UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 August 7, 2000, there were 43,765,922 shares of Class A Common Stock, $.01
par value; 46,400,768 shares of Class B Common Stock, $.01 par value; and
3,450,000 shares of Series D Preferred Stock, $.01 par value, convertible 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, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 ................................................. 3
Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1999 and 2000 ................ 4
Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2000 ................................. 5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 2000 ................................. 6
Notes to Unaudited Consolidated Financial Statements .................................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................ 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk ........................................................ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders .............................................................. 18
Item 6. Exhibits and Reports on Form 8-K ................................................................................. 19
Signature ............................................................................................................. 20
</TABLE>
2
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SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1999 2000
--------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash ........................................................................... $ 16,408 $ 4,145
Accounts receivable, net of allowance for doubtful accounts..................... 210,343 193,124
Current portion of program contract costs....................................... 74,138 44,826
Prepaid expenses and other current assets....................................... 7,418 4,395
Deferred barter costs........................................................... 1,823 4,401
Broadcast assets related to discontinued operations, net of liabilities......... 172,983 166,712
Broadcast assets held for sale, current......................................... 77,962 -
Deferred tax asset ............................................................. 5,215 21,352
------------- ------------
Total current assets..................................................... 566,290 438,955
PROGRAM CONTRACT COSTS, less current portion........................................ 53,002 34,899
LOANS TO OFFICERS AND AFFILIATES.................................................... 8,772 9,169
PROPERTY AND EQUIPMENT, net......................................................... 251,783 275,368
BROADCAST ASSETS HELD FOR SALE, less current portion................................ 144,316 -
OTHER ASSETS ....................................................................... 108,383 103,387
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net........................................ 2,486,964 2,681,337
------------- ------------
Total Assets.................................................................... $ 3,619,510 $ 3,543,115
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 7,600 $ 6,717
Accrued liabilities............................................................. 67,078 74,434
Income taxes payable............................................................ 116,821 9,906
Notes payable and commercial bank financing..................................... 75,008 87,509
Notes and capital leases payable to affiliates.................................. 5,890 4,380
Current portion of program contracts payable.................................... 111,992 91,280
Deferred barter revenues........................................................ 3,244 5,913
------------- ------------
Total current liabilities................................................ 387,633 280,139
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing..................................... 1,677,299 1,781,339
Notes and capital leases payable to affiliates.................................. 34,142 32,118
Program contracts payable, less current portion................................. 87,220 63,683
Deferred tax liability.......................................................... 233,927 236,092
Other long-term liabilities..................................................... 20,444 27,531
------------- ------------
Total liabilities........................................................ 2,440,665 2,420,902
------------- ------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES...................................... 3,928 3,688
------------- ------------
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUB-
SIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES............................. 200,000 200,000
------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series D Preferred stock, $.01 par value, 3,450,000 shares authorized,
issued and outstanding....................................................... 35 35
Class A Common stock, $.01 par value, 500,000,000 shares authorized
and 49,142,513 and 45,026,675 shares issued and outstanding, respectively.... 491 450
Class B Common stock, $.01 par value, 140,000,000 shares authorized
and 47,608,347 and 46,400,768 shares issued and outstanding.................. 476 464
Additional paid-in capital...................................................... 764,091 738,512
Additional paid-in capital - equity put options................................. 116,370 90,877
Additional paid-in capital - deferred compensation.............................. (4,489) (3,970)
Retained earnings............................................................... 97,943 92,157
------------- ------------
Total stockholders' equity............................................... 974,917 918,525
------------- ------------
Total Liabilities and Stockholders' Equity............................... $ 3,619,510 $ 3,543,115
============= ============
</TABLE>
The accompanying notes are an integral part
of these unaudited consolidated statements.
