Edgar Filing: SINCLAIR BROADCAST GROUP INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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 November 1, 2014
Class A Common Stock		69,548,420
Class B Common Stock		25,978,357

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SINCLAIR BROADCAST GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2014

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS	3

CONSOLIDATED BALANCE SHEETS	3

CONSOLIDATED STATEMENTS OF OPERATIONS	4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)	7

CONSOLIDATED STATEMENTS OF CASH FLOWS	8

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42

ITEM 4. CONTROLS AND PROCEDURES	42

PART II. OTHER INFORMATION	43

ITEM 1. LEGAL PROCEEDINGS	43

ITEM 1A. RISK FACTORS	43

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	43

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	44

ITEM 4. MINE SAFETY DISCLOSURES	44

ITEM 5. OTHER INFORMATION	44

ITEM 6. EXHIBITS	45

SIGNATURE	46

EXHIBIT INDEX	47

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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

	As of September 30, 2014			As of December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	99,350		$	280,104
Accounts receivable, net of allowance for doubtful accounts of $3,422 and $3,379, respectively	327,618			308,974
Affiliate receivable	25			182
Current portion of program contract costs	107,403			74,324
Prepaid expenses and other current assets	32,473			30,599
Deferred barter costs	6,407			3,688
Total current assets	573,276			697,871
ASSETS HELD FOR SALE	40,848			—
PROGRAM CONTRACT COSTS, less current portion	42,917			24,708
PROPERTY AND EQUIPMENT, net	712,677			596,071
RESTRICTED CASH	104,330			11,747
GOODWILL	1,820,042			1,380,082
BROADCAST LICENSES	125,330			101,029
DEFINITE-LIVED INTANGIBLE ASSETS, net	1,652,634			1,127,755
OTHER ASSETS	222,202			208,209
Total assets (a)	$	5,294,256		$	4,147,472
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	18,814		$	13,989
Accrued liabilities	263,836			182,185
Income taxes payable	10,002			2,504
Current portion of notes payable, capital leases and commercial bank financing	43,130			46,346
Current portion of notes and capital leases payable to affiliates	2,676			2,367
Current portion of program contracts payable	118,300			90,933
Deferred barter revenues	6,226			3,319
Deferred tax liabilities	43			1,738
Total current liabilities	463,027			343,381
LONG-TERM LIABILITIES:
Liabilities held for sale	4,310			—
Notes payable, capital leases and commercial bank financing, less current portion	3,725,185			2,966,402
Notes payable and capital leases to affiliates, less current portion	16,901			18,925
Program contracts payable, less current portion	63,806			34,681
Deferred tax liabilities	592,866			311,041
Other long-term liabilities	73,718			67,338
Total liabilities (a)	4,939,813			3,741,768
COMMITMENTS AND CONTINGENCIES (See Note 3)
EQUITY:
SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY:
Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 70,466,653 and 74,145,569 shares issued and outstanding, respectively	705			741
Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 25,978,357 and 26,028,357 shares issued and outstanding, respectively, convertible into Class A Common Stock	260			260
Additional paid-in capital	1,001,947			1,094,918
Accumulated deficit	(625,484		)	(696,996		)
Accumulated other comprehensive loss	(2,693		)	(2,553		)
Total Sinclair Broadcast Group shareholders’ equity	374,735			396,370
Noncontrolling interests	(20,292		)	9,334
Total equity	354,443			405,704
Total liabilities and equity	$	5,294,256		$	4,147,472

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

(a)

Our consolidated total assets as of September 30, 2014 and December 31, 2013 include total assets of variable interest entities (VIEs) of $160.9 million and $194.1 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of September 30, 2014 and December 31, 2013 include total liabilities of the VIEs of $35.0 million and $31.6 million, respectively, for which the creditors of the VIEs have no recourse to us. See Note 1. Summary of Significant Accounting Policies.

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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,
	2014			2013			2014			2013
REVENUES:
Station broadcast revenues, net of agency commissions	$	448,056		$	303,028		$	1,226,088		$	835,223
Revenues realized from station barter arrangements	28,482			20,653			85,843			60,930
Other operating divisions revenues	18,418			14,963			50,809			39,263
Total revenues	494,956			338,644			1,362,740			935,416
OPERATING EXPENSES:
Station production expenses	150,263			98,939			411,605			265,066
Station selling, general and administrative expenses	97,303			66,115			261,823			171,350
Expenses recognized from station barter arrangements	24,764			18,082			75,769			53,478
Amortization of program contract costs and net realizable value adjustments	28,622			19,229			76,137			56,746
Other operating divisions expenses	14,919			12,746			41,697			33,351
Depreciation of property and equipment	25,342			17,408			74,972			47,108
Corporate general and administrative expenses	16,991			16,109			50,229			38,806
Amortization of definite-lived intangible and other assets	34,478			17,168			84,195			48,727
Loss on asset dispositions	611			—			611			—
Total operating expenses	393,293			265,796			1,077,038			714,632
Operating income	101,663			72,848			285,702			220,784
OTHER INCOME (EXPENSE):
Interest expense and amortization of debt discount and deferred financing costs	(47,950		)	(39,867		)	(127,609		)	(123,029		)
Loss from extinguishment of debt	—			—			—			(16,283		)
Income from equity and cost method investments	1,928			1,571			2,768			115
Other income, net	651			488			2,583			1,427
Total other expense	(45,371		)	(37,808		)	(122,258		)	(137,770		)
Income from continuing operations before income taxes	56,292			35,040			163,444			83,014
INCOME TAX PROVISION	(7,524		)	(4,489		)	(45,418		)	(22,992		)
Income from continuing operations	48,768			30,551			118,026			60,022
DISCONTINUED OPERATIONS:
Income from discontinued operations, includes income tax benefit of $0, $6,107, $0 and $10,806, respectively	—			6,100			—			11,558
NET INCOME	48,768			36,651			118,026			71,580
Net income attributable to the noncontrolling interests	(427		)	(309		)	(1,192		)	(415		)
NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP	$	48,341		$	36,342		$	116,834		$	71,165
Dividends declared per share	$	0.165		$	0.15		$	0.465		$	0.45

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:
Basic earnings per share from continuing operations	$	0.50		$	0.30		$	1.20		$	0.66
Basic earnings per share from discontinued operations	$	—		$	0.06		$	—		$	0.13
Basic earnings per share	$	0.50		$	0.37		$	1.20		$	0.78
Diluted earnings per share from continuing operations	$	0.49		$	0.30		$	1.19		$	0.65
Diluted earnings per share from discontinued operations	$	—		$	0.06		$	—		$	0.13
Diluted earnings per share	$	0.49		$	0.36		$	1.19		$	0.78
Weighted average common shares outstanding	97,154			99,473			97,712			90,982
Weighted average common and common equivalent shares outstanding	97,896			100,239			98,414			91,549

