------|--------------------------------|--------|
|                                                                                                               |   | **2002**                         |        | **2001**                       |   | **2002** |   | **2001** |   |
|                                                                                                               |   | **(Unaudited)**                  | ** **  | **(Unaudited )**               |   |
| Net revenues                                                                                                       |   | $                                | 32,553,314  |                           | $      | 30,506,207 |   | $ | 76,095,671 |   | $ | 57,354,511 |   |
| Station  operating expenses                                                                                        |   | 24,855,105                       |        | 25,381,503                     |   | 54,939,905 |   | 53,338,794 |   |
| Depreciation  expense                                                                                              |   | 1,524,064                        |        | 1,510,050                      |   | 3,258,092 |   | 3,013,444 |   |
| Amortization  expense                                                                                              |   | 4,759,622                        |        | 6,540,107                      |   | 14,238,048 |   | 12,828,602 |   |
| Corporate  expense                                                                                                 |   | 2,319,169                        |        | 2,498,838                      |   | 4,616,314 |   | 5,037,686 |   |
| Non-cash  compensation expense                                                                                     |   | 325,707                          |        | 331,809                        |   | 654,871 |   | 799,185 |   |
| Operating loss                                                                                                     |   | (1,230,353                       | )           | (5,756,100                     | )      | (1,611,559 | ) | (17,663,200 | ) |
| Other expenses  (income):                                                                                          |   |                             |        |                           |   |   |   |   |   |
| Interest expense                                                                                                   |   | 7,881,455                        |        | 12,738,463                     |   | 20,468,637 |   | 21,900,445 |   |
| Interest income                                                                                                    |   | (196,218                         | )           | (649,870                       | )      | (314,726 | ) | (660,349 | ) |
| Non-cash  interest expense                                                                                         |   | 3,089,470                        |        | 2,201,354                      |   | 10,954,152 |   | 3,069,943 |   |
| Gain on station  sale                                                                                              |   | (192,406,138                     | )           | —                         |   | (192,406,138 | ) | — |   |
| Other                                                                                                              |   | 154,168                          |        | 289,174                        |   | 303,128 |   | 536,487 |   |
| Income (loss) before  income taxes, extraordinary item, and cumulative effect of a change in  accounting principle |   | 180,246,910                      |        | (20,335,221                    | )      | 159,383,388 |   | (42,509,726 | ) |
| Provision (benefit)  for income taxes:                                                                             |   |                             |        |                           |   |   |   |   |   |
| Current                                                                                                            |   | 42,215,830                       |        | 62,500                         |   | 39,334,636 |   | 125,000 |   |
| Deferred                                                                                                           |   | 39,155,936                       |        | (8,211,049                     | )      | 34,229,121 |   | (16,613,701 | ) |
| Total provision  (benefit) for income taxes                                                                        |   | 81,371,766                       |        | (8,148,549                     | )      | 73,563,757 |   | (16,488,701 | ) |
| Income (loss) before  extraordinary item and cumulative effect of a change in accounting principle                 |   | 98,875,144                       |        | (12,186,672                    | )      | 85,819,631 |   | (26,021,025 | ) |
| Extraordinary loss, net  of benefit for income taxes                                                               |   | 9,057,985                        |        | —                         |   | 9,057,985 |   | 1,207,081 |   |
| Cumulative effect of a  change in accounting principle, net of benefit for income taxes                            |   | —                           |        | —                         |   | 150,478,583 |   | — |   |
| Net  income (loss)                                                                                            |   | $                                | 89,817,159  |                           | $      | (12,186,672 | ) | $ | (73,716,937 | ) | $ | (27,228,106 | ) |
| Net income (loss)  attributable to common shareholders                                                             |   | $                                | 110,493,506 |                           | $      | (20,313,417 | ) | $ | (61,684,476 | ) | $ | (43,008,253 | ) |
|                                                                                                               |   |                             |        |                           |   |   |   |   |   |
| Per basic common  share:                                                                                           |   |                             |        |                           |   |   |   |   |   |
| Income (loss)  before extraordinary item, and cumulative effect of a change in accounting  principle               |   | $                                | 6.37        |                           | $      | (1.09 | ) | $ | 5.22 |   | $ | (2.25 | ) |
| Extraordinary loss,  net of benefit for income taxes                                                               |   | (0.48                            | )           | —                         |   | (0.48 | ) | (0.07 | ) |
| Cumulative  effect of a change in accounting principle, net of deferred income tax  benefit                        |   | —                           |        | —                         |   | (8.03 | ) | — |   |
| Basic net income  (loss) per share                                                                                 |   | $                                | 5.89        |                           | $      | (1.09 | ) | $ | (3.29 | ) | $ | (2.32 | ) |
|                                                                                                               |   |                             |        |                           |   |   |   |   |   |
| Basic weighted  average common shares outstanding                                                                  |   | 18,752,243                       |        | 18,620,905                     |   | 18,740,108 |   | 18,512,398 |   |
|                                                                                                               |   |                             |        |                           |   |   |   |   |   |
| Per fully  diluted common share:                                                                                   |   |                             |        |                           |   |   |   |   |   |
| Income (loss)  before extraordinary item, and cumulative effect of a change in accounting  principle               |   | $                                | 6.31        |                           | $      | (1.09 | ) | $ | 5.18 |   | $ | (2.25 | ) |
| Extraordinary  loss, net of benefit for income taxes                                                               |   | (0.48                            | )           | —                         |   | (0.48 | ) | (0.07 | ) |
| Cumulative  effect of a change in accounting principle, net of deferred income tax  benefit                        |   | —                           |        | —                         |   | (7.97 | ) | — |   |
| Fully diluted  net income (loss) per share                                                                         |   | $                                | 5.83        |                           | $      | (1.09 | ) | $ | (3.27 | ) | $ | (2.32 | ) |
| Fully diluted weighted  average common shares outstanding                                                          |   | 18,965,401                       |        | 18,620,905                     |   | 18,883,107 |   | 18,512,398 |   |

 

See accompanying notes.

