Edgar Filing: SINCLAIR BROADCAST GROUP INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

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

For the transition period from to .

COMMISSION FILE NUMBER: 000-26076

SINCLAIR BROADCAST GROUP, INC.

(Exact name of Registrant as specified in its charter)



Maryland (State or other jurisdiction of Incorporation or organization)		52-1494660 (I.R.S. Employer Identification No.)

10706 Beaver Dam Road

Hunt Valley, Maryland 21030

(Address of principal executive office, zip code)

(410) 568-1500

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes x		No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such file).



Yes x		No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):



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

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



Yes o		No x

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



Title of each class		Number of shares outstanding as of July 31, 2016
Class A Common Stock		68,497,702
Class B Common Stock		25,928,357

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SINCLAIR BROADCAST GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2016

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION	3

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	3

CONSOLIDATED BALANCE SHEETS	4

CONSOLIDATED STATEMENTS OF OPERATIONS	5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	6

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)	7

CONSOLIDATED STATEMENTS OF CASH FLOWS	9

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	10

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44

ITEM 4. CONTROLS AND PROCEDURES	44

PART II. OTHER INFORMATION	45

ITEM 1. LEGAL PROCEEDINGS	45

ITEM 1A. RISK FACTORS	45

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	46

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	46

ITEM 4. MINE SAFETY DISCLOSURES	46

ITEM 5. OTHER INFORMATION	46

ITEM 6. EXHIBITS	47

SIGNATURE	48

EXHIBIT INDEX	49

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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



	As of June 30, 2016			As of December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	103,727		$	149,972
Accounts receivable, net of allowance for doubtful accounts of $4,357 and $4,495, respectively	489,884			424,608
Current portion of program contract costs	36,359			91,466
Income taxes receivable	—			823
Prepaid expenses and other current assets	38,949			26,903
Deferred barter costs	9,100			7,991
Total current assets	678,019			701,763
PROGRAM CONTRACT COSTS, less current portion	10,484			18,996
PROPERTY AND EQUIPMENT, net	727,806			717,137
RESTRICTED CASH	—			3,725
GOODWILL	2,017,382			1,931,093
INDEFINITE-LIVED INTANGIBLE ASSETS	157,725			132,465
DEFINITE-LIVED INTANGIBLE ASSETS, net	1,975,786			1,751,570
OTHER ASSETS	212,475			175,566
Total assets (a)	$	5,779,677		$	5,432,315
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	271,926		$	251,313
Income taxes payable	8,566			—
Current portion of notes payable, capital leases and commercial bank financing	175,044			164,184
Current portion of notes and capital leases payable to affiliates	3,501			3,166
Current portion of program contracts payable	63,492			108,260
Deferred barter revenues	9,211			8,080
Total current liabilities	531,740			535,003
LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion	3,984,262			3,669,160
Notes payable and capital leases to affiliates, less current portion	15,953			17,850
Program contracts payable, less current portion	45,110			56,921
Deferred tax liabilities	587,289			585,072
Other long-term liabilities	72,429			68,631
Total liabilities (a)	5,236,783			4,932,637
COMMITMENTS AND CONTINGENCIES (See Note 4)
EQUITY:
SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY:
Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 68,734,950 and 68,792,483 shares issued and outstanding, respectively	687			688
Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 25,928,357 and 25,928,357 shares issued and outstanding, respectively, convertible into Class A Common Stock	259			259
Additional paid-in capital	964,818			962,726
Accumulated deficit	(394,418		)	(437,029		)
Accumulated other comprehensive loss	(834		)	(834		)
Total Sinclair Broadcast Group shareholders’ equity	570,512			525,810
Noncontrolling interests	(27,618		)	(26,132		)
Total equity	542,894			499,678
Total liabilities and equity	$	5,779,677		$	5,432,315

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

(a)

Our consolidated total assets as of June 30, 2016 and December 31, 2015 include total assets of variable interest entities (VIEs) of $147.5 million and $152.4 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of June 30, 2016 and December 31, 2015 include total liabilities of the VIEs of $30.4 million and $35.6 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.

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
REVENUES:
Media revenues	$	606,268		$	503,170		$	1,137,591		$	967,921
Revenues realized from station barter arrangements	34,003			30,373			60,513			51,332
Other non-media revenues	26,263			20,624			47,319			39,689
Total revenues	666,534			554,167			1,245,423			1,058,942
OPERATING EXPENSES:
Media production expenses	243,620			181,810			459,497			353,381
Media selling, general and administrative expenses	128,488			103,225			243,497			205,466
Expenses recognized from station barter arrangements	29,259			26,381			52,184			43,793
Amortization of program contract costs and net realizable value adjustments	30,821			29,782			64,281			60,173
Other non-media expenses	19,761			15,520			37,458			30,433
Depreciation of property and equipment	24,409			25,273			48,444			50,462
Corporate general and administrative expenses	14,279			14,183			35,620			30,221
Amortization of definite-lived intangible and other assets	45,625			39,445			89,390			79,425
Research and development expenses	1,209			4,237			2,310			6,752
Gain on asset disposition	(11		)	(29		)	(2,671		)	(51		)
Total operating expenses	537,460			439,827			1,030,010			860,055
Operating income	129,074			114,340			215,413			198,887
OTHER INCOME (EXPENSE):
Interest expense and amortization of debt discount and deferred financing costs	(53,916		)	(47,664		)	(103,331		)	(94,312		)
Income from equity and cost method investments	943			2,007			1,366			5,153
Other income, net	1,104			1,050			1,566			1,268
Total other expense, net	(51,869		)	(44,607		)	(100,399		)	(87,891		)
Income before income taxes	77,205			69,733			115,014			110,996
INCOME TAX PROVISION	(26,605		)	(23,334		)	(38,785		)	(39,761		)
NET INCOME	50,600			46,399			76,229			71,235
Net income attributable to the noncontrolling interests	(1,181		)	(612		)	(2,670		)	(1,166		)
NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP	$	49,419		$	45,787		$	73,559		$	70,069
Dividends declared per share	$	0.180		$	0.165		$	0.345		$	0.330
BASIC AND DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:
Basic earnings per share	$	0.52		$	0.48		$	0.77		$	0.74
Diluted earnings per share	$	0.52		$	0.48		$	0.77		$	0.73
Weighted average common shares outstanding	95,026			95,307			94,922			95,219
Weighted average common and common equivalent shares outstanding	95,934			96,050			95,819			95,911

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands) (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Net income	$	50,600		$	46,399		$	76,229		$	71,235
Amortization of net periodic pension benefit costs, net of taxes	—			84			—			168
Comprehensive income	50,600			46,483			76,229			71,403
Comprehensive income attributable to the noncontrolling interests	(1,181		)	(612		)	(2,670		)	(1,166		)
Comprehensive income attributable to Sinclair Broadcast Group	$	49,419		$	45,871		$	73,559		$	70,237

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

(in thousands) (Unaudited)



	Sinclair Broadcast Group Shareholders
	Class A Common Stock					Class B Common Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
	Shares		Values			Shares	Values		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
BALANCE, December 31, 2014	69,578,899		$	696		25,928,357	$	259	$	979,202		$	(545,820	)	$	(6,455	)	$	(22,539	)	$	405,343
Dividends declared and paid on Class A and Class B Common Stock	—		—			—	—		—			(31,464		)	—			—			(31,464		)
Repurchases of Class A Common Stock	(304,787	)	(3		)	—	—		(7,800		)	—			—			—			(7,803		)
Class A Common Stock issued pursuant to employee benefit plans	261,050		2			—	—		9,510			—			—			—			9,512
Tax benefit on share based awards	—		—			—	—		695			—			—			—			695
Distributions to noncontrolling interests, net	—		—			—	—		—			—			—			(2,464		)	(2,464		)
Other comprehensive income	—		—			—	—		—			—			168			—			168
Issuance of subsidiary stock awards	—		—			—	—		—			—			—			1,037			1,037
Net income	—		—			—	—		—			70,069			—			1,166			71,235
BALANCE, June 30, 2015	69,535,162		$	695		25,928,357	$	259	$	981,607		$	(507,215	)	$	(6,287	)	$	(22,800	)	$	446,259

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

(In thousands) (Unaudited)



	Sinclair Broadcast Group Shareholders
	Class A Common Stock					Class B Common Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
	Shares		Values			Shares	Values		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
BALANCE, December 31, 2015	68,792,483		$	688		25,928,357	$	259	$	962,726		$	(437,029	)	$	(834	)	$	(26,132	)	$	499,678
Cumulative effect of adoption of new accounting standard (see Note 1)	—		—			—	—		431			1,833			—			—			2,264
Dividends declared and paid on Class A and Class B Common Stock	—		—			—	—		—			(32,781		)	—			—			(32,781		)
Repurchases of Class A Common Stock	(384,700	)	(4		)	—	—		(11,243		)	—			—			—			(11,247		)
Class A Common Stock issued pursuant to employee benefit plans	327,167		3			—	—		12,904			—			—			—			12,907
Distributions to noncontrolling interests, net	—		—			—	—		—			—			—			(4,370		)	(4,370		)
Issuance of subsidiary stock awards	—		—			—	—		—			—			—			214			214
Net income	—		—			—	—		—			73,559			—			2,670			76,229
BALANCE, June 30, 2016	68,734,950		$	687		25,928,357	$	259	$	964,818		$	(394,418	)	$	(834	)	$	(27,618	)	$	542,894

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)



	Six Months Ended June 30,
	2016			2015
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income	$	76,229		$	71,235
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation of property and equipment	48,444			50,462
Amortization of definite-lived intangible and other assets	89,390			79,425
Amortization of program contract costs and net realizable value adjustments	64,281			60,173
Stock-based compensation expense	9,969			11,577
Deferred tax benefit	(2,797		)	(17,368		)
Change in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable	(46,242		)	3,433
Increase in prepaid expenses and other current assets	(5,617		)	(18,755		)
Increase (decrease) in accounts payable and accrued liabilities	18,903			(24,906		)
Net change in net income taxes payable/receivable	9,389			21,019
Payments on program contracts payable	(57,242		)	(55,676		)
Other, net	4,951			(372		)
Net cash flows from operating activities	209,658			180,247

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment	(49,786		)	(47,062		)
Acquisition of businesses, net of cash acquired	(423,104		)	—
Purchase of alarm monitoring contracts	(21,616		)	(16,673		)
Investments in equity and cost method investees	(21,843		)	(37,809		)
Loans to affiliates	(19,500		)	—
Other, net	7,399			11,651
Net cash flows used in investing activities	(528,450		)	(89,893		)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank financing	607,555			364,853
Repayments of notes payable, commercial bank financing and capital leases	(279,575		)	(360,480		)
Dividends paid on Class A and Class B Common Stock	(32,781		)	(31,464		)
Repurchase of outstanding Class A Common Stock	(11,247		)	(7,803		)
Other, net	(11,405		)	(8,563		)
Net cash flows from (used in) financing activities	272,547			(43,457		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(46,245		)	46,897
CASH AND CASH EQUIVALENTS, beginning of period	149,972			17,682
CASH AND CASH EQUIVALENTS, end of period	$	103,727		$	64,579

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

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SINCLAIR BROADCAST GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Nature of Operations

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

As of June 30, 2016, our broadcast distribution platform is a single reportable segment for accounting purposes. It consists primarily of our broadcast television stations, which we own, provide programming and operating services pursuant to agreements commonly referred to as local marketing agreements (LMAs), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as joint sales agreements (JSAs) and shared services agreements (SSAs)) to 173 stations in 81 markets. These stations broadcast 484 channels, as of June 30, 2016. For the purpose of this report, these 173 stations and 484 channels are referred to as “our” stations and channels.

