10-Q 1 0001.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 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 August 7, 2000, there were 43,765,922 shares of Class A Common Stock, $.01 par value; 46,400,768 shares of Class B Common Stock, $.01 par value; and 3,450,000 shares of Series D Preferred Stock, $.01 par value, convertible into 7,561,644 shares of Class A Common Stock; of the Registrant issued and outstanding. In addition, 2,000,000 shares of $200 million aggregate liquidation value 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, 2000 TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 ................................................. 3 Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1999 and 2000 ................ 4 Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2000 ................................. 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 2000 ................................. 6 Notes to Unaudited Consolidated Financial Statements .................................................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................ 11 Item 3. Quantitative and Qualitative Disclosure About Market Risk ........................................................ 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................................................................................ 18 Item 4. Submission of Matters to a Vote of Security Holders .............................................................. 18 Item 6. Exhibits and Reports on Form 8-K ................................................................................. 19 Signature ............................................................................................................. 20
2 SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, JUNE 30, ASSETS 1999 2000 --------------- ------------- CURRENT ASSETS: Cash ........................................................................... $ 16,408 $ 4,145 Accounts receivable, net of allowance for doubtful accounts..................... 210,343 193,124 Current portion of program contract costs....................................... 74,138 44,826 Prepaid expenses and other current assets....................................... 7,418 4,395 Deferred barter costs........................................................... 1,823 4,401 Broadcast assets related to discontinued operations, net of liabilities......... 172,983 166,712 Broadcast assets held for sale, current......................................... 77,962 - Deferred tax asset ............................................................. 5,215 21,352 ------------- ------------ Total current assets..................................................... 566,290 438,955 PROGRAM CONTRACT COSTS, less current portion........................................ 53,002 34,899 LOANS TO OFFICERS AND AFFILIATES.................................................... 8,772 9,169 PROPERTY AND EQUIPMENT, net......................................................... 251,783 275,368 BROADCAST ASSETS HELD FOR SALE, less current portion................................ 144,316 - OTHER ASSETS ....................................................................... 108,383 103,387 ACQUIRED INTANGIBLE BROADCASTING ASSETS, net........................................ 2,486,964 2,681,337 ------------- ------------ Total Assets.................................................................... $ 3,619,510 $ 3,543,115 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................................................ $ 7,600 $ 6,717 Accrued liabilities............................................................. 67,078 74,434 Income taxes payable............................................................ 116,821 9,906 Notes payable and commercial bank financing..................................... 75,008 87,509 Notes and capital leases payable to affiliates.................................. 5,890 4,380 Current portion of program contracts payable.................................... 111,992 91,280 Deferred barter revenues........................................................ 3,244 5,913 ------------- ------------ Total current liabilities................................................ 387,633 280,139 LONG-TERM LIABILITIES: Notes payable and commercial bank financing..................................... 1,677,299 1,781,339 Notes and capital leases payable to affiliates.................................. 34,142 32,118 Program contracts payable, less current portion................................. 87,220 63,683 Deferred tax liability.......................................................... 233,927 236,092 Other long-term liabilities..................................................... 20,444 27,531 ------------- ------------ Total liabilities........................................................ 2,440,665 2,420,902 ------------- ------------ MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES...................................... 3,928 3,688 ------------- ------------ COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUB- SIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES............................. 200,000 200,000 ------------- ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Series D Preferred stock, $.01 par value, 3,450,000 shares authorized, issued and outstanding....................................................... 35 35 Class A Common stock, $.01 par value, 500,000,000 shares authorized and 49,142,513 and 45,026,675 shares issued and outstanding, respectively.... 491 450 Class B Common stock, $.01 par value, 140,000,000 shares authorized and 47,608,347 and 46,400,768 shares issued and outstanding.................. 476 464 Additional paid-in capital...................................................... 764,091 738,512 Additional paid-in capital - equity put options................................. 116,370 90,877 Additional paid-in capital - deferred compensation.............................. (4,489) (3,970) Retained earnings............................................................... 97,943 92,157 ------------- ------------ Total stockholders' equity............................................... 974,917 918,525 ------------- ------------ Total Liabilities and Stockholders' Equity............................... $ 3,619,510 $ 3,543,115 ============= ============
