AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SINCLAIR BROADCAST GROUP, INC.
(Exact name of registrant as specified in its charter)
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Maryland 4833 52-1494660
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(410) 467-5005
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
DAVID D. SMITH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SINCLAIR BROADCAST GROUP, INC.
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(410) 467-5005
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
With a copy to:
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George P. Stamas, Esq Steven A. Thomas, Esq. Valerie Ford Jacob, Esq.
Wilmer, Cutler & Pickering Thomas & Libowitz, P.A. Fried, Frank, Harris, Shriver & Jacobson
2445 M Street, N.W. 100 Light Street -- Suite 1100 One New York Plaza
Washington, D.C. 20037 Baltimore, MD 21202 New York, NY 10004
(202) 663-6000 (410) 752-2468 (212) 859-8000
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------------------------
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practicable after the effective date of this Registration
Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.[ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED (a) PER UNIT (b) PRICE FEE
- ----------------------------------- -------------- ---------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Class A Common Stock............... 5,750,000 $37.25 $214,187,500 $73,858
- ------------------------------------------------------------------------------------------------------
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(a) Includes 750,000 shares the U.S. Underwriters have the option to purchase
to cover over-allotments, if any.
(b) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933 based on the average of
the high and low prices paid for a share of the Registrant's Class A Common
Stock, $.01 par value, as reported by the Nasdaq National Market on September
11, 1996.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus; one to be used
in connection with a United States offering in the United States and Canada (the
"U.S. Prospectus") and one to be used in a concurrent international offering
(the "International Prospectus"). The two prospectuses are identical except for
the front and back cover pages. The form of U.S. Prospectus is included herein
and is followed by the front and back cover pages to be used in the
International Prospectus. Each of the pages for the International Prospectus
included herein is labeled "Alternate Page for International Prospectus."
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED SEPTEMBER __, 1996
5,000,000 SHARES
PROSPECTUS
[logo] SBG
CLASS A COMMON STOCK
PAR VALUE $.01 PER SHARE
------------------------
All of the shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock") offered hereby are being sold by Sinclair Broadcast
Group, Inc. (the "Company"). Of the 5,000,000 shares of Class A Common Stock
offered hereby, 4,000,000 shares are being offered in the United States and
Canada (the "U.S. Offering") by the U.S. Underwriters (as defined) and 1,000,000
shares are being offered in a concurrent international offering (the
"International Offering" and, together with the U.S. Offering, the "Common Stock
Offering") outside of the United States and Canada by the Managers (as defined).
The initial public offering price and the aggregate underwriting discount per
share will be identical for both offerings. See "Underwriting."
The Class A Common Stock is traded on the Nasdaq National Market System under
the symbol "SBGI." On September 17, 1996, the last reported sale price of the
Class A Common Stock as reported by Nasdaq was $39 1/2 per share. See "Price
Range of Common Stock."
The Company's outstanding capital stock consists of the Class A Common Stock,
shares of Class B Common Stock, par value $.01 per share (the "Class B Common
Stock") and shares of Series B Convertible Preferred Stock, par value $.01 per
share (the "Series B Preferred Stock"). The rights of the Class A Common Stock
and the Class B Common Stock (collectively, the "Common Stock") are identical,
except that each share of Class A Common Stock entitles the holder thereof to
one vote in respect of matters submitted for the vote of holders of Common
Stock, whereas each share of Class B Common Stock entitles the holder thereof to
one vote on "going private" and certain other transactions and to ten votes on
other matters. Immediately after the Offering, the Controlling Stockholders (as
defined) will have the power to vote 100% of the outstanding shares of Class B
Common Stock representing, together with the Class A Common Stock held by the
Controlling Stockholders, approximately 94.8% of the aggregate voting power of
the Company's capital stock, assuming no exercise of the Underwriters'
overallotment option. Each share of Class B Common Stock converts automatically
into one share of Class A Common Stock upon sale or other transfer to a party
other than certain affiliates of the Controlling Stockholders. Each share of
Series B Preferred Stock has a liquidation preference of $100, is convertible
into 3.64 shares of Class A Common Stock (subject to adjustment), and has 3.64
votes on all matters on which shares of Common Stock have a vote. See
"Description of Capital Stock."
The Company intends to offer 2,000,000 shares of Series C Preferred Stock,
par value $.01 per share, with an aggregate liquidation value of $200 million,
by a separate prospectus (the "Preferred Stock Offering," and with the Common
Stock Offering, the "Offerings"). The consummation of the Common Stock Offering
and the Preferred Stock Offering are not contingent upon each other.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price to Underwriting Discounts Proceeds to
the Public and Commissions (1) the Company (2)
- --------------------------------------------------------------------------------
Per Share ..... $ $ $
- --------------------------------------------------------------------------------
Total(3) ...... $ $ $
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the U.S. Underwriters and the
Managers against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company
estimated at $1,000,000.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an aggregate of 750,000 additional shares of Class A Common Stock on the
same terms as set forth above solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $___________,
$_________ and $___________, respectively. See "Underwriting."
--------------------
The shares of Class A Common Stock are being offered by the several U.S.
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
Class A Common Stock will be available for delivery on or about ____ __, 1996,
at the offices of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.
--------------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Prudential Securities Incorporated
Salomon Brothers Inc
, 1996
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
[Map showing location of television and radio stations owned and operated by the
Company, or to which the Company provides programming services pursuant to local
marketing agreements]
IN CONNECTION WITH THIS OFFERING, THE U.S. UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with the more detailed
information, financial statements and notes thereto appearing elsewhere in this
Prospectus. Unless the context requires otherwise, this Prospectus assumes no
exercise of the U.S. Underwriters' over-allotment option. Unless the context
otherwise indicates, as used herein, the "Company" or "Sinclair" means Sinclair
Broadcast Group, Inc. and its wholly owned subsidiaries (collectively, the
"Subsidiaries"). Capitalized terms used in this Prospectus have the meaning set
forth in the Glossary of Defined Terms, which appears at the end of this
Prospectus.
THE COMPANY
The Company is a diversified broadcasting company that owns or provides
programming services to more television stations than any other commercial
broadcasting group in the United States. The Company currently owns or provides
programming services to 28 television stations and has an option to acquire one
additional television station. The Company believes it is also one of the top 20
radio groups in the United States, when measured by the total number of radio
stations owned, programmed or with which the Company has Joint Sales Agreements
(JSAs). The Company owns or provides programming services to 21 radio stations,
has pending acquisitions of two radio stations (one of which it currently
programs pursuant to a local marketing agreement (LMA), has JSAs with three
radio stations and has options to acquire an additional seven radio stations.
The 28 television stations the Company owns or programs pursuant to LMAs are
located in 20 geographically diverse markets, with 23 of the stations in the top
51 television DMAs in the United States. The Company's television station group
is diverse in network affiliation with 10 stations affiliated with Fox, 11 with
UPN, two with ABC and one with CBS. Four stations operate as Independents.
The Company's radio station group is also geographically diverse with a
variety of programming formats including country, urban, news/talk/sports,
progressive rock and adult contemporary. Of the 25 stations owned, programmed or
with which the Company has a JSA, 12 broadcast on the AM band and 13 on the FM
band. The Company owns or programs from two to seven stations in all but one of
the radio markets it serves.
The Company has undergone rapid and significant growth over the course of the
last five years. Beginning with the acquisition of WPGH in Pittsburgh in 1991,
the Company has increased the number of television stations it owns or programs
from three to 28. From 1991 to 1995, net broadcast revenues and operating cash
flow increased from $39.7 million to $187.9 million, and from $15.5 million to
$105.8 million, respectively. Pro forma for the acquisitions described below,
1995 net broadcasting revenue and operating cash flow would have been $406.4
million and $190.6 million, respectively.
RECENT ACQUISITIONS
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act") was
signed into law. The 1996 Act represents the most sweeping overhaul of the
country's telecommunications laws since the Communications Act of 1934. The
Company believes that the enactment of the 1996 Act, which relaxes the broadcast
ownership rules, presents a unique opportunity to build a larger and more
diversified broadcasting company. Accordingly, the Company has acted to
capitalize on the opportunities provided by the 1996 Act. Since the 1996 Act
became effective, the Company has acquired, obtained options to acquire, or
obtained the right to program 16 television and 33 radio stations for an
aggregate consideration of approximately $1.2 billion. These acquisitions (the
"Recent Acquisitions") are described below, and are included in the pro forma
consolidated financial data appearing elsewhere in this Prospectus.
3
<PAGE>
o River City Acquisition. On April 10, 1996, the Company agreed to acquire
certain assets of River City Broadcasting, L.P. ("River City"), a major
television and radio broadcasting company headquartered in St. Louis,
Missouri (the "River City Acquisition"). On May 31, 1996, the Company
acquired the Non-License Assets of nine television stations (one of which
was owned by another party and programmed by River City pursuant to an LMA)
and 21 radio stations. Concurrently, the Company acquired (i) an option to
purchase the License Assets of eight of the television stations and all 21
radio stations owned by River City for an exercise price of $20 million,
(ii) River City's rights under an LMA with respect to one television and
one radio station (which radio station the Company has since agreed to
acquire), (iii) River City's rights under JSAs with respect to three radio
stations, and (iv) River City's rights to acquire eight additional radio
stations (one of which the Company has subsequently exercised). The Company
also entered into an LMA with River City to program the eight television
stations and 21 radio stations pending acquisition of the License Assets.
The Company paid an aggregate of $838.7 million in cash and issued
1,150,000 shares of Series B Preferred Stock to acquire the Non-License
Assets, the options for the License Assets and the rights described above.
The Company also obtained an option to purchase from River City the assets
of WSYX-TV in Columbus, Ohio, for an exercise price of approximately $235
million. See "Business -- Acquisition Strategy."
o Superior Acquisition. On May 8, 1996, the Company acquired WDKY-TV
(Lexington, Kentucky) and KOCB-TV (Oklahoma City, Oklahoma), by acquiring
the stock of Superior Communications Inc. (the "Superior Acquisition") for
approximately $63.0 million.
o Flint Acquisition. On February 27, 1996 the Company acquired the assets of
WSMH-TV (Flint, Michigan) (the "Flint Acquisition") for approximately $35.4
million.
o Cincinnati/Kansas City Acquisitions. On July 1, 1996, the Company acquired
the assets of KSMO-TV (Kansas City, Missouri) ("KSMO") and on August 1,
1996, it acquired the assets of WSTR-TV (Cincinnati, Ohio) ("WSTR" and
together, the "Cincinnati/Kansas City Acquisitions") for approximately
$34.2 million.
o Peoria/Bloomington Acquisition. On July 1, 1996, the Company acquired the
assets of WYZZ-TV (Peoria/Bloomington, Illinois) (the "Peoria/Bloomington
Acquisition" or "WYZZ") for approximately $21.2 million.
The Company continues to evaluate potential radio and television acquisitions
focusing primarily on stations located in the 20th to the 75th largest DMAs or
MSAs. In assessing potential acquisitions, the Company examines opportunities to
improve revenue share, audience share and/or cost control.
OPERATING STRATEGY
The Company's operating strategy is to (i) attract audience share through the
acquisition and broadcasting of popular programming, children's television
programming, counter-programming, local news programming in selected DMAs, and
popular sporting events in selected DMAs; (ii) increase its share of market
revenues through innovative sales and marketing efforts; (iii) aggressively
control programming and other operating costs; (iv) attract and retain high
quality management; (v) involve its stations extensively in their communities;
and (vi) establish additional television LMAs and increase the size of its radio
clusters.
The Company's LMA arrangements in markets where it already owns a television
station are a major factor in enabling the Company to increase its revenues and
improve operating margins. These LMAs have also helped the Company to manage its
programming inventory effectively and increase the Company's broadcast revenues
in those markets. In addition, the Company believes
4
<PAGE>
that its LMA arrangements have assisted certain television and radio stations
whose operations may have been marginally profitable to continue to air popular
programming and contribute to programming diversity in their respective
television DMAs and radio MSAs.
RECENT DEVELOPMENTS
On August 21, 1996, the Company entered into an agreement (the "Fox
Agreement") with Fox which, among other things, provides that affiliation
agreements between Fox and eight stations owned or provided programming services
by the Company would be amended to have new five-year terms commencing on the
date of the Fox Agreement. Fox has the option to extend the affiliation
agreements for an additional 5-year term and generally must extend all of the
affiliation agreements if it extends any. The Fox Agreement also provides that
the Company will have the right to purchase, for fair market value, any station
Fox acquires in a market currently served by a Company-owned Fox affiliate
(other than the Norfolk and Raleigh-Durham markets) if Fox determines to
terminate the affiliation agreement with the Company's station in that market
and operate the station acquired by Fox as a Fox affiliate. The agreement
confirmed that the Fox affiliation agreement for WTTO (Birmingham, Alabama)
would terminate on September 1, 1996, and that affiliation agreements for WTVZ
(Norfolk, Virginia) and WLFL (Raleigh, North Carolina) will terminate on August
31, 1998. See "Business -- Television Broadcasting."
PREFERRED STOCK OFFERING
In addition to the shares of Class A Common Stock offered by this Prospectus,
the Company intends to offer 2,000,000 shares of Series C Preferred Stock, with
an aggregate liquidation preference of $200 million pursuant to a separate
prospectus. The Company expects to complete the sale of the Series C Preferred
Stock at or about the same time as it completes the sale of the shares of Class
A Common Stock offered by this Prospectus. The consummation of the Common Stock
Offering and the Preferred Stock Offering are not contingent on one another. The
net proceeds of the sale of the Series C Preferred Stock will be used to reduce
the amount outstanding under the Company's Bank Credit Agreement.
CORPORATE HISTORY
The Company is the successor to businesses founded by the late Julian S.
Smith, the father of the Company's current majority stockholders. These
predecessor businesses began broadcasting on their first television station in
1971 when construction of WBFF-TV in Baltimore was completed. Subsequently, the
predecessor businesses were expanded through the construction of stations in
additional markets and, in 1986, were acquired by the Company. The Company was
formed by certain stockholders, including the Company's current majority
stockholders, David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E.
Smith (collectively, the "Controlling Stockholders"), and their parents.
The Company is a Maryland corporation that was formed in 1986. The Company's
principal offices are located at 2000 West 41st Street, Baltimore, Maryland
21211, and its telephone number is (410) 467-5005.
5
<PAGE>
TELEVISION BROADCASTING PROPERTIES
The following table sets forth certain information regarding the television
stations owned and operated or provided programming services by the Company:
MARKET
MARKET RANK(a) STATIONS STATUS(b) CHANNEL AFFILIATION
------ ------- -------- --------- ------- -----------
Pittsburgh, Pennsylvania..... 19 WPGH O&O 53 FOX
WPTT LMA 22 UPN
St. Louis, Missouri.......... 20 KDNL LMA (d) 30 ABC
Sacramento, California....... 21 KOVR LMA (d) 13 CBS
Baltimore, Maryland.......... 23 WBFF O&O 45 FOX
WNUV LMA 54 UPN
Indianapolis, Indiana........ 25 WTTV LMA (d) 4 UPN
WTTK(c) LMA (d) 29 UPN
Cincinnati, Ohio............. 29 WSTR O&O 64 UPN
Raleigh-Durham, North Carolina. 30 WLFL O&O 22 FOX
WRDC LMA 28 UPN
Milwaukee, Wisconsin......... 31 WCGV O&O 24 UPN
WVTV LMA 18 IND(g)
Kansas City, Missouri........ 32 KSMO O&O 62 UPN
Columbus, Ohio............... 34 WTTE O&O 28 FOX
Asheville, North Carolina and
Greenville/Spartanburg/Anderson,
South Carolina............. 35 WLOS LMA (d) 13 ABC
WFBC LMA (e) 40 IND(g)
San Antonio, Texas........... 37 KABB LMA (d) 29 FOX
KRRT LMA (f) 35 UPN
Norfolk, Virginia............ 40 WTVZ O&O 33 FOX
Oklahoma City, Oklahoma...... 43 KOCB O&O 34 UPN
Birmingham, Alabama.......... 51 WTTO O&O 21 IND(g)
WABM LMA 68 UPN
Flint/Saginaw/Bay City,
Michigan..................... 60 WSMH O&O 66 FOX
Lexington, Kentucky.......... 68 WDKY O&O 56 FOX
Des Moines, Iowa............. 72 KDSM LMA (d) 17 FOX
Peoria/Bloomington, Illinois. 109 WYZZ O&O 43 FOX
Tuscaloosa, Alabama.......... 187 WDBB LMA 17 IND(g)
- ----------
(a) Rankings are based on the relative size of a station's DMA among the 211
generally recognized DMAs in the United States as estimated by Nielsen.
(b) "O&O" refers to stations owned and operated by the Company and "LMA"
refers to stations to which the Company provides programming services
pursuant to an LMA.
(c) WTTK currently simulcasts all of the programming aired on WTTV.
(d) Non-License Assets acquired from River City and option exercised to
acquire License Assets. Will become owned and operated upon FCC approval
of transfer of License Assets and closing of acquisition of License
Assets.
(e) Non-License Assets acquired from River City. License Assets to be
acquired by Glencairn, subject to the Company's LMA, upon FCC approval of
transfer of License Assets.
(f) River City provided programming to this station pursuant to an LMA. The
Company acquired River City's rights under the LMA from River City and
the Non-License Assets from the owner of this station. The License Assets
are to be acquired by Glencairn, subject to the Company's LMA, upon FCC
approval of transfer of License Assets.
(g) "IND" or "Independent" refers to a station that is not affiliated with
any of ABC, CBS, NBC, Fox, UPN or Warner Brothers.
6
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THE OFFERING
Class A Common Stock
offered(a):.................. 5,000,000 shares
Common Stock to be outstanding
after the Offering........... 11,447,300 shares of Class A Common Stock(a)
28,302,681 shares of Class B Common Stock
39,749,981 total shares of Common Stock(a)
Use of proceeds............... The net proceeds from the Offering and the
Preferred Stock Offering will be used for
repayment of indebtedness under the Company's
bank credit facility. See "Use of Proceeds."
Voting rights................. The holders of the Class A Common Stock, the
Class B Common Stock and the Series B Preferred
Stock vote together as a single class (except as
may be otherwise required by Maryland law) on
all matters submitted to a vote of stockholders,
with each share of Class A Common Stock entitled
to one vote, each share of Class B Common Stock
entitled to one vote on "going private" and
certain other transactions and to ten votes on
other matters and each share of Series B
Preferred Stock entitled to 3.64 votes (subject
to adjustment). Each share of Class B Common
Stock converts automatically into one share of
Class A Common Stock upon the sale or other
transfer of such share of Class B Common Stock
to a person or entity other than a Permitted
Transferee (as defined herein). Each share of
Series B Preferred Stock may be converted at any
time, at the option of the holder, into 3.64
shares of Class A Common Stock (subject to
adjustment). Each class of Common Stock
otherwise has identical rights. After giving
effect to the Offering contemplated hereby,
approximately 94.8% of the total voting power of
the Common Stock will be owned by the
Controlling Stockholders. See "Risk Factors --
Voting Rights; Control by Controlling
Stockholders; Potential Anti-Takeover Effect of
Disproportionate Voting Rights."
Nasdaq National Market
System symbol................ SBGI
Dividend policy.............. The Company generally has not paid a dividend on
its Common Stock and does not expect to pay cash
dividends on its Common Stock in the foreseeable
future. The Company's ability to pay cash
dividends in the future is subject to
limitations and prohibitions contained in
certain debt instruments to which the Company is
a party.
- -------------
(a) Excludes up to 750,000 shares of Class A Common Stock that may be sold by
the Company upon exercise of the over-allotment option granted to the U.S.
Underwriters. See "Underwriting." Also excludes 4,181,818 shares of Class A
Common Stock that may be issued upon conversion of outstanding shares of
Series B Preferred Stock and up to 2,641,673 shares of Class A Common Stock
reserved for issuance pursuant to the Company's Incentive Stock Option Plan,
the Company's Designated Participants Stock Option Plan and the Company's
Long Term Incentive Plan.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
SINCLAIR BROADCAST GROUP, INC.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The summary historical consolidated financial data for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the
Company's audited consolidated financial statements (the "Consolidated Financial
Statements"). The Consolidated Financial Statements for the years ended December
31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 are
incorporated herein by reference. The consolidated financial statements for, and
as of, the six months ended June 30, 1995 and 1996 are unaudited, but in the
opinion of management, such financial statements have been prepared on the same
basis as the Consolidated Financial Statements incorporated herein by reference
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for that period. Results for the six months ended June 30, 1996 are
not necessarily indicative of the results for a full year. The summary pro forma
consolidated financial data of the Company reflect the Recent Acquisitions and
the application of the proceeds of the Offerings as set forth in "Use of
Proceeds" as though they occurred at the beginning of the periods presented for
statement of operations data and as of the date of the balance sheet for balance
sheet data and are derived from the pro forma consolidated financial statements
of the Company included elsewhere in this Prospectus. See "Pro Forma
Consolidated Financial Data."
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus and the Consolidated Financial Statements
incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1991(a) 1992 1993 1994(a) 1995(a) 1995(b) 1995(a) 1996(a) 1996(b)
--------- -------- -------- --------- ---------- ---------- ------- -------- ---------
(UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c).......... $39,698 $61,081 $69,532 $118,611 $187,934 $406,411 $88,724 $117,339 $214,877
Barter revenues.................... 5,660 8,805 6,892 10,743 18,200 24,351 8,150 9,571 13,607
-------- --------- --------- ---------- ---------- --------- ------- -------- --------
Total revenues.................... 45,358 69,886 76,424 129,354 206,134 430,762 96,874 126,910 228,484
Operating expenses, excluding
depreciation and amortization,
deferred compensation and special
bonuses paid to executive 38,731 52,825 112,250
officers.......................... 25,187 32,993 32,197 50,467 80,446 195,831
Depreciation and amortization(d) .. 18,078 30,943 22,584 55,665 80,410 170,036 38,801 45,493 77,651
Deferred compensation.............. -- -- -- -- -- 8,855 -- 6,007 7,302
Special bonuses paid to executive
officers.......................... -- -- 10,000 3,638 -- -- -- -- --
-------- --------- --------- ---------- ---------- ---------- -------- ---------- ----------
Broadcast operating income......... 2,093 5,950 11,643 19,584 45,278 56,040 19,342 22,585 31,281
Interest expense................... 8,895 12,997 12,852 25,418 39,253 90,010 19,655 27,646 44,530
Interest and other income.......... 562 1,207 2,131 2,447 4,163 3,374 1,282 3,171 1,618
-------- --------- --------- ---------- ---------- ---------- -------- ---------- ----------
Income (loss) before (provision)
benefit for income taxes and
extraordinary item................ (6,240) (5,840) 922 (3,387) 10,188 (30,596) 969 (1,890) (11,631)
-------- --------- --------- ---------- ---------- ---------- -------- ---------- ----------
Net income (loss).................. $(4,660) $(4,651) $(7,945) $ (2,740) $ 76 $(19,660) $ 507 $ (790) $ (6,635)
======== ========= ========= ========== ========== =========== ======== ========== ===========
Preferred stock dividend........... -- -- -- -- -- $(21,500) -- -- $(10,750)
-------- --------- --------- ---------- ---------- ----------- -------- ---------- -----------
Income (loss) applicable to common
stock............................. $(4,660) $(4,651) $(7,945) $ (2,740) $ 76 $(46,072) $ 507 $ (790) $(17,385)
======== ========= ========= ========== ========== =========== ======== ========== ===========
Earnings (loss) per common share:
Net income (loss) before
extraordinary item............... $ (0.16) $ (0.16) $ (0.27) $ (0.09) $ 0.15 $ (0.48) $ 0.02 $ (0.02) $ (0.40)
Extraordinary item................ -- -- -- -- (0.15) (0.12) -- -- --
Net income (loss) per common
share............................ $ (0.16) $ (0.16) $ (0.27) $ (0.09) $ -- $ (1.11) $ 0.02 $ (0.02) $ (0.40)
======== ========= ========= ========== ========= =========== ======== ========== ===========
Weighted average shares out-
standing (in thousands).......... 29,000 29,000 29,000 29,000 32,198 41,364 29,575 34,750 43,932
======== ========= ========= ========== ========= =========== ======== ========== ===========
OTHER DATA:
Broadcast cash flow(e)............. $17,260 $28,019 $37,596 $ 67,597 $111,124 $201,290 $50,471 $ 65,080 $ 96,352
Broadcast cash flow margin(f) ..... 43.5% 45.9% 54.1% 57.0% 59.1% 49.5% 56.9% 55.5% 44.8%
Operating cash flow(g) ............ $15,483 $26,466 $35,504 $ 64,625 $105,750 $190,634 $48,285 $ 62,014 $ 90,481
Operating cash flow margin(f)...... 39.0% 43.3% 51.1% 54.5% 56.3% 46.9% 54.4% 52.9% 42.1%
Program contract payments.......... $ 4,688 $10,427 $ 8,723 $ 14,262 $ 19,938 $ 44,297 $ 9,858 $ 12,071 $ 25,753
Capital expenditures............... 1,730 426 528 2,352 1,702 13,810 1,359 2,114 3,474
Corporate overhead expense......... 1,777 1,553 2,092 2,972 5,374 10,656 2,186 3,066 5,871
(Continued on following page)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- --------------------------------
PRO FORMA PRO FORMA
1991(a) 1992 1993 1994(a) 1995(a) 1995(b) 1995(a) 1996(a) 1996(b)
------ ------ ------ ------- ------- ------ ------- ------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIO OF:
Earnings to fixed charges and
preferred stock dividends(h)...... -- -- 1.1x -- 1.3x -- 1.0x -- --
Operating cash flow to interest
expense........................... 1.7x 2.0x 2.8x 2.5x 2.7x 2.1x 2.5x 2.2x 2.0x
Operating cash flow to interest
expense and preferred stock
dividend.......................... -- -- -- -- -- 1.7x -- -- 1.6x
Total debt to operating cash
flow(i)........................... 7.3x 4.2x 6.3x 5.4x 4.0x 4.6x 3.6x 10.4x 4.5x
Total debt and preferred stock to
operating cash flow(i)(j)......... -- -- -- -- -- 5.6x -- -- 5.5x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1996
---------------------------------------------------- ---------------------------
1991(a) 1992 1993 1994(a) 1995(a) HISTORICAL(a) PRO FORMA(b)
--------- --------- ---------- ---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 1,380 $ 1,823 $ 18,036 $ 2,446 $112,450 $ 4,196 $ 4,488
Total assets....................... 149,227 140,366 242,917 399,328 605,272 1,639,205 1,687,481
Total debt(k)...................... 112,303 110,659 224,646 346,270 418,171 1,246,456 902,850
Series C Preferred Stock........... -- -- -- -- -- -- 200,000
Total stockholders' equity
(deficit)......................... (3,052) (3,127) (11,024) (13,723) 96,374 259,613 447,719
</TABLE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) The Company acquired the License and Non-License assets of WPGH in
Pittsburgh and sold the License Assets of WPTT in Pittsburgh in August
1991. The Company also made other acquisitions in 1994, 1995 AND 1996 as
described in the footnotes to the Consolidated Financial Statements
Incorporated herein by reference. The Statement of Operations and other
data presented for periods preceding the dates of acquisitions do not
include amounts for these acquisitions and therefore are not comparable to
subsequent periods. Additionally, the years in which the specific
acquisitions occurred may not be comparable to subsequent periods.
(b) The pro forma information in this table reflects the pro forma effect of
the completion of the Offerings and Recent Acquisitions. The Offerings are
not contingent on one another. The pro forma effect of completion of the
Common Stock Offering only is set forth in "Pro Forma Consolidated
Financial Data" appearing elsewhere in this Prospectus.
(c) Net broadcast revenues are defined as broadcast revenues net of agency
commissions.
(d) 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.
(e) "Broadcast cash flow" is defined as broadcast operating income plus
corporate overhead expense, special bonuses paid to executive officers,
non-cash deferred compensation, depreciation and amortization, including
both tangible and intangible assets and program rights, less cash payments
for program contract rights. Cash program payments represent cash payments
made for current program payables and do not necessarily correspond to
program usage. Special bonuses paid to executive officers are considered
non-recurring expenses. 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 flow, 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.
(f) "Broadcast cash flow margin" is defined as broadcast cash flow divided by
net broadcast revenues. "Operating cash flow margin" is defined as
operating cash flow divided by net broadcast revenues.
(g) "Operating cash flow" is defined as broadcast cash flow less corporate
overhead expense 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 flow, 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.
(h) For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, earnings consist of net income (loss) before
income taxes and extraordinary items plus fixed charges. Fixed charges
consist of interest expense, which includes interest on all debt and
amortization of debt discount and deferred financing costs. Earnings were
inadequate to cover fixed charges for the years ended December 31, 1991,
1992, and 1994 by $6,240, $5,840 and $3,387, respectively, and for the six
months ended June 30, 1996 by $1,890. On a pro forma basis, when giving
effect to the Recent Acquisitions and the Offerings, as if such
transactions had occurred on January 1, 1995 and January 1, 1996, earnings
were inadequate to cover fixed charges and preferred stock dividends for
the year ended December 31, 1995 and the six months ended June 30, 1996 by
($22,381) and ($52,096) respectively.
(i) For the six months ended June 30, 1996 and 1995 and for the six months
ended June 30, 1996 and for the year ended December 31, 1995 on a pro forma
basis, the ratio of total debt to operating cash flow was computed using
pro forma operating cash flow for the twelve month period ended on those
dates.
(j) The Series B Preferred Stock is not included in this calculation as it is
convertible into common equity.
(k) "Total debt" is defined as long-term debt, net of unamortized discount, and
capital lease obligations, including current portion thereof. In 1991 and
1992 total debt included warrants outstanding which were redeemable outside
the control of the Company. The warrants were purchased by the Company for
$10.4 million in 1993. Total debt as of December 31, 1993 included $100.0
million in principal amount of the 1993 Notes, the proceeds of which were
held in escrow to provide a source of financing for acquisitions that were
subsequently consummated in 1994 utilizing borrowings under the Bank Credit
Agreement. This amount of the 1993 Notes was redeemed in the first quarter
of 1994.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should review carefully the following risks concerning the
Company and the broadcast industry before purchasing shares of Class A Common
Stock in the Company.
SUBSTANTIAL LEVERAGE AND PREFERRED STOCK OUTSTANDING
The Company has, and after giving effect to the Offerings will continue to
have, consolidated indebtedness that is substantial in relation to its total
stockholders' equity. As of June 30, 1996, and after giving pro forma effect to
the Offerings the Company would have had outstanding long-term indebtedness
(including current installments) of approximately $902.9 million. See "Pro Forma
Consolidated Financial Data." In addition, the portion of the Company's
Revolving Credit Facility that is being repaid from the proceeds of these
Offerings can be reborrowed, subject to certain conditions and limitations
included in the Bank Credit Agreement. The Company also has issued and
outstanding 1,150,000 shares of Series B Preferred Stock with an aggregate
liquidation preference of $115.0 million. Further, in the Preferred Stock
offering, the Company proposes to issue Series C Preferred Stock with an
aggregate liquidation preference of $200.0 million. The Company also has
significant program contracts payable and commitments for future programming.
Moreover, subject to the restrictions contained in its debt instruments, the
Company may incur additional debt in the future.
The Company's current and future debt service obligations could have adverse
consequences to holders of the Common Stock, including the following: (i) the
Company's ability to obtain financing for future working capital needs or
additional acquisitions or other purposes may be limited; (ii) a substantial
portion of the Company's cash flow from operations will be dedicated to the
payment of principal and interest on its indebtedness and preferred stock
dividends, thereby reducing funds available for operations; (iii) the Company
may be vulnerable to changes in interest rates payable under its credit
facility; and (iv) the Company may be more vulnerable to adverse economic
conditions than less leveraged competitors and, thus, may be limited in its
ability to withstand competitive pressures. If the Company is unable to service
or refinance its indebtedness, it may be required to sell one or more of its
stations to reduce debt service obligations.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The indenture relating to the Company's 10% Senior Subordinated Notes due
2003 (the "1993 Notes") and the indenture (together, the "Indentures") relating
to the Company's 10% Senior Subordinated Notes due 2005 (the "1995 Notes" and,
with the 1993 Notes, the "Notes") restrict, among other things, the Company's
and its Subsidiaries' ability to (i) incur additional indebtedness, (ii) pay
dividends, make certain other restricted payments or consummate certain asset
sales, (iii) enter into certain transactions with affiliates, (iv) incur
indebtedness that is subordinate in priority and in right of payment to any
senior debt and senior in right of payment to the Notes, (v) merge or
consolidate with any other person, or (vi) sell, assign, transfer, lease,
convey, or otherwise dispose of all or substantially all of the assets of the
Company. In addition, the agreement governing the Company's bank credit facility
with The Chase Manhattan Bank, N.A., as Agent, (the "Bank Credit Agreement")
contains certain other and more restrictive covenants, including a limitation on
the aggregate size of future acquisitions undertaken without lender consent, a
requirement that certain conditions be satisfied prior to consummation of future
acquisitions, and a limitation on the amount of capital expenditures permitted
by the Company in future years without lender consent. The Bank Credit Agreement
also will, under certain circumstances, prohibit the Company from prepaying
certain portions of its indebtedness. The Bank Credit Agreement also requires
the Company to maintain specific financial ratios and to satisfy certain
financial condition tests. The Company's ability to meet these financial ratios
and financial condition tests can be affected by events beyond its control, and
there can be no assurance that the Company will meet those tests. The breach of
any of these covenants could result in a default under the Bank Credit Agreement
and/or the Indentures. In the event of a default under the Bank Credit Agreement
or the Indentures, the lenders and the noteholders could seek to declare all
amounts outstanding under the Bank Credit Agreement and the Notes, together with
accrued and unpaid interest, to be immediately due and payable. If the
10
<PAGE>
Company were unable to repay those amounts, the lenders under the Bank Credit
Agreement could proceed against the collateral granted to them to secure that
indebtedness. If the indebtedness under the Bank Credit Agreement or the Notes
were to be accelerated, there can be no assurance that the assets of the Company
would be sufficient to repay in full that indebtedness and the other
indebtedness of the Company. Substantially all of the assets of the Company and
its Subsidiaries are pledged as security under the Bank Credit Agreement. The
Subsidiaries also guarantee the indebtedness under the Bank Credit Agreement and
the Indentures.
In addition to a pledge of substantially all of the assets of the Company and
its Subsidiaries, the Company's obligations under the Bank Credit Agreement are
secured by a pledge of the assets of certain non-Company entities (the
"Stockholder Affiliates") owned and controlled by the Controlling Stockholders,
including Cunningham Communications, Inc. ("CCI"), Gerstell Development
Corporation ("Gerstell"), Gerstell Development Limited Partnership ("Gerstell
LP") and Keyser Investment Group, Inc. ("KIG"). If the Company were to seek to
replace the Bank Credit Agreement, there can be no assurance that the assets of
these Stockholder Affiliates would be available to provide additional security
under a new credit agreement, or that a new credit agreement could be arranged
on terms as favorable as the terms of the Bank Credit Agreement without a pledge
of such Stockholder Affiliate assets.
CONFLICTS OF INTEREST
In addition to their respective interests in the Company, the Controlling
Stockholders have interests in various non-Company entities which are involved
in businesses related to the business of the Company, including, among others,
the operation of a television station in St. Petersburg, Florida since 1991 and
a television station in Bloomington, Indiana since 1990. In addition, the
Company leases certain real property and tower space from and engages in other
transactions with the Stockholder Affiliates, which are controlled by the
Controlling Stockholders. Although the Controlling Stockholders have agreed to
divest interests in the Bloomington station that are attributable to them under
applicable FCC regulations, the Controlling Stockholders and the Stockholder
Affiliates may continue to engage in these already existing businesses. However,
under Maryland law, generally a corporate insider is precluded from acting on a
business opportunity in his or her individual capacity if that opportunity is
one which the corporation is financially able to undertake, is in the line of
the corporation's business and of practical advantage to the corporation, and is
one in which the corporation has an interest or reasonable expectancy.
Accordingly, the Controlling Stockholders generally are required to engage in
new business opportunities of the Company only through the Company unless a
majority of the Company's disinterested directors decide under the standards
discussed above, that it is not in the best interests of the Company to pursue
such opportunities. Non-Company activities of the Controlling Stockholders such
as those described above could, however, present conflicts of interest with the
Company in the allocation of management time and resources of the Controlling
Stockholders, a substantial majority of which is currently devoted to the
business of the Company.
In addition, there have been and will be transactions between the Company and
Glencairn Ltd. (with its subsidiaries, "Glencairn"), a corporation in which
relatives of the Controlling Stockholders beneficially own a majority of the
equity interests. Glencairn is the owner-operator and licensee of WRDC in
Raleigh/Durham, WVTV in Milwaukee, WNUV in Baltimore and WABM in Birmingham. The
Company currently provides programming services to each of these stations
pursuant to an LMA. Glencairn also has exercised an option to acquire the
License Assets of WFBC in Greenville/Spartanburg, South Carolina and has
exercised an option to acquire the License Assets of KRRT in San Antonio, Texas
from a third party. The Non-License Assets of WFBC and KRRT were acquired by the
Company in the River City Acquisition, and the Company currently provides
programming services to each station pursuant to an LMA. The Company has also
agreed to sell the License Assets relating to WTTE in Columbus, Ohio to
Glencairn and to enter into an LMA with Glencairn pursuant to which the Company
will provide programming services for this station after the acquisition of the
License Assets by Glencairn. See "Business -- Acquisition Strategy."
Two persons who are expected to become directors of the Company, Barry Baker
(who is also expected to become an executive officer of the Company) and Roy F.
Coppedge, III, have direct and
11
<PAGE>
indirect interests in River City, from which the Company purchased certain
assets in the River City Acquisition. In addition, in connection with the River
City Acquisition, the Company has entered into various ongoing agreements with
River City, including options to acquire assets that were not acquired at the
time of the initial closing, and LMAs relating to stations for which River City
continues to own License Assets. See "Business--Broadcasting Acquisition
Strategy." Messrs. Baker and Coppedge were not officers or directors of the
Company at the time these agreements were entered into, but, upon their expected
election to the Board of Directors of the Company and upon Mr. Baker's expected
appointment as an executive officer of the Company, they may have conflicts of
interest with respect to issues that arise under the continuing agreements.
Both the Bank Credit Agreement and the Indentures provide that transactions
between the Company and its affiliates must be no less favorable to the Company
than would be available in comparable transactions in arms-length dealings with
an unrelated third party. Moreover, the Indentures provide that any such
transactions involving aggregate payments in excess of $1.0 million must be
approved by a majority of the members of the Board of Directors of the Company
and the Company's independent directors (or, in the event there is only one
independent director, by such director), and, in the case of any such
transactions involving aggregate payments in excess of $5.0 million, the Company
is required to obtain an opinion as to the fairness of the transaction to the
Company from a financial point of view issued by an investment banking or
appraisal firm of national standing.
VOTING RIGHTS; CONTROL BY CONTROLLING STOCKHOLDERS;
POTENTIAL ANTI-TAKEOVER EFFECT OF DISPROPORTIONATE VOTING RIGHTS
The Company's Common Stock has been divided into two classes, each with
different voting rights. The Class A Common Stock entitles a holder to one vote
per share on all matters submitted to a vote of the stockholders, whereas the
Class B Common Stock, 100% of which is beneficially owned by the Controlling
Stockholders, entitles a holder to ten votes per share, except for "going
private" and certain other transactions for which the holder is entitled to one
vote per share. The Class A Common Stock, the Class B Common Stock and the
Series B Preferred Stock vote together as a single class (except as otherwise
may be required by Maryland law) on all matters submitted to a vote of
stockholders, with each share of Series B Preferred Stock entitled to 3.64 votes
on all such matters. Holders of Class B Common Stock may at any time convert
their shares into the same number of shares of Class A Common Stock and holders
of Series B Preferred Stock may at any time convert each share of Series B
Preferred Stock into 3.64 Shares of Class A Common Stock.
The Controlling Stockholders owned in the aggregate 72.8% of the outstanding
capital stock (including the Series B Preferred Stock) of the Company prior to
the Offering. Following the closing of the Offering, the Controlling
Stockholders will own 64.5% of all the Company's outstanding Common Stock and
will control approximately 94.8% of all voting rights associated with the
Company's capital stock. As a result, any three of the Controlling Stockholders
will be able to elect a majority of the members of the Board of Directors and,
thus, will have the ability to maintain control over the operations and business
of the Company.