Principles of Consolidation

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

Interim Financial Statements

The consolidated financial statements for the three and six months ended June 30, 2016 and 2015 are unaudited. In the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statement of equity (deficit) and consolidated statements of cash flows for these periods as adjusted for the adoption of recent accounting pronouncements discussed below.

As permitted under the applicable rules and regulations of the Securities and Exchange Commission (SEC), the consolidated financial statements do not include all disclosures normally included with audited consolidated financial statements and, accordingly, should be read together with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC. The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

Variable Interest Entities

In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. We consolidate VIEs when we are the primary beneficiary.

Third-party station licensees. Certain of our stations provide services to other station owners within the same respective market through agreements, such as LMAs, where we provide programming, sales, operational and administrative services, and JSAs and SSAs, where we provide non-programming, sales, operational and administrative services. In certain cases, we have also entered into purchase agreements or options to purchase the license related assets of the licensee. We typically own the majority of the non-license assets of the stations, and in some cases where the licensee acquired the license assets concurrent with our acquisition of the non-license assets of the station, we have provided guarantees to the bank for the licensee’s acquisition financing. The terms of the agreements vary, but generally have initial terms of over five years with several optional renewal terms. As of June 30,

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2016 and December 31, 2015, respectively, we have concluded that 37 of these licensees are VIEs. 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 6. Related Person Transactions for more information about the arrangements with Cunningham. The net revenues of the stations which we consolidate were $76.8 million and $148.3 million for the three and six months ended June 30, 2016, and $71.8 million and $136.6 million for the three and six months ended June 30, 2015, respectively. The fees paid between us and the licensees pursuant to these arrangements are eliminated in consolidation. See Changes in the Rules of Television Ownership, Joint Sales Agreements, and Retransmission Consent Negotiations within Note 4. Commitments and Contingencies for discussion of recent changes in FCC rules related to JSAs.

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



	June 30, 2016		December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	490	$	490
Accounts receivable	22,692		21,719
Current portion of program contract costs	6,609		13,287
Prepaid expenses and other current assets	396		331
Total current assets	30,187		35,827

PROGRAM CONTRACT COSTS, less current portion	2,644		4,541
PROPERTY AND EQUIPMENT, net	8,828		7,609
GOODWILL	791		787
INDEFINITE-LIVED INTANGIBLE ASSETS	15,684		17,599
DEFINITE-LIVED INTANGIBLE ASSETS, net	82,396		79,086
OTHER ASSETS	6,924		6,924
Total assets	$	147,454	$	152,373

LIABILITIES
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	1,187	$	1,240
Current portion of notes payable, capital leases and commercial bank financing	3,702		3,687
Current portion of program contracts payable	8,256		12,627
Total current liabilities	13,145		17,554

LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion	22,837		24,594
Program contracts payable, less current portion	11,403		13,679
Other long-term liabilities	9,522		8,067
Total liabilities	$	56,907	$	63,894

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The amounts above represent the consolidated assets and liabilities of the VIEs described above, for which we are the primary beneficiary, and have been aggregated as they all relate to our broadcast business. Excluded from the amounts above are payments made to Cunningham under the LMAs 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 June 30, 2016 and December 31, 2015, which are excluded from liabilities above, were $39.2 million and $37.6 million, respectively. The total capital lease liabilities, net of capital lease assets, excluded from the above were $4.4 million and $4.5 million for June 30, 2016 and December 31, 2015. Also excluded from the amounts above are liabilities associated with certain outsourcing agreements and purchase options with certain VIEs totaling $78.0 million and $72.5 million as of June 30, 2016 and December 31, 2015, respectively, as these amounts are eliminated in consolidation. The assets of each of these consolidated VIEs can only be used to settle the obligations of the VIE. All the liabilities are non-recourse to us except for certain debt of VIEs which we guarantee. The risk and reward characteristics of the VIEs are similar.

Other investments. We have investments in real estate ventures and investment companies which are considered VIEs. However, we do not participate in the management of these entities including the day-to-day operating decisions or other decisions which 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 June 30, 2016 and December 31, 2015 are $113.5 million and $18.1 million, respectively, and are included in other assets in the consolidated balance sheets. The increase in 2016 was due to the adoption of the revised accounting guidance during the first quarter of 2016 related to consolidation as discussed under Recent Accounting Pronouncements below, which resulted in additional investments being considered VIEs. 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 $0.9 million and $1.2 million for the three and six months ended June 30, 2016, and income of $2.6 million and $5.5 million for the three and six months ended June 30, 2015 respectively.

Use of Estimates

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

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

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. The new standard is effective for the annual reporting period beginning after December 15, 2017, however, early adoption is permitted. 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 consolidated 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 new guidance on our consolidated 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. The new standard is effective for the interim and annual periods beginning after December 15, 2015. We adopted this revised guidance on a modified retrospective basis during the three months ended March 31, 2016. As disclosed under Other investments under Variable Interest Entities above, the adoption of the revised guidance resulted in additional investments in real estate ventures and investment companies being considered VIEs, however, we concluded that we were not the primary beneficiary of these investments. The revised guidance did not have any other impact on our consolidation conclusions.

In February 2016, the FASB issued new guidance related to accounting for leases, which requires the assets and liabilities that arise from leases to be recognized on the balance sheet. Currently only capital leases are recorded on the balance sheet. This update will require the lessee to recognize a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and recognize the lease expense for such leases generally on a straight-line basis over the lease term. This

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update will be effective for fiscal periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In March 2016, the FASB issued new guidance that simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income tax effects, forfeitures, the impact of employee income tax withholdings and classification of certain related items in the statement of cash flows. We early adopted this guidance effective January 1, 2016, which did not have a material effect on the consolidated financial statements. The adoption of the various changes in the guidance were applied as required by the guidance either on the prospective, modified retrospective, or full retrospective basis. As shown in the consolidated statement of stockholders' equity, upon adoption, we recorded a $0.4 million increase to additional paid in capital and a $1.8 million decrease in accumulated deficit, net of taxes, to record the cumulative effect of changing the classification of certain liability awards to equity classification. Additionally, for the six months ended June 30, 2015, we reclassified $2.2 million from net cash flows from operating activities to net cash flows from financing activities in our consolidated statement of cash flows related to cash payments made to taxing authorities on certain employees' behalf for shares withheld.

Revenue Recognition

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

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

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

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

Income Taxes

Our income tax provision for all periods consists of federal and state income taxes. The tax provision for the six months ended June 30, 2016 and 2015 is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interests. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. A valuation allowance has been provided for deferred tax assets related to a substantial portion of our available state net operating loss (NOL) carryforwards, based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income.

Our effective income tax rate for the three and six months ended June 30, 2016 approximated the statutory rate. Our effective income tax rate for the three months ended June 30, 2015 was less than the statutory rate primarily due to a decrease in our income tax provision resulting from certain state law changes. Our effective income tax rate for the six months ended June 30, 2015 exceeded the statutory rate primarily due to an increase in income tax provision resulting from a settlement of a state income tax position.

We believe it is reasonably possible that our liability for unrecognized tax benefits related to continuing operations could be reduced by up to $1.3 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.

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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 a new $150.0 million share repurchase authorization. There is no expiration date and currently, management has no plans to terminate this program. For the six months ended June 30, 2016, we purchased approximately 0.4 million shares for $11.2 million. As of June 30, 2016, the total remaining authorization was $94.3 million. In July 2016, we repurchased an additional 0.2 million shares for $8.0 million.

Reclassifications

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

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2. ACQUISITIONS:

Tennis Channel. In March 2016, we acquired all of the outstanding common stock of Tennis Channel (Tennis), a cable network which includes coverage of the top 100 tennis tournaments and original professional sport and tennis lifestyle shows, for $350.0 million plus a working capital adjustment of $6.5 million. This was funded through cash on hand and a draw on the Bank Credit Agreement. The acquisition provides an expansion of our network business and increases value based on the synergies we can achieve. Tennis is reported within Other within Note 7. Segment Data.

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



Cash	$	5,111
Accounts receivable	17,629
Prepaid expenses and other current assets	6,518
Property and equipment	5,964
Definite-lived intangible assets	227,096
Indefinite-lived intangible assets	24,900
Other assets	619
Accounts payable and accrued liabilities	(7,414		)
Capital leases	(115		)
Deferred tax liability	(3,964		)
Other long term liabilities	(1,669		)
Fair value of identifiable net assets acquired	274,675
Goodwill	81,814
Total	$	356,489

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

During the three months ended June 30, 2016, we made certain measurement period adjustments to the initial purchase accounting: an increase to definite-lived intangible assets of $115.6 million, a decrease to indefinite-lived intangible assets of $11.6 million, a decrease to deferred taxes assets of $37.6 million resulting in a net deferred tax liability, a decrease to goodwill of $66.3 million, and an increase to amortization of less than $0.1 million during the six months ended June 30, 2016.

Indefinite-lived intangible assets are comprised of trade names. Customer relationships, which represent existing advertiser relationships and contractual relationships with MVPDs, will be amortized over the estimated remaining useful lives of 10 to 15 years. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies. Goodwill will not be deductible for tax purposes. Other intangible assets will be amortized over the respective weighted average useful lives ranging from 1 to 3 years. The following table summarizes the amounts allocated to definite-lived intangible assets representing the estimated fair values (in thousands):



Customer relationships	$	223,400
Other intangible assets	3,696
Fair value of identifiable definite-lived intangible assets acquired	$	227,096

In connection with the acquisitions, for the six months ended June 30, 2016, we incurred a total of $0.3 million of costs primarily related to legal and other professional services which we expensed as incurred and classified as corporate general and administrative expenses in the consolidated statements of operations. Net revenues and an operating loss of Tennis included in our consolidated

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statements of operations, were $27.5 million and $9.7 million, for the three months ended June 30, 2016, and $35.1 million and $11.1 million for the six months ended June 30, 2016.

