10-K 1 sbgi-20161231x10k.htm 10-K Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
ý      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
 
OR
 
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
 
52-1494660
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
10706 Beaver Dam Road
Hunt Valley, MD 21030
(Address of principal executive offices)
 
(410) 568-1500
(Registrant’s telephone number, including area code)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Class A Common Stock, par value $ 0.01 per share
 
The NASDAQ Stock Market LLC
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ý No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No ý
 
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 ý  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 files). Yes ý  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No ý
 
Based on the closing sales price of $29.86 per share as of June 30, 2016, the aggregate market value of the voting and non-voting common equity of the Registrant held by non-affiliates was approximately $2,048.4 million.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
 
Title of each class
 
Number of shares outstanding as of
 February 20, 2017
Class A Common Stock
 
64,669,100
Class B Common Stock
 
25,670,684
 
Documents Incorporated by Reference - Portions of our definitive Proxy Statement relating to our 2017 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.  We anticipate that our Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2016.
 
 
 
 
 




SINCLAIR BROADCAST GROUP, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2016
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


FORWARD-LOOKING STATEMENTS
 
This report includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995.  We have based these forward-looking statements on our current expectations and projections about future events.  These forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things, the following risks:
 
General risks
 
the impact of changes in national and regional economies and credit and capital markets;
consumer confidence;
the potential impact of changes in tax law;
the activities of our competitors;
terrorist acts of violence or war and other geopolitical events;
natural disasters that impact our advertisers and our stations; and
cybersecurity.
 
Industry risks
 
the business conditions of our advertisers particularly in the automotive and service industries;
competition with other broadcast television stations, radio stations, multi-channel video programming distributors (MVPDs), internet and broadband content providers and other print and media outlets serving in the same markets;
the performance of networks and syndicators that provide us with programming content, as well as the performance of internally originated programming;
the availability and cost of programming from networks and syndicators, as well as the cost of internally originated programming;
our relationships with networks and their strategies to distribute their programming via means other than their local television affiliates, such as over-the-top content;
the effects of the Federal Communications Commission’s (FCC’s) National Broadband Plan, the impact of the incentive auction and the potential repacking of our broadcasting spectrum within a limited timeframe and funding allocated;
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 negotiations;
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 MVPD's 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;
the impact of MVPD’s offering “skinny” programming bundles that may not include television broadcast stations; and
fluctuations in advertising rates and availability of inventory.


3


 
Risks specific to us
 
the effectiveness of our management;
our ability to attract and maintain local, national, and network advertising and successfully participate in new sales channels such as programmatic advertising through business partnership ventures and the development of technology;
our ability to service our debt obligations and operate our business under restrictions contained in our financing agreements;
our ability to successfully implement and monetize our own content management system (CMS) designed to provide our viewers significantly improved content via the internet and other digital platforms;
our ability to successfully renegotiate retransmission consent agreements;
our ability to renew our FCC licenses;
our limited ability to obtain FCC approval for any future acquisitions, as well as, in certain cases, customary antitrust clearance for any future acquisitions;
our ability to identify media business investment opportunities and to successfully integrate any acquired businesses, as well as the success of our digital initiatives in a competitive environment, such as the investment in the re-launch of Circa;
our ability to maintain our affiliation and programming service agreements with our networks and program service providers and at renewal, to successfully negotiate these agreements with favorable terms;
our ability to effectively respond to technology affecting our industry and to increasing competition from other media providers;
the strength of ratings for our local news broadcasts including our news sharing arrangements;
the successful execution of our program development and multi-channel broadcasting initiatives including American Sports Network (ASN), COMET, and other original programming, and mobile DTV; and
the results of prior year tax audits by taxing authorities.

Other matters set forth in this report and other reports filed with the Securities and Exchange Commission (SEC), including the Risk Factors set forth in Item 1A of this report may also cause actual results in the future to differ materially from those described in the forward-looking statements.  However, additional factors and risks not currently known to us or that we currently deem immaterial may also cause actual results in the future to differ materially from those described in the forward-looking statements.  You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made.  We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In light of these risks, uncertainties and assumptions, events described in the forward-looking statements discussed in this report might not occur.


4


PART I
ITEM 1.            BUSINESS
 
We are a diversified television broadcasting company with national reach with a strong focus on providing high-quality content on our local television stations and digital platforms.   The content, distributed through our broadcast platform, consists of programming provided by third-party networks and syndicators, local news, our own networks, and other original programming produced by us.  We also distribute our original programming, and owned and operated networks, on other third-party platforms.  Additionally, we own digital and internet media products that are complementary to our extensive portfolio of television station related digital properties. We focus on offering marketing solutions to advertisers through our television and digital platforms and digital agency services. 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.

Broadcast

As of December 31, 2016, our broadcast distribution platform is a single reportable segment for accounting purposes. It consists primarily of our broadcast television stations, which we own, provide programming and operating services pursuant to local marketing agreements (LMAs), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as JSAs and SSAs) to 173 stations in 81 markets. These stations broadcast 483 channels, including 221 channels affiliated with primary networks or program service providers comprised of:  FOX (54), ABC (36), CBS (30), NBC (22), CW (43), and MyNetworkTV (MNT) (36).  The other 262 channels broadcast programming from Antenna TV, American Sports Network (ASN), Azteca, Bounce Network, COMET, Decades, Estrella TV, Get TV, Grit, Me TV, MundoFox, Retro TV, Telemundo, This TV, News & Weather, Univision, Zuus Country, and two channels broadcasts independent programming.  For the purpose of this report, these channels are referred to as “our” stations.  Refer to our Television Markets and Stations table later in this Item 1. for more information. As discussed under Pending Matters within Federal Regulation of Television Broadcasting within this Item 1., we do not expect the results of the FCC incentive auction to have a material change on the above operations.

Our broadcast segment provides free over-the-air programming to television viewing audiences in the communities we serve through our local television stations.  The programming that we provide on our primary channels consists of network provided programs, locally-produced news, local sporting events, programming from program service arrangements, syndicated entertainment programs, and internally originated programming provided by our other media subsidiaries. We provide live local sporting events on many of our stations by acquiring the local television broadcast rights for these events.  Additionally, we purchase and barter for popular syndicated programming from third party television producers. 

We are the nation's largest producer of local news. We produce approximately 2,200 hours of news per week at 112 stations in 76 markets, including three stations which produce news pursuant to a local news sharing arrangement for competitive stations in that market.  We have 20 stations which have local news sharing arrangements with a competitive station in that market that produces the news aired on our station. 

See Operating Strategy later in this Item 1. for more information regarding the news and programming we provide.
 
Our primary source of revenue is the sale of commercial inventory on our television stations to our advertising customers.  We also earn revenues by providing digital content to non-linear devices via websites, mobile, and social media advertisements. Our objective is to meet the needs of our advertising customers by delivering significant audiences in key demographics.  Our strategy is to achieve this objective by providing quality local news programming, popular network, syndicated and live sports programs, and other original content to our viewing audience.  We attract most of our national television advertisers through national marketing representation firms which have offices in New York City, Los Angeles, Chicago and Atlanta.  Our local television advertisers are attracted through the use of a local sales force at each of our television stations, which is comprised of approximately 700 sales account executives and 100 local sales managers company-wide.

We also earn revenue from our retransmission consent agreements through payments from multichannel video programming distributors ("MVPDs") in our markets.  The MVPDs are local cable companies, satellite television, and local telecommunication video providers.  The revenues primarily represent payments from the MVPDs for access to our broadcast signal and are typically based on the number of subscribers they have. 


5


Our operating results are subject to cyclical fluctuations from political advertising.  Political spending has been significantly higher in the even-number years due to the cyclicality of political elections.  In addition, every four years, political spending is typically elevated further due to the advertising related to the presidential election.  Because of the political election cyclicality, there has been a significant difference in our operating results when comparing even-numbered years’ performance to the odd numbered years’ performance.  Additionally, our operating results are impacted by the number and importance of individual political races and issues discussed on a national level as well as those within the local communities we serve.  We believe political advertising will continue to be a strong advertising category in our industry. With increased spending by Political Action Committees (PACs), including so-called Super PACs, and as political-activism around social, political, economic and environmental causes continues to draw attention, political advertising levels may increase further.

Original Networks and Content

We own and operate various networks carried on distribution platforms owned by us or others: Tennis Channel (Tennis), a cable network acquired in March 2016, which includes coverage of the top 100 tournaments and original professional sport and tennis lifestyle shows; COMET, our science fiction multicast network which debuted in October 2015; and ASN, our regional sports network.

We expect to launch, CHARGE!, our adventure and action-based emerging network, in the first quarter of 2017, and TBD, the first multiscreen TV network in the U.S. market to bring premium internet-first content to TV homes across America, in early 2017.

Our internally developed content includes Ring of Honor ("ROH"), our professional wrestling promotion and Full Measure with Sharyl Attkisson ("Full Measure"), our national Sunday morning investigative and political analysis program, launched in October 2015.

Digital and Internet

Sinclair Digital Ventures focuses on investment in emerging digital technologies and digital content companies that support and expand Sinclair's digital capabilities and non-linear footprint. We earn revenues from Compulse Integrated Marketing, a full service digital agency which uses our digital expertise to help businesses run social media, search, advertising, email marketing, web design, mobile marketing, creative services, and navigate and compete in a world of constant innovation and changes in consumer behavior. Circa is a national digital news operation offering video-rich news and entertainment tailored for mobile devices and aimed at the younger demographic.

Technical Services

We own 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; Dielectric, a designer and manufacturer of broadcast systems including all components from transmitter output to antenna; and ONE Media, a technology innovator at the forefront of developing industry standards and related technologies for Next Generation Broadcast Platforms (Next Gen) encompassing its flexible and enhanced vision for broadcasting. In April 2016, we launched ONE Media 3.0, a wholly-owned subsidiary whose purpose will be to develop business opportunities, products, and service associated with ATSC 3.0 "Next Generation" broadcast transmission standard and TV platform.  

Other Non-media Investments

We own various non-media related investments through our subsidiary Keyser Capital which is an originator, underwriter, and manager of our investments across multiple asset classes including private equity, mezzanine financing, and real estate investments. Some of the largest investments include: Triangle Sign and Service (Triangle), a sign designer and fabricator; Alarm Funding Associates (Alarm Funding), a regional security alarm operator and bulk acquisition company; Bay Creek South (Bay Creek), a land developer for a planned resort community in Cape Charles, VA; and Jefferson Place, a mixed use land development project in Frederick, MD.

We are a Maryland corporation formed in 1986.  Our principal offices are located at 10706 Beaver Dam Road, Hunt Valley, Maryland 21030.  Our telephone number is (410) 568-1500 and our website address is www.sbgi.net.  The information contained on, or accessible through, our website is not part of this annual report on Form 10-K and is not incorporated herein by reference.
 



6







Television Markets and Stations
 
As of December 31, 2016, we own and operate or provide programming and/or sales and other shared services to television stations in the following 81 markets:  
Market
 
Market Rank (a)
 
Number of Channels
 
Stations
 
Network
Affiliation (b)
Washington, DC
 
7
 
3
 
WJLA
 
ABC
Seattle / Tacoma, WA
 
14
 
5
 
KOMO, KUNS
 
ABC
Minneapolis / St. Paul, MN
 
15
 
4
 
WUCW
 
CW
St. Louis, MO
 
21
 
3
 
KDNL
 
ABC
Pittsburgh, PA
 
23
 
7
 
WPGH, WPNT
 
FOX, MNT
Raleigh / Durham, NC
 
24
 
5
 
WLFL, WRDC
 
CW, MNT
Portland, OR
 
25
 
9
 
KATU, KUNP, KUNP-LP
 
ABC
Baltimore, MD
 
26
 
10
 
WBFF, WUTB(d), WNUV(c)
 
FOX, CW, MNT
Nashville, TN
 
29
 
9
 
WZTV, WUXP, WNAB(d)
 
FOX, MNT, CW
San Antonio, TX
 
31
 
6
 
KABB, KMYS(d), WOAI
 
FOX, NBC, CW
Columbus, OH
 
32
 
9
 
WSYX, WWHO(d), WTTE(c)
 
ABC, FOX, CW, MNT
Salt Lake City, UT
 
34
 
7
 
KUTV, KMYU, KENV(d), KJZZ
 
CBS, NBC, MNT, IND
Milwaukee, WI
 
35
 
5
 
WCGV, WVTV
 
CW, MNT
Cincinnati, OH
 
36
 
7
 
WSTR(d), WKRC
 
CBS, CW, MNT
Asheville, NC / Greenville, SC
 
37
 
7
 
WMYA(c), WLOS
 
ABC, MNT
West Palm Beach / Fort Pierce, FL
 
38
 
9
 
WTVC, WTCN-CA, WWHB-CA, WPEC
 
CBS, CW, MNT
Austin, TX
 
39
 
2
 
KEYE
 
CBS
Las Vegas, NV
 
40
 
6
 
KSNV, KVCW
 
NBC, CW, MNT
Oklahoma City, OK
 
41
 
6
 
KOCB, KOKH
 
FOX, CW
Norfolk, VA
 
42
 
4
 
WTVZ
 
MNT
Harrisburg / Lancaster / Lebanon / York, PA
 
43
 
3
 
WHP
 
CBS, CW, MNT
Grand Rapids / Kalamazoo, MI
 
44
 
3
 
WWMT
 
CBS, CW
Birmingham / Tuscaloosa, AL
 
45
 
13
 
WTTO, WABM, WDBB(c), WBMA-LD
 
ABC, CW, MNT
Greensboro / High Point / Winston Salem, NC
 
46
 
6
 
WXLV, WMYV
 
ABC, MNT
Providence, RI / New Bedford, MA
 
52
 
3
 
WJAR
 
NBC
Buffalo, NY
 
53
 
7
 
WUTV, WNYO
 
FOX, MNT
Fresno / Visalia, CA
 
54
 
9
 
KMPH, KFRE, KMPH-CD
 
FOX, CW
Richmond, VA
 
55
 
3
 
WRLH
 
FOX, MNT
Wilkes Barre / Scranton, PA
 
56
 
10
 
WOLF(c), WQMY(c), WSWB(d)
 
FOX, CW, MNT
Little Rock / Pine Bluff, AR
 
57
 
3
 
KATV
 
ABC
Tulsa, OK
 
58
 
3
 
KTUL
 
ABC
Albany, NY
 
59
 
6
 
WRGB, WCWN
 
CBS, CW
Mobile, AL / Pensacola, FL
 
60
 
9
 
WEAR, WJTC(d),
WFGX, WPMI(d)
 
ABC, NBC, MNT, IND
Lexington, KY
 
63
 
3
 
WDKY
 
FOX

7


Market
 
Market Rank (a)
 
Number of Channels
 
Stations
 
Network
Affiliation (b)
Dayton, OH
 
64
 
7
 
WKEF, WRGT(d)
 
ABC, FOX, MNT
Wichita / Hutchinson, KS
 
66
 
17
 
KSAS, KMTW(c), KOCW, KAAS, KAAS-LP, KSAS-LP
 
FOX, MNT
Roanoke / Lynchburg, VA
 
67
 
4
 
WSET
 
ABC
Green Bay / Appleton, WI
 
68
 
4
 
WLUK, WCWF
 
FOX, CW
Des Moines, IA
 
69
 
3
 
KDSM
 
FOX
Charleston / Huntington, WV
 
70
 
7
 
WCHS, WVAH(d)
 
ABC, FOX
Flint / Saginaw / Bay City, MI
 
72
 
9
 
WSMH, WEYI(d), WBSF(d)
 
FOX, NBC, CW
Spokane, WA
 
73
 
3
 
KLEW
 
CBS
Omaha, NE
 
74
 
6
 
KPTM, KXVO(c)
 
FOX, CW, MNT
Rochester, NY
 
76
 
6
 
WUHF, WHAM(d)
 
