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The E.W. Scripps CompanyThis past year, we reaffirmed our position as one of the country’s largest television broadcasters, reaching into the top ten markets for the first time when we acquired the ABC affiliates and 24-hour local news cable network of Allbritton Communications. This $1 billion acquisition, along with 14 other television stations acquired during the course of the year, continues our focus on establishing Sinclair as the industry leader, innovating technology and services that are transforming the traditional television model and creating new revenue paradigms. These next few years may prove to be one of our most transformative periods as we become multi-platform, take control of our content, activate our mobile years spectrum, and lobby for regulatory equality. This past year, we reaffirmed our position as one of the country’s largest television broadcasters, reaching into the top ten markets for the first time when we acquired the ABC affiliates and 24-hour local news cable network of Allbritton Communications. This $1 billion acquisition, along with 14 other television stations acquired during the course of the year, continues our focus on establishing Sinclair as the industry leader, innovating technology and services that are transforming the traditional television model and creating new revenue paradigms. These next few years may prove to be one of our most transformative periods as we become multi-platform, take control of our content, activate our mobile years spectrum, and lobby for regulatory equality. In response to our near tripling in number of stations and markets over the past three years, which we intend to expand further, we have begun developing incremental and complementary business models that increase our original programming, address changes in video consumption trends, and expand our distribution platforms. In 2014, we partnered with Coherent Logix to create ONE Media, which is defining an advanced, flexible-use broadcasting transmission platform that, if adopted, will enable mobile and portable viewing and other services and allow our industry to more fully monetize the vast potential of our wireless spectrum. Our industry has been criticized, and rightly so, for its failure to indust capitalize on the benefits of our wireless spectrum. The success we are seeing and the speed in which we are moving to develop the Next Generation Broadcast Platform (Next Gen) has the potential to revolutionize our industry and silence our critics. Next Gen opens opportunities beyond mobile. Not only will it allow us to compete with other over-the-top models, it could provide us new revenue streams based on personalized viewing, targeted advertising, broadcast overlay data distribution, vehicular connectivity, 4K Ultra high definition television, and personalized other use applications yet to be developed. For the consumer, this technology is all the more compelling when coupled with the ability to receive local and national emergency information on mobile and portable devices, especially given the high rate of cell reception failure during such events. For rural communities that rely on translators and low power signals, the Next Gen platform will extend advanced services and continued operations to those areas through enhanced spectral efficiencies. In response to our near tripling in number of stations and markets over the past three years, which we intend to expand further, we have begun developing incremental and complementary business models that increase our original programming, address changes in video consumption trends, and expand our distribution platforms. In 2014, we partnered with Coherent Logix to create ONE Media, which is defining an advanced, flexible-use broadcasting transmission platform that, if adopted, will enable mobile and portable viewing and other services and allow our industry to more fully monetize the vast potential of our wireless spectrum. Our industry has been criticized, and rightly so, for its failure to indust capitalize on the benefits of our wireless spectrum. The success we are seeing and the speed in which we are moving to develop the Next Generation Broadcast Platform (Next Gen) has the potential to revolutionize our industry and silence our critics. Next Gen opens opportunities beyond mobile. Not only will it allow us to compete with other over-the-top models, it could provide us new revenue streams based on personalized viewing, targeted advertising, broadcast overlay data distribution, vehicular connectivity, 4K Ultra high definition television, and personalized other use applications yet to be developed. For the consumer, this technology is all the more compelling when coupled with the ability to receive local and national emergency information on mobile and portable devices, especially given the high rate of cell reception failure during such events. For rural communities that rely on translators and low power signals, the Next Gen platform will extend advanced services and continued operations to those areas through enhanced spectral efficiencies. I firmly believe the Next Generation Broadcast Platform will be disruptive, especially to the wireless and communication ecosystems and, as such, our efforts will no doubt face challenges from the telecom giants that have been granted nearly unregulated growth opportunity in our industry. The broadcast industry, recognizing the future revenue potential, benefits to the consumer and need to compete in a mobile environment, has arrived at broad consensus on the need for a new transmission standard. We anticipate adoption of a candidate standard as early as the end of 2015. I firmly believe the Next Generation Broadcast Platform will be disruptive, especially to the wireless and communication ecosystems and, as such, our efforts will no doubt face challenges from the telecom giants that have been granted nearly unregulated growth opportunity in our industry. The broadcast industry, recognizing the future revenue potential, benefits to the consumer and need to compete in a mobile environment, has arrived at broad consensus on the need for a new transmission standard. We anticipate adoption of a candidate standard as early as the end of 2015. AsAs television broadcasters, our presence as a local business is crucial to our continued success. All too often, those outside of our industry see us only as a carrier of network and syndicated programming. The truth, however, is far from that, with local news, local live sports and first-run original programming contributing more revenue than network content and realizing positive viewing trends. With that awareness, we launched the American Sports Network (ASN) in 2014, which, as of this writing, includes sports rights agreements with 11 NCAA Division 1 Conferences, along with 17 markets producing live high school football and/or basketball games. ASN, through its syndicated contracts, now Conference reaches a meaningful percent of the country in not even a year of launch. The longer term value of ASN is multi-fold. By building a sports brand and growing its ratings and reach, we expect ultimately to increase retransmission rights fees and advertising revenue, reduce our dependency on network content, control more original live programming that is typically not time-shifted, and potentially develop a national sports cable network, which could be launched with our ASN content. AsAs television broadcasters, our presence as a local business is crucial to our continued success. All too often, those outside of our industry see us only as a carrier of network and syndicated programming. The truth, however, is far from that, with local news, local live sports and first-run original programming contributing more revenue than network content and realizing positive viewing trends. With that awareness, we launched the American Sports Network (ASN) in 2014, which, as of this writing, includes sports rights agreements with 11 NCAA Division 1 Conferences, along with 17 markets producing live high school football and/or basketball games. ASN, through its syndicated contracts, now Conference reaches a meaningful percent of the country in not even a year of launch. The longer term value of ASN is multi-fold. By building a sports brand and growing its ratings and reach, we expect ultimately to increase retransmission rights fees and advertising revenue, reduce our dependency on network content, control more original live programming that is typically not time-shifted, and potentially develop a national sports cable network, which could be launched with our ASN content. Our local news is of great importance, and we continue to make significant investments in that regard. During the year, we expanded our news presence in 17 markets with another seven scheduled for 2015. We now produce almost 2,200 hours of local news content per week across our portfolio and believe we are the largest producer of news in the country. Managing this effort is an enormous task and responsibility, and we recognize the importance of providing our viewers with responsible, accurate and balanced stories. Our news viewers are intelligent and demand a steadfast dedication to providing content that educates, informs and empowers. Our local news is of great importance, and we continue to make significant investments in that regard. During the year, we expanded our news presence in 17 markets with another seven scheduled for 2015. We now produce almost 2,200 hours of local news content per week across our portfolio and believe we are the largest producer of news in the country. Managing this effort is an enormous task and responsibility, and we recognize the importance of providing our viewers with responsible, accurate and balanced stories. Our news viewers are intelligent and demand a steadfast dedication to providing content that educates, informs and empowers. WithWith this base of news operations, we began a series of development efforts in 2014 that take into consideration the changing landscape of news consumption by our viewers. Although television news remains the most important source of news and information, the dynamics of social media and the growing importance of the millennial generation demand that we adapt how we interact with our viewer. This is perhaps our greatest challenge, and I am confident that we are heading in the right direction with new and complementary services being introduced in 2015 that will drive greater viewership and revenue. WithWith this base of news operations, we began a series of development efforts in 2014 that take into consideration the changing landscape of news consumption by our viewers. Although television news remains the most important source of news and information, the dynamics of social media and the growing importance of the millennial generation demand that we adapt how we interact with our viewer. This is perhaps our greatest challenge, and I am confident that we are heading in the right direction with new and complementary services being introduced in 2015 that will drive greater viewership and revenue. TThere is no question that viewing consumption patterns are changing as new video platforms and delivery options in online and over-the-top emerge. While the ‘Big 3’ broadcast networks have seen minor declines in audience ratings, according to Nielsen, the cable networks are losing the largest share to these new entrants, in part due to unsuccessful, high-turnover shows and fragmentation of audience across a platform that is saturated with cable channels. According to Nielsen, in 2013 the average U.S. TV household received 189 TV channels as compared to 129 in 2008, a 47% increase. However, these same households continue to watch only 17 TV channels on average, a number which has remained stable 2008, over the same period, implying that media consumption is driven by the quality of content rather than the quantity of channels. We recognize that, if we are to maximize audiences, the content we create needs to be engaging and relevant. That is why our content investments are focused on local news, sports and reality programs; programs that are low cost with predictable audiences and that can facilitate building a national footprint on multiple platforms. TThere is no question that viewing consumption patterns are changing as new video platforms and delivery options in online and over-the-top emerge. While the ‘Big 3’ broadcast networks have seen minor declines in audience ratings, according to Nielsen, the cable networks are losing the largest share to these new entrants, in part due to unsuccessful, high-turnover shows and fragmentation of audience across a platform that is saturated with cable channels. According to Nielsen, in 2013 the average U.S. TV household received 189 TV channels as compared to 129 in 2008, a 47% increase. However, these same households continue to watch only 17 TV channels on average, a number which has remained stable 2008, over the same period, implying that media consumption is driven by the quality of content rather than the quantity of channels. We recognize that, if we are to maximize audiences, the content we create needs to be engaging and relevant. That is why our content investments are focused on local news, sports and reality programs; programs that are low cost with predictable audiences and that can facilitate building a national footprint on multiple platforms. This discussion leads to one of our least discussed, but one of our most exciting business potentials; our digital group, whose focus is on engaging consumers and advertisers on multiple screens – web, mobile apps and social media. We continue to build and grow our digital development groups both in Baltimore, Maryland and Seattle, Washington and their efforts will start taking hold this year as we expand our presence in every Sinclair market, providing our advertisers with the means to reach their customers that go well beyond the traditional linear spot sales model and offering a more powerful branding platform that combines digital and television. As part of these efforts, we will be launlaunching a “best in class” content management system (CMS) in collaboration with our news departments. The CMS will replace all our disparate digital CM systems, streamline the ingestion of news content onto consumer devices, increase sellable ad units, and improve the user experience in desktop, tablet and mobile interfaces. In addition, we launched our digital agency group, primarily for our smaller markets, which offers a suite of sales verticals for the local advertiser. Our desire to enter the cable space was realized in 2014 when we acquired Allbritton’s local cable news network, NewsChannel 8, in Washington, D.C. Since then and through our retransmission contract renewals with multi-video program distributors (cable, satellite and telco), we have been successful in securing carriage for a yet-to-be defined cable network in our other markets and beyond. OurOur multi-platform initiatives help ensure we remain competitive and responsive to changing viewing patterns and fragmentation of advertising and, as such, that we be accessible in non-linear environments, on all devices and on all platforms. But that is only half of the equation. We must also follow the migration of advertising and subscription dollars, which is why we have created a new sales division, Sinclair Networks Sales. Their mandate is to sell our aggregated impressions across all our platforms and the entirety of our footprint to network buying groups and to automate the advertising purchasing process to enable us to compete better with the Internet, national networks and cable interconnects. automate the ad In 2014, we became much more active in the policy-making process in Washington, D.C., due to unprecedented legal and regulatory challenges to the broadcast business model. We hired a full-time representative to promote our interests and build relationships for us on Capitol Hill, and we started a political action committee (PAC) for Sinclair employees to make their collective voice heard in the electoral process. These efforts will continue in the 2015-2016 election cycle, as Congress begins updating the Communications Act, which will determine broadcasting’s ability toto evolve along with the rest of the video distribution ecosystem. Our overarching goal is to achieve regulatory parity with the other video services of cable, satellite, wireless and the Internet. These services are far less regulated than broadcast, and companies in these spaces have been able to grow to significant scale because of their unfettered ability to consolidate on a local and national level and offer new services to their customers with less government regulation. As an example, one large company is able to own cable systems, broadcast networks, cable networks, production studios, television stations, and control local cable advertising in major markets through interconnects. They are unconstrained when production it comes to reach and technology, but broadcasters are restricted from owning more than one station in many markets. To help achieve regulatory parity, our primary goal is to eliminate antiquated television station ownership restrictions in order to achieve the scale that is needed to sustain growth and invest in new services. While we recognize these changes will take time and will likely be challenged by self-interested paparties, we remain hopeful that, at the end of the day, lawmakers will remember the core value of free, local broadcast to their constituents, and they will seek to ensure that the unique role we play in the American communications ecosystem will enjoy a level playing field to grow and evolve into the future. As shareholders, you can help by reaching out to your Congressional Representatives to advocate for broadcaster equality. Last year was another record-breaking year for us in all key financial metrics. As compared to 2013, we generated $1.977 billion of total revenues, or a 45% increase; $713 million of EBITDA(1), a 52% increase; and $377 million of free cash flow(2), driven by our new stations, political advertising revenues, retransmission rights fees and digital initiatives. We returned $194 million, or over 50% of our free cash flow, to our shareholders through $133 million of share repurchases and $61 million in dividend returns, including a 10% dividend increase declared in AugustAugust 2014. Had all acquisitions been included for the full year, our pro forma free cash flow would have been $440 million or $4.51 per share. Over the next two years, we expect to generate a total of $805 million to $885 million of free cash flow, which we expect to deploy in organic and external growth, shareholder distributions and paydown of our revolving line of credit. Whether it is creating original content and multi-platform revenue initiatives, developing innovative technology for spectrum uses, or leading the efforts in D.C. for regulatory equality and a competitive playing field, we are not standing still. Each move has been forward-thinking and for the benefit of our viewers, our industry and our shareholders, and you should not expect us to stop here. The media landscape is changing, viewing patterns are evolving, and the broadcast industry must adapt, too. At Sinclair, you should expect us to continue defining that future. We thank you, our employees and our shareholders, for your continued support and look forward to our future success. David D. Smith Chairman, President and CEO 1 A reconciliation of EBITDA to net income can be found on our website: www.sbgi.net. 1 A reconciliation o 2 A reconciliation of free cash flow to net income can be found on our website: www.sbgi.net. (This page intentionally left blank) 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 Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities Controls And Procedures Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Equity (Deficit) Notes to The Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 2 6 8 9 23 23 26 28 29 30 31 35 79 TELEVISION BROADCASTING Markets and Stations As of December 31, 2014, we own and operate or provide programming and/or sales and other shared services to television stations in the following 79 markets: Num. of Channels Total/ (Primary) (d) 3(1) 5(2) Market Rank (a) 8 14 15 21 22 23 25 26 29 32 33 34 35 36 3(1) 3(1) 4(2) 7(3) 4(2) 7(3) 7(3) 6(4) 6(3) 5(5) 5(2) 4(3) Market Washington, DC Seattle /Tacoma, WA Minneapolis, MN St. Louis, MO Pittsburgh, PA Portland, OR Raleigh / Durham, NC Baltimore, MD Nashville, TN Columbus, OH San Antonio, TX Salt Lake City, UT Milwaukee, WI Cincinnati, OH Asheville, NC / Anderson, 37 6(3) SC / Greenville Spartanburg, SC West Palm Beach / Fort Pierce, FL Austin, TX Grand Rapids / Kalamazoo, MI Las Vegas, NV Norfolk, VA Birmingham, AL Oklahoma City, OK Harrisburg / Lancaster / Lebanon / York, PA 38 39 40 41 42 43 44 45 7(4) 2(1) 2(2) 6(3) 3(1) 15(7)(j) 5(2) 4(3) 2 Sinclair Broadcast Group Network Affiliation(f) ABC ABC Univision CW ABC FOX MNT ABC Univision CW MNT FOX CW MNT FOX MNT CW ABC FOX CW NBC FOX CW CBS MNT CW MNT CBS/ CW MNT ABC MNT Network Affiliation Expiration(b) 12/31/2017 8/31/2019 12/31/2014 8/31/2016 8/31/2020 12/31/2017 8/31/2015 8/31/2019 12/31/2014 8/31/2016 8/31/2015 12/31/2017 8/31/2016 8/31/2015 12/31/2017 8/31/2015 8/31/2016 8/31/2020 12/31/2017 12/31/2016 1/1/2016 12/31/2017 8/31/2016 4/29/2017 8/31/2015 8/31/2016 8/31/2015 6/2/2016 8/31/2016 8/31/2015 8/31/2020 8/31/2015 CBS CW MNT CBS CBS/ CW NBC CW/ MNT MNT ABC CW MNT FOX CW CBS/ MNT CW 1/31/2016 8/31/2016 8/31/2015 4/29/2017 12/31/2016 8/31/2016 8/31/2015 8/31/2016 9/8/2011 8/31/2015 12/31/2017 8/31/2016 8/31/2015 12/31/2017 8/31/2016 6/2/2016 8/31/2015 5/30/2016 Station Rank in Market (c) 2 of 8 3 of 10 N/A 5 of 7 4 of 7 4 of 7 6 of 7 2 of 8 N/A 5 of 8 6 of 8 3 of 6 5 of 6 6 of 6 4 of 8 6 of 8 7 of 8 2 of 7 4 of 7 5 of 7 3 of 7 4 of 7 5 of 7 1 of 7 7 of 7 6 of 9 8 of 9 1 of 7 N/A 5 of 7 3 of 7 5 of 7 2 of 7 5 of 7 6 of 7 3 of 6 1 of 6 N/A 3 of 6 5 of 6 6 of 6 6 of 7 3 of 8 5 of 8 6 of 8 4 of 8 5 of 8 2 of 7 N/A 5 of 7 Stations(e) WJLA KOMO KUNS WUCW KDNL WPGH WPMY KATU KUNP WLFL WRDC WBFF WNUV(g) WUTB(h) WZTV WUXP WNAB(h) WSYX WTTE(g) WWHO(h) WOAI KABB KMYS(h) KUTV KMYU WVTV WCGV WKRC WSTR(h) WLOS WMYA(g) WPEC WTVX WTCN-CA KEYE WWMT KSNV KVCW WTVZ WBMA WTTO/ WDBB(g) WABM KOKH KOCB WHP WLYH(g) Num. of Channels Total/ (Primary) (d) 5(2) Market Rank (a) 46 52 53 54 55 56 57 58 59 60 63 64 65 66 67 68 70 72 73 74 76 77 78 80 81 82 84 5(2) 2(1) 5(3) 8(7) 3(1) 2(2) 5(3) 8(3) 3(1) 3(1) 5(3) 12(6) 5(2) 3(1) 2(2) 9(5) 3(1) 2(1) 6(3) 2(1) 2(1) 5(3) 4(2) 5(3) 3(1) 6(4) Market Greensboro / High Point / Winston Salem, NC Buffalo, NY Providence, RI / New Bedford, MA Fresno / Visalia, CA Wilkes Barre / Scranton, PA Little Rock / Pine Bluff, AR Richmond, VA Albany, NY Mobile, AL / Pensacola, FL Tulsa, OK Lexington, KY Dayton, OH Wichita / Hutchinson, KS Charleston / Huntington, WV Roanoke / Lynchburg, VA Green Bay / Appleton, WI Flint / Saginaw / Bay City, MI Des Moines, IA Spokane, WA Omaha, NE Toledo, OH Columbia, SC Rochester, NY Portland, ME Cape Girardeau, MO / Paducah, KY Madison, WI Syracuse, NY Champaign / Springfield / 85 11(5) Decatur, IL Harlingen / Weslaco / Brownsville / McAllen, TX Chattanooga, TN 86 88 2(1) 3(1) Stations(e) WXLV WMYV WUTV WNYO WJAR KMPH KFRE WOLF(g) WQMY(g) WSWB(h) KATV WRLH WRGB WCWN WEAR WPMI(h) WJTC(h) WFGX KTUL WDKY WKEF WRGT(g) KAAS/KSAS/KOCW KMTW(g) WCHS WVAH WSET WLUK WCWF WEYI(h) WSMH WBSF(h) KDSM KLEW KPTM KXVO(g) WNWO WACH WHAM(h) WUHF WGME WPFO(h) KBSI WDKA(g) WMSN WSTM WTVH(h) WICD/WICS WRSP/WCCU(h) WBUI(h) KGBT Network Affiliation(f) ABC MNT FOX MNT NBC Network Affiliation Expiration(b) 8/31/2020 8/31/2015 12/31/2017 8/31/2015 12/31/2015 FOX CW FOX MNT CW ABC FOX/ MNT CBS CW ABC NBC IND MNT ABC FOX ABC FOX/ MNT FOX MNT ABC FOX ABC FOX CW NBC FOX CW FOX CBS FOX/ MNT CW NBC FOX ABC/ CW FOX CBS FOX FOX MNT FOX NBC/ CW CBS ABC FOX CW CBS 12/31/2015 8/31/2016 6/30/2016 9/1/2015 8/31/2017 12/31/2017 12/31/2017 12/31/2015 1/31/2016 8/31/2016 8/31/2020 1/1/2016 None 8/31/2015 12/31/2017 12/31/2017 8/31/2020 12/31/2017 12/31/2015 12/31/2017 8/31/2015 8/31/2020 12/31/2017 12/31/2017 12/31/2017 8/31/2016 12/31/2015 12/31/2017 8/31/2016 12/31/2017 2/29/2016 12/31/2015 12/31/2015 8/31/2016 12/31/2015 6/30/2017 12/31/2017 8/31/2016 12/31/2017 12/31/2018 6/30/2016 12/31/2017 8/31/2015 12/31/2017 12/31/2015 8/31/2016 12/31/2015 8/31/2020 12/31/2015 8/31/2016 12/31/2018 Station Rank in Market (c) 4 of 7 5 of 7 4 of 7 6 of 7 1 of 7 2 of 7 5 of 7 4 of 7 7 of 7 6 of 7 2 of 8 4 of 6 1 of 6 5 of 6 2 of 8 4 of 8 5 of 8 6 of 8 2 of 11 4 of 8 3 of 5 4 of 5 4 of 6 6 of 6 2 of 6 4 of 6 2 of 5 2 of 7 5 of 7 3 of 7 4 of 7 5 of 7 4 of 6 N/A 4 of 8 5 of 8 3 of 6 4 of 5 3 of 6 4 of 6 2 of 6 4 of 6 4 of 6 5 of 6 4 of 6 2 of 8 7 of 8 3 of 8 3 of 6 4 of 6 6 of 6 2 of 8 WTVC ABC 8/31/2020 1 of 7 2014 Annual Report 3 Num. of Channels Total/ (Primary) (d) 5(2) Market Rank (a) 90 91 92 95 102 104 106 5(3) 1(1) 4(2)(j) 4(3) 3(1) 3(3) Market Cedar Rapids, IA El Paso, TX Savannah, GA Charleston, SC Myrtle Beach / Florence, SC Johnstown / Altoona, PA Tallahassee, FL Reno, NV 107 7(3) Boise, ID Peoria / Bloomington, IL Traverse City / Cadillac, MI Macon, GA Eugene, OR 109 117 118 119 120 5(3) 2(2) 8(8) 2(2) 13(9) Yakima / Pasco / Richland 122 8(6) / Kennewick, WA Bakersfield, CA Amarillo, TX Columbia / Jefferson City, MO Medford, OR Beaumont, TX 127 130 138 140 141 5(3) 4(4) 3(1) 3(2) 5(3) Sioux City, IA 149 7(5) Albany, GA Wheeling, WV / Steubenville, OH Gainesville, FL Quincy, IL / Hannibal, MO / Keokuk, IA Marquette, MI Ottumwa, IA / Kirksville, MO 152 157 162 170 180 200 3(1) 3(2) 4(3) 3(2) 3(2) 2(2) Total Television Channels 373(211) 4 Sinclair Broadcast Group Stations(e) KGAN KFXA(h) KDBC KFOX WTGS WCIV WPDE WWMB(g) WJAC WTWC WTLF(h) KRNV(h) KRXI KAME(g) KBOI WHOI(i) WPBN/WTOM/ WGTU/WGTQ(h) WGXA KVAL/KCBY/ KPIC KMTR/KMCB/ KTCW(h) KEPR/KIMA KVVK-CD/ KUNW-CD KBAK KVII/KVIH KRCG KTVL KFDM KBTV(h) KMEG(h) KPTH WFXL WTOV WGFL(g) WNBW(h) KHQA WLUC KTVO Network Affiliation(f) CBS FOX CBS/ MNT FOX FOX ABC MNT ABC CW NBC NBC/ FOX CW NBC FOX MNT CBS/ CW ABC/ CW NBC/ ABC/ CW FOX/ ABC CBS NBC/ CW CBS/ CW Univision CBS/ FOX ABC/ CW CBS CBS/ CW CBS/ CW FOX CBS FOX/ MNT FOX NBC/ FOX CBS/ MNT NBC CBS/ ABC NBC/ FOX ABC/ CBS Network Affiliation Expiration(b) 12/31/2018 12/31/2017 8/31/2016 10/30/2015 6/30/2017 12/31/2017 12/31/2017 8/31/2015 12/31/2018 8/31/2016 12/31/2017 12/31/2016 6/30/2016 8/31/2017 12/31/2017 6/30/2017 8/31/2015 2/29/2016 8/31/2016 8/31/2019 8/31/2016 12/31/2015 12/31/2017 8/31/2016 6/30/2016 12/31/2015 2/29/2016 12/31/2015 8/31/2016 2/29/2016 8/31/2019 12/31/2014 3/3/2016 12/31/2015 12/31/2018 8/31/2016 6/30/2015 1/31/2016 8/31/2016 1/31/2016 8/31/2016 12/31/2017 1/31/2016 12/31/2015 11/1/2014 6/30/2017 12/31/2017 1/16/2015 6/30/2017 9/1/2015 1/1/2016 6/30/2015 8/31/2020 12/31/2015 6/30/2017 12/31/2018 4/30/2015 Station Rank in Market (c) 3 of 5 4 of 5 2 of 7 3 of 7 4 of 6 2 of 6 5 of 6 2 of 6 5 of 6 1 of 5 3 of 6 4 of 6 5 of 6 3 of 6 4 of 6 5 of 6 2 of 9 7 of 9 3 of 6 2 of 4 3 of 4 2 of 5 1 of 6 3 of 6 1 of 6 N/A 2 of 6 4 of 6 2 of 7 1 of 7 2 of 6 1 of 6 3 of 6 3 of 7 4 of 7 3 of 7 1 of 5 2 of 6 6 of 6 4 of 6 2 of 5 1 of 7 1 of 4 (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 September 2014. (b) When we negotiate the terms of our network affiliations or program service arrangements, we negotiate on behalf of all of our stations affiliated with that entity simultaneously. This results in substantially similar terms for our stations, including the expiration date of the network affiliations or program service arrangements. (c) The first number represents the rank of each station in its market and is based upon the November 2014 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 2014. This information is provided to us in a summary report by Franco Research Group. (d) Our primary networks / program service providers are comprised of FOX, ABC, CBS, NBC, CW, MNT, and Univision. (e) We have a total of 14 other low powered stations, in certain markets which expand our signal by simulcasting our content throughout the market. (f) In addition to our primary affiliations, we broadcast other programming from the following providers on our channels: Market Antenna TV Azteca Bounce Network Estrella TV Get TV Grit Heartland Independent programming Inmigrante TV Live Well Network Me TV MundoFox Retro TV Telemundo This TV News & Weather Zuus Country Total Number of Channels 5 3 4 3 31 48 3 1 1 2 11 3 6 1 13 14 13 162 Number of Markets 1 2 4 3 31 46 1 1 1 2 10 3 6 1 11 12 13 Expiration Dates (1) September 1, 2013 February 8, 2016 August 31, 2019 June 1, 2015 through September 30, 2015 June 30, 2017 December 31, 2019 October 31, 2015 N/A February 1, 2015 June 30, 2014 through January 1, 2018 January 16, 2015 through September 30, 2017 April 30, 2014 through September 30, 2015 October 1, 2010 through January 1, 2016 December 31, 2016 November 1, 2014 through December 31, 2015 December 31, 2016 September 30, 2014 (1) If the affiliation agreement expires, we may continue to operate under the existing affiliation agreement on a temporary basis while we negotiate a new affiliation agreement. (g) The license assets for these stations are currently owned by third parties. We provide programming, sales, operational and administrative services to these stations pursuant to certain service agreements, such as LMAs. (h) The license and programming assets for these stations are currently owned by third parties. We provide certain non-programming related sales, operational and administrative services to these stations pursuant to service agreements, such as joint sales and shared services agreements. (i) The license and programming assets for these stations are currently owned by us. A third party provides certain non-programming related sales, operational and administrative services to these stations pursuant to service agreements, such as joint sales and shared services agreements. (j) Total includes WCFT and WJSU in Birmingham, AL and WMMP in Charleston, SC. We sold the license and related assets of these stations to a third party on February 27, 2015. See Note 11. Commitment and Contingencies for further discussion. 2014 Annual Report 5 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 (the Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things, the following risks: General risks the impact of changes in national and regional economies and credit and capital markets; consumer confidence; the potential impact of changes in tax law; the activities of our competitors; terrorist acts of violence or war and other geopolitical events; natural disasters that impact our advertisers and our stations; Industry risks the business conditions of our advertisers particularly in the automotive and service industries; competition with other broadcast television stations, radio stations, multi-channel video programming distributors (MVPDs), internet and broadband content providers such and other print and media outlets serving in the same markets; availability and cost of programming and the continued volatility of networks and syndicators that provide us with programming content; our relationships with networks and their strategies to distribute their programming via means other than their local television affiliates, such as over-the-top content; the effects of the Federal Communications Commission’s (FCC’s) National Broadband Plan and the auctioning and potential reallocation of our broadcasting spectrum; the effects of governmental regulation of broadcasting or changes in those regulations and court actions interpreting those regulations, including ownership regulations (including regulations relating to Joints Sales Agreements (JSA) and Shared Services Agreements (SSA)), closed captioning rules, indecency regulations, retransmission fee regulations and political or other advertising restrictions; labor disputes and legislation and other union activity associated with film, acting, writing and other guilds and professional sports leagues; the broadcasting community’s ability to create and adopt a new transmission standard, as well as viable mobile digital broadcast television (mobile DTV) strategy and platform and the consumer’s appetite for mobile television; the operation of low power devices in the broadcast spectrum, which could interfere with our broadcast signals; the impact of reverse network compensation payments charged by networks pursuant to their affiliation agreements with broadcasters requiring compensation for network programming; the effects of new ratings system technologies including “people meters” and “set-top boxes,” and the ability of such technologies to be a reliable standard that can be used by advertisers; the impact of new FCC rules requiring broadcast stations to publish, among other information, political advertising rates online; changes in the makeup of the population in the areas where stations are located; 6 Sinclair Broadcast Group Risks specific to us the effectiveness of our management; our ability to attract and maintain local and national advertising; our ability to service our debt obligations and operate our business under restrictions contained in our financing agreements; our ability to successfully renegotiate retransmission consent agreements; our ability to renew our FCC licenses; our ability to obtain FCC approval for any future acquisitions, as well as, in certain cases, customary antitrust clearance for any future acquisitions; our ability to successfully integrate any acquired businesses; our ability to maintain our affiliation and programming service agreements with our networks and program service providers and at renewal, to successfully negotiate these agreements with favorable terms; our ability to effectively respond to technology affecting our industry and to increasing competition from other media providers; the popularity of syndicated programming we purchase and network programming that we air; the strength of ratings for our local news broadcasts including our news sharing arrangements; the successful execution of our multi-channel broadcasting initiatives including mobile DTV; the results of prior year tax audits by taxing authorities; and the success of our digital initiatives in a competitive environment. Other matters set forth in this report and other reports filed with the Securities and Exchange Commission (SEC), 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. However, additional factors and risks not currently known to us or that we currently deem immaterial may also cause actual results in the future to differ materially from those described in the forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, events described in the forward- looking statements discussed in this report might not occur. 2014 Annual Report 7 SELECTED FINANCIAL DATA The selected consolidated financial data for the years ended December 31, 2014, 2013, 2012, 2011 and 2010 have been derived from our audited consolidated financial statements. 