UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

Commission File Number: 000-26076

 

SINCLAIR BROADCAST GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

(410) 568-1500

(Registrant’s telephone number, including area code)

 

None

(Former name, former address and former fiscal year-if changed since last report)

 

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 x                            No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer o            Accelerated filer x             Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                            No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

 

SINCLAIR BROADCAST GROUP, INC.

FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2006

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 6. EXHIBITS
SIGNATURE
EXHIBIT INDEX

 

2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

 

		As of March 31,			As of December 31,
		2006			2005
ASSETS		(unaudited)
CURRENT ASSETS:
Cash and cash equivalents		$	7,753		$	9,655
Accounts receivable, net of allowance for doubtful accounts of $4,225 and $4,596, respectively		118,176			127,913
Current portion of program contract costs		52,318			51,528
Income taxes receivable		2,072			—
Prepaid expenses and other current assets		7,594			17,616
Deferred barter costs		2,694			2,027
Assets held for sale		—			3,678
Deferred tax assets		9,446			10,591
Total current assets		200,053			223,008
PROGRAM CONTRACT COSTS, less current portion		46,042			36,494
LOANS TO AFFILIATES		12			14
PROPERTY AND EQUIPMENT, net		295,798			304,355
GOODWILL, net		1,040,234			1,040,234
BROADCAST LICENSES, net		409,620			409,620
DEFINITE-LIVED INTANGIBLE ASSETS, net		222,039			224,673
OTHER ASSETS		41,787			47,255
Total assets		$	2,255,585		$	2,285,653
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	4,677		$	3,799
Income taxes payable		—			2,662
Accrued liabilities		67,367			84,623
Current portion notes payable, capital leases and commercial bank financing		33,700			33,802
Current portion of notes and capital leases payable to affiliates		3,091			4,135
Current portion of program contracts payable		77,064			88,510
Deferred barter revenues		3,129			2,501
Deferred gain on sale of broadcast assets		—			3,249
Liabilities held for sale		—			1,407
Total current liabilities		189,028			224,688
LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion		1,407,934			1,426,754
Notes payable and capital leases to affiliates, less current portion		15,606			15,152
Program contracts payable, less current portion		79,589			65,239
Deferred tax liabilities		286,902			278,399
Other long-term liabilities		49,384			52,438
Total liabilities		2,028,443			2,062,670
MINORITY INTEREST IN CONSOLIDATED ENTITIES		766			966
SHAREHOLDERS’ EQUITY:
Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 47,329,176 and 47,122,407 shares issued and outstanding, respectively		473			471
Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 38,348,331 shares issued and outstanding, convertible into Class A Common Stock		383			383
Additional paid-in capital		592,059			590,377
Accumulated deficit		(366,539		)	(369,214		)
Total shareholders’ equity		226,376			222,017
Total liabilities and shareholders’ equity		$	2,255,585		$	2,285,653

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data) (Unaudited)

 

		Three Months Ended March 31,
		2006			2005
REVENUES:
Station broadcast revenues, net of agency commissions		$	147,925		$	144,428
Revenues realized from station barter arrangements		11,805			14,511
Other operating divisions’ revenues		3,737			4,921
Total revenues		163,467			163,860
OPERATING EXPENSES:
Station production expenses		38,109			37,924
Station selling, general and administrative expenses		34,146			34,777
Expenses recognized from station barter arrangements		10,825			13,405
Amortization of program contract costs and net realizable value adjustments		18,623			17,119
Other operating divisions’ expenses		3,989			5,053
Depreciation of property and equipment		12,288			13,026
Corporate general and administrative expenses		5,806			5,453
Amortization of definite-lived intangible assets and other assets		4,325			4,527
Total operating expenses		128,111			131,284
Operating income		35,356			32,576
OTHER INCOME (EXPENSE):
Interest expense and amortization of debt discount and deferred financing costs		(29,170		)	(28,971		)
Interest income		46			121
Loss from sale of assets		(287		)	(11		)
Gain from extinguishment of debt		901			—
Unrealized gain from derivative instruments		2,881			8,899
Income from equity and cost investees		6,099			1,179
Other (expense) income, net		(125		)	76
Total other expense		(19,655		)	(18,707		)
Income from continuing operations before income taxes		15,701			13,869
INCOME TAX PROVISION		(7,478		)	(5,421		)
Income from continuing operations		8,223			8,448
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of related income tax benefit of $1,114 and tax provision of $1,519, respectively		1,168			2,861
Gain from discontinued operations, net of related income tax provision of $885		1,774			—
NET INCOME		11,165			11,309
PREFERRED STOCK DIVIDENDS		—			2,502
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS		$	11,165		$	8,807
BASIC AND DILUTED EARNINGS PER SHARE:
Earnings per share from continuing operations		$	0.10		$	0.07
Earnings per share from discontinued operations		$	0.03		$	0.03
Earnings per common share		$	0.13		$	0.10
Weighted average common shares outstanding		85,533			85,235
Weighted average common and common equivalent shares outstanding		85,535			85,236
Dividends declared per common share		$	0.10		$	0.05

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(in thousands) (Unaudited)

 

		Class A Common Stock			Class B Common Stock			Additional  Paid-In Capital			Accumulated Deficit			Total Shareholders’ Equity
BALANCE, December 31, 2005		$	471		$	383		$	590,377		$	(369,214	)	$	222,017
Dividends declared on Class A and Class B Common Stock		—			—			—			(8,490		)	(8,490		)
Class A Common Stock issued pursuant to employee benefit plans		2			—			1,682			—			1,684
Net income		—			—			—			11,165			11,165
BALANCE, March 31, 2006		$	473		$	383		$	592,059		$	(366,539	)	$	226,376

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)

 

