UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-19728
GRANITE BROADCASTING CORPORATION
(Exact name 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)
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 ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the act). Yes o No ý
(APPLICABLE ONLY TO CORPORATE ISSUERS:)
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class A Voting Common Stock, par value $.01 per share - 178,500 shares outstanding at July 31, 2004; Common Stock (Nonvoting), par value $.01 per share – 19,202,624 shares outstanding at July 31, 2004.
DOCUMENTS INCORPORATED BY REFERENCE: None
GRANITE BROADCASTING CORPORATION
Form 10-Q
Table of Contents
Granite Broadcasting Corporation is a Delaware corporation. Unless the context otherwise requires, “we”, “us”, “its” and “our” refer to Granite Broadcasting Corporation, together with its direct and indirect subsidiaries. Our principal executive offices are located at 767 Third Avenue, 34th Floor, New York, NY 10017, and our telephone number at that address is (212) 826-2530. Our web site is located at http://www.granitetv.com. The information on our web site is not part of this report.
1
FORWARD-LOOKING STATEMENTS
This report includes and incorporates forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things:
• inability to implement our strategy, or, having implemented it, failure to realize anticipated cost savings or revenue opportunities available through implementation of our strategy;
• inability to effect dispositions or acquisitions of television stations, which are an important part of our strategy;
• the effects of governmental regulation of broadcasting, including adverse changes in, or interpretations of, the exceptions to the Federal Communications Commission’s duopoly rule which could restrict, or eliminate, our ability to enter into duopoly-type operating arrangements and implement our operating strategy;
• pricing fluctuations in national and local advertising;
• volatility or increases in programming costs;
• restrictions on our operations due to our significant leverage and limited sources of liquidity;
• the impact of changes in national and regional economies;
• delay in any economic recovery or the recovery not being as robust as might otherwise have been anticipated;
• our ability to service our outstanding debt;
• successful integration of acquired television stations (including achievement of synergies and cost reductions);
• competition in the markets in which our stations are located;
• loss of network affiliations or changes in the terms of network affiliation agreements upon renewal; and
• technological change and innovation in the broadcasting industry.
Our network affiliation agreement with The Warner Brothers Network at WDWB-TV, serving the Detroit, Michigan market expired on May 31, 2004. Renewal negotiations are underway and we continue to operate WDWB-TV under the terms of the expired agreement and have no reason to believe the agreement will not be renewed or extended.
Other matters set forth in this report, as well as risk factors set forth in our Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission may also cause actual results in the future to differ materially from those described in the forward-looking statements. We undertake no obligation to update and revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.
2
Item 1. Financial Statements
GRANITE BROADCASTING CORPORATION
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
(Unaudited) |
|
|
|
||
|
Assets |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Current assets: |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
73,468,178 |
|
$ |
90,213,995 |
|
|
Marketable securities, at fair value |
|
8,384,412 |
|
— |
|
||
|
Accounts receivable, less allowance for doubtful accounts ($1,031,481 at June 30, 2004 and $1,319,238 at December 31, 2003) |
|
20,698,810 |
|
21,464,965 |
|
||
|
Film contract rights |
|
9,658,302 |
|
15,299,993 |
|
||
|
Income tax receivable |
|
— |
|
16,326,799 |
|
||
|
Other current assets |
|
6,262,696 |
|
5,795,794 |
|
||
|
Total current assets |
|
118,472,398 |
|
149,101,546 |
|
||
|
|
|
|
|
|
|
||
|
Property and equipment, net |
|
47,635,293 |
|
48,449,586 |
|
||
|
Film contract rights |
|
4,555,800 |
|
8,446,229 |
|
||
|
Other non current assets |
|
9,820,949 |
|
7,891,335 |
|
||
|
Deferred financing fees, less accumulated amortization ($1,013,216 at June 30, 2004 and $50,902 at December 31, 2003) |
|
12,582,214 |
|
13,373,623 |
|
||
|
Goodwill, net |
|
63,123,440 |
|
63,123,440 |
|
||
|
Broadcast licenses, net |
|
127,331,829 |
|
127,331,829 |
|
||
|
Network affiliations, net |
|
82,615,292 |
|
86,379,757 |
|
||
|
Total assets |
|
$ |
466,137,215 |
|
$ |
504,097,345 |
|
|
|
|
|
|
|
|
||
|
Liabilities and stockholders’ deficit |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Current liabilities: |
|
|
|
|
|
||
|
Accounts payable |
|
$ |
1,754,713 |
|
$ |
2,903,728 |
|
|
Accrued interest |
|
3,290,625 |
|
987,187 |
|
||
|
Other accrued liabilities |
|
5,006,356 |
|
7,039,091 |
|
||
|
Film contract rights payable |
|
23,532,653 |
|
27,314,160 |
|
||
|
Other current liabilities |
|
1,745,474 |
|
2,951,001 |
|
||
|
Total current liabilities |
|
35,329,821 |
|
41,195,167 |
|
||
|
|
|
|
|
|
|
||
|
Long-term debt |
|
400,438,948 |
|
400,086,598 |
|
||
|
Film contract rights payable |
|
16,060,886 |
|
24,616,575 |
|
||
|
Deferred tax liability |
|
26,491,844 |
|
31,277,708 |
|
||
|
Redeemable preferred stock |
|
198,658,225 |
|
198,480,586 |
|
||
|
Accrued dividends on redeemable preferred stock |
|
57,482,651 |
|
44,708,729 |
|
||
|
Other non current liabilities |
|
13,821,761 |
|
13,163,788 |
|
||
|
|
|
|
|
|
|
||
|
Stockholders’ deficit: |
|
|
|
|
|
||
|
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 19,202,624 shares of Common Stock (Nonvoting) (18,834,179 shares at December 31, 2003) issued and outstanding at June 30, 2004 |
|
193,810 |
|
190,126 |
|
||
|
Additional paid-in capital |
|
405,881 |
|
— |
|
||
|
Accumulated other comprehensive loss |
|
(20,005 |
) |
— |
|
||
|
Accumulated deficit |
|
(281,234,044 |
) |
(248,118,609 |
) |
||
|
Less: Unearned compensation |
|
(616,888 |
) |
(627,648 |
) |
||
|
Treasury stock, at cost |
|
(875,675 |
) |
(875,675 |
) |
||
|
Total stockholders’ deficit |
|
(282,146,921 |
) |
(249,431,806 |
) |
||
|
Total liabilities and stockholders’ deficit |
|
$ |
466,137,215 |
|
$ |
504,097,345 |
|
See accompanying notes.
