10-Q 1 g72432e10-q.txt STC BROADCASTING, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2001 COMMISSION FILE NUMBER: 333-29555 --------- STC BROADCASTING, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 75-2676358 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 720 2nd AVENUE SOUTH (727) 821-7900 ST. PETERSBURG, FLORIDA 33701 (Registrant's telephone (Address of principal executive offices) 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 [ ] As of November 8, 2001, the registrant had 1000 shares of common stock, par value $.01 outstanding. STC BROADCASTING, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001 INDEX

2 ITEM 1. FINANCIAL STATEMENTS STC BROADCASTING, INC. AND SUBSIDIARIES Unaudited Consolidated Balance Sheets (dollars in thousands)

See accompanying notes to unaudited consolidated financial statements. 3 STC BROADCASTING, INC. AND SUBSIDIARIES Unaudited Consolidated Balance Sheets (continued) (dollars in thousands, except for share data)

See accompanying notes to unaudited consolidated financial statements. 4 STC BROADCASTING, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Operations (dollars in thousands, except for share data)

See accompanying notes to unaudited consolidated financial statements. 5 STC BROADCASTING, INC. AND SUBSIDIARIES Unaudited Consolidated Statement of Stockholder's Equity For the Nine Months Ended September 30, 2001 (dollars in thousands)

See accompanying notes to unaudited consolidated financial statements. 6 STC BROADCASTING, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)

See accompanying notes to unaudited consolidated financial statements. 7 STC BROADCASTING, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements September 30, 2001 (dollars in thousands, except for share data and percentages) 1. PRINCIPLES OF CONSOLIDATION: The accompanying financial statements present the consolidated financial statements of STC Broadcasting, Inc. ("STC") and subsidiaries (the "Company"). STC is a wholly owned subsidiary of Sunrise Television Corp. ("Sunrise"). All of the voting common stock of Sunrise, one share, is owned by Smith Broadcasting Partners, L.P. ("SBP"). SBP is a limited partnership owned by senior management of the Company and is controlled by Smith Broadcasting Group, Inc. ("SBG"). SBG is controlled by Robert N. Smith, the Chief Executive Officer and a Director of Sunrise and the Company. All of the non-voting common stock of Sunrise (891,499 shares) is owned by Sunrise Television Partners, L.P. of which the managing general partner is controlled by Thomas O. Hicks, an affiliate of Hicks, Muse, Tate and Furst Incorporated ("Hicks Muse"). All significant intercompany transactions and accounts between STC and subsidiaries have been eliminated. As permitted under the applicable rules and regulations of the Securities and Exchange Commission, these financial statements are condensed interim financial statements and do not include all disclosures and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 2000 included in the Company's previously filed Annual Report on Form 10-K. The interim financial statements are unaudited but include all material adjustments that the Company considers necessary for a fair presentation of results of operations for the periods presented. Operating results of interim periods are not necessarily indicative of results for a full year. Prior to June 1, 2001 the Company had a Joint Marketing and Programming Agreement ("JMPA") with a subsidiary of Clear Channel Communications ("CCC") under which CCC programmed certain airtime, including news programming for WNAC and managed the sale of commercial airtime on WNAC and WPRI, the Fox and the CBS affiliate, respectively, in Providence, Rhode Island, for a period that would have ended July 1, 2006. The Company and CCC each received 50% of the broadcast cash flow generated by the two stations subject to certain adjustments in accordance with the JMPA. After the non-license closing on WPRI (see footnote 5) on March 1, 2001, and through May 31, 2001 the Company received 89% of the broadcast cash flow of both stations. Effective June 5, 2001, upon the final WPRI closing, the Company took CCC's position in the JMPA, and sold certain assets of WNAC to LIN Television Corporation ("LIN"). For periods subsequent to June 1, 2001, the Company will record 100% of the gross revenues and expenses of both stations and the expected payment to LIN (approximately $184 per year) in the consolidated financial statements through July 1, 2006. 2. SUMMARY OF RECENT ACCOUNTING PRONOUCEMENTS: On January 1, 2001, the Company adopted SFAS 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 established accounting and reporting standards for derivative instruments and for hedging activities. The Company has elected to treat its interest rate swap agreements related to its senior loan agreement as derivative instruments and recorded a cumulative change in accounting principle for the Company's derivative position as of the date the Company adopted SFAS 133 of $240, which is net of $148 in income taxes. Please see footnote 3 for details on the interest rate swap agreements. On July 20, 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business Combinations," and No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination at acquisition. SFAS No. 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001; establishes specific criteria for the recognition of intangible assets separately from goodwill; and requires unallocated negative goodwill to be written off immediately as an extraordinary gain (instead of being deferred and amortized). SFAS No. 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at acquisition. SFAS No. 142 also addresses financial 8 accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that goodwill and intangible assets which have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. It also provides that intangible assets that have finite useful lives will continue to be amortized over their useful lives, but those lives will no longer be limited to forty years. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001. The Company will adopt SFAS No. 142 beginning January 1, 2002. The Company is considering the provisions of SFAS No. 141 and No. 142 and at present has not fully determined the impact of adopting SFAS No. 141 and SFAS No. 142, but anticipates a substantial reduction in amortization expense in 2002. 3. LONG-TERM DEBT: Long-term debt consists of the following:

The following table shows interest expense for the periods indicated:

