================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES ACT OF 1934
------------------
Date Of Report (Date of earliest event reported) June 23, 1997 Commission File
Number 0-26076
SINCLAIR BROADCAST GROUP, INC.
(Exact name of registrant)
-------------------------
MARYLAND 52-1494660
(State of organization) (I.R.S. Employer Identification No.)
2000 WEST 41ST STREET,
BALTIMORE, MARYLAND 21211
(Address of principal executive offices and zip code)
(410) 467-5005
(Registrant's telephone number)
================================================================================
<PAGE>
ITEM 5. OTHER EVENTS
Sinclair Broadcast Group, Inc. (the "Company" or "Sinclair") is filing this
report on Form 8-K to reflect an updated description of recent developments
regarding its business. Additionally, the Company incorporates herein by
reference the information contained in the press release filed as Exhibit 99 to
this Form 8-K. Unless otherwise indicated, defined terms shall have the meaning
set forth in the "Glossary of Defined Terms" below. References herein to the
Company shall include the Company's subsidiaries, unless the context otherwise
requires.
BUSINESS OF SINCLAIR
The Company is a diversified broadcasting company that owns or provides
programming services to more television stations than any other commercial
broadcasting group in the United States. The Company currently owns or provides
programming services to 29 television stations. The Company believes it is also
one of the top 20 radio groups in the United States, when measured by the total
number of radio stations owned, programmed or with which the Company has Joint
Sales Agreements ("JSAs"). The Company owns or provides programming services to
25 radio stations, has a pending acquisition of one radio station, has a JSA
with one additional radio station (which station the Company has agreed to
acquire) and has options to acquire an additional seven radio stations.
The 29 television stations the Company owns or programs pursuant to local
marketing agreements or other agreements under which the Company provides
programming services to a station not owned by the Company ("LMAs") are located
in 21 geographically diverse markets, with 23 of the stations in the top 51
television Designated Market Areas ("DMAs") in the United States. The Company's
television station group is diverse in network affiliation, with ten stations
affiliated with Fox, 12 with United Paramount Television Network Partnership
("UPN"), two with ABC, two with Warner Brothers ("WB") and one with CBS. Two
stations operate as Independents.
The Company's radio station group is also geographically diverse with a
variety of programming formats including country, urban, news/talk/sports,
album/progressive rock and adult contemporary. Of the 26 stations owned,
programmed or with which the Company has a JSA, 12 broadcast on the AM band and
14 on the FM band. The Company owns or programs from two to seven stations in
all but one of the radio markets it serves.
The Company has undergone rapid and significant growth over the course of
the last six years. Beginning with the acquisition of WPGH in Pittsburgh in
1991, the Company has increased the number of television stations it owns or
programs from three to 29. From 1991 to 1996, net broadcast revenues and
Adjusted EBITDA increased from $39.7 million to $346.5 million, and from $15.5
million to $180.3 million. Pro forma for the acquisitions described above, 1996
net broadcasting revenue and Adjusted EBITDA would have been $445.0 million and
$206.5 million, respectively.
2
<PAGE>
TELEVISION BROADCASTING
The Company owns and operates, provides programming services to, or has
agreed to acquire the following television stations:
<TABLE>
<CAPTION>
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(a) STATIONS STATUS(b) CHANNEL AFFILIATION THE MARKET(c) RANK(d) FCC LICENSE
- ---------------------------- --------- ---------- ----------- --------- ------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PITTSBURGH, PENNSYLVANIA . 19 WPGH O&O 53 FOX 6 4 8/1/99
WPTT LMA 22 UPN 5 8/1/99
St. Louis, Missouri ...... 20 KDNL O&O 30 ABC 7 5 2/1/98
Sacramento, California ... 21 KOVR O&O 13 CBS 8 3 2/1/99
Baltimore, Maryland ...... 23 WBFF O&O 45 FOX 5 4 10/1/04
WNUV LMA 54 UPN 5 10/1/04
Indianapolis, Indiana ...... 25 WTTV LMA(e) 4 UPN 8 4 8/1/97
WTTK LMA(e)(f) 29 UPN 4(f) 8/1/97
Cincinnati, Ohio ......... 29 WSTR O&O 64 UPN 5 5 10/1/97
Raleigh-Durham,
North Carolina ............ 30 WLFL O&O 22 FOX 7 3 12/1/04
WRDC LMA 28 UPN 5 12/1/04
Milwaukee, Wisconsin ...... 31 WCGV O&O 24 UPN 6 4 12/1/97
WVTV LMA 18 WB 5 12/1/97
Kansas City, Missouri ...... 32 KSMO O&O 62 UPN 7 5 2/1/98
Columbus, Ohio ............ 34 WTTE O&O 28 FOX 5 4 10/1/97
Asheville, North Carolina
and Greenville/Spartanburg/
Anderson, South Carolina... 35 WFBC LMA(g) 40 IND(i) 6 5 12/1/04
WLOS LMA(e) 13 ABC 6 3 12/0/04
San Antonio, Texas ......... 37 KABB LMA(e) 29 FOX 7 4 8/1/98
KRRT LMA(h) 35 UPN 6 8/1/98
Norfolk, Virginia ......... 40 WTVZ O&O 33 FOX 6 4 10/1/04
Oklahoma City, Oklahoma .... 43 KOCB O&O 34 UPN 7 5 6/1/98
Birmingham, Alabama ...... 51 WTTO O&O 21 WB 5 4 4/1/05
WABM LMA 68 UPN 5 4/1/05
Flint/Saginaw/Bay City,
Michigan .................. 60 WSMH O&O 66 FOX 5 4 10/1/97
Las Vegas, Nevada ......... 64 KUPN O&O 21 UPN 8 5 10/1/98
Lexington, Kentucky ...... 68 WDKY O&O 56 FOX 5 4 8/1/97
Des Moines, Iowa ......... 72 KDSM O&O 17 FOX 4 4 2/1/98
Peoria/Bloomington,
Illinois .................. 109 WYZZ O&O 43 FOX 4 4 12/1/97
Tuscaloosa, Alabama ...... 187 WDBB LMA 17 IND(i) 2 2 4/1/05
</TABLE>
- ----------
(a) Rankings are based on the relative size of a station's DMA among the 211
generally recognized DMAs in the United States as estimated by Nielsen.
(b) "O&O" refers to stations owned and operated by the Company, "LMA" refers to
stations to which the Company provides programming services pursuant to an
LMA and "Pending" refers to stations the Company has agreed to acquire. See
"1997 Acquisitions."
(c) Represents the number of television stations designated by Nielsen as
"local" to the DMA, excluding public television stations and stations which
do not meet the minimum Nielsen reporting standards (weekly cumulative
audience of at least 2.5%) for the Sunday- Saturday, 6:00 a.m. to 2:00 a.m.
time period.
(Footnotes continued on following page)
3
<PAGE>
(d) The rank of each station in its market is based upon the November 1996
Nielsen estimates of the percentage of persons tuned to each station in the
market from 6:00 a.m. to 2:00 a.m., Sunday-Saturday.
(e) Non-License Assets acquired from River City Broadcasting, L.P. ("River
City") and option exercised to acquire License Assets will become owned and
operated upon FCC approval of transfer of License Assets and closing of
acquisition of License Assets.
(f) WTTK currently simulcasts all of the programming aired on WTTV and the
station rank applies to the combined viewership of these stations.
(g) Non-License Assets acquired from River City. License Assets to be acquired
by Glencairn, Ltd., subject to the Company's LMA, upon FCC approval of
transfer of License Assets.
(h) River City provided programming to this station pursuant to an LMA. The
Company acquired River City's rights under the LMA from River City and the
Non-License Assets from the owners of this station. The License Assets are
to be transferred to Glencairn upon FCC approval of transfer of the License
Assets.
(i) "IND" or "Independent" refers to a station that is not affiliated with any
of ABC, CBS, NBC, Fox, UPN or Warner Brothers.
Operating Strategy
The Company's television operating strategy includes the following key
elements.
Attracting Viewership
Popular Programming. The Company believes that an important factor in
attracting viewership to its stations is their network affiliations with Fox,
UPN, ABC, CBS and WB. These affiliations enable the Company to attract viewers
by virtue of the quality first-run original programming provided by these
networks and the networks' promotion of such programming. The Company also seeks
to obtain, at attractive prices, popular syndicated programming that is
complementary to the station's network affiliation. Examples of popular
syndicated programming obtained by the Company for broadcast on its Fox, WB and
UPN affiliates and Independent stations are "Mad About You," "Frasier," "The
Simpsons," "Home Improvement" and "Seinfeld." In addition to network
programming, the Company's ABC and CBS affiliates broadcast news magazine, talk
show, and game show programming such as "Hard Copy," "Entertainment Tonight,"
"Regis and Kathie Lee," "Wheel of Fortune" and "Jeopardy."
Children's Programming. The Company seeks to be a leader in children's
programming in each of its respective DMAs. The Company's nationally recognized
"Kids Club" was the forerunner and model for the Fox network-wide marketing
efforts promoting children's programming. Sinclair carries the Fox Children's
Network ("FCN") and UPN's childrens' programming, both of which include
significant amounts of animated programming throughout the week. In those
markets where the Company owns or programs ABC or CBS affiliates, the Company
broadcasts those networks' animated programming during weekends. In addition to
this animated programming, the Company broadcasts other forms of children's
programming, which may be produced by the Company or by an affiliated network.
Counter-Programming. The Company's programming strategy on its Fox, UPN and
Independent stations also includes "counter-programming," which consists of
broadcasting programs that are alternatives to the types of programs being shown
concurrently on competing stations. This strategy is designed to attract
additional audience share in demographic groups not served by concurrent
programming on competing stations. The Company believes that implementation of
this strategy enables its stations to achieve competitive rankings in households
in the 18-49 and 25-54 demographics and to offer greater diversity of
programming in each of its DMAs.
Local News. The Company believes that the production and broadcasting of
local news can be an important link to the community and an aid to the station's
efforts to expand its viewership. In addition, local news programming can
provide access to advertising sources targeted specifically to local news. The
Company carefully assesses the anticipated benefits and costs of producing local
news prior to introduction at a Company station because a significant investment
in capital equipment is required and substantial operating expenses are incurred
in introducing, developing and producing local news programming. The Company
currently provides local news programming at WBFF in Baltimore, WLFL in
Raleigh/Durham, KDNL in St. Louis, KABB in San Antonio, KOVR in Sacramento, WPGH
in Pittsburgh and WLOS in Asheville. The Company also broadcasts news programs
on WDKY in Lexington, which are produced in part by the Company and in part
through the purchase of production services from an independent third party and
on
4
<PAGE>
WTTV in Indianapolis, which are produced by a third party in exchange for a
limited number of advertising spots. River City provides the Company news
production services with respect to the production of news programming and on
air talent on WTTE. Pursuant to an agreement, River City provides certain
services to the Company in return for a fee equal to approximately $416,000 per
year. The possible introduction of local news at the other Company stations is
reviewed periodically. The Company's policy is to institute local news
programming at a specific station only if the expected benefits of local news
programming at the station are believed to exceed the associated costs after an
appropriate start-up period.
Popular Sporting Events. The Company attempts to capture a portion of
advertising dollars designated to sports programming in selected DMAs. The
Company's independent and UPN affiliated stations generally face fewer
restrictions on broadcasting live local sporting events than do their
competitors that are affiliates of the major networks and Fox since affiliates
of the major networks and Fox are subject to prohibitions against preemptions of
network programming. The Company has been able to acquire the local television
broadcast rights for certain sporting events, such as NBA basketball, Major
League Baseball, NFL football, NHL hockey, ACC basketball, Big Ten football and
basketball, and SEC football. The Company seeks to expand its sports
broadcasting in DMAs as profitable opportunities arise. In addition, the
Company's stations that are affiliated with Fox broadcast certain Major League
Baseball games, NFL football games and NHL hockey games.
Innovative Local Sales and Marketing
The Company believes that it is able to attract new advertisers to its
stations and increase its share of existing customers' advertising budgets by
creating a sense of partnership with those advertisers. The Company develops
such relationships by training its sales forces to offer new marketing ideas and
campaigns to advertisers. These campaigns often involve the sponsorship by
advertisers of local promotional events that capitalize on the station's local
identity and programming franchises. For example, several of the Company's
stations stage local "Kids Fairs" which allow station advertisers to reinforce
their on-air advertising with their target audience. Through its strong local
sales and marketing focus, the Company seeks to capture an increasing share of
its revenues from local sources, which are generally more stable than national
advertising.
Control of Operating and Programming Costs
By employing a disciplined approach to managing programming acquisition and
other costs, the Company has been able to achieve operating margins that the
Company believes are among the highest in the television broadcast industry. The
Company has sought in the past and will continue to seek to acquire quality
programming for prices at or below prices paid in the past. As an owner or
provider of programming services to 29 stations in 21 DMAs reaching
approximately 15% of U.S. television households, the Company believes that it is
able to negotiate favorable terms for the acquisition of programming. Moreover,
the Company emphasizes control of each of its stations' programming and
operating costs through program-specific profit analysis, detailed budgeting,
tight control over staffing levels and detailed long-term planning models.
Attract and Retain High Quality Management
The Company believes that much of its success is due to its ability to
attract and retain highly skilled and motivated managers, both at the corporate
and local station levels. A portion of the compensation provided to general
managers, sales managers and other station managers is based on their achieving
certain operating results. The Company also provides its corporate and station
managers with deferred compensation plans offering options to acquire Class A
Common Stock.
Community Involvement
Each of the Company's stations actively participates in various community
activities and offers many community services. The Company's activities include
broadcasting programming of local interest and sponsorship of community and
charitable events. The Company also encourages its station employees to become
active members of their communities and to promote involvement in community and
charitable affairs. The Company believes that active community involvement by
its stations provides its stations with increased exposure in their respective
DMAs and ultimately increases viewership and advertising support.
5
<PAGE>
Establish LMAs
The Company believes that it can attain significant growth in operating
cash flow through the utilization of LMAs. By expanding its presence in a market
in which it owns a station, the Company can improve its competitive position
with respect to a demographic sector. In addition, by providing programming
services to an additional station in a market, the Company is able to realize
significant economies of scale in marketing, programming, overhead and capital
expenditures. The Company provides programming services pursuant to an LMA to an
additional station in seven of the 21 television markets in which the Company
owns or programs a station.
Programming and Affiliations
The Company continually reviews its existing programming inventory and
seeks to purchase the most profitable and cost-effective syndicated programs
available for each time period. In developing its selection of syndicated
programming, the Company balances the cost of available syndicated programs with
their potential to increase advertising revenue and the risk of their reduced
popularity during the term of the program contract. The Company seeks to
purchase only those programs with contractual periods that permit programming
flexibility and which complement a station's overall programming strategy and
counter-programming strategy. Programs that can perform successfully in more
than one time period are more attractive due to the long lead time and
multi-year commitments inherent in program purchasing.
