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
March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the
transition period from ____________ to ____________.
Commission File Number : 000-26076
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
---------------------------
MARYLAND 52-1494660
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 WEST 41ST STREET
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 7, 1997, there were 6,897,827 shares of Class A Common Stock, $.01 par
value, 27,850,581 shares of Class B Common Stock, $.01 par value and 1,115,370
shares of Series B Preferred Stock, $.01 par value convertible into 4,055,891
shares of Class A Common Stock, of the Registrant issued and outstanding.
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1997
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and
March 31, 1997........................................ 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 and 1997......................... 4
Consolidated Statements of Stockholders' Equity for the Three
Months Ended March 31, 1997........................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1997......................... 6
Notes to Unaudited Consolidated Financial Statements......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 11
PART II. OTHER INFORMATION
Item 2(c). Changes in Securities................................ 15
Item 6. Exhibits and Reports on Form 8-K........................ 15
Signature.................................................... 17
2
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, MARCH 31,
1996 1997
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 2,341 $ 36,705
Accounts receivable, net of allowance for doubtful accounts 112,313 89,079
Current portion of program contract costs .................. 44,526 37,741
Prepaid expenses and other current assets .................. 3,704 3,757
Deferred barter costs ...................................... 3,641 4,490
Deferred tax assets ........................................ 1,245 1,445
------------- -------------
Total current assets .............................. 167,770 173,217
PROGRAM CONTRACT COSTS, less current portion ............... 43,037 35,511
LOANS TO OFFICERS AND AFFILIATES ........................... 11,426 11,411
PROPERTY AND EQUIPMENT, net ................................ 154,333 152,554
NON-COMPETE AND CONSULTING AGREEMENTS, net ................. 10,193 5,493
DEFERRED TAX ASSET ......................................... -- 7,771
OTHER ASSETS ............................................... 64,235 79,100
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ............... 1,256,303 1,244,874
------------- -------------
Total Assets ...................................... $ 1,707,297 $ 1,709,931
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... $ 11,886 $ 4,791
Income taxes payable ....................................... 730 733
Accrued liabilities ........................................ 35,030 36,842
Current portion of long-term liabilities-
Notes payable and commercial bank financing ............ 62,144 64,000
Capital leases payable ................................. 44 11
Notes and capital leases payable to affiliates ......... 1,774 1,476
Program contracts payable .............................. 58,461 51,573
Deferred barter revenues ................................... 3,576 4,218
------------- -------------
Total current liabilities ......................... 173,645 163,644
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ................ 1,212,000 1,039,125
Capital leases payable ..................................... -- 33
Notes and capital leases payable to affiliates ............. 12,185 12,007
Program contracts payable .................................. 56,194 50,986
Deferred tax liability ..................................... 463 --
Other long-term liabilities ................................ 2,739 2,892
------------- -------------
Total liabilities ................................. 1,457,226 1,268,687
------------- -------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ................ 3,880 3,928
------------- -------------
EQUITY PUT OPTIONS ............................................ 8,938 --
------------- -------------
COMPANY OBLIGATED MANDATORILY REDEEMBABLE SECURITY OF TRUST
HOLDING SOLELY KDSM SENIOR DEBENTURES (see Note 6) ............ -- 200,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares
authorized and 1,138,138 and 1,115,370 shares
issued and outstanding, respectively ..................... 11 11
Class A Common stock, $.01 par value, 100,000,000
shares authorized and 6,911,880 and 6,937,827
shares issued and outstanding, respectively .............. 70 70
Class B Common stock, $.01 par value, 35,000,000
shares authorized and 27,850,581 shares issued
and outstanding .......................................... 279 279
Additional paid-in capital ................................. 256,954 255,576
Additional paid-in capital - deferred compensation ......... (1,129) (1,012)
Additional paid-in capital - equity put options ............ -- 8,938
Accumulated deficit ........................................ (18,932) (26,546)
------------- -------------
Total stockholders' equity ........................ 237,253 237,316
------------- -------------
Total Liabilities and Stockholders' Equity ........ $ 1,707,297 1,709,931
============= =============
The accompanying notes are an integral part of these unaudited consolidated
statements.
