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 March 31, 2014

 

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 x 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 x

 

Accelerated filer o

 

 

 

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
April 30, 2014

 

Class A Common Stock

 

71,366,645

 

Class B Common Stock

 

26,028,357

 

 

 

 



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED March 31, 2014

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

3

 

 

ITEM 1.

FINANCIAL STATEMENTS

3

 

 

 

 

CONSOLIDATED BALANCE SHEETS

3

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

4

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

5

 

 

 

 

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

6

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

8

 

 

 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9

 

 

 

ITEM 2.

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

27

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

34

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

34

 

 

 

PART II. OTHER INFORMATION

35

 

 

ITEM 1.

LEGAL PROCEEDINGS

35

 

 

 

ITEM 1A.

RISK FACTORS

35

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

36

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

36

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

36

 

 

 

ITEM 5.

OTHER INFORMATION

36

 

 

 

ITEM 6.

EXHIBITS

37

 

 

 

SIGNATURE

38

 

 

EXHIBIT INDEX

39

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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

 

 

 

As of March 31,
2014

 

As of December 31,
2013

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

317,811

 

$

280,104

 

Accounts receivable, net of allowance for doubtful accounts of $3,016 and $3,379, respectively

 

285,260

 

308,974

 

Affiliate receivable

 

206

 

182

 

Current portion of program contract costs

 

53,475

 

74,324

 

Prepaid expenses and other current assets

 

25,136

 

30,599

 

Deferred barter costs

 

5,958

 

3,688

 

Assets held for sale

 

97,909

 

 

Total current assets

 

785,755

 

697,871

 

PROGRAM CONTRACT COSTS, less current portion

 

20,264

 

24,708

 

PROPERTY AND EQUIPMENT, net

 

574,091

 

596,071

 

RESTRICTED CASH

 

12,426

 

11,747

 

GOODWILL

 

1,336,748

 

1,380,082

 

BROADCAST LICENSES

 

97,446

 

101,029

 

DEFINITE-LIVED INTANGIBLE ASSETS, net

 

1,077,769

 

1,127,755

 

OTHER ASSETS

 

205,614

 

208,209

 

Total assets (a)

 

$

4,110,113

 

$

4,147,472

 

LIABILITIES AND EQUITY (DEFICIT)

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

8,303

 

$

13,989

 

Accrued liabilities

 

225,033

 

182,185

 

Income taxes payable

 

19,118

 

2,504

 

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

 

52,696

 

46,346

 

Current portion of notes and capital leases payable to affiliates

 

2,466

 

2,367

 

Current portion of program contracts payable

 

69,586

 

90,933

 

Deferred barter revenues

 

5,864

 

3,319

 

Liabilities held for sale

 

10,335

 

 

Deferred tax liabilities

 

4,480

 

1,738

 

Total current liabilities

 

397,881

 

343,381

 

LONG-TERM LIABILITIES:

 

 

 

 

 

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

 

2,954,108

 

2,966,402

 

Notes payable and capital leases to affiliates, less current portion

 

18,290

 

18,925

 

Program contracts payable, less current portion

 

29,710

 

34,681

 

Deferred tax liabilities

 

300,938

 

311,041

 

Other long-term liabilities

 

66,819

 

67,338

 

Total liabilities (a)

 

3,767,746

 

3,741,768

 

COMMITMENTS AND CONTINGENCIES (See Note 3)

 

 

 

 

 

EQUITY:

 

 

 

 

 

SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY:

 

 

 

 

 

Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 71,341,916 and 74,145,569 shares issued and outstanding, respectively

 

713

 

741

 

Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 26,028,357 and 26,028,357 shares issued and outstanding, respectively, convertible into Class A Common Stock

 

260

 

260

 

Additional paid-in capital

 

1,018,869

 

1,094,918

 

Accumulated deficit

 

(684,534

)

(696,996

)

Accumulated other comprehensive loss

 

(2,514

)

(2,553

)

Total Sinclair Broadcast Group shareholders’ equity

 

332,794

 

396,370

 

Noncontrolling interests

 

9,573

 

9,334

 

Total equity

 

342,367

 

405,704

 

Total liabilities and equity

 

$

4,110,113

 

$

4,147,472

 

 

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

 


(a)         Our consolidated total assets as of March 31, 2014 and December 31, 2013 include total assets of variable interest entities (VIEs) of $192.4 million and $194.1 million, respectively, which can only be used to settle the obligations of the VIEs.  Our consolidated total liabilities as of March 31, 2014 and December 31, 2013 include total liabilities of the VIEs of $26.0 million and $31.6 million, respectively, for which the creditors of the VIEs have no recourse to us.  See Note 1. Summary of Significant Accounting Policies.

 

3



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

REVENUES:

 

 

 

 

 

Station broadcast revenues, net of agency commissions

 

$

373,881

 

$

252,925

 

Revenues realized from station barter arrangements

 

24,025

 

18,230

 

Other operating divisions revenues

 

14,742

 

11,463

 

Total revenues

 

412,648

 

282,618

 

OPERATING EXPENSES:

 

 

 

 

 

Station production expenses

 

127,039

 

80,433

 

Station selling, general and administrative expenses

 

81,925

 

51,938

 

Expenses recognized from station barter arrangements

 

21,477

 

16,014

 

Amortization of program contract costs and net realizable value adjustments

 

23,941

 

18,861

 

Other operating divisions expenses

 

12,325

 

9,869

 

Depreciation of property and equipment

 

24,378

 

14,595

 

Corporate general and administrative expenses

 

15,835

 

11,250

 

Amortization of definite-lived intangible assets

 

24,728

 

16,002

 

Total operating expenses

 

331,648

 

218,962

 

Operating income

 

81,000

 

63,656

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

Interest expense and amortization of debt discount and deferred financing costs

 

(39,538

)

(37,697

)

Income (loss) from equity and cost method investments

 

98

 

(1,052

)

Other income, net

 

917

 

457

 

Total other expense, net

 

(38,523

)

(38,292

)

Income from continuing operations before income taxes

 

42,477

 

25,364

 

INCOME TAX PROVISION

 

(14,820

)

(8,849

)

Income from continuing operations

 

27,657

 

16,515

 

DISCONTINUED OPERATIONS:

 

 

 

 

 

Income from discontinued operations, includes income tax provision of $0 and $292, respectively

 

 

355

 

NET INCOME

 

27,657

 

16,870

 

Net (income) loss attributable to the noncontrolling interests

 

(499

)

127

 

NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP

 

$

27,158

 

$

16,997

 

Dividends declared per share

 

$

0.15

 

$

0.15

 

 

 

 

 

 

 

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

 

 

 

 

 

Basic earnings per share from continuing operations

 

$

0.27

 

$

0.20

 

Basic earnings per share

 

$

0.27

 

$

0.21

 

Diluted earnings per share from continuing operation

 

$

0.27

 

$

0.20

 

Diluted earnings per share

 

$

0.27

 

$

0.21

 

Weighted average common shares outstanding

 

98,824

 

81,191

 

Weighted average common and common equivalent shares outstanding

 

99,502

 

82,064

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP COMMON SHAREHOLDERS:

 

 

 

 

 

Income from continuing operations, net of tax

 

$

27,158

 

$

16,642

 

Income from discontinued operations, net of tax

 

 

355

 

Net income

 

$

27,158

 

$

16,997

 

 

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

 

4



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

 

 

 

Three months ended
March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Net income

 

$

27,657

 

$

16,870

 

Amortization of net periodic pension benefit costs, net of taxes

 

(86

)

(39

)

Unrealized gain on investments, net of taxes

 

125

 

 

Comprehensive income

 

27,696

 

16,831

 

Comprehensive (income) loss attributable to the noncontrolling interests

 

(499

)

127

 

Comprehensive income attributable to Sinclair Broadcast Group

 

$

27,197

 

$

16,958

 

 

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

 

5



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

(In thousands) (Unaudited)

 

