================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
JULY 16, 1997
-----------------------
(Date of earliest event reported)
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 33-69482 52-1494660
(State of incorporation) (Commission File Number) (IRS Employer
Identification Number)
2000 W. 41st Street, Baltimore, Maryland 21211-1420
-------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (410) 467-5005
================================================================================
<PAGE>
Item 5. Other Events
As previously reported, Sinclair Broadcast Group, Inc. (the "Company")
entered into acquisition agreements on July 16, 1997 (the "Heritage Acquisition
Agreements") with certain subsidiaries of Heritage Media Corporation
("Heritage") pursuant to which the Company will acquire the assets of, or the
right to program pursuant to local marketing agreements, six television stations
in three markets and the assets of 24 radio stations in seven markets (the
"Heritage Acquisition"). The Company is filing with this report on Form 8-K the
audited financial statements of Heritage Media Services, Inc. -- Broadcasting
Segment ("HMSI"), which includes all the assets to be acquired by the Company
pursuant to the Heritage Acquisition Agreements. The Company is also filing with
this report on Form 8-K pro forma financial information for the Company showing
the effect of the Heritage Acquisition and certain other transactions completed
by the Company since January 1, 1996 (the "1996 Acquisitions").
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The financial statements required by this item are submitted in a separate
section of this report.
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
INDEPENDENT AUDITORS' REPORT
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statement of Operations for the Year Ended December 31, 1996
Consolidated Statement of Stockholder's Equity for the Year Ended December
31, 1996
Consolidated Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Consolidated Financial Statements
(b) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Financial Data include the unaudited
pro forma consolidated balance sheet as of June 30, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1996 and the six months ended June
30, 1997 (the "Pro Forma Consolidated Statement of Operations"). The unaudited
Pro Forma Consolidated Balance Sheet is adjusted to give effect to the issuance
of $200,000,000 in principal amount of the Company's 9% Senior Subordinated
Notes due 2007 (the "1997 Notes") issued July 2, 1997 (the "Debt Issuance"), and
the Heritage Acquisition, as if they occurred on June 30, 1997 and assuming the
net proceeds of the Debt Issuance were used to repay certain amounts outstanding
under the revolving credit facility governed by an Awarded and Restated Credit
Agreement dated as of May 20, 1997 with the Chase Manhattan Bank, as agent (as
amended from time to time, the "Bank Credit Agreement") with the remainder
retained for general corporate purposes. 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 issuance of $200,000,000 in liquidation
amount of the Company's 115/8% High Yield Trust Offered Preferred Securities
(the "HYTOPS") issued on March 14, 1997 (the "HYTOPS Issuance"), the Debt
Issuance and the Heritage Acquisition, as if each occurred at the beginning of
such period and assuming the the net proceeds of the Debt Issuance and the
HYTOPS Issuance were used to repay certain amounts outstanding under the
revolving credit facility, with the remainder returned for general corporate
purposes. The unaudited Pro Forma Consolidated Statement of Operations for the
six months ended June 30, 1997 is adjusted to give effect to the HYTOPS
Issuance, the Debt Issuance under the Bank Credit Agreement and the Heritage
Acquisition as if each occurred at the beginning of such period and assuming the
net proceeds of the Debt Issuance and the HYTOPS Issuance were used to repay
certain amounts outstanding under the revolving credit facility under the Bank
Credit Agreement, with the remainder returned for general corporate purposes.
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
six months ended June 30, 1997 and related notes thereto, the historical
financial data of Flint T.V., Inc., the historical financial data of Superior
Communications, Inc., the historical financial data of KSMO and WSTR, the
historical financial data of River City Broadcasting, L.P. and the historical
financial data of Heritage Media Services, Inc. -- Broadcasting Segment, all of
which have been filed with the Commission herewith or 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 June 30, 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.
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DEBT
ISSUANCE
CONSOLIDATED DEBT HERITAGE AND HERITAGE
HISTORICAL ISSUANCE(A) ACQUISITION(B) ACQUISITION
-------------- ------------------ ---------------- -------------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 2,740 $ 33,000 (c) $ 35,740
Accounts receivable, net of allowance for doubtful accounts 102,093 102,093
Current portion of program contract costs .................. 34,768 $ 926 35,694
Prepaid expenses and other current assets .................. 4,054 4,054
Deferred barter costs ....................................... 4,267 2,218 6,485
Deferred tax asset .......................................... 8,188 8,188
---------- ----------
Total current assets ....................................... 156,110 33,000 3,144 192,254
PROGRAM CONTRACT COSTS, less current portion .................. 30,778 712 31,490
LOANS TO OFFICERS AND AFFILIATES .............................. 11,241 11,241
PROPERTY AND EQUIPMENT, net ................................. 156,681 22,022 178,703
NON-COMPETE AND CONSULTING AGREEMENTS, net .................. 2,250 2,250
OTHER ASSETS ................................................ 71,970 4,500 (d) 76,470
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net .................. 1,333,475 545,969 1,879,444
---------- ------------ ----------
Total Assets ............................................. $1,762,505 $ 37,500 $ 571,847 $2,371,852
========== ============ ============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 5,310 $ 5,310
Accrued liabilities .......................................... 39,023 39,023
Current portion of long-term liabilities-
Notes payable and commercial bank financing ............... 65,500 65,500
Capital leases payable .................................... 11 11
Notes and capital leases payable to affiliates ............ 1,370 1,370
Program contracts payable ................................. 49,766 $ 1,096 50,862
Deferred barter revenues .................................... 4,458 4,458
---------- ----------
Total current liabilities ................................. 165,438 1,096 166,534
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ............... 1,097,000 $ 37,500 (e) 570,000 (f) 1,704,500
Capital leases payable .................................... 30 30
Notes and capital leases payable to affiliates ............ 11,872 11,872
Program contracts payable ................................. 46,670 751 47,421
Other long-term liabilities ................................. 4,960 4,960
---------- ----------
Total liabilities .......................................... 1,325,970 37,500 571,847 1,935,317
---------- ------------ ------------ ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ............... 3,897 3,897
---------- ----------
COMPANY OBLIGATED MANDATORILY REDEEMABLE SE-
CURITY OF SUBSIDIARY TRUST HOLDING SOLELY KDSM
SENIOR DEBENTURES .......................................... 200,000 200,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Preferred Stock ................................. 11 11
Series D Convertible Exchangeable Preferred Stock ......... -- --
Class A Common Stock ....................................... 71 71
Class B Common Stock ....................................... 277 277
Additional paid-in capital ................................. 234,812 234,812
Additional paid-in capital - deferred compensation ......... (896) (896)
Additional paid-in capital - equity put options ............ 23,117 23,117
Accumulated deficit ....................................... (24,754) (24,754)
---------- ----------
Total stockholders' equity ................................. 232,638 232,638
---------- ----------
Total Liabilities and Stockholders' Equity ............... $1,762,505 $ 37,500 $ 571,847 $2,371,852
========== ============ ============ ==========
</TABLE>
(Continued on following page)
1
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(a) To reflect the proceeds of the Debt Issuance consummated on July 2, 1997,
net of $4,500 of underwriting discounts and commissions and estimated
expenses and the application of the proceeds therefrom.
