UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10–K/A

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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 in this report, 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. ý

Based on the closing sales price of $9.83 per share as of February 14, 2003, the aggregate market value of the voting and non-voting common equity of the Registrant held by non-affiliates was approximately $429.7 million.

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 price of $14.56 per share as June 28, 2002, the aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates was $620.8 million.

As of February 14, 2003, there were 43,887,663 shares of class A common stock, $.01 par value; 41,705,678 shares of class B common stock $.01 par value, and 3,450,000 shares of series D preferred stock, $.01 par value, convertible into 7,561,644 shares of class A common stock at a conversion price of $22.813 per share, of the registrant issued and outstanding.

In addition, 2,000,000 shares of $200 million aggregate liquidation value of 11.625% High Yield Trust Offered Preferred Securities of Sinclair Capital, a subsidiary trust of Sinclair Broadcast Group, Inc., are issued and outstanding.

Documents Incorporated by Reference - None

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 have been derived from our audited consolidated financial statements. The consolidated financial statements for the years ended December 31, 2002, 2001 and 2000 are included elsewhere in this report.

The information below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements included elsewhere in this report.

STATEMENT OF OPERATIONS DATA

(dollars in thousands, except per share data)

	Years Ended December 31,
	2002			2001			2000			1999			1998
Statement of Operations Data:
Net broadcast revenues(a)	$	670,534		$	623,837		$	699,422		$	643,088		$	537,793
Barter revenues	60,911			53,889			54,595			60,052			55,276
Other revenues	4,344			6,925			4,494			—			—
Total revenues	735,789			684,651			758,511			703,140			593,069
Operating costs(b)	309,254			311,494			320,817			276,092			213,192
Expenses from barter arrangements	54,567			48,159			48,543			54,463			49,805
Depreciation and amortization(c)(d)	185,939			260,526			230,889			204,612			158,653
Stock-based compensation	1,399			1,559			1,762			2,467			2,873
Impairment and write down charge of long-lived assets	¾			16,075			—			—			—
Restructuring costs	¾			3,700			—			—			—
Contract termination costs	¾			5,135			—			—			—
Cumulative adjustment for change in assets held for sale	¾			—			619			—			—
Operating income	184,630			38,003			155,881			165,506			168,546
Interest expense(d)	(126,500		)	(143,574		)	(152,219		)	(181,569		)	(141,704		)
Subsidiary trust minority interest expense(e)	(23,890		)	(23,890		)	(23,890		)	(23,890		)	(23,923		)
Gain (loss) on sale of broadcast assets	(478		)	204			—			(418		)	1,232
Unrealized (loss) gain on derivative instrument	(30,939		)	(32,220		)	(296		)	15,747			(9,050		)
Loss related to investments	(1,189		)	(7,616		)	(16,764		)	—			—
Interest and other income	3,585			3,758			2,812			3,082			6,631
Income (loss) before income taxes	5,219			(165,335		)	(34,476		)	(21,542		)	1,732
(Provision) benefit for income taxes	(1,369		)	51,875			(3,355		)	(23,281		)	(30,811		)
Income (loss) from continuing operations	3,850			(113,460		)	(37,831		)	(44,823		)	(29,079		)
Discontinued Operations:
Income (loss) from discontinued operations, net of related income taxes	372			(52		)	6,932			20,235			16,980
Gain on sale of broadcast assets, net of related income taxes	7,519			—			108,264			192,372			6,282
Extraordinary item:
Loss on early extinguishment of debt, net of related income taxes	(9,831		)	(14,210		)	—			—			(11,063		)
Cumulative adjustment for change in accounting principle net of related income taxes	(566,404		)	¾			¾			¾			¾
Net (loss) income	$	(564,494	)	$	(127,722	)	$	77,365		$	167,784		$	(16,880	)
Net (loss) income available to common Shareholders	$	(574,844	)	$	(138,072	)	$	67,015		$	157,434		$	(27,230	)

Other Data:
Broadcast cash flow(f)(m)	$	293,548		$	255,519		$	329,907		$	321,673		$	294,581
Broadcast cash flow margin(g)	43.8		%	41.0		%	47.2		%	50.0		%	54.8		%
Adjusted EBITDA(h)(m)	$	273,753		$	235,769		$	307,602		$	303,027		$	277,988
Adjusted EBITDA margin(g)	40.8		%	37.8		%	44.0		%	47.1		%	51.7		%
After tax cash flow(i)(m)	$	143,703		$	91,262		$	145,469		$	137,245		$	149,760
Program contract payments(j)	$	99,922		$	91,267		$	84,131		$	69,558		$	52,084
Corporate overhead expense	$	19,795		$	19,750		$	22,305		$	18,646		$	16,593
Capital expenditures	$	62,909		$	29,017		$	33,256		$	30,861		$	19,426
Cash flows from operating activities	$	149,615		$	58,888		$	69,127		$	130,665		$	150,480
Cash flows from (used in) investing activities	$	52,822		$	(33,338	)	$	209,820		$	452,499		$	(1,812,682	)
Cash flows (used in) from financing activities	$	(229,173	)	$	2,422		$	(291,264	)	$	(570,024	)	$	1,526,143

Per Share Data:
Basic loss per share from continuing operations	$	(0.08	)	$	(1.47	)	$	(0.53	)	$	(0.57	)	$	(0.42	)
Basic earnings per share from discontinued operations	$	0.09		—			$	1.26		$	2.20		$	0.25
Basic loss per share from extraordinary item	$	(0.12	)	$	(0.17	)	—			—			$	(0.12	)
Basic loss per share from cumulative effect of accounting change	$	(6.64	)	¾			¾			¾			¾
Basic net income (loss) per share	$	(6.74	)	$	(1.64	)	$	0.73		$	1.63		$	(0.29	)
Diluted loss per share from continuing operations	$	(0.08	)	$	(1.47	)	$	(0.53	)	$	(0.57	)	$	(0.42	)
Diluted earnings per share from discontinued operations	$	0.09		—			$	1.26		$	2.20		$	0.25


Diluted loss per share from extraordinary item	$	(0.12	)	$	(0.17	)	—		—		$	(0.12	)
Diluted loss per share from cumulative effect of accounting change	$	(6.64	)	¾			¾		¾		¾
Diluted net income (loss) per share	$	(6.74	)	$	(1.64	)	$	0.73	$	1.63	$	(0.29	)

Balance Sheet Data:
Cash and cash equivalents	$	5,327		$	32,063		$	4,091	$	16,408	$	3,268
Total assets	$	2,606,773		$	3,289,426		$	3,400,640	$	3,619,510	$	3,852,752
Total debt(k)	$	1,551,970		$	1,685,630		$	1,616,426	$	1,792,339	$	2,327,221
HYTOPS(l)	$	200,000		$	200,000		$	200,000	$	200,000	$	200,000
Total stockholders’ equity	$	211,180		$	771,960		$	912,530	$	974,917	$	816,043

(a) “Net broadcast revenues” are defined as broadcast revenues net of agency commissions.

(b) Operating costs include program and production expenses and selling, general and administrative expenses.

(c) Depreciation and amortization includes amortization of program contract costs and net realizable value adjustments, depreciation and amortization of property and equipment, and amortization of acquired intangible broadcasting assets, other assets and costs related to excess syndicated programming.

(d) Depreciation and amortization and interest expense amounts differ from prior presentations for the fiscal years ended December 31, 2000, 1999, and 1998. Previously the amortized costs associated with the issuance of indebtedness had been classified as depreciation and amortization instead of being classified as interest expense. Accordingly, we reclassified $3,313, $3,288 and $2,752 as interest expense for the fiscal years ended December 31, 2000, 1999 and 1998, respectively.

(e) Subsidiary trust minority interest expense represents the distributions on the HYTOPS and amortization of deferred finance costs. See footnote k.

(f) “Broadcast cash flow” (BCF) is defined as operating income plus corporate expenses, selling, general and administrative expenses related to software development and consulting operations, stock-based compensation, depreciation, and amortization (including film amortization, and amortization of deferred compensation), restructuring charges, contract termination costs, impairment and write down of long-lived assets, cumulative adjustment for change in assets held for sale, less other revenue and cash payments for program rights. Cash program payments represent cash payments made for current programs payable and do not necessarily correspond to program usage. We believe these data are comparable to the data provided by the other companies in the industry, but there can be no assurance that it is comparable. BCF does not purport to represent cash provided by operating activities as reflected in our consolidated statements of cash flows and is not a

measure of financial performance under generally accepted accounting principles. In addition, BCF should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Management believes the presentation of BCF is relevant and useful because 1) it is a measurement utilized by management and lenders to measure our ability to service our debt, 2) it is a measurement utilized by management and industry analysts to determine a private market value of our television stations and 3) it is a measurement management and industry analysts utilize when determining our operating performance.

(g) “Broadcast cash flow margin” is defined as broadcast cash flow divided by net broadcast revenues. “Adjusted EBITDA margin” is defined as Adjusted EBITDA divided by net broadcast revenues.

(h) “Adjusted EBITDA” is defined as broadcast cash flow less corporate expenses and is a commonly used measure of performance for broadcast companies. We believe these data are comparable to the data provided by other companies in the industry, but there can be no assurances that it is comparable. Adjusted EBITDA does not purport to represent cash provided by operating activities as reflected in our consolidated statements of cash flows and is not a measure of financial performance under generally accepted accounting principles. In addition, Adjusted EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Management believes the presentation of Adjusted EBITDA is relevant and useful because (1) it is a measurement utilized by management and lenders to measure our ability to service our debt, (2) it is a measurement utilized by management and industry analysts to determine a private market value of our television stations and (3) it is a measurement management and industry analysts utilize when determining our operating performance.

(i) “After tax cash flow” (ATCF) is defined as net income (loss) available to common shareholders, plus extraordinary items (before the effect of related tax benefits) plus depreciation and amortization (excluding film amortization), stock-based compensation, amortization of deferred financing costs, restructuring charges, contract termination costs, impairment and write down of long-lived assets, the cumulative adjustment for change in assets held for sale, the loss of equity investments (or minus the gain), unrealized loss on derivative instruments (or minus the gain), the deferred tax provision related to operations or minus the deferred tax benefit, the cumulative affect of change in accounting principle, the loss on the sale of discontinued operations (or minus the gain) and loss on sale of assets (or minus the gain) and minus deferred NOL carrybacks. We have presented ATCF data, which we believe is comparable to the data provided by other companies in the industry, because such data are commonly used as a measure of performance for broadcast companies; however, there can be no assurances that it is comparable. ATCF is presented here not as a measure of operating results and does not purport to represent cash provided by operating activities. ATCF should not be considered in isolation or as substitute for measures of performance prepared in accordance with generally accepted accounting principles. Management believes the presentation of ATCF is relevant and useful because ATCF is a measurement utilized by management and industry analysts to determine a public market value of our television stations and ATCF is a measurement management and analysts utilize when determining our operating performance.

(j) Program contract payments do not include payments related to WTTV-TV, which we sold on July 24, 2002. Program contract payments related to WTTV-TV for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 were $6,405, $10,989, $10,171, $9,915, and $9,023, respectively.

(k) “Total debt” is defined as long-term debt, net of unamortized discount, and capital lease obligations, including the current portion thereof. Total debt does not include the HYTOPS or our preferred stock.

(l) HYTOPS represents our Obligated Mandatorily Redeemable Security of Subsidiary Trust Holding Solely KDSM Senior Debentures representing $200 million aggregate liquidation value.

(m) The following table shows the calculation of Broadcast Cash Flow, Adjusted EBITDA and After-tax Cash Flow.

	For the Year ended December 31,
	2002			2001			2000			1999			1998
Broadcast Cash Flow & Adjusted EBITDA Calculation:
Operating income	$	184,630		$	38,003		$	155,881		$	165,506		$	168,546
Corporate expenses	19,795			19,750			22,305			18,646			16,593
Other revenue	(4,344		)	(6,925		)	(4,494		)	¾			¾
G1440 sales, general and administrative expenses	6,051			8,963			7,076			¾			¾
Stock based compensation	1,399			1,559			1,762			2,467			2,873
Impairment of assets	¾			16,075			¾			¾			¾
Restructuring costs	¾			3,700			¾			¾			¾
Contract termination costs	¾			5,135			¾			¾			¾
Cumulative adjustment- Assets Held for Sale	¾			¾			619			¾			¾
Depreciation and amortization	41,219			37,802			37,081			31,072			24,340
Amortization of intangibles	19,456			112,459			104,685			97,730			76,229
Amortization of film	125,264			110,265			89,123			75,810			58,084
Less: (Cash film payments)	(99,922		)	(91,267		)	(84,131		)	(69,558		)	(52,084		)
Broadcast Cash Flow	$	293,548		$	255,519		$	329,907		$	321,673		$	294,581
Less: Corporate expenses	(19,795		)	(19,750		)	(22,305		)	(18,646		)	(16,593		)
Adjusted EBITDA	$	273,753		$	235,769		$	307,602		$	303,027		$	277,988

After tax cash flow calculation:
Net income (loss) available to common shareholders	$	(574,844	)	$	(138,072	)	$	67,015		$	157,434		$	(27,230	)
Extraordinary item	9,831			14,210			¾			¾			11,063
Depreciation and amortization of property and equipment	41,219			37,802			37,081			$	31,072		24,340
Amortization of intangibles	19,456			112,459			104,685			$	97,730		76,229
Amortization of deferred financing costs	4,256			4,072			3,953			3,928			3,425
Stock based compensation	1,399			1,559			1,762			$	2,467		2,873

Unrealized loss (gain) on derivative instrument	30,939			32,220			296			(15,747		)	9,050
Impairment of asset	¾			16,075			¾			¾			¾
Restructuring costs	¾			3,700			¾			¾			¾
Contract termination costs	¾			5,135			¾			¾			¾
Cumulative adjustment for change in assets held for sale	¾			¾		��	619			¾			¾
Loss from equity investments	1,189			7,616			16,764			¾			¾
(Gain)/ Loss on sale of assets	478			(204		)	¾			418			(1,232		)
Cumulative adjustment for change in accounting principle	566,404			¾			¾			¾			¾
Discontinued Operations:
Depreciation and Amortization	293			1,200			6,252			23,095			20,630
Amortization of intangibles	124			3,924			3,508			3,995			2,901
Stock based compensation	¾			25			38			28			410
Restructuring costs	¾			136			¾			¾			¾
Gain on sale of discontinued operations	(7,519		)	¾			(108,264		)	(192,372		)	(6,282		)
Add deferred taxes provision (benefit)	50,478			(10,595		)	11,760			25,197			33,583
After Tax Cash Flow	$	143,703		$	91,262		$	145,469		$	137,245		$	149,760

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

Introduction

We are a diversified broadcasting company that owns and operates, provides programming services pursuant to LMAs or provides sales services pursuant to outsourcing agreements to more television stations than all but one other commercial broadcasting group in the United States. We currently own, provide programming services pursuant to LMAs or provide sales services to 62 television stations in 39 markets. We currently have duopolies where we own and operate two stations in ten markets; own and operate a station and provide programming and operating services to a second station in nine markets; and own a station and provide or are provided sales, operational and managerial services to a second station in four markets.

Our operating revenues are derived from local and national advertisers and, to a much lesser extent, from political advertisers and television network compensation. Our revenues from local advertisers have continued to trend upward and revenues from national advertisers have continued to trend downward when measured as a percentage of gross broadcast revenue. We believe this trend is primarily the result of our focus on increasing local advertising revenues as a percentage of total advertising revenues, from a decrease in overall spending by national advertisers and from an increase in the number of media outlets providing national advertisers a means by which to advertise their goods or services. Our efforts to mitigate the effect of increasing national media outlets include continuing our efforts to increase local revenues and developing innovative marketing strategies to sell traditional and non-traditional services to national advertisers.

Our primary operating expenses are syndicated program rights fees, commissions on revenues, employee salaries, and newsgathering and station promotional costs. Amortization and depreciation of costs associated with the acquisition of the stations and interest carrying charges are significant factors in determining our overall profitability.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of our operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, income taxes, program contract costs, property and equipment, intangible assets, investments, and derivative contracts. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the policies below as critical to our business operations and the understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see the Notes to the Consolidated Financial Statements.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the economy and /or the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make their payments, additional allowances may be required.

Program Contract Costs. We have agreements with distributors for the rights to television programming over contract periods, which generally run from one to seven years. Contract payments are made in installments over terms that are generally shorter than the contract period. Each contract is recorded as an asset and a liability at an amount equal to its gross contractual commitment when the license period begins and the program is available for its first showing. The portion of program contracts which become payable within one year is reflected as a current liability in the Consolidated Balance Sheets.

The rights to program materials are reflected in the Consolidated Balance Sheets at the lower of unamortized cost or estimated net realizable value. Estimated net realizable values are based upon management’s expectation of future advertising revenues net of sale commissions to be generated by the program material. Amortization of program contract costs is generally computed using either a four year accelerated method or based on usage, whichever yields the greater amortization for each program. Program contract costs, estimated by management to be amortized in the succeeding year, are classified as current assets. Payments of program contract liabilities are typically paid on a scheduled basis and are not affected by adjustments for amortization or estimated net realizable value. If we are unable to realize management’s estimate of future advertising revenues, additional writedowns to net realizable value may be required.

Valuation of Goodwill, Long-Lived Assets and Intangible Assets. We periodically evaluate our goodwill, long-lived assets and intangible assets for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on estimated future cash flows, market conditions, operational performance of our stations and legal factors. Future events could cause us to conclude that impairment indicators exist and that the net book value of long-lived assets and intangible assets is impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

Income Taxes. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. If we are unable to generate sufficient taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to establish a valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.

Set forth below are the principal types of broadcast revenues received by our stations for the periods indicated and the percentage contribution of each type to our total gross broadcast revenues:

BROADCAST REVENUE

(dollars in thousands)

	Years ended December 31,
	2002					2001					2000
Local/regional advertising	$	413,428		53.3	%	$	391,872		54.3	%	$	405,134		49.9	%
National advertising	309,923			40.0	%	307,514			42.7	%	355,697			43.9	%
Network compensation	16,450			2.1	%	16,754			2.3	%	17,656			2.2	%
Political advertising	33,176			4.3	%	2,559			0.4	%	29,990			3.7	%
Production	1,966			0.3	%	2,069			0.3	%	2,379			0.3	%
Broadcast revenues	774,943			100.0	%	720,768			100.0	%	810,856			100.0	%
Less: agency commissions	(104,409		)			(96,931		)			(111,434		)
Broadcast revenues, net	670,534					623,837					699,422
Barter revenues	60,911					53,889					54,595
Other revenues	4,344					6,925					4,494
Total revenues	$	735,789				$	684,651				$	758,511

Our primary types of programming and their approximate percentages of 2002 net broadcast revenues were syndicated programming (51.5%), network programming (24.9%), news (13.8%), direct advertising programming (6.6%), sports programming (2.6%) and children’s programming (0.6%). Similarly, our five largest categories of advertising and their approximate percentages of 2002 net time sales were automotive (23.2%), professional services (10.7%), fast food advertising (7.4%), retail department stores (6.7%), and paid programming (6.7%). No other advertising category accounted for more than 4.5% of our net time sales in 2002. No individual advertiser accounted for more than 2.7% of our consolidated net broadcast revenues in 2002.

The following table sets forth certain of our operating data for the years ended December 31, 2002, 2001 and 2000. For definitions of items, see footnotes to table in “Item 6. Selected Financial Data”.

OPERATING DATA

(dollars in thousands)

	Years ended December 31,
	2002			2001				2000
Net broadcast revenue	$	670,534		$		623,837		$	699,422
Barter revenue	60,911			53,889				54,595
Other revenue	4,344			6,925				4,494
Total revenue	735,789			684,651				758,511
Operating costs	309,254			311,494				320,817
Expenses from barter arrangements	54,567			48,159				48,543
Depreciation and amortization	185,939			260,526				230,889
Stock-based compensation	1,399			1,559				1,762
Impairment and write down charge of long-lived assets	¾			16,075				—
Restructuring costs	¾			3,700				—
Contract termination costs	¾			5,135				—
Cumulative adjustment for change in assets held for sale	¾			—				619
Operating income	$	184,630		$		38,003		$	155,881
Cumulative effect of change in accounting principle	$	(566,404	)	$	—			$	—
Net income (loss)	$	(564,494	)	$		(127,722	)	$	77,365
Net income (loss) available to common shareholders	$	(574,844	)	$		(138,072	)	$	67,015

Other Data:
Broadcast cash flow(a)	$	293,548		$		255,519		$	329,907
BCF margin	43.8		%	41.0			%	47.2		%
Adjusted EBITDA(a)	$	273,753		$		235,769		$	307,602
Adjusted EBITDA margin	40.8		%	37.8			%	44.0		%
After tax cash flow(a)	$	143,703		$		91,262		$	145,469
Program contract payments	99,922			91,267				84,131
Corporate expense	19,795			19,750				22,305
Capital expenditures	62,909			29,017				33,256
Cash flows from operating activities	149,615			58,888				69,127
Cash flows from (used in) investing activities	52,822			(33,338			)	209,820
Cash flows (used in) from financing activities	(229,173		)	2,422				(291,264		)

(a) The following table shows the calculation of Broadcast Cash Flow, Adjusted EBITDA and After-tax Cash Flow.

	YTD 2002			YTD 2001			YTD 2000
Broadcast Cash Flow & Adjusted EBITDA Calculation:
Operating income	$	184,630		$	38,003		$	155,881
Corporate Expenses	19,795			19,750			22,305
Other revenue	(4,344		)	(6,925		)	(4,494		)
G1440 sales, general and administrative expenses	6,051			8,963			7,076
Stock based compensation	1,399			1,559			1,762
Impairment of Assets	¾			16,075			¾
Restructuring Costs	¾			3,700			¾
Contract Termination Costs	¾			5,135			¾
Cumulative Adjustment - Assets Held for Sale	¾			¾			619
Depreciation and Amortization	41,219			37,802			37,081
Amortization of intangibles	19,456			112,459			104,685
Amortization of film	125,264			110,265			89,123
Less: (Cash film payments)	(99,922		)	(91,267		)	(84,131		)
Broadcast Cash Flow	293,548			255,519			329,907
Less: Corporate Expenses	(19,795		)	(19,750		)	(22,305		)
Adjusted EBITDA	$	273,753		$	235,769		$	307,602

After tax cash flow calculation:
Net income (loss) available to common shareholders	$	(574,844	)	$	(138,072	)	$	67,015

Extraordinary item		9,831			14,210		¾
Depreciation and amortization		41,219			37,802			37,081
Amortization of intangibles		19,456			112,459			104,685
Amortization of deferred financing costs		4,256			4,072			3,953
Stock based compensation		1,399			1,559			1,762
Unrealized loss (gain) on derivative instrument		30,939			32,220			296
Impairment of asset	¾				16,075		¾
Restructuring costs	¾				3,700		¾
Contract termination costs	¾				5,135		¾
Cumulative adjustment for change in assets held for sale	¾			¾				619
Loss from equity investments		1,189			7,616			16,764
(Gain)/ Loss on sale of assets		478			(204	)
Cumulative adjustment for change in accounting principle		566,404		¾			¾
Discontinued Operations:
Depreciation and Amortization		293			1,200			6,252
Amortization of intangibles		124			3,924			3,508
Stock based compensation	¾				25			38
Restructuring costs	¾				136		¾
Gain on sale of discontinued operations		(7,519	)	¾			(108,264		)
Add deferred taxes provision (benefit)		50,478			(10,595	)		11,760
After Tax Cash Flow	$	143,703		$	91,262		$	145,469

Results of Operations

Years Ended December 31, 2002 and 2001

Net loss available to shareholders for the year ended December 31, 2002 was $574.8 million or net loss of $6.74 per share compared to net loss of $138.1 million or loss of $1.64 per share for the year ended December 31, 2001. The net loss for the year ended December 31, 2002 was largely the result of the cumulative effect of change in accounting principle of $566.4 million net of taxes.

Net broadcast revenues increased to $670.5 million for the year ended December 31, 2002 from $623.8 million for the year ended December 31, 2001, or 7.5%. The year ending December 31, 2002 was positively impacted by higher advertising revenues generated from the political, automotive, services, restaurants, home products, schools, and beer/wine, offset by weakness in the fast food and soft drink sectors. During the year ended December 31, 2002, national revenues increased to $271.9 million, or 7.0%, from $254.0 million during 2001. National political revenues increased $19.1 million, or 1,888.0%. During the year ended December 31, 2002, local revenues increased to $369.0 million, or 8.3%, from $340.6 million during 2001. Local political revenues increased $6.9 million, or 556.0%, representing 2.0% of the increase in total local revenues. The increase in political revenues was primarily the result of the several primary and general elections during 2002.

National revenues, excluding political revenues, declined $1.3 million to $251.7 million, or 0.5%, during the year ended December 31, 2002 from $253.0 million during the year ended December 31, 2001. Local revenues, excluding political revenues, increased $21.5 million to $360.8 million, or 6.3%, during the year ended December 31, 2002 from $339.3 million during 2001.

Same station basis is a comparison of only the stations that we owned or provided programming and operating services pursuant to an LMA for both entire years ending December 31, 2002 and 2001. On a same station basis for the year ended December 31, 2002, national revenues including political revenues increased $17.2 million, or 6.8%, and local sales increased $29.4 million, or 8.8%, over 2001. The increase in national revenues was primarily due to the increase in political revenues. The increase in local revenues is related to our continued focus on developing a strong local sales force at each of our stations.

In addition, for the year ended December 31, 2001, the events of September 11^th had a direct impact on the revenues of media related businesses. The impact of the terrorist attacks to us due to pre-emptions and cancelled advertisements was estimated to be a $5.4 million revenue loss during 2001.

The network affiliations that experienced the largest revenue growth for the year ended December 31, 2002 were our NBC and CBS affiliates which increased 21.3% and 19.3%, respectively, compared with the year ended December 31, 2001. Our ABC and FOX affiliates experienced revenue growth of 11.3% and 9.1%, respectively, for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The WB affiliates’ revenue increased 2.0% for the year ended December 31, 2002 as compared to the year ended December 31, 2001. The UPN affiliates’ revenue decreased 1.7% for the year ended December 31, 2002 as compared to the year ended December 31, 2001.

Other revenue decreased to $4.3 million for the year ended December 31, 2002 from $6.9 million for the year ended December 31, 2001 or 37.7%. The decrease in revenue relates to a decreased demand for services from our software development and consulting company, due to the slow economy and a decrease in revenue of $0.4 million related to the closing of the San Francisco office during the first quarter 2001.

Operating costs were $309.3 million for the year ended December 31, 2002 compared to $311.5 million for the year ended December 31, 2001, a decrease of $2.2 million or 0.7%. The decrease in operating costs related to a decrease in program and production expenses due to the acquisition of 15 television broadcast licenses during the three months ended March 31, 2002, which we are able to operate at a lower cost than under the previous LMA structure. In addition, we reduced our spending for the February rating sweeps promotion due to direct competition from the Olympics. The decrease in operating expenses also resulted from the full quarter effect of our restructuring program initiated during the three months ended March 31, 2001, and the restructuring costs incurred during 2001, related to discontinued programming of local news at our stations KDNL-TV in St. Louis, Missouri and WXLV-TV in Winston-Salem, North Carolina.

Depreciation and amortization decreased $74.6 million to $185.9 million for the year ended December 31, 2002 from $260.5 million for the year ended December 31, 2001. The decrease in depreciation and amortization for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was related to the adoption of

SFAS No. 142 which resulted in the discontinuation of amortization of our goodwill and broadcast licenses, offset by an increase in amortization of our program contract costs and net realizable value adjustments related to our addition of new programming such as Dharma & Greg and Will & Grace as well as write downs related to additional seasons for Frasier, Drew Carey, Spin City, Just Shoot Me, and Third Rock from the Sun and an increase in depreciation of fixed assets related to our property additions, primarily resulting from our digital television conversion.

For the year ended December 31, 2002, we did not incur any restructuring charges, impairment and write-down of long-lived assets (except for the impact of adopting SFAS No. 142) or contract termination costs. During the three months ended March 31, 2001, we offered a voluntary early retirement program to our eligible employees and implemented a restructuring program to reduce operating and overhead costs. As a result, we reduced our staff by 186 employees and incurred a restructuring charge of $2.3 million, which is included in the accompanying consolidated statements of operations. During September 2001, our station KDNL-TV in St. Louis, Missouri, discontinued programming its local news broadcast. As a result, we incurred a restructuring charge of $1.1 million. During December 2001, WXLV-TV in Winston-Salem, North Carolina discontinued programming its local news broadcast. As a result we incurred a restructuring charge of $0.3 million. The restructuring charges related to severance and operating contract termination costs. During the nine months ended September 2001, we incurred an impairment and write-down of long-lived assets of $5.5 million and contract termination costs of $5.1 million.

Operating income increased $146.6 million to $184.6 million for the year ended December 31, 2002 from $38.0 million for the year ended December 31, 2001, or 385.8%. The net increase in operating income for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was primarily attributable to a decrease in amortization due to the adoption of SFAS No. 142 which resulted in the discontinuation of amortization of our goodwill and FCC licenses offset by an increase in program contract amortization expense and property and equipment depreciation expense. Operating income was also affected by a decrease in program and production expenses due to the acquisition of 15 television broadcast licenses resulting in our ability to operate at a cost lower than operating those stations as LMA structures and reduced spending for sweeps promotion due to direct competition from the Olympics. During the year ended December 31, 2001, we incurred a loss of $16.1 million related to a write down charge of long-lived assets. This charge is comprised of goodwill related to our software development company and our station KBSI-TV in Paducah, Kentucky, and a write off of fixed assets which represent the net book value of damaged, obsolete or abandoned property. We also incurred contract termination costs of $5.1 million and restructuring charges of $3.7 million during the year ended December 2001. We did not incur any write-down charge of long-lived assets, contract termination or restructuring charges for the year ended December 31, 2002.

Interest expense decreased to $126.5 million for the year ended December 31, 2002 from $143.6 million for the year ended December 31, 2001, or 11.9%. The decrease in interest expense for the year ended December 31, 2002 resulted from the refinancing of indebtedness at lower interest rates during December 2001, March 2002, July 2002, November 2002 and December 2002 and an overall lower interest rate environment.

Our income tax provision was $1.4 million for the year ended December 31, 2002 compared to an income tax benefit of $51.9 million for the year ended December 31, 2001. Our tax rate changed to a provision in 2002 from a benefit in 2001 because we reported net income in 2002 compared to a net loss in 2001. The effective tax rate from continuing operations decreased to 26.2% for the year ended December 31, 2002 from 31.3% for the year ended December 31, 2001. The decrease is primarily because (prior to the implementation of SFAS No. 142 for 2002) our reported income in 2001 was reduced by amortization of goodwill, which was non-deductible for tax purposes.

Loss related to investments decreased to $1.2 million for the year ended December 31, 2002 as compared to $7.6 million for the year ended December 31, 2001. The loss related to investments for the year ended December 31, 2002 primarily relates to a loss of $1.4 million as a result of a write down of our investment in Allegiance Capital, a loss of $0.1 million from the sale of our interest in Synergy Brands, Inc., offset by a gain of $0.3 million related to proceeds of a settlement to shareholders of Acrodyne.

We recognized income from discontinued operations of $7.9 million, which includes a gain on the sale of WTTV-TV in Indianapolis, Indiana of $7.5 million for the year ended December 31, 2002 as compared to a loss from discontinued operations of $52,000 for the year ended December 31, 2001.

As a result of the implementation of SFAS No. 133, one of our derivatives does not qualify for special hedge accounting treatment. Therefore, this derivative must be recognized in the balance sheet at fair market value and the changes in fair market value are reflected in earnings. As a result, we recognized $30.9 million of losses during 2002.

Broadcast cash flow increased to $293.5 million for the year ended December 31, 2002 from $255.5 million for the year ended December 31, 2001, or 14.9%. The broadcast cash flow margin for the year ended December 31, 2002 increased to 43.8% from 41.0% for the year ended December 31, 2001. The increase in broadcast cash flow for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was primarily due to an increase in net broadcast revenue, a decrease in operating costs, offset by an increase in program contract payments.

Adjusted EBITDA increased to $273.8 million for the year ended December 31, 2002 from $235.8 million for the year ended December 31, 2001 or 16.1%. Adjusted EBITDA margin increased to 40.8% for the year ended December 31, 2002 from 37.8% for the year ended December 31, 2001. The increases in Adjusted EBITDA and margins for the year ended December 31, 2002 as compared to the year ended December 31, 2001 primarily resulted from an increase in net broadcast revenue and a decrease in operating costs offset by an increase in program contract payments.

After tax cash flow increased to $143.7 million for the year ended December 31, 2002 from $91.3 million for the year ended December 31, 2001, or 57.4%. The increase in after tax cash flow for the year ended December 31, 2002, as compared to the year ended December 31, 2001, primarily resulted from an increase in net broadcast revenue, a decrease in operating costs, a decrease in interest expense, an increase in the current tax benefit offset by an increase in program contract amortization.

Years ended December 31, 2001 and 2000

Net loss available to common shareholders for the year ended December 31, 2001 was $138.1 million or $1.64 per share compared to net income available to common stockholders for the year ended December 31, 2000 of $67.0 million or $0.73 per share.

Net broadcast revenue decreased $75.6 million to $623.8 million for the year ended December 31, 2001 from $699.4 million for the year ended December 31, 2000, or 10.8%. The decrease in net broadcast revenue for the year ended December 31, 2001 as compared to the year ended December 31, 2000 was comprised of a decrease in revenues of $84.1 million on a same station basis offset by an increase of $8.5 million related to 2000 acquisitions, and the 2001 outsourcing agreement with WTXL-TV. On a same station basis, local revenue decreased $23.0 million and national revenue decreased $63.6 million, offset by an increase in other broadcast revenue of $4.0 million. Other broadcast revenue increased by $2.5 million related to an increase in tower rental revenue and an increase in syndicator revenue. Political revenues declined $23.7 million to $2.3 million for the year ended December 31, 2001 compared to $26.0 million for the year ended December 30, 2000, or 91.2%, representing 1.5% of the decrease in local revenues and 4.6% of the decrease in national revenues. The decrease in political revenues was primarily the result of the Presidential election and numerous local elections during the 2000 period. The decrease in national and local revenues was primarily due to a soft advertising market resulting from a weak economy as well as increasing competition from other forms of advertising-based mediums, particularly network, cable television, direct satellite television, and Internet that have a direct impact on the distribution of advertising dollars in our markets. In addition, the events of September 11, 2001 had a direct impact on the revenues of media related businesses. The terrorist attacks led to the pre-emption and cancellation of advertisements, which caused a $5.4 million revenue loss during 2001.

Other revenue increased $2.4 million to $6.9 million for the year ended December 31, 2001 from $4.5 million for the year ended December 31, 2000, or 53.3%. The increase was comprised of a general increase in Internet consulting and development revenue generated by G1440, which represents sales of $1.9 million and an increase in sales of $1.5 million due to the 2000 acquisition of a software design company, an increase in sales related to the “Builder” software product division offset by a decrease of $1.2 million related to the reorganization of the San Francisco office of G1440.

Total operating costs decreased $9.3 million to $311.5 million for the year ended December 31, 2001 from $320.8 million for the year ended December 31, 2000, or 2.9%. The decrease in operating costs for the year ended December 31, 2001 as compared to the year ended December 31, 2000 was comprised of a decrease in programming and production expense of $6.4 million and a decrease in selling, general and administrative costs of $3.0 million. The decrease in selling, general and administrative costs related to an increase of $1.9 million in general and administrative costs for G1440, $0.7 million for health insurance, and $0.9 million in bad debt, offset by a decrease in sales expense of $4.2 million, and a decrease in salaries of $2.5 million. On a same station basis, operating costs decreased by $10.5 million offset by an increase of $5.7 million related to 2000 acquisitions and our outsourcing agreement with WTXL-TV.

Depreciation and amortization increased $29.6 million to $260.5 million for the year ended December 31, 2001 from $230.9 million for the year ended December 31, 2000. The increase in depreciation and amortization related to fixed asset, intangible asset, and program contract additions associated with the 2000 acquisitions and program contract additions related to our investment in programming.

Interest expense decreased $8.6 million to $143.6 million for the year ended December 31, 2001 from $152.2 million for the year ended December 31, 2000, or 5.7%. The decrease in interest expense for the year ended December 31, 2001 as compared to the year ended December 31, 2000 primarily resulted from the reduction of our indebtedness using the proceeds from the disposition of our radio broadcast assets in December 2000 and, during 2001, an overall lower interest rate market environment, offset by an increase in interest expense related to capital leases. Subsidiary trust minority interest expense of $23.9 million for the year ended December 31, 2001 is related to the private placement of the $200 million aggregate liquidation value 11.625% high yield trust offered preferred securities (HYTOPS) completed March 12, 1997.

Operating income decreased $117.9 million to $38.0 million for the year ended December 31, 2001 from $155.9 million for the year ended December 31, 2000. The net decrease in operating income for the year ended December 31, 2001 as compared to the year ended December 31, 2000 was primarily attributable to a decrease in net broadcast revenues, an increase in depreciation and amortization, an impairment and write down charge of $16.1 million, a restructuring charge of $2.3 million related to a reduction in our work force of 186 employees and a restructuring charge of $1.4 million related to the discontinuance of the news at our stations KDNL-TV, St. Louis, Missouri and WXLV-TV in Winston-Salem, North Carolina. These costs were offset by decreases in programming production costs as well as selling, general and administrative costs.

During June 2001, the San Francisco office of our Internet consulting and development subsidiary was reorganized. The office reduced staff due to a significant slow down of business activity in the San Francisco market. In addition, the focus of the San Francisco office has shifted toward marketing an existing product. As a result, management determined that the San Francisco office’s goodwill was permanently impaired and, as such, recorded a charge to write-off goodwill in the amount of $2.8 million during June 2001. Also, during 2001, we wrote-off $4.2 million of fixed assets which represents the net book value of damaged, obsolete, or abandoned property. The impairment and write-down charge decreased operating income as noted above.

During February 2001, we offered a voluntary early retirement program to eligible employees and implemented a restructuring program to reduce operating and overhead costs. As a result, we reduced our staff by 186 employees and incurred a restructuring charge of $2.3 million, which is included in the accompanying Consolidated Statements of Operations. During September 2001, KDNL-TV in St. Louis, Missouri discontinued programming its local news broadcast. As a result, we incurred a restructuring charge of $1.1 million. During December 2001, WXLV-TV in Winston-Salem, North Carolina discontinued programming its local news broadcast. As a result, we incurred a restructuring charge of $0.3 million. The restructuring charges related to severance, operating contract termination costs, and legal costs. The restructuring charge decreased operating income for the year ended December 31, 2001.

During the third quarter of 2001, Sinclair terminated certain agreements and entered into new agreements with unrelated third parties. We incurred $5.1 million of contract termination costs and we received $21.4 million for entering the new contract. Both the amounts will be recognized as a reduction of selling, general and administrative expenses on a straight-line basis over the term of the contracts.

Loss related to investments decreased to $7.6 million for the year ended December 31, 2001 as compared to $16.8 million for the year ended December 31, 2000. The loss related to investments for the year ended December 31, 2001 primarily relates to a loss of $4.2 million recognized during 2001 as a result of our write-off of our loans to Acrodyne Communications, Inc. (Acrodyne), of which, as of December 31, 2001, we held approximately a 35% equity interest. We also recognized losses as a result of write-downs of our investments for How Stuff Works, Inc. of $0.9 million, Chatfish of $0.6 million and Synergy Brands, Inc. of $2.1 million. Our equity earnings for our investment in Allegiance Capital L.P. increased by $0.2 million.

We recognized a loss from discontinued operations of $52,000 for the year ended December 31, 2001 as compared to $6.9 million for the year ended December 31, 2000. The loss from discontinued operations for the year ended December 31, 2001 related to the sale of WTTV-TV in Indianapolis, Indiana. Of the net income from discontinued operations, net of taxes for the year ended December 31, 2000, $2.0 million related to the sale of WTTV-TV, Indianapolis, Indiana and $4.9 million resulted from the disposition of our radio broadcast assets in December 1999 and during 2000.

Broadcast cash flow decreased $74.4 million to $255.5 million for the year ended December 31, 2001 from $329.9 million for the year ended December 31, 2000, or 22.6%. The broadcast cash flow margin for the year ended December 31, 2001 decreased to 41.0% from 45.1% for the year ended December 31, 2000. The decrease in broadcast cash flow and margins for the year ended December 31, 2001 compared to the year ended December 31, 2000 was comprised of an $78.0 million, or 23.6%, decrease in broadcast cash flow on a same station basis, offset by an increase of $1.6 million related to the 2000 acquisitions and a decrease in operating expenses.

Adjusted EBITDA represents broadcast cash flow less corporate expenses. Adjusted EBITDA decreased $71.8 million to $235.8 million for the year ended December 31, 2001 from $307.6 million for the year ended December 31, 2000, or 23.3%. Adjusted EBITDA margin decreased to 37.8% for the year ended December 31, 2001 from 41.9% for the year ended December 31, 2000. The decrease in adjusted EBITDA and margins for the year ended December 31, 2001 as compared to the year ended December 31, 2000 resulted primarily from the circumstances affecting broadcast cash flow margins as noted above combined with a $2.6 million decrease in corporate expenses.

After tax cash flow decreased $54.2 million to $91.3 million for the year ended December 31, 2001 from $145.5 million for the year ended December 31, 2000, or 37.3%. The decrease in after tax cash flow for the year ended December 31, 2001 as compared to the year ended December 31, 2000 primarily resulted from a decrease in net broadcast revenues, offset by an increase in current tax benefit and a decrease in interest expense.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB), approved Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill and certain other intangible assets including broadcast licenses effective January 1, 2002. SFAS No. 142 also establishes a new method of testing goodwill and broadcast licenses for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 resulted in discontinuation of amortization of our goodwill and broadcast licenses effective January 1, 2002; however, we were required to test goodwill and broadcast licenses for impairment under the new standard during 2002.