In 1997, the Company completed a private placement of $100,000 principal amount of its 11% Senior Subordinated Notes ("Senior Subordinated Notes"), which subsequently were exchanged for registered Senior Subordinated Notes having substantially identical terms. Interest on the Senior Subordinated Notes is payable on March 15 and September 15 of each year. On July 2, 1998, the Company entered into a Senior Credit Agreement which provides a $100,000 term loan facility and a $65,000 revolving credit facility. The term loan facility is payable in quarterly installments commencing on September 30, 1999 and ending June 30, 2006. The revolving loan facility requires scheduled annual reductions of the commitment amount commencing on September 30, 2001. At September 30, 2001, the Company had $63,000 available under the revolving credit facility. The loan under the Senior Credit Agreement bears interest at floating rates based upon the interest rate option selected by the Company. From the proceeds on the sale of WJAC and WTOV, the Company made payments of $69,350 on the term loan, permanently reducing the availability under that portion of the agreement. The next scheduled payment is due December 31, 2003. At December 31, 2000 the Company had interest swap agreements reducing the impact of changing interest rates on $95,000 of its variable rate borrowings under the Senior Credit Agreement. Upon the sale of WJAC and WTOV on January 5, 2001, the Company cancelled the agreements on $95,000 and entered into a new interest rate swap on $25,000 of its variable rate borrowing under the Senior Credit Agreement for eighteen 9 months. On June 29, 2001, the Company cancelled its new interest rate swap by making a payment of $163, which was charged to interest expense. The Senior Credit Agreement provides for first priority security interest in all of the tangible and intangible assets of the Company and its subsidiaries. Loans under the Senior Credit Agreement are guaranteed by Sunrise and the Company's subsidiaries. The Senior Credit Agreement contains certain financial and operating maintenance covenants including a maximum consolidated leverage ratio (currently 6.25:1), a minimum consolidated fixed charge coverage ratio (currently 1.05:1), and a consolidated interest coverage ratio (currently 1.75:1). The Company is limited in the amount of annual payments that may be made for corporate expenses and capital expenditures. The operating covenants of the Senior Credit Agreement and the Senior Subordinated Notes include limitations on the ability of the Company to: (i) incur additional indebtedness, other than certain permitted indebtedness; (ii) permit additional liens or encumbrances, other than certain permitted liens; (iii) make any investments in other persons, other than certain permitted investments; (iv) become obligated with respect to contingent obligations, other than certain permitted contingent obligations; and (v) make restricted payments (including dividends on its common stock). The operating covenants include restrictions on certain specified fundamental changes, such as mergers and asset sales, transactions with shareholders and affiliates, transactions outside the ordinary course of business, amendments or waivers of certain specified agreements and the issuance of guarantees or other credit enhancements. At September 30, 2001, the Company was in compliance with the financing and operating covenants of both the Senior Credit Agreement and the Senior Subordinated Notes. It is anticipated that the Company may not be in compliance with certain financial covenants under the Senior Credit Agreement at December 31, 2001 due to the declines in operating results during the current year. The Company has commenced discussions with the Senior Credit Agreement lenders relating to the possible adjustment of the financial ratio requirement at December 31, 2001 and for the first three quarters of 2002 to reflect the Company's current revenue and net income projections. At this time, however, there can be no assurance that these discussions will result in an acceptable amendment or waiver to the Senior Credit Agreement. 4. REDEEMABLE PREFERRED STOCK: Series A In March 1997, the Company issued 300,000 shares of Redeemable Preferred Stock Series A with an aggregate liquidation preference of $30,000, or $100 per share, which is entitled to quarterly dividends that accrue at a rate per annum of 14%. Prior to February 28, 2002, dividends may be paid in either additional whole shares of Redeemable Preferred Stock Series A or cash, at the Company's option, and only in cash beginning with the dividend period ending May 31, 2002. The Senior Credit Agreement and Senior Subordinated Notes permit the payment of cash dividends on the Redeemable Preferred Stock Series A after February 28, 2002. At September 30, 2001, dividends have been accrued but are unpaid on the Redeemable Preferred Stock Series A. The Redeemable Preferred Stock Series A is subject to mandatory redemption in whole on February 28, 2008, at a price equal to the then effective liquidation preference thereof, plus all accumulated and unpaid dividends to the date of redemption. Prior to February 28, 2008, the Company has various options on redemption of the Redeemable Preferred Stock Series A at various redemption prices exceeding the liquidation preference. The Company may, at its option, subject to certain conditions, including its ability to incur additional indebtedness under the Senior Subordinated Notes and the Senior Credit Agreement, on any scheduled dividend payment date, exchange the Redeemable Preferred Stock Series A, in whole but not in part, for the Company's 14% Subordinated Exchange Debentures due 2008 (the "Exchange Debentures"). Holders of the Redeemable Preferred Stock Series A will be entitled to receive $1.00 principal amount of Exchange Debentures for each $1.00 in liquidation preference of Redeemable Preferred Stock Series A. Holders of the Redeemable Preferred Stock Series A have no voting rights, except as otherwise required by law; however, the holders of the Redeemable Preferred Stock Series A, voting together as a single class, shall have the right to elect the lesser of the two directors or 25% of the total number of directors constituting the Board of Directors of the Company upon the occurrence of certain events, including but not limited to, the failure by the 10 Company on or after February 28, 2002, to pay cash dividends in full on the Redeemable Preferred Stock Series A for six or more quarterly dividend periods, the failure by the Company to discharge any mandatory redemption or repayment obligation with respect to the Redeemable Preferred Stock Series A, the breach or violation of one or more of the covenants contained in the Certificate of Designation, or the failure by the Company to repay at final stated maturity, or the acceleration of the final stated maturity of, certain indebtedness of the Company. Series B On December 30, 1999, the Company sold to Sunrise 25,000 shares of Redeemable Preferred Stock Series B with an aggregate liquidation preference of $25,000. Each share is entitled to quarterly dividends that will accrue at 14% rate per annum, which are payable in cash or in additional whole shares of Redeemable Preferred Stock Series B. The Company's Senior Credit Agreement prohibits the payment of cash dividends until May 31, 2002. At September 30, 2001, no cash dividends have been paid in respect of the Redeemable Preferred Stock Series B. The Redeemable Preferred Stock Series B is subject to mandatory redemption in whole on February 28, 2008 at a price equal to the then effective liquidation preference per share plus an amount in cash equal to all accumulated and unpaid dividends per share. Prior to February 28, 2008, the Company can redeem the Redeemable Preferred Stock Series B at the then effective liquidation preference per share plus an amount in cash equal to all accumulated and unpaid dividends per share. In the event of a Change of Control (as defined in the Certificate of Designation for the Redeemable Preferred Stock Series B), the Company must offer to purchase all outstanding shares at the then effective liquidation preference per share plus an amount in cash equal to all accumulated and unpaid dividends per share. With respect to dividends and distributions upon liquidation, winding-up and dissolution of the Company, the Redeemable Preferred Stock Series B ranks senior to all classes of common stock of the Company and the Redeemable Preferred Stock Series A of the Company. Holders of the Redeemable Preferred Stock Series B have no voting rights, except as otherwise required by law or as expressly provided in the Certificate of Designation for the Redeemable Preferred Stock Series B; however, the holders of the Redeemable Preferred Stock Series B, voting together as a single class, shall have the right to elect the lesser of two directors or 25% of the total number of directors constituting the Board of Directors of the Company upon the occurrence of certain events, including but not limited to, the failure by the Company to pay dividends in cash or in-kind on the Redeemable Preferred Stock Series B for six or more quarterly dividend periods, or the failure by the Company to discharge any mandatory redemption or repayment obligation with respect to the Redeemable Preferred Stock Series B, or the breach or violation of one or more of the covenants contained in the Certificate of Designation, or the failure by the Company to repay at final stated maturity, or the acceleration of the final stated maturity of, certain indebtedness of the Company. The Certificate of Designation for the Redeemable Preferred Stock Series A and B contains covenants customary for securities comparable to the Redeemable Preferred Stock Series A and B, including covenants that restrict the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends and make certain other restricted payments, to merge or consolidate with any other person or to sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. Such covenants are substantially identical to those covenants contained in the Senior Subordinated Notes. 5. ACQUISITIONS AND DISPOSITION 2001 Transactions Sale of WJAC and WTOV On July 6, 2000, the Company entered into an agreement with Cox Broadcasting, Inc. ("Cox") to sell to Cox all of the capital stock of WJAC, Incorporated for $70,000. WJAC, Incorporated owns WJAC, the NBC affiliate in Johnstown, Pennsylvania. In a related transaction, Smith Acquisition Company ("SAC") and Smith Acquisition License Company ("SALC"), subsidiaries of the Company, entered into an agreement with Cox to sell to Cox the assets of WTOV, the NBC affiliate in Steubenville, Ohio, for $58,000. On August 4, 2000, the Company entered into Time Brokerage Agreements ("TBAs") with Cox under which Cox programmed most of the available 11 time on WJAC and WTOV and retained the revenues from such sales of advertising time. Cox paid the Company a $750 monthly fee under the two TBAs and reimbursed the Company for out of pocket costs. On December 22, 2000, the Company and Cox amended their agreement for the sale of WJAC to provide for the sale of the FCC licenses for WJAC directly from STC License Company, the subsidiary of the Company which held such licenses, to Cox. Prior to the closing of the sale of WJAC and WTOV, the Company incurred direct incremental costs associated with the disposition of these stations during 2000 in the amount of $823 and such costs were expensed in 2000. The sale of WJAC, Incorporated and WTOV closed on January 5, 2001. Preliminary net proceeds, after additional expenses from the transaction, were approximately $124,630. $69,350 was used to permanently retire a portion of the Company's senior term loan agreement, $52,280 was transferred to a collateral account with the Company's senior lender pending the purchase of WPRI and $3,000 was transferred to an indemnity escrow account. The Company may incur additional expenses related to this transaction during the remainder of this year or as a result of claims under the indemnity escrow account. Purchase of WPRI / Sale of WNAC On November 3, 2000, the Company entered into an Asset Purchase Agreement with CCC to acquire the assets of WPRI, the CBS affiliate in the Providence, Rhode Island and New Bedford, Massachusetts, market for a purchase price of $50,000. Closing of this transaction was subject to review and approval by the FCC and subject to the transfer of the WNAC FCC license to an unrelated party. On January 31, 2001, the Company and certain subsidiaries entered into an Asset Purchase Agreement with LIN to sell LIN certain assets of WNAC, including the FCC license and an interest in the revised JMPA for $2,500. Approval and consummation of that sale was a necessary precondition of the Company being able to acquire WPRI. On March 1, 2001, the Company and CCC consummated the purchase and sale of certain assets of WPRI. At this initial closing, the Company paid $44,500 (including the release of a $5,000 escrow deposit) to CCC and acquired all of the real estate and tangible personal property related to WPRI. Effective March 1, 2001, the shares of operating results under the JMPA were adjusted to 89% for the Company and 11% for CCC. A $39,500 payment to CCC was made by a transfer of funds from the collateral account with the Company's senior lender. The $5,000 previously placed in an escrow account pursuant to the WPRI contract was disbursed to CCC. On June 5, 2001, the Company paid $5,500 to CCC and acquired the remaining assets of WPRI including the FCC license, working capital and operating contracts. The payment was made by a transfer of funds from the collateral account with the Company's senior lender. The Company loaned LIN $2,500 and completed the sale of the WNAC assets and FCC License to LIN for $2,500. Interest accrues at 7% and is due December 31 of each year. The note is payable in full by June 10, 2006. 2000 Transactions On July 6, 2000, the Company entered into an agreement with Cox Communications, Inc. related to WJAC and WTOV as detailed above. The transaction closed on January 5, 2001. On November 3, 2000, the Company entered into an agreement with Clear Channel Communications for the purchase of WPRI as outlined above. The transaction closed on June 5, 2001. 6. SEGMENT INFORMATION The Company has defined 7 reportable segments (9 in 2000), two license corporations and a corporate office in accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." These segments are television stations in designated market areas ("DMA") as defined by A. C. Nielsen Company. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2 to the Company's December 31, 2000 Annual Report on Form 10-K). The Company evaluates segment performance on broadcasting income before interest income, interest expenses, income taxes, nonrecurring gains and losses, and extraordinary items. The Company has no significant intersegment revenues or transfers other than that interest is allocated to certain subsidiaries of the Company. All segments have local distinct management separate from senior corporate management. Each management team is evaluated based upon the results of operations of their station. The following table sets forth the aggregate information by segment groups and reconciles segment information to consolidated financial statements. 12

