-----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, MENQH8RUicuJ13VeRe3V+XY+T2gIb4F/xmu3T+mMK0LxSoMwuxrEHlj5m01ckzzd R3COl0zU03KvF774wE510A== 0001005150-99-000710.txt : 19990817 0001005150-99-000710.hdr.sgml : 19990817 ACCESSION NUMBER: 0001005150-99-000710 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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-Q SEC ACT: SEC FILE NUMBER: 000-26076 FILM NUMBER: 99692966 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-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE [X] SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________. Commission File Number : 000-26076 SINCLAIR BROADCAST GROUP, INC. (Exact name of Registrant as specified in its charter) --------------------------- MARYLAND 52-1494660 (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization) 10706 BEAVER DAM ROAD COCKEYSVILLE, MARYLAND 21030 (Address of principal executive offices) (410) 568-1500 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year-if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] As of July 28, 1999, there were 47,995,802 shares of Class A Common Stock, $.01 par value; 48,514,697 shares of Class B Common Stock, $.01 par value; 87,818 shares of Series B Preferred Stock, $.01 par value, convertible into 638,677 shares of Class A Common Stock; and 3,450,000 shares of Series D Preferred Stock, $.01 par value, convertable 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 11 5/8% High Yield Trust Offered Preferred Securities of Sinclair Capital, a subsidiary trust of Sinclair Broadcast Group, Inc. are issued and outstanding. 1 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended June 30, 1999 TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999......................................................... 3 Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1998 and 1999.......................................... 4 Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 1999................................................... 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1999.......................................... 6 Notes to Unaudited Consolidated Financial Statements......................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 12 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders..................... 20 Item 6. Exhibits and Reports on Form 8-K........................................ 20 Signature.................................................................... 21
2 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, JUNE 30, ASSETS 1998 1999 --------------- ------------- CURRENT ASSETS: Cash ............................................................................... $ 3,268 $ 9,599 Accounts receivable, net of allowance for doubtful accounts......................... 196,880 188,383 Current portion of program contract costs........................................... 60,795 36,011 Prepaid expenses and other current assets........................................... 5,542 6,960 Deferred barter costs............................................................... 5,282 6,507 Broadcast assets held for sale...................................................... 33,747 25,743 Deferred tax asset 19,209 16,450 ------------- ------------ Total current assets......................................................... 324,723 289,653 PROGRAM CONTRACT COSTS, less current portion............................................ 45,608 31,435 LOANS TO OFFICERS AND AFFILIATES........................................................ 10,041 9,372 PROPERTY AND EQUIPMENT, net............................................................. 280,391 289,774 OTHER ASSETS 93,404 119,037 ACQUIRED INTANGIBLE BROADCASTING ASSETS, net............................................ 3,100,415 3,119,941 ------------- ------------ Total Assets........................................................................ $ 3,854,582 $ 3,859,212 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.................................................................... $ 18,065 $ 16,419 Accrued liabilities................................................................. 96,350 86,806 Current portion of long-term liabilities- Notes payable and commercial bank financing..................................... 50,007 56,250 Notes and capital leases payable to affiliates.................................. 4,063 4,858 Program contracts payable....................................................... 94,780 79,695 Deferred barter revenues............................................................ 5,625 7,258 -------------- ------------ Total current liabilities.................................................... 268,890 251,286 LONG-TERM LIABILITIES: Notes payable and commercial bank financing......................................... 2,254,108 2,303,508 Notes and capital leases payable to affiliates...................................... 19,043 28,761 Program contracts payable........................................................... 74,802 53,672 Deferred tax liability.............................................................. 184,736 184,736 Other long-term liabilities......................................................... 33,361 19,729 -------------- ------------ Total liabilities............................................................ 2,834,940 2,841,692 -------------- ------------ MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES.......................................... 3,599 3,592 -------------- ------------ COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUB- SIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES................................. 200,000 200,000 -------------- ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Series B Preferred stock, $.01 par value, 10,000,000 shares authorized and 39,581 and 87,818 shares issued and outstanding, respectively.......................... - 1 Series D Preferred stock, $.01 par value, 3,450,000 shares authorized, issued and outstanding................................................................. 35 35 Class A Common stock, $.01 par value, 100,000,000 and 500,000,000 shares authorized and 47,445,731 and 47,786,608 shares issued and outstanding, respectively....... 474 478 Class B Common stock, $.01 par value, 35,000,000 and 140,000,000 shares authorized and 49,075,428 and 48,560,231 shares issued and outstanding..................... 491 486 Additional paid-in capital.......................................................... 768,648 771,047 Additional paid-in capital - equity put options..................................... 113,502 113,502 Additional paid-in capital - deferred compensation.................................. (7,616) (6,644) Accumulated deficit................................................................. (59,491) (64,977) -------------- ------------ Total stockholders' equity................................................... 816,043 813,928 -------------- ------------ Total Liabilities and Stockholders' Equity................................... $ 3,854,582 $ 3,859,212 ============== ============
The accompanying notes are an integral part of these unaudited consolidated statements. 3 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1999 1998 1999 ------------ ----------- ----------- ----------- REVENUES: Station broadcast revenues, net of agency commissions............... $ 153,634 $ 211,499 $ 266,265 $ 385,965 Revenues realized from station barter arrangements.................. 13,892 16,504 25,099 31,823 ----------- ---------- ---------- ----------- Total revenues............................................... 167,526 228,003 291,364 417,788 ----------- ---------- ---------- ----------- OPERATING EXPENSES: Program and production.............................................. 30,256 44,434 56,068 86,304 Selling, general and administrative................................. 32,023 44,355 59,708 87,332 Expenses realized from station barter arrangements.................. 11,685 13,892 20,962 26,997 Amortization of program contract costs and net realizable value adjustments.................................... 14,532 18,480 30,543 39,971 Stock-based compensation............................................ 899 969 1,371 1,905 Depreciation and amortization of property and equipment............. 5,498 8,877 10,266 17,907 Amortization of acquired intangible broadcasting assets, non-compete and consulting agreements and other assets.......... 19,037 32,535 35,171 63,571 ----------- ---------- ---------- ----------- Total operating expenses..................................... 113,930 163,542 214,089 323,987 ----------- ---------- ---------- ----------- Broadcast operating income................................... 53,596 64,461 77,275 93,801 ----------- ---------- ---------- ----------- OTHER INCOME (EXPENSE): Interest and amortization of debt discount expense.................. (27,530) (44,088) (54,901) (87,278) Subsidiary trust minority interest expense.......................... (5,813) (5,813) (11,625) (11,625) Interest income..................................................... 1,900 822 3,217 1,603 Gain on sale of broadcast assets.................................... 5,238 - 5,238 - Unrealized gain on derivative instrument............................................. - 4,486 - 11,586 Other income (expense).............................................. (4) (34) 104 302 ----------- ---------- ---------- ----------- Income before income tax provision........................... 27,387 19,834 19,308 8,389 INCOME TAX PROVISION.................................................... (17,200) (18,530) (12,400) (8,700) ----------- ---------- ---------- ----------- NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............................. 10,187 1,304 6,908 (311) EXTRAORDINARY ITEM: Loss on early extinguishment of debt net of related income tax benefit of $7,370............................................... (11,063) - (11,063) - ----------- ---------- ---------- ----------- NET INCOME (LOSS)....................................................... $ (876) $ 1,304 $ (4,155) $ (311) =========== ========== ========= ========= NET LOSS AVAILABLE TO COMMON STOCKHOLDERS............................... $ (3,463) $ (1,283) $ (9,330) $ (5,486) =========== =========== ========= ========= Basic income (loss) per share before extraordinary item................. $ .08 $ (.01) $ .02 $ (.06) =========== =========== ========= ========= Basic loss per common share............................................. $ (.04) $ (.01) $ (.10) $ (.06) =========== ========== ========= ========= Basic weighted average common shares outstanding........................ 96,889 96,371 91,480 96,474 =========== ========== ========= ========= Diluted income (loss) per share before extraordinary item............... $ .08 $ (.01) $ .02 $ (.06) =========== =========== ========= ========= Diluted loss per common share........................................... $ (.04) $ (.01) $ (.10) $ (.06) =========== ========== ========= ========= Diluted weighted average common and common equivalent shares outstanding......................................................... 99,242 97,026 93,645 97,133 =========== ========== ========= =========
