As of this writing, the scarcity of credit is likely to limit our options when, as we expect, the 3% and 4.875% Senior Convertible
bondholders exercise their put rights in May 2010 and January 2011, respectively. In advance of the put dates, we are seeking
solutions for both the bondholders and the Company.
As discussed in my previous Letters to Shareholders, February 17, 2009 was to be the date in which broadcasters terminated their
analog transmissions and transitioned to digital television, a goal that we have been working towards for the past ten years. We are
pleased to say that on that date, 46 of our television stations made a successful transition with minimal disruption. The remaining
12 stations will transition on June 12, 2009, which is the new deadline established by Congress for the analog television service to be
turned off. We are very excited about this opportunity for many reasons. As a result of the transition to digital, our audience has a
more robust viewing experience, including enhanced audio and picture quality. In 2008, our Baltimore, Columbus,
Asheville/Greenville, and Pensacola/Mobile stations began producing the local news in a high-definition (HD) format. We believe
that this investment will provide them a competitive advantage in serving our advertisers and gaining audience share. It is our
intention to convert additional newscasts to HD in the future. We also expect to save energy by turning off our analog
transmitters. In fact, our electrical consumption is expected to be reduced by approximately 118.6 million kilowatt-hours of
electricity annually, which is the equivalent electricity consumption of almost 10,000 single family homes, according to the
calculations on the Environmental Protection Agency clean energy website.
The more exciting opportunity for us, however, is that digital television provides broadcasters the ability to transmit multiple
channels of entertainment, news and other content to mobile and portable devices. Over the past year, much has been
accomplished on this front. The Open Mobile Video Coalition (OMVC), an organization made up of approximately 800
commercial and public television stations, including Sinclair, has been working with the Advanced Television Systems Committee to
test and standardize the mobile technology. We are pleased to announce that 11 of our stations have committed to launching
mobile digital television (DTV) services in 2009. In total, 63 OMVC member television stations in 22 markets, reaching 35% of the
country will be making a minimal capital investment this year to upgrade transmission equipment to allow for mobile DTV. With
broadcasters working towards making their facilities mobile-ready, the next step is for the technology to be integrated into devices
and service providers and broadcasters to determine the business models to allow viewers to get over-the-air programming to their
mobile and portable devices.
Despite experiencing one of the worst economic downturns in decades, our fundamentals remain sound. Like most businesses, the
economic situation has affected television, but it has not dampened our faith in the industry. If anything, the economic downturn
has presented us with opportunities to operate a leaner and more efficient company, to re-engineer our operations, and to develop
new revenue streams, all of which should build value for our investors.
We thank you for your continued support and look forward to our future successes.
David D. Smith
Chairman, President and CEO
1 A reconciliation of free cash flow to net income can be found on our website: www.sbgi.net.
TABLE OF CONTENTS
Television Broadcasting
Forward-Looking Statements
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Controls and Procedures
Report of Independent Registered Public Accounting Firm:
Internal Control over Financial Reporting
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders’ (Deficit) Equity and Other Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Report of Independent Registered Public Accounting Firm:
Consolidated Financial Statements
Group Managers / General Managers
2
4
5
6
23
24
26
27
28
29
32
34
76
79
80
TELEVISION BROADCASTING
Markets and Stations
We own and operate, provide programming services to, provide sales services to or have agreed to acquire the following
television stations:
Market
Tampa, Florida
Minneapolis/St. Paul, Minnesota
St. Louis, Missouri
Pittsburgh, Pennsylvania
Market
Rank (a)
13
15
21
23
Baltimore, Maryland
Raleigh/Durham,North
Carolina
Nashville, Tennessee
Columbus, Ohio
Cincinnati, Ohio
Milwaukee, Wisconsin
Asheville, North Carolina/
Greenville/Spartanburg/
Anderson, South Carolina
San Antonio, Texas
Birmingham, Alabama
Las Vegas, Nevada
Norfolk, Virginia
Oklahoma City, Oklahoma
Greensboro/Winston-Salem/
Highpoint, North Carolina
Buffalo, New York
Richmond, Virginia
Mobile, Alabama/
Pensacola, Florida
Lexington, Kentucky
Dayton, Ohio
Charleston/Huntington,
West Virginia
Flint/Saginaw/Bay City, Michigan
Des Moines, Iowa
Portland, Maine
Cape Girardeau, Missouri/
Paducah, Kentucky
Rochester, New York
Syracuse, New York
Springfield/Champaign, Illinois
Madison, Wisconsin
Cedar Rapids, Iowa
Charleston, South Carolina
26
27
29
32
34
35
36
37
40
42
43
45
46
51
58
60
63
64
65
66
71
77
78
80
81
83
85
88
99
Tallahassee, Florida
Peoria/Bloomington, Illinois
2 (cid:121) Sinclair Broadcast Group
105
116
Stations
WTTA
WUCW
KDNL
WPGH
WPMY
WBFF
WNUV
WLFL
WRDC
WZTV
WUXP
WNAB
WSYX
WTTE
WSTR
WCGV
WVTV
WLOS
WMYA
KABB
KMYS
WTTO
WABM
WDBB
KVMY
KVCW
WTVZ
KOKH
KOCB
WXLV
WMYV
WUTV
WNYO
WRLH
WEAR
WFGX
WDKY
WKEF
WRGT
WCHS
WVAH
WSMH
KDSM
WGME
KBSI
WDKA
WUHF
WSYT
WNYS
WICS
WICD
WMSN
KGAN
KFXA
WTAT
WMMP
WTWC
WYZZ
Status (b)
LMA (e)
O&O
O&O
O&O
O&O
O&O
LMA (h)
O&O
O&O
O&O
O&O
OSA (i)
O&O
LMA (h)
O&O
O&O
O&O
O&O
LMA (h)
O&O
O&O
O&O
O&O
LMA
O&O
O&O
O&O
O&O
O&O
O&O
O&O
O&O
O&O
O&O
O&O
O&O
O&O
O&O
LMA (h)
O&O
LMA (h)
O&O
O&O
O&O
O&O
LMA
O&O (k)
O&O
LMA
O&O
O&O
O&O
O&O
OSA (m)
LMA (h)
O&O
O&O
O&O (k)
Affiliation (c)
MNT
CW
ABC
FOX
MNT
FOX
CW
CW
MNT
FOX
MNT
CW
ABC
FOX
MNT
MNT
CW
ABC
MNT
FOX
MNT
CW
MNT
CW
MNT
CW
MNT
FOX
CW
ABC
MNT
FOX
MNT
FOX
ABC
MNT
FOX
ABC
FOX
ABC
FOX
FOX
FOX
CBS
FOX
MNT
FOX
FOX
MNT
ABC
ABC
FOX
CBS
FOX
FOX
MNT
NBC
FOX
Station
Rank in
Market (d)
6 of 8
6 of 7
4 of 8
4 of 9
6 of 9
4 of 6
5 of 6
5 of 7
6 of 7
4 of 8
5 of 8
6 of 8
3 of 7
4 of 7
5 of 7
5 of 10
6 of 10
3 of 7
5 of 7
3 of 7
5 of 7
5 of 8
6 of 8
5 of 8 (j)
5 of 7
6 of 7
6 of 7
4 of 8
5 of 8
4 of 7
5 of 7
4 of 8
5 of 8
4 of 6
2 of 9
not rated
4 of 6
2 of 7
4 of 7
2 of 6
4 of 6
4 of 7
4 of 6
2 of 6
4 of 6
5 of 6
4 of 6
4 of 6
5 of 6
2 of 6
2 of 6 (l)
4 of 6
3 of 6
4 of 6
4 of 6
5 of 6
3 of 6
4 of 6
Expiration
Date of FCC
License
2/01/13
4/01/06 (f)
2/01/14
8/01/15
8/01/07 (g)
10/01/04 (f)
10/01/12
12/01/04 (f)
12/01/04 (f)
8/01/13
8/01/13
8/01/13 (i)
10/01/13
10/01/05 (f)
10/01/13
12/01/05 (f)
12/01/13
12/01/04 (f)
12/01/04 (f)
8/01/14
8/01/14
4/01/05 (f)
4/01/13
4/01/13
10/01/14
10/01/14
10/01/12
6/01/14
6/01/14
12/01/04 (f)
12/01/04 (f)
6/01/15
6/01/15
10/01/12
2/01/13
2/01/13
8/01/13
10/01/13
10/01/05 (f)
10/01/12
10/01/04 (f)
10/01/13
2/01/14
4/01/15
2/01/14
8/01/13
6/01/07 (g)
6/01/15
6/01/15
12/01/05 (f)
12/01/05 (f)
12/01/13
2/01/06 (f)
2/01/14
12/01/04 (f)
12/01/04 (f)
2/01/13
12/01/13
a) Rankings are based on the relative size of a station’s designated market area (DMA) among the 210 generally recognized DMAs in the
United States as estimated by Nielsen as of November 2008.
b)
“O & O” refers to stations that we own and operate. “LMA” refers to stations to which we provide programming services pursuant to a
local marketing agreement. “OSA” refers to stations to which we provide or receive sales services pursuant to an outsourcing agreement.
c) When we negotiate the terms of our affiliation agreements with each network, we negotiate on behalf of all of our stations affiliated with
that network simultaneously. This results in substantially similar terms for our stations, including the expiration date of the affiliation
agreement. A summary of these expiration dates is as follows:
Affiliate
FOX
MNT
ABC
CW
CBS
NBC
Expiration Date
19 of 20 agreements expire on March 6, 2012, except KFXA, which
expires on June 30, 2010
All 17 agreements were to expire on September 4, 2011, however on
March 3, 2009, MNT indicated that their intention is to terminate the
existing agreements effective September 26, 2009. See Item 1A Risk
Factors for more information.
All 8 agreements expire on December 31, 2009
All 9 agreements expire on August 31, 2010
Both agreements expire on December 31, 2012
Agreement expires on December 31, 2016
d) The first number represents the rank of each station in its market and is based upon the November 2008 Nielsen estimates of the
percentage of persons tuned into each station in the market from 6:00 a.m. to 2:00 a.m., Monday through Sunday. The second number
represents the estimated number of television stations designated by Nielsen as “local” to the DMA, excluding public television stations
and stations that do not meet the minimum Nielsen reporting standards (weekly cumulative audience of at least 0.1%) for the Monday
through Sunday 6:00 a.m. to 2:00 a.m. time period as of November 2008. This information is provided to us in a summary report by Katz
Television Group.
e) The license assets for this station are currently owned by Bay Television, Inc., a related party. See Note 12. Related Person Transactions, in the
Notes to our Consolidated Financial Statements for more information.
f) We, or subsidiaries of Cunningham Broadcasting Company (Cunningham), timely filed applications for renewal of these licenses with the
FCC. Unrelated third parties have filed petitions to deny or informal objections against such applications. We opposed the petitions to
deny and the informal objections and those applications are currently pending. See Note 11. Commitments and Contingencies, in the Notes to
our Consolidated Financial Statements for more information.
g) We timely filed applications for renewal of these licenses with the FCC. FCC staff have informed us that the applications have not yet
been granted because unrelated third parties have filed informal objections against the stations based on alleged violations of either the
FCC’s sponsorship identification or indecency rules.
h) The license assets for these stations are currently owned by a subsidiary of Cunningham.
i) We have entered into an outsourcing agreement with the unrelated third party owner of WNAB-TV to provide certain non-programming
related sales, operational and administrative services to WNAB-TV.
j) WDBB-TV simulcasts the programming broadcast on WTTO-TV pursuant to a programming services agreement. The station rank
applies to the combined viewership of these stations.
k) We have entered into outsourcing agreements with unrelated third parties, under which the unrelated third parties provide certain non-
programming related sales, operational and managerial services to these stations. We continue to own all of the assets of these stations and
to program and control each station’s operations.
l) WICD-TV, a satellite of WICS-TV under FCC rules, simulcasts all of the programming aired on WICS-TV except the news broadcasts.
WICD-TV airs its own news broadcasts. The station rank applies to the combined viewership of these stations.
m) On February 1, 2008, we entered into an outsourcing agreement with the unrelated third party owner of KFXA-TV to provide certain non-
programming related sales, operational and administrative services to KFXA-TV.
2008 Annual Report (cid:121) 3
FORWARD-LOOKING STATEMENTS
This report includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended and the U.S. Private Securities Litigation
Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future
events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other
things, the following risks:
General risks
•
•
•
the impact of changes in national and regional economies including the possibility of an extended recession and freezing
of the credit markets;
the activities of our competitors;
terrorist acts of violence or war and other geopolitical events;
Industry risks
•
•
•
•
•
•
•
•
•
•
•
the business conditions of our advertisers particularly in the automotive industry;
competition with other broadcast television stations, radio stations, multi-channel video programming distributors
(MVPDs) and internet and broadband content providers serving in the same markets;
labor disputes and legislation and other union activity;
availability and cost of programming;
the effects of governmental regulation of broadcasting or changes in those regulations and court actions interpreting
those regulations, including ownership regulations, indecency regulations, retransmission regulations and political or
other advertising restrictions and regulations;
the continued viability of networks and syndicators that provide us with programming content;
the June 12, 2009 mandatory transition from analog to digital over-the-air broadcasting including the impact the
transition will have on television ratings;
the broadcasting community’s ability to develop a viable mobile digital television strategy and platform and the
consumers appetite for mobile television;
competition related to the potential implementation of regulations requiring MVPDs to carry low power television
stations’ programming;
the operation of low power devices in the broadcast spectrum could cause harmful interference to our broadcast signals;
our ability to negotiate and maintain music license agreements with favorable terms;
Risks specific to us
•
•
•
•
•
•
•
•
•
•
•
•
our ability to service and refinance our outstanding debt including our ability to address put option exercises in May
2010 and January 2011 related to our 3.0% Notes and 4.875% Notes, respectively;
the effectiveness of our management;
our ability to attract and maintain local and national advertising;
our ability to successfully renegotiate retransmission consent agreements;
our ability to renew our FCC licenses;
our ability to maintain our affiliation agreements with our networks, and at renewal such as our ABC agreement which
expires December 31, 2009, to successfully negotiate these agreements with favorable terms;
the popularity of syndicated programming we purchase and network programming that we air;
the strength of ratings for our local news broadcasts including our news sharing arrangements;
changes in the makeup of the population in the areas where our stations are located;
the success of our multi-channel broadcasting initiatives strategy execution including mobile digital television;
the results of prior year tax audits by taxing authorities; and
our ability to identify and consummate investments in attractive non-television assets and to achieve anticipated returns
on our investments.
Other matters set forth in this report and other reports filed with the Securities and Exchange Commission, including the Risk
Factors set forth in Item 1A of this report may also cause actual results in the future to differ materially from those described in the
forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we undertake no
obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur.
4 (cid:121) Sinclair Broadcast Group
SELECTED FINANCIAL DATA
The selected consolidated financial data for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 have been derived
from our audited consolidated financial statements. The consolidated financial statements for the years ended December 31,
2008, 2007 and 2006 are included elsewhere in this report.
The information below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements included elsewhere in this report.
STATEMENTS OF OPERATIONS DATA
(In thousands, except per share data)
For the Years Ended December 31,
Statements of Operations Data:
Net broadcast revenues (a)
Revenues realized from station barter
arrangements
Other operating divisions revenues
Total revenues
Station production expenses
Station selling, general and administrative
expenses
Expenses recognized from station barter
arrangements
Depreciation and amortization (b)
Other operating divisions expenses
Corporate general and administrative expenses
Gain on asset exchange
Impairment of intangibles
Operating (loss) income
Interest expense and amortization of debt
discount and deferred financing cost
Interest income
Gain (loss) from sale of assets
Gain (loss) from extinguishment of debt
Gain from derivative instrument
(Loss) income from equity and cost investees
Gain on insurance settlement
Other income, net
(Loss) income from continuing operations
before income taxes
Income tax benefit (provision )
(Loss) income from continuing operations
Discontinued operations:
(Loss) income from discontinued operations,
net of related income taxes
Gain on sale of discontinued operations, net
2008
2007
2006
2005
2004
$ 639,163
$ 622,643
$ 627,075
$ 606,450
$ 625,303
59,877
55,434
754,474
61,790
33,667
718,100
54,537
24,610
706,222
54,908
22,597
683,955
57,713
13,054
696,070
158,965
148,707
144,236
149,033
151,783
136,142
140,026
137,995
135,870
143,357
53,327
147,527
59,987
26,285
(3,187)
463,887
(288,459)
(77,718)
743
66
5,451
999
(2,703)
—
3,787
(357,834)
116,484
(241,350)
55,662
157,178
33,023
24,334
—
—
159,170
(95,866)
2,228
(21)
(30,716)
2,592
601
—
1,227
39,215
(18,800)
20,415
49,358
153,399
24,193
22,795
—
15,589
158,657
(115,217)
2,008
143
(904)
2,907
6,338
—
1,159
55,091
(6,589)
48,502
50,334
136,916
20,944
21,220
—
—
169,638
(120,002)
650
(80)
(1,937)
21,778
(1,426)
1,193
721
70,535
(36,027)
34,508
53,258
154,212
14,932
21,496
—
—
157,032
(120,400)
191
(44)
(2,453)
29,388
1,100
3,341
894
69,049
(27,959)
41,090
(141)
1,219
3,701
5,400
(17,068)
of related income taxes
Net (loss) income
—
$ (241,491)
1,065
$ 22,699
1,774
$ 53,977
146,024
$ 185,932
—
$ 24,022
2008 Annual Report (cid:121) 5
For the Years Ended December 31,
Basic and Diluted (Loss) Earnings Per
Common Share:
(Loss) earnings per share from continuing
operations
Earnings (loss) per share from discontinued
operations
(Loss) earnings per share
Dividends declared per share
Balance Sheet Data:
Cash and cash equivalents
Total assets
Total debt (c)
Total shareholders’ (deficit) equity
2008
2007
2006
2005
2004
$
$
$
$
(2.82)
$
0.23
—
(2.82)
0.800
$
$
$
0.03
0.26
0.625
$
$
$
$
0.57
0.06
0.63
0.450
$
$
$
$
0.65
1.77
2.43
0.030
$
$
$
$
0.36
(0.20)
0.16
0.075
$
16,470
$ 1,816,677
$ 1,376,096
(83,703)
$
$
20,980
$ 2,224,655
$ 1,344,349
252,774
$
$
67,408
$ 2,271,580
$ 1,413,623
266,645
$
$
9,655
$ 2,280,641
$ 1,450,738
$ 249,722
$
10,491
$ 2,465,663
$ 1,639,615
226,551
$
(a) Net broadcast revenues is defined as broadcast revenues, net of agency commissions.
(b) Depreciation and amortization includes amortization of program contract costs and net realizable value adjustments, depreciation and
amortization of property and equipment and amortization of definite-lived intangible broadcasting assets and other assets.
(c) Total debt is defined as notes payable, capital leases and commercial bank financing, including the current and long-term portions.
Total debt does not include our preferred stock; in applicable years related balances were outstanding including 2004.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management’s Discussion and Analysis provides qualitative and quantitative information about our financial
performance and condition and should be read in conjunction with our consolidated financial statements and the accompanying
notes to those statements. This discussion consists of the following sections:
Executive Overview – a description of our business, financial highlights from 2008, information about industry trends and sources of
revenues and operating costs;
Critical Accounting Policies and Estimates – a discussion of the accounting policies that are most important in understanding the
assumptions and judgments incorporated in the consolidated financial statements and a summary of recent accounting
pronouncements;
Results of Operations – a summary of the components of our revenues by category and by network affiliation, a summary of other
operating data and an analysis of our revenues and expenses for 2008, 2007 and 2006, including comparisons between years and
expectations for 2009; and
Liquidity and Capital Resources – a discussion of our primary sources of liquidity, an analysis of our cash flows from or used in
operating activities, investing activities and financing activities, a discussion of our dividend policy and a summary of our
contractual cash obligations and off-balance sheet arrangements.
6 (cid:121) Sinclair Broadcast Group
EXECUTIVE OVERVIEW
We believe that we are one of the largest and most diversified television broadcasting companies in the United States. We
currently own, provide programming and operating services pursuant to local marketing agreements (LMAs) or provide, or are
provided, sales services pursuant to outsourcing agreements to 58 television stations in 35 markets. For the purpose of this
report, these 58 stations are referred to as “our” stations.
We believe that owning duopolies and operating stations under LMAs or providing sales and related services under outsourcing
agreements enables us to accomplish two very important strategic business objectives: increasing our share of revenues available
in each market and operating television stations more efficiently by minimizing costs. We constantly monitor revenue share and
cost efficiencies and we aggressively pursue opportunities to improve both by using new technology and by sharing best practices
among our station groups.
We have two reportable operating segments, “broadcast” and “other operating divisions” that are disclosed separately from our
corporate activities. Our broadcast segment includes our stations. Currently, our other operating divisions segment primarily
earn revenues from information technology staffing, consulting and software development; transmitter manufacturing; sign design
and fabrication; regional security alarm operating and bulk acquisitions; and real estate ventures. Corporate costs primarily include
our costs to operate as a public company and to operate our corporate headquarters location. Corporate is not a reportable
segment.
Sinclair Television Group, Inc. (STG), included in the broadcast segment and a wholly owned subsidiary of Sinclair
Broadcast Group, Inc. (SBG) which is included in corporate, is the primary obligor under our existing Bank Credit Agreement, as
amended and the 8.0% Senior Subordinated Notes, due 2012. Our Class A Common Stock, Class B Common Stock, the 6.0%
Debentures, the 4.875% Notes and the 3.0% Notes remain obligations or securities of SBG and are not obligations or securities
of STG.
2008 Highlights
• On February 1, 2008, we purchased the non-license assets of KFXA-TV in Cedar Rapids, Iowa for $17.1 million in cash
and the right to purchase licensed assets, pending FCC approval, for $1.9 million. Our CBS affiliate, KGAN-TV in
Cedar Rapids, Iowa, will provide sales and other non-programming related services to KFXA-TV pursuant to a joint
sales agreement;
In February 2008, we increased our quarterly dividend rate to 20 cents per share and in February 2009 suspended our
quarterly dividend;
In March 2008, the counterparty to our $300.0 million notional amount interest rate swaps exercised its option to
terminate the swaps. As a result, we were paid an $8.0 million termination fee;
•
•
•
• On March 3, 2008, the FCC released an order requiring, among other things, that each full-power television station
provides to its viewers, through compliance with one of several alternative sets of rules, certain on-air information about
the transition to digital television until June 30, 2009. Each station is also required to report its activities in this regard to
the FCC and place such reports in its public inspection files;
In June 2008, we entered into an agreement to purchase the assets of WTVR-TV in Richmond-Petersburg, Virginia and
simultaneously sell the license assets of WRLH-TV in Richmond, Virginia to an unrelated third party. In August 2008,
the U.S. Department of Justice-Antitrust Division declined the approval of the acquisition of WTVR-TV due to a
Consent Decree between the seller and the Department of Justice;
In July 2008, we entered into a news share agreement in which WHO-TV, owned by Local TV, LLC, will produce a
newscast to air on KDSM-TV in Des Moines, Iowa;
In October 2008, the Company received a $17.2 million federal income tax cash refund;
•
• During 2008, we recorded $193.5 million and $270.4 million in impairment of goodwill and broadcast licenses,
•
respectively;
• During 2008, we repurchased on the open market pursuant to a share repurchase plan, 6.7 million shares of Class A
Common Stock for $29.8 million, including transaction costs;
• During 2008, we repurchased in the open market $38.8 million face value of the 8.0% Notes, $18.1 million of our 6.0%
Debentures and $6.5 million of our 4.875% Notes;
• During 2008, we acquired $53.5 million in non-television assets which includes $34.5 million for Bay Creek South, LLC
and $19.0 million for Jefferson Park Development, LLC;
• During 2008, we made new investments of $32.6 million and add-on cash investments of $3.2 million primarily in real
estate ventures and $6.2 million in private investment funds; and
• Market share survey results reflect that our stations’ share of the television advertising market, excluding political, in
2008 increased to 18.5%, from 17.6% in 2007.
2008 Annual Report (cid:121) 7
Other Highlights
• On February 4, 2009, Congress passed the “DTV Delay Act” that extends the date for the completion of the DTV
transition from February 17, 2009 to June 12, 2009. Pursuant to the rules and with the consent of the FCC all but 12 of
our stations ceased analog operations on the original February 17, 2009 dates;
• As of the filing date, in first quarter 2009, we repurchased in the open market $45.7 million of our 3.0% Convertible
Senior Notes, due 2027, and $1.0 million of the 6.0% Debentures; and
• As of the filing date, in first quarter 2009, we repurchased 0.2 million shares of Class A Common Stock for $0.2 million,
including transaction costs.
Industry Trends
• Political advertising increases in even-numbered years, such as 2008, due to the advertising expenditures from candidates
running in local and national elections. In every fourth year, such as 2008, political advertising is elevated further due to
the presidential election. In addition, political revenue has consistently risen between election years such as from 2004 to
2008;
• On February 4, 2009, Congress passed the “DTV Delay Act” that extends the date for the termination of analog
transmission from February 17, 2009 to June 12, 2009. Based on the latest “DTV Delay Act”, all broadcast television
stations must terminate broadcasting the analog signal;
• The FCC has permitted broadcast television stations to use their digital spectrum for a wide variety of services including
multi-channel broadcasts. The FCC “must carry” rules only apply to a station’s primary digital stream;
• A number of other broadcasters, including Sinclair, have joined together in what is known as the Open Mobile Video
Coalition to promote the development of mobile digital broadcasting applications. We believe there is potential for
broadcasters to create an additional revenue stream by providing their signals to mobile devices;
• Retransmission consent rules provide a mechanism for broadcasters to seek payment from multi-channel video
programming distributors (MVPDs) who carry broadcasters’ signals. Recognition of the value of the programming
content provided by broadcasters has generated a sustainable, annual payment stream which we expect to continue to
grow;
• Automotive-related advertising is a significant portion of our total net revenues in all periods presented and these
revenues have been trending downward especially in 2008 and as of the date of this filing due to the recent economic
turmoil;
• Many broadcasters are enhancing/upgrading their websites to use the internet to deliver rich media content, such as
•
newscasts and weather updates, to attract advertisers;
Seasonal advertising increases in the second and fourth quarters due to the anticipation of certain seasonal and holiday
spending by consumers, although this trend may be disrupted due to the recession;
• Rating service fees are likely to increase as Nielsen rolls out its people meter and audience measurement devices;
• Broadcasters have found ways to increase returns on their news programming initiatives while continuing to maintain
•
locally produced content through the use of news sharing arrangements;
Station outsourcing arrangements are becoming more common as broadcasters seek out ways to improve revenues and
margins;
• Advertising revenue related to the Olympics occurs in even numbered years and the Super Bowl is aired on a different
network each year. Both of these popularly viewed events can have an impact on our advertising revenues; and
• Compensation from networks to their affiliates in exchange for broadcasting of network programming has significantly
declined in recent years.
Sources of Revenues and Costs
The spot market includes advertising time purchased from individual stations. Local spots are purchased in one market and
aimed only at the audience in that particular market while national spots are bought by national advertisers in several markets.
The upfront market relates to when networks sell national advertising time for a full broadcast year through an upfront
negotiation typically in May. The scatter market is when networks sell advertising time from available unsold inventory at rates
different from those obtained during the upfront. Most of our revenues are generated from the transactional spot market rather
than the traditional upfront and scatter markets that networks access. These operating revenues are derived from local and
national advertisers and, to a much lesser extent, from political advertisers. From 2006 to 2008, we generated significant new
revenues from our retransmission consent agreements. These agreements have helped to produce a new, viable revenue stream
that has replaced the steady decline in revenues from television network compensation. While we expect revenues from our
retransmission consent agreements to continue to grow over the next fiscal year and beyond, these revenues may not significantly
increase at the rates, such as the increase from 2006 to 2008, since our significant MVPDs are under contract. However, as
contracts expire we expect to negotiate favorable terms to grow our revenue stream. In addition, most contracts contain
8 (cid:121) Sinclair Broadcast Group
automatic annual fee escalators. Our revenues from local advertisers had seen a continued upward trend until 2008 when non-
political revenues fell from 2007 due to the economic recession. Revenues from national advertisers have continued to trend
downward when measured as a percentage of total broadcast revenues. We believe this trend is the result of our focus on
increasing local advertising revenues as a percentage of total advertising revenues, combined with a decrease in overall spending
by national advertisers and an increase in the number of competitive media outlets providing national advertisers multiple
alternatives in which to advertise their goods or services. Our efforts to mitigate the effect of these increasingly competitive
media outlets for national advertisers include continuing our efforts to increase local revenues and developing innovative sales and
marketing strategies to sell traditional and non-traditional services to our advertisers.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets,
liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our
estimates including those related to bad debts, program contract costs, intangible assets, income taxes, property and equipment,
investments and derivative contracts. We base our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. These estimates have been consistently applied for
all years presented in this report and in the past we have not experienced material differences between these estimates and actual
results. However, because future events and their effects cannot be determined with certainty, actual results could differ from our
estimates and such differences could be material.
We have identified the policies below as critical to our business operations and to the understanding of our results of
operations. For a detailed discussion of the application of these and other accounting policies, see Note 1. Nature of Operations and
Summary of Significant Accounting Policies, in the Notes to our Consolidated Financial Statements.
Valuation of Goodwill, Long-Lived Assets and Intangible Assets. We periodically evaluate our goodwill, broadcast licenses, long-lived
assets and intangible assets for potential impairment indicators. Our judgments regarding the existence of impairment indicators
are based on estimated future cash flows, market conditions, operating performance of our stations and legal factors. Future
events could cause us to conclude that impairment indicators exist and that the net book value of long-lived assets and intangible
assets is impaired. Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets and
consolidated statements of operations.