Twenty-seven of the 29 television stations owned or provided programming
services by the Company operate as affiliates of Fox (ten stations), UPN (twelve
stations), ABC (two stations), WB (two stations) or CBS (one station). The
networks produce and distribute programming in exchange for each station's
commitment to air the programming at specified times and for commercial
announcement time during the programming. In addition, networks other than Fox
and UPN pay each affiliated station a fee for each network-sponsored program
broadcast by the stations.
On August 21, 1996, the Company entered into an agreement with Fox (the
"Fox Agreement") which, among other things, provides that the affiliation
agreements between Fox and eight stations owned or provided programming services
by the Company (except as noted below) would be amended to have new five-year
terms commencing on the date of the Fox Agreement. Fox has the option to extend
the affiliation agreements for an additional five-year term and must extend all
of the affiliation agreements if it extends any (except that Fox may selectively
renew affiliation agreements if any station has breached its affiliation
agreement). The Fox Agreement also provides that the Company will have the right
to purchase, for fair market value, any station Fox acquires in a market
currently served by a Company owned Fox affiliate (other than the Norfolk and
Raleigh-Durham markets) if Fox determines to terminate the affiliation agreement
with the Company's station in that market and operate the station acquired by
Fox as a Fox affiliate. The agreement confirmed that the affiliation agreement
for WTTO (Birmingham, Alabama) would terminate on September 1, 1996, and that
affiliation agreements for WTVZ (Norfolk, Virginia) and WLFL (Raleigh, North
Carolina) will terminate August 31, 1998. The Fox Agreement also includes
provisions limiting the ability of the Company to preempt Fox programming except
where it has existing programming conflicts or where the Company preempts to
serve a public purpose.
The Company's affiliation agreements with ABC for KDNL and WLOS in St.
Louis and Asheville, respectively, have 10-year terms expiring in 2005 and 2004,
respectively. Each of the Company's UPN affiliation agreements is for three
years, and expires in January 1998.
Each of the affiliation agreements relating to stations involved in the
River City Acquisition (other than River City's Fox and ABC affiliates) is
terminable by the network upon transfer of the License Assets of the station.
RADIO BROADCASTING
The following table sets forth certain information regarding the radio
stations (i) programmed by the Company, (ii) with which the Company has JSAs, or
(iii) which the Company has an option to acquire.
6
<PAGE>
<TABLE>
<CAPTION>
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S STATION PRIMARY IN PRIMARY DATE OF
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC FCC
SERVED(a) REVENUE(b) FORMAT TARGET(c) TARGET(d) LICENSE
- ---------------- ------------ --------------------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Los Angeles 2
KBLA-AM(e) Korean NA N/A 12/1/97
St. Louis 17
KPNT-FM Alternative Rock Adults 18-34 4 2/1/05
WVRV-FM Modern Adult Contemporary Adults 18-34 7 12/1/04
New Orleans 38
WLMG-FM Adult Contemporary Women 25-54 2 6/1/04
KMEZ-FM Urban Oldies Women 25-54 6 6/1/04
WWL-AM News/Talk/Sports Adults 35-64 1 6/1/04
WSMB-AM Talk/Sports Adults 35-64 19 6/1/04
Buffalo 40
WMJQ-FM Adult Contemporary Women 25-54 2 6/1/98
WKSE-FM Contemporary Hit Radio Women 18-49 1 6/1/98
WBEN-AM News/Talk/Sports Adults 35-64 1 6/1/98
WWKB-AM Country Adults 35-64 16 6/1/98
WGR-AM Sports Adults 25-54 10 6/1/98
WWWS-AM Urban Oldies Women 25-54 12 6/1/98
Memphis 43
WRVR-FM Soft Adult Contemporary Women 25-54 3 8/1/04
WJCE-AM Urban Oldies Women 25-54 11 8/1/04
WOGY-FM Country Adults 25-54 10 8/1/04
Nashville 44
WLAC-FM Adult Contemporary Women 25-54 6 8/1/04
WJZC-FM Smooth Jazz Women 25-54 9 8/1/04
WLAC-AM News/Talk/Sports Adults 35-64 11 8/1/04
Greenville/
Spartanburg 59
WFBC-FM(g) Contemporary Hit Radio Women 18-49 6 12/1/03
WORD-AM(g) News/Talk Adults 35-64 9 12/1/03
WFBC-AM(g) News/Talk Adults 35-64 9 12/1/03
WSPA-AM(g) Full Service/Talk Adults 35-64 15 12/1/03
WSPA-FM(g) Soft Adult Contemporary Women 25-54 2 12/1/03
WOLI-FM(g)(h) Oldies Adults 25-54 9 12/1/03
WOLT-FM(g)(i) Oldies Adults 25-54 10 12/1/03
Wilkes-Barre/
Scranton 61
WKRZ-FM(n) Contemporary Hit Radio Adults 18-49 1 8/1/98
WGGY-FM Country Adults 25-54 3 8/1/98
WILK-AM(j) News/Talk/Sports Adults 35-64 6 8/1/98
WGBI-AM(j) News/Talk/Sports Adults 35-64 31 8/1/98
WWSH-FM(f) Soft Hits Women 25-54 7 8/1/98
WILP-AM News/Talk/Sports Adults 35-64 31 8/1/98
WWFH-FM(l) Soft Hits Women 25-54 17 8/1/98
WKRF-FM(m)(n) Contemporary Hit Radio Adults 18-49 26 8/1/98
</TABLE>
(Footnotes on following page)
7
<PAGE>
- ----------
(a) Actual city of license may differ from the geographic market served.
(b) Ranking of the principal radio market served by the station among all U.S.
radio markets by 1995 aggregate gross radio broadcast revenue according to
1996 Broadcasting & Cable Yearbook.
(c) Due to variations that may exist within programming formats, the primary
demographic target of stations with the same programming format may be
different.
(d) All information concerning ratings and audience listening information is
derived from the Fall 1996 Arbitron Metro Area Ratings Survey (the "Fall
1996 Arbitron"). Arbitron is the generally accepted industry source for
statistical information concerning audience ratings. Due to the nature of
listener surveys, other radio ratings services may report different
rankings; however, the Company does not believe that any radio ratings
service other than Arbitron is accorded significant weight in the radio
broadcast industry. "Station Rank in Primary Demographic Target" is the
ranking of the station among all radio stations in its market that are
ranked in its target demographic group and is based on the station's
average persons share in the primary demographic target in the applicable
Metro Survey Area. Source: Average Quarter Hour Estimates, Monday through
Sunday, 6:00 a.m. to midnight, Fall 1996 Arbitron.
(e) Programming is provided to this station by a third party pursuant to an
LMA.
(f) The Company has agreed to acquire this station, subject to FCC approval of
the transfer of the related licenses.
(g) The Company has an option to acquire Keymarket of South Carolina, Inc.,
("Keymarket"). Keymarket owns and operates WFBC-AM, WORD-AM and WFBC-FM,
has an option to acquire and provides programming services pursuant to an
LMA to WSPA-AM and WSPA-FM, and provides sales services pursuant to a JSA
and has an option to acquire WOLI-FM and WOLT-FM.
(h) WOLI-FM was formerly WXWX-FM.
(i) WOLT-FM was formerly WXWZ-FM.
(j) WILK-AM and WGBI-AM simulcast their programming.
(k) WILP-AM was formerly WXPX-AM.
(l) WWFH-FM was formerly WQEQ-FM.
(m) The FCC has approved the acquisition of this station.
(n) WKRZ-FM and WKRF-FM simulcast their programming.
Radio Operating Strategy
The Company's radio strategy is to operate a cluster of radio stations in
each of a variety of geographic markets throughout the country. In each
geographic market, the Company employs broadly diversified programming formats
to appeal to a variety of demographic groups within the market. The Company
seeks to strengthen the identity of each of its stations through its programming
and promotional efforts, and emphasizes that identity to a far greater degree
than the identity of any local radio personality.
The Company believes that its strategy of appealing to diverse demographic
groups in a variety of geographic markets allows it to reach a larger share of
the overall advertising market while realizing economies of scale and avoiding
dependence on one demographic or geographic market. The Company realizes
economies of scale by combining sales and marketing forces, back office
operations and general management in each geographic market. At the same time,
the geographic diversity of its portfolio of radio stations helps lessen the
potential impact of economic downturns in specific markets and the diversity of
target audiences served helps lessen the impact of changes in listening
preferences. In addition, the geographic and demographic diversity allows the
Company to avoid dependence on any one or any small group of advertisers.
The Company's group of radio stations includes the top billing station
group in two markets and one of the top three billing station groups in each of
its markets other than Los Angeles, St. Louis and Nashville. Through ownership
or LMAs, the group also includes duopolies in six of its seven markets and, upon
exercise of options to acquire stations in the Greenville/Spartanburg market,
the Company will have duopolies in seven of its eight markets.
8
<PAGE>
Depending on the programming format of a particular station, there are a
predetermined number of advertisements broadcast each hour. The Company
determines the optimum number of advertisements available for sale during each
hour without jeopardizing listening levels (and the resulting ratings). Although
there may be shifts from time to time in the number of advertisements available
for sale during a particular time of day, the total number of advertisements
available for sale on a particular station normally does not vary significantly.
Any change in net radio broadcasting revenue, with the exception of those
instances where stations are acquired or sold, is generally the result of
pricing adjustments made to ensure that the station effectively uses advertising
time available for sale, an increase in the number of commercials sold or a
combination of these two factors.
Large, well-trained local sales forces are maintained by the Company in
each of its radio markets. The Company's principal goal in its sales efforts is
to develop long-standing customer relationships through frequent direct
contacts, which the Company believes provides it with a competitive advantage.
Additionally, in some radio markets, duopolies permit the Company to offer
creative advertising packages to local, regional and national advertisers. Each
radio station programmed by the Company also engages a national independent
sales representative to assist it in obtaining national advertising revenues.
These representatives obtain advertising through national advertising agencies
and receive a commission from the radio station based on its gross revenue from
the advertising obtained.
BROADCASTING ACQUISITION STRATEGY
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
was signed into law. The 1996 Act represents the most sweeping overhaul of the
country's telecommunications laws since the Communications Act of 1934, as
amended (the "Communications Act"). The 1996 Act relaxes the broadcast ownership
rules and simplifies the process for renewal of broadcast station licenses.
The Company believes that the enactment of the 1996 Act presents a unique
opportunity to build a larger and more diversified broadcasting company.
Additionally, the Company expects that the opportunity to act as one of the
consolidators of the industry will enable the Company to gain additional
influence with program suppliers, television networks, other vendors, and
alternative delivery media. The Company also believes that the additions to its
management team as a result of the River City Acquisition will give it
additional resources to take advantage of these developments.
In implementing its acquisition strategy, the Company seeks to identify and
pursue favorable station or group acquisition opportunities primarily in the
15th to 75th largest DMAs and Metro Service Areas ("MSAs"). In assessing
potential acquisitions, the Company examines opportunities to improve revenue
share, audience share and/or cost control. Additional factors considered by the
Company in a potential acquisition include geographic location, demographic
characteristics and competitive dynamics of the market.
In furtherance of its acquisition strategy, the Company routinely reviews,
and conducts investigations of, potential television and radio station
acquisitions. When the Company believes a favorable opportunity exists, the
Company seeks to enter into discussions with the owners of such stations
regarding the possibility of an acquisition by the Company. At any given time,
the Company may be in discussions with one or more such station owners.
Since the 1996 Act became effective, the Company has acquired, obtained
options to acquire or has acquired the right to program or provide sales
services to 17 television and 33 radio stations for an aggregate consideration
of approximately $1.3 billion. Certain terms of these acquisitions are described
below.
River City Acquisition. On May 31, 1996, pursuant to an amended and
restated asset purchase agreement, the Company acquired all of the Non-License
Assets of River City other than the assets relating to WSYX-TV in Columbus,
Ohio. Simultaneously, the Company entered into a 10-year LMA with River City
with respect to all of River City's License Assets (with the exception of the
License Assets relating to WSYX) and was granted: (i) a 10-year option (the
"License Assets Option") to acquire River City's License Assets (with the
exception of the License Assets relating to WSYX); and (ii) a three-year option
to acquire the assets relating to WSYX-TV (both the License and Non-License
9
<PAGE>
Assets, collectively the "Columbus Option"). The exercise price for the License
Assets Option is $20 million and the Company is required to pay a quarterly
extension fee with respect to the License Assets Option as follows: (1) 8% of
$20 million for the first year following the closing of the River City
Acquisition; (2) 15% of $20 million for the second year following such closing;
and (3) 25% of $20 million for each following year. The Non-License Assets
acquired from River City relate to eight television stations and 21 radio
stations owned and operated by River City. In addition, the Company acquired
from another party the Non-License Assets relating to one additional television
station (KRRT) to which River City provided programming pursuant to an LMA. The
Company assigned its option to acquire the License Assets of one television
station (WFBC) to Glencairn, and Glencairn also acquired the option to acquire
the License Assets of KRRT. The Company also acquired River City's rights under
LMAs with respect to KRRT and four radio stations to which River City provided
programming or sales services. The Company has exercised the License Assets
Option and has acquired the License Assets of three of the television stations
and all of the radio stations. Acquisition of the remaining License Assets is
now subject to FCC approval of transfer of such License Assets. There can be no
assurance that this approval will be obtained. Applications for transfer of the
License Assets were filed in July and August 1996, except application for
transfer of the License Assets relating to WTTV and WTTK which was filed in
November 1996.
The Company paid an aggregate of approximately $1.0 billion for the
Non-License Assets and the License Assets Option consisting of $847.6 million in
cash and 1,150,000 shares of Series A Convertible Preferred Stock of the Company
and 1,382,435 stock options. The Series A Convertible Preferred Stock has been
exchanged for 1,150,000 shares of Series B Convertible Preferred Stock of the
Company, which at issuance had an aggregate liquidation value of $115 million,
and are convertible at any time, at the option of the holders, into an aggregate
of 4,181,818 shares of Class A Common Stock of the Company (which had a market
value on May 31, 1996 of approximately $125.1 million). The exercise price for
the Columbus Option is approximately $130 million plus the amount of
indebtedness secured by the WSYX assets on the date of exercise (not to exceed
the amount outstanding on the date of closing of $105 million) and the Company
is required to pay an extension fee with respect to the Columbus Option as
follows: (1) 8% of $130 million for the first year following the closing of the
River City Acquisition; (2) 15% of $130 million for the second year following
the closing; and (3) 25% of $130 million for each following year. The extension
fee accrues beginning on the date of closing, and is payable (beginning December
31, 1996) at the end of each calendar quarter until such time as the option is
exercised or River City sells WSYX to a third party. The Company paid the
extension fee due March 31, 1997. Pursuant to the LMAs with River City and the
owner of KRRT, the Company is required to provide at least 166 hours per week of
programming to each television and radio station and, subject to certain
exceptions, River City and the owner of KRRT are required to broadcast all
programming provided by the Company. The Company is required to pay River City
and the owner of KRRT monthly fees under the LMAs in an amount sufficient to
cover specified expenses of operating the stations, which are currently
approximately $150,000 per month for all River City television and radio
stations the Company programs (including KRRT). The Company has the right to
sell advertising time on the stations during the hours programmed by the
Company.
