1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries and VIEs for which we are the primary beneficiary. Noncontrolling interests represents a minority owner’s proportionate share of the equity in certain of our consolidated entities. All intercompany transactions and account balances have been eliminated in consolidation.

Discontinued Operations

In accordance with Financial Accounting Standards Board’s (FASB) guidance on reporting assets held for sale, we reported the financial position and results of operations of our stations in Lansing, Michigan (WLAJ-TV) and Providence, Rhode Island (WLWC-TV), as assets and liabilities held for sale in the accompanying consolidated balance sheets and discontinued operations consolidated statements of operations. Discontinued operations have not been segregated in the consolidated statements of cash flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated balance sheets and consolidated statements of operations. WLAJ-TV was acquired in the second quarter of 2012 in connection with the acquisition of the television stations from Freedom Communications (Freedom). WLWC-TV was acquired in the first quarter of 2012 in connection with the acquisition of the television stations from Four Points Media Group LLC (Four Points). See Note 2. Acquisitions for more information. In October 2012, we entered into an agreement to sell all the assets of WLAJ-TV to an unrelated third party for $14.4 million. In January 2013, we entered into an agreement to sell the assets of WLWC-TV to an unrelated third party for $13.8 million. The operating results of WLAJ-TV, which was sold effective March 1, 2013, and WLWC-TV, which was sold effective April 1, 2013, are not included in our consolidated results of operations from continuing operations for the three and nine months ending September 30, 2013 and 2012. Total revenues for WLAJ-TV and WLWC-TV, which are included in discontinued operations for the nine months ending September 30, 2013, were $0.6 million and $1.6 million, respectively. Total revenues of WLAJ-TV and WLWC-TV, which are included in discontinued operations for the three months ending September 30, 2012, are $1.1 million and $1.8 million, respectively. Total revenues of WLAJ-TV and WLWC-TV, which are included in discontinued operations for the nine months ending September 30, 2012, are $2.2 million and $4.7 million, respectively. Total income before taxes for WLAJ-TV and WLWC-TV, which are included in discontinued operations for the nine months ending September 30, 2013, are $0.2 million and $0.4 million, respectively, and total income(loss) before taxes of WLAJ-TV and WLWC-TV, which are included in discontinued operations for the nine months ending September 30, 2012, are less than $(0.1) million and $0.1 million, respectively. The resulting gain on the sale of these stations in 2013 was negligible.

Additionally, we recognized a $6.1 and $11.2 million income tax benefit for the three and nine months ended September 30, 2013, respectively, attributable to the adjustment of certain liabilities for unrecognized tax benefits related to discontinued operations. See discussion under Income Taxes below.

Interim Financial Statements

The consolidated financial statements for the three and nine months ended September 30, 2013 and 2012 are unaudited. In the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statement of equity (deficit) and consolidated statements of cash flows for these periods as adjusted for the adoption of recent accounting pronouncements discussed below.

As permitted under the applicable rules and regulations of the Securities and Exchange Commission (SEC), the consolidated financial statements do not include all disclosures normally included with audited consolidated financial statements and, accordingly, should be read together with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC. The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

Variable Interest Entities

In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. We consolidate VIEs when we are the primary beneficiary. The assets of each of our consolidated VIEs can only be used to settle the obligations of the VIE. All the liabilities, including debt held by our VIEs, are non-recourse to us except for Cunningham Broadcasting Company’s (Cunningham) and Deerfield Media, Inc.’s (Deerfield) debt which we guarantee.