 

 

Sinclair Broadcast Group Shareholders

 

 

 

 

 

 

 

Class A
Common Stock

 

Class B
Common Stock

 

Additional
Paid-In
Capital

 

Accumulated
Deficit

 

Accumulated
Other
Comprehensive
Loss

 

Noncontrolling
Interests

 

Total Equity
(Deficit)

 

 

 

Shares

 

Values

 

Shares

 

Values

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2012

 

52,332,012

 

$

523

 

28,933,859

 

$

289

 

$

600,928

 

$

(713,697

)

$

(4,993

)

$

16,897

 

$

(100,053

)

Dividends declared and paid on Class A and Class B Common Stock

 

 

 

 

 

 

(12,048

)

 

 

(12,048

)

Class A Common Stock issued pursuant to employee benefit plans

 

386,380

 

4

 

 

 

5,021

 

 

 

 

5,025

 

Class B Common Stock converted into Class A Common Stock

 

87,600

 

1

 

(87,600

)

(1

)

 

 

 

 

 

Class A Common Stock issued upon exercise of stock options

 

73,000

 

1

 

 

 

853

 

 

 

 

854

 

Class A Common Stock sold by variable interest entity

 

 

 

 

 

1,045

 

 

 

 

1,045

 

Tax benefit on share based awards

 

 

 

 

 

388

 

 

 

 

388

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

(9,329

)

(9,329

)

Other comprehensive income

 

 

 

 

 

 

 

(39

)

 

(39

)

Net income

 

 

 

 

 

 

16,997

 

 

(127

)

16,870

 

BALANCE, March 31, 2013

 

52,878,992

 

$

529

 

28,846,259

 

$

288

 

$

608,235

 

$

(708,748

)

$

(5,032

)

$

7,441

 

$

(97,287

)

 

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

 

6



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

 (In thousands) (Unaudited)

 

 

 

Sinclair Broadcast Group Shareholders

 

 

 

 

 

 

 

Class A
Common Stock

 

Class B
Common Stock

 

Additional
Paid-In
Capital

 

Accumulated
Deficit

 

Accumulated
Other
Comprehensive
Loss

 

Noncontrolling
Interests

 

Total Equity
(Deficit)

 

 

 

Shares

 

Values

 

Shares

 

Values

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2013

 

74,145,569

 

$

741

 

26,028,357

 

$

260

 

$

1,094,918

 

$

(696,996

)

$

(2,553

)

$

9,334

 

$

405,704

 

Dividends declared and paid on Class A and Class B Common Stock

 

 

 

 

 

 

(14,696

)

 

 

(14,696

)

Repurchases of Class A Common Stock

 

(2,910,106

)

(29

)

 

 

(82,342

)

 

 

 

(82,371

)

Class A Common Stock issued pursuant to employee benefit plans

 

106,453

 

1

 

 

 

4,951

 

 

 

 

4,952

 

Tax benefit on share based awards

 

 

 

 

 

1,342

 

 

 

 

1,342

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

(260

)

(260

)

Other comprehensive income

 

 

 

 

 

 

 

39

 

 

39

 

Net income

 

 

 

 

 

 

27,158

 

 

499

 

27,657

 

BALANCE, March 31, 2014

 

71,341,916

 

$

713

 

26,028,357

 

$

260

 

$

1,018,869

 

$

(684,534

)

$

(2,514

)

$

9,573

 

$

342,367

 

 

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

 

7



Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

27,657

 

$

16,870

 

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

 

 

 

 

 

Depreciation of property and equipment

 

24,378

 

14,659

 

Amortization of definite-lived intangible and other assets

 

24,728

 

16,002

 

Amortization of program contract costs and net realizable value adjustments

 

23,941

 

19,025

 

Deferred tax benefit

 

(7,361

)

(847

)

Change in assets and liabilities, net of acquisitions:

 

 

 

 

 

Decrease (increase) in accounts receivable, net

 

17,498

 

(13,858

)

Increase in prepaid expenses and other current assets

 

(11,517

)

(3,961

)

Increase in accounts payable and accrued liabilities

 

37,997

 

13,689

 

Increase in income taxes payable

 

16,626

 

441

 

Payments on program contracts payable

 

(23,966

)

(22,363

)

Other, net

 

6,279

 

10,045

 

Net cash flows from operating activities

 

136,260

 

49,702

 

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of property and equipment

 

(11,907

)

(7,482

)

Purchase of alarm monitoring contracts

 

(4,323

)

(1,924

)

Proceeds from sale of broadcast assets

 

 

14,312

 

Increase in restricted cash

 

(679

)

(24,945

)

Distributions from equity and cost method investees

 

739

 

2,228

 

Investments in equity and cost method investees

 

(2,154

)

(1,758

)

Proceeds from termination of life insurance policies

 

17,042

 

 

Proceeds from the sale of real estate investment

 

 

5,516

 

Other, net

 

(684

)

(889

)

Net cash flows used in investing activities

 

(1,966

)

(14,942

)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from notes payable, commercial bank financing and capital leases

 

5,885

 

101,128

 

Repayments of notes payable, commercial bank financing and capital leases

 

(6,396

)

(112,623

)

Dividends paid on Class A and Class B Common Stock

 

(14,696

)

(12,048

)

Repurchase of outstanding Class A Common Stock

 

(82,371

)

 

Noncontrolling interests distributions

 

(260

)

(9,329

)

Repayments of notes and capital leases to affiliates

 

(565

)

(414

)

Other, net

 

1,816

 

1,486

 

Net cash flows used in financing activities

 

(96,587

)

(31,800

)

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

37,707

 

2,960

 

CASH AND CASH EQUIVALENTS, beginning of period

 

280,104

 

22,865

 

CASH AND CASH EQUIVALENTS, end of period

 

$

317,811

 

$

25,825

 

 

8



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 VIEs for which we are the primary beneficiary.  Noncontrolling interests represents a minority owner’s proportionate share of the equity in certain of our consolidated entities.  All intercompany transactions and account balances have been eliminated in consolidation.

 

Discontinued Operations

 

In accordance with Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale, we reported the financial position and results of operations of our stations in Lansing, Michigan (WLAJ-TV) and Providence, Rhode Island (WLWC-TV), as assets and liabilities held for sale in the accompanying consolidated balance sheets and discontinued operations consolidated statements of operations.  Discontinued operations have not been segregated in the consolidated statements of cash flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated balance sheets and consolidated statements of operations.  The operating results of WLAJ-TV, which was sold effective March 1, 2013 for $14.4 million, and WLWC-TV, which was sold effective April 1, 2013 for $13.8 million, are not included in our consolidated results of operations from continuing operations for the three months ending March 31, 2013. Total revenues for WLAJ-TV and WLWC-TV, which are included in discontinued operations for the three months ending March 31, 2013, were $0.6 million and $1.6 million, respectively.  Total income before taxes for WLAJ-TV and WLWC-TV, which are included in discontinued operations for the three months ending March 31, 2013 are $0.2 million and $0.4 million, respectively.  The resulting gain on the sale of these stations in 2013 was negligible.  Basic and diluted earnings per share from discontinued operations was less than $0.01 per share for the quarter ended March 31, 2013.

 

Assets Held of Sale

 

As discussed in Note 3. Commitments and Contingencies - Pending Acquisitions, we expect to sell the license and certain related assets of our stations in Birmingham, AL - WABM (MNT), Harrisburg/Lancaster/Lebanon/York, PA - WHP (CBS), Charleston, SC - WMMP (MNT) and assets related to our LMAs to provide services to Harrisburg/Lancaster/Lebanon/York, PA — WLYH (CW) and Charleston, SC — WTAT (FOX).

 

In accordance with Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale, we reported our assets and liabilities related to WABM, WHP, WMMP, WLYH, and WTAT as held for sale in the accompanying consolidated balance sheet as of March 31, 2014.  We expect the sale of the stations will occur in the third quarter of 2014.  The results of operations of these stations are included within the results from continuing operations as the criteria for classification as discontinued operations was not met.