AMOUNTS ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP COMMON SHAREHOLDERS:
Income from continuing operations, net of tax	$	48,341		$	30,242		$	116,834		$	59,607
Income from discontinued operations, net of tax	—			6,100			—			11,558
Net income	$	48,341		$	36,342		$	116,834		$	71,165

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013

Net income	$	48,768		$	36,651		$	118,026		$	71,580
Amortization of net periodic pension benefit costs, net of taxes	41			(38		)	121			(116		)
Unrealized (loss) gain on investments, net of taxes	(319		)	—			285			—
Comprehensive income	48,490			36,613			118,432			71,464
Comprehensive income attributable to the noncontrolling interests	(427		)	(309		)	(1,192		)	(415		)
Comprehensive income attributable to Sinclair Broadcast Group	$	48,063		$	36,304		$	117,240		$	71,049

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

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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		Accumulated			Accumulated Other Comprehensive			Noncontrolling			Total Equity
	Shares	Values		Shares		Values			Capital		Deficit			Loss			Interests			(Deficit)
BALANCE, December 31, 2012	52,332,012	$	523	28,933,859		$	289		$	600,928	$	(713,697	)	$	(4,993	)	$	16,897		$	(100,053	)
Dividends declared on Class A and Class B Common Stock	—	—		—		—			—		(41,938		)	—			—			(41,938		)
Issuance of common stock, net of issuance costs	18,000,000	180		—		—			472,220		—			—			—			472,400
Class B Common Stock converted into Class A Common Stock	2,671,649	27		(2,671,649	)	(27		)	—		—			—			—			—
4.875% Convertible Debentures converted into Class A Common Stock, net of taxes	338,632	3		—		—			7,310		—			—			—			7,313
Class A Common Stock issued pursuant to employee benefit plans	558,149	6		—		—			9,129		—			—			344			9,479
Tax benefit on share based awards	—	—		—		—			503		—			—			—			503
Distributions to noncontrolling interests	—	—		—		—			—		—			—			(9,939		)	(9,939		)
Class A Common Stock sold by variable interest entity, net of taxes	—	—		—		—			7,008		—			—			—			7,008
Amortization of net periodic pension benefit costs, net of taxes	—	—		—		—			—		—			(116		)	—			(116		)
Net income	—	—		—		—			—		71,165			—			415			71,580
BALANCE, September 30, 2013	73,900,442	$	739	26,262,210		$	263		$	1,097,098	$	(684,470	)	$	(5,109	)	$	7,717		$	416,238

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(In thousands) (Unaudited)

	Sinclair Broadcast Group Shareholders
	Class A Common Stock					Class B Common Stock				Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Noncontrolling
	Shares		Values			Shares		Values		Capital			Deficit			Loss			Interests			Total Equity
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 entity	—		—			—		—		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.

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2014			2013
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income	$	118,026		$	71,580
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation of property and equipment	74,972			47,108
Amortization of definite-lived intangible and other assets	84,195			48,727
Amortization of program contract costs and net realizable value adjustments	76,137			56,746
Loss on extinguishment of debt	—			16,283
Stock-based compensation	11,433			8,321
Deferred tax benefit	(23,214		)	(1,486		)
Change in assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable, net	17,376			(37,359		)
Increase in prepaid expenses and other current assets	(13,570		)	(3,925		)
Increase in accounts payable and accrued liabilities	76,381			28,024
Increase (decrease) in income taxes payable	21,569			(1,182		)
Payments on program contracts payable	(69,505		)	(67,407		)
Original debt issuance discount paid	—			(10,285		)
Other, net	(15,403		)	(4,506		)
Net cash flows from operating activities	358,397			150,639
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment	(58,151		)	(28,776		)
Payments for acquisition of television stations	(1,071,428		)	(495,440		)
Payments for acquisition of assets in other operating divisions	(8,273		)	(4,650		)
Purchase of alarm monitoring contracts	(15,647		)	(11,928		)
Proceeds from sale of broadcast assets	83,200			27,992
Increase in restricted cash	(92,583		)	(41,032		)
Investments in equity and cost method investees	(7,958		)	(10,205		)
Proceeds from termination of life insurance policies	17,042			—
Other, net	6,936			7,297
Net cash flows used in investing activities	(1,146,862		)	(556,742		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases	1,061,490			1,198,815
Repayments of notes payable, commercial bank financing and capital leases	(286,417		)	(998,085		)
Proceeds from the sale of Class A Common Stock	—			472,400
Repurchase of outstanding Class A Common Stock	(108,438		)	—
Dividends paid on Class A and Class B Common Stock	(45,322		)	(41,938		)
Payments for deferred financing costs	(15,010		)	(20,205		)
Proceeds from Class A Common Stock sold by variable interest entity	—			10,908
Noncontrolling interests distributions	(4,294		)	(9,939		)
Other, net	5,702			276
Net cash flows from financing activities	607,711			612,232
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(180,754		)	206,129
CASH AND CASH EQUIVALENTS, beginning of period	280,104			22,865
CASH AND CASH EQUIVALENTS, end of period	$	99,350		$	228,994

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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

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

Discontinued Operations

In accordance with Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale, we reported the results of operations of our stations in Lansing, Michigan (WLAJ-TV) and Providence, Rhode Island (WLWC-TV), as discontinued operations in the consolidated statements of operations. Discontinued operations have not been segregated in the consolidated statements of cash flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated statements of operations. The operating results of WLAJ-TV, which was sold effective March 1, 2013 for $14.4 million, and WLWC-TV, which was sold effective April 1, 2013 for $13.8 million, are not included in our consolidated results of operations from continuing operations for the three and nine months ending September 30, 2013. Total revenues for WLAJ-TV and WLWC-TV, which are included in discontinued operations for the nine months ending September 30, 2013, were $0.6 million and $1.6 million, respectively. Total income before taxes for WLAJ-TV and WLWC-TV, which are included in discontinued operations for the nine months ending September 30, 2013, are $0.2 million and $0.4 million, respectively. The resulting gain on the sale of these stations in 2013 was negligible. Basic and diluted earnings per share from discontinued operations was less than $0.01 per share for the quarter ended September 30, 2013.

Assets Held for Sale

As discussed in Note 3. Commitments and Contingencies - Pending Acquisitions, we expect to sell the license and certain related assets of our stations in Tampa, FL - WTTA (MNT), and Colorado Springs, CO — KXRM (FOX) / KXTU (CW).

In accordance with Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale, we reported our assets and liabilities related to WTTA and KXRM/KXTU as held for sale in the accompanying consolidated balance sheet as of September 30, 2014. We expect the sale of the stations will occur in the fourth quarter of 2014. The results of operations of these stations are included within the results from continuing operations as the criteria for classification as discontinued operations was not met.

