10-Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2015
 
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
(State or other jurisdiction of
Incorporation or organization)
 
52-1494660
(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
October 30, 2015
Class A Common Stock
 
68,792,483
Class B Common Stock
 
25,928,357

Table of Contents

SINCLAIR BROADCAST GROUP, INC.
 
FORM 10-Q
FOR THE QUARTER ENDED September 30, 2015
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
 

3
Table of Contents

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data) (Unaudited) 
 
As of September 30,
2015
 
As of December 31,
2014
ASSETS
 

 
 

CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
119,389

 
$
17,682

Accounts receivable, net of allowance for doubtful accounts of $4,575 and $4,246, respectively
387,110

 
383,503

Current portion of program contract costs
120,598

 
88,198

Income taxes receivable
—

 
3,314

Prepaid expenses and other current assets
35,951

 
27,842

Deferred barter costs
9,201

 
5,626

Total current assets
672,249

 
526,165

PROGRAM CONTRACT COSTS, less current portion
23,533

 
38,531

PROPERTY AND EQUIPMENT, net
746,662

 
752,538

GOODWILL
1,951,428

 
1,964,553

BROADCAST LICENSES
133,174

 
135,075

DEFINITE-LIVED INTANGIBLE ASSETS, net
1,763,693

 
1,818,263

OTHER ASSETS
189,708

 
175,203

Total assets (a)
$
5,480,447

 
$
5,410,328

LIABILITIES AND EQUITY (DEFICIT)
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
6,683

 
$
12,248

Accrued liabilities
265,787

 
248,600

Income taxes payable
3,295

 
—

Current portion of notes payable, capital leases and commercial bank financing
67,222

 
113,116

Current portion of notes and capital leases payable to affiliates
3,036

 
2,625

Current portion of program contracts payable
130,337

 
104,922

Deferred barter revenues
8,871

 
5,806

Deferred tax liabilities
6,689

 
6,689

Total current liabilities
491,920

 
494,006

LONG-TERM LIABILITIES:
 

 
 

Notes payable, capital leases and commercial bank financing, less current portion
3,804,877

 
3,754,822

Notes payable and capital leases to affiliates, less current portion
15,870

 
16,309

Program contracts payable, less current portion
60,313

 
60,605

Deferred tax liabilities
583,613

 
602,243

Other long-term liabilities
72,593

 
77,000

Total liabilities (a)
5,029,186

 
5,004,985

COMMITMENTS AND CONTINGENCIES (See Note 6)


 


EQUITY:
 

 
 

SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY:
 

 
 

Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 68,762,925 and 69,578,899 shares issued and outstanding, respectively
688

 
696

Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 25,928,357 and 25,928,357 shares issued and outstanding, respectively, convertible into Class A Common Stock
259

 
259

Additional paid-in capital
961,709

 
979,202

Accumulated deficit
(479,600
)
 
(545,820
)
Accumulated other comprehensive loss
(6,277
)
 
(6,455
)
Total Sinclair Broadcast Group shareholders’ equity
476,779

 
427,882

Noncontrolling interests
(25,518
)
 
(22,539
)
Total equity
451,261

 
405,343

Total liabilities and equity
$
5,480,447

 
$
5,410,328

 
The accompanying notes are an integral part of these unaudited consolidated financial statements. 
 
(a)
Our consolidated total assets as of September 30, 2015 and December 31, 2014 include total assets of variable interest entities (VIEs) of $162.3 million and $163.3 million, respectively, which can only be used to settle the obligations of the VIEs.  Our consolidated total liabilities as of September 30, 2015 and December 31, 2014 include total liabilities of the VIEs of $39.6 million and $30.0 million, respectively, for which the creditors of the VIEs have no recourse to us.  See Note 1. Summary of Significant Accounting Policies.


4
Table of Contents

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) (Unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
REVENUES:
 

 
 

 
 
 
 
Station broadcast revenues, net of agency commissions
$
497,353

 
$
448,056

 
$
1,463,854

 
$
1,226,088

Revenues realized from station barter arrangements
28,618

 
28,482

 
79,950

 
85,843

Other operating divisions revenues
22,433

 
18,418

 
63,542

 
50,809

Total revenues
548,404

 
494,956

 
1,607,346

 
1,362,740

OPERATING EXPENSES:
 

 
 

 


 
 
Station production expenses
186,449

 
150,263

 
538,552

 
411,605

Station selling, general and administrative expenses
105,196

 
97,303

 
309,884

 
261,823

Expenses recognized from station barter arrangements
23,105

 
24,764

 
66,898

 
75,769

Amortization of program contract costs and net realizable value adjustments
29,841

 
28,622

 
90,014

 
76,137

Other operating divisions expenses
17,705

 
14,919

 
50,194

 
41,697

Depreciation of property and equipment
25,476

 
25,342

 
75,938

 
74,972

Corporate general and administrative expenses
16,209

 
15,218

 
46,379

 
46,873

Amortization of definite-lived intangible assets
40,014

 
34,478

 
119,439

 
84,195

Research and development expenses
4,803

 
2,384

 
11,555

 
3,967

Total operating expenses
448,798

 
393,293

 
1,308,853

 
1,077,038

Operating income
99,606

 
101,663

 
298,493

 
285,702

OTHER INCOME (EXPENSE):
 

 
 

 


 
 
Interest expense and amortization of debt discount and deferred financing costs
(48,566
)
 
(47,950
)
 
(142,878
)
 
(127,609
)
Income from equity and cost method investments
252

 
1,928

 
5,405

 
2,768

Other income, net
(48
)
 
651

 
1,220

 
2,583

Total other expense, net
(48,362
)
 
(45,371
)
 
(136,253
)
 
(122,258
)
Income before income taxes
51,244

 
56,292

 
162,240

 
163,444

INCOME TAX PROVISION
(7,210
)
 
(7,524
)
 
(46,971
)
 
(45,418
)
NET INCOME
44,034

 
48,768

 
115,269

 
118,026

Net income attributable to the noncontrolling interests
(779
)
 
(427
)
 
(1,945
)
 
(1,192
)
NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP
$
43,255

 
$
48,341

 
$
113,324

 
$
116,834

Dividends declared per share
$
0.165

 
$
0.165

 
$
0.495

 
$
0.465

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

 
 

 
 
 
 
Basic earnings per share
$
0.46

 
$
0.50

 
$
1.19

 
$
1.20

Diluted earnings per share
$
0.45

 
$
0.49

 
$
1.18

 
$
1.19

Weighted average common shares outstanding
95,002

 
97,154

 
95,146

 
97,712

Weighted average common and common equivalent shares outstanding
95,692

 
97,896

 
95,837

 
98,414

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


5
Table of Contents

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
44,034

 
$
48,768

 
$
115,269

 
$
118,026

Amortization of net periodic pension benefit costs, net of taxes
10

 
41

 
178

 
121

Unrealized gain(loss) on investments, net of taxes
—

 
(319
)
 
—

 
285

Comprehensive income
44,044

 
48,490

 
115,447

 
118,432

Comprehensive income attributable to the noncontrolling interests
(779
)
 
(427
)
 
(1,945
)
 
(1,192
)
Comprehensive income attributable to Sinclair Broadcast Group
$
43,265

 
$
48,063

 
$
113,502

 
$
117,240

 
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
—

 
—

 
—

 
—

 
—

 
(45,322
)
 
—

 
—

 
(45,322
)
Class B Common Stock converted into Class A Common Stock
50,000

 
—

 
(50,000
)
 
—

 
—

 
—

 
—

 
—

 
—

Repurchases of Class A Common Stock
(3,914,506
)
 
(38
)
 
—

 
—

 
(108,438
)
 
—

 
—

 
—

 
(108,476
)
Class A Common Stock issued pursuant to employee benefit plans
185,590

 
2

 
—

 
—

 
9,550

 
—

 
—

 
—

 
9,552

Tax benefit on share based awards
—

 
—

 
—

 
—

 
1,399

 
—

 
—

 
—

 
1,399

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,046
)
 
(3,046
)
Deconsolidation of variable interest equity
—

 
—

 
—

 
—

 
4,518

 
—

 
(546
)
 
(27,772
)
 
(23,800
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
406

 
—

 
406

Net income
—

 
—

 
—

 
—

 
—

 
116,834

 
—

 
1,192

 
118,026

BALANCE, September 30, 2014
70,466,653

 
$
705

 
25,978,357

 
$
260

 
$
1,001,947

 
$
(625,484
)
 
$
(2,693
)
 
$
(20,292
)
 
$
354,443

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

7
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, 2014
69,578,899

 
$
696

 
25,928,357

 
$
259

 
$
979,202

 
$
(545,820
)
 
$
(6,455
)
 
$
(22,539
)
 
$
405,343

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

 
—

 
—

 
—

 
—

 
(47,104
)
 
—

 
—

 
(47,104
)
Repurchases of Class A Common Stock
(1,107,887
)
 
(11
)
 
—

 
—

 
(28,812
)
 
—

 
—

 
—

 
(28,823
)
Class A Common Stock issued pursuant to employee benefit plans
291,911

 
3

 
—

 
—

 
10,616

 
—

 
—

 
—

 
10,619

Tax benefit on share based awards
—

 
—

 
—

 
—

 
703

 
—

 
—

 
—

 
703

Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6,655
)
 
(6,655
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
178

 
—

 
178

Issuance of subsidiary stock awards
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,731

 
1,731

Net income
—

 
—

 
—

 
—

 
—

 
113,324

 
—

 
1,945

 
115,269

BALANCE, September 30, 2015
68,762,923

 
$
688

 
25,928,357

 
$
259

 
$
961,709

 
$
(479,600
)
 
$
(6,277
)
 
$
(25,518
)
 
$
451,261

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


8
Table of Contents

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
 
 
Nine Months Ended September 30,
 
2015
 
2014
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
 

 
 

Net income
$
115,269

 
$
118,026

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

 
 

Depreciation of property and equipment
75,938

 
74,972

Amortization of definite-lived intangible and other assets
119,439

 
84,195

Amortization of program contract costs and net realizable value adjustments
90,014

 
76,137

Stock-based compensation expense
14,778

 
11,433

Deferred tax benefit
(19,623
)
 
(23,214
)
Change in assets and liabilities, net of acquisitions:
 

 
 

Decrease in accounts receivable
563

 
17,376

Increase in prepaid expenses and other current assets
(11,643
)
 
(13,570
)
Increase in accounts payable and accrued liabilities
5,895

 
76,381

Net change in net income taxes payable/receivable
5,623

 
21,569

Payments on program contracts payable
(82,594
)
 
(69,505
)
Real estate held for development and sale
(5,540
)
 
(12,645
)
Other, net
3,369

 
(2,758
)
Net cash flows from operating activities
311,488

 
358,397

 
 
 
 
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
 

 
 

Acquisition of property and equipment
(72,476
)
 
(58,151
)
Payments for acquisition of television stations
(15,514
)
 
(1,071,428
)
Payments for acquisition of assets in other operating divisions
—

 
(8,273
)
Purchase of alarm monitoring contracts
(31,340
)
 
(15,647
)
Proceeds from sale of broadcast assets
23,650

 
83,200

Increase in restricted cash
—

 
(92,583
)
Distributions from equity and cost method investees
9,972

 
3,044

Investments in equity and cost method investees
(43,068
)
 
(7,958
)
Proceeds from termination of life insurance policies
—

 
17,042

Other, net
1,243

 
3,892

Net cash flows used in investing activities
(127,533
)
 
(1,146,862
)
 
 
 
 
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
 

 
 

Proceeds from notes payable and commercial bank financing
379,481

 
1,061,490

Repayments of notes payable, commercial bank financing and capital leases
(375,104
)
 
(286,417
)
Dividends paid on Class A and Class B Common Stock
(47,104
)
 
(45,322
)
Repurchase of outstanding Class A Common Stock
(28,823
)
 
(108,438
)
Payments for deferred financing cost
(3,847
)
 
(15,010
)
Noncontrolling interests distributions
(6,655
)
 
(4,294
)
Other, net
(196
)
 
5,702

Net cash flows used in financing activities
(82,248
)
 
607,711

NET INCREASE IN CASH AND CASH EQUIVALENTS
101,707

 
(180,754
)
CASH AND CASH EQUIVALENTS, beginning of period
17,682

 
280,104

CASH AND CASH EQUIVALENTS, end of period
$
119,389

 
$
99,350


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


9
Table of Contents

SINCLAIR BROADCAST GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
Principles of Consolidation
 
The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries and variable interest entities (VIEs) for which we are the primary beneficiary.  Noncontrolling interests 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.
 
Interim Financial Statements
 
The consolidated financial statements for the three and nine months ended September 30, 2015 and 2014 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, 2014 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.
 
Third-party station licensees.  Certain of our stations provide services to other station owners within the same respective market, such as LMAs, where we provide programming, sales, operational and administrative services, and JSAs and SSAs, where we provide non-programming, sales, operational and administrative services.  In certain cases, we have also entered into purchase agreements or options to purchase, the license related assets of the licensee.  We typically own the majority of the non-license assets of the stations and in some cases where the licensee acquired the license assets concurrent with our acquisition of the non-license assets of the station, we have provided guarantees to the bank for the licensee’s acquisition financing.  The terms of the agreements vary, but generally have initial terms of over five years with several optional renewal terms. As of September 30, 2015 and December 31, 2014, we have concluded that 37 of these licensees are VIEs.  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 services we provide and because we absorb losses and returns that would be considered significant to the VIEs.  Several of these VIEs are owned by a related party, Cunningham Broadcasting Corporation (Cunningham).  See Note 8. Related Party Transactions for more information about the arrangements with Cunningham. The net revenues of the stations which we consolidate were $71.0 million and $68.9 million for the three months ended September 30, 2015 and 2014, respectively. The net revenues of the stations which we consolidate were $207.6 million and $207.2 million for the nine months ended September 30, 2015 and 2014, respectively.  The fees paid between us and the licensees pursuant to these arrangements are eliminated in consolidation.  See Changes in the Rules of Television Ownership and Joint Sale Agreements within Note 6. Commitments and Contingencies for discussion of recent changes in FCC rules related to JSAs.
 

