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, 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 |
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52-1494660 |
|
(State or other jurisdiction of |
|
(I.R.S. Employer Identification No.) |
|
Incorporation or organization) |
|
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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):
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Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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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 |
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Number of shares outstanding as of |
|
|
Class A Common Stock |
|
49,349,586 |
|
|
Class B Common Stock |
|
30,977,859 |
|
SINCLAIR BROADCAST GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010
|
3 |
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3 |
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3 |
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4 |
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5 |
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5 |
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6 |
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7 |
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
21 |
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|
|
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
29 |
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|
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29 |
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|
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31 |
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31 |
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|
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31 |
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
31 |
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31 |
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|
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|
|
31 |
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31 |
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32 |
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33 |
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34 |
SINCLAIR BROADCAST GROUP, INC.
(In thousands, except share and per share data) (Unaudited)
|
|
|
As of June 30, |
|
As of December 31, |
|
||
|
ASSETS |
|
|
|
|
|
||
|
CURRENT ASSETS: |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
42,820 |
|
$ |
23,224 |
|
|
Current portion of restricted cash |
|
22,446 |
|
27,667 |
|
||
|
Accounts receivable, net of allowance for doubtful accounts of $3,075 and $2,932, respectively |
|
112,707 |
|
106,792 |
|
||
|
Affiliate receivable |
|
67 |
|
69 |
|
||
|
Current portion of program contract costs |
|
25,310 |
|
43,741 |
|
||
|
Income taxes receivable |
|
7,382 |
|
8,073 |
|
||
|
Prepaid expenses and other current assets |
|
6,488 |
|
6,130 |
|
||
|
Deferred barter costs |
|
3,862 |
|
2,825 |
|
||
|
Deferred tax assets |
|
7,277 |
|
7,277 |
|
||
|
Total current assets |
|
228,359 |
|
225,798 |
|
||
|
|
|
|
|
|
|
||
|
PROGRAM CONTRACT COSTS, less current portion |
|
11,603 |
|
16,417 |
|
||
|
PROPERTY AND EQUIPMENT, net |
|
281,433 |
|
296,227 |
|
||
|
RESTRICTED CASH, less current portion |
|
386 |
|
37,216 |
|
||
|
GOODWILL |
|
660,017 |
|
660,017 |
|
||
|
BROADCAST LICENSES |
|
51,988 |
|
51,988 |
|
||
|
DEFINITE-LIVED INTANGIBLE ASSETS, net |
|
186,493 |
|
193,405 |
|
||
|
OTHER ASSETS |
|
119,566 |
|
116,653 |
|
||
|
Total assets |
|
$ |
1,539,845 |
|
$ |
1,597,721 |
|
|
|
|
|
|
|
|
||
|
LIABILITIES AND EQUITY (DEFICIT) |
|
|
|
|
|
||
|
CURRENT LIABILITIES: |
|
|
|
|
|
||
|
Accounts payable |
|
$ |
3,794 |
|
$ |
3,746 |
|
|
Accrued liabilities |
|
64,946 |
|
60,523 |
|
||
|
Current portion of notes payable, capital leases and commercial bank financing |
|
37,421 |
|
40,632 |
|
||
|
Current portion of notes and capital leases payable to affiliates |
|
3,316 |
|
2,995 |
|
||
|
Current portion of program contracts payable |
|
63,256 |
|
91,995 |
|
||
|
Deferred barter revenues |
|
3,481 |
|
2,810 |
|
||
|
Total current liabilities |
|
176,214 |
|
202,701 |
|
||
|
|
|
|
|
|
|
||
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
||
|
Notes payable, capital leases and commercial bank financing, less current portion |
|
1,235,508 |
|
1,297,964 |
|
||
|
Notes payable and capital leases to affiliates, less current portion |
|
