SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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, 1996
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: 000-26071
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
Maryland
(State or other jurisdiction
of incorporation or organization)
2000 W. 41st Street
Baltimore, Maryland 21211
(Address of principal executive offices)
52-1494660
(I.R.S. Employer
Identification No.)
21211
(Zip Code)
(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 X No
As of September 30, 1996, there were 6,597,400 shares of Class A common
stock, $.01 par value, 28,152,581 shares of Class B common stock, $.01 par
value, and 1,150,000 shares of preferred stock, $.01 par value, of the
Registrant issued and outstanding.
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Form 10-Q/A
For the Quarter Ended June 30, 1996
TABLE OF CONTENTS
Part I. Financial Information
Page
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1995 and
June 30, 1996...................................................3
Consolidated Statements of Operations for the three months and six
months ended June 30, 1995 and 1996.............................4
Consolidated Statements of Stockholders' Equity for the
six months ended June 30, 1996..................................5
Consolidated Statements of Cash Flows for the six months
ended June 30, 1995 and 1996....................................6
Notes to Consolidated Financial Statements........................7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................11
Signature.......................................................16
Part II. Other Information
Item 1 Legal proceedings.............................................14
Item 2 Changes in securities.........................................14
Item 3 Defaults upon senior securities...............................14
Item 4 Submission of matters to a vote of security holders...........14
Item 5 Other information.............................................15
Item 6 Exhibits and reports on Form 8-K..............................15
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................................... $ 112,450 $ 4,196
Accounts receivable, net of allowance for doubtful accounts ................... 50,022 76,102
Current portion of program contract costs ..................................... 18,036 29,396
Deferred barter costs ......................................................... 1,268 3,964
Prepaid expenses and other current assets ..................................... 1,972 3,697
Deferred tax asset ............................................................ 4,565 3,972
Total current assets .................................................... 188,313 121,327
PROPERTY AND EQUIPMENT, net ...................................................... 42,797 139,387
PROGRAM CONTRACT COSTS, less current portion ..................................... 19,277 33,267
LOANS TO OFFICERS AND AFFILIATES, net ............................................ 11,900 11,642
NON-COMPETE AND CONSULTING AGREEMENTS, net ....................................... 30,379 19,994
DEFERRED TAX ASSET ............................................................... 16,462 52
OTHER ASSETS ..................................................................... 27,355 64,602
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ..................................... 268,789 1,236,707
Total Assets ............................................................ $ 605,272 $ 1,626,978
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................................. $ 2,187 $ 4,237
Income taxes payable .......................................................... 3,944 --
Accrued liabilities ........................................................... 20,720 31,116
Current portion of long-term liabilities-
Notes payable and commercial bank financing ................................. 1,133 63,485
Capital leases payable ...................................................... 524 310
Notes and capital leases payable to affiliates .............................. 1,867 1,976
Program contracts payable ................................................... 26,395 35,203
Deferred barter revenues ...................................................... 1,752 5,218
Total current liabilities ............................................... 58,522 141,545
LONG-TERM OBLIGATIONS:
Notes payable and commercial bank financing ................................... 400,644 1,167,750
Capital leases payable ........................................................ 44 --
Notes and capital leases payable to affiliates ................................ 13,959 12,935
Program contracts payable ..................................................... 30,942 51,010
Other long-term liabilities ................................................... 2,442 2,384
Total liabilities ....................................................... 506,553 1,375,624
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ................................... 2,345 3,968
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 5,000,000 and 10,000,000
shares authorized and -0-and 1,150,000 shares issued and
outstanding ................................................................. -- 12
Class A Common Stock, $.01 par value, 35,000,000 and 100,000,000
shares authorized and 5,750,000 and 6,328,000 shares issued and
outstanding ................................................................. 58 63
Class B Common Stock, $.01 par value, 35,000,000 shares
authorized and 29,000,000 and 28,422,000 shares issued and
outstanding ................................................................. 290 285
Additional paid-in capital .................................................... 116,089 241,156
Accumulated deficit ........................................................... (20,063) (18,552)
Additional paid-in capital - stock options .................................... -- 25,784
Deferred compensation ......................................................... -- (1,362)
Total stockholders' equity .............................................. 96,374 247,386
Total Liabilities and Stockholders' Equity .............................. $ 605,272 $ 1,626,978
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ....................... $ 49,588 $ 73,163 $ 88,724 $ 117,339
Revenues realized from barter arrangements .................................. 4,591 5,978 8,150 9,571
Total revenues ............................................................ 54,179 79,141 96,874 126,910
OPERATING EXPENSES:
Program and production ...................................................... 7,268 13,051 14,130 20,699
Selling, general and administrative ......................................... 8,983 14,976 17,432 24,268
Expenses realized from barter arrangements .................................. 4,053 4,928 7,169 7,859
Amortization of program contract costs and net
realizable value adjustments .............................................. 6,394 9,840 12,949 17,557
Deferred compensation ....................................................... -- 506 -- 506
Depreciation and amortization of property and equipment ..................... 1,236 2,079 2,822 3,544
