FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1998
-------------
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 33-98436
33-98434
SINCLAIR TELEVISION COMPANY, INC.
and
SINCLAIR COMMUNICATIONS II, INC.
(Exact name of registrant as specified in its charter)
58-1719496
Delaware 04-3289279
- ------------------------------------- -------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2000 West 41st Street, Baltimore, MD 21211
- ------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (410) 467-5005
----------------------------
SULLIVAN BROADCASTING COMPANY, INC.
and
SULLIVAN BROADCAST HOLDINGS, INC.
18 Newbury Street, Boston, MA 02116
(Former name and former address of registrant)
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 31, 1998, Sinclair Television Company, Inc. had 520,105 shares of
Common Stock outstanding, all of which is owned by Sinclair Communications II,
Inc. Sinclair Television Company, Inc.'s Common Stock is not publicly traded and
does not have a quantifiable market value.
As of June 30, 1998, Sinclair Communications II, Inc. had the following
outstanding shares of common stock: 1,201,577 shares of Class B-1 Common Stock,
6,158,211 shares of Class B-2 Common Stock, and 1,021,872 shares of Class C
Common Stock, all of which is owned by Sinclair Broadcast Group, Inc. Sinclair
Communications II, Inc.'s Common Stock is not publicly traded and does not have
a quantifiable market value.
Important Explanatory Note
This integrated Form 10-Q is filed pursuant to the Securities Exchange Act
of 1934, as amended, for each of Sinclair Communications II, Inc., a Delaware
corporation, and its wholly owned subsidiary, Sinclair Television Company, Inc.,
a Delaware corporation. Unless the context requires otherwise, references to the
"Company" refer to both Sinclair Communications II, Inc. and Sinclair Television
Company, Inc. Sinclair Communications II, Inc. is a holding company with minimal
separate operations from its operating subsidiary,
1
<PAGE>
Sinclair Television Company, Inc. Separate financial information has been
provided for each entity, and, where appropriate, separate disclosures.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (SEE NOTE 1)
SINCLAIR COMMUNICATIONS II, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
----------------- -------------
Sinclair Sinclair Sinclair Sinclair
Television Communications Television Communications
Company, Inc. II, Inc. Company, Inc. II, Inc.
------------- -------- ------------- --------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,837 $ 3,840 $ 3,294 $ 3,345
Accounts receivable, net 34,990 34,990 31,494 31,494
Current portion of
programming rights 22,850 22,850 16,197 16,197
Current deferred tax asset 3,588 4,310 3,589 4,309
Prepaid expenses and other
current assets 941 941 2,014 2,082
-------- -------- -------- --------
Total current assets 66,206 66,931 56,588 57,427
Property and equipment, net 39,723 39,723 45,595 45,595
Programming rights, net of
current portion 23,432 23,432 17,465 17,465
Deferred loan costs, net of
accumulated amortization of
$1,655, $2,120 $2,134
and $2,676 11,430 13,134 10,951 12,578
Intangible assets, net 567,209 567,096 570,077 569,964
-------- -------- -------- --------
Total assets $708,000 $710,316 $700,676 $703,029
======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
3
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (cont.)
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
----------------- -------------
Sinclair Sinclair Sinclair Sinclair
Television Communications Television Communications
Company, Inc. II, Inc. Company, Inc. II, Inc.
