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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000 Commission file number 0-19728
GRANITE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3458782
(State of Incorporation) (I.R.S. Employer Identification No.)
767 Third Avenue, 34th Floor
New York, New York 10017
(212) 826-2530
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock (Nonvoting), $.01 par value per share
Cumulative Convertible Exchangeable Preferred Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
As of March 1, 2001, 18,251,977 shares of Granite Broadcasting
Corporation Common Stock (Nonvoting) were outstanding. The aggregate market
value (based upon the last reported sale price on the Nasdaq National Market on
March 1, 2001) of the shares of Common Stock (Nonvoting) held by non-affiliates
was approximately $43,282,260 (For purposes of calculating the preceding amounts
only, all directors and executive officers of the registrant are assumed to be
affiliates.) As of March 1, 2001, 178,500 shares of Granite Broadcasting
Corporation Class A Voting Common Stock were outstanding, all of which were held
by affiliates.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Item 14 of Part IV are incorporated by reference to:
Granite Broadcasting Corporation's Registration Statement No. 33-43770, filed
on November 5, 1991; Amendment No. 2 to Granite Broadcasting Corporation's
Registration Statement No. 33-71172, filed on December 16, 1993; Granite
Broadcasting Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994, filed on March 29, 1995; Granite Broadcasting
Corporation's Current Report on Form 8-K, filed on July 14, 1995; Granite
Broadcasting Corporation's Registration Statement No. 33-94862, filed on July
21, 1995; Amendment No. 2 to Granite Broadcasting Corporation's Registration
Statement No. 33-94862, filed on October 6, 1995; Granite Broadcasting
Corporation's Annual Report on Form 10-K for the year ended December 31,
1995, filed on March 28, 1996; Granite Broadcasting Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996, filed on March 21,
1997; Granite Broadcasting Corporation's Current Report on Form 8-K, filed on
October 17, 1997; Granite Broadcasting Corporation's Current Report on Form
8-K, filed on March 2, 1998; Granite Broadcasting Corporation's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, filed on May 1,
1998; Granite Broadcasting Corporation's Registration Statement No.
333-56327, filed on June 8, 1998; Granite Broadcasting Corporation's Current
Report on Form 8-K, filed on July 1, 1998; Granite Broadcasting Corporation's
Current Report on Form 8-K, filed on August 13, 1998; Granite Broadcasting
Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1999, filed on March 30, 2000; Granite Broadcasting Corporation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed on
May 15, 2000; Granite Broadcasting Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, filed on August 14, 2000; Granite
Broadcasting Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000, filed on November 14, 2000; and Granite
Broadcasting Corporation's Current Report on Form 8-K filed on March 9, 2001.
PART I
ITEM 1. BUSINESS
Granite Broadcasting Corporation ("Granite" or the "Company"), a
Delaware corporation, is a group broadcasting company founded in 1988 to acquire
and manage network-affiliated television stations and other media and
communications-related properties. The Company's goal is to identify and acquire
properties that management believes have the potential for substantial long-term
appreciation and to aggressively manage such properties to improve their
operating results. The Company currently owns and operates eight
network-affiliated television stations and one independent station: WTVH-TV, the
CBS affiliate serving Syracuse, New York ("WTVH"); KSEE-TV, the NBC affiliate
serving Fresno-Visalia, California ("KSEE"); WPTA-TV, the ABC affiliate serving
Fort Wayne, Indiana ("WPTA"); WEEK-TV, the NBC affiliate serving
Peoria-Bloomington, Illinois ("WEEK-TV"); KBJR-TV, the NBC affiliate serving
Duluth, Minnesota and Superior, Wisconsin ("KBJR"); WKBW-TV, the ABC affiliate
serving Buffalo, New York ("WKBW"); WDWB-TV, the WB Network affiliate serving
Detroit, Michigan ("WDWB"); KBWB-TV, the WB Network affiliate serving San
Francisco-Oakland-San Jose, California ("KBWB") and KNTV, an independent station
serving San Francisco-Oakland-San Jose, California ("KNTV") which will become
the NBC affiliate serving this market on January 1, 2002. KBJR and WEEK were
acquired in separate transactions in October 1988, WPTA was acquired in December
1989, KNTV was acquired in February 1990, WTVH and KSEE were acquired in
December 1993, WKBW was acquired in June 1995, WDWB was acquired in January 1997
and KBWB was acquired in July 1998. The Company owns all but one of its
television stations through separate wholly owned subsidiaries (collectively,
the "Subsidiaries"; references herein to the "Company" or to "Granite" include
Granite Broadcasting Corporation and the Subsidiaries). The Company's long-term
objective is to acquire additional television stations and to pursue
acquisitions of other media and communications-related properties in the future.
The Company is committed to building its station Internet business consistent
with the goal of using the unique technological capabilities of the Internet to
deliver local news, weather and sports information to viewer computers at home
and at work. The Company's Internet strategy is based on the view that via the
Internet the Company's stations can provide a high quality interactive
advertising environment in which local businesses can reach consumers at home
and at work.
RECENT DEVELOPMENTS
NEW SENIOR CREDIT AGREEMENT
On March 6, 2001, the Company entered into an amended and restated $205,000,000
Senior Credit Agreement (the "Credit Agreement"). The Credit Agreement consists
of a $110,000,000 Tranche A term loan and a $95,000,000 Tranche B term loan. The
proceeds from the Credit Agreement were used (i) to repay all outstanding
borrowings under the Company's existing senior revolving credit facility, (ii)
to prepay the first installment under the KNTV NBC affiliation agreement (as
described below), (iii) to pay certain fees and expenses associated with the
Credit Agreement and (iv) for general working capital purposes. The Tranche A
and Tranche B term loans bear interest annually at the greater of LIBOR plus
5.50% or 12% payable monthly. In addition, the Tranche B term loan accrues
simple deferred interest at an annual rate of 6% which is payable when the
Credit Agreement matures on December 31, 2003. The Company also granted to the
Tranche B lenders a warrant to purchase 753,491 shares of Common Stock
(Nonvoting), par value $.01 per share, at an exercise price of $1.75 per share.
The warrant is fully vested and remains exercisable until March 6, 2006.
KNTV NBC AFFILIATION
On May 31, 2000 the Company entered into a series of definitive
agreements with the National Broadcasting Company, Inc. ("NBC"). Pursuant to the
these agreements, KNTV will become the NBC affiliate in the San
Francisco-Oakland-San Jose, California television market for a ten year term
commencing on January 1, 2002 (the "San Francisco Affiliation"). The Company
also extended the affiliation agreements of its three existing NBC affiliates,
KSEE, WEEK and KBJR until December 31, 2011. As part of such extension, NBC
agreed to pay the Company a total of $2,430,000 in affiliate compensation in
equal semi-annual installments through December 31, 2001, at which time the
affiliation payments terminate.
In consideration for the San Francisco Affiliation, the Company was to
pay NBC $362,000,000 in nine annual installments, with the initial payment in
the amount of $61,000,000 being due January 1, 2002. On March 6, 2001, the San
Francisco Affiliation was amended to reduce the January 1, 2002 installment to
$30,500,000 and
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defer the remaining $30,500,000 of the original initial payment until January 1,
2005. After giving effect to these changes, the present value of the new payment
schedule is substantially unchanged from the original terms. The Company prepaid
the January 1, 2002 installment on March 6, 2001 with proceeds from the Credit
Agreement, paying $27,778,694, which represents the present value of that
installment discounted at 12%.
Other terms of the agreement include a right of first refusal in
favor of NBC on the sale of KNTV, and an NBC right to purchase KNTV upon an
uncured event of default by the Company, at a value to be determined by an
independent appraiser. In addition, NBC will have the right to terminate the
San Francisco Affiliation if it elects to acquire an attributable interest in
another station in the San Francisco-Oakland-San Jose television market upon
payment to Granite of a fee of at least $14,500,000. The Company and NBC have
commenced a new secondary affiliation for KNTV. Under the secondary
affiliation KNTV has first rights on in-market "pre-empted" programming and
other non-network programs. Branding rights enable KNTV to identify itself as
KNTV NBC3 and KNTV NBC News.
Additionally on May 31, 2000, in consideration for the San Francisco
Affiliation, the Company granted NBC a warrant to acquire 2,500,000 shares of
the Company's Common Stock (Nonvoting), par value $0.01 per share (the "Common
Stock (Nonvoting)"), at an exercise price of $12.50 per share (the "A Warrant")
and a warrant to purchase 2,000,000 shares of Common Stock (Nonvoting) at an
exercise price of $15.00 per share (the "B Warrant"). The A Warrant vested in
full on December 31, 2000 and expires on December 31, 2011. The B Warrant vests
in full on January 1, 2002, if the San Francisco Affiliation is in effect on
that date, and expires on December 31, 2011 or on any date prior to January 1,
2007 on which the San Francisco Affiliation is terminated. Each warrant may be
exercised for cash or surrender of a portion of a then exercisable warrant.
The fair value, estimated to be $12,150,000, has been recorded as a component of
other non-current assets and will be expensed on a straight-line basis over the
life of the San Francisco Affiliation beginning January 1, 2002.
On May 4, 2000, pursuant to authority granted by the FCC, KNTV began
broadcasting at a power level that is double its previously authorized level.
Broadcasting with a new transmitter from Loma Prieta mountain, KNTV's over
the air signal now reaches over 7 million viewers and covers 90 percent of
the San Francisco-Oakland-San Jose, California television market.
On July 1, 2000 KNTV's affiliation with the American Broadcasting
Companies, Inc. ("ABC") terminated pursuant to the terms of the Company's
September 1999 agreement with ABC. The Company received $14,000,000 in cash on
September 1, 1999 in accordance with the affiliation termination agreement.
On October 1, 2000 the Company and AT&T Broadband Management
Corporation ("AT&T"), the Bay Area's leading cable operator, signed a
five-year, renewable cable carriage and marketing agreement. As a result of
this agreement, it is expected that KNTV will be delivered to approximately
90% of the cable television households in the San Francisco-Oakland-San Jose
market by January 1, 2002.
PAXSON JOINT SALES AGREEMENTS - SAN FRANCISCO AND FRESNO
On May 15, 2000 KNTV and KSEE entered into Joint Sales Agreements with
Paxson Communication Corporation. Under the agreements, these stations will
provide sales and marketing, as well as local and news programming for PAX TV.
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COMPANY AND INDUSTRY OVERVIEW
The following table sets forth general information for each of the
Company's television stations:
OTHER
COMMERCIAL EXPIRATION
MARKET DATE OF CHANNEL/ NETWORK MARKET STATIONS DATE OF
STATION AREA ACQUISITION FREQUENCY AFFILIATION RANK(1) IN DMA FCC LICENSE
- ------- -------- ----------- --------- ----------- ----- ----------- -----------
KBWB-TV San Francisco -
Oakland -
San Jose, CA 07/20/98 20/UHF WB 5 19(2) 12/01/06
WDWB-TV Detroit, MI 01/31/97 20/UHF WB 9 9 10/01/05
WKBW-TV Buffalo, NY 06/29/95 7/VHF ABC 44 8 06/01/07
KNTV(TV) San Francisco -
Oakland -
San Jose, CA 02/05/90 11/VHF Independent(4) 5 19(2) 12/01/06
KSEE-TV Fresno-
Visalia, CA 12/23/93 24/UHF NBC 54 10(3) 12/01/06
WTVH-TV Syracuse, NY 12/23/93 5/VHF CBS 80 6 06/01/07
WPTA-TV Fort Wayne, IN 12/11/89 21/UHF ABC 104 5 08/01/05
WEEK-TV Peoria -
Bloomington,
IL 10/31/88 25/UHF NBC 112 5 12/01/05
KBJR-TV Duluth, MN -
Superior, WI 10/31/88 6/VHF NBC 132 5 12/01/05
- -----------------
(1) "Market rank" refers to the size of the television market or Designated
Market Area ("DMA") as defined by the A.C. Nielsen Company ("Nielsen"). All
market rank data is derived from the Nielsen Station Index for September
2000.
(2) Includes KDTV, San Francisco and KSTS, San Jose, both of which broadcast
entirely in Spanish.
(3) Includes KFTV Hanford-Fresno and KMSG, Sanger-Fresno, both of which
broadcast entirely in Spanish.
(4) See page 1 - "Recent Developments--KNTV NBC Affiliation."
Commercial television broadcasting began in the United States on a
regular basis in the 1940s. Currently, there are a limited number of channels
available for broadcasting in any one geographic area and the license to operate
a broadcast station is granted by the FCC. Television stations can be
distinguished by the frequency on which they broadcast. Television stations
which broadcast over the very high frequency ("VHF") band of the spectrum
generally have some competitive advantage over television stations that
broadcast over the ultra-high frequency ("UHF") band of the spectrum because the
former usually have better signal coverage and operate at a lower transmission
cost. In television markets in which all local stations are UHF stations, such
as Fort Wayne, Indiana, Peoria-Bloomington, Illinois and Fresno-Visalia,
California, no competitive disadvantage exists.
Television station revenues are primarily derived from local, regional
and national advertising and, to a lesser extent, from network compensation and
revenues from studio rental and commercial production activities. Advertising
rates are based upon a program's popularity among the viewers an advertiser
wishes to attract, the number of advertisers competing for the available time,
the size and demographic make-up of the market served by the station, and the
availability of alternative advertising media in the market area. Because
broadcast television stations rely on advertising revenues, declines in
advertising budgets, particularly in recessionary periods, adversely affect the
broadcast industry, and as a result may contribute to a decrease in the
valuation of broadcast properties.
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THE COMPANY'S STATIONS
Set forth below are the principal types of television gross revenues
(before agency and representative commissions) received by the Company's
television stations for the periods indicated and the percentage contribution of
each to the gross television revenues of the television stations owned by the
Company.
GROSS REVENUES, BY CATEGORY,
FOR THE COMPANY'S STATIONS
(dollars in thousands)
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1996 1997 1998 1999 2000
-----------------------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ------- ------ ------- ------ ------- ------ ------- ------ -----
Local/Regional(1)........ $73,491 47.5% $87,412 48.3% $89,144 46.0% $89,626 49.2% $82,466 48.3%
National(2).............. 61,945 40.0 78,833 43.5 76,446 39.4 79,780 43.7 68,624 40.2
Network Compensation(3).. 7,289 4.7 7,859 4.3 6,715 3.5 5,074 2.8 4,418 2.6
Political(4)............. 7,265 4.7 1,036 0.6 15,752 8.1 2,601 1.4 10,413 6.1
Other Revenue(5)......... 4,851 3.1 5,943 3.3 5,877 3.0 5,249 2.9 4,854 2.8
-------- ------ ------- ------ -------- ------ -------- ------ -------- -----
Total.................... $154,841 100.0% $181,083 100.0% $193,934 100.0% $182,330 100.0% $170,775 100.0%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
- ------------------
(1) Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers and other local sources.
(2) Represents sale of advertising time to agencies representing national
advertisers.
(3) Represents payment by networks for broadcasting network programming.
(4) Represents sale of advertising time to political advertisers.
(5) Represents miscellaneous revenue, including payment for production of
commercials.
Automobile advertising constitutes the Company's single largest source
of gross revenues, accounting for approximately 18% of the Company's total gross
revenues in 2000. Gross revenues from restaurants and entertainment-related
businesses accounted for approximately 13% of the Company's total gross revenues
in 2000. Each other category of advertising revenue represents less than 6% of
the Company's total gross revenues.
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The following is a description of each of the Company's television
stations:
KBWB: SAN FRANCISCO-OAKLAND-SAN JOSE, CALIFORNIA
KBWB began operations in 1968 and commenced operating as a WB Network
affiliate in 1995.
The San Francisco-Oakland-San Jose economy is centered around apparel,
banking and finance, biosciences, engineering and architecture, film and TV
production, health care, high technology, manufacturing, multimedia,
telecommunications, tourism and wineries. The average household income in the
DMA was $58,082, according to estimates provided in the BIA Investing in
Television 2000 Market Report (the "BIA Report"). Leading employers in the area
include Safeway Supermarkets, Hewlett-Packard, Seagate Technology, The Gap,
Intel, Chevron, Oracle, Kaiser-Permanente and Levi-Strauss. The San
Francisco-Oakland-San Jose DMA is also the home of several universities,
including the University of California Berkeley, San Francisco State University,
San Jose State University, Stanford University, California State
University-Hayward, Santa Clara University and the University of San Francisco,
with aggregate enrollment estimated at over 122,000.
WDWB: DETROIT, MICHIGAN
WDWB began operating in 1962 and commenced operating as a WB Network
affiliate in 1995.
Detroit is the 9th largest DMA in the United States with a total of
approximately 1,856,000 television households and a population of approximately
4,988,000 according to the BIA Report. Detroit's economy is based on
manufacturing, retail and health services. The largest employers are General
Motors, Ford Motor Company, Daimler-Chrysler, Detroit Medical Center, Henry Ford
Health System and Blue Cross Blue Shield of Michigan. The average household
income in the DMA is $48,481 according to estimates provided in the BIA Report.
WKBW: BUFFALO, NEW YORK
WKBW began operations in 1958 and is affiliated with ABC.
The Buffalo economy is centered around manufacturing, government,
health services and financial services. The average household income in the DMA
was $38,128, according to estimates provided in the BIA Report. Leading
employers in the area include General Motors, Ford Motor Company, American Axle
and Manufacturing, M&T Bank, Fleet Bank, Roswell Park Cancer Institute, Buffalo
General Hospital, NYNEX, Tops Markets and DuPont.
KNTV: SAN FRANCISCO-OAKLAND-SAN JOSE, CALIFORNIA
KNTV began operations in 1955, and is currently operating as an
independent station until December 31, 2001. KNTV was affiliated with ABC until
July 1, 2000. On January 1, 2002, KNTV will become an NBC affiliate. (See the
description of the San Francisco-Oakland-San Jose, California market above).
KSEE: FRESNO-VISALIA, CALIFORNIA
KSEE began operations in 1953 and is affiliated with NBC.
Fresno and the San Joaquin Valley is one of the most productive
agricultural areas in the world with over 6,000 square miles planted with more
than 250 different crops. Although farming continues to be the single most
important part of the Fresno area economy, the area now attracts a variety of
service-based industries and manufacturing and industrial operations. No single
employer or industry dominates the local economy. The average income by
household in the DMA was $35,730, according to estimates provided in the BIA
Report. The Fresno-Visalia DMA is also the home of several universities,
including Fresno State University, with aggregate enrollment estimated at over
40,000.
WTVH: SYRACUSE, NEW YORK
WTVH began operations in 1948 and is affiliated with CBS.
The Syracuse economy is centered on manufacturing, education and
government. The average income by
5
household in the DMA was $38,717, according to estimates provided in the BIA
Report. Prominent corporations located in the area include Carrier Corporation,
New Venture Gear, Bristol-Myers Squibb, Crouse-Hinds, Nestle Foods and
Lockheed/Martin. The Syracuse DMA is also the home of several universities,
including Syracuse University, Cornell University and Colgate University, with
enrollments aggregating over 50,000 students.
WPTA: FORT WAYNE, INDIANA
WPTA began operations in 1957 and is affiliated with ABC.
The Fort Wayne economy is centered on manufacturing, government,
insurance, financial services and education. The average income by household in
the DMA was $44,111, according to estimates provided in the BIA Report.
Prominent corporations located in the area include Magnavox, Lincoln National
Life Insurance, General Electric, General Motors, North American Van Lines, GTE,
Dana, Phelps Dodge, ITT, and Tokheim. Fort Wayne is also the home of several
universities, including the joint campus of Indiana University and Purdue
University at Fort Wayne, with enrollments aggregating over 11,000 students.
WEEK: PEORIA-BLOOMINGTON, ILLINOIS
WEEK began operations in 1953 and is affiliated with NBC.
The Peoria economy is centered on agriculture and heavy equipment
manufacturing but has achieved diversification with the growth of service-based
industries such as conventions, healthcare and higher technology manufacturing.
Prominent corporations located in Peoria include Caterpillar, Bemis, Central
Illinois Light Company, Commonwealth Edison Company, Komatsu-Dresser Industries,
IBM, Trans-Technology Electronics and Keystone Steel & Wire. In addition, the
United States Department of Agriculture's second largest research facility is
located in Peoria, and the area has become a major regional healthcare center.
The economy of Bloomington, on the other hand, is focused on insurance,
education, agriculture and manufacturing. Prominent corporations located in
Bloomington include State Farm Insurance Company, Country Companies Insurance
Company and Diamond-Star Motors Corporation (a subsidiary of Mitsubishi). The
average income by household in the DMA was $46,184, according to estimates
provided in the BIA Report. The Peoria-Bloomington area is also the home of
numerous institutions of higher education including Bradley University, Illinois
Central College, Illinois Wesleyan University, Illinois State University, Eureka
College and the University of Illinois College of Medicine, with enrollments
aggregating over 38,000 students.
KBJR: DULUTH, MINNESOTA AND SUPERIOR, WISCONSIN
KBJR began operations in 1954 and is affiliated with NBC.
The area's primary industries include mining, fishing, food products,
paper, medical, shipping, tourism and timber. The average income by household in
the DMA was $33,577, according to estimates provided in the BIA Report. Duluth
is one of the major ports in the United States out of which iron ore, coal,
limestone, cement, grain, paper and chemicals are shipped. Prominent
corporations located in the area include Northwest Airlines, Minnesota Power,
U.S. West, Mesabi & Iron Range Railway Co., Walmart, Jeno Paulucci
International, Lake Superior Industries, Potlatch Corporation, Boise Cascade,
Burlington Northern Railway, Target (Dayton-Hudson Corporation), ConAgra,
International Multifoods, Peavey, Cargill, U.S. Steel, Cleveland-Cliffs
Corporation, NorWest Bank, Shopko, Cub Foods and Advanstar. The Duluth-Superior
area is also the home of numerous educational institutions such as the
University of Minnesota-Duluth, the University of Wisconsin-Superior and the
College of St. Scholastica, with enrollments aggregating over 12,000 students.
NETWORK AFFILIATION
Whether or not a station is affiliated with one of the major networks,
NBC, ABC, CBS, Fox (the "Traditional Networks"), the Warner Brothers Network
(the "WB Network") or United Paramount Networks ("UPN" and collectively with the
WB Network and the Traditional Networks, the "Networks"), has a significant
impact on the composition of the station's revenues, expenses and operations. A
typical Traditional Network affiliate receives a significant portion of its
programming each day from the Network. This programming, along with cash
payments, is provided to the affiliate by the Traditional Network in exchange
for a substantial majority of the advertising inventory during Network programs.
The Traditional Network then sells this advertising time and
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retains the revenues so generated. A typical WB Network or UPN affiliate
receives prime time programming from the Network pursuant to arrangements agreed
upon by the affiliate and the Network.
