10-Q 1 a11-13511_110q.htm 10-Q

Table of Contents

 

 

 

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, 2011

 

OR

 

o  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

Hunt Valley, Maryland 21030

(Address of principal executive office, zip code)

 

(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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such file). Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

Indicate the number of share outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Title of each class

 

Number of shares outstanding as of
July 29, 2011

 

Class A Common Stock

 

52,008,622

 

Class B Common Stock

 

28,933,859

 

 

 

 



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2011

 

TABLE OF CONTENTS

 

PART 1. FINANCIAL INFORMATION

3

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

3

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS

3

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

4

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

5

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

5

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

6

 

 

 

 

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7

 

 

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

22

 

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

29

 

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

29

 

 

 

 

PART II.

OTHER INFORMATION

31

 

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

31

 

 

 

 

 

ITEM 1A.

RISK FACTORS

31

 

 

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

31

 

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

31

 

 

 

 

 

ITEM 4.

REMOVED AND RESERVED

31

 

 

 

 

 

ITEM 5.

OTHER INFORMATION

31

 

 

 

 

 

ITEM 6.

EXHIBITS

32

 

 

 

 

SIGNATURE

33

 

 

EXHIBIT INDEX

34

 

2



Table of Contents

 

PART 1. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data) (Unaudited)

 

 

 

As of June 30,
2011

 

As of December 31,
2010

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

50,531

 

$

21,695

 

Current portion of restricted cash

 

 

5,058

 

Accounts receivable, net of allowance for doubtful accounts of $3,017 and $3,216, respectively

 

118,614

 

120,977

 

Affiliate receivable

 

58

 

88

 

Current portion of program contract costs

 

17,678

 

37,000

 

Prepaid expenses and other current assets

 

8,875

 

5,996

 

Deferred barter costs

 

3,300

 

3,156

 

Assets held for sale

 

37,870

 

35,067

 

Deferred tax assets

 

9,658

 

9,658

 

Total current assets

 

246,584

 

238,695

 

 

 

 

 

 

 

PROGRAM CONTRACT COSTS, less current portion

 

6,042

 

8,729

 

PROPERTY AND EQUIPMENT, net

 

277,581

 

272,221

 

RESTRICTED CASH, less current portion

 

223

 

223

 

GOODWILL

 

659,705

 

659,605

 

BROADCAST LICENSES

 

47,002

 

47,375

 

DEFINITE-LIVED INTANGIBLE ASSETS, net

 

143,854

 

150,738

 

OTHER ASSETS

 

116,307

 

108,338

 

Total assets

 

$

1,497,298

 

$

1,485,924

 

 

 

 

 

 

 

LIABILITIES AND EQUITY (DEFICIT)

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

3,685

 

$

5,807

 

Accrued liabilities

 

70,518

 

64,645

 

Income taxes payable

 

3,799

 

298

 

Current portion of notes payable, capital leases and commercial bank financing

 

24,556

 

19,556

 

Current portion of notes and capital leases payable to affiliates

 

2,972

 

3,196

 

Current portion of program contracts payable

 

41,751

 

68,301

 

Deferred barter revenues

 

3,005

 

2,522

 

Liabilities held for sale

 

27,281

 

24,660

 

Total current liabilities

 

177,567

 

188,985

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

Notes payable, capital leases and commercial bank financing, less current portion

 

1,141,405

 

1,148,673

 

Notes payable and capital leases to affiliates, less current portion

 

18,091

 

19,573

 

Program contracts payable, less current portion

 

22,507

 

29,593

 

Deferred tax liabilities

 

226,087

 

210,335

 

Other long-term liabilities

 

46,948

 

45,847

 

Total liabilities

 

1,632,605

 

1,643,006

 

 

 

 

 

 

 

EQUITY (DEFICIT):

 

 

 

 

 

SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 51,998,503 and 50,284,052 shares issued and outstanding, respectively

 

520

 

503

 

Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 28,933,859 and 30,083,819 shares issued and outstanding, respectively, convertible into Class A Common Stock

 

289

 

301

 

Additional paid-in capital

 

617,191

 

609,640

 

Accumulated deficit

 

(757,319

)

(771,953

)

Accumulated other comprehensive loss

 

(3,833

)

(3,914

)

Total Sinclair Broadcast Group shareholders’ deficit

 

(143,152

)

(165,423

)

Noncontrolling interests

 

7,845

 

8,341

 

Total deficit

 

(135,307

)

(157,082

)

Total liabilities and equity (deficit)

 

$

1,497,298

 

$

1,485,924

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

3



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data) (Unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

REVENUES:

 

 

 

 

 

 

 

 

 

Station broadcast revenues, net of agency commissions

 

$

159,259

 

$

158,709

 

$

315,118

 

$

306,631

 

Revenues realized from station barter arrangements

 

18,498

 

17,985

 

35,720

 

32,761

 

Other operating divisions revenues

 

8,830

 

6,497

 

15,236

 

11,264

 

Total revenues

 

186,587

 

183,191

 

366,074

 

350,656

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Station production expenses

 

42,917

 

38,645

 

85,262

 

74,563

 

Station selling, general and administrative expenses

 

30,192

 

30,554

 

60,754

 

61,196

 

Expenses recognized from station barter arrangements

 

16,531

 

15,748

 

32,258

 

28,979

 

Amortization of program contract costs and net realizable value adjustments

 

12,666

 

15,303

 

25,284

 

31,217

 

Other operating divisions expenses

 

7,763

 

6,433

 

14,266

 

12,109

 

Depreciation of property and equipment

 

7,859

 

9,093

 

15,917

 

18,714

 

Corporate general and administrative expenses

 

7,073

 

7,250

 

15,737

 

13,827

 

Amortization of definite-lived intangible assets

 

4,028

 

4,205

 

8,578

 

8,464

 

Total operating expenses

 

129,029

 

127,231

 

258,056

 

249,069

 

Operating income

 

57,558

 

55,960

 

108,018

 

101,587

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

(24,628

)

(28,132

)

(53,508

)

(56,895

)

Loss from extinguishment of debt

 

(3,478

)

(149

)

(4,402

)

(438

)

Income (loss) from equity and cost method investments

 

815

 

(1,024

)

826

 

(481

)

Gain on insurance settlement

 

 

 

1,723

 

 