------------- -------- ------------- --------
(Unaudited)
<S> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of program-
ming contracts payable $ 24,944 $ 24,944 $ 20,020 $ 20,020
Current portion of senior
debt 23,562 23,562 26,333 26,333
Current income taxes
payable 194 195 -- --
Current interest payable 3,882 3,882 563 563
Due to related parties 6,036 -- 80,377 75,000
Accounts payable 2,262 2,262 1,230 1,230
Accrued expenses 4,297 4,367 3,058 3,164
------- ------- ------- -------
Total current liabilities 65,177 59,212 131,581 126,310
Senior debt, net of current
portion 171,820 171,820 88,566 88,566
Borrowings under revolving
line of credit 59,500 59,500 85,500 85,500
Subordinated debt 125,185 155,508 125,185 155,649
Interest payable -- 10,394 -- 13,385
Programming contracts
payable, net of current
portion 22,710 22,710 15,181 15,181
Deferred taxes and other liabilities 87,676 82,132 85,560 79,171
------- ------- ------- -------
Total liabilities 532,068 561,276 531,573 563,762
15% Cumulative redeemable
preferred stock, non-voting,
$.001 par value - authorized
1,500,000 shares; 1,150,000
shares issued and outstanding -- 133,185 -- 145,708
------- ------- ------- -------
Commitments and
contingencies
Shareholders' equity (deficit):
Common stock, $.01 par
value; 800,000 shares
authorized; 520,105
shares issued and
outstanding 5 -- 5 --
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class B-1 common stock,
$.001 par value; 5,000,000
shares authorized; 1,201,577
shares issued and outstanding -- 1 -- 1
Class B-2 common stock,
$.001 par value; 7,000,000
shares authorized; 6,158,211
shares issued and outstanding -- 6 -- 6
Class C common stock, $.001
par value; 2,000,000 shares
authorized; 853,854 and
1,021,872 shares issued and
outstanding at December 31,
1997 and June 30, 1998,
respectively -- 1 -- 1
Additional paid-in capital 206,797 55,117 206,797 48,289
Accumulated deficit (30,870) (39,270) (37,699) (54,738)
--------- --------- --------- ---------
Total shareholders'
equity 175,932 15,855 169,103 (6,441)
--------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 708,000 $ 710,316 $ 700,676 $ 703,029
========= ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
5
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1997 1998 1997
------------------------------- ------------------------------- -------------------------------
Sinclair Sinclair Sinclair Sinclair Sinclair Sinclair
Television Communi- Television Communi- Television Communi-
Company, Inc. cations II, Inc. Company, Inc. cations II, Inc. Company, Inc. cations II, Inc.
------------- ---------------- ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues (excluding barter) $ 36,319 $ 36,319 $ 41,294 $ 41,294 $ 66,716 $ 66,716
Less - commissions (5,863) (5,863) (6,678) (6,678) (10,989) (10,989)
-------- -------- -------- -------- -------- --------
Net revenues (excluding barter) 30,456 30,456 34,616 34,616 55,727 55,727
Barter revenues 4,480 4,480 4,520 4,520 8,642 8,642
-------- -------- -------- -------- -------- --------
Total net revenues 34,936 34,936 39,136 39,136 64,369 64,369
-------- -------- -------- -------- -------- --------
Expenses
Operating expenses 4,323 4,323 5,472 5,472 8,991 8,991
Selling, general and administrative 6,826 7,258 7,786 8,808 13,221 13,765
Amortization of programming rights 7,607 7,607 7,194 7,194 14,615 14,615
Depreciation and amortization 11,736 11,736 11,650 11,650 23,991 23,991
-------- -------- -------- -------- -------- --------
30,492 30,924 32,102 33,124 60,818 61,362
-------- -------- -------- -------- -------- --------
Operating income 4,444 4,012 7,034 6,012 3,551 3,007
Interest expense, including
amortization of debt discount 9,046 10,694 7,513 9,114 17,914 21,169
and deferred loan costs 48 47 (84) (85) 9 8
Gain on sale of assets -- -- 466 466 -- --
Other expense (income)
-------- -------- -------- -------- -------- --------
Loss before benefit
for income taxes (4,650) (6,729) 71 (2,551) (14,372) (18,170)
Benefit for income taxes 1,123 1,955 (1) (1) 4,276 5,795
-------- -------- -------- -------- -------- --------
Net loss $(3,527) $ (4,774) $ 70 $ (2,552) $(10,096) $(12,375)
====== ====== ====== ====== ====== ======
<PAGE>
<CAPTION>
1998
-------------------------------
Sinclair Sinclair
Television Communi-
Company, Inc. cations II, Inc.
------------- ----------------
<S> <C> <C>
Revenues (excluding barter) $ 74,378 $ $ 74,378
Less - commissions (11,987) ( (11,987)
------ ------
Net revenues (excluding barter) 62,391 62,391
Barter revenues 9,017 9,017
------ ------
Total net revenues 71,408 71,408
------ ------
Expenses
Operating expenses 10,656 10,656
Selling, general and administrativ 15,616 21,698
Amortization of programming rights 15,106 15,106
Depreciation and amortization 23,032 23,032
------ ------
64,410 70,492
------ ------
Operating income 6,998 916
Interest expense, including
amortization of debt discount 16,022 19,220
and deferred loan costs 52 52
Gain on sale of assets 466 466
Other expense (income)
------ ------
Loss before benefit
for income taxes (8,610) (17,890)
Benefit for income taxes 1,781 2,422
------ ------
Net loss $(6,829) $(15,468)
====== ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
6
<PAGE>
6
SINCLAIR COMMUNICATIONS II, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited - dollars in thousands)
<TABLE>
<CAPTION>
Class B-1 Class B-2 Class C
Common Stock Common Stock Common Stock
------------ ------------ ------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Sinclair Television
Company, Inc.
