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 September 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 : 00026076
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 521494660
(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) 5681500
(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 November 8, 2000 there were 41,465,387 shares of Class A Common Stock,
$.01 par value, 46,080,468 shares of Class B Common Stock, $.01 par value; and
3,450,000 shares of Series D preferred stock, $.01 par value, convertible into
7,561,710 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.
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended September 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and
September 30, 2000....................................................................... 3
Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 30, 1999 and 2000........................................................ 4
Consolidated Statement of Stockholders' Equity for the Nine Months
Ended September 30, 2000................................................................. 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 Disclosures About Market Risk................................. 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................... 19
Signature....................................................................................... 20
</TABLE>
2
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1999 2000
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................................ $ 16,408 $ 22,063
Accounts receivable, net of allowance for doubtful accounts..................... 210,343 165,955
Current portion of program contract costs....................................... 74,138 78,311
Prepaid expenses and other current assets....................................... 7,418 3,904
Deferred barter costs........................................................... 1,823 3,536
Broadcast assets related to discontinued operations, net of liabilities......... 172,983 102,777
Broadcast assets held for sale, current......................................... 77,962 --
Deferred tax asset.............................................................. 5,215 12,797
--------------- ---------------
Total current assets..................................................... 566,290 389,343
PROGRAM CONTRACT COSTS, less current portion........................................ 53,002 50,843
LOANS TO OFFICERS AND AFFILIATES.................................................... 8,772 8,756
PROPERTY AND EQUIPMENT, net......................................................... 251,783 277,130
BROADCAST ASSETS HELD FOR SALE, less current portion................................ 144,316 --
OTHER ASSETS 108,383 96,907
ACQUIRED INTANGIBLE BROADCAST ASSETS, net........................................... 2,486,964 2,659,338
--------------- ---------------
Total Assets.................................................................... $ 3,619,510 $ 3,482,317
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 7,600 $ 4,695
Accrued liabilities............................................................. 67,078 78,185
Income taxes payable............................................................ 116,821 31,363
Notes payable and commercial bank financing..................................... 75,008 93,759
Notes and capital leases payable to affiliates.................................. 5,890 3,983
Current portion of program contracts payable.................................... 111,992 115,475
Deferred barter revenues........................................................ 3,244 5,179
--------------- ---------------
Total current liabilities................................................ 387,633 332,639
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing..................................... 1,677,299 1,655,364
Notes and capital leases payable to affiliates.................................. 34,142 30,764
Program contracts payable, less current portion................................. 87,220 87,591
Deferred tax liability.......................................................... 233,927 235,045
Other long-term liabilities..................................................... 20,444 24,975
--------------- ---------------
Total liabilities........................................................ 2,440,665 2,366,378
--------------- ---------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES...................................... 3,928 5,322
--------------- ---------------
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF
SUBSIDIARY 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 43,233,989 shares issued and outstanding, respectively..... 491 432
Class B Common stock, $.01 par value, 140,000,000 shares authorized
and 47,608,347 and 46,151,868 shares issued and outstanding................... 476 462
Additional paid-in capital...................................................... 764,091 719,647
Additional paid-in capital - equity put options................................. 116,370 86,145
Additional paid-in capital - deferred compensation.............................. (4,489) (3,692)
Retained earnings............................................................... 97,943 108,416
Other comprehensive loss........................................................ -- (828)
--------------- ---------------
Total stockholders' equity............................................... 974,917 910,617
--------------- ---------------
Total Liabilities and Stockholders' Equity............................... $ 3,619,510 $ 3,482,317
=============== ===============
The accompanying notes are an integral part of these unaudited
consolidated statements.