(b) The Heritage Acquisition column reflects the assets and liabilities
acquired in connection with the $630,000 purchase of Heritage less the
$60,000 divestiture of the Heritage television station KOKH in Oklahoma
City, Oklahoma, which is required pursuant to the Heritage Acquisition
Agreements and with respect to which the Company has entered into a letter
of intent. The Heritage Acquisition is subject to a number of conditions
customary for acquisitions of broadcasting properties. Total acquired
intangibles are calculated as follows:
<TABLE>
<CAPTION>
HERITAGE
HERITAGE KOKH ACQUISITION
---------- ---------- ------------
<S> <C> <C> <C>
Purchase Price .......................................... $630,000
Add:
Liabilities acquired--
Current portion of program contracts payable ......... $ 1,552 $ (456) 1,096
Long-term portion of program contracts payable ...... 860 (109) 751
Less:
Assets acquired--
Current portion of program contract costs ............ 1,603 (677) 926
Deferred barter costs .............................. 2,496 (278) 2,218
Program contract costs, less current portion ......... 1,266 (554) 712
Property and equipment .............................. 27,524 (5,502) 22,022
Sale of KOKH ....................................... 60,000
---------
Acquired intangibles ................................. $545,969
=========
</TABLE>
(c) To record the increase in cash and cash equivalents resulting from the net
proceeds of the Debt Issuance 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 (4,500)
Repayment of revolving credit facility under the Bank Credit
Agreement ................................................ (162,500)
----------
Pro forma adjustment ....................................... $ 33,000
==========
(d) To record underwriting discounts and commissions and estimated expenses of
$4,500.
(e) To reflect the increase in indebtedness resulting from the Debt Issuance
after giving effect to the repayment of the revolving credit facility under
the Bank Credit Agreement as follows:
<TABLE>
<S> <C>
Indebtedness incurred .................................... $ 200,000
Repayment of revolving credit facility under the Bank Credit
Agreement ................................................ (162,500)
----------
Pro forma adjustment ....................................... $ 37,500
==========
</TABLE>
(f) To reflect the incurrence of $570,000 of bank financing in connection with
the Heritage Acquisition.
2
<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)
-------------- ------------- ---------------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 346,459 $1,012 $4,431 $ 7,694
Revenues realized from station barter arrange-
ments 32,029 2,321
---------- --------
Total revenues .................................... 378,488 1,012 4,431 10,015
---------- ------- ------ --------
OPERATING EXPENSES:
Program and production ........................... 66,652 101 539 1,550
Selling, general and administrative ............... 75,924 345 2,002 2,194
Expenses realized from barter arrangements ......... 25,189 2,276
Amortization of program contract costs and net
realizable value adjustments ..................... 47,797 125 736 601
Amortization of deferred compensation ............ 739
Depreciation and amortization of property and
equipment ....................................... 11,711 4 373 374
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. 58,530 529
Amortization of excess syndicated programming ...... 3,043
----------
Total operating expenses ........................ 289,585 575 4,179 6,995
---------- ------- ------ --------
Broadcast operating income (loss) ............... 88,903 437 252 3,020
---------- ------- ------ --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. (84,314) (457) (823)
Interest income .................................... 3,136
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
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. 6,936
----------
NET INCOME (LOSS) ................................. $ 1,131 $ 456 $ (201) $ 2,204
========== ======= ====== ========
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS ................................... $ 1,131
==========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ........................... $ 0.03
==========
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTANDING .................. 37,381
==========
<PAGE>
<CAPTION>
RIVER CITY(E) 1996
---------------------------- ACQUISITION
WSTR(D) RIVER CITY WSYX WYZZ(F) ADJUSTMENTS
----------- ------------ --------------- --------- ------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 7,488 $ 86,869 $ (10,783) $1,838
Revenues realized from station barter arrange-
ments .............................................. 1,715
---------
Total revenues .................................... 9,203 86,869 (10,783) 1,838
--------- ---------- ---------- -------
OPERATING EXPENSES:
Program and production ........................... 961 10,001 (736) 214
Selling, general and administrative ............... 2,173 39,786 (3,950) 702 $ (3,577)(h)
Expenses realized from barter arrangements ......... 1,715
Amortization of program contract costs and net
realizable value adjustments ..................... 1,011 9,721 (458) 123
Amortization of deferred compensation ............ 194 (j)
Depreciation and amortization of property and
equipment ....................................... 284 6,294 (1,174) 6 (943)(k)
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. 39 14,041 (3,599) 3 4,034 (m)
Amortization of excess syndicated programming.......
Total operating expenses ........................ 6,183 79,843 (9,917) 1,048 (292)
--------- ---------- ---------- ------- -------------
Broadcast operating income (loss) ............... 3,020 7,026 (866) 790 292
--------- ---------- ---------- ------- -------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. (1,127) (12,352) (17,409)(q)
Interest income .................................... 15 195 (1,636)(u)
Subsidiary trust minority interest expense .........
Other income (expense) ........................... (149) (8)
---------- ----------
Income (loss) before provision (benefit) for
income taxes .................................... 1,908 (5,280) (874) 790 (18,753)
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. (7,900)(w)
-------------
NET INCOME (LOSS) ................................. $ 1,908 $ (5,280) $ (874) $ 790 $ (10,853)
========= ========== ========== ======= =============
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS ...................................
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ...........................
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTANDING ..................
<PAGE>
<CAPTION>
DEBT ISSUANCE,
HYTOPS DEBT HYTOPS ISSUANCE
ISSUANCE ISSUANCE AND 1996 ACQUISITIONS
------------------ -------------------- ----------------------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 445,008
Revenues realized from station barter arrange-
ments .............................................. 36,065
-----------
Total revenues .................................... 481,073
-----------
OPERATING EXPENSES:
Program and production ........................... 79,282
Selling, general and administrative ............... 115,599
Expenses realized from barter arrangements ......... 29,180
Amortization of program contract costs and net
realizable value adjustments ..................... 59,656
Amortization of deferred compensation ............ 933
Depreciation and amortization of property and
equipment ....................................... 16,929
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. $ 500 (n) $ 450 (o) 74,527
Amortization of excess syndicated programming....... 3,043
-----------
Total operating expenses ........................ 500 450 379,149
------------- ------------- -----------
Broadcast operating income (loss) ............... (500) (450) 101,924
------------- ------------- -----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.. 11,820 (r) (18,000) (s) (122,662)
Interest income .................................... 1,710
Subsidiary trust minority interest expense ......... (23,250)(v) (23,250)
Other income (expense) ........................... 215
-----------
Income (loss) before provision (benefit) for
income taxes .................................... (11,930) (18,450) (42,063)
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. (4,772)(w) (7,380)(w) (13,116)
------------- ------------- -----------
NET INCOME (LOSS) ................................. $ (7,158) $ (11,070) $ (28,947)
============= ============= ===========
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS ...................................
