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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, 2018
 
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 every Interactive Data File required to be submitted 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 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,” and "emerging growth 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
Emerging growth 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 by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate the number of share outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
    
 
 
Number of shares outstanding as of
Title of each class
 
11/5/2018
Class A Common Stock
 
71,792,701
Class B Common Stock
 
25,670,684


Table of Contents

SINCLAIR BROADCAST GROUP, INC.
 
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2018
 
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,
2018
 
As of December 31,
2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
1,022,974

 
$
681,326

Restricted cash, current

 
313,110

Accounts receivable, net of allowance for doubtful accounts of $2,367 and $2,590, respectively
609,742

 
566,464

Current portion of program contract costs
87,128

 
71,387

Income taxes receivable

 
28,150

Prepaid expenses and other current assets
70,891

 
54,310

Total current assets
1,790,735

 
1,714,747

Assets held for sale
5,590

 

Program contract costs, less current portion
13,080

 
3,202

Property and equipment, net
674,440

 
738,298

Restricted cash, less current portion
1,508

 
1,504

Goodwill
2,125,402

 
2,124,033

Indefinite-lived intangible assets
158,222

 
159,371

Definite-lived intangible assets, net
1,670,340

 
1,801,670

Other assets
188,097

 
241,645

Total assets (a)
$
6,627,414

 
$
6,784,470

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued liabilities
$
428,471

 
$
370,403

Deferred spectrum auction proceeds

 
84,341

Income taxes payable
14,320

 
2,503

Current portion of notes payable, capital leases and commercial bank financing
43,698

 
161,049

Current portion of program contracts payable
114,115

 
108,053

Total current liabilities
600,604

 
726,349

Liabilities held for sale
4,083

 

Notes payable, capital leases and commercial bank financing, less current portion
3,858,558

 
3,887,601

Program contracts payable, less current portion
54,691

 
41,909

Deferred tax liabilities
444,940

 
515,236

Other long-term liabilities
78,984

 
79,009

Total liabilities (a)
5,041,860

 
5,250,104

Commitments and contingencies (See Note 4)


 


 
 

 
 

Shareholders' Equity:
 

 
 

Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 74,978,424 and 76,071,145 shares issued and outstanding, respectively
750

 
761

Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 25,670,684 and 25,670,684 shares issued and outstanding, respectively, convertible into Class A Common Stock
257

 
257

Additional paid-in capital
1,293,169

 
1,320,298

Retained earnings
330,780

 
248,845

Accumulated other comprehensive loss
(1,423
)
 
(1,423
)
Total Sinclair Broadcast Group shareholders’ equity
1,623,533

 
1,568,738

Noncontrolling interests
(37,979
)
 
(34,372
)
Total equity
1,585,554

 
1,534,366

Total liabilities and equity
$
6,627,414

 
$
6,784,470

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

(a)
Our consolidated total assets as of September 30, 2018 and December 31, 2017 include total assets of variable interest entities (VIEs) of $121.1 million and $130.6 million, respectively, which can only be used to settle the obligations of the VIEs.  Our consolidated total liabilities as of September 30, 2018 and December 31, 2017 include total liabilities of VIEs of $22.9 million and $27.0 million, respectively, for which the creditors of the VIEs have no recourse to us.  See Note 1. Nature of Operations and 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,
 
2018
 
2017
 
2018
 
2017
REVENUES:
 

 
 

 
 
 
 
Media revenues (a)
$
730,361

 
$
629,597

 
$
2,069,874

 
$
1,873,881

Non-media revenues
35,899

 
14,935

 
91,882

 
49,821

Total revenues
766,260

 
644,532

 
2,161,756

 
1,923,702

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 

 
 

 
 
 
 
Media production expenses
303,782

 
268,330

 
893,189

 
796,218

Media selling, general and administrative expenses
154,581

 
133,605

 
452,274

 
385,372

Amortization of program contract costs and net realizable value adjustments
24,482