3
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
1996 1997
----------------------
REVENUES:
Station broadcast revenues, net of agency commissions ......... $ 44,176 $ 98,909
Revenues realized from station barter arrangements ............ 3,593 9,315
--------- ---------
Total revenues ........................................... 47,769 108,224
--------- ---------
OPERATING EXPENSES:
Program and production ........................................ 7,648 22,507
Selling, general and administrative ........................... 9,292 25,241
Expenses realized from station barter arrangements ............ 2,931 7,444
Amortization of program contract costs and net
realizable value adjustments ......................... 7,717 17,518
Amortization of deferred compensation ......................... -- 117
Depreciation and amortization of property and equipment ....... 1,465 4,161
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets...... 10,677 19,021
--------- ---------
Total operating expenses ................................. 39,730 96,009
--------- ---------
Broadcast operating income ......................... 8,039 12,215
--------- ---------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ............ (10,896) (27,065)
Trust distributions ........................................... -- (1,210)
Interest income ............................................... 1,723 402
Other income.................................................. 253 144
--------- ---------
Loss before income tax benefit ........................... (881) (15,514)
INCOME TAX BENEFIT ............................................... 423 7,900
--------- ---------
NET LOSS ......................................................... $ (458) $ (7,614)
========= =========
Net loss per common share ........................................ (0.01) (0.22)
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ....................... 34,750 34,769
========= =========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING.. 34,751 38,908
========= =========
The accompanying notes are an integral part of these unaudited consolidated
statements.
4
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
SERIES B CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON PAID-IN
STOCK STOCK STOCK CAPITAL
------------ --------- --------- -------
BALANCE, December 31, 1996 ................ $ 11 $ 70 $ 279 $ 256,954
Repurchase of 57,500 shares of
Class A Common Stock ................. -- (1) -- (1,377)
Series B Preferred Stock converted
into Class A Common Stock............. -- 1 -- (1)
Equity put options ...................... -- -- -- --
Amortization of deferred
compensation ......................... -- -- -- --
Net loss ................................ -- -- -- --
------------ --------- --------- ----------
BALANCE, March 31, 1997 ................... $ 11 $ 70 $ 279 $ 255,576
============ ========= ========= ==========
ADDITIONAL ADDITIONAL
PAID-IN PAID-IN RETAINED
CAPITAL - CAPITAL - EARNINGS TOTAL
EQUITY PUT DEFERRED (ACCUMULATED STOCKHOLDERS'
OPTIONS COMPENSATION DEFICIT) EQUITY
--------- ------------ --------- -------------
BALANCE, December 31, 1996 ................ $ -- $ (1,129) $(18,932) $ 237,253
Repurchase of 57,500 shares of
Class A Common Stock ................ -- -- -- (1,378)
Series B Preferred Stock converted
into Class A Common Stock............ -- -- -- --
Equity put options ..................... 8,938 -- -- 8,938
Amortization of deferred
compensation ........................ -- 117 -- 117
Net loss ............................... -- -- (7,614) (7,614)
--------- ------------ --------- -------------
BALANCE, March 31, 1997 ................... $ 8,938 $ (1,012) $(26,546) $ 237,316
========= ============ ========= =============
The accompanying notes are an integral part of these unaudited consolidated
statements.
5
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
1996 1997
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................... $ (458) $ (7,614)
Adjustments to reconcile net loss to net cash flows
from operating activities-
Depreciation and amortization of property and equipment ....... 1,465 4,161
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets ..... 10,677 19,021
Amortization of program contract costs and net realizable
value adjustments .......................................... 7,717 17,518
Amortization of deferred compensation ......................... -- 117
Deferred tax benefit .......................................... (3,159) (8,434)
Changes in assets and liabilities, net of effects of acquisitions
and dispositions-
Decrease in accounts receivable, net .......................... 8,874 23,085
Increase in prepaid expenses and other current assets ......... (383) (173)
Increase in other assets and acquired
intangible broadcasting assets .............................. (61) (367)
Increase (decrease) in accounts payable and
accrued liabilities ......................................... 9,596 (5,259)
Increase (decrease) in income taxes payable ................... (1,215) 3
Net effect of change in deferred barter revenues
and deferred barter costs ................................... (92) (207)
Increase (decrease) in other long-term liabilities ............ (47) 153
Increase (decrease) in minority interest ..................... (42) 48
Payments on program contracts payable ............................ (6,433) (13,732)
--------- ---------
Net cash flows from operating activities ................ 26,439 28,320
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ............................ (1,272) (2,244)
Payments for acquisition of television and radio stations ........ (34,726) (770)
Payments for consulting and non-compete agreements ............... (50) --
Purchase option extension payments relating to WSYX .............. -- (2,885)
Loans to officers and affiliates ................................. -- (337)
Repayments of loans to officers and affiliates ................... 44 293
Payments relating to future acquisitions ......................... (4,593) (7,959)
--------- ---------
Net cash flows used in investing activities ............. (40,597) (13,902)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital
leases ........................................................ -- 8,046
Repayments of notes payable, commercial bank
financing and capital leases .................................. (669) (179,065)
Repurchases of the Company's Class A
Common Stock .................................................. -- (1,378)
Proceeds from Preferred Securities offering, net of $5,000
underwriters' discount ........................................ -- 195,000
Payments of costs related to preferred securities offering ....... -- (808)
Prepayments of excess syndicated program contract liabilities .... -- (1,373)
Repayments of notes and capital leases to affiliates ............. (203) (476)
--------- ---------
Net cash flows from financing activities ............... (872) 19,946
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................................... (15,030) 34,364
CASH AND CASH EQUIVALENTS, beginning of period ...................... 112,450 2,341
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................ $ 97,420 $ 36,705
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH PAID FOR:
Interest ......................................................... $ 609 $ 30,808
========= =========
Income taxes ..................................................... $ 4,037 $ 1,856
========= =========
The accompanying notes are an integral part of these unaudited consolidated
statements.
