10-Q 1 b40075lhe10-q.txt LIN HOLDINGS CORP. / LIN TELEVISION CORP. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2001. [ ] 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: 333-54003-06 Commission File Number: 000-25206 LIN HOLDINGS CORP. LIN TELEVISION CORPORATION (Exact name of registrant as (Exact name of registrant as specified in its charter) specified in its charter) DELAWARE DELAWARE (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 75-2733097 13-3581627 (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 1 RICHMOND SQUARE, SUITE 230E, PROVIDENCE, RHODE ISLAND 02906 (Address of principal executive offices) (Zip Code) (401) 454-2880 (Registrant's telephone number, including area code) Indicate by check mark whether the registrants (1) have filed all reports 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. [X] Yes [ ] No NOTE: 10-Q presents results for the two registrants rather than just the parent company on a fully consolidated basis. 1,000 Shares of LIN Holdings Corp.'s Common Stock, par value $.01 per share, and 1,000 shares of LIN Television Corporation's Common Stock, par value $.01 per share, were outstanding as of June 30, 2001. 2 TABLE OF CONTENTS

3 PART I: FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS LIN HOLDINGS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)

The accompanying notes are an integral part of the condensed consolidated financial statements. 1 4 LIN HOLDINGS CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)

The accompanying notes are an integral part of the condensed consolidated financial statements. 2 5 LIN HOLDINGS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)

The accompanying notes are an integral part of the condensed consolidated financial statements. 3 6 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 1 - BASIS OF PRESENTATION: LIN Holdings Corp. ("LIN Holdings"), together with its subsidiaries, including LIN Television Corporation ("LIN Television") (together, the "Company"), is a television station group operator in the United States and Puerto Rico. LIN Holdings and its subsidiaries are affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"). All of the Company's direct and indirect consolidated subsidiaries fully and unconditionally guarantee the Company's Senior Subordinated Notes on a joint and several basis. These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended December 31, 2000. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to summarize fairly the financial position, results of operations and cash flows of the Company for the periods presented. The interim results of operations are not necessarily indicative of the results to be expected for the full year. The Company's preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Estimates are used when accounting for the collectability of accounts receivable and valuing intangible assets, deferred tax assets and net assets of businesses acquired. Actual results could differ from these estimates. NOTE 2 - BUSINESS COMBINATIONS: WAND-TV EXCHANGE: On April 1, 2000, the Company exchanged, with Block Communications Inc. (formerly Blade Communications Inc.), a 66.67% interest in certain assets of its television station WAND-TV, including its FCC license and network affiliation agreement, for substantially all of the assets and certain liabilities of WLFI-TV, Inc. Immediately after the WAND-TV exchange the Company and Block Communications Inc. contributed their respective interests in the WAND-TV assets to a partnership, with the Company receiving a 33.33% interest in the partnership. WWLP-TV: On November 10, 2000, the Company acquired the broadcast license and operating assets of WWLP-TV, an NBC affiliate in Springfield, MA. The total purchase price for the acquisition was approximately $128.0 million, including direct costs of the acquisition. The acquisition was funded by borrowings under the Company's incremental term loan facility. Although the Company did not own or control the assets or FCC license of WWLP-TV prior to November 10, 2000, pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving Special Purpose Entities," WWLP Holdings, Inc., the parent of WWLP-TV, satisfied the definition of a special purpose entity, as a result of a $75 million guarantee of WWLP Holdings debt by the Company and other factors, and the Company was deemed to be the sponsor of WWLP Holdings. Accordingly, the financial results of operations of WWLP Holdings have been consolidated with those of the Company since March 31, 2000, when WWLP Holdings, Inc. acquired WWLP-TV from Benedek Broadcasting Corporation. 4 7 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) WNAC-TV: On June 5, 2001, the Company acquired the broadcast license and certain related assets of WNAC-TV, the Fox affiliate serving the Providence-New Bedford market. Simultaneously with the acquisition, the Company assumed an existing LMA agreement with STC Broadcasting, Inc., an entity in which Hicks Muse has a substantial economic interest, under which STC Broadcasting, Inc. will operate WNAC-TV. As a result of this LMA, the Company does not generate revenues or incur expenses from the operation of this station but, instead receives an annual fee of $100,000 from STC Broadcasting, Inc. The total purchase price was approximately $2.5 million. The acquisition was funded with a note payable to STC Broadcasting. The Company has accounted for the business combination under the purchase method of accounting. The acquisition is summarized as follows (in thousands): Property and equipment $ 16 FCC license and network affiliation 2,484 ------ Total acquisition $2,500 ======

NOTE 3 - INVESTMENTS: JOINT VENTURE WITH NBC. The Company owns a 20.38% interest in a joint venture with NBC and accounts for its interest using the equity method, as the Company does not have a controlling interest. The following presents the summarized financial information of the joint venture (in thousands): 5 8 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited)

INVESTMENT IN BANKS BROADCASTING, INC. The Company owns a 50.00% non-voting interest in Banks Broadcasting, Inc., a company formed in August 2000, and accounts for its interest using the equity method, as the Company does not have a controlling interest. The following presents the summarized financial information of Banks Broadcasting, Inc. (in thousands):

INVESTMENT IN WAND (TV) PARTNERSHIP. The Company owns a 33.33% interest in WAND (TV) Partnership, a partnership formed in April 2000, and accounts for its interest using the equity method, as the Company does not have a controlling interest. The following presents the summarized financial information of WAND (TV) Partnership (in thousands):

6 9 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 4 - INTANGIBLE ASSETS: Intangible assets consisted of the following at (in thousands):

NOTE 5 - DERIVATIVE INSTRUMENTS: Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended, which requires that all derivative instruments be reported on the balance sheet as fair value and that changes in a derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. The Company uses derivative instruments to manage exposure to interest rate risks. The Company's objective for holding derivatives is to minimize these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company uses interest rate collar, cap and swap arrangements, not designated as hedging instruments under SFAS 133, in the notional amount of $160.0 million at June 30, 2001 to mitigate the impact of the variability in interest rates in connection with its variable rate senior credit facility. The aggregate fair value of the arrangements at June 30, 2001 was a liability of $2.0 million. Interest expense for the three and six-month periods ended June 30, 2001 includes a loss of $119,000 and $2.0 million, respectively, from the marking-to-market of these derivative instruments. NOTE 6 - LONG-TERM DEBT: Long-term debt consisted of the following at (in thousands): 7 10 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited)

