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 September 30, 1999
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 : 333-26427-01
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)
10706 BEAVER DAM ROAD
COCKEYSVILLE, MARYLAND 21030
(Address of principal executive offices)
(410) 568-1500
(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)
10706 BEAVER DAM ROAD
COCKEYSVILLE, MARYLAND 21030
(Address of principal executive offices)
(410) 568-1500
(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 [X] No[ ]
As of November 11, 1999, there were 100 shares of Common Stock, $.01 par value
of KDSM, Inc., issued and outstanding and 2,000,000 shares of $200 million
aggregate liquidation value of 115/8% High Yield Trust Offered Preferred
Securities of Sinclair Capital, a subsidiary trust of KDSM, Inc., issued and
outstanding.
THE REGISTRANTS EACH MEET THE CONDITIONS FOR REDUCED DISCLOSURE SET FORTH IN
GENERAL INSTRUCTION H (1)(A) AND (B) OF FORM 10-Q AND ARE THEREFORE FILING THIS
FORM WITH THE REDUCED DISCLOSURE FORMAT.
2
<PAGE>
KDSM, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999....................................................................... 4
Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 30, 1998 and 1999........................................................ 5
Consolidated Statement of Stockholder's Equity for the Nine Months
Ended September 30, 1999................................................................. 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1999........................................................ 7
Notes to Unaudited Consolidated Financial Statements............................................ 8
Item 2. Management's Discussion and Analysis of Results of Operations............................ 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................ 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................... 13
Signature....................................................................................... 14
</TABLE>
<PAGE>
KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ................................................................................... $ 7 $ 18
Accounts receivable, net of allowance for doubtful accounts ............................ 2,107 1,635
Dividends receivable from parent ....................................................... 1,085 1,085
Current portion of program contract costs .............................................. 910 1,301
Prepaid expenses and other current assets .............................................. 25 30
Deferred barter costs .................................................................. 28 17
-------- --------
Total current assets ............................................................ 4,162 4,086
PROPERTY AND EQUIPMENT, net ................................................................ 3,062 2,883
PROGRAM CONTRACT COSTS, less current portion ............................................... 534 1,031
INVESTMENT IN PARENT PREFERRED SECURITIES .................................................. 206,200 206,200
DUE FROM PARENT ............................................................................ 6,652 10,366
OTHER ASSETS ............................................................................... 6,532 6,052
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ............................................... 32,377 31,603
-------- --------
Total Assets .................................................................... $259,519 $262,221
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................................................... $ 17 $ 43
Accrued liabilities .................................................................... 386 327
Current portion of program contracts payable ........................................... 1,920 1,879
Deferred barter revenues ............................................................... 102 33
Subsidiary trust minority interest expense payable ..................................... 969 969
-------- --------
Total current liabilities ....................................................... 3,394 3,251
PROGRAM CONTRACTS PAYABLE .................................................................. 801 1,537
DEFERRED STATE TAXES ....................................................................... 846 1,255
-------- --------
Total liabilities ............................................................... 5,041 6,043
-------- --------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES .......................................... 200,000 200,000
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 1,000 shares authorized
and 100 shares issued and outstanding .............................................. -- --
Additional paid-in capital ............................................................. 51,149 51,149
Retained earnings ...................................................................... 3,329 5,029
-------- --------
Total stockholder's equity ...................................................... 54,478 56,178
-------- --------
Total Liabilities and Stockholder's Equity ...................................... $259,519 $262,221
======== ========
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated statements.
4
<PAGE>
KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ................. $ 1,820 $ 1,944 $ 5,891 $ 6,057
Revenues realized from station barter arrangements .................... 93 54 367 350
-------- -------- -------- --------
Total revenues ................................................... 1,913 1,998 6,258 6,407
-------- -------- -------- --------
OPERATING EXPENSES:
Program and production ................................................ 235 340 815 977
Selling, general and administrative ................................... 667 618 2,008 1,945
Expenses realized from station barter arrangements .................... 52 10 262 221
Amortization of program contract costs and net
realizable value adjustments ........................................ 387 398 1,241 1,003
Depreciation of property and equipment ................................ 96 101 282 298
Amortization of acquired intangible broadcasting assets
and other assets .................................................... 418 418 1,840 1,254
-------- -------- -------- --------
Total operating expenses ......................................... 1,855 1,885 6,448 5,698
-------- -------- -------- --------
Broadcast operating income (loss) ................................ 58 113 (190) 709
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Dividend and interest income .......................................... 6,603 6,790 19,819 20,026
Subsidiary trust minority interest expense ............................ (5,813) (5,813) (17,438) (17,438)
-------- -------- -------- --------
Income before allocation of consolidated federal income
taxes and state income taxes ..................................... 848 1,090 2,191 3,297
ALLOCATION OF CONSOLIDATED FEDERAL INCOME TAXES .......................... 284 273 745 1,188
STATE INCOME TAXES ....................................................... 67 128 173 409
-------- -------- -------- --------
NET INCOME ............................................................... $ 497 $ 689 $ 1,273 $ 1,700
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated statements.