6
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Sinclair Broadcast Group, Inc., Sinclair Communications, Inc. and all other
consolidated subsidiaries, which are collectively referred to hereafter as "the
Company, Companies or SBG." The Company owns and operates television and radio
stations throughout the United States. Additionally, included in the
accompanying consolidated financial statements are the results of operations of
certain television stations pursuant to local marketing agreements (LMAs) and
radio stations pursuant to joint sales agreements (JSAs).
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the three months ended March
31, 1996 and 1997 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, 1995, and
1996 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 an
asset and a liability when the license period begins and the program is
available for its first showing. The portion of the program contracts payable
within one year is reflected as a current liability in the accompanying
consolidated balance sheets.
The rights to program materials are reflected in the accompanying
consolidated balance sheets at the lower of unamortized 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 material. Amortization of program contract costs is
generally computed under either a 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. Payments of program contract liabilities are
typically paid on a scheduled basis and are not affected by adjustments for
amortization or estimated net realizable value.
7
2. CONTINGENCIES AND OTHER COMMITMENTS:
Lawsuits and claims are filed against the Company from time to time in
the ordinary course of business. These actions are in various preliminary
stages, and no judgments or decisions have been rendered by hearing boards or
courts. Management, after reviewing developments to date with legal counsel, is
of the opinion that the outcome of such matters will not have a material adverse
effect on the Company's financial position or results of operations.
3. FINANCIAL INFORMATION BY SEGMENT:
Prior to the River City Acquisition in May 1996, the Company did not
own or operate radio stations. As of March 31, 1997 the Company consisted of two
principal business segments - television broadcasting and radio broadcasting.
The Company owns or provides programming services pursuant to local marketing
agreements to 28 television stations located in 20 geographically diverse
markets in the continental United States. The Company owns or provides
programming services pursuant to local marketing agreements to 24 radio stations
in seven geographically diverse markets. Substantially all revenues represent
income from unaffiliated companies.
TELEVISION
THREE MONTHS ENDED MARCH 31,
1996 1997
---- ----
Total revenues ............................................. $ 47,769 $ 95,774
Station operating expenses ................................. 19,871 44,636
Depreciation, program amortization and deferred compensation 9,182 21,234
Amortization of intangibles and other assets ............... 10,677 15,815
---------- ----------
Station broadcast operating income ......................... $ 8,039 $ 14,089
========== ==========
Total assets ............................................... $ 609,980 $1,406,157
========== ==========
Capital expenditures ....................................... $ 1,272 $ 2,027
========== ==========
RADIO
THREE MONTHS ENDED MARCH 31,
1996 1997
---- ----
Total revenues ............................................. $ -- $ 12,450
Station operating expenses ................................. -- 10,556
Depreciation, program amortization and deferred compensation -- 562
Amortization of intangibles and other assets ............... -- 3,206
----------- ---------
Station broadcast operating loss ........................... $ -- $ (1,874)
=========== =========
Total assets ............................................... $ -- $ 303,774
=========== =========
Capital expenditures ....................................... $ -- $ 217
=========== =========
8
4. EARNINGS PER SHARE:
In March 1997, the Financial Accounting Standard Board released SFAS
128 "Earnings per Share." The new statement is effective December 15, 1997 and
early adoption is not permitted. When adopted, SFAS 128 will require the
restatement of prior periods and disclosure of basic and diluted earnings per
share and related computations. At the present time, management believes that
the adoption of SFAS 128 will not materially affect the Company's consolidated
financial statements.