In contrast, a fully independent station purchases or produces all of
the programming that it broadcasts, resulting in generally higher programming
costs, although the independent station is, in theory, able to retain its entire
inventory of advertising and all of the revenue obtained therefrom. However,
barter and cash-plus-barter arrangements are becoming increasingly popular.
Under such arrangements, a national program distributor typically retains up to
50% of the available advertising time for programming it supplies, in exchange
for reduced fees for such programming.
Each of the Company's stations, except KNTV, is affiliated with a
Network pursuant to an affiliation agreement. KSEE, WEEK and KBJR are affiliated
with NBC; WPTA and WKBW are affiliated with ABC; WTVH is affiliated with CBS;
and KBWB and WDWB are affiliated with the WB Network. KNTV is currently
operating as an independent station, but will become an NBC affiliate on January
1, 2002. (See page 1 - "Recent Developments")
In substance, each Traditional Network affiliation agreement provides
the Company's station with the right to broadcast all programs transmitted by
the Network with which it is affiliated. In exchange, the Network has the right
to sell a substantial majority of the advertising time during such broadcast. In
addition, for every hour that the station elects to broadcast Traditional
Network programming, generally the Network pays the station a fee, specified in
each affiliation agreement, which varies with the time of day. Typically,
"prime-time" programming (Monday through Saturday 8-11 p.m. and Sunday 7-11 p.m.
Eastern Time) generates the highest hourly rates. Rates are subject to increase
or decrease by the Network during the term of each affiliation agreement, with
provisions for advance notice to, and right of termination by, the station in
the event of a reduction in rates. Under the terms of the San Francisco
Affiliation, NBC's obligation to pay such fees to KSEE, WEEK and KBJR
terminates after December 31, 2001.
Under each WB Network affiliation agreement, the Company's stations
receive "prime-time" programming from the WB Network. KBWB and WDWB pay an
affiliation fee for the programming it receives pursuant to its affiliation
agreement.
The Network affiliation agreements provide for contract terms of ten
years (other than the WB Affiliation agreement for WDWB, which is seven years).
Under each of the Company's affiliation agreements, the Networks may, under
certain circumstances, terminate the agreement upon advance written notice.
Under the Company's ownership, none of its stations has received a termination
notice from its respective Network.
COMPETITION
The financial success of the Company's television stations is dependent
on audience ratings and revenues from advertisers within each station's
geographic market. The Company's stations compete for revenues with other
television stations in their respective markets, as well as with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, the Internet, direct mail and
local cable systems. Some competitors are part of larger companies with
substantially greater financial resources than the Company.
Competition in the broadcasting industry occurs primarily in individual
markets. Generally, a television broadcasting station in one market does not
compete with stations in other market areas. The Company's television stations
are located in highly competitive markets.
In addition to management experience, factors that are material to a
television station's competitive position include signal coverage, local program
acceptance, Network affiliation, audience characteristics, assigned frequency
and strength of local competition. The broadcasting industry is continuously
faced with technological change and innovation, the possible rise in popularity
of competing entertainment and communications media, changes in labor conditions
and governmental restrictions or actions of federal regulatory bodies, including
the FCC and the Federal Trade Commission, any of which could possibly have a
material adverse effect on the Company's operations and results.
Conventional commercial television broadcasters also face competition
from other programming, entertainment and video distribution systems, the most
common of which is cable television. These other programming, entertainment and
video distribution systems can increase competition for a broadcasting station
by
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bringing into its market distant broadcasting signals not otherwise available to
the station's audience and also by serving as distribution systems for
non-broadcast programming. Programming is now being distributed to cable
television systems by both terrestrial microwave systems and by satellite. Other
sources of competition include home entertainment systems (including video
cassette recorders and playback systems, video discs and television game
devices), the Internet, multi-point distribution systems, multichannel
multi-point distribution systems, video programming services available through
the Internet and other video delivery systems. The Company's television stations
also face competition from direct broadcast satellite services which transmit
programming directly to homes equipped with special receiving antennas and from
video signals delivered over telephone lines. Satellites may be used not only to
distribute non-broadcast programming and distant broadcasting signals but also
to deliver certain local broadcast programming which otherwise may not be
available to a station's audience. An additional challenge is posed by wireless
cable systems, including multichannel distribution services ("MDS"). Two
four-channel MDS licenses have been granted in most television markets. MDS
operations can provide commercial programming on a paid basis. A similar service
also can be offered using the instructional television fixed service ("ITFS").
The FCC allows the educational entities that hold ITFS licenses to lease their
excess capacity for commercial purposes. The multichannel capacity of ITFS could
be combined with either an existing single channel MDS or a newer multichannel
multi-point distribution service to increase the number of available channels
offered by an individual operator.
The broadcasting industry is continuously faced with technological
change and innovation, which could possibly have a material adverse effect on
the Company's operations and results. Video compression techniques, now in use
with direct broadcast satellites and in development for cable, are expected to
permit greater numbers of channels to be carried within existing bandwidth.
These compression techniques, as well as other technological developments, are
applicable to all video delivery systems, including over-the-air broadcasting
and other non-broadcast commercial applications, and have the potential to
provide vastly expanded programming to highly targeted audiences. Reduction in
the cost of creating additional channel capacity could lower entry barriers for
new channels and encourage the development of increasingly specialized niche
programming. This ability to reach very narrowly defined audiences may alter the
competitive dynamics for advertising expenditures. The Company is unable to
predict the effect that technological changes will have on the Company.
Commercial television broadcasting may face future competition from interactive
video and data services that provide two-way interaction with commercial video
programming, along with information and data services that may be delivered by
commercial television stations, cable television, direct broadcast satellites,
multi-point distribution systems, multichannel multi-point distribution systems
or other video delivery systems. In addition, recent actions by the FCC,
Congress and the courts all presage significant future involvement in the
provision of video services by telephone companies. The Telecommunications Act
of 1996 lifts the prohibition on the provision of cable television services by
telephone companies in their own telephone areas subject to regulatory
safeguards and permits telephone companies to own cable systems under certain
circumstances. It is not possible to predict the impact on the Company's
television stations of any future relaxation or elimination of the existing
limitations on the ownership of cable systems by telephone companies. The
elimination or further relaxation of the restriction, however, could increase
the competition the Company's television stations face from other distributors
of video programming.
FCC LICENSES
Television broadcasting is subject to the jurisdiction of the FCC under
the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC and empowers the FCC, among other
things, to issue, revoke and modify broadcasting licenses, determine the
locations of stations, regulate the equipment used by stations, adopt
regulations to carry out the provisions of the Communications Act and impose
penalties for violation of such regulations. The Telecommunications Act of 1996,
which amends major provisions of the Communications Act, was enacted on February
8, 1996. The FCC has commenced, but not yet completed, implementation of the
provisions of the Telecommunications Act of 1996.
The Communications Act prohibits the assignment of a license or the
transfer of control of a licensee without prior approval of the FCC. In
addition, foreign governments, representatives of foreign governments,
non-citizens, representatives of non-citizens, and corporations or partnerships
organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-citizens, however, may own up to 20% of the capital stock of a
licensee and up to 25% of the capital stock of a United States corporation that,
in turn, owns a controlling interest in a licensee. A broadcast license may not
be granted to or held by any corporation that is controlled, directly or
indirectly, by any other corporation of which more than one-fourth of the
capital stock is owned or voted
8
by non-citizens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations, if the FCC finds that the public
interest will be served by the refusal or revocation of such license. Under the
Telecommunications Act of 1996, non-citizens may serve as officers and directors
of a broadcast licensee and any corporation controlling, directly or indirectly,
such licensee. The Company is restricted by the Communications Act from having
more than one-fourth of its capital stock owned by non-citizens, foreign
governments or foreign corporations, but not from having an officer or director
who is a non-citizen.
Television broadcasting licenses generally are granted and renewed for
a period of eight years, but may be renewed for a shorter period upon a finding
by the FCC that the "public interest, convenience and necessity" would be served
thereby. At the time application is made for renewal of a television license,
parties in interest as well as members of the public may apprise the FCC of the
service the station has provided during the preceding license term and urge the
grant or denial of the application. Under the Telecommunications Act of 1996 as
implemented in the FCC's rules, a competing application for authority to operate
a station and replace the incumbent licensee may not be filed against a renewal
application and considered by the FCC in deciding whether to grant a renewal
application. The statute modified the license renewal process to provide for the
grant of a renewal application upon a finding by the FCC that the licensee (1)
has served the public interest, convenience, and necessity; (2) has committed no
serious violations of the Communications Act or the FCC's rules; and (3) has
committed no other violations of the Communications Act or the FCC's rules which
would constitute a pattern of abuse. If the FCC cannot make such a finding, it
may deny a renewal application, and only then may the FCC accept other
applications to operate the station of the former licensee. In the vast majority
of cases, broadcast licenses are renewed by the FCC even when petitions to deny
are filed against broadcast license renewal applications. All of the Company's
existing licenses are in effect and are subject to renewal at various times
during 2005, 2006 and 2007. Although there can be no assurance that the
Company's licenses will be renewed, the Company is not aware of any facts or
circumstances that would prevent the Company from having its licenses renewed.
FCC regulations govern the multiple ownership of broadcast stations and
other media on a national and local level. The Telecommunications Act of 1996
directs the FCC to eliminate or modify certain rules regarding the multiple
ownership of broadcast stations and other media on a national and local level.
Pursuant to this directive, the FCC has revised its rules to eliminate the limit
on the number of television stations that an individual or entity may own or
control nationally, provided that the audience reach of all television stations
owned does not exceed 35% of all U.S. households. For purposes of this
calculation, stations in the UHF band, which covers channels 14 - 69, are
attributed with only 50% of the households attributed to stations in the VHF
band, which covers channels 2 - 13. Under its recently revised ownership rules,
if an entity has attributable interests in two television stations in the same
market, the FCC will count the audience reach of that market only once for
purposes of applying the national ownership cap.
During 1999, the FCC relaxed its "television duopoly" rule, which
previously barred any entity from having an attributable interest in two
television stations with overlapping service areas. The FCC's new television
duopoly rule permits a party to have attributable interests in two television
stations without regard to signal contour overlap provided the stations are
licensed to separate DMAs, as determined by Nielsen. In addition, the new rule
permits parties to own up to two television stations in the same DMA as long as
at least eight independently owned and operating full-power television stations
remain in the market at the time of acquisition, and at least one of the two
stations is not among the top four ranked stations in the DMA based on specified
audience share measures. Under the FCC's rules, once a company acquires a
television station duopoly, the joint owner is not required to divest either
station if subsequently the number of operating television stations within the
market falls below eight, or if either of the two jointly owned stations is
later ranked among the top four stations in the market. The FCC also may grant a
waiver of the television duopoly rule if one of the two television stations is a
"failed" or "failing" station, if the proposed transaction would result in the
construction of an unbuilt television station or if extraordinary public
interest factors are present. With the changes in the FCC's rule on television
duopolies, the Company's common ownership of KNTV and KBWB is fully consistent
with the Commission's rules.
The FCC also relaxed its "one-to-a-market" rule in 1999, which
restricts the common ownership of television and radio stations in the same
market. One entity may now own up to two television stations and six radio
stations in the same market provided that: (1) 20 independent voices (including
certain newspapers and a single cable system) will remain in the relevant market
following consummation of the proposed transaction, and (2) the proposed
combination is consistent with the television duopoly and local radio ownership
rules. If fewer than 20 but more than 9 independent voices will remain in a
market following a proposed transaction, and the proposed combination is
otherwise consistent with the FCC's rules, a single entity may have attributable
interests in up to two
9
television stations and four radio stations. If neither of these various
"independent voices" tests are met, a party generally may have an attributable
interest in no more than one television station and one radio station in a
market. The FCC's rules restrict the holder of an attributable interest in a
television station from also having an attributable interest in a daily
newspaper or cable television system serving a community located within the
coverage area of that television station.
The FCC also recently eliminated its "cross-interest" policy, which had
prohibited common ownership of an attributable interest in one media outlet and
a "meaningful", non-attributable interest in another media outlet serving
essentially the same market.
As directed by the Telecommunications Act of 1996, the FCC has
eliminated its prior restriction on the common ownership of a cable system and a
television network. Although the statute lifts the prior statutory restriction
on the common ownership of a cable television system and a television station
located in the same geographic market, the FCC is not statutorily required to
eliminate its regulatory restriction on such common ownership. The FCC had
considered eliminating this policy but ultimately decided to retain the rule in
a recent review of its policies. The Telecommunications Act of 1996 authorizes
the FCC to permit the common ownership of multiple television networks under
certain circumstances.
Ownership of television licensees generally is attributed to officers,
directors and shareholders who own 5% or more of the outstanding voting stock of
a licensee, except that certain institutional investors who exert no control or
influence over a licensee may own up to 20% of such outstanding voting stock
before attribution results. Under FCC regulations, debt instruments, non-voting
stock and certain limited partnership interests (provided the licensee certifies
that the limited partners are not "materially involved" in the media-related
activities of the partnership) will not result in attribution. The Commission
recently revised its rules to eliminate the single majority shareholder
exemption from the broadcast attribution rules. However, any minority voting
stock interest in a company with a single majority shareholder will be
grandfathered as non-attributable if he the interest was acquired before
December 14, 2000. Under the FCC's new "equity-debt plus" rule, a party will be
deemed to be attributable if it owns equity (including all stockholdings,
whether voting, non-voting, common or preferred) and debt interests, in the
aggregate, exceeding 33% of the total asset value (including debt and equity) of
the licensee and it either provides 15% of the station's weekly programming or
owns an attributable interest in another broadcast station, cable system or
daily newspaper in the market. The "equity-debt plus" attributable rule will
apply even if there is a grandfathered single majority shareholder. Under the
FCC's multiple and cross-ownership rules, which have been revised in accordance
with the Telecommunications Act of 1996, an officer or director of the Company,
a party attributable under the "equity-debt plus" rule or a holder of the
Company's voting common stock who has an attributable interest in other
broadcast stations, a cable television system or a daily newspaper may violate
the FCC regulations depending on the number and location of the other
broadcasting stations, cable television systems or daily newspapers attributable
to such person. None of the Company's officers, directors or holders of voting
common stock have attributable or non-attributable interests in broadcasting
stations, cable television systems or daily newspapers that violate the FCC's
multiple and cross-ownership rules.
In addition, for purposes of its national and local multiple ownership
rules, the FCC attributes local marketing agreements ("LMAs") that involve more
than 15% of the brokered station's weekly program time. Thus, if an entity owns
one television station in a market and has a qualifying LMA with another station
in the same market, this arrangement must comply with all of the FCC's ownership
rules including the television duopoly rule. LMA arrangements entered into prior
to November 5, 1996 are grandfathered until 2004. LMAs entered into on or after
November 5, 1996 have until approximately August 2001 to come into compliance
with this requirement.
Irrespective of the FCC rules, the Justice Department and the Federal
Trade Commission (together the "Antitrust Agencies") have the authority to
determine that a particular transaction presents antitrust concerns. The
Antitrust Agencies have recently increased their scrutiny of the television and
radio industries, and have indicated their intention to review matters related
to the concentration of ownership within markets (including LMAs) even when the
ownership or LMA in question is permitted under the regulations of the FCC.
There can be no assurance that future policy and rulemaking activities of the
Antitrust Agencies will not impact the Company's operations.
The Telecommunications Act of 1996 authorizes the FCC to issue
additional licenses for digital television ("DTV") services only to Existing
Broadcasters (as defined herein). DTV is a technology that will improve the
technical quality of television service. The Telecommunications Act of 1996
directs the FCC to adopt rules to permit Existing Broadcasters to use their DTV
channels for various purposes, including foreign language, niche, or
10
other specialized programming. The statute also authorizes the FCC to collect
fees from Existing Broadcasters who use their DTV channels to provide services
for which payment is received. See "Digital Television Service."
In accordance with requirements of the Telecommunications Act of 1996,
the FCC has approved a voluntary rating system proposed by the broadcast
industry to identify video programming that contains sexual, violent or such
other material about which parents should be informed prior to viewing by
children. The rating system also indicates the appropriateness of the
programming for children according to age and/or maturity. The rating system
applies to all television programming except news, sports and unedited movies
rated by the Motion Picture Association of America.
In connection with this programming rating system, the FCC also has
established technical requirements of equipping new television receivers with a
device, termed a "V-chip," which will permit parents to block programming with a
common rating designation from their television sets. All new television
receiver models with picture screens 13 inches or greater are required to be
equipped with this "V-chip."
Pursuant to the Balanced Budget Act of 1997, the FCC has adopted
competitive bidding procedures to select among mutually exclusive applications
for licenses for new commercial broadcast stations and major modifications to
existing broadcast facilities.
THE CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT
The Cable Television Consumer Protection and Competition Act of 1992
(the "Cable Act") and the FCC's implementing regulations give television
stations the right to control the use of their signals on cable television
systems. Under the Cable Act, at three year intervals beginning in June 1993,
each television station is required to elect whether it wants to avail itself of
must-carry rights or, alternatively, to grant retransmission consent. If a
television station elects to exercise its authority to grant retransmission
consent, cable systems are required to obtain the consent of that television
station for the use of its signal and could be required to pay the television
station for such use. The Cable Act further requires mandatory cable carriage of
all qualified local television stations electing their must-carry rights or not
exercising their retransmission rights. Under the FCC's rules, television
stations were required to make their election between must-carry and
retransmission consent status by October 1, 1999, for the period from January 1,
2000 through December 31, 2002. Television stations that fail to make an
election by the specified deadline are deemed to have elected must-carry status
for the relevant three year period. For the three year period beginning January
1, 2000, each of the Company's stations has either elected its must-carry
rights, entered into retransmission consent agreements, or obtained an extension
to permit the Company to continue negotiating a retransmission consent agreement
with substantially all cable systems in its DMA. The FCC currently is conducting
a rulemaking proceeding to determine the scope of the cable systems' carriage
obligations with respect to digital broadcast signals during and following the
transition from analog to DTV service.
DIGITAL TELEVISION
The FCC has adopted rules authorizing and implementing DTV service. In
1996, the FCC adopted a transmission standard for DTV, which is consistent with
a consensus agreement voluntarily developed by a broad cross-section of parties,
including the broadcasting, equipment manufacturing and computer industries.
This digital standard should improve the quality of both the audio and video
signals of television stations. The FCC has "set aside" channels within the
existing television spectrum for DTV and limited initial DTV eligibility to
existing television stations and certain applicants for new television stations
("Existing Broadcasters"). The FCC has adopted a DTV table of allotments as well
as service and licensing rules to implement the service. The DTV allotment table
provides a channel for DTV operations for each Existing Broadcaster and is
intended to enable Existing Broadcasters to replicate their existing service
areas. The affiliates of CBS, NBC, ABC and Fox in the ten largest U.S.
television markets were required to initiate commercial DTV service with a
digital signal by May 1, 1999. Affiliates of these networks located in the 11th
through the 30th largest U.S. television markets were required to begin DTV
operation by November 1, 1999. All other commercial stations are required to
begin DTV broadcasts by May 1, 2002. All of the company-owned stations must meet
the May 1, 2002 construction deadline. By 2006, broadcasters will have to
convert to DTV service, terminate their existing analog service and surrender
one of their two television channels to the FCC. This 2006 transition date may
be extended, however, upon the request of a station, in the event that: (i) one
or more of the stations in the station's market that are licensed to or
affiliated with
11
one of the top four largest national television networks are not broadcasting a
digital television signal, and the FCC finds that each such station has
exercised due diligence and satisfies the conditions for an extension of the
applicable construction deadlines for digital television service in that market;
(ii) digital-to-analog converter technology is not generally available in such
market; or (iii) if 85% of television households in a market do not have
television receivers capable of receiving the DTV signals of local stations. The
FCC has begun issuing construction permits for DTV operations to broadcast
licensees. All of the Company's stations have filed applications requesting FCC
authorization to begin construction of DTV facilities. Each station also has
requested FCC consent to maximize its digital facilities and technical
operations. Stations KBWB and KNTV have commenced their digital operations.
Stations KSEE, WKBW and WEEK have received authorization to construct their
respective digital facilities. Applications filed by Stations WTVH, WPTA, KBJR,
and WDWB for digital authority are pending before the FCC.
On January 18, 2001, the FCC adopted rules resolving a number of
technical and legal matters related to cable carriage of digital television
signals. The FCC tentatively concluded that a dual digital and analog cable
carriage requirement may impermissibly burden a cable operator's First Amendment
rights. The FCC therefore initiated a rulemaking proceeding to solicit comments
to determine whether dual carriage is required for a successful transition to
digital television and the extent of harm to cable operators that may be caused
by such a requirement. The FCC also concluded that a digital-only television
station can immediately assert its mandatory rights to carriage on a cable
system and a television station that returns its analog spectrum to the FCC and
converts to digital television operation is entitled to mandatory carriage on
cable systems. The FCC also concluded that a single programming stream (and
other program-related content) is the only digital television programming
entitled to mandatory carriage. The FCC is seeking public comment in the pending
proceeding on the scope of "program-related" content.
In January of 2001, the FCC also reaffirmed the 8-VSB modulation system
of the DTV transmission standard.
Due to additional equipment requirements, implementation of DTV service
will impose substantial additional costs on television stations. It is also
possible that advances in technology may permit Existing Broadcasters to enhance
the picture quality of existing systems without the need to implement DTV
service in a high definition format. The Company will incur significant expense
for DTV conversion and is unable to predict the extent or timing of consumer
demand for any such digital television services.
The FCC has adopted rules that will require the Company to pay a fee of
5% of the gross revenues received from any ancillary or supplemental uses of the
DTV spectrum for which the Company charges subscription fees or other specified
compensation. No fees will be due for commercial advertising revenues received
from free over-the-air broadcasting services. The Commission has initiated a
notice of inquiry to examine whether additional public interest obligations
should be imposed on DTV licensees. The FCC also has initiated a rulemaking
proceeding to examine a number of issues that have arisen as television stations
convert from analog to digital operations, including DTV tower siting, signal
replication and several other matters.
SATELLITE HOME VIEWER IMPROVEMENT ACT
The Satellite Home Viewer Improvement Act ("SHVIA") enables satellite
carriers to provide more television programming to subscribers. Specifically,
SHVIA: (1) provides a statutory copyright license to enable satellite carriers
to retransmit a local television broadcast station into the station's local
market (i.e., provide "local-into-local" service); (2) permits the continued
importation of distant network signals (i.e., network signals that originate
outside of a satellite subscriber's local television market or designated market
areas ("DMA") for certain existing subscribers; (3) provides broadcast stations
with retransmission consent rights in their local markets; and (4) mandates
carriage of broadcast signals in their local markets after a phase-in period.
"Local markets" are defined to include both a station's DMA and its county of
license.