</TABLE>
3
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Station broadcast revenues, net of agency commissions ..................... $ 160,880 $ 173,984 $ 484,235 $ 527,522
Revenues realized from station barter arrangements ........................ 15,231 13,205 44,855 43,122
--------- --------- --------- ---------
Total revenues ..................................................... 176,111 187,189 529,090 570,644
--------- --------- --------- ---------
OPERATING EXPENSES:
Program and production .................................................... 35,874 37,067 103,628 114,609
Selling, general and administrative ....................................... 35,864 39,904 99,968 123,399
Expenses realized from station barter arrangements ........................ 14,101 12,093 41,098 39,048
Amortization of program contract costs and net
realizable value adjustments............................................. 20,120 22,015 60,091 70,501
Stock-based compensation .................................................. 668 651 2,342 2,028
Depreciation of property and equipment .................................... 7,800 9,782 23,592 27,872
Amortization of acquired intangible broadcast assets,
non-compete and consulting agreements and other assets................... 23,766 28,156 78,521 83,065
Cumulative adjustment for change in assets held for sale .................. -- -- -- 619
--------- --------- --------- ---------
Total operating expenses ........................................... 138,193 149,668 409,240 461,141
--------- --------- --------- ---------
Broadcast operating income ......................................... 37,918 37,521 119,850 109,503
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ........................ (45,344) (38,625) (132,622) (113,475)
Subsidiary trust minority interest expense ................................ (5,813) (5,813) (17,438) (17,438)
Interest income ........................................................... 840 654 2,443 1,908
Gain on sale of assets .................................................... 233 -- 233 --
Gain (loss) on derivative instrument ...................................... 716 (300) 12,302 (296)
Loss from equity investments .............................................. (167) (8,307) (157) (10,159)
Other income (expense) .................................................... 122 (835) 443 (1,621)
--------- --------- --------- ---------
Loss before income tax (provision) benefit ......................... (11,495) (15,705) (14,946) (31,578)
INCOME TAX (PROVISION) BENEFIT ................................................ (5,403) (4,908) (8,893) 7,089
--------- --------- --------- ---------
NET LOSS FROM CONTINUING OPERATIONS ........................................... (16,898) (20,613) (23,839) (24,489)
--------- --------- --------- ---------
DISCONTINUED OPERATIONS:
Net income from discontinued operations, net of taxes ..................... 5,557 1,475 12,187 4,740
Gain on sale of broadcast assets, net of taxes of $24,862 ................. -- 37,985 -- 37,985
--------- --------- --------- ---------
NET INCOME (LOSS) ............................................................. $ (11,341) $ 18,847 $ (11,652) $ 18,236
========= ========= ========= =========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS ............................ $ (13,929) $ 16,259 $ (19,415) $ 10,473
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Loss per share from continuing operations ................................. $ (0.20) $ (0.26) $ (0.33) $ (0.35)
========= ========= ========= =========
Earnings per share from discontinued operations ........................... $ 0.06 $ 0.44 $ 0.13 $ 0.47
========= ========= ========= =========
Earnings (loss) per common share .......................................... $ (0.14) $ 0.18 $ (0.20) $ 0.11
========= ========= ========= =========
Weighted average common shares outstanding ................................ 96,575 90,358 96,511 91,869
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Loss per share from continuing operations ................................. $ (0.20) $ (0.26) $ (0.33) $ (0.35)
========= ========= ========= =========
Earnings per share from discontinued operations ........................... $ 0.06 $ 0.44 $ 0.13 $ 0.46
========= ========= ========= =========
Earnings (loss) per common share .......................................... $ (0.14) $ 0.18 $ (0.20) $ 0.11
========= ========= ========= =========
Weighted average common and common equivalent shares outstanding .......... 96,949 90,491 96,718 91,897
========= ========= ========= =========
</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 NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL ADDITIONAL
PAID-IN PAID-IN
SERIES D CLASS A CLASS B ADDITIONAL CAPITAL- CAPITAL-
PREFERRED COMMON COMMON PAID-IN EQUITY PUT DEFERRED
STOCK STOCK STOCK CAPITAL OPTIONS COMPENSATION
----- ----- ----- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 ............. $ 35 $ 491 $ 476 $ 764,091 $ 116,370 $ (4,489)
Class B Common Stock converted
into Class A Common Stock......... -- 14 (14) -- -- --
Repurchase and retirement of
7,656,398 shares of Class A
Common Stock...................... -- (77) -- (77,159) -- --
Dividends payable on Series D
Preferred Stock.................. -- -- -- -- -- --
Stock option grants................. -- -- -- 60 -- (60)
Stock option exercises.............. -- -- -- 53 -- --
Class A Common Stock
issued pursuant to employee
benefit plans.................... -- 4 -- 2,377 -- --
Equity put options.................. -- -- -- 30,225 (30,225) --
Amortization of deferred
compensation..................... -- -- -- -- -- 857
Net income.......................... -- -- -- -- -- --
Other comprehensive loss
related to unrealized loss on
marketable securities
net of tax of $542............... -- -- -- -- -- --
Comprehensive Income.................... -- -- -- -- -- --
---------- --------- -------- ----------- ----------- ------------
BALANCE, September 30, 2000............ $ 35 $ 432 $ 462 $ 719,647 $ 86,145 $ (3,692)
========== ========= ======== =========== =========== ============
<CAPTION> OTHER TOTAL
RETAINED COMPREHENSIVE STOCKHOLDERS'
EARNINGS LOSS EQUITY
-------- ---- ------
<S> <C> <C> <C>
BALANCE, December 31, 1999 ............. $ 97,943 $ -- $ 974,917
Class B Common Stock converted
into Class A Common Stock......... -- -- --
Repurchase and retirement of
7,656,398 shares of Class A
Common Stock...................... -- -- (77,236)
Dividends payable on Series D
Preferred Stock.................. (7,763) -- (7,763)
Stock option grants................. -- -- --
Stock option exercises.............. -- -- 53
Class A Common Stock
issued pursuant to employee
benefit plans.................... -- -- 2,381
Equity put options.................. -- -- --
Amortization of deferred
compensation..................... -- -- 857
------------
Net income.......................... 18,236 -- 18,236
Other comprehensive loss
related to unrealized loss on
marketable securities
net of tax of $542............... -- (828) (828)
------------
Comprehensive Income.................... -- -- 17,408
------------ --------- ------------
BALANCE, September 30, 2000............ $ 108,416 $ (828) $ 910,617
============ ========= ============
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated statements.