10
Table of Contents

Up until third quarter of 2014, we had consolidated Cunningham (parent entity), in addition to their stations that we perform services for, as we had previously determined that it was a VIE because it had insufficient equity at risk.  As of September 30, 2014, we concluded that Cunningham was no longer a VIE given its significant equity at risk in assets that we have no involvement with, and deconsolidated this entity, along with WTAT and WYZZ, stations that Cunningham acquired from us in July 2014 and November 2013, respectively, with which we have no continuing involvement.  As a result of the deconsolidation, we recorded the difference between the proceeds received from Cunningham for the sale of WTAT and WYZZ to additional paid in capital in the consolidated balance sheet, as well as reflected the noncontrolling interest deficit of the remaining Cunningham VIEs which represents their significant cumulative distributions made to Cunningham (parent entity) that were previously eliminated in consolidation.
 
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):
 
 
September 30,
2015
 
December 31,
2014
ASSETS
 

 
 

CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
490

 
$
491

Accounts receivable
19,952

 
19,521

Current portion of program contract costs
16,776

 
9,544

Prepaid expenses and other current assets
395

 
297

Total current assets
37,613

 
29,853

 
 
 
 
PROGRAM CONTRACT COSTS, less current portion
5,544

 
6,922

PROPERTY AND EQUIPMENT, net
8,238

 
9,716

GOODWILL
787

 
787

BROADCAST LICENSES
16,935

 
16,935

DEFINITE-LIVED INTANGIBLE ASSETS, net
86,274

 
96,732

OTHER ASSETS
6,924

 
2,376

Total assets
$
162,315

 
$
163,321

 
 
 
 
LIABILITIES
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
26

 
$
68

Accrued liabilities
1,277

 
1,297

Current portion of notes payable, capital leases and commercial bank financing
3,680

 
3,659

Current portion of program contracts payable
15,904

 
9,714

Total current liabilities
20,887

 
14,738

 
 
 
 
LONG-TERM LIABILITIES:
 

 
 

Notes payable, capital leases and commercial bank financing, less current portion
25,458

 
28,640

Program contracts payable, less current portion
12,757

 
10,161

Long term liabilities
9,652

 
8,739

Total liabilities
$
68,754

 
$
62,278

 

11
Table of Contents

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 LMA 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 cumulative payments made under these LMAs that were treated as a prepayment of purchase price as of September 30, 2015 and December 31, 2014, which are excluded from liabilities above, were $36.8 million and $34.4 million, respectively.  The total capital lease liabilities, net of capital lease assets, excluded from the above were $4.6 million for September 30, 2015 and December 31, 2014.  Also excluded from the amounts above are liabilities associated with the certain outsourcing agreements and purchase options with certain VIEs totaling $76.1 million and $78.1 million as of September 30, 2015 and December 31, 2014, respectively, as these amounts are eliminated in consolidation.  The risk and reward characteristics of the VIEs are similar.
 
Other investments.  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 September 30, 2015 and December 31, 2014 was $18.9 million and $22.7 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 $0.7 million and $6.5 million for the three and nine months ended September 30, 2015, and income of $2.2 million and $3.1 million for the three and nine months ended September 30, 2014, respectively, related to these investments.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective.  The new standard was to be effective for annual reporting periods beginning after December 15, 2016. In August 2015, the FASB decided to defer the effective date by one year to the annual reporting period beginning after December 15, 2017, however, early adoption as of the original effective date will be permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact of this guidance on our financial statements.

In August 2014, the FASB issued guidance on disclosure of uncertainties about an entity’s ability to continue as a going concern. The new standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. We are currently evaluating the impact of this new guidance on our financial statements.
 
In February 2015, the FASB issued new guidance that amends the current consolidation guidance on the determination of whether an entity is a variable interest entity.  This new standard is effective for the interim and annual periods beginning after December 15, 2016.  Early adoption is allowed, including in any interim period.  We are currently evaluating the impact of this new guidance on our financial statements.
 
In April 2015, the FASB issued guidance related to the presentation of debt issuance costs in the balance sheet. The guidance requires costs paid to third parties that are directly attributable to issuing a debt instrument to be presented as a direct deduction from the carrying value of the debt as opposed to an asset. The new standard is effective for the annual reporting periods beginning after December 15, 2015 with early adoption permitted, and is required to be applied retrospectively. We applied the change in accounting as of June 30, 2015 with retrospective application to prior periods. As such, within our consolidated balance sheet as of December 31, 2014, we have decreased the amounts previously reported as other assets and notes payable, capital leases and commercial bank financing, less current portion by $41.8 million. The change in accounting principle does not have an impact on our statements of operations or cash flows.

In September 2015, the FASB issued guidance on the recognition of measurement period adjustments in connection with business combinations. The new standard eliminates the requirement to restate prior period financial statements for measurement period adjustments and now requires the cumulative impact of a measurement period adjustment, including the impact on prior periods, be recognized in the reporting period in which the adjustment is identified. The new standard also requires an entity to present separately on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date. We have early adopted this guidance effective September 30, 2015. We made certain immaterial measurement

12
Table of Contents

period adjustments related to prior period acquisitions during the three months ended September 30, 2015. See Note 2. Acquisitions for more information. The impact of the adoption did not have a material impact on our financial statements.

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

Post-retirement Benefits

We are required to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of our pension plan in our consolidated financial statements.  The pension liability, representing the underfunded status of our defined benefit pension plan, was $4.7 million as of September 30, 2015 and December 31, 2014, which is included within other long-term liabilities within our consolidated balance sheet.  We have received regulatory approval to fully settle the benefit obligations and terminate the plan in the fourth quarter of 2015.  The accounting for the full settlement of the plan obligations is expected to be recorded in the fourth quarter of 2015, when we are fully relieved of our benefit obligation via lump sum distributions and/or the purchase of annuity contracts.  Upon final settlement, we expect to record $5.8 million of pension expense, which includes the recognition of $3.4 million of unamortized actuarial losses currently recorded in accumulated other comprehensive income.
 
Income Taxes
 
Our income tax provision for all periods consists of federal and state income taxes.  The tax provision for the nine months ended September 30, 2015 and 2014 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 and nine months ended September 30, 2015 was less than the statutory rate primarily due to 1) a reduction in liability for unrecognized tax benefits of $5.7 million, in the third quarter, as a result of statute of limitations expiration and 2) a $3.3 million adjustment to the income tax provision upon finalization of the 2014 federal income tax return, primarily related to greater than originally projected available income tax deductions and credits. Our effective income tax rate for the three and nine months ended September 30, 2014 was less than the statutory rate primarily due to a reduction in liability for unrecognized tax benefits of $11.0 million, in the third quarter, as a result of statute of limitations expiration.


13
Table of Contents

We believe it is reasonably possible that our liability for unrecognized tax benefits related to continuing operations could be reduced by up to $1.3 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. During the three months ended December 31, 2015, we expect to record a deferred tax benefit of approximately $13 million related to the realization of capital losses upon the sale of stock of a subsidiary during the fourth quarter of 2015.

Share Repurchase Program
 
On October 28, 1999, we announced a $150.0 million share repurchase program, which was renewed on February 6, 2008.  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 nine months ended September 30, 2015, we have purchased approximately 1.1 million shares for $28.8 million. For the three months ended September 30, 2015, we purchased 0.8 million shares for $21.0 million. As of September 30, 2015, the total remaining authorization was $105.5 million.

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


14
Table of Contents

2.              ACQUISITIONS:
 
During 2015, we acquired one television station in Chattanooga, TN for a cash purchase price of $15.5 million, which was financed with cash on hand. During 2014, we acquired a total of 21 stations in 15 markets for a purchase price of $1,434.5 million plus working capital of $47.2 million. All of these acquisitions provide expansion into additional markets and increases value based on the synergies we are achieving.

2014 Acquisitions
 
Allbritton.  Effective August 1, 2014, we completed the acquisition of all of the outstanding common stock of Perpetual Corporation and equity interest of Charleston Television, LLC (together the “Allbritton Companies”) for $985.0 million plus working capital of $50.1 million.  The Allbritton Companies owned and operated nine television stations in the following seven markets, all of which were affiliated with ABC: Washington, DC; Birmingham, AL; Harrisburg, PA; Little Rock / Pine Bluff, AR; Tulsa, OK; Roanoke / Lynchburg, VA; and Charleston, SC. Also included in the purchase was NewsChannel 8, a 24-hour cable/satellite news network covering the Washington, D.C. metropolitan area.  We financed the total purchase price with proceeds from the issuance of 5.625% senior unsecured notes, a draw on our amended bank credit agreement, and cash on hand. In connection with the acquisition, we sold the acquired assets related to the Harrisburg, PA station effective September 1, 2014.  See Note 3. Disposition of Assets for further discussion.
 
MEG Stations.  Effective December 19, 2014, we completed the acquisition of four television stations in three markets from Media General, Inc. (MEG Stations) for a purchase price of $207.5 million less working capital of $1.6 million.  The acquired stations are located in the following markets: Providence, RI / New Bedford, MA; Green Bay / Appleton, WI; and Savannah, GA. Simultaneously, we sold to Media General, our television stations in Tampa, FL and Colorado Springs, CO.  See Note 3. Disposition of Assets for further discussion.  We financed the purchase price, net of the proceeds received from the sale of those stations, with borrowings under our revolving credit facility.
 
KSNV.  Effective November 1, 2014, we completed the acquisition of certain assets of KSNV (NBC) in Las Vegas, NV from Intermountain West Communications Company (Intermountain West) for $118.5 million less working capital of $0.2 million.  In conjunction with the purchase, we assumed the rights under the affiliation agreement with NBC and swapped our KVMY call letters for the KSNV call letters with Intermountain West.  We financed the total purchase price with cash on hand and borrowings under our revolving credit facility.
 
Other 2014 Acquisitions.  During the year ended December 31, 2014, we acquired certain assets related to eight other television stations in the following four markets: Wilkes Barre / Scranton, PA; Tallahassee, FL; Gainesville, FL; and Macon, GA.  The purchase price for these stations was $123.5 million less working capital of $1.1 million which was financed with cash on hand and borrowings under our revolving credit facility.
 






















15
Table of Contents

The following tables summarize the allocated fair value of acquired assets and assumed liabilities, including the net assets of consolidated VIEs (in thousands):
 
 
MEG
Stations
 
KSNV
 
Allbritton
 
Other
 
Total 2014
acquisitions
Accounts receivable
$
—

 
$
—

 
$
38,542

 
$
—

 
$
38,542

Prepaid expenses and other current assets
476

 
67

 
19,890

 
79

 
20,512

Program contract costs
1,954

 
482

 
1,204

 
2,561

 
6,201

Property and equipment
23,462

 
8,300

 
46,600

 
8,400

 
86,762

Broadcast licenses
675

 
—

 
13,700

 
125

 
14,500

Definite-lived intangible assets
125,925

 
62,700

 
564,100

 
71,025

 
823,750

Other assets
—

 
—

 
20,352

 
1,500

 
21,852

Assets held for sale
—

 
—

 
83,200

 
—

 
83,200

Accounts payable and accrued liabilities
(2,085
)
 
(277
)
 
(8,351
)
 
(1,143
)
 
(11,856
)
Program contracts payable
(1,914
)
 
(481
)
 
(1,140
)
 
(2,554
)
 
(6,089
)
Deferred tax liability
—

 
—

 
(261,291
)
 
—

 
(261,291
)
Other long term liabilities
—

 
(1,200
)
 
(17,263
)
 
—

 
(18,463
)
Fair value of identifiable net assets acquired
148,493

 
69,591

 
499,543

 
79,993

 
797,620

Goodwill
57,398

 
48,699

 
535,694

 
42,443

 
684,234

Total
$
205,891

 
$
118,290

 
$
1,035,237

 
$
122,436

 
$
1,481,854

 
The allocations presented above are 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 purchase prices have been allocated to the acquired assets and assumed liabilities based on estimated fair values.  The allocations related to the MEG Stations, KSNV, and Other acquisitions are preliminary pending a final determination of the fair values of the assets and liabilities.
 
During the nine months ended September 30, 2015, we made certain immaterial measurement period adjustments to the initial purchase accounting for the acquisitions in 2014, resulting in reclassifications between certain noncurrent assets and noncurrent liabilities, including a decrease to property and equipment of approximately $12.5 million, a decrease to broadcast licenses of $3.5 million, an increase to definite-lived intangible assets of $33.7 million, and a decrease to goodwill of $17.6 million, as well as a corresponding decrease to depreciation of $0.6 million and an increase to amortization of $0.3 million, respectively.
 
These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations and 10-15 years for the customer relationships.  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.  Other intangible assets will be amortized over the respective weighted average useful lives ranging from 14 to 16 years. The following tables summarize the amounts allocated to definite-lived intangible assets representing the estimated fair values and estimated goodwill deductible for tax purposes (in thousands):
 
 
MEG
Stations
 
KSNV
 
Allbritton
 
Other
 
Total 2014
acquisitions
Network affiliations
$
56,925

 
$
44,775

 
$
356,900

 
$
42,625

 
$
501,225

Customer relationships
46,500

 
17,925

 
207,200

 
27,400

 
299,025

Other intangible assets
22,500

 
—

 
—

 
1,000

 
23,500

Fair value of identifiable definite-lived intangible assets acquired
$
125,925

 
$
62,700

 
$
564,100

 
$
71,025

 
$
823,750

Estimated goodwill deductible for tax purposes
$
57,398

 
$
48,699

 
$
—

 
$
42,443

 
$
148,540

 

16
Table of Contents

In connection with the acquisitions, for the nine months ended September 30, 2014, we incurred a total of $4.4 million, of costs primarily related to legal and other professional services, which we expensed as incurred and classified as corporate general and administrative expenses in the consolidated statements of operations.