3
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
|
|
|
|
(Restated) |
|
|
|
(Restated) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net revenues |
|
$ |
29,163,107 |
|
$ |
28,467,458 |
|
$ |
55,163,748 |
|
$ |
53,124,651 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Station operating expenses |
|
22,311,977 |
|
23,028,963 |
|
43,403,253 |
|
45,134,504 |
|
||||
|
Depreciation expense |
|
1,724,372 |
|
1,553,446 |
|
3,486,849 |
|
3,084,475 |
|
||||
|
Amortization of intangible assets |
|
1,882,227 |
|
3,114,690 |
|
3,764,465 |
|
6,229,384 |
|
||||
|
Corporate expense |
|
3,477,403 |
|
2,672,088 |
|
7,022,392 |
|
5,492,505 |
|
||||
|
Non-cash compensation expense(1) |
|
132,178 |
|
164,787 |
|
435,002 |
|
550,524 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Operating loss |
|
(365,050 |
) |
(2,066,516 |
) |
(2,948,213 |
) |
(7,366,741 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
||||
|
Interest expense |
|
9,872,461 |
|
7,688,428 |
|
19,745,054 |
|
15,315,152 |
|
||||
|
Interest income |
|
(284,012 |
) |
(176,832 |
) |
(516,539 |
) |
(391,118 |
) |
||||
|
Non-cash interest expense |
|
1,133,856 |
|
1,204,044 |
|
2,280,297 |
|
2,275,161 |
|
||||
|
Non-cash preferred stock dividend |
|
6,386,961 |
|
— |
|
12,773,922 |
|
— |
|
||||
|
Other |
|
422,214 |
|
121,801 |
|
562,152 |
|
260,249 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Loss before income taxes |
|
(17,896,530 |
) |
(10,903,957 |
) |
(37,793,099 |
) |
(24,826,185 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Benefit for income taxes |
|
(2,193,992 |
) |
(3,549,088 |
) |
(4,677,664 |
) |
(8,020,333 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net loss |
|
$ |
(15,702,538 |
) |
$ |
(7,354,869 |
) |
$ |
(33,115,435 |
) |
$ |
(16,805,852 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net loss attributable to common shareholders |
|
$ |
(15,702,538 |
) |
$ |
(13,830,648 |
) |
$ |
(33,115,435 |
) |
$ |
(29,757,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic and diluted net loss per share |
|
$ |
(0.81 |
) |
$ |
(0.73 |
) |
$ |
(1.71 |
) |
$ |
(1.57 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average common shares outstanding |
|
19,381,124 |
|
18,998,975 |
|
19,350,292 |
|
18,969,759 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
(1) Allocation of non-cash compensation expense to other operating expenses: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Corporate expense |
|
$ |
107,872 |
|
$ |
134,245 |
|
$ |
382,160 |
|
$ |
489,439 |
|
|
Station operating expenses |
|
24,306 |
|
30,542 |
|
52,842 |
|
61,085 |
|
||||
|
Non-cash compensation expense |
|
$ |
132,178 |
|
$ |
164,787 |
|
$ |
435,002 |
|
$ |
550,524 |
|
See accompanying notes.
4
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
(Unaudited)
|
|
|
Class A |
|
Common |
|
Additional |
|
Other |
|
Accumulated |
|
Unearned |
|
Treasury |
|
Total |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Balance at December 31, 2003 |
|
$ |
1,785 |
|
$ |
188,341 |
|
$ |
— |
|
$ |
— |
|
$ |
(248,118,609 |
) |
$ |
(627,648 |
) |
$ |
(875,675 |
) |
$ |
(249,431,806 |
) |
|
Issuance of Common Stock (Nonvoting) |
|
|
|
3,684 |
|
(3,684 |
) |
|
|
|
|
|
|
|
|
— |
|
||||||||
|
Stock expense related to stock plans |
|
|
|
|
|
198,825 |
|
|
|
|
|
123,774 |
|
|
|
322,599 |
|
||||||||
|
Grant of stock award under stock plans |
|
|
|
|
|
210,740 |
|
|
|
|
|
(210,740 |
) |
|
|
— |
|
||||||||
|
Discount on loans to officers |
|
|
|
|
|
|
|
|
|
|
|
97,726 |
|
|
|
97,726 |
|
||||||||
|
Net loss |
|
|
|
|
|
|
|
|
|
(33,115,435 |
) |
|
|
|
|
(33,115,435 |
) |
||||||||
|
Unrealized loss on investment |
|
|
|
|
|
|
|
(20,005 |
) |
|
|
|
|
|
|
(20,005 |
) |
||||||||
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,135,440 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Balance at June 30, 2004 |
|
$ |
1,785 |
|
$ |
192,025 |
|
$ |
405,881 |
|
$ |
(20,005 |
) |
$ |
(281,234,044 |
) |
$ |
(616,888 |
) |
$ |
(875,675 |
) |
$ |
(282,146,921 |
) |
See accompanying notes.