21,077 |
|
24,717 |
|
||
|
Program contracts payable, less current portion |
|
36,334 |
|
48,448 |
|
||
|
Deferred tax liabilities |
|
193,217 |
|
177,219 |
|
||
|
Other long-term liabilities |
|
47,863 |
|
48,894 |
|
||
|
Total liabilities |
|
1,710,213 |
|
1,799,943 |
|
||
|
|
|
|
|
|
|
||
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EQUITY (DEFICIT): |
|
|
|
|
|
||
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SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY (DEFICIT): |
|
|
|
|
|
||
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Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 49,330,309 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 |
|
609,136 |
|
605,340 |
|
||
|
Accumulated deficit |
|
(785,083 |
) |
(813,876 |
) |
||
|
Other comprehensive loss |
|
(4,068 |
) |
(4,213 |
) |
||
|
Total Sinclair Broadcast Group shareholders’ deficit |
|
(179,212 |
) |
(211,950 |
) |
||
|
Noncontrolling interests |
|
8,844 |
|
9,728 |
|
||
|
Total deficit |
|
(170,368 |
) |
(202,222 |
) |
||
|
Total liabilities and equity (deficit) |
|
$ |
1,539,845 |
|
$ |
1,597,721 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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, |
|
||||||||
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|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
REVENUES: |
|
|
|
|
|
|
|
|
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||||
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Station broadcast revenues, net of agency commissions |
|
$ |
158,709 |
|
$ |
133,008 |
|
$ |
306,631 |
|
$ |
264,313 |
|
|
Revenues realized from station barter arrangements |
|
17,985 |
|
13,919 |
|
32,761 |
|
25,817 |
|
||||
|
Other operating divisions revenues |
|
8,857 |
|
11,345 |
|
15,787 |
|
22,880 |
|
||||
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Total revenues |
|
185,551 |
|
158,272 |
|
355,179 |
|
313,010 |
|
||||
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|
|
|
|
|
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|
||||
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OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
||||
|
Station production expenses |
|
38,645 |
|
36,889 |
|
74,563 |
|
71,832 |
|
||||
|
Station selling, general and administrative expenses |
|
30,554 |
|
31,993 |
|
61,196 |
|
62,903 |
|
||||
|
Expenses recognized from station barter arrangements |
|
15,748 |
|
11,293 |
|
28,979 |
|
21,521 |
|
||||
|
Amortization of program contract costs and net realizable value adjustments |
|
15,303 |
|
19,865 |
|
31,217 |
|
40,623 |
|
||||
|
Other operating divisions expenses |
|
7,580 |
|
10,891 |
|
14,357 |
|
23,142 |
|
||||
|
Depreciation of property and equipment |
|
9,097 |
|
10,528 |
|
18,722 |
|
22,461 |
|
||||
|
Corporate general and administrative expenses |
|
7,250 |
|
6,017 |
|
13,827 |
|
12,376 |
|
||||
|
Amortization of definite-lived intangible assets and other assets |
|
4,683 |
|
6,252 |
|
9,400 |
|
11,453 |
|
||||
|
Gain on asset exchange |
|
— |
|
(1,280 |
) |
— |
|
(2,516 |
) |
||||
|
Impairment of goodwill, intangible and other assets |
|
— |
|
— |
|
— |
|
130,098 |
|
||||
|
Total operating expenses |
|
128,860 |
|
132,448 |
|
252,261 |
|
393,893 |
|
||||
|
Operating income (loss) |
|
56,691 |
|
25,824 |
|
102,918 |
|
(80,883 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
||||
|
Interest expense and amortization of debt discount and deferred financing costs |
|
(28,377 |
) |
(17,646 |
) |
(57,351 |
) |
(36,020 |
) |
||||
|
(Loss) gain from extinguishment of debt |
|
(149 |
) |
— |
|
(438 |
) |
18,986 |
|
||||
|
(Loss) income from equity and cost method investments |
|
(1,024 |
) |
463 |
|
(481 |
) |
18 |
|
||||
|
Other income, net |
|
571 |
|
412 |
|
1,210 |
|
1,113 |
|
||||
|
Total other expense |
|
(28,979 |
) |
(16,771 |
) |
(57,060 |
) |
(15,903 |
) |
||||
|
Income (loss) from continuing operations before income taxes |
|
27,712 |
|
9,053 |
|
45,858 |
|
(96,786 |
) |
||||
|
INCOME TAX (PROVISION) BENEFIT |
|
(10,692 |
) |
(6,358 |
) |
(17,778 |
) |
12,442 |
|
||||
|
Income (loss) from continuing operations |
|
17,020 |
|
2,695 |
|
28,080 |
|
(84,344 |
) |
||||
|
DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
||||
|
Loss from discontinued operations, includes income tax provision of $68, $109, $134 and $217, respectively |
|
(68 |
) |
(109 |
) |
(134 |
) |
(217 |
) |
||||
|
NET INCOME (LOSS) |
|
16,952 |
|
2,586 |
|
27,946 |
|
(84,561 |
) |
||||
|
Net loss attributable to the noncontrolling interests |
