SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
REGISTRATION STATEMENT
Gray Communications Systems, Inc.
| Georgia | 4833 | 52-0285030 | ||
|
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
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4370 Peachtree Road, NE Atlanta, Georgia 30319 (404) 504-9828 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) |
James C. Ryan Gray Communications Systems, Inc. 4370 Peachtree Road Atlanta, Georgia 30319 (404) 504-9828 (Name, address, including zip code, and telephone number, including area code, of agent for service) |
Copies to:
Robert A. Cantone, Esq.
Approximate date of commencement of proposed sale to the public: From time to time or at one time after the effective date of this registration statement as determined by the registrant or the selling security holders named in a prospectus contained herein, as applicable.
If the only securities being registered on this Form are being offered pursuant to dividend or interest investment plans, please check the following box. o
If the only securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, the “Securities Act,” other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. þ
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o _____________
If delivery of the prospectus is expected to be pursuant to Rule 434, please check the following box. o
(continued on next page)
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
(continued from previous page)
TABLE OF ADDITIONAL REGISTRANTS
Each of the following subsidiaries of Gray Communications Systems, Inc., and each other subsidiary that becomes a guarantor of the securities registered hereby, is hereby deemed to be a registrant.
| Primary | ||||||||||||
| State of | Standard | |||||||||||
| Incorporation | Industrial | |||||||||||
| or | Classification | I.R.S. Employer | ||||||||||
| Name | Organization | Code No. | Identification No. | |||||||||
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The Albany Herald Publishing Company,
Inc.
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Georgia | 2711 | 58-1020695 | |||||||||
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Post Citizen Media, Inc.
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Georgia | 2711 | 58-2113856 | |||||||||
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Gray Communications of Indiana, Inc.
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Georgia | 2711 | 58-2443532 | |||||||||
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WEAU-TV, Inc.
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Georgia | 4833 | 58-1048743 | |||||||||
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WVLT-TV, Inc.
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Georgia | 4833 | 58-2256206 | |||||||||
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WRDW-TV, Inc.
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Georgia | 4833 | 58-2165671 | |||||||||
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WITN-TV, Inc.
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Georgia | 4833 | 58-2321711 | |||||||||
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Gray Kentucky Television, Inc.
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Georgia | 4833 | 61-1267738 | |||||||||
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Gray Communications of Texas, Inc.
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Georgia | 4833 | 58-2462154 | |||||||||
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Gray Communications of Texas — Sherman,
Inc.
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Georgia | 4833 | 58-2462155 | |||||||||
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Gray Transportation Company, Inc.
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Georgia | 7389 | 58-1162362 | |||||||||
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Gray Real Estate and Development Co.
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Georgia | 7389 | 58-1653626 | |||||||||
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Gray Florida Holdings, Inc.
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Georgia | 4833 | 58-2254140 | |||||||||
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KOLN/ KGIN, Inc.
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Delaware | 4833 | 31-1428060 | |||||||||
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WEAU Licensee Corp.
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Delaware | 4833 | 38-3259567 | |||||||||
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KOLN/ KGIN License, Inc.
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Delaware | 4833 | 38-3259566 | |||||||||
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WJHG Licensee Corp.
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Delaware | 4833 | 51-0376606 | |||||||||
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WCTV Licensee Corp.
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Delaware | 4833 | 51-0376604 | |||||||||
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WVLT Licensee Corp.
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Delaware | 4833 | 51-0376774 | |||||||||
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WRDW Licensee Corp.
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Delaware | 4833 | 51-0376822 | |||||||||
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WITN Licensee Corp.
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Delaware | 4833 | 52-2042287 | |||||||||
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WKYT Licensee Corp
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Delaware | 4833 | 51-0376629 | |||||||||
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WYMT Licensee Corp.
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Delaware | 4833 | 51-0377389 | |||||||||
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KWTX-KBTX Licensee Corp.
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Delaware | 4833 | 51-0390044 | |||||||||
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KXII Licensee Corp.
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Delaware | 4833 | 51-0390046 | |||||||||
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Gray Television Management, Inc.
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Delaware | 4833 | 51-0376607 | |||||||||
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Gray MidAmerica Holdings, Inc.
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Delaware | 4833 | 38-2750516 | |||||||||
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Gray Publishing, Inc.
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Delaware | 2711 | 51-0407061 | |||||||||
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Gray Digital, Inc.
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Delaware | 6799 | 51-0407051 | |||||||||
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KWTX-KBTX LP Corp.
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Delaware | 4833 | 51-0390045 | |||||||||
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KXII LP Corp.
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Delaware | 4833 | 51-0390237 | |||||||||
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Porta-Phone Paging Licensee Corp.
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Delaware | 4812 | 51-0376605 | |||||||||
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KXII L.P.
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Delaware | 4833 | 58-2486573 | |||||||||
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KWTX-KBTX L.P.
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Delaware | 4833 | 58-2486577 | |||||||||
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Lynqx Communications, Inc.
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Louisiana | 4899 | 72-1120956 | |||||||||
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: (1) one to be used by us in connection with the offering and sale of common stock, preferred stock or debt securities, as the case may be, including any common stock or preferred stock into which the debt securities may be convertible or exchangeable and any common stock into which the preferred stock may be convertible or exchangeable and (2) one to be used by the selling security holders named in the prospectus in connection with the offering and sale of class B common stock issuable upon conversion of Series C convertible preferred stock owned by such security holders.
|
The information in this
prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the
offer or sale is not permitted. |
Subject to Completion, Dated July 15, 2002
PROSPECTUS
$600,000,000
Gray Communications Systems, Inc.
Common Stock
Gray Communications Systems, Inc. may offer from time to time common stock, preferred stock and debt securities separately or together. The specific terms and amounts of the securities will be fully described in supplements to this prospectus. Please read any prospectus supplements and this prospectus carefully before you invest. This prospectus may not be used to sell securities unless accompanied by a prospectus supplement.
We have two classes of common stock: class A and class B. Our class A common stock is traded on the New York Stock Exchange under the symbol “GCS.” Our class B common stock is traded on the New York Stock Exchange under the symbol “GCS.B.” On July 11, 2002, the last reported sale price for our class A common stock was $17.29 per share and the last reported sale price for our class B common stock was $13.02 per share. We also have Series C convertible preferred stock which is not publicly traded.
We intend to change our name to “Gray Television, Inc.” We intend to submit to our shareholders for approval a proposal to change the designation of our class B common stock to “Gray Common Stock.” We also intend to reserve the ticker symbols “GTN” for the redesignated Gray Common Stock and “GTN.A” for our class A common stock on the New York Stock Exchange.
Investing in our common stock, preferred stock or debt securities involves risks. See “Risk Factors” beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The securities may be sold directly by us to investors, through agents designated from time to time or to or through underwriters or dealers. See “Plan of Distribution.” If any underwriters are involved in the sale of any securities in respect of which this prospectus is being delivered, the names of these underwriters and any applicable commissions or discounts will be set forth in a prospectus supplement. The net proceeds we expect to receive from a sale also will be set forth in a prospectus supplement.
The date of this prospectus is , 2002
TABLE OF CONTENTS
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About this Prospectus
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ii | |||
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Industry, Market and Ranking Data
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ii | |||
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Prospectus Summary
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1 | |||
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Risk Factors
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3 | |||
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Forward-Looking Statements
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17 | |||
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Use of Proceeds
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18 | |||
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Ratio of Earnings to Fixed Charges
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18 | |||
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The Merger
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19 | |||
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The Merger Agreement and Related Agreements
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21 | |||
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Information Regarding Gray
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29 | |||
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Selected Station and Market Information Regarding
Gray and Stations
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34 | |||
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Business of Stations Holding Company, Inc.
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48 | |||
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Stations Selected Financial Data
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55 | |||
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Stations Management’s Discussion and
Analysis of Financial Condition and Results of Operation
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58 | |||
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Unaudited Pro Forma Financial Data
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67 | |||
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Description of Outstanding Indebtedness
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76 | |||
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Description of Capital Stock
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78 | |||
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Description of Debt Securities
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80 | |||
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Plan of Distribution
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88 | |||
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Legal Matters
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88 | |||
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Experts
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88 | |||
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Where You Can Find More Information
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89 | |||
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Incorporation by Reference
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89 | |||
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Index to Financial Statements
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F-1 | |||
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, which we sometimes refer to as the “SEC,” utilizing a “shelf” registration process. Under this shelf process, we may, over the next two years, offer any combination of common stock, preferred stock or debt securities, or either common stock, preferred stock or debt securities only, described in this prospectus in one or more offerings up to a total amount of $600,000,000. This prospectus provides you with a general description of the securities we may issue and sell. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described in the section titled “Where You Can Find More Information.”
INDUSTRY, MARKET AND RANKING DATA
In this prospectus and the documents incorporated by reference, we rely on and refer to market information regarding the television industry from BIA Financial Network, Inc.’s MEDIA Access ProTM Version 3.1, updated as of July 1, 2002, which we refer to as “BIA.” We also rely on and refer to market information regarding the television industry from Nielsen Station Index, Viewers in Profile, dated May 2002, as prepared by A.C. Nielsen Company, which we refer to as “Nielsen.” Although we believe that the information obtained from third parties is reliable, we have not independently verified the accuracy and completeness of the information. To the extent this information contains forward-looking statements, readers of this prospectus are cautioned that these statements involve risks and uncertainty and that actual results may differ materially from those in these statements, similarly to that described in “Forward-Looking Statements.” All statements as to station ranking in this prospectus are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the “Selected Station and Market Information Regarding Gray and Stations” section in the tables titled “Competitive Landscape” is based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period.
ii
PROSPECTUS SUMMARY
In this prospectus, unless otherwise indicated, the words “Gray,” “our,” “us” and “we” refer to Gray Communications Systems, Inc. and its subsidiaries. Our discussion of the television stations that we own and operate does not include our interest in the stations owned by Sarkes Tarzian, Inc.
This summary highlights selected information from this document and the materials incorporated by reference and does not contain all of the information that is important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus, any prospectus supplements hereto and the documents to which we have referred you.
The Company
We currently own and operate 13 network-affiliated television stations in 11 medium-sized markets in the Southeast, Southwest and Midwest United States. Eleven of our 13 stations are ranked first in total viewing audience and news audience, with the remaining two stations ranked second in total viewing audience and third in news audience. Ten of the stations are affiliated with CBS Inc., or “CBS,” and three are affiliated with National Broadcasting Company, Inc., or “NBC.” We own and operate four daily newspapers, three located in Georgia and one in Goshen, Indiana, with a total daily circulation of over 126,000. We also own and operate a paging business located in the Southeast that had approximately 72,000 units in service at March 31, 2002. For the 12 months ended March 31, 2002, our total revenues and operating cash flow were $157.0 million and $51.2 million, respectively.
On June 4, 2002, we executed a merger agreement with Stations Holding Company, Inc., which we refer to as “Stations,” the parent company of Benedek Broadcasting Corporation, which we refer to as “Benedek.” The merger agreement provides that we will acquire Stations by merging our newly formed wholly-owned subsidiary, Gray MidAmerica Television, Inc., which we refer to as “Gray MidAmerica Television,” into Stations. In consideration for Stations, we will pay an estimated consideration of $502.5 million, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations in accordance with a plan of reorganization filed by Stations with the United States bankruptcy court in Delaware on July 1, 2002. We may pay additional cash consideration of $4.9 million for certain estimated net working capital, as specified in the merger agreement.
Benedek plans to sell or already has sold, prior to the effective time of the merger, a total of nine designated television stations. Upon completion of the merger, we will own a total of 28 stations serving 23 television markets. Based on results for the year ended December 31, 2001, the combined Gray and Benedek television stations produced approximately $213.9 million of net revenue and $84.8 million of broadcast cash flow. Including our publishing and other operations, the combined Gray and Benedek operations for 2001 produced approximately $263.8 million of net revenue and $97.1 million of media cash flow. We expect the merger, if it closes, to be completed by the fourth quarter of 2002.
We were incorporated in 1891 to publish the Albany Herald in Albany, Georgia and entered the broadcasting industry in 1954. We have a dedicated and experienced senior management team, which has an average of over 18 years experience in the media industry.
Recent Developments
Series C Convertible Preferred Stock
On April 22, 2002, we issued a total of $40,000,000 of new Series C convertible preferred stock, which we refer to as “Series C.” We issued $31,400,000 of our Series C to a limited number of outside accredited investors, and $8,600,000 of our Series C to certain of our executive officers and directors and their affiliates in exchange for all of the outstanding shares of our series A preferred stock and series B preferred stock on a one-for-one basis. Our Series C is convertible into our class B common stock at an initial conversion price of $14.39 per share, subject to customary adjustments.
1
Our Series C has not been registered under the Securities Act of 1933, as amended, or any other applicable state securities laws, and therefore are restricted securities. Under the terms of a registration rights agreement entered into between us and the investors in the Series C, we are required to:
| • | file with the Securities and Exchange Commission a shelf registration statement, of which this prospectus and the prospectus relating to the shares of our class B common stock constitute parts, with respect to the shares of our class B common stock into which the Series C is convertible; | |
| • | use our reasonable best efforts to cause the registration statement to be declared effective as soon as practicable after filing, but no later than November 8, 2002, otherwise we will be required to pay liquidated damages to the holders of the Series C; and | |
| • | cause the registration statement to remain effective until the earlier to occur of (1) April 22, 2004 and (2) the date as of which there no longer are any registrable securities in existence. | |
In addition, investors in the Series C were granted “piggyback” registration rights with respect to the underlying shares of class B common stock. See “Description of Capital Stock — Terms of Our Preferred Stock.”
Our Offices and Additional Information
We are a Georgia corporation formed in 1891. Our principal offices are located at 4370 Peachtree Road, NE, Atlanta, Georgia 30319, and our telephone number is (404) 504-9828. Additional information regarding Gray is set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002 (which are incorporated by reference in this prospectus).
2
RISK FACTORS
You should carefully consider the following risk factors, as well as the other information contained in this prospectus or any supplemental prospectus hereto or incorporated herein by reference, before purchasing any of our common stock, preferred stock or debt securities.
Risks Related to Our Business
We have recorded net losses in the last three years and these losses may continue.
We have recorded net losses in the last three years. Our losses are primarily due to increased operating expenses, higher amortization and depreciation costs, increased interest expense relating to our acquisitions and, in 2001, declining advertising revenue caused, in large part, by the weaker economic environment and the cyclical decline in broadcast political revenue. Our net losses may continue for these reasons and also because of the phasing out of network compensation payments under certain of our network affiliation agreements.
We depend on advertising revenues, which have decreased recently as a result of a number of factors and also experience seasonal fluctuations.
Our main source of revenue is sales of advertising time at our television stations and advertising space within our newspapers. Our ability to sell advertising time and space depends on:
| • | the health of the economy in the areas where our stations and newspapers are located and in the nation as a whole; | |
| • | the popularity of our programming and newspapers; | |
| • | changes in the makeup of the population in the areas where our stations and newspapers are located; | |
| • | pricing fluctuations in local and national advertising; | |
| • | the activities of our competitors, including increased competition from other forms of advertising-based mediums, particularly network, cable television, direct satellite television and the Internet; and | |
| • | other factors that may be beyond our control. |
For example, a labor dispute or other disruption at a major national advertiser, or a recession in a particular market, would make it more difficult to sell advertising time and space and could reduce our revenue.
In addition, our results are subject to seasonal fluctuations, which typically result in fourth quarter broadcast operating income being greater than first, second and third quarter broadcast operating income. This seasonality is primarily attributable to increased expenditures by advertisers in anticipation of holiday season spending and an increase in viewership during this period. Furthermore, revenues from political advertising are significantly lower in odd-numbered years.
We must purchase non-network television programming in advance but cannot predict if a particular show will be popular enough to cover its cost.
One of our most significant costs is non-network television programming. If a particular non-network program is not popular in relation to its costs, we may not be able to sell enough advertising time to cover the costs of the program. Since we purchase non-network programming content from others, we also have little control over the costs of such programming. We usually must purchase non-network programming several years in advance, and may have to commit to purchase more than one year’s worth of non-network programming. In addition, we may replace programs that are doing poorly before we have recaptured any
3
We may lose a large amount of television programming if a network terminates its affiliation with us.
Our business depends in large part on the success of our network affiliations. Each of our stations and each of Stations’ television stations is affiliated with a major network pursuant to an affiliation agreement. Each affiliation agreement provides the affiliated station with the right to broadcast all programs transmitted by the network with which the station is affiliated.
The preliminary NBC affiliation agreements we recently entered into for WJHG, WITN and WEAU expire on December 31, 2011 and Stations’ affiliation agreements for WOWT, WTAP, WMTV and WILX expire on January 1, 2012. In addition, our CBS affiliation agreements expire as follows: (1) WVLT, WKYT, WYMT and WCTV, on December 31, 2004; (2) WRDW, on March 31, 2005; and (3) KWTX, KBTX, KOLN, KGIN and KXII, on December 31, 2005. Stations’ CBS affiliation agreements expire on June 30, 2005. In addition, Stations’ affiliation agreements with American Broadcasting Company, “ABC,” for KAKE, KLBY and KUPK expire on January 1, 2006 and for WHSV, WBKO and WTOK on November 1, 2004. If we do not enter into affiliation agreements to replace any expiring agreements, we may no longer be able to carry programming of the relevant network. This loss of programming would require us to obtain replacement programming, which may involve higher costs and which may not be as attractive to our target audiences. Furthermore, our concentration of CBS affiliates makes us sensitive to adverse changes in our business relationship with, and the general success of, CBS and its network programming.
We may lose a significant amount of compensation payments if affiliation agreements are renewed with lower or no compensation payments.
In exchange for every hour that a station elects to broadcast network programming, the network may pay the station a specific network compensation fee, which varies with the time of day. For the 12 months ended March 31, 2002, this network compensation comprised of approximately 6% of our broadcasting revenue.
Our CBS affiliation agreements for KWTX, KBTX and KXII were renegotiated during the fourth quarter of 2000 and the agreements were extended through December 31, 2005. As a result of these negotiations, network compensation for KWTX, KBTX and KXII is being phased out over 2001 and 2002. In addition, our new NBC affiliation agreement for WJHG does not provide for any network compensation payments by NBC after December 31, 2001. Furthermore, our recent extensions of the WITN and WEAU agreements through December 31, 2011 do not provide for any network compensation payments during the extended terms of those agreements, which begin after June 30, 2006 and December 31, 2005, respectively. Stations’ NBC affiliation agreements for WOWT, WMTV, WILX and WTAP were renegotiated effective as of January 1, 2002 and the agreements were extended to January 1, 2012. As a result of these negotiations compensation for WOWT, WMTV, WILX and WTAP continues, although at a reduced level through 2005. For the period from January 1, 2006 through the expiration of the contract on January 1, 2012 the agreements do not provide for any network compensation payments. Stations’ ABC affiliation agreements for WBKO, WHSV and WTOK expire on November 1, 2004 and provide for compensation that decreases throughout the term of the contract and reduces to zero by the expiration date of the contract.
As evidenced by these negotiations, we may not be able to enter into new affiliation agreements that provide us with as much compensation from the networks as our present agreements.
4
We operate in a highly competitive environment and competition from other media entities may cause our advertising sales to decrease or our costs to increase.
