UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 : ________________
KDSM, INC.
(Exact name of Registrant as specified in its charter)
---------------------------
MARYLAND 52-1975792
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(Address of principal executive offices)
(410) 467-5005
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year-if changed since last
report)
SINCLAIR CAPITAL
(Exact name of Registrant as specified in its charter)
---------------------------
DELAWARE 52-2026076
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(Address of principal executive offices)
(410) 467-5005
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year-if changed since last
report)
1
<PAGE>
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No[X]
As of November 7, 1997, there were 100 shares of Class A Common Stock, $.01 par
value issued and outstanding and 2,000,000 shares of $200 million aggregate
liquidation value of 11-5/8% High Yield Trust Offered Preferred Securities of
Sinclair Capital, a subsidiary trust of KDSM, Inc. issued and outstanding.
2
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KDSM, INC. AND SUBSIDIARIES AND
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
Form 10-Q
For the Quarter Ended September 30, 1997
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1997.................................... 4
Consolidated Statements of Operations for the Three Months
and Nine Months Ended September 30, 1996 and 1997..... 5
Consolidated Statements of Stockholder's Equity for the
Nine Months Ended September 30, 1997.................. 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1997..................... 7
Notes to Unaudited Consolidated Financial Statements......... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................... 14
Signature.................................................... 15
3
<PAGE>
KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- --------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash............................................................................ $ 3 $ 3
Accounts receivable, net of allowance for doubtful accounts..................... 2,052 1,445
Dividends receivable from parent................................................ - 1,157
Current portion of program contract costs....................................... 860 1,270
Prepaid expenses and other current assets....................................... 86 26
Deferred barter costs .......................................................... 50 60
-------------- --------------
Total current assets..................................................... 3,051 3,961
PROPERTY AND EQUIPMENT, net......................................................... 2,803 3,283
PROGRAM CONTRACT COSTS, less current portion........................................ 794 1,102
INVESTMENT IN PARENT PREFERRED SECURITIES........................................... - 206,200
DUE FROM PARENT .................................................................... 496 1,758
OTHER ASSETS 4,075 7,853
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net........................................ 29,455 33,668
-------------- --------------
Total Assets ............................................................ $ 40,674 $ 257,825
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 292 $ 7
Accrued liabilities............................................................. 410 318
Current portion of program contracts payable.................................... 1,384 1,636
Deferred barter revenues........................................................ 120 145
Subsidiary trust minority interest expense payable.............................. - 1,033
-------------- --------------
Total current liabilities................................................ 2,206 3,139
PROGRAM CONTRACTS PAYABLE........................................................... 879 1,316
DEFERRED STATE TAXES 73 326
-------------- --------------
Total liabilities........................................................ 3,158 4,781
-------------- --------------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES .................................. - 200,000
-------------- --------------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 1,000 shares authorized
and 100 shares issued and outstanding....................................... - -
Additional paid-in capital...................................................... 36,811 51,149
Retained earnings............................................................... 705 1,895
-------------- ------------
Total stockholder's equity............................................... 37,516 53,044
-------------- --------------
Total Liabilities and Stockholder's Equity............................... $ 40,674 $ 257,825
============== ==============
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated statements.
4
<PAGE>
KDSM, INC. AND SUBSIDIARIES AND
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED
COMPANY COMPANY (SEE NOTE 7) COMPANY
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
EPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Station broadcast revenues, net of agency commissions.... $ 1,838 $ 1,765 $ 5,885 $ 5,684
Revenues realized from station barter arrangements....... 52 82 165 224
------- ------------- ------------- -------------
Total revenues.................................... 1,890 1,847 6,050 5,908
------- ------------- ------------- -------------
OPERATING EXPENSES:
Program and production................................... 244 221 818 889
Selling, general and administrative...................... 732 622 2,269 1,862
Expenses realized from station barter arrangements....... 38 60 153 146
Amortization of program contract costs and net
realizable value adjustments......................... 414 324 983 1,036
Depreciation and amortization of property and equipment.. 65 92 319 262
Amortization of acquired intangible broadcasting assets
and other assets..................................... 205 464 588 1,141
------- ------------- ------------- -------------
Total operating expenses.......................... 1,698 1,783 5,130 5,336
------- ------------- ------------- -------------
Broadcast operating income........................ 192 64 920 572
------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Dividend income.......................................... - 6,545 - 14,390
Subsidiary trust minority interest expense............... - (5,845) - (12,852)
------- -------------- ------------- --------------
Income before allocation of consolidated federal
income taxes and state income taxes............... 192 764 920 2,110
ALLOCATION OF CONSOLIDATED FEDERAL INCOME TAXES.............. 105 258 143 667
STATE INCOME TAXES........................................... 18 91 25 253
------- ------------- ------------- -------------
NET INCOME .................................................. $ 69 $ 415 $ 752 $ 1,190
======= ============= ============= =============
Net income per common share.................................. $ 690 $ 4,150 $ 7,520 $ 11,900
======= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .................. 100 100 100 100
======= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated statements.
