Back to GetFilings.com

Table of Contents

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

x Quarterly Report pursuant to Section 13 OR 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003

Four Richmond Square, Suite 200, Providence, Rhode Island 02906
(Address of principal executive offices)

(401) 454-2880
(Registrant’s telephone number, including area code)

     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 o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

     This combined Form 10-Q is separately filed by (i) LIN TV Corp. and (ii) LIN Television Corporation. LIN Television Corporation meets the conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this form with the reduced disclosure format permitted by such instruction.

LIN TV Corp. Class A common stock, $0.01 par value, issued and outstanding at May 5, 2003: 26,348,028 shares.
LIN TV Corp. Class B common stock, $0.01 par value, issued and outstanding at May 5, 2003: 23,579,790 shares.
LIN TV Corp. Class C common stock, $0.01 par value, issued and outstanding at May 5, 2003: 2 shares.
LIN Television Corporation common stock, $0.01 par value, issued and outstanding at May 5, 2003: 1,000 shares.

Table of Contents

Table of Contents

-1-

Table of Contents

PART I. FINANCIAL INFORMATION

The accompanying notes are an integral part of the condensed consolidated financial statements.

-2-

Table of Contents

LIN TV CORP.

Condensed Consolidated Statements of Operations

The accompanying notes are an integral part of the condensed consolidated financial statements.

-3-

Table of Contents

LIN TV Corp.

Condensed Consolidated Statements of Cash Flows

The accompanying notes are an integral part of the condensed consolidated financial statements.

-4-

Table of Contents

LIN TV Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1 — Basis of Presentation:

     LIN TV Corp., together with its subsidiaries, including LIN Television Corporation (“LIN Television”) (together, the “Company”), is a television station group operator in the United States and Puerto Rico. LIN TV Corp. and its subsidiaries are affiliates of Hicks, Muse, Tate & Furst Incorporated (“Hicks Muse”).

     These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company filed audited financial statements for the year ended December 31, 2002 in its annual report on Form 10-K, which includes all such information and disclosures.

     In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to summarize fairly the financial position, results of operations and cash flows of the Company for the periods presented. The interim results of operations are not necessarily indicative of the results to be expected for the full year.

     The Company’s preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Estimates are used when accounting for the collectibility of accounts receivable and valuing intangible assets, deferred tax assets and net assets of businesses acquired. Actual results could differ from these estimates. Certain prior period amounts have been reclassified to conform to the current period presentation.

     The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. The Company did not incur stock-based employee compensation costs for the three months ended March 31, 2003 and 2002, respectively, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS Statement No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation (in thousands, except for per share data).

     The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for option grants under the Company’s stock option plans issued during the three months ended March 31, 2003 and 2002, respectively: volatility factors of 33%, and 35%, risk-free interest rates of 1.5%-3.25% and

-5-

Table of Contents

3.4% - 5.1%, respectively, weighted-average expected life of 2-6 years, and no dividend yields.

     The weighted average fair value of grants made under the Company’s stock option plans during the three months ended March 31, 2003 and 2002 are $6.65, and $6.73, respectively.

Note 2 — Available for Sale Securities:

     During the quarter ended March 31, 2003, the Company liquidated all of its available for sale securities for proceeds of $23.7 million. The amortized cost and fair value of the Company’s available-for-sale securities by major security type and class of security at December 31, 2002 was as follows (in thousands):

     Dividend and interest income, including amortization of the premium and discount arising at acquisition, has been included in earnings.

Note 3 — Assets Held for Sale:

     On December 13, 2002, the Company entered into an agreement with Mission Broadcasting, Inc. (“Mission”) in which the Company agreed to sell the assets of the television stations of KRCB-TV in Abilene, Texas and KACB-TV in San Angelo, Texas, for $10.0 million in cash plus working capital. Accordingly, the Company has classified the assets and liabilities associated with these stations as held for sale on its balance sheet as of March 31, 2003 and December 31, 2002. In December 2002, the Company received a deposit of $1.5 million from Mission, which the Company recorded in other current liabilities. The operating results of these stations have been recorded as discontinued operations for the three months ended March 31, 2003.

