-----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, J4R0RbpDGWZSkzMHkvl90TKQlKU1eDfABDJQsU99TgYW9nzrQwai1sNne+g/EFcn kJSrIGVj+bi3e8mSnGF4SA== 0001005150-96-000393.txt : 19961111 0001005150-96-000393.hdr.sgml : 19961111 ACCESSION NUMBER: 0001005150-96-000393 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961108 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-26076 FILM NUMBER: 96657373 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 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 September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________to__________. Commission File Number: 033-69482 SINCLAIR BROADCAST GROUP, INC. (Exact name of Registrant as specified in its charter) Maryland 52-1494660 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2000 W. 41st Street 21211 Baltimore, Maryland 21211 (Zip Code) (Address of principal executive offices) (410) 467-5005 (Registrant's telephone number including area code) None (Former name, former address and former fiscal year-if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- -------- As of November 5, 1996, there were 6,632,400 shares of Class A common stock, $.01 par value, 28,117,600 shares of Class B common stock, $.01 par value, and 1,150,000 shares of preferred stock, $.01 par value, of the Registrant issued and outstanding. SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES Form 10-Q For the Quarter Ended September 30, 1996 TABLE OF CONTENTS Part I. Financial Information Page ---- Item 1 Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996.............................................. 3 Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 1995 and 1996................... 4 Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 1996............................ 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1996............................... 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 1 Legal Proceedings......................................... 16 Item 6 Exhibits and Reports on Form 8-K.......................... 16 Signature................................................ 17 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)
December 31, September 30, 1995 1996 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents .................................................... $ 112,450 $ 1,665 Accounts receivable, net of allowance for doubtful accounts .................. 50,022 89,211 Current portion of program contract costs .................................... 18,036 47,448 Deferred barter costs ........................................................ 1,268 4,005 Prepaid expenses and other current assets .................................... 1,972 4,401 Deferred tax asset ........................................................... 4,565 6,628 ------------- ------------- Total current assets ................................................... 188,313 153,358 PROPERTY AND EQUIPMENT, net .................................................... 42,797 152,097 PROGRAM CONTRACT COSTS, less current portion ................................... 19,277 57,485 LOANS TO OFFICERS AND AFFILIATES, net .......................................... 11,900 11,580 NON-COMPETE AND CONSULTING AGREEMENTS, net ..................................... 30,379 14,944 DEFERRED TAX ASSET ............................................................. 16,462 3,137 OTHER ASSETS ................................................................... 27,355 49,431 ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ................................... 268,789 1,267,654 ------------- ------------- Total Assets ........................................................... $ 605,272 $ 1,709,686 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................................................. $ 2,187 $ 5,325 Income taxes payable ......................................................... 3,944 -- Accrued liabilities .......................................................... 20,720 22,688 Current portion of long-term liabilities- Notes payable and commercial bank financing ................................ 1,133 78,269 Capital leases payable ..................................................... 524 177 Notes and capital leases payable to affiliates ............................. 1,867 1,259 Program contracts payable .................................................. 26,395 57,037 Deferred barter revenues ..................................................... 1,752 4,258 ------------- ------------- Total current liabilities .............................................. 58,522 169,013 ------------- ------------- LONG-TERM OBLIGATIONS: Notes payable and commercial bank financing .................................. 400,644 1,196,875 Capital leases payable ....................................................... 44 -- Notes and capital lease payable to affiliates ................................ 13,959 12,935 Program contracts payable .................................................... 30,942 79,791 Other long-term liabilities .................................................. 2,442 2,896 ------------- ------------- Total liabilities ...................................................... 506,553 1,461,510 ------------- ------------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ................................. 2,345 4,001 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value, 5,000,000 and 10,000,000 shares authorized and -0- and 1,150,000 shares issued and outstanding ........................ -- 12 Class A Common Stock, $.01 par value, 35,000,000 and 100,000,000 shares authorized and 5,750,000 and 6,447,300 shares issued and outstanding ....... 58 65 Class B Common Stock, $.01 par value, 35,000,000 shares authorized and 29,000,000 and 28,302,700 shares issued and outstanding .................... 290 283 Additional paid-in capital ................................................... 116,089 241,156 Accumulated deficit .......................................................... (20,063) (21,880) Additional paid-in capital - stock options ................................... -- 25,784 Deferred compensation ........................................................ -- (1,245) ------------- ------------- Total stockholders' equity ............................................. 96,374 244,175 ------------- ------------- Total Liabilities and Stockholders' Equity ............................. $ 605,272 $ 1,709,686 ============= =============
The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands)
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 1995 1996 1995 1996 ------------ ------------ ------------ ------------ REVENUES: Station broadcast revenues, net of agency commission ............. $ 45,442 $ 102,013 $ 134,166 $ 219,352 Revenues realized from barter arrangements ....................... 4,735 8,266 12,885 17,837 ------------ ------------ ------------ ------------ Total revenues ................................................. 50,177 110,279 147,051 237,189 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Program and production ........................................... 6,516 22,303 20,646 43,002 Selling, general and administrative .............................. 9,998 25,345 27,430 49,613 Expenses realized from barter arrangements ....................... 4,175 5,594 11,344 13,453 Amortization of program contract costs and net realizable value adjustments ................................... 8,408 16,793 21,357 34,350 Deferred compensation ............................................ -- 117 -- 623 Depreciation and amortization of property and equipment .......... 1,515 3,432 4,337 6,976 Amortization of acquired intangible broadcasting assets and other assets ............................................... 10,354 16,174 33,384 40,566 ------------ ------------ ------------ ------------ Total operating expense .................................... 40,966 89,758 118,498 188,583 ------------ ------------ ------------ ------------ Broadcast operating income .............................. 9,211 20,521 28,553 48,606 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest expense ................................................. (8,652) (29,001) (28,307) (56,647) Interest income .................................................. 747 317 1,999 2,838 Other income (expense) ........................................... (55) 335 (25) 986 ------------ ------------ ------------ ------------ Net income (loss) before provision for income taxes ........ 1,251 (7,828) 2,220 (4,217) INCOME TAX (PROVISION) BENEFIT ..................................... (983) 4,500 (1,445) 2,400 ------------ ------------ ------------ ------------ Net income (loss) before extraordinary item ........................ 268 (3,328) 775 (1,817) Extraordinary item-loss on early extinguishment of debt, net of tax benefit of $3,142 .................................... (5,126) -- (5,126) -- ------------ ------------ ------------ ------------ Net loss ................................................... $ (4,858) $ (3,328) $ (4,351) $ (1,817) ============ ============ ============ ============ NET INCOME (LOSS) PER COMMON SHARE, before extraordinary item ........................................ $ 0.01 $ (0.10) $ 0.02 $ (0.05) ============ ============ ============ ============ NET LOSS PER COMMON SHARE, after extraordinary item ......................................... $ (0.14) $ (0.10) $ (0.14) $ (0.05) ============ ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands) ................................................... 34,750 34,750 31,325 34,750 ============ ============ ============ ============ The accompanying notes are an integral part of these unaudited consolidated financial statements.