Pro Forma Information
 
The following table sets forth unaudited pro forma results of operations for the three and nine months ended September 30, 2014, assuming that the above acquisitions, along with transactions necessary to finance the acquisitions, occurred at the beginning of the year preceding the year of acquisition. The pro forma results exclude acquisitions presented under Other above, as they were deemed not material both individually and in the aggregate (in thousands, except per share data):
 
 
Three Months Ended September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2014
Total revenues
$
526,587

 
$
1,527,507

Net Income
$
37,081

 
$
97,909

Net Income attributable to Sinclair Broadcast Group
$
36,654

 
$
96,717

Basic earnings per share attributable to Sinclair Broadcast Group
$
0.38

 
$
0.99

Diluted earnings per share attributable to Sinclair Broadcast Group
$
0.37

 
$
0.98

 
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, and exclusion of nonrecurring financing and transaction related costs. 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 WHTM-TV (ABC) in Harrisburg/Lancaster/York, PA, WTTA-TV (MNT) in Tampa, FL, and KXRM/KXTU (FOX) in Colorado Springs, CO which were sold in connection with the above acquisitions.

3.              DISPOSITION OF ASSETS:
 
Dispositions Related to Station Acquisitions
 
As discussed in Note 2. Acquisitions, in December 2014, we completed the acquisition of certain broadcast assets from Media General.  Simultaneously, we sold to Media General the broadcast assets of WTTA (MNT) in Tampa, FL and KXRM/KXTU (FOX) in Colorado Springs, CO for $93.1 million less working capital of $0.6 million.
 
Concurrent with the acquisition of the Allbritton companies discussed in Note 2. Acquisitions, due to FCC multiple ownership rules, we sold WHTM (ABC) in Harrisburg/Lancaster/York, PA to Media General in September 2014 for $83.4 million, less working capital of $0.2 million and the non-license assets of WTAT (FOX) in Charleston, SC to Cunningham for $14.0 million, effective August 1, 2014.  WHTM was acquired from the Allbritton companies and assets of WHTM were classified as assets held for sale in the Allbritton purchase price allocation.  We did not recognize a gain or loss on this transaction. Prior to the sale of WTAT, we operated the station under an LMA and purchase agreement with Cunningham.  This sale was accounted for as a transaction between parties under common control.  See Note 8. Related Party Transactions for further discussion.
 
Assets Held for Sale
 
In accordance with Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale, we reported our assets and liabilities related to Triangle Sign & Service, LLC (Triangle) as held for sale in the accompanying consolidated balance sheet as of December 31, 2014. It is no longer our intent to divest of Triangle and therefore the assets and liabilities are not classified as held for sale as of September 30, 2015. The results of operations related to Triangle are included within the results of continuing operations as the criteria for classification as discontinued operations was not met.


17
Table of Contents

As of December 31, 2014, the major classes of assets and liabilities of the asset group accounted for as held for sale on the accompanying consolidated balance sheet which are included in Prepaid expenses and other current assets, Other Assets, and Accrued liabilities, respectively, are shown below (in thousands):
 
 
December 31, 2014
Assets:
 

Accounts receivable
$
5,101

Prepaid expenses and other current assets
1,403

Total current assets held for sale
6,504

 
 

Property and equipment (a)
1,036

Goodwill
2,975

Definite-lived intangible assets
2,962

Total noncurrent assets held for sale
$
6,973

Total assets held for sale
$
13,477

Liabilities:
 

Accounts payable
$
1,096

Accrued liabilities
1,360

Current portion of notes payable, capital leases and commercial bank financing
21

Total liabilities held for sale
$
2,477


(a)    Excluded from the above is $1.8 million in held for sale assets as of December 31, 2014 related to certain real estate assets within our broadcast segment. Due to the this amount being immaterial to the consolidated financial statements, the amount is classified in Other Assets in the consolidated balance sheet as of December 31, 2014. 


4.      GOODWILL, BROADCAST LICENSES AND OTHER INTANGIBLE ASSETS:

Goodwill, which arises from the purchase price exceeding the assigned value of the net assets of an acquired business, represents the value attributable to unidentifiable intangible elements being acquired. Goodwill totaled $1,951.4 million and $1,964.6 million at September 30, 2015 and December 31, 2014, respectively.  The change in the carrying amount of goodwill related to continuing operations was as follows (in thousands):

 
Broadcast
 
Other Operating Divisions
 
Consolidated
Balance at December 31, 2014
 
 
 
 
 
Goodwill
$
2,377,613

 
$
513

 
$
2,378,126

Accumulated impairment losses
(413,573
)
 
—

 
(413,573
)
 
1,964,040

 
513

 
1,964,553

Acquisition of television stations
1,514

 
—

 
1,514

Measurement period adjustments related to 2014 acquisitions
(17,614
)
 
—

 
(17,614
)
Change in assets held for sale (a)
—

 
2,975

 
2,975

Balance at September 30, 2015
 
 
 
 
 
Goodwill
2,361,513

 
3,488

 
2,365,001

Accumulated impairment losses
(413,573
)
 
—

 
(413,573
)
 
$
1,947,940

 
$
3,488

 
$
1,951,428



(a)     During the nine months ended September 30, 2015, we concluded that the assets of Triangle were no longer classified as assets held for sale. See Note 3. Disposition of Assets for further discussion.



18
Table of Contents

As of September 30, 2015 and December 31, 2014, the carrying amount of our broadcast licenses was as follows (in thousands):

        
 
September 30, 2015
Balance at December 31, 2014
$
135,075

Acquisition of television stations
1,684

Sale of broadcast assets
(75
)
Measurement period adjustments related to 2014 acquisitions
(3,510
)
Balance at September 30, 2015
$
133,174



The following table shows the gross carrying amount and accumulated amortization of definite-lived intangibles (in thousands):
 
As of September 30, 2015
 
Gross Carrying Value
 
Accumulated Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
Network affiliation (a)
$
1,400,316

 
$
(325,111
)
 
$
1,075,205

Customer relationships (a)
759,818

 
(212,292
)
 
547,526

Other (b)
218,680

 
(77,718
)
 
140,962

Total
$
2,378,814

 
$
(615,121
)
 
$
1,763,693


 
As of December 31, 2014
 
Gross Carrying Value
 
Accumulated Amortization
 
Net
Amortized intangible assets:
 
 
 
 
 
Network affiliation (a)
$
1,396,792

 
$
(257,526
)
 
$
1,139,266

Customer relationships (a)
749,292

 
(177,453
)
 
571,839

Other (b)
174,442

 
(67,284
)
 
107,158

Total
$
2,320,526

 
$
(502,263
)
 
$
1,818,263


(a)    Changes between the gross carrying value from December 31, 2014 to September 30, 2015, relate to the acquisition of stations in 2015 and measurement period adjustments related to 2014 acquisitions as discussed in Note 2. Acquisitions.

(b)    The increase in other intangible assets includes $31.3 million in additions from other operating divisions in 2015, and measurement period adjustments as discussed in Note 2. Acquisitions.

We did not have any indicators of impairment for goodwill, broadcast licenses, definite-lived intangibles, or other long-lived assets in any interim period during the nine months ended September 30, 2015.

5.              NOTES PAYABLE AND COMMERCIAL BANK FINANCING:

As of September 30, 2015, we had $321.1 million and $1,367.4 million outstanding under our term loan A and term loan B, net of $1.7 million and $15.8 million deferred financing costs and debt discounts, respectively. As discussed under Recent Accounting Pronouncements in Note 1. Summary of Significant Accounting Policies, we early adopted the FASB issued guidance related to the presentation of debt issuance costs in the balance sheet. The guidance requires costs paid to third parties that are directly attributable to issuing a debt instrument to be presented as a direct deduction from the carrying value of the debt as opposed to an asset.

Effective April 30, 2015, we entered into an amendment and restatement of our bank credit agreement. Pursuant to the Amendment, we raised an additional $350.0 million of incremental term loan B commitments, which mature in July 2021 and bear interest at LIBOR plus 2.75% with a 0.75% LIBOR floor. The incremental term loan B borrowings were issued under

19
Table of Contents

substantially the same terms as the existing term loan B agreement. The proceeds, net of issuance costs, from the amendment of term loan B were used to pay down the outstanding balance under our revolving credit facility, and for general corporate purposes.
As of September 30, 2015, we had $482.9 million borrowing capacity under our revolving credit facility. We incurred $3.6 million of financing costs in connection with the amendment which are presented net of the carrying value of the debt in the consolidated balance sheet.

6.              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; WCIV-TV, Charleston, South Carolina (formerly WMMP-TV); WMYA-TV, Anderson, South Carolina; WICS-TV Springfield, Illinois; WBFF-TV, Baltimore, Maryland; WTTE-TV, Columbus, Ohio; WRGT-TV, Dayton, Ohio; WVAH-TV, Charleston / Huntington, West Virginia; WCGV-TV, Milwaukee, Wisconsin; and WTTO-TV in Birmingham, AL. 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 on the processing of broadcast television applications proposing sharing arrangements and contingent interests.  The public notice indicated that the FCC will closely scrutinize any broadcast assignment or transfer application that proposes that two or more stations in the same market 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 future transactions.  In addition, on April 15, 2014, the FCC issued an order amending its multiple ownership rules to provide that, where two television stations are located in the same market, and a party with an attributable interest in one station sells more than 15% of the ad time per week of the other station, the party selling such ad time shall be treated as if it had an attributable ownership interest in the second station.  The imputed ownership interest would be evaluated to determine whether it complies with the FCC’s ownership rules that limit the number of stations in which parties may hold attributable interests.  The amended rule also requires that every JSA contain certain certifications that the licensee maintains ultimate control of the station subject to such contract, that such JSAs be filed with the Commission and made available for public review, and that JSAs that existed on the effective date of the new rule have two years to be terminated, amended or otherwise come into compliance with the new rules.  The new rule is the subject of an appeal to the United States Court of Appeals for the District of Columbia Circuit. Under the Satellite Television Extension and Localism Act Reauthorization (STELAR), which became law on December 4, 2014, Congress extended the period of time for parties to preexisting JSAs to come into compliance with the new rules for an additional six months, until December 19, 2016.   A bill has been introduced into Congress proposing to permanently grandfather preexisting JSAs, but we cannot predict its likelihood of enactment.  We cannot predict the outcome of that appeal. Among other things, the new JSA rule could limit our ability to create duopolies or other two-station operations in certain markets.  We are currently evaluating whether to seek one or more waivers of the new rules, or to modify or terminate our current JSAs. We cannot predict whether we will be able to terminate or restructure such arrangements on terms that are as advantageous to us as the current arrangements.  The revenues of these JSA arrangements we earned were $11.5 million and $11.7 million for the three months ended September 30, 2015 and 2014 and $34.2 million and $33.8 million for the nine months ended September 30, 2015 and 2014, respectively.


20
Table of Contents

7.              EARNINGS PER SHARE
 
The following table reconciles income (numerator) and shares (denominator) used in our computations of basic and diluted earnings per share for the periods presented (in thousands):
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Income (Numerator)
 

 
 

 
 
 
 
Net Income
$
44,034

 
$
48,768

 
$
115,269

 
$
118,026

Net (income) loss attributable to noncontrolling interests
(779
)
 
(427
)
 
(1,945
)
 
(1,192
)
Numerator for diluted earnings per common share available to common shareholders
$
43,255

 
$
48,341

 
$
113,324

 
$
116,834

 
 
 
 
 
 
 
 
Shares (Denominator)
 

 
 

 
 
 
 

Weighted-average common shares outstanding
95,002

 
97,154

 
95,146

 
97,712

Dilutive effect of stock-settled appreciation rights, restricted stock awards and outstanding stock options
690

 
742

 
691

 
702

Weighted-average common and common equivalent shares outstanding
95,692

 
97,896

 
95,837

 
98,414

 
There were 0.2 million anti-dilutive shares for the three and nine months ended September 30, 2015, and no anti-dilutive shares for the three and nine months ended September 30, 2014.

8.              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 $1.3 million for both the three months ended September 30, 2015 and 2014, and $3.9 million and $4.1 million for the nine months ended September 30, 2015 and 2014, respectively.
 
In September 2015, we were granted authority by the Federal Communications Commission (FCC) to operate an experimental facility in Washington D.C. and Baltimore markets to implement a Single Frequency Network (SFN) using the base elements of the new ATSC 3.0 transmission standard.  In conjunction with this experimental facility, Cunningham Communications, Inc. will be providing tower space without charge.

Charter Aircraft.  We lease aircraft owned by certain controlling shareholders.  We incurred expenses of $0.4 million and $0.5 million for the three months ended September 30, 2015 and 2014, and $1.0 million for both the nine months ended September 30, 2015 and 2014, respectively.

Cunningham Broadcasting Corporation
 
As of September 30, 2015, Cunningham was the owner-operator and FCC licensee of WNUV-TV Baltimore, Maryland; WRGT-TV Dayton, Ohio; WVAH-TV Charleston, West Virginia; 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), as well as WTAT-TV Charleston, South Carolina, and WYZZ Peoria/Bloomington, IL.
 
