FORM 10-Q/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2002
OR
[ ] 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 1-13452
PAXSON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-3212788
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
601 Clearwater Park Road
West Palm Beach, Florida 33401
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (561) 659-4122
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 17, 2003:
CLASS OF STOCK NUMBER OF SHARES
Common stock-Class A, $0.001 par value per share............. 59,261,670
Common stock-Class B, $0.001 par value per share............. 8,311,639
Restatement of Prior Financial Information
Paxson Communications Corporation (the "Company") is filing this Form 10-Q/A as
an amendment to the Company's quarterly report on Form 10-Q for the quarter
ended June 30, 2002 that was filed with the Securities and Exchange Commission
on August 14, 2002 in order to restate its quarterly results to reflect deferred
tax adjustments resulting from the Company's adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). Upon further analysis completed by the Company in connection with the
preparation of its 2002 annual report on Form 10-K, the Company determined that
an adjustment was required to properly reflect its tax provisions reflected in
the Company's financial statements as presented in Form 10-Q as filed for the
quarterly periods of 2002. These non-cash tax adjustments result from the
Company's implementation of SFAS No. 142. Historically, the Company has netted
its deferred tax liability related to FCC licenses and goodwill against its
deferred tax asset. Following adoption of SFAS No. 142, the temporary
differences created by different treatment for book and tax of the Company's
indefinite lived intangibles can no longer be assumed to offset deductible
temporary differences which create deferred tax assets. Therefore, the Company
was required to record an additional tax expense to increase its deferred tax
asset valuation allowance in its financial statements totaling approximately
$125.9 million, $3.5 million and $3.5 million for the three month periods ending
March 31, 2002, June 30, 2002 and September 30, 2002, respectively. The Company
has not updated the information contained herein for events and transactions
occurring subsequent to the date of the original Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002. The Company therefore recommends that this
report be read in conjunction with the Company's reports filed subsequent to the
original filing date.
The Company hereby amends the following items, financial statements, exhibits or
other portions of its Quarterly Report on Form 10-Q for the quarter ended June
30, 2002, as set forth herein:
Part I - Financial Information
Item 1. Financial Statements.
The financial information is amended to read in its
entirety as set forth on pages 3 through 11 herein
and incorporated herein by reference.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information set forth under the caption
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" is amended to
add the paragraph under the heading "Income Taxes" on
page 16 herein and incorporated herein by reference.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
The list of exhibits set forth in, and incorporated
by reference from, the Exhibit Index to the original
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002, is amended to include the following
additional exhibits, filed herewith:
99.1 Certification by the Chairman and Chief Executive
Officer of Paxson Communications Corporation pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by the Chief Financial Officer of
Paxson Communications Corporation pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certifications.
The information set forth under the caption
"Certifications" is amended to include the
Certifications of the Company's Chairman and Chief
Executive Officer and Chief Financial Officer
required pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934, as amended.
PAXSON COMMUNICATIONS CORPORATION
INDEX TO FORM 10-Q/A
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 2002 (unaudited) and December 31, 2001.......................................... 3
Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2002 and 2001 (unaudited)................................................. 4
Consolidated Statement of Stockholders' Deficit for the
Six Months Ended June 30, 2002 (unaudited)............................................... 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2002 and 2001 (unaudited)................................................. 6
Notes to Unaudited Consolidated Financial Statements..................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................... 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K......................................................... 22
Signatures.......................................................................................... 24
Certifications...................................................................................... 25
2
PAXSON COMMUNICATIONS CORPORATION
Consolidated Balance Sheets
(in thousands except share data)
June 30, December 31,
2002 2001
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents................................................................. $ 44,107 $ 83,858
Short-term investments.................................................................... 19,916 12,150
Accounts receivable, less allowance for doubtful accounts of $2,494 and $3,635,
respectively.......................................................................... 27,386 29,728
Program rights............................................................................ 55,340 65,370
Prepaid expenses and other current assets................................................. 5,267 5,667
------------ ------------
Total current assets................................................................... 152,016 196,773
Property and equipment, net................................................................... 150,615 147,641
Intangible assets, net........................................................................ 902,571 912,147
Program rights, net of current portion........................................................ 80,320 89,672
Investments in broadcast properties........................................................... 14,001 15,271
Other assets, net............................................................................. 29,269 22,171
------------ ------------
Total assets........................................................................... $ 1,328,792 $ 1,383,675
============ ============
Liabilities, Mandatorily Redeemable Preferred Stock and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities.................................................. $ 28,999 $ 25,858
Accrued interest.......................................................................... 14,483 15,220
Obligations for program rights............................................................ 51,451 76,169
Obligations for cable distribution rights................................................. 9,329 12,325
Deferred revenue from satellite distribution rights....................................... 7,181 6,414
Current portion of bank financing......................................................... 3,614 2,899
------------ ------------
Total current liabilities.............................................................. 115,057 138,885
Obligations for program rights, net of current portion.................................... 27,915 43,396
Obligations for cable distribution rights, net of current portion......................... 732 710
Deferred revenue from satellite distribution rights, net of current portion............... 10,493 11,776
Deferred income taxes..................................................................... 129,344 --
Senior subordinated notes and bank financing, net......................................... 867,690 526,281
Other long-term liabilities............................................................... 39,228 36,510
------------ ------------
Total liabilities...................................................................... 1,190,459 757,558
------------ ------------
Mandatorily redeemable preferred stock........................................................ 941,201 1,164,160
------------ ------------
Commitments and contingencies................................................................. -- --
------------ ------------
Stockholders' deficit:
Class A common stock, $0.001 par value; one vote per share; 215,000,000
shares authorized, 56,568,827 and 56,380,177 shares issued and outstanding............. 57 56
Class B common stock, $0.001 par value; ten votes per share; 35,000,000
shares authorized and 8,311,639 shares issued and outstanding.......................... 8 8
Common stock warrants and call option..................................................... 68,384 68,384
Stock subscription notes receivable....................................................... (1,588) (1,088)
Additional paid-in capital................................................................ 513,376 512,194
Deferred stock option compensation........................................................ (4,662) (6,537)
Accumulated deficit....................................................................... (1,375,904) (1,109,710)
Accumulated other comprehensive loss...................................................... (2,539) (1,350)
------------- -------------
Total stockholders' deficit............................................................ (802,868) (538,043)
------------- -------------
Total liabilities, mandatorily redeemable preferred stock, and stockholders' deficit.......... $ 1,328,792 $ 1,383,675
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
3
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statements of Operations
(in thousands except share and per share data)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------------ ----------- ----------- ------------
(Unaudited) (Unaudited)
REVENUES:
Gross revenues.................................................... $ 78,611 $ 78,981 $ 159,392 $ 159,195
Less: agency commissions.......................................... (10,279) (11,249) (21,985) (22,148)
------------ ----------- ----------- ------------
Net revenues...................................................... 68,332 67,732 137,407 137,047
------------ ----------- ----------- ------------
EXPENSES:
Programming and broadcast operations (excluding stock-based
compensation of $144, $272, $289 and $320)................... 12,209 10,669 25,167 20,858
Program rights amortization.................................... 19,446 21,430 38,415 45,863
Selling, general and administrative (excluding stock-based
compensation of $398, $1,799, $1,586 and $2,869)............. 34,198 30,398 63,817 61,769
Business interruption insurance proceeds....................... (1,007) -- (1,007) --
Time brokerage and affiliation fees............................ 967 894 1,902 1,833
Stock-based compensation....................................... 542 2,071 1,875 3,189
Accrued programming loss....................................... 2,900 -- 2,900 --
Restructuring charge related to Joint Sales Agreements......... -- -- (402) --
Depreciation and amortization.................................. 14,228 24,136 26,866 48,132
------------ ----------- ----------- ------------
Total operating expenses................................... 83,483 89,598 159,533 181,644
------------ ----------- ----------- ------------
Operating loss.................................................... (15,151) (21,866) (22,126) (44,597)
------------- ----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest expense............................................... (21,374) (11,855) (41,033) (24,138)
Interest income................................................ 378 1,253 874 2,737
Other income (expense), net.................................... 679 (1,276) 108 (1,607)
Gain on modification of program rights obligations............. 204 233 437 466
Gain on sale of television stations............................ 700 10,649 700 10,649
------------ ----------- ----------- ------------
Loss before income taxes and extraordinary item................... (34,564) (22,862) (61,040) (56,490)
Income tax provision ............................................. (3,501) (16) (129,404) (60)
------------- ------------ ------------ -------------
Loss before extraordinary item.................................... (38,065) (22,878) (190,444) (56,550)
Extraordinary charge related to early extinguishment of debt...... -- -- (17,552) --
------------ ----------- ------------ ------------
Net loss.......................................................... (38,065) (22,878) (207,996) (56,550)
Dividends and accretion on redeemable preferred stock............. (28,667) (36,843) (58,198) (73,009)
------------- ------------ ------------ -------------
Net loss attributable to common stockholders...................... $ (66,732) $ (59,721) $ (266,194) $ (129,559)
============ =========== =========== ============
Basic and diluted loss per share:
Loss before extraordinary item................................. $ (1.03) $ (0.93) $ (3.84) $ (2.01)
Extraordinary item............................................. -- -- (0.27) --
------------ ----------- ------------- ------------
Net loss....................................................... $ (1.03) $ (0.93) $ (4.11) $ (2.01)
============ ========== ========== ============
Weighted average shares outstanding............................... 64,875,141 64,482,532 64,817,149 64,385,930
============ =========== =========== ============
The accompanying notes are an integral part of the
consolidated financial statements.