We face significant competitive pressures from the following:
| Television Industry. Competition in the television industry exists on several levels: competition for audience; competition for programming, including news; and competition for advertisers. Additional factors that are material to a television station’s competitive position include signal coverage and assigned frequency. | |
| Audience. Stations compete for audience based on program popularity, which has a direct effect on advertising rates. A substantial portion of the daily programming on each of our stations is supplied by the network affiliate. During those periods, the stations are totally dependent upon the performance of the network programs to attract viewers. There can be no assurance that this programming will achieve or maintain satisfactory viewership levels in the future. Non-network time periods are programmed by the station with a combination of self-produced news, public affairs and other entertainment programming, including news and syndicated programs purchased for cash, cash and barter, or barter only, and involve significant costs. | |
| In addition, the development of methods of television transmission of video programming other than over-the-air broadcasting and, in particular, cable television have significantly altered competition for audiences in the television industry. These other transmission methods can increase competition for a broadcasting station by bringing into its market distant broadcasting signals not otherwise available to the station’s audience and also by serving as a distribution system for non-broadcasting programming. | |
| Technological innovation and the resulting proliferation of programming alternatives, such as home entertainment systems, “wireless cable” services, satellite master antenna television systems, low power television stations, television translator stations, direct broadcast satellite, video distribution services, pay-per-view and the Internet, have fractionalized television viewing audiences and have subjected free over-the-air television broadcast stations to new types of competition. | |
| Programming. Competition for programming involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming. Each station competes against the broadcast station competitors in its market for exclusive access to off-network reruns, such as Seinfeld, and first-run product, such as Entertainment Tonight. Cable systems generally do not compete with local stations for programming, although various national cable networks from time to time have acquired programs that would have otherwise been offered to local television stations. Competition exists for exclusive news stories and features as well. | |
| Advertising. Advertising rates are based upon the size of the market in which the station operates, a station’s overall ratings, a program’s popularity among the viewers that an advertiser wishes to attract, the number of advertisers competing for the available time, the demographic makeup of the market served by the station, the availability of alternative advertising media in the market area, aggressive and knowledgeable sales forces and the development of projects, features and programs that tie advertiser messages to programming. Advertising revenues comprise the primary source of revenues for our stations. Our stations compete for advertising revenues with other television stations in their respective markets. The stations also compete for advertising revenues with other media, such as newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail, Internet and local cable systems. Competition for advertising dollars in the broadcasting industry occurs primarily within individual markets. Technological advances and developments made by other media entities may result in increased competition and decreased advertising revenue. | |
| Deregulation. Recent changes in law have also increased competition. The Telecommunications Act of 1996, the “Telecommunications Act,” created greater flexibility and removed some limits on station ownership. The prices for stations have risen as a result. Telephone, cable and some other content providers are also free to provide video services in competition with us. The Federal | |
5
| Communications Commission, “FCC,” is actively reviewing its ownership rules and further deregulation could lead to industry consolidation that could pose new competitive challenges in the markets in which we operate. | |
| Future Technology Under Development. Cable providers and direct broadcast satellite companies are developing new techniques that allow them to transmit more channels on their existing equipment. These so-called “video compression techniques” will reduce the cost of creating channels, and may lead to the division of the television industry into ever more specialized niche markets. Video compression is available to us as well, but competitors who target programming to such sharply defined markets may gain an advantage over us for television advertising revenues. Lowering the cost of creating channels may also encourage new competitors to enter our markets and compete with us for advertising revenue. | |
| Newspaper Industry. Our newspapers compete for advertisers with a number of other media outlets, including magazines, Internet, radio and television, as well as other newspapers, which also compete for readers with our publications. One of our newspaper competitors is significantly larger than us and operates in two of our newspaper markets. New technological media for the delivery of news and information, such as the Internet, have fragmented historical newspaper audiences and subjected newspaper companies to new types of competition. | |
| Paging Industry. The paging industry is highly competitive. Companies in the industry compete on the basis of price, coverage area offered to subscribers, available services offered in addition to basic numeric or tone paging, transmission quality, system reliability and customer service. | |
| Our primary competitors include those paging companies that provide wireless service in the same geographic areas in which we operate. We experience competition from one or more competitors in all locations in which we operate. Some of our competitors have greater financial and other resources than we have. | |
| Our paging services also compete with other wireless communications services such as cellular service. The typical customer uses paging as a low-cost wireless communications alternative either on a stand-alone basis or in conjunction with cellular services. However, future technological developments in the wireless communications industry and enhancements of current technology could create new products and services, such as personal communications services and mobile satellite services, which are competitive with the paging services we currently offer. Recent and proposed regulatory changes by the FCC are aimed at encouraging these technological developments and new services and promoting competition. There can be no assurance that our paging business would not be adversely affected by these technological developments or regulatory changes. | |
The phased introduction of digital advanced television will increase our capital and operating costs and may expose us to increased competition.
The FCC has adopted rules and regulations that require television stations to implement digital advanced television service, including high definition, in the United States. Under current regulations, all commercial television stations in the United States were required to start broadcasting in digital format by May 1, 2002 and must abandon the present analog format by 2006, although the FCC may extend these dates. As of May 1, 2002, four of our stations and one of the television stations that we intend to acquire in the merger were broadcasting in digital format. Our remaining nine stations and the remaining 14 television stations that we intend to acquire in the merger have been granted six-month extensions to the May 2002 deadline. The extensions will need to be renewed if the stations are not broadcasting in digital format by the time they expire. These extension renewals may not be granted. The stations that do not begin broadcasting in digital format by their extended deadlines could be subject to fines. If the stations do not eventually begin broadcasting in digital format, the stations could lose their digital allocation and be required to cease broadcasting at the end of the transition period when the analog spectrum is reclaimed.
6
There is considerable uncertainty about the final form of the FCC digital regulations. Even so, we believe that these new developments may have the following effects on us:
| Signal Quality Issues. Certain industry tests have indicated that the digital standard mandated currently is unable to provide for reliable reception of a digital advanced television signal through a simple indoor antenna. It also appears likely that additional interference will occur to both analog and digital advanced television stations as new digital advanced television broadcast stations are constructed. We are unable to assess at this time the magnitude of such interference or the efficacy of possible remedies. | |
| Because of this possible reception quality and coverage issue, we may be forced to rely on cable television or other alternative means of transmission to deliver our digital signals to all of the viewers we are able to reach with our current analog signals. While the FCC ruled that cable companies are required to carry the signals of digital-only television stations, the agency has tentatively concluded, subject to additional inquiry, that cable companies should not be required to carry both the analog and digital signals of stations during the transition period when stations will be broadcasting in both modes. If the FCC does not require cable companies to carry both analog and digital signals, cable customers in our broadcast markets may not receive our digital signal, which could negatively impact our business. | |
| Capital and Operating Costs. We will incur substantial costs to replace equipment in our stations in order to provide digital advanced television. Even with the flexible operating requirements, our stations will also incur increased utilities costs as a result of converting to digital operations. We cannot be certain we will be able to increase revenues to offset these additional costs. | |
| Conversion and Programming Costs. We expect to incur approximately $31.4 million in costs, of which we have incurred approximately $11.1 million through March 31, 2002, to convert our stations from the current analog format to digital format. This $31.4 million amount includes a capital lease of approximately $2.5 million for tower facilities at WVLT-TV, our station in Knoxville, Tennessee. However, our aggregate costs may be higher than this estimate. We also may incur additional costs to obtain programming for the additional channels made available by digital technology. Increased revenues from the additional channels may not make up for the conversion costs and additional programming expenses. Also, multiple channels programmed by other stations could increase competition in our markets. Stations expects to incur approximately $11.3 million in costs, of which it already has incurred approximately $4.5 million through March 31, 2002, to convert the stations that we plan to acquire in the merger from the current analog format to digital format. | |
Certain directors and officers may be subject to potential conflicts.
J. Mack Robinson, President, Chief Executive Officer and a director of Gray, is Chairman of the Board of Bull Run Corporation, our principal stockholder, “Bull Run,” and the beneficial owner of approximately 24.9% of Bull Run’s common stock. Robert S. Prather, Jr., Executive Vice President-Acquisitions and a director of Gray, is President, Chief Executive Officer and a director of Bull Run and the beneficial owner of approximately 8.7% of Bull Run’s common stock. Hilton H. Howell, Jr., Executive Vice President and a director of Gray, is Vice President, Secretary and a director of Bull Run. Mr. Howell also is the son-in-law of J. Mack Robinson and Harriett J. Robinson, both members of our board of directors. Accordingly, each of these individuals may be subject to conflicts of interest in connection with, for example, the negotiation of agreements or the provision of services between Gray and Bull Run. Each of these individuals has other duties and responsibilities with Bull Run, or other businesses, that may conflict with the time that might otherwise be devoted to his duties with us.
Bull Run and certain of our directors and executive officers hold substantial equity in us and may use this influence in ways that are not consistent with the interests of other security holders.
Bull Run and the executive officers and directors mentioned above, and their affiliates, hold or have the right to vote in the aggregate approximately 49.9% in voting power of our currently outstanding
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Pending litigation could adversely affect our ownership interest in Sarkes Tarzian, Inc.
On December 3, 2001, we acquired 301,119 shares of the outstanding common stock of Sarkes Tarzian, Inc., “Tarzian,” from Bull Run for $10 million plus $3.2 million of related costs which had previously been capitalized. Bull Run had previously acquired these shares from the Estate of Mary Tarzian. Subsequent to Bull Run’s acquisition of these shares, Tarzian filed a complaint against Bull Run and the representative of the Estate claiming that Tarzian had a binding and enforceable contract to purchase these shares from the Estate prior to Bull Run’s acquisition. Tarzian requested judgment to enforce its alleged contract. Although the action has since been dismissed without prejudice against Bull Run, the litigation between Tarzian and the Estate is ongoing. If Tarzian were to prevail in that litigation, that could ultimately lead to litigation against us, which might involve a claim for rescission of the acquisition of the Tarzian shares from the Estate and/or a claim for damages. The stock purchase agreement with the Estate provides that if a court of competent jurisdiction awards title to the Tarzian shares to a person or entity other than the purchaser, the stock purchase agreement will be rescinded. In that event, the Estate will be required to pay for our benefit, as successor in interest to the purchaser, the full $10 million purchase price paid to the Estate, plus interest.
Our success depends on our senior management.
Our success depends to a significant extent on the efforts of our senior management. As a result, if any of these individuals were to leave, we could face substantial difficulty in hiring and retaining qualified successors and could experience a loss in productivity while any successors gain the necessary experience.
A deficiency has been asserted by the Internal Revenue Service for 1996.
In connection with an audit of our 1996 federal income tax return, the Internal Revenue Service has asserted a deficiency in income taxes of approximately $12.1 million, plus related interest and penalties. The asserted deficiency relates principally to our acquisition in 1996 of certain assets of First American Media, Inc. On January 18, 2002, we filed a petition in the United States Tax Court to contest this deficiency, and we believe that we have a meritorious position with respect to the issues related to the deficiency. We cannot be certain when, and if, this matter will be resolved in our favor, and if it is not, we could incur negative consequences in future years.
We have a material amount of intangible assets, and if we are required to write-down intangible assets to comply with new accounting standards, it would reduce our net income, which in turn could materially and adversely affect our results of operations and the trading prices of our common stock.
Our intangible assets principally include FCC licenses, network affiliations and goodwill. In July 2001, the Financial Accounting Standards Board issued Statement No. 142, “Goodwill and Other Intangible Assets,” which generally is effective for us from January 1, 2002. The regulation requires, among other things, the discontinuance of the amortization of goodwill and FCC licenses and network affiliations, and the introduction of annual impairment testing in its place. In addition, the standard includes provisions for the reclassification under limited circumstances of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of identifiable intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The regulation also requires us to complete a transitional goodwill impairment test six months from the date of adoption. Potential writedown of intangible assets in
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Because a significant portion of our assets are intangible, they may have little value upon a liquidation.
Our assets consist primarily of intangible assets, including affiliation agreements with television networks such as NBC and CBS and FCC licenses, the value of which will depend significantly upon the success of our business and the financial prospects of the television broadcasting and paging industries in general. If we default on our indebtedness, or if we are liquidated, the value of these assets may not be sufficient to satisfy our obligations to our creditors and debtholders, including the holders of the debt securities that we may offer hereby, and to enable us to make any distribution to the holders of shares of our common stock or preferred stock. Furthermore, if our FCC licenses are not renewed, it could materially and adversely affect our results of operations and the trading prices of our common stock.
We may be unable to identify or integrate acquisitions successfully or on commercially acceptable terms.
We have made a number of acquisitions and in the future may make additional acquisitions. We cannot assure you that we will be able to identify suitable acquisition candidates in the future. Even if we do identify suitable candidates, we cannot assure you that we will be able to make acquisitions on commercially acceptable terms. The failure to acquire suitable candidates, or the consummation of a future acquisition, including the Stations acquisition, at a price or on other terms that prove to be unfavorable, could adversely affect our business and results of operations.
In order to integrate successfully these future acquisitions, including the Stations acquisition, into our business, we will need to coordinate the management and administrative functions and sales, marketing and development efforts of each company. Combining companies presents a number of challenges, including integrating the management of companies that may have different approaches to sales and service, and the integration of a number of geographically separated facilities. In addition, integrating acquisitions, including the Stations acquisition, requires substantial management time and attention, which may distract management from our day-to-day business, and could disrupt our ongoing business and increase our expenses. If we cannot successfully integrate our future acquisitions, including the Stations acquisition, our business and results of operations could be adversely affected.
We may need to incur debt or issue equity securities to pay for any future acquisitions and to pay for increased capital expenditures following any acquisitions, and will require such financing in connection with the Stations acquisition. However, debt or equity financing may not be available in sufficient amounts or on terms acceptable to us, or at all, and equity financing could be dilutive to our shareholders.
We may not be able to complete the merger.
Consummation of the merger is dependent upon, among other things, the bankruptcy court approving Stations’ plan of reorganization and such confirmation order becoming a final bankruptcy court order, the FCC approving the transactions contemplated by the merger agreement and our ability to obtain financing for the acquisition. For these or other reasons, the merger may not be consummated.
If we consummate the Stations acquisition, the risks related to our business likely will intensify.
If the merger is consummated, we will expand our broadcast operations from 13 stations in 11 markets to 28 stations serving 23 television markets. In addition, we intend to increase our indebtedness, through the issuance of additional debt securities and the amendment of our existing credit facility, in order to consummate the acquisition. Accordingly, if we consummate the Stations acquisition, the risks related to our broadcasting segment, the related regulatory environment and our indebtedness likely will intensify.
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Failure to complete the merger could negatively impact our operating results.
If the merger is not consummated because of a material default by us under the merger agreement, and Stations is not in material default under the merger agreement, then Stations may draw on the letter of credit that we have provided and receive shares of our class B common stock that we have placed in escrow. The aggregate proceeds to Stations from drawing on the letter of credit and from the escrow shares would total $25 million. If we are unable to raise sufficient financing, we would not be able to complete the merger. In addition, costs related to the merger, such as legal and accounting fees, must be paid even if the merger is not completed. Therefore, if we do not consummate the merger, our operating results will be negatively affected.
Risks Related to Our Stock
The price of our common stock has experienced substantial volatility and may continue to do so in the future.
There has been significant volatility in the market prices for publicly traded shares of media companies, including ours.
In 2001, the price of our class A common stock fluctuated from a high of $19.05 to a low of $12.20. In addition, for the first two quarters of 2002, the price of our class A common stock fluctuated from a high of $18.10 to a low of $12.90. On July 11, 2002, our class A common stock closed at a price of $17.29 per share.
In 2001, the price of our class B common stock fluctuated from a high of $17.65 to a low of $9.60. In addition, for the first two quarters of 2002, the price of our class B common stock fluctuated from a high of $14.55 to a low of $10.24. On July 11, 2002, our class B common stock closed at a price of $13.02 per share.
The prices of our common stock may not remain at or exceed current levels. In the event that we issue preferred stock and it is publicly traded, our preferred stock may also experience substantial volatility. The following factors may have an adverse impact on the market prices of our stock:
| • | market conditions for media stocks, and particularly, broadcasting stocks; | |
| • | market conditions generally; | |
| • | governmental regulation; | |
| • | communications legislation; | |
| • | fluctuations in our operating results; and | |
| • | announcements of technical or product developments by our competitors. | |
There can be no assurance as to the liquidity of our common stock or preferred stock.
Currently our common stock is traded on the New York Stock Exchange. There can be no assurance as to the future liquidity of the market for our common stock. Any preferred stock that we may offer would be a new issue of securities for which there currently is no public market. There can be no assurance that an active market for our preferred stock would develop or as to the liquidity of any such market.
Purchasers of our common stock or preferred stock may experience immediate and substantial dilution of their investment.
In the event that common stock or preferred stock is offered pursuant to this prospectus and the registration statement of which this prospectus is a part, the public offering price of our common stock or preferred stock may be substantially higher than its book value immediately after the applicable offering.
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In the event of a liquidation of our company, holders of our common stock and preferred stock may not receive a distribution of assets.
Our common stock ranks junior to our preferred stock and our debt as to dividends and distribution of assets upon liquidation. As a result, in the event of a liquidation of our company, holders of our common stock would receive distributions only after distributions are made in full to holders of our preferred stock and our debt. In addition, in the event of a liquidation, holders of our debt will be entitled to receive amounts owed to them prior to any distributions to holders of our preferred stock. There can be no assurance that we would have enough assets to make distributions to holders of our stock in a liquidation.
Risks Related to Our Existing Indebtedness and Debt Securities
Our indebtedness could materially and adversely affect our business and prevent us from fulfilling our obligations under our debt securities.
We are highly leveraged and have significant fixed debt service obligations in addition to our operating expenses. Our indebtedness could have significant adverse effects on our business. For example, it could:
| • | increase our vulnerability to general adverse economic and industry conditions or a downturn in our business; | |
| • | reduce the availability of our cash flow to fund working capital, capital expenditures and other general business purposes; | |
| • | limit our flexibility in planning for, or reacting to, changes in our industries, making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressure; | |
| • | place us at a competitive disadvantage compared to our competitors that have less debt; and | |
| • | limit our ability to borrow additional funds. | |
If our indebtedness affects our operations in these ways, our business, financial condition and results of operations could suffer, making it more difficult for us to satisfy our obligations under our debt securities. Furthermore, our senior secured credit facility and the indenture governing our 9.25% notes permit, and the indenture related to the debt securities that we may offer hereby may permit, us to incur substantial amounts of additional debt in specified circumstances. If we incur additional debt in the future, the related risks could intensify.
Restrictions under our existing senior secured credit facility limit our flexibility.
Our existing senior secured credit facility prevents us from taking certain actions and requires us to meet certain tests. These limitations and tests include the following:
| • | limitations on liens; | |
| • | limitations on additional debt; | |
| • | limitations on dividends and distributions; | |
| • | limitations on management and consulting fees; | |
| • | limitations on stock repurchases; | |
| • | limitations on transactions with affiliates; | |
| • | limitations on guarantees; |
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| • | limitations on asset sales; | |
| • | limitations on sale-leaseback transactions; | |
| • | limitations on acquisitions; | |
| • | limitations on changes in our business; | |
| • | limitations on mergers and other corporate reorganizations; | |
| • | limitations on loans, investments and advances, including investments in joint ventures and foreign subsidiaries; and | |
| • | financial ratio and condition tests. |
These restrictions and tests may prevent us from taking action that could increase the value of our securities, or may require actions that decrease the value of our securities. In addition, we may fail to meet the tests and thereby default under our senior secured credit facility. If we default on our obligations, creditors could require immediate payment of the obligations or foreclose on collateral. If this happens, we could be forced to sell assets or take other action that would reduce the value of our securities.
Servicing our debt will require a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control.
Our ability to service our debt depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. In addition, the ability to borrow funds under our senior secured credit facility in the future will depend on our meeting the financial covenants in that agreement. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our senior secured credit facility or otherwise, in an amount sufficient to enable us to pay our debt or to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. Additional debt or equity financing may not be available in sufficient amounts or on terms acceptable to us, or at all. If we are unable to implement one or more of these alternatives, we may not be able to service our debt obligations.
We depend on the cash flow of our subsidiaries to satisfy our obligations, including our obligations under our debt securities.
Our operations are conducted through our direct and indirect wholly-owned subsidiaries, which may guarantee our debt securities that we may offer hereby, jointly and severally, fully and unconditionally. As a holding company, we own no significant assets other than our equity in our subsidiaries, and we are dependent upon the cash flow of our subsidiaries to meet our obligations. Accordingly, our ability to make interest and principal payments when due to holders of our debt securities and our ability to purchase our debt securities upon a change of control will be dependent upon the receipt of sufficient funds from our subsidiaries, which may be restricted by the terms of any senior indebtedness of our subsidiaries, including the terms of existing and future guarantees of our indebtedness given by our subsidiaries. There can be no assurance that the funds received from our subsidiaries will be adequate to allow us to make payments on our debt securities. As a result, our debt securities and any subsidiary guarantees effectively will be subordinated to all senior indebtedness and other liabilities and commitments of our subsidiaries.
Your right to receive payment on our debt securities and under any related guarantees may be junior to all of our and the guarantors’ senior debt.
All indebtedness under our senior secured credit facility is secured by substantially all of our assets, as well as the assets of our subsidiaries. Additionally, our debt securities and any related guarantees may be subordinated to the claims of the lenders under our senior secured credit facility.
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In the event that we or a guarantor is declared bankrupt, becomes insolvent or is liquidated or reorganized, any debt that ranks ahead of our debt securities and the related guarantees will be entitled to be paid in full in cash or cash equivalents or in any other manner acceptable to holders of senior debt from our assets or the assets of the guarantor, as applicable, before any payment may be made with respect to our debt securities or under the related guarantees. In any of these events, we cannot assure you that we would have sufficient assets to pay amounts due on our debt securities. As a result, holders of our debt securities may receive less, proportionally, than the holders of debt that is senior to our debt securities and the related guarantees. The subordination provisions of the indenture related to any subordinated debt securities that we may offer hereby will provide that we can make no payment to holders of our debt securities during the continuance of payment defaults on our senior debt, and payments to holders of our debt securities may be suspended for a period of up to 179 days if a nonpayment default exists under our senior debt. See “Description of Debt Securities — Subordinated Debt Securities” for additional information.
At March 31, 2002, we and our subsidiaries had $212.5 million of senior debt and an additional $37.5 million of unused availability would have been available to borrow, subject to specified borrowing conditions, under our senior secured credit facility. In addition, our senior secured credit facility and the indenture governing the 9.25% notes permit, and the indenture related to the debt securities that we may offer hereby may permit, subject to specified limitations, the incurrence of additional indebtedness, which may be senior indebtedness. If we incur such additional indebtedness, the risks described above could intensify.