We have entered into local marketing agreements (LMAs) to provide programming, sales and managerial services for television stations of Cunningham, the license owner of seven television stations as of September 30, 2013. We pay LMA fees to Cunningham and also reimburse all operating expenses. We also have an acquisition agreement in which we have a purchase option to buy the license assets of the television stations which includes the Federal Communication Commission (FCC) license and certain other assets used to operate the station (License Assets). Our applications to acquire the FCC licenses are pending approval. We own the majority of the non-license assets of the Cunningham stations and our Bank Credit Agreement contains certain default provisions whereby insolvency of Cunningham would cause an event of default under our Bank Credit Agreement. We have determined that the Cunningham stations are VIEs and that based on the terms of the agreements, the significance of our investment in the stations and the cross-default provisions with our Bank Credit Agreement, we are the primary beneficiary of the 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 VIEs through the sales and managerial services we provide and we absorb losses and returns that would be considered significant to Cunningham. See Note 6. Related Person Transactions for more information on our arrangements with Cunningham. Included in the accompanying consolidated statements of operations for the three months ended September 30, 2013 and 2012 are net broadcast revenues of $25.9 million and $25.5 million, respectively, that relate to LMAs with Cunningham. For the nine months ended September 30, 2013 and 2012, Cunningham’s stations provided us with approximately $80.3 million and $73.5 million, respectively, of net broadcast revenues.

We have entered into joint sales agreements (JSAs), shared services agreements (SSAs), and LMAs to provide certain services for the television stations of Deerfield, the license owner of eight television stations as of September 30, 2013. The initial term of each of the JSAs and SSAs is eight years from the commencement and the agreements may be automatically renewed for successive eight year renewal terms. We also have purchase options to buy the License Assets of the television stations. We own the majority of the non-license assets of the Deerfield stations and we have also guaranteed the debt of Deerfield. Additionally, there are leases in place whereby Deerfield leases assets owned by us in order to perform its duties under FCC rules. We have determined that the Deerfield stations are VIEs and that based on the terms of the agreements, the significance of our investment in the stations and our guarantee of Deerfield’s debt, we are the primary beneficiary of the 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 VIEs through the sales and managerial services we provide and we absorb losses and returns that would be considered significant to Deerfield. Included in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2013 are net revenues of $20.8 million and $59.8 million, respectively, that relate to agreements with Deerfield.

We have outsourcing agreements with certain other license owners, under which we provide certain non-programming related sales, operational and administrative services. We pay a fee to the license owners based on a percentage of broadcast cash flow and we reimburse all operating expenses. We also have purchase options to buy the License Assets of these television stations. We have determined that the License Assets of these stations are VIEs, and, based on the terms of the agreements and the significance of our investment in the stations, we are the primary beneficiary of the 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 sales and managerial services we provide and because we absorb losses and returns that would be considered significant to the VIEs. Included in the accompanying consolidated statements of operations for the three months ended September 30, 2013 and 2012 are net broadcast revenues of $11.1 million and $2.6 million, respectively, that relate to these arrangements. For the nine months ended September 30, 2013 and 2012, net broadcast revenues of $30.3 million and $11.9 million, respectively, related to these arrangements.

As of the dates indicated, the carrying amounts and classification of the assets and liabilities of the VIEs mentioned above which have been included in our consolidated balance sheets for the periods presented (in thousands):

	As of September 30, 2013		As of December 31, 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,243	$	3,805
Accounts receivable	1,608		110
Income taxes receivable	—		94
Current portion of program contract costs	6,529		6,113
Prepaid expenses and other current assets	221		124
Total current asset	19,601		10,246

PROGRAM CONTRACT COSTS, less current portion	2,380		1,484
PROPERTY AND EQUIPMENT, net	14,739		10,806
RESTRICTED CASH	2,102		—
GOODWILL	13,812		6,357
BROADCAST LICENSES	16,832		14,927
DEFINITE-LIVED INTANGIBLE ASSETS, net	67,237		51,368
OTHER ASSETS	12,242		12,723
Total assets	$	148,945	$	107,911

LIABILITIES
CURRENT LIABILITIES:
Accounts payable	$	28	$	15
Accrued liabilities	1,130		186
Current portion of notes payable, capital leases and commercial bank financing	5,039		2,123
Current portion of program contracts payable	8,224		8,991
Total current liabilities	14,421		11,315

LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion	45,122		20,238
Program contracts payable, less current portion	2,954		2,080
Total liabilities	$	62,497	$	33,633