Other income, net

 

585

 

539

 

1,054

 

1,183

 

Total other expense

 

(26,706

)

(28,766

)

(54,307

)

(56,631

)

Income from continuing operations before income taxes

 

30,852

 

27,194

 

53,711

 

44,956

 

INCOME TAX PROVISION

 

(12,476

)

(10,516

)

(20,501

)

(17,465

)

Income from continuing operations

 

18,376

 

16,678

 

33,210

 

27,491

 

DISCONTINUED OPERATIONS:

 

 

 

 

 

 

 

 

 

Income from discontinued operations, includes income tax provision of $140, $244, $365 and $447, respectively

 

101

 

274

 

394

 

455

 

NET INCOME

 

18,477

 

16,952

 

33,604

 

27,946

 

Net loss attributable to the noncontrolling interests

 

102

 

321

 

254

 

847

 

NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP

 

$

18,579

 

$

17,273

 

$

33,858

 

$

28,793

 

Dividends declared per share

 

$

0.12

 

$

 

$

0.24

 

$

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:

 

 

 

 

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

0.23

 

$

0.22

 

$

0.42

 

$

0.36

 

Basic earnings per share

 

$

0.23

 

$

0.22

 

$

0.42

 

$

0.36

 

Diluted earnings per share from continuing operations

 

$

0.23

 

$

0.21

 

$

0.42

 

$

0.36

 

Diluted earnings per share

 

$

0.23

 

$

0.21

 

$

0.42

 

$

0.36

 

Weighted average common shares outstanding

 

80,912

 

80,307

 

80,746

 

80,133

 

Weighted average common and common equivalent shares outstanding

 

81,169

 

86,985

 

81,004

 

81,175

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP COMMON SHAREHOLDERS:

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

18,494

 

$

16,999

 

$

33,631

 

$

28,198

 

Income from discontinued operations, net of tax

 

85

 

274

 

227

 

595

 

Net income

 

$

18,579

 

$

17,273

 

$

33,858

 

$

28,793

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(In thousands) (Unaudited)

 

 

 

Sinclair Broadcast Group Shareholders

 

 

 

 

 

 

 

Class A
Common
Stock

 

Class B
Common
Stock

 

Additional
Paid-In
Capital

 

Accumulated
Deficit

 

Other
Comprehensive
Loss

 

Noncontrolling
Interests

 

Total Equity
(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2010

 

$

503

 

$

301

 

$

609,640

 

$

(771,953

)

$

(3,914

)

$

8,341

 

$

(157,082

)

Dividends declared on Class A and Class B Common Stock

 

 

 

 

(19,224

)

 

 

(19,224

)

Class A Common Stock issued pursuant to employee benefit plans

 

5

 

 

5,079

 

 

 

 

5,084

 

Class B Common Stock converted into Class A Common Stock

 

12

 

(12

)

 

 

 

 

 

Class A Common Stock sold by variable interest entity

 

 

 

1,808

 

 

 

 

1,808

 

Tax benefit on share based awards

 

 

 

664

 

 

 

 

664

 

Distributions to noncontrolling interest

 

 

 

 

 

 

(242

)

(242

)

Amortization of net periodic pension benefit costs, net of taxes

 

 

 

 

 

81

 

 

81

 

Net income (loss)

 

 

 

 

33,858

 

 

(254

)

33,604

 

BALANCE, June 30, 2011

 

$

520

 

$

289

 

$

617,191

 

$

(757,319

)

$

(3,833

)

$

7,845

 

$

(135,307

)

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

18,477

 

$

16,952

 

$

33,604

 

$

27,946

 

Amortization of net periodic pension benefit costs, net of taxes

 

40

 

73

 

81

 

145

 

Comprehensive income

 

18,517

 

17,025

 

33,685

 

28,091

 

Comprehensive loss attributable to the noncontrolling interests

 

102

 

321

 

254

 

847

 

Comprehensive income attributable to Sinclair Broadcast Group

 

$

18,619

 

$

17,346

 

$

33,939

 

$

28,938

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

5



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

33,604

 

$

27,946

 

Adjustments to reconcile net income to net cash flows from operating activities:

 

 

 

 

 

Depreciation of property and equipment

 

16,052

 

18,857

 

Recognition of deferred revenue

 

(8,398

)

(10,606

)

Amortization of definite-lived intangible and other assets

 

9,808

 

9,400

 

Amortization of program contract costs and net realizable value adjustments

 

25,284

 

31,217

 

Original debt issuance discount paid

 

(13,606

)

(3,336

)

Deferred tax provision

 

15,674

 

15,893

 

Change in assets and liabilities:

 

 

 

 

 

Increase in accounts receivable, net

 

(729

)

(5,917

)

Decrease in income taxes receivable

 

 

691

 

Increase in prepaid expenses and other current assets

 

(2,936

)

(260

)

Increase in other assets

 

(522

)

(169

)

Increase in accounts payable and accrued liabilities

 

13,719

 

17,261

 

Increase in income taxes payable

 

4,165

 

 

Increase in other long-term liabilities

 

2,322

 

60

 

Payments on program contracts payable

 

(36,911

)

(48,833

)

Other, net

 

10,261

 

7,535

 

Net cash flows from operating activities

 

67,787

 

59,739

 

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of property and equipment

 

(20,656

)

(4,662

)

Acquisition of intangibles

 

(242

)

 

Purchase of alarm monitoring contracts

 

(4,432

)

(3,391

)

Decrease in restricted cash

 

5,058

 

42,051

 

Dividends and distributions from equity and cost method investees

 

1,348

 

143

 

Investments in equity and cost method investees

 

(8,294

)

(6,362

)

Proceeds from insurance settlement

 

1,736

 

 

Proceeds from the sale of assets

 

41

 

 

Loans to affiliates

 

(87

)

(68

)

Proceeds from loans to affiliates

 

117

 

70

 

Net cash flows (used in) from investing activities

 

(25,411

)

27,781

 

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from notes payable, commercial bank financing and capital leases

 

132,951

 

9,025

 

Repayments of notes payable, commercial bank financing and capital leases

 

(124,570

)

(74,611

)

Proceeds from exercise of stock options, including excess tax benefits of share based payments of $0.7 million and $0 million, respectively

 

1,844

 

 

Dividends paid on Class A and Class B Common Stock

 

(19,224

)

 

Payments for deferred financing costs

 

(4,401

)

(1,228

)

Proceeds from Class A Common Stock sold by variable interest entity

 

1,808

 

 

Noncontrolling interests distributions

 

(242

)

(37

)

Repayments of notes and capital leases to affiliates

 

(1,706

)

(1,499

)

Net cash flows used in financing activities

 

(13,540

)

(68,350

)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

28,836

 

19,170

 

CASH AND CASH EQUIVALENTS, beginning of period

 

21,695

 

23,224

 

CASH AND CASH EQUIVALENTS, end of period

 

$

50,531

 

$

42,394

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

6



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

Principles of Consolidation

 

The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries and variable interest entities (VIEs) for which we are the primary beneficiary.  Noncontrolling interest represents a minority owner’s proportionate share of the equity in certain of our consolidated entities.  All intercompany transactions and account balances have been eliminated in consolidation.