4
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statement Of Stockholders' Deficit
For The Six Months Ended June 30, 2002 (Unaudited)
(in thousands)
Common
Stock Stock
Warrants Subscription Additional
Common Stock and Call Notes Paid-In
Class A Class B Option Receivable Capital
------- -------- ------ ---------- -------
BALANCE AT DECEMBER 31, 2001................................ $ 56 $ 8 $68,384 $ (1,088) $ 512,194
Stock-based compensation................................. -- -- -- -- --
Stock options exercised.................................. 1 -- -- -- 1,182
Interest on stock subscription notes receivable.......... -- -- -- (500) --
Other comprehensive loss................................. -- -- -- -- --
Dividends on redeemable preferred stock.................. -- -- -- -- --
Accretion on redeemable preferred stock.................. -- -- -- -- --
Net loss................................................. -- -- -- -- --
----- ---- ------- -------- ----------
BALANCE AT JUNE 30, 2002.................................... $ 57 $ 8 $68,384 $ (1,588) $ 513,376
===== ==== ======= ======== ==========
Accumulated
Deferred Other Total
Stock Option Accumulated Comprehensive Stockholders'
Compensation Deficit Loss Deficit
------------ ------- ---- -------
BALANCE AT DECEMBER 31, 2001................................ $ (6,537) $(1,109,710) $ (1,350) $ (538,043)
Stock-based compensation................................. 1,875 -- -- 1,875
Stock options exercised.................................. -- -- -- 1,183
Interest on stock subscription notes receivable.......... -- -- -- (500)
Other comprehensive loss................................. -- -- (1,189) (1,189)
Dividends on redeemable preferred stock.................. -- (43,988) -- (43,988)
Accretion on redeemable preferred stock.................. -- (14,210) -- (14,210)
Net loss................................................. -- (207,996) -- (207,996)
-------- ----------- --------- -----------
BALANCE AT JUNE 30, 2002.................................... $ (4,662) $(1,375,904) $ (2,539) $ (802,868)
========= =========== ========= ============
The accompanying notes are an integral part of the
consolidated financial statements.
5
PAXSON COMMUNICATIONS CORPORATION
Consolidated Statements Of Cash Flows
(in thousands)
For the Six Months Ended June 30,
2002 2001
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net loss.................................................................. $ (207,996) $ (56,550)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................. 26,866 48,132
Stock-based compensation.................................................. 1,875 3,189
Loss on extinguishment of debt............................................ 17,552 --
Accrued programming loss.................................................. 2,900 --
Non-cash restructuring charge............................................. (402) --
Program rights amortization............................................... 38,415 45,863
Payments for cable distribution rights.................................... (3,257) (8,425)
Payments for program rights and deposits.................................. (58,965) (58,710)
Deferred income tax provision............................................. 129,344 --
Provision for doubtful accounts........................................... (373) 1,831
(Gain) loss from sale or disposal of assets and broadcast properties...... 15 (8,980)
Accretion on senior subordinated discount notes........................... 17,522 --
Changes in assets and liabilities:
Decrease in restricted cash and short-term investments.................... -- 1,998
Decrease in accounts receivable........................................... 1,615 1,862
Decrease (increase) in prepaid expenses and other current assets.......... 400 (1,923)
Decrease in other assets.................................................. 2,143 2,151
Increase (decrease) in accounts payable and accrued liabilities........... 2,049 (2,999)
Decrease in accrued interest.............................................. (738) (2,214)
----------- -----------
Net cash used in operating activities................................ (31,035) (34,775)
----------- -----------
Cash flows from investing activities:
Acquisitions of broadcasting properties................................... (265) (12,659)
(Increase) decrease in short-term investments............................. (7,766) 15,013
Purchases of property and equipment....................................... (19,135) (13,688)
Proceeds from sales of television stations................................ 700 15,121
Proceeds from sales of property and equipment............................. 12 202
Proceeds from insurance recoveries........................................ 1,493 --
Other .................................................................... (568) (273)
------------ ------------
Net cash (used in) provided by investing activities.................. (25,529) 3,716
------------ -----------
Cash flows from financing activities:
Borrowings of long-term debt.............................................. 325,338 9,766
Repayments of long-term debt.............................................. (736) (1,115)
Preferred stock dividends paid............................................ -- (3,546)
Redemption of 12 1/4% exchange debentures................................. (284,410) --
Payments of loan origination costs........................................ (10,259) --
Debt extinguishment premium and costs..................................... (14,302) --
Proceeds from exercise of common stock options, net....................... 1,182 2,524
Repayment of stock subscription notes receivable.......................... -- 182
----------- -----------
Net cash provided by financing activities............................ 16,813 7,811
----------- -----------
Decrease in cash and cash equivalents..................................... (39,751) (23,248)
Cash and cash equivalents, beginning of period............................ 83,858 51,363
----------- -----------
Cash and cash equivalents, end of period.................................. $ 44,107 $ 28,115
=========== ----===========
The accompanying notes are an integral part of the
consolidated financial statements.
6
PAXSON COMMUNICATIONS CORPORATION
Notes To Unaudited Consolidated Financial Statements
1. BASIS OF PRESENTATION
Paxson Communications Corporation's (the "Company") financial information
contained in the financial statements and notes thereto as of June 30, 2002 and
for the three and six month periods ended June 30, 2002 and 2001, is unaudited.
In the opinion of management, all adjustments necessary for the fair
presentation of such financial information have been included. These adjustments
are of a normal recurring nature. Except for the adoption of Statement of
Financial Accounting Standards No. 142 described below, there have been no
changes in accounting policies since the year ended December 31, 2001. The
consolidated financial statements include the accounts of the Company and its
majority owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Certain reclassifications have been made to the
prior year's financial statements to conform to the 2002 presentation. These
financial statements, footnotes and discussions should be read in conjunction
with the financial statements and related footnotes and discussions contained in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001, and the definitive proxy statement for the annual meeting of stockholders
held May 3, 2002, both of which were filed with the United States Securities and
Exchange Commission.
2. ADOPTION OF SFAS 142
The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142") effective January 1, 2002.
SFAS 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets. Under SFAS 142, goodwill and intangible assets that
have indefinite lives are not amortized but rather are tested at least annually
for impairment. Intangible assets that have finite useful lives continue to be
amortized over their useful lives. No goodwill or FCC license intangible asset
impairment loss was recognized upon adoption. However, because of the effect of
SFAS 142 on the computation of deferred tax assets and liabilities, the Company
was required to increase its deferred tax asset valuation allowance during the
three and six months ended June 30, 2002. Under SFAS 142, the Company no longer
amortizes goodwill and FCC license intangibles (which the Company believes have
indefinite lives). Under previous accounting standards, these assets were being
amortized over 25 years. Had the Company not amortized its goodwill and
indefinite lived intangibles pursuant to SFAS 142 durning 2001, the Company's
net loss attributable to common stockholders for the three and six months ended
June 30, 2001 would have been approximately $53.6 million, or $0.83 per share,
and $117.0 million, or $1.82 per share, respectively, net of deferred taxes.
3. INSURANCE PROCEEDS
The Company's antenna, transmitter and other broadcast equipment for its
New York television station (WPXN) were destroyed upon the collapse of the World
Trade Center on September 11, 2001. The Company is currently broadcasting from
towers outside Manhattan at substantially lower height and power. The Company is
evaluating several alternatives to improve its signal through transmission from
other locations, however the Company expects that it could take several years to
replace the signal it had at the World Trade Center location with a comparable
signal. The Company has property and business interruption insurance coverage to
mitigate the losses sustained. Insurance recoveries are recognized in the period
they become probable of collection and can be reasonably estimated. During the
second quarter, the Company received insurance proceeds of $2.5 million, $1.5
million of which related to property losses and $1.0 million related to business
interruption. Insurance proceeds related to property losses are recorded in the
statement of operations as a component of other income (expense), net of the
historical cost of the assets destroyed. Business interruption proceeds are
recorded in the statement of operations as a reduction of the Company's
operating loss.
4. JSA RESTRUCTURING
During the fourth quarter of 2000, the Company approved a plan to
restructure its television station operations by entering into Joint Sales
Agreements ("JSAs") primarily with National Broadcasting Company, Inc. ("NBC")
7
affiliate stations in each of the Company's remaining non-JSA markets. Through
June 30, 2002, the Company has paid termination benefits to 83 employees
totaling approximately $1.6 million and paid lease termination costs of
approximately $1.5 million, which were charged against the restructuring
reserve. Due to events outside the Company's control, including the events of
September 11, 2001, the Company was unable to fully complete the plan in 2001.