5. EQUITY PUT AND CALL OPTIONS:
During December 1996, the Company entered into physically settled in
cash put and call option contracts related to the Company's common stock. These
option contracts were entered into for the purpose of hedging the dilution of
the Company's common stock upon the exercise of stock options granted. To the
extent that the Company entered into put option contracts, the additional
paid-in capital amounts were adjusted accordingly and reflected as Equity Put
Options in the accompanying balance sheet as of December 31, 1996. In March
1997, the Company amended its put option contracts from physically settled in
cash to physically or net physically settled in shares, at the election of the
Company, and reclassified amounts reflected as Equity Put Options to "Additional
paid in capital - equity put options" as reflected in the accompanying balance
sheet as of March 31, 1997.
6. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITY OF TRUST
In March 1997, the Company completed a private placement of $200
million aggregate liquidation value of 11 5/8% High Yield Trust Offered
Preferred Securities (the "Preferred Securities") of Sinclair Capital, a
subsidiary trust of the Company. The Preferred Securities were issued March 12,
1997, mature March 15, 2009, and provide for quarterly distributions to be paid
in arrears beginning June 15, 1997. The Preferred Securities were sold to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act of 1933, as amended) and a limited number of institutional "accredited
investors" and the offering was exempt from registration under the Securities
Act of 1933, as amended, (the "Securities Act") pursuant to Section 4(2) of the
Securities Act and Rule 144A thereunder. The Company utilized $135 million of
the approximately $194 million net proceeds of the private offering to repay
outstanding debt and retained the remainder for general corporate purposes,
which may include acquisitions and repurchases of shares of the Company's Class
A Common Stock.
Pursuant to a Registration Rights Agreement entered into in connection
with the private placement of the Preferred Securities, the Company is obligated
to offer to holders of the Preferred Securities the right to exchange the
Preferred Securities with new Preferred Securities having the same terms as the
existing securities, except that the exchange of the new Preferred Securities
for the existing Preferred Securities will be registered under the Securities
Act of 1933, as amended and the new Preferred Securities will not be subject to
an increase in distributions as a consequence of a failure to take certain
actions in connection with their registration under the Securities Act. The
Company was required to file the registration statement prior to May 11, 1997
and is required to complete the exchange offer by August 8, 1997. The Company
filed the registration statement on May 2, 1997 (see Note 8).
7. ACQUISITIONS:
In January 1997, the Company entered into a purchase agreement to
acquire the license and non-license assets of KUPN-TV, the UPN affiliate in Las
Vegas, Nevada, for a purchase price of $87 million. Under the terms of this
agreement, the Company made cash deposit payments of $7.0 million in the first
quarter of 1997. The Company plans to consummate the transaction following FCC
approval.
9
In January 1997, the Company entered into an agreement to acquire the
license and non-license assets of WGR-AM and WWWS-AM in Buffalo, New York for a
purchase price of approximately $1.5 million. In March 1997, the Company paid
the remaining balance of $959,000 and closed on the acquisition in April 1997.
In January 1997, the Company acquired the license and non-license assets of
WWFH-FM and WILP-AM in Wilkes-Barre, Pennsylvania for a purchase price of
approximately $770,000.
8. SUBSEQUENT EVENTS:
In April 1997, the Company entered into put and call option contracts
related to its common stock for the purpose of hedging the dilution of the
common stock upon the exercise of stock options granted. The Company entered
into 550,000 European style (that is, exercisable at expiration only) put
options for common stock with a strike price of $25.78 per share which provide
for settlement in cash or in shares, at the election of the Company. The Company
entered into 550,000 American style (that is, exercisable any time before
expiration) call options for common stock with a strike price of $25.78 per
share which provide for settlement in cash or in shares, at the election of the
Company. The option premium amount was $3.4 million for these contracts, which
is payable in quarterly installments through the maturity date, July 13, 2000.
In April 1997, the Company received FCC approval for the transfer of
the FCC licenses of KOVR in Sacramento, California and KDSM in Des Moines, Iowa.
The Company exercised its options to acquire the license assets of KOVR and KDSM
for exercise prices of $1.5 million and $1.5 million, respectively.
On May 2, 1997, the Company filed a registration statement on Form S-4
with the Securities and Exchange Commission for the purpose of registering $200
million aggregate liquidation value of 11 5/8% High Yield Trust Offered
Preferred Securities to be offered in exchange for the aforementioned existing
Preferred Securities (see Note 6) issued by the Company in March 1997.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in this Quarterly
Report and the audited financial statements and Management's Discussion and
Analysis contained in the Company's Form 10-K, as amended, for the fiscal year
ended December 31, 1996.
