UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number : 000-26076
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
---------------------------
MARYLAND 52-1494660
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
10706 BEAVER DAM ROAD
COCKEYSVILLE, MARYLAND 21030
(Address of principal executive offices)
(410) 568-1500
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal
year-if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No[ ]
As of July 28, 1999, there were 47,995,802 shares of Class A Common Stock, $.01
par value; 48,514,697 shares of Class B Common Stock, $.01 par value; 87,818
shares of Series B Preferred Stock, $.01 par value, convertible into 638,677
shares of Class A Common Stock; and 3,450,000 shares of Series D Preferred
Stock, $.01 par value, convertable into 7,561,644 shares of Class A Common
Stock; of the Registrant issued and outstanding.
In addition, 2,000,000 shares of $200 million aggregate liquidation value 11
5/8% High Yield Trust Offered Preferred Securities of Sinclair Capital, a
subsidiary trust of Sinclair Broadcast Group, Inc. are issued and outstanding.
1
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SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended June 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1999......................................................... 3
Consolidated Statements of Operations for the Three Months and Six Months
Ended June 30, 1998 and 1999.......................................... 4
Consolidated Statement of Stockholders' Equity for the Six Months
Ended June 30, 1999................................................... 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1999.......................................... 6
Notes to Unaudited Consolidated Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................ 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................... 20
Item 6. Exhibits and Reports on Form 8-K........................................ 20
Signature.................................................................... 21
</TABLE>
2
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SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1998 1999
--------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................................... $ 3,268 $ 9,599
Accounts receivable, net of allowance for doubtful accounts......................... 196,880 188,383
Current portion of program contract costs........................................... 60,795 36,011
Prepaid expenses and other current assets........................................... 5,542 6,960
Deferred barter costs............................................................... 5,282 6,507
Broadcast assets held for sale...................................................... 33,747 25,743
Deferred tax asset 19,209 16,450
------------- ------------
Total current assets......................................................... 324,723 289,653
PROGRAM CONTRACT COSTS, less current portion............................................ 45,608 31,435
LOANS TO OFFICERS AND AFFILIATES........................................................ 10,041 9,372
PROPERTY AND EQUIPMENT, net............................................................. 280,391 289,774
OTHER ASSETS 93,404 119,037
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net............................................ 3,100,415 3,119,941
------------- ------------
Total Assets........................................................................ $ 3,854,582 $ 3,859,212
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................... $ 18,065 $ 16,419
Accrued liabilities................................................................. 96,350 86,806
Current portion of long-term liabilities-
Notes payable and commercial bank financing..................................... 50,007 56,250
Notes and capital leases payable to affiliates.................................. 4,063 4,858
Program contracts payable....................................................... 94,780 79,695
Deferred barter revenues............................................................ 5,625 7,258
-------------- ------------
Total current liabilities.................................................... 268,890 251,286
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing......................................... 2,254,108 2,303,508
Notes and capital leases payable to affiliates...................................... 19,043 28,761
Program contracts payable........................................................... 74,802 53,672
Deferred tax liability.............................................................. 184,736 184,736
Other long-term liabilities......................................................... 33,361 19,729
-------------- ------------
Total liabilities............................................................ 2,834,940 2,841,692
-------------- ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES.......................................... 3,599 3,592
-------------- ------------
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUB-
SIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES................................. 200,000 200,000
-------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Preferred stock, $.01 par value, 10,000,000 shares authorized and 39,581
and 87,818 shares issued and outstanding, respectively.......................... - 1
Series D Preferred stock, $.01 par value, 3,450,000 shares authorized, issued
and outstanding................................................................. 35 35
Class A Common stock, $.01 par value, 100,000,000 and 500,000,000 shares authorized
and 47,445,731 and 47,786,608 shares issued and outstanding, respectively....... 474 478
Class B Common stock, $.01 par value, 35,000,000 and 140,000,000 shares authorized
and 49,075,428 and 48,560,231 shares issued and outstanding..................... 491 486
Additional paid-in capital.......................................................... 768,648 771,047
Additional paid-in capital - equity put options..................................... 113,502 113,502
Additional paid-in capital - deferred compensation.................................. (7,616) (6,644)
Accumulated deficit................................................................. (59,491) (64,977)
-------------- ------------
Total stockholders' equity...................................................
816,043 813,928
-------------- ------------
Total Liabilities and Stockholders' Equity................................... $ 3,854,582 $ 3,859,212
============== ============
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated statements.
3
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions............... $ 153,634 $ 211,499 $ 266,265 $ 385,965
Revenues realized from station barter arrangements.................. 13,892 16,504 25,099 31,823
----------- ---------- ---------- -----------
Total revenues............................................... 167,526 228,003 291,364 417,788
----------- ---------- ---------- -----------
OPERATING EXPENSES:
Program and production.............................................. 30,256 44,434 56,068 86,304
Selling, general and administrative................................. 32,023 44,355 59,708 87,332
Expenses realized from station barter arrangements.................. 11,685 13,892 20,962 26,997
Amortization of program contract costs and net
realizable value adjustments.................................... 14,532 18,480 30,543 39,971
Stock-based compensation............................................ 899 969 1,371 1,905
Depreciation and amortization of property and equipment............. 5,498 8,877 10,266 17,907
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets.......... 19,037 32,535 35,171 63,571
----------- ---------- ---------- -----------
Total operating expenses..................................... 113,930 163,542 214,089 323,987
----------- ---------- ---------- -----------
Broadcast operating income................................... 53,596 64,461 77,275 93,801
----------- ---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense.................. (27,530) (44,088) (54,901) (87,278)
Subsidiary trust minority interest expense.......................... (5,813) (5,813) (11,625) (11,625)
Interest income..................................................... 1,900 822 3,217 1,603
Gain on sale of broadcast assets.................................... 5,238 - 5,238 -
Unrealized gain on derivative
instrument............................................. - 4,486 - 11,586
Other income (expense).............................................. (4) (34) 104 302
----------- ---------- ---------- -----------
Income before income tax provision........................... 27,387 19,834 19,308 8,389
INCOME TAX PROVISION.................................................... (17,200) (18,530) (12,400) (8,700)
----------- ---------- ---------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............................. 10,187 1,304 6,908 (311)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt net of related income tax
benefit of $7,370............................................... (11,063) - (11,063) -
----------- ---------- ---------- -----------
NET INCOME (LOSS)....................................................... $ (876) $ 1,304 $ (4,155) $ (311)
=========== ========== ========= =========
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS............................... $ (3,463) $ (1,283) $ (9,330) $ (5,486)
=========== =========== ========= =========
Basic income (loss) per share before extraordinary item................. $ .08 $ (.01) $ .02 $ (.06)
=========== =========== ========= =========
Basic loss per common share............................................. $ (.04) $ (.01) $ (.10) $ (.06)
=========== ========== ========= =========
Basic weighted average common shares outstanding........................ 96,889 96,371 91,480 96,474
=========== ========== ========= =========
Diluted income (loss) per share before extraordinary item............... $ .08 $ (.01) $ .02 $ (.06)
=========== =========== ========= =========
Diluted loss per common share........................................... $ (.04) $ (.01) $ (.10) $ (.06)
=========== ========== ========= =========
Diluted weighted average common and common equivalent shares
outstanding......................................................... 99,242 97,026 93,645 97,133
=========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated statements.