We have determined our broadcast licenses to be indefinite-lived intangible assets under Statement of Financial Accounting
Standard No. 142, Goodwill and Other Intangible Assets (FAS 142), which requires such assets along with our goodwill to be tested
for impairment on an annual or more often when certain triggering events occur. As of December 31, 2008, we had $824.2
million of goodwill, $132.4 million in broadcast licenses, and $205.7 million in definite-lived intangibles. We test our broadcast
licenses and broadcast goodwill by estimating the fair market value of the broadcast licenses, or the fair value of our reporting
units in the case of goodwill, using a combination of quoted market prices, observed earnings/cash flow multiples paid for
comparable television stations, discounted cash flow models and appraisals. We then compare the estimated fair market value to
the book value of these assets to determine if an impairment exists. We aggregate our stations by market for purposes of our
goodwill and license impairment testing and we believe that our markets are most representative of our broadcast reporting units
because we view, manage and evaluate our stations on a market basis. Furthermore, in our markets operated as duopolies, certain
costs of operating the stations are shared including the use of buildings and equipment, the sales force and administrative
personnel. Our discounted cash flow model is based on our judgment of future market conditions within each designated
marketing area, as well as discount rates that would be used by market participants in an arms-length transaction. Future events
could cause us to conclude that market conditions have declined or discount rates have increased to the extent that our broadcast
licenses and/or goodwill could be impaired. Any resulting impairment loss could have a material adverse impact on our
consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows. Based on
assessments performed during the years ended December 31, 2008 and 2006, we recorded $463.9 million and $15.6 million,
respectively, in impairment losses on our goodwill and broadcast licenses. The impairment charge taken in 2008 was primarily
due to the severe economic downturn during the fourth quarter, and as a result, we made downward revisions to forecasted cash
flow, cash flow multiples and growth rates. There was no impairment recorded for the year ended December 31, 2007.
2008 Annual Report (cid:121) 9
The implied value of our broadcast goodwill is calculated using a discounted cash flow model for 4 years and estimating the
terminal value of the reporting units using a multiple of cash flows. The value of our broadcast licenses is calculated using a
discounted cash flow model for 8 years and estimating the terminal value based on the constant growth model and a compound
annual growth rate. The key assumptions used to determine the fair value of our reporting units to test our goodwill for
impairment and broadcast licenses in 2008 were as follows:
Revenue annual growth rate
Expense annual growth rate
Discount rate
Comparable business
multiple/Constant growth rate
Goodwill
2.0% - 5.0%
2.0% - 2.5%
10.0%
Broadcast Licenses
1.8% - 3.5%
1.9% - 3.4%
10.8%
9.0 times cash flow
1.8% - 3.5%
An increase in our discount rate of 10.0% would increase our goodwill impairment by $2.6 million and a decrease in our
multiple of 4.0% would increase our goodwill impairment by $2.3 million. An increase in our discount rate of greater than 10.0%
or a decrease in our multiple of greater than 4.0% would likely change the number of reporting units that would fail our Step 1
test of FAS 142 and could lead to additional amounts of goodwill impairment.
Revenue Recognition. Advertising revenues, net of agency commissions, are recognized in the period during which time spots are
aired. All other revenues are recognized as services are provided. The revenues realized from station barter arrangements are
recorded as the programs are aired at the estimated fair value of the advertising airtime given in exchange for the program rights.
Our retransmission consent agreements contain both advertising and retransmission consent elements that are paid in cash.
We have determined that our agreements are revenue arrangements with multiple deliverables and fall within the scope of EITF
Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). Advertising and retransmission consent deliverables
sold under our agreements are separated into different units of accounting based on fair value. Revenue applicable to the
advertising element of the arrangement is recognized consistent with the advertising revenue policy noted above. Revenue
applicable to the retransmission consent element of the arrangement is recognized ratably over the life of the agreement.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from extending
credit to our customers that are unable to make required payments. If the economy and/or the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be
required. For example, a 10% increase in the balance of our allowance for doubtful accounts as of December 31, 2008, would
reduce net income available to common shareholders by approximately $0.3 million. The allowance for doubtful accounts was
$3.3 million and $3.9 million as of December 31, 2008 and 2007, respectively.
Program Contract Costs. We have agreements with distributors for the rights to televise programming over contract periods,
which generally run from one to seven years. Contract payments are made in installments over terms that are generally equal to
or shorter than the contract period. Each contract is recorded as an asset and a liability at an amount equal to its gross cash
contractual commitment when the license period begins and the program is available for its first showing. The portion of
program contracts which become payable within one year is reflected as a current liability in the consolidated balance sheets. As
of December 31, 2008 and 2007, we recorded $83.3 million and $83.0 million, respectively, in program contract assets and $172.7
million and $170.2 million, respectively, in program contract liabilities.
The programming rights are reflected in the consolidated balance sheets at the lower of unamortized cost or estimated net
realizable value (NRV). Estimated NRVs are based on management’s expectation of future advertising revenue, net of sales
commissions, to be generated by the remaining program material available under the contract terms. In conjunction with our
NRV analysis of programming rights reflected in our consolidated balance sheets, we perform similar analysis on future
programming rights yet to be reflected in our consolidated balance sheets and establish allowances when future payments exceed
the estimated NRV. Amortization of program contract costs is generally computed using a four-year accelerated method or a
straight-line method, depending on the length of the contract. Program contract costs estimated by management to be amortized
within one year are classified as current assets. Program contract liabilities are typically paid on a scheduled basis and are not
reflected by adjustments for amortization or estimated NRV. If our estimate of future advertising revenues declines, then
additional write downs to NRV may be required.
Income Taxes. We recognize deferred tax assets and liabilities based on the differences between the financial statements carrying
amounts and the tax bases of assets and liabilities. As of December 31, 2008 and 2007, we recorded $9.0 million and $7.8 million,
respectively, in deferred tax assets and $199.2 million and $313.4 million, respectively, in deferred tax liabilities. We provide a
valuation allowance for deferred tax assets if we determine, based on the weight of available evidence, that is more likely than not
that some or all of the deferred tax assets will not be realized. As of December 31, 2008, valuation allowances have been
provided for a substantial amount of our available federal and state NOLs. Management periodically performs a comprehensive
10 (cid:121) Sinclair Broadcast Group
review of our tax positions and accrues amounts for tax contingencies. Based on these reviews, the status of ongoing audits and
the expiration of applicable statute of limitations, accruals are adjusted as necessary in accordance with the recognition provisions
of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.
Recent Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial Accounting Standard No 141 (revised 2007), Business Combinations
(FAS 141(R)). FAS 141(R) requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction
at the acquisition-date fair value with limited exceptions. In addition to new disclosure requirements, FAS 141(R) also makes the
following significant changes: acquisition costs are expensed as incurred, noncontrolling interests are valued at fair value at the
acquisition date, acquired contingencies are recorded at fair value at the acquisition date and subsequently re-measured at either
the higher of such amount or the amount determined under existing guidance for non-acquired contingencies, in-process research
and development costs are recorded at fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs
are expensed subsequent to the acquisition date and changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally affect income tax expense. This statement is effective for business combinations
in which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15,
2008 and early adoption is prohibited. This statement could have a material effect on our consolidated financial statements if we
make future acquisitions.
In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51 (FAS 160). This statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net
income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income
statement. Changes in a parent’s ownership interest that result in deconsolidation of a subsidiary will result in the recognition of a
gain or loss in net income when the subsidiary is deconsolidated. FAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling interest. The statement is effective for fiscals years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. This statement will not have a material effect on our
consolidated financial statements.
In February 2008, the FASB issued FSP FAS 157-1 and FSP FAS 157-2, Fair Value Measurements. FSP FAS 157-1 amends
FASB Statement No. 157, Fair Value Measurements (FAS 157) to exclude FASB Statement No. 13, Accounting for Leases (FAS 13),
and its related interpretive accounting pronouncements that address leasing transactions. The FASB decided to exclude leasing
transactions covered by FAS 13 (except those arising from a business combination) in order to allow it to more broadly consider
the use of fair value measurements for these transactions as part of its project to comprehensively reconsider the accounting for
leasing transactions. FAS 157-2 delays the effective date of FAS 157 for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The FSP states that the
application of FAS 157 for non-financial assets and non-financial liabilities will be delayed until fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years. FAS 157 was issued in September 2006 and defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. We applied the
provisions of this statement for the year ended 2008. The application of FAS 157 did not have a material impact on our
consolidated financial statements.
In May 2008, the Financial Accounting Standards Board (FASB) issued FASB Standard Position (FSP) APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement). This FSP requires issuers of
convertible debt instruments that may be settled in cash upon conversion to account for the liability and equity components in a
manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.
Issuers will need to determine the carrying value of just the liability portion of the debt by measuring the fair value of a similar
liability (including any embedded features other than the conversion option) that does not have an associated equity component.
The excess of the initial proceeds received from the debt issuance and the fair value of the liability component should be recorded
as a debt discount with the offset recorded to equity. The discount will be amortized to interest expense using the interest
method over the life of a similar liability that does not have an associated equity component. Transaction costs incurred with
third parties shall be allocated between the liability and equity components in proportion to the allocation of proceeds and
accounted for as debt issuance costs and equity issuance costs, respectively, with the debt issuance costs amortized to interest
expense. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. Early adoption is not permitted. This statement will be applied retrospectively to all periods
presented as of the beginning of the first period presented, first quarter 2007, with an offsetting adjustment to the opening
balance of retained earnings. In 2009, we will record the impact of this statement retrospectively by recording additional interest
expense on our 3.0% Convertible Senior Notes, due 2027 (the 3.0% Notes) of approximately $6.4 million for the year ended
December 31, 2007 and approximately $9.9 million for the year ended December 31, 2008. We expect to record additional
interest expense of approximately $12.1 million and $4.5 million in the years ended December 31, 2009 and 2010, respectively.
The interest expense assumes the exercise of our 3.0% Notes in May 2010.
2008 Annual Report (cid:121) 11
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities. This FSP clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends
or dividend equivalents are participating securities as defined in EITF 03-6, Participating Securities and the Two-Class Method under
FASB Statement No. 128 and should therefore be included in the computation of earnings per share. Our restricted stock awards
are considered participating securities in accordance with this FSP. This FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years. In addition, all prior period earnings per
share data shall be adjusted retrospectively. The impact of this issue will not have a material effect on our consolidated financial
statements.
In June 2008, the EITF issued Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s
Own Stock. This issue requires that an entity use a two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement
provisions. This issue is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.
The impact of this issue will not have a material effect on our consolidated financial statements.
In September 2008, the EITF reached a consensus for exposure on Issue No. 08-6, Equity Method Investment Accounting
Considerations. This issue addresses the accounting for equity method investments as a result of the accounting changes prescribed
by FAS 141(R) and FAS 160. The issue includes clarification on the following: (a) transaction costs should be included in the
initial carrying value of the equity method investment, (b) an impairment assessment of an underlying indefinite-lived intangible
asset of an equity method investment need only be performed as part of any other-than-temporary impairment evaluation of the
equity method investment as a whole and does not need to be performed annually, (c) the equity method investee’s issuance of
shares should be accounted for as the sale of a proportionate share of the investment, which may result in a gain or loss in
income, and (d) a gain or loss should not be recognized when changing the method of accounting for an investment from the
equity method to the cost method. This issue will be effective for fiscal years beginning on January 1, 2009. The impact of this
issue will not have a material effect on our consolidated financial statements.
RESULTS OF OPERATIONS
In general, this discussion is related to the results of our continuing operations, except for discussions regarding our cash flows
(which also include the results of our discontinued operations). Unless otherwise indicated, references in this discussion to 2008,
2007 and 2006 are to our fiscal years ended December 31, 2008, 2007 and 2006, respectively. Additionally, any references to the
first, second, third or fourth quarters are to the three months ended March 31, June 30, September 30 and December 31,
respectively, for the year being discussed.
Broadcast Revenues
Set forth below are the principal types of broadcast revenues from continuing operations received by our stations for the
periods indicated and the percentage contribution of each type to our net broadcast revenues (in millions):
2008
Years Ended December 31,
2007
2006
$
Local/regional advertising, net (a)
National advertising, net
Political advertising, net
Network compensation
Retransmission consent (a)
Other station revenues, net
Net broadcast revenues
Revenues realized from station
barter arrangements
Other operating divisions revenues
Total revenues
$
358.1
166.6
41.1
6.2
53.3
13.9
639.2
59.9
55.4
754.5
56.0%
26.1%
6.4%
1.0%
8.3%
2.2%
$
$
366.9
186.3
5.0
6.5
44.4
13.5
622.6
61.8
33.7
718.1
58.9%
29.9%
0.8%
1.1%
7.1%
2.2%
$
$
357.6
195.3
31.1
9.4
20.4
13.3
627.1
54.5
24.6
706.2
57.0%
31.1%
5.0%
1.5%
3.3%
2.1%
(a) In 2008, 2007 and 2006, $20.6 million, $14.5 million and $4.7 million, respectively, in revenues generated from our retransmission
consent agreements are categorized as local/regional advertising rather than as retransmission consent revenues pursuant to EITF 00-21.
12 (cid:121) Sinclair Broadcast Group
Our primary types of programming and their approximate percentages of 2008 net broadcast revenues from continuing
operations were syndicated programming (35.2%), network programming (23.9%), news (15.3%), sports programming (7.2%) and
direct advertising programming (6.9%). Additionally, other types of revenue and their approximate percentages of 2008 net
broadcast revenues from continuing operations were retransmission consent (8.4%), network compensation (1.0%) and other
(2.1%).
The following table presents our time sales revenue from continuing operations, net of agency commissions, by network
affiliates for the past three years (in millions):
FOX
ABC (a)
MyNetworkTV(b)
The CW (b)
CBS
NBC
Digital (c)
Total
# of
Stations
20
9
17
9
2
1
4
62
Percent of
Sales
2008
44.6%
21.6%
17.5%
12.8%
2.7%
0.7%
0.1%
2008
252.3
122.4
99.0
72.2
15.5
3.9
0.5
565.8
$
$
$
Net Time Sales
2007
243.0
120.7
102.9
76.0
11.3
3.6
0.7
558.2
$
Percent Change
’08 vs. ‘07
3.8%
1.4%
(3.8%)
(5.0%)
37.2%
8.3%
(28.6%)
’07 vs. ‘06
3.3%
(11.3%)
(14.8%)
(0.8%)
7.6%
(16.3%)
75.0%
2006
$ 235.3
136.1
120.8
76.6
10.5
4.3
0.4
$ 584.0
(a) During 2007, we entered into an agreement to sell our ABC station in Springfield, Massachusetts. The time sales from this station is
not included in this table because it is accounted for as time sales from discontinued operations.
(b) In September 2006, our composition of network affiliates changed as a result of our agreement to air MyNetworkTV programming
and the merger of UPN and The WB into The CW.
(c) Three television stations are broadcasting MyNetworkTV programming and one television station is broadcasting independent
programming on a second digital signal in accordance with FCC rules.
Operating Data
The following table sets forth certain of our operating data from continuing operations for the years ended December 31, 2008,
2007 and 2006 (in millions). For definitions of terms, see the footnotes to the table in Item 6. Selected Financial Data.
For the Years Ended December 31,
Net broadcast revenues
Revenues realized from station barter arrangements
Other operating divisions revenues
Total revenues
Station production expenses
Station selling, general and administrative expenses
Expenses recognized from station barter arrangements
Depreciation and amortization
Gain on asset exchange
Other operating divisions expenses
Corporate general and administrative expenses
Impairment of goodwill and broadcast licenses
Operating (loss) income
Net (loss) income
2008
639.2
59.9
55.4
754.5
159.0
136.1
53.3
147.6
(3.2)
60.0
26.3
463.9
(288.5)
(241.5)
$
$
$
2007
622.6
61.8
33.7
718.1
148.7
140.0
55.7
157.2
—
33.0
24.3
—
159.2
22.7
$
$
$
2006
627.1
54.5
24.6
706.2
144.2
138.0
49.4
153.3
—
24.2
22.8
15.6
158.7
54.0
$
$
$
2008 Annual Report (cid:121) 13
Revenue Discussion and Analysis
The following table presents our revenues from continuing operations, net of agency commissions, for the three years ended
December 31, 2008, 2007 and 2006 (in millions):
For the Years Ended December 31,
Local revenues:
Non-political (a)
Political
Total local
National revenues:
Non-political
Political
Total national
Other revenues
Total net broadcast revenues
2008
358.1
11.0
369.1
166.6
30.1
196.7
73.4
639.2
$
$
2007
366.9
1.3
368.2
186.3
3.7
190.0
64.4
622.6
$
$
2006
’08 vs. ‘07
’07 vs. ‘06
Percent Change
$
$
357.6
10.0
367.6
195.3
21.1
216.4
43.1
627.1
(2.4%)
(b)
0.2%
(10.6%)
(b)
3.5%
14.0%
2.7%
2.6%
(b)
0.2%
(4.6%)
(b)
(12.2%)
49.4%
(0.7%)
(a) Revenues of $20.6 million, $14.5 million and $4.7 million in 2008, 2007 and 2006, respectively, generated from our retransmission
consent agreements are categorized as local/regional advertising pursuant to EITF 00-21.
(b) Political revenue is not comparable from year to year due to the cyclicality of elections. See Political Revenues below for more
information.
Our largest categories of advertising and their approximate percentages of 2008 net time sales were automotive (18.3%),
professional services (14.3%), political (7.3%), schools (6.6%), fast food (6.6%) and paid programming (5.9%). No other
advertising category accounted for more than 5.0% of our net time sales in 2008. No advertiser accounted for more than 1.2% of
our consolidated revenue in 2008. We conduct business with thousands of advertisers.
Net Broadcast Revenues. From a revenue category standpoint, the year ended December 31, 2008, when compared to 2007, was
impacted by increases in advertising revenues from political, media, fast food, and entertainment, offset by decreases in
automotive, retail, movies, paid programming, medical and restaurants. Automotive, our single largest category, representing
18.3% of the year’s net time sales, was down 12.5%.
Political Revenues. Political revenues kept 2008 and 2006 net time sales higher than 2007 because 2008 and 2006 were both
election years. For the year ended December 31, 2008, political revenues increased from $31.1 million to $41.1 million when
compared to the same period in 2006. We attribute this increase to a presidential election year in 2008 and having stations in 11
of the 16 so called “battleground states,” including five stations in Ohio and North Carolina, multiple stations in each of Florida,
Iowa, Missouri, Nevada, Pennsylvania, Virginia, Wisconsin and one station in Michigan and Minnesota. For the year ended
December 31, 2007, political revenues were only $5.0 million because 2007 was not an election year. Accordingly, we expect
political revenues to significantly decrease in 2009 from 2008 levels.
Local Revenues. Our revenues from local advertisers, excluding political revenues, decreased $8.8 million for the year ended
December 31, 2008, compared to the same period in 2007. This decrease was primarily due to current negative financial and
economic conditions which have impeded advertising spending levels, partially offset by $5.1 million in revenues from our
stations in Cedar Rapids, Iowa including KFXA-TV acquired in February 2008 and KGAN-TV which was previously accounted
for as an outsourcing agreement. In addition, the decrease was partially offset by an increase of $4.8 million in our FOX stations
due to a change in networks for the Super Bowl programming from CBS to FOX. The change in networks from FOX to NBC in
2009 negatively impacted our 2009 revenues.
National Revenues. Our revenues from national advertisers, excluding political revenues decreased $19.7 million during the year
ended December 31, 2008, when compared to the same period in 2007 and have continued to trend downward over time. We
believe this trend represents a shift in the way national advertising dollars are being spent and we believe this trend will continue
in the future. Advertisers in major categories like automotive, soft drink and packaged goods have shifted significant portions of
their advertising budgets away from spot television into non-traditional media, in-store promotions and product placement in
network shows. Automotive decreases are primarily due to automotive related companies reducing advertising budgets and
shifting advertising to specific markets. In addition, similar to local revenues, national revenues have been affected by the current
negative financial and economic conditions which have impeded advertising spending levels.
14 (cid:121) Sinclair Broadcast Group
Other Revenues. Our other revenues consist primarily of revenues from retransmission consent agreements with multi-channel
video programming distributors (MVPDs), network compensation, production revenues and revenues from our outsourcing
agreements. Our retransmission consent agreements, including the advertising component, generated $73.9 million in total
broadcast revenues during 2008 compared with $58.9 million in 2007 and $25.1 million in 2006. This growth trend is the result of
our ability to monetize our existing relationships as cable providers struggle with increased competition from alternative video
delivery providers and have begun to recognize the value of our digital and high definition signals and local and other
programming. We expect to continue to generate revenues from retransmission consent agreements at terms as favorable as or
more favorable than our existing agreements upon the expiration of those agreements. Many of our retransmission consent
agreements include automatic annual fee escalators. However, we may not continue at the current growth rate since most of the
MVPDs that we conduct business with are under contract. Network compensation decreased by $0.3 million during 2008 and
$2.9 million during 2007. We expect further decreases in revenues from network compensation in 2009.
Operating Expense and Other Income (Expense) Discussion and Analysis
The following table presents our significant operating expense and other income (expense) categories for the three years ended
December 31, 2008, 2007 and 2006 (in millions):
Station production expenses
Station selling, general and
administrative expenses
Amortization of program contract costs
and net realizable value adjustments
Corporate general and administrative
2008
$
159.0
$
2007
148.7
2006
144.2
$
Percent Change
(Increase/(Decrease))
’07 vs. ‘06
’08 vs. ‘07
3.1%
6.9%
$
136.1
$
140.0
$
138.0
(2.8%)
$
84.4
$
96.4
$
90.6
(12.4%)
expenses
$
26.3
$
24.3
$
22.8
Amortization of definite-lived intangible
assets and other assets
Gain on asset exchange
Impairment of goodwill and broadcast
licenses
Interest expense
Gain (loss) from extinguishment of debt
Gain from derivative instruments
(Loss) gain from equity and cost
method investments
Income tax benefit (provision)
$
$
$
$
$
$
$
$
18.3
3.2
463.9
77.7
5.5
0.9
(2.7)
116.5
$
$
$
$
$
$
$
$
17.6
—
—
95.9
(30.7)
2.6
0.6
(18.8)
$
$
$
$
$
$
$
$
17.5
—
15.6
115.2
(0.9)
2.9
6.3
(6.6)
1.4%
6.4%
6.6%
0.6%
—%
(100.0%)
(16.8%)
3,311.1%
(10.3%)
8.2%
4.0%
100.0%
100.0%
(19.0%)
117.9%
(65.4%)
(550.0%)
719.7%
(90.5%)
(184.8%)
Station production expenses. Station production expenses for 2008 increased compared to 2007. Excluding Cedar Rapids, there
were increases in news expenses of $4.0 million, rating service fees of $1.5 million, engineering expenses of $1.1 million,
production expenses of $0.7 million, programming expenses of $0.6 million, severance costs of $0.3 million and miscellaneous
expenses of $0.1 million. In addition, there were $4.3 million in increases in costs related to our stations in Cedar Rapids
including KFXA-TV, acquired in February 2008, and KGAN-TV which was previously accounted for as an outsourcing
agreement. These increases were offset by decreases in costs related to promotion expenses of $1.1 million, LMAs and
outsourcing agreements of $0.7 million and music license fees of $0.5 million.
Station production expenses for 2007 increased compared to 2006 as a result of increases in programming expenses of $1.7
million, engineering expenses of $1.0 million, production expenses of $0.7 million, news expenses of $0.6 million, promotion
expenses of $0.5 million, rating service fees of $0.5 million and music license fees of $0.2 million. These increases were offset by
decreases in costs related to LMAs and outsourcing agreements of $0.6 million and other miscellaneous expenses of $0.1 million.
Station selling, general and administrative expenses. Station selling, general and administrative expenses for 2008 decreased compared
to the same period in 2007. Excluding Cedar Rapids, there was a decrease in sales management bonuses of $5.2 million, local
commissions of $1.1 million and other general and administrative expenses of $1.3 million offset by increases in sales expenses of
$0.3 million, traffic costs of $0.3 million, national representative commissions costs of $0.2 million and severance costs of $0.1
million. Selling, general and administrative expenses increased related to our stations in Cedar Rapids by $2.8 million.
Station selling, general and administrative expenses for 2007 increased compared to the same period in 2006 as a result of
increases in sales expenses of $1.3 million, national representative commissions costs of $0.6 million and other general and
administrative expenses primarily related to health care costs of $0.4 million, salary and bonus increases of $0.4 million, electric
2008 Annual Report (cid:121) 15
expense of $0.2 million and other expenses of $0.2 million offset by decreases in personal property taxes of $0.8 million and non-
income based taxes of $0.3 million.
We expect 2009 station production and station selling, general and administrative expenses to be down from 2008.
Amortization of program contract costs and net realizable value adjustments. The amortization of program contract costs decreased
during 2008 compared to 2007 primarily due to a decrease in write downs of our program contract costs of $7.9 million and
program amortization of $4.1 million. The amortization increase during 2007 compared to 2006 was primarily due to an increase
of $6.7 million in write-downs of our program contract costs partially offset by a decrease in program amortization of $0.9
million. We expect program contract amortization expense to decrease in 2009 when compared to 2008.
Corporate general and administrative expenses. Corporate general and administrative expenses represent the costs to operate our
corporate headquarters location. Costs are allocated to the broadcast segment, other operating divisions segment and corporate
and include, among other things, departmental salaries, bonuses, fringe benefits and other compensation, health and other
insurance, rent, telephone, consulting fees, legal fees and strategic development initiatives. Corporate also includes, among other
things, director fees and directors’ and officers’ life insurance. Corporate departments include executive, treasury, accounting,
human resources, corporate relations and legal. Broadcast segment departments include finance, technology, sales, engineering,
operations and purchasing. Other operating divisions segment costs primarily relate to the acquisition and management of our
non-broadcast investments.
Corporate general and administrative expense for 2008 increased compared to the same period in 2007. There were increases
in broadcast segment compensation expenses including stock based awards of $1.0 million, severance costs of $0.2 million offset
by a decrease in professional and other general and administrative expenses of $0.2 million. Other operating divisions increases
were due to compensation expenses of $0.6 million offset by a decrease in professional fees of $0.2 million. Corporate included
increases in professional fees of $1.1 million offset by decreases in rent expense of $0.3 million and compensation expenses
including stock based awards of $0.2 million.
Corporate general and administrative expense for 2007 increased compared to the same period in 2006. There were increases
in corporate compensation expenses including stock based awards of $1.4 million, the difference in the amount of workers
compensation insurance refunds received in 2006 compared to 2007 amounting to $0.5 million, rent expense of $0.1 million
offset by decreases in professional and other fees of $0.5 million. In addition, other operating divisions segment increases were
due to compensation expenses of $0.2 million and professional fees of $0.5 million. Corporate and other operating divisions
segment increases were offset by a decrease in broadcast segment expenses including $0.7 million of costs related to the shutdown
of News Central at several stations and other strategic development initiatives related to news and professional and other general
and administrative expenses of $0.3 million offset by an increase compensation expenses including stock based awards of $0.3
million.
We expect corporate overhead expenses to decrease in 2009.
Amortization of definite-lived intangibles and other assets. The amortization of definite-lived intangibles and other assets increased in
the broadcast segment and operating divisions segment $0.2 million and $0.5 million, respectively during 2008 compared to 2007.
The increases were primarily due to amortization of additional intangible assets from 2007 and 2008 acquisitions.
The amortization of definite-lived intangibles and other assets decreased in the broadcast segment $0.7 million and increased in
the operating divisions segment $0.7 million during 2007 compared to 2006. The increase in the other operating divisions
segment was primarily due to amortization of additional intangible assets from 2007 acquisitions.
Gain on asset exchange. During 2008, we recognized a non-cash gain of $3.2 million in our broadcast segment from the exchange
of equipment under agreements with Sprint Nextel Corporation.
Impairment of goodwill and broadcast licenses. At least once annually and on a periodic basis, we test our goodwill and broadcast
licenses for impairment in accordance with FAS No. 142. See Note 5. Goodwill and Other Intangible Assets, in the Notes to our
Consolidated Financial Statements. In 2008, we recorded an impairment of $191.9 million and $270.4 million related to our
goodwill and broadcast licenses, respectively. In addition, we recorded an impairment of $1.6 million related to goodwill
associated with Acrodyne Communications, Inc., an other operating divisions segment company. In 2006, we recorded an
impairment of $11.9 million related to goodwill. In addition, during 2006, we wrote-down a decaying advertiser based definite-
lived intangible asset by $3.7 million.
Interest expense. Interest expense presented in the financial statements is related to continuing operations. Interest expense has
been decreasing since 2004, primarily due to refinancings we have undertaken. In 2008 compared to 2007 interest expense related
to the broadcast segment decreased $23.0 million primarily due to partial redemptions of our 8.0% Notes. In addition, a decrease
16 (cid:121) Sinclair Broadcast Group
in LIBOR has lowered interest expense on our Revolving Credit Facility and Term Loans, however, this decrease was offset by an
increase in interest expense due to higher amounts outstanding on our Revolving Credit Facility throughout 2008. There was a
decrease in interest expense in the other operating divisions segment of $0.3 million. These decreases were offset by an increase
of corporate interest of $5.1 million primarily due to interest on the 3.0% Notes offset by partial redemptions of our 4.875%
Notes and 6.0% Debentures. We completed the 3.0% Notes offering in May 2007.
Interest expense related to our broadcast segment for 2007 decreased compared to the same period in 2006 by $28.1 million
primarily due to the redemption of the 8.75% Notes and 8.0% Notes. The broadcast segment decrease was offset by an increase
in corporate interest of $8.2 million primarily due to increased interest on our Revolving Credit Facility and Term Loan and
interest on the 3.0% Notes and the increase in interest related to the other operating divisions segment of $0.6 million related
additional debt from 2007 acquisitions.
Gain (loss) from extinguishment of debt. During 2008, we repurchased, in the open market, $6.5 million face value of the 4.875%
Notes, $18.1 million face value of the 6.0% Debentures, and $38.8 million of the 8.0% Notes, resulting in an overall gain of $5.5
million from extinguishment of debt. In 2007, we redeemed and partially redeemed our 8.75% Notes and our 8.0% Notes,
respectively. The redemption of the 8.75% Notes resulted in a $15.7 million loss from extinguishment of debt. The partial
redemption of the 8.0% Notes resulted in a $15.0 million loss from extinguishment of debt. For further information see Liquidity
and Capital Resources.
Gain from derivative instruments. We record gains and losses related to certain of our derivative instruments not treated as hedges
in accordance with FAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The fair value of our
derivative instruments is primarily based on the anticipated future interest rate curves at the end of each period. In March 2008,
the counterparty to one of the derivative instruments terminated one of our swap agreements with a notional amount of $120.0
million and we received a cash payment termination fee of $3.2 million from our counterparty. The gain from our derivative
instruments during 2008 when compared to 2007 and 2006 is due to normal market fluctuations and the termination of the
interest rate swap agreement.