5
<PAGE>
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................... $ (11,652) $ 18,236
Adjustments to reconcile net income (loss) to net cash flows from operating
activities-
Gain on sale of assets........................................................... (233) --
Gain on sale of broadcast assets related to discontinued operations.............. -- (62,847)
(Gain) loss on derivative instrument............................................. (12,302) 296
Amortization of debt discount.................................................... 74 74
Depreciation of property and equipment........................................... 27,030 29,846
Amortization of acquired intangible broadcast assets,
non-compete and consulting agreements and other assets......................... 91,982 89,128
Amortization of program contract costs and net realizable value adjustments...... 61,248 70,799
Amortization of deferred compensation............................................ 1,302 857
Cumulative adjustment for change in assets held for sale......................... -- (1,237)
Loss from equity investments..................................................... 157 10,159
Deferred tax provision (benefit) related to operations........................... 7,276 (3,906)
Deferred tax benefit related to sale of broadcast assets
from discontinued operations................................................... -- (2,016)
Decrease in minority interest.................................................... (24) (546)
Net effect of change in deferred barter revenues
and deferred barter costs...................................................... (725) (135)
Changes in assets and liabilities, net of effects of acquisitions and dispositions-
Decrease in accounts receivable, net............................................. 20,485 46,639
(Increase) decrease in prepaid expenses and other current assets................. (4) 3,161
(Decrease) increase in accounts payable and accrued liabilities.................. (17,701) 17,799
Increase in other long-term liabilities........................................... 4,978 3,869
Income tax payments related to the sale of broadcast assets...................... -- (99,857)
Payments on program contracts payable............................................ (59,852) (72,750)
---------- -----------
Net cash flows from operating activities....................................... 112,039 47,569
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.............................................. (19,048) (26,640)
Payments related to acquisitions................................................... (232,860) (42,678)
Proceeds from sale of broadcast assets............................................. 61,771 126,608
Loans to officers and affiliates................................................... (673) (490)
Repayments of loans to officers and affiliates..................................... 1,481 506
Equity investments................................................................. (11,999) (8,393)
Distributions from joint venture................................................... -- 229
---------- -----------
Net cash flows (used in) from investing activities............................... (201,328) 49,142
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial bank financing.............................................. 298,500 468,500
Repayments of commercial bank financing............................................. (195,399) (471,750)
Proceeds from exercise of stock options.............................................. 1,769 53
Repurchases of the Company's Class A Company Stock................................... -- (75,469)
Dividends paid on Series D Convertible Preferred Stock............................... (7,763) (7,763)
Net proceeds related to equity put option contracts.................................. 1,251 --
Repayments of notes and capital leases to affiliates................................. (3,975) (4,627)
---------- -----------
Net cash flows from (used in) financing activities............................ 94,383 (91,056)
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................ 5,094 5,655
CASH AND CASH EQUIVALENTS, beginning of period........................................... 3,268 16,408
---------- -----------
CASH AND CASH EQUIVALENTS, end of period................................................. $ 8,362 $ 22,063
============ ===========
</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. and all of its consolidated subsidiaries, which
are collectively referred to hereafter as "the Company, Companies, Sinclair or
SBG." The Company owns or provides programming services pursuant to local
marketing agreements (LMAs) to television stations throughout the United States.