4 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (dollars in thousands)
Retained Additional Series A Series B Class A Class B Additional Earnings Paid-In Preferred Preferred Common Common Paid-In (Accumulated Capital Stock Stock Stock Stock Capital Deficit) Options --------- --------- --------- --------- ---------- ------------ --------- BALANCE, December 31, 1995 as previously reported..... $ -- $ -- $ 58 $ 290 $ 116,089 $ (20,063) $ -- Class B common shares converted to Class A common shares ............. -- -- 7 (7) -- -- -- Issuance of Series A preferred shares........... 12 -- -- -- 125,067 -- -- Series A preferred shares converted to Series B preferred shares........... (12) 12 -- -- -- -- -- Stock Options granted ...... -- -- -- -- -- -- 25,784 Amortization of deferred compensation............... -- -- -- -- -- -- -- Net loss.................... -- -- -- -- -- (1,817) -- --------- --------- --------- --------- --------- --------- --------- BALANCE, September 30, 1996..................... $ -- $ 12 $ 65 $ 283 $ 241,156 $ (21,880) $ 25,784 ========= ========== ========= ========= ========= ========= =========
Total Deferred Stockholders' Compensation Equity ------------ ------------- BALANCE, December 31, 1995 as previously reported..... $ -- $ 96,374 Class B common shares converted to Class A common shares ............. -- -- Issuance of Series A preferred shares........... -- 125,079 Series A preferred shares converted to Series B preferred shares........... -- -- Stock Options granted ...... (1,868) 23,916 Amortization of deferred compensation............... 623 623 Net loss.................... -- (1,817) --------- --------- BALANCE, September 30, 1996..................... $ (1,245) $ 244,175 ========= ========= The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Nine Months Ended September 30, September 30, 1995 1996 ------------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss .............................................................................. $ (4,351) $ (1,817) Adjustments to reconcile net income to net cash flows from operating activities- Extraordinary loss .................................................................. 5,126 -- Depreciation and amortization of property and equipment ............................. 4,337 6,976 Amortization of acquired intangible broadcast assets and other assets ................................................................ 33,384 40,566 Amortization of program contract costs and net realizable value adjustments ............................................................... 21,357 34,350 Deferred compensation expense ....................................................... -- 623 Deferred tax benefit ................................................................ (223) (5,253) Payments of costs relating to financing ............................................. (3,200) (20,009) Payments for interest rate hedging instruments ...................................... -- (851) Changes in assets and liabilities, net of effect of acquisitions and dispositions- Increase in receivables, net ........................................................ (2,809) (18,507) Increase in prepaid expenses and other current assets .......................................................................... (426) (656) Increase in accounts payable and accrued liabilities ................................ 2,042 1,571 Decrease in income taxes payable .................................................... (6,074) (3,944) Increase in other assets and acquired intangible broadcast assets ................................................................ (4) (693) Net effect of change in deferred barter revenues and deferred barter costs ........................................................... 73 (643) Increase (decrease) in other long term liabilities .................................. (34) 454 Decrease in minority interest ....................................................... (31) -- Payments for program contracts payable ................................................ (14,659) (19,301) --------- --------- Net cash flows from operating activities ........................................ 34,508 12,866 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment ................................................. (1,543) (3,949) Payments for acquisition of television stations ....................................... (101,000) (74,593) Payment for acquisition of non-license assets of WABM ................................. (2,548) -- Payment for acquisition of non-license assets of River City Broadcasting, L.P. ............................................................. -- (816,413) Payment for acquisition of non-license assets of KRRT ................................. -- (29,532) Payments for purchase of outstanding stock of Superior Communications, Inc. ....................................................... -- (63,504) Payments to exercise the options to acquire certain FCC ............................... -- (6,894) Payments for consulting and non-compete agreements .................................... (1,000) (50) Payment to exercise purchase option for WSMH .......................................... (1,000) -- Payments for purchase options for WSTR and KSMO........................................ (9,000) -- Proceeds from disposal of property and equipment ...................................... 2,000 -- Loans to officers and affiliates ...................................................... (792) -- Repayments of loans to officers and affiliates ........................................ 1,867 320 Investment in joint venture ........................................................... -- (380) Proceeds from assignment of license purchase options .................................. 4,200 -- Payment for WPTT subordinated convertible debenture ................................... (1,000) -- --------- --------- Net cash flows used in investing activities ..................................... (109,816) (994,995) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable and commercial bank financing ............................. 138,000 958,500 Repayments of notes payable, commercial bank financing and capital leases .................................................................. (362,779) (85,524) Payments of costs related to debt offering ............................................ (742) -- Proceeds of debt offering, net of $6,000 underwriter's discount ....................... 294,000 -- Repayments of notes and capital leases to affiliates .................................. (2,186) (1,632) Net proceeds from issuance of common shares ........................................... 111,538 -- --------- --------- Net cash flows from financing activities ........................................ 177,831 871,344 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................................................................... 102,523 (110,785) CASH AND CASH EQUIVALENTS, beginning of period .......................................... 2,446 112,450 --------- --------- CASH AND CASH EQUIVALENTS, end of period ................................................ $ 104,969 $ 1,665 ========= =========
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 or Companies." The Company owns and operates television stations throughout the United States. Additionally, included in the accompanying consolidated financial statements are the results of operations of certain television and radio stations pursuant to local marketing agreements (LMA's). Interim Financial Statements The consolidated financial statements for the nine months ended September 30, 1995 and 1996 are unaudited, but in the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the financial position and results of operations, and cash flows for these periods. As permitted under the applicable rules and regulations of the Securities and Exchange Commission, these financial statements do not include all disclosures normally included with audited consolidated financial statements, and, accordingly, should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 1994, and 1995 and for the years then ended. The results of operations presented in the accompanying financial statements are not necessarily representative of operations for an entire year. Programming The Companies have agreements with distributors for the rights to television programming over contract periods which generally run from one to seven years. Contract payments are made in installments over terms that are generally shorter than the contract period. Each contract is recorded as a liability when the license period begins and the program is available for its first showing. The portion of the program contracts payable due within one year is reflected as a current liability in the accompanying consolidated financial statements. The rights to program materials are reflected in the accompanying consolidated balance sheets at the lower of amortized cost or estimated net realizable value. Estimated net realizable values are based upon management's expectation of future advertising revenues net of sales commissions to be generated by the program. Amortization of program contract costs is generally computed under either an accelerated method over the contract period or based on usage, whichever yields the greater amortization for each program. Program contract costs, estimated by management to be amortized in the succeeding year, are classified as current assets. Payments of program contract liabilities are typically paid on a scheduled basis and are not affected by adjustments for amortization or estimated net realizable value. 