(Loss) gain from equity and cost method investments. During 2008, we recorded a loss of $2.8 million related to our real estate ventures
and a loss of $0.6 million related to investments in private investment funds. The losses were partially offset by a distribution of
$0.7 million from a direct investment in a privately held small business. During 2007, we recorded $1.6 million in income from
certain private investment funds. This income was offset by an impairment of $1.0 million related to one of our direct
investments in a privately held small business. During 2006, we recorded $7.3 million of income from our investment in a private
investment fund. This was a result of the sale and initial public offering of certain of the fund’s portfolio companies. This
income was partially offset by losses from one of our direct investments in a privately held small business. All investments are
related to our other operating divisions segment.
Income tax provision. As of December 31, 2008, we had $26.1 million of gross unrecognized tax benefits. Of this total, $14.7
million (net of federal effect on state tax issues) and $6.9 million (net of federal effect on state tax issues) represent the amounts
of unrecognized tax benefits that, if recognized, would favorably affect our effective tax rates from continuing operations and
discontinued operations, respectively. As of December 31, 2007, we had $28.0 million of gross unrecognized tax benefits. Of
this total, $15.1 million (net of federal effect on state tax issues) and $7.1 million (net of federal effect on state tax issues)
represent the amounts of unrecognized tax benefits that, if recognized, would favorably affect our effective tax rates from
continuing operations and discontinued operations, respectively. See Footnote 10. Income Taxes for further information.
We recognized $1.4 million and $0.4 million of income tax expense for interest related to uncertain tax positions during the
years ended December 31, 2008 and 2007, respectively.
The 2008 income tax benefit for our pre-tax loss from continuing operations of $357.8 million resulted in an effective tax rate
of 32.6%. The 2007 income tax provision for our pre-tax income from continuing operations of $39.2 million resulted in an
effective tax rate of 47.9%. The decrease in the absolute value of the effective tax rate from 2008 to 2007 is primarily attributable
to a number of discrete items driving the 2007 income tax provision.
As of December 31, 2008, we had a net deferred tax liability of $190.2 million as compared to a net deferred tax liability of
$305.6 million as of December 31, 2007. The decrease primarily relates to a decrease in net deferred tax liabilities associated with
book and tax differences attributable to the amortization and impairment of intangible and FCC license assets.
The 2007 income tax provision for our pre-tax income from continuing operations of $39.2 million resulted in an effective tax
rate of 47.9%. The 2006 income tax provision for our pre-tax income from continuing operations of $55.1 million resulted in an
effective tax rate of 12.0%. The increase in effective tax rate from 2007 to 2006 is primarily attributable to the release of discrete
tax and related interest reserves during 2006 as a result of the expiration of the statute of limitations for the federal income tax
returns for 1999 through 2002.
2008 Annual Report (cid:121) 17
As of December 31, 2007, we had a net deferred tax liability of $305.6 million as compared to a net deferred tax liability of
$274.0 million as of December 31, 2006. The increase primarily relates to an increase in deferred tax liabilities associated with
book and tax differences attributable to the amortization of intangible assets.
Other Operating Divisions Segment Revenue and Expense
The following table presents other operating divisions segment revenue and expenses related to G1440 Holdings, Inc. (G1440),
an information technology staffing, consulting and software development company, Acrodyne Communications, Inc. (Acrodyne),
a manufacturer of television transmissions systems, Triangle Signs & Services, LLC. (Triangle), a sign designer and fabricator,
Alarm Funding Associates, LLC (Alarm Funding), a regional security alarm operating and bulk acquisition company and real
estate ventures. Depreciation, amortization of definite-lived intangibles and other assets, impairment of goodwill, interest expense
and certain corporate general and administrative costs are included in their respective line items in the consolidated statements of
operations and are discussed above in our Expense and Other Income Discussion and Analysis. All remaining other operating divisions
segment revenues and expenses are discussed in the following table for the years ended December 31, 2008, 2007 and 2006 (in
millions):
For the Years Ended December 31,
2007
2008
2006
Percent Change
’08 vs. ‘07
’07 vs. ‘06
Revenues:
G1440
Acrodyne
Triangle
Alarm Funding
Real Estate Ventures
Expenses:
G1440
Acrodyne
Triangle
Alarm Funding
Real Estate Ventures
$
$
$
$
$
$
$
$
$
$
10.9
7.7
28.9
2.7
5.2
11.3
7.9
25.8
2.2
12.8
$
$
$
$
$
$
$
$
$
$
9.4
4.4
19.2
0.1
0.6
9.8
6.3
15.8
0.1
1.0
$
8.5
16.1
$
$ —
$ —
$ —
8.6
$
$
15.6
$ —
$ —
$ —
16.0%
75.0%
50.5%
2,600.0%
766.7%
15.3%
25.4%
63.3%
2,100.0%
1,180.0%
10.6%
(72.7%)
100.0%
100.0%
100.0%
14.0%
(59.6%)
100.0%
100.0%
100.0%
G1440 and Acrodyne continue to have operating losses or near breakeven results due to a decline in demand for their products
or services.
Increases in 2008 compared to 2007 for Triangle and Alarm Funding are primarily due to full year of operations included in
2008 results. Triangle and Alarm Funding were acquired in May 2007 and November 2007, respectively. Alarm Funding
continues to grow revenues through the acquisition of alarm monitoring contracts.
Increases in real estate ventures revenue and expenses in 2008 compared to 2007 are primarily due to acquisitions of new
consolidated ventures at the end of 2007 and during 2008. During 2008, we recorded $4.7 million of expenses related to Bay
Creek South, LLC, a land development venture we acquired in March 2008. In addition, during 2008, we recorded $2.4 million
more of compensation expense related to subsidiary stock awards. The subsidiary stock is typically in the form of a membership
interest in a consolidated limited liability company, not traded on a public exchange and valued based on the estimated fair value
of the subsidiary. During 2008, we reserved a real estate venture loan through a $3.9 million charge to other operating divisions
expense in our consolidated statements of operations. Our real estate ventures are primarily in the development stage and,
therefore, have not contributed significant revenues to our results to date.
Results of our equity and cost method investments, private investment funds and real estate ventures are included in (loss) gain
from equity and cost method investments in our consolidated statement of operations and are discussed above in our Expense and
Other Income Discussion and Analysis.
18 (cid:121) Sinclair Broadcast Group
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2008, we had $16.5 million in cash and cash equivalent balances and negative working capital of
approximately $45.2 million. Our working capital reduction of $58.6 million since December 31, 2007 is primarily the result of
the use of operating cash flow for investments in certain real estate ventures and private investment funds. Cash generated by our
operations and availability under our Revolving Credit Facility are used as our primary source of liquidity. We anticipate that in
2009, cash flow from our operations and borrowings under the Revolving Credit Facility will be sufficient to continue satisfying
our debt service obligations, capital expenditure requirements, certain committed strategic investments and working capital needs.
In addition, we believe our operating cash flow and availability on our revolving Credit Facility would have enabled us to continue
paying our current quarterly dividend throughout 2009, however in February 2009, we decided it was prudent to suspend the
dividend due to the current negative economic climate. Our ability to draw on our Revolving Credit Facility is based on pro
forma trailing cash flow levels as defined in our Bank Credit Agreement. For the year ended December 31, 2008, we had drawn
$84.6 million on our Revolving Credit Facility and $84.0 million of current borrowing capacity was available. Due to the Lehman
Brothers Holdings, Inc. bankruptcy, our $175.0 million committed revolving line of credit was reduced by $6.4 million.
Our universal shelf registration statement filed with the Securities and Exchange Commission expired on November 30, 2008.
We expect to file another universal shelf registration statement in 2009.
Based on our current common stock trading price levels, it is highly probable that holders will exercise their right to put our
3.0% Convertible Senior Notes, due 2027 (the 3.0% Notes) and our 4.875% Convertible Senior Notes, due 2018 (the 4.875%
Notes) to us on May 2010 and January 2011, respectively. As of December 31, 2008, the face values of the 3.0% Notes and
4.875% Notes were $345.0 million and $143.5 million, respectively. The conversion price for the 3.0% Notes and 4.875% Notes
are $19.65 and $22.37, respectively. Currently we are exploring alternative solutions relative to the potential put of these notes.
We may not be able to refinance or extinguish these notes on the put dates.
Sources and Uses of Cash
The following table sets forth our cash flows for the years ended December 31, 2008, 2007 and 2006 (in millions):
Net cash flows from operating activities
Net cash flows from (used in) investing activities:
Acquisition of property and equipment
Payments for acquisition of television stations
Consolidation of variable interest entity
Payments for acquisitions of other operating
divisions companies
Purchase of alarm monitoring contracts
Dividends and distributions from equity and cost
method investees
Investments in equity and cost method investees
Proceeds from sales of assets
Proceeds from the sale of broadcast assets related to
discontinued operations
Other
Net cash flows used in investing activities
Net cash flows (used in) from financing activities:
Proceeds from notes payable, commercial bank
financing and capital leases
Repayments of notes payable, commercial bank
financing and capital leases
Repurchase of Class A Common Stock
Proceeds from exercise of stock options
Dividends paid on Class A and Class B Common
Stock
Proceeds from derivative instruments
Other
Net cash flows used in financing activities
$
$
$
2008
211.1
(25.2)
(17.1)
1.3
(53.5)
(7.7)
1.6
(42.0)
0.2
—
0.1
(142.3)
$
2007
146.2
(23.2)
—
—
(39.1)
—
—
(16.4)
0.7
21.0
0.6
(56.4)
$
$
$
$
$
2006
155.3
(16.9)
(1.7)
—
—
—
—
(0.3)
2.4
1.4
—
(15.1)
$
$
274.6
$
751.6
$
75.0
(255.6)
(29.8)
—
(66.7)
8.0
(3.8)
(73.3)
(840.6)
—
13.4
(49.5)
—
(11.2)
(136.3)
$
(114.4)
—
1.1
(36.1)
—
(8.0)
(82.4)
$
2008 Annual Report (cid:121) 19
Operating Activities
Net cash flows from operating activities were $64.9 million higher for the year ended December 31, 2008 compared to the same
period in 2007. During 2008, we paid $27.0 million less for the extinguishment of debt primarily due to the full redemption of
the 8.75% Notes and the partial redemption of the 8.0% Notes in 2007. Additionally, we paid $24.6 million less in interest
payments and received $17.5 million more in broadcast segment receipts from customers, net of cash payments to vendors for
operating expenses and other working capital cash activities. We received $6.2 million more in tax refunds, net of tax payments.
These amounts were partially offset by paying $4.2 million more in program payments and receiving $1.4 million less in
distributions on our investments from equity and cost method investees. In addition, we received $4.8 million less in other
operating divisions segment receipts from customers net of cash payments to venders for operating expenses and other working
capital cash activities.
Net cash flows from operating activities were $9.1 million lower for the year ended December 31, 2007 compared to the same
period in 2006. During 2007, we paid $27.2 million more for the extinguishment of debt due to the full redemption of the 8.75%
Notes and the partial redemption of the 8.0% Notes. Additionally, we received $4.2 million less in distributions from equity and
cost method investees, $3.8 million less in tax refunds, $1.4 million less in operating cash flows from stations we sold and $3.3
million less in broadcast segment cash receipts from customers, net of cash payments to vendors for operating expenses and
other working capital cash activities. Offsetting these amounts, we paid $11.8 million less in interest payments, $10.0 million less
in program payments, $4.5 million less in tax payments, and $4.5 million more in other operating divisions segment cash receipts
from customers, net of cash payments to vendors for operating expenses and other working capital cash activities.
We expect program payments to increase in 2009 compared to 2008.
Investing Activities
Net cash flows used in investing activities increased for the year ended December 31, 2008 compared to the same period in
2007. During the year ended December 31, 2008, we paid $14.4 million more for acquisitions of non-television assets. Our 2008
acquisition activity included $34.5 million, net of cash acquired, related to our acquisition of Bay Creek South, LLC, $19.0 million
related to our acquisition of Jefferson Park Development, LLC and $17.1 million, net of cash acquired, related to our acquisition
of the non-television assets of KFXA-TV in Cedar Rapids, Iowa. In 2007, we received $21.0 million related to the sale of
WGGB-TV in Springfield, Massachusetts. During 2008, we made equity investments of $6.2 million and $35.8 million in private
investment funds and real estate ventures, respectively. Finally during 2008, there was an increase in capital expenditures of $2.0
million primarily related to upgrades to high-definition master control systems and we purchased $7.7 million of alarm monitoring
contracts.
Net cash flows used in investing activities increased for the year ended December 31, 2007 compared to the same period in
2006. During the year ended December 31, 2007, we paid $39.1 million, net of cash acquired related to our acquisitions of
Triangle Sign & Service, Inc., FBP Holding Company, LLC, Bagby Investors, LLC and Alarm Funding Associates, LLC. In
addition, we made $16.2 million and $0.8 million in equity and debt investments, respectively, in real estate ventures. These
acquisitions and investments reflect our strategy to maximize value for our shareholders, which includes diversification through
investments in non–television assets. We had an increase in capital expenditures of $6.3 million. These outflows were partially
offset by an increase of $19.6 million related to the sale of certain broadcasting assets.
The investments we have made in real estate reflect our strategy to maximize value for our shareholders. We believe that the
depressed real estate market and tight credit market allows us to invest in what we believe to be under-valued non-television assets
to drive future cash flows. In addition, we continue to explore strategic opportunities in our core television broadcast business.
For 2009, we anticipate a decrease in capital expenditures when compared to 2008. For 2009, capital expenditures will primarily
be related to the mandatory transition from analog to digital and the need to build redundancy systems for digital. In addition,
capital expenditures will be related to station equipment replacement. We expect to fund such capital expenditures with cash
generated from operating activities and borrowings under our Revolving Credit Facility.
Financing Activities
Net cash flows used in financing activities decreased for the year ended December 31, 2008 compared to the same period in
2007. Our debt issuances, net of debt repayments to non-affiliates, in 2008 were $19.0 million compared to debt repayments, net
of debt issuances of $89.0 million in 2007. In addition, we received $8.0 million in proceeds from derivative termination fees.
These amounts were partially offset by $29.8 million paid for the repurchase of Class A Common Stock, $13.4 million less in
proceeds received from the exercise of stock options and paying $17.2 million more for common stock dividends.
20 (cid:121) Sinclair Broadcast Group
Net cash flows used in financing activities increased for the year ended December 31, 2007 compared to the same period in
2006. Our debt repayments to non-affiliates, net of debt issuances, in 2007 were $89.0 million compared to $39.4 million in 2006.
In addition, we increased the value returned to our shareholders through dividend payments on our common stock that were
$13.4 million higher for the year ended December 31, 2007 compared to the same period in 2006 due to multiple dividend rate
increases.
From time to time, we may repurchase additional outstanding debt and stock on the open market. We expect to fund any
repurchases with cash generated from operating activities and borrowings under our Revolving Credit Facility. During 2008, we
repurchased on the open market $38.8 million face value of the 8.0% Notes, $18.1 million face value of the 6.0% Debentures and
$6.5 million face value of the 4.875% Notes. As of the filing date, in first quarter 2009, we repurchased on the open market, $1.0
million face value of the 6.0% Debentures and $45.7 million face value of the 3.0% Notes. The Board of Directors has approved
all debt redemptions.
On February 5, 2008, our Board of Directors renewed its authorization to repurchase up to $150.0 million of our Class A
Common Stock on the open market or through private transactions. As of the filing date, in first quarter 2009, we repurchased
0.2 million shares of Class A Common Stock for $0.2 million, including transaction costs.
On February 6, 2008, we announced that our Board of Directors approved an increase to our annual dividend to 80 cents per
share from 70 cents per share. We believe our operating cash flow and availability on our Revolving Credit Facility would have
enabled us to continue paying our current quarterly dividend throughout 2009, however in February 2009, we decided it was
prudent to suspend the dividend due to the current negative economic climate. The dividends paid for 2008, 2007 and 2006 are
shown below:
For the quarter ended
March 31, 2008
June 30, 2008
September 30, 2008
December 31, 2008
For the quarter ended
March 31, 2007
June 30, 2007
September 30, 2007
December 31, 2007
For the quarter ended
March 31, 2006
June 30, 2006
September 30, 2006
December 31, 2006
Quarter dividend per share
$
$
$
$
0.200
0.200
0.200
0.200
Quarter dividend per share
$
$
$
$
0.150
0.150
0.150
0.175
Total dividends paid
$ 17.5 million
$ 17.5 million
$ 17.0 million
$ 16.2 million
Total dividends paid
$ 13.1 million
$ 13.1 million
$ 13.1 million
$ 15.3 million
Quarter dividend per share
Total dividends paid
$
$
$
$
0.100
0.105
0.125
0.125
8.6 million
$
$
8.6 million
$ 10.7 million
$ 10.7 million
Payment date
April 14, 2008
July 14, 2008
October 14, 2008
January 12, 2009
Payment date
April 13, 2007
July 12, 2007
October 12, 2007
January 14, 2008
Payment date
April 13, 2006
July 13, 2006
October 12, 2006
January 12, 2007
Seasonality/Cyclicality
Our operating results are usually subject to seasonal fluctuations. Usually, the second and fourth quarter operating results are
higher than the first and third quarters because advertising expenditures are increased in anticipation of certain seasonal and
holiday spending by consumers. The current negative financial and economic conditions may effect the usual seasonal
fluctuations.
Our operating results are usually subject to fluctuations from political advertising. In even numbered years, political spending is
usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections.
Additionally, every four years, political spending is elevated further due to advertising expenditures preceding the presidential
election, although this trend may be disrupted due to the recession.
2008 Annual Report (cid:121) 21
Contractual Obligations
We have various contractual obligations which are recorded as liabilities in our consolidated financial statements. Other items,
such as certain purchase commitments and other executory contracts are not recognized as liabilities in our consolidated financial
statements but are required to be disclosed. For example, we are contractually committed to acquire future programming and
make certain minimum lease payments for the use of property under operating lease agreements.
The following table reflects a summary of our contractual cash obligations as of December 31, 2008 and the future periods in
which such obligations are expected to be settled in cash (in thousands):
Contractual Obligations Related To Continuing Operations (a)
Total
2009
2010-2011
2012-2013
2014 and
thereafter (b)
Notes payable, capital leases and
commercial bank financing (c), (d)
$ 1,535,055
$ 113,083
$ 788,300
$
548,404
$
85,268
Notes and capital leases payable to
affiliates
Operating leases
Employment contracts
Film liability – active (e)
Film liability - future (e), (f)
Programming services (g)
Maintenance and support
Network affiliation agreements
Other operating contracts
LMA and outsourcing agreements (h)
Investments and loan commitments (i)
Total contractual cash obligations
57,697
17,163
18,801
172,685
99,275
126,163
4,515
31,781
7,248
5,852
20,212
$ 2,096,447
6,025
3,483
9,983
91,368
9,829
37,755
2,722
12,450
1,763
1,492
20,212
$ 310,165
11,674
4,773
8,036
66,185
55,354
64,487
1,542
19,331
1,966
2,408
—
$ 1,024,056
10,692
3,604
782
15,132
33,379
18,939
251
—
1,418
1,952
—
634,553
$
29,306
5,303
—
—
713
4,982
—
—
2,101
—
—
$ 127,673
(a) Excluded from this table are $26.1 million of accrued unrecognized tax benefits. Due to inherent uncertainty, we can not make
reasonable estimates of the amount and period payments will be made.
(b) Includes a one-year estimate of $3.8 million in payments related to contracts that automatically renew. We have not calculated
potential payments for years after 2014.
(c)
Includes interest on fixed rate debt and capital leases. Estimated interest on our recourse variable rate debt has been excluded.
Recourse variable rate debt represents $399.6 million of our $1.4 billion total face value of debt as of December 31, 2008.
(d) The 3.0% Notes and 4.875% Notes may be put to us at par May 2010 and January 2011, respectively. The table above presents the
face value of the Notes in the accelerated period principal payment of the notes could be due. If the 3.0% Notes and 4.875% Notes
are not put to us they would be scheduled to mature on May 2027 and July 2018.
(e) Each future periods’ film liability includes contractual amounts owed, however, what is contractually owed doesn’t necessarily reflect
what we are expected to pay during that period. While we are contractually bound to make the payments reflected in the table during
the indicated periods, industry protocol typically enables us to make film payments on a three-month lag.
(f) Future film liabilities reflect a license agreement for program material that is not yet available for its first showing or telecast and is,
therefore, not recorded as an asset or liability on our balance sheet. Pursuant to FAS No. 63, Financial Reporting for Broadcasters, an asset
and a liability for the rights acquired and obligations incurred under a license agreement are reported on the balance sheet when the
cost of each program is known or reasonably determinable, the program material has been accepted by the licensee in accordance with
the conditions of the license agreement and the program is available for its first showing or telecast.
(g) Includes obligations related to rating service fees, music license fees, market research, weather and news services.
(h) Certain LMAs require us to reimburse the licensee owner their operating costs. Certain outsourcing agreements require us to pay a
fee to another station for providing non-programming services. The amount will vary each month and, accordingly, these amounts
were estimated through the date of the agreements’ expiration, based on historical cost experience. Excluded from the table are
estimated amounts due pursuant to LMAs and outsourcing agreements where we consolidate the counterparty. These amounts
totaled $7.9 million, $11.6 million, $6.6 million and $14.4 million for the periods 2009, 2010-2011, 2012-2013 and 2014 and thereafter,
respectively.
(i) Commitments to contribute capital or provide loans to Allegiance Capital, LP, Sterling Ventures Partners, LP and Patriot Capital II,
LP.
22 (cid:121) Sinclair Broadcast Group
Off Balance Sheet Arrangements
Off balance sheet arrangements as defined by the SEC means any transaction, agreement or other contractual arrangement to
which an entity unconsolidated with the registrant is a party, under which the registrant has: obligations under certain guarantees
or contracts; retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangements; obligations
under certain derivative arrangements; and obligations arising out of a material variable interest in an unconsolidated entity. We
have entered into arrangements where we have obligations under certain guarantees or contracts because we believe they will help
improve shareholder returns.
The following table reflects a summary of these off balance sheet arrangements, as defined by the Securities and Exchange
Commission as of December 31, 2008 and the future periods in which such arrangements may be settled in cash if certain
contingent events occur (in thousands):
Letters of credit
Purchase commitments
Total other commercial commitments
$
$
Total
414
190
604
2009
414
190
604
$
$
2010-2011
—
—
—
$
$
2012-2013
—
—
—
$
$
2014 and
thereafter
—
—
—
$
$
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. We enter into derivative instruments primarily for the purpose of
reducing the impact of changing interest rates on our floating rate debt and to reduce the impact of changing fair market values
on our fixed rate debt. We account for our derivative instruments under FAS No. 133 (FAS 133), Accounting for Derivative
Instruments and Hedging Activities, as amended. For additional information on FAS 133, see Note 9. Derivative Instruments, in the
Notes to our Consolidated Financial Statements.
As of January 1, 2008, we had two remaining derivative instruments. Both of these instruments were interest rate swap
agreements. One of these swap agreements, with a notional amount of $180.0 million and an expiration date of March 15, 2012,
was accounted for as a fair value hedge in accordance with FAS 133; therefore, any changes in its fair market value were reflected
as an adjustment to the carrying value of our 8.0% Senior Subordinated Notes, due 2012, which was the underlying debt being
hedged. The interest we paid on the $180.0 million swap was variable based on the three-month LIBOR plus 2.28% and the
interest we received was fixed at 8.0%. The other interest rate swap, with a notional amount of $120.0 million and an expiration
date of March 15, 2012, was undesignated as a fair value hedge in 2006 due to a reassignment of the counterparty; therefore, any
subsequent changes in the fair market value were reflected as an adjustment to income. The interest we paid on the $120.0
million swap was variable based on the three-month LIBOR plus 2.35% and the interest we received was fixed at 8.0%.
In February 2008, the counterparty to our swap agreements, elected to change the termination dates of the $180.0 million and
$120.0 million swaps to March 25, 2008 and March 26, 2008, respectively. We received a termination fee of $3.2 million from the
counterparty for the early termination of the $120.0 million swap. After the removal of the related $2.4 million derivative asset
from our consolidated balance sheet, the resulting $0.8 million, along with $0.2 million of interest was recorded in gain from
derivative instruments in the consolidated statements of operations. We received a termination fee of $4.8 million from the
counterparty for the early termination of the $180.0 million swap. In accordance with FAS 133, the carrying value of the
underlying debt was adjusted to reflect the $4.8 million termination fee and that amount is treated as a premium on the underlying
debt that was being hedged and is amortized over its remaining life as a reduction to interest expense. The total termination fees
received of $8.0 million are included in the cash flows from financing activities section of the consolidated statement of cash
flows for the year ended December 31, 2008.
Under certain circumstances, we will pay contingent cash interest to the holder of the 3.0% Notes and the 4.875% Notes
commencing on May 10, 2010 and January 15, 2011, respectively. The contingent cash interest feature for both issuances are
embedded derivatives which have negligible fair values. Our 4.875% Notes and 3.0% Notes have put option features which are
discussed in more detail below. During 2008, we repurchased on the open market $6.5 million of our existing 4.875% Notes. As
of December 31, 2008, the outstanding face amount of the 4.875% Notes was $143.5 million.
As of December 31, 2008, we had $399.6 million outstanding under our Term Loans and Revolving Credit Facility. These
outstanding amounts accrue interest with a variable rate and therefore increase our risk to increases from interest rates.
We repurchased on the open market $38.8 million of our 8.0% Notes during the year ended December 31, 2008. As of
December 31, 2008, the outstanding face amount of the 8.0% Notes was $224.7 million.
2008 Annual Report (cid:121) 23
During 2008, we repurchased on the open market $18.1 million of our 6.0% Debentures. As of December 31, 2008, the
outstanding face value of the 6.0% Debentures was $135.2 million.
We are exposed to risk from a change in interest rates to the extent we are required to refinance existing fixed rate indebtedness at
rates higher than those prevailing at the time the existing indebtedness was incurred. Based on the quoted market price, the fair
value of the 4.875% Notes, 3.0% Notes, 8.0% Notes and 6.0% Debentures combined was $0.5 billion as of December 31, 2008.
We estimate that a 1.0% increase from prevailing interest rates would result in a decrease in fair value of these notes by $8.9
million as of December 31, 2008. Generally, the fair market value of these notes will decrease as interest rates rise and increase as
interest rates fall. Interest rates decreased during 2008, particularly in the fourth quarter, however the fair market value of our
notes fell significantly as a result of the extraordinary credit market conditions. Our notes have been acutely affected by the
perceived heightened liquidity risk prevailing in the market place and our ability to refinance debt. Holders of our 3.0% Notes
and 4.875% Notes may require us to repurchase the notes for cash at a price equal to 100% of the principal amount, plus accrued
and unpaid interest in May 2010 and January 2011, respectively. Based on our current common stock trading price levels, it is
highly probable that holders will exercise their right to put the 3.0% Notes and 4.875% Notes to us. The conversion price for the
3.0% Notes and 4.875% Notes are $19.65 and $22.37, respectively. If we are required to repurchase our 3.0% Notes and
4.875%Notes, we may access capital markets to secure debt and equity financing. The timing, terms, size and pricing of any debt
and equity financing will depend on investor interest and market conditions and there can be no assurance that we will be able to
obtain any such financing. As a result, we may not be able to refinance or extinguish these notes on the put dates. The inability
to successfully refinance or extinguish these notes upon a put could have a significant negative impact on our operating results
and the value of our securities. Currently we are exploring alternative solutions relative to the potential put of these notes.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting
as of December 31, 2008.
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means
controls and other procedures of a company that are designed to provide reasonable assurance that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
The term “internal control over financial report,” as defined in Rules 13a-15d-15(f) under the Exchange Act, means a process
designed by, or under the supervision of our Chief Executive and Chief Financial Officers and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP)
and includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP and that our receipts and expenditures are being made in accordance with authorizations of
management or our Board of Directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material adverse effect on our financial statements.
24 (cid:121) Sinclair Broadcast Group
Assessment of Effectiveness of Disclosure Controls and Procedures
Based on the evaluation of our disclosure controls and procedures as of December 31, 2008, our Chief Executive Officer and
Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable
assurance level.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the
supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
assessed the effectiveness of our internal control over financial reporting as of December 31, 2008 based on the criteria set forth in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our assessment, management believes that, as of December 31, 2008, our internal control over financial reporting
is effective based on those criteria.
Attestation Report of the Independent Registered Public Accounting Firm
Ernst & Young, LLP, the independent registered public accounting firm who audited our consolidated financial statements
included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over
financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) during or subsequent to the quarter ended December 31, 2008, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management’s override of the control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
2008 Annual Report (cid:121) 25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders of Sinclair Broadcast Group, Inc.
We have audited Sinclair Broadcast Group, Inc.’s internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Sinclair Broadcast Group Inc.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Sinclair Broadcast Group, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2008 based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Sinclair Broadcast Group, Inc. as of December 31, 2008 and 2007, and the related consolidated
statements of operations, shareholders' (deficit) equity and other comprehensive income (loss), and cash flows for each of the
three years in the period ended December 31, 2008, and our report dated March 3, 2009 expressed an unqualified opinion
thereon.
Ernst & Young LLP
Baltimore, Maryland
March 3, 2009
26 (cid:121) Sinclair Broadcast Group
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As of December 31,
ASSETS
CURRENT ASSETS:
2008
2007
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $3,327 and $3,882,
$
16,470
$
20,980
respectively
Affiliate receivable
Current portion of program contract costs
Income taxes receivable
Prepaid expenses and other current assets
Deferred barter costs
Deferred tax assets
Total current assets
PROGRAM CONTRACT COSTS, less current portion
PROPERTY AND EQUIPMENT, net
GOODWILL
BROADCAST LICENSES
DEFINITE-LIVED INTANGIBLE ASSETS, net
OTHER ASSETS
Total assets
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued liabilities
Current portion notes payable, capital leases and commercial bank financing
Current portion of notes and capital leases payable to affiliates
Current portion of program contracts payable
Deferred barter revenues
Total current liabilities
LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion
Notes payable and capital leases to affiliates, less current portion
Program contracts payable, less current portion
Deferred tax liabilities
Other long-term liabilities
Total liabilities
MINORITY INTEREST IN CONSOLIDATED ENTITIES
SHAREHOLDERS’ (DEFICIT) EQUITY:
Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 46,510,647
and 52,830,025 shares issued and outstanding, respectively
Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 34,453,859
shares issued and outstanding, respectively, convertible into Class A Common
Stock
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ (deficit) equity
Total liabilities and shareholders’ (deficit) equity
$
$
107,376
65
55,751
2,334
9,453
2,654
9,022
203,125
27,548
336,964
824,188
132,422
205,743
86,687
1,816,677
4,817
79,584
67,066
2,845
91,366
2,657
248,335
1,275,324
30,861
81,315
199,204
49,039
1,884,078
16,302
$
$
127,891
15
50,276
16,228
13,448
2,026
7,752
238,616
32,683
284,551
1,010,594
401,130
192,733
64,348
2,224,655
3,732
82,374
42,950
3,839
90,208
2,143
225,246
1,274,386
23,174
79,985
313,364
52,659
1,968,814
3,067
465
528
345
588,399
(669,417)
(3,495)
(83,703)
1,816,677
$
345
614,156
(360,324)
(1,931)
252,774
2,224,655
$
The accompanying notes are an integral part of these consolidated financial statements.
2008 Annual Report (cid:121) 27
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In thousands, except per share data)
REVENUES:
Station broadcast revenues, net of agency commissions
Revenues realized from station barter arrangements
Other operating divisions revenue
Total revenues
OPERATING EXPENSES:
Station production expenses
Station selling, general and administrative expenses
Expenses recognized from station barter arrangements
Amortization of program contract costs and net realizable value adjustments
Other operating divisions expenses
Depreciation of property and equipment
Corporate general and administrative expenses
Amortization of definite-lived intangible assets and other assets
Gain on asset exchange
Impairment of goodwill and broadcast licenses
Total operating expenses
Operating (loss) income
OTHER INCOME (EXPENSE):
Interest expense and amortization of debt discount and deferred financing
costs
Interest income
Gain (loss) from sale of assets
Gain (loss) from extinguishment of debt
Gain from derivative instruments
(Loss) income from equity and cost method investments
Other income, net
Total other expense
(Loss) income from continuing operations before income taxes
INCOME TAX BENEFIT (PROVISION)
(Loss) income from continuing operations
DISCONTINUED OPERATIONS:
(Loss) income from discontinued operations, net of related income tax
(provision) benefit of ($358), $270 and $3,121, respectively
Gain from discontinued operations, net of related income tax provision of $0,
$489 and $885, respectively
NET (LOSS) INCOME
BASIC AND DILUTED (LOSS) EARNINGS PER COMMON SHARE:
(Loss) earnings per share from continuing operations
Earnings per share from discontinued operations
(Loss) earnings per share
Weighted average common shares outstanding
Weighted average common and common equivalent shares outstanding
Dividends declared per share
2008
2007
2006
$ 639,163
59,877
55,434
754,474
$ 622,643
61,790
33,667
718,100
$ 627,075
54,537
24,610
706,222
158,965
136,142
53,327
84,422
59,987
44,765
26,285
18,340
(3,187)
463,887
1,042,933
(288,459)
(77,718)
743
66
5,451
999
(2,703)
3,787
(69,375)
(357,834)
116,484
(241,350)
(141)
—
(241,491)
148,707
140,026
55,662
96,436
33,023
43,147
24,334
17,595
—
—
558,930
159,170
(95,866)
2,228
(21)
(30,716)
2,592
601
1,227
(119,955)
39,215
(18,800)
20,415
1,219
1,065
22,699
144,236
137,995
49,358
90,551
24,193
45,319
22,795
17,529
—
15,589
547,565
158,657
(115,217)
2,008
143
(904)
2,907
6,338
1,159
(103,566)
55,091
(6,589)
48,502
3,701
1,774
53,977
$
$
$
$
(2.82)
—
(2.82)
85,652
85,652
0.800
$
$
$
$
0.23
0.03
0.26
86,910
87,015
0.625
$
$
$
$
0.57
0.06
0.63
85,680
85,694
0.450
The accompanying notes are an integral part of these consolidated financial statements.
28 (cid:121) Sinclair Broadcast Group
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In thousands)
BALANCE, December 31, 2005
Dividends declared on Class A and
Class B Common Stock
Class A Common Stock issued
pursuant to employee benefit plans
and stock options exercised
Tax benefit of nonqualified stock
options exercised
Net income
Adjustment related to adoption of
FAS 158, net of taxes
Adjustment related to adoption of
SAB 108, net of taxes
BALANCE, December 31, 2006
Other comprehensive income (loss):
Net income
Adjustment related to adoption of FAS
158, net of taxes
Comprehensive income (loss)
Class A
Common
Stock
471
$
Class B
Common
Stock
$ 383
Additional
Paid-In
Capital
$ 593,259
Accumulated
Deficit
(344,391)
$
$
Accumulated
Other
Comprehensive
Loss
—
5
—
—
—
—
—
—
—
—
—
476
$
—
383
$
—
(38,176)
3,348
60
—
—
—
$ 596,667
—
—
53,977
—
184
$ (328,406)
$
Total
Shareholders’
Equity
249,722
$
(38,176)
3,353
60
53,977
(2,475)
184
266,645
$
—
—
—
—
—
(2,475)
—
(2,475)
$ —
$ —
$
—
$
53,977
$
—
$
53,977
—
$ —
—
$ —
—
—
$
—
53,977
$
$
(2,475)
(2,475)
(2,475)
51,502
$
The accompanying notes are an integral part of these consolidated financial statements.
2008 Annual Report (cid:121) 29
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In thousands)
Class A
Common
Stock
476
$
Class B
Common
Stock
$ 383
Additional
Paid-In
Capital
$ 596,667
Accumulated
Deficit
(328,406)
$
Accumulated
Other
Comprehensive
Loss
(2,475)
$
Total
Shareholders’
Equity
$ 266,645
BALANCE, December 31, 2006
Adjustment related to adoption of FIN
48, effective January 1, 2007
Dividends declared on Class A and
Class B Common Stock
Class A Common Stock issued
pursuant to employee benefit plans
and stock options exercised
Class B Common Stock converted into
Class A Common Stock
Tax benefit of nonqualified stock
options exercised
Amortization of net periodic benefit
costs
Net income
BALANCE, December 31, 2007
$
—
—
14
38
—
—
—
528
—
—
—
(38)
—
—
—
345
—
—
15,638
—
1,851
—
—
$ 614,156
$
(589)
(54,028)
—
—
—
—
22,699
$ (360,324)
Other comprehensive income:
Net income
Amortization of net periodic benefit costs
Comprehensive income
$ —
—
$ —
$ —
—
$ —
$
$
—
—
—
$
$
22,699
—
22,699
—
—
—
—
—
(589)
(54,028)
15,652
—
1,851
544
—
(1,931)
544
22,699
$ 252,774
—
544
544
$
$
22,699
544
23,243
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
30 (cid:121) Sinclair Broadcast Group
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(in thousands)
Class A
Common
Stock
528
$
Class B
Common
Stock
345
$
Additional
Paid-In
Capital
$ 614,156
Accumulated
Deficit
$ (360,324)
Accumulated
Other
Comprehensive
Loss
(1,931)
$
Total
Shareholders’
Equity (Deficit)
252,774
$
BALANCE, December 31, 2007
Dividends declared on Class A
and Class B Common Stock
Class A Common Stock issued
pursuant to employee benefit
plans
Tax provision on employee
stock awards
Change in pension funded
status amortization of net
periodic pension benefit
costs, net of taxes
Repurchase of 6,722,310 shares
of Class A Common Stock
Net loss
BALANCE, December 31, 2008
$
—
4
—
—
(67)
—
465
—
—
—
—
—
—
345
$
—
(67,602)
4,020
(8)
—
—
—
—
(29,769)
—
$ 588,399
—
(241,491)
$ (669,417)
$
—
—
—
(67,602)
4,024
(8)
(1,564)
—
—
(3,495)
(1,564)
(29,836)
(241,491)
(83,703)
$
Other comprehensive loss:
Net loss
Change in pension funded status
amortization of net periodic
pension benefit costs, net of
taxes
Comprehensive loss
$
—
$ —
$
—
$ (241,491)
$
—
$
(241,491)
—
—
$
—
$ —
$
—
—
—
$ (241,491)
(1,564)
(1,564)
$
(1,564)
(243,055)
$
The accompanying notes are an integral part of these consolidated financial statements.
2008 Annual Report (cid:121) 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In thousands)
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash flows from
operating activities:
Amortization of debt discount, net of debt premium
Depreciation of property and equipment
Gain on asset exchange
Recognition of deferred revenue
Accretion of capital leases
(Loss) income from equity and cost method investments
Gain (loss) on sale of property
Gain on sale of broadcast assets related to discontinued operations
Gain from derivative instruments
Impairment of intangibles
Amortization of definite-lived intangible assets and other assets
Amortization of program contract costs and net realizable value
adjustments
Amortization of deferred financing costs
Stock-based compensation
Excess tax provision (benefit) for stock options exercised
Loss on extinguishment of debt, non-cash portion
Amortization of derivative instruments
Amortization of net periodic pension benefit costs
Deferred tax (benefit) provision related to operations
Deferred tax provision related to discontinued operations
Net effect of change in deferred barter revenues and deferred barter
costs
Changes in assets and liabilities, net of effects of acquisitions and
dispositions:
Decrease (increase) in accounts receivable, net
Decrease (increase) in taxes receivable
Decrease in prepaid expenses and other current assets
Decrease (increase) in other assets
Increase in accounts payable and accrued liabilities
Increase in income taxes payable
Decrease in other long-term liabilities
(Decrease) increase in minority interest
Dividends and distributions from equity and cost method investees
Payments on program contracts
Real estate held for development and sale
Net cash flows from operating activities
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment
Consolidation of variable interest entity
Purchase of alarm monitoring contract
Payments for acquisition of television stations
Payments for acquisitions of other operating divisions companies
Dividends and distributions from cost method investees
Investments in equity and cost method investees
Proceeds from the sale of assets
Proceeds from the sale of broadcast assets related to discontinued
operations
Loans to affiliates
Proceeds from loans to affiliates
Net cash flows used in investing activities
32 (cid:121) Sinclair Broadcast Group
2008
2007
2006
$
(241,491)
$
22,699
$
53,977
3,290
45,027
(3,187)
(29,416)
844
2,703
(66)
—
(999)
463,887
18,340
84,422
4,054
6,083
8
2,000
(424)
174
(116,198)
—
(114)
22,884
13,938
4,121
3,037
14,465
—
(1,221)
(2,770)
1,693
(82,285)
(1,665)
211,134
(25,169)
1,328
(7,675)
(17,123)
(53,487)
1,575
(41,971)
199
—
(178)
179
(142,322)
2,678
43,432
—
(19,874)
912
(601)
21
(1,553)
(2,592)
—
17,880
96,593
3,312
3,730
(1,851)
3,431
794
544
34,379
5,463
245
7,531
(10,124)
1,518
(8)
17,733
—
(6,523)
1,432
3,051
(78,038)
—
146,214
(23,226)
—
—
—
(39,075)
583
(16,384)
696
21,036
(160)
157
(56,373)
2,263
46,248
—
(8,874)
453
(6,057)
(143)
(2,659)
(2,907)
15,589
18,021
90,746
2,509
1,905
(60)
854
538
—
18,833
(1,177)
(595)
(3,366)
(3,625)
3,736
(780)
14,051
2,255
(5,573)
(100)
7,217
(88,006)
—
155,273
(16,923)
—
—
(1,710)
—
—
(339)
2,430
1,400
(143)
141
(15,144)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (CONTINUED)
(In thousands)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital
leases
Repayments of notes payable, commercial bank financing and capital
leases
Repurchase of Class A Common Stock
Proceeds from exercise of stock options, including excess tax benefits of
$0 million, $1.9 million and $0.1 million, respectively
Dividends paid on Class A and Class B Common Stock
Payments for deferred financing costs
Proceeds from derivative terminations
Payments for derivative terminations
Repayments of notes and capital leases to affiliates
Net cash flows used in financing activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year
$
2008
2007
2006
274,643
(255,597)
(29,836)
—
(66,683)
(524)
8,001
—
(3,326)
(73,322)
(4,510)
20,980
16,470
751,609
(840,642)
—
13,379
(49,490)
(7,065)
—
—
(4,060)
(136,269)
(46,428)
67,408
20,980
75,000
(114,364)
—
1,125
(36,062)
—
—
(3,750)
(4,325)
(82,376)
57,753
9,655
67,408
$
$
The accompanying notes are an integral part of these consolidated financial statements.
2008 Annual Report (cid:121) 33
NOTES TO THE 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 that owns or provides certain programming,
operating or sales services to television stations pursuant to broadcasting licenses that are granted by the Federal Communications
Commission (the FCC or Commission). We currently own, provide programming and operating services pursuant to local
marketing agreements (LMAs) or provide, or are provided, sales services pursuant to outsourcing agreements to 58 television
stations in 35 markets. For the purpose of this report, these 58 stations are referred to as “our” stations. Our broadcast group is
a single reportable segment for accounting purposes and includes diverse network affiliations as follows: FOX (20 stations);
MyNetworkTV (17 stations); ABC (9 stations); The CW (9 stations); CBS (2 stations) and NBC (1 station).
Principles of Consolidation
The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries
and variable interest entities for which we are the primary beneficiary. Minority interest represents a minority owner’s
proportionate share of the equity in certain of our consolidated entities. All significant intercompany transactions and account
balances have been eliminated in consolidation.
Discontinued Operations
We account for the results of operations of WEMT-TV in Tri-Cities, Tennessee and WGGB-TV in Springfield, Massachusetts,
in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (FAS 144). Discontinued operations have not been segregated in the consolidated statements of cash flows and, therefore,
amounts for certain captions will not agree with the accompanying consolidated balance sheets and consolidated statements of
operations. The operating results of WEMT-TV and WGGB-TV are not included in our consolidated results from continuing
operations for the years ended December 31, 2008, 2007 and 2006. In accordance with Emerging Issues Task Force Issue No.
87-24, Allocation of Interest to Discontinued Operations, no interest expense was allocated to these operations for the years ended
December 31, 2008, 2007 and 2006. See Note 13. Discontinued Operations, for additional information.
Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51 (FIN 46R). FIN 46R introduces the variable interest entity consolidation model,
which determines control and consolidation based on potential variability in gains and losses of the entity being evaluated for
consolidation. We adopted FIN 46R on March 31, 2004. We consolidate Variable Interest Entities (VIEs) when we are the
primary beneficiary. All debt held by our VIEs is non-recourse to us.
Our application to acquire the FCC license of WNAB-TV in Nashville, Tennessee is pending FCC approval. As a result, we
have an outsourcing agreement with WNAB-TV to provide certain non-programming related sales, operational and administrative
services to WNAB-TV. Based on the terms of the outsourcing agreement we are considered to have a variable interest in
WNAB-TV. We have determined that the WNAB-TV is a VIE and that we are the primary beneficiary of the variable interests.
As a result, we consolidate the assets and liabilities of WNAB-TV.
Our applications to acquire the FCC licenses of all the television stations owned by Cunningham Broadcasting Corporation
(Cunningham) are pending FCC approval. We have a Local Marketing Agreement (LMA) with each of the television stations that
are considered to create variable interests in the license asset entities. We have determined that the Cunningham license asset
entities are VIEs and that, based on the terms of the agreements, we are the primary beneficiary of the variable interests. As a
result, we consolidate the assets and liabilities of Cunningham.
During 2008, we entered into an agreement with an unrelated third party for the right to acquire the FCC license of KFXA-TV
in Cedar Rapids, Iowa, pending FCC approval. We have determined that KFXA-TV is a VIE and that we are the primary
beneficiary of the variable interests of KFXA-TV as a result of the terms of our outsourcing agreement and purchase option. As
a result, we consolidate the assets and liabilities of KFXA-TV.
34 (cid:121) Sinclair Broadcast Group
The consolidated financial position and results of operations of WNAB-TV, KFXA-TV and Cunningham are included in the
broadcast segment.
During 2007 and 2008, we made investments in four real estate ventures considered to be VIEs. We have determined that we
are the primary beneficiary of the variable interests in these entities; as a result we consolidate the assets and liabilities of these
entities. The activities of the real estate ventures are not material to our consolidated 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.
Broadcast Segment Acquisitions
In February 2008, we acquired the non-license assets of KFXA-TV in Cedar Rapids, Iowa for $17.1 million, net of cash
acquired, and the right to purchase license assets, pending FCC approval, for $1.9 million. Our CBS affiliate in Cedar Rapids,
KGAN-TV, provides sales and other non-programming related services to KFXA-TV pursuant to an outsourcing agreement.
We have determined that based on the terms of the outsourcing agreement and license purchase option, the KFXA-TV licensed
asset entity is a variable interest entity and that we are the primary beneficiary of the variable interests. As a result, we consolidate
the assets and liabilities of the non-license and license assets of KFXA-TV.
Other Operating Divisions Segment Acquisitions
In May 2007, we acquired Triangle Sign & Service, Inc. (Triangle), a Baltimore-based company whose primary business is to
design and fabricate commercial signs for retailers, sports complexes and other commercial businesses, for $15.9 million, net of
cash acquired.
In July 2007, we acquired FBP Holding Company, LLC (FBP Holding), which holds an investment in a commercial warehouse
property located in Baltimore, Maryland, for $8.3 million, consisting of $1.2 million cash, net of cash acquired, and $7.1 million in
the assumption of debt. Debt assumed in conjunction with this acquisition is non-recourse to us.
In September 2007, we acquired Bagby Investors, LLC (Bagby), which holds an investment in a commercial office building in
Baltimore, Maryland, for $16.9 million, net of cash acquired.
In November 2007, we acquired Alarm Funding Associates, LLC (Alarm Funding), which is a regional security alarm operating
and bulk acquisition company located in Exton, Pennsylvania for $4.9 million, net of cash acquired.
In March 2008, we acquired a 50% equity interest in Bay Creek South, LLC (Bay Creek). Bay Creek is a land development
venture that primarily includes residential and commercial unimproved and improved land surrounding two golf courses on
Virginia's eastern shore. In conjunction with the equity investment, we purchased certain of Bay Creek's outstanding debt that
was used to finance improvements to and the development of land in the venture. Our total cash, debt and equity investment in
Bay Creek, including transaction costs, was $35.2 million, net of cash acquired. Approximately $0.8 million of the $35.2 million
investment was funded through the conversion of an existing bridge loan to a portion of the 50% equity interest. Based on our
role as the day-to-day manager and our ability to control all major decisions of the venture, the accounts of Bay Creek are
included in our consolidated financial statements. Approximately $11.8 million of debt was assumed by us through the
consolidation of Bay Creek; however, this debt was subsequently paid down to a zero balance at March 31, 2008. As of
December 31, 2008, the purchase price allocation was finalized resulting in approximately $32.0 million of property, equipment
and land being included in property and equipment, net and $17.6 million of a purchase option intangible included in definite-
lived intangible assets, net in our consolidated balance sheet.
In June 2008, we acquired Jefferson Park Development, LLC (Jefferson Park) for $19.0 million. Jefferson Park is a mixed use
land development project located in Frederick County, Maryland, a suburb of Washington, D.C.
We consolidate the financial statements of these entities. Their results are included in the financial statements from the date
of their acquisition. These acquisitions are not material to our consolidated financial statements. These acquisitions are shown in
the statement of cash flows as payments for acquisitions of other operating divisions companies. We entered into these
acquisitions as part of our strategy to maximize value for our shareholders, which includes diversification through investments in
non-television assets.
2008 Annual Report (cid:121) 35
Investments
From time to time, we make equity and debt investments in non-broadcast assets. For the year ended December 31, 2008, we
made a $6.0 million cash investment in Patriot Capital II, LP (Patriot Capital). Patriot Capital provides structured debt and
mezzanine financing to small businesses. After the $6.0 million cash investment, our remaining unfunded commitment to Patriot
Capital is $14.0 million. As of December 31, 2008, we made new investments of $32.6 million and add-on cash investments of
$3.4 million primarily in real estate ventures.
Nonmonetary Asset Exchanges
In 2009, television broadcasters are required to cease transmitting their signals using the existing analog spectrum and begin
transmitting in digital. This government mandate was established so that the analog frequencies can be freed up for use by public
safety communications such as police, fire and emergency rescue. In 2004, Sprint Nextel Corporation (Nextel) also agreed to
relocate its airwaves to end interference between its cellular signals and the wireless signals used by the country’s public safety
agencies. As part of this agreement, the FCC granted Nextel the right to a certain spectrum within the 1.9 GHz band that is
currently used by television broadcasters (the analog spectrum). Accordingly, Nextel has entered into agreements with several of
our stations to exchange our existing analog equipment for comparable digital equipment. As equipment is exchanged and
placed in service, we will record a gain to the extent that the fair market value of the equipment received exceeds the carrying
amount of the equipment relinquished. The equipment will be recorded at the estimated fair market value and will be depreciated
over a useful life of 8 years. For the year ended December 31, 2008, we recorded a gain of $3.2 million for the equipment
received.
Recent Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial Accounting Standard No 141 (revised 2007), Business Combinations
(FAS 141(R)). FAS 141(R) requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction
at the acquisition-date fair value with limited exceptions. In addition to new disclosure requirements, FAS 141(R) also makes the
following significant changes: acquisition costs are expensed as incurred, noncontrolling interests are valued at fair value at the
acquisition date, acquired contingencies are recorded at fair value at the acquisition date and subsequently re-measured at either
the higher of such amount or the amount determined under existing guidance for non-acquired contingencies, in-process research
and development costs are recorded at fair value as an indefinite-lived intangible asset at the acquisition date, restructuring costs
are expensed subsequent to the acquisition date and changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally affect income tax expense. This statement is effective for business combinations
in which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15,
2008 and early adoption is prohibited. This statement could have a material effect on our consolidated financial statements if we
make future acqusitions.
In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB No. 51 (FAS 160). This statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net
income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income
statement. Changes in a parent’s ownership interest that result in deconsolidation of a subsidiary will result in the recognition of a
gain or loss in net income when the subsidiary is deconsolidated. FAS 160 also includes expanded disclosure requirements
regarding the interests of the parent and its noncontrolling interest. The statement is effective for fiscals years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. This statement will not have a material effect on our
consolidated financial statements.
In February 2008, the FASB issued FSP FAS 157-1 and FSP FAS 157-2, Fair Value Measurements. FSP FAS 157-1 amends
FASB Statement No. 157, Fair Value Measurements (FAS 157) to exclude FASB Statement No. 13, Accounting for Leases (FAS 13),
and its related interpretive accounting pronouncements that address leasing transactions. The FASB decided to exclude leasing
transactions covered by FAS 13 (except those arising from a business combination) in order to allow it to more broadly consider
the use of fair value measurements for these transactions as part of its project to comprehensively reconsider the accounting for
leasing transactions. FAS 157-2 delays the effective date of FAS 157 for all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The FSP states that the
application of FAS 157 for non-financial assets and non-financial liabilities will be delayed until fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years. FAS 157 was issued in September 2006 and defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. We applied the
provisions of this statement for the year ended 2008. The application of FAS 157 did not have a material impact on our
consolidated financial statements.
36 (cid:121) Sinclair Broadcast Group
In May 2008, the Financial Accounting Standards Board (FASB) issued FASB Standard Position (FSP) APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement). This FSP requires issuers of
convertible debt instruments that may be settled in cash upon conversion to account for the liability and equity components in a
manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.
Issuers will need to determine the carrying value of just the liability portion of the debt by measuring the fair value of a similar
liability (including any embedded features other than the conversion option) that does not have an associated equity component.
The excess of the initial proceeds received from the debt issuance and the fair value of the liability component should be recorded
as a debt discount with the offset recorded to equity. The discount will be amortized to interest expense using the interest
method over the life of a similar liability that does not have an associated equity component. Transaction costs incurred with
third parties shall be allocated between the liability and equity components in proportion to the allocation of proceeds and
accounted for as debt issuance costs and equity issuance costs, respectively, with the debt issuance costs amortized to interest
expense. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. Early adoption is not permitted. This statement will be applied retrospectively to all periods
presented as of the beginning of the first period presented, first quarter 2007, with an offsetting adjustment to the opening
balance of retained earnings. In 2009, we will record the impact of this statement retrospectively by recording additional interest
expense on our 3.0% Convertible Senior Notes, due 2027 (the 3.0% Notes) of approximately $6.4 million for the year ended
December 31, 2007 and approximately $9.9 million for the year ended December 31, 2008. We expect to record additional
interest expense of approximately $12.1 million and $4.5 million in the years ended December 31, 2009 and 2010, respectively.
The interest expense assumes the exercise of our 3.0% Notes in May 2010.
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities. This FSP clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends
or dividend equivalents are participating securities as defined in EITF 03-6, Participating Securities and the Two-Class Method under
FASB Statement No. 128 and should therefore be included in the computation of earnings per share. Our restricted stock awards
are considered participating securities in accordance with this FSP. This FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years. In addition, all prior period earnings per
share data shall be adjusted retrospectively. The impact of this issue will not have a material effect on our consolidated financial
statements.
In June 2008, the EITF issued Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s
Own Stock. This issue requires that an entity use a two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement
provisions. This issue is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.
The impact of this issue will not have a material effect on our consolidated financial statements.
In September 2008, the EITF reached a consensus for exposure on Issue No. 08-6, Equity Method Investment Accounting
Considerations. This issue addresses the accounting for equity method investments as a result of the accounting changes prescribed
by FAS 141(R) and FAS 160. The issue includes clarification on the following: (a) transaction costs should be included in the
initial carrying value of the equity method investment, (b) an impairment assessment of an underlying indefinite-lived intangible
asset of an equity method investment need only be performed as part of any other-than-temporary impairment evaluation of the
equity method investment as a whole and does not need to be performed annually, (c) the equity method investee’s issuance of
shares should be accounted for as the sale of a proportionate share of the investment, which may result in a gain or loss in
income, and (d) a gain or loss should not be recognized when changing the method of accounting for an investment from the
equity method to the cost method. This issue will be effective for fiscal years beginning on January 1, 2009. The impact of this
issue will not have a material effect on our consolidated financial statements.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash
equivalents.
Accounts Receivable
Management regularly reviews accounts receivable and determines an appropriate estimate for the allowance for doubtful
accounts based upon the impact of economic conditions on the merchant’s ability to pay, past collection experience and such
other factors which, in management’s judgment, deserve current recognition. In turn, a provision is charged against earnings in
order to maintain the appropriate allowance level.
2008 Annual Report (cid:121) 37
Programming
We have agreements with distributors for the rights to television programming over contract periods, which generally run from
one to seven years. Contract payments are made in installments over terms that are generally equal to or shorter than the contract
period. Each contract is recorded as an asset and a liability at an amount equal to its gross contractual cash commitment when
the license period begins and the program is available for its first showing. The portion of program contracts which becomes
payable within one year is reflected as a current liability in the accompanying consolidated balance sheets.
The rights to this programming are reflected in the accompanying consolidated balance sheets at the lower of unamortized cost
or estimated net realizable value. Estimated net realizable values are based on management’s expectation of future advertising
revenues, net of sales commissions, to be generated by the program material. Amortization of program contract costs is generally
computed using either a four-year accelerated method or based on usage, whichever method results in the most amortization for
each program. Program contract costs estimated by management to be amortized in the succeeding year are classified as current
assets. Payments of program contract liabilities are typically made on a scheduled basis and are not affected by adjustments for
amortization or estimated net realizable value.
Barter Arrangements
Certain program contracts provide for the exchange of advertising airtime in lieu of cash payments for the rights to such
programming. The revenues realized from station barter arrangements are recorded as the programs are aired at the estimated fair
value of the advertising airtime given in exchange for the program rights. Network programming is excluded from these
calculations. Revenues are recorded as revenues realized from station barter arrangements and the corresponding expenses are
recorded as expenses recognized from station barter arrangements.
We broadcast certain customers’ advertising in exchange for equipment, merchandise and services. The estimated fair value of
the equipment, merchandise or services received is recorded as deferred barter costs and the corresponding obligation to
broadcast advertising is recorded as deferred barter revenues. The deferred barter costs are expensed or capitalized as they are
used, consumed or received and are included in station production expenses and station selling, general and administrative
expenses, as applicable. Deferred barter revenues are recognized as the related advertising is aired and are recorded in revenues
realized from station barter arrangements.
Other Assets
Other assets as of December 31, 2008 and 2007 consisted of the following (in thousands):
Equity and cost method investments
Unamortized costs related to securities issuances
Fair value of derivative instruments (a)
Tax contingency receivable
Other
Total other assets
2008
67,352
9,881
—
7,443
2,011
86,687
$
$
2007
31,192
13,788
9,039
7,587
2,742
64,348
$
$
a) During February 2008, the counterparty to these derivative instruments terminated the agreements.
Impairment of Intangible and Long-lived Assets
Statement of Financial Accounting Standard No. 142 Goodwill and Other Intangible Assets (FAS 142) requires that goodwill and
indefinite-lived intangible assets are not amortized but rather are tested for impairment at least annually. FAS 142 prescribes a
two-step method for determining goodwill impairment. In the first step, the Company determines the fair value of the reporting
unit and compares that fair value to the net book value of the reporting unit. The fair value of the reporting unit is determined
using various valuation techniques, including quoted market prices, observed earnings /cash flow multiples paid for comparable
television stations and discounted cash flow models. If the net book value of the reporting unit were to exceed the fair value, we
would then perform the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all of its
assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value being allocated to goodwill. An
impairment charge will be recognized only when the implied fair value of a reporting unit’s goodwill is less than its carrying
amount. Broadcast licenses are analyzed at the market level in accordance with EITF 02-7, “Unit of Accounting for Testing Impairment
of Indefinite-Lived Intangible Assets”. When evaluating whether a broadcast license is impaired, we compare the fair value of the
broadcast licenses to the carrying amount of those same broadcast licenses. If the carrying amount of the broadcast licenses
exceeds the fair value, then an impairment loss is recorded to the extent that the carrying value of the broadcast licenses exceeds
the fair value.
38 (cid:121) Sinclair Broadcast Group
Under the provisions of FAS 144, we periodically evaluate our long-lived assets for impairment and will continue to evaluate
them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. We
evaluate the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted
future cash flows associated with them. At the time that such evaluations indicate that the future undiscounted cash flows of
certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are tested for impairment by
comparing their estimated fair value to the carrying value. We typically estimate fair value using discounted cash flow models and
appraisals. See Note 5. Goodwill and Other Intangible Assets, for more information.
Accrued Liabilities
Accrued liabilities consisted of the following as of December 31, 2008 and 2007 (in thousands):
Compensation
Interest
Dividends payable
Other accruals relating to operating expenses
Deferred revenue
Total accrued liabilities
2008
14,985
10,161
16,038
27,566
10,834
79,584
$
$
2007
18,170
11,290
15,139
23,564
14,211
82,374
$
$
We do not accrue for repair and maintenance activities in advance of planned or unplanned major maintenance activities. We
generally expense these activities when incurred.
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statements carrying amounts and
the tax bases of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine, based on the
weight of available evidence, that it is more likely than not that some or all of the deferred tax assets will not be realized. As of
December 31, 2008, valuation allowances have been provided for a substantial amount of our available federal and state NOLs.
Management periodically performs a comprehensive review of our tax positions and accrues amounts for tax contingencies.
Based on these reviews, the status of ongoing audits and the expiration of applicable statute of limitations, accruals are adjusted as
necessary in accordance with the measurement and recognition provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.
Supplemental Information – Statements of Cash Flows
During 2008, 2007 and 2006, we had the following cash transactions (in thousands):
Income taxes paid related to continuing operations
Income taxes paid related to sale of discontinued operations
Income tax refunds received related to continuing operations
Income tax refunds received related to discontinued
operations
Interest paid
Premium payments related to extinguishment of debt
Debt assumed in conjunction with the acquisition of other
2008
3,477
—
11,810
$
$
$
$
5,501
$ 73,041
301
$
2007
258
—
7,756
$
$
$
$
157
$ 97,649
$ 27,285
2006
654
4,057
4,993
$
$
$
$
6,762
$ 109,459
853
$
operating divisions companies
$
—
$
7,120
$
—
Non-cash barter and trade expense are presented in the consolidated statements of operations. Non-cash transactions related
to capital lease obligations were $10.0 million, $8.9 million and $3.3 million for the years ended December 31, 2008, 2007 and
2006, respectively. Debt assumed in conjunction with the acquisition of other operating divisions companies is non-recourse to
us.
2008 Annual Report (cid:121) 39
Local Marketing Agreements
We generally enter into local marketing agreements (LMAs) and similar arrangements with stations located in markets in which
we already own and operate a station. Under the terms of these agreements, we make specified periodic payments to the owner-
operator in exchange for the right to program and sell advertising on a specific portion of the station’s inventory of broadcast
time. Nevertheless, as the holder of the FCC license, the owner-operator retains control and responsibility for the operation of
the station, including responsibility over all programming content broadcast on the station.
Included in the accompanying consolidated statements of operations for the years ended December 31, 2008, 2007 and 2006
are net revenues of $109.7 million, $109.3 million and $120.0 million, respectively, that relate to LMAs.
Outsourcing Agreements
We have entered into outsourcing agreements in which our stations provide, or are provided, various non-programming related
services such as sales, operational and managerial services to, or by, other stations.
Revenue Recognition
Total revenues include: (i) cash and barter advertising revenues, net of agency and national representatives’ 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 and national representatives’ 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 and fall within the scope of
EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). 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 ratably over the life of the agreement.
Network compensation revenue is recognized ratably over the term of the contract. All other significant revenues are
recognized as services are provided.
Advertising Expenses
Advertising expenses are recorded in the period when incurred and are included in station production expenses. Total
advertising expenses from continuing operations, net of advertising co-op credits, were $7.6 million, $8.4 million and $7.7 million
for the years ended December 31, 2008, 2007 and 2006, respectively.
We receive, from time to time, up front payments from service providers. Such amounts are recognized as a reduction in
selling, general and administrative expenses on a straight-line basis over the term of the contracts.
Financial Instruments
Financial instruments, as of December 31, 2008 and 2007, consisted of cash and cash equivalents, trade accounts receivable,
notes receivable (which are included in other current assets), derivatives, accounts payable, accrued liabilities and notes payable.
The carrying amounts approximate fair value for each of these financial instruments, except for the notes payable. See Note 6.
Notes Payable and Commercial Bank Financing, for additional information regarding the fair value of notes payable.
40 (cid:121) Sinclair Broadcast Group
Pension
In September 2006, the FASB issued FAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R) (FAS 158). FAS 158 requires us to recognize the funded status (i.e., the
difference between the fair value of plan assets and the projected benefit obligations) of our pension plan in our consolidated
financial statements. At adoption, we recorded an adjustment to accumulated other comprehensive loss of $2.5 million (net of
taxes of $1.7 million) that represented the net unrecognized actuarial losses which we previously netted against the plan’s funded
status in our consolidated financial statements pursuant to the provisions of FASB Statement No. 87. For the year ended
December 31, 2007, we had no liability. For the year ended December 31, 2008, we recognized a liability of $2.2 million,
representing the under funded status of our defined benefit pension plan.
Reclassifications
Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the current year’s
presentation.
2. STOCK-BASED COMPENSATION PLANS:
Description of Awards
We have seven types of stock-based compensation awards: compensatory stock options (options), restricted stock awards
(RSAs), an employee stock purchase plan (ESPP), employer matching contributions (the Match) for participants in our 401(k)
plan, stock-settled appreciation rights (SARS), subsidiary stock awards and stock grants to our non-employee directors. Below is a
summary of the key terms and methods of valuation of our stock-based compensation awards:
Options. In June 1996, our Board of Directors adopted, upon approval of the shareholders by proxy, the 1996 Long-Term
Incentive Plan (LTIP). The purpose of the LTIP is to reward key individuals for making major contributions to our success and
the success of our subsidiaries and to attract and retain the services of qualified and capable employees. Options granted pursuant
to the LTIP must be exercised within 10 years following the grant date. On April 21, 2005, we accelerated the vesting of 390,039
stock options, which were all of our outstanding unvested options at that time. We have not issued any options subsequent to
accelerating the vesting in 2005 and do not expect to issue options in future periods. A total of 14,000,000 shares of Class A
Common Stock are reserved for awards under this plan. As of December 31, 2008, 11,201,759 shares (including forfeited shares)
were available for future grants.
The following is a summary of changes in outstanding stock options:
Outstanding at December 31, 2005
2006 Activity:
Granted
Exercised
Forfeited
Outstanding at December 31, 2006
2007 Activity:
Granted
Exercised
Forfeited
Outstanding at December 31, 2007
2008 Activity
Granted
Exercised
Forfeited
Outstanding at December 31, 2008
Options
6,352,720
—
(119,275)
(3,149,770)
3,083,675
—
(1,131,425)
(370,000)
1,582,250
—
—
(1,076,000)
506,250
Weighted-Average
Exercise Price
$ 15.78
Exercisable
6,352,720
Weighted-Average
Exercise Price
$ 15.78
$ —
8.95
$
$ 15.20
$ 16.53
$ —
$ 10.19
$ 17.14
$ 20.71
$ —
$ —
$ 24.63
12.45
$
—
—
—
3,083,675
—
—
—
1,582,250
—
—
—
506,250
—
—
—
$ 16.53
—
—
—
$ 20.71
—
—
—
12.45
$
2008 Annual Report (cid:121) 41
Outstanding
173,250
278,000
45,000
10,000
506,250
Exercise Price
$ 6.68 – 9.95
$ 10.09 – 15.06
$ 17.00 – 24.20
$ 28.28 – 28.42
$ 6.68 – 28.42
Weighted-Average
Remaining
Contractual Life
(In Years)
2.9
3.4
0.4
0.1
Exercisable
173,250
278,000
45,000
10,000
506,250
Weighted Average
Exercise Price
$
$
$
$
$
8.68
12.57
22.60
28.34
12.45
Designated Participants Stock Option Plan. In connection with our initial public offering in June 1995, our Board of Directors
adopted an Incentive Stock Option Plan for Designated Participants (Designated Participants Stock Option Plan) pursuant to
which options for shares of Class A Common Stock were granted to certain of our key employees. Options granted pursuant to
Designated Participants Stock Option Plan must be exercised within 10 years following the grant date. As of December 31, 2005,
no shares were available for future grants because the Plan expired in June 2005, the tenth anniversary date of the Plan. The
Designated Participants Stock Option Plan participants forfeited shares during 2007 and 2008. As of December 31, 2008, there
were no shares outstanding.
RSAs. RSAs are granted to employees pursuant to the LTIP. RSAs have certain restrictions that lapse over three years at 25%,
25% and 50%, respectively. As the restrictions lapse, the Class A Common Stock may be freely traded on the open market. On
April 1, 2008, we awarded 95,500 RSAs that had a fair value of $8.94 per share, which was the value of the stock on the trading
date immediately prior to the grant date. On April 2, 2007, we awarded 55,500 RSAs that had a fair value of $15.78 per share,
which was the value of the stock on the trading date immediately prior to the grant date. On April 3, 2006, we awarded 40,000
RSAs that had a fair value of $7.81 per share, which was the value of the stock on the trading date immediately prior to the grant
date. As of December 31, 2008, 33,875 shares were vested. RSA participants forfeited 875 shares during 2008. For the years
ended December 31, 2008, 2007 and 2006, we recorded expense of $0.6 million, $0.3 million and less than $0.1 million,
respectively. This expense reduced our consolidated income, but it had no effect on our consolidated cash flows. Additionally,
any RSAs for which the restrictions have lapsed will be included in weighted average shares outstanding, which can have a dilutive
effect on our earnings per share. Any RSAs for which the restrictions have not lapsed will be included in total equivalent shares
outstanding, based on the treasury stock method, which could have a dilutive effect on our diluted earnings per share.
ESPP. In March 1998, the Board of Directors adopted, subject to approval of the shareholders, the ESPP. The ESPP
provides our employees with an opportunity to become shareholders through a convenient arrangement for purchasing shares of
Class A Common Stock. On the first day of each payroll deduction period, each participating employee receives options to
purchase a number of shares of our common stock with money that is withheld from his or her paycheck. The number of shares
available to the participating employee is determined at the end of the payroll deduction period by dividing the total amount of
money withheld during the payroll deduction period by the exercise price of the options (as described below). Options granted
under the ESPP to employees are automatically exercised to purchase shares on the last day of the payroll deduction period unless
the participating employee has, at least thirty days earlier, requested that his or her payroll contributions stop. Any cash
accumulated in an employee’s account for a period in which an employee elects not to participate is distributed to the employee.
The initial exercise price for options under the ESPP is 85% of the lesser of the fair market value of the common stock as of
the first day of the payroll deduction period and as of the last day of that period. No participant can purchase more than $25,000
worth of our common stock over all payroll deduction periods ending during the same calendar year. We value the stock options
under the ESPP using the Black-Scholes option pricing model, which incorporates the following assumptions as of December 31,
2008 and 2007:
Risk-free interest rate
Expected life
Expected volatility
Annual dividend yield
2008
1.36%
91 days
117.70%
15.22%
2007
5.23%
91 days
38.38%
5.60%
We use the Black-Scholes model as opposed to a lattice pricing model because employee exercise patterns are not relevant to
this plan. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life is
based on the approximate number of days in the quarter assuming the option was issued on the first day of the quarter. The
expected volatility is based on our historical stock prices over the previous 90-day period. The annual dividend yield is based on
the annual dividend per share divided by the share price on the grant date.
42 (cid:121) Sinclair Broadcast Group
The stock-based compensation expense recorded related to the ESPP for the years ended December 31, 2008, 2007 and 2006
was $0.2 million, $0.2 million and $0.1 million, respectively. Less than 0.1 million shares were issued to employees during the year
ended December 31, 2008. This expense reduced our consolidated income, but it had no effect on our consolidated cash flows.
Additionally, options issued under the ESPP are included in the total shares outstanding at the end of each period, which results
in a dilutive effect on our basic and diluted earnings per share.
Match. The Sinclair Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the 401(k) Plan) is available as a benefit for
our eligible employees. Contributions made to the 401(k) Plan include an employee elected salary reduction amount, company-
matching contributions (the Match) and an additional discretionary amount determined each year by the Board of Directors. The
Match and any discretionary contributions may be made using our Class A Common Stock if the Board of Directors so chooses.
Typically, we make the Match using our Class A Common Stock.
The value of the Match is based on the level of elective deferrals into the 401(k) plan. The amount of shares of our Class A
Common Stock used to make the Match is determined using the closing price on or about March 1st of each year for the previous
calendar year’s Match. The Match is discretionary and is equal to a maximum of 50% of elective deferrals by eligible employees,
capped at 4% of the employee’s total cash compensation. For the years ended December 31, 2008, 2007 and 2006, we recorded
$2.0 million, $1.9 million and $1.6 million, respectively, of compensation expense related to the Match.
SARs. On April 1, 2008, 350,000 SARs were granted to David Smith, our President and Chief Executive Officer, pursuant to
the LTIP. The base value of each SAR is $8.94 per share, which was the closing price of our Class A Common Stock on the grant
date. The SARs had a grant date fair value of $0.5 million. On April 2, 2007, 200,000 SARs were granted to David Smith
pursuant to the LTIP. The SARs grants have a 10-year term and vest immediately. We valued the SARs using the Black-Scholes
model and the following assumptions:
Risk-free interest rate
Expected life
Expected volatility
Annual dividend yield
2008
4.25%
10 years
46.10%
9.23%
2007
5.17%
10 years
36.16%
3.96%
For the years ended December 31, 2008 and 2007, we recorded compensation expense of $0.5 million and $1.0 million,
respectively related to these grants. We did not issue any SARs in 2006. This expense reduced our consolidated income, but had
no effect on our consolidated cash flows. During 2008, these SARs had no effect on the shares used in our basic and diluted
earnings per share.
Subsidiary Stock Awards. From time to time, we grant subsidiary stock awards to employees. The subsidiary stock is typically in
the form of a membership interest in a consolidated limited liability company, not traded on a public exchange and valued based
on the estimated fair value of the subsidiary. Fair value is typically estimated using discounted cash flow models and appraisals.
These stock awards vest immediately. For the years ended December 31, 2008 and 2007, we recorded compensation expense of
$2.5 million and $0.7 million, respectively related to these awards. We did not issue any subsidiary stock awards in 2006. This
expense reduced our consolidated income, but had no effect on our consolidated cash flows. These awards have no effect on the
shares used in our basic and diluted earnings per share.
Stock Grants to Non-Employee Directors. In addition to directors fees paid, on the date of each of our annual meetings of
shareholders, each non-employee director receives a grant of shares of Class A Common Stock pursuant to the LTIP. In 2008,
2007 and 2006, each non-employee director received 5,000 shares, 5,000 shares and 2,000 shares, respectively. On May 15, 2008,
we granted 25,000 shares that had a fair value of $9.28 per share, which was the closing value of the stock on the date of grant.
On May 10, 2007, we granted 25,000 shares that had a fair value of $15.27 per share, which was the closing value of the stock on
the date of grant. On May 11, 2006, we granted 10,000 shares that had a fair value of $8.09 per share, which was the closing value
of the stock on the date of grant. We recorded an expense of $0.2 million, $0.4 million and less than $0.1 million on the date of
grant for the years ended December 31, 2008, 2007 and 2006, respectively. This expense reduced our consolidated income, but it
had no effect on our consolidated cash flows. Additionally, these shares are included in the total shares outstanding, which results
in a dilutive effect on our basic and diluted earnings per share.
2008 Annual Report (cid:121) 43
3. INVESTMENTS:
We have a limited partnership interest in Allegiance Capital Limited Partnership (Allegiance). Allegiance is a private mezzanine
venture capital fund, which invests in the subordinated debt and equity of privately held companies. The partnership is structured
as a debenture Small Business Investment Company (SBIC) and is a federally licensed SBIC. We account for our investment in
Allegiance under the equity method of accounting. We have retained the specialized accounting for our investment in Allegiance
pursuant to EITF Issue No. 85-12, Retention of Specialized Accounting for Investments in Consolidation. The balance of our investment
was $8.4 million as of December 31, 2008.
In the event that one or more of our investments are significant, we are required to disclose summarized financial information.
The table below presents the unaudited summarized statement of operations for these investments for the years ended December
31, 2008, 2007 and 2006 and the unaudited summarized assets and liabilities for these investments as of December 31, 2008 and
2007 (in thousands):
As of December 31,
Current assets
Long-term assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities
Equity
Total liabilities and equity
Operating revenue
Operating expenses
(Loss) income from continuing operations
Net (loss) income
2008
3,422
15,030
18,452
179
9,594
9,773
8,679
18,452
2008
2,500
1,294
(1,065)
(1,065)
$
$
$
$
$
$
$
$
2007
2,207
23,804
26,011
317
15,851
16,168
9,843
26,011
$
$
$
$
For the Years Ended December 31,
2007
$
$
$
$
3,323
1,737
2,429
2,429
$
$
$
$
2006
2,581
1,573
8,570
8,570
We have other cost and equity investments in private investment funds, real estate ventures and privately held small businesses.
Management does not believe that these investments individually, or in the aggregate, are material to the accompanying
consolidated financial statements. These investments are included in our other operating divisions segment.
Impairment of Investments
Each quarter, we review our investments for impairment. For any investments that indicate a potential impairment, we
estimate the fair values of those investments using discounted cash flow models, unrelated third party valuations or industry
comparables, based on the various facts available to us. As a result of these reviews, we recorded an impairment of $1.0 million in
the consolidated statements of operations for the year ended December 31, 2007. No impairment was recorded for the years
ended December 31, 2008 or 2006.
In addition to our equity and cost method investment mentioned above, we hold two loans in real estate ventures. During
2008, we reserved one of the loans through a $3.9 million charge to other operating divisions expense in our consolidated
statements of operations.
44 (cid:121) Sinclair Broadcast Group
4. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed under the straight-line
method over the following estimated useful lives:
Buildings and improvements
Station equipment
Office furniture and equipment
Leasehold improvements
Automotive equipment
Property and equipment under capital leases
10 - 30 years
5 - 10 years
5 - 10 years
Lesser of 10 - 30 years or lease term
3 - 5 years
Lease term
Property and equipment consisted of the following as of December 31, 2008 and 2007 (in thousands):
Land and improvements
Real estate held for development and sale
Buildings and improvements
Station equipment
Office furniture and equipment
Leasehold improvements
Automotive equipment
Capital leased assets
Construction in progress
Less: accumulated depreciation
$
$
2008
20,598
49,567
88,137
372,121
45,222
15,593
12,591
94,842
3,998
702,669
(365,705)
336,964
$
$
2007
18,444
—
87,998
363,952
46,854
15,424
11,254
81,752
1,374
627,052
(342,501)
284,551
Capital leased assets are related to building, tower and station equipment leases. Depreciation related to capital leases is
included in depreciation expense in the consolidated statements of operations. We recorded capital lease depreciation expense of
$5.3 million, $4.8 million and $4.9 million for the years ended December 31, 2008, 2007 and 2006, respectively. Approximately
$9.3 million and $5.5 million of property and equipment related to consolidated VIEs for 2008 and 2007.
5. GOODWILL, BROADCAST LICENSES AND OTHER INTANGIBLE ASSETS:
FAS 142 requires that goodwill and broadcast licenses be tested for impairment at least annually. We test our broadcast licenses
and goodwill annually during the fourth quarter each year and between annual evaluations if events occur or circumstances change
that indicate that the fair value of our reporting units or licenses may be below their carrying amount.
When evaluating whether goodwill is impaired, we aggregate our stations by market for purposes of our goodwill impairment
testing. We believe that our markets are most representative of our broadcast reporting units because we view, manage and
evaluate our stations on a market basis. Furthermore, in our markets operated as duopolies, certain costs of operating the stations
are shared including the use of buildings and equipment, the sales force and administrative personnel. We then compare the fair
value of the reporting unit to which the goodwill is assigned to the reporting unit’s carrying amount, including goodwill. We
estimate the fair market value of our reporting units using a combination of quoted market prices, observed earnings/cash flow
multiples paid for comparable television stations, and discounted cash flow models. Our discounted cash flow model is based on
our judgment of future market conditions within each designated marketing area, as well as discount rates that would be used by
market participants in an arms-length transaction. If the carrying amount of a reporting unit exceeds its fair value, then the
amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied fair value of
reporting unit goodwill to its carrying amount. In calculating the implied fair value of reporting unit goodwill, the fair value of the
reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value
of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment
loss is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value.
When evaluating our broadcast licenses for impairment, the testing is done at the unit of accounting level as determined by
EITF 02-7, “Unit of Accounting for Testing Impairment of Indefinite-Lived Intangible Assets”, using the income approach method. The
income approach method involves a eight-year model that incorporates several variables, including, but not limited, to discounted
2008 Annual Report (cid:121) 45
cash flows of a typical market participant, market revenue and long term growth projections, estimated market share for the
typical participant and estimated profit margins based on market size and station type. The model also assumes outlays for capital
expenditures, future terminal values, an effective tax rate assumption and a discount rate based on the weighted-average cost of
capital of the television broadcast industry.
Based on assessments performed during the years ended December 31, 2008 and 2006, we recorded $463.9 million and $15.6
million, respectively, in impairment charges on our goodwill and broadcast licenses. The 2008 impairment charge included $270.4
million and $193.5 million related to broadcast licenses and goodwill, respectively. The impairment charge taken in 2008 was
primarily due to the severe economic downturn during the fourth quarter and, as a result, we made revisions to forecasted cash
flows, cash flow multiples and discount rates. Broadcast licenses were impaired in 31 of 35 markets. We recorded goodwill
impairment in four markets including St. Louis, Missouri; Las Vegas, Nevada; Flint/Saginaw/Bay City, Michigan; and
Springfield/Champaign, Illinois. There was no impairment recorded for the year ended December 31, 2007. The key
assumptions used to determine the fair value of our reporting units to test our goodwill for impairment and to determine the fair
value of our and broadcast licenses impairment tests in 2008 were as follows:
Revenue annual growth rate
Expense annual growth rate
Discount rate
Comparable business
multiple/Constant growth rate
Goodwill
2.0% - 5.0%
2.0% - 2.5%
10.0%
Broadcast Licenses
1.8% - 3.5%
1.9% - 3.4%
10.8%
9.0 times cash flow
1.8% - 3.5%
As of December 31, 2008 and 2007, the carrying amount of our broadcast licenses related to continuing operations was as
follows (in thousands):
Beginning balance
Broadcast license impairment charge
Acquisition of television station (a)
Ending balance (b)
As of December 31,
2008
401,130
(270,422)
1,714
132,422
$
$
2007
401,130
—
—
401,130
$
$
(a)
In February 2008, we acquired the non-licensed assets of KFXA-TV in Cedar Rapids. The KFXA-TV is a VIE and we are the
primary beneficiary, therefore, we consolidate the license assets as well.
(b) Approximately $11.5 million and $48.8 million of broadcast licenses relate to consolidated VIEs as of December 31, 2008 and
2007, respectively.
The change in the carrying amount of goodwill related to continuing operations was as follows (in thousands):
Beginning balance
Goodwill impairment charge (a)
Acquisition of television station (b)
Acquisition of other operating divisions companies (c)
Ending balance
$
$
As of December 31,
2008
1,010,594
(193,465)
6,999
60
824,188
2007
1,007,268
—
—
3,326
1,010,594
$
$
(a) Approximately $191.9 million of the goodwill impairment charge related to our broadcast segment. The remaining $1.6 million
related to our other operating divisions segment.
(b) In February 2008, we acquired the non-licensed assets of KFXA-TV in Cedar Rapids, Iowa.
(c)
Included in 2007 is the goodwill from the acquisitions of Triangle and Alarm Funding. In 2008, we finalized the purchase price
allocation for Alarm Funding. See Note 1. Acquisitions, for further information.
Definite-lived intangible assets and other assets subject to amortization are being amortized on a straight-line basis over periods
of 5 to 25 years. These amounts result from the acquisition of certain television station non-license assets. We analyze specific
definite-lived intangibles for impairment when events occur that may impact their value in accordance with FAS 144. There was
no impairment charge recorded for the years ended December 31, 2008 and 2007, respectively.
46 (cid:121) Sinclair Broadcast Group
The following table shows the gross carrying amount and accumulated amortization of intangibles and estimated amortization
related to continuing operations (in thousands):
As of December 31, 2008
As of December 31, 2007
Weighted
Average
Amortization
Period
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Amortized intangible assets:
Network affiliation
Decaying advertiser base
Other
Total
25 years
15 years
15 years
$
$
245,160 (a)
122,375
76,967 (b)
444,502
$ (109,638)
(100,563)
(28,558)
$ (238,759)
$
$
239,235
122,358
51,557
413,150
$
(100,106)
(94,862)
(25,449)
$ (220,417)
(a) During 2008, we acquired the non-license assets of KFXA-TV in Cedar Rapids, Iowa.
(b) During 2008, the primary change to other was the Bay Creek $17.6 million purchase option intangible and $7.7 million in
additional purchases of alarm monitoring contracts.
The amortization expense of the definite-lived intangible assets and other assets for the years ended December 31, 2008, 2007
and 2006 was $18.3 million, $17.6 million and $17.5 million, respectively. The following table shows the estimated amortization
expense of the definite-lived intangible assets and other assets for the next five years (in thousands):
For the year ended December 31, 2009
For the year ended December 31, 2010
For the year ended December 31, 2011
For the year ended December 31, 2012
For the year ended December 31, 2013
$
$
$
$
$
17,947
17,479
16,153
14,996
13,078
6. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:
Bank Credit Agreement
On December 21, 2006, we amended and restated the Bank Credit Agreement. The Bank Credit Agreement, in effect on
December 31, 2006, included a Term Loan A (the Term Loan A) of $100.0 million, a Revolving Credit Facility (the Revolver) of
$175.0 million and a Term Loan A-1 facility (the Term Loan A-1) of $225.0 million maturing on December 31, 2011, June 30,
2011 and December 31, 2012, respectively.
Availability under the Revolver does not reduce incrementally and terminates at maturity. We are required to prepay the Term
Loan A-1 and Term Loan A and reduce the Revolver with (i) 100% of the net proceeds of any casualty loss or condemnation and
(ii) 100% of the net proceeds of any sale or other disposition of our assets in excess of $5.0 million in the aggregate in any 12
month period, to the extent such proceeds are not used to acquire new assets.
For the year ended December 31, 2008, we had drawn $84.6 million on the Revolver and $84.0 million of current borrowing
capacity was available. Due to the Lehman Brothers Holdings, Inc. bankruptcy, our $175.0 million committed revolving line of
credit was reduced by $6.4 million.
Scheduled payments on the Term Loan A, Term Loan A-1 and Revolver are calculated at the London Interbank Offered Rate
(LIBOR) plus 1.25%, with step-downs tied to a leverage grid. We have the right to terminate the Term Loan A, Term Loan A-1
or Revolver at any time without prepayment penalty. The Term Loan A is repayable in quarterly installments, amortizing as
follows:
•
•
•
1.25% per quarter commencing March 31, 2007 to December 31, 2008
3.75% per quarter commencing March 31, 2009 to December 31, 2010
15.0% per quarter commencing March 31, 2011 and continuing through its maturity on December 31, 2011.
2008 Annual Report (cid:121) 47
The Term Loan A-1 is repayable in quarterly installments, amortizing as follows:
•
•
•
•
1.25% per quarter commencing March 31, 2009 to December 31, 2009
2.50% per quarter commencing March 31, 2010 to December 31, 2010
3.75% per quarter commencing March 31, 2011 to December 31, 2011
17.50% per quarter commencing March 31, 2012 and continuing through its maturity on December 31, 2012.
The weighted average interest rates of the Term Loan A for the year and the month ended December 31, 2008 were 3.76% and
2.19%, respectively. The weighted average interest rates of the Term Loan A for the year and the month ended December 31,
2007, were 5.99% and 5.56%, respectively. The weighted average interest rates of the Term Loan A-1 for the year and month
ended December 31, 2008, were 3.94% and 2.44%, respectively. The weighted average interest rates of the Tem Loan A-1 for the
year and month ended December 31, 2007, were 6.25% and 5.81%, respectively. During 2008, 2007 and 2006, the interest
expense relating to the Bank Credit Agreement was $14.1 million, $19.6 million and $6.0 million, respectively.
8.75% Senior Subordinated Notes, Due 2011
In December 2001, we completed an issuance of $310.0 million aggregate principal amount of 8.75% Senior Subordinated
Notes, due 2011 (the 8.75% Notes). Interest on the 8.75% Notes was paid semiannually on June 15 and December 15 of each
year. The 8.75% Notes were issued under an indenture among us, our subsidiaries (the guarantors) and the trustee.
On January 19, 2007, we borrowed net proceeds of $225.0 million under our Term Loan A-1 pursuant to our amended and
restated Bank Credit Agreement. On January 22, 2007, we used these proceeds along with $59.4 million of cash on hand and
additional borrowings of $23.0 million under our Revolving Credit Facility to fully redeem the aggregate principal amount of
$307.4 million of our 8.75% Notes. The redemption was affected in accordance with the terms of the indenture governing the
8.75% Notes at a redemption price of 104.375% of the principal amount of the 8.75% Notes plus accrued and unpaid interest.
As a result of the redemption, we recorded a loss from extinguishment of debt of $15.7 million representing the redemption
premium and write-off of certain debt acquisition costs.
Interest expense was $1.6 million and $26.9 million for the years ended December 31, 2007 and 2006, respectively.
8.0% Senior Subordinated Notes, Due 2012
From March 2002 through May 29, 2003, we issued $650.0 million aggregate principal amount of 8.0% Senior Subordinated
Notes, due 2012 (the 8.0% Notes). Interest on the 8.0% Notes is paid semiannually on March 15 and September 15 of each year,
beginning September 15, 2002. The 8.0% Notes were issued under an indenture among us, certain of our subsidiaries (the
guarantors) and the trustee.
On June 11, 2007 and June 18, 2007, we partially redeemed $300.0 million and $45.0 million, respectively, of our existing 8.0%
Notes at a redemption price of 104% of the principal amount of the 8.0% Notes plus accrued and unpaid interest with net
proceeds from the offering of the 3.0% Convertible Senior Notes, due 2027 (the 3.0% Notes) and cash on hand. As a result of
the partial redemption, we recorded a loss from extinguishment of debt of $15.0 million representing the redemption premium
and write-off of certain debt acquisition costs, a debt premium and an unamortized derivative asset.
In addition to the partial redemption noted above, during 2008 and 2007, we repurchased, in the open market, $38.8 million
and $9.9 million, respectively, of the 8.0% Notes at face value. As a result of these redemptions, we recorded a gain from
extinguishment of debt of $0.4 million and a loss from extinguishment of debt of less than $0.1 million for the years ended
December 31, 2008 and 2007, respectively.
Currently, we may redeem all of the 8.0% Notes at a redemption premium of 2.667%, reducing incrementally to 0.0% after
March 15, 2010. We may consider making a tender offer to repurchase some or all of these notes in the future.
Interest expense was $19.4 million, $34.0 million and $50.2 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
The weighted average interest rate for the 8.0% Notes including the amortization of its bond premium was 7.94% and 8.08%
for the years ended December 31, 2008 and 2007, respectively.
48 (cid:121) Sinclair Broadcast Group
6.0% Convertible Debentures, Due 2012
On June 15, 2005, we completed an exchange of our Series D Convertible Exchangeable Preferred Stock (the Preferred Stock)
into 6.0 % Convertible Debentures, due 2012 (the 6.0% Debentures). The 6.0% Debentures mature September 15, 2012, and
bear interest at a rate of 6.0% per annum, payable quarterly on each March 15, June 15, September 15 and December 15,
beginning September 15, 2005. The 6.0% Debentures are convertible into Class A Common Stock at the option of the holders at
a conversion price of $22.813 per share, subject to adjustment. The difference in the carrying amount of the Preferred Stock and
the fair value of the 6.0% Debentures was recorded as a $31.7 million discount on the 6.0% Debentures and is being amortized
over the life of the 6.0% Debentures using the effective interest method.
During 2008 and 2006, we redeemed, on the open market, $18.1 million and $8.6 million, respectively, of the 6.0% Debentures.
In connection with these redemptions, we recorded a gain from extinguishment of debt of $2.2 million and a loss from
extinguishment of debt of $0.5 million for the years ended December 31, 2008 and 2006, respectively. We did not redeem 6.0%
Debentures during 2007. As of the filing date, in first quarter 2009, we redeemed in the open market $1.0 million face value of
our 6.0% Debentures.
Currently, we may redeem all of the 6.0% Debentures at no redemption premium.
Interest expense was $9.0 million, $9.2 million, and $9.2 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
The weighted average interest rate for the 6.0% Debentures including the amortization of its bond discount was 8.52% and
8.20% for the years ended December 31, 2008 and 2007, respectively.
4.875% Convertible Senior Notes, Due 2018
During May 2003, we completed a private placement of $150.0 million aggregate principal amount of 4.875% Convertible
Senior Notes, due 2018 (the 4.875% Notes). The 4.875% Notes were issued at par, mature on July 15, 2018, and have the
following characteristics:
•
•
•
•
•
the 4.875% Notes are convertible into shares of our Class A Common Stock at the option of the holder upon certain
circumstances. The conversion price is $22.37 until March 31, 2011, at which time the conversion price increases
quarterly until reaching $28.07 on July 15, 2018;
the 4.875% Notes may be put to us at par on January 15, 2011 or called thereafter by us;
the 4.875% Notes bear cash interest at an annual rate of 4.875% until January 15, 2011 and bear cash interest at an
annual rate of 2.00% from January 15, 2011 through maturity;
the principal amount of the 4.875% Notes will accrete to 125.66% of the original par amount from January 15, 2011 to
maturity so that when combined with the cash interest, the yield to maturity of the 4.875% Notes will be 4.875% per
year; and
under certain circumstances, we will pay contingent cash interest to the holders of the 4.875% Notes during any six
month period from January 15 to July 14 and from July 15 to January 14, commencing with the six month period
beginning January 15, 2011.
During 2008, we redeemed, on the open market, $6.5 million of the 4.875% Notes. We recorded a $2.8 million gain from
extinguishment of debt related to this redemption for the year ended December 31, 2008.
Interest expense was $7.3 million for each of the years ended December 31, 2008, 2007 and 2006.
3.0% Convertible Senior Notes, Due 2027
On May 10, 2007, we completed an offering of $300.0 million aggregate principal amount of 3.0% Convertible Senior Notes,
due 2027 (the 3.0% Notes). Upon certain conditions, the 3.0% Notes are convertible into cash and, in certain circumstances,
shares of Class A Common Stock. If the 3.0% Notes are converted into Class A Common Stock prior to maturity, they are
convertible at an initial conversion price of $20.43 per share, subject to adjustment, which is equal to an initial conversion rate of
approximately 48.9476 shares of Class A Common Stock per $1,000 principal amount of notes.
2008 Annual Report (cid:121) 49
The 3.0% Notes may be surrendered for conversion at any time on or before November 15, 2026 if the following conditions
are met:
•
•
•
•
during any calendar quarter commencing after the date of original issuance of the 3.0% Notes, if the closing sale price of
our Class A Common Stock, for at least 20 trading days in the period of 30 consecutive trading days ending on the last
trading day of the calendar quarter preceding the quarter in which the conversion occurs, is more than 130% of the
conversion price in effect on that last trading day;
during the ten consecutive trading day period following any five consecutive trading day period in which the trading
price for the 3.0% Notes for each such trading day was less than 95% of the closing sale price of our Class A Common
Stock on such date multiplied by the then current conversion rate;
if the 3.0% Notes have been called for redemption; or
if we make certain significant distributions to our Class A Common Stock shareholders, we enter into specified
corporate transactions or our Class A Common Stock ceases to be listed on The NASDAQ Global Select Market and is
not listed for trading on another U.S. national or regional securities exchange.
The 3.0% Notes may be surrendered for conversion after November 15, 2026, and at any time prior to the close of business on
the business day immediately preceding the maturity date regardless of whether any of the foregoing conditions have been
satisfied. Upon a fundamental change, holders of the 3.0% Notes may require us to repurchase for cash all or part of their notes
at a repurchase price equal to 100.0% of the principal amount plus accrued and unpaid interest. Holders of the 3.0% Notes will
also have the right to require us to repurchase the notes for cash on May 15, 2010, May 15, 2017 and May 15, 2022, or any other
such date to be determined by us at a repurchase price payable in cash equal to the aggregate principal amount plus accrued and
unpaid interest (including contingent cash interest), if any, through the repurchase date. The 3.0% Notes require us to settle the
principal amount in cash and the conversion spread in cash or net shares at our option.
We are required to pay contingent cash interest to the holders of the 3.0% Notes during any six-month period from May 15 to
November 14 and from November 15 to May 14, commencing with the period beginning May 20, 2010 if the average note price
for the applicable five trading day period equals 120% or more of the principal amount of such notes and in certain other
circumstances. The amount of contingent cash interest payable per note in respect of any six-month period will equal 0.375% per
year of the average note price for the applicable five trading day period. The 3.0% Notes may not be redeemed prior to May 20,
2010 and may thereafter be redeemed by us at par.
On May 18, 2007, the underwriters of the 3.0% Notes exercised their option to purchase up to an additional aggregate $45.0
million principal amount of the 3.0% Notes. The offering was made pursuant to our universal shelf registration statement
previously filed with the Securities and Exchange Commission. Net costs associated with the offering totaled $6.7 million. These
costs were capitalized and are being amortized as interest expense over the life of the debt.
As of the filing date, in first quarter 2009, we repurchased in the open market, $45.7 million face value of our 3.0% Notes.
Interest expense was $10.4 million and $6.6 million for the years ended December 31, 2008 and 2007, respectively.
Cunningham Term Loan Facility
On April 28, 2008, Cunningham Broadcasting Corporation (Cunningham), one of our consolidated VIEs, amended its $33.5
million Term Loan Facility originally entered into on March 20, 2002, with an unrelated third party. The amendment extends the
maturity to July 17, 2009. Interest is paid quarterly at a rate of LIBOR plus 1.5%. During 2008, 2007 and 2006, the interest
expense relating to the Term Loan was $2.0 million, $2.3 million and $2.4 million, respectively. Primarily all of Cunningham’s
assets are collateral for the Term Loan. The Term Loan Facility is non-recourse to us.
Other Operating Divisions Segment Debt
Other operating divisions segment debt includes the debt of our consolidated subsidiaries with non-broadcast related
operations. This debt is non-recourse to us. Interest is paid on this debt at rates typically ranging from LIBOR plus 2.75% to a
fixed 6.11% during 2008. During 2008 and 2007, interest expense on this debt was $1.0 million and $0.6 million, respectively.
50 (cid:121) Sinclair Broadcast Group
Summary
Notes payable, capital leases and the Bank Credit Agreement consisted of the following as of December 31, 2008 and 2007 (in
thousands):
Bank Credit Agreement, Revolver
Bank Credit Agreement, Term Loan A
Bank Credit Agreement, Term Loan A-1
Cunningham Term Loan Facility (non-recourse)
8.0% Senior Subordinated Notes, due 2012
6.0% Convertible Debentures, due 2012
4.875% Convertible Senior Notes, due 2018
3.0% Convertible Senior Notes, due 2027
Capital leases
Other operating divisions company debt (all non-recourse)
Plus: Premium on 8.0% Senior Subordinated Notes, due 2012
Plus: FAS 133 derivatives, net
Less: Discount on 6.0% Convertible Debentures, due 2012
Less: Current portion
2008
84,636
90,000
225,000
33,500
224,663
135,156
143,519
345,000
52,979
19,301
1,353,754
1,199
2,779
(15,342)
(67,066)
1,275,324
$
$
2007
—
95,000
225,000
33,500
263,422
153,226
150,000
345,000
52,664
15,759
1,333,571
1,898
2,981
(21,114)
(42,950)
1,274,386
$
$
Indebtedness under the notes payable, capital leases and the Bank Credit Agreement as of December 31, 2008 matures as
follows (in thousands):
2009
2010
2011
2012
2013
2014 and thereafter
Total minimum payments
Plus: Premium on 8.0% Senior Subordinated Notes, due 2012
Plus: FAS 133 derivatives, net
Less: Discount on 6.0% Convertible Debentures, due 2012
Less: Amount representing interest
Notes and
Bank Credit
Agreement (a)
$
63,804
386,895
325,877
524,199
—
—
1,300,775
1,199
2,779
(15,342)
—
$ 1,289,411
Capital Leases
$
5,416
5,581
5,760
5,957
6,164
85,268
114,146
—
—
—
(61,167)
52,979
$
$
Total
69,220
392,476
331,637
530,156
6,164
85,268
1,414,921
1,199
2,779
(15,342)
(61,167)
$ 1,342,390
(a) The 3.0% Notes and 4.875% Notes may be put to us at par in May 2010 and January 2011, respectively. The table above presents
the face value of the Notes in the accelerated period principal payment of the notes could be due. If the 3.0% Notes and 4.875%
Notes are not put to us, they would be scheduled to mature on May 2027 and July 2018.
Substantially all of our stock in our wholly-owned subsidiaries has been pledged as security for the Bank Credit Agreement.
As of December 31, 2008, our broadcast segment had 26 capital leases with non-affiliates, including 25 tower leases and one
building lease and our other operating divisions segment had 5 capital equipment leases and one building lease. All of our tower
leases will expire within the next 30 years and the building lease will expire within the next 10 years. Most of our leases have 5-10
year renewal options and it is expected that these leases will be renewed or replaced within the normal course of business. For
more information related to our affiliate notes and capital leases, see Note 12. Related Person Transactions.
2008 Annual Report (cid:121) 51
7. PROGRAM CONTRACTS PAYABLE:
Future payments required under program contracts as of December 31, 2008 were as follows (in thousands):
2009
2010
2011
2012
2013 and thereafter
Total
Less: Current portion
Long-term portion of program contracts payable
$
$
91,366
44,266
21,919
12,119
3,011
172,681
(91,366)
81,315
Each future periods’ film liability includes contractual amounts owed, however, what is contractually owed does not necessarily
reflect what we are expected to pay during that period. While we are contractually bound to make the payments reflected in the
table during the indicated periods, industry protocol typically enables us to make film payments on a three-month lag. Included in
the current portion amounts are payments due in arrears of $23.4 million. In addition, we have entered into non-cancelable
commitments for future program rights aggregating $99.3 million as of December 31, 2008.
We perform a net realizable value calculation quarterly for each of our non-cancelable commitments in accordance with FAS
No. 63, Financial Reporting for Broadcasters. We utilize sales information to estimate the future revenue of each commitment and
measure that amount against the commitment. If the estimated future revenue is less than the amount of the commitment, a loss
is recorded in amortization of program contract costs and net realizable value adjustments in the consolidated statements of
operations.
8. COMMON STOCK:
Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to ten
votes per share, except for votes relating to “going private” and certain other transactions. The Class A Common Stock and the
Class B Common Stock vote together as a single class, except as otherwise may be required by Maryland law, on all matters
presented for a vote. Holders of Class B Common Stock may at any time convert their shares into the same number of shares of
Class A Common Stock. During 2008, none of the Class B Common Stock shares were converted into Class A Common Stock
shares. During 2007, 3,894,473 Class B Common Stock converted into Class A Common Stock shares.
Our Bank Credit Agreement and some of our subordinated debt instruments have general restrictions on the amount of
dividends that may be paid. Under the indentures governing the 8.0% Notes, we are restricted from paying dividends on our
common stock unless certain specified conditions are satisfied, including that:
•
•
no event of default then exists under the indenture or certain other specified agreements relating to our
indebtedness; and
after taking account of the dividend, we are within certain restricted payment requirements contained in the
indenture.
In addition, under certain of our senior unsecured debt, the payment of dividends is not permissible during a default
thereunder.
During 2007, the Board of Directors voted to increase the dividend twice. On February 14, 2007, we announced that our
Board of Directors approved an increase to our annual dividend to 60 cents per share from 50 cents per share. On October 31,
2007, we announced that our Board of Directors approved an increase to our annual dividend to 70 cents per share from 60 cents
per share. We began paying this dividend rate in the first quarter 2008. The 2007 dividends declared were as follows:
For the quarter ended
March 31, 2007
June 30, 2007
September 30, 2007
December 31, 2007
Quarterly Dividend
Per Share
0.150
$
0.150
$
0.150
$
0.175
$
Annual Dividend
Per Share
0.600
$
0.600
$
0.600
$
0.700
$
Date dividends were paid
April 12, 2007
July 12, 2007
October 11, 2007
January 14, 2008
52 (cid:121) Sinclair Broadcast Group
On February 6, 2008, we announced that our Board of Directors approved an increase to our annual dividend to 80 cents per
share from 70 cents per share. In February 2009, our Board of Directors suspended our dividend until further notice. The 2008
dividends declared were as follows:
For the quarter ended
March 31, 2008
June 30, 2008
September 30, 2008
December 31, 2008
Quarterly Dividend
Per Share
0.200
$
0.200
$
0.200
$
0.200
$
Annual Dividend
Per Share
0.800
$
0.800
$
0.800
$
0.800
$
Date dividends were paid
April 14, 2008
July 14, 2008
October 10, 2008
January 12, 2009
On February 5, 2008, our Board of Directors renewed its authorization to repurchase up to $150.0 million of the Class A
Common Stock on the open market or through private transactions. During 2008, we repurchased approximately 6.7 million
shares of Class A common Stock for approximately $29.8 million on the open market, including transaction costs.
9. DERIVATIVE INSTRUMENTS:
We enter into derivative instruments primarily to reduce the impact of changing interest rates on our floating rate debt and to
reduce the impact of changing fair market values on our fixed rate debt.
In accordance with FAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended (FAS 133), our losses resulting
from prior to 2006 terminations of fixed to floating interest rate agreements were reflected as a discount on our fixed rate debt
and were being amortized to interest expense through December 15, 2007, the original expiration date of the terminated swap
agreements. For the years ended December 31, 2007 and 2006, amortization of the discount of $0.4 million and $0.5 million,
respectively, was recorded as interest expense.
On April 20, 2006, we terminated two of our derivative instruments with a cash payment of $3.8 million, the aggregate fair
value of the derivative liabilities on that date. These swap agreements were accounted for as fair value hedges in accordance with
FAS 133 and changes in their fair market values were reflected as adjustments to the carrying value of the underlying debt that
was being hedged. Therefore, on the termination date, the carrying value of the underlying debt was adjusted to reflect the $3.8
million payment and that amount is being treated as a discount on the underlying debt that was being hedged and is being
amortized over its remaining life, in accordance with FAS 133. Amortization of the discount of $0.2 million, $0.4 million and $0.4
million was recorded as interest expense for the years ended December 31, 2008, 2007 and 2006, respectively.
On June 5, 2006, two of our derivative instruments expired. These expired swap agreements did not qualify for hedge
accounting treatment under FAS 133 and, therefore, the changes in their fair market values were reflected in historical earnings as
an unrealized gain from derivative instruments through the expiration date. For the year ended December 31, 2006, we recorded
an unrealized gain of $2.9 million.
As of January 1, 2008, we had two remaining derivative instruments. Both of these instruments were interest rate swap
agreements. One of these swap agreements, with a notional amount of $180.0 million and an expiration date of March 15, 2012,
was accounted for as a fair value hedge; therefore, any changes in its fair market value were reflected as an adjustment to the
carrying value of our 8.0% Notes, which was the underlying debt being hedged. The interest we paid on the $180.0 million swap
was variable based on the three-month LIBOR plus 2.28% and the interest we received was fixed at 8.0%. The other interest rate
swap, with a notional amount of $120.0 million and an expiration date of March 15, 2012, was undesignated as a fair value hedge
in 2006 due to a reassignment of the counterparty; therefore, any subsequent changes in the fair market value were reflected as an
adjustment to income. The interest we paid on the $120.0 million swap was variable based on the three-month LIBOR plus
2.35% and the interest we received was fixed at 8.0%.
In February 2008, the counterparty to our swap agreements, elected to change the termination dates of the $180.0 million and
$120.0 million swaps to March 25, 2008 and March 26, 2008, respectively. We received a termination fee of $3.2 million from the
counterparty for the early termination of the $120.0 million swap. After the removal of the related $2.4 million derivative asset
from our consolidated balance sheet, the resulting $0.8 million, along with $0.2 million of interest was recorded in gain from
derivative instruments in the consolidated statements of operations. We received a termination fee of $4.8 million from the
counterparty for the early termination of the $180.0 million swap. In accordance with FAS 133, the carrying value of the
underlying debt was adjusted to reflect the $4.8 million termination fee and that amount is treated as a premium on the underlying
debt that was being hedged and is amortized over its remaining life as a reduction to interest expense. The total termination fees
received of $8.0 million are included in the cash flows from financing activities section of the consolidated statement of cash
flows for the year ended December 31, 2008.
2008 Annual Report (cid:121) 53
As of December 31, 2008, we had no derivative instruments other than embedded derivatives related to contingent cash
interest features in our 4.875% Convertible Senior Notes, due 2018 and 3.0% Convertible Senior Notes, due 2027, which had
negligible fair values.
10. INCOME TAXES:
The (benefit) provision for income taxes consisted of the following for the years ended December 31, 2008, 2007 and 2006 (in
thousands):
(Benefit) provision for income taxes - continuing
operations
Provision (benefit) for income taxes - discontinued
operations
Provision for income taxes - sale of discontinued
operations
Current:
Federal
State
Deferred:
Federal
State
2008
2007
2006
$ (116,484)
$
18,800
$
6,589
358
—
$ (116,126)
$
76
(4)
72
(112,046)
(4,152)
(116,198)
$ (116,126)
(270)
489
19,019
(17,819)
(3,005)
(20,824)
34,074
5,769
39,843
19,019
$
$
$
(3,121)
885
4,353
(11,706)
(1,597)
(13,303)
16,321
1,335
17,656
4,353
$
$
$
The following is a reconciliation of federal income taxes at the applicable statutory rate to the recorded provision from
continuing operations:
Federal income tax (benefit) provision at statutory rate
Adjustments-
State income taxes, net of federal effect
Non-deductible expense items
Release of tax reserves
Completion of 1999-2002 IRS audit
Beginning of the year valuation allowance
Change related to reassessment of state apportionment
methodologies
Other
(Benefit) provision for income taxes
2008
(35.0%)
(1.1%)
4.0%
—%
—%
—%
—%
(0.5%)
(32.6%)
2007
35.0%
5.6%
2.6%
(6.3%)
—%
3.1%
5.3%
2.6%
47.9%
2006
35.0%
2.0%
1.6%
(45.3%)
9.2%
15.1%
—%
(5.6%)
12.0%
54 (cid:121) Sinclair Broadcast Group
Temporary differences between the financial reporting carrying amounts and the tax basis of assets and liabilities give rise to
deferred taxes. Total deferred tax assets and deferred tax liabilities as of December 31, 2008 and 2007 were as follows (in
thousands):
Current and Long-Term Deferred Tax Assets:
Net operating losses
FCC licenses
Intangibles
Other
Valuation allowance for deferred tax assets
Total deferred tax assets
Current and Long-Term Deferred Tax Liabilities
FCC license
Intangibles
Fixed assets
Contingent interest obligations
Other
Total deferred tax liabilities
Net tax liabilities
2008
87,048
23,709
13,471
38,273
162,501
(85,518)
76,983
(22,305)
(183,877)
(28,629)
(29,259)
(3,091)
(267,161)
(190,178)
$
$
$
$
2007
86,949
95
4,196
35,433
126,673
(83,433)
43,240
(79,090)
(215,979)
(30,381)
(19,190)
(4,212)
(348,852)
(305,612)
$
$
$
$
Our remaining federal and state net operating losses will expire during various years from 2009 to 2028 and, in certain cases, are
subject to annual limitations under Internal Revenue Code Section 382 or under Treasury Regulation 1.1502-21 and similar state
provisions. The pre-valuation-allowance tax effects of the federal net operating losses were $9.5 million as of both December 31,
2008 and December 31, 2007. The pre-valuation-allowance tax effects of the state net operating losses were $77.5 as of both
December 31, 2008 and December 31, 2007. The above-mentioned tax attributes were recorded in the deferred tax accounts in
the accompanying consolidated balance sheets.
We establish valuation allowances in accordance with the provisions of FAS No. 109, Accounting for Income Taxes. 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 assumptions and judgments that are based on the plans and estimates used to manage our underlying
businesses. A valuation allowance has been provided for deferred tax assets 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.
Although realization is not assured for the remaining deferred tax assets, we believe it is more likely than not that they will be
realized in the future. During the year ended December 31, 2008, we increased our valuation allowances by $2.1 million. The
change to valuation allowance relates to uncertainty in the realizability of certain state deferred tax assets.
During the year ended December 31, 2007, we recorded a deferred tax expense of $2.1 million in continuing operations
primarily related to change in our state tax apportionment factors resulting in an increase in our deferred tax liabilities. We
increased our beginning-of-the-year valuation allowance balances by $1.2 million and $8.3 million during the years ended
December 31, 2007 and 2006, respectively, to reflect a change in judgment with respect to the realizability of certain state tax
attributes.
We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) on January 1, 2007.
The adoption of FIN 48 did not cause a material change to our contingent liability for unrecognized tax benefits. We decreased
the January 1, 2007 balance in accumulated deficit position by $0.6 million to apply the cumulative effect of the FIN 48 adoption.
As of the date of adoption, we had $32.9 million of gross unrecognized tax benefits. Of this total, $17.6 million (net of federal
effect on state tax issues) and $7.8 million (net of federal effect on state tax issues) represent the amounts of unrecognized tax
benefits that, if recognized, would favorably affect our effective tax rates from continuing operations and discontinued operations,
respectively.
As of December 31, 2008, we had $26.1 million of gross unrecognized tax benefits. Of this total, $14.7 million (net of federal
effect on state tax issues) and $6.9 million (net of federal effect on state tax issues) represent the amounts of unrecognized tax
benefits that, if recognized, would favorably affect our effective tax rates from continuing operations and discontinued operations,
respectively. As of December 31, 2007, we had $28.0 million of gross unrecognized tax benefits. Of this total, $15.1 million (net
of federal effect on state tax issues) and $7.1 million (net of federal effect on state tax issues) represent the amounts of
unrecognized tax benefits that, if recognized, would favorably affect our effective tax rates from continuing operations and
discontinued operations, respectively.
2008 Annual Report (cid:121) 55
The following table summarizes the activity related to our accrued unrecognized tax benefits (in thousands):
Balance at January 1,
Reduction related to prior years tax position
Increases related to current year tax positions
Reductions related to settlements with taxing
authorities
Reductions related to expiration of the applicable
statute of limitations
Balance at December 31,
2008
27,972
$
(1,017)
167
(501)
(533)
26,088
$
2007
32,913
$
(649)
600
(683)
(4,209)
27,972
$
In addition, we recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. We
recognized $1.4 million and $0.4 million of income tax expense for interest related to uncertain tax positions for the years ended
December 31, 2008 and 2007, respectively.
Management periodically performs a comprehensive review of our tax positions and accrues amounts for tax contingencies.
Based on these reviews, the status of on-going audits and the expiration of applicable statute of limitations, these accruals are
adjusted as necessary. The resolution of audits is unpredictable and could result in tax liabilities that are significantly higher or
lower than for what we have provided. Amounts accrued for these tax matters are included in the table above and long-term
liabilities in our consolidated balance sheets. We believe that adequate accruals have been provided for all years.
We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. All of our 2005 and subsequent
federal and state tax returns remain subject to examination by various tax authorities. Some of our pre-2005 federal and state tax
returns may also be subject to examination. In addition, our 2006 and 2007 federal tax returns are currently under audit, and
several of our subsidiaries are currently under state examinations for various years. We do not anticipate the resolution of these
matters will result in a material change to our consolidated financial statements. In addition, it is reasonably possible that various
statutes of limitations could expire by December 31, 2009. We do not expect such expirations, if any, would significantly change
our unrecognized tax benefits over the next twelve months.
During 2007, the statute of limitations expired for certain state income tax returns for 1999 through 2003. As a result, we
released $4.9 million of discrete tax and related interest reserves, of which $3.9 million and $1.2 million were recorded as a
reduction of income tax provision for continuing operations and discontinued operations, respectively. During 2006, the statute
of limitations expired for the federal income tax returns for 1999 through 2002. As a result, we released $39.9 million of discrete
tax and related interest reserves, of which $14.4 million was recorded as a reduction to goodwill, $0.2 million reduced other
identifiable intangible assets and $25.3 million was recorded as a reduction of our income tax provision for continuing operations.
We have adjusted goodwill and other identifiable intangibles to the extent the statute of limitations expired for the exposures
related to items on which reserves were recorded in purchase accounting at the time of the related acquisitions. In addition,
during 2006 we received a net refund of approximately $4.3 million related to the above mentioned tax years which resulted in a
reduction of goodwill and deferred tax assets of $8.3 million and $0.8 million, respectively, and an increase in income tax
provision for continuing operations of $4.8 million.
We recognized a $0.3 million net tax provision, $0.5 million net tax benefit and $3.5 million net tax benefit for the years ended
December 31, 2008, 2007 and 2006, respectively, primarily attributable to the net adjustment of certain tax contingencies
regarding tax returns related to discontinued operations.
11. 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 preliminary stages and no judgments or decisions have been rendered by hearing boards or courts in connection with such
actions. After reviewing developments to date with legal counsel, our management is of the opinion that the outcome of our
pending and threatened matters will not have a material adverse effect on our consolidated balance sheets, consolidated
statements of operations or consolidated statements of cash flows.
56 (cid:121) Sinclair Broadcast Group
FCC License Renewals
In 2004, we filed with the FCC an application for the license renewal of WBFF-TV in Baltimore, Maryland. Subsequently, an
individual named Richard D’Amato filed a petition to deny the application. In 2004, we also filed with the FCC applications for
the license renewal of television stations: 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 and WMMP-TV, Charleston, South Carolina. An organization calling itself “Free Press” filed a petition to deny the
renewal applications of these stations and also the renewal applications of two other stations in those markets, which we program
pursuant to LMAs: WTAT-TV, Charleston, South Carolina and WMYA-TV (formerly WBSC-TV), Anderson, South Carolina.
Several individuals and an organization named “Sinclair Media Watch” also filed informal objections to the license renewal
applications of WLOS-TV and WMYA-TV, raising essentially the same arguments presented in the Free Press petition. The FCC
is currently in the process of considering these renewal applications and we believe the objections have no merit.
On August 1, 2005, we filed applications with the FCC requesting renewal of the broadcast licenses for WICS-TV and WICD-
TV in Springfield/Champaign, Illinois. Subsequently, various viewers filed informal objections requesting that the FCC deny
these renewal applications. On September 30, 2005, we filed an application with the FCC for the renewal of the broadcast license
for KGAN-TV in Cedar Rapids, Iowa. On December 28, 2005, an organization calling itself “Iowans for Better Local
Television” filed a petition to deny that application. The FCC is currently in the process of considering these renewal applications
and we believe the objections and petitions requesting denial have no merit.
On August 1, 2005, we filed applications with the FCC requesting renewal of the broadcast licenses for WCGV-TV and
WVTV-TV in Milwaukee, Wisconsin. On November 1, 2005, the Milwaukee Public Interest Media Coalition filed a petition to
deny these renewal applications. On June 13, 2007, the Video Division of the FCC denied the petition to deny, and subsequently,
the Milwaukee Public Interest Media Coalition filed a petition for reconsideration of that decision, which we opposed. In July
2008, the Video Division granted the renewal application of WVTV-TV and separately denied the Milwaukee Public Interest
Media Coalition’s petition for reconsideration. On August 11, 2008, the Milwaukee Public Interest Media Coalition filed another
petition for reconsideration of the decision, which we opposed. The petition for reconsideration is currently pending.
On February 27, 2006, James Pennino purportedly filed a petition to deny the license renewal application of WUCW-TV in
Minneapolis, Minnesota. Despite not having found any official record of the filing, we opposed the petition and the renewal
application is currently pending.
On October 14, 2008, the FCC issued a letter admonishing WPMY-TV in Pittsburg, Pennsylvania for broadcasting an episode
of a children’s program provided by the WB Network that contained a commercial in which the image of the program’s main
character was visible, in violation of the FCC’s children’s programming regulations. The station’s renewal application remains
pending.
Under FCC rules, the licensee of a station has continuing authority to operate a station for which it has a pending renewal
application until the FCC takes final action on that application.
Other FCC Adjudicatory Proceedings
On July 21, 2005, we filed with the FCC an application to acquire the license and non-license television broadcast assets of
WNAB-TV in Nashville, Tennessee. The Rainbow/PUSH Coalition (Rainbow/PUSH) filed a petition to deny that application
and also requested that the FCC initiate a hearing to investigate whether WNAB-TV was improperly operated with WZTV-TV
and WUXP-TV, two of our stations located in the same market as WNAB-TV. The FCC is currently in the process of
considering the transfer of the broadcast license and we believe the Rainbow/PUSH petition has no merit.
On October 12, 2004, the FCC issued a Notice of Apparent Liability for Forfeiture (NAL) in the amount of $7,000 per station
to virtually every FOX station, including the 15 FOX affiliates presently licensed to us and the four FOX affiliates programmed
by us and one FOX affiliate we sold in 2005. The NAL alleged that the stations broadcast indecent material contained in an
episode of a FOX network program that aired on April 7, 2003. We, as well as other parties including the FOX network, filed
oppositions to the NAL. On February 22, 2008, the FCC released an order assessing a $7,000 per station forfeiture against 13
FOX stations, including KDSM-TV in Des Moines, Iowa, WZTV-TV in Nashville, Tennessee and WVAH-TV in Charleston,
West Virginia, which we program pursuant to a Local Marketing Agreement (LMA). We did not pay the forfeiture for our
stations. On March 24, 2008, we joined the FOX network and other FOX stations, in filing a petition for reconsideration of the
forfeiture order. On April 4, 2008, the FCC returned the petition without consideration based on the alleged failure to comply
with a procedural rule. On April 21, 2008, we joined the FOX network and other FOX affiliates in seeking reconsideration of the
FCC’s April 4, 2008 decision to return the petition for reconsideration and that proceeding is still pending. On April 4, 2008, the
Department of Justice (DOJ), on behalf of the FCC, sued several of the stations that had not paid the forfeiture amounts assessed
by the FCC, including the two stations we own and WVAH-TV. Our stations and WVAH-TV paid the forfeiture assessments in
2008 Annual Report (cid:121) 57
April 2008. The proceedings initiated by the DOJ have been dismissed. The FOX network has agreed to indemnify its affiliates
for the full amount of the forfeiture assessment paid.
On March 15, 2006, the FCC issued an NAL in the amount of $32,500 per station to a number of CBS affiliated and owned
and operated stations, including KGAN-TV in Cedar Rapids, Iowa. The NAL alleged that the stations broadcast indecent
material contained in an episode of “Without a Trace,” a CBS network program that aired on December 31, 2004 at 9:00 p.m.
CBS opposed the NAL but has not agreed to indemnify its affiliates for the full amount of this liability, if any. We cannot predict
the outcome of this proceeding or the effect of any adverse outcome on the station’s license renewal application.
On August 11, 2006, the FCC sent a letter to us requesting information regarding the broadcast of video news releases, by
WBFF-TV in Baltimore, Maryland, KOKH-TV in Oklahoma City, Oklahoma, WLFL-TV in Raleigh, North Carolina, WPGH-TV
in Pittsburgh, Pennsylvania, WSYX-TV in Columbus, Ohio, WVTV-TV in Milwaukee, Wisconsin and KGAN-TV in Cedar
Rapids, Iowa, without proper sponsorship identification in alleged violation of federal law and the FCC’s rules. We denied that
the stations violated federal law or the FCC’s rules. The FCC’s inquiry proceeding is currently pending.
On November 7, 2006, the FCC sent a letter to us requesting information regarding the broadcast of certain programs, by
forty-one stations licensed to us and three stations previously licensed to us, without proper sponsorship identification in alleged
violation of federal law and the FCC’s rules. We denied that the stations violated federal law or the FCC’s rules. On July 23,
2007, the FCC dismissed the complaints and closed its investigation with respect to thirty-five of the stations. On October 18,
2007, the FCC issued a Notice of Apparent Liability for forfeiture, proposing to fine the remaining nine stations, a total of
$36,000 for allegedly violating the sponsorship identification rules. We opposed the FCC’s determination and the proceeding
remains pending.
On April 26, 2007, the FCC sent letters to two of our stations, WUHF-TV in Rochester, New York and WSYX-TV in
Columbus, Ohio, requesting information regarding the broadcast of certain video news releases without proper sponsorship
identification in alleged violation of federal law and the FCC’s rules. We denied that the stations violated federal law or the FCC’s
rules. The inquiry proceeding is currently in process.
On May 1, 2007, the FCC sent a letter to WRLH-TV in Richmond, Virginia, requesting information regarding the alleged
broadcast of indecent material during an advertisement. We denied that the station broadcast indecent material. The inquiry
proceeding is currently in process.
On February 19, 2008, the FCC issued a forfeiture order in the amount of $27,500 per station to a number of ABC affiliated
and owned and operated stations, including KDNL-TV in St. Louis, Missouri and WEAR-TV in Mobile, Alabama. The order
concluded that the stations broadcast indecent material contained in a February 25, 2003 episode of the ABC program “NYPD
Blue,” that aired at 9:00pm. Under the order, the affected stations had until February 21, 2008 to pay the forfeiture amount and
until April 21, 2008 to appeal the FCC’s decision in a federal appellate court. ABC paid the forfeiture amount on our behalf.
Operating Leases
We have entered into operating leases for certain property and equipment under terms ranging from one to 15 years. The rent
expense from continuing operations under these leases, as well as certain leases under month-to-month arrangements, for the
years ended December 31, 2008, 2007 and 2006 was approximately $4.3 million, $5.0 million and $5.4 million, respectively.
Future minimum payments under the leases are as follows (in thousands):
2009
2010
2011
2012
2013
2014 and thereafter
$
$
3,482
2,664
2,109
1,904
1,700
5,303
17,162
As of December 31, 2008 and 2007, we had outstanding letters of credit of $0.4 million, under our revolving credit facility. The
letters of credit for the years ended December 31, 2008 and 2007 act as support of the purchase of the license assets of WNYS-
TV in Syracuse, New York, pursuant to an Asset Purchase Agreement and G1440’s guarantee of lease payments pursuant to the
terms and conditions of their office lease agreement.
58 (cid:121) Sinclair Broadcast Group
Network Affiliation Agreements
Our 58 television stations that we own and operate, or to which we provide programming services or sales services, are
affiliated as follows: FOX (20 stations); MyNetworkTV (17 stations); ABC (9 stations); The CW (9 stations); CBS (2 stations) and
NBC (1 station). The networks produce and distribute programming in exchange for each station’s commitment to air the
programming at specified times and for commercial announcement time during programming. The amount and quality of
programming provided by each network varies.
The non-renewal or termination of any of our other network affiliation agreements would prevent us from being able to carry
programming of the relevant network. This loss of programming would require us to obtain replacement programming, which
may involve higher costs and which may not be as attractive to our target audiences, resulting in reduced revenues. Upon the
termination of any of the above affiliation agreements, we would be required to establish a new affiliation agreement with another
network or operate as an independent station. At such time, the remaining value of the network affiliation asset could become
impaired and we would be required to write down the value of the asset to its estimated fair value. As of December 31, 2008, the
net book value of network affiliation assets is $135.5 million.
As of December 31, 2008, we had 20 MyNetworkTV affiliates, including 3 affiliates operating on a digital sub-channel only.
On February 9, 2009, MyNetworkTV announced that it was moving to a new program services model pursuant to which it would
obtain for its affiliates popular programming that has previously aired on other networks, rather than continuing to create first-
run programming as is generally the case in a typical network model. MyNetworkTV has advised us that in connection with this
change to what it refers to as a "hybrid" model it believes it has the right to terminate all of its existing affiliate agreements and
negotiate new agreements for this programming service with the television stations that have been MyNetworkTV affiliates. On
March 3, 2009, we received notice from MyNetworkTV claiming that they cease to exist as a network and therefore, are
terminating each of our affiliation agreements effective September 26, 2009. As of December 31, 2008, the net book value of
network affiliation assets related to MyNetworkTV is $3.8 million.
Changes in the Rules on Television Ownership and Local Marketing Agreements
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 ultimate editorial and other controls being exercised by the
latter licensee. 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 and decided to attribute LMAs for ownership purpose. It
grandfathered LMAs that were entered into prior to November 5, 1996, permitting 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. Subsequently, the FCC
invited comments as to whether, instead of beginning the review of the grandfathered LMAs in 2004, it should do so in 2006.
The FCC did not initiate any review of grandfathered LMAs in 2004 or as part of its 2006 quadrennial review. We do not know
when, or if, the FCC will conduct any such review of grandfathered LMAs. With respect to LMAs executed on or after
November 5, 1996, the FCC required that parties come into compliance with the 1999 local television ownership rule by August
6, 2001. We challenged the 1999 local television ownership rule in the U.S. Court of Appeals for the D.C. Circuit, and that court
stayed the enforcement of the divestiture of the post-November 5, 1996 LMAs. In 2002, the D.C. Circuit ruled in Sinclair
Broadcast Group, Inc. v. F.C.C., 284 F.3d 114 (D.C. Cir. 2002) that the 1999 local television ownership rule was arbitrary and
capricious and remanded the rule to the Commission.
In 2003, the FCC revised its ownership rules, including the local television ownership rule. The effective date of the 2003
ownership rules was stayed by the U. S. Court of Appeals for the Third Circuit and the rules were remanded to the FCC. Because
the effective date of the 2003 ownership rules had been stayed and, in connection with the adoption of those rules, the FCC
concluded the 1999 rules could not be justified as necessary in the public interest, we took the position that an issue exists
regarding whether the FCC has any current legal right to enforce any rules prohibiting the acquisition of television stations.
Several parties, including us, filed petitions with the Supreme Court of the United States seeking review of the Third Circuit
decision, but the Supreme Court denied the petitions in June 2005.
2008 Annual Report (cid:121) 59
In July 2006, as part of the FCC’s statutorily required quadrennial review of its media ownership rules, the FCC released a
Further Notice of Proposed Rule Making seeking comment on how to address the issues raised by the Third Circuit’s decision,
among other things, remanding the local television ownership rule. In January 2008, the FCC released an order containing its
current ownership rules, which re-adopted its 1999 local television ownership rule. On February 29, 2008, several parties,
including us, separately filed petitions for review in a number of federal appellate courts challenging the FCC’s current ownership
rules. By lottery, those petitions were consolidated in the U.S. Court of Appeals for the Ninth Circuit. In July 2008, several
parties, including us, filed motions to transfer the consolidated proceedings to the U.S. Court of Appeals for the D.C. Circuit and
other parties requested transfer to the U.S. Court of Appeals for the Third Circuit. In November 2008, the Ninth Circuit
transferred the consolidated proceedings to the Third Circuit and the proceedings are pending.
On November 15, 1999, we entered into a plan and agreement of merger to acquire through merger WMYA-TV (formerly
WBSC-TV) in Anderson, South Carolina from Cunningham Broadcasting Corporation (Cunningham), but that transaction was
denied by the FCC. In light of the change in the 2003 ownership rules, we filed a petition for reconsideration with the FCC and
amended our application to acquire the license of WMYA-TV. We also filed applications in November 2003 to acquire the
license assets of the remaining five Cunningham stations: WRGT-TV, Dayton, Ohio; WTAT-TV, Charleston, South Carolina;
WVAH-TV, Charleston, West Virginia; WNUV-TV, Baltimore, Maryland; and WTTE-TV, Columbus, Ohio. Rainbow/PUSH
filed a petition to deny these five applications and to revoke all of our licenses. The FCC dismissed our applications in light of the
stay of the 2003 ownership rules and also denied the Rainbow/PUSH petition. Rainbow/PUSH filed a petition for
reconsideration of that denial and we filed an application for review of the dismissal. In 2005, we filed a petition with the U. S.
Court of Appeals for the D. C. Circuit requesting that the Court direct the FCC to take final action on our applications, but that
petition was dismissed. On January 6, 2006, we submitted a motion to the FCC requesting that it take final action on our
applications. The applications and the associated petition to deny are still pending. We believe the Rainbow/PUSH petition is
without merit. On February 8, 2008, we filed a petition with the U.S. Court of Appeals for the D.C. Circuit requesting that the
Court direct the FCC to act on our assignment applications and cease its use of the 1999 local television ownership rule that it re-
adopted as the permanent rule in 2008. In July 2008, the D.C. Circuit transferred the case to the U.S. Court of Appeals for the
Ninth Circuit, and we filed a petition with the D.C. Circuit challenging that decision, which was denied. We also filed with the
Ninth Circuit a motion to transfer that case back to the D.C. Circuit. In November 2008, the Ninth Circuit consolidated our
petition seeking final FCC action on our applications with the petitions challenging the FCC’s current ownership rules and
transferred the consolidated proceedings to the Third Circuit. In December 2008, we agreed voluntarily with the parties to our
proceeding to dismiss our petition seeking final FCC action on our applications.
If we are required to terminate or modify our LMAs, our business could be affected in the following ways:
Losses on investments. As part of our LMA arrangements, we own the non-license assets used by the stations with which
we have LMAs. If certain of these LMA arrangements are no longer permitted, we would 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 that we will recoup our original investments.
Termination penalties. If the FCC requires us to modify or terminate existing LMAs before the terms of the LMAs expire,
or under certain circumstances, we elect not to extend the terms of the LMAs, we may be forced to pay termination
penalties under the terms of some of our LMAs. Any such termination penalty could be material.
60 (cid:121) Sinclair Broadcast Group
12. RELATED PERSON TRANSACTIONS:
David, Frederick, Duncan and Robert Smith (collectively, the controlling shareholders) are brothers and hold substantially all of
the Class B Common Stock. During each of the periods presented in the accompanying consolidated financial statements, we
engaged in transactions with them, their immediate family members and/or entities in which they have substantial interests
(collectively, affiliates).
Notes and capital leases payable to affiliates consisted of the following as of December 31, 2008 and 2007 (in thousands):
Capital lease for building, interest at 7.93%
Capital lease for building, interest at 6.62%
Capital leases for broadcasting tower facilities, interest at 9.0%
Capital leases for broadcasting tower facilities, interest at 10.5%
Liability payable to affiliate for local marketing agreement, interest at 6.20%
Liability payable to affiliate for local marketing agreement, interest at 7.69%
Capital leases for building and tower, interest at 8.25%
Less: Current portion
2008
2,003
10,673
4,319
8,225
—
7,129
1,357
33,706
(2,845)
30,861
$
$
2007
2,605
1,941
4,656
8,194
1,666
6,603
1,348
27,013
(3,839)
23,174
$
$
Notes and capital leases payable to affiliates as of December 31, 2008 mature as follows (in thousands):
2009
2010
2011
2012
2013
2014 and thereafter
Total minimum payments due
Less: Amount representing interest
$
$
6,025
5,952
5,722
5,292
5,400
29,306
57,697
(23,991)
33,706
Concurrently with our initial public offering, we acquired options from trusts established by Carolyn C. Smith, a parent of our
controlling shareholders, for the benefit of her grandchildren that will grant us the right to acquire, subject to applicable FCC
rules and regulations, 100% of the capital stock of Cunningham Broadcasting Corporation (Cunningham). The Cunningham
option exercise price is based on a formula that provides a 10% annual return to Cunningham. Cunningham is the owner-
operator and FCC licensee of: WNUV-TV, Baltimore, Maryland; WRGT-TV, Dayton, Ohio; WVAH-TV, Charleston, West
Virginia; WTAT-TV, Charleston, South Carolina; WMYA-TV (formerly WBSC-TV), Anderson, South Carolina; and WTTE-TV,
Columbus, Ohio. The financial statements for Cunningham are included in our consolidated financial statements for all periods
presented.
In addition to the option agreement, we entered into five-year LMA agreements (with five-year renewal terms at our option)
with Cunningham pursuant to which we provide programming to Cunningham for airing on WNUV-TV, WRGT-TV, WVAH-
TV, WTAT-TV, WMYA-TV and WTTE-TV. In November 2008, we amended the terms of the LMA and option agreements.
The amendment includes a monthly payment of $50,000. A portion of the monthly payment is allocated as a reduction to the
Cunningham option exercise price. In addition, the amendment includes an annual payment to Cunningham based on a
percentage of each station’s broadcast cash flow. During the years ended December 31, 2008, 2007 and 2006, we made payments
of $8.0 million, $7.8 million and $11.3 million, respectively, to Cunningham under these LMA agreements.
Cunningham accounts for income taxes and deferred taxes using the separate return method and those amounts are
consolidated into our income taxes and deferred taxes, which are also calculated using the separate return method. For the years
ended December 31, 2008 and 2006, Cunningham’s benefit for income taxes was $1.3 million and $0.2 million, respectively. For
the year ended December 31, 2007, Cunningham’s provision for income taxes was $1.1 million. As of December 31, 2008 and
2007, Cunningham’s deferred tax liabilities were $0.9 million and $5.2 million, respectively. As of December 31, 2007,
Cunningham’s deferred tax assets were $1.5 million, there were no deferred tax assets as of the year ended December 31, 2008.
From time to time, we charter aircraft owned by certain controlling shareholders. We incurred $0.1 million during the year
ended December 31, 2008 and less than $0.1 million related to these arrangements during each of the years ended December 31,
2007 and 2006, respectively.
2008 Annual Report (cid:121) 61
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 $4.8 million, $5.2 million and $5.4 million for the years ended December 31, 2008, 2007 and
2006, respectively.
In January 1999, we entered into a LMA with Bay Television, Inc. (Bay TV), which owns the television station WTTA-TV in
Tampa, Florida. Our controlling shareholders own a substantial portion of the equity of Bay TV. The LMA provides that we
deliver television programming to Bay TV, which broadcasts the programming in return for a monthly fee to Bay TV of $143,500.
We must also make an annual payment equal to 50% of the adjusted annual broadcast cash flow of the station (as defined in the
LMA) that is in excess of $1.7 million. The additional payment is reduced by 50% of the adjusted broadcast cash flow of the
station that was below zero in prior calendar years until that amount is recaptured. Additional payments of $1.5 million, $1.8
million and $0.9 million were made during the years ended December 31, 2008, 2007 and 2006, respectively, related to the excess
adjusted broadcast cash flow for the prior years. Lease payments made to Bay TV were $1.7 million for each of the years ended
December 31, 2008, 2007 and 2006. We received $0.5 million for each of the years ended December 31, 2008, 2007 and 2006
from Bay TV for certain equipment leases.
We sold advertising time to and purchased vehicles and related vehicle services from Atlantic Automotive Corporation
(Atlantic Automotive), a holding company which owns automobile dealerships and a 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. Our stations in Baltimore, Maryland and Norfolk, Virginia received payments for advertising time totaling $0.6
million, $0.6 million and $0.3 million during the years ended December 31, 2008, 2007 and 2006, respectively. We paid $0.9
million, $1.1 million and $1.1 million for vehicles and related vehicle services from Atlantic Automotive during the years ended
December 31, 2008, 2007 and 2006, respectively.
On July 1, 2005, Sinclair Communications, LLC (Sinclair Communications), a subsidiary of Sinclair Broadcast Group, Inc.
(SBG), and Cunningham Communications, Inc. (Cunningham Communications) entered into Amendment No. 2 to an original
Lease Agreement (the Lease), dated July 1, 1987, as amended July 1, 1997. Amendment No. 2 became effective July 1, 2005 and
expired on June 30, 2007. Cunningham Communications is owned by our controlling shareholders. The Lease was amended to
increase the monthly rent by $25,357 for a total current monthly rent of $82,860. In addition, on July 1, 2005, Sinclair
Communications made a lump sum payment of $565,800 to Cunningham Communications as a requirement upon execution of
Amendment No. 2. The monthly rent increased in July of 2006 to $86,984. On October 11, 2007, Sinclair Communications and
Cunningham Communications entered into Amendment No. 3, effective July 1, 2007 and expiring on June 30, 2022.
Amendment No. 3 allows Sinclair Communications to lease tower and building space utilized for digital television transmission.
The monthly rent in July of 2007 was $60,976 and increased in July of 2008 to $62,805.
Basil A. Thomas, a member of our Board of Directors, is the father of 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. Basil A. Thomas also serves
as a member of the board of directors of Thomas & Libowitz. We paid fees of $1.0 million, $0.6 million and $0.5 million to
Thomas & Libowitz during 2008, 2007 and 2006, respectively. During 2007, Steven A. Thomas received, in lieu of cash payment
for certain legal fees, an ownership percentage in two of our real estate investments and one of our private equity investments.
The fair value of the three ownership interests was $0.1 million as of the dates the investments were made.
In August 1999, we made an investment in Allegiance Capital Limited Partnership (Allegiance), a small business investment
company. Our controlling shareholders and our Chief Financial Officer and Executive Vice President are also investors in
Allegiance, along with Allegiance Capital Management Corporation (ACMC), the general partner. ACMC controls all decision
making, investing and management of operations of Allegiance in exchange for a monthly management fee based on actual
expenses incurred which currently averages approximately less than $0.1 million and which is paid by the limited partners. We did
not make any contributions into Allegiance during 2008 or 2007. Allegiance did not make any distributions to us during 2008.
Allegiance distributed $2.0 million to us during 2007. As of December 31, 2008, our remaining unfunded commitment was $5.3
million.
In September 2008, AP Management Company, the management company of Patriot Capital, entered into a five year office
lease agreement with Skylar Development LLC (Skylar), a subsidiary of one of our real estate ventures. One of our controlling
shareholders, Frederick Smith, holds an investment in Patriot Capital.
62 (cid:121) Sinclair Broadcast Group
13. DISCONTINUED OPERATIONS:
In accordance with FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we reported the financial position and
results of operations for WGGB-TV in Springfield, Massachusetts and WEMT-TV in Tri-Cities, Tennessee, as assets and
liabilities held for sale in the accompanying consolidated balance sheets and consolidated statements of operations. Discontinued
operations have not been segregated in the consolidated statements of cash flows and, therefore, amounts for certain captions will
not agree with the accompanying consolidated balance sheets and consolidated statements of operations. The operating results of
WGGB-TV and WEMT-TV are not included in our consolidated results from continuing operations for the years ended
December 31, 2008, 2007 and 2006. In accordance with EITF No. 87-24, Allocation of Interest to Discontinued Operations, no interest
expense was allocated for the year ended December 31, 2008, 2007 and 2006. Since we owned the rights to collect the amounts
due to us through the closing dates of the non-license television broadcast assets, accounts receivable related to all of our
discontinued operations is included in the accompanying consolidated balance sheets, net of allowance for doubtful accounts.
For the year ended December 31, 2007, accounts receivable related to discontinued operations was $0.1 million (net of allowance
of less than $0.1 million). For the year ended December 31, 2008, there were no accounts receivable amounts related to
discontinued operations
WGGB Disposition
On July 31, 2007, we entered into an agreement to sell WGGB-TV, including the FCC license, to an unrelated third party for
$21.2 million in cash. The FCC approved the transfer of the broadcast license and the sale was completed on November 1, 2007.
We recorded $1.1 million, net of $0.5 million tax provision, as gain from discontinued operations in our consolidated statements
of operations for the year ended December 31, 2007. The net cash proceeds were used in the normal course of operations and
for capital expenditures.
WEMT Disposition
On May 16, 2005, we entered into an agreement to sell WEMT-TV, including the FCC license to an unrelated third party for
$7.0 million. On the same day, we completed the sale of the WEMT-TV non-license television broadcast assets for $5.6 million
of the total $7.0 million sale price and recorded a deferred gain of $3.2 million. The FCC approved the transfer of the broadcast
license to the unrelated third party and we completed the sale of the license assets, including the broadcast license, on February 8,
2006 for a cash price of approximately $1.4 million. We recorded $1.8 million, net of $0.9 million in taxes, as gain from
discontinued operations in our consolidated statements of operations for the year ended December 31, 2006. The gain is
comprised of the previously deferred gain of $2.1 million and the loss of $0.3 million from the sale of the license assets, net of
taxes, respectively. The net cash proceeds were used in the normal course of operations and for capital expenditures.
14. (LOSS) EARNINGS PER SHARE:
The following table reconciles (loss) income (numerator) and shares (denominator) used in our computations of (loss) earnings
per share for the years ended December 31, 2008, 2007 and 2006 (in thousands):
2008
2007
2006
(Loss) Income (Numerator)
(Loss) income from continuing operations and
numerator for diluted earnings per common share
from continuing operations
(Loss) income from discontinued operations,
including gain on sale of broadcast assets related to
discontinued operations, net of taxes
Numerator for diluted (loss) earnings per common
$
(241,350)
$
20,415
$
48,502
(141)
2,284
5,475
share
$
(241,491)
$
22,699
$
53,977
Shares (Denominator)
Weighted-average common shares outstanding
Dilutive effect of outstanding stock options and
restricted stock
Weighted average common and common equivalent
shares outstanding
85,652
—
85,652
86,910
105
87,015
85,680
14
85,694
2008 Annual Report (cid:121) 63
We apply the treasury stock method to measure the dilutive effect of our outstanding stock options and restricted stock awards
and included the respective common share equivalents in the denominator of the diluted EPS computation for the years ended
December 31, 2007 and 2006. For the year ended December 31, 2008, our outstanding stock options and restricted stock awards
were anti-dilutive; therefore, they were not included in the computation of diluted EPS. For the years ended December 31, 2008,
2007 and 2006, our 6.0% Convertible Debentures, due 2012 and 4.875% Convertible Senior Notes, due 2018, were anti-dilutive;
therefore, they were not included in the computation of diluted EPS. For the years ended December 31, 2008 and 2007, our
3.0% Convertible Senior Notes, due 2027 which were issued in May 2007 were excluded from our diluted EPS computation since
our average stock price was less than the conversion price. For the years ended December 31, 2008 and 2007, the outstanding
SARs were excluded from our diluted EPS computation since our average stock price was less than the grant date base value of
the SARs. No SARs were outstanding during 2006. As of the filing date, in first quarter 2009, we repurchased 0.2 million shares
of Class A Common Stock for $0.2 million, including transaction costs.
15. SEGMENT DATA:
During 2008, we reevaluated our organization and the nature of our business activities relevant to the divisions of our company
and concluded that our view of our internal structure changed in a manner that caused us to disclose separately, our broadcast and
other operating divisions activities. We determined that we have two reportable operating segments, “broadcast” and “other
operating divisions” that are disclosed separately from our corporate activities. We have restated prior period information to
reflect our new segments. We measure segment performance based on operating income (loss). Our broadcast segment includes
stations in 35 markets located predominately in the eastern, mid-western and southern United States. Currently, our other
operating divisions segment primarily earns revenues from information technology staffing, consulting and software development;
transmitter manufacturing; sign design and fabrication; regional security alarm operating and bulk acquisitions; 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. Corporate is not a reportable segment. We had
approximately $118.1 million and $48.4 million of intercompany loans between the broadcast segment, operating divisions
segment and corporate as of December 31, 2008 and 2007, respectively. We had $9.9 million, $2.9 million and $1.1 million in
intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions segment
and corporate for the years ended December 31, 2008, 2007 and 2006, respectively. All other intercompany transactions are
immaterial.
Financial information for our operating segments is included in the following tables for the years ended December 31, 2008,
2007 and 2006 (in thousands):
For the year ended December 31, 2008
Revenue
Depreciation of property and equipment
Amortization of definite-lived intangible
assets and other assets
Amortization of program contract costs and
net realizable value adjustments
Impairment of goodwill and broadcast
licenses
General and administrative overhead
expenses
Interest expense
Operating loss
Loss from equity and cost method
investments
Goodwill
Assets
Capital expenditures
$
Broadcast
699,040
41,947
Other
Operating
Divisions
55,434
844
$
$
Corporate
—
1,974
$
Consolidated
754,474
44,765
17,063
84,422
462,261
7,288
43,617
(258,889)
—
820,800
1,582,325
22,830
1,277
—
1,626
1,274
264
(9,456)
(2,703)
3,388
206,759
2,282
—
—
—
17,723
33,837
(20,114)
—
—
27,593
57
18,340
84,422
463,887
26,285
77,718
(288,459)
(2,703)
824,188
1,816,677
25,169
64 (cid:121) Sinclair Broadcast Group
For the year ended December 31, 2007
Revenue
Depreciation of property and equipment
Amortization of definite-lived intangible
assets and other assets
Amortization of program contract costs and
net realizable value adjustments
General and administrative overhead
expenses
Interest expense
Operating income (loss)
Income from equity and cost method
investments
Goodwill
Assets
Capital expenditures
For the year ended December 31, 2006
Revenue
Depreciation of property and equipment
Amortization of definite-lived intangible
assets and other assets
Amortization of program contract costs and
net realizable value adjustments
Impairment of goodwill
General and administrative overhead
expenses
Interest expense
Operating income (loss)
Income from equity and cost method
investments
Goodwill
Assets
Capital expenditures
$
Broadcast
684,433
40,906
Other
Operating
Divisions
33,667
241
$
$
Corporate
—
2,000
$
Consolidated
718,100
43,147
16,870
96,436
6,254
66,636
179,949
—
1,005,641
2,092,846
21,770
725
—
761
532
(1,083)
601
4,953
96,629
1,280
—
—
17,319
28,698
(19,696)
—
—
35,180
176
17,595
96,436
24,334
95,866
159,170
601
1,010,594
2,224,655
23,226
$
Broadcast
681,612
43,131
Other
Operating
Divisions
24,610
79
$
$
Corporate
—
2,109
$
Consolidated
706,222
45,319
17,529
90,551
15,589
7,000
94,660
176,769
—
1,005,642
2,220,547
16,415
—
—
—
—
—
338
6,338
1,626
29,659
138
—
—
—
15,795
20,557
(18,450)
—
—
21,374
370
17,529
90,551
15,589
22,795
115,217
158,657
6,338
1,007,268
2,271,580
16,923
16. FAIR VALUE MEASUREMENTS:
In the first quarter of 2008, we adopted FAS No. 157, Fair Value Measurements for financial assets and liabilities (FAS 157). This
standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not
require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair
value measurements.
FAS 157 discusses 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). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels. 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.