Amortization of acquired intangible broadcasting assets
and other assets .......................................................... 11,248 13,715 23,030 24,392
Total operating expense ................................................... 39,182 59,095 77,532 98,825
Broadcast operating income ................................................ 14,997 20,046 19,342 28,085
OTHER INCOME (EXPENSE):
Interest expense ............................................................ (9,687) (16,750) (19,655) (27,646)
Interest income ............................................................. 809 798 1,252 2,521
Other income (expense) ...................................................... (84) 398 30 651
Net income before provision for income taxes .............................. 6,035 4,492 969 3,611
INCOME TAX PROVISION ......... ................................................. (2,985) (2,523) (462) (2,100)
Net income ...... ......................................................... $ 3,050 $ 1,969 $ 507 $ 1,511
NET INCOME PER COMMON SHARE .................................................... $ 0.10 $ 0.06 $ 0.02 $ 0.04
WEIGHTED AVERAGE SHARES OUTSTANDING
(in thousands) ............................................................. 30,150 34,750 29,575 34,750
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Retained Additional
Series A Series B Class A Class B Additional Earnings Paid-In Total
Preferred Preferred Common Common Paid-In (Accumulated Capital Deferred Stockholders'
Stock Stock Stock Stock Capital Deficit) Options Compensation Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,December 31, 1995
as previously reported $ -- $ -- $ 58 $290 $116,089 $(20,063) $ -- $ -- $ 96,374
Class B common shares
converted to Class A -- -- 5 (5) -- -- -- -- --
common shares
Issuance of Series A
preferred shares 12 -- -- -- 125,067 -- -- -- 125,079
Series A preferred shares
converted to Series B
preferred shares (12) 12 -- -- -- -- -- -- --
Stock Options granted -- -- -- -- -- -- 25,784 (1,868) 23,916
Amortization of deferred
compensation -- -- -- -- -- -- -- 506 506
Net income -- -- -- -- -- 1,511 -- -- 1,511
BALANCE, June 30, 1996 $ -- $ 12 $ 63 $285 $241,156 $(18,552) $ 25,784 $ (1,362) $247,386
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1995 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...... ............................................................ $ 507 $ 1,511
Adjustments to reconcile net income to net cash flows from
operating activities-
Depreciation and amortization of property and equipment .................... 2,822 3,544
Amortization of acquired intangible broadcast assets
and other assets..................... .................................. 23,030 24,392
Amortization of program contract costs and net realizable
value adjustments ...................................................... 12,949 17,557
Deferred compensation expense .............................................. -- 506
Deferred tax (benefit) provision ........................................... (2,542) 488
Payments of costs relating to financing .................................... (3,200) (20,009)
Payments for interest rate hedging instruments ............................. -- (851)
Changes in assets and liabilities, net of effect of acquisitions
and dispositions-
Decrease in receivables, net ............................................... (4,060) (12,006)
Decrease (increase) in prepaid expenses and other current
assets ................................................................. 1,234 (68)
(Increase) decrease in accounts payable and accrued liabilities ............ (2,631) 6,344
(Decrease) in income taxes payable ......................................... (4,507) (3,944)
Decrease (increase) in other assets and acquired intangible
broadcast assets ....................................................... 170 (43)
Net effect of change in deferred barter revenues and
deferred barter costs .................................................. 15 328
Decrease in other long term liabilities .................................... (46) (58)
Decrease (increase) in minority interest ................................... 24 (33)
Payments for program contracts payable ....................................... (9,858) (12,071)
Net cash flows from operating activities ............................... 13,907 5,587
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ........................................ (1,359) (2,114)
Payments for acquisition of television stations .............................. (103,500) (34,726)
Payment for acquisition of non-license assets of River
City Broadcasting, L.P. .................................................... -- (811,260)
Payment for acquisition of non-license assets of KRRT ........................ -- (29,532)
Payment for purchase of outstanding stock of
Superior Communications, Inc. .............................................. -- (63,275)
Payments for consulting and non-compete agreements ........................... (1,000) (50)
Payment to exercise purchase options ......................................... (1,000) --
Payments for purchase options ................................................ (9,000) --
Proceeds from disposal of property and equipment ............................. 2,000 --
Repayments of loans to officers and affiliates ............................... 1,208 258
Investment in joint venture .................................................. -- (364)
Proceeds from assignment of license purchase options ......................... 4,200 --
Payment for WPTT subordinated convertible debenture .......................... (1,000) --
Fees paid relating to subsequent acquisitions ................................ -- (1,063)
Net cash flows used in investing activities ............................ (109,451) (942,126)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank financing .................... 138,000 897,000
Repayments of notes payable, commercial bank financing
and capital leases ......................................................... (152,559) (67,915)
Repayments of notes and capital leases to affiliates ......................... (476) (800)
Net proceeds from issuance of common shares .................................. 111,634 --
Net cash flows from financing activities ............................... 96,599 828,285
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................................. 1,055 (108,254)
CASH AND CASH EQUIVALENTS, beginning of period .................................. 2,446 112,450
CASH AND CASH EQUIVALENTS, end of period ........................................ $ 3,501 $ 4,196
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
<PAGE>
SINCLAIR BROADCAST GROUP, 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
Sinclair Broadcast Group, Inc., Sinclair Communications, Inc. and all other
consolidated subsidiaries, which are collectively referred to hereafter as "the
Company or Companies." The Company owns and operates television stations
throughout the United States. Additionally, included in the accompanying
consolidated financial statements are the results of operations of certain
television and radio stations pursuant to local marketing agreements (LMA's).