5
<PAGE>
KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 ............. $ - $ 36,811 $ 705 $ 37,516
Parent capital contributions........ - 14,338 - 14,338
Net income.......................... - - 1,190 1,190
---------- ------------ ------------- -------------
BALANCE, September 30, 1997............. $ - $ 51,149 $ 1,895 $ 53,044
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated statements.
6
<PAGE>
KDSM, INC. AND SUBSIDIARIES AND
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (THE "PREDECESSOR"),
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
FIVE MONTHS FOUR MONTHS NINE MONTHS
ENDED ENDED ENDED
MAY 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income.......................................................... $ 618 $ 134 $ 1,190
Adjustments to reconcile net income to net cash flows from operating
activities -
Depreciation and amortization of property and equipment......... 233 86 262
Amortization of acquired intangible broadcasting assets and
other assets................................................. 277 311 1,141
Amortization of program contract costs and net realizable
value adjustments............................................ 507 476 1,036
Changes in assets and liabilities, net of effects of acquisitions
and dispositions-
Decrease (increase) in accounts receivable, net................. 21 (1,364) 607
Increase in dividend income receivable.................... - - (1,157)
(Increase) decrease in prepaid expenses and other current assets 82 (94) 60
Increase (decrease) in accounts payable and
accrued liabilities.......................................... 79 358 (377)
Increase in state deferred taxes........................... - 25 253
Net effect of change in deferred barter revenues
and deferred barter costs.................................... 61 9 15
Increase in subsidiary trust minority interest expense payable.. - - 1,033
Payments on program contracts payable............................... (891) (57) (1,036)
------------- ------------- -------------
Net cash flows from/(used in) operating activities.................. 987 (116) 3,027
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Parent Preferred Securities........................... - - (206,200)
Payments for exercise of purchase option............................ - - (1,576)
Acquisition of property and equipment............................... (29) (87) (180)
------------- ------------- -------------
Net cash flows used in investing activities......................... (29) (87) (207,956)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in due from parent....................................... (773) 203 (1,696)
Contributions of capital............................................ - - 13,776
Prepayment of excess syndicated program contract liabilities........ (216) - -
Net proceeds from subsidiary trust securities offering ............. - - 192,849
------------ ------------ ------------
Net cash flows from/(used in) financing activities.............. (989) 203 204,929
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................................... (31) - -
CASH AND CASH EQUIVALENTS, beginning of period.......................... 62 - 3
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period................................ $ 31 $ - $ 3
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Contribution of capital - building.................................. $ - $ - $ 562
============ ============ ============
Subsidiary trust minority interest payments......................... $ - $ - $ 11,819
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated statements.
7
<PAGE>
KDSM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of KDSM,
Inc., Sinclair Capital (a subsidiary trust), and KDSM Licensee Inc., which are
collectively referred to hereafter as "the Company or KDSM." KDSM, Inc. is a
television broadcaster serving the Des Moines, Iowa, area through station KDSM
on Channel 17, a Fox affiliate. This station was wholly owned and operated by
River City Broadcasting, L.P. (RCB) through its ownership in KDSM-TV, a division
of RCB (the "Predecessor") through May 31, 1996. Sinclair Broadcast Group, Inc.
