-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cc9psqaG6BU5RSy4/04TFwI3Oyk8TDSAoAI6fWWVOJXdHNJvmEl7Fbx0cRf3f4dY uDK8YWo+lX7wSaeDaXDg3g== 0000912057-01-509231.txt : 20010418 0000912057-01-509231.hdr.sgml : 20010418 ACCESSION NUMBER: 0000912057-01-509231 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SINCLAIR BROADCAST GROUP INC CENTRAL INDEX KEY: 0000912752 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 521494660 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-26076 FILM NUMBER: 1604886 BUSINESS ADDRESS: STREET 1: 2000 WEST 41ST ST CITY: BALTIMORE STATE: MD ZIP: 21211 BUSINESS PHONE: 4104675005 MAIL ADDRESS: STREET 1: 2000 W 41ST ST CITY: BALTIMORE STATE: MD ZIP: 21211 10-K/A 1 a2045574z10-ka.txt 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER: 000-26076 DECEMBER 31, 2000 SINCLAIR BROADCAST GROUP, INC. (Exact name of Registrant as specified in its charter) MARYLAND 52-1494660 (State of incorporation) (I.R.S. Employer Identification No.) 10706 BEAVER DAM ROAD COCKEYSVILLE, MD 21030 (Address of principal executive offices) (410) 568-1500 (Registrant's telephone number, including area code) -------------------------------------- Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Class A common stock, par value $.01 per share Series D preferred stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this report, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Based on the closing sales price of $7.375 per share as of March 26, 2001, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $294.4 million. As of March 26, 2001, there were 39,920,877 shares of class A common stock, $.01 par value; 44,838,828 shares of class B common stock, and 3,450,000 shares of series D preferred stock, $.01 par value, convertible into 7,561,644 shares of class A common stock of the registrant issued and outstanding. In addition, 2,000,000 shares of $200 million aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred Securities of Sinclair Capital, a subsidiary trust of Sinclair Broadcast Group, Inc., are issued and outstanding. Documents Incorporated by Reference Portions of the definitive proxy statement to be delivered to shareholders in connection with the 2001 annual meeting of shareholders are incorporated by reference into Part III. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements The following financial statements required by this item are submitted in a separate section beginning on page F-1 of this report.
PAGE ---- SINCLAIR BROADCAST GROUP, INC. FINANCIAL STATEMENTS: Report of Independent Public Accountants.........................................................F-2 Consolidated Balance Sheets as of December 31, 1999 and 2000.....................................F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1999 and 2000...............................................................................F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1999 and 2000...........................................................F-5, F-6, F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000..........................................................................F-8, F-9 Notes to Consolidated Financial Statements......................................................F-10 ACRODYNE COMMUNICATIONS, INC. FINANCIAL STATEMENTS Report of Independent Public Accountants........................................................F-34 Consolidated Balance Sheets as of December 31, 1999 and 2000....................................F-35 Consolidated Statements of Operations for the Years Ended December 31, 1999 and 2000..............................................................................F-36 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 2000..............................................................................F-37 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 2000..............................................................................F-38 Notes to Consolidated Financial Statements......................................................F-39 (a) (2) Financial Statements Schedules The following financial statements schedules required by this item are submitted on pages S-1 through S-3 of this Report. PAGE ---- Index to Schedules...............................................................................S-1 Report of Independent Public Accountants.........................................................S-2 Schedule II-Valuation and Qualifying Accounts....................................................S-3
All other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the accompanying notes. (a) (3) Exhibits The exhibit index in Item 14(c) is incorporated by reference in this report. (b) Reports on Form 8-K There were no reports on Form 8-K filed by the registrant during the fourth quarter of the fiscal year ended December 31, 2000. (c) Exhibits The exhibit index is hereby incorporated by reference. EXHIBIT NO. EXHIBIT DESCRIPTION --- ------------------- 3.1 Amended and Restated Certificate of Incorporation (1) 3.2 By-laws (2) 41 EXHIBIT NO. EXHIBIT DESCRIPTION --- ------------------- 4.1 Indenture, dated as of December 9, 1993, among Sinclair Broadcast Group, Inc., its wholly-owned subsidiaries and First Union Nation Bank of North Carolina, as trustee. (2) 4.2 Indenture, dated as of August 28, 1995, among Sinclair Broadcast Group, Inc., its wholly-owned subsidiaries and the United States Trust Company of New York as trustee. (2) 4.3 Subordinated Indenture, dated as of December 17, 1997, among Sinclair Broadcast Group, Inc., and First Union National Bank, as trustee. (3) 4.4 First Supplemental Indenture, dated as of December 17, 1997, among Sinclair Broadcast Group, Inc., the Guarantors named therein and First Union National Bank, as trustree, including Form of Note. (3) 10.1 Stock Option Agreement, dated April 10, 1996 by and between Sinclair Broadcast Group, Inc. and Barry Baker. (4) 10.2 Termination Agreement by and between Sinclair Broadcast Group, Inc., and Barry Baker, dated February 8, 1999. (6) 10.3 Registration Rights Agreement, dated as of May 31, 1996, by and between Sinclair Broadcast Group Inc. and River City Broadcasting, L.P. (5) 10.4 Letter Agreement, dated August 20, 1996, between Sinclair Broadcast Group, Inc., and River City Broadcasting, L.P. and Fox Broadcasting Company. (7) 10.5 Promissory Note, dated as of May 17, 1990, in the principal amount of $3,000,000 among David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith (as makers) and Sinclair Broadcast Group, Inc., Channel 63, Inc., Commerical Radio Institute, Inc., WTTE, Channel 28, Inc. and Chesapeake Television, Inc. (as holders). (8) 10.6 Term Note, dated as of September 30, 1990, in the principal amount of $7,515,000 between Sinclair Broadcast Group, Inc. (as borrower) and Julian S. Smith (as lender). (9) 10.7 Replacement Term Note, dated as of September 30, 1990 in the principal amount of $6,700,000 between Sinclair Broadcast Group, Inc. (as borrower) and Carolyn C. Smith (as lender). (2) 10.8 Note, dated as of September 30, 1990 in the principal amount of $1,500,000 between Frederick G. Smith, David D. Smith, J. Duncan Smith and Robert E. Smith (as borrowers) and Sinclair Broadcast Group, Inc. (as lender). (8) 10.9 Amended and Restated Note, dated as of June 30, 1992 in the principal amount of $1,458,489 between Frederick G. Smith, David D. Smith, J. Duncan Smith and Robert E. Smith (as borrowers) and Sinclair Broadcast Group, Inc. (as lender). (8) 10.10 Term Note, dated August 1, 1992 in the principal amount of $900,000 between Frederick G. Smith, David D. Smith, J. Duncan Smith and Robert E. Smith (as borrowers) and Commercial Radio Institute, Inc. (as lender) (8) 10.11 Promissory Note, dated as of December 28, 1986 in the principal amount of $6,421,483.53 between Sinclair Broadcast Group, Inc. (as maker) and Frederick H. Himes, B. Stanley Resnick and Edward A. Johnson (as representatives for the holders). (8) 10.12 Term Note, dated as of March 1, 1993 in the principal amount of $6,559,000 between Julian S. Smith and Carolyn C. Smith (as makers-borrowers) and Commerical Radio Institute, Inc. (as holder-lender). (8) 10.13 Restatement of Stock Redemption Agreement by and among Sinclair Broadcast Group, Inc. and Chesapeake Television, Inc., et al., dated June 19, 1990. (8) 42 EXHIBIT NO. EXHIBIT DESCRIPTION --- ------------------- 10.14 Corporate Guaranty Agreement, dated as of September 30, 1990 by Chesapeake Television, Inc., Commercial Radio, Inc., Channel 63, Inc. and WTTE, Channel 28, Inc. (as guarantors) to Julian S. Smith and Carolyn C. Smith (as lenders). (8) 10.15 Security Agreement, dated as of September 30, 1999 among Sinclair Broadcast Group, Inc., Chesapeake Television, Inc., Commericial Radio Institute, Inc., WTTE, Channel 28, Inc. and Channel 63, Inc. (as borrowers and subsidiaries of the borrower) and Julian S. Smith and Carolyn C. Smith (as lenders). (8) 10.16 Term Note, dated as of September 22, 1993, in the principal amount of $1,900,000 between Gerstell Development Limited Partnership (as maker-borrower) and Sinclair Broadcast Group, Inc. (as holder-lender). (8) 10.17 Credit Agreement, dated as of May 28, 1998, by and among Sinclair Broadcast Group, Inc., Certain Subsidiary Guarantors, Certain Lenders, the Chase Manhattan Bank as Administrative Agent, Nations Bank of Texas, N.A. as Documentation Agent and Chase Securities Inc. as Arranger. (1) 10.18 Incentive Stock Option Plan for Designated Participants. (2) 10.19 Incentive Stock Option Plan of Sinclair Broadcast Group, Inc. (2) 10.20 First Amendment to Incentive Stock Option Plan of Sinclair Broadcast Group, Inc., adopted April 10, 1996. (4) 10.21 Second Amendment to Incentive Stock Option Plan of Sinclair Broadcast Group, Inc., adopted May 31, 1996. (4) 10.22 1996 Long Term Incentive Plan of Sinclair Broadcast Group, Inc. (4) 10.23 First Amendment to 1996 Long Term Incentive Plan of Sinclair Broadcast Group, Inc. (10) 10.24 Primary Television Affiliation Agreement, dated as of March 24, 1997 by and between American Broadcasting Companies, Inc., River City Broadcasting, L.P. and Chesapeake Television, Inc. (11) 10.25 Primary Television Affiliation Agreement, dated as of March 24, 1997 by and between American Broadcasting Companies, Inc., River City Broadcasting, L.P. and WPGH, Inc. (11) 10.26 Stock Purchase Agreement by and among the sole stockholders of Montecito Broadcasting Corporation, Montecito Broadcasting Corporation and Sinclair Communications, Inc. dated as of February 3, 1998. (12) 10.27 Agreement and Plan of Merger among Sullivan Broadcasting Company II, Inc., Sinclair Broadcast Group, Inc., and ABRY Partners, Inc. Effective as of February 23, 1998. (11). 10.28 Agreement and Plan of Merger among Sullivan Broadcasting Holdings, Inc., Sinclair Broadcast Group, Inc., and ABRY Partners, Inc. Effective as of February 23, 1998. (11). 10.29 Employment Agreement by and between Sinclair Broadcast Group, Inc. and Frederick G. Smith, dated June 12, 1998. (12) 10.30 Employment Agreement by and between Sinclair Broadcast Group, Inc. and J. Duncan Smith, dated June 12, 1998. (12) 10.31 Employment Agreement by and between Sinclair Broadcast Group, Inc. and David B. Amy, dated September 15, 1998. (12) 10.32 Employment Agreement by and between Sinclair Communications, Inc. and Barry Drake, dated February 21, 1997. (12) 10.33 First Amendment to Employment Agreement, by and between Sinclair Broadcast Group, Inc. and Barry Baker, dated May 1998. (6) 43 EXHIBIT NO. EXHIBIT DESCRIPTION --- ------------------- 10.34 Purchase Agreement by and between Sinclair Communications, Inc. and STC Broadcasting, Inc. dated as of March 5, 1999. (6) 10.35 Second Modification Agreement dated April 30, 1999 by and between Guy Gannett Communications and Sinclair Communications, Inc., to modify the Purchase Agreement dated Spetember 4, 1998 by and between Guy Gannett Communications and Sinclair Communications Inc., as thereafter amended and modified. (13) 10.36 Asset Purchase Agreement dated August 18, 1999 by and between Sinclair Communications, Inc. and certain of its affiliates named therein and Entercom Communications Corp. (13) 10.37 Asset Purchase Agreement dated August 20, 1999 among Sinclair Communications, Inc., Sinclair Media III, Inc., Sinclair Radio of Kansas City Licensee, LLC and Entercom Communications Corp. (13) 10.38 Amendment to Purchase Agreement, dated March 16, 1999, to amend Purchase Agreement dated as of September 4, 1998 by and between Guy Gannett Communications and Sinclair Communications, Inc. (13) 10.39 Modification Agreement dated April 12, 1999 by and between Guy Gannett Communications and Sinclair Communications, Inc., to modify the Purchase Agreement dated September 4, 1998 by and between Guy Gannett Communications and Sinclair Communications, Inc., as thereafter amended. (13) 10.40 Purchase Agreement dated March 16, 1999, by and between Sinclair Communications, Inc. and STC Broadcasting, Inc. (13) 10.41 Amended and Restated Purchase Agreement dated August 20, 1999 among Sinclair Communications, Inc. and certain of its affiliates named therein and Entercom Communications Corp. (13) 10.42 Asset Purchase Agreement among Sinclair Broadcast Group, Inc. and Sinclair Radio of St. Louis, Inc. and Sinclair Radio of St. Louis Licensee, LLC as Sellers, and Emmis Communications Corporation as Buyer dated June 21, 2000. (as previously filed) 11 Statement re computation of per share earnings (included in financial statements) (as previously filed) 12 Computation of Ratio of Earnings to Fixed Charges (as previously filed) 21 Subsidiaries of the Registrant (as previously filed) 23.1 Consent of Independent Public Accountants regarding Sinclair Broadcast Group, Inc. 23.2 Consent of Independent Public Accountants regarding Acrodyne Communications, Inc. 25 Power of attorney (included in signature page) (as previously filed) - ------------- (1) Incorporated by reference from Sinclair's Report on Form 10-Q for the quarter ended June 30, 1998 (2) Incorporated by reference from Sinclair's Registration Statement on Form S-1, No. 33-90682 (3) Incorporated by reference from Sinclair's Current Report on Form 8-K, dated as of December 16, 1997. (4) Incorporated by reference from Sinclair's Report on Form 10-K for the year ended December 31, 1996. (5) Incorporated by reference from Sinclair's Report on Form 10-Q for the quarter ended June 30, 1996. (6) Incorporated by reference from Sinclair's Report on Form 10-K for the year ended December 31, 1998. (7) Incorporated by reference from Sinclair's Report on Form 10-Q for the quarter ended September 30, 1996. (8) Incorporated by reference from Sinclair's Registration Statement on Form S-1, No. 33-69482. (9) Incorporated by reference from Sinclair's Report on Form 10-K for the year ended December 31, 1995. (10) Incorporated by reference from Sinclair's Proxy Statement for the 1998 Annual Meeting filed on Schedule 14A. (11) Incorporated by reference from Sinclair's Report on Form 10-K for the year ended December 3 1, 1997 (12) Incorporated by reference from Sinclair's Report on Form 10-Q for the quarter ended September 30, 1998 (13) Incorporated by reference from Sinclair's Report on Form 10-Q for the quarter ended September 20, 1999. (d) Financial Statements Schedules The financial statement schedules required by this Item are listed under Item 14 (a) (2). 44 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 17th day of April 2001. SINCLAIR BROADCAST GROUP, INC. By: /S/ David D. Smith --------------------------------- David D. Smith Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below under the heading "Signature" constitutes and appoints David B. Amy as his or her true and lawful attorney-in-fact each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities to sign any or all amendments to this 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or their substitutes, each acting alone, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ David D. Smith Chairman of the Board and April 17, 2001 - ---------------------------- Chief Executive Officer David D. Smith (Principal Executive Officer) /s/ David B. Amy Executive Vice President and April 17, 2001 - ---------------------------- Chief Financial Officer David B. Amy /s/ Frederick G. Smith Director April 17, 2001 - ---------------------------- Frederick G. Smith /s/ J. Duncan Smith Director April 17, 2001 - ---------------------------- J. Duncan Smith /s/ Robert E. Smith Director April 17, 2001 - ---------------------------- Robert E. Smith /s/ Basil A. Thomas Director April 17, 2001 - ---------------------------- Basil A. Thomas /s/ Lawrence E. McCanna Director April 17, 2001 - ---------------------------- Lawrence E. McCanna
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES PAGE Report of Independent Public Accountants......................................................F-2 Consolidated Balance Sheets as of December 31, 1999 and 2000..................................F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1999 and 2000...............................................................................F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1999 and 2000.........................................................................F-5, F-6, F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1999 and 2000...............................................................................F-8, F-9 Notes to Consolidated Financial Statements....................................................F-10
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Sinclair Broadcast Group, Inc.: We have audited the accompanying consolidated balance sheets of Sinclair Broadcast Group, Inc. (a Maryland corporation) and Subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sinclair Broadcast Group, Inc. and Subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Baltimore, Maryland, January 30, 2001 (except with respect to the matter discussed in Note 16, as to which the date is February 7, 2001) F-2 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF DECEMBER 31, ------------------ 1999 2000 ---- ---- ASSETS CURRENT ASSETS: Cash ...................................................................................... $ 16,408 $ 4,091 Accounts receivable, net of allowance for doubtful accounts of $5,016 and $5,751, respectively ..................................................................... 192,469 165,913 Current portion of program contract costs ................................................. 74,138 72,841 Prepaid expenses and other current assets ................................................. 25,292 11,461 Deferred barter costs ..................................................................... 1,823 3,472 Broadcast assets related to discontinued operations, net of liabilities ................... 172,983 -- Broadcast assets held for sale, current ................................................... 77,962 -- Deferred tax assets ....................................................................... 5,215 11,939 ----------- ----------- Total current assets ................................................................... 566,290 269,717 PROGRAM CONTRACT COSTS, less current portion ................................................. 53,002 53,698 LOANS TO OFFICERS AND AFFILIATES ............................................................. 8,772 8,269 PROPERTY AND EQUIPMENT, net .................................................................. 251,783 280,987 BROADCAST ASSETS HELD FOR SALE, less current portion ......................................... 144,316 -- OTHER ASSETS ................................................................................. 108,383 103,863 ACQUIRED INTANGIBLE BROADCAST ASSETS, net of accumulated amortization of $331,308 and $382,398, respectively ....................................................... 2,486,964 2,684,106 ----------- ----------- Total Assets ........................................................................... $ 3,619,510 $ 3,400,640 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .......................................................................... $ 7,600 $ 6,865 Accrued liabilities ....................................................................... 67,078 80,626 Income taxes payable ...................................................................... 116,821 55,912 Notes payable, capital lease, and commercial bank financing ............................... 75,008 100,018 Notes and capital leases payable to affiliates ............................................ 5,890 5,838 Current portion of program contracts payable .............................................. 111,992 110,217 Deferred barter revenues .................................................................. 3,244 4,296 ----------- ----------- Total current liabilities ............................................................... 387,633 363,772 LONG-TERM LIABILITIES: Notes payable, capital lease, and commercial bank financing ............................... 1,677,299 1,481,561 Notes and capital leases payable to affiliates ............................................ 34,142 29,009 Program contracts payable ................................................................. 87,220 99,146 Deferred tax liability .................................................................... 233,927 255,088 Other long-term liabilities ............................................................... 20,444 46,746 ----------- ----------- Total liabilities ....................................................................... 2,440,665 2,275,322 ----------- ----------- EQUITY PUT OPTION ............................................................................ -- 7,811 ----------- ----------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ............................................... 3,928 4,977 ----------- ----------- COMMITMENTS AND CONTINGENCIES COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES .................................... 200,000 200,000 ----------- ----------- STOCKHOLDERS' EQUITY: Series D Preferred Stock, $.01 par value, 3,450,000 shares authorized and 3,450,000 shares issued and outstanding, liquidation preference of $172,500,000 ............................................................................ 35 35 Class A Common Stock, $.01 par value, 500,000,000 shares authorized and 49,142,513 and 39,032,277 shares issued and outstanding, respectively ................... 491 390 Class B Common Stock, $.01 par value, 140,000,000 shares authorized and 47,608,347 and 45,479,578 shares issued and outstanding, respectively ................... 476 455 Additional paid-in capital ................................................................ 834,393 750,372 Additional paid-in capital - equity put options ........................................... 46,068 -- Additional paid-in capital - deferred compensation ........................................ (4,489) (2,618) Retained earnings ......................................................................... 97,943 164,958 Other comprehensive loss .................................................................. -- (1,062) ----------- ----------- Total stockholders' equity .............................................................. 974,917 912,530 ----------- ----------- Total Liabilities and Stockholders' Equity .............................................. $ 3,619,510 $ 3,400,640 =========== ===========