 

Discontinued Operations

 

It is our intent to divest a portion of Alarm Funding Associates, LLC (Alarm Funding).  In accordance with the Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale, we reported the financial position and results of operations of this portion of Alarm Funding as assets and liabilities held for sale in the accompanying consolidated balance sheets and income from discontinued operations in the consolidated statements of operations.  Discontinued operations have not been segregated in the consolidated statements of cash flows; therefore, amounts for certain captions will not agree with the accompanying consolidated balance sheets and consolidated statements of operations.  The operating results of the portion of Alarm Funding which we intend to divest are not included in our consolidated results of operations from continuing operations for the three and six months ended June 30, 2011 and 2010.

 

Interim Financial Statements

 

The consolidated financial statements for the three and six months ended June 30, 2011 and 2010 are unaudited.  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 statement of the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows for these periods as adjusted for the adoption of recent accounting pronouncements discussed below.

 

As permitted under the applicable rules and regulations of the Securities and Exchange Commission (SEC), the consolidated financial statements do not include all disclosures normally included with audited consolidated financial statements and, accordingly, should be read together with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC.  The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

 

Variable Interest Entities

 

In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE.  We consolidate VIEs when we are the primary beneficiary.  The assets of our consolidated VIEs can only be used to settle the obligations of the VIE.  All the liabilities including debt held by our VIEs are non-recourse to us.  However, our senior secured credit facility (Bank Credit Agreement) contains cross-default provisions with the VIE debt of Cunningham Broadcasting Corporation (Cunningham).  See Note 5, Related Person Transactions for more information.

 

We have entered into Local Marketing Agreements (LMAs) to provide programming, sales and managerial services for television stations of Cunningham, the license owner of seven television stations as of June 30, 2011.  We pay LMA fees to Cunningham and also reimburse all operating expenses.  We also have an acquisition agreement in which we have a purchase option to buy the license assets of the television stations which includes the Federal Communications Commission (FCC) license and certain other assets used to operate the station (License Assets).  Our applications to acquire the FCC licenses are pending approval.  We have determined that the Cunningham stations are VIEs and that based on the terms of the agreements, we are the primary beneficiary of the variable interests because we have the power to direct the activities which significantly impact the economic performance of the VIE through the sales and managerial services we provide and we absorb losses and returns that would be considered significant to Cunningham.  See Note 5, Related Person Transactions for more information on our arrangements with Cunningham.  Included in the accompanying consolidated statements of operations for the three months ended June 30, 2011 and 2010 are net revenues of $22.6 million and $23.3 million, respectively, that relate to LMAs with Cunningham.  For the six months ended June 30, 2011 and 2010, Cunningham’s stations provided us with approximately $45.9 million and $45.3 million, respectively, of total

 

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revenue.

 

We have outsourcing agreements with other license owners, under which we provide certain non-programming related sales, operational and administrative services.  We pay a fee to the license owner based on a percentage of broadcast cash flow and we reimburse all operating expenses.  We also have a purchase option to buy the License Assets.  For the same reasons noted above regarding our LMAs, we have determined that the outsourced license station assets are VIEs and we are the primary beneficiary.

 

As of the dates indicated, the carrying amounts and classification of the assets and liabilities of the VIEs mentioned above which have been included in our consolidated balance sheets were as follows (in thousands):

 

 

 

As of June 30,
2011

 

As of December  31,
2010

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

7,478

 

$

5,319

 

Income taxes receivable

 

6

 

 

Current portion of program contract costs

 

301

 

480

 

Prepaid expenses and other current assets

 

138

 

105

 

Total current asset

 

7,923

 

5,904

 

 

 

 

 

 

 

PROGRAM CONTRACT COSTS, less current portion

 

373

 

491

 

PROPERTY AND EQUIPMENT, net

 

7,077

 

7,461

 

GOODWILL

 

6,357

 

6,357

 

BROADCAST LICENSES

 

4,208

 

4,183

 

DEFINITE-LIVED INTANGIBLE ASSETS, net

 

6,768

 

6,959

 

OTHER ASSETS

 

890

 

914

 

Total assets

 

$

33,596

 

$

32,269

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

37

 

$

37

 

Accrued liabilities

 

319

 

773

 

Income taxes payable

 

 

44

 

Current portion of notes payable, capital leases and commercial bank financing

 

11,064

 

11,056

 

Current portion of program contracts payable

 

274

 

649

 

Total current liabilities

 

11,694

 

12,559

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

Notes payable, capital leases and commercial bank financing, less current portion

 

7,951

 

13,484

 

Program contracts payable, less current portion

 

211

 

190

 

Total liabilities

 

$

19,856

 

$

26,233

 

 

The amounts above represent the consolidated assets and liabilities of the VIEs related to our LMA and outsourcing agreements and have been aggregated as they all relate to our broadcast business.  In addition, the risk and reward characteristics of the VIEs are similar.

 

We have investments in other real estate ventures and investment companies which are considered VIEs.  However, we do not participate in the management of these entities including the day-to-day operating decisions or other decisions which allow us to control the entity, and therefore, we are not considered the primary beneficiary of the VIE.  We account for these entities using the equity or cost method of accounting.