 

As of March 31, 2014, the major classes of assets and liabilities of the group reported as held for sale and included in other current assets and other current liabilities on the accompanying condensed consolidated balance sheet are shown below:

 

 

 

March 31, 2014

 

Assets:

 

 

 

Accounts receivable

 

$

5,701

 

Program contract costs

 

1,902

 

Other current assets

 

302

 

Property and equipment

 

11,798

 

Goodwill

 

42,153

 

Broadcast licenses

 

3,583

 

Definite-lived intangible assets

 

32,470

 

Assets held for sale

 

$

97,909

 

Liabilities:

 

 

 

Accounts payable and accrued liabilities

 

$

1,272

 

Program contracts payable

 

2,912

 

Capital leases payable

 

5,640

 

Other liabilities

 

511

 

Liabilities held for sale

 

$

10,335

 

 

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Interim Financial Statements

 

The consolidated financial statements for the three months ended March 31, 2014 and 2013 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, consolidated statements of comprehensive income, consolidated statement of equity (deficit) 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, 2013 filed with the SEC.  The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

 

Variable Interest Entities

 

In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE.  We consolidate VIEs when we are the primary beneficiary.  The assets of each of our consolidated VIEs can only be used to settle the obligations of the VIE.  All the liabilities are non-recourse to us except for certain debt of VIEs which we guarantee.

 

We have entered into LMAs to provide programming, sales and managerial services for seven television stations of Cunningham Broadcasting Company (Cunningham), the license owner of these television stations as of December 31, 2013.  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 these television stations which includes the FCC license and certain other assets used to operate the station (License Assets).  Our applications to acquire these FCC license related assets are pending FCC approval.  We also perform sales and other non-programming support services to two other stations owned by Cunningham (acquired in November 2013) pursuant to joint sales agreements (JSAs) and shared services agreements (SSAs).  We have purchase options to acquire the license assets of these stations.  We own the majority of the non-license assets of these nine Cunningham stations and we have guaranteed the debt of Cunningham.  We have determined that Cunningham and these nine stations are VIEs and that based on the terms of the agreements, the significance of our investment in the stations and our guarantee of the debt of Cunningham, we are the primary beneficiary of the variable interests because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIEs through the services we provide pursuant to the LMAs, and other outsourcing agreements, 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.  The net revenues of these stations which we consolidate were $27.8 million and $24.6 million for the three months ended March 31, 2014 and 2013, respectively.  The fees paid between us and Cunningham pursuant to these arrangements are eliminated in consolidation.  See Changes in the Rules of Television Ownership and Joint Sale Agreements in Note 3. Commitment and Contingencies for discussion of recent changes in FCC rules related to JSAs.

 

We have certain outsourcing agreements, including certain JSAs and SSAs, with certain other license owners under which we provide certain non-programming related sales, operational and administrative services.  The terms of the agreements vary, but generally have initial terms of over five years with several optional renewal terms.  We own the majority of the non-license assets of these stations and in certain cases have guaranteed the debt of licensee.  We also have purchase options to buy the assets of the licensees.  We have determined that these licensees (18 and 10 licenses as of March 31, 2014 and 2013, respectively) are VIEs, and, based on the terms of the agreements and the significance of our investment in the stations, we are the primary beneficiary of the variable interests because, subject to the ultimate control of the licensees, 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 because we absorb losses and returns that would be considered significant to the VIEs.  The net revenues of these stations which we consolidate were $38.7 million and $24.2 million for the three months ended March 31, 2014 and 2013, respectively.  The fees paid between us and other license owners pursuant to these arrangements are eliminated in consolidation.  See Changes in the Rules of Television Ownership and Joint Sale Agreements in Note 3. Commitment and Contingencies for discussion of recent changes in FCC rules related to JSAs.

 

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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 for the periods presented (in thousands):

 

 

 

March 31,
2014

 

December 31,
2013

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

7,401

 

$

4,916

 

Accounts receivable

 

17,833

 

18,468

 

Current portion of program contract costs

 

8,111

 

10,725

 

Prepaid expenses and other current assets

 

467

 

247

 

Assets held for sale

 

3,944

 

 

Total current assets

 

37,756

 

34,356

 

 

 

 

 

 

 

PROGRAM CONTRACT COSTS, less current portion

 

4,883

 

5,075

 

PROPERTY AND EQUIPMENT, net

 

10,579

 

11,081

 

GOODWILL

 

6,357

 

6,357

 

BROADCAST LICENSES

 

14,828

 

16,768

 

DEFINITE-LIVED INTANGIBLE ASSETS, net

 

93,975

 

97,496

 

OTHER ASSETS

 

23,988

 

22,935

 

Total assets

 

$

192,366

 

$

194,068

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

 

$

86

 

Accrued liabilities

 

1,990

 

2,536

 

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

 

5,731

 

5,731

 

Current portion of program contracts payable

 

8,103

 

11,552

 

Total current liabilities

 

15,824

 

19,905

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

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

 

48,392

 

49,850

 

Program contracts payable, less current portion

 

5,326

 

6,597

 

Long term liabilities

 

10,563

 

10,838

 

Total liabilities

 

$

80,105

 

$

87,190

 

 

The amounts above represent the consolidated assets and liabilities of the VIEs described above, for which we are the primary beneficiary, and have been aggregated as they all relate to our broadcast business.  Excluded from the amounts above are payments made to Cunningham under the LMAs which are treated as a prepayment of the purchase price of the stations and capital leases between us and Cunningham which are eliminated in consolidation.  The total payments made under these LMAs as of March 31, 2014 and December 31, 2013, which are excluded from liabilities above, were $33.4 million and $32.4 million, respectively.  The total capital lease liabilities excluded from above were $11.2 million as of March 31, 2014 and December 31, 2013, respectively.  Also excluded from the amounts above are liabilities associated with the certain outsourcing agreements and purchase options with certain VIEs totaling $58.9 million and $59.9 million as of March 31, 2014 and December 31, 2013, respectively, as these amounts are eliminated in consolidation.  The risk and reward characteristics of the VIEs are similar.

 

We have investments in other real estate ventures and investment companies which are considered VIEs.  However, we do not participate in the management of these entities including the day-to-day operating decisions or other decisions which would allow us to control the entity, and therefore, we are not considered the primary beneficiary of these VIEs.  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 March 31, 2014 and December 31, 2013 was $25.1 million and $26.7 million, respectively, which are included in other assets in the consolidated balance sheets.  Our maximum exposure is equal to the carrying value of our investments.  The income and loss related to these investments are recorded in income from equity and cost method investments in the consolidated statement of operations.  We recorded income of $0.2 million and $0.4 million in the three months ended March 31, 2014 and 2013, respectively.

 

Recent Accounting Pronouncements

 

In July 2013, the FASB issued new guidance requiring new disclosure of unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a company does not have: (i) a net operating loss carryforward; (ii) a similar tax loss; or (iii) a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The authoritative guidance is effective for fiscal years and the interim periods within those fiscal years beginning on or after December 15, 2013 and should be applied on a prospective basis. This guidance does not have a material impact on our financial statements.

 

In April 2014, the FASB issued new guidance that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The revised guidance will become effective for annual fiscal periods beginning after December 15, 2014.  Under the revised guidance, we expect that it will be less likely for any future sales of assets, asset groups, or stations to be considered discontinued operations because such sales would need to represent a strategic shift and

 

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have a major effect on our future operations.  Historically, under the previous guidance, sales of minor components of our business were required to be classified as discontinued operations.

 

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

 

During 2013, we entered into certain definitive agreements to purchase the assets of pending acquisitions, which required certain deposits to be made into escrow accounts. As of March 31, 2014 and December 31, 2013, we held $12.4 million and $11.4 million, respectively, in restricted cash classified as noncurrent related to the amounts held in escrow for these acquisitions.