     Concurrent with entering into the agreement to sell the stations, the Company entered into a local marketing agreement (“LMA”) with Mission, pursuant to which Mission began operating KRCB-TV and KACB-TV beginning January 1, 2003. Under the terms of the LMA, the Company transferred all economic benefit derived from the stations to Mission for the period from January 1, 2003 until such time as the transaction is either consummated or terminated. Accordingly, at March 31, 2003, the Company has recorded a liability equal to the net operating results of the stations for the period from January 1, 2003 to March 31, 2003, offsetting the results of discontinued operations in the Company’s statement of operations. This liability is included in liabilities held for sale at March 31, 2003.

The carrying amounts of the assets and liabilities of the television stations are as follows (in thousands):

-6-

Table of Contents

Note 4 — Equity Investments:

     The Company has investments in a number of ventures with third parties, through which it has an interest in television stations in locations throughout the United States of America. The following presents the Company’s basis in these ventures (in thousands):

     Joint Venture with NBC: The Company owns a 20.38% interest in a joint venture with NBC and accounts for its interest using the equity method, as the Company does not have a controlling interest. The Company received distributions of $1.6 million from the joint venture in the three months ended March 31, 2003. The Company received no cash distributions from the joint venture in the three-months ended March 31, 2002. The following presents the summarized financial information of the joint venture (in thousands):

-7-

Table of Contents

     WAND (TV) Partnership: The Company has a 33.33% interest in a partnership, WAND (TV) Partnership, with Block Communications. The Company accounts for its interest using the equity method, as the Company does not have a controlling interest. The Company has also entered into a management services agreement with WAND (TV) Partnership to provide specified management, engineering and related services for a fixed fee. Included in this agreement is a cash management arrangement under which the Company incurs expenditures on behalf of WAND (TV) Partnership and is periodically reimbursed. Amounts due to the Company from WAND (TV) Partnership under this arrangement were approximately $535,000 and $187,000 as of March 31, 2003 and December 31, 2002, respectively. The following presents the summarized financial information of the WAND (TV) Partnership (in thousands):

     Banks Broadcasting, Inc: The Company owns preferred stock that represents a 50% non-voting interest in Banks Broadcasting, Inc. The Company is able to exercise significant, but not controlling, influence over the activities of Banks Broadcasting, Inc. through representation on the Board of Directors and, therefore, accounts for its investment using the equity method. The Company has also entered into a management services agreement with Banks Broadcasting, Inc. to provide specified management, engineering and related services for a fixed fee. Included in this agreement is a cash management arrangement under which the Company incurs expenditures on behalf of Banks Broadcasting, Inc. and is periodically reimbursed. Amounts due to the Company from Banks Broadcasting, Inc. under this arrangement were approximately $841,000 and $82,000 as of March 31, 2003 and December 31, 2002, respectively. The following presents the summarized financial information of Banks Broadcasting, Inc. (in thousands):

-8-

Table of Contents

Note 5 — Intangible Assets:

     The following table summarizes the carrying amount of each major class of intangible assets (in thousands):

     Amortization expense was approximately $275,000 for the three months ended March 31, 2003. There was no amortization expense for the three months ended March 31, 2002. There was approximately $228,000 of amortization expense recorded on the local marketing agreement (“LMA”) purchase option for the three months ended March 31, 2003. The Company expects that its remaining LMA purchase option will be fully amortized in 2007. The Company recorded approximately $47,000 of amortization expense on network affiliation agreements and income leases for the three months ended March 31, 2003. The network affiliation agreements will be fully amortized by their expiration dates, which range from August 29, 2004 to December 31, 2010, and the income leases will be fully amortized by November 2006.

     As required by Statement of Financial Accounting Standards (SFAS No. 142) “Goodwill and Other Intangible Assets”, the Company completed a transitional impairment test for goodwill and broadcast licenses as of January 1, 2002. As a result of this test, an impairment loss of $47.2 million ($30.7 million, net of tax benefit) was recorded in the first quarter of 2002 to reflect the write-down of certain broadcast licenses to their fair value. There was no impairment to the goodwill and broadcast licenses as of March 31, 2003 and December 31, 2002.