 

The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary as of June 30, 2011 and December 31, 2010 were as follows (in thousands):

 

 

 

As of June 30, 2011

 

As of December 31, 2010

 

 

 

Carrying
amount

 

Maximum
exposure

 

Carrying
amount

 

Maximum
exposure

 

Investments in real estate ventures

 

$

8,273

 

$

8,273

 

$

7,769

 

$

7,769

 

Investments in investment companies

 

26,890

 

26,890

 

24,872

 

24,872

 

Total

 

$

35,163

 

$

35,163

 

$

32,641

 

$

32,641

 

 

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The carrying amounts above are included in other assets in the consolidated balance sheets.  The income and loss related to these investments are recorded in income from equity and cost method investments in the consolidated statement of operations.  We recorded income of $0.9 million and a loss of $0.4 million in the quarters ended June 30, 2011 and 2010, respectively.  We recorded income of $0.9 million and $0.5 million for the six months ended June 30, 2011 and 2010, respectively.

 

Our maximum exposure is equal to the carrying value of our investments.  As of June 30, 2011 and December 31, 2010, our unfunded commitments related to private equity investment funds totaled $12.9 million and $14.9 million, respectively.

 

Recent Accounting Pronouncements

 

In December 2010, the FASB issued amended guidance with respect to goodwill impairment.  The amended guidance requires that step two of the goodwill impairment test be performed if the carrying amount of a reporting unit is zero or negative and it is more likely than not that a goodwill impairment exists based on any adverse qualitative factors including an evaluation of the triggering circumstances noted in the guidance.  The change is effective for fiscal years and interim changes within those years beginning after December 15, 2010.  We do not believe that this guidance will have a material impact on our consolidated financial statements.

 

In April 2011, the FASB issued a proposed Accounting Standards Update for goodwill impairment testing.  The proposal allows an entity to first consider qualitative factors when deciding whether it is necessary to perform the current two-step goodwill impairment test.  An entity would need to perform step-one if it determines qualitatively that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount.  The proposed changes would be effective prospectively for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early application would be permitted.  Although we believe that this guidance may have a significant impact on how we perform our annual goodwill impairment testing, we do not believe it will have a material impact on our consolidated financial statements.

 

In May 2011, the FASB issued new guidance for fair value measurements.  The purpose of the new guidance is to have a consistent definition of fair value between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).  Many of the amendments to GAAP are not expected to have a significant impact on practice; however, the new guidance does require new and enhanced disclosure about fair value measurements.  The amendments are effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively.  We do not believe that this guidance will have a material impact on our consolidated financial statements but may require changes to our fair value disclosures.

 

In June 2011, the FASB issued new guidance on the presentation of comprehensive income in the financial statements.  The new guidance does not make any changes to the components that are recognized in net income or other comprehensive income but rather allows an entity to choose whether to present items of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements.  Each component of net income and other comprehensive income along with their respective totals would need to be displayed under either alternative.  The new guidance is effective for fiscal years beginning after December 15, 2011.  We do not believe that this guidance will have a material impact on our consolidated financial statements.

 

Use of Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities.  Actual results could differ from those estimates.

 

Restricted Cash

 

In October 2009, we established a cash collateral account with the proceeds from the sale of 9.25% Senior Secured Second Lien Notes due 2017 (the 9.25% Notes).  The cash collateral account restricted the use of cash therein to repurchase the 3.0% Convertible Senior Notes due 2027 (the 3.0% Notes) and our 4.875% Convertible Senior Notes due 2018 (the 4.875% Notes) upon, or prior to, the expiration of the put periods for such notes in May 2010 and January 2011, respectively.  Upon expiration of the put period for the 4.875% Notes in January 2011, the unused cash was used to reduce our overall debt balance pursuant to our Bank Credit Agreement.  During 2010, we used $53.6 million of restricted cash to repurchase a portion of the outstanding 3.0% and 4.875% Notes.  As of December 31, 2010, all of the restricted cash classified as current related to the 4.875% Notes’ January 2011 put option.  As of June 30, 2011, we had no restricted cash classified as current.

 

Additionally, under the terms of certain lease agreements, as of June 30, 2011 and December 31, 2010, we were required to hold $0.2 million of restricted cash related to the removal of analog equipment from some of our leased towers.

 

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Dividends

 

In February 2011, our Board of Directors reinstated our dividend policy, declaring a quarterly common stock dividend of $0.12 per share.

 

In May 2011, our Board of Directors declared a quarterly cash dividend of $0.12 per share.

 

Revenue Recognition

 

In first quarter 2011, we adopted the Emerging Issue Task Force’s amended guidance on accounting for revenue arrangements with multiple deliverables.  The amended guidance clarifies that each deliverable within our multiple-deliverable revenue arrangements is accounted for as a separate unit of accounting if the delivered item or items have value to the client on a standalone basis and for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the company.  The guidance requires us to determine an estimated selling price (ESP) for all deliverables within an arrangement if vendor-specific objective evidence (VSOE) or third-party evidence does not exist. Application of this guidance has not changed the allocation of the arrangement revenue to the elements in our multiple-deliverable arrangements.

 

We enter into multiple-deliverable revenue arrangements with multi-channel video programming distributors (MVPD’s) that may include a combination of retransmission consent fees, advertising, and other marketing elements. We have determined that the retransmission consent fees and advertising elements have value on a standalone basis. The other marketing elements are not valued on a stand alone basis because they are immaterial to the overall arrangement.  We include the value of other marketing elements with the retransmission consent fee element.

 

Due to the complexities and uniqueness of each arrangement, we have determined that our ESP for the retransmission consent fee element is based upon the market, the MVPD, the network affiliation, the number of subscribers, the length of the contract and other factors. We recognize the revenue applicable to the retransmission consent element of the arrangement ratably over the life of the agreement which is representative of the delivery of our television broadcast signal.  Each arrangement’s life varies, typically ranging one to five years in length.

 

The advertising element of our multiple-deliverable arrangements is recognized in the period during which the time spots are aired.  The advertising revenue is valued using VSOE which is calculated using the average selling unit rate for the advertising spot in which the commercial aired.

 

Our arrangements generally do not include any performance, cancellation, or refund provisions.  Under certain agreements, the counterparty may terminate the agreement if particular actions occur such as the transmission failure of our broadcast signal for a certain period of time.

 

Income Taxes

 

Our income tax provision for all periods consists of federal and state income taxes.  The tax provision for the three and six months ended June 30, 2011 and 2010 is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interests.