 

Revenue Recognition

 

Total revenues include: (i) cash and barter advertising revenues, net of agency commissions; (ii) retransmission consent fees; (iii) network compensation; (iv) other broadcast revenues and (v) revenues from our other operating divisions.

 

Advertising revenues, net of agency commissions, are recognized in the period during which time spots are aired.

 

Our retransmission consent agreements contain both advertising and retransmission consent elements.  We have determined that our retransmission consent agreements are revenue arrangements with multiple deliverables.  Advertising and retransmission consent deliverables sold under our agreements are separated into different units of accounting at fair value.   Revenue applicable to the advertising element of the arrangement is recognized similar to the advertising revenue policy noted above.  Revenue applicable to the retransmission consent element of the arrangement is recognized over the life of the agreement.

 

Network compensation revenue is recognized over the term of the contract. All other revenues are recognized as services are provided.

 

Share Repurchase Program

 

On February 6, 2008, the Board of Directors renewed a $150.0 million share repurchase program. On March 20, 2014, the Board of Directors authorized an additional $150.0 million share repurchase authorization. There is no expiration date and currently, management has no plans to terminate this program. For the three months ended March 31, 2014, we have purchased approximately 2.9 million shares for $82.4 million. As of March 31, 2014, the total remaining authorization was $185.1 million.

 

Income Taxes

 

Our income tax provision for all periods consists of federal and state income taxes.  The tax provision for the three months ended March 31, 2014 and 2013 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. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized.  In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income.  In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis.  A valuation allowance has been provided for deferred tax assets related to a substantial portion of our available state net operating loss (NOL) carryforwards, based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income.

 

Our effective income tax rate for the three months ended March 31, 2014 and 2013 approximated the statutory rate.

 

We believe it is reasonably possible that our liability for unrecognized tax benefits related to continuing operations could be reduced by up to $10.5 million, in the next twelve months, as a result of expected statute of limitations expirations, the application of limits under available state administrative practice exceptions, and the resolution of examination issues and settlements with federal and certain state tax authorities.

 

Reclassifications

 

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

 

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2.              ACQUISITIONS

 

Fisher Communications

 

Effective August 8, 2013, we completed the acquisition of all of the outstanding common stock of Fisher Communications, Inc. (Fisher). We paid $373.2 million to the shareholders of the Fisher common stock, representing $41.0 per common share. We financed the total purchase price with cash on hand. Fisher owns certain broadcast assets related to the following twenty-two stations, and four radio stations in 8 markets along with the respective network affiliation or program service arrangements: KOMO (ABC) and KUNS (Univision) in Seattle-Tacoma, WA; KATU (ABC), KUNP(Univision), and KUNP-LP (Univision) in Portland, OR; KLEW (CBS) in Spokane, WA; KBOI (CBS) and KYUU-LD (CW) in Boise, ID; KVAL (CBS), KCBY (CBS), KPIC (CBS), KMTR (NBC), KMCB (NBC), and KTCW (NBC) in Eugene, OR; KIMA (CBS), KEPR (CBS), KUNW-CD (Univision), and KVVK-CD (Univision), in Yakima/Pasco/Richland/Kennewick, WA; KBAK (CBS) and KBFX-CD (FOX) in Bakersfield, CA; as well as KIDK (CBS/FOX) and KXPI (FOX) in Idaho Falls/Pocatello, ID. The four radio stations are: KOMO (AM/FM), KPLZ (FM) and KVI (AM) in the Seattle/Tacoma, WA market.  This acquisition provides expansion into additional markets and increases value based on the synergies we can achieve.

 

The results of the acquired operations are included in the financial statements of the Company beginning on August 8, 2013.  Under the acquisition method of accounting, the initial purchase price has been allocated to the acquired assets and assumed liabilities based on estimated fair values.  The allocation reflects the consolidation of net assets of the third party which owns the license and related assets of KMTR in Eugene, OR, which we have consolidated, as the licensee is considered to be a VIE and we are the primary beneficiary of the variable interests. Additionally, another third party that performs certain services pursuant to an outsourcing agreement to our stations in Idaho Falls, ID  (KIDK and KXPI), exercised an existing purchase option to purchase the broadcast assets of the two stations for $6.3 million, which closed in November 2013.  The assets of these stations were classified as assets held for sale in the initial purchase price allocation.  The purchase price allocation is preliminary pending a final determination of the fair values of the assets and liabilities. The allocated fair value of acquired assets and assumed liabilities is summarized as follows (in thousands):

 

Cash

 

$

13,531

 

Accounts receivable

 

29,962

 

Prepaid expenses and other current assets

 

19,337

 

Program contract costs

 

10,968

 

Property and equipment

 

48,616

 

Broadcast licenses

 

11,058

 

Definite-lived intangible assets

 

155,073

 

Other assets

 

8,348

 

Assets held for sale

 

6,339

 

Accounts payable and accrued liabilities

 

(20,384

)

Program contracts payable

 

(10,977

)

Deferred tax liability

 

(51,024

)

Other long-term liabilities

 

(22,127

)

Fair value of identifiable net assets acquired

 

198,720

 

Goodwill

 

174,476

 

Total

 

$

373,196

 

 

The preliminary allocation presented above is based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches.  In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.  The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $100.6 million, the decaying advertiser base of $15.0 million, and other intangible assets of $39.5 million.  These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations, 10 years for the decaying advertiser base and a weighted average life of 15 years for the other intangible assets.  Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives.  Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies.  We expect that goodwill deductible for tax purposes will be approximately $11.1 million.  The initial purchase price allocation is based upon all information available to us at the present time and is subject to change, and such changes could be material.  Certain measurement period adjustments have been made since the initial allocation in the third quarter of 2013, which were not material to our consolidated financial statements.

 

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Net broadcast revenues and operating income of the Fisher stations included in our consolidated statements of operations, were $39.1 million and $0.5 million for the three months ended March 31, 2014.

Barrington

 

Effective November 22, 2013, we completed the acquisition of the broadcast assets of Barrington Broadcasting Company, LLC for $370.0 million, less working capital of $2.4 million, and entered into agreements to operate or provide sales and administrative services to another five stations.  The purchase price includes $7.5 million paid by third parties for the license related assets of certain stations. The acquired assets relate to the following twenty four stations located in fifteen markets along with the respective network affiliation or program service arrangements: WEYI (NBC) and WBSF (CW) in Flint/Saginaw/Bay City/Midland, MI; WNWO (NBC) in Toledo, OH; WACH (FOX) in Columbia, SC; WSTM (NBC), WTVH (CBS) and WSTQ (CW) in Syracuse, NY; KGBT (CBS) in Harlingen/Weslaco/Brownsville/McAllen, TX; KXRM (FOX) and KXTU (CW) in Colorado Springs, CO; WPDE (ABC) and WWMB (CW) in Myrtle Beach/Florence, SC; WHOI (ABC) in Peoria/Bloomington, IL; WPBN/WTOM (NBC),  and WGTU/WGTQ (ABC) in Traverse City/Cadillac, MI; KVII (ABC) and KVIH (ABC) in Amarillo, TX; KRCG (CBS) in Columbia/Jefferson City, MO; WFXL (FOX) in Albany, GA; KHQA (CBS) in Quincy, IL/Hannibal, MO/Keokuk, IA; WLUC (NBC) in Marquette, MI; and KTVO (ABC) in Ottumwa, IA/Kirksville, MO.

 

Concurrent with the Barrington acquisition, due to FCC conflict ownership rules, we sold our station, WSYT (FOX), and assigned its LMA with WNYS-TV (MNT), in Syracuse, NY to a third party for $15 million, and recognized a loss on sale of approximately $3.3 million.  We also sold our station, WYZZ (FOX) in Peoria, IL, which currently receives non-programming related sales, operational and administrative services from Nexstar Broadcasting pursuant to certain outsourcing agreements, to Cunningham for $22.0 million. Although we have no continuing involvement in the operations of this station, because Cunningham is a consolidated VIE and we have a purchase plan option to acquire these assets from Cunningham, the assets of WYZZ were not derecognized and the transaction was accounted for as a transaction between parties under common control.  Thus no gain or loss has been recognized in the consolidated statement of operations for sale of WYZZ.