SHVIA requires that, with several exceptions, satellite carriers may
not retransmit the signal of a television broadcast station without the express
authority of the originating station. Such express authorization is not needed,
however, when satellite carriers retransmit a station's signal into its local
market (i.e., provide local-into-local transmissions) prior to May 28, 2000.
This retransmission can occur without the station's consent. Beginning May 29,
2000, however, a satellite carrier must obtain a station's consent before
retransmitting its signal within the local market. Additional exceptions to the
retransmission consent requirement exist for noncommercial stations, certain
superstations and broadcast stations that have asserted their must-carry rights.
12
In addition, SHVIA permits satellite carriers to provide distant or
nationally broadcast programming to subscribers in "unserved" households (i.e.,
households are unserved by a particular network if they do not receive a signal
of at least Grade B intensity from a station affiliated with that network) until
December 31, 2004. However, satellite television providers can retransmit the
distant signals of no more than two stations per day for each television
network.
SHVIA provides for mandatory carriage of television broadcast stations
by satellite carriers, effective January 1, 2002, under certain circumstances.
The FCC recently adopted rules to implement these mandatory carriage provisions.
Effective January 1, 2002, a satellite carrier that retransmits one local
television broadcast station into its local market under a retransmission
consent agreement must carry all television broadcast stations in that same
market upon request. Satellite carriers are not required, however, to carry the
signal of a station that substantially duplicates the programming of another
station in the market, and are not required to carry more than one affiliate of
the same network in a given market unless the television stations are located in
different states.
In addition, SHVIA requires the FCC to adopt rules that extend the
network nonduplication, syndicated exclusivity and sports blackout rules to the
satellite retransmission of nationally distributed superstations. The FCC
adopted rules in November 2000 to implement certain aspects of this Act.
Pursuant to SHVIA, satellite carriers are beginning to offer local broadcast
signals to subscribers in some of the nation's largest television markets. To
date, however, these carriers have concentrated on retransmitting local
broadcast programming offered by Fox, ABC, NBC and CBS affiliates. Satellite
carriers have not yet widely begun to retransmit the signals of stations that
are either affiliated with the WB or other networks outside the top four, or
located in smaller television markets. Since May 29, 2000, satellite carriers
that seek to retransmit the broadcast signals of the Company's stations into the
stations' respective local markets have been required to negotiate the terms of
this retransmission with the Company. In addition, after January 1, 2002, the
Company's stations, especially those located in the larger television markets,
may be permitted to invoke must carry rights to require satellite distribution
of their signals into local markets. At this point, however, the Company cannot
predict when, or how extensively, satellite carriers will seek to retransmit the
signals of the Company's stations, or those of the stations' competitors, into
local markets.
PROPOSED LEGISLATION AND REGULATIONS
The FCC currently has under consideration and the Congress and the FCC
may in the future consider and adopt new or modify existing laws, regulations
and policies regarding a wide variety of matters that could, directly or
indirectly, affect the operation, ownership, and profitability of the Company's
broadcast properties, result in the loss of audience share and advertising
revenues for the Company's stations, and affect the ability of the Company to
acquire additional stations or finance such acquisitions. Such matters include:
(i) spectrum use or other fees on FCC licensees; (ii) matters relating to
minority and female involvement in the broadcasting industry; (iii) rules
relating to political broadcasting and advertising; (iv) technical and frequency
allocation matters; (v) changes to broadcast technical requirements; (vi)
changes to the standards governing the evaluation and regulation of television
programming directed towards children, and violent and indecent programming;
(vii) restrictions on the advertisement of certain alcoholic products; (viii) an
examination of whether the cable must-carry requirement mandates carriage of
both analog and digital television signals; (ix) an examination of legislation
and FCC rules governing the ability of viewers to receive local and distant
television network programming directly via satellite; and (x) an examination of
issues that have arisen during the transition from analog to digital television
service. The Company cannot predict whether such changes will be adopted or, if
adopted, the effect that such changes would have on the business of the Company.
As an example of the above proposed changes, the FCC has a rulemaking
proceeding pending where it seeks comment on whether it should relax attribution
and other rules to facilitate greater minority and female ownership. This
proceeding currently is being held in abeyance due to uncertainty created by a
1995 Supreme Court decision, which narrowed the legal basis for affirmative
action programs. The Telecommunications Act of 1996 requires the FCC to review
the broadcast ownership rules every two years and to repeal or modify any rules
that are determined to no longer be in the public interest.
The FCC also has initiated a notice of inquiry proceeding seeking
comment on whether the public interest would be served by establishing limits on
the amount of commercial matter broadcast by television stations. No prediction
can be made at this time as to whether the FCC will impose any limits on
commercials at the conclusion of its deliberation. The imposition of limits on
the commercial matter broadcast by television stations may have an adverse
effect on the Company's revenues.
13
On November 29, 1999, Congress enacted the Community Broadcasters
Protection Act, which created a new "Class A" status for low power television
stations. Under this new statute, certain LPTV stations which previously had
secondary status to full power television stations, are eligible for "Class A"
status and are entitled to protection from future displacement by full-power
television stations under certain circumstances. The FCC has adopted rules
governing the extent of interference protection that must be afforded to Class A
stations and the eligibility criteria for these stations. Since Class A stations
are required to provide interference protection to full-power television
stations, these new facilities are not expected to adversely affect the
operations of the Company's television stations.
Legislation may be introduced in the U.S. Congress to provide a tax
deferral on gains made from the sale of telecommunications businesses in
specific circumstances. This tax deferral is designed to promote greater
diversity in the ownership of telecommunications businesses. The Company, at the
present time, cannot predict how this legislation will affect its operations, if
adopted.
SEASONALITY
The Company's operating revenues are generally lower in the first
calendar quarter and generally higher in the fourth calendar quarter than in the
other two quarters, due in part to increases in retail advertising in the fall
months in preparation for the holiday season, and in election years due to
increased political advertising.
EMPLOYEES
The Company and its subsidiaries currently employ approximately 900
persons, of whom approximately 270 are represented by three unions pursuant to
agreements expiring in 2001, 2002 and 2004 at the Company's stations. The
Company believes its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in New York, New
York. The lease agreement, for approximately 9,500 square feet of office space
in New York, expires January 31, 2011.
The types of properties required to support each of the Company's
stations include offices, studios, transmitter sites and antenna sites. A
station's studios are generally housed with its offices in downtown or business
districts. The transmitter sites and antenna sites are generally located so as
to provide maximum market coverage.
The following table contains certain information describing the general
character of the Company's properties:
14
METROPOLITAN OWNED OR EXPIRATION
STATION AREA AND USE LEASED APPROXIMATE SIZE OF LEASE
- ------- ------------- ---------- ---------------- ----------
KNTV SAN JOSE, CALIFORNIA
Office and Studio Owned 26,469 sq. feet -
Tower Site Leased 2,080 sq. feet 9/30/02
Low Power Transmission Site Leased 100 sq. feet (1)
WTVH SYRACUSE, NEW YORK
Office and Studio Owned 41,500 sq. feet -
ONONDAGA, NEW YORK
Tower Site Owned 2,300 sq. feet -
KSEE FRESNO, CALIFORNIA
Office and Studio Owned 32,000 sq. feet -
Bear Mountain, FRESNO
COUNTY, CALIFORNIA
Tower Site Leased 9,300 sq. feet 3/22/51
WPTA FORT WAYNE, INDIANA
Office, Studio and Tower Site Owned 18,240 sq. feet -
WEEK PEORIA, ILLINOIS
Office, Studio and Tower Site Owned 20,000 sq. feet -
KBJR DULUTH, MINNESOTA, SUPERIOR, WISCONSIN
Office and Studio Owned 20,000 sq. feet -
Tower Site Owned 3,300 sq. feet -
KBWB SAN FRANCISCO, CALIFORNIA
Office and Studio Leased 25,777 sq. feet 8/31/02
Tower Site Leased 2,750 sq. feet 2/28/05
WKBW BUFFALO, NEW YORK
Office and Studio Owned 32,000 sq. feet -
COLDEN, NEW YORK
Tower Site Owned 3,406 sq. feet -
WDWB SOUTHFIELD, MICHIGAN
Office Leased 8,850 sq. feet (1)
Studio and Tower Site Leased(2) 30,000 sq. feet 9/30/06
- -----------
(1) This lease is in effect on a month-to-month basis.
(2) The Company owns a 3,400 square foot building on the property.
15
ITEM 3. LEGAL PROCEEDINGS
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 1, 2000, the holders of all of the Company's Voting Common Stock, par
value $.01 per share, adopted resolutions by unanimous written consent in lieu
of a special meeting amending the Company's Bylaws (a copy of the amended and
restated bylaws is filed as exhibit 3.2 hereto) and electing Veronica Pollard a
director of the Company.
On February 11, 2000, the holders of all of the Company's Voting Common Stock
adopted resolutions by unanimous written consent in lieu of a special meeting
authorizing the Company to issue to NBC (i) a warrant to acquire 2,500,000
shares of Common Stock (Nonvoting) of the Company at an exercise price of $12.50
per share, exercisable at any time on or after December 31, 2000 until the
twelfth anniversary of the date of grant, and (ii) a warrant to acquire
2,000,000 shares of Common Stock (Nonvoting) of the Company at an exercise price
of $15.00 per share, exercisable at any time on or after January 1, 2002 until
the twelfth anniversary of the date of grant.
On May 17, 2000, the holders of all of the Company's Voting Common Stock adopted
resolutions by unanimous written consent in lieu of an annual meeting (i)
appointing Ernst & Young LLP as independent auditors of the Company (ii)
electing W. Don Cornwell, Stuart J. Beck, James L. Greenwald, Martin F. Beck,
Edward Dugger III, Thomas R. Settle, Charles J. Hamilton, Jr., Robert E. Selwyn,
Jr., Jon E. Barfield, Milton Frederick Brown and Veronica Pollard as directors
of the Company and (iii) approving the Company's 2000 Stock Option Plan (a copy
of the 2000 Stock Option Plan was filed as exhibit 10.46 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, as filed on
May 15, 2000).
On December 31, 2000, the holders of all of the Company's Voting Common Stock
adopted resolutions by unanimous written consent in lieu of a special meeting
amending the Granite Broadcasting Corporation Non-Employee Director's Stock
Plan (a copy of the Non-Employee Director's Stock Plan, as amended through
December 31, 2000, is filed as exhibit 10.31 hereto).
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock (Nonvoting) is traded over-the-counter on
the NASDAQ National Market under the symbol GBTVK. As of March 1, 2001, the
approximate number of record holders of Common Stock (Nonvoting) was 176.
The range of high and low prices for the Common Stock (Nonvoting) for
each full quarterly period during 1999 and 2000 is set forth in Note 16 to the
Consolidated Financial Statements in Item 8 hereof. At March 23, 2001, the
closing price of the Common Stock (Nonvoting) was $2.844 per share.
On March 16, 2001, the Company had an oral hearing before the Nasdaq
Listing Qualifications Panel (the "Panel") to discuss the continued listing of
the Company's Common Stock (Nonvoting) on the Nasdaq National Market. The
Company is awaiting the decision of the Panel.
There is no established public trading market for the Company's Class A
Voting Common Stock, par value $.01 per share (the "Voting Common Stock;" the
Voting Common Stock and the Common Stock (Nonvoting) are referred to herein
collectively as the "Common Stock"). As of March 23, 2001, the number of record
holders of Voting Common Stock was 2.
The Company has never declared or paid a cash dividend on its Common
Stock and does not anticipate paying a dividend on its Common Stock in the
foreseeable future. The payment of cash dividends on Common Stock (Nonvoting)
is subject to certain limitations under the Indentures governing the
Company's 10 3/8% Senior Subordinated Notes due May 15, 2005, 9 3/8% Senior
Subordinated Notes due December 1, 2005 and the 8 7/8% Senior Subordinated
Notes due May 15, 2008. The payment of cash dividends is prohibited under the
Company's Credit Agreement. The Company is also prohibited from paying
dividends on any Common Stock until all accrued but unpaid dividends on the
Company's Series A Convertible Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), are paid in full. All outstanding shares of
Series A Preferred Stock were converted into Common Stock (Nonvoting) in
August 1995. Accrued dividends on the Series A Preferred Stock, which totaled
$262,844 at December 31, 2000, are payable on the date on which such
dividends may be paid under the Company's existing debt instruments.
17
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with the
consolidated financial statements and notes thereto included at Item 8 herein.
The selected consolidated financial data has been derived from the Company's
audited Consolidated Financial Statements.
The acquisitions by the Company of its operating properties during the
periods reflected in the following selected financial data materially affect the
comparability of such data from one period to another.
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1996 1997 1998 1999 2000
---------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenue................................... $129,164 $153,512 $161,104 $149,847 $140,070
Station operating expenses.................... 72,089 83,729 89,812 92,874 102,680
Time brokerage agreement fees................. 150 600 428 -- --
Write-off of film contract rights............. -- -- -- -- 1,716
Depreciation.................................. 6,144 5,718 5,388 5,455 5,725
Amortization of intangible assets............. 9,737 13,824 18,493 26,667 26,865
Corporate expense............................. 4,800 6,639 8,179 8,862 10,392
Non-cash compensation......................... 496 986 977 935 1,974
-------- -------- ------- ------- ---------
Operating income (loss)....................... 35,748 42,016 37,827 15,054 (9,282)
Other expenses................................ 1,034 1,167 1,381 1,616 2,079
Equity in net loss of investee................ 995 1,531 973 254 --
Gain on sale of assets........................ -- -- (57,776) (101,292) --
Gain from insurance claim..................... -- -- (2,159) (4,079) (1,247)
Interest expense, net......................... 36,765 38,986 38,896 36,352 28,975
Non-cash interest expense..................... 2,087 2,182 2,095 3,115 3,008
-------- -------- ------- ------- ---------
(Loss) income before taxes and extraordinary item (5,133) (1,850) 54,417 79,088 (42,097)
(Provision) benefit for income taxes.......... (761) (1,616) (10,250) (31,574) 10,878
-------- -------- ------- ------- ---------
(Loss) income before extraordinary item...... (5,894) (3,466) 44,167 47,514 (31,219)
Extraordinary (loss) gain, net of tax ........ (2,891) (5,569) (1,761) (385) 3,710
-------- -------- ------- ------- ---------
Net (loss) income............................. $ (8,785) $(9,035) $42,406 $ 47,129 $ (27,509)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Net (loss) income attributable to common
shareholders................................. $(12,310) $ (31,207) $16,896 $ 19,912 $ (56,345)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
PER COMMON SHARE:
Basic (loss) income before extraordinary item $ (1.09) $ (2.93) $ 1.80 $ 1.46 $ (3.30)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Basic net (loss) income.................... $ (1.43) $ (3.57) $ 1.63 $ 1.43 $ (3.10)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Weighted average common shares outstanding. 8,612 8,765 10,358 13,969 18,203
Net (loss) income attributable to common
shareholders - assuming dilution............ $ (12,310) $ (31,207) $19,776 $ 21,588 $ (56,345)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
PER COMMON SHARE:
Diluted (loss) income before extraordinary
item...................................... $ (1.09) $ (2.93) $ 1.27 $ 1.16 $ (3.30)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Diluted net (loss) income ................ $ (1.43) $(3.57) $ 1.17 $ 1.14 $ (3.10)
-------- -------- ------- ------- ---------
-------- -------- ------- ------- ---------
Weighted average common share outstanding -
Assuming dilution........................ 8,612 8,765 16,967 19,012 18,203
AS OF DECEMBER 31,
--------------------------------------------------------------
SELECTED BALANCE SHEET DATA: 1996 1997 1998 1999 2000
------------ -------- ---------- ----------- ---------
Total assets.................................. $452,563 $633,614 $781,974 $730,591 $732,091
Total debt.................................... 351,561 392,779 426,399 303,874 311,391
Redeemable preferred stock.................... 45,488 207,700 216,351 210,709 239,545
Stockholders' (deficit) equity................ (3,135) (33,257) (1,470) 50,084 7,816
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain sections of this Form 10-K, including "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain various "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, which represent the
Company's expectations or beliefs concerning future events. The "forward-looking
statements" include, without limitation, the renewal of the Company's FCC
licenses and the Company's ability to meet its future liquidity needs. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
"forward-looking statements". Such factors include, without limitation, general
economic conditions, competition in the markets in which the Company's stations
are located, technological change and innovation in the broadcasting industry
and proposed legislation.
INTRODUCTION
Comparisons of the Company's consolidated financial statements between
the years ended December 31, 1999 and 1998 have been affected by the acquisition
of KBWB, which occurred on July 20, 1998, the sale of WWMT, which occurred on
July 15, 1998, the sale of WLAJ, which occurred on August 17, 1998, the sale of
WEEK-FM, which occurred on July 30, 1999, and the sale of KEYE, which occurred
on August 31, 1999.
Comparisons of the Company's consolidated financial statements between
the years ended December 31, 2000 and 1999 have been affected by the termination
of the ABC affiliation agreement at KNTV on July 1, 2000, significant increases
in news expense at KNTV as it prepares to become the NBC affiliate for the San
Francisco-Oakland-San Jose market on January 1, 2002 and investments in
syndicated programs at the Company's WB affiliates. The Company anticipates that
comparisons of the Company's consolidated financial statements between the years
ended December 31, 2001 and 2000 will continue to be impacted by increases in
news and promotion expense at KNTV and continued investment in programming at
the WB affiliates.
The Company's revenues are derived principally from local and national
advertising and, to a lesser extent, from network compensation for the broadcast
of programming and revenues from studio rental and commercial production
activities. The primary operating expenses involved in owning and operating
television stations are employee salaries, depreciation and amortization,
programming and advertising and promotion. Amounts referred to in the following
discussion have been rounded to the nearest thousand.
The following table sets forth certain operating data for the three
years ended December 31, 1998, 1999 and 2000:
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1999 2000
---- ---- ----
Operating income (loss)................. $ 37,827,000 $ 15,054,000 $(9,282,000)
Time brokerage agreement fees........... 428,000 -- --
Write-off of film contract rights........ -- -- 1,716,000
Depreciation and amortization........... 23,881,000 32,122,000 32,590,000
Corporate expense....................... 8,179,000 8,862,000 10,392,000
Non-cash compensation................... 978,000 935,000 1,974,000
Program amortization.................... 11,149,000 15,245,000 22,791,000
Program payments........................ (11,747,000) (15,429,000) (20,565,000)
------------- ----------- -----------
Broadcast cash flow..................... $ 70,695,000 $ 56,789,000 $39,616,000
=========== =========== ===========
"Broadcast cash flow" means operating income plus time brokerage
agreement fees, film write-offs, depreciation, amortization, corporate expense,
non-cash compensation and program amortization, less program payments. The
Company has included broadcast cash flow data because such data is commonly used
as a measure of performance for broadcast companies and is also used by
investors to measure a company's ability to service
19
debt. Broadcast cash flow is not, and should not be used as an indicator or
alternative to operating income, net loss or cash flow as reflected in the
consolidated financial statements, is not a measure of financial performance
under generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles.
YEARS ENDED DECEMBER 31, 2000 AND 1999
Net revenue for the year ended December 31, 2000 totaled $140,070,000;
a decrease of $9,777,000 or 7 percent compared to $149,847,000 for the twelve
months ended December 31, 1999. The decrease was primarily due to reduced
revenue of $10,352,000 resulting from the sale of the Austin station in August
1999 and a decline in non-political local and national revenue of $2,060,000 and
$4,535,000, respectively, offset, in part, by an increase of $8,092,000 in
political advertising revenue.
Station operating expenses totaled $102,680,000, an increase of
$9,806,000 or 11 percent compared to $92,874,000 for the twelve months ended
December 31, 1999. The increase was primarily due to an increase in programming
expense of $7,779,000 at the WB affiliates, an increase in news expense of
$4,024,000 at KNTV and an increase in general and administrative expenses of
$1,352,000 driven by increases in bad debt reserves. These increases were
offset, in part, by decreased operating expenses of $5,549,000 resulting from
the sale of the Austin station in August 1999.
Programming expenses were also impacted by the transformation of KNTV.
Nielsen Media Research reassigned KNTV from the Monterey/Salinas, California
designated market area ("DMA"), the 118th largest, to the San
Francisco-Oakland-San Jose, California DMA, the 5th largest, effective September
1, 2000. In connection with this change, KNTV is no longer able to broadcast
certain syndicated programs that are already licensed to other stations in the
San Francisco-Oakland-San Jose, California DMA. Consequently, the Company took a
one-time charge and wrote-off the book value of these programs totaling
$1,716,000.
Corporate expense totaled $10,392,000; an increase of $1,530,000 or 17
percent compared to $8,862,000 for the twelve months ended December 31, 1999.
The increase was primarily due to an increase in professional fees, most of
which are of a non-recurring nature.
Non-cash compensation expense totaled $1,974,000; an increase of
$1,039,000 or 111 percent compared to $935,000 for the twelve months ended
December 31, 1999. The increase was primarily due to a one time charge of
earnings resulting from the recission of certain stock options exercised.
Net interest expense totaled $28,975,000; a decrease of $7,377,000 or
20 percent compared to $36,352,000 for the twelve months ended December 31,
1999. The decrease was primarily due to the use of a portion of the net proceeds
from the sale of the Austin station in August 1999 to reduce outstanding
indebtedness. In addition, during the first six months of 2000 the Company used
bank borrowings to repurchase $89,338,000 face amount of its subordinated notes
at various discounts, further reducing its debt outstanding. In connection with
these repurchases during 2000, the Company recognized an extraordinary gain
after the write-off of related deferred financing fees, net of tax, of
$3,710,000.
The gain on the sale of assets of $101,292,000 in 1999 resulted from
the sale of the Austin station.
The Company reported a loss before extraordinary item of $42,097,000
for the year ended December 31, 2000. The Company recorded a current tax benefit
relating to taxable losses, which will be carried back to prior years resulting
in a tax refund. The provision also includes a current state tax provision of
$2,801,000 and $4,937,000 of deferred taxes.
The Company sustained severe damage to certain assets in Duluth,
Minnesota as a result of a fire that occurred in 1997 and an ice storm that
occurred in 1999. The Company wrote-off the book balances of the destroyed
assets and received insurance proceeds for replacement assets during 1999,
resulting in a gain of $4,079,000. Additional insurance proceeds were received
in 2000 resulting in a gain of $1,247,000.
YEARS ENDED DECEMBER 31, 1999 AND 1998
20
Net revenue for the year ended December 31, 1999 totaled $149,847,000;
a decrease of $11,257,000 or 7% as compared to $161,104,000 for the year ended
December 31, 1998. The decrease was primarily due to the loss of political
advertising in a non-election year as well as the loss of Olympic-related
advertising revenue at the Company's CBS affiliated stations. The decrease was
also due to the loss of revenue from the disposition of WWMT and WLAJ in the
third quarter of 1998 and the disposition of KEYE in August of 1999, offset, in
part, by the added revenues from the acquisition of KBWB in the third quarter of
1998 and strong revenue growth at the Company's WB affiliates.