 

2

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GRANITE BROADCASTINGCORPORATION

CONSOLIDATED STATEMENT OFSTOCKHOLDERS' DEFICIT

(Unaudited)

 

 
|                                                                            |   | **Class A  Voting Common Stock** |    | **Common  Stock  (Nonvoting)** |   | **Additional  Paid-in  Capital** |   | **Accumulated  Deficit** |   | **Unearned  Compenstation** |         | **Treasury  Stock** |   | **Total  Stockholders'  Deficit** |   |
|---------------------------------------------------------------------------------|--------|----------------------------------|---------|--------------------------------|--------|----------------------------------|--------|--------------------------|--------|-----------------------------|--------------|---------------------|--------|-----------------------------------|--------|
|                                                                            |   |                             |    |                           |   |                             |   |                     |   |                        |         |                |   |                              |   |
| Balance at December 31, 2001                                                    |   | $                                | 1,  785 |                           | $      | 184,479                          |   | -                        |   | $                           | (96,703,997  | )                   | $      | (1,329,179)                       |   | $ | (297,000 | ) | $ | (98,143,912 | ) |
| Dividends on Cumulative Exchangable Preferred Stock                             |   |                             |    |                           |   | (16,672,692                      | )      | 20,539                   |   |                        |         |                |   | (16,652,153                       | )      |
| Gain on retirement of Cumulative Exchangeable Preferred Stock                   |   |                             |    |                           |   | 28,914,771                       |   |                     |   |                        |         |                |   | 28,914,771                        |   |
| Accretion of offering costs related to Cumulative Exchangeable  Preferred Stock |   |                             |    |                           |   | (230,157                         | )      |                     |   |                        |         |                |   | (230,157                          | )      |
| Issuance of Common Stock (Nonvoting)                                            |   |                             |    | 1,309                          |   | (1,309                           | )      |                     |   |                        |         |                |   | -                                 |   |
| Stock expense related to stock plans                                            |   |                             |    |                           |   | 139,267                          |   |                     |   | 397,143                     |         |                |   | 536,410                           |   |
| Cancellation of warrants                                                        |   |                             |    |                           |   | (12,149,880                      | )      |                     |   |                        |         |                |   | (12,149,880                       | )      |
| Discount on loans to officers                                                   |   |                             |    |                           |   |                             |   |                     |   | 97,726                      |         |                |   | 97,726                            |   |
| Net loss                                                                        |   |                             |    |                           |   |                             |   | (73,716,937              | )      |                        |         |                |   | (73,716,937                       | )      |
| Balance at June 30, 2002                                                        |   | $                                | 1,785   |                           | $      | 185,788                          |   | -                        |   | $                           | (170,400,395 | )                   | $      | (834,310                          | )      | $ | (297,000 | ) | $ | (171,344,132 | ) |

 

See accompanying notes.

 

3

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GRANITE BROADCASTINGCORPORATION

CONSOLIDATED STATEMENT OFCASH FLOWS

 
|                                                                               |   | **Six Months  ended June 30,** |        |
|------------------------------------------------------------------------------------|--------|--------------------------------|-------------|
|                                                                               |   | **2002**                       |        | **2001** |   |
|                                                                               |   | **(Unaudited)**                |        |
| Cash flows from  operating activities:                                             |   |                           |        |   |   |
| Net loss                                                                           |   | $                              | (73,716,937 | ) | $ | (27,228,106 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:       |   |                           |        |   |   |
|                                                                               |   |                           |
| Amortization of  intangible assets                                                 |   | 14,238,048                     |        | 12,828,602 |   |
| Depreciation                                                                       |   | 3,258,092                      |        | 3,013,444 |   |
| Non-cash  compensation expense                                                     |   | 654,871                        |        | 799,185 |   |
| Non-cash  interest expense                                                         |   | 10,954,152                     |        | 3,069,943 |   |
| Deferred tax  benefit                                                              |   | (24,121,825                    | )           | (17,387,370 | ) |
| Extraordinary  loss                                                                |   | 15,096,641                     |        | 2,011,801 |   |
| Gain on station  sale                                                              |   | (192,406,138                   | )           | — |   |
| Cumulative  effect of a change in accounting principle                             |   | 208,829,529                    |        | — |   |
| Change in assets  and liabilities, net of amounts for sale of KNTV:                |   |                           |        |   |   |
| (Increase)  decrease in accounts receivable, net                                   |   | (33,320,014                    | )           | 3,186,187 |   |
| Increase in  accounts payable and accrued liabilities                              |   | 11,873,084                     |        | 279,579 |   |
| Decrease in film  contract rights and other non-current assets                     |   | 1,938,639                      |        | 9,634,737 |   |
|                                                                               |   |                           |
| Increase (decrease) in  film contract rights payable and other current liabilities |   | 32,449,678                     |        | (7,776,203 |   |
|                                                                               |   | )                              |
| NBC network  affiliation payment                                                   |   | —                         |        | (27,778,694 | ) |
| WB Network  affiliation payment                                                    |   | (1,057,532                     | )           | (1,261,714 | ) |
| Increase in  other non-current liabilities                                         |   | 1,494,026                      |        | 549,591 |   |
| (Increase)  decrease in income tax receivable                                      |   | (2,943,694                     | )           | 19,431,046 |   |
| Increase in  other assets                                                          |   | (5,632,973                     | )           | (497,027 | ) |
| Net cash used in  operating activities                                             |   | (32,412,353                    | )           | (27,124,999 | ) |
|                                                                               |   |                           |        |   |   |
| Cash flows from investing  activities:                                             |   |                           |        |   |   |
| Proceeds from  sale of station                                                     |   | 265,018,849                    |        | — |   |
| Capital  expenditures                                                              |   | (4,159,616                     | )           | (1,394,783 | ) |
| Net cash  provided by (used in) investing activities                               |   | 260,859,233                    |        | (1,394,783 | ) |
|                                                                               |   |                           |        |   |   |
| Cash flows from  financing activities:                                             |   |                           |        |   |   |
| Proceeds from  long-term debt                                                      |   | —                         |        | 205,000,000 |   |
| Repayment of  bank debt                                                            |   | (170,000,000                   | )           | (113,672,428 | ) |
| Repurchase of  cumulative exchangeable preferred stock                             |   | (53,264,005                    | )           | — |   |
| Payment of  deferred financing fees                                                |   | (6,238,593                     | )           | (9,786,323 | ) |
| Net cash (used  in) provided by financing activities                               |   | (229,502,598                   | )           | 81,541,249 |   |
|                                                                               |   |                           |        |   |   |
| Net (decrease)  increase in cash and cash equivalents                              |   | (1,055,718                     | )           | 53,021,467 |   |
| Cash and cash  equivalents, beginning of period                                    |   | 29,426,856                     |        | 9,209,249 |   |
|                                                                               |   |                           |        |   |   |
| Cash and cash  equivalents, end of period                                          |   | $                              | 28,371,138  |   | $ | 62,230,716 |   |
| Supplemental  information:                                                         |   |                           |        |   |   |
| Cash paid for  interest                                                            |   | $                              | 26,996,000  |   | $ | 18,602,000 |   |
| Income taxes  paid                                                                 |   | 173,000                        |        | 162,000 |   |
| Non-cash capital  expenditures                                                     |   | 396,000                        |        | 251,000 |   |
| Non-cash dividend                                                                  |   | 16,652,000                     |        | 15,531,000 |   |
| Fair value of  warrants                                                            |   | —                         |        | 2,065,000 |   |
| Cancellation of  warrants                                                          |   | 12,150,000                     |        | — |   |
|                                                                               |   |                           |        |   |   |

