Sinclair Broadcast Group, LLC - Quarter Report: 2012 June (Form 10-Q)

Table of Contents

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

For the quarterly period ended June 30, 2012

 

OR

 

 

For the transition period from                      to                       .

 

COMMISSION FILE NUMBER: 000-26076

 

SINCLAIR BROADCAST GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

 

10706 Beaver Dam Road

Hunt Valley, Maryland 21030

(Address of principal executive office, zip code)

 

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such file). Yes x  No o

 

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

 

 

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 share outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Title of each class		Number of shares outstanding as of August 2, 2012
Class A Common Stock		52,303,808
Class B Common Stock		28,933,859

 

 

Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2012

 

TABLE OF CONTENTS

 

PART 1.	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS	3
	CONSOLIDATED BALANCE SHEETS	3
	CONSOLIDATED STATEMENTS OF OPERATIONS	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5
	CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)	6
	CONSOLIDATED STATEMENTS OF CASH FLOWS	7
	NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	36
ITEM 4.	CONTROLS AND PROCEDURES	37
PART II.	OTHER INFORMATION	38
ITEM 1.	LEGAL PROCEEDINGS	38
ITEM 1A.	RISK FACTORS	38
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	38
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	38
ITEM 4.	MINE SAFETY DISCLOSURES	38
ITEM 5.	OTHER INFORMATION	38
ITEM 6.	EXHIBITS	39
SIGNATURE		40
EXHIBIT INDEX		41

 

2

Table of Contents

 

PART 1. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data) (Unaudited)

 

 

		As of June 30, 2012			As of December 31, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	31,078		$	12,967
Accounts receivable, net of allowance for doubtful accounts of $3,332 and $3,008, respectively		159,842			132,915
Affiliate receivable		943			252
Income taxes receivable		—			225
Current portion of program contract costs		23,171			38,906
Prepaid expenses and other current assets		8,444			17,274
Deferred barter costs		3,500			2,238
Deferred tax assets		3,390			4,940
Total current assets		230,368			209,717
PROGRAM CONTRACT COSTS, less current portion		11,124			15,584
PROPERTY AND EQUIPMENT, net		372,049			281,521
RESTRICTED CASH, less current portion		223			58,726
GOODWILL		912,862			660,117
BROADCAST LICENSES		70,727			47,002
DEFINITE-LIVED INTANGIBLE ASSETS, net		391,890			175,341
OTHER ASSETS		170,998			123,409
Total assets (a)		$	2,160,241		$	1,571,417
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable		$	7,302		$	8,872
Accrued liabilities		115,061			79,698
Income taxes payable		9,963			—
Current portion of notes payable, capital leases and commercial bank financing		42,432			38,195
Current portion of notes and capital leases payable to affiliates		3,198			3,014
Current portion of program contracts payable		50,569			63,825
Deferred barter revenues		3,253			1,978
Total current liabilities		231,778			195,582
LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion		1,667,809			1,148,271
Notes payable and capital leases to affiliates, less current portion		14,892			16,545
Program contracts payable, less current portion		21,300			27,625
Deferred tax liabilities		243,513			247,552
Other long-term liabilities		47,231			47,204
Total liabilities (a)		2,226,523			1,682,779
COMMITMENTS AND CONTINGENCIES (See Note 3)
EQUITY (DEFICIT):
SINCLAIR BROADCAST GROUP SHAREHOLDERS’ EQUITY (DEFICIT):
Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 52,280,511 and 52,022,086 shares issued and outstanding, respectively		523			520
Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 28,933,859 and 28,933,859 shares issued and outstanding, respectively, convertible into Class A Common Stock		289			289
Additional paid-in capital		621,556			617,375
Accumulated deficit		(694,296		)	(734,511		)
Accumulated other comprehensive loss		(4,659		)	(4,848		)
Total Sinclair Broadcast Group shareholders’ deficit		(76,587		)	(121,175		)
Noncontrolling interests		10,305			9,813
Total deficit		(66,282		)	(111,362		)
Total liabilities and equity (deficit)		$	2,160,241		$	1,571,417

 

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

 

(a)          Our consolidated total assets as of June 30, 2012 and December 31, 2011 include total assets of variable interest entities (VIEs) of $44.9 million and $33.5 million, respectively, which can only be used to settle the obligations of the VIEs.  Our consolidated total liabilities as of June 30, 2012 and December 31, 2011 include total liabilities of the VIEs of $11.2 million and $14.4 million, respectively, for which the creditors of the VIEs have no recourse to us.  See Note 1. Summary of Significant Accounting Policies.

 