2. CONTINGENCIES AND OTHER COMMITMENTS: Lawsuits and claims are filed against the Companies from time to time in the ordinary course of business. These actions are in various preliminary stages, and no judgements or decisions have been rendered by a hearing board or courts. Management, after reviewing developments to date with legal counsel, is of the opinion that the outcome of such matters will not have a material adverse effect on the Companies' financial position or results of operations. 7 3. SUPPLEMENTAL CASH FLOW INFORMATION: During the nine months ended September 30, 1995 and 1996, the Company made cash payments and certain non-cash transactions of the following: Nine Months Ended September 30, September 30, 1995 1996 --------- ---------- Interest. . . . . . . . . . . . . . . . . . $ 23,278 $ 62,599 Income Taxes. . . . . . . . . . . . . . . . $ 7,679 $ 6,786 Distribution prior to KCI merger. . . . . . $ 1,461 $ - Issuance of 1,150,000 shares of Series A Preferred Stock (Note 5). . . . $ - $ 125,079 4. SENIOR BANK DEBT: In order to finance the acquisition of the non-license assets of River City Broadcasting, L.P. (River City) and potential future acquisitions, the Company entered into a Bank Credit Agreement. The Bank Credit Agreement consists of three classes: Facility A Term Loan, Facility B Term Loan and a Revolving Credit Commitment. The Facility A Term Loan is a term loan in a principal amount not to exceed $550 million and is scheduled to be paid in quarterly installments beginning December 31, 1996 through December 31, 2002. The Facility B Term Loan is a term loan in a principal amount not to exceed $200 million and is scheduled to be paid in quarterly installments beginning December 31, 1996 through December 31, 2002. The Revolving Credit Commitment is a revolving credit facility in a principal amount not to exceed $250 million and is scheduled to have reduced availability quarterly beginning March 31, 1999 through November 30, 2003. In connection with the River City and KRRT acquisitions, the Company utilized $550 million, $200 million and $85 million of indebtedness under Facility A, Facility B and the Revolving Credit Commitment, respectively. The Company incurred debt acquisition costs of approximately $20 million associated with this indebtedness which are being amortized using the straight line method over the life of the debt. Under the Bank Credit Agreement, the Company has the option to maintain base rate and Eurodollar loans. Interest on borrowings under this agreement are at varying rates based, at the Company's option, at the base rate or LIBOR, plus a fixed percentage. The applicable interest rate for the Facility A Term Loan and the Revolving Credit Facility is either LIBOR plus 1.25% to 2.5% or the base rate plus zero to 1.25%. The applicable interest rate for the Facility A Term Loan 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. The applicable interest rate for Facility B is either LIBOR plus 2.75% or the base rate plus 1.75%. The Company made cash payments totaling $851 thousand for interest rate hedging instruments which are capitalized and amortized as interest expense over the life of contract. The Company utilizes these instruments to minimize the impact of fluctuations in interest rates relating to Senior Bank Debt. At September 30, 1996 the Company has interest rate swap agreements which expire from March 31, 1997 to March 31, 2000 with such rates ranging from 5.85% to 7.0% and notional amounts totaling $960.0 million. 5. RIVER CITY ACQUISITION: In April 1996, the Company entered into an agreement to purchase certain non-license assets of River City. In May 1996, the Company closed the transaction for a purchase price of $958.2 million providing as consideration 1,150,000 shares of Series A Convertible Preferred Stock with a fair market value of $125.1 million, 1,382,435 stock options with a fair market value of $23.9 million and cash payments totaling $809.2 million. Simultaneously, the Company entered into option agreements to purchase certain license assets for an option exercise price of $20 million. Also, simultaneously with the acquisition, the Company entered into an option agreement to purchase the license and non-license assets of WSYX in Columbus, Ohio for option purchase price of $130 million plus the amount of indebtedness secured by the WSYX assets on the exercise date (not to exceed the amount on the date of closing of $105 million). The Company utilized indebtedness under its Bank Credit Agreement to finance the 8 transaction (see Note 4). The transaction was recorded as a purchase, whereby the assets and liabilities were recorded at fair value as determined by an independent appraisal. In conjunction with the River City acquisition, the Company entered into an agreement to purchase the non-license assets of KRRT, Inc., a television station in San Antonio, Texas, for a purchase price of $29.5 million. Simultaneously with the River City closing, the Company closed the KRRT transaction utilizing indebtedness under its Bank Credit Agreement. The transaction was recorded as a purchase, whereby the assets and liabilities were recorded at fair value as determined by an independent appraisal. In connection with the River City acquisition, the Company consummated the following transactions concurrent with or subsequent to the closing: 1.) In June 1996, the Board of Directors of the Company adopted, upon approval of the stockholders by proxy, an amendment to the Company's amended and restated charter. This amendment increased the number of Class A Common Stock shares authorized to be issued by the Company from 35,000,000 shares to 100,000,000 shares. The amendment also increased the number of shares of preferred stock authorized from 5,000,000 shares to 10,000,000 shares. 2.) Series A Preferred Stock - As partial consideration for the acquisition of the non-license assets of River City, the Company issued 1,150,000 shares of Series A Preferred Stock. In June 1996, the Board of Directors of the Company adopted, upon approval of the stockholders by proxy, an amendment to the Company's amended and restated charter at which time Series A Preferred Stock was exchanged for and converted into Series B Preferred Stock. The Company recorded the issuance of Series A Preferred Stock based on the fair market value at the date the River City acquisition was announced at the exchange rate of 3.64 shares of Class A Common Stock for each share of Series A Preferred Stock. 