The Controlling Stockholders have entered into a stockholders' agreement (the
"Stockholders' Agreement") pursuant to which they have agreed, for a period
ending in 2005, to vote for each other as candidates for election to the Board
of Directors. In addition, in connection with the River City Acquisition, the
Controlling Stockholders and Barry Baker and Boston Ventures IV Limited
Partnership and Boston Ventures IVA Limited Partnership (collectively, "Boston
Ventures") have entered into a voting agreement (the "Voting Agreement")
pursuant to which the Controlling Stockholders have agreed to vote in favor of
certain specified matters including, but not limited to, the appointment of Mr.
Baker and Mr. Coppedge (or another designee of Boston Ventures) to the Company's
Board of Directors at such time as they are allowed to become directors pursuant
to FCC rules. Mr. Baker and Boston Ventures, in turn, have agreed to vote in
favor of the reappointment of each of the Controlling Stockholders to the
Company's Board of Directors. The Voting Agreement will remain in effect with
respect to Mr. Baker for as long as he is a director of the Company and will
remain in effect with respect to Mr. Coppedge (or another designee of Boston
Ventures) until the first to occur of (a) the later of (i) May 31, 2001 and
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<PAGE>
(ii) the expiration of the initial five-year term of Mr. Baker's employment
agreement and (b) such time as Boston Ventures no longer owns directly or
indirectly through its interest in River City at least 721,115 shares of Class A
Common Stock (including shares that may be obtained on conversion of Series B
Preferred Stock). See "Management -- Employment Agreements."
The disproportionate voting rights of the Class B Common Stock relative to
the Class A Common Stock and the Stockholders' Agreement and Voting Agreement
may make the Company a less attractive target for a takeover than it otherwise
might be or render more difficult or discourage a merger proposal, tender offer
or other transaction involving an actual or potential change of control of the
Company, including transactions in which holders of the Class A Common Stock
might otherwise receive a premium for their shares over then-current market
prices. See "Description of Capital Stock."
DEPENDENCE UPON KEY PERSONNEL
The Company believes that its success will continue to be dependent upon its
ability to attract and retain skilled managers and other personnel, including
its present officers, regional directors and general managers. The loss of the
services of any of the present officers, especially its President and Chief
Executive Officer, David D. Smith, or Barry Baker, who is expected to become
President and Chief Executive Officer of Sinclair Communications, Inc. (a wholly
owned subsidiary of the Company that holds all of the broadcast operations of
the Company, "SCI") and Executive Vice President and a director of the Company
as soon as permissible under FCC rules, may have a material adverse effect on
the operations of the Company. Mr. Baker cannot be appointed as an executive
officer or director of the Company until such time as (i) either the Controlling
Stockholders dispose of their attributable interests (as defined by applicable
FCC rules) in a television station in the Indianapolis DMA or Mr. Baker no
longer has an attributable interest in WTTV or WTTK in Indianapolis; and (ii)
either the Company disposes of its attributable interest in WTTE or Mr. Baker no
longer has an attributable interest in WSYX in Columbus. There can be no
assurance as to when or whether these events will occur. In addition, if Mr.
Baker's employment agreement is terminated under certain specified
circumstances, Mr. Baker will have the right to purchase from the Company at
fair market value either (i) the Company's broadcast operations in the St. Louis
or the Asheville/Greenville/Spartanburg market or (ii) all of the Company's
radio operations, which may also have a material adverse effect on the
operations of the Company. Each of the Controlling Stockholders has entered into
an employment agreement with the Company, each of which terminates June 12,
1998, unless renewed for an additional one year period according to its terms,
and Barry Baker has entered into an employment agreement that terminates in
2001. See "Management -- Employment Agreements." Although the Company intends to
purchase key-man life insurance for Mr. Baker, the Company does not currently
maintain key personnel life insurance on any of its executive officers.
RECENT RAPID GROWTH; ABILITY TO MANAGE GROWTH; FUTURE ACCESS TO CAPITAL
Since the beginning of 1992, the Company has experienced rapid and
substantial growth primarily through acquisitions and the development of LMA
arrangements. In 1996, the Company completed the River City Acquisition and
other acquisitions, which increased the number of television stations owned or
provided programming services by the Company from 13 to 28 and increased the
number of radio stations owned or provided programming or sales services from
none to 25 radio stations. There can be no assurance that the Company will be
able to continue to locate and complete acquisitions on the scale of the River
City Acquisition or in general. Accordingly, there is no assurance that the
Company will be able to maintain its rate of growth or that the Company will
continue to be able to integrate and successfully manage such expanded
operations. Inherent in any future acquisitions are certain risks such as
increasing leverage and debt service requirements and combining company cultures
and facilities which could have a material adverse effect on the Company's
operating results, particularly during the period immediately following such
acquisitions. Additional debt or capital may be required in order to complete
future acquisitions, and there can be no assurance the Company will be able to
obtain such financing or raise the required capital.
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DEPENDENCE ON ADVERTISING REVENUES; EFFECT OF LOCAL, REGIONAL AND NATIONAL
ECONOMIC CONDITIONS
The Company's operating results are primarily dependent on advertising
revenues which, in turn, depend on national and local economic conditions, the
relative popularity of the Company's programming, the demographic
characteristics of the Company's markets, the activities of competitors and
other factors which are outside the Company's control. Both the television and
radio industries are cyclical in nature, and the Company's revenues could be
adversely affected by a future local, regional or national recessionary
environment.
RELIANCE ON TELEVISION PROGRAMMING
The Company's most significant operating cost is television programming.
There can be no assurance that the Company will not be exposed in the future to
increased programming costs which may adversely affect the Company's operating
results. Acquisitions of program rights are usually made two or three years in
advance and may require multi-year commitments, making it difficult to
accurately predict how a program will perform. In some instances, programs must
be replaced before their costs have been fully amortized, resulting in
write-offs that increase station operating costs.
CERTAIN NETWORK AFFILIATION AGREEMENTS
All but four of the television stations owned or provided programming
services by the Company are affiliated with a network. Under the affiliation
agreements, the networks possess, under certain circumstances, the right to
terminate the agreement on prior written notice ranging between 15 and 45 days,
depending on the agreement. Ten of the stations currently owned or programmed by
the Company are affiliated with Fox and 41.0% of the Company's revenue in 1995
on a pro forma basis was from Fox affiliated stations. WCGV, a station owned by
the Company in Milwaukee, Wisconsin, WTTO, a station owned by the Company in
Birmingham, Alabama, and WDBB, a station to which the Company provides
programming services in Tuscaloosa, Alabama, each of which was previously
affiliated with Fox, had their affiliation agreements with Fox terminated by Fox
in December 1994, September 1996 and September 1996, respectively. In addition,
the Company has been notified by Fox of Fox's intention to terminate WLFL's
affiliation with Fox in the Raleigh-Durham market and WTVZ's affiliation with
Fox in the Norfolk market, effective August 31, 1998. The Company has recently
entered into an agreement with Fox limiting Fox's rights to terminate in other
markets, but there can be no assurance that the Fox affiliation agreements will
remain in place or that Fox will continue to provide programming to affiliates
on the same basis that currently exists. See "Business -- Television
Broadcasting." The non-renewal or termination of affiliations with Fox or any
other network could have a material adverse effect on the Company's operations.
Each of the affiliation agreements relating to television stations involved
in the River City Acquisition is terminable by the network upon transfer of the
stations. These stations are continuing to operate as network affiliates, but
there can be no assurance that the affiliation agreements will be continued, or
that they will be continued on terms favorable to the Company. If any
affiliation agreements are terminated, the affected station could lose market
share, may have difficulty obtaining alternative programming at an acceptable
cost, and may otherwise be adversely affected. In addition, KDNL (St. Louis) has
been operated as an ABC affiliate pursuant to terms negotiated with ABC, but no
affiliation agreement has been signed and ABC has not been paying affiliation
fees (which are being accrued by the Company as accounts receivable). WLOS
(Asheville) is being operated as an ABC affiliate pursuant to an affiliation
agreement previously assumed by River City, but the terms of a new affiliation
agreement calling for higher affiliation fees have been negotiated. The new
affiliation agreement for WLOS has not been signed, and ABC has not paid the
increased affiliation fees, which the Company has accrued as a receivable. The
Company will continue to monitor the status of these affiliations, the
affiliation fees and their collectability, and determine if any portion of these
amounts should be reserved or written off.
Eleven stations owned or programmed by the Company are affiliated with UPN, a
network that began broadcasting in January 1995. There can be no assurance as to
the future success of UPN programming or as to the continued operation of the
UPN network.
14
<PAGE>
COMPETITION
The television and radio industries are highly competitive. Some of the
stations and other businesses with which the Company's stations compete are
subsidiaries of large, national or regional companies that may have greater
resources than the Company. Technological innovation and the resulting
proliferation of programming alternatives, such as cable television, wireless
cable, in home satellite-to-home distribution services, pay-per-view and home
video and entertainment systems have fractionalized television viewing audiences
and have subjected free over-the-air television broadcast stations to new types
of competition. The radio broadcasting industry is also subject to competition
from new media technologies that are being developed or introduced, such as the
delivery of audio programming by cable television systems and by digital audio
broadcasting ("DAB"). DAB may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and
national audiences.
The Company's stations face strong competition for market share and
advertising revenues in their respective markets from other local free
over-the-air radio and television broadcast stations, cable television and
over-the-air wireless cable television as well as newspapers, periodicals and
other entertainment media. Some competitors are part of larger companies with
greater resources than the Company. In addition, the FCC has adopted rules which
permit telephone companies to provide video services to homes on a
common-carrier basis without owning or controlling the product being
distributed, and proposed legislation could relax or repeal the telephone-cable
cross-ownership prohibition for all systems. See "Business -- Competition."
In January 1995, Warner Brothers, Inc. ("Warner Brothers") initiated the WB
Network. The amount of programming supplied by Warner Brothers to its affiliates
in 1996 is seven hours per week. Warner Brothers has also announced its
intention to expand this programming over time to seven nights per week. Some of
the Warner Brothers' affiliates are located and will be located in the same
markets as the Company's stations. The Company cannot at this time predict the
impact of the development of the Warner Brothers' network on the Company's
business.
In February 1996, the 1996 Act was adopted by the Congress of the United
States and signed into law by President Clinton. The 1996 Act contains a number
of sweeping reforms that will have an impact on broadcasters, including the
Company. While creating substantial opportunities for the Company, the increased
regulatory flexibility imposed by the 1996 Act and the removal of previous
station ownership limitations can be expected to increase sharply the
competition for and prices of stations. The 1996 Act also frees telephone
companies, cable companies and others from some of the restrictions which have
previously precluded them from involvement in the provision of video services.
The 1996 Act may also have other effects on the competition the Company faces,
either in individual markets or in making acquisitions.
IMPACT OF NEW TECHNOLOGIES
The FCC has taken a number of steps to implement advanced (including
high-definition) television service ("ATV") in the United States. In particular,
the FCC has pending rulemaking proceedings which consider the adoption of a
digital television ("DTV") broadcast technical standard, and address the manner
in which broadcast licensees may use digital spectra, including the possible use
of the DTV frequencies for a wide variety of services such as high definition
television, multiple standard definition television programming, audio, data and
other types of communications. On August 14, 1996 the FCC proposed technical
criteria for the allotment of DTV frequencies and provided a draft Table of
Allotments. In this rulemaking, the FCC is attempting to provide DTV coverage
areas that are comparable to existing coverage areas.
Implementation of digital television will improve the technical quality of
television signals receivable by viewers. Under certain circumstances, however,
conversion to digital operation may reduce a station's geographical coverage
area or result in some increased interference. Implementation of digital
television will also impose substantial additional costs on television stations
because of the need to
15
<PAGE>
replace equipment and because some stations will need to operate at higher
utility costs. While the Company believes the FCC will authorize DTV in the
United States, the Company cannot predict when such authorization might be given
or the effect such authorization might have on the Company's business.
Further advances in technology may also increase competition for household
audiences and advertisers. The video compression techniques now under
development for use with current cable television channels or direct broadcast
satellites which do not carry local television signals (some of which commenced
operation in 1994) are expected to reduce the bandwidth which is required for
television signal transmission. These compression techniques, as well as other
technological developments, are applicable to all video delivery systems,
including over-the-air broadcasting, and have the potential to provide vastly
expanded programming to highly targeted audiences. Reduction in the cost of
creating additional channel capacity could lower entry barriers for new channels
and encourage the development of increasingly specialized "niche" programming.
This ability to reach a very defined audience may alter the competitive dynamics
for advertising expenditures. The Company is unable to predict the effect that
technological changes will have on the broadcast television industry or the
future results of the Company's operations. See "Business -- Competition."
GOVERNMENTAL REGULATIONS; NECESSITY OF MAINTAINING FCC LICENSES
The broadcasting industry is subject to regulation by the FCC pursuant to the
Communications Act of 1934, as amended (the "Communications Act"). Approval by
the FCC is required for the issuance, renewal and assignment of station
operating licenses and the transfer of control of station licensees. In
particular, the Company's business will be dependent upon its continuing to hold
broadcast licenses from the FCC. While in the vast majority of cases such
licenses are renewed by the FCC, there can be no assurance that the Company's
licenses or the licenses owned by the owner-operators of the stations with which
the Company has LMAs will be renewed at their expiration dates. A number of
federal rules governing broadcasting have changed significantly in recent years
and additional changes may occur, particularly with respect to the rules
governing financial interests in syndication and cable operators must-carry
obligations. The Company cannot predict the effect that these regulatory changes
may ultimately have on the Company's operations. Additional information
regarding governmental regulation is set forth under "Business--Federal
Regulation of Television and Radio Broadcasting."
MULTIPLE OWNERSHIP RULES AND EFFECT ON LMAS
On a national level, FCC rules and regulations generally prevent an entity or
individual from having an attributable interest in television stations that
reach in excess of 35% of all U.S. television households (for purposes of this
calculation, UHF stations are credited with only 50% of the television
households in their markets). The Company currently reaches approximately 9% of
U.S. television households using the FCC's method of calculation. On a local
level, the "duopoly" rules prohibit attributable interests in two or more
television stations with overlapping service areas. There are no national limits
on ownership of radio stations, but on a local level no entity or individual can
have an attributable interest in more than five to eight stations (depending on
the total number of stations in the market), with no more than three to five
stations (depending on the total allowed) broadcasting in the same band (AM
versus FM). There are limitations on the extent to which programming can be
simulcast through LMA arrangements, and LMA arrangements may be counted in
determining the number of stations that a single entity may control. FCC rules
also impose limitations on the ownership of a television and radio station in
the same market, though such cross-ownership is permitted on a limited basis in
larger markets. The Company has pending a waiver of the cross-ownership rules
with respect to ownership of a television station and radio stations in the St.
Louis market, and there can be no assurance that this waiver will be granted.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other entity. In the case of
corporations holding broadcast licenses, the interests of officers, directors
and those who, directly or indirectly, have the right to vote 5% or more of the
corporation's voting stock (or 10% or more of such stock in the case of
insurance companies, certain regulated investment companies and bank trust
departments) are generally deemed to be attributable, as are positions as an
officer or director of a corporate parent of a broadcast licensee.
16
<PAGE>
The FCC has initiated rulemaking proceedings to consider proposals to modify
its television ownership restrictions, including ones that may permit the
ownership, in some circumstances, of two television stations with overlapping
service areas. The FCC is also considering in these proceedings whether to adopt
restrictions on television LMAs. The "duopoly" rules currently prevent the
Company from acquiring the FCC licenses of stations with which it has LMAs in
those markets where the Company owns a station. In addition, if the FCC were to
decide that the provider of programming services under an LMA should be treated
as the owner of the station and if it did not relax the duopoly rules, or if the
FCC were to adopt restrictions on LMAs without grandfathering existing
arrangements, the Company could be required to modify or terminate certain of
its LMAs. In such an event, the Company could be required to pay termination
penalties under certain of its LMAs. Further, if the FCC were to find that the
owners/licensees of the stations with which the Company has LMAs failed to
maintain control over their operations as required by FCC rules and policies,
the licensee of the LMA station and/or the Company could be fined or could be
set for hearing, the outcome of which could be a fine or, under certain
circumstances, loss of the applicable FCC license. The Company is unable to
predict the ultimate outcome of possible changes to these FCC rules and the
impact such FCC rules may have on its broadcasting operations.
Petitions have been filed with the FCC to deny the application for assignment
of the license for WFBC in Anderson, South Carolina from River City to
Glencairn. The Company currently provides programming to WFBC pursuant to its
LMA with River City and intends to provide programming to WFBC pursuant to an
LMA with Glencairn after acquisition of the License Assets of WFBC by Glencairn.
The petitions claim that the acquisition of the license of WFBC by Glencairn
would violate the FCC's cross-interest policy in light of the Company's LMA with
and option to acquire the License Assets of WLOS in Asheville, North Carolina
and in light of the equity interest in Glencairn held by relatives of the
Controlling Stockholders. If these petitions were granted, it would affect the
Company's competitive position in this market and could draw into question the
regulatory treatment of the Company's LMAs with Glencairn in other markets. In
addition, an informal objection has been made to the application to assign the
license of KRRT in Kerrville, Texas to Glencairn. Although the specific nature
of the objection is unclear, the objection generally raises questions concerning
the cross-interest policy as it relates to LMAs between Glencairn and Sinclair.
LMAS -- RIGHTS OF PREEMPTION AND TERMINATION
All of the Company's LMAs allow, in accordance with FCC rules, regulations
and policies, preemptions of the Company's programming by the owner-operator and
FCC licensee of each station with which the Company has an LMA. In addition,
each LMA provides that under certain limited circumstances the arrangement may
be terminated by the FCC licensee. Accordingly, the Company cannot be assured
that it will be able to air all of the programming expected to be aired on those
stations with which it has an LMA or that the Company will receive the
anticipated advertising revenue from the sale of advertising spots in such
programming. Although the Company believes that the terms and conditions of each
of its LMAs should enable the Company to air its programming and utilize the
programming and other non-broadcast license assets acquired for use on the LMA
stations, there can be no assurance that early terminations of the arrangements
or unanticipated preemptions of all or a significant portion of the programming
by the owner-operator and FCC licensee of such stations will not occur. An early
termination of one of the Company's LMAs, or repeated and material preemptions
of programming thereunder, could adversely affect the Company's operations. In
addition, the Company's LMAs expire, unless extended or earlier terminated, at
dates beginning on December 31, 1997. There can be no assurance that the Company
will be able to negotiate extensions of its arrangements on terms satisfactory
to the Company.
In certain of its LMAs, the Company has agreed to indemnify the FCC licensee
against certain claims (including trademark and copyright infringement, libel or
slander and claims relating to certain FCC proceedings or investigations) that
may arise against the FCC licensee as a result of the arrangement.
POTENTIAL EFFECT ON THE MARKET PRICE RESULTING FROM SHARES ELIGIBLE FOR
FUTURE SALE
Upon completion of the Offering, there will be 11,447,300 shares of Class A
Common Stock and 28,302,681 shares of Class B Common Stock outstanding. In
addition, options to acquire 1,981,935 shares of Class A Common Stock have been
granted to certain officers or employees of the Company under the
17
<PAGE>
Company's various stock option plans, of the options granted, 752,343 have
vested as of the date of this Offering. Shares of Class B Common Stock are
convertible into Class A Common Stock on a share-for-share basis at any time at
the option of the holder and must first be converted into Class A Common Stock
upon transfer, except for transfers to certain permitted transferees. The
5,000,000 shares of Class A Common Stock offered in the Offering will be freely
tradeable in the United States without restriction or further registration
unless purchased by affiliates of the Company. The shares of Class B Common
Stock (and the shares of Class A Common Stock into which they are convertible),
all of which are beneficially owned by the Controlling Stockholders, are held by
persons who may be deemed to be affiliates of the Company and therefore subject
to the volume limitations of Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). Up to an additional 659,738 shares of Class A
Common Stock are reserved for future issuance pursuant to the Company's Stock
Option Plans and Long Term Incentive Plan. In addition, the Company issued
1,150,000 shares of Series B Preferred Stock to River City in connection with
the River City Acquisition, which are convertible at any time, at the option of
the holders, into an aggregate of 4,181,818 shares of Class A Common Stock
subject to certain adjustments. All such shares are registered under the
Securities Act pursuant to a shelf registration statement and may be sold into
the public market. The Company has also registered under the Securities Act
1,382,435 shares of Class A Common Stock issuable upon exercise of stock options
held by Barry Baker, and intends to register an additional 1,259,238 shares
issuable upon exercise of options issued or issuable pursuant to the Company's
stock option plans. Sales of substantial amounts of shares of Class A Common
Stock, or the perception that such sales could occur, may materially adversely
affect the market price of the Class A Common Stock.
NET LOSSES
The Company experienced net losses of $7.9 million, and $2.7 million during
1993 and 1994 respectively, net income of $76,000 in 1995 (a net loss of $44.0
million on a pro forma basis for 1995 reflecting the Recent Acquisitions) and a
net loss of $790,000 for the six months ended June 30, 1996 (a net loss of $16.4
million for the six months ended June 30, 1996 on a pro forma basis reflecting
the Recent Acquisitions). The losses include significant interest expense as
well as substantial non-cash expenses such as depreciation, amortization and
deferred compensation. Notwithstanding the slight gain in 1995, the Company
expects to continue to experience net losses, principally as a result of
interest expense, amortization of programming and intangibles and depreciation.
DIVIDEND RESTRICTIONS
The terms of the Company's Bank Credit Agreement, the Indentures and other
indebtedness of the Company restrict the Company from paying dividends on its
Common Stock. The Company does not expect to pay dividends on its Common Stock
in the foreseeable future. See "Dividend Policy."
FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act. Discussions containing such forward-looking
statements may be found in the material set forth under "Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as within the Prospectus generally. In addition, when used
in this Prospectus, the words "intends to," "believes," "anticipates," "expects"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to a number of risks and uncertainties. Actual
results in the future could differ materially and adversely from those described
in the forward-looking statements as a result of various important factors,
including the impact of changes in national and regional economies, successful
integration of acquired television and radio stations (including achievement of
synergies and cost reductions), pricing fluctuations in local and national
advertising, volatility in programming costs and the other risk factors set
forth above and the matters set forth in the Prospectus generally. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
18
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the Common Stock Offering as contemplated
hereby (net of underwriting discounts and commissions and the estimated expenses
of the Offering) at an assumed price of $39 1/2 per share (the closing price on
September 17, 1996) are estimated to be approximately $188.1 million ($216.5
million, if the Underwriters' over-allotment option is exercised in full).
In addition to the Common Stock Offering, the Company intends to offer
2,000,000 shares of Series C Preferred Stock, with a liquidation value of $200
million. The Company expects to complete the sale of the Series C Preferred
Stock at or about the same time as the completion of the sale of the shares of
Class A Common Stock offered by this Prospectus. The consummation of the Common
Stock Offering and the Preferred Stock Offering are not contingent on each
other.
The net proceeds of the Offerings will be used to reduce the amount
outstanding under the Bank Credit Agreement, a portion of which may be
reborrowed. The outstanding loans under the Bank Credit Agreement are comprised
of three separate facilities, consisting of (i) a reducing revolving credit
facility in the principal amount of $250.0 million (the "Revolving Credit
Facility"), (ii) a term loan in the principal amount of $550.0 million (the
"Tranche A Term Loan"); and (iii) a term loan in the principal amount of $200.0
million (the "Tranche B Term Loan" and, together with the Tranche A Term Loan,
the "Term Loans"). As of August 31, 1996, the Revolving Credit Facility had an
outstanding principal balance of $111.5 million, the Tranche A Term Loan had an
outstanding balance of $550 million, and the Tranche B Term Loan had an
outstanding balance of $200 million. The Revolving Credit Facility has a
declining amount available with a final maturity date of November 30, 2003, the
Tranche A Term Loan has a final maturity date of December 31, 2002, and the
Tranche B Term Loan has a final maturity date of December 31, 2003. Pursuant to
the terms of the Bank Credit Agreement, 80% of the net proceeds of the Offerings
must be used to repay, on a pro rata basis, the Tranche A Term Loan and the
Tranche B Term Loan unless proceeds are applied to finance the consumation of an
acquisition. The remaining proceeds of the Offerings will be used to repay a
portion of the Revolving Credit Facility. The amount of the Revolving Credit
Facility that is repaid can be reborrowed, subject to certain conditions and
limitations included in the Bank Credit Agreement.The indebtedness incurred
under the Bank Credit Agreement that will be repaid with net proceeds of the
Offerings was used to fund a portion of the cost of the River City Acquisition.
The interest rates on the Tranche A Term Loan, the Tranche B Term Loan and the
Revolving Credit Facility that will be repaid are variable and averaged 8.00%,
8.25% and 8.00% respectively for the month ended August 31, 1996. See
"Description of Indebtedness."
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Class A Common Stock has been traded on the Nasdaq National Market under
the symbol "SBGI" since June 13, 1995. The following table sets forth the high
and low closing sale prices for the Class A Common Stock for the periods
indicated. The information does not include certain transaction costs.
1995 High Low
-------- -------
Second Quarter (from June 13)......... $29 $23 1/2
Third Quarter ........................ 31 27 3/8
Fourth Quarter ....................... 27 3/4 16 1/4
1996
First Quarter ........................ 26 1/2 16 7/8
Second Quarter ....................... 43 1/2 25 1/2
Third Quarter (through September 9)... 46 1/2 36 1/8
On September 17, 1996, the last sale price of the Class A Common Stock as
reported by Nasdaq was $39 1/2 per share. As of September 5, 1996, there were
approximately 36 record holders of the Class A Common Stock.
DIVIDEND POLICY
The Company generally has not paid a cash dividend on its Common Stock and
does not expect to pay cash dividends on its Common Stock in the foreseeable
future. The Bank Credit Agreement, the Indentures and agreements governing other
indebtedness of the Company generally prohibit the Company from paying cash
dividends on the Common Stock. Under the Indentures, the Company is not
permitted to pay cash dividends on the Common Stock unless certain specified
conditions are satisfied, including that (i) no event of default then exists
under the Indentures or certain other specified agreements relating to
indebtedness of the Company and (ii) the Company, after taking account of the
dividend, is in compliance with certain net cash flow requirements contained in
the Indentures.
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<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1996, (a) the actual
capitalization of the Company, which includes the Superior, Flint, River City
Acquisitions and related borrowings under the Bank Credit Agreement to effect
such acquisitions, (b) the pro forma capitalization of the Company as adjusted
to reflect the Cincinnati/Kansas City and Peoria/Bloomington Acquisitions in
July 1996 and the related borrowings under the Bank Credit Agreement to effect
such acquisitions, (c) the pro forma capitalization of the Company as adjusted
to reflect the Offerings (at an assumed offering price for the Class A Common
Stock offered hereby of $39 1/2 , the closing price of September 17, 1996) and
application of the estimated net proceeds therefrom as set forth in "Use of
Proceeds" as if such transactions had occurred on June 30, 1996. The information
set forth below should be read in conjunction with the Pro Forma Consolidated
Financial Data of the Company located elsewhere in this Prospectus and the
historical Consolidated Financial Statements of the Company incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------------------
POST COMMON POST
POST STOCK OFFERING OFFERINGS
RECENT AND RECENT AND RECENT
ACTUAL ACQUISITIONS ACQUISITIONS ACQUISITIONS
-------------- --------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........................................... $ 4,196 $ 4,488 $ 4,488 $ 4,488
============ ============== =============== ===============
Current portion of long term debt .................................. $ 63,521 $ 63,521 $ 63,521 $ 63,521
============ ============== =============== ===============
Long-term debt:
Term loans......................................................... $ 690,000 $ 690,000 $ 539,515 $ 384,315
Revolving Credit Facility.......................................... 80,000 118,500 80,879 42,079
Notes and capital leases payable to affiliates..................... 12,935 12,935 12,935 12,935
Senior Subordinated Notes.......................................... 400,000 400,000 400,000 400,000
------------ -------------- --------------- ---------------
1,182,935 1,221,435 1,033,329 839,329
------------ -------------- --------------- ---------------
Series C Redeemable Preferred Stock, par value $.01 per share; no
shares issued and outstanding Actual and Post Recent Acquisitions;
2,000,000 shares issued and outstanding Post Offerings and Recent
Acquisitions....................................................... 200,000
Stockholders' equity (deficit):
Series B Preferred Stock, par value $.01 per share; 1,150,000
shares issued and outstanding..................................... 11 11 11 11
Class A Common Stock, par value $.01 per share; 6,328,000 shares
issued and outstanding Actual and Post Acquisition; 11,328,000
shares issued and outstanding Post Offerings and Recent
Acquisitions...................................................... 63 63 113 113
Class B Common Stock, par value $.01 per share; 28,422,000 shares
issued and outstanding ........................................... 284 284 284 284
Additional paid-in capital ........................................ 280,108 280,108 468,164 462,164
Accumulated deficit ............................................... (20,853) (20,853) (20,853) (20,853)
------------ -------------- --------------- ---------------
Total stockholders' equity ........................................ 259,613 259,613 447,719 441,719
------------ -------------- --------------- ---------------
Total capitalization.............................................. $1,442,548 $1,481,048 $1,481,048 $1,481,048
============ ============== =============== ===============
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED HISTORICAL
AND PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The selected historical consolidated financial data for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the
Company's audited Consolidated Financial Statements (the "Consolidated Financial
Statements"). The Consolidated Financial Statements for the years ended December
31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 are
incorporated herein by reference. The Consolidated Financial Statements for, and
as of, the six months ended June 30, 1995 and 1996 are unaudited, but in the
opinion of management, such financial statements have been prepared on the same
basis as the Consolidated Financial Statements incorporated herein by reference
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for that period. Results for the six months ended June 30, 1996 are
not necessarily indicative of the results for a full year. The summary pro forma
consolidated financial data of the Company reflect the Recent Acquisitions and
the application of the proceeds of the Offerings set forth in "Use of Proceeds"
as though they occurred at the beginning of the periods presented for statement
of operations data and as of the date of the balance sheet for balance sheet
data and are derived from the Pro Forma Consolidated Financial Statements of the
Company included elsewhere in this Prospectus. See "Pro Forma Consolidated
Financial Data."
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus and the Consolidated Financial Statements
incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1991(a) 1992 1993 1994(a) 1995(a) 1995(b) 1995(a) 1996(a) 1996(b)
---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c)........ $39,698 $61,081 $69,532 $118,611 $187,934 $406,411 $88,724 $117,339 $214,877
Barter revenues.................. 5,660 8,805 6,892 10,743 18,200 24,351 8,150 9,571 13,607
---------- ---------- ---------- ---------- --------- ----------- -------- ---------- ----------
Total revenues.................. 45,358 69,886 76,424 129,354 206,134 430,762 96,874 126,910 228,484
Operating expenses, excluding
depreciation and amortization,
deferred compensation and
special bonuses paid to
executive officers.............. 25,187 32,993 32,197 50,467 80,446 195,831 38,731 52,825 112,250
Depreciation and amortization(d) 18,078 30,943 22,584 55,665 80,410 170,036 38,801 45,493 77,651
Deferred compensation............ -- -- -- -- -- 8,855 -- 6,007 7,302
Special bonuses paid to executive
officers........................ -- -- 10,000 3,638 -- -- -- -- --
---------- ---------- ---------- ---------- --------- ----------- -------- ---------- ----------
Broadcast operating income....... 2,093 5,950 11,643 19,584 45,278 56,040 19,342 22,585 31,281
Interest expense................. 8,895 12,997 12,852 25,418 39,253 90,010 19,655 27,646 44,530
Interest and other income........ 562 1,207 2,131 2,447 4,163 3,374 1,282 3,171 1,618
---------- ---------- ---------- ---------- --------- ----------- -------- ---------- ----------
Income (loss) before (provision)
benefit for income taxes and
extraordinary item.............. (6,240) (5,840) 922 (3,387) 10,188 (30,596) 969 (1,890) (11,631)
---------- ---------- ---------- ---------- --------- ----------- -------- ---------- ----------
Net income (loss)................ $(4,660) $(4,651) $(7,945) $ (2,740) $ 76 $(19,660) $ 507 $ (790) $ (6,635)
========== ========== ========== ========== ========= =========== ======== ========== ==========
Preferred stock dividend......... -- -- -- -- -- $(21,500) -- -- $(10,750)
Income (loss) applicable to
common stock.................... $(4,660) $(4,651) $(7,945) $ (2,740) $ 76 $(46,072) $ 507 $ (790) $(17,385)
========== ========== ========== ========== ========= =========== ======== ========== ==========
Earnings (loss) per common share:
Net income (loss) before
extraordinary item............. $ (0.16) $ (0.16) $ (0.27) $ (0.09) $ 0.15 $ (0.48) $ 0.02 $ (0.02) $ (0.40)
Extraordinary item.............. -- -- -- -- (0.15) (0.12) -- -- --
Net income (loss) per common
share.......................... $ (0.16) $ (0.16) $ (0.27) $ (0.09) $ -- $ (1.11) $ 0.02 $ (0.02) $ (0.40)
========== ========== ========== ========== ========= =========== ======== ========== ==========
Weighted average shares out-
standing (in thousands)........ 29,000 29,000 29,000 29,000 32,198 41,364 29,575 34,750 43,932
========== ========== ========== ========== ========= =========== ======== ========== ==========
OTHER DATA:
Broadcast cash flow(e)........... $17,260 $28,019 $37,596 $ 67,597 $111,124 $201,290 $50,471 $ 65,080 $ 96,352
Broadcast cash flow margin(f) ... 43.5% 45.9% 54.1% 57.0% 59.1% 49.5% 56.9% 55.5% 44.8%
Operating cash flow(g) .......... $15,483 $26,466 $35,504 $ 64,625 $105,750 $190,634 $48,285 $ 62,014 $ 90,481
Operating cash flow margin(f).... 39.0% 43.3% 51.1% 54.5% 56.3% 46.9% 54.4% 52.9% 42.1%
Program contract payments........ $ 4,688 $10,427 $ 8,723 $ 14,262 $ 19,938 $ 44,297 $ 9,858 $ 12,071 $ 25,753
Capital expenditures............. 1,730 426 528 2,352 1,702 13,810 1,359 2,114 3,474
Corporate overhead expense....... 1,777 1,553 2,092 2,972 5,374 10,656 2,186 3,066 5,871
(continued of following page)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1991(a) 1992 1993 1994(a) 1995(a) 1995(b) 1995(a) 1996(a) 1996(b)
------ ------ ------- ------- ------- ---------- --------- ------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RATIO OF:
Earnings to fixed charges and
preferred stock dividends(h)...... -- -- 1.1x -- 1.3x -- 1.0x -- --
Operating cash flow to interest
expense........................... 1.7x 2.0x 2.8x 2.5x 2.7x 2.1x 2.5x 2.2x 2.0x
Operating cash flow to interest
expense and preferred stock
dividend.......................... -- -- -- -- -- 1.7x -- -- 1.6x
Total debt to operating cash
flow(i)........................... 7.3x 4.2x 6.3x 5.4x 4.0x 4.6x 3.6x 10.4x 4.5x
Total debt and preferred stock to
operating cash flow(i)(j)......... -- -- -- -- -- 5.6x -- -- 5.5x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1991(a) 1992 1993 1994(a) 1995(a)
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 1,380 $ 1,823 $ 18,036 $ 2,446 $112,450
Total assets....................... 149,227 140,366 242,917 399,328 605,272
Total debt(j)...................... 112,303 110,659 224,646 346,270 418,171
Series C Preferred Stock........... -- -- -- -- --
Total stockholders' equity
(deficit)......................... (3,052) (3,127) (11,024) (13,723) 96,374
</TABLE>
AS OF JUNE 30, 1996
--------------------------
PRO
HISTORICAL(a) FORMA(b)
------------- ------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 4,196 $ 4,488
Total assets....................... 1,639,205 1,687,481
Total debt(j)...................... 1,246,456 902,850
Series C Preferred Stock........... -- 200,000
Total stockholders' equity
(deficit)......................... 259,613 447,719
NOTES TO SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(a) The Company acquired the License and Non-License assets of WPGH in
Pittsburgh and sold the License Assets of WPTT in Pittsburgh in August
1991. The Company also made other acquisitions in 1994, 1995 and 1996 as
described in the footnotes to the Consolidated Financial Statements
incorporated herein by reference. The Statement of Operations and other
data presented for periods preceding the dates of acquisitions do not
include amounts for these acquisitions and therefore are not comparable to
subsequent periods. Additionally, the years in which the specific
acquisitions occurred may not be comparable to subsequent periods.
(b) The pro forma information in this table reflects the pro forma effect of
the completion of the Offerings and Recent Acquisitions. The Offerings are
not contingent on one another. The pro forma effect of completion of the
Common Stock Offering only is set forth in "Pro Forma Consolidated
Financial Data" appearing elsewhere in this Prospectus.
<PAGE>
(c) Net broadcast revenues are defined as broadcast revenues net of agency
commissions.
(d) 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.
(e) "Broadcast cash flow" is defined as broadcast operating income plus
corporate overhead expense, special bonuses paid to executive officers,
non-cash deferred compensation, depreciation and amortization, including
both tangible and intangible assets and program rights, less cash payments
for program contract rights. Cash program payments represent cash payments
made for current program payables and do not necessarily correspond to
program usage. Special bonuses paid to executive officers are considered
unusual and non-recurring. 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 flow, 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.
(f) "Broadcast cash flow margin" is defined as broadcast cash flow divided by
net broadcast revenues. "Operating cash flow margin" is defined as
operating cash flow divided by net broadcast revenues.
(g) "Operating cash flow" is defined as broadcast cash flow less corporate
overhead expense 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 flow, 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.
(h) For the purpose of calculating the ratio of earnings to fixed charges, and
preferred stock dividends, earnings consist of net income (loss) before
income taxes and extraordinary items plus fixed charges. Fixed charges
consist of interest expense, which includes interest on all debt and
amortization of debt discount and deferred financing costs. Earnings were
inadequate to cover fixed charges for the years ended December 31, 1991,
1992, and 1994 by $6,240, $5,840 and $3,387, respectively, and for the six
months ended June 30, 1996 by $1,890. On a pro forma basis, when giving
effect to the Recent Acquisitions and the Offerings, as if such
transactions had occurred on January 1, 1995 and January 1, 1996, earnings
were inadequate to cover fixed charges and preferred stock dividends for
the year ended December 31, 1995 and the six months ended June 30, 1996 by
($52,096) and ($22,381), respectively.
(i) For the six months ended June 30, 1996 and 1995 and for the six months
ended June 30, 1996 and for the year ended December 31, 1995 on a pro forma
basis, the ratio of total debt to operating cash flow was computed using
pro forma operating cash flow for the twelve month period ended on those
dates.
(j) The Series B Preferred Stock is not included in this calculation as it is
convertible into common equity.
(k) "Total debt" is defined as long-term debt, net of unamortized discount, and
capital lease obligations, including current portion thereof. In 1991 and
1992 total debt included warrants outstanding which were redeemable outside
the control of the Company. The warrants were purchased by the Company for
$10.4 million in 1993. Total debt as of December 31, 1993 included $100.0
million in principal amount of the 1993 Notes, the proceeds of which were
held in escrow to provide a source of financing for acquisitions that were
subsequently consummated in 1994 utilizing borrowings under the Bank Credit
Agreement. This amount of the 1993 Notes was redeemed in the first quarter
of 1994. Pro Forma total debt does not include the Series C Preferred
Stock.
23
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Financial Data include the unaudited pro
forma consolidated statements of operations for the year ended December 31, 1995
and for the six months ended June 30, 1996 (the "Pro Forma Consolidated
Statements of Operations") and the unaudited pro forma consolidated balance
sheet as of June 30, 1996 (the "Pro Forma Consolidated Balance Sheet"). The
unaudited Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1995 and the six months ended June 30, 1996 are adjusted to give
effect to the Recent Acquisitions, the Common Stock Offering and the Preferred
Stock Offering as if each occurred at the beginning of those respective periods
and assuming application of the proceeds of the Offerings as set forth in "Use
of Proceeds." The Pro Forma Consolidated Balance Sheet is adjusted to give
effect to the Cincinnati/Kansas City Acquisition, the Peoria/Bloomington
Acquisition, the Common Stock Offering and the Preferred Stock Offering as if
each occurred on June 30, 1996 and assuming application of the proceeds of the
Offerings as set forth in "Use of Proceeds". The pro forma adjustments are based
upon available information and certain assumptions that the Company believes are
reasonable. The Pro Forma Consolidated Financial Data should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes thereto, the Company's unaudited consolidated financial statements for the
six months ended June 30, 1996 and notes thereto, the financial statements and
related notes of WSMH, the financial statements and related notes of Superior,
the financial statements and related notes of KSMO and WSTR, the financial
statements and related notes of River City, all of which are incorporated herein
by reference. The unaudited Pro Forma Consolidated Financial Data do not purport
to represent what the Company's results of operations or financial position
would have been had any of the above events occurred on the dates specified or
to project the Company's results of operations or financial position for or at
any future period or date.