Balance at
December 31, 1997 -- $ -- 520,105 $ 5 -- $ --
Net loss (unaudited) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------
Balance at
June 30, 1998 -- $ -- 520,105 $ 5 -- $ --
--------- --------- --------- --------- --------- --------
Sinclair
Communications II, Inc.
Balance at
December 31, 1997 1,201,577 $ 1 6,158,211 $ 6 853,854 $ 1
Issuance of Class C
Common Stock -- -- -- -- 168,018 --
Accretion of Preferred Stock -- -- -- -- -- --
Net loss (unaudited) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------
Balance at
June 30, 1998 1,201,577 $ 1 6,158,211 $ 6 1,021,872 $ 1
========= ========= ========= ========= ========= ========
<CAPTION>
Additional Total
Paid-in Accumulated Shareholders'
Capital Deficit Equity
------- ------- ------
<S> <C> <C> <C>
Sinclair Television
Company, Inc.
Balance at
December 31, 1997 $ 206,797 $ (30,870) $ 175,932
Net loss (unaudited) -- (5,633) (5,633)
------------- ------
Balance at
June 30, 1998 $ 206,797 $ (36,503) $ 170,299
========= ========= =========
Sinclair
Communications II, Inc.
Balance at
December 31, 1997 $ 55,117 $ (39,270) $ 15,855
Issuance of Class C
Common Stock 5,694 -- 5,694
Accretion of Preferred Stock (12,522) -- (12,522)
Net loss (unaudited) -- (14,272) (14,272)
Balance at
June 30, 1998 $ 48,289 $ (53,542) $ (5,245)
========= ========= =========
</TABLE>
The accompanying notes to Consolidated Financial Statements
are an integral part of these financial statements.
6
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - dollars in thousands)
Six Months Ended June 30,
---------------------------------------------------------------------
1997 1998
---------------------------------- --------------------------------
Sinclair Sinclair Sinclair Sinclair
Television Communi- Television Communi-
Company, Inc. cations II,Inc. Company, Inc. cations II, Inc.
------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Cash Flows from operating activities:
Net Loss $(10,096) $(12,375) $ (6,829) $(15,468)
Adjustments to reconcile net loss to net cash
provided by operating activities: -- -- -- 4,878
Compensation of stock issuance (4,276) (5,795) (2,116) (3,961)
Deferred income taxes
Depreciation of property, plant
And equipment 4,203 4,203 5,638 5,638
Amortization of intangible assets 19,788 19,788 17,394 17,394
Amortization of programming rights 6,669 6,669 6,702 6,702
Payments for programming rights (5,687) (5,687) (6,290) (6,290)
Amortization of debt discount and
Deferred loan costs 431 1,014 479 556
Changes in assets and liabilities:
Decrease in accounts receivable 4,139 4,139 3,496 3,496
Decrease in prepaid expenses
And other assets (414) (452) (1,073) (1,141)
Increase (decrease) is due to related parties (630) -- 74,341 75,000
Decrease in income taxes payable (1,133) (1,133) (194) (195)
Increase (decrease) in interest payable (2,262) 410 (3,319) (328)
Decrease in accounts payable, accrued
expenses and other liabilities (230) (257) (2,271) (1,091)
------ ------ ------ ------
Net cash provided by operating activities 10,502 10,524 85,958 85,190
------ ------ ------ ------
Cash Flow from investing activities:
Acquisition of Cascom stock (4,371) (4,371) -- --
Acquisition of KOKH -- -- (15,067) (15,067)
Payment for purchase option -- -- (15,000) (15,000)
Capital expenditures (1,645) (1,645) (1,706) (1,706)
------ ------ ------ ------
Net cash used for investing activities (6,016) (6,016) (31,773) (31,773)
------ ------ ------ ------
Cash flows from investing activities:
Payment of principal amounts (12,262) (12,262) (80,483) (80,483)
Proceeds from revolver borrowings 7,000 7,000 26,000 26,000
Proceeds from issuance of common stock -- 12 -- 816
Programming buydowns -- -- (245) (245)
Repurchase of common stock -- (52) -- --
------ ------ ------ ------
Net cash provided by (used for) financing
activities (5,262) (5,302) (54,728) (53,912)
Net increase (decrease) in cash
and cash equivalents (776) (794) (543) (495)
Cash and cash equivalents, beginning
of period 6,443 6,469 3,837 3,840
------ ------ ------ ------
Cash and cash equivalents, end of Period $ 5,667 $ 5,675 $ 3,294 $ 3,345
====== ====== ====== ======
</TABLE>
For supplemental disclosures of cash flow information see Note 5 to
Consolidated Financial Statements (unaudited).