During the first quarter of 2013, the estate of Carolyn C. Smith, a mother 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.  During the second quarter of 2014, Cunningham purchased the remaining amount of non-voting stock

21
Table of Contents

from the controlling shareholders for an aggregate purchase price of $2.0 million.  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 also had options from the trusts, which granted us the right to acquire, subject to applicable FCC rules and regulations, 100% of the voting and nonvoting stock of Cunningham, up until September 30, 2014, when these options were terminated. As discussed under Variable Interest Entities in Note 1. Summary of Significant Accounting Policies, during the third quarter of 2014, we deconsolidated Cunningham Broadcasting Corporation as we determined it was no longer a VIE.  We continue to consolidate certain of its subsidiaries with which we continue to have variable interests through various arrangements related to the Cunningham Stations discussed further below.
 
As of September 30, 2015, certain of our stations provide programming, sales and managerial services pursuant to LMAs to six of the Cunningham stations: WNUV-TV, WRGT-TV, WVAH-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. We also executed purchase agreements to acquire the license related assets of these stations from Cunningham, 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 these individual subsidiaries of Cunningham.  Our applications to acquire these license related assets are pending FCC approval.  The LMA and purchase agreement with WTAT-TV was terminated concurrent with Cunningham’s purchase of the non-license assets of this station from us for $14.0 million effective August 1, 2014.  We no longer have any continuing involvement in the operations of this station.
 
Pursuant to the terms of the LMAs, options and other agreements, beginning on January 1, 2013, we were 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. 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, of $29.1 million in the aggregate. Additionally, we reimburse these Cunningham LMA Stations for 100% of their operating costs. In July 2014, concurrent with the termination of the LMA with WTAT-TV, the total LMA fee for the remaining Cunningham LMA Stations was reduced by $4.7 million to remove the fee associated with WTAT-TV.  The remaining aggregate purchase price of these stations, excluding WTAT-TV, as of September 30, 2015 was approximately $53.6 million.
 
We made payments to Cunningham under our LMAs with these stations of $2.1 million and $1.2 million for the three months ended September 30, 2015 and 2014, respectively, and $7.8 million and $7.2 million for the nine months ended September 30, 2015 and 2014, respectively. For the three months ended September 30, 2015 and 2014, Cunningham LMA Stations provided us with approximately $23.8 million and $26.0 million, respectively, and approximately $69.1 million and $82.4 million for the nine months ended September 30, 2015 and 2014, respectively, of total revenue.
 
Cunningham owns the license related assets of WBSF-TV and WGTU-TV/WGTQ-TV. We provide certain non-programming related sales, operational and administrative services to these stations pursuant to certain outsourcing agreements. The agreements with WBSF-TV and WGTU-TV/WGTQ-TV expire in November 2021 and August 2023, respectively, and each has renewal provisions for successive eight year periods. Additionally, we have provided a guarantee on the bank debt of these licensees of $2.8 million as of September 30, 2015. Under these arrangements, we earned $1.5 million and $0.9 million from the services we performed for these stations for the three months ended September 30, 2015 and 2014, respectively, and $4.2 million and $2.8 million for the nine months ended September 30, 2015 and 2014, respectively. 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. Our consolidated revenues related to these stations include $2.0 million and $2.1 million for the three months ended September 30, 2015 and 2014, respectively, and $5.7 million and $5.5 million for the nine months ended September 30, 2015 and 2014, respectively.

Atlantic Automotive Corporation
 
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 totaling $0.1 million for both the three months ended September 30, 2015 and 2014, and $0.3 million and $0.2 million for the nine months ended September 30, 2015 and 2014, respectively. 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. Atlantic Automotive paid $0.3 million in rent during the both three months ended September 30, 2015 and 2014, and $0.9 million and $0.8 million for the nine months ended September 30, 2015 and 2014, respectively.
 

22
Table of Contents

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 $0.2 million and $0.1 million for the three months ended September 30, 2015 and 2014, and $0.5 million and $0.4 million for the nine months ended September 30, 2015 and 2014, 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.  This investment received $0.1 million in rent pursuant to the lease for both the three months ended September 30, 2015 and 2014, and $0.3 million and $0.2 million for the nine months ended September 30, 2015 and 2014, respectively.

Payments for services provided by these three restaurants to us was less than $0.1 million for both the three and nine months ended September 30, 2015 and 2014.

9.              SEGMENT DATA
 
We measure segment performance based on operating income (loss).  Our broadcast segment includes stations in 79 markets located throughout the continental United States. Our other operating divisions primarily consist of sign design and fabrication; regional security alarm operating and bulk acquisitions; manufacturing and service of broadcast antennas; service of broadcast transmitters; real estate ventures; and other private equity investments. 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 $226.0 million and $172.3 million of intercompany loans between the broadcast segment, other operating divisions and corporate as of September 30, 2015 and 2014, respectively.  We had $6.1 million and $5.3 million in intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions and corporate for the three months ended September 30, 2015 and 2014, respectively. We had $16.9 million and $15.3 million in intercompany interest expense for the nine months ended September 30, 2015 and 2014, 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 September 30, 2015
 
Broadcast
 
Other
Operating
Divisions
 
Corporate
 
Consolidated
Revenue
 
$
525,970

 
$
22,434

 
$
—

 
$
548,404

Depreciation of property and equipment
 
24,531

 
666

 
279

 
25,476

Amortization of definite-lived intangible assets and other assets
 
37,601

 
2,413

 
—

 
40,014

Amortization of program contract costs and net realizable value adjustments
 
29,841

 
—

 
—

 
29,841

General and administrative overhead expenses
 
13,880

 
943

 
1,386

 
16,209

Operating income (loss)
 
105,353

 
720

 
(6,467
)
 
99,606

Interest expense
 
—

 
1,305

 
47,261

 
48,566

Income from equity and cost method investments
 
—

 
252

 
—

 
252

Assets
 
4,918,943

 
399,546

 
161,958

 
5,480,447

 

23
Table of Contents

For the three months ended September 30, 2014
 
Broadcast
 
Other
Operating
Divisions
 
Corporate
 
Consolidated
Revenue
 
$
476,538

 
$
18,418

 
$
—

 
$
494,956

Depreciation of property and equipment
 
24,516

 
559

 
267

 
25,342

Amortization of definite-lived intangible assets and other assets
 
32,724

 
1,754

 
—

 
34,478

Amortization of program contract costs and net realizable value adjustments
 
28,622

 
—

 
—

 
28,622

General and administrative overhead expenses
 
13,790

 
68

 
1,360

 
15,218

Operating income (loss)
 
104,776

 
897

 
(4,010
)
 
101,663

Interest expense
 
—

 
1,036

 
46,914

 
47,950

Income from equity and cost method investments
 
—

 
1,928

 
—

 
1,928

For the nine months ended September 30, 2015
 
Broadcast
 
Other
Operating
Divisions
 
Corporate
 
Consolidated
Revenue
 
$
1,543,804

 
$
63,542

 
$
—

 
$
1,607,346

Depreciation of property and equipment
 
73,056

 
2,045

 
837

 
75,938

Amortization of definite-lived intangible assets and other assets
 
112,724

 
6,715

 
—

 
119,439

Amortization of program contract costs and net realizable value adjustments
 
90,014

 
—

 
—

 
90,014

General and administrative overhead expenses
 
40,036

 
2,468

 
3,875

 
46,379

Operating income (loss)
 
312,726

 
2,105

 
(16,338
)
 
298,493

Interest expense
 
—

 
3,541

 
139,337

 
142,878

Income from equity and cost method investments
 
—

 
5,405

 
—

 
5,405


For the nine months ended September 30, 2014
 
Broadcast
 
Other
Operating
Divisions
 
Corporate
 
Consolidated
Revenue
 
$
1,311,931

 
$
50,809

 
$
—

 
$
1,362,740

Depreciation of property and equipment
 
72,455

 
1,716

 
801

 
74,972

Amortization of definite-lived intangible assets and other assets
 
79,238

 
4,957

 
—

 
84,195

Amortization of program contract costs and net realizable value adjustments
 
76,137

 
—

 
—

 
76,137

General and administrative overhead expenses
 
41,189

 
736

 
4,948

 
46,873

Operating income (loss)
 
293,942

 
1,476

 
(9,716
)
 
285,702

Interest expense
 
—

 
2,986

 
124,623

 
127,609

Income from equity and cost method investments
 
—

 
2,768

 
—

 
2,768



24
Table of Contents

10.              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 September 30, 2015
 
As of December 31, 2014
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Level 2:
 

 
 

 
 

 
 

6.375% Senior Unsecured Notes due 2021
$
350,000

 
$
351,792

 
$
350,000

 
$
355,800

6.125% Senior Unsecured Notes due 2022
500,000

 
500,510

 
500,000

 
503,475

5.625% Senior Unsecured Notes due 2024
550,000

 
511,500

 
550,000

 
532,813

5.375% Senior Unsecured Notes due 2021
600,000

 
576,066

 
600,000

 
595,068

Term Loan A
322,808

 
320,387

 
348,073

 
341,982

Term Loan B
1,379,299

 
1,365,467

 
1,035,883

 
1,029,997

Revolving credit facility
—

 
—

 
338,000

 
338,000

Debt of variable interest entities
27,553

 
27,553

 
30,167

 
30,167

Debt of other operating divisions
147,773

 
147,773

 
118,822

 
118,822



25
Table of Contents

11.              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 5.625% Notes, 6.125% Notes, and 6.375% Notes. Our Class A Common Stock and Class B Common Stock as of September 30, 2015, 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, 5.625% Notes, 6.125% Notes, and 6.375% Notes. As of September 30, 2015, our consolidated total debt, net of deferred financing costs and debt discounts, of $3,891.0 million included $3,739.6 million related to STG and its subsidiaries of which SBG guaranteed $3,689.8 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 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.


26
Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2015
(in thousands) (unaudited)

 
Sinclair
Broadcast
Group, Inc.
 
Sinclair
Television
Group, Inc.
 
Guarantor
Subsidiaries
and KDSM,
LLC
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Sinclair
Consolidated
Cash
$
—

 
$
97,996

 
$
259

 
$
21,134

 
$
—

 
$
119,389

Accounts and other receivables
—

 
—

 
358,831

 
30,119

 
(1,840
)
 
387,110

Other current assets
3,389

 
4,427

 
133,404

 
29,021

 
(4,491
)
 
165,750

Total current assets
3,389

 
102,423

 
492,494

 
80,274

 
(6,331
)
 
672,249

 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
3,168

 
21,815

 
558,045

 
171,961

 
(8,327
)
 
746,662

 
 
 
 
 
 
 
 
 
 
 
 
Investment in consolidated subsidiaries
445,261

 
3,448,508

 
4,179

 
—

 
(3,897,948
)
 
—

Goodwill
—

 
—

 
1,947,153

 
4,275

 
—

 
1,951,428

Broadcast licenses
—

 
—

 
116,239

 
16,935

 
—

 
133,174

Definite-lived intangible assets
—

 
—

 
1,618,218

 
206,671

 
(61,196
)
 
1,763,693

Other long-term assets
57,036

 
641,820

 
113,984

 
155,148

 
(754,747
)
 
213,241

Total assets
$
508,854

 
$
4,214,566

 
$
4,850,312

 
$
635,264

 
$
(4,728,549
)
 
$
5,480,447

 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
165

 
$
56,461

 
$
192,444

 
$
28,131

 
$
(4,731
)
 
$
272,470

Current portion of long-term debt
55

 
55,344

 
1,525

 
10,298

 
—

 
67,222

Current portion of affiliate long-term debt
1,603

 
—

 
1,238

 
1,320

 
(1,125
)
 
3,036

Other current liabilities
1,208

 
—

 
133,383

 
16,086

 
(1,485
)
 
149,192

Total current liabilities
3,031

 
111,805

 
328,590

 
55,835

 
(7,341
)
 
491,920

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
—

 
3,607,345

 
33,179

 
164,353

 
—

 
3,804,877

Affiliate long-term debt
2,284

 
—

 
11,779

 
360,036

 
(358,229
)
 
15,870

Other liabilities
26,760

 
30,122

 
1,043,471

 
173,657

 
(557,491
)
 
716,519

Total liabilities
32,075

 
3,749,272

 
1,417,019

 
753,881

 
(923,061
)
 
5,029,186

 
 
 
 
 
 
 
 
 
 
 
 
Total Sinclair Broadcast Group equity (deficit)
476,779

 
465,294

 
3,433,293

 
(88,965
)
 
(3,809,622
)
 
476,779

Noncontrolling interests in consolidated subsidiaries
—

 
—

 
—

 
(29,652
)
 
4,134

 
(25,518
)
Total liabilities and equity (deficit)
$
508,854

 
$
4,214,566

 
$
4,850,312

 
$
635,264

 
$
(4,728,549
)
 
$
5,480,447


27
Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2014
(in thousands)
  
 
Sinclair
Broadcast
Group, Inc.
 
Sinclair
Television
Group, Inc.
 