4
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
SERIES B SERIES D CLASS A CLASS B ADDITIONAL CAPITAL -
PREFERRED PREFERRED COMMON COMMON PAID-IN EQUITY PUT
STOCK STOCK STOCK STOCK CAPITAL OPTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ - $ 35 $ 474 $ 491 $768,648 $ 113,502
Class B Common Stock converted
into Class A Common Stock....... - - 5 (5) - -
Series B Preferred Stock converted
into Class A Common Stock....... - - 2 - (2) -
Class A Common Shares converted
to Series B Preferred Shares..... 1 - (6) - 5 -
Dividends payable on Series D
Preferred Stock.................. - - - - - -
Class A Common Stock shares
issued pursuant to employee
benefit plans.................... - - 3 - 2,396 -
Amortization of deferred
compensation..................... - - - - - -
Net loss............................. - - - - - -
-----------------------------------------------------------------------------------
BALANCE, June 30, 1999................... $ 1 $ 35 $ 478 $ 486 $771,047 $ 113,502
===================================================================================
<CAPTION>
ADDITIONAL
PAID-IN
CAPITAL - TOTAL
DEFERRED ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
--------------------------------------------------
<C> <C> <C>
BALANCE, December 31, 1998 $ (7,616) $ (59,491) $ 816,043
Class B Common Stock converted
into Class A Common Stock....... - - -
Series B Preferred Stock converted
into Class A Common Stock....... - - -
Class A Common Shares converted
to Series B Preferred Shares.... - - -
Dividends payable on Series D
Preferred Stock................. - (5,175) (5,175)
Class A Common Stock shares
issued pursuant to employee
benefit plans................... - - 2,399
Amortization of deferred
compensation.................... 972 - 972
Net loss............................ - (311) (311)
-------------------------------------------------
BALANCE, June 30, 1999.................. $ (6,644) $ (64,977) $ 813,928
=================================================
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated statements.
5
<PAGE>
<TABLE>
<CAPTION>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
1998 1999
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (4,155) $ (311)
Adjustments to reconcile net loss to net cash flows from operating activities-
Extraordinary loss on early extinguishment of debt.......................... 18,433 -
Gain on sale of broadcast assets............................................ (5,238) -
Unrealized gain on derivative instrument.................................... - (11,586)
Amortization of debt discount............................................... 49 49
Depreciation and amortization of property and equipment..................... 10,266 17,907
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets................... 35,171 63,571
Amortization of program contract costs and net realizable value adjustments. 30,543 39,971
Stock-based compensation.................................................... 1,371 972
Deferred tax provision ..................................................... 2,030 2,759
Changes in assets and liabilities, net of effects of acquisitions and dispositions-
Decrease in accounts receivable, net........................................ 1,465 9,795
Decrease (increase) in prepaid expenses and other current assets............ 3,288 (817)
Increase (decrease) in accounts payable and accrued liabilities............. 5,094 (6,382)
Net effect of change in deferred barter revenues
and deferred barter costs................................................ (66) (47)
Decrease in other long-term liabilities..................................... (247) (2,046)
Decrease in minority interest............................................... (36) (7)
Payments on program contracts payable........................................... (30,465) (41,326)
------------ -----------
Net cash flows from operating activities.................................... 67,503 72,502
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment........................................... (8,299) (11,570)
Payments for acquisition of television and radio stations....................... (874,855) (127,366)
Loans to officers and affiliates................................................ (1,021) (443)
Equity interest investments..................................................... - (9,349)
Repayments of loans to officers and affiliates.................................. 1,381 1,112
Distributions from Joint Venture.............................................. 608 324
Proceeds from sale of broadcasting assets..................................... 233,858 35,911
Payments relating to future acquisitions........................................ - (2,913)
------------ -----------
Net cash flows used in investing activities............................ (648,328) (114,294)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases....... 1,397,000 154,500
Repayments of notes payable, commercial bank financing and capital leases...... (954,125) (98,899)
Payments of costs relating to commercial bank financing......................... (10,863) -
Proceeds from issuance of stock related to compensation plans................. 1,388 -
Net proceeds from issuance of Class A Common Stock............................ 335,235 -
Dividends paid on Series D Convertible Preferred Stock.......................... (5,175) (5,175)
Payment of equity put option premium.......................................... (528) -
Repayments of notes and capital leases to affiliates............................ (1,301) (2,303)
------------ -----------
Net cash flows from financing activities................................. 761,631 48,123
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 180,806 6,331
CASH AND CASH EQUIVALENTS, beginning of period...................................... 139,327 3,268
------------ -----------
CASH AND CASH EQUIVALENTS, end of period............................................ $ 320,133 $ 9,599
============ ===========
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated statements.
6
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Sinclair Broadcast Group, Inc., Sinclair Communications, Inc. and all other
consolidated subsidiaries, which are collectively referred to hereafter as "the
Company, Companies, Sinclair or SBG." The Company owns and operates television
and radio stations throughout the United States. Additionally, included in the
accompanying consolidated financial statements are the results of operations of
certain television stations pursuant to local marketing agreements (LMAs) and
radio stations pursuant to joint sales agreements (JSAs).
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the six months ended June 30, 1998 and
1999 are unaudited, but in the opinion of management, such financial statements
have been presented on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations, and cash flows for these periods.
As permitted under the applicable rules and regulations of the Securities and
Exchange Commission, these financial statements do not include all disclosures
normally included with audited consolidated financial statements, and,
accordingly, should be read in conjunction with the consolidated financial
statements and notes thereto as of December 31, 1997, and 1998 and for the years
then ended. The results of operations presented in the accompanying financial
statements are not necessarily representative of operations for an entire year.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to conform with the current period presentation.
2. CONTINGENCIES AND OTHER COMMITMENTS:
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
7
<PAGE>
3. FINANCIAL INFORMATION BY SEGMENT (IN THOUSANDS):
As of June 30, 1999, the Company consisted of two principal business segments -
television broadcasting and radio broadcasting. As of the date hereof, the
Company owns or provides programming services pursuant to LMAs to 56 television
stations located in 36 geographically diverse markets in the continental United
States. The Company owns or provides programming services pursuant to JSAs to 54
radio stations in 10 geographically diverse markets. Substantially all revenues
represent income from unaffiliated companies.
