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)

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

For the quarterly period ended March 31, 2017

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,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (check one):



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o	Emerging growth company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes o		No x

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate the number of share outstanding of each of the issuer’s classes of common stock as of the latest practicable date.



Title of each class		Number of shares outstanding as of May 4, 2017
Class A Common Stock		76,973,826
Class B Common Stock		25,670,684

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SINCLAIR BROADCAST GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2017

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PART I. FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	3

CONSOLIDATED BALANCE SHEETS	4

CONSOLIDATED STATEMENTS OF OPERATIONS	5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	6

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)	7

CONSOLIDATED STATEMENTS OF CASH FLOWS	9

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	10

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31

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	43

ITEM 4. MINE SAFETY DISCLOSURES	43

ITEM 5. OTHER INFORMATION	43

ITEM 6. EXHIBITS	44

SIGNATURE	45

EXHIBIT INDEX	46

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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



	As of March 31, 2017			As of December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	815,700		$	259,984
Restricted Cash	3,200			200
Accounts receivable, net of allowance for doubtful accounts of $2,434 and $2,124, respectively	510,079			513,954
Current portion of program contract costs	55,148			83,601
Income taxes receivable	5,500			5,500
Prepaid expenses and other current assets	41,049			36,067
Deferred barter costs	10,134			5,782
Total current assets	1,440,810			905,088
PROGRAM CONTRACT COSTS, less current portion	7,152			8,919
PROPERTY AND EQUIPMENT, net	712,467			717,576
RESTRICTED CASH	1,494			—
GOODWILL	1,998,135			1,990,746
INDEFINITE-LIVED INTANGIBLE ASSETS	157,106			156,306
DEFINITE-LIVED INTANGIBLE ASSETS, net	1,757,280			1,944,403
NOTES RECEIVABLE FROM AFFILIATES	19,500			19,500
OTHER ASSETS	223,379			220,630
Total assets (a)	$	6,317,323		$	5,963,168
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	245,987		$	322,505
Income taxes payable	56,004			23,491
Current portion of notes payable, capital leases and commercial bank financing	64,595			171,131
Current portion of notes and capital leases payable to affiliates	2,477			3,604
Current portion of program contracts payable	87,462			109,702
Deferred barter revenues	10,943			6,040
Total current liabilities	467,468			636,473
LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion	4,002,553			4,014,932
Notes payable and capital leases to affiliates, less current portion	14,405			14,181
Program contracts payable, less current portion	48,278			53,836
Deferred tax liabilities	605,167			609,317
Other long-term liabilities	82,553			76,493
Total liabilities (a)	5,220,424			5,405,232
COMMITMENTS AND CONTINGENCIES (See Note 4)
EQUITY:
SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY:
Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 76,934,469 and 64,558,207 shares issued and outstanding, respectively	769			646
Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 25,670,684 and 25,670,684 shares issued and outstanding, respectively, convertible into Class A Common Stock	257			257
Additional paid-in capital	1,343,793			843,691
Accumulated deficit	(214,859		)	(255,804		)
Accumulated other comprehensive loss	(807		)	(807		)
Total Sinclair Broadcast Group shareholders’ equity	1,129,153			587,983
Noncontrolling interests	(32,254		)	(30,047		)
Total equity	1,096,899			557,936
Total liabilities and equity	$	6,317,323		$	5,963,168

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

(a)

Our consolidated total assets as of March 31, 2017 and December 31, 2016 include total assets of variable interest entities (VIEs) of $130.7 million and $142.3 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of March 31, 2017 and December 31, 2016 include total liabilities of the VIEs of $34.1 million and $40.9 million, respectively, for which the creditors of the VIEs have no recourse to us. See Note 1. Nature of Operations and Summary of Significant Accounting Policies.

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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



	Three Months Ended March 31,
	2017			2016
REVENUES:
Media revenues	$	602,486		$	531,323
Revenues realized from station barter arrangements	27,570			26,510
Other non-media revenues	19,879			21,056
Total revenues	649,935			578,889
OPERATING EXPENSES:
Media production expenses	258,155			215,877
Media selling, general and administrative expenses	124,721			115,009
Expenses realized from barter arrangements	23,245			22,925
Amortization of program contract costs and net realizable value adjustments	31,019			33,460
Other non-media expenses	17,245			17,697
Depreciation of property and equipment	23,981			24,035
Corporate general and administrative expenses	20,576			21,341
Amortization of definite-lived intangible and other assets	45,554			43,765
Research and development expenses	1,157			1,101
Gain on asset dispositions	(53,347		)	(2,660		)
Total operating expenses	492,306			492,550
Operating income	157,629			86,339
OTHER INCOME (EXPENSE):
Interest expense and amortization of debt discount and deferred financing costs	(57,318		)	(49,415		)
Loss from extinguishment of debt	(1,404		)	—
(Loss) income from equity investments and cost method investments	(1,321		)	423
Other income, net	1,696			462
Total other expense, net	(58,347		)	(48,530		)
Income before income taxes	99,282			37,809
INCOME TAX PROVISION	(28,579		)	(12,180		)
NET INCOME	70,703			25,629
Net income attributable to the noncontrolling interests	(13,501		)	(1,489		)
NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP	$	57,202		$	24,140
Dividends declared per share	$	0.180		$	0.165
BASIC AND DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:
Basic earnings per share	$	0.62		$	0.25
Diluted earnings per share	$	0.61		$	0.25
Weighted average common shares outstanding	92,630			94,701
Weighted average common and common equivalent shares outstanding	93,692			95,614

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 March 31,
	2017			2016
Net income	$	70,703		$	25,629
Comprehensive income	70,703			25,629
Comprehensive income attributable to the noncontrolling interests	(13,501		)	(1,489		)
Comprehensive income attributable to Sinclair Broadcast Group	$	57,202		$	24,140

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 Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
	Shares	Values		Shares	Values		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
BALANCE, December 31, 2015	68,792,483	$	688	25,928,357	$	259	$	962,726	$	(437,029	)	$	(834	)	$	(26,132	)	$	499,678
Cumulative effect of adoption of new accounting standards	—	—		—	—		431		1,833			—			—			2,264
Dividends declared and paid on Class A and Class B Common Stock	—	—		—	—		—		(15,675		)	—			—			(15,675		)
Class A Common Stock issued pursuant to employee benefit plans	279,618	3		—	—		10,506		—			—			—			10,509
Distributions to noncontrolling interests	—	—		—	—		—		—			—			(2,713		)	(2,713		)
Issuance of subsidiary stock awards	—	—		—	—		—		—			—			206			206
Net income	—	—		—	—		—		24,140			—			1,489			25,629
BALANCE, March 31, 2016	69,072,101	$	691	25,928,357	$	259	$	973,663	$	(426,731	)	$	(834	)	$	(27,150	)	$	519,898