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ...........................
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTANDING ..................
</TABLE>
(Continued on following page)
3
<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>
HERITAGE(G)
DEBT ISSUANCE, -----------------------
HYTOPS ISSUANCE
AND 1996 ACQUISITIONS HERITAGE KOKH
----------------------- ------------ ----------
<S> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 445,008 $ 95,302 $(7,953)
Revenues realized from station barter arrangements ............ 36,065 4,292 (178)
----------- ---------- --------
Total revenues ............................................. 481,073 99,594 (8,131)
----------- ---------- --------
OPERATING EXPENSES:
Program and production ....................................... 79,282 20,089 (1,871)
Selling, general and administrative ........................ 115,599 31,916 (1,722)
Expenses realized from barter arrangements .................. 29,180 3,478 (70)
Amortization of program contract costs and net realizable
value adjustments .......................................... 59,656 3,165 (1,208)
Amortization of deferred compensation ........................ 933
Depreciation and amortization of property and equipment . 16,929 5,472 (1,022)
Amortization of acquired intangible broadcasting assets, non-
compete and consulting agreements and other assets ......... 74,527 8,460 (367)
Amortization of excess syndicated programming ............... 3,043
-----------
Total operating expenses ................................. 379,149 72,580 (6,260)
----------- ---------- --------
Broadcast operating income (loss) ........................... 101,924 27,014 (1,871)
----------- ---------- --------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (122,662) (17,949) 1,025
Gain on sale of station ....................................... 6,031
Interest income ............................................. 1,710
Subsidiary trust minority interest expense .................. (23,250)
Other income (expense) ....................................... 215 (203)
----------- ----------
Income (loss) before provision (benefit) for income taxes (42,063) 14,893 (846)
PROVISION (BENEFIT) FOR INCOME
TAXES ...................................................... (13,116) 7,853 (466)
----------- ---------- --------
NET INCOME (LOSS) ............................................. $ (28,947) $ 7,040 $ (380)
=========== ========== ========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................................
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE .............................................
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ..............................
<CAPTION>
DEBT ISSUANCE,
HERITAGE HYTOPS ISSUANCE,
ACQUISITION 1996 ACQUISITIONS AND
ADJUSTMENTS HERITAGE ACQUISITION
------------------- ----------------------
<S> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 532,357
Revenues realized from station barter arrangements ............ 40,179
------------
Total revenues ............................................. 572,536
------------
OPERATING EXPENSES:
Program and production ....................................... 97,500
Selling, general and administrative ........................ (1,808) (i) 143,985
Expenses realized from barter arrangements .................. 32,588
Amortization of program contract costs and net realizable
value adjustments .......................................... 61,613
Amortization of deferred compensation ........................ 933
Depreciation and amortization of property and equipment . (900)(l) 20,479
Amortization of acquired intangible broadcasting assets, non-
compete and consulting agreements and other assets ......... 9,531 (p) 92,151
Amortization of excess syndicated programming ............... 3,043
------------
Total operating expenses ................................. 6,823 452,292
------------ ------------
Broadcast operating income (loss) ........................... (6,823) 120,244
------------ ------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (23,621)(t) (163,207)
Gain on sale of station ....................................... 6,031
Interest income ............................................. 1,710
Subsidiary trust minority interest expense .................. (23,250)
Other income (expense) ....................................... 12
------------
Income (loss) before provision (benefit) for income taxes ... (30,444) (58,460)
PROVISION (BENEFIT) FOR INCOME
TAXES ...................................................... (12,178)(w) (17,907)
------------ ------------
NET INCOME (LOSS) ............................................. $ (18,266) $ (40,553)
============ ============
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ................................................ $ (40,553)
============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE ............................................. $ (1.04)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 39,058 (x)
============
</TABLE>
4
<PAGE>
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CONSOLIDATED HYTOPS DEBT
<S> <C> <C> <C>
HISTORICAL ISSUANCE ISSUANCE
------------- ----------------- -----------------
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 219,701
Revenues realized from station barter ar-
rangements ................................... 19,870
----------
Total revenues .............................. 239,571
----------
OPERATING EXPENSES:
Program and production ........................ 46,760
Selling, general and administrative ......... 51,634
Expenses realized from station barter ar-
rangements ................................... 16,303
Amortization of program contract costs and
net realizable value adjustments ............ 30,918
Amortization of deferred compensation ......... 233
Depreciation and amortization of property
and equipment .............................. 8,340
Amortization of acquired intangible broad-
casting assets, non-compete and consult-
ing agreements and other assets .............. 37,392 $ 88 (aa) $ 225 (bb)
---------- ------------ ------------
Total operating expenses .................. 191,580 88 225
---------- ------------ ------------
Broadcast operating income (loss) ......... 47,991 (88) (225)
---------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense .................................... (51,993) 2,894 (dd) (9,000)(ee)
Gain of sale of station .....................
Interest income .............................. 1,040
Subsidiary trust minority interest expense .... (7,007) (4,618)(gg)
Other income ................................. 47
----------
Income (loss) before provision (bene-
fit) for income taxes ....................... (9,922) (1,812) (9,225)
PROVISION (BENEFIT) FOR INCOME
TAXES ....................................... (4,100) (725)(w) (3,690)(w)
---------- ------------ ------------
NET INCOME (LOSS) .............................. $ (5,822) $ (1,087) $ (5,535)
========== ============ ============
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ................................. $ (5,822)
==========
NET LOSS PER COMMON AND COM-
MON EQUIVALENT SHARE .......................... $ (0.17)
==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........................... 34,746
==========
<PAGE>
<CAPTION>
HERITAGE(G) HERITAGE DEBT ISSUANCE,
------------------------ ACQUISITION HYTOPS ISSUANCE
HERITAGE KOKH ADJUSTMENTS AND HERITAGE ACQUISITION
--------- -------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency
commissions ................................. $ 46,451 $ (3,706) $ 262,446
Revenues realized from station barter ar-
rangements ................................... 2,430 (125) 22,175
--------- -------- ---------
Total revenues .............................. 48,881 (3,831) 284,621
--------- -------- ---------
OPERATING EXPENSES:
Program and production ........................ 15,313 (1,150) 60,923
Selling, general and administrative ......... 9,447 (784) $ (883) (y) 59,414
Expenses realized from station barter ar-
rangements ................................... 1,849 (62) 18,090
Amortization of program contract costs and
net realizable value adjustments ............ 824 (297) 31,445
Amortization of deferred compensation ......... 233
Depreciation and amortization of property
and equipment .............................. 2,819 (445) (450) (z) 10,264
Amortization of acquired intangible broad-
casting assets, non-compete and consult-
ing agreements and other assets .............. 4,174 (184) 4,964 (cc) 46,659
--------- -------- ------------- ---------
Total operating expenses .................. 34,426 (2,922) 3,631 227,028
--------- -------- ------------- ---------
Broadcast operating income (loss) ......... 14,455 (909) (3,631) 57,593
--------- -------- ------------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount
expense .................................... (9,979) 425 (10,768) (ff) (78,421)
Gain of sale of station ..................... 9,401 9,401
Interest income .............................. 1,040
Subsidiary trust minority interest expense .... (11,625)
Other income ................................. (98) (51)
--------- ---------
Income (loss) before provision (bene-
fit) for income taxes ....................... 13,779 (484) (14,399) (22,063)
PROVISION (BENEFIT) FOR INCOME
TAXES ....................................... 7,262 (369) (5,760) (w) (7,382)
--------- -------- ------------- ---------
NET INCOME (LOSS) .............................. $ 6,517 $ (115) $ (8,639) $ (14,681)
========= ======== ============= =========
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS ................................. $ (14,681)
=========
NET LOSS PER COMMON AND COM-
MON EQUIVALENT SHARE .......................... $ (0.42)
=========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ........................... 34,769
=========
</TABLE>
5
<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
as the Company has not yet acquired WSYX.