Interim Financial Statements
The consolidated financial statements for the six months ended June 30,
1995 and 1996 are unaudited, but in the opinion of management, such financial
statements have been presented on the same basis as the audited consolidated
financial statements 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 consolidated financial
statements and notes thereto as of December 31, 1994, and 1995 and for the years
then ended. The results of operations presented in the accompanying financial
statements are not necessarily representative of operations for an entire year.
Programming
The Companies have 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 a
liability when the license period begins and the program is available for its
first showing. The portion of the program contracts payable due within one year
is reflected as a current liability in the accompanying consolidated financial
statements.
The rights to program materials are reflected in the accompanying
consolidated balance sheets at the lower of amortized 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. Amortization of program contract costs is generally
computed under either an accelerated method over the contract period 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.
2. CONTINGENCIES AND OTHER COMMITMENTS:
Lawsuits and claims are filed against the Companies from time to time in
the ordinary course of business. These actions are in various preliminary
stages, and no judgements 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 Companies' financial position or results of operations.
7
<PAGE>
3. SUPPLEMENTAL CASH FLOW INFORMATION:
During the six months ended June 30, 1995 and 1996, the Company made cash
payments and certain non-cash transactions of the following:
Six Months Ended
June 30, June 30,
1995 1996
Interest $ 19,488 $ 29,472
Income Taxes $ 7,511 $ 5,586
Distribution prior to KCI merger $ 1,461 $ -
Issuance of 1,150,000 shares of
Series A Preferred Stock (Note 5) $ - $125,079
4. SENIOR BANK DEBT:
In order to finance the acquisition of the non-license assets of River City
Broadcasting, L.P. (River City) and potential future acquisitions, the Company
entered into a Bank Credit Agreement. The Bank Credit Agreement consists of
three classes: Facility A Term Loan, Facility B Term Loan and a Revolving Credit
Commitment.
The Facility A Term Loan is a term loan in a principal amount not to exceed
$550 million and is scheduled to be paid in quarterly installments beginning
December 31, 1996 through December 31, 2002. The Facility B Term Loan is a term
loan in a principal amount not to exceed $200 million and is scheduled to be
paid in quarterly installments beginning December 31, 1996 through December 31,
2002. The Revolving Credit Commitment is a revolving credit facility in a
principal amount not to exceed $250 million and is scheduled to have reduced
availability quarterly beginning March 31, 1999 through November 30, 2003. In
connection with the River City and KRRT acquisitions, the Company utilized $550
million, $200 million and $85 million of indebtedness under Facility A, Facility
B and the Revolving Credit Commitment, respectively. The Company incurred debt
acquisition costs of approximately $20.0 million associated with this
indebtedness which are being amortized using the straight line method over the
life of the debt.
Under the Bank Credit Agreement, the Company has the option to maintain
base rate and Eurodollar loans. Interest on borrowings under this agreement are
at varying rates based, at the Company's option, at the base rate or LIBOR, plus
a fixed percentage. The applicable interest rate for the Facility A Term Loan
and the Revolving Credit Facility is either LIBOR plus 1.25% to 2.5% or the base
rate plus zero to 1.25%. The applicable interest rate for the Facility A Term
Loan and the Revolving Credit Facility is adjusted based on the ratio of total
debt to four quarters trailing earnings before interest, taxes, depreciation and
amortization. The applicable interest rate for Facility B is either LIBOR plus
2.75% or the base rate plus 1.75%.
The Company made cash payments totaling $851 thousand for interest rate
hedging instruments which are capitalized and amortized as interest expense over
the life of the contract. The Company utilizes these instruments to minimize the
impact of fluctuations in interest rates relating to Senior Bank Debt. At June
30, 1996 the Company has interest rate swap agreements which expire from March
31, 1997 to March 31, 2000 with such rates ranging from 5.85% to 7.0% and
notional amounts totaling $960.0 million.
5. RIVER CITY ACQUISITION:
In April 1996, the Company entered into an agreement to purchase certain
non-license assets of River City. In May 1996, the Company closed the
transaction for a purchase price of $958.2 million providing as consideration
1,150,000 shares of Series A Convertible Preferred Stock with a fair market
value of $125.1 million, 1,382,435 stock options with a fair market value of
$23.9 million and cash payments totaling $809.2 million. Simultaneously, the
Company entered into option agreements to purchase certain other license and
non-license assets of River City for option purchase prices totaling $150
million. The Company utilized indebtedness under its Bank Credit Agreement to
finance the transaction (see Note 4). The transaction was recorded as a
purchase, whereby the assets and liabilities were recorded at their fair market
value as determined by an independent appraisal.