5
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Six Months Ended June 30, |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
|
|
(Restated) |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
|
Net loss |
|
$ |
(33,115,435 |
) |
$ |
(16,805,852 |
) |
|
|
|
|
|
|
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
||
|
Amortization of intangible assets |
|
3,764,465 |
|
6,229,384 |
|
||
|
Depreciation |
|
3,486,849 |
|
3,084,475 |
|
||
|
Performance award expense |
|
1,048,542 |
|
— |
|
||
|
Non-cash compensation expense |
|
435,002 |
|
550,524 |
|
||
|
Non-cash interest expense |
|
2,280,297 |
|
2,275,161 |
|
||
|
Non-cash preferred stock dividend |
|
12,773,922 |
|
— |
|
||
|
Deferred tax benefit |
|
(4,677,664 |
) |
— |
|
||
|
Change in assets and liabilities: |
|
|
|
|
|
||
|
Decrease in accounts receivable |
|
766,155 |
|
1,614,542 |
|
||
|
Increase (decrease) in accrued liabilities |
|
270,703 |
|
(717,279 |
) |
||
|
Decrease in accounts payable |
|
(1,149,015 |
) |
(633,394 |
) |
||
|
WB affiliation payment |
|
(1,688,389 |
) |
(1,057,532 |
) |
||
|
Decrease (increase) in income tax receivable |
|
16,326,799 |
|
(7,573,726 |
) |
||
|
Decrease in film contract rights and other assets |
|
6,033,580 |
|
9,936,534 |
|
||
|
Decrease in film contract rights payable and other liabilities |
|
(12,177,309 |
) |
(12,262,329 |
) |
||
|
Net cash used in operating activities |
|
(5,621,498 |
) |
(15,359,492 |
) |
||
|
|
|
|
|
|
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
||
|
Investments in marketable securities and other investments |
|
(8,353,112 |
) |
— |
|
||
|
Capital expenditures |
|
(2,600,302 |
) |
(8,025,464 |
) |
||
|
Net cash used in investing activities |
|
(10,953,414 |
) |
(8,025,464 |
) |
||
|
|
|
|
|
|
|
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Payment of deferred financing fees |
|
(170,905 |
) |
(647,146 |
) |
||
|
Repurchase of common stock |
|
— |
|
(23,751 |
) |
||
|
Exercise of stock options |
|
— |
|
26,250 |
|
||
|
Net cash used in financing activities |
|
(170,905 |
) |
(644,647 |
) |
||
|
|
|
|
|
|
|
||
|
Net decrease in cash and cash equivalents |
|
(16,745,817 |
) |
(24,029,603 |
) |
||
|
Cash and cash equivalents, beginning of period |
|
90,213,995 |
|
54,319,597 |
|
||
|
Cash and cash equivalents, end of period |
|
$ |
73,468,178 |
|
$ |
30,289,994 |
|
|
|
|
|
|
|
|
||
|
Supplemental information: |
|
|
|
|
|
||
|
Cash paid for interest |
|
$ |
17,440,313 |
|
$ |
15,374,732 |
|
|
Cash paid for income taxes |
|
21,100 |
|
114,440 |
|
||
|
Non-cash capital expenditures |
|
72,254 |
|
— |
|
||
|
Cumulative exchangeable preferred stock dividend |
|
— |
|
12,773,922 |
|
||
|
|
|
|
|
|
|
||
See accompanying notes.
6
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation and Accounting Policies
The accompanying unaudited consolidated financial statements include the accounts of Granite Broadcasting Corporation and its subsidiaries (the “Company”), and have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Operating results for the three and six-month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2003, which were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. All significant inter-company accounts and transactions have been eliminated. The Company has adjusted its Goodwill and Deferred Tax Liability balances by approximately $14,926,000 to appropriately reflect the tax basis of certain assets acquired in prior years’ acquisitions. These adjustments have been reflected in the June 30, 2004 and December 31, 2003 Balance Sheets disclosed herein. This adjustment had no effect on the Company’s previously reported Statement of Operations or Cash Flows. Data at, and for the year ended, December 31, 2003 are derived from the Company’s audited consolidated financial statements. In the opinion of management, all adjustments of a normal recurring nature, which are necessary for a fair presentation of the results for the interim periods, have been made.
Restatement of Financial Statements
Upon the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement 142”), the Company considered the value of its network affiliation agreements as indefinite lived assets that should not be subject to amortization. In light of stated positions by the Securities and Exchange Commission regarding amortization of network affiliation agreements, the Company has changed its accounting policy as of December 31, 2003 to amortize these assets retroactive to January 1, 2002 using a 25-year useful life. As a result, the financial results for the three and six months ended June 30, 2003 have been restated. The total impact of the adjustment was an increase in amortization expense for the three and six months ended June 30, 2003 of $744,839 and $1,489,678, respectively, with a corresponding adjustment to loss before income taxes and net loss for the three and six months ended June 30, 2003 of $484,145 and $968,290, respectively. Basic and diluted net loss per share increased by $0.03 and $0.05 for the three and six months ended June 30, 2003, respectively.