The accompanying notes are an integral part of these unaudited consolidated statements. 4 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1999 (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 $768,648 $ 113,502 Class B Common Stock converted into Class A Common Stock....... - - 5 (5) - - Series B Preferred Stock converted into Class A Common Stock....... - - 2 - (2) - Class A Common Shares converted to Series B Preferred Shares..... 1 - (6) - 5 - Dividends payable on Series D Preferred Stock.................. - - - - - - Class A Common Stock shares issued pursuant to employee benefit plans.................... - - 3 - 2,396 - Amortization of deferred compensation..................... - - - - - - Net loss............................. - - - - - - ----------------------------------------------------------------------------------- BALANCE, June 30, 1999................... $ 1 $ 35 $ 478 $ 486 $771,047 $ 113,502 =================================================================================== 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 Shares converted to Series B Preferred Shares.... - - - Dividends payable on Series D Preferred Stock................. - (5,175) (5,175) Class A Common Stock shares issued pursuant to employee benefit plans................... - - 2,399 Amortization of deferred compensation.................... 972 - 972 Net loss............................ - (311) (311) ------------------------------------------------- BALANCE, June 30, 1999.................. $ (6,644) $ (64,977) $ 813,928 =================================================
The accompanying notes are an integral part of these unaudited consolidated statements. 5
SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) SIX MONTHS ENDED JUNE 30, 1998 1999 ------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................................................................ $ (4,155) $ (311) Adjustments to reconcile net loss to net cash flows from operating activities- Extraordinary loss on early extinguishment of debt.......................... 18,433 - Gain on sale of broadcast assets............................................ (5,238) - Unrealized gain on derivative instrument.................................... - (11,586) Amortization of debt discount............................................... 49 49 Depreciation and amortization of property and equipment..................... 10,266 17,907 Amortization of acquired intangible broadcasting assets, non-compete and consulting agreements and other assets................... 35,171 63,571 Amortization of program contract costs and net realizable value adjustments. 30,543 39,971 Stock-based compensation.................................................... 1,371 972 Deferred tax provision ..................................................... 2,030 2,759 Changes in assets and liabilities, net of effects of acquisitions and dispositions- Decrease in accounts receivable, net........................................ 1,465 9,795 Decrease (increase) in prepaid expenses and other current assets............ 3,288 (817) Increase (decrease) in accounts payable and accrued liabilities............. 5,094 (6,382) Net effect of change in deferred barter revenues and deferred barter costs................................................ (66) (47) Decrease in other long-term liabilities..................................... (247) (2,046) Decrease in minority interest............................................... (36) (7) Payments on program contracts payable........................................... (30,465) (41,326) ------------ ----------- Net cash flows from operating activities.................................... 67,503 72,502 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment........................................... (8,299) (11,570) Payments for acquisition of television and radio stations....................... (874,855) (127,366) Loans to officers and affiliates................................................ (1,021) (443) Equity interest investments..................................................... - (9,349) Repayments of loans to officers and affiliates.................................. 1,381 1,112 Distributions from Joint Venture.............................................. 608 324 Proceeds from sale of broadcasting assets..................................... 233,858 35,911 Payments relating to future acquisitions........................................ - (2,913) ------------ ----------- Net cash flows used in investing activities............................ (648,328) (114,294) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable, commercial bank financing and capital leases....... 1,397,000 154,500 Repayments of notes payable, commercial bank financing and capital leases...... (954,125) (98,899) Payments of costs relating to commercial bank financing......................... (10,863) - Proceeds from issuance of stock related to compensation plans................. 1,388 - Net proceeds from issuance of Class A Common Stock............................ 335,235 - Dividends paid on Series D Convertible Preferred Stock.......................... (5,175) (5,175) Payment of equity put option premium.......................................... (528) - Repayments of notes and capital leases to affiliates............................ (1,301) (2,303) ------------ ----------- Net cash flows from financing activities................................. 761,631 48,123 ------------ ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 180,806 6,331 CASH AND CASH EQUIVALENTS, beginning of period...................................... 139,327 3,268 ------------ ----------- CASH AND CASH EQUIVALENTS, end of period............................................ $ 320,133 $ 9,599 ============ ===========
The accompanying notes are an integral part of these unaudited consolidated statements. 6 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Sinclair Broadcast Group, Inc., Sinclair Communications, Inc. and all other consolidated subsidiaries, which are collectively referred to hereafter as "the Company, Companies, Sinclair or SBG." The Company owns and operates television and radio stations throughout the United States. Additionally, included in the accompanying consolidated financial statements are the results of operations of certain television stations pursuant to local marketing agreements (LMAs) and radio stations pursuant to joint sales agreements (JSAs). INTERIM FINANCIAL STATEMENTS The consolidated financial statements for the six months ended June 30, 1998 and 1999 are unaudited, but in the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the financial position and results of operations, and cash flows for these periods. As permitted under the applicable rules and regulations of the Securities and Exchange Commission, these financial statements do not include all disclosures normally included with audited consolidated financial statements, and, accordingly, should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 1997, and 1998 and for the years then ended. The results of operations presented in the accompanying financial statements are not necessarily representative of operations for an entire year. RECLASSIFICATIONS Certain reclassifications have been made to the prior period financial statements to conform with the current period presentation. 2. CONTINGENCIES AND OTHER COMMITMENTS: Lawsuits and claims are filed against the Company from time to time in the ordinary course of business. These actions are in various preliminary stages, and no judgments or decisions have been rendered by hearing boards or courts. Management, after reviewing developments to date with legal counsel, is of the opinion that the outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. 7 3. FINANCIAL INFORMATION BY SEGMENT (IN THOUSANDS): As of June 30, 1999, the Company consisted of two principal business segments - television broadcasting and radio broadcasting. As of the date hereof, the Company owns or provides programming services pursuant to LMAs to 56 television stations located in 36 geographically diverse markets in the continental United States. The Company owns or provides programming services pursuant to JSAs to 54 radio stations in 10 geographically diverse markets. Substantially all revenues represent income from unaffiliated companies.