24
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RECENT POST
CONSOLIDATED ACQUISITIONS RECENT
HISTORICAL KSMO(A) WSTR(A) WYZZ(A) ADJUSTMENTS ACQUISITIONS
--------------- ---------- ---------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents............... $ 4,196 $ 723 $ 1,693 $ (2,124)(b) $ 4,488
Accounts receivable, net of allowance
for doubtful accounts......................... 81,842 3,855 2,754 88,451
Current portion of program contract costs...... 29,396 1,548 2,096 $ 183 33,223
Deferred barter costs.......................... 3,964 65 4,029
Prepaid expenses and other current assets...... 3,697 83 32 3,812
Deferred tax asset............................. 6,148 6,148
--------------- ---------- ---------- --------- --------------- --------------
Total current assets......................... 129,243 6,274 6,575 183 (2,124) 140,151
PROPERTY AND EQUIPMENT, net..................... 139,387 3,661 8,378 2,264 153,690
PROGRAM CONTRACT COSTS, less current portion.... 33,267 1,745 2,364 206 37,582
LOANS TO OFFICERS AND AFFILIATES, net........... 11,642 11,642
NON-COMPETE AND CONSULTING AGREEMENTS, net...... 19,994 19,994
DEFERRED TAX ASSET.............................. 1,076 1,076
OTHER ASSETS.................................... 64,602 14,775)(b) 49,827
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ... 1,239,994 7,139 7,456 18,930 1,273,519
--------------- ---------- ---------- --------- ------------- ---------------
Total Assets................................. $1,639,205 $18,819 $24,773 $21,583 $(16,899) $1,687,481
=============== ========== ========== ========= =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY .........
CURRENT LIABILITIES:
Accounts payable .............................. $ 4,237 $ 98 $ 785 $ 5,120
Accrued liabilities............................ 31,116 503 248 31,867
Current portion of long-term liabilities-
Notes payable and commercial bank financing... 61,235 61,235
Capital leases payable........................ 310 310
Notes and capital leases payable to affiliates. 1,976 1,976
Program contracts payable..................... 35,203 1,629 2,135 183 39,150
Deferred barter revenues....................... 5,218 5,218
---------- ---------- --------- --------------- -------------- --------------
Total current liabilities.................... 139,295 2,230 3,168 183 144,876
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing... 1,170,000 $38,500(b) 1,208,500
Notes and capital leases payable to affiliates. 12,935 12,935
Program contracts payable..................... 51,010 1,664 2,325 206 55,205
Other long-term liabilites.................... 2,384 2,384
--------------- ---------- ---------- --------- -------------- ---------------
Total liabilities............................ 1,375,624 3,894 5,493 389 38,500 1,423,900
--------------- ---------- ---------- --------- --------------- ---------------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES................................... 3,968 3,968
--------------- ---------- ---------- --------- --------------- --------------
COMMITMENTS AND CONTINGENCIES
SERIES C REDEEMABLE PREFERRED STOCK, $.01 par
value, no shares issued and outstanding
Actual and Post Recent Acquisitions,
2,000,000 shares issued and outstanding Post
Offerings and Recent Acquisitions
STOCKHOLDERS' EQUITY
Series B Preferred stock, $.01 par value,
1,150,000 shares authorized and 1,150,000
shares issued and outstanding................ 11 11
Class A Common stock, $.01 par value,
100,000,000 shares authorized 6,328,000 63 63
shares issued and outstanding................
Class B Common stock, $.01 par value,
35,000,000 shares authorized and 28,422,000 284 284
shares issued and outstanding.
Additional paid-in-capital.................... 274,101 274,101
Accumulated deficit........................... (20,853) (20,853)
Additional paid-in capital - stock options.... 12,430 12,430
Deferred compensation......................... (6,423) (6,423)
Total stockholders' equity..................... 259,613 259,613
--------------- ---------- ---------- --------- --------------- --------------
Total Liabilities and Stockholders' Equity .... $1,639,205 $3,894 $5,493 $389 $38,500 $1,687,481
=============== ========== ========== ========= =============== ==============
</TABLE>
25
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
POST COMMON STOCK POST PREFERRED
RECENT OFFERING COMMON STOCK STOCK POST
ACQUISITIONS ADJUSTMENTS(C) OFFERING OFFERING(D) OFFERINGS
-------------- --------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents.................... $ 4,488 $ $ 4,488 $ $ 4,488
Accounts receivable, net of allowance for doubtful
accounts........................................... 88,451 88,451 88,451
Current portion of program contract costs........... 33,223 33,223 33,223
Deferred barter costs............................... 4,029 4,029 4,029
Prepaid expenses and other current assets........... 3,812 3,812 3,812
Deferred tax asset.................................. 6,148 6,148 6,148
-------------- --------------- -------------- ------------ ----------
Total current assets.............................. 140,151 140,151 140,151
PROPERTY AND EQUIPMENT, net.......................... 153,690 153,690 153,690
PROGRAM CONTRACT COSTS, less current portion......... 37,582 37,582 37,582
LOANS TO OFFICERS AND AFFILIATES, net................ 11,642 11,642 11,642
NON-COMPETE AND CONSULTING AGREEMENTS, net........... 19,994 19,994 19,994
DEFERRED TAX ASSET................................... 1,076 1,076 1,076
OTHER ASSETS......................................... 49,827 49,827 49,827
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ........ 1,273,519 1,273,519 1,273,519
-------------- --------------- -------------- ------------ ----------
Total Assets...................................... $1,687,481 $ $1,687,481 $1,687,481
============== =============== ============== ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY ................
CURRENT LIABILITIES:
Accounts payable ................................... $ 5,120 $ 5,120 $ 5,120
Accrued liabilities................................. 31,867 31,867 31,867
Current portion of long-term liabilities-
Notes payable and commercial bank financing........ 61,235 61,235 61,235
Capital leases payable............................. 310 310 310
Notes and capital leases payable to affiliates .... 1,976 1,976 1,976
Program contracts payable.......................... 39,150 39,150 39,150
Deferred barter revenues............................ 5,218 5,218 5,218
-------------- --------------- -------------- ------------ -------------
Total current liabilities......................... 144,876 144,876 144,876
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing........ 1,208,500 $(188,106) 1,020,394 $(194,000) 826,394
Notes and capital leases payable to affiliates..... 12,935 12,935 12,935
Program contracts payable.......................... 55,205 55,205 55,205
Other long-term liabilites......................... 2,384 2,384 2,384
-------------- --------------- -------------- ------------ -------------
Total liabilities................................. 1,423,900 (188,106) 1,235,794 (194,000) 1,041,794
-------------- --------------- -------------- ------------ -------------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES........................................ 3,968 3,968 3,968
-------------- --------------- -------------- ------------ -------------
COMMITMENTS AND CONTINGENCIES
SERIES C REDEEMABLE PREFERRED STOCK, $.01 par value,
no shares issued and outstanding Actual and Post
Recent Acquisitions, 2,000,000 shares issued and
outstanding Post Offerings and Recent Acquisitions . 200,000 200,000
STOCKHOLDERS' EQUITY
Series B Preferred stock, $.01 par value, 1,150,000
shares authorized and 1,150,000 shares issued and
outstanding.......................................... 11 11 11
Class A Common stock, $.01 par value, 100,000,000 shares
authorized 6,328,000 shares issued and outstanding..... 63 50 113 113
Class B Common stock, $.01 par value, 35,000,000 shares
authorized and 28,422,000 shares issued and outstanding. 284 284 284
Additional paid-in-capital............................... 274,101 188,056 462,157 (6,000) 456,157
Accumulated deficit...................................... (20,853) (20,853) (20,853)
Additional paid-in capital - stock options............... 12,430 12,430 12,430
Deferred compensation.................................... (6,423) (6,423) (6,423)
-------------- --------------- -------------- ------------ ----------
Total stockholders' equity.............................. 259,613 188,106 447,719 (6,000) 447,719
-------------- --------------- -------------- ------------ ----------
Total Liabilities and Stockholders' Equity ............. $1,687,481 $ $1,687,481 $ $1,687,481
============== =============== ============== ============ ==========
</TABLE>
26
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) The KSMO, WSTR and WYZZ columns reflect the assets and liabilities
acquired in connection with the purchase of KSMO, WSTR and WYZZ. Total
acquired intangibles are calculated as follows:
(1) KSMO:
Purchase Price $14,925
Add: Liabilities acquired -
Accounts payable 98
Accrued liabilities 503
Current portion of program contracts payable 1,629
Long term portion of program contracts
payable 1,664
Less: Assets acquired -
Cash 723
Accounts receivable 3,855
Current portion of program costs 1,548
Deferred barter costs 65
Prepaid expenses and other current assets 83
Property and equipment 3,661
Program contract costs, less current portion 1,745
-------
Acquired intangibles $ 7,139
=======
(2) WSTR:
Purchase Price $19,280
Add: Liabilities acquired -
Accounts payable 785
Accrued liabilities 248
Current portion of program contracts payable 2,135
Long term portion of program contracts payable 2,325
Less: Assets acquired -
Cash 1,693
Accounts receivable 2,754
Current portion of program costs 2,096
Prepaid expenses and other current assets 32
Property and equipment 8,378
Program contract costs, less current portion 2,364
-------
Acquired intangibles $ 7,456
=======
(3) WYZZ:
Purchase Price $21,194
Add: Liabilities acquired -
Current portion of program contracts payable 183
Long term portion of program contracts payable 206
Less: Assets acquired -
Current portion of program costs 183
Property and equipment 2,264
Program contract costs, less current portion 206
----------
Acquired intangibles $18,930
==========
(b) To reflect the following in connection with the acquisition of KSMO and
WSTR: (i) the incurrence of $18,306 of bank financing, (ii) the cash payment of
$2,124 using available cash, (iii) the reclassification of the $9,000 paid to
acquire the option to purchase KSMO and WSTR as acquired intangible broadcasting
assets and (iv) the forgiveness of the $4,775 note receivable from WSTR.
Additionally, to reflect the following in connection with the acquisition of
WYZZ: (i) the incurrence of $20,194 of bank financing and (ii) the
reclassification of the $1,000 paid and held in escrow for the purchase as
acquired intangible broadcasting assets.
(c) To reflect the proceeds of the Common Stock Offering, (at an assumed
offering price of $39 1/2 per share, the closing price on September 17, 1996)
net of $9,394 of underwriting discounts and commission and estimated expenses
and the application of the proceeds therefrom as set forth in "Use of Proceeds."
(d) To reflect the proceeds of the Preferred Stock Offering of 2,000,000
shares of Series C Preferred Stock at $100 per share net of $6,000 of
underwriting discounts and commission and estimated expenses of the Preferred
Stock Offering and the application of the proceeds therefrom as set forth in
"Use of Proceeds."
27
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RIVER CITY(E)
--------------
SUPERIOR
COMM-
FLINT UNICATIONS
CONSOLIDATED TV GROUP RIVER
HISTORICAL INC.(A) INC.(B) KSMO(C) WSTR(D) CITY WSYX WYZZ(F)
---------- ------- ------- ------- ------- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $117,339 $1,012 $4,431 $ 7,694 $ 6,477 $ 86,869 $(10,783) $1,838
Revenues realized from station barter
arrangements................................. 9,571 2,321 1,715
-------- ------- ----------- --------- --------- ------------ ----------- --------
Total revenues............................. 126,910 1,012 4,431 10,015 8,192 86,869 (10,783) 1,838
----------- ------- ----------- --------- --------- ------------ ----------- --------
OPERATING EXPENSES:
Program and production........................ 20,699 101 539 1,550 785 10,001 (736) 214
Selling, general and administrative........... 24,267 345 2,002 2,194 1,876 39,786 (3,950) 702
Expenses realized from station barter
arrangements................................. 7,859 2,276 1,715
Amortization of program contract costs and net
realizable value adjustments................. 17,557 125 736 601 1,011 9,721 (458) 123
Deferred compensation........................ 6,007
Depreciation and amortization of property and
equipment .................................. 3,544 4 373 374 284 6,294 (1,174) 6
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets...... 24,392 529 39 14,041 (3,599) 3
---------- -------- ----------- --------- --------- ---------- ----------- -------
Total operating expenses................... 104,325 575 4,179 6,995 5,710 79,843 (9,917) 1,048
---------- -------- ----------- --------- --------- ---------- ----------- -------
Broadcast operating income (loss)........... 22,585 437 252 3,020 2,482 7,026 (866) 790
OTHER INCOME (EXPENSE):
Interest expense.............................. (27,646) -- (457) (823) (1,127) (12,352) -- --
Interest income............................... 2,521 -- -- -- 15 195 -- --
Other income (expense)........................ 650 19 4 7 (149) (8) --
---------- -------- ----------- --------- --------- ---------- ----------- ------
Income (loss) before (provision) benefit for
income taxes .............................. (1,890) 456 (201) 2,204 1,370 (5,280) (874) 790
(PROVISION) BENEFIT FOR
INCOME TAXES.................................. 1,100 -- -- -- -- -- -- --
---------- -------- ----------- --------- --------- ---------- ----------- --------
NET INCOME (LOSS).............................. $ (790) $ 456 $ (201) $ 2,204 $ 1,370 $ (5,280) $(874) $ 790
========== ======== =========== ========= ========= ========== =========== ========
PREFERRED STOCK DIVIDEND....................... --
----------
LOSS APPLICABLE TO COMMON STOCK................ $ (790)
==========
NET LOSS PER COMMON SHARE...................... $ (0.02)
==========
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) ................................... 34,750
</TABLE>
==========
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Post
Common Post Preferred Offerings
Recent Post Stock Common Stock and
Acquisition Recent Offering Stock Offering Recent
Ajustments Acquisitions Adjustments Offering Adjustments Acquisitions
------------ ----------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ................................ $ 214,877 $ 214,877 $ 214,877
Revenues realized from station barter
arrangements................................ 13,607 13,607 13,607
----------- ------ ---------- ------ -------- ------
Total revenues............................ 228,484 228,484 228,484
----------- ------ ---------- ------ -------- ------
OPERATING EXPENSES:
Program and production....................... 33,153 33,153 33,153
Selling, general and administrative.......... $ 25 (g) 67,247 67,247 67,247
Expenses realized from station barter
arrangements................................ 11,850 11,850 11,850
Amortization of program contract costs and
net realizable value adjustments............ 29,416 29,416 29,416
Deferred compensation....................... 1,295 (h) 7,302 7,302 7,302
Depreciation and amortization of property
and equipment ............................. (943)(i) 8,762 8,762 8,762
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets..... 4,068 (j) 39,473 39,473 39,473
----------- ------ ---------- ------ -------- ------
Total operating expenses.................. 4,445 197,203 197,203 197,203
----------- ------ ---------- ------ -------- ------
Broadcast operating income (loss).......... (4,445) 31,281 31,281 31,281
OTHER INCOME (EXPENSE):
Interest expense............................. (17,409)(k) (59,814) $ 7,524 (o) (52,290) $ 7,760(q) (44,530)
Interest income.............................. (1,636)(l) 1,095 -- 1,095 1,095
Other income (expense)....................... -- 523 -- 523 523
----------- ------ ---------- ------ -------- -----
Income (loss) before (provision) benefit
for income taxes ......................... (23,490) (26,915) 7,524 (19,391) 7,760 (11,631)
(PROVISION) BENEFIT FOR
INCOME TAXES................................. 10,010 (m) 11,110 (3,010)(m) 8,100 (3,104) 4,996
----------- ------ ---------- ------ -------- ------
NET INCOME (LOSS)............................. $ (13,480) $(15,805) $ 4,514 $ (11,291) $ 4,656 $ (6,635)
=========== ========= ======== ========= ========== ========
PREFERRED STOCK DIVIDEND...................... -- -- $ (10,750) $ (10,750)
------ -------- ------
LOSS APPLICABLE TO COMMON STOCK............... $ (16,419) (11,291) $ (17,385)
========== ========= ===========
NET LOSS PER COMMON SHARE..................... $ (0.42) $ (0.26) $ (0.40)
========== =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) .................................. 38,932(n) 5,000(p) 43,932 43,932
========== ========== =========== ============
</TABLE>
28
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
River City (e)
----------------
SUPERIOR PARAMOUNT
FLINT COMMUNICATIONS STATIONS
CONSOLIDATED TV, GROUP, GROUP OF
HISTORICAL INC.(a) INC.(b) KSMO(c) WSTR(d) KERRVILLE, INC.
- ---------------------------------------------- ------------ --------- -------------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions................................. $187,934 $ 7,217 $13,400 $14,683 $ 12,179 $ 7,567
Revenues realized from station barter
arrangements................................ 18,200 2,801 3,350
------------ --------- -------------- -------- --------- ---------
Total revenues............................. 206,134 7,217 13,400 17,484 15,529 7,567
------------ --------- -------------- -------- --------- ---------
OPERATING EXPENSES:
Program and production....................... 22,563 511 1,461 3,347 1,002 833
Selling, general and administrative.......... 41,763 2,114 4,188 4,374 4,023 1,958
Expenses realized from station barter
arrangements................................ 16,120 2,801 3,350 876
Amortization of program contract costs and
net realizable value adjustments............ 29,021 897 4,899 1,206 1,621 921
Deferred compensation........................
Depreciation and amortization of property and
equipment................................... 5,400 20 1,660 632 585 194
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets...... 45,989 12 1,066 210 77 253
------------ --------- -------------- -------- --------- ---------
Total operating expenses................... 160,856 3,554 13,274 12,570 10,658 5,035
------------ --------- -------------- -------- --------- ---------
Broadcast operating income (loss).......... 45,278 3,663 126 4,914 4,871 2,532
OTHER INCOME (EXPENSE):
Interest expense............................. (39,253) -- (1,579) (2,039) (2,506)
Interest income.............................. 3,942 81
Other income (expense)....................... 221 40 (188) 630 63
------------ --------- -------------- -------- --------- ---------
Income (loss) before (provision) benefit
for income taxes and extraordinary item... 10,188 3,784 (1,641) 3,505 2,365 2,595
(PROVISION) BENEFIT FOR INCOME TAXES ......... (5,200) (1,476) 461 -- -- (1,076)
------------ --------- -------------- -------- --------- ---------
Net income (loss) before extraordinary
item...................................... 4,988 2,308 (1,180) 3,505 2,365 1,519
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
related income tax benefit of $3,357........ (4,912)
------------ --------- -------------- -------- --------- ---------
NET INCOME (LOSS)............................. $ 76 $ 2,308 $(1,180) $ 3,505 $ 2,365 $ 1,519
============ ========= ============== ======== ========= =========
PREFERRED STOCK DIVIDEND...................... --
INCOME (LOSS) APPLICABLE TO COMMON STOCK ..... $ $76
============
EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) before extraordinary
item...................................... $ 0.15
Extraordinary item......................... $ (0.15)
------------
Net income (loss) per common share............ $ --
============
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) .................................. 32,198
============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
River City (e)
--------------------------
RECENT POST
ACQUISITIONS RECENT
RIVER CITY WSYX WYZZ(f) ADJUSTMENTS ACQUISITIONS
---------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Station Broadcast Revenues, Net Of Agency
Commissions ............................... $ 188,190 $ (28,767) $ 4,008 $ 406,411
Revenues realized from station barter
arrangements ............................... 24,351
--------- --------- --------- ------------ ----------
Total revenues ............................ $ 188,190 $ (28,767) 4,008 430,762
--------- --------- --------- ------------ ----------
OPERATING EXPENSES:
Program and production ...................... 62,041 (8,133) 477 84,102
Selling, general and administrative ......... 30,456 (3,153) 1,359 $ 1,500(g) 88,582
Expenses realized from station barter
arrangements ............................... 23,147
Amortization of program contract costs and
net realizable value adjustments ........... 33,452 (2,624) 294 69,687
Deferred compensation........................ 8,855 (h) 8,855
Depreciation and amortization of property and
equipment .................................. 11,524 (2,107) 21 (64)(i) 17,865
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets ..... 27,649 (9,780) 5 17,003(j) 82,484
--------- --------- --------- --------- ----------
Total operating expenses .................. 165,122 (25,797) 2,156 27,294 374,722
--------- --------- --------- --------- ----------
Broadcast operating income (loss) ......... 23,068 (2,970) 1,852 (27,294) 56,040
OTHER INCOME (EXPENSE):
Interest expense ............................ (34,523) (42,589)(k) (122,489)
Interest income ............................. 1,715 54 (3,235)(l) 2,557
Other income (expense) ...................... 22 57 16 817
--------- --------- --------- --------- ----------
Income (loss) before (provision) benefit
for income taxes and extraordinary item .. (9,762) (2,913) 1,922 (73,118) (63,075)
(PROVISION) BENEFIT FOR INCOME TAXES ......... -- -- (750) 31,969 (m) 23,928
--------- --------- --------- --------- ----------
Net income (loss) before extraordinary item (9,762) (2,913) 1,172 (41,149) (39,147)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
related income tax benefit of $3,357 ....... (4,912)
--------- --------- --------- --------- ----------
NET INCOME (LOSS) ............................ $ (9,762) $ (2,913) $ 1,172 $ (41,149) $ (44,059)
========= ========= ========= ========= ==========
PREFERRED STOCK DIVIDEND ..................... --
INCOME (LOSS) APPLICABLE TO COMMON STOCK ..... $ (44,059)
==========
EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) before extraordinary item $ (1.08)
Extraordinary item (0.13)
----------
Net income (loss) per common share $ (1.21)
==========
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) .................................. 36,364(n)
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POST
COMMON POST PREFERRED OFFERINGS
STOCK COMMON STOCK AND
OFFERING STOCK OFFERING RECENT
ADJUSTMENTS OFFERING ADJUSTMENTS ACQUISITIONS
----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
REVENUES:
Station Broadcast Revenues, Net Of Agency
Commissions $ 406,411 $ 406,411
Revenues realized from station barter
arrangements 24,351 24,351
----------- --------------- ------------ ---------------
Total revenues 430,762 430,762
----------- --------------- ------------ ---------------
OPERATING EXPENSES:
Program and production 84,102 84,102
Selling, general and administrative 88,582 88,582
Expenses realized from station barter
arrangements 23,147 23,147
Amortization of program contract costs and
net realizable value adjustments 69,687 69,687
Deferred compensation 8,855 8,855
equipment 17,865 17,865
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets 82,484 82,484
----------- --------------- ------------ ---------------
Total operating expenses -- 374,722 374,722
----------- --------------- ------------ ---------------
Broadcast operating income (loss) -- 56,040 56,040
OTHER INCOME (EXPENSE):
Interest expense 15,989 (o) (106,500) 16,490 (q) (90,010)
Interest income 2,557 2,557
Other income (expense) 817 817
----------- --------------- ------------ ---------------
Income (loss) before (provision) benefit
for income taxes and extraordinary item 15,989 (47,086) 16,490 (30,596)
(PROVISION) BENEFIT FOR INCOME TAXES (6,396)(m) 17,532 (6,596)(m) 10,936
----------- --------------- ------------ ---------------
Net income (loss) before extraordinary tem 9,593 (29,554) 9,894 (19,660)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
related income tax benefit of $3,357 (4,912) (4,912)
----------- --------------- ------------ ---------------
NET INCOME (LOSS) $ 9,593 $ (34,466) $ 9,894 $(24,572)
=========== =============== ============ ===============
PREFERRED STOCK DIVIDEND -- $(21,500) $(21,500)
------------ ---------------
INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (34,466) $(46,072)
=========== ============
EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) before extraordinary item $ (0.71) $ (0.48)
Extraordinary item $ (0.12) (0.12)
----------- --------------- ------------ ---------------
Net income (loss) per common share $ (0.83) $ (1.11)
=========== =============== ============ ===============
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands) 5,000 (p) 41,364 41,364
=========== =============== ============ ===============
</TABLE>
29
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Flint T.V., Inc. column reflects the results of operations for WSMH
for the year ended December 31, 1995 and for the period from January 1, 1996 to
February 28, 1996, the date the Flint Acquisition was consummated.
(b) The Superior Communications Group, Inc. column reflects the results of
operations for Superior for the year ended December 31, 1995 and for the period
from January 1, 1996 to May 7, 1996, the date the Superior Acquisition was
consummated.
(c) The KSMO column reflects the results of operations for the year ended
December 31, 1995 and for the period from January 1, 1996 to June 30, 1996 as
the transaction was consummated in July 1996.
(d) The WSTR column reflects the results of operations for the year ended
December 31, 1995 and for the period from January 1, 1996 to June 30, 1996 as
the transaction was consummated in August 1996.
(e) The River City column for the six months ended June 30, 1996 reflects the
results of operations for River City (including KRRT, Inc.) for the period from
January 1, 1996 to May 31, 1996, the date the River City Acquisition was
consummated. The River City column for the year ended December 31, 1995 reflects
the results of operations for River City (including KRRT Inc.) for the year
ended December 31, 1995, and the results of operations for Paramount Stations
Group of Kerrville, Inc. (the predecessor business to KRRT, Inc.) for the seven
months and three days ended August 3, 1995, the date of acquisition by KRRT,
Inc. In each case, the WSYX column removes the results of WSYX from the results
of River City for the period.
(f) The WYZZ column reflects the results of operations for the year ended
December 31, 1995 and for the period from January 1, 1996 to June 30, 1996 as
the purchase transaction was consummated in July 1996.
(g) For 1995, corporate expenses have been adjusted to reflect the increased
costs of operating River City during 1995 as a public company and the increased
compensation expenses for senior executives of the Company as a result of the
increased size of the Company due to the Recent Acquisitions. For 1996,
corporate expenses have been adjusted to reflect the elimination of certain one
time expenses (including bonuses paid to River City executives) in connection
with the River City Acquisition and the addition of increased compensation
expenses for senior executives of the Company as a result of the increased size
of the Company due to the Recent Acquisitions.
(h) To record compensation expense related to options granted under the
Long-Term Incentive Plan:
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
------------ -------------
ompensation expense related to the Long-Term
Incentive Plan on a pro forma basis ................ $ 7,302 $8,855
Less: Compensation expense recorded by the Company
related to the Long-Term Incentive Plan............. (6,007) --
------------ -------------
$ 1,295 $8,855
============ =============
(i) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by WSMH, Superior, KSMO, WSTR, River
City(e) and WYZZ. Tangible assets are to be depreciated over lives ranging from
5 to 29.5 years, calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
-----------------------------------------------------------------------
WSMH SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
------- ----------- --------- -------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation expense on acquired tangible assets $32 $ 315 $ 240 $ 507 $ 3,965 $159 $ 5,218
Less: Depreciation expense recorded by WSMH,
Superior, KSMO, WSTR, River City(e) and WYZZ ... (4) (373) (374) (284) (5,120) (6) (6,161)
------- ----------- --------- -------- ------------- ------- ----------
Pro forma adjustment ............................ $28 $ (58) $(134) $ 223 $(1,155) $153 $ (943)
======= =========== ========= ======== ============= ======= ==========
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
------------------------------------------------------------------------
WSMH SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
------- ----------- --------- --------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation expense on acquired tangible assets $192 $ 945 $ 480 $1,014 $ 9,516 $318 $ 12,465
Less: Depreciation expense recorded by WSMH,
Superior, KSMO, WSTR, River City(e) and WYZZ ... (20) (1,660) (632) (585) (9,611) (21) (12,529)
------- ----------- --------- --------- ------------ ------- -----------
Pro forma adjustment ............................ $172 $ (715) $(152) $ 429 $ (95) $297 $ (64)
======= =========== ========= ========= ============ ======= ===========
</TABLE>
(j) To record amortization expense related to acquired intangible assets and
deferred financing costs and eliminate amortization expense recorded by WSMH,
Superior, KSMO, WSTR, River City(e) and WYZZ. Intangible assets are to be
amortized over lives ranging from 1 to 40 years, calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
-------------------------------------------------------------------
WSMH SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
------- ---------- ------- ------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization expense on acquired intangible assets $167 $ 827 $180 $285 $ 12,094 $99 $ 13,652
Deferred financing costs .......................... 1,429 1,429
Less: Amortization expense recorded by WSMH,
Superior, KSMO, WSTR, River City(e) and WYZZ ..... -- (529) -- (39) (10,442) (3) (11,013)
------- ---------- ------- ------- ------------ ------- -----------
Pro forma adjustment .............................. $167 $ 298 $180 $246 $ 3,081 96 $ 4,068
======= ========== ======= ======= ============ ======= ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------------------------------------------------------------
WSMH SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
--------- ----------- -------- ------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization expense on acquired intangible assets $1,002 $ 2,481 $ 360 $570 $ 29,026 $198 $ 33,637
Deferred financing costs .......................... 2,858 2,858
Less: Amortization expense recorded by WSMH,
Superior, KSMO, WSTR, River City(e) and WYZZ ..... (12) (1,066) (210) (77) (18,122) (5) (19,492)
--------- ----------- -------- ------- ------------ ------- -----------
Pro forma adjustment .............................. $ 990 $ 1,415 $ 150 $493 $ 13,762 $193 $ 17,003
========= =========== ======== ======= ============ ======= ===========
</TABLE>
(k) To record interest expense for the six months ended June 30, 1996 on
acquisition financing relating to Superior of $59,850 (under the Bank Credit
Agreement at 8.0% for four months), KSMO and WSTR of $10,425 and $7,881,
respectively (both under the Bank Credit Agreement at 8.0% for six months),
River City (including KRRT) of $868,300 (under the Bank Credit Agreement at 8.0%
for five months) and of $851 for hedging agreements related to the River City
financing and WYZZ of $20,194 (under the Bank Credit Agreement at 8.0% for six
months) and eliminate interest expense recorded. No interest expense has been
recorded for WSMH as it has been assumed that the proceeds from the 1995 Notes
were used to purchase WSMH.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
-----------------------------------------------------------------
SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
----------- --------- ---------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest expense adjustment as noted above ........ $1,596 $ 417 $ 315 $ 29,032 $808 $ 32,168
Less: Interest expense recorded by, Superior, KSMO,
WSTR, River City (e) and WYZZ....................... (457) (823) (1,127) (12,352) -- (14,759)
----------- --------- ---------- ------------ ------- -----------
Pro forma adjustment ............................... $1,139 $(406) $ (812) $ 16,680 $808 $ 17,409
=========== ========= ========== ============ ======= ===========
</TABLE>
<PAGE>
To record interest expense for the year ended December 31, 1995 on
acquisition financing relating to WSMH of $34,400 (under the Bank Credit
Agreement at 8.5% for eight months and assuming that proceeds from the 1995
Notes were used to repay the additional acquisition financing relating to WSMH),
Superior of $59,850 (under the Bank Credit Agreement at 8.5% for twelve months),
KSMO and WSTR of $10,425 and $7,881, respectively (both under the Bank Credit
Agreement at 8.5% for eight months and assuming that the proceeds from the 1995
Notes were used to repay additional acquisition financing relating to KSMO and
WSTR), River City (including KRRT) of $868,300 (under the Bank Credit Agreement
at 8.5% for twelve months) and of $851 for hedging agreements related to the
River City financing and WYZZ of $20,194 (under the Bank Credit Agreement at
8.5% for eight months and assuming that the proceeds from the 1995 Notes were
used to repay additional acquisition financing related to River City and WYZZ)
and eliminate interest expense recorded.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
----------------------------------------------------------------------------
WSMH SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
--------- ----------- ----------- ----------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest expense adjustment as noted above ....... $1,949 $ 5,087 $ 591 $ 447 $ 74,018 $1,144 $ 83,236
Less: Interest expense recorded by WSMH, Superior,
KSMO, WSTR, River City(e) and WYZZ ................ -- (1,579) (2,039) (2,506) (34,523) -- (40,647)
--------- ----------- ----------- ----------- ------------ --------- --------
Pro forma adjustment .............................. $1,949 $ 3,508 $(1,448) $(2,059) $ 39,495 $1,144 $ 42,589
========= =========== =========== =========== ============ ========= ========
</TABLE>
31
<PAGE>
(l) To eliminate interest income for the six months ended June 30, 1996 on
public debt proceeds relating to WSMH, KSMO and WSTR and WYZZ of $34,400 (with a
commercial bank at 5.7% for two months), $10,425 and $7,881 (both with a
commercial bank at 5.7% for six months) and $20,194 (with a commercial bank at
5.7% for six months), respectively due to assumed utilization of excess cash for
those acquisitions.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
---------------------------------------------------------------
WSMH KSMO WSTR RIVER CITY WYZZ TOTAL
--------- --------- -------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income adjustment as noted above ... $(327) $(297) $(226) $ $(576) $(1,426)
Less: Interest income recorded by WSMH, KSMO,
WSTR, River City(e) and WYZZ.................. -- -- (15) (195) -- (210)
--------- --------- -------- ------------ --------- -----------
Pro forma adjustment ......................... $(327) $(297) $(241) $(195) $(576) $(1,636)
========= ========= ======== ============ ========= ===========
</TABLE>
To eliminate interest income for the year ended December 31, 1995 on public
debt proceeds relating to WSMH, KSMO and WSTR and WYZZ of $34,400, $10,425,
$7,881 and $20,194 (all with a commercial bank at 5.7% for four months),
respectively due to assumed utilization of excess cash for those acquisitions.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
----------------------------------------------------------------
WSMH KSMO WSTR RIVER CITY WYZZ TOTAL
--------- --------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income adjustment as noted above ... $(654) $(198) $(149) $ -- $(384) $(1,385)
Less: Interest income recorded by WSMH, KSMO,
WSTR, River City(e) and WYZZ ................. (81) -- -- (1,715) (54) (1,850)
--------- --------- --------- ------------ --------- -----------
Pro forma adjustment ......................... $(735) $(198) $(149) $(1,715) $(438) $(3,235)
========= ========= ========= ============ ========= ===========
</TABLE>
(m) To record tax (provision) benefit for recent acquisitions and for pro
forma adjustments at the applicable statutory tax rates.
(n) Weighted average shares outstanding on a pro forma basis assumes that the
150,000 shares of Series B Preferred Stock were converted for 4,181,818 shares
of $.01 par value Class A Common Stock as of the beginning of the period.
(o) To record interest expense reduction of $7,524 for 1996 and $15,989 from
1995 related to application of the Common Stock Offering proceeds of $188,106
(at 8.0% for six months and 8.5% for twelve months for 1996 and 1995
respectively.)
(p) To record the additional shares outstanding upon completion of the
Offering.
(q) To record interest expense reduction of $7,760 for 1996 and $16,490 for
1995 related to application of the preferred stock offering proceeds of $194,000
(at 8.0% for six months and 8.5% for twelve months for 1996 and 1995,
respectively.)
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The operating revenues of the Company are derived from local and national
advertisers and, to a much lesser extent, from Fox, ABC and CBS in the form of
network compensation. The Company's primary operating expenses involved in
owning or programming television and radio stations are syndicated program
rights fees, commissions on revenues, employee salaries, news-gathering and
promotion. Amortization and depreciation of costs associated with the
acquisition of the stations and interest carrying charges are significant
factors in determining the Company's overall profitability.
Set forth below are the principal types of broadcast revenues received by the
Company's stations for the periods indicated and the percentage contribution of
each type to the Company's total gross broadcast revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1994 1995
------------------ ----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Broadcast Revenues
Local/regional
advertising............... $ 39,925 48.6% $ 67,881 48.6% $104,299 47.5%
National advertising ..... 41,281 50.3 69,374 49.6 113,678 51.7
Network compensation ..... 232 0.3 302 0.2 442 0.2
Political advertising .... 158 0.2 1,593 1.1 197 0.1
Production................ 483 0.6 696 0.5 1,115 0.5
---------- -------- ---------- -------- ---------- --------
Broadcast revenues........ 82,079 100.0% 139,846 100.0% 219,731 100.0%
Less: Agency commissions . (12,547) (21,235) (31,797)
---------- -------- ---------- -------- ----------
Broadcast revenues, net .. 69,532 118,611 187,934
Barter revenues........... 6,892 10,743 18,200
---------- -------- ---------- -------- ----------
Total revenues............ $ 76,424 $129,354 $206,134
========== ======== ========== ======== ==========
</TABLE>
Advertising revenues of the stations are generally highest in the fourth
quarter of each year, due in part to increases in retail advertising in the
period leading up to and including the holiday season. Advertising revenues are
generally higher during election years due to spending by political candidates,
which spending typically is heaviest during the fourth quarter.
The Company's primary types of programming and their approximate percentages
of 1995 net broadcast revenues were Fox prime time (11.9%), children's
programming (10.6%) and other syndicated programming (59.5%). Similarly, the
Company's three largest categories of advertising and their approximate
percentages of 1995 net broadcast revenues were automotive (16.9%), children's
(10.6%) and fast food advertising (8.0%). No other advertising category
accounted for more than 8% of the Company's net broadcast revenues in 1995. No
individual advertiser accounted for more than 5% of any individual Company
station's net broadcast revenues in 1995.
In connection with the Recent Acquisitions, the Company significantly
diversified its revenue base by adding a diverse group of television and radio
stations. On a pro forma basis, the Company's Major Network affiliated
television stations, Fox affiliated television stations, and radio group
contributed 17.1%, 41.0% and 13.8%, respectively, of the Company's 1995 net
revenue. Further, the Company incurred substantial indebtedness, as a result of
which the Company's debt service requirements have increased over historical
levels. In addition, the Company's non-cash charges for depreciation and
amortization expense increased as a result of the fixed assets and goodwill
acquired in the Recent Acquisitions.
33
<PAGE>
The following table sets forth certain operating data of the Company for the
years ended December 31, 1993, 1994 and 1995, and for the six months ended June
30, 1995 and June 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------- ----------------
JUNE 30, JUNE 30,
1993 1994 1995 1995 1996
-------- -------- --------- --------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net broadcast revenues........................ $69,532 $118,611 $187,934 $88,724 $117,339
Barter revenues............................... 6,892 10,743 18,200 8,150 9,571
--------- ---------- ---------- ---------- --------
Total revenues................................ 76,424 129,354 206,134 96,874 126,910
Operating expenses, excluding depreciation and
amortization, deferred compensation and
special bonuses paid to executive officers... 32,197 50,467 80,446 38,731 52,825
Depreciation and amortization................. 22,584 55,665 80,410 38,801 45,493
Deferred compensation......................... -- -- -- -- 6,007
Special bonuses paid to executive officers.... 10,000 3,638 -- -- --
--------- ---------- ---------- ---------- --------
Broadcast operating income.................... $11,643 $ 19,584 $ 45,278 $19,342 $ 22,585
Other Data:
Broadcast cash flow(a)........................ $37,596 $ 67,597 $111,124 $50,471 $ 65,080
Broadcast cash flow margin.................... 54.1% 57.0% 59.1% 56.9% 55.5%
Operating cash flow(b)........................ $35,504 $ 64,625 $105,750 $48,285 $ 62,014
Operating cash flow margin.................... 51.1% 54.5% 56.3% 54.4% 52.9%
After tax operating cash flow(c).............. $31,204 $ 62,940 $ 98,689 $40,785 $ 56,414
Program contract payments..................... $ 8,723 $ 14,262 $ 19,938 $ 9,858 $ 12,071
Program contract payments as a percentage of
net broadcast revenue........................ 12.5% 12.0% 10.6% 11.1% 10.3%
Corporate expense............................. $ 2,092 $ 2,972 $ 5,374 $ 2,186 $ 3,066
</TABLE>
- ---------
(a) "Broadcast cash flow" is defined as broadcast operating income plus
corporate overhead expense, special bonuses paid to executive officers, non-cash
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 rights
payable and do not necessarily correspond to program usage. Special bonuses paid
to executive officers are considered unusual and non-recurring. 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 flow,
is not a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measure of performance prepared in accordance with generally accepted accounting
principles.
(b) "Operating cash flow" is defined as broadcast cash flow less corporate
overhead expense 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 flow, 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.
(c) "After tax operating cash flow" is defined as operating cash flow less
taxes paid.