The following table sets forth certain operating data for comparison of the
three months ended March 31, 1996 and 1997:
OPERATING DATA (dollars in thousands, except per share data):
- --------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1997
--------- ---------
Net broadcast revenues ................................... $ 44,176 $ 98,909
Barter revenues .......................................... 3,593 9,315
--------- ---------
Total revenues ........................................... 47,769 108,224
--------- ---------
Operating expenses, excluding depreciation, amortization
and amortization of deferred compensation ................ 19,871 55,192
Depreciation and amortization ............................ 19,859 40,700
Amortization of deferred compensation .................... -- 117
--------- ---------
Broadcast operating income ............................... 8,039 12,215
Interest expense ......................................... (10,896) (27,065)
Trust distributions ...................................... -- (1,210)
Interest and other income ................................ 1,976 546
--------- ---------
Net loss before income tax benefit ....................... (881) (15,514)
Income tax benefit ....................................... 423 7,900
--------- ---------
Net loss ................................................. $ (458) $ (7,614)
========= =========
BROADCAST CASH FLOW (BCF) DATA:
Television BCF (a) ................................... $ 22,800 $ 41,201
Radio BCF (a) ........................................ -- 1,583
--------- ---------
Consolidated BCF (a) ................................. $ 22,800 $ 42,784
========= =========
Television BCF margin ................................ 51.6% 47.3%
Radio BCF margin ..................................... -- 13.4%
Consolidated BCF margin .............................. 51.6% 43.3%
OTHER DATA:
Operating cash flow (b) .............................. $ 21,465 $ 39,300
Operating cash flow margin ........................... 48.6% 39.7%
After tax cash flow (c) .............................. $ 12,968 $ 19,471
After tax cash flow per share (d) .................... $ 0.37 $ 0.50
Program contract payments ............................ $ 6,433 $ 13,732
Corporate expense .................................... $ 1,335 $ 3,484
- -----------------------------------------------------------------------------------
- ----------
a) "Broadcast cash flow" is defined as broadcast operating income plus
corporate expenses, depreciation and amortization (including film
amortization and amortization of deferred compensation), less cash payments
for program rights. Cash program
11
payments represent cash payments made for current programs payable and do
not necessarily correspond to program usage. The Company has presented
broadcast cash flow data, which the Company believes is comparable to the
data provided by other companies in the industry, because such data are
commonly used as a measure of performance for broadcast companies. However,
broadcast cash flow does not purport to represent cash provided by
operating activities as reflected in the Company's consolidated statements
of cash flows, is not a measure of financial performance under generally
accepted accounting principles and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
b) "Operating cash flow" is defined as broadcast cash flow less corporate
expenses and is a commonly used measure of performance for broadcast
companies. Operating cash flow does not purport to represent cash provided
by operating activities as reflected in the Company's consolidated
statements of cash flows, is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
c) "After tax cash flow" is defined as net income (loss) plus depreciation and
amortization (including film amortization and amortization of deferred
compensation), less program contract payments. After tax cash flow is
presented here not as a measure of operating results and does not purport
to represent cash provided by operating activities. After tax cash flow
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
d) "After tax cash flow per share" is defined as after tax cash flow divided
by weighted average common and common equivalent shares outstanding.
Total revenues increased to $108.2 million for the three months ended March 31,
1997 from $47.8 million for the three months ended March 31, 1996, or 126.4%.
When excluding the effects of non-cash barter transactions, net broadcast
revenues for the three months ended March 31, 1997 increased by 123.9% over the
three months ended March 31, 1996. The increase in broadcast revenues was
primarily the result of acquisitions and LMA transactions consummated by the
Company in 1996 (the "1996 Acquisitions") and to a lesser extent, market growth
in television broadcast revenue and television broadcast revenue on a same
stations basis.
Operating expenses excluding depreciation, amortization of intangible assets and
amortization of deferred compensation increased to $55.2 million for the three
months ended March 31, 1997 from $19.9 million for the three months ended March
31, 1996 or 177.4%. The increase in expenses for the three months ended March
31, 1997 as compared to the three months ended March 31, 1996 was largely
attributable to operating costs associated with the 1996 Acquisitions and an
increase in corporate overhead expenses related primarily to the additional
expense of managing a larger base of operations.
Broadcast operating income increased to $12.2 million for the three months ended
March 31, 1997, from $8.0 million for the three months ended March 31, 1996, or
52.5%. The increase in broadcast operating income for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996 was
primarily attributable to the 1996 Acquisitions.
Interest expense increased to $27.1 million for the three months ended March 31,
1997 from $10.9 million for the three months ended March 31, 1996, or 148.6%.