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 annual report on Form 10-K. 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) Amortization of program contract costs and net realizable value adjustments Other operating divisions expenses Corporate general and administrative expenses (Gain) loss on asset dispositions Operating income Interest expense and amortization of debt discount and deferred financing cost Loss from extinguishment of debt Income (loss) from equity and cost method investees Other income, net Income from continuing operations before income taxes Income tax provision Income from continuing operations Discontinued operations: Income (loss) from discontinued operations, net of related income taxes Net income Net (income) loss attributable to noncontrolling interests Net income attributable to Sinclair Broadcast 2014 2013 2012 2011 2010 $ 1,782,726 122,262 71,570 1,976,558 $ 1,217,504 88,680 56,947 1,363,131 $ 920,593 86,905 54,181 1,061,679 $ 577,013 370,606 107,716 228,787 106,629 58,903 69,413 (37,160 ) 494,651 (174,862 ) (14,553 ) 2,313 4,998 312,547 (97,432 ) 215,115 385,104 249,732 77,349 141,374 80,925 48,109 53,126 3,392 324,020 (162,937 ) (58,421 ) 621 2,225 105,508 (41,249 ) 64,259 255,556 171,279 79,834 85,172 60,990 46,179 33,391 (7 ) 329,285 (128,553 ) (335 ) 9,670 2,273 212,340 (67,852 ) 144,488 $ 648,002 72,773 44,513 765,288 178,612 123,938 65,742 51,501 52,079 39,486 28,310 — 225,620 (106,128 ) (4,847 ) 3,269 3,459 121,373 (44,785 ) 76,588 655,836 75,210 36,598 767,644 154,133 127,091 67,083 59,944 60,862 30,916 26,800 — 240,815 (116,046 ) (6,266 ) (4,861 ) 2,209 115,851 (40,226 ) 75,625 — 215,115 $ $ 11,558 75,817 $ 465 144,953 $ (411 ) 76,177 $ (577 ) 75,048 (2,836 ) (2,349 ) (287 ) (379 ) 1,100 Group $ 212,279 $ 73,468 $ 144,666 $ 75,798 $ 76,148 Earnings Per Common Share Attributable to Sinclair Broadcast Group: Basic earnings per share from continuing operations Basic earnings per share Diluted earnings per share from continuing operations Diluted earnings per share Dividends declared per share Balance Sheet Data: Cash and cash equivalents Total assets Total debt (c) Total equity (deficit) 8 Sinclair Broadcast Group $ $ $ $ $ 2.19 2.19 2.17 2.17 0.63 $ $ $ $ $ 0.66 0.79 0.66 0.78 0.60 $ $ $ $ $ 1.78 1.79 1.78 1.78 1.54 $ $ $ $ $ 0.95 0.94 0.95 0.94 0.48 $ $ $ $ $ 0.96 0.95 0.95 0.94 0.43 $ 17,682 $ 5,452,172 $ 3,928,716 405,343 $ $ 280,104 $ 4,147,472 $ 3,034,040 405,704 $ $ 22,865 $ 2,729,697 $ 2,273,379 $ $ 12,967 $ 1,571,417 $ 1,206,025 $ 21,974 $ 1,485,924 $ 1,212,065 (157,082) (100,053 ) $ (111,362 ) $ (a) Net broadcast revenues is defined as broadcast revenues, net of agency commissions. (b) Depreciation and amortization includes depreciation and amortization of property and equipment and amortization of definite-lived intangible assets and other assets. (c) Total debt is defined as notes payable, capital leases and commercial bank financing, including the current and long-term portions. 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 2014, 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 or program service arrangement, a summary of other operating data and an analysis of our revenues and expenses for 2014, 2013 and 2012, including comparisons between years and certain expectations for 2015; 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. We have one reportable operating segment (broadcast), which includes our television and radio stations and is reported separately from our other operating divisions and corporate activities. The results of our other operating divisions consist primarily of revenues and expenses earned from sign design and fabrication; regional security alarm operating and bulk acquisitions; manufacturing and service of television broadcast antennas and transmitters; and real estate ventures. STG, included in the broadcast segment and a wholly owned subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under our Bank Credit Agreement, the 6.125% Notes, the 5.375% Notes,6.375% Notes, and 5.625% Notes. SBG is a guarantor under the Bank Credit Agreement, the 6.125% Notes, the 5.375% Notes, 6.375% Notes, and 5.625% Notes. Our Class A Common Stock and Class B Common Stock remain obligations or securities of SBG and not obligations or securities of STG. SBG was the obligor of the 9.25% Notes and the 8.375% Notes until they were fully redeemed in 2013 and 2014, respectively. 2014 Annual Report 9 EXECUTIVE OVERVIEW 2014 Events Acquisitions / Divestments: Effective August 1, 2014, we completed the acquisition of all of the outstanding common stock of Perpetual Corporation and equity interest of Charleston Television, LLC (the Allbritton Companies) for $985.0 million plus working capital of $50.2 million. We financed the total purchase price with proceeds from the issuance of 5.625% senior unsecured notes, a draw on our Bank Credit Agreement, and cash on hand. In conjunction with the acquisition, we terminated our LMA in Charleston, SC with WTAT-TV (FOX) and sold the non-license assets of WTAT to Cunningham for $14.0 million. Effective September 1, 2014, we completed the acquisition of the assets of WGXA-TV (FOX) in Macon, GA from Frontier Broadcast Holdings, LLC for $33.0 million. Effective September 1, 2014, we closed on the sale of WHTM-TV in Harrisburg, PA to Media General for $83.4 million. On November 1, the Company closed on the previously announced purchase of the non-license assets of 8 stations in 3 markets from New Age Media. On November 1, the Company closed on the previously announced purchase of the non-license assets of KSNV-TV (NBC) in Las Vegas, NV from Intermountain West. On December 19, the Company closed on the acquisition of 4 stations in 3 markets from Media General, Inc. and the sale of 3 stations in 2 markets to Media General. Other: In February 2014, our Board of Directors declared a quarterly dividend of $0.15 per share, payable on March 14, 2014 to the holders of record at the close of business on February 28, 2014. During February 2014, we announced our intent to repurchase, under an existing authorization, from time to time, up to $100 million of our Class A common shares on the open market. During March 2014, the Board of Directors authorized an additional $150.0 million share repurchase authorization of Class A common shares, to be accessed once the existing authorization is exhausted. During 2014 we repurchased a total of $133.2 million or 4.9 million shares at an average price of $27.33 per share. As of December 31, 2014, the total remaining authorization for repurchases was $134.4 million. Effective April 1, 2014, we promoted David B. Amy to Executive Vice President and Chief Operating Officer from Executive Vice President and Chief Financial Officer and named Christopher Ripley as Chief Financial Officer. In April 2014, we reached a multi-year retransmission consent agreement with Charter Communications. In May 2014, our Board of Directors declared a quarterly dividend of $0.15 per share, payable on June 13, 2014, to the holders of record at the close of business on May 30, 2014. In May 2014, we announced the launch of ONE Media, LLC, a joint venture between Coherent Logix and Sinclair with a vision to build the “Next Generation Broadcast Platform,” enabling broadcasting to be competitive across all platforms. This broadcast platform will support all business models, whether fixed services to the home, portable service within the home, or nomadic services outside the home. In June 2014, we signed an agreement to broadcast getTV in 33 markets beginning in the summer 2014. In July 2014, STG issued $550.0 million in senior unsecured notes, which bear interest at a rate of 5.625% per annum and mature on August 1, 2024. The proceeds from the offering of the 5.625% Notes, together with borrowings under our Bank Credit Agreement and cash on hand, were used to finance the acquisition of the Allbritton companies on July 31, 2014. In July 2014, we amended and restated our existing bank credit facility raising $400.0 million of additional term loan B commitments, which matures in 2021 and bear interest at LIBOR plus 2.75%, with a 0.75% floor. Additionally, $327.7 million of our term loan A commitments were converted to revolving commitments. In July 2014, we launched the American Sports Network (“ASN”), a collegiate sports initiative to be broadcast on a number of our television stations, which have entered into comprehensive sports rights agreements with a number of distinguished NCAA Division I conferences. In August 2014, our Board of Directors declared a quarterly dividend of $0.165 per share, payable on September 15, 2014 to the holders of record at the close of business on August 29, 2014. In August 2014, we launched an Original Programming Division that will focus on the creation and development of low-cost original entertainment and long-form content. Effective October 15, 2014, we redeemed all of the outstanding 8.375% Senior Notes due 2018, representing $237.5 million aggregate principal amount of Notes. 10 Sinclair Broadcast Group In November 2014, our Board of Directors declared a quarterly dividend of $0.165 per share, payable on December 15, 2014 to the holders of record at the close of business on December 1, 2014. In December 2014, we signed an agreement to broadcast Grit TV in 47 markets in December 2014 and January 2015. During 2014, we successfully completed negotiations for new retransmission consent agreements with over 490 multichannel video programming distributors, including U-verse, FiOS, Armstrong Utilities, Atlantic Broadband, CableOne, CenturyLink, Wave Broadband and Wide Open West. The new retransmission consent agreements provided uninterrupted carriage of our stations to over 6.3 million unique subscribers, representing over 99.9% of subscribers covered by the expiring agreements. 2015 Events In January 2015, we appointed Howard E. Friedman to the Board of Directors. Mr. Friedman will stand for re-election at our next annual meeting of shareholders. During January 2015, we repurchased $7.8 million or 0.3 million shares at an average price of $25.60 per share. As of January 31, 2015, the total remaining authorization for repurchases was $126.6 million. In February 2015, our Board of Directors declared a quarterly dividend of $0.165 per share, payable March 13, 2015 to the holders of record at the close of business on February 27, 2015. Industry Trends Political advertising increases in even-numbered years, such as 2014, due to the advertising expenditures from candidates running in local and national elections and issue-related advertiser spending. In every fourth year, such as 2012, political advertising is usually elevated further due to presidential elections; 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; Retransmission consent rules provide a mechanism for broadcasters to seek payment from MVPDs who carry broadcasters’ signals. Recognition of the value of the programming content provided by broadcasters, including local news and other programming and network programming all in HD has generated increased local revenues; We, as well as a number of other broadcasters, have joined and worked together in organizations such as the NAB (along with OMVC now merged), M500 and the MCV to focus on efforts to accelerate the nationwide availability of mobile DTV and other advanced digital distribution services and work through the many programming, advertising, distribution and aggregation opportunities. There is potential for broadcasters to create an additional revenue stream by providing their signals to a wide variety of mobile / portable devices (tablets, laptops, smartphones, etc.) as well as through other multi-channel / multi-platform initiatives; 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 and to compete with other internet sites and smart phone and tablet device applications and other social media outlets; Seasonal advertising increases occur in the second and fourth quarters due to the anticipation of certain seasonal and holiday spending by consumers; 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; and 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. Sources of Revenues Our operating revenues are derived from local and national advertisers and, to a much lesser extent, from political advertisers. We also generate local revenues from our retransmission consent agreements with MVPDs. 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 advertisers transacted through our rep firm 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 including the success of multi-channel digital initiatives together with mobile DTV. In addition, our revenue success is dependent on the success and advertising spending levels of the automotive industry. 2014 Annual Report 11 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 goodwill and intangible assets, program contract costs, and income taxes. 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 consider the following accounting policies to be the most critical as they are important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. 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. Valuation of Goodwill and Intangible Assets. At least annually, we periodically evaluate our goodwill and broadcast licenses 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, legal factors and other various qualitative factors. As of December 31, 2014, our consolidated balance sheet includes $1,964.6 million of goodwill related to our Broadcast segment and $135.1 million of broadcast licenses. Both our annual goodwill and broadcast license impairment assessments begin with qualitatively assessing whether it is more- likely-than-not that the respective asset has been impaired. If we conclude that it is more-likely-than-not that a reporting unit or broadcast license is impaired, we apply the quantitative assessment, which involves comparing the estimated fair value of the reporting unit or broadcast license to its respective carrying value. See Impairment of Goodwill, Intangibles and Other Long-Lived Assets within Note 1. Nature of Operations and Summary of Significant Accounting Policies for further discussion of the significant judgments and estimates inherent in both qualitatively assessing whether impairment may exist and estimating the fair values of the reporting units and broadcast licenses. See Note 6. Goodwill, Broadcast Licenses and Other Intangible Assets for the results of our annual impairment tests during the years ended December 31, 2014, 2013 and 2012. For our annual goodwill impairment tests in 2014 and 2013, we concluded that it was more-likely-than-not that goodwill was not impaired based on our qualitative assessments. In 2012, we concluded that it was more-likely-than-not that goodwill was not impaired based on our qualitative assessments, except for three reporting units. For those markets, we estimated the fair values of these reporting units, which had aggregate carrying value of goodwill of $79.5 million, and concluded that each of the reporting unit fair values exceeded the respective carrying values by more than 10%. In estimating the fair values, an increase in the discount rates applied and/or decrease in market multiple assumed of 10%, would not have resulted in an impairment of goodwill. For our annual impairment tests for broadcast licenses in 2013 and 2012, we concluded that it was more-likely-than-not that the broadcast licenses were not impaired based on our qualitative assessments. In 2014, we concluded that it was more-likely-than- not that broadcast licenses were not impaired based on our qualitative assessments, except for broadcast licenses with an aggregate carrying value of $39.3 million for which we performed the quantitative assessment. We concluded that licenses with an aggregate carrying value of $21.1 million exceeded their respective carrying values. We recorded $3.2 million of impairment primarily as a result of declines in projected future market revenues related to the radio broadcast licenses. We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whether it was more likely than not that the fair values of our reporting units and broadcast licenses were less than their carrying values. If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions or significant increases in discount rates, we could be exposed to impairment charges in the future. 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. Program Contract Costs. As discussed under Programming within Note 1. Nature of Operations and Summary of Significant Accountant Policies, we record an asset and corresponding liability for programming rights 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. These costs are expensed over the period in which an economic benefit is expected to be derived. To ensure the related assets for the programming rights are reflected in the consolidated balance sheets at the lower of unamortized cost or estimated net realizable value (NRV), management estimates 12 Sinclair Broadcast Group future advertising revenue, net of sales commissions, to be generated by the remaining program material available under the contract terms. Management’s judgment is required in determining the timing of expense for these costs, which is dependent on the economic benefit expected to be generated from the program and may significantly differ from the timing of related payments under the contractual obligation. If our estimates of future advertising revenues decline, amortization expense could be accelerated or NRV adjustments may be required. Income Tax. As discussed under Income Taxes within Note 1. Nature of Operations and Summary of Significant Accountant Policies, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. As of December 31, 2014 and 2013, a valuation allowance has been provided for deferred tax assets related to a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income. Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize our deferred tax assets which could have a material effect on our consolidated financial statements. Management periodically performs a comprehensive review of our tax positions and we record a liability for unrecognized tax benefits when such tax positions do not meet the “more-likely-than-not” threshold. Significant judgment is required in determining whether a tax position meets the “more-likely-than-not” threshold, and it is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements. Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities 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. See Note 10. Income Taxes, for further discussion of accrued unrecognized tax benefits. Variable Interest Entities. As discussed under Variable Interest Entities within Note 1. Nature of Operations and Summary of Significant Accountant Policies, we have determined that certain third-party licensees of stations that that we perform services to pursuant to arrangements, including LMAs and JSAs/SSAs, are VIEs and we are the primary beneficiary of those variable interests because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and because we absorb losses and returns that would be considered significant to the VIEs. Determining whether the an entity is a VIE and whether we are the primary beneficiary of the variable interests requires judgment which is based on quantitative and qualitative factors that indicate whether or not we are absorbing a majority of the entity’s economic risks or receiving a majority of the entity’s economic rewards, based on the terms of the arrangements with the entity. Recent Accounting Pronouncements See Recent Accounting Pronouncements within Note 1. Nature of Operations and Summary of Significant Accountant Policies for discussion on recent accounting policies and impact our 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. The results of the acquired stations during the years ended 2012, 2013, and 2014 are included in our results of our continuing operations for the years ended 2012, 2013, and 2014 from their respective dates of acquisition. See Note 2. Acquisitions for further discussion of stations acquired. Additionally, the results of certain television stations that were sold and classified as discontinued operations are not included in our results of our continuing operations for the period. See Discontinued Operations under Note 3. Disposition of Assets and Discontinued Operations for further discussion of excluded stations. Unless otherwise indicated, references in this discussion and analysis to 2014, 2013 and 2012 are to our fiscal years ended December 31, 2014, 2013 and 2012, 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. We have one reportable segment, “broadcast” that is disclosed separately from our other operating division and corporate activities. 2014 Annual Report 13 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. Our operating results are usually subject to fluctuations from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections. Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election. Operating Data The following table sets forth certain of our operating data from continuing operations for the years ended December 31, 2014, 2013 and 2012 (in millions). For definitions of terms, see the footnotes to the table in Item 6. Selected Financial Data. 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 Other operating divisions expenses Corporate general and administrative expenses (Gain) loss on asset dispositions Operating income Net income attributable to Sinclair Broadcast Group BROADCAST SEGMENT Broadcast Revenues Years Ended December 31, 2013 2014 2012 $ $ $ 1,782.7 122.3 71.6 1,976.6 577.0 370.6 107.7 335.5 58.9 69.4 (37.2 ) 494.7 212.3 $ $ $ 1,217.5 88.7 56.9 1,363.1 385.1 249.7 77.3 222.4 48.1 53.1 3.4 324.0 73.5 $ $ $ 920.6 86.9 54.2 1061.7 255.5 171.3 79.8 146.2 46.2 33.4 — 329.3 144.7 The following table presents our revenues from continuing operations, net of agency commissions, for the years ended December 31, 2014, 2013 and 2012 (in millions): $ Local revenues: Non-political Political Total local National revenues: Non-political Political Total national Total net broadcast revenues $ 2014 2013 2012 ‘14 vs. ‘13 ‘13 vs. ‘12 Percent Change 1,341.7 22.3 1,364.0 309.2 109.5 418.7 1,782.7 $ 954.5 1.5 956.0 251.2 10.3 261.5 $ 1,217.5 $ $ 643.5 12.9 656.4 180.2 84.0 264.2 920.6 40.6 % (a) 42.7 % 23.1 % (a) 60.1 % 46.4 % 48.3 % (a) 45.6 % 39.4 % (a) (1.0 %) 32.3 % (a) 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 2014 net time sales, which include the advertising portion of our local and national broadcast revenues, were automotive (23.1%), services (15.4%), political (10.6%), medical (5.8%), and retail/department stores (5.2%). No other advertising category accounted for more than 5.0% of our net time sales in 2014. No advertiser accounted for more than 1.2% of our consolidated revenue in 2014. We conduct business with thousands of advertisers. 14 Sinclair Broadcast Group Our primary types of programming and their approximate percentages of 2014 net time sales were syndicated programming (30.3%), local news (29.7%), network programming (27.6%), sports programming (8.4%), direct advertising programming (3.9%) and kids (0.1%). From a network affiliation or program service arrangement perspective, the following table sets forth our affiliate percentages of net time sales for the years ended December 31, 2014 and 2013: FOX ABC CBS NBC The CW MyNetworkTV Other(b) Total # of Channels (a) 46 33 29 21 44 33 167 373 n/m- Not meaningful Percent of Net Time Sales for the Twelve Months Ended December 31, 2012 2013 2014 Net Time Sales Percent Change ‘14 vs. ‘13 ‘13 vs. ‘12 27.3 % 25.7 % 20.0 % 9.4 % 8.5 % 7.8 % 1.4 % 31.2 % 19.1 % 21.3 % 6.1 % 9.8 % 10.3 % 2.2 % 36.9 % 19.5 % 18.6 % 1.0 % 10.7 % 12.5 % 0.8 % 25.3 % 2.4% 93.5 % 18.6% 34.2 % 38.5% 120.3 % n/m 24.1 % 10.4% (0.2%) 8.3 % (13.0 %) n/m (a) See Item 1. — Business for a summary and Markets and Stations under Television Broadcasting within Item 1. Business, for further channel details. We have acquired a significant number of television stations during 2014, 2013, and 2012, with a variety of network affiliations. This acquisition activity affects the year-over-year comparability of revenue by affiliation. See Note 2. Acquisitions for further discussion of stations acquired. (b) We broadcast other programming from the following providers on our channels including: Univision, This TV, ME TV, Retro TV, Get TV, Heartland, Grit, Accuweather WX, Weather Radar, Weather Nation, Live Well Network, Antenna TV, Bounce Network, Zuus Country, Azteca, Inmigrante TV, MundoFox, Telemundo and Estrella TV. Net Broadcast Revenues. Net broadcast revenues increased $565.2 million in 2014 when compared to 2013, of which $457.9 million was related to stations acquired during 2014. The remaining increase was due to an increase in retransmission revenues from MVPD and increases in advertising revenues generated from the political, medical and furniture sectors. These increases were partially offset by a decrease in advertising revenues generated from the direct response, retail-department stores, and restaurants-other sectors. Excluding the stations acquired in 2014, automotive, which typically is our largest category, represented 22.7% of net time sales for the year ended December 31, 2014. Net broadcast revenues increased $296.9 million in 2013 when compared to 2012, of which $326.7 million was related to stations acquired during 2013. The remaining decrease was due to decreases in advertising revenues generated from the political, direct response and school sectors. These decreases were partially offset by an increase in retransmission revenues from multichannel video programming distributors (MVPD) and increases in advertising revenues generated from the automotive, food-grocery/other, and services sectors. Excluding the stations acquired in 2013, automotive, which typically is our largest category, represented 25.1% of net time sales for the year ended December 31, 2013. Political Revenues. Political revenues, which include time sales from political advertising, increased by $120.0 million to $131.8 million for 2014 when compared to 2013. Political revenues decreased by $85.1 million to $11.8 million for 2013 when compared to 2012. Political revenues are typically higher in election years such as 2014 and 2012. Accordingly, we expect political revenues to decrease significantly in 2015, a non-election year, from 2014 levels. Local Revenues. Excluding political revenues, our local broadcast revenues, which include local times sales, retransmission revenues, digital, and other local revenues, were up $387.2 million for 2014 when compared to 2013, of which $345.0 million related to the stations acquired in 2014. The remaining increase is due to an increase in advertising spending particularly in the medical, religion, and home products sectors and an increase in retransmission revenues from MVPDs. These increases were partially offset by a decrease due to a decline in advertising revenues from the schools, direct response and fast food sectors. Excluding political revenues, our local broadcast revenues, which include local times sales, retransmission revenues and other local revenues, were up $311.0 million for 2013 when compared to 2012, of which $250.9 million related to the stations acquired in 2013. The remaining increase is due to an increase in advertising spending particularly in the automotive, services, and grocery/other sectors and an increase in retransmission revenues from MVPDs. These increases were partially offset by a decrease due to a decline in advertising revenues from the restaurants, schools and retail/department stores sectors. 2014 Annual Report 15 National Revenues. Our national broadcast revenues, excluding political revenues, which include national time sales and other national revenues, were up $58.0 million for 2014 when compared to 2013, of which $77.7 million related to the stations acquired in 2014. The remaining decrease was due to decreases in advertising revenues generated from the direct response, automotive, and food-grocery/other sectors. These decreases were partially offset by an increase in advertising revenues in the services, schools and drugs/cosmetics sectors. Excluding political revenues, our national broadcast revenues increased $71.0 million for 2013 when compared to 2012, of which $70.2 million related to the stations acquired in 2013. The remaining increase was due to increases in advertising revenues generated from the automotive, media and restaurants sectors. These increases were partially offset by a decline in advertising revenues in the fast food, other and movie sectors. Broadcast Expenses The following table presents our significant operating expense categories for the years ended December 31, 2014, 2013 and 2012 (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 expenses Depreciation and amortization expenses $ $ $ $ $ 2014 577.0 2013 $ 385.1 370.6 $ 249.7 106.6 $ 80.9 56.2 218.5 $ 47.3 $ 133.1 2012 255.5 171.3 61.0 28.9 77.5 $ $ $ $ $ Percent Change (Increase/(Decrease)) ‘14 vs. ‘13 ‘13 vs. ‘12 50.7 % 49.8 % 48.4 % 45.8 % 31.8 % 32.6 % 18.8 % 64.2 % 63.7 % 71.7 % Station production expenses. Station production expenses increased $191.9 million during 2014 compared to 2013, of which $158.9 million related to the stations not included in the same period in 2013. The remaining increases for the year were primarily due to an increase in fees pursuant to network affiliation agreements, increased costs related to sports programming content, and increased compensation expense. Station production expenses increased $129.6 million during 2013 compared to 2012, of which $107.2 million related to stations not included in the same period of 2012. This increase was primarily due to an increase in fees pursuant to network affiliation agreements, increased compensation expense, including incentive compensation. Station selling, general and administrative expenses. Station selling, general and administrative expenses increased $120.9 million during 2014 compared to 2013, of which $111.7 million related to stations not included in the same period in 2013. The remaining increases for the year were primarily due to an increase in information technology infrastructure costs and compensation expense, partially offset by a decrease in digital interactive expenses. Station selling, general and administrative expenses increased $78.4 million during 2013 compared to 2012, of which $75.4 million related to the stations not included in the same period in 2012. The remaining increases for the year were primarily due to an increase in compensation expense, including incentive compensation, partially offset by lower national sales commissions. Amortization of program contract costs and net realizable value adjustments. The amortization of program contract costs increased $25.7 million during 2014 compared to 2013, of which $16.6 million related to the stations not included in the same period of 2013. The remaining increase is due to additional programming content and higher programming costs. The amortization of program contract costs increased $19.9 million during 2013 compared to 2012, of which $14.8 million related to the stations not included in the same period of 2012. The remaining increase is due to higher programming costs. Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses. Depreciation and amortization expenses. Depreciation of property and equipment and amortization of definite-lived intangibles and other assets increased $85.4 million during 2014 compared 2013, of which $87.3 million related to the stations not included in the same period of 2012. Depreciation and amortization expenses increased $55.6 million during 2013 compared to 2012, of which $57.3 million related to a station not included in the same period of 2012. 16 Sinclair Broadcast Group OTHER OPERATING DIVISIONS REVENUE AND EXPENSE The following table presents our other operating divisions’ revenue and expenses which is comprised of the following for the years ended December 31, 2014, 2013 and 2012 (in millions): 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; real estate ventures and other nominal businesses. Revenues: Triangle (b) Alarm Funding Real Estate Ventures Other Expenses: (a) Triangle (b) Alarm Funding Real Estate Ventures Other 2014 2013 2012 $ $ $ $ $ $ $ $ 28.9 25.0 8.3 9.4 26.1 21.9 14.7 9.1 $ $ $ $ $ $ $ $ 26.8 18.3 7.4 4.3 25.1 15.7 13.7 7.0 $ $ $ $ $ $ $ $ 26.5 16.0 9.3 2.4 25.9 12.9 12.6 4.6 Percent Change (Increase/(Decrease)) ‘13 vs. ‘12 ‘14 vs. ‘13 7.8 % 36.6 % 12.2 % 118.6 % 4.0 % 39.5 % 7.3 % 30.0 % 1.1 % 14.4 % (20.4 %) 79.2 % (3.1 %) 21.7 % 8.7 % 52.2 % (a) Comprises total expenses of the entity including other operating divisions expenses, depreciation and amortization and applicable other income and expense items such as interest expense and non-cash stock-based compensation expense related to issuances of subsidiary stock awards. (b) The assets and liabilities of Triangle are classified as held for sale as of December 31, 2014. See Assets held for sale within Note 3. Disposition of assets and discontinued operations for further discussion. The year over year increases in Triangle’s revenue and expenses during 2014 compared to 2013 and 2013 compared to 2012 was primarily due to increases in sales volume due to new service contracts. The increases in Alarm Funding’s revenue and expenses during 2014 compared to 2013 and 2013 compared to 2012 were primarily due to the acquisition of new alarm monitoring contracts. Revenues and expenses increased for our consolidated real estate ventures over the same periods due to an increase in leasing activity for operating real estate properties, and sales of property under development. As of December 31, 2014, we held $112.7 million of real estate for development and sale. The increases in revenue and expenses during 2013 compared to 2012 for Other were primarily due to the acquisition of Dielectric, LLC during 2013. Income (loss) from Equity and Cost Method Investments. As of December 31, 2014 and 2013, the carrying value of our investments in private equity funds and real estate ventures, accounted for under the equity or cost method, was $23.6 million and $71.8 million in 2014 and $25.2 million and $69.3 million in 2013, respectively. Results of our equity and cost method investments in private investment funds and real estate ventures are included in income from equity and cost method investments in our consolidated statements of operations. During 2014, we recorded income of $3.1 million related to certain private investment funds and a loss of $1.0 million related to our real estate ventures. During 2013, we recorded income of $2.0 million related to certain private investment funds and income of $1.4 million related to our real estate ventures. During 2012, we recorded income of $2.2 million related to certain private equity funds and income of $7.4 million related to our real estate ventures, including a $7.9 million gain on the sale of three of our real estate ventures, partially offset by a $0.9 million impairment charge related to one of our real estate ventures. 