		Three Months Ended March 31,
		2006			2005
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income		$	11,165		$	11,309
Adjustments to reconcile net income to net cash flows from operating activities:
Amortization of debt premium		(270		)	(270		)
Depreciation of property and equipment		12,288			13,189
Recognition of deferred revenue		(1,235		)	(1,235		)
Accretion of capital leases		152			175
Income from equity and cost investees		(6,099		)	(1,179		)
Loss on sale of property		287			11
Gain on sale of broadcast assets related to discontinued operations		(2,659		)	—
Unrealized gain from derivative instruments		(2,881		)	(8,899		)
Amortization of definite-lived intangible assets and other assets		4,325			4,543
Amortization of program contract costs and net realizable value adjustments		18,623			17,350
Amortization of deferred financing costs		871			654
Stock-based compensation		499			233
Extinguishment of debt, non-cash portion		(535		)	—
Amortization of derivative instruments		134			134
Deferred tax provision related to operations		8,935			5,297
Deferred tax (benefit) provision related to discontinued operations		(1,177		)	1,659
Net effect of change in deferred barter revenues and deferred barter costs		(39		)	(229		)
Changes in assets and liabilities, net of effects of acquisitions and dispositions:
Decrease in accounts receivable, net		9,737			11,769
Increase in taxes receivable		(2,072		)	(64		)
Decrease in prepaid expenses and other current assets		10,034			7,629
Decrease (increase) in other long-term assets		177			(103		)
Decrease in accounts payable and accrued liabilities		(13,863		)	(10,101		)
Decrease in income taxes payable		(772		)	—
Decrease in other long-term liabilities		(1,851		)	(788		)
Dividends and distributions from equity and cost investees		6,000			—
Payments on program contracts payable		(26,289		)	(28,163		)
(Decrease) increase in minority interest		(19		)	17
Net cash flows from operating activities		23,466			22,938
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment		(4,717		)	(3,538		)
Payments for acquisition of television stations		(1,710		)	—
Investments in equity and cost investees		(59		)	(518		)
Proceeds from the sale of assets		1,358			21
Proceeds from the sale of broadcast assets related to discontinued operations		1,400			—
Loans to affiliates		(35		)	(20		)
Proceeds from loans to affiliates		34			28
Net cash flows used in investing activities		(3,729		)	(4,027		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases		49,000			—
Repayments of notes payable, commercial bank financing and capital leases		(61,114		)	(2,500		)
Proceeds from exercise of stock options		—			13
Dividends paid on Series D Convertible Exchangeable Preferred Stock		—			(2,502		)
Dividends paid on Class A and Class B Common Stock		(8,470		)	(2,129		)
Repayments of notes and capital leases to affiliates		(1,055		)	(953		)
Net cash flows used in financing activities		(21,639		)	(8,071		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(1,902		)	10,840
CASH AND CASH EQUIVALENTS, beginning of period		9,655			10,491
CASH AND CASH EQUIVALENTS, end of period		$	7,753		$	21,331

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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SINCLAIR BROADCAST GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of Sinclair Broadcast Group, Inc. and those of our wholly-owned and majority-owned subsidiaries and variable interest entities. Minority interest represents a minority owner’s proportionate share of the equity in certain of our consolidated entities. All significant intercompany transactions and account balances have been eliminated in consolidation.

Discontinued Operations

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we reported the financial position and results of operations of KOVR-TV in Sacramento, California, KSMO-TV in Kansas City, Missouri and WEMT-TV in Tri-Cities, Tennessee as discontinued operations in the accompanying consolidated balance sheets and 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. The operating results of KOVR, KSMO and WEMT are not included in our consolidated results from continuing operations for the quarters ended March 31, 2006 and 2005. In accordance with Emerging Issues Task Force Issue No. 87-24, Allocation of Interest to Discontinued Operations, we have allocated $2.6 million of interest expense to discontinued operations for the quarter ended March 31, 2005. No interest expense was allocated for the quarter ended March 31, 2006. See Note 8. Discontinued Operations, for additional information.

Interim Financial Statements

The consolidated financial statements for the three months ended March 31, 2006 and 2005 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 presentation of the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows for these periods.

As permitted under the applicable rules and regulations of the Securities and Exchange Commission, 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, as amended, for the year ended December 31, 2005 filed with the Securities and Exchange Commission. The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

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.

Stock-Based Compensation

On January 1, 2006, we adopted Statement of Financial Accounting Standard No. 123R, Share-Based Payment (SFAS 123R). SFAS 123R requires us to expense the fair value of grants of various stock-based compensation programs over the vesting period of the awards. We elected to adopt the “Modified Prospective Application” transition method which does not result in the restatement of previously issued consolidated financial statements. For additional information regarding our accounting under SFAS 123R, see Note 2. Stock-Based Compensation.

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Restructuring Costs

During the three months ended March 31, 2006, we incurred costs associated with restructuring the news operations at certain of our stations. Specifically, on or before March 31, 2006, we ceased our locally produced news broadcasts in nine of our markets, terminated the news employees and cancelled our news-related contracts. The total one-time terminated employee benefit costs related to this restructuring were $0.5 million and the total one-time contract cancellation costs were $0.5 million, all of which were recorded as station production expenses for the three months ended March 31, 2006. The remaining unpaid liability associated with these costs was $0.8 million as of March 31, 2006. In addition, we expect to incur costs associated with the transfer of certain news broadcast assets to our other stations that continue to produce local news; these costs will be expensed in the period in which they are incurred. We are still evaluating when and where these assets will be transferred and therefore, we are not able to estimate such costs at this time.

Income Taxes

Our income tax provision for all periods consist of federal and state income taxes. The tax provision for the three months ended March 31, 2006 is based on the estimated effective tax rate applicable for the full year, which is expected to be 47.6%. Our effective income tax rate differs from the federal statutory rate of 35% and can vary from period to period due to fluctuations in operating results, new or revised tax legislation and accounting pronouncements and state income taxes. Both the first quarter and estimated annual 2006 effective rates are higher than the statutory rate due primarily to the impact of state income taxes and certain items not deductible for tax purposes.