ABC, FOX, CW
Columbia, SC
 
77
 
3
 
WACH
 
FOX
Toledo, OH
 
78
 
4
 
WNWO
 
NBC
Madison, WI
 
80
 
3
 
WMSN
 
FOX
Portland, ME
 
81
 
6
 
WGME, WPFO(d)
 
CBS, FOX
Paducah, KY/ Cape Girardeau, MO
 
83
 
6
 
KBSI, WDKA(c)
 
FOX, MNT
Harlingen / Weslaco / Brownsville / McAllen, TX
 
84
 
3
 
KGBT
 
CBS
Syracuse, NY
 
85
 
6
 
WSTM, WSTQ-LP,
WTVH(d)
 
CBS, NBC, CW
Champaign / Springfield / Decatur, IL
 
86
 
14
 
WICS, WCCU(d), WICD, WRSP(d), WBUI(d)
 
ABC, FOX, CW
Chattanooga, TN
 
89
 
6
 
WTVC, WFLI(c)
 
ABC, FOX, CW, MNT
Cedar Rapids, IA
 
90
 
6
 
KGAN, KFXA(d)
 
CBS, FOX
Savannah, GA
 
91
 
3
 
WTGS
 
FOX
El Paso, TX
 
92
 
6
 
KFOX, KDBC(d)
 
FOX, CBS, MNT
Charleston, SC
 
94
 
3
 
WCIV
 
ABC, MNT
South Bend-Elkhart, IN
 
96
 
2
 
WSBT
 
CBS, FOX
Myrtle Beach / Florence, SC
 
102
 
6
 
WPDE, WWMB(c)
 
ABC, CW
Johnstown / Altoona, PA
 
104
 
4
 
WJAC
 
NBC
Lincoln and Hasting-Kearney, NE
 
105
 
10
 
KHGI, KFXL, KHGI-LD, KWNB, KHGI-CD, KWNB-LD
 
ABC, FOX
Boise, ID
 
106
 
6
 
KBOI, KYUU-LD
 
CBS, CW Plus
Tallahassee, FL
 
107
 
5
 
WTWC, WTLF(d)
 
FOX, NBC, CW Plus
Reno, NV
 
112
 
8
 
KRXI, KAME(c), KRNV(d)
 
FOX, MNT, NBC, CW
Eugene, OR
 
117
 
18
 
KVAL, KCBY, KPIC(e), KMTR(d), KMCB, KTCW
 
CBS, NBC
Peoria / Bloomington, IL
 
118
 
1
 
WHOI
 
Comet
Traverse City / Cadillac, MI
 
119
 
12
 
WPBN, WGTU(d), WTOM, WGTQ(d)
 
ABC, NBC
Macon, GA
 
121
 
3
 
WGXA
 
ABC, FOX
Yakima / Pasco / Richland / Kennewick, WA
 
122
 
12
 
KIMA, KEPR, KUNW-CD, KVVK-CD, KORX-CD
 
CBS, CW Plus
Bakersfield, CA
 
126
 
6
 
KBAK, KBFX-CD
 
CBS, FOX
Corpus Christi, TX
 
128
 
5
 
KUQI, KTOV-LP, KXPX-LP
 
FOX, MNT
Amarillo, TX
 
131
 
6
 
KVII, KVIH
 
ABC
Columbia / Jefferson City, MO
 
136
 
4
 
KRCG
 
CBS
Medford, OR
 
139
 
4
 
KTVL
 
CBS, CW Plus

8


Market
 
Market Rank (a)
 
Number of Channels
 
Stations
 
Network
Affiliation (b)
Beaumont/Port Arthur/Orange, TX
 
141
 
6
 
KFDM, KBTV(d)
 
CBS, FOX, CW Plus
Sioux City, IA
 
149
 
8
 
KBVK-LP, KMEG(d), KPTH, KPTP-LD
 
CBS, FOX, MNT
Albany, GA
 
152
 
3
 
WFXL
 
FOX
Wheeling, WV / Steubenville, OH
 
158
 
3
 
WTOV
 
FOX, NBC
Gainesville, FL
 
161
 
6
 
WGFL(c), WYME-CD, WNBW(d)
 
CBS, NBC, MNT
Quincy, IL / Hannibal, MO / Keokuk, IA
 
170
 
3
 
KHQA
 
ABC, CBS
Ottumwa, IA / Kirksville, MO
 
200
 
3
 
KTVO
 
ABC, CBS
Total Television Channels
 
 
 
483
 
 
 
 
 

(a)
Rankings are based on the relative size of a station’s Designated Market Area (DMA) among the 210 generally recognized DMAs in the United States as estimated by Nielsen as of September 2016.
(b)
We broadcast programming from the following providers on our channels:
Affiliation
 
Number of
Channels
 
Number of
Markets
 
Expiration Dates (1)
ABC
 
36
 
25
 
September 30, 2017 through December 31, 2020
CBS
 
30
 
24
 
April 29, 2017 through December 31, 2021
NBC
 
22
 
32
 
December 31, 2017 through December 31, 2018
FOX
 
54
 
36
 
June 30, 2017 through December 31, 2019
MNT
 
36
 
26
 
August 31, 2018
CW
 
43
 
16
 
August 31, 2021
Total Major Network Affiliates
 
221
 
 
 
 

9


Affiliation
 
Number of
Channels
 
Number of
Markets
 
Expiration Dates (1)
Antenna TV
 
23
 
19
 
December 31, 2017 through January 1, 2019
ASN
 
19
 
17
 
(f)
Azteca
 
3
 
3
 
February 28, 2017 through February 28, 2018
Bounce Network
 
4
 
4
 
August 31, 2019
COMET
 
84
 
70
 
(f)
Decades
 
1
 
1
 
May 31, 2018
Estrella TV
 
2
 
2
 
September 30, 2017
Get TV
 
22
 
23
 
June 30, 2017
Grit
 
47
 
45
 
December 31, 2019
Independent programming
 
2
 
2
 
N/A
Me TV
 
14
 
14
 
May 31, 2017 through February 28, 2019
MundoFox
 
3
 
3
 
September 30, 2015 through December 31, 2016
Retro TV
 
5
 
5
 
December 31, 2014 through January 7, 2017
Telemundo
 
1
 
1
 
January 14, 2017
This TV
 
12
 
9
 
November 1, 2014 through December 31, 2015
News & Weather
 
10
 
9
 
December 31, 2017
Univision
 
6
 
4
 
December 31, 2019
Zuus Country
 
4
 
4
 
September 30, 2014
Total Other Affiliates
 
262
 
 
 
 
 
 
 
 
 
 
 
Total Television Channels
 
483
 
 
 
 
 
(1)
When we negotiate the terms of our network affiliations or program service arrangements, we generally negotiate on behalf of all of our stations affiliated with that entity simultaneously.  This results in substantially similar terms for our stations, including the expiration date of the network affiliations or program service arrangements. If the affiliation agreement expires, we may continue to operate under the existing affiliation agreement on a temporary basis while we negotiate a new affiliation agreement.
 
(c)
The license assets for these stations are currently owned by third parties.  We provide programming, sales, operational and administrative services to these stations pursuant to certain service agreements, such as LMAs.
(d)
The license and programming assets for these stations are currently owned by third parties. We provide certain non-programming related sales, operational and administrative services to these stations pursuant to service agreements, such as joint sales and shared services agreements.
(e)
We provide programming, sales, operational, and administrative services to this station, of which 50% is owned by a third party.
(f)
We own and operate the networks, which are carried on our multi-cast distribution platform.
 

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Operating Strategy

Programming to Attract Viewership.  We seek to target our programming offerings to attract viewership, to meet the needs of the communities in which we serve and to meet the needs of our advertising customers.  In pursuit of this strategy, we seek to develop original programming or obtain, at attractive prices, popular syndicated programming that is complementary to each station’s network programming. We also seek to broadcast live local and national sporting events that would appeal to a large segment of the local community.  See Popular Sporting Events below for further discussion.  Moreover, we produce local news at 112 stations in 76 markets, including three stations which have a local news sharing agreement with a competitive station in that market.  See Local News below for further discussion.

Television advertising prices are primarily based on ratings information measured and distributed by Nielsen. Nielsen is currently not accredited by the Media Rating Council, an independent organization that monitors rating services, which revoked Nielsen’s accreditation in the 154 markets in which Nielsen measures ratings exclusively by its diary methodology.  As of December 31, 2016, approximately 42 of our 81 markets are diary only markets.  We have entered into a contract with comScore (formerly Rentrak), an alternative rating service provider that uses set-top box television measurements to provide us additional measurement information to the ratings services that Nielsen provides for all 173 of our stations in our 81 markets.
 
News.  We believe that the production and broadcasting of local news is an important link to the community and an aid to a station’s efforts to expand its viewership. In addition, local news programming can provide access to advertising sources targeted specifically to local news viewers. Our news stations also produce content on digital platforms such as websites, mobile applications, and social media.

During 2016, we expanded news in 11 markets and plan to add additional newscasts in 14 markets in 2017.  During the year ended December 31, 2016, 32% of our net time sales were earned during the local news we produce each week.
 
Our local news initiatives are an important part of our strategy. We have entered into local news sharing arrangements in which we receive news in 20 markets from other in-market broadcasters and provide news in 3 markets to other in-market broadcasters. We believe that, in the markets where we have news share arrangements, such arrangements generally provide both higher viewer ratings and revenues for the station receiving the news and generate a profit for the news share provider. Generally, both parties and the local community are beneficiaries of these arrangements.
 
In addition to our traditional local news stories, we have utilized our national reach and placement in the nation's capital to provide our local viewers with broader national news stories which are relevant to our local viewers.

Our local news coverage is complemented with airing Full Measure. Additionally, our national news desk and Capitol Hill bureau news teams produce daily unique stories unavailable from other sources and focused on government accountability storytelling that provides a significant point of difference for our stations. Available on-air and online, the bureau not only expands our news presence, but gives our local station viewers an opportunity to hear the views of their members of Congress through programs such as "Connect to Congress," our weekly on-air and digital feature which provides an electronic video pathway for lawmakers to speak to their constituents.

We also provide our viewers with "Town Halls," which brings together our viewers to discuss major local and national topics. During 2016 we produced "Town Halls" covering both local and national elections, including political debates, immigration, firearms, drugs, the Black Lives Matter Movement, and law enforcement and community. During 2017, we expect to produce over 100 hours of such coverage.

As discussed under Expansion of digital and internet below, in 2016 we launched Circa, a national online digital news operation aimed at the Millennial demographic which both leverages and adds to our local and national new coverage.


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Popular Sporting Events.  At some of our stations, we have been able to acquire local television broadcast rights for certain sporting events, including NBA basketball, MLB, NFL football, NHL hockey, ACC basketball and both Big Ten and SEC football and basketball and certain other college and high school sports. Our CW and MyNetworkTV stations generally face fewer preemption restrictions on broadcasting live local sporting events compared with our FOX, ABC, CBS and NBC stations, which are required to broadcast a greater number of hours of programming supplied by the networks. In addition, our stations that are affiliated with FOX, ABC, CBS and NBC have network arrangements to broadcast certain NBA basketball games, MLB baseball games, NFL football games, NHL hockey games, NASCAR races and PGA golf events, as well as other popular sporting events. Tennis has telecast rights to the U.S. Open, Wimbledon, Roland Garros (French Open), Australian Open, Emirates Airline US Open Series, ATP World Tour Masters 1000 events, top-tier WTA competitions, Davis Cup and Fed Cup by BNP Paribas, and Hopman Cup. Our stations also broadcast programming and other content provided by ASN and Tennis. Also, we provide access to certain events through our premium OTT offering, Tennis Channel Plus. See Development of Original Networks and Content below for the discussion related to the operating strategy of Tennis and ASN.

Control of Operating and Programming Costs.  By employing a disciplined approach to managing programming acquisition and other costs, we have been able to achieve operating margins that we believe are very competitive within the television broadcast industry. We believe our national reach as of December 31, 2016 of over 38.0% of the country provides us with a strong position to negotiate with programming providers and, as a result, the opportunity to purchase high quality programming at more favorable prices. Moreover, we emphasize control of each of our station’s programming and operating costs through program-specific profit analysis, detailed budgeting, regionalization of staff and detailed long-term planning models. We also control our programming cost by creating original high-quality programming that is distributed on our broadcast platform. This original programming includes our ASN and COMET networks, and ROH and Full Measure programs.

Developing Local Franchises.  We believe the greatest opportunity for a sustainable and growing customer base lies within our local communities. Therefore, we have focused on developing a strong local sales force at each of our television stations, which is comprised of approximately 700 sales account executives and 100 local sales managers company-wide. Excluding political advertising revenue, retransmission revenues, and other local revenues, 70.5% and 71.1% of our same station net time sales were local for the years ended December 31, 2016 and 2015 respectively. Market share survey results reflect that our stations' share of the local television advertising market decreased to 24.6% in 2016 from 25.2% in 2015. Our goal is to grow our local revenues by increasing our market share and by developing new business opportunities and offering marketing solutions across our platforms.

Attract and Retain High Quality Management.  We believe that much of our success is due to our ability to attract and retain highly skilled and motivated managers at both the corporate and local station levels.  We provide a combination of base salary, long-term incentive compensation including equity awards and, where appropriate, cash bonus pay designed to be competitive with comparable employers in the television broadcast industry.  A significant portion of the compensation available to certain members of our senior management and our sales force is based on their achievement of certain performance goals. We also encourage station managers and employees to utilize our diverse station group to grow in their careers while remaining in the Sinclair family of stations via internal promotion and relocation.

Multi-Channel Broadcasting.  FCC rules allow broadcasters to transmit additional digital channels within the spectrum allocated to each FCC license holder. This provides viewers with additional programming alternatives at no additional cost to them. We may consider other alternative programming formats that we could air using our multi-channel digital spectrum space with the goal towards achieving higher profits and community service. As of December 31, 2016, we have 310 multi-channels in our digital spectrum.

Retransmission Consent Agreements.  We have retransmission consent agreements with MVPDs, such as cable, satellite and telecommunications operators in our markets.  MVPDs compensate us for the right to retransmit our broadcast signals.  Our successful negotiations with MVPDs have created agreements that now produce meaningful sustainable revenue streams.

Improvement and maintenance of our distribution platforms.  We continue to improve and maintain a strong distribution platform that consists of our traditional broadcast network and our digital platforms. Our Acrodyne and Dielectric subsidiaries are leaders in servicing and manufacturing broadcast infrastructure. As a result, we maintain a strong infrastructure through which we provide high quality uninterrupted content on our broadcast stations. Further, we expect that these subsidiaries will be critical in both the repack of the broadcast spectrum and the buildout of the infrastructure behind the Advanced Television Systems Committee standard 3.0 (ATSC 3.0) for both our stations and other broadcasters. See Development of Next Generation Broadcast Platforms (Next Gen) below for further discussion related to ATSC 3.0.

Developing New Business.  We strive to develop new business models to complement or enhance our traditional television broadcast business.  We have developed new ways to sell online, mobile text messaging and social media advertising along with

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our traditional commercial broadcasting model.  Additionally, we continue to leverage our national reach to provide new high quality content to our local communities.

We continue to expand our digital distribution platforms through initiatives such as our new video management system, which simplifies and automates our broadcast-to-digital streaming workflow and allows for dynamic replacement of broadcast ads with digital ads targeted to each individual viewer.  By using a single ad-serving system across all of our web sites, mobile apps and other digital assets, we are able to streamline our sales workflow, optimize yield and deliver comprehensive sales opportunities across our digital footprint. Additionally, we are deploying over-the-top initiatives (OTT), such as the NewsOn app, as well as our own content applications.

Strategic Realignment of Station Portfolio.  We routinely review and conduct investigations of potential television station acquisitions, dispositions and station swaps.  At any given time, we may be in discussions with one or more television station owners.