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RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 and 1996. Total revenues increased from $96.9
million for the six months ended June 30, 1995 to $126.9 million for the six
months ended June 30, 1996, 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 32.3% over the six months ended June 30, 1995. These increases
in broadcast revenues were primarily the result of the acquisitions of WTVZ and
WLFL, and the entering into LMA agreements with WABM and WDBB (the "1995
Acquisitions"), and the Recent Acquisitions, as well as television broadcast
revenue growth in each of the Company's markets.
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%. This increase in expenses was largely
attributable to operating costs associated with acquisitions, an increase in LMA
fees resulting from LMA transactions, and an increase in corporate overhead
expense and non-cash deferred compensation expense.
Broadcast operating income increased from $19.3 million for the six months
ended June 30, 1995 to $22.6 million for the six months ended June 30, 1996, or
17.1%. This increase is primarily attributable to the 1995 Acquisitions and the
Recent Acquisitions.
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%. The
interest expense increase related to indebtedness under the 1995 Notes and
indebtedness under the Bank Credit Agreement incurred by the Company to finance
the River City Acquisition.
Interest and other income increased from $1.3 million for the six months
ended June 30, 1995 from $3.2 million for the six months ended June 30, 1996 or
146.2%. This increase primarily resulted from the increase in cash balances that
remained from the Company's offering of the 1995 Notes.
Income tax benefit increased from a provision of $462,000 for the six months
ended June 30, 1995 to a benefit of $1.1 million for the six months ended June
30, 1996. This increase is attributed to the 1995 Acquisitions and the Recent
Acquisitions.
The deferred tax asset decreased from $21.0 million at December 31, 1995 to
$7.2 million as of June 30, 1996 and the effective tax rate increased from 51%
for the twelve months ended December 31, 1995 to 58% for the six months ended
June 30, 1996 primarily due to the Superior Acquisition.
Net income for the six months ended June 30, 1995 was $507,000 or $0.02 per
share compared to net loss of $790,000 or ($0.02) per share for the six months
ended June 30, 1996.
Broadcast cash flow increased from $50.5 million for the six months ended
June 30, 1995 to $65.1 million for the six months ended June 30, 1996, or 28.9%.
Operating cash flow increased from $48.3 million for the six months ended
June 30, 1995 to $62.0 million for the six months ended June 30, 1996, or 28.4%.
Years ended December 31, 1994 and 1995. Total revenues increased from $129.4
million for the year ended December 31, 1994 to $206.1 million for the year
ended December 31, 1995, or 59.3%. This increase includes revenues from the 1995
Acquisitions. This increase also includes the first full year of revenues from
the acquisition of WCGV and WTTO and the entering into LMA agreements with WNUV
and WVTV, and FSFA (the "1994 Acquisitions"). When excluding the effect of
non-cash barter transactions net broadcast revenues increased from $118.6
million for the year ended December 31, 1994 to $187.9 million for the year
ended December 31, 1995, or 58.4%.
These increases in net broadcast revenues were primarily a result of the 1994
and 1995 Acquisitions and LMA transactions consummated by the Company, as well
as television broadcast revenue growth in each of the Company's markets. WPGH,
the Pittsburgh Fox affiliate, achieved in excess of 14% net broadcast revenue
growth for the year ended December 31, 1995 compared to the year ended December
31, 1994 primarily attributable to a new metered rating service that began in
May 1995 which established significant
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improvement in WPGH's market rating. WBFF, the Fox affiliate in Baltimore and
WCGV, the former Fox affiliate, now a UPN affiliate in Milwaukee, both achieved
in excess of 10% net broadcast revenue growth as these stations began
capitalizing on the advantages of having an LMA in these markets.
Operating expenses excluding depreciation and amortization and special
bonuses paid to executive officers increased from $50.5 million for the year
ended December 31, 1994 to $80.4 million for the year ended December 31, 1995.
These increases in expenses were primarily attributable to increases in
operating expenses relating to the 1994 and 1995 Acquisitions, including the
payment of LMA fees which increased 409% to approximately $5.6 million for the
year ended December 31, 1995 as compared to $1.1 million for the year ended
December 31, 1994. Corporate overhead expenses increased 80.8% for the year
ended December 31, 1995 as compared to the year ended December 31, 1994. This is
partially due to increased expenses associated with being a public company
(e.g., directors and officers insurance, travel expenses and professional fees)
and to executive bonus accruals for executive bonuses which were paid based on
achieving in excess of 20% growth percentages in pro forma broadcast cash flow
for the year 1995 compared to 1994.
Broadcast operating income increased from $19.6 million for the year ended
December 31, 1994 to $45.3 million for the year ended December 31, 1995, or
131.1%. The increase in broadcast operating income was primarily a result of the
1994 and 1995 Acquisitions and the increase in television broadcast revenues in
each of the Company's markets, and was partially offset by increased
amortization expenses related to the 1994 and 1995 Acquisitions.
Interest expense increased from $25.4 million for the year ended December 31,
1994 to $39.3 million for the year ended December 31, 1995, or 54.7%. The major
component of this increase in interest expense was increased borrowings under
the Bank Credit Agreement to finance the 1994 and 1995 Acquisitions. During
August of 1995, the Company issued the 1995 Notes and used a portion of the net
proceeds to repay outstanding indebtedness under the Bank Credit Agreement and
the remainder to increase the Company's cash balance by $91.4 million. The
interest expense related to the 1995 Notes was approximately $10.0 million in
1995. This increase was partially offset by the application of the net proceeds
of an offering of Class A Common Stock to reduce a portion of the indebtedness
under the Bank Credit Agreement during June 1995. Interest expense was also
reduced as a result of the application of net cash flow from operating
activities to further decrease borrowings under the Bank Credit Agreement.
Interest and other income increased from $2.4 million for the year ended
December 31, 1994 to $4.2 million for the year ended December 31, 1995, or
75.0%. The increase in interest income resulted primarily from the increase in
cash balances that remained from the proceeds of the 1995 Notes. Income (loss)
before benefit (provision) for income taxes and extraordinary items increased
from a loss of $3.4 million for the year ended December 31, 1994 to income of
$10.2 million for the year ended December 31, 1995.
Net income (loss) available to common shareholders improved from a loss of
$2.7 million for the year ended December 31, 1994 to income of $76,000 for the
year ended December 31, 1995. In August 1995, the Company consummated the sale
of the 1995 Notes generating net proceeds to the Company of $293.2 million. The
net proceeds from the 1995 Notes were utilized to repay outstanding indebtedness
under the Bank Credit Agreement of $201.8 million with the remainder being
retained for general corporate purposes including potential future acquisitions.
In conjunction with the early retirement of the indebtedness under the Bank
Credit Agreement, the Company recorded an extraordinary loss of $4.9 million net
of a tax benefit of $3.4 million, related to the write off of deferred financing
costs under the Bank Credit Agreement.
Broadcast cash flow increased from $67.6 million for the year ended December
31, 1994 to $111.1 million for the year ended December 31, 1995, or 64.3%. This
increase in broadcast cash flow was primarily due to the 1994 and 1995
Acquisitions, growth in market revenues and a reduction in program payments as a
percentage of net broadcast revenues from 12.0% for the year ended December 31,
1994 to 10.6% for the year ended December 31, 1995.
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Operating cash flow increased from $64.6 million for the year ended December
31, 1994 to $105.8 million for the year ended December 31, 1995, or 63.8%.
Years Ended December 31, 1993 and 1994. Total revenues increased from $76.4
million for the year ended December 31, 1993 to $129.4 million for the year
ended December 31, 1994, or 69.4%. This increase includes revenues from the 1994
Acquisitions. When excluding the effect of revenues generated by the 1994
Acquisitions and non-cash revenues recognized from barter arrangements, total
revenues increased 12.4% for the year ended December 31, 1994 from the year
ended December 31, 1993. Net revenues for WPGH during this period increased
despite the loss of Arbitron meter service in the Pittsburgh market at the end
of 1993. The Company believes that Arbitron meter service was a more accurate
system than the diary service which replaced meter service in the Pittsburgh
market, and that the presence of meter service provides benefits to UHF
stations, such as WPGH. In May 1995 the Nielsen system in Pittsburgh was
upgraded to a meter system.
Operating expenses excluding depreciation and amortization and special
bonuses paid to executive officers increased from $32.2 million for the year
ended December 31, 1993 to $50.5 million for the year ended December 31, 1994,
or 56.8%. This increase was primarily due to the 1994 Acquisitions.
Broadcast operating income increased from $11.6 million for the year ended
December 31, 1993 to $19.6 million for the year ended December 31, 1994, or
69.0%. When excluding the effects of special bonuses paid to executive officers
during 1993 and 1994, broadcast operating income increased $1.6 million, or
7.3%, for the year ended December 31, 1994 as compared to the year ended
December 31, 1993. Depreciation and amortization increased from $22.6 million
for the year ended December 31, 1993 to $55.7 million for the year ended
December 31, 1994, or 146.5%. This increase was due primarily to amortization
and depreciation expenses related to the 1994 Acquisitions as well as an
increase in net realizable value adjustments recorded during the year ended
December 31, 1994 of $7.1 million compared to net realizable value adjustments
recorded during the year ended December 31, 1993 of $1.6 million.
Interest expense increased from $12.9 million for the year ended December 31,
1993 to $25.4 million for the year ended December 31, 1994, or 96.9%. This
increase was due to increased interest expenses related to the 1994
Acquisitions, including interest expense related to holding $100.0 million of
proceeds of the 1993 Notes in escrow during the first quarter of 1994. The
Company subsequently redeemed $100.0 million of the 1993 Notes and financed a
portion of the 1994 Acquisitions through borrowings under the Bank Credit
Agreement. The Company maintains interest rate caps and floors on a portion of
its indebtedness under the Bank Credit Agreement. In 1994, the effect of these
interest rate caps and floors purchased, including the amortization of the
premium cost of the agreements, was to increase interest expense by an
additional $171,000.
Interest and other income increased from $2.1 million for the year ended
December 31, 1993 to $2.4 million for the year ended December 31, 1994, or
14.3%. An increase in interest income was realized in 1994 primarily due to
investment of the proceeds of the 1993 Notes during the time such proceeds were
held in escrow in the first quarter of 1994, and due to interest on greater cash
balances in the second quarter of 1994. These increases in interest income in
1994 were offset partially by life insurance proceeds received during the year
ended December 31, 1993 that were recorded as other income.
Income (loss) before (provision) benefit for income taxes and extraordinary
items decreased from income of $0.9 million for the year ended December 31, 1993
to a loss of $3.4 million for the year ended December 31, 1994.
Net loss decreased from $7.9 million for the year ended December 31, 1993 to
$2.7 million for the year ended December 31, 1994. When excluding the effects of
special bonuses paid to executive officers in 1993 and 1994, net loss decreased
$0.3 million for the year ended December 31, 1993 as compared to the year ended
December 31, 1994, primarily due to the increase in depreciation and
amortization expense described above.
The net loss for the year ended December 31, 1993 includes extraordinary
items related to a gain of $1.3 million on the purchase of warrants and a loss
of $9.2 million, net of the related income tax benefit, on repayment of
commercial bank debts and redemption of $100.0 million in principal amount of
the 1993 Notes.
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Broadcast cash flow increased from $37.6 million for the year ended December
31, 1993 to $67.6 million for the year ended December 31, 1994, or 79.8%. The
increase in broadcast cash flow was a direct result of the 1994 Acquisitions and
the strong economic environment in broadcasting.
Operating cash flow increased from $35.5 million for the year ended December
31, 1993 to $64.6 million for the year ended December 31, 1994, or 82.0%.
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 debt under the Bank Credit Agreement.
The Company's primary source of liquidity is cash provided by operations and
availability under the Bank Credit Agreement. As of August 31, 1996,
approximately $138.5 million was available for draws under the Bank Credit
Agreement. Although completion of the Offerings and application of the proceeds
as set forth in "Use of Proceeds" would not increase the amount available for
draws under the Bank Credit Agreement (except to the extent amounts repaid under
the Revolving Credit Facility can be reborrowed) on a pro forma basis as of June
30, 1996, the Company would have had the capacity to incur approximately $400
million of additional indebtedness without violating restrictive covenants in
the Bank Credit Agreement and the Indentures.
Net cash flow 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 the Recent 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 milion for the six
months ended June 30, 1996 due to the additional interest expense relating to
the 1995 Notes and additional borrowings under the Bank Credit Facility to
finance the purchase of River City and KRRT. 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 1995
Acquisitions, which occured during the six months ended June 30, 1995 and
therefore resulted in less than a full six months of film payments in 1995. The
Company also made a $20.0 million payment of debt acquisition costs relating to
the financing required to consummate the River City Acquisitions.
Net cash flow 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. In January 1996, the Company made a cash payment of $1.0 million
relating to the Peoria/Bloomington Acquisition which was consummated in July
1996. During February 1996, the Company completed the Flint Acquisition 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 May 1996, the Company
completed the Superior Acquisition and made cash payments totaling $63.0 million
relating to the transaction. Also in May 1996, the Company completed the River
City Acquisition and made related cash payments totaling $838.7 million.
Net cash flow from financing activities was $96.6 million for the six months
ended June 30, 1995 compared to amounts used of $828.3 million for the six
months ended June 30, 1996. In May 1996, the Company utilized available
indebtedness of $62.0 million for the Superior Acquisition and simultaneously
repaid indebtedness of $25.0 million. Also in May 1996, the Company utilized
available indebtedness of $835.0 million for the River City Acquisition and
simultaneously repaid indebtedness of $36.0 million.
The Company has the rights to air numerous syndicated programs. As of June
30, 1996, the Company had commitments totaling $150.2 million to acquire future
program rights, some of which extend into the year 2004.
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Under the Bank Credit Agreement, the Company was required to enter into
interest rate hedging agreements to protect up to 75% of the outstanding
balances under the term loans thereunder for three years from the original date
of the Bank Credit Agreement. The interest rate protection agreements were
required to protect the covered amounts, to a maximum rate of 9.5%, including
any spread paid to the lending banks. The Company obtained the required interest
rate protection at a cost of $1.1 million. The Company exchanged interest rate
caps on approximately $160.0 million in indebtedness during the three months
ended June 30, 1995 for certain interest rate swaps which fixed interest on such
indebtedness at rates between 5.85% and 7.00%. The Company has modified these
swaps to meet the requirements under the Bank Credit Agreement. The Company is
amortizing these costs over the lives of the agreements and has not recognized
any gain on them.
The Company has the option to purchase all of the assets of River City
relating to WSYX-TV in Columbus, Ohio for $130 million plus the amount of debt
secured by such assets outstanding at the time of purchase (not to exceed $105
million). See "Business -- Acquisition Strategy." The Company believes that,
following completion of either the Common Stock Offering or the Preferred Stock
Offering the Company will have the capacity to incur additional indebtedness to
exercise the option (if it decides to do so) without violating restrictive
covenants in the Bank Credit Agreement or the Indentures. See "Description of
Indebtedness."
The Company anticipates that funds from operations, existing cash balances
and availability of the Revolving Credit Facility under the Bank Credit
Agreement will be sufficient to meet its working capital, capital expenditures
and debt service requirements for the foreseeable future. However, to the extent
such funds are not sufficient, the Company may need to incur additional
indebtedness, refinance existing indebtedness or raise funds from the sale of
additional equity. The Bank Credit Agreement and the Indentures would restrict
the incurrence of additional indebtedness and the use of proceeds of an equity
issuance.
INCOME TAXES
A $1.8 million tax provision and a $1.1 million tax benefit was recognized
for the year ended December 31, 1995 and for the six months ended June 30, 1996,
respectively. This provision was comprised of a $5.2 million tax provision
relating to the Company's income before provision for income taxes and an
extraordinary item offset by a $3.4 million income tax benefit relating to the
extraordinary loss on early extinguishments of debt. The tax provision and tax
benefit reflects a 51% and 58% effective rate which is higher than the statutory
rate which is primarily due to the non-deductibility of goodwill relating to the
repurchase of Common Stock in 1990. After giving effect to these changes the
Company had net deferred tax assets of $21.0 million and $7.2 million at
December 31, 1995 and at June 30, 1996, respectively. The realization of the net
deferred tax asset is contingent upon the Company's ability to generate
sufficient future taxable income to realize the future tax benefits associated
with the net deferred tax asset. The Company believes that the net deferred
asset will be realized through future operating results. This belief is based
upon 1995 taxable income and the projection of future years' results. Given that
the taxable income for the year ended December 31, 1995 was approximately $10.2
million before the non-recurring charge for loss on early extinguishment of
debt, the Company anticipates that the impact of the recently acquired
operations will contribute to the generation of sufficient taxable income to
ensure the realization of the net deferred asset.
A $600,000 tax benefit was recognized for the year ended December 31, 1994,
which was 19.1% of the Company's loss before provision for income taxes. This
benefit was lower than the benefit calculated at statutory rates primarily due
to the non-deductible goodwill amortization. After effecting for these changes
the Company had net deferred tax assets of $12.5 million as of December 31,
1994.
CERTAIN ACCOUNTING MATTERS
The Financial Accounting Standards Board has issued SFAS No. 121 "Accounting
for the Impairment of Long Lived Assets," and SFAS No. 123, "Accounting for
stock based compensation." The adoption of these standards is not expected to
have a material effect on the Company's results of operations or financial
condition.
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INDUSTRY OVERVIEW
TELEVISION BROADCASTING
A substantial number of commercial television stations in the United States
are affiliated with ABC, CBS or NBC (the "Major Networks"). Each Major Network
provides the majority of its affiliates' programming each day without charge in
exchange for a substantial majority of the available advertising time in the
programs supplied. Each Major Network sells this advertising time and retains
the revenue. The affiliate receives compensation from the Major Network and
retains the revenue from time sold during breaks in and between network programs
and in programming the affiliate produces or purchases from non-network sources.
In contrast to stations affiliated with Major Networks, an independent
station supplies over-the-air programming through the acquisition of rights to
broadcast programs through syndication. This syndicated programming is generally
acquired by the independent stations for cash and occasionally barter.
Independent stations which acquire a program through syndication are usually
given exclusive rights to show the program in the station's market for either a
period of years or a number of episodes agreed upon between the independent
station and the syndicator of the programming. Types of syndicated programs
aired on the independent stations include feature films, popular series
previously shown on network television and series produced for direct
distribution to television stations.
Fox has established an affiliation of independent stations, commonly known as
the "fourth network," which operates on a basis similar to the Major Networks.
However, the 15 hours per week of programming supplied by Fox to its affiliates
are significantly less than that of the Major Networks and as a result, Fox
affiliates retain a significantly higher portion of the available inventory of
broadcast time for their own use than Major Network affiliates. As of August 1,
1996, Fox had 165 affiliated stations broadcasting to 94.6% of U.S. television
households.
During 1994, UPN established an affiliation of independent stations which
began broadcasting in January 1995 and operates on a basis similar to Fox.
However, UPN currently supplies only 10 hours of programming per week to its
affiliates, which is significantly less than that of Fox and, as a result, UPN
affiliates retain a significantly higher portion of the available inventory of
broadcast time for their own use than affiliates of Fox or the Major Networks.
As of August 1, 1996, UPN had 84 affiliated stations broadcasting to 73.0% of
U.S. television households.
In 1994 Warner Brothers announced its intention to establish a separate
affiliation of independent television stations similar to UPN, and began
broadcasting in January 1995. The amount of programming supplied by Warner
Brothers to its affiliates in 1996 is 7 hours per week, but Warner Brothers also
has indicated an intention to expand the programming over time to seven nights
per week. As of August 1, 1996, Warner Brothers had 98 affiliated stations
broadcasting to 84% of U.S. television households.
Television stations derive their revenues primarily from the sale of
national, regional and local advertising. All network-affiliated stations,
including those affiliated with Fox and others, are required to carry spot
advertising sold by their networks. This reduces the amount of advertising
available for sale directly by the network-affiliated stations. Network
affiliates generally are compensated for the broadcast of network advertising.
The compensation paid is negotiated, station-by-station, based on a fixed
formula, subject to certain adjustments. Stations directly sell all of the
remaining advertising to be inserted in network programming and all of the
advertising in non-network programming, retaining all of the revenues received
from these sales of advertising, less any commissions paid. Through barter and
cash-plus-barter arrangements, however, a national syndicated program
distributor typically retains a portion of the available advertising time for
programming it supplies, in exchange for no or reduced fees to the station for
such programming.
Advertisers wishing to reach a national audience usually purchase time
directly from the Major Networks, the Fox network, UPN, or Warner Brothers, or
advertise nationwide on an ad hoc basis. National advertisers who wish to reach
a particular region or local audience buy advertising time directly from local
stations through national advertising sales representative firms. Additionally,
local businesses purchase advertising time directly from the stations' local
sales staff. Advertising rates are based upon factors which include the size of
the DMA in which the station operates, a program's popularity among the viewers
that an
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advertiser wishes to attract, the number of advertisers competing for the
available time, demographic characteristics of the DMA served by the station,
the availability of alternative advertising media in the DMA, aggressive and
knowledgeable sales forces and the development of projects, features and
marketing programs that tie advertiser messages to programming. Because
broadcast television stations rely on advertising revenues, declines in
advertising budgets, particularly in recessionary periods, will adversely affect
the broadcast business. Conversely, increases in advertising budgets and may
contribute to an increase in the revenue and operating cash flow of a particular
broadcast television station.
Information regarding competition in the television broadcast industry is set
forth under "Business -- Competition."
RADIO BROADCASTING
The primary source of revenues for radio stations is generated from the sale
of advertising time to local and national spot advertisers and national network
advertisers. During the past decade, local advertising revenue as a percentage
of total radio advertising revenue in a given market has ranged from
approximately 79% to 82%. The growth in total radio advertising revenue tends to
be fairly stable and has generally grown at a rate faster than the Gross
Domestic Product ("GDP"). Total domestic radio advertising revenue reached an
all-time record of $11.3 billion in 1995, as reported by the Radio Advertising
Bureau (the "RAB"), the highest level in the industry's history.
According to the RAB's Radio Marketing Guide and Fact Book for Advertisers,
1994-1995, radio reaches approximately 96% of all Americans over the age of 12
every week. More than one-half of all radio listening is done outside the home,
in contrast to other advertising media. The average adult listener spends
approximately three hours and 20 minutes per day listening to radio. Most radio
listening occurs during the morning, particularly between the time a listener
wakes up and the time the listener reaches work. This "morning drive time"
period reaches more than 85% of people over the age of 12 and, as a result,
radio advertising sold during this period achieves premium advertising rates.
Radio listeners have gradually shifted over the years from AM to FM stations. FM
reception, as compared to AM, is generally clearer and provides greater total
range and higher fidelity. In comparison to AM, FM's listener share is now in
excess of 75%, despite the fact that the number of AM and FM commercial stations
in the United States is approximately equal.
Radio is considered an efficient, cost-effective means of reaching
specifically identified demographic groups. Stations are typically classified by
their on-air format, such as country, adult contemporary, oldies and news/talk.
A station's format and style of presentation enable it to target certain
demographics. By capturing a specific share of a market's radio listening
audience, with particular concentration in a targeted demographic, a station is
able to market its broadcasting time to advertisers seeking to reach a specific
audience. Advertisers and stations utilize data published by audience measuring
services, such as Arbitron, to estimate how many people within particular
geographical markets and demographics listen to specific stations.
The number of advertisements that can be broadcast without jeopardizing
listening levels (and the resulting ratings) is limited in part by the format of
a particular station and the local competitive environment. Although the number
of advertisements broadcast during a given time period may vary, the total
number of advertisements broadcast on a particular station generally does not
vary significantly from year to year.
A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station
usually will engage a firm that specializes in soliciting radio advertising
sales on a national level. National sales representatives obtain advertising
principally from advertising agencies located outside the station's market and
receive commissions based on the revenue from the advertising obtained.
Information regarding competition in the radio broadcast industry is set
forth under "Business -- Competition."
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BUSINESS
The Company is a diversified broadcasting company that owns or provides
programming services to more television stations than any other commercial
broadcasting group in the United States. The Company currently owns or provides
programming services to 28 television stations and has an option to acquire one
additional television station. The Company believes it is also one of the top 20
radio groups in the United States, when measured by the total number of radio
stations owned, programmed or with which it has Joint Sales Agreements (JSAs).
The Company owns or provides programming services to 21 radio stations, has
pending acquisitions of two radio stations (one of which it currently programs
pursuant to a local marketing agreement (LMA)), has JSAs with three radio
stations and has options to acquire an additional seven radio stations.
The 28 television stations the Company owns or programs pursuant to LMAs are
located in 20 geographically diverse markets, with 23 of the stations in the top
51 television DMAs in the United States. The Company's television station group
is diverse in network affiliation with 10 stations affiliated with Fox, 11 with
UPN, two with ABC and one with CBS. Four stations operate as Independents.
The Company's radio station group is also geographically diverse with a
variety of programming formats including country, urban, news/talk/sports,
album/progressive rock and adult contemporary. Of the 25 stations owned,
programmed or with which the Company has a JSA, 12 broadcast on the AM band and
13 on the FM band. The Company owns or programs from two to seven stations in
all but one of the radio markets it serves.
The Company has undergone rapid and significant growth over the course of the
last five years. Beginning with the acquisition of WPGH in Pittsburgh in 1991,
the Company has increased the number of television stations it owns or programs
from three to 28. From 1991 to 1995, net broadcast revenues and operating cash
flow increased from $39.7 million to $187.9 million, and from $15.5 million to
$105.8 million, respectively. Pro forma for the acquisitions described below,
1995 net broadcasting revenue and operating cash flow would have been $406.4
million and $190.6 million, respectively.
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TELEVISION BROADCASTING
The following table sets forth certain information regarding the television
stations owned and operated or provided programming services by the Company and
the markets in which they operate:
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION THE MARKET(C) RANK(D) FCC LICENSE
- ----------------------- -------- ---------- ------------ --------- ------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pittsburgh, 19 WPGH O&O 53 FOX 6 4 8/1/99
Pennsylvania........... WPTT LMA 22 UPN 5 8/1/99
St. Louis, Missouri ... 20 KDNL LMA (e) 30 ABC 7 5 2/1/98
Sacramento,
California............. 21 KOVR LMA (e) 13 CBS 8 3 2/1/99
WBFF O&O 45 FOX 4 10/1/96 (j)
Baltimore, Maryland ... 23 WNUV LMA 54 UPN 5 5 10/1/96 (j)
WTTV LMA (e) 4 UPN 4 8/1/97
Indianapolis, Indiana . 25 WTTK LMA (e)(f) 29 UPN 8 4 (f) 8/1/97
Cincinnati, Ohio....... 29 WSTR O&O 64 UPN 5 5 10/1/97
Raleigh-Durham,
North Carolina 30 WLFL O&O 22 FOX 7 3 12/1/96 (j)
WRDC LMA 28 UPN 5 12/1/96 (j)
WCGV O&O 24 UPN 4 12/1/97
Milwaukee, Wisconsin .. 31 WVTV LMA 18 IND(i) 6 5 12/1/97
Kansas City, Missouri . 32 KSMO O&O 62 UPN 7 5 2/1/98
Columbus, Ohio......... 34 WTTE O&O 28 FOX 5 4 10/1/97
Asheville, North
Carolina and
Greenville/
Spartanburg/Anderson,
South Carolina 35 WFBC LMA (g) 40 IND(i) 6 5 12/1/96 (j)
WLOS LMA (e) 13 ABC 6 3 12/1/96 (j)
KABB LMA (e) 29 FOX 4 8/1/98
San Antonio, Texas .... 37 KRRT LMA (h) 35 UPN 7 6 8/1/98
Norfolk, Virginia...... 40 WTVZ O&O 33 FOX 6 4 10/1/96 (j)
Oklahoma City,
Oklahoma............... 43 KOCB O&O 34 UPN 7 5 6/1/98
WTTO O&O 21 IND(i) 4 4/1/97
Birmingham, Alabama ... 51 WABM LMA 68 UPN 5 5 4/1/97
Flint/Saginaw/Bay
City,
Michigan............... 60 WSMH O&O 66 FOX 5 4 10/1/97
Lexington, Kentucky ... 68 WDKY O&O 56 FOX 5 4 8/1/97
Des Moines, Iowa....... 72 KDSM LMA (e) 17 FOX 4 4 2/1/98
Peoria/Bloomington,
Illinois............... 109 WYZZ O&O 43 FOX 4 4 12/1/97
Tuscaloosa, Alabama ... 187 WDBB LMA 17 IND(i) 2 2 4/1/97
</TABLE>
- ----------
(a) Rankings are based on the relative size of a station's DMA among the 211
generally recognized DMAs in the United States as estimated by Nielsen.
(b) "O&O" refers to stations owned and operated by the Company and "LMA"
refers to stations to which the Company provides programming services pursuant
to an LMA.
(c) Represents the number of television stations designed by Nielsen as
"local" to the DMA, excluding public television stations and stations which do
not meet the minimum Nielsen reporting standards (weekly cumulative audience of
at least 2.5%) for the Sunday-Saturday, 6:00 a.m. to 2:00 am. time period.
(Footnotes continued on following page)
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<PAGE>
(d) The rank of each station in its market is based upon the May 1996 Nielsen
estimates of the percentage of persons tuned to each station in the market from
6:00 a.m. to 2:00 a.m., Sunday-Saturday.
(e) Non-License Assets acquired from River City and option exercised to
acquire License Assets. Will become owned and operated upon FCC approval of
transfer of License Assets and closing of acquisition of License Assets.
(f) WTTK currently simulcasts all of the programming aired on WTTV and the
station rank applies to the combined viewership of these stations.
(g) Non-License Assets acquired from River City. License Assets to be
acquired by Glencairn upon FCC approval of transfer of License Assets.
(h) River City provided programming to this station pursuant to an LMA. The
Company acquired River City's rights under the LMA from River City and the
Non-License Assets from the owners of this station. The License Assets are to be
transferred to Glencairn upon FCC approval of transfer of assets.
(i) "IND" or "Independent" refers to a station that is not affiliated with
any of ABC, CBS, NBC, Fox, UPN or Warner Brothers.
(j) License renewal pending.
OPERATING STRATEGY
The Company's television operating strategy includes the following key
elements.
ATTRACTING VIEWERSHIP
Popular Programming. The Company believes that an important factor in
attracting viewership to its stations is their network affiliations with Fox,
UPN, ABC and CBS. These affiliations enable the Company to attract viewers by
virtue of the quality first-run original programming provided by these networks
and the networks' promotion of such programming. The Company also seeks to
obtain, at attractive prices, popular syndicated programming that is
complementary to the station's network affiliation. Examples of popular
syndicated programming obtained by the Company for broadcast on its Fox and UPN
affiliates are "Mad About You," "Frasier," "The Simpsons," "Home Improvement"
and "Seinfeld." In addition to network programming, the Company's ABC and CBS
affiliates broadcast news magazine, talk show, and game show programming such as
"Hard Copy," "Entertainment Tonight," "Regis and Kathie Lee," "Wheel of Fortune"
and "Jeopardy."
Children's Programming. The Company seeks to be a leader in children's
programming in each of its respective DMAs. The Company's nationally-recognized
"Kids Club" was the forerunner and model for the Fox network-wide marketing
efforts promoting children's programming. Sinclair carries the Fox Children's
Network ("FCN") and UPN's childrens programming, both of which include
significant amounts of animated programming throughout the week. In those
markets where the Company owns or programs ABC or CBS affiliates, the Company
broadcasts those networks' animated programming during weekends. In addition to
this animated programming, the Company broadcasts other forms of children's
programming, which may be produced by the Company or by an affiliated network.
Counter-Programming. The Company's programming strategy on its Fox, UPN and
Independent stations also includes "counter-programming," which consists of
broadcasting programs that are alternatives to the types of programs being shown
concurrently on competing stations. This strategy is designed to attract
additional audience share in demographic groups not served by concurrent
programming on competing stations. The Company believes that implementation of
this strategy enables its stations to achieve competitive rankings in households
in the 18-49 and 25-54 demographics and to offer greater diversity of
programming in each of its DMAs.
Local News. The Company believes that the production and broadcasting of
local news can be an important link to the community and an aid to the station's
efforts to expand its viewership. In addition, local news programming can
provide access to advertising sources targeted specifically to local news. The
Company carefully assesses the anticipated benefits and costs of producing local
news prior to introduction at a Company station because a significant investment
in capital equipment is required and substantial operating expenses are incurred
in introducing, developing and producing local news programming. The Company
currently provides local news programming at WBFF in Baltimore, WLFL in
Raleigh/Durham, KDNL in St. Louis, KABB in San Antonio, KOVR in Sacramento and
WLOS in Asheville. The Company also broadcasts news programs on WDKY in
Lexington, which are produced in part by the Company and in part through the
purchase of production services from an independent third party and on WTTV in
Indianapolis,
44
<PAGE>
which are produced by a third party in exchange for a limited number of
advertising spots. The Company is negotiating an agreement with River City
pursuant to which River City will provide to the Company news production
services with respect to the production of news programming and on air talent on
WTTE in Columbus, Ohio. Pursuant to this agreement, River City will provide
certain services to the Company in return for a fee that will be negotiated. The
Company is planning to introduce news programming in Pittsburgh, its largest
market, in January 1997. The possible introduction of local news at the other
Company stations is reviewed periodically. The Company's policy is to institute
local news programming at a specific station only if the expected benefits of
local news programming at the station are believed to exceed the associated
costs after an appropriate start-up period.
Popular Sporting Events. The Company attempts to capture a portion of
advertising dollars designated to sports programming in selected DMAs. The
Company's independent and UPN affiliated stations generally face fewer
restrictions on broadcasting live local sporting events than do their
competitors that are affiliates of the major networks and Fox since affiliates
of the major networks are subject to prohibitions against preemptions of network
programming. The Company has been able to acquire the local television broadcast
rights for certain sporting events, such as NBA basketball, Major League
Baseball, NFL football, NHL hockey, ACC basketball, Big Ten football and
basketball, and SEC football. The Company seeks to expand its sports
broadcasting in DMAs as profitable opportunities arise. In addition, the
Company's stations that are affiliated with Fox broadcast certain Major League
Baseball games, NFL football games and NHL hockey games.
INNOVATIVE LOCAL SALES AND MARKETING
The Company believes that it is able to attract new advertisers to its
stations and increase its share of existing customers' advertising budgets by
creating a sense of partnership with those advertisers. The Company develops
such relationships by training its sales forces to offer new marketing ideas and
campaigns to advertisers. These campaigns often involve the sponsorship by
advertisers of local promotional events that capitalize on the station's local
identity and programming franchises. For example, several of the Company's
stations stage local Kids Fairs which allow station advertisers to reinforce
their on-air advertising with their target audience. Through its strong local
sales and marketing focus, the Company seeks to capture an increasing share of
its revenues from local sources, which are generally more stable than national
advertising.
CONTROL OF OPERATING AND PROGRAMMING COSTS
By employing a disciplined approach to managing programming acquisition and
other costs, the Company has been able to achieve operating margins that the
Company believes are among the highest in the television broadcast industry. The
Company has sought in the past and will continue to seek to acquire quality
programming for prices at or below prices paid in the past. As an owner or
provider of programming services to 28 stations in 20 DMAs reaching
approximately 15% of U.S. television households, the Company believes that it is
able to negotiate favorable terms for the acquisition of programming. Moreover,
the Company emphasizes control of each of its stations' programming and
operating costs through program-specific profit analysis, detailed budgeting,
tight control over staffing levels and expense analysis.
ATTRACT AND RETAIN HIGH QUALITY MANAGEMENT
The Company believes that much of its success is due to its ability to
attract and retain highly skilled and motivated managers, both at the corporate
and local station levels. A portion of the compensation provided to general
managers, sales managers and other station managers is based on their achieving
certain operating results. The Company also provides its corporate and station
managers with deferred compensation plans offering options to acquire Class A
Common Stock.
COMMUNITY INVOLVEMENT
Each of the Company's stations actively participates in various community
activities and offers many community services. The Company's activities include
broadcasting programming of local interest and sponsorship of community and
charitable events. The Company also encourages its station employees to become
45
<PAGE>
active members of their communities and to promote involvement in community and
charitable affairs. The Company believes that active community involvement by
its stations provides its stations with increased exposure in their respective
DMAs and ultimately increases viewership and advertising support.
ESTABLISH LMAS
The Company believes that it can attain significant growth in operating cash
flow through the utilization of LMAs. By expanding its presence in a market in
which it owns a station, the Company can improve its competitive position with
respect to a demographic sector. In addition, by providing programming services
to an additional station in a market, the Company is able to realize significant
economies of scale in marketing, programming, overhead and capital expenditures.
The Company provides programming services pursuant to an LMA to an additional
station in seven of its twenty television markets.
PROGRAMMING AND AFFILIATIONS
The Company continually reviews its existing programming inventory and seeks
to purchase the most profitable and cost-effective syndicated programs available
for each time period. In developing its selection of syndicated programming, the
Company balances the cost of available syndicated programs with their potential
to increase advertising revenue and the risk of their reduced popularity during
the term of the program contract. The Company seeks to purchase only those
programs with contractual periods that permit programming flexibility and which
complement a station's overall programming strategy and counter-programming
strategy. Programs that can perform successfully in more than one time period
are more attractive due to the long lead time and multi-year commitments
inherent in program purchasing.
Twenty-four of the 28 television stations owned or provided programming
services by the Company operate as affiliates of Fox (ten stations), UPN (eleven
stations), ABC (two stations) and CBS (one station). The networks produce and
distribute programming in exchange for each station's commitment to air the
programming at specified times and for commercial announcement time during the
programming. In addition, networks other than Fox and UPN pay each affiliated
station a fee for each network-sponsored program broadcast by the stations.
On August 21, 1996, the Company entered into an agreement with Fox (the "Fox
Agreement") which, among other things, provides that the affiliation agreements
between Fox and eight stations owned or provided programming services by the
Company (except as noted below) would be amended to have new five-year terms
commencing on the date of the Fox Agreement. Fox has the option to extend the
affiliation agreements for an additional five-year term and must extend all of
the affiliation agreements if it extends any (except that Fox may selectively
renew affiliation agreements if any station has breached its affiliation
agreement). The Fox Agreement also provides that the Company will have the right
to purchase, for fair market value, any station Fox acquires in a market
currently served by a Company owned Fox affiliate (other than the Norfolk and
Raleigh-Durham markets) if Fox determines to terminate the affiliation agreement
with the Company's station in that market and operate the station acquired by
Fox as a Fox affiliate. The agreement confirmed that the affiliation agreement
for WTTO (Birmingham, Alabama) would terminate on September 1, 1996, and that
affiliation agreements for WTVZ (Norfolk, Virginia) and WLFL (Raleigh, North
Carolina) will terminate August 31, 1998. The agreement also includes provisions
limiting the ability of the Company to preempt Fox programming except where it
has existing programming conflicts or where the Company preempts to serve a
public purpose.
The Company's affiliation agreement with ABC for WLOS in Asheville has a term
which expires in September 1998 but which automatically renews for two-year
periods unless either party elects to terminate on six months notice, and its
affiliation agreement with CBS in Sacramento has a 10-year term expiring in
2005. Each of the Company's UPN affiliation agreements is for three years, and
expires in January 1998.
Each of the affiliation agreements relating to stations involved in the River
City Acquisition (other than River City's Fox affiliates) is terminable by the
network upon transfer of the License Assets of the station. In addition, KDNL
(St. Louis) is being operated as an ABC affiliate pursuant to terms negotiated
with ABC, but no affiliation agreement has been signed and ABC is not paying
affiliation fees, and
46
<PAGE>
WLOS (Asheville) is being operated pursuant to terms negotiated with ABC to
replace an existing agreement, but the new agreement has not been signed and ABC
is paying the lower affiliation fees called for under the old agreement.
See "Risk Factors -- Certain Affiliation Agreements."
RADIO BROADCASTING
The Company acquired all of its interests in radio stations from River City
in the River City Acquisition. The following table sets forth certain
information regarding the radio stations (i) programmed by the Company, (ii)
with which the Company has joint sales agreements, (iii) or which the Company
has an option to acquire. Except as indicated, the Company owns the Non-License
Assets of the following stations, and the Company programs these stations
pursuant to an LMA with River City.