The Company now expects to substantially complete the JSA restructuring by the
end of the third quarter of 2002, except for contractual lease obligations for
closed locations, the majority of which expire in 2004.
The Company has been unable to enter into JSAs for two of the three
remaining stations included in its restructuring plan. Although the Company
intends to continue pursuing JSAs for these stations, the Company is currently
unable to determine the ultimate timing of these JSAs. Accordingly, in the first
quarter of 2002, the Company reversed approximately $0.4 million of
restructuring reserves primarily related to these two stations and certain other
reserves which were no longer required.
The following summarizes the activity in the Company's restructuring
reserves for the six months ended June 30, 2002 (in thousands):
Balance Amounts Credited to Balance
December 31, 2001 Cash Deductions Costs and Expenses June 30, 2002
----------------- --------------- ------------------ -------------
Accrued Liabilities:
Lease costs................. $ 1,717 $ (518) $ (129) $ 1,070
Severance................... 382 (109) (273) --
---------- ---------- ---------- ---------
$ 2,099 $ (627) $ (402) $ 1,070
========== ========== ========== =========
5. SENIOR SUBORDINATED NOTES AND BANK FINANCING
Senior subordinated notes and bank financing consists of the following (in
thousands):
June 30, December 31,
2002 2001
---- ----
12 1/4% Senior Subordinated Discount Notes, due 2009............................ $ 496,263 $ --
10 3/4% Senior Subordinated Notes, due 2008..................................... 200,000 200,000
Senior Bank Credit Facility..................................................... 344,862 328,575
Other debt...................................................................... 582 605
------------ -----------
1,041,707 529,180
Less: discount on 12 1/4% Senior Subordinated Discount Notes.................... (170,403) --
Less: current portion of bank financing......................................... (3,614) (2,899)
------------ -----------
$ 867,690 $ 526,281
============ ===========
In January 2002, the Company completed an offering of senior subordinated
discount notes due in 2009. Gross proceeds of the offering totaled approximately
$308.3 million and were used to refinance the Company's 12 1/2% exchange
debentures due 2006, which were issued in exchange for the outstanding shares of
the Company 12 1/2% exchangeable preferred stock on January 14, 2002, and to pay
costs related to the offering. The notes were sold at a discounted price of
62.132% of the principal amount at maturity, which represents a yield to
maturity of 12 1/4%. Interest on the notes will be payable semi-annually
beginning on July 15, 2006. The senior subordinated discount notes are
guaranteed by the Company's subsidiaries. The Company recognized an
extraordinary loss due to early extinguishment of debt totaling approximately
$17.6 million in the first quarter of 2002 resulting primarily from the
redemption premium and the write-off of unamortized debt costs associated with
the repayment of the 12 1/2% exchange debentures.
The Company's senior credit facility contains various covenants restricting
the Company's ability and the ability of its subsidiaries to incur additional
indebtedness, dispose of assets, pay dividends, repurchase or redeem capital
stock and indebtedness, create liens, make capital expenditures, make certain
investments or acquisitions and enter into transactions with affiliates and
otherwise restricting its activities. On June 28, 2002, the Company and its
lenders amended the senior credit facility to, among other things, reduce the
minimum required levels of net revenues and EBITDA for certain periods under the
facility's financial covenants and allow the Company to retain the proceeds from
certain planned asset sales for general corporate purposes. In connection with
the amendment, the interest rates were increased to LIBOR plus 3.25% or Base
Rate (as defined) plus 2.25%, at the Company's option, and the Company paid an
8
amendment fee of $0.9 million. The senior credit facility, as amended, contains
the following financial covenants: (1) twelve-month trailing minimum net revenue
and minimum EBITDA (as defined) for each of the fiscal quarters ended June 30,
2001 through December 31, 2004, (2) maximum ratio of total senior debt to
EBITDA, maximum ratio of total debt to EBITDA, minimum permitted interest
coverage ratio and minimum permitted fixed charge coverage ratio, each beginning
for each of the fiscal quarters ending on or after March 31, 2005, (3) maximum
annual capital expenditures for 2001 through 2006 and (4) maximum annual
programming payments for 2002 through 2006. At June 30, 2002, the Company was in
compliance with these amended covenants. The Company believes that it will
continue to be in compliance with its debt covenants for the next twelve months.
However, there can be no assurance that the Company will continue to be in
compliance. If the Company were to violate any of these covenants, the Company
would be required to seek a waiver from its lenders under the senior credit
facility and possibly seek another amendment to the senior credit facility.
Although the Company believes it would be able to obtain waivers or amendments
to its senior credit facility relating to these covenants, there can be no
assurance that the Company's lenders under its senior credit facility would
grant the Company any waiver or amendment which might become necessary. If the
Company failed to meet any of its debt covenants and the Company's lenders did
not grant a waiver or amend the facility, the lenders would have the right to
declare an event of default and seek remedies including acceleration of all
outstanding amounts due under the senior credit facility. Should an event of
default be declared under the senior credit facility, this would cause a cross
default to occur under the Company's senior subordinated note and senior
subordinated discount note indentures, thus giving each trustee the right to
accelerate repayment, and would give the holders of each of the Company's three
outstanding series of preferred stock the right to elect two directors per
series to the Company's board of directors. There can be no assurance that the
Company would be successful in obtaining alternative sources of funding to repay
these obligations should these events occur.
6. MANDATORILY REDEEMABLE PREFERRED STOCK
The following represents a summary of the changes in the Company's
mandatorily redeemable preferred stock during the six month period ended June
30, 2002 (in thousands):
Series B
Junior Convertible
Exchangeable Exchangeable Convertible Exchangeable
Preferred Preferred Preferred Preferred
Stock Stock Stock Stock
12 1/2% 13 1/4% 9 3/4% 8% Total
------------ ------------- ---------- ----------- -----------
Balance at December 31, 2001......................... $ 279,890 $ 310,068 $ 103,140 $ 471,062 $ 1,164,160
Accretion............................................ 23 592 248 13,347 14,210
Accrual of cumulative dividends...................... 1,244 20,929 5,214 16,601 43,988
Exchange into debentures (see Note 5)............... (281,157) -- -- -- (281,157)
---------- ----------- --------- ---------- ------------
Balance at June 30, 2002 (unaudited)................. $ -- $ 331,589 $ 108,602 $ 501,010 $ 941,201
========== =========== ========= ========== ===========
Aggregate liquidation preference at June 30, 2002.... $ -- $ 336,840 $ 110,869 $ 507,683 $ 955,392
Shares authorized.................................... -- 72,000 17,500 41,500 131,000
Shares issued and outstanding........................ -- 33,135 11,087 41,500 85,722
Accrued dividends.................................... $ -- $ 5,488 $ -- $ 92,683 $ 98,171
7. COMPREHENSIVE LOSS
The components of the comprehensive loss are as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net loss.................................................. $ (38,065) $ (22,878) $ (207,996) $ (56,550)
Other comprehensive loss:
Unrealized loss on interest rate swap ................. (1,964) -- (1,189) --
----------- ---------- ----------- -----------
Comprehensive loss.......................................... $ (40,029) $ (22,878) $ (209,185) $ (56,550)
=========== ========== =========== ===========
9
8. INCOME TAXES
The Company has recorded a provision for income taxes based on its
estimated annual income tax liability. For the three and six months ended June
30, 2002 and 2001, the Company has recorded a valuation allowance for its
deferred tax assets (resulting from tax losses generated during the periods) net
of those deferred tax liabilities which are expected to reverse in determinate
future periods, as it believes it is more likely than not that it will be unable
to utilize its remaining net deferred tax assets. As previously described, upon
adoption of SFAS 142 on January 1, 2002, the Company no longer amortizes its
goodwill and FCC license intangibles. Under previous accounting standards, these
assets were being amortized over 25 years. Although the provisions of SFAS 142
stipulate that indefinite-lived intangible assets and goodwill are not
amortized, the Company is required under FASB Statement No. 109, "Accounting for
Income Taxes" ("SFAS 109"), to recognize deferred tax liabilities and assets for
temporary differences related to goodwill and FCC license intangible assets and
the tax-deductible portion of these assets. Prior to adopting SFAS 142, the
Company considered its deferred tax liabilities related to these assets as a
source of future taxable income in assessing the realization of its deferred tax
assets. Because indefinite-lived intangible assets and goodwill are no longer
amortized for financial reporting purposes under SFAS 142, the related deferred
tax liabilities will not reverse until some indeterminate future period should
the assets become impaired or are disposed of. Therefore, the reversal of
deferred tax liabilities related to FCC license intangible assets and goodwill
are no longer considered a source of future taxable income in assessing the
realization of deferred tax assets. As a result of this accounting change, the
Company was required to record increases in its deferred tax asset valuation
allowance totaling approximately $3.5 million and $129.3 million during the
three and six months ended June 30, 2002, respectively. In addition, the Company
will continue to record increases in its valuation allowance in future periods
based on increases in the deferred tax liabilities and assets for temporary
differences related to goodwill and FCC license intangible assets.