On June 14, 2001, LIN Holdings Corp. issued $100 million aggregate principal amount at maturity of 10% Senior Discount Notes due 2008 in a private placement. The Senior Discount Notes were issued at a discount to yield 12.5% and generated net proceeds of $73.9 million. Financing costs of $2.4 million were incurred in connection with the issuance and will be amortized over the term of the debt. The Senior Discount Notes are unsecured senior obligations of LIN Holdings and are not guaranteed. Cash interest will not accrue or be payable on the Senior Discount Notes prior to March 1, 2003. Thereafter, cash interest will accrue at a rate of 10% per annum and will be payable semi-annually in arrears commencing on September 1, 2003. The Company is subject to compliance with certain financial covenants and other conditions set forth in offering memorandum. The Notes are subject to early redemption provisions in the event of a change of control. On June 14, 2001, LIN Television issued $210 million aggregate principal amount at maturity of 8% Senior Notes due 2008 in a private placement. The Senior Notes were issued at a discount to yield 8-3/4% and generated net proceeds of $202.2 million. The Senior Notes are unsecured senior obligations of LIN Television without collateral rights, subordinated in right of payment to all existing and any future senior indebtedness of LIN Television and are not guaranteed. Financing costs of $4.5 million were incurred in connection with the issuance and will be amortized over the term of the debt. Cash interest on the Senior Notes accrues at a rate of 8% per annum and will be payable semi-annually in arrears commencing on January 15, 2002. LIN Television is subject to compliance with certain financial covenants and other conditions set forth in offering memorandum. The Notes are subject to early redemption provisions in the event of a change of control. A portion of the proceeds from the Senior Discount Notes and the Senior Notes less certain transactional costs were used to repay $233.2 million of the Company's existing Senior Credit Facilities. The extraordinary item in the period ending June 30, 2001 of $4.4 million, net of a tax benefit of $2.4 million, relates to the write-off of unamortized deferred financing costs related to the early settlement of this debt. Simultaneously with the consummation of the offering of the new Senior Discount Notes and the new Senior Notes, the Company obtained certain amendments to its existing Senior Credit Facilities which (i) provided for the adjustment of certain financial covenants and ratio tests, (ii) provided that $100 million of the $160 million revolving portion of the Senior Credit Facilities may be used to fund the $125 million mandatory redemption payment on the existing Senior Discount Notes due on March 1, 2003 or, subsequent to the funding of the mandatory redemption payment, to make interest payments 8 11 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) on the existing Senior Discount Notes and (iii) increased certain fees and interest rate spreads. As a result of the repayment of the term loans under the Senior Credit Facilities, there is expected to be no required scheduled amortization payments until December 2005. The following are the adjustments made to the financial covenant and ratio tests:

NOTE 7 - RELATED PARTY TRANSACTIONS: MONITORING AND OVERSIGHT AGREEMENT. The Company is party to an agreement with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"), an affiliate of the Company's ultimate parent, pursuant to which the Company agreed to pay Hicks Muse Partners an annual fee (payable quarterly) for oversight and monitoring services. The aggregate annual fee is adjustable, on a prospective basis, on January 1 of each calendar year to an amount equal to 1% of the budgeted consolidated annual earnings before interest, tax, depreciation and amortization ("EBITDA") of the Company for the then current fiscal year. Upon the acquisition by the Company of another entity or business, the fee is adjusted prospectively in the same manner using the pro forma consolidated annual EBITDA of the Company. In no event shall the annual fee be less than $1.0 million. Hicks Muse Partners is also entitled to reimbursement for any expenses incurred by it in connection with rendering services allocable to the Company. The fee for the three and six months ended June 30, 2001 was $314,000 and $626,000, respectively. The fee for the three and six months ended June 30, 2000 was $286,000 and $624,000, respectively. NOTE 8 - COMMITMENTS AND CONTINGENCIES: The Company currently and from time to time is involved in litigation incidental to the conduct of its business. In the opinion of the Company's management, none of such litigation as of June 30, 2001, is likely to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. On March 30, 2001, the Company exercised its option to acquire the FCC licenses of two of the Company's LMA stations, WCTX-TV and WOTV-TV. The Company expects to close on the acquisitions of WCTX-TV and WOTV-TV upon the regulatory approval of the Federal Communication Commission. The combined purchase price is approximately $7.3 million, of which $4.0 million has been pre-paid. The balance of $3.3 million will be funded by a combination of operating funds and additional borrowings from the revolving credit facility. NOTE 9 - RECENT ACCOUNTING PRONOUNCEMENTS: In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires 9 12 LIN HOLDINGS CORP. Notes to Condensed Consolidated Financial Statements (unaudited) the purchase method of accounting to be applied for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not expect the application of SFAS 141 to have a material impact on its financial position or results of operations. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is generally effective for the Company from January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization and the introduction of impairment testing in its place. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is currently assessing, but has not yet determined, the impact of SFAS 142 on its financial position and results of operations. NOTE 10 - SUBSEQUENT EVENTS: WNLO-TV: On July 25, 2001, the Company acquired the broadcast license and operating assets of WNLO-TV (formerly called WNEQ-TV), an independent broadcast television station located in Buffalo, New York. The Company has been operating WNLO-TV since January 29, 2001 under a LMA agreement. The total purchase price is approximately $26.2 million, and will be funded by available cash. The Company intends to account for the business combination under the purchase method of accounting. WJPX-TV, WKPV-TV, AND WJWN-TV: On August 2, 2001, the Company acquired the broadcast license and operating assets of WJPX-TV, an independent television station in San Juan, Puerto Rico, WKPV-TV, an independent television station in Ponce, Puerto Rico and WJWN-TV, an independent television station in San Sebastian, Puerto Rico. WKPV-TV and WJWN-TV currently rebroadcast the programming carried on WJPX-TV. The total purchase price of the three stations is approximately $11.2 million, and will be funded by available cash. The Company intends to account for the business combination under the purchase method of accounting. 10 13 LIN TELEVISION CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except number of shares)