Development of Original Networks and Content. In March 2016, we acquired Tennis Channel. Unlike fully distributed cable networks that are in a declining business, Tennis Channel, with its live tournaments and matches, passionate fan base and established brand, is under-distributed. With the support of Sinclair and our relationships with the multi-video program distributors (MVPDs), we have been successful in negotiating significant increases in carriage with MVPDs, with more penetration expected. Among the many benefits of the expanded carriage and pairing their content with our broadcast promotional capabilities, are additional MVPD subscriber fees, viewers, and advertising revenues.

In October 2015, we led the market in launching the first-ever science fiction multicast network, COMET, featuring over 1,500 hours of premium MGM content and already reaching approximately 70 million households with more coverage expected. In January 2017, we announced that we plan to follow COMET's success with the first quarter of 2017 launch of CHARGE!, a new 24/7 adventure and action-based network that will feature more than 2,300 hours of TV series content and more than 2,000 movie titles. CHARGE! is expected to reach in excess of 50% of the country by the end of the second quarter by way of distribution deals outside of Sinclair’s footprint.

We seek to expand our sports broadcasting in DMAs as profitable opportunities arise. ASN became a 24/7 sports network in January 2016 and is currently carried in 19 markets which we plan to expand as we build a regional strategy with a national reach. ASN has sports rights agreements with a number of distinguished NCAA Division I conferences including Conference USA, the Colonial Athletic Association, Mid-Atlantic Athletic Conference, Ivy League, and American Athletic Conference. In addition to its college initiative, ASN produces local high school sports under the “Thursday Night Lights” and “Friday Night Rivals” brands.

In early 2017, we plan to launch TBD, the first multiscreen TV network in the U.S. market to bring premium internet-first content to TV homes across America. TBD will include web series, short films, fashion, comedy, lifestyle, eSports, music and viral content, through partnerships with creators such as Nerdist, Whistle Sports, Geek and Sundry, The Lizzie Bennet Diaries, Kinonation Movies, and Fail Army.

Expansion of digital and internet. In 2016, we launched Circa, a national online digital news operation aimed at the Millennial demographic. The site is focused on issues trending from around the country, delivered in an independent-minded style, with a heavy focus on short and long form video, optimized for mobile and social media engagement. In addition to its unique stories, news talent and creativity, Circa has the added benefit of capitalizing on our broadcast branding and promotional platform to drive viewing impressions, an opportunity not available to other online news providers.

We have leveraged our digital expertise by launching Compulse through which we run effective, integrated, and multi-platform digital marketing programs that drive loyalty, engage consumers and help businesses achieve their goals.

These innovative products and extension of our core broadcast business allow us to compete for digital, internet, network, and print impressions and revenues. We continue to seek additional opportunities to invest in emerging digital technologies and digital content companies that support and expand Sinclair's digital capabilities and non-linear footprint.


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Development of Next Generation Broadcast Platforms (Next Gen). ONE Media has developed, successfully demonstrated, and received approval for inclusion in the ATSC 3.0 transmission standard, the critical signaling and framing technology that is core to building Next Gen. ATSC 3.0 is an enhancement to the current broadcast standard and provides for increased data bits that are mobile, universal and Internet Protocol (IP) based with conditional access. Next Gen provides a common IP pipe for broadband and broadcast convergence and compelling hybrid functionality; a way to make the broadcast platform an integral piece in the much broader wireless ecosystem. In addition, it opens opportunities to deliver enhanced core television services such as higher quality 4K “Ultra High Definition” video and immersive “3D Audio” sound, as well as the entire range of targeted advertising, personalized content delivery, and data collection and measurement. Additionally, Next Gen will allow us to deploy multiple new business opportunities. This could include partnerships with video and audio programming and other datacasting services, content delivery networks seeking to expand “edge” services, and other users seeking alternatives for regional and national content distribution.
Other Non-media Investments.  We have sought ways to diversify our business and return additional value to our shareholders through investments in non-media based businesses and real estate. We carry investments in various companies from different industries including sign design and fabrication and security alarm monitoring and bulk acquisition. In addition, we invest in various real estate ventures including developmental land, operating commercial and multi-family residential real estate properties and apartments. We also invest in private equity and structured debt / mezzanine financing investment funds. Currently, operating results from our investments represent a small portion of our overall operating results.

FEDERAL REGULATION OF TELEVISION BROADCASTING

The ownership, operation and sale of television stations are subject to the jurisdiction of the FCC, which acts under the authority granted by the Communications Act of 1934, as amended (the Communications Act).  Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and operating power of stations; issues, renews, revokes and modifies station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; and has the power to impose penalties for violations of its rules and regulations of the Communications Act.

The following is a summary of certain provisions of the Communications Act and specific FCC regulations and policies.  Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations.

License Grant and Renewal

Television stations operate pursuant to broadcasting licenses that are granted by the FCC for maximum terms of eight years and are subject to renewal upon application to the FCC.  During certain periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public.

  Although historically renewal of a license, including those of the Company, is granted in the vast majority of cases, even when petitions to deny are filed, there can be no assurance that the license of any station will be renewed or, if renewed, that the renewal terms will be for the maximum term permitted.

All of our stations' most recent license renewal applications have been granted for the maximum term permitted. The next television license renewal application cycle will begin on June 1, 2020.

Ownership Matters

General.  The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast license without the prior approval of the FCC.  In determining whether to permit the assignment or transfer of control of, or the grant or renewal of, a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with various rules limiting common ownership of media properties, the “character” of the licensee and those persons holding “attributable” interests in that licensee and compliance with the Communications Act’s limitations on foreign ownership.  The FCC has indicated that in order to approve an assignment or transfer of a broadcast license the FCC must make an affirmative determination that the proposed transaction serves the public interest, not merely that the transaction does not violate its rules or shares factual elements with other transactions previously approved by the FCC, and that it may deny a transaction if it determines that the transaction was not in the public interest.


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The FCC generally applies its ownership limits to “attributable” interests held by an individual, corporation, partnership or other association.  In the case of corporations holding, or through subsidiaries controlling, broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation’s stock (or 20% or more of such stock in the case of insurance companies, investment companies and bank trust departments that are passive investors) are generally attributable.  In addition, pursuant to what is known as the equity-debt-plus rule, a major programming supplier or same-market media entity will be an attributable owner of a station if the supplier or same-market media entity holds debt or equity, or both, in the station that is greater than 33% of the value of the station’s total debt plus equity.  Further, the Communications Act generally prohibits foreign parties from having more than a 20% interest (voting or equity) in a broadcast licensee or more than a 25% interest in the parent of that licensee. Following a Declaratory Ruling in 2013 in which the Commission indicated that it was open to considering proposals for foreign investment in broadcast licenses that exceed the 25% benchmark on a case by case basis, on September 29, 2016, the FCC adopted a Report and Order which among other things, (i) simplified the foreign ownership approval process for broadcast licensees seeking to exceed the 25% benchmark and (ii) modified the methodology a licensee may use to determine compliance with the foreign ownership rules.

Sinclair and its subsidiaries are domestic corporations, and the members of the Smith family (who, as of December 31, 2016, together hold approximately 77.3% of the common voting rights of Sinclair) are all United States citizens.  Our amended and restated Articles of Incorporation (the Amended Certificate) contain limitations on alien ownership and control that are substantially similar to those contained in the Communications Act.  Pursuant to the Amended Certificate, we have the right to repurchase alien-owned shares at their fair market value to the extent necessary, in the judgment of the Board of Directors, to comply with the alien ownership restrictions.

Additional ownership rules as currently in effect are as follows:

Radio / Television Cross-Ownership Rule.  The FCC’s radio / television cross-ownership rule generally permits a party to own a combination of up to two television stations and six radio stations in the same market, depending on the number of independent media voices in the market.

Newspaper / Broadcast Cross-Ownership Rule.  The FCC’s rule generally prohibits the common ownership of a radio or television broadcast station and a daily newspaper in the same market.  We do not currently own any daily newspapers.

National Ownership Rule.  By statute, the national television viewing audience reach cap is 39%.  Under this rule, where an individual or entity has an attributable interest in more than one television station in a market, the percentage of the national television viewing audience encompassed within that market is only counted once.  Additionally, because VHF stations (channels 2 through 13) historically covered a larger portion of the market than UHF stations (channels 14 through 51), only half of the households in the market area of any UHF station were, until recently, included when calculating an entity’s national television viewing audience (commonly referred to as the UHF discount). On September 6, 2016, the FCC released a Report and Order eliminating the UHF discount. This Order is currently the subject of a Petition for Reconsideration filed with the FCC and Petitions for Review filed in the U.S. Court of Appeals for the D.C. Circuit. We cannot predict the outcome of these proceedings.

The majority of the stations we own and operate, or to which we provide programming services, are UHF.  As a result of the recent elimination of the UHF discount, counting all our present stations and pending transactions, we reach over 38% of U.S. households, limiting our future ability to make television station acquisitions.  If the UHF discount is restored, this would reduce our reach (for FCC purposes) to approximately 24% of U.S. households, which would expand our ability to make televisions station acquisitions in the future.  See Item 1A. Risk Factors for further discussion of the risk related to the outcome of rules governing the UHF discount.

Local Television (Duopoly) Rule.  A party may own television stations in adjoining markets, even if there is a digital noise limited service contour overlap between the two stations’ broadcast signals, and generally may own two stations in the same market only (i) if there is no digital overlap between the stations; or (ii) if the market containing both the stations will contain at least eight independently owned full-power television stations post-merger (the eight voices test) and not more than one station is among the top-four rated stations in the market.


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Local Marketing and Outsourcing Agreements

Certain of our stations have entered into agreements with other stations in the same market, through which we provide programming and operating services pursuant to time brokerage or local marketing agreements (LMAs) or provide sales services and other non-programming operating services pursuant to outsourcing agreements, such as joint sales agreements (JSAs) and shared services agreements (SSAs).  LMAs and JSAs are attributable where a licensee holds an attributable interest in a television station and (i) programs more than 15% of the weekly broadcast hours and/or (ii) sells more than 15% of the weekly advertising time on another television station in the same market.

LMAs existing prior to November 5, 1996 are currently grandfathered until further FCC action. In August 2016, the FCC completed both its 2010 and 2014 quadrennial reviews of its media ownership rules and issued an order ("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 interest in one station sells more than 15% of the advertising time per week of the other station. JSAs existing as of March 31, 2014 were grandfathered until October 1, 2025, at which point they must be terminated, amended or otherwise come into compliance with the new rules. In addition, these "grandfathered" JSAs may be transferred or assigned without losing grandfathering status. These new rules 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. If we are required to terminate or modify our LMAs or JSAs, our business could be adversely affected in several ways, including losses on investments and termination penalties. Petitions for Reconsideration of the Ownership Order, including the new JSA attribution rules, were filed with the FCC and Petitions for Review of the Ownership Order were filed in the U.S. Court of Appeals for the D.C. Circuit. We cannot predict the outcome of these proceedings.  For more information on the risks, see Changes in rules on local marketing agreements within The FCC’s multiple ownership rules limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs.  Changes in these rules may threaten our existing strategic approach to certain television markets within Risk Factors and Changes in the Rules on Television Ownership within Note 11. Commitments and Contingencies for further discussion.

In March, 2014, the FCC issued a public notice on the processing of broadcast television applications proposing sharing arrangements and contingent interests.  The public notice indicated that the FCC will closely scrutinize any broadcast assignment or transfer application that proposes that two or more stations in the same market will enter into an agreement to share facilities, employees and/or services or to jointly acquire programming or sell advertising including through a JSA, LMA or similar agreement and enter into an option, right of first refusal, put /call arrangement or other similar contingent interest, or a loan guarantee. In February 2017, this guidance was rescinded by the FCC.

Antitrust Regulation.  DOJ and the Federal Trade Commission have increased their scrutiny of the television industry and have reviewed matters related to the concentration of ownership within markets (including LMAs and outsourcing agreements) even when ownership or the LMA or other outsourcing agreement in question is permitted under the laws administered by the FCC or by FCC rules and regulations.  The DOJ takes the position that an LMA or other outsourcing agreement entered into in anticipation of a station’s acquisition with the proposed buyer of the station constitutes a change in beneficial ownership of the station which, if subject to filing under the Hart-Scott-Rodino Antitrust Improvements Act, cannot be implemented until the waiting period required by that statute has ended or been terminated.

Satellite Carriage

The Satellite Home Viewer Act (SHVA), as extended by The Satellite Home Viewer Improvement Act of 1999 (SHVIA), the Satellite Home Viewer Extension and Reauthorization Act (SHVERA), the Satellite Television Extension and Localism Act of 2010 (STELA) and the Satellite Television Extension and Localism Act Reauthorization (STELAR) among other things, (i) allows satellite carriers to provide local television signals by satellite within a station market, and to carry all local signals in any market where they carry any local signals, (ii) requires all television stations to elect to exercise certain “must-carry” or “retransmission consent” rights in connection with their carriage by satellite carriers, and (iii) authorizes satellite delivery of distant network signals, significantly viewed signals and local low-power television station signals into local markets under defined circumstances.


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Must-Carry / Retransmission Consent

Television broadcasters are required to make triennial elections to exercise either certain “must-carry” or “retransmission consent” rights in connection with their carriage by cable systems in each broadcaster’s local market.   By electing to exercise must-carry rights, a broadcaster demands carriage and receives a specific channel on cable systems within its DMA. Must carry rights are not absolute and are dependent on a number of factors which may or may not be present in a particular case.  Alternatively, if a broadcaster chooses to exercise retransmission consent rights, it can prohibit cable systems from carrying its signal or grant the appropriate cable system the authority to retransmit the broadcast signal for a fee or other consideration.  We have elected to exercise our retransmission consent rights with respect to all our stations. 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. Under these rules, unless the stations are directly or indirectly under common de jure control as permitted under the regulations of the Commission, a station may not delegate authority to negotiate or approve a retransmission consent agreement to a station located in the same market or to a third party that negotiates together with another television station in the same market, nor may stations in the same market facilitate or agree to facilitate coordinated negotiation of retransmission consent terms for their stations in that market, including through the sharing of information.

Further, in September 2015, the FCC released a Notice of Proposed Rulemaking in response to a Congressional directive in STELAR to examine the “totality of the circumstances test” for good-faith negotiations of retransmission consent. The proposed rulemaking sought comment on new factors and evidence to consider in its evaluation of claims of bad faith negotiation, including service interruptions prior to a “marquee sports or entertainment event,” restrictions on online access to broadcast programming during negotiation impasses, broadcasters’ ability to offer bundles of broadcast signals with other broadcast stations or cable networks, and broadcasters’ ability to invoke the FCC’s exclusivity rules during service interruptions. On July 14, 2016, the FCC's Chairman announced that the FCC would not, at that 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.

Network Non-Duplication / Syndicated Exclusivity / Territorial Exclusivity

The FCC’s syndicated exclusivity rules allow local broadcast television stations to demand that cable operators black out syndicated non-network programming carried on “distant signals” (i.e. signals of broadcast stations, including so-called “superstations,” which serve areas substantially removed from the cable systems’ local community).  The FCC’s network non-duplication rules allow local broadcast, network affiliated stations to require that cable operators black out duplicate network programming carried on distant signals.  Both rules are subject to various exceptions and limitations.  In a number of markets in which we own or program stations affiliated with a network, a station that is affiliated with the same network in a nearby market is carried on cable systems in our markets.  Such significantly viewed signals are not subject to black out pursuant to FCC’s network non-duplication rules.  The carriage of two network stations on the same cable system could result in a decline of viewership, adversely affecting the revenues of our owned or programmed stations.  In March, 2014, the FCC issued a Report And Order And Further Notice Of Proposed Rulemaking, requesting comments on whether it has authority to, and should, eliminate or modify its network non-duplication and/or syndicated exclusivity rules.  This proceeding is pending and we cannot predict when or how the FCC will resolve that rulemaking.

