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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
JULY 16, 1997
-----------------------
(Date of earliest event reported)
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 33-69482 52-1494660
(State of incorporation) (Commission File Number) (IRS Employer
Identification Number)
2000 W. 41st Street, Baltimore, Maryland 21211-1420
-------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (410) 467-5005
--------------
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ITEM 5. OTHER EVENTS
As previously reported, Sinclair Broadcast Group, Inc. (the "Company")
entered into acquisition agreements on July 16, 1997 (the "Heritage Acquisition
Agreements") with The News Corporation Limited, Heritage Media Group, Inc. and
certain subsidiaries of Heritage Media Corporation (collectively "Heritage")
pursuant to which the Company will acquire the assets of, or the right to
program pursuant to Local Marketing Agreements ("LMAs"), six television stations
in three markets and the assets of 24 radio stations in seven markets (the
"Heritage Acquisition"). The Company is filing with this report on Form 8-K the
audited financial statements of Heritage Media Services, Inc. -- Broadcasting
Segment ("HMSI"), which includes all the assets to be acquired by the Company
pursuant to the Heritage Acquisition Agreements. The Company is also filing with
this Current Report on Form 8-K pro forma financial information for the Company
showing the effect of the Heritage Acquisition and certain other transactions
completed by the Company since January 1, 1996 (the "1996 Acquisitions").
THE TENDER OFFER
On November 17, 1997, the Company commenced a tender offer (the "Tender
Offer") for all of its outstanding 10% Senior Subordinated Notes due 2003 (the
"1993 Notes") and a solicitation of consents ("Consents") from the holders of
the 1993 Notes to eliminate or modify certain covenants and other provisions
contained in the indenture relating to the 1993 Notes. The consummation of the
Tender Offer is conditioned on, among other things, the valid tender of a
majority of the outstanding 1993 Notes, the Company having obtained the
requisite financing for payment of the tendered 1993 Notes and the Company
having obtained consent from lenders under the Third Amended and Restated Credit
Agreement dated as of May 20, 1997 with the Chase Manhattan Bank, as agent (as
amended from time to time, the "Bank Credit Agreement"), to purchase of the 1993
Notes. The Tender Offer will expire on December 16, 1997, unless extended, at
which time the Company expects to purchase all of the 1993 Notes validly
tendered with a portion of the net proceeds of a proposed offering by the
Company of $150,000,000 in principal amount of Senior Subordinated Notes (the
"Offering") or funds available under the Bank Credit Agreement. If all of the
1993 Notes are accepted for purchase pursuant to the Tender Offer and if 100% of
the 1993 Notes are entitled to receive payments (the "Consent Payment") to be
made in connection with the timely giving of Consents, the total consideration
and expenses payable in connection with the Tender Offer are expected to be
approximately $108.3 million and $0.3 million, respectively.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The financial statements required by this item are submitted in a separate
section of this report.
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1996
Consolidated Statement of Operations for the Year Ended December 31, 1996
Consolidated Statement of Stockholder's Equity for the Year Ended December
31, 1996
Consolidated Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Consolidated Financial Statements
Unaudited Financial Statements
Consolidated Balance Sheet as of September 30, 1997
Consolidated Statements of Operations for the Nine Months Ended September
30, 1996 and 1997
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1996 and 1997
Notes to Consolidated Financial Statements
(B) PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF SINCLAIR
The following Pro Forma Consolidated Financial Data include the unaudited
pro forma consolidated balance sheet as of September 30, 1997 (the "Pro Forma
Consolidated Balance Sheet") and the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997 (the "Pro Forma Consolidated Statement of Operations"). The
unaudited Pro Forma Consolidated Balance Sheet is adjusted to give effect to the
Heritage Acquisition, the completion of the Tender Offer (assuming that 100% of
the outstanding 1993 Notes are purchased and that the holders thereof receive
the Consent Payment) and the Offering and the application of $108.6 million of
the net proceeds of the Offering to pay the consideration payable in connection
with, and expenses of, the Tender Offer, with remaining amounts retained for
general corporate purposes, as if such transactions occurred on September 30,
1997. The unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1996 and the nine months ended September 30, 1997 are
adjusted to give effect to the 1996 Acquisitions, the issuance of $200,000,000
in liquidation amount of the Company's 11 5/8% High Yield Trust Offered
Preferred Securities (the "HYTOPS") issued on March 14, 1997, (the "HYTOPS
Issuance"), the issuance of $200,000,000 in principal amount of the Company's 9%
Senior Subordinated Notes due 2007 (the "1997 Notes") issued on July 2, 1997
(the "July Debt Issuance"), the September 23, 1997 public offering by the
Company of 4,345,000 shares (including shares sold on September 30, 1997
pursuant to the exercise of an overallotment option) of Class A Common Stock
(the "Common Stock Offering"), and the September 23, 1997 public offering by the
Company of $172.5 million aggregate liquidation value (including shares sold on
September 30, 1997 pursuant to the exercise of an overallotment option) of its
Series D Convertible Exchangeable Preferred Stock (the "Preferred Stock
Offering"), the Heritage Acquisition, the completion of the Tender Offer
(assuming that 100% of the outstanding 1993 Notes are purchased and that the
holders thereof receive the Consent Payment) and the Offering and the
application of $108.6 million of the net proceeds of the Offering to pay the
consideration payable in connection with, and expenses of, the Tender Offer,
with remaining amounts retained for general corporate purposes, as if such
transactions occurred at the beginning of such periods. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The Pro Forma Consolidated Financial Data
should be read in conjunction with the Company's Consolidated Financial
Statements as of and for the year ended December 31, 1996 and related notes
thereto, the Company's unaudited consolidated financial statements as of and for
the nine months ended September 30, 1997 and related notes thereto, the
historical financial data of Flint T.V., Inc. ("Flint-TV"), the historical
financial data of Superior Communications, Inc. ("Superior"), the historical
financial data of KSMO and WSTR, the historical financial data of River City
Broadcasting, L.P. ("River City") and the historical financial data of HMSI, all
of which have been filed with the Securities and Exchange Commission as part of
either (i) the Company's Annual Report on Form 10-K for the year ended December
31, 1996 (as amended), together with the report of Arthur Andersen LLP,
independent certified public accountants; (ii) the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997; or (iii) the Company's
Current Reports on Form 8-K and Form 8-K/A filed May 10, 1996, May 13, 1996, May
17, 1996, May 29, 1996, August 30, 1996, September 5, 1996 and August 26, 1997
and October 8, 1997. The unaudited Pro Forma Consolidated Financial Data do not
purport to represent what the Company's results of operations or financial
position would have been had any of the above events occurred on the dates
specified or to project the Company's results of operations or financial
position for or at any future period or date.