 
28,047

 
76,142

 
87,962

Non-media expenses
32,476

 
17,496

 
84,720

 
51,974

Depreciation of property and equipment
25,035

 
24,442

 
75,477

 
72,026

Corporate general and administrative expenses
34,322

 
25,831

 
88,603

 
71,458

Amortization of definite-lived intangible and other assets
44,600

 
43,368

 
131,322

 
132,299

Gain on asset dispositions, net of impairment
(10,828
)
 
(34
)
 
(36,678
)
 
(53,531
)
Total operating expenses
608,450

 
541,085

 
1,765,049

 
1,543,778

Operating income
157,810

 
103,447

 
396,707

 
379,924

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE):
 

 
 

 
 
 
 
Interest expense and amortization of debt discount and deferred financing costs
(75,753
)
 
(51,743
)
 
(237,766
)
 
(160,020
)
Loss from equity investments
(25,379
)
 
(4,362
)
 
(55,339
)
 
(4,221
)
Other income, net
5,674

 
2,342

 
13,129

 
4,197

Total other expense, net
(95,458
)
 
(53,763
)
 
(279,976
)
 
(160,044
)
Income before income taxes
62,352

 
49,684

 
116,731

 
219,880

INCOME TAX BENEFIT (PROVISION)
2,648

 
(17,118
)
 
21,573

 
(70,577
)
NET INCOME
65,000

 
32,566

 
138,304

 
149,303

Net income attributable to the noncontrolling interests
(1,125
)
 
(1,929
)
 
(3,264
)
 
(16,820
)
NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP
$
63,875

 
$
30,637

 
$
135,040

 
$
132,483

 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:
 

 
 

 
 
 
 
Basic earnings per share
$
0.63

 
$
0.30

 
$
1.32

 
$
1.34

Diluted earnings per share
$
0.62

 
$
0.30

 
$
1.31

 
$
1.32

Weighted average common shares outstanding
102,083

 
102,245

 
102,069

 
99,210

Weighted average common and common equivalent shares outstanding
102,789

 
103,055

 
102,898

 
100,173


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

(a)
See Revenue Recognition within Note 1. Nature of Operations and Summary of Significant Accounting Policies for a discussion of the adoption of the new accounting principles for revenue recognition.

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,
 
2018
 
2017
 
2018
 
2017
Net income
$
65,000

 
$
32,566

 
$
138,304

 
$
149,303

Comprehensive income
65,000

 
32,566

 
138,304

 
149,303

Comprehensive income attributable to the noncontrolling interests
(1,125
)
 
(1,929
)
 
(3,264
)
 
(16,820
)
Comprehensive income attributable to Sinclair Broadcast Group
$
63,875

 
$
30,637

 
$
135,040

 
$
132,483

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


6

Table of Contents

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands) (Unaudited)
 
 
Nine Months Ended September 30, 2017
 
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
 
Shares
 
Values
 
Shares
 
Values
 
 
 
 
 
BALANCE, December 31, 2016
64,558,207

 
$
646

 
25,670,684

 
$
257

 
$
843,691

 
$
(255,804
)
 
$
(807
)
 
$
(30,047
)
 
$
557,936

Issuance of common stock, net of issuance costs
12,000,000

 
120

 

 

 
487,763

 

 

 

 
487,883

Dividends declared and paid on Class A and Class B Common Stock ($0.54 per share)

 

 

 

 

 
(53,049
)
 

 

 
(53,049
)
Repurchases of Class A Common Stock
(997,300
)
 
(10
)
 

 

 
(30,277
)
 

 

 

 
(30,287
)
Class A Common Stock issued pursuant to employee benefit plans
471,617

 
4

 

 

 
16,978

 

 

 

 
16,982

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 
(20,469
)
 
(20,469
)
Net income

 

 

 

 

 
132,483

 

 
16,820

 
149,303

BALANCE, September 30, 2017
76,032,524

 
$
760

 
25,670,684

 
$
257

 
$
1,318,155

 
$
(176,370
)
 