(A) Includes WJAC and WTOV for nine months in 2000 with no comparable amount in 2001. (B) Includes gain on sale of stations. (C) Includes tax provision due to non allocation to segments. 7. TERMINATED SINCLAIR ACQUISITION On March 16, 1999, the Company and Sinclair Communications, Inc. ("Sinclair") entered into a purchase agreement (the "Sinclair Agreement"). Pursuant to the Sinclair Agreement, the Company agreed to acquire from Sinclair: WICS, Channel 20, Springfield, Illinois; WICD, Channel 15, Champaign, Illinois; and KGAN, Channel 2, Cedar Rapids, Iowa (collectively, the "Sinclair Stations") for a total purchase price of $87,000 including working capital, fees, and expenses. Closing of the purchase was subject to customary conditions, including review by the Department of Justice and the Federal Communications Commission ("FCC"). In April 1999, and at various other times, the Antitrust Division of the United States Department of Justice ("DOJ") issued various requests for additional information under the Hart-Scott-Rodino Antitrust Improvements Act in connection with the acquisition. On March 14, 2000, the Company entered into a Termination Agreement with Sinclair thereby ending the Company's plan to acquire the Sinclair Stations. The approval by the Antitrust Division of the DOJ was not received on a timely basis. Attempts were made to comply with various information requests of the DOJ, numerous compromises were offered to the DOJ and offers the Company deemed reasonable were found unacceptable by the DOJ. The Company incurred a one time charge of $875 in the first quarter 2000 related to its efforts to purchase the Sinclair Stations, respond to the information requests of the DOJ, its extended negotiation with the DOJ and the Company's subsequent effort to remarket WICS and WICD in an attempt to reach a reasonable compromise with the DOJ. 8. COMMITMENTS FCC regulations require the Company to commence digital operations by May 1, 2002, in addition to continuing the Company's analog operation. The digital conversion will require an approximate $16,000 outlay for new equipment. During 2001, the Company signed master agreements with suppliers of antennas, transmission lines and transmitters. Digital expenditures amount to $2,800 for the nine months ended September 30, 2001, with the balance to be paid in the remainder of 2001 and 2002. The Company anticipates that, due to equipment manufacturing delays and the non availability of tower crews during early 2002, it will file with the FCC for an extension of time to complete the digital construction, especially with respect to the stations located in North Dakota and Texas. Although there can be no assurance that the FCC will so act, the Company anticipates that the FCC will grant us such extensions. Although the Company believes it is highly unlikely, 13 there is a remote possibility that the Company could lose the digital FCC license for a station that does not build-out within the time allowed by the FCC. The Company anticipates that digital expenditures will be paid for through available cash on hand, cash generated from operations and borrowings under the Company's revolving credit facility. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The operating revenues of the Stations are derived primarily from advertising revenues and, to a much lesser extent, compensation paid by the networks to the Stations for broadcasting network programming. The Stations' primary operating expenses are employee compensation and related benefits, news gathering costs, film and syndicated programming expenditures and promotional costs. A significant proportion of the operating expenses of the Stations are fixed. The Stations receive revenues from advertising sold for placement within and adjoining its local and network programming. Advertising is sold in time increments and is priced primarily on the basis of a program's popularity within the demographic group an advertiser desires to reach, as measured principally by audience surveys conducted in February, May and November of each year. The ratings of local television stations affiliated with a national television network are affected by ratings of network programming. Advertising rates are affected by the number of advertisers competing for the available time, the size and demographic makeup of the markets served by the television stations and the availability of alternative advertising media in the market areas. Advertising rates are highest during the most desirable viewing hours, generally during local news programming, access (the hour before prime time), early fringe (3:00 p.m. to 5:00 p.m.) and prime time. Most spot advertising contracts are short-term and generally run for only a few weeks. A majority of the revenues of the Stations are generated from local advertising, which is sold primarily by a Station's sales staff, and the remainder of the advertising revenues represents national advertising, which is sold by national advertising sales representatives. The Stations generally pay commissions to advertising agencies on local and national advertising, and on national advertising the Stations pay additional commissions to the national sales representatives operating under an agreement that provides for exclusive representation within the particular market of the Station. The spot broadcast revenues of the Stations are generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and retail advertising in the period leading up to and including the holiday season. Advertising spending by political candidates is typically heaviest during the second and fourth quarters in the even years (e.g. 1998 and 2000). This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts included herein may constitute forward-looking statements. The Company has based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that our assumptions and expectations will prove to have been correct. These forward-looking statements are subject to various risks, uncertainties and assumptions including increased competition, increased costs, changes in network compensation agreements, impact of future acquisitions and dispositions, loss or retirement of key members of management, inability to realize our acquisition strategy, increases in costs of borrowings, unavailability of additional debt and equity capital, adverse state or federal legislation or changes in Federal Communications Commission (the "FCC") policies, and changes in general economic conditions. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 14 In the discussion comparing the three and nine months ended September 30, 2001 and 2000, WEYI, WDTN, WUPW, KRBC, KACB, KVLY, KFYR and its three satellite stations will be referred to as Core Stations, WTOV and WJAC will be referred to as the Cox Stations, and WNAC and its interest in the broadcast cash flow of WPRI and WNAC, and the combined operation of WPRI and WNAC through September 2001, will be referred to as the Providence Market. HISTORICAL PERFORMANCE All dollars presented in table form are shown in thousands. 15 NET BROADCASTING REVENUES. Set forth below are the principal types of television revenues that the Company has generated for the periods indicated and the percentage contribution of each to total broadcasting revenues.