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, 1999 2000 1999 2000 --------- --------- --------- --------- REVENUES: Station broadcast revenues, net of agency commissions .............. $ 175,261 $ 192,736 $ 323,355 $ 353,538 Revenues realized from station barter arrangements ................. 15,360 14,871 29,624 29,917 --------- --------- --------- --------- Total revenues .............................................. 190,621 207,607 352,979 383,455 --------- --------- --------- --------- OPERATING EXPENSES: Program and production ............................................. 34,778 39,477 67,754 77,542 Selling, general and administrative ................................ 31,685 43,575 64,104 83,495 Expenses realized from station barter arrangements ................. 13,892 13,517 26,997 26,955 Amortization of program contract costs and net realizable value adjustments..................................... 18,480 23,409 39,971 48,486 Stock-based compensation ........................................... 848 701 1,674 1,377 Depreciation of property and equipment ............................. 7,819 9,579 15,792 18,090 Amortization of acquired intangible broadcasting assets, non-compete and consulting agreements and other assets ......... 28,104 27,970 54,755 54,909 Cumulative adjustment for change in assets held for sale ........... - - - 619 --------- --------- --------- --------- Total operating expenses .................................... 135,606 158,228 271,047 311,473 --------- --------- --------- --------- Broadcast operating income .................................. 55,015 49,379 81,932 71,982 --------- --------- --------- --------- OTHER INCOME (EXPENSE): Interest and amortization of debt discount expense ................. (44,088) (37,978) (87,278) (74,850) Subsidiary trust minority interest expense ......................... (5,812) (5,812) (11,625) (11,625) Interest income .................................................... 794 674 1,603 1,254 Unrealized gain (loss) on derivative instrument .................... 4,486 (695) 11,586 4 Loss from equity investments ....................................... - (1,317) - (1,852) Other income (expense) ............................................. 183 (594) 331 (786) --------- --------- --------- --------- Income (loss) before income tax (provision) benefit ......... 10,578 3,657 (3,451) (15,873) INCOME TAX (PROVISION) BENEFIT ..................................... (14,457) (4,910) (3,490) 11,997 --------- --------- --------- --------- Net loss from continuing operations ................................ (3,879) (1,253) (6,941) (3,876) Net income from discontinued operations, net of taxes .............. 5,183 2,462 6,630 3,265 --------- --------- --------- --------- NET INCOME (LOSS) .................................................. $ 1,304 $ 1,209 $ (311) $ (611) ========= ========= ========= ========= NET LOSS AVAILABLE TO COMMON STOCKHOLDERS .............................. $ (1,283) $ (1,378) $ (5,486) $ (5,786) ========= ========= ========= ========= BASIC EARNINGS PER SHARE: Loss per common share from continuing operations ....................... $ (0.07) $ (0.04) $ (0.13) $ (0.10) ========= ========= ========= ========= Income per share from discontinued operations .......................... $ 0.05 $ 0.03 $ 0.07 $ 0.04 ========= ========= ========= ========= Loss per common share .................................................. $ (0.01) $ (0.01) $ (0.06) $ (0.06) ========= ========= ========= ========= Weighted average common shares outstanding ............................. 96,371 92,492 96,474 92,651 ========= ========= ========= ========= DILUTED EARNINGS PER SHARE: Loss per common share from continuing operations ....................... $ (0.07) $ (0.04) $ (0.13) $ (0.10) ========= ========= ========= ========= Income per share from discontinued operations .......................... $ 0.05 $ 0.03 $ 0.07 $ 0.04 ========= ========= ========= ========= Loss per common share .................................................. $ (0.01) $ (0.01) $ (0.06) $ (0.06) ========= ========= ========= ========= Weighted average common and common equivalent shares outstanding ....... 97,026 92,492 97,133 92,651 ========= ========= ========= =========
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, 2000 (IN THOUSANDS)
ADDITIONAL ADDITIONAL PAID-IN PAID-IN SERIES D CLASS A CLASS B ADDITIONAL CAPITAL - CAPITAL - TOTAL PREFERRED COMMON COMMON PAID-IN EQUITY PUT DEFERRED ACCUMULATED STOCKHOLDERS' STOCK STOCK STOCK CAPITAL OPTIONS COMPENSATION DEFICIT EQUITY --------- --------- --------- --------- --------- --------- --------- --------- BALANCE, December 31, 1999 ... $ 35 $ 491 $ 476 $ 764,091 $ 116,370 $ (4,489) $ 97,943 $ 974,917 Repurchase and retirement of 5,569,732 shares of Class A Common Stock ..... - (56) - (53,210) - - - (53,266) Class B Common Stock converted into Class A Common Stock ............. - 12 (12) - - - - - Dividends paid on Series D Preferred Stock . - - - - - - (5,175) (5,175) Stock option grants ........ - - - 60 - (60) - - Class A Common Stock issued pursuant to employee benefit plans ... - 3 - 2,078 - - - 2,081 Equity put options ......... - - - 25,493 (25,493) - - - Amortization of deferred compensation ............. - - - - - 579 - 579 Net loss ................... - - - - - - (611) (611) --------- --------- --------- --------- --------- --------- --------- --------- BALANCE, June 30, 2000 ....... $ 35 $ 450 $ 464 $ 738,512 $ 90,877 $ (3,970) $ 92,157 $ 918,525 ========= ========= ========= ========= ========= ========= ========= =========
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, ------------------------ 1999 2000 --------- --------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net loss ......................................................................................... $ (311) $ (611) Adjustments to reconcile net loss to net cash flows from (used in) operating activities- Amortization of debt discount ................................................................ 49 49 Depreciation of property and equipment ....................................................... 17,907 19,869 Unrealized gain on derivative instrument ..................................................... (11,586) (4) Amortization of acquired intangible broadcasting assets, non-compete and consulting agreements and other assets..................................... 63,571 59,680 Amortization of program contract costs and net realizable value adjustments .................. 39,971 48,784 Stock-based compensation ..................................................................... 972 579 Cumulative adjustment for change in assets held for sale ..................................... - (1,237) Deferred tax provision (benefit) related to operations ....................................... 