(Sinclair) purchased the non-license assets of KDSM-TV from RCB on May 31, 1996,
and exercised its option to acquire the license assets of KDSM-TV from RCB on
April 22, 1997. KDSM owns all of the issued and outstanding common stock of KDSM
Licensee, Inc. and all of the common trust interests of Sinclair Capital. All
intercompany amounts are eliminated in consolidation.
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the nine months ended September 30,
1997 are unaudited, but in the opinion of management, such financial statements
have been presented on the same basis as the audited consolidated financial
statements as of December 31,1996 and for the seven months then ended and
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations, and cash flows for these periods.
The Company's December 31, 1996 consolidated balance sheet and related
statements of operations and cash flows for the seven month period ended
December 31, 1996, are presented on a new basis of accounting. The accompanying
financial statements for the five month period ended May 31, 1996, are presented
as "Predecessor" financial statements.
As permitted under the applicable rules and regulations of the Securities and
Exchange Commission, these financial statements do not include all disclosures
normally included with audited consolidated financial statements, and,
accordingly, should be read in conjunction with the December 31, 1996
consolidated balance sheet and related statements of operations and cash flows
for seven month period ended December 31, 1996 and the five month period ended
May 31,1996 and the related notes thereto. The results of operations presented
in the accompanying financial statements are not necessarily representative of
operations for an entire year.
PROGRAMMING
The Company has agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as an asset and a liability
when the license period begins and the program is available for its first
showing. The portion of the program contracts payable within one year is
reflected as a current liability in the accompanying consolidated balance
sheets.
The rights to program materials are reflected in the accompanying consolidated
balance sheets at the lower of unamortized cost or estimated net realizable
value. Estimated net realizable values are based upon management's expectation
of future advertising revenues net of sales commissions to be generated by the
program material. Amortization of program contract costs is generally computed
under either a four year accelerated method or based on usage, whichever yields
the greater amortization for each program. Program contract costs estimated by
management to be amortized in the succeeding year are classified as current
assets. Payments of program contract liabilities are typically paid on a
scheduled basis and are not affected by adjustments for amortization or
estimated net realizable value.
8
<PAGE>
2. CONTINGENCIES AND OTHER COMMITMENTS:
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
3. EARNINGS PER SHARE:
In March 1997, the Financial Accounting Standard Board released SFAS 128
"Earnings per Share." The new statement is effective December 15, 1997 and early
adoption is not permitted. When adopted, SFAS 128 will require the restatement
of prior periods and disclosure of basic and diluted earnings per share and
related computations. At the present time, management believes that the adoption
of SFAS 128 will not materially affect the Company's consolidated financial
statements.
4. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF TRUST:
In March 1997, the Company completed a private placement of $200 million
aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred
Securities (the "Trust Preferred Securities") of Sinclair Capital, a subsidiary
trust of the Company. The Trust Preferred Securities were issued March 12, 1997,
mature March 15, 2009, are mandatorily redeemable at maturity, and provide for
quarterly distributions to be paid in arrears beginning June 15, 1997. The Trust
Preferred Securities were sold to "qualified institutional buyers" (as defined
in Rule 144A under the Securities Act of 1933, as amended) and a limited number
of institutional "accredited investors" and the offering was exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to Section #4(2) of the Securities Act and Rule 144A thereunder.
The Company utilized the proceeds of the private placement combined with other
capital contributions to acquire $206.2 million of 12 5/8% Series C Preferred
Stock (the "Parent Preferred Securities") of Sinclair.
Pursuant to a Registration Rights Agreement entered into in connection with the
private placement of the Trust Preferred Securities, Sinclair Capital offered
holders of the Trust Preferred Securities the right to exchange the Trust
Preferred Securities with new Trust Preferred Securities having the same terms
as the existing securities, except that the exchange of the new Trust Preferred
Securities for the existing Trust Preferred Securities has been registered under
the Securities Act. On May 2, 1997, the Company filed a registration statement
on Form S-4 with the Securities and Exchange Commission for the purpose of
registering the new Trust Preferred Securities to be offered in exchange for the
aforementioned existing Trust Preferred Securities issued by the Company in
March 1997 (the "Exchange Offer"). The Company's Exchange Offer was closed and
became effective on August 11, 1997, at which time all of the existing Trust
Preferred Securities were exchanged for new Trust Preferred Securities.