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
7
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
On January 4, 1996, all of the outstanding capital stock of Act III
Broadcasting, Inc. ("Act III" or the "Predecessor") was purchased by and Act III
was merged with and into A-3 Acquisition, Inc. ("A-3"), with Act III surviving
such merger (the "Acquisition"). Act III then changed its name to Sullivan
Broadcasting Company, Inc. (Sullivan). The Acquisition was accounted for by the
purchase method of accounting. On July 1, 1998, all of the outstanding capital
stock of Sullivan and Sullivan Broadcast Holdings, Inc. was acquired by Sinclair
Broadcast Group, Inc. through a Plan of Merger. In connection with the Plan of
Merger, Sullivan and Sullivan Broadcast Holdings, Inc. were the surviving
entities and their names were changed to Sinclair Communications II, Inc. and
Sinclair Television Company, Inc., respectively.
The accompanying consolidated financial statements as of and for the six months
ended June 30, 1998 have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures herein are adequate and that the information presented is
not misleading. It is suggested that these consolidated financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Companys' latest annual reports on Form 10-K for the year ended December
31, 1997 and the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1998. The information furnished reflects all adjustments (consisting
only of normal, recurring adjustments) which are, in the opinion of management,
necessary to make a fair statement of the results for the interim period. The
results for these interim periods are not necessarily indicative of results to
be expected for the full fiscal year, due to seasonal factors, among others.
2. LONG TERM DEBT
On January 4, 1996, concurrent with the Acquisition, the Company borrowed
$220,000,000 under a term loan and $4,000,000 under a revolving credit facility
to finance the Acquisition. Both the term loan and the revolving credit facility
bear interest at LIBOR plus an applicable margin determined quarterly based upon
the Company's leverage ratio for the preceding quarter.
The revolving credit facility provides for borrowings up to $30,000,000 for
working capital purposes, and is due on December 31, 2003 or upon repayment of
the term loan.
In connection with the term loan and the revolving credit facility, the Company
also has a $75,000,000 line of credit available for future acquisitions
(collectively, the "Senior Credit Facility"). At June 30, 1998, $53,500,000 in
borrowings were outstanding on the acquisition line of credit.
The term loan is payable in varying quarterly installments beginning December
31, 1997 through 2003. The repayments of the term loan are as follows:
(in thousands)
1998 $ 15,050
1999 31,518
2000 42,024
2001 42,970
2002 42,970
Thereafter 12,367
In addition, certain mandatory prepayments of the term loan are required if the
Company achieves certain financial results at the end of the fiscal year.
8
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
In January 1996, the Company entered into various interest rate protection
agreements based upon LIBOR rates and a notional value equal to the anticipated
outstanding term debt levels through the year 2000.
The Senior Credit Facility requires the Company to comply with certain
covenants. At June 30, 1998, the Company was in compliance with all covenants.
In connection with the Plan of Merger (described in Note 6), Sinclair Broadcast
Group, Inc. completed a tender offer of all subordinated debt of Sinclair
Television Company, Inc. and Sinclair Communications II, Inc.
3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid interest of $19,745,000 and $ 18,613,000 during the periods
ending June 30, 1997 and June 30, 1998.
During the periods ended June 30, 1997 and June 30, 1998, the Company paid
approximately $1,134,000 and $974,000 respectively, for state and local income
taxes.
4. RELATED PARTY TRANSACTIONS
The Company reimburses ABRY Partners, Inc. ("ABRY"), an entity related through
common ownership, approximately $6,300 per month, representing the Company's
allocated share of rent paid by ABRY under its lease and other general expenses
including utilities, property insurance and supplies. In addition, the Company
has a management agreement with ABRY whereby the Company pays ABRY a management
fee of $262,000 annually. Such amounts have been included in "Selling, general
and administrative" expenses in the Company's consolidated statements of
operations. In addition, certain liabilities were paid during the first six
months of 1998 by Sinclair Communications II, Inc.