Guarantor
Subsidiaries
and KDSM,
LLC
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Sinclair
Consolidated
Cash
$
—

 
$
3,394

 
$
1,749

 
$
12,539

 
$
—

 
$
17,682

Accounts and other receivables
—

 
164

 
359,486

 
25,111

 
(1,258
)
 
383,503

Other current assets
5,741

 
12,996

 
98,751

 
19,225

 
(11,733
)
 
124,980

Total current assets
5,741

 
16,554

 
459,986

 
56,875

 
(12,991
)
 
526,165

 
 
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
3,949

 
17,554

 
569,372

 
168,762

 
(7,099
)
 
752,538

 
 
 
 
 
 
 
 
 
 
 
 
Investment in consolidated subsidiaries
395,225

 
3,585,037

 
3,978

 
—

 
(3,984,240
)
 
—

Goodwill
—

 
—

 
1,963,254

 
1,299

 
—

 
1,964,553

Broadcast Licenses
—

 
—

 
118,115

 
16,960

 
—

 
135,075

Definite-lived intangible assets
—

 
—

 
1,698,919

 
184,441

 
(65,097
)
 
1,818,263

Other long-term assets
65,988

 
555,877

 
134,454

 
128,247

 
(670,832
)
 
213,734

Total assets
$
470,903

 
$
4,175,022

 
$
4,948,078

 
$
556,584

 
$
(4,740,259
)
 
$
5,410,328

 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
541

 
$
46,083

 
$
201,102

 
$
26,802

 
$
(13,680
)
 
$
260,848

Current portion of long-term debt
529

 
42,953

 
1,302

 
68,332

 
—

 
113,116

Current portion of affiliate long-term debt
1,464

 
—

 
1,182

 
1,026

 
(1,047
)
 
2,625

Other current liabilities
1,208

 
—

 
107,867

 
9,749

 
(1,407
)
 
117,417

Total current liabilities
3,742

 
89,036

 
311,453

 
105,909

 
(16,134
)
 
494,006

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
—

 
3,638,286

 
34,338

 
82,198

 
—

 
3,754,822

Affiliate long-term debt
3,508

 
—

 
12,802

 
319,901

 
(319,902
)
 
16,309

Other liabilities
35,771

 
28,856

 
1,003,213

 
169,935

 
(497,927
)
 
739,848

Total liabilities
43,021

 
3,756,178

 
1,361,806

 
677,943

 
(833,963
)
 
5,004,985

 
 
 
 
 
 
 
 
 
 
 
 
Total Sinclair Broadcast Group equity (deficit)
427,882

 
418,844

 
3,586,272

 
(94,632
)
 
(3,910,484
)
 
427,882

Noncontrolling interests in consolidated subsidiaries
—

 
—

 
—

 
(26,727
)
 
4,188

 
(22,539
)
Total liabilities and equity (deficit)
$
470,903

 
$
4,175,022

 
$
4,948,078

 
$
556,584

 
$
(4,740,259
)
 
$
5,410,328



28
Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015
(in thousands) (unaudited)
  
 
Sinclair
Broadcast
Group, Inc.
 
Sinclair
Television
Group, Inc.
 
Guarantor
Subsidiaries
and KDSM,
LLC
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Sinclair
Consolidated
Net revenue
$
—

 
$
—

 
$
515,097

 
$
53,845

 
$
(20,538
)
 
$
548,404

 
 
 
 
 
 
 
 
 
 
 
 
Program and production
—

 
—

 
185,371

 
19,548

 
(18,470
)
 
186,449

Selling, general and administrative
930

 
14,386

 
102,730

 
3,392

 
(33
)
 
121,405

Depreciation, amortization and other operating expenses
266

 
1,040

 
105,681

 
35,487

 
(1,530
)
 
140,944

Total operating expenses
1,196

 
15,426

 
393,782

 
58,427

 
(20,033
)
 
448,798

 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) income
(1,196
)
 
(15,426
)
 
121,315

 
(4,582
)
 
(505
)
 
99,606

 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of consolidated subsidiaries
43,480

 
88,687

 
100

 
—

 
(132,267
)
 
—

Interest expense
(93
)
 
(45,784
)
 
(1,140
)
 
(7,721
)
 
6,172

 
(48,566
)
Other income (expense)
957

 
(407
)
 
3

 
(349
)
 
—

 
204

Total other income (expense)
44,344

 
42,496

 
(1,037
)
 
(8,070
)
 
(126,095
)
 
(48,362
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit (provision)
107

 
20,235

 
(30,126
)
 
2,574

 
—

 
(7,210
)
Net income (loss)
43,255

 
47,305

 
90,152

 
(10,078
)
 
(126,600
)
 
44,034

Net income attributable to the noncontrolling interests
—

 
—

 
—

 
(799
)
 
20

 
(779
)
Net income (loss) attributable to Sinclair Broadcast Group
$
43,255

 
$
47,305

 
$
90,152

 
$
(10,877
)
 
$
(126,580
)
 
$
43,255

Comprehensive income (loss)
$
44,044

 
$
47,315

 
$
90,152

 
$
(10,078
)
 
$
(127,389
)
 
$
44,044


29
Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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
$
—

 
$
—

 
$
466,786

 
$
47,747

 
$
(19,577
)
 
$
494,956

 
 
 
 
 
 
 
 
 
 
 
 
Program and production
—

 
84

 
149,488

 
19,095

 
(18,404
)
 
150,263

Selling, general and administrative
1,129

 
13,474

 
94,829

 
3,589

 
(500
)
 
112,521

Depreciation, amortization and other operating expenses
267

 
1,187

 
103,969

 
25,393

 
(307
)
 
130,509

Total operating expenses
1,396

 
14,745

 
348,286

 
48,077

 
(19,211
)
 
393,293

 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) income
(1,396
)
 
(14,745
)
 
118,500

 
(330
)
 
(366
)
 
101,663

 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of consolidated subsidiaries
47,744

 
84,122

 
—

 
—

 
(131,866
)
 
—

Interest expense
(138
)
 
(44,986
)
 
(1,209
)
 
(7,119
)
 
5,502

 
(47,950
)
Other income (expense)
2,449

 
(100
)
 
5

 
248

 
(23
)
 
2,579

Total other income (expense)
50,055

 
39,036

 
(1,204
)
 
(6,871
)
 
(126,387
)
 
(45,371
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit (provision)
(318
)
 
21,961

 
(31,678
)
 
2,511

 
—

 
(7,524
)
Net income (loss)
48,341

 
46,252

 
85,618

 
(4,690
)
 
(126,753
)
 
48,768

Net income attributable to the noncontrolling interests
—

 
—

 
—

 
(447
)
 
20

 
(427
)
Net income (loss) attributable to Sinclair Broadcast Group
$
48,341

 
$
46,252

 
$
85,618

 
$
(5,137
)
 
$
(126,733
)
 
$
48,341

Comprehensive income (loss)
$
48,490

 
$
46,293

 
$
85,618

 
$
(5,456
)
 
$
(126,455
)
 
$
48,490



30
Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
(in thousands) (unaudited)
 
 
Sinclair
Broadcast
Group, Inc.
 
Sinclair
Television
Group, Inc.
 
Guarantor
Subsidiaries
and KDSM,
LLC
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Sinclair
Consolidated
Net revenue
$
—

 
$
—

 
$
1,514,173

 
$
153,757

 
$
(60,584
)
 
$
1,607,346

 
 
 
 
 
 
 
 
 
 
 
 
Program and production
—

 
—

 
535,098

 
59,947

 
(56,493
)
 
538,552

Selling, general and administrative
3,432

 
40,598

 
302,656

 
9,715

 
(138
)
 
356,263

Depreciation, amortization and other operating expenses
799

 
2,624

 
317,240

 
95,873

 
(2,498
)
 
414,038

Total operating expenses
4,231

 
43,222

 
1,154,994

 
165,535

 
(59,129
)
 
1,308,853

 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) income
(4,231
)
 
(43,222
)
 
359,179

 
(11,778
)
 
(1,455
)
 
298,493

 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of consolidated subsidiaries
114,176

 
238,635

 
—

 
—

 
(352,811
)
 
—

Interest expense
(301
)
 
(134,626
)
 
(3,481
)
 
(21,898
)
 
17,428

 
(142,878
)
Other income (expense)
3,250

 
(116
)
 
269

 
3,222

 
—

 
6,625

Total other income (expense)
117,125

 
103,893

 
(3,212
)
 
(18,676
)
 
(335,383
)
 
(136,253
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit (provision)
430

 
60,435

 
(113,403
)
 
5,567

 
—

 
(46,971
)
Net income (loss)
113,324

 
121,106

 
242,564

 
(24,887
)
 
(336,838
)
 
115,269

Net income attributable to the noncontrolling interests
—

 
—

 
—

 
(1,999
)
 
54

 
(1,945
)
Net income (loss) attributable to Sinclair Broadcast Group
$
113,324

 
$
121,106

 
$
242,564

 
$
(26,886
)
 
$
(336,784
)
 
$
113,324

Comprehensive income (loss)
$
115,447

 
$
121,132

 
$
242,713

 
$
(24,885
)
 
$
(338,960
)
 
$
115,447





















31
Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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
$
—

 
$
—

 
$
1,287,200

 
$
136,701

 
$
(61,161
)
 
$
1,362,740

 
 
 
 
 
 
 
 
 
 
 
 
Program and production
—

 
274

 
409,661

 
58,998

 
(57,328
)
 
411,605

Selling, general and administrative
3,169

 
42,019

 
255,655

 
9,500

 
(1,647
)
 
308,696

Depreciation, amortization and other operating expenses
801

 
3,432

 
284,248

 
69,358

 
(1,102
)
 
356,737

Total operating expenses
3,970

 
45,725

 
949,564

 
137,856

 
(60,077
)
 
1,077,038

 
 
 
 
 
 
 
 
 
 
 
 
Operating (loss) income
(3,970
)
 
(45,725
)
 
337,636

 
(1,155
)
 
(1,084
)
 
285,702

 
 
 
 
 
 
 
 
 
 
 
 
Equity in earnings of consolidated subsidiaries
117,093

 
221,774

 
—

 
—

 
(338,867
)
 
—

Interest expense
(446
)
 
(118,816
)
 
(3,675
)
 
(20,646
)
 
15,974

 
(127,609
)
Other income (expense)
4,036

 
282

 
563

 
533

 
(63
)
 
5,351

Total other income (expense)
120,683

 
103,240

 
(3,112
)
 
(20,113
)
 
(322,956
)
 
(122,258
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax benefit (provision)
121

 
58,437

 
(108,411
)
 
4,435

 
—

 
(45,418
)
Net income (loss)
116,834

 
115,952

 
226,113

 
(16,833
)
 
(324,040
)
 
118,026

Net income attributable to the noncontrolling interests
—

 
—

 
—

 
(1,245
)
 
53

 
(1,192
)
Net income (loss) attributable to Sinclair Broadcast Group
$
116,834

 
$
115,952

 
$
226,113

 
$
(18,078
)
 
$
(323,987
)
 
$
116,834

Comprehensive income (loss)
$
118,432

 
$
116,073

 
$
226,113

 
$
(17,793
)
 
$
(324,393
)
 
$
118,432


32
Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
(in thousands) (unaudited)
  
 
Sinclair
Broadcast
Group, Inc.
 
Sinclair
Television
Group, Inc.
 
Guarantor
Subsidiaries
and KDSM,
LLC
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Sinclair
Consolidated
NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
$
(8,709
)
 
$
(66,929
)
 
$
390,101

 
$
(21,156
)
 
$
18,181

 
$
311,488

CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Acquisition of property and equipment
—

 
(7,687
)
 
(64,693
)
 
(1,603
)
 
1,507

 
(72,476
)
Payments for acquisition of television stations
—

 
—

 
(15,514
)
 
—

 
—

 
(15,514
)
Purchase of alarm monitoring contracts
—

 
—

 
—

 
(31,340
)
 
—

 
(31,340
)
Proceeds from sale of broadcast assets
—

 
—

 
23,650

 
—

 
—

 
23,650

Investments in equity and cost method investees
—

 
(7,486
)
 
(27
)
 
(35,555
)
 
—

 
(43,068
)
Other, net
3,776

 
539

 
530

 
6,370

 
—

 
11,215

Net cash flows (used in) from investing activities
3,776

 
(14,634
)
 
(56,054
)
 
(62,128
)
 
1,507

 
(127,533
)
 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
 

 
 

 
 

 
 

 
 

 
 

Proceeds from notes payable, commercial bank financing and capital leases
—

 
349,559

 
—

 
29,922

 
—

 
379,481

Repayments of notes payable, commercial bank financing and capital leases
(473
)
 
(370,011
)
 
(937
)
 
(3,683
)
 
—

 
(375,104
)
Dividends paid on Class A and Class B Common Stock
(47,104
)
 
—

 
—

 
—

 
—

 
(47,104
)
Payments for deferred financing cost
—

 
(3,604
)
 
—

 
(243
)
 
—

 
(3,847
)
Repurchase of outstanding Class A Common Stock
(28,823
)
 
—

 
—

 
—

 
—

 
(28,823
)
Increase (decrease) in intercompany payables
82,410

 
200,108

 
(335,447
)
 
72,757

 
(19,828
)
 
—

Noncontrolling interests distributions
—

 
—

 
—

 
(6,655
)
 
—

 
(6,655
)
Other, net
(1,077
)
 
113

 
847

 
(219
)
 
140

 
(196
)
Net cash flows (used in) from financing activities
4,933

 
176,165

 
(335,537
)
 
91,879

 
(19,688
)
 
(82,248
)
 
 
 
 
 
 
 
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
—

 
94,602

 
(1,490
)
 
8,595

 
—

 
101,707

CASH AND CASH EQUIVALENTS, beginning of period
—

 
3,394

 
1,749

 
12,539

 
—

 
17,682

CASH AND CASH EQUIVALENTS, end of period
$
—

 
$
97,996

 
$
259

 
$
21,134

 
$
—

 
$
119,389



33
Table of Contents

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
(in thousands) (unaudited)
  
 
Sinclair
Broadcast
Group, Inc.
 
Sinclair
Television
Group, Inc.
 