Digital Television

FCC rules provide that television broadcast licensees may use their digital television (DTV) channels for a wide variety of services such as HD television, multiple standard definition television programming, audio, data and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard and further subject to the requirement that broadcasters pay a fee of 5% of gross revenues from any DTV ancillary or supplementary service for which there is a subscription fee or for which the licensee receives a fee from a third party.


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Programming and Operations

  The Communications Act requires broadcasters to serve the “public interest.”  The FCC has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license.  FCC licensees continue to be required, however, to present programming that is responsive to the needs and interests of their communities and to maintain certain records demonstrating such responsiveness.  Complaints from viewers concerning a station’s programming may be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time and generally may be considered by the FCC at any time.  Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, obscene and indecent broadcasts and technical operations, including limits on radio frequency radiation. In addition, television licensees have obligations to create and follow employment outreach programs, provide a minimum amount of programming for children, comply with rules relating to the emergency alert system (EAS), maintain an online public inspection file and abide by regulations specifying requirements to provide closed captions for its programming. FCC licensees are, in general, responsible for the content of their broadcast programming, including that supplied by television networks.  Accordingly, there is a risk of being fined as a result of our broadcast programming, including network programming. 

Pending Matters

Congress and the FCC have under consideration and in the future may consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership and profitability of our broadcast stations, result in the loss of audience share and advertising revenues for our broadcast stations and affect our ability to acquire additional broadcast stations or finance such acquisitions.

Other matters that could affect our broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as direct television broadcast satellite service, Class A television service, the continued establishment of wireless cable systems and low power television stations, digital television technologies, the internet and mobility and portability of our broadcast signal to hand-held devices.

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. This "reverse" portion of the spectrum auction was completed in early 2017. Based on the bids accepted by the FCC, we anticipate that we will receive later in 2017 an estimated $313.0 million of gross proceeds from the auction. The results of the auction are not expected to produce any material change in operations or results of the Company. In the repacking process associated with the auction, the FCC has reassigned some stations to new post-auction channels. We do not expect reassignment to new channels to have a material impact on our coverage. We received letters from the FCC in February 2017 notifying us that 93 of our stations have been assigned to new channels. The legislation authorizing the incentive auction provides the FCC with a $1.75 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. We expect that Dielectric will be critical in the repack of the broadcast spectrum for both our stations and other broadcasters.

Other Considerations

The preceding summary is not a complete discussion of all provisions of the Communications Act or other congressional acts or of the regulations and policies of the FCC, or in some cases, the DOJ.  For further information, reference should be made to the Communications Act other congressional acts and regulations and public notices circulated from time to time by the FCC, or in some cases, the DOJ.  There are additional regulations and policies of the FCC and other federal agencies that govern political broadcasts, advertising, equal employment opportunity and other matters affecting our business and operations.
 

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ENVIRONMENTAL REGULATION
 
Prior to our ownership or operation of our facilities, substances or waste that are, or might be considered, hazardous under applicable environmental laws may have been generated, used, stored or disposed of at certain of those facilities.  In addition, environmental conditions relating to the soil and groundwater at or under our facilities may be affected by the proximity of nearby properties that have generated, used, stored or disposed of hazardous substances.  As a result, it is possible that we could become subject to environmental liabilities in the future in connection with these facilities under applicable environmental laws and regulations.  Although we believe that we are in substantial compliance with such environmental requirements and have not in the past been required to incur significant costs in connection therewith, there can be no assurance that our costs to comply with such requirements will not increase in the future or that we will not become subject to new governmental regulations, including those pertaining to potential climate change legislation, that may impose additional restrictions or costs on us.  We presently believe that none of our properties have any condition that is likely to have a material adverse effect on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows.
 
COMPETITION
 
Our television stations compete for audience share and advertising revenue with other television stations in their respective DMAs, as well as with other advertising media such as MVPDs, cable networks, radio, newspapers, magazines, outdoor advertising, transit advertising, telecommunications providers, direct mail, and internet and other digital media, such as OTT.  Some competitors are part of larger organizations with substantially greater financial, technical and other resources than we have.  Other factors that are material to a television station’s competitive position include signal coverage, local program acceptance, network affiliation or program service, audience characteristics and assigned broadcast frequency.
 
Competition in the television broadcasting industry occurs primarily in individual DMAs.  Generally, a television broadcasting station in one DMA does not compete with stations in other DMAs.  Our television stations are located in highly competitive DMAs.  MVPDs can increase competition for a broadcast television station by bringing into its market additional cable network channels.  These narrow cable network channels are typically low rated, and, as a result, advertisements are inexpensive to the local advertisers.  In addition, certain of our DMAs are overlapped by over-the-air station from adjacent DMAs and MVPDs of stations from other DMAs, which tends to spread viewership and advertising expenditures over a larger number of television stations.
 
Television stations compete for audience share primarily on the basis of program popularity, which has a direct effect on advertising rates.  Our network affiliated stations are largely dependent upon the performance of network provided programs in order to attract viewers.  Non-network time periods are programmed by the station primarily with syndicated programs purchased for cash, cash and barter or barter-only, as well as through self-produced news, public affairs programs, live local sporting events, paid-programming and other entertainment programming.
 
Television advertising rates are based upon factors which include the size of the DMA in which the station operates, a program’s popularity among the viewers that an advertiser wishes to attract, the number of advertisers competing for the available time, the demographic makeup of the DMA served by the station, the availability of alternative advertising media in the DMA, the aggressiveness and knowledge of the sales forces in the DMA and development of projects, features and programs that tie advertiser messages to programming.  We believe that our sales and programming strategies allow us to compete effectively for advertising revenues within our DMAs.
 
The television broadcasting industry is continuously faced with technical changes and innovations, competing entertainment and communications media, changes in labor conditions and governmental restrictions or actions of federal regulatory bodies, including the FCC, any of which could possibly have a material effect on a television station’s operations and profits. 
 
Moreover, technology advances and regulatory changes affecting programming delivery through fiber optic lines, video compression, and new wireless uses could lower entry barriers for new video channels and encourage the further development of increasingly specialized “niche” programming.  Telephone companies are permitted to provide video distribution services, on a common carrier basis, as “cable systems” or as “open video systems,” each pursuant to different regulatory schemes.  Additionally, over-the-top (OTT) services allows consumers to consume programming on-demand and without a subscription with an MVPD. We continue to compete with the OTT services for viewership.

DTV technology allows us to provide viewers multiple channels of digital television over each of our existing standard digital channels, to provide certain programming in HD television format and to deliver other channels of information in the forms of data and programming to the internet, PCs, smart phones, tablet computers and mobile devices.  These additional capabilities may provide us with additional sources of revenue, as well as additional competition.

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We also compete for programming which involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming.  Our stations compete for access to those programs against in-market broadcast station competitors for syndicated products and with national cable networks.  Public broadcasting stations generally compete with commercial broadcasters for viewers, but not for advertising dollars.
 
We believe we compete favorably against other television stations because of our management skill and experience, our ability historically to generate revenue share greater than our audience share, our network affiliations and program service arrangements and our local program acceptance.  In addition, we believe that we benefit from the operation of multiple broadcast properties, affording us certain non-quantifiable economies of scale and competitive advantages in the purchase of programming.
 
EMPLOYEES
 
As of December 31, 2016, we had approximately 8,400 employees.  Approximately 800 employees are represented by labor unions under certain collective bargaining agreements.  We have not experienced any significant labor problems and consider our overall labor relations to be good.
 
AVAILABLE INFORMATION
 
We regularly use our website as a source of company information and it can be accessed at www.sbgi.net. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically submitted to the SEC, who also makes these reports available at http://www.sec.gov.  In addition, a replay of each of our quarterly earnings conference calls is available on our website until the subsequent quarter’s earnings call.  The information contained on, or otherwise accessible through, our website is not a part of this Annual Report on Form 10-K and is not incorporated herein by reference.
 
ITEM 1A.                                       RISK FACTORS
 
You should carefully consider the risks described below before investing in our securities.  Our business is also subject to the risks that affect many other companies such as general economic conditions, geopolitical events, competition, technological obsolescence and employee relations.  The risks described below, along with risks not currently known to us or that we currently believe are immaterial, may impair our business operations and our liquidity in an adverse way. 

Our advertising revenue can vary substantially from period to period based on many factors beyond our control.  This volatility affects our operating results and may reduce our ability to repay indebtedness or reduce the market value of our securities.

We rely on sales of advertising time for the majority of our revenues and, as a result, our operating results depend on the amount of advertising revenue we generate.  If we generate less advertising revenue, it may be more difficult for us to repay our indebtedness and the value of our business may decline.  Our ability to sell advertising time depends on:
 
the levels of automobile advertising, which historically have represented about one quarter of our advertising revenue; for the year ended December 31, 2016, automobile advertising represented 22.5% of our net time sales and internet revenue;
the health of the economy in the areas where our television stations are located and in the nation as a whole;
the popularity of our programming and that of our competition;
the levels of political advertising, which are affected by campaign finance laws and the ability of political candidates and political action committees to raise and spend funds, which are subject to seasonal fluctuations;
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;
the effects of new rating methodologies;
changes in the makeup of the population in the areas where our stations are located;
the activities of our competitors, including increased competition from other forms of advertising-based mediums, such as other broadcast television stations, radio stations, MVPDs, internet and broadband content providers and other print, outdoor, and media outlets serving in the same markets;
over-the-top (OTT) and other emerging technologies and their potential impact on cord-cutting;
the impact of MVPD’s offering “skinny” programming bundles that may not include television broadcast stations;
changes in pricing and sellout levels; and

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other factors that may be beyond our control.
 
There can be no assurance that our advertising revenue will not be volatile in the future or that such volatility will not have an adverse impact on our business, financial condition or results of operations.
 
Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations.
 
We have a high level of debt, totaling $4,203.8 million at December 31, 2016, compared to the book value of shareholders’ equity of $557.9 million on the same date.  Our relatively high level of debt poses the following risks, particularly in periods of declining revenues:
 
we may be unable to service our debt obligations, including payments on notes as they come due, especially during general negative economic, financial credit, and market industry conditions;
we may use a significant portion of our cash flow to pay principal and interest on our outstanding debt, especially during general negative economic and market industry conditions;
the amount available for working capital, capital expenditures, dividends and other general corporate purposes may be limited because a significant portion of cash flow is used to pay principal and interest on outstanding debt;
our lenders may not be as willing to lend additional amounts to us for future working capital needs, additional acquisitions or other general corporate purposes;
the cost to borrow from lenders may increase;
our ability to access the capital markets may be limited, and we may be unable to issue securities with pricing or other terms that we find attractive, if at all;
if our cash flow were inadequate to make interest and principal payments, we might have to restructure or refinance our indebtedness or sell one or more of our stations to reduce debt service obligations;
we may be more vulnerable to adverse economic conditions than less leveraged competitors and thus, less able to withstand competitive pressures; and
because the interest rate under the Bank Credit Agreement is a floating rate, any increase will reduce the funds available to repay our obligations and for operations and future business opportunities and will make us more vulnerable to the consequences of our leveraged capital structure.  As of December 31, 2016, approximately $1,637.8 million principal amount of our recourse debt relates to the Bank Credit Agreement.
 
Any of these events could reduce our ability to generate cash available for investment, debt repayment or capital improvements or to respond to events that would enhance profitability.
 
Commitments we have made to our lenders limit our ability to take actions that could increase the value of our securities and business or may require us to take actions that decrease the value of our securities and business.
 
Our existing financing agreements prevent us from taking certain actions and require us to meet certain tests.  These restrictions and tests may require us to conduct our business in ways that make it more difficult to repay unsecured debt or decrease the value of our securities and business.  These restrictions and tests include the following:

restrictions on additional debt;
restrictions on our ability to pledge our assets as security for indebtedness;
restrictions on payment of dividends, the repurchase of stock and other payments relating to our capital stock;
restrictions on some sales of certain assets and the use of proceeds from asset sales;
restrictions on mergers and other acquisitions, satisfaction of conditions for acquisitions and a limit on the total amount of acquisitions without the consent of bank lenders;
restrictions on permitted investments;
restrictions on the lines of business we and our subsidiaries may operate; and
financial ratio and condition tests including, the ratio of first lien indebtedness to adjusted EBITDA and the ratio of Sinclair Television Group, Inc. (STG) total indebtedness to adjusted EBITDA.
 
Future financing arrangements may contain additional restrictions and tests.  All of these restrictive covenants may limit our ability to pursue our business strategies, prevent us from taking action that could increase the value of our securities or may require actions that decrease the value of our securities.  In addition, we may fail to meet the tests and thereby default on one or more of our obligations (particularly if the economy weakens and thereby reduces our advertising revenues).  If we default on our obligations, creditors could require immediate payment of the obligations or foreclose on collateral. If this happens,

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we could be forced to sell assets or take other actions that could significantly reduce the value of our securities and business and we may not have sufficient assets or funds to pay our debt obligations.
 
A failure to comply with covenants under our debt instruments could result in a default under such debt instruments, acceleration of amounts due under our debt and loss of assets securing our loans.
 
Certain of our debt agreements contain cross-default provisions with our other debt, which means that a default under certain of our debt instruments may cause a default under certain indentures or the Bank Credit Agreement.
 
If we breach certain of our debt covenants, our lenders could require us to repay the debt immediately, and, if the debt is secured, could immediately take possession of the property securing such debt.  In addition, if any other lender declared its loan due and payable as a result of a default, the holders of our outstanding notes, along with the lenders under the Bank Credit Agreement, might be able to require us to pay those debts immediately.
 
As a result, any default under our debt covenants could have a material adverse effect on our financial condition and our ability to meet our obligations.
 
Any insolvency or bankruptcy proceeding relating to material third-party licensees as defined by our Bank Credit Agreement, would cause a default and potential acceleration under the Bank Credit Agreement.
 
Our Bank Credit Agreement contains certain cross-default provisions with certain material third-party licensees, defined as any party that owns the license assets of one or more television stations which we provide services to pursuant to LMAs and/or other outsourcing agreements and those stations provide 20% or more of our aggregate broadcast cash flows.  A default caused by an involuntary or voluntary petition filed for liquidation, reorganization or other relief of insolvency by a material third-party licensee, or a failure of a material third-party licensee to preserve and maintain its legal existence or any of its material rights, privileges or franchises including its broadcast licenses, would cause an event of default and potential acceleration under our Bank Credit Agreement. As of December 31, 2016, there were no material third party licensees as defined in our Bank Credit Agreement.
 
Despite current debt levels, we may be able to incur significantly more debt in the future, which could increase the foregoing risks related to our indebtedness.
 
At December 31, 2016, we had $483.3 million available (subject to certain borrowing conditions) for additional borrowings under the revolving credit facility (the Revolving Credit Facility) of the Bank Credit Agreement.  Under the terms of the debt instruments to which we are subject, and provided we meet certain financial and other covenants, we may be able to incur substantial additional indebtedness in the future, including additional senior debt and secured debt.  If we incur additional indebtedness, the risks described in the risk factors in this report relating to having substantial debt could intensify.
 
Our strategic acquisitions and investments could pose various risks and increase our leverage.
 
We have pursued and intend to selectively continue to pursue strategic acquisitions and investments, subject to market conditions, our liquidity and the availability of attractive acquisition and investment candidates, with the goal of improving our business.

We may not be able to identify other attractive acquisition or investment targets or we may not be able to fund additional acquisitions or investments in the future.  Acquisitions involve inherent risks, such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our results of operations and could strain our human resources.  We may not be able to successfully implement effective cost controls or increase revenues as a result of an acquisition.  In addition, future acquisitions may result in our assumption of unexpected liabilities and may result in the diversion of management’s attention from the operation of our core business.
 
Certain acquisitions, such as television stations, are subject to the approval of the FCC and potentially, other regulatory authorities.  The need for FCC and other regulatory approvals could restrict our ability to consummate future transactions and potentially require us to divest certain television stations if the FCC believes that a proposed acquisition would result in excessive concentration in a market, even if the proposed combinations may otherwise comply with FCC ownership limitations.
 