9. PER SHARE DATA
Basic and diluted loss per common share was computed by dividing net loss
less dividends and accretion on redeemable preferred stock by the weighted
average number of common shares outstanding during the period. The effect of
stock options and warrants is antidilutive. Accordingly, the Company's
presentation of diluted earnings per share is the same as that of basic earnings
per share.
As of June 30, 2002 and 2001, the following securities, which could
potentially dilute earnings per share in the future, were not included in the
computation of earnings per share, because to do so would have been antidilutive
(in thousands):
June 30,
-----------------------
2002 2001
---- ----
Stock options outstanding................................................. 12,507 12,506
Class A common stock warrants outstanding................................. 32,428 32,428
Class A common stock reserved under convertible securities................ 38,825 38,189
------ ------
83,760 83,123
====== ======
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and non-cash operating and financing
activities are as follows (in thousands):
For the Six Months
Ended June 30,
--------------------
2002 2001
---- ----
(Unaudited)
Supplemental disclosures of cash flow information:
Cash paid for interest............................................... $ 21,994 $23,653
========= =======
Cash paid for income taxes........................................... $ 550 $ 83
========= =======
Non-cash operating and financing activities:
Barter revenue....................................................... $ 436 $ 361
========= =======
Dividends accrued on redeemable preferred stock...................... $ 43,988 $55,421
========= =======
Discount accretion on redeemable securities.......................... $ 14,210 $14,042
========= =======
11. SUBSEQUENT EVENTS
On July 16, 2002, the Company entered into an agreement to sell the assets
of its television station KPXF, serving the Fresno-Visalia, California, market
to Univision Communications, Inc. for a cash purchase price of $35 million. The
station sale, subject to regulatory approvals, is expected to close by December
31, 2002.
On August 1, 2002, the Company entered into agreements with a subsidiary of
CBS Broadcasting, Inc. ("CBS") and Crown Media United States, LLC ("Crown
Media") to sublicense the Company's rights to broadcast the television series
TOUCHED BY AN ANGEL ("Touched") to Crown Media for exclusive exhibition on the
Hallmark Channel, commencing September 9, 2002. Under the terms of the agreement
with Crown Media, the Company will receive approximately $47.4 million from
Crown Media, $38.6 million of which will be paid over a three-year period
commencing August 2002 and the remaining $8.8 million of which will be paid over
a three-year period commencing August 2003. In addition, Crown Media is
obligated to sub-license future seasons from the Company should CBS renew the
series.
10
Under the terms of the Company's agreement with CBS, the Company remains
obligated to CBS for amounts due under its pre-existing license agreement which,
as of June 30, 2002, totaled approximately $88.9 million (including commitments
of approximately $46.7 million for the 2001/2002 and 2002/2003 seasons to be
made available in the future). However, such amounts due to CBS will be reduced
by approximately $15 million in programming cost savings. The transaction is
expected to result in a gain of approximately $4 million which will be deferred
over the term of agreement since the Company remains liable to CBS.
Under its agreement with CBS, the Company is contractually obligated to
license future seasons of Touched if the series is renewed by CBS. Under its
sub-license agreement with Crown Media, Crown Media is obligated to sub-license
such future seasons from the Company. The Company's financial obligation to CBS
for future seasons will exceed the sub-license fees to be received from Crown
Media resulting in accrued programming losses to the extent the series is
renewed in future seasons. During the second quarter of 2002, upon the decision
by CBS to renew Touched for the 2002/2003 season, the Company became committed
to license the 2002/2003 season resulting in an accrued programming loss of
approximately $10.7 million. This amount was offset in part by a reduction in
the Company's estimated loss on the 2001/2002 season of approximately $7.8
million, resulting in a net accrued programming loss of $2.9 million in the
second quarter. The change in estimate for the 2001/2002 season was due to the
sub-licensing agreement with Crown Media and a lower number of episodes produced
than previously estimated.
11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are a network television broadcasting company which owns and operates the
largest broadcast television station group in the U.S., as measured by the
number of television households in the markets our stations serve. We currently
own and operate 65 broadcast television stations (including three stations we
operate under time brokerage agreements), which reach all of the top 20 U.S.
markets and 41 of the top 50 U.S. markets. We operate PAX TV, a network that
provides family entertainment programming seven days per week and reaches
approximately 87% of prime time television households in the U.S. through our
broadcast television station group, and pursuant to distribution arrangements
with cable and satellite distribution systems and our broadcast station
affiliates.
We were founded in 1991 by Lowell W. Paxson, who remains our Chairman and
controlling stockholder. We began by purchasing radio and television stations,
and grew to become Florida's largest radio station group, while also owning two
network-affiliated television stations and other television stations that
carried principally infomercials and other paid programming. In 1997, we sold
our radio station group and our network-affiliated television stations to
concentrate on building our owned and operated television station group. We used
the proceeds from the sale of our radio station group and network-affiliated
television stations to acquire television stations and build the PAX TV network.
Since commencing our television operations in 1994, we have established the
largest owned and operated broadcast television station group in the U.S., as
measured by the number of television households in the markets our stations
serve. We launched PAX TV on August 31, 1998, and are now in our fourth network
programming season.
In September 1999, National Broadcasting Company, Inc. ("NBC") invested $415
million in our company. We have also entered into a number of agreements with
NBC that are intended to strengthen our business. Under these agreements, NBC
sells our network spot advertising and performs our network research and sales
marketing functions. We have also entered into JSAs with NBC with respect to
most of our stations serving markets also served by an NBC owned and operated
station, and with many independently owned NBC affiliated stations serving
markets also served by our stations. During the six months ended June 30, 2002,
we paid or accrued amounts due to NBC totaling approximately $9.1 million for
commission compensation and cost reimbursements incurred under our agreements
with NBC.
In December 2001, we commenced a binding arbitration proceeding against NBC
in which we asserted that NBC has breached its agreements with us and has
breached its fiduciary duty to us and to our shareholders. Should the outcome of
our arbitration proceeding against NBC require the unwinding or termination of
some or all of these operating relationships, or should NBC or the NBC
affiliates elect not to renew the agreements under which these operating
relationships have been implemented, we could be required to incur significant
costs to resume performing the advertising sales and other operating functions
currently performed by NBC and our JSA partners or to transfer performance of
these functions to another broadcast television station operator, which could
have a material adverse effect upon us.
We derive our revenues from the sale of network spot advertising time,
network long form paid programming and station advertising:
o Network spot advertising revenue. We sell commercial air time to
advertisers who want to reach the entire nationwide PAX TV viewing
audience with a single advertisement. Most of our network advertising is
sold under advance, or "upfront," commitments to purchase advertising
time, which are obtained before the beginning of our PAX TV programming
season. Network advertising rates are significantly affected by audience
ratings and our ability to reach audience demographics that are
desirable to advertisers. Higher ratings generally will enable us to
charge higher rates to advertisers. Our network advertising revenue
represented approximately 32% of our revenue during the six months ended
June 30, 2002.
o Network long form paid programming. We sell air time for long form paid
programming, consisting primarily of infomercials, during broadcasting
hours when we are not airing PAX TV. Our network long form paid
programming represented approximately 33% of our revenue during the six
months ended June 30, 2002.
12
o Station advertising revenue. We sell commercial airtime to advertisers
who want to reach the viewing audience in specific geographic markets in
which we own and operate our television stations. These advertisers may
be local businesses or regional or national advertisers who want to
target their advertising in these markets. Station advertising rates are
affected by ratings and local market conditions. Our station advertising
sales represented approximately 35% of our revenue during the six months
ended June 30, 2002. Included in station advertising revenue is long form
paid programming sold locally or nationally which represented
approximately 15% of our revenue during the six months ended June 30,
2002.
Our revenue mix has changed since we launched PAX TV in 1998. The percentage
mix of our long form paid programming has declined from more than 90% in 1997 to
52% (combined network and television station long form) in the six months ended
June, 2002 due to the increase in spot advertising sales following the launch of
PAX TV. Long-form paid programming, however, continues to represent a
significant portion of our revenues.
Commencing in the fourth quarter of 1999, we began entering into Joint Sales
Agreements ("JSA") with owners of broadcast stations in markets served by our
stations. After implementation of a JSA, we no longer employ our own on-site
station sales staff. The JSA partner provides station spot advertising sales
management and representation for our stations and we integrate and co-locate
our station operations with those of our JSA partners. To date, we have entered
into JSAs for 53 of our 65 television stations.