The Company and River City filed notification under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with respect to
the Company's acquisition of all River City assets prior to closing the
acquisition. After the United States Justice Department ("DOJ") indicated that
it would request additional information regarding the antitrust implications of
the acquisition of WSYX by the Company in light of the Company's ownership of
WTTE, the Company and River City agreed to submit separate notifications with
respect to the WSYX assets and the other River City assets. The DOJ then granted
early termination of the waiting period with respect to the transfer of the
River City assets other than WSYX, permitting the acquisition of those assets to
proceed. The Company and River City agreed to notify the DOJ 30 days before
entering into an LMA or similar agreement with respect to WSYX and agreed not to
enter into such an agreement until 20 days after substantially complying with
any request for information from DOJ regarding the transaction. The Company is
in the process of preparing a submission to the DOJ regarding the competitive
effects of entering into an LMA arrangement in Columbus. The Company has agreed
to sell the License Assets of WTTE to Glencairn and to enter into an LMA with
Glencairn to provide programming services to WTTE. The FCC has
10
<PAGE>
approved this transaction, but the Company does not believe that this
transaction will be completed unless the Company acquires WSYX.
In the River City Acquisition, the Company also acquired an option held by
River City to purchase either (i) all of the assets of Keymarket of South
Carolina, Inc. ("KSC") for the forgiveness of debt held by the Company in an
aggregate principal amount of approximately $7.4 million as of August 22, 1996,
plus payment of approximately $1,000,000 less certain adjustments or (ii) all of
the stock of KSC for $1,000,000 less certain adjustments. KSC owns and operates
three radio stations in the Greenville/ Spartanburg, South Carolina MSA
(WFBC-FM, WFBC-AM and WORD-AM). The options to acquire the assets and stock of
KSC expire on December 31, 1997. KSC also holds an option to acquire from
Spartan Radiocasting, Inc. certain assets relating to two additional stations
(WSPA-AM and WSPA-FM) in the Greenville/Spartanburg MSA and which KSC currently
programs pursuant to an LMA. KSC's option to acquire these assets is exercisable
for $5.15 million and expires in January 2000, subject to extension to the
extent the applicable LMA is extended beyond that date. KSC also has an option
to acquire assets of Palm Broadcasting Company, L.P., which owns two additional
stations in the Greenville/Spartanburg MSA (WOLI-FM and WOLT-FM) in an amount
equal to the outstanding debt of Palm Broadcasting Company, L.P. to the Company,
which was approximately $3.03 million as of March 31, 1997. This option expires
in April 2001. KSC has a JSA with Palm Broadcasting Company, L.P., but does not
provide programming for WOLI or WOLT.
Superior Acquisition. On May 8, 1996, the Company acquired WDKY-TV
(Lexington, Kentucky) and KOCB-TV (Oklahoma City, Oklahoma) by acquiring the
stock of Superior Communications Group, Inc. for approximately $63.5 million.
Flint Acquisition. On February 27, 1996 the Company acquired the assets of
WSMH-TV (Flint, Michigan) for approximately $35.8 million by exercising options
granted in 1995.
Cincinnati/Kansas City Acquisitions. On July 1, 1996, the Company acquired
the assets of KSMO-TV (Kansas City, Missouri) and on August 1, 1996, it acquired
the assets of WSTR-TV (Cincinnati, Ohio) for approximately $34.2 million.
Peoria/Bloomington Acquisition. On July 1, 1996, the Company acquired the
assets of WYZZ-TV (Peoria/Bloomington, Illinois) for approximately $21.2
million.
1997 ACQUISITIONS
Since the end of 1996, the Company has entered into agreements to acquire
one television station and four radio stations, and has completed the
acquisition of four television stations and six radio stations. On January 30,
1997, the Company entered into an agreement to acquire the assets of KUPN-TV,
the UPN affiliate in Las Vegas, Nevada, for $87.0 million. The Company completed
this acquisition on May 30, 1997. The Company also entered into an agreement on
January 29, 1997 to acquire the assets of WGR-AM and WWWS-AM in Buffalo, New
York, for $1.5 million. The Company's acquisition of WGR-AM and WWWS-AM was
consummated on April 18, 1997. On January 31, 1997, the Company completed the
acquisition of the assets of WWFH-FM and WILP-AM, each in Wilkes-Barre,
Pennsylvania, for aggregate consideration of approximately $773,000. On April
22, 1997, the Company consummated its acquisition of the License Assets of
KOVR-TV in Sacramento, California, and KDSM-TV in Des Moines, Iowa, and on May
16, 1997, consummated its acquisition of the License Assets of KDNL-TV, WVRV-FM
and KPNT-FM in St. Louis, Missouri. The Company obtained the options pursuant to
which it acquired these assets in the River City Acquisition. On March 12, 1997,
the Company entered into an agreement to acquire the assets of radio station
WKRF-FM in the Wilkes-Barre/Scranton, Pennsylvania market. The FCC has approved
this acquisition. In April 1997, the Company entered into an agreement to
acquire the assets of radio station WWSH-FM in the Wilkes-Barre/Scranton market.
LOCAL MARKETING AGREEMENTS
The Company generally enters into LMAs and similar arrangements with
stations located in markets in which the Company already owns and operates a
station, and in connection with acquisitions, pending regulatory approval of
transfer of License Assets. Under the terms of the LMAs the Company
11
<PAGE>
makes specified periodic payments to the owner-operator in exchange for the
grant to the Company of the right to program and sell advertising on a specified
portion of the station's inventory of broadcast time. Nevertheless, as the
holder of the FCC license, the owner-operator retains full control and
responsibility for the operation of the station, including control over all
programming broadcast on the station.
The Company currently has LMA arrangements with stations in five markets in
which it owns a television station: Pittsburgh, Pennsylvania (WPTT), Baltimore,
Maryland (WNUV), Raleigh/Durham, North Carolina (WRDC), Milwaukee, Wisconsin
(WVTV) and Birmingham, Alabama (WABM). The Company also has LMA arrangements in
two markets (San Antonio and Asheville/Greenville/Spartanburg) in which the
Company will own a station upon completion of the acquisition of License Assets
from River City. In addition, the Company has an LMA arrangement with a station
in the Tuscaloosa, Alabama market (WDBB), which is adjacent to Birmingham. In
each of these markets, other than Pittsburgh and Tuscaloosa, the LMA arrangement
is (or will be after transfer of License Assets from River City) with Glencairn
and the Company owns the Non-License Assets of the stations. The Company owns
the assets of one radio station (KBLA-AM in Los Angeles) which an independent
third party programs pursuant to an LMA.
The Company believes that it is able to increase its revenues and improve
its margins by providing programming services to stations in selected DMAs and
MSAs where the Company already owns a station. In certain instances, single
station operators and stations operated by smaller ownership groups do not have
the management expertise or the operating efficiencies available to the Company
as a multi-station broadcaster. The Company seeks to identify such stations in
selected markets and to provide such stations with programming services pursuant
to LMAs. In addition to providing the Company with additional revenue
opportunities, the Company believes that these LMA arrangements have assisted
certain stations whose operations may have been marginally profitable to
continue to air popular programming and contribute to diversity of programming
in their respective DMAs and MSAs.
In cases where the Company enters into LMA arrangements in connection with
a station whose acquisition by the Company is pending FCC approval, the Company
(i) obtains an option to acquire the station assets essential for broadcasting a
television or radio signal in compliance with regulatory guidelines, generally
consisting of the FCC license, transmitter, transmission lines, technical
equipment, call letters and trademarks, and certain furniture, fixtures and
equipment (the "License Assets") and (ii) acquires the remaining assets (the
"Non-License Assets") at the time it enters into the option. Following
acquisition of the Non-License Assets, the License Assets continue to be owned
by the owner-operator and holder of the FCC license, which enters into an LMA
with the Company. After FCC approval for transfer of the License Assets is
obtained, the Company exercises its option to acquire the License Assets and
become the owner-operator of the station, and the LMA arrangement is terminated.
In connection with the River City Acquisition, the Company entered into
LMAs with River City and the owner of KRRT with respect to each of the nine
television (including KDSM-TV) and 21 radio stations with respect to which the
Company acquired Non-License Assets. The LMAs are for a ten-year term, which
corresponds with the term of the option the Company holds to acquire the related
River City License Assets. Pursuant to the LMAs, the Company pays River City and
the owner of KRRT fees in return for which the Company acquires all of the
inventory of broadcast time of the stations and the right to sell 100% of each
station's inventory of advertising time. The Company has filed applications with
respect to the transfer of the License Assets of seven of the nine television
stations and the 21 radio stations with respect to which the Company acquired
Non-License Assets in the River City Acquisition. Such applications have been
granted with respect to three of the seven television stations and all 21 radio
stations, and the Company has acquired the license assets of the three
television stations and all 21 of the radio stations. Upon grant of FCC approval
of the transfer of License Assets with respect to the remaining stations, the
Company intends to acquire the License Assets, and thereafter the LMAs will
terminate and the Company will operate the stations. With respect to the
remaining two television stations, Glencairn has applied for transfer of the
License Assets of these stations, and the Company intends to program these
stations under LMAs with Glencairn upon FCC approval of the transfer of the
License Assets to Glencairn. Petitions to deny or informal objections have been
filed against these applications by third parties. The Company has requested the
FCC to withhold action on the applications for the Company's acquisition of WTTV
and WTTK in Indianapolis (and a pending application for
12
<PAGE>
the Controlling Stockholders to divest their attributable interests in WIIB in
Indianapolis) until the FCC completes its pending rulemaking proceeding
considering the cross-interest policy.
In addition to its LMAs, the Company sells commercial air time for (but
does not provide programming to) one radio station pursuant to a JSA in an MSA
in which it has interests in other radio stations. The Company has agreed to
acquire this station. Under the Company's JSA, the Company has obtained the
right, for a fee paid to the owner and operator of the station, to sell
substantially all of the commercial advertising on the station.
FEDERAL REGULATION OF TELEVISION AND RADIO BROADCASTING
The ownership, operation and sale of television and radio stations are
subject to the jurisdiction of the Federal Communications Commission ("FCC"),
which acts under authority granted by the Communications Act. Among other
things, the FCC assigns frequency bands for broadcasting; determines the
particular frequencies, locations and operating power of stations; issues,
renews, revokes and modifies station licenses; regulates equipment used by
stations; adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation and employment practices of stations;
and has the power to impose penalties for violations of its rules or the
Communications Act.
The following is a brief summary of certain provisions of the
Communications Act, the 1996 Act and specific FCC regulations and policies.
Reference should be made to the Communications Act, FCC rules and the public
notices and rulings of the FCC for further information concerning the nature and
extent of federal regulation of broadcast stations.
License Grant and Renewal. Television and radio stations operate pursuant
to broadcasting licenses that are granted by the FCC for maximum terms of eight
years.
Television and radio station licenses are subject to renewal upon
application to the FCC. During certain periods when renewal applications are
pending, competing applicants may file for the radio or television frequency
being used by the renewal applicant. During the same periods, petitions to deny
license renewal applications may be filed by interested parties, including
members of the public. Prior to the 1996 Act, the FCC was generally required to
hold hearings on renewal applications if a competing application against a
renewal application was filed, if the FCC was unable to determine that renewal
of a license would serve the public interest, convenience and necessity, or if a
petition to deny raised a "substantial and material question of fact" as to
whether the grant of the renewal application would be prima facie inconsistent
with the public interest, convenience and necessity.
The 1996 Act does not prohibit either the filing of petitions to deny
license renewals or the filing of competing applications. Under the 1996 Act,
the FCC is still required to hold hearings on renewal applications if it is
unable to determine that renewal of a license would serve the public interest,
convenience or necessity, or if a petition to deny raises a "substantial and
material question of fact" as to whether the grant of the renewal application
would be prima facie inconsistent with the public interest, convenience and
necessity. Pursuant to the 1996 Act, however, the FCC is prohibited from
considering competing applications for a renewal applicant's frequency, and is
required to grant the renewal application, if the FCC finds: (i) that the
station has served the public interest, convenience and necessity; (ii) that
there have been no serious violations by the licensee of the Communications Act
or the rules and regulations of the FCC; and (iii) there have been no other
violations by the licensee of the Communications Act or the rules and
regulations of the FCC that, when taken together, would constitute a pattern of
abuse.
All of the stations that the Company (i) owns and operates, (ii) intends to
acquire pursuant to the River City Acquisition and other acquisitions, (iii)
currently provides programming services to pursuant to an LMA, or (iv) currently
sells commercial air time on pursuant to a JSA, are presently operating under
regular licenses, which expire as to each station on the dates set forth under
"Television Broadcasting" and "Radio Broadcasting," above. Although renewal of
license is granted in the vast majority of cases even when petitions to deny are
filed, there can be no assurance that the licenses of such stations will be
renewed.
13
<PAGE>
Ownership Matters
General
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including compliance with various rules
limiting common ownership of media properties, the "character" of the licensee
and those persons holding "attributable" interests therein, and compliance with
the Communications Act's limitations on alien ownership.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, appropriate applications must be filed with the
FCC. If the application involves a "substantial change" in ownership or control,
the application must be placed on public notice for a period of approximately 30
days during which petitions to deny the application may be filed by interested
parties, including members of the public. If the application does not involve a
"substantial change" in ownership or control, it is a "pro forma" application.
The "pro forma" application is nevertheless subject to having informal
objections filed against it. If the FCC grants an assignment or transfer
application, interested parties have approximately 30 days from public notice of
the grant to seek reconsideration of that grant. Generally, parties that do not
file initial petitions to deny or informal objections against the application
face difficulty in seeking reconsideration of the grant. The FCC normally has
approximately an additional 10 days to set aside such grant on its own motion.
When passing on an assignment or transfer application, the FCC is prohibited
from considering whether the public interest might be served by an assignment or
transfer to any party other than the assignee or transferee specified in the
application.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding, or through subsidiaries controlling, broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or 10%
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. The FCC has a pending rulemaking proceeding
that, among other things, seeks comment on whether the FCC should modify its
attribution rules by (i) raising the attribution stock benchmark from 5% to 10%;
(ii) raising the attribution stock benchmark for passive investors from 10% to
20%; (iii) restricting the availability of the single majority shareholder
exemption; and (iv) attributing certain interests such as non-voting stock, debt
and certain holdings by limited liability corporations in certain circumstances.
More recently, the FCC has solicited comment on proposed rules that would (i)
treat an otherwise nonattributable equity or debt interest in a licensee as an
attributable interest where the interest holder is a program supplier or the
owner of a broadcast station in the same market and the equity and/or debt
holding is greater than a specified benchmark; (ii) treat a licensee of a
television station which, under an LMA, brokers more than 15% of the time on
another television station serving the same market, as having an attributable
interest in the brokered station; and (iii) in certain circumstances, treat the
licensee of a broadcast station that sells advertising time on another station
in the same market pursuant to a JSA as having an attributable interest in the
station whose advertising is being sold.