<TABLE>
<CAPTION>
TELEVISION TELEVISION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net broadcast revenues............................................ $ 128,418 $ 175,261 $ 225,759 $ 323,355
Barter revenues................................................... 12,911 15,360 23,291 29,624
----------- ----------- ---------- -----------
Total revenues.................................................... 141,329 190,621 249,050 352,979
----------- ----------- ---------- -----------
Operating expenses................................................ 46,486 66,463 88,794 131,858
Expenses realized from barter arrangements........................ 11,685 13,892 20,962 26,997
Depreciation, program amortization and stock-based
compensation.................................................. 19,995 27,147 40,469 57,437
Amortization of intangibles and other assets...................... 14,961 28,104 28,102 54,755
----------- ----------- ---------- -----------
Broadcast operating income........................................ $ 48,202 $ 55,015 $ 70,723 $ 81,932
=========== =========== ========== ===========
Total assets...................................................... $ 2,378,764 $ 3,335,539 $2,378,764 $ 3,335,539
=========== =========== ========== ===========
Capital expenditures.............................................. $ 3,649 $ 6,830 $ 6,130 $ 9,935
=========== =========== ========== ===========
<CAPTION>
RADIO RADIO
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net broadcast revenues............................................ $ 25,216 $ 36,238 $ 40,506 $ 62,610
Barter revenues................................................... 981 1,144 1,808 2,199
------------ ---------- ---------- -----------
Total revenues.................................................... 26,197 37,382 42,314 64,809
------------ ---------- ---------- -----------
Operating expenses................................................ 15,793 22,326 26,982 41,778
Depreciation, program amortization and stock-based
Compensation.................................................. 934 1,179 1,711 2,346
Amortization of intangibles and other assets...................... 4,076 4,431 7,069 8,816
------------ ---------- ---------- -----------
Broadcast operating income ....................................... $ 5,394 $ 9,446 $ 6,552 $ 11,869
============ ========== ========== ===========
Total assets...................................................... $ 438,726 $ 523,673 $ 438,726 $ 523,673
============ ========== ========== ===========
Capital expenditures.............................................. $ 1,239 $ 637 $ 2,169 $ 1,635
============ ========== ========== ===========
</TABLE>
8
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4. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
During the six months ended June 30, 1998 and 1999, the Company made certain
cash payments of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1999
---- ----
<S> <C> <C>
Interest payments............................................................... $ 68,743 $ 89,153
============ ===========
Subsidiary trust minority interest payments..................................... $ 11,625 $ 11,625
============ ===========
Income tax payments............................................................. $ 1,288 $ 5,278
============ ===========
</TABLE>
5. EARNINGS PER SHARE:
The Company adopted SFAS 128 "Earnings per Share" which requires the disclosure
of basic and diluted earnings per share and related computations as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average number of common shares...................... 96,889 96,371 91,480 96,474
Diluted effect of outstanding stock options .................. 2,065 17 1,877 21
Diluted effect of conversion of preferred shares.............. 288 638 288 638
------------- --------------- ------------ -----------
Diluted weighted-average number of common and common
equivalent shares outstanding............................. 99,242 97,026 93,645 97,133
============ ============== ============ ===========
Net income (loss)............................................. $ (876) $ 1,304 $ (4,155) $ (311)
Preferred stock dividends payable............................. (2,587) (2,587) (5,175) (5,175)
------------- --------------- ------------- ------------
Net loss available to common stockholders..................... $ (3,463) $ (1,283) $ (9,330) $ (5,486)
============= ============== ============= ============
Basic earnings (loss) per common share
before extraordinary items............................... $ .08 $ (.01) $ .02 $ (.06)
============ ============== ============ ===========
Basic loss per common share................................... $ (.04) $ (.01) $ (.10) $ (.06)
============ ============== ============ ===========
Diluted earnings (loss) per common share
before extraordinary items............................... $ .08 $ (.01) $ .02 $ (.06)
============ ============== ============ ===========
Diluted loss per common share................................. $ (.04) $ (.01) $ (.10) $ (.06)
============ ============== ============ ===========
</TABLE>
6. ACQUISITIONS AND DISPOSITIONS:
PENDING ACQUISITIONS AND DISPOSITIONS
Buffalo Acquisition. In August 1998, the Company entered into an agreement with
Western New York Public Broadcasting Association to acquire the television
station WNEQ in Buffalo, NY for a purchase price of $33 million in cash (the
"Buffalo Acquisition"). The Company expects to close the sale upon FCC approval
and the termination of the applicable waiting period under the HSR Act.
9
<PAGE>
Guy Gannett Acquisition. In September 1998, the Company agreed to acquire from
Guy Gannett Communications its television broadcasting assets for a purchase
price of $317 million in cash (the "Guy Gannett Acquisition"). As a result of
this transaction and after the completion of related dispositions, the Company
acquired five television stations in five separate markets. In April 1999, the
Company completed the purchase of WTWC-TV, WGME-TV and WGGB-TV for a purchase
price of $111.0 million and in July 1999, the Company completed the purchase of
WICS/WICD-TV, and KGAN-TV for a purchase price of $81.0 million. The Company
financed the acquisitions by utilizing indebtedness under the 1998 Bank Credit
Agreement.
In September 1998, the Company agreed to sell the Guy Gannett television station
WOKR-TV in Rochester, New York to the Ackerley Group, Inc. for a sales price of
$125 million (the "Ackerley Disposition"). In April 1999, the Company closed on
the purchase of WOKR-TV and simultaneously completed the sale of WORK-TV to
Ackerly.
STC Disposition. In March 1999, the Company entered into an agreement to sell to
STC the television stations WICS/WICD-TV in the Springfield, Illinois market and
KGAN-TV in the Cedar Rapids, Iowa market (the "STC Disposition"). In addition,
the Company agreed to sell the Non-License Assets and rights to program WICD in
the Springfield, Illinois market. The stations are being sold to STC for a sales
price of $81.0 million and are being acquired by the Company in connection with
the Guy Gannett Acquisition. In April 1999, the Justice Department requested
additional information in response to STC's filing under the Hart-Scott-Rodino
Antitrust Improvements Act. The sale of the stations to STC has been delayed
pending resolution of the questions raised by the Justice Department. If STC is
unable to complete the purchase of these stations, the Company may continue to
own these stations or attempt to sell one or more of these stations to another
third party.
CCA Disposition. In April 1999, the Company completed the sale of the
non-license assets of KETK-TV and KLSB-TV in Tyler-Longview, Texas to
Communications Corporation of America ("CCA") for a sales price of $36 million
(the "CCA Disposition"). In addition, CCA has an option to acquire the license
assets of KETK-TV for an option purchase price of $2 million.