Our primary operating expenses include selling, general and administrative
expenses, depreciation and amortization expenses, programming expenses, employee
compensation and costs associated with cable and satellite distribution, ratings
services and promotional advertising. Programming amortization is a significant
expense and is affected significantly by several factors, including the mix of
syndicated versus lower cost original programming as well as the frequency with
which programs are aired. As we acquire a more complete library of lower cost
original programming to replace our syndicated programming, our programming
amortization expense should decline.
RESULTS OF OPERATIONS
The following table sets forth net revenues, the components of operating
expenses and other operating data for the three and six months ended June 30,
2002 and 2001 (in thousands):
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
(unaudited) (unaudited)
Gross revenues................................................ $ 78,611 $ 78,981 $ 159,392 $ 159,195
Less: agency commissions...................................... (10,279) (11,249) (21,985) (22,148)
----------- ----------- ---------- ----------
Net revenues 68,332 67,732 137,407 137,047
----------- ----------- ---------- ----------
Expenses:
Programming and broadcast operations..................... 12,209 10,669 25,167 20,858
Program rights amortization.............................. 19,446 21,430 38,415 45,863
Selling, general and administrative...................... 34,198 30,398 63,817 61,769
Business interruption insurance proceeds................. (1,007) -- (1,007) --
Time brokerage and affiliation fees...................... 967 894 1,902 1,833
Stock-based compensation................................. 542 2,071 1,875 3,189
Accrued programming loss................................. 2,900 -- 2,900 --
Restructuring charge related to Joint Sales Agreements... - -- (402) --
Depreciation and amortization............................ 14,228 24,136 26,866 48,132
----------- ----------- ---------- ----------
Total operating expenses.............................. 83,483 89,598 159,533 181,644
----------- ----------- ---------- ----------
Operating loss................................................ $ (15,151) $ (21,866) $ (22,126) $ (44,597)
============ =========== ========== ==========
Other Data:
Adjusted EBITDA (a)...................................... $ 3,486 $ 5,235 $ 11,015 $ 8,557
Program rights payments and deposits..................... 29,915 30,832 58,965 58,710
Payments for cable distribution rights................... 979 6,076 3,257 8,425
Capital expenditures..................................... 7,087 7,571 19,135 13,688
Cash flows used in operating activities.................. (10,397) (21,096) (31,035) (34,775)
Cash flows (used in) provided by investing activities.... (891) 21,848 (25,529) 3,716
Cash flows provided by financing activities.............. 3,281 6,563 16,813 7,811
13
(a) "Adjusted EBITDA" is defined as operating loss plus depreciation,
amortization, stock-based compensation, programming net realizable value
adjustments, restructuring and other one-time charges, and time brokerage and
affiliation fees. Adjusted EBITDA does not purport to represent cash provided by
operating activities as reflected in our consolidated statements of cash flows,
is not a measure of financial performance under generally accepted accounting
principles, and should not be considered in isolation. We believe the
presentation of adjusted EBITDA is relevant and useful because adjusted EBITDA
is a measurement industry analysts utilize when evaluating our operating
performance. We also believe adjusted EBITDA enhances an investor's
understanding of our results of operations because it measures our operating
performance exclusive of interest and other non-operating and non-recurring
items as well as non-cash charges for depreciation, amortization and stock-based
compensation. In evaluating adjusted EBITDA, investors should consider various
factors including its relationship to our reported operating losses and cash
flows from operating activities. Investors should be aware that adjusted EBITDA
may not be comparable to similarly titled measures presented by other companies
and could be misleading unless all companies and analysts calculate such
measures in the same manner. Adjusted EBITDA is not indicative of our cash flows
from operations and therefore does not represent funds available for our
discretionary use.
THREE MONTHS ENDED JUNE 30, 2002 AND 2001
Gross revenues decreased 0.5% to $78.6 million for the three months ended
June 30, 2002 from $79.0 million for the three months ended June 30, 2001. This
decrease is primarily attributable to decreases in revenue from the PAX TV
network offset in part by higher advertising revenues from our television
stations. The increase in television station revenues is primarily due to
improved television spot advertising revenues in our local markets partially
offset by decreases in television station long-form revenues. The decrease in
PAX TV network advertising revenues resulted from a weaker upfront market for
the 2001/2002 broadcast season and we expect this trend to continue through the
third quarter of 2002.
Our revenues during the three and six months ended June 30, 2002 were
negatively affected by the temporary loss of the broadcast signal of our New
York television station when our antenna, transmitter and other broadcast
equipment was destroyed upon the collapse of the World Trade Center on September
11, 2001. We are currently broadcasting from towers outside of Manhattan at
substantially lower height and power. We are evaluating several alternatives to
improve our signal through transmission from other locations, however we expect
it could take several years to replace the signal we enjoyed at the World Trade
Center location with a comparable signal. We believe the loss of a significant
portion of our over-the-air viewership in the New York market has had a negative
effect on our revenues as a result of lower ratings for the PAX TV network and
our station serving the New York market. We have property and business
interruption insurance coverage to mitigate the losses sustained. Insurance
recoveries will be recognized in the period they become probable of collection
and can be reasonably estimated. During the second quarter, we received
insurance proceeds of $2.5 million, $1.5 million of which related to property
losses and $1.0 million related to business interruption. Insurance proceeds
related to property losses are recorded in the statement of operations as a
component of other income (expense), net of the historical cost of the assets
destroyed. Business interruption proceeds have been recorded in the accompanying
statement of operations as a reduction of our operating loss.
Programming and broadcast operations expenses were $12.2 million during the
three months ended June 30, 2002, compared with $10.7 million for the comparable
period last year. This increase is primarily due to tower rent expense for
previously owned towers that were sold in 2001 and higher music licensing fees.
Program rights amortization expense was $19.4 million during the three months
ended June 30, 2002 compared with $21.4 million for the comparable period last
year. The decrease is primarily due to a greater mix of lower cost original
programming versus the comparable period last year. Selling, general and
administrative expenses were $34.2 million during the three months ended June
30, 2002 compared with $30.4 million for the comparable period last year. The
increase is primarily due to $1.9 million in legal fees associated with the NBC
arbitration and approximately $2.1 million of spectrum related costs that were
expensed due to the indefinite delay of the 700 MHz auction which had been
scheduled for June 2002. As described below, during the quarter we recorded an
accrued programming loss of $2.9 million related to estimated losses for the
2001/2002 and 2002/2003 seasons of Touched By An Angel. Stock-based compensation
expense was $0.5 million during the three months ended June 30, 2002 compared
with $2.1 million for the comparable period last year. The decrease is primarily
due to a reduction in options vesting in the second quarter of 2002 compared
with the same period last year. Depreciation and amortization expense was $14.2
million during the three months ended June 30, 2002 compared with $24.1 million
for the comparable period last year. This decrease is due primarily to the
adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" which requires that goodwill and intangible assets with
indefinite lives, including FCC licenses, be tested for impairment annually
rather than amortized over time. As a result of the new accounting standard, our
amortization expense is now significantly lower as we no longer amortize
goodwill and FCC license intangible assets.
14
Interest expense for the three months ended June 30, 2002, increased to
$21.4 million from $11.9 million in the same period in 2002. The increase is
primarily due to a greater level of debt due to our refinancings in July 2001
and January 2002. At June 30, 2002, total long-term debt and senior subordinated
notes were $871.3 million compared with $414.4 million as of June 30, 2001.
Although the July 2001 and January 2002 refinancings reduced our overall cost of
capital, the refinancings increased our debt and decreased our redeemable
preferred stock and as a result we expect our interest expense for the remainder
of 2002 to be higher than in the comparable periods in 2001. Interest income for
the three months ended June 30, 2002 decreased to $0.4 million from $1.3 million
in the same period in 2002. The decrease is primarily due to lower average cash
and short-term investment balances in 2002.
The gain on sale of television stations for the three months ended June 30,
2002 represents $0.7 million of additional consideration received for the sale
of a television station in 2001. During the three months ended June 30, 2001, we
sold three television stations for aggregate consideration of approximately
$18.9 million and realized pre-tax gains of approximately $10.6 million on these
sales.
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Gross revenues increased 0.1% to $159.4 million for the six months ended
June 30, 2002 from $159.2 million for the six months ended June 30, 2001. This
increase is primarily attributable to higher advertising revenues from our
television stations offset in part by a decrease in revenue from the PAX TV
network. The increase in television station revenues is primarily due to
improved television spot advertising revenues in our local markets. The decrease
in PAX TV network advertising revenues resulted from a weaker upfront market for
the 2001/2002 broadcast season and we expect this trend to continue through the
third quarter of 2002.
Programming and broadcast operations expenses were $25.2 million during the
six months ended June 30, 2002 compared with $20.9 million for the comparable
period last year. This increase is primarily due to tower rent expense for
previously owned towers that were sold in 2001 and higher music licensing fees.
