<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
February 28, 1996
----------------------------
(Date of earliest event reported)
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
Maryland 33-69482 52-1494660
(State of incorporation) (Commission File Number) (IRS Employer
Identification Number)
2000 W. 41st Street, Baltimore, Maryland 21211-1420
---------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (410) 467-5005
---------------
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The financial statements required by this item are submitted in a
separate section beginning on page 1 of this report.
<TABLE>
<CAPTION>
Page
<S> <C>
FLINT T.V., INC.
Report of Independent Public Accountants............................................1
Balance Sheets as of December 31, 1995 and December 31, 1994........................2
Statements of Operations for the Years Ended December 31, 1995 and
December 31, 1994..........................................................3
Statements of Changes in Stockholder's Equity for the Years Ended...................
December 31, 1995 and December 31, 1994....................................4
Statements of Cash Flows for the Years Ended December 31, 1995
and December 31, 1994......................................................5
Notes to Financial Statements.......................................................6
</TABLE>
(b) Pro Forma Financial Information
The pro forma financial information required by this item is submitted
on pages 9 through 13 of this report.
(c) Exhibits
2.01 Asset Purchase Agreement dated as of May 9, 1995 among Flint T.V., Inc.
(as seller) and Sinclair Broadcast Group, Inc. (as buyer) (exhibits and
schedules have been omitted and the Registrant agrees to furnish copies
thereof to the Securities and Exchange Commission upon its request)
2.02 Real Estate Purchase Agreement dated as of February 26, 1995 among
Flint T.V., Inc. (as seller) and Sinclair Broadcast Group, Inc. (as
buyer) (exhibits and schedules have been omitted and the Registrant
agrees to furnish copies thereof to the Securities and Exchange
Commission upon its request)
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Pro Forma Consolidated Financial Data includes the unaudited pro
forma consolidated balance sheet as of December 31, 1995 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1995 (the "Pro Forma Consolidated
Statement of Operations"). The unaudited Pro Forma Consolidated Balance Sheet
and the unaudited Pro Forma Consolidated Statement of Operations are adjusted to
give effect to the consummation of the acquisition of the assets of Flint T.V.,
Inc. ("Flint") (former owner of WSMH).
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 the related notes thereto and the financial statements
and related notes thereto of Flint. The unaudited Pro Forma Consolidated
Financial Data do not purport to represent what the Company's financial position
or results of operations would have been had the above event occurred on the
date specified or to project the Company's financial position or results of
operations for or at any future period or date.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Consolidated Flint Pro Forma
Historical TV, Inc Adjustments Pro Forma
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents................................ $ 112,450 $ $ (34,400)(b) $ 78,050
Accounts receivable, net of allowance for doubtful
accounts..................................................... 50,022 50,022
Current portion of program contract costs....................... 18,036 378 18,414
Deferred barter costs........................................... 1,268 1,268
Prepaid expenses and other current assets....................... 1,972 1,972
Deferred tax asset.............................................. 4,565 4,565
----------- ----------- ---------- -----------
Total current assets.................................. 188,313 378 (34,400) 154,291
PROPERTY AND EQUIPMENT, net.......................................... 42,797 2,276 45,073
PROGRAM CONTRACT COSTS, less current portion......................... 19,277 744 20,021
LOANS TO OFFICERS AND AFFILIATES, net................................ 11,900 11,900
NON-COMPETE AND CONSULTING AGREEMENTS, net........................... 30,379 30,379
DEFERRED TAX ASSET................................................... 16,462 16,462
OTHER ASSETS......................................................... 27,355 (1,000)(b) 26,355
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net......................... 268,789 33,905 302,694
=========== =========== ========== ===========
Total Assets.......................................... $ 605,272 $ 37,303 $ (35,400) $ 607,175
=========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable................................................ $ 2,187 $ $ $ 2,187
Income Taxes Payable............................................ 3,944 3,944
Accrued Liabilities............................................. 20,720 20,720
Current portion of long-term liabilities-
Notes payable and commercial bank financing.................. 1,133 1,133
Capital leases payable....................................... 524 524
Notes and capital leases payable to affiliates............... 1,867 1,867
Program contracts payable.................................... 26,395 848 27,243
Deferred barter revenues........................................ 1,752 1,752
----------- ----------- ---------- -----------
Total current liabilities............................. 58,522 848 - 59,370
LONG-TERM LIABILITIES
Notes payable and commercial bank financing..................... 400,644 400,644
Capital leases payable.......................................... 44 44
Notes and capital leases payable to affiliates.................. 13,959 13,959
Program contracts payable....................................... 30,942 1,055 31,997
Other long-term liabilites...................................... 2,442 2,442
----------- ----------- ---------- -----------
Total liabilities..................................... 506,553 1,903 - 508,456
----------- ----------- ---------- -----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY......................... 2,345 - - 2,345
----------- ----------- ---------- -----------
COMMITMENTS AND CONTINGENCIES........................................