Cash Equivalents and Investments in Marketable Securities
All highly liquid investments purchased with an original maturity of ninety days or less are considered cash equivalents. The marketable securities are classified as available-for-sale in accordance with the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. These securities are carried at fair market value based on current market quotes. Unrealized gains and losses are reported in stockholders’ equity as a separate component of other comprehensive income / (loss) until realized. Gains and losses on securities sold are based on the specific identification method. The Company does not hold these securities for speculative or trading purposes. For the six months ended June 30, 2004, the Company’s unrealized holding losses totaled approximately $20,000. For the three and six months ended June 30, 2004, the Company recorded realized losses of approximately $60,000.
Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure to require disclosure in the summary of accounting policies of the effects of an entity’s accounting policy with respect to stock-based compensation on reported net income / (loss) and earnings per share in annual and interim financial statements.
The Company accounts for stock option grants under the recognition and measurement principles of Accounting Principles Board (“APB”) No 25, Accounting for Stock Issued to Employees and related interpretations. Under APB No. 25, because the exercise price of the Company’s stock options equals the market price (fair value) of the underlying stock on the date of grant, no compensation expense is recorded.
The following table illustrates the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to stock-based compensation for the three and six months
7
ended June 30, 2004 and 2003 which may not be representative of the impact in future years.
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
|
|
|
|
(Restated) |
|
|
|
(Restated) |
|
||||
|
Net loss attributable to common shareholders, as reported |
|
$ |
(15,702,538 |
) |
$ |
(13,830,648 |
) |
$ |
(33,115,435 |
) |
$ |
(29,757,410 |
) |
|
Add: pro forma compensation expense |
|
(358,064 |
) |
(349,587 |
) |
(715,438 |
) |
(689,575 |
) |
||||
|
Less: compensation expense, as reported |
|
12,000 |
|
12,000 |
|
24,000 |
|
24,000 |
|
||||
|
Pro forma net loss attributable to common shareholders |
|
$ |
(16,048,602 |
) |
$ |
(14,168,235 |
) |
$ |
(33,806,873 |
) |
$ |
(30,422,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic and diluted net loss per share, as reported |
|
$ |
(0.81 |
) |
$ |
(0.73 |
) |
$ |
(1.71 |
) |
$ |
(1.57 |
) |
|
Pro forma compensation expense |
|
(0.02 |
) |
(0.02 |
) |
(0.04 |
) |
(0.04 |
) |
||||
|
Pro forma basic and diluted net loss per share |
|
$ |
(0.83 |
) |
$ |
(0.75 |
) |
$ |
(1.75 |
) |
$ |
(1.61 |
) |
The fair value for each option grant was estimated at the date of grant using the Black-Scholes options pricing model. 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.
Note 2 – Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“Statement 150”). Statement 150 establishes standards for classifying and measuring as liabilities certain financial instruments that have characteristics of both liabilities and equity. The provisions of Statement 150 were effective beginning with the first interim period after June 15, 2003. The Company adopted Statement 150 during the three months ended September 30, 2003. The Company’s 12 3/4% Cumulative Exchangeable Preferred Stock (the “Preferred Stock”) has been reclassified on the Company’s consolidated balance sheet as a long-term liability and the accrual of dividends of $6,387,000 and $12,774,000 for the three and six months ended June 30, 2004, respectively has been recorded as a charge to expense on the consolidated statement of operations. For the three and six months ended June 30, 2003, dividends on the Preferred Stock were treated as a reduction of stockholders’ equity.
Note 3 – Acquisitions and Dispositions
On April 23, 2004, the Company announced that it has entered into a definitive agreement to sell the assets of its Fort Wayne, Indiana ABC affiliate, WPTA-TV, to Malara Broadcasting for $45.9 million, subject to certain closing adjustments. The WPTA-TV transaction is contingent upon Malara Broadcasting obtaining adequate financing and no assurance can be given that the transaction will be consummated. The Company will acquire the stock of NVG-Fort Wayne, Inc, owner and operator of WISE-TV, the NBC affiliate serving Fort Wayne, Indiana for $44.2 million, subject to certain closing adjustments. Following these transactions, the Company intends to enter into a strategic arrangement with Malara Broadcasting under which the Company will provide advertising sales, promotion and administrative services, and selected programming to certain Malara-owned stations. The first implementation of the arrangement will involve stations in Fort Wayne, Indiana and Duluth, Minnesota. Malara Broadcasting has entered into a definitive agreement to acquire the assets of KDLH-TV, the CBS affiliate serving Duluth, Minnesota from New Vision Group LLC for $10.8 million, subject to certain closing adjustments. It is anticipated that the Company will guarantee financing for the foregoing Malara Broadcasting acquisitions. The Company anticipates that once these acquisitions and strategic arrangements are consummated it will account for these transactions in accordance with certain provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“Interpretation 46”). Interpretation 46 addresses when a company should include in its financial statements the assets, liabilities and results of operations of another entity.
