AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996
REGISTRATION NO. 333-12257
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3/A
AMENDMENT NO. 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
SINCLAIR BROADCAST GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
-----------------------
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. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED (A) PER UNIT PRICE REGISTRATION FEE
- -------------------- -------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Class A Common Stock.. 5,750,000 $37.25 (b) $214,187,500 $73,858 (c)
Class A Common Stock.. 1,437,500 $39.66 (d) $ 57,055,859 $17,275
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes 937,500 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.
(c) Previously paid.
(d) 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
October 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 OCTOBER 18, 1996
PROSPECTUS
6,250,000 SHARES
SBG
SINCLAIR BROADCAST GROUP
==============
CLASS A COMMON STOCK
PAR VALUE $.01 PER SHARE
------------------------
Of the shares of Class A Common Stock, par value $.01 per share (the "Class A
Common Stock") offered hereby, 5,000,000 shares are being sold by Sinclair
Broadcast Group, Inc. (the "Company") and 1,250,000 shares are being sold by
certain stockholders of the Company ("Selling Stockholders"). See "Selling
Stockholders" and "Underwriting." The Company will not receive any part of the
proceeds from the sale of shares by the Selling Stockholders. Of the 6,250,000
shares of Class A Common Stock offered hereby, 5,000,000 shares are being
offered in the United States and Canada (the "U.S. Offering") by the U.S.
Underwriters (as defined) and 1,250,000 shares are being offered in a concurrent
international offering (the "International Offering" and, together with the U.S.
Offering, the "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 October 11, 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 94.3% 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."
------------------------
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.
<TABLE>
<CAPTION>
================================================================================
Price to Underwriting Discounts Proceeds to
the Public and Commissions (1) the Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ..... $ $ $
- --------------------------------------------------------------------------------
Total(3) ...... $ $ $
================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have 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 937,500 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
, 1996 Salomon Brothers Inc
<PAGE>
[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 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 direct and indirect 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 provides
programming services to, 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>
- 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
Convertible Preferred Stock and 1,382,435 stock options 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."
- 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.
- Flint Acquisition. On February 27, 1996, the Company acquired the
assets of WSMH-TV (Flint, Michigan) (the "Flint Acquisition") for
approximately $35.4 million by exercising options acquired in May
1995.
- 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.
- 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 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.
4
<PAGE>
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 five-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."
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:
<TABLE>
<CAPTION>
MARKET
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION
- --------------------------------- -------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
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
WBFF O&O 45 FOX
Baltimore, Maryland.............. 23 WNUV LMA 54 UPN
WTTV LMA (d) 4 UPN
Indianapolis, Indiana............ 25 WTTK(c) LMA (d) 29 UPN
Cincinnati, Ohio................. 29 WSTR O&O 64 UPN
30 WLFL O&O 22 FOX
Raleigh-Durham, North Carolina .. WRDC LMA 28 UPN
31 WCGV O&O 24 UPN
Milwaukee, Wisconsin............. 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)
KABB LMA (d) 29 FOX
San Antonio, Texas............... 37 KRRT LMA (f) 35 UPN
Norfolk, Virginia................ 40 WTVZ O&O 33 FOX
Oklahoma City, Oklahoma.......... 43 KOCB O&O 34 UPN
WTTO O&O 21 IND(g)
Birmingham, Alabama.............. 51 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)
</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) 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
<PAGE>
THE OFFERING
Class A Common Stock offered:
Company......................... 5,000,000 shares
Selling Stockholders(a)......... 1,250,000 shares
Total(b)..................... 6,250,000 shares
Common Stock to be outstanding
after the Offering.............. 12,882,400 shares of Class A Common
Stock(a)
27,367,581 shares of Class B Common
Stock
40,249,981 total shares of Common
Stock(a)
Use of proceeds..................... The net proceeds to the Company from the
Offering will be used for repayment of
indebtedness under the Company's bank
credit facility. The Company will not
receive any of the net proceeds from the
sale of Class A Common Stock by the
Selling Stockholders. 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 94.3%
of the total voting power of the capital
stock of the Company 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) Includes approximately 500,000 shares to be sold by River City
Broadcasting, L.P. ("River City"). The number of shares to be sold by River
City may be less.
(b) Excludes up to 937,500 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 3,681,818 shares of Class A
Common Stock that may be issued upon conversion of shares of Series B
Preferred Stock outstanding after the Offering 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
included elsewhere herein. 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 included elsewhere herein 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 Offering 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 Information."
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1991(A) 1992 1993 1994(A) 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ......... $ 39,698 $ 61,081 $ 69,532 $ 118,611 $ 187,934
Barter revenues ................... 5,660 8,805 6,892 10,743 18,200
--------- --------- --------- --------- ---------
Total revenues ................... 45,358 69,886 76,424 129,354 206,134
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
Depreciation and amortization(d) .. 18,078 30,943 22,584 55,665 80,410
Deferred compensation ............. -- -- -- -- --
Special bonuses paid to executive
officers ......................... -- -- 10,000 3,638 --
--------- --------- --------- --------- ---------
Broadcast operating income ........ 2,093 5,950 11,643 19,584 45,278
Interest expense .................. 8,895 12,997 12,852 25,418 39,253
Interest and other income ......... 562 1,207 2,131 2,447 4,163
--------- --------- --------- --------- ---------
Income (loss) before (provision)
benefit for income taxes and
extraordinary item ............... (6,240) (5,840) 922 (3,387) 10,188
--------- --------- --------- --------- ---------
Net income (loss) ................. $ (4,660) $ (4,651) $ (7,945) $ (2,740) $ 76
========= ========= ========= ========= =========
Income (loss) applicable to common
stock ............................ $ (4,660) $ (4,651) $ (7,945) $ (2,740) $ 76
========= ========= ========= ========= =========
Earnings (loss) per common share:
Net income (loss) before
extraordinary item .............. $ (0.16) $ (0.16) $ (0.27) $ (0.09) $ 0.15
Extraordinary item ............... -- -- -- -- (0.15)
Net income (loss) per common
share ........................... $ (0.16) $ (0.16) $ (0.27) $ (0.09) $ --
========= ========= ========= ========= =========
Weighted average shares out-
standing (in thousands) ......... 29,000 29,000 29,000 29,000 32,198
========= ========= ========= ========= =========
OTHER DATA:
Broadcast cash flow(e) ............ $ 17,260 $ 28,019 $ 37,596 $ 67,597 $ 111,124
Broadcast cash flow margin(f) ..... 43.5% 45.9% 54.1% 57.0% 59.1%
Operating cash flow(g) ............ $ 15,483 $ 26,466 $ 35,504 $ 64,625 $ 105,750
Operating cash flow margin(f) ..... 39.0% 43.3% 51.1% 54.5% 56.3%
After tax cash flow(h) ............ $ 8,730 $ 15,259 $ 18,773 $ 33,124 $ 60,371
After tax cash flow per share(i) .. $ 0.30 $ 0.53 $ 0.65 $ 1.14 $ 1.87
Program contract payments ......... $ 4,688 $ 10,427 $ 8,723 $ 14,262 $ 19,938
Capital expenditures .............. 1,730 426 528 2,352 1,702
Corporate overhead expense ........ 1,777 1,553 2,092 2,972 5,374
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------- ---------------------------------------
PRO FORMA PRO FORMA
1995(B) 1995(A) 1996(A) 1996(B)
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
NET BROADCAST REVENUES(C) ......... $ 406,411 $ 88,724 $ 117,339 $ 214,877
BARTER REVENUES ................... 24,351 8,150 9,571 13,607
--------- --------- --------- ---------
Total revenues ................... 430,762 96,874 126,910 228,484
Operating expenses, excluding
depreciation and amortization,
deferred compensation and special
bonuses paid to executive
officers ......................... 195,831 38,731 52,826 112,251
Depreciation and amortization(d) .. 169,954 38,801 45,493 77,617
Deferred compensation ............. 934 -- 506 700
Special bonuses paid to executive
officers ......................... -- -- -- --
--------- --------- --------- ---------
Broadcast operating income ........ 64,043 19,342 28,085 37,916
Interest expense .................. 106,500 19,655 27,646 52,290
Interest and other income ......... 3,374 1,282 3,172 1,619
--------- --------- --------- ---------
Income (loss) before (provision)
benefit for income taxes and
extraordinary item ............... (39,083) 969 3,611 (12,755)
--------- --------- --------- ---------
Net income (loss) ................. $ (29,664) $ 507 $ 1,511 $ (8,309)
========= ========= ========= =========
Income (loss) applicable to common
stock ............................ $ (29,664) $ 507 $ 1,511 $ (8,309)
========= ========= ========= =========
Earnings (loss) per common share:
Net income (loss) before
extraordinary item .............. $ (0.60) $ 0.02 $ 0.04 $ (0.19)
Extraordinary item ............... (0.12) -- -- --
Net income (loss) per common
share ........................... $ (0.72) $ 0.02 $ 0.04 $ (0.19)
========= ========= ========= =========
Weighted average shares out-
standing (in thousands) ......... 41,380 29,575 34,750 43,932
========= ========= ========= =========
OTHER DATA:
Broadcast cash flow(e) ............ $ 201,290 $ 50,471 $ 65,079 $ 96,351
Broadcast cash flow margin(f) ..... 49.5% 56.9% 55.5% 44.8%
Operating cash flow(g) ............ $ 190,634 $ 48,285 $ 62,013 $ 90,480
Operating cash flow margin(f) ..... 46.9% 54.4% 52.8% 42.1%
After tax cash flow(h) ............ $ 106,520 $ 26,908 $ 35,927 $ 46,596
After tax cash flow per share(i) .. $ 2.57 $ 0.91 $ 1.03 $ 1.06
Program contract payments ......... $ 44,297 $ 9,858 $ 12,071 $ 25,753
Capital expenditures .............. 13,810 1,359 2,114 3,474
Corporate overhead expense ........ 10,656 2,186 3,066 5,871
</TABLE>
(Continued on following page)
8
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1996
---------------------------------------------------- ------------------------
1991(A) 1992 1993 1994(A) 1995(A) ACTUAL(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 1,626,978 1,675,254
Total debt(j)...................... 112,303 110,659 224,646 346,270 418,171 1,246,456 1,096,850
Total stockholders' equity
(deficit)......................... (3,052) (3,127) (11,024) (13,723) 96,374 247,386 435,492
</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
included elsewhere herein. 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 Offering and Recent Acquisitions. See "Pro Forma
Consolidated Financial Information" included elsewhere herein.
(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 flows, is not a measure of
financial performance under generally accepted accounting principles and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
(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 flows 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) "After tax cash flow" is defined as net income (loss) before extraordinary
items plus depreciation and amortization (including film amortization),
less program contract payments, plus non-cash deferred compensation
expense, plus special bonuses paid to executive officers, and plus deferred
tax provision or minus deferred tax benefit. After tax cash flow is
presented here not as a measure of operating results and does not purport
to represent cash provided by operating activities. After tax cash flow
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
(i) "After tax cash flow per share" is defined as after tax cash flow divided
by weighted average shares outstanding.
(j) "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 Offering 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 Offering the Company would have had outstanding long-term indebtedness
(including current installments) of approximately $1.1 billion. See "Pro Forma
Consolidated Financial Information." In addition, the portion of the Company's
Revolving Credit Facility that is being repaid from the proceeds of the Offering
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 (1,012,500 shares with an aggregate liquidation preference of
$101.2 million after the Offering). 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 Company
were unable to repay those amounts, the lenders under the Bank Credit Agreement
could
10
<PAGE>
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 Company intends to enter into LMAs with Glencairn after
its acquisition of these stations. 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 indirect interests in River City, from which the
Company purchased certain assets in the River City
11
<PAGE>
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 72.3% 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 62.4% of all the Company's outstanding Common Stock and
will control approximately 94.3% 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 (ii)
the expiration of the initial five-year term of Mr. Baker's employment agreement
and (b) such time
12
<PAGE>
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.
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 program-
13
<PAGE>
ming, 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
affiliation agreements 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.
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
14
<PAGE>
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 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 com-
15
<PAGE>
menced 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: CHALLENGES TO 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.
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
16
<PAGE>
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
and the application for assignment of the license for WLOS in Asheville, North
Carolina from River City to the Company. 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
and a petition has been filed to deny the application to assign the license of
KABB in San Antonio to the Company. Although the specific nature of the informal
objection against the KRRT application is unclear, the objection generally
raises questions concerning the cross-interest policy as it relates to LMAs
between Glencairn and Sinclair. The petition to deny the KABB application claims
that the acquisition of the license of KABB by the Company and the acquisition
of the license of KRRT by Glencairn would violate the FCC's cross-interest
policy in light of the Company's LMA with KRRT and in light of the equity
interest in Glencairn held by relatives of the Controlling Stockholders.
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 12,882,400 shares of Class A
Common Stock and 27,367,581 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
17
<PAGE>
the 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 6,250,000 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 (3,681,818 after
the Offering) 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 $39.3
million on a pro forma basis for 1995 reflecting the Recent Acquisitions) and
net income of $1.5 million for the six months ended June 30, 1996 (a net loss of
$12.8 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 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 October
11, 1996) are estimated to be approximately $188.1 million ($223.6 million, if
the Underwriters' over-allotment option is exercised in full). The Company will
not receive any of the net proceeds from the sale of Class A Common Stock by the
Selling Stockholders.
The net proceeds of the Offering 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 September 30, 1996, the Revolving Credit Facility had
an outstanding principal balance of $124.5 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 Offering
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 consummation of
an acquisition. The remaining proceeds of the Offering 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
Offering 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 8.05%,
8.30% and 8.00% respectively for the month ended September 30, 1996.
See "Description of Indebtedness."
19
<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.
<TABLE>
<CAPTION>
1995 High Low
------- -------
<S> <C> <C>
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 ....................... 46 1/2 36 1/8
------- -------
Fourth Quarter (through October 11).. 40 3/4 39 1/2
------- -------
</TABLE>
On October 11, 1996, the last sale price of the Class A Common Stock as
reported by Nasdaq was 39 1/2 per share. As of October 11, 1996, there were
approximately 38 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.
20
<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 Offering (at an assumed offering price for the Class A Common
Stock offered hereby of $39 1/2 , the closing price of October 11, 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 Information of the Company and the historical Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------------
POST POST OFFERING
RECENT AND RECENT
ACTUAL ACQUISITIONS ACQUISITIONS
----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents .......................................... $ 4,196 $ 4,488 $ 4,488
=========== =========== ===========
Current portion of long-term debt .................................. $ 65,771 $ 65,771 $ 65,771
=========== =========== ===========
Long-term debt:
Term loans ........................................................ $ 687,750 $ 687,750 $ 537,265
Revolving Credit Facility ......................................... 80,000 118,500 80,879
Notes and capital leases payable to affiliates .................... 12,935 12,935 12,935
Senior Subordinated Notes ......................................... 400,000 400,000 400,000
----------- ----------- -----------
1,180,685 1,219,185 1,031,079
----------- ----------- -----------
Stockholders' equity (deficit):
Series B Preferred Stock, par value $.01 per share; 1,150,000
shares issued and outstanding .................................... 12 12 12
Class A Common Stock, par value $.01 per share; 6,328,000
(12,578,000 subsequent to the Offering) shares issued and
outstanding Actual and Post Recent Acquisitions; 11,328,000 shares
issued and outstanding Post Offering and Recent Acquisitions ..... 63 63 113
Class B Common Stock, par value $.01 per share; 28,422,000
(27,672,000 subsequent to the Offering) shares issued and
outstanding ...................................................... 285 285 285
Additional paid-in capital ........................................ 265,578 265,578 453,634
Accumulated deficit ............................................... (18,552) (18,552) (18,552)
----------- ----------- -----------
Total stockholders' equity ........................................ 247,386 247,386 435,492
----------- ----------- -----------
Total capitalization ............................................. $ 1,428,071 $ 1,466,571 $ 1,466,571
=========== =========== ===========
</TABLE>
21
<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
included elsewhere herein. 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 included elsewhere herein 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 selected pro forma consolidated
financial data of the Company reflect the Recent Acquisitions and the
application of the proceeds of the Offering as set forth in "Use of Proceeds" as
though it 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 Information."
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1991(A) 1992 1993 1994(A) 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues(c) ....... $ 39,698 $ 61,081 $ 69,532 $ 118,611 $ 187,934
Barter revenues ................. 5,660 8,805 6,892 10,743 18,200
--------- --------- --------- --------- ---------
Total revenues ................. 45,358 69,886 76,424 129,354 206,134
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
Depreciation and amortization(d) 18,078 30,943 22,584 55,665 80,410
Deferred compensation ........... -- -- -- -- --
Special bonuses paid to executive
officers ....................... -- -- 10,000 3,638 --
--------- --------- --------- --------- ---------
Broadcast operating income ...... 2,093 5,950 11,643 19,584 45,278
Interest expense ................ 8,895 12,997 12,852 25,418 39,253
Interest and other income ....... 562 1,207 2,131 2,447 4,163
--------- --------- --------- --------- ---------
Income (loss) before (provision)
benefit for income taxes and
extraordinary item ............. (6,240) (5,840) 922 (3,387) 10,188
--------- --------- --------- --------- ---------
Net income (loss) ............... $ (4,660) $ (4,651) $ (7,945) $ (2,740) $ 76
========= ========= ========= ========= =========
Income (loss) applicable to
common stock ................... $ (4,660) $ (4,651) $ (7,945) $ (2,740) $ 76
========= ========= ========= ========= =========
Earnings (loss) per common share:
Net income (loss) before
extraordinary item ............ $ (0.16) $ (0.16) $ (0.27) $ (0.09) $ 0.15
Extraordinary item ............. -- -- -- -- (0.15)
Net income (loss) per common
share ......................... $ (0.16) $ (0.16) $ (0.27) $ (0.09) $ --
========= ========= ========= ========= =========
Weighted average shares out-
standing (in thousands) ....... 29,000 29,000 29,000 29,000 32,198
========= ========= ========= ========= =========
OTHER DATA:
Broadcast cash flow(e) .......... $ 17,260 $ 28,019 $ 37,596 $ 67,597 $ 111,124
Broadcast cash flow margin(f) ... 43.5% 45.9% 54.1% 57.0% 59.1%
Operating cash flow(g) .......... $ 15,483 $ 26,466 $ 35,504 $ 64,625 $ 105,750
Operating cash flow margin(f) ... 39.0% 43.3% 51.1% 54.5% 56.3%
After tax cash flow(h) .......... $ 8,730 $ 15,259 $ 18,773 $ 33,124 $ 60,371
After tax cash flow per share(i) $ 0.30 $ 0.53 $ 0.65 $ 1.14 $ 1.87
Program contract payments ....... $ 4,688 $ 10,427 $ 8,723 $ 14,262 $ 19,938
Capital expenditures ............ 1,730 426 528 2,352 1,702
Corporate overhead expense ...... 1,777 1,553 2,092 2,972 5,374
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------- -----------------------------------------
PRO FORMA PRO FORMA
1995(B) 1995(A) 1996(A) 1996(B)
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
NET BROADCAST REVENUES(C) ........................ $ 406,411 $ 88,724 $ 117,339 $ 214,877
BARTER REVENUES ................................. 24,351 8,150 9,571 13,607
--------- --------- --------- ---------
Total revenues ................................. 430,762 96,874 126,910 228,484
Operating expenses, excluding
depreciation and amortization,
deferred compensation and
special bonuses paid to
executive officers ............................. 195,831 38,731 52,826 112,251
Depreciation and amortization(d) ................ 169,954 38,801 45,493 77,617
Deferred compensation ........................... 934 -- 506 700
Special bonuses paid to executive
officers ....................................... -- -- -- --
--------- --------- --------- ---------
Broadcast operating income ...................... 64,043 19,342 28,085 37,916
Interest expense ................................ 106,500 19,655 27,646 52,290
Interest and other income ....................... 3,374 1,282 3,172 1,619
--------- --------- --------- ---------
Income (loss) before (provision)
benefit for income taxes and
extraordinary item ............................. (39,083) 969 3,611 (12,755)
--------- --------- --------- ---------
Net income (loss) ............................... $ (29,664) $ 507 $ 1,511 $ (8,309)
========= ========= ========= =========
Income (loss) applicable to
common stock ................................... $ (29,664) $ 507 $ 1,511 $ (8,309)
========= ========= ========= =========
Earnings (loss) per common share:
Net income (loss) before
extraordinary item ............................ $ (0.60) $ 0.02 $ 0.04 $ (0.19)
Extraordinary item ............................. (0.12) -- -- --
Net income (loss) per common
share ......................................... $ (0.72) $ 0.02 $ 0.04 $ (0.19)
========= ========= ========= =========
Weighted average shares out-
standing (in thousands) ....................... 41,380 29,575 34,750 43,932
========= ========= ========= =========
OTHER DATA:
Broadcast cash flow(e) .......................... $ 201,290 $ 50,471 $ 65,079 $ 96,351
Broadcast cash flow margin(f) ................... 49.5% 56.9% 55.5% 44.8%
Operating cash flow(g) .......................... $ 190,634 $ 48,285 $ 62,013 $ 90,480
Operating cash flow margin(f) ................... 46.9% 54.4% 52.8% 42.1%
After tax cash flow(h) .......................... $ 106,250 $ 26,908 $ 35,927 $ 46,596
After tax cash flow per share(i) ............... $ 2.57 $ 0.91 $ 1.03 $ 1.06
Program contract payments ....................... $ 44,297 $ 9,858 $ 12,071 $ 25,753
Capital expenditures ............................ 13,810 1,359 2,114 3,474
Corporate overhead expense ...................... 10,656 2,186 3,066 5,871
</TABLE>
(Continued on following page)
22
<PAGE>
<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
Total stockholders' equity
(deficit)......................... (3,052) (3,127) (11,024) (13,723) 96,374
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------
PRO
ACTUAL(A) FORMA(B)
----------- ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 4,196 $ 4,488
Total assets....................... 1,626,978 1,675,254
Total debt(j)...................... 1,246,456 1,096,850
Total stockholders' equity
(deficit)......................... 247,386 435,492
</TABLE>
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
included elsewhere herein . 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 Offering and Recent Acquisitions. See "Pro Forma
Consolidated Financial Information" included elsewhere herein.
(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 flows, is not a
measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
(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 flows 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) "After tax cash flow" is defined as net income (loss) before extraordinary
items plus depreciation and amortization (including film amortization),
less program contract payments, plus non-cash deferred
compensation-expense, plus special bonuses paid to executive officers, and
plus deferred tax provision or minus deferred tax benefit. After-tax cash
flow is presented here not as a measure of operating results and does not
purport to represent cash provided by operating activities. After tax cash
flow should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted accounting
principles.
(i) "After tax cash flow per share" is defined as after tax cash flow divided
by weighted average shares outstanding.
(j) "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.
23
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Financial Information includes 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 and the Offering as if each occurred at the
beginning of those respective periods and assuming application of the proceeds
of the Offering 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 and the Offering as if each
occurred on June 30, 1996 and assuming application of the proceeds of the
Offering 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 included elsewhere
herein. The unaudited Pro Forma Consolidated Financial Information does not
purport to represent what the Company's results of operations or what the
Company's 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
ACTUAL 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 ............................................... 76,102 3,855 2,754 82,711
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 ...................................... 3,972 3,972
----------- ----------- ------- ------- -------- -----------
Total current assets .................................. 121,327 6,274 6,575 183 (2,124) 132,235
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 ....................................... 52 52
OTHER ASSETS ............................................. 64,602 (14,775)(b) 49,827
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ............. 1,236,707 7,139 7,456 18,930 1,270,232
----------- ----------- ------- ------- -------- -----------
Total Assets .......................................... $ 1,626,978 $ 18,819 $24,773 $21,583 $(16,899) $ 1,675,254
=========== =========== ======= ======= ======== ===========
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 ............ 63,485 63,485
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 ............................. 141,545 2,230 3,168 183 147,126
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ............ 1,167,750 $ 38,500(b) 1,206,250
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
STOCKHOLDERS' EQUITY
Series B Preferred stock, $.01 par value, 1,150,000 shares authorized and
1,150,000 shares issued and
outstanding ........................................... 12 12
Class A Common stock, $.01 par value, 100,000,000 shares
authorized 6,328,000 (12,578,000 subsequent to the
Offering) shares issued and outstanding ............... 63 63
Class B Common stock, $.01 par value, 35,000,000 shares
authorized and 28,422,000 (27,672,000 subsequent to the
Offering) shares issued and outstanding ............... 285 285
Additional paid-in capital ............................. 241,156 241,156
Accumulated deficit .................................... (18,552) (18,552)
Additional paid-in capital - stock options ............. 25,784 25,784
Deferred compensation .................................. (1,362) (1,362)
----------- ----------- ------- ------- -------- -----------
Total stockholders' equity ............................ 247,386 247,386
----------- ----------- ------- ------- -------- -----------
Total Liabilities and Stockholders' Equity ............ $ 1,626,978 $ 3,894 $ 5,493 $ 389 $ 38,500 $ 1,675,254
=========== =========== ======= ======= ======== ===========
</TABLE>
25
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
POST
RECENT OFFERING POST
ACQUISITIONS ADJUSTMENTS(C) OFFERING
------------ -------------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents ........................ $ 4,488 $ $ 4,488
Accounts receivable, net of allowance for doubtful
accounts ............................................... 82,711 82,711
Current portion of program contract costs ............... 33,223 33,223
Deferred barter costs ................................... 4,029 4,029
Prepaid expenses and other current assets ............... 3,812 3,812
Deferred tax asset ...................................... 3,972 3,972
----------- ----------- -----------
Total current assets .................................. 132,235 132,235
PROPERTY AND EQUIPMENT, net .............................. 153,690 153,690
PROGRAM CONTRACT COSTS, less current portion ............. 37,582 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 ....................................... 52 52
OTHER ASSETS ............................................. 49,827 49,827
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ............. 1,270,232 1,270,232
----------- ----------- -----------
Total Assets .......................................... $ 1,675,254 $ $ 1,675,254
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................ $ 5,120 $ 5,120
Accrued liabilities ..................................... 31,867 31,867
Current portion of long-term liabilities-
Notes payable and commercial bank financing ............ 63,485 63,485
Capital leases payable ................................. 310 310
Notes and capital leases payable to affiliates ......... 1,976 1,976
Program contracts payable .............................. 39,150 39,150
Deferred barter revenues ................................ 5,218 5,218
----------- ----------- -----------
Total current liabilities ............................. 147,126 147,126
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ............ 1,206,250 $ (188,106) 1,018,144
Notes and capital leases payable to affiliates ......... 12,935 12,935
Program contracts payable .............................. 55,205 55,205
Other long-term liabilites ............................. 2,384 2,384
----------- ----------- -----------
Total liabilities ..................................... 1,423,900 (188,106) 1,235,794
----------- ----------- -----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES ............................................ 3,968 3,968
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series B Preferred stock, $.01 par value, 1,150,000 shares authorized and
1,150,000 shares issued and
outstanding ........................................... 12 12
Class A Common stock, $.01 par value, 100,000,000 shares
authorized 6,328,000 (12,578,000 subsequent to the
Offering) shares issued and outstanding ............... 63 50 113
Class B Common stock, $.01 par value, 35,000,000 shares
authorized and 28,422,000 (27,672,000 subsequent to the
Offering) shares issued and outstanding ............... 285 285
Additional paid-in capital ............................. 241,156 188,056 429,212
Accumulated deficit .................................... (18,552) (18,552)
Additional paid-in capital - stock options ............. 25,784 25,784
Deferred compensation .................................. (1,362) (1,362)
----------- ----------- -----------
Total stockholders' equity ............................ 247,386 188,106 435,492
----------- ----------- -----------
Total Liabilities and Stockholders' Equity ............ $ 1,675,254 $ $ 1,675,254
=========== =========== ===========
</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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
=======
</TABLE>
(2) WSTR:
<TABLE>
<CAPTION>
<S> <C> <C>
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
=======
</TABLE>
(3) WYZZ:
<TABLE>
<CAPTION>
<S> <C> <C>
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
=======
</TABLE>
(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 Offering, (at an assumed offering price of
$39 1/2 per share, the closing price on October 11, 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."
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>
FLINT SUPERIOR
CONSOLIDATED TV, COMMMUNICATIONS
ACTUAL INC.(A) GROUP, INC.(B) KSMO(C)
------------ --------- ---------------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ............................. $ 117,339 $ 1,012 $ 4,431 $ 7,694
Revenues realized from station barter
arrangements ............................ 9,571 -- -- 2,321
--------- --------- --------- ---------
Total revenues ........................ 126,910 1,012 4,431 10,015
--------- --------- --------- ---------
OPERATING EXPENSES:
Program and production ................... 20,699 101 539 1,550
Selling, general and administrative ...... 24,268 345 2,002 2,194
Expenses realized from station barter
arrangements ............................ 7,859 -- -- 2,276
Amortization of program contract costs and
net realizable value adjustments ........ 17,557 125 736 601
Deferred compensation .................... 506 -- -- --
Depreciation and amortization of property
and equipment ........................... 3,544 4 373 374
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets .. 24,392 -- 529 --
--------- --------- --------- ---------
Total operating expenses .............. 98,825 575 4,179 6,995
--------- --------- --------- ---------
Broadcast operating income (loss) ...... 28,085 437 252 3,020
OTHER INCOME (EXPENSE):
Interest expense ......................... (27,646) -- (457) (823)
Interest income .......................... 2,521 -- -- --
Other income (expense) ................... 651 19 4 7
--------- --------- --------- ---------
Income (loss) before (provision) benefit
for income taxes ...................... 3,611 456 (201) 2,204
(PROVISION) BENEFIT FOR
INCOME TAXES ............................. (2,100) -- -- --
--------- --------- --------- ---------
NET INCOME (LOSS) ......................... $ 1,511 $ 456 $ (201) $ 2,204
========= ========= ========= =========
LOSS APPLICABLE TO COMMON
STOCK .................................... $ 1,511
=========
NET LOSS PER COMMON SHARE ................. $ 0.04
=========
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) ............................... 34,750
=========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RIVER CITY(E) RECENT POST
--------------------- ACQUISITIONS RECENT
WSTR(D) RIVER CITY WSYX WYZZ(F) ADJUSTMENTS ACQUISITIONS
--------- ---------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ............................. $ 6,477 $ 86,869 $ (10,783) $ 1,838 -- $ 214,877
Revenues realized from station barter
arrangements ............................ 1,715 -- -- -- -- 13,607
--------- --------- --------- --------- --------- ---------
Total revenues ........................ 8,192 86,869 (10,783) 1,838 -- 228,484
--------- --------- --------- --------- --------- ---------
OPERATING EXPENSES:
Program and production ................... 785 10,001 (736) 214 -- 33,153
Selling, general and administrative ...... 1,876 39,786 (3,950) 702 $ 25(g) 67,248
Expenses realized from station barter
arrangements ............................ 1,715 -- -- -- -- 11,850
Amortization of program contract costs and
net realizable value adjustments ........ 1,011 9,721 (458) 123 -- 29,416
Deferred compensation .................... -- -- -- -- 194(h) 700
Depreciation and amortization of property
and equipment ........................... 284 6,294 (1,174) 6 (943)(i) 8,762
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets .. 39 14,041 (3,599) 3 4,034(j) 39,439
--------- --------- --------- --------- --------- ---------
Total operating expenses .............. 5,710 79,843 (9,917) 1,048 3,310 190,568
--------- --------- --------- --------- --------- ---------
Broadcast operating income (loss) ...... 2,482 7,026 (866) 790 (3,310) 37,916
OTHER INCOME (EXPENSE):
Interest expense ......................... (1,127) (12,352) -- -- (17,409)(k) (59,814)
Interest income .......................... 15 195 -- -- (1,636)(l) 1,095
Other income (expense) ................... -- (149) (8) -- -- 524
Income (loss) before (provision) benefit
for income taxes ...................... 1,370 (5,280) (874) 790 (22,355) (20,279)
(PROVISION) BENEFIT FOR
INCOME TAXES ............................. -- -- -- -- 9,556(m) 7,456
--------- --------- --------- --------- --------- ---------
NET INCOME (LOSS) ......................... $ 1,370 $ (5,280) $ (874) $ 790 $ (12,799) $ (12,823)
========= ========= ========= ========= ========= =========
LOSS APPLICABLE TO COMMON STOCK ........... $ (12,823)
=========
NET LOSS PER COMMON SHARE ................. $ (0.33)
=========
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) ............................... 38,932(n)
=========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OFFERING POST
ADJUSTMENTS OFFERING
----------- --------
<S> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ............................. -- $ 214,877
Revenues realized from station barter
arrangements ............................ -- 13,607
--------- ---------
Total revenues ........................ -- 228,484
--------- ---------
OPERATING EXPENSES:
Program and production ................... -- 33,153
Selling, general and administrative ...... -- 67,248
Expenses realized from station barter
arrangements ............................ -- 11,850
Amortization of program contract costs and
net realizable value adjustments ........ -- 29,416
Deferred compensation ....................
Depreciation and amortization of property
and equipment ........................... -- 8,762
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets .. -- 39,439
--------- ---------
Total operating expenses .............. -- 190,568
--------- ---------
Broadcast operating income (loss) ...... -- 37,916
OTHER INCOME (EXPENSE):
Interest expense ......................... $ 7,524(o) (52,290)
Interest income .......................... -- 1,095
Other income (expense) ................... -- 524
Income (loss) before (provision) benefit
for income taxes ...................... 7,524 (12,755)
(PROVISION) BENEFIT FOR
INCOME TAXES ............................. (3,010)(m) 4,446
--------- ---------
NET INCOME (LOSS) ......................... $ 4,514 $ (8,309)
========= =========
LOSS APPLICABLE TO COMMON STOCK ........... $ (8,309)
=========
NET LOSS PER COMMON SHARE ................. $ (0.19)
=========
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) ............................... 5,000(p) 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>
SUPERIOR
FLINT COMMUNICATIONS
CONSOLIDATED TV, GROUP,
ACTUAL INC.(A) INC.(B) KSMO(C)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 187,934 $ 7,217 $ 13,400 $ 14,683
Revenues realized from station barter
arrangements ................................ 18,200 -- -- 2,801
--------- --------- --------- ---------
Total revenues ............................. 206,134 7,217 13,400 17,484
--------- --------- --------- ---------
OPERATING EXPENSES:
Program and production ....................... 22,563 511 1,461 3,347
Selling, general and administrative .......... 41,763 2,114 4,188 4,374
Expenses realized from station barter
arrangements ................................ 16,120 -- -- 2,801
Amortization of program contract costs and net
realizable value adjustments ................ 29,021 897 4,899 1,206
Deferred compensation ........................ -- -- -- --
Depreciation and amortization of property and
equipment ................................... 5,400 20 1,660 632
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets ...... 45,989 12 1,066 210
--------- --------- --------- ---------
Total operating expenses ................... 160,856 3,554 13,274 12,570
--------- --------- --------- ---------
Broadcast operating income (loss) .......... 45,278 3,663 126 4,914
OTHER INCOME (EXPENSE):
Interest expense ............................. (39,253) -- (1,579) (2,039)
Interest income .............................. 3,942 81
Other income (expense) ....................... 221 40 (188) 630
--------- --------- --------- ---------
Income (loss) before (provision) benefit for
income taxes and extraordinary item ....... 10,188 3,784 (1,641) 3,505
(PROVISION) BENEFIT FOR INCOME TAXES .......... (5,200) (1,476) 461 --
--------- --------- --------- ---------
Net income (loss) before extraordinary item 4,988 2,308 (1,180) 3,505
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
========= ========= ========= =========
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>
<TABLE>
<CAPTION>
RIVER CITY(E)
----------------------------------------
PARAMOUNT
STATIONS
GROUP OF
WSTR(D) KERRVILLE, INC. RIVER CITY WSYX WYZZ(F)
------- --------------- ---------- ---- -------
<S> <C> <C> <C> <C> <C>
REVENUES:
STATION BROADCAST REVENUES, NET OF AGENCY
COMMISSIONS .............................. $ 12,179 $ 7,567 $ 188,190 $ (28,767) $ 4,008
Revenues realized from station barter
arrangements ................................ 3,350 -- -- -- --
--------- --------- --------- --------- ---------
Total revenues ............................. 15,529 7,567 188,190 (28,767) 4,008
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Program and production ....................... 1,002 833 62,041 (8,133) 477
Selling, general and administrative .......... 4,023 1,958 30,456 (3,153) 1,359
Expenses realized from station barter
arrangements ................................ 3,350 876 -- -- --
Amortization of program contract costs and net
realizable value adjustments ................ 1,621 921 33,452 (2,624) 294
Deferred compensation ........................ -- -- -- -- --
--------- --------- --------- --------- ---------
Depreciation and amortization of property and
equipment ................................... 585 194 11,524 (2,107) 21
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets ...... 77 253 27,649 (9,780) 5
--------- --------- --------- --------- ---------
Total operating expenses ................... 10,658 5,035 165,122 (25,797) 2,156
--------- --------- --------- --------- ---------
Broadcast operating income (loss) .......... 4,871 2,532 23,068 (2,970) 1,852
OTHER INCOME (EXPENSE):
Interest expense ............................. (2,506) -- (34,523) -- --
Interest income .............................. -- -- 1,715 -- 54
Other income (expense) ....................... -- 63 (22) 57 16
--------- --------- --------- --------- ---------
Income (loss) before (provision) benefit for
income taxes and extraordinary item ....... 2,365 2,595 (9,762) (2,913) 1,922
(PROVISION) BENEFIT FOR INCOME TAXES .......... -- (1,076) -- -- (750)
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary item 2,365 1,519 (9,762) (2,913) 1,172
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
related income tax benefit of $3,357 ........ -- -- -- -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS) ............................. $ 2,365 $ 1,519 $ (9,762) $ (2,913) $ 1,172
========= ========= ========= ========= =========
INCOME (LOSS) APPLICABLE TO COMMON STOCK ......
EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) before extraordinary item
Extraordinary item .........................
Net income (loss) per common share ............