The accompanying notes are an integral part of these consolidated statements. F-3 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1999 2000 ---- ---- ---- REVENUES: Station broadcast revenues, net of agency commissions of $90,664, $106,925 and $115,579, respectively ...................... $ 564,727 $ 670,252 $ 727,017 Revenues realized from station barter arrangements ..................... 59,697 63,387 57,351 Other revenue .......................................................... -- -- 4,494 --------- --------- --------- Total revenues ....................................................... 624,424 733,639 788,862 --------- --------- --------- OPERATING EXPENSES: Program and production .................................................... 104,463 137,597 156,065 Selling, general and administrative .................................... 116,075 145,737 173,424 Expenses realized from station barter arrangements ..................... 54,067 57,561 51,300 Amortization of program contract costs and net realizable value adjustments ......................................... 69,453 86,857 100,357 Stock-based compensation ............................................... 2,908 2,494 1,801 Depreciation and amortization of property and equipment ................ 25,216 32,042 38,111 Amortization of acquired intangible broadcast assets, non-compete and consulting agreements and other assets ............... 82,555 105,654 112,145 Cumulative adjustment for change in assets held for sale ............... -- -- 619 --------- --------- --------- Total operating costs ................................................ 454,737 567,942 633,822 --------- --------- --------- Operating income ..................................................... 169,687 165,697 155,040 --------- --------- --------- OTHER INCOME (EXPENSE): Interest and amortization of debt discount expense ..................... (138,952) (178,281) (148,906) Subsidiary trust minority interest expense ............................. (23,250) (23,250) (23,250) Net gain (loss) on sale of broadcast assets ............................ 1,232 (418) -- Unrealized gain (loss) on derivative instrument ........................ (9,050) 15,747 (296) Interest income ........................................................ 5,672 3,371 2,645 Loss related to investments ............................................ -- (504) (16,764) Other income ........................................................... 1,022 619 572 --------- --------- --------- Income (loss) before income taxes ...................................... 6,361 (17,019) (30,959) PROVISION FOR INCOME TAXES ................................................ (32,562) (25,107) (4,816) --------- --------- --------- Net loss from continuing operations .................................... (26,201) (42,126) (35,775) DISCONTINUED OPERATIONS: Net income from discontinued operations, net of related income tax provision of $8,609, $12,340 and $3,250, respectively ......................................................... 14,102 17,538 4,876 Gain on sale of broadcast assets, net of related income tax provision of $4,487, $137,431 and $69,870, respectively ......................................................... 6,282 192,372 108,264 EXTRAORDINARY ITEM: Loss on early extinguishment of debt, net of related income tax benefit of $7,370 ......................................... (11,063) -- -- --------- --------- --------- NET INCOME (LOSS) ......................................................... $ (16,880) $ 167,784 $ 77,365 ========= ========= ========= NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS ........................................................... $ (27,230) $ 157,434 $ 67,015 ========= ========= ========= BASIC EARNINGS PER SHARE: Loss per share from continuing operations .............................. $ (0.39) $ (0.54) $ (0.50) ========= ========= ========= Income per share from discontinued operations .......................... $ 0.22 $ 2.17 $ 1.24 ========= ========= ========= Loss per share from extraordinary item ................................. $ (0.12) $ -- $ -- ========= ========= ========= Income (loss) per common share ......................................... $ (0.29) $ 1.63 $ 0.73 ========= ========= ========= Weighted average common shares outstanding ............................. 94,321 96,615 91,405 ========= ========= ========= DILUTED EARNINGS PER SHARE: Loss per share from continuing operations .............................. $ (0.39) $ (0.54) $ (0.50) ========= ========= ========= Income per share from discontinued operations .......................... $ 0.22 $ 2.17 $ 1.24 ========= ========= ========= Loss per share from extraordinary item ................................. $ (0.12) $ -- $ -- ========= ========= ========= Income (loss) per common share ......................................... $ (0.29) $ 1.63 $ 0.73 ========= ========= ========= Weighted average common and common equivalent shares outstanding .......................................................... 95,692 96,635 91,432 ========= ========= =========
The accompanying notes are an integral part of these consolidated statements F-4 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS)
ADDITIONAL PAID-IN SERIES B SERIES D CLASS A CLASS B ADDITIONAL CAPITAL - PREFERRED PREFERRED COMMON COMMON PAID-IN EQUITY PUT STOCK STOCK STOCK STOCK CAPITAL OPTIONS ----- ----- ----- ----- ------- ------- BALANCE, December 31, 1997 ............... $ 11 $ 35 $ 274 $ 509 $ 552,557 $ 23,117 Class B Common Stock converted into Class A Common Stock ................. -- -- 18 (18) -- -- Series B Preferred Stock converted into Class A Common Stock ............ (11) -- 75 -- (64) -- Dividends payable on Series D Preferred Stock ................................ -- -- -- -- -- -- Stock option grants .................... -- -- -- -- 8,383 -- Stock options exercised ................ -- -- 1 -- 1,143 -- Class A Common Stock issued pursuant to employee benefit plans ............ -- -- 1 -- 1,989 -- Equity put options ..................... -- -- -- -- (20,083) 20,083 Repurchase and retirement of 1,505,000 . -- -- (15) -- (26,650) -- shares of Class A Common Stock Equity put option premiums ............. -- -- -- -- (12,938) -- Issuance of Class A Common Stock ....... -- -- 120 -- 335,003 -- Amortization of deferred compensation .. -- -- -- -- -- -- Income tax benefit related to deferred compensation ......................... -- -- -- -- (390) -- Net loss ............................... -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- BALANCE, December 31, 1998 ............... $-- $ 35 $ 474 $ 491 $ 838,950 $ 43,200 --------- --------- --------- --------- --------- ---------
ADDITIONAL PAID-IN CAPITAL - TOTAL DEFERRED ACCUMULATED STOCKHOLDERS' COMPENSATION DEFICIT EQUITY ------------ ------- ------ BALANCE, December 31, 1997 ............... $ (954) $ (32,261) $ 543,288 Class B Common Stock converted into Class A Common Stock ................. -- -- -- Series B Preferred Stock converted into Class A Common Stock ............ -- -- -- Dividends payable on Series D Preferred Stock ................................ -- (10,350) (10,350) Stock option grants .................... (8,383) -- -- Stock options exercised ................ -- -- 1,144 Class A Common Stock issued pursuant to employee benefit plans ............ -- -- 1,990 Equity put options ..................... -- -- -- Repurchase and retirement of 1,505,000 . -- -- (26,665) shares of Class A Common Stock Equity put option premiums ............. -- -- (12,938) Issuance of Class A Common Stock ....... -- -- 335,123 Amortization of deferred compensation .. 1,721 -- 1,721 Income tax benefit related to deferred compensation ......................... -- -- (390) Net loss ............................... -- (16,880) (16,880) --------- --------- --------- BALANCE, December 31, 1998 ............... $ (7,616) $ (59,491) $ 816,043 --------- --------- ---------
The accompanying notes are an integral part of these consolidated statements. F-5 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS)
ADDITIONAL PAID-IN SERIES B SERIES D CLASS A CLASS B ADDITIONAL CAPITAL - PREFERRED PREFERRED COMMON COMMON PAID-IN EQUITY PUT STOCK STOCK STOCK STOCK CAPITAL OPTIONS ----- ----- ----- ----- ------- ------- BALANCE, December 31, 1998 .............. $-- $ 35 $ 474 $ 491 $ 838,950 $ 43,200 Class B Common Stock converted into Class A Common Stock ................ -- -- 15 (15) -- -- Series B Preferred Stock converted into Class A Common Stock ........... (1) -- 8 -- (7) -- Class A Common Stock converted to Series B Preferred Stock ............ 1 -- (6) -- 5 -- Series B Preferred Stock redemptions .. -- -- -- -- (1,498) -- Repurchase and retirement of 320,000 shares of Class A Common Stock ...... -- -- (3) -- (3,491) -- Dividends payable on Series D Preferred Stock ............................... -- -- -- -- -- -- Stock options exercised ............... -- -- 1 -- 1,779 -- Class A Common Stock issued pursuant .. -- -- 2 -- 3,124 -- to employee benefit plans Equity put options .................... -- -- -- -- (2,868) 2,868 Net payments relating to equity put options ............................. -- -- -- -- 751 -- Amortization of deferred compensation . -- -- -- -- -- -- Income tax benefit related to deferred compensation ........................ -- -- -- -- (360) -- Deferred compensation adjustment related to forfeited stock options .. -- -- (1,992) -- Net income ............................ -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- BALANCE, December 31, 1999 .............. $-- $ 35 $ 491 $ 476 $ 834,393 $ 46,068 --------- --------- --------- --------- --------- ---------
ADDITIONAL PAID-IN CAPITAL - TOTAL DEFERRED ACCUMULATED STOCKHOLDERS' COMPENSATION DEFICIT EQUITY ------------ ------- ------ BALANCE, December 31, 1998 .............. $ (7,616) $ (59,491) $ 816,043 Class B Common Stock converted into Class A Common Stock ................ -- -- -- Series B Preferred Stock converted into Class A Common Stock ........... -- -- -- Class A Common Stock converted to Series B Preferred Stock ............ -- -- -- Series B Preferred Stock redemptions .. -- -- (1,498) Repurchase and retirement of 320,000 shares of Class A Common Stock ...... -- -- (3,494) Dividends payable on Series D Preferred Stock ............................... -- (10,350) (10,350) Stock options exercised ............... -- -- 1,780 Class A Common Stock issued pursuant .. -- -- 3,126 to employee benefit plans Equity put options .................... -- -- -- Net payments relating to equity put options ............................. -- 751 Amortization of deferred compensation . 1,135 -- 1,135 Income tax benefit related to deferred compensation ........................ -- -- (360) Deferred compensation adjustment related to forfeited stock options .. 1,992 -- -- Net income ............................ -- 167,784 167,784 --------- --------- --------- BALANCE, December 31, 1999 .............. $ (4,489) $ 97,943 $ 974,917 --------- --------- ---------
The accompanying notes are an integral part of these consolidated statements. F-6 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS)
ADDITIONAL ADDITIONAL PAID-IN PAID-IN SERIES D CLASS A CLASS B ADDITIONAL CAPITAL - CAPITAL - PREFERRED COMMON COMMON PAID-IN EQUITY PUT DEFERRED STOCK STOCK STOCK CAPITAL OPTIONS COMPENSATION ----- ----- ----- ------- ------- ------------ BALANCE, December 31, 1999 ................... $35 $ 491 $ 476 $ 834,393 $ 46,068 $(4,489) Class B Common Stock converted into Class A Common Stock ..................... -- 21 (21) -- -- -- Repurchase and retirement of 12,560,400 shares of Class A Common Stock ........... -- (126) -- (123,174) -- -- Dividends payable on Series D Preferred Stock .................................... -- -- -- -- -- -- Stock option grants ........................ -- -- -- 558 -- (558) Stock options exercised .................... -- -- 53 -- -- Class A Common Stock issued pursuant to employee benefit plans ................ -- 4 -- 2,655 -- -- Equity put options ......................... -- -- -- 38,257 (38,257) -- Reclassification due to adoption of EITF No. 00-19 ........................... -- -- -- -- (7,811) -- Amortization of deferred compensation ...... -- -- -- -- -- 92 Income tax benefit related to deferred compensation ............................. -- -- -- (33) -- -- Deferred compensation adjustment related to forfeited stock options ....... -- -- (2,337) -- 2,337 Net income ................................. -- -- -- -- -- -- Other comprehensive loss on investments, net of tax benefit of $695 ................................... -- -- -- -- -- -- Comprehensive income ....................... -- -- -- -- -- -- --- ----- ------- --------- -------- ------- BALANCE, December 31, 2000 ................... $35 $ 390 $ 455 $ 750,372 $-- $(2,618) === ===== ======= ========= ======== =======
OTHER TOTAL RETAINED COMPREHENSIVE STOCKHOLDERS' EARNINGS LOSS EQUITY -------- ---- ------ BALANCE, December 31, 1999 ................ $ 97,943 $-- $ 974,917 Class B Common Stock converted into Class A Common Stock .................. -- -- -- Repurchase and retirement of 12,560,400 shares of Class A Common Stock ........ -- -- (123,300) Dividends payable on Series D Preferred Stock ................................. (10,350) -- (10,350) Stock option grants ..................... -- -- -- Stock options exercised ................. -- -- 53 Class A Common Stock issued pursuant to employee benefit plans ............. -- -- 2,659 Equity put options ...................... -- -- -- Reclassification due to adoption of EITF No. 00-19 ........................ -- -- (7,811) Amortization of deferred compensation ... -- -- 92 Income tax benefit related to deferred compensation .......................... -- -- (33) Deferred compensation adjustment related to forfeited stock options .... -- -- --------- Net income .............................. 77,365 -- 77,365 Other comprehensive loss on investments, net of tax benefit of $695 ................................ -- (1,062) (1,062) --------- Comprehensive income .................... -- -- 76,303 --------- ------- --------- BALANCE, December 31, 2000 ................ $ 164,958 $(1,062) $ 912,530 ========= ======= ========= The accompanying notes are an integral part of these consolidated statements
F-7 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS)
1998 1999 2000 ---- ---- ---- NET CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) .................................... $ (16,880) $ 167,784 $ 77,365 Adjustments to reconcile net income (loss) to net to cash flows from operating activities - Extraordinary loss ................................. 18,433 -- -- (Gain) loss on sale of broadcast assets ............ (1,232) 418 -- Gain on sale of broadcast assets related to discontinued operations ........................... (10,769) (329,803) (178,134) Loss (gain) on derivative instrument ............... 9,050 (15,747) 296 Cumulative adjustment for change in assets held for sale .............................................. -- -- (1,237) Loss from equity investments ....................... -- 504 16,764 Amortization of debt discount ...................... 98 98 131 Depreciation of property and equipment ............. 29,153 36,419 40,101 Amortization of acquired intangible broadcast assets, non-compete and consulting agreements and other assets ...................................... 98,372 123,273 118,208 Amortization of program contract costs and net realizable value adjustments ...................... 72,403 90,021 100,655 Amortization of deferred compensation .............. 1,721 1,135 92 Deferred tax provision related to operations ....... 30,700 25,197 11,760 Deferred tax provision (benefit) related to sale of broadcast assets from discontinued operations ..... -- 37,988 (5,342) Net effect of change in deferred barter revenues and deferred barter costs ............................. (624) (911) (497) (Decrease) increase in minority interest ........... (98) 316 (891) Changes in assets and liabilities, net of effects of acquisitions and dispositions - (Increase) decrease in accounts receivable, net .... (68,207) (4,579) 31,529 (Increase) decrease in prepaid expenses and other current assets ................................... (2,475) (6,154) 2,019 Decrease in refundable income taxes ................ 10,581 -- -- Increase (decrease) in accounts payable and accrued liabilities ...................................... 40,878 (25,483) (344) Increase (decrease) in income taxes payable ........ -- 106,033 (60,909) Increase in other long-term liabilities ............ 483 3,629 11,864 Payments on program contracts payable .............. (61,107) (79,473) (94,303) --------- --------- --------- Net cash flows from operating activities ........... $ 150,480 $ 130,665 $ 69,127 --------- --------- ---------
The accompanying notes are an integral part of these consolidated statements F-8 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS)
1998 1999 2000 ---- ---- ---- NET CASH FLOWS FROM OPERATING ACTIVITIES ....................... $ 150,480 $ 130,665 $ 69,127 ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment ...................... (19,426) (30,861) (33,256) Payments for acquisitions of television and radio stations ................................................ (2,068,258) (237,274) (89,936) Distribution from (contributions in) investments ........... 665 (15,016) (13,465) Proceeds from sale of broadcast assets ..................... 273,290 733,916 346,439 Loans to officers and affiliates ........................... (2,073) (859) (639) Repayments of loans to officers and affiliates ............. 3,120 2,593 677 ----------- --------- --------- Net cash flows (used in) from investing activities ...... (1,812,682) 452,499 209,820 ----------- --------- --------- NET CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable and commercial bank financing ............................................... 1,822,677 357,500 707,500 Repayments of notes payable, commercial bank financing and capital leases ............................ (578,285) (909,399) (879,500) Repayments of notes and capital leases to affiliates ....... (1,798) (5,314) (6,079) Payments of costs related to bank financings ............... (11,138) -- -- Repurchases of Class A Common Stock ........................ (26,665) (3,494) (107,322) Dividends paid on Series D Preferred Stock ................. (10,350) (10,350) (10,350) Proceeds from exercise of stock options .................... 1,144 1,780 53 Proceeds from execution/termination of derivative instruments ............................................. 9,450 -- 4,434 Net (premiums paid) proceeds related to equity put options ................................................. (14,015) 751 -- Payments for redemption of Series B Preferred Stock ........ -- (1,498) -- Net proceeds from issuances of Class A Common Stock ........ 335,123 -- -- ----------- --------- --------- Net cash flows from (used in) financing activities ...... 1,526,143 (570,024) (291,264) ----------- --------- --------- NET (DECREASE) INCREASE IN CASH ................................ (136,059) 13,140 (12,317) CASH, beginning of period ...................................... 139,327 3,268 16,408 ----------- --------- --------- CASH, end of period ............................................ $ 3,268 $ 16,408 $ 4,091 =========== ========= =========