TELEVISION TELEVISION THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1999 1998 1999 ---- ---- ---- ---- Net broadcast revenues............................................ $ 128,418 $ 175,261 $ 225,759 $ 323,355 Barter revenues................................................... 12,911 15,360 23,291 29,624 ----------- ----------- ---------- ----------- Total revenues.................................................... 141,329 190,621 249,050 352,979 ----------- ----------- ---------- ----------- Operating expenses................................................ 46,486 66,463 88,794 131,858 Expenses realized from barter arrangements........................ 11,685 13,892 20,962 26,997 Depreciation, program amortization and stock-based compensation.................................................. 19,995 27,147 40,469 57,437 Amortization of intangibles and other assets...................... 14,961 28,104 28,102 54,755 ----------- ----------- ---------- ----------- Broadcast operating income........................................ $ 48,202 $ 55,015 $ 70,723 $ 81,932 =========== =========== ========== =========== Total assets...................................................... $ 2,378,764 $ 3,335,539 $2,378,764 $ 3,335,539 =========== =========== ========== =========== Capital expenditures.............................................. $ 3,649 $ 6,830 $ 6,130 $ 9,935 =========== =========== ========== =========== RADIO RADIO THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1999 1998 1999 ---- ---- ---- ---- Net broadcast revenues............................................ $ 25,216 $ 36,238 $ 40,506 $ 62,610 Barter revenues................................................... 981 1,144 1,808 2,199 ------------ ---------- ---------- ----------- Total revenues.................................................... 26,197 37,382 42,314 64,809 ------------ ---------- ---------- ----------- Operating expenses................................................ 15,793 22,326 26,982 41,778 Depreciation, program amortization and stock-based Compensation.................................................. 934 1,179 1,711 2,346 Amortization of intangibles and other assets...................... 4,076 4,431 7,069 8,816 ------------ ---------- ---------- ----------- Broadcast operating income ....................................... $ 5,394 $ 9,446 $ 6,552 $ 11,869 ============ ========== ========== =========== Total assets...................................................... $ 438,726 $ 523,673 $ 438,726 $ 523,673 ============ ========== ========== =========== Capital expenditures.............................................. $ 1,239 $ 637 $ 2,169 $ 1,635 ============ ========== ========== ===========
8 4. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS): During the six months ended June 30, 1998 and 1999, the Company made certain cash payments of the following:
SIX MONTHS ENDED JUNE 30, 1998 1999 ---- ---- Interest payments............................................................... $ 68,743 $ 89,153 ============ =========== Subsidiary trust minority interest payments..................................... $ 11,625 $ 11,625 ============ =========== Income tax payments............................................................. $ 1,288 $ 5,278 ============ ===========
5. EARNINGS PER SHARE: The Company adopted SFAS 128 "Earnings per Share" which requires the disclosure of basic and diluted earnings per share and related computations as follows (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1999 1998 1999 ---- ---- ---- ---- Weighted-average number of common shares...................... 96,889 96,371 91,480 96,474 Diluted effect of outstanding stock options .................. 2,065 17 1,877 21 Diluted effect of conversion of preferred shares.............. 288 638 288 638 ------------- --------------- ------------ ----------- Diluted weighted-average number of common and common equivalent shares outstanding............................. 99,242 97,026 93,645 97,133 ============ ============== ============ =========== Net income (loss)............................................. $ (876) $ 1,304 $ (4,155) $ (311) Preferred stock dividends payable............................. (2,587) (2,587) (5,175) (5,175) ------------- --------------- ------------- ------------ Net loss available to common stockholders..................... $ (3,463) $ (1,283) $ (9,330) $ (5,486) ============= ============== ============= ============ Basic earnings (loss) per common share before extraordinary items............................... $ .08 $ (.01) $ .02 $ (.06) ============ ============== ============ =========== Basic loss per common share................................... $ (.04) $ (.01) $ (.10) $ (.06) ============ ============== ============ =========== Diluted earnings (loss) per common share before extraordinary items............................... $ .08 $ (.01) $ .02 $ (.06) ============ ============== ============ =========== Diluted loss per common share................................. $ (.04) $ (.01) $ (.10) $ (.06) ============ ============== ============ ===========
6. ACQUISITIONS AND DISPOSITIONS: PENDING ACQUISITIONS AND DISPOSITIONS Buffalo Acquisition. In August 1998, the Company entered into an agreement with Western New York Public Broadcasting Association to acquire the television station WNEQ in Buffalo, NY for a purchase price of $33 million in cash (the "Buffalo Acquisition"). The Company expects to close the sale upon FCC approval and the termination of the applicable waiting period under the HSR Act. 9 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 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 and 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 the acquisitions by utilizing indebtedness under the 1998 Bank Credit Agreement. 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 WORK-TV to Ackerly. STC Disposition. In March 1999, the Company entered into an agreement to sell to STC the television stations WICS/WICD-TV in the Springfield, Illinois market and KGAN-TV in the Cedar Rapids, Iowa market (the "STC Disposition"). In addition, the Company agreed to sell the Non-License Assets and rights to program WICD in the Springfield, Illinois market. The stations are being sold to STC for a sales price of $81.0 million and are being acquired by the Company in connection with the Guy Gannett Acquisition. In April 1999, the Justice Department requested additional information in response to STC's filing under the Hart-Scott-Rodino Antitrust Improvements Act. The sale of the stations to STC has been delayed pending resolution of the questions raised by the Justice Department. If STC is unable to complete the purchase of these stations, the Company may continue to own these stations or attempt to sell one or more of these stations to another third party. 