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE OF
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC FCC
SERVED(A) REVENUE(B) FORMAT TARGET(C) TARGET(D) LICENSE
- ---------------------- ------------ ------------------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Los Angeles........... 2
KBLA-AM (e).......... Korean NA N/A 12/1/97
St. Louis............. 17
KPNT-FM.............. Alternative Rock Adults 18-34 3 2/1/97
Modern Adult
WVRV-FM.............. Contemporary Adults 25-54 12 12/1/96 (f)
New Orleans........... 38
WLMG-FM.............. Adult Contemporary Women 25-54 7 6/1/03
KMEZ-FM.............. Urban Oldies Women 25-54 4 6/1/03
WWL-AM............... News/Talk/ Sports Adults 35-64 3 6/1/03
WSMB-AM.............. Talk/Sports Adults 35-64 17 6/1/03
Buffalo .............. 40
WMJQ-FM.............. Adult Contemporary Women 25-54 2 6/1/98
WKSE-FM.............. Contemporary Hit Radio Women 18-49 2 6/1/98
WBEN-AM.............. News/Talk/ Sports Adults 35-64 4 6/1/98
WWKB-AM.............. Country Adults 35-64 17 6/1/98
WGR-AM(g)............ Sports Adults 25-54 9 6/1/98
WWWS-AM(g)........... Urban Oldies Women 25-54 12 6/1/98
Memphis............... 43
WRVR-FM.............. Soft Adult Contemporary Women 25-54 1 8/1/03
WJCE-AM.............. Urban Oldies Women 25-54 11 8/1/03
WOGY-FM ............. Country Adults 25-54 9 8/1/03
Nashville............. 44
WLAC-FM.............. Adult Contemporary Women 25-54 5 8/1/03
WJCE-FM.............. Adult Urban Contemporary Women 25-54 9 8/1/03
WLAC-AM.............. News/Talk/ Sports Adults 35-64 9 8/1/03
Greenville/Spartanburg 59
WFBC-FM (h).......... Contemporary Hit Radio Women 18-49 5 12/1/02
WORD-AM (h).......... News/Talk Adults 35-64 8 12/1/02
WFBC-AM (h).......... News/Talk Adults 35-64 12 12/1/02
WSPA-AM(h)........... Full Service/Talk Adults 35-64 18 12/1/02
WSPA-FM(h)........... Soft Adult Contemporary Women 25-54 4 12/1/02
WOLI-FM(h)(i)........ Oldies Adults 25-54 11 12/1/02
WOLT-FM(h)(j)........ Oldies Adults 25-54 13 12/1/02
Wilkes-Barre/Scranton 61
WKRZ-FM.............. Contemporary Hit Radio Adults 18-49 1 8/1/98
WGGY-FM.............. Country Adults 25-54 4 8/1/98
WILK-AM (k).......... News/Talk/ Sports Adults 35-64 6 8/1/98
WGBI-AM(k)........... News/Talk/ Sports Adults 35-64 41 8/1/98
WWSH-FM(g)........... Soft Hits Women 25-54 12 8/1/98
WILP-AM(l)........... News/Talk/ Sports Adults 35-64 27 8/1/98
WWFH-FM(m)........... Soft Hits Women 25-54 17 8/1/98
</TABLE>
(Footnotes on following page)
47
<PAGE>
- ------------
(a)Actual city of license may differ from the geographic market served.
(b)Ranking of the principal radio market served by the station among all U.S.
radio markets by 1995 aggregate gross radio broadcast revenue according to 1996
Broadcasting & Cable Yearbook.
(c)Due to variations that may exist within programming formats, the primary
demographic target of stations with the same programming format may be
different.
(d)All information concerning ratings and audience listening information is
derived from the Spring 1996 Arbitron Metro Area Ratings Survey (the "Spring
1996 Arbitron"). Arbitron is the generally accepted industry source for
statistical information concerning audience ratings. Due to the nature of
listener surveys, other radio ratings services may report different rankings;
however, the Company does not believe that any radio ratings service other than
Arbitron is accorded significant weight in the radio broadcast industry.
"Station Rank in Primary Demographic Target" is the ranking of the station among
all radio stations in its market that are ranked in its target demographic group
and is based on the station's average persons share in the primary demographic
target in the applicable Metro Survey Area. Source: Average Quarter Hour
Estimates, Monday through Sunday, 6:00 a.m. to midnight, Spring 1996 Arbitron.
(e)Programming is provided to this station by a third party pursuant to an
LMA.
(f)Indicates license renewal pending.
(g)The Company sells advertising time on these stations pursuant to a JSA.
(h)The Company has an option to acquire Keymarket of South Carolina, Inc.,
which owns and operates WFBC-FM, WORD-AM and WFBC-FM, has an option to acquire
and provides programming services pursuant to an LMA to WSPA-AM and WSPA-FM, and
provides sales services pursuant to a JSA and has an option to acquire WOLI-FM
and WOLT-FM.
(i)WOLI-FM was formerly WXWX-FM.
(j)WOLT-FM was formerly WXWZ-FM.
(k)WILK-AM and WGBI-AM simulcast their programming.
(l)WILP-AM was formerly WXPX-AM. This station is owned by a third party but
the Company provides programming to the station pursuant to an LMA. The Company
has an option to acquire this station, which it has exercised.
(m)WWFH-FM was formerly WQEQ-FM. WWFH-FM rebroadcasts the programming of
WWSH-FM. The Company has an option to acquire WWFH-FM, which it has exercised.
48
<PAGE>
Radio Operating Strategy
The Company's radio strategy is to operate a cluster of radio stations in
each of a variety of geographic markets throughout the country. In each
geographic market, the Company employs broadly diversified programming formats
to appeal to a variety of demographic groups within the market. The Company
seeks to strengthen the identity of each of its stations through its programming
and promotional efforts, and emphasizes that identity to a far greater degree
than the identity of any local radio personality.
The Company believes that its strategy of appealing to diverse demographic
groups in a variety of geographic markets allows it to reach a larger share of
the overall advertising market while realizing economies of scale and avoiding
dependence on one demographic or geographic market. The Company realizes
economies of scale by combining sales and marketing forces, back office
operations and general management in each geographic market. At the same time,
the geographic diversity of its portfolio of radio stations helps lessen the
potential impact of economic downturns in specific markets and the diversity of
demographic markets served helps lessen the impact of changes in listening
preferences. In addition, the geographic and demographic diversity allows the
Company to avoid dependence on any one or any small group of advertisers.
The Company's group of radio stations includes the top billing station group
in two markets and one of the top three billing station groups in each of its
markets other than Los Angeles, St. Louis and Nashville. Through ownership or
LMAs, the group also includes duopolies in six of its seven markets and, upon
exercise of options to acquire stations in the Greenville/Spartanburg market,
the Company will have duopolies in seven of its eight markets.
Depending on the programming format of a particular station, there are a
predetermined number of advertisements broadcast each hour. The Company
determines the optimum number of advertisements available for sale during each
hour without jeopardizing listening levels (and the resulting ratings). Although
there may be shifts from time to time in the number of advertisements available
for sale during a particular time of day, the total number of advertisements
available for sale on a particular station normally does not vary significantly.
Any change in net radio broadcasting revenue, with the exception of those
instances where stations are acquired or sold, is generally the result of
pricing adjustments made to ensure that the station effectively uses advertising
time available for sale, an increase in the number of commercials sold or a
combination of these two factors.
Large, well-trained local sales forces are maintained by the Company in each
of its radio markets. The Company's principal goal in its sales efforts is to
develop long-standing customer relationships through frequent direct contacts,
which the Company believes provides it with a competitive advantage.
Additionally, in some radio markets, duopolies permit the Company to offer
creative advertising packages to local, regional and national advertisers. Each
radio station programmed by the Company also engages a national independent
sales representative to assist it in obtaining national advertising revenues.
These representatives obtain advertising through national advertising agencies
and receive a commission from the radio station based on its gross revenue from
the advertising obtained.
BROADCASTING ACQUISITION STRATEGY
On February 8, 1996, the 1996 Act was signed into law. The 1996 Act
represents the most sweeping overhaul of the country's telecommunications laws
since the Communications Act of 1934. The 1996 Act relaxes the broadcast
ownership rules and simplifies the process for renewal of broadcast station
licenses.
The Company believes that the enactment of the 1996 Act presents a unique
opportunity to build a larger and more diversified broadcasting company.
Additionally, the Company expects that the opportunity to act as one of the
consolidators of the industry will enable the Company to gain additional
influence with program suppliers, television networks, other vendors, and
alternative delivery media. The Company also believes that the additions to its
management team as a result of the River City Acquisition will give it
additional resources to take advantage of these developments.
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In implementing its strategy, the Company seeks to identify and pursue
favorable station or group acquisition opportunities primarily in the 20th to
75th largest DMAs and MSAs. In assessing potential acquisitions, the Company
examines opportunities to improve revenue share, audience share and/or cost
control. Additional factors considered by the Company in a potential acquisition
include geographic location, demographic characteristics and competitive
dynamics of the market.
In furtherance of its acquisition strategy, the Company routinely reviews,
and conducts investigations of, potential television and radio station
acquisitions. When the Company believes a favorable opportunity exists, the
Company seeks to enter into discussions with the owners of such stations
regarding the possibility of an acquisition by the Company. At any given time,
the Company may be in discussions with one or more such station owners.
Since the 1996 Act became effective, the Company has acquired, obtained
options to acquire or has acquired the right to program or provide sales
services to 16 television and 33 radio stations for an aggregate consideration
of approximately $1.2 billion. The material terms of these acquisitions are
described below.
River City Acquisition. On May 31, 1996, pursuant to the Amended and Restated
Asset Purchase Agreement, the Company acquired all of the Non-License Assets of
River City other than the assets relating to WSYX-TV in Columbus, Ohio.
Simultaneously, the Company entered into a 10-year LMA with River City with
respect to all of River City's License Assets (with the exception of the License
Assets relating to WSYX) and was granted: (i) a 10-year option (the "License
Assets Option") to acquire River City's License Assets (with the exception of
the License Assets relating to WSYX); and (ii) a three-year option to acquire
the assets relating to WSYX-TV (both the License and Non-License Assets,
collectively the "Columbus Option"). The exercise price for the License Assets
Option is $20 million and the Company is required to pay an extension fee with
respect to the License Assets Option as follows: (1) 8% of $20 million for the
first year following the closing of the River City Acquisition; (2) 15% of $20
million for the second year following such closing; and (3) 25% of $20 million
for each following year. The Non-License Assets acquired from River City relate
to eight television stations and 21 radio stations owned and operated by River
City. In addition, the Company acquired from another party the Non-License
Assets relating to one additional television station (KRRT) to which River City
provided programming pursuant to an LMA. The Company assigned its option to
acquire the License Assets of one television station (WFBC) to Glencairn, and
Glencairn also acquired the option to acquire the License Assets of KRRT. The
Company also acquired River City's rights under LMAs with respect to KRRT and
four radio stations to which River City provided programming or sales services .
The Company has exercised the License Assets Option and acquisition of the
License Assets is now subject to FCC approval of transfer of the License Assets.
There can be no assurance that this approval will be obtained. Applications for
transfer of the License Assets were filed in July and August, 1996, except
application for transfer of the License Assets relating to WTTV and WTTK. The
applications with respect to radio licenses have been granted with respect to
all but the two radio stations in the St. Louis market, where a special waiver,
required because of the Company's pending acquisition of a television station
(KDNL) in the market, is pending. See "Risk Factors--Multiple Ownership Rules
and Effect on LMAs."
The Company paid an aggregate of approximately $1.0 billion for the
Non-License Assets and the License Assets Option consisting of $838.7 million in
cash and 1,150,000 shares of Series A Preferred Stock of the Company. The Series
A Preferred Stock has been exchanged for 1,150,000 shares of Series B Preferred
Stock of the Company, which have an aggregate liquidation value of $115 million,
and are convertible at any time, at the option of the holders, into an aggregate
of 4,181,818 shares of Class A Common Stock of the Company (which had a market
value on May 31, 1996 of approximately $158 million). The exercise price for the
Columbus Option is approximately $130 million plus the amount of indebtedness
secured by the WSYX assets on the date of exercise (not to exceed the amount
outstanding on the date of closing of $105 million) and the Company is required
to pay an extension fee with respect to the Columbus Option as follows: (1) 8%
of $130 million for the first year following the closing of the River City
Acquisition; (2) 15% of $130 million for the second year following the closing;
and (3) 25% of $130 million for each following year. The extension fee accrues
beginning on the date of closing, and is payable (beginning December 31, 1996)
at the end of each calendar quarter until such time as the
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option is exercised or River City sells WSYX to a third party. Pursuant to the
LMAs with River City and the owner of KRRT, the Company is required to provide
at least 166 hours per week of programming to each television and radio station
and, subject to certain exceptions, River City and the owner of KRRT are
required to broadcast all programming provided by the Company. The Company is
required to pay River City and the owner of KRRT monthly fees under the LMAs in
an amount sufficient to cover specified expenses of operating the stations,
which are currently approximately $298,141 per month for all River City
television and radio stations the Company programs (including KRRT). The Company
has the right to sell advertising time on the stations during the hours
programmed by the Company.
The Company and River City filed notification under the Hart-Scott-Rodino
Antitrust Improvements Act (the "HSR Act") with respect to the Company's
acquisition of all River City assets prior to closing the acquisition. After the
United States Justice Department ("DOJ") indicated that it would request
additional information regarding the antitrust implications of the acquisition
of WSYX by the Company in light of the Company's ownership of WTTE, the Company
and River City agreed to submit separate notifications with respect to the WSYX
assets and the other River City assets. The DOJ then granted early termination
of the waiting period with respect to the transfer of the River City assets
other than WSYX, permitting the acquisition of those assets to proceed. The
Company and River City agreed to notify the DOJ 30 days before entering into an
LMA or similar agreement with respect to WSYX and agreed not to enter into such
an agreement until 20 days after substantially complying with any request for
information from DOJ regarding the transaction. The Company is in the process of
preparing a submission to the DOJ regarding the competitive effects of entering
into an LMA arrangement in Columbus. The Company has agreed to sell the License
Assets of WTTE to Glencairn and to enter into an LMA with Glencairn to provide
programming services to WTTE, but the Company does not believe that this
transaction will be completed unless the Company acquires WSYX.
In the River City Acquisition, the Company also acquired an option held by
River City to purchase either (i) all of the assets of Keymarket of South
Carolina, Inc. ("KSC") for the forgiveness of debt held by the Company in an
aggregate principal amount of approximately $7.4 million as of August 22, 1996,
plus payment of approximately $1,000,000 less certain adjustments or (ii) all of
the stock of KSC for $1,000,000 less certain adjustments. KSC owns and operates
three radio stations in the Greenville/Spartanburg, South Carolina MSA (WFBC-FM,
WFBC-AM and WORD-AM). The options to acquire the assets and stock of KSC expire
on December 31, 1997. KSC also holds an option to acquire from Spartan
Radiocasting, Inc. certain assets relating to two additional stations (WSPA-AM
and WSPA-FM) in the Greenville/Spartanburg MSA and which KSC currently operates
pursuant to an LMA. KSC's option to acquire these assets is exercisable for
$5.15 million and expires in January 2000, subject to extension to the extent
the applicable LMA is extended beyond that date. KSC also has an option to
acquire assets of Palm Broadcasting Company, L.P., which owns two additional
stations in the Greenville/Spartanburg MSA (WOLI-FM and WOLT-FM) in an amount
equal to the outstanding debt of Palm Broadcasting Company, L.P. to the Company,
which was approximately $3.0 million as of June 30, 1996. This option expires in
April, 2001. KSC has a JSA with Palm Broadcasting Company, L.P., but does not
provide programming for WOLI or WOLT.
Superior Acquisition. On May 8, 1996, the Company acquired WDKY-TV
(Lexington, Kentucky) and KOCB-TV (Oklahoma City, Oklahoma) by acquiring the
stock of Superior Communications, Inc. for approximately $63.0 million.
Flint Acquisition. On February 27, 1996 the Company acquired the assets of
WSMH-TV (Flint, Michigan) for approximately $35.4 million.
Cincinnati/Kansas City Acquisitions. On July 1, 1996, the Company acquired
the assets of KSMO-TV (Kansas City, Missouri) and on August 1, 1996, it acquired
the assets of WSTR-TV (Cincinnati, Ohio) for approximately $34.2 million.
Peoria/Bloomington Acquisition. On July 1, 1996, the Company acquired the
assets of WYZZ-TV (Peoria/Bloomington, Illinois) for approximately $21.2
million.
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LOCAL MARKETING AGREEMENTS
The Company generally enters into LMAs and similar arrangements with stations
located in markets in which the Company already owns and operates a station, and
in connection with acquisitions, pending regulatory approval of transfer of
License Assets. Under the terms of the LMAs the Company makes specified periodic
payments to the owner-operator in exchange for the grant to the Company of the
right to program and sell advertising on a specified portion of the station's
inventory of broadcast time. Nevertheless, as the holder of the FCC license, the
owner-operator retains full control and responsibility for the operation of the
station, including control over all programming broadcast on the station.
The Company currently has LMA arrangements with stations in five markets in
which it owns a television station: Pittsburgh, Pennsylvania (WPTT), Baltimore,
Maryland (WNUV), Raleigh/Durham, North Carolina (WRDC), Milwaukee, Wisconsin
(WVTV) and Birmingham, Alabama (WABM). The Company also has LMA arrangements in
two markets (San Antonio and Asheville/Greenville/Spartanburg) in which the
Company will own a station upon completion of the acquisition of License Assets
from River City. In addition, the Company has an LMA arrangement with a station
in the Tuscaloosa, Alabama market (WDBB), which is adjacent to Birmingham. In
each of these markets, other than Pittsburgh and Tuscaloosa, the LMA arrangement
is (or will be after transfer of License Assets from River City) with Glencairn
and the Company owns the Non-License Assets (as defined below) of the stations.
The Company also provides programming pursuant to an LMA to one radio station in
an MSA where it has interests in other radio stations. The Company owns the
Non-License Assets of one radio station (KBLA-AM in Los Angeles) which an
independent third party programs pursuant to an LMA.
The Company believes that it is able to increase its revenues and improve its
margins by providing programming services to stations in selected DMAs and MSAs
where the Company already owns a station. In certain instances, single station
operators and stations operated by smaller ownership groups do not have the
management expertise or the operating efficiencies available to the Company as a
multi-station broadcaster. The Company seeks to identify such stations in
selected markets and to provide such stations with programming services pursuant
to LMAs. In addition to providing the Company with additional revenue
opportunities, the Company believes that these LMA arrangements have assisted
certain stations whose operations may have been marginally profitable to
continue to air popular programming and contribute to diversity of programming
in their respective DMAs and MSAs.
In cases where the Company enters into LMA arrangements in connection with a
station whose acquisition by the Company is pending FCC approval, the Company
(i) obtains an option to acquire the station assets essential for broadcasting a
television or radio signal in compliance with regulatory guidelines, generally
consisting of the FCC license, transmitter, transmission lines, technical
equipment, call letters and trademarks, and certain furniture, fixtures and
equipment (the "License Assets") and (ii) acquires the remaining assets (the
"Non-License Assets") at the time it enters into the option. Following
acquisition of the Non-License Assets, the License Assets continue to be owned
by the owner-operator and holder of the FCC license, which enters into an LMA
with the Company. After FCC approval for transfer of the License Assets is
obtained, the Company exercises its option to acquire the License Assets and
become the owner-operator of the station, and the LMA arrangement is terminated.
In connection with the River City Acquisition, the Company entered into an
LMA in the form of time brokerage agreements ("TBAs") with River City and the
owner of KRRT with respect to each of the nine television and 21 radio stations
with respect to which the Company acquired Non-License Assets. The TBAs are for
a ten-year term, which corresponds with the term of the option the Company holds
to acquire the related River City License Assets. Pursuant to the TBA, the
Company pays River City and the owner of KRRT fees in return for which the
Company acquires all of the inventory of broadcast time of the stations and the
right to sell 100% of each station's inventory of advertising time. The Company
has filed or will file applications with respect to the transfer of the License
Assets of seven of the nine television stations and the 21 radio stations with
respect to which the Company acquired Non-License Assets in the River City
Acquisition. Such applications have been granted with respect to 19 of the 21
radio stations. Upon grant of FCC approval of the transfer of License Assets
with respect to these stations, the Company intends to acquire the License
Assets, and thereafter the LMAs will termi
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nate and the Company will operate the stations. With respect to the remaining
two television stations, Glencairn has applied for transfer of the License
Assets of these stations, and the Company intends to enter into LMAs with
Glencairn with respect to these stations upon FCC approval of the transfer of
the License Assets to Glencairn. Petitions to deny or informal objections have
been filed against these applications by third parties. See "Risk Factors --
Multiple Ownership Rules and Effect on LMAs."
In addition to its LMAs, the Company sells advertising for (but does not
provide programming to) three radio stations pursuant to JSAs in MSAs in which
it has interests in other radio stations. Under the Company's JSAs, the Company
has obtained the right, for a fee paid to the owner and operator of the station,
to sell substantially all of the commercial advertising on the station.
FEDERAL REGULATION OF TELEVISION AND RADIO BROADCASTING
The ownership, operation and sale of television and radio stations are
subject to the jurisdiction of the FCC, which acts under authority granted by
the Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
regulates equipment used by stations; adopts and implements regulations and
policies that directly or indirectly affect the ownership, operation and
employment practices of stations; and has the power to impose penalties for
violations of its rules or the Communications Act.
The following is a brief summary of certain provisions of the Communications
Act, the recently-enacted Telecommunications Act of 1996 (the "1996 Act") and of
specific FCC regulations and policies. Reference should be made to the
Communications Act, FCC rules and the public notices and rulings of the FCC for
further information concerning the nature and extent of federal regulation of
broadcast stations.
License Grant and Renewal. Television stations operate pursuant to
broadcasting licenses that are granted by the FCC for maximum terms of five
years, and radio stations operate pursuant to broadcasting licenses that are
granted by the FCC for maximum terms of seven years. The 1996 Act authorizes the
FCC to grant all broadcast licenses (both television and radio) for maximum
terms of eight years, and the FCC has pending a rulemaking proceeding to
implement this statutory change.
Television and radio station licenses are subject to renewal upon application
to the FCC. During certain periods when renewal applications are pending,
competing applicants may file for the radio or television frequency being used
by the renewal applicant. During the same periods, petitions to deny license
renewal applications may be filed by interested parties, including members of
the public. Prior to the 1996 Act, the FCC was generally required to hold
hearings on renewal applications if a competing application against a renewal
application was filed, if the FCC was unable to determine that renewal of a
license would serve the public interest, convenience and necessity, or if a
petition to deny raised a "substantial and material question of fact" as to
whether the grant of the renewal application would be prima facie consistent
with the public interest, convenience and necessity.
The 1996 Act does not prohibit either the filing of petitions to deny license
renewals or the filing of competing applications. Under the 1996 Act, the FCC is
still required to hold hearings on renewal applications if it is unable to
determine that renewal of a license would serve the public interest, convenience
or necessity, or if a petition to deny raises a "substantial and material
question of fact" as to whether the grant of the renewal application would be
prima facie inconsistent with the public interest, convenience and necessity.
Pursuant to the 1996 Act, however, the FCC is prohibited from considering
competing applications for a renewal applicant's frequency, and is required to
grant the renewal application, if the FCC finds (i) that the station has served
the public interest, convenience and necessity; (ii) that there have been no
serious violations by the licensee of the Communications Act or the rules and
regulations of the FCC; and (iii) there have been no other violations by the
licensee of the Communications Act or the rules and regulations of the FCC that,
when taken together, would constitute a pattern of abuse.
All of the stations that the Company (i) owns and operates; (ii) intends to
acquire pursuant to the River City Acquisition and other acquisitions; (iii)
currently provides programming services to pursuant to an LMA or (iv) currently
sells advertising on pursuant to a JSA, are presently operating under
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regular licenses with terms of five years (for television stations) and seven
years (for radio stations), which expire as to each station on the dates set
forth under "Television Broadcasting" and "Radio Broadcasting," above. Although
renewal of license is granted in the vast majority of cases even when petitions
to deny are filed, there can be no assurance that the licenses of such stations
will be renewed.
OWNERSHIP MATTERS
General
The Communications Act prohibits the assignment of a broadcast license or the
transfer of control of a broadcast licensee without the prior approval of the
FCC. In determining whether to permit the assignment or transfer, or the grant
or renewal of, a broadcast license, the FCC considers a number of factors
pertaining to the licensee, including compliance with various rules limiting
common ownership of media properties, the "character" of the licensee and those
persons holding "attributable" interests therein, and compliance with the
Communications Act's limitations on Alien ownership.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application involves
the assignment of the license or a "substantial change" in ownership or control
(i.e., the transfer of more than 50% of the voting stock), the application must
be placed on public notice for a period of approximately 30 days during which
petitions to deny the application may be filed by interested parties, including
members of the public. If an assignment application does not involve new
parties, or if a transfer application does not involve a "substantial change" in
ownership or control, it is a "pro forma" application. The "pro forma"
application is nevertheless subject to having informal objections filed against
it. If the FCC grants an assignment or transfer application, interested parties
have approximately 30 days from public notice of the grant to seek
reconsideration of that grant. Generally, parties that do not file initial
petitions to deny or informal objections against the application face a high
hurdle in seeking reconsideration of the grant. The FCC normally has
approximately an additional 10 days to set aside such grant on its own motion.
When passing on an assignment or transfer application, the FCC is prohibited
from considering whether the public interest might be served by an assignment or
transfer to any party other than the assignee or transferee specified in the
application.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding, or through subsidiaries controlling, broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or 10%
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. The FCC has a pending rulemaking proceeding
that, among other things, seeks comment on whether the FCC should modify its
attribution rules by, among other things, (i) raising the attribution stock
benchmark from 5% to 10%; (ii) raising the attribution stock benchmark for
passive investors from 10% to 20%; (iii) restricting the availability of the
single majority shareholder exemption; and (iv) attributing certain interests
such as non-voting stock, debt and certain holdings by limited liability
corporations in certain circumstances.
The Controlling Stockholders hold attributable interests in two entities
owning media properties, namely: Channel 63, Inc., licensee of WIIB-TV, a UHF
television station in Bloomington, Indiana, and Bay Television, Inc., licensee
of WTTA-TV, a UHF television station in St. Petersburg, Florida. All of the
issued and outstanding shares of Channel 63, Inc. are owned by the Controlling
Stockholders. All the issued and outstanding shares of Bay Television, Inc. are
owned by the Controlling Stockholders (75%) and Robert L. Simmons (25%), a
former stockholder of the Company. The Controlling Stockholders have agreed to
divest their attributable interests in Channel 63, Inc. and the Company believes
that, after doing so, such holdings will not materially restrict its ability to
acquire or program additional broadcast stations.
Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the
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relationship. Under this policy, the FCC may consider significant equity
interests combined with an attributable interest in a media outlet in the same
market, joint ventures, and common key employees among competitors. The
cross-interest policy does not necessarily prohibit all of these interests, but
requires that the FCC consider whether, in a particular market, the "meaningful"
relationships between competitors could have a significant adverse effect upon
economic competition and program diversity. Heretofore, the FCC has not applied
its cross-interest policy to LMAs and JSAs between broadcast stations. In its
ongoing rulemaking proceeding concerning the attribution rules, the FCC has
sought comment on, among other things, (i) whether the cross-interest policy
should be applied only in smaller markets, and (ii) whether non-equity financial
relationships such as debt, when combined with multiple business
interrelationships such as LMAs and JSAs, raise concerns under the
cross-interest policy.
The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of a broadcast license by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. The Company has been
advised that the FCC staff has interpreted this provision to require a finding
that such grant or holding would be in the public interest before a broadcast
license may be granted to or held by any such corporation and that the FCC staff
has made such a finding only in limited circumstances. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including partnerships. As a
result of these provisions, the licenses granted to subsidiaries of the Company
by the FCC could be rescinded if, among other restrictions imposed by the FCC,
more than 25% of the Company's stock were owned or voted by Aliens. The Company
and the Subsidiaries are domestic corporations, and the Controlling Stockholders
are all United States citizens. The Amended and Restated Articles of
Incorporation of the Company (the "Amended Certificate") contains limitations on
Alien ownership and control that are substantially similar to those contained in
the Communications Act. Pursuant to the Amended Certificate, the Company has the
right to repurchase Alien-owned shares at their fair market value to the extent
necessary, in the judgment of the Board of Directors, to comply with the Alien
ownership restrictions. See "Description of Capital Stock -- Foreign Ownership."
TELEVISION
National Ownership Rule. Prior to the 1996 Act, FCC rules generally
prohibited an individual or entity from having an attributable interest in more
than 12 television stations nationwide, or in television stations reaching more
than 25% of the national television viewing audience. Pursuant to the 1996 Act,
the FCC has modified its rules to eliminate any limitation on the number of
television stations an individual or entity may own nationwide, subject to the
restriction that no individual or entity may have an attributable interest in
television stations reaching more than 35% of the national television viewing
audience. Historically, VHF stations have shared a larger portion of the market
than UHF stations. Therefore, only half of the households in the market area of
any UHF station are included when calculating whether an entity or individual
owns television stations reaching more than 35% of the national television
viewing audience. All but three of the stations owned and operated by the
Company, or to which the Company provides programming services, are UHF.
Duopoly Rule. On a local level, the television "duopoly" rule generally
prohibits a single individual or entity from having an attributable interest in
two or more television stations with overlapping Grade B service areas. While
the 1996 Act has not eliminated the TV duopoly rule, it does direct the FCC to
initiate a rulemaking proceeding to determine whether to retain, modify, or
eliminate the rule. The FCC has pending a rulemaking proceeding in which it has
sought comment on various proposals to modify the TV duopoly rule, including (i)
decreasing the prohibited signal overlap for purposes of the rule from Grade B
to Grade A; and (ii) permitting common ownership of two television stations in
certain local markets.
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Local Marketing Agreements. Over the past few years, a number of television
stations, including certain of the Company's stations, have entered into what
have commonly been referred to as LMAs. While these agreements may take varying
forms, pursuant to a typical LMA, separately owned and licensed television
stations agree to enter into cooperative arrangements of varying sorts, subject
to compliance with the requirements of antitrust laws and with the FCC's rules
and policies. Under these types of arrangements, separately-owned stations could
agree to function cooperatively in terms of programming, advertising sales,
etc., subject to the requirement that the licensee of each station shall
maintain independent control over the programming and operations of its own
station. One typical type of LMA is a programming agreement between two
separately-owned television stations serving a common service area, whereby the
licensee of one station programs substantial portions of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during such
program segments. Such arrangements are an extension of the concept of "time
brokerage" agreements, under which a licensee of a station sells blocks of time
on its station to an entity or entities which program the blocks of time and
which sell their own commercial advertising announcements during the time
periods in question. Over the past few years, the staff of the FCC's Mass Media
Bureau has held that LMAs are not contrary to the Communications Act, provided
that the licensee of the station which is being substantially programmed by
another entity maintains complete responsibility for and control over
programming and operations of its broadcast station and assures compliance with
applicable FCC rules and policies.
At present, FCC rules permit television station LMAs, and the licensee of a
television station brokering time on another television station is not
considered to have an attributable interest in the brokered station. However, in
connection with its ongoing rulemaking proceeding regarding the television
duopoly rule, the FCC has proposed to adopt rules providing that the licensee of
a television station which brokers more than 15% of the time on another
television station serving the same market would be deemed to have an
attributable interest in the brokered station for purposes of the national and
local multiple ownership rules.
The 1996 Act provides that nothing therein "shall be construed to prohibit
the origination, continuation, or renewal of any television local marketing
agreement that is in compliance with the regulations of the [FCC]." The
legislative history of the 1996 Act reflects that this provision was intended to
grandfather television LMAs that were in existence upon enactment of the 1996
Act, and to allow television LMAs consistent with the FCC's rules subsequent to
enactment of the 1996 Act. The Company's LMAs with television stations WPTT in
Pittsburgh, Pennsylvania, WNUV in Baltimore, Maryland, WVTV in Milwaukee,
Wisconsin, WRDC in Raleigh/Durham, North Carolina, WABM in Birmingham, Alabama,
and WDBB in Tuscaloosa, Alabama, were in existence on the date of enactment of
the 1996 Act. The Company's LMAs with television stations KDNL in St. Louis,
Missouri, KOVR in Sacramento, California, WTTV and WTTK in Indianapolis,
Indiana, WLOS in Asheville, North Carolina, WFBC in Greenville-Spartanburg,
South Carolina, KABB in San Antonio, Texas, and KDSM in Des Moines, Iowa, were
entered into subsequent to the date of enactment of the 1996 Act. The Company's
LMA with television station KRRT in Kerrville, Texas was in existence on the
date of enactment of the 1996 Act, but was assumed by the Company subsequent to
that date.
The TV duopoly rule currently prevents the Company from acquiring the
licenses of television stations with which it has LMAs in those markets where
the Company owns a television station. As a result, if the FCC were to decide
that the provider of programming services under a television LMA should be
treated as having an attributable interest in the brokered station, and if it
did not relax its television duopoly rule, the Company could be required to
modify or terminate those of its LMAs that were not in existence on the date of
enactment of the 1996 Act. In such an event, the Company could be required to
pay termination penalties under certain of such LMAs. Further, if the FCC were
to find, in connection with any of the Company's LMAs, that the owners/licensees
of the stations with which the Company has LMAs failed to maintain control over
their operations as required by FCC rules and policies, the licensee of the LMA
station and/or the Company could be fined or set for hearing, the outcome of
which could be a monetary forfeiture or, under certain circumstances, loss of
the applicable FCC license. The Company is unable to predict the ultimate
outcome of possible changes to these FCC rules and the impact such FCC rules may
have on its broadcasting operations.
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On June 1, 1995, the Chief of the FCC's Mass Media Bureau released a Public
Notice concerning the processing of television assignment and transfer
applications proposing LMAs. Due to the pendency of the ongoing rulemaking
proceeding concerning attribution of ownership, the Mass Media Bureau has placed
certain restrictions on the types of television assignment and transfer
applications involving LMAs that it will approve during the pendency of the
rulemaking. Specifically, the Mass Media Bureau has stated that it will not
approve arrangements where a time broker seeks to finance a station acquisition
and hold an option to purchase the station in the future. None of the Company's
LMAs or TBAs fall within the ambit of this Public Notice.
RADIO
National Ownership Rule. Prior to the 1996 Act, the FCC's rules limited an
individual or entity from holding attributable interests in more than 20 AM and
20 FM radio stations nationwide. Pursuant to the 1996 Act, the FCC has modified
its rules to eliminate any limitation on the number of radio stations a single
individual or entity may own nationwide.
Local Ownership Rule. Prior to the 1996 Act, the FCC's rules generally
permitted an individual or entity to hold attributable interests in no more than
four radio stations in a local market (no more than two of which could be in the
same service (AM or FM)), and then only if the aggregate audience share of the
commonly owned stations did not exceed 25%. In markets with fewer than 15
commercial radio stations, an individual or entity could hold an attributable
interest in no more than three radio stations in the market (no more than two of
which could be in the same service), and then only if the number of the commonly
owned stations did not exceed 50% of the total number of commercial radio
stations in the market.
Pursuant to the 1996 Act, the limits on the number of radio stations one
entity may own locally have been increased as follows: (i) in a market with 45
or more commercial radio stations, an entity may own up to eight commercial
radio stations, not more than five of which are in the same service (AM or FM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio stations,
an entity may own up to seven commercial radio stations, not more than four of
which are in the same service; (iii) in a market with between 15 and 29
(inclusive) commercial radio stations, an entity may own up to six commercial
radio stations, not more than four of which are in the same service; and (iv) in
a market with 14 or fewer commercial radio stations, an entity may own up to
five commercial radio stations, not more than three of which are in the same
service, except that an entity may not own more than 50% of the stations in such
market. These numerical limits apply regardless of the aggregate audience share
of the stations sought to be commonly owned. FCC ownership rules continue to
permit an entity to own one FM and one AM station in a local market regardless
of market size. Irrespective of FCC rules governing radio ownership, however,
the Department of Justice has the authority to determine, and in certain recent
radio transactions not involving the Company has determined, that a particular
transaction presents antitrust concerns.
Local Marketing Agreements. As in television, a number of radio stations have
entered into LMAs. The Company has entered into LMAs with certain radio stations
in connection with the River City Acquisition.
The FCC's multiple ownership rules specifically permit radio station LMAs to
be entered into and implemented, so long as the licensee of the station which is
being programmed under the LMA maintains complete responsibility for and control
over programming and operations of its broadcast station and assures compliance
with applicable FCC rules and policies. For the purposes of the multiple
ownership rules, in general, a radio station being programmed pursuant to an LMA
by an entity is not considered an attributable ownership interest of that entity
unless that entity already owns a radio station in the same market. However, a
licensee that owns a radio station in a market, and brokers more than 15% of the
time on another station serving the same market, is considered to have an
attributable ownership interest in the brokered station for purposes of the
FCC's multiple ownership rules. As a result, in a market in which the Company
owns a radio station, the Company would not be permitted to enter into an LMA
with another local radio station which it could not own under the local
ownership rules, unless the Company's programming constituted 15% or less of the
other local station's programming time on a weekly basis. The FCC's rules also
prohibit a broadcast licensee from simulcasting more
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than 25% of its programming on another station in the same broadcast service
(i.e., AM-AM or FM-FM) through a time brokerage or LMA arrangement where the
brokered and brokering stations serve substantially the same area.
Joint Sales Agreements. Over the past few years, a number of radio (and
television) stations have entered into cooperative arrangements commonly known
as joint sales agreements, or JSAs. While these agreements may take varying
forms, under the typical JSA, a station licensee obtains, for a fee, the right
to sell substantially all of the commercial advertising on a separately-owned
and licensed station in the same market. The typical JSA also customarily
involves the provision by the selling licensee of certain sales, accounting, and
"back office" services to the station whose advertising is being sold. The
typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does
not involve programming. In connection with the River City Acquisition, the
Company has assumed River City's rights under JSAs with three radio stations.
The FCC has determined that issues of joint advertising sales should be left
to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which a
licensee sells time under a JSA are not deemed by the FCC to be attributable
interests of that licensee. However, in connection with its ongoing rulemaking
proceeding concerning the attribution rules, the FCC is considering whether JSAs
should be considered attributable interests or within the scope of the FCC's
cross-interest policy, particularly when JSAs contain provisions for the supply
of programming services and/or other elements typically associated with LMAs. If
JSAs become attributable interests as a result of changes in the FCC rules, the
Company may be required to terminate any JSA it might have with a radio station
which the Company could not own under the FCC's multiple ownership rules.
OTHER OWNERSHIP MATTERS
There remain in place after the 1996 Act a number of additional
cross-ownership rules and prohibitions pertaining to licensees of television and
radio stations. FCC rules, the Communications Act, or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a radio station, a daily newspaper, or a cable television system
that is located in or serves the same market area.
Radio/Television Cross-Ownership Rule. The FCC's radio/television
cross-ownership rule (the "one to a market" rule) generally prohibits a single
individual or entity from having an attributable interest in a television
station and a radio station serving the same market. However, in each of the 25
largest local markets in the United States, provided that there are at least 30
separately owned stations in the particular market, the FCC has traditionally
employed a policy that presumptively allows waivers of the one to a market rule
to permit the common ownership of one AM, one FM and one TV station in the
market. The 1996 Act directs the FCC to extend this policy to each of the top 50
markets. Moreover, in a pending rulemaking proceeding instituted in 1995, the
FCC has proposed the possible elimination of the rule altogether.
However, the FCC does not apply its presumptive waiver policy in cases
involving the common ownership of one television station, and two or more radio
stations in the same service (AM or FM), in the same market. Pending its ongoing
rulemaking proceeding to reexamine the one to a market rule, the FCC has stated
that it will consider waivers of the rule in such instances on a case-by-case
basis, considering (i) the public service benefits that will arise from the
joint operation of the facilities such as economies of scale, cost savings and
programming and service benefits; (ii) the types of facilities involved; (iii)
the number of media outlets owned by the applicant in the relevant market; (iv)
the financial difficulties of the stations involved; and (v) the nature of the
relevant market in light of the level of competition and diversity after joint
operation is implemented. The Company has applied for such a waiver with respect
to ownership of a television station and radio stations in the St. Louis market,
and there can be no assurance that this waiver will be granted. See "Risk
Factors -- Multiple Ownership Rules and Effect in LMAs."
Local Television/Cable Cross-Ownership Rule. While the 1996 Act eliminates a
previous statutory prohibition against the common ownership of a television
broadcast station and a cable system that
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serve the same local market, the 1996 Act leaves the current FCC rule in place.
The legislative history of the Act indicates that the repeal of the statutory
ban should not prejudge the outcome of any FCC review of the rule.