St. Louis Purchase Option. In connection with the acquisition of River City, the
Company entered into a five year agreement (the "Baker Agreement") with Barry
Baker (the Chief Executive Officer of River City) pursuant to which Mr. Baker
served as a consultant to the Company until terminating such services effective
March 8, 1999 (the "Termination Date"). As of February 8, 1999, the conditions
to Mr. Baker becoming an officer of the Company had not been satisfied, and on
that date Mr. Baker and the Company entered into a termination agreement with
effect on March 8, 1999. Mr. Baker had certain rights as a consequence of the
termination of the Baker Agreement. These rights included Mr. Baker's right to
purchase at fair market value the television and radio stations owned by the
Company serving the St. Louis, Missouri market.
In June 1999, the Company received a letter from Mr. Baker in which Mr. Baker
elected to exercise his option to purchase the radio and television properties
of Sinclair in the St. Louis market for their fair market value. In his letter,
Mr. Baker names Emmis Communications Corporation ("Emmis") as his designee.
Sinclair is evaluating the validity of Mr. Baker's designation of Emmis. In
light of the foregoing, the fact that negotiations of a definitive purchase
agreement are yet to commence, that a fair market value has not been determined,
and that approvals would be required from both the Department of Justice and the
Federal Communications Commission, there can be no assurance that the
transactions contemplated by the option will be consummated.
10
<PAGE>
7. INTEREST RATE DERIVATIVE AGREEMENTS:
As of June 30, 1999, the Company had several interest rate swap agreements which
expire from July 7, 1999 to July 15, 2007. The swap agreements set rates in the
range of 5.5% to 8.1%. Floating interest rates are based upon the three month
London Interbank Offered Rate (LIBOR) rate, and the measurement and settlement
is performed quarterly. Settlements of these agreements are recorded as
adjustments to interest expense in the relevant periods. The notional amounts
related to these agreements were $920 million at June 30, 1999, and decrease to
$200 million through the expiration dates. In addition, the Company has entered
into floating rate derivatives with notional amounts totaling $450 million.
Based on the Company's currently hedged position, $1.7 billion or 73% of the
Company's outstanding indebtedness is hedged.
The Company has no intentions of terminating these instruments prior to their
expiration dates unless it were to prepay a portion of its bank debt. The
counter parties to these agreements are international financial institutions.
The Company estimates the fair value to retire these instruments at June 30,
1999 to be $2.8 million. The fair value of the interest rate hedging derivative
instruments is estimated by obtaining quotations from the financial institutions
which are a party to the Company's derivative contracts (the "Banks"). The fair
value is an estimate of the net amount that the Company would pay at June 30,
1999 if the contracts were transferred to other parties or canceled by the
Banks.
8. TREASURY OPTION DERIVATIVE INSTRUMENT:
In August 1998, the Company entered into a treasury option derivative contract
(the "Option Derivative"). The Option Derivative contract provides for 1) an
option exercise date of September 30, 2000, 2) a notional amount of $300 million
and 3) a five-year treasury strike rate of 6.14%. If the interest rate yield on
five year treasury securities is less than the strike rate on the option
exercise date, the Company would be obligated to pay five consecutive annual
payments in an amount equal to the strike rate less the five year treasury rate
multiplied by the notional amount beginning September 30, 2001 through September
30, 2006. If the interest rate yield on five year treasury securities is greater
than the strike rate on the option exercise date, the Company would not be
obligated to make any payments.
Upon the execution of the Option Derivative contract in 1998, the Company
received a cash payment representing an option premium of $9.5 million which was
recorded in "Other long-term liabilities" in the accompanying consolidated
balance sheets. The Company is required to periodically adjust its liability to
the present value of the future payments of the settlement amounts based on the
forward five year treasury rate at the end of an accounting period.
As of June 30, 1999, the Company's Option Derivative liability recorded in
"Other long-term liabilities" in the accompanying consolidated balance sheet is
$6.9 million. The fair market value adjustment for the six months ended June 30,
1999 resulted in an income statement benefit (unrealized gain) of $11.6 million.
9. SUBSEQUENT EVENTS:
Entercom Disposition. In July 1999, the Company signed a letter of intent to
sell 43 radio stations in nine markets to Entercom Communications Corp.
("Entercom") for $821.5 million in cash, subject to definitive documentation
(the "Entercom Disposition"). The transaction does not include Sinclair's radio
stations in the St. Louis market, which are subject to the St. Louis Purchase
Option as noted previously. The letter of intent addresses a majority of the
material terms of the transaction and Sinclair believes it will be able to enter
into a definitive purchase agreement with Entercom following a negotiation and
diligence period. The transaction will be subject to FCC and Department of
Justice approval, as well as the approval of the Boards of Directors of Sinclair
and Entercom.
St. Louis Acquisition. In August 1999, the Company completed the purchase of
radio station KXOK-FM in St. Louis, Missouri for a purchase price of $14.1
million in cash.
Barnstable Disposition. In August 1999, the Company completed the sale of the
radio stations WFOG-FM and WGH-AM/FM serving the Norfolk, Virginia market to
Barnstable Broadcasting, Inc. ("Barnstable") (the "Barnstable Disposition"). The
stations were sold to Barnstable for a sales price of $23.7 million.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in this Quarterly
Report and the audited financial statements and Management's Discussion and
Analysis contained in the Company's Form 10-K, as amended, for the fiscal year
ended December 31, 1998.
The matters discussed in this report include forward-looking statements. When
used in this report, the words "intends to," "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties.