Guarantor
Subsidiaries
and KDSM,
LLC
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Sinclair
Consolidated
NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES
$
(27,282
)
 
$
(77,257
)
 
$
426,702

 
$
22,125

 
$
14,109

 
$
358,397

CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
 

 
 

 
 

 
 

 
 

 
 

Acquisition of property and equipment
—

 
(8,482
)
 
(47,961
)
 
(1,708
)
 
—

 
(58,151
)
Payments for acquisition of television stations
—

 
—

 
(1,071,428
)
 
—

 
—

 
(1,071,428
)
Purchase of alarm monitoring contracts
—

 
—

 
—

 
(15,647
)
 
—

 
(15,647
)
Proceeds from sale of broadcast assets
—

 
—

 
83,200

 
—

 
—

 
83,200

Decrease in restricted cash
—

 
(9,600
)
 
(82,983
)
 
—

 
—

 
(92,583
)
Investments in equity and cost method investees
—

 
—

 
—

 
(7,958
)
 
—

 
(7,958
)
Payments for acquisition of assets in other operating divisions
—

 
—

 
—

 
(8,273
)
 
—

 
(8,273
)
Proceeds from termination of life insurance policies
—

 
17,042

 
—

 
—

 
—

 
17,042

Other, net
1,000

 
—

 
5,000

 
936

 
—

 
6,936

Net cash flows (used in) from investing activities
1,000

 
(1,040
)
 
(1,114,172
)
 
(32,650
)
 
—

 
(1,146,862
)
 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
 

 
 

 
 

 
 

 
 

 
 

Proceeds from notes payable, commercial bank financing and capital leases
—

 
1,040,796

 
—

 
20,694

 
—

 
1,061,490

Repayments of notes payable, commercial bank financing and capital leases
(408
)
 
(280,121
)
 
(743
)
 
(5,145
)
 
—

 
(286,417
)
Dividends paid on Class A and Class B Common Stock
(45,322
)
 
—

 
—

 
—

 
—

 
(45,322
)
Repurchase of outstanding Class A Common Stock
(108,438
)
 
—

 
—

 
—

 
—

 
(108,438
)
Increase (decrease) in intercompany payables
178,331

 
(821,116
)
 
663,350

 
(6,456
)
 
(14,109
)
 
—

Other, net
2,119

 
(15,010
)
 
(784
)
 
73

 
—

 
(13,602
)
Net cash flows (used in) from financing activities
26,282

 
(75,451
)
 
661,823

 
9,166

 
(14,109
)
 
607,711

 
 
 
 
 
 
 
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
—

 
(153,748
)
 
(25,647
)
 
(1,359
)
 
—

 
(180,754
)
CASH AND CASH EQUIVALENTS, beginning of period
—

 
237,974

 
28,594

 
13,536

 
—

 
280,104

CASH AND CASH EQUIVALENTS, end of period
$
—

 
$
84,226

 
$
2,947

 
$
12,177

 
$
—

 
$
99,350



34
Table of Contents

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This report includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) and the U.S. Private Securities Litigation Reform Act of 1995.  We have based these forward-looking statements on our current expectations and projections about future events.  These forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things, the following risks:
 
General risks
 
•the impact of changes in national and regional economies and credit and capital markets;
•consumer confidence;
•the potential impact of changes in tax law;
•the activities of our competitors;
•terrorist acts of violence or war and other geopolitical events;
•natural disasters that impact our advertisers and our stations;
 
Industry risks
 
•
the business conditions of our advertisers particularly in the automotive and service industries;
•
competition with other broadcast television stations, radio stations, multi-channel video programming distributors (MVPDs), internet and broadband content providers and other print and media outlets serving in the same markets;
•
the performance of networks and syndicators that provide us with programming content;
•
the availability and cost of programming from networks and syndicators, as well as the cost of internally originated programming;
•
our relationships with networks and their strategies to distribute their programming via means other than their local television affiliates, such as over-the-top content;
•
the effects of the Federal Communications Commission’s (FCC’s) National Broadband Plan and incentive auction and the potential repacking of our broadcasting spectrum within a limited timeframe;
•
the potential of additional governmental regulation of broadcasting or changes in those regulations and court actions interpreting those regulations, including ownership regulations limiting over-the-air television’s ability to compete effectively (including regulations relating to Joints Sales Agreements (JSA) and Shared Services Agreements (SSA), and the national ownership cap), arbitrary enforcement of indecency regulations, retransmission consent regulations and political or other advertising restrictions;
•
labor disputes and legislation and other union activity associated with film, acting, writing and other guilds and professional sports leagues;
•
the broadcasting community’s ability to develop and adopt a viable mobile digital broadcast television (mobile DTV) strategy and platform, such as the adoption of ATSC 3.0 broadcast standard, and the consumer’s appetite for mobile television;
•
the impact of programming payments charged by networks pursuant to their affiliation agreements with broadcasters requiring compensation for network programming;
•
the effects of declining live/appointment viewership as reported through rating systems and local television efforts to adopt and receive credit for same day viewing plus viewing on-demand thereafter;
•
the ability of local MVPD’s to coordinate and determine local advertising rates as a consortium;
•
the impact of new FCC rules requiring broadcast stations to publish, among other information, political advertising rates online;
•
changes in the makeup of the population in the areas where stations are located;
•
the operation of low power devices in the broadcast spectrum, which could interfere with our broadcast signals;
•
the impact of FCC and Congressional efforts to limit the ability of a television station to negotiate retransmission consent agreements for the same-market stations it does not own and other FCC efforts which may restrict a television station's retransmission consent negotiations;
•
Over-the-top (OTT) technologies and their potential impact on cord-cutting
 
Risks specific to us
 
•
the effectiveness of our management;
•
our ability to attract and maintain local and national advertising and successfully participate in new sales channels such as programmatic advertising through business partnership ventures and the development of technology;

35
Table of Contents

•
our ability to service our debt obligations and operate our business under restrictions contained in our financing agreements;
•
our ability to successfully implement and monetize our own content management system (CMS) designed to provide our viewers significantly improved content via the internet and other digital platforms;
•
our ability to successfully renegotiate retransmission consent agreements;
•
our ability to renew our FCC licenses;
•
our limited ability to obtain FCC approval for any future acquisitions, as well as, in certain cases, customary antitrust clearance for any future acquisitions;
•
our ability to identify digital media business investment opportunities and to successfully integrate any acquired businesses, as well as the success of our digital initiatives in a competitive environment;
•
our ability to maintain our affiliation and programming service agreements with our networks and program service providers and at renewal, to successfully negotiate these agreements with favorable terms;
•
our ability to effectively respond to technology affecting our industry and to increasing competition from other media providers;
•
the popularity of syndicated programming we purchase, original programming that we internally develop and produce, and network programming that we air;
•
the strength of ratings for our local news broadcasts including our news sharing arrangements;
•
the successful execution of our program development and multi-channel broadcasting initiatives including American Sports Network (ASN) and other original programming, and mobile DTV; and
•
the results of prior year tax audits by taxing authorities.
 
Other matters set forth in this report and other reports filed with the Securities and Exchange Commission, including the Risk Factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 may also cause actual results in the future to differ materially from those described in the forward-looking statements.  However, additional factors and risks not currently known to us or that we currently deem immaterial may also cause actual results in the future to differ materially from those described in the forward-looking statements.  You are cautioned not to place undue reliance on any forward-looking statements, which speaks only as of the date on which it is made.  We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur.
 

36
Table of Contents

The following table sets forth certain operating data for the periods presented:

STATEMENTS OF OPERATIONS DATA
(in thousands, except for per share data) (Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Statement of Operations Data:
 

 
 

 
 
 
 
Net broadcast revenues (a)
$
497,353

 
$
448,056

 
$
1,463,854

 
$
1,226,088

Revenues realized from station barter arrangements
28,618

 
28,482

 
79,950

 
85,843

Other operating divisions revenues
22,433

 
18,418

 
63,542

 
50,809

Total revenues
548,404

 
494,956

 
1,607,346

 
1,362,740

 
 
 
 
 
 
 
 
Station production expenses
186,449

 
150,263

 
538,552

 
411,605

Station selling, general and administrative expenses
105,196

 
97,303

 
309,884

 
261,823

Expenses recognized from station barter arrangements
23,105

 
24,764

 
66,898

 
75,769

Amortization of program contract costs and net realizable value adjustments
29,841

 
28,622

 
90,014

 
76,137

Depreciation and amortization expenses (b)
65,490

 
59,820

 
195,377

 
159,167

Other operating divisions expenses
17,705

 
14,919

 
50,194

 
41,697

Corporate general and administrative expenses
16,209

 
15,218

 
46,379

 
46,873

Research and development expenses
4,803

 
2,384

 
11,555

 
3,967

Operating income
99,606

 
101,663

 
298,493

 
285,702

 
 
 
 
 
 
 
 
Interest expense and amortization of debt discount and deferred financing costs
(48,566
)
 
(47,950
)
 
(142,878
)
 
(127,609
)
Income from equity and cost method investees
252

 
1,928

 
5,405

 
2,768

Other income, net
(48
)
 
651

 
1,220

 
2,583

Income before income taxes
51,244

 
56,292

 
162,240

 
163,444

Income tax provision
(7,210
)
 
(7,524
)
 
(46,971
)
 
(45,418
)
Net income
44,034

 
48,768

 
115,269

 
118,026

Net income attributable to the noncontrolling interests
(779
)
 
(427
)
 
(1,945
)
 
(1,192
)
Net income attributable to Sinclair Broadcast Group
$
43,255

 
$
48,341

 
$
113,324

 
$
116,834

 
 
 
 
 
 
 
 
Basic and Diluted Earnings Per Common Share Attributable to Sinclair Broadcast Group:
 

 
 

 
 

 
 

Basic earnings per share
$
0.46

 
$
0.50

 
$
1.19

 
$
1.20

Diluted earnings per share
$
0.45

 
$
0.49

 
$
1.18

 
$
1.19

Balance Sheet Data:
 
September 30, 2015
 
December 31, 2014
Cash and cash equivalents
 
$
119,389

 
$
17,682

Total assets
 
$
5,480,447

 
$
5,410,328

Total debt (c)
 
$
3,891,005

 
$
3,886,872

Total equity
 
$
451,261

 
$
405,343


(a)         Net broadcast revenues are defined as broadcast revenues, net of agency commissions.
 
(b)         Depreciation and amortization includes depreciation and amortization of property and equipment and amortization of definite-lived intangible assets and other assets.
 

37
Table of Contents

(c)          Total debt is defined as notes payable, capital leases and commercial bank financing, including the current and long-term portions.
 
The following Management’s Discussion and Analysis provides qualitative and quantitative information about our financial performance and condition and should be read in conjunction with our consolidated financial statements and the accompanying notes to those statements.  This discussion consists of the following sections:
 
Executive Overview — financial events during the three months ended September 30, 2015 and through the date of this Report on Form 10-Q is filed.

Results of Operations — an analysis of our revenues and expenses for the three and nine months ended September 30, 2015 and 2014, including comparisons between quarters and expectations for the three months ended December 31, 2015.
 
Liquidity and Capital Resources — a discussion of our primary sources of liquidity, an analysis of our cash flows from or used in operating activities, investing activities and financing activities and an update of our debt refinancings during the three and nine months ended September 30, 2015.

EXECUTIVE OVERVIEW
 
Third Quarter 2015 Events
 
•
In July 2015, American Sports Network (ASN) announced an agreement with Millennium Dancesport Championships to televise “The Dancesport League” on ASN.
•
In July 2015, we renewed affiliation agreements with the CBS Network covering 16 markets. The new agreements are effective in 2015 and 2016 as current affiliation agreements expire and run for five years to 2020 and 2021.
•
In July 2015, we renewed affiliation agreements with the CW Network covering 23 owned markets. At the same time, the CW renewed affiliation agreements with another 9 markets for which Sinclair provides sales and other services. These agreements are effective August 2016 and expire in 2021.
•
In July 2015, we announced the launch of our Sunday morning national news show “Full Measure with Sharyl Attkisson” which debuted on October 4, 2015. The broadcast will air on Sinclair’s affiliates nationwide and be available on their websites. The 30-minute program, which is based in Washington, D.C., focuses on investigative journalism and target accountability in the public and private sectors.
•
In August 2015, our Board of Directors declared a quarterly dividend of $0.165 per share, payable on September 15, 2015 to the holders of record at the close of business on September 1, 2015.
•
In September 2015, we were granted authority by the Federal Communications Commission (FCC) to operate an experimental facility in Washington D.C. and Baltimore markets to implement a Single Frequency Network (SFN) using the base elements of the new ATSC 3.0 transmission standard.
•
In September 2015, ASN entered into a sublicense agreement with ESPN to televise college football and basketball games for the Mid-American Conference (MAC) and college basketball games for the American Athletic Conference (The American), both beginning in the 2015 academic year.
•
In September 2015, ASN entered into agreements with several top collegiate hockey conferences to broadcast as many as 30 total games per year.
•
In September 2015, Ring of Honor Wrestling (ROH) signed a six month international broadcast deal with L'Equipe 21, a sports-based television channel in France.
•
In September 2015, we announced the creation of a news segment called, "Connect to Congress", a multimedia initiative that enables Members of Congress in our news markets to communicate with their constituents on a regular basis.
•
In September 2015, we closed on the acquisition of certain non-license assets of WDSI (FOX) and WFLI (CW) in Chattanooga, Tennessee, from New Age Media.

Other Events

•
In October 2015, we entered into a definitive agreement to purchase the broadcast assets of WBST (CBS) in South Bend-Elkhart, Indiana, owned by Schurz Communications, Inc., and to sell the broadcast assets of WLUC (NBC and FOX) in Marquette, Michigan to Gray Television, Inc. We anticipate that the swap will close at the end of 2015 or beginning of 2016, subject to the satisfaction of standard closing conditions.
•
In October 2015, we premiered, together with Metro-Goldwyn-Mayer (MGM), COMET-TV, the first-ever 24 hour/7 day per week science fiction multi-channel network.