3
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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,
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions .............. $ 175,261 $ 192,736 $ 323,355 $ 353,538
Revenues realized from station barter arrangements ................. 15,360 14,871 29,624 29,917
--------- --------- --------- ---------
Total revenues .............................................. 190,621 207,607 352,979 383,455
--------- --------- --------- ---------
OPERATING EXPENSES:
Program and production ............................................. 34,778 39,477 67,754 77,542
Selling, general and administrative ................................ 31,685 43,575 64,104 83,495
Expenses realized from station barter arrangements ................. 13,892 13,517 26,997 26,955
Amortization of program contract costs and net
realizable value adjustments..................................... 18,480 23,409 39,971 48,486
Stock-based compensation ........................................... 848 701 1,674 1,377
Depreciation of property and equipment ............................. 7,819 9,579 15,792 18,090
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets ......... 28,104 27,970 54,755 54,909
Cumulative adjustment for change in assets held for sale ........... - - - 619
--------- --------- --------- ---------
Total operating expenses .................................... 135,606 158,228 271,047 311,473
--------- --------- --------- ---------
Broadcast operating income .................................. 55,015 49,379 81,932 71,982
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ................. (44,088) (37,978) (87,278) (74,850)
Subsidiary trust minority interest expense ......................... (5,812) (5,812) (11,625) (11,625)
Interest income .................................................... 794 674 1,603 1,254
Unrealized gain (loss) on derivative instrument .................... 4,486 (695) 11,586 4
Loss from equity investments ....................................... - (1,317) - (1,852)
Other income (expense) ............................................. 183 (594) 331 (786)
--------- --------- --------- ---------
Income (loss) before income tax (provision) benefit ......... 10,578 3,657 (3,451) (15,873)
INCOME TAX (PROVISION) BENEFIT ..................................... (14,457) (4,910) (3,490) 11,997
--------- --------- --------- ---------
Net loss from continuing operations ................................ (3,879) (1,253) (6,941) (3,876)
Net income from discontinued operations, net of taxes .............. 5,183 2,462 6,630 3,265
--------- --------- --------- ---------
NET INCOME (LOSS) .................................................. $ 1,304 $ 1,209 $ (311) $ (611)
========= ========= ========= =========
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS .............................. $ (1,283) $ (1,378) $ (5,486) $ (5,786)
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Loss per common share from continuing operations ....................... $ (0.07) $ (0.04) $ (0.13) $ (0.10)
========= ========= ========= =========
Income per share from discontinued operations .......................... $ 0.05 $ 0.03 $ 0.07 $ 0.04
========= ========= ========= =========
Loss per common share .................................................. $ (0.01) $ (0.01) $ (0.06) $ (0.06)
========= ========= ========= =========
Weighted average common shares outstanding ............................. 96,371 92,492 96,474 92,651
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Loss per common share from continuing operations ....................... $ (0.07) $ (0.04) $ (0.13) $ (0.10)
========= ========= ========= =========
Income per share from discontinued operations .......................... $ 0.05 $ 0.03 $ 0.07 $ 0.04
========= ========= ========= =========
Loss per common share .................................................. $ (0.01) $ (0.01) $ (0.06) $ (0.06)
========= ========= ========= =========
Weighted average common and common equivalent shares outstanding ....... 97,026 92,492 97,133 92,651
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these unaudited consolidated statements.
4
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SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL ADDITIONAL
PAID-IN PAID-IN
SERIES D CLASS A CLASS B ADDITIONAL CAPITAL - CAPITAL - TOTAL
PREFERRED COMMON COMMON PAID-IN EQUITY PUT DEFERRED ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL OPTIONS COMPENSATION DEFICIT EQUITY
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 ... $ 35 $ 491 $ 476 $ 764,091 $ 116,370 $ (4,489) $ 97,943 $ 974,917
Repurchase and retirement
of 5,569,732 shares of
Class A Common Stock ..... - (56) - (53,210) - - - (53,266)
Class B Common Stock
converted into Class A
Common Stock ............. - 12 (12) - - - - -
Dividends paid on
Series D Preferred Stock . - - - - - - (5,175) (5,175)
Stock option grants ........ - - - 60 - (60) - -
Class A Common Stock
issued pursuant to
employee benefit plans ... - 3 - 2,078 - - - 2,081
Equity put options ......... - - - 25,493 (25,493) - - -
Amortization of deferred
compensation ............. - - - - - 579 - 579
Net loss ................... - - - - - - (611) (611)
--------- --------- --------- --------- --------- --------- --------- ---------
BALANCE, June 30, 2000 ....... $ 35 $ 450 $ 464 $ 738,512 $ 90,877 $ (3,970) $ 92,157 $ 918,525
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these unaudited consolidated statements.
5
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SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 2000
--------- ---------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net loss ......................................................................................... $ (311) $ (611)
Adjustments to reconcile net loss to net cash flows from (used in) operating activities-
Amortization of debt discount ................................................................ 49 49
Depreciation of property and equipment ....................................................... 17,907 19,869
Unrealized gain on derivative instrument ..................................................... (11,586) (4)
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets..................................... 63,571 59,680
Amortization of program contract costs and net realizable value adjustments .................. 39,971 48,784
Stock-based compensation ..................................................................... 972 579
Cumulative adjustment for change in assets held for sale ..................................... - (1,237)
Deferred tax provision (benefit) related to operations ....................................... 2,759 (13,972)
Loss from equity investments ................................................................. - 1,852
Net effect of change in deferred barter revenues
and deferred barter costs.................................................................. (47) 97
Decrease in minority interest ................................................................ (7) (240)
Changes in assets and liabilities, net of effects of acquisitions and dispositions-
Decrease in accounts receivable, net ......................................................... 9,795 15,527
(Increase) decrease in prepaid expenses and other current assets ............................. (817) 2,296
Decrease in accounts payable and accrued liabilities ......................................... (7,031) (10,928)
(Decrease) increase in other long-term liabilities ........................................... (2,046) 6,944
Income tax payments related to the sale of broadcasting assets ............................... - (99,007)
Payments on program contracts payable ........................................................ (40,677) (49,410)
--------- ---------
Net cash flows from (used in) operating activities ........................................ 72,502 (19,732)
--------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment ............................................................ (11,570) (15,034)
Payments relating to the acquisition of television and radio stations ............................ (130,279) (35,984)
Distributions from (investments in) joint ventures ............................................... 324 (133)
Equity investments ............................................................................... (9,349) (4,171)
Proceeds from sale of broadcasting assets ........................................................ 35,911 673
Loans to officers and affiliates ................................................................. (443) (673)
Repayments of loans to officers and affiliates ................................................... 1,112 342
--------- ---------
Net cash flows used in investing activities ............................................... (114,294) (54,980)
--------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from commercial bank financing .......................................................... 154,500 311,000
Repayments of notes payable, commercial bank financing and capital leases ........................ (98,899) (194,500)
Repurchases of Class A Common Stock .............................................................. - (46,000)
Dividends paid on Series D Convertible Preferred Stock ........................................... (5,175) (5,175)
Repayments of notes and capital leases to affiliates.............................................. (2,303) (2,876)
Net cash flows from financing activities .................................................. 48,123 62,449
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................................. 6,331 (12,263)
CASH AND CASH EQUIVALENTS, beginning of period ....................................................... 3,268 16,408
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................................................. $ 9,599 $ 4,145
========= =========
</TABLE>
The accompanying notes are an integral part
of these unaudited consolidated statements.
