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 March 31, 1996
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: 033-69482
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
Maryland 52-1494660
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2000 W. 41st Street 21211
Baltimore, Maryland 21211
(Address of principal executive offices)
(410) 467-5005
(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 May 14, 1996, there were 6,273,000 shares of Class A common stock,
$.01 par value, and 28,476,981 shares of Class B common stock, $.01 par value,
of the Registrant issued and outstanding.
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1996
TABLE OF CONTENTS
Part I. Financial Information
Page
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets December 31, 1995 and
March 31, 1996 3
Consolidated Statements of Operations three months
ended March 31, 1995 and 1996 4
Consolidated Statements of Stockholders' Equity
three months ended March 31, 1996 5
Consolidated Statements of Cash Flows three months
ended March 31, 1995 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations (to be completed) 11
Signature 15
Item 6 Exhibits
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31, March 31,
1995 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $112,450 $97,420
Accounts receivable, net of allowance for
doubtful accounts 50,022 41,148
Current portion of program contract costs 18,036 17,636
Deferred barter costs 1,268 1,688
Prepaid expenses and other current assets 1,972 2,355
Deferred tax assets 4,565 5,279
Total current assets 188,313 165,526
PROPERTY AND EQUIPMENT, net 42,797 44,880
PROGRAM CONTRACT COSTS, less current portion 19,277 15,858
LOANS TO OFFICERS AND AFFILIATES, net 11,900 11,856
NON-COMPETE AND CONSULTING AGREEMENTS, net 30,379 25,199
DEFERRED TAX ASSET 16,462 17,770
OTHER ASSETS 27,355 30,536
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net 268,789 298,355
Total Assets $605,272 $609,980
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,187 $ 2,130
Income taxes payable 3,944 2,729
Accrued liabilities 20,720 30,373
Current portion of long-term liabilities-
Notes payable and commercial bank financing 1,133 1,235
Capital leases payable 524 441
Notes and capital leases payable to
affiliates 1,867 1,907
Program contracts payable 26,395 24,542
Deferred barter revenues 1,752 2,080
Total current liabilities 58,522 65,437
LONG-TERM OBLIGATIONS:
Notes payable and commercial bank financing 400,644 400,000
Capital leases payable 44 -
Notes and capital lease payable to affiliates 13,959 13,716
Program contracts payable 30,942 30,213
Other long-term liabilities 2,442 2,395
Total liabilities 506,553 511,761
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 2,345 2,303
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000
shares authorized and -0- outstanding - -
Class A Common Stock, $.01 par value,
35,000,000 shares authorized and -0- and
5,960,000 shares issued and outstanding 58 60
Class B Common Stock, $.01 par value,
35,000,000 shares authorized and
28,790,000 shares issued and outstanding 290 288
Additional paid-in capital 116,089 116,089
Accumulated deficit (20,063) (20,521)
Total stockholders' equity 96,374 95,916
Total Liabilities and Stockholders' Equity $605,272 $609,980
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Three Months Ending
March 31, March 31,
1995 1996
REVENUES:
Station broadcast revenues, net of agency
commissions $39,136 $44,176
Revenues realized from barter arrangement 3,559 3,593
Total revenues 42,695 47,769
OPERATING EXPENSES:
Program and production 6,862 7,648
Selling, general and administrative 8,449 9,292
Expenses realized from barter arrangements 3,116 2,931
Amortization of program contract costs and net
realizable value adjustments 6,555 7,717
Depreciation and amortization of property
and equipment 1,586 1,465
Amortization of acquired intangible
broadcasting assets and other assets 11,782 10,677
Total operating expense 38,350 39,730
Broadcast operating income 4,345 8,039
OTHER INCOME (EXPENSE):
Interest expense (9,968) (10,896)
Interest income 443 1,723
Other income (expense) 114 253
Net loss before provision for income taxes (5,066) (881)
INCOME TAX BENEFIT 2,523 423
Net loss $(2,543) $(458)
NET LOSS PER COMMON SHARE $(.09) $(.01)
WEIGHTED AVERAGE SHARES OUTSTANDING
(in thousands) 29,000 34,750
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDING MARCH 31, 1996
(dollars in thousands)
Earnings Total
Class A Class B Additional (Accumu- Stock-
Preferred Common Common Paid-In lated Holders'
Stock Stock Stock Capital Deficit) Equity
BALANCE, December
31, 1995
as previously
reported $ - $ 58 $ 290 $116,089 $(20,063) $ 96,374
Class B shares
converted
to Class A
shares - 2 (2) - - -
Net loss - - - - (458) (458)
BALANCE, March
31, 1996 $ - $ 60 $ 288 $116,089 $ (20,521) $ 95,916
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Three Months Ending
March 31, March 31,
1995 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (2,543) $ (458)
Adjustments to reconcile net loss to net cash
flows from operating activities-
Depreciation and amortization of property