The accompanying notes are an integral part of the condensed consolidated financial statements. 11 14 LIN TELEVISION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)

The accompanying notes are an integral part of the condensed consolidated financial statements. 12 15 LIN TELEVISION CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)

The accompanying notes are an integral part of the condensed consolidated financial statements. 13 16 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 1 - BASIS OF PRESENTATION: LIN Television Corporation (together with its subsidiaries, the "Company" or "LIN Television") is a television station group operator in the United States and Puerto Rico. LIN Television and its subsidiaries are affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") and are directly owned by LIN Holdings Corporation ("LIN Holdings"). All of the Company's direct and indirect consolidated subsidiaries fully and unconditionally guarantee the Company's Senior Subordinated Notes on a joint and several basis. These condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended December 31, 2000. In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments (consisting of norma l recurring adjustments) necessary to summarize fairly the financial position, results of operations and cash flows of the Company for the periods presented. The interim results of operations are not necessarily indicative of the results to be expected for the full year. The Company's preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Estimates are used when accounting for the collectability of accounts receivable and valuing intangible assets, deferred tax assets and net assets of businesses acquired. Actual results could differ from these estimates. NOTE 2 - BUSINESS COMBINATIONS: WAND-TV EXCHANGE: On April 1, 2000, the Company exchanged, with Block Communications Inc. (formerly Blade Communications Inc.), a 66.67% interest in certain assets of its television station WAND-TV, including its FCC license and network affiliation agreement, for substantially all of the assets and certain liabilities of WLFI-TV, Inc. Immediately after the WAND-TV exchange the Company and Block Communications Inc. contributed their respective interests in the WAND-TV assets to a partnership, with the Company receiving a 33.33% interest in the partnership. WWLP-TV: On November 10, 2000, the Company acquired the broadcast license and operating assets of WWLP-TV, an NBC affiliate in Springfield, MA. The total purchase price for the acquisition was approximately $128.0 million, including direct costs of the acquisition. The acquisition was funded by borrowings under the Company's incremental term loan facility. Although the Company did not own or control the assets or FCC license of WWLP-TV prior to November 10, 2000, pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving Special Purpose Entities," WWLP Holdings, Inc., the parent of WWLP-TV, satisfied the definition of a special purpose entity, as a result of a $75 million guarantee of WWLP Holdings debt by the Company and other factors, and the Company was deemed to be the sponsor of WWLP Holdings. Accordingly, the financial results of operations of WWLP Holdings have been consolidated with those of the Company since March 31, 2000, when WWLP Holdings, Inc. acquired WWLP-TV from Benedek Broadcasting Corporation. WNAC-TV: On June 5, 2001, the Company acquired the broadcast license and certain related assets of WNAC-TV, the Fox affiliate serving the Providence-New Bedford market. Simultaneously with 14 17 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) the acquisition, the Company assumed an existing LMA agreement with STC Broadcasting, Inc., an entity in which Hicks Muse has a substantial economic interest, under which STC Broadcasting, Inc. will operate WNAC-TV. As a result of this LMA, the Company does not generate revenues or incur expenses from the operation of this station, but instead receives an annual fee of $100,000 from STC Broadcasting, Inc. The total purchase price was approximately $2.5 million. The acquisition was funded with a note payable to STC Broadcasting. The Company has accounted for the business combination under the purchase method of accounting. The acquisition is summarized as follows (in thousands): Property and equipment $ 16 FCC license and network affiliation 2,484 ------ Total acquisition $2,500 ======

NOTE 3 - INVESTMENTS: JOINT VENTURE WITH NBC. The Company owns a 20.38% interest in a joint venture with NBC and accounts for its interest using the equity method, as the Company does not have a controlling interest. The following presents the summarized financial information of the joint venture (in thousands): 15 18 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 4 - INTANGIBLE ASSETS: Intangible assets consisted of the following at (in thousands):

NOTE 5 - DERIVATIVE INSTRUMENTS: Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended, which requires that all derivative instruments be reported on the balance sheet as fair value and that changes in a derivative's fair value be recognized currently in earnings unless specific hedge criteria are met. The Company uses derivative instruments to manage exposure to interest rate risks. The Company's objective for holding derivatives is to minimize these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company uses interest rate collar, cap and swap arrangements, not designated as hedging instruments under SFAS 133, in the notional amount of $160.0 million at June 30, 2001 to mitigate the impact of the variability in interest rates in connection with its variable rate senior credit facility. The aggregate fair value of the arrangements at June 30, 2001 was a liability of $2.0 million. Interest expense for the three and six-month periods ended June 30, 2001 includes a loss of $119,000 and $2.0 million, respectively, from the marking-to-market of these derivative instruments. NOTE 6 - LONG-TERM DEBT: Long-term debt consisted of the following at (in thousands): 17 20 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited)

On June 14, 2001, LIN Television issued $210 million aggregate principal amount at maturity of 8% Senior Notes due 2008 in a private placement. The Senior Notes were issued at a discount to yield 8 3/4% and generated net proceeds of $202.2 million. The Senior Notes are unsecured senior obligations of LIN Television without collateral rights, subordinated in right of payment to all existing and any future senior indebtedness of LIN Television and are not guaranteed. Financing costs of $4.5 million were incurred in connection with the issuance and will be amortized over the term of the debt. Cash interest on the Senior Notes accrues at a rate of 8% per annum and will be payable semi-annually in arrears commencing on January 15, 2002. LIN Television is subject to compliance with certain financial covenants and other conditions set forth in offering memorandum. The Notes are subject to early redemption provisions in the event of a change of control. A portion of the proceeds from the Senior Notes, less certain transactional costs, and a capital contribution from LIN Holdings (see Note 9 - Capital Contribution) were used to repay $233.2 million of the Company's existing Senior Credit Facilities. The extraordinary item in the period ending June 30, 2001 of $4.4 million, net of a tax benefit of $2.4 million, relates to the write-off of unamortized deferred financing costs related to the early settlement of this debt. Simultaneously with the consummation of the offering of the new Senior Notes, the Company obtained certain amendments to its existing Senior Credit Facilities which (i) provided for the adjustment of certain financial covenants and ratio tests and (ii) increased certain fees and interest rate spreads. As a result of the repayment of the term loans under the Senior Credit Facilities, there is expected to be no required scheduled amortization payments until December 2005. The following are the adjustments made to the financial covenant and ratio tests:

18 21 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 7 - RELATED PARTY TRANSACTIONS: MONITORING AND OVERSIGHT AGREEMENT. The Company is party to an agreement with Hicks, Muse & Co. Partners, L.P. ("Hicks Muse Partners"), an affiliate of the Company's ultimate parent, pursuant to which the Company agreed to pay Hicks Muse Partners an annual fee (payable quarterly) for oversight and monitoring services. The aggregate annual fee is adjustable, on a prospective basis, on January 1 of each calendar year to an amount equal to 1% of the budgeted consolidated annual earnings before interest, tax, depreciation and amortization ("EBITDA") of the Company for the then current fiscal year. Upon the acquisition by the Company of another entity or business, the fee is adjusted prospectively in the same manner using the pro forma consolidated annual EBITDA of the Company. In no event shall the annual fee be less than $1.0 million. Hicks Muse Partners is also entitled to reimbursement for any expenses incurred by it in connection with rendering services allocable to the Company. The fee for the three and six months ended June 30, 2001 was $314,000 and $626,000, respectively. The fee for the three and six months ended June 30, 2000 was $286,000 and $624,000, respectively. NOTE 8 - COMMITMENTS AND CONTINGENCIES: The Company currently and from time to time is involved in litigation incidental to the conduct of its business. In the opinion of the Company's management, none of such litigation as of June 30, 2001, is likely to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. On March 30, 2001, the Company exercised its option to acquire the FCC licenses of two of the Company's LMA stations, WCTX-TV and WOTV-TV. The Company expects to close on the acquisitions of WCTX-TV and WOTV-TV upon the regulatory approval of the Federal Communication Commission. The combined purchase price is approximately $7.3 million, of which $4.0 million has been pre-paid. The balance of $3.3 million will be funded by a combination of operating funds and additional borrowings from the revolving credit facility. NOTE 9 - CAPITAL CONTRIBUTION: On June 14, 2001, and in connection with the issuance of the Senior Discount Notes, LIN Holdings transferred $71.5 million to the Company in the form of a capital contribution. NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS: In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting to be applied for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not expect the application of SFAS 141 to have a material impact on its financial position or results of operations. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is generally effective for the Company from January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization and the introduction of impairment testing in its place. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported 19 22 LIN TELEVISION CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited) goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is currently assessing, but has not yet determined, the impact of SFAS 142 on its financial position and results of operations. NOTE 11 - SUBSEQUENT EVENTS: WNLO-TV: On July 25, 2001, the Company acquired the broadcast license and operating assets of WNLO-TV (formerly called WNEQ-TV), an independent broadcast television station located in Buffalo, New York. The Company has been operating WNLO-TV since January 29, 2001 under a LMA agreement. The total purchase price is approximately $26.2 million, and will be funded by available cash. The Company intends to account for the business combination under the purchase method of accounting. WJPX-TV, WKPV-TV,and WJWN-TV: On August 2, 2001, the Company acquired the broadcast license and operating assets of WJPX-TV, an independent television station in San Juan, Puerto Rico, WKPV-TV, an independent television station in Ponce, Puerto Rico and WJWN-TV, an independent television station in San Sebastian, Puerto Rico. WKPV-TV and WJWN-TV currently rebroadcast the programming carried on WJPX-TV. The total purchase price of the three stations is approximately $11.2 million, and will be funded by available cash. The Company intends to account for the business combination under the purchase method of accounting. 20 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Forward-Looking Statements Do not place undue reliance on forward-looking statements. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. The words "anticipate," "believe," "expect," "plan," "intend," "estimate," "project," "foresee," "will," "could," "may" and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including those regarding the Company's financial position, business strategy, projected costs and objectives of management for future operations are forward-looking statements. The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which this Quarterly Report on Form 10-Q is filed. These factors include, without limitation, the promulgation of the new FCC's broadcast ownership regulations and other regulatory changes, changes in advertising, demand, technological changes, acquisitions and dispositions, as well as other risks detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, including those set forth under the heading "Risks Associated with Business Activity" in Item I. The matters discussed in the "Risks Associated with Business Activities" below and other factors noted throughout this Quarterly Report on Form 10-Q are cautionary statements identifying factors with respect to any such forward-looking statements that could cause actual results to differ materially from those in such forward-looking statements. All forward-looking statements contained herein are expressly qualified in their entirety by such cautionary statements. The Company undertakes no obligation to update publicly forward-looking statements, whether as a result of new information, future events or otherwise. Business LIN Holdings Corp. ("LIN Holdings"), together with its subsidiaries, including LIN Television Corporation ("LIN Television") (together, the "Company"), is a television station group operator in the United States and Puerto Rico. LIN Holdings and its subsidiaries are affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"). WAND-TV EXCHANGE: On April 1, 2000, the Company exchanged, with Block Communications Inc. (formerly Blade Communications Inc.), a 66.67% interest in certain assets of its television station WAND- TV, including its FCC license and network affiliation agreement, for substantially all of the assets and certain liabilities of WLFI-TV, Inc. Immediately after the WAND-TV exchange the Company and Block Communications Inc. contributed their respective interests in the WAND-TV assets to a partnership, with the Company receiving a 33.33% interest in the partnership. WWLP-TV: On November 10, 2000, the Company acquired the broadcast license and operating assets of WWLP-TV, an NBC affiliate in Springfield, MA. The total purchase price for the acquisition was approximately $128.0 million, including direct costs of the acquisition. The acquisition was funded by borrowings under the Company's incremental term loan facility. Although the Company did not own or control the assets or FCC license of WWLP-TV prior to November 10, 2000, pursuant to Emerging Issues Task Force Topic D-14, "Transactions Involving Special Purpose Entities," WWLP Holdings, Inc., the parent of WWLP-TV, satisfied the definition of a special purpose entity, as a result of a $75 million guarantee of WWLP Holdings debt by the Company and other factors, and the Company was deemed to be the sponsor of WWLP Holdings. Accordingly, the financial results of operations of WWLP Holdings have been consolidated with those of the Company since March 31, 2000, when WWLP Holdings, Inc. acquired WWLP-TV from Benedek Broadcasting Corporation. WNAC-TV: On June 5, 2001, the Company acquired the broadcast license and certain related assets of WNAC-TV, the Fox affiliate serving the Providence-New Bedford market. Simultaneously with the acquisition, the Company assumed an existing LMA agreement with STC Broadcasting, Inc., an entity in 21 24 which Hicks Muse has a substantial economic interest, under which STC Broadcasting, Inc. will operate WNAC-TV. The total purchase price was approximately $2.5 million. The acquisition was funded with a note payable to STC Broadcasting. In connection with acquisitions accounted for under the purchase method of accounting, we do not separately value acquired FCC broadcasting licenses and network affiliation agreements as they do not represent separately identifiable intangible assets but rather have a value that is inseparably linked. The future value of our FCC licenses could be significantly impaired by the loss of corresponding network affiliation agreements, or vice versa. Results of Operations Set forth below are the significant factors that contributed to the operating results of the Company for the three and six-month periods ended June 30, 2001 and 2000. The Company's results from operations from period to period are not directly comparable because of the impact of acquisitions and disposals, including the acquisitions of WWLP-TV and WLFI-TV in 2000, and the disposition of WAND-TV in 2000.