Station operating expenses for the year ended December 31, 1999 totaled
$92,874,000; an increase of $3,062,000 or 3% as compared to $89,812,000 for the
year ended December 31, 1998. The increase was primarily due to increases in
programming and promotion expense at the Company's WB affiliates and in news
expense at the Company's San Francisco duopoly. These increases were offset, in
part, by an overall reduction in expenses resulting from the acquisition and
dispositions.
Amortization increased $8,173,000 or 44% for the twelve months ended
December 31, 1999 as compared to the prior year primarily due to additional
intangible amortization expense associated with the acquisition of KBWB.
Corporate expense increased $682,000, or 8% during the year ended December 31,
1998 compared to the same period a year earlier, primarily due to the expansion
of the Company's Internet business.
The equity in net loss of investee of $254,000 and $973,000 for the
years ended December 31, 1999 and 1998, respectively, resulted from the Company
recognizing its pro rata share of the losses of Datacast, LLC under the equity
method of accounting. The Company has written off its entire investment and no
other charges will be incurred.
Net interest expense decreased $2,543,000 or 7% primarily due to lower
levels of outstanding indebtedness. The Company used the net proceeds from the
sale of KEYE to repay a total of $129,000,000 of debt.
Non-cash interest expense increased $1,020,000 or 49% due to the
amortization of imputed interest on the Company's obligations to the WB.
The net gain on asset dispositions of $101,292,000 for the year ended
December 31, 1999 resulted primarily from the sale of KEYE in August 1999. The
net gain on asset dispositions of $57,776,000 for the year ended December 31,
1998 resulted primarily from the sale of WWMT in August 1998.
The gain on insurance settlement resulted from insurance proceeds (the
"KBJR Insurance Proceeds") the Company received in excess of the net book value
of assets that were destroyed in a fire and, separately, in an ice storm, at
that station.
The Company reported income before taxes and extraordinary item of
$79,089,000 for the year ended December 31, 1999. The Company partially offset
this income with its remaining available net operating loss carryforwards. The
provision for income taxes for the year consists of $25,508,000 of current
federal and state taxes and $5,809,000 of deferred taxes.
During 1999, the Company repurchased $59,255,000 face amount of its
subordinated notes at various repurchase prices. In connection with the
repurchases, the Company incurred an extraordinary loss after the write-off of
related deferred financing fees, net of tax, of $385,000.
LIQUIDITY AND CAPITAL RESOURCES
On March 6, 2001, the Company entered into an amended and restated
$205,000,000 Senior Credit Agreement (the "Credit Agreement"). The Credit
Agreement consists of a $110,000,000 Tranche A term loan and a $95,000,000
Tranche B term loan. The proceeds from the Credit Agreement were used (i) to
repay all outstanding borrowings under the Company's existing senior revolving
credit facility, (ii) to prepay the first installment under the KNTV NBC
affiliation agreement, (iii) to pay certain fees and expenses associated with
the Credit Agreement and
21
(iv) for general working capital purposes. The Tranche A and Tranche B term
loans bear interest annually at the greater of LIBOR plus 5.50% or 12%, which
is payable monthly. In addition, the Tranche B term loan accrues simple
deferred interest at an annual rate of 6% which is payable when the Credit
Agreement matures on December 31, 2003. The Credit Agreement requires the
Company to maintain compliance with certain financial tests, including but
not limited to, minimum net revenue, broadcast cash flow, EBITDA and a
maximum ratio of senior debt to EBITDA. Other provisions place limitations on
payments for capital expenditures and prohibits the incurrence of additional
debt, the purchase of the Company's stock, the repurchase of subordinated
debt and the declaration and payment of cash dividends. As of March 23, 2001,
the Company had approximately $62,000,000 of cash on hand, of which
$17,500,000 is reserved for interest payments on the Tranche B term loan.
On May 31, 2000, the Company entered into a series of definitive
agreements with NBC for KNTV to become the NBC affiliate for the San
Francisco-Oakland-San Jose, California television market for a ten-year
period commencing January 1, 2002 (the "San Francisco Affiliation"). In
consideration for the San Francisco Affiliation, the Company was to pay
$362,000,000 in nine annual installments, with the initial payment in the
amount of $61,000,000 due on January 1, 2002. On March 6, 2001, the San
Francisco Affiliation was amended to reduce the January 1, 2002 installment
to $30,500,000 and defer the remaining $30,500,000 of the original initial
payment until January 1, 2005. After giving effect to these changes, the
present value of the new payment schedule is substantially unchanged from the
original terms. The Company prepaid the January 1, 2002 installment on March
6, 2001 by paying $27,778,694, which represents the present value of that
installment discounted at 12%. The next payment due NBC is on January 1, 2003
in the amount of $37,160,000. The Company will pay, excluding the prepayment,
$342,480,000 in eight annual installments. NBC has the right to terminate the
San Francisco Affiliation if it elects to acquire an attributable interest in
another station in the San Francisco-Oakland-San Jose market upon a payment
to the Company of at least $14,500,000.
The Company has generated significant losses for federal income tax
purposes during the year ended December 31, 2000. The Company anticipates that
it will carry back these losses to recover approximately $19,400,000 in federal
income taxes paid in 1999. The Company expects to receive this refund during the
third quarter of 2001.
Net cash provided by operating activities was $1,191,000 during the
year ended December 31, 2000 compared to net cash used in operating activities
of $26,801,000 during the year ended December 31, 1999. The change from 1999 to
2000 was primarily the result of a decrease in net operating assets and
decreased cash interest payments, offset by a decrease in operating cash flow.
Net cash used in investing activities was $12,484,000 during the year
ended December 31, 2000 compared to net cash provided by investing activities of
$156,721,000 during the year ended December 31, 1999. The change from 1999 to
2000 was primarily the result of the disposition of KEYE during 1999, decreased
insurance proceeds received and decreased capital expenditures.
Net cash provided by financing activities was $15,049,000 during the
year ended December 31, 2000 compared to net cash used in financing activities
of $125,228,000 during the year ended December 31, 1999. The change from 1999 to
2000 primarily resulted from a decrease in the amount of debt repaid.
The Company expects to spend approximately $10,000,000 in 2001 and
$18,000,000 in 2002 in capital expenditures, of which a total of approximately
$13,500,000 is associated with the implementation of digital technology.
The Company believes that internally generated funds from
operations, cash on hand and expected proceeds from the income tax refund
will be sufficient to satisfy the Company's cash requirements for its
existing operations for the next twelve months and for the foreseeable future
thereafter.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
22
The Company's earnings may be affected by changes in short-term
interest rates as a result of its new Credit Agreement. Under the Credit
Agreement, the Company pays interest at the greater of LIBOR plus 5.50% or
12%, currently 12%. As of March 23, 2001, LIBOR was 4.88%. The Company has
not entered into any agreements to hedge such risk. A 2% increase in the
LIBOR rate would increase interest expense on an annual basis by $779,000.
This analysis does not consider the effects of the reduced level of overall
economic activity that could exist in such environment.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Granite Broadcasting Corporation
We have audited the accompanying consolidated balance sheets of Granite
Broadcasting Corporation as of December 31, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2000. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and the schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Granite
Broadcasting Corporation at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 6, 2001
24
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998 1999 2000
---- ---- ----
Net revenue............................................... $161,104,371 $149,846,955 $140,070,247
Station operating expenses................................ 89,811,723 92,874,454 102,679,873
Time brokerage agreement fees............................. 427,810 -- --
Write-off of film contract rights......................... -- -- 1,716,535
Depreciation.............................................. 5,387,800 5,454,819 5,724,629
Amortization of intangible assets......................... 18,493,235 26,666,719 26,864,596
Corporate expense......................................... 8,179,232 8,861,640 10,392,365
Non-cash compensation expense............................. 977,502 935,142 1,974,292
---------- ---------- ----------
Operating income (loss)................................. 37,827,069 15,054,181 (9,282,043)
Other (income) expenses:
Equity in net loss of investee.......................... 973,439 253,603 --
Interest expense, net................................... 38,895,358 36,351,950 28,975,404
Non-cash interest expense............................... 2,095,115 3,114,890 3,007,570
Gain on sale of assets.................................. (57,775,928) (101,291,854) --
Gain from insurance claim............................... (2,158,961) (4,079,207) (1,247,105)
Other................................................... 1,381,443 1,616,072 2,079,328
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item.................................... 54,416,603 79,088,727 (42,097,240)
Provision (benefit) for income taxes.................... 10,250,000 31,574,238 (10,877,911)
---------- ---------- ----------
Income (loss) before extraordinary item................... 44,166,603 47,514,489 (31,219,329)
Extraordinary (loss) gain, net of tax benefit of $256,655
in 1999 and net of tax expense of $2,473,470 in 2000.... (1,761,002) (384,983) 3,710,204
---------- ---------- ----------
Net income (loss)..................................... $ 42,405,601 $ 47,129,506 $(27,509,125)
============ ============ =============
Net income (loss) attributable to common shareholders..... $ 16,895,727 $ 19,912,092 $(56,345,128)
============ ============ =============
Per common share:
Basic income (loss) before extraordinary item....... $ 1.80 $ 1.46 $ (3.30)
Basic extraordinary (loss) gain..................... (0.17) (0.03) 0.20
---------- ---------- ----------
Basic net income (loss)........................... $ 1.63 $ 1.43 $ (3.10)
=========== =========== =============
Weighted average common shares outstanding................ 10,358,371 13,968,611 18,203,498
Net income (loss) attributable to common shareholders -
assuming dilution....................................... $19,775,599 $21,588,040 $(56,345,128)
=========== =========== =============
Per common share:
Diluted income (loss) before extraordinary item..... $ 1.27 $ 1.16 $ (3.30)
Diluted extraordinary (loss) gain................... (0.10) (0.02) 0.20
---------- ---------- ----------
Diluted net income (loss) .......................... $ 1.17 $ 1.14 $ (3.10)
=========== =========== =============
Weighted average common shares outstanding -
assuming dilution....................................... 16,966,501 19,011,795 18,203,498
See accompanying notes.
25
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
ASSETS 1999 2000
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 5,453,542 $ 9,209,249
Accounts receivable, less allowance for doubtful accounts
($430,360 in 1999 and $648,862 in 2000) ............................... 33,017,344 28,773,620
Film contract rights..................................................... 17,510,909 17,835,745
Other current assets..................................................... 10,399,749 29,719,328
------------ ------------
TOTAL CURRENT ASSETS............................................. 66,381,544 85,537,942
PROPERTY AND EQUIPMENT, NET................................................ 39,176,169 42,682,736
FILM CONTRACT RIGHTS....................................................... 11,125,490 8,513,655
OTHER NONCURRENT ASSETS.................................................... 3,142,422 15,343,241
DEFFERED FINANCING FEES, less accumulated amortization 8,209,537 5,027,846
($5,011,922 in 1999 and $5,772,069 in 2000) .............................
INTANGIBLE ASSETS, NET..................................................... 602,555,693 574,986,006
------------ ------------
$730,590,855 $732,091,426
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable......................................................... $ 3,120,875 $ 3,744,779
Accrued interest......................................................... 3,487,384 2,903,984
Other accrued liabilities................................................ 7,779,475 3,050,888
Film contract rights payable............................................. 22,049,869 25,504,608
Other current liabilities................................................ 6,473,693 5,085,295
---------- ----------
TOTAL CURRENT LIABILITIES 42,911,296 40,289,554
LONG-TERM DEBT............................................................. 303,874,304 311,390,914
FILM CONTRACT RIGHTS PAYABLE............................................... 18,000,393 16,582,412
DEFERRED TAX LIABILITY..................................................... 84,117,915 96,624,452
OTHER NONCURRENT LIABILITIES............................................... 20,894,010 19,843,495
REDEEMABLE PREFERRED STOCK................................................. 210,708,780 239,544,783
STOCKHOLDERS' EQUITY:
Common stock: 41,000,000 shares authorized consisting of 1,000,000
shares of Class A Common Stock, $.01 par value, and 40,000,000
shares of Common Stock (Nonvoting), $.01 par value; 178,500 shares
of Class A Common Stock and 18,030,811 shares of Common Stock
(Nonvoting) (17,964,081 shares at December 31, 1999) issued and
outstanding.........................................................
181,425 182,093
Additional paid-in capital............................................... 17,909,802 2,295,136
Retained earnings........................................................ 35,123,239 7,614,114
Less:
Unearned compensation.................................................. (1,946,434) (1,091,653)
Treasury stock, at cost................................................ (297,000) (297,000)
Note receivable from officer........................................... (886,875) (886,875)
---------- ----------
Total stockholder's EQUITY............................................. 50,084,157 7,815,815
---------- ----------
$730,590,855 $732,091,426
---------- ----------
---------- ----------
See accompanying notes
26
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1998, 1999 and 2000
(ACCUMULATED
CLASS A COMMON ADDITIONAL DEFICIT)
COMMON STOCK STOCK (NONVOTING) PAID-IN CAPITAL RETAINED EARNINGS
------------ ------------------ ---------------- ------------------
Balance as of December 31, 1997 1785 $86,761 $24,529,712 $(54,411,868)
Dividends on redeemable preferred stock (25,009,726)
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock (500,148)
Exercise of stock options 201 159,455
Conversion of redeemable preferred stock
into Common Stock (Nonvoting) 27,958 13,951,142
Issuance of Common Stock (Nonvoting) 1,160 (1,160)
Grant of stock award under stock plans 1,329,278
Stock expense related to stock plans (225,428)
Net income 42,405,601
------- ------- ----------- -------------
Balance at December 31, 1998 1,785 116,080 14,233,125 (12,006,267)
Dividends on redeemable preferred stock (26,717,267)
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock (500,148)
Exercise of stock options 260 97,930
Conversion of convertible preferred stock
into Common Stock (Nonvoting) 62,367 31,121,033
Issuance of Common Stock (Nonvoting) 933 (933)
Repurchase of Common Stock
Grant of stock award under stock plans 568
Stock expense related to stock plans (324,506)
Net income 47,129,506
------- ------- ----------- -------------
Balance at December 31, 1999 1,785 179,640 17,909,802 35,123,239
Dividends on redeemable preferred stock (28,335,855)
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock (500,148)
Exercise of stock options 15 (971,464)
Issuance of Common Stock (Nonvoting) 653 (653)
Rescission of stock options exercised 2,172,852
Issuance of warrants 12,149,840
Stock expense related to stock plans (129,238)
Net loss (27,509,125)
------- ------- ----------- -------------
Balance at December 31, 2000 $1,785 $180,308 $2,295,136 $ 7,614,114
------- ------- ----------- -------------
------- ------- ----------- -------------
NOTE TOTAL
UNEARNED RECEIVABLE TREASURY STOCKHOLDERS'
COMPENSATION FROM OFFICER STOCK EQUITY (DEFICIT)
------------ ------------ ----- ----------------
Balance as of December 31, 1997 (2,529,232) (886,875) (47,000) (33,256,717)
Dividends on redeemable preferred stock (25,009,726)
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock (500,148)
Exercise of stock options 159,656
Conversion of redeemable preferred stock
into Common Stock (Nonvoting) 13,979,100
Issuance of Common Stock (Nonvoting)
Grant of stock award under stock plans (1,329,278)
Stock expense related to stock plans 977,502 752,074
Net income 42,405,601
----------- --------- -------- ------------
Balance at December 31, 1998 (2,881,008) (886,875) (47,000) (1,470,160)
Dividends on redeemable preferred stock (26,717,267)
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock (500,148)
Exercise of stock options 98,190
Conversion of convertible preferred stock
into Common Stock (Nonvoting) 31,183,400
Issuance of Common Stock (Nonvoting)
Repurchase of Common Stock (250,000) (250,000)
Grant of stock award under stock plans (568)
Stock expense related to stock plans 935,142 610,636
Net income 47,129,506
----------- --------- -------- ------------
Balance at December 31, 1999 (1,946,434) (886,875) (297,000) 50,084,157
Dividends on redeemable preferred stock (28,335,855)
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock (500,148)
Exercise of stock options (971,449)
Issuance of Common Stock (Nonvoting)
Rescission of stock options exercised 2,172,852
Issuance of warrants 12,149,840
Stock expense related to stock plans 854,781 725,543
Net loss (27,509,125)
----------- --------- -------- ------------
Balance at December 31, 2000 $(1,091,653) $(886,875) $(297,000) $ 7,815,815
----------- --------- -------- -----------
----------- --------- -------- -----------
See accompanying notes.
27
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1999 2000
---- ---- ----
Cash flows from operating activities:
Net income (loss).................................................... $ 42,405,601 $ 47,129,506 $ (27,509,125)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary loss (gain) ......................................... 2,711,002 641,638 (6,183,674)
Amortization of intangible assets.................................. 18,493,235 26,666,719 26,864,596
Depreciation....................................................... 5,387,800 5,454,819 5,724,629
Non-cash compensation expense...................................... 977,502 935,142 1,974,292
Non-cash interest expense.......................................... 2,095,115 3,114,890 3,007,570
Deferred income taxes.............................................. 7,610,728 5,809,000 4,937,000
Equity in net loss of investee.................................... 973,439 253,603 --
Gain on sale of stations........................................... (57,775,928) (101,291,854) --
Gain from insurance proceeds over net book value lost.............. (2,158,961) (4,079,207) (1,247,105)
Change in assets and liabilities net of effects from acquisitions or
dispositions of stations:
Decrease (increase) in accounts receivable......................... 2,478,237 (187,117) 4,243,724
Increase (decrease) in accrued liabilities......................... 3,607,363 (3,748,783) (2,838,517)
Increase (decrease) in accounts payable............................ 146,598 (910,962) 623,904
Increase in film contract rights and other assets.................. (4,176,217) (24,185,421) (19,175,687)
(Decrease) increase in film contract rights payable
and other liabilities............................................. (3,748,846) 17,596,607 10,769,183
---------- ------------ ---------
Net cash provided by (used in) operating activities................... 19,026,668 (26,801,420) 1,190,790
---------- ------------ ---------
Cash flows from investing activities:
Deposit for station acquisition and other related costs............. -- (2,123,116) --
Proceeds from sale of stations, net................................. 149,990,381 171,308,975 --
WB affiliation payment.............................................. (14,846,638) (4,874,778) (4,774,439)
Insurance proceeds received......................................... 1,743,544 8,622,081 1,627,572
Investment.......................................................... (500,000) (133,603) (252,869)
Payment for acquisitions of assets, net of cash acquired............ (170,869,424) -- --
Capital expenditures................................................ (9,343,021) (16,078,762) (9,084,673)
---------- ------------ ---------
Net cash (used in) provided by investing activities............... (43,825,158) 156,720,797 (12,484,409)
---------- ------------ ---------
Cash flows from financing activities:
Proceeds from bank loan............................................. 100,000,000 72,500,000 107,000,000
Retirement of senior subordinated notes............................. (78,560,000) (59,255,000) (81,019,763)
Repayment of bank borrowings........................................ (162,500,000) (136,000,000) (10,327,572)
Payment of deferred financing fees.................................. (7,195,821) (503,965) (600,258)
Proceeds from senior subordinated notes............................. 174,482,000 -- --
Dividends paid...................................................... (2,926,217) (1,776,629) --
Purchase of Common Stock (Nonvoting) for treasury -- (250,000) --
Other financing activities, net..................................... 89,993 57,367 (3,081)
---------- ------------ ---------
Net cash provided by (used in) financing activities............... 23,389,955 (125,228,227) 15,049,326
---------- ------------ ---------
Net (decrease) increase in cash and cash equivalents.................. (1,408,535) 4,691,150 3,755,707
Cash and cash equivalents, beginning of year.......................... 2,170,927 762,392 5,453,542
---------- ------------ ---------
Cash and cash equivalents, end of year................................ $ 762,392 $ 5,453,542 $ 9,209,249
---------- ------------ ---------
---------- ------------ ---------
Supplemental information:
Cash paid for interest.............................................. $ 38,688,348 $ 39,031,115 $ 30,110,599
Cash paid for income taxes.......................................... 195,000 26,800,664 297,032
Non-cash investing and financing activities:
Non-cash capital expenditures..................................... 581,692 600,875 175,896
Stock dividend.................................................... 21,446,256 24,267,776 27,460,548
See accompanying notes.
28
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- OPERATIONS OF THE COMPANY
The business operations of Granite Broadcasting Corporation and its
wholly owned subsidiaries (the "Company") consist of eight network affiliated
television stations (three with NBC, two with ABC, two with the WB Network and
one with CBS) and one independent television station. The independent television
station will become an NBC affiliate on January 1, 2002. The Company's stations
are located in New York, California, Michigan, Indiana, Illinois and Minnesota.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Granite
Broadcasting Corporation and its wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated.
REVENUE RECOGNITION
The Company's primary source of revenue is the sale of television time
to advertisers. Revenue is recorded when the advertisements are aired.
INTANGIBLES
Intangible assets at December 31 are summarized as follows:
1999 2000
---- ----
Goodwill............................................. $222,114,559 $222,365,570
Covenant not to compete.............................. 30,000,000 30,000,000
Network affiliations................................. 130,979,900 129,609,983
Broadcast licenses................................... 297,336,089 297,336,089
----------- -----------
680,430,548 679,311,642
Accumulated amortization............................. (77,874,855) (104,325,636)
----------- ------------
Net intangible assets................................ $602,555,693 $574,986,006
============ ============
The intangible assets are characterized as scarce assets with long and
productive lives and are being amortized on a straight line basis over forty
years, with the exception of the covenant not to compete, which is being
amortized over 5 years and certain network affiliation agreements which are
being amortized between seven and ten years.
The Company periodically reevaluates the propriety of the carrying
amount of intangible assets as well as the related amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying value and/or revised estimates of useful lives. The evaluation of the
carrying amount is based on the Company's projections of the undiscounted cash
flows over the remaining lives of the amortization period of the related
intangible asset. To the extent such projections indicate that the undiscounted
cash flows are not expected to be adequate to recover the carrying amounts of
intangible assets, such carrying amounts will be written down to
29
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
their fair market value. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
30
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED FINANCING FEES
The Company has incurred certain fees in connection with entering into
a bank credit agreement, the sale of 10-3/8% Notes (as defined), the sale of
9-3/8% Notes (as defined) and the sale of 8-7/8% Notes (as defined). The Company
entered into an amended and restated senior credit agreement in March 2001 and
used a portion of the proceeds to repay in full all outstanding borrowings under
its existing bank credit agreement (See Note 8 - Long Term Debt). The
unamortized deferred financing fees related to the existing bank credit
agreement of $2,000,000 will be written off in the first quarter of 2001 as an
extraordinary loss. The deferred financing fees related to the 10-3/8% Notes,
the 9-3/8% Notes and the 8-7/8% Notes are being amortized over ten years. The
deferred financing fees related to the new senior credit agreement will be
amortized over three years. Amortization of deferred financing fees is
classified as non-cash interest expense on the consolidated statement of
operations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives ranging from three to 32
years.