and equipment 1,586 1,465
Amortization of acquired intangible broadcast
assets, non-compete and consulting agreements 11,782 10,677
Amortization of program contract costs and net
realizable value adjustments 6,555 7,717
Deferred tax benefit (2,523) (3,159)
Changes in assets and liabilities, net of effect of
acquisitions and dispositions-
Decrease in receivables, net 5,430 8,874
(Increase) in refundable income taxes (28) -
(Decrease) increase in prepaid expenses and
other current assets 4,772 (383)
Increase in accounts payable and accrued
liabilities 299 9,596
(Decrease) in income taxes payable (6,043) (1,215)
(Increase) in other assets and acquired
intangible broadcast assets (1,579) (61)
Net effect of change in deferred barter revenues
and deferred barter costs (15) (92)
Decrease in other long term liabilities (47) (47)
Decrease (increase) in minority interest 21 (42)
Payments on program contracts payable (5,632) (6,433)
Net cash for from operating activities 12,035 26,439
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net of
disposal and lease obligations assumed (383) (1,272)
Payments for acquisition of television stations (55,500) (34,726)
Payments for acquisition of non-license assets (46,500) -
Payments for consulting and non-compete agreements (1,000) (50)
Payments for purchase option (1,000) -
Proceeds from disposal of property and equipment 2,000 -
Repayments of loans to officers and affiliates 282 44
Payments relating to future acquisitions - (4,593)
Net cash flow used in investing activities (102,101) (40,597)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank
financing 125,000 -
Repayment of notes payable, commercial bank
financing and capital leases (30,791) (669)
Repayments of notes and capital leases to
affiliates (169) (203)
Net cash flow from/(used in)financing activities 94,040 (872)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,974 (15,030)
CASH AND CASH EQUIVALENTS, beginning of period 2,446 112,450
CASH AND CASH EQUIVALENTS, end of period $ 6,420 $ 97,420
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest $ 6,850 $ 609
Income Taxes $ 6,107 $ 4,037
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. (SBG), Chesapeake Television, Inc. (WBFF), WPGH,
Inc. (WPGH), WTTE Channel 28, Inc. (WTTE), WCGV, Inc. (WCGV), WTTO, Inc. (WTTO),
WLFL, Inc. (WLFL), WTVZ, Inc. (WTVZ), WSMH, Inc. (WSMH) and all other
subsidiaries. The companies mentioned above, which are collectively referred to
hereafter as "the Company or Companies", own and operate television stations in
Baltimore, Maryland; Pittsburgh, Pennsylvania; Columbus, Ohio; Milwaukee,
Wisconsin; Birmingham, Alabama; Raleigh/Durham, North Carolina; Norfolk,
Virginia and Flint, Michigan. Additionally, included in the accompanying
consolidated financial statements are the results of operations of certain
television stations pursuant to local marketing agreements (LMA's). These
markets are Pittsburgh, Pennsylvania, Baltimore, Maryland, Milwaukee, Wisconsin,
Raleigh/Durham, North Carolina, Birmingham, Alabama and Tuscaloosa, Alabama.
Interim Financial Statements
The consolidated financial statements for the three months ended March 31, 1995
and 1996 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, 1994, and 1995 and for the years
then ended. The results of operations presented in the accompanying financial
statements are not necessarily representative of operations for an entire year.
Programming
The Companies have agreements with distributors for the rights to television
programming over contract periods which generally run from one to seven years.
Contract payments are made in installments over terms that are generally shorter
than the contract period. Each contract is recorded as a liability when the
license period begins and the program is available for its first showing. The
portion of the program contracts payable due within one year is reflected as a
current liability in the accompanying consolidated financial statements.
The rights to program materials are reflected in the accompanying consolidated
balance sheets at the lower of amortized cost or estimated net realizable value.
Estimated net realizable values are based upon management's expectation of
future advertising revenues net of sales commissions to be generated by the
program. Amortization of program contract costs is generally computed under
either four year accelerated method or based on usage, whichever yields the
greater amortization for each program. Program contract costs, estimated by
management to be amortized in the succeeding year, are classified as current
assets.
2. ACQUISITIONS:
In July 1995, the Company exercised its option to purchase the license and
non-license assets of the television station WSMH in Flint, Michigan for an
option exercise price of $1.0 million. In February 1996, the Company
consummated the acquisition for a purchase price of $35.4 million at which time
the balance due of $34.4 million was paid from the Company's existing cash
balance. This transaction was recorded as a purchase, whereby the assets and
liabilities were recorded at their fair market value.