The accompanying notes are an integral part of these consolidated statements F-9 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Sinclair Broadcast Group, Inc., and all other consolidated subsidiaries, which are collectively referred to hereafter as "the Company, Companies or SBG." The Company owns or provides programming services pursuant to local marketing agreements ("LMAs") to television stations throughout the United States. DISCONTINUED OPERATIONS In July 1999, the Company entered into an agreement to sell 46 of its radio stations in nine markets to Entercom Communications Corporation ("Entercom") for $824.5 million in cash (adjusted for closing costs). In December 1999, the Company completed the sale of 41 of its radio stations in eight markets to Entercom for $700.4 million in cash recognizing a gain, net of tax of $192.4 million. The Company completed the sale of four of the remaining five radio stations to Entercom in July 2000 for $126.6 million in cash and completed the sale of the remaining radio station in Wilkes-Barre to Entercom in November 2000 for a purchase price of $0.6 million in cash. In addition, in October 2000, the Company completed its sale to Emmis Communications Corporation ("Emmis") of the remaining radio stations serving the St. Louis market for a purchase price of $220.0 million. The Company recognized a gain, net of tax of $108.3 million on the sales of these remaining radio stations for the year ended December 31, 2000. Based on the Company's strategy to divest of its radio broadcasting segment, "Discontinued Operations" accounting has been adopted for the periods presented in the accompanying financial statements and the notes thereto. As such, the results from operations of the radio broadcast segment, net of related income taxes, has been reclassified from income from operations and reflected as income from discontinued operations in the accompanying consolidated statements of operations for all periods presented. In addition, assets and liabilities relating to the radio broadcast segment are reflected in "Broadcast assets related to discontinued operations, net of liabilities" in the accompanying consolidated balance sheets for all periods presented. Included in the balance of "Broadcast assets related to discontinued operations, net of liabilities" as of December 31, 1999 was property and programming assets of $13.8 million, intangible assets of $163.9 million, other long-term assets of $1.3 million, programming liabilities of $5.0 million and other long-term liabilities of $1.0 million. Accounts receivable related to discontinued operations, which the Company will continue to own the rights to and collect, is included in "Accounts receivable, net of allowance for doubtful accounts," in the accompanying consolidated balance sheets for all periods presented. "Accounts receivable, net of allowance for doubtful accounts" includes accounts receivable related to discontinued operations balances of $26.9 million, net of allowance of $1.4 million and $1.8 million, net of allowance of $1.4 million as of December 31, 1999 and 2000, respectively. "Net income from discontinued operations" includes net broadcast revenues of $112.4 million, $133.8 million and $27.9 million for the years ended December 31, 1998, 1999 and 2000, respectively. Discontinued operations have not been segregated in the Statement of Consolidated Cash Flows and therefore, amounts for certain captions will not agree with the accompanying Consolidated Statements of Operations. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all its wholly-owned and majority-owned subsidiaries. Minority interest represents a minority owner's proportionate share of the equity in certain of the Company's subsidiaries. All significant intercompany transactions and account balances have been eliminated. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, F-10 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) liabilities, revenues and expenses in the financial statements and in the disclosures of contingent assets and liabilities. While actual results could differ from those estimates, management believes that actual results will not be materially different from amounts provided in the accompanying consolidated financial statements. 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 at an amount equal to its gross contractual commitment when the license period begins and the program is available for its first showing. The portion of program contracts which become payable within one year is reflected as a current liability in the accompanying consolidated balance sheets. The rights to program materials are reflected in the accompanying consolidated balance sheets at the lower of unamortized cost or estimated net realizable value. Estimated net realizable values are based upon management's expectation of future advertising revenues net of sales commissions to be generated by the program material. Amortization of program contract costs is generally computed using either a four year accelerated method or based on usage, whichever yields the greater amortization for each program. Program contract costs, estimated by management to be amortized in the succeeding year, are classified as current assets. Payments of program contract liabilities are typically paid on a scheduled basis and are not affected by adjustments for amortization or estimated net realizable value. BARTER ARRANGEMENTS 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 Other assets as of December 31, 1999 and 2000 consist of the following (in thousands):
1999 2000 ---- ---- Unamortized costs relating to securities issuances ......... $ 27,236 $ 23,307 Investments ................................................ 19,329 14,063 Notes and other accounts receivable ........................ 54,101 52,558 Deposits and other costs relating to future acquisitions ... 7,195 2,272 Fair value of derivative instrument ........................ -- 6,050 Other ...................................................... 522 5,613 -------- -------- $108,383 $103,863 ======== ========
F-11 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) The Company uses the equity method of accounting for investments in which it has a 20% to 50% ownership interest or when the Company has significant influence. For investments in which it has less than a 20% interest, the Company uses the lower of cost or fair market value method of accounting. The Company has a 35% ownership interest in Acrodyne Communications, Inc. ("Acrodyne"), a manufacturer of television transmitters and other broadcast equipment. The Company accounts for its investment in Acrodyne under the equity method of accounting. During August 2000, Acrodyne announced that it would be restating its financial statements for the year ended December 31, 1999 and the three months ended March 31, 2000 due to an overstatement of revenue, inventory and gross profits. The impact of the 1999 restatement, which would have increased the Company's equity share of Acrodyne's losses from $0.5 million to $2.3 million was not material to the Company's 1999 net income. As a result of the restatement, Acrodyne was unable to fulfill its quarterly reporting requirements with the SEC for the quarters ended June 30, 2000 and September 30, 2000 on a timely basis. During September 2000, Acrodyne was delisted from NASDAQ. As a result, the Company wrote-off its investment in Acrodyne to zero and recorded a loss of $6.9 million, including its equity in the revised 1999 losses described above and the 2000 losses through the write-off date, which has been reflected in the accompanying Statements of Operations as "Loss related to investments". In addition, during 2000, the Company advanced and guaranteed loans to Acrodyne under two credit facilities which were fully reserved as of December 31, 2000. Accordingly, the Company incurred a loss of $3.2 million during 2000 which has also been reflected in the accompanying Statements of Operations as "Loss related to investments". In 1999, the Company made a $2.0 million investment, representing a 30% ownership interest, in Channel 23 LLC, a start-up entity created to purchase a FCC license and retransmit a signal in the Tuscaloosa, Alabama market. Channel 23 LLC had no operations and was abandoned by the Company during 2000 resulting in a loss of $2.2 million which has also been reflected in the accompanying Statements of Operations as "Loss related to investments". The Company has no other investments, which were material, individually, or in the aggregate to the accompanying financial statements. ACQUIRED INTANGIBLE BROADCAST ASSETS Acquired intangible broadcast assets are being amortized on a straight-line basis over periods of 1 to 40 years. These amounts result from the acquisition of certain television station license and non-license assets. 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. As of December 31, 2000, management believes that the carrying amounts of the Company's tangible and intangible assets have not been impaired. Intangible assets as of December 31, 1999 and 2000, consist of the following (in thousands):
AMORTIZATION PERIOD 1999 2000 ------ ---- ---- Goodwill .......................... 40 years $ 1,539,151 $ 1,733,958 Intangibles related to LMAs ....... 15 years 463,067 460,463 Decaying advertiser base .......... 3 - 15 years 92,000 88,584 FCC licenses ...................... 25 years 433,790 515,044 Network affiliations .............. 25 years 241,356 223,359 Other ............................. 1 - 40 years 48,908 45,096 ----------- ----------- 2,818,272 3,066,504 Less - Accumulated amortization.... (331,308) (382,398) ----------- ----------- $ 2,486,964 $ 2,684,106 =========== ===========
F-12 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) ACCRUED LIABILITIES Accrued liabilities consist of the following as of December 31, 1999 and 2000 (in thousands):
1999 2000 ---- ---- Compensation .................................. $20,862 $18,635 Interest ...................................... 27,478 23,864 Unsettled stock repurchases ................... -- 15,979 Other accruals relating to operating expenses.. 18,738 22,148 ------- ------- $67,078 $80,626 ======= =======
SUPPLEMENTAL INFORMATION - STATEMENT OF CASH FLOWS During 1998, 1999 and 2000, the Company incurred the following transactions (in thousands):
1998 1999 2000 ---- ---- ---- o Purchase accounting adjustments related to deferred taxes.............. $ 113,950 $ -- $ -- =========== =========== =========== o Capital leases obligations incurred..... $ 3,807 $ 22,208 $ 5,319 =========== =========== =========== o Income taxes paid from operations...... $ 3,588 $ 7,433 $ 6,383 =========== =========== =========== o Income taxes paid related to sale of discontinued operations............. $ -- $ -- $ 115,054 =========== =========== =========== o Income tax refund received............. $ 10,486 $ 2,231 $ 3,598 =========== =========== =========== o Subsidiary trust minority interest payments .............................. $ 23,250 $ 23,250 $ 23,250 =========== =========== =========== o Interest paid.......................... $ 117,658 $ 203,976 $ 139,833 =========== =========== ===========
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 Federal Communications Commission ("FCC") license, the owner-operator retains control and responsibility for the operation of the station, including responsibility over all programming broadcast on the station. Included in the accompanying consolidated statements of operations for the years ended December 31, 1998, 1999 and 2000, are net revenues of $202.5 million, $263.0 million and $253.9 million, respectively, that relate to LMAs. BROADCAST ASSETS HELD FOR SALE In March 1999, the Company entered into an agreement to sell to Sunrise Television Corporation ("STC") the television stations WICS/WICD-TV in the Springfield/Champaign, Illinois market and KGAN-TV in the Cedar Rapids, Iowa market. In April 1999, the Justice Department requested additional information in response to STC's filing under the Hart-Scott-Rodino Antitrust Improvements Act. Pursuant to the agreement, if the transaction did not close by March 16, 2000, either STC or the Company had the option to terminate the agreement at that time. On March 15, 2000, the Company entered into an agreement to terminate the STC transaction. As a result of its termination, the Company recorded a cumulative accounting adjustment during the first quarter of 2000 as the Company had previously recorded the assets F-13 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) and liabilities related to these stations as "Broadcast Assets Held for Sale" and deferred the losses related to these stations until they were sold. As of December 31, 1999, broadcast assets held for sale, less current portion, included the assets of KDNL-TV in the St. Louis, Missouri market. The assets were reclassified to the appropriate balance sheet classifications during the second quarter of 2000 as the option to sell these assets was subsequently terminated (see Note 11). REVENUE RECOGNITION Advertising revenues, net of agency and national representatives' commissions, are recognized in the period during which time spots are aired. Total revenues includes (i) cash and barter advertising revenues, net of agency and national representatives' commissions, (ii) network compensation, and (iii) other revenues. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' financial statements to conform with the current year presentation. 2. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed under the straight-line method over the following estimated useful lives:
Buildings and improvements .......................... 10 - 35 years Station equipment ................................... 5 - 10 years Office furniture and equipment ...................... 5 - 10 years Leasehold improvements .............................. 10 - 31 years Automotive equipment ................................ 3 - 5 years Shorter of 10 years Property and equipment and autos under capital leases or the lease term
Property and equipment consisted of the following as of December 31, 1999 and 2000 (in thousands):
1999 2000 ---- ---- Land and improvements ............... $ 13,015 $ 17,209 Buildings and improvements .......... 67,273 82,667 Station equipment ................... 216,250 254,810 Office furniture and equipment ...... 27,060 33,409 Leasehold improvements .............. 10,441 9,418 Automotive equipment ................ 7,760 9,958 Construction in Progress ............ -- 3,184 --------- --------- 341,799 410,655 Less - Accumulated depreciation ..... (90,016) (129,668) --------- --------- $ 251,783 $ 280,987 ========= =========
3. DERIVATIVE INSTRUMENTS: The Company enters into derivative instruments primarily for the purpose of reducing the impact of changing interest rates on its floating rate debt, and to reduce the impact of changing fair market values on its fixed rate debt. In addition, the Company has entered into put and call option derivative instruments relating to the Company's Class A Common Stock in order to hedge the possible dilutive effect of employees exercising stock options pursuant to the Company's stock option plans. The Company does not enter into derivative instruments for speculative trading purposes. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 133 In June, 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 1999, the FASB issued Statement No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - F-14 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133. In June 2000, the FASB issued Statement 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO. 133. Statement 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative instrument's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instrument's gains and losses to offset related results on the hedged item in the income statement, to the extent effective, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The Company estimates that SFAS 133 will have the following impact on its financial statements. The Company's existing interest rate swap agreements are not expected to qualify for special hedge accounting treatment under SFAS 133. As a result, both of the Company's interest rate swap agreements will be reflected as liabilities on January 1, 2001 at their total fair market value of $7.1 million (described below), with subsequent changes in their fair market values recorded as other income or loss. The transition adjustment to record the Company's fixed-to-floating rate derivative will result in an increase in both the derivative liability and bond discount of $1.0 million (included in the $7.1 million above) on the balance sheet. The bond discount will be amortized to interest expense through December 15, 2007, the termination date of the swap agreement. SFAS 133 requires deferred gains and losses on terminated floating-to-fixed rate hedges (described above) to be presented as other comprehensive income or loss on the balance sheet. As a result, the Company will be required to reclassify the $4.3 million net balance of deferred losses to other comprehensive loss as of January 1, 2001, which will be amortized to interest expense over the term of the related debt. INTEREST RATE HEDGING DERIVATIVE INSTRUMENTS As of December 31, 2000, the Company had an interest rate swap agreement with a notional amount of $575 million which expires on June 3, 2004. The swap agreement requires the Company to pay a fixed rate which is set in the range of 6% to 6.55% and receive a floating rate based on the three month London Interbank Offered Rate ("LIBOR"), and the measurement and settlement is performed quarterly. This swap agreement is reflected as a derivative obligation of $6.1 million as a component of "Accrued liabilities" on the accompanying consolidated balance sheet as of December 31, 2000 as a result of a modification of the agreement during 2000. In addition, the Company has entered into an interest rate swap agreement with a notional amount of $250 million which expires on December 15, 2007 in which the Company receives a fixed rate of 8.75% and pays a floating rate based on LIBOR (and the measurement and settlement is performed quarterly). Periodic settlements of these agreements are recorded as adjustments to interest expense in the relevant periods. The counterparties to these agreements are international financial institutions. The Company estimates the fair value of these instruments at December 31, 2000 to be $7.1 million, consisting of $6.1 million related to the floating-to-fixed rate agreement and $1.0 million related to the fixed-to-floating rate agreement. The fair value of the interest rate swap agreements is estimated by obtaining quotations from the financial institutions which are a party to the Company's derivative contracts (the "Banks"). The fair value is an estimate of the net amount that the Company would pay on December 31, 2000 if the contracts were transferred to other parties or cancelled by the Company. The Company experienced losses of $2.6 million during 2000 as a result of terminating two of its fixed-to-floating interest rate swap agreements. The losses resulting from these terminations are reflected as a discount on the Company's fixed rate debt and are being amortized to interest expense through December 15, 2007, the expiration date of the terminated swap agreements. For the year ended December 31, 2000, amortization of $0.03 million of the discount was recorded to interest expense. The Company experienced gains of $1.9 million as a result of terminating several of its floating-to-fixed interest rate swap agreements. In addition, the Company experienced a loss of $6.1 million as a result of modifying the terms of its remaining floating-to-fixed interest rate swap agreement, as discussed above. The gains and losses resulting from these terminations and modifications have been deferred and are recorded as "Other long-term liabilities" and "Other assets" on the accompanying consolidated balance F-15 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) sheet as of December 31, 2000. These deferred gains and losses are being amortized to interest income and expense through the expiration dates of the terminated or modified swap agreements, which expire from July 9, 2001 to June 3, 2004. For the year ended December 31, 2000, amortization of $0.1 million of the deferred gain was recorded to interest expense. No amortization of the deferred loss was recorded because the loss occurred on the last business day of 2000. TREASURY OPTION DERIVATIVE INSTRUMENT In August 1998, the Company entered into a treasury option derivative contract (the "Option Derivative"). The Option Derivative contract provided for 1) an option exercise date of September 27, 2000, 2) a notional amount of $300 million and 3) a five-year treasury strike rate of 6.14%. Upon the execution of the Option Derivative contract in 1998, the Company received a cash payment representing an option premium of $9.5 million which was recorded in "Other long-term liabilities" in the accompanying consolidated balance sheets. The Company adjusted its liability to the present value of the future payments of the settlement amounts based on the forward five-year treasury rate at the end of each accounting period. These adjustments are reflected on the Company's Consolidated Statement of Operations as "Unrealized gains or losses on derivative instrument". On September 27, 2000, the yield in the five-year treasury rate was 5.906% resulting in a loss of $0.3 million for the year ended December 31, 2000. In addition, the Company made a cash settlement payment of $3.0 million upon the expiration of the Option Derivative contract which is equal to the notional amount of $300 million multiplied by the strike rate (6.14%) less the settlement rate (5.906%) discounted over a five-year period. The Company realized a $6.4 million cash profit over the life of the transaction. EQUITY PUT AND CALL OPTIONS 1997 OPTIONS In April 1997, the Company entered into put and call option contracts related to its common stock for the purpose of hedging the dilution of the common stock upon the exercise of stock options granted. The Company entered into 1,100,000 European style (that is, exercisable on the expiration date only) put options for common stock with a strike price of $12.89 per share which provide for settlement in cash or in shares, at the election of the Company. The Company entered into 1,100,000 American style (that is, exercisable any time on or before the expiration date) call options for common stock with a strike price of $12.89 per share which provide for settlement in cash or in shares, at the election of the Company. For the year ended December 31, 2000, upon the settlement of these options, the Company repurchased 1,100,000 shares of common stock and made payments of $14.2 million. 1998 OPTIONS In July 1998, the Company entered into put and call option contracts related to the Company's common stock (the "July Options"). In September 1998, the Company entered into additional put and call option contracts related to the Company's common stock (the "September Options"). These option contracts allow for settlement in cash or net physically in shares, at the election of the Company. The Company entered into these option contracts for the purpose of hedging the dilution of the Company's common stock upon the exercise of stock options granted. The July Options included 2,700,000 call options for common stock and 2,700,000 put options for common stock, with a strike price of $33.27 and $28.93 per common share, respectively. The September Options included 467,000 call options for common stock and 700,000 put options for common stock, with a strike price of $28.00 and $16.0625 per common share, respectively. For the year ended December 31, 1998, option premium payments of $12.2 million and $0.7 million were made relating to the July and September Options, respectively. The Company recorded these premium payments as a reduction of additional paid-in capital. To the extent that the Company entered into put options related to its common stock, the additional paid-in capital amounts were reclassified accordingly and reflected as Equity Put Options in the accompanying consolidated balance sheet as of December 31, 1998. For the year ended December 31, 1999, the Company recorded receipts F-16 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) of $1.25 million relating to the 1998 September Options as an increase in additional paid-in capital. Additionally, 200,000 of the 1998 September Options were retired during 1999. The 1998 July Options and September Options were exercised during March 2000. The Company repurchased 208,400 shares and made a net payment of $1.6 million related to this settlement. The 1998 September Options were amended during March 2000 to include 2.1 million equity put options at a put strike price of $10.125. The Company settled the 1998 September options during December 2000 and repurchased 1,430,000 shares of common stock and made a payment of $14.5 million related to this settlement. Additionally, during 2000, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF) released EITF Issue No. 00-19, ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK. EITF Issue No. 00-19 clarified how freestanding contracts that are indexed to, and potentially settled in, a company's own stock should be classified and measured. As a result of implementing EITF Issue No. 00-19, the Company reclassified the balance relating to the July Options of $7.8 million from Additional Paid-in Capital-Equity Put Options to Equity Put Options as reflected in the accompanying balance sheet as of December 31, 2000. 