STOCKHOLDERS' EQUITY.................................................
Preferred stock, $.01 par value, 5,000,000 shares
authorized and -0- 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 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...................................... 116,089 116,089
Accumulated deficit............................................. (20,063) (20,063)
----------- ----------- ---------- -----------
Total stockholders' equity............................ 96,374 - - 96,374
----------- ----------- ---------- -----------
Total Liabilities and Stockholders' Equity............ $605,272 $ 1,903 $ - $ 607,175
=========== =========== ========== ===========
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(a) The Flint TV, Inc. column reflects the assets and liabilities acquired in
connection with the purchase of WSMH. Total acquired intangibles are
calculated as follows:
Purchase price ................................... $ 35,400
Add: Liabilities acquired -
Current ................................ 848
Long - term ............................ 1,055
Less:Assets acquired
Current portion of program contracts ... (378)
Non-current portion of program contracts (744)
Property and equipment ................. (2,276)
--------
Acquired intangibles ................... $ 33,905
========
(b) 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.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Consolidated Flint Pro Forma
Historical TV, Inc.(a) Adjustments Pro Forma
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net $ 187,934 $ 7,217 $ - $195,151
Revenues realized from station barter arrangements 18,200 18,200
--------- ------- --------- --------
Total revenues.......................... 206,134 7,217 - 213,351
--------- ------- --------- --------
OPERATING EXPENSES:
Program and production........................ 22,563 511 23,074
Selling, general and administrative........... 41,763 2,114 43,877
Expenses realized from station barter arrangements 16,120 16,120
Amortization of program contract costs and net
realizable value adjustments................ 29,021 897 29,918
Depreciation and amortization of property 5,400 21 171 (b) 5,592
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets............................ 45,989 12 991 (c) 46,992
--------- ------- --------- --------
Total operating expenses................ 160,856 3,555 1,162 165,573
--------- ------- --------- --------
Broadcast operating income (loss)....... 45,278 3,662 (1,162) 47,778
--------- ------- --------- --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount exp (39,253) (39,253)
Interest (expense)............................ - - (1,924)(d) (1,924)
Interest income............................... 3,942 81 (736)(d) 3,287
Other income.................................. 221 41 262
--------- ------- --------- --------
Income (loss) before (provision) benefit
for income taxes and extraordinary items 10,188 3,784 (3,822) 10,150
(PROVISION) BENEFIT FOR INCOME TAXES............ (5,200) (1,514) 1,529 (e) (5,185)
--------- ------- --------- --------
Net income (loss) before extraordinary items 4,988 2,270 (2,293) 4,965
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of related
income tax benefit.......................... (4,912) - - (4,912)
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDE $ 76 $ 2,270 $ (2,293) $ 53
========= ======= ========= ========
EARNINGS PER COMMON SHARE
Net income before extraordinary items... $ 0.15 $ 0.15
Extraordinary items..................... $ (0.15) $ (0.15)
--------- ------- -------- --------
Net income per common share..................... $ - $ 0.00
========= ======= ========= ========
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousand 32,198 32,198
========= ======= ========= ========
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
(a) The Flint TV, Inc. column reflects the results of operations for WSMH for
the year ended December 31, 1995 as the purchase transaction was
consummated in February 1996.