As of September 30, 2014, the major classes of assets and liabilities of the group reported as held for sale on the accompanying condensed consolidated balance sheet are shown below:

	September 30, 2014
Assets:
Program contract costs	$	3,626
Property and equipment	4,744
Goodwill	7,924
Broadcast licenses	45
Definite-lived intangible assets	24,509
Assets held for sale	$	40,848
Liabilities:
Program contracts payable	$	4,310
Liabilities held for sale	$	4,310

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Interim Financial Statements

The consolidated financial statements for the three and nine months ended September 30, 2014 and 2013 are unaudited. In the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statement of equity (deficit) and consolidated statements of cash flows for these periods as adjusted for the adoption of recent accounting pronouncements discussed below.

As permitted under the applicable rules and regulations of the Securities and Exchange Commission (SEC), the consolidated financial statements do not include all disclosures normally included with audited consolidated financial statements and, accordingly, should be read together with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC. The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

Variable Interest Entities

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

As of September 30, 2014, 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). We pay LMA fees to Cunningham and also reimburse all operating expenses. We also have executed acquisition agreements to buy the license assets of these television stations which includes the FCC license and certain other assets used to operate the station (License Assets). Our applications to acquire these FCC license related assets are pending FCC approval. We also perform sales and other non-programming support services to two other stations owned by Cunningham (acquired in November 2013) pursuant to joint sales agreements (JSAs) and shared services agreements (SSAs). We have purchase options to acquire the license assets of these stations. We own the majority of the non-license assets of these Cunningham stations and we have guaranteed the debt related to the stations. We have determined that these stations are VIEs and that 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 VIEs through the services we provide and we absorb losses and returns that would be considered significant to the VIEs.

On July 31, 2014, we terminated the LMA with WTAT (FOX) in Charleston, SC and sold to Cunningham, the license owner of WTAT, the non-license assets related to this station. We no longer have any continuing involvement in the operations of this station. Up until third quarter of 2014, we had consolidated Cunningham Broadcasting Corporation (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 Broadcasting Corporation 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, a station that Cunningham acquired from us in November, 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 that were previously eliminated in consolidation. See Note 6. Related Person Transactions for more information on our arrangements with Cunningham. The net revenues of the stations which we consolidated were $26.0 million and $25.9 million for the three months ended September 30, 2014 and 2013, respectively. The net revenues of the stations which we consolidate were $82.5 million and $80.3 million for the nine months ended September 30, 2014 and 2013, respectively. The fees paid between us and Cunningham pursuant to these arrangements are eliminated in consolidation. See Changes in the Rules of Television Ownership and Joint Sale Agreements in Note 3. Commitment and Contingencies for discussion of recent changes in FCC rules related to JSAs.

We have certain LMAs and outsourcing agreements, including certain JSAs and SSAs, with certain other license owners under which we provide certain non-programming related sales, operational and administrative services, and programming for these LMAs. The terms of the agreements vary, but generally have initial terms of over five years with several optional renewal terms. We own the majority of the non-license assets of these stations and in certain cases have guaranteed the debt of the licensee. We also have purchase options to buy the assets of the licensees. We have determined that these licensees (19 and 13 licenses as of September 30, 2014 and 2013, respectively) are VIEs, and, based on the terms of the agreements and the significance of our investment in the stations, we are the primary beneficiary of the variable interests because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and because we absorb losses and returns that would be considered significant to the VIEs. The net revenues of these stations which we consolidate were $42.9 million and $31.9 million for the three months ended September 30, 2014 and 2013, respectively. The net revenues of these stations which we consolidate were $124.7 million and $90.1 million for the nine months ended September 30, 2014 and 2013, respectively. The fees paid between us and other license owners pursuant to these arrangements are eliminated in consolidation. See Changes in the Rules of Television Ownership and Joint Sale Agreements in Note 3. Commitment and Contingencies for discussion of recent changes in FCC rules related to JSAs.

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As of the dates indicated, the carrying amounts and classification of the assets and liabilities of the VIEs mentioned above which have been included in our consolidated balance sheets for the periods presented (in thousands):

	September 30, 2014		December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,891	$	4,916
Accounts receivable	17,426		18,468
Current portion of program contract costs	12,207		10,725
Prepaid expenses and other current assets	1,627		247
Total current assets	34,151		34,356

PROGRAM CONTRACT COSTS, less current portion	6,786		5,075
PROPERTY AND EQUIPMENT, net	10,389		11,081
GOODWILL	800		6,357
BROADCAST LICENSES	16,860		16,768
DEFINITE-LIVED INTANGIBLE ASSETS, net	90,702		97,496
OTHER ASSETS	1,212		22,935
Total assets	$	160,900	$	194,068
LIABILITIES
CURRENT LIABILITIES:
Accounts payable	$	892	$	86
Accrued liabilities	3,969		2,536
Current portion of notes payable, capital leases and commercial bank financing	3,484		5,731
Current portion of program contracts payable	10,502		11,552
Total current liabilities	18,847		19,905

LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion	27,553		49,850
Program contracts payable, less current portion	9,933		6,597
Long term liabilities	9,705		10,838
Total liabilities	$	66,038	$	87,190

The amounts above represent the consolidated assets and liabilities of the VIEs described above, for which we are the primary beneficiary, and have been aggregated as they all relate to our broadcast business. Excluded from the amounts above are payments made to the Cunningham VIEs under the LMAs, a portion of which is treated as a prepayment of the purchase price of the stations, and capital leases between us and Cunningham VIEs which are eliminated in consolidation. The total cumulative payments made under these LMAs as of September 30, 2014 and December 31, 2013, which are excluded from liabilities above, were $33.5 million and $32.4 million, respectively. The total capital lease liabilities excluded from above were $8.7 and $11.2 as of September 30, 2014 and as of December 31, 2013, respectively. Also excluded from the amounts above are liabilities associated with the certain LMAs and outsourcing agreements and purchase options with certain VIEs totaling $67.2 million and $59.9 million as of September 30, 2014 and December 31, 2013, respectively, as these amounts are eliminated in consolidation. The risk and reward characteristics of the VIEs are similar.

We have investments in other real estate ventures and investment companies which are considered VIEs. However, we do not participate in the management of these entities including the day-to-day operating decisions or other decisions which would allow us to control the entity, and therefore, we are not considered the primary beneficiary of these VIEs. We account for these entities using the equity or cost method of accounting.

The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary as of September 30, 2014 and December 31, 2013 was $24.2 million and $26.7 million, respectively, which are included in other assets in the consolidated balance sheets. Our maximum exposure is equal to the carrying value of our investments. The income and loss related to these investments are recorded in income from equity and cost method investments in the consolidated statement of operations. We recorded income of $2.2 million and $3.1 million in the three and nine months ended September 30, 2014 and $0.7 million and $1.4 million in the three and nine months ended September 30 2013, respectively.