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) ...................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECENT POST
ACQUISITIONS RECENT OFFERING POST
ADJUSTMENTS ACQUISITIONS ADJUSTMENTS OFFERING
----------- ------------ ----------- --------
<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 .......... $ 1,500(g) 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 ........................ 934(h) 934 -- 934
--------- --------- --------- ---------
Depreciation and amortization of property and
equipment ................................... (64)(i) 17,865 -- 17,865
Amortization of acquired intangible
broadcasting assets, non-compete and
consulting agreements and other assets ...... 16,921(j) 82,402 -- 82,402
--------- --------- --------- ---------
Total operating expenses ................... 19,291 366,719 -- 366,719
--------- --------- --------- ---------
Broadcast operating income (loss) .......... (19,291) 64,043 -- 64,043
OTHER INCOME (EXPENSE):
Interest expense ............................. (42,589)(k) (122,489) $ 15,989 (o) (106,500)
Interest income .............................. (3,235)(l) 2,557 -- 2,557
Other income (expense) ....................... -- 817 -- 817
--------- --------- --------- ---------
Income (loss) before (provision) benefit for
income taxes and extraordinary item ....... (65,115) (55,072) 15,989 (39,083)
(PROVISION) BENEFIT FOR INCOME TAXES .......... 28,768(m) 20,727 (6,396)(m) 14,331
--------- --------- --------- ---------
Net income (loss) before extraordinary item (36,347) (34,345) 9,593 (24,752)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of
related income tax benefit of $3,357 ........ -- (4,912) -- (4,912)
--------- --------- --------- ---------
NET INCOME (LOSS) ............................. $ (36,347) $ (39,257) $ 9,593 $ (29,664)
========= ========= ========= =========
INCOME (LOSS) APPLICABLE TO COMMON STOCK ...... $ (39,257) $ (29,664)
========= =========
EARNINGS (LOSS) PER COMMON SHARE:
Net income (loss) before extraordinary item $ (0.94) $ (0.60)
Extraordinary item ......................... $ (0.14) $ (0.12)
--------- ---------
Net income (loss) per common share ............ $ (1.08) $ (0.72)
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) ................................... 36,380(n) 5,000(p) 41,380
========= ========= =========
</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 27, 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 its 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:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Compensation expense related to the Long-Term
Incentive Plan on a pro forma basis ................... $ 700 $934
Less: Compensation expense recorded by the Company
related to the Long-Term Incentive Plan................ (506) --
----- ----
$ 194 $934
===== ====
</TABLE>
(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 $ 12,060 $ 99 $ 13,618
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 $ 3,047 96 $ 4,034
======== ======== ======== ======== ======== ======== ========
</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 $ 28,944 $ 198 $ 33,555
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 $ 13,680 $ 193 $ 16,921
======== ======== ======== ======== ======== ======== ========
</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>
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, 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
1,150,000 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 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.
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)
--------- --------- ---------
Net broadcast revenues ... 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 52,826
Depreciation and amortization ................ 22,584 55,665 80,410 38,801 45,493
Deferred compensation ........................ -- -- -- -- 506
Special bonuses paid to executive officers ... 10,000 3,638 -- -- --
-------- -------- -------- -------- --------
Broadcast operating income ................... $ 11,643 $ 19,584 $ 45,278 $ 19,342 $ 28,085
Other Data:
Broadcast cash flow(a) ....................... $ 37,596 $ 67,597 $111,124 $ 50,471 $ 65,079
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 $ 62,013
Operating cash flow margin ................... 51.1% 54.5% 56.3% 54.4% 52.8%
After tax cash flow(c) ....................... $ 18,773 $ 33,124 $ 60,371 $ 26,908 $ 35,927
After tax cash flow per share (d) ............ $ 0.65 $ 1.14 $ 1.87 $ .91 $ 1.03
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 are comparable to the data provided by other
companies in the industry, because such data are commonly used as a measure
of performance for broadcast companies. However, broadcast cash flow does
not purport to represent cash provided by operating activities as reflected
in the Company's consolidated statements of cash flows, is not a measure of
financial performance under generally accepted accounting principles and
should not be considered in isolation or as a substitute for 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 flows, is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(c) "After tax cash flow" is defined as net income (loss) before extraordinary
items plus depreciation and amortization (including film amortization),
less program contract payments, plus non-cash deferred
compensation-expense, plus special bonuses paid to executive officers, and
plus deferred tax provision or minus deferred tax benefit. After tax cash
flow is presented here not as a measure of operating results and does not
purport to represent cash provided by operating activities. After tax cash
flow should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted accounting
principles.
(d) "After tax cash flow per share" is defined as after tax cash flow divided
by weighted average shares outstanding.
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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 32.2% 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 $28.1 million for the six months ended June 30, 1996, or
45.6%. 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 to $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 provision increased from $462,000 for the six months ended June
30, 1995 to $2.1 million for the six months ended June 30, 1996. This increase
primarily relates to the increase in pre-tax income between periods.
The deferred tax asset decreased from $21.0 million at December 31, 1995 to
$4.0 million as of June 30, 1996 and the effective tax rate increased from 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 increased from $507,000 or $0.02 per share for the six months
ended June 30, 1995 to $1.5 million or $0.04 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.
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%.
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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.
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.
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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 September 30, 1996,
approximately $125.5 million was available for draws under the Bank Credit
Agreement. Although completion of the Offering 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 $300
million of additional indebtedness without violating restrictive covenants in
the Bank Credit Agreement and the Indentures.
The Company has previously announced that it intended to offer up to $200
million aggregate liquidation preference of preferred stock pursuant to a
separate prospectus or in a private placement and concurrent with the Offering.
Although the Company does not now intend to complete the sale of preferred stock
concurrent with the closing of the Offering, it continues to intend to make such
an offering depending on market conditions, but there can be no assurance as to
the timing of such an offering or whether such an offering will in fact be
consummated.
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 million 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 occurred 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 Acquisition.
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. 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 January 1996, the Company
made a cash payment of $1.0 million relating to the acquisition of the license
and non-license assets of WYZZ in Peoria, Illinois which was consummated in July
1996 for a total purchase price of $21.1 million. 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 $828.3 million for the six months ended June 30,
1996. In May 1996, the Company utilized available indebtedness of $60.0 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 the 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 $2.1 million tax provision was recognized
for the year ended December 31, 1995 and for the six months ended June 30, 1996,
respectively. The provision at December 31, 1995 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 at December 31, 1996 and
at June 30, 1996, respectively 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 $4.0 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 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,
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.
42
<PAGE>
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
Baltimore, Maryland ... 23 WBFF O&O 45 FOX 4 10/1/96 (j)
WNUV LMA 54 UPN 5 5 10/1/01 (j)
Indianapolis, Indiana . 25 WTTV LMA (e) 4 UPN 4 8/1/97
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)
Milwaukee, Wisconsin .. 31 WCGV O&O 24 UPN 4 12/1/97
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)
San Antonio, Texas .... 37 KABB LMA (e) 29 FOX 4 8/1/98
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
Birmingham, Alabama ... 51 WTTO O&O 21 IND(i) 4 4/1/97
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)
43
<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 primarily 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 and License Assets of the following stations.
<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 (f) Alternative Rock Adults 18-34 3 2/1/97(g)
WVRV-FM (f) Modern Adult Adults 25-54 12 12/1/96(g)
Contemporary
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(h) Sports Adults 25-54 9 6/1/98
WWWS-AM(h) 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 (i) Contemporary Hit Radio Women 18-49 5 12/1/02
WORD-AM (i) News/Talk Adults 35-64 8 12/1/02
WFBC-AM (i) News/Talk Adults 35-64 12 12/1/02
WSPA-AM(i) Full Service/Talk Adults 35-64 18 12/1/02
WSPA-FM(i) Soft Adult Contemporary Women 25-54 4 12/1/02
WOLI-FM(i)(j) Oldies Adults 25-54 11 12/1/02
WOLT-FM(i)(k) 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 (l) News/Talk/ Sports Adults 35-64 6 8/1/98
WGBI-AM(l) News/Talk/ Sports Adults 35-64 41 8/1/98
WWSH-FM(h) Soft Hits Women 25-54 12 8/1/98
WILP-AM(m) News/Talk/ Sports Adults 35-64 27 8/1/98
WWFH-FM(n) 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) The Company owns the Non-License Assets of this station and programs this
station pursuant to an LMA with River City.
(g) Indicates license renewal pending.
(h) The Company sells advertising time on these stations pursuant to a JSA.
(i) 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.
(j) WOLI-FM was formerly WXWX-FM.
(k) WOLT-FM was formerly WXWZ-FM.
(l) WILK-AM and WGBI-AM simulcast their programming.
(m) 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.
(n) 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.
49
<PAGE>
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, and the transfer
of the License Assets has been consummated 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 Exchangeable Preferred Stock of the
Company and 1,382,435 stock options. See "Management -- Employment Agreements."
The Series A Exchangeable 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
$125.1 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
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closing, and is payable (beginning December 31, 1996) at the end of each
calendar quarter until such time as the 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 by exercising options
acquired in May 1995.
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.
See "Risk Factors -- Multiple Ownership Rules and Effect on LMAs." 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 and the transfer of the License
Assets has been consummated with respect to 19 of the 21 radio stations. The
approval of the transfer of the two remaining radio licenses is subject to
waiver of FCC cross-ownership rules. Upon
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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 terminate 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.
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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 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 Stock-
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holders 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 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
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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.
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
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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.
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
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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 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
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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 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 October,
1996, the Company elected must-carry or retransmission consent with respect to
each of its markets based on its evaluation of the respective markets and the
position of the Company's station within the market. 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. 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 heard in 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 September 30, 1996, the Company had approximately 2,250 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......... 44 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........ 52 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 44 Director of Operations and Engineering, SCI
Robert E. Quicksilver 41 General Counsel, SCI
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 foregoing, 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.
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 Broadcast Cable Financial Management Association
("BCFM") since 1984 and was a charter member of the Television Programming
Committee. He was also a Director of the BCFM 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.
Robert West has served as Director of Programming, SCI since completion of
the River City Acquisition. Prior to that time he served as the Director of
Programming of the River City television stations since December 1991. From 1989
to 1991, Mr. West served as Program Director of KDNL.
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
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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. Mr. Baker is also a director of American Media, Inc.
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. Mr. Coppedge is a director of Continental Cablevision,
Inc. and American Media, Inc. and a member of the Board of Representatives of
Falcon Holdings Group, L.P. 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
Compensation 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
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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 Baker 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 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
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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.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Company's voting securities beneficially owned as of October 15, 1996, and as
adjusted to reflect the sale of the 6,250,000 shares of Class A Common Stock
collectively offered hereby by the Company and the Selling Stockholders. The
address of all persons in the table unless otherwise specified is 2000 W. 41st
Street, Baltimore, MD 21211. Except as set forth below, each of the shares
offered by the Selling Stockholders is currently held as a share of Class B
Common Stock, and each of such shares will automatically be converted into a
share of Class A Common Stock upon their transfer in the Offering.
<TABLE>
<CAPTION>
SHARES OWNED PRIOR TO THE OFFERING PERCENTAGE
------------------------------------------- OF VOTING PERCENTAGE
CLASS A CLASS B POWER OF OF VOTING
COMMON STOCK COMMON STOCK (1) ALL NUMBER POWER OF ALL
NUMBER PERCENT OF NUMBER PERCENT OF CAPITAL OF CAPITAL
NAMES OF OF CLASS A OF CLASS B STOCK PRIOR SHARES STOCK AFTER
SELLING STOCKHOLDERS SHARES SHARES SHARES SHARES TO OFFERING OFFERED OFFERINGS
-------------------- ------ ------ ------ ------ ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Frederick G. Smith (2)........ 4,000 * 6,938,944 24.4% 23.8% 250,000 23.0%
J. Duncan Smith (3)........... 7,380 * 6,999,994 24.7% 24.0% 250,000 23.3%
Robert E. Smith (4)........... 3,000 * 6,928,644 24.6% 23.7% 250,000 23.0%
River City Broadcasting
L.P.(5)....................... 4,181,818 38.7% -- -- 1.4% 500,000 1.3%
1215 Cole Street
St. Louis, Missouri 63106 ..
</TABLE>
===================
* Less than 1%
(1) Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to ten votes per share expect
for votes relating to "going private" and certain other transactions.
Holders of both classes of Common Stock will vote together as a single class
on all matters presented for a vote, except as otherwise may be required by
Maryland law, and holders of Class B Common Stock may exchange their shares
of Class B Common Stock into Class A Common Stock at any time.
(2) Includes 536,645 shares held in irrevocable trusts established by Frederick
G. Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
(3) Includes 529,075 shares held in irrevocable trusts established by J. Duncan
Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
(4) Includes 512,745 shares held in irrevocable trusts established by Robert E.
Smith for the benefit of his children and as to which Mr. Smith has the
power to acquire by substitution of trust property. Absent such
substitution, Mr. Smith would have no power to vote or dispose of the
shares.
(5) River City Broadcasting, L.P. ("River City") currently holds 1,150,000
shares of Series B Preferred Stock. River City intends (or, if the shares of
Series B Preferred Stock are distributed to River City's partners prior to
the effective date of the Registration Statement of which this Prospectus is
a part, certain partners of River City intend) to convert certain shares of
Series B Preferred Stock into shares of Class A Common Stock in accordance
with the terms of the Series B Preferred Stock and to sell such shares of
Class A Common Stock in approximately the amounts set forth above. The
number of shares to be sold by River City or its partners may be less than
the amounts set forth above. River City intends to distribute the proceeds
of such sales to its partners.
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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.
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,
40,249,981 shares of Common Stock, consisting of 12,882,400 shares of Class A
Common Stock and 27,367,581 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.
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
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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 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."
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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. After the Offering, 1,012,500 shares of
Series B Preferred Stock are expected to be issued and outstanding. 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.
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
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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 Law and the Company's Amended Certificate and by-laws. The summary
does not purport to be complete and reference is made to Maryland General
Corporation 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 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.
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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 provision 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.
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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 40,249,981 shares of Common Stock consisting of 12,882,400 shares of
Class A Common Stock and 27,367,581 shares of Class B Common Stock, assuming no
exercise of the underwriters over-allotment option. Of these shares, the
6,250,000 shares of Class A Common Stock sold in the Offering plus an additional
6,632,400 shares of Class A Common Stock outstanding prior to the 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 5,064,253 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 27,367,581 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 128,824 shares immediately after the 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
Offering and the holders of approximately 925,000 shares of Series B Preferred
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Stock (convertible into approximately 3,366,000 shares of Class A Common Stock)
have entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell, or otherwise dispose of the shares of Common
Stock of the Company or any securities convertible into, or exercisable or
exchangeable for Common Stock of the Company owned by them for a period of 90
days from the date of this Prospectus without the prior written consent of Smith
Barney Inc. See "Underwriting."
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 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 with the quarterly payments escalating annually through the
final maturity date of 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 the quarterly
payments escalating annually through the final maturity date of November 30,
2003.
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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.), and the Stockholder Affiliates (other than Gerstell
Development Corporation) have guaranteed the obligations of the Company. In
addition, all subsidiaries of the Company (other than Cresap Enterprises, Inc.),
and the Stockholder Affiliates 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
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
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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
subsidiaries 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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<PAGE>
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 and the Selling Stockholders have 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:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
- --------------------------------------------------- -----------
<S> <C>
Smith Barney Inc...................................
Alex. Brown & Sons Incorporated....................
Donaldson, Lufkin & Jenrette Securities
Corporation........................................
Prudential Securities Incorporated.................
Salomon Brothers Inc...............................
---------
Total............................................ 5,000,000
=========
</TABLE>
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 and the
Selling Stockholders have 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:
<TABLE>
<CAPTION>
NUMBER
MANAGER OF SHARES
- --------------------------------------------------- -----------
<S> <C>
Smith Barney Inc...................................
Alex. Brown & Sons Incorporated ...................
Donaldson, Lufkin & Jenrette Securities
Corporation........................................
Prudential-Bache Securities (U.K.) Inc.............
Salomon Brothers International Limited.............
---------
Total............................................ 1,250,000
=========
</TABLE>
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 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
937,500 additional shares of Class A Common
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<PAGE>
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 Selling Stockholders, 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, the holders of all of the shares of
Class B Common Stock to be outstanding after the Offering and the holders of
approximately 925,000 shares of Series B Preferred Stock (convertible into
approximately 3,363,000 shares of Class A Common Stock) 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, Common Stock of
the Company; provided that the period during which holders of Series B Preferred
Stock are prevented from selling will terminate no later than March 18, 1997 and
such holders may transfer shares to the extent necessary to satisfy regulatory
requirements.
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 5,000,000 shares of Class A
Common Stock offered in the U.S. Offering (plus any of the 937,500 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 1,250,000 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
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<PAGE>
which do not constitute an offer to the public within the meaning of the Public
Offering of Securities 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.
Smith Barney Inc. has and may continue to provide investment banking services
to the Company for which it receives customary fees.
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.
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<PAGE>
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, included elsewhere in this Prospectus and elsewhere in the
registration statement of which this Prospectus is a part have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their reports with respect thereto, and are included herein 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, included elsewhere 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 included herein 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, included elsewhere
in this Prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein 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 Group, Inc.
at December 31, 1995 and 1994, and for each of the two years in the period ended
December 31, 1995 and 1994, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such 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, included elsewhere
in this Prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their reports with respect
thereto, and are included herein 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, 1995 and 1994 and for
the years then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
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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<PAGE>
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.
88
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Audited Financial Statements
Report of Independent Public Accountants............................................................. F-4
Consolidated Balance Sheets as of December 31, 1994 and 1995......................................... F-5
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995........... F-6
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993 1994, and 1995. F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995........... F-8
Notes to Consolidated Financial Statements .......................................................... F-10
Unaudited Financial Statements
Unaudited Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996...................... F-30
Unaudited Consolidated Statements of Operations for the Six Months Ended June 30, 1995 and June 30,
1996................................................................................................ F-31
Unaudited Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 1996..... F-32
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1995 and June 30,
1996................................................................................................ F-33
Notes to Unaudited Consolidated Financial Statements ................................................ F-34
RIVER CITY BROADCASTING L.P. (BUSINESS ACQUIRED)
Audited Financial Statements
Independent Auditors' Report......................................................................... F-39
Consolidated Balance Sheets as of December 31, 1994 and 1995......................................... F-40
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995........... F-41
Consolidated Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1993, 1994
and 1995............................................................................................ F-42
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995........... F-43
Notes to Consolidated Financial Statements........................................................... F-44
Unaudited Financial Statements
Unaudited Consolidated Balance Sheet as of March 31, 1996............................................ F-54
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 1995 and March
31, 1996............................................................................................ F-55
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1995 and March
31, 1996............................................................................................ F-56
Notes to Unaudited Consolidated Financial Statements................................................. F-57
F-1
<PAGE>
PAGE
-------
SUPERIOR COMMUNICATIONS GROUP, INC. (BUSINESS ACQUIRED)
Audited Financial Statements
Report of Independent Auditors....................................................................... F-58
Consolidated Balance Sheets as of December 31, 1995 and 1994......................................... F-59
Consolidated Statements of Operations for the Years Ended December 31, 1995 and 1994................. F-60
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1994....... F-61
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and 1994 ................ F-62
Notes to Consolidated Financial Statements........................................................... F-63
Unaudited Financial Statements
Unaudited Consolidated Balance Sheet as of March 31, 1996............................................ F-70
Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 1995 and March
31, 1996............................................................................................ F-71
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1995 and March
31, 1996............................................................................................ F-72
Notes to Unaudited Consolidated Financial Statements................................................. F-73
FLINT TV, INC. (BUSINESS ACQUIRED)
Audited Financial Statements
Report of Independent Public Accountants............................................................. F-74
Balance Sheets as of December 31, 1995 and 1994...................................................... F-75
Statements of Operations for the Years Ended December 31, 1995 and 1994.............................. F-76
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995 and 1994......... F-77
Statements of Cash Flows for the Years Ended December 31, 1995 and 1994.............................. F-78
Notes to Financial Statements........................................................................ F-79
PARAMOUNT STATIONS GROUP OF KERNVILLE, INC. (BUSINESS ACQUIRED)
Audited Financial Statements
Report of Independent Public Accountants............................................................. F-82
Balance Sheets as of August 3, 1995 and December 31, 1994............................................ F-83
Statements of Operations for the Period from January 1, 1995 through August 3, 1995 and for the Year
Ended December 31, 1994............................................................................. F-84
Statements of Changes in Stockholder's Equity for the Period from January 1, 1995 through August 3,
1995 and for the Year Ended December 31, 1994....................................................... F-85
Statements of Cash Flows for the Period from January 1, 1995 through August 3, 1995 and for the Year
Ended December 31, 1994............................................................................. F-86
Notes to Financial Statements ....................................................................... F-87
KRRT, INC. (BUSINESS ACQUIRED)
Audited Financial Statements
Report of Independent Public Accountants............................................................. F-92
Balance Sheet as of December 31, 1995................................................................ F-93
Statement of Operations for the Period from July 25, 1995 through December 31, 1995.................. F-94
Statement of Changes in Stockholders' Equity for the Period from July 25, 1995 through December 31,
1995................................................................................................ F-95
Statement of Cash Flows for the Period from July 25, 1995 through December 31, 1995.................. F-96
Notes to Financial Statements........................................................................ F-97
F-2
<PAGE>
PAGE
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KANSAS CITY TV 62 LIMITED PARTNERSHIP (BUSINESS ACQUIRED)
Audited Financial Statements
Report of Independent Accountants.................................................................... F-102
Balance Sheets as of December 31, 1995 and 1994...................................................... F-103
Statements of Operations for the Years Ended December 31, 1995 and 1994.............................. F-104
Statements of Cash Flows for the Years Ended December 31, 1995 and 1994.............................. F-105
Statements of Changes in Partners' Capital for the Years Ended December 31, 1995 and 1994............ F-106
Notes to Financial Statements ....................................................................... F-107
Unaudited Financial Statements
Unaudited Balance Sheet as of June 30, 1996.......................................................... F-113
Unaudited Statements of Operations for the Six Months Ended June 30, 1995 and June 30, 1996.......... F-114
Unaudited Statements of Cash Flows for the Six Months Ended June 30, 1995 and June 30, 1996.......... F-115
Notes to Unaudited Financial Statements ............................................................. F-116
CINCINNATI TV 64 LIMITED PARTNERSHIP (BUSINESS ACQUIRED)
Audited Financial Statements
Report of Independent Accountants.................................................................... F-117
Balance Sheets as of December 31, 1995 and 1994...................................................... F-118
Statements of Operations for the Years Ended December 31, 1995 and 1994.............................. F-119
Statements of Cash Flows for the Years Ended December 31, 1995 and 1994.............................. F-120
Statements of Changes in Partners' Capital for the Years Ended December 31, 1995 and 1994............ F-121
Notes to Financial Statements........................................................................ F-122
Unaudited Financial Statements
Unaudited Balance Sheet as of June 30, 1996.......................................................... F-128
Unaudited Statements of Operations for the Six Months Ended June 30, 1995 and June 30, 1996.......... F-129
Unaudited Statements of Cash Flows for the Six Months Ended June 30, 1995 and June 30, 1996.......... F-130
Notes to Unaudited Financial Statements.............................................................. F-131
</TABLE>
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Sinclair
Broadcast Group, Inc. (a Maryland corporation) and Subsidiaries as of December
31, 1994 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1993, 1994
and 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sinclair Broadcast Group, Inc.
and Subsidiaries, as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1993, 1994, and
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 27, 1996
F-4
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents of $10 and $108,720, respectively.................. $ 2,446 $112,450
Accounts receivable, net of allowance for doubtful accounts of $855 and $1,066,
respectively....................................................................... 39,773 50,022
Current portion of program contract costs........................................... 14,615 18,036
Deferred barter costs............................................................... 483 1,268
Prepaid expenses and other current assets........................................... 7,714 1,972
Deferred tax asset ................................................................. 4,424 4,565
---------- ----------
Total current assets.............................................................. 69,455 188,313
PROPERTY AND EQUIPMENT, net.......................................................... 41,183 42,797
PROGRAM CONTRACT COSTS, less current portion......................................... 17,096 19,277
LOANS TO OFFICERS AND AFFILIATES, net of deferred gain of $521 and $-0-,
respectively........................................................................ 12,691 11,900
NON-COMPETE AND CONSULTING AGREEMENTS, net of accumulated amortization of $12,429
and $34,000, respectively........................................................... 50,888 30,379
DEFERRED TAX ASSET................................................................... 8,114 16,462
OTHER ASSETS......................................................................... 18,784 27,355
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net of accumulated amortization of $27,799
and $49,746, respectively........................................................... 181,117 268,789
---------- ----------
Total Assets...................................................................... $399,328 $605,272
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................... $ 3,327 $ 2,187
Income taxes payable................................................................ 6,371 3,944
Accrued liabilities................................................................. 11,887 20,720
Current portion of long-term liabilities-
Notes payable and commercial bank financing........................................ 25,467 1,133
Capital leases payable............................................................. 491 524
Notes and capital leases payable to affiliates..................................... 1,670 1,867
Program contracts payable.......................................................... 20,113 26,395
Deferred barter revenues............................................................ 737 1,752
---------- ----------
Total current liabilities......................................................... 70,063 58,522
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing......................................... 302,242 400,644
Capital leases payable.............................................................. 573 44
Notes and capital leases payable to affiliates...................................... 15,827 13,959
Program contracts payable........................................................... 21,838 30,942
Other long-term liabilities......................................................... 125 2,442
---------- ----------
Total liabilities................................................................. 410,668 506,553
---------- ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY...................................... 2,383 2,345
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized and outstanding........ -- --
Class A Common stock, $.01 par value, 35,000,000 shares authorized and -0- and
5,750,000 shares issued and outstanding, respectively.............................. -- 58
Class B Common stock, $.01 par value, 35,000,000 shares authorized and 29,000,000
shares issued and outstanding...................................................... 290 290
Additional paid-in capital.......................................................... 4,774 116,089
Accumulated deficit................................................................. (18,787) (20,063)
---------- ----------
Total stockholders' equity (deficit).............................................. (13,723) 96,374
---------- ----------
Total Liabilities and Stockholders' Equity........................................ $399,328 $605,272
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-5
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions of $12,547,
$21,235 and $31,797, respectively.................................... $ 69,532 $118,611 $187,934
Revenues realized from station barter arrangements.................... 6,892 10,743 18,200
---------- ---------- ----------
Total revenues...................................................... 76,424 129,354 206,134
---------- ---------- ----------
OPERATING EXPENSES:
Program and production................................................ 10,941 15,760 22,563
Selling, general and administrative................................... 15,724 25,578 41,763
Expenses realized from barter arrangements............................ 5,630 9,207 16,120
Amortization of program contract costs and net realizable value
adjustments.......................................................... 9,448 22,360 29,021
Depreciation and amortization of property and equipment............... 2,558 3,841 5,400
Amortization of acquired intangible broadcasting assets, non-compete
and consulting agreements and other assets........................... 10,480 29,386 45,989
Special bonuses to executive officers................................. 10,000 3,638 --
---------- ---------- ----------
Total operating expenses............................................ 64,781 109,770 160,856
---------- ---------- ----------
Broadcast operating income.......................................... 11,643 19,584 45,278
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expenses................... (12,852) (25,418) (39,253)
Interest income....................................................... 1,220 2,033 3,942
Other income.......................................................... 911 414 221
---------- ---------- ----------
Income (loss) before benefit (provision) for income taxes and
extraordinary items................................................ 922 (3,387) 10,188
BENEFIT (PROVISION) FOR INCOME TAXES (Note 8).......................... (960) 647 (5,200)
---------- ---------- ----------
Net income (loss) before extraordinary items........................ (38) (2,740) 4,988
EXTRAORDINARY ITEMS:
Loss on early extinguishment of debt, net of related income tax
benefit of $2,900, $-0- and $3,357, respectively..................... (9,164) -- (4,912)
Gain on purchase of warrants.......................................... 1,257 -- --
---------- ---------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS..................... $ (7,945) $ (2,740) $ 76
========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE
Net income (loss) before extraordinary items.......................... $ -- $ (.09) $ .15
Extraordinary items................................................... (.27) -- (.15)
---------- ---------- ----------
Net income (loss) per common share..................................... $ (.27) $ (.09) $ --
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands)..................... 29,000 29,000 32,198
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS TOTAL
PREFERRED COMMON COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL DEFICIT) EQUITY
----------- --------- --------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992, as previously
reported.......................................... $ -- $ -- $ 290 $ 4,576 $ (8,631) $ (3,765)
Adjustments for KCI pooling of interests ......... -- -- -- 109 529 638
----------- --------- --------- ------------ ------------- ---------------
BALANCE, December 31, 1992, as restated........... -- -- 290 4,685 (8,102) (3,127)
Realization of deferred gain...................... -- -- -- 48 -- 48
Net loss.......................................... -- -- -- -- (7,945) (7,945)
----------- --------- --------- ------------ ------------- ---------------
BALANCE, December 31, 1993........................ -- -- 290 4,733 (16,047) (11,024)
Realization of deferred gain...................... -- -- -- 41 -- 41
Net loss.......................................... -- -- -- -- (2,740) (2,740)
----------- --------- --------- ------------ ------------- ---------------
BALANCE, December 31, 1994........................ -- -- 290 4,774 (18,787) (13,723)
Issuance of common shares, net of related
expenses of $9,288................................ -- 58 -- 111,403 -- 111,461
Non-cash distribution prior to KCI merger ........ -- -- -- (109) (1,352) (1,461)
Realization of deferred gain...................... -- -- -- 21 -- 21
Net income........................................ -- -- -- -- 76 76
----------- --------- --------- ------------ ------------- ---------------
BALANCE, December 31, 1995........................ $ -- $ 58 $ 290 $116,089 $(20,063) $ 96,374
=========== ========= ========= ============ ============= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(7,945) $ (2,740) $ 76
Adjustments to reconcile net income (loss) to net cash
flows from operating activities-
Extraordinary loss....................................... 12,064 -- 8,269
(Gain) loss on sales of assets........................... 115 -- (221)
Depreciation and amortization of property and equipment.. 2,558 3,841 5,400
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets.. 10,480 29,386 45,989
Amortization of program contract costs and net realizable
value adjustments....................................... 9,448 22,360 29,021
Deferred tax benefit..................................... (5,050) (9,177) (5,089)
Realization of deferred gain............................. (171) (152) (42)
Amortization of debt discount............................ 1,883 -- --
Payments of costs related to financing................... (5,136) (7,083) (3,200)
Gain on life insurance proceeds.......................... (844) -- --
Gain on repurchase of warrants........................... (1,257) -- --
Changes in assets and liabilities, net of effects of
acquisitions and dispositions-
Increase in receivables, net............................. (553) (20,111) (12,245)
Decrease in refundable income taxes...................... 1,415 385 --
Decrease (increase) in prepaid expenses and other current
assets.................................................. 803 (1,057) (273)
(Increase) decrease in other assets and acquired
intangible broadcasting assets.......................... (1,226) 910 (77)
Increase in accounts payable and accrued liabilities..... 2,516 6,556 7,274
Increase (decrease) in income taxes payable.............. 704 5,481 (2,427)
Net effect of change in deferred barter revenues and
deferred barter costs................................... 149 103 230
Decrease in minority interest............................ -- -- (38)
Payments on program contracts payable..................... (8,723) (14,262) (19,938)
Payments for consulting agreements........................ -- (742) --
---------- ---------- ----------
Net cash flows from operating activities................ $11,230 $ 13,698 $ 52,709
---------- ---------- ----------
Net cash flows from operating activities................ $11,230 $ 13,698 $ 52,709
---------- ---------- ----------
</TABLE>
F-8
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(in thousands)
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.................. (528) (2,352) (1,702)
Payments for acquisition of television stations........ -- (160,795) (101,000)
Prepaid local marketing agreement fee.................. -- (1,500) --
Payments for acquisition of non-license assets......... -- -- (14,283)
Payments for purchase of investments................... -- (502) --
Payment for WSTR subordinated note..................... -- (4,800) --
Payments for consulting and non-compete agreements..... -- (59,970) (1,000)
Payments for purchase options ......................... -- (17,500) (9,000)
Payment to exercise purchase option.................... -- -- (1,000)
Distribution received from investment in joint venture. -- -- 240
Proceeds from disposal of property and equipment....... 398 -- 3,330
Proceeds from assignment of license purchase options... -- -- 4,200
Payment for WPTT subordinated convertible debenture.... -- -- (1,000)
Loans to officers and affiliates....................... (244) (50) (205)
Repayments of loans to officers and affiliates......... 943 386 2,177
Proceeds from life insurance benefits.................. 1,075 -- --
Payments for organization of new subsidiaries.......... (123) (198) --
Fees paid relating to subsequent acquisitions ......... -- (2,500) --
----------- ----------- -----------
Net cash flows from (used in) investing activities... 1,521 (249,781) (119,243)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank
financing............................................. 225,000 224,985 138,000
Repayments of notes payable, commercial bank financing
and capital leases.................................... (110,806) (102,069) (362,928)
Payments of costs related to debt offering............. -- -- (824)
Payments for interest rate derivative agreements....... -- (1,137) --
Cash placed in escrow.................................. (100,000) -- --
Release of cash in escrow.............................. -- 100,000 --
Purchase of warrants................................... (10,350) -- --
Proceeds from debt offering, net of $6,000
underwriters' discount................................ -- -- 294,000
Repayments of notes and capital leases to affiliates... (382) (1,286) (3,171)
Net proceeds from issuance of common shares............ -- -- 111,461
----------- ----------- -----------
Net cash flows from financing activities............. 3,462 220,493 176,538
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... 16,213 (15,590) 110,004
CASH AND CASH EQUIVALENTS, beginning of period ......... 1,823 18,036 2,446
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period................ $ 18,036 $ 2,446 $ 112,450
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid........................................... $ 9,460 $ 27,102 $ 24,770
=========== =========== ===========
Income taxes paid....................................... $ 527 $ 4,921 $ 7,941
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Sinclair Broadcast Group, Inc. (SBG), Chesapeake Television, Inc. (WBFF), WPGH,
Inc. (WPGH), WTTE Channel 28, Inc. (WTTE), WCGV, Inc. (WCGV), WTTO, Inc. (WTTO),
WLFL, Inc. (WLFL), WTVZ, Inc. (WTVZ) and all other subsidiaries. The companies
mentioned above, which are collectively referred to hereafter as "the Company or
Companies", own and operate television stations in Baltimore, Maryland,
Pittsburgh, Pennsylvania, Columbus, Ohio, Milwaukee, Wisconsin, Birmingham,
Alabama, Raleigh/Durham, North Carolina and Norfolk, Virginia. Additionally,
included in the accompanying consolidated financial statements are the results
of operations of certain television stations pursuant to local marketing
agreements (LMA's). These markets are Pittsburgh, Pennsylvania, Baltimore,
Maryland, Milwaukee, Wisconsin, Raleigh/Durham, North Carolina, Birmingham,
Alabama and Tuscaloosa, Alabama.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all its wholly-owned and majority-owned subsidiaries. Minority interest
represents a minority owner's proportionate share of the equity in one of the
Company's subsidiaries. In addition, the Company uses the equity method of
accounting for 20% to 50% ownership investments. All significant intercompany
transactions and account balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses in the
financial statements and in the disclosures of contingent assets and
liabilities. While actual results could differ from those estimates, management
believes that actual results will not be materially different from amounts
provided in the accompanying consolidated financial statements.
CASH EQUIVALENTS
Cash equivalents are stated at cost plus accrued interest, which approximates
fair value. Cash equivalents are highly liquid investment grade debt instruments
with an original maturity of three months or less and consist of time deposits
with a number of consumer banks with high credit ratings.
PROGRAMMING
The Companies have agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as a liability when the
license period begins and the program is available for its first showing. The
portion of the program contracts payable within one year is reflected as a
current liability in the accompanying consolidated balance sheets.
The rights to program materials are reflected in the accompanying consolidated
balance sheets at the lower of unamortized cost or estimated net realizable
value. Estimated net realizable values are based upon management's expectation
of future advertising revenues net of sales commissions to be generated by the
program material. Amortization of program contract costs is generally computed
under either a four year accelerated method or based on usage, whichever yields
the greater amortization for each program. Program contract costs, estimated by
management to be amortized in the succeeding year, are classified as current
assets.
F-10
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
WPGH, WBFF, WTTE, WLFL, WTVZ and WTTO are affiliated with the Fox Broadcasting
Company (Fox). Under the affiliation agreements, WPGH, WBFF, WTTE, WLFL, WTVZ
and WTTO are committed to make available certain time periods for Fox
programming through October 15, 1998, in exchange for advertising air time and
other defined compensation. WTTO will not renew its Fox affiliation after
October 1996. WLFL and WTVZ have been given notice that subsequent renewal of
the Fox affiliation will not be offered. Accordingly, the Fox affiliation value
is being amortized through the termination dates of the respective agreements.
In 1993, 1994 and 1995, the Company generated revenues of $14.2 million, $22.8
million and $32.3 million related to Fox affiliation programming, respectively.
The increase in Fox affiliation revenues is primarily due to the acquisitions of
Fox affiliated stations in 1994 and 1995.
During 1994, WCGV, WNUV, WTTE and WRDC entered into affiliation agreements with
the United Paramount Network (UPN). UPN provides affiliated stations with
programming in return for the stations broadcasting UPN-inserted commercials
during the programs. UPN began broadcasting on its affiliated stations in
January 1995. The initial term of the affiliation agreements is for three years.
In 1995, the Company generated revenues of $4.4 million related to UPN
programming.
BARTER ARRANGEMENTS
The Company broadcasts certain customers' advertising in exchange for equipment,
merchandise and services. The estimated fair value of the equipment, merchandise
or services received is recorded as deferred barter costs and the corresponding
obligation to broadcast advertising is recorded as deferred barter revenues. The
deferred barter costs are expensed or capitalized as they are used, consumed or
received. Deferred barter revenues are recognized as the related advertising is
aired.
Certain program contracts provide for the exchange of advertising air time in
lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights. Network
programming such as Fox and UPN are excluded from these calculations.