(b) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by WSMH. Tangible assets are to be
depreciated over lives ranging from three to 35 years, calculated as
follows:
Depreciation expense on acquired assets................. $ 192
Less: Depreciation expense recorded by WSMH............. (21)
--------
Pro forma adjustment.................................... $ 171
========
(c) To record amortization expense related to acquired intangible assets and
eliminate amortization expense recorded by WSMH. Intangible assets are to
be amortized over lives ranging from 1 to 40 years, calculated as follows:
FCC license............................................. $ 283
Non-compete agreement................................... 50
Goodwill................................................ 670
--------
1,003
Less: Intangible amortization recorded by WSMH.......... (12)
--------
Pro forma adjustment.................................... $ 991
========
(d) To record interest expense on acquisition financing of $34,400 (in Credit
Facility with commercial bank at 8.4% for 8 months), to eliminate interest
income on public debt proceeds of $34,400 (with commercial bank at 5.7%
for 4 months) and to eliminate interest expense and interest income
recorded by WSMH.
Interest Interest
Expense Income
------- ------
Interest expense and interest income adjustment
as noted above................................ $1,924 $ (655)
Less: Interest expense and interest income recorded
by WSMH....................................... - (81)
------ --------
Pro forma adjustment.......................... $1,924 $ (736)
====== ========
(e) To record tax benefit of pro forma adjustments at
applicable statutory rates.
<PAGE>
Depreciation Adjustment
Useful life Value Depr. Exp
Land - 334,800 -
Land improvements - 24,481 -
Buildings 29.5 742,218 25,160
Tower and transmitter 7.0 629,087 89,870
Tools and equipment 7.0 351,781 50,254
Auto's 5.0 10,925 2,185
Furniture and fixtures 7.0 154,372 22,053
Leasehold improvements 15.0 27,606 1,840
s/b 191,362
was 20,600
adj 170,762
Amortization Adjustment
FCC license 25.0 7,057,000 282,280
Goodwill 40.0 26,798,000 669,950 33,905,000
Non-compete
s/b 1,002,230
was 11,500
adj 990,730
Interest Income and Expense Adjustment
Rate
Interest Income 34,400,000 0.057 0.33 655,391
Interest Expense 34,400,000 0.084 0.67 1,923,761
Amount Rate
Chase 91,690,000 5.59% 5,125,471
Ford 32,568,852 5.84% 1,902,012
Int'l Lease 24,739,667 5.68% 1,405,213
Pfizer 35,260,333 5.68% 2,002,787
Yamaha 29,433,643 5.92% 1,742,472
Nations 25,000,000 5.82% 1,455,000
238,692,495 13,632,964 5.71%
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Report of Independent Public Accountants......................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995.................................. .. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995....... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993 1994 and
1995............................................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995....... F-6, F-7
Notes to Consolidated Financial Statements........................................................ F-8
</TABLE>
F-1
<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-2
<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
-0- 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-3
<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 station 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-4
<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-5
<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
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part
of these consolidated statements.
F-6
<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>
Net cash flows from operating activities...................... $ 11,230 $ 13,698 $ 52,709
--------- --------- ---------
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-7
<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.
F-8
<PAGE>
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.
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.
F-9
<PAGE>
Other Assets
------------
Other assets as of December 31, 1994 and 1995 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
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
============== =============
</TABLE>
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.
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):
<TABLE>
<CAPTION>
Amortization
Period 1994 1995
------ ---- ----
<S> <C> <C> <C>
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
========== ============
</TABLE>
F-10
<PAGE>
Accrued Liabilities
-------------------
Accrued liabilities consist of the following as of December 31, 1994 and 1995
(in thousands):
<TABLE>
<CAPTION>
1994 1995
---------- ---------
<S> <C> <C>
Payroll ............................................... $ 1,572 $ 673
Bonuses ............................................... 4,208 2,273
Interest............................................... 1,030 11,104
Other.................................................. 5,077 6,670
------------ ------------
$ 11,887 $ 20,720
============ ============
</TABLE>
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.