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 Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
	Shares	Values		Shares	Values		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
BALANCE, December 31, 2016	64,558,207	$	646	25,670,684	$	257	$	843,691	$	(255,804	)	$	(807	)	$	(30,047	)	$	557,936
Issuance of common stock, net of issuance costs	12,000,000	120		—	—		487,763		—			—			—			487,883
Dividends declared and paid on Class A and Class B Common Stock	—	—		—	—		—		(16,257		)	—			—			(16,257		)
Class A Common Stock issued pursuant to employee benefit plans	376,262	3		—	—		12,339		—			—			—			12,342
Distributions to noncontrolling interests, net	—	—		—	—		—		—			—			(15,708		)	(15,708		)
Net income	—	—		—	—		—		57,202			—			13,501			70,703
BALANCE, March 31, 2017	76,934,469	$	769	25,670,684	$	257	$	1,343,793	$	(214,859	)	$	(807	)	$	(32,254	)	$	1,096,899

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)



	Three Months Ended March 31,
	2017			2016
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income	$	70,703		$	25,629
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation of property and equipment	23,981			24,035
Amortization of definite-lived intangible and other assets	45,554			43,765
Amortization of program contract costs and net realizable value adjustments	31,019			33,460
Loss on extinguishment of debt, non-cash portion	1,404			—
Stock-based compensation expense	7,571			6,328
Deferred tax benefit	(4,269		)	(957		)
Change in assets and liabilities, net of acquisitions:
Decrease in accounts receivable	1,543			26,918
Increase in prepaid expenses and other current assets	(5,539		)	(18,933		)
(Decrease) increase in accounts payable and accrued liabilities	(58,945		)	10,932
Net change in net income taxes payable/receivable	32,513			9,854
Payments on program contracts payable	(28,600		)	(28,615		)
Gain on asset dispositions	(53,347		)	(2,660		)
Other, net	6,054			4,259
Net cash flows from operating activities	69,642			134,015

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment	(20,774		)	(25,851		)
Acquisition of businesses, net of cash acquired	(8,000		)	(384,659		)
Purchase of alarm monitoring contracts	(5,682		)	(7,017		)
Proceeds from sale of non-media business	192,149			—
Investments in equity and cost method investees	(3,080		)	(19,874		)
Loans to affiliates	—			(19,500		)
Other, net	546			2,265
Net cash flows from (used in) investing activities	155,159			(454,636		)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank financing	163,089			598,850
Repayments of notes payable, commercial bank financing and capital leases	(284,422		)	(261,230		)
Proceeds from the sale of Class A Common Stock	487,883			—
Dividends paid on Class A and Class B Common Stock	(16,257		)	(15,675		)
Distributions to noncontrolling interests	(15,708		)	(2,513		)
Other, net	(3,670		)	(7,259		)
Net cash flows from financing activities	330,915			312,173
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	555,716			(8,448		)
CASH AND CASH EQUIVALENTS, beginning of period	259,984			149,972
CASH AND CASH EQUIVALENTS, end of period	$	815,700		$	141,524

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

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SINCLAIR BROADCAST GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of Operations

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

As of March 31, 2017, our broadcast distribution platform is a single reportable segment for accounting purposes. It consists primarily of our broadcast television stations, which we own, provide programming and operating services pursuant to agreements commonly referred to as local marketing agreements (LMAs), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as joint sales agreements (JSAs) and shared services agreements (SSAs)) to 173 stations in 81 markets. These stations broadcast 514 channels, as of March 31, 2017. For the purpose of this report, these 173 stations and 514 channels are referred to as “our” stations and channels.

Principles of Consolidation

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

Interim Financial Statements

The consolidated financial statements for the three months ended March 31, 2017 are unaudited. In the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated 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, 2016 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.

Third-party station licensees. Certain of our stations provide services to other station owners within the same respective market through agreements, such as LMAs, where we provide programming, sales, operational and administrative services, and JSAs and SSAs, where we provide non-programming, sales, operational and administrative services. In certain cases, we have also entered into purchase agreements or options to purchase the license related assets of the licensee. We typically own the majority of the non-license assets of the stations, and in some cases where the licensee acquired the license assets concurrent with our acquisition of the non-license assets of the station, we have provided guarantees to the bank for the licensee’s acquisition financing. The terms of the agreements vary, but generally have initial terms of over five years with several optional renewal terms. Based on the terms

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of the agreements and the significance of our investment in the stations, we are the primary beneficiary of the variable interests when, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and we absorb losses and returns that would be considered significant to the VIEs. Several of these VIEs are owned by a related party, Cunningham Broadcasting Corporation (Cunningham). See Note 7. Related Person Transactions for more information about the arrangements with Cunningham. The net revenues of the stations which we consolidate were $72.5 million and $71.6 million for the three months ended March 31, 2017 and 2016, respectively. The fees paid between us and the licensees pursuant to these arrangements are eliminated in consolidation. See Changes in the Rules of Television Ownership, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap within Note 4. Commitments and Contingencies for discussion of recent changes in FCC rules related to JSAs.

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



	March 31, 2017		December 31, 2016
ASSETS
CURRENT ASSETS:
Accounts receivable	17,199		21,879
Other current assets	8,488		12,076
Total current assets	25,687		33,955

PROGRAM CONTRACT COSTS, less current portion	1,762		2,468
PROPERTY AND EQUIPMENT, net	2,679		2,996
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS	16,475		16,475
DEFINITE-LIVED INTANGIBLE ASSETS, net	77,286		79,509
OTHER ASSETS	6,832		6,871
Total assets	$	130,721	$	142,274

LIABILITIES
CURRENT LIABILITIES:
Other current liabilities	$	17,362	$	18,992

LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion	18,119		19,449
Program contracts payable, less current portion	12,429		14,353
Other long-term liabilities	9,738		12,921
Total liabilities	$	57,648	$	65,715

The amounts above represent the consolidated assets and liabilities of the VIEs described above, for which we are the primary beneficiary, and have been aggregated as they all relate to our broadcast business. Excluded from the amounts above are payments made to Cunningham under the LMAs and certain outsourcing agreements which are treated as a prepayment of the purchase price of the stations and capital leases between us and Cunningham which are eliminated in consolidation. The total payments made under these LMAs and certain JSAs as of March 31, 2017 and December 31, 2016, which are excluded from liabilities above, were $41.6 million and $40.8 million, respectively. The total capital lease liabilities, net of capital lease assets, excluded from the above were $4.5 million for both the years ended March 31, 2017 and December 31, 2016, respectively. Also excluded from the amounts above are liabilities associated with certain outsourcing agreements and purchase options with certain VIEs totaling $76.8 million and $74.5 million as of March 31, 2017 and December 31, 2016, respectively, as these amounts are eliminated in consolidation. The assets of each of these consolidated VIEs can only be used to settle the obligations of the VIE. All the liabilities are non-recourse to us except for certain debt of VIEs which we guarantee. The risk and reward characteristics of the VIEs are similar.