2,759 (13,972) Loss from equity investments ................................................................. - 1,852 Net effect of change in deferred barter revenues and deferred barter costs.................................................................. (47) 97 Decrease in minority interest ................................................................ (7) (240) Changes in assets and liabilities, net of effects of acquisitions and dispositions- Decrease in accounts receivable, net ......................................................... 9,795 15,527 (Increase) decrease in prepaid expenses and other current assets ............................. (817) 2,296 Decrease in accounts payable and accrued liabilities ......................................... (7,031) (10,928) (Decrease) increase in other long-term liabilities ........................................... (2,046) 6,944 Income tax payments related to the sale of broadcasting assets ............................... - (99,007) Payments on program contracts payable ........................................................ (40,677) (49,410) --------- --------- Net cash flows from (used in) operating activities ........................................ 72,502 (19,732) --------- --------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Acquisition of property and equipment ............................................................ (11,570) (15,034) Payments relating to the acquisition of television and radio stations ............................ (130,279) (35,984) Distributions from (investments in) joint ventures ............................................... 324 (133) Equity investments ............................................................................... (9,349) (4,171) Proceeds from sale of broadcasting assets ........................................................ 35,911 673 Loans to officers and affiliates ................................................................. (443) (673) Repayments of loans to officers and affiliates ................................................... 1,112 342 --------- --------- Net cash flows used in investing activities ............................................... (114,294) (54,980) --------- --------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Proceeds from commercial bank financing .......................................................... 154,500 311,000 Repayments of notes payable, commercial bank financing and capital leases ........................ (98,899) (194,500) Repurchases of Class A Common Stock .............................................................. - (46,000) Dividends paid on Series D Convertible Preferred Stock ........................................... (5,175) (5,175) Repayments of notes and capital leases to affiliates.............................................. (2,303) (2,876) Net cash flows from financing activities .................................................. 48,123 62,449 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................................. 6,331 (12,263) CASH AND CASH EQUIVALENTS, beginning of period ....................................................... 3,268 16,408 --------- --------- CASH AND CASH EQUIVALENTS, end of period ............................................................. $ 9,599 $ 4,145 ========= =========
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 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). INTERIM FINANCIAL STATEMENTS The consolidated financial statements for the six months ended June 30, 1999 and 2000 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, 1998, and 1999 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. DISCONTINUED OPERATIONS In July 1999, the Company entered into an agreement to sell 46 of its radio stations in nine markets to Entercom Communications Corporation (Entercom) for $824.5 million in cash. In December 1999, the Company completed the sale of 41 of its radio stations in eight markets to Entercom for $700.4 million in cash and recognized a gain net of tax of $192.4 million. The company completed the sale of four of the remaining five radio stations to Entercom in July 2000 for a purchase price of $126.6 million. The completion of the sale of the remaining radio station in Wilkes-Barre is subject to the outcome of pending litigation in which a former licensee is seeking the return of the station's license based on a fraudulent conveyance claim. In addition, the Company has entered into an agreement with Emmis Communications Corporation (Emmis) to sell its remaining radio stations serving the St. Louis market to Emmis (see note 5). Based on the Company's strategy to divest of its radio broadcasting segment, "Discontinued Operations" accounting has been adopted for the periods presented in the accompanying financial statements and the notes thereto. As such, the results from operations of the radio broadcast segment, net of related income taxes, has been reclassified from income from operations and reflected as income from discontinued operations in the accompanying consolidated statements of operations for all periods presented. In addition, assets and liabilities relating to the radio broadcast segment are reflected in "Broadcast assets related to discontinued operations, net of liabilities" in the accompanying consolidated balance sheets for all periods presented. Discontinued operations have not been segregated in the Consolidated Statements of Cash Flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated statements of operations. BROADCAST ASSETS HELD FOR SALE In March 1999, the Company entered into an agreement to sell to Sunrise Television Corporation (STC) the television stations WICS/WICD-TV in the Springfield/Champaign, Illinois market and KGAN-TV in the Cedar 7 Rapids, Iowa market. In April 1999, the Justice Department requested additional information in response to STC's filing under the Hart-Scott-Rodino Antitrust Improvements Act. Pursuant to the agreement, if the transaction did not close by March 16, 2000, either STC or the Company had the option to terminate the agreement at that time. On March 15, 2000, the Company entered into an agreement to terminate the STC transaction. As a result of its termination, the Company recorded a cumulative accounting adjustment during the first quarter of 2000. As of December 31, 1999, broadcast assets held for sale, less current portion, included the assets of KDNL-TV in the St. Louis, Missouri market. The assets were reclassed to the appropriate balance sheet classifications during the second quarter of 2000 as the agreement to sell these assets was subsequently terminated (see note 2). 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 or cash flows. In June 2000, the Company settled its recent litigation with Emmis and former CEO-designate Barry Baker regarding the sale of its St. Louis broadcast properties. As a result of the settlement, the purchase option of the Company's St. Louis properties has been terminated and a subsequent agreement was entered into whereby the Company would sell its St. Louis radio properties to Emmis (see note 5). We will retain our St. Louis television station, KDNL-TV. 3. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS): During the six months ended June 30, 1999 and 2000, the Company made certain cash payments of the following:
SIX MONTHS ENDED JUNE 30, 1999 2000 ---- ---- Interest payments............................................................... $ 89,153 $ 76,082 ============ =========== Subsidiary trust minority interest payments..................................... $ 11,625 $ 11,625 ============ =========== Income tax payments............................................................. $ 5,278 $ 102,073 ============ =========== Income tax refunds received..................................................... $ 876 $ 869 ============ ===========
8 4. EARNINGS PER SHARE: Basic and diluted earnings per share and related computations are as follows (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1999 2000 1999 2000 ------- ------- ------- -------- Weighted-average number of common shares .............................. 96,371 92,492 96,474 92,651 Diluted effect of outstanding stock options ........................... 17 - 21 - Diluted effect of conversion of preferred shares ...................... 638 - 638 - ------- ------- ------- -------- Diluted weighted-average number of common and common equivalent shares outstanding ............................... 97,026 92,492 97,133 92,651 ======= ======= ======= ======== Net loss from continuing operations ................................... $(3,879) $(1,253) $(6,941) $ (3,876) ======= ======= ======= ======== Net income from discontinued operations ............................... $ 5,183 $ 2,462 $ 6,630 $ 3,265 ======= ======= ======= ======== Net income (loss) ..................................................... $ 1,304 $ 1,209 $ (311) $ (611) Preferred stock dividends payable ..................................... (2,587) (2,587) (5,175) (5,175) ------- ------- ------- -------- Net loss available to common stockholders ............................. $(1,283) $(1,378) $(5,486) $ (5,786) ======= ======= ======= ======== BASIC EARNINGS PER SHARE: Net loss per common share from continuing operations ............ $ (0.07) $ (0.04) $ (0.13) $ (0.10) ======= ======= ======= ======== Net income per share from discontinued operations ............... $ 0.05 $ 0.03 $ 0.07 $ 0.04 ======= ======= ======= ======== Net loss per common share ....................................... $ (0.01) $ (0.01) $ (0.06) $ (0.06) ======= ======= ======= ======== DILUTED EARNINGS PER SHARE: Net loss per common share from continuing operations ............ $ (0.07) $ (0.04) $ (0.13) $ (0.10) ======= ======= ======= ======== Net income per share from discontinued operations ............... $ 0.05 $ 0.03 $ 0.07 $ 0.04 ======= ======= ======= ======== Net loss per common share ....................................... $ (0.01) $ (0.01) $ (0.06) $ (0.06) ======= ======= ======= ========
5. ACQUISITIONS AND DISPOSITIONS: Montecito Acquisition. In February 1998, the Company entered into a Stock Purchase Agreement with Montecito Broadcasting Corporation (Montecito) and its stockholders to acquire all of the outstanding stock of Montecito which owns the FCC License for television broadcast station KFBT-TV. The FCC granted approval of the transaction and the Company completed the purchase of the outstanding stock of Montecito on April 18, 2000 for a purchase price of $33.0 million. Emmis Disposition. In June 2000, the Company entered into an agreement with Emmis whereby the Company would sell the assets of six radio stations in the St. Louis market to Emmis for a purchase price of $220.0 million. The sale of the radio stations is subject to FCC and Department of Justice approval. 6. INTEREST RATE DERIVATIVE AGREEMENTS: The Company estimates the fair value to retire these instruments at June 30, 2000 to be $8.0 million. The approximate 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, 2000 if the contracts were transferred to other parties or canceled by the Banks. Based on the Company's currently hedged position at June 30, 2000, $1.8 billion or 94% of the Company's outstanding indebtedness is hedged. 9 7. 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, 2000, the Company's Option Derivative liability recorded in "Other long-term liabilities" in the accompanying consolidated balance sheet is $2.7 million. The fair market value adjustment for the six months ended June 30, 2000 resulted in an unrealized gain of $4,000. If the yield on the five year treasuries at September 30, 2000 were equal to the forward five year treasury rate on June 30, 2000 (6.13%), Sinclair would be obligated to pay approximately $0.1 million, either upfront or over five years, at Sinclair's option. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following information should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report and the audited financial statements and Management's Discussion and Analysis contained in the Company's Form 10-K for the fiscal year ended December 31, 1999. This report includes or incorporates forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things: o the impact of changes in national and regional economies, o our ability to service our outstanding debt, o successful integration of acquired television stations, including achievement of synergies and cost reductions, o pricing fluctuations in local and national advertising, o volatility in programming costs, and o the effects of governmental regulation of broadcasting. Other matters set forth in this report, including the risk factors set forth in our Form 10-K filed with the Securities and Exchange Commission on March 30, 2000, may also cause actual results in the future to differ materially from those described in the forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur. 11 The following table sets forth certain operating data for the three months and six months ended June 30, 1999 and 2000: OPERATING DATA (dollars in thousands):
