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The following is an excerpt from a S-4 SEC Filing, filed by BENEDEK COMMUNICATIONS CORP on 6/9/1998.
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STATIONS HOLDING CO INC - S-4 - 19980609 - LIQUIDITY

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows from Operating Activities is the primary source of liquidity for the Company and were $8.5 million for the year ended December 31, 1997 compared to $17.8 million for the year ended December 31, 1996. Cash flows from operating activities included cash payments of interest expense which totaled $29.0 million for the year ended December 31, 1997 as compared to $22.8 million for the year ended December 31, 1996. The increase in payments of interest expense of $6.2 million was due to the Company's higher debt level following the Acquisitions. For the year ended December 31, 1996, cash flows from operating activities included $2.5 million from the bonus payment from CBS and $2.2 million of collections on net accounts receivable provided by Stauffer.

Cash flows from operating activities were $0.1 million for the three months ended March 31, 1998 compared to $(2.1) million for the three months ended March 31, 1997. Cash flows from operating activities included cash payments of interest expense which totaled $10.8 million for the three months ended March 31, 1998 as compared to $11.4 million for the three months ended March 31, 1997.

Cash Flows from Financing Activities were $(7.6) million for the year ended December 31, 1997 compared to $307.2 million for the year ended December 31, 1996. For the year ended December 31, 1997, cash flows from financing activities included principal payments on notes and capital leases payable of $14.9 million funded in part by aggregate draw downs on Benedek Broadcasting's revolving credit facility of $10.0 million.

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For the year ended December 31, 1996, cash flows from financing activities resulted from the proceeds of financing the Acquisitions.

Cash flows from financing activities were $2.3 million for the three months ended March 31, 1998 as compared to $(0.6) million for the three months ended March 31, 1997. For the three months ended March 31, 1998, cash flows from financing activities included principal payments on notes and capital leases payable of $2.3 million funded by aggregate draw downs on the Revolving Credit Facility of $4.6 million.

At March 31, 1998, Benedek Broadcasting had available to it a maximum of $15.0 million under the Revolving Credit Facility of the Credit Agreement of which $2.4 million was unused. From time to time throughout 1997, Benedek Broadcasting's cash needs required the use of the revolving credit facility under the 1996 Credit Agreement (as defined) for general working capital purposes and to fund capital expenditures. During the year ended December 31, 1997, the highest outstanding balance under such revolving credit facility was $11.2 million, and during the three months ended March 31, 1998, the highest outstanding balance under the Revolving Credit Facility was $14.6 million.

The Company implemented a financing plan in order to finance the Acquisitions and to pay fees and expenses related thereto. The financing plan consisted of (i) the offer and sale by the Company of the Senior Subordinated Discount Notes to generate gross proceeds of $90.2 million, (ii) the sale by the Company of Units consisting of the Old Exchangeable Preferred Stock, the Initial Warrants and the Contingent Warrants to generate gross proceeds of $60.0 million, (iii) Benedek Broadcasting borrowing $128.0 million pursuant to the term loan facilities of a credit agreement (the '1996 Credit Agreement') and
(iv) the Company issuing an aggregate of $45.0 million initial liquidation preference of Seller Junior Discount Preferred Stock to GECC and Mr. Paul Brissette. Benedek Broadcasting also has outstanding $135.0 million of Senior Secured Notes which were issued in 1995 to refinance outstanding indebtedness and finance the acquisition of the Dothan Station.

The Company believes that the financing plan, together with the Offering, provides for a long-term financing structure that allows management to concentrate its efforts on maximizing results of operations. The Company anticipates that Adjusted EBITDA of Benedek Broadcasting will be sufficient to finance the operating requirements of the Stations, debt service requirements in respect of the Senior Secured Notes and Term Loan Facilities and presently anticipated capital expenditures until such time that the debt matures or requires payment in full and for at least the period until the Company is required to make cash payments in respect of the Senior Subordinated Discount Notes, the Exchangeable Preferred Stock and the Seller Junior Discount Preferred Stock. The Company anticipates that capital expenditures of approximately $9.0 million will be made in 1998. Such capital expenditures will be financed either from cash provided by operations, borrowings under the Revolving Credit Facility or purchase money financing.