 

Reclassifications

 

Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the current year’s presentation.

 

2.              COMMITMENTS AND CONTINGENCIES:

 

Litigation

 

We are party to lawsuits and claims from time to time in the ordinary course of business.  Actions currently pending are in various preliminary stages and no judgments or decisions have been rendered by hearing boards or courts in connection with such actions.  After reviewing developments to date with legal counsel, our management is of the opinion that the outcome of our pending and threatened matters will not have a material adverse effect on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows.

 

Various parties have filed petitions to deny or informal objections against our applications for the following stations’ license renewals:  KGAN, Cedar Rapids, Iowa; WTTO, Birmingham, Alabama; WBFF, Baltimore, Maryland; WVAH, Charleston, West

 

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Virginia; WTTE, Columbus, Ohio; WRGT, Dayton, Ohio;  WXLV-TV, Winston-Salem, North Carolina; WMYV-TV, Greensboro, North Carolina; WLFL-TV, Raleigh/Durham, North Carolina; WRDC-TV, Raleigh/Durham, North Carolina; WLOS-TV, Asheville, North Carolina; WMMP-TV, Charleston, South Carolina; WTAT-TV, Charleston, South Carolina; WMYA-TV, Anderson, South Carolina; WICS-TV Springfield, Illinois and WCGV-TV Milwaukee, Wisconsin.  The FCC is in the process of considering the renewal applications and we believe the petitions have no merit.

 

3.              NOTES PAYABLE AND COMMERCIAL BANK FINANCING

 

Bank Credit Agreement

 

On January 15, 2011, the put right period for the 4.875% Notes, which mature on July 15, 2018, expired and no holders exercised their put rights.  Pursuant to our Bank Credit Agreement, the $5.1 million in restricted cash held to pay for the put of any 4.875% Notes was used towards reducing our debt balance in March 2011.  On January 15, 2011, the 4.875% Notes cash interest rate of 4.875% changed to 2.0% through maturity with the difference of 2.875% being accrued and then paid at maturity.  As of June 30, 2011, the face amount of the outstanding 4.875% Notes was $5.7 million.

 

On March 15, 2011, we entered into an amendment (the Amendment) of our Bank Credit Agreement.  The final terms of the Amendment are as follows:

 

·                  A new Term Loan A facility (Term Loan A) of $115.0 million.  The Term Loan A bears interest at LIBOR plus 2.25%.  The Term Loan A is repayable in quarterly installments, amortizing as follows:

 

·                  1.875% per quarter commencing March 31, 2012 to December 31, 2012

·                  2.50% per quarter commencing March 31, 2013 to December 31, 2013

·                  3.125% per quarter commencing March 31, 2014 to December 31, 2015

·                  remaining unpaid principal due at maturity on March 15, 2016

 

·                  We paid down $45.0 million of the outstanding $270.0 million Term Loan B facility (Term Loan B).  Interest on the Term Loan B was reduced to LIBOR plus 3.00% with a 1.0% LIBOR floor.  Principal will continue to amortize at a rate of $825,000 per quarter through September 30, 2016 ending with a final payment of the remaining unpaid principal due at maturity on October 29, 2016.

 

·                  Other amended terms provide us with incremental term loan capacity of $300.0 million and more flexibility to use our cash balances and the revolving credit facility for restricted payments and television acquisitions, including in certain circumstances the ability to make up to $100.0 million in unrestricted annual cash payments including but not limited to dividends and other strategic investments.

 

6.0% Convertible Subordinated Debentures due 2012

 

On April 15, 2011, we completed the redemption of all $70.0 million of the 6.0% Convertible Subordinated Debentures, due 2012 (the 6.0% Notes) at 100% of the face value of such notes plus accrued and unpaid interest.  The redemption of the 6.0% Notes was effected in accordance with the terms of the indenture governing the 6.0% Notes and was funded from the net proceeds of our new Term Loan A.  As a result of this redemption, we recorded a loss on extinguishment of debt of $3.5 million for the quarter ended June 30, 2011.

 

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4.              EARNINGS PER SHARE

 

The following table reconciles income (numerator) and shares (denominator) used in our computations of earnings per share for the three and six months ended June 30, 2011 and 2010 (in thousands):

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Income (Numerator)

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

18,376

 

$

16,678

 

$

33,210

 

$

27,491

 

Income impact of assumed conversion of the 4.875% Notes, net of taxes

 

42

 

166

 

83

 

332

 

Income impact of assumed conversion of the 6.0% Notes, net of taxes

 

 

1,151

 

 

 

Net loss attributable to noncontrolling interests included in continuing operations

 

118

 

321

 

421

 

707

 

Numerator for diluted earnings per common share from continuing operations

 

18,536

 

18,316

 

33,714

 

28,530

 

Income from discontinued operations

 

101

 

274

 

394

 

455

 

Net (income) loss attributable to noncontrolling interests from discontinued operations

 

(16

)

 

(167

)

140

 

Numerator for diluted earnings attributable to Sinclair Broadcast Group

 

$

18,621

 

$

18,590

 

$

33,941

 

$

29,125

 

 

 

 

 

 

 

 

 

 

 

Shares (Denominator)

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

80,912

 

80,307

 

80,746

 

80,133

 

Dilutive effect of stock-settled appreciation rights and stock options

 

3

 

56

 

3

 

28

 

Dilutive effect of 6.0% Notes

 

 

5,608

 

 

 

Dilutive effect of 4.875% Notes

 

254

 

1,014

 

255

 

1,014

 

Weighted-average common and common equivalent shares outstanding

 

81,169

 

86,985

 

81,004

 

81,175

 

 

Potentially dilutive securities representing 1.0 million and 1.4 million shares of common stock for the three months ended June 30, 2011 and 2010, respectively, and 1.0 million and 7.0 million for the six months ended June 30, 2011 and 2010, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been antidilutive.  The decrease in potentially dilutive securities is primarily related to the full redemption of our 6.0% Notes.  The net income per share amounts are the same for Class A and Class B Common Stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

 

5.              RELATED PERSON TRANSACTIONS

 

David, Frederick, Duncan and Robert Smith (collectively, the controlling shareholders) are brothers and hold substantially all of the Class B Common Stock and some of our Class A Common Stock.  Since the end of our last fiscal year, we engaged in the following transactions with them and/or entities in which they have substantial interests.