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1999 2000 1999 2000 --------- --------- --------- --------- Net broadcast revenues (a) ................................. $ 175,261 $ 192,736 $ 323,355 $ 353,538 Barter revenues ............................................ 15,360 14,871 29,624 29,917 --------- --------- --------- --------- Total revenues ............................................. 190,621 207,607 352,979 383,455 --------- --------- --------- --------- Operating costs (b) ........................................ 66,463 83,052 131,858 161,037 Expenses from barter arrangements .......................... 13,892 13,517 26,997 26,955 Depreciation, amortization and stock-based compensation (c) ........................................ 55,251 61,659 112,192 123,481 --------- --------- --------- --------- Broadcast operating income ................................. 55,015 49,379 81,932 71,982 Interest expense ........................................... (44,088) (37,978) (87,278) (74,850) Subsidiary trust minority interest expense (d) ............. (5,812) (5,812) (11,625) (11,625) Interest and other income .................................. 977 80 1,934 468 Loss from equity investments ............................... - (1,317) - (1,852) Unrealized gain (loss) on derivative instrument............. 4,486 (695) 11,586 4 --------- --------- --------- --------- Net income (loss) before income taxes ...................... 10,578 3,657 (3,451) (15,873) Income tax (provision) benefit ............................. (14,457) (4,910) (3,490) 11,997 --------- --------- --------- --------- Net loss from continuing operations ........................ (3,879) (1,253) (6,941) (3,876) Net income from discontinued operations, net of taxes....... 5,183 2,462 6,630 3,265 --------- --------- --------- --------- Net income (loss) .......................................... $ 1,304 $ 1,209 $ (311) $ (611) ========= ========= ========= ========= Net loss available to common stockholders .................. $ (1,283) $ (1,378) $ (5,486) $ (5,786) ========= ========= ========= ========= OTHER DATA: Broadcast Cash Flow (e) ............................. $ 94,838 $ 92,654 $ 162,189 $ 158,248 Broadcast Cash Flow Margin (f) ...................... 54.1% 48.1% 50.2% 44.8% Adjusted EBITDA (g) ................................. $ 90,316 $ 86,303 $ 153,447 $ 146,053 Adjusted EBITDA margin (f) .......................... 51.5% 44.8% 47.5% 41.3% After tax cash flow (h) ............................. $ 52,071 $ 45,803 $ 69,070 $ 60,864 Program contract payments ........................... 19,950 24,735 40,677 49,410 Corporate expense ................................... 4,522 6,351 8,742 12,195 Capital expenditures ................................ 7,467 8,656 11,570 15,034 Cash flows from (used in) operating activities....... 26,712 1,500 72,502 (19,732) Cash flows used in investing activities.............. (95,065) (44,417) (114,294) (54,980) Cash flows from financing activities ................ 72,039 38,497 48,123 62,449 -----------------------------------------------------------------------------------------------------------------------------------
12 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 of property and equipment, stock-based compensation, and amortization of acquired intangible broadcasting assets and other assets including amortization of deferred financing costs. d) "Subsidiary trust minority interest expense" represents distributions on the HYTOPS. e) "Broadcast cash flow" (BCF) is defined as broadcast operating income plus corporate overhead expense, depreciation and amortization (including film amortization and amortization of deferred compensation), stock-based compensation, cumulative adjustment for change in assets held for sale and minus cash payments for program rights. Cash program payments represent cash payments made for current programs payable and do not necessarily correspond to program usage. We have presented BCF data, which we believe 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, BCF does not purport to represent cash provided by operating activities as reflected in our 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 BCF is relevant and useful because 1) BCF is a measurement utilized by lenders to measure our ability to service our debt, 2) BCF is a measurement utilized by industry analysts to determine a private market value of our television and radio stations and 3) BCF is a measurement industry analysts utilize when determining the operating performance. f) "Broadcast cash flow margin" is defined as broadcast cash flow divided by net broadcast revenues. "Adjusted EBITDA margin" is defined as Adjusted EBITDA divided by net broadcast revenues. g) "Adjusted EBITDA" is defined as broadcast cash flow less corporate expenses and is a commonly used measure of performance for broadcast companies. Adjusted EBITDA does not purport to represent cash provided by operating activities as reflected in our 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 our ability to service our debt, 2) Adjusted EBITDA is a measurement utilized by industry analysts to determine a private market value of our television and radio stations and 3) Adjusted EBITDA is a measurement industry analysts utilize when determining our operating performance. h) "After tax cash flow" (ATCF) is defined as net income (loss) available to common stockholders plus depreciation and amortization (excluding film amortization), stock-based compensation, the loss from equity investments, the cumulative adjustment for change in assets held for sale, and the deferred tax provision (or minus the deferred tax benefit) and minus the unrealized gain (or plus the unrealized loss) on the derivative instrument. ATCF is presented here not as a measure of operating results and does not purport to represent cash provided by operating activities. ATCF 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 ATCF is relevant and useful because 1) ATCF is a measurement utilized by lenders to measure our ability to service our debt, 2) ATCF is a measurement utilized by industry analysts to determine a private market value of our television and radio stations and 3) ATCF is a measurement analysts utilize when determining our operating performance. 