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Our investments in other non-media related businesses involve risks, including the diversion of resources, that may adversely affect our business or results of operations.
 
We have made investments in certain non-media related businesses. See Item 1. Business for further description of such investments and/or subsidiaries.  Managing the operations of these businesses and the costs incurred by these businesses involve risks, including the diversion of our management’s attention from managing the operations of our broadcast businesses and diverting other resources that could be used in our broadcast businesses. Such diversion of resources may adversely affect our business and results of operations.  In addition, our investments in real estate ventures carry inherent risks related to owning interests in real property, including, among others, the relative illiquidity of real estate, potential adverse changes in real estate market conditions, and changes in tenant preferences.  There can be no assurance that our investments in these businesses will yield a positive rate of return or otherwise be recoverable.
 
Financial and economic conditions may have an adverse impact on our industry, business, and results of operations or financial condition.
 
Financial and economic conditions could have an adverse effect on the fundamentals of our business, results of operations and/or financial condition.  Poor economic and industry conditions could have a negative impact on our industry or the industry of those customers who advertise on our stations, including, among others, the automotive industry and service businesses, each of which is a significant source of our advertising revenue.  Additionally, financial institutions, capital providers, or other consumers may be adversely affected.  Potential consequences of any financial and economic decline include:
 
the financial condition of those companies that advertise on our stations and digital platforms, including, among others, the automobile manufacturers and dealers, may be adversely affected and could result in a significant decline in our advertising revenue;
our ability to pursue the acquisition of attractive television and non-television assets may be limited if we are unable to obtain any necessary additional capital on favorable terms, if at all;
our ability to pursue the divestiture of certain television and non-television assets at attractive values may be limited;
the possibility that our business partners, such as counterparties to our outsourcing and news share arrangements, could be negatively impacted and our ability to maintain these business relationships could also be impaired; and
our ability to refinance our existing debt on terms and at interest rates we find attractive, if at all, may be impaired;
our ability to make certain capital expenditures may be significantly impaired; and
the possibility of consumers cutting the cord, thereby impacting our retransmission revenues.
 
We purchase television programming in advance based on expectations about future revenues.  Actual revenues may be lower than our expectations.  If this happens, we could experience losses that may make our securities less valuable.
 
One of our most significant costs is network and syndicated programming.  Our ability to generate revenue to cover this cost may affect the value of our securities.  If a particular network or program is not popular in relation to its costs, we may not be able to sell enough advertising time to cover the cost. 

We generally purchase syndicated programming content from others rather than producing such content ourselves, therefore, we have limited control over the costs of the programming.  Often we must purchase syndicated programming several years in advance and may have to commit to purchase more than one year’s worth of programming.  We may replace programs that are doing poorly before we have recaptured any significant portion of the costs we incurred or before we have fully amortized the costs.  We also receive programming from networks with which we have network affiliation agreements. Generally, the agreements are for many years. The popularity of networks can affect revenue earned on those channels. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues.  These factors are exacerbated during a weak advertising market.
 

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We internally originate television programming in advance based on expectations about future revenues. Actual revenues could fluctuate and may be lower than our expectations. If this happens, we could experience losses that may make our securities less valuable.
 
The production of internally originated programming requires a large up-front investment and the revenues derived from the airing of internally originated programming primarily depends upon its acceptance by the public, which is difficult to predict. The commercial success of original content also depends upon the quality and acceptance of other competing content released into the marketplace at or near the same time, the availability of a growing number of alternative forms of entertainment, general economic conditions and their effects on consumer spending and other tangible and intangible factors, all of which can change and cannot be predicted with certainty. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues.  These factors are exacerbated during a weak advertising market. 
 
We may lose a large amount of programming if a network terminates its affiliation or program service arrangement with us, we are not able to negotiate arrangements at terms comparable to or more favorable than our current agreements, or if networks make programming available through services other than our local affiliates, which could increase our costs and/or reduce our revenue.
 
The networks produce and distribute programming in exchange for each station’s commitment to air the programming at specified times and for commercial announcement time during programming.  The amount and quality of programming provided by each network varies.  See Television Markets and Stations within Item 1. Business for a detailed listing of our stations and channels.
 
As network affiliation agreements come up for renewal, we (or licensees of the stations we provide programming and/or sales services to), may not be able to negotiate terms comparable to or more favorable than our current agreements.  The non-renewal or termination of any of our network affiliation agreements would prevent us from being able to carry programming of the relevant network.  This loss of programming would require us to obtain replacement programming, which may involve higher costs and which may not be as attractive to our target audiences, resulting in reduced revenues. Upon the termination of any of our network affiliation agreements, we would be required to establish a new network affiliation agreement for the affected station with another network or operate as an independent station.  At such time, the remaining value of the network affiliation asset could become impaired and we would be required to record impairment charges to write down the value of the asset to its estimated fair value.
 
We cannot predict the outcome of any future negotiations relating to our affiliation agreements or what impact, if any, they may have on our financial condition and results of operations.  In addition, the impact of an increase in reverse network compensation payments, under which we compensate the network for programming pursuant to our affiliation agreements, may have a negative effect on our financial condition or results of operations.
 
We may not be able to renegotiate retransmission consent agreements at terms comparable to or more favorable than our current agreements and networks with which we are affiliated are currently, or in the future are expected to, require us to share revenue from retransmission consent agreements with them.
 
As retransmission consent agreements expire, we may not be able to renegotiate such agreements at terms comparable to or more favorable than our current agreements.  This may cause revenues and/or revenue growth from our retransmission consent agreements to decrease under the renegotiated terms despite the fact that our current retransmission consent agreements include automatic annual fee escalators.  In addition, certain networks or program service providers with which we are affiliated are currently, or in the future are expected to, require us to share revenue from retransmission consent agreements with them as part of renewing expiring affiliation agreements or pursuant to certain rights contained in existing affiliation agreements. Generally, our retransmission consent agreements and agreements with networks or program service providers are for different lengths of time and expire in different periods. If we are unable to negotiate a retransmission consent agreement or the revenue received as part of those agreements declines over time, then we may be exposed to a reduction in or loss from retransmission revenue net of revenue shared with networks and program service providers. We cannot predict the outcome or provide assurances as to the outcome of any future negotiations relating to our affiliation agreements or what impact, if any, they may have on our financial condition and results of operations. During 2016, we entered into a consent decree with the FCC pursuant to an investigation regarding allegations made by an MVPD that we violated FCC rules around negotiating retransmission consent agreements. See Changes in the Rules on Television Ownership within Note 10. Commitments and Contingencies with the Consolidated Financial Statements for further discussion.


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The effects of the economic environment could require us to record an asset impairment of goodwill and indefinite-lived intangible assets.
 
We are required to analyze goodwill and certain other intangible assets for impairment.  The accounting guidance establishes a method of testing goodwill and broadcast licenses for impairment on an annual basis, or on an interim basis if an event occurs that would reduce the fair value of a reporting unit or an indefinite-lived asset below its carrying value.  For additional information regarding impairments to our goodwill and broadcast licenses, see Valuation of Goodwill and Intangible Assets and Equity and Cost Method Investments under Critical Accounting Policies and Estimates within Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5.  Goodwill, Indefinite-Lived Intangible Assets and Other Intangible Assets within the Consolidated Financial Statements.
 
Key officers and directors have financial interests that are different and sometimes opposite from ours and we may engage in transactions with these officers and directors that may benefit them to the detriment of other security holders.
 
Some of our officers, directors and majority shareholders own stock or partnership interests in businesses that do business with us or otherwise do business that conflicts with our interests.  They may transact some business with us upon approval by the independent members of our board of directors even if there is a conflict of interest or they may engage in business competitive to our business and those transactions may benefit the officers, directors or majority shareholders to the detriment of our security holders.  Each of David D. Smith, Frederick G. Smith, and J. Duncan Smith is an officer and director of Sinclair and Robert E. Smith is a director of Sinclair.  Together, the Smiths hold shares of our common stock that control the outcome of most matters submitted to a vote of shareholders.
 
David D. Smith, Frederick G. Smith, J. Duncan Smith, Robert E. Smith and David B. Amy, our Vice Chairman, together own interests (less than 5% in aggregate) in Allegiance Capital Limited Partnership, a limited partnership in which we also hold an interest.  Frederick G. Smith owns an interest (less than 1%) in Patriot Capital II, L.P., a limited partnership in which we also hold an interest.  David Smith owns an interest (less than 3%) in Towson Row LLC, a real estate venture, in which we also hold an interest.  For additional information regarding our related person transactions, see Note 11. Related Person Transactions within the Consolidated Financial Statements.  We can give no assurance that these transactions or any transactions that we may enter into in the future with our officers, directors or majority shareholders, have been, or will be, negotiated on terms as favorable to us as we would obtain from unrelated parties.  Maryland law and our financing agreements limit the extent to which our officers, directors and majority shareholders may transact business with us and pursue business opportunities that we might pursue.  These limitations do not, however, prohibit all such transactions.
 
We depend on key personnel and we may not be able to operate and grow our business effectively if we lose the services of our senior executive officers or are unable to attract and retain qualified personnel in the future.
 
We depend on the efforts of our management and other key employees.  The success of our business depends heavily on our ability to develop and retain management and to attract and retain qualified personnel in the future.  Competition for senior management personnel is intense, and we may not be able to retain our key personnel.  If we are unable to do so, our business, financial condition or results of operations may be adversely affected.
 
The Smiths exercise control over most matters submitted to a shareholder vote and may have interests that differ from other security holders.  They may, therefore, take actions that are not in the interests of other security holders.
 
David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith hold shares representing approximately 77.4% of the common stock voting rights of the Company and, therefore, control the outcome of most matters submitted to a vote of shareholders, including, but not limited to, electing directors, adopting amendments to our certificate of incorporation and approving corporate transactions.  The Smiths hold substantially all of the Class B Common Stock, which have ten votes per share.  Our Class A Common Stock has only one vote per share.  In addition, the Smiths hold half our board of directors’ seats and, therefore, have the power to exert significant influence over our corporate management and policies.  The Smiths have entered into a stockholders’ agreement pursuant to which they have agreed to vote for each other as candidates for election to our board of directors until December 31, 2025.
 
Although in the past the Smiths have recused themselves from related person transactions, circumstances may occur in which the interests of the Smiths, as the controlling security holders, could be in conflict with the interests of other security holders and the Smiths would have the ability to cause us to take actions in their interest.  In addition, the Smiths could pursue acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to our other security holders.  Further, the concentration of ownership the Smiths have may have the effect of discouraging, delaying or preventing a future change of control, which could deprive our stockholders

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of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our shares.
 
(See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and Item 13. Certain Relationships and Related Transactions, which will be included as part of our Proxy Statement for our 2016 Annual Meeting.)
 
Significant divestitures by the Smiths could cause them to own or control less than 51% of the voting power of our shares, which would in turn give Cunningham the right to terminate the LMAs and other outsourcing agreements with Cunningham due to a “change in control.”  Any such terminations would have an adverse effect on our results of operations.  The FCC’s multiple ownership rules limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs.  Changes in these rules may threaten our existing strategic approach to certain television markets.  See the risk factor below regarding the FCC's multiple ownership rules.
 
We may be subject to fines and other penalties related to violations of FCC indecency rules and other FCC rules and policies, the enforcement of which has increased in recent years, and complaints related to such violations may delay our renewal applications with the FCC.
 
We provide a significant amount of live news reporting that is provided by the broadcast networks or is controlled by our on-air news talent.  Although both broadcast network and our on-air talent have generally been professional and careful in what they say, there is always the possibility that information may be reported that is inaccurate or even in violation of certain indecency rules promulgated by the FCC.  In addition, entertainment and sports programming provided by broadcast syndicators and networks may contain content that is in violation of the indecency rules promulgated by the FCC.  Because the interpretation by the courts and the FCC of the indecency rules is not always clear, it is sometimes difficult for us to determine in advance what may be indecent programming.  We have insurance to cover some of the liabilities that may occur, but the FCC has enhanced its enforcement efforts relating to the regulation of indecency.  Violation of the indecency rules could potentially subject us to penalties, license revocation, or renewal or qualification proceedings.  There can be no assurance that an incident that may lead to significant fines or other penalties by the FCC can be avoided.

From time to time, we may have received or been promised payment for airing program material. FCC rules require that all such sponsored material be explicitly identified at the time of the broadcast as paid for and by whom, except when it is clear that the mention of a product or service constitutes sponsorship identification. There can be no assurance that an incident that may lead to significant fines or other penalties by the FCC can be avoided. 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. 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.

 
Federal regulation of the broadcasting industry limits our operating flexibility, which may affect our ability to generate revenue or reduce our costs.
 
The FCC regulates our business, just as it does all other companies in the broadcasting industry.  We must obtain the FCC’s approval whenever we need a new license, seek to renew, assign or modify a license, purchase a new station, sell an existing station or transfer the control of one of our subsidiaries that hold a license.  Our FCC licenses and those of the licensees which we provide services to pursuant to LMAs and other outsourcing agreements are critical to our operations; we cannot operate without them.  We cannot be certain that the FCC will renew these licenses in the future or approve new acquisitions in a timely manner, if at all.  If licenses are not renewed or acquisitions are not approved, we may lose revenue that we otherwise could have earned.
 
In addition, Congress and the FCC may, in the future, adopt new laws, regulations and policies regarding a wide variety of matters (including, but not limited to, technological changes in spectrum assigned to particular services) that could, directly or indirectly, materially and adversely affect the operation and ownership of our broadcast properties.  (See Item 1. Business.)
 

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The FCC’s multiple ownership rules limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs.  Changes in these rules may threaten our existing strategic approach to certain television markets.
 
Television ownership
 
As discussed in National Ownership Rule within Federal Regulation of Television Broadcasting within Item 1. Business, in September 2016, the FCC recently eliminated the UHF discount. Because we are near the 39% cap without application of the UHF discount, this change, could limit our ability to acquire television stations in additional markets. The FCC’s elimination of the UHF discount is currently the subject of a Petition for Reconsideration filed with the FCC and Petitions for Review filed in the U.S. Court of Appeals for the D.C. Circuit. We cannot predict the outcome of these proceedings.
 
Under federal law, the FCC is required to review its ownership rules every four years (a ‘‘Quadrennial Review’’) to determine whether they are necessary in the public interest as the result of competition and to repeal or modify any regulation the FCC determines to be no longer in the public interest.
 
In August 2016, the FCC completed both its 2010 and 2014 quadrennial reviews of tis 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 that, for JSAs where two television stations are located in the same market, and a party with an attributable ownership interest in the second station. The Ownership Order also requires that JSAs that existed prior to March 31, 2014, 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 losing grandfathering status. Among other things, the new JSA rule could limit our future ability to create duopolies or other two-station operations in certain markets. We cannot predict whether we will be able to terminate or restructure such arrangements prior to October 1, 2025, on terms that are as advantageous to us as the current arrangements.  The revenues of these JSA arrangements we earned during the years ended December 31, 2016 and 2015 were $58.6 million and $46.8 million, respectively. The Ownership Order is the subject of an appeal to the U.S. Court of Appeals for the D.C. Circuit and of Petitions for Reconsideration before the FCC. We cannot predict the outcome of that appeal or petitions.
 
Certain of our stations have entered into what have commonly been referred to as local marketing agreements or LMAs.  One typical type of LMA is a programming agreement between two separately owned television stations serving the same market, whereby the licensee of one station programs substantial portions of the broadcast day and sells advertising time during such programming segments on the other licensee’s station subject to the ultimate editorial and other controls being exercised by the latter licensee. We believe these arrangements allow us to reduce our operating expenses and enhance profitability. During the year ended December 31, 2016 and 2015, we generated net revenue from our LMAs of $88.7 million and $109.7 million, respectively.
 