OTHER ASSETS
Other assets as of December 31, 1994 and 1995 consist of the following (in
thousands):
1994 1995
--------- ---------
Unamortized debt acquisition costs.................. $ 8,776 $ 9,049
Investment in limited partnership................... 2,505 2,435
WSTR note........................................... 4,578 4,775
WSMH purchase option................................ -- 1,000
KSMO and WSTR purchase options...................... -- 9,000
Fees paid in connection with subsequent
acquisitions........................................ 2,500 --
Other............................................... 425 1,096
--------- ---------
$18,784 $27,355
========= =========
NON-COMPETE AND CONSULTING AGREEMENTS
The Company has entered into non-compete and consulting agreements with various
parties. These agreements range from two to three years. Amounts paid under
these agreements are amortized over the life of the agreement.
F-11
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ACQUIRED INTANGIBLE BROADCASTING ASSETS
Acquired intangible broadcasting assets are being amortized over periods of 1 to
40 years. These amounts result from the acquisition of minority interests in
1986 and stock redemptions in 1988 and 1990, as well as the acquisitions of
WPGH, WCGV, WTTO, WLFL and WTVZ and the acquisition of the non-license assets of
WNUV, WVTV, WRDC, WABM and WDBB (see Note 14). The weighted average life of the
related assets which include goodwill, FCC licenses, decaying advertising base,
Fox affiliation agreements and other intangible assets is approximately
twenty-three years. The Company monitors the individual financial performance of
each of the stations and continually evaluates the realizability of goodwill and
the existence of any impairment to its recoverability based on the projected
future net income of the respective stations.
Intangible assets, at cost, as of December 31, 1994 and 1995, consist of the
following (in thousands):
AMORTIZATION
PERIOD 1994 1995
--------------- ---------- ----------
Goodwill...................... 40 years $ 67,005 $109,772
Intangibles related to LMAs .. 15 years 91,178 103,437
Decaying advertiser base ..... 1 -- 15 years 21,316 38,424
FCC Licenses.................. 25 years 18,768 44,564
Fox network affiliations ..... 1 -- 25 years 8,482 17,482
Other......................... 1 -- 40 years 2,167 4,856
---------- ----------
208,916 318,535
Less- Accumulated
amortization.................. (27,799) (49,746)
---------- ----------
$181,117 $268,789
========== ==========
ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31, 1994 and 1995
(in thousands):
1994 1995
------- -------
Payroll ........................... $ 1,572 $ 673
Bonuses ........................... 4,208 2,273
Interest .......................... 1,030 11,104
Other ............................. 5,077 6,670
------- -------
$11,887 $20,720
======= =======
BONUSES DECLARED
In September 1993, the Company paid special bonuses to executive officers
totaling $10.0 million relating to their service to the Company in previous
years. As of December 31, 1994, the Company had declared but not paid special
bonuses to executive officers totaling $3.6 million. These bonuses were paid in
1995. These bonuses relate to the value brought to the Company by the executive
officers in coordinating the integration of the 1994 acquisitions and improving
the operations and financial results of the acquired companies during 1994. For
the year ended December 31, 1995, special bonuses to executive officers were not
declared.
F-12
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NON-CASH TRANSACTIONS
During 1993, 1994 and 1995 the Company entered into the following non-cash
transactions (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
-------- --------- ---------
<S> <C> <C> <C>
o Purchase accounting adjustments related to deferred
taxes (Note 8).......................................... $ -- $ -- $ 3,400
======== ========= =========
o Program contract costs acquired/obligations assumed . $3,602 $20,750 $26,918
======== ========= =========
o Distribution prior to KCI merger (Note 14) .......... $ -- $ -- $ 1,461
======== ========= =========
o Acceptance of a note from a related party in
exchange for assignment of an existing note (Note 9) ... $6,559 $ -- $ --
======== ========= =========
o Acceptance of note from a related party in exchange
for certain property (Note 9)........................... $2,100 $ -- $ --
======== ========= =========
o Capital leases entered into with related parties
(Note 5)................................................ $2,882 $ -- $ --
======== ========= =========
o Deferred financing fees to be refunded by
underwriters (Note 4)................................... $1,000 $ -- $ --
======== ========= =========
</TABLE>
LOCAL MARKETING AGREEMENTS
The Company has entered into Local Marketing Agreements (LMA's) with the
licensees of WPTT, WNUV, WVTV, WRDC, WABM and WDBB. 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 substantially all of the
station's inventory of broadcast time. The expenses associated with the sale of
advertising and depreciation and amortization related to the acquired assets are
included in the consolidated statements of operations in their respective
expense categories. 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. In the case of WNUV,
WVTV, WRDC and WABM, the Company initially (i) acquired the property and
equipment, programming contracts, advertiser subscription lists, and similar
assets (the "Non-License Assets") and (ii) obtained an option to acquire the
station assets essential for broadcasting a television signal in compliance with
regulatory guidelines, generally consisting of the FCC license, transmitter,
transmission lines, on air operating equipment, call letters and trademarks (the
"License Assets"). 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 entered into an LMA with the Company. These options were subsequently
assigned to Glencairn (see Note 9). Included in the accompanying consolidated
statements of operations for the years ended December 31, 1993, 1994 and 1995,
are total revenues of $4,110,000, $24,997,000 and $49,469,000 respectively, that
relate to LMA's.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform with the current year presentation.
F-13
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method over the following
estimated useful lives:
Buildings and improvements ............................ 10 -- 35 years
Station equipment ..................................... 5 -- 10 years
Office furniture and equipment ........................ 5 -- 10 years
Leasehold improvements ................................ 10 -- 31 years
Automotive equipment .................................. 3 -- 5 years
Property and equipment and autos under capital Shorter of 10 years
leases ................................................ or the lease term
Property and equipment consisted of the following as of December 31, 1994 and
1995 (in thousands):
1994 1995
---------- ----------
Land and improvements............................. $ 1,503 $ 1,768
Buildings and improvements........................ 10,688 10,743
Station equipment................................. 29,210 33,423
Office furniture and equipment.................... 2,739 3,451
Leasehold improvements............................ 2,238 2,564
Automotive equipment.............................. 584 603
Property, equipment and autos under capital
leases............................................ 10,372 10,372
---------- ----------
57,334 62,924
Less- Accumulated depreciation and amortization .. (16,151) (20,127)
---------- ----------
$ 41,183 $ 42,797
========== ==========
3. INTEREST RATE DERIVATIVE AGREEMENTS:
The Company entered into interest rate derivative agreements to reduce the
impact of changing interest rates on its floating rate debt, primarily relating
to the Bank Credit Agreement (see Note 4). In August 1995, the Company repaid
the outstanding indebtedness relating to the Bank Credit Agreement with proceeds
from the Public Debt Offering (see Note 4); however, derivative instruments
relating to the Bank Credit Agreement remain in place at December 31, 1995. The
Bank facilities are currently available and expected to be utilized during 1996.
The Company does not enter into interest rate derivativeInterest Rate Hedging
agreements for speculative trading purposes.
At December 31, 1995, the Company had four interest rate swap agreements with
commercial banks which expire from March 31, 1997 to March 31, 2000. The swap
agreements set rates in the range of 5.85% to 7.25%. The notional amounts
related to these agreements were $160.0 million at December 31, 1995 and
decrease to $50.0 million through the expiration dates. The Company has no
intentions of terminating these instruments prior to their expiration dates.
The floating interest rates are based upon the three month London Interbank
Offering Rate (LIBOR) rate, and the measurement and settlement is performed
quarterly. Settlements of these agreements are recorded as adjustments to
interest expense in the relevant periods. Premiums paid under these agreements
were approximately $1.1 million and are amortized over the life of the
agreements. The counter parties to these agreements are major national financial
institutions. The Company estimates the aggregate cost to retire these
instruments at December 31, 1995, to be $2.6 million.
F-14
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:
PUBLIC DEBT OFFERING
In August 1995, the Company consummated the sale of $300.0 million of 10% Senior
Subordinated Notes (the "Notes"), due 2005, generating net proceeds to the
Company of $293.2 million. The net proceeds of this offering 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
future acquisitions.
In conjunction with the repayment of outstanding 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. This extraordinary loss consisted of the
recognition of unamortized debt acquisition costs.
Interest on the Notes is payable semiannually on March 30 and September 30 of
each year, commencing March 30, 1996. Interest expense for the year ended
December 31, 1995, was $10.4 million. The notes are issued under an indenture
among SBG, its subsidiaries (the guarantors) and the trustee. Costs associated
with the offering totaled $6.8 million, including an underwriting discount of
$6.0 million and are being amortized over the life of the debt.
The Company has the option to redeem the notes at any time on or after September
30, 2000. Redemption prices are as follows:
REDEMPTION PRICE
(AS A % OF PRINCIPAL
REDEMPTION DATE AMOUNT)
--------------- ---------------------
On or after September 30, 2000.............. 105%
2001.............. 103%
2002.............. 102%
Furthermore, at any time on or prior to September 30, 1998, the Company may
redeem up to 25% of the original principal amount of the Notes with the net
proceeds of a public equity offering at 110% of the principal amount. The Notes
also may be redeemed by the holder at 101% of the principal amount upon
occurrence of a change of control, as defined in the Indenture.
Based upon the quoted market price, the fair value of the Notes as of December
31, 1995 is $306,750.
Under the terms of the Indenture, the Notes are guaranteed by the Company and
substantially each of its subsidiaries (the guarantors). The guarantors are
wholly-owned, any non-guarantors are inconsequential to the consolidated
financial statements and the guarantees are full, unconditional, and joint and
several.
BANK CREDIT AGREEMENT
In connection with the 1994 Acquisitions (see Note 14), the Company entered into
a Bank Credit Agreement. The Bank Credit Agreement consisted of three classes:
Facility A Revolving Credit and Term Loan, Facility B Credit Loan and Facility C
Term Loan. In August 1995, the Company utilized the net proceeds from the Public
Debt Offering mentioned above to repay amounts outstanding under the Bank Credit
Agreement.
The Facility A Revolving Credit and Term Loan consists of a Revolving Credit
Facility in a principal amount not to exceed $225.0 million. As of December 31,
1994, the Company had drawn $224.0 million and had a $1.0 million letter of
credit against the facility. Upon consummation of the Public Debt Offering
mentioned above, the Company utilized net proceeds to repay Facility A
outstanding indebtedness under Facility A of $78.0 million. The Company has no
indebtedness under Facility A of the Bank Credit Agreement as of December 31,
1995.
F-15
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under Facility B, the Bank Credit Agreement provides that the banks may, but are
not obligated to, loan the Company up to an additional $25.0 million at any time
prior to June 30, 2000. This additional loan, if agreed to by the agent and one
or more of the banks under the Bank Credit Agreement, would consist of up to a
$25.0 million revolving credit facility. The Company has no indebtedness under
Facility B of the Bank Credit Agreement as of December 31, 1995.
The Facility C Term Loan was a term loan for a maximum of $125.0 million and was
scheduled to be paid in quarterly installments beginning March 31, 1995 through
June 28, 2002. The Company did not draw any funds under this loan during 1994.
In January 1995, the Company incurred debt of approximately $109.0 million under
this facility in connection with the 1994 Acquisitions (see Note 14) and
incurred the balance of $16.0 million to repay the Facility A by an equivalent
amount. In conjunction with the Company's Public Debt Offering mentioned above,
the Company utilized net proceeds to repay Facility C indebtedness of $123.8
million. The Company has no indebtedness under Facility C of the Bank Credit
Agreement as of December 31, 1995.
Under the Bank Credit Agreement, the Company had the option to maintain domestic
and Eurodollar loans. Interest on borrowings under this agreement were at
varying rates based, at the Company's option, on the federal funds rate, the
banks' prime rate or the (LIBOR), plus a fixed percent, and are adjusted based
upon the ratio of total debt to broadcast operating cash flow. The weighted
average interest rates during 1994 and as of December 31, 1994 were 7.48% and
8.56%, respectively, and during 1995 while amounts were outstanding and as of
August 28, 1995, when outstanding indebtedness relating to Bank Credit Agreement
were repaid, were 8.44% and 7.63%, respectively. Interest expense relating to
the Bank Credit Agreement was $9.4 million and $15.6 million for the years ended
December 31, 1994 and 1995, respectively. Additionally, commitment fees of 1/2%
are payable quarterly.
SENIOR SUBORDINATED NOTES
In December 1993, the Company raised $200.0 million through the issuance of 10%
senior subordinated notes (the Notes), due 2003. Subsequently, the Company
determined that a redemption of $100.0 million was required as the acquisition
of WCGV and WTTO and the asset purchase of WNUV and WVTV (see Note 14) could not
be completed as defined in the Indenture. This redemption and a refund of $1.0
million of fees from the underwriters took place in the first quarter of 1994.
The remaining portion of the proceeds of the Notes was used to repay a secured
debt facility and for general corporate purposes. As of December 31, 1994 and
1995, $100.0 million is outstanding related to these notes.
The Company recognized an extraordinary loss on the planned redemption of the
senior subordinated notes of $1.1 million in 1993, which represented the direct
financing costs of the debt redeemed, less the refund received. In connection
with the repayment of the secured debt facility, the Company recognized an
extraordinary loss of $11.0 million in 1993. This loss consisted of the
recognition of unamortized debt discount of $7.0 million and the write-off of
deferred debt issuance costs of $4.0 million. The total extraordinary losses of
$12.0 million are recorded, net of $2.9 million in income tax benefits, as loss
on early extinguishment of debt in the 1993 financial statements.
Interest on the Notes is payable semiannually on June 15 and December 15 of each
year. Interest expense for the years ended December 31, 1993, 1994 and 1995, was
$1.2 million, $12.6 million and $10.1 million, respectively. The Notes are
issued under an Indenture among SBG, its subsidiaries (the guarantors) and the
trustee. Costs associated with the offering totaled $5.1 million, including
underwriting discount of $4.0 million. These costs, less the $1.0 million refund
related to the redemption, were capitalized and are being amortized over the
life of the debt.
F-16
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has the option to redeem the Notes any time after December 15, 1998.
Redemption prices are as follows:
REDEMPTION PRICE
(AS A % OF PRINCIPAL
REDEMPTION DATE AMOUNT)
--------------- --------------------
On or after December 15, 1998.............. 105%
1999.............. 104%
2000.............. 103%
2001.............. 100%
Furthermore, at any time on or prior to December 15, 1996, the Company may
redeem up to 25% of the original principal amount of the Notes with the net
proceeds of a public equity offering at 109% of the principal amount. The Notes
also may be redeemed by the holder at 101% of the principal amount upon
occurrence of a change of control, as defined in the Indenture.
Based upon the quoted market price, the fair value of the Notes as of December
31, 1995, is $102,250.
Under the terms of the Indenture, the Notes are guaranteed by the Company and
substantially each of its subsidiaries (the guarantors). The guarantors are
wholly-owned, any non-guarantors are inconsequential to the consolidated
financial statements and the guarantees are full, unconditional, and joint and
several.
The Indenture contains covenants limiting indebtedness, transactions with
affiliates, liens, sales of assets, issuances of guarantees of, and pledges for,
indebtedness, transfer of assets, dividends, mergers and consolidations.
WARRANT AGREEMENT
In 1991, WPGH entered into a warrant agreement with a commercial bank. The
warrants were valued at $11.6 million in accordance with an independent
appraisal and were recorded as warrants outstanding. A corresponding reduction
to the face amount of the commercial bank financing was recorded as a debt
discount and was being amortized over the term of the debt. Amortization of debt
discount expense was $1.9 million for the year ended December 31, 1993.
This agreement provided the bank an option to convert the warrants to 15% of the
issued and outstanding shares of common stock of WPGH. In June 1993, the Company
purchased 13.33% of the warrants outstanding for $850,000. The difference
between the carrying value of the warrants and the purchase price, net of
related expenses of $500,000, was recorded as an extraordinary gain of $198,000.
In September 1993, the Company purchased the remaining warrants outstanding for
$9.0 million and recognized an additional extraordinary gain of $1.1 million,
resulting in a total gain of $1.3 million.
SUMMARY
Notes payable and commercial bank financing consisted of the following as of
December 31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Bank Credit Agreement, Facility A Revolving Credit Loan............... $224,000 $ --
Line of credit, interest at prime plus 1%............................. 440 --
Bank loan, interest at prime plus 1%.................................. 545 --
Senior subordinated notes, interest at 10%............................ 100,000 100,000
Senior Subordinated Notes, interest at 10%............................ -- 300,000
Unsecured installment notes to former minority stockholders of CRI
and WBFF, interest ranging from 7% to 18%............................. 2,724 1,777
========== ==========
327,709 401,777
Less: Current portion................................................. (25,467) (1,133)
---------- ----------
$302,242 $400,644
========== ==========
</TABLE>
F-17
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company is required to maintain certain debt covenants in connection with
their debt agreements. As of December 31, 1995, the Company is in compliance
with all debt covenants.
Notes payable, as of December 31, 1995, mature as follows (in thousands):
1996 ............................... $ 1,133
1997 ............................... 644
1998 ............................... --
1999 ............................... --
2000 ............................... --
2001 and thereafter ................ 400,000
--------
$401,777
========
Substantially all of the Company's assets have been pledged as security for
notes payable and commercial bank financing. In addition, the Class B
stockholders have pledged their stock in SBG to the commercial bank and have
delivered mortgages and security agreements as additional collateral. Further,
Cunningham Communications, Inc. (Cunningham), Keyser Investment Group, Inc.
(KIG) and Gerstell Development Limited Partnership (Gerstell), all businesses
that are owned and controlled by these Class B stockholders, were required to
guarantee obligations to the commercial bank. Cunningham, KIG, and Gerstell are
landlords of the Company's operating subsidiaries. The guarantees of Cunningham,
KIG, and Gerstell are secured by pledges of substantially all of the assets of
each corporation.
The unsecured installment notes payable to former minority stockholders are
payable in semiannual payments of $702,000 through 1997. Should SBG exercise the
right to prepay the notes, a prepayment penalty not to exceed $940,000 also
becomes due to the noteholders.
5. NOTES AND CAPITAL LEASES PAYABLE TO AFFILIATES:
Notes and capital leases payable to affiliates consisted of the following as of
December 31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Subordinated installment notes payable to former majority owners, interest at
8.75%, principal payments in varying amounts due annually beginning October 1991,
with a balloon payment due at maturity in May 2005.................................. $12,384 $11,442
Capital lease for building, interest at 17.5%....................................... 1,591 1,500
Capital leases for broadcasting tower facilities, interest rates averaging 10% ..... 961 632
Capital leases for building and tower, interest at 8.25%............................ 2,561 2,252
--------- ---------
17,497 15,826
========= =========
Less: Current portion............................................................... (1,670) (1,867)
--------- ---------
$15,827 $13,959
========= =========
</TABLE>
Notes and capital leases payable to affiliates, as of December 31, 1995, mature
as follows (in thousands):
1996.................................................... $ 3,338
1997.................................................... 2,861
1998.................................................... 2,654
1999.................................................... 2,666
2000.................................................... 2,540
2001 and thereafter..................................... 9,790
---------
Total minimum payments due.............................. 23,849
Less: Amount representing interest...................... (8,023)
---------
Present value of future notes and capital lease
payments................................................ $15,826
=========
F-18
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. PROGRAM CONTRACTS PAYABLE:
Future payments required under program contracts payable as of December 31,
1995, are as follows (in thousands):
1996.......................................... $ 26,395
1997.......................................... 16,659
1998.......................................... 11,252
1999.......................................... 2,371
2000.......................................... 284
2001 and thereafter........................... 376
----------
57,337
Less- Current portion......................... (26,395)
----------
Long-term portion of program contracts
payable....................................... $ 30,942
==========
Included in the 1996 amounts are payments due in arrears of $6.5 million. In
addition, the Companies have entered into noncancelable commitments for future
program rights aggregating $36.5 million as of December 31, 1995. As is
consistent with prior years, program contracts payable and the assets related to
these commitments have not been recognized in the accompanying consolidated
financial statements as all of the conditions specified in the related license
agreements have not been met.
The Company has estimated the fair value of these program contract payables and
commitments at approximately $34.2 million and $18.9 million, respectively, at
December 31, 1994 and $51.3 million and $29.0 million, respectively, as of
December 31, 1995, based on future cash flows discounted at the Company's
current borrowing rate.
7. LOANS TO OFFICERS AND AFFILIATE:
On September 30, 1990, SBG sold Channel 63, Inc. (WIIB) to certain SBG Class B
stockholders. The proceeds of this sale of $1.5 million consisted of a note
which was amended and restated on June 30, 1992. The remaining principal balance
at that date was approximately $1.5 million and is payable in equal principal
and interest installments of $16,000 until September 2000, on which date a
balloon payment of approximately $431,000 is due. The note earns 6.88% annual
interest.
During 1992, a $900,000 note was received from the SBG stockholders, and during
1993 a $6.6 million note was received from a former majority owner in the
transactions described in Note 9.
Also during the year ended December 31, 1993, the Companies loaned the SBG Class
B stockholders an additional $2.3 million. The advance includes the $2.1 million
note from Gerstell Development Limited Partnership discussed in Note 9. The
loans are payable to SBG, have various due dates, and earn interest at rates
ranging from 7.9% to prime plus 1%.
During 1990, WBFF sold certain station equipment to an affiliate for $512,000.
The sale is accounted for on an installment basis since the affiliate is in the
start-up phase. The note is to be paid over five years and earns annual interest
at 11%. In connection with the start-up of this affiliate, certain SBG Class B
stockholders issued a note allowing them to borrow up to $3.0 million from the
Company. This note was amended and restated June 1, 1994, to a term loan bearing
interest of 6.88% with quarterly principal payments beginning March 31, 1996
through December 31, 1999. As of December 31, 1994 and 1995, the balance
outstanding was approximately $2.5 million.
F-19
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INCOME TAXES:
The Company files a consolidated federal income tax return and separate company
state tax returns. The provision (benefit) for income taxes consists of the
following as of December 31, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ---------
<S> <C> <C> <C>
Provision (benefit) for income taxes before
extraordinary items.................................. $ 960 $ (647) $ 5,200
Income tax effect of extraordinary items............. (2,900) -- (3,357)
---------- --------- ---------
$(1,940) $ (647) $ 1,843
========== ========= =========
Current:
Federal............................................. $ 2,255 $ 7,090 $ 5,374
State............................................... 855 1,440 1,558
---------- --------- ---------
3,110 8,530 6,932
---------- --------- ---------
Deferred:
Federal ............................................ (4,102) (7,650) (4,119)
---------- --------- ---------
State............................................... (948) (1,527) (970)
---------- --------- ---------
(5,050) (9,177) (5,089)
---------- --------- ---------
$(1,940) $ (647) $ 1,843
========== ========= =========
</TABLE>
The following is a reconciliation of the statutory federal income taxes to the
recorded provision (benefit) (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- --------
<S> <C> <C> <C>
Statutory federal income taxes................................. $(3,361) $(1,152) $ 652
Adjustments-
State income taxes, net of federal effect..................... 530 62 284
Goodwill amortization......................................... 325 476 1,209
Nontaxable gain on life insurance proceeds.................... (337) -- --
Income of pooled S Corporation (Note 14)...................... (192) (258) --
Nontaxable gain on sale of warrants........................... (427) -- --
Additional taxable income to be recognized in prior year
returns...................................................... 950 -- --
Not-to-compete agreement...................................... 131 -- --
Other......................................................... 441 225 (302)
---------- ---------- --------
Provision (benefit) for income taxes.......................... $(1,940) $ (647) $1,843
========== ========== ========
</TABLE>
During the year ended December 31, 1993, the Company generated taxable losses of
approximately $6.9 million. However, as permitted by the Internal Revenue
Service, the Company elected to amortize all intangibles acquired after July
1991 over 15 years and retroactively restate tax amortization related to the
WPGH acquisition. This restatement caused additional taxable income to be
recognized in the Company's amended 1991 and 1992 tax returns (which was
partially offset by 1993 taxable losses and prior year unutilized tax credits).
Previously unrecognized tax benefits of $3.8 million were generated related to
deductible acquired intangibles considered nondeductible prior to the election.
The Company had net deferred tax assets of $12.5 million and $21.0 million as of
December 31, 1994 and 1995, respectively. The realization of the net deferred
tax assets 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. Management believes that this net deferred asset will be
realized through future operating results. This belief is based on 1995's
taxable income and its projection of future years' results.
F-20
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company had the following NOL's included in the deferred tax asset as of
December 31, 1995.
LIMITED TO USE
JURISDICTION AMOUNT EXPIRING IN
- ----------------------- ---------- ------------- ----
FEDERAL $ 386,000 2004 WBFF
Federal ............... 6,190,073 2007 and 2008 FSFA
Temporary differences between the financial reporting carrying amounts and the
tax basis of assets and liabilities give rise to deferred taxes. The principal
sources of temporary differences, net of the effects of acquisitions, and their
effects on the provision (benefit) for deferred income taxes, are as follows for
the years ended December 31, 1993, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
NOL carryforward................................................. $ -- $ -- $ 1,180
FCC license...................................................... (92) 97 95
Non-compete agreements........................................... -- (1,768) --
Accrued bonuses.................................................. -- (1,647) 1,251
Program contract amortization and net realizable value
adjustments...................................................... (628) (2,782) 164
Depreciation and amortization.................................... (868) (288) 352
Bad debt reserves................................................ (13) (95) (60)
Tax credit carryforwards used ................................... 385 65 --
Capital lease accounting......................................... 142 237 318
Deferred commission recognition.................................. 89 89 91
Acquired intangibles amortization................................ (3,107) (3,230) (7,906)
Loss on fixed asset disposals.................................... -- -- (625)
Loss on planned redemption of senior subordinated notes ......... (419) 419 --
Other............................................................ 61 (274) --
(Decrease) increase in valuation reserve......................... (600) -- 51
---------- ---------- ----------
$(5,050) $(9,177) $(5,089)
========== ========== ==========
</TABLE>
Total deferred tax assets and deferred tax liabilities as of December 31, 1994
and 1995, including the effects of businesses acquired, and the sources of the
difference between financial accounting and tax bases of the Company's assets
and liabilities which give rise to the deferred tax assets and deferred tax
liabilities and the tax effects of each are as follows (in thousands):
1994 1995
--------- ---------
Deferred Tax Assets:
Loss on disposal of fixed
assets........................ $ -- $ 619
Net operating losses........... 1,055 2,676
Non-compete agreements......... 2,377 --
Accrued bonuses................ 1,647 394
Bad debt reserves.............. 294 398
Deferred commissions........... 148 57
Program contracts.............. 3,715 4,575
Acquired intangibles .......... 6,661 15,678
Other.......................... 96 634
--------- ---------
$15,993 $25,031
========= =========
Deferred Tax Liabilities:
FCC license.................... $ 2,278 $ 1,656
Depreciation and amortization.. 261 1,178
Capital lease accounting....... 634 988
Other.......................... 282 182
--------- ---------
$3,455 $4,004
========= =========
F-21
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 1995, the Company made a $3.4 million deferred tax adjustment under the
purchase accounting guidelines of APB 16 and in accordance with SFAS 109 related
to the opening deferred tax asset balances of certain 1994 acquisitions.
9. RELATED PARTY TRANSACTIONS:
Certain of the Companies have entered into sale-leaseback transactions in which
they have sold certain facilities to Cunningham Communications, Inc.
(Cunningham), a corporation owned by the SBG Class B stockholders, and then
leased the facilities under noncancelable capital leases which expire in 1997
and 1998. These assets collateralize certain Cunningham notes payable. Aggregate
rental payments related to these capital leases during the years ended December
31, 1993, 1994 and 1995, were $371,000, $279,000 and $328,000, respectively.
In August 1991, WBFF entered into a ten year capital lease at approximately
$300,000 per year for a new administrative and studio facility with KIG, a
corporation owned by the SBG Class B stockholders.
Effective August 30, 1991, SBG sold substantially all of the assets of CRI which
were primarily represented by the Pittsburgh television station, WPTT. The
majority of the sales price was financed through a term note of $6.0 million and
a $1.0 million subordinated convertible debenture to CRI. The debenture is
convertible for up to 80% of the nonvoting capital stock of WPTT, subject to FCC
approval. The term note is secured by all of the assets and outstanding stock of
the newly incorporated station. In conjunction with the WPTT transaction, on
August 30, 1991, a subsidiary of CRI purchased substantially all of the assets
of another Pittsburgh television station, WPGH. CRI also entered into lease
agreements whereby the new owner of WPTT rents usage of the tower and the
station building owned by CRI. The tower was subsequently sold to Gerstell
Development Limited Partnership (Gerstell), an entity wholly-owned by certain
SBG Class B stockholders.
In March 1993, CRI assigned the rights to the $6.0 million term note received
from the sale of WPTT, including accrued interest, to the former majority
stockholders of SBG at the Company's carrying value. The new note bears interest
at 7.21% and requires interest only payments through September 2001. Monthly
principal payments plus interest are payable beginning November 2001 until
September 2006, at which time the remaining principal balance plus accrued
interest, if any, is due.
During 1992, the $1.0 million subordinated convertible debenture received from
the sale of WPTT was assigned to SBG Class B stockholders at the Company's
carrying value. As the remaining note is due from these stockholders, the
portion of the gain on the sale of WPTT related to the original $1.0 million
debenture is being recognized as a capital contribution as cash is received. For
the years ended December 31, 1993, 1994 and 1995, $48,000, $41,000 and $21,000,
respectively, were recognized as additional paid-in capital.
In September 1993, the Company entered into sale-leaseback transactions in which
they sold certain facilities to Gerstell for $2.2 million. WPGH then leased many
of the assets sold under noncancelable capital leases, with initial terms of
seven years and four seven year renewal options. Aggregate rental payments under
these leases were $119,600, $484,500 and $508,700 in 1993, 1994 and 1995,
respectively. Gerstell financed the acquisition partly through a $2.1 million
note issued to the Company. The note bears interest at 6.18%, with principal
payments beginning on November 1, 1994, and a final maturity date of October 1,
2013. In addition, Gerstell has arranged for a $2.0 million loan from a
commercial bank, which is guaranteed by the Company.
F-22
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 1994, the Company assigned its options to purchase the license assets of
WNUV and WVTV to Glencairn Ltd. (Glencairn) for $4.2 million which was paid in
1995, and sold the license assets of WRDC to Glencairn for $2.0 million.
Subsequently, Glencairn exercised its options to purchase the licenses of WNUV
and WVTV. Glencairn is a corporation of which a former shareholder of SBG, who
is also the holder of the $6.6 million note described above, and a trust
established by this shareholder holds the majority of the equity interests in
Glencairn. The Company has entered into five-year LMA agreements (with five-year
renewal options) with Glencairn for the right to program and sell advertising on
WPTT, WNUV, WVTV, WRDC and WABM. During 1995, the Company made payments of $5.6
million to Glencairn under these LMA agreements.
Concurrently with the initial public offering (see Note 15), the Company
acquired options from certain stockholders of Glencairn that will grant the
Company the right to acquire, subject to applicable FCC rules and regulations,
up to 97% of the capital stock of Glencairn. The Glencairn options were
purchased by the company for nominal consideration and will be exercisable only
upon payment of an aggregate price equal to Glencairn's cost for the underlying
stations, plus a 10% annual return. The Company would assume Glencairn's debt
obigations if the Glencairn options were exercised.
In October 1994, the Company purchased subordinated debt (the WSTR note) of a
partnership which owns WSTR-TV, in Cincinnati, Ohio. The Class B stockholders of
the Company have entered into a program consulting agreement with the station
and hold a purchase option for the station. The WSTR note was purchased for $4.8
million and the face value of the WSTR note and accrued interest was
approximately $8.6 million and $8.9 million at December 31, 1994 and 1995,
respectively. This investment has been recorded at cost, which, in management's
belief, approximates fair value. The Company has agreed to certain restrictions
regarding the WSTR note through the Bank Credit Agreement. These restrictions
include requiring the WSTR note to be only sold or transferred at amounts equal
to or greater than the purchase price plus any accrued interest and requiring
that all payments of principal and interest received must be used to reduce
outstanding indebtedness under the Bank Credit Agreement.
During 1995, the Company from time to time entered into charter arrangements to
lease airplanes owned by certain Class B stockholders. During 1995, the Company
incurred expenses of $489,000 related to these arrangements. No amounts have
been paid related to these expenses as of December 31, 1995.
In May 1995, Keyser Communications, Inc. (KCI) was merged with the Company
(see Note 14).
10. EMPLOYEE BENEFIT PLAN:
The Sinclair Broadcast Group, Inc. 401(k) profit sharing plan and trust (the SBG
Plan) covers eligible employees of the Company. Contributions made to the SBG
Plan include an employee elected salary reduction amount, company matching
contributions and a discretionary amount determined each year by the Board of
Directors. The Company's 401(k) expense for the years ended December 31, 1993,
1994 and 1995, was $148,000, $274,000 and $271,000, respectively. There were no
discretionary contributions during these periods.
F-23
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. CONTINGENCIES AND OTHER COMMITMENTS:
LITIGATION
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
OPERATING LEASES
The Company has entered into operating leases for certain automotive and office
equipment, a parcel of land and WTTE's broadcasting tower facility under terms
ranging from three to ten years. The rent expense under these leases, as well as
certain leases under month-to-month arrangements, for the years ended December
31, 1993, 1994 and 1995, aggregated approximately $373,000, $625,000 and $1.1
million, respectively.
Future minimum payments under the leases are as follows (in thousands):
1996 ............................. $1,083
1997 ............................. 704
1998 ............................. 559
1999 ............................. 474
2000 ............................. 361
2001 and thereafter .............. 1,336
------
$4,517
======
12. TRANSACTIONS WITH FORMER OFFICERS:
The Company has entered into various non-compete and consulting agreements with
a former officer and a related consulting company. Under these agreements,
annual consulting fees, which were guaranteed by CRI and WBFF, of $563,000 and
aggregate non-compete payments totaling $2.7 million were payable through 1993.
In 1994, the Company signed a two year consulting agreement with the same former
officer and a related consulting company. A $742,000 payment was made in 1994
which covered the two year agreement.
The expense under these agreements is being recorded on a straight-line basis
over the life of the agreements and is recorded in the Companies' consolidated
statements of operations within the respective expense classifications to which
they relate.
13. LIFE INSURANCE PROCEEDS:
In May 1993, following the death of Julian Smith, the Company's founder, the
Company received life insurance proceeds in excess of the carrying value of the
related policies of approximately $844,000. This nontaxable gain has been
recorded as other income in the accompanying consolidated statement of
operations for the year ended December 31, 1993.
F-24
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. ACQUISITIONS:
1994 ACQUISITIONS
In May 1994, the Company acquired WCGV and WTTO for an aggregate purchase price
of $60.0 million. The purchase was accounted for under the purchase method of
accounting whereby the purchase price was allocated to the fair market value of
the assets purchased and the liabilities assumed. Based upon an independent
appraisal, $11.7 million was allocated to property and programming costs and
$29.9 million was allocated to acquired broadcasting assets. The excess of the
purchase price over the acquired assets of $18.4 million was allocated to other
intangible assets, and is being amortized over 40 years. The Company made an
additional investment of $56.0 million for covenants not-to-compete and
consulting agreements in these and the Company's current markets, which are
being amortized over the lives of the respective agreements.
Simultaneous with the acquisition of WCGV and WTTO, the Company acquired the
non-license assets of WNUV and WVTV for approximately $66.8 million and entered
into LMA's with the owner of the licenses of WNUV and WVTV. The purchase was
accounted for under the purchase method of accounting whereby $14.8 million of
the purchase price was allocated to property and programming costs and $700,000
of the purchase price was allocated to deferred tax liabilities, with the
remainder being allocated to other intangible assets. The intangible assets are
being amortized over 15 years.
Simultaneous with the acquisitions of the non-license assets of WNUV and WVTV,
the Company acquired the options to purchase the license assets of these
stations for $8.0 million and intangible assets related to the LMA's for $9.5
million, for a total purchase price of $17.5 million. The Company subsequently
assigned the options to Glencairn for $4.2 million. The Company is amortizing
the difference between the total amount paid for the options by the Company and
the amount allocated to the value of the options over the estimated life of the
LMA, which is 15 years.
In August 1994, the Company acquired 100% of the non-voting stock representing a
98% ownership interest in F.S.F. Acquisition Corporation (FSFA), the corporate
parent of WRDC, for $34.0 million. FSFA is the parent of FSF TV, Inc., which
owns and operates WRDC. The investment also includes a controlling interest in a
joint venture which owns the studio and office building and a minority interest
in a partnership that owns the TV broadcast tower. The joint venture has been
consolidated, with the other owners' share of equity shown as a minority
interest, while the partnership interest has been presented as an investment and
included in other assets. The purchase was accounted for under the purchase
method of accounting whereby the purchase price was allocated to property and
programming assets, acquired intangible broadcasting assets and other intangible
assets for $10.0 million, $7.0 million and $17.0 million, respectively, based
upon an independent appraisal. Intangible assets are being amortized over
periods of 10 to 15 years. Simultaneous with the purchase of the nonvoting stock
of FSFA, the Company acquired an option to acquire the voting common stock of
FSFA. Additionally, the Company entered into two year consulting and non-compete
agreements with the former owner of the voting common stock of FSFA for $4.0
million.
1995 ACQUISITIONS AND DISPOSITIONS
In January 1995, the Company acquired the non-license assets of WTVZ in Norfolk,
Virginia for $46.5 million. Additionally, the Company paid $1.0 million to
acquire the license assets of WTVZ for an exercise price of an additional $1.0
million. Simultaneously, the Company entered into an LMA agreement with the
owner of the license and entered into non-compete and consulting agreements with
the owner of WTVZ for $500,000. On May 31, 1995, the Company exercised its
option and acquired the license assets of WTVZ. The purchase was accounted for
under the purchase method of accounting whereby the purchase price was allocated
to property and programming assets, acquired intangible broadcasting assets and
other intangible assets for $1.4 million, $12.6 million and $35.0 million,
respectively, based upon an independent appraisal. Intangible assets are being
amortized over 1 to 40 years.
