SINCLAIR 1 S e c o n d Q u a r t e r 2 0 2 2 C o n f e r e n c e C a l l A U G U S T 3 , 2 0 2 2 Chris Ripley President & Chief Executive Officer Lucy Rutishauser EVP, Chief Financial Officer Rob Weisbord Chief Operating Officer President of Broadcast NON-GAAP FINANCIAL MEASURES 2 This presentation contains certain financial measures, including Adjusted EBITDA and Adjusted Free Cash Flow, which are not prepared in accordance with U.S. generally accepted accounting principles ("GAAP") (collectively, the "non ...

Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) Q2 2022 Earnings Conference Call August 3, 2022 9:00 AM ET Company Participants Lucy Rutishauser - EVP & CFO Billie Jo McIntire - Director of IR Christopher Ripley - President & CEO Robert Weisbord - COO & President, Broadcast Steven Zenker - VP, IR Conference Call Participants Daniel Kurnos - The Benchmark Company Steven Cahall - Wells Fargo Securities Aaron Watts - Deutsche Bank Barton Crockett - Rosenblatt Securities Edward Reily - EF Hutton David Hamburger - ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2022 [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=5&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section presents the unaudited consolidated financial statements of Sinclair Broadcast Group, Inc. for the quarter ended March 31, 2022, including balance sheets, statements of operations, comprehensive income, equity, and cash flows. It also includes detailed notes explaining accounting policies, significant events like the deconsolidation of Diamond Sports Intermediate Holdings LLC (DSIH), segment data, and related party transactions [CONSOLIDATED BALANCE SHEETS](index=6&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time ASSETS (in millions) | ASSETS (in millions) | As of March 31, 2022 | As of December 31, 2021 | | :--------------------- | :------------------- | :---------------------- | | Cash and cash equivalents | $521 | $816 | | Accounts receivable, net | $620 | $1,245 | | Total current assets | $1,467 | $2,471 | | Property and equipment, net | $715 | $833 | | Customer relationships, net | $504 | $3,904 | | Total assets | $6,662 | $12,541 | LIABILITIES & EQUITY (in millions) | LIABILITIES & EQUITY (in millions) | As of March 31, 2022 | As of December 31, 2021 | | :--------------------------------- | :------------------- | :---------------------- | | Accounts payable and accrued liabilities | $392 | $655 | | Total current liabilities | $603 | $1,202 | | Notes payable, finance leases, and commercial bank financing, less current portion | $4,362 | $12,271 |\ | Total liabilities | $5,775 | $14,050 | | Total Sinclair Broadcast Group shareholders' equity (deficit) | $765 | $(1,770) | | Total equity (deficit) | $703 | $(1,706) | - **Total assets decreased significantly** from **$12,541 million** at December 31, 2021, to **$6,662 million** at March 31, 2022, **primarily due to the deconsolidation** of Diamond Sports Intermediate Holdings LLC (DSIH)[14](index=14&type=chunk)[15](index=15&type=chunk)[31](index=31&type=chunk) - **Total liabilities also saw a substantial reduction** from **$14,050 million** to **$5,775 million**, **largely attributable to the DSIH deconsolidation**[14](index=14&type=chunk)[15](index=15&type=chunk)[31](index=31&type=chunk) - **Shareholders' equity shifted** from a **deficit of $(1,770) million** to a **positive $765 million**, reflecting the financial impact of the **DSIH deconsolidation** and net income[14](index=14&type=chunk)[21](index=21&type=chunk) [CONSOLIDATED STATEMENTS OF OPERATIONS](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) This statement details the company's revenues, expenses, and net income over a specific period (in millions, except per share data) | (in millions, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | $1,288 | $1,511 | | Total operating (gains) expenses | $(2,178) | $1,476 | | Operating income | $3,466 | $35 | | Income before income taxes | $3,303 | $17 | | NET INCOME | $2,616 | $26 | | NET INCOME (LOSS) ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP | $2,587 | $(12) | | Basic earnings (loss) per share | $35.85 | $(0.16) | | Diluted earnings (loss) per share | $35.84 | $(0.16) | - **Total revenues decreased by $223 million** (**14.7%**) year-over-year, from **$1,511 million** in Q1 2021 to **$1,288 million** in Q1 2022, **primarily due to the deconsolidation** of the local sports segment[16](index=16&type=chunk)[31](index=31&type=chunk)[188](index=188&type=chunk) - **Operating income dramatically increased** from **$35 million** in Q1 2021 to **$3,466 million** in Q1 2022, **driven by a $3,357 million gain** on the **deconsolidation** of a subsidiary[16](index=16&type=chunk)[32](index=32&type=chunk)[202](index=202&type=chunk) - **Net income attributable to Sinclair Broadcast Group swung from a loss of $(12) million** in Q1 2021 to a **net income of $2,587 million** in Q1 2022, **largely due to the deconsolidation gain**[16](index=16&type=chunk) - **Diluted EPS improved significantly** from **$(0.16)** in Q1 2021 to **$35.84** in Q1 2022[16](index=16&type=chunk) [CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) This statement presents net income and other comprehensive income components, reflecting total non-owner changes in equity (in millions) | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------ | :-------------------------------- | :-------------------------------- | | Net income | $2,616 | $26 | | Share of other comprehensive income of equity method investments | $3 | $8 | | Comprehensive income | $2,619 | $34 | | Comprehensive income (loss) attributable to Sinclair Broadcast Group | $2,590 | $(4) | - **Comprehensive income attributable to Sinclair Broadcast Group increased substantially** from a **loss of $(4) million** in Q1 2021 to an **income of $2,590 million** in Q1 2022, mirroring the net income trend[17](index=17&type=chunk) [CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS](index=9&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20EQUITY%20(DEFICIT)%20AND%20REDEEMABLE%20NONCONTROLLING%20INTERESTS) This statement tracks changes in shareholders' equity and noncontrolling interests over the reporting period (in millions, except share data) | (in millions, except share data) | As of December 31, 2021 | As of March 31, 2022 | | :------------------------------- | :---------------------- | :------------------- | | Redeemable Noncontrolling Interests | $197 | $184 | | Total Sinclair Broadcast Group Shareholders' Equity (Deficit) | $(1,770) | $765 | | Noncontrolling Interests | $64 | $(62) | | Total Equity (Deficit) | $(1,706) | $703 | - The company's equity position **significantly improved**, moving from a **total deficit of $(1,706) million** at December 31, 2021, to a **positive total equity of $703 million** at March 31, 2022[21](index=21&type=chunk) - This **improvement was primarily driven by the net income of $2,587 million** for the quarter, which offset dividends paid and share repurchases[21](index=21&type=chunk) - **Repurchased 2,472,485 shares** of Class A Common Stock for **$68 million** during the three months ended March 31, 2022[21](index=21&type=chunk) [CONSOLIDATED STATEMENTS OF CASH FLOWS](index=11&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This statement categorizes cash flows into operating, investing, and financing activities, showing changes in cash position (in millions) | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------ | :-------------------------------- | :-------------------------------- | | Net cash flows from (used in) operating activities | $70 | $(206) | | Net cash flows used in investing activities | $(266) | $(26) | | Net cash flows used in financing activities | $(102) | $(85) | | NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | $(298) | $(317) | | CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period | $521 | $945 | - **Net cash flows from operating activities improved significantly**, moving from a **use of $(206) million** in Q1 2021 to a **generation of $70 million** in Q1 2022, **mainly due to** lower payments for production, overhead, distributor rebates, and sports rights following the **DSIH deconsolidation**[24](index=24&type=chunk)[216](index=216&type=chunk) - **Net cash flows used in investing activities increased from $(26) million** in Q1 2021 to **$(266) million** in Q1 2022, **primarily due to the deconsolidation** of subsidiary cash of **$(315) million**, partially offset by increased distributions from investments[24](index=24&type=chunk)[217](index=217&type=chunk) - **Net cash flows used in financing activities increased from $(85) million** in Q1 2021 to **$(102) million** in Q1 2022, **mainly due to** Class A Common Stock **repurchases of $68 million** in the current period[24](index=24&type=chunk)[218](index=218&type=chunk) [NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS](index=12&type=section&id=NOTES%20TO%20UNAUDITED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed explanations of accounting policies, significant events, and financial statement line items [1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=1.%20NATURE%20OF%20OPERATIONS%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines Sinclair Broadcast Group's business, which includes diversified television media with broadcast stations and, prior to March 1, 2022, regional sports networks. It details the principles of consolidation, the significant deconsolidation of Diamond Sports Intermediate Holdings LLC (DSIH) effective March 1, 2022, and key accounting policies for revenue recognition, programming rights, and income taxes. The deconsolidation resulted in a $3,357 million gain - Sinclair Broadcast Group operates **185 broadcast television stations** in **86 markets**, broadcasting **634 channels** as of March 31, 2022[27](index=27&type=chunk) - **Effective March 1, 2022**, Diamond Sports Intermediate Holdings LLC (DSIH), representing the local sports segment, was **deconsolidated** from the Company's financial statements due to a change in governance structure, resulting in a **$3,357 million gain** before income taxes[31](index=31&type=chunk)[32](index=32&type=chunk) Revenue Disaggregated by Type and Segment (in millions) | For the three months ended March 31, 2022 | Broadcast | Local sports | Other | Eliminations | Total | | :---------------------------------------- | :-------- | :----------- | :---- | :----------- | :---- | | Distribution revenue | $392 | $433 | $48 | $— | $873 | | Advertising revenue | $282 | $44 | $68 | $(23) | $371 | | Other media, non-media, and intercompany revenues | $47 | $5 | $18 | $(26) | $44 | | Total revenues | $721 | $482 | $134 | $(49) | $1,288 | For the three months ended March 31, 2021 | For the three months ended March 31, 2021 | Broadcast | Local sports | Other | Eliminations | Total | | :---------------------------------------- | :-------- | :----------- | :---- | :----------- | :---- | | Distribution revenue | $361 | $698 | $50 | $— | $1,109 | | Advertising revenue | $267 | $65 | $40 | $(1) | $371 | | Other media, non-media, and intercompany revenues | $37 | $5 | $18 | $(29) | $31 | | Total revenues | $665 | $768 | $108 | $(30) | $1,511 | - Deferred revenue was **$230 million** as of March 31, 2022, **down from $235 million** as of December 31, 2021[46](index=46&type=chunk) - For Q1 2022, three customers **accounted for 17%**, **17%**, and **14%** of total revenues, respectively[47](index=47&type=chunk) - **Repurchased approximately 2 million shares** of Class A Common Stock for **$68 million** during Q1 2022, with **$751 million remaining authorization**[52](index=52&type=chunk) [2. ACQUISITIONS AND DISPOSITIONS OF ASSETS](index=16&type=section&id=2.