$
(807
)
 
$
(33,696
)
 
$
1,108,299

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
 
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
 
Shares
 
Values
 
Shares
 
Values
 
 
 
 
 
BALANCE, June 30, 2017
76,993,826

 
$
770

 
25,670,684

 
$
257

 
$
1,346,657

 
$
(188,701
)
 
$
(807
)
 
$
(33,204
)
 
$
1,124,972

Dividends declared and paid on Class A and Class B Common Stock ($0.18 per share)

 

 

 

 

 
(18,306
)
 

 

 
(18,306
)
Repurchases of Class A Common Stock
(997,300
)
 
(10
)
 

 

 
(30,277
)
 

 

 

 
(30,287
)
Class A Common Stock issued pursuant to employee benefit plans
35,998

 

 

 

 
1,775

 

 

 

 
1,775

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 
(2,421
)
 
(2,421
)
Net income

 

 

 

 

 
30,637

 

 
1,929

 
32,566

BALANCE, September 30, 2017
76,032,524

 
$
760

 
25,670,684

 
$
257

 
$
1,318,155

 
$
(176,370
)
 
$
(807
)
 
$
(33,696
)
 
$
1,108,299

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

7

Table of Contents

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands) (Unaudited)
 
 
Nine Months Ended September 30, 2018
 
Sinclair Broadcast Group Shareholders
 
 
 
 
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
Total Equity
 
Shares
 
Values
 
Shares
 
Values
 
 
 
 
 
BALANCE, December 31, 2017
76,071,145

 
$
761

 
25,670,684

 
$
257

 
$
1,320,298

 
$
248,845

 
$
(1,423
)
 
$
(34,372
)
 
$
1,534,366

Cumulative effect of adoption of new accounting standard

 

 

 

 

 
2,100

 

 

 
2,100

Dividends declared and paid on Class A and Class B Common Stock ($0.54 per share)

 

 

 

 

 
(55,205
)
 

 

 
(55,205
)
Repurchases of Class A Common Stock
(1,636,019
)
 
(16
)
 

 

 
(45,888
)
 

 

 

 
(45,904
)
Class A Common Stock issued pursuant to employee benefit plans
543,298

 
5

 

 

 
18,759

 

 

 

 
18,764

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 
(6,871
)
 
(6,871
)
Net income

 

 

 

 

 
135,040

 

 
3,264

 
138,304

BALANCE, September 30, 2018
74,978,424

 
$
750

 
25,670,684

 
$
257

 
$
1,293,169

 
$
330,780

 
$
(1,423
)
 
$
(37,979
)
 
$
1,585,554

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
Sinclair Broadcast Group Shareholders
 
 
 
 
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
Total Equity
 
Shares
 
Values
 
Shares
 
Values
 
 
 
 
 
BALANCE, June 30, 2018
76,576,980

 
$
766

 
25,670,684

 
$
257

 
$
1,336,251

 
$
285,316

 
$
(1,423
)
 
$
(35,749
)
 
$
1,585,418

Dividends declared and paid on Class A and Class B Common Stock ($0.18 per share)

 

 

 

 

 
(18,411
)
 

 

 
(18,411
)
Repurchases of Class A Common Stock
(1,636,019
)
 
(16
)
 

 

 
(45,888
)
 

 

 

 
(45,904
)
Class A Common Stock issued pursuant to employee benefit plans
37,463

 

 

 

 
2,806

 

 

 

 
2,806

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 
(3,355
)
 
(3,355
)
Net income

 

 

 

 

 
63,875

 

 
1,125

 
65,000

BALANCE, September 30, 2018
74,978,424

 
$
750

 
25,670,684

 
$
257

 
$
1,293,169

 
$
330,780

 
$
(1,423
)
 
$
(37,979
)
 
$
1,585,554

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


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SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
 
 
Nine Months Ended September 30,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income
$
138,304

 
$
149,303

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

 
 

