SINCLAIR BROADCAST GROUP INC - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - SINCLAIR BROADCAST GROUP INC	a2017q310-qexhibit322.htm
EX-32.1 - EXHIBIT 32.1 - SINCLAIR BROADCAST GROUP INC	a2017q310-qexhibit321.htm
EX-31.2 - EXHIBIT 31.2 - SINCLAIR BROADCAST GROUP INC	a2017q310-qexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - SINCLAIR BROADCAST GROUP INC	a2017q310-qexhibit311.htm
EX-10.5 - EXHIBIT 10.5 - SINCLAIR BROADCAST GROUP INC	a2017q310-qexhibit105.htm
EX-10.4 - EXHIBIT 10.4 - SINCLAIR BROADCAST GROUP INC	a20173q10-qexhibit104.htm
EX-10.3 - EXHIBIT 10.3 - SINCLAIR BROADCAST GROUP INC	a2017q310-qexhibit103.htm
EX-10.2 - EXHIBIT 10.2 - SINCLAIR BROADCAST GROUP INC	a2017q310-qexhibit102.htm
EX-10.1 - EXHIBIT 10.1 - SINCLAIR BROADCAST GROUP INC	a2017q310-qexhibit101.htm

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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 September 30, 2017

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

For the transition period from to .

COMMISSION FILE NUMBER: 000-26076

SINCLAIR BROADCAST GROUP, INC.

(Exact name of Registrant as specified in its charter)



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

10706 Beaver Dam Road

Hunt Valley, Maryland 21030

(Address of principal executive office, zip code)

(410) 568-1500

(Registrant’s telephone number, including area code)

None

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

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



Yes x		No o

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



Yes x		No o

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



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

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



Yes o		No x

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

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

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



Title of each class		Number of shares outstanding as of November 6, 2017
Class A Common Stock		76,071,145
Class B Common Stock		25,670,684

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SINCLAIR BROADCAST GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2017

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	36

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	49

ITEM 4. CONTROLS AND PROCEDURES	49

PART II. OTHER INFORMATION	51

ITEM 1. LEGAL PROCEEDINGS	51

ITEM 1A. RISK FACTORS	51

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	51

ITEM 4. MINE SAFETY DISCLOSURES	51

ITEM 5. OTHER INFORMATION	51

ITEM 6. EXHIBITS	52

SIGNATURE	53

EXHIBIT INDEX	54

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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 September 30, 2017			As of December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	602,193		$	259,984
Restricted cash	312,802			200
Accounts receivable, net of allowance for doubtful accounts of $2,510 and $2,124, respectively	523,111			513,954
Current portion of program contract costs	97,768			83,601
Income taxes receivable	5,080			5,500
Prepaid expenses and other current assets	37,384			36,067
Deferred barter costs	11,093			5,782
Total current assets	1,589,431			905,088
Program contract costs, less current portion	4,513			8,919
Property and equipment, net	724,125			717,576
Restricted cash	1,501			—
Goodwill	2,113,651			1,990,746
Indefinite-lived intangible assets	168,720			156,306
Definite-lived intangible assets, net	1,841,938			1,944,403
Notes Receivable from affiliates	19,500			19,500
Other assets	223,690			220,630
Total assets (a)	$	6,687,069		$	5,963,168
LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	290,848		$	322,505
Deferred spectrum auction proceeds	310,802			—
Income taxes payable	1,500			23,491
Current portion of notes payable, capital leases and commercial bank financing	164,485			171,131
Current portion of notes and capital leases payable to affiliates	2,183			3,604
Current portion of program contracts payable	130,892			109,702
Deferred barter revenues	10,513			6,040
Total current liabilities	911,223			636,473
Long-term liabilities:
Notes payable, capital leases and commercial bank financing, less current portion	3,876,134			4,014,932
Notes payable and capital leases to affiliates, less current portion	12,824			14,181
Program contracts payable, less current portion	46,026			53,836
Deferred tax liabilities	661,745			609,317
Other long-term liabilities	70,818			76,493
Total liabilities (a)	5,578,770			5,405,232
Commitments and contingencies (See Note 4)
Equity:
Sinclair Broadcast Group shareholders’ equity:
Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 76,032,524 and 64,558,207 shares issued and outstanding, respectively	760			646
Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 25,670,684 and 25,670,684 shares issued and outstanding, respectively, convertible into Class A Common Stock	257			257
Additional paid-in capital	1,318,155			843,691
Accumulated deficit	(176,370		)	(255,804		)
Accumulated other comprehensive loss	(807		)	(807		)
Total Sinclair Broadcast Group shareholders’ equity	1,141,995			587,983
Noncontrolling interests	(33,696		)	(30,047		)
Total equity	1,108,299			557,936
Total liabilities and equity	$	6,687,069		$	5,963,168

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

(a)

Our consolidated total assets as of September 30, 2017 and December 31, 2016 include total assets of variable interest entities (VIEs) of $260.7 million and $142.3 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of September 30, 2017 and December 31, 2016 include total liabilities of the VIEs of $160.2 million and $40.9 million, respectively, for which the creditors of the VIEs have no recourse to us. See Note 1. Nature of Operations and Summary of Significant Accounting Policies.

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
REVENUES:
Media revenues	$	624,169		$	635,269		$	1,858,477		$	1,772,860
Revenues realized from station barter arrangements	31,787			32,061			91,817			92,574
Other non-media revenues	14,935			26,505			49,821			73,824
Total revenues	670,891			693,835			2,000,115			1,939,258
OPERATING EXPENSES:
Media production expenses	267,993			242,880			795,140			702,377
Media selling, general and administrative expenses	133,605			126,672			385,372			370,169
Expenses realized from barter arrangements	26,696			27,181			77,491			79,365
Amortization of program contract costs and net realizable value adjustments	28,047			32,441			87,962			96,722
Other non-media expenses	14,945			20,488			46,921			57,946
Depreciation of property and equipment	24,442			25,886			72,026			74,330
Corporate general and administrative expenses	25,831			19,052			71,458			54,672
Amortization of definite-lived intangible and other assets	43,368			47,807			132,299			137,197
Research and development expenses	2,551			745			5,053			3,055
Gain on asset dispositions	(34		)	(3,311		)	(53,531		)	(5,982		)
Total operating expenses	567,444			539,841			1,620,191			1,569,851
Operating income	103,447			153,994			379,924			369,407
OTHER INCOME (EXPENSE):
Interest expense and amortization of debt discount and deferred financing costs	(51,743		)	(53,488		)	(160,020		)	(156,819		)
Loss from extinguishment of debt	—			(23,699		)	(1,404		)	(23,699		)
(Loss) income from equity and cost method investments	(4,362		)	1,423			(4,221		)	2,789
Other income, net	2,342			789			5,601			2,355
Total other expense, net	(53,763		)	(74,975		)	(160,044		)	(175,374		)
Income before income taxes	49,684			79,019			219,880			194,033
INCOME TAX PROVISION	(17,118		)	(26,986		)	(70,577		)	(65,771		)
NET INCOME	32,566			52,033			149,303			128,262
Net income attributable to the noncontrolling interests	(1,929		)	(1,188		)	(16,820		)	(3,858		)
NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP	$	30,637		$	50,845		$	132,483		$	124,404
Dividends declared per share	$	0.180		$	0.180		$	0.540		$	0.525
BASIC AND DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:
Basic earnings per share	$	0.30		$	0.54		$	1.34		$	1.32
Diluted earnings per share	$	0.30		$	0.54		$	1.32		$	1.30
Weighted average common shares outstanding	102,245			93,948			99,210			94,595
Weighted average common and common equivalent shares outstanding	103,055			94,766			100,173			95,465

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands) (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net income	$	32,566		$	52,033		$	149,303		$	128,262
Comprehensive income	32,566			52,033			149,303			128,262
Comprehensive income attributable to the noncontrolling interests	(1,929		)	(1,188		)	(16,820		)	(3,858		)
Comprehensive income attributable to Sinclair Broadcast Group	$	30,637		$	50,845		$	132,483		$	124,404

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

(in thousands) (Unaudited)



	Sinclair Broadcast Group Shareholders
	Class A Common Stock					Class B Common Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
	Shares		Values			Shares	Values		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
BALANCE, December 31, 2015	68,792,483		$	688		25,928,357	$	259	$	962,726		$	(437,029	)	$	(834	)	$	(26,132	)	$	499,678
Cumulative effect of adoption of new accounting standards	—		—			—	—		431			1,833			—			—			2,264
Dividends declared and paid on Class A and Class B Common Stock	—		—			—	—		—			(49,667		)	—			—			(49,667		)
Repurchases of Class A Common Stock	(3,610,201	)	(37		)	—	—		(101,127		)	—			—			—			(101,164		)
Class A Common Stock issued pursuant to employee benefit plans	364,319		4			—	—		14,865			—			—			—			14,869
Distributions to noncontrolling interests	—		—			—	—		—			—			—			(8,363		)	(8,363		)
Issuance of subsidiary stock awards	—		—			—	—		—			—			—			787			787
Net income	—		—			—	—		—			124,404			—			3,858			128,262
BALANCE, September 30, 2016	65,546,601		$	655		25,928,357	$	259	$	876,895		$	(360,459	)	$	(834	)	$	(29,850	)	$	486,666

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

(In thousands) (Unaudited)



	Sinclair Broadcast Group Shareholders
	Class A Common Stock					Class B Common Stock			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
	Shares		Values			Shares	Values		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total Equity (Deficit)
BALANCE, December 31, 2016	64,558,207		$	646		25,670,684	$	257	$	843,691		$	(255,804	)	$	(807	)	$	(30,047	)	$	557,936
Issuance of common stock, net of issuance costs	12,000,000		120			—	—		487,763			—			—			—			487,883
Dividends declared and paid on Class A and Class B Common Stock	—		—			—	—		—			(53,049		)	—			—			(53,049		)
Repurchases of Class A Common Stock	(997,300	)	(10		)	—	—		(30,277		)	—			—			—			(30,287		)
Class A Common Stock issued pursuant to employee benefit plans	471,617		4			—	—		16,978			—			—			—			16,982
Distributions to noncontrolling interests, net	—		—			—	—		—			—			—			(20,469		)	(20,469		)
Net income	—		—			—	—		—			132,483			—			16,820			149,303
BALANCE, September 30, 2017	76,032,524		$	760		25,670,684	$	257	$	1,318,155		$	(176,370	)	$	(807	)	$	(33,696	)	$	1,108,299

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

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SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (Unaudited)



	Nine Months Ended September 30,
	2017			2016
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income	$	149,303		$	128,262
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation of property and equipment	72,026			74,330
Amortization of definite-lived intangible and other assets	132,299			137,197
Amortization of program contract costs and net realizable value adjustments	87,962			96,722
Loss on extinguishment of debt, non-cash portion	1,404			3,875
Stock-based compensation expense	12,905			13,470
Deferred tax provision (benefit)	(13,285		)	6,631
Gain on asset dispositions	(53,531		)	(5,982		)
Change in assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable	2,167			(77,118		)
Increase in prepaid expenses and other current assets	(1,057		)	(4,344		)
(Decrease) increase in accounts payable and accrued liabilities	(28,237		)	36,286
Net change in net income taxes payable/receivable	(21,571		)	(8,411		)
Payments on program contracts payable	(84,499		)	(84,625		)
Other, net	22,525			13,967
Net cash flows from operating activities	278,411			330,260

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment	(55,463		)	(68,601		)
Acquisition of businesses, net of cash acquired	(269,799		)	(425,856		)
Purchase of alarm monitoring contracts	(5,682		)	(29,143		)
Proceeds from sale of non-media business	192,634			16,396
Investments in equity and cost method investees	(22,302		)	(34,224		)
Loans to affiliates	—			(19,500		)
Other, net	(550		)	3,401
Net cash flows used in investing activities	(161,162		)	(557,527		)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable and commercial bank financing	166,041			1,011,312
Repayments of notes payable, commercial bank financing and capital leases	(318,309		)	(653,987		)
Net proceeds from the sale of Class A Common Stock	487,883			—
Dividends paid on Class A and Class B Common Stock	(53,049		)	(49,667		)
Distributions to noncontrolling interests	(20,469		)	(8,363		)
Repurchase of outstanding Class A Common Stock	(30,287		)	(101,164		)
Payments for deferred financing cost	(731		)	(15,598		)
Other, net	(6,119		)	(693		)
Net cash flows from financing activities	224,960			181,840
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	342,209			(45,427		)
CASH AND CASH EQUIVALENTS, beginning of period	259,984			149,972
CASH AND CASH EQUIVALENTS, end of period	$	602,193		$	104,545

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

As of September 30, 2017, our broadcast distribution platform is a single reportable segment for accounting purposes. It consists primarily of our broadcast television stations, which we own, provide programming and operating services pursuant to agreements commonly referred to as local marketing agreements (LMAs), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as joint sales agreements (JSAs) and shared services agreements (SSAs)) to 192 stations in 89 markets. These stations broadcast 586 channels, as of September 30, 2017. For the purpose of this report, these 192 stations and 586 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 nine months ended September 30, 2017 and 2016 are unaudited. In the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statement of equity (deficit) and consolidated statements of cash flows for these periods as adjusted for the adoption of recent accounting pronouncements discussed below.

As permitted under the applicable rules and regulations of the Securities and Exchange Commission (SEC), the consolidated financial statements do not include all disclosures normally included with audited consolidated financial statements and, accordingly, should be read together with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC. The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

Variable Interest Entities

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

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

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of the agreements and the significance of our investment in the stations, we are the primary beneficiary when, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and we absorb losses and returns that would be considered significant to the VIEs. The fees paid between us and the licensees pursuant to these arrangements are eliminated in consolidation. Several of these VIEs are owned by a related party, Cunningham Broadcasting Corporation (Cunningham). See Note 7. Related Person Transactions for more information about the arrangements with Cunningham. See Changes in the Rules of Television Ownership, Joint Sales Agreements, Retransmission Consent Negotiations, and National Ownership Cap within Note 4. Commitments and Contingencies for discussion of recent changes in Federal Communications Commission (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):



	September 30, 2017		December 31, 2016
ASSETS
Current assets:
Restricted cash	$	122,948	$	—
Accounts receivable	18,820		21,879
Other current assets	12,851		12,076
Total current assets	154,619		33,955

Program contract costs, less current portion	1,091		2,468
Property and equipment, net	6,418		2,996
Goodwill and indefinite-lived intangible assets	16,475		16,475
Definite-lived intangible assets, net	76,487		79,509
Other assets	5,601		6,871
Total assets	$	260,691	$	142,274

LIABILITIES
Current liabilities:
Deferred spectrum auction proceeds	$	122,948	$	—
Other current liabilities	23,899		18,992

Long-term liabilities:
Notes payable, capital leases and commercial bank financing, less current portion	15,043		19,449
Program contracts payable, less current portion	12,063		14,353
Other long-term liabilities	8,452		12,921
Total liabilities	$	182,405	$	65,715

The amounts above represent the consolidated assets and liabilities of the VIEs described above, for which we are the primary beneficiary, and have been aggregated as they all relate to our broadcast business. Excluded from the amounts above are payments made to Cunningham under the LMAs and certain outsourcing agreements which are treated as a prepayment of the purchase price of the stations and capital leases between us and Cunningham which are eliminated in consolidation. The total payments made under these LMAs and certain JSAs as of September 30, 2017 and December 31, 2016, which are excluded from liabilities above, were $42.8 million and $40.8 million, respectively. The total capital lease liabilities, net of capital lease assets, excluded from the above were $4.7 million and $4.5 million for the years ended September 30, 2017 and December 31, 2016, respectively. Also excluded from the amounts above are liabilities associated with certain outsourcing agreements and purchase options with certain VIEs totaling $78.1 million and $74.5 million as of September 30, 2017 and December 31, 2016, respectively, as these amounts are eliminated in consolidation. The assets of each of these consolidated VIEs can only be used to settle the obligations of the VIE. All the liabilities are non-recourse to us except for certain debt of VIEs which we guarantee. The risk and reward characteristics of the VIEs are similar.

Other investments. We have investments in real estate ventures and investment companies which are considered VIEs. However, we do not participate in the management of these entities including the day-to-day operating decisions or other decisions which

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

The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary as of September 30, 2017 and December 31, 2016 are $105.2 million and $117.0 million, respectively, and are included in other assets in the consolidated balance sheets. Our maximum exposure is equal to the carrying value of our investments. The income and loss related to these investments are recorded in income from equity and cost method investments in the consolidated statement of operations. We recorded loss of $1.3 million and income of $2.1 million for the three and nine months ended September 30, 2017, and income of $1.4 million and $2.8 million for the three and nine months ended September 30, 2016, respectively.

Use of Estimates

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

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

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. The new standard will be effective for annual reporting periods beginning after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. Since ASU 2014-09 was issued, several additional ASUs have been issued and incorporated within ASC 606 to clarify various elements of the guidance. We have not finalized our assessment of the impact of this guidance on our consolidated financial statements. However, we do not currently believe that the adoption of this guidance will have a material impact on our station advertising or retransmission consent revenue. We have determined that under the new standard, certain barter revenue and expense related to syndicated programming will no longer be recognized. Barter revenues and expenses for the three and nine months ending September 30, 2017 was $26.4 million and $76.4 million, respectively.

In January 2016, the FASB issued new guidance which address certain aspects of recognition, measurement, presentation, and disclose of financial instruments. The new guidance requires entities to measure equity investments (except those accounted for under the equity method of accounting or those that resulted in consolidation of the investee) at fair value, with changes in fair value recognized in net income. The new standard is effective for the interim and annual periods beginning after December 15, 2017. We are currently evaluating the impact of this guidance on our consolidated financial statements.

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

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

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

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

In November 2016, FASB issued new guidance related to the classification and presentation of changes in restricted cash on the statement of cash flows. This new standard requires that a statement of cash flow explain change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling from period to period as shown on the cash flow. The new standard is effective for the fiscal year beginning after December 15, 2017, including the interim periods within that reporting period. Early adoption is permitted. Upon adoption, we will retrospectively reconcile the consolidated statement of cash flows to the restricted cash balance included in the consolidated balance sheet for the period presented in our financial statements. We are currently evaluating the method of presentation on our financial statements.

In January 2017, the FASB issued guidance which clarifies the definition of a business with additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard should be applied prospectively and is effective for the interim and annual periods beginning after December 15, 2017. We do not expect the adoption of this guidance will have a material impact on our financial statements.

In January 2017, the FASB issued guidance which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. The new standard should be applied prospectively and is effective for the interim and annual periods beginning after December 15, 2019. Early adoption is permitted. We adopted this guidance during the first quarter of 2017. The impact of the adoption did not have a material impact on our financial statements.

In May 2017, the FASB issued new guidance which relates to stock based compensation and clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new standard is effective for the interim and annual periods beginning after December 15, 2017. We adopted this guidance during the second quarter of 2017. The impact of the adoption did not have a material impact on our financial statements.

Broadcast Incentive Auction

Congress authorized the FCC to conduct so-called “incentive auctions” to auction and re-purpose broadcast television spectrum for mobile broadband use. Pursuant to the auction, television broadcasters submitted bids to receive compensation for relinquishing all or a portion of its rights in the television spectrum of their full-service and Class A stations. Low power stations were not eligible to participate in the auction and are not protected and therefore may be displaced or forced to go off the air as a result of the post-auction repacking process. On April 13, 2017, the FCC issued a public notice which announced the conclusion of the spectrum auction. In July 2017, we received $310.8 million of gross proceeds from the auction. These proceeds are reflected as restricted cash because we directed the FCC to deposit those proceeds with the qualifying intermediaries accounts to facilitate potential like kind exchange transactions.

We are limited in our ability to access this cash for a period of time which ends at the earlier of the date that we close on the acquisition of qualifying replacement property or 180 days from the date that the cash was received. We received the auction proceeds in advance of vacating the spectrum sold in the auction; as a result, we have recorded a corresponding deferred liability of $310.8 million. We expect to recognize a gain of approximately $308.2 million once we vacate/cease using the spectrum sold in the auction which we expect will occur during the first quarter of 2018. The results of the auction are not expected to produce any material change in operations of the Company as there is no change in on air operations.

In the repacking process associated with the auction, the FCC has reassigned some stations to new post-auction channels. We do not expect reassignment to new channels to have a material impact on our coverage. We have received notification from the FCC that 98 of our stations have been assigned to new channels. The legislation authorizing the incentive auction provides the FCC with a $1.75 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. We expect that the reimbursements from the fund will cover the majority of our expenses related to the repack. However, we cannot predict whether the fund will be sufficient to reimburse all of our expenses. The sufficiency of the fund is dependent upon a number of factors including the amounts to be reimbursed to other industry participants for repacking costs.

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Revenue Recognition

Total revenues include: (i) station advertising revenue, net of agency commissions; (ii) barter advertising revenues; (iii) retransmission consent fees; (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.

Income Taxes

Our income tax provision for all periods consists of federal and state income taxes. The tax provision for the three and nine months ended September 30, 2017 and 2016 is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interests. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. A valuation allowance has been provided for deferred tax assets related to a substantial portion of our available state net operating loss (NOL) carryforwards, based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income.

Our effective income tax rate for the three and nine months ended September 30, 2017 and 2016, approximated the statutory rate.

Equity Offering

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

Share Repurchase Program

On March 20, 2014, the Board of Directors authorized a $150.0 million share repurchase authorization. On September 6, 2016 the Board of Directors authorized an additional $150.0 million shares repurchases authorization. There is no expiration date and currently, management has no plans to terminate this program. For the three and nine months ended September 30, 2017, we purchased approximately 1.0 million shares of Class A Common Stock for $30.3 million. As of September 30, 2017, the total remaining repurchase authorization is $88.8 million.

Subsequent Events

In October 2017, our Board of Directors declared a quarterly dividend of $0.18 per share, payable on December 15, 2017 to holders of record at the close of business on December 1, 2017.

Reclassifications

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

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2. ACQUISITIONS AND DISPOSITION OF ASSETS:

2017 Acquisitions.

Bonten . On September 1, 2017, we acquired the stock of Bonten Media Group Holdings, Inc. (Bonten) and Cunningham acquired the membership interest of Esteem Broadcasting (Esteem) for an aggregate purchase price of $240 million plus a working capital adjustment, excluding cash acquired, of $1.3 million accounted for as a business combination under the acquisition method of accounting. As a result of the transaction we added 14 television stations in 8 markets: Tri-Cities, TN/VA; Greensville/New Bern/Washington, NC; Chico/Redding, CA; Abilene/Sweetwater, TX; Missoula, MT; Butte/Bozeman, MT; San Angelo, TX; and Eureka, CA. Cunningham assumed the joint sales agreement under which we will provide services to 4 additional stations. The transaction was funded through cash on hand. The acquisition will expand our regional presence in several states where we already operate and help us bring improvements to small market stations.

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



Accounts receivable	14,665
Prepaid expenses and other current assets	699
Program contract costs	683
Property and equipment	23,019
Definite-lived intangible assets	157,979
Indefinite-lived intangible assets	8,363
Other assets	3,609
Accounts payable and accrued liabilities	(8,481		)
Program contracts payable	(783		)
Deferred tax liability	(65,789		)
Other long term liabilities	(3,409		)
Fair value of identifiable net assets acquired	130,555
Goodwill	110,716
Total purchase price, net of cash acquired	$	241,271

The preliminary purchase price allocation presented above is based upon management’s estimate of the fair value of the acquired assets and assumed liabilities using valuation techniques including income, cost and market approaches. 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 allocation is preliminary pending a final determination of the fair value of the assets and liabilities.

The definite-lived intangible assets of $158.0 million is comprised of network affiliations of $49.5 million and customer relationships of $108.5 million. These intangible assets will be amortized over a weighted average useful life of 14 years for network affiliations and other intangible assets. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies. We expect that goodwill deductible for tax purposes will be approximately $5.6 million.

In connection with the acquisition for the three and nine months ended September 30, 2017, we incurred a total of $0.3 million and $0.8 million, respectively, of costs primarily related to legal and other professional services which we expensed as incurred and classified as corporate general and administrative expenses in the consolidated statements of operations. Net revenues and operating income of the Bonten stations in our consolidated statements of operations, were $7.6 million and $0.9 million for the three and nine months ended September 30, 2017.

Other 2017 Acquisitions. During 2017, we acquired certain media assets for an aggregate $27 million, less working capital of $2.8 million. The transactions were funded with cash on hand.

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2016 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, excluding cash acquired, of $4.1 million accounted for as a business combination under the acquisition method of accounting. The transaction was funded through cash on hand and a draw on the Bank Credit Agreement. The acquisition provides an expansion of our network business and increases value based on the synergies we can achieve. Tennis is reported within Other within Note 6. Segment Data.

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



Accounts receivable	17,629
Prepaid expenses and other current assets	6,518
Property and equipment	5,964
Definite-lived intangible assets	272,686
Indefinite-lived intangible assets	23,400
Other assets	619
Accounts payable and accrued liabilities	(7,414		)
Capital leases	(115		)
Deferred tax liability	(16,991		)
Other long term liabilities	(1,669		)
Fair value of identifiable net assets acquired	300,627
Goodwill	53,427
Total purchase price, net of cash acquired	$	354,054

The purchase price allocation presented above is based upon management’s estimate of the fair value of the acquired assets and assumed liabilities using valuation techniques including income, cost and market approaches. 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 definite-lived intangible assets of $272.7 million related primarily to customer relationships, which represent existing advertiser relationships and contractual relationships with multi-channel video programming distributors (MVPDs) and will be amortized over a weighted average useful life of 15 years. Acquired property and equipment will be depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships, as well as expected future synergies. Goodwill will not be deductible for tax purposes.

In connection with the acquisition, for the year ended December 31, 2016, we incurred a total of $0.2 million of costs primarily related to legal and other professional services which we expensed as incurred and classified as corporate general and administrative expenses in the consolidated statements of operations.

Net revenues of Tennis included in our consolidated statements of operations, were $33.9 million and $103.2 million for the three and nine months ended September 30, 2017, and $27.4 million and $62.5 million for the three and nine months ended September 30, 2016, respectively. Our consolidated statements of operations included operating income of Tennis of $3.0 million and $8.1 million for the three and nine months ended September 30, 2017, respectively, and an operating income of $1.3 million and an operating loss of $9.6 million for the three and nine months ended September 30, 2016, respectively.

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

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Pro Forma Information. The following table sets forth unaudited results of operations, assuming that Bonten for the three and nine months ended September 30, 2017 and 2016 and that Tennis for the nine months ended September 30, 2016, 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 other acquisitions discussed above, as they were deemed not material both individually and in the aggregate (in thousands, except per share data):



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Total revenues	$	685,382	$	714,451	$	2,056,790	$	2,014,195
Net Income	$	34,303	$	54,437	$	155,532	$	134,504
Net Income attributable to Sinclair Broadcast Group	$	32,374	$	53,249	$	138,712	$	130,646
Basic earnings per share attributable to Sinclair Broadcast Group	$	0.32	$	0.57	$	1.40	$	1.38
Diluted earnings per share attributable to Sinclair Broadcast Group	$	0.31	$	0.56	$	1.38	$	1.37

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 Bonten or Tennis for the periods 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 and any adjustments to interest expense to reflect the debt financing of the transactions, if applicable. 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.

Pending Acquisitions. In May 2017, we entered into a definitive agreement to acquire the stock of Tribune Media Company (Tribune) for $43.50 per share, for an aggregate purchase price of approximately $3.9 billion, plus the assumption or refinancing of approximately $2.7 billion in net debt. Under the terms of the agreement, Tribune stockholders will receive $35.00 in cash and 0.23 shares of Sinclair Class A common stock for each share of Tribune Class A common stock and Class B common stock they own. Tribune owns or operates 42 television stations in 33 markets, cable network WGN America, digital multicast network Antenna TV, minority stakes in the TV Food Network, ThisTV, and CareerBuilder, and a variety of real estate assets. Tribune’s stations consists of 14 FOX, 12 CW, 6 CBS, 3 ABC, 2 NBC, 3 MyNetworkTV affiliates and 2 independent stations. We expect the transaction will close during the first quarter of 2018, as well as customary closing conditions, including antitrust clearance and approval by the FCC. We expect to fund the purchase price through a combination of cash on hand, fully committed debt financing, and by accessing the capital markets. In October 2017, Tribune shareholders held a meeting and voted to approve the merger agreement. See Note 3. Notes Payable and Commercial Bank Financing for further discussion on debt financing.

2017 Dispositions

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

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3. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:

Bank Credit Agreement

On January 3, 2017, we amended our bank credit agreement. We extended the maturity date of the Term Loan B from April 9, 2020 and July 31, 2021 to January 3, 2024. In connection with the extension, we added additional operating flexibility, including a reduction in certain pricing terms related to Term Loan B and our existing revolving credit facility (Revolver) and revisions to certain covenant ratio requirements. The Term Loan B and Revolver bear interest at LIBOR plus 2.25% and 2.00%, respectively. We incurred approximately $11.6 million of financing costs in connection with the amendment, of which $3.4 million related to an original issuance discount, $7.7 million was expensed, and $0.5 million was capitalized as a deferred financing cost as of September 30, 2017. Additionally, unamortized deferred financing costs of $1.4 million were written off as loss on extinguishment in the consolidated statement of operations in the first quarter of 2017 related to this amendment. As of September 30, 2017 and December 31, 2016, the Term Loan B balance net of deferred financing costs and debt discounts was $1,346.7 million and $1,353.5 million, respectively.

As of September 30, 2017 and December 31, 2016, there was no outstanding balance under our revolving credit facility. As of September 30, 2017, we had $484.4 million of borrowing capacity under our revolving credit facility.

Commitment Letters and Incremental Term B Facility related to Tribune Acquisition

In connection with the pending acquisition of Tribune discussed in Note 2. Acquisitions and Disposition of Assets, we entered into financing commitment letters (Commitment Letters) with certain financial institutions for (i) a seven-year senior secured incremental term loan B facility of up to $3.747 billion (Incremental Term Loan B Facility) and (ii) a one-year senior unsecured term loan bridge facility of up to $785 million (Bridge Facility) and, together with the Incremental Term B Facility, collectively the (Facilities), convertible into a nine-year extended term loan, for purposes of financing a portion of the cash consideration payable under the terms of the agreement of plan merger between the Company and Tribune (Merger Agreement) and to pay or redeem certain indebtedness of Tribune and its subsidiaries. The Commitment Letters also contemplate certain amendments to our existing credit agreement, as subsequently amended (Existing Credit Agreement) in connection with the Tribune Acquisition to permit the acquisition and to provide for the Incremental Term B Facility in accordance with the terms of the Existing Credit Agreement. The Commitment Letters also provide for the syndication of an incremental revolving credit loan facility commitment of up to $225 million (Incremental Revolving Commitments) to be provided in accordance with the terms of the Existing Credit Agreement. The provision of the Incremental Revolving Commitments is not a condition of the Incremental Term B Facility or the Bridge Facility.

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

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

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

In June 2017, Tribune commenced a consent solicitation, seeking consents from the holders of Tribune notes to amend certain provisions of the indenture governing Tribune's 5.875% Senior Notes due 2022 (Tribune notes), to (i) eliminate any requirement for Tribune to make a "Change of Control Offer," to holders of Tribune notes in connection with the transactions, (ii) clarify the treatment under the Tribune notes of the proposed structure of the transactions and to facilitate the integration of Tribune and its subsidiaries and the Tribune notes with and into the Company's debt capital structure, and (iii) eliminate the expense associated with producing and filing with the SEC separate financial reports for STG, a wholly-owned subsidiary and the television operating subsidiary of the Company, as successor issuer of the Tribune notes, if the Company or any other parent entity of the successor issuer of the Tribune notes, in its sole discretion, provides an unconditional guarantee of the payment obligations of the successor issuer under the Tribune notes. Tribune received the requisite consent from the holders of the Notes and executed a supplemental indenture to amend these provisions of the Tribune indenture. The Company paid a consent fee of $8.25 million to the consenting holders of the Notes.

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4. COMMITMENTS AND CONTINGENCIES:

Litigation

We are a party to lawsuits and claims from time to time in the ordinary course of business. Actions currently pending are in various stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions. After reviewing developments to date with legal counsel, our management is of the opinion that none of our pending and threatened matters are material. The FCC has undertaken an investigation in response to a complaint it received alleging possible violations of the FCC’s sponsorship identification rules by the Company and certain of its subsidiaries. We cannot predict the outcome of any potential FCC action related to this matter but it is possible that such action could include fines and/or compliance programs.

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

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

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

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

In September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the “totality of the circumstances test” for good-faith negotiations of retransmission consent. The proposed rulemaking sought comment on new factors and evidence to consider in the FCC's 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, then-Chairman Wheeler announced that the FCC would not, at such time, proceed to adopt additional rules governing good faith negotiations of retransmission consent. No formal action has yet been taken on this Proposed Rulemaking, and we cannot predict if the full Commission will agree to terminate the Rulemaking without action.

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In August 2016, the FCC completed both its 2010 and 2014 quadrennial reviews of its media ownership rules and issued an order (the "Ownership Order") which left most of the existing multiple ownership rules intact, but amended the rules to provide for the attribution of JSAs where two television stations are located in the same market, and a party with an attributable ownership interest in one station sells more than 15% of the advertising time per week of the second station. The Ownership Order also provides that JSAs that existed prior to March 31, 2014, will not be counted as attributable and may remain in place until October 1, 2025, at which point they must be terminated, amended or otherwise come into compliance with the rules. These "grandfathered" JSAs may be transferred or assigned without terminating the grandfathering status relief. Among other things, the television JSA attribution rule could limit our future ability to create duopolies or other two-station operations in certain markets. We cannot predict whether we will be able to terminate or restructure such arrangements prior to October 1, 2025, on terms that are as advantageous to us as the current arrangements. The revenues of these JSA arrangements we earned during the three and nine months ended September 30, 2017 were $15.9 million and $45.1 million, and $16.0 million and $42.5 million during the three and nine months ended September 30, 2016, respectively. The Ownership Order is the subject of an appeal to the U.S. Court of Appeals for the Third Circuit and Petitions for Reconsideration before the FCC. On October 26, 2017, the FCC announced plans to grant in part and deny in part the Petitions for Reconsideration and released a draft Order on Reconsideration to be voted on at the Commission’s November 16, 2017 monthly public meeting. The draft Order on Reconsideration includes, among other things, proposals to (1) eliminate the Newspaper/Broadcast and TV/Radio Cross-Ownership Rules; (2) permit certain TV duopolies in all markets by eliminating the Eight Voices Test and assessing proposed Big-4 station combinations on a case-by-case basis; (3) eliminate attribution of Joint Sales Agreements; and (4) create an incubator program to promote new entry and ownership diversity in the broadcast industry. The draft Order on Reconsideration is subject to change prior to adoption. If adopted, the Order on Reconsideration would be effective 30 days after publication in the Federal Register.

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

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

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

On September 6, 2016, the FCC released an order eliminating the UHF discount (the "UHF Discount Order"). The UHF discount allowed television station owners to recognize the limitation of coverage inherent with UHF stations when calculating compliance with the FCC’s national ownership cap, which prohibits a single entity from owning television stations that reach, in total, more than 39% of all the television households in the nation. All but 34 of the stations we currently own and operate, or to which we provide programming services are UHF. On April 20, 2017, the FCC acted on a Petition for Reconsideration of the UHF Discount Order and adopted an Order on Reconsideration which reinstated the UHF Discount, which was to become effective June 5, 2017. The Order on Reconsideration also announced the FCC's plans to open a rulemaking proceeding later this year to consider whether to modify the national audience reach rule, including the UHF discount. A petition for judicial review of the Order on Reconsideration was filed at the U.S. Court of Appeals for the D.C. Circuit on May 12, 2017. Sinclair has filed to intervene in support of the FCC. Prior to the effective date, the petitioners in that case filed an emergency motion with the court seeking a stay of the Order on Reconsideration pending judicial review. The D.C. Circuit Court of Appeals entered an administrative stay of the Order on Reconsideration pending its review of the emergency stay motion. On June 15, 2017, the court issued an order dissolving the administrative stay and denying the emergency stay motion. The Order on Reconsideration became effective immediately upon release of the court's order, as a result of which the UHF discount remains in effect. The petitioners filed their brief in the D.C. Circuit Court of Appeals on September 25, 2017. The FCC's brief is currently due November 7, 2017, and the intervenor's brief is currently due November 14, 2017. Petitioners' reply brief is due December 5, 2017. We cannot predict the outcome of this proceeding. With the application of the UHF discount, counting all our present stations, we reach approximately 25% of U.S. households. With the pending Tribune transaction, absent divestitures, we would exceed the 39% cap, even with the application of the UHF discount. Changes to the national ownership cap could limit our ability to make television station acquisitions.

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5. EARNINGS PER SHARE:

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Income (Numerator)
Net income	$	32,566		$	52,033		$	149,303		$	128,262
Net income attributable to noncontrolling interests	(1,929		)	(1,188		)	(16,820		)	(3,858		)
Numerator for basic and diluted earnings per common share available to common shareholders	$	30,637		$	50,845		$	132,483		$	124,404

Shares (Denominator)
Weighted-average common shares outstanding	102,245			93,948			99,210			94,595
Dilutive effect of stock-settled appreciation rights and outstanding stock options	810			818			963			870
Weighted-average common and common equivalent shares outstanding	103,055			94,766			100,173			95,465

The following table shows the weighted-average stock-settled appreciation rights and outstanding stock options (in thousands) that are excluded from the calculation of diluted earnings per common share as the inclusion of such shares would be anti-dilutive:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Weighted-average stock-settled appreciation rights and outstanding stock options excluded	1,150	525	383	525

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6. SEGMENT DATA:

We measure segment performance based on operating income (loss). Our broadcast segment includes stations in 89 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 $172.7 million and $226.5 million of intercompany loans between the broadcast segment, other, and corporate as of September 30, 2017 and 2016, respectively. We had $4.3 million and $6.1 million in intercompany interest expense related to intercompany loans between the broadcast segment, other, and corporate for the three months ended September 30, 2017 and 2016, respectively. We had $14.2 million and $18.3 million in intercompany interest expense for the the nine months ended September 30, 2017 and 2016, respectively. All other intercompany transactions are immaterial.

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



For the three months ended September 30, 2017	Broadcast		Other			Corporate			Consolidated
Revenue	$	610,840	$	60,051		$	—		$	670,891
Depreciation of property and equipment	22,344		1,851			247			24,442
Amortization of definite-lived intangible assets and other assets	38,186		5,182			—			43,368
Amortization of program contract costs and net realizable value adjustments	28,047		—			—			28,047
General and administrative overhead expenses	23,582		224			2,025			25,831
Research and development	—		2,551			—			2,551
Operating income (loss)	115,571		(9,852		)	(2,272		)	103,447
Interest expense	1,281		204			50,258			51,743
Loss from equity and cost method investments	—		(4,362		)	—			(4,362		)
Assets	5,274,895		762,751			649,423			6,687,069



For the three months ended September 30, 2016	Broadcast		Other			Corporate			Consolidated
Revenue	$	635,559	$	58,276		$	—		$	693,835
Depreciation of property and equipment	24,195		1,425			266			25,886
Amortization of definite-lived intangible assets and other assets	38,717		9,090			—			47,807
Amortization of program contract costs and net realizable value adjustments	32,441		—			—			32,441
General and administrative overhead expenses	17,530		247			1,275			19,052
Research and development	—		745			—			745
Operating income (loss)	158,666		(3,077		)	(1,595		)	153,994
Interest expense	1,404		1,664			50,420			53,488
Income from equity and cost method investments	—		611			812			1,423

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Nine months ended September 30, 2017	Broadcast		Other				Corporate			Consolidated
Revenue	$	1,821,248	$	178,867			$	—		$	2,000,115
Depreciation of property and equipment	65,850		5,438				738			72,026
Amortization of definite-lived intangible assets and other assets	114,810		17,489				—			132,299
Amortization of program contract costs and net realizable value adjustments	87,962		—				—			87,962
General and administrative overhead expenses	65,059		785				5,614			71,458
Research and development	—		5,053				—			5,053
Operating income (loss)	361,259		25,016			(a)	(6,351		)	379,924
Interest expense	3,976		1,633				154,411			160,020
Loss from equity and cost method investments	—		(4,221		)		—			(4,221		)

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



Nine months ended September 30, 2016	Broadcast		Other			Corporate			Consolidated
Revenue	$	1,790,561	$	148,697		$	—		$	1,939,258
Depreciation of property and equipment	69,469		4,063			798			74,330
Amortization of definite-lived intangible assets and other assets	117,038		20,159			—			137,197
Amortization of program contract costs and net realizable value adjustments	96,722		—			—			96,722
General and administrative overhead expenses	50,320		1,075			3,277			54,672
Research and development	—		3,055			—			3,055
Operating income (loss)	402,236		(28,699		)	(4,130		)	369,407
Interest expense	4,297		4,695			147,827			156,819
Income from equity and cost method investments	—		414			2,375			2,789

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7. RELATED PERSON TRANSACTIONS:

Transactions with our controlling shareholders

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

Leases. Certain assets used by us and our operating subsidiaries are leased from Cunningham Communications Inc., Keyser Investment Group, Gerstell Development Limited Partnership and Beaver Dam, LLC (entities owned by the controlling shareholders). Lease payments made to these entities were $1.3 million for both the three months ended September 30, 2017 and 2016, and $3.9 million and $3.8 million for the nine months ended September 30, 2017 and 2016, respectively.

Charter Aircraft. We lease aircraft owned by certain controlling shareholders. For all leases, we incurred expenses of $0.4 million and $0.3 million for the three months ended September 30, 2017 and 2016, and $1.3 million and $1.0 million for the for the nine months ended September 30, 2017 and 2016, 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; WGTU-TV/WGTQ-TV Traverse City/Cadillac, Michigan, and beginning in September 2017, WEMT-TV Tri-Cities, Tennessee, WYDO-TV Greenville, North Carolina, KBVU-TV Eureka, California, KCVU-TV Chico-Redding, California, and WPFO-TV Portland, Maine (collectively, the Cunningham Stations). Certain of our stations provide services to these Cunningham Stations pursuant to LMAs or JSAs and SSAs. See Note 1. Nature of Operations and Summary of Significant Accounting Policies, for further discussion of the scope of services provided under these types of arrangements.

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

The services provided to WNUV-TV, WMYA-TV, WTTE-TV, WRGT-TV and WVAH-TV are governed by a master agreement which has a current term that expires on July 1, 2023 and there are two additional 5- year renewal terms remaining with final expiration on July 1, 2033. We also executed purchase agreements to acquire the license related assets of these stations from Cunningham, which grant us the right to acquire, and grant Cunningham the right to require us to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock or the assets of these individual subsidiaries of Cunningham. Pursuant to the terms of this agreement we are obligated to pay Cunningham an annual fee for the television stations equal to the greater of (i) 3% of each station’s annual net broadcast revenue and (ii) $4.7 million. The aggregate purchase price of these television stations increases by 6% annually. A portion of the fee is required to be applied to the purchase price to the extent of the 6% increase. The remaining aggregate purchase price of these stations as of September 30, 2017 was approximately $53.6 million. Additionally, we provide services to WDBB-TV pursuant to an LMA, which expires April 22, 2025, and own a purchase option to acquire for $0.2 million. We paid Cunningham under these agreements, $2.4 million and $2.1 million for the three months ended September 30, 2017 and 2016, and $6.4 million and $6.6 million for the nine months ended September 30, 2017 and 2016, respectively.

In September 2017, Cunningham acquired the membership interest of Esteem Broadcasting in connection with our acquisition of Bonten Media Group, as discussed in Note 2. Acquisitions and Disposition of Assets. As a result of the transaction, Cunningham assumed the joint sales agreement under which we will provide services to four stations; WEMT-TV, WYDO-TV, and KBVU-TV/KCVU-TV.

The agreements with KBVU-TV/KCVU-TV, WBSF-TV, WEMT-TV, WGTU-TV/WGTQ-TV, WPFO-TV, and WYDO-TV expire in December 2020, November 2021, May 2023, August 2023, December 2023, and August 2025 respectively, and each has renewal provisions for successive eight year periods. We earned $6.6 million and $1.4 million from the services we performed for these stations for both the three months ended September 30, 2017 and 2016, and $10.9 million and $3.9 million for the nine months ended September 30, 2017 and 2016, respectively.

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As we consolidate the licensees as VIEs, the amounts we earn or pay under the arrangements are eliminated in consolidation and the gross revenues of the stations are reported within our consolidated statement of operations. Our consolidated revenues related to the Cunningham Stations include $31.4 million and $29.4 million for the three and nine months ended September 30, 2017 and 2016, and $84.5 million and $83.8 million for the nine months ended September 30, 2017 and 2016, respectively.

During January 2016, Cunningham entered into a promissory note to borrow $19.5 million from us. The note bears interest at a fixed rate of 5.0% per annum (the 5.0% Notes), which is payable quarterly, commencing March 31, 2016. The note matures in January 2021, with additional one year renewal periods upon our approval. Interest income was $0.2 million for both the three months ended September 30, 2017 and 2016 and $0.7 million for both the for the nine months ended September 30, 2017 and 2016, respectively.

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

Atlantic Automotive Corporation

We sell advertising time to Atlantic Automotive Corporation (Atlantic Automotive), a holding company that owns automobile dealerships and an automobile leasing company. David D. Smith, our Executive Chairman, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive. We received payments for advertising totaling $0.1 million and $0.3 million for the three months ended September 30, 2017 and 2016, and $0.4 million and $0.6 million, for the nine months ended September 30, 2017 and 2016, respectively. Additionally, Atlantic Automotive leases office space owned by one of our consolidated real estate ventures in Towson, Maryland. In May 2017, our consolidated real estate ventures sold their investment. See Leased property by real estate ventures below for discussion on the sale our consolidated real estate ventures' investment.

Atlantic Automotive paid $0.4 million and $0.8 million in rent for the nine months ended September 30, 2017 and 2016, respectively.

Leased property by real estate ventures

Certain of our real estate ventures have entered into leases with entities owned by David D. Smith to lease space. There are leases for space in a building owned by one of our consolidated real estate ventures in Baltimore, MD. Total rent received under these leases was $0.1 million and $0.2 million for the three months ended September 30, 2017 and 2016, and $0.3 million and $0.5 million for the nine months ended September 30, 2017 and 2016, respectively.

One of our real estate ventures, accounted for under the equity method, owned a building in Towson, MD, which leased restaurant space to entities owned by David D. Smith up until May 2017, when the property was sold to an unrelated party. This investment received less than $0.1 million and $0.2 million in rent pursuant to the lease for the for the nine months ended September 30, 2017 and 2016, respectively.

Payments for services provided by the restaurants to us was less than $0.1 million for both the three months ended September 30, 2017 and 2016, and nine months ended September 30, 2017 and 2016.

Other transactions with equity method investees

In April 2017, we made a $15.0 million investment in 120 Sports LLC, a multi-platform sports network branded as Stadium, which we account for under the equity method. We entered into a services agreement with the entity to provide certain linear distribution, engineering advertising, traffic, sales, and promotional services. For the three months ended September 30, 2017, we did not receive any consideration pursuant to the services agreement.

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8. FAIR VALUE MEASUREMENTS:

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


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


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


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

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



	As of September 30, 2017		As of December 31, 2016
	Carrying Value (a)	Fair Value	Carrying Value (a)	Fair Value
6.125% Senior Unsecured Notes due 2022	500,000	516,170	500,000	521,240
5.875% Senior Unsecured Notes due 2026	350,000	359,342	350,000	351,456
5.625% Senior Unsecured Notes due 2024	550,000	565,637	550,000	562,755
5.375% Senior Unsecured Notes due 2021	600,000	615,714	600,000	617,892
5.125% Senior Unsecured Notes due 2027	400,000	389,156	400,000	382,028
Term Loan A	241,073	241,374	272,198	271,517
Term Loan B	1,359,725	1,361,425	1,365,625	1,364,841
Debt of variable interest entities	20,585	20,585	23,198	23,198
Debt of other operating divisions	27,470	27,470	135,211	135,211

(a) Amounts are carried net of debt discount and deferred financing cost, which are excluded in the above table, of $40.7 million as of September 30, 2017 and $43.4 million as of December 31, 2016.

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9. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:

STG, a wholly-owned subsidiary and the television operating subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under the Bank Credit Agreement, the 5.375% Notes, 5.625% Notes, 6.125% Notes, 5.875% Notes, 5.125% Notes, and until they were redeemed, the 6.375% Notes. Our Class A Common Stock and Class B Common Stock as of September 30, 2017, were obligations or securities of SBG and not obligations or securities of STG. SBG is a guarantor under the Bank Credit Agreement, the 5.375% Notes, 5.625% Notes, 6.125% Notes, 5.875% Notes, 6.125% Notes, and 5.125% Notes, and until they were redeemed, the 6.375% Notes. As of September 30, 2017, our consolidated total debt, net of deferred financing costs and debt discounts, of $4,055.6 million included $4,027.1 million related to STG and its subsidiaries of which SBG guaranteed $3,980.9 million.

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

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

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

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2017

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.		Sinclair Television Group, Inc.		Guarantor Subsidiaries and KDSM, LLC		Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Cash	$	—	$	551,349	$	22,161	$	28,683		$	—		$	602,193
Restricted cash	—		—		187,854		124,948			—			312,802
Accounts receivable	—		—		488,553		34,558			—			523,111
Other current assets	4,063		4,843		139,838		25,511			(22,930		)	151,325
Total current assets	4,063		556,192		838,406		213,700			(22,930		)	1,589,431

Property and equipment, net	1,075		17,814		584,699		133,155			(12,618		)	724,125

Investment in consolidated subsidiaries	1,109,617		3,759,217		4,179		—			(4,873,013		)	—
Goodwill	—		—		2,109,784		3,867			—			2,113,651
Indefinite-lived intangible assets	—		—		153,011		15,709			—			168,720
Definite-lived intangible assets	—		—		1,820,369		80,168			(58,599		)	1,841,938
Other long-term assets	36,255		836,081		102,107		157,903			(883,142		)	249,204
Total assets	$	1,151,010	$	5,169,304	$	5,612,555	$	604,502		$	(5,850,302	)	$	6,687,069

Accounts payable and accrued liabilities	$	207	$	68,816	$	204,821	$	42,129		$	(25,125	)	$	290,848
Deferred spectrum auction proceeds	—		—		187,854		122,948			—			310,802
Current portion of long-term debt	—		154,521		2,357		7,607			—			164,485
Current portion of affiliate long-term debt	479		—		1,388		765			(449		)	2,183
Other current liabilities	—		—		127,097		15,808						142,905
Total current liabilities	686		223,337		523,517		189,257			(25,574		)	911,223

Long-term debt	—		3,806,135		28,954		41,045			—			3,876,134
Affiliate long-term debt	—		—		11,505		343,517			(342,198		)	12,824
Other liabilities	8,329		36,524		1,289,220		181,505			(736,989		)	778,589
Total liabilities	9,015		4,065,996		1,853,196		755,324			(1,104,761		)	5,578,770

Total Sinclair Broadcast Group equity (deficit)	1,141,995		1,103,308		3,759,359		(112,439		)	(4,750,228		)	1,141,995
Noncontrolling interests in consolidated subsidiaries	—		—		—		(38,383		)	4,687			(33,696		)
Total liabilities and equity (deficit)	$	1,151,010	$	5,169,304	$	5,612,555	$	604,502		$	(5,850,302	)	$	6,687,069

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2016

(in thousands)



	Sinclair Broadcast Group, Inc.		Sinclair Television Group, Inc.		Guarantor Subsidiaries and KDSM, LLC		Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Cash	$	—	$	232,297	$	10,675	$	17,012		$	—		$	259,984
Restricted Cash	—		—		200		—			—			200
Accounts receivable	—		—		478,190		37,024			(1,260		)	513,954
Other current assets	5,561		3,143		124,113		25,406			(27,273		)	130,950
Total current assets	5,561		235,440		613,178		79,442			(28,533		)	905,088

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

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

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

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

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

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue	$	—		$	—		$	638,100		$	50,816		$	(18,025	)	$	670,891

Media program and production expenses	—			—			254,956			29,376			(16,339		)	267,993
Selling, general and administrative	2,027			23,534			130,289			3,582			4			159,436
Depreciation, amortization and other operating expenses	247			1,591			111,849			27,158			(830		)	140,015
Total operating expenses	2,274			25,125			497,094			60,116			(17,165		)	567,444

Operating (loss) income	(2,274		)	(25,125		)	141,006			(9,300		)	(860		)	103,447

Equity in earnings of consolidated subsidiaries	32,196			90,445			114			—			(122,755		)	—
Interest expense	(10		)	(50,247		)	(1,013		)	(4,968		)	4,495			(51,743		)
Other income (expense)	(92		)	1,869			(2,673		)	(1,124		)	—			(2,020		)
Total other income (expense)	32,094			42,067			(3,572		)	(6,092		)	(118,260		)	(53,763		)

Income tax benefit (provision)	817			25,364			(46,987		)	3,688			—			(17,118		)
Net income (loss)	30,637			42,306			90,447			(11,704		)	(119,120		)	32,566
Net income attributable to the noncontrolling interests	—			—			—			(1,730		)	(199		)	(1,929		)
Net income (loss) attributable to Sinclair Broadcast Group	$	30,637		$	42,306		$	90,447		$	(13,434	)	$	(119,319	)	$	30,637
Comprehensive income (loss)	$	30,637		$	42,306		$	90,447		$	(11,704	)	$	(119,120	)	$	32,566

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 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	$	—		$	—		$	655,778		$	63,877		$	(25,820	)	$	693,835

Media program and production expenses	—			—			234,474			33,556			(25,150		)	242,880
Selling, general and administrative	1,275			16,969			124,352			3,153			(25		)	145,724
Depreciation, amortization and other operating expenses	266			3,257			115,527			32,571			(384		)	151,237
Total operating expenses	1,541			20,226			474,353			69,280			(25,559		)	539,841

Operating (loss) income	(1,541		)	(20,226		)	181,425			(5,403		)	(261		)	153,994

Equity in earnings of consolidated subsidiaries	51,113			114,060			51			—			(165,224		)	—
Interest expense	(56		)	(50,364		)	(1,117		)	(8,256		)	6,305			(53,488		)
Loss from extinguishment of debt	—			(23,699		)	—			—			—			(23,699		)
Other income (expense)	1,157			469			(27		)	613			—			2,212
Total other income (expense)	52,214			40,466			(1,093		)	(7,643		)	(158,919		)	(74,975		)

Income tax benefit (provision)	172			34,334			(64,535		)	3,043			—			(26,986		)
Net income (loss)	50,845			54,574			115,797			(10,003		)	(159,180		)	52,033
Net income attributable to the noncontrolling interests	—			—			—			(1,180		)	(8		)	(1,188		)
Net income (loss) attributable to Sinclair Broadcast Group	$	50,845		$	54,574		$	115,797		$	(11,183	)	$	(159,188	)	$	50,845
Comprehensive income (loss)	$	50,845		$	54,574		$	115,797		$	(10,003	)	$	(159,180	)	$	52,033

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(in thousands) (unaudited)



	Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			Guarantor Subsidiaries and KDSM, LLC			Non- Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue	$	—		$	—		$	1,901,075		$	157,236		$	(58,196	)	$	2,000,115

Media program and production expenses	—			—			760,642			88,296			(53,798		)	795,140
Selling, general and administrative	5,615			64,903			377,177			9,135			—			456,830
Depreciation, amortization and other operating expenses	738			4,967			335,316			29,248			(2,048		)	368,221
Total operating expenses	6,353			69,870			1,473,135			126,679			(55,846		)	1,620,191

Operating (loss) income	(6,353		)	(69,870		)	427,940			30,557			(2,350		)	379,924

Equity in earnings of consolidated subsidiaries	136,311			274,850			257			—			(411,418		)	—
Interest expense	(81		)	(154,330		)	(3,557		)	(16,740		)	14,688			(160,020		)
Loss from the extinguishment of debt	—			(1,404		)	—			—			—			(1,404		)
Other income	731			3,796			(4,071		)	924			—			1,380
Total other income (expense)	136,961			122,912			(7,371		)	(15,816		)	(396,730		)	(160,044		)

Income tax benefit (provision)	1,875			75,105			(143,059		)	(4,498		)	—			(70,577		)
Net income (loss)	132,483			128,147			277,510			10,243			(399,080		)	149,303
Net income attributable to the noncontrolling interests	—			—			—			(16,608		)	(212		)	(16,820		)
Net income (loss) attributable to Sinclair Broadcast Group	$	132,483		$	128,147		$	277,510		$	(6,365	)	$	(399,292	)	$	132,483
Comprehensive income (loss)	$	132,483		$	128,147		$	277,510		$	10,243		$	(399,080	)	$	149,303

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 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	$	—		$	—		$	1,828,407		$	178,164		$	(67,313	)	$	1,939,258

Media program and production expenses	—			—			679,337			88,378			(65,338		)	702,377
Selling, general and administrative	3,277			53,189			360,793			7,641			(59		)	424,841
Depreciation, amortization and other operating expenses	798			5,666			340,974			96,560			(1,365		)	442,633
Total operating expenses	4,075			58,855			1,381,104			192,579			(66,762		)	1,569,851

Operating (loss) income	(4,075		)	(58,855		)	447,303			(14,415		)	(551		)	369,407

Equity in earnings of consolidated subsidiaries	124,536			289,593			170			—			(414,299		)	—
Interest expense	(192		)	(147,635		)	(3,417		)	(24,258		)	18,683			(156,819		)
Loss from extinguishment of debt	—			(23,699		)	—			—			—			(23,699		)
Other income (expense)	3,386			736			583			439			—			5,144
Total other income (expense)	127,730			118,995			(2,664		)	(23,819		)	(395,616		)	(175,374		)

Income tax benefit (provision)	749			75,470			(150,436		)	8,446			—			(65,771		)
Net income (loss)	124,404			135,610			294,203			(29,788		)	(396,167		)	128,262
Net income attributable to the noncontrolling interests	—			—			—			(3,341		)	(517		)	(3,858		)
Net income (loss) attributable to Sinclair Broadcast Group	$	124,404		$	135,610		$	294,203		$	(33,129	)	$	(396,684	)	$	124,404
Comprehensive income (loss)	$	124,404		$	135,610		$	294,203		$	(29,788	)	$	(396,167	)	$	128,262

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(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	$	(5,605	)	$	(141,239	)	$	433,435		$	(12,959	)	$	4,779		$	278,411
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment	(131		)	(6,088		)	(47,564		)	(2,677		)	997			(55,463		)
Acquisition of businesses, net of cash acquired	—			(8,308		)	(261,491		)	—			—			(269,799		)
Purchase of alarm monitoring contracts	—			—			—			(5,682		)	—			(5,682		)
Proceeds from sale of non-media business	—			—			—			192,634			—			192,634
Investments in equity and cost method investees	(945		)	(1,101		)	(15,469		)	(4,787		)	—			(22,302		)
Other, net	3,903			(7,733		)	541			2,739			—			(550		)
Net cash flows from (used in) investing activities	2,827			(23,230		)	(323,983		)	182,227			997			(161,162		)

CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases	—			159,669			—			6,372			—			166,041
Repayments of notes payable, commercial bank financing and capital leases	—			(200,119		)	(1,367		)	(116,823		)	—			(318,309		)
Proceeds from the issuance of Class A Common Stock	487,883			—			—			—			—			487,883
Dividends paid on Class A and Class B Common Stock	(53,049		)	—			—			—			—			(53,049		)
Repurchase of outstanding Class A Common Stock	(30,287		)	—			—			—			—			(30,287		)
Distributions to noncontrolling interests	—			—			—			(20,469		)	—			(20,469		)
Increase (decrease) in intercompany payables	(400,451		)	524,016			(92,993		)	(24,750		)	(5,822		)	—
Other, net	(1,318		)	(45		)	(3,606		)	(1,927		)	46			(6,850		)
Net cash flows (used in) from financing activities	2,778			483,521			(97,966		)	(157,597		)	(5,776		)	224,960

NET INCREASE IN CASH AND CASH EQUIVALENTS	—			319,052			11,486			11,671			—			342,209
CASH AND CASH EQUIVALENTS, beginning of period	—			232,297			10,675			17,012			—			259,984
CASH AND CASH EQUIVALENTS, end of period	$	—		$	551,349		$	22,161		$	28,683		$	—		$	602,193

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 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	$	(4,060	)	$	(152,724	)	$	451,804		$	17,138		$	18,102		$	330,260
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment	(7		)	(3,626		)	(61,758		)	(3,842		)	632			(68,601		)
Acquisition of businesses, net of cash acquired	—			—			(415,481		)	(10,375		)	—			(425,856		)
Purchase of alarm monitoring contracts	—			—			—			(29,143		)	—			(29,143		)
Investments in equity and cost method investees	(2,945		)	(10,840		)	(34		)	(20,405		)	—			(34,224		)
Proceeds from sale of non-media business	—			—			7,263			9,133			—			16,396
Loans to affiliates	—			(19,500		)	—			—			—			(19,500		)
Other, net	1,714			(1,828		)	(86		)	3,601			—			3,401
Net cash flows from (used in) investing activities	(1,238		)	(35,794		)	(470,096		)	(51,031		)	632			(557,527		)

CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases	—			995,000			—			16,312			—			1,011,312
Repayments of notes payable, commercial bank financing and capital leases	—			(636,547		)	(1,171		)	(16,269		)	—			(653,987		)
Dividends paid on Class A and Class B Common Stock	(49,667		)	—			—			—			—			(49,667		)
Distributions to noncontrolling interests	—			—			—			(8,363		)	—			(8,363		)
Repurchase of outstanding Class A Common Stock	(101,164		)	—			—			—			—			(101,164		)
Increase (decrease) in intercompany payables	158,574			(189,022		)	22,603			26,764			(18,919		)	—
Other, net	(2,445		)	(15,013		)	1,175			(193		)	185			(16,291		)
Net cash flows (used in) from financing activities	5,298			154,418			22,607			18,251			(18,734		)	181,840

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	—			(34,100		)	4,315			(15,642		)	—			(45,427		)
CASH AND CASH EQUIVALENTS, beginning of period	—			115,771			235			33,966			—			149,972
CASH AND CASH EQUIVALENTS, end of period	$	—		$	81,671		$	4,550		$	18,324		$	—		$	104,545

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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, 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 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, such as payola rules;


•	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 agreements;


•	the impact of FCC rules requiring broadcast stations to publish, among other information, political advertising rates online;


•	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;


•	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;


•	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; and


•	fluctuations in advertising rates and availability of inventory.

Risks specific to us


•	our limited ability to obtain FCC approval for any future acquisitions, as well as, in certain cases, customary antitrust clearance and network consents for any future acquisitions;


•	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 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, but not limited to, sports programming, COMET, CHARGE!, TBD 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, 2016 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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Statement of Operations Data:
Media revenues (a)	$	624,169		$	635,269		$	1,858,477		$	1,772,860
Revenues realized from station barter arrangements	31,787			32,061			91,817			92,574
Other non-media revenues	14,935			26,505			49,821			73,824
Total revenues	670,891			693,835			2,000,115			1,939,258

Media production expenses	267,993			242,880			795,140			702,377
Media selling, general and administrative expenses	133,605			126,672			385,372			370,169
Expenses realized from barter arrangements	26,696			27,181			77,491			79,365
Depreciation and amortization expenses (b)	95,857			106,134			292,287			308,249
Other non-media expenses	14,945			20,488			46,921			57,946
Corporate general and administrative expenses	25,831			19,052			71,458			54,672
Research and development expenses	2,551			745			5,053			3,055
Gain on asset dispositions	(34		)	(3,311		)	(53,531		)	(5,982		)
Operating income	103,447			153,994			379,924			369,407

Interest expense and amortization of debt discount and deferred financing costs	(51,743		)	(53,488		)	(160,020		)	(156,819		)
Loss from extinguishment of debt	—			(23,699		)	(1,404		)	(23,699		)
(Loss) income from equity and cost method investees	(4,362		)	1,423			(4,221		)	2,789
Other income, net	2,342			789			5,601			2,355
Income before income taxes	49,684			79,019			219,880			194,033
Income tax provision	(17,118		)	(26,986		)	(70,577		)	(65,771		)
Net income	32,566			52,033			149,303			128,262
Net income attributable to the noncontrolling interests	(1,929		)	(1,188		)	(16,820		)	(3,858		)
Net income attributable to Sinclair Broadcast Group	$	30,637		$	50,845		$	132,483		$	124,404

Basic and Diluted Earnings Per Common Share Attributable to Sinclair Broadcast Group:
Basic earnings per share	$	0.30		$	0.54		$	1.34		$	1.32
Diluted earnings per share	$	0.30		$	0.54		$	1.32		$	1.30



Balance Sheet Data:	September 30, 2017		December 31, 2016
Cash and cash equivalents	$	602,193	$	259,984
Total assets	$	6,687,069	$	5,963,168
Total debt (c)	$	4,055,626	$	4,203,848
Total equity	$	1,108,299	$	557,936

(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 and nine months ended September 30, 2017 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 nine months ended September 30, 2017 and 2016, including comparisons between quarters and expectations for the three months ended December 31, 2017.

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 nine months ended September 30, 2017.

Summary of Significant Events and Financial Highlights from Third Quarter 2017 Events

Acquisitions

•

In September 2017, the Company closed on its purchase of the stock of Bonten Media Group Holdings, Inc. (“Bonten”), and Cunningham Broadcasting Corporation (“Cunningham”) also completed its purchase of the membership interest of Esteem Broadcasting for an aggregate purchase price of $240 million plus a working capital, excluding cash acquired, of $1.3 million. As a result of the transaction, the Company added 14 television stations in 8 markets and Cunningham assumed the joint sales agreements under which the Company will provide services to 4 additional stations. The acquisition was funded through cash on hand.

•

In October 2017, more than 99% of Tribune stockholders voted to approve the Company’s announced acquisition of 100% of the outstanding shares of Tribune for $43.50 per share, or an aggregate purchase price of $3.9 billion, plus the assumption of $2.7 billion in net debt. The Company expects the transaction will close in early 2018 subject to customary closing conditions, including approval by the Federal Communications Commission (“FCC”) and antitrust clearance. The Company expects to fund the purchase price at closing through a combination of cash on hand, fully committed debt financing and by accessing the capital markets.

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Content and Distribution


•	In August 2017, the Company announced an agreement for all of its ABC, CBS, FOX and NBC affiliates to be carried in their respective markets as YouTube TV launches in those markets. As part of this agreement, YouTube TV will also deliver Tennis Channel to all of its members.


•	In August 2017, the Company announced a multi-year deal with Fox Broadcasting Company ("FOX") that renews station affiliation agreements for all five of Sinclair's Fox Affiliations that were at the end of their terms. The affiliations renewed were for WACH in Columbia, South Carolina; KFOX in El Paso, Texas; KRXI in Reno Nevada; WFXL in Albany, Georgia; and WSBT in South Bend, Indiana.

•

In September 2017, the Company entered into a multi-year deal with CBS Corporation that renews three station affiliation that were set to expire at the end of 2018. In addition, CBS renewed an affiliation that was set to expire at the end of 2018 with a station that Sinclair provides sales and other services to under a joint sales agreement. The three stations owned by the Company are KGAN in Cedar Rapids, Iowa, KGBT in Harlingen, Texas, and WGME in Portland, Maine. The station to which the Company provides services to is WTVH in Syracuse, N.Y.


•	In October 2017, the Company’s professional wrestling promotion Ring of Honor expanded distribution into French-speaking Canada, on the channel Reseau des Sports, making it available to over 2 million homes in Canada.


•	In October 2017, the Company entered into an agreement with Sony Vue under which Sony Vue will include Sinclair's ABC, CBS, FOX, and NBC affiliates station broadcast as well as Tennis, MyNetworkTV, and Comet on their platform.

ATSC 3.0

•

In July 2017, ONE Media entered into a definitive services agreement with Saankhya Labs for the design of a next-generation chip for ATSC 3.0 fixed and mobile reception. The parties also agreed to an investment in Saankhya Labs to provide such chips to the market. These agreements follow the previously announced incubation stage agreement between the parties that initiated the design of a new software defined radio chip architecture to support the first mobile next-generation chipset.

Financing and Shareholder Returns


•	In August 2017, the Board of Directors declared a quarterly dividend of $0.18 per share, paid on September 15, 2017 to holders of record at the close of business on September 1, 2017.


•	In October 2017, the Board of Directors declared a quarterly dividend of $0.18 per share, payable on December 15, 2017 to the holders of record at the close of business on December 1, 2017.


•	For both the three and nine months ended September 30, 2017, we purchased approximately 1.0 million shares of Class A Common Stock for $30.3 million. As of September 30, 2017, the total remaining authorization was $88.8 million.

Other Events


•	In August 2017, the Company awarded seven young students from diverse background the annual Broadcast Diversity Scholarship to assist them with the funds needed to help them earn college degrees in broadcast-related fields.


•	In September 2017, the Company held the "Standing Strong for Texas" relief effort, in which viewers in our markets generously contributed almost $1.4 million to the Salvation Army. In addition, the Company donated $100,000 bringing the total to almost $1.5 million.

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RESULTS OF OPERATIONS

The results of the businesses acquired during 2017 and 2016 are included in our results of operations from their respective dates of acquisition. See Note 2. Acquisitions and Disposition of Assets in our consolidated financial statements for further discussion of acquisitions. Additionally, any references to the first, second, or fourth quarters are to the three months ended March 31, June 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 for the three and nine months ended September 30, 2017 and 2016 (in millions):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017			2016
Media revenues (a)	$	624.2	$	635.3		$	1,858.5		$	1,772.9
Revenues realized from station barter arrangements	31.8		32.0			91.8			92.6
Other non-media revenues	14.9		26.5			49.8			73.8
Total revenues	670.9		693.8			2,000.1			1,939.3
Media production expenses (a)	268.0		242.9			795.1			702.4
Media selling, general and administrative expenses (a)	133.6		126.7			385.4			370.2
Expenses recognized from station barter arrangements	26.7		27.2			77.5			79.4
Depreciation and amortization	95.9		106.1			292.2			308.2
Other non-media expenses	14.9		20.5			46.9			57.9
Corporate general and administrative expenses	25.8		19.1			71.5			54.7
Research and development	2.6		0.7			5.1			3.1
Gain on asset dispositions	—		(3.3		)	(53.5		)	(6.0		)
Operating income	$	103.4	$	153.9		$	380.0		$	369.4
Net income attributable to Sinclair Broadcast Group	$	30.6	$	50.8		$	132.5		$	124.4

(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 CHARGE!, TBD TV, Tennis Channel, 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 September 30,						Nine Months Ended September 30,
	2017		2016		Percent Change		2017		2016		Percent Change
Local revenues:
Non-political	$	485.5	$	469.6	3.4	%	$	1,456.5	$	1,350.8	7.8	%
Political	2.0		3.7		(b)		3.6		11.4		(b)
Total local	487.5		473.3		3.0	%	1,460.1		1,362.2		7.2	%
National revenues (a):
Non-political	87.0		89.7		(3.0	)%	260.2		264.4		(1.6	)%
Political	5.3		41.3		(b)		11.2		74.7		(b)
Total national	92.3		131.0		(29.5	)%	271.4		339.1		(20.0	)%
Total broadcast segment media revenues	$	579.8	$	604.3	(4.1	)%	$	1,731.5	$	1,701.3	1.8	%

(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 decreased $24.5 million when comparing to the three months ended September 30, 2017 to the same period in 2016. The decrease related to the three months ended September 30, 2017 is primarily related to a decrease in political revenue and a decrease in markets impacted by hurricanes during the three months ended September 30, 2017. The decrease is partially offset by a increase in retransmission and digital revenues. For the three months ended September 30, 2017, the medical, direct response, paid programming, automotive, schools, food and grocery, retail, and restaurant sectors decreased year over year, and services, pharmaceutical/cosmetics, and media sectors increased year over year, as well as $7.4 million related to the stations not included in the same period of 2016, net of dispositions.

Media revenues increased $30.2 million for the nine months ended September 30, 2017 compared to the same period in 2016, of which $14.5 million was related to the stations not included in the same period of 2016, net of dispositions. The increase for the nine months ended September 30, 2017 is primarily related to an increase in retransmission and digital revenues and is partially offset by a decrease in political and a decrease in markets impacted by hurricanes during the three months ended September 30, 2017. For the nine months ended September 30, 2017, the services, automotive, pharmaceutical/cosmetics, entertainment, and media sectors increased year over year, and schools, telecommunications, paid programming, medical, and restaurant sectors, decreased year over year. Automotive, which typically is our largest category, represented 25.7% and 23.7% of net time sales for the nine months ended September 30, 2017 and 2016, respectively.

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



	# of channels	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 September 30,			Nine months ended September 30,
		2017	2016		2017	2016
ABC	41	29.2%	26.1%	3.1%	29.0%	27.5%	1.5%
FOX	58	24.2%	23.3%	0.9%	25.0%	24.3%	0.7%
CBS	30	18.6%	18.5%	0.1%	19.2%	19.2%	—%
NBC	26	13.2%	16.7%	(3.5)%	12.2%	13.4%	(1.2)%
CW	47	7.5%	7.3%	0.2%	7.4%	7.6%	(0.2)%
MNT	36	5.7%	6.2%	(0.5)%	5.6%	6.2%	(0.6)%
Other (a)	348	1.6%	1.9%	(0.3)%	1.6%	1.8%	(0.2)%
Total	586

(a) We broadcast other programming from the following providers on our channels including: Antenna TV, ASN, Azteca, Bounce, CHARGE!, COMET, CoziTV, Decades, Estrella TV, Get TV, Grit, Me TV, Movies!, Stadium Network, TBD, Telemundo, This TV, News & Weather, UniMas and Univision.

Political Revenues. Political revenues decreased by $37.7 million and decreased by $71.3 million for the three and nine months ended September 30, 2017 and 2016, when compared to the same periods in 2016. 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 $15.9 million for the three months ended September 30, 2017, when compared to the same period in 2016, of which $6.5 million was related to the stations not included in the same period in 2016, net of dispositions. The increase is primarily related to an increase in retransmission revenue as well as an increase in fast food, telecommunications, and services sectors. These increases were offset by lower revenues in the retail, schools, paid programming, and medical sectors, as well as a decrease in markets impacted by hurricanes during the three months ended September 30, 2017.

Excluding political revenues, our local broadcast revenues, which include local times sales, retransmission revenues and other local revenues, increased by $105.7 million for the nine months ended September 30, 2017, when compared to the same period in 2016, of which $14.7 million was related to the stations not included in the same period in 2016, net of dispositions. The increase is primarily related to an increase in retransmission and digital revenues, as well as an increase in the automotive and fast food sectors. These increases were offset by lower revenues in the schools, paid programming, and retail sectors, as well as a decrease in markets impacted by hurricanes during the three months ended September 30, 2017.

National Revenues. Excluding political revenues, our national broadcast revenues, which relates to time sales sourced from our national representation firms, decreased by $2.7 million for the three months ended September 30, 2017 when compared to the same period in 2016. The decrease is primarily related to a decrease in the medical and fast food sectors, as well as a decrease in markets impacted by hurricanes during the three months ended September 30, 2017. These decreases were offset by higher revenues in the services, media, retail, and pharmaceutical/cosmetics sectors, as well as $0.8 million related to the stations not included in the same period of 2016, net of dispositions

Excluding political revenues, our national broadcast revenues, which relates to time sales sourced from our national representation firm, decreased by $4.2 million for the nine months ended September 30, 2017 when compared to the same period in 2016. The decrease is primarily related to a decrease in the telecommunications, direct response, automotive, fast foods, and medical sectors, as well as a decrease in markets impacted by hurricanes during the three months ended September 30, 2017. These decreases were offset by higher revenues in the media, services, and entertainment sectors, as well as $1.4 million related to the stations not included in the same period of 2016, net of dispositions

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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 September 30,				Percent Change (Increase/(Decrease))		Nine months ended September 30,				Percent Change (Increase/(Decrease))
	2017		2016		Percent Change (Increase/(Decrease))		2017		2016		Percent Change (Increase/(Decrease))
Media production expenses	$	242.9	$	222.7	9.1	%	$	712.4	$	639.2	11.5	%
Media selling, general and administrative expenses	$	114.4	$	116.8	(2.1	)%	$	338.9	$	344.2	(1.5	)%
Amortization of program contract costs and net realizable value adjustments	$	28.0	$	32.4	(13.6	)%	$	88.0	$	96.7	(9.0	)%
Corporate general and administrative expenses	$	23.6	$	17.5	34.9	%	$	65.1	$	50.3	29.4	%
Depreciation and amortization expenses	$	60.5	$	62.9	(3.8	)%	$	180.7	$	186.5	(3.1	)%

Media production expenses. Media production expenses increased $20.2 million and $73.2 million during the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016. The acquired stations not included in the same period of 2016, net of dispositions, contributed $3.4 million and $6.1 million of the increase for the three and nine months ended September 30, 2017, respectively. The remaining increase is primarily related to increases in fees pursuant to network affiliation agreements mainly due to higher retransmission revenue and viewership measurement costs, partially offset by a reduction of equipment maintenance costs.

Media selling, general and administrative expense. Media selling, general and administrative expenses decreased $2.4 million for the three months ended September 30, 2017, compared to the same period in 2016. The decrease is primarily attributable to a decrease in national sales commissions, partially offset by expenses from acquired stations not included in the same period of 2016, net of dispositions.

Media selling, general and administrative expenses decreased $5.3 million during the nine months ended September 30, 2017 compared to the same periods in 2016. The decrease for this period is primarily related to the settlement with the FCC in for June 2016 for the amount of $9.5 million, partially offset by higher information technology infrastructure costs and by expense from acquired stations not included in the same period of 2016, net of dispositions.

Amortization of program contract costs and net realizable value adjustments. The amortization of program contract costs decreased $4.4 million and $8.7 million during the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016. The decrease is primarily due to timing of amortization on long term contracts, reduced renewal costs, and partially offset by the increase of cost due to new programs added since the same period in 2016. Additionally, we recognized $1.5 million and $3.6 million of accelerated amortization of certain program contracts during the three and nine months ended September 30, 2016, respectively, resulting in reduced amortization attributed to those contracts in 2017.

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 $2.4 million and $5.8 million during the three and nine months ended September 30, 2017. These decreases are primarily related to assets becoming fully depreciated, which is greater than the added depreciation from capital expenditures. The decrease of these expenses is partially offset by depreciation and amortization from acquired stations of $1.0 million and $1.4 million during the three and nine months ended September 30, 2017, respectively, not included in the same period of 2016, net of dispositions.

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OTHER



	Three months ended September 30,					Percent Change (Increase/(Decrease))		Nine months ended September 30,					Percent Change (Increase/(Decrease))
	2017			2016		Percent Change (Increase/(Decrease))		2017			2016		Percent Change (Increase/(Decrease))
Media revenues	$	44.5		$	31.0	43.5	%	$	127.0		$	71.5	77.6	%
Media expenses	$	44.4		$	30.1	47.5	%	$	129.3		$	89.2	45.0	%

Other non-media:
Revenues:
Investments in real estate ventures	$	5.1		$	5.8	(12.1	)%	$	14.5		$	15.0	(3.3	)%
Investments in private equity	$	6.3		$	17.8	(64.6	)%	$	28.1		$	49.6	(43.3	)%
Technical services	$	3.6		$	2.9	24.1	%	$	7.2		$	9.2	(21.7	)%
Expenses: (a)
Investments in real estate ventures	$	6.4		$	6.5	(1.5	)%	$	18.4		$	20.7	(11.1	)%
Investments in private equity	$	6.0		$	14.7	(59.2	)%	$	26.3		$	41.6	(36.8	)%
Technical services	$	4.4		$	3.2	37.5	%	$	10.9		$	10.1	7.9	%

Research and development expenses	$	2.6		$	0.7	271.4	%	$	5.1		$	3.1	64.5	%
Gain on asset dispositions	$	—		$	1.4	n/a		$	53.2		$	1.4	3,700.0	%
(Loss) income from equity and cost method investments	$	(4.4	)	$	1.4	(414.3	)%	$	(4.2	)	$	2.8	(250.0	)%

(a) Comprises total expenses of the entity including general administrative, depreciation and amortization and applicable other income and expense items such as interest expense and non-cash stock-based compensation expense related to issuances of subsidiary stock awards and excludes equity method investment income.

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 non-broadcast digital and internet businesses. The year-over-year increase for the three-month period is primarily related to an increase in content fees from MVPDs for Tennis, as well as increases in revenue from our other original networks, and from our non-broadcast digital and internet businesses. Our expenses relate to the programming and production, and general and administrative costs related to the operations of our network, content, and non-broadcast digital and internet businesses. The year-over-year increases primarily relate to Tennis, which was acquired during the first quarter of 2016, and general and administrative costs related to the start-up of our original networks and content, production costs of new original programming, and new non-broadcast digital and internet initiatives such as Circa News.

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. The decrease in revenue and expenses for the three and nine months ended September 30, 2017 compared to the same period of 2016, primarily relates to decreases in the sale of land and lot parcels with our real estate development projects.

Investments in private equity. We have controlling interests in certain private equity investments owned by Keyser Capital, which we consolidate; that includes Triangle Sign & Service, LLC, a sign designer and fabricator; and Alarm, a regional security alarm operating and bulk acquisition company which we sold in March 2017. The decrease in revenues and expenses for both the three and nine months ended September 30, 2017 is primarily due to the sale of Alarm in early March 2017.

Technical Services. We own certain subsidiaries which are dedicated to providing broadcast related technical services to the broadcast industry including: Acrodyne Technical Services, a provider of service and support for broadcast transmitters throughout the world and Dielectric, a designer and manufacturer of broadcast systems including all components from transmitter output to antenna.

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Research and development expenses. Our research and development expenses relate to the costs to develop the Advanced Television Systems Committee's 3.0 standard (ATSC 3.0) along with related products and services through our consolidated subsidiaries, ONE Media and ONE Media 3.0.

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

(Loss) income from Equity and Cost Method Investments. We recognize income from certain real estate, private equity, media, and digital ventures for which we hold as equity and cost method investments.

CORPORATE AND UNALLOCATED EXPENSES



	Three months ended September 30,						Percent Change (Increase/ (Decrease))		Nine months ended September 30,						Percent Change (Increase/ (Decrease))
	2017			2016			Percent Change (Increase/ (Decrease))		2017			2016			Percent Change (Increase/ (Decrease))
Corporate general and administrative expenses	$	2.0		$	1.3		53.8	%	$	5.6		$	3.3		69.7	%
Interest expense	$	50.3		$	50.4		(0.2	)%	$	154.4		$	147.8		4.5	%
Income tax provision	$	(17.1	)	$	(27.0	)	(36.7	)%	$	(70.6	)	$	(65.8	)	7.3	%
Loss from extinguishment of debt	$	—		$	(23.7	)	n/a		$	(1.4	)	$	(23.7	)	(94.1	)%

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 non-media businesses and investments which are included in our discussion of expenses in the Other section above.

Corporate general and administrative expenses increased in total by $6.8 million for the three months ended September 30, 2017, when compared to the same period in 2016. The increase is due to $8.8 million in expenses incurred related to legal and consulting fees related to our completed and pending acquisitions, and spectrum auction expenses, as well as $0.4 million of increased employee compensation costs related to merit increases, partially offset by a $2.5 million decrease in health insurance costs.

Corporate general and administrative expenses increased in total by $17.1 million for the nine months ended September 30, 2017, when compared to the same period in 2016. The increase is due to $14.8 million in expenses incurred related to legal and consulting fees related to our completed and pending acquisitions, and spectrum auction expenses, as well as $2.4 million of increased employee compensation costs related to merit increases.

We expect corporate general and administrative expenses to decrease in the fourth quarter of 2017 compared to third quarter of 2017.

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 decreased by $0.3 million compared for three months ended September 30, 2017 compared to the same period in 2016. The decrease is primarily related to the net effect of the redemption of $350 million of 6.375% senior unsecured notes (6.375% Notes) and the offering of $400 million of senior unsecured notes in August 2016 bearing a more favorable interest rate of 5.125% (5.125% Notes).

Interest expense increased $6.3 million during the nine months ended September 30, 2017, compared to the same period in 2016 primarily due to $6.4 million in debt financing fees expensed related to the amendment of certain terms and extension of the maturity date of Term Loan B under the existing bank credit agreement, partially offset by the net effect of the redemption of the 6.375% Notes and offering for 5.125% Notes. See Liquidity and Capital Resources for more information.

Income tax (provision) benefit. The effective tax rate for the three months ended September 30, 2017, including the effects of the noncontrolling interest was a provision of 35.8% as compared to a provision of 34.7% during the same periods in 2016. The

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increase in the effective tax rate for the three months ended September 30, 2017, as compared to the same period in 2016, is primarily due to a 2016 reduction in liability for unrecognized tax benefits+

- as a result of statute of limitations expiration.

The effective tax rate for the for the nine months ended September 30, 2017, including the effects of noncontrolling interest was a provision of 34.8% as compared to a provision of 34.6% during the same periods in 2016.

Loss from extinguishment of debt. In January 2017, we entered into an amendment to our Bank Credit Agreement that includes extended maturity for some Term Loan positions and more favorable rates. As a result, we recognized a loss of $1.4 million from the extinguishment of debt. See Note 3. Notes Payable and Commercial Bank Financing for further discussion.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2017, we had cash and cash equivalent balances and net working capital of approximately $678.2 million. Cash generated by our operations and borrowing capacity under the Bank Credit Agreement are used as our primary sources of liquidity. As of September 30, 2017, we had $484.4 million of borrowing capacity available on our revolving credit facility.

In January 2017, we entered into an amendment to our Bank Credit Agreement that includes extending maturity for some Term Loan positions and more favorable rates. See Note 3. Notes Payable and Commercial Bank Financing for 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. In connection with the pending acquisition of Tribune, we entered into certain commitments and facilities to finance the acquisition. See Note 3. Notes Payable and Commercial Bank Financing for further discussion.

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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 September 30,						For the nine months ended September 30,
	2017			2016			2017			2016
Net cash flows from operating activities	$	136.9		$	120.6		$	278.4		$	330.3

Cash flows (used in) from investing activities:
Acquisition of property and equipment	$	(22.0	)	$	(18.8	)	$	(55.5	)	$	(68.6	)
Acquisition of businesses, net of cash acquired	(241.5		)	(2.8		)	(269.8		)	(425.9		)
Purchase of alarm monitoring contracts	—			(7.5		)	(5.7		)	(29.1		)
Proceeds from sale of non-media business	—			16.4			192.6			16.4
Investments in equity and cost method investees	(1.6		)	(12.4		)	(22.3		)	(34.2		)
Loans to affiliates	—			—			—			(19.5		)
Other	2.6			(4.0		)	(0.5		)	3.4
Net cash flows used in investing activities	$	(262.5	)	$	(29.1	)	$	(161.2	)	$	(557.5	)

Cash flows (used in) from financing activities:
Proceeds from notes payable, commercial bank financing and capital leases	$	3.0		$	403.8		$	166.0		$	1,011.3
Repayments of notes payable, commercial bank financing and capital leases	(17.1		)	(374.4		)	(318.3		)	(654.0		)
Net proceeds from the sale of Class A Common Stock	—			—			487.9			—
Dividends paid on Class A and Class B Common Stock	(18.3		)	(16.9		)	(53.1		)	(49.7		)
Repurchase of outstanding Class A Common Stock	(30.3		)	(89.9		)	(30.3		)	(101.2		)
Other	(5.5		)	(13.3		)	(27.3		)	(24.7		)
Net cash flows (used in) from financing activities	$	(68.2	)	$	(90.7	)	$	224.9		$	181.7

Operating Activities

Net cash flows from operating activities increased during the three months ended September 30, 2017 compared to the same period in 2016. The increase is primarily related to higher cash received from customers compared to the same period in the prior year.

Net cash flows from operating activities decreased during the nine months ended September 30, 2017 compared to the same period in 2016. The decrease is primarily related to increased payments to vendors and tax payments, partially offset by higher cash received from customers compared to the same period in the prior year.

Investing Activities

Net cash flows used in investing activities increased during the three months ended September 30, 2017 compared to the same period in 2016. This increase is primarily related to the acquisition of Bonten in September 2017, partially offset by a decrease in investment in equity and cost method investments compared to the same period in 2016.

Net cash flows used in investing activities decreased during the nine months ended September 30, 2017 compared to the same period in 2016. This decrease is primarily related to proceeds received from the sale of Alarm Funding in March 2017, a decrease in acquisition activity, a decrease in capital expenditures, and a decrease in loans to affiliates compared to the same period in 2016.

In the fourth quarter of 2017, we anticipate capital expenditures to increase from the third quarter of 2017. As discussed in Note 4. Commitments and Contingencies, certain of our channels have been reassigned in conjunction with the FCC repacking process. We expect that the majority of expenditures will be reimbursed by the fund established by the Auction.

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Financing Activities

Net cash flows used in financing activities decreased for the three months ended September 30, 2017, compared to the same period in 2016. The decrease is primarily due to lower repurchases of Class A common stock, partially offset by proceeds from the issuance of debt during 2016.

Net cash flows from financing activities increased for the nine months ended September 30, 2017, compared to the same period in 2016. The increase is primarily due to the proceeds received from the public offering of Class A Common Stock during the first quarter of 2017 and lower repurchases of Class A common stock, partially offset by the repayment of notes payable in conjunction with the sale of Alarm during the first quarter of 2017 and proceeds from the issuance of our 5.875% Notes, net of repayments on our revolving credit facility, during the first quarter of 2016.

In October 2017, 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 Bank Credit Agreement within Note 3. Notes Payable and Commercial Bank Financing for the amendment of the Bank Credit Agreement in January 2017.

As of September 30, 2017, there were no other material changes to our contractual cash obligations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no changes to critical accounting policies and estimates from those disclosed in Critical Accounting Policies and Estimates with Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2016 Annual Report.

See Recent Accounting Pronouncements within Note 1. Nature of Operations and Summary of Significant Accounting Policies for a discussion of new accounting guidance.

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, 2016.

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 September 30, 2017.

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.

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The term “internal control over financial reporting,” as defined in Rules 13a-15d-15(f) under the Exchange Act, means a process designed by, or under the supervision of our Chief Executive and Chief Financial Officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP) and includes those policies and procedures that:


•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;


•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made in accordance with authorizations of management or our Board of Directors; and


•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material adverse effect on our financial statements.

Assessment of Effectiveness of Disclosure Controls and Procedures

Based on the evaluation of our disclosure controls and procedures as of September 30, 2017, 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

During the quarters ended June 30, 2017 and September 30, 2017, we completed the implementation of a new enterprise resource planning (ERP) system and human capital management (HCM) system, respectively. Both systems are functioning as designed. We have made appropriate changes to our internal controls as a result of the implementation of these new systems.

Other than as discussed above, 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 September 30, 2017, 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.

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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, 2016.

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

The following table summarizes repurchases of our stock in the quarter ended September 30, 2017:



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)
07/01/17 – 07/31/17	—	—		—	—
08/01/17 – 08/31/17	997,300	$	30.37	997,300	$	88.8
09/01/17 – 09/30/17	—	—		—	—

(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 shares of Class A Common Stock repurchase authorization. In September 2016, the Board of Directors authorized an additional $150.0 million shares of Class A Common Stock repurchase authorization. There is no expiration date and currently, management has no plans to terminate this program. As of September 30, 2017, the total remaining authorization was $88.8 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

10.1		Amended and Restated Employment Agreement by and between Sinclair Broadcast Group, Inc. and Christopher Ripley, President and Chief Executive Officer, dated August 23, 2017.

10.2		Amended and Restated Employment Agreement by and between Sinclair Broadcast Group, Inc. and Lucy Rutishauser, Senior Vice President, Chief Financial Officer and Treasurer, dated August 28, 2017.

10.3		Stock Appreciation Right Agreement by and between Sinclair Broadcast Group, Inc. and Christopher Ripley, President and Chief Executive Officer, dated August 29, 2017.

10.4		Restricted Stock Award Agreement by and between Sinclair Broadcast Group, Inc. and Christopher Ripley, President and Chief Executive Officer, dated August 29, 2017.

10.5		Amended and Restated Employment Agreement by and between Sinclair Broadcast Group, Inc. and Steve Marks, Executive Vice President and Chief Operating Officer, dated August 31, 2017.

31.1		Certification by Christopher S. Ripley, as 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 Lucy Rutishauser, 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 Christopher S. Ripley, as 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 Lucy Rutishauser, 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 8th day of November 2017.



	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

10.1		Amended and Restated Employment Agreement by and between Sinclair Broadcast Group, Inc. and Christopher Ripley, President and Chief Executive Officer, dated August 23, 2017.

10.2		Amended and Restated Employment Agreement by and between Sinclair Broadcast Group, Inc. and Lucy Rutishauser, Senior Vice President, Chief Financial Officer and Treasurer, dated August 28, 2017.

10.3		Stock Appreciation Right Agreement by and between Sinclair Broadcast Group, Inc. and Christopher Ripley, President and Chief Executive Officer, dated August 29, 2017.

10.4		Restricted Stock Award Agreement by and between Sinclair Broadcast Group, Inc. and Christopher Ripley, President and Chief Executive Officer, dated August 29, 2017.

10.5		Amended and Restated Employment Agreement by and between Sinclair Broadcast Group, Inc. and Steve Marks, Executive Vice President and Chief Operating Officer, dated August 31, 2017.

31.1		Certification by Christopher S. Ripley, as 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 Lucy Rutishauser, 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 Christopher S. Ripley, as 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 Lucy Rutishauser, 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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