(C) EXHIBITS
Exhibit
No. Description
---------- -----------
23.1 Consent of Arthur Andersen LLP.
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONSOLIDATED HERITAGE
HISTORICAL ACQUISITION(A)
-------------- --------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 10,336
Accounts receivable, net of allowance for doubtful accounts 96,492
Current portion of program contract costs ............... 54,186 $ 1,270
Prepaid expenses and other current assets ............... 5,790
Deferred barter costs .................................... 4,474 2,201
Deferred tax asset ....................................... 5,533
---------- ------------
Total current assets .................................... 176,811 3,471
PROGRAM CONTRACT COSTS, less current portion ............... 49,607 262
LOANS TO OFFICERS AND AFFILIATES ........................... 11,210
PROPERTY AND EQUIPMENT, net .............................. 161,301 22,666
NON-COMPETE AND CONSULTING AGREEMENTS,
net ...................................................... 1,225
OTHER ASSETS ............................................. 145,302 (63,000)
ACQUIRED INTANGIBLE BROADCASTING ASSETS,
net ...................................................... 1,335,320 545,839
---------- -----------
Total Assets .......................................... $1,880,776 $ 509,238
========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 4,191
Accrued liabilities ....................................... 33,575
Current portion of long-term liabilities-
Notes payable and commercial bank financing ............ 35,344
Capital leases payable ................................. --
Notes and capital leases payable to affiliates ......... 2,481
Program contracts payable .............................. 62,993 $ 1,080
Deferred barter revenues ................................. 5,124
---------- ------------
Total current liabilities .............................. 143,708 1,080
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ............ 880,719 $ 507,000 (e)
Capital leases payable ................................. --
Notes and capital leases payable to affiliates ......... 20,635
Program contracts payable .............................. 75,688 1,158
Other long-term liabilities .............................. 4,640
---------- ------------
Total liabilities ....................................... 1,125,390 509,238
---------- -----------
MINORITY INTEREST IN CONSOLIDATED SUBSID-
IARIES 3,837 --
---------- -----------
COMPANY OBLIGATED MANDATORILY REDEEM-
ABLE SECURITY OF SUBSIDIARY TRUST HOLD-
ING SOLELY KDSM SENIOR DEBENTURES 200,000 --
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Preferred Stock ................................. 11
Series D Preferred Stock ................................. 35
Class A Common Stock .................................... 134
Class B Common Stock .................................... 258
Additional paid-in capital .............................. 553,801
Additional paid-in capital - deferred compensation ...... (779)
Additional paid-in capital - equity put options ......... 23,117
Accumulated deficit .................................... (25,028)
---------- ------------
Total stockholders' equity .............................. 551,549 --
---------- -----------
Total Liabilities and Stockholders' Equity ............ $1,880,776 $ 509,238
========== ===========
CONSOLIDATED
HISTORICAL,
HERITAGE
CONSOLIDATED TENDER OFFER ACQUISITION,
HISTORICAL AND AND TENDER OFFER,
HERITAGE ACQUISITION OFFERING(B) AND OFFERING
---------------------- ------------------ --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 10,336 $ 37,754 (c) $ 48,090
Accounts receivable, net of allowance for doubtful accounts 96,492 96,492
Current portion of program contract costs ............... 55,456 55,456
Prepaid expenses and other current assets ............... 5,790 5,790
Deferred barter costs .................................... 6,675 6,675
Deferred tax asset ....................................... 5,533 5,533
---------- ------- ----------
Total current assets .................................... 180,282 37,754 218,036
PROGRAM CONTRACT COSTS, less current portion ............... 49,869 49,869
LOANS TO OFFICERS AND AFFILIATES ........................... 11,210 11,210
PROPERTY AND EQUIPMENT, net .............................. 183,967 183,967
NON-COMPETE AND CONSULTING AGREEMENTS,
net ...................................................... 1,225 1,225
OTHER ASSETS ............................................. 82,302 6,088 (d) 88,390
ACQUIRED INTANGIBLE BROADCASTING ASSETS,
net ...................................................... 1,881,159 1,881,159
---------- --------- ----------
Total Assets .......................................... $2,390,014 $ 43,842 $2,433,856
========== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 4,191 $ 4,191
Accrued liabilities ....................................... 33,575 33,575
Current portion of long-term liabilities-
Notes payable and commercial bank financing ............ 35,344 35,344
Capital leases payable ................................. -- --
Notes and capital leases payable to affiliates ......... 2,481 2,481
Program contracts payable .............................. 64,073 64,073
Deferred barter revenues ................................. 5,124 5,124
---------- ---------- ----------
Total current liabilities .............................. 144,788 144,788
LONG-TERM LIABILITIES:
Notes payable and commercial bank financing ............ 1,387,719 $ 50,000 (f) 1,437,719
Capital leases payable ................................. -- --
Notes and capital leases payable to affiliates ......... 20,635 20,635
Program contracts payable .............................. 76,846 76,846
Other long-term liabilities .............................. 4,640 4,640
---------- --------- ----------
Total liabilities ....................................... 1,634,628 50,000 1,684,628
---------- --------- ----------
MINORITY INTEREST IN CONSOLIDATED SUBSID-
IARIES 3,837 -- 3,837
---------- --------- ----------
COMPANY OBLIGATED MANDATORILY REDEEM-
ABLE SECURITY OF SUBSIDIARY TRUST HOLD-
ING SOLELY KDSM SENIOR DEBENTURES 200,000 -- 200,000
---------- --------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B Preferred Stock ................................. 11 11
Series D Preferred Stock ................................. 35 35
Class A Common Stock .................................... 134 134
Class B Common Stock .................................... 258 258
Additional paid-in capital .............................. 553,801 553,801
Additional paid-in capital - deferred compensation ...... (779) (779)
Additional paid-in capital - equity put options ......... 23,117 23,117
Accumulated deficit .................................... (25,028) (6,158)(g) (31,186)
---------- --------- ----------
Total stockholders' equity .............................. 551,549 (6,158) 545,391
---------- --------- ----------
Total Liabilities and Stockholders' Equity ............ $2,390,014 $ 43,842 $2,433,856
========== ========= ==========
(Continued on following page)
1
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) The Heritage Acquisition column reflects the assets and liabilities acquired
in connection with the $630,000 purchase of Heritage less the $60,000
divestiture of the Heritage television station KOKH in Oklahoma City,
Oklahoma, which is required pursuant to the Heritage Acquisition Agreements
and with respect to which the Company has entered into a letter of intent.
The Heritage Acquisition is subject to a number of conditions customary for
acquisitions of broadcasting properties. Total acquired intangibles are
calculated as follows:
HERITAGE
HERITAGE KOKH ACQUISITION
---------- ---------- -----------
Purchase Price .......................................... $630,000
Add:
Liabilities acquired--
Current portion of program contracts payable ......... $ 1,461 $ (381) 1,080
Long-term portion of program contracts payable ...... 1,761 (603) 1,158
Less:
Assets acquired--
Current portion of program contract costs ............ 2,140 (870) 1,270
Deferred barter costs .............................. 2,278 (77) 2,201
Program contract costs, less current portion ......... 1,075 (813) 262
Property and equipment .............................. 28,387 (5,721) 22,666
Sale of KOKH ....................................... 60,000
--------
Acquired intangibles ................................. $545,839
========
(b) To reflect the proceeds of the Offering, net of $3,600 of underwriting
discounts and commissions and estimated expenses and the application of a
portion of the net proceeds therefrom to complete the Tender Offer.
(c) To record the increase in cash and cash equivalents resulting from the net
proceeds of the Offering after giving effect to the Tender Offer as follows:
Offering proceeds ....................................... $ 150,000
Underwriting discounts, commissions and estimated expenses (3,600)
Tender Offer Expenses .................................... (346)
Tender Offer ............................................. (108,300)
---------
Pro forma adjustment .................................... $ 37,754
=========
(d) To record underwriting discounts and commissions and estimated expenses and
the deferred tax asset related to the Offering net of the write-off of the
deferred financing costs related to the 1993 Notes.
(e) To reflect the incurrence of $507,000 of borrowings under the Bank Credit
Agreement in connection with the Heritage Acquisition.
(f) To reflect the increase in indebtedness resulting from the Offering after
giving effect to the Tender Offer as follows:
Indebtedness incurred ...... $ 150,000
Indebtedness repaid ......... (100,000)
----------
Pro forma adjustment ...... $ 50,000
==========
(g) To reflect the extraordinary loss of $6,158, net of the tax effect, related
to the Tender Offer and the write-off of the deferred financing costs
related to the 1993 Notes.
2
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
CONSOLIDATED FLINT-
HISTORICAL TV(A) SUPERIOR(B) KSMO(C)
-------------- -------- ------------- ---------
REVENUES:
Station broadcast revenues, net of agency commis-
sions $ 346,459 $1,012 $4,431 $7,694
Revenues realized from station barter arrange-
ments 32,029 2,321
--------- ------ ------ ------
Total revenues .................................... 378,488 1,012 4,431 10,015
--------- ------ ------ ------
OPERATING EXPENSES:
Program and production ........................... 66,652 101 539 1,550
Selling, general and administrative ............... 75,924 345 2,002 2,194
Expenses realized from barter arrangements ......... 25,189 2,276
Amortization of program contract costs and net
realizable value adjustments ..................... 47,797 125 736 601
Amortization of deferred compensation ............ 739
Depreciation and amortization of property and
equipment .......................................... 11,711 4 373 374
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. 58,530 529
Amortization of excess syndicated programming ...... 3,043
---------
Total operating expenses ........................ 289,585 575 4,179 6,995
--------- ------ ------ ------
Broadcast operating income (loss) ............... 88,903 437 252 3,020
--------- ------ ------ ------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense (84,314) (457) (823)
Interest income .................................... 3,136
Subsidiary trust minority interest expense .........
Other income (expense) ........................... 342 19 4 7
--------- ------ ------ ------
Income (loss) before provision (benefit) for
income taxes .................................... 8,067 456 (201) 2,204
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. 6,936
--------- ------ ------ ------
NET INCOME (LOSS) ................................. $ 1,131 $ 456 $ (201) $2,204
========= ====== ====== ======
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS $ 1,131
=========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ........................... $ 0.03
=========
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTAND-
ING 37,381
=========
RIVER CITY(E) 1996
---------------------------- ACQUISITION
WSTR(D) RIVER CITY WSYX WYZZ(F) ADJUSTMENTS
----------- ------------ --------------- --------- ------------------
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 7,488 $ 86,869 $(10,783) $1,838
Revenues realized from station barter arrange-
ments 1,715
-------- --------- -------- ------- ----------
Total revenues .................................... 9,203 86,869 (10,783) 1,838
-------- --------- -------- ------- ----------
OPERATING EXPENSES:
Program and production ........................... 961 10,001 (736) 214
Selling, general and administrative ............... 2,173 39,786 (3,950) 702 $ (3,577)(h)
Expenses realized from barter arrangements ......... 1,715
Amortization of program contract costs and net
realizable value adjustments ..................... 1,011 9,721 (458) 123
Amortization of deferred compensation ............ 194 (j)
Depreciation and amortization of property and
equipment .......................................... 284 6,294 (1,174) 6 (943)(k)
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. 39 14,041 (3,599) 3 4,034 (m)
Amortization of excess syndicated programming ...... -------- --------- -------- ------- ----------
Total operating expenses ........................ 6,183 79,843 (9,917) 1,048 (292)
-------- --------- -------- ------- ----------
Broadcast operating income (loss) ............... 3,020 7,026 (866) 790 292
-------- --------- -------- ------- ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense (1,127) (12,352) (17,409)(q)
Interest income .................................... 15 195 (1,636)(w)
Subsidiary trust minority interest expense .........
Other income (expense) ........................... (149) (8)
-------- --------- -------- ------- ----------
Income (loss) before provision (benefit) for
income taxes .................................... 1,908 (5,280) (874) 790 (18,753)
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. (7,900)(y)
-------- --------- -------- ------- ----------
NET INCOME (LOSS) ................................. $ 1,908 $ (5,280) $ (874) $ 790 $ (10,853)
======== ========= ======== ======= ==========
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ...........................