Other investments. We have investments in 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

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would allow us to control the entity, and therefore, we are not considered the primary beneficiary of these VIEs. We account for these entities using the equity or cost method of accounting.

The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary as of March 31, 2017 and December 31, 2016 are $112.6 million and $117.0 million, respectively, and 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 a loss of $0.3 million and income of $0.4 million for the three months ended March 31, 2017 and 2016, respectively.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of

America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. The new standard will be effective for annual reporting periods beginning after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. Since ASU 2014-09 was issued, several additional ASUs have been issued and incorporated within ASC 606 to clarify various elements of the guidance. We do not currently believe that the adoption of this guidance will have a material impact on our station advertising or retransmission consent revenue; however, we have not finalized our assessment of the impact of this guidance on our consolidated financial statements.

In February 2016, the FASB issued new guidance related to accounting for leases, which requires the assets and liabilities that arise from leases to be recognized on the balance sheet. Currently only capital leases are recorded on the balance sheet. This update will require the lessee to recognize a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and recognize the lease expense for such leases generally on a straight-line basis over the lease term. This new guidance will be effective for fiscal periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In August 2016, the FASB issued new guidance related to the classification of certain cash receipts and cash payments. The new standard, which includes eight specific cash flow issues with the objective of reducing the existing diversity in practice as to how cash receipts and cash payments are represented in the statement of cash flow. The new standard is effective for fiscal year beginning after December 15, 2017, including the interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In October 2016, the FASB issued new guidance related to the accounting for income tax consequences of intra-entity transfers of assets other than inventory. Currently the recognition of current and deferred income taxes for an intra-entity are prohibited until the asset has been sold to an outside party. This update requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted this guidance during the first quarter of 2017. The impact of the adoption did not have a material impact on our financial statements.

In October 2016, the FASB issued new guidance which relates to related party considerations in the variable interest entities assessment. The new standard is effective for the interim and annual periods beginning after December 15, 2017. We adopted this guidance during the first quarter of 2017. The impact of the adoption did not have a material impact on our financial statements.

In November 2016, FASB issued new guidance related to the classification and presentation of changes in restricted cash on the statement of cash flows. This new standard requires that a statement of cash flow explain change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling from period to period as shown on the cash flow. The new standard is effective for the fiscal year beginning after December 15, 2017, including the interim periods within that reporting period. Early adoption is permitted. We do not expect this guidance to have a material impact on our financial statements.

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In January 2017, the FASB issued guidance which clarifies the definition of a business with additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard should be applied prospectively and is effective for the interim and annual periods beginning after December 31, 2017. We do not expect the adoption of this guidance will have a material impact on our financial statements.

In January 2017, the FASB issued guidance which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. The new standard should be applied prospectively and is effective for the interim and annual periods beginning after December 31, 2019. We adopted this guidance during the first quarter of 2017. The impact of the adoption did not have a material impact on our financial statements.

Revenue Recognition

Total revenues include: (i) station advertising revenue, net of agency commissions; (ii) barter advertising revenues; (iii) retransmission consent fees; (iv) network compensation; (v) other media revenues and (vi) revenues from our other businesses.

Advertising revenues, net of agency commissions, are recognized in the period during which advertisements are placed.

Some of our retransmission consent agreements contain both advertising and retransmission consent elements. We have determined that these 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 significant revenues are recognized as services are provided.

Income Taxes

Our income tax provision for all periods consists of federal and state income taxes. The tax provision for the three months ended March 31, 2017 and 2016 is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interests. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. A valuation allowance has been provided for deferred tax assets related to a substantial portion of our available state net operating loss (NOL) carryforwards, based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income.

Our effective income tax rate for the three months ended March 31, 2017 and 2016, excluding net income attributable to the noncontrolling interests, was less than the statutory rate primarily due to a Domestic Production Activities Deduction benefit, partially offset by a provision for state taxes and non-deductible items.

Equity Offering

On March 15, 2017, we issued and sold 12.0 million shares of Class A Common stock to the public at a price of $42.00 per share. The proceeds from the offering, net of financing costs, were approximately $487.9 million and are intended to fund future potential acquisitions and general corporate purposes.

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 AND DISPOSITION OF ASSETS:

2017 Acquisition. In March 2017, we acquired the assets of Tennis Media Company for $8 million plus an additional $6 million earn-out potential based on certain contingencies. Tennis Media Company owns Tennis magazine and Tennis.com. The transaction was funded with cash on hand.

Tennis Channel. In March 2016, we acquired all of the outstanding common stock of Tennis Channel (Tennis), a cable network which includes coverage of the top 100 tennis tournaments and original professional sport and tennis lifestyle shows, for $350.0 million plus a working capital adjustment of $9.2 million. This was funded through cash on hand and a draw on the Bank Credit Agreement. The acquisition provides an expansion of our network business and increases value based on the synergies we can achieve. Tennis is reported within Other within Note 6. Segment Data.

The following table summarizes the allocated fair value of acquired assets and assumed liabilities (in thousands):



Cash	$	5,111
Accounts receivable	17,629
Prepaid expenses and other current assets	6,518
Property and equipment	5,964
Definite-lived intangible assets	272,686
Indefinite-lived intangible assets	23,400
Other assets	619
Accounts payable and accrued liabilities	(7,414		)
Capital leases	(115		)
Deferred tax liability	(16,991		)
Other long term liabilities	(1,669		)
Fair value of identifiable net assets acquired	305,738
Goodwill	53,427
Total	$	359,165

The allocations presented above are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The purchase prices have been allocated to the acquired assets and assumed liabilities based on estimated fair values.

The definite-lived intangible assets of $272.7 million related primarily to customer relationships, which represent existing advertiser relationships and contractual relationships with MVPDs and will be amortized over a weighted average useful life of 15 years. 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. Goodwill will not be deductible for tax purposes.