The Controlling Stockholders hold attributable interests in two entities
owning media properties, namely: Channel 63, Inc., licensee of WIIB-TV, a UHF
television station in Bloomington, Indiana, and Bay Television, Inc., licensee
of WTTA-TV, a UHF television station in St. Petersburg, Florida. All of the
issued and outstanding shares of Channel 63, Inc. are owned by the Controlling
Stockholders. All the issued and outstanding shares of Bay Television, Inc. are
owned by the Controlling Stockholders (75%) and Robert L. Simmons (25%), a
former stockholder of the Company. The Controlling Stockholders have agreed to
divest their attributable interests in Channel 63, Inc. and the Company believes
that, after doing so, such holdings will not materially restrict its ability to
acquire or program additional broadcast stations.
14
<PAGE>
Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the relationship. Under this
policy, the FCC may consider significant equity interests combined with an
attributable interest in a media outlet in the same market, joint ventures, and
common key employees among competitors. The cross-interest policy does not
necessarily prohibit all of these interests, but requires that the FCC consider
whether, in a particular market, the "meaningful" relationships between
competitors could have a significant adverse effect upon economic competition
and program diversity. Heretofore, the FCC has not applied its cross-interest
policy to LMAs and JSAs between broadcast stations. In its ongoing rulemaking
proceeding concerning the attribution rules, the FCC has sought comment on,
among other things, (i) whether the cross-interest policy should be applied only
in smaller markets, and (ii) whether non-equity financial relationships such as
debt, when combined with multiple business interrelationships such as LMAs and
JSAs, raise concerns under the cross-interest policy. Moreover, in its most
recent proposals in its ongoing attribution rulemaking proceeding, the FCC has
proposed treating television LMAs, JSAs, and debt or equity interests as
attributable interests in certain circumstances without regard to the
cross-interest policy.
The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of a broadcast license by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. The Company has been
advised that the FCC staff has interpreted this provision to require a finding
that such grant or holding would be in the public interest before a broadcast
license may be granted to or held by any such corporation and that the FCC staff
has made such a finding only in limited circumstances. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including partnerships. As a
result of these provisions, the licenses granted to subsidiaries of the Company
by the FCC could be revoked if, among other restrictions imposed by the FCC,
more than 25% of the Company's stock were directly or indirectly owned or voted
by Aliens. The Company and the Subsidiaries are domestic corporations, and the
Controlling Stockholders are all United States citizens. The Amended and
Restated Articles of Incorporation of the Company (the "Amended Certificate")
contain limitations on Alien ownership and control that are substantially
similar to those contained in the Communications Act. Pursuant to the Amended
Certificate, the Company has the right to repurchase Alien-owned shares at their
fair market value to the extent necessary, in the judgment of the Board of
Directors, to comply with the Alien ownership restrictions.
Television
National Ownership Rule. Prior to the 1996 Act, FCC rules generally
prohibited an individual or entity from having an attributable interest in more
than 12 television stations nationwide, or in television stations reaching more
than 25% of the national television viewing audience. Pursuant to the 1996 Act,
the FCC has modified its rules to eliminate any limitation on the number of
television stations an individual or entity may own nationwide, subject to the
restriction that no individual or entity may have an attributable interest in
television stations reaching more than 35% of the national television viewing
audience. Historically, VHF stations have shared a larger portion of the market
than UHF stations. Therefore, only half of the households in the market area of
any UHF station are included when calculating whether an entity or individual
owns television stations reaching more than 35% of the national television
viewing audience. All but three of the stations owned and operated by the
Company, or to which the Company provides programming services, are UHF.
Duopoly Rule. On a local level, the television "duopoly" rule generally
prohibits a single individual or entity from having an attributable interest in
two or more television stations with overlapping Grade B service areas. While
the 1996 Act has not eliminated the TV duopoly rule, it does direct the FCC to
initiate a rulemaking proceeding to determine whether to retain, modify, or
eliminate the rule. The FCC
15
<PAGE>
has pending a rulemaking proceeding in which it has proposed to modify the
television duopoly rule to permit the common ownership of television stations in
different DMAs, so long as the Grade A signal contours of the stations do not
overlap. Pending resolution of its rulemaking proceeding, the FCC has adopted an
interim waiver policy that permits the common ownership of television stations
in different DMAs with no overlapping Grade A signal contours, conditioned on
the final outcome of the rulemaking proceeding. The FCC has also sought comment
on whether common ownership of two television stations in a market should be
permitted (i) where one or more of the commonly owned stations is UHF, (ii)
where one of the stations is in bankruptcy or has been off the air for a
substantial period of time and (iii) where the commonly owned stations have very
small audience or advertising shares, are located in a very large market, and/or
a specified number of independently owned media voices would remain after the
acquisition.
Local Marketing Agreements. Over the past few years, a number of television
stations, including certain of the Company's stations, have entered into what
have commonly been referred to as LMAs. While these agreements may take varying
forms, pursuant to a typical LMA, separately owned and licensed television
stations agree to enter into cooperative arrangements of varying sorts, subject
to compliance with the requirements of antitrust laws and with the FCC's rules
and policies. Under these types of arrangements, separately-owned stations could
agree to function cooperatively in terms of programming, advertising sales,
etc., subject to the requirement that the licensee of each station shall
maintain independent control over the programming and operations of its own
station. One typical type of LMA is a programming agreement between two
separately-owned television stations serving a common service area, whereby the
licensee of one station programs substantial portions of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during such
program segments. Such arrangements are an extension of the concept of "time
brokerage" agreements, under which a licensee of a station sells blocks of time
on its station to an entity or entities which program the blocks of time and
which sell their own commercial advertising announcements during the time
periods in question. Over the past few years, the staff of the FCC's Mass Media
Bureau has held that LMAs are not contrary to the Communications Act, provided
that the licensee of the station which is being substantially programmed by
another entity maintains complete responsibility for and control over
programming and operations of its broadcast station and assures compliance with
applicable FCC rules and policies.
At present, FCC rules permit television station LMAs, and the licensee of a
television station brokering time on another television station is not
considered to have an attributable interest in the brokered station. However, in
connection with its ongoing rulemaking proceeding regarding the television
duopoly rule, the FCC has proposed to adopt rules providing that the licensee of
a television station which brokers more than 15% of the time on another
television station serving the same market would be deemed to have an
attributable interest in the brokered station for purposes of the national and
local multiple ownership rules. In connection with this proceeding, the FCC has
solicited detailed information from parties to television LMAs as to the terms
and characteristics of such LMAs.
The 1996 Act provides that nothing therein "shall be construed to prohibit
the origination, continuation, or renewal of any television local marketing
agreement that is in compliance with the regulations of the [FCC]." The
legislative history of the 1996 Act reflects that this provision was intended to
grandfather television LMAs that were in existence upon enactment of the 1996
Act, and to allow television LMAs consistent with the FCC's rules subsequent to
enactment of the 1996 Act. In its pending rulemaking proceeding regarding the
television duopoly rule, the FCC has proposed to adopt a grandfathering policy
providing that, in the event that television LMAs become attributable interests,
LMAs that are in compliance with existing FCC rules and policies and were
entered into before November 5, 1996, would be permitted to continue in force
until the original term of the LMA expires. Under the FCC's proposal, television
LMAs that are entered into or renewed after November 5, 1996 would have to be
terminated if LMAs are made attributable interests and the LMA in question
resulted in a violation of the television multiple ownership rules. The
Company's LMAs with television stations WPTT in Pittsburgh, Pennsylvania, WNUV
in Baltimore, Maryland, WVTV in Milwaukee, Wisconsin, WRDC in Raleigh/Durham,
North Carolina, WABM in Birmingham, Alabama, and WDBB in Tuscaloosa, Alabama,
were in existence on both the date of enactment of the 1996 Act and November 5,
1996. The
16
<PAGE>
Company's LMAs with television stations WTTV and WTTK in Indianapolis, Indiana,
WLOS in Asheville, North Carolina, WFBC in Greenville-Spartanburg, South
Carolina, and KABB in San Antonio, Texas, were entered into subsequent to the
date of enactment of the 1996 Act but prior to November 5, 1996. The Company's
LMA with television station KRRT in Kerrville, Texas was in existence on the
date of enactment of the 1996 Act, but was assumed by the Company subsequent to
that date but prior to November 5, 1996.
The TV duopoly rule currently prevents the Company from acquiring the
licenses of television stations with which it has LMAs in those markets where
the Company owns a television station. As a result, if the FCC were to decide
that the provider of programming services under a television LMA should be
treated as having an attributable interest in the brokered station, and if it
did not relax its television duopoly rule, the Company could be required to
modify or terminate those of its LMAs that were not in existence on the date of
enactment of the 1996 Act or on November 5, 1996. Furthermore, if the FCC adopts
its present proposal with respect to the grandfathering of television LMAs, the
Company could be required to terminate even those LMAs that were in effect prior
to the date of enactment of the 1996 Act or prior to November 5, 1996, after the
initial term of the LMA or upon assignment of the LMA. In such an event, the
Company could be required to pay termination penalties under certain of such
LMAs. Further, if the FCC were to find, in connection with any of the Company's
LMAs, that the owners/licensees of the stations with which the Company has LMAs
failed to maintain control over their operations as required by FCC rules and
policies, the licensee of the LMA station and/or the Company could be fined or
set for hearing, the outcome of which could be a monetary forfeiture or, under
certain circumstances, loss of the applicable FCC license. The Company is unable
to predict the ultimate outcome of possible changes to these FCC rules and the
impact such FCC rules may have on its broadcasting operations.
On June 1, 1995, the Chief of the FCC's Mass Media Bureau released a Public
Notice concerning the processing of television assignment and transfer of
control applications proposing LMAs. Due to the pendency of the ongoing
rulemaking proceeding concerning attribution of ownership, the Mass Media Bureau
has placed certain restrictions on the types of television assignment and
transfer of control applications involving LMAs that it will approve during the
pendency of the rulemaking. Specifically, the Mass Media Bureau has stated that
it will not approve arrangements where a time broker seeks to finance a station
acquisition and hold an option to purchase the station in the future. The
Company believes that none of the Company's LMAs fall within the ambit of this
Public Notice.
Radio
National Ownership Rule. Prior to the 1996 Act, the FCC's rules limited an
individual or entity from holding attributable interests in more than 20 AM and
20 FM radio stations nationwide. Pursuant to the 1996 Act, the FCC has modified
its rules to eliminate any limitation on the number of radio stations a single
individual or entity may own nationwide.
Local Ownership Rule. Prior to the 1996 Act, the FCC's rules generally
permitted an individual or entity to hold attributable interests in no more than
four radio stations in a local market (no more than two of which could be in the
same service (AM or FM)), and then only if the aggregate audience share of the
commonly owned stations did not exceed 25%. In markets with fewer than 15
commercial radio stations, an individual or entity could hold an attributable
interest in no more than three radio stations in the market (no more than two of
which could be in the same service), and then only if the number of the commonly
owned stations did not exceed 50% of the total number of commercial radio
stations in the market.
Pursuant to the 1996 Act, the limits on the number of radio stations one
entity may own locally have been increased as follows: (i) in a market with 45
or more commercial radio stations, an entity may own up to eight commercial
radio stations, not more than five of which are in the same service (AM or FM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio stations,
an entity may own up to seven commercial radio stations, not more than four of
which are in the same service; (iii) in a market with between 15 and 29
(inclusive) commercial radio stations, an entity may own up to six commercial
radio stations, not more than four of which are in the same service; and (iv) in
a market with 14 or fewer
17
<PAGE>
commercial radio stations, an entity may own up to five commercial radio
stations, not more than three of which are in the same service, except that an
entity may not own more than 50% of the stations in such market. These numerical
limits apply regardless of the aggregate audience share of the stations sought
to be commonly owned. FCC ownership rules continue to permit an entity to own
one FM and one AM station in a local market regardless of market size.
Irrespective of FCC rules governing radio ownership, however, the Department of
Justice and the Federal Trade Commission have the authority to determine, and in
certain recent radio transactions not involving the Company have determined,
that a particular transaction presents antitrust concerns.
Local Marketing Agreements. As in television, a number of radio stations
have entered into LMAs. The FCC's multiple ownership rules specifically permit
radio station LMAs to be entered into and implemented, so long as the licensee
of the station which is being programmed under the LMA maintains complete
responsibility for and control over programming and operations of its broadcast
station and assures compliance with applicable FCC rules and policies. For the
purposes of the multiple ownership rules, in general, a radio station being
programmed pursuant to an LMA by an entity is not considered an attributable
ownership interest of that entity unless that entity already owns a radio
station in the same market. However, a licensee that owns a radio station in a
market, and brokers more than 15% of the time on another station serving the
same market, is considered to have an attributable ownership interest in the
brokered station for purposes of the FCC's multiple ownership rules. As a
result, in a market in which the Company owns a radio station, the Company would
not be permitted to enter into an LMA with another local radio station which it
could not own under the local ownership rules, unless the Company's programming
constituted 15% or less of the other local station's programming time on a
weekly basis. The FCC's rules also prohibit a broadcast licensee from
simulcasting more than 25% of its programming on another station in the same
broadcast service (i.e., AM-AM or FM- FM) through a time brokerage or LMA
arrangement where the brokered and brokering stations serve substantially the
same area.
Joint Sales Agreements. Over the past few years, a number of radio (and
television) stations have entered into cooperative arrangements commonly known
as joint sales agreements, or JSAs. While these agreements may take varying
forms, under the typical JSA, a station licensee obtains, for a fee, the right
to sell substantially all of the commercial advertising on a separately-owned
and licensed station in the same market. The typical JSA also customarily
involves the provision by the selling licensee of certain sales, accounting, and
"back office" services to the station whose advertising is being sold. The
typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does
not involve programming.
The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which a
licensee sells time under a JSA are not deemed by the FCC to be attributable
interests of that licensee. However, in connection with its ongoing rulemaking
proceeding concerning the attribution rules, the FCC is considering whether JSAs
should be considered attributable interests or within the scope of the FCC's
cross-interest policy, particularly when JSAs contain provisions for the supply
of programming services and/or other elements typically associated with LMAs. If
JSAs become attributable interests as a result of changes in the FCC rules, the
Company may be required to terminate any JSA it might have with a radio station
which the Company could not own under the FCC's multiple ownership rules.
Other Ownership Matters
There remain in place after the 1996 Act a number of additional
cross-ownership rules and prohibitions pertaining to licensees of television and
radio stations. FCC rules, the Communications Act, or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a radio station, a daily newspaper, or a cable television system
that is located in or serves the same market area.
Antitrust Regulation. The Department of Justice and the Federal Trade
Commission have recently increased their scrutiny of the television and radio
industry, and have indicated their intention to review matters related to the
concentration of ownership within markets (including LMAs and JSAs) even
18
<PAGE>
when the ownership or LMA or JSA in question is permitted under the laws
administered by the FCC or by FCC rules and regulations.