|
321 |
|
197 |
|
847 |
|
1,689 |
|
||||
|
NET INCOME (LOSS) ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP |
|
$ |
17,273 |
|
$ |
2,783 |
|
$ |
28,793 |
|
$ |
(82,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP: |
|
|
|
|
|
|
|
|
|
||||
|
Basic earnings (loss) per share from continuing operations |
|
$ |
0.22 |
|
$ |
0.04 |
|
$ |
0.36 |
|
$ |
(1.03 |
) |
|
Basic earnings (loss) per share |
|
$ |
0.22 |
|
$ |
0.04 |
|
$ |
0.36 |
|
$ |
(1.03 |
) |
|
Diluted earnings (loss) per share from continuing operations |
|
$ |
0.21 |
|
$ |
0.04 |
|
$ |
0.36 |
|
$ |
(1.03 |
) |
|
Diluted earnings (loss) per share |
|
$ |
0.21 |
|
$ |
0.04 |
|
$ |
0.36 |
|
$ |
(1.03 |
) |
|
Weighted average common shares outstanding |
|
80,307 |
|
79,566 |
|
80,133 |
|
80,187 |
|
||||
|
Weighted average common and common equivalent shares outstanding |
|
86,985 |
|
79,566 |
|
81,175 |
|
80,187 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
AMOUNTS ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP COMMON SHAREHOLDERS: |
|
|
|
|
|
|
|
|
|
||||
|
Income (loss) from continuing operations |
|
$ |
17,341 |
|
$ |
2,892 |
|
$ |
28,927 |
|
$ |
(82,655 |
) |
|
Loss from discontinued operations |
|
(68 |
) |
(109 |
) |
(134 |
) |
(217 |
) |
||||
|
Net income (loss) |
|
$ |
17,273 |
|
$ |
2,783 |
|
$ |
28,793 |
|
$ |
(82,872 |
) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(In thousands) (Unaudited)
|
|
|
Sinclair Broadcast Group Shareholders |
|
|
|
|
|
|||||||||||||||
|
|
|
Class A |
|
Class B |
|
Additional |
|
Accumulated |
|
Other |
|
Noncontrolling |
|
Total Equity |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
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 |
|
— |
|
3,796 |
|
— |
|
— |
|
— |
|
3,800 |
|
|||||||
|
Class B Common Stock converted into Class A Common Stock |
|
15 |
|
(15 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||
|
Distributions to noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(37 |
) |
(37 |
) |
|||||||
|
Amortization of net periodic pension benefit costs |
|
— |
|
— |
|
— |
|
— |
|
145 |
|
— |
|
145 |
|
|||||||
|
Net income (loss) |
|
— |
|
— |
|
— |
|
28,793 |
|
— |
|
(847 |
) |
27,946 |
|
|||||||
|
BALANCE, June 30, 2010 |
|
$ |
493 |
|
$ |
310 |
|
$ |
609,136 |
|
$ |
(785,083 |
) |
$ |
(4,068 |
) |
$ |
8,844 |
|
$ |
(170,368 |
) |
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
||||||||
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income (loss) |
|
$ |
16,952 |
|
$ |
2,586 |
|
$ |
27,946 |
|
$ |
(84,561 |
) |
|
Amortization of net periodic pension benefit costs |
|
73 |
|
52 |
|
145 |
|
105 |
|
||||
|
Comprehensive income (loss) |
|
17,025 |
|
2,638 |
|
28,091 |
|
(84,456 |
) |
||||
|
Comprehensive loss attributable to the noncontrolling interests |
|
321 |
|
197 |
|
847 |
|
1,689 |
|
||||
|
Comprehensive income (loss) attributable to Sinclair Broadcast Group |
|
$ |
17,346 |
|
$ |
2,835 |
|
$ |
28,938 |
|
$ |
(82,767 |
) |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
|
|
|
Six Months Ended June 30, |
|
||||
|
|
|
2010 |
|
2009 |
|
||
|
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: |
|
|
|
|
|
||
|
Net income (loss) |
|
$ |
27,946 |
|
$ |
(84,561 |
) |
|
Adjustments to reconcile net income (loss) to net cash flows from operating activities: |
|
|
|
|
|
||
|
Amortization of debt discount, net of debt premium |
|
2,521 |
|
5,578 |
|
||
|
Depreciation of property and equipment |
|
18,857 |
|
22,649 |
|
||
|
Recognition of deferred revenue |
|
(10,606 |
) |
(13,626 |
) |
||
|
Impairment of goodwill, intangible and other assets |
|
— |
|
130,098 |
|
||
|
Amortization of definite-lived intangible and other assets |
|
9,400 |
|
11,453 |
|
||
|
Amortization of program contract costs and net realizable value adjustments |
|
31,217 |
|
40,623 |
|
||
|
Loss (gain) on extinguishment of debt, non-cash portion |
|
438 |
|
(18,986 |
) |
||
|
Deferred tax provision (benefit) related to operations |
|
15,902 |
|
(12,439 |
) |
||
|
Change in assets and liabilities: |
|
|
|
|
|
||
|
(Increase) decrease in accounts receivable, net |
|
(5,917 |
) |
15,351 |
|
||
|
Decrease (increase) in income taxes receivable |
|
691 |
|
(430 |
) |
||
|
(Increase) decrease in prepaid expenses and other current assets |
|
(260 |
) |
364 |
|
||
|
Increase in other assets |
|
(169 |
) |
(1,986 |
) |
||
|
Increase in accounts payable and accrued liabilities |
|
17,261 |
|
818 |
|
||
|
Increase (decrease) in other long-term liabilities |
|
60 |
|
(359 |
) |
||
|
Payments on program contracts payable |