The increase in interest expense for the three months ended March 31, 1997
primarily related to indebtedness incurred by the Company to finance the
Acquisitions. Trust distributions of $1.2 million for the three months ended
March 31, 1997 are related to the private placement of $200 million aggregate
liquidation rate of 11 5/8% High Yield Trust Offered Preferred Securities (the
"Preferred Securities") completed March 12, 1997. Trust distributions in future
quarters will be higher because such distributions will accrue for entire
quarters as opposed to the partial quarter in the most recent period. Increased
trust distributions will be partially offset by reductions in interest expense
because a portion of the proceeds of the Preferred Securities was used to reduce
indebtedness under the Company's Bank Credit Agreement.
Interest and other income decreased to $546,000 for the three months ended March
31, 1997 from $2.0 million for the three months ended March 31, 1996 or 72.7%.
The decrease for the three months ended March 31, 1997 was primarily due to
lower average cash balances and related interest income in the first quarter of
1997 as compared to the first quarter of 1996 resulting from cash payments made
in 1996 related to the 1996 Acquisitions.
Income tax benefit increased to $7.9 million for the three months ended March
31, 1997 from $423,000 for the three months ended March 31, 1996. The increase
in income tax benefit for the three months ended
12
March 31, 1997 as compared to the three months ended March 31, 1996 primarily
related to the increase in the pre-tax loss for the three months ended March 31,
1997. The Company's effective tax rate increased slightly to 51% for the three
months ended March 31, 1997 from 48% for the three months ended March 31, 1996.
The net deferred tax asset increased to $9.2 million as of March 31, 1997 from
$782,000 at December 31, 1996. The increase in the Company's net deferred tax
asset as of March 31, 1997 as compared to December 31, 1996 primarily results
from the anticipation that the pre-tax loss incurred in the first quarter of
1997 will be used to offset future taxable income.
Net loss for the three months ended March 31, 1997 was $7.6 million or $ 0.22
per share compared to net loss of $458,000 or $0.01 per share for the three
months ended March 31, 1996 due to increased amortization and interest expense
related to the 1996 Acquisitions.
Broadcast cash flow increased to $42.8 million for the three months ended March
31, 1997 from $22.8 million for the three months ended March 31, 1996, or 87.7%.
The increase in broadcast cash flow for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1996 primarily resulted from the
1996 Acquisitions and to a lesser extent, increases in net broadcast revenues on
a same station basis. The Company's broadcast cash flow margin decreased to
43.3% for the three months ended March 31, 1997 from 51.6% for the three months
ended March 31, 1996. Excluding the effect of radio station broadcast cash flow,
television station broadcast cash flow margin decreased to 47.3% for the three
months ended March 31, 1997 as compared to 51.6% for the three months ended
March 31, 1996. Decrease in broadcast cash flow margins for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996
primarily resulted from the lower margins of the acquired radio broadcasting
assets and lower margins of certain television stations acquired during 1996.
For television stations owned, operated or programmed for the three months
ending March 31, 1996 and the three months ending March 31, 1997, broadcast cash
flow margin increased from 52.9% to 55.8% respectively. This increase primarily
resulted from expense savings related to synergies realized from the 1996
Acquisitions.
Operating cash flow increased to $39.3 million for the three months ended March
31, 1997 from $21.5 million for the three months ended March 31, 1996, 82.8%.
The increase in operating cash flow for the three months ended March 31, 1997 as
compared to the three months ended March 31, 1996 resulted from the 1996
Acquisitions. The Company's operating cash flow margin decreased to 39.7% for
the three months ended March 31, 1997 from 48.6% for the three months ended
March 31, 1996. Decrease in operating cash flow margin for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996
primarily resulted from operating cost structures at certain of the acquired
stations and an increase in corporate overhead expenses. Management has begun to
implement and will continue to implement operating and programming expense
savings resulting from synergies realized from the businesses acquired in and
prior to 1996 and believes that the benefits of the implementation of these
methods will result in improvement in broadcast cash flow margin and operating
cash flow margin.
After tax cash flow increased to $19.5 million for the three months ended March
31, 1997 from $13.0 million for the three months ended March 31, 1996 , or
50.0%. The increase in after tax cash flow for the three months ended March 31,
1997 as compared to the three months ended March 31, 1996 primarily resulted
from the 1996 Acquisitions and internal growth, offset by interest expense on
the debt incurred to consummate the 1996 Acquisitions and trust distributions
related to the private placement of the Preferred Securities issued during March
1997. After tax cash flow per share increased to $0.50 for the three months
ended March 31, 1997 from $0.37 for the three months ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $36.7 million in cash balances and working
capital of approximately $9.5 million. The Company's increase in cash to $36.7
million at March 31, 1997 from
13
$2.3 million at December 31, 1996 primarily resulted from net proceeds from the
private placement of the Preferred Securities in March 1997. As of May 7, 1997,
approximately $176.8 million was available for borrowing under the Bank Credit
Agreement. The Company is obligated to pay approximately $78.0 million to
complete the Acquisition of KUPN and expects to make this payment from existing
cash balances and borrowings under the Bank Credit Agreement.