The Senior Subordinated Discount Notes do not bear interest until May 15, 2001, and the Company is not obligated to pay cash interest on the Senior Subordinated Discount Notes until November 15, 2001. In addition, for all dividend payment dates with respect to the Exchangeable Preferred Stock and interest payment dates with respect to the Exchange Debentures through and including May 15, 2003, the Company may, at its option, pay dividends by adding the amount thereof to the then effective liquidation preference of the Exchangeable Preferred Stock and pay interest on the Exchange Debentures by issuing additional Exchange Debentures. The Credit Agreement currently prohibits the Company from making cash payments with respect to dividends on the Exchangeable Preferred Stock and interest on the Exchange Debentures at any time. Accordingly, the Company currently intends not to pay cash dividends on the Exchangeable Preferred Stock or cash interest on the Exchange Debentures, as applicable, prior to May 15, 2003. In order for the Company to pay required cash dividends with respect to the Exchangeable Preferred Stock or cash interest on the Exchange Debentures, as the case may be, after May 15, 2003, the Company will need to amend the Credit Agreement or refinance the Term Loan Facilities and Revolving Credit Facility thereunder as well as need to substantially increase broadcast cash flow at the Stations. For all dividend payment dates with respect to the Seller Junior Discount Preferred Stock prior to October 1, 2001, the Company will pay such dividends by adding the amount thereof to the then effective liquidation preference of the Seller Junior Discount Preferred Stock. In order for the Company to meet its debt service obligations and pay required cash interest after May 15, 2001 with respect to the Senior Subordinated Discount Notes, and cash dividends from and after October 1, 2001 with respect to the Seller Junior Discount Preferred Stock, the Company will need to substantially increase broadcast cash flow at the Stations. The Company's debt service obligations, including scheduled principal amortization, in the 12 month period beginning May 15, 2001 would be approximately $62.8 million (assuming that there will not have been any mandatory or voluntary prepayments of any indebtedness prior to that time, assuming no incurrence of

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additional indebtedness and assuming a blended interest rate on the amounts then outstanding under the Credit Agreement comparable to the rate the Company is currently paying). The Company's cash dividend payments during such period with respect to the Seller Junior Discount Preferred Stock would be approximately $10.1 million. See 'Risk Factors -- Ability to Service Debt and Preferred Stock Dividends.'

The Senior Secured Notes are senior secured obligations of Benedek Broadcasting and rank pari passu in right of payment with the Term Loan Facilities and Revolving Credit Facility under the Credit Agreement. The Senior Secured Notes are guaranteed by BLC and the Company and secured by the common stock of BLC. The Senior Secured Notes will mature on March 1, 2005 and are redeemable at Benedek Broadcasting's option, in whole or in part, at any time after March 1, 2000.

In order to repay the Senior Subordinated Discount Notes and the Senior Secured Notes at maturity, the Company will need to refinance all or a portion of such notes. The Company's ability to refinance the Senior Subordinated Discount Notes and the Senior Secured Notes will depend upon the Company's operating performance, as well as prevailing economic and market conditions, levels of interest rates, refinancing costs and other factors, many of which are beyond the Company's control.

The Company is a holding company that will derive all of its operating income and Adjusted EBITDA from its sole subsidiary, Benedek Broadcasting, the common stock of which, together with all other assets of the Company, have been pledged to secure the Company's senior guarantee of all indebtedness of Benedek Broadcasting outstanding under the Credit Agreement and in respect of the Senior Secured Notes. As a holding company, the Company's ability to pay its obligations, including its obligation to pay interest on and principal of the Senior Subordinated Discount Notes, whether at maturity, upon a change of control or otherwise, will be dependent primarily upon receiving dividends and other payments or advances from Benedek Broadcasting. Benedek Broadcasting is a separate and distinct legal entity and has no obligation, contingent or otherwise, to pay any amounts to the Company or to make funds available to the Company for debt service or any other obligation. Although the Credit Agreement does not limit the ability of Benedek Broadcasting to pay dividends or make other payments to the Company, the Senior Secured Note Indenture does contain such limitations. However, as of March 31, 1998, Benedek Broadcasting could have distributed approximately $188 million to the Company under such limitations.

The 1996 Credit Agreement entered into by the Company as part of the financing plan included term loan facilities totaling $128.0 million and a revolving credit facility. The Company did not meet certain financial ratios contained in the 1996 Credit Agreement at September 30 and December 31, 1996 due to lower than expected Adjusted EBITDA (as defined in the 1996 Credit Agreement). The lenders under the 1996 Credit Agreement agreed to waive such noncompliance and during February 1997, amended certain covenants applicable to 1997 and the first half of 1998. The amendment provided that for so long as the ratio of debt to Adjusted EBITDA (as defined in the 1996 Credit Agreement) exceeded certain levels, the term loan facilities would bear interest at varying additional spreads from that originally provided for in the 1996 Credit Agreement. The amendment further reduced the revolving credit facility from $15.0 million to $10.0 million and increased the percentage of excess cash flow to be applied as prepayments of the term loan facilities from 50% to 75% until Benedek Broadcasting's ratio of debt to Adjusted EBITDA (as defined in the 1996 Credit Agreement) was at 6.75 to 1.0 or lower.

The Credit Agreement was amended and restated as of December 17, 1997 to convert existing term loans to new term loans, to modify certain financial convenants and ratios, to increase the Revolving Credit Facility to $15.0 million and to replace certain parties to the agreement. As of December 17, 1997, the outstanding principal balance of the existing term loans which totaled $110.8 million were converted to (1) Term Loan Series A of $77.0 million and (2) Term Loan Series B of $33.8 million. The Term Loan Facilities generally provide for quarterly amortization until final maturity on December 31, 2004. The Company is required to make scheduled amortization payments on the Term Loan Facilities, on an aggregate basis for Series A and Series B Facilities, as follows: during 1998, $2.5 million; during 1999, $11.0 million; during 2000, $13.0 million; during 2001, $13.0 million; during 2002, $14.0 million; during 2003, $15.0 million; and during 2004, $42.3 million.