During the three months ended March 31, 2002, we tested our broadcast licenses for impairment in accordance with SFAS No. 142 based on the estimated fair value of such licenses in their respective markets. We estimated the fair values of our broadcast licenses using discontinued cash flow models. The estimated fair value was compared to the book value to determine whether any impairment had occurred. As a result of this analysis we incurred a pretax impairment charge of $64.0 million.

SFAS No. 142 requires that goodwill be tested for impairment at the reporting unit level at adoption and at least annually thereafter, utilizing a two-step methodology. The initial step required us to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. If the fair value exceeded the carrying value, no impairment loss was recognized. However, if the carrying value of the reporting unit exceeded its fair value, the goodwill of this unit might have been impaired. The amount, if any, of the impairment would then be measured in the second step. The second step requires us to calculate the fair value of goodwill by allocating the fair value of the reporting unit to each of the assets and liabilities of the reporting unit based on their fair values. This calculated goodwill is then compared to the book value of the goodwill and an impairment loss is recognized to the extent that the book value exceeds the fair value.

We determined that our designated marketing areas (DMAs) were reporting units under SFAS 142. In connection with adopting this standard during 2002, we completed step one of the test for impairment by comparing the book value of our reporting units, including goodwill, to the estimated fair value of our reporting units as of January 1, 2002. We estimated the fair value of our reporting units using a combination of quoted market prices, observed earnings multiples paid for comparable television stations and discounted cash flow models.

estimated the fair values of the assets and liabilities using a combination of observed prices paid for similar assets and liabilities, discounted cash flow models and appraisals.

As a result of such testing, we recorded a pre-tax impairment charge of $532.8 million related to nine of our DMAs and our software development and consulting company. The total impairment charge of $596.8 million related to our broadcast licenses and goodwill is reflected as a cumulative effect of a change in accounting principle on our consolidated statement of operations, net of the related tax benefit of $30.3 million.

SFAS 142 requires goodwill and definite lived intangible assets to be tested for impairment on an annual basis; therefore, we tested these assets for impairment as of October 1, 2002 by comparing their book values to their estimated fair values. There was no impairment charge recorded based on the results of such testing.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for Derivative Instruments and Hedging Activities requires that an entity recognize all derivative instruments and hedging activities as either assets or liabilities on the balance sheet measured at their fair values. Changes in fair value of all derivative instruments and hedging activities are required to be recognized through earnings unless specific hedge accounting criteria are met. We adopted SFAS No. 133 as of January 1, 2001.

In June 2001, the FASB approved SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002 and addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We do not expect the adoption of SFAS No. 143 to have a material effect on our financial statements.

In April of 2002, the FASB approved SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. SFAS No. 145 will require us to record gains and losses on extinguishment of debt as a component of income from continuing operations rather than as an extraordinary item and to reclassify such items for all periods presented. We adopted this provision of SFAS No. 145 on January 1, 2003. We do not expect the other provisions of SFAS No. 145 to have a material effect on our consolidated financial statements.

In June 2002, the FASB approved SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 is effective after December 31, 2002, and addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The primary difference between SFAS No. 146 and EITF 94-3 concerns the timing of liability recognition and we do not expect the adoption of SFAS No. 146 to have material effect on our consolidated financial statements.

In November 2002, the Emerging Issues Task Forces (EITF) reached a consensus on Issue 02-16, Accounting by Reseller for Cash Consideration Received from a Vendor, (EITF 02-16). EITF 02-16 requires us to treat our deferred commission credits as a reduction in selling expense when realized and not as broadcast revenue. We adopted EITF 02-16 on December 31, 2002. This adoption resulted in a reclassification of $3.9 million and $1.6 million for the years ended December 2002 and 2001, respectively.

As of December 2002, we adopted SFAS No. 148, Accounting for Stock-Based Compensation-Transaction and Disclosure, an Amendment of FASB No. 123. SFAS No. 148 revises the methods permitted by SFAS No. 123 of measuring compensation expense for stock-based employee compensation plans. We use the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, as permitted under SFAS No. 123. Therefore, this change did not have a material effect on our financial statements. SFAS No. 148 requires us to disclose pro forma information related to stock-based compensation, in accordance with SFAS No. 123, on a quarterly basis in addition to the current annual basis disclosure. We will report the pro forma information on an interim basis beginning with our March 31, 2003 Form 10-Q.

Liquidity and Capital Resources

Our primary source of liquidity is cash provided by operations and availability under our 2002 Bank Credit Agreement. As of December 31, 2002, we had $5.3 million in cash balances and working capital of approximately $88.5 million. We anticipate that cash flow from our operations and revolving credit facility will be sufficient to satisfy our debt service obligations, dividend requirements, capital expenditure requirements and operating cash needs for the next year. There can be no assurance that we will be successful in obtaining the required amount of funds for these items. As of February 14, 2003, the remaining balance available under the revolving credit facility was $173.0 million. Our ability to draw down our line of credit is based on pro forma trailing cash flow levels and for the twelve months ended December 31, 2002, we had approximately $173.0 million available of current borrowing capacity under our revolving credit facility.

In March 2002, we completed an issuance of $300.0 million aggregate principal amount of 8% Senior Subordinated Notes (the 2002 Notes), due 2012, generating net proceeds to us of $297.3 million. The gross proceeds of this offering were utilized to repay $300.0 million of the Term Loan Facility under our 1998 Bank Credit Agreement. We recognized an extraordinary loss of $0.7 million, net of a tax benefit of $0.4 million. The extraordinary loss represented a write-off of the deferred financing costs. Interest on the 2002 Notes is payable semiannually on March 15th and September 15th of each year beginning September 15, 2002. The 2002 Notes were issued under an indenture among SBG, its subsidiaries (the guarantors) and the trustee. Net costs associated with the offering totaled $3.4 million. These costs were capitalized and are being amortized to interest expense over the term of the 2002 Notes.

On July 15, 2002, we closed on a new Bank Credit Agreement (the 2002 Bank Credit Agreement), allowing us more operating capacity and liquidity. The proceeds of the 2002 Bank Credit Agreement were used to pay off the 1998 Bank Credit Agreement. The 2002 Bank Credit Agreement consists of a $225.0 million Revolving Credit Facility maturing on June 30, 2008 and a $375.0 million Term Loan B Facility repayable in consecutive quarterly installments, amortizing 0.25% per quarter, commencing June 30, 2004 and continuing through its maturity on December 31, 2009. The applicable interest rate on the Revolving Credit Facility is either LIBOR plus 1.25% to 2.25% or the alternative base rate plus 0.25% to 1.25% adjusted quarterly based on the ratio of total debt, net of cash, to four quarters’ trailing earnings before interest, taxes, depreciation and amortization, as adjusted in accordance with the 2002 Bank Credit Agreement. The applicable interest rate on the Term Loan B Facility is either LIBOR plus 2.25% or the alternative base rate plus 1.25%.

On November 8, 2002, the Company completed an add-on issuance of $125.0 million aggregate principal amount to the 8% Senior Subordinated Notes due 2012 at a premium of $0.6 million generating net proceeds of $125.8 million. We used the net proceeds together with available cash on hand and a draw down of $10.0 million on the revolving line of credit under the 2002 Bank Credit Agreement, to redeem our existing 9% Senior Subordinated Notes including an early redemption premium of $9.0 million and accrued interest of $7.2 million.

On December 31, 2002, we completed an add-on issuance of $125.0 million aggregate principal amount of 8% Senior Subordinated Notes due 2012 at a premium of $3.8 million. We received net proceeds of approximately $130.4 million from the sale of the notes. We used the net proceeds together with additional funding from our term loan of $125 million, a draw down of $7.0 million on the revolving line of credit under the 2002 Bank Credit Agreement and available cash on hand of $0.2 million to redeem our existing 8.75% Senior Subordinated Notes due 2007, including an early redemption premium of $10.9 million and costs associated with the offering totalling $1.7 million.

On April 19, 2002, we filed a $350.0 million universal shelf registration statement with the Securities and Exchange Commission which will permit us to offer and sell various types of securities from time to time. Offered securities may include common stock, debt securities, preferred stock, depositary shares or any combination thereof in amounts, prices and on terms to be announced when the securities are offered. If we determine it is in our best interest to offer any such securities, we intend to use the proceeds for general corporate purposes, including, but not limited to, the reduction or refinancing of debt or other obligations, acquisitions, capital expenditures, and working capital.

The weighted average interest rates for outstanding indebtedness relating to our Bank Credit Agreement during 2001 and as of December 31, 2001 were 6.57% and 5.85%, respectively. The weighted average interest rates of our Bank Credit Agreement during 2002 and as of December 31, 2002 were 5.14% and 4.12%, respectively. During 2002, the interest expense relating to the Bank Credit Agreements was $27.9 million.

Net cash flows from operating activities increased to $149.6 million for the year ended December 31, 2002 from $58.9 million for the year ended December 31, 2001. We received income tax refunds net of payments of $44.1 million for the year ended December 31, 2002 as compared to income tax payments, net of refunds of $1.2 million for the year ended December 31, 2001. We made interest payments on outstanding indebtedness and payments for subsidiary trust minority interest expense totaling $142.9 million for the year ended December 31, 2002 as compared to $173.6 million for the year ended December 31, 2001. Program rights payments increased to $106.3 million for the year ended December 31, 2002 from $102.3 million for the year ended December 31, 2001 or 3.9%. This increase in program rights payments was comprised of $8.7 million related to an increase in programming costs on a same station basis, offset by a decrease in payments related to the disposition of WTTV-TV. This increase in program rights payments resulted from our investment to upgrade our television programming.

Net cash flows from investing activities were $52.8 million for the year ended December 31, 2002 as compared to net cash flows used in investing activities of $33.3 million for the year ended December 31, 2001. This increase in net cash flows used in investing activities was primarily due to the sale of WTTV broadcast assets and repayments of notes receivable, offset by payments relating to the acquisition of broadcast assets, property and equipment expenditures and equity investments. For the year ended December 31, 2002, we received proceeds of $124.5 million from the sale of WTTV-TV, we made cash payments of approximately $21.2 million related to the acquisition of television broadcast assets and received cash proceeds of $0.7 million related to the sale of broadcast assets. During the year ended December 31, 2002, we made equity investments of approximately $25.8 million. During 2002, we made payments for property and equipment of $62.9 million of which $49.6 million, related to digital conversion costs.

For 2003, we anticipate to incur approximately $92.0 million of capital expenditures, of which $50.0 million relates to the completion of our digital television roll-out, approximately $10.0 million for improvements and $32.0 milllion for the news expansion program. In addition, we anticipate that future requirements for capital expenditures will include capital expenditures incurred during the ordinary course of business and additional strategic station acquisitions and equity investments if suitable investments can be identified on acceptable terms. We expect to fund such capital expenditures with cash generated from operating activities and funding from our Revolving Credit Facility.

Net cash flows used in financing activities decreased to $229.2 million for the year ended December 31, 2002 from net cash flows from financing activities of $2.4 million for the year ended December 31, 2001. During the year ended December 31, 2002, we repaid $1.5 billion under the Term Loan Facility and utilized borrowings under the Revolving Credit Facility of $1.3 billion. During the year ended December 31, 2002, we received $21.8 million related to the termination of two of our derivative instruments. During the year ended December 31, 2002, we repaid a net $229.5 million of indebtedness, whereas in the comparable period in 2001, we borrowed a net $4.3 million, offset by repurchases of Class A common stock of $4.4 million and payment of an equity put option premium of $7.7 million during 2001.

We closed on the sale of four radio stations in Kansas City, Missouri in July 2000 for a purchase price of $126.6 million. In October 2000, we closed on the sale of our radio stations in the St. Louis market for a purchase price of $220.0 million and on the purchase of the stock of Grant Television, Inc., including the non-license assets of WNYO-TV in Buffalo, New York together with a $3.2 million note receivable issued by Sinclair that holds the license assets, for a purchase price of $48.0 million. In November 2000, we closed on the sale of our radio station in Wilkes-Barre, Pennsylvania for a purchase price of $0.6 million. These transactions generated net after-tax proceeds of approximately $229.0 million.

Income Taxes

The income tax provision from continuing operations increased to $1.4 million for the year ended December 31, 2002 from a benefit of $51.9 million for the year ended December 31, 2001. For the year ended December 31, 2002, our pre-tax book income from continuing operations was $5.2 million and for the year ended December 31, 2001, our pre-tax book loss from continuing operations was $165.3 million.

As of December 31, 2002, we have a net deferred tax liability of $167.2 million as compared to a net deferred tax liability of $155.5 million as of December 31, 2001. The increase is primarily due to the adoption of SFAS No. 142. Our tax rate changed to a provision in 2002 from a benefit in 2001 because we reported net income in 2002 compared to a net loss in 2001. The effective tax rate from continuing operations decreased to 26.2% from the year ended December 31, 2002 from 31.3% for the year ended December 31, 2001. The decrease is primarily because (prior to the implementation of SFAS No. 142 for 2002) our reported income in 2001 was reduced by amortization of goodwill, which was non-deductible for tax purposes.

In December 2001, the Internal Revenue Service (IRS) completed its examination of our federal income tax returns filed through 1997. As a result of this settlement, our fiscal year 2001 benefit for income taxes reflects a $6.3 million reduction of taxes provided in prior periods. The IRS has initiated an examination of federal tax returns subsequent to 1998. We believe that adequate accruals have been provided for all years.

Seasonality/Cyclicality

Our results usually are subject to seasonal fluctuations, which usually cause fourth quarter operating income to be greater than first, second and third quarter operating income. This seasonality is primarily attributable to increased expenditures by advertisers in anticipation of holiday season spending and an increase in viewership during this period. In addition, revenues from political advertising and the Olympics are higher in even numbered years.

Summary Disclosures about Contractual Cash Obligations and Commercial Commitments

The following tables reflect a summary of our contractual cash obligations and other commercial commitments as of December 31, 2002:

	Payments Due by Year
	2003		2004		2005		2006 and thereafter		Total
	(amounts in thousands)
Notes payable, capital leases, and commercial bank financing (1)	$	50,683	$	54,450	$	55,844	$	1,841,554	$	2,002,531

Notes and capital leases payable to affiliates	6,602		6,643		7,580		33,844		54,669
HYTOPS	23,250		23,250		23,250		274,594		344,344
Fixed rate derivative instrument	35,650		35,938		35,938		15,360		122,886
Operating leases	4,134		3,249		2,839		12,490		22,712
Employment contracts	6,965		2,367		450		42		9,824
Film liability – active	121,396		66,530		45,853		12,279		246,058
Film liability – future (2)	6,457		15,469		9,609		28,377		59,912
Programming services	18,978		8,814		2,914		1,439		32,145
Maintenance and support	4,600		2,343		1,526		916		9,385
Other operating contracts	1,900		1,045		934		3,125		7,004

Total contractual cash obligations	$	280,615	$	220,098	$	186,737	$	2,224,020	$	2,911,470

	2003		2004		2005		2006 and thereafter		Total Amounts Committed
	(amounts in thousands)
Other Commercial Commitments
Letters of credit	$	82	$	82	$	82	$	817	$	1,063
Guarantees	115		119		122		31		387
Investments (3)	10,015		¾		¾		¾		10,015
Network affiliation agreements	12,041		12,358		6,972		2,847		34,218
Purchase options (4)	¾		¾		13,250		9,000		22,250
LMA payments (5)	5,589		5,589		3,471		25,164		39,813
Total other commercial commitments	$	27,842	$	18,148	$	23,897	$	37,859	$	107,746

(1) Includes interest on fixed rate debt.

(2) Future film liabilities reflect a license agreement for program material that is not yet available for its first showing or telecast. Per SFAS No. 63, Financial Reporting for Broadcasters, an asset and a liability for the

rights acquired and obligations incurred under a license agreement are reported on the balance sheet when the cost of each program is known or reasonably determinable, the program material has been accepted by the licensee in accordance with the conditions of the license agreement and the program is available for its first showing or telecast.

(3) Commitments to contribute capital to Allegiance Capital, LP and Sterling Ventures Partners, LP.

(4) We have entered into an agreement with a third party, whereby the third party may require us to purchase certain license and non-license broadcast assets at the option of the third party, no earlier than July 1, 2005. The contractual commitment for 2006 and beyond represents the increase in purchase option price should the exercise occur in 2006 or 2007.

(5) Certain LMAs require us to reimburse the licensee owner their operating costs. This amount will vary each month and, accordingly, these amounts were estimated through the date of LMA expiration based on historical cost experience.

Risk Factors

We cannot identify nor can we control all circumstances that could occur in the future that may adversely affect our business and results of operations. Some of the circumstances that may occur and may impair our business are described below. If any of the following circumstances were to occur, our business could be materially adversely affected.

United States participation in a war could result in a decline in advertising revenues.

Involvement in a war by the United States could cause television advertisers to reduce or cancel their advertising spots. Advertising revenues may decline as a result of uninterrupted news coverage or other economic dislocation. We cannot predict the amount of revenues that would be lost as a result.

Our substantial indebtedness could adversely affect our operations and our ability to fulfill our obligations under our debt securities and HYTOPS.

We have a high level of debt and other obligations compared to stockholders’ equity. Our obligations include the following:

Indebtedness under the Bank Credit Agreement. As of February 14, 2003, we owed $552.0 million under our 2002 Bank Credit Agreement and had a $173.0 million remaining balance available.

Indebtedness under notes. We have issued and outstanding two series of senior subordinated notes with aggregate principal amount issued and outstanding of $860.0 million.

Obligations under High Yield Trust Offered Preferred Securities (HYTOPS). Sinclair Capital, a subsidiary trust of Sinclair, has issued $200.0 million aggregate liquidation amount of HYTOPS. “Aggregate liquidation amount” means the amount Sinclair Capital must pay to the holders when it redeems the HYTOPS or upon liquidation. Sinclair Capital must redeem the HYTOPS in 2009. We are indirectly liable for the HYTOPS obligations because we issued $206.2 million liquidation amount of series C preferred stock to KDSM, Inc., our wholly owned subsidiary, to support $200.0 million aggregate principal amount of 11.625% notes that KDSM, Inc. issued to Sinclair Capital to support the HYTOPS.

Series D Convertible Exchangeable Preferred Stock. We have issued 3,450,000 shares of series D convertible exchangeable preferred stock with an aggregate liquidation preference of approximately $172.5 million. The liquidation preference means we would be required to pay the holders of series D convertible exchangeable preferred stock $172.5 million before we paid holders of common stock (or any other stock that is junior to the series D convertible exchangeable preferred stock) in any liquidation of Sinclair. We are not obligated to buy back or retire the series D convertible exchangeable preferred stock, but may do so at our option at a conversion rate of $22.8125 per share. In some circumstances, we may also exchange the series D convertible exchangeable preferred stock for 6% subordinated debentures due 2012 with an aggregate principal amount of $172.5 million.

Program Contracts Payable and Programming Commitments. Total current and long-term program contracts payable at December 31, 2002 were $121.4 million and $124.7 million, respectively. In addition, we enter into commitments to purchase future programming. Under these commitments, we were obligated on December 31, 2002 to make future payments totaling $59.9 million.

Other. Our commitments also include capital leases, operating leases, sports programming, personnel contracts and other liabilities. The amount of these commitments may be material.

Our relatively high level of debt poses the following risks to you and to Sinclair, particularly in periods of declining revenues:

• We use a significant portion of our cash flow to pay principal and interest on our outstanding debt and to pay dividends on preferred stock. This will limit the amount available for other purposes. For the twelve months ended December 31, 2002, we were required to pay $153.3 million in interest and preferred dividends (including dividend payments on the HYTOPS).

• Our lenders may not be as willing to lend additional amounts to us for future working capital needs, additional acquisitions, or other purposes.

• The interest rate under our bank credit agreement is a floating rate, and will increase if general interest rates increase. This will increase the portion of our cash flow that must be spent on interest payments.

• We may be more vulnerable to adverse economic conditions than less leveraged competitors and thus less able to withstand competitive pressures.

• Our ability to pay our obligations as they come due could become more difficult.

• If our cash flow were inadequate to make interest and principal payments, we might have to refinance our indebtedness or sell one or more of our stations to reduce debt service obligations.

Any of these events could have a material adverse effect on us.

We depend on advertising revenue, which is below historical averages as a result of a number of conditions.

Our main source of revenue is sales of advertising time. Our ability to sell advertising time depends on:

• the health of the economy in the areas where our stations are located and in the nation as a whole,

• the popularity of our programming,

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

• pricing fluctuations in local and national advertising,

• the activities of our competitors, including increased competition from other forms of advertising-based mediums, particularly network, cable television, direct satellite television, Internet and radio,

• the decreased demand for political advertising in non-election years, and

• other factors that may be beyond our control.

There was a dramatic decline in advertising revenue generally in 2001. Although advertising revenue generally increased in 2002 over 2001 levels, it still remains below levels prior to 2001. As a result of the foregoing factors, our advertising revenue has decreased significantly from levels prior to 2001.

Our flexibility is limited by promises we have made to our lenders.

Our existing financing agreements prevent us from taking certain actions and require us to meet certain tests. These restrictions and tests include the following:

• restrictions on additional debt,

• restrictions on our ability to pledge our assets as security for our indebtedness,

• restrictions on payment of dividends, the repurchase of stock and other payments relating to capital stock,

• restrictions on some sales of assets and the use of proceeds of asset sales,

• restrictions on mergers and other acquisitions, satisfaction of conditions for acquisitions, and a limit on the total amount of acquisitions without consent of bank lenders,

• restrictions on the type of businesses we and our subsidiaries may be in,

• restrictions on the type and amounts of investments we and our subsidiaries may make, and

• financial ratio and condition tests including the ratio of earnings before interest, taxes, depreciation and amortization as adjusted (adjusted EBITDA) to total interest expense, the ratio of adjusted EBITDA to certain of our fixed expenses, and the ratio of indebtedness to adjusted EBITDA.

Future financing arrangements may contain additional restrictions and tests. These restrictions and tests may prevent us from taking action that could increase the value of our securities, or may require actions that decrease the value of our securities. In addition, we may fail to meet the tests and thereby default on one or more of our obligations (particularly if the economy continues to soften and thereby reduces our advertising revenues). If we default on our obligations, creditors could require immediate payment of the obligations or foreclose on collateral. If this happened, we could be forced to sell assets or take other action that would reduce significantly the value of our securities.

Key officers and directors have financial interests that are different and sometimes opposite to those of Sinclair.

Some of our officers and directors own stock or partnership interests in businesses that engage in television broadcasting, do business with us, or otherwise do business that conflicts with our interests. David D. Smith, Frederick G. Smith, and J. Duncan Smith are each an officer and director of Sinclair, and Robert E. Smith is a director of Sinclair. Together, the Smiths hold shares of our common stock that have a majority of the voting power. The Smiths own the television station WTTA-TV in St. Petersburg, Florida, which is programmed pursuant to an LMA with us. The Smiths also own businesses that lease real property and tower space to us, buy advertising time from us, and engage in other transactions with us. David D. Smith, our President and Chief Executive Officer has a controlling interest in and is a member of the Board of Directors of Summa Holdings, Ltd.; a company in which we hold a 17.5% equity interest and have significant influence by holding a board seat. In addition, Cunningham Broadcasting Corporation (formerly Glencairn, Ltd.) is a corporation owned by Carolyn C. Smith, the mother of the controlling stockholders and certain trusts established by Carolyn C. Smith for the benefit of her grandchildren (which own non-voting stock). Cunningham holds the licenses for certain television stations that we program under local marketing agreements. We have an option to acquire the equity interests in Cunningham for a price based on the purchase price of Cunningham’s stations and have agreed that if we exercise the option, we would either pay any liability under Cunningham’s bank credit agreement or take any equity interests subject to the security interest held by the lender under that agreement.

Maryland law and our financing agreements limit the extent to which our officers, directors and majority stockholders may transact business with us and pursue business opportunities that Sinclair might pursue. These limitations do not, however, prohibit all such transactions. Officers, directors and majority stockholders may therefore transact some business with us even when there is a conflict of interest.

The Smiths exercise control over all matters submitted to a stockholder vote, and may have interests that differ from yours.

David D. Smith, Frederick G. Smith, J. Duncan Smith and Robert E. Smith are brothers and control the outcome of all matters submitted to a vote of stockholders (the controlling stockholders). The Smiths hold class B common stock, which generally has 10 votes per share. Our class A common stock has only one vote per share. Our other series of preferred stock generally do not have voting rights. We describe in detail the voting rights of shares of our capital stock in portions of Sinclair’s proxy statement for the 2002 annual meeting of shareholders under the heading “Security Ownership of Certain Beneficial Owners and Management”. As of February 14, 2003, the Smiths held shares representing 49.2% of the vote on most matters and representing 89.4% of the vote on the few matters for which class B shares have only one vote per share. The Smiths have agreed with each other that until 2005 they will vote to elect each of them as a director of Sinclair.

Certain features of our capital structure may deter others from attempting to acquire Sinclair.

The control the Smiths have over stockholder votes may discourage other companies from trying to acquire us. In addition, our board of directors can issue additional shares of preferred stock with rights that might further discourage other companies from trying to acquire us. Anyone trying to acquire us would likely offer to pay more for shares of class A common stock than the amount those shares were trading for in market trades at the time of the offer. If the voting rights of the Smiths or the right to issue preferred stock discourage such takeover attempts, stockholders may be denied the opportunity to receive such a premium. The general level of prices for class A common stock might also be lower than it would be if these deterrents to takeovers did not exist.

We must purchase television programming in advance but cannot predict if a particular show will be popular enough to cover its cost. In addition, our business is subject to the popularity of the network we are affiliated with.

One of our most significant costs is television programming. If a particular program is not popular in relation to its costs, we may not be able to sell enough advertising time to cover the costs of the program. Since we purchase programming content from others rather than produce it ourselves, we also have little control over the costs of programming. We usually must purchase programming several years in advance, and may have to commit to purchase more than one year’s worth of programming. Finally, we may replace programs that are doing poorly before we have recaptured any significant portion of the costs we incurred, or accounted fully for the costs on our books for financial reporting purposes. Any of these factors could reduce our revenues or otherwise cause our costs to escalate relative to revenues. These factors are exacerbated during a weak advertising market. Additionally, our business is subject to the popularity of the programs provided by the networks with which we have affiliation agreements or which provide us programming. Each of our affiliation groups experienced revenue increases in 2002, except for UPN affiliates, but this trend may not continue in the future.

We may lose a large amount of programming if a network terminates its affiliation with us.

The affiliation agreements of the three ABC stations (WEAR-TV in Pensacola, Florida, WCHS-TV in Charleston, West Virginia and WXLV-TV in Greensboro/Winston-Salem/Highpoint, North Carolina) have expired. In general, we continue to operate these stations as ABC affiliates and we do not believe ABC has any current plans to terminate the affiliation of any of these stations.

We have received a notice from NBC that prevented what would have otherwise been an automatic 5-year extension of the affiliation agreement for WICS/WICD (Champaign/Springfield, Illinois), which expired on June 30, 2002. Recently, we extended the term of the affiliation agreement for WICS/WICD to April 1, 2003. The agreement for WKEF (TV) (Dayton, Ohio), another NBC affiliate, is also due to expire on April 1, 2003. We have no reason to believe that NBC has any current plans to terminate the affiliation agreements of either of these stations.

If we do not enter into affiliation agreements to replace the expired or expiring agreements, we may no longer be able to carry programming of the relevant network. This loss of programming would require us to obtain replacement programming, which may involve higher costs and which may not be as attractive to our target audiences.

Competition from other broadcasters and other sources may cause our advertising sales to go down and/or our costs to go up.

We face intense competition in our industry and markets from the following:

New Technology and the Subdivision of Markets. New technologies enable our competitors to tailor their programming for specific segments of the viewing public to a degree not possible before. As a result, the overall market share of broadcasters, including ourselves, whose approach or equipment may not permit such a discriminating approach is under new pressures. In addition, emerging technologies that allow viewers to digitally record and play back television programming may decrease viewership of commercials and, as a result, lower our advertising revenues. The new technologies and approaches include:

• cable,

• satellite-to-home distribution,

• pay-per-view,

• home video and entertainment systems, and

• personal video recorders (PVR’s).

Future Technology under Development. Cable providers and direct broadcast satellite companies are developing new techniques that allow them to transmit more channels on their existing equipment. These so-called “video compression techniques” will reduce the cost of creating channels, and may lead to the division of the television industry into ever more specialized niche markets. Video compression is available to us as well, but competitors who target programming to such sharply defined markets may gain an advantage over us for television advertising revenues. Lowering the cost of creating channels may also encourage new competitors to enter our markets and compete with us for advertising revenue.

In-Market Competition. We also face more conventional competition from rivals that may be larger and have greater resources than we have. These include:

• other local free over-the-air broadcast stations, and

• other media, such as newspapers, periodicals, and cable systems.

Deregulation. Changes in law have also increased competition. The Telecommunications Act of 1996 and subsequent actions by the FCC have created greater flexibility and removed some limits on station ownership. Telephone, cable and some other companies are also free to provide video services in competition with us. In addition, the FCC has reallocated the spectrum occupied by television channels 52-59 for new services including fixed and mobile wireless services and digital broadcast services. Among the potential new uses envisioned by the FCC for this reallocated spectrum are digital broadcast services, based on coded orthogonal frequency division multiplex (COFDM) technology, including mobile television broadcasting services. As a result of these changes, new companies are able to enter our markets and compete with us.

The phased introduction of digital television will increase our operating costs and may expose us to increased competition.

DTV channels are generally located in the range of channels from channel 2 through channel 51. The FCC required that affiliates of ABC, CBS, FOX and NBC in the top 10 television markets begin digital broadcasting by May 1, 1999 and that affiliates of these networks in markets 11 through 30 begin digital broadcasting by November 1999. All other commercial stations were required to begin digital broadcasting by May 1, 2002.

Of the television stations that we own and operate, as of February 24, 2003, five are operating at their full DTV power and thirty-five are operating their DTV facilities at low power as permitted by the FCC pursuant to special temporary authority. Six stations have applications for digital construction permits pending before the FCC, including one of the stations which is operating at low power. Three stations have received extensions of their digital construction permits because equipment deliveries have delayed completion of construction and one station has recently received its DTV permit. Of the Cunningham stations we LMA, four stations are operating their DTV facilities at low power pursuant to special temporary authority, one station has a DTV construction permit that does not expire until November 2003, and one station has a pending DTV application. Of the other LMA stations, WTTA and WDBB are operating at low power pursuant to special temporary authority, WDKA has been granted special temporary authority to operate at low power. WFGX has received an extension of time to construct its digital facility pending FCC action on a petition for rulemaking that it filed requesting a substitute DTV channel, and WNYS has a digital application pending. On May 24, 2002, the FCC issued an Order and Notice of Proposed Rule Making which proposes a series of graduated sanctions to be imposed upon licensees who do not meet the FCC’s DTV build-out schedule. If the rules are adopted, the stations could face monetary fines and possible loss of any digital construction permits that are not in compliance with the schedule announced in the rules. After completion of the transition period, the FCC will reclaim the non-digital channels.

The FCC’s plan calls for the DTV transition period to end in the year 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. The FCC has been authorized by Congress to extend the 2006 deadline for reclamation of a television station’s non-digital 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 the difficulties broadcasters face in building their DTV stations and on the interpretation of the statutory language concerning the 2006 deadline. 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 an auction for part of this spectrum in September 2002 and has scheduled an auction for another portion of this spectrum in May 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 COFDM technology. We cannot predict how the development of this spectrum will affect our television operations.

Signal Quality Issues. Our tests have indicated that the digital standard mandated by the FCC, 8-level vestigial sideband (8-VSB), is currently unable to provide for reliable reception of a DTV signal through a simple indoor antenna. Absent improvements in DTV receivers, or an FCC ruling allowing us to use an alternative standard, continued reliance on the 8-VSB digital standard may not allow us to provide the same reception coverage with our digital signals as we can with our current analog signals. Furthermore, the FCC generally has made available much higher power allocations to digital stations that will replace stations on existing channels 2 through 13 than digital stations that will replace existing channels 14 through 69. The majority of our analog facilities operate between channels 14 through 69. This power disparity could put us at a disadvantage to our competitors that now operate on channels 2 through 13.

In August 2002, the FCC adopted regulations requiring new television receivers to include over-the-air DTV tuners. In November 2002, we filed a petition for further reconsideration requesting that the FCC ensure that these over-the-air DTV tuners are capable of adequately receiving digital television signals. If DTV tuners are not able to receive digital television signals adequately, we may be forced to rely on cable television or other alternative means of transmission to deliver our digital signals to all of the viewers we are able to reach with our current analog signals.

Digital must carry. While the FCC ruled that cable companies are required to carry the signals of digital-only television stations, the agency has tentatively concluded, subject to additional inquiry in a pending rulemaking proceeding, that cable companies should not be required to carry both the analog and digital signals of stations during the transition period when stations will be broadcasting in both modes. If the FCC does not require this, cable customers in our broadcast markets may not receive our digital signal, which could negatively impact our stations.

Capital and operating costs. We will 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.

Subscription fees. The FCC has determined to assess a fee in the amount of 5% of gross revenues on digital television subscription services. If we are unable to pass this cost through to our subscribers, this fee will reduce our earnings from any digital television subscription services we implement in the future.

Conversion and programming costs. We expect to incur approximately $150.0 million in costs of which we have incurred $98.0 million through December 31, 2002 to convert our stations from the current analog format to digital format. However, our costs may be higher than this estimate. In addition, we may incur additional costs to obtain programming for the additional channels made available by digital technology. Increased revenues from the additional channels may not make up for the conversion cost and additional programming expenses. Also, multiple channels programmed by other stations could increase competition in our markets.

Given this climate of market uncertainty and regulatory change, we cannot be sure what impact the FCC’s actions might have on our plans and results in the area of digital television.

Federal regulation of the broadcasting industry limits our operating flexibility.

The FCC regulates our business, just as it does all other companies in the broadcasting industry. We must ask the FCC’s approval whenever we need a new license, seek to renew, or assign, or modify a license, purchase a new station, or transfer the control of one of our subsidiaries that holds a license. Our FCC licenses and those of the stations we program pursuant to LMAs are critical to our operations; we cannot operate without them. We cannot be certain that the FCC will renew these licenses in the future, or approve new acquisitions.

Federal legislation and FCC rules have changed significantly in recent years and can be expected to continue to change. These changes may limit our ability to conduct our business in ways that we believe would be advantageous and may thereby affect our operating results.

The FCC’s ownership restrictions limit our ability to operate multiple television stations, and changes in these rules may threaten our existing strategic approach to certain television markets.

General limitations. The FCC’s ownership rules limit us from having “attributable interests” in television stations that reach more than 35% (using a calculation method specified by the FCC) of all television households in the U.S. We reach approximately 24% of U.S. television households on an actual basis or, under the FCC’s current method for calculating this limit, approximately 14%. Our ability to expand through the acquisition of additional stations in new markets is limited by these rules. In September 2002, the FCC commenced a broad-based rulemaking proceeding to review all of its broadcast multiple ownership rules, including the 35% national ownership cap and the method to calculate a licensee’s percentage reach of television households.

Changes in the rules on television ownership and local marketing agreements. A number of television stations, including certain of our stations, have entered into what have commonly been referred to as local marketing agreements or LMAs. While these agreements may take varying forms, 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 ultimate editorial and other controls being exercised by the latter licensee. The licensee of the station which is being substantially programmed by another entity must maintain complete responsibility for and control over the programming, financing, personnel and operations of its broadcast station and is responsible for compliance with applicable FCC rules and policies.

after November 5, 1996 (although we believe a valid position exists that one of these four LMAs was effectively entered into prior to November 5, 1996).

We filed a Petition for Review of the Report and Order adopting the 1999 duopoly rules in the U.S. Court of Appeals for the D.C. Circuit. In June 2001, the U.S. Court of Appeals for the D.C. Circuit granted our motion for stay of the requirement that we divest the four LMAs entered into on or after November 5, 1996 by August 5, 2001, which stay is still pending. In April 2002, the Court held that the eight voices test of the duopoly rules was arbitrary and capricious and remanded the rules to the FCC for further consideration. In September 2002, the FCC commenced a broad-based rulemaking proceeding to review all of its broadcast multiple ownership rules, including the duopoly rules. The FCC has publicly stated that it intends to conclude this proceeding in the Spring of 2003.

Terminating or modifying our LMAs could affect our business in the following ways:

Losses on investments. As part of our LMA arrangements, we own the non-license assets used by the stations with which we have LMAs. If our LMA arrangements are no longer permitted, we would be forced to sell these assets, or find another use for them. If LMAs are prohibited, the market for such assets may not be as good as when we purchased them and we would need to sell the assets to the owner or a purchaser of the related license assets. Therefore, we cannot be certain we will recoup our investments.

Termination penalties. If the FCC requires us to modify or terminate existing LMAs before the terms of the LMAs expire or under certain circumstances we elect not to extend the term of the LMA’s, we may be forced to pay termination penalties under the terms of some of our LMAs. Any such termination penalty could be material.

Outsourcing Agreements. In addition to our LMAs and duopolies, we have entered into four (and intend to seek opportunities for additional) outsourcing agreements in which our stations provide or are provided various non-programming services such as sales, operational and managerial services to or by other stations.

Failure of Owner/Licensee to Exercise Control. The FCC requires the owner/licensee of a station to maintain independent control over the programming and operations of the station. As a result, the owners/licensees of the stations with which we have LMAs or outsourcing agreements can exert control over their stations in ways that may be counter to our interests, including the right to preempt or terminate programming in certain instances.

These preemption and termination rights cause us some uncertainty that we will be able to air all of the programming that we have purchased, and therefore uncertainty about the advertising revenues we will receive from such programming.

In addition, if the FCC determines that the owner/licensee is not exercising sufficient control, it may penalize the owner/licensee by a fine, revocation of the license for the station or a denial of the renewal of the license.

Any one of these scenarios might affect our financial results, especially the revocation of or denial of renewal of a license. In addition, penalties might also affect our qualifications to hold FCC licenses, and thus place those licenses at risk.

We have lost money in three of the last five years, and may continue to do so indefinitely.

We have suffered net losses in three of the last five years. In 1999 and 2000, we reported earnings, but this was largely due to a gain on the sale of our radio stations. Our losses are due to a variety of cash and non-cash expenses including, in particular:

Cash Expenses:		Interest

Restructuring Costs:		During the year ended December 31, 2001, we incurred a restructuring charge of $3.7 million as a result of a voluntary early retirement program and cancelation of local news programs.

Non-cash Expenses:		Depreciation, amortization (primarily of programming and intangibles), and deferred compensation.

Impairment:		During the year ended December 31, 2001, we incurred impairment charges totaling $16.2 million due to reorganizing

		an office of our internet consulting and development subsidiary, damaged, obsolete or abandoned fixed assets and write-off of goodwill at one of our stations.

		During 2002 and under the provision of SFAS No. 142, we evaluated our intangible assets for impairment. As a result of such testing, we recorded a pre-tax write-off of goodwill and broadcast licenses of $596.8 million as of January 1, 2002.

		As a result of implementing SFAS No. 133, one of our derivatives does not qualify for special hedge accounting treatment. Therefore, this derivative must be recognized in the balance sheet at fair market value and the changes in fair market value are reflected in earnings or losses each quarter. We recognized $30.9 million of losses during the year ended December 31 2002.

Loss on Derivatives:		Depreciation, amortization (primarily of programming and intangibles), and deferred compensation.

Extraordinary Loss:		For the year ended December 31, 2002, we reported a $9.8 million extraordinary expense item related to the call premium and write-off of deferred financing costs and interest, net of taxes, resulting from the repayment of our $300.0 million Term Loan Facility and 1998 Bank Credit Agreement and the early redemption of our 9% senior subordinated notes due 2007 and our 8.75% senior subordinate notes due 2007.

		For the year ended December 31, 2001, we reported a $14.2 million extraordinary expense item related to the call premium and write-off of deferred financing costs and interest, net of taxes, resulting from the early redemption of our 10% senior subordinated notes due 2005, and amendments to our bank credit agreement.

Our net losses may continue indefinitely for these or other reasons.

Our investments in other businesses may not deliver the value we ascribe to them on our financial statements or reach our strategic objectives.

Our strategy includes investing in and working with other businesses, including technology and Internet-related businesses. In pursuit of this strategy, we made several investments in internet-related businesses in 1999 and 2000. The stock prices of publicly-traded technology and internet-related companies generally declined dramatically since 2000, and specific businesses we have invested in have experienced substantial impairment of their value. As a result, we have written-off a substantial portion of our investments in these businesses. These write-offs include all of our $10.1 million investment in Acrodyne Communications, Inc., a manufacturer of television transmitters and other broadcast equipment. We cannot assure you that these investments will be worth the amount we currently ascribe to them on our financial statements, or that we will be able to develop services that are profitable for Sinclair or the businesses in which we have invested. If the businesses in which we have invested fail to succeed, we may lose as much as all of our remaining investment in the businesses. We may also spend additional funds and devote additional resources to these businesses (we have recently invested an additional $1.0 million in Acrodyne), and these additional investments may also be lost.

In addition, we recently invested $20.0 million, representing approximately a 17.5% equity interest, in Summa Holdings, Ltd., a holding company that owns automobile dealerships, retail tire franchises and a leasing company, in which David D. Smith, our President and Chief Executive Officer, has a controlling interest and is on the Board of Directors. In contemplating the investment, we considered the historic and potential returns on equity. Additionally, under the terms of the agreement, Summa in committed to maintaining a certain amount of advertising with our stations. We will not be involved in the day-to-day management or operations of Summa, however, we will hold one board seat. There can be no assurances as to the future value of our investment in Summa. We may also invest additional funds and devote additional resouorces to Summa and these additional investments may also be lost.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information relating to our executive officers, directors and nominees, and certain key employees.

