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EX-10.1 - EX-10.1 - SINCLAIR BROADCAST GROUP INCa10-17433_1ex10d1.htm
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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 September 30, 2010

 

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
Incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

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
November 1, 2010

Class A Common Stock

 

49,434,012

Class B Common Stock

 

30,933,859

 

 

 



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

 

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 (LOSS)

 

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

 

31

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

31

 

 

 

PART II. OTHER INFORMATION

 

33

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

33

 

 

 

ITEM 1A. RISK FACTORS

 

33

 

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

33

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

33

 

 

 

ITEM 4. REMOVED AND RESERVED

 

33

 

 

 

ITEM 5. OTHER INFORMATION

 

33

 

 

 

ITEM 6. EXHIBITS

 

34

 

 

 

SIGNATURE

 

35

 

 

 

EXHIBIT INDEX

 

36

 

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 September 30,
2010

 

As of December 31,
2009

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

41,497

 

$

23,224

 

Current portion of restricted cash

 

5,121

 

27,667

 

Accounts receivable, net of allowance for doubtful accounts of $2,967 and $2,932, respectively

 

106,032

 

106,792

 

Affiliate receivable

 

56

 

69

 

Current portion of program contract costs

 

47,830

 

43,741

 

Income taxes receivable

 

8,572

 

8,073

 

Prepaid expenses and other current assets

 

6,959

 

6,130

 

Deferred barter costs

 

3,987

 

2,825

 

Deferred tax assets

 

7,277

 

7,277

 

Total current assets

 

227,331

 

225,798

 

 

 

 

 

 

 

PROGRAM CONTRACT COSTS, less current portion

 

11,544

 

16,417

 

PROPERTY AND EQUIPMENT, net

 

278,018

 

296,227

 

RESTRICTED CASH, less current portion

 

223

 

37,216

 

GOODWILL

 

660,017

 

660,017

 

BROADCAST LICENSES

 

51,988

 

51,988

 

DEFINITE-LIVED INTANGIBLE ASSETS, net

 

186,033

 

193,405

 

OTHER ASSETS

 

121,010

 

116,653

 

Total assets

 

$

1,536,164

 

$

1,597,721

 

 

 

 

 

 

 

LIABILITIES AND EQUITY (DEFICIT)

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

2,605

 

$

3,746

 

Accrued liabilities

 

75,707

 

60,523

 

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

 

20,914

 

40,632

 

Current portion of notes and capital leases payable to affiliates

 

3,323

 

2,995

 

Current portion of program contracts payable

 

83,544

 

91,995

 

Deferred barter revenues

 

3,462

 

2,810

 

Total current liabilities

 

189,555

 

202,701

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

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

 

1,201,870

 

1,297,964

 

Notes payable and capital leases to affiliates, less current portion

 

20,270

 

24,717

 

Program contracts payable, less current portion

 

34,206

 

48,448

 

Deferred tax liabilities

 

199,101

 

177,219

 

Other long-term liabilities

 

47,135

 

48,894

 

Total liabilities

 

1,692,137

 

1,799,943

 

 

 

 

 

 

 

EQUITY (DEFICIT):

 

 

 

 

 

SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 49,349,586 and 47,375,437 shares issued and outstanding, respectively

 

493

 

474

 

Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 30,997,859 and 32,453,859 shares issued and outstanding, respectively, convertible into Class A Common Stock

 

310

 

325

 

Additional paid-in capital

 

609,452

 

605,340

 

Accumulated deficit

 

(770,807

)

(813,876

)

Other comprehensive loss

 

(3,996

)

(4,213

)

Total Sinclair Broadcast Group shareholders’ deficit

 

(164,548

)

(211,950

)

Noncontrolling interests

 

8,575

 

9,728

 

Total deficit

 

(155,973

)

(202,222

)

Total liabilities and equity (deficit)

 

$

1,536,164

 

$

1,597,721

 

 

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
September 30,

 

Nine Months Ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

REVENUES:

 

 

 

 

 

 

 

 

 

Station broadcast revenues, net of agency commissions

 

$

158,809

 

$

136,427

 

$

465,440

 

$

400,740

 

Revenues realized from station barter arrangements

 

17,812

 

13,010

 

50,573

 

38,827

 

Other operating divisions revenues

 

9,831

 

10,690

 

25,618

 

33,570

 

Total revenues

 

186,452

 

160,127

 

541,631

 

473,137

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Station production expenses

 

38,619

 

34,368

 

113,182

 

106,200

 

Station selling, general and administrative expenses

 

32,230

 

28,484

 

93,426

 

91,387

 

Expenses recognized from station barter arrangements

 

15,716

 

11,164

 

44,695

 

32,685

 

Amortization of program contract costs and net realizable value adjustments

 

15,945

 

17,021

 

47,162

 

57,644

 

Other operating divisions expenses

 

7,902

 

11,280

 

22,259

 

34,422

 

Depreciation of property and equipment

 

9,022

 

9,995

 

27,744

 

32,456

 

Corporate general and administrative expenses

 

6,236

 

6,109

 

20,063

 

18,485

 

Amortization of definite-lived intangible assets and other assets

 

4,687

 

6,230

 

14,087

 

17,683

 

Gain on asset exchange

 

 

(500

)

 

(3,016

)

Impairment of goodwill, intangible and other assets

 

 

243

 

 

130,341

 

Total operating expenses

 

130,357

 

124,394

 