(1) Represents the Company's share of the broadcast cash flow of WNAC and WPRI through May 31, 2001. (2) Represents income from Time Brokerage Agreements with Cox from August 4, 2000 through January 6, 2001. 16 RESULTS OF BROADCASTING OPERATIONS. Set forth below is a summary of the broadcasting operations of the Company for the periods indicated and their percentages of net broadcasting revenues.

BROADCAST CASH FLOW, EBITDA AND STATION OPERATING INCOME: The following table sets forth a computation of Broadcast Cash Flow, EBITDA and Station Operating Income for the periods indicated.

STATION OPERATING INCOME: Total net broadcasting revenue $ 16,676 $ 18,800 $ 46,843 $ 59,101 Less revenues realized from barter transactions (847) (597) (1,844) (2,060) -------- -------- -------- -------- Net cash broadcasting revenues 15,829 18,203 44,999 57,041 Less station operating and selling, general and administrative expenses 11,638 9,419 29,187 31,475 -------- -------- -------- -------- Station operating income $ 4,191 $ 8,784 $ 15,812 $ 25,566 ======== ======== ======== ========

The Company has included Broadcasting Loss, Broadcast Cash Flow, EBITDA and Station Operating Income data because such data are commonly used as measures of performance for broadcast companies and are used by bondholders to measure a company's ability to service debt, pay interest and make capital expenditures. Broadcast Cash Flow, EBITDA and Station Operating Income are not, and should not be used as indicators or alternatives to operating income, net loss or cash flow as reflected in the accompanying financial statements, are not intended to represent funds available for debt service, dividends, reinvestment or other discretionary uses, are not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. SUMMARY INFORMATION THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000. The following table details how the different groupings affected the change in broadcasting (loss) income between the three months ended September 30, 2001 and September 30, 2000.

Core Stations Gross local and national spot revenues at the Company's Midwest stations in Dayton and Toledo, Ohio and Flint, Michigan, were down $0.7 million and $0.9 million, respectively, in the three months ended September 30, 2001 when compared to the comparable three-month period ended September 30, 2000 (the prior period), due to weakening economies and commercial free coverage for several days following the September 11, 2001 attack on America. Advertisers typically pull back their advertising campaigns in times of crisis and have done so since the attack. Gross local and national spot revenues at the smaller market stations were down $0.2 million for the three months ended September 30, 2001 when compared to the prior period. Gross political revenues were down $1.7 million for the three months ended September 30, 2001 when compared to the prior comparable period. Network revenues decreased related to the WDTN renegotiated contract with ABC and amounted to 17 approximately $.02 million. Station operating expenses decreased approximately $0.1 million from reduced program rights amortization during the three months ended September 30, 2001 when compared to the prior period. Selling, general and administrative expenses decreased approximately $0.2 million from reduced sales commissions and bonus on reduced sales revenue. SUMMARY INFORMATION NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000. The following table details how the different groupings affected the change in broadcasting (loss) income between the nine months ended September 30, 2001 and September 30, 2000.

