10-Q 1 sbgi-20220331.htm 10-Q sbgi-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2022
 
OR
 
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to                       .
 
COMMISSION FILE NUMBER: 000-26076
 
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
 
Maryland 52-1494660
(State or other jurisdiction of Incorporation or organization)(I.R.S. Employer Identification No.)
 
10706 Beaver Dam Road
Hunt Valley, Maryland 21030
(Address of principal executive office, zip code)
 
(410) 568-1500
(Registrant’s telephone number, including area code)
 
None
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A Common Stock, par value $ 0.01 per shareSBGIThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such file).
Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
    
 Number of shares outstanding as of
Title of each class May 5, 2022
Class A Common Stock46,926,296
Class B Common Stock23,775,056


PART I. FINANCIAL INFORMATION



SINCLAIR BROADCAST GROUP, INC.
 
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2022
 
TABLE OF CONTENTS
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

2

ITEM 1.  FINANCIAL STATEMENTS
3

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data) (Unaudited) 
 As of March 31,
2022
As of December 31,
2021
ASSETS  
Current assets:  
Cash and cash equivalents$521 $816 
Accounts receivable, net of allowance for doubtful accounts of $7 as of both periods
620 1,245 
Income taxes receivable156 152 
Prepaid sports rights 85 
Prepaid expenses and other current assets170 173 
Total current assets1,467 2,471 
Property and equipment, net715 833 
Operating lease assets152 207 
Deferred tax assets 293 
Restricted cash 3 
Goodwill2,088 2,088 
Indefinite-lived intangible assets150 150 
Customer relationships, net504 3,904 
Other definite-lived intangible assets, net571 1,184 
Other assets1,015 1,408 
Total assets (a)$6,662 $12,541 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, AND EQUITY  
Current liabilities:  
Accounts payable and accrued liabilities$392 $655 
Current portion of notes payable, finance leases, and commercial bank financing36 69 
Current portion of operating lease liabilities22 35 
Current portion of program contracts payable74 97 
Other current liabilities79 346 
Total current liabilities603 1,202 
Notes payable, finance leases, and commercial bank financing, less current portion4,362 12,271 
Operating lease liabilities, less current portion163 205 
Program contracts payable, less current portion17 21 
Deferred tax liabilities395  
Other long-term liabilities235 351 
Total liabilities (a)5,775 14,050 
Commitments and contingencies (See Note 6)
Redeemable noncontrolling interests184 197 
Shareholders' equity:  
Class A Common Stock, $.01 par value, 500,000,000 shares authorized, 47,934,815 and 49,314,303 shares issued and outstanding, respectively
1 1 
Class B Common Stock, $.01 par value, 140,000,000 shares authorized, 23,775,056 and 23,775,056 shares issued and outstanding, respectively, convertible into Class A Common Stock
  
Additional paid-in capital657 691 
Retained earnings (accumulated deficit)109 (2,460)
Accumulated other comprehensive loss(2)(2)
Total Sinclair Broadcast Group shareholders’ equity (deficit)765 (1,770)
Noncontrolling interests(62)64 
Total equity (deficit)703 (1,706)
Total liabilities, redeemable noncontrolling interests, and equity$6,662 $12,541 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
(a)     Our consolidated total assets as of March 31, 2022 and December 31, 2021 include total assets of variable interest entities (VIEs) of $118 million and $217 million, respectively, which can only be used to settle the obligations of the VIEs. Our consolidated total liabilities as of March 31, 2022 and December 31, 2021 include total liabilities of VIEs of $17 million and $62 million, respectively, for which the creditors of the VIEs have no recourse to us. See Note 9. Variable Interest Entities.
4