5. PARENT PREFERRED SECURITIES:
In March 1997, the Company utilized the proceeds of the Trust Preferred
Securities combined with other capital contributions to acquire $206.2 million
of 12 5/8% Parent Preferred Securities, issued by Sinclair. The Parent Preferred
Securities were issued March 12, 1997, mature March 15, 2009, are mandatorily
redeemable at maturity, and provide for quarterly distributions to be paid in
arrears beginning June 15, 1997.
Pursuant to a Registration Rights Agreement entered into in connection with the
private placement of the Trust Preferred Securities, Sinclair was obligated to
exchange the existing Parent Preferred Securities (the "Old Parent Preferred")
with New Parent Preferred Securities (the "New Parent Preferred") registered
under the Securities Act. The terms of the New Parent Preferred are identical in
all material respects to those of the Old Parent Preferred. A registration
statement was filed on May 2, 1997 with respect to registering the New Parent
Preferred, and was declared effective on July 14, 1997 and the exchange has been
completed.
9
<PAGE>
6. EXERCISE OF OPTION TO ACQUIRE LICENSE ASSETS:
The FCC has granted approval for transfer of the FCC license of KDSM. The
Company exercised its option to acquire the License Assets (the assets essential
for broadcasting a television signal in compliance with regulatory guidelines)
of KDSM from RCB for an option exercise payment of $1.6 million.
7. COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS):
On May 31, 1996, Sinclair acquired the non-license assets of KDSM-TV, a division
of RCB, through Sinclair's wholly owned subsidiary, KDSM, Inc. The following
schedule details the statement of operations for the nine months ended September
30, 1996 for the Company and the Predecessor and as such, the combined results
are presented in the accompanying consolidated statements of operations.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMBINED
FIVE MONTHS FOUR MONTHS NINE MONTHS
ENDED ENDED ENDED
MAY 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1996
---- ---- ----
REVENUES:
<S> <C> <C> <C>
Station broadcast revenues, net of agency commissions....... $ 3,478 $ 2,407 $ 5,885
Revenues realized from station barter arrangements.......... 85 80 165
------- ------------- -------------
Total revenues....................................... $ 3,563 $ 2,487 $ 6,050
------- ------------- -------------
OPERATING EXPENSES:
Program and production...................................... 510 308 818
Selling, general and administrative......................... 1,321 948 2,269
Expenses realized from station barter arrangements.......... 97 56 153
Amortization of program contract costs and net
realizable value adjustments............................ 507 476 983
Depreciation and amortization of property and equipment..... 233 86 319
Amortization of acquired intangible broadcasting assets
and other assets........................................ 277 311 588
------- ------------- -------------
Total operating expenses............................. 2,945 2,185 5,130
------- ------------- -------------
Broadcast operating income........................... 618 302 920
------- ------------- -------------
OTHER INCOME (EXPENSE):
Dividend Income ............................................ - - -
Subsidiary trust minority interest expense.................. - - -
------- ------------- -------------
Income before allocation of consolidated federal
income taxes and state income taxes............. 618 302 920
ALLOCATION OF CONSOLIDATED FEDERAL INCOME TAXES................. - 143 143
STATE INCOME TAXES.............................................. - 25 25
------- ------------- -------------
NET INCOME ..................................................... $ 618 $ 134 $ 752
======= ============= =============
Net income per common share..................................... $ - $ 1,340 $ 7,520
======= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ..................... - 100 100
======= ============= =============
PRO FORMA NET INCOME AFTER INPUTING AN INCOME
TAX PROVISION:
Net Income, as reported..................................... $ 618
Inputed income tax provision................................ 247
-------
Pro forma net income.................................... $ 371
=======
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited financial statements of KDSM-TV (the "Predecessor") and KDSM, Inc.
(the "Company") and related notes included elsewhere in this quarterly report.