2014 Annual Report 17 CORPORATE AND UNALLOCATED EXPENSES 2014 2013 2012 Percent Change (Increase/(Decrease)) ‘13 vs. ‘12 ‘14 vs. ‘13 $ $ $ $ 12.3 170.8 14.6 97.4 $ $ $ $ 4.5 159.7 58.4 41.2 $ $ $ $ 2.8 125.3 0.3 67.9 173.3 % 7.0 % (75.0 %) 136.4 % 60.7 % 27.5 % n/m (39.3 %) Corporate general and administrative expenses Interest expense Loss from extinguishment of debt Income tax provision n/m — not meaningful Corporate general and administrative expenses. We allocate most of our corporate general and administrative expenses to the broadcast segment. The explanation that follows combines corporate general and administrative expenses found in the Broadcast Segment section with the corporate general and administrative expenses found in this section, Corporate and Unallocated Expenses. These results exclude general and administrative costs from our other operating divisions which are included in our discussion of expenses in the Other Operating Divisions Revenues and Expense section. Combined corporate general and administrative expenses increased to $68.4 million in 2014 from $51.8 million in 2013. The increase is primarily due to an increase in overhead costs related to our recent acquisitions and includes $6.5 million of development costs associated with ONE Media, LLC during 2014. Combined corporate general and administrative expenses increased to $51.8 million in 2013 from $31.7 million in 2012. This is primarily due to an increase in transaction costs due to our recent acquisitions, an increase in higher health insurance costs and higher employee incentive / performance bonuses. We expect corporate general and administrative expenses to increase in 2015 compared to 2014. Interest expense. Interest expense increased in 2014 compared to 2013 primarily due to the issuance of $550.0 million of 5.625% Notes and incremental borrowings on our Term Loan A, Term Loan B, and revolving credit facility under our Bank Credit Agreement during 2014; and the issuance of $600.0 million of 5.375% Notes and the issuance of $350.0 million of 6.375% Notes in 2013. The increase in interest expense was partially offset by a decrease in interest expense due to the redemption of 8.375% Notes during 2014; and the redemption of our 9.25% Notes, 4.875% Notes and 3.0% Notes in 2013. Interest expense increased in 2013 compared to 2012 primarily due to the issuance of $500 million of 6.125% Notes in the fourth quarter 2012, the incremental borrowings on our Term Loan A and Term Loan B under our Bank Credit Agreement for our acquisitions in 2013, the issuance of $600.0 million of 5.375% Notes in the second quarter of 2013, and the issuance of $350.0 million of 6.375% Notes in the fourth quarter of 2013. Interest expense was partially offset by a decrease due to the redemption of our 9.25% Notes, our 4.875% Notes and our 3.0% Notes in the fourth quarter of 2013. We expect interest expense to increase in 2015 compared to 2014. Loss from extinguishment of debt. We recognized a loss on extinguishment of debt of $14.6 million for the year ended December 31, 2014 related to the redemption of the 8.375% Notes in October 2014. During the year ended December 31, 2013, we recognized a loss on extinguishment of debt of $59.4 million related to the amendments of our Bank Credit Agreement in April and October 2013 and redemption of 9.25% Notes in October 2013, partially offset by a $1.0 million gain on extinguishment from our 3.0% Notes, resulting in a $58.4 million loss from extinguishment of debt. During the year ended December 31, 2012, drew down on our incremental borrowings under the Bank Credit Agreement and wrote off a portion of our deferred financing costs and debt discount on the Term Loan B, resulting in a loss of $0.3 million from extinguishment of debt. Income tax provision. The 2014 income tax provision for our pre-tax income from continuing operations (including the effects of the noncontrolling interest) of $309.7 million resulted in an effective tax rate of 31.5%. The 2013 income tax provision for our pre-tax income from continuing operations (including the effects of the noncontrolling interest) of $103.2 million resulted in an effective tax rate of 40.0%. The decrease in the effective tax rate from 2013 to 2014 is primarily due to the following items: 1) remeasurement of deferred state tax liabilities due to intercompany mergers and changes in estimates of apportionment in certain states resulting in a $8.2 million benefit in 2014 compared to a $7.0 million expense in 2013; 2) $10.8 million reduction in liability for unrecognized tax benefits in 2014 as a result of statute of limitations expiration, which was partially offset by 3) greater benefit of state law changes in 2013. 18 Sinclair Broadcast Group The 2013 income tax provision for our pre-tax income from continuing operations (including the effects of the noncontrolling interest) of $103.2 million resulted in an effective tax rate of 40.0%. The 2012 income tax provision for our pre-tax income from continuing operations (including the effects of the noncontrolling interest) of $212.1 million resulted in an effective tax rate of 32.0%. The increase in the effective tax rate from 2012 to 2013 is primarily due to the following items: 1) greater expenses of consolidated VIEs in 2013 that are treated as pass-through entities for income tax purposes; and 2) a 2012 release of valuation allowance of $7.7 million related to certain deferred tax assets of Cunningham, one of our consolidated VIEs, as the weight of all available evidence supports realization of the deferred tax assets. The valuation allowance release determination was based primarily on the sufficiency of forecasted taxable income necessary to utilize NOLs expiring in years 2022 — 2029. This VIE files separate income tax returns. Any resulting tax liabilities are nonrecourse to us and we are not entitled to any benefit resulting from the deferred tax assets of the VIE As of December 31, 2014, we had a net deferred tax liability of $608.9 million as compared to a net deferred tax liability of $312.8 million as of December 31, 2013. The increase primarily relates to an increase in deferred tax liabilities resulting from the 2014 stock acquisitions with greater book basis in intangible and fixed assets. As of December 31, 2014, we had $7.1 million of gross unrecognized tax benefits. Of this total, $6.5 million (net of federal effect on state tax issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect our effective tax rate from continuing operations. As of December 31, 2013, we had $16.9 million of gross unrecognized tax benefits. Of this total, $15.7 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 rate from continuing operations. We recognized $0.7 million and $1.2 million of income tax expense for interest related to uncertain tax positions for the years ended December 31, 2014 and 2013, respectively. See Note 10. Income Taxes for further discussion. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2014, we had $17.7 million in cash and cash equivalent balances and net working capital of approximately $32.2 million. Cash generated by our operations and borrowing capacity under the Bank Credit Agreement are used as our primary sources of liquidity. We anticipate that existing cash and cash equivalents, cash flow from our operations and borrowing capacity under the revolving credit facility will be sufficient to satisfy our debt service obligations, capital expenditure requirements and working capital needs for the next twelve months. For our long-term liquidity needs, in addition to the sources described above, we may rely upon the issuance of long-term debt, the issuance of equity or other instruments convertible into or exchangeable for equity, or the sale of non-core assets. However, there can be no assurance that additional financing or capital or buyers of our non-core assets will be available, or that the terms of any transactions will be acceptable or advantageous to us. On March 20, 2014, the Board of Directors authorized an additional $150.0 million share repurchase authorization, in addition to the $150.0 million previously authorized. There is no expiration date, and currently management has no plans to terminate this program. For the year ended December 31, 2014, we have purchased approximately 4.9 million shares for $133.2 million. As of December 31, 2014, the total remaining authorization was $134.4 million. In July 2014, we amended and restated our existing bank credit facility raising $400.0 million of incremental term loan B. The incremental credit facility matures in July 2021. Additionally, $327.7 million of term loan A, including $72.5 million of the remaining $108.2 million delayed draw, were converted into revolving commitments. Remaining borrowing capacity under the Revolver was $144.1 million as of December 31, 2014. See Bank Credit Agreement within Note 7. Notes Payable and Commercial Bank Financing for further discussion. In July 2014, we issued $550.0 million of senior unsecured notes, which bear interest at a rate of 5.625% per annum and mature on August 1, 2024. See 5.625% Senior Unsecured Notes, due 2014 within Note 7. Notes Payable and Commercial Bank Financing for further discussion. Effective October 15, 2014, we redeemed all of the outstanding 8.375% Senior Notes due 2018, representing $237.5 million aggregate principal amount of Notes as of October 15, 2014. See 8.375% Senior Unsecured Notes, due 2018 within Note 7. Notes Payable and Commercial Bank Financing for further discussion. 2014 Annual Report 19 Sources and Uses of Cash The following table sets forth our cash flows for the years ended December 31, 2014, 2013 and 2012 (in millions): Net cash flows from operating activities Cash flows used in investing activities: Acquisition of property and equipment Payments for acquisitions of television stations Proceeds from the sale of broadcast assets Purchase of alarm monitoring contracts Decrease (Increase) in restricted cash Investments in equity and cost method investees Proceeds from insurance settlement Other, net Net cash flows used in investing activities Cash flows from financing activities: Proceeds from notes payable, commercial bank financing and capital leases Repayments of notes payable, commercial bank financing and capital leases Proceeds from the sale of Class A Common Stock Dividends paid on Class A and Class B common stock Repurchase of outstanding Class A Common Stock Payments for deferred financing costs Noncontrolling distributions contributions Other, net Net cash flows from financing activities Operating Activities 2014 2013 2012 430.5 $ 160.6 $ 237.5 (81.5 ) $ (1,485.0 ) 176.7 (27.7 ) 11.6 (8.1 ) 17.0 (0.4 ) (1,397.4 ) $ (43.4 ) $ (1,006.1 ) 49.7 (23.7 ) (11.5 ) (10.8 ) — (5.4 ) (1,051.2 ) $ (44.0 ) (1,135.3 ) — (12.5 ) 58.5 (24.1 ) — 8.1 (1,149.3 ) 1,500.7 $ 2,278.3 $ 1,247.2 (582.7 ) — (61.1 ) (133.2 ) (16.6 ) (8.2 ) 5.6 704.5 $ (1,509.8 ) 472.9 (56.8 ) — (27.7 ) (10.3 ) 1.3 1,147.9 $ (179.3 ) — (123.9 ) — (18.7 ) (1.1 ) (2.5 ) 921.7 $ $ $ $ $ Net cash flows from operating activities increased during the year ended December 31, 2014 compared to the same period in 2013. The increase was due to higher cash receipts from customer, which is primarily due to our acquisitions since the same period in 2013. The increase was partially offset by higher program payments, higher cash payments to vendors, and higher compensation expenses. Net cash flows from operating activities decreased during the year ended December 31, 2013 compared to the same period in 2012. During 2013, we had higher program payments, higher cash payments to vendors, and higher compensation expenses which are primarily due to our acquisitions since the same period in 2012, partially offset by higher cash receipts from customers. Investing Activities Net cash flows used in investing activities increased during the year ended December 31, 2014 compared to the same period in 2013. This increase is primarily due to $1,485.0 million in payments for the acquisition of television stations during 2014 compared to $1,006.1 million during 2013. See Note. 2 Acquisitions for discussion of stations acquired during those periods. The increase was also caused by higher capital expenditures and purchases of alarm monitoring contracts during 2014. The increase was partially offset by $176.7 million in sales of broadcast assets during 2014 compared to $49.7 million in 2013. See Note 3. Disposition of Assets and Discontinued Operations for discussion the sale of broadcast assets during the periods. The increase was also offset by proceeds from insurance settlements and the release of cash deposits for station acquisitions in 2014. Net cash flows used in investing activities decreased during the year ended December 31, 2013 compared to the same period in 2012. This decrease is primarily due to $1,006.1 million in payments for the acquisition of television stations during 2013 compared to $1,135.3 million during 2012. See Note. 2 Acquisitions for discussion of stations acquired during those periods. The decrease was also caused by $49.7 million sale of broadcast assets during 2013 and lower investments in cost and equity method investments. See Note 3. Disposition of Assets and Discontinued Operations for discussion the sale of broadcast assets during 2013. The decrease was partially offset by higher purchases of alarm monitoring contracts and an increase in restricted cash for station acquisitions compared to a decrease in 2012. 20 Sinclair Broadcast Group Financing Activities Net cash flows from financing activities decreased during the year ended December 31, 2014, compared to the same period in 2013. The decrease is primarily related to the $133.2 million repurchase of Class A Common Stock and higher dividend payments during 2014 and the $472.9 million proceeds from issuance of Class A Common Stock in 2013. The decrease is partially offset by higher issuance of debt, net of redemptions, in the 2014 compared to 2013. Net cash flows from financing activities increased during the year ended December 31, 2013 compared to the same period in 2012. The increase is primarily due to issuing $600.0 million and $350.0 million of 5.375% and 6.375% Notes, respectively, and $250.0 million net proceeds from our Bank Credit Agreement, $472.9 million proceeds received from our offering of Class A common stock, decreases in dividends paid from $1.54 per share during 2012 to $0.60 per share during 2013, and increases in loans by our consolidated variable interest entities. This increase is partially offset by redemption of our 9.375% Notes and increased payments for deferred financing costs. During 2013, our Board of Directors declared a quarterly dividend of $0.15 per share in the months of February, April, August and November, which were paid in March, June, September and December, respectively, for total dividend payments of $0.60 per share for the year ended December 31, 2013. During 2014, our Board of Directors declared a quarterly dividend of $0.15 per share in the months of February and April, and $0.165 per share in the months of August and November, which were paid in March, June, September and December, respectively, for total dividend payments of $0.63 per share for the year ended December 31, 2014. In February 2015, our Board of Directors declared a quarterly dividend of $0.165 per share. Future dividends on our common shares, if any, will be at the discretion of our Board of Directors and will depend on several factors including our results of operations, cash requirements and surplus, financial condition, covenant restrictions and other factors that the Board of Directors may deem relevant. The Class A Common Stock and Class B Common Stock holders have the same rights related to dividends. Under our Bank Credit Agreement, in certain circumstances, we may make up to $200.0 million in unrestricted annual cash payments including but not limited to dividends, of which $50.0 million may carry over to the next year. 2014 Annual Report 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, 2014 and the future periods in which such obligations are expected to be settled in cash (in millions): CONTRACTUAL OBLIGATIONS RELATED TO CONTINUING OPERATIONS (a) Notes payable, capital leases and commercial bank financing (c), (d) Notes and capital leases payable to affiliates (c) Operating leases Program content (e) Programming services (f) Investments and loan commitments (h) Other (g) Total contractual cash obligations $ $ Total 2015 2016-2017 2018-2019 2020 and thereafter (b) 4,803.2 27.6 65.1 1,035.0 96.4 15.0 30.8 6,073.1 $ $ 234.0 4.4 12.8 308.9 43.5 15.0 6.0 624.6 $ $ 397.6 8.2 21.4 535.2 29.5 — 8.9 1,000.8 $ $ 832.7 3.8 10.6 184.4 16.0 — 4.9 1,052.4 $ $ 3,338.9 11.2 20.3 6.5 7.4 — 11.0 3,395.3 (a) Excluded from this table are $7.1 million of accrued unrecognized tax benefits. Due to inherent uncertainty, we cannot make reasonable estimates of the amount and period payments will be made. (b) Includes a one-year estimate of $7.4 million in payments related to contracts that automatically renew. We have not calculated potential payments for years after 2020. (c) Includes interest on fixed rate debt and capital leases. Estimated interest on our variable rate debt has been excluded. Variable rate debt represents $1.9 billion of our $3.9 billion total face value of debt as of December 31, 2014. (d) See Note 7. Notes Payable and Commercial Bank Financing in our consolidated financial statements for further discussion of the changes to notes payable, capital leases, and commercial bank financing during 2014. (e) Our Program content includes contractual amounts owed through the expiration date of the underlying agreement for active and future program contracts, network programming and additional advertising inventory in various dayparts. Active program contracts are included in the balance sheet as an asset and liability while future program contracts are excluded until the cost is known, the program is available for its first showing or telecast and the licensee has accepted the program. Industry protocol typically enables us to make payments for program contracts on a three-month lag, which differs from the contractual timing within the table. Network programming agreements may include variable fee components such as subscriber levels, which in certain circumstances have been estimated and reflected in the table. (f) Includes obligations related to rating service fees, music license fees, market research, weather and news services. (g) Other includes obligations related to post-retirement benefits, maintenance and support, other corporate contracts, other long term liabilities, and LMA and outsourcing agreements. Excluded from the table are estimated amounts due pursuant to LMAs and outsourcing agreements where we consolidate the counterparty. The fees that we are required to pay under these agreements total $3.0 million, $3.6 million, $0.6 million and $1.0 million for the periods 2015, 2016- 2017, 2018-2019 and 2020 and thereafter, respectively. Certain station related operating expenses are paid by the licensee and reimbursed by us under the LMA agreements. Certain of these expenses that are in connection with contracts are included in table above. (h) Commitments to contribute capital to Patriot Capital II, LP, Patriot Capital III, LP and Caves Valley Partners. 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. As of December 31, 2014, we do not have any material off balance sheet arrangements. 22 Sinclair Broadcast Group QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rates. At times 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. See Note 7. Notes Payable and Commercial Bank Financing, for further discussion. As of December 31, 2014, we did not have any outstanding derivative instruments. We are exposed to risk from the changing interest rates of our variable rate debt, primarily related to our Bank Credit Agreement. For the year ended December 31, 2014, interest expense on our term loans and revolver related to our Bank Credit Agreement was $38.7 million. We estimate that adding 1.0% to respective interest rates would result in an increase in our interest expense of $13.5 million for the year ended December 31, 2014. We also have $118.8 million of variable rate debt associated with our other operating divisions. We estimate that adding 1.0% to respective interest rates would result in $0.8 million of additional interest expense for the year ended December 31, 2014. Our consolidated VIEs have $30.2 million of variable rate debt associated with the stations that we provide services to pursuant to LMAs and other outsourcing arrangements. We estimate that adding 1.0% to respective interest rates would an increase interest expense of the VIEs by $0.3 million for the year ended December 31, 2014. 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. 2014 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third Quarter Fourth Quarter High Low $ $ $ $ $ $ $ $ 36.74 34.75 35.90 29.95 High 20.29 29.94 34.04 35.73 $ $ $ $ $ $ $ $ 24.42 25.12 25.48 23.94 Low 12.82 19.61 23.92 31.35 As of February 20, 2015, there were approximately 56 shareholders of record of our common stock. This number does not include beneficial owners holding shares through nominee names. 2014 Annual Report 23 Dividend Policy During 2013, our Board of Directors declared a quarterly dividend of $0.15 per share in the months of February, April, August and November, which were paid in March, June, September and December, respectively, for total dividend payments of $0.60 per share for the year ended December 31, 2013. During 2014, our Board of Directors declared a quarterly dividend of $0.15 per share in the months of February and April, which were paid in March and June. In August and November our Board of Directors declared a quarterly dividend of $0.165 per share, which were paid in September and December. Total dividend payments for the year ended December 31, 2014 were $0.63 per share. In February 2015, our Board of Directors declared a quarterly dividend of $0.165 per share. Future dividends on our common shares, if any, will be at the discretion of our Board of Directors and will depend on several factors including our results of operations, cash requirements and surplus, financial condition, covenant restrictions and other factors that the Board of Directors may deem relevant. The Class A Common Stock and Class B Common Stock holders have the same rights related to dividends. Under our Bank Credit Agreement, in certain circumstances, we may make unrestricted cash payments as long as our first lien indebtedness ratio does not exceed 3.75 to 1.00. Once our first lien indebtedness ratio exceeds 3.75 to 1.00, we have the ability to make up to $200.0 million in unrestricted annual cash payments including but not limited to dividends, of which $50.0 million may carry over to the next year, as long as we are in compliance with our first lien indebtedness ratio under the Bank Credit Agreement of 4.00 to 1.00. In addition, we have an aggregate basket of up to $250.0 million, as long as we are in compliance with our first lien indebtedness ratio of 4.00 to 1.00, and an aggregate basket of $50.0 million, as long as no Event of Default has occurred. Under the indentures governing the 6.125% Notes, 5.375% Notes, 6.375% Notes and 5.625% 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 each indenture or certain other specified agreements relating to our indebtedness; and after taking account of the dividends payment, we are within certain restricted payment requirements contained in each indenture. In addition, under certain of our debt instruments, the payment of dividends is not permissible during a default thereunder. Issuer Purchases of Equity Securities The following table summarizes repurchases of our stock in the quarter ended December 31, 2014: Total Number of Shares Purchased (1) Average Price Per Share Total Number of Shares Purchased as Part of a Publicly Announced Program Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (in millions) 942,415 — 19,200 $ $ 25.59 — 25.71 942,415 — 19,200 $ $ $ 134.9 134.9 134.4 Period Class A Common Stock : (2) 10/01/14 — 10/31/14 11/01/14 — 11/31/14 12/01/14 — 12/30/14 (1) All repurchases were made in open-market transactions. (2) On February 6, 2008, the Board of Directors renewed a $150.0 million share repurchase program. On March 20, 2014, the Board of Directors authorized a new $150.0 million share repurchase authorization. There is no expiration date for this program and currently management has no plans to terminate this program. As of December 31, 2014, the total remaining authorization was $134.4 million. In January 2015, we repurchased 0.3 million shares of Class A Common Stock for $7.8 million. 24 Sinclair Broadcast Group 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 Composite Index and the cumulative total return of the NASDAQ Telecommunications Index (an index containing performance data of radio and television broadcast companies and communication equipment and accessories manufacturers) from December 31, 2009 through December 31, 2014. The performance graph assumes that an investment of $100 was made in the Class A Common Stock and in each Index on December 31, 2009 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 Composite Index 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 100.00 100.00 100.00 213.92 107.95 117.61 311.32 96.16 118.70 398.39 100.40 139.00 1158.43 139.11 196.83 906.29 148.69 223.74 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Sinclair Broadcast Group, Inc., the NASDAQ Composite Index, and the NASDAQ Telecommunications Index $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 12/09 12/10 12/11 12/12 12/13 12/14 Sinclair Broadcast Group, Inc. NASDAQ Composite NASDAQ Telecommunications *$100 invested on 12/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. 2014 Annual Report 25 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, 2014. 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 our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The term “internal control over financial reporting,” as defined in Rules 13a-15d-15(f) under the Exchange Act, means a process designed by, or under the supervision of our Chief Executive and Chief Financial Officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP) and includes those policies and procedures that: pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and 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. Assessment of Effectiveness of Disclosure Controls and Procedures Based on the evaluation of our disclosure controls and procedures as of December 31, 2014, 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, 2014 based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on our assessment, management has concluded that, as of December 31, 2014, our internal control over financial reporting was effective based on those criteria. Management has excluded the assets, liabilities and operations of the television stations acquired from the Allbritton Companies, New Age Media, WGXA-TV, KSNV-TV, WJAR-TV, WLUK-TV, WCWF-TV, and WTGS-TV from its assessment of internal control over financial reporting as of December 31, 2014 because these television stations were acquired by the Company in a purchase business combination during 2014. These assets acquired represent 3% of total assets as of December 31, 2014 and 6% of total revenues for the year ended December 31, 2014. The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein. 26 Sinclair Broadcast Group Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2014, 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 2014 Annual Report 27 CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) As of December 31, ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts of $4,246 and $3,379, respectively Current portion of program contract costs Income taxes receivable Prepaid expenses and other current assets Deferred barter costs Assets held for sale Total current assets ASSETS HELD FOR SALE PROGRAM CONTRACT COSTS, less current portion PROPERTY AND EQUIPMENT, net RESTRICTED CASH GOODWILL BROADCAST LICENSES DEFINITE-LIVED INTANGIBLE ASSETS, net OTHER ASSETS Total assets (a) LIABILITIES AND EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable Accrued liabilities Income taxes payable Current portion of notes payable, capital leases and commercial bank financing Current portion of notes payable and capital leases payable to affiliates Current portion of program contracts payable Deferred barter revenues Deferred tax liabilities Liabilities held for sale 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 (a) COMMITMENTS AND CONTINGENCIES (See Note 11) EQUITY (DEFICIT): SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY (DEFICIT): Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 69,578,899 and 74,145,569 shares issued and outstanding, respectively Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 25,928,357 and 26,028,357 shares issued and outstanding, respectively, convertible into Class A Common Stock Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss Total Sinclair Broadcast Group shareholders’ deficit Noncontrolling interests Total equity (deficit) Total liabilities and equity (deficit) $ 2014 2013 $ $ $ 17,682 383,503 88,198 3,314 21,338 5,626 6,504 526,165 8,817 38,531 752,538 — 1,964,553 135,075 1,818,263 208,230 5,452,172 12,248 246,123 — 113,116 2,625 104,922 5,806 6,689 2,477 494,006 3,796,666 16,309 60,605 602,243 77,000 5,046,829 280,104 308,974 74,324 — 30,781 3,688 — 697,871 — 24,708 596,071 11,747 1,380,082 101,029 1,127,755 208,209 4,147,472 13,989 182,185 2,504 46,346 2,367 90,933 3,319 1,738 — 343,381 2,966,402 18,925 34,681 311,041 67,338 3,741,768 696 741 259 979,202 (545,820 ) (6,455 ) 427,882 (22,539 ) 405,343 5,452,172 $ 260 1,094,918 (696,996 (2,553 396,370 9,334 405,704 4,147,472 The accompanying notes are an integral part of these consolidated financial statements. (a) Our consolidated total assets as of December 31, 2014 and 2013 include total assets of variable interest entities (VIEs) of $163.3 million and $194.1 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of December 31, 2014 and 2013 include total liabilities of the VIEs of $30.0 million and $31.6 million, respectively, for which the creditors of the VIEs have no recourse to us. See Note 1: Nature of Operations and Summary of Significant Accounting Policies. 28 Sinclair Broadcast Group CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In thousands, except per share data) REVENUES: Station broadcast revenues, net of agency commissions Revenues realized from station barter arrangements Other operating divisions revenues Total revenues 2014 2013 2012 $ $ 1,782,726 122,262 71,570 1,976,558 $ 1,217,504 88,680 56,947 1,363,131 920,593 86,905 54,181 1,061,679 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 and other assets (Gain) loss on asset dispositions Total operating expenses Operating income OTHER INCOME (EXPENSE): Interest expense and amortization of debt discount and deferred financing costs Loss from extinguishment of debt Income from equity and cost method investments Other income, net Total other expense Income from continuing operations before income taxes INCOME TAX PROVISION Income from continuing operations DISCONTINUED OPERATIONS: Income (loss) from discontinued operations, includes income tax benefit of $0, ($10,806) and ($663), respectively NET INCOME Net income attributable to the noncontrolling interests NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP Dividends declared per share EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP: Basic earnings per share from continuing operations Basic earnings per share Diluted earnings per share from continuing operations Diluted earnings per share Weighted average common shares outstanding Weighted average common and common equivalent shares outstanding AMOUNTS ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP COMMON SHAREHOLDERS: Income from continuing operations, net of tax Income (loss) from discontinued operations, net of tax Net income $ $ $ $ $ $ $ $ 577,013 370,606 107,716 106,629 58,903 103,291 69,413 125,496 (37,160 ) 1,481,907 494,651 (174,862 ) (14,553 ) 2,313 4,998 (182,104 ) 312,547 (97,432 ) 215,115 — 215,115 (2,836 ) 212,279 0.63 2.19 2.19 2.17 2.17 97,114 97,819 $ $ $ $ $ $ 385,104 249,732 77,349 80,925 48,109 70,554 53,126 70,820 3,392 1,039,111 324,020 (162,937 ) (58,421 ) 621 2,225 (218,512 ) 105,508 (41,249 ) 64,259 11,558 75,817 (2,349 ) 73,468 0.60 0.66 0.79 0.66 0.78 93,207 93,845 $ $ $ $ $ $ 255,556 171,279 79,834 60,990 46,179 47,073 33,391 38,099 (7 ) 732,394 329,285 (128,553 ) (335 ) 9,670 2,273 (116,945 ) 212,340 (67,852 ) 144,488 465 144,953 (287 ) 144,666 1.54 1.78 1.79 1.78 1.78 81,020 81,310 212,279 — 212,279 $ $ 61,910 11,558 73,468 $ $ 144,201 465 144,666 The accompanying notes are an integral part of these consolidated financial statements. 2014 Annual Report 29 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In thousands) Net income Amortization of net periodic pension benefit costs, net of taxes Adjustments to pension obligations, net of taxes Unrealized gain on investments, net of taxes Comprehensive income Comprehensive (income) loss attributable to the noncontrolling interests Comprehensive income attributable to Sinclair Broadcast Group 2014 2013 2012 $ $ 215,115 173 (3,814 ) 285 211,759 (2,836 ) 208,923 $ $ 75,817 (392 ) 2,571 261 78,257 (2,349 ) 75,908 $ $ 144,953 (145 ) — — 144,808 (287 ) 144,521 The accompanying notes are an integral part of these consolidated financial statements 30 Sinclair Broadcast Group CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In thousands, except share data) BALANCE, December 31, 2011 Dividends declared on Class A and Class B Common Stock Class A Common Stock issued pursuant to employee benefit plans Purchase of assets from entity under common control Tax benefit on share based awards Distributions to noncontrolling interests Issuance of subsidiary share awards Consolidation of variable interest entity Purchase of subsidiary shares from noncontrolling interests Amortization of net periodic pension benefit costs, net of taxes Net income BALANCE, December 31, 2012 Sinclair Broadcast Group Shareholders Class A Common Stock Shares Value Class B Common Stock Shares Value Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Non- controlling Interests Total Equity (Deficit) 52,022,086 $ 520 28,933,859 $ 289 $ 617,375 $ (734,511) $ (4,848) $ 9,813 $ (111,362) — (123,852) — — 309,926 — — — — — 3 — — — — — — — — — — — — — — — — — — — 5,102 (23,638) 271 — — — — — — — 1,818 — — — — — — — — — — — — — — — — (123,852) — — — 5,105 (23,638) 271 (1,142) (1,142) 707 707 9,050 9,050 (1,818) — — — — — — — — — — — — 144,666 (145) — — 287 (145) 144,953 52,332,012 $ 523 28,933,859 $ 289 $ 600,928 $ (713,697) $ (4,993) $ 16,897 $ (100,053) The accompanying notes are an integral part of these consolidated financial statements. 