1
FORM 10-Q
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 MARCH 31, 2001
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 of (IRS Employer
incorporation or organization) Identification No.)
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 Act of 1934 during the
proceeding 12 months (or for 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 April 30, 2001:
CLASS OF STOCK NUMBER OF SHARES
-------------- ----------------
COMMON STOCK-CLASS A, $0.001 PAR VALUE PER SHARE 56,067,036
COMMON STOCK-CLASS B, $0.001 PAR VALUE PER SHARE 8,311,639
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PAXSON COMMUNICATIONS CORPORATION
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000 ........................ 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2001 and 2000 (unaudited) ................ 4
Consolidated Statement of Stockholders' Deficit for the
Three Months Ended March 31, 2001 (unaudited) ............ 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 (unaudited) ................ 6
Notes to Unaudited Consolidated Financial Statements ..... 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............ 10
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K ......................... 14
Signatures ............................................... 15
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3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2001 2000
---------------- ------------------
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents .................................................. $ 20,800 $ 51,363
Short-term investments ..................................................... 52,656 50,001
Restricted cash and short-term investments ................................. 13,922 13,729
Accounts receivable, less allowance for doubtful accounts
of $4,525 and $4,167, respectively ...................................... 33,558 39,528
Program rights ............................................................. 69,567 79,160
Prepaid expenses and other current assets .................................. 2,236 2,065
----------- -----------
Total current assets ................................................. 192,739 235,846
Property and equipment, net .................................................. 172,125 174,649
Intangible assets, net ....................................................... 955,189 949,614
Program rights, net of current portion ....................................... 112,430 119,423
Investments in broadcast properties .......................................... 21,764 33,453
Other assets, net ............................................................ 12,189 13,062
----------- -----------
Total assets .......................................................... $ 1,466,436 $ 1,526,047
=========== ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable and accrued liabilities ................................... $ 23,810 $ 21,828
Accrued interest ........................................................... 3,935 10,464
Obligations for cable distribution rights .................................. 17,582 19,840
Obligations for satellite distribution rights .............................. 5,126 5,114
Obligations for program rights ............................................. 83,284 88,336
Current portion of bank financing .......................................... 12,046 15,966
----------- -----------
Total current liabilities ............................................. 145,783 161,548
Obligations for cable distribution rights, net of current portion ............ 1,380 972
Obligations for satellite distribution rights, net of current portion ........ 13,822 14,076
Obligations for program rights, net of current portion ....................... 62,607 79,341
Senior subordinated notes and bank financing, net ............................ 393,719 389,510
----------- -----------
Total liabilities ..................................................... 617,311 645,447
----------- -----------
Mandatorily redeemable preferred stock ....................................... 1,116,555 1,080,389
----------- -----------
Commitments and contingencies ................................................ -- --
----------- -----------
Stockholders' deficit:
Class A common stock, $0.001 par value; one vote per share; 215,000,000
shares authorized, 56,041,786 and 55,872,152 shares issued and
outstanding ............................................................... 56 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 ....................................... (1,270) (1,270)
Additional paid-in capital ................................................ 500,383 499,304
Deferred stock option compensation ....................................... (5,881) (6,999)
Accumulated deficit ....................................................... (829,110) (759,272)
----------- -----------
Total stockholders' deficit ........................................... (267,430) (199,789)
----------- -----------
Total liabilities, mandatorily redeemable preferred stock,
and stockholders' deficit ......................................... $ 1,466,436 $ 1,526,047
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS.
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PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------------
2001 2000
------------ ------------
(Unaudited)
REVENUES:
Gross revenues ...................................... $ 80,214 $ 78,456
Less: agency commissions ............................ (10,899) (10,984)
------------ ------------
Net revenues ........................................ 69,315 67,472
------------ ------------
EXPENSES:
Programming and broadcast operations .............. 9,950 8,974
Program rights amortization ....................... 24,433 27,761
Selling, general and administrative ............... 31,610 33,398
Time brokerage and affiliation fees ............... 939 1,878
Stock-based compensation .......................... 1,118 2,167
Adjustment of programming to net realizable value . -- 24,400
Depreciation and amortization ..................... 23,996 21,180
------------ ------------
Total operating expenses ................... 92,046 119,758
------------ ------------
Operating loss ...................................... (22,731) (52,286)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense .................................. (12,283) (11,580)
Interest income ................................... 1,484 3,037
Other expenses, net ............................... (331) (3,135)
Gain on restructuring of program rights obligations 233 9,910
------------ ------------
Loss before income taxes ............................ (33,628) (54,054)
Income tax provision ................................ (44) --
------------ ------------
Net loss ............................................ (33,672) (54,054)
Dividends and accretion on redeemable preferred stock (36,166) (33,582)
------------ ------------
Net loss attributable to common stockholders ........ $ (69,838) $ (87,636)
============ ============
Basic and diluted loss per common share ............. $ (1.09) $ (1.39)
============ ============
Weighted average shares outstanding ................. 64,288,943 63,043,758
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS.