Depreciation of property and equipment
75,477

 
72,026

Amortization of definite-lived intangible and other assets
131,322

 
132,299

Amortization of program contract costs and net realizable value adjustments
76,142

 
87,962

Stock-based compensation expense
20,832

 
12,905

Deferred tax benefit
(69,937
)
 
(13,285
)
Gain on asset disposition, net of impairment
(24,230
)
 
(53,531
)
Loss from equity investments
55,339

 
5,136

Change in assets and liabilities, net of acquisitions:
 

 
 

(Increase) decrease in accounts receivable
(47,923
)
 
2,167

Increase in prepaid expenses and other current assets
(20,321
)
 
(1,257
)
Increase (decrease) in accounts payable and accrued liabilities
54,057

 
(28,237
)
Net change in net income taxes payable/receivable
39,967

 
(21,571
)
     Decrease in program contracts payable
(82,993
)
 
(84,499
)
Other, net
26,869

 
18,793

Net cash flows from operating activities
372,905

 
278,211

 
 
 
 
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
 

 
 

Acquisition of property and equipment
(77,618
)
 
(55,463
)
Acquisition of businesses, net of cash acquired

 
(269,799
)
Proceeds from the sale of assets
1,087

 
195,182

Investments in equity investees
(25,624
)
 
(22,302
)
Distributions from equity investees
23,533

 
6,642

Spectrum auction proceeds

 
310,802

Other, net
(7,866
)
 
(13,414
)
Net cash flows (used in) from investing activities
(86,488
)
 
151,648

 
 
 
 
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from notes payable and commercial bank financing
3,343

 
166,041

Repayments of notes payable, commercial bank financing and capital leases
(154,244
)
 
(318,309
)
Net proceeds from the sale of Class A Common Stock

 
487,883

Dividends paid on Class A and Class B Common Stock
(55,205
)
 
(53,049
)
Distributions to noncontrolling interests
(6,871
)
 
(20,469
)
Repurchase of outstanding Class A Common Stock
(45,904
)
 
(30,287
)
Other, net
1,006

 
(5,357
)
Net cash flows (used in) from financing activities
(257,875
)
 
226,453

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
28,542

 
656,312

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period
995,940

 
260,184

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period
$
1,024,482

 
$
916,496


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


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SINCLAIR BROADCAST GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.              NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
Nature of Operations

Sinclair Broadcast Group, Inc. (the Company) is a diversified television broadcasting company with national reach and a strong focus on providing high-quality content on our local television stations and digital platforms. The content, distributed through our broadcast platform, consists of programming provided by third-party networks and syndicators, local news, and other original programming produced by us. We also distribute our original programming, and owned and operated network affiliates, on other third-party platforms. Additionally, we own digital media products that are complementary to our extensive portfolio of television station related digital properties. Outside of our media related businesses, we operate technical services companies focused on supply and maintenance of broadcast transmission systems as well as research and development for the advancement of broadcast technology, and we manage other non-media related investments.

Our broadcast distribution platform is a single reportable segment for accounting purposes. It consists primarily of our broadcast television stations. We own, provide programming and operating services pursuant to agreements commonly referred to as local marketing agreements (LMAs), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as joint sales agreements (JSAs) and shared services agreements (SSAs)), to 191 stations in 89 markets. These stations broadcast 602 channels as of September 30, 2018. For the purpose of this report, these 191 stations and 602 channels are referred to as “our” stations and channels.

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

Interim Financial Statements
 
The consolidated financial statements for the three and nine months ended September 30, 2018 and 2017 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 statements of equity, 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, 2017 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.


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Table of Contents

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. 
 
Third-party station licensees.  Certain of our stations provide services to other station owners within the same respective market through agreements, 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 of 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. Based on the terms of the agreements and the significance of our investment in the stations, we are the primary beneficiary when, 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 we absorb losses and returns that would be considered significant to the VIEs.  The fees paid between us and the licensees pursuant to these arrangements are eliminated in consolidation.  Several of these VIEs are owned by a related party, Cunningham Broadcasting Corporation (Cunningham).  See Note 7. Related Person Transactions for more information about the arrangements with Cunningham. See Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap under Note 4. Commitments and Contingencies for discussion of recent changes in Federal Communications Commission (FCC) rules related to JSAs.
 