Pro Forma Information

The following table sets forth unaudited results of operation for the three months ended June 30, 2016 and the unaudited pro forma results of operations for the three months ended June 30, 2015 and for the for the six months ended June 30, 2016 and 2015, assuming that Tennis, along with transactions necessary to finance the acquisition, occurred at the beginning of the year preceding the year of acquisition. The pro forma results exclude the acquisition of television station acquisitions discussed below, as they were deemed not material both individually and in the aggregate (in thousands, except per share data):



	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Total revenues	$	666,534	$	583,081	$	1,259,915	$	1,107,363
Net Income	$	50,600	$	43,297	$	75,474	$	67,304
Net Income attributable to Sinclair Broadcast Group	$	49,419	$	42,685	$	72,804	$	66,138
Basic earnings per share attributable to Sinclair Broadcast Group	$	0.52	$	0.45	$	0.77	$	0.69
Diluted earnings per share attributable to Sinclair Broadcast Group	$	0.52	$	0.44	$	0.76	$	0.69

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

Television Station Acquisitions. During the six months ended June 30, 2016, we acquired certain television station related assets for an aggregate purchase price of $72.0 million less working capital of $0.2 million. In conjunction with the acquisition of the television station in South Bend-Elkhart, IN, we simultaneously sold the broadcast assets of our station in Marquette, MI. For the six months ended June 30, 2016, we recognized a $2.6 million gain on the sale of the television station in Marquette, MI.

3. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:

5.875% Senior Notes, due 2026

On March 23, 2016 we issued $350.0 million in senior unsecured notes, which bear interest at a rate of 5.875% per annum and mature on March 15, 2026 (the 5.875% Notes), pursuant to an indenture dated March 23, 2016 (the 5.875% Indenture). The 5.875% Notes were priced at 100% of their par value and interest is payable semi-annually on March 15 and September 15, commencing on September 15, 2016. Prior to March 15, 2021, we may redeem the 5.875% 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 5.875% Notes plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium as set forth in the 5.875% Indenture. In addition, on or prior to March 15, 2019, we may redeem up to 35% of the 5.875% Notes, using proceeds of certain equity offerings. If we sell certain of our assets or experience specific kinds of changes of control, the holders of the 5.875% Notes may require us to repurchase some or all of the notes. There are no registration rights associated with the 5.875% Notes. The proceeds from the offering of the 5.875% Notes, were used to repay amounts under our revolving credit facility and for other general corporate purposes. We incurred $5.9 million of deferred financing costs in connection with the issuance of the 5.875% Notes.

As discussed in Note 2. Acquisitions, we completed the acquisition of Tennis in March 2016. The acquisition was funded, in part, by a draw on our revolving line of credit which was repaid using the proceeds from the 5.875% Notes discussed above.

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Bank Credit Agreement

On July 19, 2016, we entered into an amendment and extension of our bank credit agreement. Pursuant to the amendment, the maturity date applicable to $485.2 million in revolving commitments and $139.5 million of term loan A loans has been extended to July 31, 2021. The remaining $153.5 million of outstanding term loan A loans will mature April 9, 2018. In connection with the transaction, we also amended certain pricing terms related to the loans. Of the estimated financing costs to be paid related to the amendment, we expect to incur approximately $2.6 million of financing costs in connection with the amendment, of which $0.3 million will be expensed in the third quarter of 2016, and the remaining $2.3 million will be deferred and amortized as interest expense over the term of the facilities.

As of June 30, 2016 and December 31, 2015, there was no outstanding balance under our revolving credit facility. As of June 30, 2016, we had $483.3 million borrowing capacity under our revolving credit facility.

4. COMMITMENTS AND CONTINGENCIES:

Litigation

We are a party to lawsuits and claims from time to time in the ordinary course of business. Actions currently pending are in various stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions. After reviewing developments to date with legal counsel, our management is of the opinion that none of our pending and threatened matters are material.

Various parties have filed petitions to deny our applications or applications of licensees that we provide services to under LMAs 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 ; WMYA-TV, Anderson, South Carolina; WICS-TV, Springfield, Illinois; WBFF-TV, Baltimore, Maryland; WTTE-TV, Columbus, Ohio; WRGT-TV, Dayton, Ohio; WVAH-TV, Charleston / Huntington, West Virginia; WCGV-TV, Milwaukee, Wisconsin; KGAN-TV, Cedar Rapids, Iowa; 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. In connection with the consent decree described below, subject to the satisfaction of certain conditions therein, the FCC has agreed to dismiss the outstanding petitions to deny and grant all pending renewals for the above-mentioned stations.

Changes in the Rules of Television Ownership, Joint Sales Agreements, and Retransmission Consent Negotiations

In March, 2014, the FCC issued a public notice indicating that it will closely scrutinize any broadcast assignment or transfer application proposing sharing arrangements (such as JSAs, LMAs and other shared services agreements) and contingent interests (such as options). We cannot now predict what actions the FCC may require in connection with the processing of applications for FCC consent to future transactions. In addition, in April, 2014, the FCC issued an order amending its multiple ownership rules to provide that, for JSAs where two television stations are located in the same market, and a party with an attributable interest in one station sells more than 15% of the ad time per week of the other station, the party selling such ad time shall be treated as if it had an attributable ownership interest in the second station. The order provided that JSAs that existed on the effective date of the new rule, March 31, 2014, had two years to be terminated, amended or otherwise come into compliance with the new rules. Subsequently, Congress adopted, and the President signed into law, legislation that grandfathered preexisting JSAs until October 1, 2025. The JSA order was the subject of an appeal which was heard by the United States Court of Appeals for the Third Circuit. In a decision issued on May 25, 2016, the Court found that in adopting the JSA attribution rule the FCC impermissibly expanded its attribution policies prior to completing its quadrennial review to determine if its ownership rules remain in the public interest. As a result, the Third Circuit found the FCC’s approach to be procedurally invalid, vacated the JSA attribution rule, and remanded it to the FCC. We cannot predict the outcome of that remand. The FCC may complete its quadrennial review and adopt a new rule making JSAs attributable, which could limit our future ability to create duopolies or other two-station operations in certain markets. The revenues of these JSA arrangements we earned were $14.3 million and $11.8 million for the three months ended June 30, 2016 and 2015 and $26.4 million and $22.7 million for the six months ended June 30, 2016 and 2015, respectively.

In February 2015, the FCC issued an order implementing certain statutorily required changes to its rules governing the duty to negotiate retransmission consent agreements in good faith. With these changes, a television broadcast station is prohibited from negotiating retransmission consent jointly with another television station in the same market unless the “stations are directly or indirectly under common de jure control permitted under the regulations of the Commission.” During a recent retransmission consent negotiation, an MVPD filed a complaint with the FCC accusing us of violating this rule. Although we reached agreement with the MVPD and they withdrew their complaint, the FCC undertook its own internal investigation

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regarding the allegations made by the MVPD and whether we negotiated in good faith as defined by the rules. In order to resolve the issues raised by the investigation described above and all other pending matters before the FCC's Media Bureau (Bureau), the Company, on July 29, 2016, without any admission of liability, entered into a consent decree with the FCC pursuant to which the Bureau agreed (i) to terminate their investigation regarding the retransmission consent negotiations described above as well as any other investigations pending before the Bureau, (ii) to dismiss with prejudice or deny any outstanding adversarial pleadings against the Company pending before the Bureau, (iii) to cancel outstanding forfeiture orders issued by the Bureau relating to the Company, and (iv) to grant all of the Company’s pending license renewals, subject to a payment by the Company to the United States Treasury in the amount of $9.5 million. As of June 30, 2016, this liability is included within accounts payable and accrued expenses in the consolidated balance sheet, with a corresponding charge to media selling, general, and administrative expenses in the consolidated statements of operations during the three months ended June 30, 2016. The Company agreed to be subject to ongoing compliance monitoring by the FCC with the terms of the consent decree for a period of 36 months.

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

5. EARNINGS PER SHARE:

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Income (Numerator)
Net Income	$	50,600		$	46,399		$	76,229		$	71,235
Net (income) loss attributable to noncontrolling interests	(1,181		)	(612		)	(2,670		)	(1,166		)
Numerator for diluted earnings per common share available to common shareholders	$	49,419		$	45,787		$	73,559		$	70,069

Shares (Denominator)
Weighted-average common shares outstanding	95,026			95,307			94,922			95,219
Dilutive effect of stock-settled appreciation rights, restricted stock awards and outstanding stock options	908			743			897			692
Weighted-average common and common equivalent shares outstanding	95,934			96,050			95,819			95,911

There were 525,000 shares for the three and six months ended June 30, 2016, and no shares for the three and six months ended June 30, 2015 which had an anti-dilutive effect on the equivalent shares outstanding and therefore excluded from the diluted effect above.

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6. RELATED PERSON TRANSACTIONS:

Transactions with our controlling shareholders

David, Frederick, J. Duncan and Robert Smith (collectively, the controlling shareholders) are brothers and hold substantially all of the Class B Common Stock and some of our Class A Common Stock. We engaged in the following transactions with them and/or entities in which they have substantial interests.

Leases. Certain assets used by us and our operating subsidiaries are leased from Cunningham Communications Inc., Keyser Investment Group, Gerstell Development Limited Partnership and Beaver Dam, LLC (entities owned by the controlling shareholders). Lease payments made to these entities were $1.3 million and $1.2 million for the three months ended June 30, 2016 and 2015, and $2.5 million and $2.6 million for six months ended June 30, 2016 and 2015, respectively.

In September 2015, we were granted authority by the Federal Communications Commission (FCC) to operate an experimental facility in Washington D.C. and Baltimore markets to implement a Single Frequency Network (SFN) using the base elements of the new ATSC 3.0 transmission standard. In conjunction with this experimental facility, Cunningham Communications, Inc. will be providing tower space without charge.

Charter Aircraft. We lease aircraft owned by certain controlling shareholders. We incurred expenses of $0.3 million for both the three months ended June 30, 2016 and 2015, and $0.7 million and $0.6 million the for the six months ended June 30, 2016 and 2015, respectively.

Cunningham Broadcasting Corporation

Cunningham owns a portfolio of television stations including: 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).

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

As of June 30, 2016, 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, 2023 and there are two additional 5- year renewal terms remaining with final expiration on July 1, 2033. We also executed purchase agreements to acquire the license related assets of these stations from Cunningham, which grant us the right to acquire, and grant Cunningham the right to require us to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock or the assets of these individual subsidiaries of Cunningham. Our applications to acquire these license related assets are pending FCC approval. In July 2016, we ceased providing programming services to WRGT-TV and WVAH-TV, however, we continue to provide all other services under these agreements.