 

The results of the acquired operations are included in the financial statements of the Company beginning on November 22, 2013. Under the acquisition method of accounting, the initial purchase price has been allocated to the acquired assets and assumed liabilities based on estimated fair values.  The allocation reflects the consolidation of net assets of the third party licensees which own the license and related assets of WEYI and WBSF in Flint, MI, WWMB in Myrtle Beach, SC and WGTU/WGTQ in Traverse City, MI, which we have consolidated, as the licensees are considered to be VIEs and we are the primary beneficiary of the variable interests.  The purchase price allocation is preliminary pending a final determination of the fair values of the assets and liabilities. The allocated fair value of acquired assets and assumed liabilities is summarized as follows (in thousands):

 

Prepaid expenses and other current assets

 

$

681

 

Program contract costs

 

3,813

 

Property and equipment

 

67,519

 

Broadcast licenses

 

719

 

Definite-lived intangible assets

 

220,535

 

Accounts payable and accrued liabilities

 

(2,725

)

Program contracts payable

 

(3,813

)

Other long-term liabilities

 

(65

)

Fair value of identifiable net assets acquired

 

286,664

 

Goodwill

 

81,022

 

Total

 

$

367,686

 

 

The preliminary allocation presented above is based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches.  In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.  The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $99.3 million, the decaying advertiser base of $43.8 million, and other intangible assets of $77.4 million.  These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations, 10 years for the decaying advertiser base and a weighted average life of 14 years for the other intangible assets.  Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives.  Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies.  We expect that goodwill will be deductible for tax purposes.  The initial purchase price allocation is based upon all information available to us at the present time and is subject to change, and such changes could be material.

 

Net broadcast revenues and operating income of the Barrington stations included in our consolidated statements of operations, were $39.1 million and $10.2 million for the three months ended March 31, 2014.

 

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Pro Forma Information

 

The following table sets forth unaudited pro forma results of continuing operations for the three months ended March 31, 2013, assuming that the acquisitions of the Fisher and Barrington stations discussed above, along with transactions necessary to finance the acquisitions, occurred at the beginning of the annual period presented (in thousands, except per share data):

 

 

 

(Unaudited)

 

 

 

2013

 

Total Revenues

 

$

351,105

 

Net Income

 

10,843

 

Net Income attributable to Sinclair Broadcast Group

 

10,970

 

Basic and diluted earnings per share attributable to Sinclair Broadcast Group

 

$

0.13

 

 

This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not indicative of what our results would have been had we operated the businesses since the beginning of the annual period presented because the pro forma results do not reflect expected synergies.  The pro forma adjustments reflect depreciation expense, amortization of intangibles and amortization of program contract costs related to the fair value adjustments of the assets acquired, additional interest expense related to the financing of the transactions, exclusion of nonrecurring financing and transaction related costs, alignment of accounting policies and the related tax effects of the adjustments. Depreciation and amortization expense are higher than amounts recorded in the historical financial statements of the acquirees due to the fair value adjustments recorded for long-lived tangibles and intangible assets in purchase accounting. The pro forma revenues exclude the revenues of WLAJ-TV and WLWC-TV which are classified as discontinued operations in the consolidated statements of operations.

 

Other Acquisitions

 

In addition to the Fisher and Barrington acquisitions, we acquired nineteen television stations during the year ended December 31, 2013 in ten markets, of which five stations in four of the ten markets were acquired from Cox Media Group in May 2013. Additionally, ten of the nineteen stations were acquired in four markets from TTBG LLC (TTBG) during September 2013 and October 2013. The initial purchase price allocated includes $272.7 million paid for certain broadcast assets of these stations, working capital of $9.5 million, and $0.7 million paid by certain VIEs for the license assets of certain of these stations owned by VIEs that we consolidate.  The purchase price allocations are preliminary pending a final determination of the fair values of the assets and liabilities. The allocated fair value of acquired assets and assumed liabilities is summarized as follows (in thousands):

 

Accounts receivable

 

$

8,226

 

Prepaid expenses and other current assets

 

5,217

 

Program contract costs

 

6,182

 

Property and equipment

 

54,148

 

Deferred tax asset

 

3,888

 

Broadcast licenses

 

3,736

 

Definite-lived intangible assets

 

147,191

 

Accrued liabilities

 

(3,926

)

Program contracts payable

 

(6,331

)

Other long term liabilities

 

(10,300

)

Fair value of identifiable net assets acquired

 

208,031

 

Goodwill

 

74,847

 

Total

 

$

282,878

 

 

The initial purchase price allocations are based upon all information available to us at the present time and is subject to change.  Certain measurement period adjustments have been made since the initial allocation in 2013, which were not material to our consolidated financial statements.  The definite-lived intangible assets in the table above, will be amortized over the remaining useful lives of 15 years for network affiliations, 10 years for decaying advertiser base, and a weighted average of 14 years for the other intangible assets. In conjunction with these acquisitions, for the years ended December 31, 2013, we incurred transaction costs of approximately $0.6 million, which are reported in general and administrative expenses in the accompanying consolidated statements of operations for the years ended December 31, 2013.  Net broadcast revenues and operating income for the three months ended March 31, 2014 related to stations acquired in 2013 were $30.8 million and $4.0 million.

 

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3.              COMMITMENTS AND CONTINGENCIES:

 

Litigation

 

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

 

Various parties have filed petitions to deny our applications or our LMA partners’ applications for the following stations’ license renewals: WXLV-TV, Winston-Salem, North Carolina; WMYV-TV, Greensboro, North Carolina; WLFL-TV, Raleigh / Durham, North Carolina; WRDC-TV, Raleigh / Durham, North Carolina; WLOS-TV, Asheville, North Carolina, WMMP-TV, Charleston, South Carolina; WTAT-TV, Charleston, South Carolina; WMYA-TV, Anderson, South Carolina; WICS-TV Springfield, Illinois; WBFF-TV, Baltimore, Maryland; KGAN-TV, Cedar Rapids, Iowa; WTTE-TV, Columbus, Ohio; WRGT-TV, Dayton, Ohio; WVAH-TV, Charleston / Huntington, West Virginia; WCGV-TV, Milwaukee, Wisconsin; WTTO-TV, Birmingham, AL; KXVO-TV, Omaha, NE (acquired on October 1, 2013); WPMI-TV, Mobile, AL; WWHO-TV, Chillicothe, OH and WUTB-TV in Baltimore, MD. The FCC is in the process of considering the renewal applications and we believe the petitions have no merit.

 

Changes in the Rules of Television Ownership and Joint Sale Agreements

 

On March 12, 2014, the FCC issued a public notice with respect to the processing of broadcast television applications proposing sharing arrangements and contingent interests.  The public notice indicated that the FCC will closely scrutinize any application that proposes that two or more stations in the same market that will enter into an agreement to share facilities, employees and/or services or to jointly acquire programming or sell advertising including through a JSA, LMA or similar agreement and enter into an option, right of first refusal, put/call arrangement or other similar contingent interest, or a loan guarantee. We cannot now predict what actions the FCC may require in connection with the processing of applications for FCC consent to pending transactions.  In addition, on March 31, 2014, the FCC issued proposed rules that would consider a company an owner of a station if it has a JSA that allows for sale of more than 15% of the ad time on a particular station. Stations with current arrangements that would put them in violation of the new rules will have two years from the date on which the rules become effective to amend or terminate those arrangements, unless they are able to obtain a waiver of such rules.  We cannot now predict whether or when the proposed rule will be adopted.  If adopted as written, among other things, the proposed rule would limit our ability to create duopolies or other two-station operations in certain markets.  During the three months ended March 31, 2014 and 2013, we earned $11.0 million and $6.9 million of revenue, respectively, from JSAs arrangements.