In connection with the acquisition, for the year ended December 31, 2016, we incurred a total of $0.2 million of costs primarily related to legal and other professional services which we expensed as incurred and classified as corporate general and administrative expenses in the consolidated statements of operations. Net revenues and operating income of Tennis included in our consolidated statements of operations, were $7.6 million and $1.5 million for the three months ended March 31, 2016, respectively, and $31.9 million and $7.2 million for the three months ended March 31, 2017, respectively.

Other 2016 Acquisitions. During the year ended December 31, 2016, we acquired certain television station related assets for an aggregate purchase price of $72.0 million less working capital of $0.1 million. We also exchanged certain broadcast assets which had a carrying value of $23.8 million with another broadcaster for no cash consideration, and recognized a gain on the derecognition of those broadcast assets of $4.4 million, respectively.

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Pro Forma Information. The following table sets forth unaudited results of operations, assuming that Tennis, along with transactions necessary to finance the acquisition, occurred at the beginning of the year preceding the year of acquisition. The pro forma results exclude the acquisition of television station acquisitions discussed above, as they were deemed not material both individually and in the aggregate (in thousands, except per share data):



	Unaudited
	2016
Total revenues	$	593,381
Net Income	$	24,722
Net Income attributable to Sinclair Broadcast Group	$	23,233
Basic earnings per share attributable to Sinclair Broadcast Group	$	0.25
Diluted earnings per share attributable to Sinclair Broadcast Group	$	0.24

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 Tennis 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 and amortization of intangible assets related to the fair value adjustments of the assets acquired, additional interest expense related to the financing of the transactions, and exclusion of nonrecurring financing and transaction related costs. Depreciation and amortization expense are higher than amounts recorded in the historical financial statements of the acquirees due to the fair value adjustments recorded for long-lived tangible and intangible assets in purchase accounting.

Alarm Funding Sale. In March 2017, we sold Alarm Funding Associates LLC (Alarm) for $200.0 million less working capital and transaction costs of $5.0 million. We recognized a gain on the sale of Alarm of $53.0 million of which $12.3 million was attributable to noncontrolling interests which is included in the gain on asset dispositions and net income attributable to the noncontrolling interest, respectively, on the consolidated statement of operations.

Pending Acquisitions. In April 2017, we entered into a definitive agreement to purchase the stock of Bonten Media Group Holdings, Inc. (Bonten) and Cunningham Broadcasting Corporation (Cunningham) entered into a definitive agreement to purchase the membership interest of Esteem Broadcasting for an aggregate purchase price of $240 million. Bonten owns 14 television stations in 8 markets and provides services to 4 stations pursuant to the joint sales agreement with Esteem Broadcasting. The transaction is expected to close during the third quarter of 2017, subject to approval of the Federal Communications Commission (FCC) and other customary closing conditions. We expect to fund the purchase price through cash on hand.

In May 2017, we entered into a definitive agreement to acquire the stock of Tribune Media Company (Tribune) for $43.50 per share, for an aggregate purchase price of approximately $3.9 billion, plus the assumption of approximately $2.7 billion in net debt. Under the terms of the agreement, Tribune stockholders will receive $35.00 in cash and 0.23 shares of Sinclair Class A common stock for each share of Tribune Class A common stock and Class B common stock they own. Tribune owns or operates 42 television stations in 33 markets, cable network WGN America, digital multicast network Antenna TV, minority stakes in the TV Food Network and CareerBuilder, and a variety of real estate assets. Tribune’s stations consists of 14 FOX, 12 CW, 6 CBS, 3 ABC, 2 NBC, 3 MyNetworkTV affiliates and 2 independent stations. The transaction is subject to approval by Tribune’s stockholders, as well as customary closing conditions, including antitrust clearance and approval by the FCC. We expect to fund the purchase price through a combination of cash on hand, fully committed debt financing, and by accessing the capital markets.

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3. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:

Bank Credit Agreement

On January 3, 2017, we amended our bank credit agreement. We extended the maturity date of the Term Loan B from April 9, 2020 and July 31, 2021 to January 3, 2024. In connection with the extension, we added additional operating flexibility, including a reduction in certain pricing terms related to Term Loan B and our existing revolving credit facility (Revolver) and revisions to certain covenant ratio requirements. The Term Loan B and Revolver bear interest at LIBOR plus 2.25% and 2.00%, respectively. Prior to July 3, 2017, if we repay, refinance, substitute, or replace the Term Loan B, we are subject to a prepayment premium of 1% of the aggregate principal balance of the repayment. We incurred approximately $11.6 million of financing costs in connection with the amendment, of which $3.4 million related to an original issuance discount, $7.7 million was expensed, and $0.5 million was capitalized as a deferred financing cost as of March 31, 2017. Additionally, unamortized deferred financing costs of $1.4 million were written off as loss on extinguishment in the consolidated statement of operations in the first quarter of 2017 related to this amendment. As of March 31, 2017 and December 31, 2016 the Term Loan B balance net of deferred financing costs and debt discounts was $1,352.5 million and $1,353.5 million, respectively.

As of March 31, 2017 and December 31, 2016, there was no outstanding balance under our revolving credit facility. As of March 31, 2017, we had $484.4 million borrowing capacity under our revolving credit facility.

Commitment Letters and Incremental Term B Facility related to Tribune Acquisition

In connection with the pending acquisition of Tribune discussed in Note 2. Acquisitions and Disposition of Assets, we entered into financing commitment letters (Commitment Letters) with certain financial institutions for (i) a seven-year senior secured incremental term loan B facility of up to $4.847 billion (Incremental Term B Facility) and (ii) a one-year senior unsecured term loan bridge facility of up to $785 million (Bridge Facility) and, together with the Incremental Term B Facility, collectively the (Facilities), convertible into a nine-year extended term loan, for purposes of financing a portion of the cash consideration payable under the terms of the Agreement of Plan Merger between Sinclair and Tribune (Merger Agreement) and to pay or redeem certain indebtedness of Tribune and its subsidiaries. The Commitment Letters also contemplate certain amendments to our existing credit agreement, as subsequently amended (Existing Credit Agreement) in connection with the Tribune Acquisition to permit the acquisition and to provide for the Incremental Term B Facility in accordance with the terms of the Existing Credit Agreement. The Commitment Letters also provide for the syndication of an incremental revolving credit loan facility commitment of up to $225 million (Incremental Revolving Commitments) to be provided in accordance with the terms of the Existing Credit Agreement. The provision of the Incremental Revolving Commitments is not a condition of the Incremental Term B Facility or the Bridge Facility.