1999 OPTIONS In September 1999, the Company entered into put and call option contracts related to the Company's common stock. The Company entered into 1,700,000 European style put options for common stock with a strike price of $9.45 per share which provide for settlement in cash or in shares, at the election of the Company. In September 1999, the Company entered into 1,000,000 American style call options for common stock with a strike price $10.45 per share which provide for settlement in cash or in shares, at the election of the Company. For the year ended December 31, 1999, option premium payments of $0.5 million were made relating to the September call options. The Company recorded these premium payments as a reduction of additional paid-in capital. To the extent that the Company entered into put options related to its common stock, the additional paid-in capital amounts were reclassified accordingly and reflected as Equity Put Options in the accompanying consolidated balance sheet as of December 31, 1999. For the year ended December 31, 2000, upon settlement of these options, the Company repurchased 1,030,000 shares of common stock and made payments of $9.7 million. 4. NOTES PAYABLE AND COMMERCIAL BANK FINANCING: 1998 BANK CREDIT AGREEMENT In order to expand its borrowing capacity to fund acquisitions and obtain more favorable terms with its syndicate of banks, the Company obtained a new $1.75 billion senior secured credit facility (the "1998 Bank Credit Agreement"). The 1998 Bank Credit Agreement was executed in May 1998 and includes (i) a $750.0 million Term Loan Facility repayable in consecutive quarterly installments commencing on March 31, 1999 and ending on September 15, 2005; and (ii) a $1.0 billion reducing Revolving Credit Facility. Availability under the Revolving Credit Facility reduces quarterly, commencing March 31, 2001 and terminating on September 15, 2005. Not more than $350.0 million of the Revolving Credit Facility will be available for issuances of letters of credit. The 1998 Bank Credit Agreement also includes a standby uncommitted multiple draw term loan facility of $400.0 million. The Company is required to prepay the Term Loan Facility and reduce the Revolving Credit Facility with (i) 100% of the net proceeds of any casualty loss or condemnation; (ii) 100% of the net proceeds of any sale or other disposition by the Company of any assets in excess of $100.0 million in the aggregate for any fiscal year, to the extent not used to acquire new assets; and (iii) 50% of excess cash flow (as defined) if the Company's ratio of debt to EBITDA (as defined) exceeds a certain threshold. The 1998 Bank Credit Agreement contains representations and warranties, and affirmative and negative covenants, including among other restrictions, limitations on additional indebtedness, customary for credit facilities of this type. The 1998 Bank Credit Agreement is secured only by a pledge of the stock of each subsidiary of the Company other than KDSM, Inc., KDSM Licensee, Inc., Cresap Enterprises, Inc., Sinclair Capital and Sinclair Ventures, Inc. The Company is required to maintain certain debt covenants in connection with the 1998 Bank Credit Agreement. As of December 31, 2000, the Company was in compliance with all debt covenants. F-17 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) The applicable interest rate for the Term Loan Facility and the Revolving Credit Facility is either LIBOR plus 0.5% to 1.875% or the alternative base rate plus zero to 0.625%. The applicable interest rate for the Term Loan Facility and the Revolving Credit Facility is adjusted based on the ratio of total debt to four quarters' trailing earnings before interest, taxes, depreciation and amortization. As of December 31, 2000, the Company's applicable interest rate for borrowings under the 1998 Bank Credit Agreement is either LIBOR plus 1.5% or the alternative base rate plus 0.25%. As a result of entering into the Company's 1998 Bank Credit Agreement, the Company incurred debt acquisition costs of $11.1 million and recognized an extraordinary loss of $11.1 million net of a tax benefit of $7.4 million. The extraordinary loss represents the write-off of debt acquisition costs associated with indebtedness replaced by the new facility. The weighted average interest rates for outstanding indebtedness relating to the 1998 Bank Credit Agreement during 2000 and as of December 31, 2000 were 7.73% and 7.54%, respectively. Interest expense relating to the 1998 Bank Credit Agreement was $108.9 million and $79.3 million for years ended December 31, 1999 and 2000, respectively. 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007: In December 1997, the Company completed an issuance of $250 million aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2007 (the "8 3/4% Notes") pursuant to a shelf registration statement and generated net proceeds to the Company of $242.8 million. Of the net proceeds from the issuance, $106.2 million was utilized to tender the Company's 1993 Notes with the remainder retained for general corporate purposes which may include payments relating to future acquisitions. Interest on the 8 3/4% Notes is payable semiannually on June 15 and December 15 of each year, commencing June 15, 1998. Interest expense was $21.9 million for each of the three years ended December 31, 1998, 1999 and 2000. The 8 3/4% Notes are issued under an Indenture among SBG, its subsidiaries (the guarantors) and the trustee. Costs associated with the offering totaled $5.8 million, including an underwriting discount of $5.0 million. These costs were capitalized and are being amortized over the life of the debt. Based upon the quoted market price, the fair value of the 8 3/4% Notes as of December 31, 1999 and 2000 was $231.3 million and $220.4 million, respectively. 9% SENIOR SUBORDINATED NOTES DUE 2007: In July 1997, the Company completed an issuance of $200 million aggregate principal amount of 9% Senior Subordinated Notes due 2007 (the "9% Notes"). The Company utilized $162.5 million of the approximately $195.6 million net proceeds of the issuance to repay outstanding revolving credit indebtedness and utilized the remainder to fund acquisitions. Interest on the 9% Notes is payable semiannually on January 15 and July 15 of each year, commencing January 15, 1998. Interest expense was $18.0 million for each of the three years ended December 31, 1998, 1999 and 2000. The 9% Notes are issued under an Indenture among SBG, its subsidiaries (the guarantors) and the trustee. Costs associated with the offering totaled $4.8 million, including an underwriting discount of $4.0 million. These costs were capitalized and are being amortized over the life of the debt. Based upon the quoted market price, the fair value of the 9% Notes as of December 31, 1999 and 2000 was $186.2 million and $180.4 million, respectively. 10% SENIOR SUBORDINATED NOTES DUE 2005 In August 1995, the Company completed an issuance of $300 million aggregate principal amount of 10% Senior Subordinated Notes (the "1995 Notes"), due 2005, generating net proceeds to the Company of $293.2 million. The net proceeds of this offering were utilized to repay outstanding indebtedness under the then existing Bank Credit Agreement of $201.8 million with the remainder being retained and eventually utilized to make payments related to certain acquisitions consummated during 1996. Interest on the Notes is payable semiannually on March 30 and September 30 of each year. Interest expense was $30.0 million for each of the three years ended December 31, 1998, 1999 and 2000. The notes are issued under an indenture among SBG, its subsidiaries (the guarantors) and the trustee. Costs associated with the F-18 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) offering totaled $6.8 million, including an underwriting discount of $6.0 million. These costs were capitalized and are being amortized over the life of the debt. Based upon the quoted market price, the fair value of the 1995 Notes as of December 31, 1999 and 2000 was $296.1 million and $291.2 million, respectively. 10% SENIOR SUBORDINATED NOTES DUE 2003 AND 1997 TENDER OFFER In December 1993, the Company completed an issuance of $200 million aggregate principal amount of 10% Senior Subordinated Notes (the "1993 Notes"), due 2003. Subsequently, the Company determined that a redemption of $100.0 million was required. This redemption and a refund of $1.0 million of fees from the underwriters took place in the first quarter of 1994. In December 1997, the Company completed a tender offer of $98.1 million aggregate principal amount of the 1993 Notes (the "Tender Offer"). Total consideration per $1,000 principal amount note tendered was $1,082.08 resulting in total consideration paid to consummate the Tender Offer of $106.2 million. In conjunction with the Tender Offer, the Company recorded an extraordinary loss of $6.1 million, net of a tax benefit of $4.0 million. In the second quarter of 1999, the Company redeemed the remaining 1993 notes for a total consideration of $1.9 million. Interest expense for the years ended December 31, 1998 and 1999, was $0.2 million and $60,000, respectively. The Notes are issued under an Indenture among SBG, its subsidiaries (the guarantors) and the trustee. SUMMARY Notes payable, capital lease and commercial bank financing consisted of the following as of December 31, 1999 and 2000 (in thousands):
1999 2000 ---- ---- Bank Credit Agreement, Term Loan .............................. $ 700,000 $ 625,000 Bank Credit Agreement, Revolving Credit Facility .............. 303,000 206,000 8 3/4% Senior Subordinated Notes, due 2007 .................... 250,000 250,000 9% Senior Subordinated Notes, due 2007 ........................ 200,000 200,000 10% Senior Subordinated Notes, due 2005 ....................... 300,000 300,000 Capital lease ................................................. -- 3,767 Installment note for certain real estate interest at 8.0% ..... 87 79 ----------- ----------- 1,753,087 1,584,846 Less: Discount on 8 3/4% Senior Subordinated Notes, due 2007 ............................................. (780) (682) Less: Discount from terminations of derivative instruments on 9% and 10% notes ............................. -- (2,585) Less: Current portion ........................................ (75,008) (100,018) ----------- ----------- $ 1,677,299 $ 1,481,561 =========== ===========
F-19 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) Indebtedness under the 1998 Bank Credit Agreement, notes payable and capital lease as of December 31, 2000, mature as follows (in thousands):
2001 ........................................................... $ 100,018 2002 ........................................................... 100,035 2003 ........................................................... 125,047 2004 ........................................................... 150,074 2005 ........................................................... 656,142 2006 and thereafter ............................................ 453,530 ----------- 1,584,846 Less: Discount on 8 3/4% Senior Subordinated Notes due 2007 .... (682) Less: Discount from swap terminations on 9% and 10% notes ...... (2,585) ----------- $ 1,581,579
Substantially all of the Company's stock in its wholly owned subsidiaries has been pledged as security for notes payable and commercial bank financing. 5. NOTES AND CAPITAL LEASES PAYABLE TO AFFILIATES: Notes and capital leases payable to affiliates consisted of the following as of December 31, 1999 and 2000 (in thousands):
1999 2000 ---- ---- Subordinated installment notes payable to former majority owners, interest at 8.75%, principal payments in varying amounts due annually beginning October 1991, with a balloon payment due at maturity in May 2005 ...................................................... $ 7,632 $ 6,554 Capital lease for building, interest at 17.5% ............................... 676 304 Capital lease for building, interest at 6.62% ............................... 9,136 7,857 Capital leases for broadcasting tower facilities, interest rates averaging 10% .................................................... 3,310 3,070 Capitalization of time brokerage agreements, interest at 6.20% to 8.25% ......................................................... 18,827 15,648 Capital leases for building and tower, interest at 8.25% .................... 451 1,414 -------- -------- 40,032 34,847 Less: Current portion ....................................................... (5,890) (5,838) -------- -------- $ 34,142 $ 29,009 ======== ========
Notes and capital leases payable to affiliates, as of December 31, 2000, mature as follows (in thousands):
2001 ....................................................... $ 8,238 2002 ....................................................... 7,209 2003 ....................................................... 5,945 2004 ....................................................... 5,246 2005 ....................................................... 6,126 2006 and thereafter ........................................ 11,413 -------- Total minimum payments due ................................. 44,177 Less: Amount representing interest ......................... (9,330) -------- Present value of future notes and capital lease payments ... $ 34,847 ========
F-20 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) 6. PROGRAM CONTRACTS PAYABLE: Future payments required under program contracts payable as of December 31, 2000 were as follows (in thousands):
2001 ................................................ $ 110,217 2002 ................................................ 54,134 2003 ................................................ 32,143 2004 ................................................ 11,493 2005 ................................................ 1,326 2006 and thereafter ................................. 50 --------- 209,363 Less: Current portion ............................... (110,217) --------- Long-term portion of program contracts payable ...... $ 99,146 =========
Included in the current portion amounts are payments due in arrears of $23.6 million. In addition, the Company has entered into non-cancelable commitments for future program rights aggregating $183.7 million as of December 31, 2000. The Company has estimated the fair value of its program contract payables and non-cancelable commitments at approximately $173.8 million and $145.3 million, respectively, as of December 31, 1999, and $178.3 million and $149.3 million, respectively, at December 31, 2000. These estimates were based on future cash flows discounted at the Company's current borrowing rate. 7. RELATED PARTY TRANSACTIONS: In connection with the start-up of an affiliate in 1990, certain Class B Stockholders issued a note allowing them to borrow up to $3.0 million from the Company. This note was amended and restated June 1, 1994, to a term loan bearing interest of 6.88% with quarterly principal payments beginning March 31, 1996 through December 31, 1999. The note was paid in full as of December 31, 1999. During the year ended December 31, 1993, the Company loaned Gerstell Development Limited Partnership (a partnership owned by Class B Stockholders) $2.1 million. The note bears interest at 6.18%, with principal payments beginning on November 1, 1994, and a final maturity date of October 1, 2013. As of December 31, 1999 and 2000, the balance outstanding was approximately $1.7 million. Concurrently with the Company's initial public offering, the Company acquired options from certain stockholders of Glencairn, LTD ("Glencairn") that will grant the Company the right to acquire, subject to applicable FCC rules and regulations, up to 97% of the capital stock of Glencairn. The Glencairn option exercise price is based on a formula that provides a 10% annual return to Glencairn. Glencairn is the owner-operator and FCC licensee of WNUV in Baltimore, WVTV in Milwaukee, WRDC in Raleigh/Durham, WABM in Birmingham, KRRT in Kerrville, WBSC in Asheville/Greenville /Spartanburg and WTTE in Columbus. The Company has entered into five-year LMA agreements (with five-year renewal terms at the Company's option) with Glencairn pursuant to which the Company provides programming to Glencairn for airing on WNUV, WVTV, WRDC, WABM, KRRT, WBSC and WTTE. During the years ended December 31, 1998, 1999 and 2000, the Company made payments of $9.8 million, $10.8 million and $11.3 million, respectively, to Glencairn under these LMA agreements. During the years ended December 31, 1998, 1999 and 2000, the Company from time to time entered into charter arrangements to lease aircraft owned by certain Class B Stockholders. During the years ended December 31, 1998, 1999 and 2000, the Company incurred expenses of approximately $0.6 million, $0.4 million and $0.2 million related to these arrangements, respectively. F-21 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) Certain assets used by the Company and its operating subsidiaries are leased from Cunningham Communications Inc., Keyser Investment Group, Gerstel LP, and Beaver Dam, LLC (entities owned by the Class B Stockholders). Lease payments made to these entities were $1.5 million, $2.1 million, and $2.8 million for the years ended December 31, 1998, 1999 and 2000, respectively. 8. INCOME TAXES: The Company files a consolidated federal income tax return and separate company state tax returns. The provision (benefit) for income taxes consisted of the following for the years ended December 31, 1998, 1999 and 2000 (in thousands):
1998 1999 2000 ---- ---- ---- Provision for income taxes - continuing operations .... $ 32,562 $ 25,107 $ 4,816 Provision for income taxes - discontinued operations ... 13,096 149,771 73,120 Benefit from income taxes - extraordinary item ......... (7,370) -- -- --------- -------- ------- $ 38,288 $174,878 $77,936 ========= ======== ======= Current: Federal ............................................. $ 3,953 $ 81,370 $58,079 State ............................................... 3,635 30,323 13,439 --------- -------- ------- 7,588 111,693 71,518 --------- -------- ------- Deferred: Federal ............................................. 26,012 56,576 5,829 State ............................................... 4,688 6,609 589 --------- -------- ------- 30,700 63,185 6,418 --------- -------- ------- $ 38,288 $174,878 $77,936 ========= ======== =======
The following is a reconciliation of federal income taxes at the applicable statutory rate to the recorded provision from continuing operations:
1998 1999 2000 ---- ---- ---- Statutory federal income taxes ....................... 35.0% (35.0%) (35.0%) Adjustments- State income and franchise taxes, net of federal effect .......................................... 68.9 21.2 7.0 Goodwill amortization ............................. 106.8 99.5 39.0 Non-deductible expense items ...................... 168.1 57.4 6.5 Tax liability related to dividends on Parent Preferred Stock (a) ............................. 121.7 -- -- Other ............................................. 11.4 4.4 (1.9) ----- ----- ---- Provision for income taxes ........................... 511.9% 147.5% 15.6% ===== ===== ====
- --------------- (a) In March 1997, the Company issued the HYTOPS securities. In connection with this transaction, Sinclair Broadcast Group, Inc. (the "Parent") issued $206.2 million of Series C Preferred Stock (the "Parent Preferred Stock") to KDSM, Inc., a wholly owned subsidiary. Parent Preferred Stock dividends paid to KDSM, Inc. are considered taxable income for Federal tax purposes and not considered income for book purposes. Also for Federal tax purposes, KDSM, Inc. is allowed a tax deduction for dividends received on the Parent Preferred Stock in an amount equal to Parent Preferred Stock dividends received in each taxable year limited to the extent that the Parent's consolidated group has "earnings and profits." To the extent that dividends received by KDSM, Inc. are in excess of the Parent's consolidated group earnings and profits, KDSM will reduce its tax basis in the Parent Preferred Stock which gives rise to a deferred tax liability (to be recognized upon redemption). During the year ended December 31, 1998, the Parent did not generate "earnings and profits" in an amount greater than or equal to dividends paid on the Parent Preferred Stock. This resulted in a reduction in basis of the Parent's Series C Preferred Stock and generated a related deferred tax liability. During the years ended December 31, 1999 and 2000, the Parent generated "earnings and profits" and avoided a reduction in basis of its Parent Preferred Stock. - -------------------------------------------------------------------------------- F-22 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) Temporary differences between the financial reporting carrying amounts and the tax basis of assets and liabilities give rise to deferred taxes. The Company had a net deferred tax liability of $228.7 million and $243.1 million as of December 31, 1999 and 2000, respectively. The Company's remaining Federal NOL's will expire during various years from 2011 to 2019, and are subject to annual limitations under Internal Revenue Code Section 382 and similar state provisions. The tax effects of these NOL's are recorded in the deferred tax accounts in the accompanying consolidated balance sheets. Total deferred tax assets and deferred tax liabilities as of December 31, 1999 and 2000 were as follows (in thousands):
1999 2000 ---- ---- Deferred Tax Assets: Accruals and reserves ............................................ $ 7,868 $ 7,941 Net operating losses ............................................. 491 2,895 Tax credits ...................................................... -- 534 Investments ...................................................... 158 11,494 Other ............................................................ 1,909 2,921 --------- --------- $ 10,426 $ 25,785 ========= ========= Deferred Tax Liabilities: FCC license ...................................................... $ (29,010) $ (44,466) Parent Preferred Stock deferred tax liability (see (a) above) .... (25,833) (25,833) Fixed assets and intangibles ..................................... (168,995) (181,378) Program contracts ................................................ (8,715) (12,100) Treasury option derivative ....................................... (2,679) -- Capital leases ................................................... (2,513) (3,232) Other ............................................................ (1,393) (1,925) --------- --------- $(239,138) $(268,934) ========= =========