Program rights amortization expense was $38.4 million during the six months
ended June 30, 2002 compared with $45.9 million for the comparable period last
year. The decrease is primarily due to a greater mix of lower cost original
programming versus the comparable period last year. Selling, general and
administrative expenses were $63.8 million during the six months ended June 30,
2002 compared with $61.8 million for the comparable period last year. The
increase is primarily due to $3.1 million in legal fees associated with the NBC
arbitration and approximately $2.1 million of spectrum related costs that were
written off due to the indefinite delay of the 700 MHz auction which had been
scheduled for June 2002. Stock-based compensation expense was $1.9 million
during the six months ended June 30, 2002 compared with $3.2 million for the
comparable period last year. This decrease is due to a reduction in options
vesting in the first half of 2002 compared with the same period last year.
Depreciation and amortization expense was $26.9 million during the six months
ended June 30, 2002 compared with $48.1 million for the comparable period last
year. This decrease is due primarily to the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" which
requires that goodwill and intangible assets with indefinite lives, including
FCC licenses, be tested for impairment annually rather than amortized over time.
As a result of the new accounting standard, our amortization expense is now
significantly lower as we no longer amortize goodwill and FCC license intangible
assets.
Interest expense for the six months ended June 30, 2002, increased to $41.0
million from $24.1 million in the same period in 2001. The increase is primarily
due to a greater level of senior debt due to our refinancings in July 2001 and
January 2002. Interest income for the six months ended June 30, 2002 decreased
to $0.9 million from $2.7 million in the same period in 2001. The decrease is
primarily due to lower average cash and short-term investment balances in 2002.
RESTRUCTURING ACTIVITIES
During the fourth quarter of 2000, we approved a plan to restructure our
television station operations by entering into JSAs primarily with NBC affiliate
stations in each of our remaining non-JSA markets. Through June 30, 2002, we
15
have paid termination benefits to 83 employees totaling approximately $1.6
million and paid lease termination costs of approximately $1.5 million, which
were charged against the restructuring reserve. Due to events outside our
control including the events of September 11, 2001, we were unable to fully
complete the plan in 2001. We now expect to substantially complete the JSA
restructuring by the end of the third quarter of 2002, except for contractual
lease obligations for closed locations, the majority of which expire in 2004.
We have been unable to enter into JSA agreements for two of the three
remaining stations included in our restructuring plan. Although we intend to
continue pursuing JSAs for these stations, we are currently unable to determine
the ultimate timing of these JSAs. Accordingly, in the first quarter of 2002, we
reversed approximately $0.4 million of restructuring reserves primarily related
to these two stations and certain other reserves which were no longer required.
INCOME TAXES
As previously described, upon adoption of SFAS 142 on January 1, 2002, we
no longer amortize goodwill and FCC license intangibles. Under previous
accounting standards, these assets were being amortized over 25 years. Although
the provisions of SFAS 142 stipulate that indefinite-lived intangible assets and
goodwill are not amortized, we are required under FASB Statement No. 109,
"Accounting for Income Taxes" ("SFAS 109"), to recognize deferred tax
liabilities and assets for temporary differences related to goodwill and FCC
license intangible assets and the tax-deductible portion of these assets. Prior
to the adoption of SFAS 142, we considered our deferred tax liabilities related
to these assets as a source of future taxable income in assessing the
realization of our deferred tax assets. Because indefinite-lived intangible
assets and goodwill are no longer amortized for financial reporting purposes
under SFAS 142, the related deferred tax liabilities will not reverse until some
indeterminate future period should the assets become impaired or are disposed
of. Therefore, the reversal of deferred tax liabilities related to FCC license
intangible assets and goodwill are no longer considered a source of future
taxable income in assessing the realization of deferred tax assets. As a result
of this accounting change, we were required to record increases in our deferred
tax asset valuation allowance totaling approximately $3.5 million and $129.3
million during the three and six months ended June 30, 2002, respectively. In
addition, we will continue to record increases in our valuation allowance in
future periods based on increases in the deferred tax liabilities and assets for
temporary differences related to goodwill and FCC license intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements are to fund capital expenditures for our
television properties, programming rights payments and debt service payments.
Our primary sources of liquidity are our net working capital, availability under
the Term A portion of our senior credit facility and proceeds from the planned
sale of certain non-core assets. Proceeds from the sale of these assets are
expected to generate approximately $100 million and include the sale of our
television station serving the Fresno, California market for $35 million as
described below, as well as the sale of certain other non-core television
stations which, if completed, will raise an additional $65 million. The other
non-core television assets we plan to sell are either not broadcasting PAX TV or
would not materially diminish the nationwide distribution of PAX TV. In
conjunction with this plan, on July 16, 2002, we entered into an agreement to
sell the assets of our television station KPXF, serving Fresno, California, to
Univision Communications, Inc. for a cash purchase price of $35 million. The
station sale, subject to regulatory approvals, is expected to close by December
31, 2002. We expect to receive the proceeds related to the remaining asset sales
either by the end of 2002 or early in 2003. In addition to the planned asset
sales, in the third quarter of 2002 we plan to complete the securitization of
our accounts receivable resulting in additional cash proceeds of approximately
$15 million. We believe that cash provided by future operations, net working
capital, available funding under the Term A portion of our senior credit
facility and the proceeds from the planned asset sales and accounts receivable
securitization will provide the liquidity necessary to meet our obligations and
financial commitments for at least the next twelve months. If we are unable to
sell the identified assets on acceptable terms or our financial results are not
as anticipated, we may be required to seek to sell additional assets or raise
additional funds through the offering of equity securities in order to generate
sufficient cash to meet our liquidity needs. We can provide no assurance that we
would be successful in selling assets or raising additional funds if this were
to occur.
As of June 30, 2002, we had $64.0 million in cash and short-term investments
and working capital of approximately $37.0 million. During the six months ended
June 30, 2002, our cash and short-term investments decreased by approximately
$32.0 million due primarily to the use of $22.0 million to pay interest as well
as cash used to fund operations including programming and cable payments.
Cash used in operating activities was approximately $31.0 million and $34.8
million for the six months ended June 30, 2002 and 2001, respectively. These
amounts primarily reflect the operating costs incurred in connection with the
operation of PAX TV and the related programming rights and cable distribution
rights payments and interest payments on our debt.
Cash (used in) provided by investing activities was approximately ($25.5)
million and $3.7 million for the six months ended June 30, 2002 and 2001,
respectively. These amounts primarily include capital expenditures, short-term
investment transactions, acquisitions of broadcast properties offset by proceeds
from station sales and property insurance proceeds. As of June 30, 2002, we had
agreements to purchase significant assets of broadcast properties totaling
approximately $36.0 million, net of deposits and advances. We do not anticipate
spending any significant amounts to satisfy these commitments until 2005 or
thereafter.
Capital expenditures were approximately $19.1 million and $13.7 million for
the six months ended June 30, 2002 and 2001, respectively. The FCC has mandated
that each licensee of a full power broadcast television station, that was
allotted a second digital television channel in addition to the current analog
16
channel, complete the construction of digital facilities capable of serving its
community of license with a signal of requisite strength by May 2002, and
complete the build-out of the balance of its full authorized facilities by a
later date to be established by the FCC. Despite the current uncertainty that
exists in the broadcasting industry with respect to standards for digital
broadcast services, planned formats and usage, we have complied and intend to
continue to comply with the FCC's timing requirements for the broadcast of
digital television. We have commenced migration to digital broadcasting in
certain of our markets and will continue to do so throughout the required time
period. Because of the uncertainty as to standards, formats and usage, however,
we cannot currently predict with reasonable certainty the amount or timing of
the expenditures we will likely have to make to complete the digital conversion
of our stations, but we currently anticipate spending at least an additional $35
million over the next several years to complete the conversion. We will likely
fund our digital conversion from availability under the $50 million Term A
portion of our senior credit facility, as well as cash on hand, the sale of
assets and from other financing arrangements.
Cash provided by financing activities was $16.8 million and $7.8 million
during the six months ended June 30, 2002 and 2001, respectively. These amounts
include the proceeds from the January 2002 refinancing described below, as well
as the related principal repayments, redemption premium, and refinancing costs.
Also included are proceeds from borrowings to fund capital expenditures and
proceeds from stock option exercises, net of principal repayments.
In January 2002, we completed an offering of senior subordinated discount
notes due in 2009. Gross proceeds of the offering totaled approximately $308.3
million and were used to refinance our 12 1/2% exchange debentures due 2006,
which were issued in exchange for the outstanding shares of our 12 1/2%
exchangeable preferred stock on January 14, 2002, and to pay costs related to
the offering. The notes were sold at a discounted price of 62.132% of the
principal amount at maturity, which represents a yield to maturity of 12 1/4%.
Interest on the notes will be payable semi-annually beginning on July 15, 2006.
The senior subordinated discount notes are guaranteed by our subsidiaries. We
recognized an extraordinary loss due to early extinguishment of debt totaling
approximately $17.6 million in the first quarter of 2002 resulting primarily
from the redemption premium and the write-off of unamortized debt costs
associated with the repayment of the 12 1/2% exchange debentures.