13 RESULT OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Net broadcast revenues increased to $192.7 million for the three months ended June 30, 2000 from $175.3 million for the three months ended June 30, 1999, or 9.9%. Net broadcast revenues increased to $353.5 million for the six months ended June 30, 2000 from $323.4 million for the six months ended June 30, 1999 or 9.3%. The increase in net broadcast revenues for the three months ended June 30, 2000 was comprised of $7.5 million related to the acquisition of television stations and LMA transactions consummated by us in 1999 (collectively, the 1999 Transactions) and $9.9 million related to an increase in net broadcast revenues on a same station basis, which increased by 5.9%. The increase in net broadcast revenues for the six months ended June 30, 2000 was comprised of $12.5 million related to the 1999 Transactions and $17.6 million related to an increase in net broadcast revenues on a same station basis, which increased by 5.6%. Operating costs increased to $83.1 million for the three months ended June 30, 2000 from $66.5 million for the three months ended June 30, 1999, or 25.0%. Operating costs increased to $161.0 million for the six months ended June 30, 2000, from $131.9 million for the six months ended June 30, 1999, or 22.1%. The increase in operating costs for the three months ended June 30, 2000 as compared to the three months ended June 30, 1999 comprised $4.6 million related to the 1999 Transactions, $1.8 million related to an increase in corporate overhead expenses, and $10.2 million in operating costs on a same station basis, which increased 17.7%. The increase in operating costs for the six months ended June 30, 2000 as compared to the six months ended June 30, 1999 comprised $8.4 million related to the 1999 Transactions, $3.5 million related to an increase in corporate overhead expenses, and $17.2 million related to an increase in operating costs on a same station basis, which increased 14.8%. Corporate overhead expenses increased for the three and six months ended June 30, 2000 as compared to the three and six months ended June 30, 1999 due to an increase in costs to manage a larger base of operations combined with costs related to our internet business development and digital television technology investments which were not incurred during the same periods in 1999. The increase in operating costs on a same station basis primarily resulted from costs incurred during the three and six months ended June 30, 2000 related to our agreements with the Fox and WB networks which were not incurred in the same periods in 1999. Our payments to the Fox network related to our purchase of additional prime time inventory and our payments to the WB network related to our agreement with the network which requires us to make compensation payments as revenues and ratings increase. We expect to incur these costs in future periods. In addition, we experienced an increase in commission rates due to an increase in the number of local account executives during the quarter. The increased number of account executives is part of our strategy to increase the percentage of our revenues derived from local advertising. Depreciation and amortization increased $6.4 million to $61.7 million for the three months ended June 30, 2000 from $55.3 million for the three months June 30, 1999. Depreciation and amortization increased $11.3 million to $123.5 for the six months ended June 30, 2000 from $112.2 million for the six months ended June 30, 1999. The increase in depreciation and amortization for the three and six months ended June 30, 2000 as compared to the three and six months ended June 30, 1999 was related to property additions associated with businesses acquired during 1999 and program contract additions related to our investment to upgrade our programming. Broadcast operating income decreased $5.6 million to $49.4 million for the three months ended June 30, 2000, from $55.0 million for the three months ended June 30, 1999, or 10.2%. Broadcast operating income decreased $9.9 million to $72.0 million for the six months ended June 30, 2000 from $81.9 million for the six months ended June 30, 1999, or 12.1%. The net decrease in broadcast operating income for the three and six months ended June 30, 2000 as compared to the three and six months ended June 30, 1999 was primarily attributable to an increase in operating costs and depreciation and amortization offset by an increase in net broadcast revenues as noted above. Interest expense decreased to $38.0 million for the three months ended June 30, 2000 from $44.1 million for the three months ended June 30, 1999, or 13.8%. Interest expense decreased to $74.9 million for the six months ended June 30, 2000 from $87.3 million for the six months ended June 30, 1999, or 14.2%. The decrease in interest expense for the three months and six months ended June 30, 2000 resulted from the 14 reduction of our indebtedness using the proceeds from the disposition of our radio broadcast assets in December 1999. Interest and other income decreased to $80,000 for the three months ended June 30, 2000 from $1.0 million for the three months ended June 30, 1999. Interest and other income decreased to $0.5 million for the six months ended June 30, 2000 from $1.9 million for the six months ended June 30, 1999. These decreases were primarily due to a net loss of approximately $0.8 million from our internet operations and decrease in average cash balances for the three and six month periods ended June 30, 2000 when compared to the same period in 1999. Income tax provision decreased to $4.9 million for the three months ended June 30, 2000 from $14.5 million for the three months ended June 30, 1999. Income tax benefit was $12.0 million for the six months ended June 30, 2000 compared to an income tax provision of $3.5 million for the six months ended June 30, 1999. Our effective tax rate decreased to a benefit of 75.6% for the six months ended June 30, 2000 from a provision of 101.1% for the six months ended June 30, 1999. The decrease in the effective tax rate for the six months ended June 30, 2000 as compared the six months ended June 30, 1999 resulted from the current year's projected permanent differences between book and tax income being a lower percentage of pre-tax loss for 2000, as compared to 1999. Net income from discontinued operations, net of taxes decreased to $2.5 million for the three months ended June 30, 2000 from $5.2 million for the three months ended June 30, 1999. Net income from discontinued operations, net of taxes decreased to $3.3 million for the six months ended June 30, 2000 from $6.6 million for the six months ended June 30, 1999. The decrease in net income from discontinued operations, net of taxes for the three and six months ended June 30, 2000 as compared to the three and six months ended June 30, 1999 primarily resulted from the disposition of the majority of our radio broadcast assets in December 1999. Net loss available to common stockholders for the three months ended June 30, 2000 was $1.4 million or $0.01 per share compared to net loss available to common stockholders of $1.3 million or $0.01 per share for the three months ended June 30, 1999. Net