Net cash flows from operating activities increased to $28.3 million for the
three months ended March 31, 1997 from $26.4 million for the three months ended
March 31, 1996. The Company made income tax payments of $1.9 million for the
three months ended March 31, 1997 as compared to $4.0 million for the three
months ended March 31, 1996 due to anticipated tax benefits generated by the
1996 Acquisitions. The Company made interest payments on outstanding
indebtedness of $30.8 million during the three months ended March 31, 1997 as
compared to $.6 million for the three months ended March 31, 1996. Additional
interest payments for the three months ended March 31, 1997 as compared to the
three months ended March 31, 1996 primarily related to additional interest costs
on indebtedness incurred to finance the 1996 Acquisitions. Program rights
payments increased to $13.7 million for the three months ended March 31, 1997
from $6.4 million for the three months ended March 31, 1996, primarily as a
result of the 1996 Acquisitions.
Net cash flows used in investing activities decreased to $13.9 million for the
three months ended March 31, 1997 from $40.6 million for the three months ended
March 31, 1996. During January 1997, the Company purchased the license and
non-license assets of WWFH-FM and WILP-AM in Wilkes-Barre, Pennsylvania for
approximately $770,000. In January and March 1997, the Company made cash
payments of $7.0 million and $959,000 relating to the acquisition of the license
and non-license assets of KUPN-TV and WGR-AM and WWWS-AM, respectively,
utilizing indebtedness under the Bank Credit Agreement and existing cash
balances. In May 1997, the Company made an additional payment of $2.0 million
relating to the KUPN Acquisition. In March 1997, the Company made purchase
option extension payments of $2.9 million relating to WSYX. The Company made
payments for property and equipment of $2.2 million for the three months ended
March 31, 1997. The Company has no outstanding commitments for capital
expenditures other than the completion of the KUPN acquisition. The Company
anticipates that future requirements for capital expenditures will include other
acquisitions if suitable acquisitions can be identified on acceptable terms.
Net cash flows from financing activities increased to $19.9 million for the
three months ended March 31, 1997 from $0.9 million used in financing activities
for the three months ended March 31, 1996. In March 1997, the Company completed
a private placement of $200 million aggregate liquidation value of 11 5/8% High
Yield Trust Offered Preferred Securities (the "Preferred Securities") of
Sinclair Capital, a subsidiary trust of the Company. The Preferred Securities
were issued March 12, 1997, and mature March 15, 2009. The Company utilized $135
million of the approximately $194 million net proceeds of the private offering
to repay outstanding debt and retained the remainder for general corporate
purposes, which may include acquisitions and repurchases of shares of the
Company's Class A Common Stock. In the fourth quarter of 1996, the Company
negotiated the prepayment of syndicated program contract liabilities for excess
syndicated programming assets. In the first quarter of 1997, the Company made
final cash payments of $1.4 million related to these negotiations.
The Company anticipates that funds from operations, existing cash balances and
availability of the revolving credit facility under the Bank Credit Agreement
will be sufficient to meet its working capital, capital expenditures and debt
service requirements for the foreseeable future. However, to the extent such
funds are not sufficient, the Company may need to incur additional indebtedness,
refinance existing indebtedness or raise funds from the sale of additional
equity. The Bank Credit Agreement and the indentures relating to the Company's
10% Senior Subordinated Notes due 2003 and 10% Senior Subordinated Notes due
2005 restrict the incurrence of additional indebtedness and the use of proceeds
of an equity issuance. In 1996, the Company filed a registration statement with
the Securities and Exchange Commission with respect to the sale by the Company
of 5,750,000 shares of Class A Common Stock. The Company has not yet made such
an offering but may make such an offering at such time as it believes market
conditions warrant. There can be no assurance as to the timing of such an
offering or whether such an offering will in fact occur.