The Incremental Term Loan B Facility will be subject to representations, warranties and covenants that, subject to certain agreed modifications, will be substantially similar to those in the Existing Credit Agreement. The documentation for the Bridge Facility shall, except as otherwise agreed, be based on and consistent with the indenture governing our 5.125% Senior Notes due 2027 (Existing Borrower Notes), dated as of August 30, 2016, among STG and U.S. Bank National Association, as trustee (5.125% Notes Indenture), and shall in any case, except as expressly agreed, be no less favorable to us than the 5.125% Notes Indenture.

The funding of the Facilities is subject to our compliance with customary terms and conditions precedent as set forth in

the Commitment Letters, including, among others, (i) the execution and delivery by us of definitive documentation consistent with the Commitment Letters and (ii) that the acquisition of Tribune shall have been, or substantially simultaneously with the funding under the Facilities shall be, consummated in accordance with the terms of the Merger Agreement without giving effect to any amendments or waivers that are material and adverse to the parties to the Commitment Letters.

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4. 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 none of our pending and threatened matters are material. The FCC has undertaken an investigation in response to a complaint it received alleging possible violations of the FCC’s sponsorship identification rules by the Company and certain of its subsidiaries. We cannot predict the outcome of any potential FCC action related to this matter but it is possible that such action could include fines and/or compliance programs.

Changes in the Rules of Television Ownership, Local Marketing Agreements, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap

Certain of our stations have entered into what have commonly been referred to as local marketing agreements or LMAs. One typical type of LMA is a programming agreement between two separately owned television stations serving the same market, whereby the licensee of one station programs substantial portions of the broadcast day and sells advertising time during such programming segments on the other licensee’s station subject to the latter licensee’s ultimate editorial and other controls. We believe these arrangements allow us to reduce our operating expenses and enhance profitability.

In 1999, the FCC established a new local television ownership rule which made LMAs attributable. However, the rule grandfathered LMAs that were entered into prior to November 5, 1996, and permitted the applicable stations to continue operations pursuant to the LMAs until the conclusion of the FCC’s 2004 biennial review. The FCC stated it would conduct a case-by-case review of grandfathered LMAs and assess the appropriateness of extending the grandfathering periods. The FCC did not initiate any review of grandfathered LMAs in 2004 or as part of its subsequent quadrennial reviews. We do not know when, or if, the FCC will conduct any such review of grandfathered LMAs. Currently, all of our LMAs are grandfathered under the local television ownership rule because they were entered into prior to November 5, 1996. If the FCC were to eliminate the grandfathering of these LMAs, we would have to terminate or modify these LMAs.

In February 2015, the FCC issued an order implementing certain statutorily required changes to its rules governing the duty to negotiate retransmission consent agreements in good faith. With these changes, a television broadcast station is prohibited from negotiating retransmission consent jointly with another television station in the same market unless the “stations are directly or indirectly under common de jure control permitted under the regulations of the Commission.” During a 2015 retransmission consent negotiation, an MVPD filed a complaint with the FCC accusing us of violating this rule. Although we reached agreement with the MVPD, the FCC initiated an investigation. In order to resolve the investigation and all other pending matters before the FCC's Media Bureau (including the grant of all outstanding renewals and dismissal or cancellation of all outstanding adversarial pleadings or forfeitures before the Media Bureau), the Company, on July 29, 2016, without any admission of liability, entered into a consent decree with the FCC pursuant to which the Company paid a fine and agreed to be subject to ongoing compliance monitoring by the FCC for a period of 36 months.

In September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the “totality of the circumstances test” for good-faith negotiations of retransmission consent. The proposed rulemaking seeks comment on new factors and evidence to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a “marquee sports or entertainment event,” restrictions on online access to broadcast programming during negotiation impasses, broadcasters’ ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters’ ability to invoke the FCC’s exclusivity rules during service interruptions. On July 14, 2016, Chairman Wheeler announced that the FCC would not, at such time, proceed to adopt additional rules governing good faith negotiations of retransmission consent. No formal action has yet been taken on this Proposed Rulemaking, and we cannot predict if the full Commission will agree to terminate the Rulemaking without action.

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In August 2016, the FCC completed both its 2010 and 2014 quadrennial reviews of its media ownership rules and issued an order (the "Ownership Order") which left most of the existing multiple ownership rules intact, but amended the rules to provide for the attribution of JSAs where two television stations are located in the same market, and a party with an attributable ownership interest in one station sells more than 15% of the advertising time per week of the second station. The Ownership Order also provides that JSAs that existed prior to March 31, 2014, will not be counted as attributable and may remain in place until October 1, 2025, at which point they must be terminated, amended or otherwise come into compliance with the rules. These "grandfathered" JSAs may be transferred or assigned without terminating the grandfathering status relief. Among other things, the new JSA rule could limit our future ability to create duopolies or other two-station operations in certain markets. We cannot predict whether we will be able to terminate or restructure such arrangements prior to October 1, 2025, on terms that are as advantageous to us as the current arrangements. The revenues of these JSA arrangements we earned during the three months ended March 31, 2017 and 2016 were $13.1 million and $12.2 million, respectively. The Ownership Order is the subject of an appeal to the U.S. Court of Appeals for the D.C. Circuit and of Petitions for Reconsideration before the FCC. We cannot predict the outcome of that appeal or petitions.

If we are required to terminate or modify our LMAs or JSAs, our business could be affected in the following ways:

Losses on investments. In some cases, we own the non-license assets used by the stations we operate under LMAs and JSAs. If certain of these arrangements are no longer permitted, we could be forced to sell these assets, restructure our agreements or find another use for them. If this happens, the market for such assets may not be as good as when we purchased them and, therefore, we cannot be certain of a favorable return on our original investments.

Termination penalties. If the FCC requires us to modify or terminate existing LMAs or JSAs before the terms of the agreements expire, or under certain circumstances, we elect not to extend the terms of the agreements, we may be forced to pay termination penalties under the terms of some of our agreements. Any such termination penalties could be material.