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 million. St. Louis Purchase Option. In connection with the acquisition of River City, the Company entered into a five year agreement (the "Baker Agreement") with Barry Baker (the Chief Executive Officer of River City) pursuant to which Mr. Baker served as a consultant to the Company until terminating such services effective March 8, 1999 (the "Termination Date"). As of February 8, 1999, the conditions to Mr. Baker becoming an officer of the Company had not been satisfied, and on that date Mr. Baker and the Company entered into a termination agreement with effect on March 8, 1999. Mr. Baker had certain rights as a consequence of the termination of the Baker Agreement. These rights included Mr. Baker's right to purchase at fair market value the television and radio stations owned by the Company serving the St. Louis, Missouri market. In June 1999, the Company received a letter from Mr. Baker in which Mr. Baker elected to exercise his option to purchase the radio and television properties of Sinclair in the St. Louis market for their fair market value. In his letter, Mr. Baker names Emmis Communications Corporation ("Emmis") as his designee. Sinclair is evaluating the validity of Mr. Baker's designation of Emmis. In light of the foregoing, the fact that negotiations of a definitive purchase agreement are yet to commence, that a fair market value has not been determined, and that approvals would be required from both the Department of Justice and the Federal Communications Commission, there can be no assurance that the transactions contemplated by the option will be consummated. 10 7. INTEREST RATE DERIVATIVE AGREEMENTS: As of June 30, 1999, the Company had several interest rate swap agreements which expire from July 7, 1999 to July 15, 2007. The swap agreements set rates in the range of 5.5% to 8.1%. Floating interest rates are based upon the three month London Interbank Offered Rate (LIBOR) rate, and the measurement and settlement is performed quarterly. Settlements of these agreements are recorded as adjustments to interest expense in the relevant periods. The notional amounts related to these agreements were $920 million at June 30, 1999, and decrease to $200 million through the expiration dates. In addition, the Company has entered into floating rate derivatives with notional amounts totaling $450 million. Based on the Company's currently hedged position, $1.7 billion or 73% of the Company's outstanding indebtedness is hedged. The Company has no intentions of terminating these instruments prior to their expiration dates unless it were to prepay a portion of its bank debt. The counter parties to these agreements are international financial institutions. The Company estimates the fair value to retire these instruments at June 30, 1999 to be $2.8 million. The fair value of the interest rate hedging derivative instruments 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 at June 30, 1999 if the contracts were transferred to other parties or canceled by the Banks. 8. TREASURY OPTION DERIVATIVE INSTRUMENT: In August 1998, the Company entered into a treasury option derivative contract (the "Option Derivative"). The Option Derivative contract provides for 1) an option exercise date of September 30, 2000, 2) a notional amount of $300 million and 3) a five-year treasury strike rate of 6.14%. If the interest rate yield on five year treasury securities is less than the strike rate on the option exercise date, the Company would be obligated to pay five consecutive annual payments in an amount equal to the strike rate less the five year treasury rate multiplied by the notional amount beginning September 30, 2001 through September 30, 2006. If the interest rate yield on five year treasury securities is greater than the strike rate on the option exercise date, the Company would not be obligated to make any payments. 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 is required to periodically adjust 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 an accounting period. As of June 30, 1999, the Company's Option Derivative liability recorded in "Other long-term liabilities" in the accompanying consolidated balance sheet is $6.9 million. The fair market value adjustment for the six months ended June 30, 1999 resulted in an income statement benefit (unrealized gain) of $11.6 million. 9. SUBSEQUENT EVENTS: Entercom Disposition. In July 1999, the Company signed a letter of intent to sell 43 radio stations in nine markets to Entercom Communications Corp. ("Entercom") for $821.5 million in cash, subject to definitive documentation (the "Entercom Disposition"). The transaction does not include Sinclair's radio stations in the St. Louis market, which are subject to the St. Louis Purchase Option as noted previously. The letter of intent addresses a majority of the material terms of the transaction and Sinclair believes it will be able to enter into a definitive purchase agreement with Entercom following a negotiation and diligence period. The transaction will be subject to FCC and Department of Justice approval, as well as the approval of the Boards of Directors of Sinclair and Entercom. St. Louis 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. 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 "Barnstable Disposition"). The stations were sold to Barnstable for a sales price of $23.7 million. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following information should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report and the audited financial statements and Management's Discussion and Analysis contained in the Company's Form 10-K, as amended, for the fiscal year ended December 31, 1998. The matters discussed in this report include forward-looking statements. When used in this report, the words "intends to," "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including the impact of changes in national and regional economies, successful integration of acquired television and radio stations (including achievement of synergies and cost reductions), pricing fluctuations in local and national advertising, volatility in programming costs, the availability of suitable acquisitions on acceptable terms and the other risk factors set forth in the Company's prospectus filed with the Securities and Exchange Commission on April 19, 1998, pursuant to rule 424(b)(5). The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. 12 The following table sets forth certain operating data for the three months and six months ended June 30, 1998 and 1999: OPERATING DATA (dollars in thousands, except per share data):
- --------------------------------------------------------------------------------------------------------------------- THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1998 1999 1998 1999 ---- ---- ---- ---- Net broadcast revenues (a).................. $ 153,634 $ 211,499 $ 266,265 $ 385,965 Barter revenues............................. 13,892 16,504 25,099 31,823 --------------- --------------- --------------- --------------- Total revenues.............................. 167,526 228,003 291,364 417,788 --------------- --------------- --------------- --------------- Operating costs (b)......................... 62,279 88,789 115,776 173,636 Expenses from barter arrangements........... 11,685 13,892 20,962 26,997 Depreciation, amortization and stock-based compensation (c)......................... 39,966 60,861 77,351 123,354 --------------- --------------- --------------- --------------- Broadcast operating income.................. 53,596 64,461 77,275 93,801 Interest expense............................ (27,530) (44,088) (54,901) (87,278) Subsidiary trust minority interest expense (d) (5,813) (5,813) (11,625) (11,625) Interest and other income................... 1,896 788 3,321 1,905 Unrealized gain on derivative instrument..... - 4,486 - 11,586 Net gain on sale of assets.................. 5,238 - 5,238 - --------------- --------------- --------------- --------------- Net income before income taxes.............. 27,387 19,834 19,308 8,389 Income tax provision........................ (17,200) (18,530) (12,400) (8,700) --------------- --------------- --------------- --------------- Net income before extraordinary item........ 10,187 1,304 6,908 (311) Extraordinary item.......................... (11,063) - (11,063) - --------------- --------------- --------------- --------------- Net income (loss)........................... $ (876) $ 1,304 $ (4,155) $ (311) ============== =============== =============== =============== Net loss available to common stockholders... $ (3,463) $ (1,283) $ (9,330) $ (5,486) ============== =============== =============== =============== BROADCAST CASH FLOW (BCF) DATA: Television BCF (e)................... $ 71,879 $ 94,839 $ 117,666 $ 162,190 Radio BCF (e)........................ 10,894 15,665 15,480 23,555 --------------- --------------- --------------- --------------- Consolidated BCF (e)................. $ 82,773 $ 110,504 $ 133,146 $ 185,745 ============== =============== =============== =============== Television BCF margin (f)............ 56.0% 54.1% 52.1% 50.2% Radio BCF margin (f)................. 43.2% 43.2% 38.2% 37.6% Consolidated BCF margin (f).......... 53.9% 52.2% 50.0% 48.1% OTHER DATA: Adjusted EBITDA (g).................. $ 78,394 $ 105,373 $ 124,161 $ 175,829 Adjusted EBITDA margin (f)........... 51.0% 49.8% 46.6% 45.6% After tax cash flow (h).............. $ 42,496 $ 52,071 $ 52,703 $ 69,070 Program contract payments............ $ 15,168 $ 19,949 $ 30,465 $ $ 41,326 Corporate expense.................... $ 4,379 $ 5,131 $ 8,985 $ 9,916 Capital expenditures................. $ 4,888 $ 7,467 $ 8,299 $ 11,570 Cash flows from operating activities. $ 25,151 $ 26,712 $ 67,503 $ 72,502 Cash flows from investing activities. $ (124,156) $ (95,065) $ (648,328) $ (114,294) Cash flows from financing activities. $ 412,283 $ 72,039 $ 761,631 $ 48,123 - -----------------------------------------------------------------------------------------------------------------------
13 a) "Net broadcast revenue" is defined as broadcast revenue net of agency commissions. b) "Operating costs" include program and production expenses and selling, general and administrative expenses. c) "Depreciation, amortization and stock-based compensation" includes amortization of program contract costs and net realizable value adjustments, depreciation and amortization of property and equipment, amortization of acquired intangible broadcasting assets and other assets and stock-based compensation related to the issuance of common stock pursuant to stock option and other employee benefit plans. d) Subsidiary trust minority interest expense represents distributions on the HYTOPS. e) "Broadcast cash flow" is defined as broadcast operating income plus corporate overhead expenses, stock-based compensation, depreciation and amortization (including film amortization and amortization of deferred compensation), less cash payments for program rights. Cash program payments represent cash payments made for current programs payable and do not necessarily correspond to program usage. The Company has presented broadcast cash flow data, which the Company believes is comparable to the data provided by other companies in the industry, because such data are commonly used as a measure of performance for broadcast companies; however, there can be no assurance that it is comparable. However, broadcast cash flow does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Management believes the presentation of broadcast cash flow (BCF) is relevant and useful because 1) BCF is a measurement utilized by lenders to measure the Company's ability to service its debt, 2) BCF is a measurement utilized by industry analysts to determine a private market value of the Company's television and radio stations and 3) BCF is a measurement industry analysts utilize when determining the operating performance of the Company. f) "BCF margin" is defined as broadcast cash flow divided by net broadcast revenues. "Adjust EBITDA margin" is defined as adjusted EBITDA divided by net broadcast revenues. g) "Adjusted EBITDA" is defined as broadcast cash flow less corporate overhead expenses and is a commonly used measure of performance for broadcast companies. The Company has presented Adjusted EBITDA data, which the Company believes is comparable to the data provided by other companies in the industry, because such data are commonly used as a measure of performance for broadcast companies; however, there can be no assurances that it is comparable. Adjusted EBITDA does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Management believes the presentation of Adjusted EBITDA is relevant and useful because 1) Adjusted EBITDA is a measurement utilized by lenders to measure the Company's ability to service its debt, 2) Adjusted EBITDA is a measurement utilized by industry analysts to determine a private market value of the Company's television and radio stations and 3) Adjusted EBITDA is a measurement industry analysts utilize when determining the operating performance of the Company. h) "After tax cash flow" is defined as net income (loss) available to common shareholders, plus stock-based compensation, depreciation and amortization (excluding film amortization), the deferred tax provision (or minus the deferred tax benefit), minus gain on the sale of assets and unrealized gain on derivative instrument. The Company has presented after tax cash flow data, which the Company believes is comparable to the data provided by other companies in the industry, because such data are commonly used as a measure of performance for broadcast companies; however, there can be no assurances that it is comparable. After tax cash flow is presented here not as a measure of operating results and does not purport to represent cash provided by operating activities. After tax cash flow should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Management believes the presentation of after tax cash flow is relevant and useful because 1) ATCF is a measurement utilized by lenders to measure the Company's ability to service its debt, 2) ATCF is a measurement utilized by industry analysts to determine a private market value of the Company's television and radio stations and 3) ATCF is a measurement analysts utilize when determining the operating performance of the Company. Net broadcast revenues increased to $211.5 million for the three months ended June 30, 1999 from $153.6 million for the three months ended June 30, 1998, or 37.7%. Net broadcast revenues increased to $386.0 million for the six months ended June 30, 1999 from $266.3 million for the six months ended June 30, 1998 or 44.9%. The increase in net broadcast revenues for the three months ended June 30, 1999 was comprised of $56.9 million related to the acquisition and disposition of television and radio stations and LMA transactions consummated by the Company in 1998 and 1999 (collectively, the "1998 and 1999 Transactions") and $1.0 million related to an increase in net broadcast revenue on a same station basis, which increased by 0.7%. The increase in net broadcast revenues for the six months ended June 30, 1999 was comprised of $115.2 million related to the 1998 and 1999 Transactions and $4.5 million related to an increase in net broadcast revenues on a same station basis, which increased by 1.7%. 