Pursuant to the terms of the LMAs, options and other agreements, we are 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) $4.7 million. The aggregate purchase price of these television stations increases by 6% annually. A portion of the LMA fee is required to be applied to the purchase price to the extent of the 6% increase. The remaining aggregate purchase price of these stations as of June 30, 2016 was approximately $53.6 million.

We are obligated to pay Cunningham under our LMAs with these stations $2.3 million and $2.1 million for the three months ended June 30, 2016 and 2015, respectively and $4.5 million and $4.4 million for the six months ended June 30, 2016 and 2015, respectively. For the three months ended June 30, 2016 and 2015, Cunningham LMA Stations provided us with approximately $28.8 million and $24.1 million, respectively, and approximately $54.4 million and $45.9 million for the six months ended June 30, 2016 and 2015, respectively, of total revenue.

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Cunningham also owns the license related assets of WBSF-TV and WGTU-TV/WGTQ-TV. We provide certain non-programming related sales, operational and administrative services to these stations pursuant to certain JSAs and SSAs. The agreements with WBSF-TV and WGTU-TV/WGTQ-TV expire in November 2021 and August 2023, respectively, and each has renewal provisions for successive eight year periods. Under these arrangements, we earned $1.5 million and $1.0 million from the services we performed for these stations for the three months ended June 30, 2016 and 2015, respectively, and $2.8 million and $2.2 million for the six months ended June 30, 2016 and 2015, 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. Our consolidated revenues related to these stations include $2.1 million and $1.9 million for the three months ended June 30, 2016 and 2015, respectively, and $4.1 million and $3.7 million for the six months ended June 30, 2016 and 2015, respectively.

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

In April 2016, we entered into an agreement with Cunningham to provide master control equipment and provide master control services to a station in Johnstown, PA with which they have an LMA for a period of three years ending in 2019. Under the agreement, Cunningham will pay us an initial fee of $0.7 million and $0.2 million annually for master control services plus the cost to maintain and repair of the equipment.

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 $0.2 million and $0.1 million for the three months ended June 30, 2016 and 2015, and $0.2 million for both the six months ended June 30, 2016 and 2015, respectively. No payments for vehicles or vehicle related services were paid to Atlantic Automotive during the three and six months ended June 30, 2016 and 2015. Additionally, Atlantic Automotive leases office space owned by one of our consolidated real estate ventures in Towson, Maryland. Atlantic Automotive paid $0.2 million and $0.3 million in rent during the three months ended June 30, 2016 and 2015, and $0.5 million and $0.6 million for the six months ended June 30, 2016 and 2015, respectively.

Leased property by real estate ventures

Certain of our real estate ventures have entered into leases with entities owned by David Smith to lease restaurant space. There are leases for three restaurants in a building owned by one of our consolidated real estate ventures in Baltimore, MD. Total rent received under these leases was $0.2 million for both the three months ended June 30, 2016 and 2015, and $0.3 million for both the six months ended June 30, 2016 and 2015. There is also one lease for a restaurant in a building owned by one of our real estate ventures, accounted for under the equity method, in Towson, MD. This investment received $0.1 million in rent pursuant to the lease for both the three months ended June 30, 2016 and 2015, and $0.2 million and $0.1 million for the six months ended June 30, 2016 and 2015, respectively.

Payments for services provided by these three restaurants to us was less than $0.1 million for the three and six months ended June 30, 2016 and 2015, respectively.

7. SEGMENT DATA:

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

We had approximately $226.4 million and $225.9 million of intercompany loans between the broadcast segment, other and corporate as of June 30, 2016 and 2015, respectively. We had $6.1 million and $5.6 million in intercompany interest expense related to intercompany loans between the broadcast segment, other and corporate for the three months ended June 30, 2016 and 2015, respectively. We had $12.1 million and $10.8 million in intercompany interest expense for the six months ended June 30, 2016 and 2015, respectively. All other intercompany transactions are immaterial.

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



For the three months ended June 30, 2016	Broadcast		Other			Corporate			Consolidated
Revenue	$	608,169	$	58,365		$	—		$	666,534
Depreciation of property and equipment	22,526		1,617			266			24,409
Amortization of definite-lived intangible assets and other assets	38,551		7,074			—			45,625
Amortization of program contract costs and net realizable value adjustments	30,821		—			—			30,821
General and administrative overhead expenses	12,995		283			1,001			14,279
Research and development	—		1,209			—			1,209
Operating income (loss)	145,400		(15,059		)	(1,267		)	129,074
Interest expense	1,411		1,555			50,950			53,916
Income from equity and cost method investments	—		943			—			943



For the three months ended June 30, 2015	Broadcast		Other			Corporate			Consolidated
Revenue	$	532,362	$	21,805		$	—		$	554,167
Depreciation of property and equipment	24,363		631			279			25,273
Amortization of definite-lived intangible assets and other assets	37,232		2,213			—			39,445
Amortization of program contract costs and net realizable value adjustments	29,782		—			—			29,782
General and administrative overhead expenses	11,332		1,265			1,586			14,183
Research and development	—		4,237			—			4,237
Operating income (loss)	122,236		(6,481		)	(1,415		)	114,340
Interest expense	—		1,161			46,503			47,664
Income from equity and cost method investments	—		2,007			—			2,007



For the six months ended June 30, 2016	Broadcast	Other		Corporate		Consolidated
Revenue	1,155,002	90,421		—		1,245,423
Depreciation of property and equipment	45,274	2,638		532		48,444
Amortization of definite-lived intangible assets and other assets	78,321	11,069		—		89,390
Amortization of program contract costs and net realizable value adjustments	64,281	—		—		64,281
General and administrative overhead expenses	33,431	839		1,350		35,620
Research and development	—	2,310		—		2,310
Operating income (loss)	243,451	(26,156	)	(1,882	)	215,413
Interest expense	2,893	3,031		97,407		103,331
Income from equity and cost method investments	—	1,366		—		1,366
Assets	4,832,211	825,829		121,637		5,779,677

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For the six months ended June 30, 2015	Broadcast		Other			Corporate			Consolidated
Revenue	$	1,017,414	$	41,528		$	—		$	1,058,942
Depreciation of property and equipment	48,539		1,365			558			50,462
Amortization of definite-lived intangible assets and other assets	75,123		4,302			—			79,425
Amortization of program contract costs and net realizable value adjustments	60,173		—			—			60,173
General and administrative overhead expenses	26,259		1,524			2,438			30,221
Research and development	—		6,752			—			6,752
Operating income (loss)	214,105		(12,845		)	(2,373		)	198,887
Interest expense	—		2,236			92,076			94,312
Income from equity and cost method investments	—		5,153			—			5,153

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8. FAIR VALUE MEASUREMENTS:

Accounting guidance provides for valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). A fair value hierarchy using three broad levels prioritizes the inputs to valuation techniques used to measure fair value. The following is a brief description of those three levels:


•	Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.


•	Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The carrying value and fair value of our notes and debentures for the periods presented (in thousands):



	As of June 30, 2016				As of December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
Level 2:
6.375% Senior Unsecured Notes due 2021	$	350,000	$	370,125	$	350,000	$	367,325
6.125% Senior Unsecured Notes due 2022	500,000		520,000		500,000		512,500
5.875% Senior Unsecured Notes due 2026	350,000		357,875		—		—
5.625% Senior Unsecured Notes due 2024	550,000		563,750		550,000		539,000
5.375% Senior Unsecured Notes due 2021	600,000		615,600		600,000		605,658
Term Loan A	292,948		290,751		313,620		308,916
Term Loan B	1,369,414		1,365,205		1,376,007		1,365,461
Debt of variable interest entities	24,941		24,941		26,682		26,682
Debt of other operating divisions	129,151		129,151		120,969		120,969

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9. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:

Sinclair Television Group, Inc. (STG), a wholly-owned subsidiary and the television operating subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under the Bank Credit Agreement, the 5.375% Notes, the 5.625% Notes, 6.125% Notes, 6.375% Notes, and 5.875% Notes. Our Class A Common Stock and Class B Common Stock as of June 30, 2016, 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, 6.375% Notes, and 5.875% Notes. As of June 30, 2016, our consolidated total debt, net of deferred financing costs and debt discounts, of $4,178.8 million included $4,047.2 million related to STG and its subsidiaries of which SBG guaranteed $3,996.7 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.

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2016

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.		Sinclair Television Group, Inc.		Guarantor Subsidiaries and KDSM, LLC		Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Cash	$	—	$	72,237	$	6,799	$	24,691		$	—		$	103,727
Accounts receivable	—		—		456,880		34,251			(1,247		)	489,884
Other current assets	219		6,292		62,550		18,106			(2,759		)	84,408
Total current assets	219		78,529		526,229		77,048			(4,006		)	678,019

Property and equipment, net	2,352		19,376		572,156		142,792			(8,870		)	727,806

Investment in consolidated subsidiaries	543,948		3,772,032		4,179		—			(4,320,159		)	—
Goodwill	—		—		2,013,103		4,279			—			2,017,382
Indefinite-lived intangible assets	—		—		142,016		15,709			—			157,725
Definite-lived intangible assets	—		—		1,812,739		224,729			(61,682		)	1,975,786
Other long-term assets	50,901		742,864		104,553		150,306			(825,665		)	222,959
Total assets	$	597,420	$	4,612,801	$	5,174,975	$	614,863		$	(5,220,382	)	$	5,779,677

Accounts payable and accrued liabilities	$	100	$	50,101	$	196,045	$	29,053		$	(3,373	)	$	271,926
Current portion of long-term debt	—		59,938		1,751		113,355			—			175,044
Current portion of affiliate long-term debt	1,752		—		1,532		2,137			(1,920		)	3,501
Other current liabilities	—		—		72,960		8,309			—			81,269
Total current liabilities	1,852		110,039		272,288		152,854			(5,293		)	531,740

Long-term debt	—		3,912,120		31,977		40,165			—			3,984,262
Affiliate long-term debt	948		—		13,364		378,060			(376,419		)	15,953
Other liabilities	24,108		30,953		1,101,937		174,008			(626,178		)	704,828
Total liabilities	26,908		4,053,112		1,419,566		745,087			(1,007,890		)	5,236,783

Total Sinclair Broadcast Group equity (deficit)	570,512		559,689		3,755,409		(98,249		)	(4,216,849		)	570,512
Noncontrolling interests in consolidated subsidiaries	—		—		—		(31,975		)	4,357			(27,618		)
Total liabilities and equity (deficit)	$	597,420	$	4,612,801	$	5,174,975	$	614,863		$	(5,220,382	)	$	5,779,677

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2015

(in thousands)



	Sinclair Broadcast Group, Inc.		Sinclair Television Group, Inc.		Guarantor Subsidiaries and KDSM, LLC		Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Cash	$	—	$	115,771	$	235	$	33,966		$	—		$	149,972
Accounts receivable	—		1,775		390,142		33,949			(1,258		)	424,608
Other current assets	3,648		5,172		99,118		23,278			(4,033		)	127,183
Total current assets	3,648		122,718		489,495		91,193			(5,291		)	701,763

