| SINCLAIR BROADCAST GROUP INC ITEM 1A RISK FACTORS You should carefully consider the risks described below before investing in our publicly traded securities |
| Our business is also subject to the risks that affect many other companies such as general economic conditions, geopolitical events, competition, technological obsolescence and employee relations |
| The risks described below, along with risks not currently known to us or that we currently believe are immaterial, may impair our business operations and our liquidity in an adverse way |
| Our advertising revenue can vary substantially from period to period based on many factors beyond our control |
| This volatility affects our operating results and may reduce our ability to repay indebtedness or reduce the market value of our securities |
| We rely on sales of advertising time for substantially all of our revenues and, as a result, our operating results are sensitive to the amount of advertising revenue we generate |
| If we generate less revenue, it may be more difficult for us to repay our indebtedness and the value of our business may decline |
| Our ability to sell advertising time depends on: • the levels of automobile advertising, which generally represents about one fourth of our advertising revenue; • the health of the economy in the area where our television 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; • the activities of our competitors, including increased competition from other forms of advertising-based mediums, such as other broadcast television stations, radio stations, satellite television providers, internet content providers, cable system operators and telecommunication providers serving in the same markets; and • other factors that may be beyond our control |
| Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations |
| We have a high level of debt (totaling dlra1dtta4 billion at December 31, 2005) compared to the book value of shareholders’ equity of dlra222dtta0 million on the same date |
| Our relatively high level of debt poses the following risks, particularly in periods of declining revenues: • we use a significant portion of our cash flow to pay principal and interest on our outstanding debt, limiting the amount available for working capital, capital expenditures, dividends and other general corporate purposes; • 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 the Bank Credit Agreement is a floating rate and will increase as interest rates increase |
| This will reduce the funds available to repay our obligations and for operations and future business opportunities and will make us more vulnerable to the consequences of our leveraged capital structure; • 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; and • our ability to finance working capital needs and general corporate purposes for the public and private markets, as well as the associated cost of funding is dependent, in part, by our credit ratings |
| As of December 31, 2005, our credit ratings, as assigned by Moody’s Investor Services (Moody’s) and Standard & Poor’s Ratings Services (S&P) were: Moody’s S&P Senior Secured Credit Facilities Ba1 BB Senior Implied Ba3 — Corporate Credit — BB- Senior Subordinated Notes B2 B Convertible Senior Notes B3 B 21 ______________________________________________________________________ The credit ratings previously stated are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal by the assigning rating organization |
| Each rating should be evaluated independently of any other rating |
| We may be more vulnerable to adverse economic conditions than less leveraged competitors and thus, less able to withstand competitive pressures |
| Any of these events could reduce our ability to generate cash available for investment or debt repayment or to make improvements or respond to events that would enhance profitability |
| We may be able to incur significantly more debt in the future, which will increase each of the foregoing risks related to our indebtedness |
| At December 31, 2005, we had dlra167dtta5 million available (subject to certain borrowing conditions) for additional borrowings under the Bank Credit Agreement, all of which was available under our current borrowing capacity |
| In addition, under the terms of our debt instruments, we may be able to incur substantial additional indebtedness in the future, including additional senior debt and in some cases, secured debt |
| Provided we meet certain financial and other covenants, the terms of the indentures governing our outstanding notes do not prohibit us from incurring such additional indebtedness |
| If we incur additional indebtedness, the risks described above relating to having substantial debt could intensify |
| We must purchase television programming in advance based on expectations about future revenues |
| Actual revenues may be lower than our expectations |
| One of our most significant costs is television programming and our ability to generate revenue to cover this cost may affect the value of our securities |
| 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 generally purchase programming content from others rather than produce it ourselves, we have limited control over the costs of the 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 before we have fully amortized the costs |
| 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 network affiliation agreements or which provide us programming |
| Excluding political revenue, each of our affiliation groups experienced revenue increases in 2004 |