Radio/Television Cross-Ownership Rule. The FCC's radio/television
cross-ownership rule (the "one to a market" rule) generally prohibits a single
individual or entity from having an attributable interest in a television
station and a radio station serving the same market. However, in each of the 25
largest local markets in the United States, provided that there are at least 30
separately owned stations in the particular market, the FCC has traditionally
employed a policy that presumptively allows waivers of the one to a market rule
to permit the common ownership of one AM, one FM and one TV station in the
market. The 1996 Act directs the FCC to extend this policy to each of the top 50
markets. Moreover, the FCC has pending a rulemaking proceeding in which it has
solicited comment on whether the one to a market rule should be eliminated
altogether.
However, the FCC does not apply its presumptive waiver policy in cases
involving the common ownership of one television station, and two or more radio
stations in the same service (AM or FM), in the same market. Pending its ongoing
rulemaking proceeding to reexamine the one to a market rule, the FCC has stated
that it will consider waivers of the rule in such instances on a case-by-case
basis, considering (i) the public service benefits that will arise from the
joint operation of the facilities such as economies of scale, cost savings and
programming and service benefits; (ii) the types of facilities involved; (iii)
the number of media outlets owned by the applicant in the relevant market; (iv)
the financial difficulties of the stations involved; and (v) the nature of the
relevant market in light of the level of competition and diversity after joint
operation is implemented. The FCC has stated that it expects that any such
waivers that are granted will be conditioned on the outcome of the rulemaking
proceeding.
In its ongoing rulemaking proceeding to reexamine the one to a market rule,
the FCC has proposed the following options for modifying the rule in the event
it is not eliminated: (i) extending the presumptive waiver policy to any
television market in which a specified number of independently owned voices
would remain after common ownership of a television station and one or more
radio stations is effectuated; (ii) extending the presumptive waiver policy to
entities that seek to own more than one FM and/or one AM radio station; (iii)
reducing the minimum number of independently owned voices that must remain after
a transaction is effectuated; and (iv) modifying the five-factor case-by-case
test for waivers.
Local Television/Cable Cross-Ownership Rule. While the 1996 Act eliminates
a previous statutory prohibition against the common ownership of a television
broadcast station and a cable system that serve the same local market, the 1996
Act leaves the current FCC rule in place. The legislative history of the Act
indicates that the repeal of the statutory ban should not prejudge the outcome
of any FCC review of the rule.
Broadcast Network/Cable Cross-Ownership Rule. The 1996 Act directs the FCC
to eliminate its rules which formerly prohibited the common ownership of a
broadcast network and a cable system, subject to the provision that the FCC
revise its rules as necessary to ensure carriage, channel positioning, and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. In March 1996, the FCC issued an
order implementing this legislative change.
Broadcast/Daily Newspaper Cross-Ownership Rule. The FCC's rules prohibit
the common ownership of a radio or television broadcast station and a daily
newspaper in the same market. The 1996 Act does not eliminate or modify this
prohibition. In October 1996, however, the FCC initiated a rulemaking proceeding
to determine whether it should liberalize its waiver policy with respect to
cross-ownership of a daily newspaper and one or more radio stations in the same
market.
Dual Network Rule. The 1996 Act directs the FCC to repeal its rule which
formerly prohibited an entity from operating more than one television network.
In March 1996, the FCC issued an order implementing this legislative change.
Under the modified rule, a network entity is permitted to operate more than one
television network, provided, however, that ABC, CBS, NBC, and/or Fox are
prohibited from merging with each other or with another network television
entity such as UPN or Warner Brothers.
Expansion of the Company's broadcast operations on both a local and
national level will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. Concomitantly, any further relaxation of
the FCC's ownership rules may increase the level of competition in one
19
<PAGE>
or more of the markets in which the Company's stations are located, more
specifically to the extent that any of the Company's competitors may have
greater resources and thereby be in a superior position to take advantage of
such changes.
Must-Carry/Retransmission Consent
Pursuant to the Cable Act of 1992, television broadcasters are required to
make triennial elections to exercise either certain "must-carry" or
"retransmission consent" rights in connection with their carriage by cable
systems in each broadcaster's local market. By electing the must-carry rights, a
broadcaster demands carriage on a specified channel on cable systems within its
Area of Dominant Influence, in general as defined by the Arbitron 1991-92
Television Market Guide. These must-carry rights are not absolute, and their
exercise is dependent on variables such as (i) the number of activated channels
on a cable system; (ii) the location and size of a cable system; and (iii) the
amount of programming on a broadcast station that duplicates the programming of
another broadcast station carried by the cable system. Therefore, under certain
circumstances, a cable system may decline to carry a given station.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. In October 1996, the Company elected must-carry or
retransmission consent with respect to each of its markets based on its
evaluation of the respective markets and the position of the Company's station
within the market. The Company's stations continue to be carried on all
pertinent cable systems, and the Company does not believe that its elections
have resulted in the shifting of its stations to less desirable cable channel
locations. Certain of the Company's stations affiliated with Fox are required to
elect retransmission consent because Fox's retransmission consent negotiations
on behalf of the Company resulted in agreements which extend into 1998.
Therefore, the Company will need to negotiate retransmission consent agreements
for these Fox-affiliated stations to attain carriage on those relevant cable
systems for the balance of this triennial period (i.e., through December 31,
1999). For subsequent elections beginning with the election to be made by
October 1, 1999, the must-carry market will be the station's DMA, in general as
defined by the Nielsen DMA Market and Demographic Rank Report of the prior year.
The must-carry rules have been subject to judicial scrutiny. In April 1993,
the United States District Court for the District of Columbia summarily upheld
the constitutionality of the legislative must-carry provisions under a First
Amendment challenge. However, in June 1994, the Supreme Court remanded the case
to the lower court with instructions to test the constitutionality of the
must-carry rules under an "intermediate scrutiny" standard. In a decision issued
in December 1995, a closely divided three-judge District Court panel ruled that
the record showed that there was substantial evidence before Congress from which
it could draw the reasonable inferences that (1) the must-carry rules were
necessary to protect the local broadcast industry; and (2) the burdens on cable
systems with rapidly increasing channel capacity would be quite small.
Accordingly, the District Court panel ruled that Congress had not violated the
First Amendment in enacting the "must-carry" provisions. In March 1997, the
Supreme Court, by a 5-4 majority, affirmed the District Court's decision and
thereby let stand the must-carry rules.
Syndicated Exclusivity/Territorial Exclusivity
The FCC has imposed syndicated exclusivity rules and expanded existing
network nonduplication rules. The syndicated exclusivity rules allow local
broadcast television stations to demand that cable operators black out
syndicated non-network programming carried on "distant signals" (i.e., signals
of broadcast stations, including so-called "superstations," which serve areas
substantially removed from the cable system's local community). The network
non-duplication rules allow local broadcast network television affiliates to
require that cable operators black out duplicating network programming carried
on distant signals. However, in a number of markets in which the Company owns or
programs stations affiliated with a network, a station that is affiliated with
the same network in a nearby market is carried on cable systems in the Company's
market. This is not in violation of the FCC's network nonduplication rules.
However, the carriage of two network stations on the same cable system could
result in a decline of viewership adversely affecting the revenues of the
Company owned or programmed station.
20
<PAGE>
Restrictions on Broadcast Advertising
Advertising of cigarettes and certain other tobacco products on broadcast
stations has been banned for many years. Various states restrict the advertising
of alcoholic beverages. Congressional committees have recently examined
legislation proposals which may eliminate or severely restrict the advertising
of beer and wine. Although no prediction can be made as to whether any or all of
the present proposals will be enacted into law, the elimination of all beer and
wine advertising would have an adverse effect upon the revenues of the Company's
stations, as well as the revenues of other stations which carry beer and wine
advertising.
The FCC has imposed commercial time limitations in children's television
programming pursuant to legislation. In television programs designed for viewing
by children of 12 years of age and under, commercial matter is limited to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends. In granting
renewal of the license for WBFF-TV, the FCC imposed a fine of $10,000 on the
Company alleging that the station had exceeded these limitations. The Company
has appealed this fine.
The Communications Act and FCC rules also place restrictions on the
broadcasting of advertisements by legally qualified candidates for elective
office. Among other things, (i) stations must provide "reasonable access" for
the purchase of time by legally qualified candidates for federal office; (ii)
stations must provide "equal opportunities" for the purchase of equivalent
amounts of comparable broadcast time by opposing candidates for the same
elective office; and (iii) during the 45 days preceding a primary or primary
run-off election and during the 60 days preceding a general or special election,
legally qualified candidates for elective office may be charged no more than the
station's "lowest unit charge" for the same class of advertisement, length of
advertisement, and daypart.
Programming and Operation
General. The Communications Act requires broadcasters to serve the "public
interest." The FCC gradually has relaxed or eliminated many of the more
formalized procedures it had developed in the past to promote the broadcast of
certain types of programming responsive to the needs of a station's community of
license. FCC licensees continue to be required, however, to present programming
that is responsive to their communities' issues, and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming may be considered by the FCC when it evaluates renewal
applications of a licensee, although such complaints may be filed at any time
and generally may be considered by the FCC at any time. Stations also must pay
regulatory and application fees, and follow various rules promulgated under the
Communications Act that regulate, among other things, political advertising,
sponsorship identifications, the advertisement of contests and lotteries,
obscene and indecent broadcasts, and technical operations, including limits on
radiofrequency radiation. In addition, licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities,
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a renewal application. Failure to observe these or
other rules and policies can result in the imposition of various sanctions,
including monetary forfeitures, or the grant of a "short" (i.e., less than the
full) license renewal term or, for particularly egregious violations, the denial
of a license renewal application or the revocation of a license.
Children's Television Programming. Pursuant to legislation enacted in 1991,
all television stations have been required to broadcast some television
programming designed to meet the educational and informational needs of children
16 years of age and under. In August 1996, the FCC adopted new rules setting
forth more stringent children's programming requirements. Specifically, as of
September 1, 1997, television stations will be required to broadcast a minimum
of three hours per week of "core" children's educational programming, which the
FCC defines as programming that (i) has serving the educational and
informational needs of children 16 years of age and under as a significant
purpose; (ii) is regularly scheduled, weekly and at least 30 minutes in
duration; and (iii) is aired between the hours of 7:00 a.m. and 10:00 p.m.
Furthermore, as of January 2, 1997, "core" children's educational programs, in
order to qualify as such, are required to be identified as educational and
informational programs over the air at the time they are broadcast, and are
required to be identified in the children's programming reports required to be
placed in stations' public inspection files. Additionally, as of January 2,
1997, television
21
<PAGE>
stations are required to identify and provide information concerning "core"
children's programming to publishers of program guides and listings.
Television Violence. The 1996 Act contains a number of provisions relating
to television violence. First, pursuant to the 1996 Act, the television industry
has developed a ratings system, and the FCC has recently solicited public
comment on that system. Furthermore, the 1996 Act provides that all television
sets larger than 13 inches that are manufactured one year after enactment of the
1996 Act must include the so-called "V-chip," a computer chip that allows
blocking of rated programming. In addition, the 1996 Act requires that all
television license renewal applications filed after May 1, 1995 contain
summaries of written comments and suggestions received by the station from the
public regarding violent programming.
Closed Captioning. The 1996 Act directs the FCC to adopt rules requiring
closed captioning of all broadcast television programming, except where
captioning would be "economically burdensome." The FCC has recently instituted a
rulemaking proceeding to implement such rules.
Digital Television
The FCC has taken a number of steps to implement digital television ("DTV")
broadcasting service in the United States. In December 1996, the FCC adopted a
DTV broadcast standard and, in April 1997, adopted decisions in several pending
rulemaking proceedings that establish service rules and a plan for implementing
DTV. The FCC adopted a DTV Table of Allotments that provides all authorized
television stations with a second channel on which to broadcast a DTV signal.
The FCC has attempted to provide DTV coverage areas that are comparable to
stations' existing service areas. The FCC has ruled that television broadcast
licensees may use their digital channels for a wide variety of services such as
high-definition television, multiple standard definition television programming,
audio, data, and other types of communications, subject to the requirement that
each broadcaster provide at least one free video channel equal in quality to the
current technical standard.
Initially, DTV channels will be located in the range of channels from
channel 2 through channel 51. The FCC is requiring that affiliates of ABC, CBS,
Fox and NBC in the top 10 television markets begin digital broadcasting by May
1, 1999 (the stations affiliated with these networks in the top 10 markets have
voluntarily committed to begin digital broadcasting within 18 months), and that
affiliates of these networks in markets 11 through 30 begin digital broadcasting
by November 1999. The FCC's plan calls for the DTV transition period to end in
the year 2006, at which time the FCC expects that (i) DTV channels will be
clustered either in the range of channels 2 through 46 or channels 7 through 51;
and (ii) television broadcasters will have ceased broadcasting on their
non-digital channels, allowing that spectrum to be recovered by the government
for other uses. The FCC has stated that it will open a separate proceeding to
consider the recovery of television channels 60 through 69 and how those
frequencies will be used after they are eventually recovered from television
broadcasters. Additionally, the FCC will open a separate proceeding to consider
to what extent the cable must-carry requirements will apply to DTV signals.
Implementation of digital television will improve the technical quality of
television signals received by viewers. Under certain circumstances, however,
conversion to digital operation may reduce a station's geographic coverage area
or result in some increased interference. The FCC's DTV allotment plan may also
result in UHF stations having considerably less signal power within their
service areas than present VHF stations that move to DTV channels. The Company
has filed with the FCC, a petition for reconsideration of the FCC's DTV
allotment plan, because of its concerns with respect to the relative DTV signal
powers of VHF/UHF and UHF/UHF stations. Implementation of digital television
will also impose substantial additional costs on television stations because of
the need to replace equipment and because some stations will need to operate at
higher utility costs. The FCC is also considering imposing new public interest
requirements on television licensees in exchange for their receipt of DTV
channels. The Company cannot predict what future actions the FCC might take with
respect to DTV, nor can it predict the effect of the FCC's present DTV
implementation plan or such future actions on the Company's business.
22
<PAGE>
Proposed Changes
The Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of the Company's broadcast stations, result in the loss of
audience share and advertising revenues for the Company's broadcast stations,
and affect the ability of the Company to acquire additional broadcast stations
or finance such acquisitions. In addition to the changes and proposed changes
noted above, such matters may include, for example, the license renewal process,
spectrum use fees, political advertising rates, potential restrictions on the
advertising of certain products (beer, wine and hard liquor, for example), and
the rules and policies to be applied in enforcing the FCC's equal employment
opportunity regulations. Other matters that could affect the Company's broadcast
properties include technological innovations and developments generally
affecting competition in the mass communications industry, such as direct radio
and television broadcast satellite service, the continued establishment of
wireless cable systems and low power television stations, digital television and
radio technologies, and the advent of telephone company participation in the
provision of video programming service.
Other Considerations
The foregoing summary does not purport to be a complete discussion of all
provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, other congressional acts, and regulations and
public notices promulgated from time to time by the FCC. There are additional
regulations and policies of the FCC and other federal agencies that govern
political broadcasts, public affairs programming, equal employment opportunity,
and other matters affecting the Company's business and operations.