Actual results in the future could differ materially and adversely from those
described in the forward-looking statements as a result of various important
factors, including the impact of changes in national and regional economies,
successful integration of acquired television and radio stations (including
achievement of synergies and cost reductions), pricing fluctuations in local and
national advertising, volatility in programming costs, the availability of
suitable acquisitions on acceptable terms and the other risk factors set forth
in the Company's prospectus filed with the Securities and Exchange Commission on
April 19, 1998, pursuant to rule 424(b)(5). The Company undertakes no obligation
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
12
<PAGE>
The following table sets forth certain operating data for the three months and
six months ended June 30, 1998 and 1999:
OPERATING DATA (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net broadcast revenues (a).................. $ 153,634 $ 211,499 $ 266,265 $ 385,965
Barter revenues............................. 13,892 16,504 25,099 31,823
--------------- --------------- --------------- ---------------
Total revenues.............................. 167,526 228,003 291,364 417,788
--------------- --------------- --------------- ---------------
Operating costs (b)......................... 62,279 88,789 115,776 173,636
Expenses from barter arrangements........... 11,685 13,892 20,962 26,997
Depreciation, amortization and stock-based
compensation (c)......................... 39,966 60,861 77,351 123,354
--------------- --------------- --------------- ---------------
Broadcast operating income.................. 53,596 64,461 77,275 93,801
Interest expense............................ (27,530) (44,088) (54,901) (87,278)
Subsidiary trust minority interest expense (d) (5,813) (5,813) (11,625) (11,625)
Interest and other income................... 1,896 788 3,321 1,905
Unrealized gain on derivative instrument..... - 4,486 - 11,586
Net gain on sale of assets.................. 5,238 - 5,238 -
--------------- --------------- --------------- ---------------
Net income before income taxes.............. 27,387 19,834 19,308 8,389
Income tax provision........................ (17,200) (18,530) (12,400) (8,700)
--------------- --------------- --------------- ---------------
Net income before extraordinary item........ 10,187 1,304 6,908 (311)
Extraordinary item.......................... (11,063) - (11,063) -
--------------- --------------- --------------- ---------------
Net income (loss)........................... $ (876) $ 1,304 $ (4,155) $ (311)
============== =============== =============== ===============
Net loss available to common stockholders... $ (3,463) $ (1,283) $ (9,330) $ (5,486)
============== =============== =============== ===============
BROADCAST CASH FLOW (BCF) DATA:
Television BCF (e)................... $ 71,879 $ 94,839 $ 117,666 $ 162,190
Radio BCF (e)........................ 10,894 15,665 15,480 23,555
--------------- --------------- --------------- ---------------
Consolidated BCF (e)................. $ 82,773 $ 110,504 $ 133,146 $ 185,745
============== =============== =============== ===============
Television BCF margin (f)............ 56.0% 54.1% 52.1% 50.2%
Radio BCF margin (f)................. 43.2% 43.2% 38.2% 37.6%
Consolidated BCF margin (f).......... 53.9% 52.2% 50.0% 48.1%
OTHER DATA:
Adjusted EBITDA (g).................. $ 78,394 $ 105,373 $ 124,161 $ 175,829
Adjusted EBITDA margin (f)........... 51.0% 49.8% 46.6% 45.6%
After tax cash flow (h).............. $ 42,496 $ 52,071 $ 52,703 $ 69,070
Program contract payments............ $ 15,168 $ 19,949 $ 30,465 $ $ 41,326
Corporate expense.................... $ 4,379 $ 5,131 $ 8,985 $ 9,916
Capital expenditures................. $ 4,888 $ 7,467 $ 8,299 $ 11,570
Cash flows from operating activities. $ 25,151 $ 26,712 $ 67,503 $ 72,502
Cash flows from investing activities. $ (124,156) $ (95,065) $ (648,328) $ (114,294)
Cash flows from financing activities. $ 412,283 $ 72,039 $ 761,631 $ 48,123
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
a) "Net broadcast revenue" is defined as broadcast revenue net of agency
commissions.
b) "Operating costs" include program and production expenses and selling,
general and administrative expenses.
c) "Depreciation, amortization and stock-based compensation" includes
amortization of program contract costs and net realizable value
adjustments, depreciation and amortization of property and equipment,
amortization of acquired intangible broadcasting assets and other assets
and stock-based compensation related to the issuance of common stock
pursuant to stock option and other employee benefit plans.
d) Subsidiary trust minority interest expense represents distributions on the
HYTOPS.
e) "Broadcast cash flow" is defined as broadcast operating income plus
corporate overhead expenses, stock-based compensation, depreciation and
amortization (including film amortization and amortization of deferred
compensation), less cash payments for program rights. Cash program
payments represent cash payments made for current programs payable and do
not necessarily correspond to program usage. The Company has presented
broadcast cash flow data, which the Company believes is comparable to the
data provided by other companies in the industry, because such data are
commonly used as a measure of performance for broadcast companies;
however, there can be no assurance that it is comparable. However,
broadcast cash flow does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements
of cash flows, is not a measure of financial performance under generally
accepted accounting principles and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. Management believes the
presentation of broadcast cash flow (BCF) is relevant and useful because
1) BCF is a measurement utilized by lenders to measure the Company's
ability to service its debt, 2) BCF is a measurement utilized by industry
analysts to determine a private market value of the Company's television
and radio stations and 3) BCF is a measurement industry analysts utilize
when determining the operating performance of the Company.
f) "BCF margin" is defined as broadcast cash flow divided by net broadcast
revenues. "Adjust EBITDA margin" is defined as adjusted EBITDA divided by
net broadcast revenues.
g) "Adjusted EBITDA" is defined as broadcast cash flow less corporate
overhead expenses and is a commonly used measure of performance for
broadcast companies. The Company has presented Adjusted EBITDA data, which
the Company believes is comparable to the data provided by other companies
in the industry, because such data are commonly used as a measure of
performance for broadcast companies; however, there can be no assurances
that it is comparable. 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.
Management believes the presentation of Adjusted EBITDA is relevant and
useful because 1) Adjusted EBITDA is a measurement utilized by lenders to
measure the Company's ability to service its debt, 2) Adjusted EBITDA is a
measurement utilized by industry analysts to determine a private market
value of the Company's television and radio stations and 3) Adjusted
EBITDA is a measurement industry analysts utilize when determining the
operating performance of the Company.
h) "After tax cash flow" is defined as net income (loss) available to common
shareholders, plus stock-based compensation, depreciation and amortization
(excluding film amortization), the deferred tax provision (or minus the
deferred tax benefit), minus gain on the sale of assets and unrealized
gain on derivative instrument. The Company has presented after tax cash
flow data, which the Company believes is comparable to the data provided
by other companies in the industry, because such data are commonly used as
a measure of performance for broadcast companies; however, there can be no
assurances that it is comparable. After tax cash flow is presented here
not as a measure of operating results and does not purport to represent
cash provided by operating activities. After tax cash flow should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
Management believes the presentation of after tax cash flow is relevant
and useful because 1) ATCF is a measurement utilized by lenders to measure
the Company's ability to service its debt, 2) ATCF is a measurement
utilized by industry analysts to determine a private market value of the
Company's television and radio stations and 3) ATCF is a measurement
analysts utilize when determining the operating performance of the
Company.
Net broadcast revenues increased to $211.5 million for the three months ended
June 30, 1999 from $153.6 million for the three months ended June 30, 1998, or
37.7%. Net broadcast revenues increased to $386.0 million for the six months
ended June 30, 1999 from $266.3 million for the six months ended June 30, 1998
or 44.9%. The increase in net broadcast revenues for the three months ended June
30, 1999 was comprised of $56.9 million related to the acquisition and
disposition of television and radio stations and LMA transactions consummated by
the Company in 1998 and 1999 (collectively, the "1998 and 1999 Transactions")
and $1.0 million related to an increase in net broadcast revenue on a same
station basis, which increased by 0.7%. The increase in net broadcast revenues
for the six months ended June 30, 1999 was comprised of $115.2 million related
to the 1998 and 1999 Transactions and $4.5 million related to an increase in net
broadcast revenues on a same station basis, which increased by 1.7%.