%20ACQUISITIONS%20AND%20DISPOSITIONS%20OF%20ASSETS) This note details the company's activities related to the Broadcast Incentive Auction and spectrum repack. Sinclair recorded gains from reimbursements for repack costs and proceeds from asset sales - **Recorded gains of $1 million** and **$14 million** for Q1 2022 and Q1 2021, respectively, related to reimbursements for spectrum repack costs[55](index=55&type=chunk) - **Capital expenditures for the spectrum repack were $1 million** in Q1 2022 and **$4 million** in Q1 2021[55](index=55&type=chunk) [3. OTHER ASSETS](index=17&type=section&id=3.%20OTHER%20ASSETS) This note provides a breakdown of other assets, including equity method investments, other investments, and a note receivable. It highlights the accounting for DSIH as an equity method investment post-deconsolidation and fair value adjustments for other investments Other Assets (in millions) | Other Assets (in millions) | As of March 31, 2022 | As of December 31, 2021 | | :------------------------- | :------------------- | :---------------------- | | Equity method investments | $135 | $517 | | Other investments | $505 | $567 | | Note receivable | $163 | $— | | Total other assets | $1,015 | $1,408 | - **Post-deconsolidation**, the equity ownership interest in DSIH is accounted for under the equity method, with a **fair value determined to be nominal** as of March 1, 2022[59](index=59&type=chunk) - **Recognized a fair value adjustment loss of $56 million** for Q1 2022, **compared to a gain of $125 million** for Q1 2021, related to other investments[61](index=61&type=chunk) - A **note receivable of approximately $163 million** from Diamond Sports Finance SPV, LLC (DSPV) is recorded within other assets as of March 31, 2022, following the **deconsolidation**[63](index=63&type=chunk) [4. NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING](index=19&type=section&id=4.%20NOTES%20PAYABLE,%20FINANCE%20LEASES,%20AND%20COMMERCIAL%20BANK%20FINANCING) This note details the company's debt structure, including the Bank Credit Agreement of Sinclair Television Group, Inc. (STG) and guarantees of third-party obligations. It emphasizes that DSIH's debt was deconsolidated from the company's balance sheet - **STG's first lien leverage ratio was below 4.5x** as of March 31, 2022, and the **financial maintenance covenant was not applicable** due to no utilization of the revolving credit facility[65](index=65&type=chunk) - **Debt of DSIH was deconsolidated** from the Company's balance sheet as part of the **Deconsolidation**[66](index=66&type=chunk) - STG **guaranteed $38 million** of debt of certain third parties as of March 31, 2022, **including $9 million** related to consolidated VIEs[68](index=68&type=chunk) [5. REDEEMABLE NONCONTROLLING INTERESTS](index=20&type=section&id=5.%20REDEEMABLE%20NONCONTROLLING%20INTERESTS) This note describes the company's redeemable noncontrolling interests, primarily consisting of Redeemable Subsidiary Preferred Equity and a Subsidiary Equity Put Right. It details the dividends accrued and the impact of the DSIH deconsolidation on these interests - **Redeemable Subsidiary Preferred Equity balance**, net of issuance costs, was **$184 million** as of March 31, 2022, **up from $181 million** at December 31, 2021[72](index=72&type=chunk) - **Dividends accrued on Redeemable Subsidiary Preferred Equity were $3 million** for Q1 2022, **paid-in-kind** and **added to liquidation preference**[71](index=71&type=chunk) - A **subsidiary equity put right, valued at $16 million** as of December 31, 2021, was **deconsolidated as part of the DSIH transaction**[73](index=73&type=chunk) [6. COMMITMENTS AND CONTINGENCIES](index=20&type=section&id=6.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's various commitments and contingencies, including other liabilities, ongoing litigation, and regulatory matters. It highlights the impact of the DSIH deconsolidation on certain payment obligations and details FCC and antitrust litigation - **Prior to deconsolidation**, other liabilities **included fixed payment obligations** (**$32 million** current, **$71 million** long-term as of Dec 31, 2021) and **variable payment obligations** (**$8 million** current, **$23 million** long-term as of Dec 31, 2021)[74](index=74&type=chunk)[75](index=75&type=chunk) - **FCC litigation includes pending petitions** for reconsideration of a **$48 million** consent decree and a **petition to deny license renewal applications** for certain Baltimore stations[78](index=78&type=chunk)[79](index=79&type=chunk) - An **accrual of $8 million** for additional expenses was **recorded during 2021** related to an FCC forfeiture order against licensees of certain VIEs consolidated by the company[80](index=80&type=chunk) - The **company is a defendant in twenty-two putative class action lawsuits alleging conspiracy to fix advertising prices**, with **discovery to be completed by December 30, 2022**[83](index=83&type=chunk) [7. EARNINGS PER SHARE](index=22&type=section&id=7.%20EARNINGS%20PER%20SHARE) This note provides the reconciliation of income and shares used in the computation of basic and diluted earnings per share, highlighting the significant increase in EPS for Q1 2022 (in millions, except share amounts in thousands) | (in millions, except share amounts in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------------------- | :-------------------------------- | :-------------------------------- | | Numerator for basic and diluted earnings (loss) per common share available to common shareholders | $2,587 | $(12) | | Basic weighted-average common shares outstanding | 72,164 | 74,389 | | Diluted weighted-average common and common equivalent shares outstanding | 72,176 | 74,389 | | Basic earnings (loss) per share | $35.85 | $(0.16) | | Diluted earnings (loss) per share | $35.84 | $(0.16) | - Weighted-average stock-settled appreciation rights and outstanding stock options **excluded from diluted EPS calculation (anti-dilutive)** were **2,545 thousand** in Q1 2022, **up from 1,703 thousand** in Q1 2021[84](index=84&type=chunk) [8. SEGMENT DATA](index=23&type=section&id=8.%20SEGMENT%20DATA) This note presents financial information by reportable segment: broadcast and local sports (prior to deconsolidation). It also includes 'Other and Corporate' for reconciliation, detailing revenues, expenses, and operating income for each segment - The company **operates two reportable segments**: broadcast (**185 stations** in **86 markets**) and local sports (Bally RSNs, Marquee, YES Network, prior to March 1, 2022 **deconsolidation**)[85](index=85&type=chunk) Segment Operating Income (Loss) (in millions) | Segment | Q1 2022 Operating Income (Loss) | Q1 2021 Operating Income (Loss) | | :------ | :------------------------------ | :------------------------------ | | Broadcast | $97 | $63 | | Local sports | $(4) | $(41) | | Other & Corporate | $3,372 | $13 | | Consolidated | $3,466 | $35 | - **Broadcast segment revenue increased from $665 million** in Q1 2021 to **$721 million** in Q1 2022, while **local sports segment revenue decreased from $768 million to $482 million due to deconsolidation**[87](index=87&type=chunk) - **Other & Corporate operating income saw a substantial increase to $3,372 million** in Q1 2022, **primarily driven by the gain on deconsolidation of subsidiary**[87](index=87&type=chunk)[89](index=89&type=chunk) [9. VARIABLE INTEREST ENTITIES](index=25&type=section&id=9.%20VARIABLE%20INTEREST%20ENTITIES) This note details the company's involvement with Variable Interest Entities (VIEs), including those it consolidates (primarily broadcast stations) and those it does not (e.g., DSIH post-deconsolidation). It outlines the criteria for primary beneficiary determination and the financial impact of VIEs on the consolidated balance sheets - The company **consolidates VIEs where it is the primary beneficiary**, typically broadcast stations under LMAs, JSAs, or SSAs, and previously certain regional sports networks[91](index=91&type=chunk)[92](index=92&type=chunk) Consolidated VIE Assets and Liabilities (in millions) | (in millions) | As of March 31, 2022 | As of December 31, 2021 | | :------------ | :------------------- | :---------------------- | | Total assets | $118 | $217 | | Total liabilities | $26 | $72 | - **Post-deconsolidation**, DSIH is considered a VIE for which the company is not the primary beneficiary, with the **carrying amount of the investment being zero** and **no obligation for additional financial support**[96](index=96&type=chunk) - The **carrying amounts of investments in VIEs** for which the company is not the primary beneficiary were **$171 million** as of March 31, 2022[96](index=96&type=chunk) [10. RELATED PERSON TRANSACTIONS](index=26&type=section&id=10.%20RELATED%20PERSON%20TRANSACTIONS) This note details various transactions with related parties, including controlling shareholders, Cunningham Broadcasting Corporation, Atlantic Automotive Corporation, and DSIH. It covers leases, management services agreements, and sports programming rights, highlighting the financial impact of these relationships - **Lease payments to entities owned by controlling shareholders were $2 million** for Q1 2022, **up from $1 million** in Q1 2021[97](index=97&type=chunk) - **Guaranteed $36 million** of Cunningham Broadcasting Corporation's debt as of March 31, 2022[99](index=99&type=chunk) - **Consolidated revenues include $34 million** for Q1 2022 and **$36 million** for Q1 2021 related to services provided to Cunningham Stations[103](index=103&type=chunk) - **Under a management services agreement with DSG** (DSIH subsidiary), the **broadcast segment recorded $28 million** of revenue for Q1 2022, with a **portion deferred as part of the DSIH transaction**[108](index=108&type=chunk) - **Received a $50 million payment from DSPV during Q1 2022 related to the A/R facility note receivable**[109](index=109&type=chunk) - **Paid $61 million** for Q1 2022 and **$120 million** for Q1 2021 under sports programming rights agreements with affiliates of professional teams, **net of rebates, prior to the DSIH deconsolidation**[114](index=114&type=chunk) [11. FAIR VALUE MEASUREMENTS](index=29&type=section&id=11.