ENVIRONMENTAL REGULATION
Prior to the Company's ownership or operation of its facilities, substances
or waste that are or might be considered hazardous under applicable
environmental laws may have been generated, used, stored or disposed of at
certain of those facilities. In addition, environmental conditions relating to
the soil and groundwater at or under the Company's facilities may be affected by
the proximity of nearby properties that have generated, used, stored or disposed
of hazardous substances. As a result, it is possible that the Company could
become subject to environmental liabilities in the future in connection with
these facilities under applicable environmental laws and regulations. Although
the Company believes that it is in substantial compliance with such
environmental requirements, and have not in the past been required to incur
significant costs in connection therewith, there can be no assurance that the
Company's costs to comply with such requirements will not increase in the
future. The Company presently believes that none of its properties have any
condition that is likely to have a material adverse effect on the Company's
financial condition or results of operations.
COMPETITION
The Company's television and radio stations compete for audience share and
advertising revenue with other television and radio stations in their respective
DMAs, as well as with other advertising media, such as newspapers, magazines,
outdoor advertising, transit advertising, yellow page directories, direct mail
and local cable and wireless cable systems. Some competitors are part of larger
organizations with substantially greater financial, technical and other
resources than the Company.
Television Competition. Competition in the television broadcasting industry
occurs primarily in individual DMAs. Generally, a television broadcasting
station in one DMA does not compete with stations in other DMAs. The Company's
television stations are located in highly competitive DMAs. In addition, certain
of the Company's DMAs are overlapped by both over-the-air and cable carriage of
stations in adjacent DMAs, which tends to spread viewership and advertising
expenditures over a larger number of television stations.
23
<PAGE>
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations, radio stations and cable system
operators serving the same market. Major Network programming generally achieves
higher household audience levels than Fox, UPN and WB programming and syndicated
programming aired by independent stations. This can be attributed to a
combination of factors, including the Major Networks' efforts to reach a broader
audience, generally better signal carriage available when broadcasting over VHF
channels 2 through 13 versus broadcasting over UHF channels 14 through 69 and
the higher number of hours of Major Network programming being broadcast weekly.
However, greater amounts of advertising time are available for sale during Fox,
UPN and WB programming and non-network syndicated programming, and as a result
the Company believes that the Company's programming typically achieves a share
of television market advertising revenues greater than its share of the market's
audience.
Television stations compete for audience share primarily on the basis of
program popularity, which has a direct effect on advertising rates. A large
amount of the Company's prime time programming is supplied by Fox and to a
lesser extent UPN, WB, ABC and CBS. In those periods, the Company's affiliated
stations are totally dependent upon the performance of the networks' programs in
attracting viewers. Non-network time periods are programmed by the station
primarily with syndicated programs purchased for cash, cash and barter, or
barter-only, and also through self-produced news, public affairs and other
entertainment programming.
Television advertising rates are based upon factors which include the size
of the DMA in which the station operates, a program's popularity among the
viewers that an advertiser wishes to attract, the number of advertisers
competing for the available time, the demographic makeup of the DMA served by
the station, the availability of alternative advertising media in the DMA
(including radio and cable), the aggressiveness and knowledge of sales forces in
the DMA and development of projects, features and programs that tie advertiser
messages to programming. The Company believes that its sales and programming
strategies allow it to compete effectively for advertising within its DMAs.
Other factors that are material to a television station's competitive
position include signal coverage, local program acceptance, network affiliation,
audience characteristics and assigned broadcast frequency. Historically, the
Company's UHF broadcast stations have suffered a competitive disadvantage in
comparison to stations with VHF broadcast frequencies. This historic
disadvantage has gradually declined through (i) carriage on cable systems, (ii)
improvement in television receivers, (iii) improvement in television
transmitters, (iv) wider use of all channel antennae, (v) increased availability
of programming, and (vi) the development of new networks such as Fox, UPN and
WB.
The broadcasting industry is continuously faced with technical changes and
innovations, the popularity of competing entertainment and communications media,
changes in labor conditions, and governmental restrictions or actions of federal
regulatory bodies, including the FCC, any of which could possibly have a
material effect on a television station's operations and profits. There are
sources of video service other than conventional television stations, the most
common being cable television, which can increase competition for a broadcast
television station by bringing into its market distant broadcasting signals not
otherwise available to the station's audience, serving as a distribution system
for national satellite-delivered programming and other non-broadcast programming
originated on a cable system and selling advertising time to local advertisers.
Other principal sources of competition include home video exhibition,
direct-to-home broadcast satellite television ("DBS") entertainment services and
multichannel multipoint distribution services ("MMDS"). Moreover, technology
advances and regulatory changes affecting programming delivery through fiber
optic telephone lines and video compression could lower entry barriers for new
video channels and encourage the development of increasingly specialized "niche"
programming. The 1996 Act permits telephone companies to provide video
distribution services via radio communication, on a common carrier basis, as
"cable systems" or as "open video systems," each pursuant to different
regulatory schemes. The Company is unable to predict the effect that
technological and regulatory changes will have on the broadcast television
industry and on the future profitability and value of a particular broadcast
television station.
The FCC authorizes DBS services throughout the United States. Currently,
two FCC permitees, DirecTV and United States Satellite Broadcasting, provide
subscription DBS services via high-power
24
<PAGE>
communications satellites and small dish receivers, and other companies provide
direct-to-home video service using lower powered satellites and larger
receivers. Additional companies are expected to commence direct-to-home
operations in the near future. DBS and MMDS, as well as other new technologies,
will further increase competition in the delivery of video programming.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on its business.
The Company is exploring ways in which it might take advantage of new
technology, including the delivery of additional content and services via the
broadcast spectrum. There can be no assurance that any such efforts will result
in the development of technology or services that are commercially successful.
The Company also competes for programming, which involves negotiating with
national program distributors or syndicators that sell first-run and rerun
packages of programming. The Company's stations compete for exclusive access to
those programs against in-market broadcast station competitors for syndicated
products. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations. Public broadcasting stations generally compete with commercial
broadcasters for viewers but not for advertising dollars.
Historically, the cost of programming has increased because of an increase
in the number of new Independent stations and a shortage of quality programming.
However, the Company believes that over the past five years program prices have
stabilized and, in some instances, have declined as a result of recent increases
in the supply of programming and the failure of some Independent stations.
The Company believes it competes favorably against other television
stations because of its management skill and experience, the ability of the
Company historically to generate revenue share greater than its audience share,
the network affiliations and its local program acceptance. In addition, the
Company believes that it benefits from the operation of multiple broadcast
properties, affording it certain nonquantifiable economies of scale and
competitive advantages in the purchase of programming.
Radio Competition. Radio broadcasting is a highly competitive business, and
each of the radio stations operated by the Company competes for audience share
and advertising revenue directly with other radio stations in its geographic
market, as well as with other media, including television, cable television,
newspapers, magazines, direct mail and billboard advertising. The audience
ratings and advertising revenue of each of such stations are subject to change,
and any adverse change in a particular market could have a material adverse
effect on the revenue of such radio stations located in that market. There can
be no assurance that any one of the Company's radio stations will be able to
maintain or increase its current audience ratings and radio advertising revenue
market share.
The Company will attempt to improve each radio station's competitive
position with promotional campaigns designed to enhance and reinforce its
identities with the listening public. Extensive market research is conducted in
order to identify specific demographic groups and design a programming format
for those groups. The Company seeks to build a strong listener base composed of
specific demographic groups in each market, and thereby attract advertisers
seeking to reach these listeners. Aside from building its stations' identities
and targeting its programming at specific demographic groups, management
believes that the Company also obtains a competitive advantage by operating
duopolies or multiple stations in the nation's larger mid-size markets.
The radio broadcasting industry is also subject to competition from new
media technologies that are being developed or introduced, such as the delivery
of audio programming by cable television systems and by digital audio
broadcasting ("DAB"). DAB may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and
national audiences. Historically, the radio broadcasting industry has grown in
terms of total revenues despite the introduction of new technologies for the
delivery of entertainment and information, such as television broadcasting,
cable television, audio tapes and compact disks. There can be no assurance,
however, that the development or introduction in the future of any new media
technology will not have an adverse effect on the radio broadcast industry.
25
<PAGE>
EMPLOYEES
As of May 31, 1997, the Company had approximately 2,740 employees. With the
exception of certain of the employees of KOVR-TV, KDNL-TV, WBEN-AM and WWL-AM,
none of the employees are represented by labor unions under any collective
bargaining agreement. No significant labor problems have been experienced by the
Company, and the Company considers its overall labor relations to be good.
LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. The Company is not party to any
lawsuit or proceeding that, in the opinion of the Company, will have a material
adverse effect on the Company.
GLOSSARY OF DEFINED TERMS
"ABC" means Capital Cities/ABC, Inc.
"Adjusted EBITDA" means broadcast cash flow less corporate overhead expense
and is a commonly used measure of performance for broadcast companies. Adjusted
EBITDA does not purport to represent cash provided by operating activities as
reflected in the Company's consolidated statements of cash flows, is not a
measure of financial performance under generally accepted accounting principles
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
"Adjusted EBITDA margin" means the Adjusted EBITDA divided by net broadcast
revenues.
"Amended Certificate" means the Amended and Restated Articles of
Incorporation of the Company.
"Arbitron" means Arbitron, Inc.
"Broadcast cash flow margin" means broadcast cash flow divided by net
broadcast revenues.
"Broadcast Cash Flow" means operating income plus corporate overhead
expenses, special bonuses paid to executive officers, non-cash deferred
compensation, depreciation and amortization, including both tangible and
intangible assets and program rights, less cash payment for program rights. Cash
program payments represent cash payments made for current program payables and
sports rights and do not necessarily correspond to program usage. Special
bonuses paid to executive officers are considered unusual and non-recurring. The
Company has presented broadcast cash flow data, which the Company believes are
comparable to the data provided by other companies in the industry, because such
data are commonly used as a measure of performance for broadcast companies.
However, broadcast cash flow (i) does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements of
cash flow, (ii) is not a measure of financial performance under generally
accepted accounting principles and (iii) should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
"CBS" means CBS, Inc.
"Cincinnati/Kansas City Acquisitions" means the Company's acquisition of
the assets and liabilities of WSTR-TV (Cincinnati, OH) and KSMO-TV (Kansas City,
MO).
"Class A Common Stock" means the Company's Class A Common Stock, par value
$.01 per share.
"Class B Common Stock" means the Company's Class B Common Stock, par value
$.01 per share.
"Columbus Option" means the Company's option to purchase both the
Non-License Assets and the License Assets relating to WSYX-TV (ABC), Columbus,
OH.
"Commission" means the Securities and Exchange Commission.
"Common Securities" means the common securities of Sinclair Capital, a
subsidiary trust of the Company.
26
<PAGE>
"Common Stock" means the Class A Common Stock and the Class B Common
Stock.
"Communications Act" means the Communications Act of 1934, as amended.
"Company" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Controlling Stockholders" means David D. Smith, Frederick G. Smith, J.
Duncan Smith and Robert E. Smith.
"DAB" means digital audio broadcasting.
"DBS" means direct-to-home broadcast satellite television.
"Designated Market Area" or "DMA" means one of the 211 generally-recognized
television market areas.
"DOJ" means the United States Justice Department.
"DTV" means digital television.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCC" means the Federal Communications Commision.
"FCN" means the Fox Children's Network.
"Flint Acquisition" means the Company's acquisition of the assets of
WSMH-TV (Flint, Michigan).
"Fox" means Fox Broadcasting Company.
"Glencairn" means Glencairn, Ltd. and its subsidiaries.
"Greenville Stations" means radio stations WFBC-FM, WORD-AM, WFBC-AM,
WSPA-AM, WSPA-FM, WOLI-FM, and WOLT-FM located in the Greenville/Spartanburg,
South Carolina area.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act, as amended.
"Incremental Facility" means the loan by the Banks of up to an additional
$200.0 million to the Company pursuant to the Bank Credit Agreement at any time
prior to September 29, 1997.
"Independent" means a station that is not affiliated with any of ABC, CBS,
NBC, FOX, UPN or Warner Brothers.
"JSAs" means joint sales agreements pursuant to which an entity has the
right, for a fee paid to the owner and operator of a station, to sell
substantially all of the commercial advertising on the station.
"KSC" means Keymarket of South Carolina, Inc.
"License Assets" means the television and radio station assets essential
for broadcasting a television or radio signal in compliance with regulatory
guidelines, generally consisting of the FCC license, transmitter, transmission
lines, technical equipment, call letters and trademarks, and certain furniture,
fixtures and equipment.
"License Assets Option" means the Company's option to purchase the License
Assets of KDNL-TV (ABC), St. Louis, MO; KOVR-TV (CBS), Sacramento, CA; WTTV-TV
(UPN) and WTTK-TV (UPN), Indianapolis, IN; WLOS-TV (ABC), Asheville, NC; KABB-TV
(Fox), San Antonio, TX; and KDSM-TV (Fox), Des Moines, IA.
"LMAs" means program services agreements, time brokerage agreements or
local marketing agreements pursuant to which an entity provides programming
services to television or radio stations that are not owned by the entity.
"Major Networks" means each of ABC, CBS or NBC, singly or collectively.
"MSA" means the Metro Survey Area as defined by Arbitron.
"MMDS" means multichannel multipoint distribution services.
"NBC" means the National Broadcasting Company.
27
<PAGE>
"Nielsen" means the A.C. Nielsen Company Station Index dated May 1996.
"1996 Act" means the Telecommunications Act of 1996.
"Non-License Assets" means the assets relating to operation of a television
or radio station other than License Assets.
"Parent Preferred" means the $206,200,000 liquidation amount of the
Company's 12 5/8% Series C Preferred Stock, par value $.01 per share purchased
by KDSM, Inc.
"Peoria/Bloomington Acquisition" means the acquisition by the Company of
the assets of WYZZ-TV on July 1, 1996.
"Permitted Transferee" means (i) any Controlling Stockholder, (ii) the
estate of a Controlling Stockholder, (iii) the spouse or former spouse of a
Controlling Stockholder, (iv) any lineal descendant of a Controlling
Stockholder, any spouse of any such lineal descendant, a Controlling
Stockholder's grandparent, parent, brother or sister, or a Controlling
Stockholder's spouse's brother or sister, (v) any guardian or custodian
(including a custodian for purposes of the Uniform Gift to Minors Act or Uniform
Transfers to Minors Act) for, or any conservator or other legal representative
of, one or more Permitted Transferees, (vi) any trust or savings or retirement
account, including an individual retirement account for purposes of federal
income tax laws, whether or not involving a trust, principally for the benefit
of one or more Permitted Transferees, including any trust in respect of which a
Permitted Transferee has any general or special testamentary power of
appointment or general or special non-testamentary power of appointment which is
limited to any other Permitted Transferee, (vii) the Company, (viii) any
employee benefit plan or trust thereunder sponsored by the Company or any of its
subsidiaries, (ix) any trust principally for the benefit of one or more of the
persons referred to in (i) through (iii) above, (x) any corporation, partnership
or other entity if all of the beneficial ownership is held by one or more of the
persons referred to in (i) through (iv) above, and (xi) any broker or dealer in
securities, clearing house, bank, trust company, savings and loan association or
other financial institution which holds Class B Common Stock for the benefit of
a Controlling Stockholder or Permitted Transferee thereof.