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, were as follows (in thousands):
 
 
As of September 30,
2018
 
As of December 31,
2017
ASSETS
 

 
 

Current assets:
 

 
 

Accounts receivable
$
17,514

 
$
19,566

Other current assets
8,804

 
8,937

Total current assets
26,318

 
28,503

 
 
 
 
Program contract costs, less current portion
2,394

 
822

Property and equipment, net
5,575

 
6,215

Goodwill and indefinite-lived intangible assets
15,064

 
15,064

Definite-lived intangible assets, net
69,424

 
74,442

Other assets
2,374

 
5,601

Total assets
$
121,149

 
$
130,647

 
 
 
 
LIABILITIES
 

 
 

Current liabilities:
 

 
 

Other current liabilities
$
19,720

 
$
23,564

 
 
 
 
Notes payable, capital leases and commercial bank financing, less current portion
18,673

 
23,217

Program contracts payable, less current portion
9,279

 
11,213

Other long-term liabilities
650

 
650

Total liabilities
$
48,322

 
$
58,644


 

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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 LMAs and certain outsourcing agreements, which are treated as a prepayment of the purchase price of the stations, and capital leases between us and Cunningham, which are eliminated in consolidation.  The total payments made under these LMAs and certain JSAs, which are excluded from the liabilities above, were $46.6 million and $44.0 million as of September 30, 2018 and December 31, 2017, respectively.  The total capital lease liabilities, net of capital lease assets, which are excluded from the above, were $4.5 million as of both September 30, 2018 and December 31, 2017

Total liabilities associated with certain outsourcing agreements and purchase options with certain VIEs excluded from above were $117.0 million and $116.5 million as of September 30, 2018 and December 31, 2017, respectively, as these amounts are eliminated in consolidation.  The assets of each of these consolidated VIEs can only be used to settle the obligations of the VIE.  As of September 30, 2018, all of the liabilities are non-recourse to us except for debt of certain VIEs. See Guarantees of third party debt under Note 3. Notes Payable and Commercial Bank Financing for further discussion. The risk and reward characteristics of the VIEs are similar.

Other investments.  We have several investments 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 method of accounting; at cost, less impairment plus observable price changes; or at fair value.
 
The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary as of September 30, 2018 and December 31, 2017 were $74.9 million and $115.7 million, respectively, and are included in other assets on our 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 investments on our consolidated statements of operations.  We recorded losses for the three and nine months ended September 30, 2018 of $10.0 million and $33.5 million, respectively, and a loss of $1.3 million and income of $2.1 million for the three and nine months ended September 30, 2017, respectively.

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.


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Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on revenue recognition for revenue from contracts with customers, Accounting Standards Codification Topic 606 (ASC 606). 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 standard permits the use of either the retrospective or cumulative effect transition method. Since Accounting Standards Update (ASU) 2014-09 was issued, several additional ASUs have been issued and incorporated within ASC 606 to clarify various elements of the guidance. We adopted this guidance retrospectively during the first quarter of 2018. The impact of the adoption did not have a material impact on our station advertising or distribution revenue. Under the new standard, certain barter revenue and expense related to syndicated programming is no longer recognized. See Revenue Recognition below for more information on the adoption.