14
PART II
ITEM 2(C). CHANGES IN SECURITIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITY OF TRUST
In March 1997, the Company completed a private placement of $200 million
aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred
Securities (the "Preferred Securities") of Sinclair Capital, a subsidiary trust
of the Company. The Preferred Securities were issued March 12, 1997, mature
March 15, 2009, and provide for quarterly distributions to be paid in arrears
beginning June 15, 1997. The Preferred Securities were sold to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act of 1933,
as amended) and a limited number of institutional "accredited investors" and the
offering was exempt from registration under the Securities Act of 1933, as
amended, (the "Securities Act") pursuant to Section 4(2) of the Securities Act
and Rule 144A thereunder. Smith Barney, Inc. and Chase Securities, Inc. acted as
initial purchasers for the placement. The aggregate purchase price for the
Preferred Securities was $200 million and the aggregate underwriting discount
was $5 million. The Company utilized $135 million of the approximately $194
million net proceeds of the private offering to repay outstanding debt and
retained the remainder for general corporate purposes, which may include
acquisitions and repurchases of shares of the Company's Class A Common Stock.
Pursuant to a Registration Rights Agreement entered into in connection with the
private placement of the Preferred Securities, the Company is obligated to offer
to holders of the Preferred Securities the right to exchange the Preferred
Securities with new Preferred Securities having the same terms as the existing
securities, except that the exchange of the new Preferred Securities for the
existing Preferred Securities will be registered under the Securities Act of
1933, as amended and the new Preferred Securities will not be subject to an
increase in distributions as a consequence of a failure to take certain actions
in connection with their registration under the Securities Act. The Company was
required to file the registration statement prior to May 11, 1997 and is
required to complete the exchange offer by August 8, 1997.
On May 2, 1997, the Company filed a registration statement on Form S-4 with the
Securities and Exchange Commission for the purpose of registering $200 million
aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred
Securities to be offered in exchange for the aforementioned existing Preferred
Securities (see note 6) issued by the Company in March 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 By-laws (2)
4.1 Indenture, dated as of December 9, 1993, among Sinclair Broadcast
Group, Inc., its wholly-owned subsidiaries and First Union
National Banks of North Carolina, as trustee. (2)
4.2 Indenture, dated as of August 28, 1995, among Sinclair Broadcast
Group, Inc., its wholly-owned subsidiaries and the United States
Trust Company of New York as trustee. (2)
15
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------
4.3 Indenture, dated as of March 12, 1997 among KDSM, Inc., Sinclair
Broadcast Group, Inc. and First Union National Bank of Maryland(1)
4.4 Amended and Restated Trust Agreement, dated as of March 12, 1997
among KDSM, Inc., First Union National Bank of Maryland, First
Union Bank of Delaware, David D. Smith and David B. Amy (1)
10.1 Asset Purchase Agreement, dated January 31, 1997, by and between
Channel 21, L.P. and KUPN, Inc. (3)
10.2 Amendment No. 4 dated as of February 20, 1997 to the Second
Amended and Restated Credit Agreement dated as of May 31, 1996 by
and among Sinclair Broadcast Group, Inc., Certain Subsidiary
Guarantors, Certain Lenders and the Chase Manhattan Bank as Agent
(3)
10.3 Primary Television Affiliation Agreement dated as of March 24,
1997 by and among American Broadcasting Companies, Inc., River
City Broadcasting, L.P. and Chesapeake Television, Inc. (3)
10.4 Primary Television Affiliation Agreement dated as of March 24,
1997 by and among American Broadcasting Companies, Inc., River
City Broadcasting, L.P. and WPGH, Inc. (3)
10.5 Purchase Agreement, dated March 5, 1997 among Sinclair Broadcast
Group, Inc., KDSM, Inc., Sinclair Capital, Smith Barney Inc. and
Chase Securities Inc.
10.6 Registration Rights Agreement, dated as of March 5, 1997 among
Sinclair Broadcast Group, Inc., KDSM, Inc., Sinclair Capital,
Smith Barney Inc. and Chase Securities Inc. (1)
10.7 Pledge and Security Agreement, dated March 12, 1997 between
KDSM, Inc. and First Union National Bank of Maryland (1)
10.8 Parent Guarantee Agreement, dated March 12, 1997 between Sinclair
Broadcast Group, Inc. and First Union National Bank of Maryland
11 Computation of Earnings Per Share
27 Financial Data Schedule
- ----------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-4, No. 333-26427
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1, No. 33-90682
(3) Incorporated by reference from the Company's Report on Form 10-K for the
annual period ended December 31, 1996 (as amended)
(B) REPORTS ON FORM 8-K
NONE.
16
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 12th day of May, 1997.
SINCLAIR BROADCAST GROUP, INC.
by: /s/ David B. Amy
--------------------------
David B. Amy
Chief Financial Officer
Principal Accounting Officer
17