 

Pending Acquisitions

 

In July 2013, we entered into a definitive agreement to purchase the stock of Perpetual Corporation and the equity interest of Charleston Television, LLC, both owned and controlled by the Allbritton family (Allbritton), for an aggregate purchase price of $985.0 million. The Allbritton stations consist of seven ABC Network affiliates and NewsChannel 8, a 24-hour cable/satellite news network covering the Washington D.C. metropolitan area.  The transaction is expected to close during the third quarter of 2014, subject to approval of the FCC, antitrust clearance, and other customary closing conditions.  We expect to fund the purchase price at closing through our bank credit facility and/or debt capital markets.  We expect to sell the license and certain related assets of existing stations in Birmingham, AL - WABM (MNT), Harrisburg/Lancaster/Lebanon/York, PA - WHP (CBS), Charleston, SC - WMMP (MNT) and assets related to our LMAs to provide services to Harrisburg/Lancaster/Lebanon/York, PA — WLYH (CW) and Charleston, SC — WTAT (FOX).

 

In September 2013, we entered into a definitive agreement to purchase the broadcast assets of eight television stations owned by New Age Media located in three markets, for an aggregate purchase price of $90.0 million. The original contemplated transaction involved Wilkes/Barre/Scranton, PA — WSWB, Tallahassee, FL — WTLH and WTLF and Gainesville, FL — WNBW to be purchased by a third party and  we would provide sales and other non-programming support services to each of these stations, pursuant to customary shared services and joint sales agreements.  We expect that this transaction will be modified in order to comply with a recently issued FCC order. The transaction is expected to close during the second half of 2014, subject to approval of the FCC and other customary closing conditions.  We expect to fund the purchase price through cash on hand and/or our bank credit facility.

 

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4.              EARNINGS PER SHARE

 

The following table reconciles income (numerator) and shares (denominator) used in our computations of diluted earnings per share for the periods presented (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2014

 

2013

 

Income (Numerator)

 

 

 

 

 

Income from continuing operations

 

$

27,657

 

$

16,515

 

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

 

 

45

 

Income impact of assumed conversion of the 3.0% Notes, net of taxes

 

 

26

 

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

 

(499

)

127

 

Numerator for diluted earnings per common share from continuing operations available to common shareholders

 

27,158

 

16,713

 

Income from discontinued operations, net of taxes

 

 

355

 

Numerator for diluted earnings available to common shareholders

 

$

27,158

 

$

17,068

 

 

 

 

 

 

 

Shares (Denominator)

 

 

 

 

 

Weighted-average common shares outstanding

 

98,824

 

81,191

 

Dilutive effect of stock-settled appreciation rights, restricted stock awards and outstanding stock options

 

678

 

223

 

Dilutive effect of 4.875% Notes

 

 

339

 

Dilutive effect of 3.0% Notes

 

 

311

 

Weighted-average common and common equivalent shares outstanding

 

99,502

 

82,064

 

 

Potentially dilutive securities representing zero and 1.6 million shares of common stock for the three months ended March 31, 2014 and 2013, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been antidilutive.  The decrease in potentially dilutive securities is primarily related to the increase in share price since March 31, 2013 as well the redemption of the 4.875% and 3.0% Notes.

 

5.              RELATED PERSON TRANSACTIONS

 

Transactions with our controlling shareholders. David, Frederick, J. 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.  We engaged in the following transactions with them and/or entities in which they have substantial interests.

 

Leases.  Certain assets used by us and our operating subsidiaries are leased from Cunningham Communications Inc., Keyser Investment Group, Gerstell Development Limited Partnership and Beaver Dam, LLC (entities owned by the controlling shareholders).  Lease payments made to these entities were $1.5 million and $1.1 million for the three months ended March 31, 2014 and 2013, respectively.

 

Charter Aircraft.  From time to time, we charter aircraft owned by certain controlling shareholders.  We incurred $0.3 million and less than $0.1 million for the three months ended March 31, 2014 and 2013, respectively.

 

Cunningham Broadcasting Corporation.  As of March 31, 2014, Cunningham was the owner-operator and FCC licensee of:

WNUV-TV Baltimore, Maryland; WRGT-TV Dayton, Ohio; WVAH-TV Charleston, West Virginia; WTAT-TV Charleston, South

Carolina; WMYA-TV Anderson, South Carolina; WTTE-TV Columbus, Ohio; WDBB-TV Birmingham, Alabama; WBSF-TV Flint, Michigan; and WGTU-TV/WGTQ-TV Traverse City/Cadillac, Michigan (collectively, the Cunningham Stations) and WYZZ Peoria/Bloomington, IL.

 

During the first quarter of 2013, the estate of Carolyn C. Smith, a parent of our controlling shareholders, distributed all of the non-voting stock owned by the estate to our controlling shareholders, and a portion was repurchased by Cunningham for $1.7 million in the aggregate.  As of March 31, 2014, our controlling shareholders own approximately 4.4% of the total capital stock of Cunningham, none of which have voting rights.  The remaining amount of non-voting stock is owned by trusts established for the benefit of the children of our controlling shareholders.  The estate of Mrs. Smith currently owns all of the voting stock.  The sale of the voting stock by the estate to an unrelated party is pending approval of the FCC.  We have options from the trusts, which grant us the right to acquire, subject to applicable FCC rules and regulations, 100% of the voting and nonvoting stock of Cunningham.

 

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We also have options from each of Cunningham’s subsidiaries, which are the FCC licensees of the Cunningham stations, which grant us the right to acquire, and grant Cunningham the right to require us to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock or the assets of Cunningham’s individual subsidiaries.

 

In addition to the option agreements, certain of our stations provide programming, sales and managerial services pursuant to LMAs to seven of their stations: WNUV-TV, WRGT-TV, WVAH-TV, WTAT-TV, WMYA-TV, WTTE-TV, and WDBB-TV (collectively, the Cunningham LMA Stations). Each of these LMAs has a current term that expires on July 1, 2016 and there are three additional 5- year renewal terms remaining with final expiration on July 1, 2031. Effective November 5, 2009, we entered into amendments and/or restatements of the following agreements between Cunningham and us: (i) the LMAs, (ii) option agreements to acquire Cunningham stock and (iii) certain acquisition or merger agreements relating to the Cunningham LMA Stations.

 

Pursuant to the terms of the LMAs, options and other agreements, beginning on January 1, 2010 and ending on July 1, 2012, we were obligated to pay Cunningham the sum of approximately $29.1 million in 10 quarterly installments of $2.75 million and one quarterly payment of approximately $1.6 million, which amounts were used to pay down Cunningham’s bank credit facility and which amounts were credited toward the purchase price for each Cunningham station. An additional $1.2 million was paid on July 1, 2012 and another installment of $2.75 million was paid on October 1, 2012 as an additional LMA fee and was used to pay off the remaining balance of Cunningham’s bank credit facility. The aggregate purchase price of the television stations, which was originally $78.5 million pursuant to certain acquisition or merger agreements subject to 6% annual increases, was decreased by each payment made by us to Cunningham, through 2012, up to $29.1 million in the aggregate, pursuant to the foregoing transactions with Cunningham as such payments were made. Beginning on January 1, 2013, we are obligated to pay Cunningham an annual LMA fee for the television stations equal to the greater of (i) 3% of each station’s annual net broadcast revenue and (ii) $5.0 million, of which a portion of this fee will be credited toward the purchase price to the extent of the annual 6% increase. The remaining purchase price as of March 31, 2014 was approximately $57.1 million. Additionally, we reimburse Cunningham for 100% of its operating costs.

 

We made payments to Cunningham under these LMAs and other agreements with the Cunningham LMA Stations of $4.5 million, and $1.9 million for the three months ended March 31, 2014 and 2013, respectively. For the three months ended March 31, 2014 and 2013, Cunningham LMA Stations provided us with approximately $27.2 million, and $24.6 million, respectively, of total revenue. The financial statements for Cunningham are included in our consolidated financial statements for all periods presented.