3.) Series B Preferred Stock - Shares of Series B Preferred Stock are convertible at any time into shares of Class A Common Stock, with each share of Series B Preferred Stock convertible into approximately 3.64 shares of Class A Common Stock. The company may redeem shares of Series B Preferred Stock only after the occurrence of a "Trigger Event." A Trigger Event means the termination of Barry Baker's employment (see "Executive Options" below) with the Company prior to the expiration of the initial five-year term of his employment agreement (1) by the Company for any reason other than for cause (as defined in the employment agreement) or (2) by Barry Baker upon the occurrence of certain events described in the employment agreement. If the Company seeks to redeem shares of Series B Preferred Stock and the stockholder elects to retain the shares, the shares will automatically be converted into Common Stock on the proposed redemption date. All shares of Series B Preferred Stock remaining outstanding as of May 31, 2001 will automatically convert into Class A Common Stock. Series B Preferred Stock is entitled to 3.64 votes on all matters with respect to which Class A Common Stock has a vote. 4.) Stock Options and Awards: Executive Options In connection with the acquisition of River City, the Company entered into a five year employment agreement with Barry Baker. Mr. Baker is currently working as a consultant for the Company until the Company exercises its options to acquire certain of the license assets of River City. Upon exercising these options, Mr. Baker will become President and Chief Executive Officer of Sinclair Communications, Inc. ("SCI," a wholly owned subsidiary of the Company that will hold all of the broadcast operations of the Company), Executive Vice President of the Company, and a member of the Company's Board of Directors. Pursuant to the employment agreement Mr. Baker, among other provisions, received options to acquire 1,382,435 shares of the Class A Common Stock of the Company. The options became exercisable with respect to 50% of the shares upon closing of the acquisition of the non-license assets of River City with 25% available to be exercised on the first and second anniversary of the River City closing. The exercise price for these options is $30.11 per share. The Company recorded the excess of the fair market value over the Stock Option Grant Price as a component of the purchase price for the acquisition of River City. Long Term Incentive Plan In June 1996, the Board of Directors adopted, upon approval of the stockholders by proxy, the 1996 Long- Term Incentive Plan of the Company (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. A total of 2,073,673 shares of Class A Common Stock 9 is reserved and available for awards under the plan. The Board of Directors may amend, suspend or terminate the LTIP without the consent of stockholders or participants, except that stockholder approval must be sought within one year of such Board action. The LTIP provides that the exercise price under each option may not be less than the fair market value of the Company's Class A Common Stock on the date of the option grant or as otherwise provided by the LTIP, unless the employee receiving the option owns 10% or more of the Company's common stock on such date, in which case the exercise price will be 110% of fair market value. Options granted pursuant to the LTIP must be exercised within 10 years (or five years if the employee owns 10% or more of the Company's common stock) following the date on which the grant is made. In connection with the River City acquisition, 244,500 options were granted under this plan with an exercise price of $30.11 per share. The Company recorded deferred compensation of $1.9 million as additional paid in capital at the stock option grant date. As of September 30, 1996, compensation expense of $623 thousand was recorded relating to the options issued under the LTIP. The remaining deferred compensation of approximately $1.3 million will be recognized as expense on a straight line basis over the period in which it vests. Incentive Stock Option Plan In June 1996, the Board of Directors adopted, upon approval of the stockholders by proxy, certain amendments to the Company's Incentive Stock Option Plan. The purpose of the amendments was (i) to increase the number of shares of Class A Common stock approved for issuance from 400,000 to 500,000, (ii) to delegate to Barry Baker the authority to grant certain options, (iii) to lengthen from two years to three the period after date of grant before options become exercisable, (iv) and to provide immediate termination and three year ratable vesting of options in certain circumstances. In connection with the River City acquisition, the Company granted 287,000 options to key management employees at an exercise price of $37.75, the fair market value at the date of grant. 6. OTHER ACQUISITIONS: In July 1995, the Company exercised its option to purchase the license and non-license assets of the television station WSMH in Flint, Michigan for an option exercise price of $1.0 million. In February 1996, the Company consummated the acquisition for a purchase price of $35.4 million at which time the balance due of $34.4 million was paid from the Company's existing cash balance. The transaction was recorded as a purchase, whereby the assets and liabilities were recorded at fair value as determined by an independent appraisal. In March 1996, the Company entered into an agreement to acquire the outstanding stock of Superior Communications, Inc. (Superior) which owns the license and non-license assets of the television station KOCB in Oklahoma City, Oklahoma and WDKY in Lexington, Kentucky. In May 1996, the Company consummated the acquisition for a purchase price of approximately $63.0 million utilizing existing cash balances and indebtedness under the Company's Bank Credit Agreement of $3.1 million and $59.9 million respectively. The transaction was recorded as a purchase, whereby the assets and liabilities were recorded at fair value as determined by an independent appraisal. In January 1996, the Company entered into a purchase agreement to acquire the license and non-license assets of the television station WYZZ in Peoria, Illinois. In July 1996, the Company consummated the acquisition for a purchase price of approximately $21.1 million utilizing cash and indebtedness under the Bank Credit Agreement of $1.0 million and $20.1 million, respectively. The transaction was recorded as a purchase, whereby the assets and liabilities were recorded at fair value as determined by an independent appraisal. In July 1996, the Company acquired the license and non-license assets of the television station KSMO in Kansas City, Missouri. At closing, the Company made $10.0 million in cash payments utilizing indebtedness under its Bank Credit Agreement. The transaction was recorded as a purchase, whereby the assets and liabilities were recorded at fair value as determined by an independent appraisal. 10 In August 1996, the Company acquired the license and non-license assets of the television station WSTR in Cincinnati, Ohio. At closing, the Company made a net cash payment of $8.7 million utilizing indebtedness under its Bank Credit Agreement. The transaction was recorded as a purchase, whereby the assets and liabilities were recorded at fair value as determined by an independent appraisal. 7. REGISTRATION STATEMENTS: In September 1996, the Company filed and in November 1996 obtained effectiveness of a registration statement on Form S-3 with the Securities and Exchange Commission with respect to the sale by certain selling stockholders of 5,564,253 shares of Class A Common Stock. These shares represent 4,181,818 shares of Class A Common Stock issuable upon conversion of Series B Preferred Stock and 1,382,435 shares of Class A Common Stock issuable upon exercise of options held by Barry Baker. In September 1996, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission with respect to the sale of up to 5,750,000 shares of Class A Common Stock by the Company, and subsequently amended the registration statement to increase the number of shares that may be sold by the Company to 5,937,500 shares and to cover the sale of 1,250,000 shares by certain selling stockholders. On November 1, 1996, the Company announced that it was withdrawing the offering and that it intended to reconsider an offering in the future when market conditions are more favorable. The Company also announced that it was considering purchasing outstanding shares of its Class A Common Stock pursuant to previous authorization by the Board of Directors. 11 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed in this report include forward-looking statements. Such statements are subject to a number of risks and uncertainties, such as 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 and volatility in programming costs. Additional risk factors regarding the Company are set forth in the registration statement on Form S-3 filed with the Securities and Exchange Commission on September 18, 1996 (as amended). The following information should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report and the audited financial statements and Management's Discussion and Analysis contained in the Company's Form 10-K for the fiscal year ended December 31, 1995. RESULTS OF OPERATIONS (amounts in thousands except for per share data) The following table sets forth certain operating data for comparison of the of three months and the nine months ended September 30, 1995 to the three months and the nine months ended September 30, 1996.