"Preferred Securities Offering" means the private placement of $200 million
aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred
Securities (the "Preferred Securities") of Sinclair Capital, a subsidiary trust
of the Company, completed in March 1997.
"Revolving Credit Facility" means the reducing revolving credit facility
under the Bank Credit Agreement in the principal amount of $250.0 million.
"River City" means River City Broadcasting, L.P.
"River City Acquisition" means the Company's acquisition from River City
and the owner of KRRT of certain Non-License Assets, options to acquire certain
License and Non-License Assets and rights to provide programming or sales and
marketing for certain stations, which was completed May 31, 1996.
"SCI" means Sinclair Communications, Inc., a wholly owned subsidiary of the
Company that will hold all of the broadcast operations of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Company's Series A Exchangeable
Preferred Stock, par value $.01, each share of which has been exchanged for a
share of the Company's Series B Convertible Preferred Stock.
"Series B Convertible Preferred Stock" means the Company's Series B
Convertible Preferred Stock, par value $.01.
"Series C Preferred Stock" means the Company's Series C Preferred Stock,
par value $.01.
"Sinclair" means Sinclair Broadcast Group, Inc. and its wholly owned
subsidiaries.
"Sinclair Capital" means Sinclair Capital, a Delaware Business Trust, 100%
of the common securities of which are held by KDSM, Inc., an indirect wholly
owned subsidiary of the Company.
28
<PAGE>
"Superior Acquisition" means the Company's acquisition of the stock of
Superior Communications, Inc. ("Superior").
"TBAs" means time brokerage agreements; see definition of "LMAs."
"UHF" means ultra-high frequency.
"UPN" means United Paramount Television Network Partnership.
"VHF" means very-high frequency.
"WB" or "Warner Brothers" means Warner Brothers, Inc.
29
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND
EXHIBITS
The Company is filing certain financial information about itself relating
to a $200 million private offering (the "Offering" or the "Debt Offering") of 9%
Senior Subordinated Notes due 2007 (the "Notes").
USE OF PROCEEDS OF THE OFFERING
Net proceeds of the Offering of approximately $195.3 million will be used
to reduce outstanding borrowings under the Bank Credit Agreement with the
remainder retained for general corporate purposes. The Company plans to repay
all amounts outstanding under its revolving credit facility under the Bank
Credit Agreement (which amounts may be reborrowed) which as of May 31, 1997 had
an outstanding principal balance of $160 million. Such amounts were borrowed to
fund acquisitions and for general corporate purposes. The remaining proceeds of
the Offering, estimated at $35.3 million, will be retained by the Company and
used for general corporate purposes including acquisitions, or the repurchase of
shares of Class A Common Stock. The interest rate on the revolving credit
facility that will be repaid is variable and averaged 6.7% per year for the
month ended May 31, 1997.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF SINCLAIR
The following Pro Forma Consolidated Financial Data include the unaudited
pro forma consolidated balance sheet as of March 31, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated statements
of operations for the year ended December 31, 1996 and the three months ended
March 31, 1997 (the "Pro Forma Consolidated Statements of Operations"). The
unaudited Pro Forma Consolidated Balance Sheet is adjusted to give effect to the
Offering as if it occurred on March 31, 1997 and assuming application of the
proceeds of the Offering as set forth in "Use of Proceeds of the Offering"
above. The unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1996 is adjusted to give effect to the 1996 Acquisitions, the
Preferred Securities Offering (as defined in the "Glossary of Defined Terms"
above in Item 5) and the Offering as if each occurred at the beginning of such
period and assuming application of the proceeds of the Preferred Securities
Offering and the Offering as set forth in "Use of Proceeds of the Offering." The
unaudited Pro Forma Consolidated Statement of Operations for the three months
ended March 31, 1997 is adjusted to give effect to the Old Securities Offering
and the Offering as if each occurred at the beginning of such period and
assuming application of the proceeds of the Old Securities Offering and the
Offering as set forth in "Use of Proceeds of the Offering." 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 as of and for the year ended December 31, 1996 and related notes
thereto, the Company's unaudited consolidated financial statements for the three
months ended March 31, 1997 and related notes thereto, the historical financial
data of Flint T.V., Inc., the historical financial data of Superior, the
historical financial data of KSMO and WSTR, and the historical financial data of
River City, all of which have been filed with the Commission as part of (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 (as
amended), together with the report of Arthur Andersen LLP, independent certified
public accountants; (ii) the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997; or (iii) the Company's Current Reports on Form 8-K
and Form 8-K/A filed May 10, 1996, May 13, 1996, May 17, 1996, May 29, 1996
August 30, 1996 and September 5, 1996. The unaudited Pro Forma Consolidated
Financial Data do not purport to represent what the Company's results of
operations or financial position would have been had any of the above events
occurred on the dates specified or to project the Company's results of
operations or financial position for or at any future period or date. The Pro
Forma Consolidated Financial Data does not give effect to the acquisition of
KUPN-TV which was consumated on May 30, 1997. The Pro Forma Consolidated
Financial Data reflects the repayment of $103 million which represents all
amounts outstanding under the revolving credit facility as of March 31, 1997. As
of May 31, 1997, $160 million was outstanding. Such additional amounts were
incurred in part to finance the acqusition of KUPN-TV and in part as a result of
the restructuring of the Bank Credit Facility.
30
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
POST DEBT
CONSOLIDATED DEBT OFFERING OFFERING
HISTORICAL ADJUSTMENTS(a) ADJUSTMENTS
-------------- ------------------- -------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents .................................... $ 36,705 $ 92,125(b) $ 128,830
Accounts receivable, net of allowance for doubtful accounts ......... 89,079 89,079
Current portion of program contract costs ........................... 37,741 37,741
Prepaid expenses and other current assets ........................... 3,757 3,757
Deferred barter costs ................................................ 4,490 4,490
Deferred tax asset ................................................... 1,445 1,445
----------- ----------- ----------
Total current assets ................................................ 173,217 92,125 265,342
PROGRAM CONTRACT COSTS, less current portion ........................... 35,511 35,511
LOANS TO OFFICERS AND AFFILIATES ....................................... 11,411 11,411
PROPERTY AND EQUIPMENT, net .......................................... 152,554 152,554
NON-COMPETE AND CONSULTING AGREEMENTS, net ........................... 5,493 5,493
DEFERRED TAX ASSET ................................................... 7,771 7,771
OTHER ASSETS ......................................................... 79,100 4,750(c) 83,850
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ........................... 1,244,874 1,244,874
----------- ----------- -----------
Total Assets ...................................................... $1,709,931 $96,875 $1,806,806
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...................................................... $ 4,791 $ 4,791
Income taxes payable ................................................ 733 733
Accrued liabilities ................................................... 36,842 36,842
Current portion of long-term liabilities-
Notes payable and commercial bank financing ........................ 64,000 64,000
Capital leases payable ............................................. 11 11
Notes and capital leases payable to affiliates ..................... 1,476 1,476
Program contracts payable .......................................... 51,573 51,573
Deferred barter revenues ............................................. 4,218 4,218
----------- ----------- -----------
Total current liabilities .......................................... 163,644 163,644
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ........................ 1,039,125 $ 96,875(d) 1,136,000
Capital leases payable ............................................. 33 33
Notes and capital leases payable to affiliates ..................... 12,007 12,007
Program contracts payable .......................................... 50,986 50,986
Other long-term liabilities .......................................... 2,892 2,892
----------- ----------- -----------
Total liabilities ................................................... 1,268,687 96,875 1,365,562
----------- ------------ -----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES ......................................................... 3,928 3,928
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECUITY
OF SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR
DEBENTURES ............................................................ 200,000 200,000
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized and
1,138,138 and 1,115,370 shares issued and outstanding, respectively. 11 11
Class A Common stock, $.01 par value, 100,000,000 shares authorized
and 6,911,880 and 6,937,827 shares issued and outstanding, respec-
tively .............................................................. 70 70
Class B Common stock, $.01 par value, 35,000,000 shares authorized
and 27,850,581 shares issued and outstanding ........................ 279 279
Additional paid-in capital .......................................... 255,576 255,576
Accumulated deficit ................................................ (26,546) (26,546)
Additional paid-in capital - equity put options ..................... 8,938 8,938
Additional paid-in capital - deferred compensation .................. (1,012) (1,012)
----------- ----------- -----------
Total stockholders' equity .......................................... 237,316 237,316
----------- ----------- -----------
Total Liabilities and Stockholders' Equity ........................ $1,709,931 $96,875 $1,806,806
=========== ============ ===========
</TABLE>
(Continued on following page)
31
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(a) To reflect the proceeds of the Offering, net of offering costs and the
application of the net proceeds therefrom as set forth in "Use of Proceeds
of the Offering."
(b) To record net proceeds of the Offering after giving effect to the repayment
of the revolving credit facility under the Bank Credit Agreement as
follows:
Offering proceeds ........................................... $ 200,000
Underwriting discounts, commissions and estimated expenses .. (4,750)
Repayment of revolving credit facility under the Bank Credit
Agreement ................................................... (103,125)
----------
Pro forma adjustment ....................................... $ 92,125
==========
(c) To record underwriting discounts, commissions and estimated expenses of
$4.75 million.
(d) To reflect the repayment of the revolving credit facility under the Bank
Credit Agreement as set forth in "Use of Proceeds of the Offering," as
follows:
Indebtedness incurred ....................................... $ 200,000
Repayment of revolving credit facility under the Bank Credit
Agreement ................................................... (103,125)
----------
Pro forma adjustment ....................................... $ 96,875
==========
32
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SUPERIOR
CONSOLIDATED FLINT COMMUNICATIONS
HISTORICAL TV, INC.(a) GROUP, INC.(b) KSMO(c) WSTR(d)
-------------- ------------- ---------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions ......................................... $ 346,459 $1,012 $ 4,431 $ 7,694 $ 7,488
Revenues realized from station barter arrange-
ments ........................................ 32,029 - - 2,321 1,715
--------- -------- ------- ------- --------
Total revenues ............................... 378,488 1,012 4,431 10,015 9,203
--------- -------- ------- ------- --------
OPERATING EXPENSES:
Program and production ......................... 66,652 101 539 1,550 961
Selling, general and administrative ............. 75,924 345 2,002 2,194 2,173
Expenses realized from barter arrangements .... 25,189 2,276 1,715
Amortization of program contract costs and net
realizable value adjustments .................. 47,797 125 736 601 1,011
Amortization of deferred compensation .......... 739
Depreciation and amortization of property and
equipment .................................... 11,711 4 373 374 284
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets .............................. 58,530 - 529 - 39
Amortization of excess syndicated programming ... 3,043 - - - -
--------- ------- ------- ------- --------
Total operating expenses ........................ 289,585 575 4,179 6,995 6,183
--------- ------- ------- ------- --------
Broadcast operating income (loss) ............... 88,903 437 252 3,020 3,020
--------- ------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense (84,314) - (457) (823) (1,127)
Interest income ............................... 3,136 - - - 15
Subsidiary trust minority interest expense .... - - - - -
Other income (expense) ......................... 342 19 4 7 -
--------- ------- ------- ------- --------
Income (loss) before provision (benefit) for
income taxes .................................. 8,067 456 (201) 2,204 1,908
PROVISION (BENEFIT) FOR INCOME
TAXES ........................................... 6,936 - - - -
--------- ------- ------- ------- --------
NET INCOME (LOSS) ................................. $ 1,131 $ 456 $ (201) $ 2,204 $ 1,908
========= ======= ======= ======= ========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................... $ 1,131
=========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ......................... $ 0.03
=========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .................. 37,381
=========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RIVER CITY (e) 1996 POST
---------------------- ACQUISITIONS 1996
RIVER CITY WSYX WYZZ(f) ADJUSTMENTS ACQUISITIONS
---------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions ......................................... $ 86,869 $ (10,783) $1,838 $445,008
Revenues realized from station barter arrange-
ments ......................................... - - - 36,065
--------- --------- ------- ------------- ----------
Total revenues ............................... 86,869 (10,783) 1,838 481,073
--------- ---------- ------- ------------- ----------
OPERATING EXPENSES:
Program and production ......................... 10,001 (736) 214 79,282
Selling, general and administrative ............. 39,786 (3,950) 702 $ (3,577)(g) 115,599
Expenses realized from barter arrangements .... 29,180
Amortization of program contract costs and net
realizable value adjustments ................. 9,721 (458) 123 - 59,656
Amortization of deferred compensation .......... 194(h) 933
Depreciation and amortization of property and
equipment .................................... 6,294 (1,174) 6 (943)(i) 16,929
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets .............................. 14,041 (3,599) 3 4,034(j) 73,577
Amortization of excess syndicated programming ... - - - - 3,043
--------- ---------- ------- ----------- ----------
Total operating expenses ...................... 79,843 (9,917) 1,048 (292) 378,199
--------- ---------- ------- ----------- ----------
Broadcast operating income (loss) .............. 7,026 (866) 790 292 102,874
--------- ---------- ------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ..................................... (12,352) - - (17,409)(k) (116,482)
Interest income ............................... 195 - - (1,636)(l) 1,710
Subsidiary trust minority interest expense ...... - - - - -
Other income (expense) ......................... (149) (8) - - 215
--------- ---------- ------- ----------- ----------
Income (loss) before provision (benefit) for
income taxes ................................. (5,280) (874) 790 (18,753) (11,683)
PROVISION (BENEFIT) FOR INCOME
TAXES ........................................... - - - (7,900)(m) (964)
--------- ---------- ------- ----------- ----------
NET INCOME (LOSS) ................................. $ (5,280) $ (874) $ 790 $ (10,853) $(10,719)
========= ========== ======= =========== ==========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS .................................... $(10,719)
==========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ......................... $ (0.27)
==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ................... 39,058 (n)
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREFERRED POST PREFERRED POST DEBT AND
SECURITIES SECURITIES DEBT PREFERRED SECURITIES
OFFERING OFFERING AND 1996 OFFERING OFFERINGS AND 1996
ADJUSTMENTS ACQUISITIONS ADJUSTMENTS ACQUISITONS
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions ......................................... $445,008 $ 445,008
Revenues realized from station barter arrange-
ments ........................................ 36,065 36,065
----------- ---------- ---------- ----------
Total revenues ............................... 481,073 481,073
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Program and production ......................... 79,282 79,282
Selling, general and administrative ............. 115,599 115,599
Expenses realized from barter arrangements .... 29,180 29,180
Amortization of program contract costs and net
realizable value adjustments .................. 59,656 59,656
Amortization of deferred compensation .......... 933 933
Depreciation and amortization of property and
equipment .................................... 16,929 16,929