14 Operating costs increased to $88.8 million for the three months ended June 30, 1999 from $62.3 million for the three months ended June 30, 1998, or 42.5%. Operating costs increased to $173.6 million for the six months ended June 30, 1999, from $115.8 million for the six months ended June 30, 1998, or 49.9%. The increase in operating costs for the three months ended June 30, 1999 as compared to the three months ended June 30, 1998 comprised $25.6 million related to the 1998 and 1999 Transactions, $0.8 million related to an increase in corporate overhead expenses offset by a $0.1 million decrease in operating costs on a same station basis, which decreased 0.2%. The increase in operating costs for the six months ended June 30, 1999 as compared to the six months ended June 30, 1998 comprised $55.4 million related to the 1998 and 1999 Transactions, $0.9 million related to an increase in corporate overhead expenses and $1.5 million related to an increase in operating costs on a same station basis, which increased 1.5%. Interest expense increased to $44.1 million for the three months ended June 30, 1999 from $27.5 million for the three months ended June 30, 1998, or 60.4%. Interest expense increased to $87.3 million for the six months ended June 30, 1999 from $54.9 million for the six months ended June 30, 1998, or 59.0%. The increase in interest expense for the three months and six months ended June 30, 1999 primarily related to indebtedness incurred by the Company to finance the 1998 and 1999 Acquisitions. Subsidiary Trust Minority Interest Expense of $5.8 million for the three months ended June 30, 1998 and 1999 and $11.6 million for the six months ended June 30, 1998 and 1999 is related to the private placement of $200 million aggregate liquidation rate of 115/8% High Yield Trust Offered Preferred Securities (the "HYTOPS") completed March 12, 1997. Interest and other income decreased to $0.8 million for the three months ended June 30, 1999 from $1.9 million for the three months ended June 30, 1998. Interest and other income decreased to $1.9 million for the six months ended June 30, 1999 from $3.3 million for the six months ended June 30, 1998. These decreases were primarily due to a decrease in average cash balances for the three and six month periods ended June 30, 1999 when compared to the same period in 1998. Income tax provision increased to $18.5 million for the three months ended June 30, 1999 from $17.2 million for the three months ended June 30, 1998. Income tax provision decreased to $8.7 million for the six months ended June 30, 1999 from $12.4 million for the six months ended June 30, 1998. The Company's effective tax rate increased to 105.1% for the six months ended June 30, 1999 from 64.2% for the six months ended June 30, 1998. The increase in the effective tax rate for the six months ended June 30, 1999 as compared the six months ended June 30, 1998 resulted from the current year's projected permanent differences between book and tax income being a higher percentage of pre-tax income for 1999 as compared to 1998. The net deferred tax liability increased to $168.3 million as of June 30, 1999 from $165.5 million as of December 31, 1998. The increase in the Company's net deferred tax liability as of June 30, 1999 as compared to December 31, 1998 primarily resulted from the Company recording a net deferred tax provision for the six months ended June 30, 1999. Net loss available to common stockholders for the three months ended June 30, 1999 was $1.3 million or $.01 per share compared to net loss available to common stockholders of $3.5 million or $.04 per share for the three months ended June 30, 1998. Net loss available to common stockholders for the six months ended June 30, 1999 was $5.5 million or $.06 per share compared to net loss available to common stockholders of $9.3 million or $.10 per share. Net loss available to common stockholders decreased for the three and six months ended June 30, 1999 as compared to the three and six months ended June 30, 1998 due to an increase in broadcast operating income, an unrealized gain on derivative instrument, a decrease in interest and other income, offset by an increase in interest expense and the recognition of an extraordinary loss during the 1998 periods. Broadcast cash flow increased to $110.5 million for the three months ended June 30, 1999 from $82.8 million for the three months ended June 30, 1998, or 33.5%. Broadcast cash flow increased to $185.7 million for the six months ended June 30, 1999 from $133.1 million for the six months ended June 30, 1998, or 39.5%. The increase in broadcast cash flow for the three months ended June 30, 1999 was comprised of $26.6 million related to the 1998 and 1999 Transactions and $1.1 million related to an increase in broadcast cash flow on a same station basis, which increased by 1.5%. The increase in broadcast cash flow for the six months ended June 30, 1999 was comprised of $50.8 million related to the 1998 and 1999 Transactions and $1.8 million related to an increase in broadcast cash flow on a same station basis, which increased by 1.4%. 15 The Company's broadcast cash flow margin decreased to 52.2% for the three months ended June 30, 1999 from 53.9% for the three months ended June 30, 1998. The Company's broadcast cash flow margin decreased to 48.1% for the six months ended June 30, 1999 from 50.0% for the six months ended June 30, 1998. The decreases in broadcast cash flow margins for the three and six months ended June 30, 1999 as compared to the three and six months ended June 30, 1998 primarily resulted from lower broadcast cash flow margins associated with the 1998 and 1999 Transactions. On a same station basis, broadcast cash flow margins increased from 52.6% to 53.0% for the three months ended June 30, 1999 as compared to the three months ended June 30, 1998. Same station basis broadcast cash flow margins remained relatively unchanged when comparing the six month periods ended June 30, 1998 and 1999. Adjusted EBITDA increased to $105.4 million for the three months ended June 30, 1999 from $78.4 million for the three months ended June 30, 1998, or 34.4%. Adjusted EBITDA increased to $175.8 million for the six months ended June 30, 1999 from $124.2 million for the six months ended June 30, 1998, or 41.5%. These increases in Adjusted EBITDA for the three and six months ended June 30, 1999 as compared to the three and six months ended June 30, 1998 resulted from the 1999 Acquisitions. The Company's Adjusted EBITDA margin decreased to 49.8% for the three months ended June 30, 1999 from 51.0% for the three months ended June 30, 1998. The Company's Adjusted EBITDA margin decreased to 45.6% for the six months ended June 30, 1999 from 46.6% for the six months ended June 30, 1998. Decreases in Adjusted EBITDA margins for the three and six months ended June 30, 1999 as compared to the three and six months ended June 30, 1998 primarily resulted from the same circumstances affecting broadcast cash flow margin as noted above. After tax cash flow increased to $52.1 million for the three months ended June 30, 1999 from $42.5 million for the three months ended June 30, 1998, or 22.6%. After tax cash flow increased to $69.1 million for the six months ended June 30, 1999 from $52.7 million for the six months ended June 30, 1998 or 31.1%. The increase in after tax cash flow for the three and six months ended June 30, 1999 as compared to the three and six months ended June 30, 1998 primarily resulted from an increase in broadcast operating income relating to the 1998 and 1999 Transactions and internal growth, offset by an increase in interest expense. 