382,618

 

518,287

 

Operating income (loss)

 

56,095

 

35,733

 

159,013

 

(45,150

)

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

(31,349

)

(17,466

)

(88,700

)

(53,486

)

(Loss) gain from extinguishment of debt

 

(3,939

)

 

(4,377

)

18,986

 

(Loss) income from equity and cost method investments

 

(1,997

)

453

 

(2,478

)

471

 

Other income, net

 

557

 

448

 

1,767

 

1,561

 

Total other expense

 

(36,728

)

(16,565

)

(93,788

)

(32,468

)

Income (loss) from continuing operations before income taxes

 

19,367

 

19,168

 

65,225

 

(77,618

)

INCOME TAX (PROVISION) BENEFIT

 

(5,154

)

(3,313

)

(22,932

)

9,129

 

Income (loss) from continuing operations

 

14,213

 

15,855

 

42,293

 

(68,489

)

DISCONTINUED OPERATIONS:

 

 

 

 

 

 

 

 

 

(Loss) income from discontinued operations, includes income tax provision of $68, $24, $202 and $241, respectively

 

(68

)

245

 

(202

)

28

 

NET INCOME (LOSS)

 

14,145

 

16,100

 

42,091

 

(68,461

)

Net loss (income) attributable to the noncontrolling interests

 

131

 

(1,162

)

978

 

527

 

NET INCOME (LOSS) ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP

 

$

14,276

 

$

14,938

 

$

43,069

 

$

(67,934

)

BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from continuing operations

 

$

0.18

 

$

0.18

 

$

0.54

 

$

(0.85

)

Earnings (loss) per share

 

$

0.18

 

$

0.19

 

$

0.54

 

$

(0.85

)

Weighted average common shares outstanding

 

80,344

 

79,739

 

80,204

 

80,036

 

Weighted average common and common equivalent shares outstanding

 

80,627

 

86,155

 

80,480

 

80,036

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP COMMON SHAREHOLDERS:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

14,344

 

$

14,693

 

$

43,271

 

$

(67,962

)

(Loss) income from discontinued operations

 

(68

)

245

 

(202

)

28

 

Net income (loss)

 

$

14,276

 

$

14,938

 

$

43,069

 

$

(67,934

)

 

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 NINE MONTHS ENDED SEPTEMBER 30, 2010

(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, 2009

 

$

474

 

$

325

 

$

605,340

 

$

(813,876

)

$

(4,213

)

$

9,728

 

$

(202,222

)

Class A Common Stock issued pursuant to employee benefit plans

 

4

 

 

4,112

 

 

 

 

4,116

 

Class B Common Stock converted into Class A Common Stock

 

15

 

(15

)

 

 

 

 

 

Distributions to noncontrolling interest

 

 

 

 

 

 

(175

)

(175

)

Amortization of net periodic pension benefit costs

 

 

 

 

 

217

 

 

217

 

Net income (loss)

 

 

 

 

43,069

 

 

(978

)

42,091

 

BALANCE, September 30, 2010

 

$

493

 

$

310

 

$

609,452

 

$

(770,807

)

$

(3,996

)

$

8,575

 

$

(155,973

)

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

14,145

 

$

16,100

 

$

42,091

 

$

(68,461

)

Amortization of net periodic pension benefit costs

 

72

 

53

 

217

 

158

 

Comprehensive income (loss)

 

14,217

 

16,153

 

42,308

 

(68,303

)

Comprehensive loss (income) attributable to the noncontrolling interests

 

131

 

(1,162

)

978

 

527

 

Comprehensive income (loss) attributable to Sinclair Broadcast Group

 

$

14,348

 

$

14,991

 

$

43,286

 

$

(67,776

)

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2010

 

2009

 

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

42,091

 

$

(68,461

)

Adjustments to reconcile net income (loss) to net cash flows from operating activities:

 

 

 

 

 

Amortization of debt discount, net of debt premium

 

3,723

 

8,346

 

Depreciation of property and equipment

 

27,938

 

32,713

 

Recognition of deferred revenue

 

(18,039

)

(19,538

)

Impairment of goodwill, intangible and other assets

 

 

130,341

 

Amortization of definite-lived intangible and other assets

 

14,087

 

17,683

 

Amortization of program contract costs and net realizable value adjustments

 

47,162

 

57,644

 

Loss (gain) on extinguishment of debt, non-cash portion

 

3,552

 

(18,986

)

Deferred tax provision (benefit) related to operations

 

21,749

 

(9,100

)

Change in assets and liabilities:

 

 

 

 

 

Decrease in accounts receivable, net

 

757

 

12,515

 

(Increase) decrease in income taxes receivable

 

(499

)

2,016

 

(Increase) decrease in prepaid expenses and other current assets

 

(731

)

1,460

 

Decrease (increase) in other assets

 

4,230

 

(123

)

Increase (decrease) in accounts payable and accrued liabilities

 

25,918

 

(2,019

)

Decrease in other long-term liabilities

 

(57

)

(466

)

Payments on program contracts payable

 

(69,080

)

(60,822

)

Other, net

 

4,134

 

372

 

Net cash flows from operating activities

 

106,935

 

83,575

 

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of property and equipment

 

(9,798

)

(7,023

)

Purchase of alarm monitoring contracts

 

(7,656

)

(8,876

)

Decrease in restricted cash

 

59,539

 

 

Dividends and distributions from equity and cost method investees

 

894

 