-9-

Table of Contents

Note 6 -Debt:

     Debt consisted of the following (in thousands):

     On February 7, 2003, the Company obtained a new $175.0 million term loan as part of an amendment to its existing credit facility. In March 2003, the Company used the proceeds from the new loan, a drawdown of $75.0 million from its existing revolving credit facility and cash on hand to retire the debt of the Company’s LIN Holdings Corp. subsidiary (“LIN Holdings”), consisting of $276.0 million aggregate principal amount of 10% Senior Discount Notes due 2008 and $100.0 million aggregate principal amount of 10% Senior Discount Add-On Notes due 2008. The Company incurred a charge of approximately $29.5 million related to the write-off of unamortized financing fees and discounts and associated costs as a result of the early extinguishment of LIN Holdings’ debt.

     The repayment of the term loan begins September 30, 2003 with 1% of the original principal repaid each quarter until final maturity on December 31, 2007. The revolving credit facility is available until the scheduled termination date of March 31, 2005. Borrowings under the Senior Facilities bear interest at a rate based, at option, on an adjusted LIBOR rate, plus an applicable margin range of 2.00% to 2.25% for the term loan and 1.50% to 2.75% for the revolving credit facility depending on whether the Company has met certain ratios specified in the senior credit agreement. The Company is required to pay quarterly commitment fees ranging from 0.375% to 0.750%, based upon the Company’s leverage ratio for that particular quarter, on the unused portion of the senior credit facilities, in addition to annual agency and other administration fees.

Note 7 — Related Party Transactions:

Financial Advisory Agreement. The Company is party to an agreement with Hicks, Muse & Co. Partners, L.P. (“Hicks Muse Partners”), pursuant to which the Company reimburses Hicks Muse Partners, an affiliate of Hicks Muse, for certain reimbursable expenses incurred by it in connection with rendering services relating to acquisitions, sales, mergers, exchange offers, recapitalization, restructuring or similar transactions allocable to the Company. The Company incurred fees under this arrangement of $15,000 and $22,000 for the three months ended March 31, 2003 and 2002, respectively.

Monitoring and Oversight Agreement. The Company was party to an agreement with Hicks Muse Partners, pursuant to which the Company agreed to pay Hicks Muse Partners an annual fee (payable quarterly) for oversight and monitoring services. Hicks Muse Partners was also entitled to reimbursement for any expenses incurred by it in connection with rendering services allocable to the Company. The annual fee was approximately $313,000 for the period ended March 31,

-10-

Table of Contents

2002. The Company and Hicks Muse Partners agreed to terminate this agreement on May 2, 2002 in exchange for an aggregate fee of $16.0 million consisting of an amount payable in cash of $6.2 million, $7.1 million in a promissory note and vested warrants to purchase 123,466 shares of the Company’s class B common stock at a price of $0.01 valued at $2.7 million.

Note 8 — Contingencies:

GECC Note. GECC provided debt financing in connection with the formation of the joint venture with NBC in the form of an $815.5 million 25-year non-amortizing senior secured note bearing an initial interest rate of 8.0% per annum. During the last five years, the joint venture has produced cash flows to support the interest payments and to maintain minimum levels of required working capital reserves. In addition, the joint venture has made cash distributions to the Company and to NBC from the excess cash generated by the joint venture of approximately $19.3 million on average each year during the past three years. Accordingly, the Company expects that the interest payments on the GECC note will be serviced solely by the cash flow of the joint venture. The GECC note is not an obligation of the Company, but is recourse to the joint venture, the Company’s equity interests therein and to LIN TV Corp., pursuant to a guarantee. If the joint venture were unable to pay principal or interest on the GECC note and GECC could not otherwise get its money back from the joint venture, GECC could require LIN TV Corp. to pay the shortfall of any outstanding amounts under the GECC note. If this happened, the Company could experience material adverse consequences, including:

	•		GECC could force LIN TV Corp. to sell the stock of LIN Television held by LIN TV Corp. to satisfy outstanding amounts under the GECC note;
	•		if more than 50% of the ownership of LIN Television had to be sold to satisfy the GECC Note, it could cause an acceleration of the Company’s senior credit facilities and senior notes; and
	•		if the GECC note is prepaid because of an acceleration on default or otherwise, or if the note is repaid at maturity, the Company may incur a substantial tax liability.

