Sinclair Broadcast Group(US:SBGI)2023-03-01 20:26Part I Business Sinclair Broadcast Group is a diversified media company primarily focused on local television broadcasting, digital platforms, and technical services, with its local sports segment deconsolidated in 2022 Segments As of December 31, 2022, Sinclair operates primarily through its broadcast segment, having deconsolidated its local sports segment on March 1, 2022 - Effective March 1, 2022, the company deconsolidated its local sports segment (DSIH), shifting to a single broadcast reportable segment for year-end 2022, with only two months of local sports activity included in 2022 financials3422 Broadcast Segment Overview (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Television Stations | 185 | | Markets | 86 | | Total Channels | 636 | | Primary Network Affiliates | 236 (FOX, ABC, CBS, NBC, CW, MNT) | | Weekly News Production | >2,500 hours | - 'Other' business activities encompass owned networks (Tennis Channel, Comet), digital marketing (Compulse), technical services (Dielectric, ONE Media 3.0 for NextGen TV), and diverse non-media investments363942 Operating Strategy The company's operating strategy focuses on attracting viewership, controlling costs, and developing NextGen TV (ATSC 3.0) to create new revenue streams - A core strategy involves developing and deploying NextGen TV (ATSC 3.0), enabling merged broadcast and broadband content for services like hyper-local news and dynamic ad insertion, deployed in 36 markets by year-end 2022697071 - The company controls programming and operating costs via disciplined acquisition, centralized management, and original content creation like 'The National Desk'5752 - Sinclair partners with Bally's Corporation to integrate sports betting technology with its media portfolio, aiming to enhance live sports gamification and monetize legalized sports betting4166 Federal Regulation of Television Broadcasting The television broadcasting industry is heavily regulated by the FCC, governing station ownership, licensing, and operational rules, including national and local ownership caps and retransmission consent - The company's national audience reach is approximately 24% of U.S. households (with UHF discount), and ongoing FCC review of ownership rules could impact future acquisitions8384 - The company uses Local Marketing Agreements (LMAs) and Joint Sales Agreements (JSAs), whose regulatory status is under ongoing FCC review, potentially impacting revenue and costs8687 - Sinclair has elected retransmission consent for all its stations, allowing negotiation of fees for broadcast signals on cable and satellite systems91 Competition Sinclair faces intense competition for audience share and advertising revenue from traditional and digital media, including other broadcasters, cable networks, and OTT services - Competition spans audience share, advertising revenue (traditional and digital media), and distribution rights across cable, satellite, and OTT platforms103108 - The company faces increasing competition from digital platforms like Google, Facebook, social media, and OTT services, which offer targeted advertising capabilities unavailable to traditional broadcasters106 Environmental, Social, and Governance (ESG) Sinclair has formalized ESG efforts, focusing on employee well-being, community-focused journalism, environmental efficiency, and enhanced corporate governance - As of December 31, 2022, the company had approximately 7,900 employees, emphasizing safety, ethics, and expanded benefits, including increased paid parental leave to six weeks in 2022116126 - The 'Sinclair Cares' program and local station efforts raised over $12 million for non-profits, collected over 330,000 pounds of food, and provided nearly 4.5 million meals in 2022132 - Recent governance enhancements include adding the first female (2021) and racially diverse (2022) board members, hiring a Chief Compliance Officer, and establishing a board cybersecurity subcommittee135136 Risk Factors This section details significant operational, ownership, debt, and general market risks, including subscriber decline, digital competition, cybersecurity, and the deconsolidated Diamond Sports Group's financial distress Risks relating to our operations Operational risks include acquisition integration challenges, declining multichannel video subscribers, unfavorable distribution agreement terms, intense competition, and cybersecurity vulnerabilities - Declining subscribers to traditional and virtual MVPDs pose a material risk to revenues if 'cord-cutting' or shifts to smaller programming bundles continue143145 - A significant cybersecurity incident on October 17, 2021, resulted in approximately $63 million in lost Q4 2021 advertising revenue and an estimated $20 million in unrecoverable