| In 2005, some affiliates experienced slight declines while others had increases in revenue |
| Total revenue, excluding political, in 2005 increased 1dtta6prca from 2004 |
| We cannot predict the success of our affiliates in the future |
| Promises we have made to our lenders limit our ability to take actions that could increase the value of our securities or may require us to take actions that decrease the value of our securities |
| Our existing financing agreements prevent us from taking certain actions and require us to meet certain tests |
| These restrictions and tests may require us to conduct our business in ways that make it more difficult for us to repay our indebtedness or decrease the value of our business |
| 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 from asset sales; • restrictions on mergers and other acquisitions, satisfaction of conditions for acquisitions and a limit on the total amount of acquisitions without the consent of bank lenders; • restrictions on the type of business 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, tax, 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 22 ______________________________________________________________________ Future financing arrangements may contain additional restrictions and tests |
| All of these restrictive covenants may limit our ability to pursue our business strategies, 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 were 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 happens, we could be forced to sell assets or take other actions that could significantly reduce the value of our securities and we may not have sufficient assets or funds to pay our debt obligations |
| We may lose a large amount of programming if a network terminates its affiliation with us, which could increase our costs and/or reduce revenue |
| Network Affiliation Agreements Of the 58 television stations that we own and operate, or to which we provide programming services or sales services, 56 currently operate as affiliates of FOX (19 stations), WB (18 stations), ABC (10 stations), UPN (6 stations), CBS (2 stations) and NBC (1 station) |
| The remaining two stations are independent |
| The networks produce and distribute programming in exchange for each station’s commitment to air the programming at specified times and for commercial announcement time during programming |
| On June 30, 2005, the affiliation agreements for our FOX affiliates expired |
| On August 22, 2005, we entered into an agreement that caused these expired agreements to continue in full force and effect until terminated by either party |
| We are currently in negotiations to renew the FOX affiliation agreements on a long-term basis |
| At this time, we cannot predict the final outcome of these negotiations and any impact they may have on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows |
| As of December 31, 2005, the aggregate net book value of these affiliation agreements was dlra37dtta3 million |
| On October 24, 2005, NBC informed us that they intend to terminate our affiliation with WTWC-TV in Tallahassee, Florida |
| This notice is contractually required to avoid automatic renewal of the existing agreement which expires January 1, 2007 |
| NBC has stated it is willing to continue its affiliation with WTWC if revised terms and conditions can be agreed upon |
| As of December 31, 2005, the net book value of this affiliation agreement was dlra2dtta3 million |
| We continue to negotiate with NBC regarding our affiliation agreement and, at this time, we cannot predict the final outcome of these negotiations and any impact they may have on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows |
| On January 24, 2006, CBS Corporation (CBS) and Warner Bros |
| ) announced their intent to merge the operations of their respective networks, UPN and The WB, into a broadcasting network to be called The CW Television Network |
| to air MyNetworkTV primetime programming on 17 of our stations |
| At this time, we cannot predict which of our stations will be affiliated with The CW, nor can we predict whether CBS or Warner Bros |
| will honor certain agreements, including affiliation agreements, that were made with us in the past |
| The aggregate net book value of our UPN and WB affiliation agreements was dlra9dtta0 million as of December 31, 2005 |
| Refer to our Markets and Stations table on page 5 and Note 18 |
| Subsequent Events, in the Notes to our Consolidated Financial Statements for additional information regarding these announcements |
| The non-renewal or termination of any of our other network affiliation agreements would prevent us from being 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, resulting in reduced revenues |
| Upon the termination of any of the above affiliation agreements, we would be required to establish a new affiliation agreement with another network or operate as an independent station |
| At such time, the remaining value of the network affiliation asset could become impaired and we would be required to write down the value of the asset |
| At this time, we cannot predict the final outcome of future negotiations and what impact, if any, they may have on our consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows |
| A change in a critical accounting estimate that affects the accounting treatment of goodwill and FCC licenses could cause material future losses due to asset impairment |