 

In November 2013, concurrent with our acquisition of the Barrington stations, Cunningham acquired the license related assets of WBSF-TV and WGTU-TV/WGTQ-TV, which was funded by bank debt, for which we have provided a guarantee. We provide certain non-programming related sales, operational and administrative services to these stations pursuant to certain outsourcing agreements. The agreements for WBSF-TV and WGTU-TV/WGTQ-TV expire in November 2021 and August 2015, respectively, and each have renewal provisions for successive eight year periods. Under these arrangements, we earned $0.8 million from the services we perform for these stations for the three months ended March 31, 2014. As we consolidate the licensees as VIEs, the amounts we earn under the arrangements are eliminated in consolidation and the gross revenues of the stations are reported within our consolidated statement of operations. For the three months ended March 31, 2014, our consolidated revenues include $1.5 million related to these stations.

 

Also, concurrent with the Barrington acquisition, we also sold our station, WYZZ (FOX) in Peoria, IL, which currently receives non-programming related sales, operational and administrative services from Nexstar Broadcasting pursuant to certain outsourcing agreements, to Cunningham for $22 million. Although we have no continuing involvement in the operations of this station, because Cunningham is a consolidated VIE and we have a purchase plan option to acquire these assets from Cunningham, the assets of WYZZ were not derecognized and the transaction was accounted for a transaction between parties under common control, therefore no gain or loss was recognized in the consolidated statement of operations upon sale to Cunningham.

 

During October 2013, we purchased the outstanding membership interests of KDBC-TV from Cunningham for $21.2 million, plus a working capital adjustment of $0.2 million. See Other Acquisitions within Note 2. Acquisitions, for further information.

 

Atlantic Automotive.  We sold advertising time to and purchased vehicles and related vehicle services from Atlantic Automotive Corporation (Atlantic Automotive), a holding company that owns automobile dealerships and an automobile leasing company.  David D. Smith, our President and Chief Executive Officer, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive. We received payments for advertising time totaling less than $0.1 million for both the three months ended March 31, 2014 and 2013. We paid $0.4 million for vehicles and related vehicle services from Atlantic Automotive for the three months ended March 31, 2013. No payments were made for the three months ended March 31, 2014. Additionally, in August 2011, Atlantic Automotive entered into an office lease agreement with Towson City Center, LLC (Towson City Center), a subsidiary of one of our real estate ventures, and began occupying the space in June 2012.  Atlantic Automotive paid $0.3 million and $0.2 million in rent during the three months ended March 31, 2014 and 2013, respectively.

 

Leased property by real estate ventures. Certain of our real estate ventures have entered into leases with entities owned by David Smith to lease restaurant space. There are leases for three restaurants in a building owned by one of our consolidated real estate ventures in Baltimore, MD.  Total rent received under these leases was $0.1 million and less than $0.1 million for the three months ended

 

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March 31, 2014 and 2013, respectively. There is also one lease for a restaurant in a building owned by one of our real estate ventures, accounted for under the equity method, in Towson, MD. We received under this lease $0.1 million for the three months ending March 31, 2014. No payments related to this property were received for the three months ended March 31, 2013.

 

Thomas & Libowitz P.A.  Steven A. Thomas, a partner and founder of Thomas & Libowitz, P.A. (Thomas & Libowitz), a law firm providing legal services to us on an ongoing basis, is the son of a former member of the Board of Directors, Basil A. Thomas. Mr. Thomas resigned from Board of Directors effective September 2013. We paid fees of $0.4 million to Thomas & Libowitz for the three months ended March 31, 2013.

 

6.              SEGMENT DATA

 

We measure segment performance based on operating income (loss).  Excluding discontinued operations, our broadcast segment includes stations in 71 markets located throughout the continental United States. The operating results of WLAJ-TV and WLWC-TV, which were sold effective March 1, 2013 and April 1, 2013, respectively, are classified as discontinued operations and are not included in our consolidated results of continuing operations for the three months ended March 31, 2013. Our other operating divisions primarily consist of sign design and fabrication; regional security alarm operating and bulk acquisitions; manufacturing and service of broadcast antennas and transmitters; 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.  Other Operating Divisions and Corporate are not reportable segments but are included for reconciliation purposes.  We had approximately $172.0 million and $171.5 million of intercompany loans between the broadcast segment, other operating divisions and corporate as of March 31, 2014 and 2013, respectively.  We had $4.9 million in intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions and corporate for both the three months ending March 31, 2014 and 2013, respectively. All other intercompany transactions are immaterial.

 

Segment financial information is included in the following tables for the periods presented (in thousands):

 

For the three months ended March 31, 2014

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

397,906

 

$

14,742

 

$

 

$

412,648

 

Depreciation of property and equipment

 

23,517

 

594

 

267

 

24,378

 

Amortization of definite-lived intangible assets and other assets

 

23,163

 

1,565

 

 

24,728

 

Amortization of program contract costs and net realizable value adjustments

 

23,941

 

 

 

23,941

 

General and administrative overhead expenses

 

14,730

 

251

 

854

 

15,835

 

Operating income (loss)

 

82,121

 

1

 

(1,122

)

81,000

 

Interest expense

 

 

919

 

38,619

 

39,538

 

Income from equity and cost method investments

 

 

98

 

 

98

 

Assets

 

3,388,139

 

303,786

 

418,188

 

4,110,113

 

 

For the three months ended March 31, 2013

 

Broadcast

 

Other
Operating
Divisions

 

Corporate

 

Consolidated

 

Revenue

 

$

271,155

 

$

11,463

 

$

 

$

282,618

 

Depreciation of property and equipment

 

13,784

 

469

 

342

 

14,595

 

Amortization of definite-lived intangible assets and other assets

 

14,867

 

1,135

 

 

16,002

 

Amortization of program contract costs and net realizable value adjustments

 

18,861

 

 

 

18,861

 

General and administrative overhead expenses

 

10,129

 

297

 

824

 

11,250

 

Operating income (loss)

 

65,132

 

(309

)

(1,167

)

63,656

 

Interest expense

 

 

730

 

36,967

 

37,697

 

Loss from equity and cost method investments

 

 

(1,052

)

 

(1,052

)

 

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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.

 

The carrying value and fair value of our notes and debentures for the periods presented (in thousands):

 

 

 

As of March 31, 2014

 

As of December 31, 2013

 

 

 

Carrying Value

 

Fair Value

 

Carrying Value

 

Fair Value

 

Level 2:

 

 

 

 

 

 

 

 

 

8.375% Senior Notes due 2018

 

$

235,322

 

$

254,836

 

$

235,225

 

$

259,547

 

6.375% Senior Unsecured Notes due 2021

 

350,000

 

365,096

 

350,000

 

360,938

 

6.125% Senior Unsecured Notes due 2022

 

500,000

 

508,125

 

500,000

 

497,525

 

5.375% Senior Unsecured Notes due 2021

 

600,000

 

597,000

 

600,000

 

582,078

 

Term Loan A

 

500,000

 

495,000

 

500,000

 

495,000

 

Term Loan B

 

641,244

 

634,273

 

642,734

 

641,205

 

Debt of variable interest entities

 

54,123

 

54,123

 

55,581

 

55,581

 

Debt of other operating divisions

 

91,983

 

91,983

 

86,263

 

86,263

 

 

Additionally, Cunningham, one of our consolidated VIEs has certain investments in securities that are recorded at fair value using Level 1 inputs described above. As of March 31, 2014 and December 31, 2013, $18.6 million and $18.1 million were included in other assets in our consolidated balance sheets.