(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) The Heritage column reflects the results of operations for the period from
January 1, 1996 to December 31, 1996 for the year ended December 31, 1996
Pro Forma Consolidated Statement of Operations and the results of
operations for the period from January 1, 1997 to June 30, 1997 for the six
months ended June 30, 1997 Pro Forma Consolidated Statement of Operations.
The KOKH column removes the results of KOKH from the results of Heritage
for both periods to reflect the sale of KOKH, which is required pursuant to
the Heritage Acquisition Agreements and with respect to which the Company
has entered into a letter of intent.
(h) 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 operating expenses for employment contracts and other corporate
overhead expenses not assumed at the time of the 1996 Acquisitions.
(i) To adjust Heritage operating expenses for corporate overhead expenses which
the Company does not expect to incur upon its consummation of the Heritage
Acquisition on a going-forward basis.
(j) To record compensation expense related to options granted under the
Company's 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
======
(k) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by Flint-TV, Superior, KSMO, WSTR,
River City and WYZZ from the period of January 1, 1996 through the 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
---------- ---------- -----------
<S> <C> <C> <C>
Depreciation expense on acquired tangible assets ... $ 32 $ 315 $ 240
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (4) (373) (374)
----- ------ -------
Pro forma adjustment ................................. $ 28 $ (58) $ (134)
===== ====== =======
<CAPTION>
WSTR RIVER CITY WYZZ TOTAL
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Depreciation expense on acquired tangible assets ... $ 507 $ 3,965 $ 159 $ 5,218
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (284) (5,120) (6) (6,161)
------- --------- ------ ---------
Pro forma adjustment ................................. $ 223 $ (1,155) $ 153 $ (943)
======= ========= ====== =========
</TABLE>
(l) To record depreciation expense related to acquired tangible assets of
$3,550 and eliminate depreciation expense of $4,450 recorded by Heritage.
Tangible assets are to be depreciated over lives ranging from 5 to 29.5
years.
(m) 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 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
---------- ---------- -------
<S> <C> <C> <C>
Amortization expense on acquired intangible assets $ 167 $ 827 $ 180
Deferred financing costs ...........................
Less: Amortization expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... -- (529) --
------ ------- ------
Pro forma adjustment .............................. $ 167 $ 298 $ 180
====== ======= ======
<CAPTION>
WSTR RIVER CITY WYZZ TOTAL
------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Amortization expense on acquired intangible assets $ 285 $ 12,060 $ 99 $ 13,618
Deferred financing costs ........................... 1,429 1,429
Less: Amortization expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (39) (10,442) (3) (11,013)
----- ---------- ----- ----------
Pro forma adjustment .............................. $ 246 $ 3,047 $ 96 $ 4,034
===== ========== ===== ==========
</TABLE>
6
<PAGE>
(n) To record amortization expense on other assets that relate to the HYTOPS
Issuance for one year ($6,000 over 12 years).
(o) To record amortization expense on other assets for one year ($4,500 over 10
years). See note (f) of notes to Pro Forma Consolidated Balance Sheet.
(p) To record amortization expense related to acquired intangible assets of
$17,624 and eliminate amortization expense of $8,093 recorded by Heritage.
Intangible assets are to be amortized over lives ranging from 1 to 40
years.
(q) 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 and WYZZ ........................ 457 823 1,127 12,352 -- 14,759
--------- ------- ------- --------- ------- ----------
Pro forma adjustment ........................... $ (1,139) $ 406 $ 812 $ (16,680) $ (808) $ (17,409)
========= ======= ======= ========= ======= ==========
</TABLE>
(r) To record the net interest expense reduction for 1996 related to
application of the HYTOPS Issuance 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 the revolving credit facility .................. $ 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>
(s) To record interest expense on the 1997 Notes for one year ($200,000 at 9%).
(t) To record interest expense on acquisition financing of $570,000 (under the
Bank Credit Agreement at 71/4%), net of $780 of commitment fees for the
available but unused portion of the revolving credit facility, and
eliminated interest expense of $16,924 recorded by Heritage.
(u) To eliminate interest income for the year ended December 31, 1996 on
proceeds from the sale of the 1995 Notes due to assumed utilization of
excess cash for the following acquisitions: 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).
<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 and WYZZ ..................... -- -- (15) (195) -- (210)
------- ------- ------- ------- ------- ---------
Pro forma adjustment ........................... $ (327) $ (297) $ (241) $ (195) $ (576) $ (1,636)
======= ======= ======= ======= ======= =========
</TABLE>
(v) To record subsidiary trust minority interest expense for the year ended
December 31, 1996 ($200,000 aggregate liquidation value of HYTOPS).
(w) To record tax provision (benefit) at the applicable statutory tax rates.
(x) Weighted average shares outstanding on a pro forma basis assumes that the
1,150,000 shares of Series B Preferred Stock were converted to 4,181,818
shares of Class A Common Stock and the Company's Incentive Stock Options
and Long-Term Incentive Plan Options were outstanding as of the beginning
of the period.
(y) To adjust Heritage operating expenses for corporate overhead expenses which
the Company does not expect to incur upon its consummation of the Heritage
Acquisition on a going-forward basis.
(z) To record depreciation expenses related to acquired tangible assets of
$1,775 and eliminate depreciation expense of $2,225 recorded by Heritage.
Tangible assets are to be depreciated over lives ranging from 5 to 29.5
years.
7
<PAGE>
(aa) To record amortization expense on other assets that resulted from the
HYTOPS Issuance for six months ($6,000 over 12 years).
Amortization expense on other assets ............... $ 250
Amortization expense recorded by the Company ...... (162)
------
Pro forma adjustment .............................. $ 88
======
(bb) To record amortization expense on other assets for six months ($4,500 over
10 years). See note (f) of notes to Pro Forma Consolidated Balance Sheet.