5. ACQUISITION OF KOKH
On January 6, 1998, the Company executed a definitive purchase agreement to
acquire certain assets of Channel 25 ("KOKH")in Oklahoma City, Oklahoma for a
total purchase price of $60,000,000. Subsequent to FCC approval, this
acquisition was consummated on February 1, 1998. Contemporaneously, the Company
sold and option to acquire certain assets of KOKH to the seller for $45,000,000
and acquired an option to acquire certain assets of another television station
for $15,000,000.
6. SUBSEQUENT EVENTS
On February 23, 1998, Holdings entered into a Plan of Merger with Sinclair
Broadcast Group, Inc. On July 1, 1998, under the terms of the Sinclair Merger,
100% of the issued and outstanding common stock of Holdings was acquired by
Sinclair Broadcast Group, Inc. by means of a merger.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company's revenues are derived principally from local and national
advertisers. Additional revenues are derived from commercial production and
rental of broadcast towers. Increased ratings and strong advertiser demand have
contributed to the Company's successful revenue growth. Also, the Company has
developed sales marketing programs, implemented to enhance the image of the
Company's television stations (the "Stations"), conducts local "Kids Expos" and
live remote broadcasts, publishes promotional advertising print supplements and
participates in joint marketing events with local businesses and radio stations.
The Company's operating revenues are generally highest in the fourth
quarter of each year. This seasonality is primarily attributable to increased
expenditures by advertisers in anticipation of holiday retail spending and an
increase in viewership during the Fall/Winter season. Accordingly, accounts
receivable balances as of the end of each of the first three calendar quarters
are generally substantially less than the balances as of the end of the year.
Each of the Company's Stations generates positive Broadcast Cash Flow, defined
as operating income plus depreciation, amortization, barter expenses and
corporate expenses less payments for programming rights and barter revenue.
9
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company's principal costs of operations are employee salaries and
commissions, programming, production, promotion and other expenses (such as
maintenance, supplies, insurance, rent and utilities). The Company has
historically experienced net losses primarily as a result of non-cash charges
attributable to amortization of intangibles that were recorded at the time of
the purchase of the Stations. The Company's amortization of programming rights
has historically exceeded the Company's payments for programming rights due to
the write-up of programming assets which occurred upon the respective
acquisitions of the Stations. In addition, the Company has paid in advance of
scheduled programming liabilities certain excess programming rights acquired as
a result of the aforementioned Acquisition.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 (THE "1997 THREE MONTHS") COMPARED TO THREE
MONTHS ENDED JUNE 30, 1998 OF THE COMPANY (THE "1998 THREE MONTHS")
Set forth below are selected consolidated financial data of the Company for the
three months ended June 30, 1997 and June 30, 1998 and the percentage changes
between the periods.
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------------------
1997 1998 Percentage Change
-------------------------------- ------------------------------- -------------------------------
Sinclair Sinclair Sinclair Sinclair Sinclair Sinclair
Television Communications Television Communications Television Communications
Company, Inc. II, Inc. Company, Inc. II, Inc. Company, Inc. II, Inc.
------------- -------- ------------- -------- ------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues (excluding trade
and barter) $ 30,456 $ 30,456 $ 34,616 34,616 13.7% 13.7%
Trade and Barter revenues 4,480 4,480 4,520 4,520 0.9 0.9
Total net revenues 34,936 34,936 39,136 39,136 12.0 12.0
Operating expenses 4,323 4,323 5,472 5,472 26.6 26.6
Selling, general
and administrative expenses 6,826 7,258 7,786 8,808 14.1 21.4
Depreciation and amortization 19,343 19,343 18,844 18,844 (2.6) (2.6)
Operating income 4,444 4,012 7,034 6,012 58.3 49.9
Interest expense 9,046 10,694 7,513 9,114 (16.9) (14.8)
Net income (loss) (3,527) (4,774) 70 (2,552) 101.9 46.5
Payments for programming rights 2,908 2,908 3,038 3,038 4.5 4.5
Broadcast Cash Flow 17,686 17,686 20,058 20,058 13.4 13.4
</TABLE>
10
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (THE "1997 SIX MONTHS") COMPARED TO SIX MONTHS
ENDED JUNE 30, 1998 OF THE COMPANY (THE "1998 SIX MONTHS")
Set forth below are selected consolidated financial data of the Company for the
six months ended June 30, 1997 and June 30, 1998 and the percentage changes
between the periods.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------
1997 1998 Percentage Change
-------------------------------- ------------------------------- -------------------------------
Sinclair Sinclair Sinclair Sinclair Sinclair Sinclair
Television Communications Television Communications Television Communications
Company, Inc. II, Inc. Company, Inc. II, Inc. Company, Inc. II, Inc.