Reclassifications

Certain reclassifications have been made to the prior periods’ consolidated financial statements to conform with the current period’s presentation.

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2. STOCK-BASED COMPENSATION:

On January 1, 2006, we adopted Statement of Financial Accounting Standard No. 123R, Share-Based Payment (SFAS No. 123R). SFAS 123R requires us to expense the fair value of grants of various stock-based compensation programs over the vesting period of the awards. We elected to adopt the “Modified Prospective Application” transition method which does not result in the restatement of previously issued consolidated financial statements. SFAS 123R also requires us to classify income tax deductions in excess of the compensation cost recognized on stock options exercised during the period as financing cash flows.

Description of Awards

We have four types of stock-based compensation awards: compensatory stock options (options), restricted stock awards (RSAs), an employee stock purchase plan (ESPP) and employer matching contributions (the Match) for participants in our 401(k) plan. Below is a summary of the key terms and methods of valuation of our stock-based compensation awards:

Options. 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 that of our subsidiaries and to attract and retain the services of qualified and capable employees. Options granted pursuant to the LTIP must be exercised within 10 years following the grant date. A total of 14,000,000 shares of Class A Common Stock are reserved for awards under this plan. As of March 31, 2006, 7,020,114 shares (including forfeited shares) were available for future grants.

On April 21, 2005, we accelerated the vesting of 390,039 stock options, which were all of our outstanding unvested options at that time. We accelerated the vesting of these options to prevent recognizing an expense of approximately $0.8 million, before taxes, in 2006 and future periods. The acceleration of the vesting resulted in a modification to the original options. In accordance with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock-Based Compensation (FIN 44), we recorded an immaterial compensation charge based on the intrinsic value of the awards (as defined by FIN 44) as measured on the modification date. The exercise prices of these options range from $7.39 to $15.19 per share and there was no material impact to earnings as a result of this acceleration because most options had an exercise price that was above the trading price on the vesting date. We have not issued any options subsequent to accelerating the vesting. There were no options exercised during the three months ended March 31, 2006.

A summary of changes in outstanding stock options is as follows:

 

		Options		Weighted-Average Exercise Price			Exercisable		Weighted-Average Exercise Price
Outstanding at end of 2004		6,576,520		$	15.73		5,950,757		$	15.73
2005 Activity:
Granted		2,000		$	8.24		—		—
Exercised		(20,750	)	$	7.76		—		—
Forfeited		(205,050	)	$	14.91		—		—
Outstanding at end of 2005		6,352,720		$	15.78		6,352,720		$	15.78
2006 Activity:
Granted		—		$	—		—		—
Exercised		—		$	—		—		—
Forfeited		—		$	—		—		—
Outstanding at end of 2006		6,352,720		$	15.78		6,352,720		$	15.78

 

We do not expect to issue options in future periods, and instead, we expect to issue RSAs, discussed below. Therefore, the adoption of SFAS 123R did not have a material effect on our consolidated income, cash flows and basic and diluted earnings per share.

In the event the Board of Directors decides to issue options, we would be required to determine the method we would use to estimate the fair value, such as the Black-Scholes method or a lattice method. Additionally, we would be required to estimate certain assumptions, including expected volatility and estimated forfeitures.

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RSAs. RSAs are granted to employees pursuant to the LTIP and do not have an expiration. RSAs do have certain restrictions that lapse over three years at 25%, 25% and 50%, respectively. During this period, all RSAs have voting rights similar to any unrestricted shares and will be eligible for dividends subject to our normal dividend policies. As the restrictions lapse, the stock may be freely traded on the open market. We have not previously awarded RSAs, and we did not award any RSAs during the three months ended March 31, 2006. On April 3, 2006, we awarded 40,000 RSAs that had a fair value of $7.81 per share, which was the value of the stock on the trading date immediately prior to the grant date. We will record an expense related to this grant on a straight-line basis over the 3-year lapse period. This expense will reduce our consolidated income, but it will have no effect on our consolidated cash flows. Additionally, RSAs for which the restrictions have lapsed will be included in total shares outstanding, which will have a dilutive effect on our basic earnings per share; and RSAs for which the restrictions have not lapsed will be included in total equivalent shares outstanding, which will have a dilutive effect on our diluted earnings per share.

ESPP. In March 1998, the Board of Directors adopted, upon approval of the shareholders by proxy, the 1998 Employee Stock Purchase Plan (the ESPP). The ESPP provides our employees with an opportunity to become shareholders through a convenient arrangement for purchasing shares of Class A Common Stock.  On the first day of each payroll deduction period, the participating employee receives options to purchase a number of shares of our common stock with money that is withheld from his or her paycheck. The number of shares available to the participating employee is determined at the end of the payroll deduction period by dividing (1) the total amount of money withheld during the payroll deduction period by (2) the exercise price of the options (as described below). Options granted under the ESPP to employees are automatically exercised to purchase shares on the last day of the payroll deduction period, unless the participating employee has, at least thirty days earlier requested that his or her payroll contributions stop. Any cash accumulated in an employee’s account for a period in which an employee elects not to participate is distributed to the employee.

The initial exercise price for options under the ESPP is 85% of the lesser of the fair market value of the common stock as of the first day of the payroll deduction period and as of the last day of that period. No participant can purchase more than $25,000 worth of our common stock in all payroll deduction periods ending during the same calendar year. We value the stock options under the ESPP using the Black-Scholes option pricing model, which incorporates the following assumptions as of March 31, 2006:

 

 

We use the Black-Scholes model as opposed to a lattice pricing model because employee exercise patterns are not relevant to this plan. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life is based on the number of days in the quarter. The expected volatility is based on our historical stock prices over the previous 90-day period. The annual dividend yield is based on the annual dividend per share divided by the share price on the grant date.