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTAND-
ING
1996 ACQUISITIONS,
JULY HYTOPS ISSUANCE
HYTOPS DEBT AND JULY
ISSUANCE ISSUANCE DEBT ISSUANCE
----------------- -------------------- -------------------
REVENUES:
Station broadcast revenues, net of agency commis-
sions .............................................. $ 445,008
Revenues realized from station barter arrange-
ments .............................................. 36,065
----------- ------------ ----------
Total revenues .................................... 481,073
----------- ------------ ----------
OPERATING EXPENSES:
Program and production ........................... 79,282
Selling, general and administrative ............... 115,599
Expenses realized from barter arrangements ......... 29,180
Amortization of program contract costs and net
realizable value adjustments ..................... 59,656
Amortization of deferred compensation ............ 933
Depreciation and amortization of property and
equipment .......................................... 16,929
Amortization of acquired intangible broadcasting
assets, non-compete and consulting agreements
and other assets ................................. $ 500 (n) $ 450 (o) 74,527
Amortization of excess syndicated programming ...... 3,043
----------- ------------ ----------
Total operating expenses ........................ 500 450 379,149
----------- ------------ ----------
Broadcast operating income (loss) ............... (500) (450) 101,924
----------- ------------ ----------
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense 11,820 (r) (18,000) (s) (122,662)
Interest income .................................... 1,710
Subsidiary trust minority interest expense ......... (23,250)(x) (23,250)
Other income (expense) ........................... 215
----------- ------------ ----------
Income (loss) before provision (benefit) for
income taxes .................................... (11,930) (18,450) (42,063)
PROVISION (BENEFIT) FOR INCOME
TAXES ............................................. (4,772)(y) (7,380)(y) (13,116)
----------- ------------ ----------
NET INCOME (LOSS) ................................. $ (7,158) $ (11,070) $ (28,947)
=========== ============ ==========
NET INCOME (LOSS) AVAILABLE TO COM-
MON STOCKHOLDERS
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ...........................
WEIGHTED AVERAGE COMMON AND COM-
MON EQUIVALENT SHARES OUTSTAND-
ING
(Continued on following page)
3
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1996 ACQUISITIONS, COMMON
HYTOPS ISSUANCE STOCK OFFERING
AND JULY AND PREFERRED
DEBT ISSUANCE STOCK OFFERING
-------------------- ----------------
REVENUES:
Station broadcast revenues, net of agency commissions .................. $ 445,008
Revenues realized from station barter arrangements ..................... 36,065
---------- ----------
Total revenues ...................................................... 481,073 --
---------- ----------
OPERATING EXPENSES:
Program and production ................................................ 79,282
Selling, general and administrative .................................... 115,599
Expenses realized from barter arrangements ........................... 29,180
Amortization of program contract costs and net realizable value adjust-
ments 59,656
Amortization of deferred compensation ................................. 933
Depreciation and amortization of property and equipment ............... 16,929
Amortization of acquired intangible broadcasting assets, non-compete and
consulting agreements and other assets ................................. 74,527
Amortization of excess syndicated programming ........................ 3,043
---------- ----------
Total operating expenses ............................................. 379,149 --
---------- ----------
Broadcast operating income (loss) .................................... 101,924 --
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ..................... (122,662) 21,769 (t)
Gain on sale of station ................................................ --
Interest income ...................................................... 1,710
Subsidiary trust distributions ....................................... (23,250)
Other income (expense) ................................................ 215
---------- ----------
Income (loss) before provision (benefit) for income taxes ............ (42,063) 21,769
PROVISION (BENEFIT) FOR INCOME TAXES .................................... (13,116) 8,708 (y)
---------- ----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........................... (28,947) 13,061
EXTRAORDINARY ITEM. ................................................... -- --
---------- ----------
NET INCOME (LOSS) ...................................................... $ (28,947) $ 13,061
========== ==========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVA-
LENT SHARE:
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ...........................
EXTRAORDINARY ITEM ......................................................
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING ...................................................
1996 ACQUISITIONS,
HYTOPS ISSUANCE,
JULY DEBT
ISSUANCE, HERITAGE(g)
COMMON STOCK --------------------------
OFFERING AND
PREFERRED STOCK HERITAGE
OFFERING ACQUISITION KOKH
-------------------- -------------------------
REVENUES:
Station broadcast revenues, net of agency commissions .................. $ 445,008 $ 95,302 $ (7,953)
Revenues realized from station barter arrangements ..................... 36,065 4,292 (178)
----------- ---------- --------
Total revenues ...................................................... 481,073 99,594 (8,131)
----------- ---------- --------
OPERATING EXPENSES:
Program and production ................................................ 79,282 20,089 (1,871)
Selling, general and administrative .................................... 115,599 31,916 (1,722)
Expenses realized from barter arrangements ........................... 29,180 3,478 (70)
Amortization of program contract costs and net realizable value adjust-
ments 59,656 3,165 (1,208)
Amortization of deferred compensation ................................. 933 -- --
Depreciation and amortization of property and equipment ............... 16,929 5,472 (1,022)
Amortization of acquired intangible broadcasting assets, non-compete and
consulting agreements and other assets ................................. 74,527 8,460 (367)
Amortization of excess syndicated programming ........................ 3,043 -- --
----------- ---------- --------
Total operating expenses ............................................. 379,149 72,580 (6,260)
----------- ---------- --------
Broadcast operating income (loss) .................................... 101,924 27,014 (1,871)
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ..................... (100,893) (17,949) 1,025
Gain on sale of station ................................................ -- 6,031 --
Interest income ...................................................... 1,710 -- --
Subsidiary trust distributions ....................................... (23,250) -- --
Other income (expense) ................................................ 215 (203) --
----------- ---------- --------
Income (loss) before provision (benefit) for income taxes ............ (20,294) 14,893 (846)
PROVISION (BENEFIT) FOR INCOME TAXES .................................... (4,408) 7,853 (466)
----------- ---------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........................... (15,886) 7,040 (380)
EXTRAORDINARY ITEM. ................................................... -- -- --
----------- ---------- --------
NET INCOME (LOSS) ...................................................... $ (15,886) $ 7,040 $ (380)
=========== ========== ========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS ...................... $ (26,236)
===========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVA-
LENT SHARE:
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........................... $ (0.37)
===========
EXTRAORDINARY ITEM ...................................................... $ --
===========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS ...................... $ (0.60)
===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING ................................................... 43,405 (aa)
===========
1996 ACQUISITIONS,
HYTOPS ISSUANCE,
JULY DEBT
ISSUANCE,
COMMON STOCK
OFFERING,
PREFERRED STOCK OFFERING
HERITAGE OFFERING AND THE, AND
ACQUISITION HERITAGE TENDER
ADJUSTMENTS ACQUISITION OFFER
----------------- -------------------- -----------------
REVENUES:
Station broadcast revenues, net of agency commissions .................. $ 532,357
Revenues realized from station barter arrangements ..................... 40,179
----------- ---------- ----------
Total revenues ...................................................... -- 572,536 --
----------- ---------- ----------
OPERATING EXPENSES:
Program and production ................................................ 97,500
Selling, general and administrative .................................... (1,808)(i) 143,985
Expenses realized from barter arrangements ........................... 32,588
Amortization of program contract costs and net realizable value adjust-
ments .................................................................. 61,613
Amortization of deferred compensation ................................. 933
Depreciation and amortization of property and equipment ............... (900)(l) 20,479
Amortization of acquired intangible broadcasting assets, non-compete and
consulting agreements and other assets ................................. 9,531 (p) 92,151
Amortization of excess syndicated programming ........................ 3,043
----------- ---------- ----------
Total operating expenses ............................................. 6,823 452,292 --
----------- ---------- ----------
Broadcast operating income (loss) .................................... (6,823) 120,244 --
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ..................... (17,776)(u) (135,593) (3,776)(2)
Gain on sale of station ................................................ 6,031
Interest income ...................................................... 1,710
Subsidiary trust distributions ....................................... (23,250)
Other income (expense) ................................................ 12
----------- ---------- ----------
Income (loss) before provision (benefit) for income taxes ............ (24,599) (30,846) (3,776)
PROVISION (BENEFIT) FOR INCOME TAXES .................................... (9,840)(y) (6,861) (1,560)(4)
----------- ---------- ----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........................... (14,759) (23,985) (2,216)
EXTRAORDINARY ITEM. ................................................... -- -- (6,444)(2)
----------- ---------- ----------
NET INCOME (LOSS) ...................................................... $ (14,759) $ (23,985) $ (8,660)
=========== ========== ==========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ (34,335)
==========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVA-
LENT SHARE:
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........................... $ (0.55)
==========
EXTRAORDINARY ITEM ...................................................... $ --
==========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ (0.79)
==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING ................................................... 43,405
==========
1996 ACQUISITIONS,
HYTOPS ISSUANCE,
JULY DEBT
ISSUANCE,
COMMON STOCK
OFFERING,
PREFERRED STOCK
OFFERING,
HERITAGE
ACQUISITION,
OFFERING,
AND TENDER OFFER,
-------------------
REVENUES:
Station broadcast revenues, net of agency commissions .................. $ 532,357
Revenues realized from station barter arrangements ..................... 40,179
----------
Total revenues ...................................................... 572,536
----------
OPERATING EXPENSES:
Program and production ................................................ 97,500
Selling, general and administrative .................................... 143,985
Expenses realized from barter arrangements ........................... 32,588
Amortization of program contract costs and net realizable value adjust-
ments .................................................................. 61,613
Amortization of deferred compensation ................................. 933
Depreciation and amortization of property and equipment ............... 20,479
Amortization of acquired intangible broadcasting assets, non-compete and
consulting agreements and other assets ................................. 92,151
Amortization of excess syndicated programming ........................ 3,043
----------
Total operating expenses ............................................. 452,292
----------
Broadcast operating income (loss) .................................... 120,244
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ..................... (139,369)
Gain on sale of station ................................................ 6,031
Interest income ...................................................... 1,710
Subsidiary trust distributions ....................................... (23,250)
Other income (expense) ................................................ 12
----------
Income (loss) before provision (benefit) for income taxes ............ (34,622)
PROVISION (BENEFIT) FOR INCOME TAXES .................................... (8,421)
----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........................... (26,201)
EXTRAORDINARY ITEM. ................................................... (6,444)
----------
NET INCOME (LOSS) ...................................................... $ (32,645)
==========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS ...................... (42,995)
==========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVA-
LENT SHARE:
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........................... $ (0.60)
==========
EXTRAORDINARY ITEM ...................................................... $ (0.15)
==========
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS ...................... $ (0.99)
==========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING ................................................... 43,405
==========
4
SINCLAIR BROADCAST GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
JULY
CONSOLIDATED HYTOPS DEBT
HISTORICAL ISSUANCE ISSUANCE
-------------- --------------------- ---------------
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 333,028
Revenues realized from station barter arrangements ......... 31,289
--------- ----------- -----------
Total revenues .......................................... 364,317 -- --
========= =========== ===========
OPERATING EXPENSES:
Program and production .................................... 68,776
Selling, general and administrative ........................ 78,637
Expenses realized from barter arrangements ............... 26,279
Amortization of program contract costs and net realizable
value adjustments ........................................ 47,069
Amortization of deferred compensation ..................... 350
Depreciation and amortization of property and equipment .... 12,786
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets ..... 51,717 88 (dd) $ 225 (ee)
--------- ----------- -----------
Total operating expenses ................................. 285,614 88 225
--------- ----------- -----------
Broadcast operating income (loss) ........................ 78,703 (88) (225)
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ......... (77,342) 2,894 (gg) (9,000) (hh)
Gain on Sale of Station .................................... --
Interest income .......................................... 1,364
Subsidiary trust distributions ........................... (12,852) (4,618) (ll)
Other income ............................................. 36
--------- ----------- -----------
Income (loss) before provision (benefit) for income taxes (10,091) (1,812) (9,225)
PROVISION (BENEFIT) FOR INCOME TAXES ........................ (4,170) (725) (y) (3,690) (y)
--------- ----------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ...................................................... (5,921) (1,087) (5,535)
EXTRAORDINARY ITEM .......................................... -- -- --
--------- ----------- -----------
NET INCOME (LOSS) .......................................... $ (5,921) $ (1,087) $ (5,535)
========= =========== ===========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ (6,096)
=========
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON EQUIVALENT SHARE: .................................