loss available to common stockholders for the six months ended June 30, 2000 was $5.8 million or $0.06 per share compared to net loss available to common stockholders of $5.5 million or $0.06 per share. Net loss available to common stockholders increased for the three and six months ended June 30, 2000 as compared to the three and six months ended June 30, 1999 due to an increase in operating expenses, depreciation and amortization, a decrease in the unrealized gain on the treasury option derivative and a decrease in net income from discontinued operations, offset by an increase in total revenues, a reduction of interest expense, and a decrease in the income tax effect. The net deferred tax liability decreased to $214.7 million as of June 30, 2000 from $228.7 million at December 31, 1999. Accordingly, the increase in our current net deferred tax asset as of June 30, 2000 as compared to December 31, 1999 primarily resulted from the anticipation that the pre-tax loss and related current deferred tax asset recorded for the six months ended June 30, 2000 will be used to offset future taxable income during the current year. Broadcast cash flow decreased to $92.7 million for the three months ended June 30, 2000 from $94.8 million for the three months ended June 30, 1999, or 2.2%. Broadcast cash flow decreased to $158.2 million for the six months ended June 30, 2000 from $162.2 million for the six months ended June 30, 1999, or 2.5%. The decrease in broadcast cash flow for the three months ended June 30, 2000 was comprised of a decrease of $4.0 million related to broadcast cash flow on a same station basis, which decreased by 4.4%, offset by an increase of $1.9 million related to the 1999 Transactions. The decrease in broadcast cash flow for the six months ended June 30, 2000 was comprised of a decrease of $6.8 million related to broadcast cash flow on a same station basis, which decreased by 4.3%, offset by an increase of $2.8 million related to the 1999 Transactions. The decrease in broadcast cash flow on a same station basis for the three and six months ended June 30, 2000 as compared to the three and six months ended June 30, 1999 primarily resulted from the increase in program contract payments related to our investment to upgrade our television programming. Our investment in television programming caused our Broadcast Cash Flow Margin to decrease to 48.1% for the three months ended June 30, 2000 from 54.1% for the three months ended June 30, 1999 and to 44.8% for the six months ended June 30, 2000 from 50.2% for the six months ended June 30, 1999. 15 Adjusted EBITDA decreased to $86.3 million for the three months ended June 30, 2000 from $90.3 million for the three months ended June 30, 1999, or 4.4%. Adjusted EBITDA decreased to $146.1 million for the six months ended June 30, 2000 from $153.4 million for the six months ended June 30, 1999, or 4.8%. The decrease in Adjusted EBITDA for the three and six months ended June 30, 2000 as compared to the three and six months ended June 30, 1999 primarily resulted from the increase in program contract payments combined with an increase in corporate overhead expenses. For the reasons noted above, our Adjusted EBITDA margin decreased to 44.8% for the three months ended June 30, 2000 from 51.5% for the three months ended June 30, 1999 and to 41.3% for the six months ended June 30, 2000 from 47.5% for the six months ended June 30, 1999. After tax cash flow decreased to $45.8 million for the three months ended June 30, 2000 from $52.1 million for the three months ended June 30, 1999, or 12.1%. After tax cash flow decreased to $60.9 million for the six months ended June 30, 2000 from $69.1 million for the six months ended June 30, 1999, or 11.9%. The decrease in After Tax Cash Flow for the three and six months ended June 30, 2000 as compared to the three and six months ended June 30, 1999 primarily resulted from an increase in amortization of program contract costs related to our investment to upgrade our television programming and a decrease in earnings from discontinued operations resulting from the disposition of 41 radio stations in December 1999, offset by a decrease in interest expense. LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are cash provided by operations and availability under the 1998 Bank Credit Agreement. As of June 30, 2000, we had $4.1 million in cash balances and working capital of approximately $158.8 million. As of June 30, 2000, the remaining balance available under the Revolving Credit Facility was $543.0 million. Based on pro forma trailing cash flow levels for the twelve months ended June 30, 2000, the Company had approximately $143.1 million available of current borrowing capacity under the Revolving Credit Facility. We closed on the sale of four radio stations in Kansas City, Missouri in July 2000 for a purchase price of $126.6 million and we have entered into an agreement to sell our radio station in Wilkes-Barre, Pennsylvania for purchase price of $0.6 million. These transactions are expected to generate net after-tax proceeds of approximately $106 million. We intend to use the after-tax proceeds of these sales initially to repay bank debt, but we may subsequently re-borrow the money to finance our share repurchase program or to fund other investments and acquisitions. The completion of the Wilkes-Barre transaction is subject to the outcome of pending litigation in which a former licensee is seeking the return of the Wilkes-Barre station's license based on a fraudulent conveyance claim. We believe this claim is without merit and are defending the suit actively. Net cash flows used in operating activities was $19.7 million for the six months ended June 30, 2000 as compared to net cash flows from operating activities of $72.5 million for the six months ended June 30, 1999. We made income tax payments of $102.1 million for the six months ended June 30, 2000 as compared to $5.3 million for the six months ended June 30, 1999. This increase in income tax payments was primarily due to income tax payments of $99.0 million made in connection with the sale of our radio broadcast assets in December 1999. We made interest payments on outstanding indebtedness and payments for subsidiary trust minority interest expense totaling $87.7 million during the six months ended June 30, 2000 as compared to $100.8 million for the six months ended June 30, 1999. The reduction of interest payments for the six months ended June 30, 2000 as compared to the six months ended June 30, 1999 primarily related to the reduction of our indebtedness as a result of the disposition of our radio broadcast assets in December 