     The joint venture is approximately 80% owned by NBC, and NBC controls the operations of the stations through a management contract. Therefore, the operation and profitability of those stations and the likelihood of a default under the GECC note are primarily within NBC’s control.

Note 9 — Earnings per Share:

     Basic and diluted loss per common share are computed in accordance with SFAS No. 128, “Earnings per Share.” Basic loss per common share is computed by dividing loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. There is no difference between basic and diluted loss per common share since potential common shares from the exercises of stock options and phantom units are anti-dilutive for all periods presented and are, therefore, excluded from the calculation. Options to purchase 2,979,000 and 3,076,000 shares of common stock, and phantom units exercisable into 672,000 and 682,000 shares of common stock, were outstanding at March 31, 2003 and 2002, respectively, but were not included in the calculation of diluted loss per share because the effect of their inclusion would have been anti-dilutive.

Note 10 -Income Taxes:

     Prior to January 1, 2002, the Company recorded deferred tax liabilities relating to the difference in the book basis and tax basis of goodwill and intangibles. The reversals of those deferred tax liabilities were utilized to support the recognition of deferred tax assets (primarily consisting of net operating loss carryforwards) recorded by the Company. As a result of the adoption of SFAS No. 142, those deferred tax liabilities will no longer reverse on a scheduled basis and can no longer be utilized to support the realization of deferred tax assets. Accordingly, during the periods ended March 31, 2003 and 2002, the Company recorded non-cash charges of approximately $16.1 million and $19.9 million, respectively, as part of its provision for income taxes to maintain a valuation allowance against its deferred tax assets. This expense has no impact on the Company’s cash flows.

Note 11 — Recently Issued Accounting Pronouncements:

-11-

Table of Contents

     On April 30, 2003 the FASB issued FASB Statement No. 149 (SFAS No. 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the accounting guidance on (1) derivative instruments (including certain derivative instruments embedded in other contracts) and (2) hedging activities that fall within the scope of FASB Statement No. 133 (SFAS No. 133), “Accounting for Derivative Instruments and Hedging Activities.”

     SFAS No. 149 amends SFAS No. 133 and certain other existing pronouncements, which will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting.

     SFAS No. 149 is effective (1) for contracts entered into or modified after June 30, 2003, with certain exceptions, and (2) for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. The Company does not believe that SFAS No. 149 will have a significant impact on reported financial position or results of operations.

-12-

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

     This quarterly report on Form 10-Q contains certain forward-looking statements with respect to our financial condition, results of operations and business, including statements under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All of these forward-looking statements are based on estimates and assumptions made by our management which, although we believe to be reasonable, are inherently uncertain. Therefore, you should not place undue reliance upon such estimates and statements. We cannot assure you that any of such estimates or statements will be realized and it is likely that actual results will differ materially from those contemplated by such forward-looking statements. Factors that may cause such differences include:

	•		volatility and changes in our advertising revenues;
	•		the outbreak and duration of hostilities or the occurrence of terrorist attacks and the duration and extent of network preemption of regularly scheduled programming and decisions by advertisers to withdraw or delay planned advertising expenditures as a result of military action or terrorist attacks;
	•		restrictions on our operations due to, and the effect of, our significant leverage;
	•		effects of complying with new accounting standards, including with respect to the treatment of our intangible assets;
	•		inability to consummate acquisitions on attractive terms;
	•		increases in our cost of borrowings or inability or unavailability of additional debt or equity capital;
	•		increased competition, including from newer forms of entertainment and entertainment media or changes in the popularity or availability of programming;
	•		increased costs, including increased capital expenditures as a result of necessary technological enhancements such as expenditures related to the transition to digital broadcasting, or acquisitions or increased programming costs;
	•		effects of our control relationships, including the control that Hicks Muse and its affiliates have with respect to corporate transactions and activities we undertake;
	•		loss of network affiliations;
	•		adverse state or federal legislation or regulation or adverse determinations by regulators including adverse changes in, or interpretations of, the exceptions to the FCC “duopoly” rule;
	•		and changes in general economic conditions in the markets in which we compete.