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ...................................................... $ (0.15)
=========
EXTRAORDINARY ITEM .......................................... $ --
=========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ (0.16)
=========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 38,929
=========
HYTOPS' ISSUANCE,
JULY DEBT
ISSUANCE, HERITAGE(g)
COMMON STOCK COMMON STOCK -------------------------
OFFERING AND OFFERING AND
PREFERRED STOCK PREFERRED HERITAGE
OFFERING STOCK OFFERING ACQUISITION KOKH
------------------- ------------------ -------------------------
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 333,028 $ 73,049 $ (5,696)
Revenues realized from station barter arrangements ......... 31,289 3,860 (195)
----------- ----------- --------- --------
Total revenues .......................................... -- 364,317 76,909 (5,891)
=========== =========== ========= ========
OPERATING EXPENSES:
Program and production .................................... 68,776 24,578 (1,758)
Selling, general and administrative ........................ 78,637 15,037 (1,137)
Expenses realized from barter arrangements ............... 26,279 3,053 (105)
Amortization of program contract costs and net realizable
value adjustments ........................................ 47,069 1,275 (470)
Amortization of deferred compensation ..................... 350 -- --
Depreciation and amortization of property and equipment .... 12,786 4,238 (678)
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets ... 52,030 6,326 (275)
----------- ----------- --------- --------
Total operating expenses ................................. -- 285,927 54,507 (4,423)
----------- ----------- --------- --------
Broadcast operating income (loss) ........................ -- 78,390 22,402 (1,468)
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ......... 15,420 (ii) (68,028) (13,412) 1,008
Gain on Sale of Station .................................... -- 9,401 --
Interest income .......................................... 1,364 -- --
Subsidiary trust distributions ........................... (17,470) -- --
Other income ............................................. 36 (276) --
----------- ----------- --------- --------
Income (loss) before provision (benefit) for income taxes 15,420 (5,708) 18,115 (460)
PROVISION (BENEFIT) FOR INCOME TAXES ........................ 6,168 (y) (2,417) 9,546 (242)
----------- ----------- --------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ...................................................... 9,252 (3,291) 8,569 (218)
EXTRAORDINARY ITEM .......................................... -- -- -- --
----------- ----------- --------- --------
NET INCOME (LOSS) .......................................... $ 9,252 $ (3,291) $ 8,569 $ (218)
=========== =========== ========= ========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ (11,054)
===========
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON EQUIVALENT SHARE: .................................
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ...................................................... $ (0.08)
===========
EXTRAORDINARY ITEM .......................................... $ --
===========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ (0.26)
===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 43,274 (aa)
===========
HYTOPS ISSUANCE,
JULY DEBT
ISSUANCE,
COMMON STOCK
OFFERING,
PREFERRED STOCK
OFFERING
HERITAGE AND TENDER OFFER
ACQUISITION HERITAGE AND
ADJUSTMENTS ACQUISITION OFFERING
--------------------- ------------------ -----------------
REVENUES:
Station broadcast revenues, net of agency commissions ...... $ 400,381
Revenues realized from station barter arrangements ......... 34,954
------------ --------- -----------
Total revenues .......................................... -- 435,335 --
============ ========= ===========
OPERATING EXPENSES:
Program and production .................................... 91,596
Selling, general and administrative ........................ (1,412) (bb) 91,125
Expenses realized from barter arrangements ............... 29,227
Amortization of program contract costs and net realizable
value adjustments ........................................ 47,874
Amortization of deferred compensation ..................... 350
Depreciation and amortization of property and equipment .... (897) (cc) 15,449
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets ... 7,167 (ff) 65,248
------------ --------- -----------
Total operating expenses ................................. 4,858 340,869 --
------------ --------- -----------
Broadcast operating income (loss) ........................ (4,858) 94,466 --
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ......... (13,621) (jj) (94,053) (2,832) (kk)
Gain on Sale of Station .................................... 9,401
Interest income .......................................... 1,364
Subsidiary trust distributions ........................... (17,470)
Other income ............................................. (240)
------------ --------- -----------
Income (loss) before provision (benefit) for income taxes (18,479) (6,532) (2,832)
PROVISION (BENEFIT) FOR INCOME TAXES ........................ (7,392) (y) (505) (1,170)
------------ --------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ...................................................... (11,087) (6,027) (1,662)
EXTRAORDINARY ITEM .......................................... -- -- (6,280) (z)
------------ --------- -----------
NET INCOME (LOSS) .......................................... $ (11,087) $ (6,027) $ (7,942)
============ ========= ===========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ (13,790)
=========
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON EQUIVALENT SHARE: .................................
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ...................................................... $ (0.14)
=========
EXTRAORDINARY ITEM .......................................... $ --
=========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ (0.32)
=========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 43,274
=========
HYTOPS ISSUANCE,
JULY DEBT
ISSUANCE,
COMMON STOCK
OFFERING,
PREFERRED STOCK
OFFERING
HERITAGE
ACQUISITION,
TENDER,
OFFER AND
OFFERING
-----------------
REVENUES:
Station broadcast revenues, net of agency commissions ...... 400,381
Revenues realized from station barter arrangements ......... 34,954
---------
Total revenues .......................................... 435,335
=========
OPERATING EXPENSES:
Program and production .................................... 91,596
Selling, general and administrative ........................ 91,125
Expenses realized from barter arrangements ............... 29,227
Amortization of program contract costs and net realizable
value adjustments ........................................ 47,874
Amortization of deferred compensation ..................... 350
Depreciation and amortization of property and equipment .... 15,449
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other assets ... 65,248
---------
Total operating expenses ................................. 340,869
---------
Broadcast operating income (loss) ........................ 94,466
OTHER INCOME (EXPENSE):
Interest and amortization of debt discount expense ......... (96,885)
Gain on Sale of Station .................................... 9,401
Interest income .......................................... 1,364
Subsidiary trust distributions ........................... (17,470)
Other income ............................................. (240)
---------
Income (loss) before provision (benefit) for income taxes (9,364)
PROVISION (BENEFIT) FOR INCOME TAXES ........................ (1,675)
---------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ...................................................... (7,689)
EXTRAORDINARY ITEM .......................................... (6,280)
---------
NET INCOME (LOSS) .......................................... $ (13,969)
=========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ (21,732)
=========
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON EQUIVALENT SHARE: .................................
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM ...................................................... $ (0.18)
=========
EXTRAORDINARY ITEM .......................................... $ (0.15)
=========
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ (0.50)
=========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .............................. 43,274
=========
5
SINCLAIR BROADCAST GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Flint-TV column reflects the results of operations for WSMH for the
period from January 1, 1996 to February 28, 1996, the date the acquisition
of Flint-TV was consummated.
(b) The Superior column reflects the results of operations for Superior for the
period from January 1, 1996 to May 7, 1996, the date the acquisition of
Superior was consummated.
(c) The KSMO column reflects the results of operations for the period from
January 1, 1996 to June 30, 1996 as the transaction was consummated in July
1996.
(d) The WSTR column reflects the results of operations for the period from
January 1, 1996 to July 31, 1996 as the transaction was consummated in
August 1996.