Covenant restrictions under our indentures may limit our ability to operate our business.
The indenture governing our 9.25% notes contains, and the indenture related to the debt securities that we may offer hereby may contain, covenants that restrict our ability and the guarantors’ ability to finance future operations or capital needs or to engage in other business activities.
In addition, the indenture governing our 9.25% notes restricts, and the indenture related to the debt securities that we may offer hereby may restrict, among other things, our ability and the guarantors’ ability to:
| • | incur additional indebtedness; | |
| • | make specified restricted payments; | |
| • | make specified asset sales; | |
| • | incur liens; | |
| • | engage in intra-company transactions, such as the payment of dividends and the making of loans or advances; | |
| • | engage in transactions with affiliates; | |
| • | issue and sell capital stock of our subsidiaries; and | |
| • | engage in a merger, consolidation or sale of substantial assets. |
We cannot assure you that we will meet the covenants in the indentures or that the holders of our debt securities that are party to the indentures will waive any failure to meet these covenants. A breach of any of these covenants would result in a default under the indentures, and may in turn result in a default under our senior secured credit facility. If an event of default occurs under our senior secured credit facility and continues beyond any applicable cure period, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If our indebtedness were to be accelerated, there can be no assurance that we would be able to pay it. Such acceleration would have a material adverse effect on our financial condition. See “Description of Debt Securities” for additional information.
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Any guarantees of our debt securities may not be enforceable because of fraudulent conveyance laws.
We are a holding company with no direct operations and no significant assets other than the stock of our subsidiaries. We will depend on funds from our subsidiaries to meet our obligations, including cash interest payments on our debt securities. If a court voids any guarantees of our debt securities, the right of holders of our debt securities to participate in any distribution of the assets of any of our subsidiaries upon the liquidation, reorganization or insolvency of a subsidiary will be subject to the prior claims of that subsidiary’s creditors.
Our subsidiaries’ guarantees may be subject to review under U.S. federal bankruptcy laws or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of the guarantors’ unpaid creditors. Although laws differ among various jurisdictions, in general, under fraudulent conveyance laws a court could subordinate or avoid a guarantee if it is found that:
| • | the debt under a guarantee was incurred with the actual intent to hinder, delay or defraud creditors; or | |
| • | a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee and a guarantor: |
| • | was insolvent or was rendered insolvent because of its guarantee; | |
| • | was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital; or | |
| • | intended to incur, or believed that we or it would incur, debts beyond its ability to pay upon maturity (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes). |
It may be asserted that, since the guarantors incurred their guarantees for our benefit, they incurred the obligations under the guarantees for less than reasonably equivalent value or fair consideration.
The standards for determining insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, a company would be considered insolvent if, at the time it issued the guarantee, either:
| • | the sum of its debts, including contingent liabilities, is greater than its assets, at fair valuation; or | |
| • | the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities, including contingent liabilities, as they become absolute and matured. |
We anticipate that, at the time the guarantors initially incur the debt represented by the guarantees, the guarantors will not be insolvent or rendered insolvent by the incurrence of the debt, lacking sufficient capital to run their businesses effectively or unable to pay obligations on the guarantees as they mature or become due.
In reaching the foregoing conclusions, we have relied upon our analyses of internal cash flow projections and estimated values of the assets and liabilities of the guarantors. We cannot assure you, however, that a court passing on the same questions would reach the same conclusions.
If a guarantee is voided as a fraudulent conveyance or found to be unenforceable for any other reason, you will not have a claim against that particular guarantor and you will be a creditor of only guarantors whose obligations were not set aside or found to be unenforceable.
We may not be able to finance change of control payments required by our debt facilities.
If we were to experience a change of control, the indenture related to our 9.25% notes would require us to offer to purchase all of our 9.25% notes then outstanding at 101% of their principal amount, plus accrued interest to the date of purchase. Any new debt securities that we may offer under this prospectus
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In addition, our senior secured credit facility restricts our ability to purchase our debt securities. Furthermore, similar change of control events will result in an event of default under our senior secured credit facility and could cause the acceleration of our debt under that facility. The inability to repay that debt, if accelerated, and to purchase all of the tendered notes in the event of a change of control, would constitute an event of default under the indenture governing the 9.25% notes and may constitute an event of default under the indenture governing any debt securities we may offer hereby.
We may enter into transactions, including acquisitions, refinancings or recapitalizations, or highly leveraged transactions, that would not constitute a change of control under our senior secured credit facility, the indenture governing the 9.25% notes and any indenture governing new debt securities that we may issue. Any of these transactions may result in an increase in our debt or otherwise affect our capital structure, harm our credit ratings or have a material adverse effect on holders of our debt securities, our common stock and our preferred stock.
Guarantors of our debt securities may be released under certain circumstances.
Any guarantee of a guarantor may be released if we sell, exchange or transfer the stock of that guarantor or substantially all of its assets to a non-affiliate and the guarantor no longer guarantees any of our other debt. The indenture related to the debt securities that we may offer hereby also may permit us to sell a majority interest and retain a minority interest in a subsidiary engaged in our paging or satellite business and not require that subsidiary to remain as a guarantor of our debt securities.
Risks Related to Legal and Regulatory Matters
Certain regulatory agencies and the bankruptcy court must approve the merger and could delay or refuse to approve the merger.
We and Stations must obtain approvals or consents to the merger from certain federal regulatory commissions, including the FCC, and the United States bankruptcy court in Delaware. These agencies and the bankruptcy court may seek to impose conditions on us or Stations before giving their approval or consent, and meeting those conditions could have an adverse effect on our business and/or financial condition. In addition, a delay in obtaining the requisite regulatory and bankruptcy court approvals will delay the completion of the merger. We cannot be certain that we and Stations will obtain the required regulatory and bankruptcy court approvals, or obtain them within the time frame contemplated in the merger agreement.
Federal regulation of the broadcasting industry limits our operating flexibility.
The FCC regulates our business, just as it does all other companies in the broadcasting industry. We must ask the FCC’s approval whenever we need a new license, seek to renew or assign a license, purchase a new station or transfer the control of one of our subsidiaries that holds a license. Our FCC licenses are critical to our operations; our broadcasting segment cannot operate without them. We cannot be certain that the FCC will renew these licenses in the future or approve new acquisitions.
Federal legislation and FCC rules have changed significantly in recent years and can be expected to continue to change. These changes may limit our ability to conduct our business in ways that we believe would be advantageous and therefore may affect our operating results.
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The FCC’s duopoly restrictions limit our ability to own and operate multiple television stations in the same market and our ability to own and operate a television station and newspaper in the same market.
The FCC’s ownership rules generally prohibit us from owning or having “attributable interests” in television stations located in the same markets in which our stations are licensed. Accordingly, our ability to expand through acquisitions of additional stations in markets where we presently are operating is constrained by those rules. Under current FCC cross-ownership rules, we also are not allowed to own and operate a television station and a newspaper in the same market.
Our paging operations are subject to federal regulation.
Our paging operations, which we acquired in September 1996, are subject to regulation by the FCC under the Communications Act. The FCC has granted us licenses to use the radio frequencies necessary to conduct our paging operations.
The FCC paging licenses granted to us are for varying terms of up to 10 years, at the end of which renewal applications must be approved by the FCC. We hold various FCC radio licenses which are used in connection with our paging operations. Paging licenses will expire during calendar year 2009. Licensees in the paging services normally enjoy a license renewal expectancy and the vast majority of license renewal applications are granted in the normal course. However, we cannot be certain that any of our licenses will be free of competing applications or will be renewed by the FCC. Furthermore, the FCC has the authority to restrict the operations of licensed facilities or to revoke or modify licenses. We cannot be certain that our licenses will not be revoked or modified involuntarily in the future.
Pursuant to Congressional mandate, the FCC has adopted rules regarding the award of license authorizations by competitive bidding. Pursuant to those rules, the FCC may award licenses for new or existing services by auction, as done with the 800 MHz band. The FCC began awarding geographic area and paging licenses by auction in February 2000. We cannot be certain that we will be able to procure additional spectrum or expand our existing paging network into new service areas, which would require us to make significant auction payments.
Recent proposals for campaign finance reform may limit political advertising, upon which we heavily rely.
Recent proposals for campaign finance reform seek to limit the amount of money that certain groups would be permitted to spend on political advertising, including television advertising, as well as limit the overall amounts that political candidates would be permitted to receive in campaign contributions. If any of these recent proposals is enacted, it could have an adverse effect on us by decreasing advertising revenue in connection with political campaigns.
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FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this prospectus, the words “believes,” “expects,” “anticipates,” “estimates” and similar words and expressions are generally intended to identify forward-looking statements. Statements that describe our future strategic plans, goals or objectives are also forward-looking statements. Readers of this prospectus are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of our management or us, are not guarantees of future performance, results or events and involve risks and uncertainties, and that actual results and events may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to:
| • | the factors described in “Risk Factors” beginning on page 3 of this prospectus; | |
| • | general economic conditions in the markets in which we operate; | |
| • | competitive pressures in the markets in which we operate; | |
| • | the effect of future legislation or regulatory changes on our operations; | |
| • | high debt levels; and | |
| • | other factors described from time to time in our filings with the Securities and Exchange Commission. |
The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.
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USE OF PROCEEDS
Unless otherwise indicated in a prospectus supplement, the net proceeds from the sale of securities offered by this prospectus are expected to be used for general corporate purposes, including capital expenditures, to meet working capital needs, to refinance our senior debt, to finance one or more acquisitions, including the Stations acquisition, or all or a combination of the above. We will file a prospectus supplement that will contain additional information about the use of the net proceeds from the sale of securities offered hereby.
RATIO OF EARNINGS TO FIXED CHARGES
| For the | ||||||||||||||||||||||||
| For the Year Ended December 31, | Quarter Ended | |||||||||||||||||||||||
| March 31, | ||||||||||||||||||||||||
| 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | |||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||
|
Ratio of earnings to combined fixed charges and
preferred dividends
|
NA | (a) | 3.0 | x | NA | (a) | NA | (a) | NA | (a) | NA | (a) | ||||||||||||
|
Deficiency of earnings to cover combined fixed
charges and preferred dividends(b)
|
$ | (3,066 | ) | NA | $ | (9,906 | ) | $ | (11,982 | ) | $ | (20,097 | ) | $ | (374 | ) | ||||||||
| (a) | The ratio would be less than one and therefore is not shown. | |
| (b) | Earnings consist of loss from continuing operations before tax benefit plus fixed charges less capitalized interest. Fixed charges consist of interest expense, amortization of debt issuance costs and that portion of rental expense we believe is representative of interest. | |
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THE MERGER
This section of the registration statement and prospectus describes certain material aspects of the proposed merger. This summary does not contain all of the information that is important to you. You should carefully read the entire registration statement, this prospectus and the other documents to which we refer you, including the merger agreement, for a more complete understanding of the merger.
The Other Parties
Stations is the parent company of Benedek. Stations’ principal executive offices are located at 2895 Greenpoint Parkway, Hoffman Estates, Illinois 60195, telephone number (847) 585-3450. Gray MidAmerica Television is our newly-formed wholly-owned subsidiary, formed solely for the purpose of effecting the merger.
Our Reasons for the Merger
Our business strategy includes continued acquisitions of companies whose businesses are complementary to ours. We believe that Stations is an excellent strategic fit and that the acquisition of Stations will create significant benefits, including:
| • | the acquisition will create a stronger company and will diversify the geographic range of our television stations, broadening substantially our market presence in the television broadcasting market; | |
| • | the acquisition gives us access to additional operating cash flow for the purposes of funding debt service, as well as future acquisitions and investments; | |
| • | the acquisition presents an opportunity to increase revenue share and audience share; | |
| • | the acquisition presents an opportunity for cross-promotion and cross-selling; and | |
| • | the acquisition strengthens our management teams and local news operations. | |
Bankruptcy Court and Regulatory Filings and Approvals
Bankruptcy Court. Stations has filed a voluntary petition under Chapter 11 of the federal bankruptcy code. Consequently, the merger is subject to the bankruptcy court’s approval of Stations’ plan of reorganization, and all of Stations’ obligations under the merger agreement are subject to the approval of the bankruptcy court. Stations filed the required information and materials with the bankruptcy court on July 1, 2002.
Federal Communications Commission. The merger is subject to approval by the FCC. Stations and its subsidiaries and we and our subsidiaries filed with the FCC the necessary application with respect to the change of control on June 10, 2002.
Antitrust. The merger is subject to the requirements of the Hart-Scott Rodino Antitrust Improvements Act of 1976, which provides that certain transactions may not be consummated until required information and materials have been furnished to the Department of Justice and the Federal Trade Commission and certain waiting periods have expired or been terminated. Stations and we filed the required information and materials with the Department of Justice and the Federal Trade Commission on June 20, 2002. Early termination of the statutory waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976 was granted on July 1, 2002.
The Department of Justice and the Federal Trade Commission frequently scrutinize the legality under the antitrust laws of transactions such as the merger. At any time before or after the effective time, either the Department of Justice or the Federal Trade Commission could take such action under the antitrust laws as it deems necessary or desirable in the public interest, or certain other persons could take action under the antitrust laws, including seeking to enjoin the merger.
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Sale of Certain Designated Benedek Stations Prior to the Merger
Benedek has sold or plans to sell, prior to the effective time of the merger, a total of nine designated television stations, which we refer to as the “excluded stations.” Benedek plans to sell eight of the excluded stations to Chelsey Broadcasting Company, LLC, a Delaware limited liability company, which we refer to as “Chelsey,” or its affiliates pursuant to an asset purchase agreement. Benedek already has sold its television station in Wheeling, West Virginia to a third party on April 30, 2002. Benedek intends to use the net proceeds of these sales to repay indebtedness under its senior secured credit facility. The sale of the nine designated television stations is a condition to the merger.
Accounting Treatment
The merger will be accounted for as a purchase for financial accounting purposes in accordance with accounting principles generally accepted in the United States. For purposes of preparing our consolidated financial statements, we will establish a new accounting basis for Stations’ assets and liabilities based upon their fair values, the merger consideration and the costs of the merger. Any excess of cost over the fair value of the net assets of Stations will be recorded as goodwill and other intangible assets. A final determination of the intangible asset values and required purchase accounting adjustments, including the allocation of the purchase price to the assets acquired and liabilities assumed based on their respective fair values, has not yet been made. We will determine the fair value of Stations’ assets and liabilities and will make appropriate purchase accounting adjustments, including adjustments to the amortization period of the intangible assets, upon completion of that determination.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
This section of the registration statement and prospectus describes the material terms of the Agreement and Plan of Merger, dated as of June 4, 2002, among Stations, Gray MidAmerica Television and us and related agreements, including the Lock Up, Voting and Consent Agreements that Stations and we entered into with certain stockholders and creditors of Stations, an agreement regarding benefits to be provided to members of the Benedek family following consummation of the merger and an amendment to K. James Yager’s employment agreement. Copies of the merger agreement and lock up agreements are attached as exhibits to the registration statement. You are urged to read the merger agreement in its entirety for a more complete description of the merger because it is the principal legal document that governs the merger.
The Merger
Subject to the terms and conditions of the merger agreement, we will acquire Stations through the merger of Gray MidAmerica Television with and into Stations. Stations will be the surviving corporation in the merger.
Effective Time
The merger will be consummated when a certificate of merger, that we will file with the State of Delaware, becomes effective. The merger agreement provides that the parties will use their reasonable efforts to cause the effective time to occur on the seventh business day after the satisfaction or waiver of all the conditions to the merger. See “The Merger Agreement and Related Agreements — Conditions to the Merger.” However, the effective time may not occur prior to October 1, 2002.
The merger agreement further provides that we may, on one occasion, delay the effective time for up to 120 days if any of the following occurs: (1) any general suspension of trading in equity securities in the United States securities or financial markets for more than two consecutive trading days; (2) a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States; (3) commencement of a war, armed hostilities or other national or international calamity directly involving the United States; (4) any limitation by any governmental authority on the extension of credit by banks or other lending institutions in the United States; or (5) if any of the foregoing exists on the date the merger agreement is signed, a material acceleration or worsening thereof.
Merger Consideration and Conversion of Gray MidAmerica Television and Stations’ Stock
At the effective time of the merger, the outstanding shares of Stations 11.5% Senior Exchangeable Preferred Stock, which we refer to as the “senior preferred stock,” and Junior Discount Preferred Stock, which we refer to as the “junior preferred stock,” will be converted into the right to receive a cash payment. No cash consideration will be paid to holders of outstanding shares of Stations class A common stock and class B common stock. The stock of Gray MidAmerica Television and Stations will be converted as described below:
Gray MidAmerica Television common stock. Each share of Gray MidAmerica Television common stock issued and outstanding immediately prior to the effective time will be converted into one share of Stations class B common stock.
Stations senior preferred stock. Each share of Stations senior preferred stock (excluding shares held by Stations or any of its subsidiaries, other than in a fiduciary capacity) issued and outstanding immediately prior to the effective time will be converted into the right to receive the senior preferred stock purchase price, equal to the quotient obtained by dividing (1) $500,000,000, minus (A) the amount outstanding at the effective time under Stations debt instruments plus accrued interest thereon through the effective time, determined in accordance with Stations’ plan of reorganization, plus or minus (B) working capital adjustments and adjustments relating to amounts incurred by Stations and its subsidiaries with
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Stations junior preferred stock. Each share of Stations junior preferred stock (excluding shares held by Stations or any of the Stations subsidiaries, other than in a fiduciary capacity) issued and outstanding immediately prior to the effective time will be converted into the right to receive a cash payment equal to the quotient obtained by dividing (1) $2,500,000 by (2) 450,000 (the number of outstanding shares of Stations junior preferred stock at the effective time).
Stations class A common stock and class B common stock. Each share of Stations class A common stock and class B common stock and any options or warrants to acquire such shares issued and outstanding immediately prior to the effective time will be cancelled. We will not pay any cash consideration for such securities.
The Letter of Credit and the Escrow Shares
When the merger agreement was signed, we delivered to Stations a standby letter of credit in the amount of $12.5 million and deposited with SunTrust Bank, as escrow agent, 885,269 shares of our class B common stock. These escrow shares had an aggregate value of $12.5 million, based on the average price of our class B common stock for the 20 consecutive trading days on the New York Stock Exchange ending on June 2, 2002. The escrow shares are being held by the escrow agent in accordance with the terms of an escrow agreement that we executed on June 4, 2002. We will maintain the letter of credit in effect, and the escrow shares will remain in escrow, until the earlier of the effective time or 10 business days after the termination of the merger agreement. If the letter of credit or any replacement letter of credit expires before either of the dates described in the previous sentence, we will renew the letter of credit or obtain a replacement letter of credit, which we will deliver to Stations at least five business days before such expiration.
If the merger is not consummated because of a material default by us, and Stations has not materially defaulted due to a breach of any of its representations or warranties or any of its covenants or agreements under the merger agreement, then Stations may draw on the letter of credit and instruct the escrow agent to deliver to it the escrow shares pursuant to the escrow agreement. We have an obligation to deliver a letter of credit and escrow shares totaling $25 million, except that we may, in our sole discretion, replace some or all of the escrow shares with a cash payment, so long as any such cash payment is a whole number multiple of $500,000. Under specified circumstances, if Stations is entitled to receive the escrow shares and the value of the escrow shares decreases to below $12.5 million at the time Stations sells them, we may be required to pay to Stations the amount of such decrease. Likewise, if the value of the escrow shares increases, Stations may be required to pay to us the amount of such increase. At the effective time and subject to the conditions in the merger agreement and the escrow agreement, the letter of credit and the escrow shares will be returned to us.