(cc) To record amortization expense related to acquired intangible assets of
$8,954 and eliminate amortization expense of $3,990 recorded by Heritage.
Intangible assets are to be amortized over lives ranging from 1 to 40
years.
(dd) To record the net interest expense reduction for 1997 related to
application of the HYTOPS Issuance 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 June 30, 1997.
<TABLE>
<S> <C>
Interest on adjusted borrowing on the revolving credit facility ............... $3,235
Commitment fee on available but unused borrowings of $250,000 of revolving credit
facility at 1/2 of 1% for six months .......................................... (625)
Commitment fee on available borrowings recorded by the Company .................. 284
------
Pro forma adjustment ............................................................ $2,894
======
</TABLE>
(ee) To record interest expense on the 1997 Notes for six months ($200,000 at
9%).
(ff) To record interest expense on acquisition financing of $570,000 (under the
Bank Credit Agreement at 71/4%), net of $341 of commitment fees for the
available but unused portion of the revolving credit facility, and
eliminate interest expense of $9,554 recorded by Heritage.
(gg) To record subsidiary trust minority interest expense for the quarter ended
June 30, 1997 ($200,000 aggregate liquidation value HYTOPS).
<TABLE>
<S> <C>
Subsidiary trust minority interest expense for six months ........................ $ (11,625)
Subsidiary trust minority interest expense made by the Company during the quarter . 7,007
---------
Pro forma adjustment ............................................................... $ (4,618)
=========
</TABLE>
8
<PAGE>
HERITAGE MEDIA SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants ............................................. F-1
Consolidated Financial Statements
Consolidated Balance Sheet ......................................................... F-2
Consolidated Statement of Operations ................................................ F-3
Consolidated Statement of Stockholders' Equity ....................................... F-4
Consolidated Statement of Cash Flows ................................................ F-5
Notes to Consolidated Financial Statements .......................................... F-6
Unaudited Financial Statements
Unaudited Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 ...... F-13
Unaudited Consolidated Statements of Operations for the Six Months Ended June 30, 1996
and 1997 ........................................................................... F-14
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1996 and 1997 ..................................................................... F-15
Notes to Financial Statements ...................................................... F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Heritage
Media Services, Inc. -- Broadcasting Segment as of December 31, 1996, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Heritage
Media Services, Inc. -- Broadcasting Segment, as of December 31, 1996, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
July 30, 1997
F-2
<PAGE>
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................... $ 2,151
Accounts receivable, net of allowance for doubtful accounts of $1,348 ......... 20,036
Current portion of program contract costs .................................... 1,006
Prepaid expenses and other current assets .................................... 138
Deferred barter costs ......................................................... 1,911
Deferred tax asset ............................................................ 215
---------
Total current assets ......................................................... 25,457
PROGRAM CONTRACT COSTS, less current portion ................................. 1,867
PROPERTY AND EQUIPMENT, net ................................................... 30,005
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ................................. 163,626
OTHER ASSETS .................................................................. 821
---------
Total Assets .................................................................. $ 221,776
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................ $ 148
Accrued liabilities ......................................................... 5,251
Deferred revenues ............................................................ 428
Deferred barter revenues ...................................................... 1,746
Current portion of program contracts payable ................................. 2,079
---------
Total current liabilities ................................................... 9,652
PROGRAM CONTRACTS PAYABLE ...................................................... 1,534
DUE TO AFFILIATE ............................................................... 178,393
DEFERRED TAX LIABILITY ......................................................... 563
OTHER LONG-TERM LIABILITIES ................................................... 152
---------
Total Liabilities ......................................................... 190,294
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 3,576,000 shares authorized and 2,591,586 shares
issued and outstanding ...................................................... 2,592
Common stock, no par value, 300 shares authorized and 200 shares issued and out-
standing --
Additional paid-in capital ................................................... 66,174
Accumulated deficit ......................................................... (37,284)
---------
Total Stockholders' Equity ................................................ 31,482
---------
Total Liabilities and Stockholders' Equity ................................. $ 221,776
=========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Station broadcast revenues, net of agency commissions of $16,727 ............ $ 95,302
Revenues realized from station barter arrangements ........................... 4,292
---------
Total revenue ............................................................ 99,594
---------
OPERATING EXPENSES:
Programming and production ................................................... 20,089
Selling, general and administrative .......................................... 31,916
Expenses realized from station barter arrangements ........................... 3,478
Amortization of program contract costs and net realizable value adjustments 3,165
Depreciation and amortization of property and equipment ..................... 5,472
Amortization of acquired intangible broadcasting assets ..................... 8,460
---------
Total operating expenses ................................................... 72,580
---------
Broadcast operating income ................................................ 27,014
---------
OTHER INCOME (EXPENSE):
Interest expense ............................................................ (17,949)
Gain on sale of assets ...................................................... 6,031
Other expense ............................................................... (203)
---------
Income before income tax provision ....................................... 14,893
INCOME TAX PROVISION ......................................................... (7,853)
---------
Net income .................................................................. $ 7,040
=========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-4
<PAGE>
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- -------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE
December 31, 1995 .................. 2,592 $2,592 $14,368 $ (13,804) $ 3,156
Parent capital contributions ...... -- -- 43,024 -- 43,024
Parent non-cash contribution ...... -- -- 8,782 -- 8,782
Dividends to parent ............... -- -- -- (30,520) (30,520)
Net income ........................ -- -- -- 7,040 7,040
------ ------- -------- --------- ---------
BALANCE,
December 31, 1996 .................. 2,592 $2,592 $66,174 $ (37,284) $ 31,482
====== ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-5
<PAGE>
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 7,040
---------
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization of property and equipment ..................... 5,472
Amortization:
Acquired intangible broadcasting assets .................................... 8,460
Program contract costs and net realizable adjustments ........................ 3,165
Deferred finance costs ...................................................... 316
Gain on sale of assets ...................................................... (6,031)
Amortization of deferred compensation ....................................... 135
Changes in assets and liabilities, net of effects of acquisitions: ............
Increase in accounts receivable, net ....................................... (1,681)
Increase in other assets ................................................... (147)
Decrease in prepaid expenses ................................................ 810
Increase in deferred tax asset ............................................. (77)
Decrease in accounts payable and accrued liabilities ........................ (3,486)
Net effect of change in deferred barter revenues and deferred barter costs ... (53)
Increase in deferred revenues ................................................ 151
Decrease in deferred tax liability .......................................... (24)
Decrease in other long-term liabilities .................................... (44)
Payments on program contracts payable .......................................... (2,565)
---------
Net cash flows from operating activities ................................. 11,441
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment .......................................... (6,938)
Proceeds from sale of assets ................................................... 13,759
Payments for acquisitions ...................................................... (9,384)
---------
Net cash flows from investing activities ................................. (2,563)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to parent ............................................................ (30,520)
Decrease in due to affiliate ................................................... (21,030)
Capital contributions made by parent .......................................... 43,024
---------
Net cash flows from financing activities ................................. (8,526)
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................................... 352
CASH AND CASH EQUIVALENTS, beginning of period ................................. 1,799
---------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 2,151
=========
SUPPLEMENTAL DISCLOSURE:
Program rights acquired ...................................................... $ 3,674
=========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-6
<PAGE>
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Heritage Media Services, Inc. ("HMSI") operates in two segments Marketing
Services and Broadcasting. The parent company of HMSI is Heritage Media
Corporation ("HMC"). The accompanying consolidated financial statements include
the accounts of the television and radio operations, which are collectively
referred to hereafter as "the Company, the Companies or the Broadcasting
Segment." The Company owns and operates television and radio stations throughout
the United States. Also included in the accompanying consolidated financial
statements are the results of operations of WFGX-TV Channel 35 in Ft. Walton
Beach, Florida, pursuant to a local marketing agreement (LMA).
Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs ongoing
credit evaluations of its customers and believes that adequate allowances for
any uncollectable trade receivables are maintained. At December 31, 1996, no
receivable from any customer exceeded 5% of stockholder's equity, and no
customer accounted for more than 10% of net revenues in 1996.
Acquired Intangible Broadcasting Assets
Acquired intangible broadcasting assets are being amortized over periods of
4 to 40 years. These amounts result from the acquisition of certain television
and radio station license and nonlicense assets (see Note 9). The Company
monitors the individual financial performance of each of the stations and
continually evaluates the realizability of intangible and tangible assets and
the existence of any impairment to its recoverability based on the projected
undiscounted cash flows of the respective stations.
Intangible assets, at cost, as of December 31, 1996, consist of the
following (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1996
--------------- ---------
<S> <C> <C>
Goodwill, net of accumulated amortization of $48,077 ......... 40 years $135,925
FCC licenses, net of accumulated amortization of $2,612 ...... 14 - 25 years 26,754
Other, net of accumulated amortization of $635 ............... 4 - 25 years 947
---------
$163,626
=========
</TABLE>
F-7
<PAGE>
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded on the straight-line basis over the estimated useful
lives of the assets. Property and equipment at December 31, 1996, are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
USEFUL LIFE 1996
--------------- ------------
<S> <C> <C>
Land ................................. -- $ 2,685
Broadcasting equipment ............... 5 - 25 years 41,268
Buildings and improvements ......... 12 - 30 years 7,369
Other equipment ..................... 4 - 8 years 9,904
---------
61,226
Less: Accumulated depreciation ...... (31,221)
---------
$ 30,005
=========
</TABLE>
Programming
The Company has agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as an asset and a liability
when the license period begins and the program is available for its first
showing. The portion of the program contracts payable within one year is
reflected as a current liability in the accompanying consolidated balance
sheets.
The rights to program materials are reflected in the accompanying
consolidated balance sheet at the lower of unamortized cost or estimated net
realizable value. Estimated net realizable values are based upon management's
expectation of future advertising revenues net of sales commissions to be
generated by the program material. Amortization of program contract costs is
charged to operations by the straight-line method over the contract period or
based on usage, whichever yields the greater amortization for each program.
Program contract costs, estimated by management to be amortized in the
succeeding year, are classified as current assets. Payments of program contract
liabilities are typically paid on a scheduled basis and are not affected by
adjustments for amortization or estimated net realizable value.
Barter Transactions
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights. Network
programming is excluded from these calculations.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred barter
revenues. The deferred barter costs are expensed or capitalized as they are
used, consumed or received. Deferred barter revenues are recognized as the
related advertising is aired.
Other Assets
Debt issuance costs are amortized to interest expense using the effective
interest method over the period of the related debt agreement.
F-8
<PAGE>
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Revenues
Broadcast revenues are derived primarily from local, regional and national
advertising and network compensation. Advertising revenues are recognized upon
the airing of commercials, while network revenues are recognized monthly as
earned. Revenues are presented net of advertising agency and national sales
representatives' commissions.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of " on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell. Initial adoption of this statement, as of January 1, 1996, did not have a
material impact on the Company's financial position or results of operations.
Local Marketing Agreements
The Company generally enters into LMA's 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 these agreements, the Company
makes specified periodic payments to the owner-operator in exchange for the
grant to the Company of the right to program and sell advertising on a specified
portion of the station's inventory of broadcast time. Nevertheless, as the
holder of the FCC license, the owner-operator retains full control and
responsibility for the operation of the station, including control over all
programming broadcast on the station.
2. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31, 1996, (in
thousands):
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Commissions ........................ $1,449
Payroll and employee benefits ...... 960
Other .............................. 2,842
-------
$5,251
=======
</TABLE>
3. DUE TO AFFILIATE:
The Company has an arrangement with HMSI whereby HMSI will provide certain
management and other services to the Company. The services provided include
consultation and direct management assistance with respect to operations and
strategic planning. The Broadcasting Segment was allocated approximately $2.0
million of corporate overhead expenses for these services.
In order to fund acquisitions and provide operating funds, HMSI entered
into a Bank Credit Agreement. The debt used to finance acquisitions and fund
daily operations of the Broadcasting Segment was recorded by the Broadcasting
Segment as affiliate borrowings in the accompanying consolidated balance sheet.
HMSI allocates interest at a rate of approximately 10.0%, which approximates the
average rate
F-9
<PAGE>
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
paid on the borrowings. Associated with the HMSI debt, the Broadcasting Segment
was allocated approximately $.6 million of deferred financing costs. The
deferred financing costs are being amortized over the term of the Bank Credit
Agreement.
4. PROGRAM CONTRACTS PAYABLE:
FUTURE PAYMENTS REQUIRED UNDER PROGRAM CONTRACTS PAYABLE AS OF DECEMBER 31,
1996, ARE AS FOLLOWS (IN thousands):
<TABLE>
<S> <C>
1997 ....................................... $ 2,079
1998 ....................................... 1,151
1999 ....................................... 324
2000 ....................................... 59
--------
3,613
Less: Current portion ..................... (2,079)
--------
Long-term portion of program contracts payable $ 1,534
========
</TABLE>
The Company has estimated the fair value of its program contract payables
and noncancelable commitments at approximately $2.6 million and $0.4 million,
respectively, at December 31, 1996, based on future cash flows discounted at the
Company's current borrowing rate.
Broadcast Program Rights
The Company has entered into contracts for broadcast program rights that
expire at various dates during the next four years. Contracts totaling
approximately $0.5 million relate to programs which are not currently available
for use and, therefore, are not reflected as assets or liabilities in the
accompanying consolidated balance sheet at December 31, 1996.
5. INCOME TAXES:
The Company's Parent files a consolidated federal tax return and separate
state tax returns for each of its subsidiaries in certain filing jurisdictions.