(e) The River City column reflects the results of operations for River City
(including KRRT, Inc.) for the period from January 1, 1996 to May 31, 1996,
the date the River City acquisition was consummated. The WSYX column removes
the results of WSYX from the results of River City for the period as the
Company has not yet acquired WSYX. See "Business of Sinclair -- Broadcasting
Acquisition Strategy" contained in the Company's Current Report on Form 8-K
filed on October 8, 1997.
(f) The WYZZ column reflects the results of operations for the period from
January 1, 1996 to June 30, 1996 as the transaction was consummated in July
1996.
(g) The Heritage Acquisition column reflects the Pro Forma Consolidated
Statement of Operations for the period from January 1, 1996 to December 31,
1996 and the Pro Forma Consolidated Statement of Operations for the period
from January 1, 1997 to September 30, 1997. The KOKH column removes the
results of KOKH from the results of Heritage for both periods to reflect the
sale of KOKH, which is required pursuant to the Heritage Acquisition
Agreements and with respect to which the Company has entered into a letter
of intent. See "Business of Sinclair -- 1997 Acquisitions" contained in the
Company's Current Report on Form 8-K filed on October 8, 1997.
(h) To adjust River City operating expenses for non-recurring LMA payments made
to KRRT, Inc. for KRRT, Inc. debt service and to adjust River City and
Superior operating expenses for employment contracts and other corporate
overhead expenses not assumed at the time of the 1996 Acquisitions.
(i) To adjust Heritage operating expenses for corporate overhead expenses which
the Company does not expect to incur upon consummation of the Heritage
Acquisition on a going-forward basis.
(j) To record compensation expense related to options granted under the
Company's Long-Term Incentive Plan:
YEAR ENDED
DECEMBER 31,
1996
-------------
Compensation expense related to the Long-Term Incentive
Plan on a pro forma basis ........................... $ 933
Less: Compensation expense recorded by the Company re-
lated to the Long-Term Incentive Plan (739)
------
Pro forma adjustment ................................. $ 194
======
(k) To record depreciation expense related to acquired tangible assets and
eliminate depreciation expense recorded by Flint-TV, Superior, KSMO, WSTR,
River City and WYZZ from the period of January 1, 1996 through the date of
acquisition. Tangible assets are to be depreciated over lives ranging from
5 to 29.5 years, calculated as follows:
YEAR ENDED
DECEMBER 31, 1996
---------------------------------
FLINT-TV SUPERIOR KSMO
---------- ---------- -----------
Depreciation expense on acquired tangible assets $ 32 $ 315 $ 240
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ...... (4) (373) (374)
------ ------ -------
Pro forma adjustment ........................... $ 28 $ (58) $ (134)
===== ====== =======
WSTR RIVER CITY WYZZ TOTAL
--------- ------------ ----------- -----------
Depreciation expense on acquired tangible assets $ 507 $ 3,965 $ 159 $ 5,218
Less: Depreciation expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ...... (284) (5,120) (6) (6,161)
------ --------- ------- --------
Pro forma adjustment ........................... $ 223 $ (1,155) $ 153 $ (943)
====== ========= ====== ========
(l) To record depreciation expense related to acquired tangible assets of $3,550
and eliminate depreciation expense of $4,450 recorded by Heritage. Tangible
assets are to be depreciated over lives ranging from 5 to 29.5 years.
(m) To record amortization expense related to acquired intangible assets and
deferred financing costs and eliminate amortization expense recorded by
Flint-TV, Superior, KSMO, WSTR, River City and WYZZ from the period of
January 1, 1996 through date of acquisition. Intangible assets are to be
amortized over lives ranging from 1 to 40 years, calculated as follows:
YEAR ENDED
DECEMBER 31, 1996
-----------------------------
FLINT-TV SUPERIOR KSMO
---------- ---------- -------
Amortization expense on acquired intangible assets $ 167 $ 827 $ 180
Deferred financing costs ...........................
Less: Amortization expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... -- (529) --
----- ------ -----
Pro forma adjustment .............................. $ 167 $ 298 $ 180
===== ====== =====
WSTR RIVER CITY WYZZ TOTAL
--------- ------------ ---------- ------------
Amortization expense on acquired intangible assets $ 285 $ 12,060 $ 99 $ 13,618
Deferred financing costs ........................... 1,429 1,429
Less: Amortization expense recorded by Flint-TV,
Superior, KSMO, WSTR, River City and WYZZ ......... (39) (10,442) (3) (11,013)
----- --------- ----- ---------
Pro forma adjustment .............................. $ 246 $ 3,047 $ 96 $ 4,034
===== ========= ===== =========
6
(n) To record amortization expense on other assets that relate to the HYTOPS
Issuance for one year ($6,000 over 12 years).
(o) To record amortization expense on other assets that relate to the July Debt
Issuance for one year ($4,500 over 10 years).
(p) To record amortization expense related to acquired intangible assets of
$17,624 and eliminate amortization expense of $8,093 recorded by Heritage.
Intangible assets are to be amortized over lives ranging from 1 to 40 years.
(q) To record interest expense for the year ended December 31, 1996 on
acquisition financing relating to Superior of $59,850 (under the Bank Credit
Agreement at 8.0% for four months), KSMO and WSTR of $10,425 and $7,881,
respectively (both under the Bank Credit Agreement at 8.0% for six months),
River City (including KRRT) of $868,300 (under the Bank Credit Agreement at
8.0% for five months) and of $851 for hedging agreements related to the
River City financing and WYZZ of $20,194 (under the Bank Credit Agreement at
8.0% for six months) and eliminate interest expense recorded. No interest
expense has been recorded for Flint-TV as it has been assumed that the
proceeds from the issuance of $300,000,000 in principal amount of the
Company's 10% Senior Subordinated Notes due 2005 (the "1995 Notes") issued
on August 23, 1995 were used to purchase Flint-TV.
YEAR ENDED
DECEMBER 31, 1996
------------------------------------------------------------------------------
SUPERIOR KSMO WSTR RIVER CITY WYZZ TOTAL
------------- ----------- ----------- ---------- ------- ---------
Interest expense adjustment as noted above ...... $ (1,596) $ (417) $ (315) $ (29,032) $ (808) $ (32,168)
Less: Interest expense recorded by Superior, KSMO,
WSTR, River City and WYZZ ..................... 457 823 1,127 12,352 -- 14,759
--------- ------- ------- ---------- ------- ---------
Pro forma adjustment ........................... $ (1,139) $ 406 $ 812 $ (16,680) $ (808) $ (17,409)
========= ======= ======= ========= ======= =========
(r) To record the net interest expense reduction for 1996 related to application
of the HYTOPS Issuance proceeds to the outstanding balance under the
revolving credit facility under the Bank Credit Agreement offset by an
increase in commitment fees for the available but unused portion of the
revolving credit facility for the year ended December 31, 1996.
Interest on adjusted borrowing on the revolving credit facility .................. $ 12,600
Commitment fee on available but unused borrowings of $250,000 of revolving credit
facility at 1/2 of 1% for 12 months ............................................. (1,250)
Commitment fee on available borrowings recorded by the Company .................. 470
--------
Pro forma adjustment ............................................................ $ 11,820
========
(s) To record interest expense on the 1997 Notes for one year ($200,000 at 9%).
(t) To record the interest expense reduction of $23,055 related to application
of the net proceeds of the Common Stock Offering and the Preferred Stock
Offering to the outstanding balance under the revolving credit facility
offset by an increase in commitment fees of $1,286 for the available but
unused portion of revolving credit facility.
(u) To record interest expense on acquisition financing of $507,000 (under the
Bank Credit Agreement at 6.72%) and $630 of commitment fees for the
available but unused portion of the revolving credit facility and to
eliminate interest expense of $16,924 recorded by Heritage.
(v) To record interest expense including deferred financing costs related to the
Offering and to eliminate interest expense including deferred financing
costs related the Tender Offer.
(w) To eliminate interest income for the year ended December 31, 1996 on
proceeds from the sale of the 1995 Notes due to assumed utilization of
excess cash for the following acquisitions: Flint-TV, KSMO and WSTR and WYZZ
of $34,400 (with a commercial bank at 5.7% for two months), $10,425 and
$7,881 (both with a commercial bank at 5.7% for six months) and $20,194
(with a commercial bank at 5.7% for six months).
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------------------------------------------
FLINT-TV KSMO WSTR RIVER CITY WYZZ TOTAL
---------- ----------- ----------- ------------ ----------- -------------
Interest income adjustment as noted above ...... $ (327) $ (297) $ (226) $ -- $ (576) $ (1,426)
Less: Interest income recorded by Flint-TV, KSMO,
WSTR, River City and WYZZ ..................... -- -- (15) (195) -- (210)
------- ------- ------- ------- ------- ---------
Pro forma adjustment ........................... $ (327) $ (297) $ (241) $ (195) $ (576) $ (1,636)
======= ======= ======= ======= ======= =========
(x) To record subsidiary trust minority interest expense for the year ended
December 31, 1996 ($200,000 aggregate liquidation value of HYTOPS).
(y) To record tax provision (benefit) at the applicable tax rates.
(z) To record the extraordinary loss, net of the tax effect, related to the
Tender Offer and the write-off of the deferred financing costs related to
the 1993 Notes.
7
(aa) Weighted average shares outstanding on a pro forma basis assumes that
1,150,000 shares of Series B Preferred Stock were converted to 4,181,818
shares of Class A Common Stock and the Company's Incentive Stock Options
and Long-Term Incentive Plan Options were outstanding as of the beginning
of the period, and that the 4,345,000 shares of Class A Common Stock issued
in the Common Stock Offering converted to Class A Common Stock were
outstanding as of the beginning of the period.