 

Related Person Leases.  Certain assets used by us and our operating subsidiaries are leased from Cunningham Communications, Inc., Keyser Investment Group, Gerstell Development Limited Partnership and Beaver Dam, LLC (entities owned by the controlling shareholders).  Lease payments made to these entities were $1.1 million for each of the three months ended June 30, 2011 and 2010.  Lease payments made to these entities were $2.2 million for each of the six months ended June 30, 2011 and 2010.

 

Bay TV.  In January 1999, we entered into a LMA with Bay Television, Inc. (Bay TV), which owns the television station WTTA-TV in Tampa/St. Petersburg, Florida market.  Our controlling shareholders own a substantial portion of the equity of Bay TV.  Payments made to Bay TV were $0.4 million and $0.3 million for the three months ended June 30, 2011 and 2010, respectively and $1.3 million and $0.8 million for the six months ended June 30, 2011 and 2010, respectively.  We received $0.1 million and $0.3 million for the three and six months ended June 30, 2010 from Bay TV for certain equipment leases, which expired in 2010.

 

Cunningham Broadcasting Corporation.  We have options from trusts established by Carolyn C. Smith, the mother of our controlling shareholders, for the benefit of her grandchildren that will grant us the right to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock of Cunningham Broadcasting Corporation (Cunningham) or 100% of the capital stock or

 

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assets of Cunningham’s individual subsidiaries.  As of June 30, 2011, Cunningham is the owner-operator and FCC licensee of: WNUV-TV in Baltimore, Maryland; WRGT-TV in Dayton, Ohio; WVAH-TV in Charleston, West Virginia; WTAT-TV in Charleston, South Carolina; WMYA-TV in Anderson, South Carolina; WTTE-TV in Columbus, Ohio; and WDBB-TV in Birmingham, Alabama.

 

In addition to the option agreement, we provide programming under LMA’s to Cunningham for airing on WNUV-TV, WRGT-TV, WVAH-TV, WTAT-TV, WMYA-TV, WTTE-TV and WDBB-TV.  In February 2011, Cunningham purchased the FCC license for WDBB-TV.  We have an LMA with WDBB-TV, which our counterparty assigned to Cunningham in conjunction with Cunningham’s purchase.

 

We made payments to Cunningham under the LMAs and other agreements of $4.2 million and $4.3 million for the three months ended June 30, 2011 and 2010, respectively.  For the six months ended June 30, 2011 and 2010, we made payments to Cunningham of $8.4 million and $8.8 million, respectively, related to the LMAs.

 

Our Bank Credit Agreement contains certain cross-default provisions with certain material third-party licensees.  As of June 30, 2011, Cunningham was the sole material third-party licensee.

 

Atlantic Automotive Corporation.  We sold advertising time to and purchased vehicles and related vehicle services from Atlantic Automotive Corporation (Atlantic Automotive), a holding company which owns automobile dealerships and an automobile leasing company.  David Smith, our President and Chief Executive Officer, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive.  We received payments for advertising time totaling less than $0.1 million for each of the three months ended June 30, 2011 and 2010.  We received payments for advertising time of $0.1 million for each of the six months ended June 30, 2011 and 2010.  We paid $0.4 million and $0.2 million for vehicles and related vehicle services from Atlantic Automotive during the three months ended June 30, 2011 and 2010, respectively.  For the six months ended June 30, 2011 and 2010, we paid fees of $0.5 million and $0.3 million, respectively, for vehicles and related vehicle services.

 

Thomas & Libowitz P.A.  Basil A. Thomas, a member of our Board of Directors, is the father of Steven A. Thomas, a partner and founder of Thomas & Libowitz, P.A. (Thomas & Libowitz), a law firm providing legal services to us on an ongoing basis.  We paid fees of $0.2 million and $0.1 million to Thomas & Libowitz during the three months ended June 30, 2011 and 2010, respectively.  For each of the six months ended June 30, 2011 and 2010, we paid fees of $0.3 million to Thomas & Libowitz.

 

6.              SEGMENT DATA:

 

We measure segment performance based on operating income (loss).  Our broadcast segment includes stations in 35 markets located predominately in the eastern, mid-western and southern United States.  Our other operating divisions segment primarily earned revenues from sign design and fabrication; regional security alarm operating and bulk acquisitions and real estate ventures.  In 2011, we determined that a portion of the regional security alarm operating and bulk acquisition results should be accounted for as discontinued operations and therefore that portion is not presented in the tables below for the three and six months ended June 30, 2011 and 2010.  All of our other operating divisions are located within the United States.  Corporate costs primarily include our costs to operate as a public company and to operate our corporate headquarters location.  Corporate is not a reportable segment.  We had approximately $168.9 million and $166.4 million of intercompany loans between the broadcast segment, operating divisions segment and corporate as of June 30, 2011 and 2010, respectively.  We had $4.9 million and $4.8 million in intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions segment and corporate for the three months ended June 30, 2011, and 2010, respectively.  For the six months ended June 30, 2011 and 2010, we had $9.7 million and $9.5 million, respectively, in intercompany interest expense.  Intercompany loans and interest expense are excluded from the tables below.  All other intercompany transactions are immaterial.

 

Financial information for our operating segments are included in the following tables for the three and six months ended June 30, 2011 and 2010 (in thousands).

 

For the three months ended June 30, 2011

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

177,757

 

$

8,830

 

$

 

$

186,587

 

Depreciation of property and equipment

 

7,140

 

316

 

403

 

7,859

 

Amortization of definite-lived intangible assets and other assets

 

3,742

 

286

 

 

4,028

 

Amortization of program contract costs and net realizable value adjustments

 

12,666

 

 

 

12,666

 

General and administrative overhead expenses

 

6,197

 

306

 

570

 

7,073

 

Operating income (loss)

 

58,378

 

153

 

(973

)

57,558

 

Interest expense

 

 

326

 

24,302

 

24,628

 

Income from equity and cost method investments

 

 

815

 

 

815

 

 

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For the three months ended June 30, 2010

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

176,694

 

$

6,497

 

$

 

$

183,191

 

Depreciation of property and equipment

 

8,349

 

314

 

430

 

9,093

 

Amortization of definite-lived intangible assets and other assets

 

4,001

 

204

 

 

4,205

 