Broadcast Network/Cable Cross-Ownership Rule. The 1996 Act directs the FCC to
eliminate its rules which formerly prohibited the common ownership of a
broadcast network and a cable system, subject to the provision that the FCC
revise its rules as necessary to ensure carriage, channel positioning, and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. In March 1996, the FCC issued an
order implementing this legislative change.
Broadcast/Daily Newspaper Cross-Ownership Rule. The FCC's rules prohibit the
common ownership of a radio or television broadcast station and a daily
newspaper in the same market. The 1996 Act does not eliminate or modify this
prohibition.
Dual Network Rule. The 1996 Act directs the FCC to repeal its rule which
formerly prohibited an entity from operating more than one television network.
In March 1996, the FCC issued an order implementing this legislative change.
Under the modified rule, a network entity is permitted to operate more than one
television network, provided, however, that ABC, CBS, NBC, and/or Fox are
prohibited from merging with each other or with another network television
entity such as UPN or Warner Brothers.
Expansion of the Company's broadcast operations on both a local and national
level will continue to be subject to the FCC's ownership rules and any changes
the FCC or Congress may adopt. Concomitantly, any further relaxation of the
FCC's ownership rules may increase the level of competition in one or more of
the markets in which the Company's stations are located, more specifically to
the extent that any of the Company's competitors may have greater resources and
thereby be in a superior position to take advantage of such changes.
MUST-CARRY/RETRANSMISSION CONSENT
Pursuant to the Cable Act of 1992, television broadcasters are required to
make triennial elections to exercise either certain "must-carry" or
"retransmission consent" rights in connection with their carriage by cable
systems in each broadcaster's local market. By electing the must-carry rights, a
broadcaster demands carriage on a specified channel on cable systems within its
MSA, in general as defined by the Arbitron 1991-92 Television Market Guide.
These must-carry rights are not absolute, and their exercise is dependent on
variables such as (i) the number of activated channels on a cable system; (ii)
the location and size of a cable system; and (iii) the amount of programming on
a broadcast station that duplicates the programming of another broadcast station
carried by the cable system. Therefore, under certain circumstances, a cable
system may decline to carry a given station. Alternatively, if a broadcaster
chooses to exercise retransmission consent rights, it can prohibit cable systems
from carrying its signal or grant the appropriate cable system the authority to
retransmit the broadcast signal for a fee or other consideration. In 1993, the
Company elected retransmission consent on most of the cable systems within the
MSAs of its individual stations; but on certain outlying cable systems it
elected must-carry status. The Company's stations continue to be carried on all
pertinent cable systems, and the Company does not believe that its election has
resulted in the shifting of its stations to less desirable cable channel
locations.
The next election date for must-carry or retransmission consent is October 1,
1996, to be effective for the three-year period from January 1, 1997 through
December 31, 1999. The Company is in the process of reviewing its elections for
this period. Certain of the Company's stations affiliated with Fox are required
to elect retransmission consent, because Fox's retransmission consent
negotiations on behalf of the Company resulted in agreements which extend into
1998. Therefore, the Company will need to negotiate retransmission consent
agreements for these Fox-affiliated stations to attain carriage on those
relevant cable systems for the balance of this triennial period (i.e., through
December 31, 1999). For subsequent elections beginning with the election to be
made by October 1, 1999, the must-carry market will be the station's DMA, in
general as defined by the Nielsen DMA Market and Demographic Rank Report of the
prior year.
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The must-carry rules have been subject to judicial scrutiny. In April 1993,
the United States District Court for the District of Columbia summarily upheld
the constitutionality of the legislative must-carry provisions under a First
Amendment challenge. However, in June 1994, the Supreme Court remanded the case
to the lower court with instructions to test the constitutionality of the
must-carry rules under an "intermediate scrutiny" standard. In a decision issued
in December 1995, a closely divided three-judge District Court panel ruled that
the record showed that there was substantial evidence before Congress from which
it could draw the reasonable inferences that (1) the must-carry rules were
necessary to protect the local broadcast industry; and (2) the burdens on cable
systems with rapidly increasing channel capacity would be quite small.
Accordingly, the District Court panel ruled that Congress had not violated the
First Amendment in enacting the "must-carry" provisions. The case is once again
on appeal to the Supreme Court, with oral argument set for October 1996. The
Company cannot predict the final outcome of the Supreme Court case or how it may
affect the Company's cable contracts.
SYNDICATED EXCLUSIVITY/TERRITORIAL EXCLUSIVITY
The FCC has imposed syndicated exclusivity rules and expanded existing
network nonduplication rules. The syndicated exclusivity rules allow local
broadcast television stations to demand that cable operators black out
syndicated non-network programming carried on "distant signals" (i.e., signals
of broadcast stations, including so-called "superstations," which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network television affiliates to
require that cable operators black out duplicating network programming carried
on distant signals. However, in a number of markets in which the Company owns or
programs stations affiliated with a network, a station that is affiliated with
the same network in a nearby market is carried on cable systems in the Company's
market. This is not in violation of the FCC's syndicated exclusivity rules.
However, the carriage of two network stations on the same cable system could
result in a decline of viewership adversely affecting the revenues of the
Company owned or programmed station.
FINANCIAL INTEREST-SYNDICATION AND PRIME TIME ACCESS RULES
Previously, financial interest/syndication ("FIN/SYN") rules applied to any
television network and posed various restrictions on a network's operation and
activities. Network status was considered to exist under these rules when a
broadcast company's weekly programming offerings exceeded 15 hours to 25
affiliates in 10 states. These rules prohibited networks from engaging in
syndication for the sale, licensing, or distribution of television programs for
non-network broadcast exhibition in the United States. Further, these rules
prohibited networks from sharing profits from any syndication and from acquiring
any new financial or proprietary interest in programs of which they were not the
sole producer.
In 1993, the FCC relaxed the restrictions of the FIN/SYN rules, enabling the
major networks to acquire specified amounts and kinds of financial interests in
syndicated programs and to engage in program syndication themselves. In 1995,
the FCC eliminated the FIN/SYN rules altogether. The Company cannot predict the
effect of the elimination of the FIN/SYN rules on the Company's ability to
acquire desirable programming at reasonable prices.
The FCC's prime time access rule has also placed programming restrictions on
affiliates of "networks." This rule has restricted affiliates of "networks" in
the 50 largest television markets (as defined by the rule) generally to no more
than three hours of network programming during the four hours of prime time.
Twenty-one of the 28 stations owned or provided programming services by the
Company are located in the nation's top 50 markets. For purposes of the prime
time access rule, the FCC defines "network" to include those entities that
deliver more than 15 hours of "prime time programming" (a term defined in those
rules) to affiliates reaching 75% of the nation's television homes. Under this
definition, neither Fox, UPN, nor their affiliates, including the Company's
owned and operated stations, are subject to the prime time access rule, but the
ABC and CBS-affiliated stations to which the Company provides programming
services are subject to the rule. In July 1995, the FCC issued a decision
repealing the prime time access rule effective August 30, 1996. The Company
cannot predict the effect that repeal of the rule may ultimately have on the
market for syndicated programming.
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RESTRICTIONS ON BROADCAST ADVERTISING
Advertising of cigarettes and certain other tobacco products on broadcast
stations has been banned for many years. Various states restrict the advertising
of alcoholic beverages. Congressional committees have recently examined
legislation proposals which may eliminate or severely restrict the advertising
of beer and wine. Although no prediction can be made as to whether any or all of
the present proposals will be enacted into law, the elimination of all beer and
wine advertising would have an adverse effect upon the revenues of the Company's
stations, as well as the revenues of other stations which carry beer and wine
advertising.
The FCC has imposed commercial time limitations in children's television
programming pursuant to legislation. In television programs designed for viewing
by children of 12 years of age and under, commercial matter is limited to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends. The Company
does not believe that these requirements will have a significant impact on the
Company's stations since all of its stations have already limited commercials in
such programming.
The Communications Act and FCC rules also place restrictions on the
broadcasting of advertisements by legally qualified candidates for elective
office. Among other things, (i) stations must provide "reasonable access" for
the purchase of time by legally qualified candidates for federal office; (ii)
stations must provide "equal opportunities" for the purchase of equivalent
amounts of comparable broadcast time by opposing candidates for the same
elective office; and (iii) during the 45 days preceding a primary or primary
run-off election and during the 60 days preceding a general or special election,
legally qualified candidates for elective office may be charged no more than the
station's "lowest unit charge" for the same class of advertisement, length of
advertisement, and daypart.
PROGRAMMING AND OPERATION
General. The Communications Act requires broadcasters to serve the "public
interest." The FCC gradually has relaxed or eliminated many of the more
formalized procedures it had developed in the past to promote the broadcast of
certain types of programming responsive to the needs of a station's community of
license. FCC licensees continue to be required, however, to present programming
that is responsive to community issues, and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming often will be considered by the FCC when it evaluates
renewal applications of a licensee, although such complaints may be filed at any
time and generally may be considered by the FCC at any time. Stations also must
pay regulatory and application fees, and follow various rules promulgated under
the Communications Act that regulate, among other things, political advertising,
sponsorship identifications, the advertisement of contests and lotteries,
obscene and indecent broadcasts, and technical operations, including limits on
radiofrequency radiation. In addition, licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities,
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a renewal application. Failure to observe these or
other rules and policies can result in the imposition of various sanctions,
including monetary forfeitures, or the grant of a "short" (i.e., less than the
full) renewal term or, for particularly egregious violations, the denial of a
license renewal application or the revocation of a license.
Children's Television Programming. Pursuant to legislation enacted in 1990,
all television stations have been required to broadcast some television
programming designed to meet the educational and informational needs of children
16 years of age and under. In August 1996, the FCC adopted new rules setting
forth more stringent children's programming requirements. Specifically, as of
September 1, 1997, television stations will be required to broadcast a minimum
of three hours per week of "core" children's educational programming, which the
FCC defines as programming that (i) has serving the educational and
informational needs of children 16 years of age and under as a significant
purpose; (ii) is regularly scheduled, weekly and at least 30 minutes in
duration; and (iii) is aired between the hours of 7:00 a.m. and 10:00 p.m.
Furthermore, as of January 2, 1997, "core" children's educational programs, in
order to qualify as such, must be identified as educational and informational
programs over the air at the time they are broadcast, and must be identified in
the station's children's programming reports required to be
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placed in stations' public inspection files. Additionally, as of January 2,
1997, television stations must identify and provide information concerning
"core" children's programming to publishers of program guides and listings.
Television Violence. The 1996 Act contains a number of provisions relating to
television violence. First, if the television industry does not develop a
violence ratings system within one year of the 1996 Act's adoption, the 1996 Act
directs the FCC to prescribe (in conjunction with an advisory committee) a
ratings code for "video programming that contains sexual, violent, or other
indecent material about which parents should be informed." The FCC is required
to adopt rules requiring carriage of ratings information for any program that is
rated. Furthermore, the 1996 Act provides that all television sets larger than
13 inches that are manufactured one year after enactment of the 1996 Act must
include the so-called "V-chip," a computer chip that allows blocking of rated
programming. In addition, the 1996 Act requires that all television license
renewal applications filed after May 1, 1995 contain summaries of written
comments and suggestions received by the station from the public regarding
violent programming.
Closed Captioning. The 1996 Act directs the FCC to adopt rules requiring
closed captioning of all broadcast television programming, except where
captioning would be "economically burdensome."
PROPOSED CHANGES
The Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of the Company's broadcast stations, result in the loss of
audience share and advertising revenues for the Company's broadcast stations,
and affect the ability of the Company to acquire additional broadcast stations
or finance such acquisitions. In addition to the changes and proposed changes
noted above, such matters include, for example, the license renewal process,
spectrum use fees, political advertising rates, potential restrictions on the
advertising of certain products (beer and wine, for example), and the rules and
policies to be applied in enforcing the FCC's equal employment opportunity
regulations. Other matters that could affect the Company's broadcast properties
include technological innovations and developments generally affecting
competition in the mass communications industry, such as direct radio and
television broadcast satellite service, the continued establishment of wireless
cable systems and low power television stations, digital television and radio
technologies, and the advent of telephone company participation in the provision
of video programming service.
OTHER CONSIDERATIONS
The foregoing summary does not purport to be a complete discussion of all
provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, other congressional acts, and regulations and
public notices promulgated from time to time by the FCC. There are additional
regulations and policies of the FCC and other federal agencies that govern
political broadcasts, public affairs programming, equal employment opportunity,
and other matters affecting the Company's business and operations.
ENVIRONMENTAL REGULATION
Prior to the Company's ownership or operation of its facilities, substances
or waste that are or might be considered hazardous under applicable
environmental laws may have been generated, used, stored or disposed of at
certain of those facilities. In addition, environmental conditions relating to
the soil and groundwater at or under the Company's facilities may be affected by
the proximity of nearby properties that have generated, used, stored or disposed
of hazardous substances. As a result, it is possible that the Company could
become subject to environmental liabilities in the future in connection with
these facilities under applicable environmental laws and regulations. Although
the Company believes that it is in substantial compliance with such
environmental requirements, and has not in the past been required to incur
significant costs in connection therewith, there can be no assurance that the
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Company's costs to comply with such requirements will not increase in the
future. The Company presently believes that none of its properties have any
condition that is likely to have a material adverse effect on the Company's
financial condition or results of operations.
COMPETITION
The Company's television and radio stations compete for audience share and
advertising revenue with other television and radio stations in their respective
DMAs, as well as with other advertising media, such as newspapers, magazines,
outdoor advertising, transit advertising, yellow page directories, direct mail
and local cable and wireless cable systems. Some competitors are part of larger
organizations with substantially greater financial, technical and other
resources than the Company.
Television Competition. Competition in the television broadcasting industry
occurs primarily in individual DMAs. Generally, a television broadcasting
station in one DMA does not compete with stations in other DMAs. The Company's
television stations are located in highly competitive DMAs. In addition, the
Baltimore DMA is overlapped by both over-the-air and cable carriage of
Washington, D.C. stations which tends to spread viewership and advertising
expenditures over a larger number of television stations.
Broadcast television stations compete for advertising revenues primarily with
other broadcast television stations, radio stations and cable system operators
serving the same market. Major Network programming generally achieves higher
household audience levels than Fox, UPN and Warner Brothers programming and
syndicated programming aired by independent stations. This can be attributed to
a combination of factors, including the Major Networks' efforts to reach a
broader audience, generally better signal carriage available when broadcasting
over VHF channels 2 through 13 versus broadcasting over UHF channels 14 through
69 and the higher number of hours of Major Network programming being broadcast
weekly. However, greater amounts of advertising time are available for sale
during Fox and UPN programming and non-network syndicated programming, and as a
result the Company believes that the Company's programming typically achieves a
share of television market advertising revenues greater than its share of the
market's audience.
Television stations compete for audience share primarily on the basis of
program popularity, which has a direct effect on advertising rates. A large
amount of the Company's prime time programming is supplied by Fox and to a
lesser extent UPN, ABC and CBS. In those periods, the Company's affiliated
stations are totally dependent upon the performance of the networks' programs in
attracting viewers. Non-network time periods are programmed by the station
primarily with syndicated programs purchased for cash, cash and barter, or
barter-only, and also through self-produced news, public affairs and other
entertainment programming.
Television advertising rates are based upon factors which include the size of
the DMA in which the station operates, a program's popularity among the viewers
that an advertiser wishes to attract, the number of advertisers competing for
the available time, the demographic makeup of the DMA served by the station, the
availability of alternative advertising media in the DMA (including radio and
cable), the aggressiveness and knowledge of sales forces in the DMA and
development of projects, features and programs that tie advertiser messages to
programming. The Company believes that its sales and programming strategies
allow it to compete effectively for advertising within its DMAs.
Other factors that are material to a television station's competitive
position include signal coverage, local program acceptance, network affiliation,
audience characteristics and assigned broadcast frequency. Historically, the
Company's UHF broadcast frequencies have suffered a competitive disadvantage in
comparison to stations with VHF broadcast frequencies. This historic
disadvantage has gradually declined through (i) carriage on cable systems, (ii)
improvement in television receivers, (iii) improvement in television
transmitters, (iv) wider use of all channel antennae, (v) increased availability
of programming, and (vi) the development of new networks such as Fox and UPN.
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of Federal
regulatory bodies, including the FCC, any of which could
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possibly have a material effect on a television station's operations and
profits. There are sources of video service other than conventional television
stations, the most common being cable television, which can increase competition
for a broadcast television station by bringing into its market distant
broadcasting signals not otherwise available to the station's audience, serving
as a distribution system for national satellite-delivered programming and other
non-broadcast programming originated on a cable system and selling advertising
time to local advertisers. Other principal sources of competition include home
video exhibition, direct-to-home broadcast satellite television ("DBS")
entertainment services and multichannel multipoint distribution services
("MMDS"). Moreover, technology advances and regulatory changes affecting
programming delivery through fiber optic telephone lines and video compression
could lower entry barriers for new video channels and encourage the development
of increasingly specialized "niche" programming. The 1996 Act permits telephone
companies to provide video distribution services via radio communication, on a
common carrier basis, as "cable systems" or as "open video systems," each
pursuant to different regulatory schemes. The Company is unable to predict the
effect that technological and regulatory changes will have on the broadcast
television industry and on the future profitability and value of a particular
broadcast television station.
The FCC authorizes DBS services throughout the United States. Currently, two
FCC permitees, DirecTV and United States Satellite Broadcasting, provide
subscription DBS services via high power communications satellites and small
dish receivers, and other companies provide direct-to-home video service using
lower powered satellites and larger receivers. Additional companies are expected
to commence direct-to-home operations in the near future. DBS and MMDS, as well
as other new technologies, will further increase competition in the delivery of
video programming.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
The Company is exploring ways in which it might take advantage of new
technology, including the delivery of additional content and services via the
broadcast spectrum. There can be no assurance that any such efforts will result
in the development of technology or services that are commercially successful.
The Company also competes for programming, which involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. The Company's stations compete for exclusive access to
those programs against in-market broadcast station competitors for syndicated
products. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations. Public broadcasting stations generally compete with commercial
broadcasters for viewers but not for advertising dollars.
Historically, the cost of programming had increased because of an increase in
the number of new Independent stations and a shortage of quality programming.
However, the Company believes that over the past five years program prices have
stabilized and, in some instances, have declined as a result of recent increases
in the supply of programming and the failure of some Independent stations.
The Company believes it competes favorably against other television stations
because of its management skill and experience, the ability of the Company
historically to generate revenue share greater than its audience share, the
network affiliations and its local program acceptance. In addition, the Company
believes that it benefits from the operation of multiple broadcast properties,
affording it certain nonquantifiable economies of scale and competitive
advantages in the purchase of programming.
Radio Competition. Radio broadcasting is a highly competitive business, and
each of the radio stations operated by the Company competes for audience share
and advertising revenue directly with other radio stations in its geographic
market, as well as with other media, including television, cable television,
newspapers, magazines, direct mail and billboard advertising. The audience
ratings and advertising revenue of each of such stations are subject to change,
and any adverse change in a particular market could have a material adverse
effect on the revenue of such radio stations located in that market.
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There can be no assurance that any one of the Company's radio stations will be
able to maintain or increase its current audience ratings and radio advertising
revenue market share.
The Company will attempt to improve each radio station's competitive position
with promotional campaigns designed to enhance and reinforce its identities with
the listening public. Extensive market research is conducted in order to
identify specific demographic groups and design its programming format for those
groups. The Company seeks to build a strong listener base composed of specific
demographic groups in each market, and thereby attract advertisers seeking to
reach these listeners. Aside from building its stations' identities and
targeting its programming at specific demographic groups, management believes
that the Company also obtains a competitive advantage by operating duopolies or
multiple stations in the nation's larger mid-size markets.
The radio broadcasting industry is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems and by digital audio broadcasting
("DAB"). DAB may provide a medium for the delivery by satellite or terrestrial
means of multiple new audio programming formats to local and national audiences.
Historically, the radio broadcasting industry has grown in terms of total
revenues despite the introduction of new technologies for the delivery of
entertainment and information, such as television broadcasting, cable
television, audio tapes and compact disks. There can be no assurance, however,
that the development or introduction in the future of any new media technology
will not have an adverse effect on the radio broadcast industry.
EMPLOYEES
As of August 31, 1996, the Company had approximately 2,300 employees. With
the exception of certain of the employees of KOVR-TV, KDNL-TV, WBEN-AM and
WWL-AM, none of the employees is represented by labor unions under any
collective bargaining agreement. No significant labor problems have been
experienced by the Company, and the Company considers its overall labor
relations to be good.
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MANAGEMENT
Set forth below is certain information relating to the Company's executive
officers, directors, certain key employees and persons expected to become
executive officers, directors or key employees.
<TABLE>
<CAPTION>
NAME AGE TITLE
- --------------------- ----- -----------------------------------------------
<S> <C> <C>
David D. Smith....... 45 President, Chief Executive Officer, Director and
Chairman of the Board
Frederick G. Smith .. 47 Vice President and Director
J. Duncan Smith...... 42 Vice President, Secretary & Director
Robert E. Smith...... 33 Vice President, Treasurer and Director
David B. Amy......... 43 Chief Financial Officer
John T. Quigley...... 53 Regional Director, SCI
Alan B. Frank........ 46 Regional Director, SCI
Steven M. Marks...... 39 Regional Director, SCI
Frank Quitoni........ 51 Regional Director, SCI
Michael Granados .... 42 Regional Director, SCI
Barry Drake.......... 45 Chief Operating Officer, SCI Radio
Donna Fuhrman........ 38 Vice President/Sales and Marketing, SCI
Delbert R. Parks, III 43 Director of Operations and Engineering, SCI
Robert E. Quicksilver 41 General Counsel, SCI
Mark S. Rotundo...... 34 Corporate Controller
Michael E. Sileck ... 36 Vice President/Finance, SCI
Patrick Talamantes .. 32 Director of Corporate Finance
Robert West.......... 37 Director of Programming, SCI
Basil A. Thomas...... 81 Director
William E. Brock .... 65 Director
Lawrence E. McCanna . 52 Director
</TABLE>
In addition to the forego ing, the following persons have agreed to serve as
executive officers and/or directors of the Company as soon as permissible under
the rules of the FCC and applicable laws. See "Risk Factors--Dependence Upon Key
Personnel."
<TABLE>
<CAPTION>
NAME AGE TITLE
- -------------------- ----- ----------------------------------------------
<S> <C> <C>
Barry Baker......... 44 Executive Vice President of the Company, Chief
Executive Officer of SCI and Director
Kerby Confer........ 55 Chief Executive Officer, SCI Radio
Roy F. Coppedge, III 48 Director
</TABLE>
In connection with the River City Acquisition, the Company agreed to increase
the size of the Board of Directors from seven members to nine to accommodate the
prospective appointment of each of Barry Baker and Roy F. Coppedge, III or such
other designee as Boston Ventures may select. Mr. Baker and Mr. Confer currently
serve as consultants to the Company.
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Members of the Board of Directors are elected for one-year terms and until
their successors are duly elected and qualified. Executive officers are
appointed by the Board of Directors annually to serve for one year-terms and
until their successors are duly appointed and qualified.
David D. Smith has served as President, Chief Executive Officer and Chairman
of the Board since September 1990. Prior to that, he served as General Manager
of WPTT from 1984, and assumed the financial and engineering responsibility for
the Company, including the construction of WTTE in 1984. In 1980, Mr. Smith
founded Comark Television, Inc., which applied for and was granted the permit
for WPXT-TV in Portland, Maine and which purchased WDSI-TV in Chattanooga,
Tennessee. WPXT-TV was sold one year after construction and WDSI-TV was sold two
years after its acquisition. From 1978 to 1986, Mr. Smith co-founded and served
as an officer and director of Comark Communications, Inc., a company engaged in
the manufacture of high power transmitters for UHF television stations. His
television career began with WBFF in Baltimore, where he helped in the
construction of the station and was in charge of technical maintenance until
1978. David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith
are brothers.
Frederick G. Smith has served as Vice President of the Company since 1990 and
as a Director since 1986. Prior to joining the Company in 1990, Mr. Smith was a
surgical dentist engaged in private practice and was employed by Frederick G.
Smith, M.S., D.D.S., P.A., a professional corporation of which Mr. Smith was the
sole officer, director and stockholder.
J. Duncan Smith has served as Vice President, Secretary and a Director of the
Company since 1988. Prior to that, he worked for Comark Communications, Inc.
installing UHF transmitters. In addition, he also worked extensively on the
construction of WPTT in Pittsburgh, WTTE in Columbus, WIIB in Bloomington and
WTTA in St. Petersburg, as well as on the renovation of the new studio, offices
and news facility for WBFF in Baltimore.
Robert E. Smith has served as Vice President, Secretary and a Director of the
Company since 1988. Prior to that, he served as Program Director at WBFF from
1986 to 1988. Prior to that, he assisted in the construction of WTTE and also
worked for Comark Communications, Inc. installing UHF transmitters.
David B. Amy has served as Chief Financial Officer ("CFO") since October of
1994 and prior to his appointment as CFO served as the Controller of the Company
beginning in 1986. Before that, he served as the Business Manager for WPTT.
Prior to joining the Company in 1984, Mr. Amy was an accounting manager of Penn
Athletic Products Company in Pittsburgh, Pennsylvania. Mr. Amy received an MBA
degree from the University of Pittsburgh in 1981.
John T. Quigley has served as a Regional Director of the Company since 1996.
As Regional Director, Mr. Quigley is responsible for the Columbus, Cincinnati,
Lexington and Oklahoma City markets. Prior to that time, Mr. Quigley served as
general manager of WTTE since July 1985. Prior to joining WTTE, Mr. Quigley
served in broadcast management positions at WCPO-TV in Cincinnati, Ohio and
WPTV-TV in West Palm Beach, Florida.
Alan B. Frank has served as Regional Director for the Company since May 1994.
As Regional Director, Mr. Frank is responsible for the Pittsburgh, Milwaukee,
Kansas City and Raleigh-Durham markets. Prior to his appointment to Regional
Director, Mr. Frank served as General Manager of WPGH beginning in September
1991.
Steven M. Marks has served as Regional Director for the Company since October
1994. As Regional Director, Mr. Marks is responsible for the Baltimore, Norfolk,
Flint and Birmingham markets. Prior to his appointment as Regional Director, Mr.
Marks served as General Manager for WBFF since July 1991. From 1986 until
joining WBFF in 1991, Mr. Marks served as General Manager at WTTE. Prior to that
time, he was national sales manager for WFLX-TV in West Palm Beach, Florida.
Frank Quitoni has served as Regional Director since completion of the River
City Acquisition. As Regional Director, Mr. Quitoni is responsible for the St.
Louis, Sacramento and Asheville/Greenville/Spartanburg markets. Prior to joining
the Company, he was Vice President of Operations of River City since 1995. Mr.
Quitoni had served as the Director of Operations and Engineering for River City
since
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1994. Prior thereto Mr. Quitoni served as a consultant to CBS beginning in 1989.
Mr. Quitoni was the Director of Olympic Operations for CBS Sports for the 1992
Winter Olympic Games and consulted with CBS for the 1994 Winter Olympic Games.
Mr. Quitoni was awarded the Technical Achievement Emmy for the 1992 and 1994 CBS
Olympic broadcasts.
Michael Granados has served as a Regional Director of the Company since July
1996. As a Regional Director, Mr. Granados is responsible for the Indianapolis,
San Antonio, Des Moines and Peoria markets. Prior to July 1996, Mr. Granados has
served in various positions with the Company and, before the River City
Acquisition, with River City. He served as the General Sales Manager of KABB
from 1989 to 1993, the Station Manager and Director of Sales of WTTV from 1993
to 1994 and the General Manager of WTTV prior to his appointment as Regional
Director in 1996.
Barry Drake has served as Chief Operating Officer of SCI Radio since
completion of the River City Acquisition. Prior to that time he was Chief
Operating Officer--Keymarket Radio Division of River City since July 1995. Prior
to that he was President and Chief Operating Officer of Keymarket since 1993.
From 1988 through 1995, Mr. Drake performed the duties of the President of each
of the Keymarket broadcasting entities, with responsibility for three stations
located in Houston, St. Louis and Detroit.
Donna Fuhrman has served as the Vice President/Sales and Marketing of SCI
since completion of the River City Acquisition. Prior to joining SCI, Ms.
Fuhrman served as the Vice President of Sales and Marketing of River City since
1993. From 1989 to 1993, Ms. Fuhrman served in various sales positions at
KDNL-TV in St. Louis, ultimately as General Sales Manager. In 1991, Ms. Fuhrman
was appointed to the Sales Advisory Committee for Fox and also serves on the
Television Bureau of Advertising's Sales Advisory Committee.
Delbert R. Parks III has served as the Director of Operations and Engineering
of the Company since 1995. Prior to that time, he was Director of Operations for
WBFF since 1971. He is responsible for planning, organizing and implementing
operational and engineering policies as they relate to television and computer
systems. Recently he consolidated the facilities of WLFL and WRDC in Raleigh,
NC, as well as the facilities of WBFF and WNUV, Baltimore, where he introduced
the concept of disc based playback of commercial material for both stations. Mr.
Parks is also a member of the Maryland Army National Guard and commands the 1st
Battalion, 175th Infantry (Light).
Robert E. Quicksilver has served as General Counsel, SCI since completion of
the River City Acquisition. Prior to that time he served as General Counsel of
River City since September 1994. Prior to joining River City, Mr. Quicksilver
was with the law firm of Rosenblum, Goldenhersh, Silverstein and Zafft, P.C. in
St. Louis, where he was a partner for six years.
Mark S. Rotundo has served as Corporate Controller of the Company since 1994.
Prior to joining the Company, he served as Controller/CFO of ThermoChem, Inc., a
high-tech manufacturer of advanced waste-to-energy systems since 1990. From 1987
to 1990, he served as CFO of Keystone Medical Corporation, a public company
engaged in the manufacture of medical diagnostic test devices. Mr. Rotundo was
employed by Arthur Andersen & Co. from 1983 to 1987.
Michael E. Sileck has served as Vice President/Finance of SCI since
completion of the River City Acquisition. Prior to that time he served as the
Director of Finance for River City since 1993. Mr. Sileck joined River City in
July 1990 as Director of Finance and Business Affairs for KDNL-TV. Prior to
joining River City, Mr. Sileck was Director of Finance for Narragansett
Television, owner of two network affiliates, from 1989 to 1990. Mr. Sileck has
been an active member of BCFM since 1984 and was a charter member of the
Television Programming Committee. He was also a Director of the Broadcast Cable
Financial Management Association from 1993 to 1996 and Co-Chairman of the
Television Programming Committee.
Patrick Talamantes has served as Director of Corporate Finance since
completion of the River City Acquisition. Prior to that time he served as
Treasurer for River City since April 1995. From 1991 to 1995, Mr. Talamantes was
a Vice President with Chemical Bank, where he completed financings for clients
in the cable, broadcasting, publishing and entertainment industries.
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Robert West has served as Director of Programming, SCI since completion of
the River City Acquisition. Prior to that time, Mr. West served as Program
Director of KDNL since 1989. Prior to that time he served as the Director of
Programming of the River City television stations since December 1991.
Basil A. Thomas has served as a Director of the Company since November 1993.
He is of counsel to the Baltimore law firm of Thomas & Libowitz, P.A. and has
been in the private practice of law since 1983. From 1961 to 1968, Judge Thomas
served as an Associate Judge on the Municipal Court of Baltimore City and, from
1968 to 1983, he served as an Associate Judge of the Supreme Bench of Baltimore
City. Judge Thomas is a trustee of the University of Baltimore and a member of
the American Bar Association and the Maryland State Bar Association. Judge
Thomas graduated from the College of William & Mary and received his L.L.B. from
the University of Baltimore. Judge Thomas is the father of Steven A. Thomas, a
senior attorney and founder of Thomas & Libowitz, counsel to the Company.
William E. Brock has served as a Director of the Company since July 1995. Mr.
Brock served as chairman of The Brock Group from 1989 until January 1994, and
presently acts as a consultant. Mr. Brock served as a United States Senator from
Tennessee from 1971 to 1977 and as a member of the U.S. House of Representatives
from 1962 to 1970. Mr. Brock served as a member of President Reagan's cabinet
from 1981 to 1987, as U.S. Trade Representative from 1981 to 1985 and as
Secretary of Labor from 1985 to 1987. Mr. Brock was National Chairman of the
Republican Party from 1977 to 1981.
Lawrence E. McCanna has served as a Director of the Company since July 1995.
Mr. McCanna has been a partner of the accounting firm of Gross, Mendelsohn &
Associates, P.A., since 1972 and has served as its managing partner since 1982.
Mr. McCanna has served on various committees of the Maryland Association of
Certified Public Accountants and was chairman of the Management of the
Accounting Practice Committee. He is also a former member of the Management of
an Accounting Practice Committee of the American Institute of Certified Public
Accountants. Mr. McCanna is a member of the board of directors of Maryland
Special Olympics.
Barry Baker has been the Chief Executive Officer of River City since 1989,
and is the President of the corporate general partner of River City, Better
Communications, Inc. ("BCI"). The principal business of both River City and BCI
is television and radio broadcasting. In connection with the River City
Acquisition, the Company agreed to appoint Mr. Baker Executive Vice President of
the Company and to elect him as a Director at such time as he is eligible to
hold those positions under applicable FCC regulations. He currently serves as a
consultant to the Company.
Kerby Confer served as a member of the Board of Representatives and Chief
Executive Officer -- Keymarket Radio Division of River City since July 1995.
Prior thereto, Mr. Confer served as Chairman of the Board and Chief Executive
Officer of Keymarket since its founding in December 1981. Prior to engaging in
the acquisition of various radio stations in 1975, Mr. Confer held a number of
jobs in the broadcast business, including serving as Managing Partner of a radio
station in Annapolis, Maryland from 1969 to 1975. From 1966 to 1969, he hosted a
pop music television show on WBAL-TV (Baltimore) and WDCA-TV (Washington, D.C.).
Prior thereto, Mr. Confer served as program director or producer/director for
radio and television stations owned by Susquehanna Broadcasting and Plough
Broadcasting Company, Inc. Mr. Confer currently provides services to the Company
and is expected to become Chief Executive Officer of SCI Radio at such time as
he is eligible to hold this position under applicable FCC regulations.
Roy F. Coppedge, III is a general partner of the general partner of each of
the Boston Ventures partnerships, limited partnerships primarily involved in the
business of investments. In connection with the River City Acquisition, the
Company agreed to elect Mr. Coppedge as a Director at such time as he is
eligible to hold that position under applicable FCC regulations.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with David D. Smith,
President and Chief Executive Officer of the Company. David Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. The Company's Compensa
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tion Committee has approved an increase in Mr. Smith's total compensation to
$1,200,000. Mr. Smith is also entitled to participate in the Company's Executive
Bonus Plan based upon the performance of the Company and Mr. Smith during the
year. The employment agreement provides that the Company may terminate Mr.
Smith's employment prior to expiration of the agreement's term as a result of
(i) a breach by Mr. Smith of any material covenant, promise or agreement
contained in the employment agreement; (ii) a dissolution or winding up of the
Company; (iii) the disability of Mr. Smith for more than 210 days in any twelve
month period (as determined under the employment agreement); or (iv) for cause,
which includes conviction of certain crimes, breach of a fiduciary duty to the
Company or the stockholders, or repeated failure to exercise or undertake his
duties as an officer of the Company (each, a "Termination Event").
In June 1995, the Company entered into an employment agreement with Frederick
G. Smith, Vice President of the Company. Frederick Smith's employment agreement
has an initial term of three years and is renewable for additional one-year
terms, unless either party gives notice of termination not less than 60 days
prior to the expiration of the then current term. Under the agreement, Mr. Smith
receives a base salary of $260,000 and is also entitled to participate in the
Company's Executive Bonus Plan based upon the performance of the Company and Mr.
Smith during the year. The employment agreement provides that the Company may
terminate Mr. Smith's employment prior to expiration of the agreement's term as
a result of a Termination Event.
In June 1995, the Company entered into an employment agreement with J. Duncan
Smith, Vice President and Secretary of the Company. J. Duncan Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. Under the agreement, Mr.
Smith receives a base salary of $270,000 and is also entitled to participate in
the Company's Executive Bonus Plan based upon the performance of the Company and
Mr. Smith during the year. The employment agreement provides that the Company
may terminate Mr. Smith's employment prior to expiration of the agreement's term
as a result of a Termination Event.
In June 1995, the Company entered into an employment agreement with Robert E.
Smith, Vice President and Treasurer of the Company. Robert E. Smith's employment
agreement has an initial term of three years and is renewable for additional
one-year terms, unless either party gives notice of termination not less than 60
days prior to the expiration of the then current term. Under the agreement, Mr.
Smith receives a base salary of $250,000 and is also entitled to participate in
the Company's Executive Bonus Plan based upon the performance of the Company and
Mr. Smith during the year. The employment agreement provides that the Company
may terminate Mr. Smith's employment prior to expiration of the agreement's term
as a result of a Termination Event.
In connection with the River City Acquisition, the Company entered into an
employment agreement (the "Baker Employment Agreement") with Barry Baker
pursuant to which Mr. Baker will become President and Chief Executive Officer of
SCI and Executive Vice President of the Company at such time as Mr. Baker is
able to hold those positions consistent with applicable FCC regulations. Until
such time as Mr. Baker is able to become an officer of the Company, he serves as
a consultant to the Company pursuant to a consulting agreement and receives
compensation that he would be entitled to as an officer under the Baker
Employment Agreement. Pursuant to the Baker Employment Agreement, Mr. Baker
receives a base salary of approximately $1,056,000 per year, subject to annual
increases of 71/2% each year beginning January 1, 1997. Mr. Baker is also
entitled to receive a bonus equal to 2% of the amount by which the Broadcast
Cash Flow (as defined in the Employment Agreement) of SCI for a year exceeds the
Broadcast Cash Flow for the immediately preceding year. Pursuant to the Baker
Employment Agreement, Mr. Baker has received options to acquire 1,382,435 shares
of the Class A Common Stock (or 3.33% of the common equity of Sinclair
determined on a fully diluted basis). The option became exercisable with respect
to 50% of the shares upon closing of the River City Acquisition, and becomes
exercisable with respect to 25% of the shares on the first anniversary of the
closing of the River City Acquisition, and 25% on the second anniversary of the
River City Acquisition. The exercise price of the option is approximately $30.11
per share. The term of the Baker Employment Agreement extends until May 31,
2001, and is automatically extended to the third anniversary of any Change of
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Control (as defined). If the Baker Employment Agreement is terminated by the
Company other than for Cause (as defined) or by Mr. Baker for good cause
(constituting certain occurrences specified in the agreement) then Mr. Baker
shall be entitled to a termination payment equal to the amount that would have
been paid in base salary for the remainder of the term of the agreement plus
bonuses that would be paid for such period based on the average bonus paid to
Mr. Baker for the previous three years, and all options shall vest immediately
upon such termination. In addition, upon such a termination, Mr. Baker shall
have the option to purchase from the Company for the fair market value thereof
either (i) all broadcast operations of Sinclair in the St. Louis, Missouri or
(at the option of Mr. Baker) the
Asheville-Greenville-Spartanburg, South Carolina DMAs or (ii) all of the
Company's radio broadcast operations. Mr. Baker shall also have the right
following such a termination to receive quarterly payments (which may be paid
either in cash or, at the Company's option, in additional shares of Class A
Common Stock) equal to 5.00% of the fair market value (on the date of each
payment) of all stock options and common stock issued pursuant to exercise of
such stock options or pursuant to payments of this obligation in shares and held
by him at the time of such payment (except that the first such payment shall be
3.75% of such value). The fair market value of unexercised options for such
purpose shall be equal to the market price of underlying shares less the
exercise price of the options. Following termination of Mr. Baker's employment
agreement, the Company shall have the option to purchase the options and shares
from Mr. Baker at their market value.
CERTAIN TRANSACTIONS
Since December 31, 1995, the Company has engaged in the following
transactions with persons who are, or are members of the immediate family of,
directors, persons expected to become a director, officers or beneficial owners
of 5% or more of the issued and outstanding Common Stock or with entities in
which such persons or certain of their relatives have interests.
Mr. Baker, who is expected to become an executive officer and director of the
Company, Mr. Coppedge, who is expected to become a director of the Company, and
Mr. Confer, who is expected to become an executive officer of the Company, are
the direct or indirect beneficial owners of equity interests in River City. As
described in more detail under "Business -- Broadcasting Acquisition Strategy,"
the Company acquired certain assets from River City, obtained options to acquire
other assets from River City, and entered into an LMA to provide programming
services to certain television and radio stations of which River City is the
owner of the License Assets.