In addition to our LMAs, we have entered into outsourcing agreements (such as JSAs) whereby 31 stations provide various non-programming related services such as sales, operational and managerial services to or by other stations within the same markets.  We believe this structure allows stations to achieve operational efficiencies and economies of scale, which should otherwise improve broadcast cash flow and competitive positions. For additional information, refer to Television Markets and Stations within Item 1. Business.

See Changes in the Rules on Television Ownership within Note 10. Commitments and Contingencies with the Consolidated Financial Statements for further discussion.
 
If we are required to terminate or modify our LMAs and other outsourcing agreements, our business could be affected in the following ways:
 
Loss of revenues.  If the FCC requires us to modify or terminate existing arrangements, we would lose some or all of the revenues generated from those arrangements.  We would lose revenue because we will have fewer demographic options, a smaller audience distribution and lower revenue share to offer to advertisers.
Increased costs.  If the FCC requires us to modify or terminate existing arrangements, our cost structure would increase as we would potentially lose significant operating synergies and we may also need to add new employees.  With termination of LMAs, we likely would incur increased programming costs because we will be competing with the separately owned station for syndicated programming.

27


Losses on investments.  As part of certain of our arrangements, we own the non-license assets used by the stations with which we have arrangements.  If certain of these arrangements are no longer permitted, we would be forced to sell these assets, restructure our agreements or find another use for them.  If this happens, the market for such assets may not be as good as when we purchased them and, therefore, we cannot be certain of a favorable return on our original investments.
Termination penalties.  If the FCC requires us to modify or terminate existing arrangements before the terms of the arrangements expire, or under certain circumstances, we elect not to extend the terms of the arrangements, we may be forced to pay termination penalties under the terms of certain of our arrangements.  Any such termination penalties could be material.
Alternative arrangements.  If the FCC requires us to terminate the existing arrangements, we may enter into one or more alternative arrangements.  Any such arrangements may be on terms that are less beneficial to us than the existing arrangements.
 
Failure of owner / licensee to exercise control
 
The FCC requires the owner / licensee of a station to maintain independent control over the programming and operations of the station.  As a result, the owners / licensees of those stations with which we have LMAs can exert their control in ways that may be counter to our interests, including the right to preempt or terminate programming in certain instances.  The preemption and termination rights cause some uncertainty as to whether we will be able to air all of the programming that we have purchased under our LMAs and therefore, uncertainty about the advertising revenue that we will receive from such programming.  In addition, if the FCC determines that the owner / licensee is not exercising sufficient control, it may penalize the owner licensee by a fine, revocation of the license for the station or a denial of the renewal of that license.  Any one of these scenarios, especially the revocation of or denial of renewal of a license, might result in a reduction of our cash flow or margins and an increase in our operating costs.  In addition, penalties might also affect our qualifications to hold FCC licenses, putting our own licenses at risk.
 
The pendency and indeterminacy of the outcome of these ownership rules, which may limit our ability to provide services to additional or existing stations pursuant to licenses, LMAs, outsourcing agreements or otherwise, expose us to a certain amount of volatility, particularly if the outcomes are adverse to us.  Further, resolution of these ownership rules has been and will likely continue to be a cost burden and a distraction to our management and the continued absence of a resolution may have a negative effect on our business.
 
The FCC’s National Broadband Plan may result in a loss of spectrum for our stations potentially adversely impacting our ability to compete.
 
As discussed in Pending Matters under Federal Regulation of Television Broadcasting within Item. 1 Business, Congress has authorized the FCC to conduct so-called “incentive auctions” to auction and repurpose broadcast television spectrum for mobile broadband use. Even though participation in the incentive auction is voluntary, a broadcaster may still be required to relocate its station to another channel or make technical changes to facilitate repacking the band. 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. The reverse portion of the spectrum auction was completed in early 2017. Based on the bids accepted by the FCC, we anticipate that we will receive later in 2017 an estimated $313.0 million of gross proceeds from the auction. The results of the auction are not expected to produce any material change in the operations or results of the Company. In the repacking process associated with the auction, the FCC has reassigned some stations to new post-auction channels. We received letters from the FCC in February 2017 notifying us that 93 of our stations have been assigned to new channels. The legislation authorizing the incentive auction provides the FCC with a $1.75 billion fund to reimburse certain costs incurred by stations that are reassigned to new channels in the repack.

We further cannot predict the outcome of the incentive auction or its effect upon our ability to compete. Additionally, we cannot predict whether the FCC or Congress might adopt even more stringent requirements or incentives to abandon current spectrum if the incentive auction does not have the desired result of freeing what the agency deems to be sufficient spectrum for wireless broadband use.

 

28


Competition from other broadcasters or other content providers and changes in technology may cause a reduction in our advertising revenues and/or an increase in our operating costs.
 
New technology and the subdivision of markets
 
Cable providers, direct broadcast satellite companies and telecommunication companies are developing new technology that allows them to transmit more channels on their existing equipment to highly targeted audiences, reducing the cost of creating channels and potentially leading to the division of the television industry into ever more specialized niche markets. Competitors who target programming to such sharply defined markets may gain an advantage over us for television advertising revenues. The decreased cost of creating channels may also encourage new competitors to enter our markets and compete with us for advertising revenue. In addition, technologies that allow viewers to digitally record, store and play back television programming may decrease viewership of commercials as recorded by media measurement services such as Nielsen Media Research and, as a result, lower our advertising revenues. The current ratings provided by Nielsen for use by broadcast stations are limited to live viewing Digital Video Recording playback and give broadcasters no credit whatsoever for viewing that occurs on a delayed basis after the original air date. However, the effects of new ratings system technologies, including ‘‘code readers’’, ‘‘viewer assignment’’, ‘‘people meters’’ and ‘‘set-top boxes,’’ and the ability of such technologies to be a reliable standard that can be used by advertisers is currently unknown. The Media Rating Council, an independent organization that monitors rating services, in the 154 markets it measures ratings exclusively by its diary methodology. As of December 31, 2016, approximately 42 of out 81 markets are diary only markets.
 
Since digital television technology allows broadcasting of multiple channels within the additional allocated spectrum, this technology could expose us to additional competition from programming alternatives. In addition, technological advancements and the resulting increase in programming alternatives, such as cable television, direct broadcast satellite systems, pay-per-view, home video and entertainment systems, video-on-demand, OTT, mobile video and the Internet have also created new types of competition to television broadcast stations and will increase competition for household audiences and advertisers. We cannot provide any assurances that we will remain competitive with these developing technologies.
 
Types of competitors
 
We also face competition from rivals that may have greater resources than we have.  These include:
 
other local free over-the-air broadcast television and radio stations;
telecommunication companies;
cable and satellite system operators and cable networks;
print media providers such as newspapers, direct mail and periodicals;
internet search engines, internet service providers, websites, and mobile applications; and
other emerging technologies including mobile television, over-the-top technologies, and MVPD "skinny" packages.
 
Deregulation
 
The Telecommunications Act of 1996 and subsequent actions by the FCC and the courts have removed some limits on station ownership, allowing telephone, cable and some other companies to provide video services in competition with us.  In addition, the FCC has reallocated and auctioned off a portion of the spectrum for new services including fixed and mobile wireless services and digital broadcast services.  As a result of these changes, new companies are able to enter our markets and compete with us.
 
We have invested and will continue to invest in new technology initiatives which may not result in usable technology.
 
We have heavily invested in the development of the Next Gen platforms as discussed in Development of Next Generation Broadcast Platforms (Next Gen) within Operating Strategy within Item 1. Business. We do not know whether the outcome of our research and development will result in technology that will be usable on our distribution platform or available to license to third parties. Additionally, even if our efforts result in usable technology, we do not know whether it will be included within the ATSC 3.0 framework. Any failure to develop this technology could result in the loss of our investment. Our cost incurred related to the development of the Next Gen platform is recorded within research and development within our consolidated statement of operations.


29


We could be adversely affected by labor disputes and legislation and other union activity.
 
The cost of producing and distributing entertainment programming has increased substantially in recent years due to, among other things, the increasing demands of creative talent and industry-wide collective bargaining agreements.  Although we generally purchase programming content from others rather than produce such content ourselves, our program suppliers engage the services of writers, directors, actors and on-air and other talent, trade employees and others, some of whom are subject to these collective bargaining agreements.  Approximately 800 of our employees, are represented by labor unions under collective bargaining agreements.  If we or our program suppliers are unable to renew expiring collective bargaining agreements, it is possible that the affected unions could take action in the form of strikes or work stoppages.  Failure to renew these agreements, higher costs in connection with these agreements or a significant labor dispute could adversely affect our business by causing, among other things, delays in production that lead to declining viewers, a significant disruption of operations and reductions in the profit margins of our programming and the amounts we can charge advertisers for time.  Our stations also broadcast certain professional sporting events, including NBA basketball games, MLB baseball games, NFL football games, and other sporting events, and our viewership may be adversely affected by player strikes or lockouts, which could adversely affect our advertising revenues and results of operations.  Further, any changes in the existing labor laws, including the possible enactment of the Employee Free Choice Act, may further the realization of the foregoing risks.
 
Unrelated third parties may bring claims against us based on the nature and content of information posted on websites maintained by us.
 
We host internet services that enable individuals to exchange information, generate content, comment on our content, and engage in various online activities.  The law relating to the liability of providers of these online services for activities of their users is currently unsettled both within the United States and internationally.  Claims may be brought against us for defamation, negligence, copyright or trademark infringement, unlawful activity, tort, including personal injury, fraud, or other theories based on the nature and content of information that may be posted online or generated by our users.  Our defense of such actions could be costly and involve significant time and attention of our management and other resources.
 
Costs of complying with changes in governmental laws and regulations may adversely affect our results of operations.
 
We cannot predict what other governmental laws or regulations will be enacted in the future, how future laws or regulations will be administered or interpreted or how future laws or regulations will affect us.  Compliance with new laws or regulations, including proposed legislation to address climate change, or stricter interpretation of existing laws, may require us to incur significant expenditures or impose significant restrictions on us and could cause a material adverse effect on our results of operations.
 
Changes in accounting standards can affect reported earnings and results of operations.
 
Generally accepted accounting principles and accompanying pronouncements and implementation guidelines for many aspects of our business, including those related to revenues, leases, consolidation, programming, intangible assets, pensions, income taxes, share-based compensation and broadcast rights, are complex and involve significant judgments. Changes in rules or their interpretation could significantly change our reported earnings, results of operations, and compliance with debt covenants.
 
If we fail to maintain the requirements for continued listing on the NASDAQ stock market, our common stock could be delisted from trading, which would adversely affect the liquidity of our common stock and our ability to raise additional capital.
Our common stock is currently listed for quotation on the NASDAQ stock market. We are required to meet specified listing criteria in order to maintain our listing. If we fail to satisfy continued listing requirements, our common stock could be delisted. Any potential delisting of our common stock from the NASDAQ would make it more difficult for our stockholders to sell our stock in the public market and would likely result in decreased liquidity and increased volatility for our common stock.

Terrorism or armed conflict domestically or abroad may negatively impact our advertising revenues and results of operations.  Future conflicts, terrorist attacks or other acts of violence may have a similar effect.
 
If the United States becomes engaged in global conflicts in the future, there may be an adverse effect on our results of operations.  Also, any terrorist attacks or other acts of violence may have a similar negative effect on our business or results of operations.
 

30


Cybersecurity risks, cyber incidents, data privacy, and other information technology failures could adversely affect our business and disrupt operations.
 
Our information technology systems are critically important to operating our business efficiently and effectively. We rely on our information technology systems to manage our business data, communications, news and advertising content, digital products, order entry, fulfillment and other business processes. Despite our security measures, network and information systems‑related events, such as computer hackings, cyber threats, security breaches, viruses or other destructive or disruptive software, process breakdowns, or malicious or other activities, and natural or other disasters could result in a disruption of our services and operations. These events could also result in, but are not limited to, the improper disclosure of personal data or confidential information, including through third parties which receive any of such information on a confidential basis for business purposes and could be subject to any of these events, and damage our reputation and require us to expend resources to remedy any such breaches. The occurrence of any of these events could have a material adverse effect on our business and results of operations.

ITEM 1B.                   UNRESOLVED STAFF COMMENTS
 
None.

ITEM 2.                                    PROPERTIES
 
Generally, each of our stations has facilities consisting of offices, studios, sales offices, and tower and transmitter sites.  Transmitter and tower sites are located in areas to provide maximum signal coverage to our stations’ markets.  We believe that all of our properties, both owned and leased, are generally in good operating condition, subject to normal wear and tear and are suitable and adequate for our current business operations. See Television Markets and Stations within Item 1. Business, for a listing of our station locations. We believe that no one property represents a material amount of the total properties owned or leased. The following is a summary of our principal owned and leased real properties as of December 31, 2016
 
 
 
Owned
 
Leased
 
 
Square Feet
 
Acres
 
Square Feet
 
Acres
Broadcast Related Real Estate
 
 
 
 
 
 
 
 
Office and studio properties
 
1,820,621

 
889

 
512,216

 
6

Antenna and transmitter properties
 
294,754

 
2,549

 
87,062

 
1,503

 
 
 
 
 
 
 
 
 
Other Operating Real Estate
 
 
 
 
 
 
 
 
Corporate offices
 

 

 
110,300

 

Office and warehouse property
 
1,250

 

 
290,702

 

 
 
 
 
 
 
 
 
 
Other Non-Media Investment Real Estate
 
 
 
 
 
 
 
 
Rental property
 
99,913

 
1

 

 

Recreational property
 
28,000

 
725

 

 

Land held for development
 

 
735

 

 

 
ITEM 3.                                    LEGAL PROCEEDINGS
 
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. See Note 10. Commitments and Contingencies within the Consolidated Financial Statements for further discussion.
 
ITEM 4.                                    MINE SAFETY DISCLOSURES
 
None.


31


PART II
 
ITEM 5.                                    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our Class A Common Stock is listed for trading on the NASDAQ stock market under the symbol SBGI.  Our Class B Common Stock is not traded on a public trading market or quotation system.  The following tables set forth for the periods indicated the high and low closing sales prices on the NASDAQ stock market for our Class A Common Stock.
 
2016
 
High
 
Low
First Quarter
 
$
31.25

 
$
30.11

Second Quarter
 
$
31.70

 
$
30.87

Third Quarter
 
$
29.33

 
$
28.67

Fourth Quarter
 
$
34.90

 
$
30.80

 
2015
 
High
 
Low
First Quarter
 
$
32.43

 
$
24.20

Second Quarter
 
$
32.03

 
$
27.52

Third Quarter
 
$
30.23

 
$
24.04

Fourth Quarter
 
$
35.89

 
$
24.80

 
As of February 20, 2017, there are approximately 50 shareholders of record of our Class A common stock.  This number does not include beneficial owners holding shares through nominee names.

See Note. 3 Stock-Based Compensation within the Consolidated Financial Statements for discussion of our stock-based compensation plans.
 
Dividend Policy
 
During 2015, our Board of Directors declared a quarterly dividend of $0.165 per share in the months of February, April, August and November, which were paid in March, June, September and December, respectively. Total dividend payments for the year ended December 31, 2015 were $0.66 per share.  During 2016, our Board of Directors declared a quarterly dividend of $0.165 per share in the month of February which was paid in March.  In May, August, and November our Board of Directors declared a quarterly dividend of $0.18 per share, which were paid out in June, September, and December, respectively. Total dividend payments for the year ended December 31, 2016 were $0.705 per share. In February 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.  The Class A Common Stock and Class B Common Stock holders have the same rights related to dividends.  Under our Bank Credit Agreement, there are certain terms that may restrict our ability to make dividend payments. See Note 8. Common Stock within the Consolidated Financial Statements for further discussion.
 