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except share and per share data) (Unaudited) 
 Three Months Ended 
 March 31,
 20222021
REVENUES:  
Media revenues$1,275 $1,497 
Non-media revenues13 14 
Total revenues1,288 1,511 
OPERATING EXPENSES:  
Media programming and production expenses758 1,023 
Media selling, general and administrative expenses220 213 
Amortization of program contract costs25 23 
Non-media expenses13 17 
Depreciation of property and equipment28 28 
Corporate general and administrative expenses47 61 
Amortization of definite-lived intangible and other assets93 125 
Gain on deconsolidation of subsidiary(3,357) 
Gain on asset dispositions and other, net of impairment(5)(14)
Total operating (gains) expenses(2,178)1,476 
Operating income3,466 35 
OTHER INCOME (EXPENSE):  
Interest expense including amortization of debt discount and deferred financing costs(115)(151)
Income from equity method investments12 9 
Other (expense) income, net(60)124 
Total other expense, net(163)(18)
Income before income taxes3,303 17 
INCOME TAX (PROVISION) BENEFIT(687)9 
NET INCOME2,616 26 
Net income attributable to the redeemable noncontrolling interests(4)(4)
Net income attributable to the noncontrolling interests(25)(34)
NET INCOME (LOSS) ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP$2,587 $(12)
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO SINCLAIR BROADCAST GROUP:  
Basic earnings (loss) per share$35.85 $(0.16)
Diluted earnings (loss) per share$35.84 $(0.16)
Basic weighted average common shares outstanding (in thousands)72,164 74,389 
Diluted weighted average common and common equivalent shares outstanding (in thousands)72,176 74,389 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions) (Unaudited)
 Three Months Ended 
 March 31,
 20222021
Net income$2,616 $26 
Share of other comprehensive income of equity method investments3 8 
Comprehensive income2,619 34 
Comprehensive income attributable to the redeemable noncontrolling interests(4)(4)
Comprehensive income attributable to the noncontrolling interests(25)(34)
Comprehensive income (loss) attributable to Sinclair Broadcast Group$2,590 $(4)
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS
(in millions, except share and per share data) (Unaudited)
Three Months Ended March 31, 2021
Sinclair Broadcast Group Shareholders  
Redeemable Noncontrolling InterestsClass A
Common Stock
Class B
Common Stock
Additional
Paid-In
Capital
Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Noncontrolling
Interests
Total Deficit
SharesValuesSharesValues
BALANCE, December 31, 2020$190 49,252,671 $1 24,727,682 $ $721 $(1,986)$(10)$89 $(1,185)
Dividends declared and paid on Class A and Class B Common Stock ($0.20 per share)
— — — — — — (15)— — (15)
Class B Common Stock converted into Class A Common Stock— 510,000 — (510,000)— — — — — — 
Class A Common Stock issued pursuant to employee benefit plans— 1,355,679 — — — 14 — — — 14 
Distributions to noncontrolling interests, net(6)— — — — — — — (30)(30)
Other comprehensive income— — — — — — — 8 — 8 
Net income (loss)4 — — — — — (12)— 34 22 
BALANCE, March 31, 2021$188 51,118,350 $1 24,217,682 $ $735 $(2,013)$(2)$93 $(1,186)

 The accompanying notes are an integral part of these unaudited consolidated financial statements.
7

SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) AND REDEEMABLE NONCONTROLLING INTERESTS
(in millions, except share and per share data) (Unaudited)
Three Months Ended March 31, 2022
 Sinclair Broadcast Group Shareholders  
 Redeemable Noncontrolling InterestsClass A
Common Stock
Class B
Common Stock
Additional
Paid-In
Capital
(Accumulated Deficit) Retained EarningsAccumulated
Other
Comprehensive
Loss
Noncontrolling
Interests
Total (Deficit) Equity
 SharesValuesSharesValues
BALANCE, December 31, 2021$197 49,314,303 $1 23,775,056 $ $691 $(2,460)$(2)$64 $(1,706)
Dividends declared and paid on Class A and Class B Common Stock ($0.25 per share)
— — — — — — (18)— — (18)
Repurchases of Class A Common Stock— (2,472,485)— — — (68)— — — (68)
Class A Common Stock issued pursuant to employee benefit plans— 1,092,997 — — — 34 — — — 34 
Distributions to noncontrolling interests(1)— — — — — — — (3)(3)
Other comprehensive income— — — — — — — 3 — 3 
Deconsolidation of subsidiary(16)— — — — — — (3)(148)(151)
Net income4 — — — — — 2,587 — 25 2,612 
BALANCE, March 31, 2022$184 47,934,815 $1 23,775,056 $ $657 $109 $(2)$(62)$703 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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SINCLAIR BROADCAST GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) (Unaudited)
 Three Months Ended March 31,
 20222021
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:  
Net income$2,616 $26 
Adjustments to reconcile net income to net cash flows from (used in) operating activities:  
Amortization of sports programming rights326 552 
Amortization of definite-lived intangible and other assets93 125 
Depreciation of property and equipment28 28 
Amortization of program contract costs25 23 
Stock-based compensation29 33 
Deferred tax provision (benefit)689 (3)
Gain on asset dispositions and other, net of impairment(5)(14)
Gain on deconsolidation of subsidiary(3,357) 
Income from equity method investments(12)(9)
Loss (income) from investments54 (123)
Distributions from investments25 14 
Sports programming rights payments(325)(607)
Rebate payments to distributors(15)(133)
Measurement adjustment loss on variable payment obligations3 1 
Change in assets and liabilities, net of acquisitions and deconsolidation of subsidiary:  
Decrease in accounts receivable16 6 
Increase in prepaid expenses and other current assets(99)(37)
Increase (decrease) in accounts payable and accrued and other current liabilities5 (72)
Net change in net income taxes payable/receivable(3)(4)
Decrease in program contracts payable(26)(25)
Increase in other long-term liabilities(7) 
Other, net10 13 
Net cash flows from (used in) operating activities70 (206)
CASH FLOWS USED IN INVESTING ACTIVITIES:  
Acquisition of property and equipment(21)(20)
Spectrum repack reimbursements1 14 
Proceeds from sale of assets4 28 
Deconsolidation of subsidiary cash(315) 
Purchases of investments(5)(49)
Distributions from investments70 3 
Other, net (2)
Net cash flows used in investing activities(266)(26)
CASH FLOWS USED IN FINANCING ACTIVITIES:  
Proceeds from notes payable and commercial bank financing 6 
Repayments of notes payable, commercial bank financing and finance leases(7)(26)
Repurchase of outstanding Class A Common Stock(68) 
Dividends paid on Class A and Class B Common Stock(18)(15)
Dividends paid on redeemable subsidiary preferred equity(1)(4)
Distributions to noncontrolling interests, net(3)(30)
Distributions to redeemable noncontrolling interests (2)
Other, net(5)(14)
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, beginning of period819 1,262 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period$521 $945 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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SINCLAIR BROADCAST GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1.              NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
Nature of Operations