Three Months Nine Months Ended September 30, September 30, September 30, September 30, 1995 1996 1995 1996 ----------- --------- ---------- ----------- STATEMENT OF OPERATIONS DATA: Net broadcast revenues $ 45,442 $ 102,013 $ 134,166 $ 219,352 Barter revenues 4,735 8,266 12,885 17,837 ----------- --------- ---------- ----------- Total revenues 50,177 110,279 147,051 237,189 ----------- --------- ---------- ----------- Operating expenses excluding depreciation, amortization and deferred compensation 20,689 53,242 59,420 106,068 Deferred compensation - 117 - 623 Depreciation and amortization 20,277 36,399 59,078 81,892 ----------- --------- ---------- ----------- Broadcast operating income 9,211 20,521 28,553 48,606 Interest expense (8,652) (29,001) (28,307) (56,647) Interest and other income 692 652 1,974 3,824 ----------- --------- ---------- ----------- Net income(loss) before provision for income taxes 1,251 (7,828) 2,220 (4,217) Income tax (provision) benefit (983) 4,500 (1,445) 2,400 ----------- --------- ---------- ----------- Net income (loss) before extraordinary item 268 (3,328) 775 (1,817) Extraordinary item-loss on early extinguishment of debt, net of tax benefit of $3,142 (5,126) - (5,126) - ----------- --------- ---------- ----------- Net loss $ (4,858) $ (3,328) $ (4,351) $ (1,817) =========== ========= ========== =========== Net income (loss) per common share, before extraordinary item $ 0.01 $ (0.10) $ 0.02 $ (0.05) =========== ========= ========== =========== Net loss per common share, after extraordinary item $ (0.14) $ (0.10) $ (0.14) $ (0.05) =========== ========= ========== =========== Weighted average shares outstanding 34,750 34,750 31,325 34,750 =========== ========= ========== =========== OTHER DATA: Broadcast cash flow (a) $ 26,523 $ 52,776 $ 76,994 $ 117,855 Broadcast cash flow margin 58.4% 51.7% 57.4% 53.7% Operating cash flow (b) $ 24,687 $ 49,807 $ 72,972 $ 111,820 Operating cash flow margin 54.3% 48.8% 54.4% 51.0% After tax cash flow (c) $ 15,744 $ 25,958 $ 45,194 $ 61,397 After tax cash flow per share (d) $ 0.45 $ 0.75 $ 1.44 $ 1.77 Program contract payments $ 4,801 $ 7,230 $ 14,659 $ 19,301 Corporate expense $ 1,836 $ 2,969 $ 4,022 $ 6,035
12 (a) "Broadcast cash flow" is defined as broadcast operating income plus corporate expenses, deferred compensation, depreciation and amortization, including both tangible and intangible assets and program rights, less cash payments for program rights. Cash program payments represent cash payments made for current program payable and do not necessarily correspond to program usage. The Company has presented broadcast cash flow data, which the Company believes is comparable to the data provided by other companies in the industry, because such data are commonly used as a measure of performance for broadcast companies. However, broadcast cash flow does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, and is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (b) "Operating cash flow" is defined as broadcast cash flow less corporate expenses and is a commonly used measure of performance for broadcast companies. Operating cash flow does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (c) "After tax cash flow" is defined as net income (loss) before extraordinary items plus depreciation and amortization (including film amortization), less program contract payments, plus non-cash deferred compensation expense and special bonuses paid to executive officers. After tax cash flow is presented here not as a measure of operating results and does not purport to represent cash provided by operating activities. After tax cash flow should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. (d) "After tax cash flow per share" is defined as after tax cash flow divided by weighted average shares outstanding. Total revenues increased to $110.3 million for the three months ended September 30, 1996 from $50.2 million for the three months ended September 30, 1995, or 119.7%. When excluding the effects of non-cash barter transactions, net broadcast revenues for the three months ended September 30, 1996 increased by 124.5% over the three months ended September 30, 1995. Total revenues increased to $237.2 million for the nine months ended September 30, 1996 from $147.1 million for the nine months ended September 30, 1995, or 61.3%. When excluding the effects of non-cash barter transactions, net broadcast revenues for the nine months ended September 30, 1996 increased by 63.5% over the nine months ended September 30, 1995. These increases in broadcast revenues were primarily the result of acquisitions and LMA transactions consummated by the Company in 1995 and during the first nine months of 1996 (collectively, the "Acquisitions"), as well as growth in television broadcast revenue. Operating expenses excluding depreciation and amortization increased from $20.7 million for the three months ended September 30, 1995 to $53.2 million for the three months ended September 30, 1996, or 157.0%. Operating expenses excluding depreciation and amortization increased from $59.4 million for the nine months ended September 30, 1995 to $106.1 million for the nine months ended September 30, 1996, or 78.6%. These increases in expenses for the three months and the nine months ended September 30, 1996 as compared to the three months and the nine months ended September 30, 1995 were largely attributable to operating costs associated with the acquisitions, an increase in LMA fees resulting from LMA transactions and an increase in corporate overhead expenses. Broadcast operating income increased from $9.2 million for the three months ended September 30, 1995 to $20.5 million for the three months ended September 30, 1996, or 122.8%. Broadcast operating income increased from $28.6 million for the nine months ended September 30, 1995 to $48.6 million for the nine months ended September 30, 1996, or 69.9%. The increase in broadcast operating income for the three months ended September 30, 1996 as compared to the three months ended September 30, 1995 and the nine months ending September 30, 1996 as compared to the nine months ended September 30, 1995 is primarily attributable to the Acquisitions. Interest expense increased from $8.7 million for the three months ended September 30, 1995 to $29.0 million for the three months ended September 30, 1996, or 233.3%. Interest expense increased from $28.3 million for the nine months ended September 30, 1995 to $56.6 million for the nine months ended September 30, 1996, or 100.0%. Interest expense increases for the nine months and the three months ended September 30, 1996 primarily related to senior bank indebtedness incurred by the Company to finance the River City acquisition and other Acquisitions. 13 Interest and other income decreased to $652 thousand for the three months ended September 30, 1996 from $692 thousand for the three months ended September 30, 1995, or 5.8%. Interest and other income increased to $3.8 million for the nine months ended September 30, 1996 from $2.0 million for the nine months ended September 30, 1995 or 90.0% The decrease for the three months ended September 30, 1996 is primarily due to lower cash balances and related interest income as a result of the Acquisitions. The increase for the nine months ended September 30, 1996 primarily resulted from the increase in interest income on cash balances that remained from the Company's public debt offering in August 1995 until February 1996 when the Company made a $34.4 million payment relating to the WSMH acquisition and April 1996 when the Company made a $60 million down payment relating to the River City Acquisition. Income tax benefit increased from $2.2 million for the three months ended September 30, 1995 to $4.5 million for the three months ended September 30, 1996. Income tax benefit increased from $1.7 million for the nine months ended September 30, 1995 to $2.4 million for the nine months ended September 30, 1996. The increase for the three and nine months ended September 30,1996 as compared to the three and nine months ended September 30, 1995 primarily relates to the increase in pre-tax loss between periods and book and tax differences attributable to the acquisitions since July 1, 1995. The deferred tax asset decreased from $21.0 million at December 31, 1995 to $9.8 million as of September 30, 1996 and the effective tax rate increased from 28% for the nine months ended September 30, 1995 to 57% for the nine months ended September 30, 1996. The decrease in the Company's deferred tax asset from December 31, 1995 as compared to the tax asset at September 30, 1996 and the increase in the Company's effective tax rate for the period ended September 30, 1996 as compared to the year ended September 30, 1995 is primarily due to the Company's acquisition of all of the outstanding stock of Superior Communications, Inc. in March 1996 