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PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS)
COMMON STOCK STOCK ADDITION- TOTAL
COMMON STOCK WARRANTS SUBSCRIPTION AL DEFERRED STOCK-
------------ AND CALL NOTES PAID-IN OPTION PLAN ACCUMULATED HOLDERS'
CLASS A CLASS B OPTION RECEIVABLE CAPITAL COMPENSATION DEFICIT DEFICIT
--------------- ------ ---------- ------- ------------ ------- -------
Balance, December 31, 2000 .................. $56 $8 $68,384 $(1,270) $499,304 $(6,999) $ (759,272)$ (199,789)
Stock-based compensation ................. -- - -- -- -- 1,118 -- 1,118
Stock options exercised .................. -- - -- -- 1,079 -- -- 1,079
Dividends on redeemable preferred stock .. -- - -- -- -- -- (29,145) (29,145)
Accretion on redeemable preferred stock .. -- - -- -- -- -- (7,021) (7,021)
Net loss ................................. -- - -- -- -- -- (33,672) (33,672)
--- -- ------- ------- -------- ------- --------- ---------
Balance, March 31, 2001 ..................... $56 $8 $68,384 $(1,270) $500,383 $(5,881) $(829,110) $(267,430)
=== == ======= ======= ======== ======= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS.
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PAXSON COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
2001 2000
-------- ---------
(Unaudited)
Cash flows from operating activities:
Net loss .................................................................. $(33,672) $ (54,054)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................................... 23,996 21,180
Stock-based compensation ................................................ 1,118 2,167
Program rights amortization ............................................. 24,433 27,761
Payments for cable distribution rights .................................. (2,349) (534)
Payments for program rights and deposits ................................ (27,878) (27,844)
Provision for doubtful accounts ......................................... 769 875
Adjustment of programming to net realizable value ....................... -- 24,400
Loss on sale or disposal of assets ...................................... 293 1,818
Loss on sale of broadcast assets ........................................ -- 800
Gain on restructuring of program rights obligations ..................... (233) (9,910)
Changes in assets and liabilities:
Increase in restricted cash and short-term investments ............... (193) (8,134)
Decrease in accounts receivable ...................................... 4,591 1,880
Increase in prepaid expenses and other current assets ................ (171) (371)
Decrease in other assets ............................................. 1,310 102
Increase in accounts payable and accrued liabilities ................. 836 56
Decrease in accrued interest ......................................... (6,529) (4,898)
-------- ---------
Net cash used in operating activities ............................. (13,679) (24,706)
-------- ---------
Cash flows from investing activities:
Acquisitions of broadcasting properties ................................. (9,551) --
Decrease in deposits on broadcast properties ............................ -- 1,576
Decrease in investments in broadcast properties ......................... -- 2,038
(Increase) decrease in short-term investments ........................... (2,655) 24,980
Purchases of property and equipment ..................................... (6,117) (5,543)
Proceeds from sales of property and equipment ........................... 191 --
-------- ---------
Net cash (used in) provided by investing activities ............... (18,132) 23,051
-------- ---------
Cash flows from financing activities:
Borrowings of long-term debt ............................................ 679 2,670
Repayments of long-term debt ............................................ (510) (143)
Proceeds from exercise of common stock options, net ..................... 1,079 942
-------- ---------
Net cash provided by financing activities ......................... 1,248 3,469
-------- ---------
(Decrease) increase in cash and cash equivalents ............................ (30,563) 1,814
Cash and cash equivalents at beginning of period ............................ 51,363 125,189
-------- ---------
Cash and cash equivalents at end of period .................................. $ 20,800 $ 127,003
======== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS.
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PAXSON COMMUNICATIONS CORPORATION
NOTES TO 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 March 31, 2001 and
for the three month period ended March 31, 2001 and 2000, 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. There have been no changes in accounting policies since the
year ended December 31, 2000.