Sinclair Broadcast Group, Inc. ("SBG" or the "Company") is a diversified television media company with national reach and a strong focus on providing high-quality content on our local television stations, digital platforms, and, prior to Deconsolidation, as defined below in Deconsolidation of Diamond Sports Intermediate Holdings LLC, regional sports networks. The content, distributed through our broadcast platform and third-party platforms, consists of programming provided by third-party networks and syndicators, local news, college and professional sports, and other original programming produced by us. Additionally, we own digital media products that are complementary to our extensive portfolio of television station related digital properties. Outside of our media related businesses, we operate technical services companies focused on supply and maintenance of broadcast transmission systems as well as research and development for the advancement of broadcast technology, and we manage other non-media related investments.

For the quarter ended March 31, 2022, we had two reportable segments for accounting purposes, broadcast and, prior to Deconsolidation, as defined below in Deconsolidation of Diamond Sports Intermediate Holdings LLC, local sports. The broadcast segment consists primarily of our 185 broadcast television stations in 86 markets, which we own, provide programming and operating services pursuant to agreements commonly referred to as local marketing agreements ("LMA"), or provide sales services and other non-programming operating services pursuant to other outsourcing agreements (such as joint sales agreements ("JSA") and shared services agreements ("SSA")). These stations broadcast 634 channels as of March 31, 2022. For the purpose of this report, these 185 stations and 634 channels are referred to as "our" stations and channels. The local sports segment consisted primarily of our Bally Sports network brands ("Bally RSNs"), the Marquee Sports Network ("Marquee") joint venture and a minority equity interest in the Yankee Entertainment and Sports Network, LLC ("YES Network") through February 28, 2022. On March 1, 2022, the Bally RSNs, Marquee and YES Network were deconsolidated from the Company's financial statements. See Deconsolidation of Diamond Sports Intermediate Holdings LLC below. Through February 28, 2022, we refer to the Bally RSNs and Marquee as "the RSNs". The RSNs and YES Network own the exclusive rights to air, among other sporting events, the games of professional sports teams in designated local viewing areas.

Principles of Consolidation
 
The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries, and VIEs for which we are the primary beneficiary. Noncontrolling interests represent a minority owner’s proportionate share of the equity in certain of our consolidated entities. Noncontrolling interests which may be redeemed by the holder, and the redemption is outside of our control, are presented as redeemable noncontrolling interests. All intercompany transactions and account balances have been eliminated in consolidation.

We consolidate VIEs when we are the primary beneficiary. We are the primary beneficiary of a VIE when we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and have the obligation to absorb losses or the right to receive returns that would be significant to the VIE. See Note 9. Variable Interest Entities for more information on our VIEs.