6
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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
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).
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the six months ended June 30, 1999 and
2000 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, 1998, and 1999 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.
DISCONTINUED OPERATIONS
In July 1999, the Company entered into an agreement to sell 46 of its radio
stations in nine markets to Entercom Communications Corporation (Entercom) for
$824.5 million in cash. In December 1999, the Company completed the sale of 41
of its radio stations in eight markets to Entercom for $700.4 million in cash
and recognized a gain net of tax of $192.4 million. The company completed the
sale of four of the remaining five radio stations to Entercom in July 2000 for a
purchase price of $126.6 million. The completion of the sale of the remaining
radio station in Wilkes-Barre is subject to the outcome of pending litigation in
which a former licensee is seeking the return of the station's license based on
a fraudulent conveyance claim. In addition, the Company has entered into an
agreement with Emmis Communications Corporation (Emmis) to sell its remaining
radio stations serving the St. Louis market to Emmis (see note 5).
Based on the Company's strategy to divest of its radio broadcasting segment,
"Discontinued Operations" accounting has been adopted for the periods presented
in the accompanying financial statements and the notes thereto. As such, the
results from operations of the radio broadcast segment, net of related income
taxes, has been reclassified from income from operations and reflected as income
from discontinued operations in the accompanying consolidated statements of
operations for all periods presented. In addition, assets and liabilities
relating to the radio broadcast segment are reflected in "Broadcast assets
related to discontinued operations, net of liabilities" in the accompanying
consolidated balance sheets for all periods presented.
Discontinued operations have not been segregated in the Consolidated Statements
of Cash Flows and, therefore, amounts for certain captions will not agree with
the accompanying consolidated statements of operations.
BROADCAST ASSETS HELD FOR SALE
In March 1999, the Company entered into an agreement to sell to Sunrise
Television Corporation (STC) the television stations WICS/WICD-TV in the
Springfield/Champaign, Illinois market and KGAN-TV in the Cedar
7
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Rapids, Iowa market. In April 1999, the Justice Department requested additional
information in response to STC's filing under the Hart-Scott-Rodino Antitrust
Improvements Act. Pursuant to the agreement, if the transaction did not close by
March 16, 2000, either STC or the Company had the option to terminate the
agreement at that time. On March 15, 2000, the Company entered into an agreement
to terminate the STC transaction. As a result of its termination, the Company
recorded a cumulative accounting adjustment during the first quarter of 2000.
As of December 31, 1999, broadcast assets held for sale, less current portion,
included the assets of KDNL-TV in the St. Louis, Missouri market. The assets
were reclassed to the appropriate balance sheet classifications during the
second quarter of 2000 as the agreement to sell these assets was subsequently
terminated (see note 2).
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 or cash flows.
In June 2000, the Company settled its recent litigation with Emmis and former
CEO-designate Barry Baker regarding the sale of its St. Louis broadcast
properties. As a result of the settlement, the purchase option of the Company's
St. Louis properties has been terminated and a subsequent agreement was entered
into whereby the Company would sell its St. Louis radio properties to Emmis (see
note 5). We will retain our St. Louis television station, KDNL-TV.
3. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
During the six months ended June 30, 1999 and 2000, the Company made certain
cash payments of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 2000
---- ----
<S> <C> <C>
Interest payments............................................................... $ 89,153 $ 76,082
============ ===========
Subsidiary trust minority interest payments..................................... $ 11,625 $ 11,625
============ ===========
Income tax payments............................................................. $ 5,278 $ 102,073
============ ===========
Income tax refunds received..................................................... $ 876 $ 869
============ ===========
</TABLE>
8
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4. EARNINGS PER SHARE:
Basic and diluted earnings per share and related computations are as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 2000 1999 2000
------- ------- ------- --------
<S> <C> <C> <C> <C>
Weighted-average number of common shares .............................. 96,371 92,492 96,474 92,651
Diluted effect of outstanding stock options ........................... 17 - 21 -
Diluted effect of conversion of preferred shares ...................... 638 - 638 -
------- ------- ------- --------
Diluted weighted-average number of common and
common equivalent shares outstanding ............................... 97,026 92,492 97,133 92,651
======= ======= ======= ========
Net loss from continuing operations ................................... $(3,879) $(1,253) $(6,941) $ (3,876)
======= ======= ======= ========
Net income from discontinued operations ............................... $ 5,183 $ 2,462 $ 6,630 $ 3,265
======= ======= ======= ========
Net income (loss) ..................................................... $ 1,304 $ 1,209 $ (311) $ (611)
Preferred stock dividends payable ..................................... (2,587) (2,587) (5,175) (5,175)
------- ------- ------- --------
Net loss available to common stockholders ............................. $(1,283) $(1,378) $(5,486) $ (5,786)
======= ======= ======= ========
BASIC EARNINGS PER SHARE:
Net loss per common share from continuing operations ............ $ (0.07) $ (0.04) $ (0.13) $ (0.10)
======= ======= ======= ========
Net income per share from discontinued operations ............... $ 0.05 $ 0.03 $ 0.07 $ 0.04
======= ======= ======= ========
Net loss per common share ....................................... $ (0.01) $ (0.01) $ (0.06) $ (0.06)
======= ======= ======= ========
DILUTED EARNINGS PER SHARE:
Net loss per common share from continuing operations ............ $ (0.07) $ (0.04) $ (0.13) $ (0.10)
======= ======= ======= ========
Net income per share from discontinued operations ............... $ 0.05 $ 0.03 $ 0.07 $ 0.04
======= ======= ======= ========
Net loss per common share ....................................... $ (0.01) $ (0.01) $ (0.06) $ (0.06)
======= ======= ======= ========
</TABLE>
5. ACQUISITIONS AND DISPOSITIONS:
Montecito Acquisition. In February 1998, the Company entered into a Stock
Purchase Agreement with Montecito Broadcasting Corporation (Montecito) and its
stockholders to acquire all of the outstanding stock of Montecito which owns the
FCC License for television broadcast station KFBT-TV. The FCC granted approval
of the transaction and the Company completed the purchase of the outstanding
stock of Montecito on April 18, 2000 for a purchase price of $33.0 million.
Emmis Disposition. In June 2000, the Company entered into an agreement with
Emmis whereby the Company would sell the assets of six radio stations in the St.
Louis market to Emmis for a purchase price of $220.0 million. The sale of the
radio stations is subject to FCC and Department of Justice approval.
6. INTEREST RATE DERIVATIVE AGREEMENTS:
The Company estimates the fair value to retire these instruments at June 30,
2000 to be $8.0 million. The approximate 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, 2000 if the contracts were transferred to other parties or
canceled by the Banks. Based on the Company's currently hedged position at June
30, 2000, $1.8 billion or 94% of the Company's outstanding indebtedness is
hedged.
9
<PAGE>
7. 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, 2000, the Company's Option Derivative liability recorded in "Other long-term
liabilities" in the accompanying consolidated balance sheet is $2.7 million. The
fair market value adjustment for the six months ended June 30, 2000 resulted in
an unrealized gain of $4,000. If the yield on the five year treasuries at
September 30, 2000 were equal to the forward five year treasury rate on June 30,
2000 (6.13%), Sinclair would be obligated to pay approximately $0.1 million,
either upfront or over five years, at Sinclair's option.
10
<PAGE>
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 for the fiscal year ended December
31, 1999.
This report includes or incorporates forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, among other things:
o the impact of changes in national and regional economies,
o our ability to service our outstanding debt,
o successful integration of acquired television stations, including
achievement of synergies and cost reductions,
o pricing fluctuations in local and national advertising,
o volatility in programming costs, and
o the effects of governmental regulation of broadcasting.
Other matters set forth in this report, including the risk factors set forth in
our Form 10-K filed with the Securities and Exchange Commission on March 30,
2000, may also cause actual results in the future to differ materially from
those described in the forward-looking statements. We undertake no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this report might not
occur.
11
<PAGE>
The following table sets forth certain operating data for the three months and
six months ended June 30, 1999 and 2000:
OPERATING DATA (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net broadcast revenues (a) ................................. $ 175,261 $ 192,736 $ 323,355 $ 353,538
Barter revenues ............................................ 15,360 14,871 29,624 29,917
--------- --------- --------- ---------
Total revenues ............................................. 190,621 207,607 352,979 383,455
--------- --------- --------- ---------
Operating costs (b) ........................................ 66,463 83,052 131,858 161,037
Expenses from barter arrangements .......................... 13,892 13,517 26,997 26,955
Depreciation, amortization and stock-based
compensation (c) ........................................ 55,251 61,659 112,192 123,481
--------- --------- --------- ---------
Broadcast operating income ................................. 55,015 49,379 81,932 71,982
Interest expense ........................................... (44,088) (37,978) (87,278) (74,850)
Subsidiary trust minority interest expense (d) ............. (5,812) (5,812) (11,625) (11,625)
Interest and other income .................................. 977 80 1,934 468
Loss from equity investments ............................... - (1,317) - (1,852)
Unrealized gain (loss) on derivative instrument............. 4,486 (695) 11,586 4
--------- --------- --------- ---------
Net income (loss) before income taxes ...................... 10,578 3,657 (3,451) (15,873)
Income tax (provision) benefit ............................. (14,457) (4,910) (3,490) 11,997
--------- --------- --------- ---------
Net loss from continuing operations ........................ (3,879) (1,253) (6,941) (3,876)
Net income from discontinued operations, net of taxes....... 5,183 2,462 6,630 3,265
--------- --------- --------- ---------
Net income (loss) .......................................... $ 1,304 $ 1,209 $ (311) $ (611)
========= ========= ========= =========
Net loss available to common stockholders .................. $ (1,283) $ (1,378) $ (5,486) $ (5,786)
========= ========= ========= =========
OTHER DATA:
Broadcast Cash Flow (e) ............................. $ 94,838 $ 92,654 $ 162,189 $ 158,248
Broadcast Cash Flow Margin (f) ...................... 54.1% 48.1% 50.2% 44.8%
Adjusted EBITDA (g) ................................. $ 90,316 $ 86,303 $ 153,447 $ 146,053
Adjusted EBITDA margin (f) .......................... 51.5% 44.8% 47.5% 41.3%
After tax cash flow (h) ............................. $ 52,071 $ 45,803 $ 69,070 $ 60,864
Program contract payments ........................... 19,950 24,735 40,677 49,410
Corporate expense ................................... 4,522 6,351 8,742 12,195
Capital expenditures ................................ 7,467 8,656 11,570 15,034
Cash flows from (used in) operating activities....... 26,712 1,500 72,502 (19,732)
Cash flows used in investing activities.............. (95,065) (44,417) (114,294) (54,980)
Cash flows from financing activities ................ 72,039 38,497 48,123 62,449
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<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 of property and equipment, stock-based
compensation, and amortization of acquired intangible broadcasting
assets and other assets including amortization of deferred financing
costs.