2014 Annual Report 31 CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In thousands, except share data) BALANCE, December 31, 2012 Dividends declared on Class A and Class B Common Stock Issuance of common stock, net of issuance costs Class B Common Stock converted into Class A Common Stock Redemption of 3% Convertible Debentures, net of taxes 4.875% Convertible Debentures converted into Class A Common Stock, net of taxes Class A Common Stock issued pursuant to employee benefit plans Tax benefit on share based awards Distributions to non- controlling interests Issuance of subsidiary share awards Class A Common Stock sold by variable interest entities, net of taxes Other comprehensive income Net income BALANCE, December 31, 2013 Sinclair Broadcast Group Shareholders Class A Common Stock Shares Value Class B Common Stock Shares Value Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Non- controlling Interests Total Equity (Deficit) 52,332,012 $ 523 28,933,859 $ 289 $ 600,928 $ (713,697) $ (4,993) $ 16,897 $ (100,053) — — 18,000,000 180 — — — — 472,733 — (56,767) 2,905,502 29 (2,905,502) (29) — — — — — (5,100) 338,632 3 — — 8,599 569,423 — — — — — — 6 — — — — — — — — — — — — — — — — — — — — 10,299 521 — — 7,008 — — — — — — — — — — — — (56,767) — 472,913 — — — (5,100) — — — 8,602 10,235 521 (10,256) (10,256) 344 344 — 2,440 — — — 2,349 7,008 2,440 75,817 — — — — — — — — — — 73,468 74,145,569 $ 741 26,028,357 $ 260 $ 1,094,918 $ (696,996) $ (2,553) $ 9,334 $ 405,704 The accompanying notes are an integral part of these consolidated financial statements. 32 Sinclair Broadcast Group CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In thousands, except share data) BALANCE, December 31, 2013 Dividends declared on Class A and Class B Common Stock Class B Common Stock converted into Class A Common Stock Repurchases of Class A Common Stock Class A Common Stock issued pursuant to employee benefit plans Tax benefit on share based awards Distributions to non- controlling interests Deconsolidation of variable interest entity Other comprehensive income Net income BALANCE, December 31, 2014 Sinclair Broadcast Group Shareholders Class A Common Stock Shares Value Class B Common Stock Shares Value Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Non- controlling Interests Total Equity (Deficit) 74,145,569 $ 741 26,028,357 $ 260 $ 1,094,918 $ (696,996) $ (2,553) $ 9,334 $ 405,704 — — — — — (61,103) 100,000 1 (100,000) (4,876,121) (48) 209,451 — — — — — 2 — — — — — — — — — — — — (1) — — (133,109) — — — — — — 11,510 1,365 — 4,518 — — — — — — — — — — — — — — — (61,103) — — — — — (133,157) 11,512 1,365 (6,936) (6,936) (546) (27,773) (23,801) — 212,279 (3,356) — — 2,836 (3,356) 215,115 69,578,899 $ 696 25,928,357 $ 259 $ 979,202 $ (545,820) $ (6,455) $ (22,539) $ 405,343 The accompanying notes are an integral part of these consolidated financial statements. 2014 Annual Report 33 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash flows from operating activities: Depreciation of property and equipment Amortization of definite-lived intangible assets Amortization of program contract costs and net realizable value adjustments Loss on extinguishment of debt, non-cash portion Stock-based compensation Deferred tax (benefit) provision (Gain) loss on the sale of assets Changes in assets and liabilities, net of effects of acquisitions and dispositions: (Increase) in accounts receivable, net Increase (decrease) in income taxes payable (Increase) decrease in prepaid expenses and other current assets Increase in accounts payable and accrued liabilities Payments on program contracts payable Original debt issuance discount paid Real estate held for development and sale Other, net Net cash flows from operating activities CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Acquisition of property and equipment Payments for acquisitions of television stations, net of cash acquired Proceeds from the sale of broadcast assets Purchase of alarm monitoring contracts Decrease (increase) decrease in restricted cash Investments in equity and cost method investees Proceeds from termination of life insurance policies Other, net Net cash flows (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable, commercial bank financing and capital leases Repayments of notes payable, commercial bank financing and capital leases Redemption of 3% convertible notes Proceeds from the sale of Class A Common Stock Repurchase of outstanding Class A Common Stock Dividends paid on Class A and Class B Common Stock Payments for deferred financing costs Proceeds from Class A Common Stock sold by variable interest entity Noncontrolling interests distributions Other, net Net cash flows from financing activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, beginning of year CASH AND CASH EQUIVALENTS, end of year $ 2014 2013 2012 $ 215,115 $ 75,817 $ 144,953 103,291 125,496 106,629 4,605 14,296 (818 ) (37,160 ) (44,253 ) 8,253 (2,215 ) 53,312 (93,682 ) (3,583 ) (20,683 ) 1,851 430,454 (81,458 ) (1,485,039 ) 176,675 (27,701 ) 11,616 (8,104 ) 17,042 (387 ) (1,397,356 ) 1,500,720 (582,764 ) — — (133,157 ) (61,103 ) (16,590 ) — (8,184 ) 5,558 704,480 (262,422 ) 280,104 17,682 $ 70,554 70,820 80,925 33,049 10,573 22,518 3,392 (90,635 ) (4,937 ) 8,295 7,954 (90,080 ) (23,766 ) (10,768 ) (3,134 ) 160,577 (43,388 ) (1,006,144 ) 49,738 (23,721 ) (11,522 ) (10,767 ) — (5,437 ) (1,051,241 ) 2,278,293 (1,509,760 ) (10,500 ) 472,913 — (56,767 ) (27,724 ) 10,908 (10,256 ) 796 1,147,903 257,239 22,865 280,104 $ 48,871 38,671 61,943 335 5,836 8,313 (7 ) (23,225 ) 9,150 (8,360 ) 35,885 (70,061 ) — (1,042 ) (13,787 ) 237,475 (43,986 ) (1,135,348 ) — (12,454 ) 58,501 (24,052 ) 42 8,013 (1,149,284 ) 1,247,255 (179,356 ) — — — (123,852 ) (18,707 ) — (1,142 ) (2,491 ) 921,707 9,898 12,967 22,865 The accompanying notes are an integral part of these consolidated financial statements. 34 Sinclair Broadcast Group 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 Communication Commission (the FCC or Commission). We owned and provided programming and operating services pursuant to local marketing agreements (LMAs) or provided or were provided sales services pursuant to outsourcing agreements to 164 stations in 79 markets which broadcast 373 channels, as of December 31, 2014. For the purpose of this report, these 164 stations and 373 channels are referred to as “our” stations and channels. Principles of Consolidation The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries and variable interest entities (VIEs) for which we are the primary beneficiary. Noncontrolling interest represents a minority owner’s proportionate share of the equity in certain of our consolidated entities. All intercompany transactions and account balances have been eliminated in consolidation. Variable Interest Entities In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. We consolidate VIEs when we are the primary beneficiary. The assets of each of our consolidated VIEs can only be used to settle the obligations of the VIE. All the liabilities are non-recourse to us except for certain debt of VIEs which we guarantee. Third-party station licensees. Certain of our stations provide services to other station owners within the same respective market, such as LMAs, where we provide programming, sales, operational and administrative services, and JSAs and SSAs, where we provide non-programming, sales, operational and administrative services. In certain cases, we have also entered into purchase agreements or options to purchase, the license related assets of the licensee. We typically own the majority of the non-license assets of the stations and in some cases where the licensee acquired the license assets concurrent with our acquisition of the non- license assets of the station, we have provided guarantees to the bank for the licensee’s acquisition financing. The terms of the agreements vary, but generally have initial terms of over five years with several optional renewal terms. As of December 31, 2014 and 2013, we have concluded that 37 and 34 of these licensees are VIEs, respectively. Based on the terms of the agreements and the significance of our investment in the stations, we are the primary beneficiary of the variable interests because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and because we absorb losses and returns that would be considered significant to the VIEs. Several of these VIEs are owned by a related party, Cunningham Broadcasting Corporation (Cunningham). See Note 12. Related Person Transactions for more information about the arrangements with Cunningham. The net revenues of the stations which we consolidate were $286.3 million, $235.8 million and $154.6 million for the year ended December 31, 2014, 2013, and 2012, respectively. The fees paid between us and the licensees pursuant to these arrangements are eliminated in consolidation. See Changes in the Rules of Television Ownership and Joint Sale Agreements within Note 11. Commitment and Contingencies for discussion of recent changes in FCC rules related to JSAs. Up until third quarter of 2014, we had consolidated Cunningham (parent entity), in addition to their stations that we perform services for, as we had previously determined that it was a VIE because it had insufficient equity at risk. As of September 30, 2014, we concluded that Cunningham was no longer a VIE given its significant equity at risk in assets that we have no involvement with, and deconsolidated this entity, along with WTAT and WYZZ, stations that Cunningham acquired from us in July 2014 and November 2013, respectively, with which we have no continuing involvement. As a result of the deconsolidation, we recorded the difference between the proceeds received from Cunningham for the sale of WTAT and WYZZ to additional paid in capital in the consolidated balance sheet, as well as reflected the noncontrolling interest deficit of the remaining Cunningham VIEs which represents their significant cumulative distributions made to Cunningham (parent entity) that were previously eliminated in consolidation. 2014 Annual Report 35 As of the dates indicated, the carrying amounts and classification of the assets and liabilities of the VIEs mentioned above which have been included in our consolidated balance sheets as of December 31, 2014 and 2013 were as follows (in thousands): ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable Current portion of program contract costs Prepaid expenses and other current assets Total current asset PROGRAM CONTRACT COSTS, less current portion PROPERTY AND EQUIPMENT, net GOODWILL BROADCAST LICENSES DEFINITE-LIVED INTANGIBLE ASSETS, net OTHER ASSETS Total assets LIABILITIES CURRENT LIABILITIES: Accounts payable Accrued liabilities Current portion of notes payable, capital leases and commercial bank financing Current portion of program contracts payable Total current liabilities LONG-TERM LIABILITIES: Notes payable, capital leases and commercial bank financing, less current portion Program contracts payable, less current portion Long term liabilities Total liabilities 2014 2013 491 19,521 9,544 297 29,853 6,922 9,716 787 16,935 96,732 2,376 163,321 68 1,297 3,659 9,714 14,738 28,640 10,161 8,739 62,278 $ $ $ $ 4,916 18,468 10,725 247 34,356 5,075 11,081 6,357 16,768 97,496 22,935 194,068 86 2,536 5,731 11,552 19,905 49,850 6,597 10,838 87,190 $ $ $ $ The amounts above represent the consolidated assets and liabilities of the VIEs described above, for which we are the primary beneficiary, and have been aggregated as they all relate to our broadcast business. Excluded from the amounts above are payments made to Cunningham under the LMA which are treated as a prepayment of the purchase price of the stations and capital leases between us and Cunningham which are eliminated in consolidation. The total payments made under these LMAs as of December 31, 2014 and 2013, which are excluded from liabilities above, were $34.4 million and $32.4 million, respectively. The total capital lease liabilities, net of capital lease assets, excluded from the above were $4.3 million and $5.0 million, respectively for the years ended December 31, 2014 and 2013, respectively. During the year ended December 31, 2013, Cunningham sold a portion of its investment in our Class A Common Stock which was eliminated in consolidation and excluded from assets shown above, for $7.0 million, net of income taxes and has been reflected as an increase in additional paid in capital in the consolidated balance sheet. Also excluded from the amounts above are liabilities associated with the certain outsourcing agreements and purchase options with certain VIEs totaling $78.1 million and $59.9 million as of December 31, 2014 and December 31, 2013, respectively, as these amounts are eliminated in consolidation. The risk and reward characteristics of the VIEs are similar. Other investments. We have investments in other real estate ventures and investment companies which are considered VIEs. However, we do not participate in the management of these entities including the day-to-day operating decisions or other decisions which would allow us to control the entity, and therefore, we are not considered the primary beneficiary of these VIEs. We account for these entities using the equity or cost method of accounting. The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary as of December 31, 2014 and 2013 was $22.7 million and $26.7 million, respectively, which are included in other assets in the consolidated balance sheets. Our maximum exposure is equal to the carrying value of our investments. The income and loss related to these investments are recorded in income from equity and cost method investments in the consolidated statement of operations. We recorded income of $2.2 million, $2.1 million and $6.4 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to these investments. 36 Sinclair Broadcast Group Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities. Actual results could differ from those estimates. Recent Accounting Pronouncements In July 2013, the FASB issued new guidance requiring new disclosure of unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a company does not have: (i) a net operating loss carryforward; (ii) a similar tax loss; or (iii) a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The authoritative guidance is effective for fiscal years and the interim periods within those fiscal years beginning on or after December 15, 2013 and should be applied on a prospective basis. This guidance does not have a material impact on our financial statements. In April 2014, the FASB issued new guidance that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of and represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. Under the revised guidance, it is less likely for any future sales of assets, asset groups, or stations to be considered discontinued operations because such sales would need to represent a strategic shift and have a major effect on our future operations. Historically, under the previous guidance, sales of minor components of our business were required to be classified as discontinued operations. We early adopted this new guidance effective July 1, 2014. If this guidance were effective for the 2013 discontinued operations discussed in Discontinued Operations, then the sale of those television stations would not have met the criteria under the new guidance. In May 2014, the FASB issued new guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. This new standard is effective for annual reporting periods beginning after December 15, 2016. Early application is not permitted and the standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating the impact of this guidance on our financial statements. In August 2014, the FASB issued guidance on disclosure of uncertainties about an entity’s ability to continue as a going concern. The new standard is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. We are currently evaluating the impact of this guidance on our financial statements. In February 2015, the FASB issued new guidance that amends the current consolidation guidance on the determination of whether an entity is a variable interest entity. This new standard is effective for the annual period beginning after December 15, 2016. Early adoption is allowed, including in any interim period. We are currently evaluating the impact of this new guidance on our financial statements. 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. Restricted Cash During 2013, we entered into certain definitive agreements to purchase assets of certain stations discussed in Note 2. Acquisitions, which required certain deposits to be made into escrow accounts. As of December 31, 2013, we held $11.4 million, in restricted cash classified as noncurrent related to the amounts held in escrow for these acquisitions. 2014 Annual Report 37 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. A rollforward of the allowance for doubtful accounts for the years ended December 31, 2014, 2013 and 2012 is as follows (in thousands): Balance at beginning of period Charged to expense Net write-offs Balance at end of period Programming 2014 2013 2012 $ $ 3,379 2,186 (1,319 ) 4,246 $ $ 3,091 1,802 (1,514 ) 3,379 $ $ 3,008 1,141 (1,058 ) 3,091 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. Pursuant to accounting guidance for the broadcasting industry, an asset and a liability for the rights acquired and obligations incurred under a license agreement are reported on the balance sheet where 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. 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. With the exception of one-year contracts, amortization of program contract costs is computed using either a four-year accelerated method or based on usage, whichever method results in the earliest recognition of amortization for each program. Program contract costs are amortized on a straight-line basis for one-year contracts. 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. 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. We perform a net realizable value calculation quarterly for each of our program contract costs in accordance with the accounting guidance for the broadcasting industry. 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. 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. Program service arrangements are accounted for as station barter arrangements, however, network affiliation 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. 38 Sinclair Broadcast Group Other Assets Other assets as of December 31, 2014 and 2013 consisted of the following (in thousands): Equity and cost method investments Unamortized costs related to debt issuances Other Total other assets 2014 2013 $ $ 107,847 47,118 53,265 208,230 $ $ 98,385 46,150 63,674 208,209 We have equity and cost method investments primarily in private investment funds and real estate ventures. In the event that one or more of our investments are significant, we are required to disclose summarized financial information. For the years ended December 31, 2014, 2013, and 2012, none of our investments were significant individually or in the aggregate. As of December 31, 2014 and 2013, our unfunded commitments related to private equity investment funds totaled $15.6 million and $17.0 million, respectively. When factors indicate that there may be a decrease in value of an equity or cost method investment, we assess whether a loss in value has occurred related to the investment. If that loss is deemed to be other than temporary, an impairment loss is recorded accordingly. 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. For the year ended December 31, 2012, we recorded impairments of $1.3 million related to two of our investments. For the year ended December 31, 2013, we recorded impairments of $0.6 million related to two of our investments. There were no impairment charges during the year ended December 31, 2014. The impairments are recorded in the income (loss) from equity and cost method investees in our consolidated statement of operations. Unamortized costs related to debt issuances represent direct costs incurred to obtain long-term financing and are amortized to interest expense over the term of the related debt using the effective interest method. Previously capitalized debt financing costs are expensed and included in loss on extinguishment of debt if we determine that there has been a substantial modification of the related debt. The decrease in other, in the table above, for 2014 was primarily due to the deconsolidation of investments held by Cunningham, partially offset by long term income tax receivables recorded in connection with the acquisition of the Allbritton Companies. See Variable Interest Entities above for further discussion on the deconsolidation of Cunningham. See Note 2. Acquisitions for further discussion on the acquisition of the Allbritton Companies. Impairment of Goodwill, Intangibles and Other Long-Lived Assets We assess annually, in the fourth quarter, whether goodwill and indefinite-lived intangible assets are impaired. Additionally, impairment assessments may be performed on an interim basis when events or changes in circumstances indicate that impairment potentially exists. We aggregate our stations by market for purposes of our goodwill and license impairment testing. We believe that our markets are most representative of our broadcast reporting units because segment management views, manages and evaluates our stations on a market basis. Furthermore, in our markets, where we operate or provide services to more than one station, certain costs of operating the stations are shared including the use of buildings and equipment, the sales force and administrative personnel. In our assessment of goodwill for impairment we first determine, based upon a qualitative assessment, whether it is more likely than not a reporting unit has been impaired. As part of this qualitative assessment, for each reporting unit, we weigh the relative impact of factors that are specific to the reporting unit as well as industry and macroeconomic factors. The reporting unit specific factors that we consider include current and forecasted financial performance, the significance of the excess fair value over carrying value in prior quantitative assessments, and any changes to the reporting units’ carrying amounts since the most recent impairment tests. We also consider whether there were any significant changes in the regulatory environment and business climate of the industry, and whether there were any negative pressures on growth rates and discount rates. 2014 Annual Report 39 If we conclude that it is more likely than not that a reporting unit is impaired, we will apply the quantitative two-step method. 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. Our discounted cash flow model is based on our judgment of future market conditions within each designated market area based on our internal forecast of future performance, as well as discount rates that are based on a number of factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure for a television station, and includes adjustments for market risk and company specific risk. 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 to determine the implied fair value. An impairment charge will be recognized only when the implied fair value of a reporting unit’s goodwill is less than its carrying amount. For our annual impairment test for indefinite-lived intangibles, broadcast licenses, we apply a qualitative assessment to assess whether it is more likely than not that broadcast licenses of a market are impaired. As part of this qualitative assessment, for each market, we weigh the relative impact of factors that are specific to the market as well as industry and macroeconomic factors that could affect the significant inputs used to determine the fair value of our broadcast license assets. The market specific factors that we consider include recent market projections from both independent and internal sources for advertising revenue and operating costs, estimated normal market share and capital expenditures, as well as the significance of the excess fair value over carrying value in prior quantitative assessments. We also consider whether there were any significant changes in the regulatory environment and business climate of the industry, and whether there were any negative pressures on growth rates and discount rates. When evaluating our broadcast licenses for impairment, the qualitative assessment is done at the market level because the broadcast licenses within the market are complementary and together enhance the single broadcast license of each station. If we conclude that it is more likely than not that one of our broadcast licenses is impaired, we will perform a quantitative assessment by comparing the aggregate fair value of the broadcast licenses in the market to the respective carrying values. We apply the income approach, using a Greenfield method, to estimate the fair values of the broadcast licenses. The income approach method involves a discounted cash flow model that incorporates several variables, including, but not limited to, market revenues and long term growth projections, estimated market share for the typical participant without a network affiliation 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 a number of factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure for a television station, and includes adjustments for market risk and company specific risk. 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. We periodically evaluate our long-lived assets for impairment and 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 6. Goodwill and Other Intangible Assets, for more information. Accrued Liabilities Accrued liabilities consisted of the following as of December 31, 2014 and 2013 (in thousands): 2014 2013 $ $ 56,871 33,347 27,037 70,344 58,524 246,123 $ $ 44,800 25,133 20,128 42,658 49,466 182,185 Compensation and employee health insurance Interest Deferred revenue Programming related obligations Other accruals relating to operating expenses Total accrued liabilities We expense these activities when incurred. 40 Sinclair Broadcast Group Income Taxes We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. As of December 31, 2014 and 2013, a valuation allowance has been provided for deferred tax assets related to a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income. Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize our deferred tax assets which could have a material effect on our consolidated financial statements. Management periodically performs a comprehensive review of our tax positions and we record a liability for unrecognized tax benefits when such tax positions do not meet the “more-likely-than-not” threshold. Significant judgment is required in determining whether a tax position meets the “more-likely-than-not” threshold, and it is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements. Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities 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. See Note 10. Income Taxes, for further discussion of accrued unrecognized tax benefits. Supplemental Information — Statements of Cash Flows During 2014, 2013 and 2012, we had the following cash transactions (in thousands): Income taxes paid related to continuing operations Income tax refunds received related to continuing operations Interest paid 2014 2013 2012 $ $ $ 100,986 1,407 157,349 $ $ $ 26,037 4,414 147,083 $ $ $ 46,964 194 110,973 Non-cash transactions related to capital lease obligations were zero, $10.4 million and $0.3 million for the years ended December 31, 2014, 2013 and 2012, respectively. The non-cash conversion of the 4.875% Notes into Class A Common Stock was $8.6 million, net of taxes for the year ended December 31, 2013. Revenue Recognition Total revenues include: (i) cash and barter advertising revenues, net of agency commissions; (ii) retransmission consent fees; (iii) network compensation; (iv) other broadcast revenues and (v) revenues from our other operating divisions. Advertising revenues, net of agency commissions, are recognized in the period during which time spots are aired. Our retransmission consent agreements contain both advertising and retransmission consent elements. We have determined that our retransmission consent agreements are revenue arrangements with multiple deliverables. Advertising and retransmission consent deliverables sold under our agreements are separated into different units of accounting at fair value. Revenue applicable to the advertising element of the arrangement is recognized similar to the advertising revenue policy noted above. Revenue applicable to the retransmission consent element of the arrangement is recognized over the life of the agreement. Network compensation revenue is recognized over the term of the contract. All other significant revenues are recognized as services are provided. Share Repurchase Program On October 28, 1999, we announced a $150.0 million share repurchase program, which was renewed on February 6, 2008. On March 20, 2014, the Board of Directors authorized an additional $150.0 million share repurchase authorization. There is no expiration date, and currently management has no plans to terminate this program. For the year ended December 31, 2014, we have purchased approximately 4.9 million shares for $133.2 million. As of December 31, 2014, the total remaining authorization was $134.4 million. In January 2015, we repurchased 0.3 million shares of Class A Common Stock for $7.8 million. 2014 Annual Report 41 Advertising Expenses Promotional advertising expenses are recorded in the period when incurred and are included in station production and other operating division expenses. Total advertising expenses from continuing operations, net of advertising co-op credits, were $21.3 million, $15.4 million and $12.2 million for the years ended December 31, 2014, 2013 and 2012, respectively. Financial Instruments Financial instruments, as of December 31, 2014 and 2013, consisted of cash and cash equivalents, trade accounts receivable, 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 7. Notes Payable and Commercial Bank Financing, for additional information regarding the fair value of notes payable. Post-retirement Benefits We are required to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of our pension plan in our consolidated financial statements. As of December 31, 2014 and 2013, we recorded a liability of $4.7 million and $1.9 million, respectively, representing the underfunded status of our defined benefit pension plan. In connection with the acquisition of Fisher Communications, Inc. (Fisher) in 2013 (see Note 2. Acquisitions), we assumed a nonqualified noncontributory supplemental retirement program (Fisher SERP) that was originally established for former executives of Fisher. No new participants have been admitted to this program since 2001 and the benefits of active participants were frozen in 2005. The program participants do not include any active employees. The Fisher SERP required continued employment or disability through the date of expected retirement, unless involuntarily terminated. While the nonqualified plan is unfunded, Fisher had made investments in annuity contracts and life insurance policies on the lives of certain individual participants to assist in future payment of retirement benefits. The carrying value of the annuity contracts and life insurance policies was $18.2 million as of December 31, 2013, which was included in other assets in our consolidated balance sheet. The majority of these annuities and life insurance policies were surrendered for lower cash value in 2014. As of December 31, 2014, the estimated projected benefit obligation was $24.0 million, of which $1.5 million is included in accrued expenses in the consolidated balance sheet and the $22.5 million is included in other long-term liabilities. During the years ended December 31, 2014 and 2013, we made $2.1 million and $0.5 million in benefit payments, recognized $1.0 million and $0.4 million of periodic pension expense, reported in other expenses in the consolidated statement of operations, and $3.2 million of actuarial losses and $0.2 million of actuarial gains through other comprehensive income, respectively. At December 31, 2014, the projected benefit obligation was measured using a 3.69% discount rate compared to a discount rate of 4.51% for the year ended December 31, 2013. We estimated its discount rate, in consultation with our independent actuaries, based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. We estimate that benefits expected to be paid to participants under the Fisher SERP as follows (in thousands): 2015 2016 2017 2018 2019 Next 5 years Reclassifications $ December 31, 1,481 1,726 1,665 1,608 1,554 7,196 Certain reclassifications have been made to prior years’ consolidated financial statements to conform to the current year’s presentation. 42 Sinclair Broadcast Group 2. ACQUISITIONS During the years ended December 31, 2014, 2013 and 2012, we acquired a total of 119 television stations in 63 markets, in the aggregate, for a purchase price of $3,557.7 million plus working capital of $53.7 million (21 stations in 15 markets in 2014 for a purchase price of $1,434.5 million plus working capital of $47.3 million; 65 stations in 33 markets in 2013 for an aggregate purchase price of $1,016.6 million plus working capital of $8.4 million; and 33 stations in 18 markets in 2012 for a purchase price $1,106.6 million less working capital of $2.0 million). All of these acquisitions provide expansion into additional markets and increases value based on the synergies we can achieve. 