F-25
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 1995, the Company acquired the license and non-license assets of the
Paramount Station Group of Raleigh/Durham, Inc. which owned and operated WLFL in
Raleigh-Durham, North Carolina for $55.5 million, plus the assumption of $3.7
million in liabilities. The purchase was accounted for under the purchase method
of accounting whereby the purchase price was allocated to property and
programming assets, acquired intangible broadcasting assets and other intangible
assets for $55.0 million, $13.2 million and $37.3 million, respectively, based
upon an independent appraisal. Included in acquired intangible broadcasting
assets are non-compete and consulting agreements with the former owner of WLFL
for $500,000. Intangible assets are being amortized over periods of 1 to 40
years.
On March 31, 1995, the Company exercised its option to acquire 100% of the
voting stock of FSFA for the exercise price of $100. FSFA was merged into WLFL,
Inc. and became a wholly-owned subsidiary of the Company. Simultaneously, the
Company sold the license assets of FSFA to Glencairn for $2.0 million, and
entered into a five-year LMA (with a five-year renewal option) with Glencairn
(see Note 9).
On May 5, 1995, Keyser Communications, Inc. (KCI), an affiliated entity
wholly-owned by the stockholders of the Company, was merged into the Company for
common stock. Certain assets and liabilities of KCI (other than programming
items, an LMA agreement and consulting agreements), were distributed to the KCI
shareholders immediately prior to the merger. The merger of KCI is being treated
as a reorganization and has been accounted for as a pooling of interests
transaction. Accordingly, the consolidated financial statements for all periods
presented have been restated to include the accounts of KCI.
Combined and separate results of the Company and KCI (through May 5, 1995,
merger date) during the period presented are as follows (in thousands):
COMPANY KCI COMBINED
---------- -------- ----------
Twelve months ended December 31, 1993:
Net broadcast revenues........................ $ 65,422 $4,110 $ 69,532
Income (loss) before provision for income
taxes........................................ 358 564 922
Net income (loss)............................. (8,509) 564 (7,945)
Twelve months ended December 31, 1994:
Net broadcast revenues........................ $113,728 $4,883 $118,611
Income (loss) before provision for income
taxes........................................ (4,147) 760 (3,387)
Net income (loss)............................. (3,500) 760 (2,740)
Twelve months ended December 31, 1995:
Net broadcast revenues........................ $186,031 $1,903 $187,934
Income (loss) before provision for income
taxes........................................ 10,592 (404) 10,188
Net income (loss)............................. 480 (404) 76
In May 1995, the Company entered into option agreements to acquire all of the
license and non-license assets of WSMH-TV in Flint, Michigan (WSMH). The option
purchase price was $1.0 million. In July 1995, the Company paid the $1.0 million
exercise price to exercise its option to acquire all of the assets upon FCC
consent (see Note 17).
In July 1995, the Company acquired the non-license assets of WABM in Birmingham,
Alabama for a purchase price of $2.5 million. The purchase was accounted for
under the purchase method of accounting whereby $1.1 million of the purchase
price was allocated to property and program assets, based upon an independent
appraisal. The excess of the purchase price over the acquired assets of
approximately $1.4 million was allocated to other intangible assets and is being
amortized over 15 years. Simultaneously with the purchase, the Company entered
into a five-year LMA agreement (with a five-year renewal option) with Glencairn.
F-26
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 1995, the Company acquired the non-license assets of WDBB in
Tuscaloosa, Alabama for a purchase price of $400,000. In addition, the Company
made "Option Grant Payments" of $11.3 million to certain parties for options to
purchase the issued and outstanding stock of WDBB, Inc., which holds the license
assets of WDBB. The option agreement further provides for the payment of option
grant installments of $2.6 million over five years and a final option exercise
price of $100,000. The purchase was accounted for under the purchase method of
accounting whereby $11.1 million was allocated to the property and program
assets based upon an independent appraisal. The total of Option Grant Payments
paid and Grant Installments accrued of $14.0 million was allocated to other
intangible assets and is being amortized over 15 years.
15. INITIAL PUBLIC OFFERING:
In June 1995, the Company consummated an initial public offering of 5,750,000
shares of Class A Common Stock at an initial public offering price of $21.00 per
share realizing net proceeds of approximately $111.5 million. The net proceeds
to the Company from this offering were used to reduce long-term indebtedness.
The Company consummated the following transactions concurrent with or prior to
the offering:
1. The Company purchased the options to acquire the partnership interests of
KSMO in Kansas City, Missouri and WSTR in Cincinnati, Ohio ("Option Stations")
from the stockholders for an aggregate purchase price was $9.0 million. The
stockholders also assigned to the Company their rights and obligations under an
option agreement among the stockholders and a commercial bank which holds
secured debt of KSMO and WSTR. This option allows the Company to require the
commercial bank to sell the secured debt to the Company. The Company will also
be obligated, at any time after June 1996 and at the commercial bank's request,
to purchase the secured debt. The purchase price of the debt will be the price
at which the commercial bank originally purchased the debt ($20.5 million), plus
any additional amounts which have been advanced and accrued interest less any
payments reducing the balance made by the Option Stations. In conjunction with
the assignment of the option agreement, the stockholders were released from
their pledge of the Company's stock related to the Option Stations (see Note
17).
In December 1995, the Company exercised the options to acquire all the assets
and liabilities of WSTR-TV Cincinnati, Ohio and KSMO-TV Kansas City, Missouri.
The Company will, upon the grant of the FCC licenses, assume the outstanding
indebtedness of both television stations. The total incremental indebtedness to
be assumed is approximately $16.0 to $18.0 million. Closing for these
acquisitions is estimated to be on or before June 30, 1996. The Company has
requested a waiver from the FCC regarding WSTR-TV Cincinnati, relating to a
Grade B overlap with television station WDKY-TV Lexington, Kentucky (see Note
17).
2. The stockholders assigned the subordinated convertible debenture relating to
the sale of WPTT to the Company in exchange for $1.0 million, a portion of which
was used to retire the outstanding balance of a note due from the controlling
stockholders.
3. The Company acquired options from certain stockholders of Glencairn that will
grant the Company the right to acquire, subject to applicable FCC rules and
regulations, up to 97% of the capital stock of Glencairn. The Glencairn options
were purchased by the Company for nominal consideration and will be exercisable
only upon payment of an aggregate price equal to Glencairn's cost for the
underlying stations, plus a 10% annual return (see Note 9).
4. The Board of Directors of the Company adopted Amended and Restated Articles
of Incorporation to authorize up to 35,000,000 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 5,000,000 shares of preferred stock, par value $.01 per
share; completed a reclassification and conversion of its outstanding common
F-27
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
stock into shares of Class B common stock; and effected an approximately 49.1
for 1 stock split of the Company's common stock (resulting in 29,000,000 shares
of Class B common stock outstanding). The reclassification, conversion and stock
split have been retroactively reflected in the accompanying consolidated balance
sheets and statements of stockholders' equity.
5. The Board of Directors of the Company adopted an Incentive Stock Option Plan
for Designated Participants (the Designated Participants Stock Option Plan)
pursuant to which options for shares of Class A common stock will be granted to
certain designated employees of the Company upon adoption. The Designated
Participants Stock Option Plan provides that the number of shares of Class A
Common Stock reserved for issuance under the Designated Participants Stock
Option Plan is 68,000. The Designated Participants Stock Option Plan also
provides that the exercise price under each option will be equal to the fair
market value of the Company's Class A common stock on the date of the option
grant, unless the employee receiving the option owns 10% or more of the
Company's Class A common stock on such date, in which case the exercise price
will be 110% of fair market value. Options granted pursuant to the Designated
Participants Stock Option Plan may not be exercised during the two-year period
immediately following grant date, and must be exercised within 10 years (or five
years if the employee owns 10% or more of the Company's common stock) following
the grant date. As of December 31, 1995, all 68,000 available options have been
granted at an exercise price of $21 per share.
6. On March 27, 1995, the Board of Directors of the Company adopted an Incentive
Stock Option Plan (the Stock Option Plan) pursuant to which options for shares
of Class A common stock may be granted to certain designated classes of
employees of the Company. The Stock Option Plan provides that the maximum number
of shares of Class A common stock reserved for issuance under the Stock Option
Plan is 400,000, and that options to purchase Class A common stock may be
granted under the plan until the tenth anniversary of its adoption. The Stock
Option Plan also provides that the exercise price under each option will be
equal to the fair market value of the Company's Class A common stock on the date
of the option grant, unless the employee receiving the option owns 10% or more
of the Company's Class A common stock on such date, in which case the exercise
price will be 110% of fair market value. Options granted pursuant to the Stock
Option Plan may not be exercised during the two-year period immediately
following the grant date, and must be exercised within 10 years (or five years
if the employee owns 10% or more of the Company's common stock) following the
grant date. As of December 31, 1995, 1,250 options have been granted under this
plan at an exercise price of $20.75 per share.
16. UNAUDITED PRO FORMA SUMMARY RESULTS OF OPERATIONS:
The unaudited pro forma summary consolidated results of operations for the years
ending December 31, 1994 and 1995, assuming the acquisitions of the license and
non-license assets of WCGV, WTTO, WLFL and WTVZ and the non-license assets of
WNUV, WVTV, WRDC, WABM and WDBB had been consummated on January 1, 1994, are as
follows:
(UNAUDITED)
---------------------
1994 1995
---------- ----------
Revenues, net........................................... $188,813 $209,349
Operating expenses, net of depreciation and
amortization............................................ 81,120 83,575
Depreciation and amortization........................... 96,540 80,372
Other expenses, net..................................... 36,516 35,136
Benefit (provision) for income taxes.................... 8,878 (5,232)
---------- ----------
Net loss................................................ $ 16,485 $ 5,034
========== ==========
F-28
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. SUBSEQUENT EVENTS:
In January 1996, the Company entered into a purchase agreement to acquire the
license and non-license assets of WYZZ in Peoria, Illinois. The Company plans to
consummate the transaction following FCC approval for a purchase price of
approximately $23.0 million.
In July 1995, the Company exercised its option to purchase WSMH in Flint,
Michigan for an option exercise price of $1 million. In February 1996, the
Company consummated the acquisition for a purchase price of $35.4 million at
which time the balance due of $34.4 million was paid from the Company's existing
cash balance.
In March 1996, the Company entered into an agreement to acquire the outstanding
stock of Superior Communication, Inc. (Superior). Superior owns the license and
non-license assets of KOCB in Oklahoma City, Oklahoma and WDKY in Lexington,
Kentucky. The Company plans to consummate the transaction following FCC approval
for a purchase price of approximately $63.0 million.
F-29
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
--------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... $112,450 $ 4,196
Accounts receivable, net of allowance for doubtful accounts....................... 50,022 76,102
Current portion of program contract costs......................................... 18,036 29,396
Deferred barter costs............................................................. 1,268 3,964
Prepaid expenses and other current assets......................................... 1,972 3,697
Deferred tax asset ............................................................... 4,565 3,972
--------------- ------------
Total current assets............................................................ 188,313 121,327
PROPERTY AND EQUIPMENT, net........................................................ 42,797 139,387
PROGRAM CONTRACT COSTS, less current portion....................................... 19,277 33,267
LOANS TO OFFICERS AND AFFILIATES, net.............................................. 11,900 11,642
NON-COMPETE AND CONSULTING AGREEMENTS, net......................................... 30,379 19,994
DEFERRED TAX ASSET................................................................. 16,462 52
OTHER ASSETS....................................................................... 27,355 64,602
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ...................................... 268,789 1,236,707
--------------- ------------
Total Assets.................................................................... $605,272 $1,626,978
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................. $ 2,187 $ 4,237
Income taxes payable.............................................................. 3,944 --
Accrued liabilities............................................................... 20,720 31,116
Current portion of long-term liabilities-
Notes payable and commercial bank financing...................................... 1,133 63,485
Capital leases payable .......................................................... 524 310
Notes and capital leases payable to affiliates................................... 1,867 1,976
Program contracts payable........................................................ 26,395 35,203
Deferred barter revenues ......................................................... 1,752 5,218
--------------- ------------
Total current liabilities....................................................... 58,522 141,545
LONG-TERM OBLIGATIONS:
Notes payable and commercial bank financing....................................... 400,644 1,167,750
Capital leases payable............................................................ 44 --
Notes and capital lease payable to affiliates..................................... 13,959 12,935
Program contracts payable......................................................... 30,942 51,010
Other long-term liabilities ...................................................... 2,442 2,384
--------------- ------------
Total liabilities .............................................................. 506,553 1,375,624
--------------- ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES .................................... 2,345 3,968
--------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 5,000,000 and 10,000,000 shares authorized and
-0- and 1,150,000 shares issued and outstanding.................................. -- 12
Class A Common Stock, $.01 par value, 35,000,000 and 100,000,000 shares authorized
and 5,750,000 and 6,328,000 shares issued and outstanding........................ 58 63
Class B Common Stock, $.01 par value, 35,000,000 shares authorized and 29,000,000
and 28,422,000 shares issued and outstanding..................................... 290 285
Additional paid-in capital........................................................ 116,089 241,156
Accumulated deficit .............................................................. (20,063) (18,552)
Additional paid-in capital -- stock options ...................................... -- 25,784
Deferred compensation............................................................. -- (1,362)
--------------- ------------
Total stockholders' equity ..................................................... 96,374 247,386
--------------- ------------
Total Liabilities and Stockholders' Equity...................................... $605,272 $1,626,978
=============== ============
</TABLE>
The accompanying notes are in integral part of these unaudited
consolidated financial statements.
F-30
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1996 1995 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions.................................. $49,588 $ 73,163 $ 88,724 $117,339
Revenues realized from barter arrangements ... 4,591 5,978 8,150 9,571
----------- ---------- ---------- ----------
Total revenues ............................. 54,179 79,141 96,874 126,910
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Program and production........................ 7,268 13,051 14,130 20,699
Selling, general and administrative........... 8,983 14,976 17,432 24,268
Expenses realized from barter arrangements.... 4,053 4,928 7,169 7,859
Amortization of program contract costs and net
realizable value adjustments................. 6,394 9,840 12,949 17,557
Deferred compensation......................... -- 506 -- 506
Depreciation and amortization of property and
equipment.................................... 1,236 2,079 2,822 3,544
Amortization of acquired intangible
broadcasting assets and other assets ........ 11,248 13,715 23,030 24,392
----------- ---------- ---------- ----------
Total operating expense .................... 39,182 59,095 77,532 98,825
----------- ---------- ---------- ----------
Broadcast operating income ................. 14,997 20,046 19,342 28,085
----------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense.............................. (9,687) (16,750) (19,655) (27,646)
Interest income............................... 809 798 1,252 2,521
Other income (expense) ....................... (84) 398 30 651
----------- ---------- ---------- ----------
Net income before provision for income taxes 6,035 4,492 969 3,611
INCOME TAX PROVISION .......................... (2,985) (2,523) (462) (2,100)
----------- ---------- ---------- ----------
Net income ................................. $ 3,050 $ 1,969 $ 507 $ 1,511
=========== ========== ========== ==========
NET INCOME PER COMMON SHARE ................... $ 0.10 $ 0.06 $ 0.02 $ 0.04
=========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (in
thousands) ................................... 30,150 34,750 29,575 34,750
=========== ========== ========== ==========
</TABLE>
The accompanying notes are in integral part of these unaudited
consolidated financial statements.
F-31
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS RETAINED ADDITIONAL
SERIES A SERIES B A B ADDITIONAL EARNINGS PAID-IN TOTAL
PREFERRED PREFERRED COMMON COMMON PAID-IN (ACCUMULATED CAPITAL DEFERRED STOCKHOLDERS'
STOCK STOCK STOCK STOCK CAPITAL DEFICIT) OPTIONS COMPENSATION EQUITY
--------- --------- ------- ------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 as
previously reported ..................$ -- $ -- $ 58 $ 290 $116,089 $(20,063) $ -- $ -- $ 96,374
Class B common shares converted
to Class A common shares ............. -- -- 5 (5) -- -- -- -- --
Issuance of Series A preferred
shares .............................. 12 -- -- -- 125,067 -- -- -- 125,079
Series A preferred shares converted
to Series B preferred shares ......... (12) 12 -- -- -- -- -- -- --
Stock Options granted ................. -- -- -- -- -- -- 25,784 (1,868) 23,916
Amortization of deferred
compensation ......................... -- -- -- -- -- -- -- 506 506
Net income............................. -- -- -- -- -- 1,511 -- -- 1,511
--------- --------- ------- ------- ---------- ----------- ---------- --------- -------------
BALANCE, June 30, 1996 Class
A Common Stock .......................$ -- $ 12 $ 63 $ 285 $241,156 $(18,552) $25,784 $(1,362) $247,386
========= ========= ======= ======= ========== =========== ========== ========= =============
</TABLE>
The accompanying notes are in integral part of these unaudited
consolidated financial statements.
F-32
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 507 $ 1,511
Adjustments to reconcile net income to net cash flows from operating activities-
Depreciation and amortization of property and equipment........................ 2,822 3,544
Amortization of acquired intangible broadcast assets and other assets.......... 23,030 24,392
Amortization of program contract costs and net realizable value adjustments.... 12,949 17,557
Deferred compensation expense.................................................. -- 506
Deferred tax (benefit) provision............................................... (2,542) 488
Payments of costs relating to financing........................................ (3,200) (20,009)
Payments for interest rate hedging instruments................................. -- (851)
Changes in assets and liabilities, net of effect of acquisitions and
dispositions-
Decrease in receivables, net................................................... (4,060) (12,006)
Decrease (increase) in prepaid expenses and other current assets............... 1,234 (68)
(Increase) decrease in accounts payable and accrued liabilities................ (2,631) 6,344
(Decrease) in income taxes payable............................................. (4,507) (3,944)
Decrease (increase) in other assets and acquired intangible broadcast assets .. 170 (43)
Net effect of change in deferred barter revenues and deferred barter costs .... 15 328
Decrease in other long-term liabilities........................................ (46) (58)
Decrease (increase) in minority interest....................................... 24 (33)
Payments for program contracts payable ........................................ (9,858) (12,071)
------------ ------------
Net cash flows from operating activities ..................................... 13,907 5,587
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment........................................... (1,359) (2,114)
Payments for acquisition of television stations................................. (103,500) (34,726)
Payment for acquisition of non-license assets of River City Broadcasting, L.P... -- (811,260)
Payment for acquisition of non-license assets of KRRT........................... -- (29,532)
Payment for purchase of outstanding stock of Superior Communications, Inc....... -- (63,275)
Payments for consulting and non-compete agreements.............................. (1,000) (50)
Payment to exercise purchase options............................................ (1,000) --
Payments for purchase options................................................... (9,000) --
Proceeds from disposal of property and equipment................................ 2,000 --
Repayments of loans to officers and affiliates.................................. 1,208 258
Investment in joint venture..................................................... -- (364)
Proceeds from assignment of license purchase options............................ 4,200 --
Payment for WPTT subordinated convertible debenture............................. (1,000) --
Fees paid relating to subsequent acquisitions .................................. -- (1,063)
------------ ------------
Net cash flows used in investing activities .................................. (109,451) (942,126)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank financing....................... 138,000 897,000
Repayments of notes payable, commercial bank financing and capital leases....... (152,559) (67,915)
Repayments of notes and capital leases to affiliates ........................... (476) (800)
Net proceeds from issuance of common shares .................................... 111,634 --
------------ ------------
Net cash flows from financing activities ..................................... 96,599 828,285
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. 1,055 (108,254)
CASH AND CASH EQUIVALENTS, beginning of period .................................. 2,446 112,450
------------ ------------
CASH AND CASH EQUIVALENTS, end of period......................................... $ 3,501 $ 4,196
============ ============
</TABLE>
The accompanying notes are an integral part of these
unaudited financial statements.
F-33
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Sinclair Broadcast Group, Inc., Sinclair Communications, Inc. and all other
consolidated subsidiaries, which are collectively referred to hereafter as "the
Company or Companies." The Company owns and operates television stations
throughout the United States. Additionally, included in the accompanying
consolidated financial statements are the results of operations of certain
television and radio stations pursuant to local marketing agreements (LMA's).
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the six months ended June 30, 1995 and
1996 are unaudited, but in the opinion of management, such financial statements
have been presented on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations, and cash flows for these periods.
As permitted under the applicable rules and regulations of the Securities and
Exchange Commission, these financial statements do not include all disclosures
normally included with audited consolidated financial statements, and,
accordingly, should be read in conjunction with the consolidated financial
statements and notes thereto as of December 31, 1994, and 1995 and for the years
then ended. The results of operations presented in the accompanying financial
statements are not necessarily representative of operations for an entire year.
PROGRAMMING
The Companies have agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as a liability when the
license period begins and the program is available for its first showing. The
portion of the program contracts payable due within one year is reflected as a
current liability in the accompanying consolidated financial statements.
The rights to program materials are reflected in the accompanying consolidated
balance sheets at the lower of amortized cost or estimated net realizable value.
Estimated net realizable values are based upon management's expectation of
future advertising revenues net of sales commissions to be generated by the
program. Amortization of program contract costs is generally computed under
either an accelerated method over the contract period or based on usage,
whichever yields the greater amortization for each program. Program contract
costs, estimated by management to be amortized in the succeeding year, are
classified as current assets.
2. CONTINGENCIES AND OTHER COMMITMENTS:
Lawsuits and claims are filed against the Companies from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgements or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Companies' financial position or results of operations.
F-34
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. SUPPLEMENTAL CASH FLOW INFORMATION:
During the six months ended June 30, 1995 and 1996, the Company made cash
payments and certain non-cash transactions of the following:
SIX MONTHS ENDED
---------------------
JUNE 30, JUNE 30,
1995 1996
---------- ----------
Interest........................................... $19,488 $ 29,472
Income Taxes....................................... $ 7,511 $ 5,586
Distribution prior to KCI merger................... $ 1,461 $ --
Issuance of 1,150,000 shares of Series A Preferred
Stock (Note 5)..................................... $ -- $125,079
4. SENIOR BANK DEBT:
In order to finance the acquisition of the non-license assets of River City
Broadcasting, L.P. (River City) and potential future acquisitions, the Company
entered into a Bank Credit Agreement. The Bank Credit Agreement consists of
three classes: Facility A Term Loan, Facility B Term Loan and a Revolving Credit
Commitment.
The Facility A Term Loan is a term loan in a principal amount not to exceed $550
million and is scheduled to be paid in quarterly installments beginning December
31, 1996 through December 31, 2002. The Facility B Term Loan is a term loan in a
principal amount not to exceed $200 million and is scheduled to be paid in
quarterly installments beginning December 31, 1996 through December 31, 2002.
The Revolving Credit Commitment is a revolving credit facility in a principal
amount not to exceed $250 million and is scheduled to have reduced availability
quarterly beginning March 31, 1999 through November 30, 2003. In connection with
the River City and KRRT acquisitions, the Company utilized $550 million, $200
million and $85 million of indebtedness under Facility A, Facility B and the
Revolving Credit Commitment, respectively. The Company incurred debt acquisition
costs of approximately $20.0 million associated with this indebtedness which are
being amortized using the straight line method over the life of the debt.
Under the Bank Credit Agreement, the Company has the option to maintain base
rate and Eurodollar loans. Interest on borrowings under this agreement are at
varying rates based, at the Company's option, at the base rate or LIBOR, plus a
fixed percentage. The applicable interest rate for the Facility A Term Loan and
the Revolving Credit Facility is either LIBOR plus 1.25% to 2.5% or the base
rate plus zero to 1.25%. The applicable interest rate for the Facility A Term
Loan and the Revolving Credit Facility is adjusted based on the ratio of total
debt to four quarters trailing earnings before interest, taxes, depreciation and
amortization. The applicable interest rate for Facility B is either LIBOR plus
2.75% or the base rate plus 1.75%.
The Company made cash payments totaling $851 thousand for interest rate hedging
instruments which are capitalized and amortized as interest expense over the
life of contract. The Company utilizes these instruments to minimize the impact
of fluctuations in interest rates relating to Senior Bank Debt. At June 30, 1996
the Company has interest rate swap agreements which expire from March 31, 1997
to March 31, 2000 with such rates ranging from 5.85% to 7.0% and notional
amounts totaling $960.0 million.
F-35
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. RIVER CITY ACQUISITION:
In April 1996, the Company entered into an agreement to purchase certain
non-license assets of River City. In May 1996, the Company closed the
transaction for a purchase price of $958.2 million providing as consideration
1,150,000 shares of Series A Convertible Preferred Stock with a fair market
value of $125.1 million, 1,382,435 stock options with a fair market value of
$23.9 million and cash payments totaling $809.2 million. Simultaneously, the
Company entered into option agreements to purchase certain other license and
non-license assets of River City for option purchase prices totaling $150
million. The Company utilized indebtedness under its Bank Credit Agreement to
finance the transaction (see Note 4). The transaction was recorded as a
purchase, whereby the assets and liabilities were recorded at their fair market
value as determined by an independent appraisal.
In conjunction with the River City acquisition, the Company entered into an
agreement to purchase the non-license assets of KRRT, Inc., a television station
in San Antonio, Texas, for a purchase price of $29.5 million. Simultaneously
with the River City closing, the Company closed the KRRT transaction utilizing
indebtedness under its Bank Credit Agreement. The transaction was recorded as a
purchase, whereby the assets and liabilities were recorded at their fair market
value as determined by an independent appraisal.
In connection with the River City acquisition, the Company consummated the
following transactions concurrent with or subsequent to the closing:
1.) In June 1996, the Board of Directors of the Company adopted, upon
approval of the stockholders by proxy, an amendment to the Company's amended and
restated charter. This amendment increased the number of Class A Common Stock
shares authorized to be issued by the Company from 35,000,000 shares to
100,000,000 shares. The amendment also increased the number of shares of
preferred stock authorized from 5,000,000 shares to 10,000,000 shares.
2.) Series A Preferred Stock - As partial consideration for the acquisition
of the non-license assets of River City, the Company issued 1,150,000 shares of
Series A Preferred Stock. In June 1996, the Board of Directors of the Company
adopted, upon approval of the stockholders by proxy, an amendment to the
Company's amended and restated charter at which time Series A Preferred Stock
was exchanged for and converted into Series B Preferred Stock. The Company
recorded the issuance of Series A Preferred Stock based on the fair market value
at the date of issuance of 3.64 shares of Class A Common Stock for each share of
Series A Preferred Stock.
3.) Series B Preferred Stock -- Shares of Series B Preferred Stock are
convertible at any time into shares of Class A Common Stock, with each share of
Series B Preferred Stock convertible into approximately 3.64 shares of Class A
Common Stock. The company may redeem shares of Series B Preferred Stock only
after the occurrence of a "Trigger Event." A Trigger Event means the termination
of Barry Baker's employment with the Company prior to the expiration of the
initial five-year term of his employment agreement (1) by the Company for any
reason other than for cause (as defined in the employment agreement) or (2) by
Barry Baker upon the occurrence of certain events described in the employment
agreement. If the Company seeks to redeem shares of Series B Preferred Stock and
the stockholder elects to retain the shares, the shares will automatically be
converted into Common Stock on the proposed redemption date. All shares of
Series B Preferred Stock remaining outstanding as of May 31, 2001 will
automatically convert into Class A Common Stock. Series B Preferred Stock is
entitled to 3.64 votes on all matters with respect to which Class A Common Stock
has a vote.
4.) Stock Options and Awards:
EXECUTIVE OPTIONS
In connection with the acquisition of River City, the Company entered into a
5 year employment agreement with Barry Baker. Pursuant to the agreement, among
other provisions, Mr. Baker received options to acquire 1,382,435 shares of the
Class A Common Stock of the
F-36
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company. The options became exercisable with respect to 50% of the shares upon
closing of the acquisition of the non-license assets of River City with 25%
available to be exercised on the first and second anniversary of the River City
closing. The options which are exercisable in future periods are not contingent
upon Mr. Baker's continuing employment or any other measurable circumstance.
Furthermore, if for any reason Mr. Baker is terminated as an employee of the
Company, the options not vested at that time shall immediately vest. The
exercise price for these options is $30.11 per share.
The Company recorded the excess of the fair market value over the Stock
Option Grant Price of $23.9 million as a component of the purchase price for the
acquisition of River City, calculated based upon an economic model considering
the option terms, market price at grant date, and Company and industry market
volatility.
LONG TERM INCENTIVE PLAN
In June 1996, the Board of Directors adopted, upon approval of the stockholders
by proxy, the 1996 Long-Term Incentive Plan of the Company (the "LTIP"). The
purpose of the LTIP is to reward key individuals for making major contributions
to the success of the Company and its subsidiaries and to attract and retain the
services of qualified and capable employees. A total of 2,073,673 shares of
Class A Common Stock is reserved and available for awards under the plan. The
Board of Directors may amend, suspend or terminate the LTIP without the consent
of stockholders or participants, except that stockholder approval be sought
within one year of such Board action.
The LTIP provides that the exercise price under each option may not be less than
the fair market value of the Company's Class A Common Stock on the date of the
option grant, or as otherwise provided by the LTIP, unless the employee
receiving the option owns 10% or more of the Company's common stock on such
date, in which case the exercise price will be 110% of fair market value.
Options granted pursuant to the LTIP must be exercised within 10 years (or five
years if the employee owns 10% or more of the Company's common stock) following
the date on which the grant is made. In connection with the River City
acquisition, 244,500 options were granted under this plan with an exercise price
of $30.11 per share.
The Company recorded deferred compensation of $1.9 million as additional paid
in capital at the stock option grant date. In June 1996, compensation expense of
$506 thousand was recorded relating to the options issued under the LTIP which
became exercisable. The remaining deferred compensation of approximately $1.4
million will be recognized as expense on a straight line basis over the period
in which it vests.
INCENTIVE STOCK OPTION PLAN
In June 1996, the Board of Directors adopted, upon approval of the
stockholders by proxy, certain amendments to the Company's Incentive Stock
Option Plan. The purpose of the amendments was (i) to increase the number of
shares of Class A Common stock approved for issuance from 400,000 to 500,000,
(ii) to delegate to Barry Baker the authority to grant certain options, (iii) to
lengthen from two years to three the period after date of grant before options
become exercisable, (iv) and to provide immediate termination and three year
ratable vesting of options in certain circumstances. In connection with the
River City acquisition, the Company granted 287,000 options to key management
employees at an exercise price of $37.75, the fair market value at the date of
grant.
F-37
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES -
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5.) Other Acquisitions
In July 1995, the Company exercised its option to purchase the license and
non-license assets of the television station WSMH in Flint, Michigan for an
option exercise price of $1.0 million. In February 1996, the Company consummated
the acquisition for a purchase price of $35.4 million at which time the balance
due of $34.4 million was paid from the Company's existing cash balance. The
transaction was recorded as a purchase, whereby the assets and liabilities were
recorded at their fair market value as determined by an independent appraisal.
In March 1996, the Company entered into an agreement to acquire the outstanding
stock of Superior Communications, Inc. (Superior) which owns the license and
non-license assets of the television station KOCB in Oklahoma City, Oklahoma and
WDKY in Lexington, Kentucky. In May 1996, the Company consummated the
acquisition for a purchase price of approximately $63.0 million utilizing
existing cash balances and indebtedness under the Company's Bank Credit
Agreement of $3.1 million and $59.9 million respectively. The transaction was
recorded as a purchase, whereby the assets and liabilities were recorded at
their fair market value as determined by an independent appraisal.
6. SUBSEQUENT EVENTS:
In January 1996, the Company entered into a purchase agreement to acquire the
license and non-license assets of the television station WYZZ in Peoria,
Illinois. In July 1996, the Company consummated the acquisition for a purchase
price of approximately $21.1 million utilizing cash and indebtedness under the
Bank Credit Agreement of $1.0 million and $20.1 million, respectively.
In July 1996, the Company acquired the license and non-license assets of the
television station KSMO in Kansas City, Missouri. At closing, the Company made
$10.5 million in cash payments for this acquisition utilizing indebtedness under
its Bank Credit Agreement.
In August 1996, the Company acquired the license and non-license assets of the
television station WSTR in Cincinnati, Ohio. At closing, the Company made a $9.9
million cash payment for this acquisition utilizing indebtedness under its Bank
Credit Agreement.
In September 1996, the Company filed a registration statement on Form S-3 with
the Securities and Exchange Commission for the purpose of registration of
5,564,253 shares of Class A Common Stock. These shares represent 4,181,818
shares of Class A Common Stock issuable upon conversion of Series B Preferred
Stock and 1,382,435 shares of Class A Common Stock issuable upon exercise of
options held by Barry Baker.
In September 1996, the Company filed a registration statement on Form S-3 with
the Securities and Exchange Commission for the sale of up to 5,750,000 shares of
Class A Common Stock. The net proceeds to the Company for this offering will be
utilized to repay outstanding indebtedness under the Company's Bank Credit
Agreement.
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
River City Broadcasting, L.P.:
We have audited the accompanying consolidated balance sheets of River City
Broadcasting, L.P. and its majority-owned businesses as of December 31, 1994 and
1995, and the related consolidated statements of operations, partners' capital
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of River City
Broadcasting, L.P. and its majority-owned businesses as of December 31, 1994 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
February 23, 1996
F-39
<PAGE>
RIVER CITY BROADCASTING
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 2,444,738 $ 3,009,949
Receivables, less allowance for doubtful accounts of
approximately $751,000 in 1994 and $1,011,000 in 1995........ 38,380,927 55,700,972
Current portion of program rights............................. 18,721,662 23,275,767
Prepaid and other current assets.............................. 3,364,193 4,456,352
-------------- ---------------
Total current assets......................................... 62,911,520 86,443,040
Property and equipment, net.................................... 83,518,363 96,269,944
Program rights, less current portion........................... 19,255,197 19,650,217
Intangible assets, net......................................... 239,689,766 350,878,357
Other noncurrent assets........................................ 11,301,757 20,588,525
-------------- ---------------
Total assets................................................. $416,676,603 $573,830,083
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current installments of long-term debt......................... $ -- $ 38,587,000
Current installments of program rights payable................ 26,178,686 30,071,545
Accrued expenses.............................................. 7,376,801 12,462,416
Accounts payable.............................................. 862,162 6,924,246
Distributions payable......................................... 2,274,613 --
-------------- ---------------
Total current liabilities.................................... 36,692,262 88,045,207
Long-term debt, less current installments...................... 309,550,000 404,413,000
Program rights payable, less current installments.............. 17,136,852 27,579,601
Deferred compensation.......................................... 5,260,477 5,516,833
-------------- ---------------
Total liabilities............................................ 368,639,591 525,554,641
COMMITMENTS AND CONTINGENCIES
Partners' capital; 19,386 general partner units and 126,047 and 148,651 limited
partner units outstanding at December 31,
1994 and 1995, respectively................................... 48,037,012 48,275,442
-------------- ---------------
Total liabilities and partners' capital...................... $416,676,603 $573,830,083
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
RIVER CITY BROADCASTING
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- ---------------
<S> <C> <C> <C>
NET OPERATING REVENUES:
Local time sales................................. $34,377,284 $ 52,867,854 $107,591,097
National time sales.............................. 28,718,245 42,950,399 69,945,187
Other revenues................................... 3,119,122 4,567,058 10,653,860
-------------- -------------- ---------------
Total operating revenues........................ 66,214,651 100,385,311 188,190,144
-------------- -------------- ---------------
OPERATING COSTS:
Station operating expenses....................... 15,857,926 26,516,623 62,040,690
Selling expenses................................. 10,889,632 11,977,659 25,973,660
Program amortization expense..................... 18,799,127 16,479,271 33,452,252
Corporate expenses............................... 1,872,983 2,498,181 4,482,364
Depreciation..................................... 6,287,274 8,259,487 11,523,526
Amortization of intangible assets................ 6,094,026 11,228,316 27,649,173
-------------- -------------- ---------------
Total operating costs........................... 59,800,968 76,959,537 165,121,665
-------------- -------------- ---------------
Operating income................................ 6,413,683 23,425,774 23,068,479
-------------- -------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense................................. (5,341,346) (11,033,149) (33,087,633)
Amortization of deferred financing costs and debt
discount........................................ (1,573,262) (1,066,296) (1,434,904)
Interest income.................................. 177,656 333,673 1,715,104
Other ........................................... (45,227) 21,720 (22,616)
-------------- -------------- ---------------
(6,782,179) (11,744,052) (32,830,049)
-------------- -------------- ---------------
Income (loss) before extraordinary item......... (368,496) 11,681,722 (9,761,570)
Extraordinary item -- early extinguishment of
debt............................................. (6,841,084) (3,348,506) --
-------------- -------------- ---------------
Net earnings (loss)............................. $(7,209,580) $ 8,333,216 $ (9,761,570)
============== ============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
RIVER CITY BROADCASTING
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------------- -------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1992 ....... $ (6,936,635) $ -- $ (6,936,635)
Partners' capital contributions .... -- 76,500,000 76,500,000
Conversion of equity debenture ..... -- 8,191,527 8,191,527
Redemption of partners' capital .... (12,986,107) (15,580,796) (28,566,903)
Net loss............................ (973,697) (6,235,883) (7,209,580)
--------------- -------------- ---------------
Balance at December 31, 1993 ....... (20,896,439) 62,874,848 41,978,409
Distributions....................... -- (2,274,613) (2,274,613)
Net earnings........................ 8,333,216 -- 8,333,216
--------------- -------------- ---------------
Balance at December 31, 1994 ....... (12,563,223) 60,600,235 48,037,012
Issuance of limited partner
interest............................ -- 10,000,000 10,000,000
Net loss............................ -- (9,761,570) (9,761,570)
--------------- -------------- ---------------
Balance at December 31, 1995 ....... $(12,563,223) $ 60,838,665 $ 48,275,442
=============== ============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
RIVER CITY BROADCASTING
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).................................... $ (7,209,580) $ 8,333,216 $ (9,761,570)
Extraordinary item (note 12)........................... 6,841,084 2,164,006 --
Interest expense on conversion of debenture to equity.. 101,327 -- --
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities: ...............