Name	Age	Title
David D. Smith	52	President, Chief Executive Officer, Director and Chairman of the Board
Frederick G. Smith	53	Vice President and Director
J. Duncan Smith	49	Secretary and Director
David B. Amy	50	Executive Vice President and Chief Financial Officer
Lawrence McCanna	59	Director
Basil A. Thomas	87	Director
Robert E. Smith	39	Director
Daniel C. Keith	48	Director
Martin R. Leader	62	Director
Steven M. Marks	46	Chief Operating Officer/ Television Group
David R. Bochenek	40	Chief Accounting Officer/Corporate Controller
M. William Butler	50	Vice President / Group Programming and Promotions
Barry M. Faber	41	Vice President / General Counsel
Lawrence M. Fiorino	41	Founder and CEO / G1440, Inc.
Mark E. Hyman	45	Vice President / Corporate Relations
Leonard Ostroff	35	Chief Operating Officer of Sinclair Ventures, Inc.
Nat Ostroff	62	Vice President / New Technology
Delbert R. Parks III	50	Vice President / Operations and Engineering
Lucy A. Rutishauser	38	Vice President / Corporate Finance / Treasurer
Jeffrey W. Sleete	48	Vice President / Marketing
Gregg Seigel	42	Vice President / National Sales
Darren Shapiro	42	Vice President / Sales
Donald H. Thompson	36	Vice President / Human Resources
Tom I. Waters III	34	Vice President / Purchasing

Members of the board of directors are elected for one-year terms and serve until their successors are duly elected and qualified. Executive officers are appointed by the board of directors annually to serve for one-year terms and until their successors are duly appointed and qualified. The Smiths have agreed with each other that until 2005 they will vote to elect each of them as a director of Sinclair.

Director and Officer Profiles

In 1978, David D. Smith founded Comark Communications, Inc., a company engaged in the manufacture of high power transmitters for UHF television stations, and was an officer and director of Comark until 1986. He also was a principal in other television stations prior to serving as a General Manager of WCWB from 1984 until 1986. In 1986, David was instrumental in the formation of Sinclair Broadcast Group, Inc. He has served as President and Chief Executive Officer since 1988 and as Chairman of the Board of Sinclair Broadcast Group, Inc. since September 1990. David Smith is currently a member of the Board of Directors of Sinclair Ventures, Inc., Acrodyne Communications, Inc., G1440, Inc., Summa Holdings, Ltd., KDSM, Inc., and Safe Waterways in Maryland.

Frederick G. Smith has served as Vice President of Sinclair since 1990 and Director since 1986. Prior to joining Sinclair in 1990, Mr. Smith was an oral and maxillofacial surgeon engaged in private practice and was employed by Frederick G. Smith, M.S., D.D.S., P.A., a professional corporation of which Mr. Smith was the sole officer, director and stockholder. Mr. Smith is currently a member of the board of directors of Sinclair Ventures, Inc., the Freven Foundation, Safe Waterways in Maryland, and Gerstell Academy.

J. Duncan Smith has served as Secretary and as a Director of Sinclair since 1986. Prior to that, he worked for Comark Communications, Inc. installing UHF transmitters. In addition, he also worked extensively on the construction of WCWB in Pittsburgh, WTTE in Columbus, WIIB in Bloomington and WTTA in Tampa / St. Petersburg, the renovation of the studio, offices and news facility for WBFF in Baltimore and construction of the Sinclair headquarters building in Hunt Valley, MD. J. Duncan Smith is currently a member of the board of directors of Sinclair Ventures, Inc., the Boys Latin School, High Rock Foundation, and Safe Waterways in Maryland.

David B. Amy has served as Executive Vice President and Chief Financial Officer (CFO) since March 2001. Prior to that, he served as Executive Vice President since September 1999 and as Vice President and CFO from September 1998 to September 1999. Prior to that, he served as CFO since 1994. In addition, he serves as Secretary of SCI, the Sinclair subsidiary that owns and operates the broadcasting operations. Mr. Amy has over 19 years of broadcast experience, having joined Sinclair as a Business Manager for WCWB-TV in Pittsburgh. Mr. Amy received his MBA degree from the University of Pittsburgh in 1981. Mr. Amy is currently a member of the board of directors of Acrodyne Communications, Inc., G1440, Inc., and KDSM, Inc., and an advisor to Allegiance Capital, L.P.

Lawrence E. McCanna has served as a Director of Sinclair since July 1995. Mr. McCanna has been a shareholder of the accounting firm of Gross, Mendelsohn & Associates, P.A. since 1972 and has served as its managing director since 1982. Mr. McCanna has served on various committees of the Maryland Association of Certified Public Accountants and was chairman of the Management of the Accounting Practice Committee. He is also a former member of the Management of an Accounting Practice Committee of the American Institute of Certified Public Accountants. Mr. McCanna is a former member of the board of directors of Maryland Special Olympics.

Basil A. Thomas has served as a Director of Sinclair since November 1993. He is of counsel to the Baltimore law firm of Thomas & Libowitz, P.A. and has been in the private practice of law since 1983. From 1961 to 1968, Judge Thomas served as an Associate Judge on the Municipal Court of Baltimore City and, from 1968 to 1983, he served as an Associate Judge of the Supreme Bench of Baltimore City. Judge Thomas is a trustee of the University of Baltimore and a member of the American Bar Association and the Maryland State Bar Association. Judge Thomas attended the College of William & Mary and received his L.L.B. from the University of Baltimore. Judge Thomas is the father of Steven A. Thomas, a senior attorney and founder of Thomas & Libowitz, counsel to Sinclair.

Robert E. Smith has served as a Director of Sinclair since 1986. He served as Vice President and Treasurer of Sinclair from 1988 to June 1998, at which time he resigned from his position as Vice President and Treasurer. Prior to that time, he assisted in the construction of WTTE-TV and also worked for Comark Communications, Inc. installing UHF transmitters. Mr. Smith is currently a member of the board of directors of Sinclair Ventures, Inc., Nextgen Foundation Charitable Trust, Garrison Forest School, Safe Waterways in Maryland, and Gerstell Academy.

Daniel C. Keith has served as a Director of Sinclair since May 2001. Mr. Keith is the President and Founder of the Cavanaugh Group, Inc., a Baltimore based investment advisory firm founded in October 1995. Prior to establishing the Cavanaugh Group, Inc., Mr. Keith was Vice President, Senior Portfolio Manager, and Director of the Investment Management division of a local financial services company since 1985. During this time, he served as chairman of the Investment Advisory Committee and was a member of the Board of Directors. Mr. Keith has been advising clients since 1979 and is currently a member of the Boards of Trustees of The High Rock Foundation, Safe Waterways in Maryland and The Boy’s Latin School of Maryland.

Martin R. Leader has served as a Director of Sinclair since May 2002. Mr. Leader is a retired partner of the law firm ShawPittman in Washington, D.C. where he specialized in communications law matters. Prior to his service at ShawPittman, Mr. Leader was a senior partner with the law firm of Fisher Wayland Cooper Leader & Zaragoza in Washington, D.C. from 1973 to 1999. He is currently a director of Star Scientific, Inc. (NASDAQ: STSI) where he serves on the Audit and Compensation Committees. Mr. Leader has served on the staff of the Office of Opinions and Review of the Federal Communications Commission. He is a member of the District of Columbia Bar. Mr. Leader graduated from Tufts University and Vanderbilt University Law School.

Steven M. Marks has served as Chief Operating Officer of the Television Group since February 2003. Prior to that he was Vice President/Regional Director of SCI from March 2002. As a Vice President/Regional Director, Mr. Marks was responsible for the Baltimore, Columbus, Pittsburgh, Flint, Tallahassee, Charleston, WV, Portland, Springfield, Minneapolis, Tampa, Syracuse, Norfolk, Richmond, Buffalo and Rochester markets. Prior to his appointment as Vice President/Regional Director, Mr. Marks served as Regional Director since October 1994. Prior to his appointment as Regional Director, Mr. Marks served as General Manager for WBFF, Baltimore since July 1991. From 1986 until joining WBFF in 1991, Mr. Marks served as General Sales Manager at WTTE, Columbus. Prior to that time, he was national sales manager for WFLX-TV in West Palm Beach, Florida.

David R. Bochenek has served as Chief Accounting Officer/Controller since November 2002. Mr. Bochenek joined Sinclair in March 2000 as the Corporate Controller. Prior to joining Sinclair, Mr. Bochenek was Vice President, Corporate Controller for Prime Retail, Inc. since 1993. From 1990 to 1993, Mr. Bochenek served as Assistant Vice President for MNC Financial, Inc. and prior to that held various positions in the audit department of Ernst & Young, LLP since 1983. Mr. Bochenek received his Bachelor of Business Administration in Accounting and Master of Science in Finance from Loyola College in Maryland. Mr. Bochenek is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountant, the Maryland Association of Certified Public Accountants and the Financial Executives Institute.

M. William Butler has served as Vice President/Group Programming and Promotions of SCI since July 1999 and prior to that as Vice President/Group Program Director, SCI since 1997. From 1995 to 1997, Mr. Butler served as Director of Programming at KCAL in Los Angeles, California. From 1991 to 1995, he was Director of Marketing and Programming at WTXF in Philadelphia, Pennsylvania and prior to that he was the Program Director at WLVI in Boston, Massachusetts. Mr. Butler attended the Graduate Business School of the University of Cincinnati from 1975 to 1976.

Barry M. Faber has served as Vice President/General Counsel of SBG since February 2003 and Vice President/General Counsel of SCI since August 1999 and prior to that as Associate General Counsel from 1996 to 1999. Prior to that time, he was associated with the law firm of Fried, Frank, Harris, Shiver, & Jacobson in Washington, D.C. Mr. Faber is a graduate of the University of Virginia and the University of Virginia School of Law.

Lawrence Fiorino founded G1440 in April 1998. From 1994 to 1998, he was vice president of systems and technology for The Ryland Group, Inc. Mr. Fiorino is a Certified Public Accountant, has a BA in Accounting, an MBA in MIS, and is a regular contributing writer for Maryland’s Daily Record newspaper. Mr. Fiorino appears weekly on “Fox-45’s Web Sightings” technology segment on Sinclair’s Fox Affiliate station in Baltimore, MD and has recently been named to “Baltimore’s 40 under 40.”

Mark E. Hyman has served as Vice President/Corporate Relations since July 1999 and prior to that as Director of Government Relations since February 1997. He also hosts “The Point with Mark Hyman,” a daily commentary broadcast on Sinclair’s TV stations. Prior to joining Sinclair, he worked for the Office of Naval Intelligence, the U.S. On-Site Inspection Agency as a foreign weapons inspector and he was a Congressional Fellow. A 1981 U.S. Naval Academy graduate, he served on active duty and is currently a captain in the Naval Reserve’s Space & Network Warfare Program. He is an officer and director of the Maryland-DC-Delaware Broadcasters Association and he is active in community and non-profit organizations. He has been awarded several military and Intelligence Community awards and he is a Who’s Who for 2001 and 2002.

Leonard Ostroff has served as Chief Operating Officer of Sinclair Ventures, Inc., a wholly owned subsidiary of Sinclair Broadcast Group, Inc., since August 1999. From 1994 to 1999, Mr. Ostroff served as Vice President of Information Systems for Prudential Securities, Inc., a global securities firm based in New York City. From 1991 to 1994, Mr. Ostroff served as a Senior Imaging Consultant at VIPS, a boutique technology consulting firm in Towson, Maryland. From 1989 to 1991, Mr. Ostroff worked for Andersen Consulting in New York City as a Senior Consultant. He currently serves on or advises the boards of Agentsmith, Appforge, Sterling Ventures and G1440, Inc. and is an advisor to the Pearl Street Group. Mr. Ostroff graduated from Lafayette College with a degree in Business and Economics.

Nat Ostroff has served as Vice President/New Technology since joining Sinclair in January 1996. From 1984 until joining Sinclair, he was the President and CEO of Comark Communications, Inc., a leading manufacturer of UHF transmission equipment. While at Comark, Mr. Ostroff was nominated and awarded a Prime Time Emmy Award for outstanding engineering achievement for the development of new UHF transmitter technologies in 1993. In 1968, Mr. Ostroff founded Acrodyne Industries Inc., a manufacturer of TV transmitters and a public company and served as its first President and CEO. Mr. Ostroff holds a BSEE degree from Drexel University and an MEEE degree from New York University. He is a member of several industry organizations, including AFCCE, IEEE and SBE. Mr. Ostroff also serves as Chief Executive Officer and Chairman of the Board for Acrodyne Communications, Inc. in which Sinclair has an investment.

Delbert R. Parks III has served as Vice President/Operations and Engineering of SCI since 1996. Prior to that time, he was Director of Operations and Engineering for WBFF-TV and Sinclair since 1985. He has held various operations and engineering positions with Sinclair for the last 28 years. He is responsible for planning, organizing and implementing operational and engineering policies and strategies as they relate to television operations, web activity, information management systems, and infrastructure. Mr. Parks is a member of the Society of Motion Picture and Television Engineers and the Society of Broadcast Engineers. Mr. Parks is also a retired Army Lieutenant Colonel who has held various commands during his 26-year reserve career.

Lucy A. Rutishauser has served as Vice President/Corporate Finance and Treasurer since November 2002. From March 2001, she served as Treasurer and, prior to that, she served as Assistant Treasurer. From 1992 to 1997, Ms. Rutishauser was the Assistant Treasurer for Treasure Chest Advertising Company (currently Vertis) and Integrated Health Services, Inc. From 1988 to 1992, Ms. Rutishauser held various treasury positions with Laura Ashley, Inc. and Black and Decker Corporation. Ms. Rutishauser graduated magna cum laude from Towson University with a Bachelor of Science degree in Economics and Finance and received her M.B.A., with honors from the University of Baltimore. Ms. Rutishauser is a member of the National Institute of Investor Relations and the Association of Finance Professionals and is a past Board member for Mid-Atlantic Treasury Management Association. Ms. Rutishauser currently serves on the University of Maryland Baltimore County Department of Economics Visitors Council.

Jeffrey W. Sleete has served as VP of Marketing since August 2001. Prior to that time he served as a Regional Director and as Regional Sales Counselor for Sinclair’s television stations. From 1996 to 1999, he was the Vice President of Sales & Marketing for Sinclair’s radio division. Prior to that and from 1985, he served as General Manager of radio stations in Detroit, Houston and West Palm Beach. From 1980 to 1985, Mr. Sleete headed a national sales representation firm office in Detroit and was a General Sales Manager for two radio stations. Prior to that, he was an account executive for both local and national sales. Mr. Sleete holds a Bachelor of Science degree from Eastern Michigan University.

Gregg L. Siegel has served as Vice President of National Sales since June 2001. Prior to that time, he worked as Director of Business Development, Strategic Sales Manager and a regional Sales Manager on a regional basis since starting with Sinclair in 1994. He started his television sales career in 1982 with Avery-Knodel as a Marketing Associate. Mr. Siegel holds a Bachelors degree in Communications and Marketing from the University of Arizona.

Darren J. Shapiro has served as Vice President of Sales since August 2001. From 2000 to 2001, he served as Director of Internet Sales. From 1999 to 2000, he served as New Business Development Manager and, prior to that and from 1993, he served as General Sales Manager and Local Sales Manager for WBFF-TV, Sinclair’s FOX affiliate in Baltimore, Maryland. From 1989 to 1993, Mr. Shapiro served as Corporate National Sales Manager. Prior that he was a Senior Account Executive for Seltel Inc. in New York City. Mr. Shapiro holds a bachelors’ degree in Economics from the University of Rochester.

Donald H. Thompson has served as Vice President of Human Resources since November 1999 and prior to that as Director of Human Resources since September 1996. Prior to joining Sinclair, Mr. Thompson was Human Resources Manager for NASA at the Goddard Space Flight Center near Washington, D.C. Mr. Thompson holds a Bachelor’s Degree in Psychology and a Certificate in Personnel and Industrial Relations from University of Maryland and a Masters of Science in Business/Human Resource & Behavioral Management from Johns Hopkins University. Mr. Thompson is a member of the Society for Human Resource Management.

Tom I. Waters, III has served as Vice President/Purchasing since November 2002. Prior to that, he served as Director of Purchasing & Administration since 2000. From 1996, Mr. Waters was Director of Purchasing. Before joining Sinclair, Mr. Waters served as the Purchasing Manager for NaturaLawn of America. Mr. Waters holds a Bachelor of Science degree in Business Administration from the University of Baltimore and is a member of the Baltimore-Washington Business Travelers Association.

SECTION 16(a) BENFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act) requires our officers (as defined in the SEC regulations) and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

Based solely on a review of copies of such reports of ownership furnished to us, or written representations that no forms were necessary, we believe that during the past fiscal year our officers, directors and greater than ten percent beneficial owners complied with all applicable filing requirements.

ITEM 11. EXECUTIVE COMPENSATION

Executive Compensation Table

The following table sets forth certain information regarding annual and long-term compensation for services rendered in all capacities during the year ended December 31, 2002 by the Chief Executive Officer and the five most highly compensated executive officers other than the Chief Executive Officer, who are collectively referred to as the named executive officers.

Summary Compensation Table

	Annual Compensation					Long-term Compensation Securities Underlying	All Other
Name and Principal Position	Year	Salary		Bonus (a)		Options Granted (#)	Compensation (b)
David D. Smith President and Chief Executive Officer	2002	$	1,000,000	—		—	$	7,063
	2001	1,000,000		—		—	4,713
	2000	1,000,000		—		150,000	6,659

Frederick G. Smith Vice President	2002	190,000		—		—	5,035
	2001	190,000		—		—	4,381
	2000	190,000		—		—	4,877

J. Duncan Smith Vice President and Secretary	2002	190,000		—		—	4,891
	2001	190,000		—		—	4,081
	2000	190,000		—		—	4,877

David B. Amy Executive Vice President and Chief Financial Officer	2002	300,000		$	100,000	10,000	9,753
	2001	300,000		—		10,000	4,713
	2000	300,000		—		100,000	6,659

Steven Marks Chief Operating Officer of Television	2002	340,000		522,640		10,000	6,919
	2001	322,000		284,827		6,000	11,310
	2000	300,000		51,563		5,000	13,346

Barry M. Faber Vice President – General Counsel	2002	230,000		30,000		5,000	4,832
	2001	230,000		—		5,000	4,547
	2000	210,000		36,000		15,000	7,223

(a) The bonuses reported in this column represent amounts awarded and paid during the fiscal years noted but relate to the fiscal year immediately prior to the year noted.

(b) All other compensation consists of income deemed received for personal use of Sinclair-leased automobiles, the Sinclair 401(k) contribution and life insurance.

Stock Options

The following table shows the number of stock options granted during 2002 and the 2002 year-end value of the stock options held by the named executive officers:

Name	Number of Securities Underlying Options Granted	Percent of Total Options Granted to Employees in Fiscal Year	Exercise Price per Share		Market Price on Date of Grant		Expiration Date	Potential Realizable Value At Assumed Annual Rates Of Stock Price Appreciation for Option Term
Name	Number of Securities Underlying Options Granted		Exercise Price per Share		Market Price on Date of Grant		Expiration Date	0%	5%		10%
David D. Smith	—	—	—		—		—	—	—		—
Frederick G. Smith	—	—	—		—		—	—	—		—
J. Duncan Smith	—	—	—		—		—	—	—		—
David B. Amy	10,000	3.84%	$	11.63	$	11.63	3/1/12	—	$	73,140	$	185,352
Steve Marks	10,000	3.84%	11.63		11.63		3/1/12	—	73,140		185,352
Barry Faber	5,000	1.92%	11.63		11.63		3/1/12	—	36,570		92,676

Aggregated Option Exercises in Last Fiscal Year and December 31, 2002 Option Values

The following table shows information regarding options exercised during 2002, the number of securities underlying unexercised options, and the value of “in the money” options outstanding on December 31, 2002.

Name	Shares Acquired On Exercise	Value Realized	Number of Securities Underlying Unexercised Options at December 31, 2002		Value of Unexercised “In-the-Money” Options at December 31, 2002 (a)

			Exercisable	Unexercisable	Exercisable		Unexercisable
David D. Smith	—	—	112,500	37,500	$	267,750	$	89,250
Frederick G. Smith	—	—	—	—	—		—
J. Duncan Smith	—	—	—	—	—		—
David B. Amy	—	—	215,000	105,000	209,550		14,100
Steve Marks	—	—	80,250	47,750	34,335		11,435
Barry Faber	—	—	55,000	30,000	33,825		15,975

(a) An “in-the-money” option is an option for which the option price of the underlying stock is less than the market price at December 31, 2002, and all of the value shown reflects stock price appreciation since the granting of the option.

Director Compensation

Sinclair directors who also are Sinclair employees serve without additional compensation. Independent directors receive $15,000 annually. These independent directors also receive $1,000 for each meeting of the board of directors attended and $500 for each committee meeting, special meeting, unanimous consent and informal action attended. In addition, the independent directors are reimbursed for any expenses incurred in connection with their attendance at such meetings.

Employment Agreements

We do not have an employment agreement with David D. Smith and do not currently anticipate entering into an agreement. The compensation committee has set David Smith’s base salary for 2003 at $1,000,000.

In June 1998, we entered into an employment agreement with Frederick G. Smith, Vice President of Sinclair. The agreement does not have any specified termination date, and we have the right to terminate the employment of Frederick Smith at any time, with or without cause, subject to the payment of severance payments for termination without cause. The severance payment due upon termination without cause is equal to one month’s base salary in effect at the time of termination times the number of years of continuous employment by Sinclair or its predecessor. Frederick Smith receives a base salary of $190,000 and is entitled to annual incentive bonuses payable based on the attainment of certain cash flow objectives by Sinclair, as well as discretionary bonuses. The incentive bonus takes the form of stock options to acquire shares of our class A common stock pursuant to our non-qualified stock option long-term incentive plan. The agreement also contains non-competition and confidentiality restrictions on Frederick Smith.

In June 1998, we entered into an employment agreement with J. Duncan Smith, Vice President and Secretary of Sinclair. The agreement does not have any specified termination date, and we have the right to terminate the employment of Duncan Smith at any time, with or without cause, subject to the payment of severance payments for termination without cause. The severance payment due upon termination without cause is equal to one month’s base salary in effect at the time of termination times the number of years of continuous employment by Sinclair or its predecessor. Duncan Smith receives a base salary of $190,000 and is entitled to annual incentive bonuses payable based on the attainment of certain cash flow objectives by Sinclair, as well as discretionary bonuses. The incentive bonus takes the form of stock options to acquire shares of our class A common stock pursuant to our non-qualified stock option long-term incentive plan. The agreement also contains non-competition and confidentiality restrictions on Duncan Smith.

In September 1998, we entered into an employment agreement with David B. Amy, Executive Vice President and Chief Financial Officer of Sinclair. The agreement does not have any specified termination date, and we have the right to terminate the employment of Mr. Amy at any time, with or without cause. The severance payment due upon termination without cause is equal to one month’s base salary in effect at the time of termination times the number of years of continuous employment by Sinclair or its predecessor. Mr. Amy receives a base salary of $300,000 and may receive an annual bonus based on performance. The agreement also contains non-competition and confidentiality restrictions on Mr. Amy.

In February 2000, we entered into an employment agreement with Barry M. Faber, Vice President and General Counsel of Sinclair. The agreement does not have any specified termination date, and we have the right to terminate the employment of Mr. Faber at any time, with or without cause. The agreement also contains non-competition and confidentiality restrictions on Mr. Faber.

In February 1997, we entered into an employment agreement with Steven M. Marks, Chief Operating Officer of the Television Group at Sinclair. The agreement does not have any specified termination date, and we have the right to terminate the employment of Mr. Marks at any time, with or without cause. The agreement also contains non-competition and confidentiality restrictions on Mr. Marks.

Compensation Committee Interlocks and Insider Participation

Other than as follows, no named executive officer is a director of a corporation that has a director or executive officer who is also a director of Sinclair. Each of David D. Smith, Frederick G. Smith and J. Duncan Smith, all of whom are executive officers and directors of Sinclair, is a director and/or executive officer of each of various other corporations controlled by them. David D. Smith is a director and executive officer of Acrodyne Communications Inc., Sinclair Ventures, Inc., Summa Holdings, Ltd., and G1440 Inc., and a director and executive officer of Sinclair. Frederick G. Smith is a director and executive officer of Sinclair and a director of Sinclair Ventures, Inc. J. Duncan Smith is a director and executive officer of Sinclair and a director of Sinclair Ventures, Inc. David B. Amy, an executive officer of the Company, is a director of Acrodyne Communications, Inc. and G1440, Inc.

During 2002, none of the named executive officers participated in any deliberations of our compensation and stock option committee relating to compensation of the named executive officers.

The members of the compensation and stock option committee are Messrs. Thomas, Keith and McCanna. Mr. Thomas is of counsel to the law firm of Thomas & Libowitz, and is the father of Steven A. Thomas, a senior attorney and founder of Thomas & Libowitz, P.A. During 2002, we paid Thomas & Libowitz, P.A., approximately $643,000 in fees and expenses for legal services.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There were 85,747,352 shares of common stock of Sinclair issued and outstanding on March 15, 2003 consisting of 43,996,674 shares of class A common stock and 41,705,678 shares of class B common stock. The following table shows how many shares were owned by the following categories of persons as of that date:

• persons who own more than 5% of the shares;

• each director and each officer described on the “Summary Compensation Table”;

• all directors and executive officers as a group.

	Shares of class B Common stock Beneficially owned			Shares of class A Common stock Beneficially owned			Percent of Total Voting
Name	Number	Percent		Number	Percent (a)		Power (b)
David D. Smith (c)(d)	11,700,926	28.1	%	11,882,802	21.3	%	25.4	%
Frederick G. Smith (c)(e)	8,843,831	21.2	%	9,435,691	17.9	%	19.3	%
J. Duncan Smith (c)(f)	11,809,800	28.3	%	11,811,593	21.2	%	25.6	%
Robert E. Smith (c)(g)	8,786,763	21.1	%	8,813,206	16.7	%	19.1	%
David B. Amy (h)				292,196		*		*
Martin R. Leader				2,000
Steven M. Marks (i)				119,051		*		*
Barry M. Faber (j)				76,640		*		*
Basil A. Thomas				3,000		*		*
Daniel C. Keith				—		*		*
Lawrence E. McCanna				600		*		*
Barry Baker (k) 28 Merry Hill Ct. Baltimore, MD 21208				2,764,870	6.3	%	*
Neuberger Berman, LLC (l) 605 Third Avenue New York, NY 10158				6,148,400	14.0	%	1.3	%
T. Rowe Price Associates, Inc. (m) 100 E. Pratt St Baltimore, MD 21202				2,375,100	5.4	%	*
Putnam Investments, LLC. (n) One Post Office Square Boston, MA 02109				4,247,457	9.7	%	*
Dimensional Fund Advisors 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 (o)				2,189,227	5.0	%	*
Earnest Partners, LLC 74 Fourteenth Street, Suite 2300 Atlanta, GA 30309 (p)				2,261,195	5.1	%	*
All directors and executive officers as a group (11 persons) (q)	41,141,320	98.6	%	42,436,779	49.8	%	89.5	%

*Less than 1%

(a) Percent of class A common stock beneficially owned is calculated by taking the number of shares of class A common stock beneficially owned divided by the number of shares of class A common stock outstanding plus any class B common stock individually held.

(b) Holders of class A common stock are entitled to one vote per share and holders of class B common stock are entitled to ten votes per share except for votes relating to “going private” and certain other transactions. The class A common stock and the class B common stock vote altogether as a single class except as otherwise may

be required by Maryland law on all matters presented for a vote. Holders of class B common stock may at any time convert their shares into the same number of shares of class A common stock.

(c) Shares of class A common stock beneficially owned includes shares of class B common stock beneficially owned, each of which is convertible into one share of class A common stock.

(d) Includes 150,000 shares of class A common stock that may be acquired upon exercise of options.

(e) Includes 401,158 shares held in irrevocable trusts established by Frederick G. Smith for the benefit of his children and as to which Mr. Smith has the power to acquire by substitution of trust property. Absent such substitution, Mr. Smith would have no power to vote or dispose of the shares.

(f) Includes 510,000 shares held in irrevocable trusts established by J. Duncan Smith for the benefit of his children and as to which Mr. Smith has the power to acquire by substitution of trust property. Absent such substitution, Mr. Smith would have no power to vote or dispose of the shares.

(g) Includes 773,499 shares held in irrevocable trusts established by Robert E. Smith for the benefit of his children and as to which Mr. Smith has the power to acquire by substitution of trust property. Absent such substitution, Mr. Smith would have no power to vote or dispose of the shares.

(h) Includes 281,250 shares of class A common stock that may be acquired upon exercise of options.

(i) Includes 106,000 shares of class A common stock that may be aquired upon exercise of options.

(j) Includes 72,500 shares of class A common stock that may be acquired upon exercise of options.

(k) Mr. Baker’s 2,764,870 shares of class A common stock may be acquired upon the exercise of options.

(l) As set forth in the Schedule 13G/A filed by Neuberger Berman, Inc. with the SEC on February 13, 2003, Neuberger Berman Inc., through its wholly-owned subsidiaries Neuberger Berman LLC and Neuberger Berman Management Inc., is deemed to be the beneficial owner of 6,148,400 shares of class A common stock and has sole voting discretion with respect to 4,198,270 of those shares. Neuberger Berman, LLC acts as an investment advisor and broker/dealer with discretion for individual securities for various unrelated clients. Neuberger Berman Management, Inc. acts as investment advisor to a series of public mutual funds.

(m) As set forth in the schedule 13G/A filed by T. Rowe Price Associates, Inc. with the SEC on February 10, 2003, T. Rowe Price Associates, Inc. is deemed to be the beneficial owner of 2,375,100 shares and has sole voting discretion with respect to 664,700 of those shares as a result of acting as investment advisor to various investment companies.

(n) As set forth in the schedule 13G/A filed by Putnam Investments, LLC with the SEC on February 14, 2003, Putnam Investments, LLC is deemed to be the beneficial holder of 4,247,457 shares.

(o) As set forth in the schedule 13G filed by Dimensional Fund Advisors, Inc. with the SEC on February 7, 2003, Dimensional Fund Advisors is deemed to be the beneficial holder of 2,189,227 shares and has sole voting discretion with respect to 2,189,227 shares.

(p) As set forth in the schedule 13G filed by Earnest Partners, LLC. with the SEC on February 12, 2003, Earnest Partners, LLC is deemed to be the beneficial holder of 2,261,195 shares and has sole voting discretion with respect to 664,700 of those shares.

(q) Includes shares of class A common stock that may be acquired upon the exercise of options.

The equity compensation plan information as of 12/31/02 was as follows:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights as of 12/31/02	Weighted- average exercise price of outstanding options, warrants and rights as of 12/31/02		Number of securities remaining available for future issuance under equity compensation plans (excluding securities to be issued upon exercise of outstanding options, warrants and rights as of 12/31/02)
Equity compensation plans approved by security holders	6,575,258	$	16.64	8,003,810
Equity compensation plans not approved by security holders	¾	$	¾	¾
Total	6,575,258	$	16.64	8,003,810

Further disclosure of stock option plans as of December 31, 2002 is reported on Footnote 17, Stock Based Compensation Plans, in the Accompanying Consolidated Financial Statements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the fiscal year ended December 31, 2002, we engaged in the following transactions with the following persons:

• directors, nominees for election as directors, or executive officers;

• beneficial owners of 5% or more of our common stock;

• immediate family members of any of the above; and

• entities in which the above persons have substantial interests.

Gerstell LP, an entity wholly owned by the controlling stockholders, was formed in April 1993 to acquire certain of our personal and real property interests in Pennsylvania. In a transaction that was completed in September 1993, Gerstell LP acquired the WPGH office/studio, transmitter and tower site for an aggregate purchase price of $2.2 million. The purchase price was financed in part by a $2.1 million note from Gerstell LP bearing interest at 6.18% with principal payments beginning on November 1, 1994 and a final maturity date of October 1, 2013. The note bears interest at 6.18%, with principal payments beginning on November 1, 1994, and a final maturity date of October 1, 2013. As of December 31, 2002 and 2001, the balance outstanding was approximately $1.5 million and $1.6 million, respectively.

On September 30, 1990, we issued certain notes (the founders’ notes) maturing on May 31, 2005, payable to the late Julian S. Smith and Carolyn C. Smith, former majority owners of Sinclair and the parents of the controlling stockholders. The founders’ notes, which were issued in consideration for stock redemptions equal to 72.65% of the then outstanding stock of Sinclair, have principal amounts of $7.5 million and $6.7 million, respectively. The founders’ notes include stated interest rates of 8.75%, which were payable annually from October 1990 until October 1992, then payable monthly commencing April 1993 to December 1996, and then semi-annually thereafter until maturity. The effective interest rate approximates 9.4%. The founders’ notes are secured by security interests in substantially all of Sinclair’s assets and subsidiaries, and are personally guaranteed by the controlling stockholders.

Principal and interest payments on the founders’ notes is payable, in various amounts, each April and October, beginning October 1991 until October 2005, with a balloon payment due at maturity in the amount of $1.5 million. Additionally, monthly interest payments commenced April 1993 and continued until December 1996. Principal and interest paid on this founders’ note was $1.6 million for the year ended December 31, 2002 and, $1.7 million for each of the years ended December 31, 2001, and 2000. At December 31, 2002, $4.2 million of this founders’ note remained outstanding. The Carolyn C. Smith note was fully paid as of December 31, 2002.

Relationship with Cunningham Broadcasting Corporation (Cunningham). Cunningham (formerly Glencairn) is a corporation owned by

• Carolyn C. Smith, the mother of the controlling stockholders (10%), and

• certain trusts established by Carolyn C. Smith for the benefit of her grandchildren (the Cunningham Trusts) (90%).

The 90% equity interest in Cunningham owned by the Cunningham Trusts is held through the ownership of non-voting common stock. The 10% equity interest in Cunningham owned by Carolyn C. Smith is held through the ownership of all of the issued and outstanding voting stock of Cunningham. Mrs. Smith is Vice-President of Cunningham.

Concurrently with our initial public offering, we acquired options from certain stockholders of Cunningham that grants us the right to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock of Cunningham. The Cunningham option exercise price is based on a formula that provides a 10% annual return to Cunningham. Cunningham is the owner-operator and FCC licensee of WNUV-TV in Baltimore, WRGT-TV in Dayton, WVAH-TV in Charleston, WV, WTAT-TV in Charleston, SC, WBSC-TV in Asheville/Greenville/Spartanburg and WTTE-TV in Columbus. We have entered into five-year LMA agreements (with five-year renewal terms at the Company’s option) with Cunningham pursuant to which we provide programming to Cunningham for airing on WNUV-TV, WRGT-TV, WVAH-TV, WTAT-TV, WBSC-TV and WTTE-TV. During the years ended December 31, 2002, 2001 and 2000, we made payments of $4.0 million, $11.8 million and $11.3 million, respectively, to Cunningham under these LMA agreements.

On November 15, 1999, the Company entered into five separate plans and agreements of merger, pursuant to which it would acquire through merger with subsidiaries of Cunningham, television broadcast stations WAMB-TV, Birmingham, Alabama, KRRT-TV, San Antonio, Texas, WVTV-TV, Milwaukee, Wisconsin, WRDC-TV, Raleigh, North Carolina and WBSC-TV (formerly WFBC-TV), Anderson, South Carolina. The consideration for these mergers is the issuance to Cunningham of shares of Class A Common voting Stock of the Company. In December 2001, the Company received FCC approval on all the transactions except for WBSC-TV. Accordingly, on February 1, 2002, the Company closed on the purchase of the FCC license and related assets of WAMB-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.

In January 1999, SCI entered into a Local Marketing Agreement with Bay Television, Inc., which owns the television station WTTA-TV in Tampa, Florida. The controlling stockholders own a substantial portion of the equity of Bay Television, Inc. The Local Marketing Agreement provides that we deliver television programming to Bay Television, Inc., which broadcasts the programming in return for a monthly fee to Bay Television, Inc. of $143, 500. We must also make an annual payment equal to 50% of the annual broadcast cash flow, as defined in the Local Marketing Agreement of the station which is in excess of $1.7 million. This additional payment is reduced by 50% of the broadcast cash flow, as defined in the Local Marketing Agreement, that was below zero in prior calendar years. During 2002 we made payments of approximately $1.7 million related to the Local Marketing Agreement. No payment was made in 2002 related to the broadcast cash flow that exceeded $1.7 million for the year ended December 31, 2002 as it was offset by the negative broadcast cash flows of prior years.

In connection with our sale of WCWB in Pittsburgh to WPTT, Inc., WPTT, Inc. issued to us a 15-year senior secured term note of $6.0 million (the WPTT Note). We subsequently sold the WPTT Note to the late Julian S. Smith and Carolyn C. Smith, the parents of the controlling stockholders and both former stockholders of Sinclair, in exchange for the payment of $50,000 and the issuance of a $6.6 million note receivable, which bears interest at 7.21% per annum. During the year ended December 31, 2001, we received $0.5 million in interest payments on this note. At December 31, 2001, the balance on this note was $6.6 million. We acquired the assets of WCWB-TV and the note was paid in full on January 7, 2002.

During the years ended December 31, 2002, 2001 and 2000, we from time to time entered into charter arrangements to lease aircraft owned by certain controlling stockholders. During the years ended December 31, 2002, 2001 and 2000, we incurred expenses of approximately $200,000, $41,000 and $200,000 related to these arrangements, respectively.

In 1997, we entered into a lease transaction with Cunningham Communications, Inc. (CCI), a corporation wholly owned by the controlling stockholders, to lease space on a broadcast tower from CCI. In January 1991, we entered into a 10-year capital lease with Keyser Investment Group (KIG), a corporation wholly owned by the controlling stockholders, pursuant to which we lease both an administrative facility and studios for station WBFF. Additionally, in June 1991, we entered into a one-year renewable lease with KIG pursuant to which we lease parking facilities at the administrative facility. In June 1999, Sinclair entered into a ten-year capital lease with Beaver Dam LLC, a corporation wholly owned by three of the controlling stockholders, pursuant to which Sinclair leases office space for its corporate headquarters. Lease payments made to these entities were $3.6 million, $3.1 million, and $2.8 million for the years ended December 31, 2002, 2001 and 2000, respectively.

On December 30, 2002, we invested $20 million in Summa Holdings, Ltd. (Summa), resulting in a 17.5% equity interest. Summa is a holding company, which owns automobile dealerships, retail tire franchises and a leasing company. David D. Smith, our President and Chief Executive Officer, has a controlling interest in Summa and is a member of the Board of Directors. We will have significant influence by holding a board seat (in addition to the board seat held by David D. Smith). We sold advertising time to Summa on WBFF-TV and WNUV-TV and received payments totaling $0.3 million during the twelve months ended December 31, 2002 and $0.2 million during each of the twelve months ended December 31, 2001 and 2000.

In August 1999, Allegiance Capital Limited Partnership (Allegiance), with the controlling stockholders, our Chief Financial Officer and Executive Vice President and Allegiance Capital Management Corporation (ACMC), the general partner, established a small business investment company. ACMC, as the general partner, controls all decision making, investing, and management of operations in exchange for a monthly management fee based on actual expenses incurred which currently averages approximately $35,600 paid by the limited partners. We, along with the other limited partners, have committed to investing up to a combined total of $15.0 million of which $ 7.5 million was invested as of December 31, 2002.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8–K

(a) (1) Financial Statements

The following financial statements required by this item are submitted in a separate section beginning on page F-1 of this report.

Sinclair Broadcast Group, Inc. Financial Statements:

Report of Independent Public Accountants

Consolidated Balance Sheets as of December 31, 2002 and 2001

Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000

Notes to Consolidated Financial Statements

Acrodyne Communications, Inc. Financial Statements:

Consolidated Balance Sheets as of December 31, 2002 and 2001

Consolidated Statements of Operations for the Years Ended December 31, 2002 and 2001

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2002 and 2001

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, and 2001

Notes to Consolidated Financial Statements

Report of Independent Public Accountants

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Operations for the Years Ended December 31, 2001, and 2000

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2001 and 2000

Consolidated Statements of Cash Flows for the Years Ended December 31, 2001 and 2000

Notes to Consolidated Financial Statements

(a) (2) Financial Statements Schedules

The following financial statements schedules required by this item are submitted on pages S-1 through S-3 of this Report.

Index to Schedules

Report of Independent Public Accountants

Schedule II-Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the accompanying notes.

(a) (3) Exhibits

The exhibit index in Item 15(c) is incorporated by reference in this report.

(b) Reports on Form 8-K

October 24, 2002		Sinclair Broadcast Group, Inc. Press Release (Dated October 24, 2002) Announcing Private Securities Offering.
November 8, 2002		Sinclair Broadcast Group, Inc. Press Release (Dated November 8, 2002) Sinclair Completes Debt Offering; Announces Redemption Of 9% Notes Due 2007
December 3, 2002		Sinclair Broadcast Group, Inc. Press Release (Dated December 3, 2002) — Sinclair Broadcast Group Announces Intent to Issue Securities in a Private Offering
December 16, 2002		Sinclair Broadcast Group, Inc. Press Release (Dated December 16, 2002) — Sinclair Broadcast Group Announces Private Securities Offering
December 24, 2002		Sinclair Broadcast Group, Inc. Press Release (Dated December 24, 2002) — Sinclair Invests $20 Million in Summa Holdings
December 31, 2002		Sinclair Broadcast Group, Inc. Press Release (Dated December 31, 2002) — Sinclair Completes Debt Financings; Tenders and Announces Redemption of 8.75% Notes Due 2007
January 2, 2003		Sinclair Broadcast Group, Inc. Press Release (Dated January 2, 2003) — Sinclair Makes $18 Million Deposit on Non-License Assets of WNAB-TV in Nashville

January 24, 2003		Sinclair Broadcast Group, Inc. Press Release (Dated February 24, 2003) Sinclair to Exceed Fourth Quarter Estimates

February 13, 2003		Sinclair Broadcast Group, Inc. Press Release (Dated February 13, 2003) — Sinclair Reports Fourth Quarter and Full Year 2002 Results

The following exhibits are filed with this report:

EXHIBIT NO.		EXHIBIT DESCRIPTION

3.1		Amended and Restated Certificate of Incorporation (1)

3.2		By–laws (2)

3.3		Informal Action of the Board of Directors of Sinclair Broadcast Group, Inc., dated March 31, 2003.

4.1		Indenture, dated as of December 9, 1993, among Sinclair Broadcast Group, Inc., its wholly-owned subsidiaries and First Union Nation Bank of North Carolina, as trustee. (2)

4.2		Indenture, dated as of August 28, 1995, among Sinclair Broadcast Group, Inc., its wholly-owned subsidiaries and the United States Trust Company of New York as trustee. (2)

4.3		First Supplemental Indenture, dated as of December 17, 1997, among Sinclair Broadcast Group, Inc., the Guarantors named therein and First Union National Bank, as trustee, including Form of Note. (3)

4.4		Indenture, dated as of December 10, 2001, among Sinclair Broadcast Group, Inc., the Guarantors named therein, and First Union National Bank as trustee.

4.5		Indenture, dated as of March 14, 2002, among Sinclair Broadcast Group, Inc., the Guarantors named therein, and First Union National Bank as trustee.

10.1		Stock Option Agreement, dated April 10, 1996 by and between Sinclair Broadcast Group, Inc. and Barry Baker. (4)

10.2		Termination Agreement by and between Sinclair Broadcast Group, Inc., and Barry Baker, dated February 8, 1999. (6)

10.3		Registration Rights Agreement, dated as of May 31, 1996, by and between Sinclair Broadcast Group Inc. and River City Broadcasting, L.P. (5)

10.4		Letter Agreement, dated August 20, 1996, between Sinclair Broadcast Group, Inc., and River City Broadcasting, L.P. and FOX Broadcasting Company. (7)

10.5		Term Note, dated as of September 30, 1990, in the principal amount of $7,515,000 between Sinclair Broadcast Group, Inc. (as borrower) and Julian S. Smith (as lender). (9)

10.6		Replacement Term Note, dated as of September 30, 1990 in the principal amount of $6,700,000 between Sinclair Broadcast Group, Inc. (as borrower) and Carolyn C. Smith (as lender). (2)

10.7		Term Note, dated August 1, 1992 in the principal amount of $900,000 between Frederick G. Smith, David D. Smith, J. Duncan Smith and Robert E. Smith (as borrowers) and Commercial Radio Institute, Inc. (as lender). (8)

10.8		Promissory Note, dated as of December 28, 1986 in the principal amount of $6,421,483.53 between Sinclair Broadcast Group, Inc. (as maker) and Frederick H. Himes, B. Stanley Resnick and Edward A. Johnson (as representatives for the holders). (8)

10.9		Restatement of Stock Redemption Agreement by and among Sinclair Broadcast Group, Inc. and Chesapeake Television, Inc., et al., dated June 19, 1990. (8)

10.10		Corporate Guaranty Agreement, dated as of September 30, 1990 by Chesapeake Television, Inc., Commercial Radio, Inc., Channel 63, Inc. and WTTE, Channel 28, Inc. (as guarantors) to Julian S. Smith and Carolyn C. Smith (as lenders). (8)

10.11		Security Agreement, dated as of September 30, 1999 among Sinclair Broadcast Group, Inc., Chesapeake Television, Inc., Commercial Radio Institute, Inc., WTTE, Channel 28, Inc. and Channel 63, Inc. (as borrowers and subsidiaries of the borrower) and Julian S. Smith and Carolyn C. Smith (as lenders). (8)

10.12		Term Note, dated as of September 22, 1993, in the principal amount of $1,900,000 between Gerstell Development Limited Partnership (as maker-borrower) and Sinclair Broadcast Group, Inc. (as holder-lender). (8)

10.13		Credit Agreement, dated as of May 28, 1998, by and among Sinclair Broadcast Group, Inc., Certain Subsidiary Guarantors, Certain Lenders, the Chase Manhattan Bank as Administrative Agent, Nations Bank of Texas, N.A. as Documentation Agent and Chase Securities Inc. as Arranger. (1)

10.14		Incentive Stock Option Plan for Designated Participants. (2)

10.15		Incentive Stock Option Plan of Sinclair Broadcast Group, Inc. (2)

10.16		First Amendment to Incentive Stock Option Plan of Sinclair Broadcast Group, Inc., adopted April 10, 1996. (4)

10.17		Second Amendment to Incentive Stock Option Plan of Sinclair Broadcast Group, Inc., adopted May 31, 1996. (4)

10.18		1996 Long Term Incentive Plan of Sinclair Broadcast Group, Inc. (4)

10.19		First Amendment to 1996 Long Term Incentive Plan of Sinclair Broadcast Group, Inc. (10)

10.20		Primary Television Affiliation Agreement, dated as of March 24, 1997 by and between American Broadcasting Companies, Inc., River City Broadcasting, L.P. and Chesapeake Television, Inc. (11)

10.21		Primary Television Affiliation Agreement, dated as of March 24, 1997 by and between American Broadcasting Companies, Inc., River City Broadcasting, L.P. and WPGH, Inc. (11)

10.22		Stock Purchase Agreement by and among the sole stockholders of Montecito Broadcasting Corporation, Montecito Broadcasting Corporation and Sinclair Communications, Inc. dated as of February 3, 1998. (12)

10.23		Agreement and Plan of Merger among Sullivan Broadcasting Company II, Inc., Sinclair Broadcast Group, Inc., and ABRY Partners, Inc. Effective as of February 23, 1998. (11).

10.24		Agreement and Plan of Merger among Sullivan Broadcasting Holdings, Inc., Sinclair Broadcast Group, Inc., and ABRY Partners, Inc. Effective as of February 23, 1998. (11).

10.25		Employment Agreement by and between Sinclair Broadcast Group, Inc. and Frederick G. Smith, dated June 12, 1998. (12)

10.26		Employment Agreement by and between Sinclair Broadcast Group, Inc. and J. Duncan Smith, dated June 12, 1998. (12)

10.27		Employment Agreement by and between Sinclair Broadcast Group, Inc. and David B. Amy, dated September 15, 1998. (12)

10.28		Employment Agreement by and between Sinclair Communications, Inc. and Barry Drake, dated February 21, 1997. (12)

10.29		First Amendment to Employment Agreement, by and between Sinclair Broadcast Group, Inc. and Barry Baker, dated May 1998. (6)

10.30		Purchase Agreement by and between Sinclair Communications, Inc. and STC Broadcasting, Inc. dated as of March 5, 1999. (6)

10.31		Second Modification Agreement dated April 30, 1999 by and between Guy Gannett Communications and Sinclair Communications, Inc., to modify the Purchase Agreement dated September 4, 1998 by and between Guy Gannett Communications and Sinclair Communications Inc., as thereafter amended and modified. (13)

10.32		Asset Purchase Agreement dated August 18, 1999 by and between Sinclair Communications, Inc. and certain of its affiliates named therein and Entercom Communications Corp. (13)

10.33		Asset Purchase Agreement dated August 20, 1999 among Sinclair Communications, Inc., Sinclair Media III, Inc., Sinclair Radio of Kansas City Licensee, LLC and Entercom Communications Corp. (13)

10.34		Amendment to Purchase Agreement, dated March 16, 1999, to amend Purchase Agreement dated as of September 4, 1998 by and between Guy Gannett Communications and Sinclair Communications, Inc. (13)

10.35		Modification Agreement dated April 12, 1999 by and between Guy Gannett Communications and Sinclair Communications, Inc., to modify the Purchase Agreement dated September 4, 1998 by and between Guy Gannett Communications and Sinclair Communications, Inc., as thereafter amended. (13)

10.36		Purchase Agreement dated March 16, 1999, by and between Sinclair Communications, Inc. and STC Broadcasting, Inc. (13)

10.37		Amended and Restated Purchase Agreement dated August 20, 1999 among Sinclair Communications, Inc. and certain of its affiliates named therein and Entercom Communications Corp. (13)

10.38		Asset Purchase Agreement among Sinclair Broadcast Group, Inc. and Sinclair Radio of St. Louis, Inc. and Sinclair Radio of St. Louis Licensee, LLC as Sellers, and Emmis Communications Corporation as Buyer dated June 21, 2000. (14)

10.39		Amendment and Restatement Credit Agreement, dated May 9, 2001. (15)

10.40		Amendment No. 1-1998 Bank Credit Agreement Amendment dated October 31, 2001. (16)

10.41		Asset Purchase Agreement dated April 18, 2002 among Sinclair Broadcast Group, Inc., Sinclair Communications, Inc., Sinclair Media II, Inc., and SCI-Indiana Licensee, LLC, as sellers and Tribune Broadcasting Company as buyer. (17)

10.42		Credit Agreement dated as of July 15, 2002, between Sinclair Broadcast Group, Inc., the Subsidiary Guarantors Party Hereto, the Lenders Party Hereto, JP Morgan Chase Bank, as Administrative Agent. (18)

10.43		Registration Rights Agreement, dated as of November 8, 2002, by and among Sinclair Broadcast Group, Inc., the Guarantors, and Deutsche Bank Securities Inc., Wachovia Securities, Inc., J.P. Morgan Securities Inc., BNP Paribas Securities Corp., LehmanBrothers Inc., and UBS Warburg LLC. (19)

10.44		Registration Rights Agreement, dated as of December 31, 2002, by and among Sinclair Broadcast Group, Inc., the Guarantors, and J.P. Morgan Securities Inc., Deutsche Bank Securities Inc., Wachovia Securities, Inc. and UBS Warburg LLC. (19)

10.45		Series A-1 Incremental Loan Amendment dated as of December 31, 2002 to the Credit Agreement, between Sinclair Broadcast Group, Inc., the Series A–1 Incremental Lenders party hereto and to said

		Credit Agreement (including each Person that becomes a Series A-1 Incremental Lender pursuant to a Lender Addendum), and JPMorgan Chase Bank, as Administrative Agent. (19)

10.46		Subscription Agreement, effective as of January 1, 2003 by and between Acrodyne Communications, Inc., a Delaware corporation, and Sinclair Broadcast Group, Inc., a Maryland corporation. (20)

10.47		Modification Agreement dated as of January 2, 2003, by and among Nashville Broadcasting Limited Partnership, a Tennessee limited partnership, Nashville License Holdings, LLC, a Delaware limited liability company, and Sinclair Television of Nashville, Inc., a Tennessee corporation. (19)

10.48		Series A Preferred Stock Purchase Agreement dated as of December 23, 2002 is entered into by and among Summa Holdings, Ltd., a Maryland corporation, and Sinclair Broadcast Group, Inc., a Maryland corporation. (19)

10.49		Employment Agreement dated as of February 28, 2000, between Sinclair Communications, Inc., a Maryland corporation, and Barry M. Faber. (19)

10.50		Employment Agreement dated as of February 21, 1997, between Sinclair Communications, Inc., a Maryland corporation, and Steven Marks. (19)

10.51		Form of Fox Broadcasting Company Station Affiliation Agreement. (19)

11		Statement re computation of per share earnings (19)

12		Computation of Ratio of Earnings to Fixed Charges (19)

21		Subsidiaries of the Registrant (19)

23		Consent of Independent Public Accountants (Sinclair Broadcast Group, Inc.)

99.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the CEO.

99.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the CFO.

(1) Incorporated by reference from Sinclair’s Report on Form 10–Q for the quarter ended June 30, 1998

(2) Incorporated by reference from Sinclair’s Registration Statement on Form S–1, No. 33–90682

(3) Incorporated by reference from Sinclair’s Current Report on Form 8–K, dated as of December 16, 1997.

(4) Incorporated by reference from Sinclair’s Report on Form 10–K for the year ended December 31, 1996.

(5) Incorporated by reference from Sinclair’s Report on Form 10–Q for the quarter ended June 30, 1996.

(6) Incorporated by reference from Sinclair’s Report on Form 10–K for the year ended December 31, 1998.

(7) Incorporated by reference from Sinclair’s Report on Form 10–Q for the quarter ended September 30, 1996.

(8) Incorporated by reference from Sinclair’s Registration Statement on Form S–1, No. 33–69482.

(9) Incorporated by reference from Sinclair’s Report on Form 10–K for the year ended December 31, 1995.

(10) Incorporated by reference from Sinclair’s Proxy Statement for the 1998 Annual Meeting filed on Schedule 14A.

(11) Incorporated by reference from Sinclair’s Report on Form 10–K for the year ended December 31, 1997

(12) Incorporated by reference from Sinclair’s Report on Form 10–Q for the quarter ended September 30, 1998

(13) Incorporated by reference from Sinclair’s Report on Form 10–Q for the quarter ended September 20, 1999.

(14) Incorporated by reference from Sinclair’s Report on Form 10-K for the year ended December 31, 2000.

(15) Incorporated by reference from Sinclair’s Report on Form 8-K filed on September 26, 2001.

(16) Incorporated by reference from Sinclair’s Report on Form 10-Q for the quarter ended September 30, 2001.

(17) Incorporated by reference from Sinclair’s Report on Form 10-Q for the quarter ended March 31, 2002.

(18) Incorporated by reference from Sinclair’s Report on Form 10-Q for the quarter ended June 30, 2002.

(19) Previously filed.

(20) Incorporated by reference from Sinclair’s report on Schedule 13D, dated January 8, 2003

(d) Financial Statements Schedules

The financial statement schedules required by this Item are listed under Item 15 (a) (2).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10–K/A to be signed on its behalf by the undersigned, thereunto duly authorized on this 31^st day of March 2003.

SINCLAIR BROADCAST GROUP, INC.

By:	/s/ David D. Smith
		David D. Smith
		Chief Executive Officer

POWER OF ATTORNEY

I, David D. Smith, certify that:

1. I have reviewed this annual report on Form 10-K/A of Sinclair Broadcast Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

A) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

B) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

C) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

A) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

B) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weakness.

Date:	March 31, 2003

		/s/ David D. Smith
		Signature:	David D. Smith, President & Chief Executive Officer

I, David B. Amy, certify that:

1. I have reviewed this annual report on Form 10-K/A of Sinclair Broadcast Group, Inc.;

B) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

C) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

B) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date:	March 31, 2003

		/s/ David B. Amy
		Signature:	David B. Amy, ExecutiveVice President & Chief Financial Officer

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

Report of Independent Public Accountants

Consolidated Balance Sheets as of December 31, 2002 and 2001

Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000

Notes to Consolidated Financial Statements

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of

Sinclair Broadcast Group, Inc.:

We have audited the accompanying consolidated balance sheets of Sinclair Broadcast Group, Inc. (a Maryland corporation) and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sinclair Broadcast Group, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in note 1 to the notes to the consolidated financial statements, during the year ended December 31, 2002, the Company changed the manner in which it accounts for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002.

As discussed in note 8 to the notes to the consolidated financial statements, the Company changed its method of accounting for derivative transactions effective January 1, 2001.

	/s/ ERNST & YOUNG LLP


Baltimore, Maryland
February 10, 2003

F-2

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

	As of December 31,
	2002			2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,327		$	32,063
Accounts receivable, net of allowance for doubtful accounts of $5,946 and $6,222, respectively	147,002			143,811
Current portion of program contract costs	76,472			82,850
Taxes receivable	38,906			44,789
Prepaid expenses and other current assets	20,807			18,050
Deferred barter costs	2,539			3,026
Assets held for sale	¾			128,394
Deferred tax assets	6,001			2,014
Total current assets	297,054			454,997

PROGRAM CONTRACT COSTS, less current portion	51,229			63,167
LOANS TO OFFICERS AND AFFILIATES	1,489			7,916
PROPERTY AND EQUIPMENT, net	337,250			281,651
OTHER ASSETS	91,119			105,894
GOODWILL	1,122,982			1,656,868
BROADCAST LICENSES	429,928			421,914
DEFINITE-LIVED INTANGIBLE ASSETS, net	275,722			297,019
Total Assets	$	2,606,773		$	3,289,426

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	15,573		$	29,316
Accrued liabilities	64,165			63,623
Notes payable, capital leases, and commercial bank financing	292			182
Notes and capital leases payable to affiliates	4,157			7,086
Current portion of program contracts payable	121,396			111,069
Deferred barter revenues	2,971			3,548
Liabilities held for sale	¾			20,823
Total current liabilities	208,554			235,647

LONG-TERM LIABILITIES:
Notes payable, capital leases, and commercial bank financing, less current portion	1,518,690			1,645,138
Notes and capital leases payable to affiliates, less current portion	28,831			33,224
Program contracts payable, less current portion	124,658			127,958
Deferred tax liabilities	173,209			157,474
Other long-term liabilities	138,905			113,691

Total liabilities	2,192,847			2,313,132
MINORITY INTEREST IN CONSOLIDATED ENTITIES	2,746			4,334
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY KDSM SENIOR DEBENTURES	200,000			200,000

STOCKHOLDERS’ EQUITY:
Series D Preferred Stock, $.01 par value, 3,450,000 shares authorized, issued and outstanding; liquidation preference of $172,500,000	35			35
Class A Common Stock, $.01 par value, 500,000,000 shares authorized and 43,866,259 and 41,088,992 shares issued and outstanding, respectively	439			411
Class B Common Stock, $.01 par value, 140,000,000 shares authorized and 41,705,678 and 43,219,035 shares issued and outstanding, respectively	417			432
Additional paid-in capital	760,478			748,353
Additional paid-in capital – deferred compensation	(551		)	(1,452		)
Retained (deficit) earnings	(547,958		)	26,886
Accumulated other comprehensive loss	(1,680		)	(2,705		)
Total stockholders’ equity	211,180			771,960
Total Liabilities and Stockholders’ Equity	$	2,606,773		$	3,289,426

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

F-3

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(in thousands, except per share data)

	2002			2001			2000
REVENUES
Station broadcast revenues, net of agency commissions of $104,409, $96,932 and $111,435, respectively	$	670,534		$	623,837		$	699,422
Revenues realized from station barter arrangements	60,911			53,889			54,595
Other revenue	4,344			6,925			4,494
Total revenues	735,789			684,651			758,511
OPERATING EXPENSES:
Program and production	140,060			142,696			149,048
Selling, general and administrative	169,194			168,798			171,769
Expenses recognized from station barter arrangements	54,567			48,159			48,543
Amortization of program contract costs and net realizable value adjustments	125,264			110,265			89,123
Stock-based compensation	1,399			1,559			1,762
Depreciation and amortization of property and equipment	41,219			37,802			37,081
Amortization of definite-lived intangible assets and other assets	19,456			112,459			104,685
Impairment and write down charge of long-lived assets	¾			16,075			—
Restructuring costs	¾			3,700			—
Contract termination costs	¾			5,135			—
Cumulative adjustment for change in assets held for sale	¾			—			619
Total operating expenses	551,159			646,648			602,630
Operating income	184,630			38,003			155,881
OTHER INCOME (EXPENSE):
Interest and amortization of deferred financing costs and debt discount	(126,500		)	(143,574		)	(152,219		)
Subsidiary trust minority interest expense	(23,890		)	(23,890		)	(23,890		)
Net gain (loss) on sale of broadcast assets	(478		)	204			—
Loss on derivative instrument	(30,939		)	(32,220		)	(296		)
Interest income	1,485			2,643			2,644
Loss related to investments	(1,189		)	(7,616		)	(16,764		)
Other income	2,100			1,115			168
Income (loss) before income taxes	5,219			(165,335		)	(34,476		)
(PROVISION) BENEFIT FOR INCOME TAXES	(1,369		)	51,875			(3,355		)
Net income (loss) from continuing operations	3,850			(113,460		)	(37,831		)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of related income tax provision of $347, $193 and $4,711 respectively	372			(52		)	6,932
Gain on disposal of discontinued operations, net of taxes of $8,175, $0, and $69,870, respectively	7,519			—			108,264
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of related income taxbenefit of $5,531 and $7,800 respectively	(9,831		)	(14,210		)	—
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, net of tax benefit of $30,383	(566,404		)	¾			¾
NET (LOSS) INCOME	(564,494		)	(127,722		)	77,365
PREFERRED STOCK DIVIDENDS	10,350			10,350			10,350
NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	(574,844	)	$	(138,072	)	$	67,015

BASIC EARNINGS (LOSS) PER SHARE:
Loss per share from continuing operations	$	(0.08	)	$	(1.47	)	$	(0.53	)
Earnings per share from discontinued operations	$	0.09		$	—		$	1.26
Loss per share from extraordinary item	$	(0.12	)	$	(0.17	)	$	—
Loss per share from cumulative effect of change in accounting principle	$	(6.64	)	$	—		$	—
(Loss) income per common share	$	(6.74	)	$	(1.64	)	$	0.73
Weighted average common shares outstanding	85,337			84,352			91,405
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share from continuing operations	$	(0.08	)	$	(1.47	)	$	(0.53	)
Earnings per share from discontinued operations	$	0.09		$	—		$	1.26
Loss per share from extraordinary item	$	(0.12	)	$	(0.17	)	$	—
Loss per share from cumulative effect of change in accounting principle	$	(6.64	)	$	—		$	—
(Loss) income per common share	$	(6.74	)	$	(1.64	)	$	0.73
Weighted average common and common equivalent shares outstanding	85,580			84,624			92,487

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

F-4

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(in thousands)

Series D
Preferred
Stock

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-In
Capital

Additional
Paid-In
Capital -Equity Put
Options

Additional
Paid-In
Capital -Deferred
Compensation

Retained
Earnings
(Accumulated
Deficit)

Other
Comprehnsive
Loss

Total
Stockholders’
Equity

BALANCE, December 31, 1999

491

476

834,393

46,068

($4,489

)

97,943

974,917

Class B Common Stock converted into Class A Common Stock

(21

)

Repurchased and retirement of 20,000 shares of Class A Common Stock

(126

)

(123,174

)

(123,300

)

Dividends payable on Series D preferred stock

—

(10,350

)

(10,350

)

Stock Option: grants

558

(558

)

Stock options exercised

Class A Common Stock issued pursuantto employee benefit plans

2,655

2,659

Reclassification due to adoption of EITF No. 00-19

(7,811

)

(7,811

)

Equity put options

38,257

(38,257

)

Amortization of deferred compensation

Income tax benefit related to deferred compensation

(33

)

(33

)

Deferred compensation adjustment Related to forfeited stock options

(2,337

)

2,337

Net income

77,365

Unrealized loss on investments, net oftax of $695

(1,062

)

(1,062

)

Comprehensive income

76,303

BALANCE, December 31, 2000

390

455

750,372

—

(2,618

)

164,958

(1,062

)

912,530

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

F-5

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(in thousands)

	Series D Preferred Stock		Class A Common Stock			Class B Common Stock			Additional Paid-In Capital			Additional Paid-In Capital - Deferred Compensation			Retained Earnings			Accumulative Other Comprehensive Loss			Total Stockholders’ Equity
BALANCE, December 31, 2000	$	35	$	390		$	455		$	750,372		$	(2,618	)	$	164,958		$	(1,062	)	$	912,530
Repurchase and retirement of 618,600 shares of Class A Common Stock	¾		(6		)	¾			(4,391		)	¾			¾			¾			(4,397		)
Stock options exercised	¾		1			¾			582			¾			¾			¾			583
Class B Common Stock converted Into Class A Common Stock	¾		23			(23		)	¾			¾			¾			¾			¾
Dividend payable on Series D preferred stock	¾		¾			¾			¾			¾			(10,350		)	¾			(10,350		)
Termination of equity put options	¾		¾			¾			78			¾			¾			¾			78
Class A Common Stock issued to employee benefit plans	¾		3			¾			2,643			¾			¾			¾			2,646
Amortization of deferred compensation	¾		¾			¾			¾			865			¾			¾			865
Deferred compensation adjustment related to forfeited stock options	¾		¾			¾			(931		)	301			¾			¾			(630		)
Net loss	¾		¾			¾			¾			¾			(127,722		)	¾			(127,722		)
Other comprehensive loss:
Reclass of derivative instruments upon implementation of SFAS No. 133, net of tax benefit of $1,509	¾		¾			¾			¾			¾			¾			(2,777		)	(2,777		)
Amortization of derivative instruments	¾		¾			¾			¾			¾			¾			225			225
Unrealized loss on investment, net of tax benefit of $231	¾		¾			¾			¾			¾			¾			(345		)	(345		)
Realized loss on investments, net of tax benefit of $825	¾		¾			¾			¾			¾			¾			1,254			1,254
Comprehensive loss	¾		¾			¾			¾			¾			¾			¾			(129,365		)
BALANCE, December 31, 2001	$	35	$	411		$	432		$	748,353		$	(1,452	)	$	26,886		$	(2,705	)	$	771,960

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

F-6

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(in thousands)

	Series D Preferred Stock		Class A Common Stock		Class B Common Stock			Additional Paid-In Capital			Additional Paid-In Capital - Deferred Compensation			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
BALANCE, December 31, 2001	$	35	$	411	$	432		$	748,353		$	(1,452	)	$	26,886		(2,705		)	$	771,960
Class B Common Stock converted into Class A Common Stock	¾		15		(15		)	¾			¾			¾			¾			¾
Dividends payable on Series D preferred stock	¾		¾		¾			¾			¾			(10,350		)	¾			(10,350		)
Stock options exercised	¾		3		¾			2,803			¾			¾			¾			2,806
Class A Common Stock issued pursuant to employee benefit plans	¾		2		¾			1,754			¾			¾			¾			1,756
Class A Common Stock issued toacquire broadcast licenses	¾		8		¾			7,695			¾			¾			¾			7,703
Issuance of Shares under ESPP	¾		¾		¾			338			¾			¾			¾			338
Amortization of deferred compensation	¾		¾		¾			¾			730			¾			¾			730
Deferred compensation adjustment related to forfeited stock option	¾		¾		¾			(465		)	171			¾			¾			(294		)
Net income	¾		¾		¾			¾			¾			(564,494		)	¾			(564,494		)
Other comprehensive loss: Amortization of derivative Instruments	¾		¾		¾			¾			¾			¾			871			871
Realized loss on investment, net of tax benefit of $101	¾		¾		¾			¾			¾			¾			154			154
Comprehensive loss	¾		¾		¾			¾			¾			¾			¾			(563,469		)
BALANCE, December 31, 2002	$	35	$	439	$	417		$	760,478		$	(551	)	$	(547,958	)	$	(1,680	)	$	211,180

The accompanying notes are an integral part of these consolidated statement

F-7

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

(in thousands)

	2002			2001			2000
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net (loss) income	$	(564,494	)	$	(127,722	)	$	77,365
Adjustments to reconcile net (loss) income to net cash flows from operating activities-
Amortization of debt discount	98			98			131
Depreciation of property and equipment	41,513			38,848			40,101
Recognition of deferred revenue	(4,942		)	¾			¾
Loss from equity investments	1,519			7,616			16,764
Gain on sale of broadcast assets related to discontinued operations	(12,413		)	—			(178,134		)
(Gain) loss on sale of property	478			(204		)	—
Impairment and write down of long-lived assets	¾			16,229			—
Contract termination costs	¾			5,135			—
Unrealized loss on derivative instrument	30,939			32,220			296
Amortization of definite-lived intangible assets and other assets	19,581			116,383			114,895
Amortization of program contract costs and net realizable value adjustments	130,832			119,437			100,655
Amortization of deferred financing costs	3,954			4,071			3,313
Amortization of deferred compensation	435			235			92
Long term assets written off to extraordinary loss	12,307			5,601			—
Cumulative effect of change in accounting principle	596,787			—			—
Cumulative adjustment for change in assets held for sale	¾			—			(1,237		)
Amortization of derivative instruments	1,409			763			—
Deferred tax (benefit) provision related to operations	49,490			(10,595		)	11,760
Deferred tax (benefit) provision related to sale of broadcast assets from discontinued operations	(11,582		)	—			(5,342		)
Deferred tax benefit related to extraordinary loss	649			(97		)	—
Deferred tax benefit related to change in accounting principle	(30,383		)	¾			¾
Net effect of change in deferred barter revenues and deferred barter costs	(571		)	(345		)	(497		)
Changes in assets and liabilities, net of effects of acquisitions and dispositions
Decrease (increase) in accounts receivable, net	(2,871		)	22,102			31,529
Decrease (increase) in taxes receivable	7,244			(43,395		)	—
(Increase) decrease in prepaid expenses and other current assets	(2,680		)	(8,051		)	2,019
Decrease in other long-term assets	3,173			—			—
Increase (decrease) in accounts payable and accrued liabilities	(12,926		)	7,941			(344		)
Decrease in income taxes payable	¾			(42,126		)	(60,909		)
Increase in other long-term liabilities	58			17,643			11,864
Payments on program contracts payable	(106,327		)	(102,256		)	(94,303		)
Decrease in minority interest	(1,662		)	(643		)	(891		)
Net cash flows from operating activities	149,615			58,888			69,127

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Acquisition of property and equipment	(62,909		)	(29,017		)	(33,256		)
Payments relating to the acquisition of broadcast assets	(21,178		)	(490		)	(89,936		)
Distributions from investments	654			408			408
Contributions in investments	(25,820		)	(1,500		)	(13,873		)
Proceeds from sale of property	694			983			—
Proceeds from sale of broadcast assets	124,472			—			346,439
Repayment of note receivable	30,257			—			—
Deposits received on future sale of broadcast assets	—			125			—
Loans to officers and affiliates	(104		)	(4,078		)	(639		)
Proceeds from loans to officers and affiliates	6,756			231			677
Net cash flows from (used in) investing activities	52,822			(33,338		)	209,820
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES:
Proceeds from commercial bank financing and notes payable	1,263,075			1,334,000			707,500
Repayments of notes payable, commercial bank financing and capital leases	(1,492,548		)	(1,291,000		)	(879,500		)
Repurchases of Class A Common Stock	—			(4,397		)	(107,322		)
Proceeds from exercise of stock options	2,807			583			53
Proceeds from termination of derivative instruments	21,849			—			4,434
Payments for deferred financing costs	(10,503		)	(11,993		)	—
Payment from equity put options premium	—			(7,733		)	—
Dividends paid on Series D Convertible Preferred Stock	(10,350		)	(10,350		)	(10,350		)
Repayments of notes and capital leases to affiliates	(3,503		)	(6,688		)	(6,079		)
Net cash flows (used in) from financing activities	(229,173		)	2,422			(291,264		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(26,736		)	27,972			(12,317		)
CASH AND CASH EQUIVALENTS, beginning of period	32,063			4,091			16,408
CASH AND CASH EQUIVALENTS, end of period	$	5,327		$	32,063		$	4,091

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

F-8

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated financial statements

december 31,2002, 2001 and 2000

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Sinclair Broadcast Group, Inc., and all other consolidated subsidiaries, which are collectively referred to hereafter as “the Company, Companies, We or SBG.” We own and operate, provide sales services, or provide programming and operating services pursuant to local marketing agreements to 62 television stations in 39 designated marketing areas (DMAs) throughout the United States. SBG owns equity interests in Internet companies including G1440, Inc., an Internet consulting and development company. SBG has an equity interest in and a strategic alliance with Acrodyne Communications, Inc., a manufacturer of transmitters and other television broadcast equipment. SBG has an equity interest in Summa Holdings, Ltd., a holding company that owns automobile dealerships, retail tire franchises and a leasing company.

Cunningham Broadcasting Corporation (Cunningham) owns the license assets of WNUV-TV, WTTE-TV, WRGT-TV, WVAH-TV, WTAT-TV and WBSC-TV. Cunningham owns, operates and controls the television stations. We do not own or control the television stations, but we have entered into local marketing agreements (LMA) with Cunningham to program each of these stations. Effective February 1, 2002, we restructured our LMA relationship with Cunningham and, as a result, Cunningham now meets the definition of a special purpose entity and pursuant to Emerging Issues Task Force Topic D-14, “Transactions Involving Special Purpose Entities,” for accounting purposes only, the financial statements of Cunningham have been consolidated. The operating results of WTTV-TV are not included in our consolidated results from continuing operations for the years ended December 31, 2002, 2001 and 2000. Since this agreement met all of the criteria for a qualifying plan of sale, the assets and liabilities disposed of by this sale have been classified as “held for sale” on the accompanying balance sheet presented. See Note 11. Related Party Transactions and Note 12. Acquisitions and Dispositions.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all its wholly owned and majority-owned subsidiaries and a company that fits the definition of a special purpose entity. Minority interest represents a minority owner’s proportionate share of the equity in certain of the Company’s consolidated entities. All significant intercompany transactions and account balances have been eliminated in consolidation.

Use of Estimates

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

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) approved Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 prospectively prohibits the pooling of interest method of accounting for business combinations initiated after June 30, 2001. SFAS No. 142 requires companies to cease amortizing goodwill and certain other intangible assets including broadcast licenses. Effective January 1, 2002, SFAS No. 142 also establishes a new method of testing goodwill and broadcast licenses for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The adoption of SFAS No. 142 resulted in discontinuation of amortization of our goodwill and broadcast licenses commencing January 1, 2002; however, we are required to test goodwill and broadcast licenses for impairment under the new standard during 2002.

F-9

value, the goodwill of this unit might have been impaired. The amount, if any, of the impairment would then be measured in the second step. The second step requires us to calculate the fair value of goodwill by allocating the fair value of the reporting unit to each of the assets and liabilities of the reporting unit based on their fair values. This calculated goodwill is then compared to the book value of the goodwill and an impairment loss is recognized to the extent that the book value exceeds the fair value.

We determined that our designated marketing areas (DMAs) were reporting units under SFAS No. 142. In connection with adopting this standard during 2002, we completed step one of the test for impairment by comparing the book value of our reporting units, including goodwill, to the estimated fair value of our reporting units as of January 1, 2002. We estimated the fair value of our reporting units using a combination of quoted market prices, observed earnings multiples paid for comparable television stations and discounted cash flow models.

We performed the second step of the goodwill impairment test for those DMAs whose goodwill was found to be potentially impaired as a result of the first step. We performed the second step by allocating the estimated fair value of the reporting unit to each of the assets and liabilities of the reporting unit based on their estimated fair values. We estimated the fair values of the assets and liabilities using a combination of observed prices paid for similar assets and liabilities, discounted cash flow models and appraisals.

SFAS No. 142 requires goodwill and definite lived intangible assets to be tested for impairment on an annual basis; therefore, we tested these assets for impairment as of October 1, 2002 by comparing their book values to their estimated fair values. There was no impairment charge recorded based on the results of such testing.

F-10

The following table shows the effect on net income (loss) available to common shareholders and income (loss) per share, had we adopted SFAS No. 142 on January 1, 2000 (in thousands, except per share data).

	For the Twelve Months ended December 31,
	2002			2001			2000
Reported net (loss) income available to common stockholders	$	(574,844	)	$	(138,072	)	$	67,015
Add: goodwill amortization	¾			56,501			54,761
Add: broadcast license amortization	—			15,133			12,254
Adjusted net (loss) income	$	(574,844	)	$	(66,438	)	$	134,030

Basic and diluted (loss) earnings per share:
Reported net (loss) income available to common stockholders	$	(6.74	)	$	(1.64	)	$	0.73
Goodwill amortization	—			0.67			0.60
Broadcast license amortization	—			0.18			0.14
Adjusted net (loss) income	$	(6.74	)	$	(0.79	)	$	1.47

The following table shows the effect on income (loss) from continuing operations and income (loss) from continuing operations per share had we adopted SFAS 142 on January 1, 2000 (in thousands, except per share data):

	For the Twelve Months ended December 31,
	2002			2001			2000
Reported net income (loss) from continuing operations	$	3,850		$	(113,460	)	$	(37,831	)
Add: goodwill amortization	—			55,049			53,623
Add: broadcast license amortization	—			14,353			11,475
Adjusted net earnings (loss) from continuing operations	$	3,850		$	(44,058	)	$	27,267

Basic earnings (loss) per share:
Reported net income (loss) from continuing operations	$	(0.08	)	$	(1.47	)	$	(0.53	)
Goodwill amortization	—			0.65			0.59
Broadcast license amortization	—			0.17			0.13
Adjusted net (loss) earnings from continuing operations	$	(0.08	)	$	(0.65	)	$	0.19

Diluted earnings (loss) per share:
Reported net loss from continuing operations	$	(0.08	)	$	(1.47	)	$	(0.53	)
Goodwill amortization	—			0.65			0.58
Broadcast license amortization	—			0.17			0.13
Adjusted net (loss) earnings from continuing operations	$	(0.08	)	$	(0.65	)	$	0.18

We adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets on January 1, 2002. As a result of adopting SFAS No. 144, we classified the assets and liabilities of WTTV-TV as assets and liabilities held for sale in the accompanying balance sheet and reported the results of operations of WTTV-TV as discontinued operations in the accompanying statements of operations. Discontinued operations have not been segregated in the Statement of Consolidated Cash Flows and, therefore, amounts for certain captions will not agree with the accompanying consolidated statements of operations. See Note 12 - Acquisitions and Dispositions.

In April 2002, the FASB approved SFAS No. 145, Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections. SFAS No. 145 will require us to record gains and losses on extinguishment of debt as a component of income from continuing operations rather than as an extraordinary item, and to reclassify such items for all periods presented. We will be required to adopt this provision of SFAS No. 145 on January 1, 2003. We do not expect the other provisions of SFAS No. 145 to have a material effect on our financial statements.

F-11

In June 2002, the FASB approved SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 is effective after December 31, 2002, and addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The primary difference between SFAS No. 146 and EITF 94-3 concerns the timing of liability recognition and we do not expect the adoption of SFAS No. 146 to have a material effect on our financial statements.

In November 2002, the Emerging Issues Task Forces (EITF) reached a consensus on Issue 02-16, Accounting by Reseller for Cash Consideration Received from a Vendor, (EITF 02-16). EITF 02-16 requires us to treat our deferred commission credits as a reduction in selling expense when realized and not as broadcast revenue. We early adopted EITF 02-16 on December 31, 2002. This adoption resulted in a reclassification of $3.9 million and $1.6 million for the years ended December 2002 and 2001, respectively.

As of December 2002, we adopted SFAS No. 148, Accounting for Stock-Based Compensation-Transaction and Disclosure, an Amendment of FASB No. 123. SFAS No. 148 revises the methods permitted by SFAS No. 123 of measuring compensation expense for stock-based employee compensation plans. We use the intrinsic value method prescribed in Accounting Principles Board Option No. 25, as permitted under SFAS No. 123. Therefore, this change did not have a material effect on our financial statements. SFAS No. 148 requires us to disclose pro forma information related to stock-based compensation, in accordance with SFAS No. 123, on a quarterly basis in addition to the current annual basis disclosure. We will report the pro forma information on an interim basis beginning with our March 31, 2003 Form 10-Q.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable

Management regularly reviews accounts receivable and determines an appropriate estimate for the allowance for doubtful accounts based upon the impact of economic conditions on the merchant’s ability to pay, past collection experience and such other factors which, in management’s judgment, deserve current recognition. In turn, a provision is charged against earnings in order to maintain the allowance level.

Programming

The Company has agreements with distributors for the rights to television programming over contract periods, which generally run from one to seven years. Contract payments are made in installments over terms that are generally shorter than the contract period. Each contract is recorded as an asset and a liability at an amount equal to its gross contractual commitment when the license period begins and the program is available for its first showing. The portion of program contracts which become payable within one year is reflected as a current liability in the accompanying consolidated balance sheets.

The rights to program materials are reflected in the accompanying consolidated balance sheets at the lower of unamortized cost or estimated net realizable value. Estimated net realizable values are based upon management’s expectation of future advertising revenues net of sales commissions to be generated by the program material. Amortization of program contract costs is generally computed using either a four year accelerated method or based on usage, whichever method yields the greater amortization for each program. Program contract costs, estimated by management to be amortized in the succeeding year, are classified as current assets. Payments of program contract liabilities are typically paid on a scheduled basis and are not affected by adjustments for amortization or estimated net realizable value.

Barter Arrangements

Certain program contracts provide for the exchange of advertising airtime in lieu of cash payments for the rights to such programming. These contracts are recorded as the programs are aired at the estimated fair value of the advertising airtime given in exchange for the program rights. Network programming is excluded from these calculations.

The Company broadcasts certain customers’ advertising in exchange for equipment, merchandise and services. The estimated fair value of the equipment, merchandise or services received is recorded as deferred barter costs and the corresponding obligation to broadcast advertising is recorded as deferred barter revenues. The deferred barter costs are

F-12

expensed or capitalized as they are used, consumed or received. Deferred barter revenues are recognized as the related advertising is aired.

Other Assets

Other assets as of December 31, 2002 and 2001 consisted of the following (in thousands):

	2002		2001
Notes and other receivables	$	405	$	51,864
Unamortized costs relating to securities issuances	19,691		25,003
Investments	35,400		13,331
Fair value of derivative instruments	26,309		6,431
Deposits and other costs relating to future acquisitions	3,123		2,637
Other	6,191		6,628
	$	91,119	$	105,894

Investments

The Company uses the equity method of accounting for investments in which it has a 20% to 50% ownership interest or when the Company exercises significant influence over the operating and financial policies of the investee. For investments in which it has less than a 20% interest and does not exercise significant influence over the operating and financial policies of the investee, the Company uses the lower of cost or fair market value method of accounting.

As of December 31, 2002, the Company had a 35% ownership interest in Acrodyne Communications, Inc. (Acrodyne). Acrodyne designs, manufactures, and markets digital and analog television broadcast transmitters for domestic and international television stations, broadcasters, government agencies, not-for-profit organizations, and educational institutions. The Company accounts for its investment in Acrodyne under the equity method of accounting. During August 2000, Acrodyne announced that it would be restating its financial statements for the year ended December 31, 1999 and the three months ended March 31, 2000 due to an overstatement of revenue, inventory and gross profits. The impact of the 1999 restatement, which would have increased the Company’s equity share of Acrodyne’s losses from $0.5 million to $2.3 million, was not material to the Company’s 1999 net income. As a result of the restatement, Acrodyne was unable to fulfill its quarterly reporting requirements with the Securities and Exchange Commission (SEC) for the quarters ended June 30, 2000 and September 30, 2000 on a timely basis. During September 2000, Acrodyne was delisted from the National Association of Securities Dealers Automatic Quotation (NASDAQ). As a result, in 2000 the Company wrote-off its investment in Acrodyne to zero and recorded a loss of $6.9 million, including its equity in the revised 2000 losses described above and the 2001 losses through the write-off date, which has been reflected in the accompanying consolidated statements of operations as loss related to investments.

During 2001 and 2000, the Company advanced and guaranteed loans to Acrodyne under various credit facilities which were fully reserved as of December 31, 2001 and 2000, respectively. Accordingly, the Company incurred a loss of $4.2 million and $3.2 million during 2001 and 2000, respectively, which has also been reflected in the accompanying consolidated statements of operations as loss related to investments.

On January 1, 2003, the Company forgave indebtedness owed to them by Acrodyne in the aggregate amount of $9.0 million in exchange for 20.3 million additional shares of Acrodyne common stock. The terms of the agreement also committed the Company to an additional investment of $1.0 million, which we funded on January 1, 2003. As a result of the agreement, the Company will own an 82.5% interest in Acrodyne and beginning January 1, 2003, the Company will consolidate the financial statements of Acrodyne Communications, Inc., rather than account for the investment under the equity method of accounting.

The Company owns a 77.0% interest in Allegiance Capital, Limited Partnership, (Allegiance). Allegiance is a private mezzanine venture capital fund, which invests in the subordinated debt and equity of privately held companies. The partnership is structured as a debenture Small Business Investment Company (SBIC) and is a federally licensed SBIC. Since the company does not have significant control but only significant influence, the Company accounts for its investment in Allegiance under the equity method of accounting.

F-13

The condensed balance sheets of our significant unconsolidated subsidiaries as of December 31, 2002 and 2001 and their condensed statements of operations for the years ended December 31, 2002, 2001, and 2000 are summarized as follows (in thousands):

	2002			2001
Current assets	$	25,705		$	14,796
Long-term assets	1,114			1,297
Property, plant and equipment and license agreement	3,480			3,772
Total assets	30,299			19,865

Current liabilities	18,153			15,127
Long-term liabilities	17,698			13,679
Total liabilities	35,851			28,806
Equity	(5,552		)	(8,941		)
Total liabilities and equity	$	30,299		$	19,865

	2002			2001			2000
Net sales	$	26,208		$	13,895		$	6,896
Net investment income	(387		)	283			97
Cost of sales	(18,989		)	(9,801		)	(8,730		)
Operating expenses	(5,481		)	(5,980		)	(10,383		)
Interest expense	(792		)	(855		)	(775		)
Other income	59			171			8
Realized gains and losses	—			(1,700		)	—
Changes in unrealized gains and losses	—			(230		)	—
Net income (loss)	$	618		$	(4,217	)	$	(12,887	)

In 1999, the Company made a $2.0 million investment, representing a 30% ownership interest, in Channel 23 LLC, a start-up entity created to purchase a Federal Communication Commission (FCC) license and retransmit a signal in the Tuscaloosa, Alabama market. Channel 23 LLC had no operations and was abandoned by the Company during 2000 resulting in a loss of $2.2 million which has also been reflected in the accompanying Consolidated Statements of Operations as loss related to investments.

We recorded our investment in Synergy Brands, Inc. in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, (SFAS No. 115), whereby we recorded changes in the fair market value of our investment as other comprehensive income. During 2002 we sold this investment and recorded a loss of $159,000.

On December 30, 2002, we invested $20 million in Summa Holdings, Ltd. (Summa), resulting in a 17.5% equity interest. Summa is a holding company, which owns automobile dealerships, retail tire franchises and a leasing company. David D. Smith, our President and Chief Executive Officer has a controlling interest in Summa and is on the Board of Directors. We will have significant influence by holding a board seat (in addition to the board seat held by David D. Smith); therefore we will account for this investment under the equity method of accounting.

The Company has other cost and equity investments in Internet related activities and venture capital companies. Management does not believe these investments individually, or in the aggregate, are material to the accompanying consolidated financial statements.

Impairment of Long-lived Assets

During June 2001, the San Francisco office of the Company’s Internet consulting and development subsidiary was reorganized. The office reduced staff due to a significant slow down of business activity in the San Francisco market. In addition, the focus of the San Francisco office has shifted toward marketing an existing product. As a result, management determined that the San Francisco office’s goodwill was permanently impaired and, as such, recorded a write-off of goodwill in the amount of $2.8 million during June 2001.

F-14

Under the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company evaluated its long-lived assets for financial impairment, and will continue to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. Based on these evaluations, the Company determined that its station KBSI-TV in Paducah, Kentucky had an impairment to goodwill and, in accordance with SFAS No. 121, recorded a charge to write off goodwill in the amount of $9.2 million during December 2001. As of December 31, 2002, management believes that the carrying amounts of the remainder of the Company’s tangible and intangible assets have not been impaired under SFAS No. 144.

During 2002 and 2001, the Company wrote-off $0.8 million and $4.2 million, respectively of fixed assets which represents the net book value of damaged, obsolete, or abandoned property.

Accrued Liabilities

Accrued liabilities consisted of the following as of December 31, 2002 and 2001 (in thousands):

	2002		2001
Compensation	$	17,383	$	19,984
Interest	21,457		18,464
Other accruals relating to operating expenses	25,325		25,175
	$	64,165	$	63,623

Supplemental Information – Statements of Cash Flows

During 2002, 2001 and 2000, the Company incurred the following transactions (in thousands):

	2002		2001		2000
Capital leases obligations incurred	$	29,526	$	27,878	$	5,319
Income taxes paid from operations	$	2,879	$	3,593	$	6,294
Income taxes paid related to sale of discontinued operations	$	111	$	31,876	$	115,143
Income tax refunds received	$	47,077	$	2,405	$	3,598
Subsidiary trust minority interest payments	$	23,250	$	23,250	$	23,250
Interest paid	$	119,669	$	150,312	$	139,833
Payments related to extraordinary loss	$	2,411	$	16,409	$	—
Stock issued to acquire broadcast licenses	$	7,703	$	—	$	—

Non-cash barter revenue and expense are presented in the consolidated statements of operations.

Local Marketing Agreements

The Company generally enters into local marketing agreements (LMA) and similar arrangements with stations located in markets in which the Company already owns and operates a station, and in connection with acquisitions, pending regulatory approval of transfer of license assets. Under the terms of these agreements, the Company makes specific periodic payments to the owner-operator in exchange for the grant to the Company of the right to program and sell advertising on a specified portion of the station’s inventory of broadcast time. Nevertheless, as the holder of the FCC license, the owner-operator retains control and responsibility for the operation of the station, including responsibility over all programming broadcast on the station.

Included in the accompanying consolidated statements of operations for the years ended December 31, 2002, 2001 and 2000, are net revenues of $111.6 million, $235.8 million and $253.9 million, respectively, that relate to LMAs.

Outsourcing Agreements

The Company has entered into 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.

F-15

Broadcast Assets Held For Sale

In March 1999, the Company entered into an agreement to sell to Sunrise Television Corporation (STC), the television stations WICS/WICD-TV in the Springfield/Champaign, Illinois market and KGAN-TV in the Cedar Rapids, Iowa market. In April 1999, the Justice Department requested additional information in response to STC’s filing under the Hart-Scott-Rodino Antitrust Improvements Act. Pursuant to the agreements, if the transaction did not close by March 16, 2000, either STC or the Company had the option to terminate the agreement at that time. On March 15, 2000, the Company entered into an agreement to terminate the STC transaction. As a result of its termination, the Company recorded a cumulative accounting adjustment during the first quarter of 2000 as the Company previously recorded the assets and liabilities related to these stations as “Broadcast Assets Held for Sale” and deferred the losses related to these stations until they were sold.

On April 18, 2002, we entered into an agreement to sell the television station of WTTV-TV in Bloomington, Indiana and its satellite station, WTTK-TV in Kokomo, Indiana (collectively referred to as WTTV-TV) to a third party. On July 24, 2002, WTTV-TV had net assets and liabilities held for sale of $108.8 million, and we completed such sale for $124.5 million and recognized a gain, net of taxes, of $7.5 million.

The operating results of WTTV-TV are not included in our consolidated results from continuing operations for the years ended December 31, 2002, 2001 and 2000. We recorded income from discontinued operation of $7.9 million, which includes a gain on sale of $7.5 million, for the year ended December 31, 2002 and a loss of $52,000 and income of $2.1 million for the years ended December 31, 2001 and 2000, respectively. Since this agreement met all of the criteria for a qualifying plan of sale, the assets and liabilities disposed of by this sale have been reclassified as “held for sale” on the accompanying 2001 balance sheet presented.

Revenue Recognition

Advertising revenues, net of agency and national representatives’ commissions, are recognized in the period during which time spots are aired. Total revenues includes (i) cash and barter advertising revenues, net of agency and national representatives’ commissions, (ii) network compensation, and (iii) other revenues.

Reclassifications

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. The 2001 consolidated balance sheet has been reclassified to reflect a reduction of deferred tax liabilities, and an equal reduction of goodwill totaling $76.2 million resulting from adjustments made to acquisition accounting.

Pro Forma Information Related To Stock-Based Compensation

As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, the Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by Accounting Principles Board Option No. 25, Accounting for Stock Issued to Employees, and provides pro forma disclosures of net income and earnings per share as if the fair value-based method prescribed by SFAS No. 123 had been applied in measuring compensation expense.

Had compensation cost for the Company’s 2002, 2001 and 2000 grants for stock-based compensation plans been determined consistent with SFAS No. 123, the Company’s net (loss) income available to common shareholders for these years would approximate the pro forma amounts below (in thousands, except per share data):

	2002						2001						2000
	As Reported			Pro-Forma			As Reported			Pro-Forma			As Reported		Pro-Forma
Net (loss) income available to common shareholders	$	(574,844	)	$	(581,955	)	$	(138,072	)	$	(140,988	)	$	67,015	$	55,399
Basic net (loss) income per share	$	(6.74	)	$	(6.82	)	$	(1.64	)	$	(1.67	)	$	0.73	$	0.61
Diluted net (loss) income per share	$	(6.74	)	$	(6.82	)	$	(1.64	)	$	(1.67	)	$	0.73	$	0.61

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The Company has computed for pro forma disclosure purposes the value of all options granted during 2002, 2001 and 2000 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions:

	Year Ended December 31,
	2002			2001			2000
Risk-free interest rate	4.24		%	4.68		%	6.55		%
Expected lives	5 years			6 years			6 years
Expected volatility	55		%	59		%	63		%
Weighted Average Fair Value	$	6.34		$	4.96		$	6.13

Adjustments are made for options forfeited prior to vesting.

2. PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed under the straight-line method over the following estimated useful lives:

Buildings and improvements		10 – 35 years
Station equipment		5 – 10 years
Office furniture and equipment		5 – 10 years
Leasehold improvements		10 – 31 years
Automotive equipment		3 – 5 years
Property and equipment and autos under capital leases		Shorter of 10 years or the lease term

Property and equipment consisted of the following as of December 31, 2002 and 2001 (in thousands):

	2002			2001
Land and improvements	$	17,077		$	16,968
Buildings and improvements	108,661			87,436
Station equipment	306,786			240,203
Office furniture and equipment	37,340			32,857
Leasehold improvements	10,615			9,087
Automotive equipment	9,802			9,517
Construction in progress	33,465			36,677
	523,746			432,745
Less – Accumulated depreciation	(186,496		)	(151,094		)
	$	337,250		$	281,651

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3. GOODWILL AND OTHER INTANGIBLE ASSETS:

Intangible assets and other assets subject to amortization are being amortized on a straight-line basis over periods of 5 to 25 years. These amounts result from the acquisition of certain television station non-license assets. The following table shows the gross carrying amount and accumulated amortization of intangibles and estimated amortization (in thousands):

	For the year ended December 31, 2002						For the year ended December 31, 2001
	Amortization Period	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Network affiliation	15-25 years	$	244,288	$	(48,856	)	$	244,515	$	(46,556	)
Decaying advertiser base	15 years	119,264		(53,337		)	119,756		(39,276		)
Other	5-25 years	26,932		(12,569		)	28,988		(10,408		)
Total		$	390,484	$	(114,762	)	$	393,259	$	(96,240	)

Unamortized intangible assets: Broadcast licenses		$	504,633	(74,705		)	$	496,619	(74,705		)
Goodwill		1,428,190		(305,208		)	1,962,076		(305,208		)
Total		$	1,932,823	$	(379,913	)	$	2,458,695	$	(379,913	)

The amortization expense of the definite-lived intangible assets for the years ended December 31, 2002 and 2001 was $19.5 million and $24.7 million, respectively. The following table shows the estimated amortization expense of the definite-lived intangible assets for the next five years.

For the year ended December 31, 2003	$	18,567
For the year ended December 31, 2004	$	18,366
For the year ended December 31, 2005	$	17,972
For the year ended December 31, 2006	$	17,928
For the year ended December 31, 2007	$	17,928

The change in the carrying amount of goodwill for the twelve months ended December 31, 2002 is as follows:

Balance as of January 1, 2002	$	1,656,868
Acquisitions	1,435
Reclassifications of prior year acquisitions tax contingencies	(2,546		)
Impairment of goodwill	(532,775		)
Balance as of December 31, 2002	$	1,122,982

Included in the assets sold on disposal of discontinued operations is $79.6 million of goodwill.

4. NOTES PAYABLE AND COMMERCIAL BANK FINANCING:

1998 Bank Credit Agreement

In order to expand its borrowing capacity to fund acquisitions and obtain more favorable terms with its syndicate of banks, the Company obtained a $1.75 billion senior secured credit facility (the “1998 Bank Credit Agreement”). The 1998 Bank Credit Agreement was executed in May 1998 and includes (i) a $750.0 million Term Loan Facility repayable in consecutive quarterly installments commencing on March 31, 1999 and ending on September 15, 2005; and (ii) a $1.0 billion reducing Revolving Credit Facility. Availability under the Revolving Credit Facility reduces quarterly, commencing March 31, 2001 and terminating on September 15, 2005. Not more than $350.0 million of the Revolving Credit Facility will be available for issuance’s of letters of credit. The 1998 Bank Credit Agreement also includes a

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standby uncommitted multiple draw term loan facility of $400.0 million. The Company is required to prepay the Term Loan Facility and reduce the Revolving Credit Facility with (i) 100% of the net proceeds of any casualty loss or condemnation; (ii) 100% of the net proceeds of any sale or other disposition by the Company of any assets in excess of $100.0 million in the aggregate for any fiscal year, to the extent not used to acquire new assets; and (iii) 50% of excess cash flow (as defined) if the Company’s ratio of debt to EBITDA (as defined) exceeds a certain threshold. The 1998 Bank Credit Agreement contains representations and warranties, and affirmative and negative covenants, including among other restrictions, limitations on additional indebtedness, customary for credit facilities of this type. The 1998 Bank Credit Agreement is secured only by a pledge of the stock of each subsidiary of the Company other than KDSM, Inc., KDSM Licensee, Inc., Cresap Enterprises, Inc., Sinclair Capital and Sinclair Ventures, Inc. The Company is required to maintain certain debt covenants in connection with the 1998 Bank Credit Agreement.

The applicable interest rate for the Term Loan Facility and the Revolving Credit Facility is either LIBOR plus 0.5% to 1.875% or the alternative base rate plus zero to 0.625%. The applicable interest rate for the Term Loan Facility and the Revolving Credit Facility is adjusted based on the ratio of total debt to four quarters’ trailing earnings before interest, taxes, depreciation and amortization. As of December 31, 2000, the Company’s applicable interest rate for borrowings under the 1998 Bank Credit Agreement is either LIBOR plus 1.5% or the alternative base rate plus 0.25%.

On May 16, 2001, the Company closed on an amendment and restatement of the 1998 Bank Credit Agreement (the “Amended and Restated Bank Credit Agreement”) allowing it more operating capacity and liquidity. The Amended and Restated Bank Credit Agreement reduced the aggregate borrowing capacity from $1.6 billion to $1.1 billion. The Company repaid the unamortized outstanding balance of the $750.0 million Term Loan Facility with the proceeds from the Amended and Restated Bank Credit Agreement. The Amended and Restated Bank Credit Agreement consists of a $600 million Revolving Credit Facility and a $500 million Incremental Term Loan Facility repayable in consecutive quarterly installments amortizing 1% per year commencing March 31, 2003 and continuing through its maturity on September 30, 2009. Availability under the Revolving Credit Facility reduces quarterly, commencing on September 30, 2003 and terminating at maturity. The Company is required to prepay the Term Loan Facility and reduce the Revolving Credit Facility with (i) 100% of the net proceeds of any casualty loss or condemnation; (ii) 100% of the net proceeds of any sale or other disposition by the Company of any assets in excess of $100 million in the aggregate for any fiscal year, to the extent not used to acquire new assets; and (iii) 50% of excess cash flow (as defined) if the Company’s ratio of debt to EBITDA (as defined) exceeds a certain threshold. The Amended and Restated Bank Credit Agreement contains representations and warranties, and affirmative and negative covenants, including among other restrictions, limitations on additional indebtedness, customary for credit facilities of this type. The Amended and Restated Bank Credit Agreement is secured only by a pledge of the stock of each subsidiary of the Company other than KDSM, Inc., KDSM Licensee, Inc., Cresap Enterprises, Inc., Sinclair Capital and Sinclair Ventures, Inc.

The applicable interest rate for the Revolving Credit Facility is either LIBOR plus 1.25% to 3% or the alternative base rate plus zero to 1.75%. The applicable interest rate for the Revolving Credit Facility is adjusted based on the ratio of total debt to four quarters’ trailing earnings before interest, taxes, depreciation and amortization. The applicable interest rate on the Incremental Term Loan Facility is LIBOR plus 3.50% or the alternative base rate plus 2.25% through maturity.

As a result of amending the Company’s 1998 Bank Credit Agreement, the Company incurred debt acquisition costs of $8.5 million and recognized an extraordinary loss of $4.7 million, net of a tax benefit of $2.6 million. The extraordinary loss represents the write-off of certain debt acquisition costs associated with indebtedness replaced by the new facility. The extraordinary loss was computed based on the guidance of EITF No. 96-19 Debtor’s Accounting for a Modification or Exchange of Debt Instrument and EITF No. 98-14 Debtor’s Accounting for changes in Line of Credit or Revolving Debt Arrangements.

On October 30, 2001, the Company closed on a short-term amendment of its 1998 Bank Credit Agreement, as amended and restated in May 2001. The amendment, which is effective through September 30, 2002, provides for relaxed leverage and interest coverage ratios and increases the interest rate by 50 basis points during the amendment period. On October 1, 2002, the Company reverted back to its financial covenant and pricing levels as amended in May 2001. As a result of the amendment, the Company’s interest rate on the Revolving Credit Facility and Incremental Term Loan Facility is LIBOR plus 3.5% and LIBOR plus 4.00%, respectively. After November 14, 2002, the applicable interest rate on the Revolving Credit Facility is either LIBOR plus 1.25% to 3.00% or the alternative base rate plus zero to 1.75% adjusted quarterly based on the ratio of total debt to four quarters’ trailing earnings before interest, taxes, depreciation and amortization, as adjusted in accordance with the 1998 Bank Credit Agreement. After November 14, 2002, the applicable interest rate on the Incremental Term Loan Facility is LIBOR plus 3.50% or the alternative base rate

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plus 2.25% through maturity. The Company incurred $3.4 million of debt acquisition costs as a result of amending the Company’s 1998 Bank Credit Agreement. These costs were capitalized in accordance with EITF No. 96-19 and EITF No. 98-14 and will be amortized to interest expense over the remaining life of the debt.

The weighted average interest rates for outstanding indebtedness relating to the Amended and Restated Bank Credit Agreement during 2001 and as of December 31, 2001 were 6.57% and 5.85%, respectively. The weighted average interest rates for outstanding indebtedness relating to the 1998 Bank Credit Agreement during 2000 and as of December 31, 2000 were 7.73% and 7.54%, respectively. Interest expense relating to the 1998 Bank Credit Agreement was $61.1 million and $79.3 million, for years ended December 31, 2001 and 2000, respectively.

2002 Bank Credit Agreement

The applicable interest rate on the Revolving Credit Facility is either LIBOR plus 1.25% to 2.25% or the alternative base rate plus 0.25% to 1.25% adjusted quarterly based on the ratio of total debt, net of cash, to four quarters’ trailing earnings before interest, taxes, depreciation and amortization, as adjusted in accordance with the 2002 Bank Credit Agreement. The applicable interest rate on the Term Loan B Facility is either LIBOR plus 2.25% or the alternative base rate plus 1.25%.

Availability under the Revolving Credit Facility does not reduce incrementally and terminates at maturity. The Company is required to prepay the Term Loan Facility and reduce the Revolving Credit Facility with (i) 100% of the net proceeds of any casualty loss or condemnation and; (ii) 100% of the net proceeds of any sale or other disposition by the Company of any assets in excess of $100 million in the aggregate for any fiscal year, to the extent not used to acquire new assets. The 2002 Bank Credit Agreement contains representations and warranties, and affirmative and negative covenants, including among other restrictions, limitations on additional indebtedness, customary for credit facilities of this type. The 2002 Bank Credit Agreement is secured only by a pledge of the stock of each subsidiary of the Company other than KDSM, Inc., KDSM Licensee, LLC., Cresap Enterprises, Inc., Sinclair Capital and Sinclair Ventures, Inc.

As a result of closing on the 2002 Bank Credit Agreement, we incurred debt acquisition costs of $3.2 million and recognized an extraordinary loss of $4.2 million, net of tax benefit of $2.4 million. The extraordinary loss represents the write-off of certain debt acquisition costs associated with indebtedness replaced by the new facility. The extraordinary loss was computed based on the guidance of EITF No. 96-19 Debtor’s Accounting for a Modification of Exchange of Debt Instrument of EITF No. 98-14 Debtor’s Accounting for changes in Line of Credit or Revolving Debt Arrangement.

On December 31, 2002 we closed on an additional $125 million Term Loan Facility repayable in consecutive quarterly installments, amortizing 0.25% per quarter, commencing June 30, 2004 continuing through its maturity on December 31, 2009. The proceeds from this additional borrowing, together with $125 million added on to our $300 million 8% Senior Subordinated Notes due 2012 and cash on hand was used to redeem our 8.75% Senior Subordinated Notes due 2007.

The weighted average interest rates of the 2002 Bank Credit Agreement during 2002 and as of December 31, 2002 were 5.14% and 4.12%, respectively. During 2002, the interest expense relating to the Bank Credit Agreements was $27.9 million.

8.75% Senior Subordinated Notes Due 2007 and 2002 Tender Offer:

In December 1997, the Company completed an issuance of $250 million aggregate principal amount of 8.75% Senior Subordinated Notes due 2007 (the “8.75% Notes”) pursuant to a shelf registration statement and generated net proceeds to the Company of $242.8 million. Of the net proceeds from the issuance, $106.2 million was utilized to tender the Company’s 1993 Notes with the remainder retained for general corporate purposes.

Interest on the 8.75% Notes is payable semiannually on June 15 and December 15 of each year. Interest expense was $20.2 for the year ended December 31, 2002 and $21.9 million for each of the years ended December 31, 2001 and 2000. The 8.75% Notes were issued under an Indenture among SBG, its subsidiaries (the guarantors) and the trustee.

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Costs associated with the offering totaled $5.8 million, including an underwriting discount of $5.0 million. These costs were capitalized and were being amortized over the life of the debt.

During December 2002, we completed a tender offer of $213.0 million aggregate principle amount of the 8.75% Notes (“2002 Tender Offer”). Total consideration per $1,000 principle amount note tendered was $1,043.74 resulting in total consideration paid to consummate the Tender Offer of $223.2 million. Also in December 2002, we redeemed the remaining 8.75% Notes for total consideration of $39.0 million. The Tender Offer and redemption were funded through the issuance of a $125 million add-on to our existing 8.0% $300 million Senior Subordinated Notes due 2012, a $125 million additional funding on our Term Loan B Facility, a draw down on our revolving line of credit of $7.0 million and cash on hand for a total consideration paid of $262.2 million. We recognized an extraordinary loss of $2.5 million, net of tax benefit of $1.4 million, representing a write-off of the previous debt acquisition costs of $3.2 million and consideration of $0.7 million.

9% Senior Subordinated Notes Due 2007:

In July 1997, the Company completed an issuance of $200 million aggregate principal amount of 9% Senior Subordinated Notes due 2007 (the “9% Notes”). The Company utilized $162.5 million of the approximately $195.6 million net proceeds of the issuance to repay outstanding revolving credit indebtedness and utilized the remainder to fund acquisitions.

Interest on the 9% Notes is payable semiannually on January 15 and July 15 of each year, commencing January 15, 1998. Interest expense was $16.2 million, $18.0 million and $18.0 million for each of the three years ended December 31, 2002, 2001 and 2000, respectively. The 9% Notes were issued under an Indenture among SBG, its subsidiaries (the guarantors) and the trustee. Costs associated with the offering totaled $4.8 million, including an underwriting discount of $4.0 million. These costs were capitalized and were being amortized over the life of the debt.

On November 8, 2002 the 9% Notes were redeemed for an aggregate principal amount of $200 million. The redemption occurred through the issuance of a $125 million add-on to our 8% $300 million Senior Subordinated Notes due 2012 and available cash on hand for total consideration of $218.5 million including accrued interest of $7.2 million. We recognized an extraordinary loss of $2.4 million, net of deferred taxes of $1.3 million, representing a write-off of the previous debt acquisition costs of $2.3 million and consideration of $1.4 million.

10% Senior Subordinated Notes Due 2005

In August 1995, the Company completed an issuance of $300 million aggregate principal amount of 10% Senior Subordinated Notes (the “1995 Notes”), due 2005, generating net proceeds to the Company of $293.2 million. The net proceeds of this offering were utilized to repay outstanding indebtedness under the then existing Bank Credit Agreement of $201.8 million with the remainder being retained and eventually utilized to make payments related to certain acquisitions consummated during 1996. Interest on the 1995 Notes was payable semiannually on March 30 and September 30 of each year. Interest expense was $28.3 million for the year ended December 31, 2001 and $30 million for the years ended December 31, 2000. The 1995 Notes were issued under an indenture among SBG, its subsidiaries (the guarantors) and the trustee. Costs associated with the offering totaled $6.8 million, including an underwriting discount of $6.0 million. These costs were capitalized and were being amortized over the life of the debt.

In December 2001, the Company redeemed the $300 million aggregate principal amount of the 1995 Notes for a total consideration of $318.3 million, including accrued interest of $6.1 million. The Company recognized an extraordinary loss of $9.5 million, net of a tax benefit of $5.2 million. The extraordinary loss represented a write-off of the previous debt acquisition costs of $2.5 million and consideration of $12.2 million.

8.75% Senior Subordinated Notes Due 2011

In December 2001, the Company completed an issuance of $310 million aggregate principal amount of 8.75% Senior Subordinated Notes (the “2002 Notes”), due 2011, generating net proceeds to the Company of $306.2 million. The net proceeds of this offering were utilized to repay the 1995 Notes. Interest on the 2001 Notes is payable semiannually on June 15^th and December 15^th of each year. Interest expense was $27.0 million and $1.7 million for the years ended December 31, 2002 and 2001, respectively. The 2001 Notes were issued under an indenture among SBG, its subsidiaries (the guarantors) and the trustee. Costs associated with the offering totaled $4.1 million, including an

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underwriting discount of $3.8 million. These costs were capitalized and are being amortized over the life of the debt. Based on the quoted market price, the fair value of the 2001 Notes as of December 31, 2002 was $335.1 million.

8% Senior Subordinated Notes Due 2012

In March 2002, we completed an issuance of $300.0 million aggregate principal amount of 8% Senior Subordinated Notes (the 2002 Notes), due 2012, generating gross proceeds to us of $300.0 million. The gross proceeds of this offering were utilized to repay $300.0 million of the Term Loan Facility. We recognized an extraordinary loss of $0.7 million, net of a tax benefit of $0.4 million. The extraordinary loss represented the write-off of certain debt acquisition costs associated with indebtedness replaced by the 2002 Notes. Interest on the 2002 Notes is payable semiannually on March 15 and September 15 of each year, beginning September 15, 2002. The 2002 Notes were issued under an indenture among SBG, certain of its subsidiaries (the guarantors) and the trustee. Net costs associated with the offering totaled $3.4 million. These costs were capitalized and are being amortized to interest expense over the term of the 2002 Notes. Based on the quoted market price, the fair value of the 8% Senior Subordinated Notes Due 2012 was $335.1 million at December 31, 2002.

On November 8, 2002, we completed an issuance of $125.0 million aggregate principal amount of 8% Senior Subordinated Notes due 2012 at a price of 100.5% of par, plus accrued interest from September 15, 2002 to November 7, 2002. After deducting discount and commission and estimated expenses of the offering of $1.9 million, we received approximately $125.8 million from the sale of the notes. We used the net proceeds together with available cash on hand and a draw down of $10.0 million on the revolving line of credit under the 2002 Bank Credit Agreement, to redeem our existing 9% Senior Subordinated Notes including an early redemption premium of $9.0 million and accrued interest of $7.2 million. Net costs associated with the offering totaled $1.6 million. These costs were capitalized and are being amortized to interest expense over the term of the 2002 notes. Based on the quoted market price, the fair value of 8% Senior Subordinated Notes due 2012 add-on issuance was $130.0 million at December 31, 2002.

On December 31, 2002, we completed an add-on issuance of $125.0 million aggregate principle amount of 8% Senior Subordinated Notes due 2012 at a premium of $3.8 million. We received net proceeds of approximately $130.4 million from the sale of the notes. We used the net proceeds together with additional funding from our term loan of $125 million, a draw down of $7.0 million on the revolving line of credit under the 2002 Bank Credit Agreement and available cash on hand of $0.2 million, to redeem our existing 8.75% Senior Subordinated Notes due 2007, including an early redemption premium of $10.9 million, net costs associated with the offering totaled $1.7 million. Of these costs, $1.3 million were capitalized and are being amortized to interest expense over the term of the 2002 notes. Based on the quoted market price, the fair value of the 8% Senior Subordinated Notes due 2012 add-on issuance was $128.8 million at December 31, 2002.

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Summary

Notes payable, capital leases, the 1998 Bank Credit Agreement as amended, and the 2002 Bank Credit Agreement consisted of the following as of December 31, 2002 and 2001 (in thousands):

	2002			2001
Bank Credit Agreement, Term Loan	$	500,000		$	500,000
Bank Credit Agreement, Revolving Credit Facility	52,000			364,000
8.75% Senior Subordinated Notes, due 2007	¾			250,000
9% Senior Subordinated Notes, due 2007	¾			200,000
8.75% Senior Subordinated Notes, due 2011	310,000			310,000
Note payable of consolidated entity (Cunningham)	35,000			¾
8% Senior Subordinated Notes, due 2012	550,000			¾
Capital leases	43,763			18,465
Installment note for certain real estate interest at 8.0%	61			70
	1,490,824			1,642,535
Less: Discount on 8.75% Senior Subordinated notes, due 2007	¾			(585		)
Plus: Premium on 8% Senior Subordinated Notes, due 2012	4,375			¾
Plus: SFAS No. 133 derivatives, net	23,783			3,370
Less: Current portion	(292		)	(182		)
	$	1,518,690		$	1,645,138

Indebtedness under the notes payable, capital leases and 2002 Bank Credit Agreement as of December 31, 2002 mature as follows (in thousands):

	Notes and 2002 Bank Credit Agreement		Capital Leases			Total
2003	$	—	$	4,162		$	4,162
2004	3,750		4,120			7,870
2005	5,000		4,214			9,214
2006	5,000		4,307			9,307
2007	5,000		4,398			9,398
2008 and thereafter	1,428,250		100,331			1,528,581
Total minimum payments	$	1,447,000	$	121,532		$	1,568,532
Plus: SFAS No. 133 derivatives, net	23,783		—			23,783
Plus: Premium on 8 Senior Subordinated Notes due 2012 P	4,375		—			4,375
Less: Amount representing interest	—		(77,708		)	(77,708		)
	$	1,475,158	$	43,824		$	1,518,982

Substantially all of the Company’s stock in its wholly owned subsidiaries has been pledged as security for notes payable and commercial bank financing.

As of December 31, 2002, we had 32 capital leases including 26 tower leases, four building leases, an LMA lease and a computer hardware lease. All of our tower leases will expire within the next 30 years, the building leases will expire within the next 13 years, the LMA lease will expire within the next six years and our computer hardware lease will expire within the next year. Most of our leases have a 5-10 year renewal option and it is expected that these leases will be renewed or replaced within the normal course of business.

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5. NOTES AND CAPITAL LEASES PAYABLE TO AFFILIATES:

Notes and capital leases payable to affiliates consisted of the following as of December 31, 2002 and 2001

(in thousands):

	2002			2001
Subordinated installment notes payable to former majority owners, interest 8.75%, principal payments in varying amounts due annually beginning October 1991, with a balloon payment due at maturity in May 2005	$	4,244		$	5,395
Capital lease for building, interest at 7.93%	2,041			2,448
Capital lease for building, interest at 6.62%	6,652			7,323
Capital leases for broadcasting tower facilities, interest at 9.0%	5,404			2,782
Capitalization of time brokerage agreements, interest at 6.20% to 8.25%	8,611			17,816
Capital leases for building and tower, interest at 8.25%	6,036			4,546
	32,988			40,310
Less: Current portion	(4,157		)	(7,086		)
	$	28,831		$	33,224

Notes and capital leases payable to affiliates as of December 31, 2002 mature as follows (in thousands):

2003	$	6,602
2004	6,643
2005	7,580
2006	5,238
2007	4,462
2008 and thereafter	24,144
Total minimum payments due	54,669
Less: Amount representing interest	(21,681		)
Present value of future notes and capital lease payments	$	32,988

6. PROGRAM CONTRACTS PAYABLE:

Future payments required under program contracts payable as of December 31, 2002 were as follows

(in thousands):

2003	$	121,396
2004	66,530
2005	45,852
2006	12,095
2007	181
Total	$	246,054
Less: Current portion	(121,396		)
Long-term portion of program contracts payable	$	124,658

Included in the current portion amounts are payments due in arrears of $23.4 million. In addition, we have entered into non-cancelable commitments for future program rights aggregating $59.9 million as of December 31, 2002.

We perform a net realizable value calculation for each of our non-cancelable commitments in accordance with SFAS No. 63, Financial Reporting by Broadcasters. We utilize sales information to estimate the future revenue of each commitment and measure that amount against the amount of the commitment. If the estimated future revenue is less than the amount of the commitment, the value of the asset is adjusted.

We have estimated the fair value of our program contract payables and non-cancelable commitments at approximately $233.6 million and $53.6 million, respectively, as of December 31, 2002, and $220.8 million and $91.3 million, respectively, as of December 31, 2001. These estimates were based on future cash payments discounted at our current borrowing rate.

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7. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST, COMMON STOCK AND PREFERRED STOCK:

1997 Offering of Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust

In March 1997, the Company completed a private placement of $200 million aggregate liquidation value of 11.625% High Yield Trust Offered Preferred Securities (HYTOPS) of Sinclair Capital, a subsidiary trust of the Company. The HYTOPS were issued March 12, 1997, mature March 15, 2009, and provide for quarterly distributions to be paid in arrears beginning June 15, 1997. The HYTOPS were sold to “qualified institutional buyers” (as defined in Rule 144A under the Securities Act of 1933, as amended) and a limited number of institutional “accredited investors” and the offering was exempt from registration under the Securities Act of 1933, as amended (the Securities Act), pursuant to Section 4(2) of the Securities Act and Rule 144A thereunder. The Company utilized $135.0 million of the approximately $192.8 million net proceeds of the private placement to repay outstanding debt and retained the remainder for general corporate purposes.

Pursuant to a Registration Rights Agreement entered into in connection with the private placement of the HYTOPS, the Company offered holders of the HYTOPS the right to exchange the HYTOPS for new HYTOPS having the same terms as the existing securities, except that the exchange of the new HYTOPS for the existing HYTOPS has been registered under the Securities Act. On May 2, 1997, the Company filed a registration statement on Form S-4 with the Commission for the purpose of registering the new HYTOPS to be offered in exchange for the aforementioned existing HYTOPS issued by the Company in March 1997 (the “Exchange Offer”). The Company’s Exchange Offer was closed and became effective August 11, 1997, at which time all of the existing HYTOPS were exchanged for new HYTOPS. Annual preferred dividends payable to the holders of HYTOPS are recorded as “Subsidiary trust minority interest expense” in the accompanying financial statements and was $23.3 million for each of the three years ended December 31, 2002, 2001, and 2000.

Common Stock

Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to ten votes per share except for votes relating to “going private” and certain other transactions. The Class A Common Stock and the Class B Common Stock vote altogether as a single Class except as otherwise may be required by Maryland law on all matters presented for a vote. Holders of Class B Common Stock may at any time convert their shares into the same number of shares of Class A Common Stock.

Preferred Stock

During 1997, the Company completed a public offering of 3,450,000 shares of Series D Convertible Exchangeable Preferred Stock (the “1997 Preferred Stock Offering”). The Convertible Exchangeable Preferred Stock has a liquidation preference of $50 per share and a stated annual dividend of $3.00 per share payable quarterly out of legally available funds and are convertible into shares of Class A Common Stock at the option of the holders thereof at a conversion price of $22.813 per share, subject to adjustment. The Convertible Exchangeable Preferred Stock is convertible into 7,561,644 shares of Class A common stock, all of which has been reserved by the company for future issuance. The shares of Convertible Exchangeable Preferred Stock are exchangeable at the option of the Company, for 6% Convertible Subordinated Debentures of the Company, due 2012, and are redeemable at the option of the Company on or after September 20, 2000 at specified prices plus accrued dividends.

8. DERIVATIVE INSTRUMENTS:

The Company enters into derivative instruments primarily for the purpose of reducing the impact of changing interest rates on our floating rate debt, and to reduce the impact of changing fair market values of our fixed rate debt. In addition, we have entered into put and call option derivative instruments relating to the Company’s Class A Common Stock in order to hedge the possible dilutive effect of employees exercising stock options pursuant to the Company’s stock option plans.

Statement of Financial Accounting Standard No. 133

On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of SFAS 133 and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133. SFAS No. 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative instrument’s fair value be recognized currently in

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earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instrument’s gains and losses to offset related results on the hedged item in the income statement, to the extent effective, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 had the following impact on the Company’s financial statements.

Our existing interest rate swap agreements at January 1, 2001 did not qualify for special hedge accounting treatment under SFAS No. 133. As a result, both of the Company’s interest rate swap agreements were reflected as liabilities on January 1, 2001 at their fair market value of $7.1 million in the aggregate, including $1.0 million of bond discount related to the transition adjustment to record the Company’s fixed-to-floating rate derivative instrument. The bond discount resulting from the implementation of SFAS No. 133 is being amortized to interest expense through December 15, 2007, the termination date of the swap agreement. The floating-to-fixed rate derivative instrument was recorded at its fair value of $6.1 million on December 29, 2001 as a result of an amendment.

SFAS No. 133 required deferred gains and losses on previously terminated floating-to-fixed rate hedges to be presented as other comprehensive income or loss on the Consolidated Balance Sheet. As a result, on January 1, 2001, the Company reclassified the $2.8 million net balance of deferred losses to accumulated other comprehensive loss, net of a deferred tax benefit of $1.5 million and is amortizing this balance to interest expense over the original terms of the previously terminated and modified swap agreements, which expire from July 9, 2001 to June 3, 2004. The Company amortized $1.3 million and $0.3 million from accumulated other comprehensive loss and deferred tax asset to interest expense during 2002 and 2001, respectively.

Interest Rate Derivative Instruments

During the twelve months ended December 31, 2002 and 2001, we held four derivative instruments:

• An interest rate swap agreement with a notional amount of $575 million, which expires on June 5, 2006. The swap agreement requires the Company to pay a fixed rate which is set in the range of 5.95% to 7% and receive a floating rate based on the three month London Interbank Offered Rate (LIBOR) (measurement and settlement is performed quarterly). This swap agreement is reflected as a derivative obligation based on its fair value of $71.4 million and $40.5 million as a component of other long-term liabilities in the accompanying consolidated balance sheets as of December 31, 2002 and 2001, respectively. This swap agreement does not qualify for hedge accounting treatment under SFAS No. 133; therefore, changes in its fair market value are reflected currently in earnings as gain (loss) on derivative instruments. The Company incurred an unrealized loss of $30.9 million and $34.4 million during 2002 and 2001, respectively, related to this instrument.

• In March 2002, we entered into two interest rate swap agreements with notional amounts totaling $300 million which expire on March 15, 2012 in which we receive a fixed rate of 8% and pay a floating rate based on LIBOR (measurement and settlement is performed quarterly). These swaps are accounted for as a hedge of our 8% debenture in accordance with SFAS No. 133 whereby changes in the fair market value of the swaps are reflected as adjustments to the carrying amount of the debenture. These swaps are reflected in the accompanying balance sheet as a derivative asset and as a premium on the 8% debenture based on their fair value of $26.3 million.

• In June 2001, we entered into an interest rate swap agreement with a notional amount of $250 million which expires on December 15, 2007 in which the Company receives a fixed rate of 8.75% and pays a floating rate based on LIBOR (measurement and settlement is performed quarterly). This swap was accounted for as a hedge of the Company’s 8.75% debenture in accordance with SFAS No. 133 whereby changes in the fair market value of the swap were reflected as adjustments to the carrying amount of the debenture. During December 2002, the Company terminated this interest rate swap agreement. We received $10.9 million upon termination, which offset the premium that we paid on the 8.75% notes redemption.

• In June 2001, we entered into an interest rate swap agreement with a notional amount of $200 million which expires on July 15, 2007 in which the Company receives a fixed rate of 9% and pays a floating rate based on LIBOR (measurement and settlement is performed quarterly). This swap was accounted for as a hedge of the Company’s 9% Notes in accordance with SFAS No. 133 whereby changes in the fair market value of the swap were reflected as adjustments to the carrying amount of

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the debenture. During November 2002, the Company terminated this interest rate swap agreement and received $9.0 million, which offset the premium that we paid on the 9% notes redemption.

The counterparties to these agreements are international financial institutions. The Company estimates the net fair value of these instruments at December 31, 2002 to be a liability of $45.1 million. The fair value of the interest rate swap agreements is estimated by obtaining quotations from the financial institutions, which are a party to the Company’s derivative contracts. The fair value is an estimate of the net amount that the Company would pay on December 31, 2002 if the contracts were transferred to other parties or cancelled by the Company.

During May 2000, the Company terminated an interest rate swap with a notional amount of $250 million and recognized a net mark-to-market gain of $2.2 million which is reflected in the accompanying Consolidated Statement of Operations as gain (loss) on derivative instruments.

The Company experienced losses of $2.6 million during 2000 as a result of terminating two of its fixed-to-floating interest rate swap agreements. The losses resulting from these terminations are reflected as a discount on the Company’s fixed rate debt and are being amortized to interest expense through December 15, 2007, the expiration date of the terminated swap agreements. For the year ended December 31, 2002, amortization of $0.4 million of the discount was recorded to interest expense.

During 2000, the Company experienced gains of $1.9 million as a result of terminating several of its floating-to-fixed interest rate swap agreements. In addition, during 2000 the Company experienced a loss of $6.1 million as a result of modifying the terms of its remaining floating-to-fixed interest rate swap agreement, as discussed above. These deferred gains and losses are being amortized to interest income and expense through the expiration dates of the terminated or modified swap agreements, which expire from July 9, 2001 to June 3, 2004. For the year ended December 31, 2000, amortization of $0.1 million of the deferred gain was recorded to interest expense. No amortization of the deferred loss was recorded because the loss occurred on the last business day of 2000. These balances were transferred to other comprehensive loss on January 1, 2001, as described above.

Treasury Option Derivative Instrument

In August 1998, the Company entered into a treasury option derivative contract (the “Option Derivative”). The Option Derivative contract provided for 1) an option exercise date of September 27, 2000, 2) a notional amount of $300 million and 3) a five-year treasury strike rate of 6.4%. Upon the execution of the Option Derivative in 1998, the Company received a cash payment representing an option premium of $9.5 million, which was recorded in “Other long-term liabilities” in the accompanying Consolidated Balance Sheets. The Company adjusted its liability to the present value of the future payments of the settlement amounts based on the forward five-year treasury rate at the end of each accounting period. These adjustments are reflected on the Company’s Consolidated Statements of Operations as “Unrealized gains or losses on derivative instruments”.

On September 27, 2000, the yield in the five-year treasury rate was 5.906% resulting in a loss of $0.3 million for the year ended December 31, 2000. In addition, the Company made a cash settlement payment of $3.0 million upon the expiration of the Option Derivative contract which is equal to the notional amount of $300 million multiplied by the strike rate (6.14%) less the settlement rate (5.906%) discounted over a five-year period. The Company realized a $6.4 million cash profit over the life of the transaction.

Equity Put And Call Options

As of December 31, 2002, the Company had no outstanding put and call options.

1997 Options

In April 1997, the Company entered into put and call option contracts related to its common stock for the purpose of hedging the dilution of the common stock upon the exercise of stock options granted. The Company entered into 1,100,000 European style (that is, exercisable on the expiration date only) put options for common stock with a strike price of $12.89 per share which provide for settlement in cash or in shares, at the election of the Company. The Company entered into 1,100,000 American style (that is, exercisable any time on or before the expiration date) call options for common stock with a strike price of $12.89 per share which provide for settlement in cash or in shares, at the election of the Company. During the year ended December 31, 2000, upon the settlement of these options, the Company repurchased 1,100,000 shares of common stock and made payments of $14.2 million.

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1998 Options

In July 1998, the Company entered into put and call option contracts related to the Company’s common stock (the “July Options”). In September 1998, the Company entered into additional put and call option contracts related to the Company’s common stock (the “September Options”). These option contracts allow for settlement in cash or net physically in shares, at the election of the Company. The Company entered into these option contracts for the purpose of hedging the dilution of the Company’s common stock upon the exercise of stock options granted.

The July Options included 2,700,000 call options for common stock and 2,700,000 put options for common stock, with a strike price of $33.27 and $28.93 per common share, respectively. The September Options included 467,000 call options for common stock and 700,000 put options for common stock, with a strike price of $28 and $16.0625 per common share, respectively. For the year ended December 31, 1998, option premium payments of $12.2 million and $0.7 million were made relating to the July and September Options, respectively. The Company recorded these premium payments as a reduction of additional paid-in capital. To the extent that the Company entered into put options related to its common stock, the additional paid-in capital amounts were reclassified accordingly and reflected as Equity Put Options in the accompanying consolidated balance sheets as of December 31, 1999. For the year ended December 31, 1999, the Company recorded receipts of $1.25 million relating to the 1998 September Options as an increase in additional paid-in capital. Additionally, 200,000 of the 1998 September Options were retired during 1999.

The 1998 July Options and September Options were exercised during March 2000. The Company repurchased 208,400 shares and made a net payment of $1.6 million related to this settlement. The 1998 September Options were amended during March 2000 to include 2.1 million equity put options at a put strike price of $10.125. The Company settled the 1998 September options during December 2000 and repurchased 1,430,000 shares of common stock and made a payment of $14.5 million related to this settlement. On April 10, 2001, this option became exercisable and, as a result, the contract was settled for $7.7 million in cash on April 16, 2001.

9. INCOME TAXES:

The Company files a consolidated federal income tax return and separate company state tax returns. The provision (benefit) for income taxes consisted of the following for the years ended December 31, 2002, 2001 and 2000

(in thousands):

	2002			2001			2000
(Benefit from) provision for income taxes – continuing operations	$	1,369		$	(51,875	)	$	3,355
Provision for income taxes – discontinued operations	347			193			4,711
Provision for income taxes – sale of discontinued operations	8,175			—			69,870
Benefit from income taxes – extraordinary item	(5,531		)	(7,800		)	—
Benefit from income taxes – cumulative adjustment for change in accounting principle	$	(30,383	)	—			—
	$	(26,023	)	$	(59,482	)	$	77,936
Current:
Federal	$	(37,357	)	$	(47,880	)	$	58,079
State	3,160			(910		)	13,439
	$	(34,197	)	$	(48,790	)	$	71,518
Deferred:
Federal	7,894			(9,792		)	5,829
State	280			(900		)	589
	8,174			(10,692		)	6,418
	$	(26,023	)	$	(59,482	)	$	77,936

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The following is a reconciliation of federal income taxes at the applicable statutory rate to the recorded provision (benefit) from continuing operations:

	2002		2001		2000
Statutory federal income taxes	35.0	%	(35.0	)%	(35.0	)%
Adjustments-
State income and franchise taxes, net of federal effect	14.0	%	0.4	%	7.0	%
Goodwill amortization	—		7.2	%	39.0	%
Non-deductible expense items	17.1	%	0.6	%	6.5	%
Reversal of income tax accruals	—		(3.8	)%	—
Change in valuation allowance	(24.5	)%	(4.0	)%	¾
Effect of changes in state tax rates on deferred taxes	(13.2	)%	(0.1	)%	¾
Other	(2.2	)%	3.4	%	(1.9	)%
Provision (benefit) for income taxes	26.2	%	(31.3	)%	15.6	%

Temporary differences between the financial reporting carrying amounts and the tax basis of assets and liabilities give rise to deferred taxes. We had a net deferred tax liability of $167.2 million and $155.5 million as of December 31, 2002 and 2001, respectively.

The Company’s remaining federal and state net operating losses will expire during various years from 2012 to 2022, and in certain cases, are subject to annual limitations under Internal Revenue Code Section 382 and similar state provisions. The tax effects of these net operating losses are recorded in the deferred tax accounts in the accompanying consolidated balance sheets.

Total deferred tax assets and deferred tax liabilities as of December 31, 2002 and 2001 were as follows (in thousands):

	2002			2001
Deferred Tax Assets:
Accruals and reserves	$	12,259		$	14,418
Net operating losses	63,593			35,539
Other comprehensive income net deferred tax assets	913			1,487
Other	15,128			20,232
	$	91,893		71,676
Valuation allowance for deferred tax assets	(48,825		)	(25,724		)
	$	43,068		$	45,952
Deferred Tax Liabilities:
FCC license	$	(37,682	)	$	(45,515	)
Parent Preferred Stock deferred tax liability	(25,833		)	(25,833		)
Fixed assets and intangibles	(141,628		)	(128,334		)
Cunningham net deferred tax liabilities	(1,069		)	—
Other	(4,064		)	(1,730		)
	$	(210,276	)	$	(201,412	)

The Company establishes valuation allowances in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. The Company periodically reviews the adequacy of the valuation allowance and is recognizing these benefits only as reassessment indicates that it is more likely than not that the benefits will be realized.

In December 2001, the Internal Revenue Service (IRS) completed its examination of the Company’s federal income tax returns filed through 1997. As a result of this settlement, the Company’s fiscal year 2001 benefit for income taxes reflects a $6.3 million reduction of taxes provided in prior periods. The IRS has initiated an examination of federal tax returns subsequent to 1998. The Company believes that adequate accruals have been provided for all years.

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10. COMMITMENTS AND CONTINGENCIES:

Litigation

Lawsuits and claims are filed against the Company from time to time in the ordinary course of business. These actions are in various preliminary stages, and no judgements or decisions have been rendered by hearing boards or courts. Management, after reviewing developments to date with legal counsel, is of the opinion that the outcome of such matters will not have a material adverse effect on the Company’s consolidated financial position, consolidated results of operations or consolidated cash flows.

Operating Leases

The Company has entered into operating leases for certain property and equipment under terms ranging from three to ten years. The rent expense under these leases, as well as certain leases under month-to-month arrangements for the years ended December 31, 2002, 2001 and 2000 was approximately $5.1 million, $5.7 million and $6.8 million, respectively.

Future minimum payments under the leases are as follows (in thousands):

2003	$	4,134
2004	3,249
2005	2,839
2006	2,511
2007	2,196
2008 and thereafter	7,782
	$	22,711

At December 31, 2002 and 2001, the Company had an outstanding letter of credit of $1.06 million and $1.14 million, respectively, under our revolving credit facility. The letter of credit acts as a guarantee of lease payments for the property occupied by WTTA-TV in Tampa, FL pursuant to the terms and conditions of the lease agreement.

Affiliation Agreements

Sixty of the 62 television stations that SBG owns and operates or to which it provides programming services or sales services, currently operate as affiliates of FOX (20 stations), WB (19 stations), ABC (8 stations), NBC (4 stations), UPN (6 stations) or CBS (3 stations). The remaining two stations are independent. The networks produce and distribute programming in exchange for each station’s commitment to air the programming at specified times and for commercial announcement time during the programming. In addition, networks other than FOX pay each affiliated station a fee for each network-sponsored program broadcast by the station.

We received a notice from NBC that prevented what would have otherwise been an automatic 5-year extension of the affiliation agreement for WICS/WICD (Champaign/Springfield, Illinois), which expired on June 30, 2002. Recently, we extended the term of the affiliation agreement for WICS/WICD to April 1, 2003. The agreement for WKEF-TV (Dayton, Ohio), another NBC affiliate, is also due to expire on April 1, 2003. If we do not enter into affiliation agreements to replace the expired or expiring agreements, we may no longer be able to carry programming of the relevant network. This loss of programming would require us to obtain replacement programming, which may involve higher costs and which may not be attractive to our target audience.

Affiliation agreements between our stations and FOX network expired in 2001. We recently secured a long-term affiliation agreement with a term that will run through June 30, 2005 for all 20 of our FOX stations we own and operate or program under LMA agreements. In Baltimore, where Sinclair operates as the FOX affiliate and where FOX owns a television station, which operates as a UPN affiliate, both parties agreed that Sinclair would continue as the FOX affiliate for the three-year term.

In November 2002, we agreed to extend the UPN affiliation of our station WUXP-TV, Nashville, Tennessee until July 31, 2004, which is co-terminus with our other UPN agreements. In addition, the affiliation agreements of three ABC stations (WEAR-TV, in Pensacola, Florida, WCHS-TV, in Charleston, West Virginia and WXLV-TV, in Greensboro/Winston-Salem, North Carolina) have expired. As of December 31, 2002, the corresponding net book values for the affiliation agreements are $4.2 million, $2.7 million and $13.1 million, respectively. We continue to operate these stations as an ABC affiliate and the Company does not believe ABC has any current plans to terminate the affiliation of any of these stations.

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Upon the termination of any of the above affiliation agreements, the Company would be required to establish new affiliations with other networks or operate as an independent. At such time, the remaining value of the network affiliation asset could become impaired and the Company would be required to write down the value of the asset.

Local Marketing Agreements

A number of television stations, including certain of our stations, have entered into what have commonly been referred to as local marketing agreements or LMAs. While these agreements may take varying forms, one typical type of LMA is a programming agreement between two separately owned television stations serving a common service area, 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 ultimate editorial and other controls being exercised by the latter licensee. The licensee of the station which is being substantially programmed by another entity must maintain complete responsibility for and control over the programming, financing, personnel and operations of its broadcast station and is responsible for compliance with applicable FCC rules and policies.

In the past, a licensee could own one station and program and provide other services to another station pursuant to an LMA in the same market because LMAs were not considered attributable interests. However, under the ownership rules adopted in August 1999, LMAs are now attributable where a licensee owns a television station and programs more than 15% of the weekly broadcast time of another television station in the same market. The rules provide that LMAs entered into on or after November 5, 1996 had until August 5, 2001 to come into compliance with the ownership rules. LMAs entered into before November 5, 1996 are grandfathered until the conclusion of the FCC’s 2004 biennial review. In certain cases, parties with grandfathered LMAs may be able to rely on the circumstances at the time the LMA was entered into in advancing any proposal for co-ownership of the station. We acquired 15 of the stations we had been programming pursuant to LMAs. We currently program 11 television stations pursuant to LMAs. Of these 11 stations, three of the LMAs are not subject to divestiture because they involve stations which Sinclair could own under the duopoly rules, but either has decided not to acquire at this time or has no right to acquire, four LMAs (including an LMA with a station we have filed an application to acquire) were entered into before November 5, 1996, and four LMAs were entered into on or after November 5, 1996 (although we believe a valid position exists that one of these four LMAs was effectively entered into prior to November 5, 1996.) The FCC denied petitions for reconsideration of the duopoly rules, including a petition submitted by us. We filed a Petition for Review of the Report and Order adopting the duopoly rules in the U.S. Court of Appeals for the D.C. Circuit. In June 2001, the U.S. Court of Appeals for the D.C. Circuit granted our motion for stay of the requirement that we divest the four LMAs entered into on or after November 5,1996 by August 5, 2001, which stay is still pending. If the company were required to divest of these stations, the intangible assets aggregating approximately $75.5 million associated with these LMA agreements may be impaired and the Company would be required to write down the value of such assets. The Company does not believe the assets of these four stations are impaired. In April 2002, the court held that parts of the television duopoly rule were arbitrary and capricious and remanded the rule to the FCC for further consideration.

In December 2001, the FCC issued a decision which, among other things, granted a number of Sinclair and Cunningham applications and dismissed our application to acquire the license of one of the stations (WBSC–TV) we program pursuant to a pre-November 5, 1996 LMA as not meeting the requirements for ownership under the new duopoly rules. We have filed a motion for reconsideration of the dismissal. In January 2002, the Rainbow/PUSH Coalition filed an appeal of the FCC’s decision with the U.S. Court of Appeals for the D.C. Circuit. The stations affected by the appeal are WNUV-TV, WTTE-TV, WRGT-TV, WTAT-TV, WVAH-TV, KOKH-TV, KRRT-TV, WVTV-TV, WRDC-TV, WABM-TV, WBSC-TV, WCWB-TV, WLOS-TV and KABB-TV. Oral arguments in this matter are scheduled for the first quarter of 2003. Although we do not expect to lose these licenses, we can provide no assurances as to the outcome of the appeal.

Outsourcing Agreements

On May 1, 2002, we entered into an outsourcing agreement in which our stations in Nashville, Tennessee will provide certain sales, administrative and technical services to WNAB-TV.

We have entered into an agreement with a third party to purchase certain license and non-license television broadcast assets of WNAB-TV at our option (the Call Option) and additionally, the third party may require us to purchase these license and non-license broadcast assets at the option of the third party (the Put Option). On January 2, 2003 we made an $18 million non-refundable deposit against the purchase price of the put or call option on the non-license assets in return for a reduction in our monthly fees. Upon exercise, we may settle the Call or Put Options entirely in cash or, at our option, we may pay up to one-half of the purchase price by issuing additional shares of our Class A common stock. The Call and Put option exercise prices vary depending upon the exercise dates. The license asset Call

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option exercise price is $5.0 million prior to March 31, 2005, $5.6 million from March 31, 2005 until March 31, 2006 and $6.2 million after March 31, 2006. The non-license asset Call option exercise price is $8.3 million prior to March 31, 2005, $12.6 million from March 31, 2005 until March 31, 2006 and $16.0 million after March 31, 2006. The license asset Put option price is $5.4 million from July 1, 2005 to July 31, 2005, $5.9 million from July 1, 2006 to July 31, 2006 and $6.3 million from July 1, 2007 to July 31, 2007. The non-license asset Put option price is $7.9 million from July 1, 2005 to July 31, 2005, $12.4 million from July 1, 2006 to July 31, 2006 and $16.0 million from July 1, 2007 to July 31, 2007.

On July 9, 2002, we entered into an outsourcing agreement in which a third party will provide certain sales, administrative and technical services to our station KGAN-TV in Cedar Rapids, IA, in return for a share of our combined broadcast cash flows.

11. RELATED PARTY TRANSACTIONS:

During the year ended December 31, 1993, we loaned Gerstell Development Limited Partnership (a partnership owned by Class B Stockholders) $2.1 million. The note bears interest at 6.18%, with principal payments beginning on November 1, 1994, and a final maturity date of October 1, 2013. As of December 31, 2002 and 2001, the balance outstanding was approximately $1.5 million and $1.6 million, respectively.

On September 30, 1990, we issued certain notes (the founders’ notes) maturing on May 31, 2005, payable to the late Julian S. Smith and Carolyn C. Smith, former majority owners of Sinclair and the parents of class B stockholders. The founders’ notes, which were issued in consideration for stock redemptions equal to 72.65% of the then outstanding stock of Sinclair, have principal amounts of $7.5 million and $6.7 million, respectively. The founders’ notes include stated interest rates of 8.75%, which were payable annually from October 1990 until October 1992, then payable monthly commencing April 1993 to December 1996, and then semi-annually thereafter until maturity. The effective interest rate approximates 9.4%. The founders’ notes are secured by security interests in substantially all of Sinclair’s assets and subsidiaries, and are personally guaranteed by class B stockholders.

Concurrently with our initial public offering, we acquired options from certain stockholders of Cunningham that will grant us the right to acquire, subject to applicable FCC rules and regulations, 100% of the capital stock of Cunningham. The Cunningham option exercise price is based on a formula that provides a 10% annual return to Cunningham. Cunningham is the owner-operator and FCC licensee of WNUV-TV in Baltimore, WRGT-TV in Dayton, WVAH-TV in Charlston, WV, WTAT-TV in Charlston, SC, WBSC-TV in Asheville/Greenville/Spartanburg and WTTE-TV in Columbus. The Company has entered into five-year LMA agreements (with five-year renewal terms at the Company’s option) with Cunningham pursuant to which the Company provides programming to Cunningham for airing on WNUV-TV, WRGT-TV, WVAH-TV, WTAT-TV, WBSC-TV and WTTE-TV. During the years ended December 31, 2002, 2001 and 2000, the Company made payments of $4.0 million, $11.8 million and $11.3 million, respectively, to Cunningham under these LMA agreements.

During the years ended December 31, 2002, 2001 and 2000, we from time to time entered into charter arrangements to lease aircraft owned by certain Class B Stockholders. During the years ended December 31, 2002, 2001 and 2000, we incurred expenses of approximately $0.2 million, $41,000 and $0.2 million related to these arrangements, respectively.

Certain assets used by the Company and its operating subsidiaries are leased from Cunningham Communications Inc., Keyser Investment Group, Gerstell Development Limited Partnership, and Beaver Dam, LLC (entities owned by the

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Class B Stockholders). Lease payments made to these entities were $3.6 million, $3.1 million, and $2.8 million for the years ended December 31, 2002, 2001 and 2000, respectively.

On December 30, 2002, we invested $20 million in Summa Holdings, Ltd. (Summa), resulting in a 17.5% equity interest. Summa is a holding company, which owns automobile dealerships, retail tire franchises and a leasing company. David D. Smith, our President and Chief Executive Officer, has a controlling interest in Summa and is a member of the Board of Directors. We will have significant influence by holding a board seat (in addition to the board seat held by David D. Smith); therefore we will account for this investment under the equity method of accounting.

We sold advertising time to Summa on WBFF-TV and WNUV-TV and received payments totaling $0.3 million during the twelve months ended December 31, 2002 and $0.2 million during each of the twelve months ended December 31, 2001 and 2000.

12. ACQUISITIONS AND DISPOSITIONS:

Montecito Acquisition. In February 1998, the Company entered into a Stock Purchase Agreement with Montecito and its stockholder to acquire all of the outstanding stock of Montecito, which owns the FCC license for television broadcast station KFBT-TV. The FCC granted approval of the transaction and on April 18, 2000 the Company completed the purchase of the outstanding stock of Montecito for a purchase price of $33.0 million.

Emmis Disposition. In June 2000, the Company settled its litigation with Emmis Communication Corporation (Emmis) and former CEO-designate Barry Baker regarding the sale of its St. Louis broadcast properties. As a result of the settlement, the purchase option of the Company’s St. Louis broadcast properties has been terminated and a subsequent agreement was entered into whereby the Company would sell its St. Louis radio properties to Emmis. In October 2000, the Company completed the sale of its St. Louis radio properties to Emmis for $220.0 million and retained its St. Louis television station, KDNL-TV.

Entercom Disposition. On July 20, 2000 the Company completed the sale of four radio stations in Kansas City to Entercom Communications Corporation (Entercom)for an aggregate purchase price of $126.6 million in cash. The stations sold were KCFX-FM, KQRC-FM, KCIY-FM, and KXTR-FM. In November 2000, the Company completed the sale of WKRF-FM in Wilkes-Barre, Pennsylvania to Entercom for $0.6 million.

WNYO Acquisition. In August 2000, the Company entered into an agreement to purchase the stock of Grant Television, Inc., the owner of WNYO-TV in Buffalo, New York, for a purchase price of $51.5 million. In October 2000, the Company completed the stock acquisition of Grant, obtaining the non-license assets of WNYO-TV and began programming the television station under local marketing agreement. The acquisition was accounted for under the purchase method of accounting whereby the purchase price was allocated to property and programming assets, definite-lived intangible broadcast assets and other intangible assets for $2.9 million, $3.9 million and $39.8 million, respectively. In December 2001, the Company received FCC approval and on January 25, 2002, the Company completed the purchase of the FCC license and related assets of WNYO-TV for a purchase price of $6.7 million.

Cunningham/WPTT, Inc. Acquisition. On November 15, 1999, the Company entered into an agreement to purchase substantially all of the assets of television stations WCWB-TV, Channel 22, Pittsburgh, Pennsylvania, from the owner of that television station, WPTT, Inc. In December 2001, the Company received FCC approval and on January 7, 2002, the Company closed on the purchase of the FCC license and related assets of WCWB-TV for a purchase price of $18.8 million.

F-33

Company received FCC approval on all the transactions except for WBSC-TV. Accordingly, on February 1, 2002, the Company 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.

Mision Acquisition. Pursuant to our merger with Sullivan Broadcast Holdings, Inc. which was effective July 1, 1998, the Company acquired options to acquire television broadcast station WUXP-TV in Nashville, Tennessee from Mission Broadcasting I, Inc. and television broadcast station WUPN-TV in Greensboro, North Carolina from Mission Broadcasting II, Inc. On November 15, 1999, the Company exercised its option to acquire both of the foregoing stations. In December 2001, the Company received FCC approval and in January 2002, the Company closed on the purchase of the FCC licenses and related assets of WUXP-TV and WUPN-TV for the assumption of notes payable aggregating $4.2 million and $0.1 million of cash. Prior to closing, the Company programmed these stations pursuant to an LMA.

Sullivan Acquisition. In December 2001, the Company received FCC approval to acquire 100% of the stock of Sullivan Broadcasting Company II, Inc. and Sullivan Broadcasting Company IV, Inc. which, in the aggregate, own the FCC license and related assets of six television stations. In January 2002, the Company completed the purchase of the FCC license and related assets of WZTV-TV, WUTV-TV, WXLV-TV, WRLH-TV, WMSN-TV and KOKH-TV. Prior to closing, the Company programmed these stations pursuant to LMA’s. As consideration for the purchase of the FCC license and related assets of KOKH, the Company forgave a note receivable to Sullivan IV in the amount of $16.6 million.

WUHF Acquisition. In December 1999, the Company entered into a stock purchase agreement with BS&L Broadcasting, Inc. (BS&L) and its sole shareholder to acquire the stock of BS&L, the licensee of WUHF-TV, Rochester, New York. BS&L acquired the license of WUHF-TV from Sullivan II. One of the conditions to our acquisition of the stock of BS&L was the receipt of FCC approval. On April 30, 2002, we acquired the stock of BS&L Broadcasting, Inc. (BS&L), from its sole shareholder, which owned the FCC license and related assets of WUHF-TV in Rochester, New York. As consideration for the purchase of the FCC license and related assets, we forgave a note receivable from BS&L in the amount of $22.0 million. Prior to the completion of the acquisition, we programmed WUHF-TV pursuant to a local marketing agreement.

WBSC LMA. The license assets of WBSC-TV Greenville/Spartansburg/Anderson, South Carolina, are currently owned by Cunningham and we intend to acquire these assets upon FCC approval. The FCC recently denied our application to acquire the license for this station based on the “eight voices test” and we have filed a motion for reconsideration of that decision.

13. DISCONTINUED OPERATIONS:

In July 1999, the Company entered into an agreement to sell 46 of its radio stations in nine markets to Entercom for $824.5 million in cash (adjusted for closing costs). In December 1999, the Company completed the sale of 41 of its radio stations in eight markets to Entercom for $700.4 million in cash recognizing a gain, net of tax, of $192.4 million. The Company completed the sale of four of the remaining five radio stations to Entercom in July 2000 for $126.6 million in cash and completed the sale of the remaining radio station in Wilkes-Barre to Entercom in November 2000 for a purchase price of $0.6 million in cash. In addition, in October 2000, the Company completed its sale to Emmis of the remaining radio stations serving the St. Louis market for a purchase price of $220.0 million. The Company recognized a gain, net of tax, of $108.3 million on the sale of these remaining radio stations for the year ended December 31, 2000.

Based on the Company’s strategy to divest of its radio broadcasting segment, “Discontinued Operations” accounting has been adopted, in accordance with APB No. 30, for the periods presented in the accompanying financial statements and the notes thereto. As such, the results from operations of the radio broadcast segment, net of related income taxes, has been reclassified from income from operations and reflected as income from discontinued operations in the accompanying consolidated statements of operations for all periods presented. Accounts receivable related to discontinued operations, which the Company will continue to own the rights to and collect, is included in accounts receivable, net of allowance for doubtful accounts, in the accompanying consolidated balance sheets for all periods presented. Accounts receivable, net of allowance for doubtful accounts includes accounts receivable related to discontinued operations balances of $220,667, net of allowance of $144,253 and $4.6 million, net of allowance of $1.5 million as of December 31, 2002 and 2001, respectively.

On April 18, 2002, we entered into an agreement to sell the television station of WTTV-TV in Bloomington, Indiana and its satellite station, WTTK-TV in Kokomo, Indiana to a third party. On July 24, 2002, WTTV-TV had net assets and

F-34

liabilities held for sale of $108.8 million, and we completed such sale for $124.5 million and recognized a gain, net of taxes, of $7.5 million, which was used to pay down indebtedness. The operating results of WTTV-TV are not included in our consolidated results from continuing operations for the years ended December 31, 2002, 2001 and 2000. Since this agreement met all of the criteria for a qualifying plan of sale, the assets and liabilities disposed of by this sale have been classified as “held for sale” on the accompanying consolidated balance sheets presented. We applied the accounting for the disposal of long-lived assets in accordance with SFAS No. 144 as of January 1, 2002.

The details of classifications in the accompanying balance sheet as “held for sale” is as follows:

	December 31, 2002		December 31, 2001
Assets:
Current portion of program contract costs	$	—	$	7,440
Deferred barter costs	—		8
Prepaid expenses	—		68
Property and equipment, net	—		4,702
Program contract costs, less current portion	—		5,924
Intangibles	—		110,252
Assets held for sale	$	—	$	128,394

Liabilities:
Current portion of program contracts	$	—	$	9,132
Deferred barter revenues	—		(11		)
Program contracts payable, less current portion	—		11,702
Liabilities held for sale	$	—	$	20,823

“Net income from discontinued operations” includes net broadcast revenues of $10.2 million, $21.0 million and $55.5 million for the years ended December 31, 2002, 2001 and 2000, respectively.

Discontinued operations have not been segregated in the consolidated statements of cash flows and, therefore, amounts for certain captions will not agree with the accompanying Consolidated Statements of Operations.

14. RESTRUCTURING CHARGES:

During February 2001, the Company offered a voluntary early retirement program to its eligible employees and implemented a restructuring program to reduce operating and overhead costs. As a result, the Company reduced its staff by 186 employees and incurred a restructuring charge of $2.4 million, which is included in the accompanying Consolidated Statements of Operations.

During September 2001, KDNL-TV in St. Louis, Missouri discontinued programming its local news broadcast. As a result, the Company incurred a restructuring charge of $1.1 million. During December 2001, WXLV-TV in Winston-Salem, North Carolina discontinued programming its local news broadcast. As a result we incurred a restructuring charge of $0.3 million. The restructuring charges are related to severance and operating contract termination costs.

F-35

The following table provides a roll-forward of liabilities resulting from these restructuring charges (in thousands):

	Employee Severance and Termination Benefits			Lease Termination and Other Costs			Total
2001 Restructuring Charges	$	3,448		$	388		$	3,836
2001 Payments	(2,367		)	(76		)	(2,443		)
December 31, 2001 accrued balances	1,081			312			1,393
2002 Payments	(1,026		)	(275		)	(1,301		)
December 31, 2002 accrued balances	$	55		$	37		$	92

15. CONTRACT TERMINATION COSTS:

During 2001, the Company terminated certain agreements and entered into new agreements with unrelated third parties. The Company incurred $5.1 million of contract termination costs, and received $21.4 million for entering into a new contract. Both amounts will be recognized as a reduction in selling, general and administrative expense on a straight-line basis over the term of the contracts.

16. EMPLOYEE BENEFIT PLAN:

The Sinclair Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the SBG Plan) covers eligible employees of the Company. Contributions made to the SBG Plan include an employee elected salary reduction amount, company-matching contributions and a discretionary amount determined each year by the Board of Directors. The Company’s 401(k) expense for the years ended December 31, 2002, 2001 and 2000 was $1.3 million, $1.2 million and $1.7 million, respectively. There were no discretionary contributions during these periods. The Company has registered 800,000 shares of its Class A Common Stock with the SEC to be issued as a matching contribution for the 1997 plan year and subsequent plan years.

17. STOCK-BASED COMPENSATION PLANS:

Stock Option Plans

Designated Participants Stock Option Plan. In connection with the Company’s initial public offering in June 1995 (the “IPO”), the Board of Directors of the Company adopted an Incentive Stock Option Plan for Designated Participants (the Designated Participants Stock Option Plan) pursuant to which options for shares of Class A common stock were granted to certain key employees of the Company. The Designated Participants Stock Option Plan provides that the number of shares of Class A Common Stock reserved for issuance under the Designated Participant Stock Option Plan is 136,000. Options granted pursuant to the Designated Participants Stock Option Plan must be exercised within 10 years following the grant date. As of December 31, 2002, 34,500 shares were available for future grants.

Long-Term Incentive Plan. In June 1996, the Board of Directors of the Company adopted, upon approval of the stockholders by proxy, the 1996 Long-Term Incentive Plan (the LTIP). The purpose of the LTIP is to reward key individuals for making major contributions to the success of the Company and its subsidiaries and to attract and retain the services of qualified and capable employees. Options granted pursuant to the LTIP must be exercised within 10 years following the grant date. A total of 14,000,000 shares of Class A Common Stock are reserved for awards under the plan. As of December 31, 2002, 11,965,805 shares have been granted under the LTIP and 7,196,976 shares (including forfeited shares) were available for future grants.

Incentive Stock Option Plan. In June 1996, the Board of Directors adopted, upon approval of the stockholders by proxy, an amendment to the Company’s Incentive Stock Option Plan. The purpose of the amendment was (i) to increase the number of shares of Class A Common Stock approved for issuance under the plan from 800,000 to 1,000,000, (ii) to lengthen the period after date of grant before options become exercisable from two years to three years and (iii) to provide immediate termination and three-year ratable vesting of options in certain circumstances. Options granted pursuant to the ISOP must be exercised within 10 years following the grant date. As of December 31, 2002, 714,200 shares have been granted under the ISOP and 772,334 shares (including forfeited shares) were available for future grants.

F-36

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

	Options		Weighted-Average	Exercisable	Weighted-Average
	Options		Exercise Price	Exercisable	Exercise Price
Outstanding at end of 1999	7,182,770		19.84	3,639,020	15.41
2000 Activity:
Granted	1,371,335		9.71	—	—
Exercised	(5,667	)	9.25	—	—
Forfeited	(1,141,493	)	21.35	—	—
Outstanding at end of 2000	7,406,945		17.74	3,886,793	14.88
2001 Activity:
Granted	676,400		8.93	—	—
Exercised	(63,287	)	9.20	—	—
Forfeited	(792,613	)	18.94	—	—
Outstanding at end of 2001	7,227,445		16.86	4,666,669	15.65
2002 Activity:
Granted	260,400		12.14	—	—
Exercised	(283,812	)	9.23	—	—
Forfeited	(628,775	)	20.61	—	—
Outstanding at end of 2002	6,575,258		16.64	5,066,783	16.08

Additional information regarding stock options outstanding at December 31, 2002 is as follows:

Outstanding	Exercise Price		Weighted-Average Remaining Contractual Life (In Years)	Exercisable	Weighted- Average Exercise Price
398,675	$	6.10 – 9.06	8.2	174,150	$	8.70
1,127,963	$	9.20 – 13.68	7.4	724,038	$	9.73
3,257,870	$	14.32 – 20.94	3.6	3,231,470	$	15.35
1,790,750	$	24.20 – 28.42	5.1	937,125	$	24.91
6,575,258	$	6.10 – 28.42	4.9	5,066,783	$	16.08

18. EARNINGS PER SHARE:

The following table reconciles income (numerator) and shares (denominator) used in the Company’s computations of earnings per share for the years ended December 31, 2002, 2001, and 2000 (in thousands, except per share data):

	2002			2001			2000
Numerator
Net income (loss) from continuing operations	$	3,850		$	(113,460	)	$	(37,831	)
Net income from discontinued operations, including gain on sale of broadcast assets related to discontinued operations	$	7,891		$	(52	)	$	115,196
Net loss from extraordinary item	$	(9,831	)	$	(14,210	)	$	—
Cumulative adjustment for change in accounting principle	$	(566,404	)	$	—		$	—
Net (loss) income	$	(564,494	)	$	(127,722	)	$	77,365
Preferred stock dividends payable	(10,350		)	(10,350		)	(10,350		)
Net (loss) income available to common shareholders	$	(574,844	)	$	(138,072	)	$	67,015

Denominator
Weighted-average number of common shares	85,337			84,352			91,405
Dilutive effect of outstanding stock options	243			31			27
Dilutive effect of equity put options	—			241			1,055
Weighted-average number of common equivalent shares outstanding	85,580			84,624			92,487

BASIC EARNINGS PER SHARE:
Net loss per share from continuing operations	$	(0.08	)	$	(1.47	)	$	(0.53	)
Net income per share from discontinued operations	$	0.09		$	—		$	1.26
Net loss per share from extraordinary item	$	(0.12	)	$	(0.17	)	$	—
Net loss per change from cumulative effect of change in accounting principle	$	(6.64	)	$	—		$	—
Net (loss) income per share	$	(6.74	)	$	(1.64	)	$	0.73

DILUTED EARNINGS PER SHARE:
Net loss per share from continuing operations	$	(0.08	)	$	(1.47	)	$	(0.53	)
Net income per share from discontinued operations	$	0.09		$	—		1.26
Net loss per share from extraordinary item	$	(0.12	)	$	(0.17	)	$	—
Net loss per change from cumulative effect of change in accounting principle	$	(6.64	)	$	—		$	—
Net (loss) income per share	$	(6.74	)	$	(1.64	)	$	0.73

F-37

Basic earnings per share (EPS) is calculated using the weighted average number of shares outstanding during the period. Diluted earnings per share (Diluted EPS) includes the potentially dilutive effect, if any, which would occur if outstanding options to purchase common stock were exercised using the treasury stock method and if written equity put options were exercised using the reverse treasury stock method. Stock options to purchase 0.2 million incremental shares of common stock and stock options and written equity put options to purchase 0.3 million and 1.1 million incremental shares of common stock were outstanding during the years ended December 31, 2002, December 31, 2001 and December 31, 2000, respectively, but were not included in the computation of diluted EPS as the effect would be anti-dilutive. Stock options to purchase shares of common stock were outstanding during the years ended December 31, 2002, 2001 and 2000, but were not included in the computation of diluted EPS because the option’s exercise price was greater than the average market price of the common shares.

F-38

18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

	For the Quarter Ended,
	03/31/02 (As reported)			03/31/02 (As restated)(1)(2)			06/30/02 (2)			09/30/02 (2)			12/31/02
Total revenues	$	167,480		$	160,379		$	190,670		$	178,567		$	206,173
Operating income (loss)	28,808			28,854			49,078			42,998			63,700
Net income (loss) from continuing operations	(630		)	(172		)	(2,009		)	(24,987		)	31,018
Income (loss) from discontinued operations	—			(458		)	585			7,764			—
Income (loss) from extraordinary item	(728		)	(728		)	—			(4,218		)	(4,885		)
Income (loss) from change in accounting principle	(41,608		)	(566,404		)	—			—			—
Net loss available to common shareholders	(45,554		)	(570,350		)	(4,011		)	(24,029		)	23,546

Basic loss per share from continuing operations	(0.04		)	(0.03		)	(0.05		)	(0.32		)	0.33
Basic income (loss) per share from discontinued operations	—			(0.01		)	0.01			0.09			—
Basic income (loss) per share from extraordinary item	(0.01		)	(0.01		)	—			(0.05		)	(0.06		)
Basic income (loss) per share from change in accounting principle	(0.49		)	(6.67		)	—			—			—
Basic loss per share	(0.54		)	(6.72		)	(0.05		)	(0.28		)	0.28
Diluted loss per share from continuing operations	(0.04		)	(0.03		)	(0.05		)	(0.32		)	0.33
Diluted income (loss) per share from discontinued operations	—			(0.01		)	0.01			0.09			—
Diluted income (loss) per share from extraordinary item	(0.01		)	(0.01		)	—			(0.05		)	(0.06		)
Diluted income (loss) per share from change in accounting principle	(0.49		)	(6.67		)	—			—			—
Diluted (loss) earnings per share	(0.54		)	(6.72		)	(0.05		)	(0.28		)	0.27

F-39

	For the Quarter Ended
	03/31/01		06/30/01		09/30/01		12/31/01
Total revenues	158,106		186,505		162,019		178,021
Operating income (loss)	7,140		24,805		5,657		401
Net loss from continuing operations	(36,823	)	(13,225	)	(29,492	)	(33,920	)
Net income (loss) from discontinued operations	210		204		(367	)	(99	)
Net loss available to common shareholders	(39,201	)	(20,307	)	(32,447	)	(46,117	)
Basic loss per share from continuing operations	(0.47	)	(0.19	)	(0.38	)	(0.43	)
Diluted loss per share from continuing operations	(0.47	)	(0.19	)	(0.38	)	(0.43	)
Basic loss per share from discontinued operations	—		—		—		—
Diluted loss per share from discontinued operations	—		—		—		—
Basic loss per share	(0.46	)	(0.24	)	(0.39	)	(0.55	)
Diluted loss per share	(0.46	)	(0.24	)	(0.39	)	(0.55	)

(1) The results previously reported in the Company’s Form 10-Q for the quarter ended March 31, 2002 have been restated to reflect the cumulative effect of adoption of SFAS No. 142 as discussed in Note 1. The results have also been restated to reflect the results of discontinued operations as described in Note 1.

(2) The results previously reported in the Company’s Form 10-Q for the quarters ended March 31, 2002, June 30, 2002 and September 30, 2002 have been restated to reflect the adoption of EITF 02-16 as discussed in Note 1.

F-40

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	December 31,
	2002			2001
	(unaudited)			(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	312,921		$	17,687
Accounts receivable, net of allowance for doubtful accounts of $38,600 and $500,000 at December 31, 2002 and 2001, respectively	2,204,044			1,466,788
Inventories, net	3,271,066			1,281,512
Prepaid assets and deposits	78,998			44,955

Total current assets	5,867,029			2,810,942

PROPERTY, PLANT AND EQUIPMENT, net	3,407,611			3,771,969

LICENSE AGREEMENT, net of accumulated amortization of $825,000 and $525,000 at December 31, 2002 and 2001, respectively	675,000			975,000

Total assets	$	9,949,640		$	7,557,911

LIABILITIES AND SHAREHOLDERS’ DEFICIT

CURRENT LIABILITIES:
Line of credit – related party	$	5,133,759		$	5,133,759
Subordinated debenture – related party	2,000,000			2,000,000
Current portion of capital lease obligations	625,259			116,478
Accounts payable	2,353,444			1,946,907
Accrued expenses	2,176,782			1,185,828
Customer advances	3,014,996			2,879,995
Deferred revenue	—			14,103
Accrued license fees	825,000			525,000
Other current liabilities	1,066,878			920,016
Total current liabilities	17,196,118			14,722,086

CAPITAL LEASE OBLIGATIONS, net of current portion	3,701,038			3,757,987
LICENSE FEE PAYABLE – long term	675,000			975,000
NON-COMPETE LIABILITY	731,231			845,912
Total liabilities	22,303,387			20,300,985

SHAREHOLDERS’ DEFICIT:

Preferred stock, par value $1.00; 1,000,000 shares authorized; 0 issued and outstanding at December 31, 2002 and 2001	—			—
Common stock, par value $.01; 40,000,000 shares authorized; 7,409,608 issued and outstanding at December.31, 2002 and 2001, respectively	74,096			74,096
Additional paid-in capital	22,071,641			22,071,641
Accumulated deficit	(34,499,484		)	(34,888,811		)
Total shareholders’ deficit	(12,353,747		)	(12,743,074		)

Total liabilities and shareholders’ deficit	$	9,949,640		$	7,557,911

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

F-41

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended December 31,
	2002			2001
	(unaudited)			(unaudited)
NET SALES
Related party sales	$	16,790,794		$	8,795,294
Other sales	9,273,390			5,099,967
	26,064,184			13,895,261
COST OF SALES	19,258,636			9,801,459
Gross profit	6,805,548			4,093,802

OPERATING EXPENSES
Engineering	2,094,649			2,052,644
Selling	1,360,105			1,069,504
Administration	2,069,517			2,557,414
Amortization of intangible assets	300,000			300,000
	5,824,271			5,979,562
Operating profit (loss)	981,277			(1,885,760		)

OTHER (EXPENSES) INCOME
Interest expense, net	(860,658		)	(854,919		)
Other income, net	268,709			171,475
Income/(Loss) before income taxes	389,328			(2,569,204		)
INCOME TAXES	—			—
Net Income/(Loss)	389,328			(2,569,204		)

Dividends on 8% convertible redeemable preferred stock	—			(28,056		)
Inducement to convert preferred to common shares	—			(208,591		)
Net Income/(Loss) Applicable to common shareholders	$	389,328		$	(2,805,851	)

Net Income/(Loss) per common share – Basic and diluted	$	0.05		$	(0.39	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – BASIC AND DILUTED	7,409,608			7,177,189

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

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ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2002 (UNAUDITED) AND 2001 (UNAUDITED)

	Preferred Stock					Common Stock			Additional Paid-In		Accumulated Deficit				Total Shareholders’ Deficit
	Shares		Amount			Shares	Amount		Capital		Accumulated Deficit				Total Shareholders’ Deficit
BALANCE AT DECEMBER 31, 2000	6,500		$	6,500		6,981,161	$	69,812	$	21,496,778	$	(32,082,960		)	$	(10,509,870	)
Warrants issued to settle lawsuit	—		—			—	—		336,000		—				336,000
Conversion of Preferred to Common stock	(6,500	)	(6,500		)	189,410	1,894		4,606		—				—
Stock dividend	—		—			28,339	283		27,773		(28,056			)	—
Inducement to convert Preferred to Common stock	—		¾			210,698	2,107		206,484		(208,591			)	—
Net loss	—		—			—	—		—		(2,569,204			)	(2,569,204		)
BALANCE AT DECEMBER 31, 2001	0		0			7,409,608	74,096		22,071,641		(34,888,811			)	(12,743,074		)

Net Income	—		—			—	—		—		389,328				389,328

BALANCE AT DECEMBER 31, 2002	0		$	0		7,409,608	$	74,096	$	22,071,641	$		(34,499,484	)	$	(12,353,747	)

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

F-43

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,
	2002			2001
	(unaudited)			(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss)	$	389,328		$	(2,569,204	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	690,579			708,560
Issuance of warrants for legal proceedings	—			336,000
Provision for bad debts	192,211			78,903

Changes in assets and liabilities:
Accounts receivable	(929,467		)	(601,466		)
Inventories	(1,989,554		)	1,005,375
Prepaid and other current assets	(34,044		)	514,124
Accounts payable	406,537			209,677
Accrued expenses and other liabilities	1,474,967			559,750
Deferred revenue	(14,103		)	(2,275,982		)
Customer advances	135,001			(1,843,435		)
Net cash provided/(used) in operating activities	321,455			(3,877,698		)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment	(26,221		)	(29,603		)

Net cash (used in) investing activities	(26,221		)	(29,603		)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under line of credit	—			3,838,029

Net cash provided by financing activities	—			3,838,029

Net increase/(decrease) in cash and cash equivalents	295,234			(69,272		)
Cash and cash equivalents at beginning of year	17,687			86,959
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	312,921		$	17,687

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	—		$	—
Dividends paid in Company Stock	$	—		$	28,056
Funding of capital lease – related party	$	—		$	136,977

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

F-44

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002 (UNAUDITED) AND 2001 (UNAUDITED)

1. BACKGROUND:

Organization

We are Acrodyne Communications, Inc., a Delaware corporation, which operates in one industry segment – the design, manufacture and marketing of television broadcast transmitters, which are sold in the United States and internationally. Our wholly owned operating subsidiary, Acrodyne Industries, Inc., manufactures and sells TV transmitters, LPTV transmitters and TV translators produced to customer specifications.

Operations and Business Risk

Due to the nature of the Company’s business, it is subject to various risks including, but not limited to, technological and market acceptance of its product, capital availability, dependence on management and other risks. The Company has been in the process of developing products and applications using digital transmission technology. Related to this process, the Company entered into a license agreement with Sinclair Broadcast Group, Inc. (“Sinclair”) in March 2000 (see Note 6). The Company shipped the first of its digital transmitters in March 2001.

Since the acquisition of Acrodyne Industries in 1994, the Company has incurred significant losses and operating cash flow deficits. These losses and cash flow deficits have been funded primarily with proceeds from the sale of equity securities, borrowings, and customer advances. Sinclair purchased and exercised warrants for $225,000 in 2000 and provide a $2,000,000 subordinated debenture and the Company’s Credit Facility (see Note 7). As of December 31, 2002, Sinclair owned 34.6% of the Company’s common stock and has warrants to purchase 8,644,225 additional shares (see Notes 8 and 10), which represented 60.4% of the Company on a fully diluted basis.

Sinclair had provided a guarantee of the Company’s $2,500,000 credit facility. In November 2000, Sinclair purchased the credit facility from a former bank (see Note 7). In March 2000, Sinclair agreed to provide additional funds to the Company of up to $2,000,000 under terms of a subordinated debenture (see Note 7). From January 1, 2001 through December 31, 2001, Sinclair provided additional funds to the Company in the amount of $3,975,006. During 2002 there were no additional borrowings.

Principal and interest related to the debenture and the credit facilities were exchanged for common stock in January 2003 under terms of the recapitalization (see note 14).

Future Liquidity

At December 31, 2002, we had a working capital deficit and accumulated deficit of $11,329,089 and $34,499,484 respectively. Prior to 2002, we incurred operating cash flow deficits and experienced net losses. We have funded our cash requirements through 2002 with proceeds from a $4,000,000 credit facility obtained from Sinclair in April 2001 (see discussion below), a $2,500,000 credit facility, a $2,000,000 subordinated debenture issued to Sinclair in March 2000, deferral of capital lease obligations, and customer advances. We may require additional capital to fund our expansion into the digital television market and any additional operating losses, should they occur. There can be no assurance that we will be able to obtain the necessary capital to fund operating needs and finance any required investment needs or to generate sufficient revenue to achieve and sustain positive cash flow.

On December 20, 2002 our shareholders approved a recapitalization plan. This plan significantly restructured our balance sheet by forgiving debt, unpaid interest, and future obligations under the technology agreement with Sinclair, plus the receipt of additional cash, in exchange for 20,350,000 shares of our stock. This plan was completed in January 2003. The removal of debt, interest, and long term obligations from our liabilities with the addition of cash has improved our working capital ratios and decreased our accumulated deficit. At this time the company does not have a line of credit in place with either Sinclair or a bank. There are no guarantees that we would be able to obtain such a facility. Without an operating line of credit the company must rely on internally generated cash flow to fund future operations.

See Note 14 for an unaudited pro forma consolidated balance sheet as of December 31, 2002 that reflects the recapitalization as if it took place on that date.

F-45

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following summarizes the significant accounting policies employed by the Company in preparation of its consolidated financial statements:

Consolidation

The financial statements include the accounts of the Company and its wholly-owned subsidiary, Acrodyne Industries. All intercompany transactions and balances are eliminated in consolidation. Certain prior year amounts have been reclassified to conform to current year presentation.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

The majority of the Company’s accounts receivable are due from companies in the television industry. Credit is extended based upon evaluation of a customers’ financial condition. In most cases, for the sale of transmitters and other major equipment, we obtain advance deposits for approximately 90% of the sale amount that are applied to the invoice amount at the time of delivery of the product. Accounts receivable are generally due within 30 days and are stated at amounts due. Accounts outstanding longer than 90 days are considered past due and are shown net of an allowance for doubtful accounts. The Company determines its allowance by considering a number of factors, including the length of time trade receivables are past due, the Company’s ability to pay, the previous loss history and the general economy and industry as a whole. The Company writes-off accounts receivable when they become uncollectible and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

Approximately 64% of sales in 2002 were to Sinclair, which has 34.6% ownership of the Company at December 31, 2002 (82.4% after the January 2003 recapitalization). At December 31, 2002 approximately $550,000 of our outstanding receivables were due from Sinclair or television stations it owned. No allowance for doubtful accounts has been recorded against these receivables.

Changes to the Allowance for Doubtful Accounts for 2002 and 2001 are as follows:

	2002			2001
	(unaudited)			(unaudited)

Balance at beginning of year	$	500,000		$	375,007
Additional provisions during the year	192,211			138,975
Accounts written-off	(653,611		)	(13,982		)

Balance at end of year	$	38,600		$	500,000

Inventory

Inventory includes material, direct labor, and overhead and is valued at the lower of cost or market on a first-in first out basis. We establish an allowance for obsolescence for inventory items that are in excess of requirements to support sales, are not used in current transmitter design, or have shown little activity during the past year.

Property and Equipment

Property and equipment are carried at cost. The cost of additions and improvements are capitalized, while maintenance and repairs are charged to operations when incurred. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the respective accounts and any resulting gain or loss is recorded in the statement of operations. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, primarily three to seven years. Leasehold improvements are amortized over the shorter of their useful lives or the remaining lease terms. Capital leases are depreciated over their useful lives or lease term, as applicable.

F-46

Customer Advances

Deposits received from customers on orders for purchase of products are recorded as a liability.

Revenue Recognition

The Company recognizes revenue from the sale of transmitters when title and risks of ownership are transferred to the customer, which generally occurs upon shipment or customer pick-up of the equipment. A customer may be invoiced for and receive title to transmitters prior to taking physical possession when the customer has made a fixed, written commitment for the purchase, the transmitters have been completed, tested and are available for pick-up or delivery, and the customer has requested that the Company hold the transmitters until the customer determines the most economical means of taking physical possession. Upon such a request, the Company recognizes revenue if it has no further obligation except to segregate the transmitters, invoice the customer under normal billing and credit terms, and hold the transmitter for a short period of time as is customary in the industry. There were no such sales for the years ended December 31, 2002 or December 31, 2001.

Transmitters are built to customer specification and no right of return or exchange privileges are granted. Accordingly, no provision for sales allowances or returns is recorded. The Company records revenue for services related to installation of transmitters upon completion of the installation process. Amounts which cannot be recognized in accordance with the above policy are recorded as deferred revenue in the accompanying consolidated balance sheets. The adoption of SAB No. 101, in the fourth quarter of 2000, resulted in an increase in reported revenues for the year ending December 31, 2001 of approximately $2,276,000.

Concentration of Credit Risk

The Company’s customers are domestic and international television stations, broadcasters, government entities, not-for-profit organizations and educational institutions. International sales were $680,910 and $591,876 for the years ended December 31, 2002 and 2001, respectively. One customer, Sinclair (see Note 10), represented approximately 64% of sales in 2002 and 63% in 2001 and 25% of receivables in 2002 and 50% in 2001. No other customers represented more than 10% of sales in 2002 or 2001.

Use of Estimates

The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Research and Development

Research and development expenditures related to the design and development of new products are expensed as incurred and as such are included in engineering department expenses in the accompanying consolidated statements of operations. Research and development costs charged to expense during the years ended December 31, 2002 and 2001 were approximately $556,000 and $524,000, respectively.

Advertising expense

Advertising expense was $ 313,809 in 2002 and $ 90,454 in 2001.

Income Taxes

The Company records deferred income taxes for the estimated future tax effects of temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. Under this method, deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities using enacted rates. A valuation allowance is recorded against deferred tax assets when it is concluded that it is more likely than not that the related tax benefit will not be realized.

F-47

Fair Value of Financial Instruments

Impairment of Long-Lived Assets

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we periodically review the carrying value of our long-lived assets held and used and assets to be disposed of for possible impairment when events and circumstances warrant such a review.

New Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 143, “Accounting for Asset Retirement Obligations”. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of a tangible long-lived asset. SFAS 143 also requires the enterprise to record the contra to the initial obligation as an increase to the carrying amount of the related long-lived asset (i.e., the associated asset retirement costs) and to depreciate that cost over the remaining useful life of the asset. The liability is adjusted at the end of each period to reflect the passage of time (i.e., accretion expense) and changes in the estimated future cash flows underlying the initial fair value measurement. Enterprises are required to adopt SFAS 143 for fiscal years beginning after June 15, 2002. The provisions of the Statement are not expected to have a material impact on the financial condition or results of operations of the Company.

In October 2001, the FASB issued SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS 144 partially supersedes SFAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and certain provisions of APB Opinion No. 30 “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS 144 establishes standards for long-lived assets to be disposed of, and redefines the valuation and presentation of discontinued operations. SFAS 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The adoption of SFAS 144 did not have a material effect on the Company’s financial position, results of operations, or cash flows.

In April 2002, the FASB issued SFAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS 145 eliminates extraordinary accounting treatment for reporting gain or loss on debt extinguishment, and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of SFAS 145 related to the rescission of FASB Statement No. 4 are applicable in fiscal years beginning after May 15, 2002, the provisions related to FASB Statement No. 13 are effective for transactions occurring after May 15, 2002, and all other provisions are effective for financial statements issued on or after May 15, 2002; however, early application is encouraged. Debt extinguishments reported as extraordinary items prior to scheduled or early adoption of SFAS 145 would be reclassified in most cases following adoption. Management does not expect the adoption of SFAS 145 to have a material effect on the Company’s financial position, results of operations, or cash flows.

In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. The requirements of SFAS 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002; however, early application is encouraged. Management does not expect the adoption of SFAS 146 to have a material effect on the Company’s financial position, results of operations, or cash flows.

F-48

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this statement is not expected to have a significant impact on the financial condition or results of operations of the Company.

In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. SFAS 148 amends SFAS 123 “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS 148 is effective for fiscal years beginning after December 15, 2002. The expanded annual disclosure requirements and the transition provisions are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. Management does not expect the adoption of SFAS 148 to have a material effect on the Company’s financial position, results of operations, or cash flows.

Earnings per Share

Basic earnings (loss) per share is computed by dividing the net income or loss applicable to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted average number of shares determined for the basic computations plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period.

In 2002 the exercise price of outstanding options and warrants to purchase shares of the Company stock are in excess of the market price and are excluded from the computation of diluted income per share. Shares payable but not yet issued and outstanding are included.

Due to the Company’s net loss in 2001 the incremental shares issuable from warrants and options were anti-dilutive and, accordingly, not considered in the calculation.

INVENTORIES:

Inventories consist of the following:

	December 31,
	2002			2001
	(unaudited)			(unaudited)
Raw materials	$	1,841,509		$	2,192,096
Work-in-process	1,525,484			449,742
Finished goods	5,521			116,110
Total Inventory	3,372,514			2,757,948
Allowance for obsolete inventory	(101,448		)	(1,476,436		)

Inventory, net	$	3,271,066		$	1,281,512

Changes in the allowance for obsolescence during 2002 and 2001 are as follows:

F-49

	2002			2001
	(unaudited)			(unaudited)

Balance at beginning of period	$	1,476,436		$	1,516,693
Charges to expense	37,008			—
Disposal of material	(1,411,996		)	(40,257		)

Balance at end of period	$	101,448		$	1,476,436

4. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

	December 31,
	2002			2001
	(unaudited)			(unaudited)
Test equipment	$	697,395		$	690,273
Machinery and equipment	53,924			52,755
Office furniture and equipment	449,139			436,866
Building lease /leasehold improvements	3,784,231			3,781,167
Purchased computer software	123,239			120,646
	5,107,928			5,081,707
Accumulated depreciation and amortization	(1,700,317		)	(1,309,738		)
	$	3,407,611		$	3,771,969

Depreciation and amortization expense for property and equipment amounted to $390,579 and $408,560 for the years ended December 31, 2002 and 2001, respectively.

5. NON-COMPETE AGREEMENT:

In connection with the acquisition of Acrodyne Industries, the Company entered into a non-compete agreement with the selling shareholder. In consideration for this agreement not to compete, the Company is obligated to make annual payments to the selling shareholder of $65,000 annually and pay for certain benefits for the remainder of his life. The Company recorded the actuarial present value of the estimated payments of $750,000 related to this agreement as an asset and established a corresponding liability at the date of acquisition. The company is currently negotiating to terminate this agreement.

6. LICENSE AGREEMENT:

During March 2000, the Company entered into a 10-year license agreement (the “License Agreement”) with Sinclair for the exclusive right to manufacture and sell certain Sinclair designed transmitter lines. Under terms of the License Agreement, the Company would pay Sinclair an annual royalty of $300,000 for five years. For years six through ten, the Company would pay Sinclair an annual royalty equal to 1.0% of revenues realized by the Company attributable to the License Agreement. At end of the tenth year, the Company has the option to purchase the Sinclair technology. The purchase price would be twice the cumulative royalty amount paid to Sinclair for years six through ten. Minimum lease payments due under capital leases are as follows:

	(unaudited)
2003	$	825,000
2004	300,000
2005	300,000
2006	75,000
Total	1,500,000
Less –current portion	825,000
Non-current portion of license agreement	675,000

F-50

As part of the recapitalization plan approved by our shareholders and completed in January 2003, Sinclair terminated this agreement, forgave amounts due under the agreement, and transferred ownership of the technology to us in exchange for shares of our stock. (See note 14)

7. DEBT:

The line of credit, subordinated debenture and capital lease obligations consist of the following:

	December 31,
	2002			2001
	(unaudited)			(unaudited)
Line of credit with Sinclair (Note 10)	$	5,133,759		$	5,133,759
Subordinated debenture with Sinclair	2,000,000			2,000,000
Capital lease obligations (Note 11)	4,326,297			3,874,465
	11,460,056			11,008,224
Current portion	(7,759,018		)	(7,250,238		)
	$	3,701,038		$	3,757,986

The line of credit and the subordinated debenture are due on demand.

We established a $2,500,000 credit facility with a bank for working capital purposes. The bank required that Sinclair guarantee our obligations. Interest is payable on a formula basis. We have compensated Sinclair due to $200,000 payable in the form of our Common Stock for this guarantee. In November 2000 Sinclair purchased the credit facility and assumed all rights of the bank. Sinclair filed the UCC liens against the Company’s personal property, which eliminated the Sinclair guaranty. The amount available under this line was capped at $1,158,753 and on April 27, 2001, we entered into an additional $4,000,000 line of credit facility with Sinclair. The maximum amount borrowed under the lines of credit was approximately $5,133,759 in 2002 and $5,133,759 in 2001. The lines of credit in 2002 had a weighted-average interest rate of 4.0% and total interest expense of $203,239. The amount available under the Credit Facility at December 31, 2002 was $24,994. Amounts owed under this credit facility, both principal and interest, were exchanged for common shares of our stock in January 2003, under terms of the recapitalization plan.

During March 2000, we entered into a subordinated debenture agreement with Sinclair. Under the terms of the Debenture, we may borrow up to $2,000,000 at an interest rate of 10.5%. Further, Sinclair has the right, at any time, to convert all, but not less than all, of the principal owed to Sinclair into our Common Stock at $3.45 per share. Sinclair may immediately convert the current principal into 579,710 shares of our Common Stock. During 2002 and 2001, the Company recorded $210,000 of interest due under the Debenture Agreement. Amounts owed under this debenture, both principal and interest, were exchanged for common shares of our stock in January 2003, under terms of the recapitalization plan.

The Company moved into a manufacturing facility in November 2000. This facility is subleased from Sinclair and the lease is capitalized at $3,776,667. Amortization expense was $251,778 in 2002 and $258,201 in 2001. The net book value of the capital lease at December 31, 2002 is $3,224,725. The company did not pay its obligations under terms of the lease. The past due amounts owed plus accrued interest are recorded as a current liability on the balance sheet. Amounts owed through September 30, 2002 were exchanged for common shares of our stock in January 2003, under terms of the recapitalization plan.

The weighted average interest rate on long-term debt at December 31, 2002 was 5.8%.

See note 14 for an unaudited pro forma consolidated balance sheet as of December 31, 2002 that reflects the recapitalization as if it took place on that date.

8. SHAREHOLDERS’ EQUITY:

Preferred Stock

Preferred stock consists of 1,000,000 shares, par value $1 per share, which may be issued in series from time to time with such designation, rights, preferences and limitations as the Board of Directors of the Company may determine by resolution. Any and all such rights that may be granted to preferred stockholders may be in preference to common stockholders.

F-51

During 1996, the Company sold 10,500 shares of 8% Convertible Redeemable Preferred Stock (the “8% Preferred Stock”) in a private placement. The 8% Preferred Stock had a liquidation preference of $100 per share plus all outstanding and unpaid dividends and was redeemable at the discretion of the Company for the amount of the liquidation value after one year from issuance date provided certain stipulations were met. The 8% Preferred Stock was convertible at the option of the holder into the number of common shares obtained by dividing the liquidation value by the $3.71 per share conversion price, subject to adjustment. Holders of the 8% Preferred Stock voted on a fully converted basis with the holders of common stock and, in the event of certain dividend arrearages, had the right to elect a director to the Company’s Board. During 1997, 4,000 shares of the 8% Preferred Stock were converted into common stock at a conversion price of $4.00 per share; 6,500 shares remained outstanding at the end of 2001. On July 17, 2001 the 6,500 shares plus dividends in arrears were converted to 428,447 shares of common stock.

During 1998, the Company sold 326,530 shares of Series A 8% Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) in a private placement for net proceeds of $972,668. In connection with this private placement, the Company issued warrants to purchase up to 525,000 shares of common stock at an exercise price of $3.00 per share. The warrants are exercisable through September 4, 2005. On January 27, 1999, the Series A Preferred Stock was redeemed by the Company for $998,531.

Common Stock

On November 7, 1997, the Company sold 800,000 shares of common stock and warrants to purchase up to an additional 500,000 shares of common stock for aggregate net proceeds of $1,951,800. The warrants issued in connection with this transaction carried an exercise price of $3.00 per common share and expired on November 7, 2002.

On January 27, 1999, the Company increased the number of authorized shares of common stock from 10,000,000 to 30,000,000. Concurrent with this change, the Company sold 1,431,333 shares of common stock and warrants to purchase up to an additional 8,719,225 shares of common stock to Sinclair in a private placement for aggregate proceeds of $4,300,000. Transaction costs of $494,626 were incurred in connection with this transaction. The Company utilized $998,531 of the proceeds from this transaction to redeem the Series A Preferred Stock as discussed above.

On December 20, 1999, the Company committed to issue 112,000 shares of common stock to Sinclair with a fair market value of $270,000 in accordance with terms of the Guaranty and Lease Compensation Agreement, dated December 20, 1999 (see Note 10). These shares are included in outstanding shares.

In 2000, on the anniversary dates of the above agreements, the Company was obligated to issue additional shares to compensate Sinclair for its guarantees. In the fourth quarter of 2000, 589,506 shares were obligated to be issued with a fair value of $305,500. This amount was recorded as an addition to Additional Paid-in Capital.

On December 20, 2002 the number of authorized shares of common stock was increased to 40,000,000.

In January 2003, as part of the recapitalization plan approved by shareholders, Sinclair was issued 20,350,000 shares of Acrodyne common stock (see note 14).

Warrants and Options

In connection with the initial Sinclair investment discussed above, the Company executed various agreements dated January 27, 1999, giving Sinclair the right to purchase up to 8,719,225 shares of the Company’s common stock. Of these warrants, Sinclair may purchase 2,000,000 shares at an exercise price of $3.00 per share based on a vesting schedule that ended January 2001. In addition, 719,225 anti-dilution warrants were issued to Sinclair to purchase the Company’s stock at $3.00 per share (subject to adjustment based on a formula defined in the related warrant agreement), and 6,000,000 warrants which are exercisable only upon the Company achieving increased product sales or sales of products with new technology. These warrants may be exercised at prices ranging from $3.00 to $6.00 per share. The expiration date of all warrants mentioned above is January 26, 2006. At December 31, 2002, Sinclair had 8,644,225 warrants to purchase the Company’s common stock. Under terms of the recapitalization plan approved December 20, 2002 and completed January 2003, the warrants were terminated.

F-52

The following warrants and options (excluding employee and director stock options) were outstanding at December 31, 2002 and 2001:

2002		2001	Exercise Price	Expiration Date
(unaudited)		(unaudited)

—		500,000	3.00	November 7, 2002
525,000		525,000	3.00	September 4, 2005

1,925,000	(a)	1,925,000	3.00	January 26, 2006
719,225	(a)	719,225	3.00	January 26, 2006
6,000,000	(a)	6,000,000	3.00-6.00	January 26, 2006

1,600,000		1,600,000	1.00	July 26, 2006
10,769,225		11,269,225

(a) Exchanged for common stock in recapitalization plan completed in January 2003.

Employee Stock Options

In December 1993, the Company adopted the 1993 Stock Option Plan (the “1993 Plan”). A total of 250,000 shares of common stock options were issuable under the 1993 Plan. The options may be incentive stock options or non-qualified stock options. The maximum term of each option under the 1993 Plan is 10 years.

In April 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”) under which 650,000 options have been authorized. In June 1998, the Board granted 450,000 options under the 1997 Plan to employees. The options had an exercise price of $4.50 per share. On October 16, 1998, the Board of Directors repriced the exercise price of these options to $3.00 per share.

In January 1999, the Board granted 175,000 options under the 1997 Plan to an employee. The options had an exercise price of $3.88 per share. The fair market value of the Company’s stock on the date of grant was $4.06. No compensation related to the option grant was recorded in 1999.

In March 1999, the Company adopted the 1999 Long-Term Incentive Plan (the “1999 Plan”) under which awards may be granted in the form of stock, restricted stock, stock options, stock appreciation rights or cash. Under the 1999 Plan, the Company may make stock-based awards of up to an aggregate of 2,000,000 shares of common stock. In August 1999, the Board granted 370,000 options to employees and directors under the 1999 Plan. The majority of these options vested immediately. The options had an exercise price of $2.34 per share. The fair market value of the Company’s stock on the date of grant was $2.31. No compensation related to these option grants was recorded in 1999.

On June 9, 2000, the Company issued 439,700 options to employees and key individuals under the 1999 Plan. The options had an exercise price of $2.25 to $3.00 per share and expiration dates ranging from May 1, 2005 to July 1, 2007. The value of the Company’s common stock on the date of grant was $2.25 per share.

The Company applies Accounting Principles Board (APB) Opinion 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its option plans. Had compensation cost for the Company stock-based plans been determined based on the fair value at the grant date for awards consistent with the method of SFAS No. 123”Accounting for Stock-Based Compensation”, the Company’s operating results and per share amounts would have been the pro forma amounts indicated below:

	December 31,
	2002		2001
	(unaudited)		(unaudited)
Net income (loss) applicable to common shareholders:
As reported	$	389,328	$	(2,805,851	)
Pro forma	389,328		(2,812,126		)

Net income (loss) per common share (basic and diluted):
As reported	$	0.05	$	(0.39	)
Pro forma	0.05		(0.39		)

F-53

The fair value of each option granted in 2001 was estimated on the date of grant using the Black-Scholes option pricing model using the following parameters: 89% volatility, 6.7% risk-free rate of return, 0% dividend yield and five to seven year option life. In 2002 no options were issued.

A summary of the awards under the Company’s stock option plans during the years ended December 31, 2002 and 2001 is presented below:

	December 31, 2002					December 31, 2001
	Shares		Weighted Average Exercise Price			Shares		Weighted Average Exercise Price
	(unaudited)					(unaudited)
Outstanding at the beginning of year-	1,014,300		$	2.68		(*)1,153,800		$	2.61
Granted	—		—			—		—
Exercised	—		—			—		—
Rescinded/forfeited	(55,000	)	(2.34		)	(139,500	)	(2.12		)

Outstanding at year end	959,300		$	2.70		1,014,300		$	2.68

Options exercisable at year end	654,266		$	2.65		542,500		$	2.59

Weighted average fair value of options granted during the year	—		N/A			—		N/A

(*) Due to a clerical error, the number of options outstanding at the beginning of 2001 was increased by 10,000 shares from the amount disclosed in the December 31, 2001 financial statements.

Options to purchase 654,266 of common stock were outstanding during 2002. They were not included in the computation of the income per share because the average exercise price was higher than the average market price of the stock and would be considered anti-dilutive.

9. INCOME TAXES:

The provision for income taxes differs from the amount computed using the federal income tax rate as follows:

	December 31,
	2002			2001
	(unaudited)			(unaudited)
Income tax benefit at statutory federal rates	$	132,372		$	(943,581	)
State tax benefit, net of federal tax benefit	23,360			(151,305		)
Other permanent differences	11,487			22,400
Increase (decrease) in valuation allowance	(167,219		)	1,072,489
	—			$	—

The components of the net deferred income tax asset (liability) are as follows:

	December 31,
	2002			2001
	(unaudited)			(unaudited)

Deferred tax assets:
Tax loss carryforwards (tax basis)	$	10,597,967		$	10,197,616
Allowance for doubtful accounts	15,440			200,000
Non-compete agreement	338,765			411,753
Inventory	327,698			795,962
Warranty reserve	123,242			—
Other deferred tax assets	54,794			19,794
Net deferred tax assets	11,457,906			11,625,125

Valuation allowance	$	(11,457,906	)	(11,625,125		)
	$	—		$	—

F-54

A full valuation allowance has been established against the Company’s net deferred tax assets as management has concluded that it is more likely than not the related tax benefits may not be realized.

The Company’s tax loss carryforwards, which begin to expire in 2011, totaled approximately $26,495,000 and $24, 300,000 at December 31, 2002 and 2001, respectively.

10. RELATED PARTY:

As discussed in Note 8, on January 27, 1999, Sinclair invested $4,300,000 in the Company in return for 1,431,333 shares of the Company’s common stock and warrants to purchase up to an aggregate of 8,719,225 shares over a term of up to seven years at prices ranging from $3.00 to $6.00 per share. Sinclair also acquired an additional 800,000 shares of common stock previously held by outside investors. On December 20, 1999, the Company committed to issue 112,000 shares to Sinclair with respect to the terms of a Guaranty and Lease Compensation Agreement (see discussion below). As of December 31, 2000, the Company is obligated to issue 589,506 shares to Sinclair with respect to the terms of the Guaranty and Lease Compensation Agreement. As of December 31, 2002 and 2001, Sinclair held an aggregate of 2,418,333 shares of the Company’s common stock, representing approximately 32.64% of issued common stock assuming no warrants are exercised.

We established a $2,500,000 credit facility with a bank for working capital purposes. The bank required that Sinclair guarantee our obligations. Interest is payable on a formula basis. We have compensated Sinclair with $200,000 payable in the form of our Common Stock for this guarantee. In November 2000 Sinclair purchased the credit facility and assumed all rights of the bank. Sinclair filed the UCC liens against the Company’s personal property, which eliminated the Sinclair guaranty. The amount available under this line was capped at $1,158,753 and on April 27, 2001, we entered into an additional $4,000,000 line of credit facility with Sinclair. The maximum amount borrowed under the lines of credit was approximately $5,133,759 in 2002 and $5,133,759 in 2001. The lines of credit in 2002 had a weighted-average interest rate of 4.0% and total interest expense of $203,240. The amount available under the Credit Facility at December 31, 2002 was $24,994. Amounts owed under this credit facility, both principal and interest, were exchanged for common shares of our stock in January 2003.

During November 1999, we entered into a sub-lease agreement with Sinclair for our manufacturing facility. Under the terms of this agreement, we compensated Sinclair on the lease execution date, $70,000 payable in the form of our common stock and also on each lease anniversary date $70,000 payable in the form of our common stock. Under terms of the recapitalization plan, this agreement was amended to make the $70,000 payments in 2002 through 2005 payable in cash. Subsequent payments can be made in cash or stock at Acrodyne’s discretion. There were no payments made in 2002 as required in the sub-lease agreement. Past due amounts through September 2002 were exchanged for common stock in January 2003 (see note 13).

During March 2000, we entered into a license agreement with Sinclair for the exclusive right to manufacture and sell certain Sinclair designed analog and digital transmitters lines. Under the terms of this agreement, we will pay to Sinclair an annual royalty of $300,000 for 5 years. Following the fifth year of the License agreement, we shall pay to Sinclair an annual royalty equal to 1.0% of revenues realized by us attributable to the License Agreement. There were no payments made to Sinclair. The past due amounts were shown as current liabilities on the balance sheet. Under terms of the recapitalization plan, unpaid amounts were forgiven and the intellectual property related to the agreement was transferred to Acrodyne in exchange for shares of our common stock (see note 13).

During March 2000, we entered into a subordinated debenture agreement with Sinclair. Under the terms of the Debenture, we may borrow up to $2,000,000 at an interest rate of 10.5%. Further, Sinclair has the right, at any time, to convert all, but not less than all, of the principal owed to Sinclair into our Common Stock at $3.45 per share. Sinclair may immediately convert the current principal into 579,710 shares of our Common Stock. Amounts owed under this debenture, both principal and interest, were exchanged for common shares of our stock in January 2003, under terms of the recapitalization plan.

In the first quarter of 2001 it was determined by Sinclair that in order for Sinclair to meet its SEC public financial filing requirements, Acrodyne would have to accelerate their audit schedule. Sinclair agreed to pay $150,000 of Acrodyne’s audit fees for the year ended 2000, in order to meet its expedited schedule.

F-55

Sales made to Sinclair during 2002 and 2001 totaled $16,790,794 and $8,795,294, respectively. The Company sells these products to Sinclair at prices which approximate fair market value. The following amounts are included in the consolidated balance sheets at year end in connection with trade transactions with Sinclair:

	December 31,
	2002		2001
	(unaudited)		(unaudited)

Receivables	$	550,239	$	1,081,028
Customer advances	1,967,808		1,864,123

In addition, included in the current portion of capital lease obligation and other current liabilities are $1,150,259 in 2002 and $ 641,479 in 2001 of amounts payable to Sinclair that have been deferred under the capital lease and license fee obligations.

11. COMMITMENTS AND CONTINGENCIES:

During September 2000, the Company entered into a sublease agreement with Sinclair (see Note 9) for the lease of its headquarters and manufacturing facility, which was occupied during November 2000. Minimum lease payments due under capital leases are as follows:

	(unaudited)
2003	$	625,259
2004	448,103
2005	505,342
2006	518,779
2007	532,621
2008 and thereafter	4,591,451
	7,221,555
Less – amount representing interest	2,895,258
Present value of obligation	4,326,297
Less – current portion	625,259

Noncurrent obligations under capital leases	$	3,701,038

Future minimum lease payments under noncancellable operating leases are as follows:

	(unaudited)
2003	$	23,071
2004	23,071
2005	23,071
2006	23,071

	$	92,284

12. LEGAL PROCEEDINGS

The SEC conducted an investigation of the facts and circumstances that required the company’s financial statements and filings to be restated for the year ending 1999 and the first two quarters of 2000. Acrodyne cooperated fully with the investigation and supplied documents to assist in the SEC investigation. Several former employees, a current employee of the company, as well as a Sinclair employee were subpoenaed and testified before attorneys for the SEC.

F-56

On March 6, 2003 the SEC issued a cease and desist order against Acrodyne. The Commission found that “Acrodyne materially misstated figures reported for its inventory, cost of sales, revenue, gross profit, and net loss in its financial statements for the year ended December 31, 1998; the first three quarters of 1999; the year ended December 31, 1999; and the first quarter of 2000. Acrodyne included its misleading financial results in press releases and its filings with the Commission relating to these periods”. Further the Commission found, “ Acrodyne was unable to properly value its products because of the incomplete and outdated cost data it maintained. In addition, starting in the second quarter of 1999, Acrodyne made unsupported adjustments to its sales and inventory accounts to bring Acrodyne’s financial statements in line with the gross margin percentage it had budgeted for the period. Acrodyne knew or acted recklessly with respect to its faulty cost accounting.” Further, as part of their investigation, the SEC fined Acrodyne’s former CEO $50,000, a former CFO $10,000, and a former Controller and CFO $10,000. In exchange for cancellation of a termination of service agreement, Acrodyne had previously agreed to pay legal fees and penalties for the former CEO. The fine of $50,000 was paid by Acrodyne in 2003, per that agreement.

13. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


	Revenues		2002		Net Income		Basic and Diluted Net Income Per Share
			Gross Profit

1/st/ Quarter	$	5,821,637	$	1,344,324	$	81,693	$	0.01
2/nd/ Quarter	5,865,893		1,842,667		114,883		0.02
3/rd/ Quarter	6,263,473		1,677,669		61,537		0.01
4/th/ Quarter	8,113,181		1,940,888		131,215		0.01
	$	26,064,184	$	6,805,548	$	389,328	$	0.05


	Revenues		2001			Net Income (Loss)			Basic and Diluted Net Income (Loss) Per Share
			Gross Profit

1/st/ Quarter	$	2,226,178	$	242,787		$	(1,431,943	)	$	(0.21	)
2/nd/ Quarter	672,334		(79,165		)	(1,879,220		)	(0.27		)
3/rd/ Quarter	4,740,062		1,683,528			546,887			0.07
4/th/ Quarter	6,256,687		2,246,652			195,072			0.03
	$	13,895,261	$	4,093,802		$	(2,569,204	)	$	(0.39	)

14. SUBSEQUENT EVENTS (UNAUDITED)

In December 2002 our stockholders approved a recapitalization plan whereby technology owned by Sinclair was transferred to Acrodyne, warrants and options owned by Sinclair and debt owed to Sinclair, was forgiven in exchange for our stock. This transaction was completed in January 2003. Sinclair agreed to:

a) Forgive all indebtedness, payables, accrued and unpaid interest under the outstanding debenture and Lines of Credit amounting to about $9,877,542

b) Assign all intellectual property rights relating to the License agreement

c) Invest an additional $1,000,000

d) Terminate all Sinclair owned warrants

e) Amend the Guaranty and Lease Compensation Agreement, dated September 16, 1999. Amended terms require the payments in 2002 through 2005 to be made in cash with subsequent years paid in cash or stock at our discretion

f) In exchange for the items described above, 20,350,000 shares of the Company’s common stock was issued

F-57

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, 2002

(unaudited)

The following presentation, which sets forth the unaudited pro forma consolidated condensed balance sheet of the Company, assumes the recapitalization transaction described took place on December 31, 2002. The pro forma consolidated balance sheet should be read in conjunction with the description of the recapitalization and the historical consolidated financial statements of the Company.

	Historical			Adjustments			Pro Forma
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	312,921		$	1,000,000	c	$	1,312,921
Accounts receivable, net of allowance for doubtful accounts of $38,600	2,204,044						2,204,044
Inventories, net	3,271,066						3,271,066
Prepaid assets and deposits	78,998						78,998

Total current assets	5,867,029			1,000,000			6,867,029

PROPERTY, PLANT AND EQUIPMENT, net	3,407,611						3,407,611

LICENSE AGREEMENT, net of accumulated amortization of $825,000	675,000						675,000
Total assets	$	9,949,640		$	1,000,000		$	10,949,640

LIABILITIES AND SHAREHOLDERS’ DEFICIT

CURRENT LIABILITIES:
Line of credit – related party	$	5,133,759		$	(5,133,759	)a	$	0
Subordinated debenture – related party	2,000,000			(2,000,000		)a	0
Current portion of capital lease obligations	625,259			(468,616		)a	156,643
Accounts payable	2,353,444						2,353,444
Accrued expenses	2,176,782						2,176,782
Customer advances	3,014,996						3,014,996
Other current liabilities	1,891,878			(1,600,167		)a	291,711
Total current liabilities	17,196,118			(9,202,542		)	7,993,576

CAPITAL LEASE OBLIGATIONS, net of current portion	3,701,038						3,701,038
LICENSE FEE PAYABLE – long term	675,000			(675,000		)a	0
NON-COMPETE LIABILITY	731,231						731,231
Total liabilities	22,303,387			(9,877,542		)	12,425,845

SHAREHOLDERS’ DEFICIT:
Common stock, par value $.01; 7,409,608 and 27,759,608 issued and outstanding, respectively	74,096			203,500		(f)	277,596
Additional paid-in capital	22,071,641			10,674,042		(f)	32,745,683
Accumulated deficit	(34,499,484		)				(34,499,484		)
Total shareholders’ deficit	(12,353,747		)	10,877,542			(1,476,205		)

Total liabilities and shareholders’ deficit	$	9,949,640		$	1,000,000		$	10,949,640

This recapitalization plan was completed in January of 2003, raising Sinclair’s ownership to approximately 82.4% of Acrodyne’s issued and outstanding common stock.

F-58

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Acrodyne Communications, Inc.:

We have audited the accompanying consolidated balance sheets of Acrodyne Communications, Inc. (a Delaware corporation) and subsidiary as of December 31, 2000, and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Acrodyne Communications, Inc. and subsidiary as of December 31, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1, 2000, the Company changed its method of accounting for revenue.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses from operations and has net capital and working capital deficiencies that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount of and classification of liabilities that might result should the Company be unable to continue as a going concern.

Arthur Andersen LLP

Philadelphia, Pennsylvania

April 13, 2001

This report is a copy of a previously issued Arthur Andersen LLP report and the report has not been reissued by Arthur Andersen LLP, nor has Arthur Andersen LLP provided a consent to the inclusion of its report in this Form 10 K/A.

F-59

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	December 31,
	2001				2000
	(unaudited)				(audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$		17,687		$	86,959
Accounts receivable, net of allowance for doubtful accounts of $500,000 and $389,000 at December 31, 2001 and 2000, respectively	1,466,788				944,225
Inventories, net	1,281,512				2,286,887
Prepaid assets	44,955				58,555
Other current assets	—				500,524
Total current assets	2,810,942				3,877,150
PROPERTY, PLANT AND EQUIPMENT, net	3,771,969				4,150,926
LICENSE AGREEMENT, net of accumulated amortization of $525,000 and $225,000 at December 31, 2001 and 2000, respectively	975,000				1,275,000
TOTAL ASSETS	$		7,557,911		$	9,303,076

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES:
Line of credit – related party	$	5,133,759			$	1,158,753
Subordinated debenture – related party	2,000,000				2,000,000
Accounts payable	1,946,907				1,737,230
Accrued expenses	1,185,828				1,420,094
Customer advances	2,879,995				4,723,430
Current portion of capital lease obligations	116,478				9,494
Deferred revenue	14,103				2,290,085
Other current liabilities	1,445,016				651,000
Total current liabilities	14,722,086				13,990,086
CAPITAL LEASE OBLIGATIONS, net of current portion	3,757,987				3,776,948
LICENSE FEE PAYABLE – long term	975,000				1,200,000
NON-COMPETE LIABILITY	845,912				845,912
Total liabilities	20,300,985				19,812,946
SHAREHOLDERS’ EQUITY (DEFICIT):
Convertible, redeemable, 8% preferred stock, par value $1.00; 1,000,000 shares authorized; 6,500 shares issued and outstanding at December 31, 2000	—				6,500
Common stock, par value $.01; 30,000,000 shares authorized; 7,409,608 and 6,981,161 shares issued and outstanding at December 31, 2001 and 2000, respectively	74,096				69,812
Additional paid-in capital	22,071,641				21,496,778
Accumulated deficit	(34,888,811			)	(32,082,960		)
Total shareholders’ equity (deficit)	(12,743,074			)	(10,509,870		)
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)	$		7,557,911		$	9,303,076

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

F-60

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended December 31,
	2001			2000
	(unaudited)			(audited)
NET SALES
Related party sales, net	$	8,795,294		$	2,591,364
Other sales, net	5,099,967			4,304,465
	13,895,261			6,895,829
COST OF SALES	9,801,459			8,729,960
Gross profit (loss)	4,093,802			(1,834,131		)

OPERATING EXPENSES
Engineering	2,052,644			1,701,258
Selling	1,069,504			1,162,202
Administration	2,557,414			3,034,253
Amortization of intangible assets	300,000			340,749
Goodwill and non-compete write-off	—			4,144,284
	5,979,562			10,382,746
Operating loss	(1,885,760		)	(12,216,877		)

OTHER (EXPENSES) INCOME
Interest expense, net	(854,919		)	(775,020		)
Other income, net	171,475			7,711
Loss before income taxes	(2,569,204		)	(12,984,186		)
INCOME TAXES	—			—
NET LOSS	(2,569,204		)	(12,984,186		)

Dividends on 8% convertible redeemable preferred stock	(28,056		)	(52,000		)
Inducement to convert preferred to common shares	(208,591		)	—
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS	$	(2,805,851	)	$	(13,036,186	)

NET LOSS PER COMMON SHARE – BASIC AND DILUTED	$	(0.39	)	$	(1.84	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – BASIC AND DILUTED	7,177,189			7,097,789

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

F-61

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2001 (UNAUDITED) AND 2000 (AUDITED)

	Preferred Stock						Common Stock			Additional Paid-In Capital			Accumulated Deficit			Total Shareholders’ Equity (Deficit)
	Shares			Amount			Shares	Amount		Additional Paid-In Capital			Accumulated Deficit			Total Shareholders’ Equity (Deficit)
BALANCE AT DECEMBER 31, 1999		6,500		$	6,500		6,906,161	$	69,062	$	21,019,028		$	(19,098,774	)	$	1,995,816
Lease and loan guarantee payable in stock (Note 7)	—			—			—	—		305,500			—			305,500
Exercise of warrants	—			—			75,000	750		224,250			—			225,000
Dividends on preferred stock	—			—			—	—		(52,000		)	—			(52,000		)
Net loss	—			—			—	—		—			(12,984,186		)	(12,984,186		)
BALANCE AT DECEMBER 31, 2000		6,500		$	6,500		6,981,161	$	69,812	$	21,496,778		$	(32,082,960	)	(10,509,870		)

Warrants issued to settle lawsuit	—			—			—	—		336,000			—			336,000
Conversion of Preferred to common stock	(6,500		)	(6,500		)	189,410	1,894		4,606			—			—
Stock dividend	—			—			28,339	283		27,773			(28,056		)	—
Inducement to convert preferred to common stock	—			—			210,698	2,107		206,484			(208,591		)	—
Net loss	—			—			—	—		—			(2,569,204		)	(2,569,204		)
BALANCE AT DECEMBER 31,
2001	—			$	—		7,409,608	$	74,096	$	22,071,641		$	(34,888,811	)	$	(12,743,074	)

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

F-62

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,
	2001			2000
	(unaudited)			(audited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,569,204	)	$	(12,984,186	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	708,560			654,471
Issuance of warrants for legal proceedings	336,000			—
Provision for lease and loan guarantee	—			305,500
Provision for bad debts	78,903			341,483
Write-off of goodwill and non-compete agreement	—			4,144,284
Changes in assets and liabilities:
Accounts receivable	(601,466		)	(84,440		)
Inventories	1,005,375			912,662
Prepaid and other current assets	514,124			9,029
Accounts payable	209,677			(64,653		)
Accrued expenses and other liabilities	559,750			1,498,861
Deferred revenue	(2,275,982		)	1,471,173
Customer advances	(1,843,435		)	1,489,468
Net cash used in operating activities	(3,877,698		)	(2,306,348		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(29,603		)	(117,799		)
Sale (purchase) of short-term investment	—			200,000
Net cash (used in) provided by investing activities	(29,603		)	82,201

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance and exercise of warrants	—			225,000
Borrowings (Repayments) under line of credit	3,838,029			(454,651		)
Borrowings under debenture	—			2,000,000
Capital lease (repayments)	—			(72,193		)
Preferred dividends	—			(52,000		)
Net cash provided by financing activities	3,838,029			1,646,156

Net decrease in cash and cash equivalents	(69,272		)	(577,991		)
Cash and cash equivalents at beginning of year	86,959			664,950
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	17,687		$	86,959

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	—		$	168,173
Property and Equipment acquired through capital leases	$	—		$	3,776,667
Dividends paid in Company Stock	$	28,056		$	—
Funding of Capital Lease – related party	$	136,977		$	—

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

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ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2001 (UNAUDITED) AND 2000 (AUDITED)

1. BACKGROUND:

Organization

Acrodyne Holdings, Inc. (the “Company”), a Delaware corporation, was formed in May 1991. In 1995, the Company changed its name to Acrodyne Communications, Inc. The Company operates in one industry segment – the design, manufacture and marketing of television broadcast transmitters, which are sold in the United States and internationally.

On May 16, 1994, the Company entered into agreements to acquire all of the outstanding stock of Acrodyne Industries, Inc. (“Acrodyne Industries”), a company engaged in the manufacture and sale of TV transmitters, LPTV transmitters and TV translators, which are produced to customer specification. The acquisition was consummated on October 24, 1994 with proceeds obtained from a public offering of the Company’s common stock.

Operations and Business Risk

Due to the nature of the Company’s business, it is subject to various risks including, but not limited to, technological and market acceptance of its product, capital availability, dependence on management and other risks. The Company has been in the process of developing products and applications using digital transmission technology. Related to this process, the Company entered into a license agreement with Sinclair Broadcast Group, Inc. (“Sinclair”) in March 2000 (see Note 9). The Company shipped the first of its digital transmitters in March 2001.

Since the acquisition of Acrodyne Industries in 1994, the Company has incurred significant losses including net losses of $2,569,204 and $12,984,186 in 2001 and 2000, respectively. In addition, the Company has generated operating cash flow deficits of $3,877,698 and $2,306,348 in 2001 and 2000, respectively. These losses and cash flow deficits have been funded primarily with proceeds from the sale of equity securities, borrowings, and customer advances. Sinclair purchased and exercised warrants for $225,000 in 2000 and provides a $2,000,000 subordinated debenture and the Company’s Credit Facility (see Note 6). As of December 31, 2001, Sinclair owned 32.6% of the Company’s common stock and has warrants to purchase 8,644,225 additional shares (see Notes 7 and 9), which represented 60.4% of the Company on a fully diluted basis.

Sinclair had provided a guarantee of the Company’s $2,500,000 credit facility. In November 2000, Sinclair purchased the credit facility from a former bank (see Note 6). In March 2000, Sinclair agreed to provide additional funds to the Company of up to $2,000,000 under terms of a subordinated debenture (see Note 9). From January 1, 2001 through December 31, 2001, Sinclair provided additional funds to the Company in the amount of $3,975,006.

The Company’s ability to continue as a going concern depends upon: (1) market acceptance of the Company’s new digital product; (2) the Company’s ability to generate sufficient revenues to achieve and sustain positive cash flow; and (3) the Company’s ability to raise the necessary capital to fund operating needs and finance the planned investment. The factors noted above raise substantial doubt concerning the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

The Company is currently exploring options available to it to raise capital. Among the options is a potential recapitalization of the Company by Sinclair. Under terms of the proposed recapitalization, which has yet to be executed, Sinclair would receive additional common stock in exchange for forgiveness of certain amounts owed to Sinclair by the Company and would cancel certain existing warrants and receive additional warrants as part of a new secured line of credit. As a result of this transaction, Sinclair would own approximately 80% of the Company. In addition, Sinclair has orally committed to purchase all of its UHF transmitter requirements from the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following summarizes the significant accounting policies employed by the Company in preparation of its consolidated financial statements:

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Consolidation

The financial statements include the accounts of the Company and its wholly owned subsidiary, Acrodyne Industries. All inter company transactions and balances are eliminated in consolidation. Certain prior year amounts have been reclassified to conform to current year presentation.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.

Inventory

Inventory includes material, direct labor and overhead and is valued at the lower of cost or market on a first-in, first-out basis.

Property and Equipment

Customer Advances

Deposits received from customers on orders for purchase of products are recorded as a liability.

Revenue Recognition

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements.” SAB No. 101 summarizes the staff’s views in applying generally accepted accounting principles to selected revenue recognition issues. Guidance is provided with respect to the recognition, presentation and disclosure of revenue in the financial statements. The Company implemented the provisions of SAB 101 in the fourth quarter of 2000, retroactive to January 1, 2000. Effective January 1, 2000, the Company changed its method of accounting for transmitter sales such that the Company recognizes revenue from the sale of transmitters when title and risks of ownership are transferred to the customer, which generally occurs upon shipment or customer pick-up of the equipment or completion of the installation process if the Company is obligated to perform the installation. Effective January 1, 2001, the Company changed its business practice with respect to installations, which are now separately negotiated. For those customers which engaged the Company to install the equipment they have purchased, the Company subcontracts those services to a third party under the supervision of company technical personnel. Installation revenue is recognized when the service is complete.

A customer may be invoiced for and receive title to transmitters prior to taking physical possession when the customer has made a fixed, written commitment for the purchase, the transmitters have been completed, tested and are available for pick-up or delivery, and the customer has requested that the Company hold the transmitters until the customer determines the most economical means of taking physical possession. Upon such a request, the Company recognizes revenue if it has no further obligation except to segregate the transmitters, invoice the customer under normal billing and credit terms, and hold the transmitter for a short period of time as is customary in the industry. There were no such sales for the year ended December 31, 2001.

Transmitters are built to customer specification and no right of return or exchange privileges are granted. Accordingly, no provision for sales allowances or returns is recorded. The Company records revenue for services related to installation of transmitters upon completion of the installation process. Amounts which cannot be recognized in accordance with the above policy are recorded as deferred revenue in the accompanying consolidated balance sheets. The adoption of SAB No. 101, in the fourth quarter of 2000, resulted in an increase in reported revenues for the years ending December 31, 2001 and 2000 of approximately $2,276,000 and $540,000, respectively.

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Concentration of Credit Risk

The Company’s customers are domestic and international television stations, broadcasters, government entities, not-for-profit organizations and educational institutions. International sales were $591,876 and $1,035,037 for the years ended December 31, 2001 and 2000, respectively. One customer, Sinclair (see Note 9), represented approximately 63% of sales in 2001 and 38% in 2000 and 50% of receivables in 2001 and 19% in 2000. No other customers represented more than 10% of sales in 2001 or 2000.

Use of Estimates

Research and Development

Research and development expenditures related to the design and development of new products are expensed as incurred and as such are included in engineering department expenses in the accompanying consolidated statements of operations. Research and development costs charged to expense during the years ended December 31, 2001 and 2000 were approximately $524,000 and $1,057,000, respectively.

Income Taxes

Fair Value of Financial Instruments

The Company’s consolidated financial instruments include cash and cash equivalents, short-term investments, accounts receivable, capital leases and debt. The fair value of cash and cash equivalents, short-term investments and accounts receivable approximate their recorded book values as of December 31, 2001 and 2000. Because of the uncertainty regarding the Company described in Note 1, it is not practical to estimate the fair value of the capital leases and debt.

Impairment of Long-Lived Assets

The Company periodically performs analyses on the recoverability of long-lived assets under the provision of Statement of Financial Accounting Standards (“SFAS”) No.121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” The Statement requires the recognition of an impairment loss for an asset held for use when the estimated future undiscounted cash flows associated with the asset is less than the asset’s carrying amount. Measurement of the impairment loss is based on the fair value of the asset, which is determined using the present value of expected future cash flows. No impairment losses were recorded during 2001. See Note 5 to the consolidated financial statements for discussion of impairment charges recorded in 2000.

New Accounting Pronouncements

The Financial Accounting Standards Board’s Emerging Issues Task Force released Issue 00-10 “Accounting for Shipping and Handling Fees and Costs,” which requires amounts charged to customers for shipping and handling to be classified as revenue and the related costs to be classified as cost of sales. Issue 00-10 was applicable no later than the fourth quarter of fiscal years beginning after December 15, 1999, and was adopted by the Company in 2000. As a result of the adoption of Issue 00-10, the Company classified approximately $58,000 and $135,000 of charges to customers for shipping and handling as net sales within the accompanying consolidated statement of operations for the years ended December 31, 2001 and 2000, respectively. This policy had no effect on the Company’s consolidated financial position or results of operations.

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired

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between July 1, 2001 and the effective date of SFAS 142. Major provisions of these Statements and their effective dates for the Company are as follows:

• All business combinations initiated after June 30, 2001 must use the purchase method of accounting. The pooling of interest method of accounting is prohibited except for transactions initiated before July 1, 2001.

• Intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability

• Goodwill, as well as intangible assets with indefinite lives, acquired after June 30, 2001, will not be amortized. Effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives will no longer be subject to amortization.

• effective January 1, 2002, goodwill and intangible assets with indefinite lives will be tested for impairment annually and whenever there is an impairment indicator

• all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting.

Management believes the adoption of SFAS 141 and 142 will not have a material impact on the Company’s financial position or results of operations.

In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations. SFAS 143 applies to all entities, including rate-regulated entities, that have legal obligations associated with the retirement of a tangible long-lived asset that result from acquisition, construction or development and (or) normal operations of the long-lived asset. The application of this Statement is not limited to certain specialized industries, such as the extractive or nuclear industries. This Statement also applies, for example, to a company that operates a manufacturing facility and has a legal obligation to dismantle the manufacturing plant and restore the underlying land when it cease operation of that plant. A liability for an asset retirement obligation should be recognized if the obligation meets the definition of a liability and can be reasonably estimated. The initial recording should be at fair value. SFAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002, with earlier application encouraged. The provisions of the Statement are not expected to have a material impact on the financial condition or results of operations of the Company.

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets). SFAS No. 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. However, SFAS 144 makes changes to the scope and certain measurement requirements of existing accounting guidance. SFAS 144 also changes the requirements relating to reporting the effects of a disposal or discontinuation of a segment of a business. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The adoption of this statement is not expected to have a significant impact on the financial condition or results of operations of the Company.

Earnings per Share

Basic earnings (loss) per share is computed by dividing the net loss applicable to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share is computed using the weighted average number of shares determined for the basic computations plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period.

Due to the Company’s net loss in 2001 and 2000, the incremental shares issuable in connection with convertible preferred stock, stock options and warrants were anti-dilutive and, accordingly, are not considered in the calculation (see Note 7).

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3. INVENTORIES:

Inventories consist of the following:

	December 31,
	2001			2000
	(unaudited)			(audited)
Raw materials	$	2,192,096		$	2,158,035
Work-in-process	449,742			139,523
Finished goods	116,110			1,506,022
Total Inventory	2,757,948			3,803,580
Allowance for obsolete inventory	(1,476,436		)	(1,516,693		)
Inventory, net	$	1,281,512		$	2,286,887

4. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

	December 31,
	2001			2000
	(unaudited)			(audited)
Test equipment	$	690,273		$	692,098
Machinery and equipment	52,755			63,522
Office furniture and equipment	436,866			398,606
Automobile	—			19,577
Building lease /leasehold improvements	3,781,167			3,781,167
Purchased computer software	120,646			116,711
	5,081,707			5,071,681
Accumulated depreciation and amortization	(1,309,738		)	(920,755		)
	$	3,771,969		$	4,150,926

Depreciation and amortization expense amounted to $708,560 and $313,722 for the years ended December 31, 2001 and 2000, respectively.

The Company moved into a new facility in November 2000. This facility is subleased from Sinclair and is capitalized at $3,776,667. Amortization expense was $258,201 in 2001 and $41,963 in 2000. The net book value of the capital lease at December 31, 2001 and 2000 is $3,476,503 and $3,734,704, respectively. The lease term is fifteen years with two renewable five-year periods (see note 10).

5. NON-COMPETE AGREEMENT AND GOODWILL:

During the third quarter of 2000, the Company determined that as a result of the combination of regulatory changes, evolving technology, changes dictated by the market place, changes to key management and continued negative profit margins for its medium and low power transmitter product line, it would exit such product line. This product line was acquired by the Company in 1994 (see Note 1). As a result of this decision, the Company reviewed all of the long-term assets of its medium and low power product line (principally goodwill, covenant not-to-compete and property and equipment) for impairment. As a result of this review, management concluded that these assets had been permanently impaired and, as such, recorded a charge to write-off all goodwill and certain other long-term assets in the amount of $4,144,284 during the third quarter of 2000, which includes $323,322 related to the non-compete intangible asset and $3,820,962 related to goodwill.

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Company recorded the actuarial present value of the estimated payments of $750,000 related to this agreement as an asset and established a corresponding liability at the date of acquisition. During the years ended December 31, 2001 and 2000, the Company recorded interest expense of $0 and $56,927, respectively, relating to this liability. The company is currently negotiating to terminate this agreement.

Prior to being written off, the value of the non-compete agreement was being amortized on a straight-line basis over a ten-year period. Amortization expense of $37,500 was recorded during the year ended December 31, 2000.

In connection with the 1994 acquisition of Acrodyne Industries (see Note 1), the Company recorded goodwill totaling $4,711,274 representing the excess of purchase price over the fair value of net assets acquired. Prior to being written off in 2000, goodwill was amortized on a straight-line basis over 30 years. Amortization charged to expense during the year ended December 31, 2000 amounted to $ 78,249.

6. DEBT:

The line of credit, subordinated debenture and capital lease obligations (test equipment and property) consist of the following:

	December 31,
	2001			2000
	(unaudited)			(audited)
Line of credit (Note 9)	$	5,133,759		$	1,158,753
Subordinated debenture with Sinclair Broadcast Group, Inc.	2,000,000			2,000,000
Capital lease obligations (Note 10)	3,874,465			3,786,442
	$	11,008,224		$	6,945,195
Current portion	(7,250,238		)	(3,168,247		)
	$	3,757,986		$	3,776,948

The line of credit and the subordinated debenture are due on demand.

In September 1999, the Company entered into a new credit facility (the “Credit Facility”) with PNC Bank, N.A. that provided for a $2,500,000 line of credit. The Credit Facility bore interest at LIBOR plus 200 basis points (3.88% at December 31, 2001 and 8.56% at December 31, 2000) and replaced a prior $2,000,000 line of credit facility maintained with another bank. The Credit Facility was collateralized by all personal property of the Company and was guaranteed by Sinclair. The Credit Facility, which expired on July 31, 2000, was extended to October 31, 2000. The Company was obligated to maintain minimum tangible net worth, as defined, of $4,500,000. As of December 31, 1999, the Company was not in compliance with terms of the Credit Facility with respect to minimum tangible net worth. The Company had obtained a waiver for the 1999 event of default. The Company was not in compliance with terms of the credit facility as of September 30, 2000. Effective October 31, 2000, the minimum tangible net worth requirement was eliminated. In November 2000, Sinclair purchased the Credit Facility and assumed all rights of the bank (see Note 9). At December 31, 2001 and 2000, the borrowing on this credit facility was $1,158,753. On April 27, 2001, we entered into an additional $4,000,000 line of credit facility with Sinclair. This line of credit requires monthly interest-only payments at a fixed rate of interest of 12% per annum and matures upon demand by Sinclair. The weighted-average interest rate and total interest expense related to the lines of credit during 2001 were 12.0% and $190,295 respectively, and during 2000 were 8.3% and $111,226, respectively. Average borrowings related to the Credit Facility during 2001 and 2000 were $1,559,848 and $1,343,304, respectively. The maximum amount borrowed under both facilities was approximately $5,133,759 in 2001 and $1,600,000 in 2000. The amount available under the Credit Facility at December 31, 2001 was $24,994 on the $4,000,000 line.

During March 2000, the Company entered into a subordinated debenture agreement (the “Debenture”) with Sinclair. Under the terms of the Debenture, the Company may borrow up to $2,000,000 at an interest rate of 10.5%. The first payment of interest shall be made April 1, 2000 and on a monthly basis thereafter. Principal is payable upon demand of Sinclair. Further, Sinclair has the right, at any time, to convert all, but not less than all, of the principal owed to Sinclair into the Company’s common stock at $3.45 per share. As of December 31, 2001 and 2000, the Company had borrowed $2,000,000 under the terms of this arrangement. During 2001 and 2000, the Company recorded $210,000 of interest due under the Debenture Agreement.

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The weighted average interest rate on long-term debt at December 31, 2001 and 2000 was 11.4% and 9.2%, respectively.

7. SHAREHOLDERS’ EQUITY:

Preferred Stock

During 1996, the Company sold 10,500 shares of 8% Convertible Redeemable Preferred Stock (the “8% Preferred Stock”) in a private placement. The 8% Preferred Stock had a liquidation preference of $100 per share plus all outstanding and unpaid dividends and was redeemable at the discretion of the Company for the amount of the liquidation value after one year from issuance date provided certain stipulations were met. The 8% Preferred Stock was convertible at the option of the holder into the number of common shares obtained by dividing the liquidation value by the $3.71 per share conversion price, subject to adjustment. Holders of the 8% Preferred Stock voted on a fully converted basis with the holders of common stock and, in the event of certain dividend arrearages, had the right to elect a director to the Company’s Board. During 1997, 4,000 shares of the 8% Preferred Stock were converted into common stock at a conversion price of $4.00 per share; 6,500 shares remained outstanding at the end of 2000. On July 17, 2001 the 6,500 shares plus dividends in arrears were converted to 428,447 shares of common stock.

During 1998, the Company sold 326,530 shares of Series A 8% Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) in a private placement for net proceeds of $972,668. In connection with this private placement, the Company issued warrants to purchase up to 525,000 shares of common stock at an exercise price of $3.00 per share. The warrants are exercisable through November 7, 2002. On January 27, 1999, the Series A Preferred Stock was redeemed by the Company for $998,531.

Common Stock

On November 7, 1997, the Company sold 800,000 shares of common stock and warrants to purchase up to an additional 500,000 shares of common stock for aggregate net proceeds of $1,951,800. The warrants issued in connection with this transaction carry an exercise price of $3.00 per common share and expire on November 7, 2002.

On December 20, 1999, the Company committed to issue 112,000 shares of common stock to Sinclair with a fair market value of $270,000 in accordance with terms of the Guaranty and Lease Compensation Agreement, dated December 20, 1999 (see Note 9). These shares are included in outstanding shares.

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Warrants and Options

Date			Cumulative Total Shares
From and after January 27, 1999			666,666
From and after January 27, 2000			1,333,333
From and after January 27, 2001 (unaudited)			2,000,000

In addition, 719,225 anti-dilution warrants to purchase the Company’s stock at $3.00 per share (subject to adjustment based on a formula defined in the related warrant agreement), and 6,000,000 warrants which are exercisable only upon the Company achieving increased product sales or sales of products with new technology. These warrants may be exercised at prices ranging from $3.00 to $6.00 per share. The expiration date of all warrants mentioned above is January 26, 2006. At December 31, 2001, Sinclair had 8,644,225 warrants to purchase the Company’s common stock.

The following warrants and options (excluding employee and director stock options) were outstanding at December 31, 2001 and 2000:

2001 (unaudited)	2000 (audited)	Exercise Price		Expiration Date
—	200,000	$	6.00	May 24, 2001
500,000	500,000	3.00		November 7, 2002
525,000	525,000	3.00		September 4, 2005
—	111,600	3.00		May 1, 2005
1,925,000	1,925,000	3.00		January 26, 2006
719,225	719,225	3.00		January 26, 2006
6,000,000	6,000,000	3.00-6.00		January 26, 2006
—	25,000	3.50		June 5, 2008
1,600,000	—	1.00		July 26, 2006
11,269,225	10,005,825

Employee Stock Options

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The Company applies Accounting Principles Board (APB) Opinion 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its option plans. Had compensation cost for the Company stock-based plans been determined based on the fair value at the grant date for awards consistent with the method of SFAS No. 123”Accounting for Stock-Based Compensation”, the Company’s net loss and loss per share would have been increased to the pro forma amounts indicated below:

	December 31,
	2001			2000
	(unaudited)			(audited)
Net loss applicable to common shareholders:
As reported	$	(2,805,851	)	$	(13,036,186	)
Pro forma	(2,812,126		)	(12,756,768		)

Net loss per common share (basic and diluted):
As reported	$	(0.39	)	$	(1.84	)
Pro forma	(0.38		)	(1.80		)

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following parameters: 89% volatility, 6.7% risk-free rate of return, 0% dividend yield and five to seven year option life.

A summary of the awards under the Company’s stock option plans during the years ended December 31, 2001 and 2000 is presented below:

	December 31, 2001					December 31, 2000
	Shares		Weighted Average Exercise Price			Shares		Weighted Average Exercise Price
	(unaudited)					(audited)
Outstanding at the beginning of year–	1,153,800		$	2.59		1,165,000		$	3.03
Granted	—		—			641,300		2.61
Exercised	—		—			—		—
Rescinded/forfeited	(139,500	)	(2.12		)	(662,500	)	(3.34		)

Outstanding at year end	1,014,300		$	2.73		1,143,800		$	2.59

Options exercisable at year end	542,500		$	2.55		517,500		$	2.54
Weighted average fair value of options granted during the year	—		N/A			—		$	1.61

Options to purchase 502,500 of common stock were outstanding during 2001. They were not included in the computation of the loss per share because the average exercise price was higher than the average market price of the stock and would be considered anti- dilutive.

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8. INCOME TAXES:

The provision for income taxes differs from the amount computed using the federal income tax rate as follows:

	December 31,
	2001			2000
	(unaudited)			(audited)
Income tax benefit at statutory federal rates	$	(943,581	)	$	(4,544,465	)
State tax benefit, net of federal tax benefit	(151,305		)	(499,887		)
Goodwill amortization and write-off	—			1,364,723
Other permanent differences	22,400			13,039
Increase in valuation allowance	1,072,489			3,666,590
	$	—		$	—

The components of the net deferred income tax asset (liability) are as follows:

	December 31,
	2001			2000
	(unaudited)			(audited)
Deferred tax assets:
Tax loss carryforwards (tax basis)	$	10,197,616		$	9,118,430
Allowance for doubtful accounts	200,000			155,596
Non-compete agreement	411,753			411,753
Inventory	795,962			812,065
Other deferred tax assets	19,794			54,792
Net deferred tax assets	$	11,625,125		10,552,636
Valuation allowance	(11,625,125		)	(10,552,636		)
	$	—		$	—

The Company’s tax loss carryforwards, which begin to expire in 2011, totaled approximately $24,300,000 and $22,800,000 at December 31, 2001 and 2000, respectively.

9. RELATED PARTY:

As discussed in Note 7, on January 27, 1999, Sinclair invested $4,300,000 in the Company in return for 1,431,333 shares of the Company’s common stock and warrants to purchase up to an aggregate of 8,719,225 shares over a term of up to seven years at prices ranging from $3.00 to $6.00 per share. Sinclair also acquired an additional 800,000 shares of common stock previously held by outside investors. On December 20, 1999, the Company committed to issue 112,000 shares to Sinclair with respect to the terms of a Guaranty and Lease Compensation Agreement (see discussion below). As of December 31, 2000, the Company is obligated to issue 589,506 shares to Sinclair with respect to the terms of the Guaranty and Lease Compensation Agreement. As of December 31, 2001 and 2000, Sinclair held an aggregate of 2,418,333 shares of the Company’s common stock, representing approximately 32.64% and 34.6%, respectively, of issued common stock assuming no warrants are exercised.

During November 1999, the Company entered into a Guaranty and Lease Compensation Agreement (the “Guaranty Agreement”) with Sinclair, intended to be effective September 16, 1999. In connection with the $2,500,000 Credit Facility discussed in Note 6, the bank required, as a condition of the loan, that Sinclair unconditionally and irrevocably guarantee all of the Company’s obligation with respect to the Credit Facility. Under the Guaranty Agreement and as compensation to Sinclair for the guarantee, the Company committed to provide Sinclair the following: (1) $200,000 payable in Company common stock (based upon the closing price as quoted on September 16, 1999), and (2) on October 1, 2000 and payable each year thereafter until the bank no longer requires the guarantee from Sinclair, the Company shall pay Sinclair an amount equal to the average of the line of credit outstanding balances as of the last day of each of the preceding twelve months (not to be less than $1,700,000) multiplied by 12.5% and payable in the form of Company

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common stock. The $200,000 due Sinclair under the terms of the guarantee was capitalized and was amortized as interest expense over the guarantee period. Of the $200,000 related to this guarantee, $ 0 and $150,000 were recorded as interest expense during 2001 and 2000, respectively.

In the year ended December 31, 2000, the Company accrued additional interest expense related to the guarantee agreement of $235,500. In November 2000, Sinclair purchased the credit facility discussed in Note 6 and assumed all rights of the bank. Sinclair filed the UCC liens against the Company’s personal property, which eliminated the Sinclair guaranty.

During November of 1999, the Company entered into a sublease agreement (the “Lease Agreement”) with Sinclair (see Note 10). Under the terms of the Agreement and as compensation for the Lease Agreement, the Company agreed to compensate Sinclair as follows: (1) on the lease execution date, $70,000 payable in the form of Company common stock calculated at the average closing price for the five business days preceding the lease execution date and (2) on each lease anniversary date, $70,000 payable in the form of Company common stock calculated as the average closing price for the five business days preceding the lease anniversary date.

During March 2000, the Company entered into a 10-year license agreement (the “License Agreement”) with Sinclair for the exclusive right to manufacture and sell certain Sinclair designed transmitter lines. Under terms of the License Agreement, the Company will pay Sinclair an annual royalty of $300,000 for five years. For years six through ten, the Company shall pay Sinclair an annual royalty equal to 1.0% of revenues realized by the Company attributable to the License Agreement. At end of the tenth year, the Company has the option to purchase the Sinclair technology. The purchase price would be twice the cumulative royalty amount paid to Sinclair for years six through ten.

During March 2000, the Company entered into a subordinated debenture agreement (the “Debenture”) with Sinclair. Under the terms of the Debenture, the Company may borrow up to $2,000,000 at an interest rate of 10.5%. The first payment of interest shall be made April 1, 2001 and on a monthly basis thereafter. Principal is payable upon demand by Sinclair. Further, Sinclair has the right, at any time, to convert all, but not less than all, of the principal owed to Sinclair into the Company’s common stock at $3.45 per share. Through December 31, 2001 the Company had borrowed $2,000,000 under the terms of this arrangement. During 2001 and 2000, respectively, the Company recorded interest expense of $210,000 and $115,815 under the Debenture.

In the first quarter of 2001 it was determined by Sinclair that in order for Sinclair to meet their SEC public financial filing requirements that Acrodyne would have to accelerate their audit schedule. Sinclair agreed to pay $150,000 of Acrodyne’s audit fees for the year ended 2000, in order to meet the expedited schedule.

Sales made to Sinclair during 2001 and 2000 totaled $8,795,294 and $2,591,364, respectively. The Company sells these products to Sinclair at prices which approximate fair market value. The following amounts are included in the consolidated balance sheets at year end in connection with trade transactions with Sinclair:

	December 31,
	2001		2000
	(unaudited)		(audited)
Receivables	$	1,081,028	$	183,461
Customer advances	1,864,123		3,417,245
Deferred revenue	0		445,650

See Note 1 regarding a proposed Recapitalization Plan involving Sinclair.

F-74

10. COMMITMENTS AND CONTINGENCIES (UNAUDITED):

During September 1999, the Company entered into a sublease agreement with Sinclair (see Note 9) for the lease of its headquarters and manufacturing facility, which was occupied during November 2000. Rent expense was $4,502 and $278,822 for the years ended December 31, 2001 and 2000, respectively. Minimum lease payments due under capital leases are as follows:

2002	$	416,374
2003	427,553
2004	448,103
2005	505,342
2006	518,779
2007 and thereafter	5,331,485
	$	7,647,636
Less – amount representing interest	3,773,171
Present value of obligation	3,874,465
Less – current portion	116,478
Non-current obligations under capital leases	$	3,757,987

Future minimum lease payments under non-cancelable operating leases are as follows:

2002	$	23,071
2003	23,071
2004	23,071
2005	23,071
2006	—
	$	92,284

11. LEGAL PROCEEDINGS (UNAUDITED):

In September 2000, we were named as defendant, along with two of our directors, in four class action lawsuits filed in the United States District Court for the District of Maryland (Northern Division). These four lawsuits were consolidated into a single lawsuit (the “Lawsuit”). The Lawsuit asserted that we issued false and misleading financial statements. On April 9, 2001, we reached a settlement (the “Settlement”) with plaintiffs’ counsel. The Settlement required us to issue plaintiffs five (5) year warrants to purchase One Million Six Hundred Thousand (1,600,000) shares of our voting common stock at an exercise price of One Dollar ($1.00) per share and to pay the class plaintiffs Seven Hundred Fifty Thousand Dollars ($750,000). The cash portion of the Settlement was funded by our officers’ and directors indemnity insurance policy. The settlement; certified the Lawsuit as a class action; defined those entitled to be included as plaintiffs in the Lawsuit; identified the period during which claims arose; identified a lead plaintiff; set a date of June 26, 2001 as the date for a “Settlement Fairness Hearing;” reserved its right to review the Settlement and/or enter a final judgment approving the Settlement and dismissing the Lawsuit; established a mailing date of April 27, 2000 for plaintiffs’ counsel to cause a “Notice and Proof of Claim and Release Form” to be mailed to the class member plaintiffs; approved the form of “Publication Notice” of the pendency of the Lawsuit and Settlement; established a date of not later than August 24, 2001 for receipt of a properly executed “Proof of Claim and Release Form” for those plaintiffs entitled to participate in the Settlement; set certain conditions precedent to the acceptance of the “Proof of Claim and Release Form;” established the date of June 11, 2001 as the final day for any class plaintiff to request exclusion from the Settlement class; and set the date for considering comments and/or objections to the Settlement, “Plan of Allocation,” or the award of attorneys’ fees and reimbursement of expenses as of June 11, 2001. On June 26, 2001, the Court (i) found the Settlement to be fair, reasonable, and adequate and in the best interests of the parties; (ii) settled, released, discharged and dismissed with prejudice the cases against the defendants; (iii) determined that neither the settlement nor any of the documents or statements associated therewith are, or shall be construed as, a concession or admission by the defendants of the existence of any damages or wrongdoing; and (iv) awarded the plaintiffs’ counsel 25% of the gross amount of the Settlement fund as attorneys’ fees, which amount is to be paid out of the Settlement fund. As a result of the Settlement, during the three months ended March 31, 2001, the Company recorded a charge to operations of $336,000 which represented the fair value of the warrants issued.

F-75

The SEC is currently conducting an investigation of the facts and circumstances that required the company’s financial statements and filings to be restated for the year ending 1999 and the first two quarters of 2000. Acrodyne has not been charged with any wrongdoing, is cooperating fully with the investigation, and has supplied documents to assist in the SEC investigation. Several former employees, a current employee of the company, as well as a Sinclair employee have been subpoenaed and testified before attorneys for the SEC. The duration, facts, and outcome of the investigation can not be estimated by the company at this time.

12. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

	Year ended December 31, 2001
	Net Sales		Gross Profit (Loss)			Net Income(Loss)			Basic and Diluted Net Income (Loss) Per Share
1^st Quarter	$	2,226,178	$	242,787		$	(1,431,943	)	$	(0.21	)
2^nd Quarter	672,334		(79,165		)	(1,879,220		)	(0.27		)
3^rd Quarter	4,740,062		1,683,528			546,887			0.07
4^th Quarter	6,256,687		2,246,652			195,072			0.03
Total	$	13,895,261	$	4,093,802		$	(2,569,204	)	$	(0.39	)

	Year ended December 31, 2000
	Net Sales		Gross Loss			Net Loss			Basic and Diluted Net Loss Per Share
1^st Quarter(Loss)	$	2,224,060	$	(187,851	)	$	(1,457,464	)	$	(0.21	)
2^nd Quarter	954,205		(100,869		)	(1,757,463		)	(0.25		)
3^rd Quarter	1,805,406		(1,316,174		)	(7,356,063		)	(1.06		)
4^th Quarter	1,912,158		(229,237		)	(2,413,206		)	(0.35		)
Total	$	6,895,829	$	(1,834,131	)	$	(12,984,196	)	$	(1.84	)

F-76

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

INDEX TO SCHEDULES

Report of Independent Public Accountants

Schedule II – Valuation and Qualifying Accounts

All schedules except those listed above are omitted as not applicable or not required or the required information is included in the consolidated financial statements or in the notes thereto.

S-1

REPORT OF INDEPENDENT AUDITORS

To the Stockholders of

Sinclair Broadcast Group, Inc.:

We have audited in accordance with the auditing standards generally accepted in the United States, the financial statements of Sinclair Broadcast Group, Inc. and Subsidiaries included in this Form 10-K and have issued our report thereon dated February 10, 2003. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index is the responsibility of the Company’s management and is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

	/s/ ERNST & YOUNG, LLP

Baltimore, Maryland,
February 10, 2003

S-2

SCHEDULE II

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

(in thousands)

Allowance for doubtful accounts in:	Balance at Beginning Of Period	Charged to Cost and Expenses	Charged to Other Accounts (1)		Deductions	Balance at End of Period
2000	5,016	3,494	75		2,676	5,909
2001	5,909	4,259	(69	)	3,877	6,222
2002	6,222	2,890	(1,326	)	1,840	5,946

(1) Amount represents allowance for doubtful account balances related to the acquisition of certain television stations and/or the disposition of certain radio stations.

S-3

Sinclair Broadcast (SBGI) 10-K/A2002 FY Annual report (amended)

Payments Due by Year

Executive Compensation Table

Stock Options

Name

Number ofSecuritiesUnderlying OptionsGranted

Percent of TotalOptions Grantedto Employees inFiscal Year

ExercisePrice perShare

MarketPrice onDate ofGrant

ExpirationDate

Potential Realizable Value AtAssumed Annual Rates Of StockPrice Appreciation forOption Term

Impairment of Long-lived Assets

1998 Bank Credit Agreement

ACRODYNE COMMUNICATIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

CONSOLIDATED STATEMENTS OF CASH FLOWS

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Acrodyne Communications, Inc.:

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF CASH FLOWS

New Accounting Pronouncements

Date

Cumulative Total Shares

SINCLAIR BROADCAST GROUP, INC. AND SUBSIDIARIES

Number of
Securities
Underlying Options
Granted

Percent of Total
Options Granted
to Employees in
Fiscal Year

Exercise
Price per
Share

Market
Price on
Date of
Grant

Expiration
Date

Potential Realizable Value At
Assumed Annual Rates Of Stock
Price Appreciation for
Option Term