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the nine months ended September 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, 1999 and for the year 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 and completed the sale of the remaining radio
station in Wilkes-Barre to Entercom in November 2000 for a purchase price of
$0.6 million. In addition, in October 2000, the Company completed its sale to
Emmis Communications Corporation (Emmis) of the remaining radio stations serving
the St. Louis market for a purchase price of $220.0 million.
Based on the Company's strategy to divest 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 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.
7
<PAGE>
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 reclassified to the appropriate balance sheet classifications during the
second quarter of 2000 as the option 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 these developments to date with legal cousel, is of
the opinion that the outcome of such matters will not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
In June 2000, the Company settled its 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. In
October 2000, the Company completed the sale of its St. Louis radio properties
to Emmis and will retain its St. Louis television station, KDNL-TV.
3. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
During the nine months ended September 30, 1999 and 2000, the Company's
supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 2000
---- ----
<S> <C> <C>
Interest payments............................................................... $ 144,419 $ 99,216
=========== ===========
Subsidiary trust minority interest payments..................................... $ 17,438 $ 17,438
=========== ===========
Income tax payments............................................................. $ 6,054 $ 103,567
=========== ===========
Income tax refunds received..................................................... $ 1,057 $ 1,117
=========== ===========
Capital lease obligations incurred.............................................. $ 22,208 $ --
=========== ===========
</TABLE>
8
<PAGE>
4. EARNINGS PER SHARE:
The basic and diluted earnings per share and related computations are as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average number of common shares ................... 96,575 90,358 96,511 91,869
Diluted effect of outstanding stock options ............... 267 133 99 28
Diluted effect of conversion of preferred shares .......... 107 -- 108 --
-------------- ------------- --------- ----------
Diluted weighted-average number of common and common
equivalent shares outstanding ......................... 96,949 90,491 96,718 91,897
============== ============= ======== ==========
Net loss from continuing operations ....................... $ (16,898) $ (20,613) $(23,839) $ (24,489)
============== ============= ======== ==========
Net income from discontinued operations, including
gain on sale of broadcast assets related to discontinued
operations ............................................. $ 5,557 $ 39,460 $ 12,187 $ 42,725
============== ============= ======== ==========
Net income (loss) ......................................... $ (11,341) $ 18,847 $(11,652) $ 18,236
Preferred stock dividends payable ......................... (2,588) (2,588) (7,763) (7,763)
-------------- ------------- --------- ----------
Net income (loss) available to common stockholders ........ $ (13,929) $ 16,259 $(19,415) $ 10,473
============== ============= ======== ==========
BASIC EARNINGS PER SHARE:
Loss per share from continuing operations ................. $ (0.20) $ (0.26) $ (0.33) $ (0.35)
============== ============= ======== ==========
Earnings per share from discontinued operations ........... $ 0.06 $ 0.44 $ 0.13 $ 0.47
============== ============= ======== ==========
Earnings (loss) per common share .......................... $ (0.14) $ 0.18 $ (0.20) $ 0.11
============== ============= ======== ==========
DILUTED EARNINGS PER SHARE:
Loss per share from continuing operations.................. $ (0.20) $ (0.26) $ (0.33) $ (0.35)
============== ============= ======== ==========
Earnings per share from discontinued operations ........... $ 0.06 $ 0.44 $ 0.13 $ 0.46
============== ============= ======== ==========
Earnings (loss) per common share .......................... $ (0.14) $ 0.18 $ (0.20) $ 0.11
============== ============= ======== ==========
</TABLE>
5. 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.
6. INTEREST RATE DERIVATIVE AGREEMENTS:
The Company estimates the fair value to retire these instruments at September
30, 2000 to be $4.3 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 September 30, 2000 if the contracts were transferred to other
parties or canceled by the Banks. Based on the Company's currently hedged
position at September 30, 2000, $1.7 billion or 93% 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 27, 2000, 2) a notional amount of $300 million
and 3) a five-year treasury strike rate of 6.14%. 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 adjusted 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 each accounting period.
On September 27, 2000, the yield in the five year treasury rate was 5.906%
resulting in a loss of $0.3 million for the nine months ended September 30,
2000. In addition, the Company made a cash settlement payment of $3.0 million
upon the expiration of the Option Derivative contract which is equal to the
notional amount of $300 million multiplied by the strike rate (6.14%) less the
settlement rate (5.906%) discounted over a five-year period. The Company
realized a $6.4 million cash profit over the life of the transaction.