Program amortization expense.......................... 18,799,127 16,479,271 33,452,252
Depreciation.......................................... 6,287,274 8,259,487 11,523,526
Loss on disposition of property and equipment......... 47,416 -- 193,249
Amortization of deferred financing costs and debt
discount............................................. 1,573,262 1,066,296 1,434,904
Amortization of intangible assets..................... 6,094,026 11,228,316 27,649,173
Retirement of program rights payable.................. (15,773,065) (13,892,127) (24,065,769)
CHANGE IN ASSETS AND LIABILITIES, NET OF EFFECTS FROM
PURCHASE OF BROADCAST PROPERTIES:
Increase in receivables, net......................... (1,816,872) (7,940,420) (17,320,045)
Increase in prepaid and other current assets......... (133,109) (472,744) (763,768)
Increase in other noncurrent assets.................. (247,492) (921,957) (9,286,768)
Increase (decrease) in accounts payable and accrued
expenses............................................ (1,087,119) (644,978) 11,147,699
Increase in deferred compensation.................... 1,161,000 3,236,477 256,356
-------------- --------------- ----------------
Net cash provided by operating activities............ 14,637,279 26,894,843 24,459,239
-------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES, NET OF EFFECTS
FROM PURCHASE OF BROADCAST PROPERTIES: ................
Costs to acquire broadcast properties.................. -- (175,397,321) (137,884,857)
Additions to property and equipment.................... (1,080,171) (5,304,587) (11,286,967)
Additions to intangible assets......................... (1,329,361) (2,210,655) (2,682,454)
Funding of local marketing agreement................... -- (11,000,000) --
-------------- --------------- ----------------
Net cash used in investing activities................ (2,409,532) (193,912,563) (151,854,278)
-------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of long-term debt........................... (58,554,497) (138,360,116) (1,550,000)
Proceeds from term loan................................ -- 120,000,000 110,000,000
Net borrowings under revolving loan commitment......... -- 188,000,000 25,000,000
Redemption of partnership interest..................... (28,566,903) -- --
Proceeds from partners' capital contributions.......... 76,500,000 -- --
Distributions paid..................................... -- -- (2,274,613)
Additions to deferred financing fees................... (165,174) (4,450,344) (3,215,137)
-------------- --------------- ----------------
Net cash provided by (used in) financing activities.. (10,786,574) 165,189,540 127,960,250
-------------- --------------- ----------------
Net increase (decrease) in cash and cash equivalents. 1,441,173 (1,828,180) 565,211
Cash and cash equivalents, beginning of year......... 2,831,745 4,272,918 2,444,738
Cash and cash equivalents, end of year............... $ 4,272,918 $ 2,444,738 $ 3,009,949
============== =============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
RIVER CITY BROADCASTING
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. BUSINESS DESCRIPTION
River City Broadcasting, L.P. (River City Broadcasting or the Partnership) is a
limited partnership formed to purchase and operate broadcast properties and
related activities. River City Broadcasting has acquired nine broadcast
television stations and 24 radio stations. The Partnership also operates one
television station and three radio stations under local marketing agreements
(LMAs). River City Broadcasting is managed by its general partner subject to
terms and conditions specified in the Second Amended and Restated Agreement of
Limited Partnership (Limited Partnership Agreement). On September 3, 1993, River
City Broadcasting entered into a Reorganization Agreement, whereby additional
equity funding was injected into the Partnership, and certain partners'
interests were redeemed (the Recapitalization).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of River
City Broadcasting and its majority-owned businesses.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PROGRAM RIGHTS
Program rights and related liabilities are recorded at cost when the film is
available for broadcasting. Agreements define the lives of the rights and
frequently the number of showings. The cost of program rights is charged against
earnings using straight-line and accelerated methods.
Program rights, representing the cost of those rights available for
broadcasting and expected to be broadcast in the succeeding fiscal year, are
shown as a current asset. Program rights payable are classified as current based
on those payments of the various contracts contractually due within the
succeeding fiscal year.
Program rights are stated at the lower of cost or estimated net realizable
value.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are charged
against earnings, while improvements which extend useful lives are capitalized.
Depreciation expense is computed using primarily the straight-line method over
the estimated useful lives of the related assets.
INTANGIBLE ASSETS
Intangible assets consist principally of network affiliation agreements,
broadcasting licenses, covenants not to compete, deferred financing costs, and
going-concern values. Amortization expense is computed on a straight-line basis
over the estimated lives of the assets, which generally range from 5-20 years.
F-44
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Partnership assesses the recoverability of these intangible assets by
determining whether the amortization of the remaining balances over their
remaining lives can be recovered through projected undiscounted future results.
The amount of impairment, if any, is measured based on projected discounted
future results using a discount rate reflecting the Company's average cost of
funds. The methodology that management used to project results of operations
forward was based on the historical trend line of actual results.
INTEREST RATE RISK MANAGEMENT
The Partnership uses a combination of financial instruments as part of its
program to manage interest rate risk on its floating rate debt. Such investments
are considered hedges and, accordingly, changes in their market value,
representing the cost to close the Partnership's position in these financial
instruments, are not reflected in the consolidated financial statements (see
note 7).
DEFERRED COMPENSATION
River City Broadcasting has entered into deferred compensation agreements with
members of management at certain of the broadcast properties. Deferred
compensation expense is recorded over the period of employee service based on
terms as contained in the respective agreements.
In addition to the deferred compensation agreements described above, the
Partnership has granted Phantom Warrant Units to certain key members of
management. These Phantom Warrant Units were granted pursuant to a Phantom Unit
Plan (the Plan). Under Plan provisions, the Phantom Warrant Unit holders will
receive performance compensation based on the appreciation in value of the
Partnership. This compensation is recognized as incurred based on a six-year
vesting period.
WARRANT UNITS
Concurrently with the Recapitalization, warrant units were issued to two key
members of management, who are also the sole shareholders of the general partner
of River City Broadcasting. These warrant units provide for, among other things
as described in the Limited Partnership Agreement, participation in Partnership
profits and losses and equity appreciation on a basis substantially similar to a
10% partnership interest.
INCOME TAXES AND DISTRIBUTIONS FOR TAXES
No income tax provision has been included in the consolidated financial
statements since profit and loss in the Partnership and the related tax
attributes are deemed to be distributed to, and to be reportable by, the
partners of the Partnership on their respective income tax returns. Accordingly,
based on the tax attributes to be passed through to the partners, the
Partnership records a distribution payable calculated pursuant to the Limited
Partnership Agreement for amounts expected to be distributed to the partners for
their estimated tax liability.
LIMITED PARTNERSHIP AGREEMENT
The allocation of Partnership profits and losses, cash distributions, voting
rights, certain equity preference and appreciation rights, and other matters are
defined in the Limited Partnership Agreement. These items, except voting rights,
are principally determined based on the tax basis of the respective partners.
REVENUES
Broadcasting revenues are derived principally from the sale of program time and
spot announcements to local, regional, and national advertisers. Advertising
revenue is recognized in the period during which the program time and spot
announcements are broadcast.
F-45
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BARTER TRANSACTIONS
Barter transactions are recorded at the estimated fair values of the products
and services received. Barter revenues are recognized when commercials are
broadcast. The assets or services received in exchange for broadcast time are
recorded when received or used.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Partnership
considers all cash investments with an original maturity of three months or less
to be cash equivalents.
RECLASSIFICATION
Certain 1993 and 1994 balances have been reclassified to conform with the 1995
presentation.
3. ACQUISITION OF BROADCAST PROPERTIES
In September 1994, the Partnership acquired certain assets and assumed certain
liabilities of Continental Broadcasting Ltd. (Continental) for total cash
consideration of approximately $175,397,000. In connection with the acquisition,
River City Broadcasting assumed $120,000,000 of senior subordinated notes and
related accrued interest. Broadcast properties acquired include WSYX-TV
(Columbus, Ohio), KOVR-TV (Sacramento, California), and WLOS-TV/WFBC-TV
(formerly WAXA-TV) (Asheville, North Carolina, and Anderson, South Carolina).
This acquisition is a purchase transaction and, accordingly, the assets acquired
and liabilities assumed have been recorded at their estimated fair values as of
the acquisition date, as determined by independent appraisal. The allocation of
the purchase price is summarized as follows:
Intangible assets............................................. $221,995,342
Property and equipment........................................ 62,285,634
Accounts receivable........................................... 13,313,252
Program rights................................................ 10,471,346
Prepaid and other current assets.............................. 164,898
Program rights payable........................................ (7,752,322)
Accounts payable and accrued expenses......................... (2,672,495)
Total purchase price.......................................... 297,805,655
Assumption of debt, plus related accrued interest............. (122,408,334)
$175,397,321
===============
In July 1995, the Partnership acquired certain assets of Keymarket
Communication and affiliated companies (Keymarket), as defined in the underlying
Asset Purchase Agreement, for total cash consideration of approximately
$131,000,000 and $10,000,000 of limited partner units. Broadcast properties
acquired consist of 19 radio stations within the Los Angeles, California,
Nashville, Tennessee, New Orleans, Louisiana, Memphis, Tennessee, Buffalo, New
York and Wilkes-Barre/Scranton, Pennsylvania markets. Additionally, the
Partnership acquired the rights to operate three radio stations under LMAs.
In October 1995, the Partnership acquired a 60% interest in Twin Peaks Radio
(Twin Peaks) through its acquisition of Sandia Peak Broadcasters, Inc. As
discussed in note 17, the Partnership acquired the remaining 40% interest in
Twin Peaks in January 1996. Twin Peaks is a partnership which owns and operates
three radio stations in the Albuquerque, New Mexico area. Total cash
consideration paid in 1995 amounted to approximately $3,200,000.
In November 1995, the Partnership acquired certain assets of WVRV-FM in St.
Louis, Missouri, for cash consideration of approximately $3,600,000. River City
Broadcasting previously operated this station under an LMA.
F-46
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The 1995 acquisitions are purchase transactions and, accordingly, the assets
acquired and liabilities assumed have been recorded at their estimated fair
values as of the acquisition date, as determined by independent appraisal. The
allocation of the purchase price is summarized as follows:
Intangible assets .............................. $ 134,375,077
Property and equipment ......................... 13,181,389
Prepaid and other current
assets ......................................... 328,391
-------------
Total purchase price ........................... 147,884,857
Issuance of limited partner
units .......................................... (10,000,000)
-------------
$ 137,884,857
=============
The following unaudited supplemental pro forma information presents revenues,
income (loss) before extraordinary item, and net earnings (loss) as though River
City Broadcasting had consummated the 1995 acquisitions on January 1, 1994
(1994) and January 1, 1995 (1995):
1994 1995
--------------- ----------------
Revenues...................... $148,492,000 $213,749,000
=============== ================
Loss before extraordinary
item.......................... $(22,907,000) $(17,232,000)
=============== ================
Net loss...................... $(26,255,000) $(17,232,000)
=============== ================
4. INTANGIBLE ASSETS
A summary of intangible assets follows:
<TABLE>
<CAPTION>
ASSET
LIVES IN
1994 1995 YEARS
-------------- -------------- -----------
<S> <C> <C> <C>
Network affiliation agreements, net of amortization of
approximately $3,077,000 and $9,724,000 in 1994 and
1995, respectively..................................... $143,950,815 $137,813,988 20
Broadcasting licenses, net of amortization of
approximately $1,506,000 and $4,605,000 in 1994 and
1995, respectively..................................... 47,529,039 114,567,600 20
Deferred financing costs, net of amortization of
approximately $382,000 and $1,817,000 in 1994 and
1995, respectively..................................... 4,068,376 7,052,734 8
Covenants not to compete, net of amortization of
approximately $5,900,000 and $11,410,000 in 1994 and
1995, respectively..................................... 18,100,004 12,669,639 5
Going-concern value, net of amortization of
approximately $636,000 and $1,168,000 in 1994 and
1995, respectively..................................... 5,554,642 8,502,935 20
Other intangible assets, net of amortization of
approximately $16,754,000 and $27,118,000 in 1994 and
1995, respectively..................................... 20,072,564 70,271,461 2-20
-------------- -------------- ===========
$239,275,440 $350,878,357
============== ==============
</TABLE>
F-47
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
LIVES
1994 1995 IN YEARS
------------- -------------- -----------
Land.............................. $ 7,129,861 $ 11,622,969 --
Buildings and improvements........ 21,284,574 25,150,610 31.5
Equipment, furniture, and
fixtures.......................... 79,261,457 96,668,728 5-15
===========
Construction in progress.......... 3,550,525 1,436,638
------------- --------------
111,226,417 134,878,945
Less accumulated depreciation .... 27,708,054 38,609,001
------------- --------------
$ 83,518,363 $ 96,269,944
============= ==============
6. LONG-TERM DEBT
A summary of long-term debt follows:
1994 1995
-------------- ---------------
Revolving Credit and Term Loan
Agreements............................... $308,000,000 $443,000,000
Senior subordinated notes................ 1,550,000 --
-------------- ---------------
309,550,000 443,000,000
-------------- ---------------
Less current installments................ -- 38,587,000
-------------- ---------------
$309,550,000 $404,413,000
============== ===============
Upon the acquisition of the Continental broadcast properties in 1994, the
Partnership assumed $120,000,000 of 10-5/8% senior subordinated notes. Interest
is payable semiannually on January 1 and July 1 of each year. Pursuant to terms
of the underlying indenture, subsequent to their assumption, River City
Broadcasting offered to redeem the underlying notes from the holders at 101% of
the principal amount thereof. In connection with this offer, $118,450,000 of the
outstanding notes were redeemed in 1994. A put premium of $1,184,500 was charged
to expense in 1994. The balance of the senior subordinated notes was redeemed in
1995.
Concurrent with the acquisition of the Continental broadcast properties in 1994,
the Partnership entered into a Senior Credit Facility providing a $120,000,000
term loan commitment and a revolving loan commitment of $230,000,000. In
December 1994, the Partnership exercised the $120,000,000 term loan commitment
in connection with the redemption of the senior subordinated notes described
above.
In April 1995 the Partnership amended the Senior Credit Facility (Amended Senior
Credit Facility). The Amended Senior Credit Facility provided for an additional
term loan commitment of $110,000,000. In July 1995, the Partnership exercised
the $110,000,000 term loan commitment in connection with the Keymarket
acquisition.
F-48
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 1995 the Partnership had outstanding borrowings of $213,000,000
under the revolving loan commitment. The revolving loan commitment of
$230,000,000 is reduced as follows: $9,200,000 each quarter beginning December
31, 1995 through December 31, 1999; $10,750,000 each quarter through December
31, 2000; and $15,300,000 each quarter through June 30, 2001. The term loan is
payable in increasing quarterly installments through December 2002. Accelerated
principal payments are required upon the Partnership meeting certain financial
objectives or upon the occurrence of certain other events as defined in the
Amended Senior Credit Facility. Borrowings are secured by substantially all of
the Partnership's assets and by a lien on all limited partner interests. The
Amended Senior Credit Facility includes certain covenants which, among other
things, require the Partnership to meet certain financial performance goals and
maintain certain financial ratios, limit capital expenditures, and limit the
incurrence of additional indebtedness.
Under terms of the Amended Senior Credit Facility, the Partnership has the
option to elect from various interest rate options. The Amended Senior Credit
Facility also includes a provision whereby the interest rate is adjusted each
quarter based on River City Broadcasting's financial performance. Substantially
all amounts borrowed under the Amended Senior Credit Facility accrue interest
based on the LIBOR rate. At December 31, 1995, the Company's effective borrowing
rate under this agreement, including the effect of interest rate risk management
activities, was 8.7%. The Amended Senior Credit Facility requires the
Partnership to pay unused commitment fees (term and revolver) at 3/8 of 1%,
payable quarterly.
The aggregate maturities of long-term debt reflect scheduled principal payments
due under the term loan commitment and the required principal reductions on the
revolving loan commitment and are as follows:
Year ending December 31:
1996 ......................................... $ 38,587,000
1997 ......................................... 46,387,000
1998 ......................................... 51,175,000
1999 ......................................... 55,963,000
2000 ......................................... 73,663,000
Thereafter ................................... 177,225,000
------------
$443,000,000
============
7. INTEREST RATE RISK MANAGEMENT
The Partnership uses a combination of financial instruments, including interest
rate swaps, interest rate caps, interest rate collars, and forward rate
agreements, as part of its program to manage the floating interest rate risk of
its debt portfolio and related overall cost of borrowing. These financial
instruments, which are for nontrading purposes, allow the Partnership to
maintain a target range of fixed rate debt. The Amended Senior Credit Facility
requires the Partnership to hedge 50% of its floating rate risk through December
1997.
Interest rate swaps involve the exchange of floating rate for fixed rate
interest payments to effectively convert floating rate debt to fixed rate debt.
The interest rate swap agreement is for a term of approximately three years and
matures December 1997.
The Partnership purchased interest rate caps to convert floating rate debt to a
fixed rate if such rates rise above 9.5%. The cost of the interest rate caps
totaled approximately $613,000 and is being amortized over the term of the
agreements, generally three years. The unamortized balance is approximately
$408,000 at December 31, 1995. Interest rate cap agreements mature in December
1997 and January 1998.
F-49
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest rate collars involve the conversion of floating rate debt to a fixed
rate if such rates exceed 9.5% or fall below a specified floor rate (generally
4.0%-4.2%). Such agreements mature in December 1997.
Forward rate agreements are short-term contracts (generally 3-6 months) which
allow the Partnership to lock in its effective LIBOR rates over short-term
periods. Such agreements mature January 1996 through April 1996.
The following financial instruments were held at December 31, 1995:
NOTIONAL FAIR
AMOUNTS VALUE
------------ ------------
Interest rate swap .......................... $ 50,000,000 $ (2,103,000)
Interest rate caps .......................... 105,000,000 12,000
Interest rate collars ....................... 70,000,000 (91,000)
Forward rate
agreements .................................. 411,000,000 (304,000)
============ ============
Estimated fair values shown above only represent the value of the hedge or swap
component of these transactions, and thus are not indicative of the
Partnership's overall hedged position. As fully hedged transactions, the
estimated fair values of the interest rate financial instruments do not affect
income and are not recorded in the consolidated financial statements, but rather
only represent the amount which would be required to close the Partnership's
position in the financial instruments at December 31, 1995.
8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Receivables, and Payables -- The carrying amount
approximates fair value because of the short-term maturity of these instruments.
Long-Term Investment -- The Partnership holds a 16% interest in a partnership
for which there are no quoted market prices. A reasonable estimate of fair value
could not be made. The investment is carried at its cost of $1,654,000 in the
consolidated balance sheet.
Long-Term Debt -- The fair value of the Partnership's debt is estimated based on
the current rates offered to the Partnership for debt of the same remaining
maturities. The carrying amount approximates fair value because of the variable
interest rate attached to the debt.
Program Rights Payable -- The fair value of film contracts payable is the
present value of the future obligations based on the current rates available to
the Partnership for debt of similar maturity. The carrying amount and fair value
of program rights payable at December 31, 1995 were $56,223,000 and $48,494,000,
respectively.
9. LOCAL MARKETING AGREEMENT
In August 1995 the Partnership entered into a five-year LMA with KRRT, Inc.
(Licensee). In a related transaction, the Partnership loaned $10,000,000 to the
Licensee. The related note bears interest at 8%. Pursuant to the LMA, KRRT-TV of
Kerrville, Texas (the brokered station) will air programming provided by River
City Broadcasting in exchange for specified compensation. Such compensation is
principally based on certain station operating costs of the brokered station,
including debt service. River City Broadcasting will retain all advertising
revenues derived from programming for which it has provided. The LMA is
cancellable by the Licensee or River City Broadcasting.
F-50
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. EQUITY DEBENTURES
In connection with the purchase of KDSM-TV and the first amendment of the
Limited Partnership Agreement, River City Broadcasting issued two debentures
totaling $2,500,000. These debentures were issued in consideration of, among
other things, consent granted by a certain partner allowing River City
Broadcasting to complete certain transactions as contained in the respective
debenture agreements. Amounts due under the debenture agreements were to be
satisfied through equity distributions made in accordance with terms of the
Limited Partnership Agreement. Accordingly, for financial reporting purposes,
the debentures were treated as equity preference items and the related principal
and accrued interest were not reflected (as liabilities or as equity) in the
consolidated financial statements of River City Broadcasting. Concurrent with
the Recapitalization, these debentures were satisfied through an equity
distribution to the partner.
11. SUPPLEMENTAL CASH FLOW AND OTHER FINANCIAL INFORMATION
Cash paid for interest totaled approximately $6,106,000, $11,523,000, and
$29,249,000 for the years ended December 31, 1993, 1994, and 1995, respectively.
River City Broadcasting purchased program rights, on an installment basis,
amounting to approximately $16,285,000, $15,749,000, and $38,401,000 in 1993,
1994, and 1995, respectively. Amounts reflected as retirements of program rights
payable represent amounts actually paid to vendors under various program rights
agreements.
In connection with the Keymarket acquisition, the Partnership granted
$10,000,000 of limited partner units to the Keymarket seller.
Cash overdrafts amounting to approximately $3,959,000 were included in
accounts payable at December 31, 1995.
Based on certain events, including network affiliation changes at certain
broadcast properties, management performed a review of program rights to
determine projected usage and revenue streams. Based on this review, the
Partnership wrote off certain programming and recognized a charge of
approximately $7,100,000 to operations for the year ended December 31, 1995.
Pursuant to the deferred compensation agreements and Phantom Warrant Units
described in note 2, the Partnership recognized approximately $1,161,000,
$3,236,000, and $1,143,000 of deferred compensation expense in 1993, 1994, and
1995, respectively.
At December 31, 1994, the Partnership recorded a distribution payable of
$2,274,613 in anticipation of income taxes due by the partners as described in
note 2. In accordance with the Limited Partnership Agreement this distribution
was paid in 1995. In 1993, River City Broadcasting retired a $1,000,000
subordinated debenture for $8,191,527.
This amount includes accrued interest of $350,443 of which $101,327
represents 1993 interest expense. The debenture contained a contingent interest
provision, determined based on certain equity like features, which was triggered
concurrent with the Recapitalization. Retirement of this debenture was effected
through its conversion to a limited partnership interest and a charge to
interest expense of $7,191,527 (see note 16).
F-51
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. EXTRAORDINARY ITEMS
Concurrently with the Recapitalization in 1993, the Partnership redeemed,
through conversion to equity, the $1,000,000 1989 subordinated debenture for
$8,191,527, including accrued interest of $350,443. This redemption was treated
as an early extinguishment of debt for financial reporting purposes.
As described in note 7, the Partnership redeemed $118,450,000 of the
outstanding Continental notes with a put premium of $1,184,500. Additionally, in
connection with the extinguishment of its prior Amended Senior Credit Facility,
the Partnership expensed approximately $2,164,000 of related deferred financing
fees. These items were treated as an early extinguishment of debt for financial
reporting purposes.
13. RELATED PARTY TRANSACTIONS
Prior to the Recapitalization, the general partner received a management fee
from each station primarily based on the individual station's revenues.
Subsequent to the Recapitalization, the general partner no longer received
management fees. Pursuant to the Recapitalization, corporate expenses are
allocated to each station to cover the salaries and expenses of senior
management. Such allocation is based upon certain financial information and
management's estimate of actual time spent. Management believes the allocation
is reasonable and approximates what the expenses would have been on a
stand-alone basis. In 1993, management fees totaling approximately $1,220,000
were paid to a general partner whose interest was redeemed concurrent with the
Recapitalization. Beginning in 1994, costs associated with certain members of
senior management were allocated to corporate expenses. Previously, these costs
were included in station operating expenses. Total management fees and expenses,
including corporate expenses, for the years ended December 31, 1993, 1994, and
1995 amounted to approximately $1,873,000, $2,498,000 and $4,482,000,
respectively.
14. EMPLOYEE BENEFITS
River City Broadcasting maintains a qualified profit-sharing plan with a
trustee, which includes a thrift provision qualifying under Section 401(k) of
the Internal Revenue Code, covering substantially all employees. The provision
allows the participants to contribute up to 12% of their compensation in the
plan year, subject to statutory limitations. River City Broadcasting contributed
approximately $121,000, $215,000, and $388,000 for the years ended December 31,
1993, 1994, and 1995, respectively, to the Plan.
In 1994, River City Broadcasting began contributing to a multi-employer plan on
behalf of certain union employees. Contributions to the plan totaled
approximately $20,000 and $31,000 for the years ended December 31, 1994 and
1995, respectively.
15. COMMITMENTS AND CONTINGENCIES
In conjunction with River City Broadcasting's commitment to obtain new
programming, the Partnership has purchased approximately $34,579,000 of future
program rights, including $14,089,000 of sports rights, of which approximately
$4,047,000 will become payable in 1996. These rights are generally for a period
ranging from one to four years. Program rights and related obligations in the
accompanying consolidated financial statements do not include these future
commitments.
The Partnership loaned approximately $6,200,000 to Keymarket of South Carolina
(KSC), a Company owned by a member of Keymarket management. The loan bears
interest at the applicable federal rate, is secured by all of the assets of KSC,
and is payable upon demand by the Partnership. KSC owns three radio stations and
operates two additional radio stations under an LMA. River City Broadcasting
holds an option to acquire KSC for consideration totaling the amount of the
loans outstanding, including accrued interest, plus $1,000,000.
F-52
<PAGE>
RIVER CITY BROADCASTING -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Partnership has capitalized approximately $1,400,000 of fees associated with
a bond offering filed with the SEC in 1995. In the event the offering is
aborted, the Partnership will recognize a charge to operations of $1,400,000. If
the offering is consummated, these fees will be amortized over the life of the
bonds.
River City Broadcasting is involved in certain litigation matters arising in the
normal course of business. In the opinion of management, these matters are not
significant and will not have a material adverse effect on the Partnership's
financial position.
16. SUBSEQUENT EVENT
In January 1996, the Partnership acquired the remaining 40% partnership interest
in Twin Peaks Radio which owned and operated three radio stations in the
Albuquerque, New Mexico area.
F-53
<PAGE>
RIVER CITY BROADCASTING L.P.
BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 1,969,498
Accounts receivable, net of allowance for doubtful accounts
of......................................................... 45,488,514
Program contract rights, current portion.................... 18,713,753
Prepaid expenses and other current assets................... 7,809,096
---------------
Total current assets....................................... 73,980,861
Property and equipment, net of accumulated depreciation..... 95,799,916
Program contract rights, long-term portion.................. 20,364,645
Intangible assets, net of accumulated amortization.......... 344,954,112
Other Non-current assets.................................... 23,823,652
---------------
Total assets............................................... $558,923,186
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 11,794,728
Program contract rights payable, current portion............ 27,686,463
Accrued expenses............................................ 1,579,437
Note payable, current portion............................... 27,615,897
---------------
Total current liabilities.................................. 68,676,525
PROGRAM CONTRACTS PAYABLE, net of current portion ........... 23,339,961
Long-Term Debt, net of current portion....................... 411,413,000
Accrued interest............................................. 7,181,294
Other long-term liabilities.................................. 5,529,333
---------------
Total liabilities.......................................... 516,140,113
---------------
COMMITMENTS AND CONTINGENCIES PARTNERS' CAPITAL.............. 42,783,073
---------------
Total liabilities and partners' capital.................... $558,923,186
===============
The accompanying notes are an integral part of this unaudited balance sheet.
F-54
<PAGE>
RIVER CITY BROADCASTING L.P.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
-------------- ---------------
<S> <C> <C>
Net operating revenues:
Local time sales....................................... $ 19,663,478 $27,584,261
National time sales.................................... 14,369,561 17,475,124
Other revenues......................................... 1,117,268 2,656,661
-------------- ---------------
Total Net Revenue....................................... 35,150,307 47,716,046
Operating costs:
Programming and production............................. 3,379,240 6,196,755
Selling, general and administrative.................... 13,564,372 23,052,357
Amortization of program contract rights................ 6,666,141 6,570,472
Depreciation........................................... 2,962,204 3,754,598
Amortization of intangible assets...................... 5,967,595 8,589,180
-------------- ---------------
Total operating expenses.............................. 32,539,552 48,163,362
-------------- ---------------
Broadcast operating income............................ 2,610,755 (447,316)
-------------- ---------------
Other income:
Interest expense, net.................................. (10,088,258) (9,189,378)
Other income (expense)................................. (566,675) (80,007)
-------------- ---------------
Total other income.................................... (10,654,933) (9,269,385)
Net loss ............................................. $ (8,044,178) $(9,716,701)
============== ===============
Pro Forma Net Loss After Imputing An Income Tax
Benefit:
Net loss as reported.................................... $ (8,044,178) $(9,716,701)
Imputed income tax benefit.............................. 3,861,205 4,664,016
-------------- ---------------
Pro Forma net loss.................................... $ (4,182,973) $(5,052,685)
============== ===============
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-55
<PAGE>
RIVER CITY BROADCASTING L.P.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (8,044,178) $(9,716,701)
Adjustments to reconcile net loss to net cash provided by
operating activities: .....................................
Depreciation and amortization.............................. 2,962,204 3,754,598
Amortization of goodwill and other intangible assets....... 6,383,653 8,623,575
Amortization of program contracts rights................... 6,666,141 6,570,472
Changes in assets and liabilities:
Decrease in accounts receivable............................ 7,374,201 10,353,647
(Increase) decrease in prepaid expenses.................... 327,811 (163,934)
(Increase) decrease in noncurrent assets................... 19,368 (3,563,341)
Increase in accounts payable and accrued expenses.......... 831,595 1,540,224
Deferred compensation...................................... 335,823 --
Retirement of film contract payable......................... (6,863,414) (8,408,085)
-------------- --------------
Net cash flows from operating activites................... 9,993,204 8,990,455
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment......................... (4,349,795) (1,350,389)
Additions to licenses and other intangibles................. -- (1,480,517)
Costs to acquire other stations............................. (13,000,000) (3,200,000)
-------------- --------------
Net cash flows from investing activities ................. (17,349,795) (6,030,906)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................................ (11,050,000) (4,000,000)
Net borrowings under senior credit facility................ 17,000,000 --
-------------- --------------
Net cash flows from financing activities.................. 5,950,000 (4,000,000)
-------------- --------------
Net decrease in cash......................................... (1,406,591) (1,040,451)
CASH, beginning of period.................................... 2,444,738 3,009,949
-------------- --------------
CASH, end of period.......................................... $ 1,038,147 $ 1,969,498
============== ==============
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-56
<PAGE>
RIVER CITY BROADCASTING L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. BUSINESS DESCRIPTION
River City Broadcasting, L.P. (River City Broadcasting or the Partnership) is a
limited partnership formed to purchase and operate broadcast properties and
related activities. River City Broadcasting has acquired nine broadcast
television stations and 24 radio stations. The Partnership also operates one
television station and three radio stations under local marketing agreements
(LMAs). River City Broadcasting is managed by its general partner subject to
terms and conditions specified in the Second Amended and Restated Agreement and
conditions specified in the Second Amended and Restated Agreement of Limited
Partnership (Limited Partnership Agreement).
On September 3, 1993, River City Broadcasting entered into a Reorganization
Agreement, whereby additional equity funding was injected into the Partnership,
and certain partners' interests were redeemed (the Recapitalization).
These statements are unaudited, and certain information and footnote disclosures
normally included in the Company's annual financial statements have been
omitted, as permitted under the applicable rules and regulations. Readers of
these statements should refer to the financial statements and notes thereto as
of December 31, 1995 and for the year ended included elsewhere in this filing.
The results of operations presented in the accompanying financial statements are
not necessarily representative of operations for an entire year.
RELATED PARTY TRANSACTIONS
Prior to the Recapitalization, the general partner received a management fee
from each station primarily based on the individual station's revenues.
Subsequent to the Recapitalization, the general partner no longer received
management fees. Pursuant to the Recapitalization, corporate expenses are
allocated to each station to cover the salaries and expenses of senior
management. Such allocation is based upon certain financial information and
management's estimate of actual time spent. Management believes the allocationis
reasonable and approximates what the expense would have been on a stand-alone
basis.
SUBSEQUENT EVENT
In January 1996, the Partnership acquired the remaining 40% partnership interest
in Twin Peaks Radio which owned and operated three radio stations in the
Albuquerque, New Mexico area.
F-57
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Superior Communications Group, Inc.
We have audited the accompanying consolidated balance sheets of Superior
Communications Group, Inc. (the Company) as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Superior
Communications Group, Inc. as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Pittsburgh, Pennsylvania
February 23, 1996 ERNST & YOUNG LLP
F-58
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 272,218 $ 1,088,527
Accounts receivable, less allowance for doubtful accounts of $200,000 and
$150,000.................................................................. 2,800,531 2,608,609
Deferred film costs........................................................ 2,028,478 2,474,170
Prepaid expenses and other................................................. 106,344 165,053
------------- -------------
Total current assets........................................................ 5,207,571 6,336,359
Property and equipment: ....................................................
Land....................................................................... 538,144 535,347
Building................................................................... 723,186 723,186
Equipment and fixtures..................................................... 8,731,303 8,482,329
------------- -------------
9,992,633 9,740,862
Accumulated depreciation.................................................... (2,604,504) (1,618,864)
------------- -------------
7,388,129 8,121,998
Other assets:
Deferred film costs, net................................................... 3,131,340 3,533,338
Intangible assets, net..................................................... 8,778,246 10,413,781
Other assets............................................................... 4,408 20,156
------------- -------------
11,913,994 13,967,275
------------- -------------
Total assets................................................................ $24,509,694 $28,425,632
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.......................................... $ 1,805,532 $ 1,617,089
Current portion of film contract commitments............................... 1,824,891 1,559,914
Accounts payable........................................................... 365,615 257,770
Accrued expenses........................................................... 362,315 416,379
Due to related parties..................................................... 58,760 62,482
------------- -------------
Total current liabilities................................................... 4,417,113 3,913,634
Long-term debt.............................................................. 12,185,454 12,469,015
Film contract commitments................................................... 2,783,220 2,298,625
Due to related parties...................................................... 35,000 100,000
Deferred income taxes....................................................... 3,383,907 3,899,249
Deferred income............................................................. 31,341 37,341
Stockholders' equity:
Preferred stock, $.001 par value, 20,000 shares authorized, 10,190.84 shares
issued, 8,147.97 and 10,190.84 shares outstanding at cost in 1995 and 1994.
(Liquidation preference at December 31, 1995 and 1994 of
$10,043,731 and $11,323,291, respectively)................................ 9,365,801 9,365,801
Class B common stock, $.001 par value, 100,000 shares authorized, 10,190.84
shares issued, 9,169.405 and 10,190.84 shares outstanding in 1995 and
1994...................................................................... 10 10
Class A common stock, $.001 par value, 10,000 shares authorized, 1,870.7
shares issued and outstanding............................................. 2 2
Additional paid-in capital................................................. 36,210 16,053
Retained deficit........................................................... (4,853,864) (3,674,098)
Treasury stock............................................................. (2,874,500) --
------------- -------------
Total stockholders' equity.................................................. 1,673,659 5,707,768
------------- -------------
Total liabilities and stockholders' equity.................................. $24,509,694 $28,425,632
============= =============
</TABLE>
See accompanying notes.
F-59
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Gross sales........................................... $15,837,243 $13,974,224
Less agency commissions............................... 2,437,582 2,032,429
-------------- --------------
Net sales............................................. 13,399,661 11,941,795
Operating expenses:
Sales and promotion.................................. 2,127,911 2,015,648
Broadcast operations................................. 1,460,716 1,065,579
General and administrative........................... 2,059,805 2,013,921
-------------- --------------
5,648,432 5,095,148
Operating income...................................... 7,751,229 6,846,647
Other expenses:
Amortization-deferred film costs and barter
programming......................................... 4,899,093 4,382,047
Depreciation and amortization........................ 2,725,654 3,064,864
Interest expense, net................................ 1,578,898 1,324,130
Other expense, net................................... 188,111 --
-------------- --------------
9,391,756 8,771,041
-------------- --------------
Loss before income tax benefit........................ (1,640,527) (1,924,394)
Income tax benefit.................................... (460,761) (89,202)
-------------- --------------
Net loss.............................................. $(1,179,766) $(1,835,192)
============== ==============
Undeclared preferred stock dividend requirement,
inception to date.................................... $ 1,895,761 $ 1,132,451
============== ==============
</TABLE>
See accompanying notes.
F-60
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PARTNERS' PREFERRED CLASS B CLASS A PAID-IN RETAINED
CAPITAL STOCK COMMON STOCK COMMON STOCK CAPITAL DEFICIT
----------- ---------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994..................... $ 5,950,100 $ -- $ -- $ -- $ -- $(1,838,906)
Conversion of Superior Communication of
Kentucky, L.P. interest into preferred and
common stock of Company, January 28, 1994.... (5,950,100) 5,950,091 7 2 -- --
Equity contribution, January 28, 1994......... -- 3,099,997 3 -- -- --
Conversion of stockholder note into preferred
and common stock of Company, January 28,
1994......................................... -- 172,713 -- -- -- --
Contribution of net assets by former general
partner including cash of $17,052,
January 28, 1994............................. -- 143,000 -- -- -- --
Vesting of 120.7 shares of common stock from
stock grant.................................. -- -- -- -- 16,053 --
Net loss...................................... -- -- -- -- -- (1,835,192)
----------- ---------- ------------ ------------- ---------- ------------
Balance at December 31, 1994................... -- 9,365,801 10 2 16,053 (3,674,098)
Purchase of 2,042.87 shares of preferred stock
and 1,021.435 of Class B common stock by the
Company....................................... -- -- -- -- -- --
Vesting of shares of common stock from stock
grant......................................... -- -- -- -- 20,157 --
Net loss....................................... -- -- -- -- -- (1,179,766)
----------- ---------- ------------ ------------- ---------- ------------
Balance at December 31, 1995................... $ -- $9,365,801 $ 10 $ 2 $36,210 $(4,853,864)
=========== ========== ============ ============= ========== ============
<CAPTION>
TREASURY TOTAL
STOCK EQUITY
----------- ----------
Balance at January 1, 1994..................... $ -- $ 4,111,194
Conversion of Superior Communication of
Kentucky, L.P. interest into preferred and
common stock of Company, January 28, 1994.... -- --
Equity contribution, January 28, 1994......... -- 3,100,000
Conversion of stockholder note into preferred
and common stock of Company, January 28,
1994......................................... -- 172,713
Contribution of net assets by former general
partner including cash of $17,052,
January 28, 1994............................. -- 143,000
Vesting of 120.7 shares of common stock from
stock grant.................................. -- 16,053
Net loss...................................... -- (1,835,192)
----------- -----------
Balance at December 31, 1994................... -- 5,707,768
Purchase of 2,042.87 shares of preferred stock
and 1,021.435 of Class B common stock by the
Company....................................... (2,874,500) (2,874,500)
Vesting of shares of common stock from stock
grant......................................... -- 20,157
Net loss....................................... -- (1,179,766)
----------- -----------
Balance at December 31, 1995................... $(2,874,500) $ 1,673,659
=========== ===========
</TABLE>
See accompanying notes.