1,460

 

Investments in equity and cost method investees

 

(10,509

)

(9,361

)

Proceeds from the sale of assets

 

 

102

 

Loans to affiliates

 

(102

)

(123

)

Proceeds from loans to affiliates

 

115

 

153

 

Net cash flows from (used in) investing activities

 

32,483

 

(23,668

)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from notes payable, commercial bank financing and capital leases

 

33,056

 

131,767

 

Repayments of notes payable, commercial bank financing and capital leases

 

(150,423

)

(169,959

)

Purchase of subsidiary shares from noncontrolling interests

 

 

(4,000

)

Repurchase of Class A Common Stock

 

 

(1,454

)

Dividends paid on Class A and Class B Common Stock

 

 

(16,038

)

Payments for deferred financing costs

 

(1,304

)

(4,419

)

Noncontrolling interests (distributions) contributions

 

(175

)

126

 

Repayments of notes and capital leases to affiliates

 

(2,299

)

(2,176

)

Net cash flows used in financing activities

 

(121,145

)

(66,153

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

18,273

 

(6,246

)

CASH AND CASH EQUIVALENTS, beginning of period

 

23,224

 

16,470

 

CASH AND CASH EQUIVALENTS, end of period

 

$

41,497

 

$

10,224

 

 

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 interests represent a minority owner’s proportionate share of the equity in certain of our consolidated entities.  All significant intercompany transactions and account balances have been eliminated in consolidation.

 

Interim Financial Statements

 

The consolidated financial statements for the three and nine months ended September 30, 2010 and 2009 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, 2009 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 June 2009, the Financial Accounting Standards Board (FASB) issued amended guidance on the consolidation of variable interest entities (VIEs).  The intent of this guidance is to improve financial reporting by enterprises involved with VIEs and to provide more relevant and reliable information to users of financial statements.  The new guidance will require a number of new disclosures and companies are required to perform ongoing reassessments of whether they are the primary beneficiary of a VIE for financial reporting purposes.  This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter.

 

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 the VIE debt of Cunningham Broadcasting Corporation (Cunningham) contains cross-default provisions under our senior secured credit facility (Bank Credit Agreement).  See Note 5, Related Person Transactions for more information.

 

We have a Local Marketing Agreement (LMA) to provide programming, sales and managerial services to Cunningham, the license owner for six television stations.  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 FCC license and certain other assets used to operate the station (License Assets).  Our applications to acquire the Federal Communications Commission (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.

 

We have outsourcing agreements with other license owners, 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 the LMA, we have determined that the outsourced license station assets are VIEs and we are the primary beneficiary.

 

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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 September 30,
2010

 

As of December 31,
2009

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

4,994

 

$

4,127

 

Income taxes receivable

 

29

 

33

 

Current portion of program contract costs

 

528

 

430

 

Prepaid expenses and other current assets

 

223

 

129

 

Deferred tax assets

 

27

 

27

 

Total current asset

 

5,801

 

4,746

 

 

 

 

 

 

 

PROGRAM CONTRACT COSTS, less current portion

 

448

 

649

 

PROPERTY AND EQUIPMENT, net

 

7,652

 

8,239

 

GOODWILL

 

6,357

 

6,357

 

BROADCAST LICENSES

 

4,320

 

4,320

 

DEFINITE-LIVED INTANGIBLE ASSETS, net

 

7,141

 

7,393

 

OTHER ASSETS

 

158

 

213

 

Total assets

 

$

31,877

 

$

31,917

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

37

 

$

37

 

Accrued liabilities

 

500

 

774

 

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

 

11,051

 

11,039

 

Current portion of program contracts payable

 

691

 

576

 

Total current liabilities

 

12,279

 

12,426

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

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

 

16,250

 

24,540

 

Program contracts payable, less current portion

 

170

 

444

 

Deferred tax liabilities

 

218

 

218

 

Total liabilities

 

$

28,917

 

$

37,628

 

 

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.

 

Under the previously applicable accounting guidance for consolidation, we had determined that we had a variable interest in four real estate ventures and that we were the primary beneficiary of those VIEs and should consolidate the assets and liabilities of those entities.  However, under the new accounting guidance for consolidation which is effective January 1, 2010, we no longer consider one of these investments to be a VIE since the investment does not meet the VIE criteria under the new accounting guidance.  We still consolidate the assets and liabilities of this entity pursuant to other accounting guidance based on voting-interests.  Under the new accounting guidance for consolidation, we no longer consider ourselves the primary beneficiary of the other three real estate ventures since as the manager of the venture, the other partner holds the power to direct activities that significantly impact the economic performance of the VIE and can participate in returns that would be considered significant to the VIE.  The effect of this change is not material to our consolidated financial statements.

 

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 September 30, 2010 and December 31, 2009 are as follows (in thousands):

 

 

 

As of September 30, 2010

 

As of December 31, 2009

 

 

 

Carrying
amount

 

Maximum
exposure

 

Carrying
amount

 

Maximum
exposure

 

Investments in real estate ventures

 

$

7,734

 

$

7,734

 

$

8,796

 

$

8,796

 

Investments in investment companies

 

24,347

 

24,347

 

21,108

 

21,108

 

Total

 

$

32,081

 

$

32,081

 

$

29,904

 

$

29,904

 

 

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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 (loss) income from equity and cost method investments in the consolidated statement of operations.  We recorded income of $0.6 million and $0.3 million in the quarters ended September 30, 2010 and 2009, respectively.  We recorded income of $1.1 million and a loss of $0.2 million for the nine months ended September 30, 2010 and 2009, respectively.