(bb) To adjust Heritage operating expenses for corporate overhead expenses which
the Company does not expect to incur upon its consummation of the Heritage
Acquisition on a going-forward basis.
(cc) To record depreciation expenses related to acquired tangible assets of
$2,663 and eliminate depreciation expense of $3,560 recorded by Heritage.
Tangible assets are to be depreciated over lives ranging from 5 to 29.5
years.
(dd) To record amortization expense on other assets that resulted from the
HYTOPS Issuance ($6,000 over 12 years).
Amortization expense on other assets ............... $ 250
Amortization expense recorded by the Company ...... (162)
------
Pro forma adjustment .............................. $ 88
======
(ee) To record amortization expense on other assets for six months ($4,500 over
10 years).
(ff) To record amortization expense related to acquired intangible assets of
$13,218 and eliminate amortization expense of $6,051 recorded by Heritage.
Intangible assets are to be amortized over lives ranging from 1 to 40
years.
(gg) To record the net interest expense reduction for 1997 related to
application of the HYTOPS Issuance proceeds to the outstanding balance
under the revolving credit facility offset by an increase in commitment
fees for the available but unused portion of the revolving credit facility.
Interest on adjusted borrowing on the revolving credit facility .................. $3,235
Commitment fee on available but unused borrowings of $250,000 of revolving credit
facility at 1/2 of 1% for six months .......................................... (625)
Commitment fee on available borrowings recorded by the Company .................. 284
------
Pro forma adjustment ............................................................ $2,894
======
(hh) To record interest expense on the 1997 Notes for six months ($200,000 at
9%).
(ii) To record the interest expense reduction of $16,331 related to application
of the net proceeds of the Common Stock Offering and the Preferred Stock
Offering to the outstanding balance under the revolving credit facility
offset by an increase in commitment fees of $911 for the available but
unused portion of the revolving credit facility.
(jj) To record interest expense on acquisition financing of $507,000 (under the
Bank Credit Agreement at 6.72%) and $473 of commitment fees for the
available but unused portion of the revolving credit facility and eliminate
interest expense of $12,404 recorded by Heritage for the nine months ended.
(kk) To record interest expense including deferred financing costs related to
the Offering and to eliminate interest expense including deferred financing
costs related to the Tender Offer for the nine months ended.
(ll) To record subsidiary trust minority interest expense ($200,000 aggregate
liquidation value HYTOPS).
Subsidiary trust minority interest expense for six months ........................ $ (11,625)
Subsidiary trust minority interest expense recorded by the Company for three months 7,007
---------
Pro forma adjustment ............................................................ $ (4,618)
=========
8
HERITAGE MEDIA SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
CONTENTS
PAGE
-----
Report of Independent Public Accountants ............................................. F-2
Consolidated Financial Statements
Consolidated Balance Sheet ......................................................... F-3
Consolidated Statement of Operations ................................................ F-4
Consolidated Statement of Stockholders' Equity .................................... F-5
Consolidated Statement of Cash Flows ................................................ F-6
Notes to Consolidated Financial Statements .......................................... F-7
Unaudited Financial Statements
Unaudited Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997. F-14
Unaudited Consolidated Statements of Operations for the Nine Months Ended September
30, 1996 and 1997 ............................................................... F-15
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1996 and 1997 ............................................................... F-16
Notes to Financial Statements ...................................................... F-17
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Heritage
Media Services, Inc. -- Broadcasting Segment as of December 31, 1996, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Heritage
Media Services, Inc. -- Broadcasting Segment, as of December 31, 1996, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Baltimore, Maryland,
July 30, 1997
F-2
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................................................... $ 2,151
Accounts receivable, net of allowance for doubtful accounts of $1,348 ......... 20,036
Current portion of program contract costs .................................... 1,006
Prepaid expenses and other current assets .................................... 138
Deferred barter costs ......................................................... 1,911
Deferred tax asset ............................................................ 215
---------
Total current assets ......................................................... 25,457
PROGRAM CONTRACT COSTS, less current portion .................................... 1,867
PROPERTY AND EQUIPMENT, net ................................................... 30,005
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net .................................... 163,626
OTHER ASSETS .................................................................. 821
---------
Total Assets .................................................................. $ 221,776
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................... $ 148
Accrued liabilities ............................................................ 5,251
Deferred revenues ............................................................ 428
Deferred barter revenues ...................................................... 1,746
Current portion of program contracts payable ................................. 2,079
---------
Total current liabilities ................................................... 9,652
PROGRAM CONTRACTS PAYABLE ...................................................... 1,534
DUE TO AFFILIATE ............................................................... 178,393
DEFERRED TAX LIABILITY ......................................................... 563
OTHER LONG-TERM LIABILITIES ................................................... 152
---------
Total Liabilities ............................................................ 190,294
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 3,576,000 shares authorized and 2,591,586 shares
issued and outstanding ...................................................... 2,592
Common stock, no par value, 300 shares authorized and 200 shares issued and out-
standing ..................................................................... --
Additional paid-in capital ................................................... 66,174
Accumulated deficit ............................................................ (37,284)
---------
Total Stockholders' Equity ................................................... 31,482
---------
Total Liabilities and Stockholders' Equity ................................. $ 221,776
=========
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
REVENUES:
Station broadcast revenues, net of agency commissions of $16,727 ............ $ 95,302
Revenues realized from station barter arrangements ........................... 4,292
---------
Total revenue ............................................................ 99,594
---------
OPERATING EXPENSES:
Programming and production ................................................... 20,089
Selling, general and administrative .......................................... 31,916
Expenses realized from station barter arrangements ........................... 3,478
Amortization of program contract costs and net realizable value adjustments .. 3,165
Depreciation and amortization of property and equipment ..................... 5,472
Amortization of acquired intangible broadcasting assets ..................... 8,460
---------
Total operating expenses ................................................... 72,580
---------
Broadcast operating income ................................................ 27,014
---------
OTHER INCOME (EXPENSE):
Interest expense ............................................................ (17,949)
Gain on sale of assets ...................................................... 6,031
Other expense ............................................................... (203)
---------
Income before income tax provision ....................................... 14,893
INCOME TAX PROVISION ......................................................... (7,853)
---------
Net income .................................................................. $ 7,040
=========
The accompanying notes are an integral part of this consolidated statement.
F-4
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- -------- ----------- ------------- --------------
BALANCE
December 31, 1995 .................. 2,592 $2,592 $14,368 $ (13,804) $ 3,156
Parent capital contributions ...... -- -- 43,024 -- 43,024
Parent non-cash contribution ...... -- -- 8,782 -- 8,782
Dividends to parent ............... -- -- -- (30,520) (30,520)
Net income ........................ -- -- -- 7,040 7,040
----- ------ ------- --------- ---------
BALANCE,
December 31, 1996 .................. 2,592 $2,592 $66,174 $ (37,284) $ 31,482
===== ====== ======= ========= =========
The accompanying notes are an integral part of this consolidated statement.
F-5
HERITAGE MEDIA SERVICES, INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 7,040
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization of property and equipment ..................... 5,472
Amortization:
Acquired intangible broadcasting assets .................................... 8,460
Program contract costs and net realizable adjustments ........................ 3,165
Deferred finance costs ...................................................... 316
Gain on sale of assets ...................................................... (6,031)
Amortization of deferred compensation ....................................... 135
Changes in assets and liabilities, net of effects of acquisitions: ............
Increase in accounts receivable, net .......................................... (1,681)
Increase in other assets ...................................................... (147)
Decrease in prepaid expenses ................................................ 810
Increase in deferred tax asset ................................................ (77)
Decrease in accounts payable and accrued liabilities ........................ (3,486)
Net effect of change in deferred barter revenues and deferred barter costs ... (53)
Increase in deferred revenues ................................................ 151
Decrease in deferred tax liability .......................................... (24)
Decrease in other long-term liabilities ....................................... (44)
Payments on program contracts payable .......................................... (2,565)
--------
Net cash flows from operating activities ................................. 11,441
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment .......................................... (6,938)
Proceeds from sale of assets ................................................... 13,759
Payments for acquisitions ...................................................... (9,384)
--------
Net cash flows from investing activities ................................. (2,563)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to parent ............................................................ (30,520)
Decrease in due to affiliate ................................................... (21,030)
Capital contributions made by parent .......................................... 43,024
--------
Net cash flows from financing activities ................................. (8,526)
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................................... 352
CASH AND CASH EQUIVALENTS, beginning of period ................................. 1,799
--------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 2,151
========
SUPPLEMENTAL DISCLOSURE:
Program rights acquired ......................................................... $ 3,674
========
The accompanying notes are an integral part of this consolidated statement.
F-6
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Heritage Media Services, Inc. ("HMSI"), an Iowa corporation operates in two
segments - Marketing Services and Broadcasting. The parent company of HMSI is
Heritage Media Corporation ("HMC"), a Delaware corporation. The accompanying
consolidated financial statements include the accounts of the television and
radio operations, which are collectively referred to hereafter as "the Company,
the Companies or the Broadcasting Segment." The Company owns and operates
television and radio stations throughout the United States. Also included in the
accompanying consolidated financial statements are the results of operations of
WFGX-TV Channel 35 in Ft. Walton Beach, Florida, pursuant to a Local Marketing
Agreement ("LMA").
Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers and the geographic
diversification of the Company's customer base. The Company performs ongoing
credit evaluations of its customers and believes that adequate allowances for
any uncollectable trade receivables are maintained. At December 31, 1996, no
receivable from any customer exceeded 5% of stockholder's equity, and no
customer accounted for more than 10% of net revenues in 1996.