F-61
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Operating activities
Net loss................................................... $(1,179,766) $ (1,835,192)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Barter program revenue.................................... (1,565,295) (1,310,618)
Deferred income........................................... (6,000) (6,000)
Stock grant expense....................................... 20,157 16,053
Provision for bad debts................................... 50,000 99,750
Amortization-deferred film costs and barter programming... 4,899,093 4,382,047
Depreciation and amortization............................. 2,725,654 3,064,864
Loss on disposal of assets................................ 193,415 36,769
Deferred taxes............................................ (515,342) (118,720)
Changes in operating assets and liabilities:
Accounts receivable...................................... (241,922) (744,505)
Prepaid expenses and other............................... 58,709 (50,585)
Accounts payable......................................... 107,845 (323,086)
Accrued expenses......................................... (54,064) 290,929
-------------- --------------
Net cash provided by operating activities.................. 4,492,484 3,501,706
Investing activities
Capital expenditures....................................... (558,385) (240,453)
Other assets............................................... 15,748 --
Intangible assets acquired................................. -- (873,369)
Acquisition of Oklahoma City Broadcasting Company, less
cash acquired............................................. -- (10,696,379)
-------------- --------------
Net cash used in investing activities...................... (542,637) (11,810,201)
Financing activities
Proceeds from long-term debt............................... 25,500 14,200,000
Payments on long-term debt................................. (2,995,118) (6,865,178)
Payments on film contract commitments...................... (1,727,816) (1,545,099)
Net activity on related party liability.................... (68,722) 37,557
Proceeds from capital contribution......................... -- 3,117,052
-------------- --------------
Net cash (used) provided by financing activities .......... (4,766,156) 8,944,332
-------------- --------------
Net (decrease) increase in cash and cash equivalents ...... (816,309) 635,837
Cash and cash equivalents at beginning of year............. 1,088,527 452,690
-------------- --------------
Cash and cash equivalents at end of year................... $ 272,218 $ 1,088,527
============== ==============
</TABLE>
See accompanying notes.
F-62
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The consolidated financial statements of Superior Communications Group, Inc.
(SCGI) include the accounts of SCGI and its wholly owned subsidiaries, Superior
Communications of Kentucky, Inc. (SCKI) and Superior Communications of Oklahoma,
Inc. (SCOI), which are collectively referred to as the Company. All intercompany
balances have been eliminated. The Company owns and operates television
broadcasting stations in Lexington, Kentucky and Oklahoma City, Oklahoma.
ORGANIZATION
The Company, previously known as Superior Communications of Kentucky, L.P. (the
Partnership), was incorporated in its current form on January 28, 1994
concurrent with the acquisition of SCOI (Note 2). Effective on January 28, 1994,
the former partners of the Partnership exchanged all of their partnership
interests for shares of preferred and common stock of the newly formed parent
company, SCGI, under a Security Purchase and Exchange Agreement (Exchange
Agreement) and the Partnership was then dissolved. Additionally, the former
corporate general partner of the Partnership was also dissolved and the
shareholders of the general partner exchanged certain operating assets with the
Company for preferred and common stock. Furthermore, under the Exchange
Agreement, SCGI then contributed the operating assets of the former partnership
to the newly formed SCKI in exchange for all of the outstanding common stock of
SCKI.
OPERATIONS AND CREDIT RISK
The Company's accounts receivable are from the sale of advertising, primarily to
businesses which are local to the broadcast area or to national advertising
agencies. The Company performs credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables are due within
30 days. Credit losses have been within management's expectations. The carrying
amount reported in the balance sheet for accounts receivable approximates its
fair value.
CASH AND CASH EQUIVALENTS
The Company considers all demand deposits and short-term investments purchased
with a maturity of 90 days or less to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates its
fair value.
DEFERRED FILM COSTS AND FILM CONTRACT COMMITMENTS
The Company has contracts with various film distributors from which films are
licensed for television transmission over various contract periods (generally
one to five years) and for a specified number of broadcasts. Net deferred film
costs represent the lower of unamortized cost or estimated net realizable value
of the film contracts available for use. Deferred film costs are amortized on
the straight-line method over the contract periods. Film contract commitments
represent the total obligations due under these contracts, which are generally
payable in equal installments over periods that are 12 to 18 months shorter than
the lives of the contracts, and do not bear interest.
The portion of the deferred film cost to be amortized within one year and after
one year is reported in the balance sheet as current and other assets,
respectively, and the payments under the film contract commitments due within
one year and after one year are similarly classified as current and long-term
liabilities, respectively.
F-63
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation for financial reporting
purposes is based on the straight-line method over estimated useful lives
ranging from 5 to 12 years for equipment and 15 years for buildings. Costs of
repairs and maintenance are charged to expense as incurred.
INTANGIBLE ASSETS
Intangible assets as reflected in Note 3 are being amortized on a straight-line
basis over their useful lives ranging from one to fifteen years.
BARTER TRANSACTIONS
Revenue from barter transactions (advertising provided in exchange for
programming or goods and services) is recognized as income when advertisements
are broadcast, and goods or services received are capitalized or charged to
operations when received or used. Included in the statements of operations is
broadcasting net revenue from barter transactions of $1,940,989 and $1,593,330
during 1995 and 1994, respectively, and station operating costs and expenses
from barter transactions of $1,871,077 and $1,632,184, respectively. As of
December 31, 1995 and 1994, the Company has recorded accrued liabilities for
deferred barter revenue of $86,586 and $149,434, respectively.
DEFERRED INCOME
Deferred income relates to prepaid rental income for use of SCKI's tower
facility. The amount is being recognized on a straight-line basis through 2001
(term of agreement).
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
Deferred income taxes recorded on the Company's consolidated balance sheets
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been reclassified or
restated to conform to the current year presentation.
2. ACQUISITION OF STATION
On January 28, 1994, SBI, a newly formed corporation and wholly owned subsidiary
of the Company, purchased all of the outstanding stock of Oklahoma City
Broadcasting Company (OCBC) for $10,973,241. The acquisition was accounted for
as a purchase transaction with the purchase price being allocated to the assets
and liabilities acquired based upon their fair market values at the date of
acquisition. In connection with the transaction, SBI also entered into a
noncompete agreement with the seller of OCBC valued at $1,500,000, for which a
note payable was issued to the seller (Note 4). The cost of the noncompete
agreement is being amortized over the five-year term of the agreement. The
acquisition was financed from the issuance of stock for $3,100,000 and from bank
debt in the amount of $7,873,241. Concurrent with the acquisition, SBI and OCBC
merged, forming SCOI.
F-64
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INTANGIBLE ASSETS
The components of intangible assets consist of the following as of December 31,
1995 and 1994:
1995 1994
------------- -------------
Advertising contracts acquired........... $ -- $ 441,075
Loan origination costs and other ........ 617,410 624,064
Organization and syndication costs ...... 1,634,828 1,634,828
Covenant not-to-compete.................. 2,500,000 2,500,000
FCC license and FOX affiliation
agreement................................ 4,269,819 4,391,223
Goodwill................................. 3,546,186 3,546,186
------------- -------------
12,568,243 13,137,376
Less accumulated amortization............ (3,789,997) (2,723,595)
------------- -------------
Intangible assets, net................... $ 8,778,246 $10,413,781
============= =============
4. LONG-TERM DEBT
Long-term debt at December 31, 1995 consists of bank and seller debt as follows:
BANK DEBT
On January 28, 1994, the Company entered into a senior secured term loan
agreement and revolving credit agreement (collectively the Credit Agreement)
with a bank in the amount of $12,700,000 and $2,000,000, respectively. The term
loan is due in quarterly installments through January 2000, and the revolving
credit agreement is due January 2000. The outstanding balance on the revolving
credit agreement was $1,500,000 at December 31, 1994, and no amounts were
outstanding at December 31, 1995. The Credit Agreement provides for interest at
the bank's Base Rate (8.5% at December 31, 1995) plus 1.75%, and is secured by
the stock of SCGI and its subsidiaries. Covenants contained in the Credit
Agreement limit capital expenditures, define required levels of earnings and
cash flows and limit additional indebtedness and film contract commitments.
The proceeds of these loans were utilized by the Company to finance the
acquisition of SCOI, and to repay amounts owed to a former bank under a term
note payable of $5,260,589.
On February 13, 1995, the Company repurchased 1,021.435 shares of Class B common
stock and 2,042.87 shares of preferred stock of the Company for $2,874,500. The
repurchase was financed through an additional term loan with a bank for
$2,900,000. The term loan is due in quarterly installments of $290,000 beginning
October 1997 through January 2000, plus interest at the bank's Base Rate plus
1.75%. A mandatory prepayment per the terms of the loan agreement was required
in 1995 and was applied to this loan. The outstanding balance on this term loan
was $2,610,000 at December 31, 1995.
SELLER DEBT
In connection with the acquisition of OCBC, the Company also incurred
indebtedness to the former owner of OCBC for $1,500,000. The note is secured by
a lien on SCOI's assets and is subordinated to that of the bank debt. The seller
debt bears interest at a rate of 7.5% and is payable in annual installments of
$300,000, plus interest, beginning January 28, 1995. The outstanding balance on
this note was $1,200,000 at December 31, 1995.
F-65
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a schedule of aggregate maturities of long-term debt as of
December 31, 1995:
1996 ............................. $ 1,805,532
1997 ............................. 2,820,973
1998 ............................. 3,990,045
1999 ............................. 4,322,500
2000 ............................. 1,051,936
-----------
$13,990,986
===========
FAIR VALUE
The carrying amounts of the Company's borrowings under its bank and seller debt
arrangements approximate their fair value. The fair values of the Company's debt
are estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing arrangements.
5. FILM CONTRACT COMMITMENTS
The Company has acquired certain film rights under long-term film contract
commitments. These commitments are generally payable in equal installments over
periods that are twelve to eighteen months shorter than the lives of the related
film rights and do not bear interest. Annual payments required under these
commitments are as follows:
1996 .................................. $1,824,891
1997 .................................. 1,514,859
1998 .................................. 978,063
1999 .................................. 287,637
2000 .................................. 2,661
----------
$4,608,111
==========
The values of the film rights acquired under these contracts are included as net
deferred film costs in the accompanying consolidated balance sheet and have the
following balances at December 31, 1995:
Deferred film costs ........................ $ 11,202,089
Less accumulated
amortization ............................... (6,042,271)
------------
5,159,818
Less current portion ....................... (2,028,478)
------------
Deferred film costs, net ................... $ 3,131,340
============
As discussed in Note 1, the Company enters into contracts with various film
distributors which allow limited showings of films and syndicated programs. At
December 31, 1995, the Company has entered into contracts totaling approximately
$1,063,943 for which the license period and program availability for telecasting
begins after December 31, 1995. These contracts are not recorded in the
accompanying consolidated balance sheet.
F-66
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DUE TO RELATED PARTIES
Amounts due to related parties consist of fees charged by shareholders of the
Company in connection with the acquisition of the Partnership (Note 1) in
November 1992 and includes accrued interest at 7.75%.
7. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
1995 1994
------------ ------------
Deferred tax assets:
Allowance for doubtful
accounts...................... $ 76,456 $ 56,178
Net operating loss
carryforwards................. 351,981 181,081
Other.......................... -- 23,200
------------ ------------
Total deferred tax assets ...... 428,437 260,459
Deferred tax liabilities:
Properties and broadcast
rights......................... 2,500,911 2,234,846
Intangible assets............... 1,311,433 1,924,862
------------ ------------
Total deferred tax liabilities . 3,812,344 4,159,708
------------ ------------
Net deferred tax liabilities ... $3,383,907 $3,899,249
============ ============
Significant components of the provision for income tax expense (benefit) for the
year ended December 31 are as follows:
1995 1994
--------- ---------
Current:
State .............................. $ 54,581 $ 29,518
Deferred:
Federal ............................ (461,231) (127,337)
State .............................. (54,111) 8,617
--------- ---------
Total deferred ....................... (515,342) (118,720)
--------- ---------
$(460,761) $ (89,202)
========= =========
The Company's effective income tax rates differ from federal statutory income
tax rates due primarily to the amortization of goodwill and state income taxes.
Additionally, in 1994 the Company recorded deferred income tax expense of
$507,673 upon the contribution of the partnership interests and general partner
operating assets (Note 1).
At December 31, 1995, the Company has federal and state net operating loss
carryforwards of $666,000 and $2,090,000, respectively, which begin to expire in
2009.
8. STOCKHOLDERS' EQUITY
As discussed in Note 1, the Company reorganized effective January 28, 1994 under
the terms of the Exchange Agreement. Pursuant to the terms of the agreement the
former owners of the Partnership were given 7,090.84 shares of preferred stock,
7,090.84 shares of Class B common stock and 1,750 shares of Class A common stock
of the Company. Also on January 28, 1994, certain stockholders contributed an
additional $3,100,000 in exchange for 3,100 shares each of preferred stock and
Class B common stock of the Company.
F-67
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On February 13, 1995, the Company repurchased 1,021.435 shares of Class B common
stock and 2,042.87 shares of preferred stock of the Company for $2,874,500.
The preferred stock, which has a stated liquidation preference of $1,000 a
share, has no voting rights. Dividends accumulate at 12% based upon the stock's
stated liquidation value and are payable at the discretion of the Board of
Directors and subject to restriction within the Credit Agreement. Unless all
accumulated dividends on the preferred stock have been paid, no dividend may be
paid, and no other distributions may be made upon the common stock of the
Company. Upon liquidation of the Company, any proceeds to be distributed are
first utilized to pay the preferred stockholders at an amount equal to $1,000
per share (liquidation preference) plus any accrued but unpaid dividends,
inception to date ($1,895,761 at December 31, 1995). If amounts remain available
for distribution in excess of the preferred liquidation, those amounts are to be
allocated 80% to the Class B common stockholders and 20% to the Class A common
stockholders. The Class A common stock is subject to restriction on sale,
transfer and also contain forfeiture provisions.
9. STOCK GRANTS
The Company has granted 120.7 shares of Class A common stock to an officer of
the Company. The Class A common stock has significant restrictions including
forfeiture obligations if the officer were no longer an employee of the Company.
Pursuant to the terms of the stock grant agreement, all shares will vest upon
the completion of the sale of the Company's shares of outstanding stock as
discussed in Note 11. Accordingly, the Company recorded a charge to operations
of $20,157 in 1995 ($16,053 in 1994) to reflect the vesting of the remaining
stock granted.
10. OPERATING LEASES AND OTHER COMMITMENTS
The Company has entered into various noncancelable lease arrangements for office
space rental, ratings and research services, broadcast accounting software and
other licensing agreements. Total expense charged to operations under these
agreements was approximately $283,000 in 1995. The minimum future payments under
these agreements are as follows:
1996 ....................................... $ 252,088
1997 ....................................... 267,059
1998 ....................................... 281,039
1999 ....................................... 150,247
2000 ....................................... 139,323
----------
$1,089,756
==========
11. SUBSEQUENT EVENT
On March 4, 1996, the shareholders of the Company entered into an agreement with
an unrelated entity to sell all of the Company's outstanding shares of preferred
and common stock. Pursuant to the terms of the stock purchase agreement, the
buyer will cause the Company to pay in full all of the outstanding debt of the
Company plus accrued interest and prepayment penalties. The balance of the
proceeds will be distributed to the selling shareholders.
F-68
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC. -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company entered into the following noncash transactions:
o As discussed in Note 4, on February 13, 1995, the Company paid $2,874,500 for
stock placed in treasury, which was financed through the issuance of long-term
debt.
o Deferred film costs in the amount of $2,548,375 and $1,820,606 were recorded
through the assumption of film contract commitments in the same amounts during
1995 and 1994, respectively.
o The Company recorded a $1,500,000 noncompete agreement from the seller of KOCB
in exchange for the issuance of a note payable to the seller in the same amount
during 1994.
o The Company received $125,948 of net assets in exchange for stock in
connection with the January 28, 1994 restructuring.
Additionally, cash paid for interest and income taxes was as follows:
1995 1994
---------- ----------
Interest ..................... $1,523,785 $1,262,553
========== ==========
Income taxes ................. $ 16,448 $ 50,000
========== ==========
F-69
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 251,379
Accounts receivable, net of allowance for doubtful accounts
of ......................................................... 2,201,506
Program contract rights, current portion .................... 2,144,852
Prepaid expenses and other current assets ................... 120,104
-------------
Total current assets ....................................... 4,717,841
-------------
Property and equipment, net of accumulated depreciation ..... 7,209,857
Program contract rights, long-term portion ................... 2,591,164
Intangible assets, net of accumulated amortization .......... 8,381,632
-------------
Total assets ............................................... $22,900,494
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Program contract rights payable, current portion ............ $ 1,841,988
Accounts payable ............................................ 239,075
Accrued liabilities ......................................... 234,565
Debt-current portion ........................................ 2,300,000
Other current liabilities ................................... 21,000
-------------
Total current liabilities .................................. 4,636,628
PROGRAM CONTRACTS PAYABLE, net of current portion ........... 2,367,888
DEBT, net of current portion ................................. 11,110,945
OTHER LIABILITIES, net of current portion .................... 3,421,188
-------------
Total liabilities .......................................... 21,536,649
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ................................................ 12
Preferred stock ............................................. 9,365,801
Additional Paid-in Capital .................................. 36,210
Retained Deficit ............................................ (5,163,678)
Treasury stock .............................................. (2,874,500)
-------------
Total stockholders' equity ................................. 1,363,845
-------------
Total liabilities and stockholders' equity ................. $22,900,494
=============
The accompanying notes are an integral part of this unaudited balance sheet.
F-70
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
REVENUES:
Advertising revenue, net of agency commissions of $465,520
and $595,294, respectively ................................. $2,691,717 $3,388,945
OPERATING EXPENSES:
Programming and production .................................. 350,842 437,116
Selling, general and administrative ......................... 1,205,203 1,690,357
Amortization of program contract rights ..................... 695,697 548,891
Depreciation and amortization of property and equipment ..... 271,810 279,096
Amortization of intangible assets ........................... 403,218 399,114
------------- -------------
Total operating expenses ................................... 2,926,770 3,354,574
------------- -------------
Broadcast operating income (loss) .......................... (235,053) 34,371
------------- -------------
OTHER INCOME:
Interest expense, net ....................................... (396,478) (346,928)
Other income (expense) ...................................... -- 2,739
------------- -------------
Total other income .......................................... (396,478) (344,189)
------------- -------------
Income (loss) before (provision) benefit for income taxes ... (631,531) (309,818)
BENEFIT FOR INCOME TAXES ..................................... 176,829 86,749
------------- -------------
Net loss .................................................... $ (454,702) $ (223,069)
============= =============
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-71
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ........................................................... $ (454,702) $(223,069)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 271,810 279,096
Amortization of intangible assets ................................. 403,218 399,114
Amortization of program contracts rights .......................... 695,697 548,891
Changes in assets and liabilities:
Decrease in accounts receivable ................................... 571,602 465,370
Increase in other current assets .................................. (174,829) (84,749)
(Increase) decrease in prepaid expenses ........................... (162,044) 13,810
(Decrease) increase in accounts payable ........................... (15,098) 56,893
(Decrease) increase in accrued liabilities ........................ (41,677) 27,065
Decrease in other current liabilities ............................. (67,086) (196,631)
Film Rights Payments ............................................... (433,617) (523,324)
-------------- ------------
Net cash flows provided by operating activities ................... 593,274 762,466
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of treasury stock ......................................... (2,885,000) --
Additions to property and equipment ................................ (38,058) (101,659)
-------------- ------------
Net cash flows used in investing activities ....................... (2,923,058) (101,659)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ........................................ (737,500) (681,646)
Proceeds from issuance of long term debt ........................... 2,900,000 --
-------------- ------------
Net cash flows provided by (used in) financing activities ......... 2,162,500 (681,646)
-------------- ------------
Net decrease in cash .............................................. (167,284) (20,839)
-------------- ------------
CASH, beginning of period ........................................... 1,088,527 272,218
============== ============
CASH, end of period ................................................. $ 921,243 $ 251,379
============== ============
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-72
<PAGE>
SUPERIOR COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The consolidated financial statements of Superior Communications Group, Inc.
(SCGI) include the accounts of SCGI and its wholly owned subsidiaries, Superior
Communications of Kentucky, Inc. (SCKI) and Superior Communications of Oklahoma,
Inc. (SCOI), which are collectively referred to as the Company. All intercompany
balances have been eliminated. The Company owns and operates television
broadcasting stations in Lexington, Kentucky and Oklahoma City, Oklahoma.
These statements are unaudited, and certain information and footnote disclosures
normally included in the Company's annual financial statements have been
omitted, as permitted under the applicable rules and regulations. Readers of
these statements should refer to the financial statements and notes thereto as
of December 31, 1995 and for the year ended included elsewhere in this filing.
The results of operations presented in the accompanying financial statements are
not necessarily representative of operations for an entire year.
ORGANIZATION
The Company, previously known as Superior Communications of Kentucky, L.P. (the
Partnership), was incorporated in its current form on January 28, 1994
concurrent with the acquisition of SCOI (Note 2). Effective on January 28, 1994,
the former partners of the Partnership exchanged all of their partnership
interests for shares of preferred and common stock of the newly formed parent
company, SCGI, under a Security Purchase and Exchange Agreement (Exchange
Agreement) and the Partnership was then dissolved. Additionally, the former
corporate general partner of the Partnership was also dissolved and the
shareholders of the general partner exchanged certain operating assets with the
Company for preferred and common stock. Furthermore, under the Exchange
Agreement, SCGI then contributed the operating assets of the former partnership
to the newly formed SCKI in exchange for all of the outstanding common stock of
SCKI.
2. ACQUISITION OF STATION
On January 28, 1994, SBI, a newly formed corporation and wholly owned subsidiary
of the Company, purchased all of the outstanding stock of Oklahoma City
Broadcasting Company (OCBC) for $10,973,241. The acquisition was accounted for
as a purchase transaction with the purchase price being allocated to the assets
and liabilities acquired based upon their fair market values at the date of
acquisition. In connection with the transaction, SBI also entered into a
noncompete agreement with the seller of OCBC valued at $1,500,000, for which a
note payable was issued to the seller. The cost of the noncompete agreement is
being amortized over the five-year term of the agreement. The acquisition was
financed from the issuance of stock for $3,100,000 and from bank debt in the
amount of $7,873,241. Concurrent with the acquisition, SBI and OCBC merged,
forming SCOI.
3. DUE TO RELATED PARTIES
Amounts due to related parties consist of fees charged by shareholders of the
Company in connection with the acquisition of the Partnership (Note 1) in
November 1992 and includes accrued interest at 7.75%.
4. SALE OF STATION
On March 4, 1996, the shareholders of the Company entered into an agreement with
an unrelated entity to sell all of the Company's outstanding shares of preferred
and common stock. Pursuant to the terms of the stock purchase agreement, the
buyer will cause the Company to pay in full all of the outstanding debt of the
Company plus accrued interest and prepayment penalties. The balance of the
proceeds will be distributed to the selling shareholders.
F-73
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying balance sheets of Flint TV, Inc. (a Michigan
corporation) as of December 31, 1995 and 1994, and the related statements of
operations, changes in stockholder's equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Flint TV, Inc. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
March 29, 1996
F-74
<PAGE>
FLINT TV, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 108,900 $ 491,300
Short-term investments.................................... 1,247,900 956,300
Accounts receivable, net of allowance for doubtful
accounts of $86,000 as of 1995 and 1994.................. 1,999,700 1,682,200
Current portion of program contract costs................. 378,400 315,100
Other current assets...................................... 64,500 58,000
------------- -------------
Total current assets.................................... 3,799,400 3,502,900
Property and equipment, net............................... 34,000 52,300
Program contract costs, noncurrent portion................ 743,900 370,000
Intangible assets, net.................................... 210,000 221,500
Other assets.............................................. 303,800 199,500
------------- -------------
Total assets............................................ $ 5,091,100 $ 4,346,200
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 12,500 $ 39,000
Accrued liabilities....................................... 256,800 354,200
Current portion of program contracts payable.............. 848,000 457,700
Due to related parties.................................... 11,600 7,000
Unearned revenue.......................................... 18,800 74,00
Deposit on sale........................................... 1,000,000 --
------------- -------------
Total current liabilities............................... 2,147,700 931,900
LONG-TERM LIABILITIES:
Program contracts payable, noncurrent portion............. 1,054,600 668,900
------------- -------------
Total liabilities....................................... 3,202,300 1,600,800
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, no par value; 500 shares authorized, issued
and outstanding.......................................... -- --
Additional paid-in capital................................ 9,026,000 9,026,000
Accumulated deficit....................................... (7,137,200) (6,280,600)
------------- -------------
Total stockholder's equity.............................. 1,888,800 2,745,400
------------- -------------
Total liabilities and stockholder's equity.............. $ 5,091,100 $ 4,346,200
============= =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-75
<PAGE>
FLINT TV, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ADVERTISING REVENUES, net of agency commissions of
$539,900 and $465,000, respectively.................... $7,217,100 $6,390,000
------------ ------------
OPERATING EXPENSES:
Programming and production............................ 511,100 1,684,700
Selling, general and administrative................... 2,114,900 1,858,500
Amortization of program contract rights............... 896,900 881,600
Depreciation and amortization of property and
equipment............................................ 20,600 46,900
Amortization of intangible assets..................... 11,500 11,500
------------ ------------
Total operating expenses............................ 3,555,000 4,483,200
------------ ------------
Broadcast operating income.......................... 3,662,100 1,906,800
------------ ------------
OTHER INCOME:
Interest income....................................... 80,800 46,100
Other income.......................................... 40,500 9,100
------------ ------------
Total other income.................................. 121,300 55,200
------------ ------------
Net income.......................................... $3,783,400 $1,962,000
============ ============
PRO FORMA NET INCOME AFTER IMPUTING AN INCOME TAX
PROVISION:
Net income, as reported............................... $3,783,400 $1,962,000
Imputed income tax provision.......................... 1,475,500 765,200
------------ ------------
Pro forma net income................................ $2,307,900 $1,196,800
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-76
<PAGE>
FLINT TV, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES VALUE CAPITAL DEFICIT EQUITY
-------- ------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993...................... -- $ -- $9,026,000 $(6,636,730) $ 2,389,270
Cash dividends........... -- -- -- (1,605,870) (1,605,870)
Net income............... -- -- -- 1,962,000 1,962,000
-------- ------- ------------ -------------- ----------------
BALANCE, December 31,
1994..................... -- -- 9,026,000 (6,280,600) 2,745,400
Cash dividends........... -- -- -- (4,640,000) (4,640,000)
Net income............... -- -- -- 3,783,400 3,783,400
-------- ------- ------------ -------------- ----------------
BALANCE, December 31,
1995..................... -- $ -- $9,026,000 $(7,137,200) $ 1,888,800
======== ======= ============ ============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-77
<PAGE>
FLINT TV, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 3,783,400 $ 1,962,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 20,600 46,900
Provision for losses on accounts receivable.............. -- 24,100
Amortization of goodwill and other intangible assets..... 11,500 11,500
Amortization of program contract rights.................. 896,900 881,600
Loss on disposal of fixed assets......................... -- 5,700
Changes in assets and liabilities:
Increase in short-term investments....................... (291,600) (258,000)
Increase in accounts receivable.......................... (317,500) (204,600)
Increase in other current assets......................... (6,500) (1,500)
Increase in other assets................................. (104,300) (44,400)
(Decrease) increase in accounts payable.................. (26,500) 3,900
Increase in due to related parties....................... 4,600 3,000
(Decrease) increase in accrued liabilities............... (97,400) 204,000
(Decrease) increase in unearned revenue.................. (55,200) 48,000
Film rights payments...................................... (558,100) (623,500)
------------- -------------
Net cash provided by operating activities............... 3,259,900 2,058,700
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (2,300) (43,500)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... -- (8,930)
Dividends paid............................................ (4,640,000) (1,605,870)
Increase in deposit on sale............................... 1,000,000 --
------------- -------------
Net cash flows used in financing activities............. (3,640,000) (1,614,800)
------------- -------------
Net (decrease) increase in cash......................... (382,400) 400,400
CASH, beginning of year.................................... 491,300 90,900
------------- -------------
CASH, end of year.......................................... $ 108,900 $ 491,300
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Film contract rights and liabilities acquired............. $ 1,334,100 $ 593,670
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-78
<PAGE>
FLINT TV, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION
Flint TV, Inc., a Michigan corporation (the Company), owns and operates
television station WSMH-TV, Flint, Michigan (the Station). The Company is a
television broadcaster serving the mid-Michigan area through station WSMH on
Channel 66, a Fox affiliate (see Note 8 for sale of the station).
FISCAL YEAR
The Company maintains its accounts on a fifty-two/fifty-three week year ending
on the last Sunday of the calendar year. The fiscal years ended December 31,
1995 and 1994 contained 53 weeks and 52 weeks, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Station recognizes revenue on the sale of advertising air time when the
related advertising is broadcast.
CASH AND CASH EQUIVALENTS
For purposes of these financial statements, all cash and cash equivalents
consist of cash and money market accounts. The cost of these cash and cash
equivalents approximates their market value.
SHORT-TERM INVESTMENTS
This caption represents short-term maturity money market funds that can be
readily purchased or sold using established markets. These investments are
stated at cost plus accrued income which approximates market value.
PROGRAM CONTRACT RIGHTS
The Station has entered into agreements with program distributors granting it
the right to broadcast programs over contract periods which generally run from
one to seven years. The total cost of each contract is recorded as an asset and
liability when the license period begins and the program is available for its
first showing. Amortization of program contract costs is generally computed
under either a four year accelerated method or based on usage, whichever yields
the greater amortization for each program. Program contract rights are stated at
the lower of unamortized cost or net realizable value as estimated periodically
by management. Contract payments are generally made in installments over a term
somewhat shorter than the contract period.
Program contract rights expected to be amortized in the succeeding year and
program contract rights payable due within one year are classified as current
assets and current liabilities, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates and amortizes
property and equipment over the estimated useful lives of the assets, generally
using accelerated methods.
F-79
<PAGE>
FLINT TV, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
INTANGIBLE ASSETS
Intangible assets include value attributable to the license issued by the
Federal Communications Commission (FCC) and goodwill representing the excess of
the cost over the fair market value of the assets purchased and the liabilities
assumed. These assets are amortized using the straight-line method over their
estimated useful lives. The Company monitors the individual financial
performance of the station and continually evaluates the realizability of
goodwill and the existence of any impairment to its recoverability based on the
projected future net income of the station.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses in the
financial statements and in the disclosures of contingent assets and
liabilities. While actual results could differ from those estimates, management
believes that actual results will not be materially different from amounts
provided in the accompanying consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements to conform with the current year presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995 and 1994:
1995 1994
------------- -------------
Broadcasting equipment........................ $ 2,604,500 $ 3,004,500
Machinery and equipment....................... 20,100 20,000
Furniture and fixtures........................ 110,000 111,000
------------- -------------
2,734,600 3,135,500
Less: Accumulated depreciation and
amortization.................................. (2,700,600) (3,083,200)
------------- -------------
Property and equipment, net................... $ 34,000 $ 52,300
============= =============
4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1995 and 1994:
AMORTIZATION
PERIOD 1995 1994
-------------- ----------- -----------
FCC license................... 25 years $ 225,000 $ 225,000
Goodwill...................... 40 years 100,000 100,000
----------- -----------
325,000 325,000
Less: Accumulated
amortization.................. (115,000) (103,500)
----------- -----------
Intangible assets, net........ $ 210,000 $ 221,500
=========== ===========
F-80
<PAGE>
FLINT TV, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
5. RELATED PARTY TRANSACTIONS
An entity in which the majority shareholder of Flint TV, Inc. has ownership
interests owns the building in which the Station operates. Rent expense paid in
1995 and 1994 was $102,000 and $25,500, respectively.
Two other entities in which the majority shareholder of Flint TV, Inc. has
ownership interests provide administrative services to the Station. Payments for
these services totaled $455,600 and $212,600 for 1995 and 1994, respectively.
During 1994, another entity in which the majority shareholder of Flint TV, Inc.
had ownership interests provided programming services to the Station in the
amount of $1,151,500, which is included in programming and production expenses
in the accompanying statement of operations. This entity was sold by the
majority shareholder in 1994 and, accordingly, no services were performed by
this entity during 1995.
In addition, an entity partially owned by an affiliate of Flint TV, Inc.
provides local radio advertising and administrative management services to the
Station. Advertising expenses paid to this entity in 1995 and 1994 were $246,000
and $226,800, respectively. Administrative management expenses paid to this
entity in 1995 and 1994 were $106,000 and $161,800, respectively.
6. COMMITMENTS AND CONTINGENCIES
Future payments acquired under program contracts payable as of December 31,
1995, are as follows:
1996.......................................... $ 848,000
1997.......................................... 709,800
1998.......................................... 305,200
1999.......................................... 39,600
2000.......................................... --
2001 and thereafter........................... --
-----------
1,902,600
Less -- Current portion....................... (848,000)
-----------
Long-term portion of program contracts payable. $1,054,600
===========
In addition, the Station has entered into noncancelable commitments for future
program rights aggregating $204,200 and $1,109,000 as of December 31, 1995 and
1994, respectively.
7. INCOME TAXES
Flint TV, Inc. operates as an S corporation for income tax purposes and as a
result, is generally not subject to Federal income taxes. Such income taxes are
the obligation of the stockholders of Flint TV, Inc. In accordance with Company
policy, Flint TV, Inc. does not record deferred income taxes.
A pro forma income tax provision, along with the related pro forma effect on net
income, is presented in the accompanying statement of operations. These pro
forma income taxes are the product of multiplying the estimated blended Federal
and State effective rate of 39% by net income as reported in the statement of
operations.
8. SALE OF THE STATION
In May 1995, the Company entered into an option agreement with Sinclair
Broadcast Group, Inc. (SBG) to acquire all of the license and non-license assets
of the Company. The option purchase price was $1.0 million. In July 1995, SBG
paid $1.0 million to exercise its option upon FCC consent. In February 1996, SBG
consummated the acquisition for a purchase price of $35.4 million, at which time
the balance of $34.4 million was paid.
F-81
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying balance sheets of Paramount Stations Group of
Kerville, Inc. (a Virginia corporation) as of August 3, 1995 and December 31,
1994, and the related statements of operations, stockholders' equity and cash
flows for the period from January 1, 1995 through August 3, 1995, and the year
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paramount Stations Group of
Kerville, Inc. as of August 3, 1995 and December 31, 1994, and the results of
its operations and its cash flows for the period from January 1, 1995 through
August 3, 1995, and the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN, LLP
Baltimore, Maryland,
April 26, 1996
F-82
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
BALANCE SHEETS
AS OF AUGUST 3, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
AUGUST 3, DECEMBER 31,
1995 1994
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................................. $ 1,122 $ 400
Accounts receivable, net of allowance for doubtful accounts of
$190,610 and $148,755, respectively.............................. 2,543,148 2,961,824
Current portion of program contract costs......................... 1,144,236 1,130,513
Deferred barter costs............................................. -- 41,274
Other current assets.............................................. 340,302 123,132
------------- --------------
Total current assets............................................ 4,028,808 4,257,143
------------- --------------
Property and equipment, net....................................... 825,967 986,880
Program contract costs, noncurrent portion........................ 504,701 1,430,927
Due from affiliate................................................ 4,795,220 2,567,935
Goodwill, net..................................................... 15,305,080 15,558,387
Other assets...................................................... -- 5,092
------------- --------------
Total Assets.................................................... $25,459,776 $24,806,364
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................. $ 1,869 $ 189,547
Accrued liabilities............................................... 48,308 385,512
Current portion of program contracts payable...................... 1,202,739 1,961,803
Deferred barter revenues.......................................... -- 13,674
------------- --------------
Total current liabilities....................................... 1,252,916 2,550,536
LONG-TERM LIABILITIES:
Program contracts payable, noncurrent portion..................... 932,591 1,576,134
------------- --------------
Total Liabilities............................................... 2,185,507 4,126,670
------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, Class A, $1 par value; 1,000 shares authorized, 800
shares issued and outstanding.................................... 800 800
Common stock, Class B, $1 par value; 8,800 shares authorized;
7,040 issued and outstanding..................................... 7,040 7,040
Additional paid-in capital........................................ 16,954,952 15,879,113
Retained earnings................................................. 6,311,477 4,792,741
------------- --------------
Total Stockholders' Equity...................................... 23,274,269 20,679,694
------------- --------------
Total Liabilities and Stockholders' Equity...................... $25,459,776 $24,806,364
============= ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-83
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995
AND THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
AUGUST 3, DECEMBER 31,
1995 1994
------------ --------------
<S> <C> <C>
REVENUES:
Advertising revenues, net of agency commissions of $1,159,012
and $1,950,484, respectively................................... $6,665,863 $11,499,302
Revenues realized from station barter arrangements.............. 900,743 1,300,904
------------ --------------
Total revenue................................................. 7,566,606 12,800,206
------------ --------------
OPERATING EXPENSES:
Programming..................................................... 288,704 427,316
Selling......................................................... 1,459,894 2,700,025
Administration.................................................. 497,671 1,003,846
Promotion....................................................... 247,686 468,837
Engineering .................................................... 296,677 571,813
Amortization of program contract rights......................... 921,053 1,912,677
Depreciation of property and equipment.......................... 194,337 379,232
Amortization of intangible assets............................... 253,307 426,495
Barter expense.................................................. 875,950 1,255,799
------------ --------------
Total operating expenses...................................... 5,035,279 9,146,040
------------ --------------
Broadcast operating income.................................... 2,531,327 3,654,166
OTHER INCOME..................................................... 63,248 2,884
------------ --------------
Income before taxes............................................. 2,594,575 3,657,050
INCOME TAX PROVISION............................................. 1,075,839 1,541,215
------------ --------------
Net income...................................................... $1,518,736 $ 2,115,835
============ ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-84
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995 AND THE YEAR
ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
CLASS A CLASS B PAID-IN RETAINED STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL EARNINGS EQUITY
------ ----- ------ ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.......... 800 $ 800 7,040 $7,040 $14,337,898 $2,676,906 $17,022,644
Forgiveness of income taxes by
Parent............................ -- -- -- -- 1,541,215 -- 1,541,215
Net income......................... -- -- -- -- -- 2,115,835 2,115,835
-------- ------- -------- -------- ------------- ------------ ---------------
BALANCE, December 31, 1994.......... 800 800 7,040 7,040 15,879,113 4,792,741 20,679,694
Forgiveness of income taxes by
Parent............................ -- -- -- -- 1,075,839 -- 1,075,839
Net income......................... -- -- -- -- -- 1,518,736 1,518,736
-------- ------- -------- -------- ------------- ------------ ---------------
BALANCE, August 3, 1995............. 800 $ 800 7,040 $7,040 $16,954,952 $6,311,477 $23,274,269
======== ======= ======== ======== ============= ============ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-85
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995
AND THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
AUGUST 3, DECEMBER 31,
1995 1994
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,518,736 $ 2,115,835
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of program contract rights................... 921,053 1,912,677
Depreciation of property and equipment.................... 194,337 379,232
Amortization of goodwill.................................. 253,307 426,495
Forgiveness of income tax expense by Parent............... 1,075,839 1,541,215
Changes in assets and liabilities:
Increase in due from affiliate........................... (2,227,285) (2,567,935)
Decrease (increase) in accounts receivable............... 418,676 (567,548)
Decrease in deferred charges............................. 41,274 32,141
(Increase) decrease in other current assets.............. (217,170) 62,407
Decrease in other assets................................. 5,092 --
(Decrease) increase in accounts payable.................. (187,678) 119,639
Decrease in due to related parties....................... -- (1,553,444)
(Decrease) increase in accrued liabilities............... (337,204) 177,183
Decrease in deferred barter revenue...................... (13,674) (50,660)
Film rights payments..................................... (1,411,157) (1,975,061)
------------- --------------
Net cash provided by operating activities............... 34,146 52,176
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (33,424) (52,176)
------------- --------------
Net increase in cash.................................... 722 --
CASH, beginning of year.................................... 400 400
------------- --------------
CASH, end of year.......................................... $ 1,122 $ 400
============= ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Film contracts acquired................................... $ 8,550 $ 981,351
============= ==============
Film contract liability additions......................... $ 8,550 $ 981,351
============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-86
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
NOTES TO FINANCIAL STATEMENTS
AUGUST 3, 1995 AND DECEMBER 31, 1994
1. ORGANIZATION:
- ----------------
Paramount Stations Group of Kerville, Inc. (the Company) is a wholly-owned
subsidiary of Paramount Stations Group Holding Company, Inc. (the Parent). The
Company was organized under the laws of Virginia on August 21, 1984. The Company
is a television broadcaster serving the San Antonio, Texas area through station
KRRT on Channel 35. The Company was affiliated with UPN and FOX during 1995 and
1994, respectively.