Net revenues consist primarily of national and local airtime sales, net of sales adjustments and agency commissions. Additional but less significant amounts are generated from network compensation, Internet revenues, barter revenues, production revenues and rental income. Total net revenues for the three and six-month periods ended June 30, 2001 decreased 6.1% to $73.0 million and 4.4% to $131.0 million, respectively, compared to net revenue of $77.8 million and $137.1 million, respectively, for the same periods last year. The decrease in the three and six-month periods ended June 30, 2001 was primarily due to a decrease of $1.0 million and $2.3 million respectively, in political advertising due to the campaign election cycle and a decrease of $5.0 million and $7.3 million, respectively, in demand for national advertising that began in the third quarter of 2000 and has continued into the third quarter of 2001. Direct operating expenses, consisting primarily of news, engineering, programming and music licensing costs for the three and six-month periods ended June 30, 2001 increased 6.0% to $20.9 million and increased 7.5% to $40.6 million, respectively, compared to direct operating expenses of $19.7 million and $37.8 million, respectively, for the same periods last year. The increase in the three and six-month periods ended June 30, 2001 is primarily due to the startup costs of the low power television stations in Grand Rapids, Michigan and the LMA in Buffalo, New York of $332,000 and $656,000, respectively, and to the impact of the acquisitions of WLFI-TV and WWLP-TV, partially offset by the disposition of WAND-TV, a net impact of $1.2 million and $2.0 million for the three and six-month periods ended June 30, 2001, respectively. Selling, general and administrative expenses, consisting primarily of employee salaries, sales commissions and other employee benefit costs, advertising and promotional expenses for the three and six-month periods ending June 30, 2001 decreased 4.3% to $16.3 million and increased 2.8% to $32.0 million, respectively, compared to selling, general and administrative expenses of $17.1 million and $31.1 million, 22 25 respectively, for the same periods last year. The decrease is primarily due to favorable terms on an operating agreement of $765,000 and $1.5 million for the three and six-month periods ended June 30, 2001, respectively, offset by an increase of $339,000 in advertising costs associated with the network affiliation switch from the WB network to the UPN network of WCTX-TV in New Haven, Connecticut for the three and six-month periods ended June 30, 2001, respectively, as well the impact of the acquisitions of WLFI-TV and WWLP-TV, partially offset by the disposition of WAND-TV, a net impact of $1.3 million and $2.0 million for the three and six-month periods ended June 30, 2001. Corporate expenses, representing costs associated with the centralized management of the Company's stations for the three and six-month periods ending June 30, 2001 increased 3.7% to $2.1 million and decreased 1.1% to $4.5 million, respectively, compared to corporate expenses of $2.0 million and $4.5 million, respectively, for the same periods last year. Amortization of program rights, representing costs associated with the acquisition of syndicated programming, features and specials for the three and six-month periods ending June 30, 2001 increased 1.6% to $5.4 million and 4.4% to $10.8 million, respectively, compared to amortization of program rights of $5.3 million and $10.3 million, respectively, for the same periods last year. The increase is primarily due to the acquisitions of WLFI-TV and WWLP-TV partially offset by the disposition of WAND-TV. Depreciation and amortization of intangible assets for the three and six-month periods ending June 30, 2001 increased 6.8% to $17.0 million and increased 6.4% to $33.3 million, respectively, compared to depreciation and amortization of intangible assets of $16.0 million and $31.3 million, respectively, for the same periods last year. The increase is primarily due to the increase in equipment and intangible assets associated with the acquisitions of WLFI-TV and WWLP-TV, partially offset by the disposition of WAND-TV. Other Expenses Interest expense for the three and six-month periods ended June 30, 2001 increased 2.3% to $23.9 million and increased 11.7% to $48.2 million, respectively, compared to interest expense of $23.4 million and $43.1 million, respectively, for the same periods last year. The increase is primarily the result of losses of $119,000 and $2.0 million on derivative instruments for the three and six-month periods ended June 30, 2001, respectively, and increased borrowings associated with the acquisition of WWLP-TV on March 31, 2000. Interest expense for LIN Television Corporation for the three and six-month periods ended June 30, 2001 decreased 2.8% to $16.5 million and increased 11.2% to $34.0 million, respectively, compared to interest expense of $17.0 million and $30.6 million, respectively, for the same periods last year. The increase is primarily the result of losses of $119,000 and $2.0 million on derivative instruments for the three