Acquired Intangible Broadcasting Assets
Acquired intangible broadcasting assets are being amortized over periods of
4 to 40 years. These amounts result from the acquisition of certain television
and radio station license and nonlicense assets (see Note 9). The Company
monitors the individual financial performance of each of the stations and
continually evaluates the realizability of intangible and tangible assets and
the existence of any impairment to its recoverability based on the projected
undiscounted cash flows of the respective stations.
Intangible assets, at cost, as of December 31, 1996, consist of the
following (in thousands):
AMORTIZATION
PERIOD 1996
--------------- ---------
Goodwill, net of accumulated amortization of $48,077 ......... 40 years $135,925
FCC licenses, net of accumulated amortization of $2,612 ...... 14 - 25 years 26,754
Other, net of accumulated amortization of $635 ............... 4 - 25 years 947
--------
$163,626
========
F-7
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded on the straight-line basis over the estimated useful
lives of the assets. Property and equipment at December 31, 1996, are summarized
as follows (in thousands):
USEFUL LIFE 1996
--------------- ------------
Land ................................. -- $ 2,685
Broadcasting equipment ............... 5 - 25 years 41,268
Buildings and improvements ......... 12 - 30 years 7,369
Other equipment ..................... 4 - 8 years 9,904
---------
61,226
Less: Accumulated depreciation ...... (31,221)
---------
$ 30,005
=========
Programming
The Company has 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 sheet 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
charged to operations by the straight-line method over the contract period 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.
Barter Transactions
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights. Network
programming is excluded from these calculations.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred barter
revenues. The deferred barter costs are expensed or capitalized as they are
used, consumed or received. Deferred barter revenues are recognized as the
related advertising is aired.
Other Assets
Debt issuance costs are amortized to interest expense using the effective
interest method over the period of the related debt agreement.
F-8
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Revenues
Broadcast revenues are derived primarily from local, regional and national
advertising and network compensation. Advertising revenues are recognized upon
the airing of commercials, while network revenues are recognized monthly as
earned. Revenues are presented net of advertising agency and national sales
representatives' commissions.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of " on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Initial adoption of this statement, as of January 1, 1996, did not have a
material impact on the Company's financial position or results of operations.
Local Marketing Agreements
The Company generally enters into LMAs and similar arrangements with
stations located in markets in which the Company already owns and operates a
station and, in connection with acquisitions, pending regulatory approval of
transfer of license assets. Under the terms of these agreements, the Company
makes specified periodic payments to the owner-operator in exchange for the
grant to the Company of the right to program and sell advertising on a specified
portion of the station's inventory of broadcast time. Nevertheless, as the
holder of the FCC license, the owner-operator retains full control and
responsibility for the operation of the station, including control over all
programming broadcast on the station.
2. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31, 1996, (in
thousands):
1996
-------
Commissions ........................ $1,449
Payroll and employee benefits ...... 960
Other .............................. 2,842
------
$5,251
======
3. DUE TO AFFILIATE:
The Company has an arrangement with HMSI whereby HMSI will provide certain
management and other services to the Company. The services provided include
consultation and direct management assistance with respect to operations and
strategic planning. The Broadcasting Segment was allocated approximately $2.0
million of corporate overhead expenses for these services.
In order to fund acquisitions and provide operating funds, HMSI entered
into a bank credit agreement. The debt used to finance acquisitions and fund
daily operations of the Broadcasting Segment was recorded by the Broadcasting
Segment as affiliate borrowings in the accompanying consolidated balance sheet.
HMSI allocates interest at a rate of approximately 10.0%, which approximates the
average rate
F-9
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
paid on the borrowings. Associated with the HMSI debt, the Broadcasting Segment
was allocated approximately $.6 million of deferred financing costs. The
deferred financing costs are being amortized over the term of the bank credit
agreement.
4. PROGRAM CONTRACTS PAYABLE:
Future payments required under program contracts payable as of December 31,
1996, are as follows (in thousands):
1997 ....................................... $ 2,079
1998 ....................................... 1,151
1999 ....................................... 324
2000 ....................................... 59
--------
3,613
Less: Current portion ........................ (2,079)
--------
Long-term portion of program contracts payable $ 1,534
========
The Company has estimated the fair value of its program contract payables
and noncancellable commitments at approximately $2.6 million and $0.4 million,
respectively, at December 31, 1996, based on future cash flows discounted at the
Company's current borrowing rate.
Broadcast Program Rights
The Company has entered into contracts for broadcast program rights that
expire at various dates during the next four years. Contracts totaling
approximately $0.5 million relate to programs which are not currently available
for use and, therefore, are not reflected as assets or liabilities in the
accompanying consolidated balance sheet at December 31, 1996.
5. INCOME TAXES:
HMC files a consolidated federal tax return and separate state tax returns
for each of its subsidiaries in certain filing jurisdictions. It is HMC's policy
to pay the federal income tax provision of the Company. The accompanying
financial statements have been prepared in accordance with the separate return
method of FASB 109, whereby the allocation of the federal tax provision due to
HMC is based on what the subsidiary's current and deferred federal tax provision
would have been had the subsidiary filed a federal income tax return outside of
its consolidated group. The Company is not required to reimburse HMC for its
federal tax provision. Accordingly, this amount is recorded as a capital
contribution in the accompanying consolidated financial statements. No federal
deferred tax assets or liabilities are recorded because those amounts are
considered currently paid to or received by HMC. The federal and state tax
provision was calculated based on pretax income, plus or minus permanent
book-to-tax differences, times the statutory tax rate of 40%. The Company had no
alternative minimum tax credit carryforwards as of December 31, 1996. The
effective tax rate of 53% exceeds the statutory tax rate of 40% due to the
effects of non-deductible goodwill.
F-10
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
The provision for income taxes consists of the following as of December 31,
1996 (in thousands):
Current:
Federal ........................ $6,762
State ........................ 1,192
------
7,954
------
Deferred:
Federal ........................ --
State ........................ (101)
------
(101)
------
Provision for income taxes ...... $7,853
======
The following table summarizes the state tax effects of the significant
types of temporary differences between financial reporting basis and tax basis
which were generated during the year ended December 31, 1996.
Deferred Tax Assets:
Bad debt reserve .................. $ 80
Accruals ........................... 135
----
$215
====
Deferred Tax Liability:
Depreciation ..................... $563
----
$563
====
6. EMPLOYEE BENEFIT PLAN:
Company employees are covered by HMC's Retirement Savings Plan (the "Plan")
whereby participants may contribute portions of their annual compensation to the
Plan and certain contributions may be made at the discretion of the Company
based on criteria set forth in the Plan agreement. Participants are generally
100% vested in Company contributions after five years of employment with the
Company. Company expenses under the Plan were not material in 1996.
7. RELATED PARTY TRANSACTIONS:
The Company regularly receives certain advances from HMC which are
evidenced by a subordination agreement. These advances are noninterest-bearing
and subordinated to borrowings under the credit agreements but may be repaid if
such repayment does not result in covenant violations under those agreements.
8. CONTINGENCIES AND OTHER COMMITMENTS:
Leases and Contracts
The Company and its subsidiaries lease certain real property,
transportation and other equipment under noncancellable operating leases
expiring at various dates through 2010. The Company also has long-term
contractual obligations with two major broadcast ratings firms that provide
monthly ratings services and guaranteed store contracts. Rent expense under
theses leases for the year ended December 31, 1996 aggregated approximately $1.6
million.
F-11
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Future minimum payments under the leases are as follows (in thousands):
1997 ..................... $1,287
1998 ..................... 1,167
1999 ..................... 1,097
2000 ..................... 973
2001 and thereafter ...... 4,662
------
$9,186
======
Litigation
The Company is a party to lawsuits which are generally incidental to its
business. Management of the Company does not believe the resolution of such
matters will have a significant effect on its liquidity, financial position or
results of operations.
9. ACQUISITIONS:
In February 1996, the Company acquired WMYU and WWST-FM in Knoxville,
Tennessee, for $6.5 million. Also in February 1996, the Company completed the
sale of KEVN-TV, Rapid City, South Dakota. As a result of this sale, the Company
recognized a gain of $6.0 million.
In March 1996, HMC contributed the stock of KIHT-FM to the Company for $7.2
million. Because HMC and the Company are under common control, the transactions
were accounted for at historical cost in a manner similar to a pooling of
interests. Accordingly, the consolidated financial statements include the assets
and liabilities and results of operations of the contributed subsidiary from the
dates of acquisition by HMC.
The acquisitions discussed above were recognized in the consolidated
financial statements as follows (in thousands):
1996
-----------
Purchase price - cash paid by Parent, net of cash
acquired .................................... $ 9,384
Less: Assets acquired ........................... (3,388)
Add: Liabilities assumed ........................ 1,176
--------
Goodwill purchased ........................ $ 7,172
========
10. FINANCIAL INFORMATION BY SEGMENT:
The Company operates in two principal business segments -- television
broadcasting and radio broadcasting. At December 31, 1996, the television
segment included five television stations for which the Company is the licensee
and one station which is operated under a local marketing agreement. These six
stations operate in six different markets in the continental United States.
The radio group currently operates 23 radio stations, including three under
an LMA pending acquisition, and has recently announced two additional
transactions involving trades of existing stations in like-kind exchanges. The
radio group will own and operate 24 stations (seven AM, 17 FM) in seven of the
top 50 largest markets by population after all pending transactions have been
completed. The holdings include at least three stations (and two FM stations) in
every market.