|
(48,833 |
) |
(42,680 |
) |
||
|
Other, net |
|
1,657 |
|
(408 |
) |
||
|
Net cash flows from operating activities |
|
60,165 |
|
51,459 |
|
||
|
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: |
|
|
|
|
|
||
|
Acquisition of property and equipment |
|
(4,662 |
) |
(4,882 |
) |
||
|
Purchase of alarm monitoring contracts |
|
(3,391 |
) |
(7,618 |
) |
||
|
Decrease in restricted cash |
|
42,051 |
|
— |
|
||
|
Dividends and distributions from equity and cost method investees |
|
143 |
|
1,398 |
|
||
|
Investments in equity and cost method investees |
|
(6,362 |
) |
(6,662 |
) |
||
|
Proceeds from the sale of assets |
|
— |
|
38 |
|
||
|
Loans to affiliates |
|
(68 |
) |
(82 |
) |
||
|
Proceeds from loans to affiliates |
|
70 |
|
82 |
|
||
|
Net cash flows from (used in) investing activities |
|
27,781 |
|
(17,726 |
) |
||
|
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: |
|
|
|
|
|
||
|
Proceeds from notes payable, commercial bank financing and capital leases |
|
9,025 |
|
113,964 |
|
||
|
Repayments of notes payable, commercial bank financing and capital leases |
|
(74,611 |
) |
(129,259 |
) |
||
|
Purchase of subsidiary shares from noncontrolling interests |
|
— |
|
(3,000 |
) |
||
|
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 |
|
(1,228 |
) |
(108 |
) |
||
|
Noncontrolling interests (distributions) contributions |
|
(37 |
) |
226 |
|
||
|
Repayments of notes and capital leases to affiliates |
|
(1,499 |
) |
(1,454 |
) |
||
|
Net cash flows used in financing activities |
|
(68,350 |
) |
(37,123 |
) |
||
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
19,596 |
|
(3,390 |
) |
||
|
CASH AND CASH EQUIVALENTS, beginning of period |
|
23,224 |
|
16,470 |
|
||
|
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
42,820 |
|
$ |
13,080 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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 six months ended June 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 4, 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 4, 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.
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, |
|
As of December 31, |
|
||
|
ASSETS |
|
|
|
|
|
||
|
CURRENT ASSETS: |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
4,826 |
|
$ |
4,127 |
|
|
Income taxes receivable |
|
29 |
|
33 |
|
||
|
Current portion of program contract costs |
|
364 |
|
430 |
|
||
|
Prepaid expenses and other current assets |
|
177 |
|
129 |
|
||
|
Deferred tax assets |
|
27 |
|
27 |
|
||
|
Total current asset |
|
5,423 |
|
4,746 |
|
||
|
|
|
|
|
|
|
||
|
PROGRAM CONTRACT COSTS, less current portion |
|
512 |
|
649 |
|
||
|
PROPERTY AND EQUIPMENT, net |
|
7,848 |
|
8,239 |
|
||
|
GOODWILL |
|
6,357 |
|
6,357 |
|
||
|
BROADCAST LICENSES |
|
4,320 |
|
4,320 |
|
||
|
DEFINITE-LIVED INTANGIBLE ASSETS, net |
|
7,225 |
|
7,393 |
|
||
|
OTHER ASSETS |
|
176 |
|
213 |
|
||
|
Total assets |
|
$ |
31,861 |
|
$ |
31,917 |
|
|
|
|
|
|
|
|
||
|
LIABILITIES |
|
|
|
|
|
||
|
CURRENT LIABILITIES: |
|
|
|
|
|
||
|
Accounts payable |
|
$ |
37 |
|
$ |
37 |
|
|
Accrued liabilities |
|
514 |
|
774 |
|
||
|
Current portion of notes payable, capital leases and commercial bank financing |
|
11,047 |
|
11,039 |
|
||
|
Current portion of program contracts payable |
|
479 |
|
576 |
|
||
|
Total current liabilities |
|
12,077 |
|
12,426 |
|
||
|
|
|
|
|
|
|
||
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
||
|
Notes payable, capital leases and commercial bank financing, less current portion |
|
19,015 |
|
24,540 |
|
||
|
Program contracts payable, less current portion |
|
284 |
|
444 |
|
||
|
Deferred tax liabilities |
|
218 |
|
218 |
|
||
|
Total liabilities |
|
$ |
31,594 |
|
$ |
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 June 30, 2010 and December 31, 2009 are as follows (in thousands):
|
|
|
As of June 30, 2010 |
|
As of December 31, 2009 |
|
||||||||
|
|
|
Carrying |
|
Maximum |
|
Carrying |
|
Maximum |
|
||||
|
Investments in real estate ventures |
|
$ |
8,379 |
|
$ |
8,379 |
|
$ |
8,796 |
|
$ |
8,796 |
|
|
Investments in investment companies |
|
23,953 |
|
23,953 |
|
21,108 |
|
21,108 |
|
||||
|
Total |
|
$ |
32,332 |
|
$ |
32,332 |
|
$ |
29,904 |
|
$ |
29,904 |
|
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 a loss of $0.4 million and income of $0.1 million in the quarters ended June 30, 2010 and 2009, respectively. We recorded income of $0.5 million and a loss of $0.5 million for the six months ended June 30, 2010 and 2009, respectively.