8. SUBSEQUENT EVENT:
In August 2000, the Company entered into an agreement to purchase the stock of
Grant Television, Inc. (Grant), the owner of WNYO-TV in Buffalo, New York for a
purchase price of $51.5 million. In October 2000, the Company completed the
stock acquisition of Grant, obtaining the non-license assets of WNYO-TV and
began programming the television station under a time brokerage agreement. The
Company will complete the purchase of the license and related assets of WNYO-TV
upon FCC approval.
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
nine months ended September 30, 1999 and 2000:
OPERATING DATA (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net broadcast revenues (a) ................... $ 160,880 $ 173,984 $ 484,235 $ 527,522
Barter revenues .............................. 15,231 13,205 44,855 43,122
--------- --------- --------- ---------
Total revenues ............................... 176,111 187,189 529,090 570,644
--------- --------- --------- ---------
Operating costs (b) .......................... 71,738 76,971 203,596 238,008
Expenses from barter arrangements ............ 14,101 12,093 41,098 39,048
Depreciation, amortization and stock-based
compensation (c) .......................... 52,354 60,604 164,546 184,085
--------- --------- --------- ---------
Broadcast operating income ................... 37,918 37,521 119,850 109,503
Interest expense ............................. (45,344) (38,625) (132,622) (113,475)
Subsidiary trust minority interest expense (d) (5,813) (5,813) (17,438) (17,438)
Interest and other income (expense) .......... 962 (181) 2,886 287
Loss from equity investments ................. (167) (8,307) (157) (10,159)
Unrealized gain (loss) on derivative
instrument................................. 716 (300) 12,302 (296)
Gain on sale of assets ....................... 233 -- 233 --
--------- --------- --------- ---------
Loss before income taxes ..................... (11,495) (15,705) (14,946) (31,578)
Income tax benefit (provision) ............... (5,403) (4,908) (8,893) 7,089
--------- --------- --------- ---------
Net loss from continuing operations .......... (16,898) (20,613) (23,839) (24,489)
Net income from discontinued operations,
net of taxes ............................... 5,557 1,475 12,187 4,740
Gain on sale of broadcast assets related to
discontinued operations, net of taxes ...... -- 37,985 -- 37,985
--------- --------- --------- ---------
Net income (loss) ............................ $ (11,341) $ 18,847 $ (11,652) $ 18,236
========= ========= ========= =========
Net income (loss) available to
common stockholders ........................ $ 13,929 $ 16,259 $ (19,415) $ 10,473
========= ========= ========= =========
Other Data:
Broadcast Cash Flow (e) ............... $ 76,460 $ 79,502 $ 238,650 $ 237,750
Broadcast Cash Flow margin (f) ........ 47.5% 45.7% 49.3% 45.1%
Adjusted EBITDA (g) ................... $ 71,096 $ 74,785 $ 224,544 $ 220,838
Adjusted EBITDA margin (f) ............ 44.2% 43.0% 46.4% 41.9%
After tax cash flow (h) ............... $ 27,970 $ 37,017 $ 97,040 $ 97,881
Program contract payments ............. 19,176 23,340 59,852 72,750
Corporate expense ..................... 5,364 4,717 14,106 16,912
Capital expenditures .................. 7,478 11,606 19,048 26,640
Cash flows from operating activities .. 39,537 67,301 112,039 47,569
Cash flows (used in) from investing
activities .......................... (87,034) 104,122 (201,328) 49,142
Cash flows from (used in)
financing activities ............... 46,260 (153,505) 94,383 (91,056)
</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 broadcast 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 stations, and 3) BCF is a
measurement industry analysts utilize when determining our 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 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 stations, and 3) ATCF is
a measurement analysts utilize when determining our operating performance.
RESULT OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net broadcast revenues increased to $174.0 million for the three months ended
September 30, 2000 from $160.9 million for the three months ended September 30,
1999, or 8.1%. Net broadcast revenues increased to $527.5 million for the nine
months ended September 30, 2000 from $484.2 million for the nine months ended
September 30, 1999 or 8.9%. The increase in net broadcast revenues for the three
months ended September 30, 2000 comprised $5.3 million related to the
acquisition of television stations consummated by us in March 2000 (the 2000
Transactions) and $7.8 million related to an increase in net broadcast revenues
on a same station basis, which increased by 4.8%. The increase in net broadcast
revenues for the nine months ended September 30, 2000 comprised $18.5 million
related to the television stations acquired in 1999 and the 2000 Transactions
(collectively, the 1999 and 2000 Transactions) and $24.8 million related to an
increase in net broadcast revenues on a same station basis, which increased by
5.3%. The increase in net broadcast revenues on a same station basis for the
three and nine months ended September 30, 2000 as compared to the three and nine
months ended September 30, 1999 primarily resulted from an increase in revenues
from our WB affiliates and an increase in political advertising revenues.