On September 6, 2016, the FCC released an order eliminating the UHF discount (the "UHF Discount Order"). The UHF discount allowed television station owners to discount the coverage of UHF stations when calculating compliance with the FCC’s national ownership cap, which prohibits a single entity from owning television stations that reach, in total, more than 39% of all the television households in the nation. All but 28 of the stations we currently own and operate, or to which we provide programming services are UHF. The UHF Discount Order is the subject of an appeal to the U.S. Court of Appeals for the D.C. Circuit and was the subject of a Petition for Reconsideration before the FCC. On April 20, 2017, the FCC acted on the Petition for Reconsideration and adopted an order on Reconsideration which reinstated the UHF Discount, which will become effective June 5, 2017. The Order also announced the FCC's plans to open a rulemaking proceeding later this year to consider whether to modify the national audience reach rule, including the UHF discount. We cannot predict the outcome of that proceeding or if any parties will file an appeal of the order reinstating the UHF discount. With the application of the UHF discount, counting all our present stations, and including the pending Bonten transaction, we would reach approximately 25% of U.S. households (slightly over 39% without the application of the discount). With the pending Tribune transaction, absent divestitures, we would exceed the 39% cap, even with the application of the UHF discount. Changes to the national ownership cap could limit our ability to make television station acquisitions.

Congress authorized the FCC to conduct so-called “incentive auctions” to auction and re-purpose broadcast television spectrum for mobile broadband use. Pursuant to the auction, television broadcasters submitted bids to receive compensation for relinquishing all or a portion of its rights in the television spectrum of their full-service and Class A stations. Low power stations were not eligible to participate in the auction and are not protected and therefore may be displaced or forced to go off the air as a result of the post-auction repacking process. On April 13, 2017, the FCC issued a public notice which announced the conclusion of the spectrum auction. Based on the bids accepted by the FCC, we anticipate that we will receive later in 2017 an estimated $313.0 million of gross proceeds from the auction. The results of the auction are not expected to produce any material change in operations of the Company. In the repacking process associated with the auction, the FCC has reassigned some stations to new post-auction channels. We do not expect reassignment to new channels to have a material impact on our coverage. We received letters from the FCC in February 2017 notifying us that 93 of our stations have been assigned to new channels. The legislation authorizing the incentive auction provides the FCC with a $1.75 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. We cannot predict whether the fund will be sufficient to reimburse all of our expenses related to the repack.

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5. EARNINGS PER SHARE:

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



	Three Months Ended March 31,
	2017			2016
Income (Numerator)
Net Income	$	70,703		$	25,629
Net income attributable to noncontrolling interests	(13,501		)	(1,489		)
Numerator for basic and diluted earnings per common share available to common shareholders	$	57,202		$	24,140

Shares (Denominator)
Weighted-average common shares outstanding	92,630			94,701
Dilutive effect of stock-settled appreciation rights, restricted stock awards and outstanding stock options	1,062			913
Weighted-average common and common equivalent shares outstanding	93,692			95,614

There were no shares for the three months ended March 31, 2017, and 407,479 shares for the three months ended March 31, 2016 which had an anti-dilutive effect on the equivalent shares outstanding and therefore excluded from the diluted effect above.

6. SEGMENT DATA:

We measure segment performance based on operating income (loss). Our broadcast segment includes stations in 81 markets located throughout the continental United States. Other primarily consists of original networks and content, digital and internet solutions, technical services and other non-media investments. All of our businesses 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 and Corporate are not reportable segments but are included for reconciliation purposes.

We had approximately $165.8 million and $226.3 million of intercompany loans between the broadcast segment, other, and corporate as of March 31, 2017 and 2016, respectively. We had $6.0 million and $6.1 million in intercompany interest expense related to intercompany loans between the broadcast segment, other, and corporate for the three months ended March 31, 2017 and 2016. All other intercompany transactions are immaterial.

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



For the three months ended March 31, 2017	Broadcast		Other				Corporate			Consolidated
Revenue	$	592,424	$	57,511			$	—		$	649,935
Depreciation of property and equipment	21,946		1,769				266			23,981
Amortization of definite-lived intangible assets and other assets	38,326		7,228				—			45,554
Amortization of program contract costs and net realizable value adjustments	31,019		—				—			31,019
General and administrative overhead expenses	18,992		288				1,296			20,576
Research and development	—		1,157				—			1,157
Operating income (loss)	114,544		44,649			(a)	(1,564		)	157,629
Interest expense	1,366		1,213				54,739			57,318
Income from equity and cost method investments	—		(1,321		)		—			(1,321		)
Assets	4,744,427		733,887				839,009			6,317,323

(a) - Includes gain on the sale of Alarm of $53.0 million of which $12.3 million was attributable to noncontrolling interests. See Note 2. Acquisitions and Disposition of Assets.

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For the three months ended March 31, 2016	Broadcast		Other			Corporate			Consolidated
Revenue	$	546,833	$	32,056		$	—		$	578,889
Depreciation of property and equipment	22,748		1,021			266			24,035
Amortization of definite-lived intangible assets and other assets	39,770		3,995			—			43,765
Amortization of program contract costs and net realizable value adjustments	33,460		—			—			33,460
General and administrative overhead expenses	20,447		545			349			21,341
Research and development	—		1,101			—			1,101
Operating income (loss)	98,041		(11,087		)	(615		)	86,339
Interest expense	1,482		1,476			46,457			49,415
Income from equity and cost method investments	—		423			—			423

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7. 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 $1.4 million and $1.2 million for the three months ended March 31, 2017 and 2016, respectively.

Charter Aircraft. We lease aircraft owned by certain controlling shareholders, including a new lease agreement as of February 2016 for the term of thirty months and will be renewed thereafter for successive terms of twelve months. For all leases, we incurred expenses of $0.5 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively.

Cunningham Broadcasting Corporation

Cunningham owns a portfolio of television stations including: WNUV-TV Baltimore, Maryland; WRGT-TV Dayton, Ohio; WVH-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). Certain of our stations provide services to these Cunningham Stations pursuant to LMAs or JSAs and SSAs. See Note 1. Nature of Operations and Summary of Significant Accounting Policies, for further discussion of the scope of services provided under these types of arrangements.

The estate of Carolyn C. Smith, the mother of our controlling shareholders, currently owns all of the voting stock of the Cunningham Stations. The sale of the voting stock by the estate to an unrelated party is pending approval of the FCC. All of the non-voting stock is owned by trusts for the benefit of the children of our controlling shareholders. We consolidate certain subsidiaries of Cunningham, with which we have variable interests through various arrangements related to the Cunningham Stations discussed further below.