Registration of the Escrow Shares
The escrow shares have not been registered under the Securities Act or any other applicable securities laws, and therefore are restricted securities. If the merger agreement is terminated and the escrow shares are delivered by the escrow agent to Stations, we are required to:
| • | file with the SEC a registration statement with respect to the resale or distribution of the escrow shares by Stations and/or an affiliate of Stations, within 30 days after such termination; | |
| • | use our best efforts to cause the registration statement to be declared effective at the earliest practicable time; | |
| • | keep the registration statement effective and current until the earlier of six months following the effectiveness of the registration statement or the date that all of the escrow shares covered by the registration statement have been sold or distributed; | |
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| • | cause the escrow shares to be listed promptly with the New York Stock Exchange; and | |
| • | indemnify, to the extent permitted by law, each person selling or distributing securities under this registration statement, and related parties, against all losses caused by any material misstatement or omission by us in the registration statement or any violation by us of the Securities Act, the Exchange Act, any state securities laws or any rules or regulations of the New York Stock Exchange. | |
Conditions to the Merger
The parties’ obligations to consummate the merger and related transactions generally are subject to the satisfaction or waiver of the following conditions:
| • | the bankruptcy court approving the order confirming Stations’ plan of reorganization and such confirmation order becoming a final bankruptcy court order; | |
| • | the FCC approving the transactions contemplated by the merger agreement, without any condition or qualification materially adverse to us or our subsidiaries or Stations or its subsidiaries, or materially adverse to our acquisition of control of Stations and its subsidiaries; | |
| • | all regulatory waiting periods applicable to the merger agreement and the related transactions expiring or terminating; | |
| • | no order being in effect enjoining, restraining or prohibiting the consummation of the merger and related transactions and no action or proceeding having been instituted by any regulatory authority seeking any such order that would reasonably be expected to have a material adverse effect on us or on Stations; and | |
| • | the transactions related to the Chelsey purchase agreement being consummated, unless the failure to consummate such transactions is the result of either the wrongful refusal of Chelsey to consummate such transactions or the election by Chelsey not to consummate the transactions because Benedek failed to satisfy certain conditions set forth in the Chelsey purchase agreement. If the transactions contemplated by the Chelsey purchase agreement are not consummated as a result of FCC action or inaction, Stations and we each agree to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, everything reasonably necessary, proper or advisable under applicable laws to consummate and make effective the transactions contemplated by the merger agreement and the Chelsey purchase agreement at the earliest practicable date. | |
Our obligations to consummate the merger and related transactions are subject to the satisfaction or waiver of the following additional conditions:
| • | the representations and warranties made by Stations in the merger agreement being, subject to limited exceptions, correct and complete in all material respects at the effective time; | |
| • | each and all of the agreements and covenants of Stations and each of its subsidiaries under the merger agreement and related agreements being performed and complied with in all material respects prior to the effective time; | |
| • | our receiving from Stations customary officer certificates and board of directors resolutions relating to the transactions contemplated by the merger agreement; | |
| • | our receiving a legal opinion of FCC counsel to Stations; | |
| • | Stations returning to us the letter of credit; | |
| • | the FCC issuing a final FCC order approving the transfer of control of Benedek’s television licenses to us; | |
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| • | Stations obtaining and delivering to us consents or waivers relating to the transactions contemplated by the merger agreement, as required by its network affiliation agreements; and | |
| • | no litigation being pending or threatened involving Stations or any its subsidiaries that would have, or reasonably be expected to have, a material adverse effect on Stations or its subsidiaries or their respective businesses or assets. | |
The obligations of Stations to consummate the merger and related transactions are subject to the satisfaction or waiver of the following additional conditions:
| • | the representations and warranties made by us and Gray MidAmerica Television in the merger agreement being, subject to limited exceptions, correct and complete in all material respects at the effective time; | |
| • | each of our and Gray MidAmerica Television’s agreements and covenants under the merger agreement and related agreements being performed and complied with in all material respects prior to the effective time; and | |
| • | Stations receiving from us and Gray MidAmerica Television customary officer certificates and board of directors resolutions relating to the transactions contemplated by the merger agreement. | |
Representations and Warranties
In the merger agreement, Stations makes customary representations and warranties about itself and its business, including representations and warranties about:
| • | organization, good standing and corporate power; | |
| • | authorization and enforceability of the merger agreement; | |
| • | capitalization and subsidiaries; | |
| • | financial statements and tax matters; and | |
| • | absence of undisclosed liabilities or material adverse changes. | |
In addition, Stations makes numerous representations and warranties with respect to its assets, real property, intellectual property, computer software and databases, accounts receivable, insurance, bonds, letters of credit and guarantees, compliance with law, environmental matters, litigation and claims, benefit plans, contracts, labor matters, brokers and finders, interested transactions, officers, directors and bank accounts and the absence of any material misstatement or omission by it in the merger agreement.
We and Gray MidAmerica Television, jointly and severally, also make customary representations and warranties in the merger agreement about ourselves and our business, including representations and warranties regarding organization, good standing and corporate power, authorization and enforceability of the merger agreement, brokers and finders, litigation, and the absence of any material misstatement or omission by us and Gray MidAmerica Television. We also make representations with respect to our qualification under the Communications Act to enter into and consummate the transactions contemplated by the merger agreement, our filings with the SEC and our issuance of the escrow shares.
Mutual Covenants of Gray and Stations
Subject to limited exceptions and except for the sale of the excluded stations by Benedek to Chelsey, from June 4, 2002 until the closing of the merger or the termination of the merger agreement, Stations and we will, and will cause each of our respective subsidiaries, to:
| • | operate our respective businesses only in the usual, regular, and ordinary course; | |
| • | use commercially reasonable efforts to preserve intact our respective business organizations and assets and maintain our respective rights and franchises; and | |
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| • | take no action that would materially adversely affect the ability of any party to (1) obtain any consents required for the transactions contemplated in the merger agreement, or (2) perform its covenants and agreements under the merger agreement in all material respects and to consummate the merger and to satisfy the conditions to closing set forth in the merger agreement. However, the covenant described in clause (2) above will not prohibit us or any of our subsidiaries from discontinuing or disposing of any of our assets or businesses, or, provided that we do not materially adversely affect our ability to obtain an FCC order approving the transactions contemplated by the merger agreement, from acquiring or agreeing to acquire any other person or their assets if such action is, in our judgment, desirable in the conduct of our business or our subsidiaries’ business. |
Additional Covenants. The merger agreement also contains other covenants made by us and Stations, including a covenant to file all necessary FCC applications for approval of the transactions contemplated by the merger agreement and a covenant to use reasonable efforts to take all actions and to do all things necessary, proper or advisable to consummate the merger as promptly as practicable but not before October 1, 2002.
Covenants of Stations
The merger agreement contains numerous covenants of Stations that are customary for this type of transaction. Among other things, subject to limited exceptions, Stations and its subsidiaries will not do or agree to do any of the following without our prior written consent, which we will not withhold unreasonably:
| • | amend the organizational documents of Stations or of any of its subsidiaries; | |
| • | incur, guarantee or otherwise become responsible for any new debt obligation or other obligation for borrowed money (other than indebtedness of Stations or any of its subsidiaries to Stations or any of its subsidiaries) or enter into or extend any capital leases, in excess of an aggregate of $500,000 for Stations and its subsidiaries on a consolidated basis; | |
| • | acquire, sell or encumber any securities or assets of Stations or any of its subsidiaries, or declare or pay any dividend or make any other distribution in respect of any such securities; | |
| • | increase the compensation or benefits of the employees or officers of Stations or any or its subsidiaries; | |
| • | voluntarily accelerate the vesting of any stock options or other stock-based compensation or employee benefits; | |
| • | adopt any new employee benefit plan or program of Stations or any of its subsidiaries or make any material change in or to any existing employee benefit plans or programs of Stations or any of its subsidiaries; | |
| • | make any significant change in any accounting methods, principles, or practices or systems of internal accounting controls, except as may be necessary to conform to changes in regulatory accounting requirements or generally accepted accounting principles; | |
| • | settle any material litigation other than in accordance with past practice or to the extent it is covered by insurance; | |
| • | except in the ordinary course of business consistent with past practices, enter into or terminate any material contract or make any material change in any contract; | |
| • | fail to promptly notify us of any inquiry, investigation, or proceeding related to any of Stations’ television stations that is initiated by the FCC; and | |
| • | request the bankruptcy court to take any action or to grant any approval to any action or matter that is in any way inconsistent with the merger agreement. | |
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Indemnification
For a period of six years after the effective time of the merger, we will indemnify the pre-merger directors, officers, employees and agents of Stations and its subsidiaries against all liabilities arising out of acts or omissions occurring at or prior to the effective time arising out of their service as directors, officers, employees or agents of Stations, any of its subsidiaries or, at Stations’ or any of its subsidiaries’ request, another entity, to the fullest extent permitted under Delaware law, by Stations’ or its subsidiaries’ certificates of incorporation and bylaws and by any applicable indemnification agreements.
Termination of the Merger Agreement
The merger agreement generally may be terminated at any time prior to the effective time by the mutual consent of Gray and Stations or by us or Stations:
| • | if the terminating party is not then in material breach of any of its representations or warranties or any of its covenants contained in the merger agreement, in the event of the inaccuracy of any representation or warranty of the non-terminating party contained in the merger agreement which would reasonably be expected to have or result in a material adverse effect on the non-terminating party and cannot be or has not been cured within 30 days after written notice of such inaccuracy is given to the non-terminating party; | |
| • | if the terminating party is not then in material breach of any of its representations or warranties or any of its covenants contained in the merger agreement, in the event of a material breach by the non-terminating party of any covenant or agreement contained in the merger agreement that cannot be or has not been cured within 30 days after written notice of such breach is given to the non-terminating party, except that we may not cure any breach of our obligation to pay the merger consideration; | |
| • | if the merger is not consummated by March 31, 2003, in each case only if the failure to consummate the transactions contemplated by the merger agreement on or before such date is not caused by any material breach of the merger agreement by the terminating party, except that the March 31, 2003 termination date automatically will be extended by one day for each day that the closing does not occur because, subject to certain exceptions, the transactions contemplated by the Chelsey purchase agreement are not consummated; or | |
| • | if it is reasonably anticipated that any of the conditions precedent to the obligations of the terminating party to consummate the merger, other than the condition that, subject to certain exceptions, the transactions contemplated by the Chelsey purchase agreement are consummated, cannot be satisfied or fulfilled by March 31, 2003 and such failure was not the fault of the terminating party. | |
Effects of Termination
If the merger agreement is terminated, as described above, it will become void and have no effect. However, certain provisions of the merger agreement will survive termination, including provisions relating to the letter of credit and the escrow shares, confidentiality and expenses. In addition, in the event that the merger agreement is terminated by us or by Stations in connection with any material breach of any representation or warranty or any covenant or other agreement of the other party contained in the merger agreement or because the merger is not consummated prior to the applicable termination date, the breaching party will remain liable for any uncured breach of a representation, warranty, covenant or agreement giving rise to such termination.
If the closing does not occur due to a material default by us, and Stations has not materially defaulted due to a breach of any of its representations or warranties or any of its covenants or agreements under the merger agreement, then Stations may draw on the letter of credit and instruct the escrow agent to deliver to it the escrow shares pursuant to the escrow agreement. The aggregate proceeds of the drawing on the letter of credit and the escrow shares will total $25 million, but we may replace some or all of the
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If the closing does not occur due to the non-fulfillment of any of the conditions precedent to each party’s obligation to consummate the merger, and we are not in material default in the performance of any of our representations or warranties or any of our covenants or agreements under the merger agreement, Stations will not be entitled to the letter of credit or the escrow shares and, after termination of the merger agreement, the letter of credit and the escrow shares will be returned to us.
Waivers
Prior to or at the effective time, we and Stations may waive any material default in the performance of any term of the merger agreement by the other party or any of its subsidiaries, waive or extend the time for the compliance or fulfillment by the other party and its subsidiaries of any and all of their obligations under the merger agreement, and waive any or all of the conditions precedent to the obligations of the other party and its subsidiaries under the merger agreement. However, neither we nor Stations may waive any condition which, if not satisfied, would result in the material violation of any law.
Fees and Expenses
Generally, regardless of whether the merger is consummated, Stations will be responsible for all expenses and fees incurred by it and its subsidiaries in connection with the merger and we will be responsible for all expenses and costs incurred by us in connection with the merger. However, we will pay all the fees related to the filings with the FTC. Also, Stations and we will each pay one-half of the processing fees related to the filing with the FCC of applications regarding the transfer of control of Benedek’s television licenses to us.
Lock Up Agreements
On June 4, 2002, in connection with the transactions contemplated by the merger agreement, Stations and we entered into the lock up agreements with certain stockholders and creditors of Stations, whom we refer to as the “consenting stockholders and creditors.” Under these lock up agreements, the consenting stockholders and creditors agreed to, among other things, support and vote their shares in favor of a Stations bankruptcy plan that will give effect to the transactions contemplated by the merger agreement. Stations has received executed lock up agreements from holders of 97.9% of the outstanding senior preferred stock, 98.8% of the outstanding junior preferred stock, 100% of the outstanding class B common stock, and 94.6% of the outstanding aggregate principal amount of the senior subordinated discount notes.
In addition, consenting stockholders that hold Stations senior preferred stock have agreed to pay to us, if Stations receives certain superior proposals relating to an acquisition of Stations by a third party and such superior proposal is approved by the bankruptcy court, contemporaneously with the transaction contemplated by such superior proposal, a termination fee of $15 million. The liability of each consenting stockholder that holds Stations senior preferred stock is limited to an amount determined by multiplying $15 million by a fraction, the numerator of which is the number of shares of senior preferred stock owned by such consenting stockholder and the denominator of which is the number of shares of Stations senior preferred stock owned by all consenting stockholders.
Benedek Family Benefits Agreement
On May 29, 2002, in connection with the transactions contemplated by the merger agreement, we entered into a letter agreement with A. Richard Benedek, Chairman of the Board and Chief Executive Officer of Stations, Laura Benedek, Richard Benedek’s wife, and Stephen D. Benedek, a Vice President of Stations and Richard Benedek’s son, in which we agreed to provide to them, following consummation of the merger, certain health and welfare benefits, use of office space in New York City until no later than August 31, 2005, and severance benefits of up to $275,000. In addition, we may be required to forgive certain indebtedness owed by Richard Benedek to Stations. Upon the closing of the merger, we will cease
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K. James Yager Employment Agreement
On June 4, 2002, Benedek and K. James Yager, Benedek’s President and Chief Operating Officer, entered into a second amendment to K. James Yager’s employment agreement, which will become effective only upon consummation of the merger. In addition, we entered into a letter agreement with K. James Yager relating to this amendment.
K. James Yager’s employment agreement is for a term of four years commencing on January 1, 2001 and ending on December 31, 2004, the “expiration date.” K. James Yager’s base salary is $630,000 for 2001 and $680,000 for 2002 and thereafter increases to a per annum rate not less than 105% of his base salary during the preceding year. K. James Yager is eligible to receive a bonus in respect of each fiscal year during the term of the agreement in such amount as Benedek may determine. The agreement also entitles K. James Yager to specified fringe benefits and to participation in employee benefit plans generally available to Benedek’s executives. In addition, Benedek has agreed to pay to K. James Yager the amount necessary, on an after-tax basis, to discharge all amounts, including accrued interest, owed by him to Benedek under his $555,000 promissory note.
If Benedek terminates K. James Yager’s employment without cause, or if K. James Yager terminates his employment by reason of a “constructive discharge,” which includes the assignment to K. James Yager of duties or reporting responsibilities inconsistent in any material respect with his status, title, position or duties or any breach by Benedek of his employment agreement, K. James Yager will be entitled to receive his base salary, and to participate, at no cost to him, in all employee benefits, through the expiration date and his non-competition obligations will be terminated. In our letter agreement with K. James Yager, we agreed that our failure to employ him as President and Chief Operating Officer of our broadcast division or subsidiary within 12 months after the consummation of the merger would constitute a constructive discharge, entitling him to the above benefits.
Our letter agreement with K. James Yager also provides that, after consummation of the merger, we will grant to him nonqualified options to purchase shares of our class B common stock pursuant to the terms of our long term incentive plan. The number of shares subject to the option award will be determined by our board of directors, and the exercise price of the option shares will be the market price of our class B common stock at the time the award is granted. The options will vest ratably over the term of K. James Yager’s employment agreement, with vesting to be accelerated in the event of a constructive discharge.
Bull Run Advisory Fee
For advisory services rendered by Bull Run in connection with the merger, we paid to Bull Run an advisory fee of $5,000,000 on June 10, 2002. This advisory fee must be repaid to us if the merger is not completed.
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INFORMATION REGARDING GRAY
Selected Historical Consolidated Financial Data
Set forth below is our selected historical consolidated financial data. The financial data for, and as of the end of, each of the years in the five-year period ended December 31, 2001 was derived from the audited consolidated financial statements included in our Annual Reports on Form 10-K and from other information in the Annual Reports. The financial data for, and as of the quarters ended March 31, 2002 and 2001 were derived from our unaudited accounting records and have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all normal and recurring adjustments and accruals necessary for a fair presentation of such information. More comprehensive financial information is included in the Annual Reports and Quarterly Report on Form 10-Q for the quarter ended on March 31, 2002. The financial information that follows is qualified in its entirety by reference to, and should be read in conjunction with, the Annual Reports, the Quarterly Report and all of the financial statements and related notes contained in the Annual Reports and the Quarterly Report.