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets .............................. $ 500(o) 74,077 $ 475(r) 74,552
Amortization of excess syndicated programming ... - 3,043 3,043
----------- ---------- ----------- ----------
Total operating expenses ...................... 500 378,699 475 379,174
----------- ---------- ----------- ----------
Broadcast operating income (loss) .............. (500) 102,374 (475) 101,899
----------- ---------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense ....................................... 11,820(p) (104,662) (18,000)(s) (122,662)
Interest income ............................... 1,710 1,710
Subsidiary trust minority interest expense ...... (23,250)(q) (23,250) (23,250)
Other income (expense) ......................... - 215 215
----------- ---------- ----------- ----------
Income (loss) before provision (benefit) for
income taxes .................................. (11,930) (23,613) (18,475) (42,088)
PROVISION (BENEFIT) FOR INCOME
TAXES ........................................... (4,772)(m) (5,736) (7,390)(m) (13,126)
----------- ---------- ----------- ----------
NET INCOME (LOSS) ................................. $ (7,158) $(17,877) $ (11,085) $ (28,962)
=========== ========== =========== ==========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS .................................... $(17,877) $ (28,962)
========== ==========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ......................... $ (0.46) $ (0.74)
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ................... 39,058(n) 39,058
========== ==========
</TABLE>
(Continued on following page)
33
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED
SECURITIES
CONSOLIDATED OFFERING
HISTORICAL ADJUSTMENTS
----------------- ----------------
REVENUES:
Station broadcast revenues, net of agency commissions ................................. $ 98,909
Revenues realized from station barter arrangements ....................................... 9,315
---------- ----------
Total revenues .......................................................................... 108,224
---------- ----------
OPERATING EXPENSES:
Program and production .................................................................. 22,507
Selling, general and administrative ...................................................... 25,241
Expenses realized from station barter arrangements ....................................... 7,444
Amortization of program contract costs and net realizable value adjustments ............ 17,518
Amortization of deferred compensation ................................................... 117
Depreciation and amortization of property and equipment ................................. 4,161
Amortization of acquired intangible broadcasting assets, non-compete and consulting
agreements and other assets ............................................................ 19,021 $ 125(t)
---------- ----------
Total operating expenses .............................................................. 96,009 125
---------- ----------
Broadcast operating income (loss) ........................................................ 12,215 (125)
---------- ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ....................................... (27,065) 2,022(u)
Interest income ........................................................................ 402
Subsidiary trust minority interest expense ............................................. (1,210) (4,603)(v)
Other income ........................................................................... 144 -
---------- ----------
Loss before provision (benefit) for income taxes ...................................... (15,514) (2,706)
PROVISION (BENEFIT) FOR INCOME TAXES ..................................................... (7,900) (1,082)(m)
---------- ----------
NET INCOME (LOSS) .......................................................................... $ (7,614) $ (1,624)
========== ==========
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ............................................................................ $ (7,614)
==========
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE ............................................ $ (0.22)
==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING ........................................................................... 34,769(n)
==========
<PAGE>
<CAPTION>
POST POST DEBT AND
PREFERRED SECURITIES DEBT PREFERRED SECURITIES
OFFERING AND 1996 OFFERING OFFERINGS AND 1996
ACQUISITIONS ADJUSTMENTS ACQUISITIONS
---------- ----------- -----------
<C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ........... $ 98,909 $ 98,909
Revenues realized from station barter arrangements ................. 9,315 9,315
---------- ----------- ----------
Total revenues .................................................... 108,224 108,224
---------- ----------- ----------
OPERATING EXPENSES:
Program and production ............................................ 22,507 22,507
Selling, general and administrative ................................ 25,241 25,241
Expenses realized from station barter arrangements ................. 7,444 7,444
Amortization of program contract costs and net realizable
value adjustments .............................................. 17,518 17,518
Amortization of deferred compensation ............................. 117 117
Depreciation and amortization of property and equipment ........... 4,161 4,161
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets ........... 19,146 $ 119(w) 19,265
---------- ---------- ----------
Total operating expenses ........................................ 96,134 119 96,253
---------- ---------- ----------
Broadcast operating income (loss) .................................. 12,090 (119) 11,971
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ................. (25,043) (4,500)(x) (29,543)
Interest income .................................................. 402 402
Subsidiary trust minority interest expense ....................... (5,813) (5,813)
Other income ..................................................... 144 144
---------- ---------- ----------
Loss before provision (benefit) for income taxes ................ (18,220) (4,619) (22,839)
PROVISION (BENEFIT) FOR INCOME TAXES ............................... (8,982) (1,848)(m) (10,830)
---------- ---------- ----------
NET INCOME (LOSS) .................................................... $ (9,238) $ (2,771) $(12,009)
========== ========== ==========
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ..................................................... $ (9,238) $(12,009)
========== ==========
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE ...................... $ (0.27) $ (0.35)
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING ..................................................... 34,769(n) 34,769(n)
========== ==========
</TABLE>
(Continued on following page)
34
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Flint T.V., Inc. ("Flint-TV") column reflects the results of operations
for WSMH for the period from January 1, 1996 to February 28, 1996, the date
the Flint Acquisition was consummated.
(b) The Superior Communications Group, Inc. column reflects the results of
operations for Superior for the period from January 1, 1996 to May 7, 1996,
the date the Superior Acquisition was consummated.
(c) The KSMO column reflects the results of operations for the period from
January 1, 1996 to June 30, 1996 as the transaction was consummated in July
1996.
(d) The WSTR column reflects the results of operations for the period from
January 1, 1996 to July 31, 1996 as the transaction was consummated in
August 1996.
(e) The River City column reflects the results of operations for River City
(including KRRT, Inc.) for the period from January 1, 1996 to May 31, 1996,
the date the River City Acquisition was consummated. The WSYX column
removes the results of WSYX from the results of River City for the period.
(f) The WYZZ column reflects the results of operations for the period from
January 1, 1996 to June 30, 1996 as the purchase transaction was
consummated in July 1996.
(g) To adjust River City operating expenses for non-recurring LMA payments made
to KRRT, Inc. for KRRT, Inc. debt service and to adjust River City and
Superior Communications operating expenses for employment contracts and
other corporate overhead expenses not assumed at the time of the 1996
Acquisitions.
(h) To record compensation expense related to options granted under the
Long-Term Incentive Plan:
YEAR ENDED
DECEMBER 31,
1996
-------------
Compensation expense related to the Long-Term Incentive
Plan on a pro forma basis .............................. $ 933
Less: Compensation expense recorded by the Company re-
lated to the Long-Term Incentive Plan ................... (739)
------
$ 194
======
(i) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by Flint-TV, Superior, KSMO, WSTR,
River City(e) and WYZZ from the period of January 1, 1996 through date of
acquisition. Tangible assets are to be depreciated over lives ranging from
5 to 29.5 years, calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
--------------------------------------------------------------------------
FLINT-TV SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
---------- ---------- --------- --------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation expense on acquired tangible assets ... $ 32 $ 315 $ 240 $ 507 $ 3,965 $ 159 $ 5,218
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City(e) and WYZZ ......... (4) (373) (374) (284) (5,120) (6) (6,161)
----- ------- -------- ------ --------- ------ --------
Pro forma adjustment ................................. $ 28 $ (58) $ (134) $ 223 $ (1,155) $ 153 $ (943)
===== ======= ======== ====== ========= ====== ========
</TABLE>
<PAGE>
(j) To record amortization expense related to acquired intangible assets and
deferred financing costs and eliminate amortization expense recorded by
Flint-TV, Superior, KSMO, WSTR, River City(e) and WYZZ from the period of
January 1, 1996 through date of acquisition. Intangible assets are to be
amortized over lives ranging from 1 to 40 years, calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
----------------------------------------------------------------------
FLINT-TV SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
---------- ---------- ------- ------- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization expense on acquired intangible assets ... $ 167 $ 827 $ 180 $ 285 $ 12,060 $ 99 $ 13,618
Deferred financing costs .............................. 1,429 1,429
Less: Amortization expense recorded by Flint-TV, Su-
perior, KSMO, WSTR, River City(e) and WYZZ ............. - (529) - (39) (10,442) (3) (11,013)
------ ----- ------ ------ --------- ----- --------
Pro forma adjustment ................................. $ 167 $ 298 $ 180 $ 246 $ 3,047 $ 96 $ 4,034
====== ===== ====== ====== ========= ===== ========
</TABLE>
35
<PAGE>
(k) To record interest expense for the year ended December 31, 1996 on
acquisition financing relating to Superior of $59,850 (under the Bank
Credit Agreement at 8.0% for four months), KSMO and WSTR of $10,425 and
$7,881, respectively (both under the Bank Credit Agreement at 8.0% for six
months), River City (including KRRT) of $868,300 (under the Bank Credit
Agreement at 8.0% for five months) and of $851 for hedging agreements
related to the River City financing and WYZZ of $20,194 (under the Bank
Credit Agreement at 8.0% for six months) and eliminate interest expense
recorded. No interest expense has been recorded for Flint-TV as it has been
assumed that the proceeds from the 1995 Notes were used to purchase
Flint-TV.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
--------------------------------------------------------------------------
SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
----------- --------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense adjustment as noted above ...... $ (1,596) $ (417) $ (315) $ (29,032) $ (808) $ (32,168)
Less: Interest expense recorded by, Superior, KSMO,
WSTR, River City (e) and WYZZ ..................... 457 823 1,127 12,352 - 14,759
---------- -------- -------- --------- -------- -----------
Pro forma adjustment .............................. $ (1,139) $ 406 $ 812 $ (16,680) $ (808) $ (17,409)
========== ======== ======== ========= ======== ===========
</TABLE>
(l) To eliminate interest income for the year ended December 31, 1996 on public
debt proceeds relating to Flint-TV, KSMO and WSTR and WYZZ of $34,400 (with
a commercial bank at 5.7% for two months), $10,425 and $7,881 (both with a
commercial bank at 5.7% for six months) and $20,194 (with a commercial bank
at 5.7% for six months), respectively due to assumed utilization of excess
cash for those acquisitions.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
--------------------------------------------------------------------
FLINT-TV KSMO WSTR RIVER CITY WYZZ TOTAL
---------- --------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income adjustment as noted above ...... $ (327) $ (297) $ (226) $ - $ (576) $ (1,426)
Less: Interest income recorded by Flint-TV, KSMO,
WSTR, River City(e) and WYZZ .................. - - (15) (195) - (210)
------- -------- -------- ------- -------- ----------
Pro forma adjustment ........................... $ (327) $ (297) $ (241) $ (195) $ (576) $ (1,636)
======= ======== ======== ======= ======== ==========
</TABLE>
(m) To record tax provision (benefit) for the 1996 Acquisitions, the Old
Securities Offering and the Debt Offering adjustments at the applicable
statutory tax rates.
(n) Weighted average shares outstanding on a pro forma basis assumes that the
1,150,000 shares of Series B Convertible Preferred Stock were converted to
4,181,818 shares of $.01 par value Class A Common Stock and the Incentive
Stock Options and Long-Term Incentive Plan Options were outstanding as of
the beginning of the period.
(o) To record amortization expense on other assets for one year ($6 million
over 12 years).
(p) To record the net interest expense reduction for 1996 related to
application of the Old Securities Offering proceeds to the outstanding
balance under the revolving credit facility offset by an increase in
commitment fees for the available but unused portion of the revolving
credit facility for the year ended December 31, 1996.
<TABLE>
<S> <C>
Interest on adjusted borrowing on term loans .............................. $ 12,600
Commitment fee on available but unused borrowings of $250,000 of revolving
credit facility at 1/2 of 1% for 12 months ............................... (1,250)
Commitment fee on available borrowings recorded by the Company ............ 470
--------
Pro forma adjustment ...................................................... $ 11,820
========
</TABLE>
(q) To record subsidiary trust minority interest expense for the year ended
December 31, 1996 ($200 million aggregate Liquidation Value of Preferred
Securities at a distribution rate of 11.625%).
(r) To record amortization expense on other assets for one year ($4.75 million
over 10 years).
(s) To record interest expense on the Notes for one year ($200 million at 9%)
(t) To record amortization expenses on other assets for one quarter ($6 million
over 12 years).
36
<PAGE>
(u) To record the net interest expense reduction for 1997 related to
application of the Old Securities Offering proceeds to the outstanding
balance under the revolving credit facility offset by an increase in
commitment fees for the available but unused portion of the revolving
credit facility for the quarter ended March 31, 1997.
<TABLE>
<S> <C>
Interest on adjusted borrowing on term loans .............................. $ 2,162
Commitment fee on available but unused borrowings of $250,000 of revolving
credit facility at 1/2 of 1% for three months ........................... (313)
Commitment fee on available borrowings recorded by the Company ............ 173
---------
Pro forma adjustment ...................................................... $ 2,022
=========
(v) To record subsidiary trust minority interest expense for the quarter ended
March 31, 1997 ($200 million aggregate Liquidation Value of Preferred
Securities at a distribution rate of 11.625%).
Subsidiary trust minority interest expense for
one quarter ............ ............................ $ (5,813)
Subsidiary trust minority interest expense made by the
Company during the quarter ........................... 1,210
---------
Pro forma adjustment ................................. $ (4,603)
=========
</TABLE>
(w) To record amortization expense on other assets for one quarter ($4.75
million over 10 years).
(x) To record interest expense on the Notes for one quarter ($200 million at
9%).
37
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SINCLAIR BROADCAST GROUP, INC.
BY: /s/ David B. Amy
------------------------------------
David B. Amy
Chief Financial Officer/
Principal Accounting Officer
Dated: June 27, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SUBSEQUENTLY
EXHIBIT NO. NUMBERED PAGE
- ------------- --------------
<S> <C> <C>
99 Press Release by Sinclair Broadcast Group, Inc. dated June 23, 1997
</TABLE>
EXHIBIT 99
SINCLAIR BROADCAST GROUP ANNOUNCES PRIVATE SECURITIES OFFERING
BALTIMORE, June 23 / PRNewswire / - Sinclair Broadcast Group, Inc. (Nasdaq:
SBGI) announced today a proposed $200 milion private offering of Senior
Subordinated Notes (the "Notes"). The Notes will have a maturity of 2007 and
will be offered only to "qualified institutional buyers" (as defined in Rule
144A under the Securities Act of 1933, as amended).
Sinclair Broadcast Group, Inc. intends to use the net proceeds of the
proposed private offering to repay outstanding debt and for general corporate
purposes, which may include acquisitions and repurchases of shares of the
Company's Class A Common Stock.
The Notes proposed to be offered by Sinclair Broadcast Group, Inc. have not
been and will not be registered under the Securities Act of 1933, as amended, or
any state securities or blue sky laws and may not be offered or sold in the
United States or in any state thereof absent registration or an applicable
exemption from the registration requirements of such laws. This press release
shall not constitute an offer to sell or the solicitation of an offer to buy the
proposed Notes.
SOURCE Sinclair Broadcast Group, Inc.
CONTACT: Patrick Talamantes, Director of Corporate Finance of Sinclair
Broadcast Group,
410-467-5005