Sinclair Broadcast Group(SBGI) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Q3 2021 unaudited financials show improved net loss, decreased assets and liabilities, and reduced operating cash CONSOLIDATED BALANCE SHEETS 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] - 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] 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 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] 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 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] 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 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] - Dividends declared and paid on Class A and Class B Common Stock for the nine months ended September 30, 2021, totaled $46 million[21] 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 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] - Net cash used in investing activities increased to $231 million, and net cash used in financing activities decreased to $205 million[26] - Overall, there was a net decrease in cash, cash equivalents, and restricted cash of $201 million[26] 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 The notes provide detailed disclosures on accounting policies, financial instruments, and significant events 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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] - 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] 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 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] - 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] - 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] 3. OTHER ASSETS 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][72] - 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] 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 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] - 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] - 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] 5. REDEEMABLE NONCONTROLLING INTERESTS 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][83] - 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] 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 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][86] - 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] 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 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] 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 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] - 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] 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 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] - 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] 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 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] - Guaranteed $38 million of Cunningham Broadcasting Corporation's debt as of September 30, 2021, with $7 million related to consolidated Cunningham VIEs[110] - Paid $377 million for sports programming rights to affiliates of six professional teams for the nine months ended September 30, 2021[121] 11. FAIR VALUE MEASUREMENTS 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] - 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][127] 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 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] - 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] 13. SUBSEQUENT EVENTS 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] - Identified a ransomware attack on October 17, 2021, encrypting servers, disrupting networks, and indicating data exfiltration[151] - Investigation is ongoing, and material impact on business, operations, or financial results is currently unpredictable[151] - 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] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides a comprehensive overview of the company's financial performance, condition, and outlook FORWARD-LOOKING STATEMENTS 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] - Industry risks involve subscriber churn due to technological changes and OTT platforms, unpredictable appeal of programming, and challenges in renewing media rights agreements[156][160] - Regulatory risks include impacts from FCC's National Broadband Plan, spectrum repacking, and potential changes in ownership or retransmission consent regulations[158] Summary of Significant Events 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] - Tennis Channel extended its media rights agreement with Wimbledon through 2036 and launched international streaming services[172] - Experienced a ransomware attack on October 17, 2021, causing server encryption, network disruption, and data exfiltration[178] - Investigation is ongoing, and potential material impact on business, operations, or financial results is uncertain[178] RESULTS OF OPERATIONS 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] - Local sports segment results fluctuate with MLB, NBA, and NHL seasons, typically higher in Q2 and Q3[182] 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 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] - 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] - COVID-19 has heightened risks of workforce illness, wage inflation, difficulty finding qualified employees, and potential future workforce reductions[187] BROADCAST SEGMENT 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] - 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] 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 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] - 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] - 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] 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 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] - Media expenses increased by $60 million (31%) for the nine months ended September 30, 2021, related to owned networks and digital initiatives[211] 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 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] - 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] - 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] 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 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] - 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] - 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][227] Sources and Uses of Cash 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] - 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] 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 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] - 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] CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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] - 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] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] ITEM 4. CONTROLS AND PROCEDURES 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 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] - Disclosure controls and procedures are designed to provide reasonable assurance of timely and accurate reporting of information required under the Exchange Act[241] - Internal control over financial reporting aims to provide reasonable assurance regarding the reliability of financial reporting and GAAP compliance[242] Assessment of Effectiveness of Disclosure Controls and Procedures 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] Changes in Internal Control over Financial Reporting 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] Limitations on the Effectiveness of Controls 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] - Controls may become inadequate over time due to changing conditions or deteriorating compliance[246] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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] - Further discussion on pending lawsuits is provided in Note 6. Commitments and Contingencies[248] ITEM 1A. RISK FACTORS 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] - On October 17, 2021, the company identified a ransomware attack that encrypted servers, disrupted networks, and indicated data exfiltration[250][251] - The investigation is ongoing, and the material impact is currently unpredictable[250][251] - 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] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report - None[255] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report - None[256] ITEM 4. MINE SAFETY DISCLOSURES There were no mine safety disclosures to report - None[257] ITEM 5. OTHER INFORMATION No other information required to be disclosed in this item - None[258] ITEM 6. EXHIBITS 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] - 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] 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][265]