F-12
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
1996
---------------
(IN THOUSANDS)
TELEVISION
Net broadcasting revenue ......... $ 46,316
Station operating expenses ...... 30,982
Station operating income ......... 15,334
Total assets ..................... 83,848
Capital expenditures ............ 5,791
RADIO
Net broadcasting revenue ......... $ 53,278
Station operating expenses ...... 41,598
Station operating income ......... 11,680
Total assets ..................... 137,928
Capital expenditures ............ 1,147
CONSOLIDATED
Net broadcasting revenue ......... $ 99,594
Station operating expenses ...... 72,580
Station operating income ......... 27,014
Total assets ..................... 221,776
Capital expenditures ............ 6,938
11. SUBSEQUENT EVENTS:
On January 7, 1997, the Company completed the purchase of the assets of
WHRR-FM, serving Rochester, New York, for $1.9 million. On January 24, 1997, the
Company completed the purchase of the assets of KXTR-FM, serving Kansas City,
Missouri, for $9.7 million.
On January 21, 1997, the Company announced plans to trade its Knoxville,
Tennessee stations, WMYU-FM and WWST-FM for KQRC-FM serving Kansas City, in a
like-kind exchange. On February 18, 1997, the Company announced plans to
exchange WVAW-FM, its station in Cincinnati, for WGH-FM, WVCL-FM and WGH-AM,
serving Norfolk, Virginia, plus $5 million cash. The Company will operate the
Norfolk stations under a LMA. Both transactions are subject to approval by the
Federal Communications Commission (the "FCC").
In July 1997, The News Corporation Limited entered into an asset sale
agreement with Sinclair Broadcast Group, Inc. ("Sinclair") to sell certain
television and radio assets of the Broadcasting Segment of HMC to Sinclair upon
the closing of the proposed merger agreement between The News Corporation
Limited and HMC. The merger remains contingent upon FCC approval. The proposed
sale price to Sinclair is $630 million in cash. The sale is expected to occur in
the first quarter of 1998.
F-13
HERITAGE MEDIA SERVICES INC. -- BROADCASTING SEGMENT
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- --------------
ASSETS
Current Assets:
Cash and cash equivalents ....................................... $ 2,151 $ 2,037
Accounts receivable, net of allowance for doubtful accounts ...... 20,036 20,546
Deferred barter costs ............................................. 1,911 2,278
Prepaid expenses and other current assets ........................ 138 1,447
Deferred tax asset ................................................ 215 215
Current portion of program contract costs ........................ 1,006 2,140
--------- ---------
Total current assets .......................................... 25,457 28,663
Property and equipment, net ....................................... 30,005 28,387
Acquired intangible broadcasting assets, net ..................... 163,626 169,673
Program contract costs, less current portion ..................... 1,867 1,075
Other assets ...................................................... 821 359
--------- ---------
Total assets ................................................... $ 221,776 $ 228,157
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................ $ 148 $ 323
Deferred barter revenues .......................................... 1,746 1,938
Accrued liabilities ............................................. 5,251 1,389
Deferred revenues ................................................ 428 90
Current portion of program contracts payable ..................... 2,079 1,461
--------- ---------
Total current liabilities ....................................... 9,652 5,201
Long-Term Liabilities:
Due to affiliate ................................................ 178,393 180,191
Deferred tax liability .......................................... 563 563
Program contracts payable ....................................... 1,534 1,761
Other long-term liabilities ....................................... 152 390
--------- ---------
Total liabilities ............................................. 190,294 188,106
--------- ---------
Commitments and contingencies ....................................
Stockholders' equity:
Common stock, $1.00 par value, 3,576,000 shares authorized and
2,591,586 issued and outstanding .............................. 2,592 2,592
Common stock, no par value, 300 shares authorized and 200 shares
issued and outstanding .......................................... -- --
Additional paid-in capital ....................................... 66,174 66,174
Accumulated deficit ............................................. (37,284) (28,715)
--------- ---------
Total stockholders' equity .................................... 31,482 40,051
--------- ---------
Total liabilities and stockholders' equity ..................... $ 221,776 $ 228,157
========= =========
The accompanying notes are an integral part of these unaudited consolidated
statements.
F-14
HERITAGE MEDIA SERVICES INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
1996 1997
------------ ------------
Revenues:
Station broadcast revenues, net of agency commissions ............ $ 66,631 $ 73,049
Revenues realized from station barter arrangements ............... 3,059 3,860
--------- ---------
Total revenues ................................................ 69,690 76,909
Operating Expenses:
Program and production .......................................... 22,374 24,578
Selling, general and administrative .............................. 14,743 15,037
Expenses realized from station barter arrangements ............... 2,228 3,053
Depreciation and amortization of property and equipment ......... 4,025 4,238
Amortization of program contract costs and net realizable value ad-
justments ....................................................... 1,093 1,275
Amortization of acquired intangible broadcasting assets ......... 6,296 6,326
--------- ---------
Total operating expenses ....................................... 50,759 54,507
--------- ---------
Broadcast operating income .................................... 18,931 22,402
Other Income (Expense):
Interest expense ................................................ (14,246) (13,412)
Gain on sale of assets .......................................... 6,031 3
Gain on exchange of assets ....................................... -- 9,401
Other (expense) ................................................... (152) (279)
--------- ---------
Income before income tax provision .............................. 10,564 18,115
--------- ---------
Income Tax Provision ............................................. 5,567 9,546
--------- ---------
Net Income ...................................................... $ 4,997 $ 8,569
========= =========
The accompanying notes are an integral part of these unaudited consolidated
statements
F-15
HERITAGE MEDIA SERVICES INC. -- BROADCASTING SEGMENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS)
1996 1997
----------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 4,997 $ 8,569
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization of property and equipment ..................... 4,025 4,238
Amortization:
Acquired intangible broadcasting assets .................................... 6,296 6,326
Program contract costs and net realizable adjustments ..................... 1,093 1,275
Deferred finance costs ...................................................... 201 249
Gain on sale of assets ...................................................... (6,031) (3)
Gain of exchange of assets ................................................... -- (9,401)
Changes in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in accounts receivable, net .............................. 3,324 (510)
(Increase) decrease in other assets .......................................... (1,178) 462
Increase in prepaid expenses and other current assets ........................ (529) (1,308)
Decrease in accounts payable and accrued liabilities ........................ (1,208) (3,687)
Net effect of change in deferred barter revenues and deferred barter costs ... (361) (176)
Decrease in deferred revenues ................................................ (99) (338)
Increase in deferred tax liability .......................................... 24 --
Decrease (increase) in other long-term liabilities ........................... (27) 238
Payments on program contracts payable .......................................... (1,836) (2,008)
-------- ----------
Net cash flows from operating activities ................................. 8,691 3,926
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions ...................................................... (8,022) (13,146)
Acquisition of property and equipment .......................................... (6,029) (2,510)
Proceeds from exchange of assets ............................................. -- 11,979
Proceeds from sale of assets ................................................... 13,759 --
-------- ----------
Net cash flows used in investing activities .............................. (292) (3,677)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid, contributions received, net .................................... 12,504 --
(Decrease) in due to affiliate ................................................ (20,889) (363)
-------- ----------
Net cash used in financing activities .................................... (8,385) (363)
-------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 14 (114)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 1,799 2,151
-------- ----------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 1,813 $ 2,037
======== ==========
SUPPLEMENTAL DISCLOSURE:
Program rights acquired ...................................................... $ 3,292 $ 1,617
======== ==========
The accompanying notes are an integral part of these unaudited consolidated
statements.
F-16
HERITAGE MEDIA SERVICES, INC. BROADCASTING SEGMENT
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION
Basis of Presentation
Heritage Media Services, Inc. ("HMSI") operates in two segments Marketing
Services and Broadcasting. The parent company of HMSI is Heritage Media
Corporation ("HMC"). The accompanying consolidated financial statements include
the accounts of the television and radio operations, which are collectively
referred to hereafter as "the Company, the Companies or the Broadcasting
Segment." The Company owns and operates television and radio stations throughout
the United States. Also included in the accompanying consolidated financial
statements are the results of operations of WFGX-TV Channel 35 in Ft. Walton
Beach, Florida, pursuant to a LMA.
2. DUE TO AFFILIATE
The Company has an arrangement with HMSI whereby HMSI will provide certain
management and other services to the Company. The services provided include
consultation and direct management assistance with respect to operations and
strategic planning. The Broadcasting Segment was allocated approximately $3.0
million of corporate overhead expenses for these services.
In order to fund acquisitions and provide operating funds, HMSI entered
into a bank credit agreement. The debt used to finance acquisitions and fund
daily operations of the Broadcasting Segment was recorded by the Broadcasting
Segment as affiliate borrowings in the accompanying consolidated balance sheet.
HMSI allocates interest at a rate of approximately 10.0%, which approximates the
average rate paid on the borrowings.
3. BROADCASTING SEGMENT SALE
In July 1997, The News Corporation Limited entered into an asset sale
agreement with Sinclair Broadcast Group, Inc. ("Sinclair") to sell certain
television and radio assets of the Broadcasting Segment of HMC to Sinclair upon
the closing of the proposed merger agreement between The News Corporation
Limited and HMC. The proposed sale price to Sinclair is $630 million in cash.
The sale is expected to occur in the first quarter of 1998. Subsequent to July,
the merger between The News Corporation Limited and HMC was approved and
completed. The proposed sale to Sinclair is now contingent upon FCC approval and
the expiration of the applicable waiting period under the Hart Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act").
F-17
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 hereunto duly authorized.
SINCLAIR BROADCAST GROUP, INC.
By: /s/ DAVID B. AMY
----------------------------
David B. Amy
Chief Financial Officer/
Principal Accounting Officer
Dated: December 5, 1997