%20FAIR%20VALUE%20MEASUREMENTS) This note provides a detailed breakdown of financial assets and liabilities measured at fair value, categorized by Level 1, Level 2, and Level 3 inputs. It highlights the fair value adjustments for investments, particularly warrants and options related to Bally's Corporation Fair Value of Financial Assets and Liabilities (in millions) | Category | As of March 31, 2022 (Carrying Value / Fair Value) | As of December 31, 2021 (Carrying Value / Fair Value) | | :------- | :------------------------------------------------- | :---------------------------------------------------- | | Level 1: Investments in equity securities | $6 / $6 | $5 / $5 | | Level 1: Money market funds (STG) | $400 / $400 | $265 / $265 | | Level 2: Investments in equity securities | $92 / $92 | $114 / $114 | | Level 2: STG Senior Notes (various) | $348-$1,268 / $339-$1,229 | $348-$1,271 / $357-$1,239 | | Level 3: Investments in equity securities | $226 / $226 | $282 / $282 | - **Recorded a fair value adjustment loss of $56 million** for Q1 2022 (**compared to a gain of $103 million** in Q1 2021) **related to warrants and options to acquire common equity in Bally's Corporation**[122](index=122&type=chunk)[123](index=123&type=chunk) - The **fair value of Bally's warrants is derived from quoted trading prices adjusted for a 16% discount for lack of marketability (DLOM)**[122](index=122&type=chunk) [12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS](index=32&type=section&id=12.%20CONDENSED%20CONSOLIDATING%20FINANCIAL%20STATEMENTS) This note provides condensed consolidating financial statements for Sinclair Broadcast Group, Inc. (SBG), Sinclair Television Group, Inc. (STG), KDSM, LLC, guarantor subsidiaries, and non-guarantor subsidiaries. These statements illustrate the financial position, operations, and cash flows on a consolidating basis, particularly relevant due to STG being the primary obligor under certain debt agreements and SBG acting as a guarantor - **STG is the primary obligor** under the **Bank Credit Agreement and STG Notes**, with **SBG and guarantor subsidiaries providing full and unconditional guarantees**[124](index=124&type=chunk)[125](index=125&type=chunk) - As of March 31, 2022, **consolidated total debt, net of deferred financing costs and debt discounts, was $4,398 million**, with **$4,381 million** related to STG and its subsidiaries, of which the Company **guaranteed $4,344 million**[124](index=124&type=chunk) [13. SUBSEQUENT EVENTS](index=39&type=section&id=13.%20SUBSEQUENT%20EVENTS) This note details significant events that occurred after March 31, 2022, including a distribution agreement with Charter Communications, refinancing of debt, and a dividend declaration - **Reached a distribution agreement with Charter Communications, Inc. on April 14, 2022, for continued carriage of local broadcast stations and Tennis Channel**[140](index=140&type=chunk) - On April 21, 2022, **STG raised $750 million** in **Term B-4 Loans to refinance outstanding Term Loan B and redeem 5.875% Senior Notes due 2026, also extending $612.5 million of revolving commitments to April 2027**[141](index=141&type=chunk)[142](index=142&type=chunk) - **Declared a quarterly dividend of $0.25 per share** in May 2022, **payable on June 15, 2022, representing a 25% increase over 2021 dividends**[143](index=143&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=40&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial performance and condition, including forward-looking statements, a summary of significant events, detailed results of operations by segment, and an analysis of liquidity and capital resources. It highlights the impact of the DSIH deconsolidation and other strategic initiatives [FORWARD-LOOKING STATEMENTS](index=40&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines potential risks and uncertainties that could impact future financial results and operations - The **report contains forward-looking statements subject to risks related to COVID-19** (e.g., advertising loss, supply chain disruption, workforce impact), **industry factors** (e.g., subscriber churn, programming costs, network strategies), **regulatory changes** (e.g., FCC rules, ownership limits), and **company-specific challenges** (e.g., debt obligations, content monetization, retransmission consent renegotiations)[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) [Summary of Significant Events](index=43&type=section&id=Summary%20of%20Significant%20Events) This section highlights key corporate actions and developments impacting the company's financial position and operations - **Deconsolidated Diamond Sports Intermediate Holdings, LLC (DSIH) effective March 1, 2022**, following a governance structure modification, which is **expected to provide DSIH with approximately $1 billion of liquidity enhancement over five years**[158](index=158&type=chunk) - **Tejas Networks to acquire approximately 65%** of Saankhya Labs Private Ltd., in which ONE Media 3.0, LLC (a Sinclair subsidiary) holds a **49% interest**[158](index=158&type=chunk) - **Launched new programs** 'The Rally' and 'Live on the Line, Powered by BetMGM' on Bally Sports networks and app in January 2022[158](index=158&type=chunk) - **Renewed extended market and digital distribution rights agreement with the NBA in January 2022**, **allowing Bally RSNs to offer streaming content for 16 NBA teams**[160](index=160&type=chunk) - **Deployed NEXTGEN TV (ATSC 3.0) in seven additional markets** in 2022, **bringing the total to 29 markets**[167](index=167&type=chunk) - **Repurchased approximately 2 million shares** of Class A Common Stock for **$68 million** in Q1 2022, and an **additional 1 million shares for $26 million since March 31, 2022**[168](index=168&type=chunk) - **Declared a quarterly cash dividend of $0.25 per share** in February and May 2022, a **25% increase over 2021 dividends**[168](index=168&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing revenues, expenses, and operating income across its segments - **Operating results are subject to cyclical fluctuations from political advertising** (**higher in even-numbered years**) and **seasonality of sports leagues** (**Q2 and Q3 typically higher for local sports**)[170](index=170&type=chunk)[171](index=171&type=chunk) Consolidated Operating Data (in millions) | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------ | :-------------------------------- | :-------------------------------- | | Total revenues | $1,288 | $1,511 | | Operating income | $3,466 | $35 | | Net income (loss) attributable to Sinclair Broadcast Group | $2,587 | $(12) | - The **COVID-19 pandemic continues to create uncertainty, impacting estimates related to revenue recognition, goodwill, intangible assets, program contract costs, sports programming rights, and income taxes**[173](index=173&type=chunk)[174](index=174&type=chunk) [BROADCAST SEGMENT](index=48&type=section&id=BROADCAST%20SEGMENT) The broadcast segment experienced revenue growth driven by increased contractual rates for distribution and a rise in political advertising. Operating expenses also increased, primarily due to network affiliation fees and digital business fulfillment costs Broadcast Segment Revenue and Expenses (in millions) | (in millions) | Q1 2022 | Q1 2021 | Percent Change | | :------------ | :------ | :------ | :------------- | | Distribution revenue | $392 | $361 | 9% | | Advertising revenue | $282 | $267 | 6% | | Other media revenues | $47 | $37 | 27% | | Media revenues | $721 | $665 | 8% | | Media programming and production expenses | $350 | $337 | 4% | | Media selling, general and administrative expenses | $156 | $141 | 11% | | Operating income | $97 | $63 | 54% | - **Distribution revenue increased by $31 million** (**9%**) **due to higher contractual rates**, partially offset by a **decrease in subscribers**[177](index=177&type=chunk) - **Advertising revenue increased by $15 million** (**6%**), **primarily driven by a $13 million increase in political advertising revenue in 2022**[178](index=178&type=chunk) - **Media programming and production expenses increased by $13 million** (**4%**) **due to higher network affiliation agreement fees**[181](index=181&type=chunk) - **Media selling, general and administrative expenses increased by $15 million** (**11%**) **due to an $8 million increase in third-party fulfillment costs for digital business and a $6 million increase in IT costs**[182](index=182&type=chunk) [LOCAL SPORTS SEGMENT](index=50&type=section&id=LOCAL%20SPORTS%20SEGMENT) The local sports segment's results reflect only two months of activity in Q1 2022 due to the deconsolidation of DSIH on March 1, 2022. This led to significant year-over-year decreases in both revenues and expenses, making direct comparisons difficult Local Sports Segment Revenue and Expenses (in millions) | (in millions) | Q1 2022 | Q1 2021 | Percent Change | | :------------ | :------ | :------ | :------------- | | Distribution revenue | $433 | $698 | (38)% | | Advertising revenue | $44 | $65 | (32)% | | Media revenue | $482 | $768 | (37)% | | Media programming and production expenses | $376 | $657 | (43)% | | Operating loss | $(4) | $(41) | (90)% | | Income from equity method investments | $10 | $13 | (23)% | - The **decrease in revenue and expenses for the local sports segment is primarily due to the deconsolidation of DSIH on March 1, 2022**, meaning **Q1 2022 includes only two months of activity compared to a full quarter in Q1 2021**[188](index=188&type=chunk) - **Operating loss for the local sports segment improved from $(41) million** in Q1 2021 to **$(4) million** in Q1 2022, **despite the revenue decline, due to the reduced expense base post-deconsolidation**[187](index=187&type=chunk) - **Income from equity method investments, primarily from the YES Network, decreased from $13 million** in Q1 2021 to **$10 million** in Q1 2022[194](index=194&type=chunk) [OTHER](index=52&type=section&id=OTHER) The 'Other' segment, encompassing owned networks, digital solutions, technical services, and non-media investments, saw an increase in media revenue driven by digital initiatives and owned networks, while non-media revenue decreased due to a prior asset sale. Media expenses increased in line with digital growth Other Segment Revenue and Expenses (in millions) | (in millions) | Q1 2022 | Q1 2021 | Percent Change | | :------------ | :------ | :------ | :------------- | | Media revenues | $120 | $92 | 30% | | Non-media revenues | $14 | $16 | (13)% | | Media expenses | $89 | $64 | 39% | | Non-media expenses | $14 | $18 | (22)% | | Operating income | $18 | $16 | 13% | | Income (loss) from equity method investments | $2 | $(4) | (150)% | - **Media revenue increased by $28 million** (**30%**) **due to growth in digital initiatives and owned