8
<PAGE>
In conjunction with the River City acquisition, the Company entered into an
agreement to purchase the non-license assets of KRRT, Inc., a television station
in San Antonio, Texas, for a purchase price of $29.5 million. Simultaneously
with the River City closing, the Company closed the KRRT transaction utilizing
indebtedness under its Bank Credit Agreement. The transaction was recorded as a
purchase, whereby the assets and liabilities were recorded at their fair market
value as determined by an independent appraisal.
In connection with the River City acquisition, the Company consummated the
following transactions concurrent with or subsequent to the closing:
1.) In June 1996, the Board of Directors of the Company adopted, upon
approval of the stockholders by proxy, an amendment to the Company's amended and
restated charter. This amendment increased the number of Class A Common Stock
shares authorized to be issued by the Company from 35,000,000 shares to
100,000,000 shares. The amendment also increased the number of shares of
preferred stock authorized from 5,000,000 shares to 10,000,000 shares.
2.) Series A Preferred Stock - As partial consideration for the acquisition
of the non-license assets of River City, the Company issued 1,150,000 shares of
Series A Preferred Stock. In June 1996, the Board of Directors of the Company
adopted, upon approval of the stockholders by proxy, an amendment to the
Company's amended and restated charter at which time Series A Preferred Stock
was exchanged for and converted into Series B Preferred Stock. The Company
recorded the issuance of Series A Preferred Stock based on the fair market value
at the date of issuance of 3.64 shares of Class A Common Stock for each share of
Series A Preferred Stock.
3.) Series B Preferred Stock - Shares of Series B Preferred Stock are
convertible at any time into shares of Class A Common Stock, with each share of
Series B Preferred Stock convertible into approximately 3.64 shares of Class A
Common Stock. The Company may redeem shares of Series B Preferred Stock only
after the occurrence of a "Trigger Event." A Trigger Event means the termination
of Barry Baker's employment with the Company prior to the expiration of the
initial five-year term of his employment agreement (1) by the Company for any
reason other than for cause (as defined in the employment agreement) or (2) by
Barry Baker upon the occurrence of certain events described in the employment
agreement. If the Company seeks to redeem shares of Series B Preferred Stock and
the stockholder elects to retain the shares, the shares will automatically be
converted into Common Stock on the proposed redemption date. All shares of
Series B Preferred Stock remaining outstanding as of May 31, 2001 will
automatically convert into Class A Common Stock. Series B Preferred Stock is
entitled to 3.64 votes on all matters with respect to which Class A Common Stock
has a vote.
4.) Stock Options and Awards:
Executive Options
In connection with the acquisition of River City, the Company entered into
a five year employment agreement with Barry Baker. Pursuant to the agreement,
among other provisions, Mr. Baker received options to acquire 1,382,435 shares
of the Class A Common Stock of the Company. The options became exercisable with
respect to 50% of the shares upon closing of the acquisition of the non-license
assets of River City with 25% available to be exercised on the first and second
anniversary of the River City closing. The options which are exercisable in
future periods are not contingent upon Mr. Baker's continuing employment or any
other measurable circumstance. Furthermore, if for any reason Mr. Baker is
terminated as an employee of the Company, the options not vested at that time
shall immediately vest. The exercise price for these options is $30.11 per
share.
The Company recorded the excess of the fair market value over the Stock
Option Grant Price of $23.9 million as a component of the purchase price for the
acquisition of River City calculated based upon an economic model considering
the option terms, market price at grant date, and Company and industry market
volatility.
Long Term Incentive Plan
In June 1996, the Board of Directors adopted, upon approval of the
stockholders by proxy, the 1996 Long- Term Incentive Plan of the Company (the
"LTIP"). The purpose of the LTIP is to reward key individuals for making major
contributions to the success of the Company and its subsidiaries and to attract
and retain the services of qualified and capable employees. A total of 2,073,673
shares of Class A Common Stock is reserved and available for awards under the
plan. The Board of Directors may amend, suspend or terminate the LTIP without
the consent of stockholders or participants, except that stockholder approval
must be sought within one year of such Board action.
9
<PAGE>
The LTIP provides that the exercise price under each option may not be less
than the fair market value of the Company's Class A common stock on the date of
the option grant, or as otherwise provided by the LTIP, unless the employee
receiving the option owns 10% or more of the Company's common stock on such
date, in which case the exercise price will be 110% of fair market value.
Options granted pursuant to the LTIP must be exercised within 10 years (or five
years if the employee owns 10% or more of the Company's common stock) following
the date on which the grant is made. In connection with the River City
acquisition, 244,500 options were granted under this plan with an exercise price
of $30.11 per share.
The Company recorded deferred compensation of $1.9 million as additional
paid in capital at the stock option grant date. In June 1996, compensation
expense of $506 thousand was recorded relating to the options issued under the
LTIP which became exercisable. The remaining deferred compensation of
approximately $1.4 million will be recognized as expense on a straight line
basis over the period in which it vests.
Incentive Stock Option Plan
In June 1996, the Board of Directors adopted, upon approval of the
stockholders by proxy, certain amendments to the Company's Incentive Stock
Option Plan. The purpose of the amendments was (i) to increase the number of
shares of Class A common stock approved for issuance from 400,000 to 500,000,
(ii) to delegate to Barry Baker the authority to grant certain options, (iii) to
lengthen from two years to three the period after date of grant before options
become exercisable, (iv) and to provide immediate termination and three year
ratable vesting of options in certain circumstances. In connection with the
River City acquisition, the Company granted 287,000 options to key management
employees at an exercise price of $37.75, the fair market value at the date of
grant.