Property and equipment, net	2,884		20,336		559,042		143,667			(8,792		)	717,137

Investment in consolidated subsidiaries	497,262		3,430,434		4,179		—			(3,931,875		)	—
Goodwill	—		—		1,926,814		4,279			—			1,931,093
Indefinite-lived intangible assets	—		—		114,841		17,624			—			132,465
Definite-lived intangible assets	—		—		1,602,454		206,975			(57,859		)	1,751,570
Other long-term assets	52,128		673,915		110,507		140,910			(779,173		)	198,287
Total assets	$	555,922	$	4,247,403	$	4,807,332	$	604,648		$	(4,782,990	)	$	5,432,315

Accounts payable and accrued liabilities	$	104	$	49,428	$	179,156	$	27,462		$	(4,837	)	$	251,313
Current portion of long-term debt	—		57,640		1,611		106,358			(1,425		)	164,184
Current portion of affiliate long-term debt	1,651		—		1,311		456			(252		)	3,166
Other current liabilities	—		—		103,627		12,713			—			116,340
Total current liabilities	1,755		107,068		285,705		146,989			(6,514		)	535,003

Long-term debt	—		3,594,218		32,743		42,199			—			3,669,160
Affiliate long-term debt	1,857		—		14,240		366,042			(364,289		)	17,850
Other liabilities	26,500		28,866		1,060,211		171,102			(576,055		)	710,624
Total liabilities	30,112		3,730,152		1,392,899		726,332			(946,858		)	4,932,637

Total Sinclair Broadcast Group equity (deficit)	525,810		517,251		3,414,433		(91,703		)	(3,839,981		)	525,810
Noncontrolling interests in consolidated subsidiaries	—		—		—		(29,981		)	3,849			(26,132		)
Total liabilities and equity (deficit)	$	555,922	$	4,247,403	$	4,807,332	$	604,648		$	(4,782,990	)	$	5,432,315

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2016

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue	$	—		$	—		$	627,517		$	62,037		$	(23,020	)	$	666,534

Media production expenses	—			—			235,138			30,440			(21,958		)	243,620
Selling, general and administrative	1,001			14,121			125,331			2,326			(12		)	142,767
Depreciation, amortization and other operating expenses	266			1,219			116,970			33,134			(516		)	151,073
Total operating expenses	1,267			15,340			477,439			65,900			(22,486		)	537,460

Operating (loss) income	(1,267		)	(15,340		)	150,078			(3,863		)	(534		)	129,074

Equity in earnings of consolidated subsidiaries	49,136			100,678			69			—			(149,883		)	—
Interest expense	(41		)	(50,908		)	(1,098		)	(8,107		)	6,238			(53,916		)
Other income (expense)	1,087			148			622			190			—			2,047
Total other income (expense)	50,182			49,918			(407		)	(7,917		)	(143,645		)	(51,869		)

Income tax benefit (provision)	504			18,034			(47,722		)	2,579			—			(26,605		)
Net income (loss)	49,419			52,612			101,949			(9,201		)	(144,179		)	50,600
Net income attributable to the noncontrolling interests	—			—			—			(1,262		)	81			(1,181		)
Net income (loss) attributable to Sinclair Broadcast Group	$	49,419		$	52,612		$	101,949		$	(10,463	)	$	(144,098	)	$	49,419
Comprehensive income (loss)	$	49,419		$	52,612		$	101,949		$	(9,201	)	$	(144,179	)	$	50,600

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2015

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue	$	—		$	—		$	522,405		$	52,908		$	(21,146	)	$	554,167

Media production expenses	—			—			180,033			21,272			(19,495		)	181,810
Selling, general and administrative	1,457			11,429			100,579			4,136			(193		)	117,408
Depreciation, amortization and other operating expenses	266			809			109,201			30,960			(627		)	140,609
Total operating expenses	1,723			12,238			389,813			56,368			(20,315		)	439,827

Operating (loss) income	(1,723		)	(12,238		)	132,592			(3,460		)	(831		)	114,340

Equity in earnings of consolidated subsidiaries	46,369			85,483			(50		)	—			(131,802		)	—
Interest expense	(106		)	(44,969		)	(1,165		)	(7,470		)	6,046			(47,664		)
Other income (expense)	944			444			203			1,466			—			3,057
Total other income (expense)	47,207			40,958			(1,012		)	(6,004		)	(125,756		)	(44,607		)

Income tax benefit (provision)	303			19,584			(44,899		)	1,678			—			(23,334		)
Net income (loss)	45,787			48,304			86,681			(7,786		)	(126,587		)	46,399
Net income attributable to the noncontrolling interests	—			—			—			(646		)	34			(612		)
Net income (loss) attributable to Sinclair Broadcast Group	$	45,787		$	48,304		$	86,681		$	(8,432	)	$	(126,553	)	$	45,787
Comprehensive income (loss)	$	46,483		$	48,315		$	86,756		$	(7,786	)	$	(127,285	)	$	46,483

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2016

(in thousands) (unaudited)




	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue	$	—		$	—		$	1,172,629		$	114,287		$	(41,493	)	$	1,245,423

Program and production	—			—			444,864			54,821			(40,188		)	459,497
Selling, general and administrative	2,003			36,219			236,442			4,487			(34		)	279,117
Depreciation, amortization and other operating expenses	532			2,410			225,445			63,990			(981		)	291,396
Total operating expenses	2,535			38,629			906,751			123,298			(41,203		)	1,030,010

Operating (loss) income	(2,535		)	(38,629		)	265,878			(9,011		)	(290		)	215,413

Equity in earnings of consolidated subsidiaries	73,424			175,533			119			—			(249,076		)	—
Interest expense	(136		)	(97,271		)	(2,299		)	(16,003		)	12,378			(103,331		)
Other income (expense)	2,230			267			609			(174		)	—			2,932
Total other income (expense)	75,518			78,529			(1,571		)	(16,177		)	(236,698		)	(100,399		)

Income tax benefit (provision)	576			41,137			(85,902		)	5,404			—			(38,785		)
Net income (loss)	73,559			81,037			178,405			(19,784		)	(236,988		)	76,229
Net income attributable to the noncontrolling interests	—			—			—			(2,161		)	(509		)	(2,670		)
Net income (loss) attributable to Sinclair Broadcast Group	$	73,559		$	81,037		$	178,405		$	(21,945	)	$	(237,497	)	$	73,559
Comprehensive income (loss)	$	73,559		$	81,037		$	178,405		$	(19,784	)	$	(236,988	)	$	76,229

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2015

(in thousands) (unaudited)




	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue	$	—		$	—		$	999,076		$	99,912		$	(40,046	)	$	1,058,942

Program and production	—			—			349,727			41,677			(38,023		)	353,381
Selling, general and administrative	2,501			26,212			199,927			7,152			(105		)	235,687
Depreciation, amortization and other operating expenses	533			1,584			211,560			58,278			(968		)	270,987
Total operating expenses	3,034			27,796			761,214			107,107			(39,096		)	860,055

Operating (loss) income	(3,034		)	(27,796		)	237,862			(7,195		)	(950		)	198,887

Equity in earnings of consolidated subsidiaries	70,693			149,948			(100		)	—			(220,541		)	—
Interest expense	(207		)	(88,842		)	(2,341		)	(14,176		)	11,254			(94,312		)
Other income (expense)	2,294			291			266			3,570			—			6,421
Total other income (expense)	72,780			61,397			(2,175		)	(10,606		)	(209,287		)	(87,891		)

Income tax benefit (provision)	323			40,199			(83,277		)	2,994			—			(39,761		)
Net income (loss)	70,069			73,800			152,410			(14,807		)	(210,237		)	71,235
Net income attributable to the noncontrolling interests	—			—			—			(1,200		)	34			(1,166		)
Net income (loss) attributable to Sinclair Broadcast Group	$	70,069		$	73,800		$	152,410		$	(16,007	)	$	(210,203	)	$	70,069
Comprehensive income (loss)	$	71,403		$	73,817		$	152,561		$	(14,807	)	$	(211,571	)	$	71,403

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2016

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
NET CASH FLOWS FROM(USED IN) OPERATING ACTIVITIES	$	2,296		$	(81,821	)	$	282,530		$	(8,483	)	$	15,136		$	209,658
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment	—			(1,871		)	(45,155		)	(3,206		)	446			(49,786		)
Acquisition of businesses, net of cash acquired	—			—			(412,729		)	(10,375		)	—			(423,104		)
Purchase of alarm monitoring contracts	—			—			—			(21,616		)	—			(21,616		)
Investments in equity and cost method investees	—			(10,827		)	—			(11,016		)	—			(21,843		)
Loans to affiliates	—			(19,500		)	—			—			—			(19,500		)
Other, net	1,197			3,725			58			2,419			—			7,399
Net cash flows from (used in) investing activities	1,197			(28,473		)	(457,826		)	(43,794		)	446			(528,450		)

CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases	—			595,000			—			12,555			—			607,555
Repayments of notes payable, commercial bank financing and capital leases	—			(272,672		)	(719		)	(6,184		)	—			(279,575		)
Dividends paid on Class A and Class B Common Stock	(32,781		)	—			—			—			—			(32,781		)
Repurchase of outstanding Class A Common Stock	(11,247		)	—			—			—			—			(11,247		)
Increase (decrease) in intercompany payables	42,586			(249,887		)	181,829			41,172			(15,700		)	—
Other, net	(2,051		)	(5,681		)	750			(4,541		)	118			(11,405		)
Net cash flows (used in) from financing activities	(3,493		)	66,760			181,860			43,002			(15,582		)	272,547

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	—			(43,534		)	6,564			(9,275		)	—			(46,245		)
CASH AND CASH EQUIVALENTS, beginning of period	—			115,771			235			33,966			—			149,972
CASH AND CASH EQUIVALENTS, end of period	$	—		$	72,237		$	6,799		$	24,691		$	—		$	103,727

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2015

(in thousands) (unaudited)



	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	$	(142	)	$	(70,337	)	$	265,762		$	(22,433	)	$	7,397		$	180,247
CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	—			(5,852		)	(40,875		)	(1,097		)	762			(47,062		)
Purchase of alarm monitoring contracts	—			—			—			(16,673		)	—			(16,673		)
Investments in equity and cost method investees	—			(4,401		)	(33		)	(33,375		)	—			(37,809		)
Other, net	3,486			(961		)	4,788			4,338			—			11,651
Net cash flows (used in) from investing activities	3,486			(11,214		)	(36,120		)	(46,807		)	762			(89,893		)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases	—			349,562			—			15,291			—			364,853
Repayments of notes payable, commercial bank financing and capital leases	(312		)	(357,328		)	(611		)	(2,229		)	—			(360,480		)
Dividends paid on Class A and Class B Common Stock	(31,464		)	—			—			—			—			(31,464		)
Repurchase of outstanding Class A Common Stock	(7,803		)	—			—			—			—			(7,803		)
Increase (decrease) in intercompany payables	37,036			138,814			(230,262		)	62,571			(8,159		)	—
Other, net	(801		)	(3,491		)	550			(4,821		)	—			(8,563		)
Net cash flows (used in) from financing activities	(3,344		)	127,557			(230,323		)	70,812			(8,159		)	(43,457		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—			46,006			(681		)	1,572			—			46,897
CASH AND CASH EQUIVALENTS, beginning of period	—			3,394			1,749			12,539			—			17,682
CASH AND CASH EQUIVALENTS, end of period	$	—		$	49,400		$	1,068		$	14,111		$	—		$	64,579

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

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; and

•cybersecurity.