Investments in entities over which we have significant influence but not control are accounted for using the equity method of accounting. Income from equity method investments represents our proportionate share of net income generated by equity method investees.

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Deconsolidation of Diamond Sports Intermediate Holdings LLC

On March 1, 2022, SBG's subsidiary Diamond Sports Intermediate Holdings, LLC, and certain subsidiaries (collectively "DSIH") completed a series of transactions (the “Transaction”) which are expected to provide DSIH with approximately $1 billion of liquidity enhancement over the next five years. As part of the Transaction, the governance structure of DSIH was modified including changes to the composition of its Board of Managers, resulting in the Company's loss of voting control. As a result, DSIH, whose operations represented the entirety of our local sports segment, was deconsolidated from the Company’s consolidated financial statements effective as of March 1, 2022 (the "Deconsolidation"). The consolidated statement of operations therefore includes two months of activity related to DSIH in the fiscal quarter ended March 31, 2022 prior to Deconsolidation. The assets and liabilities of DSIH are no longer included within the Company's consolidated balance sheets as of March 31, 2022. Any discussions related to results, operations, and accounting policies associated with DSIH are referring to the periods prior to Deconsolidation.

Upon Deconsolidation, the Company recognized a gain before income taxes of approximately $3,357 million, which is recorded within gain on deconsolidation of subsidiary in our consolidated statements of operations. Subsequent to Deconsolidation, the Company accounted for our equity ownership interest in DSIH under the equity method of accounting. See Note 3. Other Assets for more information.

Interim Financial Statements
 
The consolidated financial statements for the three months ended March 31, 2022 and 2021 are unaudited. In the opinion of management, such financial statements have been presented on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of operations, consolidated statements of comprehensive income, consolidated statements of equity (deficit) and redeemable noncontrolling interests, and consolidated statements of cash flows for these periods as adjusted for the adoption of recent accounting pronouncements.
 
As permitted under the applicable rules and regulations of the Securities and Exchange Commission (the "SEC"), the consolidated financial statements do not include all disclosures normally included with audited consolidated financial statements and, accordingly, should be read together with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. The consolidated statements of operations presented in the accompanying consolidated financial statements are not necessarily representative of operations for an entire year.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses in the consolidated financial statements and in the disclosures of contingent assets and liabilities. Actual results could differ from those estimates.

The impact of the war in Ukraine and the outbreak of the novel coronavirus ("COVID-19") continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could further materially impact our estimates related to, but not limited to, revenue recognition, goodwill and intangible assets, program contract costs, sports programming rights, and income taxes. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in our consolidated financial statements.

Recent Accounting Pronouncements

In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate ("LIBOR") or by another reference rate expected to be discontinued. The guidance was effective for all entities immediately upon issuance of the update and may be applied prospectively to applicable transactions existing as of or entered into from the date of adoption through December 31, 2022. We adopted this guidance upon issuance and it did not have an impact on our consolidated financial statements.

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In October 2021, the FASB issued guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice. ASU 2021-08 requires that an acquiring entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of this guidance, but do not expect a material impact on our consolidated financial statements.

Broadcast Television Programming

We have agreements with programming syndicators for the rights to television programming over contract periods, which generally run from one to seven years. Contract payments are made in installments over terms that are generally equal to or shorter than the contract period. Pursuant to accounting guidance for the broadcasting industry, an asset and a liability for the rights acquired and obligations incurred under a license agreement are reported on the balance sheet when the cost of each program is known or reasonably determinable, the program material has been accepted by the licensee in accordance with the conditions of the license agreement, and the program is available for its first showing or telecast. The portion of program contracts which becomes payable within one year is reflected as a current liability in the accompanying consolidated balance sheets
The rights to this programming are reflected in the accompanying consolidated balance sheets at the lower of unamortized cost or fair value. Program contract costs are amortized on a straight-line basis except for contracts greater than three years which are amortized utilizing an accelerated method. Program contract costs estimated by management to be amortized in the succeeding year are classified as current assets. Payments of program contract liabilities are typically made on a scheduled basis and are not affected by amortization or fair value adjustments.

Fair value is determined utilizing a discounted cash flow model based on management’s expectation of future advertising revenues, net of sales commissions, to be generated by the program material. We assess our program contract costs on a quarterly basis to ensure the costs are recorded at the lower of unamortized cost or fair value.