5. OTHER ACQUISITIONS:
In July 1995, the Company exercised its option to purchase the license and
non-license assets of the television station WSMH in Flint, Michigan for an
option exercise price of $1.0 million. In February 1996, the Company consummated
the acquisition for a purchase price of $35.4 million at which time the balance
due of $34.4 million was paid from the Company's existing cash balance. The
transaction was recorded as a purchase, whereby the assets and liabilities were
recorded at their fair market value as determined by an independent appraisal.
In March 1996, the Company entered into an agreement to acquire the
outstanding stock of Superior Communications, Inc. (Superior) which owns the
license and non-license assets of the television station KOCB in Oklahoma City,
Oklahoma and WDKY in Lexington, Kentucky. In May 1996, the Company consummated
the acquisition for a purchase price of approximately $63.0 million utilizing
existing cash balances and indebtedness under the Company's Bank Credit
Agreement of $3.1 million and $59.9 million respectively. The transaction was
recorded as a purchase, whereby the assets and liabilities were recorded at
their fair market value as determined by an independent appraisal.
6. SUBSEQUENT EVENTS:
In January 1996, the Company entered into a purchase agreement to acquire
the license and non-license assets of the television station WYZZ in Peoria,
Illinois. In July 1996, the Company consummated the acquisition for a purchase
price of approximately $21.1 million utilizing cash and indebtedness under the
Bank Credit Agreement of $1.0 million and $20.1 million, respectively.
In July 1996, the Company acquired the license and non-license assets of
the television station KSMO in Kansas City, Missouri. At closing, the Company
made $10.5 million in cash payments for this acquisition utilizing indebtedness
under its Bank Credit Agreement.
In August 1996, the Company acquired the license and non-license assets of
the television station WSTR in Cincinnati, Ohio. At closing, the Company made a
$9.9 million cash payment for this acquistion utilizing indebtedness under its
Bank Credit Agreement.
In September 1996, the Company filed a registration statement on Form S-3
with the Securities and Exchange Commission for the purpose of registration of
5,564,253 shares of Class A Common Stock. These shares represent 4,181,818
shares of Class A Common Stock issuable upon conversion of Series B Preferred
Stock and 1,382,435 shares of Class A Common Stock issuable upon exercise of
options held by Barry Baker.
In September 1996, the Company filed a registration statement in Form S-3
with the Securities and Exchange Commission for the sale of up to 5,750,000
shares of Class A Common Stock. The net proceeds to the Company for this
offering will be utilized to repay outstanding indebtedness under the Company's
Bank Credit Agreement.
10
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in this Quarterly
Report and the audited financial statements and Management's Discussion and
Analysis contained in the Company's Form 10-K for the fiscal year ended December
31, 1995.
RESULTS OF OPERATIONS
Comparison of three months and the six months ended June 30, 1995 to the
three months and the six months ended June 30, 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues .......................................... $ 49,588 $ 73,163 $ 88,724 $ 117,339
Barter revenues ................................................. 4,591 5,978 8,150 9,571
Total revenues ................................................ 54,179 79,141 96,874 126,910
Operating expenses excluding depreciation,
amortization and deferred compensation ........................ 20,304 32,955 38,731 52,826
Deferred compensation ........................................... -- 506 -- 506
Depreciation and amortization ................................... 18,878 25,634 38,801 45,493
Broadcast operating income ................................... 14,997 20,046 19,342 28,085
Interest expense ............................................. (9,687) (16,750) (19,655) (27,646)
Interest and other income .................................... 725 1,196 1,282 3,172
Net income before provision for income taxes ................. 6,035 4,492 969 3,611
Income tax provision ............................................ (2,985) (2,523) (462) (2,100)
Net income ...... ............................................ $ 3,050 $ 1,969 $ 507 $ 1,511
Net income per common share .................................. $ 0.10 $ 0.06 $ 0.02 $ 0.04
Weighted average shares outstanding .......................... 30,150 34,750 29,575 34,750
OTHER DATA:
Broadcast cash flow (a) ......................................... $ 30,782 $ 42,279 $ 50,471 $ 65,079
Broadcast cash flow margin ...................................... 62.1% 57.8% 56.9% 55.5%
Operating cash flow (b) ......................................... $ 29,649 $ 40,548 $ 48,285 $ 62,013
Operating cash flow margin ...................................... 59.8% 55.4% 54.4% 52.8%
Program contract payments ....................................... $ 4,226 $ 5,638 $ 9,858 $ 12,071
Corporate expense ............................................... $ 1,133 $ 1,731 $ 2,186 $ 3,066
</TABLE>
(a) "Broadcast cash flow" is defined as broadcast operating income plus
corporate expenses, deferred compensation, depreciation and amortization,
including both tangible and intangible assets and program rights, less cash
payments for program rights. Cash program payments represent cash payments made
for current program 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 and is not a measure of financial performance under generally
accepted accounting principles. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(b) "Operating cash flow" is defined as broadcast cash flow less corporate
expenses and is a commonly used measure of performance for broadcast companies.