d) "Subsidiary trust minority interest expense" represents distributions
on the HYTOPS.
e) "Broadcast cash flow" (BCF) is defined as broadcast operating income
plus corporate overhead expense, depreciation and amortization
(including film amortization and amortization of deferred
compensation), stock-based compensation, cumulative adjustment for
change in assets held for sale and minus cash payments for program
rights. Cash program payments represent cash payments made for current
programs payable and do not necessarily correspond to program usage. We
have presented BCF data, which we believe 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, BCF does not purport to represent cash provided by operating
activities as reflected in our 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 BCF is relevant and useful because 1) BCF is a
measurement utilized by lenders to measure our ability to service our
debt, 2) BCF is a measurement utilized by industry analysts to
determine a private market value of our television and radio stations
and 3) BCF is a measurement industry analysts utilize when determining
the operating performance.
f) "Broadcast cash flow margin" is defined as broadcast cash flow divided
by net broadcast revenues. "Adjusted EBITDA margin" is defined as
Adjusted EBITDA divided by net broadcast revenues.
g) "Adjusted EBITDA" is defined as broadcast cash flow less corporate
expenses and is a commonly used measure of performance for broadcast
companies. Adjusted EBITDA does not purport to represent cash provided
by operating activities as reflected in our 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 our ability to service our debt, 2) Adjusted EBITDA is a
measurement utilized by industry analysts to determine a private market
value of our television and radio stations and 3) Adjusted EBITDA is a
measurement industry analysts utilize when determining our operating
performance.
h) "After tax cash flow" (ATCF) is defined as net income (loss) available
to common stockholders plus depreciation and amortization (excluding
film amortization), stock-based compensation, the loss from equity
investments, the cumulative adjustment for change in assets held for
sale, and the deferred tax provision (or minus the deferred tax
benefit) and minus the unrealized gain (or plus the unrealized loss) on
the derivative instrument. ATCF is presented here not as a measure of
operating results and does not purport to represent cash provided by
operating activities. ATCF 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 ATCF is relevant and useful because 1) ATCF is a
measurement utilized by lenders to measure our ability to service our
debt, 2) ATCF is a measurement utilized by industry analysts to
determine a private market value of our television and radio stations
and 3) ATCF is a measurement analysts utilize when determining our
operating performance.
13
<PAGE>
RESULT OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net broadcast revenues increased to $192.7 million for the three months ended
June 30, 2000 from $175.3 million for the three months ended June 30, 1999, or
9.9%. Net broadcast revenues increased to $353.5 million for the six months
ended June 30, 2000 from $323.4 million for the six months ended June 30, 1999
or 9.3%. The increase in net broadcast revenues for the three months ended June
30, 2000 was comprised of $7.5 million related to the acquisition of television
stations and LMA transactions consummated by us in 1999 (collectively, the 1999
Transactions) and $9.9 million related to an increase in net broadcast revenues
on a same station basis, which increased by 5.9%. The increase in net broadcast
revenues for the six months ended June 30, 2000 was comprised of $12.5 million
related to the 1999 Transactions and $17.6 million related to an increase in net
broadcast revenues on a same station basis, which increased by 5.6%.
Operating costs increased to $83.1 million for the three months ended June 30,
2000 from $66.5 million for the three months ended June 30, 1999, or 25.0%.
Operating costs increased to $161.0 million for the six months ended June 30,
2000, from $131.9 million for the six months ended June 30, 1999, or 22.1%. The
increase in operating costs for the three months ended June 30, 2000 as compared
to the three months ended June 30, 1999 comprised $4.6 million related to the
1999 Transactions, $1.8 million related to an increase in corporate overhead
expenses, and $10.2 million in operating costs on a same station basis, which
increased 17.7%. The increase in operating costs for the six months ended June
30, 2000 as compared to the six months ended June 30, 1999 comprised $8.4
million related to the 1999 Transactions, $3.5 million related to an increase in
corporate overhead expenses, and $17.2 million related to an increase in
operating costs on a same station basis, which increased 14.8%. Corporate
overhead expenses increased for the three and six months ended June 30, 2000 as
compared to the three and six months ended June 30, 1999 due to an increase in
costs to manage a larger base of operations combined with costs related to our
internet business development and digital television technology investments
which were not incurred during the same periods in 1999. The increase in
operating costs on a same station basis primarily resulted from costs incurred
during the three and six months ended June 30, 2000 related to our agreements
with the Fox and WB networks which were not incurred in the same periods in
1999. Our payments to the Fox network related to our purchase of additional
prime time inventory and our payments to the WB network related to our agreement
with the network which requires us to make compensation payments as revenues and
ratings increase. We expect to incur these costs in future periods. In addition,
we experienced an increase in commission rates due to an increase in the number
of local account executives during the quarter. The increased number of account
executives is part of our strategy to increase the percentage of our revenues
derived from local advertising.
Depreciation and amortization increased $6.4 million to $61.7 million for the
three months ended June 30, 2000 from $55.3 million for the three months June
30, 1999. Depreciation and amortization increased $11.3 million to $123.5 for
the six months ended June 30, 2000 from $112.2 million for the six months ended
June 30, 1999. The increase in depreciation and amortization for the three and
six months ended June 30, 2000 as compared to the three and six months ended
June 30, 1999 was related to property additions associated with businesses
acquired during 1999 and program contract additions related to our investment to
upgrade our programming.
Broadcast operating income decreased $5.6 million to $49.4 million for the three
months ended June 30, 2000, from $55.0 million for the three months ended June
30, 1999, or 10.2%. Broadcast operating income decreased $9.9 million to $72.0
million for the six months ended June 30, 2000 from $81.9 million for the six
months ended June 30, 1999, or 12.1%. The net decrease in broadcast operating
income for the three and six months ended June 30, 2000 as compared to the three
and six months ended June 30, 1999 was primarily attributable to an increase in
operating costs and depreciation and amortization offset by an increase in net
broadcast revenues as noted above.
Interest expense decreased to $38.0 million for the three months ended June 30,
2000 from $44.1 million for the three months ended June 30, 1999, or 13.8%.
Interest expense decreased to $74.9 million for the six months ended June 30,
2000 from $87.3 million for the six months ended June 30, 1999, or 14.2%. The
decrease in interest expense for the three months and six months ended June 30,
2000 resulted from the
14
<PAGE>
reduction of our indebtedness using the proceeds from the disposition of our
radio broadcast assets in December 1999.
Interest and other income decreased to $80,000 for the three months ended June
30, 2000 from $1.0 million for the three months ended June 30, 1999. Interest
and other income decreased to $0.5 million for the six months ended June 30,
2000 from $1.9 million for the six months ended June 30, 1999. These decreases
were primarily due to a net loss of approximately $0.8 million from our internet
operations and decrease in average cash balances for the three and six month
periods ended June 30, 2000 when compared to the same period in 1999.
Income tax provision decreased to $4.9 million for the three months ended June
30, 2000 from $14.5 million for the three months ended June 30, 1999. Income tax
benefit was $12.0 million for the six months ended June 30, 2000 compared to an
income tax provision of $3.5 million for the six months ended June 30, 1999. Our
effective tax rate decreased to a benefit of 75.6% for the six months ended June
30, 2000 from a provision of 101.1% for the six months ended June 30, 1999. The
decrease in the effective tax rate for the six months ended June 30, 2000 as
compared the six months ended June 30, 1999 resulted from the current year's
projected permanent differences between book and tax income being a lower
percentage of pre-tax loss for 2000, as compared to 1999.
Net income from discontinued operations, net of taxes decreased to $2.5 million
for the three months ended June 30, 2000 from $5.2 million for the three months
ended June 30, 1999. Net income from discontinued operations, net of taxes
decreased to $3.3 million for the six months ended June 30, 2000 from $6.6
million for the six months ended June 30, 1999. The decrease in net income from
discontinued operations, net of taxes for the three and six months ended June
30, 2000 as compared to the three and six months ended June 30, 1999 primarily
resulted from the disposition of the majority of our radio broadcast assets in
December 1999.
Net loss available to common stockholders for the three months ended June 30,
2000 was $1.4 million or $0.01 per share compared to net loss available to
common stockholders of $1.3 million or $0.01 per share for the three months
ended June 30, 1999. Net loss available to common stockholders for the six
months ended June 30, 2000 was $5.8 million or $0.06 per share compared to net
loss available to common stockholders of $5.5 million or $0.06 per share. Net
loss available to common stockholders increased for the three and six months
ended June 30, 2000 as compared to the three and six months ended June 30, 1999
due to an increase in operating expenses, depreciation and amortization, a
decrease in the unrealized gain on the treasury option derivative and a decrease
in net income from discontinued operations, offset by an increase in total
revenues, a reduction of interest expense, and a decrease in the income tax
effect.
The net deferred tax liability decreased to $214.7 million as of June 30, 2000
from $228.7 million at December 31, 1999. Accordingly, the increase in our
current net deferred tax asset as of June 30, 2000 as compared to December 31,
1999 primarily resulted from the anticipation that the pre-tax loss and related
current deferred tax asset recorded for the six months ended June 30, 2000 will
be used to offset future taxable income during the current year.
Broadcast cash flow decreased to $92.7 million for the three months ended June
30, 2000 from $94.8 million for the three months ended June 30, 1999, or 2.2%.
Broadcast cash flow decreased to $158.2 million for the six months ended June
30, 2000 from $162.2 million for the six months ended June 30, 1999, or 2.5%.
The decrease in broadcast cash flow for the three months ended June 30, 2000 was
comprised of a decrease of $4.0 million related to broadcast cash flow on a same
station basis, which decreased by 4.4%, offset by an increase of $1.9 million
related to the 1999 Transactions. The decrease in broadcast cash flow for the
six months ended June 30, 2000 was comprised of a decrease of $6.8 million
related to broadcast cash flow on a same station basis, which decreased by 4.3%,
offset by an increase of $2.8 million related to the 1999 Transactions. The
decrease in broadcast cash flow on a same station basis for the three and six
months ended June 30, 2000 as compared to the three and six months ended June
30, 1999 primarily resulted from the increase in program contract payments
related to our investment to upgrade our television programming. Our investment
in television programming caused our Broadcast Cash Flow Margin to decrease to
48.1% for the three months ended June 30, 2000 from 54.1% for the three months
ended June 30, 1999 and to 44.8% for the six months ended June 30, 2000 from
50.2% for the six months ended June 30, 1999.
15
<PAGE>
Adjusted EBITDA decreased to $86.3 million for the three months ended June 30,
2000 from $90.3 million for the three months ended June 30, 1999, or 4.4%.
Adjusted EBITDA decreased to $146.1 million for the six months ended June 30,
2000 from $153.4 million for the six months ended June 30, 1999, or 4.8%. The
decrease in Adjusted EBITDA for the three and six months ended June 30, 2000 as
compared to the three and six months ended June 30, 1999 primarily resulted from
the increase in program contract payments combined with an increase in corporate
overhead expenses. For the reasons noted above, our Adjusted EBITDA margin
decreased to 44.8% for the three months ended June 30, 2000 from 51.5% for the
three months ended June 30, 1999 and to 41.3% for the six months ended June 30,
2000 from 47.5% for the six months ended June 30, 1999.
After tax cash flow decreased to $45.8 million for the three months ended June
30, 2000 from $52.1 million for the three months ended June 30, 1999, or 12.1%.
After tax cash flow decreased to $60.9 million for the six months ended June 30,
2000 from $69.1 million for the six months ended June 30, 1999, or 11.9%. The
decrease in After Tax Cash Flow for the three and six months ended June 30, 2000
as compared to the three and six months ended June 30, 1999 primarily resulted
from an increase in amortization of program contract costs related to our
investment to upgrade our television programming and a decrease in earnings from
discontinued operations resulting from the disposition of 41 radio stations in
December 1999, offset by a decrease in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash provided by operations and
availability under the 1998 Bank Credit Agreement. As of June 30, 2000, we had
$4.1 million in cash balances and working capital of approximately $158.8
million. As of June 30, 2000, the remaining balance available under the
Revolving Credit Facility was $543.0 million. Based on pro forma trailing cash
flow levels for the twelve months ended June 30, 2000, the Company had
approximately $143.1 million available of current borrowing capacity under the
Revolving Credit Facility.
We closed on the sale of four radio stations in Kansas City, Missouri in July
2000 for a purchase price of $126.6 million and we have entered into an
agreement to sell our radio station in Wilkes-Barre, Pennsylvania for purchase
price of $0.6 million. These transactions are expected to generate net after-tax
proceeds of approximately $106 million. We intend to use the after-tax proceeds
of these sales initially to repay bank debt, but we may subsequently re-borrow
the money to finance our share repurchase program or to fund other investments
and acquisitions. The completion of the Wilkes-Barre transaction is subject to
the outcome of pending litigation in which a former licensee is seeking the
return of the Wilkes-Barre station's license based on a fraudulent conveyance
claim. We believe this claim is without merit and are defending the suit
actively.
Net cash flows used in operating activities was $19.7 million for the six months
ended June 30, 2000 as compared to net cash flows from operating activities of
$72.5 million for the six months ended June 30, 1999. We made income tax
payments of $102.1 million for the six months ended June 30, 2000 as compared to
$5.3 million for the six months ended June 30, 1999. This increase in income tax
payments was primarily due to income tax payments of $99.0 million made in
connection with the sale of our radio broadcast assets in December 1999. We made
interest payments on outstanding indebtedness and payments for subsidiary trust
minority interest expense totaling $87.7 million during the six months ended
June 30, 2000 as compared to $100.8 million for the six months ended June 30,
1999. The reduction of interest payments for the six months ended June 30, 2000
as compared to the six months ended June 30, 1999 primarily related to the
reduction of our indebtedness as a result of the disposition of our radio
broadcast assets in December 1999. Program rights payments increased to $49.4
million for the six months ended June 30, 2000 from $40.7 million for the six
months ended June 30, 1999. This increase in program rights payments was
comprised of $1.4 million related to the 1999 Transactions and $7.3 million
related to an increase in programming costs on a same station basis, which
increased 18.0%. This increase in program rights payments resulted from our
investment to upgrade our television programming.
Net cash flows used in investing activities decreased to $55.0 million for the
six months ended June 30, 2000 from $114.3 million for the six months ended June
30, 1999. For the six months ended June 30, 2000, we made cash payments of
approximately $36.0 million related to the acquisition of television broadcast
assets. During the six months ended June 30, 2000, we made equity investments of
approximately $4.2 million. The
16
<PAGE>
Company made payments for property and equipment of $15.0 million for the six
months ended June 30, 2000. In addition, we anticipate that future requirements
for capital expenditures will include capital expenditures incurred during the
ordinary course of business, including costs related to our conversion to
digital television and additional strategic station acquisitions and equity
investments if suitable investments can be identified on acceptable terms. We
expect to fund such capital expenditures with cash generated from operating
activities and funding from our Revolving Credit Facility.
Net cash flows from financing activities increased to $62.4 million for the six
months ended June 30, 2000 from $48.1 million for the six months ended June 30,
1999. During the six months ended June 30, 2000, we repaid $194.5 million under
the Term Loan Facility and utilized borrowings under the Revolving Credit
Facility of $311.0 million. In addition, we repurchased 4.8 million shares of
our Class A Common Stock for $46.0 million during the six months ended June 30,
2000.
SEASONALITY
Our 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
CHANGE IN MARKET RISK
As noted above, our results for the six months ended June 30, 2000 included
recognition of a gain of $4,000 on a treasury option derivative instrument. Upon
execution of the treasury option derivative instrument during 1998, we received
a cash payment of $9.5 million. The treasury option derivative instrument will
require us 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, we
will not be required to make any payment under the terms of this instrument. If
the rate is below 6.14% on that date, we 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, we recognize an 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, 2000 reflects an adjustment of our 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, 2000 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,
2000 (6.13%), we would be obligated to pay approximately $0.1 million, either
upfront or over five years, at our option.
17
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's Form 10-K for the fiscal year ended December 31,
1999, in connection with our 1996 acquisition of the broadcasting assets of
River City Broadcasting, L.P. (River City), we 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 us and would
have become an officer of Sinclair if certain conditions were satisfied. As of
February 8, 1999, the conditions to Mr. Baker becoming an officer of Sinclair
had not been satisfied, and on that date we entered into an amendment to the
Baker Agreement which terminated Mr. Baker's services effective March 8, 1999.
Mr. Baker had certain rights as a consequence of termination of the Baker
Agreement, including the right to purchase at fair market value our television
and radio stations that serve the St. Louis, Missouri market (the St. Louis
purchase option).
In June 1999, we received a letter from Mr. Baker stating that he elected to
exercise his St. Louis purchase option. In his letter, Mr. Baker named Emmis
Communications Corporation (Emmis) as his designee to exercise the St. Louis
purchase option. Notwithstanding our belief that Emmis was not an appropriate
designee of Mr. Baker, we negotiated in good faith with Emmis regarding the
potential sale of the St. Louis properties. Following unsuccessful negotiations,
however, on January 18, 2000, we filed suit in the Circuit Court of Baltimore
County, Maryland against Mr. Baker and Emmis claiming, alternatively, that Mr.
Baker's designation of Emmis was invalid, that the St. Louis purchase option is
void for vagueness and/or that Emmis breached a duty that it owed to us by
refusing to negotiate the acquisition agreement in good faith. On March 17,
2000, Emmis and Mr. Baker filed a joint answer and counterclaim generally
denying the allegations made by Sinclair in its lawsuit and claiming that
Sinclair has acted in bad faith in failing to fulfill its contractual
obligations, has mismanaged the St. Louis properties and has interfered with the
contract between Mr. Baker and Emmis in which Mr. Baker purportedly designated
Emmis as the transferee of the properties.
In June 2000, we settled our litigation with Mr. Baker and Emmis. Pursuant to
the settlement agreement between the parties, the St. Louis purchase option has
been terminated and the parties have entered into a new agreement under which we
would sell the assets of six radio stations that serve the St. Louis market to
Emmis for a purchase price of $220.0 million. We will retain our St. Louis
television station, KDNL-TV.
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 16, 2000. At the meeting, two items, as set forth in the Company's proxy
statement dated April 14, 2000, 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, 2000;
and 2) the stockholders voted to ratify the selection of Arthur Andersen LLP as
the Company's independent public accountants for the fiscal year 2000 audit.
Approximately 98% 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 Abstentions
--- -------- -----------
<S> <C> <C> <C>
(1) Election of Directors
David D. Smith 507,875,348 930,596
Frederick G. Smith 507,876,706 929,238
J. Duncan Smith 507,875,406 930,538
Robert E. Smith 507,874,506 931,438
Basil A. Thomas 507,875,647 930,297
Lawrence E. McCanna 507,873,757 932,187
(2) Appointment of Independent Accountants 508,766,080 20,321 19,543
</TABLE>
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
27 Financial Data Schedule
B) REPORTS ON FORM 8-K
None
19
<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 on the 9th day of August, 2000.
SINCLAIR BROADCAST GROUP, INC.
by: /s/ Patrick J. Talamantes
-----------------------------
Patrick J. Talamantes
Chief Financial Officer
20