All of the above transactions are contingent upon approval by the Federal Communications Commission or (FCC) and satisfaction of other customary closing conditions. In May 2004 petition to deny Malara Broadcasting’s FCC application to acquire KDLH-TV was filed with the FCC. Malara Broadcasting filed an opposition to the petition in June 2004, and the petitioning party filed its reply to that opposition. The Company is not aware of any petitions filed regarding either the WPTA-TV application or the WISE-TV application and the time for public comment on all of the foregoing FCC applications has since expired. The Company and Malara Broadcasting believe that the KDLH petition is without merit and anticipate that the FCC will approve all of the above transactions; however, the Company can provide no assurances in this regard.
8
Note 4 – Per Share Calculations
The per-share calculations shown on the income statement for the three and six months ended June 30, 2004 and 2003 are computed in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share. The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
|
|
|
|
(Restated) |
|
|
|
(Restated) |
|
||||
|
Net loss |
|
$ |
(15,702,538 |
) |
$ |
(7,354,869 |
) |
$ |
(33,115,435 |
) |
$ |
(16,805,852 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
LESS: |
|
|
|
|
|
|
|
|
|
||||
|
Cumulative exchangeable preferred stock dividends |
|
— |
|
6,386,961 |
|
— |
|
12,773,922 |
|
||||
|
Accretion on exchangeable preferred stock |
|
— |
|
88,818 |
|
— |
|
177,636 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net loss attributable to common shareholders |
|
$ |
(15,702,538 |
) |
$ |
(13,830,648 |
) |
$ |
(33,115,435 |
) |
$ |
(29,757,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average common shares outstanding |
|
19,381,124 |
|
18,998,975 |
|
19,350,292 |
|
18,969,759 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Per basic and diluted common share: |
|
|
|
|
|
|
|
|
|
||||
|
Basic and diluted net loss per share |
|
$ |
(0.81 |
) |
$ |
(0.73 |
) |
$ |
(1.71 |
) |
$ |
(1.57 |
) |
Note 5 – Restructuring Charges
In the second quarter of 2004, the Company recognized a $526,000 restructuring charge related to voluntary and involuntary employee terminations at our Buffalo, New York television station. This charge included severance and earned vacation, payroll taxes and health insurance costs. In addition, we anticipate that there will be additional staff reductions at this station and estimate that the restructuring charge will approximate $100,000 in the third quarter of 2004.
At June 30, 2004, the restructuring charge was included in “other accrued liabilities” on the consolidated Balance Sheets and the expense was included in “station operating expenses” on the consolidated Statement of Operations. These costs were recognized in accordance with the provisions of Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
The following is a reconciliation of the aggregate liability recorded for restructuring charges as of June 30, 2004:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Beginning balance |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Expense recognized |
|
526,000 |
|
— |
|
526,000 |
|
— |
|
||||
|
Payments made |
|
— |
|
— |
|
— |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Ending balance |
|
$ |
526,000 |
|
$ |
— |
|
$ |
526,000 |
|
$ |
— |
|
The liability for the restructuring charges will be paid in accordance with the provisions of the severance agreements and payments are expected to be completed within one year.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the unaudited consolidated financial statements and notes thereto in this Quarterly Report and the audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-K for the year ended December 31, 2003.
9
Executive Summary
We own and operate eight network affiliated television stations in geographically diverse markets reaching over 6% of the nation’s television households. Three stations are affiliated with NBC, two with ABC and one with CBS, our Big Three Affiliates and two stations are affiliated with the Warner Brothers Television Network, our WB Affiliates. The NBC affiliates are KSEE-TV, Fresno-Visalia, California, WEEK-TV, Peoria-Bloomington, Illinois, and KBJR-TV, Duluth, Minnesota and Superior, Wisconsin. The ABC affiliates are WKBW-TV, Buffalo, New York and WPTA-TV, Fort Wayne, Indiana. The CBS affiliate is WTVH-TV, Syracuse, New York. The WB affiliates are KBWB-TV, San Francisco, California and WDWB-TV, Detroit, Michigan.
Upon adoption of Statement of Financial Accounting Standards No. 142 on January 1, 2002, we considered the value of the network affiliation agreements as indefinite-lived and were not amortizing the intangible assets. In light of stated positions by the Securities and Exchange Commission regarding amortization of network affiliation agreements, we have changed our accounting policy as of December 31, 2003 to amortize these assets retroactive to January 1, 2002 using a 25-year useful life. As a result, we restated our earnings for the three and six months ended June 30, 2003, and recorded additional amortization expense of $745,000 and $1,490,000, respectively.
We believe that inflation has not had a material impact on our results of operations for the three and six months ended June 30, 2004. However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition.
Our 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.
Our revenues are derived principally from local and national advertising, political advertising in an election year 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, advertising and promotion. Amounts referred to in the following discussion have been rounded to the nearest thousand.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2004 and 2003
Consolidated
Net revenue for our eight-station group increased $696,000 or 2% to $29,163,000 for the three months ended June 30, 2004, from $28,467,000 for the three months ended June 30, 2003. The increase was primarily due to increases in political advertising revenue and non-political local revenue of $538,000 and $432,000, respectively. We generated approximately $690,000 of net political revenue, which represented approximately 2% of total net revenues. The non-political local revenue increase was primarily due to the growth in the automotive, instructional schools and financial services categories. Non-political national revenue declined 4.5% or $663,000 due primarily to declines in the automotive, telecommunications and movie categories at our WB affiliates offset, in part, by increases in non-political national revenue at our Big Three affiliates.