The consolidated financial statements include the accounts of the Company and
its subsidiaries and those of DP Media, Inc. ("DP Media"), a company acquired in
June 2000. Prior to acquisition, DP Media was beneficially owned by family
members of Lowell W. Paxson, the Company's Chairman and principal stockholder.
The financial position and results of operations of DP Media have been included
in the Company's consolidated financial statements since September 1999. 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 2001 presentation. These
financial statements, footnotes and discussions should be read in conjunction
with the audited 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, 2000 and the definitive proxy statement for the annual meeting of
stockholders held May 1, 2001.
2. 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 NBC affiliate stations in each of the Company's
remaining non-JSA markets. Under the JSA structure, the Company generally
terminates its station sales staff. The JSA partner then provides local and
national spot advertising sales management and representation to the Company
station and integrates and co-locates the Company station operations. These
restructuring activities resulted in a charge of approximately $5.8 million in
the fourth quarter of 2000 consisting of $2.7 of termination benefits and $3.1
million of costs associated with exiting leased properties which will no longer
be utilized upon implementation of the JSAs. During the three months ended March
31, 2001, the Company paid termination benefits to 33 employees totaling
approximately $647,000 which were charged against the restructuring reserve. The
Company expects to substantially complete the restructuring plan by the end of
2001; however, certain lease obligations may continue through mid-2002.
The following summarizes the activity in the Company's restructuring reserves
for the three months ended March 31, 2001(in thousands):
BALANCE BALANCE
DECEMBER 31, 2000 CASH DEDUCTIONS MARCH 31, 2001
----------------- --------------- --------------
Accrued Liabilities:
Lease Costs ... $ 3,091 $ (140) $2,951
Severance ..... 2,586 (647) 1,939
------- ------- ------
$ 5,677 $ (787) $4,890
======= ======= ======
3. MANDATORILY REDEEMABLE PREFERRED STOCK
The following represents a summary of the changes in the Company's mandatorily
redeemable preferred stock during the three month period ended March 31, 2001(in
thousands):
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JUNIOR
EXCHANGEABLE EXCHANGEABLE CONVERTIBLE SERIES B
JUNIOR PREFERRED PREFERRED PREFERRED CONVERTIBLE
PREFERRED STOCK STOCK STOCK PREFERRED
STOCK 12% 12-1/2% 13-1/4% 9-3/4% STOCK 8% TOTAL
--------- ------------- ------------ ---------- ------------ -----------
Balance at December 31, 2000 . $56,855 $246,878 $270,854 $92,945 $412,857 $1,080,389
Accretion .................... 183 170 294 123 6,251 7,021
Accrual of cumulative
dividends ................. 1,773 7,678 9,055 2,339 8,300 29,145
------- -------- -------- ------- -------- ----------
Balance at March 31, 2001
(unaudited) ............... $58,811 $254,726 $280,203 $95,407 $427,408 $1,116,555
======= ======== ======== ======= ======== ==========
Aggregate liquidation
preference at
March 31, 2001 ............ $60,875 $258,511 $286,929 $98,291 $466,183 $1,170,789
======= ======== ======== ======= ======== ==========
Shares authorized ............ 33,000 440,000 72,000 17,500 41,500
======= ======== ======== ======= ========
Shares issued and outstanding 33,000 245,706 27,335 9.829 41,500
======= ======== ======== ======= ========
Accrued dividends ............ $27,875 $ 12,797 $ 13,582 $ -- $ 51,183
======= ======== ======== ======= ========
4. INCOME TAXES
The Company has recorded a provision for income taxes based on its estimated
annual state income tax liability. For the three months ended March 31, 2001,
the Company recorded a valuation allowance related to its net deferred tax asset
resulting from tax losses generated during the period. Management believes that
it is more likely than not that the Company will be unable to realize such
assets.
5. PER SHARE DATA
Basic and diluted loss per share from continuing operations was computed by
dividing the loss from continuing operations 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.