The stock-based compensation expense recorded for the three months ended March 31, 2006 was less than $0.1 million for the 0.1 million shares issued to employees. This expense reduced our consolidated income, but it had no effect on our consolidated cash flows. Additionally, options issued under the ESPP are included in the total shares outstanding at the end of each period, which results in a dilutive effect on our basic and diluted earnings per share.

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, company-matching contributions (the Match) and an additional discretionary amount determined each year by the Board of Directors. The Match and any discretionary contributions may be made using our Class A Common Stock if the Board of Directors so choose. In general, 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 year’s Match. The Match is equal to a maximum of 50% of the first 4% of elective deferrals by eligible employees. During the three months ended March 31, 2006, we made the 2005 Match of $1.5 million. Additionally, we recorded an expense related to the 2006 Match of $0.5 million, which will be made using our Class A Common Stock in March of 2007. There has been no change in the method of accounting for the Match as a result of adopting SFAS 123R. Therefore, there will be no changes in the effect of the Match on our consolidated income, cash flows and basic and diluted earnings per share in future periods as compared to previous periods.

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Compensation Summary

A brief description of the compensation recorded in the consolidated statements of operations is as follows for each type of stock-based compensation awards:

Options. For the three months ended March 31, 2006, we did not record any expense related to our outstanding options. All options were previously vested, as disclosed above, and no options were awarded during the period. See 2005 Pro-Forma Compensation below for our accounting treatment during the three months ended March 31, 2005.

RSAs. For the three months ended March 31, 2006, we did not record any expense related to RSAs because there were no RSAs granted prior to that date.

ESPP. For the three months ended March 31, 2006, we recorded less than $0.1 million in compensation expenses related to our ESPP. See 2005 Pro-Forma Compensation below for our accounting treatment during the three months ended March 31, 2005.

Match. For the three months ended March 31, 2006 and 2005, we recorded $0.5 million and $0.2 million, respectively, in compensation expenses related to our Match.

We have accounted for stock-based compensation in accordance with interpretive guidance provided by the SEC in Staff Accounting Bulletin No. 107. The following table presents the stock-based compensation classified as station production, station selling, general and administrative and corporate general and administrative expenses:

 

		Three Months Ended March 31,
		2006			2005
Station production expenses		$	37,958		$	37,862
Stock-based compensation		151			62
Station production expenses, as reported		$	38,109		$	37,924
Station selling, general and administrative expenses		$	33,908		$	34,688
Stock-based compensation		238			89
Station selling, general and administrative expenses, as reported		$	34,146		$	34,777
Corporate general and administrative expenses		$	5,696		$	5,386
Stock-based compensation		110			67
Corporate general and administrative expenses, as reported		$	5,806		$	5,453

 

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2005 Pro-Forma Compensation

For the three months ended March 31, 2005, we applied the intrinsic value method of accounting for stock options as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, which was permitted by SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123). Accordingly, no expense was recognized for our options or shares granted under the ESPP. Had compensation expense related to our stock options and shares under the ESPP been determined consistent with SFAS 123, our net income available to common shareholders for the three months ended March 31, 2005 would approximate the pro forma amounts below (in thousands, except per share data):

 

 

We have computed for pro forma disclosure purposes the value of all options granted during the three months ended March 31, 2005, using the Black-Scholes option pricing model as prescribed by SFAS 123 using the following weighted average assumptions:

 

 

3. COMMITMENTS AND CONTINGENCIES:

Litigation

We are a party to lawsuits and claims from time to time in the ordinary course of business. Actions currently pending are in various preliminary stages and no 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 the outcome of our pending and threatened matters will not have a material adverse effect on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows.

Operating Leases

As of March 31, 2006, we had outstanding letters of credit of $1.1 million under our revolving credit facility. The letters of credit act as a guarantee of lease payments for the property occupied by WTTA-TV in Tampa, Florida, pursuant to the terms and conditions of the lease agreement and as support of the purchase of the license assets of WNYS-TV in Syracuse, New York, pursuant to an Asset Purchase Agreement.

Network Affiliation Agreements

As of March 31, 2006, the 58 television stations that we own and operate, or to which we provide programming services or sales services, 56 currently are affiliated as follows: FOX (19 stations), WB (18 stations), ABC (10 stations), UPN (6 stations), CBS (2 stations) and NBC (1 station).  The remaining two stations are independent. 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.

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On October 24, 2005, NBC informed us that they intend to terminate our affiliation with WTWC-TV in Tallahassee, Florida. This notice is contractually required to avoid automatic renewal of the existing agreement which expires January 1, 2007. NBC has stated it is willing to continue its affiliation with WTWC if revised terms and conditions can be agreed upon. As of March 31, 2006, the net book value of this affiliation agreement was $2.2 million. We continue to negotiate with NBC regarding our affiliation agreement.

On March 2, 2006, we entered into an agreement with Twentieth Television, Inc. to air MyNetworkTV primetime programming on 17 of our stations. This agreement becomes effective on September 5, 2006 and expires on September 4, 2011. As of March 31, 2006, the net book value of the affiliation agreements related to our WB and UPN stations that will be airing MyNetworkTV programming was $6.2 million.

On May 1, 2006, we entered into an agreement with FOX to renew all of our FOX affiliation agreements. These agreements expire on March 31, 2012. As of March 31, 2006, the net book value of these affiliation agreements was $36.4 million.

On May 2, 2006, we entered into affiliation agreements with The CW Television Network to air their programming on nine of our stations. These agreements become effective on September 1, 2006 and expire on August 31, 2010. As of March 31, 2006, the net book value of the affiliation agreements related to our WB stations that will be airing CW programming was $2.6 million.