networks**[198](index=198&type=chunk) - **Non-media revenue decreased by $2 million** (**13%**) **due to the sale of Triangle Sign & Service, LLC in Q2 2021**[198](index=198&type=chunk) - **Media expenses increased by $25 million** (**39%**) **primarily related to digital initiatives**[199](index=199&type=chunk) [CORPORATE AND UNALLOCATED EXPENSES](index=53&type=section&id=CORPORATE%20AND%20UNALLOCATED%20EXPENSES) Corporate and unallocated expenses saw a decrease in general and administrative costs due to reduced employee compensation and legal fees. Interest expense also declined due to the DSIH deconsolidation. However, other (expense) income, net, significantly decreased due to fair value adjustments of investments, and the income tax provision increased due to higher pre-tax income Corporate and Unallocated Expenses (in millions) | (in millions) | Q1 2022 | Q1 2021 | Percent Change | | :------------ | :------ | :------ | :------------- | | Corporate general and administrative expenses | $47 | $61 | (23)% | | Gain on deconsolidation of subsidiary | $(3,357) | $— | n/m | | Interest expense | $115 | $151 | (24)% | | Other (expense) income, net | $(60) | $124 | (148)% | | Income tax (provision) benefit | $(687) | $9 | (7733)% | | Net income attributable to the noncontrolling interests | $(25) | $(34) | (26)% | - **Corporate general and administrative expenses decreased by $14 million** (**23%**), **primarily due to an $11 million decrease in employee compensation and a $4 million decrease in legal, consulting, and regulatory costs**[201](index=201&type=chunk) - **Interest expense decreased by $36 million** (**24%**), **mainly due to the decrease in DSG interest expense following the DSIH deconsolidation**[203](index=203&type=chunk) - **Other (expense) income, net, decreased by $184 million** (**148%**), **primarily due to a $78 million decrease in the fair value of certain investments in Q1 2022 compared to a $122 million increase in Q1 2021**[205](index=205&type=chunk) - The **effective income tax rate for Q1 2022 was a provision of 20.8%**, **compared to a benefit of 53.8%** in Q1 2021, **due to the substantially greater impact of 2021 discrete items on low pre-tax income**[206](index=206&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=54&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity is supported by cash on hand, operating cash flows, and borrowing capacity under the Bank Credit Agreement. Net working capital was $864 million as of March 31, 2022. The deconsolidation of DSIH significantly reduced total debt. The company anticipates sufficient liquidity for the next twelve months but acknowledges potential impacts from external factors - **Net working capital was approximately $864 million** as of March 31, 2022, **including $521 million in cash and cash equivalents**[209](index=209&type=chunk) - **STG's first lien leverage ratio was below 4.5x** as of March 31, 2022, and the **financial maintenance covenant was not applicable**[210](index=210&type=chunk) - **Total debt was $4,398 million** as of March 31, 2022, **including $36 million in current debt**, a **significant reduction due to the deconsolidation of DSIH debt**[211](index=211&type=chunk) - **Anticipates existing cash, operating cash flow, and Bank Credit Agreement borrowing capacity will be sufficient for debt service, capital expenditures, and working capital needs for the next twelve months**[213](index=213&type=chunk) - **Future dividends of $0.25 per share were declared in February and May 2022**, a **25% increase over 2021 dividends**[219](index=219&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=56&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) There were no changes to critical accounting policies and estimates from the prior Annual Report on Form 10-K. However, the impact of COVID-19 and the war in Ukraine continues to introduce significant uncertainty and increased judgment in estimates related to revenue recognition, goodwill, intangible assets, and income taxes - **No changes to critical accounting policies and estimates from the Annual Report on Form 10-K for the year ended December 31, 2021**[220](index=220&type=chunk) - The **COVID-19 pandemic and the war in Ukraine continue to create significant uncertainty, impacting estimates related to revenue recognition, goodwill, intangible assets, and income taxes, requiring increased judgment and carrying higher variability**[221](index=221&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=56&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) There have been no material changes to the quantitative and qualitative disclosures about market risk since the Annual Report on Form 10-K for the year ended December 31, 2021 - **No material changes to market risk disclosures from the Annual Report on Form 10-K for the year ended December 31, 2021**[222](index=222&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=56&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures and internal control over financial reporting as of March 31, 2022. They concluded that disclosure controls and procedures were effective at a reasonable assurance level, and there were no material changes to internal control over financial reporting during the quarter - **Disclosure controls and procedures were evaluated as effective at the reasonable assurance level** as of March 31, 2022[223](index=223&type=chunk)[227](index=227&type=chunk) - **No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022**[228](index=228&type=chunk) - **Management acknowledges that control systems provide only reasonable, not absolute, assurance and can be subject to inherent limitations such as faulty judgment, simple error, circumvention, or management override**[229](index=229&type=chunk) [PART II. OTHER INFORMATION](index=57&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional disclosures including legal proceedings, risk factors, equity sales, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=57&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various lawsuits and claims in the ordinary course of business, with no material judgments rendered. Specific details on pending litigation are referenced in Note 6, Commitments and Contingencies - The **company is a party to lawsuits, claims, and regulatory matters in the ordinary course of business**, with **no material judgments rendered**[231](index=231&type=chunk) [ITEM 1A. RISK FACTORS](index=57&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - **No material changes to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2021**[232](index=232&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=58&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section summarizes the repurchases of Class A Common Stock during the quarter ended March 31, 2022, under the company's publicly announced share repurchase program Class A Common Stock Repurchases (Q1 2022) | Period | Total Number of Shares Purchased | Average Price Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Program | | :---------------- | :------------------------------- | :---------------------- | :----------------------------------------------------------------------- | | 01/01/22 - 01/31/22 | 1,111,375 | $27.49 | 1,111,375 | | 02/01/22 - 02/28/22 | 946,494 | $27.64 | 946,494 | | 03/01/22 - 03/31/22 | 414,616 | $27.40 | 414,616 | - **Total of 2,472,485 Class A Common Stock shares repurchased for $68 million during Q1 2022**[21](index=21&type=chunk)[234](index=234&type=chunk) - As of March 31, 2022, the **remaining authorization** under the share repurchase program was **$751 million**[234](index=234&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=58&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities reported - **No defaults upon senior securities**[235](index=235&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=58&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) No mine safety disclosures were reported - **No mine safety disclosures**[236](index=236&type=chunk) [ITEM 5. OTHER INFORMATION](index=58&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No other information was reported in this section - **No other information**[237](index=237&type=chunk) [ITEM 6. EXHIBITS](index=58&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including indentures, certifications by the CEO and CFO, and the company's consolidated financial statements in iXBRL format - **Includes Indenture for Diamond Sports Group, LLC, certifications by CEO and CFO (Rule 13a-14(a) and § 906 of Sarbanes-Oxley Act), and consolidated financial statements in iXBRL format**[238](index=238&type=chunk) [SIGNATURE](index=59&type=section&id=SIGNATURE) The report is duly signed on behalf of Sinclair Broadcast Group, Inc. by David R. Bochenek, Senior Vice President/Chief Accounting Officer, on May 10, 2022 - **Report signed by David R. Bochenek, Senior Vice President/Chief Accounting Officer, on May 10, 2022**[240](index=240&type=chunk)[242](index=242&type=chunk)

Financial Data and Key Metrics Changes - The deconsolidation of Diamond resulted in a non-cash gain of approximately $3.4 billion, primarily due to Diamond's net liability position at the time of deconsolidation [14] - Adjusted EBITDA for the quarter grew 14% over the first quarter of last year, exceeding guidance [49] - Earnings per share for the quarter, excluding Diamond and other adjustments, was $1.23 per share [49] - Adjusted free cash flow was $176 million for the quarter, growing by $48 million year-over-year [49] - Total debt at the end of the first quarter was $4.4 billion, with a first-lien indebtedness ratio of 2.9 times [51] Business Line Data and Key Metrics Changes - Media revenues for the quarter were up 9% year-over-year, driven by higher distribution and political ad revenues [46] - Distribution revenues increased by 7% compared to last year, primarily due to favorable revenue from virtual distributors [47] - Core advertising increased by 3% in the first quarter compared to the same period last year [47] - Total advertising revenues increased by 7% over last year [47] Market Data and Key Metrics Changes - Political advertising is tracking above expectations, with a record mid-term election spend anticipated for 2022 [37] - The company expects total advertising revenue to be up in the high-single-digit to low-teen percent range for the second quarter compared to the previous year [54] Company Strategy and Development Direction - The company is focused on monetizing its investment portfolio, which has generated an approximate 24% average rate of return since 2014 [21] - Sinclair is committed to increasing transparency around its assets like Tennis Channel, NewsOn, and Compulse360, which are expected to carry meaningful upside [24] - The company is exploring new revenue streams through NextGen technology, including data delivery as a service [31] Management's Comments on Operating Environment and Future