5
<PAGE>
KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 ............. $ -- $ 51,149 $ 3,329 $ 54,478
Net income.......................... -- -- 1,700 1,700
---------- ------------ ------------- -------------
BALANCE, September 30, 1999............. $ -- $ 51,149 $ 5,029 $ 56,178
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this
unaudited consolidated statement.
6
<PAGE>
KDSM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................... $ 1,273 $ 1,700
Adjustments to reconcile net income to net cash flows from operating
activities -
Depreciation of property and equipment ............................................... 282 298
Amortization of acquired intangible broadcasting assets and other
assets ............................................................................ 1,840 1,254
Amortization of program contract costs and net realizable
value adjustments ................................................................. 1,241 1,003
Changes in assets and liabilities
Decrease in accounts receivable, net ................................................. 551 472
(Increase) in prepaid expenses and other current assets .............................. (1) (5)
(Decrease) in accounts payable and
accrued liabilities ............................................................... (139) (33)
Increase in state deferred taxes ..................................................... 173 409
Net effect of change in deferred barter revenues
and deferred barter costs ......................................................... (12) (58)
Payments on program contracts payable .................................................... (1,142) (1,196)
-------- --------
Net cash flows from operating activities ................................................. 4,066 3,844
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment .................................................... (180) (119)
-------- --------
Net cash flows used in investing activities .............................................. (180) (119)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in due from parent ............................................................ (3,883) (3,714)
-------- --------
Net cash flows used in financing activities .......................................... (3,883) (3,714)
-------- --------
NET INCREASE IN CASH ....................................................................... 3 11
CASH, beginning of period .................................................................. 11 7
-------- --------
CASH, end of period ........................................................................ $ 14 $ 18
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Parent preferred stock dividend payments ................................................. $ 19,525 $ 19,525
======== ========
Subsidiary trust minority interest payments .............................................. $ 17,438 $ 17,438
======== ========
</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. KDSM, Inc. is a wholly owned subsidiary of Sinclair
Broadcast Group, Inc. (the "Parent" or "Sinclair"). In addition, KDSM, Inc. 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,
1999 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, 1998 and for the year 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.
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, 1998
consolidated balance sheet and related statements of operations and cash flows
for the year ended December 31, 1998 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to conform with the current period presentation.
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. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF TRUST:
In March 1997, the Company completed an offering of $200 million aggregate
liquidation value of 115/8% High Yield Trust Offered Preferred Securities (the
"HYTOPS") of Sinclair Capital, a subsidiary trust of the Company. The HYTOPS
were issued March 12, 1997, mature March 15, 2009, are mandatorily redeemable at
maturity, and provide for quarterly distributions to be paid in arrears that
began June 15, 1997. The Company utilized the proceeds of the offering combined
with other capital contributions to acquire $206.2 million of 125/8% Series C
Preferred Stock (the "Parent Preferred Securities") of Sinclair.
4. PARENT PREFERRED SECURITIES:
In March 1997, the Company utilized the proceeds of the HYTOPS combined with
other capital contributions to acquire $206.2 million of 125/8% 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 that began June
15, 1997.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited financial statements of KDSM, Inc. and related notes included
elsewhere in this Quarterly report and the audited financial statements and
Management's Discussion and Analysis contained in the Company's Form 10-K/A, for
the fiscal year ended December 31, 1998.
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 the three months and
nine months ended September 30, 1998 and 1999:
OPERATING DATA (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net broadcast revenues (a) ..................................... $ 1,820 $ 1,944 $ 5,891 $ 6,057
Barter revenues ................................................ 93 54 367 350
-------- -------- -------- --------
Total revenues ................................................. 1,913 1,998 6,258 6,407
-------- -------- -------- --------
Operating Costs (b) ............................................ 902 958 2,823 2,922
Expenses from barter arrangements .............................. 52 10 262 221
Depreciation and amortization (c) .............................. 901 917 3,363 2,555
-------- -------- -------- --------
Broadcast operating income (loss) .............................. 58 113 (190) 709
Dividend and interest income (d) ............................... 6,603 6,790 19,819 20,026
Subsidiary trust minority interest expense (e) ................. (5,813) (5,813) (17,438) (17,438)
-------- -------- -------- --------
Income before income taxes ..................................... 848 1,090 2,191 3,297
Income taxes ................................................... (351) (401) (918) (1,597)
-------- -------- -------- --------
Net income ..................................................... $ 497 $ 689 $ 1,273 $ 1,700
======== ======== ======== ========
OTHER DATA:
Broadcast cash flow (BCF) (f) .............................. $ 879 $ 859 $ 2,318 $ 2,274
BCF margin (g) ............................................. 48.3% 42.4% 39.3% 37.5%
Adjusted EBITDA (h) ........................................ $ 730 $ 793 $ 2,049 $ 2,082
Adjusted EBITDA margin (g) ................................. 40.1% 40.8% 34.8% 34.4%
Program contract payments .................................. $ 234 $ 243 $ 1,142 $ 1,196
Corporate management fees .................................. 149 66 269 192
</TABLE>
a) "Net broadcast revenue" is defined as broadcast revenue net of agency
commissions.
