UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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)
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 August 11, 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 Securities of Sinclair
Capital, a subsidiary trust of KDSM, Inc. issued and outstanding.
1
<PAGE>
KDSM, INC. AND SUBSIDIARIES AND
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (the "PREDECESSOR"),
Form 10-Q
For the Quarter Ended June 30, 1997
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and
June 30, 1997......................................... 3
Consolidated Statements of Operations for the Three
Months and Six Months Ended June 30, 1996 and 1997.... 4
Consolidated Statements of Stockholder's Equity
for the Six Months Ended June 30, 1997................ 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1997.......................... 6
Notes to Unaudited Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 15
Signature............................................... 16
2
<PAGE>
<TABLE>
<CAPTION>
KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, June 30,
1996 1997
--------------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash........................................................... $ 3 $ 6
Accounts receivable, net of allowance for doubtful accounts....
2,052 1,519
Dividends
receivable...................................................... - 7,845
Current portion of program contract costs...................... 860 424
Prepaid expenses and other current assets...................... 86 20
Deferred barter costs.......................................... 50 67
------- --------
Total current assets................................. 3,051 9,881
PROPERTY AND EQUIPMENT, net..................................... 2,803 3,359
PROGRAM CONTRACT COSTS, less current portion.................... 794 552
INVESTMENT IN PARENT PREFERRED
SECURITIES...................................................... - 206,200
DUE FROM PARENT ................................................ 496 797
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net.................... 33,530 41,050
------- --------
Total Assets......................................... $40,674 $261,839
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable............................................... $ 292 $ 8
Accrued liabilities............................................ 410 372
Current portion of program contracts payable................... 1,384 899
Deferred barter revenues....................................... 120 146
Subsidiary trust minority interest expense payable............. - 7,007
------- --------
Total current liabilities............................ 2,206 8,432
PROGRAM CONTRACTS PAYABLE....................................... 879 543
DEFERRED STATE TAXES............................................ 73 235
Total liabilities.................................... 3,158 9,210
------- --------
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 1,480
------- --------
Total stockholder's equity.......................... 37,516 52,629
------- --------
Total Liabilities and Stockholder's Equity.......... $40,674 $261,839
======= ========
The accompanying notes are an integral part of these unaudited consolidated
statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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)
Combined (See Note 7) Company Combined (See Note 7) Company
Three Months Ended Three Months Six Months Ended Six Months
Ended Ended
June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions... $2,035 $1,784 $4,047 $3,919
Revenues realized from station barter arrangements........ 80 64 113 142
------ ------ ------ ------
Total revenues....................................... 2,115 1,848 4,160 4,061
------- ------- ------ ------
OPERATING EXPENSES:
Program and production.................................... 250 292 574 668
Selling, general and administrative....................... 954 502 1,537 1,240
Expenses realized from station barter arrangements........ 52 43 115 86
Amortization of program contract costs and net
realizable value adjustments.......................... 196 318 569 712
Depreciation and amortization of property and equipment... 114 85 254 170
Amortization of acquired intangible broadcasting assets
and other assets......................................... 167 423 383 677
------- ------ ------ ------
Total operating expenses............................. 1,733 1,663 3,432 3,553
------- ------ ------ ------
Broadcast operating income........................... 382 185 728 508
------- ------ ------ ------
OTHER INCOME (EXPENSE):
Dividend income........................................... - 6,490 - 7,845
Subsidiary trust minority interest expense................ - (5,797) - (7,007)
------- ------- ------ ------
Income before allocation of consolidated federal income 382 878 728 1,346
taxes and state income taxes............................