Outlook - Management is monitoring inflation and its potential impact on advertiser spending but has not seen significant softening yet [57] - The company expects to exceed core revenue levels from 2018 and 2019, despite some crowd-out effects from political advertising [62] - Management remains optimistic about the advertising environment and believes that those who continue to advertise during economic downturns emerge stronger [100] Other Important Information - The company launched a battery recycling pilot and reduced printed paper accounts by approximately 90% as part of its ESG initiatives [28][29] - The company has resumed its stock buyback program, repurchasing nearly 1.5 million shares since February [52] Q&A Session Summary Question: What is the pacing for core advertising in the second quarter? - Management is currently monitoring inflation but has not seen results of softening yet, and core guidance is expected to exceed revenues from 2018 and 2019 [57] Question: Can you update on net retransmission fees after the Charter renewal? - The overall net retrans guide for this year will still be low single digits, despite exceeding expectations on the Charter renewal [58] Question: What is the strength of advertising categories? - Reliance on auto advertising has been mitigated by strength in service, retail, and food categories, which remain strong [69] Question: Will free cash flow guidance be provided for the year? - Management is considering providing future ranges for free cash flow, which was previously offered pre-pandemic [80] Question: How does the deconsolidation impact share repurchase capacity? - The deconsolidation is an accounting change that does not affect the company's fundamentals, and there is a strong appetite for share repurchases [96]

Financial Performance & Outlook - First quarter Broadcast and Other media revenue increased and was at the high end of guidance range[16] - Total advertising revenue for the second quarter is tracking ahead of both 2018 and 2019, the last pre-pandemic years[16] - The company expects 2022 to be a record-breaking year for political advertising in a mid-term election year[16, 36] - Second quarter 2022 media revenue is expected to be up 4% to 7% versus the second quarter of 2021, ranging from $822 million to $840 million[32] - Second quarter 2022 Adjusted EBITDA is expected to be down versus the second quarter of 2021, ranging from $153 million to $170 million[32] - Second quarter 2022 Adjusted Free Cash Flow is projected to be $246 million to $266 million, or $3.46 to $3.74 per share[32] Strategic Initiatives & Investments - Sinclair was required to deconsolidate Diamond Sports Group (DSG), resulting in a $3.4 billion non-cash gain[7] - Compulse is expected to reach $100 million in sales in 2022[11, 37] - The company estimates the Fair Market Value (FMV) of its investment portfolio at approximately $18 per share, generating an Internal Rate of Return (IRR) of approximately 24% since 2014[9] - The company is piloting the first commercial datacasting use of NextGen technology in the U S[13, 36]

Operations and Market Presence - As of December 31, 2021, Sinclair Broadcast Group operates 185 stations across 86 markets, broadcasting a total of 634 channels, including 238 affiliated with major networks such as FOX, ABC, CBS, NBC, CW, and MyNetworkTV[21]. - The company owns and operates 634 television channels across various networks, including 238 major network affiliates and 396 other affiliates[30]. - The regional sports networks (RSNs) broadcast approximately 5,000 professional sports games and produce around 25,700 hours of new content annually, reaching approximately 47 million subscribers nationally[33]. - The RSNs have exclusive long-term agreements with 16 MLB teams, 17 NBA teams, and 12 NHL teams, enhancing their market presence[33]. - The National Desk program launched in January 2021 airs on 76 stations in 65 markets, providing comprehensive national and regional news coverage[55]. - The company has a national investigative team of 15 journalists and plans to expand its investigative reporting capabilities[56]. - As of December 31, 2021, 56% of net time sales were local, up from 60% in 2020, indicating a focus on developing local franchises[65]. Revenue Generation and Advertising - The broadcast segment generates revenue primarily from advertising sales and fees from multi-channel video programming distributors (MVPDs) and over-the-top (OTT) distributors, with a focus on delivering significant audiences in key demographics[24]. - Political advertising significantly influences operating results, with higher spending observed in even-numbered years, particularly during presidential election cycles[25]. - The company has relationships with three major customers—DirecTV, Charter Communications, and Comcast—that each exceed 10% of consolidated revenue, indicating a significant reliance on these partnerships[45]. - Advertising rates are influenced by market size, program popularity, and competition among advertisers, which can affect revenue generation[120]. - Political advertising represented 4% of advertising revenue in 2021, compared to 27% in 2020, highlighting significant volatility based on election cycles[199]. - The company relies heavily on automotive and services advertising, which historically constitutes a large portion of advertising revenue[199]. - The company faces risks related to the volatility of advertising revenue, which can impact debt repayment and overall business value[198]. Digital Strategy and Technology - Sinclair aims to enhance its digital presence by selling digital advertisements on third-party platforms and providing digital content to non-linear devices[24]. - The company generates revenue from Compulse, a marketing technology firm, by licensing its platform and executing digital media initiatives[40]. - The digital properties, including Compulse and STIRR, are extensions of the core broadcast business, allowing competition for digital and internet revenues[80]. - The company invests in technologies to improve viewer experience, including virtual, augmented, and mixed reality capabilities for sports content[50]. - STIRR, the company's ad-supported streaming app, saw a 25% increase in total downloads to approximately 8 million, with average viewing time growing to over 61 minutes per session[39]. - The primary streaming subscription product is expected to launch in the first half of 2022, offering content currently broadcasted on RSNs on a subscription basis[74]. - The company has secured DTC rights for five MLB teams as part of its strategy to leverage DTC rights for streaming games and affiliated content[73]. Financial Performance and Challenges - The company borrowed approximately $8.2 billion for the acquisition of RSNs in August 2019, significantly increasing its leverage and debt service requirements[156]. - Subscriber numbers for the Acquired RSNs (excluding YES Network) fell by high single digits percent during the year ended December 31, 2021, on a same Distributor basis[158]. - The financial impact of COVID-19 could negatively affect the company's future ability to pay dividends and comply with financial covenants[158]. - The decline in Distributor service subscribers has accelerated, impacting revenues and leading to potential losses in distribution revenue[161]. - Increased programming costs and viewer preferences are unpredictable and may negatively affect the company's results of operations[171]. - The company may experience losses if actual revenues fall below expectations due to high upfront programming costs[202]. - Future changes in retransmission consent regulations could adversely affect the company's business and financial condition[173]. Regulatory and Compliance Issues - The company is subject to federal regulations that govern the ownership and operation of television stations, including compliance with media ownership limits[90]. - The FCC's proposed rulemaking on local television ownership rules seeks to evaluate the necessity of current regulations in light of competition, with public comments closed on October 1, 2021[111]. - The company must obtain FCC approval for new licenses and renewals, which are critical for operations and revenue generation[213]. - The company is subject to investigations and fines from governmental authorities, which could negatively impact financial condition and operations[209]. - The Department of Justice closed its investigation into the company's JSAs without action as of July 1, 2021[100]. Corporate Social Responsibility and Employee Engagement - In 2021, the company received 300 journalism awards, including 77 regional Emmy awards, highlighting its commitment to local news and community engagement[140]. - The company raised over $38 million in 2021 for non-profit organizations and local disaster relief, including direct donations of more than $600,000[141]. - The company has established a Diversity Scholarship Fund, distributing over $100,000 to students from underrepresented minority groups since its inception[142]. - The company increased its minimum hourly wage to $15 for all applicable employees, enhancing its compensation offerings[139]. - The company has implemented safety protocols during the COVID-19 pandemic, allowing many employees to work remotely while ensuring safety for those who cannot[138]. - As of December 31, 2021, the company employed approximately 11,500 employees, with about 1,800 represented by labor unions[129]. Cybersecurity and Operational Risks - The cybersecurity incident on October 17, 2021, resulted in a loss of approximately $63 million in advertising revenue and $11 million in mitigation costs[185]. - The estimated unrecoverable net loss from the cyber incident is approximately $24 million, exceeding the limits of the company's insurance policies[186]. - The company has experienced a cybersecurity breach that may affect financial performance and operational results[183]. - The company relies on its information technology systems for efficient operations, and any failures could disrupt business processes[184]. - The company may incur significant costs related to litigation for intellectual property infringement claims[182]. - The company is vulnerable to intellectual property theft, which could negatively impact revenue from legitimate content sales and distribution[179].

Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) Q4 2021 Earnings Conference Call February 23, 2022 9:00 AM ET Corporate Participants Billie-Jo McIntire - Director, Investor Relations Lucy Rutishauser - Executive Vice President and Chief Financial Officer Chris Ripley - President and Chief Executive Officer Rob Weisbord - President of Broadcast and Chief Operating Officer Conference Call Participants Dan Kurnos - Benchmark Steven Cahall - Wells Fargo Lance Vitanza - Cowen David Hamburger - Morgan Stanley David ...