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Recent Accounting Pronouncements

In April 2014, the FASB issued new guidance that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. Under the revised guidance, it is less likely for any future sales of assets, asset groups, or stations to be considered discontinued operations because such sales would need to represent a strategic shift and have a major effect on our future operations. Historically, under the previous guidance, sales of minor components of our business were required to be classified as discontinued operations. We early adopted this new guidance effective July 1, 2014. If this guidance were effective for the 2013 discontinued operations discussed in Discontinued Operations, then the sale of those stations would not have met the criteria under the new guidance.

In May 2014, the FASB issued new 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. This new standard is effective for annual reporting periods beginning after December 15, 2016. Early application is not permitted and the standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact of this requirement 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 requirement 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.

Restricted Cash

During 2014 and 2013, we entered into certain definitive agreements to purchase assets of certain stations discussed in Pending Acquisitions in Note 3. Commitment and Contingencies, which required certain deposits to be made into escrow accounts. As of September 30, 2014 and December 31, 2013, we held $104.3 million and $11.4 million, respectively, in restricted cash classified as noncurrent related to the amounts held in escrow for these acquisitions. Included in restricted cash as of September 30, 2014, are the proceeds from the sale of WHTM of $83.2 million, which is held in escrow for the pending acquisitions.

Revenue Recognition

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

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

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

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

Share Repurchase Program

On 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, 2014, we have purchased approximately 3.9 million shares for $108.5 million. For the three months ended September 30, 2014, we purchased 1.0 million shares for $26.1 million. As of September 30, 2014, the total remaining authorization was $159.0 million. In October 2014, we purchased an additional 0.9 million shares for $24.2 million.

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Income Taxes

Our income tax provision for all periods consists of federal and state income taxes. The tax provision for the three and nine months ended September 30, 2014 and 2013 is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interests. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. A valuation allowance has been provided for deferred tax assets related to a substantial portion of our available state net operating loss (NOL) carryforwards, based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income.

Our effective income tax rate for the three 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.

Our effective income tax rate for the three months and nine months ended September 30, 2013 was lower than the statutory rate primarily due to: 1) a release of a valuation allowance related to state NOL carryforwards, of $5.3 million, net of taxes, due to a law change in a state tax jurisdiction, effective for years beginning after December 31, 2014, which we expect will significantly increase the forecasted future taxable income attributable to that state and result in utilization of the state NOL carryforwards and 2) a $2.2 million adjustment to the income tax provision upon finalization of the 2012 federal income tax return, primarily related to higher than originally projected available income tax deductions.

We believe it is reasonably possible that our liability for unrecognized tax benefits related to continuing operations could be reduced by up to $7.8 million, in the next twelve months, as a result of expected statute of limitations expirations, the application of limits under available state administrative practice exceptions, and the resolution of examination issues and settlements with federal and certain state tax authorities.

Reclassifications

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

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2. ACQUISITIONS

Fisher Communications

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

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

Cash	$	13,531
Accounts receivable	29,485
Prepaid expenses and other current assets	19,133
Program contract costs	11,427
Property and equipment	73,968
Broadcast licenses	29,771
Definite-lived intangible assets	166,378
Other assets	7,683
Assets held for sale	6,339
Accounts payable and accrued liabilities	(20,127		)
Program contracts payable	(10,977		)
Deferred tax liability	(74,177		)
Other long-term liabilities	(22,127		)
Fair value of identifiable net assets acquired	230,307
Goodwill	143,942
Less: fair value of non-controlling interests	(1,053		)
Total	$	373,196

The final allocation presented above is based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $117.5 million, the decaying advertiser base of $18.1 million, and other intangible assets of $30.8 million. These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations, 10 years for the decaying advertiser base and a weighted average life of 14 years for the other intangible assets. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies. We expect that goodwill deductible for tax purposes will be approximately $11.1 million. Certain measurement period adjustments have been made since the initial allocation in the third quarter of 2013, which were not material to our consolidated financial statements.

Net broadcast revenues and operating income of the Fisher stations included in our consolidated statements of operations, were $45.3 million and $6.1 million and $25.9 million and $8.2 million for the three months ended September 30, 2014 and 2013, respectively. Net broadcast revenues and operating income of the stations were and $129.6 million and $12.6 million and $25.9 million and $8.2 million for the nine months ended September 30, 2014 and 2013, respectively.

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Barrington

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

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

Prepaid expenses and other current assets	$	681
Program contract costs	3,960
Property and equipment	73,621
Broadcast licenses	2,948
Definite-lived intangible assets	217,818
Accounts payable and accrued liabilities	(2,725		)
Program contracts payable	(3,813		)
Other long-term liabilities	(65		)
Fair value of identifiable net assets acquired	292,425
Goodwill	75,261
Total	$	367,686

The preliminary allocation presented above is based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $101.0 million, the decaying advertiser base of $42.0 million, and other intangible assets of $74.8 million. These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations, 10 years for the decaying advertiser base and a weighted average life of 15 years for the other intangible assets. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies. We expect that goodwill will be deductible for tax purposes. The initial purchase price allocation is based upon all information available to us at the present time and is subject to change, and such changes could be material.

Net broadcast revenues and operating income of the Barrington stations included in our consolidated statements of operations, were $42.8 million and $6.5 million for the three months ended September 30, 2014, and $123.2 million and $22.2 million for the nine months ended September 30, 2014, respectively.

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 $52.1 million. 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. See Note 4. Notes Payable and Commercial Bank Financing. Allbritton owned certain broadcast assets related to the following nine stations along with the respective network affiliation or program service arrangements: WHTM (ABC) in Harrisburg/Lancaster/York, PA; WJLA (ABC) in Washington, DC; WBMA(ABC), WCFT (ABC), and WJSU(ABC), in Birmingham, AL; KATV (ABC) in Little Rock/Pine Bluff, AR; KTUL (ABC) in Tulsa, OK; WSET (ABC) in Roanoke/Lynchburg, VA; and WCIV (ABC), Charleston, SC markets, and NewsChannel 8, a 24-hour cable/satellite news network covering the Washington, D.C. metropolitan area. In order to comply with regulatory requirements, we completed the sale of the license and related assets of WHTM to Media General Operations, Inc. (Media General) effective September 3, 2014 for $83.4 million, less working capital of $0.2 million. This acquisition provides expansion into additional markets and increases value based on the synergies we expect to achieve.