It is the Parent's policy to pay the Federal income tax provision of the
Company. The accompanying financial statements have been prepared in accordance
with the separate return method of FASB 109, whereby the allocation of the
federal tax provision due to the Parent is based on what the subsidiary's
current and deferred federal tax provision would have been had the subsidiary
filed a federal income tax return outside of its consolidated group. The Company
is not required to reimburse its Parent for its federal tax provision.
Accordingly, this amount is recorded as a capital contribution in the
accompanying consolidated financial statements. No federal deferred tax assets
or liabilities are recorded because those amounts are considered currently paid
to or received by the Parent. The federal and state tax provision was calculated
based on pretax income, plus or minus permanent book-to-tax differences, times
the statutory tax rate of 40%. The Company had no alternative minimum tax credit
carryforwards as of December 31, 1996. The effective tax rate of 53% exceeds the
statutory tax rate of 40% due to the effects of non-deductible goodwill.
F-10
<PAGE>
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
The provision for income taxes consists of the following as of December 31,
1996 (in thousands):
<TABLE>
<S> <C>
Current:
Federal .................................... $6,762
State .................................... 1,192
------
7,954
------
Deferred:
Federal .................................... --
State .................................... (101)
------
(101)
------
Provision for income taxes ...... $7,853
======
</TABLE>
The following table summarizes the state tax effects of the significant
types of temporary differences between financial reporting basis and tax basis
which were generated during the year ended December 31, 1996.
<TABLE>
<S> <C>
Deferred Tax Assets:
Bad debt reserve ............... $ 80
Accruals ..................... 135
-----
$215
=====
Deferred Tax Liability:
Depreciation .................. $563
-----
$563
=====
</TABLE>
6. EMPLOYEE BENEFIT PLAN:
Company employees are covered by HMC's Retirement Savings Plan (the Plan)
whereby participants may contribute portions of their annual compensation to the
Plan and certain contributions may be made at the discretion of the Company
based on criteria set forth in the Plan Agreement. Participants are generally
100% vested in Company contributions after five years of employment with the
Company. Company expenses under the Plan were not material in 1996.
7. RELATED PARTY TRANSACTIONS:
The Company regularly receives certain advances from HMC which are
evidenced by a subordination agreement. These advances are noninterest-bearing
and subordinated to borrowings under the Credit Agreements but may be repaid if
such repayment does not result in covenant violations under those agreements.
8. CONTINGENCIES AND OTHER COMMITMENTS:
Leases and Contracts
The Company and its subsidiaries lease certain real property,
transportation and other equipment under noncancellable operating leases
expiring at various dates through 2010. The Company also has long-term
contractual obligations with two major broadcast ratings firms that provide
monthly ratings services and guaranteed store contracts. Rent expense under
theses leases for the year ended December 31, 1996 aggregated approximately $1.6
million.
F-11
<PAGE>
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Future minimum payments under the leases are as follows (in thousands):
<TABLE>
<S> <C>
1997 ..................... $1,287
1998 ..................... 1,167
1999 ..................... 1,097
2000 ..................... 973
2001 and thereafter ...... 4,662
-------
$9,186
=======
</TABLE>
Litigation
The Company is a party to lawsuits which are generally incidental to its
business. Management of the Company does not believe the resolution of such
matters will have a significant effect on its liquidity, financial position or
results of operations.
9. ACQUISITIONS:
In February 1996, the Company acquired WMYU and WWST-FM in Knoxville,
Tennessee, for $6.5 million. Also in February 1996, the Company completed the
sale of KEVN-TV, Rapid City, South Dakota. As a result of this sale, the Company
recognized a gain of $6.0 million.
In March 1996, HMC contributed the stock of KIHT-FM to the Company for $7.2
million. Because HMC and the Company are under common control, the transactions
were accounted for at historical cost in a manner similar to a pooling of
interests. Accordingly, the consolidated financial statements include the assets
and liabilities and results of operations of the contributed subsidiary from the
dates of acquisition by HMC.
The acquisitions discussed above were recognized in the consolidated
financial statements as follows (in thousands):
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Purchase price - cash paid by Parent, net of cash
acquired ................................................... $ 9,384
Less: Assets acquired ........................... (3,388)
Add: Liabilities assumed ........................ 1,176
--------
Goodwill purchased ....................................... $ 7,172
========
</TABLE>
10. FINANCIAL INFORMATION BY SEGMENT:
The Company operates in two principal business segments -- television
broadcasting and radio broadcasting. At December 31, 1996, the television
segment included five television stations for which the Company is the licensee
and one station which is operated under a local marketing agreement. These six
stations operate in six different markets in the continental United States.
The radio group currently operates 23 radio stations, including three under
an LMA pending acquisition, and has recently announced two additional
transactions involving trades of existing stations in like-kind exchanges. The
radio group will own and operate 24 stations (seven AM, 17 FM) in seven of the
top 50 largest markets by population after all pending transactions have been
completed. The holdings include at least three stations (and two FM stations) in
every market.
F-12
<PAGE>
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
<TABLE>
<CAPTION>
1996
---------------
(IN THOUSANDS)
<S> <C>
TELEVISION
Net broadcasting revenue ......... $ 46,316
Station operating expenses ...... 30,982
Station operating income ......... 15,334
Total assets ..................... 83,848
Capital expenditures ............ 5,791
RADIO
Net broadcasting revenue ......... 53,278
Station operating expenses ...... 41,598
Station operating income ......... 11,680
Total assets ..................... 137,928
Capital expenditures ............ 1,147
CONSOLIDATED
Net broadcasting revenue ......... $ 99,594
Station operating expenses ...... 72,580
Station operating income ......... 27,014
Total assets ..................... 221,776
Capital expenditures ............ 6,938
</TABLE>
11. SUBSEQUENT EVENTS:
On January 7, 1997, the Company completed the purchase of the assets of
WHRR-FM, serving Rochester, New York, for $1.9 million. On January 24, 1997, the
Company completed the purchase of the assets of KXTR-FM, serving Kansas City,
Missouri, for $9.7 million.
On January 21, 1997, the Company announced plans to trade its Knoxville,
Tennessee, stations, WMYU-FM and WWST-FM for KQRC-FM serving Kansas City, in a
like-kind exchange. On February 18, 1997, the Company announced plans to
exchange WVAW-FM, its station in Cincinnati, for WGH-FM, WVCL-FM and WGH-AM,
serving Norfolk, Virginia, plus $5 million cash. The Company will operate the
Norfolk stations under a Local Management Agreement ("LMA"). Both transactions
are subject to approval by the FCC.
In July 1997, Heritage Media Corporation entered into an asset sale
agreement with Sinclair Broadcast Group, Inc. to sell the Broadcasting Segment.
The sale price is $630 million in cash, contingent upon the closing of HMC's
merger agreement with The News Corporation Limited, which remains subject to FCC
approval. The sale is expected to occur in the first quarter of 1998.