| In June 2001, the Financial Accounting Standards Board (FASB) approved SFAS Nodtta 142, Goodwill and Other Intangible Assets (SFAS 142) |
| SFAS 142 requires companies to cease amortizing goodwill and certain other intangible assets including FCC licenses |
| SFAS 142 also establishes a method of testing goodwill and FCC licenses for impairment on an annual basis, or on an interim basis if an event occurs that would reduce the fair value of a reporting unit below its carrying value |
| We test our goodwill and FCC licenses for impairment |
| To perform this test, we estimate the fair values of our station assets and liabilities using a combination of observed prices paid for similar assets and liabilities, discounted cash flow models and 23 ______________________________________________________________________ appraisals |
| We make certain critical estimates about the future revenue growth rates within each of our markets as well as the discount rates that would be used by market participants in an arms-length transaction |
| If these growth rates decline or if the discount rate increases, our goodwill and/or FCC licenses could be impaired |
| An impairment of some or all of the value of these assets could result in a material effect on the consolidated statements of operations |
| Key officers and directors have financial interests that are different and sometimes opposite our own and we may engage in transactions with these officers and directors that may benefit them to the detriment of other securityholders |
| Some of our officers, directors and majority shareholders 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 |
| They may transact some business with us upon approval by the independent members of our Board of Directors even if there is a conflict of interest or they may engage in business competitive to our business and those transactions may benefit the officers, directors or majority shareholders to the detriment of our securityholders |
| Together, the Smiths hold shares of our common stock that control the outcome of most matters submitted to a vote of shareholders |
| The Smiths own a controlling interest in a television station which we program pursuant to an LMA The Smiths also own businesses that lease real property and tower space to us and engage in other transactions with us |
| David D Smith, Frederick G Smith, J Duncan Smith, Robert E Smith and David B Amy, our Executive Vice President and Chief Financial Officer, together own less than 2dtta5prca of Allegiance Capital Limited Partnership, a limited partnership in which we hold a 87dtta5prca interest |
| Also, David D Smith, Frederick G Smith, J Duncan Smith and Robert E Smith together own less than 1dtta0prca of the stock of G1440, a company of which we own approximately 94dtta0prca and David D Smith owns approximately 0dtta1prca of Acrodyne Communications, Inc, a company of which we own approximately 82dtta3prca |
| We can give no assurance that these transactions or any transactions that we may enter into in the future with our officers, directors or majority shareholders, have been, or will be, negotiated on terms as favorable to us as we would obtain from unrelated parties |
| Maryland law and our financing agreements limit the extent to which our officers, directors and majority shareholders may transact business with us and pursue business opportunities that we might pursue |
| These limitations do not, however, prohibit all such transactions |
| For additional information related to our investments, see Note 11 |
| Related Party Transactions, in the Notes to our Consolidated Financial Statements |
| The Smiths exercise control over most matters submitted to a shareholder vote and may have interests that differ from yours |
| They may, therefore, take actions that are not in the interests of other securityholders |
| David D Smith, Frederick G Smith, J Duncan Smith and Robert E Smith hold shares representing approximately 85prca of the common stock voting rights and, therefore, control the outcome of most matters submitted to a vote of shareholders, including, but not limited to, electing directors, adopting amendments to our certificate of incorporation and approving corporate transactions |
| The Smiths hold substantially all of the Class B Common Stock, which have ten votes per share |
| Our Class A Common Stock has only one vote per share |
| In addition, the Smiths hold half our board of directors’ seats and, therefore, have the power to exert significant influence over our corporate management and policies |
| The Smiths have entered into a stockholders’ agreement pursuant to which they have agreed to vote for each other as candidates for election to the board of directors until June 13, 2015 |
| Circumstances may occur in which the interests of the Smiths, as the controlling equity holders, could be in conflict with the interests of other securityholders and the Smiths would have the ability to cause us to take actions in their interest |
| In addition, the Smiths could pursue acquisitions, divestitures or other transactions that, in their judgment could enhance their equity investment, even though such transactions might involve risks to our other securityholders |
| ) Certain features of our capital structure that discourage others from attempting to acquire our company may prevent our securityholders from receiving a premium on their securities or result in a lower price for our securities |