Core Stations Gross local and national spot revenues at the Company's Midwest stations in Dayton and Toledo, Ohio and Flint, Michigan, were down $2.0 million and $2.4 million, respectively, for the nine months ended September 30, 2001 when compared to the comparable nine-month period ended September 30, 2000 (the nine-month prior period), due to weakening economies. Gross local and national spot revenues at the small market stations were down $0.1 million and $0.1 million, respectively, for the nine months ended September 30, 2001 when compared to the nine-month prior period. Network revenues decreased related to the WDTN renegotiated contract with ABC and amounted to approximately $0.6 million. Gross political revenues were down $2.3 million for the nine months ended September 30, 2001 when compared to the nine-month prior period. Station operating expenses decreased approximately $0.7 million from reduced program rights amortization during the nine months ended September 30, 2001 when compared to the nine-month prior period. Selling, general and administrative expenses decreased approximately $0.3 million from reduced sales commissions and bonus on reduced sales revenue and approximately $0.2 million from reduced promotion expenditures during the nine months ended September 30, 2001 when compared to the nine-month prior period. OTHER ITEMS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO SIMILAR PERIOD IN 2000. Interest Expense Interest expense decreased by $1.6 million to $3.3 million for the three months ended September 30, 2001, from $4.9 million for the three months ended September 30, 2000 and decreased by $4.1 million to $10.5 million for the nine months ended September 30, 2001, from $14.6 million for the nine months ended September 30, 2000. The decrease was due to lower outstanding balances on the Senior Credit Agreement during the comparative periods. 18 Gain on Sale of Stations, net For the nine-month period ended September 30, 2001, the Company recorded a net gain of $68.5 million from the sale of stations. This net gain consisted of approximately $78.1 million on the sale of the stock of WJAC, Incorporated and the assets of WTOV to Cox Broadcasting Inc. ("Cox") on January 5, 2001 offset by the $9.6 million loss on the sale of WNAC assets. There was no comparable amount for the three months ended September 30, 2001 and 2000 and the nine months ended September 30, 2000. Restructure of Management Contract During the third quarter of 2001, the Company incurred a $0.5 million charge as a result of terminating the Company's regional vice president. There were no comparable amounts for the three and nine months ended September 30, 2000. Expenses Incurred in Cancelled Acquisition of Sinclair Stations During the first quarter of 2000, the Company wrote off $0.9 million related to its planned acquisition of three stations from Sinclair Communications, Inc. due to not receiving an approval from the DOJ on a timely basis. Loss on Disposal of Property and Equipment Approximately $0.7 million of the loss for the nine months ended September 30, 2001 relates to a loss on the replacement of the analog transmitter at WNAC and approximately $0.6 million of the loss for the nine months ended September 30, 2000 relates to replacement of equipment at the North Dakota stations. Interest Income and Other, net Interest income and other, net increased by $0.0 million to $0.1 million for the three months ended September 30, 2001 from $0.1 million for the three months ended September 30, 2000 and increased by $0.9 million to $1.0 million for the nine months ended September 30, 2001 from $1.0 million for the nine months ended September 30, 2000, due primarily to interest on the escrowed amounts from the Cox sale proceeds used to purchase WPRI. Income Tax Benefit (Provision) Income tax benefit decreased by $7.6 million to $1.5 million for the three months ended September 30, 2001 from $9.1 million tax benefit for the three months ended September 30, 2000 due primarily to changes in deferred tax assets associated with net operating loss carryforwards. Income tax provision increased by $28.4 million to $15.3 million tax provision for the nine months ended September 30, 2001 from $13.1 million tax benefit for the nine months ended September 30, 2000 due primarily to a provision for gain on the sale of WJAC and WTOV. Dividends Redeemable preferred stock dividends and accretion increased by $0.3 million to $3.0 million for the three months ended September 30, 2001 from $2.7 million for the three months ended September 30, 2000 and increased $1.1 million to $8.8 million for the nine months ended September 30, 2001 from $7.7 million for the nine months ended September 30, 2000. The increases are a result of the higher outstanding balances on the Series A and Series B Preferred Stock. Net (Loss) Income Applicable to Common Shareholder Net loss increased by $10.2 million to $9.8 million for the three months ended September 30, 2001 from a net income of $0.4 million for the three months ended September 30, 2000 and decreased $38.1 million to $23.5 million net income for the nine months ended September 30, 2001 from $14.6 million net loss for the nine months ended September 30, 2000 for the reasons stated above. 19 LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2001, the Company had $6.6 million in cash balances and net working capital of $10.7 million. In addition, the Company had $3.1 million cash in an indemnity escrow account related to the Cox Sale. The Company's primary sources of liquidity are cash provided by operations, availability under the Senior Credit Agreement and the equity contributions by Sunrise. Net cash flows provided by operating activities decreased by $2.5 million to $2.4 million for the nine months ended September 30, 2001 from cash provided by operations of $5.0 million for the nine months ended September 30, 2000. The Company made interest and film payments of $13.4 million and $4.1 million, respectively, during the nine months ended September 30, 2001 compared to payments of $17.0 million and $4.4 million for the nine months ended September 30, 2000. The Company recorded a gain on the sale of stations of $68.5 million for the nine months ended September 30, 2001 with no comparable amount for prior comparable periods. Net cash flows provided by investing activities increased by $73.8 million to $70.2 million for the nine months ended September 30, 2001 from $3.6 million used in investing activities for the nine months ended September 30, 2000. During the nine months ended September 30, 2001, the Company generated net proceeds from the sale of television stations of approximately $127.1 million and used cash flows of $52.1 million for the purchase of WPRI and the working capital. Capital expenditures were $5.0 million and $3.7 million for the nine months ended September 30, 2001 and 2000, respectively. Net cash flows used in financing activities increased by $69.3 million to $71.1 million for the nine months ended September 30, 2001 from $1.8 million used in financing activities for the nine months ended September 30, 2000. From the proceeds of the Cox sale, the Company made payments of $69.4 million permanently reducing the Senior Credit Agreement. The Company's liquidity needs consist primarily of debt service requirements for the Senior Credit Agreement and the 11% Senior Subordinated Notes ("Senior Subordinated Notes"), working capital needs, the funding of capital expenditures including digital television and potential acquisitions. The Company may incur additional indebtedness in the future, subject to certain limitations contained in the Senior Credit Agreement and the Senior Subordinated Notes. In 1997, the Company completed a private placement of $100.0 million principal amount of its Senior Subordinated Notes, which subsequently were exchanged for registered Senior Subordinated Notes having substantially identical terms. Interest on the Senior Subordinated Notes is payable on March 15 and September 15 of each year. On July 2, 1998, the Company entered into a Senior Credit Agreement with various lenders which provides a $100.0 million Term Loan Facility and $65.0 million Revolving Credit Facility. The term loan facility is payable in quarterly installments commencing on September 30, 1999 and ending June 3, 2006. Due to the $69.4 million in payments from the Cox sale proceeds, the next scheduled payment is due in December 2003. At September 30, 2001, the Company had $63.0 million available under the revolving credit facility. At September 30, 2001, the Company had outstanding $24.2 million on the term loan facility and nothing was outstanding under the revolving loan facility. The Senior Credit Agreement provides for first priority security interest in all of the tangible and intangible assets of the Company and its direct and indirect subsidiaries. Any loans under the Senior Credit Agreement are guaranteed by Sunrise and the Company's current direct and indirect and any future subsidiaries. The Senior Credit Agreement contains certain financial operating maintenance covenants including a maximum consolidation leverage ratio (currently 6.25:1), a minimum consolidated fixed charge coverage ratio (currently 1.05:1), and a consolidated interest coverage ratio (currently 1.75:1). The Company is limited in the amount of annual payments that may be made for capital expenditures and corporate overhead. The operating covenants of the Senior Credit Agreement and the Senior Subordinated Notes include limitations on the ability of the Company to (i) incur additional indebtedness, other than certain permitted indebtedness; (ii) permit additional liens or encumbrances, other than certain permitted liens; (iii) make any investments in other persons, other than certain permitted investments; (iv) become obligated with respect to 20 contingent obligations, other than certain permitted contingent obligations; and (v) make restricted payments (including dividends on its common stock). The operating covenants also include restrictions on certain specified fundamental changes, such as mergers and asset sales, transactions with shareholders and affiliates and transactions outside the ordinary course of business as currently conducted, amendments or waivers of certain specified agreements and the issuance of guarantees or other credit enhancements. At September 30, 2001, the Company was in compliance with the financing and operating covenants of both the Senior Credit Agreement and the Senior Subordinated Notes. It is anticipated that the Company may not be in compliance with certain financial covenants under the Senior Credit Agreement at December 31, 2001 due to the declines in operating results during the current year. The Company has commenced discussions with the Senior Credit Agreement lenders on possible relief from year-end compliance. Management