Sinclair Broadcast Group(SBGI) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION 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) 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 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][15][31] - Total liabilities also saw a substantial reduction from $14,050 million to $5,775 million, largely attributable to the DSIH deconsolidation[14][15][31] - 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][21] CONSOLIDATED STATEMENTS OF OPERATIONS 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][31][188] - 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][32][202] - 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] - Diluted EPS improved significantly from $(0.16) in Q1 2021 to $35.84 in Q1 2022[16] CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 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] CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS 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] - This improvement was primarily driven by the net income of $2,587 million for the quarter, which offset dividends paid and share repurchases[21] - Repurchased 2,472,485 shares of Class A Common Stock for $68 million during the three months ended March 31, 2022[21] CONSOLIDATED STATEMENTS OF CASH FLOWS 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][216] - 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][217] - 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][218] NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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 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] - 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][32] 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] - For Q1 2022, three customers accounted for 17%, 17%, and 14% of total revenues, respectively[47] - Repurchased approximately 2 million shares of Class A Common Stock for $68 million during Q1 2022, with $751 million remaining authorization[52] 2. ACQUISITIONS AND DISPOSITIONS OF ASSETS 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] - Capital expenditures for the spectrum repack were $1 million in Q1 2022 and $4 million in Q1 2021[55] 3. OTHER ASSETS 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] - 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] - 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] 4. NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING 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] - Debt of DSIH was deconsolidated from the Company's balance sheet as part of the Deconsolidation[66] - STG guaranteed $38 million of debt of certain third parties as of March 31, 2022, including $9 million related to consolidated VIEs[68] 5. REDEEMABLE NONCONTROLLING INTERESTS 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] - Dividends accrued on Redeemable Subsidiary Preferred Equity were $3 million for Q1 2022, paid-in-kind and added to liquidation preference[71] - A subsidiary equity put right, valued at $16 million as of December 31, 2021, was deconsolidated as part of the DSIH transaction[73] 6. COMMITMENTS AND CONTINGENCIES 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][75] - 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][79] - 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] - 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] 7. EARNINGS PER SHARE 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] 8. SEGMENT DATA 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] 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] - 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][89] 9. VARIABLE INTEREST ENTITIES 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][92] 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] - 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] 10. RELATED PERSON TRANSACTIONS 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] - Guaranteed $36 million of Cunningham Broadcasting Corporation's debt as of March 31, 2022[99] - Consolidated revenues include $34 million for Q1 2022 and $36 million for Q1 2021 related to services provided to Cunningham Stations[103] - 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] - Received a $50 million payment from DSPV during Q1 2022 related to the A/R facility note receivable[109] - 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] 11. FAIR VALUE MEASUREMENTS 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][123] - The fair value of Bally's warrants is derived from quoted trading prices adjusted for a 16% discount for lack of marketability (DLOM)[122] 12. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS 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][125] - 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] 13. SUBSEQUENT EVENTS 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] - 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][142] - 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] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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][146][147][149][150][151] Summary of Significant Events 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] - 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] - Launched new programs 'The Rally' and 'Live on the Line, Powered by BetMGM' on Bally Sports networks and app in January 2022[158] - 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] - Deployed NEXTGEN TV (ATSC 3.0) in seven additional markets in 2022, bringing the total to 29 markets[167] - 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] - Declared a quarterly cash dividend of $0.25 per share in February and May 2022, a 25% increase over 2021 dividends[168] Results of Operations 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][171] 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][174] BROADCAST SEGMENT 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] - Advertising revenue increased by $15 million (6%), primarily driven by a $13 million increase in political advertising revenue in 2022[178] - Media programming and production expenses increased by $13 million (4%) due to higher network affiliation agreement fees[181] - 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] LOCAL SPORTS SEGMENT 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] - 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] - Income from equity method investments, primarily from the YES Network, decreased from $13 million in Q1 2021 to $10 million in Q1 2022[194] 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] - Non-media revenue decreased by $2 million (13%) due to the sale of Triangle Sign & Service, LLC in Q2 2021[198] - Media expenses increased by $25 million (39%) primarily related to digital initiatives[199] CORPORATE AND UNALLOCATED EXPENSES 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] - Interest expense decreased by $36 million (24%), mainly due to the decrease in DSG interest expense following the DSIH deconsolidation[203] - 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] - 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] LIQUIDITY AND CAPITAL RESOURCES 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] - STG's first lien leverage ratio was below 4.5x as of March 31, 2022, and the financial maintenance covenant was not applicable[210] - 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] - 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] - Future dividends of $0.25 per share were declared in February and May 2022, a 25% increase over 2021 dividends[219] CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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] - 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] 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, 2021 - No material changes to market risk disclosures from the Annual Report on Form 10-K for the year ended December 31, 2021[222] ITEM 4. CONTROLS AND PROCEDURES 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][227] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[228] - 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] PART II. OTHER INFORMATION This section provides additional disclosures including legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS 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] ITEM 1A. RISK FACTORS 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] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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][234] - As of March 31, 2022, the remaining authorization under the share repurchase program was $751 million[234] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities reported - No defaults upon senior securities[235] ITEM 4. MINE SAFETY DISCLOSURES No mine safety disclosures were reported - No mine safety disclosures[236] ITEM 5. OTHER INFORMATION No other information was reported in this section - No other information[237] ITEM 6. EXHIBITS 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] 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][242]