net losses after insurance167168169 - Changes to FCC multiple ownership rules, especially the 'UHF discount' and attribution rules for JSAs and LMAs, could restrict future acquisitions or necessitate modifying current operating structures194195196 Risks relating to our concentrated voting stock ownership The Smith family's concentrated ownership of approximately 80.8% of voting rights through Class B Common Stock allows them to control most stockholder votes - As of December 31, 2022, the Smith family controls approximately 80.8% of the company's voting rights via super-voting Class B Common Stock, influencing most stockholder votes205 Risks relating to our debt The company's substantial debt of $4,265 million as of December 31, 2022, poses risks related to servicing obligations, restrictive covenants, and interest rate fluctuations Debt Position (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Total Debt | $4,265 million | | Shareholders' Equity | $681 million | | Variable Rate Debt | ~$2,733 million | - The company faces interest rate risk on its variable rate debt, and the transition from LIBOR to SOFR may adversely affect interest expense214215 General risk factors General risks include adverse economic conditions and the significant financial distress of the deconsolidated Diamond Sports Group (DSG), which missed a $140 million interest payment - On February 15, 2023, the deconsolidated Diamond Sports Group (DSG) entered a 30-day grace period after missing approximately $140 million in interest payments, signaling significant financial distress potentially impacting Sinclair226 Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None Properties Sinclair owns and leases various U.S. facilities, including offices, studios, and transmitter sites, all deemed in good operating condition and suitable for current business needs - The company owns and leases offices, studios, and transmitter sites across the U.S., which are considered in good operating condition and adequate for business operations228 Legal Proceedings The company is involved in various lawsuits, claims, and regulatory matters, with specific details available in Note 13 of the financial statements - The company is party to various lawsuits and regulatory matters, with further details in Note 13 of the financial statements229 Mine Safety Disclosures This item is not applicable to the company - None Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Sinclair's Class A Common Stock trades on NASDAQ (SBGI), maintains a quarterly dividend, and repurchased shares in Q4 2022, with $698 million remaining for repurchases - The company intends to pay regular quarterly dividends, declaring $0.25 per share in February 2023235236 Stock Repurchases (Q4 2022) | Period | Total Shares Purchased | Average Price Per Share | | :--- | :--- | :--- | | Oct 2022 | 256,594 | $18.61 | | Nov 2022 | 46,434 | $17.83 | | Dec 2022 | 0 | N/A | - As of December 31, 2022, the company had $698 million remaining under its share repurchase authorization program240 Reserved This item is reserved and contains no information - None Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Consolidated operating income surged to $3.98 billion in 2022, driven by a $3.36 billion gain from local sports segment deconsolidation, despite total revenue decline Executive Overview The 2022 executive overview highlights the deconsolidation of Diamond Sports, multi-year renewals of NBC and FOX affiliation agreements, and continued NextGen TV deployment in 36 markets - The most significant 2022 event was the deconsolidation of the Diamond Sports Intermediate Holdings, LLC (DSIH) local sports segment, effective March 1, 2022, fundamentally altering reporting structure and financial results249 - The company continued its NextGen TV (ATSC 3.0) rollout, deploying the technology in 14 additional markets during 2022, reaching a total of 36 markets257 - Key commercial agreements renewed include multi-year affiliations with NBC and FOX, and a comprehensive distribution agreement with Charter Communications249250 Critical Accounting Policies and Estimates Critical accounting policies involve significant judgments and estimates for revenue recognition, impairment testing of goodwill and intangibles, program contract costs, investment fair value, and income tax accounting - Key estimates involve impairment testing of goodwill ($2.09 billion) and intangible assets, requiring management to forecast future market conditions and cash flows267268 - Revenue recognition necessitates estimating subscribers for distribution revenue and managing deferrals for advertising arrangements with audience ratings guarantees265266 - Significant judgment is required for income tax accounting, particularly in determining deferred tax asset realizability