The services provided to WNUV-TV, WMYA-TV, WTTE-TV, WRGT-TV and WVAH-TV are governed by a master agreement which has a current term that expires on July 1, 2023 and there are two additional 5- year renewal terms remaining with final expiration on July 1, 2033. 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. Pursuant to the terms of this agreement we are obligated to pay Cunningham an annual fee for the television stations equal to the greater of (i) 3% of each station’s annual net broadcast revenue and (ii) $4.7 million. The aggregate purchase price of these television stations increases by 6% annually. A portion of the fee is required to be applied to the purchase price to the extent of the 6% increase. The remaining aggregate purchase price of these stations as of March 31, 2017 was approximately $53.6 million. Additionally, we provide services to WDBB-TV pursuant to an LMA, which expires April 22, 2025, and a purchase option to acquire for $0.2 million. We paid Cunningham under these agreements, $4.4 million and $2.2 million for the three months ended March 31, 2017 and 2016, respectively.

The agreements with WBSF-TV and WGTU-TV/WGTQ-TV expire in November 2021 and August 2023, respectively, and each has renewal provisions for successive eight year periods. We earned $1.4 million from the services we performed for these stations for both the three months ended March 31, 2017 and 2016, respectively.

As we consolidate the licensees as VIEs, the amounts we earn or pay under the arrangements are eliminated in consolidation and the gross revenues of the stations are reported within our consolidated statement of operations. Our consolidated revenues related to the Cunningham Stations include $26.2 million and $27.5 million for the three months ended March 31, 2017 and 2016, respectively.

During January 2016, Cunningham entered into a promissory note to borrow $19.5 million from us. The note bears interest at a fixed rate of 5.0% per annum (the 5.0% Notes), which is payable quarterly, commencing March 31, 2016. The note matures in January 2021, with additional one year renewal periods upon our approval.

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In April 2016, we entered into an agreement with Cunningham to provide master control equipment and provide master control services to a station in Johnstown, PA with which they have a time brokerage agreement that expires in April 2019. Under the agreement, Cunningham will pay us an initial fee of $0.7 million and $0.2 million annually for master control services plus the cost to maintain and repair the equipment. Also, in August 2016, we entered into an agreement, expiring October 2021, with Cunningham to provide a news share service with their station in Johnstown, PA beginning in October 2016 for an annual fee of $1.0 million per year.

Atlantic Automotive Corporation

We sell advertising time to Atlantic Automotive Corporation (Atlantic Automotive), a holding company that owns automobile dealerships and an automobile leasing company. David D. Smith, our Executive Chairman, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive. We received payments for advertising totaling $0.1 million for both the three months ended March 31, 2017 and 2016, respectively. Additionally, Atlantic Automotive leases office space owned by one of our consolidated real estate ventures in Towson, Maryland. Atlantic Automotive paid $0.3 million and $0.4 million in rent during the three months ended March 31, 2017 and 2016, respectively.

Leased property by real estate ventures

Certain of our real estate ventures have entered into leases with entities owned by David D. 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 for both the three months ended March 31, 2017 and 2016, respectively. There is also one lease for a restaurant in a building owned by one of our real estate ventures, accounted for under the equity method, in Towson, MD. This investment received $0.1 million in rent pursuant to the lease for both the three months ended March 31, 2017 and 2016, respectively.

Payments for services provided by these three restaurants to us was less than $0.1 million and zero for the three months ended March 31, 2017 and 2016, respectively.

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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 fair value of our notes payable, capital leases, and commercial bank financing are considered Level 2 measurements within the fair value hierarchy. The carrying value and fair value of our notes and debentures for the periods presented (in thousands):



	As of March 31, 2017		As of December 31, 2016
	Carrying Value (a)	Fair Value	Carrying Value (a)	Fair Value
6.125% Senior Unsecured Notes due 2022	500,000	523,545	500,000	521,240
5.875% Senior Unsecured Notes due 2026	350,000	359,114	350,000	351,456
5.625% Senior Unsecured Notes due 2024	550,000	559,157	550,000	562,755
5.375% Senior Unsecured Notes due 2021	600,000	617,790	600,000	617,892
5.125% Senior Unsecured Notes due 2027	400,000	388,136	400,000	382,028
Term Loan A	261,823	261,823	272,198	271,517
Term Loan B	1,366,575	1,368,283	1,365,625	1,364,841
Debt of variable interest entities	22,327	22,327	23,198	23,198
Debt of other operating divisions	28,069	28,069	135,211	135,211

(a) Amounts are carried net of debt discount and deferred financing cost, which are excluded in the above table, of $44.4 million as of March 31, 2017 and $43.4 million as of December 31, 2016.

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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 5.375% Notes, 5.625% Notes, 6.125% Notes, 5.875% Notes, 5.125% Notes, and until they were redeemed, the 6.375% Notes. Our Class A Common Stock and Class B Common Stock as of March 31, 2017, were obligations or securities of SBG and not obligations or securities of STG. SBG is a guarantor under the Bank Credit Agreement, the 5.375% Notes, 5.625% Notes, 6.125% Notes, 5.875% Notes, 6.125% Notes, and 5.125% Notes, and until they were redeemed, the 6.375% Notes. As of March 31, 2017, our consolidated total debt, net of deferred financing costs and debt discounts, of $4,084.0 million included $4,054.4 million related to STG and its subsidiaries of which SBG guaranteed $4,006.5 million.

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

The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows of SBG, STG, KDSM, LLC and the guarantor subsidiaries, the direct and indirect non-guarantor subsidiaries of SBG and the eliminations necessary to arrive at our information on a consolidated basis. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X, Rule 3-10.

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2017

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.		Sinclair Television Group, Inc.		Guarantor Subsidiaries and KDSM, LLC		Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Cash	$	—	$	783,197	$	11,043	$	21,460		$	—		$	815,700
Accounts receivable	—		—		484,056		27,281			(1,258		)	510,079
Other current assets	3,318		5,812		91,411		28,614			(14,124		)	115,031
Total current assets	3,318		789,009		586,510		77,355			(15,382		)	1,440,810

Property and equipment, net	1,554		21,293		564,364		128,518			(3,262		)	712,467

Investment in consolidated subsidiaries	1,096,840		3,572,811		4,179		—			(4,673,830		)	—
Goodwill	—		—		1,994,268		3,867			—			1,998,135
Indefinite-lived intangible assets	—		—		141,397		15,709			—			157,106
Definite-lived intangible assets	—		—		1,733,711		81,324			(57,755		)	1,757,280
Other long-term assets	41,842		788,830		107,921		168,648			(855,716		)	251,525
Total assets	$	1,143,554	$	5,171,943	$	5,132,350	$	475,421		$	(5,605,945	)	$	6,317,323