Sports Programming Rights

DSIH has multi-year program rights agreements that provide DSIH with the right to produce and telecast professional live sports games within a specified territory in exchange for a rights fee. Prior to the Deconsolidation, a prepaid asset was recorded for rights acquired related to future games upon payment of the contracted fee. The assets recorded for the acquired rights were classified as current or non-current based on the period when the games were expected to be aired. Liabilities were recorded for any program rights obligations that had been incurred but not yet paid at period end. We amortized these rights as an expense over each season based upon contractually stated rates. Amortization was accelerated in the event that the stated contractual rates over the term of the rights agreement resulted in an expense recognition pattern that was inconsistent with the projected growth of revenue over the contractual term.

The National Basketball Association (“NBA”) and the National Hockey League (“NHL”) delayed the start of their 2020-2021 seasons until December 22, 2020 and January 13, 2021, respectively, and both leagues postponed games in the fourth quarter 2021 and rescheduled these games to be played in the first quarter 2022. The sports rights expense associated with these seasons was recognized over the modified term of these seasons.

Non-cash Investing and Financing Activities

Leased assets obtained in exchange for new operating lease liabilities were $5 million and $3 million for the three months ended March 31, 2022 and 2021, respectively. Leased assets obtained in exchange for new finance lease liabilities were $1 million for the three months ended March 31, 2022.

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Revenue Recognition

The following table presents our revenue disaggregated by type and segment (in millions):
For the three months ended March 31, 2022BroadcastLocal sportsOtherEliminationsTotal
Distribution revenue$392 $433 $48 $ $873 
Advertising revenue282 44 68 (23)371 
Other media, non-media, and intercompany revenues47 5 18 (26)44 
Total revenues$721 $482 $134 $(49)$1,288 
For the three months ended March 31, 2021BroadcastLocal sportsOtherEliminationsTotal
Distribution revenue$361 $698 $50 $ $1,109 
Advertising revenue267 65 40 (1)371 
Other media, non-media, and intercompany revenues37 5 18 (29)31 
Total revenues$665 $768 $108 $(30)$1,511 

Distribution Revenue. We have agreements with multi-channel video programming distributors ("MVPD") and virtual MVPDs ("vMVPD," and together with MVPDs, "Distributors"). We generate distribution revenue through fees received from these Distributors for the right to distribute our stations, RSNs, and other properties. Distribution arrangements are generally governed by multi-year contracts and the underlying fees are based upon a contractual monthly rate per subscriber. These arrangements represent licenses of intellectual property; revenue is recognized as the signal or network programming is provided to our customers (as usage occurs) which corresponds with the satisfaction of our performance obligation. Revenue is calculated based upon the contractual rate multiplied by an estimated number of subscribers. Our customers will remit payments based upon actual subscribers a short time after the conclusion of a month, which generally does not exceed 120 days. Historical adjustments to subscriber estimates have not been material.

Advertising Revenue. We generate advertising revenue primarily from the sale of advertising spots/impressions within our broadcast television, RSN, and digital platforms.

In accordance with ASC 606, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) distribution arrangements which are accounted for as a sales/usage based royalty.

Deferred Revenue. We record deferred revenue when cash payments are received or due in advance of our performance, including amounts which are refundable. We classify deferred revenue as either current in other current liabilities or long-term in other long-term liabilities in our consolidated balance sheets based on the timing of when we expect to satisfy our performance obligations. Deferred revenue was $230 million and $235 million as of March 31, 2022 and December 31, 2021, respectively, of which $159 million and $164 million, respectively, was reflected in other long-term liabilities in our consolidated balance sheets. Deferred revenue recognized during the three months ended March 31, 2022 and 2021, included in the deferred revenue balance as of December 31, 2021 and 2020, was $29 million and $17 million, respectively.

For the three months ended March 31, 2022, three customers accounted for 17%, 17%, and 14%, respectively, of our total revenues. For the three months ended March 31, 2021, three customers accounted for 20%, 19%, and 15%, respectively, of our total revenues. As of March 31, 2022, two customers accounted for 13% and 10%, respectively, of our accounts receivable, net. For purposes of this disclosure, a single customer may include multiple entities under common control.

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Income Taxes

Our income tax provision for all periods consists of federal and state income taxes. The tax provision for the three months ended March 31, 2022 and 2021 is based on the estimated effective tax rate applicable for the full year after taking into account discrete tax items and the effects of the noncontrolling interests. We provide a valuation allowance for deferred tax assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating our ability to realize net deferred tax assets, we consider all available evidence, both positive and negative, including our past operating results, tax planning strategies, current and cumulative losses, and forecasts of future taxable income. In considering these sources of taxable income, we must make certain judgments that are based on the plans and estimates used to manage our underlying businesses on a long-term basis. A valuation allowance has been provided for deferred tax assets related to interest expense carryforwards under the Internal Revenue Code ("IRC") Section 163(j) and a substantial amount of our available state net operating loss carryforwards based on past operating results, expected timing of the reversals of existing temporary basis differences, alternative tax strategies and projected future taxable income.