| Quarter Ended | |||||||||||||||||||||||||||||
| Year Ended December 31, | March 31, | ||||||||||||||||||||||||||||
| 1997(a) | 1998(b) | 1999(c) | 2000 | 2001 | 2001 | 2002 | |||||||||||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||||||||||||||||
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Statements of Operations Data:
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Revenues:
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Broadcast (less agency commissions)
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$ | 72,300 | $ | 91,007 | $ | 97,015 | $ | 120,640 | $ | 106,430 | $ | 25,042 | $ | 25,453 | |||||||||||||||
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Publishing
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24,536 | 29,330 | 37,808 | 41,499 | 41,189 | 9,740 | 10,143 | ||||||||||||||||||||||
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Paging
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6,712 | 8,553 | 9,130 | 9,074 | 8,725 | 2,147 | 2,009 | ||||||||||||||||||||||
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Total revenues
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103,548 | 128,890 | 143,953 | 171,213 | 156,344 | 36,929 | 37,605 | ||||||||||||||||||||||
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Operating expenses:
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Broadcast, publishing and paging
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65,771 | 82,783 | 93,994 | 105,314 | 104,025 | 25,646 | 24,515 | ||||||||||||||||||||||
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Corporate and administrative
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2,528 | 3,063 | 3,448 | 3,594 | 3,615 | 944 | 1,000 | ||||||||||||||||||||||
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Depreciation and amortization
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14,519 | 18,117 | 24,451 | 31,207 | 30,824 | 7,851 | 3,733 | ||||||||||||||||||||||
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Total operating expenses
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82,818 | 103,963 | 121,893 | 140,115 | 138,464 | 34,441 | 29,248 | ||||||||||||||||||||||
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Operating income
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20,730 | 24,927 | 22,060 | 31,098 | 17,880 | 2,488 | 8,357 | ||||||||||||||||||||||
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Gain on disposition of television stations
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— | 72,646 | — | — | — | — | — | ||||||||||||||||||||||
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Valuation adjustments of goodwill and other assets
|
— | (2,074 | ) | — | — | — | — | — | |||||||||||||||||||||
|
Depreciation in value of derivative, net
|
— | — | — | — | (1,581 | ) | (786 | ) | 389 | ||||||||||||||||||||
|
Miscellaneous income (expense), net
|
(31 | ) | (242 | ) | 336 | 780 | 194 | 71 | 38 | ||||||||||||||||||||
| 20,699 | 95,257 | 22,396 | 31,878 | 16,493 | 1,773 | 8,784 | |||||||||||||||||||||||
|
Interest expense
|
21,861 | 25,454 | 31,021 | 39,957 | 35,783 | 9,251 | 8,965 | ||||||||||||||||||||||
|
Income (loss) before income taxes,
extraordinary charge and cumulative effect of accounting change
|
(1,162 | ) | 69,803 | (8,625 | ) | (8,079 | ) | (19,290 | ) | (7,478 | ) | (181 | ) | ||||||||||||||||
|
Income tax expense (benefit)
|
240 | 28,144 | (2,310 | ) | (1,867 | ) | (5,972 | ) | (2,450 | ) | (46 | ) | |||||||||||||||||
|
Income (loss) before extraordinary charge
and cumulative effect of accounting change
|
(1,402 | ) | 41,659 | (6,315 | ) | (6,212 | ) | (13,318 | ) | (5,028 | ) | (135 | ) | ||||||||||||||||
|
Extraordinary charge on extinguishment of debt
|
— | — | — | — | — | — | (7,318 | ) | |||||||||||||||||||||
|
Income (loss) before cumulative effect of
accounting change
|
(1,402 | ) | 41,659 | (6,315 | ) | (6,212 | ) | (13,318 | ) | (5,028 | ) | (7,453 | ) | ||||||||||||||||
|
Cumulative effect of accounting change, net
|
— | — | — | — | — | — | (30,592 | ) | |||||||||||||||||||||
|
Net income (loss)
|
(1,402 | ) | 41,659 | (6,315 | ) | (6,212 | ) | (13,318 | ) | (5,028 | ) | (38,045 | ) | ||||||||||||||||
|
Preferred dividends
|
1,410 | 1,318 | 1,010 | 1,012 | 616 | 154 | 154 | ||||||||||||||||||||||
|
Non-cash preferred dividends associated with
preferred stock redemption
|
— | 3,360 | — | 2,160 | — | — | — | ||||||||||||||||||||||
|
Net income (loss) available to common
stockholders
|
$ | (2,812 | ) | $ | 36,981 | $ | (7,325 | ) | $ | (9,384 | ) | $ | (13,934 | ) | $ | (5,182 | ) | $ | (38,199 | ) | |||||||||
29
| Quarter Ended | |||||||||||||||||||||||||||||
| Year Ended December 31, | March 31, | ||||||||||||||||||||||||||||
| 1997(a) | 1998(b) | 1999(c) | 2000 | 2001 | 2001 | 2002 | |||||||||||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||||||||||||||||
|
Basic earnings per common share(d):
|
|||||||||||||||||||||||||||||
|
Net income (loss) before extraordinary
charge and cumulative effect of accounting change
|
$ | (0.12 | ) | $ | 3.49 | $ | (0.49 | ) | $ | (0.40 | ) | $ | (0.85 | ) | $ | (0.32 | ) | $ | (0.01 | ) | |||||||||
|
Extraordinary charge on extinguishment of debt,
net
|
— | — | — | — | — | — | (0.47 | ) | |||||||||||||||||||||
|
Cumulative effect of accounting change, net
|
— | — | — | — | — | — | (1.95 | ) | |||||||||||||||||||||
|
Preferred dividends
|
(0.12 | ) | (0.39 | ) | (0.08 | ) | (0.21 | ) | (0.04 | ) | (0.01 | ) | (0.01 | ) | |||||||||||||||
|
Net income (loss) available to common
stockholders
|
$ | (0.24 | ) | $ | 3.10 | $ | (0.57 | ) | $ | (0.61 | ) | $ | (0.89 | ) | $ | (0.33 | ) | $ | (2.44 | ) | |||||||||
|
Diluted earnings per common share(d):
|
|||||||||||||||||||||||||||||
|
Net income (loss) before extraordinary
charge and cumulative effect of accounting change
|
$ | (0.12 | ) | $ | 3.36 | $ | (0.49 | ) | $ | (0.40 | ) | $ | (0.85 | ) | $ | (0.32 | ) | $ | (0.01 | ) | |||||||||
|
Extraordinary charge on extinguishment of debt,
net
|
— | — | — | — | — | — | (0.47 | ) | |||||||||||||||||||||
|
Cumulative effect of accounting change, net
|
— | — | — | — | — | — | (1.95 | ) | |||||||||||||||||||||
|
Preferred dividends
|
(0.12 | ) | (0.38 | ) | (0.08 | ) | (0.21 | ) | (0.04 | ) | (0.01 | ) | (0.01 | ) | |||||||||||||||
|
Net income (loss) available to common
stockholders
|
$ | (0.24 | ) | $ | 2.98 | $ | (0.57 | ) | $ | (0.61 | ) | $ | (0.89 | ) | $ | (0.33 | ) | $ | (2.44 | ) | |||||||||
|
Other Financial Data:
|
|||||||||||||||||||||||||||||
|
Media cash flow(e)
|
$ | 38,061 | $ | 46,624 | $ | 50,944 | $ | 66,247 | $ | 53,074 | $ | 11,475 | $ | 13,274 | |||||||||||||||
|
Media cash flow margin(e)
|
36.8 | % | 36.2 | % | 35.4 | % | 38.7 | % | 33.9 | % | 31.1 | % | 35.3 | % | |||||||||||||||
|
Operating cash flow(f)
|
$ | 35,533 | $ | 43,561 | $ | 47,496 | $ | 62,653 | $ | 49,459 | $ | 10,531 | $ | 12,274 | |||||||||||||||
|
Operating cash flow margin(f)
|
34.3 | % | 33.8 | % | 33.0 | % | 36.6 | % | 31.6 | % | 28.5 | % | 32.6 | % | |||||||||||||||
|
Cash flows provided by (used in):
|
|||||||||||||||||||||||||||||
|
Operating activities
|
$ | 9,744 | $ | 20,074 | $ | 20,842 | $ | 22,765 | $ | 16,823 | $ | 6,356 | $ | 266 | |||||||||||||||
|
Investing activities
|
(57,498 | ) | (55,299 | ) | (126,780 | ) | (8,276 | ) | (186,165 | ) | (646 | ) | 163,253 | ||||||||||||||||
|
Financing activities
|
49,071 | 34,744 | 105,839 | (14,061 | ) | 167,685 | (6,820 | ) | (160,910 | ) | |||||||||||||||||||
|
Capital expenditures
|
10,372 | 9,271 | 11,712 | 5,702 | 7,593 | 676 | 5,244 | ||||||||||||||||||||||
|
Cash dividends per common share(g)
|
$ | 0.05 | $ | 0.06 | $ | 0.08 | $ | 0.08 | $ | 0.08 | $ | 0.02 | $ | 0.02 | |||||||||||||||
|
Ratio of total debt to operating cash flow
|
6.4x | 6.2x | 8.0x | 6.0x | 8.0x(h | ) | 6.0 | x(i) | 7.7 | x(i) | |||||||||||||||||||
|
Ratio of operating cash flow to interest expense
|
1.6 | 1.7 | 1.5 | 1.6 | 1.4 | 1.1(i | ) | 1.4(i | ) | ||||||||||||||||||||
|
Balance Sheet Data (at end of
period):
|
|||||||||||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 2,367 | $ | 1,887 | $ | 1,787 | $ | 2,215 | $ | 169,115(h | ) | $ | 1,105 | $ | 3,165 | ||||||||||||||
|
Total intangible assets, net
|
263,425 | 376,015 | 526,434 | 511,616 | 497,311 | 508,036 | 457,740 | ||||||||||||||||||||||
|
Total assets
|
345,051 | 468,974 | 658,157 | 636,772 | 794,337(h | ) | 621,175 | 578,601 | |||||||||||||||||||||
|
Long-term debt (including current portion)
|
227,076 | 270,655 | 381,702 | 374,887 | 551,444(h | ) | 367,846 | 391,448 | |||||||||||||||||||||
|
Preferred stock
|
11,111 | 7,371 | 7,371 | 4,637 | 4,637 | 4,637 | 4,637 | ||||||||||||||||||||||
|
Total stockholders’ equity
|
92,295 | 126,703 | 168,188 | 155,961 | 142,196 | 151,240 | 103,878 | ||||||||||||||||||||||
| (a) | Reflects the operating results of our acquisition of substantially all of the assets of WITN-TV and our acquisition of all of the outstanding common stock of GulfLink Communications, Inc. as of their respective acquisition dates, August 1, 1997 and April 24, 1997. | |
| (b) | Reflects the operating results of our acquisition of all of the outstanding capital stock of Busse Broadcasting Corporation and our related acquisition of the assets of WEAU-TV in exchange for the assets of WALB-TV as of July 31, 1998, the closing date of the respective transactions. See Note B to our audited consolidated financial statements incorporated by reference in this prospectus. | |
| (c) | Reflects the operating results of our acquisition of all of the outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company, as well as the assets of KXII Broadcasters Ltd., completed on October 1, 1999, and our acquisition of substantially all of the assets of The Goshen News from News Printing Company, Inc. and its affiliates, completed on March 1, 1999, as of their respective acquisition dates. See Note B to our audited consolidated financial statements incorporated by reference in this prospectus. | |
30
| (d) | On August 20, 1998, our board of directors declared a 50% stock dividend, payable on September 30, 1998, to stockholders of record of our class A common stock and class B common stock on September 16, 1998. This stock dividend effected a three-for-two stock split. All applicable share and per share data have been adjusted to give effect to the stock split. | |
| (e) | Media cash flow is defined as operating income, plus depreciation and amortization (including amortization of program broadcast rights), non-cash compensation and corporate overhead, less payments for program broadcast obligations. Media cash flow margin is defined as media cash flow divided by revenues. | |
| (f) | Operating cash flow is defined as media cash flow less corporate overhead. Operating cash flow margin is defined as operating cash flow divided by revenues. | |
| We have included media cash flow, operating cash flow and certain related calculations because such data is commonly used as a measure of performance for media companies and is also used by investors to measure a company’s ability to service debt. Media cash flow, operating cash flow and certain related calculations are not, and should not, be used as an indicator or alternative to operating income, net income or cash flow as reflected in our consolidated financial statements. Media cash flow, operating cash flow and certain related calculations are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. | ||
| (g) | Cash dividends were $0.08 per common share for all five annual periods and $0.02 per common share for both quarterly periods; however, the amounts for 1997 and 1998 have been adjusted for the three-for-two stock split in 1998, which is discussed in Note (d) above. | |
| (h) | On December 21, 2001, the Company deposited $168.6 million with the trustee of the Company’s 10 5/8% Senior Subordinated Notes due 2006 to redeem those notes, including payment of principal, the applicable premium costs and accrued interest through the redemption date of January 22, 2002. Total assets include the $168.6 million reflected as restricted cash for redemption of long-term debt and long-term debt (including portion) includes the related $155.2 million of our 10 5/8% notes that were extinguished on January 22, 2002. The ratio of total debt to operating cash flow of 8.0x is calculated on a pro forma basis, which excludes the $155.2 million of our 10 5/8% notes. If the $155.2 million of our 10 5/8% notes were included in the total debt amount used to calculate the ratio of total debt to operating cash flow, the ratio would be 11.1x. | |
| (i) | Represents ratios for the 12 months ended March 31, 2001 and 2002. | |
| (j) | The following table presents the transitional disclosures regarding the adoption of SFAS No. 142: | |
| Quarter Ended | ||||||||||||||||||||||||||||
| Year Ended December 31, | March 31, | |||||||||||||||||||||||||||
| 1997(a) | 1998(b) | 1999(c) | 2000 | 2001 | 2001 | 2002 | ||||||||||||||||||||||
| (Dollars in thousands except per share data) | ||||||||||||||||||||||||||||
|
Reported net income (loss) before extraordinary
charge and cumulative effect of accounting
|
$ | (1,402 | ) | $ | 41,659 | $ | (6,315 | ) | $ | (6,212 | ) | $ | (13,318 | ) | $ | (5,028 | ) | $ | (135 | ) | ||||||||
|
Add back: amortization of goodwill and intangible
assets with indefinite lives, net of tax
|
4,175 | 5,697 | 8,499 | 11,022 | 11,033 | 2,627 | — | |||||||||||||||||||||
|
Adjusted net income (loss) before extraordinary
charge and cumulative effect of accounting change
|
$ | 2,773 | $ | 47,356 | $ | 2,184 | $ | 4,810 | $ | (2,285 | ) | $ | (2,401 | ) | $ | (135 | ) | |||||||||||
|
Basic earnings per common share(d):
|
||||||||||||||||||||||||||||
|
Reported net income (loss) before extraordinary
charge and cumulative effect of accounting change
|
$ | (0.12 | ) | $ | 3.49 | $ | (0.49 | ) | $ | (0.40 | ) | $ | (0.85 | ) | $ | (0.32 | ) | $ | (0.01 | ) | ||||||||
|
Add back: amortization of goodwill and intangible
assets with indefinite lives, net or tax
|
0.35 | 0.48 | 0.66 | 0.71 | 0.71 | 0.17 | — | |||||||||||||||||||||
|
Adjusted net income (loss) before extraordinary
charge and cumulative effect of accounting change
|
$ | 0.23 | $ | 3.97 | $ | 0.17 | $ | 0.31 | $ | (0.14 | ) | $ | (0.15 | ) | $ | (0.01 | ) | |||||||||||
|
Diluted earnings per common share(d):
|
||||||||||||||||||||||||||||
|
Adjusted net income (loss) before extraordinary
charge and cumulative effect of accounting change
|
$ | 0.23 | $ | 3.82 | $ | 0.16 | $ | 0.30 | $ | (0.14 | ) | $ | (0.15 | ) | $ | (0.01 | ) | |||||||||||
31
Business, Management and Other Information
Information relating to our business, principal shareholders, directors and officers, executive compensation and share ownership, related party transactions, financial statements and other related matters, as set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002, is incorporated herein by reference. If you would like to receive a copy of such documents you may contact us at our address or telephone number indicated under “Where You Can Find More Information.”
Operating & Growth Strategy
We attribute our success to date and our current opportunities to increase our revenue, media cash flow and audience share to the successful implementation of our core operating strategies, the principal components of which are to:
| • | Focus on Local News and Programming to Maintain a Strong Local Franchise. We operate, or will operate after completion of the merger with Stations, 28 network affiliated television stations serving 23 markets, with 24 of our 28 stations ranked first or second in local news. We endeavor to make each of our television stations a highly recognizable, local brand through the depth, quality and focus of its local news, programming and community involvement. We believe that providing the leading source for local news and programming in our markets enables us to strengthen audience loyalty and increase viewership among attractive demographic audiences. As a result, we believe that the strength of our local franchises enables us to maximize advertising revenues from local, regional and national accounts. We believe that our commitment to local news, programming and community involvement is essential to our ability to serve each of the communities in which we operate and provides us with a strong competitive advantage. | |
| • | Continue to Develop Innovative Local Sales and Targeted Marketing Initiatives. We employ an experienced, high-quality local sales force at each station to increase advertising revenue by leveraging our local brand. In 2001, pro forma for the proposed merger with Stations, approximately 60% of our net television advertising revenue was generated from our local advertisers. Additionally, our net revenue from local television advertisers represented approximately 67% of the combined total of our local and national net advertising revenues. Our goal is to develop customized advertising campaigns for our customers, which directly target their desired audience and address their long-term advertising objectives. We believe that a focused, tailored advertising solution is very attractive to local advertisers, who have historically been a more stable source of revenue than national advertisers. In addition to focusing on expanding our relationships with existing advertisers, we seek to identify and create new relationships with local, regional and national customers in our markets. Each station’s sales personnel are trained to understand local advertisers’ needs and are required to meet performance standards with respect to client activity, including new customer identification. | |
| • | Capitalize on Leading Network Brands in Markets with Limited Competition. We have, or will have after completion of the merger with Stations, a broad and diverse portfolio of 28 affiliated television stations located in 23 markets, of which 15 are affiliated with CBS, seven are affiliated with NBC and six are affiliated with ABC affiliates, representing approximately 56%, 29%, and 15% of our total pro forma net television revenue in 2001, respectively. Additionally, we will be the largest independent owner of CBS affiliated television stations. Our network affiliations provide our television stations with top-rated programming, which complements and enhances our leading local brand. We believe that our markets are less competitive than larger designated market areas, “DMAs.” Of our 24 markets (including Hazard, Kentucky as a separate market), 16 markets are served by four TV stations or fewer, and seven markets are served by three or fewer television stations. Our markets also typically have fewer radio stations than larger DMAs. | |
| • | Pursue Strategic Acquisitions to Expand and Enhance Our Regional Clusters. We have acquired and integrated successfully 12 of our 13 television stations since 1993, and have signed a definitive | |
32
| agreement to acquire an additional 15 television stations from Stations. After giving effect to the proposed merger, our television stations are located in several distinct regions throughout the United States, with significant presence in the Southeast, Midwest, Texas and Great Lakes region, diminishing any potential adverse effect on our business caused by specific regional economic fluctuations. We believe that we are well positioned to participate in further consolidation of our industry, including opportunities that may arise as a result of future regulatory changes. For example, a number of the FCC’s most restrictive ownership regulations, including newspaper-television cross ownership and television duopoly rules, are currently under review and could be relaxed in the future, providing us with further attractive growth opportunities. In pursuing future acquisitions, we intend to focus on network affiliated television stations in medium-sized markets that offer superior growth. Specifically, we pursue television stations proximate to our existing clusters, as evidenced by the proposed merger with Stations in which five of the 15 television stations we intend to acquire are adjacent to markets in which we currently own and operate television stations. Additionally, we focus on acquiring television stations where we can successfully implement our operating strategies to establish leading local news, increase revenue and audience share, develop relevant regional content and reduce costs. | ||
| • | Attract and Retain High-Quality Management. We believe that high-quality management at both the corporate and station level is critical to the successful implementation of our strategy. We use equity incentives to attract and retain station general managers with proven track records. Members of our senior management team have extensive experience in operating, managing and acquiring television stations, and include: J. Mack Robinson, President and Chief Executive Officer; Robert Prather, Executive Vice President - Acquisitions; James Ryan, Vice President and Chief Financial Officer; and after the proposed merger, K. James Yager, currently the President of Benedek. | |
| • | Maintain Strict Financial Planning and Cost Controls. We employ a comprehensive ongoing strategic planning and budgeting process that enables us to continually identify and implement cost savings at each station, and is designed to increase our media cash flow. Owning and operating 28 television stations will enable us to achieve economies of scale and reduce expenses for syndicated programming, capital equipment and vendor services. Furthermore, we believe that the synergies generated through geographic clustering, further enhanced by the Stations acquisition and the realization of technological and automation efficiencies, will enable us to achieve additional cost savings in the near future. | |
| • | Increase Advertising Revenue and Circulation at Our Newspaper Publishing Operations. We seek to increase advertising revenues and circulation at each of our four newspapers by creating a highly recognizable local brand by focusing on the depth and quality of our coverage of local news, sports and lifestyles and through community involvement. We are able to differentiate our publications from larger competitors and build reader loyalty by becoming the primary source for local news and advertising information within each of our target markets. We also sponsor community events with the objective of strengthening our community relationships. We employ an experienced local sales force to increase advertising revenue by leveraging our local brand. Through our ongoing strategic planning and budgeting process, we continually identify and implement cost savings at each newspaper to increase our media cash flow. In 2001, publishing represented approximately 16% of our total pro forma net revenue. Our publishing management team has extensive experience in operating, managing and acquiring newspapers and is led by Thomas J. Stultz, Vice President and President of Publishing, who has 32 years of publishing industry experience. | |
33
SELECTED STATION AND MARKET INFORMATION REGARDING GRAY AND STATIONS
Gray Television Stations Pro Forma Following the Merger
The following is a list of all our stations pro forma following the merger. In markets where we have satellite stations and stations that serve distant communities, the figures have been combined.