2008 Annual Report (cid:121) 65
The carrying value and fair value of our notes, debentures, program contacts payable and non-cancelable commitments as of
December 31, 2008 and 2007 were as follows (in thousands):
2008
2007
8.0% Notes
6.0% Debentures
4.875% Notes
3.0% Notes
Program contracts payable
Non-cancelable commitments
Total fair value
Carrying Value
$
225,862
119,814
143,519
345,000
172,681
99,274
1,106,150
$
$
Fair Value
170,744
54,061
71,760
186,473
148,392
75,044
706,474
$
Carrying Value
$
265,320
132,112
150,000
345,000
170,193
117,310
$ 1,179,935
$
Fair Value
269,349
136,754
138,375
311,793
148,855
92,387
$ 1,097,513
Our notes and debentures payable are fair valued using Level 1 hierarchy inputs described above. The Bank Credit Agreement,
Cunningham Term Loan and other operating divisions segment debt is not publicly traded on a market; therefore, it is not
practicable for us to estimate their fair values.
Our estimates of program contracts payable and non-cancelable commitments for future program rights were based on future
cash payments discounted at our current borrowing rate using Level 3 inputs described above.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:
Sinclair Television Group, Inc. (STG), a wholly-owned subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary
obligor under our existing Bank Credit Agreement, as amended and the 8.0% Senior Subordinated Notes, due 2012. Our Class A
Common Stock, Class B Common Stock, the 6.0% Convertible Debentures, due 2012, the 4.875% Convertible Senior Notes, due
2018 and the 3.0% Convertible Senior Notes, due 2027 remain obligations or securities of SBG and are not obligations or
securities of STG.
SBG, KDSM, LLC, a wholly-owned subsidiary of SBG, and STG’s wholly-owned subsidiaries (guarantor subsidiaries), have
fully and unconditionally guaranteed all of STG’s obligations. Those guarantees are joint and several. There are certain
contractual restrictions on the ability of SBG, STG or KDSM, LLC to obtain funds from their subsidiaries in the form of
dividends or loans.
The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of
operations and consolidated statements of cash flows of SBG, STG, KDSM, LLC and the guarantor subsidiaries, the direct and
indirect non-guarantor subsidiaries of SBG and the eliminations necessary to arrive at our information on a consolidated basis.
These statements are presented in accordance with the disclosure requirements under Securities and Exchange Commission
Regulation S-X, Rule 3-10.
66 (cid:121) Sinclair Broadcast Group
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2008
(In thousands)
Sinclair
Broadcast
Group, Inc.
Sinclair
Television
Group, Inc.
Guarantor
Subsidiaries
and KDSM,
LLC
Non-
Guarantor
Subsidiaries Eliminations
Sinclair
Consolidated
Cash
Accounts and other receivables
Other current assets
Total current assets
$
—
4,719
741
5,460
$
9,649
135
1,419
11,203
$
227
100,272
68,728
169,227
$
Property and equipment, net
13,676
1,565
234,851
Investment in consolidated subsidiaries
Other long-term assets
Total other long-term assets
573,923
68,834
642,757
976,418
171,238
1,147,656
—
29,632
29,632
Acquired intangible assets
—
1,900
1,111,616
6,594
9,658
6,827
23,079
98,013
—
71,441
71,441
51,207
$
—
(5,009)
(835)
(5,844)
$
16,470
109,775
76,880
203,125
(11,141)
336,964
(1,550,341)
(226,910)
(1,777,251)
—
114,235
114,235
(2,370)
1,162,353
Total assets
$ 661,893
$ 1,162,324
$ 1,545,326
$ 243,740
$ (1,796,606)
$ 1,816,677
Accounts payable and accrued liabilities
Current portion of long-term debt
Other current liabilities
Total current liabilities
$
Long-term debt
Other liabilities
Total liabilities
Common stock
Additional paid-in capital
(Accumulated deficit) retained earnings
Accumulated other comprehensive
income (loss)
Total shareholders’ (deficit) equity
Total liabilities and shareholders’
22,581
3,550
—
26,131
618,385
52,337
696,853
810
588,399
(624,746)
577
(34,960)
$
12,197
26,250
—
38,447
602,027
536
641,010
—
689,503
(166,062)
(2,127)
521,314
$
39,725
2,479
93,372
135,576
67,839
365,708
569,123
10
821,337
156,801
$
57,556
38,469
651
96,676
140,775
4,923
242,374
$
(47,658)
(837)
—
(48,495)
$
84,401
69,911
94,023
248,335
(122,841)
(77,644)
(248,980)
1,306,185
345,860
1,900,380
761
140,693
(136,830)
(771)
(1,651,533)
101,420
(1,945)
976,203
(3,258)
1,366
3,258
(1,547,626)
810
588,399
(669,417)
(3,495)
(83,703)
(deficit) equity
$ 661,893
$ 1,162,324
$ 1,545,326
$ 243,740
$ (1,796,606)
$ 1,816,677
2008 Annual Report (cid:121) 67
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2007
(In thousands)
Sinclair
Broadcast
Group, Inc.
Sinclair
Television
Group, Inc.
Guarantor
Subsidiaries
and KDSM,
LLC
Non-
Guarantor
Subsidiaries Eliminations
Sinclair
Consolidated
Cash
Accounts and other receivables
Other current assets
Total current assets
Property and equipment, net
$
—
3,258
2,005
5,263
5,979
$
14,478
21
6,508
21,007
$
2,599
133,429
60,621
196,649
$
1,462
247,403
Investment in consolidated subsidiaries
Other long-term assets
Total other long-term assets
872,910
48,899
921,809
1,349,054
101,721
1,450,775
—
35,682
35,682
Acquired intangible assets
—
—
1,533,038
3,903
10,969
5,092
19,964
53,777
—
27,519
27,519
62,857
$
—
(3,543)
(724)
(4,267)
$
20,980
144,134
73,502
238,616
(24,070)
284,551
(2,221,964)
(116,790)
(2,338,754)
—
97,031
97,031
8,562
1,604,457
Total assets
$ 933,051
$ 1,473,244
$ 2,012,772
$ 164,117
$ (2,358,529)
$ 2,224,655
Accounts payable and accrued liabilities
Current portion of long-term debt
Other current liabilities
Total current liabilities
$
Long-term debt
Other liabilities
Total liabilities
Common stock
Additional paid-in capital
(Accumulated deficit) retained earnings
Accumulated other comprehensive
(loss) income
Total shareholders’ equity
Total liabilities and shareholders’
21,968
1,462
—
23,430
630,747
11,906
666,083
873
614,155
(348,060)
—
266,968
$
10,039
5,000
—
15,039
583,301
22,307
620,647
—
543,295
310,673
$
46,516
2,798
92,144
141,458
68,969
451,984
662,411
10
1,005,266
345,645
$
52,152
38,022
207
90,381
$
(44,569)
(493)
—
(45,062)
$
86,106
46,789
92,351
225,246
79,782
2,267
172,430
762
88,370
(96,612)
(65,239)
(39,389)
(149,690)
(772)
(1,636,930)
(571,970)
1,297,560
449,075
1,971,881
873
614,156
(360,324)
(1,931)
252,774
(1,371)
852,597
(560)
1,350,361
(833)
(8,313)
833
(2,208,839)
equity
$ 933,051
$ 1,473,244
$ 2,012,772
$ 164,117
$ (2,358,529)
$ 2,224,655
68 (cid:121) Sinclair Broadcast Group
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
(In thousands)
Sinclair
Broadcast
Group, Inc.
Sinclair
Television
Group, Inc.
Guarantor
Subsidiaries
and KDSM,
LLC
Non-
Guarantor
Subsidiaries Eliminations
Sinclair
Consolidated
Net revenue
$
—
$
—
$ 701,455
$
65,970
$
(12,951)
$
754,474
Program and production
Selling, general and administrative
Depreciation, amortization and other
operating expenses
Total operating expenses
—
18,147
1,974
20,121
1,002
6,429
582
8,013
167,043
133,650
614,451
915,144
219
4,631
98,822
103,672
(9,299)
(430)
5,712
(4,017)
158,965
162,427
721,541
1,042,933
Operating loss
(20,121)
(8,013)
(213,689)
(37,702)
(8,934)
(288,459)
Equity (loss) of subsidiaries
Interest income
Interest expense
Other income (expense)
Total other expense
Income tax benefit
(Loss) income from discontinued
operations, net of taxes
Net loss
(188,249)
1,081
(33,837)
21,174
(199,831)
(173,224)
8,892
(34,374)
27,134
(171,572)
—
9
(6,886)
(39,654)
(46,531)
—
1,181
(15,098)
(1,939)
(15,856)
361,473
(10,420)
12,477
885
364,415
—
743
(77,718)
7,600
(69,375)
11,226
5,195
87,127
12,936
—
116,484
(358)
$ (209,084)
—
$ (174,390)
217
$ (172,876)
—
(40,622)
—
$ 355,481
(141)
(241,491)
$
$
2008 Annual Report (cid:121) 69
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
(In thousands)
Sinclair
Broadcast
Group, Inc.
Sinclair
Television
Group, Inc.
Guarantor
Subsidiaries
and KDSM,
LLC
Non-
Guarantor
Subsidiaries Eliminations
Sinclair
Consolidated
Net revenue
$
—
$
—
$ 686,891
$
43,057
$
(11,848)
$
718,100
Program and production
Selling, general and administrative
Depreciation, amortization and other
operating expenses
Total operating expenses
—
17,695
2,000
19,695
1,479
5,707
372
7,558
155,914
137,169
208,806
501,889
Operating (loss) income
(19,695)
(7,558)
185,002
Equity in earnings of subsidiaries
Interest income (loss)
Interest expense
Other income (expense)
Total other income (expense)
Income tax benefit (provision)
Income from discontinued operations,
net of taxes
Gain on disposal of discontinued
operations, net of taxes
Net income (loss)
46,861
1,320
(28,698)
10,343
29,826
86,030
3,341
(57,911)
4,958
36,418
—
42
(6,332)
(39,318)
(45,608)
14,313
20,580
(55,791)
—
—
1,219
—
4,016
36,905
40,921
2,136
—
78
(7,727)
(797)
(8,446)
2,098
—
(8,686)
(227)
(2,220)
(11,133)
148,707
164,360
245,863
558,930
(715)
159,170
(132,891)
(2,553)
4,802
(1,503)
(132,145)
—
—
—
2,228
(95,866)
(26,317)
(119,955)
(18,800)
1,219
—
24,444
$
—
49,440
1,065
85,887
$
$
—
(4,212)
—
(132,860)
$
$
1,065
22,699
$
70 (cid:121) Sinclair Broadcast Group
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(In thousands)
Sinclair
Broadcast
Group, Inc.
Sinclair
Television
Group, Inc.
Guarantor
Subsidiaries
and KDSM,
LLC
Non-
Guarantor
Subsidiaries Eliminations
Sinclair
Consolidated
Net revenue
$
—
$
—
$ 683,969
$
33,806
$
(11,553)
$
706,222
Program and production
Selling, general and administrative
Depreciation, amortization and other
operating expenses
Total operating expenses
—
16,302
2,109
18,411
1,640
5,831
507
7,978
151,096
135,757
214,720
501,573
Operating (loss) income
(18,411)
(7,978)
182,396
Equity in earnings of subsidiaries
Interest income
Interest expense
Other income (expense)
Total other income (expense)
Income tax benefit (provision)
Income from discontinued operations,
net of taxes
Gain from sale of discontinued
operations, net of taxes
Net income (loss)
64,073
770
(20,577)
23,140
67,406
5,237
—
94,123
2,005
(86,633)
27,546
37,041
—
—
(5,612)
(39,844)
(45,456)
30,097
(42,393)
—
3,701
—
3,198
27,190
30,388
3,418
—
3
(5,435)
616
(4,816)
470
—
(8,500)
(298)
(1,987)
(10,785)
144,236
160,790
242,539
547,565
(768)
158,657
(158,196)
(770)
3,040
(1,815)
(157,741)
—
—
—
2,008
(115,217)
9,643
(103,566)
(6,589)
3,701
1,774
53,977
—
54,232
$
—
59,160
1,774
$ 100,022
$
$
—
(928)
—
(158,509)
$
$
2008 Annual Report (cid:121) 71
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2008
(In thousands)
NET CASH FLOWS (USED IN) FROM
OPERATING ACTIVITIES
CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES:
Acquisition of property and equipment
Consolidation of variable interest entity
Purchase of alarm monitoring contracts
Payments for acquisition of television
stations
Payment for acquisition of other
operating divisions companies
Distributions from investments
Investments in equity and cost method
investees
Proceeds from the sale of assets
Loans to affiliates
Proceeds from loans to affiliates
Net cash flows used in investing
activities
CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES:
Proceeds from notes payable,
commercial bank financing and
capital leases
Repayments of notes payable,
commercial bank financing and
capital leases
Repurchase of Class A Common Stock
Dividends paid on Class A and Class B
Common Stock
Payments for deferred financing costs
Proceeds from derivative terminations
Repayments of notes and capital leases
to affiliates
Increase (decrease) in intercompany
Sinclair
Broadcast
Group, Inc.
Sinclair
Television
Group, Inc.
Guarantor
Subsidiaries
and KDSM,
LLC
Non-
Guarantor
Subsidiaries Eliminations
Sinclair
Consolidated
$
(24,010)
$
(2,756)
$ 243,822
$
(5,058)
$
(864)
$ 211,134
(57)
—
—
—
—
860
(6,244)
3
(178)
179
(561)
—
—
(17,123)
—
—
—
—
—
—
(22,269)
—
—
—
—
—
—
196
—
—
(2,282)
1,328
(7,675)
—
(53,487)
715
(35, 727)
—
—
—
(5,437)
(17,684)
(22,073)
(97,128)
—
—
—
—
—
—
—
—
—
—
—
(25,169)
1,328
(7,675)
(17,123)
(53,487)
1,575
(41,971)
199
(178)
179
(142,322)
—
257,173
—
17,470
—
274,643
(24,778)
(29,836)
(67,128)
—
—
(722)
(216,608)
—
—
—
8,001
—
(207)
—
—
—
—
(2,604)
(14,004)
—
—
(524)
—
—
payables
151,911
(32,955)
(221,310)
101,935
Net cash flows from (used in)
financing activities
29,447
15,611
(224,121)
104,877
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
beginning of period
CASH AND CASH EQUIVALENTS,
end of period
$
—
—
—
(4,829)
(2,372)
14,478
2,599
2,691
3,903
$
9,649
$
227
$
6,594
$
72 (cid:121) Sinclair Broadcast Group
—
—
445
—
—
—
419
864
—
—
—
(255,597)
(29,836)
(66,683)
(524)
8,001
(3,326)
—
(73,322)
(4,510)
20,980
$
16,470
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2007
(In thousands)
NET CASH FLOWS (USED IN) FROM
OPERATING ACTIVITIES
CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES:
Acquisition of property and equipment
Payment for acquisition of other
operating divisions companies
Distributions from investments
Investments in equity and cost method
investees
Proceeds from the sale of assets
Proceeds from the sale of broadcast
assets related to discontinued
operations
Loans to affiliates
Proceeds from loans to affiliates
Net cash flows from (used in)
investing activities
CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES:
Proceeds from notes payable,
commercial bank financing and
capital leases
Repayments of notes payable,
commercial bank financing and
capital leases
Proceeds from exercise of stock
options
Dividends paid on Class A and Class B
Common Stock
Payments for deferred financing costs
Repayments of notes and capital leases
to affiliates
(Decrease) increase in intercompany
Sinclair
Broadcast
Group, Inc.
Sinclair
Television
Group, Inc.
Guarantor
Subsidiaries
and KDSM,
LLC
Non-
Guarantor
Subsidiaries Eliminations
Sinclair
Consolidated
$
(15,205)
$
(76,605)
$ 204,144
$
(2,546)
$
36,426
$ 146,214
(176)
—
583
(111)
—
—
(160)
157
293
(759)
(21,855)
(900)
464
(23,226)
—
—
—
—
—
—
—
—
—
—
693
21,036
—
—
(39,075)
—
(16,273)
3
—
—
—
—
—
—
—
—
—
—
(39,075)
583
(16,384)
696
21,036
(160)
157
(759)
(126)
(56,245)
464
(56,373)
345,000
393,000
9
13,600
(190)
(835,306)
(175)
(4,971)
13,379
(49,973)
(6,738)
(1,147)
—
—
(131)
—
—
—
—
(2,913)
—
—
(196)
—
—
—
—
483
—
—
751,609
(840,642)
13,379
(49,490)
(7,065)
(4,060)
payables
(285,419)
472,027
(201,128)
51,893
(37,373)
—
Net cash flows from (used in)
financing activities
14,912
29,590
(204,207)
60,326
(36,890)
(136,269)
NET INCREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
beginning of period
CASH AND CASH EQUIVALENTS,
end of period
$
—
—
—
(47,774)
62,252
(189)
2,788
1,535
2,368
$
14,478
$
2,599
$
3,903
$
—
—
—
(46,428)
67,408
$
20,980
2008 Annual Report (cid:121) 73
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006
(In thousands)
Sinclair
Broadcast
Group, Inc.
Sinclair
Television
Group, Inc.
Guarantor
Subsidiaries
and KDSM,
LLC
Non-
Guarantor
Subsidiaries Eliminations
Sinclair
Consolidated
$
(136)
$
(55,270)
$ 206,391
$
4,651
$
(363)
$ 155,273
NET CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES
CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES:
Acquisition of property and equipment
Payment for acquisition of television
stations
Investments in equity and cost method
investees
Proceeds from the sale of assets
Proceeds from the sale of broadcast
assets related to discontinued
operations
Loans to affiliates
Proceeds from loans to affiliates
Net cash flows (used in) from
investing activities
CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES:
Proceeds from notes payable,
commercial bank financing and
capital leases
Repayments of notes payable,
commercial bank financing and
capital leases
Proceeds from exercise of stock
options
Dividends paid on Class A and Class B
Common Stock
Payments for derivative termination
Repayments of notes and capital leases
to affiliates
Increase (decrease) in intercompany
payables
Net cash flows from (used in)
financing activities
(370)
—
(174)
—
—
(143)
141
(546)
(90)
(16,319)
(232)
—
—
—
—
—
—
(1,710)
(165)
2,420
1,400
—
—
—
—
10
—
—
—
(90)
(14,374)
(222)
—
75,000
—
(7,220)
(106,172)
(183)
1,125
—
(36,062)
—
(1,037)
—
(3,750)
—
—
—
—
(3,288)
(634)
43,876
146,642
(187,896)
(3,052)
682
111,720
(191,367)
(3,686)
—
—
—
—
—
NET INCREASE IN CASH AND
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
beginning of period
CASH AND CASH EQUIVALENTS,
end of period
$
—
—
—
56,360
5,892
650
2,138
743
1,625
$
62,252
$
2,788
$
2,368
$
74 (cid:121) Sinclair Broadcast Group
88
—
—
—
—
—
—
88
(16,923)
(1,710)
(339)
2,430
1,400
(143)
141
(15,144)
—
75,000
(789)
(114,364)
—
—
—
634
430
275
—
—
—
1,125
(36,062)
(3,750)
(4,325)
—
(82,376)
57,753
9,655
$
67,408
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
(In thousands, except per share data)
For the Quarter Ended
03/31/08
06/30/08
09/30/08
12/31/08
Total revenues, net
Operating income (loss)
Income (loss) from continuing operations
(Loss) income from discontinued operations
Net income (loss)
Basic and diluted earnings (loss) per common
share from continuing operations
Basic and diluted earnings (loss) per common
share
For the Quarter Ended
Total revenues, net
Operating income
(Loss) income from continuing operations
(Loss) income from discontinued operations
Gain from sale of discontinued operations
Net (loss) income
Basic and diluted (loss) earnings per common
share from continuing operations
Basic and diluted earnings per common share
from discontinued operations
Basic and diluted (loss) earnings per common
share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
186,657
46,218
16,544
(131)
16,413
0.19
0.19
$
$
$
$
$
$
$
193,615
43,312
13,100
178
13,278
0.15
0.15
$
$
$
$
$
$
$
178,191
37,402
11,693
(38)
11,655
0.14
0.14
03/31/07 (a)
06/30/07 (a)
09/30/07
164,936
37,586
(2,113)
(276)
—
(2,389)
(0.02)
—
(0.03)
$
$
$
$
$
$
$
$
$
178,396
41,643
1,703
494
—
2,197
0.02
0.01
0.03
$
$
$
$
$
$
$
$
$
176,699
32,934
9,577
324
—
9,901
0.11
—
0.11
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
196,011
(415,391)
(282,687)
(150)
(282,837)
(3.53)
(3.53)
12/31/07
198,069
47,007
11,248
677
1,065
12,990
0.13
0.02
0.15
(a) Results previously reported in our Form 10-Q’s for 2007 have been restated to reflect discontinued operations related to the sale of
WGGB-TV in Springfield, Massachusetts.
2008 Annual Report (cid:121) 75
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A Common Stock is listed for trading on the NASDAQ stock market under the symbol SBGI. Our Class B
Common Stock is not traded on a public trading market or quotation system. The following tables set forth for the periods
indicated the high and low closing sales prices on the NASDAQ stock market for our Class A Common Stock.
2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2007
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
10.62
9.90
7.80
5.27
High
15.65
17.50
15.07
13.18
$
$
$
$
$
$
$
$
Low
7.78
7.60
4.96
1.97
Low
10.73
14.15
11.44
8.21
$
$
$
$
$
$
$
$
As of February 26, 2009, there were approximately 90 shareholders of record of our common stock. This number does not
include beneficial owners holding shares through nominee names.
Dividend Policy
We believe our operating cash flow and availability on our revolver would have enabled us to continue paying our current
quarterly dividend throughout 2009, however in February 2009, we decided it was prudent to suspend the dividend due to the
current negative economic climate. Future dividends on our common shares, if any, will be at the discretion of our Board of
Directors and will depend on several factors including our results of operations, cash requirements and surplus, financial
condition, covenant restrictions and other factors that the Board of Directors may deem relevant. Our Bank Credit Agreement
and some of our subordinated debt instruments have general restrictions on the amount of dividends that may be paid. Under
the indentures governing our 8.0% Senior Subordinated Notes, due 2012, we are restricted from paying dividends on our
common stock unless certain specified conditions are satisfied, including that:
•
•
no event of default then exists under the indenture or certain other specified agreements relating to our
indebtedness; and
after taking account of the dividend, we are within certain restricted payment requirements contained in the
indenture.
In addition, under certain of our senior unsecured debt, the payment of dividends is not permissible during a default
thereunder.
Our dividend paid during 2008 of 20 cents per share per quarter and during 2007 of 15 cents per share per quarter, except for
the fourth quarter dividend of 17.5 cents per share, was not in excess of any applicable restrictions or conditions contained within
the indentures of our various senior subordinated notes and our Bank Credit Agreement.
76 (cid:121) Sinclair Broadcast Group
During 2007, the Board of Directors voted to increase the dividend twice. On February 14, 2007, we announced that our
Board of Directors approved an increase to our annual dividend to 60 cents per share from 50 cents per share. On October 31,
2007, we announced that our Board of Directors approved an increase to our annual dividend to 70 cents per share from 60 cents
per share. On February 6, 2008, we announced that our Board of Directors approved an increase to our annual dividend to 80
cents per share from 70 cents per share. The 2008 and 2007 dividends declared were as follows:
For the quarter ended
March 31, 2008
June 30, 2008
September 30, 2008
December 31, 2008
For the quarter ended
March 31, 2007
June 30, 2007
September 30, 2007
December 31, 2007
Quarterly Dividend
Per Share
0.200
$
0.200
$
0.200
$
0.200
$
Quarterly Dividend
Per Share
0.150
$
0.150
$
0.150
$
0.175
$
Annual Dividend
Per Share
0.800
$
0.800
$
0.800
$
0.800
$
Annual Dividend
Per Share
0.600
$
0.600
$
0.600
$
0.700
$
Date dividends were paid
April 14, 2008
July 14, 2008
October 10, 2008
January 12, 2009
Date dividends were paid
April 12, 2007
July 12, 2007
October 11, 2007
January 14, 2008
Issuer Purchases of Equity Securities
The following table summarizes repurchases of our stock in the quarter ended December 31, 2008:
Period
Total Number of
Shares Purchased (a)
Average Price
Paid Per Share
Total Number of
Shares Purchased as a
Part of a Publicly
Announced Program
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under The Program (in
millions)
Class A Common Stock: (b)
10/01/08 – 10/31/08
11/01/08 – 11/30/08
12/01/08 – 12/31/08
3,750,601
230,564
—
$
$
$
3.45
2.37
—
3,750,601
230,564
—
$
$
$
120.7
120.1
—
(a) All repurchases were made in open-market transactions.
(b) On October 28, 1999, we announced a share repurchase program. On February 5, 2008, the Board of Directors renewed its
authorization to repurchase up to $150.0 million of our Class A Common Stock. There is no expiration date for this program and
currently, management has no plans to terminate this program.
During the fourth quarter of 2008 we repurchased, in the open market, $1.0 million face value of our existing 8.0% Senior
Subordinated Notes, due 2012 (the 8.0% Notes), $6.1 million face value of our 6.0% Convertible Debentures, due 2012 (the 6.0%
Debentures) and $6.5 million face value of our 4.875% Convertible Senior Notes, due 2018 (the 4.875% Notes). The Board of
Directors has approved all debt redemptions.
2008 Annual Report (cid:121) 77
Comparative Stock Performance
The following line graph compares the yearly percentage change in the cumulative total shareholder return on our Class A
Common Stock with the cumulative total return of the NASDAQ Stock Market Index and the cumulative total return of the
NASDAQ Telecommunications Stock Market Index (an index containing performance data of radio, telephone, telegraph,
television and cable television companies) from December 31, 2003 through December 31, 2008. The performance graph
assumes that an investment of $100 was made in the Class A Common Stock and in each Index on December 31, 2003 and that
all dividends were reinvested. Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment)
plus share price change for a period by the share price at the beginning of the measurement period.
Company/Index/Market
Sinclair Broadcast Group, Inc.
NASDAQ Telecommunications
Index
NASDAQ Market Index-U.S.
12/31/03
100.00
12/31/04
62.01
12/31/05
64.06
12/31/06
76.99
12/31/07
63.45
12/31/08
27.98
100.00
100.00
110.08
106.64
112.88
103.00
126.51
131.01
138.13
134.97
80.47
78.22
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Sinclair Broadcast Group, Inc., The NASDAQ Composite Index
And The NASDAQ Telecommunications Index
$160
$140
$120
$100
$80
$60
$40
$20
$0
12/03
12/04
12/05
12/06
12/07
12/08
Sinclair Broadcast Group, Inc.
NASDAQ Composite
NASDAQ Telecommunications
*$100 invested on 12/31/03 in stock & index-including reinvestment of dividends.
Fiscal year ending December 31.
78 (cid:121) Sinclair Broadcast Group
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Shareholders of Sinclair Broadcast Group, Inc.
We have audited the accompanying consolidated balance sheets of Sinclair Broadcast Group, Inc. as of December 31, 2008
and 2007, and the related consolidated statements of operations, shareholders' (deficit) equity and other comprehensive income
(loss), and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Sinclair Broadcast Group, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 10 of the notes to the consolidated financial statements, the Company adopted the recognition and
measurement provisions of the Financial Accounting Standards Board’s Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109, on January 1, 2007.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Sinclair Broadcast Group, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 3, 2009 expressed an unqualified opinion thereon.
Ernst & Young LLP
Baltimore, Maryland
March 3, 2009
2008 Annual Report (cid:121) 79
GROUP MANAGERS
Terry Cole
Alan B. Frank
Julie Nelson
Cedar Rapids, Iowa; Portland-Auburn,
Maine
Neal Davis
Peoria-Bloomington, Illinois; Raleigh-
Durham (Fayetteville), North Carolina
William J. Fanshawe
Baltimore, Maryland; Cincinnati, Ohio;
Lexington, Kentucky; Norfolk-
Portsmouth-Newport News, Virginia;
Richmond, Virginia; Rochester, New
York
David Ford
Madison, Wisconsin; Milwaukee,
Wisconsin
Buffalo, New York; Charleston-
Huntington, West Virginia; Pittsburgh,
Pennsylvania; San Antonio, Texas
Tallahassee-Thomasville, Florida;
Tampa-St. Petersburg (Sarasota),
Florida
Joseph A. Koff
Charleston, South Carolina;
Greensboro-Highpoint-Winston-
Salem, North Carolina; Oklahoma City,
Oklahoma
Steve Mann
Birmingham (Anniston & Tuscaloosa),
Alabama; Nashville, Tennessee
Daniel P. Mellon
Columbus, Ohio; Dayton, Ohio;
Mobile, Alabama-Pensacola (Ft.
Walton Beach), Florida; Portland-
Auburn, Maine
Aaron Olander
Flint-Saginaw-Bay City, Michigan;
Syracuse, New York
Thomas L. Tipton
Champaign & Springfield-Decatur,
Illinois; Paducah-Harrisburg,
Kentucky-Cape Girardeau, Missouri;
St. Louis, Missouri
Robert D. Weisbord
Las Vegas, Nevada; Minneapolis-St.
Paul, Minnesota
GENERAL MANAGERS
Michael C. Brickey
Lexington, Kentucky
John Hummel
John Rossi
Flint-Saginaw-Bay City, Michigan
Oklahoma City, Oklahoma
John V. Connors
Ronald Inman
Bill Scaffide
Greenville-Spartanburg-Anderson,
South Carolina-Asheville, North
Carolina
Harold Cooper
Charleston-Huntington, West Virginia
Dean Ditmer
Dayton, Ohio
William L. Evans
Cedar Rapids-Waterloo-Iowa City &
Dubuque, Iowa
Bebe T. Francis
Tallahassee-Thomasville, Florida
Steven Genett
Richmond, Virginia
Greensboro-Highpoint-Winston-
Salem, North Carolina
Norfolk-Portsmouth-Newport News,
Virginia
Kerry Johnson
Madison, Wisconsin
Jonathan P. Lawhead
Cincinnati, Ohio
Jay C. Lowe
Birmingham (Anniston & Tuscaloosa),
Alabama
Nick Magnini
Buffalo, New York
Tim Mathis
Champaign & Springfield-Decatur,
Illinois
John Seabers
San Antonio, Texas
Allison Taylor
Charleston, South Carolina
Joe Tracy
Minneapolis-St. Paul, Minnesota
Mike Wilson
Des Moines-Ames, Iowa
80 (cid:121) Sinclair Broadcast Group