In addition, the Company will be required to make prepayments on the Term Loan Facilities under certain circumstances, including upon certain asset sales and the issuance of certain debt or equity securities. The Company will also be required to make prepayments on the Term Loan Facilities in an amount equal to 50% of excess cash flow (as defined in the Credit Agreement). These mandatory prepayments will be applied to prepay, on a pro rata basis, the Term Loan Series A and Term Loan Series B.

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The Term Loan Series A bears interest, at the Company's option, at a base rate plus a spread or at a Eurodollar rate plus a spread. The Term Loan Series B bears interest, at the Company's option, at a base rate plus a spread or at a Eurodollar rate plus a spread. The margins above the base rate and the Eurodollar rate at which the Term Loans and Revolving Credit Facility will bear interest are subject to reductions at such times as certain leverage ratio performance tests are satisfied.

Benedek Broadcasting has the ability, subject to a borrowing base and compliance with certain covenants and conditions, to borrow up to an additional $15.0 million for general corporate purposes pursuant to the Revolving Credit Facility. The Revolving Credit Facility has a term expiring December 31, 2003 and is fully revolving until final maturity. The Revolving Credit Facility bears interest, at Benedek Broadcasting's option, at a base rate plus a spread or at a Eurodollar rate plus a spread.

The Term Loans and the Revolving Credit Facility are secured by certain of Benedek Broadcasting's present and future property and assets. The Term Loans are also guaranteed by BLC, a wholly-owned subsidiary of Benedek Broadcasting that holds the FCC licenses and authorizations for the Stations, and is secured by all of the common stock of BLC.

The Term Loans and the Revolving Credit Facility contain certain financial covenants, including, but not limited to, covenants related to cash interest coverage, maximum leverage ratio and minimum Consolidated Adjusted EBITDA (as defined in the Credit Agreement). In addition, the Term Loans and the Revolving Credit Facility contain other affirmative and negative covenants relating to, among other things, liens, payments on other debt, restricted junior payments (excluding distributions from Benedek Broadcasting to the Company) transactions with affiliates, mergers and acquisitions, sales of assets, guarantees and investments. The Term Loans and the Revolving Credit Facility contain customary events of default for highly-leveraged financings, including certain changes in ownership or control of Benedek Broadcasting or the Company.

The net proceeds of the Offering were approximately $95.5 million. The Company used approximately $92.8 million of such net proceeds to redeem the Old Exchangeable Preferred Stock (including approximately $12.1 million representing premiums relating to the redemption) on June 8, 1998 and the balance for general corporate purposes, including the reduction of a portion of the Company's debt under the Revolving Credit Facility.

INCOME TAXES

For the year ended December 31, 1997, the Company had a tax benefit of $12.0 million consisting of a $12.3 million benefit related to the net reduction of deferred income tax liabilities and $0.3 million of taxes currently due.

Under the provisions of the Internal Revenue Code of 1986, as amended, the Company has approximately $18.4 million of actual net operating loss carryforwards available to offset future tax liabilities. These net operating loss carryforwards expire between 2007 through 2011.

INFLATION

The Company does not believe that inflation has had a significant impact on the Company's operations.

YEAR 2000

The Company has assessed and continues to assess the impact of the Year 2000 issue on its reporting systems and operations. The Year 2000 issue exists because many computer systems and applications currently use two-digit fields to designate a year. When the century date occurs, date-sensitive systems may recognize the year 2000 as 1900 or not at all. This inability to recognize or properly treat the year 2000 may cause systems to process critical financial and operational information incorrectly. Based on the review of the Company's computer system, management does not believe the cost of remediation will be material to the Company's operations.

SEASONALITY

Net revenues and operating cash flow of the Company are generally higher during the fourth quarter of each year, primarily due to increased expenditures by advertisers in anticipation of holiday season consumer

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spending and an increase in viewership during this period, and, to a lesser extent, during the second quarter of each year.

RECENTLY PROMULGATED ACCOUNTING STANDARDS

The Financial Accounting Standards Board ('FASB') has issued two new pronouncements that the Company will be required to adopt by December 31, 1998. These pronouncements are not expected to have a significant impact on the Company's financial statements.

FASB Statement No. 130 'Reporting Comprehensive Income' establishes standards for reporting and display of comprehensive income and its components in the financial statements. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This statement requires that a company (a) classify terms of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Company currently has no items of comprehensive income.

FASB Statement No. 131 'Disclosures about Segments of an Enterprise and Related Information' establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to stockholders. Operating segments are components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company does not divide its business into operating segments.

BROKERAGE PARTNERS