38
Table of Contents

•
In October 2015, we entered into a definitive agreement to acquire KUQI (FOX), KTOV-LP (MNT) and KXPX-LP (Retro TV) in Corpus Christi, Texas from High Maintenance, LLC for $9.3 million. The transaction is expected to close at the end of 2015 or beginning of 2016, subject to receipt of regulatory approvals and the satisfaction of standard closing conditions.
•
In October, the Company entered into a definitive agreement to acquire KFXL (FOX) and KHGI, KHGI-LD, KWNB and KWNB-LD (ABC), in Lincoln, Nebraska for $31.25 million. The transaction, subject to bankruptcy court and FCC approval and subject to standard closing conditions, is expected to close at the end of 2015 or beginning of 2016. The Company expects to fund the purchase price at closing, through cash on hand.
•
In November 2015, our Board of Directors declared a quarterly dividend of $0.165 per share, payable on December 15, 2015 to the holders of record at the close of business on December 1, 2015.


RESULTS OF OPERATIONS
 
The results of the acquired stations during the nine months ended September 30, 2015 and year ended December 31, 2014 are included in our results of operations from their respective dates of acquisition. See Note 2. Acquisitions in our consolidated financial statements for further discussion of stations acquired.  Additionally, the results of certain television stations that were sold are not included in our results for the period. See Dispositions related to station acquisitions under Note 3. Disposition of Assets in our consolidated financial statements for further discussion of excluded stations. Unless otherwise indicated, references in this discussion and analysis are to the three and nine months ended September 30, 2015 and 2014, respectively.  Additionally, any references to the first, second or fourth quarters are to the three months ended March 31, June 30 and December 31, respectively, for the year being discussed.  We have one reportable segment, “broadcast” that is disclosed separately from our other operating division and corporate activities.
 
SEASONALITY/CYCLICALITY
 
Our operating results are usually subject to seasonal fluctuations.  Usually, the second and fourth quarter operating results are higher than first and third quarters’ because advertising expenditures are increased in anticipation of certain seasonal and holiday spending by consumers.
 
Our operating results are usually subject to fluctuations from political advertising.  In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections.  Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election.
 

39
Table of Contents

BROADCAST SEGMENT
 
Broadcast Revenue
 
The following table presents our revenues, net of agency commissions, for the periods presented (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
Percent
Change
 
2015
 
2014
 
Percent
Change
Local revenues:
 

 
 

 
 

 
 
 
 
 
 
Non-political
$
404.3

 
$
337.9

 
19.7
 %
 
$
1,193.4

 
$
958.1

 
24.6
%
Political
3.2

 
4.0

 
(b)

 
5.4

 
6.8

 
(b)

Total local
407.5

 
341.9

 
19.2
 %
 
1,198.8

 
964.9

 
24.2
%
National revenues (a):
 

 
 

 
 

 
 

 
 

 
 

Non-political
85.2

 
76.4

 
11.5
 %
 
256.4

 
216.5

 
18.4
%
Political
4.7

 
29.8

 
(b)

 
8.7

 
44.7

 
(b)

Total national
89.9

 
106.2

 
(15.3
)%
 
265.1

 
261.2

 
1.5
%
Total net broadcast revenues
$
497.4

 
$
448.1

 
11.0
 %
 
$
1,463.9

 
$
1,226.1

 
19.4
%

(a)         National revenue relates to advertising sales sourced from national advertising agencies.
 
(b)         Political revenue is not comparable from year to year due to cyclicality of elections.  See Political Revenues below for more information.
 
Net broadcast revenues.  Net broadcast revenues increased $49.3 million when comparing the third quarter 2015 to the same period in 2014, of which $53.3 million was related to stations not included in the same period in 2014, net of dispositions. The residual decrease is primarily the result of lower advertising revenues in the political, food-grocery/other and internet sectors. These decreases were offset by higher retransmission revenues from MVPDs and increases in advertising revenues in the services, direct response and furniture sectors. Excluding the stations acquired or disposed after the third quarter of 2014, automotive, which typically is our largest category, represented 25.9% of net time sales for the three months ended September 30, 2015. Net broadcast revenues increased $237.8 million when comparing the nine months ended September 30, 2015 to the same period in 2014, of which $234.3 million was related to acquired stations not included in the same period in 2014. The remaining increase for the nine month period is primarily the result of higher retransmission revenues from MVPDs and increases in advertising revenues in the services, pharmaceutical/cosmetics and furniture sectors.  These increases were partially offset by a decrease in advertising revenues in the political, automotive and telecommunications sectors. Excluding the stations acquired or disposed after the third quarter of 2014, automotive, which typically is our largest category, represented 24.9% of net time sales for the nine months ended September 30, 2015.
 

40
Table of Contents

From a network affiliation or program service arrangement perspective, the following table sets forth our affiliate percentages of net time sales for the periods presented:
 
 
# of channels (a)
 
Percent of Net Time Sales for the
 
Net Time Sales
Percent Change
 
Percent of Net Time Sales for the
 
Net Time Sales
Percent Change
 
 
Three months ended September 30,
 
 
Nine months ended September 30,
 
 
 
2015
 
2014
 
 
2015
 
2014
 
ABC
32
 
28.1%
 
28.2%
 
(0.8)%
 
28.6%
 
23.4%
 
39.6%
FOX
47
 
26.1%
 
25.3%
 
2.6%
 
25.8%
 
28.3%
 
(0.6)%
CBS
29
 
17.6%
 
19.3%
 
(20.7)%
 
17.5%
 
19.8%
 
(9.3)%
NBC
22
 
11.7%
 
8.9%
 
31.1%
 
11.8%
 
9.3%
 
38.5%
The CW
44
 
8.1%
 
7.7%
 
1.4%
 
8.1%
 
8.5%
 
1.5%
MyNetworkTV
34
 
6.7%
 
8.2%
 
(19.3)%
 
6.7%
 
8.3%
 
(12.4)%
Other (b)
176
 
1.7%
 
2.4%
 
(96.6)%
 
1.5%
 
2.5%
 
(97.8)%
Total
384
 
 
 
 
 
 
 
 
 
 
 
 

(a)     We acquired television stations during 2014 and 2015 with a variety of network affiliations.  This acquisition activity affects the year-over year comparability of revenue by affiliation.  See Note 2. Acquisitions in our consolidated financial statements for further discussion of stations acquired.
 
(b)     We broadcast other programming from providers on our channels, including Univision, Telemundo, Estrella TV, Azteca, MundoFox, Get TV, Grit, This TV, ME TV, Antenna TV, Bounce Network, Decades, Retro TV, Zuus Country, Heartland, Live Well Network, 24/7 Weather, and Weather Nation.
 
Political Revenues.  Political revenues decreased by $25.9 million to $7.9 million for the third quarter 2015 when compared to the same period in 2014.  For the nine months ended September 30, 2015, political revenues decreased by $37.4 million to $14.1 million when compared to the same period in 2014. Political revenues are typically higher in election years such as 2014.
 
Local Revenues.  Excluding political revenues, our local broadcast revenues, which include local times sales, retransmission revenues and other local revenues, were up $66.4 million for the third quarter 2015 when compared to the same period in 2014, of which $42.4 million was related to the stations acquired after the third quarter of 2014, net of dispositions. The remaining increase, for the three month period, is primarily due to an increase in advertising revenues from the services, direct response and paid programming sectors as well as an increase in retransmission revenues from MVPDs. These increases were partially offset by a decrease in advertising revenues from the automotive, schools and internet sectors. Excluding political revenues, our local broadcast revenues, which include local times sales, retransmission revenues and other local revenues, were up $235.3 million for the nine months ended September 30, 2015 compared to the same period in 2014, of which $187.4 million was related to the stations acquired after the third quarter of 2014, net of dispositions. The remaining increase is primarily due to an increase in advertising revenues from the home products, services and medical sectors as well as an increase in retransmission revenues from MVPDs. These increases were partially offset by a decrease in advertising revenues from the schools, automotive and internet sectors.
 
National Revenues.  Excluding political revenues, our national broadcast revenues, which relates to time sales sourced from national advertising agencies, were up $8.8 million for the third quarter 2015 when compared to the same period in 2014, of which $9.7 million was related to the stations acquired after the third quarter of 2014, net of dispositions. The residual decrease was due to a decline in advertising revenues in the retail/department stores, food-grocery/other and internet sectors. Excluding political revenues, our national broadcast revenues, were up $39.9 million for the nine months ended September 30, 2015 compared to the same period in 2014, of which $44.4 million related to the acquired stations not included in the same period in 2014, net of dispositions. The remaining decrease is primarily due to a decline in advertising revenues in the food-grocery/other, telecommunications and travel/leisure sectors.


41
Table of Contents

Broadcast Expenses
 
The following table presents our significant expense categories in our broadcast segment for the periods presented (in millions):
 
 
Three months ended September 30,
 
Percent  Change
(Increase/(Decrease))
 
Nine months ended September 30,
 
Percent  Change
(Increase/(Decrease))
 
2015
 
2014
 
 
2015
 
2014
 
Station production expenses
$
186.4

 
$
150.3

 
24.0
%
 
$
538.6

 
$
411.6

 
30.9
 %
Station selling, general and administrative expenses
$
105.2

 
$
97.3

 
8.1
%
 
$
309.9

 
$
261.8

 
18.4
 %
Amortization of program contract costs and net realizable value adjustments
$
29.8

 
$
28.6

 
4.2
%
 
$
90.0

 
$
76.1

 
18.3
 %
Corporate general and administrative expenses
$
13.9

 
$
13.8

 
0.7
%
 
$
40.0

 
$
41.2

 
(2.9
)%
Depreciation and amortization expenses
$
62.1

 
$
57.2

 
8.6
%
 
$
185.8

 
$
151.7

 
22.5
 %
 
Station production expenses.  Station production expenses increased $36.1 million during the third quarter of 2015 compared to the same period in 2014, of which $20.0 million related to acquired stations not included in the same period of 2014, net of dispositions.  Station production expenses increased $127.0 million during the nine months ended September 30, 2015 as compared to the same period in 2014, of which $86.5 million related to acquired stations not included in the same period of 2014, net of dispositions. The remaining increase for the three and nine month periods month period is primarily due to an increase in compensation expense, further investment in programming content, including production costs related to sports programming content and expansion of news, and an increase in fees pursuant to network affiliation agreements mainly as a result of higher retransmission revenue. This increase is partially offset by a decrease in music license fees.
 
Station selling, general and administrative expense.  Station selling, general and administrative expenses increased $7.9 million during the third quarter of 2015 compared to the same period in 2014, of which $7.5 million related to acquired stations not included in the same period of 2014, net of dispositions. The remaining increase for the three month period is primarily due to an increase in compensation expense, an increase in digital interactive costs, and an increase in information technology infrastructure costs. Station selling, general and administrative expenses increased $48.1 million for the nine months ended September 30, 2015 compared to the same period in 2014, of which $39.3 million related to acquired stations not included in the same period of 2014, net of dispositions.  The remaining increase for the nine month period is primarily due to an increase in compensation expense, increased insurance cost, an increase in digital interactive costs, and an increase in information technology infrastructure costs.

Amortization of program contract costs and net realizable value adjustments.  The amortization of program contract costs increased $1.2 million during the third quarter of 2015 compared to the same period in 2014, of which $1.1 million related to acquired stations not included in the same period of 2014, net of dispositions. The amortization of program contract costs increased $13.9 million during the nine months ended September 30, 2015 compared to the same period in 2014, of which $5.4 million related to acquired stations not included in the same period of 2014, net of dispositions. The remaining increase for the three and nine month periods is primarily due to higher programming costs.
 
Corporate general and administrative expenses.  See explanation under Corporate and Unallocated Expenses.
 
Depreciation and Amortization expenses.  Depreciation of property and equipment and amortization of definite-lived intangibles and other assets increased $4.9 million during the third quarter of 2015 compared to the same period in 2014, of which $8.4 million related to acquired stations not included in the same period of 2014, net of dispositions. Depreciation of property and equipment and amortization of definite-lived intangibles and other assets increased $34.1 million during the nine months ended September 30, 2015 compared to the same period in 2014, of which $37.7 million related to acquired stations not included in the same period of 2014, net of dispositions. The remaining decrease on stations owned prior to 2014, for both the three and nine month periods is primarily due to assets becoming fully depreciated and amortized.


42
Table of Contents

OTHER OPERATING DIVISIONS
 
Triangle Sign & Service, LLC (Triangle), a sign designer / fabricator, Alarm Funding Associates, LLC (Alarm Funding), a regional security alarm operating and bulk acquisition company, Dielectric, LLC, a manufacturer of broadcast equipment, real estate ventures and other nominal businesses make up our other operating divisions.  Revenues for our other operating divisions increased $4.0 million to $22.4 million during the third quarter 2015 compared to $18.4 million during the same period in 2014.  For the nine months ended September 30, 2015, revenues for our other operating divisions increased $12.7 million to $63.5 million compared to $50.8 million during the same period in 2014. Expenses of our other operating divisions including operating expenses, depreciation and amortization and applicable other income (expense) items such as interest expense, increased $4.7 million to $23.0 million during the third quarter 2015 compared to $18.3 million during the same period in 2014.  For the nine months ended September 30, 2015, expenses including other operating divisions expense, depreciation and amortization and applicable other income (expense) items, such as interest expense, increased $13.6 million to $65.0 million compared to $51.4 million in 2014. The increases in both revenue and expenses for both the three and nine months ended September 30, 2015 relate primarily to the increase in alarm monitoring revenue from purchases of recurring monthly revenue, an increase in residential lot sales of certain of our real estate ventures, and an increase in Dielectric sales volume.
 