SINCLAIR 1 F o u r t h Q u a r t e r 2 0 2 1 C o n f e r e n c e C a l l F e b r u a r y 2 3 , 2 0 2 2 Chris Ripley President & Chief Executive Officer Lucy Rutishauser EVP, Chief Financial Officer Rob Weisbord Chief Operating Officer President of Broadcast NON-GAAP FINANCIAL MEASURES 2 This presentation contains certain financial measures, including Adjusted EBITDA and Adjusted Free Cash Flow, which are not prepared in accordance with U.S. generally accepted accounting principles ("GAAP") (collectively, th ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) Q3 2021 unaudited financials show improved net loss, decreased assets and liabilities, and reduced operating cash [CONSOLIDATED BALANCE SHEETS](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) The balance sheets reflect changes in assets, liabilities, and shareholders' deficit over the period - Total assets decreased from **$13,382 million** at December 31, 2020, to **$12,845 million** at September 30, 2021[13](index=13&type=chunk) - Total liabilities decreased from **$14,377 million** to **$14,211 million**, and total shareholders' deficit increased from **$(1,274) million** to **$(1,613) million**[13](index=13&type=chunk) Consolidated Balance Sheet Summary | Metric | As of Sep 30, 2021 (in millions) | As of Dec 31, 2020 (in millions) | Change (in millions) | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------- | | Cash and cash equivalents | $1,058 | $1,259 | $(201) | | Total current assets | $2,792 | $3,217 | $(425) | | Total assets | $12,845 | $13,382 | $(537) | | Total current liabilities | $1,140 | $1,034 | $106 | | Total liabilities | $14,211 | $14,377 | $(166) | | Total Sinclair Broadcast Group shareholders' deficit | $(1,613) | $(1,274) | $(339) | [CONSOLIDATED STATEMENTS OF OPERATIONS](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The statements detail revenues, operating expenses, and net income/loss for the periods presented - For the nine months ended September 30, 2021, net loss attributable to Sinclair Broadcast Group was **$(325) million**, a significant improvement from **$(2,881) million** in the prior year, largely due to the absence of a goodwill impairment charge[16](index=16&type=chunk) Consolidated Statements of Operations Summary | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total revenues | $1,535 | $1,539 | $4,658 | $4,431 | | Total operating expenses | $1,462 | $5,755 | $4,728 | $7,828 | | Operating income (loss) | $73 | $(4,216) | $(70) | $(3,397) | | Net income (loss) attributable to Sinclair Broadcast Group | $19 | $(3,256) | $(325) | $(2,881) | | Basic earnings (loss) per share | $0.25 | $(43.53) | $(4.33) | $(35.17) | [CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) The statements present net income/loss and other comprehensive income/loss components for the periods - For the nine months ended September 30, 2021, the company reported a comprehensive loss attributable to Sinclair Broadcast Group of **$(319) million**, a substantial improvement compared to the **$(2,890) million** loss in the same period of 2020[18](index=18&type=chunk) Consolidated Statements of Comprehensive Income Summary | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net income (loss) | $17 | $(3,367) | $(285) | $(2,943) | | Comprehensive income (loss) attributable to Sinclair Broadcast Group | $20 | $(3,256) | $(319) | $(2,890) | [CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20EQUITY%20(DEFICIT)%20AND%20REDEEMABLE%20NONCONTROLLING%20INTERESTS) The statements track changes in equity, deficit, and redeemable noncontrolling interests, including dividends - The company's total deficit attributable to Sinclair Broadcast Group increased from **$(1,185) million** at December 31, 2020, to **$(1,560) million** at September 30, 2021, primarily due to net losses and dividend payments[21](index=21&type=chunk) - Dividends declared and paid on Class A and Class B Common Stock for the nine months ended September 30, 2021, totaled **$46 million**[21](index=21&type=chunk) Consolidated Statements of Equity (Deficit) Summary | Metric | As of Dec 31, 2020 (in millions) | As of Sep 30, 2021 (in millions) | Change (in millions) | | :----------------------------------------- | :------------------------------- | :------------------------------- | :------------------- | | Total Sinclair Broadcast Group shareholders' deficit | $(1,986) | $(2,357) | $(371) | | Total deficit | $(1,185) | $(1,560) | $(375) | [CONSOLIDATED STATEMENTS OF CASH FLOWS](index=10&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The statements summarize cash flows from operating, investing, and financing activities, showing overall cash changes - For the nine months ended September 30, 2021, net cash flows from operating activities decreased to **$235 million** from **$839 million** in the prior year[26](index=26&type=chunk) - Net cash used in investing activities increased to **$231 million**, and net cash used in financing activities decreased to **$205 million**[26](index=26&type=chunk) - Overall, there was a net decrease in cash, cash equivalents, and restricted cash of **$201 million**[26](index=26&type=chunk) Consolidated Statements of Cash Flows Summary | Metric | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Change (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | | Net cash flows from operating activities | $235 | $839 | $(604) | | Net cash flows used in investing activities | $(231) | $(98) | $(133) | | Net cash flows used in financing activities | $(205) | $(1,441) | $1,236 | | Net decrease in cash, cash equivalents, and restricted cash | $(201) | $(700) | $499 | | Cash, cash equivalents, and restricted cash, end of period | $1,061 | $633 | $428 | [NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS](index=11&type=section&id=NOTES%20TO%20UNAUDITED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) The notes provide detailed disclosures on accounting policies, financial instruments, and significant events [1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=1.%20NATURE%20OF%20OPERATIONS%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the company's business segments, revenue types, and significant accounting policies - The company operates two reportable segments: broadcast (185 stations in 86 markets, 632 channels) and local sports (Bally Sports network brands, Marquee Sports Network joint venture, and a minority equity interest in YES Network)[29](index=29&type=chunk) - The COVID-19 pandemic continues to create significant uncertainty, impacting estimates related to revenue recognition, goodwill, intangible assets, program contract costs, sports programming rights, and income taxes, requiring increased judgment[36](index=36&type=chunk) Revenue by Type | Revenue Type | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Distribution revenue | $1,053 | $1,003 | $3,240 | $3,168 | | Advertising revenue | $446 | $500 | $1,308 | $1,135 | | Other media, non-media, and intercompany revenues | $36 | $36 | $110 | $128 | | **Total revenues** | **$1,535** | **$1,539** | **$4,658** | **$4,431** | [2. ACQUISITIONS AND DISPOSITIONS OF ASSETS](index=17&type=section&id=2.%20ACQUISITIONS%20AND%20DISPOSITIONS%20OF%20ASSETS) This section details the company's asset acquisitions and dispositions, including related gains and cash impacts - Acquired ZypMedia for approximately **$7 million in cash** in February 2021[58](index=58&type=chunk) - Sold two television broadcast stations (WDKA-TV, KBSI-TV) for **$28 million**, recognizing a **$12 million gain** for the nine months ended September 30, 2021[59](index=59&type=chunk) - Recorded gains related to reimbursements for spectrum repack costs of **$22 million** for the nine months ended September 30, 2021, and **$72 million** for the nine months ended September 30, 2020[63](index=63&type=chunk) [3. OTHER ASSETS](index=18&type=section&id=3.%20OTHER%20ASSETS) This section describes the composition and changes in other assets, including equity and other investments - The company's other assets increased to **$1,358 million** as of September 30, 2021, from **$1,058 million** at December 31, 2020, primarily driven by growth in other investments, including an incremental **$93 million investment in Bally's**[66](index=66&type=chunk)[72](index=72&type=chunk) - Recorded income from the YES Network investment of **$29 million** for the nine months ended September 30, 2021, compared to **$3 million income** in the prior year[68](index=68&type=chunk) Other Assets Composition | Other Assets (in millions) | As of Sep 30, 2021 | As of Dec 31, 2020 | | :------------------------- | :----------------- | :----------------- | | Equity method investments | $504 | $451 | | Other investments | $678 | $450 | | Post-retirement plan assets | $51 | $44 | | Other | $125 | $113 | | **Total other assets** | **$1,358** | **$1,058** | [4. NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING](index=19&type=section&id=4.%20NOTES%20PAYABLE,%20FINANCE%20LEASES,%20AND%20COMMERCIAL%20BANK%20FINANCING) This section details the company's debt structure, leverage ratios, and financing arrangements - STG's first lien leverage ratio was below **4.5x**, while DSG's exceeded **6.25x** as of September 30, 2021, but neither was subject to financial maintenance covenants due to low revolving credit facility utilization[73](index=73&type=chunk) - STG amended its Bank Credit Agreement on April 1, 2021, raising **$740 million** in new term loans (STG Term Loan B-3) to refinance existing debt, maturing in April 2028[74](index=74&type=chunk) - Diamond Sports Group (DSG) has experienced operating losses since Q2 2020 due to Distributor losses, subscriber churn, and COVID-19, and expects continued losses[77](index=77&type=chunk) [5. REDEEMABLE NONCONTROLLING INTERESTS](index=20&type=section&id=5.%20REDEEMABLE%20NONCONTROLLING%20INTERESTS) This section describes the nature and changes in redeemable noncontrolling interests, classified as mezzanine equity - Redeemable noncontrolling interests, classified as mezzanine equity, totaled **$194 million** as of September 30, 2021[80](index=80&type=chunk)[83](index=83&type=chunk) - Dividends accrued on Redeemable Subsidiary Preferred Equity were **$11 million** for the nine months ended September 30, 2021, with Q2 and Q3 dividends paid-in-kind[81](index=81&type=chunk) Redeemable Noncontrolling Interests Summary | Metric | As of Sep 30, 2021 (in millions) | As of Dec 31, 2020 (in millions) | | :--------------------------------- | :------------------------------- | :------------------------------- | | Redeemable Subsidiary Preferred Equity | $178 | $170 | | Subsidiary Equity Put Right | $16 | $20 | | **Total Redeemable Noncontrolling Interests** | **$194** | **$190** | [6. COMMITMENTS AND CONTINGENCIES](index=21&type=section&id=6.%20COMMITMENTS%20AND%20CONTINGENCIES) This section outlines significant contractual commitments, including sports programming rights, and pending legal matters - The company has significant non-cancellable sports programming rights commitments totaling **$13,879 million** as of September 30, 2021, extending through 2026 and thereafter[85](index=85&type=chunk)[86](index=86&type=chunk) - Facing twenty-two putative class action lawsuits alleging conspiracy to fix prices for commercials, with discovery to be completed by December 30, 2022, and class certification briefing by May 15, 2023[94](index=94&type=chunk) Sports Programming Rights Commitments | Year | Sports Programming Rights Commitments (in millions) | | :---------------- | :---------------------------------- | | 2021 (remainder) | $488 | | 2022 | $1,697 | | 2023 | $1,651 | | 2024 | $1,585 | | 2025 | $1,450 | | 2026 and thereafter | $7,008 | | **Total** | **$13,879** | [7. EARNINGS PER SHARE](index=23&type=section&id=7.