Amortization of program contract costs and net realizable value adjustments

 

15,303

 

 

 

15,303

 

General and administrative overhead expenses

 

6,382

 

233

 

635

 

7,250

 

Operating income (loss)

 

57,768

 

(744

)

(1,064

)

55,960

 

Interest expense

 

 

159

 

27,973

 

28,132

 

Loss from equity and cost method investments

 

 

(1,024

)

 

(1,024

)

 

For the six months ended June 30, 2011

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

350,838

 

$

15,236

 

$

 

$

366,074

 

Depreciation of property and equipment

 

14,484

 

625

 

808

 

15,917

 

Amortization of definite-lived intangible assets and other assets

 

8,094

 

484

 

 

8,578

 

Amortization of program contract costs and net realizable value adjustments

 

25,284

 

 

 

25,284

 

General and administrative overhead expenses

 

13,818

 

598

 

1,321

 

15,737

 

Operating income (loss)

 

110,906

 

(755

)

(2,133

)

108,018

 

Interest expense

 

 

666

 

52,842

 

53,508

 

Income from equity and cost method investments

 

 

826

 

 

826

 

 

For the six months ended June 30, 2010

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

339,392

 

$

11,264

 

$

 

$

350,656

 

Depreciation of property and equipment

 

17,239

 

613

 

862

 

18,714

 

Amortization of definite-lived intangible assets and other assets

 

8,056

 

408

 

 

8,464

 

Amortization of program contract costs and net realizable value adjustments

 

31,217

 

 

 

31,217

 

General and administrative overhead expenses

 

12,262

 

444

 

1,121

 

13,827

 

Operating income (loss)

 

106,040

 

(2,467

)

(1,986

)

101,587

 

Interest expense

 

 

292

 

56,603

 

56,895

 

Loss from equity and cost method investments

 

 

(481

)

 

(481

)

 

7.              FAIR VALUE MEASUREMENTS:

 

Accounting guidance provides for valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).  A fair value hierarchy using three broad levels prioritizes the inputs to valuation techniques used to measure fair value.  The following is a brief description of those three levels:

 

·                  Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

·                  Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

·                  Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

 

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The carrying value and fair value of our notes, debentures, program contracts payable and non-cancelable commitments as of June 30, 2011 and December 31, 2010 were as follows (in thousands):

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

Carrying
 Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

6.0% Convertible Subordinated Debentures due 2012 (a)

 

$

 

$

 

$

66,019

 

$

70,385

 

4.875% Convertible Senior Notes due 2018

 

5,759

 

5,759

 

5,685

 

5,685

 

3.0% Convertible Senior Notes due 2027

 

5,400

 

5,400

 

5,400

 

5,400

 

8.375% Senior Notes due 2018

 

246,653

 

262,500

 

246,493

 

258,750

 

9.25% Senior Secured Second Lien Notes due 2017

 

488,367

 

550,250

 

487,724

 

544,690

 

Bank Credit Agreement, Term Loan A

 

115,000

 

114,713

 

 

 

Bank Credit Agreement, Term Loan B

 

218,194

 

223,390

 

264,352

 

273,240

 

Cunningham Bank Credit Facility

 

16,450

 

16,746

 

21,933

 

22,452

 

Active program contracts payable

 

64,258

 

60,810

 

97,894

 

89,145

 

Future program liabilities (b)

 

166,610

 

137,430

 

88,510

 

72,823

 

 


(a)          On April 15, 2011, we completed the redemption of all $70.0 million of these debentures at face value.  We used the proceeds from the Term Loan A issuance to pay for the redemption.

 

(b)         Future program liabilities reflect a license agreement for program material that is not yet available for its first showing or telecast and is, therefore, not recorded as an asset or liability on our balance sheet.

 

The fair value of our 8.375% Senior Notes due 2018 (the 8.375% Notes) and 9.25% Notes is determined using quoted prices.  The carrying value of our 3.0% and 4.875% Notes approximates their fair value.  Our Term Loan A, Term Loan B and Cunningham’s bank credit facility are fair valued using Level 2 hierarchy inputs described above.

 

Our estimates of active program contracts payable and future program liabilities were based on discounted cash flows using Level 3 inputs described above.  The discount rate represents an estimate of a market participants return and risk applicable to program contracts.

 

8.              CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:

 

Sinclair Television Group, Inc. (STG), a wholly-owned subsidiary and the television operating subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under the Bank Credit Agreement, the 8.375% Notes and the 9.25% Notes and was the primary obligor under the 8.0% Senior Subordinated Notes due 2012 (the 8.0% Notes) until they were fully redeemed in 2010.  Our Class A Common Stock, Class B Common Stock, the 4.875% Notes and the 3.0% Notes, as of June 30, 2011 were obligations or securities of SBG and not obligations or securities of STG.  SBG was the obligor of the 6.0% Notes until they were fully redeemed in 2011.  SBG is a guarantor under the Bank Credit Agreement, the 9.25% Notes and the 8.375% Notes.  As of June 30, 2011 our consolidated total debt of $1,187.0 million included $1,118.7 million of debt related to STG and its subsidiaries of which SBG guaranteed $1,068.2 million.

 

SBG, KDSM, LLC, a wholly-owned subsidiary of SBG, and STG’s wholly-owned subsidiaries (guarantor subsidiaries), have fully and unconditionally guaranteed all of STG’s obligations.  Those guarantees are joint and several.  There are certain contractual restrictions on the ability of SBG, STG or KDSM, LLC to obtain funds from their subsidiaries in the form of dividends or loans.

 

The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows of SBG, STG, KDSM, LLC and the guarantor subsidiaries, the direct and indirect non-guarantor subsidiaries of SBG and the eliminations necessary to arrive at our information on a consolidated basis.  These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X, Rule 3-10.