ALLOCATION OF CONSOLIDATED FEDERAL INCOME TAXES............ 38 267 38 409
STATE INCOME TAXES......................................... 7 106 7 162
------- ------ ------- ------
NET INCOME ................................................ $ 337 $ 505 $ 683 $ 775
======= ====== ======= ======
Net income per common share................................. $ 3,370 $5,050 $6,830 $7,750
======= ====== ====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ................. 100 100 100 100
======= ======== ====== ======
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
4
<PAGE>
KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED JUNE 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.......................... - - 775 775
------ ------- ------ ------
BALANCE, June 30, 1997.................. $ - $51,149 $1,480 $52,629
====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
5
<PAGE>
<TABLE>
<CAPTION>
KDSM, INC. AND SUBSIDIARIES AND
KDSM-TV, A DIVISION OF RIVER CITY BROADCASTING, L.P. (the "PREDECESSOR"),
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Predecessor Company Company
Five Months Ended One Month Ended Six Months Ended
May 31, 1996 June 30, 1996 June 30, 1997
-------------- ------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $618 $ 65 $ 775
Adjustments to reconcile net loss to net cash flows
from operating activities-
Depreciation and amortization of property and equipment.............. 233 21 170
Amortization of acquired intangible broadcasting assets and other
assets............................................................. 277 106 677
Amortization of program contract costs and net realizable
value adjustments.................................................. 507 62 712
Changes in assets and liabilities, net of effects of acquisitions
and dispositions-
Decrease (increase) in accounts receivable, net...................... 21 (545) 533
Increase in dividends receivable..................................... - - (7,845)
(Increase) decrease in prepaid expenses and other current assets..... 82 (1) 66
Increase (decrease) in accounts payable and
accrued liabilities................................................ 79 593 (322)
Increase in state deferred taxes..................................... - 7 162
Net effect of change in deferred barter revenues
and deferred barter costs.......................................... 61 (4) 9
Increase in distribution payable to outside investors of the - - 7,007
Trust
Payments on program contracts payable.................................. (891) - (826)
---- ---- -------
Net cash flows from operating activities............................... 987 304 1,118
---- ---- --------
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) - (164)
---- ---- --------
Net cash flows used in investing activities............................ (29) - (207,940)
---- ---- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in due from parent.......................................... (773) (304) (301)
Contributions of capital............................................... - - 13,776
Payments of costs related to preferred securities offering............. - - (1,650)
Prepayment of excess syndicated program contract liabilities........... (216) - -
Proceeds from preferred securities offering, net of $5,000
underwriters' discount............................................... - - 195,000
--- ----- ---------
Net cash flows used in/from financing activities....................... (989) (304) 206,825
---- ----- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... (31) - 3
CASH AND CASH EQUIVALENTS, beginning of period.......................... 62 - 3
----- ----- ---------
CASH AND CASH EQUIVALENTS, end of period................................ $ 31 $ - $ 6
==== ===== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Contribution of capital - building..................................... $ 31 $ - $ 562
==== ===== =========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
6
<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 (RCB), a limited partnership 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 all of 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 Sinclair Capital. All
intercompany amounts are eliminated in consolidation.
Interim Financial Statements
The consolidated financial statements for the six months ended June 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 consolidated financial
statements as of December 31, 1995, and for the year then ended, and the
December 31, 1996 consolidated balance sheet and related statements of
operations and cash flows for the 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.
7
<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, will be 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". 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 is
obligated to offer to 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
will be registered under the Securities Act of 1933, as amended and the new
Trust Preferred Securities will not contain provisions for additional
distributions if the exchange offer does not occur as required. The Company was
required to file the registration statement prior to May 11, 1997 and was
required to complete the exchange offer prior to August 9, 1997 in order to
avoid being subject to increased distributions on the securities issued in the
private placement.
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 $200 million
aggregate liquidation value of 11-5/8% Trust Preferred Securities and the $206.2
million aggregate liquidation value of 12-5/8% New Parent Preferred Securities
to be offered in exchange for the aforementioned existing Trust Preferred
Securities and Parent Preferred Securities issued by the Company in March 1997.
On July 14, 1997, the Securities and Exchange Commission declared the Company's
exchange offer on Form S-4 effective. The exchange offer and withdrawal rights
expired on August 11, 1997.
8
<PAGE>
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, will be
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 is 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 of 1933. The New Parent Preferred will have terms which
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.
6. EXERCISE OF OPTION TO ACQUIRE LICENSE ASSETS:
---------------------------------------------
In April 1997, the Company received FCC approval for the transfer of the FCC
license of KDSM. The Company exercised its option to acquire the license assets
of KDSM for the exercise price of $1,576,000.