14
<PAGE>
Operating costs increased to $88.8 million for the three months ended June 30,
1999 from $62.3 million for the three months ended June 30, 1998, or 42.5%.
Operating costs increased to $173.6 million for the six months ended June 30,
1999, from $115.8 million for the six months ended June 30, 1998, or 49.9%. The
increase in operating costs for the three months ended June 30, 1999 as compared
to the three months ended June 30, 1998 comprised $25.6 million related to the
1998 and 1999 Transactions, $0.8 million related to an increase in corporate
overhead expenses offset by a $0.1 million decrease in operating costs on a same
station basis, which decreased 0.2%. The increase in operating costs for the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998
comprised $55.4 million related to the 1998 and 1999 Transactions, $0.9 million
related to an increase in corporate overhead expenses and $1.5 million related
to an increase in operating costs on a same station basis, which increased 1.5%.
Interest expense increased to $44.1 million for the three months ended June 30,
1999 from $27.5 million for the three months ended June 30, 1998, or 60.4%.
Interest expense increased to $87.3 million for the six months ended June 30,
1999 from $54.9 million for the six months ended June 30, 1998, or 59.0%. The
increase in interest expense for the three months and six months ended June 30,
1999 primarily related to indebtedness incurred by the Company to finance the
1998 and 1999 Acquisitions. Subsidiary Trust Minority Interest Expense of $5.8
million for the three months ended June 30, 1998 and 1999 and $11.6 million for
the six months ended June 30, 1998 and 1999 is related to the private placement
of $200 million aggregate liquidation rate of 115/8% High Yield Trust Offered
Preferred Securities (the "HYTOPS") completed March 12, 1997.
Interest and other income decreased to $0.8 million for the three months ended
June 30, 1999 from $1.9 million for the three months ended June 30, 1998.
Interest and other income decreased to $1.9 million for the six months ended
June 30, 1999 from $3.3 million for the six months ended June 30, 1998. These
decreases were primarily due to a decrease in average cash balances for the
three and six month periods ended June 30, 1999 when compared to the same period
in 1998.
Income tax provision increased to $18.5 million for the three months ended June
30, 1999 from $17.2 million for the three months ended June 30, 1998. Income tax
provision decreased to $8.7 million for the six months ended June 30, 1999 from
$12.4 million for the six months ended June 30, 1998. The Company's effective
tax rate increased to 105.1% for the six months ended June 30, 1999 from 64.2%
for the six months ended June 30, 1998. The increase in the effective tax rate
for the six months ended June 30, 1999 as compared the six months ended June 30,
1998 resulted from the current year's projected permanent differences between
book and tax income being a higher percentage of pre-tax income for 1999 as
compared to 1998.
The net deferred tax liability increased to $168.3 million as of June 30, 1999
from $165.5 million as of December 31, 1998. The increase in the Company's net
deferred tax liability as of June 30, 1999 as compared to December 31, 1998
primarily resulted from the Company recording a net deferred tax provision for
the six months ended June 30, 1999.
Net loss available to common stockholders for the three months ended June 30,
1999 was $1.3 million or $.01 per share compared to net loss available to common
stockholders of $3.5 million or $.04 per share for the three months ended June
30, 1998. Net loss available to common stockholders for the six months ended
June 30, 1999 was $5.5 million or $.06 per share compared to net loss available
to common stockholders of $9.3 million or $.10 per share. Net loss available to
common stockholders decreased for the three and six months ended June 30, 1999
as compared to the three and six months ended June 30, 1998 due to an increase
in broadcast operating income, an unrealized gain on derivative instrument, a
decrease in interest and other income, offset by an increase in interest expense
and the recognition of an extraordinary loss during the 1998 periods.
Broadcast cash flow increased to $110.5 million for the three months ended June
30, 1999 from $82.8 million for the three months ended June 30, 1998, or 33.5%.
Broadcast cash flow increased to $185.7 million for the six months ended June
30, 1999 from $133.1 million for the six months ended June 30, 1998, or 39.5%.
The increase in broadcast cash flow for the three months ended June 30, 1999 was
comprised of $26.6 million related to the 1998 and 1999 Transactions and $1.1
million related to an increase in broadcast cash flow on a same station basis,
which increased by 1.5%. The increase in broadcast cash flow for the six months
ended June 30, 1999 was comprised of $50.8 million related to the 1998 and 1999
Transactions and $1.8 million related to an increase in broadcast cash flow on a
same station basis, which increased by 1.4%.
15
<PAGE>
The Company's broadcast cash flow margin decreased to 52.2% for the three months
ended June 30, 1999 from 53.9% for the three months ended June 30, 1998. The
Company's broadcast cash flow margin decreased to 48.1% for the six months ended
June 30, 1999 from 50.0% for the six months ended June 30, 1998. The decreases
in broadcast cash flow margins for the three and six months ended June 30, 1999
as compared to the three and six months ended June 30, 1998 primarily resulted
from lower broadcast cash flow margins associated with the 1998 and 1999
Transactions. On a same station basis, broadcast cash flow margins increased
from 52.6% to 53.0% for the three months ended June 30, 1999 as compared to the
three months ended June 30, 1998. Same station basis broadcast cash flow margins
remained relatively unchanged when comparing the six month periods ended June
30, 1998 and 1999.
Adjusted EBITDA increased to $105.4 million for the three months ended June 30,
1999 from $78.4 million for the three months ended June 30, 1998, or 34.4%.
Adjusted EBITDA increased to $175.8 million for the six months ended June 30,
1999 from $124.2 million for the six months ended June 30, 1998, or 41.5%. These
increases in Adjusted EBITDA for the three and six months ended June 30, 1999 as
compared to the three and six months ended June 30, 1998 resulted from the 1999
Acquisitions. The Company's Adjusted EBITDA margin decreased to 49.8% for the
three months ended June 30, 1999 from 51.0% for the three months ended June 30,
1998. The Company's Adjusted EBITDA margin decreased to 45.6% for the six months
ended June 30, 1999 from 46.6% for the six months ended June 30, 1998. Decreases
in Adjusted EBITDA margins for the three and six months ended June 30, 1999 as
compared to the three and six months ended June 30, 1998 primarily resulted from
the same circumstances affecting broadcast cash flow margin as noted above.
After tax cash flow increased to $52.1 million for the three months ended June
30, 1999 from $42.5 million for the three months ended June 30, 1998, or 22.6%.