Beginning in September 2006, our 58 television stations will be affiliated as follows: FOX (19 stations), MyNetworkTV (17 stations), ABC (10 stations), The CW (9 stations), CBS (2 stations) and NBC (1 station). We will no longer have independent stations.

Changes in the Rules on Television Ownership and Local Marketing Agreements

There have been no material changes to the Federal Communications Commission (FCC) rules on television ownership and local marketing agreements during the three months ended March 31, 2006. Please refer to Note 10. Commitments and Contingencies in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2005.

4. SUPPLEMENTAL CASH FLOW INFORMATION:

During the three months ended March 31, 2006 and 2005, our supplemental cash flow information was as follows (in thousands):

 

		Three Months Ended March 31,
		2006			2005
Income taxes paid related to continuing operations		$	26		$	548
Income taxes paid related to sale of discontinued operations		$	4,028		$	40
Income tax refunds received		$	166		$	372
Interest paid		$	28,588		$	31,816

 

Non-cash barter and trade expense are presented in the consolidated statements of operations. Non-cash transactions related to capital lease obligations were $0.4 million for the quarter ended March 31, 2006. No capital lease obligations were entered into for the quarter ended March 31, 2005.

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5. DERIVATIVE INSTRUMENTS:

We enter into derivative instruments primarily to reduce the impact of changing interest rates on our floating rate debt and to reduce the impact of changing fair market values on our fixed rate debt.

We account for derivative instruments under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133 and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133 (Collectively, SFAS 133).

As of March 31, 2006, we held the following derivative instruments (in millions):

 

Notional Amount			Expiration Date		Interest Payable		Interest Receivable		FMV Asset (Liability) (d)
$	375.0	(a)	June 5, 2006		6.25 to 7.00	%	LIBOR	(c)	$	—	(f)
$	200.0	(a)	June 5, 2006		6.32 to 7.00	%	LIBOR	(c)	$	—	(f)
$	300.0	(b)	March 12, 2012		LIBOR + 2.28	%(c)	8.00	%	$	—	(f)
$	100.0	(b)(e)	March 12, 2012		LIBOR + 3.095	%(c)	8.00	%	$	(3.5	)
									$	(3.5	)

(a)             These swap agreements do not qualify for hedge accounting treatment under SFAS 133; therefore, changes in their fair market values are reflected currently in earnings as an unrealized gain from derivative instruments. We recorded an unrealized gain related to these instruments of $2.9 million and $8.9 million for the three months ended March 31, 2006 and 2005, respectively. The instrument with a notional amount of $375.0 million was amended on March 2, 2005, resulting in a removal of termination option by the counterparty. The instrument with a notional amount of $200.0 million does not have an option to terminate before it expires.

(b)            These swaps are accounted for as fair value hedges in accordance with SFAS 133; therefore, changes in their fair market values are reflected as adjustments to the carrying value of the underlying debt being hedged.

(c)             Represents a floating rate based on three-month London Interbank Offered Rate (LIBOR).

(d)            The fair market value (FMV) of the interest rate swap agreements is estimated by obtaining quotations from the international financial institution party to each derivative contract. The fair value is an estimate of the net amount that we would (pay) receive on March 31, 2006, if we cancelled the contracts or transferred them to other parties. This amount was a liability of $3.5 million on March 31, 2006 compared to a liability of $8.9 million on March 31, 2005. This decrease in liability was a result of higher interest rates in the first quarter of 2006 versus the first quarter of 2005.

(e)             On April 20, 2006, we terminated these agreements for $3.8 million, the fair value of the derivative on the date of termination. This amount also represents an adjustment to the carrying value of the related debt and will be amortized over the remaining life of the underlying hedged debt in accordance with SFAS 133.

(f)               Due to current interest rate levels, amounts are less than $0.1 million.

During May 2003, we completed an issuance of $150.0 million aggregate principal amount of 4.875% Convertible Senior Notes. Under certain circumstances, we will pay contingent cash interest to the holders of the convertible notes commencing on January 15, 2011. This contingent cash interest feature is an embedded derivative which had a negligible fair value as of March 31, 2006.

 

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6. EARNINGS PER SHARE:

The following table reconciles income (numerator) and shares (denominator) used in our computations of earnings per share for the three months ended March 31, 2006 and 2005 (in thousands):

 

		As of March 31,
		2006			2005
Income (Numerator)
Income from continuing operations		$	8,223		$	8,448
Income from discontinued operations, including gain on sale of broadcast assets related to discontinued operations		$	2,942		$	2,861
Net income		11,165			11,309
Preferred stock dividends		—			2,502
Net income available to common shareholders		$	11,165		$	8,807
Shares (Denominator)
Weighted-average common shares outstanding		85,533			85,235
Dilutive effect of outstanding stock options		2			1
Weighted-average common and common equivalent shares outstanding		85,535			85,236

 

We applied the treasury stock method to measure the dilutive effect of our outstanding stock options and include the respective common share equivalents in the denominator of the diluted EPS computation. For each of the three months ended March 31, 2006 and 2005, our 6% Convertible Debentures, due and 4.875% Convertible Senior Notes, due 2018 were anti-dilutive; therefore, they were not included in the computation of diluted EPS.

7. RELATED PARTY TRANSACTIONS:

From time to time, we charter aircraft owned by certain controlling shareholders. For each of the three months ended March 31, 2006 and 2005, we incurred less than $0.1 million related to these arrangements.

Certain assets used by us and our operating subsidiaries are leased from Cunningham Communications Inc., Keyser Investment Group, Gerstell Development Limited Partnership and Beaver Dam, LLC (entities owned by the controlling shareholders). Lease payments made to these entities were $1.1 million for the three months ended March 31, 2006 and 2005.