and establishing valuation allowances273 Results of Operations Consolidated operating income surged to $3.98 billion in 2022, driven by a $3.36 billion gain from local sports segment deconsolidation, while broadcast revenue increased 11% to $3.07 billion Consolidated Operating Results (in millions) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Revenues | $3,928 | $6,134 | $5,943 | | Gain on deconsolidation | $3,357 | $0 | $0 | | Operating Income (Loss) | $3,980 | $95 | $(2,772) | | Net Income (Loss) to SBG | $2,652 | $(414) | $(2,414) | Broadcast Segment Revenue (in millions) | Revenue Type | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Distribution Revenue | $1,530 | $1,475 | 4% | | Advertising Revenue | $1,399 | $1,106 | 26% | | Total Media Revenues | $3,071 | $2,757 | 11% | - The 26% increase in broadcast advertising revenue in 2022 was primarily driven by higher political advertising and the non-recurrence of a approximately $63 million revenue loss from the 2021 cybersecurity incident292 - The Local Sports segment's 2022 results, with $482 million in revenue and a $4 million operating loss, reflect only two months of activity before the March 1 deconsolidation and are not comparable to prior full-year results301304 Liquidity and Capital Resources As of December 31, 2022, Sinclair maintained strong liquidity with $884 million in cash and $650 million in available borrowing capacity, sufficient for the next twelve months Liquidity Position (as of Dec 31, 2022) | Metric | Value (in millions) | | :--- | :--- | | Cash and Cash Equivalents | $884 | | Available Borrowing Capacity | $650 | | Net Working Capital | $1,075 | - In April 2022, the company amended its credit agreement to raise a $750 million Term Loan B-4, refinancing debt maturing in 2024 and 2026 to extend its debt maturity profile332 Cash Flow Summary (in millions) | Cash Flow | 2022 | 2021 | | :--- | :--- | :--- | | From Operating Activities | $799 | $327 | | Used in Investing Activities | $(381) | $(246) | | Used in Financing Activities | $(353) | $(524) | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its $2,733 million variable-rate debt, with a 1% rate increase estimated to raise annual interest expense by $27 million - The company is exposed to interest rate risk on $2,733 million of variable rate debt; a hypothetical 1% rate increase would raise annual interest expense by an estimated $27 million343 - To manage interest rate risk, the company entered into an interest rate swap in February 2023342 Financial Statements and Supplementary Data This section incorporates by reference the company's audited consolidated financial statements and supplementary data filed as exhibits to the 10-K report - The financial statements and supplementary data required by this item are filed as exhibits to this report344 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting and financial disclosure for the year ended December 31, 2022 - There were no changes in or disagreements with accountants on accounting and financial disclosure during the year345 Controls and Procedures As of December 31, 2022, management concluded that disclosure controls and internal control over financial reporting were effective, a conclusion affirmed by PricewaterhouseCoopers LLP - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective350 - Management concluded that as of December 31, 2022, the company's internal control over financial reporting was effective, a conclusion audited and confirmed by PricewaterhouseCoopers LLP351352 Other Information The company reported no other information for this item - None Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement to be filed within 120 days of the fiscal year-end358 Executive Compensation Information on executive and director compensation is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement to be filed within 120 days of the fiscal year-end359 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement to be filed within 120 days of the fiscal year-end360 Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement to be filed within 120 days of the fiscal year-end361 Principal Accounting Fees and Services Information on fees paid to the independent registered public accounting firm is incorporated by reference from the company's 2023 Annual Meeting Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement to be filed within 120 days of the fiscal year-end362 Part IV Exhibits, Financial Statement Schedules This section lists financial statements and exhibits filed with the Form 10-K, with all financial statement schedules omitted - This item lists all financial statements and exhibits filed with the Form 10-K; all financial statement schedules have been omitted364366 Form 10-K Summary This item is not applicable - Not applicable