anticipates that these discussions will adjust the financial ratio requirement at December 31, 2001 and for the first three quarters of 2002 to reflect the Company's current projections. At this time, there can be no assurance that these discussions will result in an acceptable amendment or waiver to the Senior Credit Agreement. If the Company cannot reach an agreement on needed waivers of defaults at December 31, 2001, the Senior Credit Agreement lenders would be entitled to accelerate their debt and exercise their remedies under the Senior Credit Agreement. Management believes that they will be able to reach an agreement with their lenders on the needed waivers. The Company has commenced discussions with parties on the possible sale of certain non-strategic assets in potential deleveraging transactions. On March 1, 1997, the Company issued 300,000 shares of Redeemable Preferred Stock Series A with an aggregate liquidation preference of $30.0 million, or $100 per share, which are entitled to quarterly dividends that accrue at a rate per annum of 14%. Prior to February 28, 2002, dividends may be paid in either additional whole-shares of Redeemable Preferred Stock Series A or cash, at the Company's option, and only in cash beginning with the dividend period ending May 31, 2002. On December 30, 1999, the Company issued and sold to Sunrise 25,000 shares of Redeemable Preferred Stock Series B with an aggregate liquidation preference of $25.0 million. Each share is entitled to quarterly dividends that will accrue at a 14% rate per annum, which are payable in cash or in additional shares of Redeemable Preferred Stock Series B. The Certificates of Designation for the Redeemable Preferred Stock Series A and B contain covenants customary for comparable securities including covenants that restrict the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends and make certain other restricted payments, to merge or consolidate with any other person or to sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. Such covenants are substantially identical to those covenants contained in the Senior Subordinated Notes. The Company's Senior Credit Agreement prohibits the payment of cash dividends until May 31, 2002 on Redeemable Preferred Stock Series A and B. RISK FACTORS Based on the current level of operations and anticipated future internally generated growth, additional borrowings under the Senior Credit Agreements and additional equity contributions from Sunrise, if any, the Company anticipates that it will have sufficient funds to meet its anticipated requirements for working capital, capital expenditures and interest payments. The Company's future operating performance and ability to service or refinance the Senior Credit Agreement and Senior Subordinated Notes will be subject to future economic conditions and to financial, business, and other factors, many of which are beyond the control of the Company. The ability of the Company to implement its business strategy, and to consummate future acquisitions will require additional debt and significant equity capital, and no assurance can be given as to whether, and on what terms, such additional debt and/or equity capital will be available, including additional equity contributions from Sunrise. The degree to which the Company is leveraged could have a significant effect on its results of operations. See "Liquidity and Capital Resources" for a discussion of potential compliance issues with the Senior Credit Agreement and negotiation with the Company's lenders. As outlined on pages 33 through 36 of the Company's Annual 10-K Report for the year ended December 31, 2000, the Company is subject to risk factors which could influence the future of the Company and the forward looking statements included herein. CAPITAL EXPENDITURES Capital expenditures were $5.0 million and $3.7 million for the nine month periods ended September 30, 2001 and 2000, respectively. Maintenance capital expenditures are anticipated to be $4.0 million for the year ended December 31, 2001. FCC regulations require the Company to commence digital operations by May 1, 2002. The construction of digital facilities will require an approximate $16.0 million outlay for new equipment. During 2001, the Company signed master agreements with suppliers of antennas, transmission lines and transmitters. Digital expenditures amount to $2.8 million for the nine months ended September 30, 2001, with the balance to be paid in the remainder of 2001 and 2002. The Company anticipates that due to equipment 21 manufacturing delays and the non availability of tower crews during early 2002 that it will file with the FCC for an extension of time to complete the digital conversions, especially with respect to the stations located in North Dakota and Texas. Although there can be no assurance that the FCC will so act, we anticipate that the FCC will grant us such extensions. Although we believe it is highly unlikely, there is a remote possibility that we would lose the digital FCC license for a station that does not build-out within the time allowed by the FCC. The Company anticipates that digital expenditures will be paid for from available cash on hand, cash generated from operations and borrowings under the Company's revolving credit facility. DEPRECIATION, AMORTIZATION AND INTEREST Because the Company has incurred substantial indebtedness in the acquisition of stations, for which it will have significant debt service requirements, and because the Company will have significant non-cash charges relating to the depreciation and amortization expense of the property, equipment, and intangibles that were acquired in the multiple station acquisitions, the Company expects that it will report substantial net losses for the foreseeable future. INFLATION The Company believes that its business is affected by inflation to an extent no greater than other businesses are generally affected. EMPLOYEES As of September 30, 2001, the Company had approximately 562 full-time and 85 part-time employees. WEYI has a contract with United Auto Workers that expires on September 30, 2002 with respect to 43 employees. WDTN has a contract with the IBEW that expires July 1, 2003 with respect to 53 employees. KFYR has a contract with IBEW that expires on September 9, 2003 with respect to 10 employees. No significant labor problems have been experienced by the Stations. The Company considers its overall labor relations to be good. However, there can be no assurance that the Company's collective bargaining agreements will be renewed in the future or that the Company will not experience a prolonged labor dispute, which could have a material adverse effect on the Company's business, financial condition, or results of operations. ENVIRONMENTAL REGULATION Prior to the Company's ownership or operation of its current facilities, substances or wastes that are or might be considered hazardous under applicable environmental laws may have been generated, used, stored or disposed of at certain of those facilities. In addition, environmental conditions relating to the soil and groundwater at or under the Company's facilities may be affected by the proximity of nearby properties that have generated, used, stored, or disposed of hazardous substances. As a result, it is possible that the Company could become subject to environmental liabilities in the future in connection with these facilities under applicable environmental laws and regulations. Although the Company believes that it is in substantial compliance with such environmental requirements, and has not in the past been required to incur significant costs in connection therewith, there can be no assurance that the Company's costs to comply with such requirements will not increase in the future. The Company presently believes that none of its properties have any condition that is likely to have a material adverse effect on the Company's financial condition or results of operations. NETWORK AFFILIATION AGREEMENTS The Company is currently negotiating with FOX as to the terms of renewal of the affiliation agreement with WNAC. While negotiations continue, the terms of the expired affiliation agreement remain in effect. Effective January 1, 2001, compensation received by WDTN-TV from the ABC Network was reduced by $0.7 million a year pursuant to the affiliation agreement. This reduction was part of an overall negotiation with Clear Channel Communications ("CCC") related to its merger with AM/FM, Inc. ("AMFM") and the sale of WPRI to the Company. 22 FCC ISSUES The following discussion does not describe all of the FCC Ownership Rules or rule changes (collectively, the "FCC Ownership Rules"). Instead, it attempts to summarize those rules that appear to be most relevant to the Company. The FCC has relaxed its "television duopoly" rule, which barred any entity from having an attributable interest in more than one television station with overlapping service areas. Under the current rules, one entity may have attributable interests in two television stations in the same Nielsen Designated Market Area ("DMA") provided that: (1) one of the two stations is not among the top four in audience share and (2) at least eight independently owned and operated commercial and noncommercial television stations will remain in the DMA if the proposed transaction is consummated. The FCC will count toward the eight independently owned station threshold only same DMA television stations that have overlapping service areas with at least one of the two stations to be commonly owned. The current rules also permit common ownership of television stations in the same DMA where one of the stations to be commonly owned has failed, is failing or is unbuilt or where extraordinary public interest factors are present. In order to transfer ownership in two commonly owned television stations in the same DMA, it will be necessary to demonstrate compliance with the FCC Ownership Rules at the time of the transfer. Lastly, the current rules authorize the common ownership of television stations with overlapping signal contours if the stations to be commonly owned are located in different DMAs. Similarly, the FCC has relaxed its cross ownership rule, which restricts the common ownership of television and radio stations in the same market. One entity now may own up to two television stations and six radio stations (or up to one television station and seven radio stations) in the same market provided that (1) 20 independent media voices (including certain newspapers and a single cable system) will remain in the relevant market following consummation of the proposed transaction, and (2) the proposed combination is consistent with the television duopoly and local radio ownership rules. If fewer than 20 but more than 9 independent voices will remain in a market following a proposed transaction, and the proposed combination is