and six-month periods ended June 30, 2001, respectively, and increased borrowings associated with the acquisition of WWLP-TV on March 31, 2000. The Company's provision for income taxes for the three-month period ended June 30, 2001 changed to a benefit of approximately $3.9 million compared to a benefit of $127,000 for the same period last year. The provision for income taxes for the six-month period ended June 30, 2001 changed to a benefit of $8.1 million compared to a provision of $6.9 million for the same period last year. These changes were primarily due to the disproportionate impact of non-deductible goodwill relative to the projected annual pretax net loss from period to period. LIN Television Corporation's benefit from income taxes for the three and six-month periods ended June 30, 2001 is approximately $4.1 million and $1.8 million, respectively, compared to a provision of approximately $2.8 million and a benefit of $5.4 million for the same periods last year. These changes were primarily due to the disproportionate impact of non-deductible goodwill relative to the projected annual pretax net loss from period to period. 23 26 Liquidity and Capital Resources At June 30, 2001, the Company had cash and cash equivalents of $50.0 million and total debt of $1.1 billion. Net cash provided by operating activities for the six months ended June 30, 2001 was $2.5 million compared to $17.3 million for the same period last year. The decrease is primarily the result of the noted decrease in national and political revenues and increase in operating and interest expenses. Net cash provided by investing activities was $6.6 million for the six months ended June 30, 2001, compared to net cash used in investing activities of $141.2 million for the same period last year. The change is primarily due to amounts paid related to the WWLP-TV transaction in the first quarter of 2000. Net cash used in financing activities for the six months ended June 30, 2001 was $46.3 million compared to net cash provided by financing activities of $122.9 million for the same period last year. The change is primarily due to the proceeds from long-term debt (net of partial repayment of the Senior Credit Facilities) in 2001 and proceeds from a draw down of a credit facility in connection with the WWLP-TV transaction in 2000. On June 14, 2001, LIN Holdings Corp. issued $100 million aggregate principal amount at maturity of 10% Senior Discount Notes due 2008 in a private placement. The Senior Discount Notes were issued at a discount to yield 12.5% and generated net proceeds of $73.9 million. Financing costs of $2.4 million were incurred in connection with the issuance and will be amortized over the term of the debt. The Senior Discount Notes are unsecured senior obligations of LIN Holdings and are not guaranteed. Cash interest will not accrue or be payable on the Senior Discount Notes prior to March 1, 2003. Thereafter, cash interest will accrue at a rate of 10% per annum and will be payable semi-annually in arrears commencing on September 1, 2003. The Company is subject to compliance with certain financial covenants and other conditions set forth in offering memorandum.The Notes are subject to early redemption provisions in the event of a change of control. On June 14, 2001, LIN Television issued $210 million aggregate principal amount at maturity of 8% Senior Notes due 2008 in a private placement. The Senior Notes were issued at a discount to yield 8 3/4% and generated net proceeds of $202.2 million. The Senior Notes are unsecured senior obligations of LIN Television without collateral rights, subordinated in right of payment to all existing and any future senior indebtedness of LIN Television and are not guaranteed. Financing costs of $4.5 million were incurred in connection with the issuance and will be amortized over the term of the debt. Cash interest on the Senior Notes accrues at a rate of 8% per annum and will be payable semi-annually in arrears commencing on January 15, 2002. LIN Television is subject to compliance with certain financial covenants and other conditions set forth in offering memorandum. The Notes are subject to early redemption provisions in the event of a change of control. Simultaneously with the consummation of the offering of the new Senior Discount Notes and the new Senior Notes, the Company obtained certain amendments to its existing Senior Credit Facilities which (i) provided for the adjustment of certain financial covenants and ratio tests, (ii) provided that $100 million of the $160 million revolving portion of the Senior Credit Facilities may be used to fund the $125 million mandatory redemption payment on the existing Senior Discount Notes due on March 1, 2003 or, subsequent to the funding of the mandatory redemption payment, to make interest payments on the existing Senior Discount Notes and (iii) increased certain fees and interest rate spreads. As a result of the repayment of the term loans under the Senior Credit Facilities, there is expected to be no required scheduled amortization payments until December 2005. The following are the adjustments made to the financial covenant and ratio tests: 24 27