Accounts payable and accrued liabilities	$	99	$	59,521	$	175,775	$	25,518		$	(14,926	)	$	245,987
Current portion of long-term debt	—		55,201		2,062		7,332			—			64,595
Current portion of affiliate long-term debt	1,407		—		828		673			(431		)	2,477
Other current liabilities	—		—		144,357		11,635			(1,583		)	154,409
Total current liabilities	1,506		114,722		323,022		45,158			(16,940		)	467,468

Long-term debt	—		3,929,497		30,351		42,705			—			4,002,553
Affiliate long-term debt	—		—		12,951		335,303			(333,849		)	14,405
Other liabilities	12,896		34,210		1,192,413		190,441			(693,962		)	735,998
Total liabilities	14,402		4,078,429		1,558,737		613,607			(1,044,751		)	5,220,424

Total Sinclair Broadcast Group equity (deficit)	1,129,152		1,093,514		3,573,613		(101,554		)	(4,565,572		)	1,129,153
Noncontrolling interests in consolidated subsidiaries	—		—		—		(36,632		)	4,378			(32,254		)
Total liabilities and equity (deficit)	$	1,143,554	$	5,171,943	$	5,132,350	$	475,421		$	(5,605,945	)	$	6,317,323

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2016

(in thousands)



	Sinclair Broadcast Group, Inc.		Sinclair Television Group, Inc.		Guarantor Subsidiaries and KDSM, LLC		Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Cash	$	—	$	232,297	$	10,675	$	17,012		$	—		$	259,984
Accounts receivable	—		—		478,190		37,024			(1,260		)	513,954
Other current assets	5,561		3,143		124,313		25,406			(27,273		)	131,150
Total current assets	5,561		235,440		613,178		79,442			(28,533		)	905,088

Property and equipment, net	1,820		17,925		570,289		131,326			(3,784		)	717,576

Investment in consolidated subsidiaries	551,250		3,614,605		4,179		—			(4,170,034		)	—
Goodwill	—		—		1,986,467		4,279			—			1,990,746
Indefinite-lived intangible assets	—		—		140,597		15,709			—			156,306
Definite-lived intangible assets	—		—		1,770,512		233,368			(59,477		)	1,944,403
Other long-term assets	$	46,586	$	819,506	$	103,808	$	169,817		$	(890,668	)	$	249,049
Total assets	$	605,217	$	4,687,476	$	5,189,030	$	633,941		$	(5,152,496	)	$	5,963,168

Accounts payable and accrued liabilities	$	100	$	69,118	$	225,645	$	48,815		$	(21,173	)	$	322,505
Current portion of long-term debt	—		55,501		1,851		113,779			—			171,131
Current portion of affiliate long-term debt	1,857		—		1,514		2,336			(2,103		)	3,604
Other current liabilities	—		—		127,967		13,590			(2,324		)	139,233
Total current liabilities	1,957		124,619		356,977		178,520			(25,600		)	636,473

Long-term debt	—		3,939,463		31,014		44,455			—			4,014,932
Affiliate long-term debt	—		—		12,663		396,957			(395,439		)	14,181
Other liabilities	15,277		31,817		1,190,717		183,418			(681,583		)	739,646
Total liabilities	17,234		4,095,899		1,591,371		803,350			(1,102,622		)	5,405,232

Total Sinclair Broadcast Group equity (deficit)	587,983		591,577		3,597,659		(134,991		)	(4,054,245		)	587,983
Noncontrolling interests in consolidated subsidiaries	—		—		—		(34,418		)	4,371			(30,047		)
Total liabilities and equity (deficit)	$	605,217	$	4,687,476	$	5,189,030	$	633,941		$	(5,152,496	)	$	5,963,168

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2017

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue	$	—		$	—		$	615,709		$	53,386		$	(19,160	)	$	649,935

Media program and production expenses	—			—			248,205			28,444			(18,494		)	258,155
Selling, general and administrative	1,296			18,958			122,435			2,633			(25		)	145,297
Depreciation, amortization and other operating expenses	266			1,725			111,228			(23,920		)	(445		)	88,854
Total operating expenses	1,562			20,683			481,868			7,157			(18,964		)	492,306

Operating (loss) income	(1,562		)	(20,683		)	133,841			46,229			(196		)	157,629

Equity in earnings of consolidated subsidiaries	58,189			87,805			50			—			(146,044		)	—
Interest expense	(36		)	(54,704		)	(1,119		)	(7,623		)	6,164			(57,318		)
Other income (expense)	101			799			496			(1,021		)	—			375
Loss from extinguishment of debt	—			(1,404		)	—			—			—			(1,404		)
Total other income (expense)	58,254			32,496			(573		)	(8,644		)	(139,880		)	(58,347		)

Income tax benefit (provision)	510			25,106			(44,229		)	(9,966		)	—			(28,579		)
Net income (loss)	57,202			36,919			89,039			27,619			(140,076		)	70,703
Net income attributable to the noncontrolling interests	—			—			—			(13,494		)	(7		)	(13,501		)
Net income (loss) attributable to Sinclair Broadcast Group	$	57,202		$	36,919		$	89,039		$	14,125		$	(140,083	)	$	57,202
Comprehensive income (loss)	$	57,202		$	36,919		$	89,039		$	27,619		$	(140,076	)	$	70,703

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2016

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue	$	—		$	—		$	545,113		$	52,250		$	(18,474	)	$	578,889

Media program and production expenses	—			—			209,725			24,381			(18,229		)	215,877
Selling, general and administrative	1,002			22,099			111,107			2,162			(20		)	136,350
Depreciation, amortization and other operating expenses	266			1,190			108,478			30,855			(466		)	140,323
Total operating expenses	1,268			23,289			429,310			57,398			(18,715		)	492,550

Operating (loss) income	(1,268		)	(23,289		)	115,803			(5,148		)	241			86,339

Equity in earnings of consolidated subsidiaries	24,287			74,855			50			—			(99,192		)	—
Interest expense	(94		)	(46,363		)	(1,202		)	(7,897		)	6,141			(49,415		)
Other income (expense)	1,142			118			(11		)	(364		)	—			885
Total other income (expense)	25,335			28,610			(1,163		)	(8,261		)	(93,051		)	(48,530		)

Income tax benefit (provision)	73			23,103			(38,180		)	2,824			—			(12,180		)
Net income (loss)	24,140			28,424			76,460			(10,585		)	(92,810		)	25,629
Net income attributable to the noncontrolling interests	—			—			—			(899		)	(590		)	(1,489		)
Net income (loss) attributable to Sinclair Broadcast Group	$	24,140		$	28,424		$	76,460		$	(11,484	)	$	(93,400	)	$	24,140
Comprehensive income (loss)	$	24,140