UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(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, 1998
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)
---------------------------
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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 16, 1998, 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 11 5/8% 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.
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Item 2 of the Company's Form 10-Q for the quarter ended September 30, 1998 is
hereby amended by deleting it in its entirety and replacing it with the
following:
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, 1997.
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, 1997 and 1998:
OPERATING DATA (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net broadcast revenues (a)................................... $ 1,765 $ 1,820 $ 5,684 $ 5,891
Barter revenues............................................... 82 93 224 367
------- --------- --------- --------
Total revenues................................................ 1,847 1,913 5,908 6,258
------- --------- --------- --------
Operating Costs (b)........................................... 843 902 2,751 2,823
Expenses from barter arrangements............................. 60 52 146 262
Depreciation and amortization (c)............................. 880 901 2,439 3,363
------- --------- --------- --------
Broadcast operating income (loss)............................. 64 58 572 (190)
Dividend and interest income (d).............................. 6,513 6,603 14,390 19,819
Subsidiary trust minority interest expense (e)................ (5,813) (5,813) (12,852) (17,438)
-------- ---------- ---------- ---------
Net income before income taxes................................ 764 848 2,110 2,191
Income taxes.................................................. (349) (351) (920) (918)
-------- ---------- ---------- ---------
Net income................................................... $ 415 $ 497 $ 1,190 $ 1,273
======== ========= ========= ========
OTHER DATA:
Broadcast cash flow (BCF) (f)............................ $ 860 $ 879 $ 2,253 $ 2,318
BCF margin (g) 48.7% 48.3% 39.6% 39.3%
Adjusted EBITDA (h)...................................... $ 734 $ 730 $ 1,975 $ 2,049
Adjusted EBITDA margin (g)................................ 41.6% 40.1% 34.7% 34.8%
Program contract payments................................ $ 210 $ 234 $ 1,036 $ 1,142
Corporate management fees................................. 126 149 278 269
Capital expenditures...................................... 16 91 180 180
Cash flows from operating activities...................... 1,909 1,070 3,027 4,066
Cash flows from investing activities...................... (16) (91) (207,956) (180)
Cash flows from financing activities...................... (1,896) (969) 204,929 (3,883)
</TABLE>
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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 and costs related to excess syndicated programming.
d) Dividend and interest income primarily results from dividends on the Parent
Preferred Securities.
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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), 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 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. Management believes the presentation of broadcast cash flow
(BCF) is relevant and useful because 1) BCF is a measurement utilized by
lenders to measure the Company's ability to service its debt, 2) BCF is a
measurement utilized by industry analysts to determine a private market
value of the Company's television and radio stations and 3) BCF is a
measurement industry analysts utilize when determining the operating
performance of the Company. The Company's measurement of BCF may not be
comparable to similarly titled measures reported by other companies within
the broadcast industry.
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. Management believes the
presentation of Adjusted EBITDA is relevant and useful because 1) Adjusted
EBITDA is a measurement utilized by lenders to measure the Company's
ability to service its debt, 2) Adjusted EBITDA is a measurement utilized
by industry analysts to determine a private market value of the Company's
television and radio stations and 3) Adjusted EBITDA is a measurement
industry analysts utilize when determining the operating performance of the
Company. The Company's measurement of Adjusted EBITDA may not be comparable
to similarly titled measures reported by other companies within the
broadcast industry.
Net broadcast revenues for the three months ended September 30, 1998 remained
consistent compared to the three months ended September 30, 1997. Net broadcast
revenues increased to $5.9 million for the nine months ended September 30, 1998
from $5.7 million for the nine months ended September 30, 1997, or 3.5%. The
increase in net broadcast revenues for the nine months ended September 30, 1998
compared to the nine months ended September 30, 1997 was primarily due to an
increase in local revenues of approximately $284,000, or 7.8% offset by a
decrease in national revenues of approximately $158,000, or 8.7%.
Operating costs increased to $902,000 for the three months ended September 30,
1998 from $843,000 for the three months ended September 30, 1997, or 7.0%.
Operating costs for the nine months ended September 30, 1998 remained consistent
compared to the nine months ended September 30, 1997. The increase in operating
costs for the three months ended September 30, 1998 as compared to the three
months ended September 30, 1997 was primarily due to incremental expenses
associated with an increase in local revenues and an increase in corporate
management fees of approximately $23,000, or 18.3%.
Broadcast operating income for the three months ended September 30, 1998
remained consistent compared to the three months ended September 30, 1997.
Broadcast operating loss for the nine months ended September 30, 1998 increased
to $190,000 from broadcast operating income of $572,000 for the nine months
ended September 30, 1997. The increase in broadcast operating loss for the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997 was primarily attributable to an increase in amortization of intangible
assets related to the HYTOPS issuance completed March 12, 1997, an increase in
the amortization of program contract costs from the addition of syndicated
programs and the writeoff of certain intangible assets.