Based on the current level of operations and anticipated future growth (both internally generated as well as through acquisitions), the Company believes that its cash flows from operations, together with available borrowings under its credit facilities, will be sufficient to meet its anticipated requirements for working capital, capital expenditures, interest payments and scheduled principal payments for at least the next twelve months. Risks Associated with Business Activities Potential Negative Consequences of Substantial Indebtedness. As of June 30, 2001, LIN Holdings had approximately $1.1 billion of consolidated indebtedness and approximately $433.0 million of consolidated stockholders' equity. LIN Television had approximately $704.5 million of consolidated indebtedness and approximately $742.0 million of consolidated stockholders' equity. The level of indebtedness of LIN Holdings and LIN Television could have several negative consequences to holders of the Senior Subordinated Notes, the Senior Discount Notes, the new Senior Subordinated Notes, and the new Senior Discount Notes, (collectively the "Notes"), including, but not limited to, the following: - a substantial portion of the Company's cash flow from operations will be dedicated to the payment of principal, premium (if any) and interest on their respective indebtedness, thereby reducing the funds available for operations, distributions to LIN Holdings for payments with respect to the Senior Discount Notes, future business opportunities and other purposes and increasing the vulnerability of LIN Holdings and LIN Television to adverse general economic and industry conditions; - the ability of the Company to obtain additional financing in the future may be limited; - all of the indebtedness in connection with the Credit Agreement as amended, a credit facility with Chase Manhattan Bank, as administrative agent, and the lenders named therein, that establishes a $173.3 million term loan facility and a $160 million revolving facility, (collectively, "Senior Credit Facilities"), will be secured and is scheduled to become due prior to the time the principal payments on the Notes are scheduled to become due; - certain of the Company's borrowings (including, without limitation, amounts borrowed under the Senior Credit Facilities) will be at variable rates of interest, which will expose the Company to increases in interest rates; and - the mandatory principal redemption amount (expected to be $125 million as defined in the indenture governing the Senior Discount Notes) of the Senior Discount Notes will become due and payable in a lump sum on March 1, 2003. LIN Holdings' and LIN Television's respective abilities to make scheduled payments of the principal of, or to pay interest on, or to refinance their respective indebtedness will depend on the future performance of the Company and its subsidiaries, which to a certain extent will be subject to economic, financial, regulatory, competitive and other factors beyond the Company's control. Based upon the Company's current operations and anticipated growth, management believes that future cash flow from operations, together with the Company's available borrowings under the Senior Credit Facilities, will be adequate to meet LIN Holdings' and LIN Television's respective anticipated requirements for capital expenditures, interest 25 28 payments and scheduled principal payments. There can be no assurance that the Company's business will continue to generate sufficient cash flow from operations in the future to service the Company's respective indebtedness and make necessary capital expenditures. If unable to do so, the Company may be required to refinance all or a portion of its respective indebtedness, including the Notes, or sell assets or to obtain additional financing. There can be no assurance that any such refinancing would be possible, that any assets could be sold (or, if sold, of the timing of such sales and the amount of proceeds realized therefrom) or that additional financing could be obtained. General Electric Capital Corporation ("GECC") provided debt financing for the NBC joint venture in the form of an $815.5 million 25-year non-amortizing senior secured note bearing an initial interest rate of 8.0% per annum. The Company expects that the interest payments on the GECC Note will be serviced solely by the cash flow of the NBC joint venture. The GECC Note is not an obligation of the Company and is recourse only to the NBC joint venture, LIN Television's equity interests therein and Ranger Equity Holdings B Corp. ("Ranger B"), pursuant to a guarantee. Ranger B is a wholly owned subsidiary of Ranger Equity Holdings Corporation and is one of LIN Holdings' two corporate parents and the guarantor of the GECC Note. Ranger B owns 63% of LIN Holdings. If an event of default occurs under the GECC Note, and GECC is unable to collect all obligations owed to it after exhausting all commercially reasonable remedies against the NBC joint venture (including during the pendency of any bankruptcy involving the NBC joint venture), GECC may proceed against Ranger B, to collect any deficiency. If Ranger B does not otherwise satisfy its obligations under the guaranty, GECC could attempt to claim all or a portion of the common stock of LIN Holdings owned by Ranger B through an insolvency proceeding or otherwise. If such an event were to occur, GECC could obtain control of LIN Holdings and, as a result, LIN Television. Restrictions Imposed on the Company by Terms of Indebtedness. The credit agreement governing the Senior Credit Facilities and the indentures governing the Notes contain covenants that restrict LIN Holdings' and LIN Television's respective abilities to: - incur indebtedness; - pay dividends; - create liens; - sell assets; - engage in certain mergers and acquisitions; and - refinance indebtedness. The credit agreement governing the Senior Credit Facilities requires LIN Television to maintain certain financial ratios. If LIN Holdings or LIN Television fails to comply with the various covenants contained in the credit agreement governing the Senior Credit Facilities or the indentures governing the Notes, as applicable, each of them would be in default and the maturity of substantially all of their respective long-term indebtedness could be accelerated. A default of the indentures would also constitute an event of default under the Senior Credit Facilities. If LIN Television were unable to repay amounts outstanding under the credit agreement, the lenders thereunder could proceed against the collateral granted to them to secure the indebtedness. If the amounts outstanding under the credit agreement were accelerated, there can be no assurance that the assets of LIN Television and its subsidiaries would be sufficient to repay the amount in full. The Notes and the Senior Credit Facilities impose certain restrictions on the Company's ability to make capital expenditures and limit the Company's ability to incur additional indebtedness. Such restrictions could limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business or acquisition opportunities. Structural Subordination of LIN Holdings. LIN Holdings is a holding company, which conducts all of its operations through its subsidiaries and whose only material asset is the capital stock of LIN Television. Consequently, LIN Holdings depends on distributions from LIN Television to meet its debt service 26 29 obligations. Because of the substantial leverage of LIN Television, and the dependence of LIN Holdings upon the operating performance of LIN Television to generate distributions to LIN Holdings, there can be no assurance that LIN Holdings will have adequate funds to fulfill its obligations in respect of the Senior Discount Notes when due. In addition, the credit agreement governing the Senior Credit Facilities, the indentures governing the Senior Subordinated Notes and applicable federal and state law impose restrictions on the payment of dividends and the making of loans by LIN Television to LIN Holdings. As a result of the foregoing restrictions, LIN Holdings may be unable to gain access to the cash flow or assets of LIN Television in amounts sufficient to pay the mandatory principal redemption amount when due on March 1, 2003, and cash interest on the Senior Discount Notes on and after March 1, 2003, the date on which cash interest thereon first becomes payable, and principal of the Senior Discount Notes when due. In such event, LIN Holdings may be required to: - refinance the Senior Discount Notes; - seek additional debt or equity financing; - cause LIN Television to refinance all or a portion of LIN Television's indebtedness with indebtedness containing covenants allowing LIN Holdings to gain access to LIN Television's cash flow or assets; - cause LIN Television to obtain modifications of the covenants restricting LIN Holdings' access to cash flow or assets of LIN Television contained in LIN Television's financing documents (including, without limitation, the credit agreement and the indentures governing the Senior Subordinated Notes); or - pursue a combination of the foregoing actions. No assurance can be given that any of the foregoing measures could be accomplished. Growth Through Acquisitions; Future Capital Requirements. The Company intends to pursue selective acquisitions of television stations with the goal of improving their operating performance by applying management's business strategy. Inherent in any future acquisitions are certain risks such as increasing leverage and debt service requirements and combining company cultures and facilities which could have a material adverse effect on the Company's operating