Our maximum exposure is equal to the carrying value of our investments. As of June 30, 2010 and December 31, 2009, our unfunded commitments totaled $14.8 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 the 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 and Debt Redemptions
In October 2009, we established a cash collateral account with the proceeds from the sale of 9.25% Senior Subordinated 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 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 were released to us for general corporate purposes. Additionally, during the second quarter of 2010, we made an early repayment of $25.0 million on our Term Loan B and repurchased, on the open market, $6.1 million of the 6.0% Notes. As of June 30, 2010, we held $22.4 million in the restricted cash collateral account to be used for the redemption of the remaining $22.7 million aggregate principal amount of 4.875% Notes. Any unused funds in the cash collateral account after expiration of the put period in January 2011 with respect to the 4.875% Notes will be released to us and used for general corporate purposes. All of the restricted cash classified as current as of June 30, 2010 relates to the January 2011 put option. Additionally, under the terms of certain lease agreements, as of June 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.
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, 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.
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 June 30, 2010, the net book value of our FOX network affiliation assets was $31.8 million.
3. 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 six months ended June 30, 2010 and 2009 (in thousands):
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
|
Income (Loss) (Numerator) |
|
|
|
|
|
|
|
|
|
||||
|
Income (loss) from continuing operations |
|
$ |
17,020 |
|
$ |
2,695 |
|
$ |
28,080 |
|
$ |
(84,344 |
) |
|
Income impact of assumed conversion of the 4.875% Notes, net of taxes |
|
166 |
|
— |
|
332 |
|
— |
|
||||
|
Income impact of assumed conversion of the 6.0% Debentures, net of taxes |
|
1,151 |
|
— |
|
— |
|
— |
|
||||
|
Net loss attributable to noncontrolling interests included in continuing operations |
|
321 |
|
197 |
|
847 |
|
1,689 |
|
||||
|
Numerator for diluted earnings (loss) per common share from continuing operations |
|
18,658 |
|
2,892 |
|
29,259 |
|
(82,655 |
) |
||||
|
Loss from discontinued operations |
|
(68 |
) |
(109 |
) |
(134 |
) |
(217 |
) |
||||
|
Numerator for diluted earnings (loss) attributable to Sinclair Broadcast Group |
|
$ |
18,590 |
|
$ |
2,783 |
|
$ |
29,125 |
|
$ |
(82,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Shares (Denominator) |
|
|
|
|
|
|
|
|
|
||||
|
Weighted-average common shares outstanding |
|
80,307 |
|
79,566 |
|
80,133 |
|
80,187 |
|
||||
|
Dilutive effect of stock-settled appreciation rights and stock options |
|
56 |
|
— |
|
28 |
|
— |
|
||||
|
Dilutive effect of 4.875% Notes |
|
1,014 |
|
— |
|
1,014 |
|
— |
|
||||
|
Dilutive effect of 6.0% Debentures |
|
5,608 |
|
— |
|
— |
|
— |
|
||||
|
Weighted-average common and common equivalent shares outstanding |
|
86,985 |
|
79,566 |
|
81,175 |
|
80,187 |
|
||||
Potentially dilutive securities representing 1.4 million and 28.7 million for the three months ended June 30, 2010 and 2009, respectively, and 7.0 million and 28.7 million for the six months ended June 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 6.0% Debentures and 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.
4. 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 of $4.3 million and $1.5 million for the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, we made payments to Cunningham of $8.8 million and $3.1 million, respectively, related to the LMAs.