During 2000, the Company acquired the stock of Montecito Broadcasting Corporation ("Montecito") and Grant Television, Inc. ("Grant"). The Company recorded net deferred tax liabilities resulting from these purchases of approximately $8.7 million. These net deferred tax liabilities primarily relate to the differences between financial reporting carrying amounts and tax basis amounts as measured upon the purchase date. 9. EMPLOYEE BENEFIT PLAN: The Sinclair Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the "SBG Plan") covers eligible employees of the Company. Contributions made to the SBG Plan include an employee elected salary reduction amount, company matching contributions and a discretionary amount determined each year by the Board of Directors. The Company's 401(k) expense for the years ended December 31, 1998, 1999 and 2000 was $1.2 million, $1.4 million and $1.7 million, respectively. There were no discretionary contributions during these periods. During December 1997, the Company registered 800,000 shares of its Class A Common Stock with the Securities and Exchange Commission (the "Commission") to be issued as a matching contribution for the 1997 plan year and subsequent plan years. F-23 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES: LITIGATION Lawsuits and claims are filed against the Company from time to time in the ordinary course of business. These actions are in various preliminary stages, and no judgments or decisions have been rendered by hearing boards or courts. Management, after reviewing developments to date with legal counsel, is of the opinion that the outcome of such matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company settled its litigation with Emmis and former CEO-designate Barry Baker regarding the sale of its St. Louis broadcast properties (see Note 11). COMMITMENT FOR ADVERTISING During 1999, the Company entered into an option agreement with BeautyBuys.com ("Beauty Buys") to provide radio and television advertising, promotional support and other services (in-kind services) over a five year period ending December 31, 2004 in exchange for options to acquire an equity interest. Advertising and promotional support would be provided to BeautyBuys from the Company's unutilized inventory, valued as if each spot was being sold at the then-current street rates at the time of the airing. The Company would recognize no revenue related to its advertising, promotion or other services and would recognize revenue as the Company's options vest in an amount equal to the fair value of the options. In December 2000, the Company entered into a modification agreement with BeautyBuys and its parent, Synergy Brands, Inc. ("Synergy"), whereby the Company divested of its option to acquire an equity interest in BeautyBuys in exchange for a significant reduction in the amount of advertising, promotional support and other services the Company is to provide to BeautyBuys and an increased equity position in Synergy. Additionally, the Company, BeautyBuys and Icon International ("Icon") entered into an agreement whereby BeautyBuys would transfer and sell to Icon its remaining amount of advertising and promotional support to be received from SBG for a combination of $2.7 million in cash and certain trade credits from Icon. Simultaneously, the Company entered into an agreement with Icon whereby the Company received $3.2 million in cash and certain trade credits from Icon in exchange for Media Time Credits or commercial inventory. Icon inventory spots aired will be valued and characterized the same as other spots sold with similar cash and barter components. The cash received by BeautyBuys and the Company from Icon was viewed by management as a measurement of the value of the future advertising the Company will need to provide to Icon. Therefore, the company recorded an expense of $2.7 million in "Loss related to investments" and a corresponding liability of $6.9 million to "Deferred barter revenue" on the accompanying consolidated Statement of Operations and Balance sheet for the year ended December 31, 2000. "Deferred barter revenue" will be amortized to broadcast revenue as the proportionate cash component of the spots are aired. OPERATING LEASES The Company has entered into operating leases for certain property and equipment under terms ranging from three to ten years. The rent expense under these leases, as well as certain leases under month-to-month arrangements, for the years ended December 31, 1998, 1999 and 2000, was approximately $4.0 million, $5.9 million and $6.8 million, respectively. Future minimum payments under the leases are as follows (in thousands):
2001 ........................................... 5,123 2002 ........................................... 4,254 2003 ........................................... 3,821 2004 ........................................... 3,531 2005 ........................................... 3,280 2006 and thereafter ............................ 35,178 ------- $55,187 =======
F-24 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) 11. ACQUISITIONS AND DISPOSITIONS 1998 ACQUISITIONS AND DISPOSITIONS HERITAGE ACQUISITION. In July 1997, the Company entered into a purchase agreement to acquire certain assets of the radio and television stations of Heritage Media Group for approximately $630 million (the "Heritage Acquisition"). Pursuant to the Heritage Acquisition, and after giving effect to the STC Disposition, Entercom Disposition and Centennial Disposition and a third party's exercise of its option to acquire radio station KCAZ in Kansas City, Missouri, the Company has acquired or provided programming services to three television stations in two separate markets and 13 radio stations in four separate markets. In July 1998, the Company acquired three radio stations in the New Orleans, Louisiana market and simultaneously disposed of two of those stations (see the Centennial Disposition below). The acquisition was accounted for under the purchase method of accounting whereby the net purchase price for stations not sold was allocated to property and programming assets, acquired intangible broadcasting assets and other intangible assets for $22.6 million, $222.8 million and $102.6 million, respectively, based on an independent appraisal. 1998 STC DISPOSITION. In February 1998, the Company entered into agreements to sell to STC two television stations and the non-license assets and rights to program a third television station, all of which were acquired in the Heritage Acquisition. In April 1998, the Company closed on the sale of the non-license assets of the three television stations in the Burlington, Vermont and Plattsburgh, New York market for aggregate consideration of approximately $70.0 million. During the third quarter of 1998, the Company sold the license assets for a sales price of $2.0 million. MONTECITO ACQUISITION. In February 1998, the Company entered into an agreement to acquire all of the capital stock of Montecito for approximately $33.0 million (the "Montecito Acquisition"). Montecito owns all of the issued and outstanding stock of Channel 33, Inc. which owns and operates KFBT-TV in Las Vegas, Nevada. In April 1998, the Company began programming KFBT-TV through an LMA upon expiration of the applicable HSR Act waiting period. On April 18, 2000 the Company acquired the outstanding capital stock of Montecito upon receiving approval from the FCC. WSYX ACQUISITION AND SALE OF WTTE LICENSE ASSETS. In April 1998, the Company exercised its option to acquire the non-license assets of WSYX-TV in Columbus, Ohio from River City Broadcasting, LP ("River City") for an option exercise price and other costs of approximately $228.6 million. In August 1998, the Company exercised its option to acquire the WSYX License Assets for an option exercise price of $2.0 million. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and programming assets, acquired intangible broadcasting assets and other intangible assets for $14.6 million, $179.3 million and $61.4 million, respectively based on an independent appraisal. Simultaneously with the WSYX Acquisition, the Company sold the WTTE license assets to Glencairn for a sales price of $2.3 million. In connection with the sale of the WTTE license assets, the Company recognized a $2.3 million gain. SFX DISPOSITION. In May 1998, the Company completed the sale of three radio stations to SFX Broadcasting, Inc. for aggregate consideration of approximately $35.0 million (the "SFX Disposition"). The radio stations sold are located in the Nashville, Tennessee market. In connection with the disposition, the Company recognized a $5.2 million gain on the sale. LAKELAND ACQUISITION. In May 1998, the Company acquired 100% of the stock of Lakeland Group Television, Inc. ("Lakeland") for cash payments of approximately $53.0 million (the "Lakeland Acquisition"). In connection with the Lakeland Acquisition, the Company now owns television station KLGT-TV in Minneapolis/St.Paul, Minnesota. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and programming assets, acquired intangible broadcasting assets and other intangible assets for $5.1 million, $35.1 million and $29.4 million, respectively, based on an independent appraisal. F-25 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) ENTERCOM DISPOSITION. In June 1998, the Company completed the sale of seven radio stations acquired in the Heritage Acquisition. The seven stations are located in the Portland, Oregon and Rochester, New York markets and were sold for aggregate consideration of approximately $126.9 million. SULLIVAN ACQUISITION. In July 1998, the Company acquired 100% of the stock of Sullivan Broadcast Holdings, Inc. and Sullivan Broadcasting Company II, Inc. for cash payments of approximately $951.0 million (the "Sullivan Acquisition"). The Company financed the acquisition by utilizing indebtedness under the 1998 Bank Credit Agreement. In connection with the acquisition, the Company has acquired the right to program 12 additional television stations in 10 separate markets. During 2001, the Company intends to acquire the license assets of one station and the stock of a company that owns the license assets of six additional stations. In addition, the Company expects to enter into new LMA agreements with respect to three of the stations and will continue to program two of the television stations pursuant to existing LMA agreements. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and programming assets, acquired intangible broadcasting assets and other intangible assets for $58.2 million, $336.8 million and $637.6 million, respectively, based on an independent appraisal. MAX MEDIA ACQUISITION. In July 1998, the Company directly or indirectly acquired all of the equity interests of Max Media Properties LLC, for $252.2 million (the "Max Media Acquisition"). The Company financed the acquisition by utilizing existing cash balances and indebtedness under the 1998 Bank Credit Agreement. In connection with the transaction, the Company acquired or provided programming services to nine television stations in six separate markets and eight radio stations in two separate markets. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and programming assets, acquired intangible broadcasting assets and other intangible assets for $37.1 million, $144.3 million and $89.6 million, respectively, based on an independent appraisal. CENTENNIAL DISPOSITION. In July 1998, the Company completed the sale of the assets of radio stations WRNO-FM, KMEZ-FM and WBYU-AM in New Orleans, Louisiana to Centennial Broadcasting for $16.1 million in cash and recognized a loss on the sale of $2.9 million. The Company acquired KMEZ-FM in connection with the River City Acquisition in May of 1996 and acquired WRNO-FM and WBYU-AM in New Orleans from Heritage Media Group, Inc. ("Heritage") in July 1998. The Company was required to divest WRNO-FM, KMEZ-FM and WBYU-AM to meet certain regulatory ownership guidelines. GREENVILLE ACQUISITION. In July 1998, the Company acquired three radio stations in the Greenville/Spartansburg market from Keymarket Radio of South Carolina, Inc. for a purchase price consideration involving the forgiveness of approximately $8.0 million of indebtedness to Sinclair. Concurrently with the acquisition, the Company acquired an additional two radio stations in the same market from Spartan Broadcasting for a purchase price of approximately $5.2 million. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and acquired intangible broadcasting assets for $5.0 million and $10.1 million, respectively, based on an independent appraisal. RADIO UNICA DISPOSITION. In July 1998, the Company completed the sale of KBLA-AM in Los Angeles, California to Radio Unica, Corp. for approximately $21.0 million in cash. In connection with the disposition, the Company recognized a $8.4 million gain. 1999 ACQUISITIONS AND DISPOSITIONS GUY GANNETT ACQUISITION. In September 1998, the Company agreed to acquire from Guy Gannett Communications its television broadcasting assets for a purchase price of $317.0 million in cash (the "Guy Gannett Acquisition"). As a result of this transaction and after the completion of related dispositions, the Company acquired five television stations in five separate markets. In April 1999, the Company completed the purchase of WTWC-TV, WGME-TV and WGGB-TV for a purchase price of $111.0 million. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and programming assets, acquired intangible broadcasting assets F-26 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) and other intangible assets for $20.9 million, $ 45.7 million, and $51.4 million, respectively, based on an independent appraisal. In July 1999, the Company completed the purchase of WICS/WICD-TV, and KGAN-TV for a purchase price of $81.0 million. The Company financed these acquisitions by utilizing indebtedness under the 1998 Bank Credit Agreement. ACKERLEY DISPOSITION. In September 1998, the Company agreed to sell the Guy Gannett television station WOKR-TV in Rochester, New York to the Ackerley Group, Inc. for a sales price of $125 million (the "Ackerley Disposition"). In April 1999, the Company closed on the purchase of WOKR-TV and simultaneously completed the sale of WOKR-TV to Ackerly. CCA DISPOSITION. In April 1999, the Company completed the sale of the non-license assets of KETK-TV and KLSB-TV in Tyler-Longview, Texas to Communications Corporation of America ("CCA") for a sales price of $36 million (the "CCA Disposition"). In addition, CCA has an option to acquire the license assets of KETK-TV for an option purchase price of $2.0 million. ST. LOUIS RADIO ACQUISITION. In August 1999, the Company completed the purchase of radio station KXOK-FM in St. Louis, Missouri for a purchase price of $14.1 million in cash. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and acquired intangible broadcasting assets for $0.6 million and $15.2 million, respectively, based on an independent appraisal. BARNSTABLE DISPOSITION. In August 1999, the Company completed the sale of the radio stations WFOG-FM and WGH-AM/FM serving the Norfolk, Virginia market to Barnstable Broadcasting, Inc. ("Barnstable"). The stations were sold to Barnstable for a sales price of $23.7 million. ENTERCOM DISPOSITION. In July 1999, the Company entered into an agreement to sell 46 radio stations in nine markets to Entercom for $824.5 million in cash. The transaction does not include the Company's radio stations in the St. Louis market which where sold separately during 2000 (see Emmis disposition below). In December 1999, the Company closed on the sale of 41 radio stations in eight markets for a purchase price of $700.4 million. 2000 ACQUISITIONS AND DISPOSITIONS MONTECITO ACQUISITION. In February 1998, the Company entered into a Stock Purchase Agreement with Montecito and its stockholders to acquire all of the outstanding stock of Montecito, which owns the FCC License for television broadcast station KFBT-TV. The FCC granted approval of the transaction and the Company completed the purchase of the outstanding stock of Montecito on April 18, 2000 for a purchase price of $33.0 million. EMMIS DISPOSITION In June 2000, the Company settled its litigation with Emmis and former CEO-designate Barry Baker regarding the sale of its St. Louis broadcast properties. As a result of the settlement, the purchase option of the Company's St. Louis broadcast properties has been terminated and a subsequent agreement was entered into whereby the Company would sell its St. Louis radio properties to Emmis. In October 2000, the Company completed the sale of its St. Louis radio properties to Emmis for $220.0 million and retained its St. Louis television station, KDNL-TV. ENTERCOM DISPOSITION. On July 20, 2000 the Company completed the sale of four radio stations in Kansas City to Entercom Communications Corp. for an aggregate purchase price of $126.6 million in cash. The stations sold were KCFX-FM, KQRC-FM, KCIY-FM, and KXTR-FM. In November 2000, the Company completed the sale of WKRF-FM in Wilkes-Barre, Pennsylvania to Entercom for $0.6 million. WNYO ACQUISITION. In August 2000, the Company entered into an agreement to purchase the stock of Grant, the owner of WNYO-TV in Buffalo, New York, for a purchase price of $51.5 million. In October 2000, the Company completed the stock acquisition of Grant, obtaining the non-license assets of WNYO-TV and began programming the television station under a time brokerage agreement. The Company will complete the purchase of the license and related assets of WNYO-TV upon FCC approval, which is currently pending. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and programming assets, acquired intangible broadcasting F-27 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) assets and other intangible assets for $2.9 million, $3.9 million and $39.8 million, respectively, based on an independent appraisal. PENDING ACQUISITIONS GLENCAIRN/WPTT, INC. ACQUISITION. On November 15, 1999, we entered into an agreement to purchase substantially all of the assets of television station WCWB-TV, Channel 22, Pittsburgh, Pennsylvania, with the owner of that television station WPTT, Inc. for a purchase price of $17.8 million. The waiting period under the Hart-Scott-Rodino Antitrust Act of 1976 has expired and closing on this transaction is subject to FCC approval. On November 15, 1999, we entered into five separate plans and agreements of merger, pursuant to which we would acquire through merger with subsidiaries of Glencairn, Ltd., television broadcast stations WABM-TV, Birmingham, Alabama, KRRT-TV, San Antonio, Texas, WVTV-TV, Milwaukee, Wisconsin, WRDC-TV, Raleigh, North Carolina, and WBSC-TV (formerly WFBC-TV), Anderson, South Carolina. The consideration for these mergers is the issuance to Glencairn of shares of Class A Common voting Stock of the Company. The total value of the shares to be issued in consideration for all the mergers is $8.0 million. MISSION OPTION. Pursuant to our merger with Sullivan Broadcast Holdings, Inc., which was effective July 1, 1998, the Company acquired options to acquire television broadcast station WUXP-TV in Nashville, Tennessee from Mission Broadcasting I, Inc. and television broadcast station WUPN-TV in Greensboro, North Carolina from Mission Broadcasting II, Inc. We currently program these stations pursuant to LMAs. On November 15, 1999, the Company exercised its option to acquire both of the foregoing stations. This acquisition is subject to FCC approval. 12. SECURITIES ISSUANCES AND COMMON STOCK SPLIT: COMMON STOCK SPLIT On April 30, 1998, the Company's Board of Directors approved a two-for-one stock split of its Class A and Class B Common Stock to be distributed in the form of a stock dividend. As a result of this action, 23,963,013 and 24,984,432 shares of Class A and Class B Common Stock, respectively, were issued to shareholders of record as of May 14, 1998. The stock split has been retroactively reflected in the accompanying consolidated financial statements and related notes thereto. 1997 OFFERING OF COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST In March 1997, the Company completed a private placement of $200 million aggregate liquidation value of 11 5/8% High Yield Trust Offered Preferred Securities (the "HYTOPS") of Sinclair Capital, a subsidiary trust of the Company. The HYTOPS were issued March 12, 1997, mature March 15, 2009, and provide for quarterly distributions to be paid in arrears beginning June 15, 1997. The HYTOPS were sold to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act of 1933, as amended) and a limited number of institutional "accredited investors" and the offering was exempt from registration under the Securities Act of 1933, as amended ("the Securities Act"), pursuant to Section 4(2) of the Securities Act and Rule 144A thereunder. The Company utilized $135.0 million of the approximately $192.8 million net proceeds of the private placement to repay outstanding debt and retained the remainder for general corporate purposes. Pursuant to a Registration Rights Agreement entered into in connection with the private placement of the HYTOPS, the Company offered holders of the HYTOPS the right to exchange the HYTOPS for new HYTOPS having the same terms as the existing securities, except that the exchange of the new HYTOPS for the existing HYTOPS has been registered under the Securities Act. On May 2, 1997, the Company filed a registration statement on Form S-4 with the Commission for the purpose of registering the new HYTOPS to be offered in exchange for the aforementioned existing HYTOPS issued by the Company in March 1997 (the "Exchange Offer"). The Company's Exchange Offer was closed and became effective August 11, 1997, at which time all of the existing HYTOPS were exchanged for new HYTOPS. Amounts payable to the holders of HYTOPS are recorded as "Subsidiary trust minority interest expense" in the F-28 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) accompanying financial statements and was $23.3 million for each of the three years ended December 31, 1998, 1999, and 2000, respectively. 1998 COMMON STOCK OFFERING On April 14, 1998, the Company and certain stockholders of the Company completed a public offering of 12,000,000 and 4,060,374 shares, respectively, of Class A Common Stock (the "1998 Common Stock Offering"). The shares were sold for an offering price of $29.125 per share and generated proceeds to the Company of $335.1 million, net of underwriters' discount and other offering costs of approximately $14.4 million. The Company utilized the proceeds to repay indebtedness under the 1997 Bank Credit Agreement. 13. STOCK-BASED COMPENSATION PLANS: STOCK OPTION PLANS DESIGNATED PARTICIPANTS STOCK OPTION PLAN - In connection with the Company's initial public offering in June 1995 (the "IPO"), the Board of Directors of the Company adopted an Incentive Stock Option Plan for Designated Participants (the Designated Participants Stock Option Plan) pursuant to which options for shares of Class A common stock were granted to certain key employees of the Company. The Designated Participants Stock Option Plan provides that the number of shares of Class A Common Stock reserved for issuance under the Designated Participants Stock Option Plan is 136,000. Options granted pursuant to the Designated Participants Stock Option Plan must be exercised within 10 years following the grant date. As of December 31, 2000, 34,500 shares are available for future grants. LONG-TERM INCENTIVE PLAN - In June 1996, the Board of Directors of the Company adopted, upon approval of the stockholders by proxy, the 1996 Long-Term Incentive Plan (the "LTIP"). The purpose of the LTIP is to reward key individuals for making major contributions to the success of the Company and its subsidiaries and to attract and retain the services of qualified and capable employees. Options granted pursuant to the LTIP must be exercised within 10 years following the grant date. A total of 14,000,000 shares of Class A Common Stock are reserved for awards under the plan. As of December 31, 2000, 11,002,505 shares have been granted under the LTIP and 6,752,513 shares (including forfeited shares) are available for future grants. INCENTIVE STOCK OPTION PLAN - In June 1996, the Board of Directors adopted, upon approval of the stockholders by proxy, an amendment to the Company's Incentive Stock Option Plan. The purpose of the amendment was (i) to increase the number of shares of Class A Common Stock approved for issuance under the plan from 800,000 to 1,000,000, (ii) to lengthen the period after date of grant before options become exercisable from two years to three and (iii) to provide immediate termination and three-year ratable vesting of options in certain circumstances. Options granted pursuant to the ISOP must be exercised within 10 years following the grant date. As of December 31, 2000, 714,200 shares have been granted under the ISOP and 648,934 shares (including forfeited shares) are available for future grants. F-29 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) A summary of changes in outstanding stock options is as follows:
WEIGHTED- WEIGHTED- AVERAGE AVERAGE EXERCISE EXERCISE OPTIONS PRICE EXERCISABLE PRICE ------- ----- ----------- ----- Outstanding at end of 1997 ............... 4,224,570 $ 17.10 2,428,152 $ 14.91 1998 Activity: Granted .............................. 5,352,500 25.08 -- -- Exercised ............................ (86,666) 12.96 -- -- Forfeited ............................ (820,284) 23.19 -- -- ---------- ---------- --------- ---------- Outstanding at end of 1998 ............... 8,670,120 20.76 3,245,120 15.01 ---------- ---------- --------- ---------- 1999 Activity: Granted .............................. 881,300 24.16 -- -- Exercised ............................ (117,500) 19.77 -- -- Forfeited ............................ (1,382,500) 22.53 -- -- ---------- ---------- --------- ---------- Outstanding at end of 1999 ............... 8,051,420 20.45 3,640,020 15.41 ---------- ---------- --------- ---------- 2000 Activity: Granted .............................. 1,366,835 9.94 -- -- Exercised ............................ (5,667) 9.25 -- -- Forfeited ............................ (1,920,368) 23.23 -- -- ---------- ---------- --------- ---------- Outstanding at end of 2000 ............... 7,492,220 $ 17.82 3,859,819 $ 14.89 ========== ========== ========= ==========
Additional information regarding stock options outstanding at December 31, 2000 is as follows:
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED- REMAINING REMAINING AVERAGE EXERCISE VESTING PERIOD CONTRACTUAL LIFE EXERCISE OUTSTANDING PRICE (IN YEARS) (IN YEARS) EXERCISABLE PRICE - ----------- ----- ---------- ---------- ----------- ----- 1,266,950 $7.646-12.646 2.10 8.86 405,849 $ 9.36 3,102,870 15.06 0.06 5.53 3,066,370 15.06 363,400 17.81-18.88 0.17 5.99 340,600 18.79 29,000 20.94 0.05 6.97 5,000 20.94 4,000 22.88-24.18 0.30 7.31 -- -- 2,219,500 24.20 5.22 7.33 42,000 24.20 234,500 24.25-27.73 1.74 7.64 -- -- 272,000 28.08-28.42 2.35 8.15 -- -- --------- -------------- ---- ---- --------- -------- 7,492,220 $ 17.82 2.07 6.82 3,859,819 $ 14.89 ========= ============== ==== ==== ========= ========
PRO FORMA INFORMATION RELATED TO STOCK-BASED COMPENSATION As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and provides pro forma disclosures of net income and earnings per share as if the fair value-based method prescribed by SFAS No. 123 had been applied in measuring compensation expense. F-30 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) Had compensation cost for the Company's 1998, 1999 and 2000 grants for stock-based compensation plans been determined consistent with SFAS No. 123, the Company's net income, net income available to common shareholders before extraordinary items, and net income per common share for these years would approximate the pro forma amounts below (in thousands except per share data):
1998 1999 2000 -------------------------- ------------------------- ------------------------- AS AS AS REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA -------- --------- -------- --------- -------- --------- Net income (loss) before extraordinary item ............... $ (5,817) $ (13,629) $ 167,784 $ 161,982 $ 77,365 $ 69,454 ========== ========== ========== ========== ========== ========== Net income (loss) ................... $ (16,880) $ (24,692) $ 167,784 $ 161,982 $ 77,365 $ 69,454 ========== ========== ========== ========== ========== ========== Net income (loss) available to common shareholders ........... $ (27,230) $ (35,042) $ 157,434 $ 151,632 $ 67,015 $ 59,104 ========== ========== ========== ========== ========== ========== Basic net income per share before extraordinary items ....... $ (0.17) $ (0.25) $ 1.63 $ 1.57 $ 0.73 $ 0.65 ========== ========== ========== ========== ========== ========== Basic net income per share after extraordinary items ........ $ (0.29) $ (0.37) $ 1.63 $ 1.57 $ 0.73 $ 0.65 ========== ========== ========== ========== ========== ========== Diluted net income per share before extraordinary items ....... $ (0.17) $ (0.25) $ 1.63 $ 1.57 $ 0.73 $ 0.65 ========== ========== ========== ========== ========== ========== Diluted net income per share after extraordinary items ........ $ (0.29) $ (0.37) $ 1.63 $ 1.57 $ 0.73 $ 0.65 ========== ========== ========== ========== ========== ========== The Company has computed for pro forma disclosure purposes the value of all options granted during 1998, 1999 and 2000 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions: YEAR ENDED DECEMBER 31, 1998 1999 2000 ---- ---- ---- Risk-free interest rate ................... 4.54 - 5.68% 4.80 - 5.97% 4.95 - 4.96% Expected lives ............................ 6 years 6 years 6 years Expected volatility ....................... 41% 61% 63%
Adjustments are made for options forfeited prior to vesting. F-31 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) 14. EARNINGS PER SHARE: The Company adopted SFAS No. 128 "Earnings per Share" which requires the restatement of prior periods and disclosure of basic and diluted earnings per share and related computations.
THE YEARS ENDED ---------------------------------------------------------- 1998 1999 2000 ---- ---- ---- Weighted-average number of common shares .............. 94,321 96,615 91,405 Dilutive effect of outstanding stock options .......... 1,083 20 27 Dilutive effect of conversion of preferred shares ..... 288 -- -- -------------- -------------- --------- Weighted-average number of common equivalent shares outstanding ................................ 95,692 96,635 91,432 ============== ============== ========= Net loss from continuing operations ................... $ (26,201) $ (42,126) $ (35,775) ============== ============== ========= Net income from discontinued operations, including gain on sale of broadcast assets related to discontinued operations ........................... $ 20,384 $ 209,910 $ 113,140 ============== ============== ========= Net loss from extraordinary item ...................... $ (11,063) $ -- $ -- ============== ============== ========= Net income (loss) ..................................... $ (16,880) $ 167,784 $ 77,365 Preferred stock dividends payable ..................... (10,350) (10,350) (10,350) -------------- -------------- --------- Net income (loss) available to common shareholders .... $ (27,230) $ 157,434 $ 67,015 ============== ============== ========= BASIC EARNINGS PER SHARE: Net loss per share from continuing operations ......... $ (0.39) $ (0.54) $ (0.50) ============== ============== ========= Net income per share from discontinued operations ..... $ 0.22 $ 2.17 $ 1.24 ============== ============== ========= Net loss per share from extraordinary item ............ $ (0.12) $ -- $ -- ============== ============== ========= Net income (loss) per share ........................... $ (0.29) $ 1.63 $ 0.73 ============== ============== ========= DILUTED EARNINGS PER SHARE: Net loss per share from continuing operations ......... $ (0.39) $ (0.54) $ (0.50) ============== ============== ========= Net income per share from discontinued operations ..... $ 0.22 $ 2.17 $ 1.24 ============== ============== ========= Net loss per share from extraordinary item ............ $ (0.12) $ -- $ -- ============== ============== ========= Net income (loss) per share ........................... $ (0.29) $ 1.63 $ 0.73 ============== ============== =========
F-32 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1999 AND 2000 - (CONTINUED) 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
QUARTERS ENDED ------------------------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 2000 2000 2000 ---- ---- ---- ---- Total revenues ....................................... $ 162,358 $ 190,621 $ 176,111 $ 204,549 Operating income ..................................... 26,917 55,015 37,918 45,847 Net loss from continuing operations .................. (3,062) (3,879) (16,898) (18,287) Net income (loss) available to common shareholders ....................................... (4,203) (1,283) (13,929) 176,849 Basic loss per share from continuing operations ...... (0.06) (0.07) (0.20) (0.22) Diluted loss per share from continuing operations .... (0.06) (0.07) (0.20) (0.22) Basic income (loss) per share ........................ (0.04) (0.01) (0.14) 1.82 Diluted income (loss) per share ...................... (0.04) (0.01) (0.14) 1.82 QUARTERS ENDED ------------------------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 2000 2000 2000 ---- ---- ---- ---- Total revenues ....................................... $ 176,427 $ 208,415 $ 187,887 $ 216,133 Operating income ..................................... 22,558 48,659 36,623 47,200 Net loss from continuing operations .................. (2,623) (1,253) (20,613) (11,286) Net income (loss) available to common shareholders ....................................... (4,408) (1,378) 16,259 56,542 Basic loss per share from continuing operations ...... (0.05) (0.04) (0.26) (0.16) Diluted loss per share from continuing operations .... (0.05) (0.04) (0.26) (0.16) Basic income (loss) per share ........................ (0.05) (0.01) 0.18 0.65 Diluted income (loss) per share ...................... (0.05) (0.01) 0.18 0.65
16. SUBSEQUENT EVENT: During the first quarter of 2001, the Company offered a voluntary early retirement program to its eligible employees and implemented a restructuring program to reduce overhead costs. As a result of these initiatives, the Company reduced its staff by 186 employees and expects to incur a special charge during the first quarter of 2001 of approximately $2.5 million. F-33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO ACRODYNE COMMUNICATIONS, INC.: We have audited the accompanying consolidated balance sheets of Acrodyne Communications, Inc. (a Delaware corporation) and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the years 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 audits provide a reasonable basis for our opinion. As discussed in Note 11 to the consolidated financial statements, the accompanying consolidated balance sheet as of December 31, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended have been restated. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Acrodyne Communications, Inc. and subsidiary as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. As explained in Note 2 to the financial statements, effective January 1, 2000, the Company changed its method of accounting for revenue. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses from operations and has net capital and working capital deficiencies that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of and classification of liabilities that might result should the Company be unable to continue as a going concern. Arthur Andersen LLP Philadelphia, Pennsylvania April 13, 2001 F-34 ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------- 2000 1999 ---- ---- (AS RESTATED - SEE NOTE 11) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 86,959 $ 664,950 Short-term investments -- 200,000 Accounts receivable, net of allowance for doubtful accounts of $389,000 and $60,000 at December 31, 2000 and 1999, respectively 944,225 1,201,268 Inventories 2,286,887 3,199,549 Prepaid assets 58,555 348,108 Other current assets 500,524 220,000 ----------------- ----------------- Total current assets 3,877,150 5,833,875 PROPERTY, PLANT AND EQUIPMENT, net 4,150,926 570,182 NON-COMPETE AGREEMENT, net of accumulated amortization of $389,178 in 1999 -- 360,822 LICENSE AGREEMENT, net of accumulated amortization of $225,000 in 2000 1,275,000 -- GOODWILL, net of accumulated amortization of $812,062 in 1999 -- 3,899,211 ----------------- ----------------- TOTAL ASSETS $ 9,303,076 $ 10,664,090 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Line of credit (Note 9) $ 1,158,753 $ 1,613,404 Subordinated debenture with Sinclair Broadcast Group, Inc. 2,000,000 -- Accounts payable 1,737,230 1,801,883 Accrued expenses 1,420,094 272,155 Customer advances 4,723,430 3,233,962 Current portion of capital lease obligations 9,494 69,947 Deferred revenue 2,290,085 818,912 Other current liabilities 651,000 -- ----------------- ----------------- Total current liabilities 13,990,086 7,810,263 CAPITAL LEASE OBLIGATIONS (Note 9) 3,776,948 12,021 LICENSE FEE PAYABLE 1,200,000 --- NON-COMPETE LIABILITY 845,912 845,990 ----------------- ----------------- Total liabilities 19,812,946 8,668,274 ----------------- ----------------- COMMITMENTS AND CONTINGENCIES (Note 10) SHAREHOLDERS' EQUITY (DEFICIT): Convertible, redeemable, 8% preferred stock, par value $1.00; 1,000,000 shares authorized; 6,500 shares issued and outstanding at December 31, 2000 and 1999 6,500 6,500 Common stock, par value $.01; 30,000,000 shares authorized; 6,981,161 and 6,906,161 shares issued and outstanding at December 31, 2000 and 1999, respectively 69,812 69,062 Additional paid-in capital 21,496,778 21,019,028 Accumulated deficit (32,082,960) (19,098,774) ----------------- ----------------- Total shareholders' equity (deficit) (10,509,870) 1,995,816 ----------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 9,303,076 $ 10,664,090 ================= =================
The accompanying notes are an integral part of these consolidated financial statements. F-35 ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 ---- ---- (AS RESTATED - SEE NOTE 11) NET SALES $ 6,895,829 $ 10,406,403 COST OF SALES 8,729,960 12,368,883 ----------------- ---------------- Gross loss (1,834,131) (1,962,480) ----------------- ---------------- OPERATING EXPENSES: Engineering, research and development 1,701,258 920,047 Selling 1,162,202 1,387,737 Administration 3,034,253 2,059,173 Amortization of intangible assets 340,749 231,496 Goodwill and non-compete write-off 4,144,284 -- Charge for non-compete liability adjustment -- 145,226 ----------------- ---------------- Total operating expenses 10,382,746 4,743,679 ----------------- ---------------- Operating loss (12,216,877) (6,706,159) OTHER (EXPENSES) INCOME: Interest expense, net (775,020) (202,713) Other income, net 7,711 2,499 ----------------- ---------------- Loss before income taxes (12,984,186) (6,906,373) INCOME TAXES -- -- ----------------- ---------------- NET LOSS (12,984,186) (6,906,373) DIVIDENDS ON 8% CONVERTIBLE REDEEMABLE PREFERRED STOCK (52,000) (89,361) ----------------- ---------------- NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (13,036,186) $ (6,995,734) ================= ================ NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (1.84) $ (1.05) ================= ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED 7,097,789 6,675,597 ================= ================
The accompanying notes are an integral part of these consolidated financial statements. F-36 ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 (AS RESTATED - SEE NOTE 11)
PREFERRED STOCK COMMON STOCK ADDITIONAL --------------- ------------ PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ------ ------ ------ ------ ------- BALANCE AT DECEMBER 31, 1998 333,030 $ 333,030 5,331,670 $ 53,317 $ 17,720,449 Redemption of Series A preferred shares (326,530) (326,530) -- -- (672,001) Issuance of stock and warrants -- -- 1,543,333 15,433 4,059,941 Exercise of warrants -- -- 31,158 312 -- Dividends on preferred stock -- -- -- -- (89,361) Net loss -- -- -- -- -- -------- ------------- --------- ------------- ------------ BALANCE AT DECEMBER 31, 1999 6,500 6,500 6,906,161 69,062 21,019,028 Lease and loan guarantee payable in stock (Note 7) -- -- -- -- 305,500 Exercise of warrants -- -- 75,000 750 224,250 Dividends on preferred stock -- -- -- -- (52,000) Net loss -- -- -- -- -- -------- ------------- --------- ------------- ------------ BALANCE AT DECEMBER 31, 2000 6,500 $ 6,500 6,981,161 $ 69,812 $ 21,496,778 ======== ============= ========= ============= ============
TOTAL SHAREHOLDERS' ACCUMULATED EQUITY DEFICIT (DEFICIT) ------- --------- BALANCE AT DECEMBER 31, 1998 $ (12,192,401) $ 5,914,395 Redemption of Series A preferred shares -- (998,531) Issuance of stock and warrants -- 4,075,374 Exercise of warrants -- 312 Dividends on preferred stock -- (89,361) Net loss (6,906,373) (6,906,373) -------------- ------------- BALANCE AT DECEMBER 31, 1999 (19,098,774) 1,995,816 Lease and loan guarantee payable in stock (Note 7) -- 305,500 Exercise of warrants -- 225,000 Dividends on preferred stock -- (52,000) Net loss (12,984,186) (12,984,186) -------------- ------------- BALANCE AT DECEMBER 31, 2000 $ (32,082,960) $ (10,509,870) ============== =============
The accompanying notes are an integral part of these consolidated financial statements. F-37 ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 ---- ---- (AS RESTATED - SEE NOTE 11) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (12,984,186) $ (6,906,373) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 654,471 371,763 Provision for lease and loan guarantee 305,500 50,000 Write-off of goodwill and non-compete agreement 4,144,284 -- Adjustment to non-compete liability -- 145,226 Provision for bad debts 341,483 29,881 Changes in assets and liabilities: Accounts receivable (84,440) (173,690) Inventories 912,662 719,490 Prepaid and other current assets 9,029 (177,150) Accounts payable (64,653) (317,721) Accrued expenses and other liabilities 1,498,861 (125,612) Deferred revenue 1,471,173 818,912 Customer advances 1,489,468 2,659,797 ------------------ ------------------ Net cash used in operating activities (2,306,348) (2,905,477) ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (117,799) (205,980) Sale (purchase) of short-term investment 200,000 (200,000) ------------------ ------------------ Net cash provided by (used in) investing activities 82,201 (405,980) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the sale of common stock and warrants -- 3,805,374 Redemption of Series A preferred stock -- (998,531) Proceeds from exercise of warrants 225,000 312 (Repayments) borrowings under line of credit (454,651) 338,404 Borrowings under debenture 2,000,000 -- Capital lease repayments (72,193) (63,486) Preferred stock dividends (52,000) (89,361) ------------------ ------------------ Net cash provided by financing activities 1,646,156 2,992,712 ------------------ ------------------ Net decrease in cash and cash equivalents (577,991) (318,745) Cash and cash equivalents at beginning of year 664,950 983,695 ------------------ ------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 86,959 $ 664,950 ================== ================== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 168,173 $ 221,209 ================== ================== Property and equipment acquired through capital leases $ 3,776,667 $ 20,350 ================== ==================