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 for the periods presented (in thousands):
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
2001 2000
------ ------
Stock options outstanding ................................ 10,722 11,663
Class A and B common stock warrants outstanding .......... 32,428 32,428
Class A common stock reserved under convertible securities 38,039 37,475
------ ------
81,189 81,566
====== ======
6. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and non-cash investing and financing
activities are as follows (in thousands):
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2001 2000
------- -------
(Unaudited)
Supplemental disclosures of cash flow information:
Cash paid for interest .................................................. $17,613 $15,183
------- -------
Cash paid for income taxes .............................................. 113 680
------- -------
Non-cash operating and financing activities:
Accretion of discount on senior subordinated notes ...................... 119 105
------- -------
Dividends accrued on redeemable preferred stock ......................... 29,145 26,964
------- -------
Discount accretion on redeemable securities ............................. 7,021 6,618
------- -------
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7. AMENDMENT TO EQUIPMENT CREDIT FACILITY
In March 2001, the Company and its lenders amended its equipment credit facility
(the "Equipment Facility") to, among other things: (i) increase the maximum
borrowing capacity from $65 million to $85 million with availability through
June 30, 2002; and (ii) eliminate scheduled principal amortization and implement
a requirement to repay amounts outstanding in full on June 30, 2002. In
connection with the amendment, the interest rates were increased to an Index
Rate (as defined therein) plus 2.75%, LIBOR plus 3.75% or a commercial paper
rate plus 3.75%, at the Company's option. The Company paid a $200,000 fee in
connection with the amendment.
8. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
On January 1, 2001, the Company adopted Financial Accounting Standards Board
SFAS No. 133 as amended by SFAS No. 137 and SFAS No. 138, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). The adoption of
SFAS 133 did not have a material impact on the Company's financial position or
results of operations.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a network television broadcasting company which owns and operates
the largest broadcast television station group in the United States. The Company
commenced its television operations in early 1994. In response to federal
regulatory changes reducing restrictions on broadcast television station
ownership and mandating cable carriage of local television stations, the Company
has expanded rapidly through acquisitions and construction of television
stations. Upon completion of pending transactions, the Company will own 65
television stations reaching all of the top 20 markets except Pittsburgh, and 42
of the top 50 markets.
The Company broadcasts PAX TV, its family programming network, which reaches
U.S. television households through a distribution system consisting of owned and
affiliated broadcast television stations, cable television systems in markets
not served by a PAX TV station, and satellite television providers. According to
Nielsen Television Index, as of April 2001, PAX TV reached 83% of U.S. prime
time television households. Upon completion of pending transactions, the PAX TV
network will include 124 broadcast television stations, consisting of 65 owned
and operated stations and 59 independently owned PAX TV affiliates.
In September 1999, the Company entered into a series of agreements with NBC
under which NBC invested $415 million in the Company. Concurrently with these
agreements, NBC also entered into an agreement with Lowell W. Paxson, the
Company's Chairman and controlling stockholder ("Mr. Paxson") and entities
controlled by Mr. Paxson under which NBC was granted the right to purchase all
8,311,639 shares of the Company's Class B common stock beneficially owned by Mr.
Paxson, which shares are entitled to ten votes per share on all matters
submitted to a vote of the Company's stockholders. Under these agreements, NBC
has the ability to acquire control of the Company, subject to the satisfaction
of various conditions, including compliance with applicable provisions of the
Communications Act, and the approval of the FCC. The Company has also entered
into agreements with NBC affecting its business operations, including agreements
under which NBC provides network advertising sales, sales marketing and network
research services for PAX TV, and Joint Sales Agreements ("JSAs") between
Company stations and NBC owned and operated stations serving the same markets.
Under the JSAs, the NBC stations sell all station spot advertising of Company
stations and receive commission compensation for the sales, and some of the
Company station operations, including sales operations, are integrated with the
corresponding functions of the related NBC station. The Company reimburses NBC
for the cost of performing these operations. During the three months ended March
31, 2001, the Company incurred amounts due to NBC totaling approximately $5.1
million for commission compensation and cost reimbursements under these
agreements.
The Company's primary operating costs include employee salaries, administrative
expenses, and payments with respect to syndicated program rights, cable
distribution, ratings services and promotional advertising. The Company's
business is subject to various risks and uncertainties, which may significantly
reduce revenues and increase operating expenses. For example, a reduction in
expenditures by television advertisers in the Company's markets may result in
lower revenues. The Company may be unable to reduce expenses, including
syndicated program rights fees and certain variable expenses, in an amount
sufficient in the short term to offset lost revenues caused by poor market
conditions. The broadcasting industry continues to undergo rapid technological
change, which may increase competition within the Company's markets as new
delivery systems, such as direct broadcast satellite and internet networks,
attract customers.