otherwise consistent with FCC rules, a single entity may have attributable interests in up to two television stations and four radio stations. The various "independent voices" tests are applied on a market-by-market basis, with regard to both television designated market areas and radio markets. If these various "independent voices" tests are not met, a party generally may have an attributable interest in no more than one television station and one radio station in a market. The FCC's rule changes also redefined its rules that determine what constitutes "cognizable interest" in applying the FCC Ownership Rules (the "Attribution Rules"). Under the current Attribution Rules, a party will be deemed to have a cognizable interest in a television or radio station, cable system or daily newspaper that triggers the FCC's cross-ownership restrictions if (1) it is a non-passive investor and it owns 5% or more of the voting stock in the media outlet; (2) it is a passive investor (i.e., bank trust department, insurance company or mutual fund) and it owns 20% or more of the voting stock; or (3) its interests (which may be in the form of debt or equity (even if non-voting), or both) exceed 33% of the total asset value of the media outlet and it either (i) supplies at least 15% of a station's weekly broadcast hours or (ii) has an attributable interest, independent of this total asset rule, in another media outlet in the same market. For purposes of the Attribution Rules, the value of a media outlet's total assets may be based on either book value or justifiable fair market value, and include any indirect interest. The FCC will consider consideration already paid to a media outlet for a future interest (such as an upfront payment for warrants or an option) and financial deposits by a party made on behalf of a media outlet to secure a loan for the outlet (such as an escrow deposit) as part of the media outlet's total assets held by the party. Also, if unexpected changes in a media outlet's total assets cause the outlet (or its attributable parties) to fall out of compliance with the FCC's rules, the outlet (or parties) will have a reasonable period of time (up to one year) in which to return to compliance. In addition, the FCC eliminated its single majority shareholder exception, which enabled a single shareholder that owned more than 50 percent of a media outlet's voting stock to be the only attributable shareholder in that outlet, even if other shareholders in that media outlet had interests (such as five percent of voting stock) that otherwise would have caused them to be attributable. The FCC has announced that it will suspend enforcement of the elimination of the single majority shareholder exception in light of a D.C. circuit decision vacating the elimination of the single majority shareholder exception in the cable context. In any event all investors who were nonattributable because of the presence of a single majority shareholder prior to December 14, 2000, would have this nonattributable status permanently grandfathered on a non-transferable basis. 23 Local marketing agreements ("LMAs") also are treated as attributable interests for purposes of the FCC Ownership Rules. The FCC grandfathered television LMAs that were in effect prior to November 5, 1996, until it has completed the review of its attribution regulations in 2004. Parties may seek the permanent grandfathering of such an LMA, on a non-transferable basis, by demonstrating that the LMA is in the public interest and that it otherwise complies with FCC Rules. Finally, the FCC has eliminated its "cross interest" policy, which had prohibited common ownership of a cognizable interest in one media outlet and a "meaningful" non-cognizable interest in another media outlet serving essentially the same market. With the changes in the FCC Ownership Rules, the Company no longer needs to maintain its waiver to own both KRBC-TV, Abilene, Texas, and KACB-TV, San Angelo, Texas, as the common ownership of these stations is now consistent with the Commission's Rules. On October 2, 1999, AMFM entered into an Agreement and Plan of Merger with Clear Channel and CCU Merger Sub, Inc. ("Merger Sub"), pursuant to which AMFM would be merged with and into Merger Sub and become a wholly-owned subsidiary of Clear Channel (the "AMFM Merger"). The AMFM Merger was consummated on August 30, 2000. Thomas O. Hicks, who previously was the Company's ultimate controlling shareholder, had an attributable interest in AMFM and currently is the Vice-Chairman of Clear Channel. Because of the changes in FCC Ownership Rules and the AMFM Merger, the Company has taken certain actions to remain in compliance with the FCC Ownership Rules. On March 14, 2000, STC License Company filed an application with the FCC for consent to the transfer of control of Sunrise to SBP, which is controlled by Robert N. Smith. This application for transfer was approved on July 12, 2000, and was consummated on August 30, 2000 , by the sale of one share of Sunrise voting common stock by Sunrise Television Partners, L.P. ("STPLP") to SBP for two hundred dollars and the conversion by STPLP of 891,499 shares of voting common stock of Sunrise to a non voting status. On April 28, 2000, Hicks Muse entered into an agreement to sell to an unrelated party its interest in the Redeemable Preferred Stock Series A of the Company and Hicks Muse's interest in Senior Subordinated Notes of Sunrise. This transaction was consummated on August 30, 2000. Upon the transfer of control to SBP and the sale of these interests by Hicks Muse, Hicks Muse's interest in Sunrise and the Company became no longer attributable under the FCC Ownership Rules. On March 24, 2000, the Company filed an application with the FCC to convert its non-voting shares of SAC capital stock into voting shares of SAC capital stock. The application for transfer was approved on July 12, 2000, and was consummated on August 30, 2000. A principal effect of this transaction will allow SAC to file a consolidated tax return with Sunrise and the Company. SALE OF WJAC AND WTOV On July 6, 2000, the Company entered into an agreement with Cox Broadcasting, Inc. ("Cox") to sell to Cox all of the capital stock of WJAC, Incorporated for $70.0 million. WJAC, Incorporated owns WJAC, the NBC affiliate in Johnstown, Pennsylvania. In a related transaction, Smith Acquisition Company ("SAC") and Smith Acquisition License Company ("SALC"), subsidiaries of the Company, entered into an agreement with Cox to sell to Cox the assets of WTOV, the NBC affiliate in Steubenville, Ohio, for $58.0 million. On August 4, 2000, the Company entered into Time Brokerage Agreements ("TBAs") with Cox under which Cox programmed most of the available time on WJAC and WTOV and retained the revenues from such sales of advertising time. Cox paid the Company a $0.8 million monthly fee under the two TBAs and reimbursed the Company for out of pocket costs. On December 22, 2000, the Company and Cox amended their agreement for the sale of WJAC to provide for the sale of the FCC licenses for WJAC directly from STC License Company, the subsidiary of the Company which held such licenses, to Cox. Prior to the closing of the sale of WJAC and WTOV, the Company incurred direct incremental costs associated with the disposition of these stations during 2000 in the amount of $0.8 million and such costs were expensed in 2000. The sale of WJAC, Incorporated and WTOV closed on January 5, 2001. Preliminary net proceeds, after additional expenses from the transaction, were approximately $124.6 million. $69.4 million was used to permanently retire a portion of the Company's senior term loan agreement, $52.2 million was transferred to a collateral account with the Company's senior lender pending the purchase of WPRI and $3.0 24 million was transferred to an indemnity escrow account. The Company may incur additional expenses related to this transaction during the remainder of this year or as a result of claims under the indemnity escrow account. PURCHASE OF WPRI / SALE OF WNAC On November 3, 2000, the Company entered into an Asset Purchase Agreement with CCC to acquire the assets of WPRI, the CBS affiliate in the Providence, Rhode Island and New Bedford, Massachusetts, market for a purchase price of $50.0 million. Closing of this transaction was subject to review and approval by the FCC and subject to the transfer of the WNAC FCC license to an unrelated party. On January 31, 2001, the Company and certain subsidiaries entered into an Asset Purchase Agreement with LIN Television Corporation ("LIN") to sell LIN certain assets of WNAC, including the FCC license and an interest in the revised JMPA for $2.5 million. On February 1, 2001 the Company filed an application with the FCC to sell WNAC to LIN. Approval and consummation of that sale was a necessary precondition of the Company being able to acquire WPRI. On March 1, 2001, the Company and CCC consummated the purchase and sale of certain assets of WPRI. At this initial closing, the Company paid $44.5 million (including the release of a $5.0 million escrow deposit) to CCC and acquired all of the real estate and tangible personal property related to WPRI. Effective March 1, 2001, the shares of operating results under the JMPA were adjusted to 89% for the Company and 11% for CCC. A $39.5 million payment to CCC was made by a transfer of funds from the collateral account with the Company's senior lender. The $5.0 million previously placed in an escrow account pursuant to the WPRI contract was disbursed to CCC. On June 5, 2001, the Company paid $5.5 million to CCC and acquired the remaining assets of WPRI including the FCC license, working capital and operating contracts. The payment was made by a transfer of funds from the collateral account with the Company's senior lender. The Company loaned LIN $2.5 million and completed the sale of the WNAC assets and FCC License to LIN for $2.5 million. Interest accrues at 7% and is due December 31 of each year. The note is payable in full by June 10, 2006. 25 PRO FORMA BASIS The pro forma financial information presents the results of broadcast operations of the Stations owned and operated by the Company at September 30, 2001, including for all periods showing 100% of WPRI and WNAC gross revenue and expenses less the expected LIN payment and the exclusion of WJAC and WTOV. The following pro forma financial information is not indicative of the actual results that would have been achieved had each Station been owned on January 1, 2000, nor is it indicative of the future results of broadcast operations. NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 AND YEAR ENDED DECEMBER 31, 2000 PRO FORMA NET BROADCASTING REVENUES. Set forth below are the principal types of pro forma television revenues that the Company has generated for the periods indicated and the percentage contribution of each to total broadcasting revenues.