 

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Table of Contents

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2011

(in thousands) (unaudited)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

34,634

 

$

417

 

$

15,480

 

$

 

$

50,531

 

Accounts and other receivables

 

16

 

144

 

113,668

 

4,991

 

(147

)

118,672

 

Other current assets

 

1,900

 

6,692

 

27,992

 

3,211

 

(284

)

39,511

 

Assets held for sale

 

 

 

 

37,870

 

 

37,870

 

Total current assets

 

1,916

 

41,470

 

142,077

 

61,552

 

(431

)

246,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

9,048

 

12,196

 

165,762

 

97,247

 

(6,672

)

277,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in consolidated subsidiaries

 

 

567,601

 

 

 

(567,601

)

 

Restricted cash — long-term

 

 

 

223

 

 

 

223

 

Other long-term assets

 

85,766

 

338,314

 

7,681

 

95,022

 

(404,434

)

122,349

 

Total other long-term assets

 

85,766

 

905,915

 

7,904

 

95,022

 

(972,035

)

122,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired intangible assets

 

 

 

827,456

 

31,520

 

(8,415

)

850,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

96,730

 

$

959,581

 

$

1,143,199

 

$

285,341

 

$

(987,553

)

$

1,497,298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

281

 

$

19,081

 

$

52,250

 

$

4,474

 

$

(1,883

)

$

74,203

 

Current portion of long-term debt

 

390

 

7,613

 

498

 

16,055

 

 

24,556

 

Current portion of affiliate long-term debt

 

932

 

 

2,040

 

7

 

(7

)

2,972

 

Other current liabilities

 

(8

)

 

48,286

 

277

 

 

48,555

 

Liabilities held for sale

 

 

 

 

27,362

 

(81

)

27,281

 

Total current liabilities

 

1,595

 

26,694

 

103,074

 

48,175

 

(1,971

)

177,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

12,943

 

1,060,601

 

37,812

 

30,049

 

 

1,141,405

 

Affiliate long-term debt

 

7,915

 

 

10,177

 

235,597

 

(235,598

)

18,091

 

Dividends in excess of investment in consolidated subsidiaries

 

172,320

 

 

 

 

(172,320

)

 

Other liabilities

 

45,109

 

1,638

 

424,971

 

52,768

 

(228,944

)

295,542

 

Total liabilities

 

239,882

 

1,088,933

 

576,034

 

366,589

 

(638,833

)

1,632,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

809

 

 

10

 

 

(10

)

809

 

Additional paid-in capital

 

617,191

 

30,997

 

332,738

 

46,814

 

(410,549

)

617,191

 

Accumulated (deficit) earnings

 

(757,319

)

(158,007

)

236,133

 

(128,456

)

50,330

 

(757,319

)

Accumulated other comprehensive (loss) income

 

(3,833

)

(2,342

)

(1,716

)

394

 

3,664

 

(3,833

)

Total Sinclair Broadcast Group (deficit) equity

 

(143,152

)

(129,352

)

567,165

 

(81,248

)

(356,565

)

(143,152

)

Noncontrolling interests in consolidated subsidiaries

 

 

 

 

 

7,845

 

7,845

 

Total liabilities and equity (deficit)

 

$

96,730

 

$

959,581

 

$

1,143,199

 

$

285,341

 

$

(987,553

)

$

1,497,298

 

 

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Table of Contents

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2010

(in thousands)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

5,071

 

$

1,022

 

$

15,602

 

$

 

$

21,695

 

Restricted cash - current

 

 

5,058

 

 

 

 

5,058

 

Accounts and other receivables

 

43

 

99

 

115,615

 

5,459

 

(151

)

121,065

 

Other current assets

 

1,477

 

5,492

 

46,231

 

2,894

 

(284

)

55,810

 

Assets held for sale

 

 

 

 

35,067

 

 

35,067

 

Total current assets

 

1,520

 

15,720

 

162,868

 

59,022

 

(435

)

238,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

9,856

 

2,669

 

169,260

 

97,209

 

(6,773

)

272,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in consolidated subsidiaries

 

 

609,737

 

 

 

(609,737

)

 

Restricted cash — long term

 

 

 

223

 

 

 

223

 

Other long-term assets

 

79,184

 

318,137

 

10,207

 

89,878

 

(380,339

)

117,067

 

Total other long-term assets

 

79,184

 

927,874

 

10,430

 

89,878

 

(990,076

)

117,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired intangible assets

 

 

 

829,884

 

30,368

 

(2,534

)

857,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

90,560

 

$

946,263

 

$

1,172,442

 

$

276,477

 

$

(999,818

)

$

1,485,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

512

 

$

19,733

 

$

46,734

 

$

4,539

 

$

(1,066

)

$

70,452

 

Current portion of long-term debt

 

363

 

3,300

 

391

 

15,502

 

 

19,556

 

Current portion of affiliate long-term debt

 

870

 

 

2,326

 

92

 

(92

)

3,196

 

Other current liabilities

 

 

 

70,428

 

693

 

 

71,121

 

Liabilities held for sale

 

 

 

 

24,729

 

(69

)

24,660

 

Total current liabilities

 

1,745

 

23,033

 

119,879

 

45,555

 

(1,227

)

188,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

79,091

 

995,269

 

38,098

 

36,215

 

 

1,148,673

 

Affiliate long-term debt

 

8,403

 

 

11,170

 

224,159

 

(224,159

)

19,573

 

Dividends in excess of investment in consolidated subsidiaries

 

122,994

 

 

 

 

(122,994

)

 

Other liabilities

 

43,750

 

1,709

 

394,192

 

47,132

 

(201,008

)

285,775

 

Total liabilities

 

255,983

 

1,020,011

 

563,339

 

353,061

 

(549,388

)

1,643,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

804

 

 

10

 

282

 

(292

)

804

 

Additional paid-in capital

 

609,640

 

123,695

 

445,577

 

78,637

 

(647,909

)

609,640

 

Accumulated (deficit) earnings

 

(771,953

)

(195,049

)

165,316

 

(154,656

)

184,389

 

(771,953

)

Accumulated other comprehensive (loss) income

 

(3,914

)

(2,394

)

(1,800

)

(847

)

5,041

 

(3,914

)

Total Sinclair Broadcast Group shareholders’ (deficit) equity

 

(165,423

)

(73,748

)

609,103

 

(76,584

)

(458,771

)

(165,423

)

Noncontrolling interest in consolidated subsidiaries

 

 

 

 

 

8,341

 

8,341

 

Total liabilities and equity (deficit)

 

$

90,560

 

$

946,263

 

$

1,172,442

 

$

276,477

 

$

(999,818

)

$

1,485,924

 

 

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Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2011

(in thousands) (unaudited)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

 

$

 

$

178,037

 

$

10,817

 

$

(2,267

)

$

186,587

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Program and production