The Company is negotiating an agreement with River City pursuant to which
River City will provide to the Company news production services with respect to
the production of news programming and on air talent on WTTE in Columbus, Ohio.
Pursuant to this agreement, River City will provide certain services to the
Company in return for a fee that will be negotiated.
Kerby Confer is the owner of 100% of the common stock of Keymarket of South
Carolina, Inc. ("KSC"), and the Company has an option to acquire either (i) all
of the assets of KSC for forgiveness of debt in an aggregate principal amount of
approximately $7.4 million as of August 22, 1996 plus payment of $1,000,000 less
certain adjustments or (ii) all of the stock of KSC from Mr. Confer for
$1,000,000 less certain adjustments. In addition, the Company is obligated to
pay Mr. Confer approximately $248,000 in rent under leases on two properties
during 1996. The Company is required to purchase each of the properties during
the term of the applicable lease, for an aggregate purchase price of
approximately $1,750,000.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company currently has two classes of Common Stock, each having a par
value of $.01 per share, and one class of issued and outstanding Preferred
Stock, also with a par value of $.01 per share. Upon completion of the Offering,
the Controlling Stockholders, by virtue of their beneficial ownership of 100% of
the shares of the Class B Common Stock, with its super voting rights as
described below, will retain control over the Company's business and operations.
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The following summary of the Company's capital stock does not purport to be
complete and is subject to detailed provisions of, and is qualified in its
entirety by reference to, the Company's Amended and Restated Articles of
Incorporation (the "Amended Certificate"). The Amended Certificate is an exhibit
to the Registration Statement of which this Prospectus is a part and is
available as set forth under "Available Information."
The Amended Certificate authorizes the Company to issue up to 100,000,000
shares of Class A Common Stock, par value $.01 per share, 35,000,000 shares of
Class B Common Stock, par value $.01 per share, and 10,000,000 shares of
preferred stock, par value $.01 per share. Upon the closing of the Offering,
39,749,981 shares of Common Stock, consisting of 11,447,300 shares of Class A
Common Stock and 28,302,681 shares of Class B Common Stock, will be issued and
outstanding, assuming no exercise of the U.S. Underwriters' over-allotment
option, and 1,150,000 shares of Series B Preferred Stock will be issued and
outstanding. Upon completion of the Preferred Stock Offering, there will be
2,000,000 shares of Series C Preferred Stock issued and outstanding. The terms
of the Series C Preferred Stock have not yet been determined.
COMMON STOCK
The rights of the holders of the Class A Common Stock and Class B Common
Stock are substantially identical in all respects, except for voting rights and
the right of Class B Common Stock to convert into Class A Common Stock. The
holders of the Class A Common Stock are entitled to one vote per share. The
holders of the Class B Common Stock are entitled to ten votes per share except
as described below. The holders of all classes of Common Stock entitled to vote
will vote together as a single class on all matters presented to the
stockholders for their vote or approval except as otherwise required by the
general corporation laws of the State of Maryland ("Maryland General Corporation
Law"). Except for transfers to a "Permitted Transferee" (generally, related
parties of a Controlling Stockholder), any transfer of shares of Class B Common
Stock held by any of the Controlling Stockholders will cause such shares to be
automatically converted to Class A Common Stock. In addition, if the total
number of shares of Common Stock held by the Controlling Stockholders falls to
below 10% of the total number of shares of Common Stock outstanding, all of the
outstanding shares of Class B Common Stock automatically will be classified as
Class A Common Stock. In any merger, consolidation or business combination, the
consideration to be received per share by the holders of the Class A Common
Stock must be identical to that received by the holders of the Class B Common
Stock, except that in any such transaction in which shares of a third party's
common stock are distributed in exchange for the Company's Common Stock, such
shares may differ as to voting rights to the extent that such voting rights now
differ among the classes of Common Stock.
The holders of Class A Common Stock and Class B Common Stock will vote as a
single class, with each share of each class entitled to one vote per share, with
respect to any proposed (a) "Going Private" transaction; (b) sale or other
disposition of all or substantially all of the Company's assets; (c) sale or
transfer which would cause a fundamental change in the nature of the Company's
business; or (d) merger or consolidation of the Company in which the holders of
the Company's Common Stock will own less than 50% of the Common Stock following
such transaction. A "Going Private" transaction is any "Rule 13e-3 transaction,"
as such term is defined in Rule 13e-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") between the Company and (i) the
Controlling Stockholders, (ii) any affiliate of the Controlling Stockholders, or
(iii) any group of which the Controlling Stockholders are an affiliate or of
which the Controlling Stockholders are a member. An "affiliate" is defined as
(i) any individual or entity who or that, directly or indirectly, controls, is
controlled by, or is under the common control of the Controlling Stockholders;
(ii) any corporation or organization (other than the Company or a majority-owned
subsidiary of the Company) of which any of the Controlling Stockholders is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of voting securities or in which any of the Controlling
Stockholders has a substantial beneficial interest; (iii) a voting trust or
similar arrangement pursuant to which the Controlling Stockholders generally
control the vote of the shares of Common Stock held by or subject to any such
trust or arrangement; (iv) any other trust or estate in which any of the
Controlling Stockholders has a substantial
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beneficial interest or as to which any of the Controlling Stockholders serves as
a trustee or in a similar fiduciary capacity; or (v) any relative or spouse of
the Controlling Stockholders or any relative of such spouse who has the same
residence as any of the Controlling Stockholders.
Under Maryland General Corporation Law, the holders of Common Stock are
entitled to vote as a separate class with respect to any amendment of the
Amended Certificate that would increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par value of the
shares of such class, or modify or change the powers, preferences or special
rights of the shares of such class so as to affect such class adversely.
For a discussion of the effects of disproportionate voting rights upon the
holders of the Class A Common Stock, see "Risk Factors -- Voting Rights; Control
by Controlling Stockholders."
Stockholders of the Company have no preemptive rights or other rights to
subscribe for additional shares, except that the Class B Common Stock is
convertible into Class A Common Stock by the holders thereof. Except as
described in the prior sentence, no shares of any class of Common Stock have
conversion rights or are subject to redemption. Subject to the rights of any
outstanding preferred stock which may be hereafter classified and issued,
holders of Common Stock are entitled to receive dividends, if any, as may be
declared by the Company's Board of Directors out of funds legally available
therefore and to share, regardless of class, equally on a share-for-share basis
in any assets available for distribution to stockholders on liquidation,
dissolution or winding up of the Company. Under the Bank Credit Agreement, the
Indentures and certain other debt of the Company, the Company's ability to
declare Common Stock dividends is restricted. See "Dividend Policy."
PREFERRED STOCK
Series B Preferred Stock. As partial consideration for the acquisition of
assets from River City, the Company issued 1,150,000 shares of Series A
Preferred Stock to River City which has since been converted into 1,150,000
shares of Series B Preferred Stock. Each share of Series B Preferred Stock has a
liquidation preference of $100 and, after payment of this preference, is
entitled to share in distributions made to holders of shares of (plus all
accrued and unpaid dividends through the determination date) Common Stock. Each
holder of a share of Series B Preferred Stock is entitled to receive the amount
of liquidating distributions received with respect to approximately 3.64 shares
of Common Stock (subject to adjustment) less the amount of the liquidation
preference. The liquidation preference of Series B Preferred Stock is payable in
preference to Common Stock of the Company, but may rank equal to or below other
classes of capital stock of the Company. After a "Trigger Event" (as defined
below), the Series B Preferred Stock ranks senior to all classes of capital
stock of the Company as to liquidation preference, except that the Company may
issue up to $400 million of capital stock ("Senior Securities"), as to which the
Series B Preferred Stock will have the same rank. 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. See "Management -- Employment Agreements."
The holders of Series B Preferred Stock do not initially receive dividends,
except to the extent that dividends are paid to the holders of Common Stock. A
holder of shares of Series B Preferred Stock is entitled to share in any
dividends paid to holders of Common Stock, with each share of Series B Preferred
Stock allocated the amount of dividends allocated to approximately 3.64 shares
of Common Stock (subject to adjustment). In addition, after the occurrence of a
Trigger Event, holders of shares of Series B Preferred Stock are entitled to
quarterly dividends in the amount of $3.75 per share per quarter for the first
year, and in the amount of $5.00 per share per quarter after the first year.
Dividends are payable either in cash or in additional shares of Series B
Preferred Stock at the rate of $100 per share. Dividends on Series B Preferred
Stock are payable in preference to the holders of any other class of capital
stock of the Company, except for Senior Securities, which will rank senior to
the Series B Preferred Stock as to dividends until a Trigger Event, after which
Senior Securities will have the same rank as Series B Preferred Stock as to
dividends.
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The Company may redeem shares of Series B Preferred Stock for an amount equal
to $100 per share plus any accrued and unpaid dividends at any time beginning
180 days after a Trigger Event, but holders have the right to retain their
shares in which case the shares will automatically be converted into shares of
Class A Common Stock on the proposed redemption date.
Each share of Series B Preferred Stock is entitled to approximately 3.64
votes (subject to adjustment) on all matters with respect to which Class A
Common Stock has a vote, and the Series B Preferred Stock votes together with
the Class A Common Stock as a single class, except that the Series B Preferred
Stock is entitled to vote as a separate class (and approval of a majority of
such votes is required) on certain matters, including changes in the authorized
amount of Series B Preferred Stock and actions affecting the rights of holders
of 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 conversion rate is
subject to adjustment if the Company undertakes a stock split, combination or
stock dividend or distribution or if the Company issues Common Stock or
securities convertible into Common Stock at a price less than $27.50 per share.
Shares of Series B Preferred Stock issued as payment of dividends are not
convertible into Class A Common Stock and become void at the time of conversion
of a shareholder's other shares of Series B Preferred Stock. All shares of
Series B Preferred Stock remaining outstanding on May 31, 2001 (other than
shares issued as a dividend) automatically convert into Class A Common Stock on
that date.
Additional Preferred Stock. The Amended Certificate authorizes the Board of
Directors to issue, without any further action by the stockholders, additional
preferred stock in one or more series, to establish from time to time the number
of shares to be included in each series, and to fix the designations, powers,
preferences and rights of the shares of each series and the qualifications,
limitations or restrictions thereof. Although the ability of the Board of
Directors to designate and issue preferred stock provides desirable flexibility,
including the ability to engage in future public offerings to raise additional
capital, issuance of preferred stock may have adverse effects on the holders of
Common Stock including restrictions on dividends on the Common Stock if
dividends on the preferred stock have not been paid; dilution of voting power of
the Common Stock to the extent the preferred stock has voting rights; or
deferral of participation in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted to holders of the preferred
stock. In addition, issuance of preferred stock could make it more difficult for
a third party to acquire a majority of the outstanding voting stock and
accordingly may be used as an "anti-takeover" device. The Board of Directors,
however, is not aware of any pending transactions that would be affected by such
issuance.
CERTAIN STATUTORY AND CHARTER PROVISIONS
The following paragraphs summarize certain provisions of the Maryland General
Corporation Laws and the Company's Amended Certificate and by-laws. The summary
does not purport to be complete and reference is made to Maryland law and the
Company's Amended Certificate and by-laws for complete information.
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law, certain "business combinations"
(including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance of equity securities) between a
Maryland corporation and any person who beneficially owns 10% or more of the
corporation's stock (an "Interested Stockholder") must be (a) recommended by the
corporation's board of directors; and (b) approved by the affirmative vote of at
least (i) 80% of the corporation's outstanding shares entitled to vote and (ii)
two-thirds of the outstanding shares entitled to vote which are not held by the
Interested Stockholder with whom the business combination is to be effected,
unless, among other things, the corporation's common stockholders receive a
minimum price (as defined in the statute) for their shares and the consideration
is received in cash or in the same form as previously paid by the Interested
Stockholder for his shares. In addition, an Interested Stockholder or any
affiliate thereof may not engage in a "business combination" with the
corporation for a period of five (5) years following the date he becomes an
Interested
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Stockholder. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of directors of a
Maryland corporation. It is anticipated that the Company's Board of Directors
will exempt from the Maryland statute any business combination with the
Controlling Stockholders, any present or future affiliate or associate of any of
them, or any other person acting in concert or as a group with any of the
foregoing persons.
CONTROL SHARE ACQUISITIONS
The Maryland General Corporation Law provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" may not be voted
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast by stockholders excluding shares owned by the acquirer, officers of the
corporation and directors who are employees of the corporation. "Control shares"
are shares which, if aggregated with all other shares previously acquired which
the person is entitled to vote, would entitle the acquirer to vote (i) 20% or
more but less than one-third of such shares, (ii) one-third or more but less
than a majority of such shares, or (iii) a majority of the outstanding shares.
Control shares do not include shares the acquiring person is entitled to vote
because stockholder approval has previously been obtained. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition and who
has obtained a definitive financing agreement with a responsible financial
institution providing for any amount of financing not to be provided by the
acquiring person may compel the corporation's board of directors to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
Subject to certain conditions and limitations, the corporation may redeem any
or all of the control shares, except those for which voting rights have
previously been approved, for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquirer is entitled to vote a majority of the shares entitled
to vote, all other stockholders may exercise appraisal rights. The fair value of
the shares as determined for purposes of such appraisal rights may not be less
than the highest price per share paid in the control share acquisition, and
certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or excepted by or pursuant to the
articles of incorporation or by-laws of the corporation.
EFFECT OF BUSINESS COMBINATION AND CONTROL SHARE ACQUISITION STATUTES
The business combination and control share acquisition statutes could have
the effect of discouraging offers to acquire any such offer.
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
The Company's Amended Certificate provides that, to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the Company shall
have any liability to the Company or its stockholders for monetary damages. The
Maryland General Corporation Law provides that a corporation's charter may
include a provision which restricts or limits the liability of its directors or
officers to the corporation or its stockholders for money damages except (1) to
the extent that it is proved that the person actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property or services actually received or (2) to the extent
that a judgment or other final adjudication adverse to the person is entered in
a proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. In situations to
which the Amended Certificate pro
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vision applies, the remedies available to the Company or a stockholder are
limited to equitable remedies such as injunction or rescission. This provision
would not, in the opinion of the Commission, eliminate or limit the liability of
directors and officers under the federal securities laws.
INDEMNIFICATION
The Company's Amended Certificate and by-laws provide that the Company may
advance expenses to its currently acting and its former directors to the fullest
extent permitted by Maryland General Corporation Law, and that the Company shall
indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The Maryland
General Corporation Law provides that a corporation may indemnify any director
made a party to any proceeding by reason of service in that capacity unless it
is established that (1) the act or omission of the director was material to the
matter giving rise to the proceeding and (a) was committed in bad faith or (b)
was the result of active and deliberate dishonesty, or (2) the director actually
received an improper personal benefit in money, property or services, or (3) in
the case of an criminal proceeding, the director had reasonable cause to believe
that the act or omission was unlawful. The statute permits Maryland corporations
to indemnify its officers, employees or agents to the same extent as its
directors and to such further extent as is consistent with law.
The Company has also entered into indemnification agreements with certain
officers and directors which provide that the Company shall indemnify and
advance expenses to such officers and directors to the fullest extent permitted
by applicable law in effect on the date of the agreement, and to such greater
extent as applicable law may thereafter from time to time permit. Such
agreements provide for the advancement of expenses (subject to reimbursement if
it is ultimately determined that the officer or director is not entitled to
indemnification) prior to the final disposition of any claim or proceeding.
FOREIGN OWNERSHIP
Under the Amended Certificate and to comply with FCC rules and regulations,
the Company is not permitted to issue or transfer on its books any of its
capital stock to or for the account of any Alien if after giving effect to such
issuance or transfer, the capital stock held by or for the account of any alien
or aliens would exceed, individually or in the aggregate, 25% of the Company's
capital stock at any time outstanding. Pursuant to the Amended Certificate, the
Company will have the right to repurchase alien-owned shares at their fair
market value to the extent necessary, in the judgment of the Board of Directors,
to comply with the alien ownership restrictions. Any issuance or transfer of
capital stock in violation of such prohibition will be void and of no force and
effect. The Amended Certificate also provides that no Alien or Aliens shall be
entitled to vote, direct or control the vote of more than 25% of the total
voting power of all the shares of capital stock of the Company outstanding and
entitled to vote at any time and from time to time. Such percentage, however, is
20% in the case of the Company's subsidiaries which are direct holders of FCC
licenses. In addition, the Amended Certificate provides that no Alien shall be
qualified to act as an officer of the Company and no more than 25% of the total
number of directors of the Company at any time may be Aliens. The Amended
Certificate further gives the Board of Directors of the Company all power
necessary to administer the above provisions. See "Business -- Licensing and
Regulation."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Class A Common Stock is
The First National Bank of Boston.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Common Stock Offering, the Company will have
outstanding 39,749,981 shares of Common Stock consisting of 11,447,300 shares of
Class A Common Stock and 28,302,681 shares of Class B Common Stock, assuming no
exercise of the underwriters over-allotment option. Of these shares, the
5,000,000 shares of Class A Common Stock sold in the Common Stock Offering plus
an additional
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6,447,300 shares of Class A Common Stock outstanding prior to the Common Stock
Offering will be freely tradeable without restriction under the Securities Act,
unless such shares are held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act. The Company intends to register
under the Securities Act 1,259,238 shares of Class A Common Stock issuable upon
exercise of options under the Company's Incentive Stock Option Plan, the
Company's Designated Participants Stock Option Plan and the Company's Long Term
Incentive Plan. The Company has also registered 5,564,253 shares of Class A
Common Stock that are issuable upon conversion of the Series B Preferred Stock
and upon the exercise of options held by Barry Baker.
The remaining 28,302,681 shares of Common Stock outstanding upon completion
of the Common Stock Offering, consisting of the shares of Class B Common Stock
(all of which are convertible at the option of the holder into Class A Common
Stock), have not been registered under the Securities Act and will be held by
persons who may be considered affiliates of the Company and may therefore be
subject to limitations on the volume of shares that can be sold. In general,
under Rule 144 as currently in effect, any affiliate is entitled to sell within
any three-month period a number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of the same class of Common Stock
(approximately 114,423 shares immediately after the Common Stock Offering in the
case of Class A Common Stock), or (ii) the average weekly trading volume of the
Class A Common Stock during the four calendar weeks immediately preceding the
date on which the notice of sale is filed with the Commission. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), any person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days preceding a sale and who has beneficially owned the shares proposed
to be sold for at least three years (as computed under Rule 144) is entitled to
sell such shares without complying with the manner of sale, public information,
volume limitation and notice provisions of Rule 144. The Company, its officers
and directors and the holders of all of the shares of Class B Common Stock to be
outstanding after the Common Stock Offering have entered into contractual
"lock-up" agreements providing that they will not offer, sell, contract, or sell
or grant any option to purchase or otherwise dispose of the shares of Common
Stock owned by them for a period of 90 days from the date of this Prospectus
without the prior written consent of Smith Barney Inc.
Sales of substantial amounts of Common Stock or the perception that such
sales could occur may adversely affect the market price of the Class A Common
Stock.
DESCRIPTION OF INDEBTEDNESS
BANK CREDIT AGREEMENT
Since January 1, 1996, the Company, in connection with the River City
Acquisition, amended and restated the Bank Credit Agreement. The terms of the
Bank Credit Agreement as amended and restated are summarized below. The summary
set forth below does not purport to be complete and is qualified in its entirety
by reference to the provisions of the Bank Credit Agreement, which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part. In
addition, not all indebtedness of the Company is described below, only that that
has been incurred since January 1, 1996. The terms of other indebtedness of the
Company are set forth in other documents previously filed by the Company with
the Commission. See "Available Information" and "Incorporation of Certain
Documents by Reference."
The Company entered into the Bank Credit Agreement with The Chase Manhattan
Bank, N.A., as Agent, and certain lenders (collectively, the "Banks"). The Bank
Credit Agreement is comprised of three components, consisting of (i) a reducing
revolving credit facility in the amount of $250 million (the "Revolving Credit
Facility"), (ii) a term loan in the amount of $550 million (the "Tranche A Term
Loan"), and (iii) a term loan in the amount of $200 million (the "Tranche B Term
Loan" and, together with the Tranche A Term Loan, the "Term Loans"). Beginning
March 31, 1999, the commitment under the Revolving Credit Facility is subject to
mandatory quarterly reductions to the following percentages of the initial
amount: 90% at December 31, 1999, 80% at December 31, 2000, 65% at December 31,
2001, 50% at December 31, 2002
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and 0% at November 30, 2003. The Term Loans are required to be repaid by the
Company in equal quarterly installments beginning on December 31, 1996 and
ending on December 31, 2002 for the Tranche A Term Loan and November 30, 2003
for the Tranche B Term Loan.
The Company is entitled to prepay the outstanding amounts under the Revolving
Credit Facility and the Term Loans subject to certain prepayment conditions and
certain notice provisions at any time and from time to time. Partial prepayments
of the Term Loans are applied in the inverse order of maturity to the
outstanding loans on a pro rata basis. Prepaid amounts of the Term Loans may not
be reborrowed. In addition, the Company is required commencing on June 30, 1996,
to pay an amount equal to (i) 100% of the net proceeds from the sale of assets
(other than in the ordinary course of business), (ii) insurance recoveries and
condemnation proceeds not promptly applied toward the repair or replacement of
the damaged properties, (iii) 80% of net Equity Issuance (as defined in the Bank
Credit Agreement and including the Offering proceeds), net of prior approved
uses and certain other exclusions, and (iv) 66 2/3% of Excess Cash Flow (as
defined in the Bank Credit Agreement), to the Banks for application first to
prepay the Term Loans, pro rata in inverse order of maturity, and then to prepay
outstanding amounts under the Revolving Credit Facility with a corresponding
reduction in commitment. The proceeds of the Offerings will be used to repay a
portion of the amounts due under the Bank Credit Agreement. See "Use of
Proceeds."
In addition to the Revolving Credit Facility and the Term Loans, the Bank
Credit Agreement provides that the Banks may, but are not obligated to, loan the
Company up to an additional $200 million at any time prior to September 29, 1997
(the "Incremental Facility"). This additional loan, if agreed to by the Agent
and a majority of the Banks, would be in the form of a senior secured standby
multiple draw term loan. The Incremental Facility would be available to fund the
acquisition of WSYX and certain other acquisitions and would be repayable in
equal quarterly installments beginning September 30, 1997, with a final maturity
date of November 30, 2003.
The Company's obligations under the Bank Credit Agreement are secured by a
pledge of substantially all of the Company's assets, including the stock of all
of the Company's subsidiaries. The subsidiaries of the Company other than Cresap
Enterprises, Inc., Keyser Investment Group, Inc., Cunningham Communications,
Inc. and Gerstell Development Limited Partnership have guaranteed the
obligations of the Company. In addition, all subsidiaries of the Company (other
than Cresap Enterprises, Inc.) and Gerstell Development Corporation have
pledged, to the extent permitted by law, all of their assets to the Banks. The
Company has also agreed to cause the license for each television station, and
the licenses of the radio stations in each local market, to be held in a
separate, single purpose entity to be 100% owned by the respective station
subsidiary. The license subsidiary shares, LMAs and options to acquire License
Assets are pledged to the Banks to secure the obligations of the Company under
the Bank Credit Agreement.
Interest on amounts drawn under the Bank Credit Agreement is, at the option
of Company, equal to (i) the London Interbank Offered Rate plus a margin of
1.25% to 2.50% for the Revolving Credit Facility and 2.75% for the Term Loans,
or (ii) the Base Rate, which equals the Federal Funds Rate plus 1/2 of 1% of the
Prime Rate of Chase, plus a margin of zero to 1.25% for the Revolving Credit
Facility and 1.75% for the Term Loans. The Company must maintain interest rate
hedging arrangements or instruments for at least 50% of the principal amount of
the facilities.
The Bank Credit Agreement contains a number of covenants which restrict the
operations of the Company and its subsidiaries, including the ability to: (i)
merge, consolidate, acquire or sell assets; (ii) create additional indebtedness
or liens; (iii) pay dividends; (iv) enter into certain arrangements with or
investments in affiliates; (v) incur corporate expenses in excess of specified
limits; and (vi) change the business or ownership of the Company. The Company
and its subsidiaries are also prohibited under the Bank Credit Agreement from
incurring obligations relating to the acquisition of programming if, as a result
of such acquisition, the cash payments on such programming exceed specified
amounts set forth in the Bank Credit Agreement.
In addition, the Company and the subsidiaries are required to meet certain
covenants under the Bank Credit Agreement on a consolidated basis, as well as to
maintain certain financial ratios, including a total debt ratio, a senior debt
ratio, an interest expense ratio and a fixed charges ratio.
The Events of Default under the Bank Credit Agreement include, among others:
(i) the failure to pay principal, interest or other amounts when due; (ii) the
making of untrue representations and warranties in connection with the Bank
Credit Agreement: (iv) a default by the Company or the subsidiaries in the
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performance of its obligations under the Bank Credit Agreement or certain
related security documents; (v) certain events of insolvency or bankruptcy, (vi)
the rendering of certain money judgments against the Company or its
subsidiaries; (vii) the incurrence of certain liabilities to certain plans
governed by the Employee Retirement Income Security Act of 1974; (viii) a change
of control or ownership of the Company or its subsidiaries; (ix) the security
documents being terminated ceasing to be in full force and effect; (x) any
broadcast license (other than a non-material license) being terminated,
forfeited or revoked or failing to be renewed for any reason whatsoever or for
any reason a subsidiary shall at any time cease to be a licensee under any
broadcast license (other than a non-material broadcast license); (xi) any LMA or
options to acquire License Assets being terminated for any reason whatsoever;
(xii) any amendment, modification, supplement or waiver of the provisions of the
Indenture without the prior written consent of the majority lenders; and (xiii)
a payment default on any other indebtedness of the Company if the principal
amount of such indebtedness exceeds $5 million.
DESCRIPTION OF NOTES UNDER INDENTURES
The Notes were issued under Indentures dated December 9, 1993 (the "1993
Indenture") and August 28, 1995 (the "1995 Indenture" and together with the 1993
Indenture, the "Indentures"). Pursuant to the terms of the Indentures, the Notes
are guaranteed, jointly and severally, on a senior subordinated unsecured basis
by all of the Subsidiaries, except Cresap.
The 1993 Notes mature on December 15, 2003 and the 1995 Notes mature on
September 30, 2005, and are unsecured senior subordinated obligations of the
Company. The 1993 Indenture limited the aggregate principal amount of the 1993
Notes to $200.0 million and the 1995 Indenture limited the aggregate principal
amount of the 1995 Notes to $300.0 million. The 1993 Notes bear interest at the
rate of 10% per annum and are payable semi-annually on June 15 and December 15
of each year, commencing June 15, 1994, and the 1995 Notes bear interest at a
rate of 10% per annum and are payable semi-annually on September 30 and March 30
of each year, commencing March 30, 1996.
The Company issued $200.0 million of the 1993 Notes on December 9, 1993.
$100.0 million of these Notes were subsequently redeemed by the Company in March
1994 with proceeds from the sale of the original 1993 Notes that had been held
in escrow pending their expected use in connection with certain acquisitions of
the Company that were instead financed through drawings under the Bank Credit
Agreement. As of the date hereof, $100.0 million of the 1993 Notes remain
outstanding. The Company issued $300.0 million of the 1995 Notes on August 28,
1995. As of the date hereof, $300.0 million of the 1995 Notes remain
outstanding.
The 1993 Notes are redeemable in whole or in part prior to maturity at the
option of the Company on or after December 15, 1998 at certain redemption prices
specified in the 1993 Indenture, and the 1995 Notes are redeemable in whole or
in part prior to maturity at the option of the Company on or after September 30,
2000 at certain redemption prices specified in the 1995 Indenture.
The Notes are general unsecured obligations of the Company and subordinated
in right of payment to all senior debt (as defined in the Indentures), including
all indebtedness of the Company under the Bank Credit Agreement.
Upon a change of control (as defined in the Indentures), each holder of the
Notes will have the right to require the Company to repurchase such holder's
Notes at a price equal to 101% of the principal amount plus accrued interest
through the date of repurchase. In addition, the Company will be obligated to
offer repurchase Notes at 100% of their principal amount plus accrued interest
through the date of repurchase in the event of certain asset sales.
The Indentures impose certain limitations on the ability of the Company and
its Subsidiaries to, among other things, incur additional indebtedness, pay
dividends, or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, incur indebtedness that
is subordinate in right to the payment of any senior debt and senior in right of
payment to the Notes, incur liens, impose restrictions on the ability of the
subsidiary to pay dividends or make any payments to the Company, or merge or
consolidate with any other person or sell, assign, transfer, lease convey, or
otherwise dispose of all or substantially all of the assets of the Company.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Class A Common stock
by a "Non-U.S. Holder." For purposes of this discussion, a "Non-U.S. Holder"
means any individual or entity other than (i) an individual who is a citizen or
resident (as determined for U.S. federal income tax purposes) of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof, or
(iii) an estate or trust, the income of which is subject to United States
federal income taxation regardless of its source.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which may be changed either retroactively or prospectively. This discussion is
for general information only and does not address all aspects of U.S. federal
income and estate taxation that may be relevant to Non-U.S. Holders, including
certain U.S. expatriates, in light of their particular circumstances and does
not address any tax consequences arising under the laws of any state, local or
foreign taxing jurisdiction.
Prospective holders should consult their tax advisors about the particular
United States federal, state and local tax consequences to them of holding and
disposing of Class A Common Stock, as well as any tax consequences arising under
the law of any other taxing jurisdiction.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
United States at least 31 days in the calendar year and for an aggregate of at
least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
Subject to the discussion below, any dividends paid to a Non-U.S. Holder of
Class A Common Stock generally will be subject to withholding tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty. For
purposes of determining whether tax is to be withheld at a 30% rate or a reduced
rate as specified by an income tax treaty, the Company ordinarily will presume
that dividends paid to an address in a foreign country are paid to a resident of
such country absent definite knowledge that such presumption is not warranted. A
Non-U.S. Holder that is eligible for a reduced rate of United States withholding
tax pursuant to an income tax treaty may obtain a refund of any excess amounts
currently withheld by filing an appropriate claim for refund with the U.S.
Internal Revenue Service.
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to 31% backup withholding and information reporting if the
Non-U.S. Holder fails to establish an exemption or to provide a correct tax
identification number and other information to the payor.
Upon the filing of an Internal Revenue Service Form 4224 with the Company or
its dividend paying agent, there generally will be no withholding tax on
dividends that are effectively connected with the Non-U.S. Holder's conduct of a
trade or business within the United States or if a tax treaty applies, dividends
that are attributable to a U.S. permanent establishment of the Non-U.S. Holder.
Instead, the effectively connected dividends (or for treaty based holders, the
dividends attributable to a U.S. permanent establishment of the holder) will be
subject to regular U.S. income tax in the same manner as if the Non-U.S. Holder
were a U.S. resident. A Non-U.S. Holder that is a corporation with effectively
connected dividends also may be suject under certain circumstances to an
additional "branch profits tax" at a rate of 30% (or such lower rate as may be
specified by an applicable treaty) of its effectively connected earnings and
profits, subject to certain adjustments, deemed to have been repatriated from
the United States.
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Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or other agreements, the U.S. Internal revenue Service may make its
reports available to tax authorities in the recipient's country of residence.
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
In general, a Non-U.S. Holder will not be subject to U.S. federal income tax
with respect to any gain realized on a sale or other disposition of Class A
Common Stock unless (i) the gain is effectively connected with a trade or
business of such holder in the United States or, if an applicable tax treaty
applies, is attributable to a permanent establishment maintained by the Non-U.S.
Holder in the United States (and in either such case, the United States branch
profits tax may also apply upon repatriation of the gain if the Non-U.S. Holder
is a corporation); (ii) in the case of certain Non-U.S. Holders who are
non-resident alien individuals and hold the Class A Common Stock as a capital
asset, such individuals are present in the United States for 183 or more days in
the taxable year of the disposition and either the Non-U.S. Holder has a "tax
home" in the United States for federal income tax purposes or the sale is
attributable to an office or other fixed place of business maintained by the
Non-U.S. Holder in the United States; (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of U.S. tax law applicable to certain U.S.
expatriates; or (iv) the Company is or has been a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code at any
time within the shorter of the five year period preceding such disposition or
such Non-U.S. Holder's holding period, and the Non-U.S. Holder held, directly or
indirectly, at any time within the shorter of the periods described above, more
than 5% of the Class A Common Stock, provided that the Class A Common Stock is
regularly traded on an established securities market within the meaning of the
applicable Department of Treasury regulations. A corporation is generally a
"U.S. real property holding corporation" if the fair market value of its "United
States real property interests" equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. Although the Company does not believe
that it has been or is or will become a "U.S. real property holding corporation"
in the foreseeable future, any such development could have adverse U.S. tax
consequences for Non-U.S. Holders.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX ON DISPOSITIONS
OF CLASS A COMMON STOCK
If the proceeds of a disposition of Class A Common Stock are paid over by or
through a U.S. office of a broker, the payment is subject to information
reporting and to 31% backup withholding unless the disposing holder certifies
its non-U.S. status or otherwise establishes an exemption. Generally, U.S.
information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the United States through a
non-U.S. office of a non-U.S. broker. However, U.S. information reporting
requirements (but not backup withholding) will apply to a payment of disposition
proceeds outside the United States if (A) the payment is made through an office
outside the United States of a broker that is either (i) a U.S. person, (ii) a
foreign person which derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes and (B)
the broker fails to maintain documentary evidence that the holder is a Non-U.S.
Holder and that certain conditions are met, or that the beneficial owner
otherwise is entitled to an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the
U.S.Internal Revenue Service.
PROPOSED REGULATIONS
Under proposed U.S. treasury regulations that are proposed to be effective
for payments made after December 31, 1997, a Non-U.S. Holder of Class A Common
Stock would be required to provide a Form W-8 certifying its foreign status and
providing additional information in order to be entitled to a
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reduced treaty withholding rate on dividends paid by the Company or its dividend
paying agent. A Form W-8 would also be used to satisfy the documentary evidence
requirements described under "Information Reporting Requirements and Backup
Withholding Tax on Dispositions of Class A Common Stock." The proposed
regulations also provide rules that would enable non-U.S. financial
institutions, partnerships, and other entities or persons that hold Class A
Common Stock but are not considered the beneficial owner of that Stock to
qualify for reduced treaty withholding rates by using Form W-8 to provide an
intermediary withholding certificate that includes information concerning the
beneficial owner(s). In certain circumstances, the proposed regulations would
impose treaty benefit certification requirements upon the partners in a Non-U.S.
Holder that is a foreign partnership. It is uncertain whether these proposed
regulations will be adopted, and whether they will be revised prior to their
adoption.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of an interest in
the Class A Common Stock will be required to include the value thereof in his
gross estate for U.S. federal estate tax purposes, and may be subject to U.S.
federal estate tax unless an applicable estate tax treaty provides otherwise.
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UNDERWRITING
Under the terms and subject to the conditions stated in the U.S. Underwriting
Agreement dated the date of this Prospectus, each of the underwriters of the
U.S. Offering named below (the "U.S. Underwriters"), for whom Smith Barney Inc.,
Alex. Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Prudential Securities Incorporated, and Salomon Brothers Inc are
acting as the Representatives (the "Representatives"), has severally agreed to
purchase, and the Company has agreed to sell to each U.S. Underwriter, the
number of shares of Class A Common Stock which equals the number of shares set
forth opposite the name of such U.S. Underwriter below:
NUMBER
U.S. UNDERWRITER OF SHARES
- --------------------------------------------------- -----------
Smith Barney Inc...................................
Alex. Brown & Sons Incorporated....................
Donaldson, Lufkin & Jenrette Securities
Corporation........................................
Prudential Securities Incorporated.................
Salomon Brothers Inc...............................
-----------
Total............................................ 4,000,000
===========
Under the terms and subject to the conditions stated in the International
Underwriting Agreement dated the date of this Prospectus, each of the managers
of the concurrent International Offering of Class A Common Stock named below
(the "Managers"), for whom Smith Barney Inc., Alex. Brown & Sons Incorporated,
Donaldson Lufkin & Jenrette Securities Corporation, Prudential-Bache Securities,
and Salomon Brothers International Limited are acting as lead managers (the
"Lead Managers") has severally agreed to purchase, and the Company has agreed to
sell to each Manager, the number of shares of Class A Common Stock which equals
the number of shares set forth opposite the name of such Manager below:
NUMBER
MANAGER OF SHARES
- --------------------------------------------------- -----------
Smith Barney Inc...................................
Alex. Brown & Sons Incorporated ...................
Donaldson, Lufkin & Jenrette Securities
Corporation........................................
Prudential-Bache Securities (U.K.) Inc.............
Salomon Brothers International Limited.............
-----------
Total............................................ 1,000,000
===========
Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the several U.S. Underwriters and the
several Managers to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The U.S. Underwriters and the Managers are obligated to take and pay for all
shares of Class A Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The U.S. Underwriters and the Managers initially propose to offer part of the
shares of Class A Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus and part of the shares to
certain dealers at a price that represents a concession not in excess of $ ____
per share below the public offering price. The U.S. Underwriters and the
Managers may allow, and such dealers may reallow, a concession not in excess of
$ ____ per share to the other U.S. Underwriters or Managers, respectively, or to
certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed by the U.S. Underwriters and the
Managers. The Representatives have informed the Company that the U.S.
Underwriters do not intend to confirm sales to accounts over which they exercise
authority.
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The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
750,000 additional shares of Class A Common Stock at the public offering price
set forth on the cover page of this Prospectus less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
incurred in connection with the sale of the shares of Class A Common Stock
offered hereby. To the extent such option is exercised, each U.S. Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number of shares set forth
opposite each U.S. Underwriter's name in the preceding U.S. Underwriters table
bears to the total number of Class A Common Stock offered by the U.S.
Underwriters hereby.
The Company, the U.S. Underwriters and the Managers have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
The Company, its officers and directors, and the holders of all of the shares
of Class B Common Stock to be outstanding after the Offering have agreed that,
for a period of 90 days from the date of this Prospectus, they will not, without
the prior written consent of Smith Barney Inc., offer, sell, contract to sell,
or otherwise dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, Class A Common
Stock of the Company.
The U.S. Underwriters and the Managers have entered into an Agreement between
the U.S. Underwriters and the Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the 4,000,000 shares of Class A
Common Stock offered in the U.S. Offering (plus any of the 750,000 shares to
cover over-allotments): (i) it is not purchasing any such shares of Class A
Common Stock for the account of anyone other than a U.S. or Canadian Person and
(ii) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such shares of Class A Common Stock or distribute
any prospectus relating to the U.S. Offering outside the United States or Canada
or to anyone other than a U.S. or Canadian Person. In addition, each Manager has
agreed that as part of the distribution of the 1,000,000 shares of Class A
Common Stock offered in the International Offering: (i) it is not purchasing any
such shares of Class A Common Stock for the account of any U.S. or Canadian
Person and (ii) it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of such shares of Class A Common Stock or
distribute any prospectus relating to the International Offering in the United
States or Canada or to any U.S. or Canadian Person. Each Manager has also agreed
that it will offer to sell shares of Class A Common Stock only in compliance
with all relevant requirements of any applicable laws. As used herein, "U.S. or
Canadian Person" means any resident or national of the United States or Canada,
any corporation, partnership or other entity created or organized in or under
the laws of the United States or Canada, or any estate or trust the income of
which is subject to U.S. or Canadian income taxation regardless of the source of
its income (other than the foreign branch of any U.S. or Canadian Person), and
includes any United States or Canadian branch of a person other than a U.S. or
Canadian Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement or the Agreement Between the U.S.
Underwriters and the Managers, including: (i) certain purchases and sales
between the U.S. Underwriters and the Managers, (ii) certain offers, sales,
resales, deliveries or distributions to or through investment advisors or other
persons exercising investment discretion, (iii) purchases, offers or sales by a
U.S. Underwriter who is also acting as a Manager or by a Manager who is also
acting as a U.S. Underwriter and (iv) other transactions specifically approved
by the Representatives and the Managers.
Any offer of shares of Class A Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
relevant province of Canada in which such offer is made.
Each Manager has represented and agreed that (i) it has not offered or sold
and will not offer or sell in the United Kingdom, by means of any document, any
shares other than to persons whose ordinary business it is to buy or sell shares
or debentures, whether as principal or agent or in circumstances which do not
constitute an offer to the public within the meaning of the Public Offering of
Securities
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Regulation 1995, (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the shares in, from, or otherwise involving, the United
Kingdom, and (iii) it has only issued or passed on and will only issue or pass
on to any person in the United Kingdom any document received by it in connection
with the issue of the shares if that person is of a kind described in Article 11
(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1995 or is a person to whom the document may otherwise lawfully be issued
or passed on.