2014 Acquisitions Allbritton. Effective August 1, 2014, we completed the acquisition of all of the outstanding common stock of Perpetual Corporation and equity interest of Charleston Television, LLC (together the “Allbritton Companies”) for $985.0 million plus working capital of $50.2 million. The Allbritton Companies owned and operated nine television stations in the following seven markets, all of which were affiliated with ABC: Washington, DC; Birmingham, AL; Harrisburg, PA; Little Rock / Pine Bluff, AR; Tulsa, OK; Roanoke / Lynchburg, VA; and Charleston, SC. Also included in the purchase was NewsChannel 8, a 24-hour cable/satellite news network covering the Washington, D.C. metropolitan area. We financed the total purchase price with proceeds from the issuance of 5.625% senior unsecured notes, a draw on our amended bank credit agreement, and cash on hand. See Note 7. Notes Payable and Commercial Bank Financing. In connection with the acquisition, we sold the acquired assets related to the Harrisburg, PA station effective September 1, 2014. See Note 3. Dispositions of Assets and Discontinued Operations for further discussion. MEG Stations. Effective December 19, 2014, we completed the acquisition of four television stations in three markets from Media General, Inc (MEG Stations) for a purchase price of $207.5 million less working capital of $1.6 million. The acquired stations are located in the following markets: Providence, RI / New Bedford, MA; Green Bay / Appleton, WI; and Savannah, GA. We financed the purchase price with cash on hand and borrowing under our revolving credit facility. Simultaneously, we sold to Media General, our television stations in Tampa, FL and Colorado Springs, CO. See Note 3. Dispositions of Assets and Discontinued Operations for further discussion. We financed the purchase price, net of the proceeds received from the sale of those stations, with borrowings under our revolving credit facility. KSNV. Effective November 1, 2014, we completed the acquisition of certain of assets of KSNV (NBC) in Las Vegas, NV from Intermountain West Communications Company (Intermountain West) for $118.5 million less working capital of $0.2 million. In conjunction with the purchase, we assumed the rights under the affiliation agreement with NBC and swapped our KVMY call letters for the KSNV call letters. Intermountain West continues to own and operate the station under the KVMY call letters and we do not provide any programming or sales services to this station. We financed the total purchase price with cash on hand and borrowings under our revolving credit facility. Other 2014 Acquisitions. During the year ended December 31, 2014, we acquired certain assets related to eight other television stations in the following four markets: Wilkes Barre / Scranton, PA; Tallahassee, FL; Gainesville, FL; and Macon, GA. The purchase price for these stations was $123.5 million less working capital of $1.1 million which was financed with cash on hand and borrowings under our revolving credit facility. 2013 Acquisitions Flint/Saginaw/Bay City/Midland, MI; Barrington. Effective November 22, 2013, we completed the acquisition of certain assets of Barrington Broadcasting Company, LLC (Barrington) for $370.0 million, less working capital of $2.3 million, which related to twenty-four stations in the following fifteen markets: Syracuse, NY; Harlingen/Weslaco/Brownsville/McAllen, TX; Colorado Springs, CO; Myrtle Beach/Florence, SC; Peoria/Bloomington, IL; Traverse City/Cadillac, MI; Amarillo, TX; Columbia/Jefferson City, MO; Albany, GA; Quincy, IL/Hannibal, MO/Keokuk, IA; Marquette, MI; and Ottumwa, IA/Kirksville, MO. Concurrent with the purchase, we entered into certain agreements with third parties to provide certain operational services to five of the stations. The purchase price includes $7.5 million paid by third parties for the license related assets these certain stations. We financed the purchase price with borrowings under our bank credit facility. Toledo, OH; Columbia, SC; Fisher. Effective August 8, 2013, we completed the acquisition of all of the outstanding common stock of Fisher Communications, Inc. (Fisher). We paid $373.2 million to the shareholders of the Fisher common stock, representing $41.0 per common share. We financed the total purchase price with cash on hand. Fisher owned and/or operated twenty-two television stations in the following eight markets: Seattle-Tacoma, WA; Portland, OR; Spokane, WA; Boise, ID; Eugene, OR; Yakima/Pasco/Richland/Kennewick, WA; Bakersfield, CA; and Idaho Falls/Pocatello, ID. Also included in the purchase were the assets of four radio stations in the Seattle/Tacoma, WA market. Other 2013 Acquisitions. During the year ended December 31, 2013, we acquired nineteen other television stations in the following eight markets: Baltimore, MD; Fresno / Visalia, CA; Omaha, NE; Portland, ME; El Paso, TX; Johnstown / Altoona, 2014 Annual Report 43 PA; Reno, NV; Sioux City, IA; and Wheeling, WV / Steubenville, OH. The purchase price of $272.7 million plus working capital of $10.8 million includes $0.7 million paid by certain VIEs for the license assets of certain of these stations owned by VIEs that we consolidate. 2012 Acquisitions related Newport. Effective December 1, 2012, we completed the acquisition of certain broadcast assets of Newport Television (Newport) six markets: Cincinnati, OH; San Antonio, TX; Harrisburg/Lancaster/Lebanon/York, PA; Mobile, AL/Pensacola, FL; Wichita/Hutchinson, KS; and Rochester, NY. We financed the $472.4 million purchase price less working capital of $1.0 million with net proceeds from the 6.125% Notes issued in October 2012. See Note 7. Notes Payable and Commercial Bank Financing for more information. following stations seven the to in Freedom. Effective April 1, 2012, we completed the acquisition of the broadcast assets of Freedom Communications, Inc. (Freedom), which consisted of eight stations the following eight markets: West Palm Beach, FL; Grand Rapids/Kalamazoo/Battle Creek, MI; Albany, NY; Chattanooga, TN; Lansing, MI; Medford-Klamath Falls, OR; and Beaumont/Port Arthur/Orange, TX. We financed the $385.3 million purchase with borrowings under our bank credit facility. See Note 7. Notes Payable and Commercial Bank Financing for more information. in Four Points. Effective January 1, 2012, we completed the acquisition of the broadcast assets of Four Points Media (Four Points), which consisted of seven stations in the following four markets: Salt Lake City / St. George, UT; Austin, TX; West Palm Beach / Fort Pierce / Stuart, FL; and Providence, RI / New Bedford, MA. The $199.1 million purchase price was financed with borrowings under our bank credit facility. See Note 7. Notes Payable and Commercial Bank Financing for more information. Other 2012 Acquisitions. During the year ended December 31, 2012, we acquired five other television stations in the following three markets: Columbus, OH; Champaign / Springfield / Decatur, IL; and Beaumont/Port Arthur/Orange, TX. The aggregate purchase price of $49.5 million less working capital of $0.7 million includes amounts paid by certain VIEs for the license assets of certain of these stations owned by VIEs that we consolidate. The following tables summarize the allocated fair value of acquired assets and assumed liabilities, including the net assets of consolidated VIEs (in thousands): Accounts receivable Prepaid expenses and other current assets Program contract costs Property and equipment Broadcast licenses Definite-lived intangible assets Other assets Assets held for sale Accounts payable and accrued liabilities Program contracts payable Deferred tax liability Other long term liabilities Fair value of identifiable net assets acquired Goodwill Total MEG Stations KSNV Allbritton Other $ $ — 476 1,889 35,963 4,202 93,156 — — (2,085 ) (1,889 ) — — 131,712 74,179 205,891 $ $ — 67 482 8,300 — 61,725 — — (277 ) (481 ) — (1,200 ) 68,616 49,674 118,290 $ $ 38,542 19,890 1,204 46,600 13,700 564,100 20,352 83,200 (8,351 ) (1,140 ) (261,393 ) (17,025 ) 499,679 535,558 1,035,237 $ $ — 79 2,561 8,400 125 71,025 1,500 — (1,143 ) (2,554 ) — — 79,993 42,443 122,436 Total 2014 acquisitions 38,542 $ 20,512 6,136 99,263 18,027 790,006 21,852 83,200 (11,856 ) (6,064 ) (261,393 ) (18,225 ) 780,000 701,854 1,481,854 $ 44 Sinclair Broadcast Group Cash Accounts receivable Prepaid expenses and other current assets Program contract costs Property and equipment Broadcast licenses Definite-lived intangible assets Other assets Assets held for sale Accounts payable and accrued liabilities Program contracts payable Deferred tax liability Other long term liabilities Fair value of identifiable net assets acquired Goodwill Less: fair value of non-controlling interest Total Prepaid expenses and other current assets Program contract costs Property and equipment Broadcast licenses Definite-lived intangible assets Other assets Accounts payable and accrued liabilities Program contracts payable Fair value of identifiable net assets acquired Goodwill Total Fisher Barrington Other $ $ $ $ 13,531 29,485 19,133 11,427 73,968 29,771 166,034 9,284 6,339 (20,127 ) (10,977 ) (74,177 ) (23,384 ) 230,307 143,942 (1,053 ) 373,196 $ $ — — 681 4,011 73,621 719 220,253 — — (2,725 ) (3,813 ) — (65 ) 292,682 75,004 — 367,686 Freedom Newport 373 3,520 54,109 10,424 140,963 278 (589 ) (3,404 ) 205,674 179,609 385,283 $ $ 1,390 10,378 53,883 15,581 240,013 1,097 (3,928 ) (11,634 ) 306,780 164,621 471,401 $ $ $ $ — 8,226 5,217 6,050 67,034 4,395 169,438 1,394 — (3,926 ) (6,331 ) (2,304 ) (10,550 ) 238,643 45,538 — 284,181 Other 160 1,638 16,545 2,679 22,546 — (1,178 ) (4,252 ) 38,138 10,661 48,799 Total 2013 acquisitions 13,531 $ 37,711 25,031 21,488 214,623 34,885 555,725 10,678 6,339 (26,778 ) (21,121 ) (76,481 ) (33,999 ) 761,632 264,484 (1,053 ) 1,025,063 $ Total 2012 acquisitions 2,379 $ 19,267 159,115 39,342 497,322 1,923 (6,076 ) (24,447 ) 688,825 415,734 1,104,559 $ $ Four Points 456 3,731 34,578 10,658 93,800 548 (381 ) (5,157 ) 138,233 60,843 199,076 $ The allocations presented above are based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates. The purchase prices have been allocated to the acquired assets and assumed liabilities based on estimated fair values. The allocations related to the 2014 acquisitions are preliminary pending a final determination of the fair values of the assets and liabilities. During the year ended December 31, 2014, we made certain measurement period adjustments to the initial purchase accounting for the acquisitions in 2013, resulting in reclassifications between certain noncurrent assets and noncurrent liabilities, including an increase to property and equipment of approximately $44.3 million, an increase to broadcast licenses of $19.4 million, an increase to noncurrent deferred tax liabilities of $29.3 million, and a decrease to goodwill of $66.3 million, as well as a corresponding increase to depreciation and amortization of $2.5 million during the year ended December 31, 2014. These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations and 10 years for the decaying advertiser base. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies. Other intangible assets will be amortized over the respective weighted average useful lives ranging from 14 to 16 years. 2014 Annual Report 45 The following tables summarize the amounts allocated to definite-lived intangible assets representing the estimated fair values and estimated goodwill deductible for tax purposes (in thousands): Network affiliations Decaying advertiser base Other intangible assets Fair value of identifiable definite-lived intangible assets acquired Estimated goodwill deductible for tax purposes $ $ $ MEG Stations KSNV Allbritton Other $ 63,462 9,280 20,414 $ 43,800 12,100 5,825 $ 356,900 38,500 168,700 42,625 9,100 19,300 Total 2014 acquisitions 506,787 $ 68,980 214,239 93,156 74,179 $ $ 61,725 49,674 $ $ 564,100 — $ $ 71,025 42,443 $ $ 790,006 166,296 Network affiliations Decaying advertiser base Other intangible assets Fair value of identifiable definite-lived intangible assets acquired Estimated goodwill deductible for tax purposes Network affiliations Decaying advertiser base Other intangible assets Fair value of identifiable definite-lived intangible assets acquired Estimated goodwill deductible for tax purposes $ $ $ $ Fisher Barrington Other $ 117,499 18,110 30,425 $ 103,245 41,939 75,069 99,805 19,992 49,641 Total 2013 acquisitions 320,549 $ 80,041 155,135 166,034 10,765 $ $ 220,253 75,004 $ $ 169,438 111,208 $ $ 555,725 196,977 Freedom Newport Other $ 93,067 25,059 22,837 $ 175,978 23,662 40,373 12,858 1,843 7,845 Total 2012 acquisitions 348,831 $ 60,330 88,161 $ Four Points 66,928 9,766 17,106 $ $ 93,800 60,843 $ $ 140,963 179,609 $ $ 240,013 164,621 $ $ 22,546 10,661 $ $ 497,322 415,734 The following tables summarize the results of the acquired operations included in the financial statements of the Company beginning on the acquisition date of each acquisition as listing above (in thousands): Revenues MEG Stations KSNV Allbritton Barrington Fisher Newport Freedom (b) Four Points (a) Other stations acquired in: 2014 2013 2012 Total net broadcast revenues Operating Income MEG Stations KSNV Allbritton Barrington Fisher Newport Freedom (b) Four Points (a) Other stations acquired in: 2014 2013 2012 Total operating income 46 Sinclair Broadcast Group 2014 2013 2012 $ $ $ $ 2,299 5,972 106,258 173,013 184,534 162,824 127,916 75,058 9,172 139,521 21,196 1,007,763 2014 1,010 2,108 26,914 34,875 26,940 53,457 43,882 22,441 1,569 26,487 2,091 241,774 $ $ $ $ $ $ $ — — — 16,927 79,078 149,044 108,585 73,673 — 52,440 21,515 501,262 2013 — — — 4,096 19,019 35,779 29,439 19,754 — 12,007 946 121,040 $ — — — — — 11,674 91,046 69,964 — — 4,485 177,169 2012 — — — — — 2,860 32,488 17,287 — — (1,589 ) 51,046 (a) These amounts exclude the operations of WLWC-TV which are classified as discontinued operations in the consolidated statements of operations. See Note 3. Disposition of Assets and Discontinued Operations. (b) These amounts exclude the operations of WLAJ-TV which are classified as discontinued operations in the consolidated statements of operations. See Note 3. Disposition of Assets and Discontinued Operations. In connection with the acquisitions, for the years ended December 31, 2014, 2013, and 2012, we incurred a total of $5.7 million, $2.8 million, and $1.2 million, respectively, of costs primarily related to legal and other professional services, which we expensed as incurred and classified as corporate general and administrative expenses in the consolidated statements of operations. Pro Forma Information The following table sets forth unaudited pro forma results of operations, assuming that the above acquisitions, along with transactions necessary to finance the acquisitions, occurred at the beginning of the year preceding the year of acquisition. The pro forma results exclude acquisitions presented under Other above, as they were deemed not material both individually and in the aggregate. The 2012 period does not include the pro forma effects of the 2014 acquisitions, and as such will not provide comparability to the 2013 and 2014 pro forma periods presented in the following table (in thousands, except per share data): Total revenues Net Income Net Income attributable to Sinclair Broadcast Group Basic earnings per share attributable to Sinclair Broadcast Group Diluted earnings per share attributable to Sinclair Broadcast Group 2014 2,150,124 189,174 186,338 1.92 1.90 $ $ $ $ $ $ $ $ $ $ (Unaudited) 2013 1,838,167 41,323 38,974 0.42 0.42 $ $ $ $ $ 2012 1,513,975 153,807 153,370 1.89 1.89 This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not indicative of what our results would have been had we operated the businesses since the beginning of the annual period presented because the pro forma results do not reflect expected synergies. The pro forma adjustments reflect depreciation expense, amortization of intangibles and amortization of program contract costs related to the fair value adjustments of the assets acquired, additional interest expense related to the financing of the transactions, and exclusion of nonrecurring financing and transaction related costs. Depreciation and amortization expense are higher than amounts recorded in the historical financial statements of the acquirees due to the fair value adjustments recorded for long-lived tangibles and intangible assets in purchase accounting. The pro forma revenues exclude the revenues of WLAJ-TV and WLWC- TV which are classified as discontinued operations in the consolidated statements of operations and KIDK-TV, KXPI-TV, WHTM-TV, WTTA-TV, KXRM-TV, and KXTU-TV which were sold subsequent to acquisition. 3. DISPOSITION OF ASSETS AND DISCONTINUED OPERATIONS: Discontinued Operations In accordance with Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale we reported the results of operations of our stations in Lansing, Michigan (WLAJ-TV) and Providence, Rhode Island (WLWC-TV), as discontinued operations in the consolidated statements of operations. Discontinued operations have not been segregated in the consolidated statements of cash flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated statements of operations. WLAJ-TV was acquired in the second quarter of 2012 in connection with the acquisition of the television stations from Freedom. WLWC-TV was recently acquired in the first quarter of 2012 in connection with the acquisition of the television stations from Four Points. See Note 2. Acquisitions for more information. The operating results of WLAJ-TV, which was sold effective March 1, 2013 for $14.4 million, and WLWC-TV, which was sold effective April 1, 2013 for $13.8 million, are not included in our consolidated results of operations from continuing operations. Total revenues for WLAJ- TV and WLWC-TV, which are included in discontinued operations for the year ending December 31, 2013, were $0.6 million and $1.6 million, respectively. Total revenues of WLAJ-TV and WLWC-TV, which are included in discontinued operations for the year ending December 31, 2012, are $3.7 million and $6.3 million, respectively. Total income before taxes for WLAJ-TV and WLWC-TV, which are included in discontinued operations for the year ending December 31, 2013, are $0.2 million and $0.4 million, respectively, and total income(loss) before taxes of WLAJ-TV and WLWC-TV, which are included in discontinued operations for the year ending December 31, 2012, are $0.9 million and $0.2 million, respectively. The resulting gain on the sale of these stations in 2013 was negligible. Additionally, we recognized an $11.2 million income tax benefit during the year ended December 31, 2013, attributable to the adjustment of certain liabilities for unrecognized tax benefits related to discontinued operations. See Note 10. Income Taxes for further information. 2014 Annual Report 47 Dispositions related to station acquisitions As discussed in Note 2. Acquisitions, we completed the acquisition of certain broadcast assets from Media General. Simultaneously, we sold to Media General the broadcast assets of WTTA in Tampa, FL and KXRM/KXTU in Colorado Springs, CO for $93.1 million less working capital of $0.6 million. We recognized a $39.0 million gain on sale related to WTTA. Concurrent with the acquisition of the Allbritton companies discussed in Note 2. Acquisitions, due to FCC conflict ownership rules, we sold WHTM in Harrisburg/Lancaster/York, PA to Media General in September 2014 for $83.4 million, less working capital of $0.2 million and the non-license assets of WTAT in Charleston, SC to Cunningham for $14.0 million, effective August 1, 2014. WHTM was acquired from the Allbritton companies and assets of WHTM were classified as assets held for sale in the Allbritton purchase price allocation. We did not recognize a gain or loss on this transaction. Prior to the sale of WTAT, we operated the station under an LMA and purchase agreement with Cunningham. This sale was accounted for as a transaction between parties under common control. See Note 12. Related Person Transaction for further discussion. Concurrent with the Barrington acquisition, due to FCC conflict ownership rules, we sold our station, WSYT (FOX), and assigned its LMA with WNYS (MNT), in Syracuse, NY to a third party for $15.0 million less, and recognized a loss on sale of $3.3 million. We also sold our station, WYZZ (FOX) in Peoria, IL, which receives non-programming related sales, operational and administrative services from Nexstar Broadcasting pursuant to certain outsourcing agreements, to Cunningham for $22.0 million. This sale was accounted for as a transaction between parties under common control. See Note 12. Related Person Transactions for further discussion. Concurrent with the Fisher acquisition discussed in Note 2. Acquisitions, a third party that performed certain services pursuant to an outsourcing agreement to the station that we acquired, KIDK and KXPI in Idaho Falls, ID, exercised an existing purchase option to purchase the broadcast assets of the two stations for $6.3 million, which closed in November 2013. The assets of these stations were classified as assets held for sale in the Fisher purchase price allocation. See Note 2. Acquisitions for further discussion. Concurrent with the acquisition of WKRC in Cincinnati, OH and WOAI in San Antonio, TX from Newport (see Note 2. Acquisitions), we sold the license assets of two of our existing stations located in Cincinnati, OH (WSTR) and San Antonio, TX (KMYS) for a total of $10.7 million to third parties. We provide non-programming related sales, operational and administrative services to these stations pursuant to certain outsourcing agreements and we have assignable purchase options with these licensees to acquire the license assets. We consolidate the license assets of these stations because the licensee companies are VIEs and we are the primary beneficiary. See Variable Interest Entities in Note 1. Nature of Operations and Summary of Significant Accounting Policies. The dispositions of the above assets did not meet the criteria for classification as discontinued operations, therefore the results of operations are included in continuing operations in our consolidated statements of operations. Assets Held for Sale We expect to sell, Triangle Sign & Service, LLC, a consolidated investment in our other operating divisions, in the first half of 2015. In accordance with Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale, we reported our assets and liabilities related to Triangle as held for sale in the accompanying consolidated balance sheet as of December 31, 2014. Results of operations of these stations are included within the results from continuing operations as the criteria for classification as discontinued operations was not met. 48 Sinclair Broadcast Group As of December 31, 2014, the major classes of assets and liabilities of the group reported as held for sale on the accompanying consolidated balance sheet are shown below: Assets: Accounts receivable Prepaid expenses and other current assets Total current assets held for sale Property and equipment (a) Goodwill Definite-lived intangible assets Total assets held for sale Liabilities: Accounts payable Accrued liabilities Current portion of notes payable, capital leases and commercial bank financing Total liabilities held for sale December 31, 2014 $ $ $ $ 5,101 1,403 6,504 1,036 2,975 2,962 13,477 1,096 1,360 21 2,477 (a) Excluded from the above is $1.8 million in held for sale assets related to certain real estate assets within our broadcast segment. 4. STOCK-BASED COMPENSATION PLANS: 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. Under the LTIP, we have issued restricted stock awards (RSAs), stock grants to our non-employee directors, stock-settled appreciation rights (SARs) and stock options. A total of 14,000,000 shares of Class A Common Stock are reserved for awards under this plan. As of December 31, 2014, 8,414,109 shares (including forfeited shares) were available for future grants. Additionally, we have the following arrangements that involve stock-based compensation: employer matching contributions (the Match) for participants in our 401(k) plan, an employee stock purchase plan (ESPP), and subsidiary stock awards. Stock-based compensation expense has no effect on our consolidated cash flows. For the years ended December 31, 2014, 2013 and 2012, we recorded stock-based compensation of $14.3 million, $10.6 million and $5.9 million, respectively. Below is a summary of the key terms and methods of valuation of our stock-based compensation awards: RSAs. RSAs issued in 2014, 2013 and 2012 have certain restrictions that lapse over two years at 50% and 50%, respectively. As the restrictions lapse, the Class A Common Stock may be freely traded on the open market. Unvested RSAs are entitled to dividends. The fair value assumes the closing value of the stock on the grant date. The following is a summary of changes in unvested restricted stock: Unvested shares at December 31, 2013 2014 Activity: Granted Vested Forfeited Unvested shares at December 31, 2014 RSAs 370,000 $ 73,700 (214,000 ) — 229,700 Weighted- Average Price 13.81 28.23 13.52 — 18.71 For the years ended December 31, 2014, 2013 and 2012, we recorded compensation expense of $3.2 million, $2.7 million and $1.2 million, respectively. The majority of the unrecognized compensation expense of $1.4 million as of December 31, 2014 will be recognized in 2015. During 2014, outstanding RSAs increased the weighted average shares outstanding for purposes of determining dilutive 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 unrestricted shares of Class A Common Stock. In 2014, 2013 and 2012, we issued 12,000 shares, 31,250 shares and 25,000 shares, respectively. We recorded expense of $0.4 million, $0.8 million 2014 Annual Report 49 and $0.2 million for each of the years ended December 31, 2014, 2013 and 2012, respectively, which was based on the closing value of the stock on the date of grant. Additionally, these shares are included in the total shares outstanding, which results in a dilutive effect on our basic and diluted earnings (loss) per share. SARs. During the years ended December, 2014, 2013 and 2012, 200,000, 500,000 and 400,000 SARs were granted with base values per share of $27.86, $14.21 and $11.68, respectively, to our President and Chief Executive Officer. The SARs have a 10- year term and vest immediately. The base value of each SAR is equal the closing price of our Class A Common Stock on the grant date. For the years ended December 31, 2014, 2013 and 2012, we recorded compensation expense equal to the estimated fair value at the grant date, of $2.6 million, $3.2 million and $2.0 million, respectively. We valued the SARs using the Black- Scholes model and the following assumptions: Risk-free interest rate Expected years until exercise Expected volatility Annual dividend yield 2014 2013 2012 1.5% 5 years 65% 2.2% 0.9% 5 years 73% 4.3% 0.9% 5 years 73% 5.2% The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for U.S. Treasury zero coupon separate trading of registered interest and principal securities, commonly known as STRIPS, that approximate the expected life of the options. The expected volatility is based on our historical stock prices over a period equal to the expected life of the options. The annual dividend yield is based on the annual dividend per share divided by the share price on the grant date. The following is a summary of the 2014 activity: Outstanding at December 31, 2013 2014 Activity: Granted Exercised Outstanding SARs at December 31, 2014 SARs 1,400,000 200,000 — 1,600,000 Weighted- Average Price 13.25 $ 27.86 15.08 The aggregate intrinsic value of the 1,600,000 outstanding as of December 31, 2014 was $19.6 million, and the outstanding SARs have a weighted average remaining contractual life of 6.89 years as of December 31, 2014. During 2014, 2013 and 2012, outstanding SARs increased the weighted average shares outstanding for purposes of determining dilutive earnings per share. Options. In April 2014, we entered into an employment agreement with our Chief Financial Officer, to grant annually on each December 31, an option to purchase 125,000 shares of Class A Common Stock beginning December 31, 2014 through December 31, 2021. Upon grant, the stock options are immediately exercisable. The maximum aggregate intrinsic value that can be earned under the arrangement cannot exceed $20 million. The stock options are granted with an exercise price equal to the closing price of the stock on the date of grant and have a 10 year contractual life. Since the stock options are fully vested upon grant and requisite service must be satisfied to receive the award, we estimate the fair value of each of the options to be issued in the future and recognize the compensation expense over the period until the actual grant date. The fair value of each award is remeasured each period until the actual grant with the ultimate cumulative expense equaling the grant date fair value of the award. During the year ended December 31, 2014, we recorded $1.5 million of stock-based compensation expense related to this arrangement, based on estimated fair values of each of the options, of which $1.1 million was attributable to the option granted on December 31, 2014. We value the stock options using the Black-Scholes pricing model. We used the following inputs to the model to value the option granted on December 31, 2014, which has an exercise price of $27.36 per share: Risk-free interest rate Expected years to exercise Expected volatility Annual dividend yield 2014 1.8% 5 years 47.6% 2.3% The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for U.S. Treasury STRIPS, that approximate the expected life of the options. The expected volatility is based on our historical stock prices over a period equal to the expected life of the options. The annual dividend yield is based on the annual dividend per share divided by the share price on the grant date. 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, the Match 50 Sinclair Broadcast Group and an additional discretionary amount determined each year by the Board of Directors. The Match and any additional 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, 2014, 2013 and 2012, we recorded $5.2 million, $3.1 million and $1.6 million, respectively, of stock-based compensation expense related to the Match. A total of 3,000,000 shares of Class A Common Stock are reserved for matches under the plan. As of December 31, 2014, 775,696 shares were available for future grants. ESPP. The ESPP allows eligible employees to purchase Class A Common Stock at 85% of the lesser of the fair value of the common stock as of the first day of the quarter and as of the last day of that quarter, subject to certain limits as defined in the ESPP. The stock-based compensation expense recorded related to the ESPP for the years ended December 31, 2014, 2013 and 2012 was $0.7 million, $0.3 million and $0.2 million, respectively. Less than 0.1 million shares were issued to employees during the year ended December 31, 2014. A total of 2,200,000 shares of Class A Common Stock are reserved for awards under the plan. As of December 31, 2014, 245,761 shares were available for future grants. 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/or appraisals. These stock awards vest immediately. For the years ended December 31, 2014, 2013 and 2012, we recorded compensation expense of $0.2 million, $0.3 million and $0.7 million, respectively, related to these awards which increase noncontrolling interest equity. These awards have no effect on the shares used in our basic and diluted earnings per share. 5. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost, less accumulated depreciation. Depreciation is generally 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 Acquired property and equipment as discussed in Note 2. Acquisitions, is depreciated on a straight-line basis over the respective estimated remaining useful lives. Property and equipment consisted of the following as of December 31, 2014 and 2013 (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 2014 2013 $ $ 55,269 113,514 192,478 684,176 70,402 19,091 37,726 81,625 18,774 1,273,055 (520,517 ) 752,538 $ $ 37,517 67,037 168,441 572,851 50,210 19,453 23,443 81,602 17,078 1,037,632 (441,561 ) 596,071 Capital leased assets are related to building, tower and 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 $3.7 million, $4.0 million and $3.5 million for the years ended December 31, 2014, 2013 and 2012, respectively. 2014 Annual Report 51 6. GOODWILL, BROADCAST LICENSES AND OTHER INTANGIBLE ASSETS: Goodwill, which arises from the purchase price exceeding the assigned value of the net assets of an acquired business, represents the value attributable to unidentifiable intangible elements being acquired. Goodwill totaled $1,964.6 million and $1,380.1 million at December 31, 2014 and 2013, respectively. The change in the carrying amount of goodwill related to continuing operations was as follows (in thousands): Balance at December 31, 2012 Goodwill Accumulated impairment losses Acquisition of television stations (a) Sale of broadcast assets (d) Measurement period adjustments related to 2012 acquisitions (e) Balance at December 31, 2013 (c) Goodwill (a) Accumulated impairment losses Acquisition of television stations (a) Sale of broadcast assets (d) Deconsolidation of variable interest entities (b) Measurement period adjustments related to 2013 acquisitions (e) Assets held for sale Balance at December 31, 2014 (c) Goodwill Accumulated impairment losses Broadcast Other Operating Divisions Consolidated $ $ 1,484,117 (413,573 ) 1,070,544 330,309 (14,724 ) (9,535 ) 1,790,167 (413,573 ) 1,376,594 701,854 (26,731 ) (21,357 ) (66,320 ) — $ 3,488 — 3,488 — — — 3,488 — 3,488 — — — — (2,975 ) 1,487,605 (413,573 ) 1,074,032 330,309 (14,724 ) (9,535 ) 1,793,655 (413,573 ) 1,380,082 701,854 (26,731 ) (21,357 ) (66,320 ) (2,975 ) 2,377,613 (413,573 ) 1,964,040 $ $ 513 — 513 $ 2,378,126 (413,573 ) 1,964,553 (a) In 2014 and 2013, we acquired goodwill as a result of acquisitions as discussed in Note 2. Acquisitions. (b) In 2014, we deconsolidated certain variable interest entities and the amounts relate to WYZZ in Peoria, IL and WTAT in Charleston, SC, as discussed in Variable Interest Entities within Note 1. Nature of Operations and Summary of Significant Accounting Policies. (c) Approximately $0.8 million and $6.4 million of goodwill relates to consolidated VIEs as of December 31, 2014 and 2013, respectively. (d) Amounts relate to the 2013 sale of WSYT (including certain assets of WNYS, which we performed service to under an LMA) in Syracuse, NY, in connection with the acquisition of stations from Barrington, and to the 2014 sale of WTTA in Tampa, FL and KXRM/KXTU in Colorado Springs, CO. See Note 3. Disposition of Assets and Discontinued Operations for further discussion on the sale of these stations. (e) Amounts relate to immaterial measurement period adjustments related to 2013 acquisitions. We did not have any indicators of impairment in any interim period in 2014, 2013, or 2012, and therefore did not perform interim impairment tests for goodwill during those periods. We performed our annual impairment tests for goodwill in the fourth quarter of 2014 and 2013 and as a result of our qualitative assessment we concluded based on our qualitative assessment of goodwill that it was more likely than not that the fair values of the reporting units would sufficiently exceed their carrying values and it was unnecessary to perform the quantitative two-step method. Based on the results of our annual qualitative assessment for goodwill impairment performed in 2012, we concluded that we would need to perform a quantitative “Step 1” test for three of our markets which had aggregate goodwill of $79.5 million as of October 1, 2012, the date of our annual impairment test. These markets had a decrease in operating results for the past few years and therefore, we estimated the fair value of these reporting units based on a market approach and income approach. For all three markets, the fair value of the reporting unit exceeded the respective carrying value by more than 10%. For all our other reporting units, we concluded based on the qualitative assessment that it was more likely than not that the fair values of these reporting units would sufficiently exceed their carrying values and it was not necessary to perform the quantitative two-step method. 