The following discussion and analysis includes the unaudited 1996 financial
information of KDSM-TV for the five months ended May 31, 1996. On May 31 1996,
KDSM, Inc. acquired the non-license assets of KDSM-TV and as a result, a new
accounting basis was established beginning June 1, 1996. For purposes of the
following discussion and analysis with respect to 1996, the results of
operations for the five months ended May 31, 1996 are those of the predecessor
and the results of operations for the four months ended September 30, 1996 and
the three and nine months ended September 30, 1997 are those of the Company.
The matters discussed below include forward-looking statements. Such statements
are subject to a number of risks and uncertainties, such as the impact of
changes in national and regional economies, pricing fluctuations in local and
national advertising, availability of capital and volatility in programming
costs. Additional risk factors regarding the Company are set forth in the
Company's registration statement on Form S-4 filed with the Securities and
Exchange Commission on May 2, 1997.
The following table sets forth certain operating data for three months and the
nine months ended September 30, 1996 and 1997:
OPERATING DATA (dollars in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(COMPANY) (COMPANY) (COMBINED) (COMPANY)
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Net broadcast revenues................................ $ 1,838 $ 1,765 $ 5,885 $ 5,684
Barter revenues....................................... 52 82 165 224
------- ------------- ------------- -------------
Total revenues........................................ 1,890 1,847 6,050 5,908
------- ------------- ------------- -------------
Station operating expenses............................ 1,014 903 3,240 2,897
Depreciation and amortization......................... 684 880 1,890 2,439
------- ------------- ------------- -------------
Broadcast operating income............................ 192 64 920 572
Dividend income....................................... - 6,545 - 14,390
Subsidiary trust minority interest expense............ - (5,845) - (12,852)
------- -------------- ------------- --------------
Net income before income taxes........................ 192 764 920 2,110
Income taxes.......................................... 123 349 168 920
------- ------------- ------------- -------------
Net income............................................ $ 69 $ 415 $ 752 $ 1,190
======= ============= ============= =============
OTHER DATA:
Television broadcast cash flow (BCF) (a).......... $ 1,001 $ 860 $ 2,393 $ 2,253
Television BCF margin (b)......................... 54.5% 48.7% 40.7% 39.6%
Adjusted EBITDA (c)............................... $ 819 $ 734 $ 1,862 $ 1,975
Adjusted EBITDA margin (b)........................ 44.6% 41.6% 31.6% 34.7%
Program contract payments......................... $ 57 $ 210 $ 948 $ 1,036
Corporate management fees......................... $ 182 $ 126 $ 531 $ 278
- ------------------------------------------------- ---------------- ---------------- --------------- -------------
</TABLE>
a) "Broadcast cash flow" is defined as broadcast operating income plus
corporate expenses, depreciation and amortization (including film
amortization), less cash payments for program rights. Cash program payments
represent cash payments made for current programs payable and do not
necessarily correspond to program usage. The Company has presented
broadcast cash flow data, which the Company believes is comparable to the
data provided by other companies in the industry, because such data are
commonly used as a measure of performance for broadcast companies. However,
broadcast cash flow 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 or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
11
<PAGE>
b) "BCF margin" is defined as broadcast cash flow divided by net broadcast
revenues. "Adjusted EBITDA margin" is defined as adjusted EBITDA divided by
net broadcasting revenues.
c) "Adjusted EBITDA" is defined as broadcast cash flow less corporate expenses
and is a commonly used measure of performance for broadcast companies.
Adjusted 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 or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
Total revenues decreased to $1.8 million for the three months ended September
30, 1997 from $1.9 million for the three months ended September 30, 1996, or
5.3%. Excluding the effects of non-cash barter transactions, net broadcast
revenues for the three months ended September 30, 1997 decreased by 3.9% when
compared to the three months ended September 30, 1996. Total revenues decreased
to $5.9 million for the nine months ended September 30, 1997 from $6.1 million
for the combined nine months ended September 30, 1996, or 3.3%. Excluding the
effects of non-cash barter transactions, net broadcast revenues for the nine
months ended September 30, 1997 decreased 3.4% when compared to the combined
nine months ended September 30, 1996. When comparing the three months ended
September 30, 1997 to the three months ended September 30, 1996, revenues from
local advertisers increased approximately $48,000 or 4.3%, and revenues from
national advertisers decreased $131,000 or 18.7%. When comparing the nine months
ended September 30, 1997 to the combined nine months ended September 30, 1996,
revenues from local advertisers increased approximately $194,000 or 5.6% and
revenues from national advertisers decreased approximately $322,000 or 15.1%.