 

Our maximum exposure is equal to the carrying value of our investments.  As of September 30, 2010 and December 31, 2009, our unfunded commitments totaled $15.0 million and $16.8 million, respectively.

 

Recent Accounting Pronouncements

 

In September 2009, the FASB ratified the Emerging Issues Task Force’s amended guidance on accounting for revenue arrangements with multiple deliverables.  The amended guidance allows the use of an estimated selling price for the undelivered units of accounting in transactions in which vendor-specific objective evidence (VSOE) or third-party evidence (TPE) does not exist.  The amended guidance no longer allows the use of the residual method when allocating arrangement consideration between the delivered and undelivered units of accounting if VSOE and TPE of selling price does not exist for all units of accounting.  Entities are required to estimate the selling price of the deliverables, when VSOE and TPE are not available, and then allocate the consideration based on the relative selling prices of the deliverables.  This guidance also requires additional disclosures including the amount of revenue recognized each reporting period and the amount of deferred revenue as of the end of each reporting period under this guidance.  This guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010 and should be applied on a prospective basis.  We have not determined the impact that this guidance will have on our consolidated financial statements.

 

In January 2010, the FASB amended the guidance on fair value measurements and disclosures to add two new disclosure provisions to the current fair value disclosure guidance, including (1) details of transfers in and out of level 1 and level 2 measurements, and (2) gross presentation of activity within the level 3 roll forward.  The guidance also amends two existing fair value disclosure requirements so that entities are required to disclose (1) the valuation techniques and inputs used to develop fair value measurements for assets and liabilities that are measured at fair value on both a recurring basis and nonrecurring basis in periods subsequent to initial recognition and (2) fair value measurement disclosures for each class of assets and liabilities.  A class is defined as a subset of assets or liabilities within a line item in the statement of financial position.  The guidance is for interim and annual reporting periods beginning after December 15, 2009, except for the changes to the level 3 roll forward which are effective for fiscal years beginning after December 15, 2010.  We have added the required disclosures under this guidance to our consolidated financial statements beginning with the first quarter of 2010.

 

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 our 3.0% Convertible Senior Notes due 2027 (the 3.0% Notes) and 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 such put periods, the unused cash is released to us to be used for general corporate purposes.  During 2010, we used $53.6 million of restricted cash to redeem the 3.0% and 4.875% Notes.  See Note 3, Notes Payable and Commercial Bank Financing for more information.  As of September 30, 2010, we held $5.1 million in the restricted cash collateral account to be used for the redemption of the remaining $5.7 million aggregate principal amount of 4.875% Notes.  As of September 30, 2010, primarily all of the restricted cash classified as current relates to the January 2011 put option.

 

Additionally, under the terms of certain lease agreements, as of September 30, 2010, we are required to hold $0.4 million of restricted cash related to the removal of analog equipment from some of our leased towers.  As of December 31, 2009, we were required to hold $0.5 million of restricted cash related to the removal of analog tower equipment.

 

Dividends

 

In November 2010, our Board of Directors declared a $0.43 per share common stock dividend payable on December 15, 2010 to holders of record on December 1, 2010.

 

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Income Taxes

 

Our income tax provision for all periods consists of federal and state income taxes.  The tax provision for the three and nine months ended September 30, 2010 and 2009, 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.

 

Our effective income tax rate for the three months ended September 30, 2010 was lower than the statutory rate primarily due to a $2.3 million benefit predominantly resulting from a change in estimate related to an increased deduction for the recovery of historical losses attributable to a disposition that took place in 2009.  Our effective income tax rate for the nine months ended September 30, 2010 approximated the statutory rate.

 

In October 2010, we received a $8.4 million federal income tax cash refund.

 

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.

 

FCC License Renewals

 

In May 2010, the FCC granted the license renewal application of WUCW-TV in Minneapolis/St. Paul, Minnesota.

 

Network Affiliation Agreements

 

Our ABC network affiliation agreements were scheduled to expire December 31, 2009.  We extended these affiliation agreements until March 31, 2010, while we continued negotiations.  On March 25, 2010, we agreed to terms on a renewal of the ABC network affiliation agreements, expiring August 31, 2015.  Pursuant to the terms we are required to pay an annual license fee to ABC for network programming.

 

Our FOX affiliation agreements require us to receive FOX’s consent prior to entering into retransmission consent agreements that include content provided by FOX.  FOX has recently begun conditioning its consent on its affiliates agreeing to pay FOX compensation related to such retransmission consent agreements.  Sinclair, and other FOX affiliates, are currently negotiating with FOX on this issue.  As of September 30, 2010, the net book value of our FOX network affiliation assets was $31.1 million.

 

On August 31, 2010, the FOX affiliation agreement with KFXA-TV in Cedar Rapids, Iowa, expired.  The licensee of KFXA, to which we provide services under an outsourcing agreement, continues to operate the station as a FOX affiliate pursuant to an informal month-to-month extension, while negotiations with FOX continue.