Our effective income tax rate for the three months ended March 31, 2022 approximated the statutory rate. Our effective income tax rate for the three months ended March 31, 2021 was less than the statutory rate primarily due to substantially magnified impact of discrete items as a result of low pre-tax income.

We do not believe that our liability for unrecognized tax benefits would be materially impacted, in the next twelve months, as a result of expected statute of limitations expirations, the application of limits under available state administrative practice exceptions, and the resolution of examination issues and settlements with federal and certain state tax authorities.


Share Repurchase Program

On August 4, 2020, the Board of Directors authorized an additional $500 million share repurchase authorization in addition to the previous repurchase authorization of $1 billion. There is no expiration date and currently, management has no plans to terminate this program. For the three months ended March 31, 2022, we repurchased approximately 2 million shares of Class A Common Stock for $68 million. As of March 31, 2022, the total remaining purchase authorization was $751 million. As of May 5, 2022, we repurchased an additional 1 million shares of Class A Common Stock, for $26 million since March 31, 2022. All shares were repurchased under an SEC Rule 10b5-1 plan.
Reclassifications
 
Certain reclassifications have been made to prior years' consolidated financial statements to conform to the current year's presentation.

2.              ACQUISITIONS AND DISPOSITIONS OF ASSETS:

Broadcast Incentive Auction. In 2012, Congress authorized the Federal Communications Commission (FCC) to conduct so-called "incentive auctions" to auction and re-purpose broadcast television spectrum for mobile broadband use. Pursuant to the auction, television broadcasters submitted bids to receive compensation for relinquishing all or a portion of their rights in the television spectrum of their full-service and Class A stations. Low power stations were not eligible to participate in the auction and are not protected and therefore may be displaced or forced to go off the air as a result of the post-auction repacking process.

In March 2016, the FCC began the repacking process associated with the auction, in which the FCC reassigned some stations to new post-auction channels. We do not expect reassignment to new channels to have a material impact on our coverage. As part of that process, we received notification from the FCC that 100 of our stations have been assigned to new channels. Legislation has provided the FCC with a $3 billion fund to reimburse reasonable costs incurred by stations that are reassigned to new channels in the repack. We expect that the reimbursements from the fund will cover the majority of our expenses related to the repack. We recorded gains related to reimbursements for spectrum repack costs incurred of $1 million and $14 million for the three months ended March 31, 2022 and 2021, respectively, which are included within gain on asset dispositions and other, net of impairment in our consolidated statements of operations. Capital expenditures related to the spectrum repack were $1 million for the three months ended March 31, 2022 and $4 million for the three months ended March 31, 2021.

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3.              OTHER ASSETS:

Other assets as of March 31, 2022 and December 31, 2021 consisted of the following (in millions):

 As of March 31,
2022
As of December 31,
2021
Equity method investments$135 $517 
Other investments505 567 
Note receivable163  
Post-retirement plan assets48 50 
Other164 274 
Total other assets$1,015 $1,408 

Equity Method Investments

We have a portfolio of investments, including our investment in the YES Network (prior to the Deconsolidation), our investment in DSIH (subsequent to the Deconsolidation), and also a number of entities that are primarily focused on the development of real estate and other non-media businesses. For the periods ended March 31, 2022 and December 31, 2021, only our investment in DSIH was individually significant for the period ended March 31, 2022.

YES Network Investment. Prior to the Deconsolidation, we accounted for our investment in the YES Network as an equity method investment, which was recorded within other assets in our consolidated balance sheets, and in which our proportionate share of the net income or loss generated by the investment was included within income from equity method investments in our consolidated statements of operations. We recorded income of $10 million and $13 million for the three months ended March 31, 2022 and 2021, respectively. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.

Diamond Sports Intermediate Holdings LLC. Subsequent to the Deconsolidation, we began accounting for our equity interest in DSIH under the equity method of accounting. As of March 1, 2022, we reflected the investment in DSIH at fair value, which was determined to be nominal. For the month ended March 31, 2022, the period we account for DSIH as an equity method investment, DSIH had net revenues, gross profit, operating loss, and net loss of $228 million, $9 million, $18 million, and $70 million, respectively. For the three months ended March 31, 2022 we recorded no equity method loss related to the investment because the carrying value of the investment is zero and the Company is not obligated to fund losses incurred by DSIH. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.