| The control the Smiths have over shareholder votes may discourage other parties 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 the open market at the time of the offer |
| If the voting rights of the Smiths discourage such takeover attempts, shareholders 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 otherwise be if these deterrents to takeovers did not exist |
| 24 ______________________________________________________________________ Federal regulation of the broadcasting industry limits our operating flexibility, which may affect our ability to generate revenue or reduce our costs |
| 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, assign or modify a license, purchase a new station, sell an existing 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 |
| If licenses are not renewed or acquisitions approved, we may lose revenue that we otherwise could have earned |
| In addition, Congress and the FCC may, in the future, adopt new laws, regulations and policies regarding a wide variety of matters (including technological changes) that could, directly or indirectly, materially and adversely affect the operation and ownership of our broadcast properties |
| ) It is a violation of federal law and FCC regulations to broadcast obscene or indecent programming |
| FCC licensees are, in general, responsible for the content of their broadcast programming, including content supplied by television networks |
| Accordingly, there is a risk of being fined as a result of our broadcast programming, including network programming |
| The maximum forfeiture amount for the broadcast of indecent or obscene material is dlra32cmam500 for each violation |
| In the past few years, the FCC has intensified its scrutiny of allegedly indecent and obscene programming |
| The FCC’s review of complaints regarding allegedly indecent or obscene network programming broadcast on some of our FOX and WB affiliates may be delaying the grant of the applications for license renewal of those stations |
| In 2005, the House of Representatives approved a bill raising the maximum forfeiture amount to dlra500cmam000 per violation, subject to some limitations |
| Additionally, the proposed law would expressly permit the FCC to consider such violations in the context of license renewal proceedings, proceedings for new licenses or permits and assignment or transfer of control proceedings |
| The proposed law would also require the FCC to commence a license revocation proceeding against a licensee after three violations |
| This legislation is currently in the Senate and we cannot predict the outcome |
| On October 12, 2004, the FCC issued a Notice of Apparent Liability for Forfeiture (NAL) in the amount of dlra7cmam000 per station to virtually every FOX station, including the 15 FOX affiliates presently licensed to us, the four FOX affiliates programmed by us and one FOX affiliate we sold in 2005 |
| The NAL alleged that the stations broadcast indecent material contained in an episode of a FOX network program that aired on April 7, 2003 |
| We, as well as other parties including the FOX network, filed oppositions to the NAL That proceeding is still pending |
| Although we cannot predict the outcome of that proceeding or the effect of any adverse outcome on the stations license renewal applications, the FOX network has agreed to indemnify its affiliates for the full amount of this liability |
| The FCC’s multiple ownership rules limit our ability to operate multiple television stations in some markets and may result in a reduction in our revenue or prevent us from reducing costs |
| Changes in these rules may threaten our existing strategic approach to certain television markets |
| Changes in Rules on Television Ownership Congress passed a bill requiring the FCC to establish a national audience reach cap of 39prca and President Bush signed the bill into law on January 23, 2004 |
| This law permits broadcast television owners to own more television stations nationally, potentially affecting our competitive position |
| In June 2003, the FCC adopted new multiple ownership rules |
| In July 2004, the Court of Appeals for the Third Circuit issued a decision which upheld a portion of such rules and remanded the matter to the FCC for further justification of the rules |
| The court also issued a stay of the 2003 rules pending the remand |
| Several parties, including us, filed petitions with the Supreme Court of the United States seeking review of the Third Circuit decision, but the Supreme Court denied the petitions in June 2005 |
| The FCC has not commenced its proceeding on remand |
| We cannot predict the outcome of that proceeding, which could significantly impact our business |
| Changes in Rules on Local Marketing Agreements Certain of our stations have entered into what have commonly been referred to as local marketing agreements or LMAs |
| One typical type of LMA is a programming agreement between two separately owned television stations serving the same market, whereby the licensee of one station programs substantial portions of the broadcast day and sells advertising time during such programming segments on the other licensee’s station subject to the ultimate editorial and other controls being exercised by the latter licensee |
| We believe these arrangements allow us to reduce our operating expenses and enhance profitability |