After tax cash flow increased to $69.1 million for the six months ended June 30,
1999 from $52.7 million for the six months ended June 30, 1998 or 31.1%. The
increase in after tax cash flow for the three and six months ended June 30, 1999
as compared to the three and six months ended June 30, 1998 primarily resulted
from an increase in broadcast operating income relating to the 1998 and 1999
Transactions and internal growth, offset by an increase in interest expense.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash provided by operations and
availability under the 1998 Bank Credit Agreement. As of June 30, 1999, the
Company had $9.6 million in cash balances and net working capital of
approximately $38.4 million. As of June 30, 1999, the remaining balance
available under the Revolving Credit Facility was $114.5 million. Based on pro
forma trailing cash flow levels for the twelve months ended June 30, 1999, the
Company had approximately $54.5 million available of current borrowing capacity
under the Revolving Credit Facility The 1998 Bank Credit Agreement also provides
for an incremental term loan commitment in the amount of up to $400 million
which can be utilized upon approval by the Agent bank and the raising of
sufficient commitments from banks to fund the additional loans.
In July 1999, the Company signed a letter of intent to sell 43 radio stations in
nine markets to Entercom Communications Corp. ("Entercom") for $821.5 million in
cash, subject to definitive documentation. The transaction does not include
Sinclair's radio stations in the St. Louis market, which are subject to the St.
Louis Purchase Option (see Note 6). The letter of intent addresses a majority of
the material terms of the transaction and Sinclair believes it will be able to
enter into a definitive purchase agreement with Entercom following a three-week
negotiation and diligence period. The transaction will be subject to FCC and
Department of Justice approval, as well as the approval of the Boards of
Directors of Sinclair and Entercom. The Company intends to use proceeds from the
sale to reduce debt levels which will give the Company additional borrowing
capacity under the 1998 Bank Credit Agreement. The Company may also use a
portion of the proceeds to make acquisitions or to repurchase shares of its
Class A Common Stock.
In April 1999, the Company closed on the acquisition of all but three stations
from Guy Gannett. In July 1999, the Company completed the acquisition of these
remaining three stations at an acquisition price of approximately $81.0 million.
The Company has agreed to sell these three stations to STC for approximately
$81.0 million in the STC Disposition. In April 1999, the Justice Department
requested additional information in response to STC's filing under the
Hart-Scott-Rodino Antitrust Improvements Act. The sale of the stations to STC
has been delayed pending resolution of the questions raised by the Justice
Department. If STC is unable to complete the purchase of these stations, the
Company may continue to own these stations or attempt to sell one or more of
these stations to another third party.
On April 19, 1999, the Company entered into an agreement (the "ATC Agreement")
with American Tower Corporation, an independent owner, operator and developer of
broadcast and wireless communication sites in the United States. Under the
agreement, the Company will provide American Tower access to tower sites in
eleven of the Company's markets including Nashville, TN, Dayton, OH, Richmond,
VA, Mobile, AL, Pensacola, FL, San Antonio, TX, and Syracuse, NY. American Tower
will construct new towers in each of these markets and will lease space on the
towers to the Company. This will provide the Company the additional tower
capacity required to develop its digital television transmission needs in these
markets at an initial capital outlay lower than would be required if the Company
constructed these towers itself. The terms of future leases are still being
negotiated with American Tower Corporation. If the Company and American Tower
cannot agree on the terms and conditions of the new master lease that will
govern the landlord/tenant relationship between the parties, neither party will
have any obligation to the other under the ATC Agreement, which will then become
a nullity.
Net cash flows from operating activities increased to $72.5 million for the six
months ended June 30, 1999 from $67.5 million for the six months ended June 30,
1998. The Company made income tax payments of $5.3 million for the six months
ended June 30, 1999 as compared to $1.3 million for the six months ended June
30, 1998. The Company made interest payments on outstanding indebtedness and
payments for subsidiary minority interest expense totaling $100.8 million during
the six months ended June 30, 1999 as compared to $80.4 million for the six
months ended June 30, 1998. Additional interest payments for the six months
ended June 30, 1999 as compared to the six months ended June 30, 1998 primarily
related to additional interest costs on indebtedness incurred to finance
businesses acquired during 1998 and 1999. Program rights payments increased to
$41.3 million for the six months ended June 30, 1999 from $30.5 million for the
six months ended June 30, 1998. This increase in program rights payments
comprised $9.6 million related to the 1998 Acquisitions and $1.2 million related
to an increase in programming costs on a same station basis, which increased
4.0%.
17
<PAGE>
Net cash flows used in investing activities decreased to $114.3 million for the
six months ended June 30, 1999 from $648.3 million for the six months ended June
30, 1998. During the six months ended June 30, 1999, the Company made cash
payments of approximately $127.4 million related to the acquisition of
television and radio broadcast assets. During the six months ended June 30,
1999, the Company made equity interest investments of approximately $9.3
million. The Company made payments for property and equipment of $11.6 million
for the six months ended June 30, 1999. The Company expects that expenditures
for property and equipment will increase for the year ended December 31, 1999
over prior years as a result of a larger number of stations owned by the
Company. In addition, the Company anticipates that future requirements for
capital expenditures will include capital expenditures incurred during the
ordinary course of business and additional strategic station acquisitions and
equity investments if suitable investments can be identified on acceptable
terms.
The Company used $106.4 million for financing activities for the six months
ended June 30, 1999 and was provided $154.5 million by financing activities for
the six months ended June 30, 1998. During the six months ended June 30, 1999,
the Company repaid $72.0 million and $25.0 million under the 1998 Bank Credit
Agreement Revolving Credit Facility and Term Loan Facility, respectively. In
addition, the Company utilized borrowings under the Revolving Credit Facility of
$154.5 million primarily to fund acquisition activity including the Guy Gannett
Acquisition.
The Company anticipates that funds from operations, existing cash balances, the
availability of the Revolving Credit Facility under the 1998 Bank Credit
Agreement and the proceeds from the sale of certain stations will be sufficient
to meet its working capital, capital expenditure commitments, debt service
requirements and current acquisition commitments.
SEASONALITY
The Company's results usually are subject to seasonal fluctuations, which result
in fourth quarter broadcast operating income being greater usually than first,
second and third quarter broadcast operating income. This seasonality is
primarily attributable to increased expenditures by advertisers in anticipation
of holiday season spending and an increase in viewership during this period. In
addition, revenues from political advertising tend to be higher in even numbered
years.
YEAR 2000
The Company has commenced a process to assure Year 2000 compliance of all
hardware, software, broadcast equipment and ancillary equipment that are date
dependent. The process involves four phases:
Phase I - Inventory and Data Collection. This phase involves an identification
of all items that are date dependent. Sinclair commenced this phase in the third
quarter of 1998, and Management estimates it has completed approximately 50% of
this phase as of the date hereof. The Company expects to complete this phase by
the end of the third quarter of 1999.
Phase II - Compliance Requests. This phase involves requests to information
technology systems vendors for verification that the systems identified in Phase
I are Year 2000 compliant. Sinclair will identify and begin to replace items
that cannot be updated or certified as compliant. Sinclair has completed the
compliance request phase of its plan as of the date hereof. In addition,
Sinclair has verified that its accounting, traffic, payroll, and local and wide
area network hardware and software systems are compliant. In addition, Sinclair
is currently in the process of ascertaining that all of its personal computers
and PC applications are compliant. Sinclair is currently reviewing its news-room
systems, building control systems, security systems and other miscellaneous
systems. The Company expects to complete this phase by the end of the third
quarter of 1999.
Phase III - Test, Fix and Verify. This phase involves testing all items that are
date dependent and upgrading all non-compliant devices. Sinclair expects to
complete aspects of this phase during the third quarter of 1999.
Phase IV - Final Testing, New Item Compliance. This phase involves review of all
inventories for compliance and retesting as necessary. During this phase, all
new equipment will be tested for compliance. Sinclair expects to complete this
phase by the end of the third quarter of 1999.
18
<PAGE>
The Company has developed a contingency/emergency plan to address Year 2000
worst case scenarios. The contingency plan includes, but is not limited to,
addressing (i) regional power facilities, (ii) interruption of satellite
delivered programming, (iii) replacement or repair of equipment not discovered
or fixed during the year 2000 compliance process and (iv) local security
measures that may become necessary relating to the Company's properties. The
contingency plan involves obtaining alternative sources if existing sources of
these goods and services are not available. Although the contingency plan is
designed to reduce the impact of disruptions from these sources, there is no
assurance that the plan will avoid material disruptions in the event one or more
of these events occurs.
To date, Sinclair believes that its major systems are Year 2000 compliant. This
substantial compliance has been achieved without the need to acquire new
hardware, software or systems other than in the ordinary course of replacing
such systems. Sinclair is not aware of any non-compliance that would be material
to repair or replace or that would have a material effect on Sinclair's business
if compliance were not achieved. Sinclair does not believe that non-compliance
in any systems that have not yet been reviewed would result in material costs or
disruption. Neither is Sinclair aware of any non-compliance by its customers or
suppliers that would have a material impact on Sinclair's business.
Nevertheless, there can be no assurance that unanticipated non-compliance will
not occur, and such non-compliance could require material costs to repair or
could cause material disruptions if not repaired.
CHANGE IN MARKET RISK
As noted above, the Company's net loss for the six months ended June 30, 1999
included recognition of a gain of $11.6 million on a treasury option derivative
instrument. Upon execution of the treasury option derivative instrument during
1998, the Company received a cash payment of $9.5 million. The treasury option
derivative instrument will require the Company to make five annual payments
equal to the difference between 6.14% minus the interest rate yield on five-year
treasury securities on September 30, 2000 times the $300 million notional amount
of the instrument. If the yield on five-year treasuries is equal to or greater
than 6.14% on September 30, 2000, the Company will not be required to make any
payment under the terms of this instrument. If the rate is below 6.14% on that
date, the Company will be required to make payments, as described above, and the
size of the payment will increase as the rate goes down. For each accounting
period, the Company recognizes unrealized gain on an expense equal to the change
in the projected liability under this arrangement based on interest rates at the
end of the period. The gain recognized in the six months ended June 30, 1999
reflects an adjustment of the Company's liability under this instrument to the
present value of future payments based on the two-year forward five-year
treasury rate as of June 30, 1999 for five year treasury notes with a settlement
date of September 30, 2000. If the yield on five-year treasuries at September
30, 2000 were to equal the forward five-year treasury rate on June 30, 1999
(5.96%), Sinclair would be required to make five annual payments of
approximately $540,000 each. If the yield on five-year treasuries declines
further in periods before September 30, 2000, Sinclair will be required to
recognize further losses. In any event, Sinclair will not be required to make
any payments until September 30, 2000.
19
<PAGE>
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of stockholders of Sinclair Broadcast Group, Inc. was held on
May 11, 1999. At the meeting, two items, as set forth in the Company's proxy
statement dated April 14, 1999, were submitted to the stockholders for a vote:
1) the stockholders elected, for one-year terms, all persons nominated for
directors as set forth in the Company's proxy statement dated April 14, 1999;
and 2) the stockholders voted to ratify the selection of Arthur Andersen LLP as
the Company's independent public accountants for the fiscal year 1999 audit.
Approximately 99% of the eligible proxies were returned for voting. The table
below sets forth the results of the voting at the Annual Meeting:
<TABLE>
<CAPTION>
Against
or
For Withheld Abstentious
---- -------- -----------
<S> <C> <C>
(1) Election of Directors
David D. Smith 527,037,493 296,106
Frederick G. Smith 527,037,597 296,002
J. Duncan Smith 527,038,219 295,380
Robert E. Smith 527,038,053 295,546
Basil A. Thomas 527,039,382 294,217
Lawrence E. McCanna 527,036,771 296,828
(2) Appointment of Independent
Accountants 527,300,464 18,628 19,507
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27 Financial Data Schedule
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized in the city of Baltimore, Maryland
on the 15th day of August, 1999.
SINCLAIR BROADCAST GROUP, INC.
by: /s/ David B. Amy
---------------------
David B. Amy
Chief Financial Officer
Principal Accounting Officer
21
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000912752
<NAME> SBG
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 9,599
<SECURITIES> 0
<RECEIVABLES> 191,124
<ALLOWANCES> 2,741
<INVENTORY> 0
<CURRENT-ASSETS> 289,653
<PP&E> 376,055
<DEPRECIATION> 86,281
<TOTAL-ASSETS> 3,859,212
<CURRENT-LIABILITIES> 251,286
<BONDS> 750,000
200,000
36
<COMMON> 964
<OTHER-SE> 812,928
<TOTAL-LIABILITY-AND-EQUITY> 3,859,212
<SALES> 0
<TOTAL-REVENUES> 417,788
<CGS> 0
<TOTAL-COSTS> 323,987
<OTHER-EXPENSES> (1,866)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,278
<INCOME-PRETAX> 8,389
<INCOME-TAX> 8,700
<INCOME-CONTINUING> (311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (311)
<EPS-BASIC> (.06)<F1>
<EPS-DILUTED> (.06)<F1>
<FN>
<F1>This information has been prepared in accordance with SFAS No. 128, Earnings
Per Share. The basic and diluted EPS calculations have been entered in place of
primary and diluted, respectively.
</FN>
</TABLE>