Other Investments

We measure our investments, excluding equity method investments, at fair value or, in situations where fair value is not readily determinable, we have the option to value investments at cost plus observable changes in value, less impairment. Additionally, certain investments are measured at net asset value ("NAV").

As of March 31, 2022 and December 31, 2021, we held $324 million and $402 million, respectively, in investments measured at fair value and $171 million and $147 million, respectively, in investments measured at NAV. We recognized a fair value adjustment loss of $56 million and a fair value adjustment gain of $125 million for the three months ended March 31, 2022 and 2021, respectively, associated with these investments, which are reflected in other (expense) income, net in our consolidated statements of operations. As of March 31, 2022 and December 31, 2021, our unfunded commitments related to our investments valued using the NAV practical expedient totaled $78 million and $81 million, respectively.

Investments accounted for utilizing the measurement alternative were $10 million, net of $7 million of cumulative impairments, as of March 31, 2022, and $18 million, net of $7 million of cumulative impairments, as of December 31, 2021. There were no adjustments to the carrying amount of investments accounted for utilizing the measurement alternative for either the three months ended March 31, 2022 or 2021.

15


Note Receivable

On November 5, 2021, the Company purchased and assumed the lenders’ and the administrative agent’s rights and obligations under the Accounts Receivable Securitization Facility (A/R Facility), held by Diamond Sports Finance SPV, LLC (DSPV), an indirect wholly-owned subsidiary of DSIH, by making a payment to the lenders equal to approximately $184 million, representing 101% of the aggregate outstanding principal amount of the loans under the A/R Facility, plus any accrued interest and outstanding fees and expenses. The maximum facility limit availability under the A/R Facility is $400 million and has a maturity date of September 23, 2024. Subsequent to the Deconsolidation, transactions related to the A/R Facility are no longer intercompany transactions and, therefore, are reflected in our consolidated financial statements. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies. As of March 31, 2022, the note receivable due to the Company is approximately $163 million which is recorded within other assets within our consolidated balance sheet.
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4.              NOTES PAYABLE, FINANCE LEASES, AND COMMERCIAL BANK FINANCING:

Bank Credit Agreement

The bank credit agreement of Sinclair Television Group, Inc. ("STG"), a wholly owned subsidiary of the Company, (the "Bank Credit Agreement") includes a financial maintenance covenant, the first lien leverage ratio (as defined in the Bank Credit Agreement), which requires such ratio not to exceed 4.5x, measured as of the end of each fiscal quarter. As of March 31, 2022, the STG first lien leverage ratio was below 4.5x. Under the Bank Credit Agreement, a financial maintenance covenant is only applicable if 35% or more of the capacity (as a percentage of total commitments) under the revolving credit facility, measured as of the last day of each fiscal quarter, is utilized under the revolving credit facility as of such date. Since there was no utilization under the revolving credit facility as of March 31, 2022, STG was not subject to the financial maintenance covenant under the Bank Credit Agreement. The Bank Credit Agreement contains other restrictions and covenants with which STG was in compliance as of March 31, 2022.

The debt of DSIH was deconsolidated from the Company's balance sheet as part of the Deconsolidation. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.

Finance leases to affiliates

The current portion of notes payable, finance leases, and commercial bank financing in our consolidated balance sheets includes finance leases to affiliates of $2 million and $3 million as of March 31, 2022 and December 31, 2021, respectively. Notes payable, finance leases, and commercial bank financing, less current portion, in our consolidated balance sheets includes finances leases to affiliates of $6 million as of both March 31, 2022 and December 31, 2021. See Note 10. Related Person Transactions.

Debt of variable interest entities and guarantees of third-party obligations

STG jointly, severally, unconditionally, and irrevocably guaranteed $38 million and $39 million of debt of certain third parties as of March 31, 2022 and December 31, 2021, respectively, of which $9 million, net of deferred financing costs, related to consolidated VIEs is included in our consolidated balance sheets both as of March 31, 2022 and December 31, 2021. These guarantees primarily relate to the debt of Cunningham Broadcasting Corporation (Cunningham) as discussed under Cunningham Broadcasting Corporation within Note 10. Related Person Transactions. The credit agreements and term loans of these VIEs each bear interest of LIBOR plus 2.50%. We have determined that, as of March 31, 2022, it is not probable that we would have to perform under any of these guarantees.