%20EARNINGS%20PER%20SHARE) This section presents basic and diluted earnings per share calculations for the reported periods - Basic and diluted earnings per common share attributable to Sinclair Broadcast Group for the nine months ended September 30, 2021, was a loss of **$(4.33)**, a significant improvement from **$(35.17)** in the prior year[96](index=96&type=chunk) Earnings Per Share Summary | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Numerator for basic and diluted earnings (loss) per common share available to common shareholders (in millions) | $19 | $(3,256) | $(325) | $(2,881) | | Basic weighted-average common shares outstanding (in thousands) | 75,472 | 74,810 | 75,068 | 81,922 | | Diluted earnings (loss) per share | $0.25 | $(43.53) | $(4.33) | $(35.17) | [8. SEGMENT DATA](index=24&type=section&id=8.%20SEGMENT%20DATA) This section provides financial performance data for the company's broadcast and local sports reportable segments - The company operates two reportable segments: broadcast and local sports[97](index=97&type=chunk) - For the nine months ended September 30, 2021, the broadcast segment reported operating income of **$294 million**, while the local sports segment reported an operating loss of **$(368) million**[99](index=99&type=chunk) Segment Performance (9 Months Ended Sep 30, 2021) | Segment (9 Months Ended Sep 30, 2021) | Revenue (in millions) | Operating Income (Loss) (in millions) | | :------------------------------------ | :-------------------- | :------------------------------------ | | Broadcast | $2,053 | $294 | | Local sports | $2,365 | $(368) | | Other & Corporate | $345 | $5 | | Eliminations | $(105) | $(1) | | **Consolidated** | **$4,658** | **$(70)** | Segment Performance (9 Months Ended Sep 30, 2020) | Segment (9 Months Ended Sep 30, 2020) | Revenue (in millions) | Operating Income (Loss) (in millions) | | :------------------------------------ | :-------------------- | :------------------------------------ | | Broadcast | $2,026 | $455 | | Local sports | $2,155 | $(3,885) | | Other & Corporate | $338 | $38 | | Eliminations | $(88) | $(5) | | **Consolidated** | **$4,431** | **$(3,397)** | [9. VARIABLE INTEREST ENTITIES](index=26&type=section&id=9.%20VARIABLE%20INTEREST%20ENTITIES) This section explains the company's consolidation of Variable Interest Entities and related financial impacts - The company consolidates Variable Interest Entities (VIEs) where it has the power to direct activities significantly impacting economic performance and the obligation to absorb losses or right to receive significant returns[101](index=101&type=chunk) - Investments in VIEs where the company is not the primary beneficiary had a carrying amount of **$187 million** as of September 30, 2021, with maximum exposure limited to this carrying value[106](index=106&type=chunk) VIE Metrics | VIE Metrics (in millions) | As of Sep 30, 2021 | As of Dec 31, 2020 | | :------------------------ | :----------------- | :----------------- | | Total assets | $214 | $233 | | Total liabilities | $96 | $76 | [10. RELATED PERSON TRANSACTIONS](index=28&type=section&id=10.%20RELATED%20PERSON%20TRANSACTIONS) This section details transactions with related parties, including leases, debt guarantees, and programming rights payments - Leases with entities owned by controlling shareholders resulted in **$4 million** in payments for both the nine months ended September 30, 2021 and 2020[108](index=108&type=chunk) - Guaranteed **$38 million** of Cunningham Broadcasting Corporation's debt as of September 30, 2021, with **$7 million** related to consolidated Cunningham VIEs[110](index=110&type=chunk) - Paid **$377 million** for sports programming rights to affiliates of six professional teams for the nine months ended September 30, 2021[121](index=121&type=chunk) [11. FAIR VALUE MEASUREMENTS](index=31&type=section&id=11.%20FAIR%20VALUE%20MEASUREMENTS) This section describes the fair value hierarchy and measurements for various financial assets and liabilities - Fair value hierarchy levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), Level 3 (unobservable inputs reflecting company assumptions)[124](index=124&type=chunk) - Level 3 investments in equity securities (warrants and options from Bally's) had a fair value of **$354 million** as of September 30, 2021, with a fair value adjustment gain of **$22 million** for the nine months ended September 30, 2021[126](index=126&type=chunk)[127](index=127&type=chunk) Fair Value Measurements Summary | Category | As of Sep 30, 2021 (in millions) | As of Dec 31, 2020 (in millions) | | :----------------------------------------- | :------------------------------- | :------------------------------- | | **Level 1 Assets:** | | | | Investments in equity securities | $5 | $68 | | Money market funds | $554 | $740 | | **Level 2 Liabilities (Fair Value):** | | | | STG Senior Unsecured Notes | $1,252 | $1,286 | | STG Senior Secured Notes | $735 | $770 | | STG Term Loans | $2,350 | $3,471 | | DSG Senior Secured Notes | $23 | $28 | | DSG Senior Unsecured Notes | $772 | $1,056 | | DSG Term Loan | $2,021 | $2,884 | | Accounts Receivable Securitization Facility | $183 | $177 | | Debt of variable interest entities | $13 | $17 | | Debt of non-media subsidiaries | $17 | $17 | | **Level 3 Assets:** | | | | Investments in equity securities | $354 | $332 | [12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS](index=33&type=section&id=12.%20CONDENSED%20CONSOLIDATING%20FINANCIAL%20STATEMENTS) This section provides condensed consolidating financial statements and details on debt guarantees - As of September 30, 2021, consolidated total debt, net of deferred financing costs and debt discounts, of **$12,530 million** included **$4,389 million** related to STG and its subsidiaries, of which the Company guaranteed **$4,354 million**[128](index=128&type=chunk) - The Company, KDSM, LLC, and STG's wholly-owned subsidiaries (guarantor subsidiaries) fully and unconditionally guarantee all of STG's obligations, jointly and severally[129](index=129&type=chunk) [13. SUBSEQUENT EVENTS](index=42&type=section&id=13.%20SUBSEQUENT%20EVENTS) This section reports significant events occurring after the reporting period, including dividends and a ransomware attack - Declared a quarterly dividend of **$0.20 per share**, payable December 15, 2021[150](index=150&type=chunk) - Identified a ransomware attack on October 17, 2021, encrypting servers, disrupting networks, and indicating data exfiltration[151](index=151&type=chunk) - Investigation is ongoing, and material impact on business, operations, or financial results is currently unpredictable[151](index=151&type=chunk) - On November 5, 2021, the company purchased and amended the A/R Facility, increasing its maximum limit from **$250 million to $400 million** and extending the maturity date to September 23, 2024, to enhance flexibility for Diamond Sports Group[152](index=152&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=43&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides a comprehensive overview of the company's financial performance, condition, and outlook [FORWARD-LOOKING STATEMENTS](index=43&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines various forward-looking statements and associated risks, including COVID-19, industry, and regulatory factors - COVID-19 risks include potential suspension/cancellation of sports seasons, inability to obtain rebates for fewer games, loss of advertising revenue, and increased cybersecurity/operational risks from remote work[156](index=156&type=chunk) - Industry risks involve subscriber churn due to technological changes and OTT platforms, unpredictable appeal of programming, and challenges in renewing media rights agreements[156](index=156&type=chunk)[160](index=160&type=chunk) - Regulatory risks include impacts from FCC's National Broadband Plan, spectrum repacking, and potential changes in ownership or retransmission consent regulations[158](index=158&type=chunk) [Summary of Significant Events](index=47&type=section&id=Summary%20of%20Significant%20Events) This section summarizes key corporate events, including divestitures, media rights extensions, and a recent ransomware attack - Completed divestiture of Seattle radio stations in September 2021[170](index=170&type=chunk) - Tennis Channel extended its media rights agreement with Wimbledon through 2036 and launched international streaming services[172](index=172&type=chunk) - Experienced a ransomware attack on October 17, 2021, causing server encryption, network disruption, and data exfiltration[178](index=178&type=chunk) - Investigation is ongoing, and potential material impact on business, operations, or financial results is uncertain[178](index=178&type=chunk) [RESULTS OF OPERATIONS](index=49&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, including segment-specific revenues, expenses, and operating results - Operating results are subject to cyclical fluctuations from political advertising (higher in even-numbered years) and seasonality (Q2 and Q4 typically higher for advertising)[181](index=181&type=chunk) - Local sports segment results fluctuate with MLB, NBA, and NHL seasons, typically higher in Q2 and Q3[182](index=182&type=chunk) Results of Operations Summary | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total revenues | $1,535 | $1,539 | $4,658 | $4,431 | | Operating income (loss) | $73 | $(4,216) | $(70) | $(3,397) | | Net income (loss) attributable to Sinclair Broadcast Group | $19 | $(3,256) | $(325) | $(2,881) | [The Impact of COVID-19 on our Results of Operations](index=50&type=section&id=The%20Impact%20of%20COVID-19%20on%20our%20Results%20of%20Operations) This section details the specific impacts of the COVID-19 pandemic on broadcast advertising and local sports distribution revenues - Broadcast advertising revenue decreased in Q3 2021 compared to Q3 2020, primarily due to the absence of political advertising in 2021[185](index=185&type=chunk) - Local sports distribution revenue increased in Q3 2021 due to decreases in accrued rebates, partially offset by subscriber erosion and three Distributors dropping carriage in 2020[186](index=186&type=chunk) - COVID-19 has heightened risks of workforce illness, wage inflation, difficulty finding qualified employees, and potential future workforce reductions[187](index=187&type=chunk) [BROADCAST SEGMENT](index=51&type=section&id=BROADCAST%20SEGMENT) This section analyzes the financial performance of the broadcast segment, including revenue and expense trends - Advertising revenue decreased by **$61 million (18%)** for the three months and **$31 million (4%)** for the nine months ended September 30, 2021, primarily due to a **decrease in political advertising revenue ($94 million and $143 million, respectively)** compared to 2020[190](index=190&type=chunk) - Media programming and production expenses increased by **$70 million (7%)** for the nine months ended September 30, 2021, mainly due to an **$80 million increase in network affiliation fees**[192](index=192&type=chunk) Broadcast Segment Performance | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Distribution revenue | $372 | $356 | $1,096 | $1,059 | | Advertising revenue | $283 | $344 | $830 | $861 | | Media revenues | $701 | $734 | $2,053 | $2,026 | | Operating income | $126 | $221 | $294 | $455 | [LOCAL SPORTS SEGMENT](index=53&type=section&id=LOCAL%20SPORTS%20SEGMENT) This section analyzes the financial performance of the local sports segment, including revenue and expense trends - Distribution revenue increased by **$38 million (2%)** for the nine months ended September 30, 2021, primarily due to a **$17 million reduction in accrued rebates**, partially offset by subscriber churn and Distributor losses[200](index=200&type=chunk) - Advertising revenue increased by **$163 million (90%)** for the nine months ended September 30, 2021, due to a **higher number of games played** compared to the COVID-19 impacted 2020 season[201](index=201&type=chunk) - Media programming and production expenses increased by **$1,003 million (80%)** for the nine months ended September 30, 2021, driven by an **$884 million increase in sports rights amortization** due to more games played[203](index=203&type=chunk) Local Sports Segment Performance | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Distribution revenue | $633 | $597 | $1,997 | $1,959 | | Advertising revenue | $118 | $124 | $345 | $182 | | Media revenue | $759 | $727 | $2,365 | $2,155 | | Operating loss | $(39) | $(4,450) | $(368) | $(3,885) | [OTHER](index=55&type=section&id=OTHER) This section details the financial performance of other media and non-media operations, including revenue and expenses - Non-media revenue decreased by **$51 million (56%)** for the nine months ended September 30, 2021, primarily due to lower broadcast equipment sales and the sale of Triangle[210](index=210&type=chunk) - Media expenses increased by **$60 million (31%)** for the nine months ended September 30, 2021, related to owned networks and digital initiatives[211](index=211&type=chunk) Other Segment Performance | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Media revenues | $106 | $83 | $305 | $247 | | Non-media revenues | $11 | $22 | $40 | $91 | | Operating (loss) income | $(9) | $11 | $15 | $46 | [CORPORATE AND UNALLOCATED EXPENSES](index=56&type=section&id=CORPORATE%20AND%20UNALLOCATED%20EXPENSES) This section details corporate general and administrative expenses, interest expense, and other unallocated items - Corporate general and administrative expenses increased by **$21 million** for the nine months ended September 30, 2021, primarily due to a **$22 million increase in employee compensation costs**, including severance[213](index=213&type=chunk) - Interest expense decreased by **$36 million** for the nine months ended September 30, 2021, due to lower LIBOR and debt refinancing, partially offset by the A/R Facility[215](index=215&type=chunk) - Other income, net, decreased by **$110 million** for the nine months ended September 30, 2021, primarily due to a **$168 million measurement adjustment gain** on variable payment obligations recognized in Q3 2020[217](index=217&type=chunk) Corporate and Unallocated Expenses Summary | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Corporate general and administrative expenses | $35 | $30 | $132 | $111 | | Interest expense including amortization of debt discount and deferred financing costs | $155 | $157 | $466 | $502 | | Other (expense) income, net | $(4) | $169 | $59 | $169 | | Income tax benefit | $91 | $847 | $169 | $805 | [LIQUIDITY AND CAPITAL RESOURCES](index=58&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's cash position, working capital, debt covenants, and post-period financing activities - As of September 30, 2021, the company had **$1,058 million** in cash and cash equivalents and **$1,652 million** in net working capital[223](index=223&type=chunk) - The STG first lien leverage ratio was below **4.5x**, and the DSG first lien leverage ratio exceeded **6.25x** as of September 30, 2021; however, neither was subject to financial maintenance covenants due to less than **35% utilization** of revolving credit facilities[224](index=224&type=chunk) - Post-period, the A/R Facility was amended to increase the maximum facility limit to **$400 million** and extend the maturity date to September 23, 2024, to provide greater flexibility to Diamond Sports Group[152](index=152&type=chunk)[227](index=227&type=chunk) [Sources and Uses of Cash](index=59&type=section&id=Sources%20and%20Uses%20of%20Cash) This section analyzes the company's cash flows from operating, investing, and financing activities - Operating cash flows decreased primarily due to higher payments for sports rights, production, and Distributor rebate payments[230](index=230&type=chunk) - Financing cash flows decreased due to lower debt repayments, fewer Class A Common Stock repurchases, and reduced redemptions of Redeemable Subsidiary Preferred Equity compared to 2020[232](index=232&type=chunk) Cash Flow Activities Summary | Cash Flow Activity | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | Change (in millions) | | :----------------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | | Net cash flows from operating activities | $235 | $839 | $(604) | | Net cash flows used in investing activities | $(231) | $(98) | $(133) | | Net cash flows used in financing activities | $(205) | $(1,441) | $1,236 | [CONTRACTUAL CASH OBLIGATIONS](index=60&type=section&id=CONTRACTUAL%20CASH%20OBLIGATIONS) This section details the company's significant contractual cash obligations, particularly for program rights and content - During the nine months ended September 30, 2021, estimated contractual amounts owed for program rights and content increased across all future periods, totaling an additional **$643 million**[234](index=234&type=chunk) - Contractual amounts owed for program rights and content increased by **$26 million** for the remainder of 2021, **$245 million** for 2022-2023, **$215 million** for 2024-2025, and **$157 million** for 2026 and thereafter[234](index=234&type=chunk) [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=60&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section highlights critical accounting policies and estimates, noting the ongoing impact of the COVID-19 pandemic - There were no material changes to critical accounting policies and estimates from the Annual Report on Form 10-K for the year ended December 31, 2020[236](index=236&type=chunk) - The COVID-19 pandemic continues to introduce significant uncertainty, impacting estimates related to revenue recognition, goodwill, intangible assets, sports programming rights, and income taxes, requiring increased judgment and carrying higher variability[237](index=237&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=60&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) There have been no material changes to the quantitative and qualitative disclosures about market risk since the Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to market risk disclosures from the Annual Report on Form 10-K for the year ended December 31, 2020[238](index=238&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=61&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and internal control over financial reporting as of September 30, 2021, concluding they were effective at a reasonable assurance level [Evaluation of Disclosure Controls and Procedures and Internal Control over Financial Reporting](index=61&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures%20and%20Internal%20Control%20over%20Financial%20Reporting) This section describes management's evaluation of disclosure controls and internal control over financial reporting - Management, under CEO and CFO supervision, evaluated disclosure controls and procedures and internal control over financial reporting as of September 30, 2021[240](index=240&type=chunk) - Disclosure controls and procedures are designed to provide reasonable assurance of timely and accurate reporting of information required under the Exchange Act[241](index=241&type=chunk) - Internal control over financial reporting aims to provide reasonable assurance regarding the reliability of financial reporting and GAAP compliance[242](index=242&type=chunk) [Assessment of Effectiveness of Disclosure Controls and Procedures](index=61&type=section&id=Assessment%20of%20Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures) This section presents the CEO and CFO's conclusion on the effectiveness of disclosure controls and procedures - CEO and CFO concluded that disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021[243](index=243&type=chunk) [Changes in Internal Control over Financial Reporting](index=61&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes to internal control over financial reporting during the quarter - No material changes in internal control over financial reporting during the quarter ended September 30, 2021[244](index=244&type=chunk) [Limitations on the Effectiveness of Controls](index=62&type=section&id=Limitations%20on%20the%20Effectiveness%20of%20Controls) This section acknowledges the inherent limitations of control systems, providing only reasonable assurance - Control systems provide only reasonable, not absolute, assurance and are subject to inherent limitations such as faulty judgments, simple errors, circumvention, and management override[246](index=246&type=chunk) - Controls may become inadequate over time due to changing conditions or deteriorating compliance[246](index=246&type=chunk) [PART II. OTHER INFORMATION](index=62&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=62&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various lawsuits, claims, and regulatory matters in the ordinary course of business - The company is a party to lawsuits, claims, and regulatory matters in the ordinary course of business, with no material judgments rendered[248](index=248&type=chunk) - Further discussion on pending lawsuits is provided in Note 6. Commitments and Contingencies[248](index=248&type=chunk) [ITEM 1A. RISK FACTORS](index=62&type=section&id=ITEM%201A.%20RISK%20FACTORS) No material changes to previously disclosed risk factors, except for an updated discussion on information technology security breaches - No material changes to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2020, except for an updated discussion on information technology security breaches[249](index=249&type=chunk) - On October 17, 2021, the company identified a ransomware attack that encrypted servers, disrupted networks, and indicated data exfiltration[250](index=250&type=chunk)[251](index=251&type=chunk) - The investigation is ongoing, and the material impact is currently unpredictable[250](index=250&type=chunk)[251](index=251&type=chunk) - Cyber attacks pose risks of unauthorized disclosure, data loss, operational interruptions, significant financial losses, reputational damage, litigation, and regulatory fines, which may not be fully covered by insurance[254](index=254&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=63&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) There were no unregistered sales of equity securities or use of proceeds to report - None[255](index=255&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=63&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities to report - None[256](index=256&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=63&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) There were no mine safety disclosures to report - None[257](index=257&type=chunk) [ITEM 5. OTHER INFORMATION](index=63&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No other information required to be disclosed in this item - None[258](index=258&type=chunk) [ITEM 6. EXHIBITS](index=64&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including various agreements and certifications - Includes Amended and Restated Loan and Security Agreement (June 25, 2021), First Amendment to Loan and Security Agreement (September 15, 2021), Assignment and Acceptance Agreement (November 5, 2021), and Omnibus Amendment to Amended and Restated Loan Agreement & Purchase Agreement (November 5, 2021)[260](index=260&type=chunk) - Certifications by Christopher S. Ripley (CEO) and Lucy Rutishauser (CFO) pursuant to Rule 13a-14(a) and Rule 13a-14(b) of the Exchange Act are filed as exhibits[260](index=260&type=chunk) [SIGNATURE](index=65&type=section&id=SIGNATURE) The report was duly signed on November 9, 2021, by the Senior Vice President/Chief Accounting Officer - Report signed on November 9, 2021, by David R. Bochenek, Senior Vice President/Chief Accounting Officer[263](index=263&type=chunk)[265](index=265&type=chunk)

Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) Q3 2021 Earnings Conference Call November 3, 2021 9:00 AM ET Company Participants Lucy Rutishauser – Executive Vice President and Chief Financial Officer Billie-Jo McIntire – Director, Investor Relations Chris Ripley – President and Chief Executive Officer Conference Call Participants Dan Kurnos – Benchmark Steven Cahall – Wells Fargo David Hamburger – Morgan Stanley Aaron Watts – Deutsche Bank Lance Vitanza – Cowen Operator Good morning, ladies and gentlemen, an ...