 

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3.              NOTES PAYABLE AND COMMERCIAL BANK FINANCING

 

Debt Redemptions

 

During the first quarter of 2010, we completed tender offers to purchase for cash any and all of the outstanding 3.0% Notes and 4.875% Notes at 100% of the face value of such notes.  We used $26.6 million of restricted cash to pay for such redemptions.  We redeemed approximately $12.3 million and $14.3 million of the 3.0% and 4.875% Notes, respectively.  During the second quarter of 2010, the put right period for the 3.0% Notes expired and holders representing $10.0 million in principal amount of the 3.0% Notes exercised their put rights.  We used $10.0 million of restricted cash to pay for such exercises.  After the expiration of the 3.0% Notes put rights $5.4 million of unused funds from the cash collateral account was released to us for general corporate purposes.  During the third quarter of 2010, we redeemed $17.0 million of the 4.875% Notes in a private transaction.  We used $17.0 million of restricted cash to pay for the purchase.  As of September 30, 2010, the face amount of the outstanding 3.0% and 4.875% Notes was $5.4 million and $5.7 million, respectively.

 

During the nine months ended September 30, 2010, we repurchased, on the open market, $6.1 million in principal amount of the 6.0% Convertible Debentures, due 2012 (the 6.0% Notes).  On September 20, 2010, we commenced tender offers to purchase for cash up to $60.0 million in principal amount of the outstanding 6.0% Notes and any and all of the outstanding 8.0% Senior Subordinated Notes, due 2012 (the 8.0% Notes). We offered to purchase the 6.0% Notes at a purchase price of $987.50 per $1,000 principal amount plus accrued and unpaid interest.  We offered to purchase the 8.0% Notes at a purchase price of $1,002.50 per $1,000 principal amount, if tendered within the first ten business days of the tender offer period or $972.50 per $1,000 principal amount if tendered after such time, plus accrued and unpaid interest.  The tender offers expired October 19, 2010 and approximately, $58.0 million and $175.7 million principal amount of the 6.0% and 8.0% Notes, respectively, were tendered and purchased.  The net proceeds from the offering of the 8.375% Senior Unsecured Notes, due 2018 (the 8.375% Notes), discussed below, were used to fund these tender offers.  As of September 30, 2010, the face amount of the outstanding 6.0% and 8.0% Notes was $128.0 million and $224.7 million, respectively, and are classified as long-term in our consolidated balance sheets.  We will redeem the remaining $49.0 million of the 8.0% Notes in cash on November 19, 2010 at a purchase price of 100% of the principal amount of the 8.0% Notes plus accrued and unpaid interest.

 

Bank Credit Agreement

 

On August 19, 2010, we entered into an amendment (the Amendment) of our Bank Credit Agreement.  Under the Amendment, we paid down $35.0 million of the outstanding $305.0 million balance under the Term Loan B facility (Term Loan B) and repriced the remaining $270.0 million outstanding.  The final terms of the Amendment are as follows:

 

·                  The Term Loan B will initially bear interest at LIBOR plus 4.00% with a 1.5% LIBOR floor and will continue to amortize principal at a rate of 0.25% per quarter commencing on March 31, 2011, continuing until the scheduled final payment on October 29, 2015 with 95.25% due at maturity or upon earlier termination of the Term Loan B pursuant to the terms in the Bank Credit Agreement.

·                  We have the right to prepay the Term Loan B at any time; provided, however, that if we prepay, reprice downward or otherwise refinance all or any portion of the Term Loan B prior to August 19, 2011, then we will be required to pay the Term Loan B lenders a prepayment premium equal to 1.00% of the aggregate amount prepaid, repriced or otherwise refinanced.

·                  Provision for additional incremental term loan capacity up to $100.0 million.

·                  The terms of the Revolving Credit Facility were not materially affected by the Amendment.

 

8.375% Senior Unsecured Notes, due 2018

 

On October 4, 2010, we issued $250.0 million aggregate principal amount of 8.375% Notes due October 15, 2018 at 98.567% of their par value pursuant to an indenture, dated as of October 4, 2010 (the Indenture).  Interest on the 8.375% Notes will be paid on April 15 and October 15 of each year, beginning April 15, 2011.  Prior to October 15, 2014, we may redeem the 8.375% Notes in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the 8.375% Notes plus accrued and unpaid interest, plus a “make-whole premium” as set forth in the Indenture.  Beginning on October 15, 2014, we may redeem some or all of the 8.375% Notes at any time or from time to time at the redemption prices set forth in the Indenture.  In addition, on or prior to October 15, 2013, we may redeem up to 35% of the 8.375% Notes using the proceeds of certain equity offerings.  Upon certain changes of control, we must offer to purchase the 8.375% Notes at a price equal to 101% of the face amount of the Notes plus accrued and unpaid interest.  The net proceeds from the offering of the 8.375% Notes were used to fund the tender offers for our 6.0% and 8.0% Notes described above.  Concurrent to entering into the Indenture we also entered into a registration rights agreement requiring us to complete an offer of an exchange of the 8.375% Notes for registered securities with the SEC by July 1, 2011.

 

In conjunction with the Amendment of the Bank Credit Agreement, the 8.375% Notes issuance, and the 6.0% and 8.0% Notes tenders, both Moody’s and Standard & Poor’s raised our credit ratings.