For the three and six months ended June 30, 2010, Cunningham’s stations provided us with approximately $23.3 million and $45.3 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 June 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 $1.1 million for each of the three months ended June 30, 2010 and 2009. Lease payments made to these entities were $2.2 million and $2.3 million for the six months ended June 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 $0.3 million and $0.4 million for the three months ended June 30, 2010 and 2009, respectively, and $0.8 million and $2.2 million for the six months ended June 30, 2010 and 2009, respectively. We received $0.1 million for each of the three months ended June 30, 2010 and 2009 and $0.3 million for each of the six months ended June 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 June 30, 2010 and 2009. For the six months ended June 30, 2010 and 2009, we received payments for advertising time totaling $0.1 million and $0.2 million, respectively. We paid $0.2 million and less than $0.1 million for vehicles and related vehicle services from Atlantic Automotive during the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, we paid $0.3 million and $0.2 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 $0.1 million and $0.4 million to Thomas & Libowitz during the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, we paid fees of $0.3 million and $0.6 million to Thomas & Libowitz, respectively.
5. 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 $106.6 million of intercompany loans between the broadcast segment, operating divisions segment and corporate as of June 30, 2010 and 2009, respectively. We had $4.8 million and $3.1 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, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, we had $9.5 million and $6.2 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 six months ended June 30, 2010 and 2009 (in thousands).
|
For the three months ended June 30, 2010 |
|
Broadcast |
|
Other |
|
Corporate |
|
Consolidated |
|
||||
|
Revenue |
|
$ |
176,694 |
|
$ |
8,857 |
|
$ |
— |
|
$ |
185,551 |
|
|
Depreciation of property and equipment |
|
8,349 |
|
318 |
|
430 |
|
9,097 |
|
||||
|
Amortization of definite-lived intangible assets and other assets |
|
4,001 |
|
682 |
|
— |
|
4,683 |
|
||||
|
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 |
|
(13 |
) |
(1,064 |
) |
56,691 |
|
||||
|
Interest expense |
|
— |
|
404 |
|
27,973 |
|
28,377 |
|
||||
|
Loss from equity and cost method investments |
|
— |
|
(1,024 |
) |
— |
|
(1,024 |
) |
||||
|
For the three months ended June 30, 2009 |
|
Broadcast |
|
Other |
|
Corporate |
|
Consolidated |
|
||||
|
Revenue |
|
$ |
146,927 |
|
$ |
11,345 |
|
$ |
— |
|
$ |
158,272 |
|
|
Depreciation of property and equipment |
|
9,815 |
|
239 |
|
474 |
|
10,528 |
|
||||
|
Amortization of definite-lived intangible assets and other assets |
|
5,743 |
|
509 |
|
— |
|
6,252 |
|
||||
|
Amortization of program contract costs and net realizable value adjustments |
|
19,865 |
|
— |
|
— |
|
19,865 |
|
||||
|
General and administrative overhead expenses |
|
1,761 |
|
273 |
|
3,983 |
|
6,017 |
|
||||
|
Operating income (loss) |
|
30,762 |
|
(564 |
) |
(4,374 |
) |
25,824 |
|
||||
|
Interest expense |
|
— |
|
330 |
|
17,316 |
|
17,646 |
|
||||
|
Income from equity and cost method investments |
|
— |
|
463 |
|
— |
|
463 |
|
||||
|
For the six months ended June 30, 2010 |
|
Broadcast |
|
Other |
|
Corporate |
|
Consolidated |
|
||||
|
Revenue |
|
$ |
339,392 |
|
$ |
15,787 |
|
$ |
— |
|
$ |
355,179 |
|
|
Depreciation of property and equipment |
|
17,239 |
|
621 |
|
862 |
|
18,722 |
|
||||
|
Amortization of definite-lived intangible assets and other assets |
|
8,056 |
|
1,344 |
|
— |
|
9,400 |
|
||||
|
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 |
|
(1,136 |
) |
(1,986 |
) |
102,918 |
|
||||
|
Interest expense |
|
— |
|
748 |
|
56,603 |
|
57,351 |
|
||||
|
Loss from equity and cost method investments |
|
— |
|
(481 |
) |
— |
|
(481 |
) |
||||
|
For the six months ended June 30, 2009 |
|
Broadcast |
|
Other |
|
Corporate |
|
Consolidated |
|
||||
|
Revenue |
|
$ |
290,130 |
|
$ |
22,880 |
|
$ |
— |
|
$ |
313,010 |
|
|
Depreciation of property and equipment |
|
21,032 |
|
476 |
|
953 |
|
22,461 |
|
||||
|
Amortization of definite-lived intangible assets and other assets |
|
10,513 |
|
940 |
|
— |
|
11,453 |
|
||||
|
Amortization of program contract costs and net realizable value adjustments |
|
40,623 |
|
— |
|
— |
|
40,623 |
|
||||
|
Impairment of goodwill, intangible and other assets |
|
130,098 |
|
— |
|
— |
|
130,098 |
|
||||
|
General and administrative overhead expenses |
|
3,713 |
|
587 |
|
8,076 |
|
12,376 |
|
||||
|
Operating loss |
|
(69,553 |
) |
(2,296 |
) |
(9,034 |
) |
(80,883 |
) |
||||
|
Interest expense |
|
— |
|
619 |
|
35,401 |
|
36,020 |
|
||||
|
Income from equity and cost method investments |
|
— |
|
18 |
|
— |
|
18 |
|
||||
6. 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.