| FCC | Station | In Market | ||||||||||||||||||||||||||||||||||||||||||||||
| Network Affiliation | License | Station | News | Commercial | Share of | Television | ||||||||||||||||||||||||||||||||||||||||||
| DMA | Analog | Renewal | Rank in | Rank In | Stations in | Household | Households(a) | |||||||||||||||||||||||||||||||||||||||||
| Rank(a) | Market | Station | Channel | Network | Expiration | Date | DMA(b) | DMA(c) | DMA(d) | Viewing(b) | (in thousands) | |||||||||||||||||||||||||||||||||||||
|
*
|
62 | Knoxville, TN | WVLT | 8 | CBS | 12/31/04 | 8/1/05 | 2 (tied | ) | 3 | 5 | 22 | % | 478 | ||||||||||||||||||||||||||||||||||
| 65 | Wichita- Hutchinson, KS | KAKE | 10 | ABC | 1/1/06 | 6/1/06 | 3 | 3 | 4 | 21 | % | 453 | ||||||||||||||||||||||||||||||||||||
| (Colby, KS) | KLBY(e) | 4 | ABC | 1/1/06 | 6/1/06 | |||||||||||||||||||||||||||||||||||||||||||
| (Garden City, KS) | KUPK(e) | 13 | ABC | 1/1/06 | 6/1/06 | |||||||||||||||||||||||||||||||||||||||||||
|
*
|
66 | Lexington, KY | WKYT | 27 | CBS | 12/31/04 | 8/1/05 | 1 | 1 | 5 | 35 | % | 436 | |||||||||||||||||||||||||||||||||||
|
*
|
Note (f) | Hazard, KY | WYMT | 57 | CBS | 12/31/04 | 8/1/05 | 1 | 1 | 39 | % | 169 | ||||||||||||||||||||||||||||||||||||
| 75 | Omaha, NE | WOWT | 6 | NBC | 1/1/12 | 6/1/06 | 1 | 1 | 5 | 36 | % | 386 | ||||||||||||||||||||||||||||||||||||
| 85 | Madison, WI | WMTV | 15 | NBC | 1/1/12 | 12/1/05 | 2 | 2 | 4 | 30 | % | 339 | ||||||||||||||||||||||||||||||||||||
| 91 | Colorado Springs, CO |
KKTV | 10 | CBS | 6/30/05 | 4/1/06 | 1 | 1 | 5 | 33 | % | 306 | ||||||||||||||||||||||||||||||||||||
|
*
|
94 | Waco-Temple- Bryan, TX | KWTX | 10 | CBS | 12/31/05 | 8/1/06 | 1 | 1 | 6 | 42 | % | 299 | |||||||||||||||||||||||||||||||||||
|
*
|
(Bryan, TX) | KBTX(g) | 3 | CBS | 12/31/05 | 8/1/06 | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||
|
*
|
102 | Lincoln-Hastings- Kearney, NE | KOLN | 10 | CBS | 12/31/05 | 6/1/06 | 1 | 1 | 5 | 54 | % | 269 | |||||||||||||||||||||||||||||||||||
|
*
|
(Grand Island, NE) | KGIN(h) | 11 | CBS | 12/31/05 | 6/1/06 | ||||||||||||||||||||||||||||||||||||||||||
|
*
|
106 | Greenville- New Bern- Washington, NC | WITN | 7 | NBC | 12/31/11 | 12/1/04 | 2 | 2 | 4 | 30 | % | 251 | |||||||||||||||||||||||||||||||||||
| 111 | Lansing, MI | WILX | 10 | NBC | 1/1/12 | 10/1/05 | 1 | 1 | 4 | 39 | % | 238 | ||||||||||||||||||||||||||||||||||||
|
*
|
113 | Tallahassee, FL- Thomasville, GA | WCTV | 6 | CBS | 12/31/04 | 4/1/05 | 1 | 1 | 5 | 57 | % | 237 | |||||||||||||||||||||||||||||||||||
|
*
|
114 | Augusta, GA | WRDW | 12 | CBS | 3/31/05 | 4/1/05 | 1 | 1 | 4 | 35 | % | 234 | |||||||||||||||||||||||||||||||||||
|
*
|
127 | La Crosse- Eau Claire, WI | WEAU | 13 | NBC | 12/31/11 | 12/1/05 | 1 | 1 | 4 | 39 | % | 198 | |||||||||||||||||||||||||||||||||||
| 132 | Rockford, IL | WIFR | 23 | CBS | 6/30/05 | 12/1/05 | 2 | 1 | 4 | 32 | % | 176 | ||||||||||||||||||||||||||||||||||||
| 137 | Wausau- Rhinelander, WI | WSAW | 7 | CBS | 6/30/05 | 12/1/05 | 1 | 2 | 4 | 42 | % | 169 | ||||||||||||||||||||||||||||||||||||
| 138 | Topeka, KS | WIBW | 13 | CBS | 6/30/05 | 6/1/06 | 1 | 1 | 4 | 49 | % | 166 | ||||||||||||||||||||||||||||||||||||
|
*
|
159 | Panama City, FL | WJHG | 7 | NBC | 12/31/11 | 2/1/05 | 1 | 1 | 3 | 50 | % | 121 | |||||||||||||||||||||||||||||||||||
|
*
|
160 | Sherman, TX- Ada, OK | KXII | 12 | CBS | 12/31/05 | 8/1/06 | 1 | 1 | 2 | 74 | % | 119 | |||||||||||||||||||||||||||||||||||
| 172 | Dothan, AL | WTVY | 4 | CBS | 6/30/05 | 4/1/05 | 1 | 1 | 3 | 69 | % | 95 | ||||||||||||||||||||||||||||||||||||
| 178 | Harrisonburg, VA | WHSV | 3 | ABC | 11/1/04 | 10/1/04 | 1 | 1 | 1 | 97 | % | 84 | ||||||||||||||||||||||||||||||||||||
| 181 | Bowling Green, KY | WBKO | 13 | ABC | 11/1/04 | 8/1/05 | 1 | 1 | 2 | 83 | % | 81 | ||||||||||||||||||||||||||||||||||||
| 185 | Meridian, MS | WTOK | 11 | ABC | 11/1/04 | 6/1/05 | 1 | 1 | 3 | 66 | % | 70 | ||||||||||||||||||||||||||||||||||||
| 186 | Parkersburg, WV | WTAP | 15 | NBC | 1/1/12 | 10/1/05 | 1 | 1 | 1 | 96 | % | 63 | ||||||||||||||||||||||||||||||||||||
| 5,437 | ||||||||||||||||||||||||||||||||||||||||||||||||
| * | Denotes a television station currently owned by Gray. |
| (a) | Based on data published by Nielsen. | |
| (b) | Based on Nielsen data for the May 2002 rating period, Sunday to Saturday, 6 am – 2 am. | |
| (c) | Based on our review of the Nielsen data for the May 2002 rating period during various news hours. | |
| (d) | Based on stations that BIA has reported at one share or more in three of the four most recent rating periods. | |
| (e) | KLBY and KUPK are satellite stations of KAKE under FCC rules. | |
| (f) | Special 16 county trading area defined by Nielsen and is part of the Lexington, KY DMA. | |
| (g) | KBTX is a satellite station of KWTX under FCC rules. | |
| (h) | KGIN is a satellite station of KOLN under FCC rules. | |
34
Our Markets
Below is a brief description of the market for each of our stations. All statements as to station ranking in this prospectus are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the tables titled “Competitive Landscape,” is based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period. The news ranking information is based on our management’s review of the Nielsen Station Index, Viewers in Profile, dated May 2002. As NBC affiliate stations broadcasted the Olympic games during February 2002, their ratings for this period reflect a higher than normal viewership. “CAGR” refers to compound annual growth rate and “EBI” refers to effective buying income. EBI statistics reflect data for 2000 and 2005. In the “Competitive Landscape” tables below, we have included only stations that BIA has reported at one share or more in three of the four most recent rating periods.
Knoxville, Tennessee
WVLT, a CBS affiliate, was acquired by us in September 1996 and began operations in 1988. It is the second ranked station, with the third ranked news program, in the Knoxville, Tennessee market. The Knoxville area is a center for education, manufacturing, healthcare and tourism. The University of Tennessee’s main campus with approximately 26,000 students is located within the city of Knoxville. Leading manufacturing employers in the area include: Lockheed Martin Energy Systems, Inc., DeRoyal Industries, Aluminum Company of North America, Phillips Consumer Electronics North America Corp., Clayton Homes and Sea Ray Boats, Inc.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
1,208 | 1,277 | 1.12 | % | ||||||||
|
Retail Sales
|
$ | 17,255 | $ | 22,109 | 5.08 | |||||||
|
EBI
|
19,317 | 25,203 | 5.46 | |||||||||
|
Gross Market Revenue
|
68,700 | 77,600 | 2.47 | |||||||||
|
Average Household Income
|
40.3 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||
|
WBIR-TV
|
NBC | VHF | Gannett Company, Inc. | 18 | 23 | 19 | 17 | |||||||||||||||||
|
WVLT-TV
|
CBS | VHF | Gray Communications Systems, Inc. | 12 | 10 | 14 | 11 | |||||||||||||||||
|
WATE-TV
|
ABC | VHF | Young Broadcasting Inc. | 11 | 8 | 10 | 11 | |||||||||||||||||
|
WTNZ
|
FOX | UHF | Raycom Media, Inc. | 3 | 4 | 4 | 2 | |||||||||||||||||
|
WBXX-TV
|
WB | UHF | Acme Communications, Inc. | 3 | 3 | 3 | 3 | |||||||||||||||||
Lexington and Hazard, Kentucky
WKYT, a CBS affiliate, was acquired by us in September 1994 and began operations in 1957. It is ranked first in total viewers and in news programming in the Lexington, Kentucky market. The Lexington area is a regional hub for shopping, business, healthcare, education, and cultural activities. Major employers in the Lexington area include Toyota Motor Corp., Lexmark International, Inc., ALLTEL Corporation, Square D Company, Ashland, Inc., the University of Kentucky and International Business Machines Corporation. Eight hospitals are located in Lexington, reinforcing Lexington’s position as a regional medical center. The University of Kentucky’s main campus with approximately 25,000 students is located in Lexington. Frankfort, the capital of Kentucky is located within WKYT’s service area. WYMT, WKYT’s sister station is located in the Lexington DMA. In addition, the Lexington market is adjacent to the Bowling Green, Kentucky market where we intend to acquire WBKO in the merger.
35
WYMT, a CBS affiliate, was acquired by us in September 1994 and began operations in 1985. It is ranked first in total viewers and in news programming in the Hazard, Kentucky market, a special 16 county trading area defined by Nielsen. The mountain region of eastern and southeastern Kentucky where Hazard is located is on the outer edges of four separate markets: Bristol-Kingsport-Johnson City, Charleston-Huntington, Knoxville and Lexington. Prior to the start of WYMT’s operations in 1985, mountain residents relied primarily on satellite dishes and cable television carrying distant signals for their television entertainment and news. WYMT is the only commercial television station in this 16-county trading area and we generally consider it to be a distinct television market even though WYMT is technically included in the Lexington market. WYMT is the sister station of WKYT and shares many resources and simulcasts some local programming with WKYT. The trading area’s economy is primarily centered around coal and related industries, such as natural gas and oil.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
1,153 | 1,210 | 0.97 | % | ||||||||
|
Retail Sales
|
$ | 13,381 | $ | 15,738 | 3.30 | |||||||
|
EBI
|
17,241 | 22,236 | 5.22 | |||||||||
|
Gross Market Revenue
|
55,300 | 67,600 | 4.10 | |||||||||
|
Average Household Income
|
39.2 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||
|
WKYT-TV
|
CBS | UHF | Gray Communications Systems, Inc. | 16 | 17 | 16 | 15 | |||||||||||||||||
|
WLEX-TV
|
NBC | UHF | Evening Post Publishing Company | 12 | 15 | 10 | 9 | |||||||||||||||||
|
WTVQ-TV
|
ABC | UHF | Media General Broadcast Group | 8 | 7 | 8 | 9 | |||||||||||||||||
|
WDKY-TV
|
FOX | UHF | Sinclair Broadcast Group, Inc. | 4 | 5 | 5 | 4 | |||||||||||||||||
|
WYMT-TV
|
CBS | UHF | Gray Communications Systems, Inc. | 2 | 2 | 3 | 2 | |||||||||||||||||
Waco-Temple-Bryan, Texas
KWTX and KBTX, both CBS affiliates, were acquired by us in October 1999 and began operations in 1955 and 1957, respectively. They collectively are ranked first in total viewers and in news programming in the Waco-Temple-Bryan, Texas market. KBTX is a “satellite” station under FCC rules and is used to enhance our ability to effectively serve the entire market. Waco, Temple, Killeen, Bryan and College Station are the primary economic centers of the region. College Station, Texas is the home of Texas A&M University with approximately 45,000 students and Baylor University is located in Waco, Texas with approximately 13,000 students. The Waco-Temple-Bryan economy centers on education, medical services and U.S. military installations. Leading employers in the area include: Texas A&M University, Raytheon, Baylor University, St. Joseph’s Regional Medical Center, Killeen ISD, Scott and White Hospital and the U.S. Army base at Fort Hood, Texas.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
843 | 869 | 0.61 | % | ||||||||
|
Retail Sales
|
$ | 9,433 | $ | 11,698 | 4.40 | |||||||
|
EBI
|
11,824 | 14,508 | 4.18 | |||||||||
|
Gross Market Revenue
|
29,500 | 36,400 | 4.29 | |||||||||
|
Average Household Income
|
39.2 | NA | ||||||||||
36
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||
|
KWTX-TV & KBTX-TV
|
CBS | VHF | Gray Communications Systems, Inc. | 19 | 18 | 19 | 17 | |||||||||||||||||
|
KCEN-TV
|
NBC | VHF | Channel 6, Inc. | 12 | 17 | 11 | 9 | |||||||||||||||||
|
KWKT & KYLE
|
FOX | UHF | Communications Corp of America | 7 | 7 | 8 | 6 | |||||||||||||||||
|
KXXV & KRHD-LP
|
ABC, WB | UHF | Drewry Communications Group | 7 | 6 | 9 | 7 | |||||||||||||||||
|
KAKW
|
UNI | UHF | Univision Communications, Inc. | — | 2 | 3 | 3 | |||||||||||||||||
Lincoln-Hastings-Kearney, Nebraska
KOLN and KGIN, both CBS affiliates, were acquired by us in July 1998 and began operations in 1953 and 1961, respectively. They are ranked first in total viewers and in news programming in the Lincoln-Hastings-Kearney, Nebraska market. KGIN is a “satellite” station under FCC rules and is used to enhance our ability to serve the entire market effectively. The city of Lincoln is the primary economic center of the region, the capital of Nebraska and home to the University of Nebraska with approximately 23,000 students. The Lincoln-Hastings-Kearney economy centers around state government, education, medical services and agriculture. Leading employers in the area include: the State of Nebraska, the University of Nebraska, Gallup Inc., the Lincoln Public School System and several area hospitals. The Lincoln market is adjacent to the Omaha, Nebraska market where we intend to acquire WOWT in the merger.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
684 | 696 | 0.35 | % | ||||||||
|
Retail Sales
|
$ | 7,766 | $ | 8,680 | 2.25 | |||||||
|
EBI
|
12,081 | 15,140 | 4.62 | |||||||||
|
Gross Market Revenue
|
21,200 | 25,900 | 4.09 | |||||||||
|
Average Household Income
|
44.6 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
KOLN & KGIN
|
CBS | VHF | Gray Communications Systems, Inc. | 19 | 18 | 18 | 20 | |||||||||||||||||||
|
KHGI-TV
|
ABC | VHF | Pappas Telecasting Companies | 6 | 6 | 9 | 7 | |||||||||||||||||||
|
KLKN & KLKE
|
ABC | VHF | Citadel Communications Company, Ltd. | 4 | 4 | 6 | 4 | |||||||||||||||||||
|
KHAS-TV
|
NBC | VHF | Greater Nebraska Television, Inc. | 4 | 6 | 4 | 3 | |||||||||||||||||||
|
KTVG
|
FOX | UHF | Hill Broadcasting Company, Inc. | 2 | 3 | 3 | 2 | |||||||||||||||||||
Greenville-New Bern-Washington, North Carolina
WITN, an NBC affiliate, was acquired by us in August 1997 and began operations in 1955. Based on the February and May 2002 ratings, WITN is currently tied for the first position in total viewers and in news programming in the Greenville-New Bern-Washington, North Carolina market. Greenville, North Carolina is the primary economic center of the region and home to East Carolina University with approximately 19,000 students. The Greenville-New Bern-Washington economy centers around education, manufacturing and agriculture. Leading employers in the area include: Pitt County Memorial Hospital, NADEP (Naval Rework Facility), East Carolina University, Catalytica Pharmaceuticals, Inc., PCS Phosphate, Rubber Maid Cleaning Products, Inc. and Weyerhaeuser Co.
37
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
705 | 731 | 0.73 | % | ||||||||
|
Retail Sales
|
$ | 7,271 | $ | 8,116 | 2.22 | |||||||
|
EBI
|
10,060 | 12,647 | 4.68 | |||||||||
|
Gross Market Revenue
|
29,200 | 36,400 | 4.51 | |||||||||
|
Average Household Income
|
40.0 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WNCT-TV
|
CBS | VHF | Media General Broadcast Group | 20 | 17 | 17 | 18 | |||||||||||||||||||
|
WITN-TV
|
NBC | VHF | Gray Communications Systems, Inc. | 14 | 18 | 14 | 12 | |||||||||||||||||||
|
WCTI
|
ABC | VHF | Lamco Communications Incorporated | 9 | 9 | 10 | 9 | |||||||||||||||||||
|
WFXI & WYDO
|
FOX | VHF | GOCOM Holdings LLC | 5 | 5 | 6 | 4 | |||||||||||||||||||
Tallahassee, Florida - Thomasville, Georgia
WCTV, a CBS affiliate, was acquired by us in September 1996 and began operations in 1955. It is ranked first in total viewers and in news programming in the Tallahassee, Florida - Thomasville, Georgia market. The Tallahassee-Thomasville economy centers around state and local government as well as state and local universities which include Florida State University with approximately 33,000 students, Florida A&M University with approximately 12,000 students, Tallahassee Community College, Thomas College and Valdosta State University. Florida State University and Florida A&M University each have their main campus located within the city of Tallahassee.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
649 | 678 | 0.88 | % | ||||||||
|
Retail Sales
|
$ | 7,217 | $ | 8,880 | 4.23 | |||||||
|
EBI
|
9,439 | 11,780 | 4.53 | |||||||||
|
Gross Market Revenue
|
23,900 | 30,500 | 5.00 | |||||||||
|
Average Household Income
|
39.4 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WCTV
|
CBS | VHF | Gray Communications Systems, Inc. | 23 | 20 | 24 | 22 | |||||||||||||||||||
|
WTWC-TV
|
NBC | UHF | Sinclair Broadcast Group, Inc. | 6 | 8 | 5 | 5 | |||||||||||||||||||
|
WTXL-TV
|
ABC | UHF | Media Venture Management, Inc. | 5 | 5 | 7 | 5 | |||||||||||||||||||
|
WTLH
|
FOX | UHF | Pegasus Communications Corporation | 4 | 5 | 6 | 3 | |||||||||||||||||||
Augusta, Georgia
WRDW, a CBS affiliate, was acquired by us in January 1997 and began operations in 1954. It is ranked first in total viewers and in news programming in the Augusta, Georgia market. The Augusta, Georgia area is one of Georgia’s major metropolitan/regional centers, with a particular emphasis on health services, manufacturing and the military. The federal government employs military and civilian personnel at the Department of Energy’s Savannah River Site, a nuclear processing plant, and Fort Gordon, a U.S. Army military installation. Augusta has eight large hospitals, which collectively employ approximately
38
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
644 | 661 | 0.52 | % | ||||||||
|
Retail Sales
|
$ | 6,736 | $ | 7,902 | 3.24 | |||||||
|
EBI
|
8,668 | 10,153 | 3.21 | |||||||||
|
Gross Market Revenue
|
30,000 | 36,200 | 3.83 | |||||||||
|
Average Household Income
|
36.8 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WRDW-TV
|
CBS | VHF | Gray Communications Systems, Inc. | 18 | 17 | 18 | 16 | |||||||||||||||||||
|
WJBF
|
ABC | VHF | Media General Broadcast Group | 14 | 13 | 15 | 16 | |||||||||||||||||||
|
WAGT
|
NBC | UHF | Schurz Communications, Inc. | 11 | 13 | 9 | 6 | |||||||||||||||||||
|
WFXG
|
FOX | UHF | Fisher Broadcasting Company | 8 | 7 | 9 | 8 | |||||||||||||||||||
La Crosse-Eau Claire, Wisconsin
WEAU, an NBC affiliate, was acquired by us in July 1998 and began operations in 1953. It is the first ranked station in total viewers and in news programming in the La Crosse-Eau Claire, Wisconsin market. The La Crosse and Eau Claire economy centers around medical services, agriculture, education and retail business. The University of Wisconsin maintains an 11,000-student campus in Eau Claire. Leading employers include Menard, Inc., the University of Wisconsin at Eau Claire and several area hospitals. The La Crosse-Eau Claire market is adjacent to both the Madison, Wisconsin market where we intend to acquire WMTV in the merger and the Wausau-Rhinelander, Wisconsin market where we intend to acquire WSAW in the merger.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
530 | 541 | 0.41 | % | ||||||||
|
Retail Sales
|
$ | 7,160 | $ | 8,793 | 4.19 | |||||||
|
EBI
|
7,779 | 9,415 | 3.89 | |||||||||
|
Gross Market Revenue
|
22,800 | 30,200 | 5.78 | |||||||||
|
Average Household Income
|
39.1 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WEAU-TV
|
NBC | VHF | Gray Communications Systems, Inc. | 18 | 24 | 16 | 17 | |||||||||||||||||||
|
WKBT
|
CBS | VHF | Morgan Murphy Stations | 15 | 12 | 14 | 13 | |||||||||||||||||||
|
WXOW-TV & WQOW-TV
|
ABC | UHF | Quincy Newspapers, Inc. | 10 | 10 | 12 | 12 | |||||||||||||||||||
|
WLAX & WEUX
|
FOX | UHF | Grant Media, Inc. | 6 | 9 | 11 | 5 | |||||||||||||||||||
Panama City, Florida
WJHG, an NBC affiliate, was acquired by us in 1960 and began operations in 1953. It is the first ranked station in total viewers and in news programming in the Panama City, Florida market. It has a
39
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
324 | 346 | 1.32 | % | ||||||||
|
Retail Sales
|
$ | 3,508 | $ | 4,265 | 3.99 | |||||||
|
EBI
|
4,525 | 5,792 | 5.06 | |||||||||
|
Gross Market Revenue
|
12,300 | 14,900 | 3.91 | |||||||||
|
Average Household Income
|
37.4 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||
|
WJHG-TV
|
NBC, UPN |
VHF | Gray Communications Systems, Inc. | 17 | 22 | 18 | 14 | |||||||||||||||||
|
WMBB
|
ABC |
VHF | Media General Broadcast Group | 12 | 10 | 14 | 12 | |||||||||||||||||
|
WPGX
|
FOX |
UHF | Waitt Broadcasting, Inc. | 4 | 4 | 5 | 4 | |||||||||||||||||
Sherman, Texas-Ada, Oklahoma
KXII, a CBS affiliate, was acquired by us in October 1999 and began operations in 1956. It is ranked first in total viewers and in news programming in the Sherman, Texas-Ada, Oklahoma market. The Sherman, Texas-Ada, Oklahoma economy centers around medical services, manufacturing and distribution services. Leading employers include Michelin, MEMC Southwest, Globitech, Raytheon, CIGNA, Johnson & Johnson and Texas Instruments.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
310 | 322 | 0.76 | % | ||||||||
|
Retail Sales
|
$ | 3,815 | $ | 4,806 | 4.73 | |||||||
|
EBI
|
4,265 | 5,383 | 4.77 | |||||||||
|
Gross Market Revenue
|
7,700 | 9,200 | 3.62 | |||||||||
|
Average Household Income
|
35.4 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
KXII
|
CBS | VHF | Gray Communications Systems, Inc. | 20 | 17 | 17 | 17 | |||||||||||||||||||
|
KTEN
|
NBC | VHF | Lockwood Broadcasting, Inc. | 7 | 8 | 8 | 5 | |||||||||||||||||||
40
Stations’ Markets
Below is a brief description of the market for each of the stations that we intend to acquire in the merger. All statements as to station ranking in this prospectus are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the tables titled “Competitive Landscape” is based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period. The news ranking information is based on our management’s review of the Nielsen Station Index, Viewers in Profile, dated May 2002. As NBC affiliate stations broadcasted the Olympic games, during February 2002, their ratings for this period reflect a higher-than-normal viewership. “CAGR” refers to compound annual growth rate and “EBI” refers to effective buying income. EBI statistics reflect data for 2000 and 2005. In the “Competitive Landscape” tables below, we have included only stations that BIA has reported at one share or more in three of the four most recent rating periods.