results, particularly during the period immediately following such acquisitions. Additional debt or equity capital may be required to complete future acquisitions, and there can be no assurance the Company will be able to raise the required capital. Moreover, there can be no assurances that with respect to any acquired station, the Company will be able to successfully implement effective cost controls, increase advertising revenues or increase its audience share. Dependence on Certain External Factors. The Company's operating results are primarily dependent on advertising revenues which, in turn, depend on national and local economic conditions, coverage of political events and high profile sporting events (e.g., the Olympics, Super Bowl and NCAA Men's Basketball Tournament), the relative popularity of the Company's programming (which in many cases, is dependent on the relative popularity of the relevant network's programming), the demographic characteristics of the Company's markets, the activities of competitors and other factors which are outside the Company's control. The television industry is cyclical in nature, and the Company's revenues could be adversely affected by a future local, regional or national recession. Reliance on Syndicated Programming. One of the Company's most significant operating costs is syndicated programming. There can be no assurance that the Company will not be exposed in the future to increasing syndicated programming costs which may adversely affect the Company's operating results. Acquisitions of program rights are often made two or three years in advance, making it difficult to accurately predict how a program will perform. In some instances, programs must be replaced before their costs have been fully amortized, resulting in write-offs that increase station operating costs. Non-Renewal or Termination of Affiliation Agreements. The non-renewal or termination of a network affiliation agreement could have a material adverse effect on the Company's operations. Four of the Company's owned and operated stations are affiliated with CBS, four with NBC, and one with ABC. Each of these networks generally provides these stations with up to 22 hours of prime time programming per week. In 27 30 return, the stations broadcast network-inserted commercials during such programming and receive cash network compensation. Although network affiliates generally have achieved higher ratings than unaffiliated independent stations in the same market, there can be no assurance as to the future success of each network's programming or the continuation of such programming. The Company's network affiliation agreements are subject to termination by such networks under certain circumstances. The Company believes that it enjoys a good relationship with each of CBS, NBC and ABC, as well as the other networks with which it has affiliation agreements. Certain of the networks with which the Company's stations are affiliated have required other broadcast groups, upon renewal of affiliation agreements, to reduce or eliminate network affiliation compensation and to accept other material modifications of existing affiliation agreements. However, there can be no assurance that such affiliation agreements will remain in place or that each network will continue to provide programming or compensation to affiliates on the same basis as it currently provides programming or compensation. Competition for Advertising Revenues and Audience Ratings. The television broadcasting industry is a highly competitive business and is undergoing a period of consolidation and significant change. Many of the Company's current and potential competitors have greater financial, marketing, programming and broadcasting resources than the Company. Technological innovation and the resulting proliferation of programming alternatives, such as cable television, wireless cable, satellite-to-home distribution services, internet, pay-per-view and home video and entertainment systems, have fractionalized television viewing audiences and have subjected free over-the-air television broadcast stations to new types of competition. In addition, as a result of the Telecom Act, the legislative ban on telephone cable ownership has been repealed and telephone companies are now permitted to seek FCC approval to provide video services to homes under specified circumstances. Consequently, the Company may not be able to maintain or increase its current audience ratings or advertising revenues. Potential Effects of Television Broadcasting Regulation on License Renewals and Ownership. The broadcasting industry is subject to regulation by various governmental agencies. In particular, under the Communications Act, the FCC licenses television stations and extensively regulates their ownership and operation. The Company depends on its ability to hold television broadcast licenses from the FCC, which are ordinarily issued for maximum terms of eight years and are renewable. Although it is rare for the FCC to deny a license renewal application, there can be no assurance that the Company's television broadcasting licenses or the licenses owned by the owner-operators of the stations currently programmed by the Company under LMAs will be renewed or that if renewed the renewals will not include restrictive conditions or qualifications. Dependence on Key Personnel. The Company believes that its success is dependent upon its ability to attract and retain skilled managers and other personnel, including its present officers and general managers. The loss of the services of Gary R. Chapman, the Chairman, President and Chief Executive Officer of LIN Holdings and LIN Television, could have a material adverse effect on the operations of the Company. Mr. Chapman's current employment agreement with LIN Television will automatically renew for an additional year on December 31, 2001 unless otherwise terminated by either party by notice 90 days prior to this date. Recent Accounting Pronouncements. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting to be applied for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. The Company does not expect the application of SFAS 141 to have a material impact on its financial position or results of operations. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is generally effective for the Company from January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization and the introduction of impairment testing in its place. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is currently assessing, but has not yet determined, the impact of SFAS 142 on its financial position and results of operations. 28 31 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates principally with respect to its senior credit facility, which is priced based on certain variable interest rate alternatives (see "Note 8 -- Long-Term Debt" to our consolidated financial statements for the year ended December 31, 2000). There was approximately $200.3 million outstanding as of June 30, 2001 under our senior credit facility. Accordingly, we are exposed to potential losses related to increases in interest rates. A hypothetical increase of 1 percent to the floating rate used as the basis for the interest charged on the senior credit facility in Fiscal 2001 would result in an estimated $2.0 million increase in annualized interest expense assuming a constant balance outstanding of $200.3 million. The Company uses derivative instruments to manage this exposure to interest rate risks. The Company's objective for holding derivatives is to minimize these risks using the most effective methods to eliminate or reduce the impacts of these exposures. The Company uses interest rate collar, cap and swap arrangements, not designated as hedging instruments under SFAS No. 133, in the notional amount of $160.0 million at June 30, 2001 to mitigate the impact of the variability in interest rates in connection with its variable rate senior credit facility. The aggregate fair value of the interest rate collar arrangements at June 30, 2001 was a liability of $2.0 million. Interest expense for the three and six-month periods ended June 30, 2001 includes a loss of $119,000 and $2.0 million, respectively, from the marking-to-market of these derivative instruments. 29 32 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company currently and from time to time is involved in litigation incidental to the conduct of its business. In the opinion of the Company's management, none of such litigation at June 30, 2001 is likely to have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS: 10.1 Amended and Restated Credit Agreement dated June 29, 2001 among Registrant, The Chase Manhattan Bank, as administrative agent, and lenders named therein. 10.2 Indenture dated as of June 14, 2001 among LIN Television Corporation, as Issuer, and the Guarantors Named Herein and United States Trust Company of New York, as Trustee. 10.3 Indenture dated as of June 14, 2001 among LIN Holdings Corp., as Issuer, and the Guarantors Named Herein and United States Trust Company of New York, as Trustee. 10.4 Ranger Equity Holdings Corporation Phantom Stock Plan. REPORTS ON FORM 8-K: Regulation FD Disclosure on March 26, 2001 30 33 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrants have duly caused this report to be signed on each of their respective behalf by the undersigned thereunto duly authorized. LIN HOLDINGS CORP. LIN TELEVISION CORPORATION (Registrant) (Registrant) DATED: AUGUST 8, 2001 /s/ Peter E. Maloney ----------------------------------- Peter E. Maloney Vice President of Finance (Principal Financial and Accounting Officer.) 31

LIN HOLDINGS CORP 10-Q