Income from Equity and Cost Method Investments.  Results of our equity and cost method investments in private investment funds and real estate ventures are included in income from equity and cost method investments in our consolidated statements of operations, within other operating divisions.  During the three months ended September 30, 2015, we recorded a loss of $0.5 million related to our real estate ventures and income of $0.8 million related to certain private investment funds.  For the nine months ended September 30, 2015, we recorded income of $3.0 million related to our real estate ventures and income of $2.3 million related to certain private investment funds. During the three months ended September 30, 2014, we recorded a loss of less than $0.2 million related to our real estate ventures and income of $2.1 million related to certain private investment funds. During the nine months ended September 30, 2014, we recorded a loss of $0.5 million related to our real estate ventures and income of $3.1 million related to certain private investment funds.

CORPORATE AND UNALLOCATED EXPENSES
 
 
Three months ended September 30,
 
Percent Change
(Increase/(Decrease))
 
Nine months ended September 30,
 
Percent Change
(Increase/(Decrease))
 
2015
 
2014
 
 
2015
 
2014
 
Corporate general and administrative expenses
$
1.4

 
$
1.4

 
—
 %
 
$
3.9

 
$
4.9

 
(20.4
)%
Interest expense
$
47.3

 
$
46.9

 
0.9
 %
 
$
139.3

 
$
124.6

 
11.8
 %
Income tax provision
$
(7.2
)
 
$
(7.5
)
 
(4.0
)%
 
$
(47.0
)
 
$
(45.4
)
 
3.5
 %
Research and development
$
4.8

 
$
2.3

 
108.7
 %
 
$
11.6

 
$
4.0

 
190.0
 %
 
Corporate general and administrative expenses.  We allocate most of our corporate general and administrative expenses to the broadcast segment.  The explanation that follows combines the corporate general and administrative expenses found in the Broadcast Segment section with the corporate general and administrative expenses found in this section, Corporate and Unallocated Expenses.  These results exclude general and administrative costs from our other operating divisions which are included in our discussion of expenses in the Other Operating Divisions section.
 
Corporate general and administrative expenses combined increased by $0.1 million and decreased by $2.2 million for the three and nine months ended September 30, 2015, respectively, when compared to the same period in 2014. We expect corporate general and administrative expenses to decrease in the fourth quarter of 2015 compared to third quarter of 2015.
 
Interest expense.  Interest expense increased during the three and nine months ended September 30, 2015, compared to the same period in 2014 primarily due to the issuance of $550.0 million of 5.625% Notes and incremental borrowings under our Bank Credit Agreement. The increase in interest expense was partially offset by a decrease in interest expense due to the redemption of 8.375% Notes during 2014. See Liquidity and Capital Resources for more information.
 
Income tax (provision) benefit. The effective tax rate for the three and nine months ended September 30, 2015 including the effects of the noncontrolling interest was a provision of 14.3% and 29.3%, respectively, as compared to a provision of 13.4% and 28.0% during the same periods in 2014, respectively.


43
Table of Contents

The increase in the effective tax rate for the three and nine months ended September 30, 2015, as compared to the same periods in 2014, is primarily due to smaller reduction in liability for unrecognized tax benefits as a result of statute of limitations expiring in 2015.

 Research and development expenses. In 2014, in response to the Advanced Television Systems Committee’s request for proposal for a “physical layer” of the next-generation broadcast TV standard that could in future years replace the current digital broadcasting systems used in the United States and around the world, we launched ONE Media LLC to develop a Next Generation Broadcast Platform (“NGBP”) to provide convergence of broadcasting with wireless broadband services. Research and development costs related to ONE Media, LLC were $4.8 million and $2.3 million for the three months ended September 30, 2015 and 2014, and $11.6 million and $4.0 million for the nine months ended September 30, 2015 and 2014, respectively.

LIQUIDITY AND CAPITAL RESOURCES
 
As of September 30, 2015, we had $119.4 million in cash and cash equivalent balances and net working capital of approximately $180.3 million.  Cash generated by our operations and borrowing capacity under the Bank Credit Agreement are used as our primary sources of liquidity.  As of September 30, 2015, we had $482.9 million of borrowing capacity available on our revolving credit facility.
 
Effective April 30, 2015, we amended our Bank Credit Agreement to raise an additional $350.0 million in incremental term loan B commitments. The proceeds were used to pay down the outstanding balance on our revolving credit facility, and for general corporate purposes. See Note 5. Notes Payable and Commercial Bank Financing in our consolidated financial statements for further discussion.
 
During 2015, we repurchased 1.1 million shares of Class A Common Stock for $28.8 million.  The repurchase was completed using cash on hand.  As of September 30, 2015, we had $105.5 million remaining under our existing $300.0 million repurchase authorization.
 
We anticipate that existing cash and cash equivalents, cash flow from our operations and borrowing capacity under the Bank Credit Agreement will be sufficient to satisfy our debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months.  For our long-term liquidity needs, in addition to the sources described above, we may rely upon the issuance of long-term debt, the issuance of equity or other instruments convertible into or exchangeable for equity, or the sale of non-core assets.  However, there can be no assurance that additional financing or capital or buyers of our non-core assets will be available, or that the terms of any transactions will be acceptable or advantageous to us.
 

44
Table of Contents

Sources and Uses of Cash
 
The following table sets forth our cash flows for the periods presented (in millions):
 
 
For the three months ended September 30,
 
For the nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Net cash flows from operating activities
$
133.5

 
$
178.4

 
$
311.5

 
$
358.4

 
 
 
 
 
 
 
 
Cash flows (used in) from investing activities:
 

 
 

 
 

 
 

Acquisition of property and equipment
$
(25.4
)
 
$
(31.6
)
 
$
(72.5
)
 
$
(58.2
)
Payments for acquisition of television stations
(15.5
)
 
(1,071.4
)
 
(15.5
)
 
(1,071.4
)
Investment in other operating divisions
(14.7
)
 
(7.8
)
 
(31.3
)
 
(23.9
)
Proceeds from sale of broadcast assets
18.8

 
83.2

 
23.7

 
83.2

Investments in equity and costs method investees
(5.3
)
 
83.2

 
(43.1
)
 
(8.0
)
Proceeds from the termination of life insurance policies
—

 
—

 
—

 
17.1

Increase in restricted cash
1.5

 
(91.9
)
 
—

 
(92.6
)
Other
2.9

 
3.9

 
11.2

 
6.9

Net cash flows used in investing activities
$
(37.7
)
 
$
(1,032.4
)
 
$
(127.5
)
 
$
(1,146.9
)
 
 
 
 
 
 
 
 
Cash flows from (used in) financing activities:
 

 
 

 
 

 
 

Proceeds from notes payable, commercial bank financing and capital leases
$
14.6

 
$
958.8

 
$
379.5

 
$
1,061.5

Repayments of notes payable, commercial bank financing and capital leases
(14.6
)
 
(265.3
)
 
(375.1
)
 
(286.4
)
Dividends paid on Class A and Class B Common Stock
(15.6
)
 
(16.0
)
 
(47.1
)
 
(45.3
)
Repurchase of outstanding Class A Common Stock
(21.0
)
 
(26.0
)
 
(28.8
)
 
(108.4
)
Other
(4.4
)
 
(10.6
)
 
(10.7
)
 
(13.7
)
Net cash flows from (used) in financing activities
$
(41.0
)
 
$
640.9

 
$
(82.2
)
 
$
607.7

 
Operating Activities
 
Net cash flows from operating activities decreased during the three and nine months ended September 30, 2015 compared to the same period in 2014.  This change is primarily due to higher program payments and income taxes paid, compared to the same period in 2014, offset by an increase in cash received from customers. The increase in cash received from customers and higher program payments is primarily related to stations acquired in the second half of 2014.

Investing Activities
 
Net cash flows used in investing activities decreased during the three months ended September 30, 2015 compared to the same period in 2014.  This decrease is primarily due to fewer acquisitions of broadcast assets, lower capital expenditures, partially offset by a decrease in proceeds from the sale of broadcast assets, increase in the purchase of alarm contracts, and an increase in equity and cost method investments.

Net cash flows used in investing activities decreased during the nine months ended September 30, 2015 compared to the same period in 2014.  This decrease is primarily due to fewer acquisitions of broadcast assets, partially offset by a decrease in proceeds from the sale of broadcast assets, an increase in capital expenditures, an increase in the purchase of alarm contracts, and an increase in equity and cost method investments.

In the fourth quarter of 2015, we anticipate capital expenditures to decrease from the third quarter of 2015.

Financing Activities

45
Table of Contents

 
Net cash flows from financing activities decreased for the three months ended September 30, 2015, compared to the same period in 2014, due primarily to a decrease in proceeds from notes payable, partially offset by a decrease in the repayment of notes payable, payments for financing costs related to the issuance of debt, and Class A Common Stock repurchased.

Net cash flows from financing activities increased for the nine months ended September 30, 2015, compared to the same period in 2014, due primarily to a decrease in proceeds from notes payable and increase in repayment on notes payable, partially offset by a decrease in payments for financing costs related to the issuance of debt, and Class A Common Stock repurchased.

In November 2015, our Board of Directors declared a quarterly dividend of $0.165 per share. Future dividends on our common shares, if any, will be at the discretion of our Board of Directors and will depend on several factors including our results of operations, cash requirements and surplus, financial condition, covenant restrictions and other factors that the Board of Directors may deem relevant.

CONTRACTUAL CASH OBLIGATIONS
 
As of September 30, 2015, there were no material changes to our contractual cash obligations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Other than the foregoing, there have been no material changes from the quantitative and qualitative discussion about market risk previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 4.  CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
 
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting as of September 30, 2015.
 
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
The term “internal control over financial reporting,” as defined in Rules 13a-15d-15(f) under the Exchange Act, means a process designed by, or under the supervision of our Chief Executive and Chief Financial Officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP) and includes those policies and procedures that:
 
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made in accordance with authorizations of management or our Board of Directors; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material adverse effect on our financial statements.
 

46
Table of Contents

Assessment of Effectiveness of Disclosure Controls and Procedures
 
Based on the evaluation of our disclosure controls and procedures as of September 30, 2015, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
 
Changes in Internal Control over Financial Reporting
 
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Limitations on the Effectiveness of Controls
 
Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II.  OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
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.

ITEM 1A.  RISK FACTORS
 
There have been no material changes to the Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2014.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
The following table summarizes repurchases of our stock in the quarter ended and year to date September 30, 2015:
 

47
Table of Contents

Period
 
Total Number of Shares Purchased (1)
 
Average Price Per Share
 
Total Number of Shares Purchased as Part of a Publicly Announced Program
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (in millions)
 
Class A Common Stock : (2)
 
 

 
 
 
 

 
 

 
07/01/15 – 07/31/15
 
—

 
—

 
—

 
$
126.6

 
08/01/15 – 08/31/15
 
803,100

 
26.19

 
803,100

 
$
105.5

 
09/01/15 – 09/30/15
 
—

 
—

 
—

 
$
105.5

 
 
(1)        All repurchases were made in open-market transactions.
 
(2)        On October 28, 1999, we announced a $150.0 million share repurchase program, which was renewed on February 6, 2008. On March 20, 2014, the Board of Directors authorized a new $150.0 million share repurchase authorization. There is no expiration date and currently, management has no plans to terminate this program.  As of September 30, 2015, the total remaining authorization was $105.5 million.

 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
None.

ITEM 4.  MINE SAFETY DISCLOSURES
 
None.

ITEM 5.  OTHER INFORMATION
 
None.

48
Table of Contents

ITEM 6.  EXHIBITS
 
Exhibit
Number
 
Description
 
 
 
10.1
 
Amended and Restated Employment Agreement by and between Sinclair Broadcast Group, Inc. and Barry M. Faber, Executive Vice President & General Counsel, dated August 31, 2015.
 
 
 
31.1
 
Certification by David D. Smith, as Chairman and Chief Executive Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(a) of the Exchange Act (15 U.S.C. § 7241).
 
 
 
31.2
 
Certification by Christopher S. Ripley, as Chief Financial Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(a) of the Exchange Act (15 U.S.C. § 7241).
 
 
 
32.1
 
Certification by David D. Smith, as Chairman and Chief Executive Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(b) of the Exchange Act and § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C § 1350).
 
 
 
32.2
 
Certification by Christopher S. Ripley, as Chief Financial Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(b) of the Exchange Act and § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C § 1350).
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase


49
Table of Contents

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on the 6th day of November 2015.
 
 
SINCLAIR BROADCAST GROUP, INC.
 
 
 
 
 
By:
/s/ David R. Bochenek
 
 
David R. Bochenek
 
 
Senior Vice President/Chief Accounting Officer
 
 
(Authorized Officer and Chief Accounting Officer)


50
Table of Contents

EXHIBIT INDEX
 
Exhibit
Number
 
Description
 
 
 
10.1
 
Amended and Restated Employment Agreement by and between Sinclair Broadcast Group, Inc. and Barry M. Faber, Executive Vice President & General Counsel, dated August 31, 2015.
 
 
 
31.1
 
Certification by David D. Smith, as Chairman and Chief Executive Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(a) of the Exchange Act (15 U.S.C. § 7241).
 
 
 
31.2
 
Certification by Christopher S. Ripley, as Chief Financial Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(a) of the Exchange Act (15 U.S.C. § 7241).
 
 
 
32.1
 
Certification by David D. Smith, as Chairman and Chief Executive Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(b) of the Exchange Act and § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C § 1350).
 
 
 
32.2
 
Certification by Christopher S. Ripley, as Chief Financial Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(b) of the Exchange Act and § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C § 1350).
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase


51