In January 1999, we entered into a local marketing agreement (LMA) with Bay Television, Inc. (Bay TV), which owns the television station WTTA-TV in Tampa, Florida. Our controlling shareholders own a substantial portion of the equity of Bay TV. The LMA provides that we deliver television programming to Bay TV, which broadcasts the programming in return for a monthly fee to Bay TV of $143,500. We must also make an annual payment equal to 50% of the adjusted annual broadcast cash flow of the station (as defined in the LMA) that is in excess of $1.7 million. The additional payment is reduced by 50% of the adjusted broadcast cash flow of the station that was below zero in prior calendar years. Lease payments made to Bay TV were $0.4 million for the three months ended March 31, 2006 and 2005.

In connection with our 1997 negotiations with The WB to obtain affiliation agreements for a number of our stations, we discussed an opportunity to obtain The WB affiliation in Tampa, Florida for WTTA-TV, which is owned by Bay TV as described above. We did this in anticipation of entering into a LMA with Bay TV to program WTTA, which was then operating as a non-affiliated independent television station airing paid programming. In 1998, in order to obtain The WB affiliation for WTTA, we and Bay TV each agreed to make payments in the future to The WB of $10.0 million, or $20.0 million in total. Our agreement to make such payments was conditioned upon Bay TV entering into the aforementioned LMA agreement, which we subsequently entered into in January 1999.

Our obligation to make a $10.0 million payment to The WB was structured as a $5.0 million reduction of each of the payments owed to us by The WB under our multi-station affiliation agreement in January of each of 2006 and 2007, assuming that The WB was still operating a television network at the time such payments were due. Additionally, Bay TV agreed to make $5.0 million cash payments to The WB in January 2006 and January 2007 pursuant to the granting of The WB affiliation for WTTA. Additionally, our multi-station WB affiliation agreement provided that The WB’s obligation to make a $5.0 million payment to us in each of January 2006 and 2007 was expressly conditioned upon receipt by The WB of corresponding payments from Bay TV.

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After Bay TV failed to make the first $5.0 million payment to The WB on its due date January 16, 2006, The WB withheld $5.0 million from the amount due to us pursuant to our multi-station affiliation agreement. On January 24, 2006, The WB announced that it was combining with the UPN television network to form the CW Television Network. As a result, we entered into negotiations with The WB regarding a number of issues surrounding The WB’s announcement, including the impact of the elimination of WTTA’s WB network affiliation and the amount we and Bay TV agreed to pay for the affiliation in Tampa.

As a result of such negotiations, on May 2, 2006, we entered into primary affiliation agreements with the CW Television Network. Concurrently, we entered into a release and settlement agreement between us and Bay TV, on one side, and The WB and UPN, on the other side (the Release and Settlement Agreement). Pursuant to the Release and Settlement Agreement, we and Bay TV agreed to release The WB and UPN, and The WB and UPN agreed to release us and Bay TV, from any claims or other liabilities we or Bay TV, or The WB or UPN, may have arising out of or in connection with (a) any agreement, including any affiliation agreements entered into by us or Bay TV with The WB or UPN, and (b) any services previously performed by any one of the parties to the Release and Settlement Agreement for any other party to the Release and Settlement Agreement.  In addition, pursuant to the Release and Settlement Agreement, The WB assigned to us all of The WB’s rights to receive a $5.0 million payment from Bay TV on January 16, 2006.  In connection with executing the Release and Settlement Agreement and entering into the CW Television Network affiliation agreements, The WB and UPN agreed to make a payment to us and, on May 2, 2006, we entered into an agreement with Bay TV (the “Bay TV Agreement”) in which we agreed to pay Bay TV $750,000, representing Bay TV’s share of the payment made to us by The WB and UPN. This payment will be made by reducing by $750,000 Bay TV’s obligation to pay us $5.0 million, which obligation was assigned to us by The WB as described above.

The foregoing description does not purport to be a complete statement of the parties rights and obligations under the Settlement and Release Agreement or the Bay TV Agreement. The foregoing description is qualified in its entirety by reference to the Settlement and Release Agreement and the Bay TV Agreement, copies of which will be filed as exhibits to the Company’s Form 10-Q for the quarter ended June 30, 2006.

David D. Smith, our President and Chief Executive Officer, has a controlling interest in Atlantic Automotive and is a member of the Board of Directors. Atlantic Automotive Corporation is a holding company which owns automobile dealerships and a leasing company. We sold advertising time to Atlantic Automotive on WBFF-TV and WNUV-TV, both in Baltimore, Maryland, and received payments totaling $0.1 million and $0.2 million during the three months ended March 31, 2006 and 2005, respectively. We purchased a total of $0.4 million in vehicles and related vehicle services from Atlantic Automotive during each of the three months ended March 31, 2006 and 2005.

In August 1999, we established a small business investment company called Allegiance Capital Limited Partnership (Allegiance) with an investment of $2.4 million. Our controlling shareholders and our Chief Financial Officer and Executive Vice President are also limited partners in Allegiance, along with Allegiance Capital Management Corporation (ACMC), the general partner. ACMC controls all decision making, investing and management of operations of Allegiance in exchange for a monthly management fee based on actual expenses incurred which currently averages approximately $0.1 million and which is paid by the limited partners. We received a $6.0 million distribution from Allegiance during the three months ended March 31, 2006.

8. DISCONTINUED OPERATIONS:

Accounts receivable related to all of our discontinued operations is included in the accompanying consolidated balance sheets, net of allowance for doubtful accounts, for all periods presented. This is because we continue to own the rights to collect the amounts due to us through the closing dates of the non-license television broadcast assets. Such amounts were $0.3 million (net of allowance of $0.4 million) and $0.2 million (net of allowance of $0.4 million) as of March 31, 2006 and December 31, 2005, respectively.