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The results of the acquired operations are included in the financial statements of the Company effective August 1, 2014. Under the acquisition method of accounting, the initial purchase price has been allocated to the acquired assets and assumed liabilities based on estimated fair values. The purchase price allocation is preliminary pending a final determination of the fair values of the assets and liabilities. The allocated fair value of acquired assets and assumed liabilities is summarized as follows (in thousands):

Accounts receivable	$	38,542
Prepaid expenses and other current assets	21,482
Program contract costs	1,204
Property and equipment	46,600
Broadcast licenses	5,000
Definite-lived intangible assets	589,100
Other assets	20,352
Assets held for sale	83,200
Accounts payable and accrued liabilities	(7,901		)
Program contracts payable	(1,140		)
Deferred Tax liabilities	(266,313		)
Other long-term liabilities	(17,025		)
Fair value of identifiable net assets acquired	513,101
Goodwill	523,953
Total	$	1,037,054

The preliminary allocation presented above is based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $391.1 million, the decaying advertiser base of $35.6 million, and other intangible assets of $162.4 million. These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations, 10 years for the decaying advertiser base and a weighted average life of 15 years for the other intangible assets. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies. We do not expect any goodwill will be deductible for tax purposes. The initial purchase price allocation is based upon all information available to us at the present time and is subject to change, and such changes could be material.

Net broadcast revenues and operating income of the Allbritton stations included in our consolidated statements of operations, were $41.2 million and $9.0 million for the three months and nine month ended September 30, 2014.

Pro Forma Information

The following table sets forth unaudited pro forma results of continuing operations for the three and nine months ended September 30, 2014 and 2013, assuming that the above acquisitions, along with transactions necessary to finance the acquisitions, occurred at the beginning of the preceding year of acquisition (in thousands, except per share data). The pro forma results exclude acquisitions presented under Other Acquisitions below, as they were deemed not material both individually and in aggregate.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2014		2014
Total revenues	$	500,133	$	1,469,241
Net Income from continuing operations	$	45,028	$	107,949
Net Income attributable to Sinclair Broadcast Group from continuing operations	$	44,601	$	106,757
Basic earnings per share attributable to Sinclair Broadcast Group from continuing operations	$	0.46	$	1.09
Diluted earnings per share attributable to Sinclair Broadcast Group from continuing operations	$	0.45	$	1.08

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013		2013
Total revenues	$	440,104	$	1,286,344
Net Income from continuing operations	$	17,945	$	31,947
Net Income attributable to Sinclair Broadcast Group from continuing operations	$	17,636	$	31,532
Basic earnings per share attributable to Sinclair Broadcast Group from continuing operations	$	0.18	$	0.35
Diluted earnings per share attributable to Sinclair Broadcast Group from continuing operations	$	0.18	$	0.34

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

Other Acquisitions

In addition to the Fisher, Barrington and Allbritton acquisitions, we acquired nineteen television stations during the year ended December 31, 2013 in ten markets, of which five stations in four of the ten markets were acquired from Cox Media Group (Cox) in May 2013. Additionally, ten of the nineteen stations were acquired in four markets from TTBG LLC (TTBG) effective October 1, 2013. The initial purchase price allocated includes $272.7 million paid for certain broadcast assets of these stations, working capital of $9.5 million, and $0.7 million paid by certain VIEs for the license assets of certain of these stations owned by VIEs that we consolidate. In September 2014, we acquired WGXA-TV in the Macon, GA market for $33.0 million. The purchase price allocations, except for the stations acquired from Cox and Fisher, are preliminary pending a final determination of the fair values of the assets and liabilities. The allocated fair value of acquired assets and assumed liabilities is summarized as follows (in thousands):

	2014			2013
Accounts receivable	$	—		$	8,226
Prepaid expenses and other current assets	6			5,217
Program contract costs	100			6,050
Property and equipment	10,070			67,429
Broadcast licenses	25			4,395
Definite-lived intangible assets	20,384			157,820
Other Assets	—			1,394
Accrued liabilities	—			(3,926		)
Program contracts payable	(100		)	(6,331		)
Deferred tax liabilities	—			(1,882		)
Other long term liabilities	—			(10,550		)
Fair value of identifiable net assets acquired	30,485			227,842
Goodwill	2,521			55,036
Total	$	33,006		$	282,878

The initial purchase price allocations are based upon all information available to us at the present time and are subject to change. Certain measurement period adjustments have been made since the initial allocation in 2013, which were not material to our consolidated financial statements. The definite-lived intangible assets in the table above will be amortized over the remaining useful lives of 15 years for network affiliations, 10 years for decaying advertiser base, and a weighted average of 14 years for the other intangible assets. Net broadcast revenues and operating income for the three months ended September 30, 2014 and 2013 related to stations acquired in 2013 and 2014 were $35.2 million and $5.0 million, and $14.2 and $3.4 million, respectively. Net broadcast revenues and operating income for the nine months ended September 30, 2014 and 2013 related to the acquisitions above, were $98.7 million and $14.8 million and $22.7 million and $5.8 million, respectively.

During the nine months ended September 30, 2014, we made certain immaterial measurement period adjustments to the initial purchase accounting for the acquisitions in 2013, resulting in reclassifications between certain noncurrent assets and noncurrent liabilities, including an increase to property and equipment of approximately $45 million, an increase to broadcast licenses of $22 million, an increase to noncurrent deferred tax liabilities of $29 million, and a decrease to goodwill of $56 million, as well as a corresponding increase to depreciation expense and amortization expense of $1.2 million and $2.5 million for three and nine months ending September 30, 2014, respectively.

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3. COMMITMENTS AND CONTINGENCIES:

Litigation

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

Various parties have filed petitions to deny our applications or our LMA partners’ applications for the following stations’ license renewals: WXLV-TV, Winston-Salem, North Carolina; WMYV-TV, Greensboro, North Carolina; WLFL-TV, Raleigh / Durham, North Carolina; WRDC-TV, Raleigh / Durham, North Carolina; WLOS-TV, Asheville, North Carolina; 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; KGAN-TV, Cedar Rapids, IA; 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, Joint Sale Agreements, and Local Marketing Agreements

On March 12, 2014, the FCC issued a public notice with respect to the processing of broadcast television applications proposing sharing arrangements and contingent interests. The public notice indicated that the FCC will closely scrutinize any application that proposes that two or more stations in the same market that will enter into an agreement to share facilities, employees and/or services or to jointly acquire programming or sell advertising including through a JSA, LMA or similar agreement and enter into an option, right of first refusal, put /call arrangement or other similar contingent interest, or a loan guarantee. We cannot now predict what actions the FCC may require in connection with the processing of applications for FCC consent to pending transactions. In addition, the FCC issued rules that would consider a company an owner of a station if the company has a JSA with a station for sale of more than 15% of the ad time on a particular station if it owns or controls another station in the same market.. Parties to such agreements must come into compliance with these new rules by June 19, 2016. Among other things, the 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 rule has been appealed to the United States Court of Appeals for the District of Columbia Circuit and we cannot predict the outcome of that proceeding. The revenues of these JSA arrangements we earned during the three and nine months ended September 30, 2014 were $11.7 million and $33.8 million, and $8.5 million and $23.6 million for the three and nine months ended September 30, 2013, respectively.