b) "Operating costs" include program and production expenses, selling, general
and administrative expenses and stock-based compensation.
c) Depreciation and amortization includes amortization of program contract
costs and net realizable value adjustments, depreciation and amortization
of property and equipment, and amortization of acquired intangible
broadcasting assets and other assets including amortization of deferred
financing costs.
d) Dividend and interest income primarily results from dividends on the Parent
Preferred Securities.
e) Subsidiary trust minority interest expense represents distributions on the
HYTOPS.
f) "Broadcast cash flow" is defined as broadcast operating income plus
corporate management fees, depreciation and amortization (including film
amortization), and stock-based compensation, 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
are comparable to the data provided by other companies in the industry,
because such data are commonly used as a measure of
9
<PAGE>
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.
g) "Broadcast cash flow margin" is defined as broadcast cash flow divided by
net broadcast revenues. "Adjusted EBITDA margin" is defined as Adjusted
EBITDA divided by net broadcast revenues.
h) "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.
Net broadcast revenues increased to $6.1 million for the nine months ended
September 30, 1999 from the $5.9 million for the nine months ended September 30,
1998, or 3.4%. The increase in net broadcast revenues for the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998 was
primarily due to an increase in local revenues of approximately $254,000, or
6.5% offset by a decrease in national revenues of approximately $42,000, or 2.5%
and a decrease in other revenues of approximately $46,000, or 14.8%.
Operating costs increased to $2.9 million for the nine months ended September
30, 1999 from $2.8 million for the nine months ended September 30, 1998, or
3.6%. The increase in operating expenses for the nine months ended September 30,
1999 as compared to the nine months ended September 30, 1998 was primarily
related to an increase in promotion and programming costs.
Depreciation and amortization decreased to $2.6 million for the nine months
ended September 30, 1999 from $3.4 million for the nine months ended September
30, 1998, or 23.5%. The decrease in depreciation and amortization for the nine
months ended September 30, 1999 as compared to the nine months ended September
30, 1998 was primarily due to the write-off of deferred financing costs in May
1998.
Broadcast operating income for the nine months ended September 30, 1999
increased to $709,000 from a loss of $190,000 for the nine months ended
September 30, 1998, or 473.2%. The increase in broadcast operating income for
the nine months ended September 30, 1999 was primarily attributable to the
decrease in depreciation and amortization as noted above.
Income taxes increased to $401,000 for the three months ended September 30, 1999
from $351,000 for the three months ended September 30, 1998. Income taxes
increased to $1.6 million for the nine months ended September 30, 1999 from
$918,000 for the nine months ended September 30, 1998. The increase in the
income taxes for the three and nine months ended September 30, 1999 as compared
to the three and nine months ended September 30, 1998 is attributable to
deferred tax liabilities associated with the HYTOPS. The Company's effective tax
rate for the nine months ended September 30, 1999 and September 30, 1998 was
48.4% and 41.9%, respectively. The increase in the Company's effective tax rate
primarily resulted from the deferred tax liability associated with the HYTOPS.
Net income increased to $1.7 million for the nine months ended September 30,
1999 from $1.3 million for the nine months ended September 30, 1998. The
increase in net income for the nine months ended September 30, 1999 as compared
to the nine months ended September 30, 1998 primarily resulted from a decrease
in depreciation and amortization as noted above.
Broadcast cash flow for the nine months ended September 30, 1999 remained
consistent compared to the nine months ended September 30, 1998.
The Company's broadcast cash flow margin decreased to 37.5% for the nine months
ended September 30, 1999 from 39.3% for the nine months ended September 30,
1998. The decrease in broadcast cash flow margin for the nine months ended
September 30, 1999 as compared to the nine months ended September 30, 1998
resulted primarily from increases in program contract payments resulting from
the addition of syndicated program contracts during the third and fourth
quarters of 1998. Adjusted EBITDA for the nine months ended September 30, 1999
remained consistent compared to the nine months ended September 30, 1998.