13
<PAGE>
Operating costs increased to $77.0 million for the three months ended September
30, 2000 from $71.7 million for the three months ended September 30, 1999, or
7.4%. Operating costs increased to $238.0 million for the nine months ended
September 30, 2000, from $203.6 million for the nine months ended September 30,
1999, or 16.9%. The increase in operating costs for the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999
comprised $3.5 million related to the 2000 Transactions, and $2.4 million in
operating costs on a same station basis, which increased 3.7%, offset by $0.6
million related to a decrease in corporate overhead expenses. The increase in
operating costs for the nine months ended September 30, 2000 as compared to the
nine months ended September 30, 1999 comprised $11.7 million related to the 1999
and 2000 Transactions, $2.8 million related to an increase in corporate overhead
expenses, and $19.9 million related to an increase in operating costs on a same
station basis, which increased 11.2%. The increase in operating costs on a same
station basis primarily resulted from costs incurred during the three and nine
months ended September 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. Corporate overhead expenses increased for the nine months
ended September 30, 2000 as compared to the nine months ended September 30, 1999
due to an increase in costs related to our internet business development and
digital television technology investments which were not incurred during the
same period in 1999.
Depreciation and amortization increased $8.2 million to $60.6 million for the
three months ended September 30, 2000 from $52.4 million for the three months
September 30, 1999. Depreciation and amortization increased $19.6 million to
$184.1 million for the nine months ended September 30, 2000 from $164.5 million
for the nine months ended September 30, 1999. The increase in depreciation and
amortization for the three and nine months ended September 30, 2000 as compared
to the three and nine months ended September 30, 1999 was related to property
additions associated with businesses acquired during 1999 and 2000 and program
contract additions related to our investment to upgrade our programming.
Broadcast operating income decreased $0.4 million to $37.5 million for the three
months ended September 30, 2000, from $37.9 million for the three months ended
September 30, 1999, or 1.1%. Broadcast operating income decreased $10.4 million
to $109.5 million for the nine months ended September 30, 2000 from $119.9
million for the nine months ended September 30, 1999, or 8.7%. The net decrease
in broadcast operating income for the three and nine months ended September 30,
2000 as compared to the three and nine months ended September 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 $38.6 million for the three months ended September
30, 2000 from $45.3 million for the three months ended September 30, 1999, or
14.8%. Interest expense decreased to $113.5 million for the nine months ended
September 30, 2000 from $132.6 million for the nine months ended September 30,
1999, or 14.4%. The decrease in interest expense for the three months and nine
months ended September 30, 2000 resulted from the reduction of our indebtedness
using the proceeds from the disposition of our radio broadcast assets in
December 1999 and July 2000.
Interest and other income/expense decreased to an expense of $0.2 million for
the three months ended September 30, 2000 from income of $1.0 million for the
three months ended September 30, 1999. Interest and other income decreased to
$0.3 million for the nine months ended September 30, 2000 from $2.9 million for
the nine months ended September 30, 1999. These decreases were primarily due to
a net loss of approximately $0.9 million for the three months ended September
30, 2000 and $1.6 million for the nine months ended September 30, 2000 from our
internet operations and the decrease in average cash balances for the three and
nine month periods ended September 30, 2000 when compared to the same period in
1999.
14
<PAGE>
Loss from equity investments increased to $8.3 million for the three months
ended September 30, 2000 from $0.2 million for the three months ended September
30, 1999. Loss from equity investments increased to $10.2 million for the nine
months ended September 30, 2000 from $0.2 million for the nine months ended
September 30, 1999. These increases in loss from equity investments are
primarily related to a loss of $8.3 million recognized in the third quarter of
2000 as a result of the write-off of our investment in Acrodyne Communications,
Inc. (Acrodyne), of which we hold a 35% equity interest. Acrodyne, which
manufactures transmitters and other broadcast equipment, announced in August
2000 that they would be restating their financial results for the year ended
December 31, 1999 and each subsequent interim period ended in 2000 due to an
overstatement of inventory balances and gross profits for these periods.
Acrodyne was delisted from NASDAQ as they have not yet completed these
restatements. No assurance can be made that we will not incur future losses
related to our investment in Acrodyne.