In its Order approving the Allbritton transaction, the FCC expressed concerns regarding an LMA that had existed between Sinclair and Cunningham in the Charleston market, and that it believed Sinclair apparently violated the local TV ownership rule with respect to its continued operation of that LMA. The same agreement that governs the Charleston LMA also governs LMAs between Sinclair and Cunningham in three other markets. The existence of the Charleston LMA was repeatedly disclosed to the Commission over many years, during which Sinclair relied on a June 20, 2001, Stay Order issued by the United States Court of Appeals for the District of Columbia Circuit, which specifically stated that “the time for Sinclair to come into compliance with the Commission’s ‘eight voices standard’ … is hereby stayed pending further order of the court.” No further order has been issued by the Court with respect to that stay. Sinclair has submitted a memorandum of counsel to the FCC with regard to the LMA and its reliance on the Court’s Stay Order. We cannot predict what steps, if any, the FCC will take in the future with respect to the now terminated Charleston LMA.

In connection with the Allbritton acquisition, we agreed to surrender for cancellation the FCC licenses of WCIV, Charleston, SC, WCFT, Tuscaloosa, AL, and WJSU, Anniston, AL, all ABC affiliates, by September 29, 2014. In August 2014, we entered into an agreement to sell the license and related assets of WCIV to Howard Stirk Holdings, LLC for $0.05 million, subject to the approval of the FCC, and other customary closing conditions. In September 2014, we entered into two other agreements to sell the licenses and related assets of WCFT and WJSU to Howard Stirk Holdings II LLC for $0.05 million per station, subject to the approval of the FCC, and other customary closing conditions. The FCC applications requested waiver or an extension of the September 29, 2014 deadline. We will retain the ABC network affiliation service agreements after consummation of the proposed WCIV, WCFT and WJSU transactions.

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Pending Acquisitions

Effective November 1, 2014, we completed the acquisition of the non-license assets of eight television stations from New Age Media located in three markets and KSNV (NBC) in Las Vegas, NV from Intermountain West for an aggregate purchase price of $207.5 million less working capital of $0.1 million. We financed the total purchase price through cash on hand and a draw on our bank credit facility, and $21.0 million held as restricted cash as of September 30, 2014.

In August 2014, we entered into three agreements with Media General to purchase the broadcast assets of one television station in Providence, RI owned by Media General, two television stations in Green Bay, WI owned by LIN Media, LLC (“LIN”) and one television station in Savannah, GA owned by WTGS Television, LLC and operated by LIN through a shared services arrangement. Simultaneously, we will sell Media General the broadcast assets of WTTA in Tampa, FL, and KXRM/KXTU in Colorado Springs, CO upon the completion of the LIN/Media General merger. In addition and as part of the transactions, Sinclair will pay a net cash price of $31.0 million.

4. NOTES PAYABLE AND COMMERCIAL BANK FINANCING

5.625% Senior Unsecured Notes, due 2024

On July 23, 2014, we issued $550.0 million in senior unsecured notes, which bear interest at a rate of 5.625% per annum and mature on August 1, 2024 (the 5.625% Notes), pursuant to an indenture dated July 23, 2014 (the 5.625% Indenture). The 5.625% Notes were priced at 100% of their par value and interest is payable semi-annually on February 1 and August 1, commencing on February 1, 2015. Prior to August 1, 2019, we may redeem the 5.625% Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the 5.625% Notes plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium as set forth in the 5.625% Indenture. In addition, on or prior to August 1, 2019, we may redeem up to 35% of the 5.625% Notes, using proceeds of certain equity offerings. If we sell certain of our assets or have certain changes of control, the holders of the 5.625% Notes may require us to repurchase some or all of the notes. The proceeds from the offering of the 5.625% Notes, together with borrowings under our Bank Credit Agreement and cash on hand, were used to finance the acquisition of the Allbritton companies effective August 1, 2014. Concurrent with entering into the 5.625% Indenture in July 2013, we also entered into a registration rights agreement requiring us to file a registration statement covering an offer to exchange of the 5.625% Notes for registered securities with the Securities and Exchange Commission (the SEC) to be effective by April 19, 2015.

Bank Credit Agreement

On July 31, 2014, we entered into an amendment and restatement (the Amendment) of our bank credit agreement (as amended, the Bank Credit Agreement). Pursuant to the Amendment, we raised $400.0 million of incremental term loan B commitments. The incremental term loan matures in July 2021. The term loan was issued at 99.75% of par and bears interest at LIBOR plus 2.75% with a 0.75% LIBOR floor. The proceeds, together with the 5.625% Notes and cash on hand were used to finance the acquisition of the Allbritton companies effective August 1, 2014. Additionally, in connection with the Amendment, $327.7 million of term loan A, including $72.5 million of the remaining $108.2 million delayed draw term loan A commitments, were converted into revolving commitments. After conversion, the total revolving commitments were $485.2 million. We also amended certain terms of the Bank Credit Agreement, including increased flexibility in dispositions related to requirements of regulatory authorities, an increase in the non-TV/Radio acquisition capacity, the elimination of certain maintenance financial covenants, an increase to the first lien indebtedness maintenance test, and increased flexibility under certain restrictive covenants. As of September 30, 2014, we have $319.3 million of outstanding term loan A, plus an additional $35.7 million under the delayed draw which was drawn on October 14, 2014. In addition, we have $1,041.5 million in outstanding term loan B and the total revolver capacity of $482.2 million was available as of September 30, 2014.

We incurred $14.6 million in financing costs related to the issuance of the 5.625% Notes and the Amendment, which we capitalized as deferred financing costs.

8.375% Senior Unsecured Notes, due 2018

Effective October 15, 2014, we redeemed all of the outstanding 8.375% Senior Notes due 2018, representing $237.5 million aggregate principal amount of Notes as of October 15, 2014. Upon the redemption, along with the principal, we paid the accrued and unpaid interest and a make whole premium of $9.9 million, for a total of $257.4 million paid to note holders. We expect to record a loss on extinguishment of $14.6 million in the fourth quarter of 2014 related to this redemption.

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5. EARNINGS PER SHARE

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Income (Numerator)
Income from continuing operations	$	48,768		$	30,551		$	118,026		$	60,022
Net income attributable to noncontrolling interests included in continuing operations	(427		)	(309		)	(1,192		)	(415		)
Numerator for diluted earnings per common share from continuing operations available to common shareholders	48,341			30,242			116,834			59,607
Income from discontinued operations, net of taxes	—			6,100			—			11,558
Numerator for diluted earnings available to common shareholders	$	48,341		$	36,342		$	116,834		$	71,165

Shares (Denominator)
Weighted-average common shares outstanding	97,154			99,473			97,712			90,982
Dilutive effect of stock settled appreciation rights, restricted stock awards and outstanding stock options	742			766			702			567
Weighted-average common and common equivalent shares outstanding	97,896			100,239			98,414			91,549

There are no potentially dilutive securities which would have an anti-dilutive effect for the three and nine months ended September 30, 2014 and 2013.