32


Comparative Stock Performance
 
The following line graph compares the yearly percentage change in the cumulative total shareholder return on our Class A Common Stock with the cumulative total return of the NASDAQ Composite Index and the cumulative total return of the NASDAQ Telecommunications Index (an index containing performance data of radio and television broadcast companies and communication equipment and accessories manufacturers) from December 31, 2011 through December 31, 2016. The performance graph assumes that an investment of $100 was made in the Class A Common Stock and in each Index on December 31, 2011 and that all dividends were reinvested.  Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment) plus share price change for a period by the share price at the beginning of the measurement period.
 
Company/Index/Market
 
12/31/2011
 
12/31/2012
 
12/31/2013
 
12/31/2014
 
12/31/2015
 
12/31/2016
Sinclair Broadcast Group, Inc.
 
100.00

 
127.97

 
372.10

 
291.11

 
353.97

 
371.10

NASDAQ Composite Index
 
100.00

 
116.41

 
165.47

 
188.69

 
200.32

 
216.54

NASDAQ Telecommunications Index
 
100.00

 
102.78

 
143.40

 
149.42

 
144.02

 
153.88








stockcharta01.jpg

33







The following table summarizes repurchases of our stock in the quarter ended December 31, 2016:

Period
 
Total Number of Shares Purchased (1)
 
Average Price Per Share
 
Total Number of Shares Purchased as Part of a Publicly Announced Program
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (in millions)
 
Class A Common Stock : (2)
 
 
 
 
 
 
 
 
 
10/01/16 – 10/31/16
 
876,760

 
28.07

 
876,760

 
129.7

 
11/01/16 – 11/30/16
 
405,500

 
25.99

 
405,500

 
119.1

 
12/01/16 – 12/31/16
 

 

 

 

 

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

(2)     On March 20, 2014, the Board of Directors authorized an additional $150.0 million share repurchase authorization. On September 6, 2016 the Board of Directors authorized an additional $150.0 million share repurchase authorization. There is no expiration date and currently, management has no plans to terminate this program. For the year ended December 31, 2016, we have purchased approximately 4.9 million shares of Class A Common Stock for $136.4 million. As of December 31, 2016, the total remaining authorization was $119.1 million.




ITEM 6.            SELECTED FINANCIAL DATA
 
The selected consolidated financial data for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 have been derived from our audited consolidated financial statements.
 
The information below should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements included elsewhere in this annual report on Form 10-K.
 

34


STATEMENTS OF OPERATIONS DATA
(In thousands, except per share data)
 
 
As of December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Statements of Operations Data:
 

 
 

 
 

 
 

 
 

Media revenues (a)
$
2,499,549

 
$
2,011,946

 
$
1,784,641

 
$
1,219,091

 
$
922,161

Revenues realized from station barter arrangements
135,566

 
111,337

 
122,262

 
88,680

 
86,905

Other non-media revenues
101,834

 
95,853

 
69,655

 
55,360

 
52,613

Total revenues
2,736,949

 
2,219,136

 
1,976,558

 
1,363,131

 
1,061,679

Media production expenses
953,089

 
733,199

 
578,687

 
386,646

 
257,494

Media selling, general and administrative expenses
501,589

 
431,728

 
372,220

 
251,294

 
172,628

Expenses recognized from station barter arrangements
116,954

 
93,204

 
107,716

 
77,349

 
79,834

Depreciation and amortization (b) 
282,324

 
264,887

 
228,787

 
141,374

 
85,172

Amortization of program contract costs and net realizable value adjustments
127,880

 
124,619

 
106,629

 
80,925

 
60,990

Other non-media expenses
80,648

 
71,803

 
55,615

 
45,005

 
42,892

Corporate general and administrative expenses
73,556

 
64,246

 
62,495

 
53,126

 
33,391

Research and development
4,085

 
12,436

 
6,918

 

 

(Gain) loss on asset dispositions
(6,029
)
 
278

 
(37,160
)
 
3,392

 
(7
)
Operating income
602,853

 
422,736

 
494,651

 
324,020

 
329,285

Interest expense and amortization of debt discount and deferred financing costs
(211,143
)
 
(191,447
)
 
(174,862
)
 
(162,937
)
 
(128,553
)
Loss from extinguishment of debt
(23,699
)
 

 
(14,553
)
 
(58,421
)
 
(335
)
Income from equity and cost method investees
1,735

 
964

 
2,313

 
621

 
9,670

Other income, net
3,144

 
1,540

 
4,998

 
2,225

 
2,273

Income from continuing operations before income taxes
372,890

 
233,793

 
312,547

 
105,508

 
212,340

Income tax provision
(122,128
)
 
(57,694
)
 
(97,432
)
 
(41,249
)
 
(67,852
)
Income from continuing operations
250,762

 
176,099

 
215,115

 
64,259

 
144,488

Discontinued operations:
 

 
 

 
 

 
 

 
 

Income from discontinued operations, net of related income taxes

 

 

 
11,558

 
465

Net income
250,762

 
176,099

 
215,115

 
75,817

 
144,953

Net income attributable to noncontrolling interests
(5,461
)
 
(4,575
)
 
(2,836
)
 
(2,349
)
 
(287
)
Net income attributable to Sinclair Broadcast Group
$
245,301

 
$
171,524

 
$
212,279

 
$
73,468

 
$
144,666

Earnings Per Common Share Attributable to Sinclair Broadcast Group:
 

 
 

 
 

 
 

 
 

Basic earnings per share from continuing operations
$
2.62

 
$
1.81

 
$
2.19

 
$
0.66

 
$
1.78

Basic earnings per share
$
2.62

 
$
1.81

 
$
2.19

 
$
0.79

 
$
1.79

Diluted earnings per share from continuing operations
$
2.60

 
$
1.79

 
$
2.17

 
$
0.66

 
$
1.78

Diluted earnings per share
$
2.60

 
$
1.79

 
$
2.17

 
$
0.78

 
$
1.78

Dividends declared per share
$
0.71

 
$
0.66

 
$
0.63

 
$
0.60

 
$
1.54


35


 
Years Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
Balance Sheet Data:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
259,984

 
$
149,972

 
$
17,682

 
$
280,104

 
$
22,865

Total assets
$
5,963,168

 
$
5,432,315

 
$
5,410,328

 
$
4,103,417

 
$
2,690,768

Total debt (c)
$
4,203,848

 
$
3,854,360

 
$
3,886,872

 
$
2,989,985

 
$
2,234,450

Total equity (deficit)
$
557,936

 
$
499,678

 
$
405,343

 
$
405,704

 
$
(100,053
)
 
(a)
Media revenues is defined as broadcast revenues, net of agency commissions, retransmission fees, and other media related revenues.
(b)
Depreciation and amortization includes depreciation and amortization of property and equipment and amortization of definite-lived intangible assets and other assets.
(c)
Total debt is defined as notes payable, capital leases and commercial bank financing, including the current and long-term portions.

ITEM 7.                                    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following Management’s Discussion and Analysis provides qualitative and quantitative information about our financial performance and condition and should be read in conjunction with the other sections in this Annual Report, including Item 1. Business, Item 6. Selected Financial Data, and our Consolidated Financial Statements including the accompanying notes to those statements.  This discussion consists of the following sections:
 
Executive Overview — a description of our business, summary of significant events and financial highlights from 2016, and information about industry trends;
 
Critical Accounting Policies and Estimates — a discussion of the accounting policies that are most important in understanding the assumptions and judgments incorporated in the consolidated financial statements and a summary of recent accounting pronouncements;
 
Results of Operations — a summary of the components of our revenues by category and by network affiliation or program service arrangement, a summary of other operating data and an analysis of our revenues and expenses for 2016, 2015 and 2014, including comparisons between years and certain expectations for 2017; and
 
Liquidity and Capital Resources — a discussion of our primary sources of liquidity, an analysis of our cash flows from or used in operating activities, investing activities and financing activities, a discussion of our dividend policy and a summary of our contractual cash obligations and off-balance sheet arrangements.
 
EXECUTIVE OVERVIEW

We are a diversified television broadcasting company with national reach with a strong focus on providing high-quality content on our local television stations and digital platforms.   The content, distributed through our broadcast platform, consists of programming provided by third-party networks and syndicators, local news, our own networks, and other original programming produced by us.  We also distribute our original programming, and owned and operated networks, on other third-party platforms.  Additionally, we own digital and internet media products that are complementary to our extensive portfolio of television station related digital properties. We focus on offering marketing solutions to advertisers through our television and digital platforms and digital agency services. 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.

We have one reportable operating segment: “Broadcast.” Our Broadcast segment is comprised of all of our television stations.  We also earn revenues from our original networks, original content, digital and internet services, technical services, and non-media investments. These businesses are included within "Other".  Corporate and unallocated expenses primarily include our costs to operate as a public company and to operate our corporate headquarters location.  Other and Corporate are not reportable segments. 

36



STG, for which certain assets and results of operations are included in the Broadcast segment and which is a wholly owned subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under our Bank Credit Agreement, the 5.375% Notes, 5.625% Notes, 6.125% Notes, 5.125% Notes, 5.875% Notes, and until they were redeemed, the 6.375% Notes.  SBG is a guarantor under all of these debt instruments.  Our Class A Common Stock and Class B Common Stock remain obligations or securities of SBG and not obligations or securities of STG. 

For more information about our business, reportable segments and our operating strategy, see Item 1. Business in this Annual Report.

Summary of Significant Events and Financial Highlights from 2016

Television Acquisitions

In January 2016, we closed on the previously announced purchase of the assets of KUQI (FOX), KTOV-LP (MNT) and KXPX-LP (Retro TV) in Corpus Christi, Texas for $9.3 million.
In February 2016, we completed the acquisition of the broadcast assets of WSBT (CBS) in South Bend-Elkhart, Indiana, owned by Schurz Communications, Inc., and sold the broadcast assets of WLUC (NBC and FOX) in Marquette, Michigan to Gray Television, Inc.
In May 2016, we closed on the previously announced purchase of the assets of KFXL (FOX) and KHGI, KHGI-LD, KWNB and KWNB-LD (ABC), in Lincoln, Nebraska for $31.3 million.

Content and Distribution

In March 2016, we closed on the purchase of the stock of Tennis Channel for $350.0 million.
In July 2016, we launched the new Circa.com website. This site uses new technology designed for enhanced mobile video and new-generation news consumers.
In July 2016, we rebranded our digital agency solutions group under the name Compulse Integrated Marketing to provide in-depth digital marketing services aimed at small and medium sized businesses.
In July 2016, we entered into agreements with FOX for the renewal of FOX affiliations in five markets. The FOX affiliations were also renewed in three markets by the licensees of stations that we provide sales and other services to under joint sales agreements.
In August 2016, we signed a multi-year retransmission consent agreement with Comcast Cable for carriage of our broadcast television stations.
In September 2016, the Tennis Channel signed an eight-year rights agreement with the Volvo Car Open in Charleston, S.C., one of the largest women's-only tennis tournaments in the world.
In January 2017, Circa launched a new user-generated platform empowering college students to provide video content about news and entertainment events on their campuses via widgets available on Circa’s web site and social media pages.
In January 2017, we announced with Metro-Goldwyn-Mayer ("MGM") the launch of "CHARGE!," a new 24/7 action-based network that will feature more than 2,300 hours of TV series content and more than 2,000 movie titles. CHARGE! is expected to debut during the first quarter of 2017.
In February 2017, we launched TBD, the first multiscreen TV network in the U.S. market to bring premium internet-first content to TV homes across America. TBD will include web series, short films, fashion, comedy, lifestyle, eSports, music and viral content, through partnerships with creators.
Effective February 1, 2017, we reached an agreement in principle to renew its retransmission consent agreement with Frontier Cable for carriage of KOMO (ABC in Seattle, Washington), KATU (ABC in Portland, Oregon), and Tennis Channel.
In February 2017, we extended our programming agreement with MyNetwork Television through the 2017-2018 broadcast season.

ATSC 3.0

In March 2016, we began broadcasting "NextGen" Single Frequency Network (SFN) using the base elements of the new ATSC 3.0 transmission standard through the authority granted by the Federal Communications Commission (FCC).
In March 2016, we hosted “Plug Fest 2016,” an event for “Validation and Verification” compatibility testing of the ATSC 3.0 digital TV standard.

37


In March 2016, the Advanced Television Systems Committee (ATSC) developing the Next Generation Broadcast Transmission Standard (ATSC 3.0) approved as a Full Standard the key element of the Physical Layer, the so-called “Bootstrap” or the Discovery and Signaling feature of the standard.  The Bootstrap includes the designs developed by ONE Media and supported by other broadcasters and equipment manufacturers.
In April 2016, we announced the formation of ONE Media 3.0, LLC, a wholly-owned subsidiary whose purpose will be to develop business opportunities, products, and services associated with the ATSC 3.0 broadcast transmission standard approved in March 2016.

Financing and Shareholder Returns

In March 2016, we issued $350.0 million in senior unsecured notes, which bear interest at a rate of 5.875% per annum and mature on March 15, 2026. The proceeds were used to repay amounts drawn under Sinclair Television Group’s revolving credit facility and for other general corporate purposes.
In July 2016, we extended the maturity date of certain loans and commitments under our existing bank credit facility until July 31, 2021.
In August 2016, we issued $400 million in senior unsecured notes, which bear interest at a rate of 5.125% per annum and mature on February 15, 2027. The proceeds were used to redeem $350 million in senior unsecured notes due in 2021 and for general corporate purposes.
In January 2017, we extended the maturity of our term B Loans 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 the Loans and its existing revolving credit facility and revisions to certain covenant ratio requirements.
For the year ended December 31, 2016, we repurchased approximately 4.9 million shares of Class A Common Stock for $136.4 million. As of December 31, 2016, the total remaining repurchase authorization was $119.1 million.
For the year ended December 31, 2016 we paid dividends of $0.705 per share.
In February 2017, our Board of Directors declared a quarterly dividend of $0.18 per share, payable on March 15, 2017 to the holders of record at the close of business on March 1, 2017.

Other Events

In May 2016, the Third Circuit Court ruled to vacate the rule to make Joint Sales Agreements (JSAs) attributable.
In July 2016, we entered into a Consent Decree with the FCC resolving a number of previously disclosed matters relating to certain content broadcast on our stations, technical issues relating to LMAs, and the FCC's rule regarding retransmission consent negotiations. The FCC dismissed all pending claims against us with the Media Bureau and issued renewals for 90 television stations. In September 2016, as part of the settlement, we paid $9.5 million.
In November 2016, we announced executive promotions and changes which became effective January 1, 2017: David Smith from Chairman, President & Chief Executive Officer to Executive Chairman; Christopher Ripley from Chief Financial Officer to President & Chief Executive Officer; Lucy Rutishauser from SVP Corporate Finance & Treasurer to SVP Chief Financial Officer & Treasurer; David Amy from EVP and Chief Operating Officer to Vice Chairman; Barry Faber from EVP & General Counsel to EVP, General Counsel, Distribution and Network Relations; Steven Pruett from Co- Chief Operating Officer, Sinclair Television Group to EVP & Chief TV Development Officer; Steven Marks from Co-Chief Operating Officer, Sinclair Television Group to EVP & Chief Operating Officer, Sinclair Television Group; and Robert Malandra from SVP Television Finance to SVP Advanced Revenue Development & Analytics.
In February 2017, we announced that we expect to receive an estimated $313 million of gross proceeds as a result of the National Broadband Plan Spectrum Auction. The results of the auction are not expected to produce any material change in our operations or results. The proceeds are expected to be received later this year.

Industry Trends
 
Political spending is significantly higher in the even-numbered years due to the cyclicality of political elections.  In addition, every four years, political spending is typically elevated further due to the advertising related to the presidential election. 
The FCC has permitted broadcast television stations to use their digital spectrum for a wide variety of services including multi-channel broadcasts.  The FCC “must-carry” rules only apply to a station’s primary digital stream.
Retransmission consent rules provide a mechanism for broadcasters to seek payment from MVPDs who carry broadcasters’ signals.  Recognition of the value of the programming content provided by broadcasters, including local news and other programming and network programming all in HD has generated increased local revenues.
Many broadcasters are enhancing / upgrading their websites to use the internet to deliver rich media content, such as newscasts and weather updates, to attract advertisers and to compete with other internet sites and smart phone and tablet device applications and other social media outlets.