The terms of the indentures governing our senior subordinated notes contain
covenants limiting our ability to incur additional indebtedness except for
specified indebtedness related to the funding of capital expenditures and
refinancing indebtedness. In addition, our senior credit facility also contains
covenants restricting our ability and the ability of our subsidiaries to incur
additional indebtedness, dispose of assets, pay dividends, repurchase or redeem
capital stock and indebtedness, create liens, make capital expenditures, make
certain investments or acquisitions and enter into transactions with affiliates
and otherwise restricting our activities. On June 28, 2002, we and our lenders
under our senior bank credit facility amended the senior credit facility to,
among other things, reduce the minimum required levels of net revenues and
EBITDA for certain periods under the facility's financial covenants and allow us
to retain the proceeds from certain planned asset sales for general corporate
purposes. In connection with the amendment, the interest rates were increased to
LIBOR plus 3.25% or Base Rate (as defined) plus 2.25%, at our option, and we
paid an amendment fee of $0.9 million. Our senior credit facility, as amended,
contains the following financial covenants: (1) twelve-month trailing minimum
net revenue and minimum EBITDA (as defined in the senior credit facility) for
each of the fiscal quarters ended June 30, 2001 through December 31, 2004, (2)
maximum ratio of total senior debt to EBITDA, maximum ratio of total debt to
EBITDA, minimum permitted interest coverage ratio and minimum permitted fixed
charge coverage ratio, each beginning for each of the fiscal quarters ending on
or after March 31, 2005, (3) maximum annual capital expenditures for 2001
through 2006 and (4) maximum annual programming payments for 2002 through 2006.
Our twelve-month trailing minimum net revenue and EBITDA covenants, as amended,
for the next four quarters are as follows (in thousands):
Fiscal Quarter Ending Minimum Net Revenues Minimum EBITDA
--------------------- -------------------- --------------
September 30, 2002................... $245,000 $11,000
December 31, 2002.................... $250,000 $14,000
March 31, 2003....................... $260,000 $20,000
June 30, 2003........................ $270,000 $34,000
Our ability to meet these financial covenants is influenced by several
factors, the most significant of which include the effect on our revenues of
overall conditions in the television advertising marketplace, our network and
station ratings and the success of our JSA strategy. Although we currently
expect to meet these covenants over the next twelve months, adverse developments
with respect to these or other factors could result in our failing to meet one
or more of these covenants. If we were to violate any of these covenants, we
would be required to seek a waiver from our lenders under our senior credit
17
facility and possibly seek another amendment to our senior credit facility.
Although we believe that we would be able to obtain waivers or amendments to our
senior credit facility relating to these covenants, we can provide no assurance
that our lenders under our senior credit facility would grant us any waiver or
amendment which might become necessary. If we failed to meet any of our debt
covenants and our lenders did not grant a waiver or amend our facility, they
would have the right to declare an event of default and seek remedies including
acceleration of all outstanding amounts due under the senior credit facility.
Should an event of default be declared under the senior credit facility, this
would cause a cross default to occur under the senior subordinated note and
senior subordinated discount note indentures, thus giving each trustee the right
to accelerate repayment, and would give the holders of each of our three
outstanding series of preferred stock the right to elect two directors per
series to our board of directors. We can provide no assurance that we would be
successful in obtaining alternative sources of funding to repay these
obligations should these events occur.
As of June 30, 2002, our programming contracts require collective payments
of approximately $169.0 million as follows (in thousands):
Obligation for Program Rights
Program Rights Commitments Total
-------------- -------------- -------------
2002 (July--December)................................ $ 35,571 $ 32,195 $ 67,766
2003................................................ 27,032 16,395 43,427
2004................................................ 12,500 16,050 28,550
2005................................................ 4,263 15,818 20,081
2006................................................ -- 9,191 9,191
------------ ----------- -------------
$ 79,366 $ 89,649 $ 169,015
============ =========== =============
We are also committed to purchase at similar terms additional future series
episodes of our licensed programs should they be made available.
On August 1, 2002, we entered into agreements with a subsidiary of CBS
Broadcasting, Inc. ("CBS") and Crown Media United States, LLC ("Crown Media") to
sub-license our rights to broadcast the televisions series Touched By An Angel
("Touched") to Crown Media for exclusive exhibition on the Hallmark Channel,
commencing September 9, 2002. Under the terms of the agreement with Crown Media,
we will receive approximately $47.4 million from Crown Media, $38.6 million of
which will be paid over a three-year period commencing August 2002 and the
remaining $8.8 million of which will be paid over a three-year period commencing
August 2003. In addition, Crown Media is obligated to sub-license future seasons
from us should CBS renew the series.
Under the terms of our agreement with CBS, we remain obligated to CBS for
amounts due under our pre-existing license agreement which, as of June 30, 2002,
totaled approximately $88.9 million (including commitments of approximately
$46.7 million for the 2001/2002 and 2002/2003 seasons to be made available in
the future). However, such amounts due to CBS will be reduced by approximately
$15 million in programming cost savings. The transaction is expected to result
in a gain of approximately $4 million which will be deferred over the term of
agreement since we remain liable to CBS.
Under our agreement with CBS, we are contractually obligated to license
future seasons of Touched if the series is renewed by CBS. Under our sub-license
agreement with Crown Media, Crown Media is obligated to sub-license such future
seasons from us. Our financial obligation to CBS for future seasons will exceed
the sub-license fees to be received from Crown Media resulting in accrued
programming losses to the extent the series is renewed in future seasons. During
the second quarter of 2002, upon the decision by CBS to renew Touched for the
2002/2003 season, we became committed to license the 2002/2003 season resulting
in an accrued programming loss of approximately $10.7 million. This amount was
offset in part by a decrease in our estimated loss on the 2001/2002 season of
approximately $7.8 million, resulting in a net accrued programming loss of $2.9
million in the second quarter. The change in estimate for the 2001/2002 season
was due to the sub-licensing agreement with Crown Media and a lower number of
episodes produced than previously estimated.
18
As of June 30, 2002, obligations for cable distribution rights require
collective payments by us of approximately $10.1 million as follows (in
thousands):
2002 (July--December)................................ $ 9,406
2003................................................ 362
2004................................................ 190
2005................................................ 180
-----------
10,138
Less: Amount representing interest.................. (77)
-----------
Present value of cable rights payable............... $ 10,061
===========
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS AND UNCERTAINTIES
This Report contains forward-looking statements that reflect our current
views with respect to future events. All statements in this Report other than
those that are statements of historical facts are generally forward-looking
statements. These statements are based on our current assumptions and analysis,
which we believe to be reasonable, but are subject to numerous risks and
uncertainties that could cause actual results to differ materially from our
expectations. All forward-looking statements in this Report are made only as of
the date of this Report, and we do not undertake any obligation to update these
forward-looking statements, even though circumstances may change in the future.
Factors to consider in evaluating any forward-looking statements and the other
information contained herein and which could cause actual results to differ from
those anticipated in our forward-looking statements or could otherwise adversely
affect our business or financial condition include those set forth in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with
the US Securities and Exchange Commission, along with the following updates to
our Form 10-K disclosures.
IF OUR TELEVISION PROGRAMMING DOES NOT ATTRACT SUFFICIENT NUMBERS OF VIEWERS IN
DESIRABLE DEMOGRAPHIC GROUPS, OUR ADVERTISING REVENUE COULD DECREASE.
Our success depends upon our ability to generate advertising revenues,
which constitute substantially all of our operating revenues. Our ability to
generate advertising revenues in turn largely depends upon our ability to
provide programming which attracts sufficient numbers of viewers in desirable
demographic groups to generate audience ratings that advertisers will find
attractive. We cannot assure you that our programming will attract sufficient
targeted viewership or that, whether or not it achieves favorable ratings, we
will be able to generate enough advertising revenues to achieve profitability.
Our ratings depend partly upon unpredictable volatile factors beyond our
control, such as viewer preferences, competing programming and the availability
of other entertainment activities. A shift in viewer preferences could cause our
programming not to gain popularity or to decline in popularity, which could
adversely impact our advertising revenues. We may not be able to anticipate and
react effectively to shifts in viewer tastes and interests in our markets or to
generate sufficient demand and market acceptance for our programming. Further,
we acquire rights to our syndicated programming under multi-year commitments,
and it is difficult to accurately predict how a program will perform in relation
to its cost. In some instances, we must replace programs before their costs have
been fully amortized, resulting in write-offs that increase our operating costs.
We cannot assure you that our programming costs will not increase to a degree
which may materially adversely affect our operating results. In addition, we
incur production, talent and other ancillary costs to produce original programs
for PAX TV. We cannot assure you that our original programming will generate
advertising revenues in excess of our programming costs.
THE OUTCOME OF OUR ARBITRATION PROCEEDING AGAINST NBC COULD ADVERSELY AFFECT OUR
BUSINESS.