 

See accompanying notes.

 

4

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GRANITEBROADCASTING CORPORATION

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

(UNAUDITED)

 

 

Note 1 - Basis ofpresentation 

 

The accompanyingunaudited consolidated financial statements include the accounts of GraniteBroadcasting Corporation and its subsidiaries (the “Company”), and have beenprepared in accordance with the instructions to Form 10-Q and do not includeall of the information and footnotes required by accounting principlesgenerally accepted in the United States for complete financial statements.  Operating results for the six-month periodended June 30, 2002 are not necessarily indicative of the results that may beexpected for the year ended December 31, 2002. For further information, refer to the Company’s consolidated financialstatements and notes thereto for the year ended December 31, 2001 which wereincluded in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2001.  All significantinter-company accounts and transactions have been eliminated.  Data at, and for the year ended December 31,2001 are derived from the Company’s audited consolidated financialstatements.  In the opinion ofmanagement, all adjustments of a normal recurring nature, which are necessaryfor a fair presentation of the results for the interim periods, have been made.

 

Note 2 - AssetDisposition

 

On April 30, 2002the Company completed the sale of KNTV to the National Broadcasting Company,Inc. (“NBC”) for $230,000,000, plus working capital and other adjustments of$14,545,000.  In addition, NBC refundedthe Company $20,473,000 of the January 1, 2002 affiliation payment due to NBCunder the terms of the KNTV NBC affiliation agreement (the “San FranciscoAffiliation Agreement”), which the Company prepaid on March 6, 2001.  The Company repaid $170,000,000 ofoutstanding senior debt and $14,763,000 of deferred interest and other feesassociated with the senior credit facility and the credit agreement discussedbelow upon consummation of the sale. The San Francisco Affiliation Agreement terminated upon the closing ofthe sale and the Company is not required to make any further affiliationpayments to NBC.  The 4,500,000 warrantsissued to NBC as part of the San Francisco Affiliation Agreement have beenreturned to the Company.  The Company’saffiliation agreements for KSEE-TV, WEEK-TV, and KBJR-TV, which involve nopayment obligations, will remain in effect until their expiration on December31, 2011.  During the second quarter theCompany recorded a pre-tax book gain of $192,406,000 on the sale of KNTV.  The Company also recorded an extraordinaryloss on the early extinguishment of debt, net of a current tax benefit, of$9,058,000 due to the write-off of unamortized deferred financing feesassociated with the old senior credit facility.

 

###### Note3 - Long-term debt

###  

On April 30, 2002,the Company entered into an amended and restated senior credit agreement (the“Credit Agreement”).  The CreditAgreement consists of (i) a committed $60,000,000 Tranche A term loan facility,(ii) a committed $80,000,000 Tranche B term loan facility and (iii) anuncommitted $10,000,000 Tranche C supplemental term loan facility. Theobligations of the Company with respect to all of the loan facilities aresecured by substantially all of the assets of the Company and its subsidiaries.The Tranche B commitment expires on August 28, 2002, unless previouslycancelled by the Company or extended at the lenders’ option for an additionalperiod of time.  The Company anticipatesborrowing the entire Tranche B term loan facility by August 28, 2002.

 

Upon entering into theCredit Agreement, the Company rolled over existing outstanding loans under theprior loan facility into an initial Tranche A borrowing in the amount of$35,000,000.  Proceeds from Tranche Aand Tranche B term loans are used for working capital and general corporate purposes.  TheTranche A loans bear interest at the greater of LIBOR plus 4.50% or 6.50% andthe Tranche B loans bear interest at the greater of LIBOR plus 9% or 11%.  All interest is payable monthly in arrears.   The Credit Agreement matures on April 15, 2004,at which time the Company must repay the principal amount of all outstandingloans and all other obligations then due and owing under the CreditAgreement.  The Credit Agreementrequires the Company, among other matters, to maintain compliance with certainfinancial tests, including but not limited to, minimum net revenue, broadcastcash flow, EBITDA, working capital and cash balances.  At June 30, 2002 the Company was in compliance with all covenantsunder the Credit Agreement, except for a technical default of the minimumworking capital financial covenant.  Thelenders waived the technical default and the Company is now in compliance withall covenants.