10
<PAGE>
The Company's adjusted EBITDA margin decreased to 34.4% for the nine months
ended September 30, 1999 from 34.8% for the nine months ended September 30,
1998. The decrease in adjusted EBITDA margin for the nine months ended September
30, 1999 as compared to the nine months ended September 30, 1998 resulted
primarily from increases in program contract payments resulting from the
addition of syndicated program contracts during the third and fourth quarters of
1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had cash balances of approximately $18,000
and working capital of approximately $835,000. 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.
The Company does not anticipate capital expenditures in the coming year to
exceed historical capital expenditures, which were approximately $235,000 in
1998. 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 Adjusted EBITDA 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 the Company believes is sufficient to cover such costs if it chose to do
so.
11
<PAGE>
YEAR 2000
The Company has commenced a process to assure Year 2000 compliance of all
hardware, software, broadcast equipment and ancillary equipment that are date
dependent. The process involves four phases:
Phase I - Inventory and Data Collection. This phase involves an identification
of all items that are date dependent. Sinclair commenced this phase in the third
quarter of 1998, and Management estimates it has completed approximately 90% of
this phase as of the date hereof. The Company expects to complete this phase
during of the fourth quarter of 1999.
Phase II - Compliance Requests. This phase involves requests to information
technology systems vendors for verification that the systems identified in Phase
I are Year 2000 compliant. Sinclair has identified and begun to replace items
that cannot be updated or certified as compliant. Sinclair has completed the
compliance request phase of its plan as of the date hereof. In addition,
Sinclair has verified that its accounting, traffic, payroll, and local and wide
area network hardware and software systems are compliant. In addition, Sinclair
has completed the process of ascertaining that all of its personal computers and
PC applications are compliant. Sinclair is currently reviewing its news-room
systems, building control systems, security systems and other miscellaneous
systems. The Company expects to complete this phase during of the fourth quarter
of 1999.
Phase III - Test, Fix and Verify. This phase involves testing all items that are
date dependent and upgrading all non-compliant devices. Sinclair expects to
complete aspects of this phase during the fourth quarter of 1999.
Phase IV - Final Testing, New Item Compliance. This phase involves review of all
inventories for compliance and retesting as necessary. During this phase, all
new equipment will be tested for compliance. Sinclair expects to complete this
phase during the fourth quarter of 1999.
The Company has developed a contingency/emergency plan to address Year 2000
worst case scenarios. The contingency plan includes, but is not limited to,
addressing (i) regional power facilities, (ii) interruption of satellite
delivered programming, (iii) replacement or repair of equipment not discovered
or fixed during the year 2000 compliance process and (iv) local security
measures that may become necessary relating to the Company's properties. The
contingency plan involves obtaining alternative sources if existing sources of
these goods and services are not available. Although the contingency plan is
designed to reduce the impact of disruptions from these sources, there is no
assurance that the plan will avoid material disruptions in the event one or more
of these events occurs.
To date, Sinclair believes that its major systems are Year 2000 compliant. This
substantial compliance has been achieved without the need to acquire new
hardware, software or systems other than in the ordinary course of replacing
such systems. Sinclair is not aware of any non-compliance that would be material
to repair or replace or that would have a material effect on Sinclair's business
if compliance were not achieved. Sinclair does not believe that non-compliance
in any systems that have not yet been reviewed would result in material costs or
disruption. Neither is Sinclair aware of any non-compliance by its customers or
suppliers that would have a material impact on Sinclair's business.
Nevertheless, there can be no assurance that unanticipated non-compliance will
not occur, and such non-compliance could require material costs to repair or
could cause material disruptions if not repaired.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NOT APPLICABLE
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
NONE.
13
<PAGE>
SIGNATURE
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 12th day of November, 1999.
KDSM, INC.
by: /s/ Thomas E. Severson
------------------------------
Thomas E. Severson
Chief Accounting Officer
Principal Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001039583
<NAME> KDSM, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 1,655
<ALLOWANCES> 20
<INVENTORY> 0
<CURRENT-ASSETS> 4,086
<PP&E> 4,105
<DEPRECIATION> 1,222
<TOTAL-ASSETS> 262,221
<CURRENT-LIABILITIES> 3,251
<BONDS> 0
200,000
0
<COMMON> 0
<OTHER-SE> 56,178
<TOTAL-LIABILITY-AND-EQUITY> 262,221
<SALES> 0
<TOTAL-REVENUES> 6,407
<CGS> 0
<TOTAL-COSTS> 5,698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,297
<INCOME-TAX> 1,597
<INCOME-CONTINUING> 1,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,700
<EPS-BASIC> 17,000<F1>
<EPS-DILUTED> 17,000<F1>
<FN>
<F1> This information has been prepared in accordance with SFAS No.128,
Earnings Per Share. The basic and diluted EPS calculations have been
entered in place of primary and diluted, respectively.
</FN>
</TABLE>