 

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4.              EARNINGS (LOSS) PER SHARE

 

The following table reconciles income (loss) (numerator) and shares (denominator) used in our computations of earnings (loss) per share for the three and nine months ended September 30, 2010 and 2009 (in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Income (Loss) (Numerator)

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

14,213

 

$

15,855

 

$

42,293

 

$

(68,489

)

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

 

42

 

1,049

 

125

 

 

Net loss (income) attributable to noncontrolling interests included in continuing operations

 

131

 

(1,162

)

978

 

527

 

Numerator for diluted earnings (loss) per common share from continuing operations

 

14,386

 

15,742

 

43,396

 

(67,962

)

(Loss) income from discontinued operations

 

(68

)

245

 

(202

)

28

 

Numerator for diluted earnings (loss) attributable to Sinclair Broadcast Group

 

$

14,318

 

$

15,987

 

$

43,194

 

$

(67,934

)

 

 

 

 

 

 

 

 

 

 

Shares (Denominator)

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

80,344

 

79,739

 

80,204

 

80,036

 

Dilutive effect of stock-settled appreciation rights

 

28

 

 

21

 

 

Dilutive effect of 4.875% Notes

 

255

 

6,416

 

255

 

 

Weighted-average common and common equivalent shares outstanding

 

80,627

 

86,155

 

80,480

 

80,036

 

 

Potentially dilutive securities representing 7.0 million and 21.8 million for the three months ended September 30, 2010 and 2009, respectively, and 7.0 million and 28.2 million for the nine months ended September 30, 2010 and 2009, respectively, were excluded from the computation of diluted earnings (loss) per common share for these periods because their effect would have been antidilutive.  The decrease in potentially dilutive securities is primarily related to the partial redemption of our 3.0% Notes and the inclusion of the 4.875% Notes in dilutive earnings (loss) per share.  The net income (loss) 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.

 

Cunningham Broadcasting Corporation.  We have options from trusts established by Carolyn C. Smith, a parent 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 assets of Cunningham’s individual subsidiaries.  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; and WTTE-TV in Columbus, Ohio.

 

We made payments to Cunningham under the LMAs and acquisition agreements of $4.4 million and $1.5 million for the three months ended September 30, 2010 and 2009, respectively.  For the nine months ended September 30, 2010 and 2009, we made payments to Cunningham of $13.2 million and $4.6 million, respectively, related to the LMAs.

 

For the three and nine months ended September 30, 2010, Cunningham’s stations provided us with approximately $22.5 million and $67.8 million, respectively, of total revenue.  The financial statements for Cunningham are included in our consolidated financial statements for all periods presented.  Our Bank Credit Agreement contains certain cross-default provisions with certain material third-party licensees.  As of September 30, 2010, Cunningham was the sole material third-party licensee.

 

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 some or all of the controlling shareholders).  Lease payments made to these entities were $1.5 million and $1.2 million for the three months ended

 

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September 30, 2010 and 2009.  Lease payments made to these entities were $3.8 million and $3.5 million for the nine months ended September 30, 2010 and 2009, respectively.

 

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 $0.5 million for each of the three months ended September 30, 2010 and 2009, respectively, and $1.2 million and $2.6 million for the nine months ended September 30, 2010 and 2009, respectively.  We received $0.1 million for each of the three months ended September 30, 2010 and 2009 and $0.4 million for each of the nine months ended September 30, 2010 and 2009 from Bay TV for certain equipment leases.

 

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.  Our stations in Baltimore, Maryland and Norfolk, Virginia received payments for advertising time totaling less than $0.1 million for each of the three months ended September 30, 2010 and 2009.  For each of the nine months ended September 30, 2010 and 2009, we received payments for advertising time totaling $0.2 million.  We paid $0.2 million and $0.1 million for vehicles and related vehicle services from Atlantic Automotive during the three months ended September 30, 2010 and 2009, respectively.  For the nine months ended September 30, 2010 and 2009, we paid $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 a partner and founder of Thomas & Libowitz, P.A., a law firm providing legal services to us on an ongoing basis.  We paid fees of less than $0.1 million and $0.4 million to Thomas & Libowitz during the three months ended September 30, 2010 and 2009, respectively.  For the nine months ended September 30, 2010 and 2009, we paid fees of $0.4 million and $1.0 million to Thomas & Libowitz, respectively.

 

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.  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 $166.4 million and $109.0 million of intercompany loans between the broadcast segment, operating divisions segment and corporate as of September 30, 2010 and 2009, respectively.  We had $4.9 million and $3.2 million in intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions segment and corporate for the three months ended September 30, 2010 and 2009, respectively.  For the nine months ended September 30, 2010 and 2009, we had $14.4 million and $9.3 million 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 nine months ended September 30, 2010 and 2009 (in thousands).

 

For the three months ended September 30, 2010

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

176,621

 

$

9,831

 

$

 

$

186,452

 

Depreciation of property and equipment

 

8,220

 

321

 

481

 

9,022

 

Amortization of definite-lived intangible assets and other assets

 

3,961

 

726

 

 

4,687

 

Amortization of program contract costs and net realizable value adjustments

 

15,945

 

 

 

15,945

 

General and administrative overhead expenses

 

5,508

 

232

 

496

 

6,236

 

Operating income (loss)

 

56,468

 

605

 

(978

)

56,095

 

Interest expense

 

 

551

 

30,798

 

31,349

 

Loss from equity and cost method investments

 

 

(1,997

)

 

(1,997

)

 

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For the three months ended September 30, 2009

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

149,437

 

$

10,690

 

$

 

$

160,127

 

Depreciation of property and equipment

 

9,242

 

280

 

473

 

9,995

 

Amortization of definite-lived intangible assets and other assets

 

5,659

 

571

 

 

6,230

 