| 25 ______________________________________________________________________ Under the FCC ownership rules adopted in 2003, we would be allowed to continue to program most of the stations with which we have an LMA In the absence of a waiver, the 2003 ownership rules would require us to terminate or modify three of our LMAs in markets where both the station we own and the station with which we have an LMA are ranked among the top four stations in their particular designated market area |
| The FCC’s 2003 ownership rules include specific provisions permitting waivers of this “top four restriction” |
| Although there can be no assurances, we have studied the application of the 2003 ownership rules to our markets and believe we are qualified for waivers |
| The effective date of the 2003 ownership rules has been stayed by the U S Court of Appeals for the Third Circuit and the rules are on remand to the FCC Several parties, including us, filed petitions with the Supreme Court of the United States seeking review of the Third Circuit decision, but the Supreme Court denied the petitions in June 2005 |
| The FCC has not commenced its proceeding on remand |
| We cannot predict the outcome of that proceeding, which could significantly impact our business |
| When the FCC decided to attribute LMAs for ownership purposes in 1999, it grandfathered our LMAs that were entered into prior to November 5, 1996, permitting the applicable stations to continue operations pursuant to the LMAs until the conclusion of the FCC’s 2004 biennial review |
| The FCC stated it would conduct a case-by-case review of grandfathered LMAs and assess the appropriateness of extending the grandfathering periods |
| Subsequently, the FCC invited comments as to whether, instead of beginning the review of the grandfathered LMAs in 2004, it should do so in 2006 |
| The FCC has not initiated any such review of grandfathered LMAs and we cannot predict when the FCC will do so |
| Because the effective date of the 2003 ownership rules has been stayed and, in connection with the adoption of those rules, the FCC concluded the old rules could not be justified as necessary to the public interest, we have taken the position that an issue exists regarding whether the FCC has any current legal right to enforce any rules prohibiting the acquisition of television stations |
| The FCC, however, dismissed our applications to acquire certain LMA stations |
| We filed an application for review of that decision, which is still pending |
| In 2005, we filed a petition with the U S Court of Appeals for the DC Circuit requesting that the Court direct the FCC to take final action on our applications, but that petition was denied |
| We recently submitted a motion to the FCC requesting that it take final action on our applications and that request is pending |
| On November 15, 1999, we entered into a plan and agreement of merger to acquire through merger WBSC-TV (formerly WFBC-TV) in Anderson, South Carolina from Cunningham Broadcasting Corporation (Cunningham), but that transaction was denied by the FCC In light of the change in the 2003 ownership rules, we have filed a petition for reconsideration with the FCC and amended our application to acquire the license of WBSC-TV We also filed applications in November 2003 to acquire the license assets of the remaining five Cunningham stations: WRGT-TV, Dayton, Ohio; WTAT-TV, Charleston, South Carolina; WVAH-TV, Charleston, West Virginia; WNUV-TV, Baltimore, Maryland; and WTTE-TV, Columbus, Ohio |
| The Rainbow/PUSH Coalition (Rainbow/PUSH) filed a petition to deny these five applications and to revoke all of our licenses |
| The FCC dismissed our applications in light of the stay of the 2003 rules and also denied the Rainbow/PUSH petition |
| Rainbow/PUSH filed a petition for reconsideration of that denial and we filed an application for review of the dismissal, which may be impacted by the remand of the FCC’s 2003 ownership rules |
| In 2005, we filed a petition with the U S Court of Appeals for the D C Circuit requesting that the Court direct the FCC to take final action on our applications, but that petition was dismissed |
| We recently submitted a motion to the FCC requesting that it take final action on our applications |
| Both the applications and the associated petition to deny are still pending |
| We believe the Rainbow/PUSH petition is without merit |
| If we are required to terminate or modify our LMAs, our business could be affected 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 certain of these LMA arrangements are no longer permitted, we would be forced to sell these assets, restructure our agreements or find another use for them |
| If this happens, the market for such assets may not be as good as when we purchased them and, therefore, we cannot be certain that we will recoup our original 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 terms of the LMAs, we may be forced to pay termination penalties under the terms of some of our LMAs |
| Any such termination penalties could be material |
| Use of outsourcing agreements In addition to our LMAs, we have entered into four (and may seek opportunities for additional) outsourcing agreements in which our stations provide or are provided various non-programming related services such as sales, operational and managerial services to or by other stations |
| Pursuant to these agreements, our station in Nashville, Tennessee currently provides services to another station in the market and other parties provide services to our stations in Peoria/Bloomington, Illinois, Cedar Rapids, Iowa and Rochester, New York |
| We believe this structure allows stations to achieve operational efficiencies and economies of scale, which should otherwise improve broadcast cash flow and 26 ______________________________________________________________________ competitive positions |
| While television joint sales agreements (JSAs) are not currently attributable, on August 2, 2004, the FCC released a notice of proposed rulemaking seeking comments on its tentative conclusion that television joint sales agreements should be attributable |
| We cannot predict the outcome of this proceeding, nor can we predict how any changes, together with possible changes to the ownership rules, would apply to our existing outsourcing agreements |
| 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 those stations with which we have LMAs or outsourcing agreements can exert their control in ways that may be counter to our interests, including the right to preempt or terminate programming in certain instances |
| The preemption and termination rights cause some uncertainty as to whether we will be able to air all of the programming that we have purchased and therefore, uncertainty about the advertising revenue that 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 that license |
| Any one of these scenarios might result in a reduction of our cash flow and an increase in our operating costs or margins, 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 put those licenses at risk |
| Competition from other broadcasters or other content providers and changes in technology may cause a reduction in our advertising revenues and/or an increase in our operating costs |
| The television industry is highly competitive and this competition can draw viewers and advertisers from our stations, which reduces our revenue or requires us to pay more for programming, which increases our costs |
| We face intense competition from the following: New Technology and the subdivision of markets Cable providers, direct broadcast satellite companies and telecommunication companies are developing new technology that allows them to transmit more channels on their existing equipment to highly targeted audiences, reducing the cost of creating channels and potentially leading to the division of the television industry into ever more specialized niche markets |
| 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 addition, emerging technologies that will allow viewers to digitally record, store and play back television programming may decrease viewership of commercials and, as a result, lower our advertising revenues |
| Types of competitors We also face competition from rivals that may have greater resources than we have |
| These include: • other local free over-the-air broadcast television and radio stations; • telecommunication companies; • cable and satellite system operators; • print media providers such as newspapers and periodicals; • internet providers; and • competition from other emerging technologies |
| Deregulation The Telecommunications Act of 1996 and subsequent actions by the FCC have removed some limits on station ownership, allowing telephone, cable and some other companies to provide video services in competition with us |
| In addition, the FCC has reallocated a portion of the spectrum for new services including fixed and mobile wireless services and digital broadcast services |
| 27 ______________________________________________________________________ The commencement of the Iraq War resulted in a decline in advertising revenues and negatively impacted our operating results |
| The commencement of the war in Iraq resulted in a reduction of advertising revenues as a result of uninterrupted news coverage and general economic uncertainty |
| During the first quarter of 2003, we experienced dlra2dtta2 million in advertiser cancellations and preemptions, which resulted in lower earnings than we would have experienced without this disruption |
| If the United States becomes engaged in similar conflicts in the future, they may have a similar adverse effect on our results of operations |
| Unrelated third parties may claim that we infringe on their rights based on the nature and content of information posted on websites maintained by us |
| We host internet services that enable individuals and businesses to exchange information, generate content, advertise products and services, conduct business and engage in various online activities |
| The law relating to the liability of providers of these online services for activities of their users is currently unsettled both within the United States and internationally |
| Claims may be brought against us for defamation, negligence, copyright or trademark infringement, unlawful activity, tort, including personal injury, fraud, or other theories based on the nature and content of information that we provide links to or that may be posted online or generated by our users |
| Our defense of such actions could be costly and involve significant time and attention of our management and other resources |
| We have lost money in two of the last five years, and may continue to incur losses in the future, which may impair our ability to pay our debt obligations |
| We reported earnings in 2005, 2004 and 2003, but we have incurred net losses in two of the last five years |
| Our losses are due to a variety of cash and non-cash expenses which may or may not recur |
| Our net losses may therefore continue indefinitely and as a result, we may not have sufficient funds to operate our business |