Wichita — Hutchinson, Kansas
KAKE, KLBY and KUPK, all ABC affiliates, began operations in 1953. They collectively are ranked third in total viewers and in news programming in the Wichita-Hutchinson, Kansas market. KLBY and KUPK are “satellite” stations under FCC rules and are used to enhance Stations’ ability to effectively serve the entire market. The area is well known for its involvement in the aviation industry, with the top three companies in the region, Boeing Company, Cessna Aircraft Company and Raytheon Aircraft Company representing that industry. The Wichita area also serves as a regional banking and medical center, as well as home to the McConnell Air Force Base. Other leading employers in the region are Wichita Public Schools and the State of Kansas. Wichita is also the home to Wichita State University, which has an enrollment of 14,000 students.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
1,175 | 1,212 | 0.62 | % | ||||||||
|
Retail Sales
|
$ | 15,293 | $ | 18,877 | 4.30 | |||||||
|
EBI
|
19,659 | 23,850 | 3.94 | |||||||||
|
Gross Market Revenue
|
57,200 | 71,200 | 4.48 | |||||||||
|
Average Household Income
|
43.0 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
KWCH-TV, KBSD-TV, KBSH-TV & KBSL-TV
|
CBS |
VHF | Media General Broadcast Group | 18 | 15 | 18 | 17 | |||||||||||||||||||
|
KSNW, KSNC, KSNG & KSNK
|
NBC |
VHF | Emmis Communications Corp. | 16 | 22 | 15 | 14 | |||||||||||||||||||
|
KAKE-TV, KLBY & KUPK-TV
|
ABC |
VHF | Stations Holding Company, Inc. | 10 | 8 | 11 | 10 | |||||||||||||||||||
|
KSAS-TV, KAAS-TV & KBDK
|
FOX |
UHF | Clear Channel Television, Inc. | 4 | 6 | 6 | 4 | |||||||||||||||||||
|
KSCC
|
UPN |
UHF | Mercury Broadcasting Company, Inc. | 2 | 2 | 2 | 2 | |||||||||||||||||||
|
KWCV
|
WB |
UHF | Banks Broadcasting, Inc. | 2 | 2 | 2 | — | |||||||||||||||||||
Omaha, Nebraska
WOWT, an NBC affiliate, began operations in 1949. It is ranked first in total viewers and second in news programming in the Omaha, Nebraska market. The Omaha DMA is home to five Fortune 100 companies, the U.S. Strategic Command Headquarters at Offutt Air Force Base, the University of Nebraska Medical Center and Creighton Medical Center. The University of Nebraska-Omaha has an enrollment of nearly 14,000, and Creighton University has an enrollment of 6,300. Major employers in the area include: the United States military, Union Pacific Railroad, ConAgra, Omaha Public Schools and
41
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
1,008 | 1,048 | 0.78 | % | ||||||||
|
Retail Sales
|
$ | 13,687 | $ | 16,275 | 3.52 | |||||||
|
EBI
|
20,452 | 27,141 | 5.82 | |||||||||
|
Gross Market Revenue
|
62,100 | 72,200 | 3.06 | |||||||||
|
Average Household Income
|
52.9 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||
|
WOWT
|
NBC | VHF | Stations Holding Company, Inc. | 18 | 24 | 14 | 13 | |||||||||||||||||
|
KETV
|
ABC | VHF | Hearst-Argyle Television, Inc. | 14 | 12 | 17 | 16 | |||||||||||||||||
|
KMTV
|
CBS | VHF | Emmis Communications Corp. | 14 | 10 | 15 | 12 | |||||||||||||||||
|
KPTM
|
FOX | UHF | Pappas Telecasting Companies | 7 | 9 | 9 | 7 | |||||||||||||||||
|
KXVO
|
WB | UHF | Mitts Telecasting Company | 3 | 3 | 3 | 4 | |||||||||||||||||
Madison, Wisconsin
WMTV, an NBC affiliate, began operations in 1953. It is the first ranked station, with the second ranked news program, in the Madison, Wisconsin market. The Madison area hosts the international headquarters for American Family Insurance, Oscar Meyer, Ray-O-Vac and Lands End. In addition to being the state capital, the University of Wisconsin has a major campus in Madison and has an enrollment of over 41,000 students. Major employers in the area are: University of Wisconsin Hospital and Clinics, General Motors Corporation, American Family Insurance, Meritor Health and Wisconsin Physicians Insurance Corporation. The Madison market is adjacent to the Wausau-Rhinelander market and La Crosse-Eau Claire, Wisconsin market where we own and operate television station WEAU.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
874 | 920 | 1.03 | % | ||||||||
|
Retail Sales
|
$ | 15,394 | $ | 19,812 | 5.18 | |||||||
|
EBI
|
16,101 | 20,418 | 4.87 | |||||||||
|
Gross Market Revenue
|
47,200 | 57,700 | 4.10 | |||||||||
|
Average Household Income
|
47.3 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WISC-TV
|
CBS | VHF | Morgan Murphy Stations | 18 | 14 | 16 | 16 | |||||||||||||||||||
|
WMTV
|
NBC | UHF | Stations Holding Company, Inc. | 15 | 22 | 12 | 12 | |||||||||||||||||||
|
WKOW
|
ABC | UHF | Quincy Newspapers, Inc. | 10 | 8 | 11 | 11 | |||||||||||||||||||
|
WMSN-TV
|
FOX | UHF | Sinclair Broadcast Group, Inc. | 7 | 7 | 12 | 5 | |||||||||||||||||||
42
Colorado Springs, Colorado
KKTV, a CBS affiliate, began operations in 1952. It is ranked first in total viewers and in news programming in the Colorado Springs, Colorado market. The Colorado Springs market is home to five major military installations: the Air Force Academy, Peterson Air Force Base, Fort Carson Army Base, Cheyenne Mountain Complex (NORAD), and Shriever Air Force Base. Major employers in the area in addition to the United States military include: The City of Colorado Springs, WorldCom, Inc., Intel Corporation and various non-profit organizations.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
799 | 870 | 1.72 | % | ||||||||
|
Retail Sales
|
$ | 10,439 | $ | 13,172 | 4.76 | |||||||
|
EBI
|
12,591 | 16,149 | 5.10 | |||||||||
|
Gross Market Revenue
|
42,300 | 49,700 | 3.28 | |||||||||
|
Average Household Income
|
41.3 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
KKTV
|
CBS | VHF | Stations Holding Company, Inc. | 17 | 14 | 16 | 15 | |||||||||||||||||||
|
KOAA-TV
|
NBC | VHF | Evening Post Publishing Company | 13 | 21 | 10 | 12 | |||||||||||||||||||
|
KRDO-TV
|
ABC | VHF | Pikes Peak Broadcasting Company, Inc. | 11 | 11 | 12 | 11 | |||||||||||||||||||
|
KXRM
|
FOX | UHF | Raycom Media, Inc. | 7 | 8 | 9 | 6 | |||||||||||||||||||
|
KXTU-LP
|
UPN | UHF | Raycom Media, Inc. | 2 | 2 | 2 | 3 | |||||||||||||||||||
Lansing, Michigan
WILX, an NBC affiliate, began operations in 1957. It is ranked first in total viewers and in news programming in the Lansing, Michigan market. Lansing, the state capital, derives much of its economic base from state agencies, the automotive sector, and the Michigan State University which has over 43,000 students. Some of the top employers in the region include: the State of Michigan, Michigan State University, General Motors Corporation, Sparrow Health Systems and Meijer Grocery Stores.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
655 | 669 | 0.42 | % | ||||||||
|
Retail Sales
|
$ | 7,561 | $ | 8,408 | 2.15 | |||||||
|
EBI
|
10,823 | 12,728 | 3.30 | |||||||||
|
Gross Market Revenue
|
31,900 | 39,700 | 4.47 | |||||||||
|
Average Household Income
|
45.1 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WLNS
|
CBS | VHF | Young Broadcasting Inc. | 17 | 14 | 16 | 15 | |||||||||||||||||||
|
WILX-TV
|
NBC | VHF | Stations Holding Company, Inc. | 15 | 20 | 13 | 12 | |||||||||||||||||||
|
WSYM-TV
|
FOX | UHF | Journal Broadcast Group, Inc. | 5 | 6 | 9 | 5 | |||||||||||||||||||
|
WLAJ
|
ABC | UHF | Freedom Communications, Inc. | 5 | 4 | 8 | 6 | |||||||||||||||||||
43
Rockford, Illinois
WIFR, a CBS affiliate, began operations in 1965. It is ranked first in total viewers and in news programming in the Rockford, Illinois market. Currently, Rockford’s economy is based on the fastener business, as well as the manufacturing of machine parts and aerospace parts. Rockford is emerging as a growing regional education center, having the well respected, small liberal arts school Rockford College in its vicinity. Major employers in the region include: United Parcel Service, Rockford School District, Rockford Health Systems, DaimlerChrysler Corporation, Swedish American Health Systems and Hamilton Sundstrand Corporation.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
460 | 472 | 0.52 | % | ||||||||
|
Retail Sales
|
$ | 5,341 | $ | 5,965 | 2.23 | |||||||
|
EBI
|
8,178 | 9,590 | 3.24 | |||||||||
|
Gross Market Revenue
|
26,600 | 33,100 | 4.47 | |||||||||
|
Average Household Income
|
46.3 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||||
| WREX-TV | NBC | VHF | Quincy Newspapers, Inc. | 16 | 23 | 16 | 13 | |||||||||||||||||||||
| WIFR | CBS | UHF | Stations Holding Company, Inc. | 15 | 13 | 16 | 15 | |||||||||||||||||||||
| WTVO | ABC | UHF | Young Broadcasting Inc. | 10 | 9 | 11 | 10 | |||||||||||||||||||||
| WQRF-TV | FOX | UHF | Quorum Broadcasting Company | 8 | 8 | 10 | 7 | |||||||||||||||||||||
Wausau-Rhinelander, Wisconsin
WSAW, a CBS affiliate, began operations in 1954. It is ranked first in total viewers and in news programming in the Wausau-Rhinelander, Wisconsin market. In addition to being a regional medical center, Wausau and the surrounding communities are known as a major capital of paper products and insurance. The University of Wisconsin-Stevens Point has over 10,000 students and is located in the DMA. Major employers in the region include: Wausau Insurance, Marshfield Clinics, Wausau Hospital, Wausau-Mosinee Paper Corporation and the City of Wausau. The Wausau-Rheinlander market is adjacent to the Madison, Wisconsin market and the La Crosse-Ean Claire, Wisconsin market where we own and operate television station WEAU.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
444 | 456 | 0.53 | % | ||||||||
|
Retail Sales
|
$ | 6,323 | $ | 7,707 | 4.04 | |||||||
|
EBI
|
6,984 | 8,558 | 4.15 | |||||||||
|
Gross Market Revenue
|
18,100 | 22,000 | 3.98 | |||||||||
|
Average Household Income
|
41.4 | NA | ||||||||||
44
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||||
| WSAW-TV | CBS | VHF | Stations Holding Company, Inc. | 21 | 18 | 19 | 19 | |||||||||||||||||||||
| WAOW-TV & WYOW | ABC | VHF | Quincy Newspapers, Inc. | 15 | 16 | 17 | 14 | |||||||||||||||||||||
| WJFW-TV | NBC | VHF | Rockfleet Broadcasting, Inc. | 8 | 13 | 8 | 7 | |||||||||||||||||||||
| WFXS | FOX | UHF | Davis Television, LLC | 4 | 5 | 9 | 3 | |||||||||||||||||||||
Topeka, Kansas
WIBW, a CBS affiliate, began operations in 1953. It is ranked first in total viewers and in news programming in the Topeka, Kansas market. The Topeka DMA has an agricultural base which is augmented by production and manufacturing. In addition to being the state capital, Topeka is home to Forbes Air Force Base, Kansas State University with an enrollment of 22,400 and Washburn University with an enrollment of 6,300 students. Major employers in the area include: Goodyear Tire and Rubber Corporation, Payless ShoeSource, Blue Cross Blue Shield of Kansas and Burlington Northern Santa Fe Railroad.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
443 | 442 | (0.05 | )% | ||||||||
|
Retail Sales
|
$ | 5,537 | $ | 6,723 | 3.96 | |||||||
|
EBI
|
6,708 | 7,631 | 2.61 | |||||||||
|
Gross Market Revenue
|
16,200 | 19,900 | 4.20 | |||||||||
|
Average Household Income
|
39.8 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
| WIBW | CBS | VHF | Stations Holding Company, Inc. | 22 | 18 | 20 | 20 | |||||||||||||||||||
| KSNT | NBC | UHF | Emmis Communications Corp. | 14 | 20 | 12 | 12 | |||||||||||||||||||
| KTKA-TV | ABC | UHF | Brechner Management Company | 5 | 5 | 8 | 7 | |||||||||||||||||||
| KTMJ-CA | FOX, UPN | VHF | Montgomery Communications, Inc. | 2 | 3 | 3 | 2 | |||||||||||||||||||
Dothan, Alabama
WTVY, a CBS affiliate, began operations in 1954. It is ranked first in total viewers and in news programming in the Dothan, Alabama market. Dothan serves as the regional economic, retail, and medical center. It houses Ft. Rucker Army Base, the Southeast Alabama Medical Center, and serves as an important agricultural center. Major employers in the area include: Southeast Alabama Medical Center, Collins Signs, Dothan and Houston Counties School System, Perdue Farms, Inc. and Flowers Hospital. The Dothan market is adjacent to the Panama City, Florida market where we own and operate WJHG.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
246 | 249 | 0.24 | % | ||||||||
|
Retail Sales
|
$ | 2,963 | $ | 3,288 | 2.10 | |||||||
|
EBI
|
3,481 | 4,187 | 3.76 | |||||||||
|
Gross Market Revenue
|
11,900 | 14,500 | 4.03 | |||||||||
|
Average Household Income
|
36.6 | NA | ||||||||||
45
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||||
| WTVY | CBS | VHF | Stations Holding Company, Inc. | 22 | 21 | 23 | 22 | |||||||||||||||||||||
| WDHN | ABC | UHF | Morris Multimedia, Inc. | 6 | 6 | 7 | 6 | |||||||||||||||||||||
| WDFX-TV | FOX | UHF | Waitt Broadcasting, Inc. | 4 | 6 | 5 | 3 | |||||||||||||||||||||
Harrisonburg, Virginia
WHSV, an ABC affiliate, began operations in 1953. It is the only commercial television station broadcasting in the Harrisonburg, Virginia market and is ranked first in total viewers and in news programming. The Harrisonburg market derives much of its economic base from poultry products, book manufacturing and the pharmaceutical industry. James Madison University, with an enrollment of over 16,000, is located in the DMA. Major employers in the area include: James Madison University, Pilgrims Pride, Cargill, Rockingham Memorial Hospital and R.R. Donnelley & Sons Company.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
228 | 236 | 0.69 | % | ||||||||
|
Retail Sales
|
$ | 2,953 | $ | 3,512 | 3.53 | |||||||
|
EBI
|
3,493 | 4,174 | 3.63 | |||||||||
|
Gross Market Revenue
|
9,800 | 11,800 | 3.78 | |||||||||
|
Average Household Income
|
40.7 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WHSV-TV
|
ABC | VHF | Stations Holding Company, Inc. | 16 | 15 | 18 | 18 | |||||||||||||||||||
Bowling Green, Kentucky
WBKO, an ABC affiliate, began operations in 1962. It is ranked first in total viewers and in news programming in the Bowling Green, Kentucky market. Bowling Green is located approximately 65 miles outside of Nashville, Tennessee and benefits from its proximity to this major city. Bowling Green is home to Western Kentucky University which has an enrollment of almost 15,000 students. Some of the major employers in the region include: Commonwealth Health Corp., Warren County Board of Education, Western Kentucky University, General Motors Corvette Plant and DESA International. The Bowling Green market is adjacent to the Lexington, Kentucky market where we own and operate WKYT and WYMT.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
209 | 220 | 1.03 | % | ||||||||
|
Retail Sales
|
$ | 2,475 | $ | 2,865 | 2.97 | |||||||
|
EBI
|
3,039 | 4,006 | 5.68 | |||||||||
|
Gross Market Revenue
|
7,500 | 8,800 | 3.25 | |||||||||
|
Average Household Income
|
37.5 | NA | ||||||||||
46
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WBKO
|
ABC | VHF | Stations Holding Company, Inc. | 21 | 22 | 22 | 22 | |||||||||||||||||||
|
WNKY
|
NBC | UHF | Northwest Broadcasting, L.P. | 5 | 7 | 4 | 2 | |||||||||||||||||||
Meridian, Mississippi
WTOK, an ABC affiliate, began operations in 1953. It is ranked first in total viewers and in news programming in the Meridian, Mississippi market. Meridian Naval Air Station is located in the DMA of Meridian, which also is a regional medical and economic center. Major industries in the area include tourism, timber processing, paper products and electronics manufacturing. Top employers in the area include: Peavey Electronics, Mississippi Band of Choctaw Indians, Meridian Naval Air Station, Jeff Anderson Regional Medical Center and the Meridian School System.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
189 | 190 | 0.11 | % | ||||||||
|
Retail Sales
|
$ | 1,883 | $ | 2,245 | 3.58 | |||||||
|
EBI
|
2,469 | 3,048 | 4.30 | |||||||||
|
Gross Market Revenue
|
7,900 | 9,800 | 4.40 | |||||||||
|
Average Household Income
|
34.7 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WTOK-TV
|
ABC | VHF | Stations Holding Company, Inc. | 21 | 21 | 23 | 21 | |||||||||||||||||||
|
WMDN
|
CBS | UHF | Spain, Frank & Family | 7 | 9 | 9 | 5 | |||||||||||||||||||
|
WGBC
|
NBC | UHF | Global Communications, Inc. | 6 | 7 | 5 | 4 | |||||||||||||||||||
Parkersburg, West Virginia
WTAP, an NBC affiliate, began operations in 1953. It is the only commercial television station broadcasting in the Parkersburg, West Virginia market and is ranked first in total viewers and in news programming. The Parkersburg DMA is a major chemical and petroleum center, with such employers as Dupont, Eramet, General Electric Company, Chevron, Globe Metallurgical and Krayton. Other significant employers include Coldwater Creek Clothiers and Ames Hardware. The Parkersburg DMA also plays host to Marietta College with an enrollment of nearly 23,500.
Market Overview
| 2001 | 2006 | CAGR | ||||||||||
| (In Thousands) | ||||||||||||
|
DMA Population
|
159 | 157 | (0.25 | )% | ||||||||
|
Retail Sales
|
$ | 1,911 | $ | 2,025 | 1.17 | |||||||
|
EBI
|
2,539 | 3,051 | 3.74 | |||||||||
|
Gross Market Revenue
|
5,600 | 6,600 | 3.34 | |||||||||
|
Average Household Income
|
39.9 | NA | ||||||||||
Competitive Landscape
| Share Summary | ||||||||||||||||||||||||||
| 9AM to Midnight | ||||||||||||||||||||||||||
| VHF or | ||||||||||||||||||||||||||
| Station | Network | UHF | Owner | May-02 | Feb-02 | Nov-01 | Jul-01 | |||||||||||||||||||
|
WTAP-TV
|
NBC | UHF | Stations Holding Company, Inc. | 21 | 27 | 19 | 21 | |||||||||||||||||||
47
BUSINESS OF STATIONS HOLDING COMPANY, INC.
Overview of Stations
We plan to acquire in the merger 15 of Stations’ television stations. These television stations are geographically diverse and serve small to medium-sized markets in 11 states. Five of the stations are affiliated with CBS, six are affiliated with ABC, and four are affiliated with NBC. All of the data included in this section relates solely to the stations that we plan to acquire in the merger.
The stations are located in DMAs ranked in size from 65 to 186 out of the 210 DMAs surveyed by A. C. Nielsen Company. The broadcast signals for these stations that we intend to acquire in the merger reach approximately 2.6 million television households, representing approximately 2.5% of all television households in the United States. Stations believes that broadcast television stations in small to medium-sized markets offer an opportunity to generate attractive and stable broadcasting cash flow due to limited competition from:
| • | other television stations for viewers; | |
| • | other media soliciting advertising expenditures; and | |
| • | other television stations purchasing syndicated programming. | |
Stations operates in markets that typically have stable employment and a diverse base of employers. Stations generally targets markets that have population centers that share common community interests and are receptive to local programming. Stations’ local programming and news content coupled with its network affiliations provide each of its stations with an established audience and reputation for news, sports and entertainment programming.