Station operating expenses decreased $717,000 or 3% to $22,312,000 for the three months ended June 30, 2004 from $23,029,000 for the three months ended June 30, 2003. Lower film amortization expense resulting from write-downs in 2003 and 2002 of certain film contract rights at our WB affiliates, was offset, in part, by higher healthcare costs, compensation increases, the restructuring charge at WKBW and increases in power and rent resulting from the launch of digital broadcasting. Film contract rights are lower due to the expiration of certain programs and the write down of certain film contract rights to net realizable value in 2003.
Big Three Affiliates
Net revenue at our Big Three affiliates increased $828,000 or 4% to $20,220,000 from $19,392,000 primarily due to increases in political advertising and non-political national revenues of $514,000 and $471,000, respectively. The non-political national revenue increase was primarily due to the growth in the paid programming, telecommunication and food store categories. These increases were partially offset by decreases of $54,000 or 0.4% in non-political local revenue. The Big Three affiliates contributed 69% to net revenue during the quarter.
Station operating expenses at our Big Three affiliates increased $759,000 or 6% to $13,903,000 from $13,144,000 due primarily to higher healthcare costs, compensation increases, higher sales expense, the restructuring charge at WKBW and increased
10
power costs resulting from the onset of digital broadcasting.
WB Affiliates
Net revenue at our WB affiliates decreased $132,000 or 2% to $8,943,000 from $9,075,000 due primarily to decreases in non-political national revenues of 19%, offset by healthy non-political local growth of 9%. The non-political national revenue decreases were primarily due to declines in the automotive, telecommunications and movie categories. The WB affiliates do not generate meaningful political revenue, as they do not broadcast local news. The WB affiliates contributed 31% to net revenue during the quarter.
Station operating expenses at our WB affiliates decreased $1,476,000 or 15% to $8,409,000 from $9,885,000 primarily due to write-downs in 2003 and 2002 of certain film contract rights to net realizable value, as well as the expiration of certain programs.
Consolidated
Amortization expense decreased $1,232,000 or 40% during the three months ended June 30, 2004 compared to the same period a year earlier. The decrease was primarily due to the completion of amortization of a covenant not to compete as of July 2003. Depreciation expense increased $171,000 or 11% during the three months ended June 30, 2004 compared to the same period a year earlier. The increase was primarily due to increased capital expenditures in 2003 related to the conversion to digital broadcasting.
Corporate expense totaled $3,477,000; an increase of $805,000 or 30% compared to $2,672,000 for the three months ended June 30, 2003. The increase reflects $524,000 of expense associated with a performance award granted to certain officers of the Company during 2003 that will be used primarily to repay certain officers outstanding loans to us on January 25, 2006. The performance award expense for the year ended December 31, 2004 is expected to be $2,096,000. The remaining increase of $281,000 is due to increased professional fees and directors’ and officers’ liability insurance. Non-cash compensation expense decreased $33,000 or 20% due to a reduction in stock awards granted to certain executives.
Interest expense totaled $9,872,000; an increase of $2,184,000 or 28% compared to $7,688,000 for the three months ended June 30, 2003. The increase was primarily due to higher debt balances on our outstanding senior secured notes. Interest income totaled $284,000; an increase of $107,000, or 61% compared to the three months ended June 30, 2003 primarily due to the increased average cash balance invested for the three months ended June 30, 2004 as compared to the same period in 2003. Non-cash interest expense totaled $1,134,000, a decrease of $70,000 or 6% primarily due to imputed interest on our obligation to the WB network under the affiliation agreements, offset in part by reduced amortization of deferred financing fees.
We recorded as an expense the accrual of dividends on our 12 3/4% Cumulative Exchangeable Preferred Stock totaling $6,387,000 during the three months ended June 30, 2004 as required by Statement of Financial Accounting Standards No.150. For the quarter ended June 30, 2003, dividends on the Preferred Stock were treated as a reduction of stockholders’ equity.
During the three months ended June 30, 2004, we recorded a deferred tax benefit of $2,194,000, compared to a current tax benefit of $3,549,000 for the three months ended June 30, 2003. The change in the tax benefit is primarily due to the Company providing for a valuation allowance against net operating loss carry forwards, which may not be utilized in future periods.
Six Months Ended June 30, 2004 and 2003
Consolidated
Net revenue for our eight-station group increased $2,039,000 or 4% to $55,164,000 for the six months ended June 30, 2004, from $53,125,000 for the six months ended June 30, 2003. The increase was due primarily to increased political advertising revenue and non-political local revenue of $1,617,000 and $649,000, respectively. We generated approximately $1,768,000 of net political revenue, which represented approximately 3% of total net revenues. The non-political local revenue increase was primarily due to the growth in the instructional schools and financial services categories. Non-political national revenue declined 3.6% or $976,000 due primarily to declines in the paid programming and movie categories at our WB affiliates offset, in part, by increases in non-political national revenue at our Big Three affiliates.
Station operating expenses decreased $1,732,000 or 4% to $43,403,000 for the six months ended June 30, 2004 from $45,135,000 for the six months ended June 30, 2003. Lower film amortization expense resulting from write-downs in 2003 and 2002 of certain film contract rights at our WB affiliates and the reduction in the allowance for doubtful accounts, was offset, in part, by higher healthcare costs, compensation increases, the restructuring charge at WKBW and increases in power and rent resulting from the launch of digital broadcasting. Film contract rights are lower due to the expiration of certain programs and the write down of certain
11
film contract rights to net realizable value in 2003.