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>
F-11
<PAGE>
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.
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:
<TABLE>
<S> <C>
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 leases.................... Shorter of 10 years
or the lease term
</TABLE>
F-12
<PAGE>
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 derivative 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.
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.
F-13
<PAGE>
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
Redemption Date (as a % of principal 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-14
<PAGE>
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-15
<PAGE>
The Company has the option to redeem the Notes any time after December 15, 1998.
Redemption prices are as follows:
Redemption Price
Redemption Date (as a % of principal 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.
F-16
<PAGE>
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>
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.
F-17
<PAGE>
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):
<TABLE>
<CAPTION>
<S> <C> <C>
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
==========
</TABLE>
6. PROGRAM CONTRACTS PAYABLE:
--------------------------
Future payments required under program contracts payable as of December 31,
1995, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
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
==========
</TABLE>
F-18
<PAGE>
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>
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
F-20
<PAGE>
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.
The Company had the following NOL's included in the deferred tax asset as of
December 31, 1995.
<TABLE>
<CAPTION>
Jurisdiction Amount Expiring Limited to Use In
------------ ------ -------- -----------------
<S> <C> <C> <C>
Federal $ 386,000 2004 WBFF
Federal 6,190,073 2007 and 2008 FSFA
</TABLE>
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>
F-21
<PAGE>
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
========= =========
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
F-22
<PAGE>
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.
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
F-23
<PAGE>
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.
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):
<TABLE>
<CAPTION>
<S> <C> <C>
1996....................................................................... $ 1,083
1997....................................................................... 704
1998....................................................................... 559
1999....................................................................... 474
2000....................................................................... 361
2001 and thereafter........................................................ 1,336
---------
$ 4,517
=========
</TABLE>
F-24
<PAGE>
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.
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.
F-25
<PAGE>
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.
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.
F-26
<PAGE>
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):
<TABLE>
<CAPTION>
Company KCI Combined
------- --- --------
Twelve months ended December 31, 1993:
<S> <C> <C> <C>
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
</TABLE>
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.
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.
F-27
<PAGE>
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 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.
F-28
<PAGE>
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-29
<PAGE>
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-30
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
INDEX TO SCHEDULES
Schedule II - Valuation and Qualifying Accounts......................... S - 3
All schedules except those listed above are omitted as not applicable or not
required or the required information is included in the consolidated financial
statements or in the notes thereto.
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheets, statements of operations, changes in stockholders'
equity and cash flows of Sinclair Broadcast Group, Inc. and Subsidiaries
included in this Form 10K and have issued our report thereon dated February 27,
1996. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commissions rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Baltimore, Maryland,
February 27, 1996
S-2
<PAGE>
SCHEDULE II
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
-----------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
----------------------------------------------------
(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
----------- --------- -------- -------- ---------- ---------
1993
<S> <C> <C> <C> <C> <C>
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-3
<PAGE>
FLINT TV, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<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.
Baltimore, Maryland,
March 29, 1996
<PAGE>
FLINT TV, INC.
--------------
BALANCE SHEETS
--------------
AS OF DECEMBER 31, 1995 AND 1994
--------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
ASSETS
------
<S> <C> <C>
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 74,000
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.
<PAGE>
FLINT TV, INC.
--------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
1995 1994
---------- ----------
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
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
FLINT TV, INC.
--------------
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------------------- 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.
<PAGE>
<TABLE>
<CAPTION>
FLINT TV, INC.
--------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
----------------------------------------------
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.
<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, located in 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 information
regarding 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
- - ----------------------
Short-term investments represent 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.
<PAGE>
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.
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:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
<PAGE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Amortization
Period 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
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
========== =========
</TABLE>
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.
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
Program Contracts Payable
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.