Operating cash flow does not purport to represent cash provided by operating
activities as reflected in the Company's consolidated statements of cash flows,
is not a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
11
<PAGE>
Total revenues increased to $79.1 million for the three months ended June
30, 1996 from $54.2 million for the three months ended June 30, 1995, or 45.9%.
When excluding the effects of non-cash barter transactions, net broadcast
revenues for the three months ended June 30, 1996 increased by 47.6% over the
three months ended June 30, 1995. Total revenues increased to $126.9 million for
the six months ended June 30, 1996 from $96.9 million for the six months ended
June 30, 1995, or 31.0%. When excluding the effects of non-cash barter
transactions, net broadcast revenues for the six months ended June 30, 1996
increased by 32.2% over the six months ended June 30, 1995. These increases in
broadcast revenues were primarily the result of acquisitions and LMA
transactions consummated by the Company in 1995 and during the first six months
of 1996 (collectively, the "Acquisitions"), as well as growth in television
broadcast revenue.
Operating expenses excluding depreciation and amortization increased from
$20.3 million for the three months ended June 30, 1995 to $33.0 million for the
three months ended June 30, 1996, or 62.6%. Operating expenses excluding
depreciation and amortization increased from $38.7 million for the six months
ended June 30, 1995 to $52.8 million for the six months ended June 30, 1996, or
36.4%. These increases in expenses for the three months and the six months ended
June 30, 1996 as compared to the three months and the six months ended June 30,
1995 were largely attributable to operating costs associated with the
acquisitions, an increase in LMA fees resulting from LMA transactions and an
increase in corporate overhead expense.
Broadcast operating income increased from $15.0 million for the three
months ended June 30, 1995 to $20.0 million for the three months ended June 30,
1996, or 33.3%. Broadcast operating income increased from $19.3 million for the
six months ended June 30, 1995 to $28.1 million for the six months ended June
30, 1996, or 45.6%. The increase in broadcast operating income for the three
months ended June 30, 1996 as compared to the three months ended June 30, 1995
and the six months ended June 30, 1996 as compared to the six months ended June
30, 1995 is primarily attributable to the Acquisitions.
Interest expense increased from $9.7 million for the three months ended
June 30, 1995 to $16.8 million for the three months ended June 30, 1996, or
73.2%. Interest expense increased from $19.7 million for the six months ended
June 30, 1995 to $27.6 million for the six months ended June 30, 1996, or 40.1%.
Interest expense increases for the six months and the three months ended June
30, 1996 primarily related to senior bank indebtedness incurred by the Company
to finance the River City acquisition.
Interest and other income increased to $1.2 million for the three months
ended June 30, 1996 from $0.7 million for the three months ended June 30, 1995,
or 71.4%. Interest and other income increased to $3.2 million for the six months
ended June 30, 1996 from $1.3 million for the six months ended June 30, 1995 or
146.2%. These increases for the three months and the six months ended June 30,
1996 primarily resulted from the increase in cash balances that remained from
the Company's public debt offering in August 1995.
Income tax provision decreased from $3.0 million for the three months ended
June 30, 1995 to $2.5 million for the three months ended June 30, 1996. Income
tax provision increased from $462 thousand for the six months ended June 30,
1995 to $2.1 million for the six months ended June 30, 1996. The decrease for
the three months ended June 30 1996 as compared to the three months ended June
30, 1995 primarily relates to the decrease in pre-tax income between periods and
book and tax differences attributable to acquisitions since July 1, 1995. The
increase for the six months ended June 30, 1996 as compared to the six months
ended June 30, 1995 primarily relates to the increase in pre-tax income between
periods.
The deferred tax asset decreased from $21.0 million at December 31, 1995 to
$4.0 million as of June 30, 1996 and the effective tax rate increased from 48%
for the six months ended June 30, 1995 to 58% for the six months ended June 30,
1996 primarily due to permanent differences in amortization due to the Company's
acquisition of all of the outstanding stock of Superior Communications, Inc. in
March 1996.
Net income for the three months ended June 30, 1996 was $2.0 million or
$0.06 per share compared to net income of $3.1 million or $0.10 per share for
the three months ended June 30, 1995. Net income for the six months ended June
30, 1996 was $1.5 million or $0.04 per share compared to net income of $507
thousand or $0.02 per share for the six months ended June 30, 1995.