38


Seasonal advertising increases occur in the second and fourth quarters due to the anticipation of certain seasonal and holiday spending by consumers.
Broadcasters have found ways to increase returns on their news programming initiatives while continuing to maintain locally produced content through the use of news sharing arrangements.
Advertising revenue related to the Olympics occurs in even numbered years and the Super Bowl is aired on a different network each year.  Both of these popularly viewed events can have an impact on our advertising revenues.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate our estimates including those related to goodwill and intangible assets, program contract costs, income taxes, and variable interest entities.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  These estimates have been consistently applied for all years presented in this report and in the past we have not experienced material differences between these estimates and actual results.  However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and such differences could be material.
 
We consider the following accounting policies to be the most critical as they are important to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application.  For a detailed discussion of the application of these and other accounting policies, see Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements.
 
Valuation of Goodwill and Indefinite-Lived Intangible Assets. We evaluate our goodwill and indefinite-lived intangible assets for impairment annually, or more frequently, if events or changes in circumstances indicate an impairment may exist. As of December 31, 2016, our consolidated balance sheet includes $1,990.7 million and $156.3 million of goodwill and indefinite-lived intangible assets, respectively.
 
In the performance of our annual goodwill and indefinite-lived intangible asset impairment assessments we have the option to qualitatively assess whether it is more-likely-than-not that the respective asset has been impaired.  If we conclude that it is more-likely-than-not that a reporting unit or an indefinite-lived intangible asset is impaired, we apply the quantitative assessment, which involves comparing the estimated fair value of the reporting unit or indefinite-lived intangible asset to its respective carrying value.  See Impairment of Goodwill, Intangibles and Other Long-Lived Assets within Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Statement of Operations for further discussion of the significant judgments and estimates inherent in both qualitatively assessing whether impairment may exist and estimating the fair values of the reporting units and indefinite-lived intangible assets.  See Note 5.  Goodwill, Indefinite-Lived Intangible Assets and Other Intangible Assets within the Consolidated Financial Statements for the results of our annual impairment tests during the years ended December 31, 2016, 2015 and 2014.
 
For our annual goodwill impairment tests in 2016, 2015 and 2014, we concluded that it was more-likely-than-not that goodwill was not impaired based on our qualitative assessments.  For one reporting unit in 2016, we elected to perform a quantitative assessment and concluded that its fair value significantly exceeded the carrying value. For our annual impairment tests for indefinite-lived intangible assets in 2016, 2015 and 2014, we concluded that it was more-likely-than-not that the assets were not impaired based on our qualitative assessments, except for broadcast licenses with an aggregate carrying value of $45.2 million in 2016, $15.3 million in 2015, and $38.1 million in 2014 for which we performed the quantitative assessments.  During 2014, we recorded $3.2 million of impairment, which was recorded in amortization of definite-lived intangibles and other assets in our consolidated statement of operations, primarily as a result of declines in projected future market revenues related to the radio broadcast licenses.  The results of our quantitative tests of indefinite-lived intangible assets in 2016 indicated that the fair values significantly exceeded the carrying value.
 
We believe we have made reasonable estimates and utilized appropriate assumptions to evaluate whether the fair values of our reporting units and indefinite-lived intangible assets were less than their carrying values.  If future results are not consistent with our assumptions and estimates, including future events such as a deterioration of market conditions or significant increases in discount rates, we could be exposed to impairment charges in the future.  Any resulting impairment loss could have a material adverse impact on our consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows.

39


 
Program Contract Costs.  As discussed under Programming within Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, we record an asset and corresponding liability for programming rights when the cost of each program is known or reasonably determinable, the program material has been accepted by the licensee in accordance with the conditions of the license agreement and the program is available for its first showing or telecast.  These costs are expensed over the period in which an economic benefit is expected to be derived. To ensure the related assets for the programming rights are reflected in the consolidated balance sheets at the lower of unamortized cost or estimated net realizable value (NRV), management estimates future advertising revenue, net of sales commissions, to be generated by the remaining program material available under the contract terms. Management’s judgment is required in determining the timing of expense for these costs, which is dependent on the economic benefit expected to be generated from the program and may significantly differ from the timing of related payments under the contractual obligation.  If our estimates of future advertising revenues decline, amortization expense could be accelerated or NRV adjustments may be required.
 
Income Tax.   As discussed under Income Taxes within Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities.  We provide a valuation allowance for deferred tax assets if we determine that it is more-likely-than not that some or all of the deferred tax assets will not be realized.  In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income.  In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. As of December 31, 2016 and 2015, a valuation allowance has been provided for deferred tax assets related to a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income.  Future changes in operating and/or taxable income or other changes in facts and circumstances could significantly impact the ability to realize our deferred tax assets which could have a material effect on our consolidated financial statements.
 
Management periodically performs a comprehensive review of our tax positions and we record a liability for unrecognized tax benefits when such tax positions do not meet the “more-likely-than-not” threshold.  Significant judgment is required in determining whether a tax position meets the “more-likely-than-not” threshold, and is based on a variety of facts and circumstances, including interpretation of the relevant federal and state income tax codes, regulations, case law and other authoritative pronouncements.  Based on this analysis, the status of ongoing audits and the expiration of applicable statute of limitations, liabilities are adjusted as necessary.  The resolution of audits is unpredictable and could result in tax liabilities that are significantly higher or lower than for what we have provided.  See Note 9. Income Taxes within the Consolidated Financial Statements, for further discussion of accrued unrecognized tax benefits.
 
Variable Interest Entities.  As discussed under Variable Interest Entities within Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements, we have determined that certain third-party licensees of stations for which we perform services to pursuant to arrangements, including LMAs and JSAs/SSAs, are VIEs and we are the primary beneficiary of those variable interests because, subject to the ultimate control of the licensees, we have the power to direct the activities which significantly impact the economic performance of the VIE through the services we provide and because we absorb losses and returns that would be considered significant to the VIEs.  Determining whether an entity is a VIE and whether we are the primary beneficiary of the variable interests requires judgment which is based on quantitative and qualitative factors that indicate whether or not we are absorbing a majority of the entity’s economic risks or receiving a majority of the entity’s economic rewards, based on the terms of the arrangements with the entity.

Transactions with Related Parties. We have determined that we conduct certain business related transactions with related persons or entities. See Note 11. Related Person Transactions within the Consolidated Financial Statements for discussion of these transactions.
 
Recent Accounting Pronouncements
 
See Recent Accounting Pronouncements within Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements for discussion on recent accounting policies and impact our financial statements.


40


RESULTS OF OPERATIONS
 
In general, this discussion is related to the results of operations.  The results of the acquired stations during the years ended 2014, 2015, and 2016 are included in our results of our operations for the years ended 2014, 2015, and 2016 from their respective dates of acquisition. See Note 2. Acquisitions and Disposition of Assets within the Consolidated Financial Statements for further discussion of stations acquired.  Unless otherwise indicated, references in this discussion and analysis to 2016, 2015 and 2014 are to our fiscal years ended December 31, 2016, 2015 and 2014, respectively.  Additionally, any references to the first, second, third or fourth quarters are to the three months ended March 31, June 30, September 30 and December 31, respectively, for the year being discussed.  We have one reportable segment, “broadcast” that is disclosed separately from our other 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 the first and third quarters’ because advertising expenditures are increased in anticipation of certain seasonal and holiday spending by consumers.
 
Our operating results are usually subject to fluctuations from political advertising.  In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections.  Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election.
 
Consolidated Operating Data
 
The following table sets forth certain of our consolidated operating data for the years ended December 31, 2016, 2015 and 2014 (in millions).  For definitions of terms, see the footnotes to the table in Item 6. Selected Financial Data.
 
 
Years Ended December 31,
 
2016
 
2015
 
2014
Media revenues (a)
$
2,499.5

 
$
2,011.9

 
$
1,784.6

Revenues realized from station barter arrangements
135.6

 
111.3

 
122.3

Other non-media revenues
101.8

 
95.9

 
69.7

Total revenues
2,736.9

 
2,219.1

 
1,976.6

Media production expenses (a)
953.1

 
733.2

 
578.7

Media selling, general and administrative expenses (a)
501.6

 
431.7

 
372.2

Expenses recognized from station barter arrangements
117.0

 
93.2

 
107.7

Depreciation and amortization
410.0

 
389.6

 
335.5

Other non-media expenses
80.6

 
71.8

 
55.6

Corporate general and administrative expenses
73.6

 
64.2

 
62.5

Research and development
4.1

 
12.4

 
6.9

(Gain) loss on asset dispositions
(6.0
)
 
0.3

 
(37.2
)
Operating income
$
602.9

 
$
422.7

 
$
494.7

Net income attributable to Sinclair Broadcast Group
$
245.3

 
$
171.5

 
$
212.3

 
(a) Our media related revenues and expenses are primarily derived from our broadcast segment, but also from our other media related business, including our networks and content such as Tennis Channel, COMET, ASN, 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.


41


BROADCAST SEGMENT
 
Revenues
 
The following table presents our media revenues, net of agency commissions, for the years ended December 31, 2016, 2015 and 2014 (in millions):
 
 
 
 
 
 
 
 
Percent Change
 
2016
 
2015
 
2014
 
‘16 vs. ‘15
 
‘15 vs. ‘14
Local revenues:
 

 
 

 
 

 
 

 
 

Non-political
$
1,841.9

 
$
1,627.6

 
$
1,341.5

 
13.2
%
 
21.3
 %
Political
24.2

 
9.7

 
22.3

 
(b)
 

 
(b)

Total local
1,866.1

 
1,637.3

 
1,363.8

 
14.0
%
 
20.1
 %
National revenues (a):
 

 
 

 
 

 
 

 
 

Non-political
357.2

 
353.3

 
309.2

 
1.1
%
 
14.3
 %
Political
175.1

 
16.1

 
109.5

 
(b)
 

 
(b)
 

Total national
532.3

 
369.4

 
418.7

 
44.1
%
 
(11.8
)%
Total broadcast segment media revenues
$
2,398.4

 
$
2,006.7

 
$
1,782.5

 
19.5
%
 
12.6
 %
 
 
(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 the cyclicality of elections.  See Political Revenues below for more information.

Media Revenues.  Media revenues increased $391.7 million in 2016 when compared to 2015, of which $37.6 million was related to stations not included in the same period in 2015. The remaining increase was primarily related to an increase in political net time sales as 2016 was a presidential election year, an increase in retransmission and digital revenues, and an increase in advertising revenues generated from the services, home products, automotive, direct response, media, entertainment, pharmaceutical/cosmetics, restaurant, and travel sectors. These increases were partially offset by a decrease in advertising revenues generated from the schools, telecommunications, retail, fast food, paid programing, and internet sectors.  Automotive, which typically is our largest category, represented 22.5% of net time sales for the year ended December 31, 2016.
 
Media revenues increased $224.2 million in 2015 when compared to 2014, of which $220.5 million was related to stations not included in the same period in 2014. The remaining increase was due to an increase in retransmission revenues from MVPDs and increases in advertising revenues generated from the services, medical, and furniture sectors.  These increases were partially offset by a decrease in advertising revenues generated from the political, schools, and fast food sectors.  Automotive, which typically is our largest category, represented 25.5% of net time sales for the year ended December 31, 2015.

 

42


From a network affiliation or program service arrangement perspective, the following table sets forth our affiliate percentages of net time sales for the years ended December 31, 2016 and 2015:
 
 
# of
 
Percent of Net Time Sales for the
Twelve Months Ended December 31,
 
Net Time Sales
Percent Change
 
Channels (a)
 
2016
 
2015
 
2014
 
‘16 vs. ‘15
 
‘15 vs. ‘14
ABC
36
 
27.1
%
 
28.7
%
 
25.7
%
 
(5.6
)%
 
12.5
 %
FOX
54
 
24.3
%
 
25.9
%
 
27.3
%
 
(6.2
)%
 
(3.8
)%
CBS
30
 
19.7
%
 
17.7
%
 
20.0
%
 
11.3
 %
 
(10.3
)%
NBC
22
 
14.2
%
 
11.7
%
 
9.4
%
 
21.4
 %
 
25.7
 %
CW
43
 
7.3
%
 
8.0
%
 
8.5
%
 
(8.8
)%
 
(4.3
)%
MNT
36
 
5.8
%
 
6.5
%
 
7.8
%
 
(10.8
)%
 
(14.7
)%
Other (b)
262
 
1.7
%
 
1.5
%
 
1.4
%
 
13.3
 %
 
16.3
 %
Total
483
 
 

 
 

 
 

 
 

 
 

 
 
(a)
See Television Markets and Stations within Item 1. Business for further detail on our channels.  We have acquired a significant number of television stations during 2016, 2015, and 2014, with a variety of network affiliations.  This acquisition activity affects the year-over-year comparability of revenue by affiliation.  See Note 2. Acquisitions and Disposition of Assets within the Consolidated Financial Statements for further discussion of stations acquired.
(b)
We broadcast other programming from the following providers on our channels including: ASN, Antenna TV, Azteca, Bounce Network, COMET, Decades, Estrella TV, Get TV, Grit, Me TV, MundoFox, Retro TV, Telemundo, This TV, News & Weather, Univision and Zuus Country.
 
Political Revenues. Political revenues, which include time sales from political advertising, increased by $173.5 million to $199.3 million for 2016 when compared to 2015. Political revenues decreased by $106.0 million to $25.8 million for 2015 when compared to 2014.  Political revenues are typically higher in election years such as 2016.

Local Revenues.  Excluding political revenues, our local media revenues, which include local times sales, retransmission revenues, digital, and other local revenues, were up $214.3 million for 2016 when compared to 2015, of which $28.9 million was related to the stations not included in the same period in 2015. The remaining increase was primarily related to an increase in retransmission and digital revenues and an increase in advertising revenues generated from services, media, automotive, entertainment, furniture, and travel sectors. These increases were partially offset by lower advertising revenues generated from the schools, retail, medical, fast food, paid programming, direct response, and pharmaceutical/cosmetics sectors. Excluding political revenues, our local media revenues were up $286.1 million for 2015 when compared to 2014, of which $176.7 million related to the stations not included in the same period in 2014. The remaining increase was due to an increase in advertising spending particularly in the entertainment, direct response, and home products sectors and an increase in retransmission revenues from MVPDs. These increases were partially offset by a decline in advertising revenues from the automotive, fast food, and schools sectors.
 
National Revenues.  Our national media revenues, excluding political revenues, which include national time sales and other national revenues, were up $3.9 million for 2016 when compared to 2015, of which $3.5 million was related to the stations not included in the same period in 2015.  The remaining increase was primarily related to an increase in retransmission and digital revenues and an increase in advertising revenues generated from home products, direct response, medical, pharmaceutical/cosmetics, restaurants, and fast food. These increases were partially offset by lower advertising revenues generated from the telecommunications, retail, automotive, internet, and services sectors. Excluding political revenues, our national media revenues increased $44.1 million for 2015 when compared to 2014, which primarily related to the stations acquired in 2015.  The remaining increase was due to an increase in advertising revenues generated from the pharmaceutical/cosmetics, retail/department stores, and furniture sectors.  These increases were partially offset by a decrease in advertising revenues in the telecommunications, paid programs, and automotive sectors.
 

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Expenses
 
The following table presents our significant operating expense categories for the years ended December 31, 2016, 2015 and 2014 (in millions):
 
<
 
 
 
 
 
 
 
Percent Change
(Increase/(Decrease))
 
2016
 
2015
 
2014
 
‘16 vs. ‘15
 
‘15 vs. ‘14
Media production expenses
$
874.1

 
$
714.1

 
$
572.2

 
22.4
 %
 
24.8
%
Media selling, general and administrative expenses
$
466.2

 
$
427.2

 
$
369.6

 
9.1
 %