Big Three Affiliates
Net revenue at our Big Three affiliates increased $1,967,000 or 6% to $37,893,000 from $35,926,000 primarily due to increases in political advertising and non-political national revenues of $1,582,000 and $745,000, respectively. The non-political national revenue increase was primarily due to the growth in the paid programming and telecommunications categories. These increases were partially offset by decreases in non-political local revenue of $345,000. The non-political local revenue decrease was primarily due to the decline in the retail, food store and entertainment categories. The Big Three affiliates contributed 69% to net revenue for the six months ended June 30, 2004.
Station operating expenses at our Big Three affiliates increased $1,432,000 or 6% to $27,420,000 from $25,988,000 due primarily to higher healthcare costs, compensation increases, higher sales expense, the restructuring charge at WKBW and increased power costs resulting from the onset of digital broadcasting.
WB Affiliates
Net revenue at our WB affiliates increased $72,000 or less than 1% to $17,271,000 from $17,199,000. Non-political national revenue decreased 15.5% due primarily to declines in the paid programming and movie categories. The WB affiliates do not generate meaningful political revenue, as they do not broadcast local news. The WB affiliates contributed 31% to net revenue for the six months ended June 30, 2004.
Station operating expenses at our WB affiliates decreased $3,164,000 or 17% to $15,983,000 from $19,147,000 primarily due to write-downs in 2003 and 2002 of certain film contract rights to net realizable value, the expiration of certain programs and a reduction of the allowance for doubtful accounts.
Consolidated
Amortization expense decreased $2,465,000 or 40% during the six months ended June 30, 2004 compared to the same period a year earlier. The decrease was primarily due to the completion of amortization expense of a covenant not to compete in July 2003. Depreciation expense increased $402,000 or 13% during the six months ended June 30, 2004 compared to the same period a year earlier. The increase was primarily due to increased capital expenditures in 2003 related to the conversion to digital broadcasting.
Corporate expense totaled $7,022,000; an increase of $1,530,000 or 28% compared to $5,493,000 for the six months ended June 30, 2003. The increase reflects $1,049,000 of expense associated with a performance award granted to certain officers of the Company during 2003 that will be used primarily to repay certain officers outstanding loans to us on January 25, 2006. The performance award expense for the year ended December 31, 2004 is expected to be $2,096,000. The remaining increase of $481,000 is due to increased professional fees and directors’ and officers’ liability insurance. Non-cash compensation expense decreased $116,000 or 21% due to a reduction in stock awards granted to certain executives.
Interest expense totaled $19,745,000; an increase of $4,430,000 or 29% compared to $15,315,000 for the six months ended June 30, 2003. The increase was primarily due to higher debt balances on our outstanding senior secured notes. Interest income totaled $517,000; an increase of $125,000, or 32% compared to the six months ended June 30, 2003 primarily due to the increased average cash balance invested for the six months ended June 30, 2004 as compared to the same period in 2003.
We recorded as an expense the accrual of dividends on our 12 3/4% Cumulative Exchangeable Preferred Stock totaling $12,774,000 during the six months ended June 30, 2004 as required by Statement of Financial Accounting Standards No.150. For the six months ended June 30, 2003, dividends on the Preferred Stock were treated as a reduction of stockholders’ equity.
During the six months ended June 30, 2004, we recorded a deferred tax benefit of $4,678,000, compared to a current tax benefit of $8,020,000 for the six months ended June 30, 2003. The change in the tax benefit is primarily due to the Company providing for a valuation allowance against net operating loss carry forwards, which may not be utilized in future periods.
Restructuring Charges
During the second quarter of 2004, we conducted an extensive review of the operating and cost structure at our Buffalo, New York station. As a result of this review, we have eliminated certain functional job positions through a combination of voluntary and involuntary employee terminations and reduced certain non-personnel related operating expenses. In connection with the elimination of the employment positions, we recognized a $526,000 restructuring charge as of June 30, 2004 related to severance and earned
12
vacation, payroll taxes and health insurance costs. In addition, we anticipate that there will be additional staff reductions at this station and estimate that the restructuring charge will approximate $100,000 in the third quarter of 2004.
At June 30, 2004, the restructuring charge was included in “other accrued liabilities” on the consolidated Balance Sheets and the expense was included in “station operating expenses” on the consolidated Statement of Operations. These costs were recognized in accordance with the provisions of Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
The following is a reconciliation of the aggregate liability recorded for restructuring charges as of June 30, 2004:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Beginning balance |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Expense recognized |
|
526,000 |
|
— |
|
526,000 |
|
— |
|
||||
|
Payments made |
|
— |
|
— |
|
— |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Ending balance |
|
$ |
526,000 |
|
$ |
— |
|
$ |
526,000 |
|
$ |
— |
|
The liability for the restructuring charges will be paid in accordance with the provisions of the severance agreements and payments are expected to be completed within one year.
Liquidity and Capital Resources
On December 22, 2003, we completed a $405,000,000 offering of our 9 3/4% Senior Secured Notes (the “Notes”) due December 1, 2010, at a discount, resulting in proceeds to us of $400,067,100. Interest on the Notes is payable on December 1 and June 1 of each year, beginning on June 1, 2004. The Notes are secured by substantially all of our assets. We used the net proceeds from the offering in part to (i) repay all outstanding borrowings, plus accrued interest, under our senior credit agreement, (ii) redeem at par, plus accrued interest, all of our 9 3/8% and 10 3/8% senior subordinated notes due May and December 2005, respectively, and (iii) to repurchase at par, plus accrued interest, all of our 8 7/8% senior subordinated notes due May 2008. The remaining proceeds are being used for general working capital purposes.