WEMT Disposition

On May 16, 2005, we entered into an agreement to sell WEMT-TV in Tri-Cities, Tennessee, including the FCC license (the broadcast license) to an unrelated third party for $7.0 million. On the same day, we completed the sale of the WEMT non-license television broadcast assets for $5.6 million of the total $7.0 million sales price and recorded a deferred gain of $3.2 million, which is stated separately on the December 31, 2005 consolidated balance sheet. The FCC approved the transfer of the broadcast license to the unrelated third party and we completed the sale of the license assets, including the broadcast license, on February 8, 2006 for a cash price of approximately $1.4 million. We recorded $1.8 million, net of $0.9 million in taxes, as gain from discontinued operations in our consolidated statements of operations for the quarter ended March 31, 2006.

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The gain is comprised of the previously deferred gain of $2.1 million and the loss of $0.3 million from the sale of the license assets, net of taxes, respectively. The net cash proceeds were used in the normal course of operations and for capital expenditures.

Other Dispositions

During the three months ended March 31, 2006, we recognized a $1.1 million tax benefit primarily relating to a settlement regarding certain state tax returns related to discontinued operations in 1999.

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9. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS:

Sinclair Television Group, Inc. (STG), a wholly-owned subsidiary of Sinclair Broadcast Group, Inc. (SBG), is the primary obligor under our Bank Credit Agreement, the 8.75% Senior Subordinated Notes, due 2011 and the 8% Senior Subordinated Notes, due 2012. Our Class A Common Stock, Class B Common Stock, 6% Convertible Debentures, due 2012 and the 4.875% Convertible Senior Subordinated Notes, due 2018 remain at SBG and are neither obligations nor securities of STG.

SBG and KDSM, LLC, a wholly-owned subsidiary of SBG, have fully and unconditionally guaranteed all of STG’s obligations. Those guarantees are joint and several. There are no significant restrictions on the ability of SBG, STG or KDSM, LLC to obtain funds from their subsidiaries in the form of dividends or loans.

The following condensed consolidating financial statements present the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows of SBG, STG, KDSM, LLC, the direct and indirect non-guarantor subsidiaries of SBG and the eliminations necessary to arrive at our information on a consolidated basis. These statements are presented in accordance with the disclosure requirements under Securities and Exchange Commission Regulation S-X, Rule 3-10.

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CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2006
(in thousands) (unaudited)

 

					Guarantor Subsidiaries
		Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			KDSM, LLC			Non-Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Cash		$	—		$	6,232		$	54		$	1,467		$	—		$	7,753
Accounts receivable		142			112,951			1,219			3,864			—			118,176
Other current assets		1,645			67,147			796			4,536			—			74,124
Total current assets		1,787			186,330			2,069			9,867			—			200,053
Property and equipment, net		9,069			278,968			4,306			3,455			—			295,798
Investment in consolidated subsidiaries		518,275			—			—			—			(518,275		)	—
Other long-term assets		21,573			62,055			847			6,382			(3,016		)	87,841
Total other long-term assets		539,848			62,055			847			6,382			(521,291		)	87,841
Acquired intangible assets		—			1,608,879			5,544			57,470			—			1,671,893
Total assets		$	550,704		$	2,136,232		$	12,766		$	77,174		$	(521,291	)	$	2,255,585
Accounts payable and accrued liabilities		$	13,760		$	51,574		$	335		$	6,375		$	—		$	72,044
Current portion of long-term debt		910			2,381			—			33,500			—			36,791
Other current liabilities		—			78,215			1,277			701			—			80,193
Total current liabilities		14,670			132,170			1,612			40,576			—			189,028
Long-term debt		309,660			1,111,541			2,339			—			—			1,423,540
Other liabilities		(2		)	413,806			1,608			4,245			(3,016		)	416,641
Total liabilities		324,328			1,657,517			5,559			44,821			(3,016		)	2,029,209
Common stock		856			—			—			—			—			856
Additional paid-in capital		592,059			571,204			17,056			79,352			(667,612		)	592,059
Accumulated deficit		(366,539		)	(92,489		)	(9,849		)	(46,999		)	149,337			(366,539		)
Total shareholders’ equity		226,376			478,715			7,207			32,353			(518,275		)	226,376
Total liabilities and shareholders’ equity		$	550,704		$	2,136,232		$	12,766		$	77,174		$	(521,291	)	$	2,255,585

 

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CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2005
(in thousands) (unaudited)

 

					Guarantor Subsidiaries
		Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			KDSM, LLC			Non-Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Cash		$	—		$	8,002		$	28		$	1,625		$	—		$	9,655
Accounts receivable		195			122,040			1,473			4,205			—			127,913
Other current assets		580			75,664			981			4,537			—			81,762
Assets held for sale		—			3,678			—			—			—			3,678
Total current assets		775			209,384			2,482			10,367			—			223,008
Property and equipment, net		9,546			286,760			4,462			3,587			—			304,355
Investment in consolidated subsidiaries		516,742			—			—			—			(516,742		)	—
Other long-term assets		22,950			57,929			542			6,693			(4,351		)	83,763
Total other long-term assets		539,692			57,929			542			6,693			(521,093		)	83,763
Acquired intangible assets		—			1,611,442			5,585			57,500			—			1,674,527
Total assets		$	550,013		$	2,165,515		$	13,071		$	78,147		$	(521,093	)	$	2,285,653
Accounts payable and accrued liabilities		$	8,557		$	77,295		$	410		$	4,822		$	—		$	91,084
Current portion of long-term debt		1,195			3,242			—			33,500			—			37,937
Other current liabilities		—			91,983			1,513			764			—			94,260
Liabilities held for sale		—			1,407			—			—			—			1,407
Total current liabilities		9,752			173,927			1,923			39,086			—			224,688
Long-term debt		318,245			1,121,333			2,328			—			—			1,441,906
Other liabilities		(1		)	395,262			1,208			4,924			(4,351		)	397,042
Total liabilities		327,996			1,690,522			5,459			44,010			(4,351		)	2,063,636
Common stock		854			—			—			—			—			854
Additional paid-in capital		590,377			578,814			17,608			79,266			(675,688		)	590,377
Accumulated deficit		(369,214		)	(103,821		)	(9,996		)	(45,129		)	158,946			(369,214		)
Total shareholders’ equity		222,017			474,993			7,612			34,137			(516,742		)	222,017
Total liabilities and shareholders’ equity		$	550,013		$	2,165,515		$	13,071		$	78,147		$	(521,093	)	$	2,285,653