12
<PAGE>
Broadcast cash flow increased to $42.3 million for the three months ended
June 30, 1996 from $30.8 million for the three months ended June 30, 1995, or
37.3%. Broadcast cash flow increased to $65.1 million for the six months ended
June 30, 1996 from $50.5 million for the six months ended June 30, 1995, or
28.9%
Operating cash flow increased to $40.5 million for the three months ended
June 30, 1996 from $29.6 million for the three months ended June 30, 1995, or
36.8%. Operating cash flow increased to $62.0 million for the six months ended
June 30, 1996 from $48.3 million for the six months ended June 30, 1995, or
28.4%
Liquidity and Capital Resources
The capital structure of the Company consists of the Company's outstanding
long-term debt and stockholders' equity. The stockholders' equity consists of
common stock, preferred stock, additional paid in capital and accumulated
deficit. The Company's decrease in cash from $112.5 million at December 31, 1995
to $4.2 million at June 30, 1996 primarily resulted from cash payments made
relating to acquisitions and repayments of bank debt. The Company's primary
source of liquidity is cash provided by operations and availability under its
Bank Credit Agreement. As of August 31, 1996, approximately $138.5 million was
available for draws under the Bank Credit Agreement. In September 1996, the
Company filed a registration statement on form S-3 with the Securities and
Exchange Commission for the sale of up to 5,750,000 shares (including the
Underwriter's over-allotment option) of Class A Common Stock. If consummated,
the Company anticipates net proceeds from the Common Stock Offering to be
approximately $188.1 million ($216.5 million, if Underwriter's over-allotment
option for 750,000 shares is exercised in full) based on a price of $39 1/2 per
share (the closing price on September 17, 1996). In addition to the Common Stock
Offering, Sinclair Capital, a Delaware business trust that is controlled by
WSMH, Inc. (a wholly owned subsidiary of the Company), intends to concurrently
offer Preferred Securities with an aggregate liquidation amount of $200 million
(the "Preferred Securities Offering"). The proceeds of the Preferred Securities
Offering will be used by Sinclair Capital to purchase indebtedness of WSMH, Inc.
which will use the proceeds to purchase Series C Preferred Stock of the Company.
The consummation of the Preferred Securities Offering is contingent on the sale
of Class A Common Stock in the Common Stock Offering resulting in gross offering
proceeds of at least $150 million. The Common Stock Offering is not contingent
on the completion of the Preferred Securities Offering. The net proceeds of the
Common Stock Offering and the Preferred Securities Offering will be used to
reduce the amount outstanding under the Company's Bank Credit Agreement. The
Preferred Stock Offering is being made to selected institutional investors in a
transaction that is not registered under the Securities Act of 1933, as amended.
Net cash flows from operating activities decreased from $13.9 million for
the six months ended June 30, 1995 to $5.6 million for the six months ended June
30, 1996. The Company made income tax payments of $7.5 million during the six
months ended June 30, 1995 compared to $5.6 million for the six months ended
June 30, 1996 due to anticipated tax benefits generated by its 1996
acquisitions. The Company made interest payments on outstanding indebtedness of
$19.5 million during the six months ended June 30, 1995 compared to $29.5
million for the six months ended June 30, 1996 due to the additional interest
expense relating to the Company's public debt offering in August 1995. Program
rights payments increased from $9.9 million for the six months ended June 30,
1995 to $12.1 million for the six months ended June 30, 1996, primarily as a
result of the acquisitions. The Company also made a $20.0 million payment of
debt acquisition costs relating to the financing required to consummate the
River City and KRRT acquisitions.
Net cash flows used in investing activities was $109.5 million for the six
months ended June 30, 1995 compared to $942.1 million for the six months ended
June 30, 1996. During February 1996, the Company purchased the license and
non-license assets of WSMH for $35.4 million at which time the balance due to
the seller of $34.4 million was paid from the Company's existing cash balance.
In January 1996, the Company made a cash payment of $1.0 million relating to the
acquisition of the license and non-license assets of WYZZ in Peoria, Illinois
which was consummated in July 1996. In May 1996, the Company purchased the
outstanding stock of Superior Communications, Inc. (Superior) and made cash
payments totaling $63.0 relating to the transaction. Also in May 1996, the
Company acquired certain non-license assets of River City and KRRT and made
related cash payments totaling $809.2 million and $29.5 million respectively.
Net cash flows from financing activities was $96.6 million for the six
months ended June 30, 1995 compared to $828.3 million for the six months ended
June 30, 1996. In May 1996, the Company utilized available indebtedness of $61.0
million for the acquisition of Superior and simultaneously repaid indebtedness
of $25.0 million. Also in May 1996, the Company utilized available indebtedness
of $835.0 for the acquisition of River City and KRRT and simultaneously repaid
indebtedness of $36.0 million.
13
<PAGE>
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting (the "Annual Meeting") of the
stockholders of the Company was held June 28, 1996.
(b) The following were elected as directors at the Annual
Meeting: David D. Smith, Frederick G. Smith, J. Duncan Smith, Robert E. Smith,
Basil A. Thomas, William E. Brock and Lawrence E. McCanna.