and resulting differences between book and tax basis of the underlying assets. Net loss for the three months ended September 30, 1996 was $3.3 million or $0.10 per share compared to net income of $268 thousand or $0.01 per share for the three months ended September 30, 1995 before the extraordinary loss on early extinguishment of debt. Net loss for the nine months ended September 30, 1996 was $1.8 million or $0.05 per share compared to net income of $775 thousand or $0.02 per share for the nine months ended September 30, 1995 before the extraordinary loss. Broadcast cash flow increased to $52.8 million for the three months ended September 30, 1996 from $26.5 million for the three months ended September 30, 1995, or 99.2%. Broadcast cash flow increased to $117.9 million for the nine months ended September 30, 1996 from $77.0 million for the nine months ended September 30, 1995, or 53.1%. The increases in broadcast cash flow for the three months and the nine months ended September 30, 1996 as compared to the three months and the nine months ended September 30, 1995 primarily resulted from the Acquisitions. The Company's broadcast cash flow margin decreased from 58.4% for the three months ended September 30, 1995 to 51.7% for the three months ended September 30, 1996. The Company's broadcast cash flow margin decreased from 57.4% for the nine months ended September 30, 1995 to 53.7% for the nine months ended September 30, 1996. Decrease in broadcast cash flow margins for the three months and the nine months ended September 30, 1996 as compared to the three months and the nine months ended September 30, 1995 primarily resulted from operating cost structures at certain of the acquired stations where the Company's operating methods have not been fully implemented. Operating cash flow increased to $49.8 million for the three months ended September 30, 1996 from $24.7 million for the three months ended September 30, 1995, or 101.6%. Operating cash flow increased to $111.8 million for the nine months ended September 30, 1996 from $73.0 million for the nine months ended September 30, 1995, or 53.2%. The increases in operating cash flow for the three months and the nine months ended September 30, 1996 as compared to the three months and the nine months ended September 30, 1995 resulted from the Acquisitions. The Company's operating cash flow margin decreased from 54.3% for the three months ended September 30, 1995 to 48.8% for the three months ended September 30, 1996. The Company's operating cash flow margin decreased from 54.4% for the nine months ended September 30, 1995 to 51.0% for the nine months ended September 30, 1996. Decrease in operating cash flow margins for the three months and the nine months ended September 30, 1996 as compared to the three months and the nine months ended September 30, 1995 primarily resulted from operating cost structures at certain of the acquired stations where the Company's operating methods have not been fully implemented. After tax cash flow increased from $15.7 million for the three months ended September 30, 1995 to $26.0 million for the three months ended September 30, 1996, or 65.6%. After tax cash flow increased from $45.2 million for the nine months ended September 30, 1995 to $61.4 million for the nine months ended September 30, 1996, or 35.8%. The increases in after tax cash flow for the three months and the nine months ended September 30, 1996 as compared to the three months and the nine months ended September 30, 1995 primarily resulted from the Acquisitions and internal growth, offset by interest expense on the debt incurred to consummate the Acquisitions. 14 Liquidity and Capital Resources The capital structure of the Company consists of the Company's outstanding long-term debt and stockholders' equity. The stockholders' equity consists of common stock, additional paid in capital and accumulated deficit. The Company's decrease in cash from $112.5 million at December 31, 1995 to $1.7 million at September 30, 1996 primarily resulted from cash payments made relating to Acquisitions and repayments of bank debt. As of October 31, 1996, approximately $131.5 million was available for draws under the Bank Credit Agreement. In September 1996, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission with respect to the sale of up to 5,750,000 shares of Class A Common Stock by the Company, and subsequently amended the registration statement to increase the number of shares that may be sold by the Company to 5,937,500 shares and to cover the sale of 1,250,000 shares by certain selling stockholders. On November 1, 1996, the Company announced that it was withdrawing the offering and that it intended to reconsider an offering in the future when market conditions are more favorable. The Company also announced that it was considering purchasing up to $20 million of its currently outstanding Class A Common Stock. The Company had previously announced that it intends to offer up to $200 million aggregate liquidation preference of preferred stock. The Company continues to intend to make such an offering depending on market conditions, but there can be no assurance as to the timing of such an offering or whether such an offering will in fact be consummated. The Company intended to use the proceeds of the offering of common or preferred stock to reduce indebtedness under the Bank Credit Agreement. The Company believes that capital and liquidity requirements can be met through its borrowing capacity and cash flows from operations whether or not it completes an offering of either common or preferred stock. Net cash flows from operating activities decreased from $34.5 million for the nine months ended September 30, 1995 to $12.9 million for the nine months ended September 30, 1996. The Company made income tax payments of $7.7 million during the nine months ended September 30, 1995 compared to $6.8 million for the nine months ended September 30, 1996 due to anticipated tax benefits generated by its 1996 Acquisitions. The Company made interest payments on outstanding indebtedness of $23.3 million during the nine months ended September 30, 1995 compared to $62.6 million for the nine months ended September 30, 1996 due to the additional interest expense relating to the Company's public debt offering in August 1995 and indebtedness incurred to finance the River City acquisition. Program rights payments increased from $14.7 million for the nine months ended September 30, 1995 to $19.3 million for the nine months ended September 30, 1996, primarily as a result of the acquisitions. The Company also made a $20.0 million payment of debt acquisition costs relating to the financing required to consummate the River City and KRRT acquisitions. Net cash flows used in investing activities was $109.8 million for the nine months ended September 30, 1995 compared to $995.0 million for the nine months ended September 30, 1996. During February 1996, the Company purchased the license and non-license assets of WSMH for $35.4 million at which time the balance due to the seller of $34.4 million was paid from the Company's existing cash balance. In January 1996, the Company made a cash payment of $1.0 million relating to the acquisition of the license and non-license assets of WYZZ. In July 1996, the Company consummated the acquisition for a purchase price of approximately $21.1 million, utilizing cash and indebtedness under its Bank Credit Agreement of $1.0 million and $20.1 million, respectively. In May 1996, the Company purchased the outstanding stock of Superior Communications, Inc. (Superior) and made cash payments totaling $63.5 million relating to the transaction. Also in May 1996, the Company acquired certain non-license assets of River City and KRRT and made related cash payments totaling $816.4 million and $29.5 million respectively. In July 1996, the Company purchased the license and non-license assets of KSMO and made net cash payments totaling $10.0 million utilizing indebtedness under its Bank Credit Agreement. In August 1996, the Company purchased the license and non-license assets of WSTR and made net cash payments totaling $8.7 million utilizing indebtedness under its Bank Credit Agreement. In September 1996, the Company exercised its options to acquire certain FCC licenses relating to the River City acquisition for a cash payment of $6.9 million by utilizing indebtedness under the Bank Credit Agreement. Net cash flows from financing activities was $177.8 million for the nine months ended September 30, 1995 compared to $871.3 million for the nine months ended September 30, 1996. In May 1996, the Company utilized available indebtedness of $63 million for the acquisition of Superior and simultaneously repaid indebtedness of $25.0 million. Also in May 1996, the Company utilized available indebtedness of $835.0 for the acquisition of the non license assets of River City and KRRT and simultaneously repaid indebtedness of $36.0 million. In July 1996, the Company utilized available indebtedness under its Bank Credit Agreement totaling $30.6 million for the acquisitions of WYZZ and KSMO. In August 1996, the Company utilized available indebtedness totaling $9.9 million for the acquisition of WSTR. In September 1996, the Company utilized indebtedness of $7.0 million to exercise its options to acquire certain FCC licenses relating to the River City acquisition. 