The amounts above represent the consolidated assets and liabilities of the VIEs related to our LMAs, JSAs, SSAs and other outsourcing agreements, as discussed above, for which we are the primary beneficiary, and have been aggregated as they all relate to our broadcast business. Excluded from the amounts above are payments made to Cunningham under the LMAs which are treated as a prepayment of the purchase price of the stations and capital leases between us and Cunningham which are eliminated in consolidation. The total payments made under these LMAs as of September 30, 2013 and December 31, 2012, which are excluded from liabilities above, were $32.4 million and $29.8 million, respectively. The total capital lease liabilities excluded from above were $11.6 million and $11.7 million as of September 30, 2013 and December 31, 2012, respectively. During the nine months ended September 30, 2013, Cunningham sold a portion of its investment in our Class A Common Stock which is eliminated in consolidation and excluded from assets shown above, for $7.0 million, net of income taxes and has been reflected as an increase in additional paid in capital in the consolidated balance sheet. Also excluded from the amounts above are liabilities associated with the JSAs, SSAs, and option agreements with the other VIEs totaling $45.2 million and $36.2 million as of September 30, 2013 and December 31, 2012, respectively, as these amounts are eliminated in consolidation. The risk and reward characteristics of the VIEs are similar.

In the fourth quarter of 2011, we began providing sales, programming and management services to the Freedom stations pursuant to a LMA. Effective April 1, 2012, we completed the acquisition of the Freedom stations and the LMA was terminated. We determined that the Freedom stations were VIEs during the period of the LMA based on the terms of the agreement. We were not the primary beneficiary because the owner of the stations had the power to direct the activities of the VIEs that most significantly impacted the economic performance of the VIEs. In the consolidated statements of operations for the nine months ended September 30, 2012 are net broadcast revenues of $10.0 million and station production expenses of $7.8 million related to the Freedom LMAs during the second quarter of 2012.

We have investments in other real estate ventures and investment companies which are considered VIEs. However, we do not participate in the management of these entities including the day-to-day operating decisions or other decisions which would allow us to control the entity, and therefore, we are not considered the primary beneficiary of these VIEs. We account for these entities using the equity or cost method of accounting.

The carrying amounts of our investments in these VIEs for which we are not the primary beneficiary for the periods presented (in thousands):

	As of September 30, 2013				As of December 31, 2012
	Carrying amount		Maximum exposure		Carrying amount		Maximum exposure
Investments in real estate ventures	$	3,545	$	3,545	$	3,648	$	3,648
Investments in investment companies	26,064		26,064		27,335		27,335
Total	$	29,609	$	29,609	$	30,983	$	30,983

The carrying amounts above are included in other assets in the consolidated balance sheets. The income and loss related to these investments are recorded in income from equity and cost method investments in the consolidated statement of operations. We recorded income of $0.7 million and $0.3 million in the three months ended September 30, 2013 and 2012, respectively. We recorded income of $1.4 million and $7.0 million for the nine months ended September 30, 2013 and 2012, respectively.

Our maximum exposure is equal to the carrying value of our investments. As of September 30, 2013 and December 31, 2012, our unfunded commitments related to private equity investment funds totaled $16.9 million and $8.9 million, respectively.

Recent Accounting Pronouncements

In July 2012, the FASB issued new guidance for testing indefinite-lived intangible assets for impairment. The new guidance allows companies to perform a qualitative assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar to the approach now applied to goodwill. Companies can first determine based on certain qualitative factors whether it is “more likely than not” (a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired. The new standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets for impairment. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 30, 2012 and early adoption is permitted. We adopted this new guidance in the fourth quarter of 2012 when completing our annual impairment analysis. This guidance impacted how we perform our annual impairment testing for indefinite-lived intangible assets and changed our related disclosures for 2012; however, it does not have an impact on our consolidated financial statements as the guidance does not impact the timing or amount of any resulting impairment charges.

In February 2013, the FASB issued new guidance requiring disclosure of items reclassified out of accumulated other comprehensive income (AOCI). This new guidance requires entities to present (either on the face of the income statement or in the notes) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance is effective for annual and interim periods beginning after December 15, 2012. This guidance does not have a material impact on our financial statements.