16 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash provided by operations and availability under the 1998 Bank Credit Agreement. As of June 30, 1999, the Company had $9.6 million in cash balances and net working capital of approximately $38.4 million. As of June 30, 1999, the remaining balance available under the Revolving Credit Facility was $114.5 million. Based on pro forma trailing cash flow levels for the twelve months ended June 30, 1999, the Company had approximately $54.5 million available of current borrowing capacity under the Revolving Credit Facility The 1998 Bank Credit Agreement also provides for an incremental term loan commitment in the amount of up to $400 million which can be utilized upon approval by the Agent bank and the raising of sufficient commitments from banks to fund the additional loans. In July 1999, the Company signed a letter of intent to sell 43 radio stations in nine markets to Entercom Communications Corp. ("Entercom") for $821.5 million in cash, subject to definitive documentation. The transaction does not include Sinclair's radio stations in the St. Louis market, which are subject to the St. Louis Purchase Option (see Note 6). The letter of intent addresses a majority of the material terms of the transaction and Sinclair believes it will be able to enter into a definitive purchase agreement with Entercom following a three-week negotiation and diligence period. The transaction will be subject to FCC and Department of Justice approval, as well as the approval of the Boards of Directors of Sinclair and Entercom. The Company intends to use proceeds from the sale to reduce debt levels which will give the Company additional borrowing capacity under the 1998 Bank Credit Agreement. The Company may also use a portion of the proceeds to make acquisitions or to repurchase shares of its Class A Common Stock. In April 1999, the Company closed on the acquisition of all but three stations from Guy Gannett. In July 1999, the Company completed the acquisition of these remaining three stations at an acquisition price of approximately $81.0 million. The Company has agreed to sell these three stations to STC for approximately $81.0 million in the STC Disposition. In April 1999, the Justice Department requested additional information in response to STC's filing under the Hart-Scott-Rodino Antitrust Improvements Act. The sale of the stations to STC has been delayed pending resolution of the questions raised by the Justice Department. If STC is unable to complete the purchase of these stations, the Company may continue to own these stations or attempt to sell one or more of these stations to another third party. On April 19, 1999, the Company entered into an agreement (the "ATC Agreement") with American Tower Corporation, an independent owner, operator and developer of broadcast and wireless communication sites in the United States. Under the agreement, the Company will provide American Tower access to tower sites in eleven of the Company's markets including Nashville, TN, Dayton, OH, Richmond, VA, Mobile, AL, Pensacola, FL, San Antonio, TX, and Syracuse, NY. American Tower will construct new towers in each of these markets and will lease space on the towers to the Company. This will provide the Company the additional tower capacity required to develop its digital television transmission needs in these markets at an initial capital outlay lower than would be required if the Company constructed these towers itself. The terms of future leases are still being negotiated with American Tower Corporation. If the Company and American Tower cannot agree on the terms and conditions of the new master lease that will govern the landlord/tenant relationship between the parties, neither party will have any obligation to the other under the ATC Agreement, which will then become a nullity. Net cash flows from operating activities increased to $72.5 million for the six months ended June 30, 1999 from $67.5 million for the six months ended June 30, 1998. The Company made income tax payments of $5.3 million for the six months ended June 30, 1999 as compared to $1.3 million for the six months ended June 30, 1998. The Company made interest payments on outstanding indebtedness and payments for subsidiary minority interest expense totaling $100.8 million during the six months ended June 30, 1999 as compared to $80.4 million for the six months ended June 30, 1998. Additional interest payments for the six months ended June 30, 1999 as compared to the six months ended June 30, 1998 primarily related to additional interest costs on indebtedness incurred to finance businesses acquired during 1998 and 1999. Program rights payments increased to $41.3 million for the six months ended June 30, 1999 from $30.5 million for the six months ended June 30, 1998. This increase in program rights payments comprised $9.6 million related to the 1998 Acquisitions and $1.2 million related to an increase in programming costs on a same station basis, which increased 4.0%. 17 Net cash flows used in investing activities decreased to $114.3 million for the six months ended June 30, 1999 from $648.3 million for the six months ended June 30, 1998. During the six months ended June 30, 1999, the Company made cash payments of approximately $127.4 million related to the acquisition of television and radio broadcast assets. During the six months ended June 30, 1999, the Company made equity interest investments of approximately $9.3 million. The Company made payments for property and equipment of $11.6 million for the six months ended June 30, 1999. The Company expects that expenditures for property and equipment will increase for the year ended December 31, 1999 over prior years as a result of a larger number of stations owned by the Company. In addition, the Company anticipates that future requirements for capital expenditures will include capital expenditures incurred during the ordinary course of business and additional strategic station acquisitions and equity investments if suitable investments can be identified on acceptable terms. The Company used $106.4 million for financing activities for the six months ended June 30, 1999 and was provided $154.5 million by financing activities for the six months ended June 30, 1998. During the six months ended June 30, 1999, the Company repaid $72.0 million and $25.0 million under the 1998 Bank Credit Agreement Revolving Credit Facility and Term Loan Facility, respectively. In addition, the Company utilized borrowings under the Revolving Credit Facility of $154.5 million primarily to fund acquisition activity including the Guy Gannett Acquisition. The Company anticipates that funds from operations, existing cash balances, the availability of the Revolving Credit Facility under the 1998 Bank Credit Agreement and the proceeds from the sale of certain stations will be sufficient to meet its working capital, capital expenditure commitments, debt service requirements and current acquisition commitments. SEASONALITY The Company's results usually are subject to seasonal fluctuations, which result in fourth quarter broadcast operating income being greater usually than first, second and third quarter broadcast operating income. This seasonality is primarily attributable to increased expenditures by advertisers in anticipation of holiday season spending and an increase in viewership during this period. In addition, revenues from political advertising tend to be higher in even numbered years. YEAR 2000 The Company has commenced a process to assure Year 