Amortization of program contract costs and net realizable value adjustments

 

17,021

 

 

 

17,021

 

Impairment of goodwill, intangible and other assets

 

 

 

243

 

243

 

General and administrative overhead expenses

 

1,809

 

237

 

4,063

 

6,109

 

Operating income (loss)

 

42,401

 

(1,682

)

(4,986

)

35,733

 

Interest expense

 

 

376

 

17,090

 

17,466

 

Income from equity and cost method investments

 

 

453

 

 

453

 

 

For the nine months ended September 30, 2010

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

516,013

 

$

25,618

 

$

 

$

541,631

 

Depreciation of property and equipment

 

25,460

 

942

 

1,342

 

27,744

 

Amortization of definite-lived intangible assets and other assets

 

12,017

 

2,070

 

 

14,087

 

Amortization of program contract costs and net realizable value adjustments

 

47,162

 

 

 

47,162

 

General and administrative overhead expenses

 

17,771

 

675

 

1,617

 

20,063

 

Operating income (loss)

 

162,508

 

(530

)

(2,965

)

159,013

 

Interest expense

 

 

1,299

 

87,401

 

88,700

 

Loss from equity and cost method investments

 

 

(2,478

)

 

(2,478

)

 

For the nine months ended September 30, 2009

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

439,567

 

$

33,570

 

$

 

$

473,137

 

Depreciation of property and equipment

 

30,275

 

755

 

1,426

 

32,456

 

Amortization of definite-lived intangible assets and other assets

 

16,172

 

1,511

 

 

17,683

 

Amortization of program contract costs and net realizable value adjustments

 

57,644

 

 

 

57,644

 

Impairment of goodwill, intangible and other assets

 

130,098

 

 

243

 

130,341

 

General and administrative overhead expenses

 

5,523

 

823

 

12,139

 

18,485

 

Operating loss

 

(27,152

)

(3,978

)

(14,020

)

(45,150

)

Interest expense

 

 

994

 

52,492

 

53,486

 

Income from equity and cost method investments

 

 

471

 

 

471

 

 

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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Table of Contents

 

The carrying value and fair value of our financial instruments as of September 30, 2010 and December 31, 2009 were as follows (in thousands):

 

 

 

September 30, 2010

 

December 31, 2009

 

 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

8.0% Senior Subordinated Notes, due 2012

 

$

225,208

 

$

224,849

 

$

225,488

 

$

220,731

 

6.0% Convertible Debentures, due 2012

 

119,670

 

127,193

 

122,482

 

111,991

 

4.875% Convertible Senior Notes, due 2018

 

5,685

 

5,685

 

37,016

 

36,091

 

3.0% Convertible Senior Notes, due 2027

 

5,400

 

5,400

 

27,383

 

27,044

 

9.25% Senior Secured Second Lien Notes, due 2017

 

487,409

 

535,000

 

486,519

 

518,125

 

Bank Credit Agreement, Term Loan B

 

264,086

 

273,370

 

323,551

 

314,306

 

Cunningham Bank Credit Facility

 

24,675

 

25,174

 

32,900

 

32,900

 

Active program contracts payable

 

117,753

 

108,061

 

140,443

 

124,951

 

Future program liabilities (a)

 

76,790

 

61,861

 

70,038

 

56,202

 

Total fair value

 

$

1,326,676

 

$

1,366,593

 

$

1,465,820

 

$

1,442,341

 

 


(a)          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.

 

Our financial instruments, except the 3.0% and 4.875% Notes are fair valued using Level 1 hierarchy inputs described above.  Our Term Loan B and Cunningham’s bank credit facility are fair valued using Level 2 hierarchy inputs described above.

 

Our 3.0% and 4.875% Notes carrying value approximates fair value.  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, as amended, the 9.25% Notes and the 8.0% Notes.  Our Class A Common Stock, Class B Common Stock, the 6.0% Notes, the 4.875% Notes and the 3.0% Notes remain obligations or securities of SBG and are not obligations or securities of STG.  As of September 30, 2010, our consolidated total debt of $1,246.4 million included $1,030.2 million of debt related to STG and its subsidiaries of which SBG guaranteed $978.0 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 SEPTEMBER 30, 2010

(in thousands) (unaudited)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

25,931

 

$

233

 

$

15,333

 

$

 

$

41,497

 

Restricted cash — current

 

 

5,057

 

64

 

 

 

5,121

 

Accounts and other receivables

 

78

 

252

 

110,013

 

4,451

 

(134

)

114,660

 

Other current assets

 

674

 

2,529

 

60,020

 

3,114

 

(284

)

66,053

 

Total current assets

 

752

 

33,769

 

170,330

 

22,898

 

(418

)

227,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

10,270

 

2,507

 

174,880

 

97,216

 

(6,855

)

278,018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in consolidated subsidiaries

 

 

627,487

 

 

 

(627,487

)

 

Restricted cash — long-term

 

 

 

223

 

 

 

223

 

Other long-term assets

 

74,510

 

318,832

 

20,974

 

92,634

 

(374,396

)

132,554

 

Total other long-term assets

 

74,510

 

946,319

 

21,197

 

92,634

 

(1,001,883

)

132,777

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired intangible assets

 

 

 

835,482

 

62,158

 

398

 

898,038

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

85,532

 

$

982,595

 

$

1,201,889

 

$

274,906

 

$

(1,008,758

)

$

1,536,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

605

 

$

32,128

 