FILM CONTRACT RIGHTS
Film contract rights are recorded as assets at gross value when the
license period begins and the films are available for broadcasting. Film
contract rights are amortized on an accelerated basis over the estimated usage
of the films, and are classified as current or noncurrent on that basis. Film
contract rights payable are classified as current or noncurrent in accordance
with the payment terms of the various license agreements. Film contract rights
are reflected in the consolidated balance sheet at the lower of unamortized cost
or estimated net realizable value.
During 2000, the designated market area ("DMA") for KNTV was reassigned
by Nielsen Media Research from the Monterey/Salinas, California DMA to the San
Francisco-Oakland-San Jose, California DMA effective September 1, 2000. In
connection with this change, KNTV is no longer able to broadcast certain
syndicated programs that are already licensed to other stations in the San
Francisco-Oakland-San Jose, California DMA. Consequently, the Company took a
one-time charge and wrote-off the book value of these programs totaling
$1,716,000
At December 31, 2000, the obligation for programming that had not been
recorded because the program rights were not available for broadcasting
aggregated $64,126,000.
BARTER TRANSACTIONS
Revenue from barter transactions is recognized when advertisements are
broadcast and merchandise or services received are charged to expense when
received or used. The net effect of barter transactions on the Company's results
of operations is not material.
ADVERTISING
The cost of advertising is expensed as incurred. Advertising expense
was $2,705,000, $3,273,000, and $2,853,000 for the years ended December 31,
1998, 1999 and 2000 respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
31
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include funds invested overnight in
Eurodollar deposits.
32
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 1999 2000
---- ---- ----
Net income (loss) before extraordinary item.......... $ 44,166,603 $ 47,514,489 $ (31,219,329)
Extraordinary (loss) gain on early extinguishment
of debt, net of tax benefit of $950,000 and
$256,665 in 1998 and 1999, respectively,
and net of tax expense of $2,473,470 in 2000....... (1,761,002) (384,983) 3,710,204
---------- ---------- -----------
Net income (loss) ................................... 42,405,601 47,129,506 (27,509,125)
LESS:
Preferred stock dividends:
Convertible preferred............................. 2,879,872 1,675,949 --
Exchangeable preferred............................ 22,129,854 25,041,318 28,335,855
Accretion on exchangeable preferred.................. 500,148 500,148 500,148
---------- ---------- -----------
Net income (loss) attributable to common shareholders 16,895,727 19,912,091 (56,345,128)
Effect of dilutive securities:
PLUS:
Convertible preferred stock dividends.............. 2,879,872 1,675,949 --
---------- ---------- -----------
Net income (loss) attributable to common
Shareholders - assuming dilution................... $ 19,775,599 $ 21,588,040 $ (56,345,128)
---------- ---------- -----------
---------- ---------- -----------
Weighted average common shares outstanding for
basic net income (loss) per share.................. 10,358,371 13,968,611 18,203,498
ADD:
Effect of dilutive securities:
Preferred stock conversions....................... 6,236,680 4,151,240
Stock options..................................... 371,450 891,944
---------- ----------
Total potential dilutive common shares.......... 6,608,130 5,043,184 (a)
Adjusted weighted average common
shares outstanding - assuming dilution............. 16,966,501 19,011,795 (18,203,128)
---------- ---------- -----------
---------- ---------- -----------
Per Common Share:
Basic income (loss) before extraordinary item..... $ 1.80 $ 1.46 $ (3.30)
Basic extraordinary (loss) gain................... (0.17) (0.03) 0.20
---------- ---------- -----------
Basic net income (loss) per share................. $ 1.63 $ 1.43 $ (3.10)
---------- ---------- -----------
---------- ---------- -----------
Diluted income (loss) before extraordinary item... $ 1.27 $ 1.16 $ (3.30)
Diluted extraordinary (loss) gain................. (0.10) (0.02) 0.20
---------- ---------- -----------
Diluted net income (loss) per share............... $ 1.17 $ 1.14 $ (3.10)
---------- ---------- -----------
---------- ---------- -----------
- ----------
(a) No adjustments were made to the dilutive per share calculation for the year
ended December 31, 2000, as doing so would have been antidilutive.
33
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
On July 30, 1999, the Company completed the disposition of WEEK-FM to
the Cromwell Group, Inc. of Illinois for $1,150,000 in cash. On August 31, 1999,
the Company completed the disposition of KEYE-TV, the CBS affiliate serving
Austin, Texas to CBS Corporation ("CBS") for $160,000,000 in cash. The Company
recognized a pre-tax gain for financial statement purposes on the sale of these
stations of $103,470,000.
NOTE 4 -- PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
DECEMBER 31,
----------------------------------
1999 2000
---------- ----------
Land.................................... $ 1,750,522 $ 1,750,522
Buildings and improvements.............. 14,075,255 14,969,602
Furniture and fixtures.................. 7,990,633 8,397,648
Technical equipment and other........... 45,350,080 52,655,328
---------- ----------
69,166,490 77,773,100
Less: Accumulated depreciation......... 29,990,321 35,090,364
---------- ----------
Net property and equipment.............. $39,176,169 $42,682,736
=========== ===========
NOTE 5 -- OTHER ACCRUED LIABILITIES
Other accrued liabilities are summarized below:
DECEMBER 31,
-------------------------------
1999 2000
---- ----
Compensation and benefits............... $ 2,205,324 $ 1,373,761
Taxes payable........................... 3,912,027 300,873
Other................................... 1,662,124 1,376,254
--------- ---------
Total................................... $ 7,779,475 $ 3,050,888
=========== ===========
NOTE 6 -- OTHER CURRENT LIABILITIES
Other current liabilities are summarized below:
DECEMBER 31,
----------------------------
1999 2000
---- ----
WB affiliation payment, net................. $ 4,101,907 $ 3,905,765
Barter payable.............................. 1,724,025 851,482
Other....................................... 647,761 328,048
----------- -----------
Total....................................... $ 6,473,693 $ 5,085,295
========== ==========
34
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7-- OTHER CURRENT ASSETS
Other current assets are summarized below:
DECEMBER 31,
----------------------------
1999 2000
--------- ---------
Income tax receivable $ -- $ 19,431,000
Barter and other receivables................ 2,951,963 2,972,067
Escrow deposit related to station
acquisition and other related costs....... 2,123,116 --
Prepaid film contract rights................ 92,496 1,136,645
Insurance settlement receivable............. 2,595,902 2,617,646
Other....................................... 2,636,272 3,561,970
--------- ---------
Total....................................... $10,399,749 $29,719,328
=========== ===========
NOTE 8-- LONG-TERM DEBT
The carrying amounts and fair values of the Company's long-term debt
are as follows:
DECEMBER 31, 1999 DECEMBER 31, 2000
-------------------------------- -------------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
Senior Bank Debt.............. $ 17,000,000 $ 17,000,000 $113,672,428 $113,672,428
9-3/8% Senior Subordinated
Notes, net of unamortized
discount.................... 38,643,509 38,453,796 34,573,475 21,229,375
10-3/8% Senior Subordinated
Notes....................... 132,420,000 134,856,528 100,717,000 59,926,615
8-7/8% Senior Subordinated
Notes, net of unamortized
discount.................... 115,810,795 111,873,960 62,428,011 37,405,125
----------- ----------- ---------- ----------
Total......................... $303,874,304 $302,184,284 $311,390,914 $231,716,575
============ ============ ============ ============
The fair value of the Company's Senior Subordinated Notes is estimated
based on quoted market prices. The carrying amount of the Company's borrowings
under its Credit Agreement approximated fair value.
35
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SENIOR BANK DEBT
On March 6, 2001, the Company entered into an amended and restated
$205,000,000 Senior Credit Agreement (the "Credit Agreement"). The Credit
Agreement consists of a $110,000,000 Tranche A term loan and a $95,000,000
Tranche B loan. The proceeds from the Credit Agreement were used (i) to repay
all outstanding borrowings of approximately $114,000,000 under the Company's
existing senior revolving credit facility, (ii) to prepay the first installment
under the NBC Affiliation Agreement (see Note 15), (iii) to pay certain fees and
expenses associated with the Credit Agreement and (iv) for general working
capital purposes.
The Tranche A and Tranche B term loans bear interest which is payable
monthly at the greater of LIBOR plus 5.50% or 12%. In addition, the Tranche B
term loan accrues simple deferred interest at an annual rate of 6% which is
payable when the Credit Agreement matures on December 31, 2003. The Company
granted to the Tranche B lenders a warrant to purchase 753,491 shares of Common
Stock (Nonvoting), par value $.01 per share, at an exercise price of $1.75 per
share. The warrant is fully vested and remains exercisable until March 6, 2006.
The Credit Agreement is secured by substantially all the assets of the
Company, as well as a pledge of all issued and outstanding shares of capital
stock of the Company's subsidiaries and guaranteed by all the subsidiaries of
the Company. The Credit Agreement requires the Company to maintain compliance
with certain financial tests, including but not limited to minimum net revenue,
broadcast cash flow, EBITDA and a maximum ratio of senior debt to EBITDA. Other
provisions place limitations on the payments for capital expenditures and
prohibits incurrence of additional debt, the purchase of the Company's common
stock, the repurchase of subordinated indebtedness and the declaration and
payment of cash dividends.
SENIOR SUBORDINATED NOTES
In May 1995, the Company issued $175,000,000 aggregate principal amount
of its 10-3/8% Senior Subordinated Notes (the "10-3/8% Notes") due May 15, 2005.
Since then, the Company repurchased a total of $74,283,000 face amount of its
10-3/8% Notes at various prices.
The 10-3/8% Notes are redeemable at any time on or after May 15, 2000,
at the option of the Company, in whole or in part from time to time, at certain
prices declining annually to 100% of the principal amount on or after May 15,
2002, plus accrued interest. The Company is required to offer to purchase all
outstanding 10-3/8% Notes at 101% of the principal amount plus accrued interest
in the event of a Change of Control (as defined in the Indenture governing the
10-3/8% Notes).
The 10-3/8% Notes are subordinated in right of payment to all existing
and future Senior Debt (as defined in the Indenture governing the 10-3/8% Notes)
and rank PARI PASSU with all senior subordinated debt and senior to all
subordinated debt of the Company. The Indenture governing the 10-3/8% Notes
contains certain covenants that, among other things, limit the ability of the
Company and its subsidiaries to incur debt, pay cash dividends on or repurchase
capital stock, enter into agreements prohibiting the creation of liens or
restricting the ability of a subsidiary to pay money or transfer assets to the
Company, enter into certain transactions with their affiliates, dispose of
certain assets and engage in mergers and consolidations.
In February 1996, the Company completed an offering of $110,000,000
principal amount of its 9-3/8% Senior Subordinated Notes (the "9-3/8% Notes")
due December 1, 2005 at a discount, resulting in net proceeds to the Company of
$109,450,000. Since then, the Company repurchased a total of $75,340,000
principal amount of its 9-3/8% Notes at various prices.
The 9-3/8% Notes are redeemable at any time on or after December 1,
2000, at the option of the Company, in whole or in part, at certain prices
declining annually to 100% of the principal amount on or after December 1, 2002,
plus accrued interest. The Company is required to offer to purchase all
outstanding 9-3/8% Notes at 101% of the principal amount plus accrued interest
in the event of a Change of Control (as defined in the Indenture
36
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
governing the 9-3/8% Notes).
The 9-3/8% Notes are subordinate in right of payment to all existing
and future Senior Debt (as defined in the Indenture governing the 9-3/8% Notes)
and rank PARI PASSU with all senior subordinated debt and senior to all
subordinated debt. The Indenture governing the 9-3/8% Notes contains certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur debt, make certain restricted payments, enter into certain
transactions with their affiliates, dispose of certain assets, incur liens
securing subordinated debt of the Company, engage in mergers and consolidations
and restrict the ability of the subsidiaries of the Company to make
distributions and transfers to the Company.
In May 1998, the Company completed an offering of $175,000,000
principal amount of its 8-7/8% Senior Subordinated Notes, due May 15, 2008 (the
"8-7/8% Notes"), at a discount, resulting in proceeds to the Company of
$174,482,000. Since then, the Company repurchased a total of $112,435,000
principal amount of its 8-7/8% Notes at various prices.
The 8-7/8% Notes are redeemable in the event that on or before May 15,
2001 the Company receives net proceeds from the sale of its Capital Stock (other
than Disqualified Stock (each as defined in the Indenture governing the 8-7/8%
Notes)), in which case the Company may, at its option and from time to time, use
all or a portion of any such net proceeds to redeem certain amounts of the
8-7/8% Notes with certain limitations. In addition, the 8-7/8% Notes are
redeemable at any time on or after May 15, 2003 at the option of the Company, in
whole or in part, at certain prices declining annually to 100% of the principal
amount on or after May 15, 2006, plus accrued interest. The Company is required
to offer to purchase all outstanding 8-7/8% Notes at 101% of the principal
amount thereof plus accrued interest in the event of a Change of Control (as
defined in the Indenture governing the 8-7/8% Notes).
The 8-7/8% Notes are subordinate in right of payment to all existing
and future Senior Debt (as defined in the Indenture governing the 8-7/8% Notes)
and rank PARI PASSU with all senior subordinated debt and senior to all
subordinated debt. The Indenture governing the 8-7/8% Notes contains certain
covenants that, among other things, limit the ability of the Company and its
subsidiaries to incur debt, make certain restricted payments, enter into certain
transactions with their affiliates, dispose of certain assets, incur liens
securing subordinated debt of the Company, engage in mergers and consolidations
and restrict the ability of the subsidiaries of the Company to make
distributions and transfers to the Company.
During 1998 and 1999, the Company recognized extraordinary losses of
$2,711,000 and $642,000 respectively, related to the repurchases of subordinated
debt, as well as the repayment of all then outstanding term loan and revolving
credit borrowings under the then existing bank credit agreements in 1998. Such
extraordinary losses were the result of premiums paid and the write-off of
related deferred financing fees, offset in part, by gains recognized on that
subordinated debt repurchased at a discount. During 2000 the Company recognized
an extraordinary gain of $3,710,000 related to the repurchase of subordinated
debt. The extraordinary gain was the result of gains recognized on that
subordinated debt repurchased at a discount, offset in part, by the write-off of
related deferred financing fees.
The scheduled principal maturities on all long-term debt for the five
years subsequent to December 31, 2000, after reflecting the repayment of the
existing senior revolving credit facility with the proceeds from the Credit
Agreement, are as follows:
2001............................................................. $ -
2002............................................................. -
2003............................................................. 205,000,000
2004............................................................. -
2005 ............................................................ 135,377,000
2006 and thereafter.............................................. 62,565,000
---------------
$ 402,942,000
---------------
---------------
37
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- COMMITMENTS
Future minimum lease payments under long-term operating leases as of
December 31, 2000 are as follows:
2001............................................................. $ 1,586,511
2002............................................................. 1,518,020
2003............................................................. 1,279,903
2004............................................................. 1,346,757
2005 ............................................................ 1,373,378
2006 and thereafter.............................................. 1,471,592
--------------
$ 8,576,161
------------
------------
Rent expense, including escalation charges, was $1,314,000, $1,559,000
and $1,416,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.
Future payments required under film contract rights payable as of
December 31, 2000 are as follows:
2001............................................................. $ 25,504,608
2002............................................................. 8,615,142
2003............................................................. 6,854,387
2004............................................................. 1,112,883
------------
$ 42,087,020
------------
------------
NOTE 10 -- REDEEMABLE PREFERRED STOCK
SERIES A PREFERRED STOCK
The Company authorized 100,000 shares of its Series A Convertible
Preferred Stock ("Series A Stock"), par value $.01 per share, which were issued
at an aggregate price of $1,210,000. All outstanding shares of the Series A
Stock were converted into shares of the Company's Common Stock (Nonvoting), par
value $.01 per share (the "Common Stock (Nonvoting)") in August 1995. Prior to
conversion, dividends accrued on the Series A Stock at an annual rate of $.40
per share which accumulated, without interest, if unpaid. Accrued but unpaid
dividends on the Series A Stock totaled $262,844 at December 31, 1999 and 2000.
Accrued dividends are due and payable on the date on which such dividends may be
paid under the Company's debt instruments.
12-3/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK
In January 1997, the Company authorized 400,000 shares of its
12-3/4% Cumulative Exchangeable Preferred Stock (the "12-3/4% Cumulative
Exchangeable Preferred Stock"), par value $.01 per share. In connection with
the Company's acquisition of WDWB-TV, 150,000 shares of the 12-3/4%
Cumulative Exchangeable Preferred Stock were issued in January 1997 at a
price of $1,000 per share. Holders of the 12-3/4% Cumulative Exchangeable
Preferred Stock are entitled to receive dividends at an annual rate of
12-3/4% per share payable semi-annually on April 1 and October 1 of each
year. The Credit Agreement does not permit the payment of cash dividends on
the 12-3/4% Cumulative Exchangeable Preferred Stock. The Company can pay
dividends on or prior to April 1, 2002 in additional shares of 12-3/4%
Cumulative Exchangeable Preferred Stock. Dividends on the 12-3/4% Cumulative
Exchangeable Preferred Stock are cumulative and accrue without interest, if
unpaid.
The 12-3/4% Cumulative Exchangeable Preferred Stock is entitled to a
preference of $1,000 per share
38
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
initially, plus accumulated and unpaid dividends in the event of liquidation or
winding up of the Company ($243,712,713 liquidation value at December 31, 2000).
The Company is required, subject to certain conditions, to redeem all of the
12-3/4% Cumulative Exchangeable Preferred Stock outstanding on April 1, 2009, at
a redemption price equal to 100% of the then effective liquidation preference
thereof, plus, without duplication, accumulated and unpaid dividends to the date
of redemption.
Subject to certain conditions, each share of the 12-3/4% Cumulative
Exchangeable Preferred Stock is exchangeable, in whole or in part, at the option
of the Company, for the Company's 12-3/4% Exchange Debentures (the "12-3/4%
Exchange Debentures") on any scheduled dividend payment date at the rate of
$1,000 principal amount of 12-3/4% Exchange Debentures for each share of 12-3/4%
Cumulative Exchangeable Preferred Stock outstanding at the time of the exchange.
NOTE 11 -- STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
The Company has a stock option plan (the "Stock Option Plan") for
officers and certain key employees. On January 8, 1999, the Stock Option Plan
was amended to increase the shares of Common Stock (Nonvoting) subject to
options available for grant to 4,000,000 from 3,000,000. On February 23, 1999,
the Stock Option Plan was further amended to increase the shares of Common Stock
(Nonvoting) subject to options available for grant from 4,000,000 to 6,000,000.
The Stock Option Plan terminated on April 1, 2000. At December 31, 1999 and
2000, options granted under the Stock Option Plan were outstanding for the
purchase of 4,692,625 and 4,629,925 shares of Common Stock (Nonvoting),
respectively.
On April 27, 2000, the Company adopted a new stock option plan (the
"2000 Stock Option Plan") for officers and certain key employees. The number of
shares of Common Stock (Nonvoting) subject to options available for grant is
4,000,000. Options may be granted under the 2000 Stock Option Plan at an
exercise price (for tax-qualified incentive stock options) of not less than 100%
of the fair market value of the Common Stock (Nonvoting) on the date the option
is granted, or 110% of such fair market value for option recipients who hold 10%
or more of the Company's voting stock. The exercise price for non-qualified
stock options may be less than, equal to or greater than the fair market value
of the Common Stock (Nonvoting) on the date the option is granted. At December
31, 2000, options granted under the 2000 Stock Option Plan were outstanding for
the purchase of 624,500 shares of Common Stock (Nonvoting).
During 2000, certain officers of the Company exercised stock options.
The provisions of the Stock Option Plan allow an option holder to pay the
exercise price and applicable federal and state withholding taxes using
previously owned shares as the method of payment. Consequently, the Company
would have had to remit approximately $1,000,000 in withholding taxes on the
income generated from exercise. Due to concerns about the impact this payment
would have on the Company's cash position at that time, the board of directors
approved a rescission of those options exercises. As a result, the Company
recorded a one-time non-cash charge to earnings of $1,192,000, representing the
lost tax deduction the Company would have received had the option exercises not
been rescinded.
On March 1, 1994, the Company adopted a Director Stock Option Plan (the
"Director Option Plan") providing for the grant, from time to time, of
nonqualified stock options to non-employee directors of the Company to purchase
an aggregate of 300,000 shares of Common Stock (Nonvoting). On July 27, 1999,
the Director Option Plan was amended to increase the shares of Common Stock
(Nonvoting) subject to options available for grant to 1,000,000. As of December
31, 1999 and 2000, options granted under the Director Option Plan were
outstanding for the purchase of 786,685 and 861,360 shares of Common Stock
(Nonvoting), respectively. The options granted
39
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under the Director Option Plan serve as compensation for attendance at regularly
scheduled meetings and for service on certain committees of the Board of
Directors.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123"). Accordingly, no compensation expense has been recognized for the
stock option plans. For purposes of SFAS 123 pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options'
vesting period; therefore, the impact on pro forma net income (loss) in 1998,
1999 and 2000 may not be representative of the impact in future years. The
Company's pro forma information for years ended December 31, follows:
1998 1999 2000
-------------- ----------- -----------
Pro forma net income (loss)......................... $40,900,956 $45,661,497 $(30,022,799)
Pro forma net income (loss) per share:
Basic............................................. $1.49 $1.32 $(3.23)
Diluted........................................... $1.08 $1.06 $(3.23)
The fair value for each option grant was estimated at the date of grant
using the Black Scholes option pricing model with the following weighted-average
assumptions for the various grants made during 1998, 1999 and 2000: risk-free
interest rate of 4.65% in 1998, 5.93% in 1999 and 4.80% in 2000; no dividend
yield; expected volatility of 38% in 1998, 45% in 1999 and 81% in 2000; and
expected lives of three years in 1998 and four years in 1999 and 2000.
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. The Company's employee stock options have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate.
1998 1999 2000
--------------------- ----------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
Outstanding at beginning of year.... 2,336,850 $ 9.98 2,053,225 $8.51 5,479,310 $8.10
Granted............................. 317,500 11.28 3,637,385 7.78 720,375 2.97
Exercised........................... (20,125) 7.62 (31,800) 4.63 (1,400) 6.64
Forfeited........................... (581,000) 15.97 (179,500) 6.95 (82,500) 7.05
--------- --------- --------
Outstanding at end of year.......... 2,053,225 8.51 5,479,310 8.10 6,115,785 7.51
========= ========= =========
Exercisable at end of year.......... 1,298,025 7.49 1,779,810 7.90 2,600,710 7.74
Weighted-average fair value of
options granted during the year... $3.36 $2.87 $1.84
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------------
WEIGHTED-AVERAGE NUMBER
RANGE OF REMAINING WEIGHTED-AVERAGE OUTSTANDING WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/00 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- ---------------
$1.50 - $2.00 569,500 9.94 years $1.50 -- $ --
$3.00 - $5.50 450,625 3.41 years $3.81 446,875 3.80
$6.13 - $6.88 1,677,700 8.06 years 6.48 667,000 6.46
$7.00 - $9.75 1,409,260 6.62 years 7.86 866,810 7.97
$10.00 - $12.44 2,008,700 6.92 years 10.66 620,025 11.65
40
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MANAGEMENT STOCK PLAN
In April 1993, the Company adopted a Management Stock Plan providing
for the grant from time to time of awards denominated in shares of Common Stock
(Nonvoting) (the "Bonus Shares") to salaried executive employees of the Company.
On February 15, 2001, the Company increased the reserve of shares of Common
Stock (Nonvoting) available for grant under the Management Stock Plan to
1,500,000 from 1,000,000. Shares generally vest over a five-year period. As of
December 31, 2000, the Company has allocated a total of 822,062 Bonus Shares
pursuant to the Management Stock Plan, 662,187 of which had vested through
December 31, 2000. For the years ended December 31, 1999 and 2000, 66,600 and
58,875 shares, respectively, were granted pursuant to the Management Stock Plan.
The weighted-average grant-date fair value of those shares is $7.60 and $6.54,
respectively.
NON-EMPLOYEE DIRECTORS' STOCK PLAN
In April 1997, the Company adopted a Non-Employee Directors' Stock Plan
(the "Director Stock Plan"), providing an annual grant of the Company's Common
Stock (Nonvoting) to each eligible non-employee director of a number of shares
equal to $20,000 divided by the fair market value of the Common Stock
(Nonvoting) on the date of grant. On December 31, 2000, the Company increased
the reserve of shares of Common Stock (Nonvoting) for grant under the Director
Stock Plan from 100,000 shares to 400,000 shares. Shares granted vest
immediately. For the years ended December 31, 1999 and 2000, 27,297 and 15,800
shares, respectively, were granted pursuant to the Director Stock Plan with
weighted-average grant date fair values of $6.23 and $10.13 respectively.
EMPLOYEE STOCK PURCHASE PLAN
On February 28, 1995, the Company adopted the Granite Broadcasting
Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") for the
purpose of enabling its employees to acquire ownership of Common Stock
(Nonvoting) at a discount, thereby providing an additional incentive to promote
the growth and profitability of the Company. The Stock Purchase Plan enables
employees of the Company to purchase up to an aggregate of 1,000,000 shares of
Common Stock (Nonvoting) at 85% of the then current market price through
application of regularly made payroll deductions.
The total number of common shares outstanding at December 31, 2000
assuming the exercise of all outstanding stock options and warrants is as
follows:
Class A Common Stock.............................................. 178,500
Common Stock (Nonvoting).......................................... 18,030,811
Stock options..................................................... 5,546,285
Warrants.......................................................... 4,500,000
------------
28,255,596
------------
------------
NOTE 12 -- INCOME TAXES
The Company files a consolidated federal income tax return for its
entities, which, as of January 1, 1999 includes the operations of WKBW. The
Company records income taxes using a liability approach for financial accounting
and reporting which results in the recognition and measurement of deferred tax
assets based on the likelihood of realization of tax benefits in future years.
The provision (benefit) for income taxes for the years ended December
31 consists of the following:
41
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 1999 2000
---- ---- ----
Current taxes:
Federal............................................... $ 958,000 $23,397,000 $(18,616,000)
State................................................. 731,000 2,111,000 2,801,000
------- ---------- ---------
1,689,000 25,508,000 (15,815,000)
Deferred taxes:
Federal............................................... 7,469,000 4,876,000 6,971,000
State................................................. 142,000 933,000 (2,034,000)
-------- -------- -----------
7,611,000 5,809,000 4,937,000
--------- --------- ---------
Provision (benefit) for income taxes..................... $9,300,000 $31,317,000 $(10,878,000)
========== =========== =============
The provision for income taxes for the year ended December 31, 1998 is
comprised of a non-cash provision for income taxes relating to the separate
federal return of WKBW of $719,215. Also included are the provisions for state
and local taxes.
42
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of the
Company's deferred tax asset and liability as of December 31 are as follows:
DECEMBER 31,
------------------------------
1999 2000
---------- ------------
Deferred tax liability:
Excess carrying value of non-
goodwill intangible assets over tax basis $88,674,743 $101,758,146
Depreciation 2,406,638 2,887,677
Interest on NBC obligation - 3,669,672
Other 181,473 -
------- -----------
Total deferred tax liability 91,262,854 108,315,495
Deferred tax assets:
Net operating loss carryforward 7,144,939 9,211,527
Other - 581,416
Alternative minimum tax credit - 1,898,100
----------- ---------
Total deferred tax assets 7,144,939 11,691,043
--------- ----------
Net deferred tax liability $84,117,915 $ 96,624,452
=========== ===========
The difference between the U.S. federal statutory tax rate and the
Company's effective tax rate for the years ended December 31 is as follows:
1998 1999 2000
---------- ---------- ----------
U.S. statutory rate......................................... 35.0% 35.0% 35.0%
Nondeductible amortization................................. 1.9 1.8 (3.3)
State and local taxes....................................... 1.1 2.6 (3.3)
(Decrease) increase in valuation allowance.................. (19.2) 0.5 -
Other, net.................................................. - - (2.5)
----- ---- -----
Effective tax rate......................................... 18.8% 39.9% 25.9%
===== ==== =====
At December 31, 2000, the Company had a net operating loss carryforward
for federal tax purposes of approximately $18,000,000 relating to WKBW, which
may be subject to limitation under the Separate Return Limitation Rules of the
Internal Revenue Code. These net operating losses will expire no sooner than
December 31, 2002. As of January 1, 1999, the operations of WKBW were included
in the Company's federal consolidated tax return.
In 1998, the Company released the valuation allowance as it was more
likely than not that deferred tax assets would be realized in the future.
NOTE 13 -- DEFINED CONTRIBUTION PLAN
The Company has a trusteed profit sharing and savings plan (the "Plan")
covering substantially all of its employees. Contributions by the Company to the
Plan are based on a percentage of the amount of employee contributions to the
Plan and are made at the discretion of the Board of Directors. Company
contributions, which are funded monthly, amounted to $792,000, $811,390 and
$778,378 for the years ended December 31, 1998, 1999
43
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 2000, respectively.
NOTE 14 -- RELATED PARTY
Between 1995 and 1998, the Company loaned an officer $2,911,000 in four
separate transactions. On January 1, 2001, the Company loaned this officer an
additional $375,000. On February 15, 2001, the Company agreed to consolidate the
five loans into one promissory note in the amount of $3,286,000. The new
promissory note matures on January 25, 2006 or, if earlier, 30 days after the
officer's termination of employment. The new promissory note does not bear
interest but interest at an annual rate of 6.75% will be imputed as additional
compensation to the officer. The new promissory note allows for the loan to be
forgiven in one-third increments if the Company's Common Stock (Nonvoting)
trades for ten consecutive trading days at $15, $20, and $25, respectively, or
if the per share consideration received by the Company's common stockholders in
a Change of Control (as defined in the Indentures governing the Company's senior
subordinated notes) equals at least $15.00, $20.00 or $25.00, respectively. In
addition, on February 15, 2001 the Company forgave $232,247 of interest accrued
during the year-ended December 31, 2000. The Company will take a charge against
earnings for this amount in the first quarter of 2001.
In 1995, the Company loaned another officer $221,200. On February 15,
2001, the Company agreed to cancel this note and issue a new promissory note in
the same amount. The new promissory note matures on January 25, 2006 or, if
earlier, 30 days after the officer's termination of employment. The new
promissory note does not bear interest but interest at an annual rate of 6.75%
will be imputed as additional compensation to the officer. The new promissory
note allows for the loan to be forgiven in one-third increments if the Company's
Common Stock (Nonvoting) trades for ten consecutive trading days at $15, $20,
and $25, respectively, or if the per share consideration received by the
Company's common stockholders in a Change of Control (as defined in the
Indentures governing the Company's senior subordinated notes) equals at least
$15.00, $20.00 or $25.00, respectively. In addition, on February 15, 2001 the
Company forgave $19,908 of interest accrued during the year-ended December 31,
2000. The Company will take a charge against earnings for this amount in the
first quarter of 2001.
NOTE 15 - NBC AFFILIATION
On May 31, 2000, the Company entered into a series of definitive
agreements with the NBC Television Network ("NBC"). Pursuant to these
agreements, KNTV is to become the NBC affiliate in the San Francisco-Oakland-San
Jose California DMA for a ten-year term commencing on January 1, 2002 (the "San
Francisco Affiliation"). In connection with the affiliation switch to NBC, the
Company intended to expand KNTV's coverage to include a greater percentage of
the San Francisco-Oakland-San Jose DMA. In May 2000, KNTV more than doubled its
power and is now broadcasting at full power. The power increase allows KNTV's
over the air signal to reach 90% of the San Francisco-Oakland-San Jose
television market. In November 2000, KNTV and AT&T Broadband, the market's
leading cable operator, signed a five-year renewable cable carriage agreement
that will deliver KNTV to virtually all homes in the San Francisco-Oakland-San
Jose television market by January 1, 2002.
In addition, NBC extended the term of the Company's NBC affiliation
agreements with KSEE, WEEK and KBJR until December 31, 2011. As a part of such
extension, NBC's affiliation payment obligations to Granite for such stations
will be terminated as of December 31, 2001.
In consideration for the San Francisco Affiliation, the Company was to
pay $362 million in nine annual installments, with the initial payment in the
amount of $61 million due January 1, 2002. On March 6, 2001, the San Francisco
Affiliation was amended to reduce the January 1, 2002 installment to $30,500,000
and defer the remaining $30,500,000 of the original initial payment until
January 1, 2005. After giving effect to these changes, the present value of the
new payment schedule is substantially unchanged from the original terms. The
Company
44
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prepaid the January 1, 2002 installment on March 6, 2001 by paying
$27,778,694, which represents the present value of that installment discounted
at 12%. The scheduled payments under the San Francisco Affiliation for the five
years subsequent to December 31, 2000, excluding the prepayment, are as follows:
2001 $ --
2002 --
2003 37,160,000
2004 37,160,000
2005 70,160,000
2006 and thereafter 198,000,000
-------------
Total $ 342,480,000
=============
In addition, the Company granted NBC a warrant to purchase 2,500,000
shares of the Company's Common Stock (Nonvoting), par value $0.01 per share (the
"Common Stock (Nonvoting)"), at an exercise price of $12.50 per share (the "A
Warrant") and a warrant to purchase 2,000,000 shares of Common Stock (Nonvoting)
at an exercise price of $15.00 per share (the "B Warrant"). The A Warrant vested
in full on December 31, 2000. The B Warrant vests in full on January 1, 2002, if
the San Francisco Affiliation is in effect on that date. Each warrant, once
vested, remains exercisable until December 31, 2011 (or, if earlier, any date
prior to January 1, 2007 on which the San Francisco Affiliation is terminated)
and may be exercised for cash or surrender of a portion of a then exercisable
Warrant. The fair value of the warrants of $12,150,000 has been recorded as a
non-current asset and will be amortized over the ten-year life of the San
Francisco Affiliation.
NOTE 16 -- PRICE RANGE OF COMMON STOCK (NONVOTING) AND
CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK (UNAUDITED)
The Company's Common Stock (Nonvoting) is traded in the
over-the-counter market and is quoted on the NASDAQ National Market under the
symbol "GBTVK". The following table sets forth the closing market price ranges
per share of Common Stock (Nonvoting) during 1999 and 2000, as reported by
NASDAQ:
HIGH LOW
---- ---
1999
First Quarter..................................................... $ 8-3/4 $6-1/8
Second Quarter.................................................... 8-1/8 6
Third Quarter..................................................... 12-1/8 7-3/8
Fourth Quarter.................................................... 14-3/8 8-15/16
45
2000
First Quarter..................................................... 12-3/4 5-3/16
Second Quarter.................................................... 7-3/8 5-3/8
Third Quarter..................................................... 7-1/16 4-1/2
Fourth Quarter.................................................... 4-5/8 7/8
As of March 6, 2001 the closing price per share for the Company's
Common Stock (Nonvoting), as reported by NASDAQ was $3.438 per share.
NOTE 17 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for
the years ended December 31, 1999 and 2000:
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
---- ---- ---- ----
Net revenue $ 33,874,817 $ 40,925,410 $ 35,578,729 $ 39,467,999
(Loss) income before
extraordinary item (6,423,422) (952,282) 55,244,974 (354,781)
Net (loss) income (6,423,422) (952,282) 54,351,994 153,216
Per common share:
(Loss) income before
extraordinary item
Basic $ (1.10) $ (0.66) $ 3.49 $ (0.40)
Diluted (1.10) (0.66) 2.53 (0.40)
Net (loss) income
Basic (1.10) (0.66) 3.43 (0.37)
Diluted (1.10) (0.66) 2.48 (0.37)
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
---- ---- ---- ----
Net revenue $ 33,339,280 $ 37,575,779 $ 32,238,416 $ 36,916,772
Loss before extraordinary
item (8,811,291) (4,351,993) (10,839,214) (7,216,831)
Net loss (7,027,823) (2,425,257) (10,839,214) (7,216,831)
Per common share:
Loss before
extraordinary item
Basic $ (0.85) $ (0.62) $ (0.98) $ (0.82)
Diluted (0.85) (0.62) (0.98) (0.82)
Net loss
Basic (0.75) (0.52) (0.98) (0.82)
Diluted (0.75) (0.52) (0.98) (0.82)
46
SCHEDULE II
GRANITE BROADCASTING CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT AMOUNT CHARGED BALANCE
ALLOWANCE FOR BEGINNING TO COSTS AMOUNT AT END
DOUBTFUL ACCOUNTS OF YEAR AND EXPENSES WRITTEN OFF(1) OF YEAR
----------------- --------- -------------- ------------ ---------
For the year ended December 31, 1998.... 408,290 $ 466,945 $ 450,945 $ 424,290
For the year ended December 31, 1999.... 424,290 492,648 486,578 430,360
For the year ended December 31, 2000.... 430,360 1,453,709 1,235,207 648,862
- -----------
1 Net of recoveries.
47
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers and directors of the Company as of March 5, 2001:
NAME AGE POSITION
---- --- --------
W. Don Cornwell(1)................................... 53 Chairman of the Board, Chief Executive Officer
and Director
Stuart J. Beck(1).................................... 54 President, Secretary and Director
Robert E. Selwyn, Jr................................. 57 Chief Operating Officer and Director
Lawrence I. Wills.................................... 40 Senior Vice President-Chief Administrative Officer
Ellen McClain........................................ 36 Senior Vice President-Chief Financial Officer
James L. Greenwald(2)................................ 73 Director
Martin F. Beck....................................... 83 Director
Edward Dugger, III................................... 51 Director
Thomas R. Settle(1)(3)(4)............................ 60 Director
Charles J. Hamilton, Jr.(2)(3)(4).................... 53 Director
M. Fred Brown(2)..................................... 54 Director
Jon E. Barfield(3)................................... 49 Director
Veronica E. Pollard(3)............................... 55 Director
- ------------
(1) Member of the Stock Option Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Management Stock Plan Committee.
Mr. Cornwell is a founder of the Company and has been Chairman of the
Board of Directors and Chief Executive Officer of the Company since February
1988. Mr. Cornwell served as President of the Company, which office then
included the duties of chief executive officer, until September 1991 when he was
elected to the newly-created office of Chief Executive Officer. Prior to
founding the Company, Mr. Cornwell served as a Vice President in the Investment
Banking Division of Goldman, Sachs & Co. ("Goldman Sachs") from May 1976 to July
1988. In addition, Mr. Cornwell was the Chief Operating Officer of the Corporate
Finance Department of Goldman Sachs from January 1980 to August 1987. Mr.
Cornwell is a director of Hershey Trust Company, the Milton S. Hershey School,
Pfizer, Inc. and CVS Corporation. Mr. Cornwell received a Bachelor of Arts
degree from Occidental College in 1969 and a Masters degree in Business
Administration from Harvard Business School in 1971.
Mr. Stuart Beck is a founder of the Company and has been a member of
the Board of Directors and Secretary of the Company since February 1988 and
President of the Company since September 1991. Prior to founding the Company,
Mr. Beck was an attorney in private practice of law in New York, New York and
Washington, DC. Mr. Beck is a member of the Board of The American Women in Radio
and Television Society and of the Board of The Advertising Council. Mr. Beck
received a Bachelor of Arts degree from Harvard College in 1968 and a Juris
Doctor degree from Yale Law School in 1971. Mr. Beck is the son of Martin F.
Beck.
Mr. Selwyn has been Chief Operating Officer of the Company since
September 19, 1996 and a member of the Board of Directors since May 11, 1998.
Prior to joining the Company, Mr. Selwyn was employed by New World
Communications, Inc. from May 1993 to June 1996 serving as Chairman and Chief
Executive Officer of the
49
New World Television Station Group. Mr. Selwyn received a bachelor of
science degree from the University of Tennessee in 1968. From 1990 until 1993,
Mr. Selwyn was the President of Broadcasting for SCI Television, Inc. Mr. Selwyn
was an officer of SCI Television, Inc. at the time that company filed a petition
under Federal bankruptcy laws.
Mr. Wills has been Senior Vice President-Chief Administrative Officer
since February 2001. In addition, Mr. Wills served as Vice President-Finance and
Controller of the Company from 1990 to 2001. Prior to joining the Company, Mr.
Wills was employed by Ernst & Young LLP from 1982 to 1990 in various capacities,
the most recent of which was as senior audit manager responsible for managing
and supervising audit engagements. Mr. Wills is a director of Junior Achievement
of New York, Inc. Mr. Wills received a bachelor's degree in Business
Administration from Iona College in 1982.
Ms. McClain has been Senior Vice President-Chief Financial Officer
since February 2001. In addition, Ms. McClain served as Vice President-Corporate
Development and Treasurer of the Company from 1994 to 2001. Prior to joining
Granite, Ms. McClain attended Harvard Business School, where she received a
Masters degree in Business Administration in June 1993. From 1990 to 1991, Ms.
McClain was an Assistant Vice President with Canadian Imperial Bank of Commerce,
where she served as a lender in the Bank's Media Group and from 1986 to 1990 was
employed by Bank of New England, N.A. in various capacities including as a
lender in the Communications Group. Ms. McClain is a director of the National
Association of Black Owned Broadcasters. Ms. McClain received a Bachelor of Arts
Degree in Economics from Brown University in 1986.
Mr. Greenwald has been a member of the Board of Directors of the
Company since December 1988. Mr. Greenwald was the Chairman and Chief Executive
Officer of Katz Communications, Inc. from May 1975 to August 1994 and has been
Chairman Emeritus since August 1994. Mr. Greenwald has served as President of
the Station Representatives Association and the International Radio and
Television Society and Vice President of the Broadcast Pioneers. Mr. Greenwald
is a director of Paxson Communications Corp. and Source Media Inc. Mr. Greenwald
received a Bachelor of Arts degree from Columbia University in 1949 and an
Honorary Doctorate Degree in Commercial Science from St. Johns University in
1980.
Mr. Martin Beck has been a member of the Board of Directors of the
Company since December 1988. Mr. Beck has served as Chairman of Beck-Ross
Communications, Inc., a New York-based group owner of FM radio stations, from
June 1966 until April 1995, at which time he retired. Mr. Beck has served as
President of the New York State Broadcasters Association, the Long Island
Broadcasters Association and the National Association of Broadcasters Radio
Board. Mr. Beck received a Bachelor of Arts degree from Cornell University in
1938. Mr. Beck is the father of Stuart J. Beck.
Mr. Dugger has been a member of the Board of Directors of the Company
since December 1988. Mr. Dugger has been President and Chief Executive Officer
of UNC Ventures, Inc., a Boston-based venture capital firm, since January 1978,
and its investment management company, UNC Partners, Inc., since June 1990. Mr.
Dugger is a former director of the Federal Reserve Bank of Boston. Mr. Dugger
received a Bachelor of Arts degree from Harvard College in 1971 and a Masters
degree in Public Administration and Urban Planning from Princeton University in
1973.
Mr. Hamilton has been a member of the Board of Directors of the
Company since July 1992. Mr. Hamilton a partner in the New York law firm of
Battle Fowler LLP from 1983 to 2000. On June 8, 2000, Battle Fowler LLP
merged with the law firm of Paul, Hastings, Janotsky & Walker LLP, where he is
a partner. Mr. Hamilton received a Bachelor of Arts degree from Harvard
College in 1969 a Juris Doctor degree from Harvard Law School in 1975 and a
Masters degree in City Planning (MCP) from the Massachusetts Institute of
Technology in 1975. Mr. Hamilton is a member of the Board of Directors of the
Environmental Defense Fund and Phoenix House Foundation, Inc. Mr. Hamilton is
Chairman of the Board of Directors of the Higher Education Extension Service.
Mr. Settle has been a member of the Board of Directors of the Company
since July 1992. Mr. Settle founded and has been the President of The Winchester
Group, Inc., an investment advisory firm, since 1990. Mr.
50
Settle was the chief investment officer at Bernhard Management Corporation from
1985 to 1989. He was a Managing Director of Furman Selz Capital Management from
1979 until 1985. Mr. Settle received a Bachelor of Arts Degree from Muskingum
College in 1963 and a Masters degree in Business Administration from Wharton
Graduate School in 1965.
Mr. Brown has been a member of the Board of Directors since April 1999.
Mr. Brown founded and has been President of Aerodyne Capital, Inc., a California
company specializing in the trading and leasing of commercial jet aircraft
and high-bypass jet engines and JetAir Capital, Inc., a California company
specializing in trading aircraft spare parts since 1993. Prior to founding
Aerodyne and JetAir, Mr. Brown was Senior Vice President and Managing Director
of Marketing for Blenhiem Aviation from 1989-1993. Mr. Brown is a director of
San Francisco Jazz Organization. Mr. Brown received a Bachelor of Arts degree
from Middlebury College in 1969. He received a Juris Doctor degree and a Masters
degree in Business Administration from the University of California at Berkeley
in 1973.
Mr. Barfield has been a member of the Board of Directors since April
1999. Mr. Barfield has been Chairman and Chief Executive Officer of The Bartech
Group, a contract employment and staffing services firm specializing in the
recruitment and placement of engineering, I.T. and administrative professionals,
since 1995. In addition, Mr. Barfield served as President of The Bartech Group
from 1981 to 1995. Prior to joining The Bartech Group, Mr. Barfield practiced
corporate and securities law with the Chicago based law firm of Sidley & Austin
from 1977 to 1981. Mr. Barfield is a director of the National City Corporation,
Tecumseh Products Company, the American Society of Employers, Blue Cross Blue
Shield of Michigan and the Community Foundation for Southeastern Michigan. He is
also a charter Trustee of Princeton University and a Trustee of Henry Ford
Museum, Greenfield Village and Kettering University. Mr. Barfield received a
Bachelor of Science degree from Princeton University in 1974 and received a
Juris Doctor degree from Harvard Law School in 1977.
Ms. Pollard has been a member of the Board of Directors since January
2000. Ms. Pollard has been Vice President-External Affairs for Toyota Motor
Corporate Services of North America, Inc. since 1998. Prior to joining Toyota
Motor Corporate Services of North America, Inc., Ms. Pollard was Vice
President-Corporate Public Relations for ABC, Inc., a division of The Walt
Disney Company from 1994 to 1998. Ms. Pollard is a trustee of the Museum for
African Art in New York and a member of the Individual Investor Advisory
Committee of the New York Stock Exchange. Ms. Pollard attended the University of
Wisconsin for two years and received a Bachelor's degree from Boston University
in 1966 and a Master's degree from Columbia University in 1968.
All members of the Board of Directors hold office until the next annual
meeting of shareholders of the Company or until their successors are duly
elected and qualified. All officers are elected annually and serve at the
discretion of the Board of Directors.
Directors are separately reimbursed by the Company for their travel
expenses incurred in attending Board or committee meetings and receive
securities under each of the Company's Non-Employee Directors Stock Plan and
Director Option Plan (each as defined herein and collectively referred to as the
"Director Plans").
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each director and officer of the Company who is subject to Section 16
of the Securities Exchange Act of 1934, as amended, is required to report to the
Securities and Exchange Commission, by a specified date, his or her beneficial
ownership of, or certain transactions in, the Company's securities. Except as
set forth below, based solely upon a review of such reports, the Company
believes that all filing requirements under Section 16 were complied with on a
timely basis.
For fiscal year 1999 the number of securities underlying two option
grants to Mr. Cornwell that was reflected on one Form 5 were inadvertently
incorrectly reported.
ITEM 11. EXECUTIVE COMPENSATION
51
The following table sets forth the cash compensation paid by the
Company to its Chief Executive Officer and each of its most highly compensated
executive officers whose total cash compensation exceeded $100,000 for each of
the three years in the period ended December 31, 2000:
Summary Compensation Table
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND BONUS STOCK OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) ($) (1) AWARDS SARS (#) ($)(2)
--------------------- -------- ------------ -------- ---------- ---------- -------------
W. Don Cornwell 2000 $600,000 $469,600 - - $ 5,250
Chief Executive 1999 550,000 585,950 - 1,160,000 5,000
Officer 1998 550,000 448,300 - 150,000 5,000
Stuart J. Beck 2000 $600,000 $336,000 - - $14,850
President 1999 550,000 419,760 - 962,000 13,800
1998 550,000 349,800 - 135,000 5,000
Robert E. Selwyn, Jr. 2000 $375,000 $ 46,875 - 50,000 $14,850
Chief Operating 1999 371,600 90,500 - 150,000 14,600
Officer 1998 362,000 72,000 - - 5,000
Lawrence I. Wills 2000 $177,000 $100,000 - 121,250 $ 5,250
Senior Vice President - 1999 140,500 85,125 - 50,000 5,000
Chief Administrative 1998 136,500 35,000 $6,000(3) - 5,000
Officer
Ellen McClain 2000 $177,000 $100,000 - 125,000 -
Senior Vice President - 1999 140,500 85,125 - 50,000 $ 4,063
Chief Financial Officer 1998 136,500 35,000 $6,000(3) - 5,000
- ----------
(1) Represents bonuses for service rendered in 1998, 1999 and 2000 that
were paid in the following year
(2) The amounts shown in this column consists of a matching Company
contribution under the Company's Employees' Profit Sharing and Savings
(401(k)) Plan and an annual perquisite allowance for Messrs. Beck and
Selwyn of $9,600 each in 2000 and $8,800 and $9,600, respectively in
1999.
(3) Represents the market value on the date of award of 1,000 Bonus Shares
awarded under the Company's Management Stock Plan on December 31, 1998.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
Mr. Cornwell and Mr. Stuart Beck each have an employment agreement with
the Company. The agreements provide for a two year employment term, which is
automatically renewed for subsequent two year terms unless advance notice of
nonrenewal is given (the current term under such agreements, which were renewed
in 1999, expires September 19, 2001). The base salary determined by the
Compensation Committee of the Board of Directors was $550,000 for 1998 and 1999
and $600,000 for 2000. The agreements stipulate that Mr. Cornwell and Mr. Beck
will devote their full time and efforts to the Company and will not engage in
any business activities outside the scope of their employment with the Company
unless approved by a majority of the Company's independent directors. Under the
agreements, Mr. Cornwell and Mr. Beck are permitted to exchange any or all of
their shares of Voting Common Stock for shares of Common Stock (Nonvoting),
provided that such exchange does
52
not jeopardize the Company's status as a minority-controlled entity under FCC
regulations and that, after such exchange is effected, there will continue to be
shares of voting stock of the Company outstanding. In addition to the
compensation set forth in the employment agreements, Mr. Cornwell and Mr. Beck
are eligible to receive incentive bonus payments under the Company's incentive
bonus plan and stock options under certain of the Company's stock option plans.
See "--Stock Option Plan" and "--Management Stock Plan."
Mr. Selwyn has an employment agreement with the Company. The current
employment term was extended to January 31, 2003. The annual base salary
determined by the Compensation Committee of the Board of Directors was $362,000
for 1998, $371,600 for 1999, and $375,000 for 2000. The agreement stipulates
that Mr. Selwyn will devote his full time and effort to the Company and will not
engage in any business activities outside of the scope of his employment with
the Company other than permitted thereunder. In addition to his base salary, Mr.
Selwyn is eligible to receive shares of the Company's Common Stock (Nonvoting)
under the Management Stock Plan, has been granted options to purchase shares of
Common Stock (Nonvoting) under the Company's stock option plans and is eligible
to participate in the Company's Employee Stock Purchase Plan. See "--Employee
Stock Purchase Plan," "--Stock Option Plan" and "--Management Stock Plan."
Under an employment arrangement with the Company, Mr. Wills is eligible
to receive an annual cash bonus based upon the Company's financial performance
during that year, such bonus to be determined by Messrs. Cornwell and Beck. Mr.
Wills' 2000 base salary was fixed at $177,000.
Under an employment arrangement with the Company, Ms. McClain is
eligible to receive an annual cash bonus based upon the Company's financial
performance during that year, such bonus to be determined by Messrs. Cornwell
and Beck. Ms. McClain's 2000 base salary was fixed at $177,000.
401(K) PROFIT SHARING AND SAVINGS PLAN
Effective January 1990, the Company adopted the Granite Broadcasting
Corporation Employees' Profit Sharing and Savings (401(k)) Plan (the "401(k)
Plan") for the purpose of providing retirement benefits for substantially all of
its employees. Contributions to the 401(k) Plan are made by both the employee
and the Company. The Company matches 50% of that part of an employee's deferred
compensation which does not exceed 5% of such employee's salary. Company-matched
contributions vest at a rate of 20% for each year of an employee's service to
the Company.
A contribution to the 401(k) Plan of $778,000 was charged to expense
for 2000.
EMPLOYEE STOCK PURCHASE PLAN
On February 28, 1995, the Company adopted the Granite Broadcasting
Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") for the
purpose of enabling its employees to acquire ownership of Common Stock
(Nonvoting) at a discount, thereby providing an additional incentive to promote
the growth and profitability of the Company. The Stock Purchase Plan enables
employees of the Company to purchase up to an aggregate of 1,000,000 shares of
Common Stock (Nonvoting) at 85% of the then current market price through
application of regularly made payroll deductions. The Stock Purchase Plan is
administered by a Committee consisting of not less than two directors who are
ineligible to participate in the Stock Purchase Plan. The members of the
Committee are currently Mr. Cornwell and Mr. Stuart J. Beck. At the discretion
of the Committee, purchases under the Stock Purchase Plan may be effected
through issuance of authorized but previously unissued shares, treasury shares
or through open market purchases. The Committee has engaged a brokerage company
to administer the day-to-day functions of the Stock Purchase Plan. Purchases
under the Stock Purchase Plan commenced on June 1, 1995.
STOCK OPTION PLAN
In April 1990, the Company adopted a Stock Option Plan (the "Stock Option Plan")
providing for the grant, from
53
time to time, of Options to key employees and officers of the Company or its
affiliates to purchase shares of Common Stock (Nonvoting). The Stock Option Plan
terminated on April 1, 2000. As of March 23, 2001, options granted under the
Stock Option Plan were outstanding for the purchase of 4,629,925 shares of
Common Stock (Nonvoting).
On April 27, 2000, the Company adopted a new stock option plan (the "2000 Stock
Option Plan") for officers and certain key employees of the Company and its
affiliates (collectively, the "Participating Persons"). The 2000 Stock Option
Plan provides for the grant of (i) Options intended to qualify as Incentive
Stock Options ("ISOs") as defined in Section 422 of the Code and (ii) Options
which do not qualify as ISOs ("NQSOs") to employees, officers, directors and
consultants of the Company or its affiliates to purchase an aggregate of
4,000,000 shares of Common Stock (Nonvoting). No Participating Person may be
granted ISOs which, when first exercisable in any calendar year (combined with
ISOs under all incentive stock option plans of the Company and its affiliates)
will permit such person to purchase stock of the Company having an aggregate
fair market value (determined as of the time the ISO was granted) of more than
$100,000. As of March 23, 2001, options granted under the 2000 Stock Option Plan
were outstanding for the purchase of 624,500 shares of Common Stock
(Nonvoting).
The 2000 Stock Option Plan is administered by the Stock Option
Committee which consists of not less than three members of the Board of
Directors appointed by the Board, and the Company's Compensation Committee,
which consists of not less than two members all of whom are non-employee
directors (collectively, the "Committee"). The members of the Stock Option
Committee are Mr. Cornwell, Mr. Stuart Beck and Mr. Settle. The members of
the Compensation Committee are Mr. Hamilton, Mr. Barfield, Ms. Pollard and
Mr. Settle. The Stock Option Committee is only authorized to grant Options to
persons who are not then "covered employees" within the meaning of Section
162(m) of the Internal Revenue Code or who are not then officers of the
Company or holders of 10% or more of the Voting Common Stock. The
Compensation Committee is authorized to make determinations with respect to
all other persons. Subject to the provisions of the 2000 Stock Option Plan,
the committee is empowered to, among other things, grant Options under the
2000 Stock Option Plan; determine which employees may be granted Options
under the 2000 Stock Option Plan, the type of Option granted (ISO or NQSO),
the number of shares subject to each Option, the time or times at which
Options may be granted and exercised and the exercise price thereof; construe
and interpret the 2000 Stock Option Plan; determine the terms of any option
agreement pursuant to which Options are granted (an "Option Agreement"), and
amend any Option Agreement with the consent of the recipient of Options (the
"Optionee"). The Board of Directors may amend or terminate the 2000 Stock
Option Plan at any time, except that approval of the holders of a majority of
the outstanding Voting Common Stock of the Company is required for amendments
which decrease the minimum option price for ISOs, extend the term of the 2000
Stock Option Plan beyond 10 years or the maximum term of the Options granted
beyond 10 years, withdraw the administration of the 2000 Stock Option Plan
from the Committee, change the class of eligible employees, officers or
directors or increase the aggregate number of shares which may be issued
pursuant to the provisions of the 2000 Stock Option Plan. Notwithstanding the
foregoing, the Board of Directors may, without the need for shareholder
approval, amend the 2000 Stock Option Plan in any respect to qualify ISOs as
Incentive Stock Options under Section 422 of the Code.
The exercise price per share for all ISOs may not be less than 100% of
the fair market value of a share of Common Stock (Nonvoting) on the date on
which the Option is granted (or 110% of the fair market value on the date of
grant of an ISO if the Optionee owns more than 10% of the total combined voting
power of all classes of voting stock of the Company or any of its affiliates (a
"10% Holder")). The exercise price per share for NQSOs may be less than, equal
to or greater than the fair market value of a share of Common Stock (Nonvoting)
on the date such NQSO is granted. Options are not assignable or transferable
other than by will or the laws of descent and distribution.
The Committee may provide, at or subsequent to the date of grant of any
Option, that in the event the Optionee pays the exercise price for the Option by
tendering shares of Common Stock (Nonvoting) previously
54
owned by the Optionee, the Optionee will automatically be granted a "reload
option" for the number of shares of Common Stock (Nonvoting) used to pay the
exercise price plus the number of shares withheld to pay for taxes associated
with the Option exercise (a "Reload Option"). The Reload Option has an exercise
price equal to the fair market value of the Common Stock (Nonvoting) on the date
of grant of the Reload Option and remains exercisable for the remainder of the
term of the Option to which it relates.
Unless sooner terminated by the Board of Directors, the 2000 Stock
Option Plan will terminate on April 27, 2010, 10 years after its effective date.
Unless otherwise specifically provided in an Optionee's Option Agreement, each
Option granted under the 2000 Stock Option Plan expires no later than 10 years
after the date such Option is granted (5 years for ISO's granted to 10%
Holders). Options may be exercised only during the period that the original
Optionee has a relationship with the Company which confers eligibility to be
granted Options and (i) for a period of 30 days after termination of such
relationship, (ii) for a period of 3 months after retirement by the Optionee
with the consent of the Company, or (iii) for a period of 12 months after the
death or disability of the Optionee.
MANAGEMENT STOCK PLAN
In April 1993, the Company adopted a Management Stock Plan (the
"Management Stock Plan") providing for the grant from time to time of awards
denominated in shares of Common Stock (Nonvoting) (the "Bonus Shares") to all
salaried executive employees of the Company. The purpose of the Management Stock
Plan is to keep senior executives in the employ of the Company and to compensate
such executives for their contributions to the growth and profits of the Company
and its subsidiaries. On February 15, 2001, the Company increased the reserve of
shares of Common Stock (Nonvoting) for grant under the Management Stock Plan to
1,500,000 from 1,000,000. All salaried executive employees (including officers
and directors, except for persons serving as directors only) are eligible to
receive a grant under the Management Stock Plan. The Management Stock Plan is
administered by a committee appointed by the Board of Directors which consists
of not less than two members of the Board of Directors (the "Management Stock
Plan Committee"). Pursuant to Board resolution, the members of the Compensation
Committee constitute the members of the Management Stock Plan Committee. The
Management Stock Plan Committee, from time to time, selects eligible employees
to receive a discretionary bonus of Bonus Shares based upon such employee's
position, responsibilities, contributions and value to the Company and such
other factors as the Management Stock Plan Committee deems appropriate. The
Management Stock Plan Committee has discretion to determine the date on which
the Bonus Shares allocated to an employee will be issued to such employee. The
Management Stock Plan Committee may, in its sole discretion, determine what part
of an award of Bonus Shares is paid in cash and what part of an award is paid in
the form of Common Stock (Nonvoting). Any cash payment will be made to such
employee as of the date the corresponding Bonus Shares would otherwise be issued
to such employee and shall be in an amount equal to the fair market value of
such Bonus Shares on that date.
As of March 23, 2001, the Company has allocated a total of 1,012,062
Bonus Shares pursuant to the Management Stock Plan, 852,187 of which had vested
through March 23, 2001.
DIRECTOR STOCK OPTION PLAN
On March 1, 1994, the Company adopted a Director Stock Option Plan (the
"Director Option Plan") providing for the grant, from time to time, of Options
to non-employee directors of the Company ("Director Participants") to purchase
Common Stock (Nonvoting). On July 27, 1999, the Company increased the number of
shares of Common Stock (Nonvoting) allocated for grant under the Director Option
Plan to 1,000,000 from 300,000. As of March 23, 2001, Options granted under the
Director Option Plan were outstanding for the purchase of 861,360 shares of
Common Stock (Nonvoting).
The Director Option Plan provides for the grant of NQSOs to Director
Participants. On February 25, 1997, , all non-employee directors automatically
received an option to purchase 18,000 shares of Common Stock (Nonvoting) as
compensation for attendance at regular quarterly meetings during the three year
period beginning on
55
such date in lieu of cash compensation. On April 27, 1999, the Director Option
Plan was amended to provide that all Director Participants automatically receive
on April 27, 1999 (and on each five year anniversary thereafter) an option to
purchase 62,500 shares of Common Stock (Nonvoting) as compensation for
attendance at regular quarterly meetings during the five year period beginning
on February 25, 2000 (on each five year anniversary thereof, as the case may be)
in lieu of cash compensation. Non-employee directors elected or appointed during
the course of a three year or five year option period receive Options, in lieu
of a cash compensation, for the remaining portion of such period. In addition,
under the Director Option Plan, non-employee directors receive Automatic
Committee Awards for certain committees of the Board of Directors on which they
serve.
Between February 25, 1997 and April 26, 1999, Options to purchase 1,500
shares of Common Stock (Nonvoting) became exercisable on the date of attendance
in person of a Director Participant at each regular quarterly meeting of the
Board of Directors. Options to purchase 500 shares of Common Stock (Nonvoting)
became exercisable if such Director Participant attended the meeting by
telephonic means. Since April 27, 1999, Options to purchase 3,125 shares of
Common Stock (Nonvoting) become exercisable on the date of attendance, in person
or by telephonic means, of a Director Participant at each regular quarterly
meetings of the Board of Directors. Between February 25, 1997 and February 24,
2000, Options to purchase 1,500 shares of Common Stock (Nonvoting) became
exercisable on the date of attendance in person at each regularly scheduled
meeting of the Audit Committee and the Compensation Committee of any Director
Participant who is a member of such committees. Since February 25, 2000, Options
to purchase 625 shares of Common Stock (Nonvoting) (875 in the case of Committee
chairs) become exercisable upon the date of attendance, in person or by
telephonic means, at each regular meeting of the Audit Committee and the
Compensation Committee of any Director Participant who is a member of such
committees. The exercise price per share of all Options is the fair market value
on the date of grant.
The Board of Directors may provide, at or subsequent to the date of
grant of any Option, that in the event the Director Participant pays the
exercise price for the Option by tendering shares of Common Stock (Nonvoting)
previously owned by the Director Participant, the Director Participant will
automatically be granted a "reload option" for the number of shares of Common
Stock (Nonvoting) used to pay the exercise price plus the number of shares
withheld to pay for taxes associated with the Option exercise (a "Reload
Option"). The Reload Option has an exercise price equal to the fair market value
of the Common Stock (Nonvoting) on the date of grant of the Reload Option and
remains exercisable for the remainder of the term of the Option to which it
relates.
Unless otherwise specifically provided in a Director Participant's
Option Agreement and except in the case of Reload Options as described above,
each Option granted under the Director Option Plan expires no later than 10
years after the date the Option is granted. Options may be exercised only during
the period that the original optionee is a non-employee director and (i) for a
period of 6 months after the death or disability of the Director Participant or
(ii) for a period of 2 years after termination of the Director Participant's
directorship for any other reason.
NON-EMPLOYEE DIRECTORS STOCK PLAN
On April 29, 1997, the Company adopted a Non-Employee Directors Stock
Plan (the "Non-Employee Directors Stock Plan") for the purpose of providing a
means to attract and retain highly qualified persons to serve as non-employee
directors of the Company and to enable such persons to acquire or increase a
proprietary interest in the Company. The Non-Employee Directors Stock Plan
provides that on January 1st of each calendar year (beginning in 1999) during
the term of the Non-Employee Directors Stock Plan, non-employee directors of the
Company ("Directors Stock Plan Participants") shall receive a number of shares
of Common Stock (Nonvoting) equal to $20,000 divided by the fair market value
per share on the date of grant. If a person first becomes a non-employee
director after January 1st of any calendar year, such a person receives a
prorated grant based on the number of regular board meetings scheduled from the
date of his or her commencement of service as a director until December 31 of
that year. On December 31, 2000, the Company increased the number of shares of
Common Stock (Nonvoting) available for issuance under the Non-Employee Directors
Stock Plan to 400,000 from 100,000. Each Directors Stock Plan Participant may
elect to defer the payment of shares of Common Stock (Nonvoting) by filing
56
an irrevocable written election with the Secretary of the Company.
The Non-Employee Directors Stock Plan, unless earlier terminated by
action of the Board of Directors, will terminate at such time as no shares
remain available for issuance under the Non-Employee Directors Stock Plan and
the Company and the Directors Stock Plan Participants have no further rights or
obligations under the Non-Employee Directors Stock Plan.
As of March 23, 2001, 232,399 shares had been granted under the
Non-Employee Directors Stock Plan.
The following table sets forth information with respect to Options
granted to the executive officers of the Company during 2000.
Option/SAR Grants in Last Fiscal Year
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------------------- ---------------------------
% OF TOTAL
OPTIONS/SARS
GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($ PER SHARE) DATE 5% ($) 10% ($)
- ---------------------- ---------- ---------- ------------- ------------ ------- -------
Robert E. Selwyn, Jr. 50,000(1) 6.9% 1.50 12/7/10 47,167 119,531
Lawrence I. Wills 10,000(2) 1.4% 10.125 1/13/10 63,676 161,366
111,250(3) 15.4% 1.50 12/7/10 104,947 265,956
Ellen McClain 10,000(2) 1.4% 10.125 1/13/10 63,676 161,366
115,000(4) 16.0% 1.50 12/7/10 108,484 274,921
- -------------
(1) Options to purchase 10,000 shares vest upon the achievement of
certain annual cash flow targets for each of fiscal years 2001
through 2005.
(2) Options to purchase 1,300 shares vest on each of January 1, 2001 and
January 1, 2002 and options to purchase 3,700 shares vest on each of
January 1, 2003 and January 1, 2004.
(3) Options to purchase 12,250 shares vest on each of December 31, 2001,
2002, 2003, 2004 and 2005. In addition, options to purchase 10,000
shares vest upon the achievement of certain annual cash flow targets
for each of fiscal years 2001 through 2005.
(4) Options to purchase 13,000 shares vest on each of December 31, 2001,
2002, 2003, 2004 and 2005. In addition, options to purchase 10,000
shares vest upon the achievement of certain annual cash flow targets
for each of fiscal years 2001 through 2005.
The following table sets forth, as of December 31, 2000, the number of
options and the value of unexercised options held by the Company's executive
officers who held options as of that date, and the options exercised and the
consideration received therefor by such persons during fiscal 2000.
Aggregated Option/SAR Exercises
In Last Fiscal Year And
FY-End Option/SAR Values
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 2000 AT DECEMBER 31, 2000 ($)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
W. Don Cornwell -- -- 821,600 1,105,400 -- --
Stuart J. Beck -- -- 843,200 921,300 -- --
Robert E. Selwyn, Jr. -- -- 200,000 150,000 -- --
Lawrence I. Wills -- -- 28,750 146,250 -- --
Ellen McClain -- -- 25,000 150,000 -- --
57
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2000, Thomas R. Settle, Charles J. Hamilton, Jr., Veronica
Pollard and Jon E. Barfield served as members of the Compensation Committee of
the Board of Directors of the Company.
58
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 1,
2001, regarding beneficial ownership of the (i) the Company's Voting Common
Stock by each shareholder who is known by the Company to own beneficially more
than 5% of the outstanding Voting Common Stock, each director, each executive
officer and all directors and officers as a group, and (ii) beneficial ownership
of the Company's Common Stock (Nonvoting) (assuming exercise of all options for
the purchase of Common Stock (Nonvoting), which exercise is at the option of the
holder within sixty (60) days) by each director, each executive officer and all
directors and officers as a group. The Company also has 236,184 shares of its
12.75% Cumulative Exchangeable Preferred Stock outstanding, none of which are
owned by any officers or directors of the Company. Except as set forth in the
footnotes to the table, each shareholder listed below has informed the Company
that such shareholder has (i) sole voting and investment power with respect to
such shareholder's shares of stock, except to the extent that authority is
shared by spouses under applicable law and (ii) record and beneficial ownership
with respect to such shareholder's shares of stock.
VOTING COMMON STOCK COMMON STOCK (NONVOTING)
------------------- ---------------------------------
SHARES
BENEFICIALLY OWNED
----------------- NUMBER OF SHARES PERCENT OF SHARES
NUMBER PERCENT BENEFICIALLY OWNED BENEFICIALLY OWNED (1)
------ ------- ------------------ -----------------------
W. Don Cornwell....... 98,250 55.0% 1,475,500 (2) 7.7%
Stuart J. Beck........ 80,250 45.0% 1,336,062 (3) 6.9%
Robert E. Selwyn, Jr.. 288,342 (4) 1.6%
Lawrence I. Wills..... 55,472 (5) *
Ellen McClain......... 41,491 (6) *
Martin F. Beck........ 217,908 (7) 1.2%
James J. Greenwald.... 170,773 (8) *
Edward Dugger III..... 67,994 (9) *
Thomas R. Settle...... 167,631 (10) *
Charles J. Hamilton, Jr. 114,294 (11) *
M. Fred Brown......... 63,783 (12) *
Jon E. Barfield....... 53,208 (13) *
Veronica Pollard...... 40,475 (14) *
All directors and
officers as a
group(10) ......... 178,500 100.0% 4,092,933 19.6%
- ------------
* Less than 1%.
(1) Percentage figures assume the exercise of options for the purchase of
Common Stock (Nonvoting) held by such shareholder, which conversion or
exercise is at the option of the holder within sixty (60) days.
(2) Includes 1,030,400 shares issuable upon exercise of options granted to
Mr. Cornwell under the Stock
59
Option Plan which are exercisable at the option of the holder within
sixty (60) days and a total of 6,300 shares held by Mr. Cornwell's
immediate family. Mr. Cornwell disclaims beneficial ownership with
respect to such 6,300 shares. The business address of Mr. Cornwell is
Granite Broadcasting Corporation, 767 Third Avenue, 34th Floor, New
York, New York, 10017.
(3) Includes 1,017,900 shares issuable upon exercise of options granted to
Stuart J. Beck under the Stock Option Plan which are exercisable at the
option of the holder within sixty (60) days and a total of 8,000 shares
held in trust for Mr. Beck's children. Mr. Beck disclaims beneficial
ownership with respect to such 8,000 shares. The business address of
Mr. Stuart Beck is Granite Broadcasting Corporation, 767 Third Avenue,
34th Floor, New York, New York, 10017.
(4) Includes 200,000 shares issuable upon exercise of options granted to
Mr. Selwyn under the Stock Option Plan which are exercisable at the
option of the holder within sixty (60) days.
(5) Includes 30,050 shares issuable upon the exercise of options granted to
Mr. Wills under the Stock Option Plan which are exercisable at the
option of the holder within sixty (60) days.
(6) Includes 26,300 shares issuable upon exercise of options granted to Ms.
McClain under the Stock Option Plan which are excercisable at the
option of the holder within 60 days.
(7) Includes 8,250 shares held by Mr. Beck's wife, 29,264 shares held by
the Martin F. Beck Family Foundation and 43,600 shares issuable upon
exercise of options granted under the Directors' Stock Option Plan
which are exercisable at the option of the holder within sixty (60)
days. Mr. Beck disclaims beneficial ownership with respect to shares
held by his spouse and by the Martin F. Beck Family Foundation.
(8) Includes 70,525 shares issuable upon exercise of options granted to Mr.
Greenwald under the Directors' Stock Option Plan which are exercisable
at the option of the holder within sixty (60) days.
(9) Includes 38,500 shares issuable upon exercise of Options granted to Mr.
Dugger under the Directors' Stock Option Plan which are exercisable at
the option of the holder within sixty (60) days.
(10) Includes 3,000 shares held by Mr. Settle's wife as custodian for his
children and 65,485 shares issuable upon exercise of options granted to
Mr. Settle under the Directors' Stock Option Plan which are exercisable
at the option of the holder within sixty (60) days. Mr. Settle
disclaims beneficial ownership with respect to the shares held by his
spouse.
(11) Includes 2,800 shares held by Mr. Hamilton's wife as custodian for
their minor children under the UGMA and 73,950 shares issuable upon
exercise of options granted to Mr. Hamilton under the Directors' Stock
Option Plan, which are exercisable at the option of the holder within
sixty (60) days. Mr. Hamilton disclaims beneficial ownership with
respect to the shares held by his spouse.
(12) Includes 200 shares held by Mr. Brown's children and 29,625 issuable
upon exercise of options granted to Mr. Brown under the Directors'
Stock Option Plan which are exercisable at the option of the holder
within sixty (60) days.
(13) Includes 29,250 shares issuable upon exercise of options granted to Mr.
Barfield under the Directors' Stock Option Plan which are exercisable
at the option of the holder within sixty (60) days.
(14) Includes 17,500 shares issuable upon exercise of options granted to Ms.
Pollard under the Directors' Stock Option Plan which are exercisable at
the option of the holder within sixty (60) days.
60
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Between 1995 and 1998, the Company loaned Mr. Cornwell, Chief Executive
Officer and Chairman of the Board of Directors, $2,911,000 in four separate
transactions to pay the exercise price on stock options exercises and certain
personal income taxes. On January 1, 2001, the Company loaned Mr. Cornwell an
additional $375,000. On February 15, 2001, the Company agreed to consolidate the
five loans into one loan in the amount of $3,286,000. The new promissory note
matures on January 25, 2006 or, if earlier, 30 days after the officer's
termination of employment. The new promissory note does not bear interest but
interest at an annual rate of 6.75 will be imputed as additional compensation to
the officer. The new promissory note allows for the loan to be forgiven in
one-third increments if the Company's Common Stock (Nonvoting) trades for ten
consecutive trading days at $15, $20, and $25, respectively, or if the per share
consideration received by the Company's common stockholders in a Change of
Control (as defined in the Indentures governing the Company's senior
subordinated notes) equals at least $15.00, $20.00 or $25.00, respectively. In
addition, on February 15, 2001 the Company forgave $232,247 of interest accrued
on Mr. Conrwell's loans during the year ended December 31, 2000.
In 1995, the Company loaned Mr. Stuart Beck, President and a member of
the Board of Directors, $221,200 to pay for certain personal taxes. On February
15, 2001, the Company agreed to cancel this loan and issue a new loan in the
same amount. The new promissory note matures on January 25, 2006 or, if earlier,
30 days after the officer's termination of employment. The new promissory note
does not bear interest but interest at an annual rate of 6.75 will be imputed as
additional compensation to the officer. The new promissory note allows for the
loan to be forgiven in one-third increments if the Company's Common Stock
(Nonvoting) trades for ten consecutive trading days at $15, $20, and $25,
respectively, or if the per share consideration received by the Company's common
stockholders in a Change of Control (as defined in the Indentures governing the
Company's senior subordinated notes) equals at least $15.00, $20.00 or $25.00,
respectively. In addition, on February 15, 2001 the Company forgave $19,908 of
interest accrued on Mr. Beck's loan during the year-ended December 31, 2000.
During 2000, the largest amount outstanding on such loans, including
accrued interest, to Messrs. Cornwell and Beck was $3,143,247 and $241,108,
respectively.
61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1 Financial Statements
GRANITE BROADCASTING CORPORATION
Report of Independent Auditors
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1999 and 2000
Consolidated Balance Sheets as of December 31, 1999 and 2000
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1999 and 2000
Notes to Consolidated Financial Statements
(a)2 Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
Schedule I -- Condensed Financial Information, Schedule III --
Real Estate and Accumulated Depreciation, Schedule IV --
Mortgage Loans on Real Estate and Schedule V -- Supplemental
Information Concerning Property - Casualty Insurance
Operations have been omitted because they are not applicable
to the Company.
(a)3 Exhibits
3.1(e)/ Third Amended and Restated Certificate of Incorporation of the Company, as amended.
3.2 Amended and Restated Bylaws of the Company.
3.3(h)/ Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional
and Other Special Rights of the Company's 12 3/4%, Cumulative Exchangeable Preferred Stock
and Qualifications, Limitations and Restrictions Thereof.
4.35(g)/ Fourth Amended and Restated Credit Agreement, dated as of June 10, 1998, among Granite
Broadcasting Corporation, as Borrower, the Lenders listed therein, Bankers Trust Company, as
Administrative Agent, The Bank of New York, as Documentation Agent, and Goldman Sachs Credit
Partners L.P., Union Bank of California, N.A. and ABN AMRO Bank N.V., as Co-Agents.
4.37(3)/ Indenture, dated as of May 19, 1995, between Granite Broadcasting Corporation and United
States Trust Company of New York for the Company's $175,000,000 Principal Amount 10-3/8%
Senior Subordinated Notes due May 15, 2005.
62
4.38(4)/ Form of 10-3/8% Senior Subordinated Note due May 15, 2005.
4.41(e)/ Indenture, dated as of February 22, 1996, between Granite Broadcasting Corporation and The
Bank of New York relating to the Company's $110,000,000 Principal Amount 9-3/8% Series A
Senior Subordinated Notes due December 1, 2005.
4.42(e)/ Form of 9-3/8% Series A Senior Subordinated Note due December 1, 2005.
4.43(h)/ Exchange and Registration Rights Agreement, dated as of January 31, 1997, by and between
Granite Broadcasting Corporation and Goldman, Sachs & Co., BT Securities Corporation, Lazard
Freres & Co. LLC and Salomon Brothers Inc.
4.44(h)/ Indenture, dated as of January 31, 1997, between Granite Broadcasting Corporation and The
Bank of New York for the Company's 12 3/4% Series A Exchange Debentures and 12 3/4% Exchange
Debentures due April 1, 2009.
4.45(h)/ Form of 12 3/4% Exchange Debenture due April 1, 2009 (included in the Indenture filed as
Exhibit 4.44).
4.49(p)/ Indenture dated as of May 11, 1998, between the Company and The Bank of New York, as Trustee,
relating to the Company's 8-7/8% Senior Subordinated Notes due May 15, 2008 (including form
of note).
4.50(q)/ Exchange and Registration Rights Agreement dated as of May 11, 1998, between Granite
Broadcasting Corporation and Goldman, Sachs & Co., Bear Stearns & Co. Inc. and Salomon
Brothers Inc.
4.51(x)/ Series A Warrant to purchase 2,500,000 shares of Common Stock of Granite Broadcasting
Corporation issued May 31, 2000 to National Broadcasting Company, Inc.
4.52(x)/ Series B Warrant to purchase 2,000,000 shares of Common Stock of Granite Broadcasting
Corporation issued May 31, 2000 to National Broadcasting Company, Inc.
4.53(x)/ Registration Rights Agreement, dated May 31, 2000 between Granite Broadcasting Corporation
and National Broadcasting Company, Inc.
4.54(z)/ Credit Agreement dated as of March 6, 2001, among Granite Broadcasting Corporation,as
Borrower, the Lenders party thereto, Goldman Sachs Credit Partners L.P., as Administrative
Agent, Tranche B Collateral Agent, Sole Lead Arranger and Sole Bookrunner, and Foothill
Capital Corporation, as Tranche A Collateral Agent.
4.55(z)/ Warrant to purchase 753,491 shares of Common Stock (Nonvoting) of Granite Broadcasting
Corporation issued March 6, 2001 to Goldman Sachs & Co.
10.1(v)/ Granite Broadcasting Corporation Stock Option Plan, as amended through October 26, 1999.
10.12(e)/ Network Affiliation Agreement (WPTA-TV).
10.13(1)/ Employment Agreement dated as of September 20, 1991 between Granite Broadcasting Corporation
and W. Don Cornwell.
10.14(1)/ Employment Agreement dated as of September 20, 1991 between Granite Broadcasting
63
Corporation and Stuart J. Beck.
10.15(p)/ Granite Broadcasting Corporation Management Stock Plan, as amended through April 28, 1998.
10.19(v)/ Granite Broadcasting Corporation Directors' Stock Option Plan, as amended through October 26,
1999.
10.20(3)/ Network Affiliation Agreement (WTVH-TV).
10.25(c)/ Granite Broadcasting Corporation Employee Stock Purchase Plan, dated February 28, 1995.
10.28(d)/ Network Affiliation Agreement (WKBW).
10.30(h)/ Employment Agreement dated as of September 19, 1996 between Granite Broadcasting Corporation
and Robert E. Selwyn, Jr.
10.31 Non-Employee Directors Stock Plan of Granite Broadcasting Corporation, as amended through
December 31, 2000.
10.32(i)/ Stock Purchase Agreement, dated as of October 3, 1997, by and among Granite Broadcasting
Corporation, Pacific FM Incorporated, James J. Gabbert and Michael P. Lincoln.
10.33(j)/ Purchase and Sale Agreement, dated as of February 18, 1998, among Granite Broadcasting
Corporation, Freedom Communications, Inc., WWMT-TV, Inc., WLAJ, Inc. and WWMT License, Inc.
10.34(m)/ First Amendment to Purchase and Sale Agreement, dated as of July 20, 1998 among Granite
Broadcasting Corporation, Pacific FM Incorporated, James J. Gabbert and Michael P. Lincoln.
10.35(r)/ Purchase and Sale Agreement, dated as of July 15, 1998, among Granite Broadcasting
Corporation, WLAJ, Inc., WLAJ License, Inc., WWMT-TV, Inc. and WWMT-TV License, Inc.
10.36(n)/ Stock Purchase Agreement, dated as of June 26, 1998, between Granite Broadcasting Corporation
and The Michael Lincoln Charitable Remainder Unitrust.
10.37(o)/ Stock Purchase Agreement, dated as of June 26, 1998, between Granite Broadcasting Corporation
and The James J. Gabbert Charitable Remainder Unitrust.
10.38(t)/ Extension Letter, dated February 28, 1999 between Granite Broadcasting Corporation and Robert
E. Selwyn, Jr. extending the term of Mr. Selwyn's Employment Agreement to January 31, 2003.
10.39(t)/ First Amendment, dated as of March 23, 1999, to the Fourth Amended and Restated Credit
Agreement, dated as of June 10, 1998, by and among Granite Broadcasting Corporation, the
Lenders listed therein and Bankers Trust Company, as Administrative Agent.
10.40(s)/ Limited Waiver, dated August 31, 1999 to the Fourth Amended and Restated Credit Agreement,
dated as of June 10, 1998, as amended by and among Granite Broadcasting
64
Corporation, the Lenders listed therein and Bankers Trust Company, as Administrative Agent,
The Bank of New York, as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union
Bank of California, N.A., and ABN Amro Bank N.V., as Co-Agents.
10.41(s)/ Amendment dated July 26, 1999 to the Network Affiliation Agreement (KNTV(TV)).
10.42(u)/ Purchase and Sale Agreement, dated as of April 28, 1999, among CBS Corporation, Granite
Broadcasting Corporation, KBVO, Inc. and KBVO License, Inc.
10.43(v)/ Form of Second Amendment, dated February 16, 2000 to the Fourth Amended and Restated Credit
Agreement, dated as of June 10, 1998, as amended by and among Granite Broadcasting
Corporation, the Lenders listed therein and Bankers Trust Company, as Administrative Agent,
The Bank of New York, as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union
Bank of California, N.A., and ABN Amro Bank N.V., as Co-Agents.
10.44(v)/ Form of Third Amendment, dated March 17, 2000 to the Fourth Amended and Restated Credit
Agreement, dated as of June 10, 1998, as amended by and among Granite Broadcasting
Corporation, the Lenders listed therein and Bankers Trust Company, as Administrative Agent,
The Bank of New York, as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union
Bank of California, N.A., and ABN Amro Bank N.V., as Co-Agents.
10.46(w)/ The Granite Broadcasting Corporation 2000 Stock Option Plan, dated as of April 25, 2000.
10.47(x)/ Network Affiliation Agreement, dated as of May 31, 2000 among Granite Broadcasting
Corporation, the Parties set forth on Schedule I thereto, and NBC Television Network
(KNTV(TV), KSEE, KBJR and WEEK-TV).
10.48(X)/ Supplemental Agreement, dated as of May 31, 2000, between Granite Broadcasting Corporation
and National Broadcasting Company, Inc.
10.49(y)/ Form of Limited Waiver,and Fourth Amendment, dated November 6, 2000 to the Fourth Amended and
Restated Credit Agreement, dated as of June 10, 1998, as amended by and among Granite
Broadcasting Corporation, the Lenders listed therein and Bankers Trust Company, as
Administrative Agent, The Bank of New York, as Documentation Agent, and Goldman Sachs Credit
Partners L.P., Union Bank of California, N.A., and ABN Amro Bank N.V., as Co-Agents.
10.50(z)/ Amended and Restated Network Affiliation Agreement, dated as of March 6, 2001 among Granite
Broadcasting Corporation, the Parties set forth on Schedule I thereto, and NBC Television
Network (KNTV(TV)).
10.51(z)/ Amended and Restated Network Affiliation Agreement, dated as of March 6, 2001 among Granite
Broadcasting Corporation, the Parties set forth on Schedule I thereto, and NBC Television
Network (KSEE, KBJR-TV and WEEK-TV).
21. Subsidiaries of the Company.
65
23. Consent of Independent Auditors (Ernst & Young LLP).
27. Financial Data Schedule.
- ---------------
(1)/ Incorporated by reference to the similarly numbered exhibits to the
Company's Registration Statement No. 33-43770 filed on November 5,
1991.
(2)/ Incorporated by reference to the similarly numbered exhibits to
Amendment No. 2 to Registration Statement No. 33-71172 filed December
16, 1993.
(3)/ Incorporated by reference to the similarly numbered exhibits to the
Company's Registration Statement No. 33-94862 filed on July 21, 1995.
(4)/ Incorporated by reference to the similarly numbered exhibits to
Amendment No. 2 to Registration Statement No. 33-94862 filed on October
6, 1995.
(c)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994, filed on March 29, 1995.
(d)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Current Report on Form 8-K filed on July 14, 1995.
(e)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, filed on March 28, 1996.
(g)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Current Report on Form 8-K, filed on July 1, 1998.
(h)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, filed on March 21, 1997.
(i)/ Incorporated by reference to Exhibit Number 1 to the Company's Current
Report on Form 8-K, filed on October 17, 1997.
(j)/ Incorporated by reference to Exhibit Number 1 to the Company's Current
Report on Form 8-K, filed on March 2, 1998.
(k)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, filed on May 1, 1998.
(m)/ Incorporated by reference to Exhibit Number 2.5 to the Company's
Current Report on Form 8-K, filed on August 13, 1998.
(n)/ Incorporated by reference to Exhibit Number 2.3 to the Company's
Current Report on Form 8-K, filed on July 1, 1998.
(o)/ Incorporated by reference to Exhibit Number 2.4 to the Company's
Current Report on Form 8-K, filed on July 1, 1998.
66
(p)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Registration Statement No. 333-56327 filed on June 8, 1998.
(q)/ Incorporated by reference to Exhibit Number 99.3 to the Company's
Registration Statement No. 333-56327 filed on June 8, 1998.
(r)/ Incorporated by reference to Exhibit Number 2.6 to the Company's
Current Report on Form 8-K, filed on August 13, 1998.
(s)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, filed on November 15, 1999.
(t)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, filed on March 31, 1999.
(u)/ Incorporated by reference to Exhibit Number 1 on the Company's Current
Report on Form 8-K, filed on May 11, 1999.
(v)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1999, filed on March 30, 2000.
(w)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, filed on May 15, 2000.
(x)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, filed on August 14, 2000.
(y)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 2000, filed on November 14, 2000.
(z)/ Incorporated by reference to the similarly numbered exhibit to the
Company's Current Report on Form 8-K, filed on March 9, 2001.
67
(b) Reports on Form 8-K.
None
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 30th day of March, 2001.
GRANITE BROADCASTING CORPORATION
By: /s/ W. DON CORNWELL
------------------------------------
W. Don Cornwell
Chief Executive Officer and Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ W. DON CORNWELL Chief Executive Officer March 30, 2001
- --------------------------------- (Principal Executive Officer) and Chairman
(W. Don Cornwell) of the Board of Directors
/s/ LAWRENCE I. WILLS Senior Vice President -- Chief Administrative March 30, 2001
- ---------------------------------- Officer (Principal Accounting Officer)
(Lawrence I. Wills)
/s/ ELLEN McCLAIN Senior Vice President -- Chief Financial Officer March 30, 2001
- -------------------------------------- (Principal Financial Officer)
(Ellen McClain)
/s/ STUART J. BECK President and Secretary and Director March 30, 2001
- --------------------------------------
(Stuart J. Beck)
/s/ ROBERT E. SELWYN, JR. Chief Operating Officer and Director March 30, 2001
- --------------------------------
(Robert E. Selwyn, Jr.)
/s/ MARTIN F. BECK Director March 30, 2001
- -------------------------------------
(Martin F. Beck)
Director
- -------------------------------
(James L. Greenwald)
/s/ EDWARD DUGGER III Director March 30, 2001
- ---------------------------------
(Edward Dugger III)
/s/ THOMAS R. SETTLE Director March 30, 2001
- ----------------------------------
(Thomas R. Settle)
/s/ CHARLES J. HAMILTON, JR. Director March 30, 2001
- ------------------------------
(Charles J. Hamilton, Jr.)
Director
- -------------------------------------
(M. Fred Brown)
/S/ JON E. BARFIELD Director March 30, 2001
- ----------------------------------------
(Jon E. Barfield)
/s/ VERONICA E. POLLARD Director March 30, 2001
- ---------------------------------
(Veronica E. Pollard)
69