In January 1996, the Company entered into a purchase agreement to acquire the
license and non-license assets of the television station WYZZ in Peoria,
Illinois and made a cash payment of $1.0 million to be applied against cash
proceeds to the seller upon closing. The Company plans to consummate the
transaction following FCC approval for a purchase price of approximately $21.0
million.
In March 1996, the Company entered into an agreement to acquire the outstanding
stock of Superior Communication, Inc. (Superior) and made a cash payment of $3.2
million to be applied against cash proceeds to the stockholders of Superior
upon closing. Superior owns the license and non-license assets of the
television station KOCB in Oklahoma City, Oklahoma and WDKY in Lexington,
Kentucky. In May 1996, the Company consummated the acquisition for a purchase
price of approximately $63.0 million.
3. CONTINGENCIES AND OTHER COMMITMENTS:
Lawsuits and claims are filed against the Companies from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgements or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Companies' financial position or results of operations.
4. SUBSEQUENT EVENTS:
In April 1996, the Company entered into an agreement to purchase certain
non-license assets of River City Broadcasting, L.P. which is an owner and
operator of various television and radio stations (RCB) and made a down
payment of $60.0 million to be applied against the purchase price at closing of
approximately $1.02 billion. Simultaneously, the Company entered into an option
agreement to purchase certain other license and non-license assets of River City
Broadcasting, L.P. for an option purchase price of $150 million.
In May 1996, in response to Department of Justice concerns expressed about the
Company's proposed acquisition of certain assets of River City Broadcasting, the
Company entered into a modification agreement eliminating both Sinclair's option
to acquire the assets of WSYX-TV in Columbus, Ohio and the agreements to enter
into a related time brokerage agreement. Sinclair is negotiating a separate
option agreement with River City for the acquisition of the assets of WSYX-TV
which would result in an increase in the originally reported option price for
the assets of WSYX and a corresponding reduction in the originally reported
purchase price for the other River City assets. As of the date of this filing,
the modified purchase price has not been finalized.
In conjunction with the RCB acquisition, the Company entered into an agreement
to purchase the non-license assets of KRRT, Inc., a television station in San
Antonio, Texas, for a purchase price of $29.6 million.
In connection with the aforementioned acquisitions the Company will have
available for grant options granted options to purchase approximately 2.1
million shares of Class A Common Stock with an exercise price approximating fair
market value on the date of the grant.
The Company intends to finance the above transactions with approximately $1.1
billion of senior bank debt and the issuance of $115 million of Series A
Exchangeable Preferred Stock. Pending shareholder approval the Series A
Exchangeable Preferred Stock will be convertible into 4,181,000 of Class A
Common Stock.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND 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,
1995.
RESULTS OF OPERATIONS
Comparison of three months ended March 31, 1994 to the three months ended March
31, 1995.
Three months ended March 31,
1995 1996
(Dollars in thousands)
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues $39,136 $44,176
Barter revenues 3,559 3,593
Total revenues 42,695 47,769
Operating expenses excluding depreciation
and amortization 18,427 19,871
Depreciation and amortization 19,923 19,859
Broadcast operating income 4,345 8,039
Interest expense (9,968) (10,896)
Interest and other income 557 1,976
Net loss before benefit for income taxes (5,066) (881)
Income tax benefit 2,523 423
Net loss $(2,543) $ (458)
Net loss per common share $ (.09) $ (.01)
Weighted average shares outstanding 29,000 34,750
OTHER DATA:
Broadcast cash flow (a) $19,688 $22,800
Broadcast cash flow margin 50.3% 51.6%
Operating cash flow (b) $18,636 $21,465
Operating cash flow margin 47.6% 48.6%
Program contract payments $ 5,632 $ 6,433
Corporate expense 1,052 1,335
Net broadcast revenues increased to $44.2 million for the three
months ended March 31, 1996 from $39.1 million for the three months
ended March 31, 1995, or 13.0%. When including the effects of
non-cash barter transactions, net broadcast revenues for the three
months ended March 31, 1996 increased by 11.9%. These increases
in net broadcast revenues were primarily a result of the LMA
transactions entered into with WABM and WDBB after the first
quarter of 1995 ( the "1995 LMA's" ) and the acquisition of WSMH in Flint,
Michigan in March 1996, as well as double digit revenue
growth in the Company's largest markets. This revenue growth is
generally due to a substantial increase in ratings in prime access
combined with a strong national movie and local foreign automotive
business.
Operating expenses excluding depreciation and amortization
increased from $18.4 million for the three months ended March 31,
1995 to $19.8 million for the three months ended March 31, 1996, or
7.6%. This increase is primarily due to an increase in LMA fees
associated with the 1995 LMA's and an increase in corporate
overhead associated with being a public company, both totaling
approximately $.8 million. Excluding the affect of the above
increases operating expenses increased only 3.2% from the same
period of the prior year.