15 Part II. Other Information ITEM 1. LEGAL PROCEEDINGS A petition was filed with the Federal Communications Commission on August 16, 1996 by First Media Television, L.P. (First Media) to deny the application for assignment of the license for WFBC in Anderson, South Carolina from River City to Glencairn, Ltd. (Glencairn) and a separate petition to deny the application for assignment of the license for WLOS in Ashville, North Carolina from River City to the Company was filed by First Media on October 7, 1996. The Company currently provides programming to WFBC pursuant to a local marketing agreement (LMA) with River City and intends to provide programming to WFBC pursuant to an LMA with Glencairn after acquisition of the license assets of WFBC by Glencairn. The petitions claim that the acquisition of the license of WFBC by Glencairn would violate the FCC's cross-interest policy in light of the Company's LMA with and option to acquire the license assets of WLOS and in light of the equity interest in Glencairn held by relatives of the controlling stockholders of the Company. In addition, informal objections have been made by Post-Newsweek Stations, San Antonio, Inc. (Post-Newsweek) (filed August 21, 1996) and by Harte-Hanks Television, Inc. (filed August 29, 1996) to the application to assign the license of KRRT in Kerrville, Texas to Glencairn, and on October 7, 1996 Post-Newsweek filed a petition to deny the application to assign the license of KABB in San Antonio to the Company. Although the specific nature of the informal objections against the KRRT application are unclear, the objections generally raise questions concerning the cross-interest policy as it relates to LMAs between Glencairn and Sinclair. The petition to deny the KABB application claims that the acquisition of the license of KABB by the Company and the acquisition of the license of KRRT by Glencairn would violate the FCC's cross-interest policy in light of the Company's LMA with KRRT and in light of the equity interest in Glencairn held by relatives of the Controlling Stockholders. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Letter Agreement dated August 20, 1996 between Sinclair Broadcast Group, Inc., River City Broadcasting, L.P. and Fox Broadcasting Company. (Confidential treatment has been requested. The copy filed omits the information subject to a confidentiality request.) 27 Financial Data Schedule 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SINCLAIR BROADCAST GROUP, INC. by: /s/ David B. Amy ----------------------------- David B. Amy Chief Financial Officer Principal Accounting Officer 17 Exhibit Index 10.1 Letter Agreement dated August 20, 1996 between Sinclair Broadcast Group, Inc., River City Broadcasting, L.P. and Fox Broadcasting Company. (Confidential treatment has been requested. The copy filed omits the information subject to a confidentiality request.) 27 Financial Data Schedule EX-10.01 2 EXHIBIT 10.01 Portions of this exhibit have been omitted pursuant to a request for confidential treatment. The omitted portions, marked by an * and [], have been separately filed with the Commission. The information below marked with * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately file with the Commission. August 20, 1996 Sinclair Broadcast Group, Inc. 2000 W. 41st Street Baltimore, Maryland 21211 River City Broadcasting, L.P. 1215 Cole Street St. Louis, Missouri 63106 Ladies and Gentlemen: The purpose of this letter (the "Letter Agreement") is to confirm, clarify and supplement the commitments of Fox Broadcasting Company ("FBC"), Fox Children's Network, Inc.("FCN"), Sinclair Broadcast Group, Inc., Sinclair Communications, Inc., and each of its subsidiaries (together with Sinclair Broadcast Group, Inc., "Sinclair") and Cunningham Communications, Inc. set forth in a letter agreement dated November 4, 1994 (the "November 1994 Agreement") and to extend those understandings to apply to certain other FBC-and/or FCN-affiliated stations that are owned, operated or under contract to be acquired or operated by Sinclair. These understandings also shall be reflected in amendments or modifications to the FBC and/or FCN affiliation agreements for the affected stations (collectively, the "Affiliation Agreements" and each an "FBC Affiliation Agreement" or "FCN Affiliation Agreement"). Accordingly, we agree as follows: GENERAL UNDERSTANDINGS AND AGREEMENTS 1. [*] The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Commission. [*] 2. FBC and Sinclair reaffirm their commitment to undertake the obligations set forth in each of the Affiliation Agreements and in Paragraph 1 of the "General Matters" Section of the November 1994 Agreement for each station set forth in Schedule A and River City Broadcasting, L.P. ("River City") agree to undertake such obligations with respect to [*] All such stations listed in Schedule A are hereinafter referred to as the "Stations." Sinclair and River City acknowledge and agree that in-pattern clearance of FBC and FCN programming is critically important to FBC and FCN and agree to act in good faith to fulfill their obligations as set forth in the respective Affiliation Agreements to clear in pattern all FBC and FCN programming on the Stations, subject only to the preemption rights set forth in Paragraph 11 of the FBC and FCN Affiliation Agreements or as otherwise provided for herein. Except as otherwise provided herein, Sinclair and River City further reaffirm the requirement in the existing FBC/FCN Agreements and specifically commit to clear in pattern on the Stations all new FBC and FCN programming that is rolled out during the terms of the Affiliation Agreements ("New Programming") as soon as reasonably possible after such New Programming is offered by FBC or FCN but no later than [*] following receipt of written notice from FBC or FCN regarding the roll-out of any such New Programming. 3. Except as expressly set forth in Schedule B hereto (with respect to FBC programming) and Schedule C hereto (with respect to FCN programming), Sinclair and River City confirm that neither Sinclair nor River City has any obligation or commitment that would interfere or conflict with in-pattern clearance on the Stations of existing or announced FBC or FCN programming, which announced programming is set forth on Schedule D hereto, and that all agreements that require Sinclair or River City to broadcast programming in time periods that conflict with in-pattern clearance of existing or announced FBC or FCN programming shall be permitted to expire on the earliest possible dates under such agreements without renewal or extension by Sinclair or River City, unless any such renewal or extension would not conflict with in-pattern clearances of any FBC or FCN programming. 4. Except as otherwise specifically set forth herein, the Affiliation Agreements for each of the Stations shall be amended or replaced to (a) provide for a new five-year term commencing as of the date hereof (the "Commencement Date") and (b) give [*] right to renew all such agreements for an additional period of five years [*] ; provided however, that FBC shall be required to notify Sinclair in writing of its intent to renew [*]. If FBC elects to renew the agreements, it shall be required to renew all such 2 The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Commission. agreements for each of the Stations that remain owned and/or operated by Sinclair at the time; provided, however, in the event that any of the Stations owned and/or operated by Sinclair has materially breached its Affiliation Agreement and continued such breach after written notification of the breach by FBC beyond the applicable cure period provided for in the Affiliation Agreement, FBC shall have the right to renew selectively any or all of the Affiliation Agreements. [*] 5. Each of the stations shall be required to clear the FCN afternoon block in pattern from 3:00 to 5:00 p.m. except as otherwise specified in Schedule C. [*] 6. The parties hereto acknowledge and agree that each would have no adequate remedy at law if the other party were to fail to fulfill the obligations undertaken and confirmed herein, and that the right to specific performance is essential to protect each party's rights and interests hereunder. Accordingly, in addition to any other remedies that any party may have hereunder, under the Affiliation Agreements, or at law or in equity, or otherwise and notwithstanding any other provision hereof, each party shall have the right to have all obligations, undertakings, agreements of the other party under this Letter Agreement specifically performed by such other party and to obtain an order or decree of such specific performance in any of the courts of the United States or of any state or other political subdivision thereof. 