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 and other print and media outlets serving in the same markets;


•	the performance of networks and syndicators that provide us with programming content, as well as the performance of internally originated programming;


•	the availability and cost of programming from networks and syndicators, as well as the cost of internally originated programming;


•	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 incentive auction and the potential repacking of our broadcasting spectrum within a limited timeframe;

•

the potential for additional governmental regulation of broadcasting or changes in those regulations and court actions interpreting those regulations, including ownership regulations limiting over-the-air television’s ability to compete effectively (including regulations relating to Joint Sales Agreements (JSA) and Shared Services Agreements (SSA), and the national ownership cap), arbitrary enforcement of indecency regulations, retransmission consent 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 develop and adopt a viable mobile digital broadcast television (mobile DTV) strategy and platform, such as the adoption of ATSC 3.0 broadcast standard, and the consumer’s appetite for mobile television;


•	the impact of programming payments charged by networks pursuant to their affiliation agreements with broadcasters requiring compensation for network programming;


•	the effects of declining live/appointment viewership as reported through rating systems and local television efforts to adopt and receive credit for same day viewing plus viewing on-demand thereafter;


•	changes in television rating measurement methodologies that could negatively impact audience results;


•	the ability of local MVPDs to coordinate and determine local advertising rates as a consortium;


•	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;


•	the operation of low power devices in the broadcast spectrum, which could interfere with our broadcast signals;


•	the impact of FCC and Congressional efforts to limit the ability of a television station to negotiate retransmission consent agreements for the same-market stations it does not own and other FCC efforts which may restrict a television station's retransmission consent negotiations;


•	Over-the-top (OTT) technologies and their potential impact on cord-cutting; and

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•	the impact of MVPDs offering “skinny” programming bundles that may not include television broadcast stations.

Risks specific to us


•	the effectiveness of our management;


•	our ability to attract and maintain local, national and network advertising and successfully participate in new sales channels such as programmatic advertising through business partnership ventures and the development of technology;


•	our ability to service our debt obligations and operate our business under restrictions contained in our financing agreements;


•	our ability to successfully implement and monetize our own content management system (CMS) designed to provide our viewers significantly improved content via the internet and other digital platforms;


•	our ability to successfully renegotiate retransmission consent agreements;


•	our ability to renew our FCC licenses;


•	our limited 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 identify media business investment opportunities and to successfully integrate any acquired businesses, as well as the success of our digital initiatives in a competitive environment, such as the investment in the re-launch of Circa;


•	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 strength of ratings for our local news broadcasts including our news sharing arrangements;


•	the successful execution of our program development and multi-channel broadcasting initiatives including American Sports Network (ASN), COMET, and other original programming, and mobile DTV; and


•	the results of prior year tax audits by taxing authorities.

Other matters set forth in this report and other reports filed with the Securities and Exchange Commission, including the Risk Factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 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.

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The following table sets forth certain operating data for the periods presented:

STATEMENTS OF OPERATIONS DATA

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Statement of Operations Data:
Media revenues (a)	$	606,268		$	503,170		$	1,137,591		$	967,921
Revenues realized from station barter arrangements	34,003			30,373			60,513			51,332
Other non-media revenues	26,263			20,624			47,319			39,689
Total revenues	666,534			554,167			1,245,423			1,058,942

Media production expenses	243,620			181,810			459,497			353,381
Media selling, general and administrative expenses	128,488			103,225			243,497			205,466
Expenses recognized from station barter arrangements	29,259			26,381			52,184			43,793
Depreciation and amortization expenses (b)	100,855			94,500			202,115			190,060
Other non-media expenses	19,761			15,520			37,458			30,433
Corporate general and administrative expenses	14,279			14,183			35,620			30,221
Research and development expenses	1,209			4,237			2,310			6,752
Gain on asset disposition	(11		)	(29		)	(2,671		)	(51		)
Operating income	129,074			114,340			215,413			198,887

Interest expense and amortization of debt discount and deferred financing costs	(53,916		)	(47,664		)	(103,331		)	(94,312		)
Income from equity and cost method investees	943			2,007			1,366			5,153
Other income, net	1,104			1,050			1,566			1,268
Income before income taxes	77,205			69,733			115,014			110,996
Income tax provision	(26,605		)	(23,334		)	(38,785		)	(39,761		)
Net income	50,600			46,399			76,229			71,235
Net income attributable to the noncontrolling interests	(1,181		)	(612		)	(2,670		)	(1,166		)
Net income attributable to Sinclair Broadcast Group	$	49,419		$	45,787		$	73,559		$	70,069

Basic and Diluted Earnings Per Common Share Attributable to Sinclair Broadcast Group:
Basic earnings per share	$	0.52		$	0.48		$	0.77		$	0.74
Diluted earnings per share	$	0.52		$	0.48		$	0.77		$	0.73



Balance Sheet Data:	June 30, 2016		December 31, 2015
Cash and cash equivalents	$	103,727	$	149,972
Total assets	$	5,779,677	$	5,432,315
Total debt (c)	$	4,178,760	$	3,854,360
Total equity	$	542,894	$	499,678

(a) Media revenues is defined as broadcast revenues, net of agency commissions, retransmission fees, and other media related revenues.

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(b) Depreciation and amortization includes depreciation and amortization of property and equipment, definite-lived intangible assets, program contract costs and other assets.

(c) Total debt is defined as notes payable, capital leases and commercial bank financing, including the current and long-term portions.

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 — financial events during the three months ended June 30, 2016 and through the date this Report on Form 10-Q is filed.

Results of Operations — an analysis of our revenues and expenses for the three and six months ended June 30, 2016 and 2015, including comparisons between quarters and expectations for the three months ended September 30, 2016.

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, and an update of our debt refinancings during the three and six months ended June 30, 2016.

EXECUTIVE OVERVIEW

Second Quarter 2016 Events


•	In April 2016, we announced the formation of ONE Media 3.0, LLC, a wholly-owned subsidiary whose purpose will be to develop business opportunities, products, and services associated with the ATSC 3.0 broadcast transmission standard approved in March 2016.


•	In May 2016, we closed on the previously announced purchase of the assets of KFXL (FOX) and KHGI, KHGI-LD, KWNB and KWNB-LD (ABC), in Lincoln, Nebraska for $31.3 million.


•	In May 2016, our Board of Directors declared a quarterly dividend of $0.18 per share, payable on June 15, 2016 to the holders of record at the close of business on June 1, 2016.


•	In May 2016, the Third Circuit Court ruled to vacate the rule to make Joint Sales Agreements (JSAs) attributable.


•	In June 2016, we repurchased 384,700 shares of our Class A Common Stock using cash on hand.

Other Events


•	In July 2016, we repurchased 274,400 shares of our Class A Common Stock using cash on hand.


•	In July 2016, nine recipients received the inaugural awards from the Sinclair Broadcast Diversity Scholarship Fund that was established in 2015.


•	In July 2016, we launched the new Circa.com website. This site uses new technology designed for enhanced mobile video and new-generation news consumers.


•	In July 2016, we extended the maturity date of certain loans and commitments under our existing bank credit facility until July 31, 2021.


•	In July 2016, we rebranded our digital agency solutions group under the name Compulse Integrated Marketing to provide in-depth digital marketing services aimed at small and medium sized businesses.

•

In July 2016, we entered into a Consent Decree with the FCC resolving a number of previously disclosed matters relating to certain content broadcast on our stations, technical issues relating to LMAs, and the FCC's rule regarding retransmission consent negotiations. The FCC dismissed all pending claims against us with the Media Bureau and will issue renewals for 90 television stations. As part of the settlement, we agreed to make a payment of $9.5 million which was accrued as of 6/30/16.


•	In July 2016, we entered into agreements with FOX for the renewal of FOX affiliations in five markets. The FOX affiliations were also renewed in three markets by the licensees of stations that we provide sales and other services to under joint sales agreements.


•	In August 2016, our Board of Directors declared a quarterly dividend of $0.18 per share, payable on September 15, 2016 to the holders of record at the close of business on September 1, 2016.


•	In August 2016, we signed a multi-year retransmission consent agreement with Comcast Cable for carriage of our broadcast television stations.

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RESULTS OF OPERATIONS

The results of the businesses acquired during 2015 and 2016 are included in our results of operations from their respective dates of acquisition. See Note 2. Acquisitions in our consolidated financial statements for further discussion of acquisitions. Additionally, any references to the second, third or fourth quarters are to the three months ended 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 and corporate activities.

SEASONALITY/CYCLICALITY

Our operating results are usually subject to seasonal fluctuations. Usually, the second and fourth quarter operating results are higher than 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 our consolidated operating data three and six months ended June 30, 2016 and 2015 (in millions):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016			2015
Media revenues (a)	$	606.3	$	503.2	$	1,137.6		$	967.9
Revenues realized from station barter arrangements	34.0		30.4		60.5			51.3
Other non-media revenues	26.2		20.6		47.3			39.7
Total revenues	666.5		554.2		1,245.4			1,058.9
Media production expenses (a)	243.6		181.9		459.5			353.4
Media selling, general and administrative expenses (a)	128.4		103.3		243.5			205.5
Expenses recognized from station barter arrangements	29.2		26.4		52.2			43.8
Depreciation and amortization	100.9		94.5		202.1			190.1
Other non-media expenses	19.8		15.5		37.5			30.4
Corporate general and administrative expenses	14.3		14.1		35.6			30.2
Research and development	1.2		4.2		2.3			6.7
Gain on asset dispositions	—		—		(2.7		)	(0.1		)
Operating income	$	129.1	$	114.3	$	215.4		$	198.9
Net income attributable to Sinclair Broadcast Group	$	49.4	$	45.8	$	73.6		$	70.1

(a) Our media related revenues and expenses are primarily derived from our broadcast segment, but also from our other media related business, including our networks and content such as Tennis Channel, American Sports Network, COMET, and non-broadcast digital properties. The results of our broadcast segment and the other media businesses are discussed further below under Broadcast Segment and Other, respectively.