This Report contains forward-looking statements that reflect the Company's
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 the Company's current assumptions and
analysis, which management believes to be reasonable, but are subject to
numerous risks and uncertainties that could cause actual results to differ
materially from the Company's expectations. All forward-looking statements in
this Report are made only as of the date of this Report, and the Company does
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 the
Company's forward-looking statements or could otherwise adversely affect the
Company's business or financial condition include those set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2000, as filed with the US Securities and Exchange Commission.
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RESULTS OF OPERATIONS
The following table sets forth net revenues, the components of operating
expenses and other operating data for the three months ended March 31, 2001 and
2000 (in thousands):
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
-------- ---------
Revenues ............................................. $ 80,214 $ 78,456
Less: agency commissions ............................. (10,899) (10,984)
-------- ---------
Net revenues ......................................... 69,315 67,472
Expenses:
Programming and broadcast operations ............ 9,950 8,974
Program rights amortization ..................... 24,433 27,761
Selling, general and administrative ............. 31,610 33,398
Time brokerage and affiliation fees ............. 939 1,878
Stock-based compensation ........................ 1,118 2,167
Adjustment of programming to net realizable value -- 24,400
Depreciation and amortization ................... 23,996 21,180
-------- ---------
Total operating expenses ..................... 92,046 119,758
-------- ---------
Operating loss ....................................... $(22,731) $ (52,286)
======== =========
Other Data:
EBITDA (a) ........................................... $ 3,322 $ (2,661)
Program rights payments and deposits ................. 27,878 27,844
Payments for cable distribution rights ............... 2,349 534
Capital expenditures ................................. 6,117 5,543
Cash flows used in operating activities .............. (13,679) (24,706)
Cash flows (used in) provided by investing activities (18,132) 23,051
Cash flows provided by financing activities .......... 1,248 3,469
--------------
(a) "EBITDA" is defined as operating loss plus depreciation, amortization,
stock-based compensation, programming net realizable value adjustments,
restructuring charges, and time brokerage and affiliation fees. EBITDA does
not purport to represent cash provided by operating activities as reflected
in the Company's consolidated statements of cash flows, is not a measure of
financial performance under generally accepted accounting principles, and
should not be considered in isolation. Management believes the presentation
of EBITDA is relevant and useful because EBITDA is a measurement industry
analysts utilize when evaluating the Company's operating performance.
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Net revenues increased 2.7% to $69.3 million for the three months ended
March 31, 2001 from $67.5 million for the three months ended March 31, 2000.
This increase is primarily attributed to higher advertising revenues from the
PAX TV network offset by a decrease in revenue from the Company's television
stations. The increase in PAX TV network advertising revenues resulted from
increases in ratings and distribution of PAX TV, favorable results from the
Company's network sales agreement with NBC and increases in long-form
programming rates. The decrease in television station revenues is primarily due
to the softening of television spot advertising revenues in the Company's local
markets.
Expenses decreased to $92.0 million for the three months ended March 31,
2001 from $119.8 million for the three months ended March 31, 2000, or 23.1%.
The decrease in 2001 is primarily due to the programming rights adjustment to
net realizable value of $24.4 million in the first quarter last year as well as
decreases in programming rights amortization and selling, general and
administrative expenses. Program rights amortization decreased $3.3 million,
reflecting a greater mix of lower cost original programming this year compared
to last year. Selling, general and administrative costs decreased $1.8 million
which primarily reflects lower selling costs. Time brokerage and affiliation
fees decreased by $0.9 million due to the completion of related acquisitions.
Stock-based compensation decreased by $1.0 million due to a decrease in options
vesting in 2001 compared to the same period in 2000. Depreciation and
amortization increased $2.8 million primarily related to assets acquired as well
as accelerated depreciation on assets to be disposed of in connection with the
JSA restructuring plan described below.
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During the fourth quarter of 2000, the Company approved a plan to
restructure its television station operations by entering into JSAs with third
party broadcast stations in the Company's remaining non-JSA markets. These
restructuring activities resulted in a charge of approximately $5.8 million in
fourth quarter of 2000 consisting of $2.7 million of termination benefits and
$3.1 million of costs associated with exiting leased properties which will no
longer be utilized upon implementation of the JSAs. During the three months
ended March 31, 2001, the Company paid termination benefits to 33 employees
totaling approximately $647,000 and paid lease termination costs of
approximately $140,000 which were charged against the restructuring reserve. The
Company expects to substantially complete the restructuring plan by the end of
2001; however, certain lease obligations may continue through mid-2002.
Interest expense for the three months ended March 31, 2001, increased 6.1%
to $12.3 million from $11.6 million in the same period in 2000. The increase is
primarily due to a greater level of senior debt and higher rates on the
Company's debt throughout the period. At March 31, 2001, total long-term debt
and senior subordinated notes were $405.8 million compared with $391.1 million
as of March 31, 2000. Interest income for the three months ended March 31, 2001
decreased 51.1% to $1.5 million from $3.0 million in the same period in 2000.
These decreases were primarily due to lower average cash and short term
investment balances in 2001.
Gain on restructuring of program rights obligations during the first
quarter of 2000 primarily reflects the Company's return of certain programming
rights that it had written off during 1999, in exchange for cash of $4.9 million
and the cancellation of the remaining payment obligations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for capital expenditures,
syndicated programming rights payments, cable carriage and promotion payments,
debt service payments, working capital and funds required for the completion of
announced acquisitions. The Company's primary sources of liquidity are its net
working capital and availability under the Equipment Facility for the funding of
capital expenditures. As of March 31, 2001, the Company had $73.5 million in
cash and short-term investments and working capital of approximately $47.0
million. During the three months ended March 31, 2001, the Company's working
capital decreased $27.3 million due to the use of $9.6 million to complete the
acquisition of television stations, $17.6 million to pay interest due under
certain of the Company's debt instruments, $6.1 million to fund capital
expenditures offset by proceeds from the exercise of stock options and other
operating activities of $6.0 million.
The terms of certain of the Company's preferred securities and the
indenture relating to its Senior Subordinated Notes currently preclude the
Company from incurring additional indebtedness except for incurrence of certain
indebtedness related to the funding of capital expenditures. The Company has
entered or intends to enter into agreements to sell certain of its assets and
anticipates the proceeds from these transactions to be approximately $70 to $100
million. These assets include the Company's television stations serving markets
in Puerto Rico, Honolulu, Boston/Merrimack, Phoenix/Flagstaff, St. Louis, and
certain other LPTV stations as well as monetization of the Company's tower
assets and accounts receivable. The Company expects to receive the proceeds
related to these asset sales during 2001 and 2002. The Company believes that
cash provided by future operations, net working capital, its availability under
the Equipment Facility and the proceeds from the planned sale of assets will
provide the liquidity necessary to meet its obligations and financial
commitments through the end of the first quarter of 2002. Should the Company be
unable to sell the identified assets on acceptable terms, it may be required to
seek to sell additional assets in order to generate sufficient cash to meet its
liquidity needs. As the Senior Credit Facility and the Equipment Facility mature
on June 30, 2002, the Company will be required to refinance or extend these
facilities on or before that date. Additionally, the Company will likely be
required to refinance its $230 million Senior Subordinated Notes on or before
the stated maturity on October 1, 2002. The Senior Subordinated Notes are
currently redeemable at the option of the Company through September 30, 2001 at
102% of the face value plus accrued interest. Commencing October 1, 2001 through
maturity, the Senior Subordinated Notes are redeemable at the option of the
Company at 100% of the face value plus accrued interest.
Cash used in operating activities was approximately $13.7 million and $24.7
million for the three months ended March 31, 2001 and 2000, respectively. Such
amounts primarily reflect the operating costs incurred in connection with the
operation of PAX TV and the related cable distribution rights and programming
rights payments and interest payments under the Company's debt facilities. The
decrease in 2001 reflects improved operating performance and EBITDA.
Cash used in investing activities of approximately $18.1 million for the
three months ended March 31, 2001 primarily reflects acquisitions of broadcast
properties, capital expenditures, short term investment transactions and other
transactions. Cash provided by investing activities of approximately $23.1
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million for the three months ended March 31, 2000 primarily reflects proceeds
from short term investment transactions and capital expenditures. As of March
31, 2001, the Company had agreements to purchase significant assets of, or to
enter into time brokerage and financing arrangements with respect to broadcast
properties totaling approximately $50.9 million, net of deposits and advances.
The Company anticipates it will spend approximately $4 million to $6 million in
the remainder of 2001 to satisfy certain of these commitments.
Capital expenditures were approximately $6.1 million and $5.5 million for
the three months ended March 31, 2001 and 2000, respectively. The FCC has
mandated that each licensee of a full power broadcast TV station, which was
allotted a second digital television channel in addition to the current analog
channel, complete the build-out of its digital broadcast service by May 2002.
Despite the current uncertainty that exists in the broadcasting industry with
respect to standards for digital broadcast services, planned formats and usage,
it is the Company's intention to comply with the FCC's timing requirements for
the broadcast of digital television. The Company has already commenced migration
to digital broadcasting in certain of its markets and will continue to do so
throughout the required time period. Due to uncertainty with respect to
standards, formats and usage, however, the Company cannot currently predict with
reasonable certainty the amount it will likely have to spend in aggregate to
complete the digital conversion of its stations, but does anticipate spending at
least $70 million. It is likely that the capital necessary to complete the
digital conversion will come from cash on hand as well as the monetization of
certain non-core assets or other financing arrangements.
Cash provided by financing activities was $1.2 million and $3.5 million
during the three months ended March 31, 2001 and 2000, respectively. Such
amounts include the proceeds from long-term debt borrowings and the exercise of
common stock options, net of repayments of long-term debt. The decrease in 2001
is due to reduced borrowings under the Company's Equipment Facility and
principal amortization of $.5 million under the Company's Senior Credit
Facility. In March 2001, the Company amended the Equipment Facility to, among
other things: (1) increase the maximum borrowing capacity from $65 million to
$85 million with availability through June 30, 2002; and (2) eliminate scheduled
principal amortization and implement a requirement to repay amounts outstanding
in full on June 30, 2002. In connection with the amendment, the interest rates
were increased to the Index Rate (as defined therein) plus 2.75%, LIBOR plus
3.75% or a commercial paper rate plus 3.75%, at the Company's option. The
Company paid a $200,000 fee in connection with the amendment. All borrowings
under this facility are secured by the equipment purchased with the proceeds
drawn. At March 31, 2001, the Company had borrowings of approximately $54.4
million outstanding under the Equipment Facility. The Company intends to utilize
the Equipment Facility to fund the majority of its capital expenditure needs in
2001.
As of March 31, 2001, the Company's programming contracts require
collective payments by the Company of approximately $200.7 million as follows
(in thousands):
OBLIGATIONS
FOR PROGRAM
PROGRAM RIGHTS
RIGHTS COMMITMENTS TOTAL
------ ----------- -----
2001 (April - December)................ $ 66,169 $ 22,445 $ 88,614
2002................................... 55,343 12,560 67,903
2003................................... 18,273 8,692 26,965
2004................................... 6,106 6,650 12,756
2005................................... -- 4,433 4,433
---------- ---------- ----------
$ 145,891 $ 54,780 $ 200,671
========== ========== ==========
The Company has also committed to purchase at similar terms additional
future series episodes of its licensed programs should they be made available.
As of March 31, 2001, obligations for cable distribution rights require
collective payments by the Company of approximately $20.6 million as follows (in
thousands):
2001 (April - December)......................... $ 17,582
2002............................................ 2,567
2003............................................ 260
2004............................................ 108
-----------
20,517
Less: Amount representing interest.............. (1,555)
-----------
Present value of cable rights payable........... $ 18,962
===========
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PART II
OTHER INFORMATION
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)
3.1.2 Certificate of Designation of the Company's Junior Cumulative
Compounding Redeemable Preferred Stock (1)
3.1.4 Certificate of Designation of the Company's 12 1/2% Cumulative
Exchangeable Preferred Stock (2)
3.1.6 Certificate of Designation of the Company's 9 3/4% Series A Convertible
Preferred Stock (3)
3.1.7 Certificate of Designation of the Company's 13 1/4% Cumulative Junior
Exchangeable Preferred Stock (3)
3.1.8 Certificate of Designation of the Company's 8% Series B Convertible
Exchangeable Preferred Stock (4)
3.2 Bylaws of the Company
-------------
(1) Filed with the Company's Annual Report on Form 10-K, for the year ended
December 31, 1995, and incorporated herein by reference.
(2) Filed with the Company's Registration Statement on Form S-3, as amended,
filed August 15, 1996, Registration No. 333-10267, and incorporated
herein by reference.
(3) 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.
(4) Filed with the Company's Form 8-K dated September 15, 1999, and
incorporated herein by reference.
(b) Reports on Form 8-K.
None.
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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: May 11, 2001 By: /s/ RONALD L. RUBIN
----------------------------------------------
Ronald L. Rubin
Vice President, Chief Accounting Officer and
Corporate Controller (Principal Accounting
Officer)
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