Income tax provision decreased to $4.9 million for the three months ended
September 30, 2000 from $5.4 million for the three months ended September 30,
1999. Income tax benefit was $7.1 million for the nine months ended September
30, 2000 compared to an income tax provision of $8.9 million for the nine months
ended September 30, 1999. Our effective tax rate decreased to a benefit of 22.4%
for the nine months ended September 30, 2000 from a provision of 59.5% for the
nine months ended September 30, 1999. The decrease in the effective tax rate for
the nine months ended September 30, 2000 as compared the nine months ended
September 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 $1.5 million
for the three months ended September 30, 2000 from $5.6 million for the three
months ended September 30, 1999. Net income from discontinued operations, net of
taxes decreased to $4.7 million for the nine months ended September 30, 2000
from $12.2 million for the nine months ended September 30, 1999. The decrease in
net income from discontinued operations, net of taxes for the three and nine
months ended September 30, 2000 as compared to the three and nine months ended
September 30, 1999 primarily resulted from the disposition of our radio
broadcast assets in December 1999 and July 2000.
Net income available to common stockholders for the three months ended September
30, 2000 was $16.3 million or $0.18 per share compared to net loss available to
common stockholders of $13.9 million or $0.14 per share for the three months
ended September 30, 1999. Net income available to common stockholders for the
nine months ended September 30, 2000 was $10.5 million or $0.11 per share
compared to net loss available to common stockholders of $19.4 million or $0.20
per share. Net income/loss available to common stockholders increased for the
three and nine months ended September 30, 2000 as compared to the three and nine
months ended September 30, 1999 due to an increase in total revenues, a
reduction of interest expense, a decrease in the income tax effect and the
recognition of a gain in the sale of our radio stations, offset by 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.
The net deferred tax liability decreased to $222.2 million as of September 30,
2000 from $228.7 million at December 31, 1999. This decrease is primarily due to
the increase in our current net deferred tax asset as of September 30, 2000 as
compared to December 31, 1999 which primarily resulted from the anticipation
that the pre-tax loss and related current deferred tax asset recorded for the
nine months ended September 30, 2000 will be used to offset future taxable
income during the current year.
Broadcast cash flow increased to $79.5 million for the three months ended
September 30, 2000 from $76.5 million for the three months ended September 30,
1999, or 3.9%. Broadcast cash flow decreased to $237.8 million for the nine
months ended September 30, 2000 from $238.7 million for the nine months ended
September 30, 1999, or 0.4%. The increase in broadcast cash flow for the three
months ended September 30, 2000 was comprised of an increase of $1.6 million
related to broadcast cash flow on a same station basis, which increased by 2.1%,
and an increase of $1.4 million related to the 2000 Transactions. The decrease
in broadcast cash flow for the nine months ended September 30, 2000 was
comprised of a decrease of $6.1 million related to broadcast cash flow on a same
station basis, which decreased by 2.6%, offset by an increase of $5.2 million
15
<PAGE>
related to the 1999 and 2000 Transactions. The increase in broadcast cash flow
on a same station basis for the three months ended September 30, 2000 as
compared to the three months ended September 30, 1999 primarily resulted from an
increase in net broadcast revenues offset by an increase in operating expenses
and program contract payments related to our investment to upgrade our
television programming. The decrease in broadcast cash flow on a same station
basis for the nine months ended September 30, 2000 as compared to the nine
months ended September 30, 1999 primarily resulted from an increase in operating
expenses and the increase in program contract payments related to our investment
to upgrade our television programming offset by an increase in net broadcast
revenues. Our investment in television programming caused our Broadcast Cash
Flow Margin to decrease to 45.7% for the three months ended September 30, 2000
from 47.5% for the three months ended September 30, 1999 and to 45.1% for the
nine months ended September 30, 2000 from 49.3% for the nine months ended
September 30, 1999.
Adjusted EBITDA increased to $74.8 million for the three months ended September
30, 2000 from $71.1 million for the three months ended September 30, 1999, or
5.2%. Adjusted EBITDA decreased to $220.8 million for the nine months ended
September 30, 2000 from $224.5 million for the nine months ended September 30,
1999, or 1.6%. The increase in Adjusted EBITDA for the three months ended
September 30, 2000 as compared to the three months ended September 30, 1999
primarily resulted from an increase in broadcast cash flow combined with a
slight decrease in corporate overhead expense. The decrease in Adjusted EBITDA
for the nine months ended September 30, 2000 as compared to the nine months
ended September 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 43.0% for the
three months ended September 30, 2000 from 44.2% for the three months ended
September 30, 1999 and to 41.9% for the nine months ended September 30, 2000
from 46.4% for the nine months ended September 30, 1999.