Stations’ senior management team, led by K. James Yager, President and Chief Operating Officer, has extensive experience in acquiring and improving the operations of television stations. In addition, Stations’ stations are supported by a team of senior vice presidents who directly oversee the day-to-day operations of the business. Louis S. Wall and Christopher H. Cornelius manage seven and six of the stations, respectively. These executives have an average of 22 years of experience operating and managing broadcast television stations.
Stations selectively purchases first run and off-network syndicated programming designed to reach specific demographic groups attractive to advertisers. Currently, Stations broadcasts on many of its stations the five most highly-rated syndicated programs. These programs and the number of stations on which they are broadcast are:
| • | “Wheel of Fortune” on nine of its stations; | |
| • | “Jeopardy” on seven of its stations; | |
| • | “Seinfeld” on seven of its stations; and | |
| • | “Entertainment Tonight” on seven of its stations. | |
Additionally, Stations broadcasts other highly-rated first run and off-network syndicated programs on its stations including:
| • | “Judge Judy;” | |
| • | “The Oprah Winfrey Show;” | |
| • | “Everybody Loves Raymond;” | |
| • | “Live! with Regis and Kelly;” and | |
| • | “Frasier.” | |
48
Stations seeks to acquire syndicated programs that:
| • | have wide audience appeal; | |
| • | are available on a cost-effective basis for limited licensing periods; | |
| • | allow scheduling flexibility; | |
| • | complement each station’s overall programming mix; and | |
| • | counter competitive programming. | |
Stations has been able to purchase syndicated programming at attractive rates because of the limited competition from other television broadcasters for such programming in its markets. As a result, Stations’ cash program expense as a percentage of net revenues for its stations was 4.4% in 1999, 4.7% in 2000 and 5.5% in 2001. In comparison, according to the 2001 Television Financial Report published by the National Association of Broadcasters, the percentage of net revenues spent for programming by all network affiliated stations was 8.8% in 1999 and 8.2% in 2000.
Background
Stations was incorporated under the laws of the State of Delaware on April 10, 1996. Stations’ corporate name was changed from Benedek Communications Corporation to Stations Holding Company, Inc. effective February 1, 2002. Benedek was incorporated under the laws of the State of Delaware on January 22, 1979. The principal executive offices of Stations is located at 2895 Greenspoint Parkway, Suite 250, Hoffman Estates, Illinois 60195. The telephone number at the executive offices is (847) 585-3450.
Network Affiliation of Stations’ Television Stations
Each of the television stations we are acquiring is affiliated with either CBS, ABC or NBC. Each affiliation agreement provides the station with the right to broadcast all programs transmitted by the network. In return, the network has the right to sell a substantial majority of the advertising time during network programming. In exchange for every hour that a station elects to broadcast network programming, CBS, ABC and NBC have historically paid the station a specified fee. This fee varies with the time of day. Typically, prime-time programming generates the highest hourly rates. Fees are subject to increase or decrease by the network during the term of an affiliation agreement, with provisions for advance notices and the right of termination by the station in the event of a reduction of rates.
During 1999, each of the major networks publicly indicated that it was reviewing the economic and other terms under which it provides programming to network affiliates like our stations. Proposed changes that have been publicly discussed include:
| • | reducing the period of exclusivity with respect to popular programming; | |
| • | changing the amount and placement of advertising time made available for sale by affiliates during network programming; and | |
| • | requiring affiliates to share part of the costs of producing sports or special programming. | |
These changes may be implemented during the term of existing affiliation agreements or upon their renewal. Additionally, the major networks have proposed reducing or eliminating the cash payments paid by networks to affiliates at the time of renewal of existing affiliation agreements.
Stations’ NBC affiliation agreements for WOWT, WMTV, WILX and WTAP were renegotiated effective as of January 1, 2002 and the agreements were extended to January 1, 2012. As a result of these negotiations compensation for WOWT, WMTV, WILX and WTAP continues although at a reduced level through 2005. For the period from January 1, 2006 through the expiration of the contract on January 1, 2012, the agreements do not provide for any network compensation payments.
49
Stations’ ABC affiliation agreements for WBKO, WHSV and WTOK expire on November 1, 2004 and provide for compensation that decreases throughout the term of the contract and reduces to zero by the expiration date of the contract.
In response to declining revenues, some networks have suggested that they may search for alternative methods of distribution for their programming, such as cable channels.
Advertising Sales
Television station revenues are derived primarily from local, regional and national advertising. Stations seeks to manage its spot inventory efficiently to maximize advertising rates. Advertising rates are based upon numerous factors including:
| • | a program’s popularity among the audience; | |
| • | the number of advertisers competing for the available time allotted to commercials; | |
| • | the size and demographic make-up of the audience; and | |
| • | the availability of alternative advertising media in the market area. | |
In March 2000, Stations restructured the organization of its local sales departments to place a greater emphasis on local and regional advertising sales. Stations shifted certain local advertising accounts to national representatives to better reflect the actual source of revenues. As a result of the restructuring and its new philosophy, period-to-period comparisons of trends in Stations’ local/regional and national sales will be difficult for you to make.
Local Sales. Approximately 60% of Stations’ gross revenues in 2001 came from local and regional advertisers. Local and regional advertising is sold primarily by each station’s professional sales staff. Typical local and regional advertisers include:
| • | automobile dealerships; | |
| • | restaurants; | |
| • | retailers; | |
| • | communications companies; | |
| • | grocery chains; | |
| • | soft drink bottlers; | |
| • | health and medical services; and | |
| • | state lotteries. | |
Stations seeks to establish long term relationships with local advertisers by selling its advertising time through dedicated local sales teams. Stations’ goal is to provide local customers the opportunity to communicate their longer term advertising goals so it can develop strategic advertising campaigns for them. In addition to increasing revenues from existing advertisers, Stations seeks to identify new sources of local advertising revenues. In particular, Stations seeks potential advertisers who have not previously advertised on broadcast television, but whose businesses would benefit from the identity of Stations’ local news and programming. Stations’ sales personnel are required to meet minimum weekly and monthly performance standards with respect to client activity, including new customer identification. Stations also offers commercial production services at each of its stations.
National Sales. Approximately 31% of Stations’ gross revenues in 2001 came from national advertisers. Typical national advertisers include:
| • | automobile manufacturers; | |
| • | consumer goods manufacturers; | |
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| • | communications companies; | |
| • | fast food franchisers; | |
| • | national retailers; and | |
| • | direct marketers. | |
National advertising time is sold through representative agencies retained by Stations. Two of the television stations we are acquiring are represented by Petry Television, Inc., ten are represented by Katz Television Sales, and one is represented by Blair Television. These stations’ national sales coordinators actively assist their national sales representatives to induce national advertisers to increase their national spot expenditures designated to our markets.
Political Sales. Political advertising revenues are a significant factor in Stations business during election years. Local and regional elections, which can include gubernatorial, U.S. senatorial and congressional races, generally occur every even numbered year. National presidential elections occur every four years. In 2000 and 1998, Stations had political advertising revenues of $13.3 million and $8.6 million, respectively, at its stations we are acquiring pursuant to the merger representing approximately 10% and 7% of such stations’ gross revenues during such years.
Implementation of the Cable Act of 1992
The Cable Television Consumer Protection and Competition Act of 1992, the “Cable Act,” was enacted on October 5, 1992. The Cable Act:
| • | imposes cable rate regulation; | |
| • | establishes cable ownership limitations; | |
| • | regulates the relationships between cable operators and their program suppliers; | |
| • | regulates signal carriage and retransmission consent; and | |
| • | regulates numerous other aspects of the cable television business. | |
Stations has entered into agreements for its stations with substantially all of the cable system operators that carry our stations’ signals. All of these agreements grant such cable system operators consent to retransmit Stations’ broadcast signals. These retransmission arrangements do not represent a significant source of revenues for Stations. Stations expects to be able to renew its current retransmission agreements when such agreements expire. However, there can be no assurance that such renewals will be obtained.
Digital Operations
The FCC had required that all of the stations owned by Stations commence digital operations by May 1, 2002. Stations has incurred approximately $4.5 million in capital expenditures towards its digital conversion of the stations we are acquiring as a result of the merger, and it anticipates incurring additional capital expenditures of $6.8 million in the balance of 2002 and thereafter with respect to such stations. In order to accommodate the conversion to digital and maintain our historical capital expenditure levels, Stations has reduced its plans for the other non-essential capital expenditures in 2002. Stations anticipates that such expenditures will be paid for through cash generated from operations.
One of the stations owned by Stations had commenced digital operations by May 1, 2002. The FCC had implemented a process to allow broadcast companies to request an extension of time to complete the build-out to digital. On March 4, 2002, Stations filed extension requests with respect to its stations that have not been converted to digital. Stations was granted extensions covering the period May 1, 2002 through various dates in November 2002. We cannot assure you that Stations will be able to complete the construction of all of its DTV stations by the applicable FCC deadlines. If Stations is unable to meet
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Employees
As of May 31, 2002, Stations had 807 full-time employees at the stations we are acquiring as a result of the merger. Approximately 172 of such employees located at three of such stations are represented by labor unions under collective bargaining agreements. The collective bargaining agreements expire at various times from June 2003 through December 2003. At WIFR-TV, Rockford, Illinois, 23 employees have certified a union and negotiations for a collective bargaining agreement are scheduled to occur shortly. There are no unionized employees at the other stations we are acquiring as a result of the merger. Stations believes that its relationship with all of its employees, including those represented by labor unions, is satisfactory.
Properties
The principal executive offices of Stations is located in leased premises in Hoffman Estates, Illinois. Stations also has executive offices in New York City.
The types of properties required to support the television stations which Gray is acquiring as a result of the merger include offices, studios, and tower and transmitter sites. A station’s studio and office are generally located in business districts while tower and transmitter sites are generally located so as to provide maximum signal coverage to each market. The following table contains certain information describing the general character of our properties.
| Approximate | |||||||||||||
| Owned or | Size | Height (ft.)/ | |||||||||||
| Station, Market Area and Use | Leased | (sq. ft.)(a) | Power | Lease expiration date | |||||||||
|
Wichita-Hutchinson, Kansas KAKE-TV
|
|||||||||||||
|
Office and Studio
|
Owned | 46,762 | — | — | |||||||||
|
Tower/ Transmitter Site
|
Owned | 2,176 | 1,000/316 kw | — | |||||||||
|
Colby, Kansas KLBY-TV
|
|||||||||||||
|
Office and Studio
|
Leased | 2,850 | — | 04/30/2004 | |||||||||
|
Tower/ Transmitter Site
|
Leased | 1,000 | 768/100 kw | 04/30/2007 | |||||||||
|
Garden City, Kansas KUPK-TV
|
|||||||||||||
|
Office and Studio
|
Owned | 1,831 | — | — | |||||||||
|
Tower/ Transmitter Site
|
Owned | 4,655 | 880/224 kw | — | |||||||||
|
Omaha, Nebraska WOWT-TV
|
|||||||||||||
|
Office and Studio
|
Owned | 58,829 | — | — | |||||||||
|
Tower/ Transmitter Site
|
Owned | 2,500 | 1,342/100 kw | — | |||||||||
|
Madison, Wisconsin WMTV-TV
|
|||||||||||||
|
Office and Studio
|
Owned | (b) | 16,485 | (c) | — | — | |||||||
|
Tower/ Transmitter Site
|
Owned | (b) | 1,040/955 kw | — | |||||||||
|
Colorado Springs-Pueblo, Colorado KKTV
|
|||||||||||||
|
Office and Studio
|
Owned | (b) | 30,465 | — | — | ||||||||
|
Tower/ Transmitter Site
|
Leased | 800 | 350/234 kw | 02/01/2059 | |||||||||
|
Lansing, Michigan WILX-TV
|
|||||||||||||
|
Office and Studio
|
Owned | (b) | 13,700 | — | — | ||||||||
|
Tower/ Transmitter Site
|
Leased | 5,000 | 994/309 kw | 10/18/2003 | |||||||||
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| Approximate | |||||||||||||
| Owned or | Size | Height (ft.)/ | |||||||||||
| Station, Market Area and Use | Leased | (sq. ft.)(a) | Power | Lease expiration date | |||||||||
|
Rockford, Illinois WIFR-TV
|
|||||||||||||
|
Office and Studio
|
Owned | (b) | 13,500 | (c) | — | — | |||||||
|
Tower/ Transmitter Site
|
Owned | (b) | 674/562 kw | — | |||||||||
|
Wausau-Rhinelander, Wisconsin WSAW-TV
|
|||||||||||||
|
Office and Studio
|
Owned | (b) | 24,400 | — | — | ||||||||
|
Tower/ Transmitter Site
|
Leased | (d) | 432 | 650/316 kw | 08/01/2017 | ||||||||
|
Topeka, Kansas WIBW-TV
|
|||||||||||||
|
Office and Studio
|
Owned | (b) | 19,800 | — | — | ||||||||
|
Tower/ Transmitter Site
|
Leased | 2,338 | 1,249/316 kw | 02/14/2062 | |||||||||
|
Dothan, Alabama and Panama City, Florida WTVY-TV
|
|||||||||||||
|
Office and Studio
|
Leased | 20,440 | — | 12/31/2003 | |||||||||
|
Tower/ Transmitter Site
|
Owned | (b) | 2,500 | 1,880/100 kw | — | ||||||||
|
Harrisonburg, Virginia WHSV-TV
|
|||||||||||||
|
Office and Studio
|
Leased | (b) | 18,000 | — | 04/27/2018(e) | ||||||||
|
Tower/ Transmitter Site
|
Leased | 2,016 | 337/8.32 kw | 12/31/2001(f) | |||||||||
|
Bowling Green, Kentucky WBKO-TV
|
|||||||||||||
|
Office and Studio
|
Owned | (b) | 17,598 | — | — | ||||||||
|
Tower/ Transmitter Site
|
Owned | (b) | 1,175 | 603/316 kw | — | ||||||||
|
Meridian, Mississippi WTOK-TV
|
|||||||||||||
|
Office and Studio
|
Owned | (b) | 13,188 | — | — | ||||||||
|
Tower/ Transmitter Site
|
Owned | (b) | 1,504 | 316/316 kw | — | ||||||||
|
Parkersburg, West Virginia WTAP-TV
|
|||||||||||||
|
Office and Studio
|
Owned | (g) | 17,500 | — | — | ||||||||
|
Tower/ Transmitter Site
|
Owned | (b) | 3,600 | 439/208 kw | — | ||||||||
| (a) | Approximate size is for building space only and does not include the land on which the facilities are located. | |
| (b) | Stations has mortgaged its interest in this property to the collateral agent under its credit facility, which mortgage will be released at the time of the merger. | |
| (c) | The tower/transmitter is located at and included within the size of the office and studio premises. | |
| (d) | Stations leases this space with Shockley Communications Corporation and the Wisconsin Educational Communications Board from the State of Wisconsin Department of Natural Resources. | |
| (e) | Stations has an option to purchase this property during the term of the lease. The purchase price is subject to adjustment depending upon the date the option is exercised. If Stations had exercised the option on December 31, 2001, the purchase price would have been approximately $1.4 million. | |
| (f) | The United States Department of Agriculture Forest Service granted us a Special Use Permit to occupy this land. Stations has applied for and is currently awaiting renewal of this permit. | |
| (g) | In May 2000, Stations exercised a purchase option on this property. Stations mortgaged its interest in this property in connection with the purchase. Stations had previously leased this property and had mortgaged its leasehold interest to the collateral agent under its credit facility, which leasehold mortgage will be released at the time of the merger. | |
Legal Proceedings
On March 22, 2002, Stations filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Benedek and its subsidiaries are not party to the bankruptcy action. On July 1,
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Stations is currently and from time to time involved in litigation incidental to the conduct of its business. Stations is not currently a party to any such lawsuit or proceeding that, in its opinion, is likely to have a material adverse effect on us.
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STATIONS SELECTED FINANCIAL DATA
The table below sets forth the selected consolidated financial data of Stations for the five years ended December 31, 2001 and the three month periods ended March 31, 2001 and 2002. The selected consolidated financial data for the years ended December 31, 1999, 2000 and 2001 have been derived from Stations’ audited consolidated financial statements included elsewhere in this prospectus. The data for the three month periods ended March 31, 2001 and 2002 are unaudited, but have been prepared on the same basis as the audited financial statements. In Stations’ opinion, they reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly Stations’ results of operation for the period then ended and its financial position as of such dates. Operating results for the three month period ended March 31, 2002 are not necessarily indicative of the results that may be expected in the future. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this prospectus and “Stations Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| Three Months Ended | |||||||||||||||||||||||||||||
| Year Ended December 31, | March 31, | ||||||||||||||||||||||||||||
| 1997(a) | 1998(a) | 1999(b) | 2000(b) | 2001 | 2001 | 2002 | |||||||||||||||||||||||
| (Dollars in thousands, except share and per share data) | |||||||||||||||||||||||||||||
|
Statement of Operations Data:
|
|||||||||||||||||||||||||||||
|
Net revenues(c)
|
$ | 84,392 | $ | 94,525 | $ | 99,432 | $ | 116,687 | $ | 107,561 | $ | 23,587 | $ | 25,584 | |||||||||||||||
|
Operating expenses:
|
|||||||||||||||||||||||||||||
|
Station operating expenses
|
48,891 | 52,446 | 55,154 | 63,935 | 64,007 | 16,664 | 16,258 | ||||||||||||||||||||||
|
Depreciation and amortization
|
21,794 | 20,660 | 17,442 | 19,711 | 21,901 | 5,368 | 6,309 | ||||||||||||||||||||||
|
Station operating income
|
13,707 | 21,419 | 26,836 | 33,041 | 21,653 | 1,555 | 3,017 | ||||||||||||||||||||||
|
Corporate expenses
|
3,787 | 4,643 | 4,510 | 5,590 | 5,946 | 1,664 | 1,543 | ||||||||||||||||||||||
| 9,920 | 16,776 | 22,326 | 27,451 | 15,707 | (109 | ) | 1,474 | ||||||||||||||||||||||
|
Gain on sale of stations, net(d)
|
— | — | 6,403 | 61,406 | — | — | — | ||||||||||||||||||||||
|
Operating income (loss)
|
9,920 | 16,776 | 28,729 | 88,857 | 15,707 | (109 | ) | 1,474 | |||||||||||||||||||||
|
Financial expenses, net:
|
|||||||||||||||||||||||||||||
|
Interest expense, net(e):
|
|||||||||||||||||||||||||||||
|
Cash interest, net
|
(23,358 | ) | (21,943 | ) | (20,701 | ) | (23,000 | ) | (33,191 | ) | (5,002 | ) | (10,559 | ) | |||||||||||||||
|
Other interest
|
(19,374 | ) | (17,043 | ) | (19,040 | ) | (20,943 | ) | (10,011 | ) | (5,661 | ) | (192 | ) | |||||||||||||||
| (42,732 | ) | (38,986 | ) | (39,741 | ) | (43,943 | ) | (43,202 | ) | (10,663 | ) | (10,751 | ) | ||||||||||||||||
|
Reorganization items
|
— | — | — | — | — | — | (931 | ) | |||||||||||||||||||||
|
Income (loss) before income tax benefit and
extraordinary item
|
(32,812 | ) | (22,210 | ) | (11,012 | ) | 44,914 | (27,495 | ) | (10,772 | ) | (10,208 | ) | ||||||||||||||||
|
Income tax benefit (expense)
|
11,243 | 7,646 | (406 | ) | (29,199 | ) | 10,165 | 4,064 | 3,931 | ||||||||||||||||||||
|
Income (loss) from continuing operations
|
(21,569 | ) | (14,564 | ) | (11,418 | ) | 15,715 | (17,330 | ) | (6,708 | ) | (6,277 | ) | ||||||||||||||||
|
Income (loss) from discontinued operations
|
(2,741 | ) | (2,061 | ) | (4,359 | ) | (881 | ) | (28,085 | ) | (1,646 | ) | (22,028 | ) | |||||||||||||||
|
Income (loss) before extraordinary item
|
(24,310 | ) | (16,625 | ) | (15,777 | ) | 14,834 | (45,415 | ) | (8,354 | ) | (28,305 | ) | ||||||||||||||||
|
Extraordinary item(f)
|
— | — | (12,510 | ) | 942 | — | — | — | |||||||||||||||||||||
|
Net income (loss)
|
(24,310 | ) | (16,625 | ) | (28,287 | ) | 15,776 | (45,415 | ) | (8,354 | ) | (28,305 | ) | ||||||||||||||||
|
Preferred stock dividends and accretion
|
(19,037 | ) | (30,855 | ) | (18,987 | ) | (23,933 | ) | (31,186 | ) | (7,480 | ) | (7,849 | ) | |||||||||||||||
|
Net (loss) applicable to common stock
|
$ | (43,347 | ) | $ | (47,480 | ) | $ | (47,274 | ) | $ | (8,157 | ) | $ | (76,601 | ) | $ | (15,834 | ) | $ | (36,154 | ) | ||||||||
|
Basic and diluted (loss) per common share(g):
|
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