 

8.              CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:

 

Sinclair Television Group, Inc. (STG), a wholly-owned subsidiary and the television operating subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under the Bank Credit Agreement, the 5.375% Notes, the 6.125% Notes, the 8.375% Notes, and 6.375% Notes. Our Class A Common Stock, Class B Common Stock, as of March 31, 2014, were obligations or securities of SBG and not obligations or securities of STG.  SBG is a guarantor under the Bank Credit Agreement, the 5.375% Notes, the 6.125% Notes, the 8.375% Notes, and 6.375% Notes.  As of March 31, 2014, our consolidated total debt of $3,027.6 million included $2,932.9 million of debt related to STG and its subsidiaries of which SBG guaranteed $2,880.7 million.

 

SBG, KDSM, LLC, a wholly-owned subsidiary of SBG, and STG’s wholly-owned subsidiaries (guarantor subsidiaries), have fully and unconditionally guaranteed, subject to certain customary automatic release provisions, 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 consolidating balance sheets, consolidating statements of operations and comprehensive income and consolidating 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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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF March 31, 2014

(in thousands) (unaudited)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

 

$

299,883

 

$

394

 

$

17,534

 

$

 

$

317,811

 

Accounts and other receivables

 

23

 

1,335

 

259,573

 

25,397

 

(862

)

285,466

 

Other current assets

 

1,857

 

12,968

 

63,856

 

16,397

 

(10,509

)

84,569

 

Assets held for sale

 

 

 

97,909

 

 

 

97,909

 

Total current assets

 

1,880

 

314,186

 

421,732

 

59,328

 

(11,371

)

785,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

4,750

 

14,175

 

430,870

 

131,757

 

(7,461

)

574,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in consolidated subsidiaries

 

315,503

 

2,412,432

 

4,179

 

 

(2,732,114

)

 

Restricted cash — long-term

 

 

12,426

 

 

 

 

12,426

 

Other long-term assets

 

75,904

 

522,272

 

53,638

 

132,275

 

(558,211

)

225,878

 

Total other long-term assets

 

391,407

 

2,947,130

 

57,817

 

132,275

 

(3,290,325

)

238,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill and other intangible assets

 

 

 

2,388,734

 

217,848

 

(94,619

)

2,511,963

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

398,037

 

$

3,275,491

 

$

3,299,153

 

$

541,208

 

$

(3,403,776

)

$

4,110,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

108

 

$

76,681

 

$

140,017

 

$

17,849

 

$

(1,319

)

$

233,336

 

Current portion of long-term debt

 

577

 

44,000

 

1,110

 

6,853

 

156

 

52,696

 

Current portion of affiliate long-term debt

 

1,335

 

 

1,131

 

824

 

(824

)

2,466

 

Other current liabilities

 

17,820

 

5,292

 

72,020

 

10,075

 

(6,159

)

99,048

 

Liabilities held for sale

 

 

 

10,335

 

 

 

10,335

 

Total current liabilities

 

19,840

 

125,973

 

224,613

 

35,601

 

(8,146

)

397,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

375

 

2,782,567

 

29,733

 

139,341

 

2,092

 

2,954,108

 

Affiliate long-term debt

 

4,618

 

 

13,674

 

299,929

 

(299,931

)

18,290

 

Other liabilities

 

40,410

 

23,904

 

616,894

 

146,034

 

(429,775

)

397,467

 

Total liabilities

 

65,243

 

2,932,444

 

884,914

 

620,905

 

(735,760

)

3,767,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Sinclair Broadcast Group equity (deficit)

 

332,794

 

343,047

 

2,414,240

 

(89,271

)

(2,668,016

)

332,794

 

Noncontrolling interests in consolidated subsidiaries

 

 

 

 

9,573

 

 

9,573

 

Total liabilities and equity (deficit)

 

$

398,037

 

$

3,275,491

 

$

3,299,154

 

$

541,207

 

$

(3,403,776

)

$

4,110,113

 

 

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2013

(in thousands)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

Cash

 

$

 

$

237,974

 

$

28,594

 

$

13,536

 

$

 

$

280,104

 

Accounts and other receivables

 

59

 

818

 

281,822

 

27,479

 

(1,022

)

309,156

 

Other current assets

 

5,500

 

25,887

 

67,279

 

16,391

 

(6,446

)

108,611

 

Total current assets

 

5,559

 

264,679

 

377,695

 

57,406

 

(7,468

)

697,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

5,017

 

13,561

 

454,917

 

130,019

 

(7,443

)

596,071

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in consolidated subsidiaries

 

363,231

 

2,508,058

 

4,179

 

 

(2,875,468

)

 

Restricted cash — long term

 

 

11,524

 

223

 

 

 

11,747

 

Other long-term assets

 

78,849

 

503,674

 

62,435

 

132,840

 

(544,881

)

232,917

 

Total other long-term assets

 

442,080

 

3,023,256

 

66,837

 

132,840

 

(3,420,349

)

244,664

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill and other intangible assets

 

 

 

2,486,794

 

214,325

 

(92,253

)

2,608,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

452,656

 

$

3,301,496

 

$

3,386,243

 

$

534,590

 

$

(3,527,513

)

$

4,147,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

234

 

$

51,781

 

$

126,245

 

$

17,914

 

$

 

$

196,174

 

Current portion of long-term debt

 

556

 

37,335

 

1,007

 

7,448

 

 

46,346

 

Current portion of affiliate long-term debt

 

1,294

 

 

1,073

 

1,003

 

(1,003

)

2,367

 

Other current liabilities

 

3,529

 

 

87,612

 

9,645

 

(2,292

)

98,494

 

Total current liabilities

 

5,613

 

89,116

 

215,937

 

36,010

 

(3,295

)

343,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

529

 

2,793,334

 

35,709

 

136,830

 

 

2,966,402

 

Affiliate long-term debt

 

4,972

 

 

13,984

 

294,919

 

(294,950

)

18,925

 

Other liabilities

 

45,172

 

23,645

 

610,491

 

145,828

 

(412,076

)

413,060

 

Total liabilities

 

56,286

 

2,906,095

 

876,121

 

613,587

 

(710,321

)

3,741,768

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Sinclair Broadcast Group equity (deficit)

 

396,370

 

395,401

 

2,510,122

 

(88,331

)

(2,817,192

)

396,370

 

Noncontrolling interests in consolidated subsidiaries

 

 

 

 

9,334

 

 

9,334

 

Total liabilities and equity (deficit)

 

$

452,656

 

$

3,301,496

 

$

3,386,243

 

$

534,590

 

$

(3,527,513

)

$

4,147,472

 

 

22



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED March 31, 2014

(in thousands) (unaudited)

 

 

 

Sinclair
Broadcast
Group, Inc.

 

Sinclair
Television
Group, Inc.

 

Guarantor
Subsidiaries
and KDSM,
LLC

 

Non-
Guarantor
Subsidiaries

 

Eliminations

 

Sinclair
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

 

$

 

$

390,080

 

$

41,427

 

$

(18,859

)

$

412,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Program and production

 

 

76

 

126,733

 

18,411

 

(18,181

)

127,039

 

Selling, general and administrative

 

885

 

14,545

 

80,502

 

2,400

 

(572

)

97,760

 

Depreciation, amortization and other operating expenses

 

267

 

1,107

 

86,390

 

19,160

 

(75

)

106,849

 

Total operating expenses

 

1,152

 

15,728

 

293,625

 

39,971

 

(18,828

)

331,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

(1,152

)

(15,728

)

96,455

 

1,456

 

(31

)

81,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of consolidated subsidiaries

 

26,687

 

62,264

 

 

 

(88,951

)

 

Interest expense

 

(159

)

(36,748

)

(1,242

)

(6,553

)

5,164

 

(39,538

)

Other income (expense)

 

646

 

296

 

93

 

 

(20

)

1,015

 

Total other income (expense)

 

27,174

 

25,812

 

(1,149

)

(6,553

)

(83,807

)

(38,523

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (provision)

 

1,136

 

17,267

 

(33,042

)

(181

)

 

(14,820

)

Income from discontinued operations