3

Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data) (Unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2012			2011			2012			2011
REVENUES:
Station broadcast revenues, net of agency commissions		$	220,014		$	159,370		$	412,218		$	315,331
Revenues realized from station barter arrangements		21,391			18,498			39,075			35,720
Other operating divisions revenues		12,149			10,992			26,097			20,418
Total revenues		253,554			188,860			477,390			371,469
OPERATING EXPENSES:
Station production expenses		63,350			42,917			123,553			85,262
Station selling, general and administrative expenses		42,234			30,192			78,363			60,754
Expenses recognized from station barter arrangements		19,714			16,531			35,971			32,258
Amortization of program contract costs and net realizable value adjustments		15,467			12,666			29,747			25,284
Other operating divisions expenses		10,503			8,770			22,793			16,733
Depreciation of property and equipment		12,655			7,861			22,144			15,921
Corporate general and administrative expenses		7,513			7,073			16,880			15,737
Amortization of definite-lived intangible and other assets		10,126			4,614			16,025			9,808
Total operating expenses		181,562			130,624			345,476			261,757
Operating income		71,992			58,236			131,914			109,712
OTHER INCOME (EXPENSE):
Interest expense and amortization of debt discount and deferred financing costs		(29,320		)	(24,934		)	(56,707		)	(54,101		)
Loss from extinguishment of debt		—			(3,478		)	(335		)	(4,402		)
Income from equity and cost method investments		5,148			815			6,424			826
Gain on insurance settlement		10			—			29			1,723
Other income, net		705			496			1,157			861
Total other expense		(23,457		)	(27,101		)	(49,432		)	(55,093		)
Income from continuing operations before income taxes		48,535			31,135			82,482			54,619
INCOME TAX PROVISION		(18,336		)	(12,576		)	(23,142		)	(20,826		)
Income from continuing operations		30,199			18,559			59,340			33,793
DISCONTINUED OPERATIONS:
Loss from discontinued operations, includes income tax provision of $67, $82, $134 and $189, respectively		(67		)	(82		)	(134		)	(189		)
NET INCOME		30,132			18,477			59,206			33,604
Net (income) loss attributable to the noncontrolling interests		(72		)	102			213			254
NET INCOME ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP		$	30,060		$	18,579		$	59,419		$	33,858
Dividends declared per share		$	0.12		$	0.12		$	0.24		$	0.24
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:
Basic earnings per share from continuing operations		$	0.37		$	0.23		$	0.74		$	0.42
Basic earnings per share		$	0.37		$	0.23		$	0.73		$	0.42
Diluted earnings per share from continuing operations		$	0.37		$	0.23		$	0.73		$	0.42
Diluted earnings per share		$	0.37		$	0.23		$	0.73		$	0.42
Weighted average common shares outstanding		81,036			80,734			80,944			80,551
Weighted average common and common equivalent shares outstanding		81,294			81,028			81,211			80,860
AMOUNTS ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP COMMON SHAREHOLDERS:
Income from continuing operations, net of tax		$	30,127		$	18,661		$	59,553		$	34,047
Loss from discontinued operations, net of tax		(67		)	(82		)	(134		)	(189		)
Net income		$	30,060		$	18,579		$	59,419		$	33,858

 

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

 

4

Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

 

		Three months ended June 30,						Six months ended June 30,
		2012			2011			2012			2011
Net income		$	30,132		$	18,477		$	59,206		$	33,604
Amortization of net periodic pension benefit costs, net of taxes		85			40			189			81
Comprehensive income		30,217			18,517			59,395			33,685
Comprehensive (income) loss attributable to the noncontrolling interests		(72		)	102			213			254
Comprehensive income attributable to Sinclair Broadcast Group		$	30,145		$	18,619		$	59,608		$	33,939

 

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

 

5

 

Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(In thousands) (Unaudited)

 

		Sinclair Broadcast Group Shareholders
		Class A Common Stock					Class B Common Stock					Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Noncontrolling			Total Equity
		Shares		Values			Shares		Values			Capital			Deficit			Loss			Interests			(Deficit)
BALANCE, December 31, 2011		52,022,086		$	520		28,933,859		$	289		$	617,375		$	(734,511	)	$	(4,848	)	$	9,813		$	(111,362	)
Dividends declared on Class A and Class B Common Stock		—		—			—		—			—			(19,204		)	—			—			(19,204		)
Class A Common Stock issued pursuant to employee benefit plans		258,425		3			—		—			3,990			—			—			—			3,993
Tax benefit on share based awards		—					—		—			191			—			—			—			191
Distributions to noncontrolling interests		—		—			—		—			—			—			—			(462		)	(462		)
Issuance of subsidiary share awards		—		—			—		—			—			—			—			392			392
Consolidation of variable interest entity		—		—			—		—						—			—			775			775
Amortization of net periodic pension benefit costs, net of taxes		—		—			—		—			—			—			189			—			189
Net income (loss)		—		—			—		—			—			59,419			—			(213		)	59,206
BALANCE, June 30, 2012		52,280,511		$	523		28,933,859		$	289		$	621,556		$	(694,296	)	$	(4,659	)	$	10,305		$	66,282

 

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

 

6

Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

		Six Months Ended June 30,
		2012			2011
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income		$	59,206		$	33,604
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation of property and equipment		22,356			16,052
Recognition of deferred revenue		(12,712		)	(8,398		)
Amortization of definite-lived intangible and other assets		16,025			9,808
Amortization of program contract costs and net realizable value adjustments		29,747			25,284
Original debt issuance discount paid		—			(13,606		)
Deferred tax (benefit) provision		(2,769		)	15,865
Change in assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable, net		976			(729		)
Increase in prepaid expenses and other current assets		(10,483		)	(2,936		)
Increase in other assets		(25,255		)	(522		)
Increase in accounts payable and accrued liabilities		17,946			13,719
Increase in income taxes payable		9,963			4,165
Increase in other long-term liabilities		106			2,322
Payments on program contracts payable		(35,108		)	(36,911		)
Other, net		10,277			10,552
Net cash flows from operating activities		80,275			68,269
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment		(18,473		)	(20,656		)
Payments for acquisition of television stations		(590,887		)	—
Payments for acquisition of assets of other operating divisions		—			(242		)
Purchase of alarm monitoring contracts		(5,627		)	(4,432		)
Decrease in restricted cash		58,500			5,058
Distributions from equity and cost method investees		5,992			1,348
Investments in equity and cost method investees		(5,748		)	(8,294		)
Proceeds from insurance settlement		23			1,736
Proceeds from the sale of assets		15			41
Loans to affiliates		(699		)	(87		)
Proceeds from loans to affiliates		508			117
Net cash flows used in investing activities		(556,396		)	(25,411		)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from notes payable, commercial bank financing and capital leases		555,134			132,951
Repayments of notes payable, commercial bank financing and capital leases		(33,344		)	(124,570		)
Proceeds from exercise of stock options, including excess tax benefits of share based payments of $0.2 million and $0.7 million, respectively		279			1,844
Dividends paid on Class A and Class B Common Stock		(19,204		)	(19,224		)
Payments for deferred financing costs		(6,702		)	(4,401		)
Proceeds from Class A Common Stock sold by variable interest entity		—			1,808
Noncontrolling interests distributions		(462		)	(242		)
Repayments of notes and capital leases to affiliates		(1,469		)	(1,706		)
Net cash flows from (used in) financing activities		494,232			(13,540		)
NET INCREASE IN CASH AND CASH EQUIVALENTS		18,111			29,318
CASH AND CASH EQUIVALENTS, beginning of period		12,967			21,974
CASH AND CASH EQUIVALENTS, end of period		$	31,078		$	51,292

 

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

 

7

Table of Contents

 

SINCLAIR BROADCAST GROUP, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

Interim Financial Statements

 

The consolidated financial statements for the three and six months ended June 30, 2012 and 2011 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 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, 2011 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.  However, our senior secured credit facility (Bank Credit Agreement) contains cross-default provisions with the VIE debt of Cunningham Broadcasting Corporation (Cunningham).  See Note 6, Related Person Transactions for more information.

 

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 June 30, 2012.  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 Communications 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 cross-default provisions with Cunningham whereby a default by Cunningham caused by insolvency 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 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 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 June 30, 2012 and 2011 are net broadcast revenues of $24.8 million and $22.6 million, respectively, that relate to LMAs with Cunningham.  For the six months ended June 30, 2012 and 2011, Cunningham’s stations provided us with approximately $48.1 million and $45.9 million, respectively, of net broadcast revenues.

 

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 owner based on a percentage of broadcast cash flow and we reimburse all operating expenses.  We also have a purchase option to buy the License Assets.  For the same reasons noted above regarding the LMAs with Cunningham, we have determined that these outsourced license station assets are VIEs and we are the primary beneficiary.  Included in the accompanying consolidated statements of operations for the three months ended June 30, 2012 and 2011 are net broadcast revenues of $4.1 million and $2.9 million, respectively, that relate to these arrangements. For the six months ended June 30, 2012 and 2011, are net broadcast revenues of $7.7 million and $6.1 million, respectively, that relate to these arrangements.

 

8

Table of Contents

 

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 June 30, 2012			As of December 31, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	3,340		$	2,739
Accounts receivable		95			—
Income taxes receivable		131			142
Current portion of program contract costs		324			413
Prepaid expenses and other current assets		133			99
Total current asset		4,023			3,393
PROGRAM CONTRACT COSTS, less current portion		753			271
PROPERTY AND EQUIPMENT, net		6,308			6,658
GOODWILL		6,357			6,357
BROADCAST LICENSES		6,851			4,208
DEFINITE-LIVED INTANGIBLE ASSETS, net		8,660			6,601
OTHER ASSETS		11,918			5,980
Total assets		$	44,870		$	33,468
LIABILITIES
CURRENT LIABILITIES:
Accounts payable		$	15		$	37
Accrued liabilities		156			315
Current portion of notes payable, capital leases and commercial bank financing		5,600			11,074
Current portion of program contracts payable		281			373
Total current liabilities		6,052			11,799
LONG-TERM LIABILITIES:
Notes payable, capital leases and commercial bank financing, less current portion		2,351			2,411
Program contracts payable, less current portion		2,794			173
Total liabilities		$	11,197		$	14,383

 

The amounts above represent the consolidated assets and liabilities of the VIEs related to our LMAs with Cunningham and certain outsourcing agreements, 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 LMA 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 the LMA as of June 30, 2012 and December 31, 2011 which are excluded from liabilities above were $29.8 million and $22.7 million, respectively.  The total capital lease assets excluded from above for each of the three months ended June 30, 2012 and the year ended December 31, 2011 were $11.8 million.  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 eight stations owned by Freedom Communications (Freedom) pursuant to an LMA.  Effective April 1, 2012, we completed the acquisition of these 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 six months ended June 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 period prior to the acquisition.

 

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.

 

9

Table of Contents

 

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 June 30, 2012						As of December 31, 2011
		Carrying amount			Maximum exposure			Carrying amount			Maximum exposure
Investments in real estate ventures		$	3,929		$	3,929		$	8,009		$	8,009
Investments in investment companies		25,217			25,217			26,276			26,276
Total		$	29,146		$	29,146		$	34,285		$	34,285

 

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 $5.3 million and $0.9 million in the three months ended June 30, 2012 and 2011, respectively.  We recorded income of $6.7 million and $0.9 million for the six months ended June 30, 2012 and 2011, respectively.

 

Our maximum exposure is equal to the carrying value of our investments.  As of June 30, 2012 and December 31, 2011, our unfunded commitments related to private equity investment funds totaled $10.9 million for each of the periods.

 

Recent Accounting Pronouncements

 

In May 2011, the FASB issued new guidance for fair value measurements.  The purpose of the new guidance is to have a consistent definition of fair value between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).  Many of the amendments to GAAP are not expected to have a significant impact on practice; however, the new guidance does require new and enhanced disclosure about fair value measurements.  The amendments are effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. This guidance did not have a material impact on our consolidated financial statements but we have included the additional quantitative and qualitative disclosures required for our Level 3 fair value measurements beginning with the quarter ended March 31, 2012.

 

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 plan to adopt this new guidance in the fourth quarter of 2012 when completing our annual impairment analysis.  This guidance will impact how we perform our annual impairment testing for indefinite-lived intangible assets and may change our related disclosures; however, we do not believe it will have a material impact on our consolidated 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

 

Upon entering into definitive agreements to purchase assets of Four Points Media Group LLC (Four Points) and Freedom in September 2011 and November 2011, respectively, we were required to deposit 10% of the purchase price for each acquisition into an escrow account.  Effective January 1, 2012, we closed the asset acquisition of Four Points for $200.0 million and used $20.0 million of restricted cash towards the acquisition. Effective April 1, 2012, we closed the asset acquisition of Freedom for $385.0 million and used $38.5 million of restricted cash towards the acquisition.

 

Additionally, under the terms of certain lease agreements, as of June 30, 2012 and December 31, 2011, 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.

 

10

Table of Contents

 

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.

 

Income Taxes

 

Our income tax provision for all periods consists of federal and state income taxes.  The tax provision for the three and six months ended June 30, 2012 and 2011 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.

 

Our effective income tax rate for the three months ended June 30, 2012 and 2011 and six months ended June 30, 2011 approximated the statutory rate. Our effective income tax rate for the six months ended June 30, 2012 was lower than the statutory rate primarily due to a release of valuation allowance in the first quarter of $7.7 million related to certain deferred tax assets of Cunningham, one of our consolidated VIEs, as the weight of all available evidence supports full realization of those deferred tax assets.

 

Reclassifications

 

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

 

Subsequent events

 

On July 19, 2012, we entered into a definitive agreement to purchase the broadcast assets of six television stations owned and/or operated by Newport Television (Newport) for $412.5 million.  The six stations are located in five markets and have the following network affiliation or program service arrangements: WKRC (CBS) in Cincinnati, OH; WOAI (NBC) in San Antonio, TX; WHP (CBS) in Harrisburg/Lancaster/Lebanon/York, PA; WPMI (NBC) and WJTC (IND) in Mobile, AL/Pensacola, FL; and KSAS (FOX) in Wichita/Hutchinson, KS.  We will also acquire Newport’s rights under the local marketing agreements with WLYH (CW) in Harrisburg, PA and KMTW (MNT) in Wichita, KS, as well as options to acquire the license assets. The purchase agreement includes other customary provisions, including representations and warranties, covenants and indemnification provisions.   Upon entering into the asset purchase agreement we deposited 10% of the purchase price, $41.3 million, into escrow.  Upon closing, we expect to finance the $412.5 million purchase price, less the $41.3 million in escrow, with available cash along with a bank loan and/or by assessing the capital markets. Additionally, we entered into agreements with Deerfield Media, Inc. (Deerfield) to sell Deerfield the license assets of one of our stations in San Antonio (KMYS CW) and our station in Cincinnati (WSTR MNT), subject to FTS’s purchase option with respect to WSTR when expires March 31, 2013, and assigned Deerfield the right to buy the license assets of WPMI and WJTC in the Mobile/Pensacola market, after which we intend to provide sales and other non-programming services to each of these four stations pursuant to shared services and joint sales agreements.  All of the aforementioned transactions are expected to close no earlier than December 2012, subject to closing conditions, including without limitation approval of the FCC and customary antitrust clearance.

 

On July 17, 2012, we entered into an agreement to purchase the assets of Bay Television, Inc. (Bay TV), which owns the television station WTTA-TV in the Tampa/St. Petersburg, Florida market, for $40.0 million.  The transaction is expected to close in the fourth quarter of 2012, subject to approval of the FCC.  Concurrent with the acquisition, our LMA with Bay TV to provide certain sales, programming and other management services will be terminated.  As disclosed in Note 6. Related Person Transactions, our controlling shareholders own a controlling interest in Bay TV, and as such our board of directors obtained a fairness opinion from a third party valuation firm.  As this will be a transaction between entities under common control, the acquisition method of accounting will not be applied and the assets acquired will be recorded at their historical cost basis, upon closing.  The difference between the purchase price and the historical cost basis of the assets will be recorded as a reduction in additional paid-in capital.

 

11

Table of Contents

 

2.              ACQUISITIONS

 

Four Points

 

Effective January 1, 2012, we completed the previously announced acquisition of the broadcast assets of Four Points Media Group LLC (Four Points), which we had previously operated pursuant to a LMA since October 1, 2011.  The acquired assets consist of the following seven stations in four markets along with the respective network affiliation or program service arrangements: KUTV (CBS) and KMYU (MNT / This TV) in Salt Lake City / St. George, UT; KEYE (CBS) in Austin, TX; WTVX (CW), WTCN (MNT) and WWHB (Azteca) in West Palm Beach / Fort Pierce / Stuart, FL; and WLWC (CW) in Providence, RI / New Bedford, MA.

 

We paid Four Points $200.0 million in cash, less a working capital adjustment of $0.9 million.  The acquisition was financed with a $180.0 million draw under an incremental Term B Loan commitment under our amended Bank Credit Agreement plus a $20.0 million cash escrow previously paid in September 2011.

 

Under the acquisition method of accounting, the results of the acquired operations are included in the financial statements of the Company beginning January 1, 2012.  The initial purchase price has been allocated to the acquired assets and assumed liabilities based on estimated fair values.  The purchase price allocation is preliminary pending a final determination of the fair values of the assets and liabilities.  The initial allocated fair value of acquired assets and assumed liabilities is summarized as follows (in thousands):

 

Prepaid expenses and other current assets		$	416
Program contract costs		3,711
Property and equipment		34,578
Broadcast licenses		10,658
Definite-lived intangible assets		90,099
Other assets		548
Accrued liabilities		(343		)
Program contracts payable		(5,117		)
Fair value of identifiable net assets acquired		134,550
Goodwill		64,526
Total		$	199,076

 

The preliminary allocation presented above is based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches.  In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.  The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $66.9 million, the decaying advertiser base of $9.4 million, and other intangible assets of $13.8 million. These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations, 10 years for the decaying advertiser base and a weighted average of 14 years for the other intangible assets.  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, including assembled workforce and noncontractual relationships, as well as expected future synergies.  We expect that goodwill will be deductible for tax purposes.  The initial purchase price allocation is based upon all information available to us at the present time and is subject to change, and such changes could be material.

 

Prior to the acquisition, since October 1, 2011, we provided sales, programming and management services to the stations pursuant to an LMA.  During that period, we funded the working capital needs of the stations, which totaled $8.1 million as of December 31, 2011 and was reflected as cash flows used in operating activities within the consolidated statement of cash flows for that period.  This working capital is not reflected in the purchase price allocation presented above.

 

The results of operations for the three and six months ended June 30, 2012 include the results of the Four Points stations since January 1, 2012.  Net broadcast revenues and operating income of the Four Points stations included in our consolidated statements of operations, were $18.1 million and $3.0 million for the three months ended June 30, 2012, respectively, and $35.9 million and $7.5 million for the six months ended June, 2012, respectively.

 

Freedom

 

Effective April 1, 2012, we completed the previously announced acquisition of the broadcast assets of Freedom Communications (Freedom), which we had previously operated pursuant to a LMA since December 1, 2011. The acquired assets consist of the following eight stations in seven markets along with the respective network affiliation or program service arrangements: WPEC (CBS) in West Palm Beach, FL; WWMT (CBS) in Grand Rapids/Kalamazoo/Battle Creek, MI;  WRGB (CBS) and WCWN (CW) in Albany, NY; WTVC (ABC) in Chattanooga, TN; WLAJ (ABC) in Lansing, MI; KTVL (CBS) in Medford-Klamath Falls, OR; and KFDM (CBS) in Beaumont/Port Arthur/Orange, TX.

 

We paid Freedom $385.0 million plus a working capital adjustment of $0.3 million.  The acquisition was financed with a draw under a $157.5 million incremental Term Loan A and a $192.5 million incremental Term B Loan commitment under our amended Bank Credit Agreement, plus a $38.5 million cash escrow previously paid in November 2011.

 

12

Table of Contents

 

Under the acquisition method of accounting, the results of the acquired operations are included in the financial statements of the Company beginning April 1, 2012.  The initial purchase price has been allocated to the acquired assets and assumed liabilities based on estimated fair values.  The purchase price allocation is preliminary pending a final determination of the fair values of the assets and liabilities.  The initial allocated fair value of acquired assets and assumed liabilities is summarized as follows (in thousands):

 

Prepaid expenses and other current assets		$	375
Program contract costs		3,546
Property and equipment		54,109
Broadcast licenses		10,424
Definite-lived intangible assets		132,475
Other assets		278
Accrued liabilities		(633		)
Program contracts payable		(3,480		)
Fair value of identifiable net assets acquired		197,094
Goodwill		188,212
Total		$	385,306

 

The preliminary allocation presented above is based upon management’s estimate of the fair values using valuation techniques including income, cost and market approaches.  In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates, and estimated discount rates.  The amount allocated to definite-lived intangible assets represents the estimated fair values of network affiliations of $93.1 million, the decaying advertiser base of $23.4 million, and other intangible assets of $16.0 million.  These intangible assets will be amortized over the estimated remaining useful lives of 15 years for network affiliations, 10 years for the decaying advertiser base and a weighted average life of 16 years for the other intangible assets.  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, including assembled workforce and noncontractual relationships, as well as expected future synergies.  We expect that goodwill will be deductible for tax purposes.  The initial purchase price allocation is based upon all information available to us at the present time and is subject to change, and such changes could be material.

 

Prior to the acquisition, since December 1, 2011, we provided sales, programming and management services to the stations pursuant to an LMA.  During that period, we funded the working capital needs of the stations, which totaled $1.5 million as of December 31, 2011 and $9.6 million as of March 31, 2012 and was reflected as cash flows used in operating activities within the consolidated statement of cash flows for those periods.  This working capital is not reflected in the purchase price allocation presented above.

 

The results of operations for the three and six months ended June 30, 2012 includes the results of the Freedom stations since April 1, 2012.  Net broadcast revenues and operating income of the Freedom stations included in our consolidated statements of operations for the three months ended June 30, 2012 were $26.7 million and $6.8 million, respectively.

 

Pro Forma Information

 

The following table sets forth unaudited pro forma results of operations, assuming that the above acquisitions, along with transactions necessary to finance the acquisitions, occurred on January 1, 2011 (in thousands, except per share data):

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2012			2011			2012			2011
Total revenues		$	253,554		$	229,842		$	492,146		$	450,273
Net Income		$	30,231		$	19,355		$	60,759		$	32,607
Net Income attributable to Sinclair Broadcast Group		$	30,159		$	19,457		$	60,972		$	32,861
Basic and diluted earnings per share attributable to Sinclair Broadcast Group		$	0.37		$	0.24		$	0.75		$	0.41

 

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 necessarily indicative of what our results would have been had we operated the businesses since January 1, 2011.  The pro forma adjustments reflect depreciation expense, amortization of intangibles and amortization of program contract costs related to the fair value adjustments of the assets acquired, additional interest expense related to the financing of the transactions, exclusion of nonrecurring financing and transaction related costs and the related tax effects of the adjustments.

 

13

Table of Contents

 

In connection with these acquisitions, we incurred a total of $1.1 million of costs primarily related to legal and other professional services, which we expensed as incurred.  For the three and six months ended June 30, 2012, $0.2 million and $0.5 million, respectively, of such costs were incurred in corporate, general and administrative expenses in the consolidated statements of operations.  These costs were not included in the pro forma amounts above as they are nonrecurring in nature.

 

3.              COMMITMENTS AND CONTINGENCIES:

 

Litigation

 

We are 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.

 

Various parties have filed petitions to deny our applications for the following stations’ license renewals:  WXLV-TV, Winston-Salem, North Carolina; WMYV-TV, Greensboro, North Carolina; WLFL-TV, Raleigh/Durham, North Carolina; WRDC-TV, Raleigh/Durham, North Carolina; WLOS-TV, Asheville, North Carolina, WMMP-TV, Charleston, South Carolina; WTAT-TV, Charleston, South Carolina; WMYA-TV, Anderson, South Carolina; WICS-TV and WICD-TV in Springfield/Champaign, Illinois and WCGV-TV and WVTV-TV in Milwaukee, Wisconsin.  The FCC is in the process of considering the renewal applications and we believe the petitions have no merit.

 

Network Affiliations

 

On May 14, 2012, the Company and the licensees of stations to which we provide services, representing 20 affiliates of Fox Broadcast Company (FOX) in total, extended the network affiliation agreements with FOX from the existing term of December 31, 2012 to December 31, 2017.  Concurrently, we entered into an assignable option agreement with Fox Television Stations, Inc. (FTS) giving us or our assignee the right to purchase substantially all the assets of the WUTB station (Baltimore, MD) owned by FTS, which has a program service arrangement with MyNetworkTV, and entered into an option agreement giving FTS the right to purchase our stations in up to three of the following four markets: Las Vegas, NV, Raleigh, NC, Norfolk, VA, and Cincinnati, OH. Our stations in these markets are affiliated with the following networks or program service providers: Las Vegas (The CW and MyNetworkTV), Raleigh (The CW and MyNetworkTV), Norfolk (MyNetworkTV) and Cincinnati (MyNetworkTV).  These options are exercisable between July 1, 2012 and March 30, 2013.  The maximum total potential payments associated with the affiliation agreement and the option agreements is $50.0 million, which excludes any proceeds from the sale of stations upon FTS exercising its option, the $2.7 million purchase price we would pay to FTS for WUTB pursuant to our option, and ordinary course programming payments that will be due to FOX under the terms of the Company’s affiliation agreements.  If FTS decides to exercise its option to purchase one or more of the aforementioned stations, the total payments will be reduced by $25.0 million.  In the second quarter of 2012, we paid $25.0 million to FOX pursuant to the agreements, which is reflected as cash flows used in operating activities within the consolidated statement of cash flows for the six month period ending June 30, 2012.  As of June 30, 2012, we have recorded $50.0 million in other assets and $25.0 million of other accrued liabilities within the consolidated balance sheet, representing the additional obligation due to FOX if FTS does not exercise its option to acquire any of our stations.  The $50.0 million asset will be amortized through the current term of the affiliation agreement ending on December 31, 2017.  Approximately $1.1 million of amortization expense has been recorded in the consolidated statement of operations during the three months ended June 30, 2012.

 

4.              NOTES PAYABLE AND COMMERCIAL BANK FINANCING

 

In January 2012, we drew $180.0 million of the incremental Term Loan B under our Bank Credit Agreement to fund the asset acquisition of Four Points, which closed January 1, 2012. In addition, in April 2012, we drew $157.5 million of the incremental Term Loan A and $192.5 million of the incremental Term Loan B under our Bank Credit Agreement to fund the asset acquisition of Freedom, which closed April 1, 2012.  During the three months ended June 30, 2012, we drew down $11.0 million on our revolver.  As of June 30, 2012, our revolver balance was $11.0 million.

 

14

Table of Contents

 

5.              EARNINGS PER SHARE

 

The following table reconciles income (numerator) and shares (denominator) used in our computations of diluted earnings per share for the periods presented (in thousands):

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2012			2011			2012			2011
Income (Numerator)
Income from continuing operations		$	30,199		$	18,559		$	59,340		$	33,793
Income impact of assumed conversion of the 4.875% Notes, net of taxes		45			42			90			83
Net (income) loss attributable to noncontrolling interests included in continuing operations		(72		)	102			213			254
Numerator for diluted earnings per common share from continuing operations available to common shareholders		30,172			18,703			59,643			34,130
Loss from discontinued operations		(67		)	(82		)	(134		)	(189		)
Numerator for diluted earnings available to common shareholders		$	30,105		$	18,621		$	59,509		$	33,941
Shares (Denominator)
Weighted-average common shares outstanding		81,036			80,734			80,944			80,551
Dilutive effect of stock settled appreciation rights, restricted stock awards and outstanding stock options		4			40			13			55
Dilutive effect of 4.875% Notes		254			254			254			254
Weighted-average common and common equivalent shares outstanding		81,294			81,028			81,211			80,860

 

Approximately 1.5 million and 1.1 million shares of common stock for the three months ended June 30, 2012 and 2011, respectively, and 1.5 million and 1.1 million for the six months ended June 30, 2012 and 2011, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been antidilutive. The increase in potentially dilutive securities is primarily related to the issuance of new stock settled appreciation rights in March 2012.  The net income per share amounts are the same for Class A and Class B Common Stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

 

6.              RELATED PERSON TRANSACTIONS

 

David, Frederick, Duncan and Robert Smith (collectively, the controlling shareholders) are brothers and hold substantially all of the Class B Common Stock and some of our Class A Common Stock. We engaged in the following transactions with them and/or entities in which they have substantial interests.

 

Related Person Leases.  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 each of the three months ended June 30, 2012 and 2011 and $2.2 million for each of the six months ended June 30, 2012 and 2011, respectively.

 

Bay TV.  In January 1999, we entered into a LMA with Bay Television, Inc. (Bay TV), which owns the television station WTTA-TV in Tampa/St. Petersburg, Florida market.  Each of our controlling shareholders owns a substantial portion of the equity of Bay TV and collectively have controlling interests.  Payments made to Bay TV were $0.4 million for each of the three months ended June 30, 2012 and 2011 and $2.2 million and $1.3 million for the six months ended June 30, 2012 and 2011, respectively.  See “Subsequent Events” in Note 1, Summary of Significant Accounting Policies, for further information.

 

15

Table of Contents

 

Cunningham Broadcasting Corporation.  We have options from trusts, for which the children of our controlling shareholders are beneficiaries, that will grant us the right to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock of Cunningham Broadcasting Corporation (Cunningham) or 100% of the capital stock or assets of Cunningham’s individual subsidiaries.  As of June 30, 2012, Cunningham was the owner-operator and FCC licensee of: WNUV-TV Baltimore, Maryland; WRGT-TV Dayton, Ohio; WVAH-TV Charleston, West Virginia; WTAT-TV Charleston, South Carolina; WMYA-TV Anderson, South Carolina; WTTE-TV Columbus, Ohio; and WDBB-TV Birmingham, Alabama (collectively, the Cunningham Stations).

 

In addition to the option agreement, we entered into five-year LMAs (with five-year renewal terms at our option) with Cunningham pursuant to which we provide programming to Cunningham for airing on the Cunningham Stations.

 

Effective November 5, 2009, we entered into amendments and/or restatements of the following agreements between Cunningham and us: (i) the LMAs, (ii) option agreements to acquire Cunningham stock and (iii) certain acquisition or merger agreements relating to the Cunningham Stations.

 

Pursuant to the terms of the LMAs, options and other agreements, beginning on January 1, 2010 and ending on July 1, 2012, we are obligated to pay Cunningham the sum of approximately $29.1 million in 10 quarterly installments of $2.75 million and one quarterly payment of approximately $1.6 million, which amounts will be used to pay down Cunningham’s bank credit facility and which amounts will be credited toward the purchase price for each Cunningham station.  An additional $3.9 million will be paid in two installments on July 1, 2012 and October 1, 2012 as an additional LMA fee and will be used to pay off the remaining balance of Cunningham’s bank credit facility.  The aggregate purchase price of the television stations, which was originally $78.5 million pursuant to certain acquisition or merger agreements subject to 6% annual increases, will be decreased by each payment made by us to Cunningham up to $29.1 million in the aggregate, pursuant to the foregoing transactions with Cunningham as such payments are made.  Beginning on January 1, 2013, we will be obligated to pay Cunningham an annual LMA fee for the television stations equal to the greater of (i) 3% of each station’s annual net broadcast revenue and (ii) $5.0 million, of which a portion of this fee will be credited toward the purchase price to the extent of the annual 6% increase.  The remaining purchase price as of June 30, 2012 was approximately $58.7 million.

 

Additionally, we reimburse Cunningham for 100% of its operating costs, as well as pay Cunningham a monthly payment of $50,000 through December 2012 as an LMA fee.

 

We made payments to Cunningham under these LMAs and other agreements of $4.0 million and $4.2 million for the three months ended June 30, 2012 and 2011, respectively, and $7.9 million and $8.4 million, for the six months ended June 30, 2012 and 2011, respectively.  For the three months ended June 30, 2012 and 2011, Cunningham’s stations provided us with approximately $24.8 million and $22.6 million, respectively, and approximately $48.1 million and $45.9 million for the six months ended June 30, 2012 and 2011, respectively, of net broadcast revenues.  The financial statements for Cunningham are included in our consolidated financial statements for all periods presented.  Our Bank Credit Agreement contains certain cross-default provisions with certain material third-party licensees.  As of June 30, 2012, Cunningham was the sole material third-party licensee.

 

Atlantic Automotive.  We sold advertising time to and purchased vehicles and related vehicle services from Atlantic Automotive Corporation (Atlantic Automotive), a holding company which owns automobile dealerships and an automobile leasing company.  David D. Smith, our President and Chief Executive Officer, has a controlling interest in, and is a member of the Board of Directors of Atlantic Automotive. We received payments for advertising totaling less than $0.1 million for each of the three months ended June 30, 2012 and 2011. We received payments for advertising time of $0.1 million for each of the six months ended June 30, 2012 and 2011, respectively. We paid $0.4 million for vehicles and related vehicle services from Atlantic Automotive during each of the three months ended June 30, 2012 and 2011, respectively.  For the six months ended June 30, 2012 and 2011, we paid fees of $0.6 million and $0.5 million, respectively, for vehicles and related vehicle services.

 

Thomas & Libowitz P.A.  Basil A. Thomas, a member of our Board of Directors, is the father of Steven A. Thomas, a partner and founder of Thomas & Libowitz, P.A. (Thomas & Libowitz), a law firm providing legal services to us on an ongoing basis.  We paid fees of $0.2 million to Thomas & Libowitz for each of the three months ended June 30, 2012 and 2011.  For the six months ended June 30, 2012 and 2011, we paid fees of $0.5 million and $0.3 million, respectively, to Thomas & Libowitz.

 

Charter Aircraft.  From time to time, we charter aircraft owned by certain controlling shareholders.  We incurred $0.2 million and $0.3 million for the three and six months ended June 30, 2012, respectively. We did not incur such expenses in the three or six months ended June 30, 2011, related to these arrangements.

 

16

Table of Contents

 

7.             SEGMENT DATA

 

We measure segment performance based on operating income (loss).  Our broadcast segment includes stations in 45 markets located predominately in the eastern, mid-western and southern United States.  Our other operating divisions segment primarily earned revenues from sign design and fabrication; regional security alarm operating and bulk acquisitions and real estate ventures.  All of our other operating divisions are located within the United States.  Corporate costs primarily include our costs to operate as a public company and to operate our corporate headquarters location.  Corporate is not a reportable segment.  We had approximately $171.0 million and $168.9 million of intercompany loans between the broadcast segment, operating divisions segment and corporate as of June 30, 2012 and 2011, respectively.  We had $5.0 million and $4.9 million in intercompany interest expense related to intercompany loans between the broadcast segment, other operating divisions segment and corporate for the three months ended June 30, 2012, and 2011, respectively.  For the six months ended June 30, 2012 and 2011, we had $9.9 million and $9.7 million, respectively, in intercompany interest expense.  Intercompany loans and interest expense are excluded from the tables below.  All other intercompany transactions are immaterial.

 

Financial information for our operating segments are included in the following tables for the periods presented (in thousands):

 

For the three months ended June 30, 2012		Broadcast			Other Operating Divisions			Corporate			Consolidated
Revenue		$	241,405		$	12,149		$	—		$	253,554
Depreciation of property and equipment		11,945			327			383			12,655
Amortization of definite-lived intangible assets and other assets		9,110			1,016			—			10,126
Amortization of program contract costs and net realizable value adjustments		15,467			—			—			15,467
General and administrative overhead expenses		6,704			304			505			7,513
Operating income (loss)		72,930			(37		)	(901		)	71,992
Interest expense		—			701			28,619			29,320
Income from equity and cost method investments		—			5,148			—			5,148

 

For the three months ended June 30, 2011		Broadcast			Other Operating Divisions			Corporate			Consolidated
Revenue		$	177,868		$	10,992		$	—		$	188,860
Depreciation of property and equipment		7,140			318			403			7,861
Amortization of definite-lived intangible assets and other assets		3,743			871			—			4,614
Amortization of program contract costs and net realizable value adjustments		12,666			—			—			12,666
General and administrative overhead expenses		6,197			306			570			7,073
Operating income (loss)		58,490			719			(973		)	58,236
Interest expense		—			632			24,302			24,934
Income from equity and cost method investments		—			815			—			815

 

For the six months ended June 30, 2012		Broadcast			Other Operating Divisions			Corporate			Consolidated
Revenue		$	451,293		$	26,097		$	—		$	477,390
Depreciation of property and equipment		20,643			735			766			22,144
Amortization of definite-lived intangible assets and other assets		13,677			2,348			—			16,025
Amortization of program contract costs and net realizable value adjustments		29,747			—			—			29,747
General and administrative overhead expenses		14,608			915			1,357			16,880
Operating income (loss)		134,761			(710		)	(2,137		)	131,914
Interest expense		—			1,555			55,152			56,707
Income from equity and cost method investments		—			6,424			—			6,424
Assets		1,878,802			274,854			6,585			2,160,241

 

17