In January 2016, the FASB issued new guidance which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The new guidance requires entities to measure equity investments (except those accounted for under the equity method of accounting or those that resulted in consolidation of the investee) at fair value, with changes in fair value recognized in net income. The new standard is effective for the interim and annual periods beginning after December 15, 2017. We adopted this guidance during the first quarter of 2018. The impact of the adoption did not have a material impact on our financial statements. Equity investments without a readily determinable fair value measured utilizing the measurement alternative at cost, less impairment plus observable price changes were $20.7 million and $32.3 million, as of September 30, 2018 and December 31, 2017, respectively. There was a $10.1 million impairment to the carrying amount of one investment accounted for using the measurement alternative during the three and nine months ended September 30, 2018 which is recorded within loss from equity investments within our consolidated statement of operations. We also had other investments recorded at fair value of $18.7 million and $12.2 million as of September 30, 2018 and December 31, 2017, respectively. As a result of the adoption of this guidance, we recorded a cumulative effect adjustment to retained earnings of $2.1 million for these investments, within our consolidated statement of equity.

In February 2016, the FASB issued new guidance related to accounting for leases, which requires the assets and liabilities that arise from leases to be recognized on the balance sheet. Currently, only capital leases are recorded on the balance sheet. This update will require the lessee to recognize a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election, by class of underlying asset, not to recognize lease assets and liabilities and recognize the lease expense for such leases, generally on a straight-line basis over the lease term. The new standard is effective for interim and annual reporting periods beginning after December 15, 2018. We are still evaluating if this standard will have a material impact on our consolidated balance sheets, but we do not expect a material impact on our consolidated statements of operations. We plan to adopt using the optional transition method as well as the package of practical expedients on January 1, 2019.

In August 2016, the FASB issued new guidance related to the classification of certain cash receipts and cash payments. The new standard includes eight specific cash flow issues with the objective of reducing the existing diversity in practice as to how cash receipts and cash payments are represented in the statement of cash flows. In November 2016, the FASB issued new guidance related to the classification and presentation of changes in restricted cash on the statement of cash flows. This new guidance requires that the statement of cash flows explain changes during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. We adopted this guidance retrospectively during the first quarter of 2018. For the nine months ended September 30, 2017, the adoption of this guidance resulted in an increase in cash flows from investing and financing activities of $312.8 million and $1.5 million, respectively.

In January 2017, the FASB issued guidance which clarifies the definition of a business with additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard should be applied prospectively and is effective for interim and annual reporting periods beginning after December 15, 2017. We adopted this guidance during the first quarter of 2018. The impact of the adoption did not have a material impact on our consolidated financial statements.


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Table of Contents

In March 2018, the FASB issued guidance, effective in the first quarter of 2018, for situations where the accounting under Accounting Standards Codification Topic 740 is incomplete for certain income tax effects of the 2017 Tax Cuts and Jobs Act (TCJA) upon issuance of an entity’s financial statements for the reporting period in which the TCJA was enacted. Any provisional amounts or adjustments to provisional amounts as a result of obtaining, preparing, or analyzing additional information about facts and circumstances related to the provisional amounts should be included in income (loss) from continuing operations as an adjustment to income tax expense in the reporting period the amounts are determined. As discussed in Income Taxes below, adjustments to the provisional amounts that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined.

In August 2018, the FASB issued guidance which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, with the capitalized implementation costs of a hosting arrangement that is a service contract expensed over the term of the hosting arrangement. The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Revenue Recognition

On January 1, 2018, we adopted ASC 606 using the retrospective adoption method. The following table presents the effects of adoption on our consolidated financial statements for the comparative periods presented (in thousands):

 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2017
 
As Reported
 
Adoption of ASC 606
 
As Adjusted
 
As Reported
 
Adoption of ASC 606
 
As Adjusted
Revenues realized from station barter arrangements (a)
$
31,787

 
$
(26,359
)
 
$
5,428

 
$
91,817

 
$
(76,413
)
 
$
15,404

Expenses realized from barter arrangements (b)
$
26,696

 
$
(26,359
)
 
$
337

 
$
77,491

 
$
(76,413
)
 
$
1,078

Operating income
$
103,447

 
$

 
$
103,447

 
$
379,924

 
$

 
$
379,924

Net income
$
30,637

 
$

 
$
30,637

 
$
132,483

 
$

 
$
132,483

Basic EPS
$