$

38,200

 

$

8,330

 

$

(951

)

$

78,312

 

Current portion of long-term debt

 

6,874

 

2,025

 

2,851

 

12,431

 

56

 

24,237

 

Other current liabilities

 

 

 

86,315

 

691

 

 

87,006

 

Total current liabilities

 

7,479

 

34,153

 

127,366

 

21,452

 

(895

)

189,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

135,780

 

975,938

 

49,429

 

279,773

 

(218,780

)

1,222,140

 

Dividends in excess of investment in consolidated subsidiaries

 

76,642

 

 

 

 

(76,642

)

 

Other liabilities

 

30,179

 

1,825

 

398,368

 

44,627

 

(194,557

)

280,442

 

Total liabilities

 

250,080

 

1,011,916

 

575,163

 

345,852

 

(490,874

)

1,692,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

803

 

 

10

 

282

 

(292

)

803

 

Additional paid-in capital

 

609,452

 

208,422

 

508,766

 

76,628

 

(793,816

)

609,452

 

Accumulated (deficit) earnings

 

(770,807

)

(235,296

)

119,834

 

(146,459

)

261,921

 

(770,807

)

Accumulated other comprehensive loss

 

(3,996

)

(2,447

)

(1,884

)

(1,397

)

5,728

 

(3,996

)

Total Sinclair Broadcast Group (deficit) equity

 

(164,548

)

(29,321

)

626,726

 

(70,946

)

(526,459

)

(164,548

)

Noncontrolling interests in consolidated subsidiaries

 

 

 

 

 

8,575

 

8,575

 

Total liabilities and equity (deficit)

 

$

85,532

 

$

982,595

 

$

1,201,889

 

$

274,906

 

$

(1,008,758

)

$

1,536,164

 

 

16


 


Table of Contents

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2009

(in thousands) (unaudited)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

10,364

 

$

217

 

$

12,643

 

$

 

$

23,224

 

Restricted cash — current

 

 

27,667

 

 

 

 

27,667

 

Accounts and other receivables

 

232

 

6,014

 

110,733

 

4,045

 

(6,090

)

114,934

 

Other current assets

 

639

 

2,558

 

54,546

 

2,513

 

(283

)

59,973

 

Total current assets

 

871

 

46,603

 

165,496

 

19,201

 

(6,373

)

225,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

11,597

 

2,135

 

194,139

 

95,437

 

(7,081

)

296,227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in consolidated subsidiaries

 

 

691,578

 

 

 

(691,578

)

 

Restricted cash — long-term

 

 

36,732

 

484

 

 

 

37,216

 

Other long-term assets

 

69,876

 

273,806

 

26,271

 

58,342

 

(295,225

)

133,070

 

Total other long-term assets

 

69,876

 

1,002,116

 

26,755

 

58,342

 

(986,803

)

170,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired intangible assets

 

 

 

838,998

 

57,512

 

8,900

 

905,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

82,344

 

$

1,050,854

 

$

1,225,388

 

$

230,492

 

$

(991,357

)

$

1,597,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

2,887

 

$

20,742

 

$

32,200

 

$

19,373

 

$

(10,933

)

$

64,269

 

Current portion of long-term debt

 

28,448

 

 

2,530

 

12,646

 

3

 

43,627

 

Other current liabilities

 

 

 

94,229

 

576

 

 

94,805

 

Total current liabilities

 

31,335

 

20,742

 

128,959

 

32,595

 

(10,930

)

202,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

171,120

 

1,037,467

 

53,192

 

253,138

 

(192,236

)

1,322,681

 

Dividends in excess of investment in consolidated subsidiaries

 

59,402

 

 

 

 

(59,402

)

 

Other liabilities

 

32,437

 

1,979

 

352,567

 

37,147

 

(149,569

)

274,561

 

Total liabilities

 

294,294

 

1,060,188

 

534,718

 

322,880

 

(412,137

)

1,799,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

799

 

 

10

 

282

 

(292

)

799

 

Additional paid-in capital

 

605,340

 

279,664

 

670,863

 

41,824

 

(992,351

)

605,340

 

Accumulated (deficit) earnings

 

(813,876

)

(286,414

)

21,904

 

(131,677

)

396,187

 

(813,876

)

Accumulated other comprehensive loss

 

(4,213

)

(2,584

)

(2,107

)

(2,817

)

7,508

 

(4,213

)

Total Sinclair Broadcast Group shareholders’ (deficit) equity

 

(211,950

)

(9,334

)

690,670

 

(92,388

)

(588,948

)

(211,950

)

Noncontrolling interests in consolidated subsidiaries

 

 

 

 

 

9,728

 

9,728

 

Total liabilities and equity (deficit)

 

$

82,344

 

$

1,050,854

 

$

1,225,388

 

$

230,492

 

$

(991,357

)

$

1,597,721

 

 

17



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010

(in thousands) (unaudited)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

 

$

 

$

176,892

 

$

12,023

 

$

(2,463

)

$

186,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Program and production

 

 

214

 

40,551

 

104

 

(2,250

)

38,619

 

Selling, general and administrative

 

498

 

5,444

 

31,649

 

1,006

 

(131

)

38,466

 

Depreciation, amortization and other operating expenses

 

481

 

105

 

43,255

 

9,422

 

9

 

53,272

 

Total operating expenses

 

979

 

5,763

 

115,455

 

10,532

 

(2,372

)

130,357