The carrying value and fair value of our notes, debentures, program contracts payable and non-cancelable commitments as of June 30, 2010 and December 31, 2009 were as follows (in thousands):
|
|
|
June 30, 2010 |
|
December 31, 2009 |
|
||||||||
|
|
|
Carrying |
|
Fair Value |
|
Carrying |
|
Fair Value |
|
||||
|
8.0% Senior Subordinated Notes, due 2012 |
|
$ |
225,302 |
|
$ |
220,170 |
|
$ |
225,488 |
|
$ |
220,731 |
|
|
6.0% Convertible Debentures, due 2012 |
|
118,710 |
|
115,194 |
|
122,482 |
|
111,991 |
|
||||
|
4.875% Convertible Senior Notes, due 2018 |
|
22,685 |
|
22,118 |
|
37,016 |
|
36,091 |
|
||||
|
3.0% Convertible Senior Notes, due 2027 |
|
5,400 |
|
5,279 |
|
27,383 |
|
27,044 |
|
||||
|
9.25% Senior Secured Second Lien Notes, due 2017 |
|
487,102 |
|
505,000 |
|
486,519 |
|
518,125 |
|
||||
|
Bank Credit Agreement, Term Loan B |
|
299,004 |
|
304,030 |
|
323,551 |
|
314,306 |
|
||||
|
Cunningham Bank Credit Facility |
|
27,417 |
|
27,392 |
|
32,900 |
|
32,900 |
|
||||
|
Active program contracts payable |
|
99,590 |
|
86,541 |
|
140,443 |
|
124,951 |
|
||||
|
Future program liabilities (a) |
|
80,960 |
|
64,339 |
|
70,038 |
|
56,202 |
|
||||
|
Total fair value |
|
$ |
1,366,170 |
|
$ |
1,350,063 |
|
$ |
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 notes and debentures payable 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 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.
7. 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% Senior Subordinated Notes, due 2012 (the 8.0% Notes). Our Class A Common Stock, Class B Common Stock, the 6.0% Debentures, 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 June 30, 2010, our consolidated total debt of $1,297.3 million included $1,065.8 million of debt related to STG and its subsidiaries of which SBG guaranteed $1,012.9 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.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2010
(in thousands) (unaudited)
|
|
|
Sinclair |
|
Sinclair |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Sinclair |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Cash |
|
$ |
— |
|
$ |
28,619 |
|
$ |
310 |
|
$ |
13,891 |
|
$ |
— |
|
$ |
42,820 |
|
|
Restricted cash — current |
|
— |
|
22,446 |
|
— |
|
— |
|
— |
|
22,446 |
|
||||||
|
Accounts and other receivables |
|
87 |
|
479 |
|
115,635 |
|
4,234 |
|
(279 |
) |
120,156 |
|
||||||
|
Other current assets |
|
990 |
|
2,181 |
|
37,548 |
|
2,508 |
|
(290 |
) |
42,937 |
|
||||||
|
Total current assets |
|
1,077 |
|
53,725 |
|
153,493 |
|
20,633 |
|
(569 |
) |
228,359 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Property and equipment, net |
|
10,736 |
|
2,373 |
|
178,278 |
|
96,976 |
|
(6,930 |
) |
281,433 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Investment in consolidated subsidiaries |
|
— |
|
652,567 |
|
— |
|
— |
|
(652,567 |
) |
— |
|
||||||
|
Restricted cash — long-term |
|
— |
|
— |
|
386 |
|
— |
|
— |
|
386 |
|
||||||
|
Other long-term assets |
|
74,038 |
|
301,212 |
|
20,850 |
|
92,794 |
|
(357,725 |
) |
131,169 |
|
||||||
|
Total other long-term assets |
|
74,038 |
|
953,779 |
|
21,236 |
|
92,794 |
|
(1,010,292 |
) |
131,555 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Acquired intangible assets |
|
— |
|
— |
|
836,609 |
|
58,657 |
|
3,232 |
|
898,498 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total assets |
|
$ |
85,851 |
|
$ |
1,009,877 |
|
$ |
1,189,616 |
|
$ |
269,060 |
|
$ |
(1,014,559 |
) |
$ |
1,539,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Accounts payable and accrued liabilities |
|
$ |
1,453 |
|
$ |
20,345 |
|
$ |
39,756 |
|
$ |
7,961 |
|
$ |
(775 |
) |
$ |
