ACQUISITIONS AND DISPOSITIONS OF ASSETS

9 Months Ended

Sep. 30, 2019

ACQUISITIONS AND DISPOSITIONS OF ASSETS:

Acquisitions

RSN Acquisition. In May 2019, DSG entered into a definitive agreement to acquire controlling interests in 21 Regional Sports Network brands and Fox College Sports (collectively, the Acquired RSNs), from the The Walt Disney Company (Disney) for $9.6 billion plus certain adjustments. On August 23, 2019 we completed the acquisition for an aggregate preliminary purchase price, including cash acquired, and subject to an adjustment based upon finalization of working capital, net debt, and other adjustments, of $9,829 million, accounted for as a business combination under the acquisition method of accounting. The acquisition provides an expansion to our premium sports programming including the exclusive regional distribution rights to 42 professional teams consisting of 14 Major League Baseball teams, 16 National Basketball Association teams, and 12 National Hockey League teams. The Acquired RSNs are reported within Sports, a reportable segment within Note 8. Segment Data.

The transaction was funded through a combination of debt financing raised by DSG and Sinclair Television Group (STG) as described in Note 3. Notes Payable and Commercial Bank Financing and redeemable subsidiary preferred equity described in Note 4: Redeemable Noncontrolling Interests.

The following table summarizes the preliminary allocated fair value of acquired assets, assumed liabilities, and noncontrolling interests of the Acquired RSNs (in millions):



Cash and cash equivalents	$	823
Accounts receivable, net	604
Prepaid expenses and other current assets	176
Property and equipment, net	25
Definite-lived intangible assets, net	7,676
Other assets	52
Accounts payable and accrued liabilities	(261		)
Other long-term liabilities	(579		)
Goodwill	1,924
Fair value of identifiable net assets acquired	$	10,440
Redeemable noncontrolling interests	(380		)
Noncontrolling interests	(231		)
Gross purchase price	$	9,829
Purchase price, net of cash acquired	$	9,006

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

The definite-lived intangible assets of $7,676 million are primarily comprised of customer relationships, which represent existing advertiser relationships and contractual relationships with MVPDs of $6,220 million, the fair value of contracts with sports teams of $1,440 million, and tradenames/trademarks of $16 million. The intangible assets will be amortized over a weighted average useful life of 2 years for tradenames/trademarks, 10 years for customer relationships, and 12 years for contracts with sports teams on a straight line basis. The fair value of the sports team contracts will be amortized over the respective contract term. Acquired property and equipment will be depreciated on a straightline basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, as well as expected future synergies. We estimate that $1.8 billion of goodwill, which represents our interest in the Acquired RSNs, will be deductible for tax purposes.

In connection with the acquisition, for three and nine months ended September 30, 2019, we recognized $85 million and $94 million, respectively, of transaction costs that we expensed as incurred and classified as corporate general and administrative expenses on our consolidated statements of operations. Revenue and operating income, exclude transaction costs above, of the Acquired RSNs included on our consolidated statements of operations were $352 million and $46 million, respectively, for the three and nine months ended September 30, 2019.

Pro Forma Information. The table below sets forth unaudited pro forma results of operations, assuming that the RSN Acquisition, along with transactions necessary to finance the acquisition, occurred at the beginning of the year preceding the year of the acquisition (in millions, expect per share data):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
Total revenue	$	1,632		$	1,732	$	5,067	$	5,058
Net income	$	1		$	248	$	319	$	475
Net income attributable to Sinclair Broadcast Group	$	(48	)	$	199	$	166	$	330
Basic earnings per share attributable to Sinclair Broadcast Group	$	(0.52	)	$	1.95	$	1.80	$	3.24
Diluted earnings per share attributable to Sinclair Broadcast Group	$	(0.51	)	$	1.94	$	1.78	$	3.21

This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not indicative of what our results would have been had we operated the Acquired RSNs for the period presented because the pro forma results do not reflect expected synergies. The pro forma adjustments reflect depreciation expense and amortization of intangible assets related to the fair value of the assets acquired and any adjustments to interest expense to reflect the debt financing of the transactions, if applicable. Depreciation and amortization expense are higher than amounts recorded in the historical financial statements of the acquirees due to the fair value adjustments recorded in purchase accounting.

Termination of Material Definitive Agreement

In August 2018, we received a termination notice from Tribune Media Company (Tribune), terminating the Agreement and Plan of Merger entered into on May 8, 2017, between the Company and Tribune (Merger Agreement), which provided for the acquisition by the Company of the outstanding shares of Tribune Class A common stock and Tribune Class B common stock (Merger). See Litigation under Note 6. Commitments and Contingencies for further discussion on our pending litigation related to the Tribune acquisition. For the three months ended September 30, 2018, we recognized $34 million of costs in connection with this acquisition, which included $11 million primarily related to legal and other professional services, that we expensed as incurred and classified as corporate general and administrative expenses on our consolidated statements of operations; and $22 million related to financing ticking fees, which was recorded as interest expense on our consolidated statements of operations. For the nine months ended September 30, 2018, we recognized $100 million of costs in connection with this acquisition, which included $21 million primarily related to legal and other professional services, that we expensed as incurred and classified as corporate general and administrative expenses on our consolidated statements of operations; and $79 million related to financing ticking fees, which was recorded as interest expense on our consolidated statements of operations.

Dispositions

Broadcast Incentive Auction. Congress authorized the FCC to conduct so-called "incentive auctions" to auction and re-purpose broadcast television spectrum for mobile broadband use. Pursuant to the auction, television broadcasters submitted bids to receive compensation for relinquishing all or a portion of its rights in the television spectrum of their full-service and Class A stations. Low power stations were not eligible to participate in the auction and are not protected and therefore may be displaced or forced to go off the air as a result of the post-auction repacking process.

For the nine months ended September 30, 2018, we recognized a gain of $83 million which is included within gain on asset dispositions and other, net of impairment on our consolidated statements of operations. This gain relates to the auction proceeds associated with one market where the underlying spectrum was vacated during the first quarter of 2018. The results of the auction are not expected to produce any material change in operations of the Company as there is no change in on air operations.

In the repacking process associated with the auction, the FCC has reassigned some stations to new post-auction channels. We do not expect reassignment to new channels to have a material impact on our coverage. We have received notification from the FCC that 100 of our stations have been assigned to new channels. Legislation has provided the FCC with a $3 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. We expect that the reimbursements from the fund will cover the majority of our expenses related to the repack. We recorded gains related to reimbursements for spectrum repack costs incurred of $28 million and $50 million for the three and nine months ended September 30, 2019, respectively, and $1 million and $3 million for the three and nine months ended September 30, 2018, respectively, which are recorded within gain on asset dispositions and other, net of impairment on our consolidated financial statements. For the three and nine months ended September 30, 2019, capital expenditures related to the spectrum repack were $16 million and $41 million, respectively, and $9 million and $21 million for the three and nine months ended September 30, 2018, respectively.