6. 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, 2014 and 2013, respectively, and $4.1 million and $3.8 million for the nine months ended September 30, 2014 and 2013, respectively.

Charter Aircraft. From time to time, we charter aircraft owned by certain controlling shareholders. We incurred $0.5 million and $0.3 million for the three months ended September 30, 2014 and 2013, respectively, and $1.0 million and $0.6 million for the nine months ended September 30, 2014 and 2013, respectively.

Cunningham Broadcasting Corporation. As of September 30, 2014, 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) and WTAT-TV Charleston, South Carolina, WYZZ Peoria/Bloomington, IL.

During the first quarter of 2013, the estate of Carolyn C. Smith, a parent of our controlling shareholders, distributed all of the non-voting stock owned by the estate to our controlling shareholders, and a portion was repurchased by Cunningham for $1.7 million in the aggregate. During the second quarter of 2014, Cunningham purchased the remaining amount of non-voting stock 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 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 variable interest entity. We continue to consolidate certain of its subsidiaries with which we continue to have variable interests through various arrangements related to the stations discussed further below.

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As of September 30, 2014, 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. Effective November 5, 2009, we entered into amendments and/or restatements of the following agreements between Cunningham and us: (i) the LMAs, (ii) option agreements to acquire Cunningham stock and (iii) certain acquisition or merger agreements relating to the Cunningham LMA Stations. 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.

Pursuant to the terms of the LMAs, options and other agreements, beginning on January 1, 2010 and ending on July 1, 2012, we were obligated to pay Cunningham the sum of approximately $29.1 million in 10 quarterly installments of $2.75 million and one quarterly payment of approximately $1.6 million, which amounts were used to pay down Cunningham’s bank credit facility and which amounts were credited toward the purchase price for each Cunningham station. An additional $1.2 million was paid on July 1, 2012 and another installment of $2.75 million was paid on October 1, 2012 as an additional LMA fee and was used to pay off the remaining balance of Cunningham’s bank credit facility. The aggregate purchase price of the television stations, which was originally $78.5 million pursuant to certain acquisition or merger agreements subject to 6% annual increases, was decreased by each payment made by us to Cunningham, through 2012, up to $29.1 million in the aggregate; pursuant to the foregoing transactions with Cunningham as such payments were made. Beginning on January 1, 2013, we 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, of which a portion of this fee will be credited toward the purchase price to the extent of the annual 6% increase. Additionally, we reimburse these Cunningham stations for 100% of their operating costs. In July 2014, concurrent with the Allbritton companies acquisition, the LMA and purchase agreement related to WTAT-TV was terminated and the total LMA fee was reduced to $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, 2014 was approximately $53.6 million.

We made payments to Cunningham under our LMAs with these stations of $1.2 million and $2.3 million for the three months ended September 30, 2014 and 2013, respectively, and $7.2 million and $6.8 million for the nine months ended September 30, 2014 and 2013, respectively. For the three months ended September 30, 2014 and 2013, Cunningham LMA Stations provided us with approximately $26.0 million, and $24.5 million, respectively, and approximately $82.4 million and $75.7 million for the nine months ended September 30, 2014 and 2013, respectively, of total revenue.

In November 2013, concurrent with our acquisition of the Barrington stations, Cunningham acquired the license related assets of WBSF-TV and WGTU-TV/WGTQ-TV, which was funded by bank debt, for which we have provided a guarantee. We provide certain non-programming related sales, operational and administrative services to these stations pursuant to certain outsourcing agreements. The agreements for WBSF-TV and WGTU-TV/WGTQ-TV expire in November 2021 and August 2015, respectively, and each has renewal provisions for successive eight year periods. Under these arrangements, we earned $0.9 million and $2.8 million from the services we perform for these stations for the three and nine months ended September 30, 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. We made payments to Cunningham under these arrangements of $0.4 million for the three months ended September 30, 2014, and $1.4 million for the nine months ended September 30, 2014. For the three and nine months ended September 30, 2014, our consolidated revenues include $2.1 million and $5.5 million related to these stations, respectively.

Also, concurrent with the Barrington acquisition, we also sold our station, WYZZ (FOX) in Peoria, IL, which currently receives non-programming related sales, operational and administrative services from Nexstar Broadcasting pursuant to certain outsourcing agreements, to Cunningham for $22 million. In July 2014, concurrent with the Allbritton acquisition we terminated the LMA with WTAT (FOX) in Charleston, SC and sold to Cunningham the non-license assets related to this station. Although we have no continuing involvement in the operations of these stations, because we had consolidated Cunningham Broadcast Corporation (the parent company) up until September 2014, the assets of WYZZ were not derecognized and the transactions was accounted for as transactions between consolidated entities, and the resulting gain on sale were not recognized. Upon deconsolidation of Cunningham Broadcasting Corporation, the difference between proceeds received for the sale of WYZZ and WTAT and the carrying values of the net assets, which was previously eliminated in consolidation, is reflected as an increase to additional paid in capital in the consolidated balance sheet.

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

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Atlantic Automotive. We sold advertising time to and purchased vehicles and related vehicle services from Atlantic Automotive Corporation (Atlantic Automotive), a holding company that owns automobile dealerships and an automobile leasing company. David D. Smith, our President and Chief Executive Officer, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive. We received payments for advertising time totaling $0.1 million and less than $0.1 million for the three months ended September 30, 2014 and 2013, respectively. We received payments for advertising time totaling $0.2 million and $0.1 million for the nine months ended September 30, 2014 and 2013, respectively. We paid $0.2 million and $1.1 million for vehicles and related vehicle services from Atlantic Automotive for the three and nine months ended September 30, 2013, respectively. No payments were made for the three and nine months ended September 30, 2014. Additionally, in August 2011, Atlantic Automotive entered into an office lease agreement with Towson City Center, LLC (Towson City Center), a subsidiary of one of our real estate ventures, and began occupying the space in June 2012. Atlantic Automotive paid $0.3 million in rent for both the three months ended September 30, 2014 and 2013, respectively, and $0.8 million and $0.7 million for the nine months ended September 30, 2014 and 2013, respectively.

Leased property by real estate ventures. Certain of our real estate ventures have entered into leases with entities owned by David Smith to lease restaurant space. There are leases for three restaurants in a building owned by one of our consolidated real estate ventures in Baltimore, MD. Total rent received under these leases was $0.1 million and less than $0.1 million for the three months ended September 30, 2014 and 2013, respectively, and $0.4 million and $0.2 million for the nine months ended September 30, 2014 and 2013, respectively. There is also one lease for a restaurant in a building owned by one of our real estate ventures, accounted for under the equity method, in Towson, MD. We received under this lease $0.1 million and $0.2 million for the three and nine months ending September 30, 2014, respectively. We received under this lease less than $0.1 million for both the three and nine months ended September 30, 2013.