7. Subject to the right specified above to seek an order of specific performance of any provision hereof, any demand or claim shall be resolved by arbitration. Specifically, in the event of any such claim or demand arising out of this Letter Agreement or any modification or extension of this Letter Agreement (including the question of whether any particular matter is arbitrable hereunder) that cannot be resolved by the parties, the complaining party (the "Complainant") shall serve upon the other party or parties to the controversy, dispute or claim (the "Other Party") a written demand for arbitration stating the substance of the controversy, dispute or claim and the contention of the Complainant. The Complainant shall refer the dispute to the American Arbitration Association ("AAA") to resolve all points of disagreement in accordance with the AAA rules then in effect. The parties hereto agree to abide by all awards and decisions rendered in the arbitration proceeding in accordance with the foregoing, and all such awards and decisions may be filed, if necessary, by the prevailing party with any court 3 The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Commission. having jurisdiction over the person or property of the other party as a basis for judgment and the issuance of execution thereon. The parties acknowledge that time is of the essence to the matters contained herein, and any arbitration shall be conducted pursuant to expedited procedures. The fee of the arbitrator(s) and related expenses of arbitration shall be apportioned among the parties as determined by the arbitrator(s). 8. Paragraph 3 of the "General Matters" Section of the November 1994 Agreement is hereby deleted and replaced with the following: During the current term or first renewal term (both as provided for in paragraph 4 hereof) of any FBC or FBC/FCN Affiliation Agreement for [*] However, FBC and its related entities shall not be restricted in any manner from acquiring any interest in any station, including stations located in markets in which Sinclair operates FBC or FCN affiliates; provided, however, if FBC, any affiliate, subsidiary or related companies of FBC or its parent, or any other entities in which the foregoing have an interest ("Fox") acquires all of, or a controlling ownership interest in, another station in a market in which one of the Stations specified in the preceding sentence is located and determines to operate the station being acquired as an FBC affiliate, FBC may terminate the affiliation of the affected Sinclair Station only if FBC first offers Sinclair or its designee in writing (accompanied by financials of the station reasonably sufficient to enable Sinclair to perform a valuation) the right to acquire Fox's interest (at a price which shall be the fair market value of the station), and Sinclair rejects the offer in writing. If Sinclair fails to respond to the offer within thirty (30) days of receipt of Fox's notice, Sinclair shall be deemed to have rejected the offer. If Sinclair wishes to purchase the station, [*] 4 The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Commission. [*] If Sinclair or its designee purchases the station, it shall operate the station as an FBC affiliate pursuant to a standard-form FBC Affiliation Agreement, to be effective at the conclusion of any existing afiliation agreement for the station. If Sinclair declines the offer, Fox may proceed with the acquisition and then terminate the Affiliation Agreement. 9. [*] AGREEMENTS WITH RESPECT TO INDIVIDUAL STATIONS 10. As soon as possible and no later than 60 days from the date hereof, the parties shall amend or enter into new Affiliation Agreements for each Station to reflect the understandings set forth herein. Failure to amend or enter into such Affiliation Agreements shall not impair any such right, power or privilege under this Letter Agreement or be construed as a waiver of any default or acquiescence therein. WBFF, Baltimore, Maryland ("WBFF") 11. [*] 5 The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Commission. [*] 12. Cunningham Communications, Inc. reaffirms its commitment set forth in the November 1994 Agreement to make available to FBC during the term of the WBFF FBC Affiliation Agreement space on the WBFF tower to accommodate two microwave dishes (and related transmitter equipment space) and one small television camera at a monthly rental fee of [*]. Such space shall be made available to FBC within thirty (30) days of the date hereof. FBC shall give WBFF the right to switch into the signal from the FBC camera for use on WBFF telecasts at no cost to Sinclair. WTTE, Columbus, Ohio ("WTTE") 13.[*] 14. [*] 15. [*] WPGH-TV, Pittsburgh, Pennsylvania ("WPGH") 16. [*] WDKY-TV, Danville, Kentucky ("WDKY") 17. Sinclair and FBC shall enter into a standard-form FBC/FCN Affiliation Agreement, subject to such modifications as are necessary to reflect the 6 The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Commission. terms of this agreement. The Agreement shall require WDKY to broadcast all New Programming as soon as reasonably possible after such New Programming is available but no later than [*] following receipt of written notice from FBC or FCN regarding the roll-out of any such New Programming. KDSM-TV, Des Moines, Iowa ("KDSM") 18. [*] WYZZ-TV, Bloomington, Illinois ("WYZZ") 19. [*] WSMH, Flint, Michigan ("WSMH") 20. Sinclair and FBC shall enter into a standard-form FBC/FCN Affiliation Agreement, subject to such modifications as are necessary to reflect the terms of this Agreement, which shall require WSMH to broadcast all New Programming as soon as possible after such New Programming is available but no later than [*] following receipt of written notice from FBC or FCN regarding the roll-out of any such New Programming 21. [*] 7 The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Commission. [*] WTTO, Birmingham, Alabama ("WTTO") 22. [*] WTVZ, Norfolk, Virginia ("WTVZ") and WLFL, Raleigh, North Carolina ("WLFL") 23. Until expiration of the FBC Affiliation Agreements for each of WTVZ and WLFL on August 31, 1998, Sinclair shall broadcast in pattern all New Programming on each station as soon as reasonably possible after such New Programming is offered by FBC but no later than [*] following receipt of written notice from FBC or FCN regarding the roll-out of any such New Programming; provided, however, [*] Neither of these FBC Affiliation Agreements will be extended or renewed. Notwithstanding the August 31, 1998 expiration of the FBC Affiliation Agreements, 8 The information below marked by * and [ ] has been omitted pursuant to a request for confidential treatment. The omitted portions have been separately filed with the Commission. each of WTVZ and WLFL shall remain entitled to receive their respective shares of retransmission consent revenues throughout the period that the existing retransmission consents remain in effect. WTTA, St. Petersburg, Florida ("WTTA"), WCGV-TV, Milwaukee, Wisconsin ("WCGV") and KSMO-TV, Kansas City, Missouri ("KSMO") 24. The parties shall execute new FCN Affiliation Agreements for each of these stations providing for five-year terms from the Commencement Date. [*] 25. [*] 26. [*] 27. [*] 28. This Letter Agreement shall be binding on the successors and permitted assigns of each of the parties hereto. 9 If the foregoing is in accordance with our agreements and understandings, please sign a copy of this Letter Agreement in the space provided below. Very truly yours, FOX BROADCASTING COMPANY By: /s/ Lan Corbi ------------------------ Lana Corbi, Executive Vice President ACKNOWLEDGED AND AGREED: SINCLAIR BROADCAST GROUP, INC. By: /s/ David D. Smith ------------------------------- David D. Smith, President of Sinclair Broadcast Group, Inc., Sinclair Communications, Inc. and each subsidiary thereof ACKNOWLEDGED AND AGREED: (For Purposes of the WBFF Tower Rental Only) CUNNINGHAM COMMUNICATIONS, INC. By: /s/ David D. Smith ---------------------------- David D. Smith, President ACKNOWLEDGED AND AGREED: RIVER CITY BROADCASTING, L.P. By: --------------------------- Its General Partner By: /s/ Barry Baker ------------------------ Barry Baker 10 EX-27 3 FDS -- ART. 5 FOR 3RD QUARTER 10-Q
5 1000 US DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 1,665 0 89,211 2,002 0 153,358 179,091 26,994 1,709,686 169,013 400,000 0 12 348 243,815 1,709,686 0 237,189 0 188,583 (3,824) 2,400 56,647 (4,217) 0 (1,817) 0 0 0 (1,817) (0.05) (0.05)
-----END PRIVACY-ENHANCED MESSAGE-----