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BROADCAST SEGMENT

Revenue

The following table presents our media revenues, net of agency commissions, for our broadcast segment for the periods presented (in millions):



	Three Months Ended June 30,						Six Months Ended June 30,
	2016		2015		Percent Change		2016		2015		Percent Change
Local revenues:
Non-political	$	467.5	$	408.6	14.4	%	$	881.2	$	788.7	11.7	%
Political	3.7		1.2		(b)		7.7		2.2		(b)
Total local	471.2		409.8		15.0	%	888.9		790.9		12.4	%
National revenues (a):
Non-political	92.0		89.4		2.9	%	174.7		171.2		2.0	%
Political	12.9		2.8		(b)		33.4		4.0		(b)
Total national	104.9		92.2		13.8	%	208.1		175.2		18.8	%
Total broadcast segment media revenues	$	576.1	$	502.0	14.8	%	$	1,097.0	$	966.1	13.5	%

(a) National revenue relates to advertising sales sourced from our national representation firm.

(b) Political revenue is not comparable from year to year due to cyclicality of elections. See Political Revenues below for more information.

Media revenues. Media revenues increased $74.1 million when comparing the three months ended June 30, 2016 to the same period in 2015 and increased $130.9 million for the six months ended June 30, 2016 compared to the same period in 2015. The stations acquired after June 30, 2015, net of dispositions, contributed an increase of $7.1 million and $8.9 million for the three and six months ended June 30, 2016 and 2015, respectively. The remaining increase was primarily related to an increase in political net time sales as 2016 is an election year, and an increase in retransmission and digital revenues. For the three months ended June 30, 2016, the services, direct response, entertainment, and furniture sectors increased year over year. These increases were offset by lower revenues in the telecommunications, schools, internet, and retail/department store sectors. For the six months ended June 30, 2016, the automotive, services, home products, furniture, direct response, entertainment and media sectors increased year over year. These increases were offset by lower revenues in the schools, internet and telecommunications sectors. Excluding the stations acquired or disposed after June 30, 2015, automotive, which typically is our largest category, represented 23.8% and 25.1% of net time sales for the six months ended June 30, 2016 and 2015, respectively.

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From a network affiliation or program service arrangement perspective, the following table sets forth percentages of our net time sales by affiliate for the periods presented:



	# of channels (a)	Percent of Net Time Sales for the		Net Time Sales Percent Change	Percent of Net Time Sales for the		Net Time Sales Percent Change
		Three months ended June 30,			Six months ended June 30,
		2016	2015		2016	2015
ABC	37	29.5%	29.6%	(0.1)%	29.0%	28.9%	0.1%
FOX	53	24.6%	25.4%	(0.8)%	24.9%	25.7%	(0.8)%
CBS	30	19.2%	17.3%	1.9%	19.8%	17.4%	2.4%
NBC	22	11.9%	11.6%	0.3%	11.6%	11.8%	(0.2)%
CW	39	7.9%	8.2%	(0.3)%	7.8%	8.2%	(0.4)%
MNT	29	5.6%	6.5%	(0.9)%	5.6%	6.6%	(1.0)%
Other (b)	274	1.3%	1.4%	(0.1)%	1.3%	1.4%	(0.1)%
Total	484

(a) We acquired television stations during 2016 and 2015 with a variety of network affiliations. This acquisition activity does not

materially affect the year-over-year comparability of revenue by affiliation. See Note 2. Acquisitions in our consolidated financial statements for further discussion of stations acquired.

(b) We broadcast other programming from the following providers on our channels including: ASN, Antenna TV, Azteca, Bounce Network, COMET, Decades, Estrella TV, Get TV, Grit, Me TV, MundoFox, Retro TV, Telemundo, This TV, News & Weather, Univision and Zuus Country.

Political Revenues. Political revenues increased by $12.6 million and $34.9 million for the three and six months ended June 30, 2016, respectively, when compared to the same periods in 2015. Political revenues are typically higher in election years such as 2016.

Local Revenues. Excluding political revenues, our local broadcast revenues, which include local time sales, retransmission revenues and other local revenues, increased $58.9 million for the three months ended June 30, 2016, when compared to the same period in 2015. The stations acquired after June 30, 2015, net of dispositions, contributed $5.9 million of the increase. The remaining increase was primarily related to an increase in retransmission and digital revenues, as well as an increase in the services, automotive, entertainment, and telecommunications sectors. These increases were offset by lower revenues in the schools, internet, medical, and retail department stores sectors.

Excluding political revenues, our local broadcast revenues, which include local times sales, retransmission revenues and other local revenues, increased by $92.5 million for the six months ended June 30, 2016, when compared to the same period in 2015. The stations acquired after June 30, 2015, net of dispositions, contributed $7.6 million of the increase. The remaining increase was primarily related to an increase in retransmission and digital revenues, as well as an increase in the services, automotive, entertainment, furniture, home products, telecommunications, and media sectors. These increases were offset by lower revenues in the schools, internet, medical, and fast food sectors.

National Revenues. Excluding political revenues, our national broadcast revenues, which relates to time sales sourced from our national representation firms, were up $2.6 million for the three months ended June 30, 2016 when compared to the same period in 2015. The stations acquired after June 30, 2015, net of dispositions, contributed $0.7 million of the increase. The remaining increase primarily related to an increase in the direct response, medical, restaurants, and home product sectors. These increases were offset by lower revenues in the telecommunications and automotive sectors.

Excluding political revenues, our national broadcast revenues, which relates to time sales sourced from our national representation firm, were up $3.5 million for the six months ended 2016 when compared to the same period in 2015. The stations acquired after June 30, 2015, net of dispositions, contributed $0.8 million of the increase. The remaining increase primarily related to an increase in direct response, medical, pharmaceutical/cosmetics, home products, and automotive sectors. These increases were offset by lower revenues in the telecommunications and services sectors.

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Expenses

The following table presents our significant operating expense categories for our broadcast segment for the periods presented (in millions):



	Three months ended June 30,				Percent Change (Increase/(Decrease))		Six months ended June 30,				Percent Change (Increase/(Decrease))
	2016		2015		Percent Change (Increase/(Decrease))		2016		2015		Percent Change (Increase/(Decrease))
Media production expenses	$	214.0	$	178.5	19.9	%	$	416.6	$	345.5	20.6	%
Media selling, general and administrative expenses	$	116.7	$	102.6	13.7	%	$	226.8	$	204.0	11.2	%
Amortization of program contract costs and net realizable value adjustments	$	30.8	$	29.8	3.4	%	$	64.3	$	60.2	6.8	%
Corporate general and administrative expenses	$	13.0	$	11.3	15.0	%	$	33.4	$	26.3	27.0	%
Depreciation and amortization expenses	$	61.1	$	61.6	(0.8	)%	$	123.6	$	123.7	(0.1	)%

Media production expenses. Media production expenses increased $35.5 million and $71.1 million during the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The acquired stations not included in the same period of 2015, net of dispositions, contributed $2.7 million and $3.5 million of the increase for the three and six months ended June 30, 2016, respectively. The increase is primarily related to increases in fees pursuant to network affiliation agreements mainly in relation to higher retransmission revenue, as well as, further investment in original programming content; including an increase in production costs related to sports programming content and expansion of news; an increase in costs related to music license fees primarily as a result of refunds received from certain music rights providers in 2015; higher equipment and transmitter repair and maintenance, and increases in compensation primarily related to standard merit increases.

Media selling, general and administrative expense. Media selling, general and administrative expenses increased $14.1 million and $22.8 million during the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The acquired stations not included in the same period of 2015, net of dispositions, contributed $1.3 million and $1.7 million for the three and six months, respectively. The remaining increase related to an increase in compensation expense for annual merit and bonus increases; an increase in expenses to our digital interactive business as a result of higher revenue; an increase in national sales commissions; and settlement with the FCC as discussed in Note. 4 Commitments and Contingencies.

Amortization of program contract costs and net realizable value adjustments. The amortization of program contract costs increased $1.0 million and $4.1 million during the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The increase is primarily 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 decreased $0.5 million and decreased $0.1 million during the three and six months ended June 30, 2016.

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OTHER

Media revenues, media production expenses, and media selling, general, and administrative expense. The media revenue included within Other primarily relates to original networks and content, as well as our digital and internet businesses. We recorded revenue of $30.1 million and $1.2 million for the three months ended June 30, 2016 and 2015, respectively, and $40.6 million and $1.8 million for the six months ended June 30, 2016 and 2015, respectively. The year over year increase for both the three and six months is primarily related to recently acquired Tennis Channel as well as increases in revenue from our science-fiction and sports networks which began operating in 2015 and 2014, respectively. We recorded expenses of $41.4 million and $4.4 million for the three months ended June 30, 2016 and 2015, respectively, and $59.6 million and $10.0 million for the six months ended June 30, 2016 and 2015, respectively. Our expenses relate to the programming and production, and general and administrative costs related to the operations of our network, content, and digital and internet businesses. The year over year increases primarily relate to the recently acquired Tennis Channel and general and administrative costs related to the start-up of our original networks and content, production costs of new original programming, and new digital and internet initiatives.

Other non-media revenues and expenses:

Investments in real estate ventures. We have controlling interests in certain real estate investments owned by Keyser Capital which we consolidate. Revenues from the investments were $5.2 million and $3.0 million for the three months ended June 30, 2016 and 2015, respectively, and $9.2 million and $6.4 million for the six months ended June 30, 2016 and 2015, respectively. Expenses, including other non-media expenses, general and administrative, depreciation and amortization and other applicable other income and expense items related to these investments in real estate ventures were $6.7 million and $5.2 million for the three months ended June 30, 2016 and 2015, respectively, and $14.6 million and $8.4 million for the six months ended June 30, 2016 and 2015, respectively. The year over year increase in revenue and expenses for both the three and six month periods are primarily related to the sale of land parcels with real estate development projects.

Investments in private equity. We have controlling interests in certain private equity investments owned by Keyser Capital, which we consolidate, including Triangle Sign & Service, LLC, a sign designer and fabricator, and Alarm Funding, a regional security alarm operating and bulk acquisition company. Revenues were $17.1 million and $14.5 million for the three months ended June 30, 2016 and 2015, respectively and $31.8 million and $27.3 million for the six months ended June 30, 2016 and 2015, respectively. Expenses, including other non-media expenses, general and administrative, depreciation and amortization and other applicable other income and expense items, increased $14.4 million and $10.9 million for the three months ended June 30, 2016 and 2015, respectively and $32.9 million and $21.7 million for the six months ended June 30, 2016 and 2015, respectively. The increases in both revenues and expenses for both the three and six month periods are primarily related to increased transaction volume from our alarm business.