Broadcast operating income increased from $4.3 million for the
three months ended March 31, 1995 to $8.0 million for the three
months ended March 31, 1996, or 86.0%.
Interest expense increased from $10.0 million for the three months
ended March 31, 1995 to $10.9 million for the three months ended
March 31, 1996 or 9.0%. This increase is primarily due to a l.5%
increase in the weighted average interest rate on relatively the
same level of debt outstanding during both periods, following the
replacement of senior bank debt with the proceeds of the public
debt offering in August 1995.
Interest and other income increased from $.6 million for the three
months ended March 31, 1995 to $2.0 million for the three months
ended March 31, 1996 or 23.3%. This increase resulted primarily
from the excess cash balances remaining from the proceeds of the
public debt offering in August 1995.
Net loss for the three months ended March 31, 1996 was $458
thousand or ($.01) per share compared to a loss of $2.5 million or
($.09) per share for the three months ended March 31, 1995.
Broadcast cashflow increased to $22.8 million for the three months
ended March 31, 1996 from $19.7 million for the three months ended
March 31, 1995, or 15.8%.
Operating cashflow increased to $21.5 million for the three months
ended March 31, 1996 from $18.6 million for the three months ended
March 31, 1995, or 15.2%.
Liquidity and Capital Resources
The capital structure of the Company consists of the Company's
outstanding long-term debt and stockholders' equity. Th
stockholders' equity consists of common stock, additional paid in
capital and accumulated deficit. The Company's balance of cash and
cash equivalents was $97.4 million as of March 31, 1996. The
Company's primary source of liquidity is cash provided by
operations. After giving effect for the $60.0 million down payment
for the acquisition of River City Broadcasting, L.P., in April
1996, the Company's cash balance would have been $37.4 million.
Net cash flows from operating activities increased from $12.0
million for the three months ending March 31, 1995 to $26.4 million
for the three months ending March 31, 1996. The Company paid income
taxes of $6.1 million during the three months ending March 31, 1995
compared to $4.0 million for the three months ending March 31, 1996
due to anticipated tax benefits generated by its 1996 acquisitions.
The Company made interest payments on outstanding indebtedness of
$6.9 million during the three months ending March 31, 1995 compared
to $0.6 million for the three months ending March 31, 1996 as
payments due for the public debt offering were made on April 1,
1996. Program rights payments increased from $5.6 million for the
three months ending March 31, 1995 to $6.4 million for the three
months ending March 31, 1996, primarily as a result of the
acquisitions.
Net cash flows used in investing activities was $102.1 million for
the three months ending March 31, 1995 compared to $40.6 million
for the three months ending March 31, 1996. During the three
months ending March 31, 1996, the Company purchased the license and
non-license assets of WSMH in Flint, Michigan for $35.4 million at
which time the balance due to the seller of $34.4 million was paid
from the Company's existing cash balance. In January 1996, the
Company made a cash payment of $1.0 million relating to the
acquisition of the license and non-license assets of WYZZ in
Peoria, Illinois. In March 1996, the Company made a cash payment
of $3.2 million relating to the purchase for the outstanding stock
of Superior Communications, Inc. (Superior). Superior owns the
license and non-license assets of WDKY in Lexington, Kentucky and
KOCB in Oklahoma City, Oklahoma. In May 1996, the Superior
acquisition was consummated for a purchase price of $63.0 million.
Net cash flows from financing activities was $94.0 million for the
three months ending March 31, 1995 compared to amounts used of $0.9
million for the three months ending March 31, 1996. In May 1996,
the Company utilized available indebtedness of $61.0 million under
Facility B of the Bank Credit Agreement in connection with the
acquisition of Superior. Simultaneously with the acquisition , the
Company repaid indebtedness of $25.0 million under Facility B of
the Bank Credit Agreement from the Company's existing cash balance.
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 BROADCAST GROUP, INC.
by:____________________________________
David B. Amy
Chief Financial Officer (Principal
Accounting Officer)
Index to Exhibits
Exhibit
Number Description
- ------ -----------
10.67 Asset Purchase Agreement by and between River City
Broadcasting, L.P. as seller and Sinclair Broadcast
Group, Inc. as buyer dated as of April 10, 1996.
10.68 Option Agreement by and among River City
Broadcasting, L.P., as sellers and Sinclair
Broadcast Group, Inc. dated as of April 10, 1996.
10.69 Modification Agreement by and between River City
Broadcast Group, L.P. as seller, and Sinclair
Broadcast Group, Inc. as buyer, with reference to
Asset Purchase Agreement dated as of April 10, 1996.