52 Sinclair Broadcast Group The qualitative factors for our reporting units reviewed during our annual assessments, with the exception of the three markets in which we performed a quantitative assessment in 2012, indicated stable or improving margins and favorable or stable forecasted economic conditions including stable discount rates and comparable or improving business multiples. Additionally, the results of prior quantitative assessments supported significant excess fair value over carrying value of our reporting units. As of December 31, 2014 and 2013, the carrying amount of our broadcast licenses related to continuing operations was as follows (in thousands): Beginning balance Acquisition of television stations (a) Sale of broadcast assets (d) Impairment charge Measurement period adjustments related to 2013 acquisitions (a) Deconsolidation of variable interest entities (b) Ending balance (c) (a) See Note 2. Acquisitions. 2014 2013 $ $ 101,029 18,027 (45 ) (3,240 ) 19,355 (51 ) 135,075 $ $ 85,122 15,514 (25 ) — 418 — 101,029 (b) In 2014, we deconsolidated certain variable interest entities and the amounts relate to WYZZ in Peoria, IL and WTAT in Charleston, SC, as discussed in Variable Interest Entities within Note 1. Nature of Operations and Summary of Significant Accounting Policies. (c) Approximately $16.9 million and $16.8 million of broadcast licenses relate to consolidated VIEs as of December 31, 2014 and 2013, respectively. (d) Amounts relate to the 2013 sale of WSYT, in Syracuse, NY, in connection with the acquisition of stations from Barrington, and to the 2014 sale of WTTA in Tamp, FL and KXRM/KXTU in Colorado Springs, CO. See Note 3. Disposition of Assets and Discontinued Operations for further discussion on the sale of these stations. We did not have any indicators of impairment for broadcast licenses in any interim period in 2014, and therefore did not perform interim impairment tests during those periods. We performed our annual impairment tests for indefinite-lived intangibles in the fourth quarter of 2014 and as a result of our qualitative and/or quantitative assessments we recorded $3.2 million in impairment, included with amortization of $113.4 million within the consolidated statement of operations, related to broadcast licenses with a carrying value of $21.1 million, compared to their estimated fair value of $17.9 million, as a result of a decrease in the projected future market revenues related to our radio broadcast licenses in Seattle, WA. The key assumptions used to determine the fair value of our broadcast licenses consisted primarily of significant unobservable inputs (Level 3 fair value inputs), including discount rates, estimated market revenues, normalized market share, normalized profit margin, and estimated start-up costs. The qualitative factors for our broadcast licenses indicated an increase in market revenues, stable market shares and stable cost factors. The revenue, expense and growth rates used in determining the fair value of our broadcast licenses remained constant or increased slightly from 2013 to 2014. The growth rates are based on market studies, industry knowledge and historical performance. The discount rates used to determine the fair value of our broadcast licenses did not change significantly over the last three years. The discount rate is based on a number of factors including market interest rates, a weighted average cost of capital analysis based on the target capital structure for a television station, and includes adjustments for market risk and company specific risk. The following table shows the gross carrying amount and accumulated amortization of definite-lived intangibles related to continuing operations (in thousands): Amortized intangible assets: Network affiliation (a) Decaying advertiser base (b) Other (c) Total As of December 31, 2014 Gross Carrying Amount Accumulated Amortization Net $ $ 1,396,792 324,262 599,472 2,320,526 $ $ (257,526 ) $ (148,878 ) (95,859 ) (502,263 ) $ 1,139,266 175,384 503,613 1,818,263 2014 Annual Report 53 Amortized intangible assets: Network affiliation (a) Decaying advertiser base (b) Other (c) Total As of December 31, 2013 Gross Carrying Amount Accumulated Amortization Net $ $ 869,535 260,454 389,769 1,519,758 $ $ (195,037 ) $ (135,978 ) (60,988 ) (392,003 ) $ 674,498 124,476 328,781 1,127,755 (a) The increase in network affiliation assets includes amounts from acquisitions of $506.8 million and $321.0 million in 2014 and 2013, respectively. See Note 2. Acquisitions for the purchase price allocation of stations acquired during 2014, and measurement period adjustments recorded during 2014 related to 2013 acquisitions. (b) The increase in decaying advertiser base includes amounts from acquisitions of $69.0 million and $80.0 million in 2014 and 2013, respectively. See Note 2. Acquisitions for the purchase price allocation of stations acquired during 2014, and measurement period adjustments related to 2013 acquisitions. (c) The increase in other intangible assets includes the amounts from acquisitions of $214.2 million and $155.5 million in 2014 and 2013, respectively. See Note 2. Acquisitions for the purchase price allocation of stations acquired during 2014, and measurement period adjustments related to 2013 acquisitions. The increase also includes the purchase of additional alarm monitoring contracts of $27.7 million, which is included in Other Operating Divisions. Definite-lived intangible assets and other assets subject to amortization are being amortized on a straight-line basis over their estimated useful lives which generally range from 5 to 25 years. The total weighted average useful life of all definite-lived intangible assets and other assets subject to amortization acquired as a result of the acquisitions discussed in Note 2. Acquisitions is 14 years. The amortization expense of the definite-lived intangible assets for the years ended December 31, 2014, 2013 and 2012 was $125.5 million, $70.8 million and $38.1 million, respectively. We analyze specific definite-lived intangibles for impairment when events occur that may impact their value in accordance with the respective accounting guidance for long-lived assets. There were no impairment charges recorded for the years ended December 31, 2014, 2013 and 2012. The following table shows the estimated amortization expense of the definite-lived intangible assets for the next five years (in thousands): For the year ended December 31, 2015 For the year ended December 31, 2016 For the year ended December 31, 2017 For the year ended December 31, 2018 For the year ended December 31, 2019 Thereafter $ $ 147,831 146,877 144,887 143,923 143,834 1,090,911 1,818,263 7. NOTES PAYABLE AND COMMERCIAL BANK FINANCING: Bank Credit Agreement We have a syndicated credit facility which includes both revolving credit and issued term loans (Bank Credit Agreement). During the years ended December 31, 2014, 2013 and 2012, the Bank Credit Agreement has been restated and amendment several times to provide incremental financing to the acquisitions as discussed under Note 2. Acquisitions. As of December 31, 2014, $1,725.9 million of aggregate borrowings were outstanding under the Bank Credit Agreement, which consists of the following: Term Loan A. As of December 31, 2014, $348.1 million of term loans maturing in April 2018 which bear interest at LIBOR plus 2.25% (Term Loan A) were outstanding. As of December 31, 2013, $500.0 million of Term Loan A was outstanding, and we had an additional commitment of $200.0 million to be drawn on a delayed basis in 2014. On July 31, 2014, the most recent amendment to the Bank Credit Agreement, $327.7 million of Term Loan A was converted into revolving commitments. 54 Sinclair Broadcast Group Term Loan B. As of December 31, 2014, $1,035.9 million of term loans, net of unamortized original issue discount of $4.0 million, were outstanding, which consist of 1) $650.0 million original principal maturing in April 2020, bearing interest at LIBOR plus 2.25% with 0.75% LIBOR floor, and 2) $400.0 million original principal maturing July 2021, bearing interest at LIBOR plus 2.75% with a 0.75% LIBOR floor (collectively, Term Loan B). As of December 31, 2013, $642.7 million of Term Loan B, net of unamortized original issue discount of $3.6 million, was outstanding. On July 31, 2014, the incremental Term Loan B of $400.0 million, discussed above, was issued at 99.75% of par ($1.0 million original issue discount). Revolving Credit Facility. As of December 31, 2014 and 2013, our total commitments under the revolving credit facility (Revolver) were $485.2 million and $157.5 million, respectively. The Revolver matures in April 2018 and bears interest at LIBOR plus 2.25%. We incur a commitment fee on undrawn capacity of 0.5%. On July 31, 2014, $327.7 million of Term Loan A was converted into revolving commitments. As of December 31, 2014, $338.0 million of borrowings and $3.1 million of letters of credit were issued under the Revolver. Remaining borrowing capacity under the Revolver was $144.1 million as of December 31, 2014. Interest expense related to the Bank Credit Agreement, including the Revolver, in our consolidated statements of operations was $38.7 million, $27.3 million and $35.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. Included in these amounts were debt refinancing costs of $3.8 million, $2.4 million and $6.3 million for the years ended December 31, 2014, 2013, and 2012 respectively, in accordance with debt modification accounting guidance that applied to the amendments. Additionally, we capitalized $3.8 million, $14.9 million and $2.3 million as deferred financing costs, during the years ended December 31, 2014, 2013 and 2012, respectively. Deferred financing costs are classified within other assets within our consolidated balance sheet. The weighted average effective interest rate of the Term Loan B for the years ended December 31, 2014 and 2013 was 3.27% and 3.29%, respectively. The weighted average effective interest rate of the Term Loan A for the years ended December 31, 2014 and 2013 was 2.34% and 2.51%, respectively. The weighted average effective interest rate of the Revolver for the year ended December 31, 2014 was 2.47%. Our Bank Credit Agreement, as well as indentures governing our outstanding notes as described below, contains a number of covenants that, among other things, restrict our ability and our subsidiaries’ ability to incur additional indebtedness with certain exceptions, pay dividends (See Note 9. Common Stock), incur liens, engage in mergers or consolidations, make acquisitions, investments or disposals and engage in activities with affiliates. In addition, under the Bank Credit Agreement, we are required to maintain a ratio of First Lien Indebtedness of 4.0 times EBITDA. As of December 31, 2014, we were in compliance with all financial ratios and covenants. Our Bank Credit Agreement also contains certain cross-default provisions with certain material third-party licensees, defined as any party that owns the license assets of one or more television stations for which we provided services to pursuant to LMAs and/or other outsourcing agreements and those stations provide 10% or more of our aggregate broadcast cash flows. A default by a material third-party licensee under our agreements with such parties, including a default caused by insolvency, would cause an event of default under our Bank Credit Agreement. As of December 31, 2014, there were no material third party licensees as defined in our Bank Credit Agreement. Substantially all of our stock in our wholly-owned subsidiaries has been pledged as security for the Bank Credit Agreement. 5.625% Senior Unsecured Notes, due 2024 On July 23, 2014, we issued $550.0 million in senior unsecured notes, which bear interest at a rate of 5.625% per annum and mature on August 1, 2024 (the 5.625% Notes), pursuant to an indenture dated July 23, 2014 (the 5.625% Indenture). The 5.625% Notes were priced at 100% of their par value and interest is payable semi-annually on February 1 and August 1, commencing on February 1, 2015. Prior to August 1, 2019, we may redeem the 5.625% Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the 5.625% Notes plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium as set forth in the 5.625% Indenture. In addition, on or prior to August 1, 2019, we may redeem up to 35% of the 5.625% Notes, using proceeds of certain equity offerings. If we sell certain of our assets or have certain changes of control, the holders of the 5.625% Notes may require us to repurchase some or all of the notes. The proceeds from the offering of the 5.625% Notes, together with borrowings under our Bank Credit Agreement and cash on hand, were used to finance the acquisition of the Allbritton companies effective August 1, 2014. Concurrent with entering into the 5.625% Indenture in July 2013, we also entered into a registration rights agreement requiring us to file a registration statement covering an offer to exchange of the 5.625% Notes for registered securities with the Securities and Exchange Commission (the SEC) to be effective by April 19, 2015. Interest expense was $13.6 million for the year ended December 31, 2014. The weighted average effective interest rate for the 5.625% Notes was 5.625% for the year ended December 31, 2014. 2014 Annual Report 55 6.375% Senior Notes, due 2021 On October 11, 2013, we issued $350.0 million in senior unsecured notes, which bear interest at a rate of 6.375% per annum and mature on November 1, 2021 (the 6.375% Notes), pursuant to an indenture dated October 11, 2013 (the 6.375% Indenture). The 6.375% Notes were priced at 100% of their par value and interest is payable semi-annually on May 1 and November 1, commencing on May 1, 2014. Prior to November 1, 2016, we may redeem the 6.375% Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium as set forth in the 6.375% Indenture. In addition, on or prior to November 1, 2016, we may redeem up to 35% of the 6.375% Notes using the proceeds of certain equity offerings. If we sell certain of our assets or experience specific kinds of changes of control, holder of the 6.375% Notes may require us to repurchase some or all of the Notes. Upon the sale of certain of our assets or certain changes of control, the holders of the 6.375% Notes may require us to repurchase some or all of the notes. The proceeds from the offering of the 6.375% Notes were used to partially fund the redemption of the 9.25% Senior Secured Second Lien Notes, Due 2017 (the 9.25% Notes), as discussed further below. Concurrent with entering into an indenture for the 6.375% Notes in October 2013, we also entered into a registration rights agreement requiring us to complete an offer of an exchange of the 6.375% Notes for registered securities with the Securities and Exchange Commission (the SEC) by July 8, 2014. We filed a registration statement on Form S-4 with the SEC on December 6, 2013, which became effective on December 19, 2013. An exchange offer was launched on December 19, 2013 to exchange the unregistered 6.375% Notes with the holders for 6.375% Notes registered under the Securities Act of 1933. The exchange offer was completed on January 24, 2014 with 99.7% of the $350.0 million 6.375% Senior Unsecured Notes due 2021 tendered in the exchange offer. Interest expense was $22.4 million for the year ended December 31, 2014. The weighted average effective interest rate for the 6.375% Notes was 6.375% for the year ended December 31, 2014. 5.375% Senior Unsecured Notes, due 2021 On April 2, 2013, we issued $600.0 million of senior unsecured notes, which bear interest at a rate of 5.375% per annum and mature on April 1, 2021 (the 5.375% Notes), pursuant to an indenture dated April 2, 2013 (the 5.375% Indenture). The 5.375% Notes were priced at 100% of their par value and interest is payable semi-annually on April 1 and October 1, commencing on October 1, 2013. Prior to April 1, 2016, we may redeem the 5.375% Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the 5.375% Notes plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium as set forth in the 5.375% Indenture. Beginning on April 1, 2016, we may redeem some or all of the 5.375% Notes at any time or from time to time at a redemption price set forth in the 5.375% Indenture. In addition, on or prior to April 1, 2016, we may redeem up to 35% of the 5.375% Notes using proceeds of certain equity offerings. Upon the sale of certain of our assets or certain changes of control, the holders of the 5.375% Notes may require us to repurchase some or all of the notes. The net proceeds from the offering of the 5.375% Notes were used to pay down outstanding indebtedness under our bank credit facility. Concurrent with entering into an indenture for the 5.375% Notes in April 2013, we also entered into a registration rights agreement requiring us to complete an offer of an exchange of the 5.375% Notes for registered securities with the Securities and Exchange Commission (the SEC) by December 28, 2013. We filed a registration statement on Form S-4 with the SEC on April 4, 2013, which became effective on April 16, 2013. An exchange offer was launched on May 23, 2013 to exchange the unregistered 5.375% Notes with the holders for 5.375% Notes registered under the Securities Act of 1933. The exchange offer was completed on June 28, 2013 with 100% of the $600.0 million 5.375% Senior Unsecured Notes due 2021 tendered in the exchange offer. Interest expense was $32.3 million for the year ended December 31, 2014. The weighted average effective interest rate for the 5.375% Notes was 5.375% for the year ended December 31, 2014. 6.125% Senior Unsecured Notes, due 2022 On October 12, 2012, we issued $500.0 million of senior unsecured notes, which bear interest at a rate of 6.125% per annum and mature on October 1, 2022 (the 6.125% Notes), pursuant to an indenture dated October 12, 2012 (the 2012 Indenture). The 6.125% Notes were priced at 100% of their par value and interest is payable semi-annually on April 1 and October 1, commencing on April 1, 2013. Prior to October 1, 2017, we may redeem the 6.125% Notes, in whole or in part, at any time or from time to time at a price equal to 100% of the principal amount of the 6.125% Notes plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium as set forth in the 2012 Indenture. Beginning on October 1, 2017, we may redeem some or all of the 6.125% Notes at any time or from time to time at a redemption price set forth in the 2012 Indenture. In addition, on or prior to October 1, 2015, we may redeem up to 35% of the 6.125% Notes using proceeds of certain equity offerings. Upon the sale of certain of our assets or certain changes of control, the holders of the 6.125% Notes may require us to repurchase some or all of the notes. The net proceeds from the offering of the 6.125% Notes were used to pay down outstanding indebtedness under the revolving credit facility under our Bank Credit Agreement and fund certain acquisitions as described under Note 2. Acquisitions, and for general corporate purposes. Concurrent with entering into the 2012 Indenture, we also entered 56 Sinclair Broadcast Group into a registration rights agreement requiring us to complete an offer of an exchange of the 6.125% Notes for registered securities with the Securities and Exchange Commission (the SEC) by July 8, 2013. We filed a registration statement on Form S-4 with the SEC on April 4, 2013 which became effective on April 16, 2013. An exchange offer was launched on May 23, 2013 to exchange the unregistered 6.125% Notes with the holders for 6.125% Notes registered under the Securities Act of 1933. The exchange offer was completed on June 28, 2013 with 100.0% of the $500.0 million 6.125% Senior Unsecured Notes due 2022 tendered in the exchange offer Interest expense was $30.6 million for the year ended December 31, 2014. The weighted average effective interest rate for the 6.125% Notes was 6.125% for the year ended December 31, 2014. 8.375% Senior Unsecured Notes, due 2018 Effective October 15, 2014, we redeemed all of the outstanding 8.375% Senior Notes due 2018, representing $237.5 million aggregate principal amount of Notes as of October 15, 2014. Upon the redemption, along with the principal, we paid the accrued and unpaid interest and a make whole premium of $9.9 million, for a total of $257.4 million paid to note holders. We recorded a loss on extinguishment of $14.6 million in the fourth quarter of 2014 related to this redemption. Interest and amortization expense was $16.0 million, $20.3 million and $20.2 million for the years ended December 31, 2014, 2013 and 2012, respectively. The weighted average effective interest rate of the 8.375% Notes, including amortization of its bond discount, was 8.65% for the year ended December 31, 2013. 9.25% Senior Secured Second Lien Notes, Due 2017 Effective October 12, 2013, we redeemed all of the outstanding 9.25% Senior Secured Second Lien Notes, representing $500.0 million in aggregate principal amount. Upon the redemption, along with the principal, we paid the accrued and unpaid interest and a make whole premium of $25.4 million, for a total of $546.1 million paid to noteholders. We recorded a loss on extinguishment of $43.1 million in the fourth quarter of 2013 related to this redemption, which included the write-off of the unamortized deferred financing costs of $9.5 million and debt discount of $8.2 million. Interest expense was $37.3 million and $47.7 million for the years ended December 31, 2013 and 2012, respectively. The weighted average effective interest rate for the 9.25% Notes, including the amortization of its bond discount, was 9.74% for the year ended December 31, 2012. 4.875% Convertible Senior Notes, due 2018 and 3.0% Convertible Senior Notes, Due 2027 In September 2013, 100% of the outstanding 4.875% Convertible Senior Notes, due in 2018 (the 4.875% Notes), representing aggregate principal of $5.7 million, were converted into 388,632 shares of Class A Common Stock, as permitted under the indenture, resulting in an increase in additional paid-in capital of $8.6 million, net of income taxes. In October 2013, 100% of the outstanding 3.0% Convertible Senior Notes, due in 2027 (the 3.0% Notes), representing aggregate principal of $5.4 million, were converted and settled fully in cash of $10.5 million, as permitted under the indenture. As the original terms of the indenture included a cash conversion feature, the effective settlement of the liability and equity components were accounted for separately. The redemption of the liability component results in a $1.0 million gain on extinguishment, and the redemption of the equity component was recorded as a $5.1 million reduction in additional paid-in capital, net of taxes. Other Operating Divisions Debt Other operating divisions debt includes the debt of our consolidated subsidiaries with non-broadcast related operations. This debt is non-recourse to us. Interest was paid on this debt at rates typically ranging from LIBOR plus 2.5% to a fixed 6.50% during 2014. During 2014, 2013 and 2012, interest expense on this debt was $3.1 million, $3.2 million and $3.1 million, respectively. Debt of Variable Interest Entities Our consolidated VIEs have $30.2 million in outstanding debt for which the proceeds were used to purchase the license assets of certain stations. See Note 1. Nature of Operations and Summary of Significant Accounting Policies and Note 2. Acquisitions for more information. The credit agreements and term loans of these VIEs each bear interest of LIBOR plus 2.50%. We have jointly and severally, unconditionally and irrevocably guaranteed the debt of the VIEs, as a primary obligor, including the payment of all unpaid principal of and interest on the loans. 2014 Annual Report 57 For the year ended December 31, 2014 and 2013, the interest expense relating to the debt of our VIEs which was jointly and severally, unconditionally and irrevocably guaranteed was $2.2 million and $1.2 million, respectively. During the year ended December 31, 2012, one of our VIEs had debt outstanding that was non-recourse to us and that debt was repaid in full on October 1, 2012. The interest expense for the year ended December 31, 2012 related to that debt was $0.3 million. Summary Notes payable, capital leases and the Bank Credit Agreement consisted of the following as of December 31, 2014 and 2013 (in thousands): Bank Credit Agreement, Term Loan A Bank Credit Agreement, Term Loan B Revolving credit facility 8.375% Senior Unsecured Notes, due 2018 6.375% Senior Unsecured Notes, due 2021 5.375% Senior Unsecured Notes, due 2021 6.125% Senior Unsecured Notes, due 2022 5.625% Senior Unsecured Notes, due 2024 Debt of variable interest entities Other operating divisions debt Capital leases Total outstanding principal Less: Discount on Bank Credit Agreement, Term Loan B Less: Discount on 8.375% Senior Unsecured Notes, due 2018 Less: Current portion Net carrying value of long-term debt 2014 2013 $ $ 348,073 1,039,876 338,000 — 350,000 600,000 500,000 550,000 30,167 118,822 38,836 3,913,774 (3,992 ) — (113,116 ) 3,796,666 $ $ 500,000 646,375 — 237,530 350,000 600,000 500,000 — 55,581 86,263 42,946 3,018,695 (3,642 ) (2,305 ) (46,346 ) 2,966,402 Indebtedness under the notes payable, capital leases and the Bank Credit Agreement as of December 31, 2014 matures as follows (in thousands): Notes and Bank Credit Agreement 2015 2016 2017 2018 2019 2020 and thereafter Total minimum payments Less: Discount on Term Loan B Less: Amount representing future interest Net carrying value of debt $ $ 110,980 77,574 75,544 577,545 10,987 3,022,308 3,874,938 (3,992 ) — 3,870,946 $ Capital Leases 5,555 5,159 5,197 5,250 5,344 38,721 65,226 — (26,390 ) 38,836 $ Total 116,535 82,733 80,741 582,795 16,331 3,061,029 3,940,164 (3,992 ) (26,390 ) 3,909,782 $ $ As of December 31, 2014, we had 27 capital leases with non-affiliates; including 25 broadcast tower leases, four other operating divisions equipment leases and one corporate building lease. All of our tower leases will expire within the next 17 years, the equipment leases expire within the next 4 years, and the building leases will expire in 2015. 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 information related to our affiliate notes and capital leases, see Note 12. Related Person Transactions. 58 Sinclair Broadcast Group 8. PROGRAM CONTRACTS: Future payments required under program contracts as of December 31, 2014 were as follows (in thousands): 2015 2016 2017 2018 2019 2020 and thereafter Total Less: Current portion Long-term portion of program contracts payable $ $ 104,922 22,459 14,999 10,341 7,838 4,968 165,527 (104,922 ) 60,605 Each future period’s 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 $34.3 million. In addition, we have entered into non-cancelable commitments for future program rights aggregating to $121.0 million as of December 31, 2014. 9. 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 2014, 100,000 Class B Common Stock shares were converted into Class A Common Stock shares. During 2013, 2,905,502 Class B Common Stock shares were converted into Class A Common Stock shares. Our Bank Credit Agreement and some of our subordinated debt instruments have restrictions on our ability to pay dividends. Under our Bank Credit Agreement, in certain circumstances, we may make unrestricted cash payments as long as our first lien indebtedness ratio does not exceed 3.75 to 1.00. Once our first lien indebtedness ratio exceeds 3.75 to 1.00, we have the ability to make up to $200.0 million in unrestricted annual cash payments including but not limited to dividends, of which $50.0 million may carry over to the next year, as long as we are in compliance with our first lien indebtedness ratio under the Bank Credit Agreement of 4.00 to 1.00. In addition, we have an aggregate basket of up to $250.0 million, as long as we are in compliance with our first lien indebtedness ratio of 4.00 to 1.00, and an aggregate basket of $50.0 million, as long as no Event of Default has occurred. Under the indentures governing the 6.125% Notes, 5.375% Notes, 6.375% Notes and 5.625% 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 each indenture or certain other specified agreements relating to our indebtedness; and after taking into account the dividends payment, we are within certain restricted payment requirements contained in each indenture. In addition, under certain of our debt instruments, the payment of dividends is not permissible during a default thereunder. In April 2013, we commenced a public offering of 18.0 million shares of Class A common stock. The offering was priced at $27.25 per share on May 1, 2013 and closed on May 7, 2013. The net proceeds of $472.9 million were used to fund 2013 acquisitions and for general corporate purposes. During 2013, our Board of Directors declared a quarterly dividend of $0.15 per share in the months of February, April, August and November, which were paid in March, June, September and December, respectively. Total dividend payments for the year ended December 31, 2013 were $0.60 per share. During 2014, our Board of Directors declared a quarterly dividend of $0.15 per share in the months of February and April, which were paid in March and June. In August and November our Board of Directors declared a quarterly dividend of $0.165 per share, which were paid in September and December. Total dividend payments for the year ended December 31, 2014 were $0.63 per share. In February 2015, our Board of Directors declared a quarterly dividend of $0.165 per share. Future dividends on our common shares, if any, will be at the discretion of our Board of Directors and will depend on several factors including our results of operations, cash requirements and surplus, financial condition, covenant restrictions and other factors that the Board of Directors may deem relevant. The Class A Common Stock and Class B Common Stock holders have the same rights related to dividends. 2014 Annual Report 59 During 2014, we repurchased approximately 4.9 million shares of Class A Common Stock for approximately $133.2 million on the open market including transaction costs. As of December 31, 2014, the total remaining authorization was $134.4 million. In January 2015, we repurchased 0.3 million shares of Class A Common Stock for approximately $7.8 million on the open market including transaction costs. 10. INCOME TAXES: The provision (benefit) for income taxes consisted of the following for the years ended December 31, 2014, 2013 and 2012 (in thousands): Provision for income taxes - continuing operations (Benefit) provision for income taxes - discontinued operations Current: Federal State Deferred: Federal State 2014 2013 2012 $ $ $ $ 97,432 — 97,432 92,609 5,641 98,250 3,170 (3,988 ) (818 ) 97,432 $ $ $ $ 41,249 (10,806 ) 30,443 16,229 (8,305 ) 7,924 20,214 2,305 22,519 30,443 $ $ $ $ 67,852 663 68,515 56,106 4,095 60,201 9,151 (837 ) 8,314 68,515 The following is a reconciliation of federal income taxes at the applicable statutory rate to the recorded provision from continuing operations: Federal statutory rate Adjustments- State income taxes, net of federal tax benefit (1) Non-deductible items (2) Domestic Production Activities Deduction (3) Effect of consolidated VIEs (4) Change in state tax laws and rates Changes in unrecognized tax benefits (5) Other Effective income tax rate 2014 2013 2012 35.0 % (0.1 %) 3.4 % (3.2 %) 0.8 % (0.1 %) (3.4 %) (0.9 %) 31.5 % 35.0 % 8.3 % 1.4 % (3.8 %) 3.7 % (5.5 %) 0.8 % 0.1 % 40.0 % 35.0 % (0.4 %) 0.3 % (1.4 %) (3.4 %) 0.2 % 1.5 % 0.2 % 32.0 % (1) Included in state income taxes are deferred income tax effects related to certain acquisitions and/or intercompany mergers. (2) Included in 2014 is the current income taxes related to the taxable gain on sale of WHTM’s assets in Harrisburg, PA, which we acquired with the stock purchase of the Allbritton Companies in the same year. There was no book gain on this sale. Since a deferred tax liability was not established for the excess of book basis over tax basis of goodwill, deferred tax benefit does not offset the current tax expense. (3) During the years ended December 31, 2014 and 2013, we recorded a $0.8 million reduction in and a $2.0 million of additional benefit, respectively, related to domestic production activities deduction upon filing the respective 2013 and 2012 federal income tax returns. (4) Certain of our consolidated VIEs incur expenses that are not attributable to non-controlling interests because we absorb certain related losses of the VIEs. These expenses are not tax-deductible by us, and since these VIEs are treated as pass-through entities for income tax purposes, deferred income tax benefits are not recognized. For the year ended December 31, 2012, the taxes on consolidated VIEs include a release of $7.7 million of valuation allowance related to certain deferred tax assets of Cunningham, one of our consolidated VIEs, as the weight of all available evidence supported realization of the deferred tax assets. This assessment was based primarily on the sufficiency of forecasted taxable income necessary to utilize net operating loss carryforwards expiring in the years 2022 — 2029. This VIE files separate income tax returns. Any resulting tax liabilities are nonrecourse to us, and we are not entitled to any benefit resulting from the deferred tax assets of the VIE. As discussed in Variable Interest Entities under Note 1. Nature of Operations and Summary of Significant Accounting Policies, Cunningham was deconsolidated in 2014. (5) During the year ended December 31, 2014, we recorded a $10.8 million benefit related to the release of liabilities for unrecognized tax benefits as a result of expiration of the applicable statute of limitations. See table below which summarizes the activity related to our accrued unrecognized tax benefits. 60 Sinclair Broadcast Group Temporary differences between the financial reporting carrying amounts and the tax bases of assets and liabilities give rise to deferred taxes. Total deferred tax assets and deferred tax liabilities as of December 31, 2014 and 2013 were as follows (in thousands): Current and Long-Term Deferred Tax Assets: Net operating and capital losses: Federal State Broadcast licenses Intangibles Other Valuation allowance for deferred tax assets Total deferred tax assets Current and Long-Term Deferred Tax Liabilities: Broadcast licenses Intangibles Property & equipment, net Contingent interest obligations Other Total deferred tax liabilities Net tax liabilities 2014 2013 $ $ $ $ 2,384 67,430 11,993 32,182 27,677 141,666 (58,896 ) 82,770 $ $ (36,083 ) $ (507,545 ) (72,819 ) (40,941 ) (34,314 ) (691,702 ) (608,932 ) $ 5,027 63,051 27,652 3,451 35,677 134,858 (51,062 ) 83,796 (20,395 ) (270,008 ) (52,514 ) (51,621 ) (2,037 ) (396,575 ) (312,779 ) Our remaining federal and state capital and net operating losses will expire during various years from 2015 to 2034, and some of them are subject to annual limitations under the Internal Revenue Code Section 382 and similar state provisions. As discussed in Income taxes within Note 1. Nature of Operations and Summary of Significant Accounting Policies, we establish valuation allowances in accordance with the guidance related to accounting for income taxes. As of December 31, 2014, a valuation allowance has been provided for deferred tax assets related to a substantial portion of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income. 