Technical Services. We own certain subsidiaries which service and support broadcast transmitters, and design and manufacture broadcast systems. Revenues from technical services were $3.9 million and $3.4 million for the three months ended June 30, 2016 and 2015, respectively. Revenues from technical services were $6.3 million during both the six months ended June 30, 2016 and 2015, respectively. Excluding research and development costs, expenses including other non-media expenses, general and administrative, depreciation and amortization and other income and expense items related to technical services, were $3.9 million and $3.4 million during the three months ended June 30, 2016 and 2015, respectively, and $6.9 million and $6.4 million during the six months ended June 30, 2016 and 2015, respectively.

Research and development expenses. Our research and development expenses relate to the costs of our subsidiary, ONE Media, LLC (ONE Media), to develop the Advanced Television Systems Committee's 3.0 standard (ATSC 3.0). Research and development costs related to ONE Media were $1.2 million and $4.2 million, for the three months ended June 30, 2016 and 2015, respectively. These costs were $2.3 million and $6.8 million, for the six months ended June 30, 2016 and 2015, respectively.

Income from Equity and Cost Method Investments. Results of our equity and cost method investments in private equity investments and real estate ventures are included in income from equity and cost method investments in our consolidated statements of operations. We recorded income of $0.1 million and income of $1.4 million related to our real estate ventures during the three months ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016 and 2015, we recorded a loss of $0.5 million and income of $3.6 million, respectively, related to our real estate ventures. We recorded income of $0.9 million and $0.6 million related to certain private equity investments during the three months ended June 30, 2016 and 2015, respectively. We recorded income of $1.8 million and $1.6 million related to certain private equity investments during the six months ended June 30, 2016 and 2015, respectively.

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CORPORATE AND UNALLOCATED EXPENSES



	Three months ended June 30,						Percent Change (Increase/ (Decrease))		Six months ended June 30,						Percent Change (Increase/ (Decrease))
	2016			2015			Percent Change (Increase/ (Decrease))		2016			2015			Percent Change (Increase/ (Decrease))
Corporate general and administrative expenses	$	1.0		$	1.6		(37.5	)%	$	1.4		$	2.4		(45.8	)%
Interest expense	$	50.9		$	46.5		9.5	%	$	97.4		$	92.1		5.8	%
Income tax provision	$	(26.6	)	$	(23.3	)	14.2	%	$	(38.8	)	$	(39.8	)	(2.5	)%

Corporate general and administrative expenses. We allocate most of our corporate general and administrative expenses to the broadcast segment. The explanation that follows combines the 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 divisions which are included in our discussion of expenses in the Other section.

Corporate general and administrative expenses combined increased by $1.1 million and $6.2 million for the three and six months ended June 30, 2016, when compared to the same period in 2015. The increase is primarily related to legal costs related to acquisitions, and an increase in compensation costs related to merit increases. We expect corporate general and administrative expenses to increase in the third quarter of 2016 compared to second quarter of 2016.

Interest expense. The explanation that follows combines the interest expense included within the Broadcast Segment with the interest expense found in this section, Corporate and Unallocated Expenses. Interest expense increased during the three and six months ended June 30, 2016, compared to the same period in 2015 primarily due to the the issuance of our 5.875% Notes in March 2016. See Liquidity and Capital Resources for more information.

Income tax (provision) benefit. The effective tax rate for the three months ended June 30, 2016, including the effects of the noncontrolling interest, was a provision of 35.0% as compared to a provision of 33.8% during the same period in 2015. The increase in the effective tax rate for the three months ended June 30, 2016 as compared to the same period in 2015 is primarily due to a 2015 income tax benefit related to law changes in certain state tax jurisdictions.

The effective tax rate for the six months ended June 30, 2016, including the effects of the noncontrolling interest, was a provision of 34.5% as compared to a provision of 36.2% during the same period in 2015. The decrease in the effective tax rate for the six months ended June 30, 2016 as compared to the same period in 2015 is primarily due to an unfavorable resolution of a state income tax position in 2015.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2016, we had $103.7 million in cash and cash equivalent balances and net working capital of approximately $146.3 million. Cash generated by our operations and borrowing capacity under the Bank Credit Agreement are used as our primary sources of liquidity. As of June 30, 2016, we had $483.3 million of borrowing capacity available on our revolving credit facility.

In July 2016, we entered into an amendment to our Bank Credit Agreement that includes extended maturity of some Term Loan positions and more favorable rates. See Note 3. Notes Payable and Commercial Bank Financing in our consolidated financial statements for a further discussion.

During March 2016, we issued $350 million in senior unsecured notes, which bear interest at a rate of 5.875% per annum and mature on March 15, 2026. The proceeds from the offering, were used to repay amounts under our revolving credit facility and for other general corporate purposes. See Note 3. Notes Payable and Commercial Bank Financing in our consolidated financial statements for a further discussion.

We anticipate that existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the Bank Credit Agreement 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.

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Sources and Uses of Cash

The following table sets forth our cash flows for the periods presented (in millions):



	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
Net cash flows from operating activities	$	75.6		$	66.4		$	209.7		$	180.2

Cash flows (used in) from investing activities:
Acquisition of property and equipment	$	(23.9	)	$	(23.4	)	$	(49.8	)	$	(47.1	)
Acquisition of businesses, net of cash acquired	(38.4		)	—			(423.1		)	—
Investment in other operating divisions	(14.6		)	(10.9		)	(21.6		)	(16.7		)
Investments in equity and costs method investees	(2.0		)	(34.9		)	(21.8		)	(37.8		)
Loans to affiliates	—			—			(19.5		)	—
Other	5.1			7.2			7.3			11.7
Net cash flows used in investing activities	$	(73.8	)	$	(62.0	)	$	(528.5	)	$	(89.9	)

Cash flows (used in) from financing activities:
Proceeds from notes payable, commercial bank financing and capital leases	$	8.7		$	357.0		$	607.6		$	364.9
Repayments of notes payable, commercial bank financing and capital leases	(18.3		)	(335.4		)	(279.6		)	(360.5		)
Dividends paid on Class A and Class B Common Stock	(17.2		)	(15.8		)	(32.8		)	(31.5		)
Repurchase of outstanding Class A Common Stock	(11.2		)	—			(11.2		)	(7.8		)
Other	(1.6		)	(3.5		)	(11.5		)	(8.6		)
Net cash flows (used in) from in financing activities	$	(39.6	)	$	2.3		$	272.5		$	(43.5	)

Operating Activities

Net cash flows from operating activities increased during the three and six months ended June 30, 2016 compared to the same period in 2015. This change is primarily due to an increase in cash received from customers primarily due to businesses acquired since June 2015 and lower income tax payments.

Investing Activities

Net cash flows used in investing activities increased during the three months ended June 30, 2016 compared to the same period in 2015. This increase is primarily due to stations acquired in the second quarter of 2016, partially offset by a decrease in investment in cost and equity method investments.

Net cash flows used in investing activities increased during the six months ended June 30, 2016 compared to the same period in 2015. This increase is primarily due to the acquisition of Tennis Channel, increase in equity and cost method investments and loans to affiliates, partially offset by a decrease in investment in cost and equity method investments.

In the third quarter of 2016, we anticipate capital expenditures to increase from the second quarter of 2016.

Financing Activities

The change in net cash flows used in (from) financing activities for the three months ended June 30, 2016, compared to the same period in 2015, is primarily due to the net proceeds from our bank credit agreement during the three months ended June 30, 2015, and repurchases of Class A common stock during the three months ended June 30, 2016.

The change in net cash flows from (used in) financing activities for the six months ended June 30, 2016, compared to the same period in 2015, is primarily due to the proceeds from the 5.875% Notes issued in March 2016.

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In August 2016, our Board of Directors declared a quarterly dividend of $0.18 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.

CONTRACTUAL CASH OBLIGATIONS

See 5.875% Senior Notes, due 2026 within Note 3. Notes Payable and Commercial Bank Financing for discussion on issuance of 5.875% Notes during the six months ended June 30, 2016.

As of June 30, 2016, there were no other material changes to our contractual cash obligations.

See Bank Credit Agreement within Note 3. Notes Payable and Commercial Bank Financing for the amendment of the Bank Credit Agreement in July 2016.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other than the foregoing, there have been no material changes from the quantitative and qualitative discussion about market risk previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

ITEM 4. 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 June 30, 2016.

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 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.

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Assessment of Effectiveness of Disclosure Controls and Procedures

Based on the evaluation of our disclosure controls and procedures as of June 30, 2016, 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.

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 June 30, 2016, 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are party to lawsuits and claims from time to time in the ordinary course of business. Actions currently pending are in various stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions. After reviewing developments to date with legal counsel, our management is of the opinion that none of our pending and threatened matters are material.

ITEM 1A. RISK FACTORS

There have been no material changes to the Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2015.

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

The following table summarizes repurchases of our stock in the quarter ended June 30, 2016:



Period	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)
Class A Common Stock : (2)
04/01/16 – 04/30/16	—	—	—	105.5
05/01/16 – 05/31/16	—	—	—	105.5
06/01/16 – 06/30/16	384,700	29.25	384,700	94.3

(1) All repurchases were made in open-market transactions.

(2) 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 a new $150.0 million share repurchase authorization. There is no expiration date and currently, management has no plans to terminate this program. As of June 30, 2016, the total remaining authorization was $94.3 million. In July 2016, we repurchased an additional 274,400 shares with a value of $8.0 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



Exhibit Number		Description

31.1		Certification by David D. Smith, as Chairman and Chief Executive Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(a) of the Exchange Act (15 U.S.C. § 7241).

31.2		Certification by Christopher S. Ripley, as Chief Financial Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(a) of the Exchange Act (15 U.S.C. § 7241).

32.1		Certification by David D. Smith, as Chairman and Chief Executive Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(b) of the Exchange Act and § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C § 1350).

32.2		Certification by Christopher S. Ripley, as Chief Financial Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(b) of the Exchange Act and § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C § 1350).

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on the 5th day of August 2016.



	SINCLAIR BROADCAST GROUP, INC.


	By:	/s/ David R. Bochenek
		David R. Bochenek
		Senior Vice President/Chief Accounting Officer
		(Authorized Officer and Chief Accounting Officer)

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EXHIBIT INDEX



Exhibit Number		Description

31.1		Certification by David D. Smith, as Chairman and Chief Executive Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(a) of the Exchange Act (15 U.S.C. § 7241).

31.2		Certification by Christopher S. Ripley, as Chief Financial Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(a) of the Exchange Act (15 U.S.C. § 7241).

32.1		Certification by David D. Smith, as Chairman and Chief Executive Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(b) of the Exchange Act and § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C § 1350).

32.2		Certification by Christopher S. Ripley, as Chief Financial Officer of Sinclair Broadcast Group, Inc., pursuant to Rule 13a-14(b) of the Exchange Act and § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C § 1350).

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase