10-K 1 a05-1743_110k.htm 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER: 000-26076

SINCLAIR BROADCAST GROUP, INC.

(Exact name of Registrant as specified in its charter)

Maryland		52-1494660
(State of incorporation)		(I.R.S. Employer Identification No.)

10706 Beaver Dam Road
Hunt Valley, MD 21030

(Address of principal executive offices)

(410) 568-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act:

Class A Common Stock, par value $.01 per share

Series D Preferred Stock, par value $.01 per share

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 ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Act). Yes ý No o

Based on the closing sales price of $10.27 per share as of June 30, 2004, the aggregate market value of the voting and non-voting common equity of the Registrant held by non-affiliates was approximately $479.0 million.

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

Title of each class		Number of shares outstanding as of March 7, 2005
Class A Common Stock		46,125,535
Class B Common Stock		39,072,649
Series D Preferred Stock		3,337,033

Documents Incorporated by Reference – Portions of our definitive Proxy Statement relating to our 2005 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. We anticipate that our Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2004.

SINCLAIR BROADCAST GROUP, INC.

FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004

TABLE OF CONTENTS

PART I

ITEM 1.	BUSINESS

ITEM 2.	PROPERTIES

ITEM 3.	LEGAL PROCEEDINGS

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

ITEM 6.	SELECTED FINANCIAL DATA

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A.	CONTROLS AND PROCEDURES

ITEM 9B.	OTHER INFORMATION

PART III

ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.	EXECUTIVE COMPENSATION

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES

SIGNATURES

PART I

FORWARD-LOOKING STATEMENTS

This report includes or incorporates forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including among other things, the following risks:

General risks

• the impact of changes in national and regional economies;

• terrorism acts of violence or war and other geopolitical events;

• the activities of competitors;

Industry risks

• the business conditions of our advertisers;

• competition with other broadcast television stations, radio stations, satellite providers, cable channels and cable system operators and telecommunications providers serving in the same markets;

• pricing and demand fluctuations in local and national advertising;

• availability of programming and volatility of programming costs;

• the effects of governmental regulation of broadcasting or changes in those regulations and court actions interpreting those regulations, including ownership, indecency and regulations regarding the transition from analog to digital over the air broadcasting;

Risks specific to Sinclair Broadcast Group

• the effectiveness of our management;

• our ability to attract and maintain local and national advertising;

• our ability to service our outstanding debt;

• the popularity of syndicated programming we purchase and network programming that we air;

• the strength of ratings for our news broadcasts;

• our ability to maintain our affiliation agreements with the relevant networks;

• changes in the makeup of the population in the areas where our stations are located;

• successful integration of outsourcing agreements; and

• FCC license renewals.

Other matters set forth in this report, including the risk factors set forth in Item 7 of this report and/or in the documents incorporated by reference, may also cause actual results in the future to differ materially from those described in the forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

ITEM 1. BUSINESS

We are a diversified television broadcasting company that owns or provides certain programming, operating or sales services to more television stations than any other commercial broadcasting group in the United States. We currently own, provide programming and operating services pursuant to local marketing agreements (LMAs) or provide (or are provided) sales services pursuant to outsourcing agreements to 62 television stations in 39 markets. For the purpose of this report, these 62 stations are referred to as “our” stations. We currently have 11 duopoly markets where we own and operate two stations within the same market. We have eight LMA markets where, with one exception, we own and operate one station in the market and provide programming and operating services to (by) another station within that market. In the remaining sixteen markets, we own and operate a single television station.

On November 12, 2004, we announced the sale of KSMO-TV, our WB affiliate in Kansas City, Missouri, to Meredith Corporation for $33.5 million, of which we have closed on $26.8 million for the non-license assets. Until the Federal Communications Commission (FCC) approves the transfer of the FCC license, we will continue our involvement in certain operations of this station through an outsourcing agreement with Meredith. On December 2, 2004, we announced the sale of KOVR-TV, our CBS affiliate in Sacramento, California, to CBS Broadcasting, Inc. for $285.0 million. Closing will occur when the FCC approves this transaction. We expect both transactions to close in 2005 and we have reclassified the operations of these stations as discontinued operations and

the assets and liabilities as held for sale in our financial statements in accordance with all applicable accounting rules and principles. (See Note 12: Discontinued Operations in our Notes to our Consolidated Financial Statements.)

We broadcast free over-the-air programming to television viewing audiences in the communities we serve through our local television stations. The programming that we provide consists of network provided programs, news produced locally, syndicated local sporting events and syndicated entertainment programs at all but two of our stations. We provide network produced programming which we broadcast pursuant to our agreements with the network with which the stations are affiliated. We produce news at 38 stations in 32 markets, 16 of those stations in 14 markets are provided with our News Central format and six stations have a local news sharing arrangement with a competitive station in that market. The remaining 16 stations in the remaining 12 markets have news operations that are mostly independent from our News Central format. We provide popular local sporting events on many of our stations by acquiring the local television broadcast rights for these events. Additionally, we purchase syndicated programming from third parties to be shown on our television stations. See Operating Strategy later in this Item for more information regarding the programming that we provide.

Our primary source of revenue is the sale of commercial air time on our television stations to our advertising customers. Our objective is to meet the needs of our advertising customers by delivering significant audiences in key demographics. Our strategy is to achieve this objective by providing quality local news programming and popular network and syndicated programs to our viewing audience. We attract our national television advertisers through a single national marketing representation firm, which communicates the benefits of advertising in our 39 markets to national advertisers. Our local television advertisers are attracted through the efforts of our local sales force, which encourages local advertisers to purchase airtime on our stations in order to advertise their products and services to our viewing audience.

Our operating results are usually subject to seasonal fluctuations. Usually, the fourth quarter operating results are higher than the other three quarters primarily because advertising expenditures are increased in anticipation of holiday season spending by consumers. Usually, the second quarter operating results are higher than the first and third quarters primarily because advertising expenditures are increased in anticipation of consumer spending on “summer related” items such as home improvements, lawn care and travel plans. Our operating results are usually subject to fluctuations from political advertising. In even years, political spending is significantly higher than in odd years due to advertising expenditures surrounding local and national elections. Additionally, every four years political spending is elevated further due to advertising expenditures surrounding the presidential election.

We seek to own, operate or engage in operating service agreements with multiple television stations in the markets we serve in order to increase revenues, reduce expenses and improve margins through increased economies of scale. We have entered into LMAs in eight markets where, for a variety of reasons, we do not own the broadcast license related to the second station. The remaining LMA is in Tampa, Florida where we operate only one station for which we do not own the broadcast license. Under LMAs, we provide substantial portions of the broadcast programming and sell advertising time during such program segments for that second station. Our strategy for attracting viewers and advertisers for our LMA television stations is essentially the same as for our owned and operated television stations. In order to further improve our margins, we have entered into outsourcing agreements in four of our markets in which our stations are provided, or provide, various non-programming related services such as sales, operational and managerial services to or by other stations. See Operating Strategy later in this Item for more information regarding our LMAs, duopolies and outsourcing agreements.

We have a mid-size market focus and 47 of our 62 stations are located in television designated market areas (DMAs) that rank between the 13^th and 75^th largest in the United States. Our television station group is diverse in network affiliation with 20 stations affiliated with FOX, 19 with WB, nine with ABC, six with UPN, three with NBC and three with CBS. Two stations are not affiliated with any network.

In January 1999, we acquired approximately 35% of Acrodyne Communications, Inc. (Acrodyne), a company that manufactures UHF transmitters for the television industry. Along with this investment, we hired a team of highly qualified individuals to develop the next generation of UHF transmitters. We have assigned the rights to this technology to Acrodyne and it has manufactured most of our digital transmitters. In January 2003, our ownership interest increased to 82.4% as a result of a restructuring of our investment in Acrodyne in which we forgave indebtedness of Acrodyne and invested an additional $1.0 million.

In November 1999, we acquired an 82.5% equity interest in an entity that is now known as G1440 Holdings, Inc. and currently, we hold a 93.9% equity interest. G1440 Holdings, Inc. and its subsidiaries (G1440) provide single-source, end-to-end e-Business solutions and a number of services and products, including a homebuilder application, an immigration tracking tool application, a syndicated television program management and scheduling application and a procurement application.

We are a Maryland corporation formed in 1986. Our principal offices are located at 10706 Beaver Dam Road, Hunt Valley, MD 21030. Our telephone number is (410) 568-1500 and our website address is www.sbgi.net.

TELEVISION BROADCASTING

Markets and Stations

We own and operate, provide programming services to, provide sales services to or have agreed to acquire the following television stations:

Market

Market
Rank (a)

Stations

Status (b)

Channel

Affiliation

Expiration of
affiliation
agreement

Number of
Commercial
Stations in
the Market (c)

Station
Rank (d)

Expiration
Date of
FCC License

Tampa, Florida

WTTA

LMA

1/15/08

2/01/05 (e)

Minneapolis/St. Paul, Minnesota

KMWB

O&O

1/15/08

4/01/06

Sacramento, California

KOVR (f)

O&O

CBS

3/05/08

12/01/06

St. Louis, Missouri

KDNL

O&O

ABC

8/07/05

2/01/06

Pittsburgh, Pennsylvania

WPGH

O&O

FOX

6/30/05

8/01/07

WCWB

O&O

1/15/08

8/01/07

Baltimore, Maryland

WBFF

O&O

FOX

6/30/05

10/01/04 (g)

WNUV

LMA (h)

1/15/08

10/01/04 (i)

Raleigh/Durham, North

WLFL

O&O

1/15/08

12/01/04 (j)

Carolina

WRDC

O&O

UPN

7/31/07

12/01/04 (j)

Nashville, Tennessee

WZTV

O&O

FOX

6/30/05

8/01/05

WUXP

O&O

UPN

7/31/07

8/01/05

WNAB

OSA (k)

5/24/05 (l)

8/01/05

Kansas City, Missouri

KSMO (m)

O&O

1/15/08

2/01/06

Milwaukee, Wisconsin

WCGV

O&O

UPN

7/31/07

12/01/05

WVTV

O&O

1/15/08

12/01/05

Cincinnati, Ohio

WSTR

O&O

1/15/08

10/01/05

Columbus, Ohio

WSYX

O&O

ABC

1/31/05 (n)

10/01/05

WTTE

LMA (h)

FOX

6/30/05

10/01/05

Asheville, North Carolina/

WLOS

O&O

ABC

1/31/05 (n)

12/01/04 (j)

Greenville/Spartanburg/

WBSC

LMA (h)

1/15/08

12/01/04 (j)

Anderson, South Carolina

San Antonio, Texas

KABB

O&O

FOX

6/30/05

8/01/06

KRRT

O&O

1/15/08

8/01/06

Birmingham, Alabama

WTTO

O&O

1/15/08

4/01/05 (e)

WABM

O&O

UPN

7/31/07

4/01/05 (e)

WDBB

LMA (o)

1/15/08

4/01/05 (p)

Norfolk, Virginia

WTVZ

O&O

1/15/08

10/01/04 (e)

Oklahoma City, Oklahoma

KOCB

O&O

1/15/08

6/01/06

KOKH

O&O

FOX

6/30/05

6/01/06

Buffalo, New York

WUTV

O&O

FOX

6/30/05

6/01/07

WNYO

O&O

9/01/06

6/01/07

Greensboro/Winston-Salem/

WXLV

O&O

ABC

9/03/05

12/01/04 (j)

Highpoint, North Carolina

WUPN

O&O

UPN

7/30/07

12/01/04 (j)

Las Vegas, Nevada

KVWB

O&O

1/15/08

10/01/06

KFBT

O&O

IND (q)

n/a

10/01/06

Dayton, Ohio

WKEF

O&O

ABC

open ended

10/01/05

WRGT

LMA (h)

FOX

6/30/05

10/01/05

Richmond, Virginia

WRLH

O&O

FOX

6/30/05

10/01/04 (e)

Charleston and Huntington,

WCHS

O&O

ABC

1/01/00 (n)

10/01/04 (e)

West Virginia

WVAH

LMA (h)

FOX

6/30/05

10/01/04 (i)

Mobile, Alabama and

WEAR

O&O

ABC

1/01/00 (n)

2/01/05 (e)

Pensacola, Florida

WFGX

O&O

IND (q)

n/a

not rated

2/01/05 (e)

Lexington, Kentucky

WDKY

O&O

FOX

6/30/05

8/01/05

Flint/Saginaw/Bay City, Michigan

WSMH

O&O

FOX

6/30/05

10/01/05

Des Moines, Iowa

KDSM

O&O

FOX

6/30/05

2/01/06

Portland, Maine

WGME

O&O

CBS

12/31/07

4/01/07

Rochester, New York

WUHF

O&O

FOX

6/30/05

6/01/07

Syracuse, New York

WSYT

O&O

FOX

6/30/05

6/01/07

WNYS

LMA

6/30/06

6/01/07

Cape Girardeau, Missouri/

KBSI

O&O

FOX

6/30/05

2/01/06

Paducah, Kentucky

WDKA

LMA

6/15/04 (n)

8/01/05

Springfield/Champaign,

WICS

O&O

NBC (r)

4/01/04 (n)

12/01/05

Illinois

WICD

O&O

NBC (r)

4/01/04 (n)

2 (s)

12/01/05

Madison, Wisconsin

WMSN

O&O

FOX

6/30/05

12/01/05

Cedar Rapids, Iowa

KGAN

O&O (t)

CBS

12/31/07

2/01/06

Tri-Cities, Tennessee

WEMT

O&O

FOX

6/30/05

8/01/05

Charleston, South Carolina

101

WMMP

O&O

UPN

7/31/07

12/01/04 (j)

WTAT

LMA (h)

FOX

6/30/05

12/01/04 (j)

Springfield, Massachusetts

106

WGGB

O&O

ABC

1/31/05 (n)

4/01/07

Tallahassee, Florida

109

WTWC

O&O

NBC

12/31/06

2/01/05 (e)

WTXL

OSA (u)

ABC

7/3/05

2/01/05 (p)

Peoria/Bloomington, Illinois

117

WYZZ

O&O (v)

FOX

6/30/05

12/01/05

a) Rankings are based on the relative size of a station’s designated market area (DMA) among the 210 generally recognized DMAs in the United States as estimated by Nielsen as of November 2004.

b) “O & O” refers to stations that we own and operate. “LMA” refers to stations to which we provide programming services pursuant to a local marketing agreement. “OSA” refers to stations to which we provide sales services pursuant to an outsourcing agreement.

c) Represents the estimated number of television stations designated by Nielsen as “local” to the DMA, excluding public television stations and stations that do not meet the minimum Nielsen reporting standards (weekly cumulative audience of at least 0.1%) for the Monday-Sunday, 7:00 a.m. to 1:00 a.m. time period as of November 2004.

d) The rank of each station in its market is based upon the November 2004 Nielsen estimates of the percentage of persons tuned to each station in the market from 7:00 a.m. to 1:00 a.m., Monday-Sunday.

e) We timely filed applications for renewal of these licenses with the FCC. These applications are currently pending.

f) On December 2, 2004, we filed an application to assign KOVR-TV to CBS Broadcasting, Inc. That application is currently pending with the FCC.

g) We timely filed an application for renewal of this license with the FCC. On September 1, 2004, Richard D’Amato filed a petition to deny the license renewal application. We opposed the petition to deny and that application is currently pending.

h) The license assets for these stations are currently owned by Cunningham Broadcasting Corporation, (“Cunningham”) a related party or one of its subsidiaries. See Federal Regulations of Television Broadcasting for more information.

i) Cunningham timely filed applications for renewal of these stations with the FCC. These applications are currently pending.

j) We timely filed applications for the license renewal of WXLV, WUPN, WLFL, WRDC, WLOS and WMMP with the FCC. Cunningham timely filed applications for the license renewal of WBSC and WTAT with the FCC. On November 1, 2004, an organization calling itself “Free Press” filed a petition to deny the license renewal applications of these stations. We opposed the petition to deny and the applications are currently pending.

k) We have entered into an outsourcing agreement with the unrelated third party owner of WNAB-TV to provide certain non-programming related sales, operational and administrative services to WNAB-TV.

l) Although this agreement has expired, we have extended it through May 24, 2005 under the same terms and conditions.

m) We have entered into an outsourcing agreement with Meredith Corporation, under which the Meredith Corporation provides non-programming related sales, operational and managerial services to KSMO-TV. We own the FCC license and its related assets including programming. On January 7, 2005, we filed an application to assign the FCC license for KSMO-TV to Meredith Corporation. That application is currently pending with the FCC.

n) Although these affiliation agreements have expired, we continue to operate these stations under the same terms and conditions of the expired agreements.

o) WDBB-TV simulcasts the programming broadcast on WTTO-TV pursuant to a programming services agreement and the station rank applies to the combined viewership of these stations.

p) The unrelated third party licensees of these stations timely filed applications for renewal of these licenses. These applications are currently pending.

q) “IND” or “Independent” refers to a station that is not affiliated with any of ABC, CBS, NBC, FOX, WB or UPN.

r) On February 25, 2004, NBC informed us that they intend to terminate our affiliation with WICS-TV and WICD-TV effective September 2005.

s) WICD-TV, a satellite of WICS-TV, under FCC rules, simulcasts all of the programming aired on WICS-TV except the news broadcasts and the station rank applies to the combined viewership of these stations.

t) We have entered into a five-year outsourcing agreement with an unrelated third party under which the unrelated third party provides certain non-programming related sales, operational and managerial services to KGAN-TV. We continue to own all of the assets of KGAN-TV and to program and control the station’s operations.

u) We have entered into an outsourcing agreement with the unrelated third party owner of WTXL-TV to provide certain non-programming related sales, operational and managerial services for WTXL-TV.

v) We have entered into an outsourcing agreement with an unrelated third party, under which the unrelated third party provides certain non-programming related sales, operational and managerial services to WYZZ-TV. We continue to own all of the assets of WYZZ-TV and to program and control the station’s operations.

Operating Strategy

Our operating strategy includes the following elements:

Programming to Attract Viewership. We seek to target our programming offerings to attract viewership, to meet the needs of the communities in which we serve and to meet the needs of our advertising customers. In pursuit of this strategy, we seek to obtain, at attractive prices, popular syndicated programming that is complementary to each station’s network programming. We also seek to broadcast live local and national sporting events that would appeal to a large segment of the local community. Moreover, we produce news at 38 stations in 32 separate markets, 16 of those stations in 14 markets are provided with our News Central format and six stations have a local news sharing arrangement with a competitive station in that market. The remaining 16 stations in the remaining 12 markets have news operations that are mostly independent from our News Central format. In October 2002, we launched our News Central strategy, which is a project that allows us to add, in a cost-effective manner, local news programming at many of our stations by using a central support operation providing national and regional news coverage in coordination with local news operations at the station location.

Developing Local Franchises. We believe that the greatest opportunity for a sustainable and growing customer base lies within our local communities. Therefore, we have focused on developing a strong local sales force at each of our television stations. Excluding political advertising revenue, 61.6% of our time sales were local for the year ended December 31, 2004, up from 61.2% in 2003. Our goal is to continue to grow our local revenues by increasing our market share and by developing new business opportunities.

Development of new business. In general, the market for local direct mail advertising is approximately three to four times larger than the local television advertising market. We believe that we can convert direct mail advertisers to become our customers by offering greater value and return for their advertising investment. We can provide both the exposure and branding intrinsic with television advertising while at the same time, including them in a direct mail piece that is sophisticated and compelling to the consumer. While there is significant complexity in developing this business, we believe that over time this effort, if successful, would provide our stations and account executives with a competitive advantage over our competitors. The initiative has resulted in generating new business on our television platform using our existing sales force as well as newly hired sales staff.

Control of Operating and Programming Costs. By employing a disciplined approach to managing programming acquisition and other costs, we have been able to achieve operating margins that we believe are very competitive within the television broadcast industry. We believe our national reach of approximately 24% of the country provides us with a strong position to negotiate with programming providers and, as a result, the opportunity to purchase high quality programming at more favorable prices. Moreover, we emphasize control of each of our station’s programming and operating costs through program-specific profit analysis, detailed budgeting, regionalization of staff and detailed long-term planning models.

Utilization of Local Marketing Agreements and Duopolies. We have sought to increase our revenues and improve our margins by providing programming services pursuant to an LMA to a second station in eight designated market areas (DMAs) where we already own one station. We refer to these two-station arrangements as a duopoly. They allow us to realize significant economies of scale in marketing, programming, overhead and capital expenditures. We also believe that these arrangements assist stations whose stand-alone operations may have been marginally profitable to continue to air popular programming and contribute to the diversity of programming in their respective DMAs. Although under the new FCC ownership rules released in June 2003, we would be allowed to continue to program most of the stations with which we have an LMA, in the absence of a waiver, the new rules would require us to terminate or modify three of our LMAs in markets where both the stations we own and the station with which we have an LMA are ranked among the top four stations in their particular DMA. The FCC’s new ownership rules include specific provisions permitting waivers of this “top four restriction.” Although there can be no assurances, we have studied the application of the new rules to our markets and believe we are qualified for waivers. As discussed in Risk Factors - Changes in Rules on Television Ownership, because the effectiveness of the new rules has been stayed and the FCC concluded the old rules could not be justified as necessary to the public interest, we believe an issue exists regarding whether the FCC has any current legal right to enforce any rules prohibiting the acquisition of television stations. See Risk Factors—The FCC’s multiple ownership rules limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets.

Use of Outsourcing Agreements. In addition to our LMAs and duopolies, we have entered into four (and may seek opportunities for additional) outsourcing agreements in which our stations provide or are provided various non-programming related services such as sales, operational and managerial services to or by other stations. Pursuant to these agreements, our stations currently provide services to other stations in Tallahassee, Florida and Nashville, Tennessee and other parties provide services to our stations in Peoria/Bloomington, Illinois and in Cedar Rapids, Iowa. We believe this structure allows stations to achieve operational efficiencies and economies of scale, which should otherwise improve broadcast cash flow and competitive positions. While television joint sales agreements (JSAs) are not currently attributable, on August 2, 2004, the FCC released a notice of proposed rulemaking seeking comments on its tentative conclusion that television joint sales agreements should be attributable. We cannot predict the outcome of this proceeding, nor can we predict how any changes, together with possible changes to the ownership rules, would apply to our existing outsourcing agreements.

Strategic Realignment of Station Portfolio We continue to examine our television station group portfolio in light of the FCC’s broadcast ownership rules adopted by the FCC in 2003 which, among other things:

• increase the number of stations a group may own nationally by increasing the audience reach cap from 35% to 45% (See, however, discussion under National Ownership Rule regarding congressional action changing the cap to 39%);

• increase the number of stations an entity can own or control in many local markets, subject to restrictions including the number of stations an entity can own or control which are ranked among the top four in their DMA;

• repeal the newspaper-broadcast limits and replace them with general cross media limits which would permit owners of daily newspapers to own one or more television stations in the same market as the newspaper’s city of publication in many markets; and

• repeal the radio-television broadcast ownership limits and replace them with new general cross media limits.

The new rules have yet to take effect as a result of numerous legal challenges, including one filed by us. If these rules become law, broadcast television owners would be permitted to own more television stations, potentially affecting our competitive position. Our objective is to build our local franchises in the markets we deem strategic. We routinely review and conduct investigations of potential television station acquisitions, dispositions and station swaps. At any given time, we may be in discussions with one or more station owners. In November 2003, following our exercise of an option to acquire the intangible assets of WFGX-TV, we filed an assignment application with the FCC to obtain its consent for the assignment of the WFGX-TV broadcast license from an unrelated third party to us. The sale was completed in March 2004. On December 2, 2004, we filed an application to assign television station KOVR-TV to an unrelated third party. That application is currently pending with the FCC. On January 7, 2005, we filed an application to assign television station KSMO-TV to an unrelated third party. That application is currently pending with the FCC.

On November 15, 1999, we entered into five separate plans and agreements of merger, pursuant to which we would acquire through merger with subsidiaries of Cunningham Broadcasting Corporation (Cunningham), a related party, television broadcast stations WABM-TV, Birmingham, Alabama, KRRT-TV, San Antonio, Texas, WVTV-TV, Milwaukee, Wisconsin, WRDC-TV, Raleigh-Durham, North Carolina and WBSC-TV (formerly WFBC-TV), Anderson, South Carolina. In December 2001, we received FCC approval on all the transactions except WBSC-TV. Accordingly, on February 1, 2002, we closed on the purchase of the FCC license and related assets of WABM-TV, KRRT-TV, WVTV-TV, and WRDC-TV. We have filed a petition for reconsideration with the FCC to reconsider its denial of the acquisition of WBSC-TV and amended our application to acquire the license in light of the FCC’s multiple ownership rules adopted in June 2003. However, the new rules have been stayed by the U.S. Court of Appeals for the Third Circuit and remanded to the FCC. Several parties have filed with the Supreme Court of the United States petitions for writ of certiorari seeking review of the Third Circuit decision. A petition for a writ of certiorari is a legal term that means a document filed with the U. S. Supreme Court asking the Court to review the decision of a lower court. It includes, among other things, an argument as to why the Supreme Court should hear the appeal. On March 3, 2005, we filed a conditional cross-petition with the Supreme Court asking the Court to consider our arguments together with the arguments contained in the petitions filed by the other parties. We also filed applications in November 2003 to acquire the license assets of the remaining five Cunningham stations, WRGT-TV, Dayton, Ohio; WTAT-TV, Charleston, South Carolina; WVAH-TV, Charleston, West Virginia; WNUV-TV, Baltimore, Maryland; and WTTE-TV, Columbus, Ohio. The FCC dismissed our applications in light of the stay of the new ownership rules and we filed an application for review of the dismissal. The applications are still pending and may be impacted by the remand of the FCC’s multiple ownership rules. We also filed a petition with the U. S. Court of Appeals for the D. C. Circuit requesting that the Court direct the FCC to take final action on our applications.

At this time, we have not otherwise entered into any agreements or understandings with respect to any transaction and there can be no assurance that any transaction will be completed. See Risk Factors—The FCC’s multiple ownership rules limit our ability to operate multiple television stations and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets.

Local News. We believe that the production and broadcasting of local news is an important link to the community and an aid to a station’s efforts to expand its viewership. In addition, local news programming can provide access to advertising sources targeted specifically to local news viewers. We assess the anticipated benefits and costs of producing local news prior to introduction at our stations because a significant investment in capital equipment is required and substantial operating expenses are incurred in introducing, developing and producing local news programming. We are seeking to provide cost effective local news programming through the News Central format described below. We also continuously review the performance of our existing news operations to make sure that they are economically viable. We produce news at 38 stations in 32 markets, 16 of those stations in 14 markets are provided with our News Central format and six stations have a local news sharing arrangement with a competitive station in that market. The remaining 16 stations in the remaining 12 markets have news operations that are mostly independent from our News Central format. Since October 2002, we have instituted our News Central project to increase, in a cost-effective manner, local news programming at many of our stations by using a central support operation which provides local weather and national and regional news coverage in coordination with local news operations at the station level. Our News Central format serves the local community by providing additional news with an alternative view in these markets.

Popular Sporting Events. Our WB and UPN affiliated and independent stations generally face fewer restrictions on broadcasting live local sporting events compared with FOX, ABC, NBC and CBS affiliates, which are required to broadcast a greater number of hours of programming supplied by the networks. At some of our stations, we have been able to acquire the local television broadcast rights for certain sporting events, including NBA basketball, Major League Baseball, NFL football, NHL hockey, ACC basketball and both Big Ten and SEC football and basketball. We seek to expand our sports broadcasting in DMAs only as profitable opportunities arise. In addition, our stations that are affiliated with FOX, ABC, NBC and CBS broadcast certain Major League Baseball games, NFL football games, NHL hockey games and NASCAR races, as well as other popular sporting events.

Attract and Retain High Quality Management. We believe that much of our success is due to our ability to attract and retain highly skilled and motivated managers at both the corporate and local station levels. A significant portion of the compensation available to our Chief Operating Officer, sales vice presidents, group managers, general managers, sales managers and other station managers is based on their exceeding certain operating results. We also provide some of our corporate and station managers with deferred compensation plans. We have established a practice of granting options to acquire our Class A Common Stock to station sales managers as an incentive to join us and we provide additional options as part of the compensation package when we promote sales managers. Annually, managers at our stations and at our corporate offices are eligible for options tied to performance at the discretion of the Compensation Committee (which is comprised of certain members of the Board of Directors).

Community Involvement. Each of our stations actively participates in various community activities and offers many community services. Our activities include broadcasting programming of local interest and sponsorship of community and charitable events. We also encourage our station employees to become active members of their communities and to promote involvement in community and charitable affairs. In response to the Tsunami tragedy in Southeast Asia, our employees generously donated over $17,000; we matched this amount with a contribution to the Red Cross. We believe that active community involvement by our stations provides our stations with increased exposure in their respective DMAs and is our responsibility as stewards of the community’s broadcast license.

Investment Strategy

Sinclair Ventures, Inc. (SVI), is our wholly-owned subsidiary that is charged with seeking out business opportunities that have the possibility of equity investment, acquisition or barter transactions. SVI’s primary focus is on businesses that add value related to our core television business. At any given time, we may be in discussions with one or more parties. We cannot be assured that any of these negotiations will lead to definitive agreements or, if agreements are reached, that any transactions would be consummated and completed.

Acrodyne Communications Inc. (Acrodyne). In January 1999, we acquired approximately 35.0% of Acrodyne, a company that manufactures UHF transmitters for the television industry. Along with this investment, we hired a team of highly qualified individuals to develop the next generation of UHF transmitters. We have assigned the rights to this technology to Acrodyne and it has manufactured most of our digital transmitters. In January 2003, our ownership interest increased to 82.4% as a result of a restructuring of our investment in Acrodyne in which we forgave indebtedness of Acrodyne and invested an additional $1.0 million in cash. We have a controlling interest in and a strategic alliance with Acrodyne. The financial statements of Acrodyne have been consolidated with ours since January 1, 2003.

G1440 Holdings Inc. and its subsidiaries (G1440). Although we have continued to see a decrease in the value of internet-related and wireless businesses that began in 2000, we continue to explore opportunities for television broadcasters to work with these businesses to increase their profitability and to use the resources of the internet and wireless outlets to enhance the offerings and value of our broadcast stations. In November 1999, we acquired an 82.5% equity interest in G1440 and currently, we hold a 93.9% equity interest. The financial statements of G1440 are included in our consolidated financial statements. G1440 provides single-source, end-to-end e-business solutions and a number of services and products, including a homebuilder application, an immigration tracking tool application, a syndicated television program management and scheduling application and a procurement application.

Summa Holdings, Ltd. (Summa). On December 30, 2002, we invested $20.0 million in Summa resulting in a 17.5% equity interest. Summa is a holding company which owns automobile dealerships and a leasing company. Summa has an integrated network of automotive sales and service representing 26 automobile brands in 44 retail locations, six regional collision centers, and 11 rental and leasing service locations. David D. Smith, our President and Chief Executive Officer, has a controlling interest in Summa and is on the Board of Directors. We have significant influence over the operating and financial policies of Summa by holding a board seat (in addition to the board seat held personally by David D. Smith); therefore, we account for this investment under the equity method of accounting.

For additional information related to our investments, see Note 2. Investments in the Notes to our Consolidated Financial Statements.

FEDERAL REGULATION OF TELEVISION BROADCASTING

The ownership, operation and sale of television stations are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act of 1934, as amended (Communications Act). Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and operating power of stations; issues, renews, revokes and modifies station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; and has the power to impose penalties for violations of its rules or the Communications Act.

The following is a brief summary of certain provisions of the Communications Act, the Telecommunications Act of 1996 (the 1996 Act) and specific FCC regulations and policies. Reference should be made to the Communications Act, the 1996 Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations.

License Grant and Renewal

Television stations operate pursuant to broadcasting licenses that are granted by the FCC for maximum terms of eight years and are subject to renewal upon application to the FCC. During certain periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public. The FCC will generally grant a renewal application if it finds:

• that the station has served the public interest, convenience and necessity;

• that there have been no serious violations by the licensee of the Communications Act or the rules and regulations of the FCC; and

• that there have been no other violations by the licensee of the Communications Act or the rules and regulations of the FCC that, when taken together, would constitute a pattern of misconduct.

All of the stations that we currently own and operate or provide programming services to pursuant to LMAs, are presently operating under regular licenses, which expire as to each station on the dates set forth under Television Broadcasting above. Although renewal of a license is granted in the vast majority of cases even when petitions to deny are filed, there can be no assurance that the license of any station will be renewed.

We timely filed with the FCC applications for the license renewal of television stations WXLV-TV, Winston-Salem, North Carolina; WUPN-TV, Greensboro, North Carolina; WLFL-TV, Raleigh/Durham, North Carolina; WRDC-TV, Raleigh/Durham, North Carolina; WLOS-TV, Asheville, North Carolina and WMMP-TV, Charleston, South Carolina. On November 1, 2004, an organization calling itself “Free Press” filed a petition to deny the applications of these stations and also the license renewal applications for WBSC-TV and WTAT-TV, which are licensed to Cunningham and which we program pursuant to LMAs. We opposed the petition to deny against our stations, and the renewal applications are currently pending. Several individuals and an organization named “Sinclair Media Watch” also filed informal objections to the license renewal applications of WLOS-TV and WBSC-TV, raising essentially the same arguments presented in the Free Press petition. We believe that the filings from these

organizations are without merit and that these organizations are using the FCC’s license renewal process as a way to increase our costs associated with renewing our licenses.

We timely filed with the FCC an application for the license renewal of WBFF-TV. On September 1, 2004, Richard D’Amato filed a petition to deny the application. We opposed the petition to deny and the license renewal application is currently pending.

On October 12, 2004, the FCC issued a Notice of Apparent Liability for Forfeiture (NAL) in the amount of $7,000 per station to all FOX stations, including sixteen FOX affiliates licensed to us. The NAL alleged that the stations broadcast allegedly indecent material contained in an episode of a FOX network program that aired on April 7, 2003. The FOX network and Sinclair filed oppositions to the NAL. That proceeding is still pending. We cannot predict the effect of any adverse outcome of this proceeding on the stations’ license renewal applications.

Recent actions by the FCC have also made it difficult for us to predict the impact on our license renewals from allegations that may arise in the ordinary course of our business related to the airing of indecent material. For example, on Veteran’s Day in November of 2004, we preempted (did not air) “Saving Private Ryan”, a program that was aired during ABC’s network programming time. We felt that the program contained indecent material as defined by the FCC and could result in a fine or other negative consequences to one or more of our ABC stations. In February 2005, the FCC dismissed all complaints filed against ABC stations regarding this program. The FCC’s decision justified what some may consider indecent material as appropriate in the context of the program. Although this ruling has expanded the programming opportunities of our stations it still leaves us at risk because what might be determined as legitimate context by us may not be deemed so by the FCC. We are only sure that “Saving Private Ryan” and “Schindler’s List” are allowed to be aired in their entirety under current FCC rulings.

Ownership Matters

General. The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast license without the prior approval of the FCC. In determining whether to permit the assignment or transfer of control of, or the grant or renewal of, a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with various rules limiting common ownership of media properties, the “character” of the licensee and those persons holding “attributable” interests in that licensee and compliance with the Communications Act’s limitations on alien ownership.

To obtain the FCC’s prior consent to assign a broadcast license or transfer control of a broadcast license, appropriate applications must be filed with the FCC. If the application involves a “substantial change” in ownership or control, the application must be placed on public notice for a period of approximately 30 days during which petitions to deny the application may be filed by interested parties, including members of the public. If the application does not involve a “substantial change” in ownership or control, it is a “pro forma” application. The “pro forma” application is not subject to petitions to deny or a mandatory waiting period, but is nevertheless subject to having informal objections filed against it. If the FCC grants an assignment or transfer application, interested parties have approximately 30 days from public notice of the grant to seek reconsideration or review of the grant. Generally, parties that do not file initial petitions to deny or informal objections against the application face difficulty in seeking reconsideration or review of the grant. The FCC normally has an additional 10 days to set aside such grant on its own motion. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer to any party other than the assignee or transferee specified in the application.

The FCC generally applies its ownership limits to “attributable” interests held by an individual, corporation, partnership or other association. In the case of corporations holding, or through subsidiaries controlling, broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation’s stock (or 20% or more of such stock in the case of insurance companies, investment companies and bank trust departments that are passive investors) are generally attributable. In August 1999, the FCC revised its attribution and multiple ownership rules and adopted the equity-debt-plus rule that causes certain creditors or investors to be attributable owners of a station. Under this rule, a major programming supplier (any programming supplier that provides more than 15% of the station’s weekly programming hours) or same-market media entity will be an attributable owner of a station if the supplier or same-market media entity holds debt or equity, or both, in the station that is greater than 33% of the value of the station’s total debt plus equity. For purposes of this rule, equity includes all stock, whether voting or non-voting, and equity held by insulated limited partners in partnerships. Debt includes all liabilities whether long-term or short-term. In addition, LMAs are attributable where a licensee owns a television station and programs a television station in the same market.

The Communications Act prohibits the issuance of broadcast licenses to, or the holding of a broadcast license by, any corporation of which more than 20% of the capital stock is owned of record or voted by non-U.S. citizens or their representatives or by a foreign government or a representative thereof, or by any corporation organized under the laws of a foreign country (collectively, aliens). The Communications Act also authorizes the FCC, if the FCC determines that it would be in the public interest, to prohibit the issuance of a broadcast license to, or the holding of a broadcast license by, any corporation directly or indirectly controlled by any other corporation

of which more than 25% of the capital stock is owned of record or voted by aliens. The FCC has issued interpretations of existing law under which these restrictions in modified form apply to other forms of business organizations, including partnerships.

As a result of these provisions, the licenses granted to our subsidiaries by the FCC could be revoked if, among other restrictions imposed by the FCC, more than 25% of our stock were directly or indirectly owned or voted by aliens. Sinclair and its subsidiaries are domestic corporations, and the members of the Smith family (who together hold almost 90% of the common voting rights of Sinclair) are all United States citizens. Our amended and restated Articles of Incorporation (“the amended certificate”) contain limitations on alien ownership and control that are substantially similar to those contained in the Communications Act. Pursuant to the amended certificate, we have the right to repurchase alien-owned shares at their fair market value to the extent necessary, in the judgment of the board of directors, to comply with the alien ownership restrictions.

In June 2003, the FCC adopted a Report and Order modifying its multiple ownership rules. The new rules, among other things:

• increase the number of stations an entity may own nationally by increasing the national audience reach cap from 35% to 45% and leave unchanged the method of calculating an entity’s audience reach (Congress passed a bill requiring the FCC to establish a national audience reach cap of 39%. See discussion below in National Ownership Rule);

• repeal the newspaper-broadcast ownership limits and replace them with general cross media limits which, in many markets, would permit owners of daily newspapers to own one or more television stations and/or radio stations in the same market as the newspaper’s city of publication; and

• repeal the radio-television broadcast ownership limits and replace them with new general cross media limits.

If the new rules become law, broadcast television owners would be permitted to own more television stations, potentially affecting our competitive position. The Third Circuit Court of Appeals has stayed the application of the new rules as a result of numerous legal challenges, including one we filed. In July 2004, the court issued a decision holding, among other things, that the numerical limits established by the FCC’s new local television ownership rule were patently unreasonable and not consistent with the record evidence. The court remanded the numerical limits for the FCC to justify or modify and left the stay in effect pending the FCC’s action on remand. Several parties have filed with the Supreme Court of the United States petitions for writ of certiorari seeking review of the Third Circuit decision and on March 3, 2005, we filed a conditional cross-petition for a writ of certiorari related to the Third Circuit decision. During the pendency of the remand, the Third Circuit has ordered the FCC to continue to apply the existing ownership rules. Following is a description of these FCC ownership rules:

Radio/Television Cross-Ownership Rule. The FCC’s radio/television cross-ownership rule (the “one to a market” rule) generally permits a party to own a combination of up to two television stations and six radio stations in the same market depending on the number of independent media voices in the market.

Broadcast/Daily Newspaper Cross-Ownership Rule. The FCC’s rules prohibit the common ownership of a radio or television broadcast station and a daily newspaper in the same market.

Dual Network Rule. The four major television networks, ABC, CBS, NBC and FOX, are prohibited, absent a waiver, from merging with each other. In May 2001, the FCC amended its dual network rule to permit the four major television networks to own, operate, maintain or control the UPN and/or the WB television network.

National Ownership Rule. The FCC’s current national ownership rule states that no individual or entity may have an attributable interest in television stations reaching more than 35% of the national television viewing audience. However, Congress passed a bill requiring the FCC to establish a national audience reach cap of 39% and President Bush signed the bill into law on January 23, 2004. Under this rule, where an individual or entity has an attributable interest in more than one television station in a market, the percentage of the national television viewing audience encompassed within that market is only counted once. Since, historically, VHF stations (channels 2 through 13) have shared a larger portion of the market than UHF stations (channels 14 through 69), only half of the households in the market area of any UHF station are included when calculating an entity’s national television viewing audience (commonly referred to as the “UHF discount”).

All but eight of the stations we own and operate, or to which we provide programming services, are UHF. We reach approximately 24% of U.S. television households or 14% taking into account the FCC’s UHF discount.

Local Television (Duopoly) Rule. A party may own two television stations in adjoining markets, even if there is Grade B (discussed below) overlap between the two stations’ analog signals, and generally may own two stations in the same market:

• if there is no Grade B overlap between the stations; or

• if the market containing both the stations contains at least eight independently owned full-power television stations (the “eight voices test”) and not more than one station is among the top-four ranked stations in the market.

In addition, a party may request a waiver of the rule to acquire a second station in the market if the station to be acquired is economically distressed or not yet constructed and there is no party who does not own a local television station who would purchase the station for a reasonable price.

There are three grades of service for traditional television broadcasts, City (strongest), Grade A and Grade B (least strong); and the signal decreases in strength the further away the viewer is from the broadcast antenna tower. Generally, it is not as easy for viewers with properly installed outdoor antennas to receive a Grade B signal.

Antitrust Regulation. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have increased their scrutiny of the television industry since the adoption of the 1996 Act and have reviewed matters related to the concentration of ownership within markets (including LMAs) even when the ownership or LMA in question is permitted under the laws administered by the FCC or by FCC rules and regulations. The DOJ takes the position that an LMA entered into in anticipation of a station’s acquisition with the proposed buyer of the station constitutes a change in beneficial ownership of the station which, if subject to filing under the Hart-Scott-Rodino Anti Trust Improvements Act (HSR Act), cannot be implemented until the waiting period required by that statute has ended or been terminated.

Expansion of our broadcast operations on both a local and national level will continue to be subject to the FCC’s ownership rules and any changes the FCC or Congress may adopt. At the same time, any further relaxation of the FCC’s ownership rules, which could occur if the rules adopted in 2003 become effective, may increase the level of competition in one or more of the markets in which our stations are located, more specifically to the extent that any of our competitors may have greater resources and thereby be in a superior position to take advantage of such changes.

Local Marketing Agreements

Certain of our stations have entered into what have commonly been referred to as local marketing agreements or LMAs. One typical type of LMA is a programming agreement between two separately owned television stations serving the same market, whereby the licensee of one station programs substantial portions of the broadcast day and sells advertising time during such program segments on the other licensee’s station subject to the ultimate editorial and other controls being exercised by the latter licensee. We believe these arrangements allow us to reduce our operating expenses and enhance profitability. Although under the FCC ownership rules adopted in 2003 we would be allowed to continue to program most of the stations with which we have an LMA, in the absence of a waiver, the new rules would require us to terminate or modify three of our LMAs in markets where both the station we own and the station with which we have an LMA are ranked among the top four stations in their particular DMA. The FCC’s new ownership rules include specific provisions permitting waivers of this “top four restriction.” Although there can be no assurances, we have studied the application of the new rules to our markets and believe we are qualified for waivers. As discussed in Risk Factors - The FCC’s multiple ownership rules limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs. Changes in these rules may threaten our existing strategic approach to certain television markets. Because the effectiveness of the new rules has been stayed and the FCC concluded the old rules could not be justified as necessary to the public interest, we believe an issue exists regarding whether the FCC has any current legal right to enforce any rules prohibiting the acquisition of television stations. The Third Circuit Court of Appeals has stayed the application of the new rules as a result of numerous legal challenges, including one we filed. In July 2004, the court issued a decision holding, among other things, that the numerical limits established by the FCC’s new local television ownership rule were patently unreasonable and not consistent with the record evidence. The court remanded the numerical limits for the FCC to justify or modify and left the stay in effect pending the FCC’s action on remand, requiring the FCC to continue to apply the existing ownership rules. Several parties have filed with the Supreme Court of the United States petitions for writ of certiorari seeking review of the Third Circuit decision and on March 3, 2005, we filed a conditional cross-petition for a writ of certiorari related to the Third Circuit decision.

On November 15, 1999, we entered into five separate plans and agreements of merger, pursuant to which we would acquire through merger with subsidiaries of Cunningham, a related party, television broadcast stations WABM-TV, Birmingham, Alabama, KRRT-TV, San Antonio, Texas, WVTV-TV, Milwaukee, Wisconsin, WRDC-TV, Raleigh/Durham, North Carolina and WBSC-TV (formerly WFBC-TV), Anderson, South Carolina. The consideration for these mergers was the issuance to Cunningham, of shares

of our Class A Common Voting Stock. In December 2001, we received FCC approval on all the transactions except WBSC-TV. Accordingly, on February 1, 2002, we closed on the purchase of the FCC license and related assets of WABM-TV, KRRT-TV, WVTV-TV, and WRDC-TV. The total value of the shares issued in consideration for the approved mergers was $7.7 million. We have filed a petition for reconsideration with the FCC to reconsider its denial of the acquisition of WBSC-TV and amended our application to acquire the license in light of the FCC’s new multiple ownership rules adopted in June 2003. However, the new rules have been stayed and are on remand to the FCC. We also filed applications in November 2003 to acquire the license assets of the remaining five Cunningham stations, WRGT-TV, Dayton, Ohio, WTAT-TV, Charleston, South Carolina, WVAH-TV, Charleston, West Virginia, WNUV-TV, Baltimore, Maryland, and WTTE-TV, Columbus, Ohio. The Rainbow/PUSH Coalition filed a petition to deny these five applications and to revoke all of our licenses. The FCC dismissed our applications in light of the stay of the new ownership rules, and we filed an application for review of the dismissal, which may be impacted by the remand of the FCC’s new multiple ownership rules. We also filed a petition with the U. S. Court of Appeals of the D. C. Circuit requesting that the Court direct the FCC to take action on our applications. The FCC denied the Rainbow/PUSH petition, and Rainbow filed a petition for reconsideration of that denial. Both the applications and the associated petition to deny are still pending. We believe the Rainbow/PUSH petition is without merit.

The Satellite Home Viewer Improvement Act (SHVIA) and the Satellite Home Viewer Extension and Reauthorization Act (SHVERA)

In 1988, Congress enacted the Satellite Home Viewer Act (SHVA), which enabled satellite carriers to provide broadcast programming to those satellite subscribers who were unable to obtain broadcast network programming over-the-air. SHVA did not permit satellite carriers to retransmit local broadcast television signals directly to their subscribers. The Satellite Home Viewer Improvement Act of 1999 (SHVIA) revised SHVA to reflect changes in the satellite and broadcasting industry. This legislation allowed satellite carriers, until December 31, 2004, to provide local television signals by satellite within a station market, and effective January 1, 2002, required satellite carriers to carry all local signals in any market where they carry any local signals. On or before July 1, 2001, SHVIA required all television stations to elect to exercise certain “must carry” or “retransmission consent” rights in connection with their carriage by satellite carriers. We have entered into compensation agreements granting the two primary satellite carriers retransmission consent to carry all of our stations. In December 2004, President Bush signed into law the Satellite Home Viewer Extension and Reauthorization Act (SHVERA). SHVERA extended, until December 31, 2009, the rights of broadcasters and satellite carriers under SHVIA to retransmit local television signals by satellite. SHVERA also authorized satellite delivery of distant network signals, significantly viewed signals and local low-power television station signals into local markets under defined circumstances. With respect to digital signals, SHVERA established a process to allow satellite carriers to retransmit distant network signals and significantly viewed signals to subscribers under certain circumstances. The FCC is required to conduct and complete a study within one year to assess the technical standards for determining when a subscriber may receive a distant digital network signal. Pursuant to SHVERA, the FCC has also initiated a rulemaking proceeding to establish rules implementing the carriage of “significantly viewed” signals in a market. The carriage of two network stations on the same satellite system could result in a decline of viewership, adversely affecting the revenues of our owned or programmed stations.

Must-Carry/Retransmission Consent

Pursuant to the Cable Act of 1992, television broadcasters are required to make triennial elections to exercise either certain “must-carry” or “retransmission consent” rights in connection with their carriage by cable systems in each broadcaster’s local market. By electing the must-carry rights, a broadcaster demands carriage on a specified channel on cable systems within its DMA, in general, as defined by the Nielsen DMA Market and Demographic Rank Report of the prior year. These must-carry rights are not absolute and their exercise is dependent on variables such as:

• the number of activated channels on a cable system;

• the location and size of a cable system; and

• the amount of programming on a broadcast station that duplicates the programming of another broadcast station carried by the cable system.

Therefore, under certain circumstances, a cable system may decline to carry a given station. Alternatively, if a broadcaster chooses to exercise retransmission consent rights, it can prohibit cable systems from carrying its signal or grant the appropriate cable system the authority to retransmit the broadcast signal for a fee or other consideration. In October 2002, we elected must-carry or retransmission consent with respect to each of our stations based on our evaluation of the respective markets and the position of our owned or programmed station(s) within the market. Our stations continue to be carried on all pertinent cable systems and we do not believe that

our elections have resulted in the shifting of our stations to less desirable cable channel locations. Many of the agreements we have negotiated for cable carriage are short term, subject to month-to-month extensions.

In February 2005, the FCC adopted an order stating that cable television systems are not required to carry both a station’s analog and digital signals during the digital transition. Thus, only television stations operating solely with digital signals are entitled to mandatory carriage of their digital signal by cable companies. In addition, it is technically possible for a television station to broadcast more than one channel of programming using its digital signal. The same FCC order clarified that cable system need only carry a broadcast station’s primary video stream, and not any of the station’s other programming streams in those situations where a station chooses to transmit multiple programming streams. As a result of this decision by the FCC, cable customers in our broadcast markets may not receive the full digital signal or even part of the digital signal of any of our television stations.

Many of the viewers of our television stations receive the signals of the stations via cable television service. Cable television systems generally transmit our signals pursuant to permission granted by us in retransmission consent agreements. A material portion of these agreements have no definite term and may be terminated either by us or by the applicable cable television company on very short notice (typically 45 or 60 days). We are currently engaged in negotiations with respect to these agreements with several major cable television companies and we recently reached an agreement with Comcast, the nation's largest cable operator. There can be no assurance that the results of these negotiations will be advantageous to us or that we or the cable companies might not determine to terminate some or all of these agreements. A termination of our retransmission agreements would make it more difficult for our viewers to watch our programming and could result in lower ratings and a negative financial impact on us. In addition, we generally have not provided the major cable television companies with the right to transmit our stations’ digital signals. Although the lack of carriage of these signals does not, at this time, have a material impact on our results of operations, this could change as the number of households in the United States with the capability of viewing digital and high definition television increases. There can be no assurance that we will be able to negotiate mutually acceptable retransmission agreements in the future relating to the carriage of our digital signals.

Syndicated Exclusivity/Territorial Exclusivity

The FCC’s syndicated exclusivity rules allow local broadcast television stations to demand that cable operators black out syndicated non-network programming carried on “distant signals” (i.e., signals of broadcast stations, including so-called “superstations,” which serve areas substantially removed from the cable system’s local community). The FCC’s network non-duplication rules allow local broadcast network television affiliates to require that cable operators black out duplicating network programming carried on distant signals. However, in a number of markets in which we own or program stations affiliated with a network, a station that is affiliated with the same network in a nearby market is carried on cable systems in our market. This is not necessarily in violation of the FCC’s network non-duplication rules. However, the carriage of two network stations on the same cable system could result in a decline of viewership adversely affecting the revenues of our owned or programmed stations.

In December 2004, President Bush signed into law the Satellite Home Viewer Extension and Reauthorization Act (SHVERA). Among other things, SHVERA allows satellite carriers to transmit distant signals and the signals of “significantly viewed” stations under certain circumstances. The FCC is required to complete a study and report on, among other things, how its syndicated exclusivity and network non-duplication rules impact competition among multi-channel video programming distributors, such as satellite carriers and cable companies. The carriage of two network stations on the same satellite system could result in a decline of viewership adversely affecting the revenues of our owned or programmed stations.

Digital Television

The FCC has taken a number of steps to implement digital television (DTV) broadcasting services. The FCC has adopted an allotment table that provides all authorized television stations with a second channel on which to broadcast a DTV signal. The FCC has attempted to provide DTV coverage areas that are comparable to stations’ existing service areas. The FCC has ruled that television broadcast licensees may use their digital channels for a wide variety of services such as high-definition television, multiple standard definition television programming, audio, data and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard and further subject to the requirement that broadcasters pay a fee of 5% of gross revenues on all DTV subscription services.

DTV channels are generally located in the range of channels from channel 2 through channel 51. All commercial stations were required to have begun digital broadcasting by May 1, 2002. Under the FCC’s rules, a network-affiliated station in the top 30 markets must operate its DTV station at any time that the associated analog station is operating. All other DTV stations are required to operate during prime time hours and, as of April 1, 2004, for a total of 75% of the time in which their associated analog stations are operating. On April 1, 2005, these digital stations will be required to operate for 100% of the time in which their analog stations

are operating. In September 2004, the FCC eliminated its requirement that a digital station simulcast a certain percentage of the programming transmitted on its associated analog station.

As of December 31, 2004, DTV stations were required to meet a more stringent signal strength standard for the digital signal coverage of their communities of license. Additionally, by July 2005, a DTV licensee affiliated with a top-four network (i.e., ABC, CBS, FOX, or NBC) that is located in one of the top 100 markets must meet a higher replication standard or lose interference protection for those areas not covered by the digital signal. For all other commercial DTV licensees as well as noncommerical DTV licensees, that deadline is July 2006. There are no guarantees that our stations will be able to meet these requirements. Loss of interference protection for any of our stations could reduce the number of viewers of that station and could adversely impact revenues for that station.

Of the television stations that we own and operate, as of December 31, 2004, thirteen are operating at their full digital television power. One DTV station, which is licensed at full power, is operating pursuant to special temporary authority at reduced power because of an equipment problem. Thirty-five stations are operating their DTV facilities at low power as permitted by the FCC pursuant to special temporary authority. Three stations have applications for digital construction permits pending before the FCC, but two of these stations are operating their DTV facilities at low power, pursuant to special temporary authority. One station, which we acquired in March 2004, has filed an application to extend its DTV construction permit. All of the Cunningham stations with which we have LMAs are operating their DTV facilities at low power pursuant to special temporary authority. The tower for Cunningham station WVAH-TV, Charleston, West Virginia was irreparably damaged in a severe ice storm on February 19, 2003. Because the digital equipment was also destroyed in the disaster, the FCC permits this station to broadcast an analog signal only from its temporary placement on the WCHS-TV tower. Construction of a new tower and building at the WCHS-TV site has been completed, and the facilities will support the operations of both WCHS-TV and WVAH-TV. Once FCC authorization is received, WVAH-TV will resume broadcasting a full service digital and analog signal.

Three of the other LMA stations, WTTA-TV, WDBB-TV, and WDKA-TV are operating at low power pursuant to special temporary authority. WNYS-TV was granted a construction permit for a digital facility on November 10, 2004, which does not expire until November 10, 2005.

In April 2003, the FCC adopted a policy of graduated sanctions to be imposed upon licensees who do not meet the FCC’s DTV build-out schedule. Under the policy, the stations could face monetary fines and possible loss of any digital construction permits for non-compliance with the build-out schedule.

After completion of the transition period, the FCC will reclaim the non-digital channels. Subject to an extension period (discussed below), the FCC’s plan calls for the DTV transition period to end December 31, 2006, at which time the FCC expects that television broadcasters will cease non-digital broadcasting and return one of their two channels to the government, allowing that spectrum to be recovered for other uses. During the transition period, each existing analog television station will be permitted to operate a second station that will broadcast using the digital standard.

By statute, Congress has instructed the FCC to extend the 2006 deadline for reclamation of a television station’s analog channel if, in any given case:

• one or more television stations affiliated with ABC, CBS, NBC or FOX in a market is not broadcasting digitally and the FCC determines that each such station has “exercised due diligence” in attempting to convert to digital broadcasting and satisfies the conditions for an extension of the FCC’s applicable construction deadlines for DTV service in that market;

• digital-to-analog converter technology is not generally available in such market; or

• 15% or more of the television households in such market do not subscribe to a multichannel video service (cable, wireless cable or direct-to-home broadcast satellite television) that carries at least one digital channel from each of the local stations in that market and cannot receive digital signals using either a television receiver capable of receiving digital signals or a receiver equipped with a digital-to-analog converter.

On January 27, 2003, the FCC initiated its second periodic review of its rules on the conversion to digital television, releasing a notice of proposed rulemaking. The notice invited comments on number of topics, including the difficulties broadcasters face in building their DTV stations and on the interpretation of the statutory language concerning the 2006 deadline. The FCC concluded that review in September 2004 but stated that it would address the issue regarding the interpretation of the statutory language in a future order.

Implementation of digital television has imposed substantial additional costs on television stations because of the need to replace equipment and because some stations will need to operate at higher utility costs. There can be no assurance that our television stations will be able to increase revenue to offset such costs. In addition, the FCC has proposed imposing new public interest requirements on television licensees in exchange for their receipt of DTV channels.

There is considerable uncertainty about the final form of the FCC digital regulations. Even so, we believe that these new developments may have the following effects on us:

Reclamation of analog channels. Congress directed the FCC to begin auctioning analog channels 60-69 in 2001, even though the FCC is not to reclaim them until 2006. The channel 60-69 auction was scheduled to be held in January 2003, but has been delayed and no new auction date has been established. Congress further permitted broadcasters to bid on the non-digital channels in cities with populations over 400,000. If the channels are owned by our competitors, they may exert increased competitive pressure on our operations. In addition, the FCC reallocated the spectrum band, currently comprising television channels 52-59, to permit both wireless services and certain new broadcast operations. The FCC completed auctions for part of this spectrum in September 2002 and July 2003. With respect to the remaining spectrum, the FCC has not yet established an auction date. Analog broadcasters are required to cease operation on this spectrum by the end of 2006 unless the FCC extends the end of the digital transition. The FCC envisions that this band will be used for a variety of broadcast-type applications including two-way interactive services and services using Coded Orthogonal Frequency Division Multiplexing technology. We cannot predict how the development of this spectrum will affect our television operations.

Digital must carry. In February 2005, the FCC adopted an order stating that cable television systems are not required to carry both a station’s analog and digital signals during the digital transition. The same order also clarified that a cable system need only carry a broadcast station’s primary video stream and not any of the station’s other programming streams in those situations where a station chooses to transmit multiple programming streams.

Cable customers in our broadcast markets may only be able to receive our digital signal over the air, which could negatively impact our stations. Many of the viewers of our television stations receive the signals of the stations via cable television service. Cable television systems generally transmit our signals pursuant to permission granted by us in retransmission consent agreements. A material portion of these agreements have no definite term and may be terminated either by us or by the applicable cable television company on very short notice (typically 45 or 60 days). We are currently engaged in negotiations with respect to these agreements with several major cable television companies and we recently reached an agreement with Comcast, the nation's largest cable operator. There can be no assurance that the results of these negotiations will be advantageous to us or that we or the cable companies might not determine to terminate some or all of these agreements. A termination of our retransmission agreements would make it more difficult for our viewers to watch our programming and could result in lower ratings and a negative financial impact on us. In addition, we generally have not provided the major cable television companies with the right to transmit our stations’ digital signals. Although the lack of carriage of these signals does not at this time have a material impact on our current results of operations, this could change as the number of households in the United States with the capability of viewing digital and high definition television increases. There can be no assurance that we will be able to negotiate mutually acceptable retransmission agreements in the future relating to the carriage of our digital signals.

Capital and operating costs. We have incurred and will continue to incur costs to replace equipment in our stations in order to provide digital television. Some of our stations will also incur increased utilities costs as a result of converting to digital operations. We cannot be certain we will be able to increase revenues to offset these additional costs.

Restrictions on Broadcast Programming

Advertising of cigarettes and certain other tobacco products on broadcast stations has been banned for many years. Various states also restrict the advertising of alcoholic beverages and from time to time certain members of Congress have contemplated legislation to place restrictions on the advertisement of such alcoholic beverage products. FCC rules also restrict the amount and type of advertising which can appear in programming broadcast primarily for an audience of children 12 years old and younger. In addition, the Federal Trade Commission issued guidelines in December 2003 to help media outlets voluntarily screen out weight loss product advertisements that are misleading.

The Communications Act and FCC rules also place restrictions on the broadcasting of advertisements by legally qualified candidates for elective office. These restrictions state that:

• stations must provide “reasonable access” for the purchase of time by legally qualified candidates for federal office;

• stations must provide “equal opportunities” for the purchase of equivalent amounts of comparable broadcast time by opposing candidates for the same elective office; and

• during the 45 days preceding a primary or primary run-off election and during the 60 days preceding a general or special election, legally qualified candidates for elective office may be charged no more than the station’s “lowest unit charge” for the same class of advertisement, length of advertisement and daypart.

Programming and Operation

General. The Communications Act requires broadcasters to serve the “public interest.” The FCC has relaxed or eliminated many of the more formalized procedures it had developed in the past to promote the broadcast of certain types of programming responsive to the needs of a station’s community of license. FCC licensees continue to be required, however, to present programming that is responsive to the needs and interests of their communities and to maintain certain records demonstrating such responsiveness. Complaints from viewers concerning a station’s programming may be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must pay regulatory and application fees and follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, obscene and indecent broadcasts and technical operations, including limits on radio frequency radiation.

Indecency. It is a violation of federal law and FCC regulations to broadcast obscene or indecent programming. FCC licensees are, in general, responsible for the contents of their broadcast programming, including that supplied by television networks. Accordingly, there is a risk of being fined as a result of our broadcast of programming, including network programming. Currently the maximum forfeiture amount for the broadcast of indecent or obscene material is $27,500 for each violation. However, recently the House of Representatives approved legislation with a $500,000 cap for indecent or obscene material. This legislation is currently in the Senate and we cannot predict the outcome. The FCC has intensified its scrutiny of allegedly indecent and obscene programming. There has also been interest in Congress to raise the maximum forfeiture amount for such violations.

Equal Employment Opportunity. On November 20, 2002, the FCC adopted new rules requiring licensees to create equal employment opportunity outreach programs and maintain records and make filings with the FCC evidencing such efforts. The FCC simultaneously released a notice of proposed rulemaking seeking comments on whether and how to apply the new rules and policies to part-time positions, defined as less than 30 hours per week.

Children’s Television Programming. Television stations are required to broadcast a minimum of three hours per week of “core” children’s educational programming, which the FCC defines as programming that:

• has the significant purpose of serving the educational and informational needs of children 16 years of age and under;

• is regularly scheduled weekly and at least 30 minutes in duration; and

• is aired between the hours of 7:00 a.m. and 10:00 p.m. local time.

Furthermore, “core” children’s educational programs, in order to qualify as such, are required to be identified as educational and informational programs over the air at the time they are broadcast and are required to be identified in the children’s programming reports, which are required to be placed quarterly in stations’ public inspection files and filed quarterly with the FCC.

Additionally, television stations are required to identify and provide information concerning “core” children’s programming to publishers of program guides. The FCC has recently concluded that a digital broadcaster must air an additional half hour of “core” children’s programming per every increment of 1 to 28 hours of free video programming provided in addition to the main DTV program stream. The FCC is also applying its children’s commercial limits and policies to all digital video programming directed to children ages 12 and under.

The FCC has also recently initiated a notice of inquiry seeking comments on issues relating to the presentation of violent programming on television and its impact on children.

Television Program Content. The television industry has developed an FCC approved ratings system that is designed to provide parents with information regarding the content of the programming being aired. Furthermore, the FCC requires certain television sets to include the so-called “V-chip,” a computer chip that allows blocking of rated programming.

The FCC has initiated a notice of inquiry seeking comments on what actions, if any, it should take to ensure that licensees air programming that is responsive to the interests and needs of their communities of license.

Pending Matters

Congress and the FCC have under consideration and in the future may consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation, ownership and profitability of our broadcast stations, result in the loss of audience share and advertising revenues for our broadcast stations and affect our ability to acquire additional broadcast stations or finance such acquisitions.

Other matters that could affect our broadcast properties include technological innovations and developments generally affecting competition in the mass communications industry, such as direct television broadcast satellite service, Class A television service, the continued establishment of wireless cable systems and low power television stations, digital television technologies, the internet and the advent of telephone company participation in the provision of video programming service.

Other Considerations

The preceding summary is not a complete discussion of all provisions of the Communications Act, the 1996 Act or other congressional acts or of the regulations and policies of the FCC. For further information, reference should be made to the Communications Act, the 1996 Act, other congressional acts and regulations and public notices circulated from time to time by the FCC. There are additional regulations and policies of the FCC and other federal agencies that govern political broadcasts, advertising, equal employment opportunity and other matters affecting our business and operations.

ENVIRONMENTAL REGULATION

Prior to our ownership or operation of our facilities, substances or waste that are or might be considered hazardous under applicable environmental laws may have been generated, used, stored or disposed of at certain of those facilities. In addition, environmental conditions relating to the soil and groundwater at or under our facilities may be affected by the proximity of nearby properties that have generated, used, stored or disposed of hazardous substances. As a result, it is possible that we could become subject to environmental liabilities in the future in connection with these facilities under applicable environmental laws and regulations. Although we believe that we are in substantial compliance with such environmental requirements and have not in the past been required to incur significant costs in connection therewith, there can be no assurance that our costs to comply with such requirements will not increase in the future. We presently believe that none of our properties have any condition that is likely to have a material adverse effect on our financial position, results of operations or cash flows.

COMPETITION

Our television stations compete for audience share and advertising revenue with other television stations in their respective designated market areas (DMAs), as well as with other advertising media such as radio, newspapers, magazines, outdoor advertising, transit advertising, telecommunications providers, internet, yellow page directories, direct mail, satellite television, local cable television and wireless video. Some competitors are part of larger organizations with substantially greater financial, technical and other resources than we have.

Television Competition. Competition in the television broadcasting industry occurs primarily in individual DMAs. Generally, a television broadcasting station in one DMA does not compete with stations in other DMAs. Our television stations are located in highly competitive DMAs. In addition, certain of our DMAs are overlapped by both over-the-air and cable carriage of stations in adjacent DMAs, which tends to spread viewership and advertising expenditures over a larger number of television stations.

Broadcast television stations compete for advertising revenues primarily with other broadcast television stations, radio stations, cable channels, cable system operators and satellite providers serving the same market, as well as with newspapers, the internet, yellow page directories, direct mail, outdoor advertising operators and transit advertisers. Traditional network programming (ABC, CBS and NBC) generally achieves higher household audience levels than FOX, WB and UPN programming and syndicated programming aired by our independent stations. This can be attributed to a combination of factors including the traditional networks’ efforts to reach a broader audience, generally better signal carriage available when broadcasting over VHF channels 2 through 13 versus broadcasting over UHF channels 14 through 69 and the higher number of hours of traditional network programming being broadcast weekly. However, greater

amounts of advertising time are available for sale on our FOX, UPN and WB affiliated stations and, as a result, we believe that our programming typically achieves a share of television market advertising revenues greater than its share of the market’s audience.

Television stations compete for audience share primarily on the basis of program popularity, which has a direct effect on advertising rates. Our affiliated stations are largely dependent upon the performance of the networks’ programs in attracting viewers. Non-network time periods are programmed by the station primarily with syndicated programs purchased for cash, cash and barter or barter-only as well as through self-produced news, public affairs programs, live local sporting events and other entertainment programming.

Television advertising rates are based upon factors which include the size of the DMA in which the station operates, a program’s popularity among the viewers that an advertiser wishes to attract, the number of advertisers competing for the available time, the demographic makeup of the DMA served by the station, the availability of alternative advertising media in the DMA including radio, cable, satellite, newspapers and yellow page directories, direct mail, the aggressiveness and knowledge of sales forces in the DMA and development of projects, features and programs that tie advertiser messages to programming. We believe that our sales and programming strategies allow us to compete effectively for advertising revenues within our DMAs.

Satellite customers may be one of the fastest growing segments of our viewing audience. Currently, several satellite providers make available our local signal to their satellite subscribers in our DMAs. We are compensated by these satellite providers on a per subscriber basis and this revenue has continued an upward trend. We cannot assume that these providers will continue to pay these fees in the future.

Other factors that are material to a television station’s competitive position include signal coverage, local program acceptance, network affiliation, audience characteristics and assigned broadcast frequency. Historically, our UHF broadcast stations have suffered a competitive disadvantage in comparison to stations with VHF broadcast frequencies. This historic disadvantage has gradually declined through:

• carriage on cable systems and in certain markets, direct broadcast satellite;

• improvement in television receivers;