Revenue growth from local advertisers primarily resulted from an increase in
market revenue growth combined with a slight increase in market share. The
decrease in revenue from national advertisers primarily resulted from a decrease
in revenue from children's programming, fast food advertisers, soft drink
advertisers and automobile advertisers.
Station operating expenses excluding depreciation and amortization of intangible
assets decreased to $903,000 for the three months ended September 30, 1997 from
$1.0 million for the three months ended September 30, 1996, or 9.7%. The
decrease in station operating expenses for the three months ended September 30,
1997 as compared to the three months ended September 30, 1996 was primarily
related to a decrease in sales commissions related to national advertising
revenues and a decrease in corporate management fees. Station operating expenses
decreased to $2.9 million for the nine months ended September 30, 1997 from $3.2
million for the combined nine months ended September 30, 1996, or 9.4%. The
decrease in station operating expenses for the nine months ended September 30,
1997 as compared to the combined nine months ended September 30, 1996 was
primarily related to decreases in corporate management fees and sales
commissions related to national advertising revenues.
Broadcast operating income decreased to $64,000 for the three months ended
September 30, 1997 from $192,000 for the three months ended September 30, 1996,
or 66.7%. Broadcast operating income decreased to $ 572,000 for the nine months
ended September 30, 1997 from $920,000 for the combined nine months ended
September 30, 1996, or 37.8%. The decrease in broadcast operating income for the
three months and the nine months ended September 30, 1997 as compared to the
three months and the combined nine months ended September 30, 1996 was primarily
attributable to increases in amortization of intangibles related to the
acquisition and costs related to the private placement of $200 million aggregate
liquidation value 11-5/8% High Yield Trust Offered Preferred Securities (the
"Trust Preferred Securities") of Sinclair Capital, a subsidiary trust of the
Company, completed March 12, 1997, partially offset by the decrease in station
operating expenses as noted above.
Subsidiary trust minority interest expense of $5.8 million for the three months
ended September 30, 1997 and $12.8 million for the nine months ended September
30, 1997 is related to the private placement of the Trust Preferred Securities
Dividend income of $6.5 million for the three months ended September 30, 1997
and $14.4 million for the nine months ended September 30, 1997 is related to the
Company's investment in 12 5/8% Series C Preferred Stock (the "Parent Preferred
Securities") issued by Sinclair Broadcast Group, Inc. (Sinclair), completed
March 12, 1997.
The income tax provision increased to $349,000 for the three months ended
September 30, 1997 from $123,000 for the three months ended September 30, 1996.
The income tax provision increased to $920,000 for the nine months ended
September 30, 1997 from $168,000 for the combined nine months ended September
30, 1996. The increases
12
<PAGE>
for the three months and the nine months ended September 30, 1997 as compared to
the three months and the combined nine months ended September 30, 1996 are
attributable to the Predecessor's difference in structure in which there were no
taxes for the five months ended May 31, 1996. The Predecessor was a partnership
and as such the related tax attributes were deemed to be distributed to, and to
be reportable by the partners of the partnership. The Company's effective tax
rate for the three months and the nine months ended September 30, 1997 was 45.7%
and 43.6%, respectively.
Deferred state taxes increased to $326,000 as of September 30, 1997 from $73,000
as of December 31, 1996. The increase in the Company's deferred tax liability as
of September 30, 1997 as compared to December 31, 1996 is primarily due to
pre-tax income for the nine months ended September 30, 1997. Federal income
taxes are allocated to the Company by Sinclair at the statutory rate, are
considered payable currently and are reflected as an adjustment to Due to Parent
in the Company's balance sheet.
Net income for the three months ended September 30, 1997 was $415,000 compared
to net income of $69,000 for the three months ended September 30, 1996. Net
income for the nine months ended September 30, 1997 was $1.2 million compared to
net income of $752,000 for the combined nine months ended September 30, 1996.
