ACQUISITIONS AND DISPOSITIONS OF ASSETS

9 Months Ended

Sep. 30, 2020

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 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 $9,817 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 MLB teams, 16 NBA teams, and 12 NHL teams. The Acquired RSNs are reported within our local sports segment. See Note 7. Segment Data.

The transaction was funded through a combination of debt financing raised by DSG and Sinclair Television Group, Inc. (STG), and redeemable subsidiary preferred equity.

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



Cash and cash equivalents	$	824
Accounts receivable, net	606
Prepaid expenses and other current assets	175
Property and equipment, net	25
Customer relationships, net	5,439
Other definite-lived intangible assets, net	1,286
Other assets	52
Accounts payable and accrued liabilities	(181		)
Other long-term liabilities	(396		)
Goodwill	2,615
Fair value of identifiable net assets acquired	$	10,445
Redeemable noncontrolling interests	(380		)
Noncontrolling interests	(248		)
Gross purchase price	$	9,817
Purchase price, net of cash acquired	$	8,993

The final 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 and cost approaches. The fair value estimates are based on, but not limited to, projected revenue, projected margins, and discount rates used to present value future cash flows. The adjustments made to the initial allocation were based on more detailed information obtained about the specific assets acquired and liabilities assumed and did not result in material changes to the amortization expense recorded in previous quarters.

The definite-lived intangible assets of $6,725 million are primarily comprised of customer relationships, which represent existing advertiser relationships and contractual relationships with Distributors of $5,439 million, the fair value of contracts with sports teams of $1,271 million, and tradenames/trademarks of $15 million. The intangible assets will be amortized over a weighted average useful life of 2 years for tradenames/trademarks, 13 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 straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, as well as expected future synergies. We estimate that $2.4 billion of goodwill, which represents our interest in the Acquired RSNs, will be deductible for tax purposes. Refer to Impairment of Goodwill and Definite-Lived Intangible Assets within Note 1. Nature of Operations and Summary of Significant Accounting Policies for discussion of the impairment of the acquired goodwill and definite-lived intangible assets during the third quarter of 2020.

In connection with the acquisition, we recognized $0.4 million and $4 million for the three and nine months ended September 30, 2020, respectively, and $85 million and $94 million for the three and nine months ended September 30, 2019, respectively, of transaction costs that we expensed as incurred and classified as corporate general and administrative expenses in our consolidated statements of operations. Revenue and operating loss, excluding the effects of intercompany expenses, of the Acquired RSNs included in our consolidated statements of operations were $673 million and $4,435 million, respectively, for the three months ended September 30, 2020. Revenue and operating loss, excluding the effects of intercompany expenses, of the Acquired RSNs included in our consolidated statements of operations were $2,076 million and $3,830 million, respectively, for the nine months ended September 30, 2020. Revenue and operating income, excluding the effects of intercompany expenses and the transaction costs above, of the Acquired RSNs included in our consolidated statements of operations were $352 million and $46 million, respectively, for both 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 period presented (in millions, except per share data):



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Total revenue	$	1,632		$	5,067
Net income	$	9		$	434
Net (loss) income attributable to Sinclair Broadcast Group	$	(41	)	$	274
Basic earnings per share attributable to Sinclair Broadcast Group	$	(0.44	)	$	2.98
Diluted earnings per share attributable to Sinclair Broadcast Group	$	(0.44	)	$	2.94

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.

Other Acquisitions. During the nine months ended September 30, 2020, we completed the acquisition of the license asset and certain non-license assets of a radio station for $7 million, reported within our broadcast segment. The acquisition was completed using cash on hand. In June 2020, we entered into an agreement to acquire the license assets and certain non-license assets of two television stations for $9 million. The transaction closed during the fourth quarter of 2020, was completed using cash on hand, and will be reported within our broadcast segment.

Dispositions

Broadcast Sales. In January 2020, we agreed to sell the license and non-license assets of WDKY-TV in Lexington, KY and certain non-license assets associated with KGBT-TV in Harlingen, TX for an aggregate purchase price of $36 million. The KGBT-TV transaction closed during the first quarter of 2020 and we recorded a gain of $8 million which is included within gain on asset dispositions and other, net of impairment in our consolidated statements of operations. The WDKY-TV transaction closed during the third quarter of 2020 and we recorded a gain of $21 million which is included within gain on asset dispositions and other, net of impairment in our consolidated statements of operations.

Broadcast Incentive Auction. Congress authorized the Federal Communications Commission (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 their 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.

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 $20 million and $72 million for the three and nine months ended September 30, 2020, respectively, and $28 million and $50 million for the three and nine months ended September 30, 2019, respectively, which are included within gain on asset dispositions and other, net of impairment in our consolidated statements of operations. Capital expenditures related to the spectrum repack were $13 million and $54 million for the three and nine months ended September 30, 2020, respectively, and $16 million and $41 million for the three and nine months ended September 30, 2019, respectively.