No action has been or will be taken in any jurisdiction by the Company or the
Managers that would permit an offering to the general public of the shares
offered hereby in any jurisdiction other than the United States.
Purchasers of the shares of Class A Common Stock offered hereby may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the offering price set forth
on the cover page of this Prospectus.
Pursuant to the Agreement Between the U.S. Underwriters and the Managers,
sales may be made between the U.S. Underwriters and the Managers of such number
of shares as may be mutually agreed. The price of any shares so sold shall be
the public offering price as then in effect for shares being sold by the U.S.
Underwriters, less all or any part of the selling concessions, unless otherwise
determined by mutual agreement. To the extent that there are sales between the
U.S. Underwriters and the Managers pursuant to the Agreement Between the U.S.
Underwriters and the Managers, the number of shares initially available for sale
by the U.S. Underwriters and by the Managers may be more or less than the number
of shares appearing on the front cover of this Prospectus.
The Underwriters and certain selling group members that currently act as
market makers for the Class A Common Stock in accordance with Rule 10b-6A under
the Exchange Act, may engage in "passive market making" in the Common Stock in
accordance with Rule 10b-6A. Rule 10b-6A permits, upon the satisfaction of
certain conditions, underwriters and selling group members participating in a
distribution that are also market makers in the security being distributed to
engage in limited market making in transactions during the period when Rule
10b-6A under the Exchange Act would otherwise prohibit such activity. In
general, under Rule 10b-6A, any Underwriter or selling group member engaged in
passive market making in the Class A Common Stock (i) may not affect
transactions in, or display bids for, the Common Stock at a price that exceeds
the highest bid for the Class A Common Stock displayed by a market maker that is
not participating in the distribution of the Class A Common Stock, (ii) may not
have net daily purchases of the Class A Common Stock that exceed 30% of its
average daily trading value in such stock for the two full consecutive calendar
months immediately preceding the filing date of the registration statement of
which this Prospectus forms a part and (iii) must identify its bids as bids made
by a passive market maker.
LEGAL MATTERS
The validity of the shares of Class A Common Stock being offered hereby and
certain other legal matters regarding the shares of Class A Common Stock will be
passed upon for the Company by Thomas & Libowitz, P.A., Baltimore, Maryland,
counsel to the Company, and by Wilmer, Cutler & Pickering, Baltimore, Maryland,
special securities counsel to the Company. Certain legal matters under the
Communications Act and the rules and regulations promulgated thereunder by the
FCC will be passed upon for the Company by Fisher Wayland Cooper Leader &
Zaragoza L.L.P., Washington. D.C. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New
York, New York, who will rely upon the opinion of Wilmer, Cutler & Pickering
with respect to all matters of Maryland law. Basil A. Thomas, a director of the
Company, is of counsel to Thomas & Libowitz, P.A.
EXPERTS
The Consolidated Financial Statements and schedules of the Company as of
December 31, 1994 and 1995 and for each of the years ended December 31, 1993,
1994 and 1995, incorporated by reference in this Prospectus and elsewhere in the
registration statement of which this Prospectus is a part have been
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audited by Arthur Andersen LLP, independent certified public accountants, as
indicated in their reports with respect thereto, and are incorporated herein by
reference in reliance upon the authority of said firm as experts in giving said
reports.
The consolidated financial statements of River City Broadcasting, L.P., as of
December 31, 1994 and 1995 and for each of the years ended December 31, 1993,
1994 and 1995, incorporated by reference in this Prospectus have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, as indicated in
their report with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing.
The financial statements of Paramount Stations Group of Kerrville, Inc. as of
December 31, 1994 and August 3, 1995 and for the year ended December 31, 1994
and the period from January 1, 1995 through August 3, 1995, incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and are incorporated herein by reference in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of KRRT, Inc. as of December 31, 1995 and for the
period from July 25, 1995 through December 31, 1995, incorporated by reference
in this Prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are incorporated herein by reference in reliance upon the authority
of said firm as experts in giving said reports.
The consolidated financial statements of Superior Communications as of
December 31, 1994 and 1995 and for each of the years ended December 31, 1994 and
1995, incorporated by reference in this Prospectus have been audited by Ernst &
Young LLP, independent certified public accountants, as indicated in their
reports with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and auditing.
The financial statements of Flint TV, Inc. as of December 31, 1994 and 1995
and for each of the years ended December 31, 1994 and 1995, incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and are incorporated herein by reference in reliance upon the
authority of the reports of said firm as experts in giving said reports.
The financial statements of Cincinnati TV 64 Limited Partnership and of
Kansas City TV 62 Limited Partnership as of December 31, 1994 and 1995 and for
each of the years ended December 31, 1994 and 1995, incorporated by reference in
this prospectus have been audited by Price Waterhouse LLP, independent certified
public accountants, as indicated in their reports with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 75 Park Place, Room 1228, New York, New York 10007 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of such material may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. at prescribed rates. Such reports and other
information can also be reviewed through the Commission's Electronic Data
Gathering, Analysis, and Retrieval System ("EDGAR") which is publicly available
though the Commission's Web site (http://www.sec.gov). In addition, the
Company's Class A
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Common Stock is listed on the Nasdaq Stock Market's National Market System, and
material filed by the Company can be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed a Registration Statement on Form S-3 (together with all
amendments thereto, the "Registration Statement") with the Commission in
Washington, D.C., in accordance with the provision of the Securities Act of 1933
as amended (the "Securities Act"), with respect to the Class A Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto. Statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of the
document so filed. Each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto may be inspected
without charge at the offices of the Commission or on EDGAR or copies thereof
may be obtained at prescribed rates from the Public Reference Section of the
Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
Sections 13(a) and 15(d) of the Exchange Act are incorporated hereby by
reference: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995; (ii) the Company's Quarterly Reports on Form 10-Q for
the quarterly periods ended March 31, 1996 and June 30, 1996 (as amended); (iii)
the Company's proxy statement filed on Schedule 14A on May 30, 1996; and (iv)
the Company's Current Report on Form 8-K dated May 17, 1995 (as amended).
All documents filed by the Company pursuant to Sections 13(a), 13(c) 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering of the Class A Common Stock offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained in
this Prospectus or in a document incorporated or deemed to be incorporated by
reference in this Prospectus will be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
A copy of any and all of the documents incorporated herein by reference
(other than exhibits unless such exhibits are specifically incorporated by
reference into any such document) will be provided without charge to any person
to whom a copy of this Prospectus is delivered, upon written or oral request.
Requests should be directed to Sinclair Broadcast Group, Inc., Attention: David
B. Amy, Chief Financial Officer, 2000 West 41st Street, Baltimore, Maryland
21211; telephone number (410) 467-5005.
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GLOSSARY OF DEFINED TERMS
"ABC" means Capital Cities/ABC, Inc.
"Amended Certificate" means the Amended and Restated Articles of
Incorporation of the Company.
"Arbitron" means Arbitron, Inc.
"ATV" means advanced television service.
"Baker Employment Agreement" means the Employment Agreement dated as of April
10, 1996 by and between Barry Baker and SCI.
"Bank Credit Agreement" means the Company's credit facility with the Banks
dated as of May 31, 1996 consisting of the Revolving Credit Facility and the
Term Loans.
"Banks" means The Chase Manhattan Bank, N.A., as agent under the Bank Credit
Agreement and certain lenders named in the Bank Credit Agreement.
"Boston Ventures" means Boston Ventures IV, Limited Partnership and Boston
Ventures IVA, Limited Partnership collectively.
"Broadcast Cash Flow" means operating income plus corporate overhead
expenses, special bonuses paid to executive officers, non-cash deferred
compensation, depreciation and amortization, including both tangible and
intangible assets and program rights, less cash payment for program rights. Cash
program payments represent cash payments made for current program payables and
sports rights and do not necessarily correspond to program usage. Special
bonuses paid to executive officers are considered unusual and non-recurring. 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 (i) does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements of
cash flow, (ii) is not a measure of financial performance under generally
accepted accounting principles and (iii) should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
"Broadcast cash flow margin" means broadcast cash flow divided by net
broadcast revenues.
"CBS" means CBS, Inc.
"CCI" means Cunningham Communications, Inc.
"Cincinnati/Kansas City Acquisitions" means the Company's acquisition of the
assets and liabilities of WSTR-TV (Cincinnati, OH) and KSMO-TV (Kansas City,
MO).
"Class A Common Stock" means the Company's Class A Common Stock, par value
$.01 per share.
"Class B Common Stock" means the Company's Class B Common Stock, par value
$.01 per share.
"Common Stock" means the Class A Common Stock and the Class B Common
Stock.
"Columbus Option" means the Company's option to purchase both the Non-License
Assets and the License Assets relating to WSYX-TV (ABC), Columbus, OH.
"Commission" means the Securities and Exchange Commission.
"Communications Act" means the Communications Act of 1934, as amended.
"Company" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Controlling Shareholders" means David D. Smith, Frederick G. Smith, J.
Duncan Smith and Robert E. Smith.
"DAB" means digital audio broadcasting.
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"DBS" means direct-to-home broadcast satellite television.
"Designated Market Area" or "DMA" means one of the 211 generally-recognized
television market areas.
"DOJ" means the United States Justice Department.
"DTV" means digital television.
"EDGAR" means the Commission's Electronic Data Gathering, Analysis and
Retrieval System.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCC" means the Federal Communications Commission.
"FCN" means the Fox Children's Network.
"Flint Acquisition" means the Company's acquisition of the assets of
WSMH-TV (Flint, Michigan).
"Fox" means Fox Broadcasting Company.
"FSFA" means FSF Acquisition Corporation, the parent of the owner and
operator of WRDC-TV in Raleigh, Durham, acquired by the Company in August 1994.
"Gerstell" means Gerstell Development Corporation.
"Gerstell LP" means Gerstell Development Limited Partnership.
"Glencairn" means Glencairn, Ltd. and its subsidiaries.
"Greenville Stations" means the radio stations WFBC-FM, WORD-AM, WFBC-AM,
WSPA-AM, WSPA-FM, WOLI-FM, and WOLT-FM located in the Greenville/Spartanburg,
South Carolina area.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act, as amended.
"Incremental Facility" means the loan by the Banks of up to an additional
$200.0 million to the Company pursuant to the Bank Credit Agreement at any time
prior to September 29, 1997.
"Indentures" means the indentures relating to the Notes.
"Independent" means a station that is not affiliated with any of ABC, CBS,
NBC, FOX, UPN or Warner Brothers.
"International Offering" means the offering of 1,000,000 shares of Class A
Common Stock outside the United States by the Managers.
"JSAs" means joint sales agreements pursuant to which an entity has the
right, for a fee paid to the owner and operator of a station, to sell
substantially all of the commercial advertising on the station.
"KIG" means Keyser Investment Group.
"KSC" means Keymarket of South Carolina, Inc.
"License Assets" means the television and radio station assets essential for
broadcasting a television or radio signal in compliance with regulatory
guidelines, generally consisting of the FCC license, transmitter, transmission
lines, technical equipment, call letters and trademarks, and certain furniture,
fixtures and equipment.
"License Assets Option" means the Company's option to purchase the License
Assets of KDNL-TV (ABC), St. Louis, MO; KOVR-TV (CBS), Sacramento, CA; WTTV-TV
(UPN) and WTTK-TV (UPN), Indianapolis, IN; WLOS-TV (ABC), Asheville, NC;
WFBC-TV(Ind), Greenville/Spartanburg, South Carolina; KABB-TV(Fox), San
Antonio, TX; and KDSM-TV (Fox), Des Moines, IA.
"LMAs" means program services agreements, time brokerage agreements or local
marketing agreements pursuant to which an entity provides programming services
to television or radio stations that are not owned by the entity.
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"Major Networks" means each of ABC, CBS or NBC, singly or collectively.
"Maryland General Corporation Law" means the general corporation laws of the
State of Maryland.
"MSA" means the Metro Survey Area as defined by Arbitron.
"NASD" means National Association of Securities Dealers, Inc.
"MMDS" means multichannel multipoint distribution services.
"NBC" means the National Broadcasting Company.
"Nielsen" means the A.C. Nielsen Company Station Index dated May, 1996.
"1995 Notes" means the Company's 10% Senior Subordinated Notes due in
2005.
"1996 Act" means the Telecommunications Act of 1996.
"1993 Notes" means the Company's 10% Senior Subordinated Notes due in
2003.
"Non-License Assets" means the assets relating to operation of a television
or radio station other than License Assets.
"Notes" means the 1993 Notes and the 1995 Notes.
"Offering" means the U.S. Offering and the International Offering.
"Offerings" means the Offering and the Concurrent Offering.
"Operating cash flow" means 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 flow, 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.
"Operating cash flow margin" means the operating cash flow divided by net
broadcast revenues.
"Peoria/Bloomington Acquisition" means the acquisition by the Company of the
assets of WYZZ-TV on July 1, 1996.
"Permitted Transferee" means (i) any Controlling Stockholder, (ii) the estate
of a Controlling Stockholder, (iii) the spouse or former spouse of a Controlling
Stockholder, (iv) any lineal descendant of a Controlling Stockholder, any spouse
of any such lineal descendant, a Controlling Stockholder's grandparent, parent,
brother or sister, or a Controlling Stockholder's spouse's brother or sister,
(v) any guardian or custodian (including a custodian for purposes of the Uniform
Gift to Minors Act or Uniform Transfers to Minors Act) for, or any conservator
or other legal representative of, one or more Permitted Transferees, (vi) any
trust or savings or retirement account, including an individual retirement
account for purposes of federal income tax laws, whether or not involving a
trust, principally for the benefit of one or more Permitted Transferees,
including any trust in respect of which a Permitted Transferee has any general
or special testamentary power of appointment or general or special
non-testamentary power of appointment which is limited to any other Permitted
Transferee, (vii) the Company, (viii) any employee benefit plan or trust
thereunder sponsored by the Company or any of its subsidiaries, (ix) any trust
principally for the benefit of one or more of the persons referred to in (i)
through (iii) above, (x) any corporation, partnership or other entity if all of
the beneficial ownership is held by one or more of the persons referred to in
(i) through (iv) above, and (xi) any broker or dealer in securities, clearing
house, bank, trust company, savings and loan association or other financial
institution which holds Class B Common Stock for the benefit of a Controlling
Stockholder or Permitted Transferee thereof.
"Preferred Stock Offering" means the offering of Series C Preferred Stock of
the Company expected to be completed at or about the same time as the Offering.
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"Revolving Credit Facility" means the reducing revolving credit facility
under the Bank Credit Agreement in the principal amount of $250.0 million.
"River City" means River City Broadcasting, L.P.
"River City Acquisition" means the Company's acquisition from River City and
the owner of KRRT of certain Non-License Assets, options to acquire certain
License and Non-License Assets and rights to provide programming or sales and
marketing for certain stations, which was completed May 31, 1996.
"SCI" means Sinclair Communications, Inc., a wholly-owned subsidiary of the
Company that will hold all of the broadcast operations of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Securities" means up to $400.0 million of stock that may be issued by
the Company, as to which the Series B Preferred Stock will have the same rank.
"Series A Preferred Stock" means the Company's Series A Exchangeable
Preferred Stock, par value $.01, each share of which has been exchanged for a
share of the Company's Series B Convertible Preferred Stock.
"Series B Preferred Stock" means the Company's Series B Convertible Preferred
Stock, par value $.01.
"Series C Preferred Stock" means the Company's Series C Preferred Stock, par
value $.01.
"Sinclair" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Stockholder Affiliates" means certain non-Company entities owed and
controlled by the Controlling Stockholders, including CCI, Gerstell, Gerstell LP
and KIG.
"Stockholders' Agreement" means the stockholders agreement by and among the
Controlling Stockholders.
"Subsidiaries" mean the wholly-owned subsidiaries of Sinclair Broadcast
Group, Inc.
"Superior Acquisition" means the Company's acquisition of the stock of
Superior Communications, Inc.
"TBAs" means time brokerage agreements; see definition of "LMAs."
"Term Loans" means the Tranche A Term Loan and the Tranche B Term Loan
collectively.
"Tranche A Term Loan" means the term loan under the Bank Credit Agreement in
the principal amount of $550.0 million.
"Tranche B Term Loan" means the term loan under the Bank Credit Agreement in
the principal amount of $200.0 million.
"UHF" means ultra-high frequency.
"UPN" means United Paramount Television Network Partnership.
"U.S. Offering" means the offering of 4,000,000 shares of Class A Common
Stock in the United States by the U.S. Underwriters.
"VHF" means very-high frequency.
"Voting Agreement" means the voting agreement dated as of April 10, 1996 by
and among the Controlling Stockholders, Barry Baker and Boston Ventures.
"Warner Brothers" means Warner Brothers, Inc.
G-4
<PAGE>
No dealer, salesperson or other
person has been authorized to give any
information or to make any
representations other than those
contained in this Prospectus and, if 5,000,000 SHARES
given or made, such information or
representations must not be relied upon
as having been authorized by the Company
or any Underwriter. This Prospectus does
not constitute an offer to sell or a [Sinclair Broadcast Group logo]
solicitation of an offer to buy the
shares of Class A Common Stock by anyone
in any jurisdiction in which the offer
or solicitation is not authorized, or in
which the person making the offer or
solicitation is not qualified to do so,
or to any person to whom it is unlawful
to make such offer or solicitation.
Neither the delivery of this Prospectus
nor any sale made hereunder shall create
any implication that information
contained herein is correct as of any
time subsequent to this date hereof.
TABLE OF CONTENTS
PAGE NO. CLASS A COMMON STOCK
- ----------
Prospectus Summary................... 3
Risk Factors.........................10
Use of Proceeds......................19
Price Range of Common Stock..........20
Dividend Policy......................20
-------------------------------
Capitalization.......................21 PROSPECTUS
SEPTEMBER ----, 1996
Selected Consolidated Financial -------------------------------
Information....................... 22
Pro Forma Consolidated Financial
Information..........................24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................33
Industry Overview....................40
Business.............................42
Management...........................66
Certain Transactions.................71
Description of Capital Stock.........71
Description of Indebtedness..........77 SMITH BARNEY INC.
ALEX. BROWN & SONS
Certain U.S. Federal Tax
Considerations for Non-U.S. Holders INCORPORATED
of Common Stock....................80
Donaldson, Lufkin & Jenrette
Underwriting.........................83 Securities Corporation
Legal Matters........................85 Prudential Securities Incorporated
Salomon Brothers Inc
Experts..............................85
Available Information................86
<PAGE>
[Alternate page for International Prospectus]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED SEPTEMBER __, 1996
PROSPECTUS
5,000,000 SHARES
[logo] SBG
CLASS A COMMON STOCK
PAR VALUE $.01 PER SHARE
All of the shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock") offered hereby are being sold by Sinclair Broadcast
Group, Inc. (the "Company"). Of the 5,000,000 shares of Class A Common Stock
offered hereby, 1,000,000 shares are being offered in an international offering
outside of the United States and Canada (the "International Offering") by the
Managers (as defined) and 4,000,000 shares are being offered in a concurrent
offering in the United States and Canada (the "U.S. Offering" and, together with
the International Offering, the "Common Stock Offering") by the U.S.
Underwriters (as defined). The initial public offering price and the aggregate
underwriting discount per share will be identical for both offerings. See
"Underwriting."
The Class A Common Stock is traded on the Nasdaq National Market System under
the symbol "SBGI." On September 17, 1996, the last reported sale price of the
Class A Common Stock as reported by Nasdaq was $39 1/2 per share. See "Price
Range of Common Stock."
The Company's outstanding capital stock consists of the Class A Common Stock,
shares of Class B Common Stock, par value $.01 per share (the "Class B Common
Stock") and shares of the Series B Convertible Preferred Stock, par value $.01
per share (the "Series B Preferred Stock"). The rights of the Class A Common
Stock and the Class B Common Stock (collectively, the "Common Stock") are
identical, except that each share of Class A Common Stock, entitles the holder
thereof to one vote in respect of matters submitted for the vote of holders of
Common Stock, whereas each share of Class B Common Stock entitles the holder
thereof to one vote on "going private" and certain other transactions and to ten
votes on other matters. Immediately after the Offering, the Controlling
Stockholders (as defined) will have the power to vote 100% of the outstanding
shares of Class B Common Stock representing, together with the Class A Common
Stock held by the Controlling Stockholders, approximately 94.8% of the aggregate
voting power of the Company's capital stock, assuming no exercise of the
Underwriters' overallotment option. Each share of Class B Common Stock converts
automatically into one share of Class A Common Stock upon sale or other transfer
to a party other than certain affiliates of the Controlling Stockholders. Each
share of Series B Preferred Stock has a liquidation preference of $100, is
convertible into 3.64 shares of Class A Common Stock (subject to adjustment),
and has 3.64 votes on all matters on which shares of Common Stock have a vote.
See "Description of Capital Stock."
The Company intends to offer 2,000,000 shares of Series C Preferred Stock,
par value $.01 per share, with an aggregate liquidation value of $200 million,
by a separate prospectus (the "Preferred Stock Offering," and with the Common
Stock Offering, the "Offerings"). The consummation of the Common Stock Offering
and the Preferred Stock Offering are not contingent upon each other.
See "Risk Factors" beginning on page 10 for a discussion of certain factors
that should be considered by prospective purchasers of the Class A Common Stock
offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------------------------------------------------------
Price to Underwriting Discounts Proceeds to
the Public and Commissions (1) the Company (2)
- --------------------------------------------------------------------------------
Per Share $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Managers and the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Common Stock Offering payable by the
Company estimated at $1,000,000.
(3) The Company has granted the U.S. Underwriters a 30-day option to
purchase up to an aggregate of 750,000 additional shares of Class A Common Stock
on the same terms as set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $___________,
$_________ and $___________, respectively. See "Underwriting."
The shares of Class A Common Stock are being offered by the several Managers
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the Class A
Common Stock will be available for delivery on or about ____ __, 1996, at the
offices of Smith Barney Inc., 333 West 34th Street, New York, New York 10001.
SMITH BARNEY INC.
ALEX. BROWN & SONS
International
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
PRUDENTIAL-BACHE SECURITES
Salomon Brothers International Limited
, 1996
<PAGE>
No dealer, salesperson or other
person has been authorized to give any
information or to make any 5,000,000 SHARES
representations other than those
contained in this Prospectus and, if
given or made, such information or
representations must not be relied upon
as having been authorized by the
Company or any Underwriter. This
Prospectus does not constitute an offer
to sell or a solicitation of an offer
to buy the shares of Class A Common IMAGE OMITTED
Stock by anyone in any jurisdiction in
which the offer or solicitation is not
authorized, or in which the person
making the offer or solicitation is not
qualified to do so, or to any person to
whom it is unlawful to make such offer
or solicitation. Neither the delivery (SEE NARRATIVE DESCRIPTION BELOW OR IN
of this Prospectus nor any sale made "APPENDIX FOR GRAPHICS AND IMAGES".)
hereunder shall create any implication [Sinclair Broadcast Group logo]
that information contained herein is PICKUP: "P1"
correct as of any time subsequent to
this date hereof. =====================================
IMAGE: "SBG_EPS"
TABLE OF CONTENTS
=====================================
PAGE NO.
----------
Prospectus Summary.................. 3
Risk Factors........................ 10 CLASS A COMMON STOCK
Use of Proceeds..................... 19
Price Range of Common Stock......... 20 PROSPECTUS
Dividend Policy..................... 20 SEPTEMBER ----, 1996
Capitalization...................... 21
Selected Consolidated Financial SMITH BARNEY INC.
Information ....................... 22 ALEX. BROWN & SONS
Pro Forma Consolidated Financial
Information........................ 24 INTERNATIONAL
Management's Discussion and Analysis
of Financial Condition and Results Donaldson, Lufkin & Jenrette
of Operations...................... 33 Securities Corporation
Industry Overview................... 40
Business............................ 42 Prudential-Bache Securities
Management.......................... 66 Salomon Brothers
Certain Transactions................ 71 International Limited
Description of Capital Stock........ 71
Description of Indebtedness......... 77
Certain U.S. Federal Tax
Considerations for Non-U.S. Holders
of Common Stock.................... 80
Underwriting........................ 83
Legal Matters....................... 85
Experts............................. 85
Available Information............... 86
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses payable by the Company in connection
with the issuance and distribution of the securities being registered other than
any underwriting compensation.
ITEM AMOUNT
- ------------------------------------------------- ------------
SEC Registration Fee............................. $ 73,858
NASD fee......................................... 21,919
Nasdaq fee....................................... 17,500
Blue Sky fees and expenses (including legal
fees)............................................ 25,000
Printing and engraving expenses.................. 350,000
Legal fees and expenses.......................... 275,000
Accounting fees and expenses..................... 200,000
Transfer agent and registrar fees................ 15,000
Miscellaneous fees and expenses.................. 21,723
------------
Total.......................................... $1,000,000
============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Amendment and Restatement and By-Laws of the Company state
that the Company shall indemnify, and advance expenses to, its directors and
officers whether serving the Company or at the request of another entity to the
fullest extent permitted by and in accordance with Section 2-418 of the Maryland
General Corporation Law. Section 2-418 contains certain provisions which
establish that a Maryland corporation may indemnify any director or officer made
party to any proceeding by reason of service in that capacity, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by the director or officer in connection with such proceeding unless it
is established that the director's or officer's act or omission was material to
the matter giving rise to the proceeding and the director or officer (i) acted
in bad faith or with active and deliberate dishonesty; (ii) actually received an
improper personal benefit in money, property or services; or (iii) in the case
of a criminal proceeding, had reasonable cause to believe that his act was
unlawful. However, if the proceeding was one by or in the right of the
corporation, indemnification may not be made if the director or officer is
adjudged to be liable to the corporation. The statute also provides for
indemnification of directors and officers by court order.
Section 12 of Article II of the Amended By-Laws of Sinclair Broadcast
Group, Inc. provides as follows:
A director shall perform his duties as a director, including his duties as a
member of any Committee of the Board upon which he may serve, in good faith, in
a manner he reasonably believes to be in the best interests of the Corporation,
and with such care as an ordinarily prudent person in a like position would use
under similar circumstances. In performing his duties, a director shall be
entitled to rely on information, opinions, reports, or statements, including
financial statements and other financial data, in each case prepared or
presented by:
(a) one or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters presented;
(b) counsel, certified public accountants, or other persons as to matters
which the director reasonably believes to be within such person's professional
or expert competence; or
II-1
<PAGE>
(c) a Committee of the Board upon which he does not serve, duly designated in
accordance with a provision of the Articles of Incorporation or the By-Laws, as
to matters within its designated authority, which Committee the director
reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted. A person who performs his duties in
compliance with this Section shall have no liability by reason of being or
having been a director of the Corporation.
The Company has also entered into indemnification agreements with certain
officers and directors which provide that the Company shall indemnify and
advance expenses to such officers and directors to the fullest extent permitted
by applicable law in effect on the date of the agreement, and to such greater
extent as applicable law may thereafter from time to time permit. Such
agreements provide for the advancement of expenses (subject to reimbursement if
it is ultimately determined that the officer or director is not entitled to
indemnification) prior to the disposition of any claim or proceeding.
The Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement, provides for indemnification by the Underwriters of the Registrant's
directors, officers and controlling persons against certain liabilities that may
be incurred in connection with the Offering, including liabilities under the
Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1993 the Registrant has made no unregistered offers or sales
of its securities except the issuance of 1,150,000 shares of Series A Preferred
Stock in connection with the River City Acquisition. These shares (which were
exchanged for a like number of shares of Series B Preferred Stock and are
convertible into 4,181,818 shares of Class A Common Stock) were issued in a
transaction not involving any public offering exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ---------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 *Form of Underwriting Agreements among Sinclair Broadcast Group, Inc., Smith Barney Inc., Alex. Brown & Sons Incorporated,
Donaldson Lufkin & Jenrette Securities Corporation, Prudential Securities Incorporated and Salomon Brothers Inc
4.1 Form of Class A Common Stock Certificate (Incorporated by reference to the Company's registration statement on Form S-1, No.
33-90682)
5.1 *Form of Opinion of Wilmer, Cutler & Pickering (including the consent of such firm) regarding legality of securities being
offered
12.1 Statements Regarding Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends.
21.1 Subsidiaries of the Company
23.1 Consent of Wilmer, Cutler & Pickering (incorporated herein by reference to Exhibit 5.1 hereto)
23.2 Consent of Arthur Andersen LLP, independent certified public accountants
23.3 Consent of KPMG Peat Marwick LLP, independent certified public accountants
23.4 Consent of Price Waterhouse LLP, independent certified public accountants, relating to Financial Statements of Kansas City TV
62 Limited Partnership
23.5 Consent of Price Waterhouse LLP, independent certified public accountants, relating to financial statements of Cincinnati TV
64 Limited Partnership
23.6 Consent of Ernst & Young LLP, independent certified public accountants
23.7 Consent of Barry Baker to be named as a Director
23.8 Consent of Roy F. Coppedge, III to be named as a Director
24.1 Powers of Attorney for David D. Smith, Frederick G. Smith, J. Duncan Smith, Robert E. Smith, Basil A. Thomas, William Brock,
Lawrence McCanna and David B. Amy (See signature pages to this Registration Statement on Form S-3.)
</TABLE>
*To be filed by amendment.
II-2
<PAGE>
(b) Financial Statement Schedules:
SCHEDULE
NUMBER DESCRIPTION PAGE NO.
- ----------- -------------------------------- ----------
VALUATION AND QUALIFYING
II Accounts S-3
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling persons of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Baltimore, Maryland on the 11th day of September,
1996.
SINCLAIR BROADCAST GROUP, INC.
By: /s/ David D. Smith
----------------------------------
David D. Smith
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints David D. Smith and
David B. Amy as his or her true and lawful attorneys-in-fact each acting alone,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities to sign any or all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully for all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact, or their
substitutes, each acting alone, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------- ---------------------------------------- -----------------------
<S> <C> <C>
/s/ David D. Smith Chairman of the Board, September 11, 1996
David D. Smith Chief Executive Officer,
President and Director
(Principal executive officer)
/s/ David B. Amy Chief Financial Officer September 11, 1996
David B. Amy (Principal Financial and Accounting
Officer)
/s/ Frederick G. Smith
Frederick G. Smith Director September 11, 1996
/s/ J. Duncan Smith
J. Duncan Smith Director September 11, 1996
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ---------------------------------------- -----------------------
<S> <C> <C>
/s/ Robert E. Smith Director September 11, 1996
Robert E. Smith
/s/ Basil A. Thomas Director September 11, 1996
Basil A. Thomas
/s/ William E. Brock Director September 11, 1996
William E. Brock
/s/ Lawrence E. McCanna Director September 11, 1996
Lawrence E. McCanna
</TABLE>
II-5
<PAGE>
SCHEDULE II
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------ ------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1993 Allowance for doubtful
accounts............................ $472 $255 $ -- $222 $ 505
1994 Allowance for doubtful
accounts............................ 505 445 -- 95 855
1995 Allowance for doubtful
accounts............................ 855 978 -- 767 1,066
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ------------------------------------------------------------------------- ------
<S> <C> <C>
1.1* Form of Underwriting Agreements among Sinclair Broadcast Group, Inc.,
Smith Barney Inc., Alex. Brown & Sons Incorporated, Donaldson Lufkin &
Jenrette Securities Corporation, Prudential Securities Incorporated
and Salomon Brothers Inc
4.1 Form of Class A Common Stock Certificate (Incorporated by reference to
the Company's registration statement on Form S-1, No. 33-90682)
5.1* Form of Opinion of Wilmer, Cutler & Pickering (including the consent
of such firm) regarding legality of securities being offered
12.1 Statements Regarding Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends.
21.1 Subsidiaries of the Company
23.1 Consent of Wilmer, Cutler & Pickering (incorporated herein by
reference to Exhibit 5.1 hereto)
23.2 Consent of Arthur Anderson LLP, independent certified public
accountants
23.3 Consent of KPMG Peat Marwick LLP, independent certified public
accountants
23.4 Consent of Price Waterhouse LLP, independent certified public
accountants, relating to Financial Statements of Kansas City TV 62
Limited Partnership
23.5 Consent of Price Waterhouse LLP, independent certified public
accountants, relating to financial statements of Cincinnati TV 64
Limited Partnership
23.6 Consent of Ernst & Young LLP, independent certified public accountants
23.7 Consent of Barry Baker to be named as a Director
23.8 Consent of Roy F. Coppedge, III to be named as a Director
24.1 Powers of Attorney for David D. Smith, Frederick G. Smith, J. Duncan
Smith, Robert E. Smith, Basil A. Thomas, William Brock, Lawrence
McCanna and David B. Amy (See signature pages to this Registration
Statement on Form S-3.)
</TABLE>
*To be filed by amendment.
EXHIBIT 12.1
STATEMENT REGARDING COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
PRO FORMA
1991 1992 1993 1994 1995 1995
--------- --------- --------- -------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest on debt and amortization of debt
discount and deferred financing costs . $ 8,895 $ 12,997 $ 12,852 $ 25,418 $ 39,253 $ 90,010
Preferred Dividends ..................... -- -- -- -- -- 21,500
Total ................................... 8,895 12,997 12,852 25,418 39,253 111,510
========= ============ ============ =========== ============ ===========
Earnings
Net income (loss) before taxes and
extraordinary items ................... (6,240) (5,840) 922 (3,387) 10,188 (30,596)
Add back--
Fixed charges ......................... 8,895 12,997 12,852 25,418 39,253 90,010
--------- ------------ ------------ ----------- ------------ -----------
Total ................................... 2,655 7,157 13,774 22,031 49,441 59,414
--------- ------------ ------------ ----------- ------------ -----------
Ratio of Earnings to Fixed Charges ...... -- -- 1.1x -- 1.3x --
Ratio of Earnings to Fixed Charges and
Preferred Dividends .................. -- -- -- -- -- --
</TABLE>
SIX MONTHS ENDED JUNE 30,
-------------------------
PRO FORMA
1995 1996 1996
--------- --------- -----------
(UNAUDITED)
Fixed Charges
Interest on debt and amortization of debt
discount and deferred financing costs . $ 19,655 $ 27,646 $ 44,530
Preferred Dividends ..................... -- -- 10,750
----------- -----------
Total ................................... 19,655 27,646 55,280
========== =========== ===========
Earnings
Net income (loss) before taxes and
extraordinary items ................... 969 (1,890) (11,631)
Add back--
Fixed charges ......................... 19,655 27,646 44,530
---------- ----------- -----------
Total ................................... 20,624 25,756 32,899
---------- ----------- -----------
Ratio of Earnings to Fixed Charges ...... 1.0x -- --
Ratio of Earnings to Fixed Charges and
Preferred Dividends .................. -- -- --
EXHIBIT 21.1
SINCLAIR BROADCAST GROUP AND ITS SUBSIDIARIES
- -SINCLAIR BROADCAST GROUP, INC.
-Sinclair Communications, Inc.
-Chesapeake Television, Inc.
-Chesapeake Television Licensee, Inc
-WTTE, Channel 28, Inc.
-WTTE, Channel 28 Licensee, Inc.
-WPGH, Inc.
-WPGH Licensee, Inc.
-WTTO, Inc.
-WTTO Licensee, Inc.
-WCGV, Inc.
-WCGV Licensee, Inc.
-WLFL, Inc.
-WLFL Licensee, Inc.
-FSF TV, Inc.
-WTVZ, Inc.
-WTVZ Licensee, Inc.
-WDBB, Inc.
-Tuscaloosa Broadcasting, Inc.
-WSMH, Inc.
-WSMH Licensee, Inc.
-WYZZ, Inc.
-WYZZ Licensee, Inc.
-KSMO, Inc.
-KSMO Licensee, Inc.
-WSTR, Inc.
-WSTR Licensee, Inc.
-SCI - Sacramento, Inc.
-SCI - Sacramento Licensee, Inc.
-SCI - Indiana, Inc.
-SCI - Indiana Licensee, Inc.
-KDSM, Inc.
-KDSM Licensee, Inc.
<PAGE>
-KDNL, Inc.
-KDNL Licensee, Inc.
-WLOS, Inc.
-WLOS Licensee, Inc.
-KABB, Inc.
-KABB Licensee, Inc.
-Sinclair Radio of Buffalo, Inc.
-Sinclair Radio of Buffalo Licensee, Inc.
-Sinclair Radio of Wilkes-Barre, Inc.
-Sinclair Radio of Wilkes-Barre Licensee, Inc.
-Sinclair Radio of Greenville, Inc.
-Sinclair Radio of Greenville Licensee, Inc.
-Sinclair Radio of Nashville, Inc.
-Sinclair Radio of Nashville Licensee, Inc.
-Sinclair Radio of Memphis, Inc.
-Sinclair Radio of Memphis Licensee, Inc.
-Sinclair Radio of New Orleans, Inc.
-Sinclair Radio of New Orleans Licensee, Inc.
-Sinclair Radio of Los Angeles, Inc.
-Sinclair Radio of Los Angeles Licensee, Inc.
-Sinclair Radio of St. Louis, Inc.
-Sinclair Radio of St. Louis Licensee, Inc.
-Sinclair Radio of Albuquerque, Inc.
-Sinclair Radio of Albuquerque Licensee, Inc.
-FSF TV, Inc.
-Superior Communications of Oklahoma, Inc.
-Superior OK License Corp.
-Superior Communications of Kentucky, Inc.
-Superior KY License Corp.
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
September 11, 1996
Baltimore, Maryland /s/ ARTHUR ANDERSEN LLP
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Partners
River City Broadcasting, L.P.:
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Sinclair Broadcast Group, Inc. of our report dated February 23, 1996
with respect to the consolidated balance sheets of River City Broadcasting, L.P.
as of December 31, 1994 and 1995 and the related consolidated statements of
operations partners' capital (deficit), and cash flows and for each of the years
in the three-year period ended December 31, 1995 which report appears in the
form 8-K/A of Sinclair Broadcast Group, Inc. dated May 9, 1996 and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
September 11, 1996
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of Sinclair
Broadcast Group, Inc. of our report dated March 22, 1996 relating to the
financial statements of Kansas City TV 62 Limited Partnership, which appears in
the Current Report on Form 8-K of Sinclair Broadcast Group, Inc. dated May 9,
1996.
/s/ Price Waterhouse LLP
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Price Waterhouse LLP
Boston, Massachusetts
September 11, 1996
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of Sinclair
Broadcast Group, Inc. of our report dated March 22, 1996 relating to the
financial statements of Cincinnati TV 64 Limited Partnership, which appears in
the Current Report on Form 8-K of Sinclair Broadcast Group, Inc. dated May 9,
1996.
/s/ Price Waterhouse LLP
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Price Waterhouse LLP
Boston, Massachusetts
September 11, 1996
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 23, 1996, with respect to the financial
statements of Superior Communication Group, Inc. incorporated by reference in
the Registration Statement on Form S-3 and related Prospectus of Sinclair
Broadcast Group, Inc.
/s/ Ernst & Young LLP
-----------------------
Pittsburgh, Pennsylvania
September 10, 1996
CONSENT TO BE NAMED AS A DIRECTOR
I hereby consent to be named as a person who will become a director of
Sinclair Broadcst Group, Inc. (the "Company") at such time as permitted by
applicable Federal Communications Commission rules and regulations in
registration statements to be filed with the Securities and Exchange Commission
by the Company relating to the following:
the sale by the Company of up to 5,750,000 shares of Class A Common Stock of
the Company, and
the resale of shares of Class A Common Stock of the Company acquired by
certain selling stockholders upon conversion of shares of Series B Preferred
Stock of the Company.
Dated: September 18, 1996 /s/ Barry Baker
----------------------------
Barry Baker
CONSENT TO BE NAMED AS A DIRECTOR
I hereby consent to be named as a person who will become a director of
Sinclair Broadcast Group, Inc. (the "Company") at such time as permitted by
applicable Federal Communications Commission rules and regulations in
registration statements to be filed with the Securities and Exchange Commission
by the Company relating to the following:
the sale by the Company of up to 5,750,000 shares of Class A Common Stock of
the Company, and
the resale of shares of Class A Common Stock of the Company acquired by
certain selling stockholders upon conversion of shares of Series B Preferred
Stock of the Company.
Dated: September 18, 1996 /s/ Roy F. Coppedge, III
----------------------------
Roy F. Coppedge, III