In December 2001, we commenced a binding arbitration proceeding against NBC
in which we asserted that NBC has breached its agreements with us and has
breached its fiduciary duty to us and to our shareholders. We asserted that
NBC's proposed acquisition of the Telemundo Group (which was completed in April
2002) violates the terms of the agreements governing the investment and
partnership between us and NBC.
We believe that NBC's acquisition of the Telemundo Group's television
stations creates serious additional regulatory obstacles to NBC's ability to
acquire control of us. It is highly unlikely that NBC would be able to obtain
regulatory approval of its acquisition of control of us without significant
changes in FCC rules and our agreement to divest some of our most significant
television station assets, which in turn could have a material adverse effect
upon the value of our company. These factors may substantially reduce the
likelihood of NBC acquiring more of our shares and control of our company. The
arbitration proceeding has been concluded and we currently expect the arbitrator
to render a decision by the end of August 2002. We cannot provide assurance that
the outcome of the proceeding will be favorable to us nor can we predict the
effect that the outcome of this proceeding will have upon our business.
19
We have significant operating relationships with NBC which have been
developed since NBC's investment in us in September 1999. NBC serves as our
exclusive sales representative to sell most of our PAX TV network advertising
and is the exclusive national sales representative for most of our stations. We
have entered into JSAs with NBC owned or NBC affiliated stations with respect to
48 of our television stations. Each JSA typically provides for our JSA partner
to serve as our exclusive sales representative to sell our local station
advertising and for many of our station's operations to be integrated and
co-located with those of the JSA partner. Should the outcome of our arbitration
proceeding against NBC require the unwinding or termination of some or all of
these operating relationships, or should NBC or the NBC affiliates elect not to
renew the agreements under which these operating relationships have been
implemented, we could be required to incur significant costs to resume
performing the advertising sales and other operating functions currently
performed by NBC and our JSA partners, including the expense of re-establishing
office and studio facilities separate from those of the JSA partners, or to
transfer performance of these functions to another broadcast television station
operator. Our network and station revenues could also be adversely affected by
the disruption of our advertising sales efforts that could result from the
unwinding of the JSAs. The unwinding or termination of some or all of our JSAs
could have a materially adverse effect upon us.
WE MAY NOT BE ABLE TO REDEEM OUR SECURITIES HELD BY NBC WERE NBC TO DEMAND THAT
WE DO SO AND THIS COULD HAVE ADVERSE CONSEQUENCES FOR US.
NBC has the right, at any time that the FCC renders a final decision that
NBC's investment in us is "attributable" to NBC (as that term is defined under
applicable rules of the FCC), or for a period of 60 days beginning on September
15, 2002 and on each September 15 after 2002, to demand that we redeem, or
arrange for a third party to acquire, any shares of our Series B preferred stock
then held by NBC. Our ability to effect any redemption is restricted by the
terms of our outstanding debt and preferred stock. NBC also has the right to
demand that we redeem any Series B preferred stock and Class A common stock
issued upon conversion of the Series B preferred stock then held by NBC upon the
occurrence of various events of default. Should we fail to effect a redemption
within prescribed time periods, NBC generally will be permitted to transfer,
without restriction, any of our securities acquired by it, its right to acquire
Mr. Paxson's Class B common stock, the contractual rights described above, and
its other rights under the related transaction agreements. Should we fail to
effect a redemption triggered by an event of default on our part within 180 days
after demand, NBC will have the right to exercise in full its existing warrants
to purchase shares of our Class A common stock and its right to acquire Mr.
Paxson's Class B common stock at reduced prices. If NBC does not exercise these
rights, we will have another 30 day period to effect a redemption. If we then
fail to effect a redemption, NBC may require us to conduct, at our option, a
public sale or liquidation of our assets, after which time NBC will not be
permitted to exercise its rights to acquire more of our securities.
Should NBC exercise any of its redemption rights, we may not have
sufficient funds to pay the redemption price for the securities to be redeemed
and may not be able to identify another party willing to purchase those
securities at the required redemption prices. If we are unable to complete a
redemption, we will be unable to prevent NBC from transferring a controlling
interest in our company to a third party selected by NBC in its discretion or,
in the case of a default by us, requiring us to effect a public sale or
liquidation of our assets. The occurrence of any of these events could have a
material adverse effect upon us.
20
PART II - Other Information
21
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits:
Exhibit
Number Description of Exhibits
------ -----------------------
3.1.1 Certificate of Incorporation of the Company (1)
3.1.6 Certificate of Designation of the Company's 9-3/4% Series A Convertible
Preferred Stock (2)
3.1.7 Certificate of Designation of the Company's 13-1/4% Cumulative Junior
Exchangeable Preferred Stock (2)
3.1.8 Certificate of Designation of the Company's 8% Series B Convertible
Exchangeable Preferred Stock (3)
3.2 Bylaws of the Company (4)
4.6 Indenture, dated as of July 12, 2001, among the Company, the Subsidiary
Guarantors party thereto, and The Bank of New York, as Trustee, with
respect to the Company's 10-3/4% Senior Subordinated Notes due 2008 (5)
4.7 Credit Agreement, dated as of July 12, 2001, among the Company, the
Lenders party thereto, Citicorp USA, Inc., as Administrative Agent for
the Lenders and as Collateral Agent for the Secured Parties, Union Bank
of California, N.A., as Syndication Agent for the Lenders, and CIBC
Inc. and General Electric Capital Corporation, as Co-Documentation
Agents for the Lenders (5)
4.7.1 Amendment No. 1, dated as of January 7, 2002, to the Credit Agreement,
dated as of July 12, 2001, amount the Company, the Lenders party
thereto, and Citicorp USA, Inc., as Administrative Agent for the
Lenders
4.7.2 Amendment No. 2, dated as of June 28, 2002, to the Credit Agreement,
dated as of July 12, 2001, among the Company, the Lenders party
thereto, and Citicorp USA, Inc., as Administrative Agent for the
Lenders (6)
4.8 Indenture, dated as of January 14, 2002, among the Company, the
Subsidiary Guarantors party thereto, and The Bank of New York, as
Trustee, with respect to the Company's 12-1/4% Senior Subordinated
Discount Notes due 2009 (7)
99.1 Certification by the Chairman and Chief Executive Officer of Paxson
Communications Corporation pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by the Chief Financial Officer of Paxson Communications
Corporation pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
----------------
(1) Filed with the Company's Annual Report on Form 10-K, dated December 31,
1995, and incorporated herein by reference.
(2) Filed with the Company's Registration Statement on Form S-4, as
amended, filed July 23, 1998, Registration No. 333-59641, and
incorporated herein by reference.
(3) Filed with the Company's Form 8-K, dated September 15, 1999, and
incorporated herein by reference.
(4) Filed with the Company's Quarterly Report on Form 10-Q, dated March 31,
2001, and incorporated herein by reference.
(5) Filed with the Company's Quarterly Report on Form 10-Q, dated June 30,
2001, and incorporated herein by reference.
(6) Filed with the Company's Form 8-K, dated June 28, 2002, and
incorporated herein by reference.
(7) Filed with the Company's Annual Report on Form 10-K, dated December 31,
2001, and incorporated herein by reference.
(b) Reports on Form 8-K.
Form 8-K, dated April 9, 2002, under Item 5. "Other Events" reporting
that the Federal Communications Commission granted approval of the
applications of National Broadcasting Company, Inc. ("NBC"), for
consent to the transfer to NBC of control of the television stations
owned by subsidiaries of Telemundo Communications Group, Inc.
22
Form 8-K, dated June 28, 2002, under Item 5. "Other Events" reporting
that on June 28, 2002, the Company and the lenders under the Company's
senior bank credit facility amended the facility to, among other
things, reduce the minimum required levels of revenues and EBITDA for
certain periods under the facility's financial covenants and allow the
Company to retain the proceeds from planned asset sales for general
corporate purposes.
Form 8-K, dated July 18, 2002, under Item 5. "Other Events" reporting
that Univision Communications, Inc. agreed to acquire the Company's
television station KPXF (TV), serving Fresno-Visalia, California
market, for a cash purchase price of $35 million.
23
PAXSON COMMUNICATIONS CORPORATION
Signatures
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.
PAXSON COMMUNICATIONS CORPORATION
Date: March 28, 2003 By: /s/ Ronald L. Rubin
------------------------------
Ronald L. Rubin
Vice President
Chief Accounting Officer and
Corporate Controller
(Principal Accounting Officer)
24
CERTIFICATIONS
I, Lowell W. Paxson, Chairman and Chief Executive Officer of Paxson
Communications Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Paxson
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
/s/ Lowell W. Paxson
------------------------------------------------------------------
Lowell W. Paxson
Chairman and Chief Executive Officer (Principal Executive Officer)
Dated: March 28, 2003
25
I, Thomas E. Severson, Jr., Senior Vice President and Chief Financial Officer of
Paxson Communications Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Paxson
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
/s/ Thomas E. Severson Jr.
-------------------------------------------------------------------------------
Thomas E. Severson, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer)
Dated: March 28, 2003
26