1999. Program rights payments increased to $49.4 million for the six months ended June 30, 2000 from $40.7 million for the six months ended June 30, 1999. This increase in program rights payments was comprised of $1.4 million related to the 1999 Transactions and $7.3 million related to an increase in programming costs on a same station basis, which increased 18.0%. This increase in program rights payments resulted from our investment to upgrade our television programming. Net cash flows used in investing activities decreased to $55.0 million for the six months ended June 30, 2000 from $114.3 million for the six months ended June 30, 1999. For the six months ended June 30, 2000, we made cash payments of approximately $36.0 million related to the acquisition of television broadcast assets. During the six months ended June 30, 2000, we made equity investments of approximately $4.2 million. The 16 Company made payments for property and equipment of $15.0 million for the six months ended June 30, 2000. In addition, we anticipate that future requirements for capital expenditures will include capital expenditures incurred during the ordinary course of business, including costs related to our conversion to digital television and additional strategic station acquisitions and equity investments if suitable investments can be identified on acceptable terms. We expect to fund such capital expenditures with cash generated from operating activities and funding from our Revolving Credit Facility. Net cash flows from financing activities increased to $62.4 million for the six months ended June 30, 2000 from $48.1 million for the six months ended June 30, 1999. During the six months ended June 30, 2000, we repaid $194.5 million under the Term Loan Facility and utilized borrowings under the Revolving Credit Facility of $311.0 million. In addition, we repurchased 4.8 million shares of our Class A Common Stock for $46.0 million during the six months ended June 30, 2000. SEASONALITY Our 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK CHANGE IN MARKET RISK As noted above, our results for the six months ended June 30, 2000 included recognition of a gain of $4,000 on a treasury option derivative instrument. Upon execution of the treasury option derivative instrument during 1998, we received a cash payment of $9.5 million. The treasury option derivative instrument will require us 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, we will not be required to make any payment under the terms of this instrument. If the rate is below 6.14% on that date, we 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, we recognize an 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, 2000 reflects an adjustment of our 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, 2000 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, 2000 (6.13%), we would be obligated to pay approximately $0.1 million, either upfront or over five years, at our option. 17 PART II ITEM 1. LEGAL PROCEEDINGS As reported in the Company's Form 10-K for the fiscal year ended December 31, 1999, in connection with our 1996 acquisition of the broadcasting assets of River City Broadcasting, L.P. (River City), we 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 us and would have become an officer of Sinclair if certain conditions were satisfied. As of February 8, 1999, the conditions to Mr. Baker becoming an officer of Sinclair had not been satisfied, and on that date we entered into an amendment to the Baker Agreement which terminated Mr. Baker's services effective March 8, 1999. Mr. Baker had certain rights as a consequence of termination of the Baker Agreement, including the right to purchase at fair market value our television and radio stations that serve the St. Louis, Missouri market (the St. Louis purchase option). In June 1999, we received a letter from Mr. Baker stating that he elected to exercise his St. Louis purchase option. In his letter, Mr. Baker named Emmis Communications Corporation (Emmis) as his designee to exercise the St. Louis purchase option. Notwithstanding our belief that Emmis was not an appropriate designee of Mr. Baker, we negotiated in good faith with Emmis regarding the potential sale of the St. Louis properties. Following unsuccessful negotiations, however, on January 18, 2000, we filed suit in the Circuit Court of Baltimore County, Maryland against Mr. Baker and Emmis claiming, alternatively, that Mr. Baker's designation of Emmis was invalid, that the St. Louis purchase option is void for vagueness and/or that Emmis breached a duty that it owed to us by refusing to negotiate the acquisition agreement in good faith. On March 17, 2000, Emmis and Mr. Baker filed a joint answer and counterclaim generally denying the allegations made by Sinclair in its lawsuit and claiming that Sinclair has acted in bad faith in failing to fulfill its contractual obligations, has mismanaged the St. Louis properties and has interfered with the contract between Mr. Baker and Emmis in which Mr. Baker purportedly designated Emmis as the transferee of the properties. In June 2000, we settled our litigation with Mr. Baker and Emmis. Pursuant to the settlement agreement between the parties, the St. Louis purchase option has been terminated and the parties have entered into a new agreement under which we would sell the assets of six radio stations that serve the St. Louis market to Emmis for a purchase price of $220.0 million. We will retain our St. Louis television station, KDNL-TV. 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 16, 2000. At the meeting, two items, as set forth in the Company's proxy statement dated April 14, 2000, 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, 2000; and 2) the stockholders voted to ratify the selection of Arthur Andersen LLP as the Company's independent public accountants for the fiscal year 2000 audit. Approximately 98% 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 Abstentions --- -------- ----------- (1) Election of Directors David D. Smith 507,875,348 930,596 Frederick G. Smith 507,876,706 929,238 J. Duncan Smith 507,875,406 930,538 Robert E. Smith 507,874,506 931,438 Basil A. Thomas 507,875,647 930,297 Lawrence E. McCanna 507,873,757 932,187 (2) Appointment of Independent Accountants 508,766,080 20,321 19,543
18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS 27 Financial Data Schedule B) REPORTS ON FORM 8-K None 19 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 on the 9th day of August, 2000. SINCLAIR BROADCAST GROUP, INC. by: /s/ Patrick J. Talamantes ----------------------------- Patrick J. Talamantes Chief Financial Officer 20