During 1994, the Company entered into an agreement to sell substantially all of
its assets to KRRT, Inc. This sale was consummated on August 4, 1995.
Accordingly, the accompanying financial statements for 1995 are presented as of
August 3, 1995 (Note 9).
2. SUMMARY OF ACCOUNTING POLICIES:
- ----------------------------------
CASH
All cash from customers is deposited directly into a lock box held by the
Company's Parent (Note 4).
REVENUE RECOGNITION
Revenue from the sale of air time to advertisers is recognized when the
advertisement is broadcast.
PROGRAM CONTRACT COSTS
The Company has entered into agreements with program distributors granting it
the right to broadcast programs over contract periods which generally run from
three to seven years. Program contract costs are stated at the lower of
amortized cost or estimated net realizable value. Broadcast contract costs and
the related liabilities are recorded at the contract value when the license
period begins and the program is available for use. Program contract costs are
amortized using the greater of the straight-line by months over the contract
term or straight-line over the number of showings on an aggregate basis.
Program contract costs expected to be used in the succeeding year and program
contract rights due within one year are classified as current assets and current
liabilities, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets on a straight-line basis. Major renewals and
betterments are capitalized and ordinary repairs and maintenance are charged to
expense in the period incurred.
GOODWILL
In a series of transactions completed in 1991, the Company's Parent purchased
all of the outstanding stock of TVX, Inc., who owned and operated several
television stations, including the Company. Goodwill was allocated to each of
the stations based on specific identification and allocation of unidentified
goodwill based on cash flow multiples used to calculate the purchase price of
each station. Management monitors the financial performance of the station and
continually evaluates the realizability of goodwill and the existence of any
impairment to its recoverability.
Goodwill in the amount of $17,370,000 was allocated to the Company and is being
amortized over 40 years using the straight-line method. At August 3, 1995 and
December 31, 1994, accumulated amortization of goodwill aggregated $2,064,920
and $1,811,613, respectively.
F-87
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
BARTER TRANSACTIONS
Certain program contract rights provide for the exchange of advertising air time
in lieu of cash payments for the programming. As the program is aired, equal
amounts of revenue and program amortization expense are recorded, at estimated
fair market value, in results of operations.
In addition, the Company provides advertising air time to certain customers in
exchange for merchandise or services. The estimated fair value of the
merchandise or services to be received is recorded as an asset, and the
corresponding obligation to broadcast advertising is recorded as deferred
revenue. Services and other assets are charged to expense as they are used or
consumed. Deferred revenue is recognized in operations as the related
advertising is broadcast.
3. INCOME TAXES:
- ----------------
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company adopted the new accounting and disclosure rules effective
December 31, 1994.
The provision for income taxes consists of the following:
AUGUST 3, DECEMBER 31,
1995 1994
---------- ----------
Federal .................. $ 920,164 $1,318,150
State .................... 155,675 223,065
---------- ----------
$1,075,839 $1,541,215
========== ==========
The following is a reconciliation of the statutory federal income taxes to the
recorded provision:
AUGUST 3, DECEMBER 31,
1995 1994
------------ --------------
Statutory federal income
taxes.......................... $ 882,156 $1,243,397
Adjustments:
State tax, net of federal
effect....................... 102,745 147,223
Goodwill amortization......... 86,125 145,008
Others........................ 4,813 5,587
------------ --------------
Provision for income taxes... $1,075,839 $1,541,215
============ ==============
The Company's Parent files a consolidated federal tax return, and separate state
tax returns for each of its subsidiaries. It is the Parent's policy not to
allocate income tax expense to its subsidiaries. The accompanying financial
statements have been prepared in accordance with the separate return method of
FASB 109, whereby the allocation of tax expense is based on what the
subsidiary's current and deferred tax expense would have been had the subsidiary
filed a federal income tax return outside its consolidated group. The difference
between the computed tax expense and the amounts paid to the Parent for taxes is
recorded as additional paid-in-capital. Under this method, the Company has no
deferred tax assets or liabilities because those amounts are considered paid to
or received from the Parent. The Company had no alternative minimum tax credit
carryforwards as of August 3, 1995.
F-88
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
The temporary differences between book basis and tax basis generated by the
Company and recorded on the Parent's financial statements are as follows:
AUGUST 3, DECEMBER 31,
1995 1994
----------- --------------
Program contract net realizable value
adjustments..................................... $159,819 $12,428
Depreciation and amortization................... (33,318) 5,550
Bad debt reserves............................... 16,362 24,047
----------- --------------
$142,863 $42,025
=========== ==============
4. RELATED PARTY TRANSACTIONS:
- ------------------------------
The Parent pays the income taxes of the Company. It is the Parent's policy not
to charge this expense to its subsidiaries. Therefore, the provision for income
tax expense is recorded as additional paid-in capital in the accompanying
balance sheets. The Parent also provides and receives short-term cash advances
to and from the Company through a central cash management system. No interest is
charged or received for these advances.
5. PROPERTY AND EQUIPMENT:
- --------------------------
Property and equipment consists of the following:
ESTIMATED
USEFUL LIFE AUGUST 3, DECEMBER 31,
(YEARS) 1995 1994
------------- ------------ --------------
Studio equipment............. 5 $2,931,607 $2,898,183
Leasehold improvements....... 4-11 358,472 358,472
Furniture and fixtures....... 5 59,671 59,671
Autos and trucks............. 5 32,700 32,700
------------ ------------
3,382,450 3,349,026
Less-Accumulated
depreciation................. 2,556,483 2,362,146
------------ -----------
$ 825,967 $ 986,880
============ ===========
6. PROGRAM CONTRACTS:
- ---------------------
The Company purchases the right to broadcast programs through fixed term license
agreements. Broadcast rights consist of the following as of August 3, 1995 and
December 31, 1994:
AUGUST 3, DECEMBER 31,
1995 1994
------------- --------------
Aggregate cost............... $16,469,625 $16,461,076
Less-Accumulated
amortization................. 14,820,688 13,899,636
------------- --------------
1,648,937 2,561,440
Less-Current portion......... 1,144,236 1,130,513
------------- --------------
$ 504,701 $ 1,430,927
============= ==============
F-89
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $2,135,330 as of August 3, 1995. Future payments, by year, for
program contract rights payable as of August 3, 1995, are as follows:
1995 .......................................... $ 580,830
1996 .......................................... 941,200
1997 .......................................... 459,900
1998 .......................................... 97,300
1999 .......................................... 30,500
Thereafter .................................... 25,600
----------
$2,135,330
==========
The fair value of program contracts payable is the present value of the future
obligations based on the current rates available to the Company for debt of
similar maturity. The carrying amount and the fair value of program contracts
payable at August 3, 1995, were $2,135,300 and $1,521,665, respectively.
7. RETIREMENT SAVINGS PLAN:
- ---------------------------
The Company participates in the Parent company's retirement savings plan under
Section 401(k) of the Internal Revenue Code. This plan covers substantially all
employees of the Company who meet minimum age or service requirements and allows
participants to defer a portion of their annual compensation on a pre-tax basis.
Contributions from the Company are made on a monthly basis in an amount equal to
50% of the participating employee contributions, to the extent such
contributions do not exceed 6% of the employees' eligible compensation during
the month.
8. COMMITMENTS AND CONTINGENCIES:
- ---------------------------------
Broadcast rights acquired under license agreements are recorded as an asset and
a corresponding liability at the inception of the license period. In addition to
these rights payable at August 3, 1995, the Company had $1,060,900 of
commitments to acquire broadcast rights for which the license period has not
commenced and, accordingly, for which no liability has been recorded. Future
payments arising from such commitments outstanding at August 3, 1995, are as
follows:
1995 ......................................... $ 29,400
1996 ......................................... 140,600
1997 ......................................... 214,200
1998 ......................................... 319,500
1999 ......................................... 273,200
Thereafter ................................... 84,000
----------
$1,060,900
==========
F-90
<PAGE>
PARAMOUNT STATIONS GROUP OF KERVILLE, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
The Company has entered into operating leases for building space and equipment.
Rental expense was $76,700 and $129,268 for the period from January 1, 1995
through August 3, 1995 and year ended December 31, 1994, respectively. As of
August 3, 1995, future minimum lease payments under these operating leases were
as follows:
1995 ............................................ $ 43,569
1996 ............................................ 79,996
1997 ............................................ 9,000
1998 ............................................ 9,000
1999 ............................................ 9,000
Thereafter ...................................... 491,250
--------
$641,815
========
The Company has also entered into several contracts for data processing
equipment and service. Rental expense was $36,425 and $61,341 for the period
from January 1, 1995 through August 3, 1995 and the year ended December 31,
1994, respectively. As of August 3, 1995, future minimum payments under these
contracts are as follows:
1995 .......................................... $ 25,565
1996 .......................................... 61,248
1997 .......................................... 59,858
--------
$146,671
========
LITIGATION
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Companies' financial position, results of operations or cash flows.
9. SALES AGREEMENT:
- -------------------
During 1994, the Company entered into an agreement with KRRT, Inc., to sell
virtually all tangible and intangible assets of the Company for $30,000,000.
This sale was completed on August 4, 1995.
F-91
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying balance sheet of KRRT, Inc. (a Texas
corporation) as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the period from July 25, 1995 through
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KRRT, Inc. as of December 31,
1995, and the results of its operations and its cash flows for the period from
July 25, 1995 through December 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
May 7, 1996
F-92
<PAGE>
KRRT, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash..................................................................... $ 8,459
Short-term investments................................................... 500,000
Current portion of program contracts..................................... 1,451,959
Other receivable......................................................... 61,666
-------------
Total current assets................................................... 2,022,084
Property and equipment, net.............................................. 5,367,799
Noncurrent portion of program contracts.................................. 869,006
FCC license, net of accumulated amortization of $397,075................. 23,427,401
Goodwill, net of accumulated amortization of $6,095...................... 579,067
Other assets, net........................................................ 648,359
-------------
Total assets........................................................... $32,913,716
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft........................................................... $ 7,108
Accrued liabilities...................................................... 2,833
LMA advance.............................................................. 132,990
Current portion of program contracts payable............................. 1,451,959
Current portion of long-term debt........................................ 2,000,000
Accrued interest expense................................................. 152,578
-------------
Total current liabilities.............................................. 3,747,468
LONG-TERM LIABILITIES:
Noncurrent portion of program contracts................................... 869,006
Note payable.............................................................. 500,000
Long-term debt, net of current portion.................................... 19,000,000
-------------
Total liabilities...................................................... 24,116,474
-------------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000 shares authorized, issued and
outstanding............................................................. --
Additional paid-in capital............................................... 10,001,000
Accumulated deficit...................................................... (1,203,758)
-------------
Total stockholders' equity............................................. 8,797,242
-------------
Total liabilities and stockholders' equity............................. $32,913,716
=============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-93
<PAGE>
KRRT, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
REVENUES $ 1,437,039
--------------
OPERATING EXPENSES:
Management fees........................ 277,775
Rating services........................ 193,100
Legal and professional fees............ 159,126
Depreciation expense................... 328,125
Amortization expense................... 492,811
Film amortization expenses............. 69,674
Miscellaneous expenses................. 251,748
--------------
Total operating expenses.............. 1,772,359
--------------
Operating loss........................ (335,320)
OTHER INCOME (EXPENSE):
Interest income........................ 11,556
Interest expense....................... (879,994)
--------------
Net loss before benefit for income
taxes............................... (1,203,758)
BENEFIT FOR INCOME TAXES................ --
--------------
Net loss............................. $(1,203,758)
==============
The accompanying notes are an integral part of this statement.
F-94
<PAGE>
KRRT, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT EQUITY
------ ----- ------- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, July 25, 1995 ... -- $ -- $ -- $ --
Capital contributions.... 1,000 -- 10,001,000 -- 10,001,000
Net loss................. -- -- -- (1,203,758) (1,203,758)
-------- ------- ------------- -------------- ---------------
BALANCE, December 31,
1995..................... 1,000 $ -- $10,001,000 $(1,203,758) $ 8,797,242
======== ======= ============= ============== ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-95
<PAGE>
KRRT, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $(1,203,758)
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation expense...................................................... 328,125
Amortization expense...................................................... 492,811
Film amortization expense................................................. 69,674
Changes in assets and liabilities:
Increase in short-term investments........................................ (500,000)
Increase in other receivables............................................. (61,666)
Increase in bank overdraft................................................ 7,108
Increase in accrued liabilities........................................... 2,833
Increase in LMA advance................................................... 132,990
Increase in accrued interest expense...................................... 152,578
Program payments........................................................... (69,674)
--------------
Net cash used in operating activities.................................... (648,979)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Assets acquired, net of debt financing of $21,000,000...................... (9,843,562)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable................................................. 500,000
Contributed capital........................................................ 10,001,000
--------------
Net cash flows provided by financing activities.......................... 10,501,000
--------------
Net increase in cash..................................................... 8,459
CASH, beginning of period................................................... --
--------------
CASH, end of period......................................................... $ 8,459
==============
SUPPLEMENTAL CASHFLOW DISCLOSURE:
Cash paid for interest..................................................... $ 727,416
==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-96
<PAGE>
KRRT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
KRRT, Inc., a Texas corporation (the Company) was organized and incorporated on
July 25, 1995 and on August 4, 1995, purchased the license and non-license
assets of Paramount Stations Group of Kerville, Inc., the owner and operator of
television KRRT-TV, San Antonio, Texas. The Company is a wholly-owned subsidiary
of JJK Broadcasting, Inc. (the "Parent"). The Company simultaneously entered
into a local marketing agreement (LMA) with River City Broadcasting LP (River
City) (Note 2). The Company is a television broadcaster serving the San Antonio
area through station KRRT on Channel 35, a UPN affiliate.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's primary source of revenue is monthly fees received in accordance
with the LMA with River City. Under the terms of this agreement, the Company
receives monthly fees and is reimbursed for all operating expenses, scheduled
principal and interest payments on the long-term debt discussed in Note 8 and
scheduled program rights payments in exchange for the right to provide
programming and general advertising receivables. Revenue is recorded as payments
are scheduled to be received.
SHORT-TERM INVESTMENTS
Short-term investments represent repurchase agreements which mature within three
months. This investment is stated at cost plus accrued income which approximates
market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates and amortizes
property and equipment over the estimated useful lives of the assets, generally
using the straight-line method over six to forty years.
INTANGIBLE ASSETS
Intangible assets include value attributable to licenses issued by the Federal
Communications Commission (FCC) and goodwill representing the excess of the cost
over the fair market value of the assets purchased and the liabilities assumed.
These assets are amortized using the straight-line method over twenty-five years
and forty years, respectively. The Company monitors the financial performance
and continually evaluates the realizability of goodwill and the existence of any
impairment to its recoverability based on the projected future cash flows.
PROGRAM CONTRACT RIGHTS
The station has entered into agreements with program distributors granting it
the right to broadcast programs over contract periods which generally run from
one to seven years. An asset and liability are booked equal to the liability
assumed on the purchase date. The asset is recorded at its net realizable value
based on expected future revenues. Accordingly, given that the Company's future
revenues are based on program payments (Note 2), amortization is recorded in
amounts equal to program payments as they are scheduled to be made.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue, expenses, gains
and losses during the reporting periods. Actual results could differ from these
estimates.
F-97
<PAGE>
KRRT, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995:
Studio equipment............................... $2,416,651
Transmitting equipment......................... 1,423,283
Office equipment............................... 139,337
Furniture and fixtures......................... 162,894
Vehicles....................................... 31,482
Buildings...................................... 111,574
Leasehold improvements......................... 64,534
Towers......................................... 1,204,827
Tools and test equipment....................... 69,828
Spare parts.................................... 71,514
------------
5,695,924
Less: Accumulated depreciation and
amortization................................... (328,125)
------------
Property and equipment, net.................... $5,367,799
============
4. ACQUISITION
In August 1995, the Company acquired substantially all of the assets of
Paramount Stations Group of Kerville, Inc. for $30 million. This acquisition was
accounted for as a purchase under Accounting Principles Board Opinion 16,
whereby the purchase price was allocated to property, FCC license and goodwill
for $5.7 million, $23.8 million and $.5 million, respectively, based upon an
independent appraisal.
5. OTHER ASSETS
Other assets consist of the following at December 31, 1995:
AMORTIZATION
PERIOD
--------------
Loan origination fee.......... 5 years $420,000
Organization costs............ 5 years 318,000
----------
738,000
Less: accumulated
amortization.................. (89,641)
----------
Other assets, net............. $648,359
==========
F-98
<PAGE>
KRRT, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into operating leases for building space and equipment.
Rental expense was $76,913 for the period from July 25, 1995 through December
31, 1995. As of December 31, 1995, future minimum lease payments under these
operating leases were as follows:
1996 ............................................. $133,864
1997 ............................................. 61,478
1998 ............................................. 45,000
1999 ............................................. 45,000
2000 ............................................. 45,000
Thereafter ....................................... 482,250
--------
$812,592
========
The Company has also entered into several contracts for data processing
equipment and service. Rental expense was $240,030 for the period from July 25,
1995 through December 31, 1995. As of December 31, 1995, future minimum payments
under these contracts are as follows:
1996 ..................................... $ 592,443
1997 ..................................... 581,929
----------
$1,174,372
==========
LITIGATION
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position, results of operations or net cash flows.
7. INCOME TAXES
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The following is a reconciliation of the statutory federal income taxes
to the recorded provision:
DECEMBER 31,
1995
---------
Statutory federal income taxes ......................... $(409,278)
Adjustments:
State income taxes, net of federal
effect ............................................... (40,706)
Valuation allowance ................................... 449,984
---------
(Benefit) for income taxes .......................... $ --
=========
F-99
<PAGE>
KRRT, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
Temporary differences between the financial reporting carrying amounts and tax
basis of assets and liabilities give rise to deferred taxes. The principal
sources of temporary differences and their effects on the provision for deferred
income taxes are as follows:
DECEMBER 31,
1995
---------
Depreciation and
amortization .................................. $ 126,154
Valuation allowance ........................... (126,154)
---------
Deferred income tax
provision ................................... $ --
=========
Total deferred tax assets and deferred tax liabilities as of December 31, 1995,
and the sources of the difference between financial accounting and tax bases of
the Company's assets and liabilities which give rise to the deferred tax assets
and deferred tax liabilities and the tax effects of each are as follows:
DECEMBER 31,
1995
---------
Deferred tax assets:
Depreciation and
amortization .................................... $ 126,154
Valuation allowance .............................. (126,154)
---------
$ --
=========
During the year ended December 31, 1995, the Company recorded a full valuation
allowance on the deferred tax assets to reduce the total to an amount that
management believes will ultimately be realized. Realization of deferred tax
assets is dependent upon sufficient future total income during the period that
temporary differences and carryforwards are expected to be available to reduce
taxable income.
8. LONG-TERM DEBT
In connection with the acquisition of the Station, KRRT, Inc. entered into a
Bank Credit Agreement with a principal of $21,000,000 and interest at LIBOR plus
2.5%. Payments are scheduled to begin on January 31, 1996. The debt is secured
by all the assets of KRRT, Inc., including their rights under the LMA agreement
and the assets of their Parent. Annual maturities of long-term debt as of
December 31, 1995, are as follows:
1996 ................................... $ 2,000,000
1997 ................................... 4,000,000
1998 ................................... 5,000,000
1999 ................................... 5,800,000
2000 ................................... 4,200,000
-----------
$21,000,000
===========
F-100
<PAGE>
KRRT, INC. -
NOTES TO FINANCIAL STATEMENTS (Continued)
9. RELATED PARTY TRANSACTIONS
The Company's Parent receives a management fee equal to the portion of the LMA
fees designated as management fees for management services provided. During the
period from July 25, 1995 through December 31, 1995, the Company paid $277,775
to their Parent.
During 1995, the Parent contributed $10,001,000 to the Company to partially
finance the acquisition of the Station from Paramount Stations Group of
Kerville, Inc. (Note 4).
In connection with the financing of the acquisition, the Parent contributed
$500,000 to satisfy a covenant with the Bank of Montreal. This $500,000 is
recorded as a long-term note payable.
10. PROGRAM CONTRACTS
The Company purchases the right to broadcast programs through fixed term license
agreements. Broadcast rights consist of the following as of December 31, 1995:
DECEMBER 31,
1995
----------
AGGREGATE COST $2,390,639
Less- Accumulated
amortization .................................. 69,674
----------
2,320,965
Less- Current portion ......................... 1,451,959
----------
$ 869,006
==========
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $2,320,965 as of December 31, 1995, respectively. Future payments, by
year, for program contract rights payable as of December 31, 1995, are as
follows:
1996 ............................................ $1,521,663
1997 ............................................ 525,399
1998 ............................................ 162,764
1999 ............................................ 77,007
Thereafter ...................................... 34,132
----------
$2,320,965
==========
11. SUBSEQUENT EVENT
In April 1996, Sinclair Broadcast Group, Inc. (SBG) entered into an asset
purchase agreement with the Company whereby the Company has agreed to sell the
non-license assets for approximately $29.6 million. The Company estimates the
transaction will be consummated in May 1996.
F-101
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 22, 1996
To the Partners of
Kansas City TV 62 Limited Partnership
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital and of cash flows present fairly, in
all material respects, the financial position of Kansas City TV 62 Limited
Partnership at December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
F-102
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 590 $ 978
Accounts receivable, less allowance for doubtful accounts of
$236 and $122 in 1995 and in 1994.............................. 3,953 3,052
Broadcast rights................................................ 3,380 2,864
Prepaid expenses................................................ 21 16
--------- -----------
Total current assets........................................... 7,944 6,910
Property and equipment -- net................................... 734 1,305
Broadcast rights................................................ 3,286 3,305
Goodwill and other intangible assets............................ 3,817 4,027
--------- -----------
$15,781 $ 15,547
========= ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt............................... $ 6,998 $ 338
Subordinated note payable to Seller............................. 7,816 --
Accounts payable and accrued expenses........................... 1,578 1,714
Interest payable................................................ 733 1,943
Due to related parties.......................................... -- 40
Broadcast rights payable........................................ 4,020 3,837
--------- -----------
Total current liabilities...................................... 21,145 7,872
Broadcast rights payable......................................... 3,107 3,569
Long-term debt................................................... -- 9,273
Subordinated note payable to Seller.............................. 921 7,730
Partners' capital................................................ (9,392) (12,897)
Commitments and contingencies (Note 8) ..........................
--------- -----------
$15,781 $ 15,547
========= ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-103
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31,
--------------------
1995 1994
--------- ----------
(IN THOUSANDS)
Revenues - net of agency and national representative
commissions............................................... $17,484 $14,052
COSTS AND EXPENSES:
Programming, production and engineering................... 3,347 4,533
Amortization of broadcast rights.......................... 4,007 4,581
Sales, promotion and marketing............................ 2,476 2,716
General and administrative................................ 1,898 1,834
Depreciation and amortization............................. 842 805
Interest expense, net..................................... 2,039 1,983
Other income ............................................. (630) --
--------- ----------
Net income (loss)......................................... $ 3,505 $(2,400)
========= ==========
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
---------------------
1995 1994
--------- -----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 3,505 $(2,400)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED (USED) FOR OPERATING ACTIVITIES:
Depreciation ..................................... 632 595
Amortization of goodwill and other intangible
assets........................................... 210 210
Amortization of broadcast rights, net of barter... 1,206 2,122
Accretion of subordinated debt principal.......... 210 197
Gain on forgiveness of debt....................... (398) --
Increase in accounts receivable................... (901) (655)
Increase in prepaid expenses...................... (5) (6)
Decrease in accounts payable and accrued expenses. 262 (396)
(Decrease) increase in interest payable........... (413) 1,806
Decrease in due to related parties................ (40) (236)
Decrease in broadcast rights payable, net of
barter........................................... (1,982) (1,745)
--------- -----------
Net cash provided (used) for operating
activities...................................... 2,286 (508)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................ (61) (35)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt........................ (2,613) --
Partner's contribution of capital.................. -- 1,400
--------- -----------
Net cash (used) provided by financing activities.. (2,613) 1,400
--------- -----------
Net (decrease) increase in cash..................... (388) 857
Cash and cash equivalents at beginning of year ..... 978 121
--------- -----------
Cash and cash equivalents at end of year............ $ 590 $ 978
========= ===========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Film contracts acquired............................ $ 4,055 $ 2,834
========= ===========
Film contract liability additions.................. $ 4,055 $ 2,834
========= ===========
Capitalized subordinated debt interest............. $ 797 $ 884
========= ===========
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
----------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1993................... $(11,897) $ -- $(11,897)
Capital contribution .......................... 1,400 -- 1,400
Net loss for the year ended December 31, 1994 . (2,400) -- (2,400)
----------- --------- ------------
Balance at December 31, 1994................... $(12,897) $ -- $(12,897)
Net income for the year ended December 31,
1995........................................... 3,505 -- 3,505
----------- --------- ------------
Balance at December 31, 1995................... $ (9,392) $ -- $ (9,392)
=========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Kansas City TV 62 Limited Partnership (the "Partnership") is a joint venture of
ABRY Communications III, L.P., the general partner, and Copley Place Capital
Group, the limited partner. The Partnership was organized under the laws of the
State of Delaware on April 18, 1990. On September 21, 1990 the Partnership
acquired the business and certain assets of Kansas City Television, Inc. (the
"Seller"). The Partnership is a television broadcaster serving the Kansas City
area through station KSMO on UHF Channel 62.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ALLOCATION OF PARTNERSHIP RESULTS TO PARTNERS' CAPITAL ACCOUNTS
Net losses of the Partnership are allocated among the capital accounts of the
partners based on their relative partnership interests until the limited
partner's capital has been exhausted. Thereafter, net losses are allocated
solely to the general partner. Net income is allocated in proportion to
previously allocated net losses in reverse chronological order. Thereafter, net
income is allocated to partners based on their relative partnership interests,
as defined in the agreement.
BROADCAST RIGHTS
Broadcast rights are stated at the lower of unamortized cost or estimated net
realizable value. Broadcast rights and the related liabilities are recorded at
the contract value when the license period begins and the right is available for
use. Broadcast rights are amortized using the straight-line method over the
number of showings or license period. The net realizable value of broadcast
rights for which the Partnership is contractually committed is reviewed annually
and revisions to amortization rates or write-downs to net realizable value may
occur. The current portion of broadcast rights represents those rights available
for broadcast which will be amortized in the succeeding year.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets on a straight-line basis. Major renewals and
betterments are capitalized and ordinary repairs and maintenance are charged to
expense in the period incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill aggregating $4,144 is amortized over 40 years using the straight-line
method. Legal and accounting fees associated with the acquisition of loans,
aggregating $555 and organization of the Partnership, aggregating $59 are
capitalized and amortized over the term of the related debt and five years,
respectively. Other intangible assets, aggregating $119 are amortized over their
estimated useful life. At December 31, 1995 and 1994, accumulated amortization
aggregated $1,060 and $850, respectively.
BARTER TRANSACTIONS
Revenue from barter transactions is recognized when advertisements are broadcast
and services or merchandise received are charged to expense when received or
used. Revenues arising from barter and trade transactions aggregated $2,907 and
$2,654 in 1995 and 1994, respectively.
INCOME TAXES
The financial statements of the Partnership do not include any provision for
federal or state income taxes. All Partnership income, losses, tax credits and
deductions are allocated among the partners. Each partner is responsible to
report its distributed share of Partnership results in its federal and state
income tax returns.
F-107
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents. The Partnership
invests its cash in money market funds and in short-term government securities
that are subject to minimal market and credit risk. At December 31, 1995, the
Partnership's cash equivalents include $544 of money market funds.
Effective January 1, 1994, the Partnership adopted Statement of Financial
Accounting Standards No. 115 (FAS 115), "Accounting for Certain Investments in
Debt and Equity Securities". Under this standard, the Partnership is required to
classify its investments in debt and equity securities into one or more of the
following categories: held-to-maturity, trading or available for sale. Adoption
of this standard had no impact on the Partnership's financial position or
results of operations at the date of adoption.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Partnership to a
concentration of credit risk include cash, cash equivalents and accounts
receivable. A significant amount of the Partnership's cash and cash equivalents
are held by one financial institution at December 31, 1995. The Partnership does
not believe that such deposits are subject to any unusual credit risk beyond the
normal credit risk associated with operating its business. The Partnership
maintains reserves for potential credit losses and such losses, in the
aggregate, have not historically exceeded management's expectations.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
Prior to 1995, ABRY Communications III, L.P., provided certain administrative
and support services to the Partnership for which it was paid a management fee.
Management fees charged to operations aggregated $276 in 1994. No management
fees were charged during 1995.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31,
(YEARS) 1995 1994
------------- -------- ---------
<S> <C> <C> <C>
Studio equipment................................. 2-7 $1,855 $1,824
Transmission equipment........................... 7-8 1,206 1,184
Vehicles, office equipment and furniture ........ 5-7 396 388
Leasehold improvements........................... 8 297 297
-------- ---------
3,754 3,693
Less -- accumulated depreciation and
amortization..................................... 3,020 2,388
-------- ---------
$ 734 $1,305
======== =========
</TABLE>
F-108
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
5. BROADCAST RIGHTS
The Partnership purchases the right to broadcast programs through fixed term
license agreements. Broadcast rights consist of the following:
DECEMBER 31,
-----------
1995 1994
------- -------
Aggregate cost ............................... $16,564 $14,350
Less -- accumulated
amortization ................................. 9,898 8,181
------- -------
6,666 6,169
Less -- current portion ...................... 3,380 2,864
------- -------
$ 3,286 $ 3,305
======= =======
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $7,127 including $3,742 of barter obligations. Future payments in
connection with these contractual obligations are as follows at December 31,
1995:
1996 .............................................. $4,058
1997 .............................................. 1,776
1998 .............................................. 1,064
1999 .............................................. 169
2000 .............................................. 23
Thereafter ........................................ 37
------
$7,127
======
The Partnership has estimated the fair value of these contractual obligations at
approximately $6,800 and $6,776 at December 31, 1995 and 1994, respectively,
based on future cash flows discounted at the Partnership's current borrowing
rate.
6. DEBT
Debt consists of the following:
DECEMBER 31,
1995 1994
------ ------
Term loan .................................... $1,455 $2,133
Revolving credit facility .................... 5,543 7,478
------ ------
6,998 9,611
Less - current portion ....................... 6,998 338
------ ------
$ -- $9,273
====== ======
The term loan and revolving credit facility (the "revolver") bear interest,
payable monthly, at the base rate, computed by taking the higher of the Federal
Funds rate plus 1% or prime, plus a computed margin rate which ranges from 1.75%
to 2.25%. The Partnership is charged a fee for the average daily unused portion
of the revolver commitment at a rate of 1/2% per annum, payable quarterly. The
borrowings are secured by substantially all of the Partnership's assets.
The credit agreement was amended on April 21, 1995. Under the terms of
theamended credit agreement, the principle amount of the term loan is payable in
quarterly installments of varying amounts commencing October 1, 1995. The
revolver was increased to $8,500 and will be reduced on a quarterly basis
commencing April 1, 1997, until no credit facility is available at October 1,
1998.
F-109
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
In addition to the scheduled principal and interest payments, the lender may be
entitled to contingent interest payable upon early repayment of the term loan, a
change in control of the Partnership or upon the occurrence of certain other
events as defined in the agreement.
The amount of contingent interest which will be due is determined by a formula
which considers appreciation in the value of the Partnership. Based upon
management's estimate of appreciation in the value of the Partnership, no
accrual for contingent interest has been recorded at December 31, 1995 and 1994.
The subordinated note payable to Seller is subordinated to the Partnership's
term loan and revolver borrowings. The principal amount of the subordinated note
payable to Seller is payable in a lump sum on September 21, 1998. Interest on
the outstanding principal accrues at the rate of 10% and is payable annually.
For financial reporting purposes, however, interest on the note accrues at an
implicit rate of 14% per annum, and the note's original stated principal of $8
million has been discounted to reflect this yield.
In January 1996, a third-party exercised its option to purchase the station
(Note 9). Accordingly, all long-term debt is classified as current at December
31, 1995. In March 1996, certain subordinated note holders agreed to extend the
term of their notes through October 1999 and forgave interest for the five-year
period then ended. Accordingly, all subordinated debt, excluding the extended
portion, is classified as current at December 31, 1995.
In 1994, certain subordinated note holders forgave $680 of the subordinated
note, $157 of capitalized interest and $62 of accrued interest. In consideration
of the debt forgiveness, the Partnership and a related party signed a network
affiliation agreement with one note holder and licensed certain programs from
the other note holder. Under the terms of the affiliation agreement, the
Partnership and the related party must broadcast network programming over the
three-year term of the network affiliation agreement. Under the terms of the
license agreement, the related party must broadcast certain programs over the
one-year term of the license agreement. Accordingly, the $899 gain on the
forgiveness of debt and related interest thereon was deferred and is being
amortized over the term of the affiliation and program license agreements. The
Partnership amortized $398 of the gain to income in 1995. The gain on
forgiveness of debt is included in other income in the statement of operations.
The deferred gain is included in accounts payable and accrued expenses at
December 31, 1995 and 1994.
Interest payments of $2,301 were made during the year ended December 31, 1995.
No interest payments were made during the year ended December 31, 1994.
7. RETIREMENT SAVINGS PLAN
The Partnership has adopted a retirement savings plan under Section 401(k) of
the Internal Revenue Code. This plan covers substantially all employees of the
Partnership and affiliated partnerships, who meet minimum age and service
requirements, and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Partnership contributions to the plan may be
made at the discretion of the Board of Directors. No Partnership contributions
were authorized for the years ended December 31, 1995 and 1994.
F-110
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
8. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
As a result of the Partnership's execution of the Option Agreement (Note 9) in
1994, the Partnership and the general partner, ABRY Communications III, L.P.,
amended employment agreements which entitled certain key employees to
appreciation rights payable upon either a change in control of the Partnership
or the payment of certain partner cash distributions. Previously, the employees
vested in these rights at the rate of 20% per year from the date the rights were
granted, except that they vested fully if they were employees of the Partnership
at the time the rights became payable. Amounts due to the employees in
connection with those rights were determined by a formula which considers
appreciation in the value of the Partnership. Under the amendments, in the event
that certain key employees meet certain employment criteria, such employees will
receive a payment in lieu of the appreciation rights discussed above. An accrual
for compensation related to these rights for $162 was included in accrued
expenses at December 31, 1994. These obligations were satisfied during 1995 and,
accordingly, no accrual has been made related to these agreements at December
31, 1995.