F-13
<PAGE>
HERITAGE MEDIA SERVICES INC. -- BROADCASTING SEGMENT
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 2,151 $ 2,133
Accounts receivable, net of allowance for doubtful accounts ...... 20,036 19,883
Deferred barter costs ............................................. 1,911 2,496
Prepaid expenses and other current assets ........................ 138 929
Deferred tax asset ................................................ 215 215
Current portion of program contract costs ........................ 1,006 1,603
--------- ---------
Total current assets .......................................... 25,457 27,259
Property and equipment, net ....................................... 30,005 27,524
Acquired intangible broadcasting assets, net ..................... 163,626 171,794
Program contract costs, less current portion ..................... 1,867 1,266
Other assets ...................................................... 821 613
--------- ---------
Total assets ................................................... $ 221,776 $ 228,456
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................................ $ 148 $ 185
Deferred barter revenues .......................................... 1,746 1,698
Accrued liabilities ............................................. 5,251 1,613
Deferred revenues ................................................ 428 94
Current portion of program contracts payable ..................... 2,079 1,552
--------- ---------
Total current liabilities ....................................... 9,652 5,142
Long-Term Liabilities:
Due to affiliate ................................................ 178,393 183,545
Deferred tax liability .......................................... 563 563
Program contracts payable ....................................... 1,534 860
Other long-term liabilities ....................................... 152 347
--------- ---------
Total liabilities ............................................. 190,294 190,457
--------- ---------
Commitments and contingencies ....................................
Stockholders' equity:
Common stock, $1.00 par value, 3,576,000 shares authorized and
2,591,586 issued and outstanding .............................. 2,592 2,592
Common stock, no par value, 300 shares authorized and 200 shares
issued and outstanding .......................................... -- --
Additional paid-in capital ....................................... 66,174 66,174
Accumulated deficit ............................................. (37,284) (30,767)
--------- ---------
Total stockholders' equity .................................... 31,482 37,999
---------
Total liability and stockholders' .............................. $ 221,776 $ 228,456
========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements.
F-14
<PAGE>
HERITAGE MEDIA SERVICES INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
Revenues:
Station broadcast revenues, net of agency commissions ............ $43,259 $ 46,451
Revenues realized from station barter arrangements ............... 1,958 2,430
-------- --------
Total revenues ................................................ 45,217 48,881
Operating Expenses:
Program and production .......................................... 13,588 15,313
Selling, general and administrative .............................. 9,772 9,447
Expenses realized from station barter arrangements ............... 1,276 1,849
Depreciation and amortization of property and equipment ......... 2,673 2,819
Amortization of program contract costs and net realizable value ad-
justments 959 824
Amortization of acquired intangible broadcasting assets ......... 4,101 4,174
-------- --------
Total operating expenses ....................................... 32,369 34,426
-------- --------
Broadcast operating income .................................... 12,848 14,455
Other income (expense):
Interest expense ................................................ (9,484) (9,979)
Gain on sale of assets .......................................... 6,031 --
Gain on exchange of assets ....................................... -- 9,401
Other expense ................................................... (102) (98)
-------- --------
Income before income tax provision .............................. 9,293 13,779
-------- --------
Income tax provision ............................................. 4,898 7,262
-------- --------
Net income ...................................................... $ 4,395 $ 6,517
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
statements
F-15
<PAGE>
HERITAGE MEDIA SERVICES INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 4,395 $ 6,517
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization of property and equipment ..................... 2,673 2,819
Amortization:
Acquired intangible broadcasting assets .................................... 4,101 4,174
Program contract costs and net realizable adjustments ..................... 959 824
Deferred finance costs ................................................... 134 166
Gain on sale of assets ...................................................... (6,031) --
Gain of exchange of assets ................................................... -- (9,401)
Changes in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts receivable, net ........................... 739 (62)
Decrease in other assets ................................................... 716 69
Increase in prepaid expenses and other current assets ..................... (761) (1,572)
Decrease in accounts payable and accrued liabilities ........................ (1,910) (2,235)
Net effect of change in deferred barter revenues and deferred barter costs (168) (633)
Increase (decrease) in deferred revenues .................................... 5 (334)
Increase in other long-term liabilities .................................... 5 196
Payments on program contracts payable .......................................... (1,102) (1,263)
--------- ---------
Net cash flows from operating activities ................................. 3,755 (735)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions ...................................................... (8,022) (13,146)
Acquisition of property and equipment ....................................... (6,024) (2,510)
Proceeds from exchange of assets ............................................. -- 11,979
Proceeds from sale of assets ................................................... 13,759 --
--------- ---------
Net cash flows used in investing activities .............................. (287) (3,677)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ............................................................... (30,520) --
Capital contributions made by parent .......................................... 43,024 --
(Decrease) increase in due to affiliate ....................................... (16,300) 4,395
--------- ---------
Net cash flows from financing activities ................................. (3,796) 4,395
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................................... (328) (17)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 1,799 2,151
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 1,471 $ 2,134
========= =========
SUPPLEMENTAL DISCLOSURE:
Program rights acquired ...................................................... $ 41 $ 62
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statement.
F-16
<PAGE>
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION
Basis of Presentation
Heritage Media Services, Inc. ("HMSI") operates in two segments Marketing
Services and Broadcasting. The parent company of HMSI is Heritage Media
Corporation ("HMC). The accompanying consolidated financial statements include
the accounts of the television and radio operations, which are collectively
referred to hereafter as "the Company, the Companies or the Broadcasting
Segment." The Company owns and operates television and radio stations throughout
the United States. Also included in the accompanying consolidated financial
statements are the results of operations of WFGX-TV Channel 35 in Ft. Walton
Beach, Florida, pursuant to a local marketing agreement (LMA).
2. DUE TO AFFILIATE
The Company has an arrangement with HMSI whereby HMSI will provide certain
management and other services to the Company. The services provided include
consultation and direct management assistance with respect to operations and
strategic planning. The Broadcasting Segment was allocated approximately $2.0
million of corporate overhead expenses for these services.
In order to fund acquisitions and provide operating funds, entered into a
Bank Credit Agreement. The debt used to finance acquisitions and fund daily
operations of the Broadcasting Segment was recorded by the Broadcasting Segment
as affiliate borrowings in the accompanying consolidated balance sheet. HMSI
allocates interest at a rate of approximately 10.0%, which approximates the
average rate paid on the borrowings.
3. SUBSEQUENT EVENT
In July 1997, Heritage Media Corporation entered into an asset sale
agreement with Sinclair Broadcast Group, Inc. to sell the Broadcasting Segment.
The sale price is $630 million in cash, contingent upon the closing of HMC's
merger agreement with The News Corporation Limited, which remains subject to FCC
approval. The sale is expected to occur in the first quarter of 1998.
F-17
EXHIBIT 99.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 8-K of our report dated July 30, 1997, included in
Registration Statements File Nos. 333-12255, 333-12257, 333-31569, 333-31571 and
33-93348. It should be noted that we have not audited any financial statements
of the Company subsequent to December 31, 1996, or performed any audit
procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Baltimore, Maryland
August 26, 1997