We have established an investment policy for investing cash that is not immediately required for working capital purposes. Our investment objectives are to preserve capital, maximize our return on investment and to ensure we have appropriate liquidity for our cash needs. The investments are considered to be available-for-sale as defined under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. As of June 30, 2004, we had approximately $73,468,000 of cash and cash equivalents and $8,384,000 of marketable securities. The marketable securities, which include direct obligations of the U.S. Government, domestic commercial paper and domestic certificates of deposits, have maturities of one year or less and have active markets to ensure portfolio liquidity. During the second quarter of 2004, the Company received its $16,000,000 tax refund as anticipated. We believe that cash and cash equivalents together with the marketable securities and internally generated funds from operations will be sufficient to satisfy our cash requirements for our existing operations for the next twelve months.
Under the terms of the Certificate of Designations for our 12 3/4% Cumulative Exchangeable Preferred Stock (the “Preferred Stock”), we were required to make the semi-annual dividends on such shares in cash beginning October 1, 2002. The cash payment of dividends had been restricted by the terms of the senior credit agreement and the indenture governing our senior subordinated notes and is prohibited under the indentures governing the Notes. Consequently we have not paid the semi-annual dividend due to the holders since October 1, 2002. Since three or more semi-annual dividend payments have not been paid, the holders of the Preferred Stock have the right to elect the lesser of two directors or that number of directors constituting 25% of the members of the Board of Directors. The right of the holders of the Preferred Stock to elect members of the Board of Directors as set forth above will continue until such time as all accumulated dividends that are required to be paid in cash and that are in arrears on the Preferred Stock are paid in full in cash. We are restricted from paying cash dividends under the Indenture governing the Notes and do not anticipate paying cash dividends on our Preferred Stock in the foreseeable future.
As part of an overall effort to reduce station operating expenses, we have made substantial progress replacing unprofitable programming with competitive, profitable programming.
Film payments at our WB affiliates for the three and six months ended June 30, 2004 totaled $4.8 million and $9.7 million, respectively, as compared to the three and six months ended June 30, 2003 totaling $5.2 million and $10.2 million, respectively. Film
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payments for the year ended December 31, 2004 will approximate $18.9 million. Based on completed negotiations and current market conditions for the purchase of programming, we expect annual film payments at the WB affiliates to decline by approximately 50% by 2007.
Film payments at our Big Three affiliates for the three and six months ended June 30, 2004 and June 30, 2003 totaled $1.3 million and $2.6 million, respectively. Film payments for the year ended December 31, 2004 will approximate $5.4 million. Based on completed negotiations and current market conditions for the purchase of programming, we expect annual film payments at the Big Three affiliates to decline by approximately 20% by 2007.
Net cash used in operating activities was $5,621,000 during the six months ended June 30, 2004 compared to $15,359,000 during the six months ended June 30, 2003. The change from 2003 to 2004 was primarily due to the receipt of a $16,000,000 income tax refund, offset in part by increased payments of interest expense of $2,065,000 and changes in net assets.
Net cash used in investing activities was $10,953,000 during the six months ended June 30, 2004 compared to $8,025,000 during the six months ended June 30, 2003. The change from 2003 to 2004 was primarily due to purchase of marketable securities, offset by a reduction in capital expenditures due to the completion of our conversion to digital technology.
Net cash used in financing activities was $171,000 during the six months ended June 30, 2004 compared to $645,000 during the six months ended June 30, 2003. The change from 2003 to 2004 primarily resulted from a decrease in the payment of deferred financing fees.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The interest rate on our outstanding Senior Secured Notes is fixed at 9.75%. Consequently, our earnings will not be affected by changes in short-term interest rates.
Item 4. Controls and Procedures
As of June 30, 2004, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of June 30, 2004. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
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Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On June 17, 2004, 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 Small Cap Market. On August 3, 2004, the Panel issued its decision to delist the Company’s Common Stock (Nonvoting) effective with the opening of business on August 5, 2004. The Company’s Common Stock (Nonvoting) began trading on the Over the Counter Bulletin Board on August 5, 2004.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. §7241)
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. §7241)
32 Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350)
b. Reports on Form 8-K
Current Report on Form 8-K filed April 27, 2004, disclosing the release of our earnings for the first quarter ended March 31, 2004.
Current Report on Form 8-K filed May 7, 2004, disclosing the Company received a letter from NASDAQ stating that its nonvoting common stock (“Common Stock”) did not comply with the $35 million market capitalization requirement for continued listing on the Nasdaq SmallCap Market (Marketplace Rule 43210(c)(2)(B)(ii)).
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Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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GRANITE BROADCASTING CORPORATION |
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Registrant |
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Date: |
August 11, 2004 |
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/s/ |
W. DON CORNWELL |
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(W. Don Cornwell) |
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Chief Executive Officer |
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Date: |
August 11, 2004 |
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/s/ |
LAWRENCE I. WILLS |
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(Lawrence I. Wills) |
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Senior Vice President – Chief Administrative Officer |
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(Principal Accounting Officer) |
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