     Many of these factors are beyond our control. Forward-looking statements contained herein speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

History of Losses

     We have had net losses of $40.9 million, $47.2 million, $61.7 million and $34.2 million for the three months ended March 31, 2003 and the years ended December 31, 2002, 2001 and 2000, respectively, primarily as a result of amortization of intangible assets and debt service obligations. In addition, as of March 31, 2003, we had an accumulated

-13-

Table of Contents

deficit of $245.3 million. As of March 31, 2003, we had $754.0 million of total debt.

          LIN Television has had net losses of $906,000, $751,000, $39.7 million and $17.5 million for the three months ended March 31, 2003 and the years ended December 31, 2002, 2001 and 2000, respectively, primarily as a result of amortization of intangible assets and debt service obligations. In addition, as of March 31, 2003, LIN Television had an accumulated deficit of $93.2 million. As of March 31, 2003, LIN Television had $754.0 million of total debt.

Business

          We are a leading pure-play television company covering the United States and Puerto Rico. Our stations cover approximately 6.7% of U.S. television households and all of the 1.2 million television households in Puerto Rico, ranking us among the top independent pure-play television station group operators. We believe we are well positioned to benefit from future growth and to participate in a consolidation of our industry, including opportunities that may arise as a result of changes in the regulatory environment.

          In May 2002, we amended our charter to create three classes of common stock. Class A common stock and class C common stock are voting common stock, although class C common stock is entitled to 70% of our voting power. Class B common stock has no voting rights, except that without consent of a majority of the class B common stock, we may not enter into a wide range of corporate transactions. The equity restructuring was intended to facilitate the public offering by enabling us to issue voting stock while otherwise preserving the pre-existing equity structure, in which the Class B stockholders were insulated from being deemed to have an attributable ownership interest in our media holdings pursuant to the rules of the FCC. The following diagram summarizes our ownership, voting and operational structure as of March 31, 2003:

          Substantially all of the shares of our class B common stock are held by affiliates of Hicks Muse and the remainder are held by former affiliates of Hicks Muse. The class B common stock is convertible into class A common stock and class C common stock in certain circumstances. As of March 31, 2003, if affiliates of Hicks Muse converted the shares of class B common stock held by them into shares of class A common stock, the shares of class C common stock would automatically convert to shares of class A common stock, and the two shares of class C common stock would represent less than 0.01%, and affiliates of Hicks Muse would own approximately 47%, in each case, of the total number of shares of class A common stock outstanding. Hicks Muse has advised us that it has no current intention to convert shares of our class B common stock held by its affiliates into shares of our class A common stock or class C common stock. Hicks Muse has further advised us that it believes it would consider electing to convert its shares of our class B common stock if the legal requirements limiting ownership of interests in broadcast and other media businesses change to permit the ownership of voting interests in us by Hicks Muse or if it disposes of its interests in other broadcast or media businesses that would give rise to legal ownership limitations a result of the share conversion.

-14-

Table of Contents

Our Stations

          We own 24 stations, operate 2 stations pursuant to local marketing agreements and have equity investments in 5 stations. We have entered into local marketing agreements with respect to two of our owned stations pursuant to which third parties operate these stations. The following table lists the stations that we either operate or in which we have an equity investment:

1.

Designated Market Area (“DMA”) rank and percentage of DMA TV households, or DMA TV HH, estimates are taken from Nielsen Media Research Local Universe Estimates for the 2002-2003 Broadcast Season, September 21, 2002. The DMA rank lists the top 210 DMA with #1 representing the largest DMA market in terms of television households.

-15-

Table of Contents

	2.		“O&O” indicates stations we own and operate. “LMA” indicates stations to which we provide services under a local marketing agreement. An LMA is a programming agreement between two separately owned television stations serving a common television market. Under an LMA agreement, the licensee of one station provides substantial portions of the broadcast programming for airing on the other licensee’s station, subject to ultimate programming and other controls being exercised by the second licensee, and sells advertising time. “JV” indicates a station owned and operated by a joint venture in which we are a party.
	3.		KRBC-TV and KACB-TV are being programmed by Mission Broadcasting, Inc. under an LMA agreement with us.