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, 2014, we increased our valuation allowance by $7.8 million to $58.9 million. The change in valuation allowance was primarily due to intercompany mergers, effective December 31, 2014, which we expect will decrease the utilization of the state NOL carryforwards. During the year ended December 31, 2013, we decreased our valuation allowance by $8.3 million from $59.4 million. The reduction in valuation allowance was primarily due to a law change in a state tax jurisdiction, effective for years beginning after December 31, 2014, which we expect will significantly increase the forecasted future taxable income attributable to that state and result in utilization of the state NOL carryforwards. During the year ended December 31, 2012, we decreased our valuation allowance by $19.7 million from $79.1 million. The reduction in valuation allowance was primarily due to the settlement of several audits, which resulted in the utilization of certain state NOL carryforwards which were previously fully reserved, as well as due to changes in estimates of apportionment for certain states. As of December 31, 2014 and 2013, we had $7.1 million and $16.9 million of gross unrecognized tax benefits, respectively. Of this total, for the years ended December 31, 2014 and 2013, $6.4 and $15.6 million from respective continuing operations (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. The following table summarizes the activity related to our accrued unrecognized tax benefits (in thousands): Balance at January 1, Reductions related to prior year tax positions 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, 2014 2013 2012 $ $ $ 16,883 — 1,450 (2,910 ) (8,285 ) 7,138 $ $ 25,965 (8,928 ) 693 (847 ) — 16,883 $ 26,088 (123 ) — — — 25,965 In addition, we recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized $0.7 million, $1.2 million and $1.5 million of income tax expense for interest related to uncertain tax positions for the years ended December 31, 2014, 2013 and 2012, respectively. 2014 Annual Report 61 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, these accruals are adjusted as necessary. 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. As previously discussed under Discontinued Operations within Note 1. Nature of Operations and Summary of Significant Accounting Policies, during the year ended December 31, 2013, we reduced our liability for unrecognized tax benefits by $11.2 million related to discontinued operations. During the third quarter of 2013, we concluded that it was more likely than not that a previously unrecognized state tax position would be sustained upon review of the state tax authority, based on new information obtained during the period, resulting in a reduction in the liability of $6.1 million. The remaining $5.1 million reduction in the second quarter of 2013 was the result of application of limits under an available state administrative practice exception. We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. All of our 2011 and subsequent federal and state tax returns remain subject to examination by various tax authorities. Some of our pre-2011 federal and state tax returns may also be subject to examination. We do not anticipate the resolution of these matters will result in a material change to our consolidated financial statements. In addition, we believe it is reasonably possible that our liability for unrecognized tax benefits related to continuing operations could be reduced by up to $4.3 million, in the next twelve months, as a result of expected statute of limitations expirations, the application of limits under available state administrative practice exceptions, and the resolution of examination issues and settlements with federal and certain state tax authorities. 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 stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions. After reviewing developments to date with legal counsel, our management is of the opinion that the outcome of our pending and threatened matters will not have a material adverse effect on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows. Various parties have filed petitions to deny our applications or our LMA partners’ applications for the following stations’ license renewals: WXLV-TV, Winston-Salem, North Carolina; WMYV-TV, Greensboro, North Carolina; WLFL-TV, Raleigh / Durham, North Carolina; WRDC-TV, Raleigh / Durham, North Carolina; WLOS-TV, Asheville, North Carolina; WCIV-TV, Charleston, South Carolina (formerly WMMP-TV); WMYA-TV, Anderson, South Carolina; WICS-TV Springfield, Illinois; WBFF-TV, Baltimore, Maryland; WTTE-TV, Columbus, Ohio; WRGT-TV, Dayton, Ohio; WVAH-TV, Charleston / Huntington, West Virginia; WCGV-TV, Milwaukee, Wisconsin; and WTTO-TV in Birmingham, AL. The FCC is in the process of considering the renewal applications and we believe the petitions have no merit. Operating Leases We have entered into operating leases for certain property and equipment under terms ranging from one to 45 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, 2014, 2013 and 2012 was approximately $19.4 million, $10.3 million and $6.7 million, respectively. Future minimum payments under the leases are as follows (in thousands): 2015 2016 2017 2018 2019 2020 and thereafter $ $ 12,819 12,149 9,390 5,838 4,807 20,139 65,142 As of December 31, 2014, we had outstanding letters of credit totaling $3.1 million. Network Affiliation Agreements On May 14, 2012, the Company and the licensees of stations to which we provide services, representing 20 affiliates of Fox Broadcast Company (FOX), extended the network affiliation agreements with FOX from the existing term of December 31, 2012 to December 31, 2017. Concurrently, we entered into an assignable option agreement with Fox Television Stations, Inc. (FTS) giving us or our assignee the right to purchase substantially all the assets of the WUTB station (Baltimore, MD) owned by FTS, 62 Sinclair Broadcast Group which has a program service arrangement with MyNetworkTV, for $2.7 million. In October 2012, we exercised our option and purchased the assets of WUTB effective June 1, 2013. As part of this transaction, we also granted options to FTS to purchase the assets of televisions stations we own in up to three out of four designated markets, which options expired unexercised. In the second quarter of 2012, we paid $25.0 million to FOX pursuant to the agreements and we recorded $50.0 million in other assets and $25.0 million of other accrued liabilities within the consolidated balance sheet, representing the additional obligation due to FOX which was paid in the second quarter of 2013. The $50.0 million asset is being amortized through the current term of the affiliation agreement ending on December 31, 2017. Approximately $8.9 million, $8.9 million and $5.6 million of amortization expense has been recorded in the consolidated statement of operations during the years ended December 31, 2014, 2013 and 2012, respectively. In addition, we are required to pay to FOX programming payments under the terms of the affiliation agreements. These payments are recorded in station production expenses as incurred. 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 latter licensee’s ultimate editorial and other controls. We believe these arrangements allow us to reduce our operating expenses and enhance profitability. If we are required to terminate or modify our LMAs, our business could be affected in the following ways: Losses on investments. In some cases, we own the non-license assets used by the stations we operate under LMAs. 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 of a favorable return on 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 penalties could be material. In 1999, the FCC established a new local television ownership rule. LMAs fell under this rule, however, the rule grandfathered LMAs that were entered into prior to November 5, 1996, and permitted the applicable stations to continue operations pursuant to the LMAs until the conclusion of the FCC’s 2004 biennial review. The FCC stated it would conduct a case-by-case review of grandfathered LMAs and assess the appropriateness of extending the grandfathering periods. The FCC did not initiate any review of grandfathered LMAs in 2004 or as part of its subsequent quadrennial reviews. We do not know when, or if, the FCC will conduct any such review of grandfathered LMAs. For LMAs executed on or after November 5, 1996, the FCC required compliance with the 1999 local television ownership rule by August 6, 2001. We challenged the 1999 rules in the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit), resulting in the exclusion of post-November 5, 1996 LMAs from the 1999 rules. In 2002, the D.C. Circuit ruled that the 1999 local television ownership rule was arbitrary and capricious and remanded the rule to the FCC. Currently, three of our LMAs are grandfathered under the local television ownership rule because they were entered into prior to November 5, 1996 and the remainder are subject to the stay imposed by the D.C. Circuit. If the FCC were to eliminate the grandfathering of these three LMAs, or the D.C. Circuit were to lift its stay, we would have to terminate or modify these LMAs. In connection with our acquisition of the Allbritton station in Charleston, the FCC has taken the position that the stay granted by the D.C. Circuit Court of Appeals allowing the continuation of an LMA between us and Cunningham relating to WTAT-TV in that market was no longer effective. In response to this, we terminated our LMA with WTAT-TV, effective on the acquisition of the Allbritton Companies, and other financial relationships between us and WTAT-TV were severed (other than a short-term transition services agreement, a sublease of tower space and a lease of certain transmission facilities). Cunningham purchased the non-license assets of WTAT-TV for $14.0 million. 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. On November 15, 1999, we entered into a plan and agreement of merger to acquire through merger WMYA-TV in Anderson, South Carolina from 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, at the time, the remaining five Cunningham stations: WRGT-TV, Dayton, Ohio; WTAT-TV, Charleston, South Carolina; WVAH-TV, Charleston, West Virginia; WNUV-TV, 2014 Annual Report 63 Baltimore, Maryland; and WTTE-TV, Columbus, Ohio. The Rainbow/PUSH Coalition (‘‘Rainbow/PUSH’’) filed a petition to deny these five applications and to revoke all of our licenses on the grounds that such acquisition would violate the local television ownership rules. 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. Both 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 take final action on these 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 proceedings to the Third Circuit. In December 2008, we agreed voluntarily with the parties to the proceeding to dismiss the petition seeking final FCC action on the applications. On March 12, 2014, the FCC issued a public notice with respect to the processing of broadcast television applications proposing sharing arrangements and contingent interests. The public notice indicated that the FCC will closely scrutinize any application that proposes that two or more stations in the same market that will enter into an agreement to share facilities, employees and/or services or to jointly acquire programming or sell advertising including through a JSA, LMA or similar agreement and enter into an option, right of first refusal, put /call arrangement or other similar contingent interest, or a loan guarantee. We cannot now predict what actions the FCC may require in connection with the processing of applications for FCC consent to pending transactions. In addition, the FCC issued rules that would consider a company an owner of a station if the company has a JSA with a station for sale of more than 15% of the ad time on a particular station if it owns or controls another station in the same market. Parties to such agreements must come into compliance with these new rules by June 19, 2016. Among other things, the rule could limit our ability to create duopolies or other two-station operations in certain markets. We are currently evaluating whether to seek one or more waivers of the new rules, or to modify or terminate our current JSAs. We cannot predict whether we will be able to terminate or restructure such arrangements on terms that are as advantageous to us as the current arrangements. The rule has been appealed to the United States Court of Appeals for the District of Columbia Circuit and we cannot predict the outcome of that proceeding. The revenues of these JSA arrangements we earned during the years ended December 31, 2014 and 2013 were $48.8 million and $36.0 million, respectively. In its Order approving the Allbritton transaction, the FCC expressed concerns regarding an LMA that had existed between Sinclair and Cunningham in the Charleston market, and that it believed Sinclair apparently violated the local TV ownership rule with respect to its continued operation of that LMA. The same agreement that governs the Charleston LMA also governs LMAs between Sinclair and Cunningham in three other markets. The existence of the Charleston LMA was repeatedly disclosed to the Commission over many years, during which Sinclair relied on a June 20, 2001, Stay Order issued by the United States Court of Appeals for the District of Columbia Circuit, which specifically stated that “the time for Sinclair to come into compliance with the Commission’s ‘eight voices standard’ … is hereby stayed pending further order of the court.” No further order has been issued by the Court with respect to that stay. Sinclair has submitted a memorandum of counsel to the FCC with regard to the LMA and its reliance on the Court’s Stay Order. We cannot predict what steps, if any, the FCC will take in the future with respect to the now terminated Charleston LMA. In connection with the Allbritton acquisition, we agreed to surrender for cancellation the FCC licenses of WMMP, Charleston, SC, WCFT, Tuscaloosa, AL, and WJSU, Anniston, AL, all ABC affiliates, by September 29, 2014 and to terminate the Charleston LMA. In August 2014, we entered into an agreement to sell the license and related assets of WMMP to Howard Stirk Holdings II, LLC for $0.05 million, subject to the approval of the FCC, and other customary closing conditions. In September 2014, we entered into two other agreements to sell the licenses and related assets of WCFT and WJSU to Howard Stirk Holdings II LLC for $0.05 million per station, subject to the approval of the FCC, and other customary closing conditions. The FCC applications requested waiver or an extension of the September 29, 2014 deadline. The FCC granted the WCFT, WJSU and WMMP assignment applications on December 4, 2014. We sold the license and related assets to a third party on February 27, 2015. Subsequent, to the sale we retained the ABC network affiliation service agreements. 64 Sinclair Broadcast Group 12. RELATED PERSON TRANSACTIONS: Transactions with our controlling shareholders David, Frederick, J. Duncan and Robert Smith (collectively, the controlling shareholders) are brothers and hold substantially all of the Class B Common Stock and some of our Class A Common Stock. We engaged in the following transactions with them and/or entities in which they have substantial interests. Leases. Certain assets used by us and our operating subsidiaries are leased from Cunningham Communications Inc., Keyser Investment Group, Gerstell Development Limited Partnership and Beaver Dam, LLC (entities owned by the controlling shareholders). Lease payments made to these entities were $5.1 million, $5.2 million and $4.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. Bay TV. In January 1999, we entered into an LMA with Bay TV, which owned the television station WTTA-TV in the Tampa / St. Petersburg, Florida market. Each of our controlling shareholders owned a substantial portion of the equity of Bay TV and collectively they had a controlling interest. On December 1, 2012, we purchased substantially all of the assets of Bay TV for $40.0 million. During the year ended December 31, 2012, we made $2.9 million of payments to Bay TV under the LMA. As this was considered a transaction between entities under common control, the acquisition method of accounting was not applied, and the assets acquired were recorded at their historical cost basis and the difference between the purchase price and the historical cost basis of the assets of $23.6 million, net of taxes of $15.6 million, was recorded as a reduction in additional paid-in capital. A substantial portion of the purchase price will be deductible for tax purposes in future period. As discussed in Note 3. Disposition of Assets and Discontinued Operations, WTTA was sold in December 2014. Charter Aircraft. From time to time, we charter aircraft owned by certain controlling shareholders. We incurred expenses of $1.5 million, $0.9 million and $0.6 million during the years ended December 31, 2014, 2013 and 2012, respectively. Capital leases payable related to the aforementioned relationships consisted of the following as of December 31, 2014 and 2013 (in thousands): Capital lease for building, interest at 8.54% Capital leases for building and tower, interest at 7.93% Capital leases for building, interest at 8.11% Capital leases for broadcasting tower facilities, interest at 9.0% Capital leases for broadcasting tower facilities, interest at 10.5% Less: Current portion 2014 2013 $ $ 4,972 932 7,843 390 4,797 18,934 (2,625 ) 16,309 $ $ 6,267 1,106 8,141 860 4,918 21,292 (2,367 ) 18,925 Capital leases payable related to the aforementioned relationships as of December 31, 2014 mature as follows (in thousands): 2015 2016 2017 2018 2019 2020 and thereafter Total minimum payments due Less: Amount representing interest Cunningham Broadcasting Corporation $ $ 4,402 4,138 4,102 1,880 1,960 11,084 27,566 (8,610 ) 18,956 As of December 31, 2014, Cunningham was the owner-operator and FCC licensee of: WNUV-TV Baltimore, Maryland; WRGT-TV Dayton, Ohio; WVAH-TV Charleston, West Virginia; WMYA-TV Anderson, South Carolina; WTTE-TV Columbus, Ohio; WDBB-TV Birmingham, Alabama; WBSF-TV Flint, Michigan; and WGTU-TV/WGTQ-TV Traverse City/Cadillac, Michigan (collectively, the Cunningham Stations), as well as WTAT-TV Charleston, South Carolina, and WYZZ Peoria/Bloomington, IL. During the first quarter of 2013, the estate of Carolyn C. Smith, a parent of our controlling shareholders, distributed all of the non-voting stock owned by the estate to our controlling shareholders, and a portion was repurchased by Cunningham for $1.7 million in the aggregate. During the second quarter of 2014, Cunningham purchased the remaining amount of non-voting stock from the controlling shareholders for an aggregate purchase price of $2.0 million. The estate of Mrs. Smith currently owns all of 2014 Annual Report 65 the voting stock. The sale of the voting stock by the estate to an unrelated party is pending approval of the FCC. We also had options from the trusts, which granted us the right to acquire, subject to applicable FCC rules and regulations, 100% of the voting and nonvoting stock of Cunningham, up until September 30, 2014, when these options were terminated. As discussed under Note 1: Summary of Significant Accounting Policies, during the third quarter of 2014, we deconsolidated Cunningham Broadcasting Corporation as we determined it was no longer a variable interest entity. We continue to consolidate certain of its subsidiaries with which we continue to have variable interests through various arrangements related to the Cunningham Stations discussed further below. As of December 31, 2014, certain of our stations provide programming, sales and managerial services pursuant to LMAs to six of the Cunningham stations: WNUV-TV, WRGT-TV, WVAH-TV, WMYA-TV, WTTE-TV, and WDBB-TV (collectively, the Cunningham LMA Stations). Each of these LMAs has a current term that expires on July 1, 2016 and there are three additional 5- year renewal terms remaining with final expiration on July 1, 2031. We also executed purchase agreements to acquire the license related assets of these stations from Cunningham, which grant us the right to acquire, and grant Cunningham the right to require us to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock or the assets of these individual subsidiaries of Cunningham. Our applications to acquire these license related assets are pending FCC approval. The LMA and purchase agreement with WTAT-TV was terminated concurrent with Cunningham’s purchase of the non-license assets of this station from us for $14.0 million, effective August 1, 2014. We no longer have any continuing involvement in the operations of this station. Pursuant to the terms of the LMAs, options and other agreements, beginning on January 1, 2010 and ending on July 1, 2012, we were obligated to pay Cunningham the sum of approximately $29.1 million in 10 quarterly installments of $2.75 million and one quarterly payment of approximately $1.6 million, which amounts were used to pay down Cunningham’s bank credit facility and which amounts were credited toward the purchase price for each Cunningham station. An additional $1.2 million was paid on July 1, 2012 and another installment of $2.75 million was paid on October 1, 2012 as an additional LMA fee and was used to pay off the remaining balance of Cunningham’s bank credit facility. The aggregate purchase price of the television stations, which was originally $78.5 million pursuant to certain acquisition or merger agreements subject to 6% annual increases, was decreased by each payment made by us to Cunningham, through 2012, up to $29.1 million in the aggregate; pursuant to the foregoing transactions with Cunningham as such payments were made. Beginning on January 1, 2013, we were obligated to pay Cunningham an annual LMA fee for the television stations equal to the greater of (i) 3% of each station’s annual net broadcast revenue and (ii) $5.0 million, of which a portion of this fee will be credited toward the purchase price to the extent of the annual 6% increase. Additionally, we reimburse these Cunningham LMA Stations for 100% of their operating costs. In July 2014, concurrent with the termination of the LMA with WTAT-TV the total LMA fee for the remaining Cunningham LMA Stations was reduced by $4.7 million to remove the fee associated with WTAT-TV. The remaining aggregate purchase price of these stations, excluding WTAT-TV, as of December 31, 2014 was approximately $53.6 million. We made payments to Cunningham under our LMAs with these stations of $10.8 million, $9.8 million and $15.7 million for the years ended December 31, 2014, 2013 and 2012, respectively. For the years ended December 31, 2014, 2013 and 2012, Cunningham LMA Stations provided us with approximately $103.5 million, $107.6 million, and $105.5 million, respectively, of total revenue. In November 2013, concurrent with our acquisition of the Barrington stations, Cunningham acquired the license related assets of WBSF-TV and WGTU-TV/WGTQ-TV, which was funded by bank debt, for which we have provided a guarantee. We provide certain non-programming related sales, operational and administrative services to these stations pursuant to certain outsourcing agreements. The agreements with WBSF-TV and WGTU-TV/WGTQ-TV expire in November 2021 and August 2015, respectively, and each has renewal provisions for successive eight year periods. Under these arrangements, we earned $6.0 million and $0.6 million from the services we perform for these stations for the years ended December 31, 2014 and 2013, respectively. As we consolidate the licensees as VIEs, the amounts we earn under the arrangements are eliminated in consolidation and the gross revenues of the stations are reported within our consolidated statement of operations. For the years ended December 31, 2014 and 2013, our consolidated revenues include $7.8 million and $0.7 million related to these stations, respectively. Also, concurrent with the Barrington acquisition, we also sold our station, WYZZ (FOX) in Peoria, IL, which currently receives non-programming related sales, operational and administrative services from Nexstar Broadcasting pursuant to an outsourcing agreement, to Cunningham for $22.0 million. In July 2014, concurrent with the Allbritton acquisition we terminated the LMA with WTAT (FOX) in Charleston, SC and sold to Cunningham the non-license assets related to this station. Although we have no continuing involvement in the operations of these stations, because we had consolidated Cunningham Broadcasting Corporation (the parent company) up until September 2014 (see Variable Interest Entities under Note 1. Nature of Operations and Summary of Significant Accounting Policies), the assets of WYZZ were not derecognized and the transactions was accounted for as transactions between consolidated entities, and the resulting gain on sale were not recognized. Upon deconsolidation of Cunningham Broadcasting Corporation, the difference 66 Sinclair Broadcast Group between proceeds received for the sale of WYZZ and WTAT and the carrying values of the net assets, which was previously eliminated in consolidation, was reflected as an increase to additional paid in capital in the consolidated balance sheet. During October 2013, we purchased the outstanding membership interests of KDBC-TV (CBS) in El Paso, TX from Cunningham for $21.2 million, plus a working capital adjustment of $0.2 million. See Other Acquisitions within Note 2. Acquisitions, for further information. Atlantic Automotive Corporation We sold advertising time to and purchased vehicles and related vehicle services from Atlantic Automotive Corporation (Atlantic Automotive), a holding company that owns automobile dealerships and an automobile leasing company. David D. Smith, our President and Chief Executive Officer, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive. We received payments for advertising totaling $0.4 million, $0.2 million and $0.1 million during the years ended December 31, 2014, 2013 and 2012, respectively. We paid $1.1 million and $1.8 million for vehicles and related vehicle services from Atlantic Automotive during the years ended December 31, 2013 and 2012, respectively. No payments for vehicles or vehicles related services from Atlantic Automotive during the year ended December 31, 2014. Additionally, in August 2011, Atlantic Automotive entered into an office lease agreement with Towson City Center, LLC (Towson City Center), a subsidiary of one of our real estate ventures. Atlantic Automotive paid $1.0 million in rent during the year ended December 31, 2014. Leased property by real estate ventures Certain of our real estate ventures have entered into leases with entities owned by David Smith to lease restaurant space. There are leases for three restaurants in a building owned by one of our consolidated real estate ventures in Baltimore, MD. Total rent received under these leases was $0.5 million for both the years ended December 31, 2014 and 2013; and $0.3 million for the year ended December 31, 2012. There is also one lease for a restaurant in a building owned by one of our real estate ventures, accounted for under the equity method, in Towson, MD. This investment received $0.3 million and $0.2 million in rent pursuant to the lease for the years ended December 31, 2014 and 2013, respectively. Other Thomas & Libowitz, P.A. Steven A. Thomas, son of former Board of Director member Basil A. Thomas, is the partner and founder of Thomas & Libowitz, P.A. (Thomas & Libowitz), a law firm providing legal services to us on an ongoing basis. During the periods up through Basil Thomas’ resignation from the Board of Directors in September 2013, we paid fees of $1.6 million and $1.0 million to Thomas & Libowitz during 2013 and 2012, respectively. 2014 Annual Report 67 13. EARNINGS PER SHARE: The following table reconciles income (numerator) and shares (denominator) used in our computations of earnings per share for the years ended December 31, 2014, 2013 and 2012 (in thousands): Income (Numerator) Income from continuing operations Income impact of assumed conversion of the 4.875% Notes, net of taxes Net income attributable to noncontrolling interests included in continuing operations Numerator for diluted earnings per common share from continuing operations available to common shareholders Income from discontinued operations, net of taxes Numerator for diluted earnings available to common shareholders $ $ Shares (Denominator) Weighted-average common shares outstanding Dilutive effect of outstanding stock settled appreciation rights, restricted stock awards and stock options Dilutive effect of 4.875% Notes Weighted-average common and common equivalent shares outstanding 2014 2013 2012 215,115 — $ (2,836 ) 212,279 — 212,279 $ 97,114 705 — 97,819 64,259 — $ (2,349 ) 61,910 11,558 73,468 $ 93,207 638 — 93,845 144,488 180 (287 ) 144,381 465 144,846 81,020 36 254 81,310 Potentially dilutive securities which would have an anti-dilutive effect were 0.3 million, zero, and 1.5 million shares and for the year ended December 31, 2014, 2013, and 2012, respectively. The decrease in 2013 compared to 2012 of anti-dilutive securities is primarily related to the increase of the stock price in 2013. The net earnings per share amounts are the same for Class A and Class B Common Stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation. 14. SEGMENT DATA: We measure segment performance based on operating income (loss). Excluding discontinued operations, our broadcast segment includes stations in 79 markets located throughout the continental United States. The operating results of WLAJ-TV and WLWC-TV, which were sold effective March 1, 2013 and April 1, 2013, respectively, are classified as discontinued operations and are not included in our consolidated results of continuing operations for the years ended 2013 and 2012. Our other operating divisions primarily consist of sign design and fabrication; regional security alarm operating and bulk acquisitions; manufacturing and service of broadcast antennas and transmitters and real estate ventures. All of our other operating divisions are located within the United States. Corporate costs primarily include our costs to operate as a public company and to operate our corporate headquarters location. Other Operating Divisions and Corporate are not reportable segments but are included for reconciliation purposes. We had approximately $172.3 million and $171.9 million of intercompany loans between the broadcast segment, other operating divisions and corporate as of December 31, 2014 and 2013, respectively. We had $20.7 million, $20.0 million, and $20.0 million in intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions and corporate for the years ended December 31, 2014, 2013, and 2012, respectively. All other intercompany transactions are immaterial. 68 Sinclair Broadcast Group Financial information for our operating segments is included in the following tables for the years ended December 31, 2014, 2013 and 2012 (in thousands): For the year ended December 31, 2014 Revenue Depreciation of property and equipment Amortization of definite-lived intangible assets and other Broadcast $ 1,904,988 99,823 $ assets Amortization of program contract costs and net realizable value adjustments General and administrative overhead expenses Operating income (loss) Interest expense Income from equity and cost method investments Goodwill Assets Capital expenditures 118,654 106,629 56,179 505,941 — — 1,964,041 4,941,446 78,865 For the year ended December 31, 2013 Revenue Depreciation of property and equipment Amortization of definite-lived intangible assets and other Broadcast $ 1,306,187 67,320 $ assets Amortization of program contract costs and net realizable value adjustments General and administrative overhead expenses Operating income (loss) Interest expense Income from equity and cost method investments Goodwill Assets Capital expenditures 65,786 80,925 47,272 329,312 — — 1,376,594 3,450,006 35,694 For the year ended December 31, 2012 Revenue Depreciation of property and equipment Amortization of definite-lived intangible assets and other Broadcast $ 1,007,498 44,054 $ assets Amortization of program contract costs and net realizable value adjustments General and administrative overhead expenses Operating income (loss) Interest expense Income from equity and cost method investments 33,701 60,990 28,854 333,157 — — Other Operating Divisions Corporate Consolidated 71,570 2,350 $ $ — 1,118 1,976,558 103,291 6,842 — 973 2,089 4,042 2,313 512 356,380 2,593 Other Operating Divisions — 125,496 — 12,261 (13,379 ) 170,820 — — 154,346 — 106,629 69,413 494,651 174,862 2,313 1,964,553 5,452,172 81,458 Corporate Consolidated 56,944 1,891 $ — 1,343 $ 1,363,131 70,554 5,034 — 1,350 555 3,251 621 3,488 296,657 4,994 Other Operating Divisions — 70,820 — 4,504 (5,847 ) 159,686 — — 400,809 2,700 80,925 53,126 324,020 162,937 621 1,380,082 4,147,472 43,388 Corporate Consolidated 54,181 1,496 $ — 1,523 $ 1,061,679 47,073 4,398 — 1,697 491 3,282 9,670 — — 2,840 (4,363 ) 125,271 — 38,099 60,990 33,391 329,285 128,553 9,670 2014 Annual Report 69 15. FAIR VALUE MEASUREMENTS: Accounting guidance provides for valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). A fair value hierarchy using three broad levels prioritizes the inputs to valuation techniques used to measure fair value. The following is a brief description of those three levels: Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. The carrying value and fair value of our notes and debentures as of December 31, 2014 and 2013 were as follows (in thousands): Level 2: 2014 2013 Carrying Value Fair Value Carrying Value Fair Value 8.375% Senior Notes due 2018 6.375% Senior Unsecured Notes due 2021 6.125% Senior Unsecured Notes due 2022 5.625% Senior Unsecured Notes due 2024 5.375% Senior Unsecured Notes due 2021 Term Loan A Term Loan B Revolver credit facility Debt of variable interest entities Debt of other operating divisions $ $ — 350,000 500,000 550,000 600,000 348,073 1,035,883 338,000 30,167 118,822 $ — 355,800 503,475 532,813 595,068 341,982 1,029,997 338,000 30,167 118,822 $ 235,225 350,000 500,000 — 600,000 500,000 642,734 — 55,581 86,263 259,547 360,938 497,525 — 582,078 495,000 641,205 — 55,581 86,263 Additionally, Cunningham, one of our consolidated VIEs had certain investments in securities during 2013 that are recorded at fair value using Level 1 inputs described above. Cunningham was deconsolidated during 2014, see Variable Interest Entities within Note 1. Summary of Significant Accounting Policies for further discussion. As of December 31, 2013, $18.1 million were included in other assets in our consolidated balance sheet. 16. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Sinclair Television Group, Inc. (STG), a wholly-owned subsidiary and the television operating subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under the Bank Credit Agreement, the 5.375% Notes, the 5.625% Notes, 6.125% Notes, and 6.375% Notes. Our Class A Common Stock and Class B Common Stock as of December 31, 2014, were obligations or securities of SBG and not obligations or securities of STG. SBG is a guarantor under the Bank Credit Agreement, the 5.375% Notes, 5.625% Notes, 6.125% Notes, and 6.375% Notes. As of December 31, 2014, our consolidated total debt of $3,928.7 million included $3,801.7 million of debt related to STG and its subsidiaries of which SBG guaranteed $3,752.1 million. SBG, KDSM, LLC, a wholly-owned subsidiary of SBG, and STG’s wholly-owned subsidiaries (guarantor subsidiaries), have fully and unconditionally guaranteed, subject to certain customary automatic release provisions, all of STG’s obligations. Those guarantees are joint and several. There are certain contractual restrictions on the ability of SBG, STG or KDSM, LLC to obtain funds from their subsidiaries in the form of dividends or loans. The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows of SBG, STG, KDSM, LLC and the guarantor subsidiaries, the direct and indirect non-guarantor subsidiaries of SBG and the eliminations necessary to arrive at our information on a consolidated basis. These statements are presented in accordance with the disclosure requirements under SEC Regulation S-X, Rule 3-10. 70 Sinclair Broadcast Group CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2014 (In thousands) Sinclair Broadcast Group, Inc. Sinclair Television Group, Inc. Guarantor Subsidiaries and KDSM, LLC Non- Guarantor Subsidiaries Eliminations Cash Accounts and other receivables Other current assets Assets held for sale Total current assets $ — $ — 5,741 — 5,741 3,394 $ 164 12,996 — 16,554 1,749 $ 359,486 98,751 — 459,986 12,539 $ 25,111 12,721 6,504 56,875 Sinclair Consolidated 17,682 383,503 118,476 6,504 526,165 — $ (1,258 ) (11,733 ) — (12,991 ) Property and equipment, net 3,949 17,554 569,372 168,762 (7,099 ) 752,538 Assets held for sale Investment in consolidated subsidiaries Other long-term assets Total other long-term assets — — 395,225 65,988 461,213 3,585,037 595,112 4,180,149 1,843 3,978 90,914 96,735 6,974 — 115,375 122,349 — 8,817 (3,984,240 ) (620,628 ) (4,604,868 ) — 246,761 255,578 Goodwill and other intangible assets — 1,483 3,821,985 209,724 (115,301 ) 3,917,891 Total assets $ 470,903 $ 4,215,740 $ 4,948,078 $ 557,710 $ (4,740,259 ) $ 5,452,172 Accounts payable and accrued liabilities Current portion of long-term debt Current portion of affiliate long-term debt Other current liabilities Liabilities held for sale Total current liabilities Long-term debt Affiliate long-term debt Other liabilities Total liabilities $ 541 $ 529 46,083 $ 42,953 201,102 $ 1,302 24,325 $ 68,332 (13,680 ) $ — 258,371 113,116 1,464 1,208 — 3,742 — 3,508 35,771 43,021 — — — 89,036 3,679,004 — 28,856 3,796,896 1,182 107,867 — 311,453 34,338 12,802 1,003,213 1,361,806 1,026 9,749 2,477 105,909 83,324 319,901 169,935 679,069 (1,047 ) (1,407 ) — (16,134 ) — (319,902 ) (497,927 ) (833,963 ) 2,625 117,417 2,477 494,006 3,796,666 16,309 739,848 5,046,829 Total Sinclair Broadcast Group equity (deficit) Noncontrolling interests in consolidated subsidiaries Total liabilities and equity (deficit) $ 427,882 418,844 3,586,272 (94,632 ) (3,910,484 ) 427,882 — 470,903 $ — — 4,215,740 $ 4,948,078 $ (26,727 ) 557,710 $ 4,188 (4,740,259 ) $ (22,539 ) 5,452,172 2014 Annual Report 71 CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2013 (In thousands) Sinclair Broadcast Group, Inc. Sinclair Television Group, Inc. Guarantor Subsidiaries and KDSM, LLC Non- Guarantor Subsidiaries Eliminations Cash Accounts and other receivables Other current assets Total current assets $ — $ 59 5,500 5,559 237,974 $ 818 25,887 264,679 28,594 $ 281,822 67,279 377,695 13,536 $ 27,479 16,391 57,406 Sinclair Consolidated 280,104 309,156 108,611 697,871 — $ (1,022 ) (6,446 ) (7,468 ) Property and equipment, net 5,017 13,561 454,917 130,019 (7,443 ) 596,071 Investment in consolidated subsidiaries Restricted cash — long term Other long-term assets Total other long-term assets 363,231 — 78,849 442,080 2,508,058 11,524 503,674 3,023,256 4,179 223 62,435 66,837 — — 132,840 132,840 (2,875,468 ) — (544,881 ) (3,420,349 ) — 11,747 232,917 244,664 Goodwill and other intangible assets — — 2,486,794 214,325 (92,253 ) 2,608,866 Total assets $ 452,656 $ 3,301,496 $ 3,386,243 $ 534,590 $ (3,527,513 ) $ 4,147,472 Accounts payable and accrued liabilities Current portion of long-term debt Current portion of affiliate long-term debt Other current liabilities Total current liabilities Long-term debt Affiliate long-term debt Other liabilities Total liabilities Total Sinclair Broadcast Group equity (deficit) Noncontrolling interests in consolidated subsidiaries Total liabilities and equity (deficit) $ 234 $ 556 51,781 $ 37,335 126,245 $ 1,007 17,161 $ 6,900 753 $ 548 196,174 46,346 1,294 3,529 5,613 529 4,972 45,172 56,286 — — 89,116 2,793,334 — 23,645 2,906,095 1,073 87,612 215,937 35,709 13,984 610,491 876,121 1,003 9,645 34,709 135,071 294,919 145,828 610,527 (1,003 ) (2,292 ) (1,994 ) 1,759 (294,950 ) (412,076 ) (707,261 ) 2,367 98,494 343,381 2,966,402 18,925 413,060 3,741,768 396,370 395,401 2,510,122 (85,271 ) (2,820,252 ) 396,370 $ — 452,656 $ — — 3,301,496 $ 3,386,243 $ 9,334 534,590 $ — (3,527,513 ) $ 9,334 4,147,472 72 Sinclair Broadcast Group CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2014 (In thousands) Sinclair Broadcast Group, Inc. Sinclair Television Group, Inc. Guarantor Subsidiaries and KDSM, LLC 1,870,408 $ Non- Guarantor Subsidiaries Eliminations (86,466 ) $ Sinclair Consolidated 1,976,558 Net revenue $ — $ — $ Program and production Selling, general and administrative Depreciation, amortization and other operating expenses Total operating expenses — 4,320 1,068 5,388 76 57,799 5,425 63,300 573,725 359,880 367,514 1,301,119 192,616 $ 84,592 20,099 92,635 197,326 (81,380 ) (2,079 ) (1,767 ) (85,226 ) 577,013 440,019 464,875 1,481,907 Operating (loss) income (5,388 ) (63,300 ) 569,289 (4,710 ) (1,240 ) 494,651 Equity in earnings of consolidated subsidiaries Interest expense Other income (expense) Total other income (expense) Income tax benefit Net income (loss) Net loss attributable to the noncontrolling interests Net income (loss) attributable to Sinclair Broadcast Group Comprehensive Income 211,782 (573 ) 4,377 215,586 2,081 212,279 373,228 (163,347 ) (14,651 ) 195,230 83,897 215,827 (201 ) (4,869 ) 998 (4,072 ) (185,193 ) 380,024 — (27,364 ) 2,024 (25,340 ) 1,783 (28,267 ) (584,809 ) 21,291 10 (563,508 ) — (564,748 ) — (174,862 ) (7,242 ) (182,104 ) (97,432 ) 215,115 — — — (2,836 ) — (2,836 ) $ $ 212,279 $ 211,759 $ 215,827 $ 213,284 $ 380,024 $ 378,926 $ (31,103 ) $ (27,982 ) $ (564,748 ) $ (564,228 ) $ 212,279 211,759 2014 Annual Report 73 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2013 (In thousands) Sinclair Broadcast Group, Inc. Sinclair Television Group, Inc. Guarantor Subsidiaries and KDSM, LLC 1,296,736 $ Non- Guarantor Subsidiaries Eliminations (56,622 ) $ Sinclair Consolidated 1,363,131 Net revenue $ — $ — $ Program and production Selling, general and administrative Depreciation, amortization and other operating expenses Total operating expenses 15 3,733 1,307 5,055 357 48,363 3,105 51,825 391,410 241,548 275,889 908,847 123,017 $ 50,950 9,132 71,319 131,401 (57,628 ) 82 (471 ) (58,017 ) 385,104 302,858 351,149 1,039,111 Operating (loss) income (5,055 ) (51,825 ) 387,889 (8,384 ) 1,395 324,020 Equity in earnings of consolidated subsidiaries Interest expense Other income (expense) Total other income (expense) Income tax benefit Income from discontinued operations, net of taxes Net income (loss) Net loss attributable to the noncontrolling interests Net income (loss) attributable to Sinclair Broadcast Group Comprehensive Income 97,138 (1,083 ) 4,633 100,688 309,388 (152,174 ) (59,033 ) 98,181 1,009 (4,965 ) 245 (3,711 ) — (25,624 ) 5,361 (20,263 ) (407,535 ) 20,909 (6,781 ) (393,407 ) — (162,937 ) (55,575 ) (218,512 ) (22,165 ) 47,645 (73,266 ) 2,637 3,900 (41,249 ) — 73,468 — 11,063 105,064 495 311,407 — (26,010 ) — (388,112 ) 11,558 75,817 — — (2,349 ) — (2,349 ) $ $ 73,468 $ 78,257 $ 105,064 $ 107,243 $ 311,407 $ 311,407 $ (28,359 ) $ (28,098 ) $ (388,112 ) $ (388,112 ) $ 73,468 78,257 74 Sinclair Broadcast Group CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2012 (In thousands) Sinclair Broadcast Group, Inc. Sinclair Television Group, Inc. Guarantor Subsidiaries and KDSM, LLC 1,008,146 $ Non- Guarantor Subsidiaries Eliminations (11,376 ) $ Sinclair Consolidated 1,061,679 Net revenue $ — $ — $ Program and production Selling, general and administrative Depreciation, amortization and other operating expenses Total operating expenses — 2,853 1,523 4,376 322 28,762 1,890 30,974 263,802 168,540 213,681 646,023 Operating (loss) income (4,376 ) (30,974 ) 362,123 64,909 $ 1,400 6,082 55,802 63,284 1,625 (9,968 ) (1,567 ) (728 ) (12,263 ) 255,556 204,670 272,168 732,394 887 329,285 Equity in losses of consolidated subsidiaries Interest expense Other income (expense) Total other income (expense) Income tax benefit Loss from discontinued operations, net of taxes Net income (loss) Net loss attributable to the noncontrolling interests Net income (loss) attributable to Sinclair Broadcast Group Comprehensive Income 144,620 (1,317 ) 5,245 148,548 194,686 (118,491 ) 38,677 114,872 (123 ) (4,840 ) (39,781 ) (44,744 ) — (24,780 ) 8,690 (16,090 ) (339,183 ) 20,875 (1,223 ) (319,531 ) — (128,553 ) 11,608 (116,945 ) 494 41,709 (118,519 ) 8,464 — (67,852 ) — 144,666 (269 ) 125,338 734 199,594 — — — — (6,001 ) (287 ) — (318,644 ) 465 144,953 — (287 ) $ $ 144,666 $ 144,808 $ 125,338 $ 125,193 $ 199,594 $ 199,594 $ (6,288 ) $ (6,288 ) $ (318,644 ) $ (318,499 ) $ 144,666 144,808 2014 Annual Report 75 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 (In thousands) Sinclair Broadcast Group, Inc. Sinclair Television Group, Inc. Guarantor Subsidiaries and KDSM, LLC Non- Guarantor Subsidiaries Eliminations Sinclair Consolidated $ (26,528 ) $ (147,940 ) $ 628,103 $ (35,694 ) $ 12,513 $ 430,454 NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Acquisition of property and equipment Payments for acquisitions of television stations Proceeds from the sale of broadcast assets Payments for acquisitions of assets of other operating divisions Purchase of alarm monitoring contracts (Increase) decrease in restricted cash Investments in equity and cost method investees Proceeds from insurance settlement Other, net 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 Repurchase of outstanding Class A Common Stock Dividends paid on Class A and Class B common stock Payments for deferred financing costs Noncontrolling interest (contributions) distributions Increase (decrease) in intercompany payables Other, net Net cash flows from (used in) financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, beginning of period CASH AND CASH — — — — — — — 1,000 1,000 (8,864 ) (71,152 ) (2,722 ) 1,280 (81,458 ) — — (1,485,039 ) 176,675 — — — 11,525 — 17,042 — — 91 — — 392 (27,701 ) — (8,104 ) — (1,779 ) — — — — — — — (1,485,039 ) 176,675 (27,701 ) 11,616 (8,104 ) 17,042 (387 ) 19,703 (1,379,033 ) (40,306 ) 1,280 (1,397,356 ) — 1,466,500 507 33,713 — 1,500,720 (556 ) (574,584 ) (1,028 ) (6,596 ) (133,157 ) — (61,103 ) — — (16,590 ) — — — — — — 218,081 2,263 (981,669 ) — 725,678 (1,072 ) 25,528 (106,343 ) 724,085 — — — (8,184 ) 51,703 4,367 75,003 — — — — — (13,793 ) — (582,764 ) (133,157 ) (61,103 ) (16,590 ) (8,184 ) — 5,558 (13,793 ) 704,480 — — (234,580 ) (26,845 ) (997 ) 237,974 28,594 13,536 — — (262,422 ) 280,104 EQUIVALENTS, end of period $ — $ 3,394 $ 1,749 $ 12,539 $ — $ 17,682 76 Sinclair Broadcast Group CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2013 (In thousands) Sinclair Broadcast Group, Inc. Sinclair Television Group, Inc. Guarantor Subsidiaries and KDSM, LLC Non- Guarantor Subsidiaries Eliminations Sinclair Consolidated NET CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES $ (37,107 ) $ (264,925 ) $ 444,680 $ (40,414 ) $ 58,343 $ 160,577 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Acquisition of property and equipment Payments for acquisitions of television stations Proceeds from the sale of broadcast assets Payments for acquisitions of assets of other operating divisions Purchase of alarm monitoring contracts (Increase) decrease in restricted cash Investments in equity and cost method investees Investment in marketable securities Other, net 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 the sale of Class A Common Stock Dividends paid on Class A and Class B common stock Payments for deferred financing costs Noncontrolling interest distributions (contributions) Increase (decrease) in intercompany payables Other, net Net cash flows from (used in) financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, beginning of period CASH AND CASH — — — — — — — — 1,648 1,648 (2,700 ) (35,659 ) (5,029 ) — (43,388 ) — — — — (11,522 ) — — — (998,664 ) (50,480 ) 43,000 (1,006,144 ) 71,738 21,000 (43,000 ) 49,738 — — — — — 50 (4,650 ) (23,721 ) — (10,767 ) (696 ) 9,119 — — — — (10,908 ) — (4,650 ) (23,721 ) (11,522 ) (10,767 ) (11,604 ) 10,817 (14,222 ) (962,535 ) (65,224 ) (10,908 ) (1,051,241 ) — 2,189,753 — 88,540 — 2,278,293 (482 ) (1,473,898 ) (1,069 ) (34,311 ) 472,913 (56,767 ) — — — (27,724 ) — — — — — — (371,331 ) (8,874 ) (178,240 ) — 548,139 (820 ) — — — (10,256 ) 59,765 — — — — — — (58,333 ) 10,898 (1,509,760 ) 472,913 (56,767 ) (27,724 ) (10,256 ) — 1,204 35,459 509,891 546,250 103,738 (47,435 ) 1,147,903 — — 230,744 28,395 (1,900 ) 7,230 199 15,436 — — 257,239 22,865 EQUIVALENTS, end of period $ — $ 237,974 $ 28,594 $ 13,536 $ — $ 280,104 2014 Annual Report 77 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED): (in thousands, except per share data) For the Quarter Ended Total revenues, net Operating income Income from continuing operations Income from discontinued operations Net income attributable to Sinclair Broadcast Group Basic earnings per common share from continuing operations attributable to Sinclair Broadcast Group Basic earnings per common share attributable to Sinclair Broadcast Group Diluted earnings per common share from continuing operations attributable to Sinclair Broadcast Group Diluted earnings per common share attributable to Sinclair Broadcast Group For the Quarter Ended Total revenues, net Operating income Income from continuing operations Income from discontinued operations Net income attributable to Sinclair Broadcast Group Basic earnings per common share from continuing operations attributable to Sinclair Broadcast Group Basic earnings per common share attributable to Sinclair Broadcast Group Diluted earnings per common share from continuing operations attributable to Sinclair Broadcast Group Diluted earnings per common share attributable to Sinclair Broadcast Group 03/31/14 06/30/14 09/30/14 12/31/14 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 412,648 81,000 27,657 — 27,158 0.27 0.27 0.27 0.27 03/31/13 282,618 63,656 16,515 355 16,997 0.20 0.21 0.20 0.21 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 455,136 103,039 41,601 — 41,335 0.43 0.43 0.42 0.42 06/30/13 314,154 84,280 12,956 5,103 17,826 0.14 0.19 0.14 0.19 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 494,956 101,663 48,768 — 48,341 0.50 0.50 0.49 0.49 09/30/13 338,644 72,798 30,551 6,100 36,342 0.30 0.37 0.30 0.36 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 613,818 208,949 97,089 — 95,445 0.99 0.99 0.98 0.98 12/31/13 427,715 103,286 4,237 — 2,303 0.02 0.02 0.02 0.02 78 Sinclair Broadcast Group Report of Independent Registered Public Accounting Firm Consolidated Financial Statements To the Board of Directors and Shareholders of Sinclair Broadcast Group, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of comprehensive income, of equity (deficit), and of cash flows present fairly, in all material respects, the financial position of Sinclair Broadcast Group, Inc. and its subsidiaries (the Company) at December 31, 2014 and December 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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. As described in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A, management has excluded the operations of the television stations acquired during 2014 from Allbritton Communications Company, New Age Media, and the operations of WGXA- TV, KSNV-TV, WJAR-TV, WTGS-TV, WLUK-TV, and WCWF-TV from its assessment of internal control over financial reporting as of December 31, 2014 because Allbritton Communications Company, New Age Media, and WGXA- TV, KSNV-TV, WJAR-TV, WTGS-TV, WLUK-TV, and WCWF-TV were acquired by the Company in a purchase business combination during 2014. We have also excluded Allbritton Communications Company, New Age Media, WGXA- TV, KSNV-TV, WJAR-TV, WTGS-TV, WLUK-TV, and WCWF-TV from our audit of internal control over financial reporting. These television stations acquired in 2014 are wholly-owned subsidiaries whose total assets and total revenues represent 3% and 6%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2014. Baltimore, Maryland March 2, 2015 2014 Annual Report 79 (This page intentionally left blank) TELEVISION STATION MANAGEMENT Each of our stations or markets has a general manager and a group manager. The group managers are responsible for managing a number of stations and in some cases are also the general managers for a station or market. Below is a list of our group managers and general managers as well as the station or market for each general manager. GROUP MANAGERS Ann H. Ellis William J. Fanshawe Alan B. Frank Daniel J. Hoffman James C. Killen GENERAL MANAGERS Jonathan P. Lawhead Daniel P. Mellon David F. Schwartz John T. Seabers Michael Yanuzzi Allison Aldridge – Columbia, South Carolina-Savannah, Georgia Pat Baldwin – Tulsa, Oklahoma Lisa Barhorst – Dayton, Ohio Teresa Burgess – Bakersfield, California Robert Butterfield – West Palm Beach/Fort Pierce, Florida John Cadman – Wilkes-Barre/Scranton, Pennsylvania Glen Callanan – Cedar Rapids, Iowa Amie Chapman – Reno, Nevada Amy Collins – Syracuse, New York Chad Conklin – Flint/Saginaw/Bay City, Michigan Greg Conner – Greensboro/Winston-Salem/Highpoint, North Carolina John Connors – Asheville, North Carolina- Greenville/Spartanburg/Anderson, South Carolina Harold Cooper – Charleston/Huntington, West Virginia Ronna Corrente – Lexington, Kentucky Mike Costa – Chattanooga, Tennessee Kent Crawford – Salt Lake City/St. George, Utah Tony D’Angelo – Columbus, Ohio John DeSimone – Madison, Wisconsin John Dittmeier – Tallahassee, Florida James Doty – Johnstown/Altoona, Pennsylvania Janene Drafs – Seattle/Tacoma, Washington Terry Gaughan – Milwaukee, Wisconsin Edwin Groves – Cape Girardeau, Missouri-Paducah, Kentucky Arthur Hasson – Harrisburg/Lancaster/Lebanon/York, Pennsylvania Kevin Hayes – El Paso, Texas Paula Hayward – Beaumont, Texas Lisa Howfield – Las Vegas, Nevada Billy Huggins – Myrtle Beach/Florence, South Carolina John Hummel – Raleigh/Durham, North Carolina Tom Humpage – Portland, Maine JR Jackson – Eugene, Oregon Rob Jamros – Marquette, Michigan George Kayes – Roanoke, Virginia Tom Keeler – Harlingen/Weslaco/Brownsville/McAllen, Texas Kingsley Kelley – Medford, Oregon Carol Kellum – Ottumwa, Iowa-Kirksville, Missouri Jim Lapiana – Pittsburgh, Pennsylvania Karen Lincoln – Macon, Georgia Rick Lipps – Champaign/Springfield/Decatur, Illinois Jay C. Lowe – Mobile, Alabama-Pensacola, Florida Jim Lutton – Grand Rapids/Kalamazoo, Michigan Nick Magnini – Buffalo, New York Jeff McCallister – Norfolk, Virginia Tim McCoy – Steubenville, Ohio-Wheeling, West Virginia Dan Mecca – Tallahassee, Florida Jeff Miller – Omaha, Nebraska Mary Margaret Nelms – Charleston, South Carolina Vince Nelson – Albany, New York John Nizamis – Toledo, Ohio Noreen Parker – Nashville, Tennessee Jack Peck – Fresno/Visalia, California Paula Peden – Minneapolis/St. Paul, Minnesota Tim Perry – Richmond, Virginia David Praga – Spokane/Yakima, Washington Thom Pritz – Amarillo, Texas Michael Pumo – West Palm Beach/Fort Pierce, Florida Dean Radla – San Antonio, Texas Mark Rose – Little Rock/Pine Bluff, Arkansas John Rossi – Oklahoma City, Oklahoma Jill Saarela – Traverse City/Cadillac, Michigan Chuck Samuels – Rochester, New York Steve Scollard – Sioux City, Iowa Todd Senter – Gainesville, Florida Audra Swain – Las Vegas, Nevada John Tamerlano – Portland, Oregon Thomas Tipton – St. Louis, Missouri Bobby Totsch – Mobile, Alabama-Pensacola, Florida Robert Truman – Boise, Idaho Victor Vetters – Providence, Rhode Island- New Bedford, Massachusetts Amy Villarreal – Austin, Texas Mike Wilson – Des Moines, Iowa Laura Wolf – Quincy/Peoria, Illinois-Hannibal, Missouri- Keokuk, Iowa Elizabeth Worsham – Columbia/Jefferson City, Missouri Jay Zollar – Green Bay, Wisconsin 2014 Annual Report 81 This past year, we reaffirmed our position as one of the country’s largest television broadcasters, reaching into the top ten markets for the first This past year, we reaffirmed our position as one of the country’s largest television broadcasters, reaching into the top ten markets for the first time when we acquired the ABC affiliates and 24-hour local news cable network of Allbritton Communications. This $1 billion acquisition, time when we acquired the ABC affiliates and 24-hour local news cable network of Allbritton Communications. This $1 billion acquisition, along with 14 other television stations acquired during the course of the year, continues our focus on establishing Sinclair as the industry leader, along with 14 other television stations acquired during the course of the year, continues our focus on establishing Sinclair as the industry leader, innovating technology and services that are transforming the traditional television model and creating new revenue paradigms. These next few innovating technology and services that are transforming the traditional television model and creating new revenue paradigms. These next few years may prove to be one of our most transformative periods as we become multi-platform, take control of our content, activate our mobile years may prove to be one of our most transformative periods as we become multi-platform, take control of our content, activate our mobile years years spectrum, and lobby for regulatory equality. spectrum, and lobby for regulatory equality. In response to our near tripling in number of stations and markets over the past three years, which we intend to expand further, we have begun In response to our near tripling in number of stations and markets over the past three years, which we intend to expand further, we have begun developing incremental and complementary business models that increase our original programming, address changes in video consumption developing incremental and complementary business models that increase our original programming, address changes in video consumption trends, and expand our distribution platforms. In 2014, we partnered with Coherent Logix to create ONE Media, which is defining an advanced, trends, and expand our distribution platforms. In 2014, we partnered with Coherent Logix to create ONE Media, which is defining an advanced, flexible-use broadcasting transmission platform that, if adopted, will enable mobile and portable viewing and other services and allow our flexible-use broadcasting transmission platform that, if adopted, will enable mobile and portable viewing and other services and allow our indust industry to more fully monetize the vast potential of our wireless spectrum. Our industry has been criticized, and rightly so, for its failure to industry to more fully monetize the vast potential of our wireless spectrum. Our industry has been criticized, and rightly so, for its failure to indust capitalize on the benefits of our wireless spectrum. The success we are seeing and the speed in which we are moving to develop the Next capitalize on the benefits of our wireless spectrum. The success we are seeing and the speed in which we are moving to develop the Next Generation Broadcast Platform (Next Gen) has the potential to revolutionize our industry and silence our critics. Next Gen opens opportunities Generation Broadcast Platform (Next Gen) has the potential to revolutionize our industry and silence our critics. Next Gen opens opportunities beyond mobile. Not only will it allow us to compete with other over-the-top models, it could provide us new revenue streams based on beyond mobile. Not only will it allow us to compete with other over-the-top models, it could provide us new revenue streams based on personalized personalized viewing, targeted advertising, broadcast overlay data distribution, vehicular connectivity, 4K Ultra high definition television, and personalized viewing, targeted advertising, broadcast overlay data distribution, vehicular connectivity, 4K Ultra high definition television, and personalized other use applications yet to be developed. For the consumer, this technology is all the more compelling when coupled with the ability to receive other use applications yet to be developed. For the consumer, this technology is all the more compelling when coupled with the ability to receive local and national emergency information on mobile and portable devices, especially given the high rate of cell reception failure during such local and national emergency information on mobile and portable devices, especially given the high rate of cell reception failure during such events. For rural communities that rely on translators and low power signals, the Next Gen platform will extend advanced services and continued events. For rural communities that rely on translators and low power signals, the Next Gen platform will extend advanced services and continued operations to those areas through enhanced spectral efficiencies. operations to those areas through enhanced spectral efficiencies. I firmly believe the Next Generation Broadcast Platform will be disruptive, especially to the wireless and communication ecosystems and, as I firmly believe the Next Generation Broadcast Platform will be disruptive, especially to the wireless and communication ecosystems and, as such, our efforts will no doubt face challenges from the telecom giants that have been granted nearly unregulated growth opportunity in our such, our efforts will no doubt face challenges from the telecom giants that have been granted nearly unregulated growth opportunity in our industry. The broadcast industry, recognizing the future revenue potential, benefits to the consumer and need to compete in a mobile industry. The broadcast industry, recognizing the future revenue potential, benefits to the consumer and need to compete in a mobile environment, has arrived at broad consensus on the need for a new transmission standard. We anticipate adoption of a candidate standard as environment, has arrived at broad consensus on the need for a new transmission standard. We anticipate adoption of a candidate standard as early as the end of 2015. early as the end of 2015. AsAs television broadcasters, our presence as a local business is crucial to our continued success. All too often, those outside of our industry see AsAs television broadcasters, our presence as a local business is crucial to our continued success. All too often, those outside of our industry see us only as a carrier of network and syndicated programming. The truth, however, is far from that, with local news, local live sports and first-run us only as a carrier of network and syndicated programming. The truth, however, is far from that, with local news, local live sports and first-run original programming contributing more revenue than network content and realizing positive viewing trends. With that awareness, we launched original programming contributing more revenue than network content and realizing positive viewing trends. With that awareness, we launched the American Sports Network (ASN) in 2014, which, as of this writing, includes sports rights agreements with 11 NCAA Division 1 the American Sports Network (ASN) in 2014, which, as of this writing, includes sports rights agreements with 11 NCAA Division 1 Conferences, along with 17 markets producing live high school football and/or basketball games. ASN, through its syndicated contracts, now Conferences, along with 17 markets producing live high school football and/or basketball games. ASN, through its syndicated contracts, now Conference Conference reaches a meaningful percent of the country in not even a year of launch. The longer term value of ASN is multi-fold. By building a sports reaches a meaningful percent of the country in not even a year of launch. The longer term value of ASN is multi-fold. By building a sports brand and growing its ratings and reach, we expect ultimately to increase retransmission rights fees and advertising revenue, reduce our brand and growing its ratings and reach, we expect ultimately to increase retransmission rights fees and advertising revenue, reduce our dependency on network content, control more original live programming that is typically not time-shifted, and potentially develop a national dependency on network content, control more original live programming that is typically not time-shifted, and potentially develop a national sports cable network, which could be launched with our ASN content. sports cable network, which could be launched with our ASN content. Our local news is of great importance, and we continue to make significant investments in that regard. During the year, we expanded our news Our local news is of great importance, and we continue to make significant investments in that regard. During the year, we expanded our news presence in 17 markets with another seven scheduled for 2015. We now produce almost 2,200 hours of local news content per week across our presence in 17 markets with another seven scheduled for 2015. We now produce almost 2,200 hours of local news content per week across our portfolio and believe we are the largest producer of news in the country. Managing this effort is an enormous task and responsibility, and we portfolio and believe we are the largest producer of news in the country. Managing this effort is an enormous task and responsibility, and we recognize the importance of providing our viewers with responsible, accurate and balanced stories. Our news viewers are intelligent and demand recognize the importance of providing our viewers with responsible, accurate and balanced stories. Our news viewers are intelligent and demand a steadfast dedication to providing content that educates, informs and empowers. a steadfast dedication to providing content that educates, informs and empowers. WithWith this base of news operations, we began a series of development efforts in 2014 that take into consideration the changing landscape of news WithWith this base of news operations, we began a series of development efforts in 2014 that take into consideration the changing landscape of news consumption by our viewers. Although television news remains the most important source of news and information, the dynamics of social consumption by our viewers. Although television news remains the most important source of news and information, the dynamics of social media and the growing importance of the millennial generation demand that we adapt how we interact with our viewer. This is perhaps our media and the growing importance of the millennial generation demand that we adapt how we interact with our viewer. This is perhaps our greatest challenge, and I am confident that we are heading in the right direction with new and complementary services being introduced in 2015 greatest challenge, and I am confident that we are heading in the right direction with new and complementary services being introduced in 2015 that will drive greater viewership and revenue. that will drive greater viewership and revenue. TThere is no question that viewing consumption patterns are changing as new video platforms and delivery options in online and over-the-top TThere is no question that viewing consumption patterns are changing as new video platforms and delivery options in online and over-the-top emerge. While the ‘Big 3’ broadcast networks have seen minor declines in audience ratings, according to Nielsen, the cable networks are losing emerge. While the ‘Big 3’ broadcast networks have seen minor declines in audience ratings, according to Nielsen, the cable networks are losing the largest share to these new entrants, in part due to unsuccessful, high-turnover shows and fragmentation of audience across a platform that the largest share to these new entrants, in part due to unsuccessful, high-turnover shows and fragmentation of audience across a platform that is saturated with cable channels. According to Nielsen, in 2013 the average U.S. TV household received 189 TV channels as compared to 129 in is saturated with cable channels. According to Nielsen, in 2013 the average U.S. TV household received 189 TV channels as compared to 129 in 2008, 2008, a 47% increase. However, these same households continue to watch only 17 TV channels on average, a number which has remained stable 2008, a 47% increase. However, these same households continue to watch only 17 TV channels on average, a number which has remained stable 2008, over the same period, implying that media consumption is driven by the quality of content rather than the quantity of channels. We recognize over the same period, implying that media consumption is driven by the quality of content rather than the quantity of channels. We recognize that, if we are to maximize audiences, the content we create needs to be engaging and relevant. That is why our content investments are focused that, if we are to maximize audiences, the content we create needs to be engaging and relevant. That is why our content investments are focused on local news, sports and reality programs; programs that are low cost with predictable audiences and that can facilitate building a national on local news, sports and reality programs; programs that are low cost with predictable audiences and that can facilitate building a national footprint on multiple platforms. footprint on multiple platforms.
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