26 PRO FORMA RESULTS OF BROADCAST OPERATIONS. Set forth below is a summary of the pro forma results of broadcast operations of the Company for the periods indicated and their percentages of net revenue.

PRO FORMA BROADCAST CASH FLOW, EBITDA AND STATION OPERATING INCOME : The following table sets forth a computation of pro forma Broadcast Cash Flow, EBITDA and Station Operating Income.

27 STATION OPERATING INCOME:

The Company has included Broadcasting Loss, Broadcast Cash Flow, EBITDA and Station Operating Income data because such data are commonly used as a measure of performance for broadcast companies and are used by bondholders to measure a company's ability to service debt, pay interest and make capital expenditures. Broadcast Cash Flow and EBITDA are not, and should not be used as an indicator or alternative to operating income, net loss or cash flow as reflected in the accompanying financial statements, are not intended to represent funds available for debt service, dividends, reinvestment or other discretionary uses, are not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 PRO FORMA NET BROADCASTING REVENUES. Set forth below are the principal types of pro forma television revenues that the Company has generated for the periods indicated and the percentage contribution of each to total broadcasting revenues.

28 PRO FORMA RESULTS OF BROADCAST OPERATIONS. Set forth below is a summary of the pro forma results of broadcast operations of the Company for the periods indicated and their percentages of net revenue.

PRO FORMA BROADCAST CASH FLOW, EBITDA AND STATION OPERATING INCOME: The following table sets forth a computation of pro forma Broadcast Cash Flow, EBITDA and Station Operating Income.

29 STATION OPERATING INCOME:

The Company has included Broadcasting Loss, Broadcast Cash Flow, EBITDA and Station Operating Income data because such data are commonly used as a measure of performance for broadcast companies and are used by bondholders to measure a company's ability to service debt, pay interest and make capital expenditures. Broadcast Cash Flow and EBITDA are not, and should not be used as an indicator or alternative to operating income, net loss or cash flow as reflected in the accompanying financial statements, are not intended to represent funds available for debt service, dividends, reinvestment or other discretionary uses, are not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK CREDIT AND INTEREST RATE RISKS Interest Rate Risk The Company's policy is to manage interest rate risk by issuing long-term fixed rate debt and, prior to June 30, 2001, by converting a portion of its variable rate debt to fixed rates for periods generally between eighteen to thirty six months through the use of interest rate swap agreements. The Company has consistently applied these procedures since it issued its Senior Subordinated Notes in February 1997. The Company does not employ any modeling techniques to help manage its interest rate risk. Information pertaining to the Company's debt at September 30, 2001, is shown in the table below (000's omitted).

(1) Interest rate is fixed at 11% (2) Interest rate is 2.6% plus applicable spread for the period September 27 to December 31, 2001. On September 11, 1998, the Company entered into a three year interest rate swap agreement to reduce the impact of changing interest rates on $70.0 million of its variable rate borrowings under the Senior Credit Agreement and the base interest rate was fixed at 5.15% plus the applicable borrowing margin. On December 30, 1999 the Company entered into a swap agreement that fixed the interest rate on $25.0 million of its floating rate borrowings for 18 months at 5% plus the applicable borrowing margin. 30 On January 5, 2001, the Company closed the sale of WJAC and WTOV to Cox and used $68.0 million of the proceeds to reduce the term portion of the Senior Credit Agreement. Simultaneous with the sale to Cox, the Company cancelled its $70.0 million and $25.0 million swap agreements and entered into a new swap agreement that fixed the interest rate on $25.0 million of its remaining floating rate borrowings for 18 months at 4.56% plus the applicable borrowing margin. On June 29, 2001, the Company cancelled its new interest rate swap by making a payment of approximately $0.2 million, which was charged to interest expense. Other Market Risks The Company's financial instruments that constitute exposed credit risks consist primarily of cash equivalents and trade receivables. The Company's cash equivalents consist solely of high quality short-term securities. Concentrations of credit risks with respect to receivables are somewhat limited due to the large number of customers and to their dispersion across the geographic areas served by the Stations. No single customer amounts to 10% of the Company's total outstanding receivables. PART II ITEM 1. LEGAL PROCEEDINGS Lawsuits and claims are filed against the Company from time to time in the ordinary course of business. Management believes that the outcome of any such pending matters will not materially affect the financial position or results of operations of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.1 Asset Purchase Agreement dated November 3, 2000, among Clear Channel Broadcasting, Inc., Clear Channel Broadcasting Licenses, Inc. (sellers) and STC Broadcasting, Inc. (buyer) for television station WPRI, Providence, Rhode Island (1) 2.2 Asset Purchase Agreement dated January 31, 2001 among Smith Acquisition Company, Smith Acquisition License Company, STC Broadcasting, Inc., STC License Company and LIN Television Corporation related to the sale of certain assets of WNAC. (2) 2.3 First Amendment to Asset Purchase Agreement dated March 15, 2001 among STC Broadcasting, Inc., STC License Company, Smith Acquisition Company, Smith Acquisition License Company and LIN Television Corporation related to the sale of certain assets of WNAC. (3) 10.1 Separation Agreement between STC Broadcasting, Inc., Sunrise Television Corp. and John Purcell dated August 1, 2001. (4) (1) Incorporated by reference to the Form 10-Q of STC Broadcasting, Inc. filed for the quarter ended September 30, 2000. (2) Incorporated by reference to the Form 8-K of STC Broadcasting, Inc. dated February 5, 2001. (3) Incorporated by reference to the Form 10-Q of STC Broadcasting, Inc. filed for the quarter ended March 31, 2001. (4) Filed herewith. (b) Reports on Form 8-K None this quarter 31 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STC Broadcasting, Inc. Registrant Date: November 8, 2001 By: /s/ David A. Fitz ------------------------------------ David A. Fitz Senior Vice-President/ Chief Financial Officer 32

STC BROADCASTING INC 10-Q