2000 compliance of all hardware, software, broadcast equipment and ancillary equipment that are date dependent. The process involves four phases: Phase I - Inventory and Data Collection. This phase involves an identification of all items that are date dependent. Sinclair commenced this phase in the third quarter of 1998, and Management estimates it has completed approximately 50% of this phase as of the date hereof. The Company expects to complete this phase by the end of the third quarter of 1999. Phase II - Compliance Requests. This phase involves requests to information technology systems vendors for verification that the systems identified in Phase I are Year 2000 compliant. Sinclair will identify and begin to replace items that cannot be updated or certified as compliant. Sinclair has completed the compliance request phase of its plan as of the date hereof. In addition, Sinclair has verified that its accounting, traffic, payroll, and local and wide area network hardware and software systems are compliant. In addition, Sinclair is currently in the process of ascertaining that all of its personal computers and PC applications are compliant. Sinclair is currently reviewing its news-room systems, building control systems, security systems and other miscellaneous systems. The Company expects to complete this phase by the end of the third quarter of 1999. Phase III - Test, Fix and Verify. This phase involves testing all items that are date dependent and upgrading all non-compliant devices. Sinclair expects to complete aspects of this phase during the third quarter of 1999. Phase IV - Final Testing, New Item Compliance. This phase involves review of all inventories for compliance and retesting as necessary. During this phase, all new equipment will be tested for compliance. Sinclair expects to complete this phase by the end of the third quarter of 1999. 18 The Company has developed a contingency/emergency plan to address Year 2000 worst case scenarios. The contingency plan includes, but is not limited to, addressing (i) regional power facilities, (ii) interruption of satellite delivered programming, (iii) replacement or repair of equipment not discovered or fixed during the year 2000 compliance process and (iv) local security measures that may become necessary relating to the Company's properties. The contingency plan involves obtaining alternative sources if existing sources of these goods and services are not available. Although the contingency plan is designed to reduce the impact of disruptions from these sources, there is no assurance that the plan will avoid material disruptions in the event one or more of these events occurs. To date, Sinclair believes that its major systems are Year 2000 compliant. This substantial compliance has been achieved without the need to acquire new hardware, software or systems other than in the ordinary course of replacing such systems. Sinclair is not aware of any non-compliance that would be material to repair or replace or that would have a material effect on Sinclair's business if compliance were not achieved. Sinclair does not believe that non-compliance in any systems that have not yet been reviewed would result in material costs or disruption. Neither is Sinclair aware of any non-compliance by its customers or suppliers that would have a material impact on Sinclair's business. Nevertheless, there can be no assurance that unanticipated non-compliance will not occur, and such non-compliance could require material costs to repair or could cause material disruptions if not repaired. CHANGE IN MARKET RISK As noted above, the Company's net loss for the six months ended June 30, 1999 included recognition of a gain of $11.6 million on a treasury option derivative instrument. Upon execution of the treasury option derivative instrument during 1998, the Company received a cash payment of $9.5 million. The treasury option derivative instrument will require the Company to make five annual payments equal to the difference between 6.14% minus the interest rate yield on five-year treasury securities on September 30, 2000 times the $300 million notional amount of the instrument. If the yield on five-year treasuries is equal to or greater than 6.14% on September 30, 2000, the Company will not be required to make any payment under the terms of this instrument. If the rate is below 6.14% on that date, the Company will be required to make payments, as described above, and the size of the payment will increase as the rate goes down. For each accounting period, the Company recognizes unrealized gain on an expense equal to the change in the projected liability under this arrangement based on interest rates at the end of the period. The gain recognized in the six months ended June 30, 1999 reflects an adjustment of the Company's liability under this instrument to the present value of future payments based on the two-year forward five-year treasury rate as of June 30, 1999 for five year treasury notes with a settlement date of September 30, 2000. If the yield on five-year treasuries at September 30, 2000 were to equal the forward five-year treasury rate on June 30, 1999 (5.96%), Sinclair would be required to make five annual payments of approximately $540,000 each. If the yield on five-year treasuries declines further in periods before September 30, 2000, Sinclair will be required to recognize further losses. In any event, Sinclair will not be required to make any payments until September 30, 2000. 19 PART II ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of stockholders of Sinclair Broadcast Group, Inc. was held on May 11, 1999. At the meeting, two items, as set forth in the Company's proxy statement dated April 14, 1999, were submitted to the stockholders for a vote: 1) the stockholders elected, for one-year terms, all persons nominated for directors as set forth in the Company's proxy statement dated April 14, 1999; and 2) the stockholders voted to ratify the selection of Arthur Andersen LLP as the Company's independent public accountants for the fiscal year 1999 audit. Approximately 99% of the eligible proxies were returned for voting. The table below sets forth the results of the voting at the Annual Meeting:
Against or For Withheld Abstentious ---- -------- ----------- (1) Election of Directors David D. Smith 527,037,493 296,106 Frederick G. Smith 527,037,597 296,002 J. Duncan Smith 527,038,219 295,380 Robert E. Smith 527,038,053 295,546 Basil A. Thomas 527,039,382 294,217 Lawrence E. McCanna 527,036,771 296,828 (2) Appointment of Independent Accountants 527,300,464 18,628 19,507
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS 27 Financial Data Schedule 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized in the city of Baltimore, Maryland on the 15th day of August, 1999. SINCLAIR BROADCAST GROUP, INC. by: /s/ David B. Amy --------------------- David B. Amy Chief Financial Officer Principal Accounting Officer 21 EX-27 2 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27
5 0000912752 SBG 1,000 US DOLLAR 6-MOS DEC-31-1998 JAN-01-1999 JUN-30-1999 1 9,599 0 191,124 2,741 0 289,653 376,055 86,281 3,859,212 251,286 750,000 200,000 36 964 812,928 3,859,212 0 417,788 0 323,987 (1,866) 0 87,278 8,389 8,700 (311) 0 0 0 (311) (.06) (.06) This information has been prepared in accordance with SFAS No. 128, Earnings Per Share. The basic and diluted EPS calculations have been entered in place of primary and diluted, respectively.
-----END PRIVACY-ENHANCED MESSAGE-----