68,740 |
|
|
Current portion of long-term debt |
|
23,832 |
|
1,525 |
|
2,859 |
|
12,484 |
|
37 |
|
40,737 |
|
||||||
|
Other current liabilities |
|
— |
|
— |
|
66,258 |
|
479 |
|
— |
|
66,737 |
|
||||||
|
Total current liabilities |
|
25,285 |
|
21,870 |
|
108,873 |
|
20,924 |
|
(738 |
) |
176,214 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Long-term debt |
|
135,130 |
|
1,011,361 |
|
50,097 |
|
273,749 |
|
(213,752 |
) |
1,256,585 |
|
||||||
|
Dividends in excess of investment in consolidated subsidiaries |
|
73,242 |
|
— |
|
— |
|
— |
|
(73,242 |
) |
— |
|
||||||
|
Other liabilities |
|
31,406 |
|
1,959 |
|
378,789 |
|
42,002 |
|
(176,742 |
) |
277,414 |
|
||||||
|
Total liabilities |
|
265,063 |
|
1,035,190 |
|
537,759 |
|
336,675 |
|
(464,474 |
) |
1,710,213 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Common stock |
|
803 |
|
— |
|
10 |
|
282 |
|
(292 |
) |
803 |
|
||||||
|
Additional paid-in capital |
|
609,136 |
|
229,957 |
|
567,758 |
|
74,840 |
|
(872,555 |
) |
609,136 |
|
||||||
|
Accumulated (deficit) earnings |
|
(785,083 |
) |
(252,777 |
) |
86,047 |
|
(140,775 |
) |
307,505 |
|
(785,083 |
) |
||||||
|
Accumulated other comprehensive loss |
|
(4,068 |
) |
(2,493 |
) |
(1,958 |
) |
(1,962 |
) |
6,413 |
|
(4,068 |
) |
||||||
|
Total Sinclair Broadcast Group (deficit) equity |
|
(179,212 |
) |
(25,313 |
) |
651,857 |
|
(67,615 |
) |
(558,929 |
) |
(179,212 |
) |
||||||
|
Noncontrolling interests in consolidated subsidiaries |
|
— |
|
— |
|
— |
|
— |
|
8,844 |
|
8,844 |
|
||||||
|
Total liabilities and equity (deficit) |
|
$ |
85,851 |
|
$ |
1,009,877 |
|
$ |
1,189,616 |
|
$ |
269,060 |
|
$ |
(1,014,559 |
) |
$ |
1,539,845 |
|
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2009
(in thousands) (unaudited)
|
|
|
Sinclair |
|
Sinclair |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Sinclair |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
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 |
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2010
(in thousands) (unaudited)
|
|
|
Sinclair |
|
Sinclair |
|
Guarantor |
|
Non- |
|
Eliminations |
|
Sinclair |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Net revenue |
|
$ |
— |
|
$ |
— |
|
$ |
177,013 |
|
$ |
10,954 |
|
$ |
(2,416 |
) |
$ |
185,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Program and production |
|
— |
|
175 |
|
40,552 |
|
88 |
|
(2,170 |
) |
38,645 |
|
||||||
|
Selling, general and administrative |
|
634 |
|
6,340 |
|
30,207 |
|
735 |
|
(112 |
) |
37,804 |
|
||||||
|
Depreciation, amortization and other operating expenses |
|
430 |
|
119 |
|
42,825 |
|
9,081 |
|
(44 |
) |
52,411 |
|
||||||
|
Total operating expenses |
|
1,064 |
|
6,634 |
|
113,584 |
|
9,904 |
|
(2,326 |
) |
128,860 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Operating (loss) income |
|
(1,064 |
) |
(6,634 |
) |
63,429 |
|
1,050 |
|
(90 |
) |
56,691 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Equity in earnings of consolidated subsidiaries |
|
20,244 |
|
34,178 |
|
— |
|
— |
|
(54,422 |
) |
— |
|
||||||
|
Interest income |
|
— |
|
12 |
|
— |
|
6 |
|
— |
|
18 |
|
||||||
|
Interest expense |
|
(3,787 |
) |
(22,813 |
) |
(1,276 |
) |
(5,536 |
) |
5,035 |
|
(28,377 |
) |
||||||
|
Other income (expense) |
|
92 |
|
4,929 |
|
(4,750 |
) |
(863 |
) |
(28 |
) |
(620 |
) |
||||||
|
Total other income (expense) |
|
16,549 |
|
16,306 |
|
(6,026 |
) |
(6,393 |
) |
(49,415 |
) |
(28,979 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Income tax benefit (provision) |
|
1,788 |
|
9,015 |
|
(22,230 |
) |
735 |
|
— |
|
(10,692 |
) |
||||||
|
Loss from discontinued operations |
|
||||||||||||||||||