Thomas & Libowitz P.A. Steven A. Thomas, a partner and founder of Thomas & Libowitz, P.A. (Thomas & Libowitz), a law firm providing legal services to us on an ongoing basis, is the son of a former member of the Board of Directors, Basil A. Thomas. Mr. Thomas resigned from Board of Directors effective September 2013. We paid fees of $0.3 million and $1.3 million to Thomas & Libowitz for the three and nine months ended September 30, 2013, respectively.

7. SEGMENT DATA

We measure segment performance based on operating income (loss). Excluding discontinued operations, our broadcast segment includes stations in 76 markets located throughout the continental United States. The operating results of WLAJ-TV and WLWC-TV, which were sold effective March 1, 2013 and April 1, 2013, respectively, are classified as discontinued operations and are not included in our consolidated results of continuing operations for the three months ended September 30, 2013. Our other operating divisions primarily consist of sign design and fabrication; regional security alarm operating and bulk acquisitions; manufacturing and service of broadcast antennas and transmitters; and real estate ventures. All of our other operating divisions are located within the United States. Corporate costs primarily include our costs to operate as a public company and to operate our corporate headquarters location. Other Operating Divisions and Corporate are not reportable segments but are included for reconciliation purposes. We had approximately $172.3 million and $171.7 million of intercompany loans between the broadcast segment, other operating divisions and corporate as of September 30, 2014 and 2013, respectively. We had $5.3 million and $5.0 million in intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions and corporate for the three months ending September 30, 2014 and 2013, respectively. For the nine months ended September 30, 2014 and 2013, we had $15.3 million and $15.0 million, respectively, in intercompany interest expense. 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, 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	13,180		68		3,743			16,991
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
Assets	4,690,074		335,909		268,273			5,294,256

For the three months ended September 30, 2013	Broadcast		Other Operating Divisions			Corporate			Consolidated
Revenue	$	323,681	$	14,963		$	—		$	338,644
Depreciation of property and equipment	16,579		481			348			17,408
Amortization of definite-lived intangible assets and other assets	15,851		1,317			—			17,168
Amortization of program contract costs and net realizable value adjustments	19,229		—			—			19,229
General and administrative overhead expenses	14,633		576			900			16,109
Operating income (loss)	74,210		(113		)	(1,249		)	72,848
Interest expense	—		846			39,021			39,867
Income from equity and cost method investments	—		1,571			—			1,571

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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	40,578		736		8,915			50,229
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
Assets	4,690,074		335,909		268,273			5,294,256

For the nine months ended September 30, 2013	Broadcast		Other Operating Divisions			Corporate			Consolidated
Revenue	$	896,153	$	39,263		$	—		$	935,416
Depreciation of property and equipment	44,739		1,330			1,039			47,108
Amortization of definite-lived intangible assets and other assets	45,089		3,638			—			48,727
Amortization of program contract costs and net realizable value adjustments	56,746		—			—			56,746
General and administrative overhead expenses	34,991		1,136			2,679			38,806
Operating income (loss)	224,652		(150		)	(3,718		)	220,784
Interest expense	—		2,385			120,644			123,029
Income from equity and cost method investments	—		115			—			115

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8. 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, 2014				As of December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
Level 2:
8.375% Senior Notes due 2018	$	235,525	$	247,477	$	235,225	$	259,547
6.375% Senior Unsecured Notes due 2021	350,000		363,346		350,000		360,938
6.125% Senior Unsecured Notes due 2022	500,000		513,900		500,000		497,525
5.625% Senior Unsecured Notes due 2024	550,000		549,945		—		—
5.375% Senior Unsecured Notes due 2021	600,000		588,000		600,000		582,078
Term Loan A	319,260		312,875		500,000		495,000
Term Loan B	1,037,299		1,024,004		642,734		641,205
Debt of variable interest entities	31,038		31,038		55,581		55,581
Debt of other operating divisions	105,805		105,805		86,263		86,263

9. 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 5.625% Notes, 5.375% Notes, the 6.125% Notes, the 8.375% Notes, and 6.375% Notes. Our Class A Common Stock and Class B Common Stock, as of September 30, 2014, were obligations or securities of SBG and not obligations or securities of STG. SBG is a guarantor under the Bank Credit Agreement, the 5.625%, 5.375% Notes, the 6.125% Notes, the 8.375% Notes, and 6.375% Notes. As of September 30, 2014, our consolidated total debt of $3,787.9 million included $3,674.0 million of debt related to STG and its subsidiaries of which SBG guaranteed $3,623.1 million.

SBG, KDSM, LLC, a wholly-owned subsidiary of SBG, and STG’s wholly-owned subsidiaries (guarantor subsidiaries), have fully and unconditionally guaranteed, subject to certain customary automatic release provisions, all of STG’s obligations. Those guarantees are joint and several. There are certain contractual restrictions on the ability of SBG, STG or KDSM, LLC to obtain funds from their subsidiaries in the form of dividends or loans.

The following condensed consolidating financial statements present the consolidating balance sheets, consolidating statements of operations and comprehensive income and consolidating statements of cash flows of SBG, STG, KDSM, LLC and the guarantor subsidiaries, the direct and indirect non-guarantor subsidiaries of SBG and the eliminations necessary to arrive at our information on a consolidated basis. These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X, Rule 3-10.

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF 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

Cash	$	—	$	84,226	$	2,947	$	12,177	$	—		$	99,350
Accounts and other receivables	29		184		300,448		27,065		(83		)	327,643
Other current assets	5,723		22,129		144,931		23,774		(50,274		)	146,283
Total current assets	5,752		106,539		448,326		63,016		(50,357		)	573,276

Property and equipment, net	4,215		15,220		539,892		159,604		(6,254		)	712,677

Assets held for sale	—		—		40,848		—		—			40,848
Investment in consolidated subsidiaries	356,471		3,356,852		4,179		—		(3,717,502		)	—
Restricted cash — long-term	—		21,130		83,200		—		—			104,330
Other long-term assets	70,173		603,884		114,728		116,100		(639,766		)	265,119
Total other long-term assets	426,644		3,981,866		242,955		116,100		(4,357,268		)	410,297

Goodwill and other intangible assets	—		—		3,504,324		199,237		(105,555		)	3,598,006

Total assets	$	436,611	$	4,103,625	$	4,735,497	$	537,957	$	(4,519,434	)	$	5,294,256

Accounts payable and accrued liabilities	$	833	$	82,484	$	179,575	$	65,523	$	(45,765	)	$	282,650
Current portion of long-term debt	621		36,533		1,236		4,740		—			43,130
Current portion of affiliate long-term debt	1,420		—		1,256		1,041		(1,041		)	2,676
Other current liabilities	565		—		124,318		12,449		(2,761		)	134,571
Total current liabilities	3,439		119,017		306,385		83,753		(49,567		)	463,027

Liabilities held for sale	—		—		4,310		—		—			4,310