------------- -------- ------------- -------- ------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues (excluding trade
and barter) $ 55,727 $ 55,727 $ 62,391 $ 62,391 12.0% 12.0%
Trade and Barter revenues 8,642 8,642 9,017 9,017 4.3 4.3
Total net revenues 64,369 64,369 71,408 71,408 10.9 10.9
Operating expenses 8,991 8,991 10,656 10,656 18.5 18.5
Selling, general
and administrative expenses 13,221 13,765 14,645 20,727 10.8 50.6
Depreciation and amortization 38,606 38,606 38,138 38,138 (1.2) (1.2)
Operating Income 3,551 3,007 6,998 916 97.1 (69.5)
Interest expense 17,914 21,169 16,022 19,220 (10.6) (9.2)
Net loss 10,096 12,375 5,633 14,272 (44.2) 15.3
Payments for programming rights 5,687 5,687 6,290 6,290 10.6 10.6
Broadcast Cash Flow 30,320 30,320 33,590 33,590 10.8 10.8
</TABLE>
Net revenues (excluding barter) are net of commissions and primarily
include local/Canadian and national spot advertising sales. Net revenues
(excluding barter) increased to $62,391,000 in the 1998 Six Months from
$55,727,000 in the 1997 Six Months, an increase of $6,664,000 or 12.0%. This
increase is partially due to additional net revenues from the KOKH station
acquisition in February of 1998. Additionally, net revenues were further
increased by higher advertising spot rates which were positively impacted by the
improving economy, resulting in greater advertising spending, along with higher
key demographic ratings from additional Fox programming and other syndicated and
first run programming. Advertising revenues for the 1998 Six Months were
comprised of 61.2% from local/Canadian advertising sales and 38.8 % from
national advertising sales.
Local revenues include gross revenues before commissions from local or
regional advertisers or their representative agencies. Local and regional areas
encompass a station's designated market area and its outlying areas. Local
revenues increased to $44,468,000 in the 1998 Six Months from $38,055,000 in the
1997 Six Months, an increase of $6,413,000, or 16.9%. The increase was due to
the KOKH station acquisition in February of 1998 along with increased rating and
stronger advertising demand resulting from the Company's emphasis on expanding
local sales.
National revenues include gross revenues before commissions from national
advertisers or their representative agencies. National advertisers are
advertisers outside of a station's local market or region. National revenues
increased to $28,163,000 in the 1998 Six Months from $26,930,000 in the 1997 Six
Months, an increase of $1,233,000, or 4.6%. As with local revenues, national
revenues increased as a result of the KOKH station acquisition as well as
improved rating and stronger advertising demand in the 1998 Six Months compared
to the 1997 Six Months.
11
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Trade and Barter revenues increased to $9,017,000 in the 1998 Six Months
from $8,642,000 in the 1997 Six Months, an increase of $375,000, or 4.3%. This
increase was primarily due to increased barter revenue relating to the KOKH
station acquisition further increased by higher advertising spot rates in the
1998 Six Months compared to the 1997 Six Months.
Operating expenses include engineering, promotion, production and
programming operations and trade expenses. Operating expenses increased to
$10,656,000 in the 1998 Six Months from $8,991,000 in the 1997 Six Months, an
increase of $1,665,000. This increase was primarily the result of additional
expenses associated with the KOKH station acquired in February of 1998.
Selling, general and administrative expenses include sales, salaries,
commissions, insurance, supplies and general management salaries. Selling,
general and administrative expenses increased to $15,616,000 and $21,698,000 in
the 1998 Six Months from $13,221,000 and $13,765,000 in the 1997 Six Months,
increases of $2,395,000, and $7,933,000 or 18.1% and 57.6% for Sinclair
Television Company, Inc. and Sinclair Communications II, Inc., respectively.