Dividend and interest income for the three months ended September 30, 1998
remained consistent compared to the three months ended September 30, 1997.
Dividend and interest income increased to $19.8 million for the nine months
ended September 30, 1998 from $14.4 million for the nine months ended September
30, 1997, or 37.5%. The increase in dividend and interest income for the nine
months ended September 30, 1998 as compared to the nine months ended September
30, 1997 was primarily attributable to the Parent Preferred Securities being
outstanding for a partial period during 1997.
Subsidiary trust minority interest expense for the three months ended September
30, 1998 remained consistent compared to the three months ended September 30,
1997. Subsidiary trust minority interest expense increased to
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$17.4 million for the nine months ended September 30, 1998 from $12.9 million
for the nine months ended September 30, 1997, or 34.9%. The increase in
subsidiary trust minority interest expense for the nine months ended September
30, 1998 as compared to the nine months ended September 30, 1997 was
attributable to the HYTOPS being outstanding for a partial period during 1997.
The income tax provision for the three and nine months ended September 30, 1998
remained consistent compared to the three and nine months ended September 30,
1997. The Company's effective tax rate for the nine months ended September 30,
1998 and September 30, 1997 was 41.9% and 43.6%, respectively.
Deferred state taxes increased to $507,000 as of September 30, 1998 from
$334,000 as of December 31, 1997. The increase in the Company's deferred tax
liability as of September 30, 1998 as compared to December 31, 1997 is due to a
net increase in temporary differences generated during the current period.
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 accompanying balance sheets.
Net income increased to $497,000 for the three months ended September 30, 1998
from $415,000 for the three months ended September 30, 1997. Net income
increased to $1.3 million for the nine months ended September 30, 1998 from $1.2
million for the nine months ended September 30, 1997. Net income increased for
the three and nine months ended September 30, 1998 as compared to the three and
nine months ended September 30, 1997 due to an increase in dividend and interest
income offset by a decrease in broadcast operating income and an increase in
subsidiary trust minority interest expense.
Broadcast cash flow for the three and nine months ended September 30, 1998
remained consistent compared to the three and nine months ended September 30,
1997.
Adjusted EBITDA for the three and nine months ended September 30, 1998 remained
consistent compared to the three and nine months ended September 30, 1997.
The Company's broadcast cash flow margin decreased to 48.3% for the three months
ended September 30, 1998 from 48.7% for the three months ended September 30,
1997. The Company's broadcast cash flow margin decreased to 39.3% for the nine
months ended September 30, 1998 from 39.6% for the nine months ended September
30, 1997. The decrease in broadcast cash flow margin for the three months and
nine months ended September 30, 1998 as compared to the three and nine months
ended September 30, 1997 resulted primarily from increases in program contract
payments as a percentage of net broadcast revenues.
The Company's adjusted EBITDA margin decreased to 40.1% for the three months
ended September 30, 1998 from 41.6% for the three months ended September 30,
1997. The decrease in adjusted EBITDA margin for the three months ended
September 30, 1998 as compared to the three months ended September 30, 1997
resulted primarily from the addition of syndicated program contracts and an
increase in the corporate management fees in the current period. The Company's
adjusted EBITDA margin for the nine months ended September 30, 1998 remained
consistent compared to the nine months ended September 30, 1997.
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YEAR 2000 COMPLIANCE
The Company's parent (Sinclair Broadcast Group, Inc., or "Sinclair") has
commenced a process to assure Year 2000 compliance of all hardware, software,
broadcast equipment and ancillary equipment of Sinclair that are date dependent,
including the Company's systems and equipment. 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
second quarter of 1998, and has substantially completed this phase as of the
date hereof.
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 will identify and begin 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 (and the Company's) accounting, traffic, payroll,
and local and wide area network hardware and software systems are compliant. In
addition, Sinclair has determined that substantially all of its (and the
Company's) personal computers and PC applications are compliant. Sinclair is
currently reviewing its (and the Company's) newsroom systems, building control
systems, security systems and other miscellaneous systems.
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 this phase during the first and second quarters 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 by the end of the third quarter of 1999.
To date, the Company 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. The Company is not aware of any non-compliance that would be
material to repair or replace or that would have a material effect on its
business if compliance were not achieved. The Company does not believe that
non-compliance in any systems that have not yet been reviewed would result in
material costs or disruption. Neither is the Company aware of any non-compliance
by its customers or suppliers that would have a material impact on its 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.
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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.
KDSM, INC.
By: /s/ David B. Amy
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David B. Amy
Chief Financial Officer
Principal Accounting Officer