 

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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(in thousands) (unaudited)

 

					Guarantor Subsidiaries
		Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			KDSM, LLC			Non-Guarantor  Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue		$	—		$	157,700		$	2,030		$	3,737		$	—		$	163,467
Program and production		—			37,668			441			—			—			38,109
Selling, general and administrative		177			38,557			595			623			—			39,952
Depreciation, amortization and other operating expenses		559			44,466			907			4,118			—			50,050
Total operating expenses		736			120,691			1,943			4,741			—			128,111
Operating (loss) income		(736		)	37,009			87			(1,004		)	—			35,356
Equity in earnings of subsidiaries		9,610			—			—			—			(9,610		)	—
Interest income		—			45			—			1			—			46
Interest expense		(4,620		)	(23,915		)	(67		)	(568		)	—			(29,170		)
Other income (expense)		7,427			2,439			127			(524		)	—			9,469
Total other income (expense)		12,417			(21,431		)	60			(1,091		)	(9,610		)	(19,655		)
Income tax (provision) benefit		(516		)	(7,187		)	—			225			—			(7,478		)
Income from discontinued operations, net of taxes		—			1,168			—			—			—			1,168
Gain from sale of discontinued operations, net of taxes		—			1,774			—			—			—			1,774
Net income (loss)		$	11,165		$	11,333		$	147		$	(1,870	)	$	(9,610	)	$	11,165

 

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(in thousands) (unaudited)

					Guarantor Subsidiaries
		Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			KDSM, LLC			Non-Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
Net revenue		$	—		$	156,825		$	2,114		$	4,921		$	—		$	163,860
Program and production		—			37,481			443			—			—			37,924
Selling, general and administrative		3,916			35,274			549			491			—			40,230
Depreciation, amortization and other operating expenses		589			46,514			814			5,213			—			53,130
Total operating expenses		4,505			119,269			1,806			5,704			—			131,284
Operating (loss) income		(4,505		)	37,556			308			(783		)	—			32,576
Equity in earnings of subsidiaries		11,947			—			—			—			(11,947		)	—
Interest income		—			119			—			2			—			121
Interest expense		(2,172		)	(26,220		)	(66		)	(513		)	—			(28,971		)
Other income (expense)		5,421			4,761			42			(81		)	—			10,143
Total other income (expense)		15,196			(21,340		)	(24		)	(592		)	(11,947		)	(18,707		)
Income tax benefit (provision)		618			(6,566		)	—			527			—			(5,421		)
Income from discontinued operations, net of taxes		—			2,861			—			—			—			2,861
Net income (loss)		$	11,309		$	12,511		$	284		$	(848	)	$	(11,947	)	$	11,309

 

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(in thousands) (unaudited)

 

					Guarantor Subsidiaries
		Sinclair Broadcast Group, Inc.			Sinclair Television Group, Inc.			KDSM, LLC			Non-Guarantor Subsidiaries			Eliminations			Sinclair Consolidated
NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES		$	8,348		$	14,740		$	581		$	(203	)	$	—		$	23,466
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment		(44		)	(4,630		)	(2		)	(41		)	—			(4,717		)
Payment for acquisition of television stations		—			(1,710		)	—			—			—			(1,710		)
Distributions from equity investments		—			(59		)	—			—			—			(59		)
Proceeds from the sale of property		—			1,358			—			—			—			1,358
Proceeds from the sale of broadcast assets related to discontinued operations		—			1,400			—			—			—			1,400
Loans to affiliates		(35		)	—			—			—			—			(35		)
Proceeds from loans to affiliates		34			—			—			—			—			34
Net cash flows used in investing activities		(45		)	(3,641		)	(2		)	(41		)	—			(3,729		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases		—			49,000			—			—			—			49,000
Repayments of notes payable, commercial bank financing and capital leases		(7,663		)	(53,451		)	—			—			—			(61,114		)
Increase (decrease) in intercompany payables		8,078			(7,611		)	(553		)	86			—			—
Dividends paid on Class A and Class B Common Stock		(8,470		)	—			—			—			—			(8,470		)
Repayments of notes and capital leases to affiliates		(248		)	(807		)	—			—			—			(1,055		)
Net cash flows (used in) from financing activities		(8,303		)	(12,869		)	(553		)	86			—			(21,639		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		—			(1,770		)	26			(158		)	—			(1,902		)
CASH AND CASH EQUIVALENTS, beginning of period		—			8,002			28			1,625			—			9,655
CASH AND CASH EQUIVALENTS, end of period		$	—		$	6,232		$	54		$	1,467		$	—		$	7,753

 

22

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(in thousands) (unaudited)

 

					Guarantor Subsidiaries
		Sinclair  Broadcast  Group, Inc.			Sinclair  Television Group, Inc.			KDSM, LLC			Non-Guarantor  Subsidiaries			Eliminations			Sinclair  Consolidated
NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES		$	(4,058	)	$	27,430		$	376		$	(810	)	$	—		$	22,938
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment		(13		)	(3,505		)	(3		)	(17		)	—			(3,538		)
Additional investments		(192		)	(26		)	—			(300