     We have a 33.33% interest in WAND (TV) Partnership with Block Communications, which owns and operates WAND-TV, an ABC affiliate in Decatur, Illinois. On April 1, 2000, we exchanged, with Block Communications, Inc., a 66.67% interest held by us in certain assets of WAND-TV, including its FCC license and network affiliation agreement, for substantially all of the assets and certain liabilities of WLFI-TV, Inc. Immediately after the WAND-TV exchange, we and Block Communications contributed our respective interests in the WAND-TV assets to a partnership, whereby we received a 33.33% interest in the partnership and Block Communications received a 66.67% interest. We provide ongoing management oversight to the partnership, including engineering and cash management services, pursuant to a management services agreement with the partnership. During the year ended December 31, 2002, the partnership had $8.1 million in revenue and we received an aggregate of $800,000 in distributions from the partnership. The partnership has no outstanding significant debt obligations and the partners have not provided a guarantee to the partnership.

     We also hold a 50% non-voting equity interest in Banks Broadcasting, Inc., which owns and operates KWCV-TV, a WB affiliate in Wichita, Kansas, and KNIN-TV, a UPN affiliate in Boise, Idaho. On August 15, 2000, we, 21st Television, L.L.C., an entity in which Hicks Muse has a substantial indirect economic interest, and BancAmerica Capital Investors SBICI, L.P. formed Banks Broadcasting, Inc. We contributed our interest in WLBB Broadcasting, LLC, and we and 21st Television both contributed our respective interests in Banks-Boise, Inc., to Banks Broadcasting. Two of our officers serve as members of the Board of Directors of Banks Broadcasting. We provide cash management, accounting and engineering support services to Banks Broadcasting in exchange for a fixed annual fee pursuant to a management services agreement with Banks Broadcasting. In addition, we provide 50% of the capital contributions that are required to fund capital expenditures for property, plant and equipment, and for any working capital shortfalls that are incurred by Banks Broadcasting. In addition, we provide services under a joint sales agreement to two stations, WZPX-TV in Grand Rapids, Michigan, and WPXV-TV in Norfolk, Virginia, which are owned by Paxson Communications Corporation. As of December 31, 2002, we had invested $16.7 million in Banks Broadcasting.

     We also have an approximate 20% equity interest in a television station joint venture with NBC, which owns all of the remaining interest. The joint venture, which we entered into with NBC on March 3, 1998, consists of television stations KXAS-TV, formerly our Dallas, Texas NBC affiliate, and KNSD-TV, formerly NBC’s San Diego, California NBC affiliate. A wholly owned subsidiary of NBC is the general partner of the joint venture and NBC operates the stations owned by the joint venture pursuant to a management agreement and has managerial control over the joint venture pursuant to a management agreement and has managerial control over the joint venture. GECC provided debt financing for the joint venture in the form of an $815.5 million, 25-year non-amortizing senior secured note bearing an initial interest rate of 8.0% per annum (“GECC Note”). We expect that the interest payments on the GECC Note will be serviced solely by the cash flow of the joint venture. All cash of the joint venture available for distribution will be distributed to us and the NBC general partner based on our respective equity interests in the joint venture. During the year ended December 31, 2002, the joint venture generated $170.9 million of revenue and distributed $5.6 million of cash to us.

     We own or operate 28 additional low-power television stations, of which 22 received class A status. In Grand Rapids, Michigan, Austin, Texas and Indianapolis, Indiana we have been able to program multiple low power stations in a “network” covering the majority of the applicable market and functioning like a full-power station and our low power stations in these three markets are affiliated with UPN, Univision’s Telefutura Network and the Univision network, respectively. The remaining 14 low power stations are independent and used primarily to extend the coverage of the primary stations.

Business Combinations and Dispositions

     We have developed our business through a combination of acquisitions, dispositions and organic growth. We have acquired and disposed of the following businesses and assets during 2003 and 2002:

-16-

Table of Contents

	•		UHF Television Channel Licenses: On December 20, 2002, we acquired for $4.3 million, the licenses to 12 MHz of spectrum currently allocated to television channels 54 and 59 in the following markets: Austin, Texas; Hartford-New Haven, Connecticut; Springfield, Massachusetts; and Providence, Rhode Island. The spectrum can be utilized for any purpose other than analog television.
	•		KRBC-TV and KACB-TV: On December 13, 2002, we entered into an agreement with Mission Broadcasting, Inc. to sell the broadcast licenses and operating assets of KRBC-TV in Abilene, Texas and KACB-TV in San Angelo, Texas for $10.0 million in cash plus working capital. On January 1, 2003, Mission Broadcasting began providing programming and advertising services for both stations under a local market agreement. In December 2002, we received a $1.5 million deposit.
	•		KVLY-TV, KFYR-TV, KMOT-TV, KUMV-TV and KQCD-TV: On May 2, 2002, in conjunction with the acquisition of Sunrise Television Corp. (“Sunrise”), we sold to Smith Television of North Dakota, Inc. (“Smith Television”) the broadcast licenses of KVLY-TV in Fargo, North Dakota and KFYR-TV in Bismarck, North Dakota and its three satellite stations KMOT-TV in Minot, North Dakota, KUMV-TV in Williston, North Dakota and KQCD-TV in Dickinson, North Dakota for $1.0 million and we retained the other operating assets and the cash flows provided by the North Dakota television stations. We completed the transaction on August 23, 2002 receiving an additional $35.0 million for the remaining assets of the North Dakota stations.
	•		Sunrise Television: On May 2, 2002, concurrent with the consummation of our initial public offering, we acquired all of the common stock of Sunrise. The Sunrise acquisition added seven stations to our operations, four of which are now owned and operated by us, two are subject to a sale pending FCC approval, and one station that is operated under a local marketing agreement. We issued common stock and options with a value of approximately $10.3 million in exchange for all of Sunrise’s common stock and options. Prior to the acquisition, affiliates of Hicks Muse held Sunrise 14% redeemable preferred stock and 14% senior subordinated notes with a face value including accrued interest and accumulated dividends, of $87.7 million as of May 2, 2002, and exchanged these obligations for 3,736,000 shares of our class B common stock on May 2, 2002. We used part of the proceeds from the initial public offering to repay the remaining debt of Sunrise. We have accounted for this transaction under the purchase method of accounting.
	•		WCTX-TV: On April 26, 2002, we acquired the broadcast license and certain operating assets of WCTX-TV from KW-TV, Inc. The total purchase price, including transaction costs, was approximately $4.7 million, and was funded by available cash.
	•		WNAC-TV: On April 22, 2002, we sold to Super Towers, Inc. the broadcast license and certain related assets of WNAC-TV in exchange for a $2.5 million promissory note due in June 2006.
	•		WVBT-TV: On January 31, 2002, we acquired the broadcast license and certain operating assets of WVBT-TV from Beach 43 Corporation. The total purchase price, including transaction costs, was approximately $3.0 million, and was funded by available cash.
	•		WOTV-TV: On January 29, 2002, we acquired the broadcast license and certain operating assets of WOTV-TV from Channel 41, Inc. The total purchase price, including transaction costs, was approximately $2.9 million, and was funded by available cash.

-17-

Table of Contents

Results of Operations

Set forth below are the significant factors that contributed to our operating results for the three-month period ended March 31, 2003 and 2002, respectively. Our results from operations from period to period are not directly comparable because of the impact of the acquisition of Sunrise Television in 2002. WCTX-TV, WVBT-TV and WOTV-TV were operated under local marketing agreements prior to their acquisition by us and, therefore, the acquisitions do not affect the comparability of the results of operations for the periods presented.

     As noted below, there are a number of trends or uncertainties affecting us in particular and the broadcast industry in general which may impact our revenues and operating results. These include the possibility of further military action or domestic disruptions such as terrorist attacks which could result in the interruption of regular programming and the postponement or cancellation of advertising purchases. The business relationship with our networks is also likely to undergo significant changes in the future. In addition to the possible decline in network compensation in some instances, there may be additional demands by the networks to contribute to the cost of certain programming, including high-profile sporting events such as the National Football League and the Olympics, which may or may not be offset by the provision of additional advertising time. Additional uncertainties arise from costs of non-network programming which have declined in recent years but which historically have been volatile and could well increase in the future because of increased competition from both broadcast stations and cable networks. The industry as a whole continues to be subject to increased competition from national cable networks resulting in continued audience fragmentation. Moreover, the clustering of cable ownership on the local level could lead to increased competition from cable in the local advertising market.