(c) The following matters were voted on at the Annual Meeting,
and each was approved with the vote shown below:
<TABLE>
<CAPTION>
Withheld/ Broker
Proposal For Against Abstain Nonvotes
<S> <C> <C> <C> <C>
Election of Seven Directors: 288,914,474 76,850 -- --
David D. Smith
Frederick G. Smith
J. Duncan Smith
Robert E. Smith
Basil A. Thomas
William E. Brock
Lawrence E. McCanna
Authorization of amendment increasing 287,819,397 542,767 13,940 615,220
the number of authorized shares of
all classes of stock to 145,000,000,
increasing the number of authorized
shares of Class A Common Stock to
100,000,000, increasing the number of
authorized shares to preferred stock to
10,000,000 and clarifying certain matters
Approval of 1996 Long Term Incentive Plan 286,946,421 1,365,987 13,830 665,086
Approve amendments to Sinclair Incentive 288,289,393 22,950 13,855 665,086
Stock Option Plan increasing shares that
may be issued pursuant to options issued
thereunder to 500,000, delegating to an officer
of the Company the authority to make certain
option awards, revising the exercise and expiration
period for options and making certain other changes
Ratification of Arthur Andersen LLP as independent 288,979,124 1,500 10,700 --
public accountants
</TABLE>
14
<PAGE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have previously been filed with this
statement on Form 10-Q.
Number Description
3.1* Amended and Restated Charter
10.1* Second Amended and Restated Credit Agreement dated as of May 31, 1996
by and among Sinclair Broadcast Group, Inc., Subsidiary Guarantors and
The Chase Manhattan Bank (National Association) as Agent
10.2* Employment Agreement dated as of April 10, 1996 with Barry Baker
10.3* Indemnification Agreement dated as of April 10, 1996 with Barry Baker
10.4++ Time Brokerage Agreement dated as of May 31, 1996 by and among
Sinclair Communications, Inc., River City Broadcasting, L.P. and River
City License Partnership and Sinclair Broadcast Group, Inc.
10.5* Registration Rights Agreement dated as of May 31, 1996 by and between
Sinclair Broadcast Group, Inc. and River City Broadcasting, L.P.
10.6++ Time Brokerage Agreement dated as of August 3, 1995 by and between
River City Broadcasting, L.P. and KRRT, Inc. and Assignment and
Assumption Agreement dated as of May 31, 1996 by and among KRRT, Inc.,
River City Broadcasting, L.P. and KABB, Inc. (as Assignee of Sinclair
Broadcast Group, Inc.)
10.7* Loan Agreement dated as of July 7, 1995 by and between Keymarket of
South Carolina, Inc. and River City Broadcasting, L.P. and First
Amendment to Loan Agreement dated as of May 24, 1996
10.8* Option Agreement dated as of July 7, 1995 by and among Keymarket of
South Carolina, Kerby E. Confer and River City Broadcasting, L.P.
10.9* Option Agreement dated as of May 24, 1994 between Kansas City TV 62
Limited Partnership and the Individuals Named Herein, on Behalf of an
Entity To Be Formed
10.10* Option Agreement dated as of May 24, 1994 between Cincinnati 64
Limited Partnership and the Individuals Named Herein, on Behalf of an
Entity To Be Formed
10.11* Stock Purchase Agreement dated as of March 1, 1996 by and between
Sinclair Broadcast Group, Inc. and The Stockholders of Superior
Communications Group, Inc.
10.12* Asset Purchase Agreement dated as of January 16, 1996 by and between
Bloomington Comco, Inc. and WYZZ, Inc.
10.13* Asset Purchase Agreement dated as of June 10, 1996 by and between
WTTE, Channel 28, Inc. and WTTE, Channel 28 Licensee, Inc. and
Glencairn, Ltd.
27* Financial Data Schedule
- ----------
++ Confidential Treatment has been requested. The copy filed as an
exhibit omits the information subject to the confidentiality request.
* Previously filed.
(b) The Company filed the following reports on 8-K during the
quarter ended June 30, 1996.
Form 8-K filed May 17, 1996, reporting on Item 7 and including the
financial statements of Superior Communications Group, Inc., Paramount Stations
Group of Kerriville, Inc., KRRT, Inc., Kansas City TV 62 Limited Partnership,
Cincinnati TV 64 Limited Partnership and River City Broadcasting, L.P. and pro
forma financial information of the Company reflecting the completed or probable
acquisitions of the foregoing, all for December 31, 1995 and the year then
ended.
Form 8-K/A filed May 29, 1996, reporting on Item 7 and including the
financial statements of Superior Communications Group, Inc. as of March 31, 1996
and for the three months then ended, and pro forma financial information of the
Company reflecting the completed or probable acquisitions of the companies
identified in the Form 8-K filed May 17, 1996 for March 31, 1996 and the three
months then ended.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report 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
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000912752
<NAME> Dawn Mills
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 4,196
<SECURITIES> 0
<RECEIVABLES> 76,102
<ALLOWANCES> 1,293
<INVENTORY> 0
<CURRENT-ASSETS> 121,327
<PP&E> 162,966
<DEPRECIATION> 23,579
<TOTAL-ASSETS> 1,626,978
<CURRENT-LIABILITIES> 141,545
<BONDS> 400,000
0
12
<COMMON> 348
<OTHER-SE> 247,026
<TOTAL-LIABILITY-AND-EQUITY> 1,626,978
<SALES> 0
<TOTAL-REVENUES> 126,910
<CGS> 0
<TOTAL-COSTS> 98,825
<OTHER-EXPENSES> (3,172)
<LOSS-PROVISION> 2,100
<INTEREST-EXPENSE> 27,646
<INCOME-PRETAX> 3,611
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,511
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