9
<PAGE>
7. COMBINED STATEMENTS OF OPERATIONS (in thousands):
-------------------------------------------------
On May 31, 1996, Sinclair acquired the non-license assets of KDSM-TV, a Division
of River City Broadcasting, L.P., through Sinclair's wholly owned subsidiary,
KDSM, Inc. The following schedule details the statement of operations for the
three months and six months ended June 30, 1996 for the Company and the
Predecessor and as such, the combined results are presented in the accompanying
statements of operations.
<TABLE>
<CAPTION>
Predecessor Company Combined
Two Months Ended One Month Ended Three Months Ended
May 31, 1996 June 30, 1996 June 30, 1996
---------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions...... $1,466 $569 $2,035
Revenues realized from station barter arrangements......... 52 28 80
------ ---- ------
Total revenues..................................... $1,518 597 $2,115
------ ---- ------
OPERATING EXPENSES:
Program and production..................................... 186 64 250
Selling, general and administrative........................ 738 216 954
Expenses realized from station barter arrangements......... 34 18 52
Amortization of program contract costs and net
realizable value adjustments........................... 134 62 196
Depreciation and amortization of property and equipment.... 93 21 114
Amortization of acquired intangible broadcasting assets
and other assets....................................... 61 106 167
------ ---- ------
Total operating expenses........................... 1,246 487 1,733
------ ---- ------
Broadcast operating income......................... 272 110 382
------ ---- ------
OTHER INCOME (EXPENSE):
Dividend Income............................................ - - -
Trust distributions........................................ - - -
Income before allocation of consolidated federal income
taxes and state income taxes.............................. 272 110 382
ALLOCATION OF CONSOLIDATED FEDERAL INCOME TAXES............. - 38 38
STATE INCOME TAXES.......................................... - 7 7
------ ---- -----
NET INCOME ................................................. $ 272 $ 65 $ 337
====== ===== ======
Net income per common share................................. - $650 $3,370
====== ==== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ................. - 100 100
====== ==== ======
PRO FORMA NET INCOME AFTER INPUTING AN INCOME
TAX PROVISION:
Net Income, as reported.................................... $ 272
Inputed income tax provision............................... 109
------
Pro forma net income..................................... $ 163
======
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Predecessor Company Combined
Five Months Ended One Month Ended Six Months Ended
May 31, 1996 June 30, 1996 June 30, 1996
----------------- --------------- ----------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions..... $3,478 $569 $4,047
Revenues realized from station barter arrangements........ 85 28 113
------ ---- ------
Total revenues..................................... $3,563 $597 $4,160
------ ---- ------
OPERATING EXPENSES:
Program and production.................................... 510 64 574
Selling, general and administrative....................... 1,321 216 1,537
Expenses realized from station barter arrangements........ 97 18 115
Amortization of program contract costs and net
realizable value adjustments............................ 507 62 569
Depreciation and amortization of property and equipment... 233 21 254
Amortization of acquired intangible broadcasting assets
and other assets........................................ 277 106 383
------ ---- ------
Total operating expenses........................... 2,945 487 3,432
------ ---- ------
Broadcast operating income......................... 618 110 728
------ ---- ------
OTHER INCOME (EXPENSE):
Dividend Income........................................... - - -
Trust distributions....................................... - - -
Income before allocation of consolidated federal income
taxes and state income taxes............................. 618 110 728
ALLOCATION OF CONSOLIDATED FEDERAL INCOME TAXES............ - 38 38
STATE INCOME TAXES......................................... - 7 7
------ ---- ------
NET INCOME ................................................ $ 618 $ 65 $ 683
====== ==== ======
Net income per common share................................ $ - $650 $6,830
====== ==== ======
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>
11
<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 two months and 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 two months and five months ended May 31, 1996 are
those of the predecessor and the results of operations for the one month ended
June 30, 1996 and the three months and six months ended June 30, 1997 are those
of the Company.
The following table sets forth certain operating data for three months and the
six months ended June 30, 1996 and 1997:
<TABLE>
<CAPTION>
OPERATING DATA (dollars in thousands):
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(Combined) (Company) (Combined) (Company)
1996 1997 1996 1997
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net broadcast revenues............................. $2,035 $1,784 $4,047 $3,919
Barter revenues ................................... 80 64 113 142
------ ------ ------ ------
Total revenues .................................... 2,115 1,848 4,160 4,061
------ ------ ------ ------
Station operating expenses ........................ 1,256 837 2,226 1,994
Depreciation and amortization ..................... 477 826 1,206 1,559
----- ------ ------ ------
Broadcast operating income ........................ 382 185 728 508
Dividend income ................................... - 6,490 - 7,845
Subsidiary trust minority interest expense ........ - (5,797) - (7,007)
----- ------ ------ ------
Net income before income taxes .................... 382 878 728 1,346
Income taxes ...................................... 45 373 45 571
----- ------ ------ ------
Net income......................................... 337 $ 505 $683 $775
===== ====== ====== ======
OTHER DATA:
Television broadcast cash flow (BCF) (a)........... 739 $ 762 $1,392 $1,393
Television BCF margin (b) ......................... 36.3% 42.7% 34.4% 35.6%
Adjusted EBITDA (c)................................ 453 $ 699 $1,043 $1,241
Adjusted EBITDA margin (b) ........................ 22.2% 39.2% 25.8% 31.7%
Program contract payments.......................... 406 $ 312 $ 891 $826
Corporate management fees.......................... 286 $ 63 $ 349 $152
- -----------------------------------------------------------------------------------------------------------------
</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.
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.
12
<PAGE>
c) "Adjusted EBITDA" is defined as broadcast cash flow less corporate expenses
and is a commonly used measure of performance for broadcast companies.
Adjusted EBDITA 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 from $2.12 million for the three months ended June 30,
1996 to $1.85 million for the three months ended June 30, 1997, or 12.7%.
Excluding the effects of non-cash barter transactions, net broadcast revenues
for the three months ended June 30, 1997 decreased by 12.3% when compared to the
three months ended June 30, 1996. Total revenues decreased from $4.16 million
for the six months ended June 30, 1996 to $4.06 million for the six months ended
June 30, 1997, or 2.4%. Excluding the effects of non-cash barter transactions,
net broadcast revenues for the six months ended June 30, 1997 decreased 3.2%
when compared to the six months ended June 30, 1996. When comparing the three
months ended June 30, 1997 to the three months ended June 30, 1996, revenues
from local advertisers increased approximately $40,000, or 3.4%, and revenues
from national advertisers decreased $133,000, or 19.1%. When comparing the six
months ended June 30, 1997 to the six months ended June 30, 1996, revenues from
local advertisers increased approximately $146,000 or 6.3% and revenues from
national advertisers decreased approximately $191,000 or 13.3%. 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, restaurant advertisers and automobile advertisers.
Station operating expenses excluding depreciation and amortization of intangible
assets decreased to $837,000 for the three months ended June 30, 1997 from $1.26
million for the three months ended June 30, 1996, or 33.6%. The decrease in
station operating expenses for the three months ended June 30, 1997 as compared
to the three months ended June 30, 1996 was primarily related to the timing of
the Family Fair event (held in second quarter 1996 and first quarter 1997), a
decrease in sales commissions related to national advertising revenues, and a
decrease in corporate management fees. Station operating expenses decreased to
$1.99 million for the six months ended June 30, 1997 from $2.23 million for the
six months ended June 30, 1996, or 10.8%. The decrease in station operating
expenses for the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996 was primarily related to decreases in corporate management
fees and sales commissions related to national advertising revenues.
Broadcast operating income decreased to $185,000 for the three months ended June
30, 1997 from $382,000 for the three months ended June 30, 1996, or 51.6%.
Broadcast operating income decreased to $508,000 for the six months ended June
30, 1997 from $728,000 for the six months ended June 30, 1996, or 30.2%. The
decrease in broadcast operating income for the three months and the six months
ended June 30, 1997 as compared to the three months and the six months ended
June 30, 1996 was primarily attributable to increases in intangible amortization
for goodwill and debt acquisition costs related to the acquisition 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 June 30, 1997 and $7.0 million for the six months ended June 30, 1997 is
related to the private placement of $200 million aggregate liquidation value
11-5/8% High Yield Trust Offered Preferred Securities completed March 12, 1997.
Subsidiary Trust minority interest expense for the three months ended June 30,
1997 are higher because such distributions accrued for the entire quarter as
opposed to the partial quarter in the three months ended March 31, 1997.
Dividend income of $6.49 million for the three months ended June 30, 1997 and
$7.84 million for the six months ended June 30, 1997 is related to the Company's
investment in 12 5/8% Series C Preferred Stock issued by Sinclair Broadcast
Group, Inc. (Sinclair), completed March 12, 1997. Dividend income in the three
months ended June 30, 1997 are higher because such income accrued for the entire
quarter as opposed to the partial quarter in the three months ended March 31,
1997.
The income tax provision increased from $45,000 for the three months ended June
30, 1996 to $373,000 for the three months ended June 30, 1997. The income tax
provision increased from $45,000 for the six months ended June 30, 1996 to
$571,000 for the six months ended June 30, 1997. The increases for the three
months and the six months
13
<PAGE>
ended June 30, 1997 as compared to the three months and the six months ended
June 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 six months ended
June 30, 1997 was 42%.
Deferred State Taxes increased to $235,000 as of June 30, 1997 from $73,000 as
of December 31, 1996. The increase in the Company's deferred tax liability as of
June 30, 1997 as compared to December 31, 1996 is primarily due to pre-tax
income for the six months ended June 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 June 30, 1997 was $505,000 compared to net
income of $337,000 for the three months ended June 30, 1996. Net income for the
six months ended June 30, 1997 was $775,000 compared to net income of $683,000
for the six months ended June 30, 1996.
Broadcast cash flow increased to $762,000 for the three months ended June 30,
1997 from $739,000 for the three months ended June 30, 1996, or 3.11%. Broadcast
cash flow was $1.39 million for the six months ended June 30, 1996 and 1997. The
Company's broadcast cash flow margin increased to 42.7% for the three months
ended June 30, 1997 from 36.3% for the three months ended June 30, 1996. The
Company's broadcast cash flow margin increased to 35.6% for the six months ended
June 30, 1997 from 34.4% for the six months ended June 30, 1996. The increase in
broadcast cash flow margin for the three months and six months ended June 30,
1997 as compared to the three months and six months ended June 30, 1996
primarily resulted from decreases in operating expenses as noted above combined
with decreases in corporate management fees.
Adjusted EBITDA increased to $699,000 for the three months ended June 30, 1997
from $453,000 for the three months ended June 30, 1996, or 54.3%. Adjusted
EBITDA increased to $1.24 million for the six months ended June 30, 1997 from
$1.04 million for the six months ended June 30, 1996, or 19.2%. The Company's
adjusted EBITDA margin increased to 39.2% for the three months ended June 30,
1997 from 22.2% for the three months ended June 30, 1996. The Company's adjusted
EBITDA margin increased to 31.7% for the six months ended June 30, 1997 from
25.8% for the six months ended June 30, 1996. The increase in adjusted EBITDA
and adjusted EBITDA margin for the three months ended and the six months ended
June 30, 1997 as compared to the three months and the six months ended June 30,
1996 resulted from decreases in operating expenses combined with decreases in
corporate management fees.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash balances of approximately $6,000 and
working capital of approximately $1.45 million. 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.
In June 1997, the Company acquired its station premises and building from the
owner at a purchase price of approximately $560,000, financing the acquisition
through a capital contribution from its Parent. Except for 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 (as long as 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
14
<PAGE>
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 $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, 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 12 5/8% Series C Preferred
Stock issued by Sinclair (the "Parent Preferred"). The Company will receive
dividend payments relating to its investment in the Parent Preferred Securities
that will be sufficient to meet dividend payments required relating to the Trust
Preferred Securities.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4.0 * Indenture, dated as of March 12, 1997 among KDSM, Inc.,
Sinclair Broadcast Group, Inc. and First Union National
Bank of Maryland.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None.
- ----------
* Previously filed
(1) Incorporated by reference from the Company's Registration Statement on Form
S-4, No. 333-26427.
<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.
SINCLAIR BROADCAST GROUP, INC.
by: /s/ David B. Amy
-----------------------------
David B. Amy
Chief Financial Officer
Principal Accounting Officer
16
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