These increases were primarily the result of additional costs associated with
the KOKH station acquisition along with a one-time compensation charge related
to the issuance of common stock of Sinclair Communications II, Inc. in the 1998
Six Months compared to the 1997 Six Months.
Depreciation and amortization includes depreciation of property and
equipment, amortization of programming rights and amortization of intangibles.
Depreciation and amortization decreased to $38,138,000 in the 1998 Six Months
from $38,606,000 in the 1997 Six Months, a decrease of $468,000 or 1.2%. This
decrease is due to lower depreciation expense resulting from certain assets
becoming fully depreciated in the 1998 Six Months.
Operating income increased to $6,998,000 and decreased to $916,000 in the
1998 Six Months from $3,551,000 and $3,007,000 in the 1997 Six Months, for
Sinclair Television Company, Inc. and Sinclair Communications II, Inc.,
respectively. The increase in operating income for Sinclair Television Company,
Inc. of $3,447,000 or 97.1% is the result of stronger revenues offset somewhat
by increases in operating, depreciation, amortization and selling, general and
administrative expenses in the 1998 Six Months from the 1997 Six Months. The
decrease in operating income for Sinclair Communications II, Inc. of $2,091,000,
or 69.5% is the result of a one-time compensation charge related to the issue of
common stock, somewhat offset by the stronger operating results discussed above.
Interest expense includes interest charged on all outstanding debt and the
amortization of debt issuance costs and debt discount over the life of the
underlying debt. Interest expense decreased to $16,022,000 and $19,220,000 in
the 1998 Six Months from the 1997 Six Months, decreases of $1,892,000 and
$1,949,000 or 10.6% and 9.2% for Sinclair Television Company, Inc. and Sinclair
Communications II, Inc., respectively. These decreases are the result of a lower
principal balance on the Company's term loan in the 1998 Six Months compared to
the 1997 Six Months.
Net loss decreased to $5,633,000 and increased to $14,272,000 in the 1998
Six Months from $10,096,000 and $12,375,000 in the 1997 Six Months, changes of
$4,463,000 and $1,897,000 for Sinclair Television Company, Inc. and Sinclair
Communications II, Inc., respectively, due to the reasons discussed above.
Payments for programming rights increased to $6,290,000 in the 1998 Six
Months from $5,687,000 in the 1997 Six Months, an increase of $603,000, or
10.6%. This increase is attributable to the increased cost of programming
required to program the stations.
12
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Broadcast Cash Flow increased to $33,590,000 in the 1998 Six Months from
$30,320,000 in the 1997 Six Months, an increase of $3,270,000, primarily due to
the aforementioned increases in revenue with a smaller proportional increase in
the aggregate for operating and selling, general and administrative expenses.
Barter expense was $515,000 and $707,000 for the 1998 Six Months and the 1997
Six Months respectively. Corporate expense was $2,275,000 and $1,785,000 for the
1998 Six Months and the 1997 Six Months, respectively. The Company believes that
Broadcast Cash Flow is important in measuring the Company's financial results
and its ability to pay principal and interest on its debt because broadcasting
companies traditionally have large amounts of non-cash expense attributable to
amortization of programming rights and other intangibles. Broadcast Cash Flow
does not purport to represent cash provided by operating activities as reflected
in the Company's consolidated financial statements, 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.
LIQUIDITY AND CAPITAL RESOURCES
The indenture to the senior subordinated notes and the Senior Credit
Facility of the Company contain covenants which, among other restrictions,
require the maintenance of certain financial ratios (including cash flow
ratios), restrict asset purchases and the encumbrances of existing assets,
require lender approval for proposed acquisitions, and limit the incurrence of
additional indebtedness and the payment of dividends.
Based upon current operations, the Company anticipates the cash flow from
operations combined with the cash on hand will be adequate to meet its
requirements for current and foreseeable levels of operation. There can,
however, be no assurance that future developments or economic trends will not
adversely affect the Company's operations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No exhibits were filed as part of this Quarterly Report on Form 10-Q.
(b) No reports on Form 8-K were filed during the period.
13
<PAGE>
SINCLAIR COMMUNICATIONS II, INC. AND
SINCLAIR TELEVISION COMPANY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SINCLAIR TELEVISION COMPANY, INC.
(Registrant)
SINCLAIR COMMUNICATIONS II, INC.
August, 1998 By: /S/
------------------------------------
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
14