The accompanying notes are an integral part of these consolidated financial statements. F-38 ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 1. BACKGROUND: ORGANIZATION Acrodyne Holdings, Inc. (the "Company"), a Delaware corporation, was formed in May 1991. In 1995, the Company changed its name to Acrodyne Communications, Inc. The Company operates in one industry segment - the design, manufacture and marketing of television transmitters and translators which are sold in the United States and internationally. On May 16, 1994, the Company entered into agreements to acquire all of the outstanding stock of Acrodyne Industries, Inc. ("Acrodyne Industries"), a company engaged in the manufacture and sale of TV transmitters, LPTV transmitters and TV translators, which are produced to customer specification. The acquisition was consummated on October 24, 1994 with proceeds obtained from a public offering of the Company's common stock. OPERATIONS AND BUSINESS RISK Due to the nature of the Company's business, it is subject to various risks including, but not limited to, technological and market acceptance of its product, capital availability, dependence on management and other risks. The Company has been in the process of developing products and applications using digital transmission technology. Related to this process, the Company entered into a license agreement with Sinclair Broadcast Group, Inc. ("Sinclair") in March 2000 (see Note 9). The Company shipped the first of its digital transmitters in March 2001. To date, all orders of the Company's new product are from Sinclair. Since the acquisition of Acrodyne Industries in 1994, the Company has incurred significant losses including net losses of $12,984,186 and $6,906,373 in 2000 and 1999, respectively. In addition, the Company has generated operating cash flow deficits of $2,306,348 and $2,905,477 in 2000 and 1999, respectively. Additional losses and cash flow deficits have continued in 2001. These losses and cash flow deficits have been funded primarily with proceeds from the sale of equity securities, including $225,000 and $4,075,374 from common stock and warrants sold to Sinclair in 2000 and 1999, respectively, a $2,000,000 subordinated debenture provided by Sinclair, the Company's Credit Facility with Sinclair (see Note 6) and customer advances. As of December 31, 2000, Sinclair owned 34.6% of the Company's common stock and has warrants to purchase 8,644,225 additional shares (see Notes 7 and 9), which represented 60.4% of the Company on a fully diluted basis. Sinclair had provided a guarantee of the Company's $2,500,000 credit facility. In November 2000, Sinclair purchased the credit facility from the bank (see Note 6). In March 2000, Sinclair agreed to provide additional funds to the Company of up to $2,000,000 under terms of a subordinated debenture (see Note 9). From January 1, 2001 through April 13, 2001, Sinclair provided additional funds to the Company in the amount of $1,341,247. The Company's ability to continue as a going concern depends upon: (1) market acceptance of the Company's new product; (2) the Company's ability to generate sufficient revenues to achieve and sustain positive cash flow; and (3) the Company's ability to raise the necessary capital to fund operating needs and finance the planned investment. The factors noted above raise substantial doubt concerning the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. The Company is currently exploring options available to it to raise capital. Among the options is a potential recapitalization of the Company by Sinclair. Under terms of the proposed recapitalization which has yet to be executed, Sinclair would receive additional common stock in exchange F-39 for forgiveness of certain amounts owed to Sinclair by the Company in the amount of approximately $3,500,000 and would cancel certain existing warrants and receive additional warrants as part of a new secured line of credit in the amount of $4,000,000. As a result of this transaction, Sinclair would own approximately 80% of the Company. In addition, Sinclair has verbally committed to purchase all UHF transmitter requirements from the Company. As of April 13, 2001, no formal recapitalization plan has been executed. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The following summarizes the significant accounting policies employed by the Company in preparation of its consolidated financial statements: CONSOLIDATION The financial statements include the accounts of the Company and its wholly-owned subsidiary, Acrodyne Industries. All intercompany transactions and balances are eliminated in consolidation. Certain prior year amounts have been reclassified to conform to current year presentation. CASH AND CASH EQUIVALENTS The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. SHORT-TERM INVESTMENTS Short-term investments of $200,000 at December 31, 1999 is comprised of a certificate of deposit with an original maturity of six months. INVENTORY Inventory includes material, direct labor and overhead and is valued at the lower of cost or market on a first-in, first-out basis. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. The cost of additions and improvements are capitalized, while maintenance and repairs are charged to operations when incurred. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the respective accounts and any resulting gain or loss is recorded in the statement of operations. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, primarily three to seven years. Leasehold improvements are amortized over the shorter of their useful lives or the remaining lease terms. Capital leases are depreciated over their useful lives or lease term, as applicable. CUSTOMER ADVANCES Deposits received from customers on orders for purchase of products are recorded as a liability. REVENUE RECOGNITION In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. Guidance is provided with respect to the recognition, presentation and disclosure of revenue in the financial statements. The Company implemented the provisions of SAB 101 in the fourth quarter of 2000, retroactive to January 1, 2000. Effective January 1, 2000, the Company changed its method of accounting for transmitter sales such that the Company recognizes revenue from the sale of transmitters when title and risks of ownership F-40 are transferred to the customer, which generally occurs upon shipment, customer pick-up or completion of the installation process if the Company is obligated to perform the installation. A customer may be invoiced for and receive title to transmitters prior to taking physical possession when the customer has made a fixed, written commitment for the purchase, the transmitters have been completed, tested and are available for pick-up or delivery, and the customer has requested that the Company hold the transmitters until the customer determines the most economical means of taking physical possession. Upon such a request, the Company recognizes revenue if it has no further obligation except to segregate the transmitters, invoice the customer under normal billing and credit terms, and hold the transmitter for a short period of time as is customary in the industry, until pick-up or delivery. Transmitters are built to customer specification and no right of return or exchange privileges are granted. Accordingly, no provision for sales allowances or returns is recorded. The Company records revenue for services related to installation of transmitters upon completion of the installation process. Amounts which can not recognized in accordance with the above policy are recorded as deferred revenue in the accompanying consolidated balance sheets. The Company expects to recognize deferred revenues recorded at December 31, 2000 as revenue in 2001. The adoption of SAB No. 101, in the fourth quarter of 2000, resulted in an increase in reported revenues for the year 2000 of approximately $540,000; however, there is no change in earnings as the cost approximated the revenue. In accordance with the bulletin, prior year consolidated financial statements have not been restated to apply SAB 101 retroactively. CONCENTRATION OF CREDIT RISK The Company's customers are domestic and international television stations, broadcasters, government entities, not-for-profit organizations and educational institutions. International sales were $1,035,037 and $2,168,242 for the years ended December 31, 2000 and 1999, respectively. One customer, Sinclair (see Note 9), represented approximately 37% of sales in 2000 and 13% in 1999 and 19% of net receivables in 2000 and 4% in 1999. No other customers represented more than 10% of sales in 2000 or 1999. One other customer represents 53% of the net receivables balance at December 31, 2000. USE OF ESTIMATES 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; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. RESEARCH AND DEVELOPMENT Research and development expenditures related to the design and development of new products are expensed as incurred and as such are included in engineering, research and development in the accompanying consolidated statements of operations. Research and development costs charged to expense during the years ended December 31, 2000 and 1999 were approximately $1,057,000 and $5,000, respectively. INCOME TAXES The Company records deferred income taxes for the estimated future tax effects of temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. Under this method, deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities using enacted rates. A valuation allowance is recorded against deferred tax assets when it is concluded that it is more likely than not that the related tax benefit will not be realized. F-41 FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include cash and cash equivalents, short-term investments, accounts receivable, capital leases and debt. The fair value of cash and cash equivalents, short-term investments and accounts receivable approximate their recorded book values as of December 31, 2000 and 1999. Because of the uncertainties regarding the Company described in Note 1, it was not practicable to estimate the fair value of the capital leases and debt. IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically performs analyses on the recoverability of long-lived assets under the provision of Statement of Financial Accounting Standards ("SFAS") No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Statement requires the recognition of an impairment loss for an asset held for use when the estimated future undiscounted cash flows associated with the asset is less than the asset's carrying amount. Measurement of the impairment loss is based on the fair value of the asset, which is determined using the present value of expected future cash flows. No impairment losses were recorded during 1999. See Note 5 to the consolidated financial statements for discussion of impairment charges recorded in 2000. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is required to be adopted by the Company on January 1, 2001. SFAS No. 133 establishes the accounting and financial reporting requirements for derivative instruments and requires companies to recognize derivatives as either assets or liabilities on the balance sheet and measure these instruments at fair value. This statement did not have a material effect on the Company's consolidated financial position or results of operations upon adoption in 2001. The Financial Accounting Standards Board's Emerging Issues Task Force released Issue 00-10 "Accounting for Shipping and Handling Fees and Costs," which requires amounts charged to customers for shipping and handling to be classified as revenue and the related costs to be classified as cost of sales. Issue 00-10 is applicable no later than the fourth quarter of fiscal years beginning after December 15, 1999, and has been adopted by the Company in 2000. As a result of the adoption of Issue 00-10, the Company has classified approximately $135,000 of charges to customers for shipping and handling as net sales within the accompanying consolidated statement of operations for the year ended December 31, 2000. This policy had no effect on the Company's consolidated financial position or results of operations for the year ended December 31, 2000. The Company was unable to obtain the information required for 1999 due to the nature in which the required data was recorded and maintained. Accordingly, no reclassification was made to the 1999 consolidated financial statements. EARNINGS PER SHARE Basic earnings per share is computed by dividing the net loss applicable to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares determined for the basic computations plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period. Due to the Company's net loss in 2000 and 1999, the incremental shares issuable of 175,202 and 545,202, respectively, in connection with convertible preferred stock, stock options and warrants were anti-dilutive and, accordingly, are not considered in the calculation (see Note 7). F-42 3. INVENTORIES: Inventories consist of the following:
DECEMBER 31, ------------ 2000 1999 ---- ---- Raw materials $ 641,342 $ 1,220,965 Work-in-process 139,523 764,048 Finished goods 1,506,022 1,214,536 ---------------- ---------------- $ 2,286,887 $ 3,199,549 ================ ================
4. PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
DECEMBER 31, ------------ 2000 1999 ---- ---- Test equipment $ 692,098 $ 674,417 Machinery and equipment 63,522 63,522 Office furniture and equipment 398,606 320,212 Automobile 19,577 11,043 Building lease /leasehold improvements 3,781,167 76,205 Purchased computer software 116,711 98,666 -------------- -------------- 5,071,681 1,244,065 Accumulated depreciation and amortization (920,755) (673,883) -------------- -------------- $ 4,150,926 $ 570,182 ============== ==============
Depreciation and amortization expense amounted to $313,722 and $140,267 for the years ended December 31, 2000 and 1999, respectively. The Company moved into a new facility in November 2000. This facility is subleased from Sinclair and is capitalized at $3,776,667. Amortization expense was $41,963 in 2000. The net book value of this building which is subject to a capital lease is $3,734,704. The lease term is fifteen years with two renewable five-year periods (see note 10). 5. NON-COMPETE AGREEMENT AND GOODWILL: ----------------------------------- In connection with the acquisition of Acrodyne Industries, the Company entered into a non-compete agreement with the selling shareholder. In consideration for this agreement not to compete, the Company is obligated to make annual payments to the selling shareholder equal to $65,000 and pay for certain benefits for the remainder of his life. The Company recorded the actuarial present value of the estimated payments of $750,000 related to this agreement as an asset and established a corresponding liability at the date of acquisition. During the years ended December 31, 2000 and 1999, the Company recorded interest expense of $56,927 and $63,661, respectively, relating to this liability. Prior to being written off, the intangible asset was being amortized on a straight-line basis over a ten-year period. Amortization expense of $37,500 and $75,000 was recorded during the years ended December 31, 2000 and 1999, respectively. In 1999, the Company recorded a charge of $145,226 in the accompanying consolidated statement of operations to adjust the liability to its estimated actuarial net present value. The significant actuarial assumptions used to compute this liability at December 31, 1999 include a discount rate of 8% and mortality based on the 1983 Group Mortality Table. F-43 In connection with the 1994 acquisition of Acrodyne Industries (see Note 1), the Company recorded goodwill totaling $4,711,274 representing the excess of purchase price over the fair value of net assets acquired. Prior to being written off, goodwill was being amortized on a straight-line basis over 30 years. Amortization charged to expense during the years ended December 31, 2000 and 1999 amounted to $78,249 and $156,496, respectively. During the third quarter of 2000, the Company determined that as a result of the combination of regulatory changes, evolving technology, changes dictated by the market place, changes to key management and continued negative profit margins for its medium and low power transmitter product line, it would exit such product line. This product line was acquired by the Company in 1994 (see Note 1). As a result of this decision, the Company reviewed all of the long-term assets of its medium and low power product line (principally goodwill, covenant not-to-compete and property and equipment) for impairment. As a result of this review, management concluded that these assets had been permanently impaired and, as such, recorded a charge to write-off all goodwill and certain other long-term assets in the amount of $4,144,284 during the third quarter of 2000, which includes $323,322 related to the non-compete intangible asset and $3,820,962 related to goodwill. 6. DEBT: The line of credit, subordinated debenture and capital lease obligations (test equipment and property) consist of the following:
DECEMBER 31, ------------ 2000 1999 ---- ---- Line of credit (Note 9) $ 1,158,753 $ 1,613,404 Subordinated debenture with Sinclair Broadcast Group, Inc. 2,000,000 -- Capital lease obligations (Note 10) 3,786,442 81,968 ---------------- ---------------- 6,945,195 1,695,372 Current portion (3,168,247) (1,683,351) ---------------- ---------------- $ 3,776,948 $ 12,021 ================ ================
The line of credit and the subordinated debenture are due in 2001. In September 1999, the Company entered into a new credit facility (the "Credit Facility") with PNC Bank, N.A. that provided for a $2,500,000 line of credit. The Credit Facility bears interest at LIBOR plus 200 basis points (8.56% at December 31, 2000 and 7.9% at December 31, 1999) and replaced a prior $2,000,000 line of credit facility maintained with another bank. The Credit Facility was collateralized by all personal property of the Company and was guaranteed by Sinclair. The Credit Facility, which expired on July 31, 2000, was extended to October 31, 2000. In November 2000, Sinclair purchased the Credit Facility and assumed all rights of the bank (see Note 9). The weighted-average interest rate and total interest expense related to the lines of credit during 2000 were 8.3% and $111,226, respectively, and during 1999 were 6.4% and $78,610, respectively. Average borrowings related to the Credit Facility during 2000 and 1999 were $1,343,000 and $1,221,000, respectively. The maximum amount borrowed under the Credit Facility was approximately $1,600,000 in 2000 and $1,700,000 in 1999. The amount available under the Credit Facility at December 31, 2000 was $1,341,247. During March 2000, the Company entered into a subordinated debenture agreement (the "Debenture") with Sinclair. Under the terms of the Debenture, the Company may borrow up to $2,000,000 at an interest rate of 10.5%. The first payment of interest shall be made April 1, 2000 and on a monthly basis thereafter. Principal is payable upon demand of Sinclair. Further, Sinclair has the right, at any time, to convert all, but not less than all, of the principal owed to Sinclair into the Company's common stock at $3.45 per share. Through April 13, 2001, the Company had borrowed $2,000,000 under the terms of this arrangement. During 2000, the Company charged $115,815 to interest expense for this Debenture. F-44 The weighted average interest rate on long-term debt at December 31, 2000 and 1999 was 9.2% and 7.9% respectively. In connection with the Credit Facility, the Company was obligated to maintain minimum tangible net worth, as defined, of $4,500,000. As of December 31, 1999, the Company was not in compliance with terms of the Credit Facility with respect to minimum tangible net worth. The Company had obtained a waiver for the 1999 event of default. The Company was again out-of-compliance with terms of the credit facility as of September 30, 2000. Effective October 31, 2000, the minimum tangible net worth requirement was eliminated. 7. SHAREHOLDERS' EQUITY: PREFERRED STOCK Preferred stock consists of 1,000,000 shares, par value $1 per share, which may be issued in series from time to time with such designation, rights, preferences and limitations as the Board of Directors of the Company may determine by resolution. Any and all such rights that may be granted to preferred stockholders may be in preference to common stockholders. During 1996, the Company sold 10,500 shares of 8% Convertible Redeemable Preferred Stock (the "8% Preferred Stock") in a private placement. The 8% Preferred Stock has a liquidation preference of $100 per share plus all outstanding and unpaid dividends and is redeemable at the discretion of the Company for the amount of the liquidation value after one year from issuance date provided certain stipulations are met. The 8% Preferred Stock is convertible at the option of the holder into the number of common shares obtained by dividing the liquidation value by the $3.71 per share conversion price, subject to adjustment. Holders of the 8% Preferred Stock vote on a fully converted basis with the holders of common stock and, in the event of certain dividend arrearages, have the right to elect a director to the Company's Board. During 1997, 4,000 shares of the 8% Preferred Stock were converted into common stock at a conversion price of $4.00 per share; 6,500 shares remain outstanding at the end of 1999. During 1998, the Company sold 326,530 shares of Series A 8% Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") in a private placement for net proceeds of $972,668. In connection with this private placement, the Company issued warrants to purchase up to 525,000 shares of common stock at an exercise price of $3.00 per share. The warrants are exercisable through November 7, 2002. On January 27, 1999, the Series A Preferred Stock was redeemed by the Company for $998,531. COMMON STOCK On November 7, 1997, the Company sold 800,000 shares of common stock and warrants to purchase up to an additional 500,000 shares of common stock for aggregate net proceeds of $1,951,800. The warrants issued in connection with this transaction carry an exercise price of $3.00 per common share and expire on November 7, 2002. On January 27, 1999, the Company increased the number of authorized shares of common stock from 10,000,000 to 30,000,000. Concurrent with this change, the Company sold 1,431,333 shares of common stock and warrants to purchase up to an additional 8,719,225 shares of common stock to Sinclair in a private placement for aggregate proceeds of $4,300,000. As a condition of the transaction, Sinclair has the right to appoint three of the Company's five directors. Transaction costs of $494,626 were incurred in connection with this transaction. The Company utilized $998,531 of the proceeds from this transaction to redeem the Series A Preferred Stock as discussed above. On December 20, 1999, the Company committed to issue 112,000 shares of common stock to Sinclair with a fair market value of $270,000 in accordance with terms of the Guaranty and Lease Agreements (see Note 9). These shares are included in outstanding shares. F-45 In 2000, on the anniversary dates of the above agreements, the Company is obligated to issue shares to compensate Sinclair for its guarantees. In the fourth quarter of 2000, 589,506 shares were obligated to be issued with a fair value of $305,500. This amount is currently recorded in the Company's Additional Paid-in Capital section of the accompanying consolidated financial statements and the shares were considered outstanding for purposes of the basic earnings per share calculation in 2000. WARRANTS AND OPTIONS In connection with the initial Sinclair investment discussed above, the Company executed various agreements dated January 27, 1999, giving Sinclair the right to purchase up to 8,719,225 shares of the Company's common stock. Of these warrants, Sinclair may purchase 2,000,000 shares at an exercise price of $3.00 per share based on the following vesting schedule:
DATE CUMULATIVE TOTAL SHARES ---- ----------------------- From and after January 27, 1999 666,666 From and after January 27, 2000 1,333,333 From and after January 27, 2001 2,000,000
In addition, Sinclair received 719,225 anti-dilution warrants to purchase the Company's stock at $3.00 per share (subject to adjustment based on a formula defined in the related warrant agreement). Also, Sinclair received 6,000,000 warrants which are exercisable only upon the Company achieving increased product sales or sales of products with new technology. These warrants may be exercised at prices ranging from $3.00 to $6.00 per share. The expiration date of all warrants mentioned above is January 26, 2006. At December 31, 2000, Sinclair had 8,644,225 warrants to purchase the Company's common stock. The following warrants and options (excluding employee and director stock options) were outstanding at December 31, 2000 and 1999:
2000 1999 EXERCISE PRICE EXPIRATION DATE ---- ---- -------------- --------------- 200,000 200,000 $ 6.00 May 24, 2001 500,000 500,000 3.00 November 7, 2002 525,000 525,000 3.00 September 4, 2003 111,600 -- 3.00 May 1, 2005 1,925,000 2,000,000 3.00 January 26, 2006 719,225 719,225 3.00 January 26, 2006 6,000,000 6,000,000 3.00-6.00 January 26, 2006 25,000 25,000 3.50 June 5, 2008 ----------- ----------- 10,005,825 9,969,225 =========== ===========
EMPLOYEE STOCK OPTIONS In December 1993, the Company adopted the 1993 Stock Option Plan (the "1993 Plan"). A total of 250,000 shares of common stock options were issuable under the 1993 Plan. The options may be incentive stock options or non-qualified stock options. The maximum term of each option under the 1993 Plan is 10 years. In April 1997, the Company adopted the 1997 Stock Option Plan (the "1997 Plan") under which 650,000 options have been authorized. In June 1998, the Board granted 450,000 options under the 1997 Plan to employees. The options had an exercise price of $4.50 per share. On October 16, 1998, the Board of Directors repriced the exercise price of these options to $3.00 per share. In January 1999, the Board granted 175,000 options under the 1997 Plan to an employee. The options had an exercise price of $3.88 per share. The fair market value of the Company's stock on the date of grant was $4.06. No compensation related to the option grant was recorded in 1999. F-46 In March 1999, the Company adopted the 1999 Long-Term Incentive Plan (the "1999 Plan") under which awards may be granted in the form of stock, restricted stock, stock options, stock appreciation rights or cash. Under the 1999 Plan, the Company may make stock-based awards of up to an aggregate of 2,000,000 shares of common stock. In August 1999, the Board granted 370,000 options to employees and directors under the 1999 Plan. The majority of these options vested immediately. The options had an exercise price of $2.34 per share. The fair market value of the Company's stock on the date of grant was $2.31. No compensation related to these option grants was recorded in 1999. On June 9, 2000, the Company issued 439,700 options to employees and directors under the 1999 Plan. The options had an exercise price of $2.25 to $3.00 per share and expiration dates ranging from May 1, 2005 to July 1, 2007. The value of the Company's common stock on the date of grant was $2.25 per share. The Company applies Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its option plans. Had compensation cost for the Company stock-based plans been determined based on the fair value at the grant date for awards consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net loss and loss per share would have been increased to the pro forma amounts indicated below:
DECEMBER 31, ------------ 2000 1999 ---- ---- Net loss applicable to common shareholders: As reported $ (13,036,186) $ (6,995,734) Pro forma (12,756,768) (7,378,117) Net loss per common share (basic and diluted): As reported $ (1.84) $ (1.05) Pro forma (1.80) (1.11)
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following parameters: 89% volatility, 6.7% risk-free rate of return, 0% dividend yield and five to seven year option life. A summary of the awards under the Company's stock option plans during the years ended December 31, 2000 and 1999 is presented below:
DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE ------ ----- ------ ----- Outstanding at the beginning of year- 1,165,000 $ 3.03 725,000 $ 3.16 Granted 641,300 2.61 545,000 2.83 Exercised -- -- -- -- Rescinded/forfeited (662,500) (3.34) (105,000) (3.00) ------------- ---------- ------------- ---------- Outstanding at year end 1,143,800 $ 2.59 1,165,000 $ 3.03 ============= =========== ============= ========== Options exercisable at year end 517,500 $ 2.54 900,833 $ 3.00 ============= =========== ============= ========== Weighted average fair value of options granted during the year $ 1.61 $ 2.31
F-47 8. INCOME TAXES: The provision for income taxes differs from the amount computed using the federal income tax rate as follows:
DECEMBER 31, ------------ 2000 1999 ---- ---- Income tax benefit at statutory federal rates $ (4,544,465) $ (2,417,231) State tax benefit, net of federal tax benefit (499,887) (377,041) Goodwill amortization and write-off 1,364,723 62,598 Other permanent differences 13,039 11,600 Increase in valuation allowance 3,666,590 2,720,074 ----------------- ----------------- $ -- $ -- ================= =================
The components of the net deferred income tax asset are as follows:
DECEMBER 31, ------------ 2000 1999 ---- ---- Deferred tax assets: Tax loss carryforwards (tax basis) $ 9,118,430 $ 5,893,376 Allowance for doubtful accounts 155,596 24,000 Non-compete agreement 411,753 257,862 Inventory 812,065 672,568 Other deferred tax assets 54,792 70,840 -------------- ------------- Net deferred tax assets 10,552,636 6,918,646 Valuation allowance (10,552,636) (6,918,646) -------------- ------------- $ -- $ -- ============== =============
A full valuation allowance has been established against the Company's net deferred tax assets as management has concluded that it is more likely than not the related tax benefits will not be realized. The Company's tax loss carryforwards, which begin to expire in 2011, totaled approximately $22,800,000 and $14,700,000 at December 31, 2000 and 1999, respectively. 9. RELATED PARTY: As discussed in Note 7, on January 27, 1999, Sinclair invested $4,300,000 in the Company in return for 1,431,333 shares of the Company's common stock and warrants to purchase up to an aggregate of 8,719,225 shares over a term of up to seven years at prices ranging from $3.00 to $6.00 per share. Sinclair also acquired an additional 800,000 shares of common stock previously held by outside investors. On December 20, 1999, the Company committed to issue 112,000 shares to Sinclair with respect to the terms of the Guaranty and Lease Agreements (see discussion below). As of December 31, 2000, the Company is obligated to issue 588,506 shares to Sinclair with respect to the terms of the Guaranty and Lease Agreement. As of December 31, 2000, Sinclair held an aggregate of 2,418,333 shares of the Company's common stock, representing approximately 34.6% of issued common stock assuming no warrants are exercised. During November 1999, the Company entered into a Guaranty and Lease Compensation Agreement (the "Guaranty Agreement") with Sinclair, intended to be effective September 16, 1999. In connection with the $2,500,000 Credit Facility discussed in Note 6, the bank required, as a condition of the loan, that Sinclair F-48 unconditionally and irrevocably guarantee all of the Company's obligation with respect to the Credit Facility. Under the Guaranty Agreement and as compensation to Sinclair for the guarantee, the Company committed to provide Sinclair the following: (1) $200,000 payable in Company common stock (based upon the closing price as quoted on September 16, 1999), and (2) on October 1, 2000 and payable each year thereafter until the bank no longer requires the guarantee from Sinclair, the Company shall pay Sinclair an amount equal to the average of the line of credit outstanding balances as of the last day of each of the preceding twelve months (not to be less than $1,700,000) multiplied by 12.5% and payable in the form of Company common stock. The $200,000 due Sinclair under the terms of the guarantee was capitalized and was amortized as interest expense over the guarantee period. Of the $200,000 related to this guarantee, $150,000 and $50,000 were recorded as interest expense during 2000 and 1999, respectively. For the year ended December 31, 2000, the Company recorded additional interest expense related to the Guaranty Agreement of $235,500. In November 2000 Sinclair purchased the credit facility discussed in Note 6 and assumed all rights of the bank. Sinclair filed the UCC liens against the Company's personal property, which eliminated the Sinclair guaranty. During November of 1999, the Company entered into a sublease agreement (the "Lease Agreement") with Sinclair (see Note 10). Under the terms of the Lease Agreement and as compensation for the Lease Agreement, the Company agreed to compensate Sinclair as follows: (1) on the lease execution date, $70,000 payable in the form of Company common stock calculated at the average closing price for the five business days preceding the lease execution date and (2) on each lease anniversary date, $70,000 payable in the form of Company common stock calculated as the average closing price for the five business days preceding the lease anniversary date. During March 2000, the Company entered into a 10-year license agreement (the "License Agreement") with Sinclair for the exclusive right to manufacture and sell certain Sinclair designed transmitter lines. Under terms of the License Agreement, the Company will pay Sinclair an annual royalty of $300,000 for five years. For years six through ten, the Company shall pay Sinclair an annual royalty equal to 1.0% of revenues realized by the Company attributable to the License Agreement. At end of the tenth year, the Company has the option to purchase the Sinclair technology. The purchase price would be twice the cumulative royalty amount paid to Sinclair for years six through ten. During March 2000, the Company entered into a subordinated debenture agreement (the "Debenture") with Sinclair. Under the terms of the Debenture, the Company may borrow up to $2,000,000 at an interest rate of 10.5%. The first payment of interest shall be made April 1, 2000 and on a monthly basis thereafter. Principal is payable upon demand of Sinclair. Further, Sinclair has the right, at any time, to convert all, but not less than all, of the principal owed to Sinclair into the Company's common stock at $3.45 per share. Through April 13, 2001 the Company had borrowed $2,000,000 under the terms of this arrangement. During 2000, the Company charged $115,815 to interest expense for this Debenture. Sales made to Sinclair during 2000 and 1999 totaled $2,591,364 and $1,383,981, respectively. The Company sells these products to Sinclair at prices which approximate fair market value. The following amounts are included in the consolidated balance sheets at year end in connection with trade transactions with Sinclair:
DECEMBER 31, ------------ 2000 1999 ---- ---- Receivables $ 183,461 $ 54,434 Customer advances 3,417,245 2,423,044 Deferred revenue 445,650 56,412
See Note 1 regarding the Recapitalization Plan. F-49 10. COMMITMENTS AND CONTINGENCIES: The Company has operating leases for its manufacturing facility and office space, which expire July 31, 2000 and October 31, 2001, respectively. Rental expense was $278,222 and $229,012 for the years ended December 31, 2000 and 1999, respectively. During September 1999, the Company entered into a sublease agreement with Sinclair (see Note 9) for the lease of its headquarters and manufacturing facility, which was occupied during November 2000. Minimum lease payments due under capital leases are as follows: 2001 $ 424,453 2002 416,374 2003 427,553 2004 448,103 2005 505,341 2006 and thereafter 5,759,784 ------------- 7,981,608 Less - amount representing interest 4,195,166 ------------- Present value of obligation 3,786,442 Less - current portion 9,494 ------------- Noncurrent obligations under capital leases $ 3,776,948 =============
Future minimum lease payments under noncancellable operating leases are as follows: 2001 $ 31,013 2002 31,013 2003 31,013 2004 26,818 2005 8,001 ----------- $ 127,858 ===========
LEGAL PROCEEDINGS In September 2000, the Company was joined as a defendant along with two of its officers and directors, in a class action in the United States District Court for the District of Maryland. The lawsuit asserts that the Company issued false and misleading financial statements. The Company has reached a preliminary settlement with plaintiffs' counsel. The preliminary settlement requires the Company to issue plaintiffs warrants to purchase 1,600,000 shares of the Company's common stock at an exercise price of $1.00 per share. The warrants will expire after five years. The Company also has agreed to pay plaintiffs $750,000. The cash portion of the settlement will be funded by its officers' and directors' indemnity insurance policy. A Memorandum of Understanding reflecting the material terms of the settlement was filed with the Court on March 1, 2001. On April 6, 2001, a Stipulation and Agreement of Settlement was submitted to the Court along with all required documents to effectuate the settlement. On April 9, 2001, the Court approved the proposed settlement but reserved its right to review the settlement and/or enter a final judgment approving the settlement and dismissing the lawsuit. If the proposed settlement is finally approved, the Company will record a charge to operations for the fair value of the warrants issued. Depending on the terms of the final settlement, including the value of the warrants issued, the ultimate resolution of this matter may have a material impact on the Company's consolidated financial position and results of operations. 11. ACCOUNTING REVIEW CHARGES, ADJUSTMENTS AND RESTATEMENTS: During the third quarter of 2000, the Company initiated a comprehensive internal review of its accounting records. As a result of this review, certain charges and adjustments were recorded, as discussed below, in F-50 the previously filed audited consolidated financial statements for the year ended December 31, 1999 which needed to be amended. The following is a summary of adjustments recorded for 1999:
1999 Cost of sales adjustments, net $ (2,795,322) Revenue recognition adjustments (2,299,511) Accrual adjustments (123,750) ------------- Increase in Net Loss $ (5,218,583) =============
The Company's results for the year ended December 31, 1999 reflect net charges to cost of sales of $2,795,322, which related to the pricing of the year-end physical inventories. The 1999 amount also included a $563,000 increase to the inventory obsolescence reserve. The Company's third quarter accounting review in 2000 included a detailed review of the pricing of the physical inventories taken as of the 1999 year-end. The review necessitated a number of adjustments affecting the prior valuations of the physical inventory and cost of sales for interim periods offset by the effects of reversing revenues previously recognized. The Company has recorded adjustments to net loss related to the timing of revenue recognition for certain sales of $2,299,511 in 1999. These adjustments were made based on the Company's internal review in 2000, which indicated that certain revenues should not have been recognized or were recognized in the improper period. The adjustments have been determined through a specific review of the related supporting documents and a determination of the proper reporting period for the recognition of the revenue transaction. The Company recorded adjustments of $123,750 pertaining to certain accruals and expense items, which were not previously recognized in 1999. In addition to the impact of the above adjustments on shareholders' equity, an adjustment was recorded to reclassify a liability to Sinclair, of $270,000, to equity as this liability will be satisfied with the issuance of 112,000 shares of common stock (see Note 7). The impact of the above charges increased net loss by $5,218,583 or $.78 per share in 1999. The schedules that follow show the impact on the consolidated financial statements from previously reported results, for the year ended December 31, 1999. The 1998 consolidated financial statements were also restated for inventory pricing adjustments and adjustments related to the timing of revenue recognition of certain sales. These adjustments increased the accumulated deficit by $1,258,891 at January 1, 1999. F-51
DECEMBER 31, 1999 ----------------------------------------- AS REPORTED IN 1999 FORM 10-KSB AS RESTATED ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 664,950 $ 664,950 Short-term investments 200,000 200,000 Accounts receivables, net 1,335,158 1,201,268 Inventories, net 6,401,277 3,199,549 Prepaid assets 412,108 348,108 Other current assets 220,000 220,000 ----------------- ---------------- Total current assets 9,233,493 5,833,875 PROPERTY, PLANT AND EQUIPMENT, net 570,182 570,182 NON-COMPETE AGREEMENT, net 360,822 360,822 GOODWILL, net 3,899,211 3,899,211 ----------------- ---------------- TOTAL ASSETS $ 14,063,708 $ 10,664,090 ================= ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,801,883 $ 1,801,883 Accrued expenses 516,405 272,155 Customer advances 984,268 3,733,962 Line of credit 1,613,404 1,613,404 Current portion of capital lease obligations 69,947 69,947 Other current liabilities 16,500 318,912 ----------------- ---------------- Total current liabilities 5,002,407 7,810,263 CAPITAL LEASE OBLIGATIONS 12,021 12,021 NON-COMPETE LIABILITY 845,990 845,990 ----------------- ---------------- TOTAL LIABILITIES 5,860,418 8,668,274 ----------------- ---------------- COMMITMENTS AND CONTINGENCIES (Note 11) SHAREHOLDERS' EQUITY 8,203,290 1,995,816 ----------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,063,708 $ 10,664,090 ================= ================
F-52
FOR THE YEARS ENDED DECEMBER 31, 1999 ----------------------------------------- AS REPORTED IN 1999 FORM 10-KSB AS RESTATED ----------- ----------- Net sales $ 12,705,914 $ 10,406,403 Cost of sales 9,573,561 12,368,883 ----------------- ---------------- Gross profit (loss) 3,132,353 (1,962,480) Operating expenses: Engineering, research and development 920,047 920,047 Selling 1,387,737 1,387,737 Administration 1,983,423 2,059,173 Amortization of intangible assets 231,496 231,496 Charge for non-compete liability adjustment 145,226 145,226 ----------------- ---------------- 4,667,929 4,743,679 ----------------- ---------------- Operating loss (1,535,576) (6,706,159) Other (expense) income: Interest expense, net (154,713) (202,713) Other income 2,499 2,499 ----------------- ---------------- Loss before income taxes (1,687,790) (6,906,373) Income taxes ----------------- ---------------- Net Loss (1,687,790) (6,906,373) Dividends on 8% convertible, redeemable preferred stock (89,361) (89,361) ----------------- ---------------- Net Loss applicable to Common Shareholders $ (1,777,151) $ (6,995,734) ================= ================ Net Loss per common share -- Basic and Diluted $ (0.27) $ (1.05) ----------------- ---------------- Weighted Average Common Shares Outstanding -- Basic And Diluted 6,659,304 6,675,597 ----------------- ----------------
F-53 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES INDEX TO SCHEDULES Report of Independent Public Accountants ............................... S-2 Schedule II - Valuation and Qualifying Accounts ........................ S-3 All schedules except those listed above are omitted as not applicable or not required or the required information is included in the consolidated financial statements or in the notes thereto. S-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Sinclair Broadcast Group, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Sinclair Broadcast Group, Inc. and Subsidiaries included in this Form 10-K and have issued our report thereon dated January 30, 2001 (except with respect to the matter discussed in Note 16, as to which the date is February 7, 2001). Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN, LLP Baltimore, Maryland, January 30, 2001 (except with respect to the matter discussed in Note 16, as to which the date is February 7, 2001) S-2 SCHEDULE II SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000 (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING OF COSTS AND OTHER AT END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS PERIOD ----------- ------ -------- ------------ ---------- ------ 1998 Allowance for doubtful accounts $ 2,920 $ 3,234 $ 1,279 $ 2,264 $ 5,169 1999 Allowance for doubtful accounts 5,169 2,560 458 3,171 5,016 2000 Allowance for doubtful accounts 5,016 3,336 75 2,676 5,751
- --------- (1) Amount represents allowance for doubtful account balances related to the acquisition of certain television stations. S-3 EX-23.1 2 a2045574zex-23_1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K/A into the Company's previously filed Registration Statements (File No. 000-26076, File No. 333-58135, File No. 333-12257, File No. 333-12255, File No. 333-43047, File No. 333-31569, File No. 333-31571 and File No. 333-26427). Baltimore, Maryland, April 17, 2001 EX-23.2 3 a2045574zex-23_2.txt EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated April 13, 2001, which includes an explanatory paragraph that describes an accounting change discussed on Note II to the consolidated financial statements, covering the audited consolidated financial statements of Acrodyne Communications, Inc. and subsidiary as of and for the year ended December 31, 2000 included in this Form 10-K/A into Sinclair Broadcast Group, Inc.'s previously filed Registration Statements (File No. 000-26076, File No. 333-58135, File No. 333-12257, File No. 333-12255, File No. 333-43047, File No. 333-31569, File No. 333-31571 and File No. 333-26427). /s/ Arthur Andersen LLP Philadelphia, Pennsylvania April 17, 2001 -----END PRIVACY-ENHANCED MESSAGE-----