BROADCAST LICENSE AGREEMENTS
Broadcast rights acquired under license agreements are recorded as an asset and
a corresponding liability at the inception of the license period. In addition to
these broadcast rights payable at December 31, 1995, the Partnership has $1,417
of commitments to acquire broadcast rights for which the license period has not
commenced and, accordingly, for which no liability has been recorded. Future
minimum payments arising from such commitments outstanding at December 31, 1995,
of which $729 represents barter commitments, are as follows:
1996 .............................................. $ 133
1997 .............................................. 356
1998 .............................................. 347
1999 .............................................. 187
2000 .............................................. 79
Thereafter ........................................ 315
------
$1,417
======
SPORTS RIGHTS AGREEMENT
The Partnership broadcasts certain baseball games for the Kansas City Royals
Baseball Corporation (the "Royals"). Under the terms of the broadcast agreement
as amended during 1995, the Partnership is obligated to pay broadcast fees and
to provide advertising and promotions to the Royals through October 1, 1998. In
addition, the Partnership is obligated to pay the Royals 75% of operating
profits less than $500 and 50% of operating profits exceeding $500, related to
such broadcasts. Future minimum annual broadcast fee payments under the
agreement, as amended, are as follows:
1996 ............................................ $1,080
1997 ............................................ 1,080
1998 ............................................ 1,080
------
$3,240
======
F-111
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
Broadcast fees are payable quarterly on July 1, October 1, January 1 and April 1
of each year. In the event the Partnership terminates the agreement before
October 1, 1996 or 1997, the Partnership will be required to pay the Royals a
cancellation fee of $500 or $250, respectively. The payment of all amounts due
to the Royals under the agreement have been guaranteed by the Partnership's
general partner and BVC Communications, III, Inc., the general partner of ABRY
Communications III, L.P. Charges to operations for such broadcast fees
aggregated $1,350 and $2,728 in 1995 and 1994, respectively.
OPERATING LEASES
The Partnership leases its antenna site, studio and other operating equipment
under noncancellable operating lease arrangements expiring through 2010. Charges
to operations for such leases aggregated $154 and $146 in 1995 and 1994,
respectively. Future minimum lease payments under these leases are as follows at
December 31, 1995:
1996 ................................................. $166
1997 ................................................. 160
1998 ................................................. 161
1999 ................................................. 124
2000 ................................................. 123
Thereafter ........................................... 237
----
Total minimum lease
payments ............................................. $971
====
During 1995, the antenna site was damaged and the Partnership received an
insurance settlement of $248 for the related business interruption. The
insurance settlement, net of amounts relating to the repair of the antenna, are
included in other income in the statement of operations.
9. OPTION AGREEMENT
On May 24, 1994, the Partnership entered into an agreement whereby the
Partnership granted a third-party an option to acquire the assets of the station
for an amount equal to the lesser of outstanding debt as of the exercise date,
including accrued interest thereon, or $9,000. The acquiring entity will assume
all other liabilities of the station. In conjunction with the option agreement,
the Partnership entered into an agreement with the third-party whereby the
Partnership would pay the third-party a consulting fee of $250 per year as long
as the option is outstanding. Charges to operations related to this agreement
were $250 in 1995 and $147 in 1994. The third-party exercised this option in
January 1996. Accordingly, all debt of the station is classified as current at
December 31, 1995, excluding debt for which an extension was granted, in
accordance with the Partnership's loan agreements (Note 6). The transaction is
subject to regulatory approval.
F-112
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
BALANCE SHEET
AS OF JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 522,967
Accounts receivable, net of allowance for doubtful accounts of
$252,018 ............................................................ 4,021,199
Program contract rights, current portion ............................. 1,046,243
Prepaid expenses and other current assets ............................ 122,584
-------------
Total current assets ............................................... 5,712,993
Property and equipment, net of accumulated depreciation .............. 464,124
Due from related party ............................................... --
Program contract rights, long-term portion ........................... 2,115,502
Intangible assets, net of accumulated amortization ................... 3,727,907
-------------
Total assets ....................................................... $12,020,526
=============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Program contract rights payable, current portion ..................... $ 1,629,010
Accounts payable ..................................................... 97,621
Deferred revenue ..................................................... 114,711
Accrued liabilities .................................................. 915,393
Note payable, current portion ........................................ 1,120,502
-------------
Total current liabilities .......................................... 3,877,237
PROGRAM CONTRACTS PAYABLE, net of current portion ..................... 1,664,335
NOTE PAYABLE, net of current portion .................................. 13,991,290
-------------
Total liabilities .................................................. 19,532,862
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL: .................................................... (7,512,336)
-------------
Total liabilities and partners' capital ............................ $12,020,526
=============
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-113
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1996 1995 1996
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Advertising revenue, net of agency commissions ........ $4,144,103 $4,401,518 $ 7,008,506 $ 7,693,895
Revenues realized from barter arrangements ............ 692,212 (807,348) 1,369,940 2,321,577
------------- ------------- -------------- -------------
Total Revenues ......................................... 4,836,315 3,594,170 8,378,446 10,015,472
OPERATING EXPENSES:
Programming and production ............................ 2,197,505 1,745,583 2,272,081 3,826,027
Selling, general and administrative ................... 505,573 771,159 1,720,429 2,193,725
Amortization of program contract rights ............... 933,102 (515,477) 1,865,394 601,039
Depreciation and amortization of property and equipment 216,570 185,345 424,074 374,000
------------- ------------- -------------- -------------
Amortization of intangible assets .....................
Total operating expenses ............................ 3,852,750 2,186,610 6,281,978 6,994,791
------------- ------------- -------------- -------------
Broadcast operating income .......................... 983,565 1,407,560 2,096,468 3,020,681
------------- ------------- -------------- -------------
OTHER INCOME:
Interest expense, net ................................. (512,911) (466,849) (1,057,399) (823,349)
Other income (expense) ................................ (4,105) (3,046) (23,525) 6,861
------------- ------------- -------------- -------------
Total other income .................................. (517,016) (469,895) (1,080,924) (816,488)
------------- ------------- -------------- -------------
Net income .......................................... $ 466,549 $ 937,665 $ 1,015,544 $ 2,204,193
------------- ------------- -------------- -------------
Pro Forma Net Income After Imputing An Income Tax
Provision:
Net income as reported ................................. $ 466,549 $ 937,665 $ 1,015,544 $ 2,204,193
Imputed income tax provision ........................... (223,943) (450,080) (487,461) (1,058,013)
------------- ------------- -------------- -------------
Pro Forma net income ................................ $ 242,606 $ 487,585 $ 528,083 $ 1,146,180
------------- ------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-114
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ....................................................... $ 1,015,544 $ 2,204,193
Adjustments to reconcile net income to net cash ..................
provided by operating activities:
Depreciation and amortization ................................... 318,949 281,820
Amortization of goodwill and other intangible assets ............ 105,127 92,180
Amortization of program contracts rights ........................ 595,458 591,898
Changes in assets and liabilities:
Increase in accounts receivable ................................. (864,532) (68,406)
Increase in prepaid expenses .................................... (40,257) (105,036)
Increase (decrease) in accounts payable ......................... 120,872 (24,713)
Decrease in accrued liabilities ................................. (793,637) (630,303)
Decrease in other current liabilities ........................... (42,058) (27,728)
Film Rights Payments ............................................ (1,033,281) (921,424)
-------------- -------------
Net cash flows from operating activities ........................ (617,815) 1,392,481
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment .............................. (43,015) (11,310)
-------------- -------------
Net cash flows from investing activities ....................... (43,015) (11,310)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners ........................................ -- (325,000)
Repayment of long-term debt ...................................... (57,856) (1,123,089)
-------------- -------------
Net cash flows from financing activities ....................... (57,856) (1,448,089)
-------------- -------------
Net decrease in cash ........................................... (718,686) (66,918)
-------------- -------------
CASH, beginning of period ......................................... 978,488 589,885
-------------- -------------
CASH, end of period ............................................... $ 259,802 $ 522,967
============== =============
Supplemental Schedule of Noncash Investing and Financing
Activities:
Film contracts acquired .......................................... $ 41,000 $ 524,413
-------------- -------------
Film contract liability additions ................................ $ 41,000 $ 524,413
============== =============
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-115
<PAGE>
KANSAS CITY TV 62 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION:
Kansas City TV 62 Limited Partnership (the "Partnership") is a joint venture of
ABRY Communications III, L.P., the general partner, and Copley Place Capital
Group, the limited partner. The Partnership was organized under the laws of the
State of Delaware on April 18, 1990. On September 21, 1990, the Partnership
acquired the business and certain assets of Kansas City Television, Inc. (the
"Seller"). The Partnership is a television broadcaster serving the Kansas City
area through Station KSMO on UHF Channel 62.
These statements are unaudited, and certain information and footnote disclosures
normally included in the Partnership's annual financial statements have been
omitted, as permitted under the applicable rules and regulations. Readers of
these statements should refer to the financial statements and the notes thereto
as of December 31, 1995 and for the year ended included herein. The results of
operations presented in the accompanying financial statements are not
necessarily representative of operations for an entire year.
2. RELATED PARTY TRANSACTIONS:
Prior to 1995, ABRY Communications III, L.P., provided certain administrative
and support services to the Partnership for which it was paid a management fee.
Management fees charged to operations aggregated $276,000 in 1994. No management
fees were charged during 1995 or 1996.
3. OPTION AGREEMENT:
On May 24, 1994, the Partnership entered into an agreement whereby the
Partnership granted a third-party an option to acquire the assets of the
station. The acquiring entity will assume all other liabilities of the station.
In conjunction with option agreement, the Partnership entered into an agreement
with the third-party whereby the Partnership would pay the third-party a
consulting fee of $250,000 per year as long as the option is outstanding. The
third-party exercised this option and acquired the assets of the station for
$10.5 million on July 2, 1996.
F-116
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 22, 1996
To the Partners of Cincinnati TV 64 Limited Partnership
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in partners' capital and of cash flows present fairly, in
all material respects, the financial position of Cincinnati TV 64 Limited
Partnership at December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
F-117
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 641 $ 482
Accounts receivable, less allowance for doubtful accounts
of $86 and $64 in 1995 in 1994, respectively.............. 3,091 2,773
Broadcast rights........................................... 4,461 3,461
Prepaid expenses........................................... 15 21
---------- -----------
Total current assets...................................... 8,208 6,737
Property and equipment -- net............................... 5,238 5,670
Broadcast rights............................................ 4,339 3,061
Goodwill and other intangible assets........................ 1,746 1,823
---------- -----------
$ 19,531 $ 17,291
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of long-term debt.......................... $ 11,883 $ 700
Subordinated note payable to Seller........................ 7,446 --
Accounts payable and accrued expenses...................... 1,127 1,082
Interest payable........................................... 718 650
Broadcast rights payable................................... 5,221 3,957
---------- -----------
Total current liabilities................................. 26,395 6,389
Broadcast rights payable.................................... 4,262 3,221
Long-term debt.............................................. -- 14,083
Subordinated note payable to Seller......................... -- 7,089
Partners' capital........................................... (11,126) (13,491)
Commitments and contingencies (Note 8)......................
---------- -----------
$ 19,531 $ 17,291
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31,
--------------------
1995 1994
--------- ----------
(IN THOUSANDS)
Revenues -- net of agency and national representative
commissions............................................. $15,529 $13,727
Costs and expenses:
Programming, production and engineering................ 1,002 954
Amortization of broadcast rights....................... 4,971 5,416
Sales, promotion and marketing......................... 2,394 2,813
General and administrative............................. 1,629 2,059
Depreciation and amortization.......................... 662 841
Interest expense, net.................................. 2,506 2,375
--------- ----------
Net income (loss)....................................... $ 2,365 $ (731)
========= ==========
The accompanying notes are an integral part of these financial statements.
F-119
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1994
(IN THOUSANDS)
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 2,365 $ (731)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation.................................................... 585 759
Amortization of goodwill and other intangible assets............ 77 82
Amortization of broadcast rights, net of barter................. 1,621 2,294
Loss on disposal of property and equipment...................... 37 --
Accretion of subordinated debt principal........................ 357 312
Deferred interest expense on subordinated note payable.......... -- 87
Increase in accounts receivable................................. (318) (516)
(Increase) decrease in prepaid expenses......................... 6 (6)
Increase (decrease) in accounts payable and accrued expenses.... 45 (80)
Increase in interest payable.................................... 68 650
Decrease in due to related parties.............................. -- (72)
Decrease in broadcast rights payable, net of barter............. (1,594) (1,676)
--------- ----------
Net cash provided by operating activities...................... 3,249 1,103
--------- ----------
Cash flows from investing activities:
Additions to property and equipment.............................. (190) (18)
--------- ----------
Cash flows from financing activities:
Net repayments under revolving credit facility................... (2,200) (750)
Repayments of long-term debt..................................... (700) --
--------- ----------
Net cash used for financing activities......................... (2,900) (750)
--------- ----------
Net increase in cash and cash equivalents......................... 159 335
Cash and cash equivalents at beginning of year.................... 482 147
--------- ----------
Cash and cash equivalents at end of year.......................... $ 641 $ 482
========= ==========
Supplemental schedule of noncash activities:
Film contracts acquired/obligations assumed...................... $ 2,961 $ 2,026
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
----------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1993................... $(12,760) $ -- $(12,760)
Net loss for the year ended December 31, 1994 . (731) -- (731)
----------- --------- ------------
Balance at December 31, 1994................... (13,491) -- (13,491)
Net income for the year ended December 31,
1995........................................... 2,365 -- 2,365
----------- --------- ------------
Balance at December 31, 1995................... $(11,126) $ -- $(11,126)
=========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-121
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION
Cincinnati TV 64 Limited Partnership (the "Partnership") is a joint venture of
ABRY Communications II, L.P., the general partner (Note 3), and Copley Place
Capital Group, the limited partner. The Partnership was organized under the laws
of the State of Delaware on August 1, 1989. The Partnership is a television
broadcaster serving the Cincinnati, Ohio area through station WSTR on UHF
Channel 64.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ALLOCATION OF PARTNERSHIP RESULTS TO PARTNERS' CAPITAL ACCOUNTS
Net losses of the Partnership are allocated among the capital accounts of the
partners based on their relative partnership interests until the limited
partner's capital has been exhausted. Thereafter, net losses are allocated
solely to the general partner. Net income is allocated in proportion to
previously allocated net losses in reverse chronological order. Thereafter, net
income is allocated to partners based on their relative partnership interests,
as defined in the agreement.
BROADCAST RIGHTS
Broadcast rights are stated at the lower of unamortized cost or estimated net
realizable value. Broadcast rights and the related liabilities are recorded at
the contract value when the license period begins and the right is available for
use. Broadcast rights are amortized using the straight-line method over the
number of showings or license period. The net realizable value of broadcast
rights for which the Partnership is contractually committed is reviewed annually
and revisions to amortization rates or write-downs to net realizable value may
occur. The current portion of broadcast rights represents those rights available
for broadcast which management estimates will be amortized in the succeeding
year.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets on a straight-line basis. Major renewals and
betterments are capitalized and ordinary repairs and maintenance are charged to
expense in the period incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill aggregating $1,991 is amortized over 40 years using the straight-line
method. Legal and accounting fees associated with the acquisition of loans
aggregating $240 are capitalized and amortized over the term of the related
debt. Organization costs aggregating $28 were fully amortized at December 31,
1995. Accumulated amortization aggregated $485 and $436 at December 31, 1995 and
1994, respectively.
BARTER TRANSACTIONS
Revenue from barter transactions is recognized when advertisements are broadcast
and services or merchandise received are charged to expense when received or
used. Revenues arising from barter and trade transactions aggregated $3,578 and
$3,410 in 1995 and 1994, respectively.
F-122
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
INCOME TAXES
The financial statements of the Partnership do not include any provision for
federal or state income taxes. All Partnership income, losses, tax credits and
deductions are allocated among the partners. Each partner is responsible to
report its distributed share of Partnership results in its federal and state
income tax returns.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents. The Partnership
invests its excess cash in short-term government securities that are subject to
minimal market and credit risk. At December 31, 1995 and 1994, the Partnership's
cash equivalents include $500 and $400, respectively, of short-term government
securities. These securities, which are classified as available-for-sale, are
recorded at market value, which approximates cost.
Effective January 1, 1994, the Partnership adopted Statement of Financial
Accounting Standards No. 115, (FAS 115), "Accounting for Certain Investments in
Debt and Equity Securities". Under this standard, the Partnership is required to
classify its investments in debt and equity securities into one or more of the
following categories: held-to-maturity, trading or available for sale. Adoption
of this standard had no impact on the Partnership's financial position or
results of operations at the date of adoption.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the Partnership to a
concentration of credit risk include cash, cash equivalents and accounts
receivable. A significant amount of the Partnership's cash and cash equivalents
are held by one financial institution at December 31, 1995. The Partnership does
not believe that such deposits are subject to any unusual credit risk beyond the
normal credit risk associated with operating its business. The Partnership
maintains reserves for potential credit losses and such losses, in the
aggregate, have not historically exceeded management's expectations.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
Prior to 1995, ABRY Communications II, L.P. provided certain administrative and
support services to the Partnership for which it was paid a management fee.
Management fees charged to operations aggregated $319 in 1994. No management
fees were charged to the Partnership during 1995.
As of January 1995, the station became a network affiliate and licensed certain
programs in conjunction with the forgiveness of the subordinated debt of a
related party by the network and licensor. The term of the affiliation agreement
and the program licenses is three years and one year, respectively. These
financial statements do not include any amounts relating to such transaction.
F-123
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
ESTIMATED
USEFUL LIFE DECEMBER 31,
(YEARS) 1995 1994
------------- -------- --------
Land and improvements................... -- $ 261 $ 261
Buildings............................... 30 1,719 1,719
Transmission tower...................... 30 3,226 3,226
Transmission equipment.................. 7-8 1,832 1,919
Studio equipment........................ 5-7 1,079 1,005
Vehicles, office equipment and
furniture............................... 5-7 240 211
-------- --------
8,357 8,341
Less -- accumulated depreciation
and amortization........................ 3,119 2,671
-------- --------
$5,238 $5,670
======== ========
5. BROADCAST RIGHTS
The Partnership purchases the right to broadcast programs through fixed term
license agreements. Broadcast rights consist of the following:
DECEMBER 31,
--------------------
1995 1994
------- -------
Aggregate cost ............................. $15,370 $14,288
Less -- accumulated
amortization ............................... 6,570 7,766
------- -------
8,800 6,522
Less -- current portion .................... 4,461 3,461
------- -------
$ 4,339 $ 3,061
======= =======
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $9,483 including $3,918 of barter obligations. Future payments in
connection with these contractual obligations are as follows at December 31,
1995:
1996 ........................................ $5,221
1997 ........................................ 2,502
1998 ........................................ 1,340
1999 ........................................ 381
Thereafter .................................. 39
------
$9,483
======
The Partnership has estimated the fair value of these contractual obligations at
approximately $8,591 and $6,478 at December 31, 1995 and 1994, respectively,
based on future cash flows discounted at the Partnership's current borrowing
rate.
F-124
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
6. DEBT
Long-term debt consists of the following:
DECEMBER 31,
-------------------
1995 1994
------- -------
Term loan ................................. $ 6,650 $ 6,850
Revolving credit
facility .................................. 4,772 6,972
Supplemental loan ......................... 461 961
------- -------
11,883 14,783
Less -- current portion ................... 11,883 700
------- -------
$ -- $14,083
======= =======
The principal amount of the term loan is payable in 36 monthly installments of
$17 which commenced January 1, 1995 and a final installment in an amount equal
to the then outstanding principal balance is due January 1, 1998.
The Partnership may borrow up to $8,350 under a revolving credit facility (the
"revolver") through December 31, 1995; thereafter, the credit facility and
related borrowings are reduced on a monthly basis until no credit facility is
available at January 1, 1998.
The term loan, revolver and supplemental loan bear interest, payable monthly, at
the base rate, computed by taking the higher of the Federal Funds rate plus 1%
or Prime (as defined in the agreement), plus 2.5%.
The Partnership is charged a fee for the available revolving credit commitment
at a rate of 1/2% per annum, payable quarterly. The borrowings are secured by
substantially all of the Partnership's assets and require the Partnership to
comply with certain specified financial ratios and provisions. At December 31,
1995, all long term debt is classified as a current liability as a result of a
third-party's decision to exercise the option agreement (Note 9).
At December 31, 1995 and 1994, the current portion of long-term debt includes
principal of $750 and $500, respectively, due by April 1, 1996 and 1995 in
accordance with the acceleration provisions of the loan agreement. The
accelerated principal payments were made by the Partnership in April 1996 and
January 1995, respectively.
In addition to the scheduled principal and interest payments, the lender may be
entitled to contingent interest, payable upon early repayment of the loans, a
change in control of the Partnership or upon the occurrence of certain other
events as defined in the agreement. The amount of contingent interest which will
be due is determined by a formula which considers appreciation in the value of
the Partnership. Based upon management's estimate of appreciation in the value
of the Partnership, no accrual for contingent interest has been recorded at
December 31, 1995 and 1994.
The principal amount of the subordinated note payable to Seller is due on
January 1, 1998. Interest on the outstanding principal accrues at the rate of
8.5% per annum. Interest accrued and unpaid through December 31, 1993 is due and
payable on January 1, 1998. Interest accrued after December 31, 1993 is payable
annually. For financial reporting purposes, however, interest on the note
accrues at an implicit rate of 14.5% per annum and the note's original stated
principal of $6 million has been discounted to reflect this yield. Accordingly,
interest accrued through December 31, 1995 and 1994 of $2,877 and $2,790,
respectively, has been added to the discounted principal amount of the note. In
January 1996, a third-party exercised its option to acquire the assets of the
station (Note 9). Accordingly, the note has been classified as a current
liability at December 31, 1995.
F-125
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
Interest paid during the years ended December 31, 1995 and 1994 was $1,603 and
$1,348, respectively.
7. RETIREMENT SAVINGS PLAN
The Partnership has adopted a retirement savings plan under Section 401(k) of
the Internal Revenue Code. This plan covers substantially all employees of the
Partnership and affiliated partnerships who meet minimum age and service
requirements and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Partnership contributions to the plan may be
made at the discretion of the Board of Directors. No Partnership contributions
were authorized for the years ended December 31, 1995 and 1994.
8. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENT
As a result of the Partnership's execution of the Option Agreement (Note 9) in
1994, the Partnership and the general partner, ABRY Communications II, L.P.,
amended an employment agreement which entitled certain key employees to
appreciation rights payable upon either a change in control of the Partnership
or the payment of certain partner cash distributions. Previously, the employees
vested in these rights at the rate of 20% per year from the date the rights were
granted, except that they vested fully at the time the rights became payable.
Amounts due to the employees in connection with those rights were determined by
a formula which considers appreciation in the value of the Partnership. Under
the amendment, such employees received payments in lieu of the appreciation
rights discussed above. Compensation expense of $862 was recognized for
compensation related to these rights during the year ended December 31, 1994. An
accrual for $700 for compensation related to these rights which were paid in
January 1995, was included in accrued expenses at December 31, 1994.
BROADCAST LICENSE AGREEMENTS
Broadcast rights acquired under license agreements are recorded as an asset and
a corresponding liability at the inception of the license period. In addition to
these broadcast rights payable at December 31, 1995, the Partnership has $7,769
of commitments to acquire broadcast rights for which the license period has not
commenced and, accordingly, for which no liability has been recorded. Future
minimum payments arising from such commitments outstanding at December 31, 1995,
of which $4,232 represents barter commitments, are as follows:
1996 ................................... $ 903
1997 ................................... 2,221
1998 ................................... 1,918
1999 ................................... 1,517
2000 ................................... 1,210
------
$7,769
======
PROGRAMMING
Under the terms of an agreement executed in September 1995 with a third-party,
the Partnership is committed to make available certain time periods for
broadcasting Cincinnati Reds baseball games during each of the 1996-1998 major
league baseball seasons, in exchange for a fixed fee per game and other defined
compensation. The agreement expires in December 1998 or the earliest date after
April 1, 1996 on which the third-party no longer has the rights to telecast such
baseball games. In 1995, the Partnership generated revenue of $25 related to
this agreement.
F-126
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP -
NOTES TO FINANCIAL STATEMENTS (Continued)
OPERATING LEASES
The Partnership assumed a noncancellable operating lease under which property at
its transmission antenna site is leased through 1998. Charges to operations for
this lease aggregated $68 in 1995 and $71 in 1994. As of December 31, 1995,
annual minimum lease payments under the property lease are $61 through 1997.
9. OPTION AGREEMENT
On May 24, 1994, the Partnership entered into an agreement whereby the
Partnership granted a third-party an option to acquire the assets of the station
for an amount equal to the lesser of the outstanding debt as of the exercise
date, including accrued interest thereon, or $11,000. The acquiring entity will
assume all other liabilities of the station. In conjunction with the option
agreement, the Partnership entered into an agreement with the third-party
whereby the Partnership would pay the third-party a consulting fee of $250 per
year as long as the option is outstanding. Charges to operations related to this
agreement were $250 in 1995 and $127 in 1994.
The third-party exercised this option in January 1996. The transaction is
subject to regulatory approval. As a result of the exercise of this option, all
debt of the station is classified as current at December 31, 1995, in accordance
with the Partnership's loan agreements (Note 6).
F-127
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP
BALANCE SHEET AS OF JUNE 30, 1996
(UNAUDITED)
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 1,335
Accounts receivable, net of allowance for doubtful accounts of
$97............................................................ 2,993
Program contract rights, current portion........................ 3,215
Prepaid expenses and other current assets....................... 34
----------
Total current assets........................................... 7,577
Property and equipment, net of accumulated depreciation ......... 4,979
Due from related party........................................... --
Program contract rights, long-term portion....................... 3,190
Intangible assets, net of accumulated amortization............... 1,707
----------
Total assets................................................... $17,453
==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Program contract rights payable, current portion................ $ 3,784
Accounts payable................................................ 492
Deferred revenue................................................ 114
Accrued liabilities............................................. 752
Note payable, current portion................................... 200
----------
Total current liabilities...................................... 5,342
PROGRAM CONTRACTS PAYABLE, net of current portion................ 3,080
NOTE PAYABLE, net of current portion............................. 18,778
----------
Total liabilities.............................................. 27,200
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL: ............................................. (9,747)
----------
Total liabilities and stockholders' equity..................... $17,453
==========
The accompanying notes are an integral part of these unaudited statements.
F-128
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1996 1995 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Advertising revenue, net of agency
commissions................................. $3,122 $3,679 $ 5,604 $ 6,477
Revenues realized from barter arrangements... 859 881 1,669 1,715
----------- ----------- ----------- ----------
Total Revenues................................ 3,981 4,560 7,273 8,192
OPERATING EXPENSES:
Programming and production................... 1,259 1,261 2,459 2,500
Selling, general and administrative.......... 807 878 1,506 1,876
Amortization of program contract rights...... 341 484 716 1,011
Depreciation and amortization of property and
equipment................................... 144 142 300 284
Amortization of intangible assets............ 19 19 39 39
----------- ----------- ----------- ----------
Total operating expenses.................... 2,570 2,784 5,020 5,710
----------- ----------- ----------- ----------
Broadcast operating income.................. 1,411 1,776 2,253 2,482
----------- ----------- ----------- ----------
OTHER INCOME:
Interest expense, net........................ (652) (550) (1,289) (1,112)
Other income (expense)....................... -- -- -- --
----------- ----------- ----------- ----------
Total other income.......................... (652) (550) (1,289) (1,112)
----------- ----------- ----------- ----------
Net income.................................. $ 759 $1,226 $ 964 $ 1,370
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
F-129
<PAGE>
CINCINNATI TV 64 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
(UNAUDITED)
(in thousands)
1995 1996
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................. $ 964 $ 1,379
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 300 284
Amortization of goodwill and other intangible assets.. 39 39
Amortization of program contracts rights.............. 716 1,011
Changes in assets and liabilities:
Decrease in accounts receivable....................... 358 213
Increase in prepaid expenses.......................... (6) (20)
Decrease in accounts payable.......................... (611) (362)
Increase in accrued liabilities....................... 485 446
Decrease in other current liabilities................. -- (187)
Film Rights Payments................................... (545) (1,235)
--------- ----------
Net cash flows from operating activites............... 1,700 1,568
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................... (78) (25)
--------- ----------
Net cash flows from investing activities.............. (78) (25)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................ (1,410) (850)
--------- ----------
Net cash flows from financing activities.............. (1,410) (850)
--------- ----------
Net increase in cash.................................. 212 693
--------- ----------
CASH, beginning of period............................... 325 642
--------- ----------
CASH, end of period..................................... $ 537 $ 1,335
========= ==========
Supplemental Schedule of Noncash Investing and
Financing Activities:
Film contracts acquired................................ $ 416 $ 130
--------- ----------
Film contract liability additions...................... $ 416 $ 130
========= ==========
The accompanying notes are an integral part of these unaudited statements.
F-130
<PAGE>
-
CINCINNATI TV 64 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION:
Cincinnati TV 64 Limited Partnership (the "Partnership") is a joint venture of
ABRY Communications II, L.P., the general partner, and Copley Place Capital
Group, the limited partner. The Partnership was organized under the laws of the
State of Delaware on August 1, 1989. The Partnership is a television broadcaster
serving the Cincinnati, Ohio area through Station WSTR on UHF Channel 64.
These statements are unaudited, and certain information and footnote disclosures
normally included in the Partnership's annual financial statements have been
omitted, as permitted under the applicable rules and regulations. Readers of
these statements should refer to the financial statements and the notes thereto
as of December 31, 1995 and for the year ended included herein. The results of
operations presented in the accompanying financial statements are not
necessarily representative of operations for an entire year.
2. RELATED PARTY TRANSACTIONS:
Prior to 1995, ABRY Communications II, L.P., provided certain administrative and
support services to the Partnership for which it was paid a management fee.
3. OPTION AGREEMENT:
On May 24, 1994, the Partnership entered into an agreement whereby the
Partnership granted a third-party an option to acquire the assets of the station
for an amount equal to the lesser of outstanding debt as of the exercise date,
including accrued interest thereon, or $11,000,000. The acquiring entity will
assume all other liabilities of the station. In conjunction with option
agreement, the Partnership entered into an agreement with the third-party
whereby the Partnership would pay the third-party a consulting fee of $250,000
per year as long as the option is outstanding. The third-party exercised this
option in January 1996 and acquired the assets of the station for $9.9 million
on August 1, 1996.
F-131
<PAGE>
GLOSSARY OF DEFINED TERMS
"ABC" means Capital Cities/ABC, Inc.
"After tax cash flow" is defined as net income (loss) before extraordinary
items plus depreciation and amortization (including film amortization), less
program contract payments, plus non-cash deferred compensation expense, plus
special bonuses paid to executive officers, and plus deferred tax provision or
minus deferred tax benefit. After tax cash flow is presented here not as a
measure of operating results and does not purport to represent cash provided by
operating activities. After tax cash flow should not be considered in isolation
or as a substitute for measure or performance prepared in accordance with
generally accepted accounting principles.
"After tax cash flow per share" is defined as after tax cash flow divided by
weighted average shares outstanding.
"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.
"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.
"Common Stock" means the Class A Common Stock and the Class B Common Stock.
"Communications Act" means the Communications Act of 1934, as amended.
G-1
<PAGE>
"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.
"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 1,250,000 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.
G-2
<PAGE>
"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.
"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.
"MMDS" means multichannel multipoint distribution services.
"MSA" means the Metro Survey Area as defined by Arbitron.
"NASD" means National Association of Securities Dealers, Inc.
"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.
"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.
"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.
G-3
<PAGE>
"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.
"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 5,000,000 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 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 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
<TABLE>
<CAPTION>
PAGE NO.
----------
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 10
Use of Proceeds............................... 19
Price Range of Common Stock................... 20
Dividend Policy............................... 20
Capitalization................................ 21
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
Selling Stockholders.......................... 71
Certain Transactions.......................... 72
Description of Capital Stock.................. 72
Description of Indebtedness................... 78
Certain U.S. Federal Tax Considerations for
Non-U.S. Holders of Common Stock.............. 81
Underwriting.................................. 84
Legal Matters................................. 86
Experts....................................... 87
Available Information......................... 87
Incorporation of Certain Documents by
Reference..................................... 88
Index to Financial Statements................. F-1
================================================================================
</TABLE>
<PAGE>
================================================================================
6,250,000 SHARES
SBG
SINCLAIR BROADCAST GROUP
============
CLASS A COMMON STOCK
--------------------
PROSPECTUS
OCTOBER , 1996
--------------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
Donaldson, Lufkin & Jenrette
Securities Corporation
Prudential Securities Incorporated
Salomon Brothers Inc
================================================================================
<PAGE>
[ALTERNATE PAGE FOR THE 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 OCTOBER 18, 1996
PROSPECTUS
6,250,000 SHARES
SBG
SINCLAIR BROADCAST GROUP
===============
CLASS A COMMON STOCK
PAR VALUE $.01 PER SHARE
---------------
Of the 5,750,000 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock") offered hereby, 5,000,000 shares are being sold by
Sinclair Broadcast Group, Inc. (the "Company") and 1,250,000 shares are being
sold by certain stockholders of the Company ("Selling Stockholders"). See
"Selling Stockholders" and "Underwriting." The Company will not receive any part
of the proceeds from the sale of shares by the Selling Stockholders. Of the
6,250,000 shares of Class A Common Stock offered hereby, 1,250,000 shares are
being offered in an international offering outside of the United States and
Canada (the "International Offering") by the Managers (as defined) and 5,000,000
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
"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 October 11, 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 94.3% 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."
---------------
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.
================================================================================
Underwriting Proceeds to
Price to Discounts the Company
the Public and Commissions (1) (2)
- --------------------------------------------------------------------------------
Per Share ........... $____ $ _____ $_____
- --------------------------------------------------------------------------------
Total(3) ............ $____ $ _____ $_____
================================================================================
(1) The Company and the Selling Stockholders have 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 937,500 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 Securities
Salomon Brothers International Limited
_______________, 1996
1
<PAGE>
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
================================================================================
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 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 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
<TABLE>
<CAPTION>
PAGE NO.
----------
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 10
Use of Proceeds.............................. 19
Price Range of Common Stock.................. 20
Dividend Policy.............................. 20
Capitalization............................... 21
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
Selling Stockholders......................... 71
Certain Transactions......................... 72
Description of Capital Stock................. 72
Description of Indebtedness.................. 78
Certain U.S. Federal Tax Considerations for
Non-U.S. Holders of Common Stock............. 81
Underwriting................................. 84
Legal Matters................................ 86
Experts...................................... 87
Available Information........................ 87
Incorporated of Certain Documents by
Reference.................................... 88
Index to Financial Statements................ F-1
</TABLE>
<PAGE>
================================================================================
6,250,000 SHARES
SBG
SINCLAIR BROADCAST GROUP
===============
CLASS A COMMON STOCK
---------------
PROSPECTUS
OCTOBER , 1996
---------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INTERNATIONAL
Donaldson, Lufkin & Jenrette
Securities Corporation
Prudential-Bache Securities
Salomon Brothers
International Limited
================================================================================
<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............................. $ 91,133
NASD fee......................................... 27,625
Nasdaq fee....................................... 17,500
Blue Sky fees and expenses (including legal
fees)............................................ 25,000
Printing and engraving expenses.................. 350,000
Legal fees and expenses.......................... 270,000
Accounting fees and expenses..................... 200,000
Transfer agent and registrar fees................ 15,000
Miscellaneous fees and expenses.................. 3,742
----------
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
(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.
II-1
<PAGE>
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 Consent of Price Waterhouse LLP, independent certified
public accountants, relating to Financial Statements of
23.4 Kansas City TV 62 Limited Partnership Consent of Price Waterhouse
LLP, independent certified public accountants, relating to
financial statements of
23.5 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 or a director Powers
of Attorney for David D. Smith, Frederick G. Smith, J. Duncan
Smith, Robert E. Smith, Basil A. Thomas,
24.1+ William Brock, Lawrence McCanna and David B. Amy.
</TABLE>
* To be filed by amendment.
+ Previously filed.
II-2
<PAGE>
(b) Financial Statement Schedules:
SCHEDULE
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
II Valuation And Qualifying 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 amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Baltimore, Maryland on the 16th day of October,
1996.
SINCLAIR BROADCAST GROUP, INC.
By: /s/ David D. Smith
----------------------------------
David D. Smith
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* CHAIRMAN OF THE BOARD, October 16, 1996
______________________ CHIEF EXECUTIVE OFFICER,
David D. Smith President and Director
(Principal executive officer)
/s/ David B. Amy Chief Financial Officer October 16, 1996
______________________ (Principal Financial and Accounting
David B. Amy Officer)
*
_____________________ Director October 16, 1996
Frederick G. Smith
*
_____________________ Director October 16, 1996
J. Duncan Smith
*
_____________________ Director October 16, 1996
Robert E. Smith
*
_____________________ Director October 16, 1996
Basil A. Thomas
*
_____________________ Director October 16, 1996
William E. Brock
*
_____________________ Director October 16, 1996
Lawrence E. McCanna
</TABLE>
*By: /s/ David D. Amy
- ----------------------
David D. Amy
Attorney-in-fact
II-4
<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
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.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
October 16, 1996
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Partners
River City Broadcasting, L.P.:
We consent to the inclusion and incorporation by reference in the Registration
Statement No. 333-12257 on Form S-3 as amended 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 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
October 16, 1996
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3/A (No. 333-12257) 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 such
Prospectus. We also consent to the reference to us under the headings "Experts"
in such Prospectus.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, Massachusetts
October 16, 1996
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3/A (No. 333-12257) 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 such
Prospectus. We also consent to the reference to us under the headings "Experts"
in such Prospectus.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, Massachusetts
October 16, 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. included in the Registration
Statement (Form S-3 No. 333-12257) and related Prospectus of Sinclair Broadcast
Group, Inc.
/s/ Ernst & Young LLP
---------------------
Pittsburgh, Pennsylvania
October 15, 1996
EXHIBIT 23.7
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 Nos. 333-12255 and 333-12257 filed with the Securities
and Exchange Commission, and any amendments thereto, and in any registration
statements filed pursuant to Rule 462(b) and relating to the offering
contemplated by the foregoing registration statements.
Dated: October 15, 1996 /s/ BARRY BAKER
------------------------------
Barry Baker
EXHIBIT 23.8
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 Nos. 333-12255 and 333-12257 filed with the Securities
and Exchange Commission and any amendments thereto, and in any registration
statements filed pursuant to Rule 462(b) and relating to the offering
contemplated by the foregoing registration statements.
Dated: October 16, 1996 /s/ ROY F. COPPEDGE, III
----------------------------------------
Roy F. Coppedge, III
