STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION PLANS:

In June 1996, our Board of Directors adopted, upon approval of the shareholders by proxy, the 1996 Long-Term Incentive Plan (LTIP). The purpose of the LTIP is to reward key individuals for making major contributions to our success and the success of our subsidiaries and to attract and retain the services of qualified and capable employees. Under the LTIP, we have issued restricted stock awards (RSAs), stock grants to our non-employee directors, stock-settled appreciation rights (SARs), and stock options. A total of 14,000,000 shares of Class A Common Stock are reserved for awards under this plan. As of December 31, 2018, 5,780,061 shares were available for future grants. Additionally, we have the following arrangements that involve stock-based compensation: employer matching contributions (the Match) for participants in our 401(k) plan, an employee stock purchase plan (ESPP), and subsidiary stock awards. Stock-based compensation expense has no effect on our consolidated cash flows. For the years ended December 31, 2018, 2017, and 2016, we recorded stock-based compensation of $26.5 million, $18.5 million, and $16.9 million, respectively. Below is a summary of the key terms and methods of valuation of our stock-based compensation awards:

RSAs. RSAs issued in 2018, 2017, and 2016 have certain restrictions that lapse over two years at 50% and 50%, respectively. As the restrictions lapse, the Class A Common Stock may be freely traded on the open market. Unvested RSAs are entitled to dividends, and therefore, are included in weighted shares outstanding, resulting in a dilutive effect on basic and diluted earnings per share. The fair value assumes the closing value of the stock on the measurement date.

The following is a summary of changes in unvested restricted stock:



	RSAs		Weighted-Average Price
Unvested shares at December 31, 2017	152,180		$	33.04
2018 Activity:
Granted	237,593		34.95
Vested	(101,385	)	32.66
Forfeited	(8,073	)	35.36
Unvested shares at December 31, 2018	280,315		$	34.73

For the years ended December 31, 2018, 2017, and 2016, we recorded compensation expense of $5.2 million, $3.2 million, and $2.8 million, respectively. The majority of the unrecognized compensation expense of $4.5 million as of December 31, 2018 will be recognized in 2019.

Stock Grants to Non-Employee Directors. In addition to directors fees paid, on the date of each annual meetings of shareholders, each non-employee director receives a grant of unrestricted shares of Class A Common Stock. We issued 20,000 shares in 2018, 2017, and 2016. We recorded expense of $0.6 million, $0.7 million, and $0.6 million for each of the years ended December 31, 2018, 2017, and 2016, respectively, which was based on the average share price of the stock on the date of grant. Additionally, these shares are included in the total shares outstanding, which results in a dilutive effect on our basic and diluted earnings per share.

Stock Appreciation Rights (SARs). These awards entitle holders to the appreciation in our Class A Common Stock over the base value of each SAR over the term of the award. The SARs have a 10-year term and vest immediately. The base value of each SAR is equal to the closing price of our Class A Common Stock on the date of grant. For the years ended December 31, 2018, 2017, and 2016, we recorded compensation expense of $3.2 million, $6.6 million, and $4.0 million, respectively.

The following is a summary of the 2018 activity:



	SARs	Weighted- Average Price
Outstanding SARs at December 31, 2017	2,610,000	$	22.65
2018 Activity:
Granted	450,000	33.80
Outstanding SARs at December 31, 2018	3,060,000	$	24.29

The aggregate intrinsic value of the 3,060,000 outstanding as of December 31, 2018 was $16.6 million and the outstanding SARs have a weighted average remaining contractual life of 5.87 years as of December 31, 2018. During 2018, 2017, and 2016, outstanding SARs increased the weighted average shares outstanding for purposes of determining dilutive earnings per share.

Options. As of December 31, 2018, there were options outstanding to purchase 375,000 shares of Class A Common Stock. These options are fully vested and have a weighted average exercise price of $31.08 and a weighted average remaining contractual term of 7 years. As of December 31, 2018, there was no aggregate intrinsic value for the options outstanding. There was no grant, exercise, or forfeiture activity during the year ended December 31, 2018. We recognized compensation expense of $0.4 million during the year ended December 31, 2016. There was no expense recognized during the years ended December 31, 2018 and 2017.

Valuation of SARS and Options. Our SARs and stock options were valued using the Black-Scholes pricing model utilizing the following assumptions:



	2018		2017		2016
Risk-free interest rate	2.6	%	2.1	%	1.2% - 1.9%
Expected years to exercise	5 years		5 years		5 years
Expected volatility	36.2	%	37.0	%	37.5% - 42.1%
Annual dividend yield	2.1% - 2.2%		2.0	%	2.1	%

The risk-free interest rate is based on the U.S. Treasury yield curve, in effect at the time of grant, for U.S. Treasury STRIPS that approximate the expected life of the award. The expected volatility is based on our historical stock prices over a period equal to the expected life of the award. The annual dividend yield is based on the annual dividend per share divided by the share price on the grant date. During 2018, 2017, and 2016, outstanding SARs and options increased the weighted average shares outstanding for purposes of determining dilutive earnings per share.

401(k) Match. The Sinclair Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the 401(k) Plan) is available as a benefit for our eligible employees. Contributions made to the 401(k) Plan include an employee elected salary reduction amount with a match calculation (The Match). The Match and any additional discretionary contributions may be made using our Class A Common Stock, if the Board of Directors so chooses. Typically, we make the Match using our Class A Common Stock.

The value of the Match is based on the level of elective deferrals into the 401(k) Plan. The amount of shares of our Class A Common Stock used to make the Match is determined using the closing price on or about March 1st of each year for the previous calendar year’s Match. For the years ended December 31, 2018, 2017, and 2016, we recorded $16.4 million, $7.3 million, and $6.9 million, respectively, of stock-based compensation expense related to the Match. A total of 7,000,000 shares of Class A Common Stock are reserved for matches under the plan. As of December 31, 2018, 4,029,061 shares were available for future grants.

ESPP. The ESPP allows eligible employees to purchase Class A Common Stock at 85% of the lesser of the fair value of the common stock as of the first day of the quarter and as of the last day of that quarter, subject to certain limits as defined in the ESPP. The stock-based compensation expense recorded related to the ESPP for the years ended December 31, 2018, 2017, and 2016 was $1.2 million, $1.0 million, $0.9 million, respectively. A total of 3,200,000 shares of Class A Common Stock are reserved for awards under the plan. As of December 31, 2018, 681,640 shares were available for future purchases.

Subsidiary Stock Awards. From time to time, we grant subsidiary stock awards to employees. The subsidiary stock is typically in the form of a membership interest in a consolidated limited liability company, not traded on a public exchange and valued based on the estimated fair value of the subsidiary. Fair value is typically estimated using discounted cash flow models and/or appraisals.

These stock awards vest immediately. For the years ended December 31, 2018 and 2017, we recorded no compensation expense related to these awards. For the year ended December 31, 2016, we recorded compensation expense of $1.3 million related to these awards, which increase noncontrolling interest equity. These awards have no effect on the shares used in our basic and diluted earnings per share.