In July 2013, the FASB issued new guidance requiring new disclosure of unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a company does not have: (i) a net operating loss carryforward; (ii) a similar tax loss; or (iii) a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The authoritative guidance is effective for fiscal years and the interim periods within those fiscal years beginning on or after December 15, 2013 and should be applied on a prospective basis. We are currently evaluating the impact of this requirement on our financial statements.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities. Actual results could differ from those estimates.

Restricted Cash

During the nine months ending September 2013, we deposited $40.6 million into escrow accounts pursuant to agreements for the acquisitions of Barrington, TTBG, and New Age. See Note 3. Commitments and Contingencies for more information on these pending acquisitions. These escrow deposits are classified as restricted cash within noncurrent assets in the consolidated balance sheet as of September 30, 2013.

Additionally, under the terms of certain lease agreements, as of September 30, 2013 and December 31, 2012, we were required to hold $0.2 million of restricted cash related to the removal of analog equipment from some of our leased towers.

Revenue Recognition

Total revenues include: (i) cash and barter advertising revenues, net of agency commissions; (ii) retransmission consent fees; (iii) network compensation; (iv) other broadcast revenues and (v) revenues from our other operating divisions.

Advertising revenues, net of agency commissions, are recognized in the period during which time spots are aired.

Our retransmission consent agreements contain both advertising and retransmission consent elements. We have determined that our retransmission consent agreements are revenue arrangements with multiple deliverables. Advertising and retransmission consent deliverables sold under our agreements are separated into different units of accounting at fair value. Revenue applicable to the advertising element of the arrangement is recognized similar to the advertising revenue policy noted above. Revenue applicable to the retransmission consent element of the arrangement is recognized over the life of the agreement.

Network compensation revenue is recognized over the term of the contract. All other revenues are recognized as services are provided.

Income Taxes

Our income tax provision for all periods consists of federal and state income taxes. The tax provision for the three and nine months ended September 30, 2013 and 2012 is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interests. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. A valuation allowance has been provided for deferred tax assets related to a substantial portion of our available state net operating loss (NOL) carryforwards, based on past operating results, expected timing of the reversals of existing temporary book/tax basis differences, alternative tax strategies and projected future taxable income.

Our effective income tax rate for the three months and nine months ended September 30, 2013 was lower than the statutory rate primarily due to: 1) a release of a valuation allowance related to state NOL carryforwards, of $5.3 million, net of taxes, due to a law change in a state tax jurisdiction, effective for years beginning after December 31, 2014, which we expect will significantly increase the forecasted future taxable income attributable to that state and result in utilization of the state NOL carryforwards and 2) a $2.2 million adjustment to the income tax provision upon finalization of the 2012 federal income tax return, primarily related to higher than originally projected available income tax deductions.

Our effective income tax rate for the three months ended September 30, 2012 was greater than the statutory rate primarily due to an increase in the income tax reserves related to a state audit settlement in 2012.

Our effective income tax rate nine months ended September 30, 2012 was lower than the statutory rate primarily due to a release of valuation allowance of $7.7 million related to certain deferred tax assets of Cunningham as the weight of all available evidence supports realization of the deferred tax assets. The valuation allowance release determination was based primarily on the sufficiency of forecasted taxable income necessary to utilize NOLs expiring in years 2022 — 2029. This VIE files separate income tax returns. Any resulting tax liabilities are nonrecourse to us and we are not entitled to any benefit resulting from the deferred tax assets of the VIE.

As previously discussed above under Discontinued Operations, during the three months ended September 30, 2013, we reduced our liability for unrecognized tax benefits by $6.1 million related to discontinued operations, as we now believe that it is more likely than not that our previously unrecognized state tax position would be sustained upon review of the state tax authority, based on new information obtained during the period. Additionally, during the second quarter of 2013, we reduced our liability for unrecognized tax benefits by $5.1 million related to discontinued operations, upon the application of limits under an available state administrative practice exception.

Reclassifications

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