After tax cash flow increased to $37.0 million for the three months ended
September 30, 2000 from $28.0 million for the three months ended September 30,
1999, or 32.1%. After tax cash flow increased to $97.9 million for the nine
months ended September 30, 2000 from $97.0 million for the nine months ended
September 30, 1999, or 1.0%. The increase in After Tax Cash Flow for the three
and nine months ended September 30, 2000 as compared to the three and nine
months ended September 30, 1999 primarily resulted from an increase in net
broadcast revenues, a decrease in interest expense, and a decrease in current
taxes offset by 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 and four radio stations in July 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash provided by operations and
availability under the 1998 Bank Credit Agreement. As of September 30, 2000, we
had $22.1 million in cash balances and working capital of approximately $56.7
million. As of September 30, 2000, the remaining balance available under the
Revolving Credit Facility was $644.0 million. Based on pro forma trailing cash
flow levels for the twelve months ended September 30, 2000, the Company had
approximately $246.2 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. In October 2000, we closed on the
sale of our radio stations in the St. Louis market for a purchase price of
$220.0 million and on the purchase of the stock of Grant Television, Inc.,
including the non-license assets of WNYO-TV in Buffalo, New York together with a
$3.2 million note receivable issued by the company that holds the license
assets, for a purchase price of $48.0 million. In November 2000, we closed on
the sale of 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 $229 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.
16
<PAGE>
Net cash flows used in operating activities was $47.6 million for the nine
months ended September 30, 2000 as compared to net cash flows from operating
activities of $112.0 million for the nine months ended September 30, 1999. We
made income tax payments of $103.6 million for the nine months ended September
30, 2000 as compared to $6.1 million for the nine months ended September 30,
1999. This increase in income tax payments was primarily due to income tax
payments of $99.9 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 $116.7 million during the nine months ended September 30, 2000 as
compared to $161.9 million for the nine months ended September 30, 1999. The
reduction of interest payments for the nine months ended September 30, 2000 as
compared to the nine months ended September 30, 1999 primarily related to the
reduction of our indebtedness as a result of the disposition of our radio
broadcast assets in December 1999 and July 2000. Program rights payments
increased to $72.8 million for the nine months ended September 30, 2000 from
$59.9 million for the nine months ended September 30, 1999. This increase in
program rights payments was comprised of $1.9 million related to the 1999 and
2000 Transactions and $11.0 million related to an increase in programming costs
on a same station basis, which increased 18.5%. This increase in program rights
payments resulted from our investment to upgrade our television programming.
Net cash flows from investing activities were $49.1 million for the nine months
ended September 30, 2000 as compared to net cash flows used in investing
activities of $201.3 million for the nine months ended September 30, 1999. For
the nine months ended September 30, 2000, we made cash payments of approximately
$42.7 million related to the acquisition of television broadcast assets and
received cash proceeds of $126.6 million related to the sale of broadcast
assets. During the nine months ended September 30, 2000, we made equity
investments of approximately $8.4 million. The Company made payments for
property and equipment of $26.6 million for the nine months ended September 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 used in financing activities were $91.1 million for the nine
months ended September 30, 2000 as compared to net cash flows from financing
activities of $94.4 million for the nine months ended September 30, 1999. During
the nine months ended September 30, 2000, we repaid $471.8 million under the
Term Loan Facility and utilized borrowings under the Revolving Credit Facility
of $468.5 million. In addition, we repurchased 7.7 million shares of our Class A
Common Stock for $75.5 million during the nine months ended September 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.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CHANGE IN MARKET RISK
As noted above, our results for the nine months ended September 30, 2000
included recognition of a loss of $0.3 million 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 required us to make five annual payments equal to the difference
between the strike price of 6.14% minus the interest rate yield on five-year
treasury securities on September 27, 2000 (5.906%) times the $300 million
notional amount of the instrument.
Upon the termination of the treasury option derivative instrument, we made a
one-time cash settlement payment of $3.0 million which was equal to the
difference between the strike price (6.14%) and the settlement rate (5.906%)
multiplied by the $300 million notional amount of the instrument discounted over
a five-year period. We realized a $6.4 million cash profit over the life of the
transaction.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 Stock purchase agreement by and among Sinclair Communications, Inc. and
the sole stockholders of Grant Television, Inc. and Grant Television,
Inc.
27 Financial Data Schedule
B) REPORTS ON FORM 8-K
None
19
<PAGE>
SIGNATURES
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 14th day of November 2000.
SINCLAIR BROADCAST GROUP, INC.
by: /s/ Patrick J. Talamantes
-----------------------------
Patrick J. Talamantes
Chief Financial Officer
20