Broadcast cash flow decreased to $860,000 for the three months ended September
30, 1997 from $1.0 million for the three months ended September 30, 1996, or
14.0%. Broadcast cash flow decreased to $2.3 for the nine months ended September
30, 1997 from $2.4 million for the combined nine months ended September 30,
1996, or 4.2%. The decrease in broadcast cash flow for the three months and nine
months ended September 30, 1997 as compared to the three months and combined
nine months ended September 30, 1996 primarily resulted from decreases in
national revenues as noted above combined with increases in program contract
payments.
Adjusted EBITDA decreased to $734,000 for the three months ended September 30,
1997 from $819,000 for the three months ended September 30, 1996, or 10.4%.
Adjusted EBITDA increased to $2.0 million for the nine months ended September
30, 1997 from $1.9 million for the combined nine months ended September 30,
1996, or 5.3%. The decrease in adjusted EBITDA for the three months ended
September 30, 1997 as compared to the three months ended September 30, 1996
resulted from decreases in national revenues as noted above combined with
increases in program contract payments. The increase in adjusted EBITDA for the
nine months ended September 30, 1997 as compared to the combined nine months
ended September 30, 1996 resulted from decreases in operating expenses combined
with decreases in corporate management fees.
The Company's broadcast cash flow margin decreased to 48.7% for the three months
ended September 30, 1997 from 54.5% for the three months ended September 30,
1996. The Company's broadcast cash flow margin decreased to 39.6% for the nine
months ended September 30, 1997 from 40.7% for the combined nine months ended
September 30, 1996. Decreases in broadcast cash flow margins for these periods
resulted primarily from decreases in national revenues as noted above combined
with increases in program contract payments.
The Company's adjusted EBITDA margin decreased to 41.6% for the three months
ended September 30, 1997 from 44.6% for the three months ended September 30,
1996. The decrease in adjusted EBITDA margin for the three months ended
September 30, 1997 as compared to the three months ended September 30, 1996
resulted primarily from the circumstances affecting broadcast cash flow margins
as noted above. The Company's adjusted EBITDA margin increased to 34.7% for the
nine months ended September 30, 1997 from 31.6% for the combined nine months
ended September 30, 1996. The increase in adjusted EBITDA margin for the nine
months ended September 30, 1997 as compared to the combined nine months ended
September 30, 1996 resulted primarily from decreases in operating expenses
combined with decreases in corporate management fees.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash balances of approximately $3,000
and working capital of approximately $822,000. The Company's primary source of
liquidity is cash from operations which management believes to be sufficient to
meet operating cash requirements. Cash requirements or excess cash from
operations are funded by or deposited into Sinclair's centralized banking system
utilized by all of its wholly owned subsidiaries.
13
<PAGE>
In June 1997, the Company acquired its station premises and building from the
owner at a purchase price of approximately $562,000, financing the acquisition
through a capital contribution from its Parent. Except for the purchase of the
station building, the Company does not anticipate capital expenditures in the
coming year to exceed historical capital expenditures, which were approximately
$190,000 in 1996. If the Company is required to make capital expenditures to
keep up with emerging technologies, management believes it will be able to fund
such expenditures from its cash flow and from the proceeds of indebtedness or
financing that is allowed to be incurred or obtained under the Company's Senior
Debenture Indenture (provided that the Company's debt to operating cash flow
ratio is 4 to 1 or less) or from capital contributions from Sinclair to the
extent permitted under Sinclair's debt instruments. Under these instruments,
Sinclair would currently be able to make capital contributions to the Company in
an amount sufficient to cover such costs if it chose to do so.
In March 1997, the Company completed a private placement of the Trust Preferred
Securities, generating net proceeds of $195 million. Simultaneously with the
private placement of the Trust Preferred Securities, the Company utilized the
net proceeds from the offering combined with proceeds from Sinclair capital
contributions to acquire $206.2 million of the Parent Preferred Securities. The
Company has and will receive dividend payments relating to its investment in the
Parent Preferred Securities that are sufficient to meet dividend payments
requirements of the Trust Preferred Securities.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
NONE.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized in the city of Baltimore, Maryland
on the 10th day of November, 1997.
KDSM, INC.
by: /s/ David B. Amy
-----------------
David B. Amy
Chief Financial Officer
Principal Accounting Officer
15
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