 

 

 

 

5

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Note 4 - 12.75% Cumulative Exchangeable PreferredStock

 

During the second quarterthe Company repurchased and retired a total of 83,920 shares of its $1,000 faceamount 12.75% Cumulative Exchangeable Preferred Stock (the “Shares”) for$53,264,000.  The Shares were repurchasedat an average price of $634.70 per share, generating a gain, after transactionrelated expenses and the write off of a portion of the initial offering costs,of $28,915,000.  The gain was recordedin additional paid in capital.

 

Note 5 - Recent Accounting Pronouncements

 

In June 2001, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement142”), effective January 1, 2002.  Underthe new rules, goodwill and other indefinite lived intangible assets deemed tohave indefinite lives will no longer be amortized but will be subject to annualimpairment tests in accordance with Statement 142.

 

Under Statement 142,goodwill and other indefinite lived intangible assets are deemed to be impairedif their net book value exceeds their estimated fair value.  Upon adoption of Statement 142 as of January1, 2002, the Company recorded a one-time, non-cash charge to reduce thecarrying value of its goodwill and other indefinite lived intangible assets by$95,000,000 and $114,000,000, respectively, during the first quarter.  The decline in the carrying value ofgoodwill and other indefinite-lived intangible assets relates solely to theCompany’s WB affiliates.  Such charge isnon-operational in nature and is reflected as a cumulative effect of anaccounting change in the accompanying consolidated statement ofoperations.  In calculating theimpairment charge, the fair value was estimated using a discounted cash flowmethodology.

 

As of June 30, 2002, theCompany’s intangible assets and related accumulated amortization consisted ofthe following:

 
|                                             |   | **As of June  30, 2002**  |        |
|--------------------------------------------------|--------|---------------------------|-------------|
|                                             |   | **Gross  Carrying Value** |        | **Accumulated  Amortization** |   |
|                                             |   |                      |        |
|                                             |   |                      |        |   |   |
| Intangible  assets subject to   amortization:    |   |                      |        |   |   |
|                                             |   |                      |
| Network  affiliation agreements                  |   | $                         | 33,374,907  |   | $ | (14,647,265 | ) |
| Covenant not to  compete                         |   | 30,000,000                |        | (23,750,000 | ) |
|                                             |   |                      |        |   |   |
|                                             |   | $                         | 63,374,907  |   | $ | (38,397,265 | ) |
|                                             |   |                      |        |   |   |
| Intangible  assets not subject to  amortization: |   |                      |        |   |   |
|                                             |   |                      |
| Goodwill                                         |   | $                         | 111,252,434 |   | $ | (28,201,070 | ) |
| Broadcast  licenses                              |   | 159,647,594               |        | (32,315,765 | ) |
| Network  affiliation agreements                  |   | 95,366,707                |        | (20,882,800 | ) |
|                                             |   |                      |        |   |   |
|                                             |   | $                         | 366,266,735 |   | $ | (81,399,635 | ) |

 

 

The Companyrecorded amortization expense of $14,238,000 during the six months ended June30, 2002.  If Statement 142 had beenadopted effective January 1, 2001, amortization expense would have been$4,970,000 during the six months ended June 30, 2001.  Based on the current amount of intangible assets subject toamortization, the estimated amortization expense for each of the succeeding 5years are as follows:  2002:$19,038,000; 2003: $6,850,000; 2004: $3,167,000; 2005: $2,684,000 and 2006:$2,684,000.  As acquisitions anddispositions occur in the future and as purchase price allocations arefinalized, these amounts may vary.

 

The 2001 resultson a historical basis do not reflect the provisions of Statement 142.  Had the Company adopted Statement 142 onJanuary 1, 2001, the historical net loss and basic and diluted net loss percommon share would have changed to the adjusted amounts indicated below:

 

6

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|                               |   | **Three  Months Ended June 30, 2001** |        | **Six Months  Ended June 30, 2001**      |   |
|------------------------------------|--------|---------------------------------------|-------------|------------------------------------------|--------|
|                               |   |                                  |        | **Per basic and diluted   common share** |   |   |   | **Per basic and diluted  common share** |   |
| Loss before  extraordinary item    |   | $                                     | (12,186,672 | )                                        | $      | (1.09 | ) | $ | (26,021,025 | ) | $ | (2.25 | ) |
| Add:  Goodwill amortization   |   | 1,474,700                             |        | 0.08                                     |   | 2,949,400 |   | 0.16 |   |
| Add:  Intangible amortization |   | 2,454,393                             |        | 0.13                                     |   | 4,908,786 |   | 0.27 |   |
| Extraordinary  loss                |   | —                                |        | —                                   |   | (1,207,081 | ) | (0.07 | ) |
|                               |   |                                  |        |                                     |   |   |   |   |   |
| Adjusted net  loss                 |   | $                                     | (8,257,579  | )                                        | $      | (0.88 | ) | $ | (19,369,920 | ) | $ | (1.89 | ) |

 

 

In June 2001, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 143, Accounting for Asset Retirement Obligations (“Statement143”), effective for fiscal years beginning after June 15, 2002. This standardprovides the accounting for the cost of legal obligations associated with theretirement of long-lived assets. Statement 143 requires that companiesrecognize the fair value of a liability for asset retirement obligations in theperiod in which the obligations are incurred and capitalize that amount as apart of the book value of the long-lived asset. That cost is then depreciatedover the remaining life of the underlying long-lived asset. The Company iscurrently evaluating the impact that this new standard will have on futureresults of operations and financial position.

 

In August 2001, theFinancial Accounting Standards Board issued Statement No. 144, Accounting forthe Impairment or Disposal of Long-Lived Assets (“Statement 144”). Statement144 addresses financial accounting and reporting for the impairment or disposalof long-lived assets and supercedes Financial Accounting Standards Board StatementNo. 121, Accounting for the Impairment of Long-Lived Assets and for Long- LivedAssets to be Disposed Of, and the accounting and reporting provisions ofAccounting Principles Board Opinion No. 30, Reporting the Results of Operationfor a disposal of a segment of a business. Statement 144 was required to beadopted by the Company on January 1, 2002 and its adoption did not have asignificant impact on its financial position, results of operations, or cashflows.

 

On April 30, 2002, theFinancial Accounting Standards Board issued Statement No. 145, Rescission ofFASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, andTechnical Corrections. (“Statement 145”) Statement 145 updates, clarifies andsimplifies existing accounting pronouncements. Statement 145 rescinds Statement 4, which required all gains and lossesfrom extinguishments of debt to be aggregated and, if material, classified asan extraordinary item, net of related income tax effect. Statement 145 iseffective for fiscal years beginning after June 15, 2002. The Company willadopt the Statement as of and for the year ended December 31, 2003.  All prior extraordinary items relating tothe extinguishments of debt will be retroactively adjusted and reclassified toincome from continuing operations.

 

Note6 — Per Share Calculations

The per-sharecalculations shown on the income statement for the three and six month periodsended June 30, 2002 and 2001 are computed in accordance with Statement ofFinancial Accounting Standards No. 128, Earnings Per Share.  The following table sets forth thecomputation of basic and fully diluted earnings per share:

 

 

7

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|                                                                                                 |   | **Three  Months Ended June 30,** |        | **Six Months  Ended June 30,** |   |
|------------------------------------------------------------------------------------------------------|--------|----------------------------------|-------------|--------------------------------|--------|
|                                                                                                 |   | **2002**                         |        | **2001**                       |   | **2002** |   | **2001** |   |
|                                                                                                 |   | **(Unaudited)**                  | ** **  | **(Unaudited)**                |   |
| Income (loss)  before extraordinary item, and cumulative effect of a change in accounting  principle |   | $                                | 98,875,144  |                           | $      | (12,186,672 |   | $ | 85,819,631 |   | $ | (26,021,025 |   |
|                                                                                                 |   |                             |        |                           |
|                                                                                                 |   | )                                |        | )                              |
| Extraordinary  loss, net of benefit for income taxes                                                 |   | 9,057,985                        |        | —                         |   | 9,057,985 |   | 1,207,081 |   |
| Cumulative  effect of a change in accounting                                                         |   |                             |        |                           |   |   |   |   |   |
| principle, net  of deferred income tax benefit                                                       |   | —                           |        | —                         |   | 150,478,583 |   | — |   |
| Net income  (loss)                                                                                   |   | 89,817,159                       |        | (12,186,672                    | )      | (73,716,937 | ) | (27,228,106 | ) |
|                                                                                                 |   |                             |        |                           |   |   |   |   |   |
| LESS:                                                                                                |   |                             |        |                           |   |   |   |   |   |
| Cumulative  exchangeable preferred stock dividends                                                   |   | 8,133,304                        |        | 8,001,708                      |   | 16,652,153 |   | 15,530,073 |   |
| Accretion of  costs on cumulative exchangeable                                                       |   |                             |        |                           |   |   |   |   |   |
| Preferred stock                                                                                      |   | 105,120                          |        | 125,037                        |   | 230,157 |   | 250,074 |   |
|                                                                                                 |   |                             |        |                           |   |   |   |   |   |
| ADD:                                                                                                 |   |                             |        |                           |   |   |   |   |   |
| Gain on  repurchase of cumulative exchangeable Preferred stock                                       |   | 28,914,771                       |        | —                         |   | 28,914,771 |   |   |   |
|                                                                                                 |   |                             |        | —                    |   |
| Net income  (loss) attributable to commonshareholders                                                |   | $                                | 110,493,506 |                           | $      | (20,313,417 | ) | $ | (61,684,476 | ) | $ | (43,008,253 | ) |
|                                                                                                 |   |                             |        |                           |   |   |   |   |   |
| (in shares)                                                                                          |   |                             |        |                           |   |   |   |   |   |
| Basic weighted  average common shares outstanding                                                    |   | 18,752,243                       |        | 18,620,905                     |   | 18,740,108 |   | 18,512,398 |   |
|                                                                                                 |   |                             |        |                           |
|                                                                                                 |   |                             |        |                           |   |   |   |   |   |
| ADD:                                                                                                 |   |                             |        |                           |   |   |   |   |   |
| Stock options                                                                                        |   | 213,158                          |        | —                         |   | 142,999 |   | — |   |
| Fully diluted  weighted average common shares outstanding                                            |   | 18,965,401                       |        | 18,620,905                     |   | 18,883,107 |   | 18,512,398 |   |
|                                                                                                 |   |                             |        |                           |
|                                                                                                 |   |                             |        |                           |   |   |   |   |   |
| Per basic common  share:                                                                             |   |                             |        |                           |   |   |   |   |   |
| Income (loss)  before extraordinary item, and cumulative effect of a change in accounting  principle |   | $                                | 6.37        |                           | $      | (1.09 |   | $ | 5.22 |   | $ | (2.25 |   |
|                                                                                                 |   |                             |        |                           |
|                                                                                                 |   | )                                |        | )                              |
| Extraordinary  loss, net of benefit for income taxes                                                 |   | (0.48                            |        | —                         |   | (0.48 |   | (0.07 |   |
|                                                                                                 | )      |                             | )           | )                              |
| Cumulative  effect of a change in accounting principle, net of deferred income tax  benefit          |   | —                           |        | —                         |   | (8.03 |   | — |   |
|                                                                                                 |   |                             |        |                           |
|                                                                                                 |   |                             | )           |                           |
| Basic net income  (loss) per share                                                                   |   | $                                | 5.89        |                           | $      | (1.09 | ) | $ | (3.29 | ) | $ | (2.32 | ) |
|                                                                                                 |   |                             |        |                           |   |   |   |   |   |
| Per fully  diluted common share:                                                                     |   |                             |        |                           |   |   |   |   |   |
| Income (loss)  before extraordinary item, and cumulative effect of a change in accounting  principle |   | $                                | 6.31        |                           | $      | (1.09 |   | $ | 5.18 |   | $ | (2.25 |   |
|                                                                                                 |   |                             |        |                           |
|                                                                                                 |   | )                                |        | )                              |
| Extraordinary  loss, net of benefit for income taxes                                                 |   | (0.48                            |        | —                         |   | (0.48 |   | (0.07 |   |
|                                                                                                 | )      |                             | )           | )                              |
| Cumulative effect  of a change in accounting principle, net of deferred income tax benefit           |   | —                           |        | —                         |   | (7.97 |   | — |   |
|                                                                                                 |   |                             |        |                           |
|                                                                                                 |   |                             | )           |                           |
| Fully diluted  net income (loss) per share                                                           |   | $                                | 5.83        |                           | $      | (1.09 | ) | $ | (3.27 | ) | $ | (2.32 | ) |
|                                                                                                      |        |                                  |             |                                |        |  |  |  |  |  |  |  |  |  |

 

 

8

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MANAGEMENT’SDISCUSSION AND ANALYSIS OF

FINANCIALCONDITION AND RESULTS OF OPERATIONS

 

Certain sectionsof this Form 10-Q contain various forward-looking statements within the meaningof Section 21E of the Securities Exchange Act of 1934, which represent theCompany’s expectations or beliefs concerning future events.  The forward-looking statements include,without limitation, the Company’s ability to meet its future liquidity needs.  The Company cautions that theseforward-looking statements are further qualified by important factors thatcould cause actual results to differ materially from those in the forwardlooking statements.  Such factorsinclude, without limitation, general economic conditions, competition in themarkets in which the Company’s stations are located, technological change andinnovation in the broadcasting industry and proposed legislation.  Consequently, these cautionary statementsand the cautionary language set forth in the Company’s most recent Form 10-Kreport and other documents filed with the Securities and Exchange Commissionqualify all forward-looking statements made herein.

 

Introduction

 

The Company is agroup broadcaster that operates eight network-affiliated televisionstations.  The Company’s revenues arederived principally from local and national advertising and, to a lesserextent, from network compensation for the broadcast of programming and revenuesfrom studio rental and commercial production activities.  The primary operating expenses involved inowning and operating television stations are employee salaries, depreciationand amortization, programming and advertising and promotion expenses.  Numbers referred to in the followingdiscussion have been rounded to the nearest thousand.  The Company’s operating revenue are generally lower in the firstcalendar quarter and generally higher in the fourth calendar quarter than inthe other two quarters, due in part to increases in retail advertising in thefall months in preparation for the holiday season, and in election years due toincreased political advertising. Operating results for the six-month period ended June 30, 2002 are notnecessarily indicative of the results that may be expected for the year endedDecember 31, 2002.

 

Comparisons of theCompany’s consolidated financial statements between the three and six monthsended June 30, 2002 and the same period last year have been affected by thesale of KNTV on April 30, 2002, investments in syndicated programs at theCompany’s WB affiliates, and the reduction in amortization expense of certaingoodwill and other indefinite-lived intangible assets in accordance with FASBStatement 142.  The Company anticipatesthat comparisons of the Company’s consolidated financial statements between theyears ended December 31, 2002 and 2001 will also be impacted by theaforementioned factors.

 

The followingtable sets forth certain operating data for the three and six months ended June30, 2002 and 2001:

 
|                           |   | **Three  Months Ended June 30,** |       | **Six Months  Ended June 30,** |   |
|--------------------------------|--------|----------------------------------|------------|--------------------------------|--------|
|                           |   | **2002**                         |       | **2001**                       |   | **2002** |   | **2001** |   |
|                           |   | **(Unaudited)**                  |       | **(Unaudited )**               |   |
|                           |   |                             |       |                           |   |   |   |   |   |
| Operating loss                 |   | $                                | (1,230,000 | )                              | $      | (5,756,000 | ) | $ | (1,611,000 | ) | $ | (17,663,000 | ) |
| Add:                           |   |                             |       |                           |   |   |   |   |   |
| Depreciation and  amortization |   | 6,284,000                        |       | 8,050,000                      |   | 17,496,000 |   | 15,842,000 |   |
| Corporate  expense             |   | 2,319,000                        |       | 2,499,000                      |   | 4,616,000 |   | 5,038,000 |   |
| Non-cash  compensation         |   | 326,000                          |       | 332,000                        |   | 655,000 |   | 799,000 |   |
| Program  amortization          |   | 6,427,000                        |       | 5,573,000                      |   | 11,829,000 |   | 13,634,000 |   |
| Program payments               |   | (6,502,000                       | )          | (6,043,000                     | )      | (10,960,000 | ) | (12,311,000 | ) |
| Broadcast cash  flow           |   | $                                | 7,624,000  |                           | $      | 4,655,000 |   | $ | 22,025,000 |   | $ | 5,339,000 |   |
|                                |        |                                  |            |                                |        |  |  |  |  |  |  |  |  |  |

 

“Broadcastcash flow,” means operating loss plus depreciation, amortization, corporateexpense, non-cash compensation and program amortization, less programpayments.  The Company has includedbroadcast cash flow data because such data are commonly used as a measure ofperformance for broadcast companies and are also used by investors to measure acompany’s ability to service debt.  Broadcastcash flow is not, and should not be used as, an indicator or alternative tooperating income, net income or cash flow as reflected in the consolidatedfinancial statements, is not a measure of financial performance underaccounting principles generally accepted in the United States and should not beconsidered in isolation or as a substitute for measures of performance preparedin accordance with accounting principles generally accepted in the UnitedStates.

 

 

9

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# *Three months ended June30, 2002 and 2001*

 

Net revenue totaled $32,553,000 for thethree months ended June 30, 2002; an increase of $2,047,000 or 7% as comparedto $30,506,000 for the three months ended June 30, 2001.  The increase was primarily due to an increasein revenue at KNTV of $3,030,000 as the station became an NBC affiliate onJanuary 1, 2002, offset in part by a decrease in net revenue of $1,300,000 atthe Company’s WB affiliates.  TheCompany sold KNTV to NBC on April 30, 2002.

 

Station operating expenses totaled $24,855,000for the three months ended June 30, 2002; a decrease of $527,000 or 2% ascompared to $25,382,000 for the three months ended June 30, 2001. The decreasewas primarily due to a reduction in expense at KNTV of $2,213,000 resultingfrom the inclusion of one month of operations of KNTV in 2002 compared to threemonths last year, offset in part by increases in news, sales and promotionexpenses at the other stations and the write-down of certain syndicatedprograms at the WB affiliates.

 

Amortization expense decreased $1,780,000or 27% primarily due to the elimination of amortization of goodwill and otherindefinite-lived intangible assets in conjunction with the adoption ofStatement 142, offset in part, by one month of amortization of the NBCaffiliation agreement at KNTV. Corporate expense decreased $180,000 or 7% primarily due to decreasedprofessional fees.

 

# *Interest expense decreased $4,857,000 or 38% during thethree months ended June 30, 2002 as compared to the same period a year earlierprimarily due to lower average debt balances and lower interest rates on theCompany’s new senior credit facility. Interest income decreased $454,000, primarily due to lower cash balancesand lower interest rates.  Non-cashinterest expense increased $888,000, primarily due to the imputation of onemonth of interest related to KNTV’s affiliation agreement offset, in part, byreduced amortization of deferred financing fees associated with the new seniorcredit facility.*

 

In connection withthe sale of KNTV, the Company recorded a pre-tax gain on the sale of$192,406,000.  The Company recorded aprovision for income taxes of $81,372,000, consisting of a current portion of$42,216,000 and a deferred portion of $39,156,000.

 

The Companyrecorded an extraordinary loss on the early extinguishment of debt, net of acurrent tax benefit, of $9,058,000 due to the write-off of unamortized deferredfinancing fees associated with the old senior credit facility.

## * *

# *Six months ended June30, 2002 and 2001*

 

Net revenue totaled $76,096,000 for thesix months ended June 30, 2002; an increase of $18,741,000 or 33% as comparedto $57,355,000 for the six months ended June 30, 2001. The increase wasprimarily due to an increase in revenue at KNTV of $20,429,000 as the stationbecame an NBC affiliate on January 1, 2002, offset in part by a decrease in netrevenue of $2,942,000 at the Company’s WB affiliates. The Company sold KNTV toNBC on April 30, 2002.

 

Station operating expenses totaled$54,940,000 for the six months ended June 30, 2002; an increase of $1,601,000or 3% as compared to $53,339,000 for the six months ended June 30, 2001. Theincrease was primarily due to an increase in expenses at KNTV of $2,121,000,increases in promotion and general and administrative expenses at the other stations,offset by a decrease in program expenses at the Company’s WB affiliates.

 

Amortization expense increased $1,409,000or 11% primarily due to the amortization of the NBC affiliation agreement atKNTV, offset in part by the Company’s adoption of Statement 142 as a result ofwhich the Company is no longer required to amortize goodwill and otherindefinite-lived intangible assets. Corporate expense decreased $422,000 or 8%primarily due to decreased professional fees. Non-cash compensation expense decreased $144,000 primarily due to adecrease of management stock awards granted.

 

Interest expense decreased $1,431,000 or7% during the six months ended June 30, 2002 as compared to the same period ayear earlier primarily due to lower average debt balances and lower interestrates on the Company’s new senior credit facility.  Interest income decreased $345,000, primarily due to lower cashbalances. Non-cash interest expense increased $7,884,000, primarily due to theimputation of interest related to KNTV’s NBC affiliation agreement offset, inpart, by reduced amortization of deferred financing fees associated with thenew senior credit facility.

 

 

10

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In connection withthe sale of KNTV, the Company recorded a pre-tax gain on the sale of$192,406,000.  The Company recorded aprovision for income taxes of $73,564,000, consisting of a current portion of$39,335,000 and a deferred portion of $34,229,000.

 

The Companyrecorded an extraordinary loss on the early extinguishment of debt, net of acurrent tax benefit, of $9,058,000 due to the write-off of unamortized deferredfinancing fees associated with the old senior credit facility.

 

Upon adoption of Statement 142 as ofJanuary 1, 2002, the Company recorded a one-time, non-cash charge to reduce thecarrying value of its goodwill and other indefinite lived intangible assets,net of tax benefit, by $150,479,000. The decline in the carrying value of goodwill and other indefinite-livedintangible assets relates solely to the Company’s WB affiliates.  Such charge is non-operational in nature andis reflected as a cumulative effect of an accounting change in the accompanyingconsolidated statement of operations.

 

## *Liquidityand Capital Resources*

 

On April 30, 2002,the Company completed the sale of KNTV to NBC. NBC paid the Company $230,000,000, plus a working capital and otheradjustments of $14,545,000.  Inaddition, NBC refunded the Company $20,473,000 of the January 1, 2002affiliation payment due to NBC under the terms of the KNTV NBC affiliationagreement (“San Francisco Affiliation Agreement”), which the Company prepaid onMarch 6, 2001.  The Company repaid$170,000,000 of outstanding senior debt and $14,763,000 of deferred interestand other fees associated with the senior credit facility and the amendedcredit agreement discussed below upon consummation of the sale. The Companyanticipates using approximately $22,000,000 for the payment of income taxes andother expenses related to the sale of KNTV. The San Francisco Affiliation Agreement terminated upon the closing ofthe sale and the Company is not required to make any further affiliationpayments to NBC.  The 4,500,000 warrantsissued to NBC as part of the San Francisco Affiliation Agreement have beenreturned to the Company.  The Company’saffiliation agreements for KSEE-TV, WEEK-TV, and KBJR-TV, which involve nopayment obligations, will remain in effect until their expiration on December31, 2011.

 

Simultaneouslywith the closing of the sale of KNTV, the Company entered into an amended andrestated senior credit agreement (the “Credit Agreement”).  The Credit Agreement consists of (i) acommitted $60,000,000 Tranche A term loan facility, (ii) a committed$80,000,000 Tranche B term loan facility, and (iii) an uncommitted $10,000,000Tranche C supplemental term loan facility. The obligations of the Company withrespect to all of the loan facilities are secured by substantially all of theassets of the Company and its subsidiaries. The Tranche B commitment expires on August 28, 2002, unless previouslycancelled by the Company or extended at the lenders’ option for an additionalperiod of time.  The Company anticipatesborrowing the entire Tranche B term loan facility by August 28, 2002.

 

Upon entering into theCredit Agreement, the Company rolled over existing outstanding loans under theprior loan facility into an initial Tranche A borrowing in the amount of$35,000,000.  Proceeds from Tranche Aand Tranche B term loans shall be used for working capital and general corporatepurposes.  The Tranche A loans bear interest at the greater of LIBOR plus 4.50% or6.50% and the Tranche B loans bear interest at the greater of LIBOR plus 9% or11%.  All interest is payable monthly inarrears.   The Credit Agreementmatures on April 15, 2004, at which time the Company must repay the principalamount of all outstanding loans and all other obligations then due and owingunder the Credit Agreement.  The CreditAgreement requires the Company, among other matters, to maintain compliancewith certain financial tests, including but not limited to, minimum netrevenue, broadcast cash flow, EBITDA, working capital and cash balances.  At June 30, 2002 the Company was incompliance with all covenants under the Credit Agreement, except for a technicaldefault of the minimum working capital financial covenant. The lenders waivedthe technical default and the Company is now in compliance with all covenants.

 

During the quarter, theCompany repurchased and retired a total of 83,920 shares of its $1,000 faceamount 12.75% Cumulative Exchangeable Preferred Stock (the “Shares”) for$53,264,000.  The Shares wererepurchased at an average price of $634.70 per share generating a gain, aftertransaction related expenses and the write off of a portion of the initialoffering costs, of $28,915,000.  Thegain was recorded in additional paid in capital.

 

Net cash used inoperating activities was $32,412,000 during the six months ended June 30, 2002,compared to $27,125,000 during the six months ended June 30, 2001.  The change from 2001 to 2002 was primarilythe result of an increase in net operating assets and an increase in interestpayments offset in part by an increase in operating cash flow.

 

Net cash providedby investing activities was $260,859,000 during the six months ended June 30,2002, compared to net cash used in investing activities of $1,395,000 duringthe six months ended June 30, 2001. The change from 2001 to 2002 was due toproceeds from the sale of KNTV and increased capital expenditures.

 

11

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Net cash used infinancing activities was $229,503,000 during the six months ended June 30, 2002compared to net cash provided by financing activities of $81,541,000 during thesix months ended June 30, 2001. The change from 2001 to 2002 was primarily dueto a decrease in net borrowings, and the repurchase of Cumulative ExchangeablePreferred Stock.

 

As of August 9, 2002, the Company hadapproximately $63,959,000 of cash on hand with another $65,000,000 in availableborrowings under the Credit Agreement. The Company expects to spend approximately $20,000,000 in 2002 incapital expenditures of which $4,181,000 was spent during the six months endedJune 30, 2002.  The Company believesthat borrowings under its amended Credit Agreement, together with internallygenerated funds from operations and cash on hand will be sufficient to satisfythe Company’s cash requirements for its existing operations for at least thenext twelve months.

 

# *Quantitative andQualitative Disclosures about Market Risk*

 

The Company’s earningsmay be affected by changes in short-term interest rates as a result of its newsenior Credit Agreement.  Under theCredit Agreement, the Company pays interest at the greater of LIBOR plus 4.50%or 6.50%, currently 6.50% for its Tranche A facility.  As of August 9, 2002, the one-month LIBOR rate was 1.78%. The Company has not entered into any agreements to hedge the risk ofpotential interest rate increases. Based on borrowings outstanding at June 30, 2002, a 2% increase in theLIBOR rate would increase interest expense on an annual basis by approximately$632,000.  This analysis does notconsider the effects of the reduced level of overall economic activity thatcould exist in such environment.

 

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PART II.  OTHER INFORMATION

 

 
| ITEM 4. | Submission of Matters to a Vote of Security Holders |
|---------|-----------------------------------------------------|
|    |                                                |   |
|    |                                                |   | On May 22, 2002, the holders of all of the Company's  Voting Common Stock adopted resolutions by unanimous written consent in lieu  of an annual meeting electing W. Don Cornwell, Stuart J. Beck, James L.  Greenwald, Martin F. Beck, Edward Dugger III, Thomas R. Settle, Charles J.  Hamilton, Jr., Robert E. Selwyn, Jr., Jon E. Barfield, Milton Frederick Brown  and Veronica Pollard as directors of the Company. |
|    |                                                |   |   |
|    |                                                |   |   |
| ITEM 6. | Exhibits and Reports on  Form 8-K                   |
|    |                                                |   |
|    | (i)                                                 | Exhibits |
|    |                                                |   |
|    | a.                                                  |   | 99.1 | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|    |                                                |   |   |   |
|    |                                                |   | 99.2 | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|    |                                                |   |   |   |
|    |                                                |   |   |   |
|    | b.                                                  | Reports on Form 8-K |
|    |                                                |   |   |   |
|    |                                                |   | None |
|         |                                                     |  |  |  |  |  |

 

 

 

 

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SIGNATURES

 

 

Pursuant to therequirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934,the Registrant has caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 

 
|                 | GRANITE BROADCASTING CORPORATION |
|----------------------|----------------------------------|
|                 |                             |   |   | Registrant |
|                 |                             |   |   |   |   |   |
|                 |                             |   |   |   |   |   |
| Date August 14, 2002 |                             | /s/ | W. DON CORNWELL |
|                 |                             |   |   | (W. Don Cornwell) |
|                 |                             |   |   | Chief Executive Officer |
|                 |                             |   |   |   |
|                 |                             |   |   |   |   |   |
| Date August 14, 2002 |                             | /s/ | LAWRENCE I. WILLS |
|                 |                             |   |   | (Lawrence I. Wills) |
|                 |                             |   |   | Senior Vice President —  Chief Administrative Officer |
|                 |                             |   |   | (Principal Accounting  Officer) |
|                      |                                  |  |  |  |  |  |  |

 

 

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