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5.              REDEEMABLE NONCONTROLLING INTERESTS:

We account for redeemable noncontrolling interests in accordance with ASC 480, Distinguishing Liabilities from Equity, and classify them as mezzanine equity in our consolidated balance sheets because their possible redemption is outside of the control of the Company. Our redeemable non-controlling interests consist of the following:

Redeemable Subsidiary Preferred Equity. On August 23, 2019, Diamond Sports Holdings LLC ("DSH"), an indirect parent of DSG and indirect wholly-owned subsidiary of the Company, issued preferred equity (the "Redeemable Subsidiary Preferred Equity").

Dividends accrued during the three months ended March 31, 2022 and 2021 were $3 million and $4 million, respectively, and are reflected in net income attributable to the noncontrolling interests in our consolidated statements of operations. The dividends paid in cash accrue at a rate equal to 1-month LIBOR (with a 0.75% floor) plus 7.5%, which is 0.5% lower than the rate payable if the dividends were paid-in-kind during the quarter. Dividends accrued during the three months ended March 31, 2022 were paid-in-kind and added to the liquidation preference, which was partially offset by certain required cash tax distributions.

The balance of the Redeemable Subsidiary Preferred Equity, net of issuance costs, was $184 million and $181 million as of March 31, 2022 and December 31, 2021, respectively.

Subsidiary Equity Put Right. A noncontrolling equity holder of one of our subsidiaries has the right to sell their interest to the Company at any time during the 30-day period following September 30, 2025. The value of this redeemable noncontrolling interest was $16 million as of December 31, 2021. This redeemable noncontrolling interest was deconsolidated as part of the Deconsolidation. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.

6.              COMMITMENTS AND CONTINGENCIES:

Other Liabilities

Prior to the Deconsolidation, other liabilities included certain fixed payment obligations which were payable through 2027. As of December 31, 2021, $32 million and $71 million were recorded within other current liabilities and other long-term liabilities, respectively, in our consolidated balance sheets. Interest expense of $1 million and $2 million was recorded for the three months ended March 31, 2022 and 2021, respectively. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.

Prior to the Deconsolidation, other liabilities included certain variable payment obligations which were payable through 2030. These contractual obligations were based upon the excess cash flow of certain Bally RSNs. As of December 31, 2021, $8 million and $23 million were recorded within other current liabilities and other long-term liabilities, respectively, in our consolidated balance sheets. We recorded measurement adjustment losses of $3 million and $1 million for the three months ended March 31, 2022 and 2021, respectively, which are reflected in other (expense) income, net in our consolidated statements of operations. See Deconsolidation of Diamond Sports Intermediate Holdings LLC within Note 1. Nature of Operations and Summary of Significant Accounting Policies.

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Litigation
 
We are a party to lawsuits, claims, and regulatory matters from time to time in the ordinary course of business. Actions currently pending are in various stages and no material judgments or decisions have been rendered by hearing boards or courts in connection with such actions. Except as noted below, we do not believe the outcome of these matters, individually or in the aggregate, will have a material effect on the Company's financial statements. 

FCC Litigation Matters

On May 22, 2020, the FCC released an Order and Consent Decree pursuant to which the Company agreed to pay $48 million to resolve the matters covered by a Notice of Apparent Liability for Forfeiture ("NAL") issued in December 2017 proposing a $13 million fine for alleged violations of the FCC's sponsorship identification rules by the Company and certain of its subsidiaries, the FCC’s investigation of the allegations raised in the Hearing Designation Order issued in connection with the Company's proposed acquisition of Tribune, and a retransmission related matter. The Company submitted the $48 million payment on August 19, 2020. As part of the consent decree, the Company also agreed to implement a 4-year compliance plan. Two petitions were filed on June 8, 2020 seeking reconsideration of the Order and Consent Decree. The Company filed an opposition to the petitions on June 18, 2020, and the petitions remain pending.

On September 1, 2020, one of the individuals who filed a petition for reconsideration of the Order and Consent Decree filed a petition to deny the license renewal application of WBFF(TV), Baltimore, MD, and the license renewal applications of two other Baltimore, MD stations with which the Company has a JSA or LMA, Deerfield Media station WUTB(TV) and Cunningham station WNUV(TV). The Company filed an opposition to the petition on October 1, 2020, and the petition remains pending.

On September 2, 2020, the FCC adopted a Memorandum Opinion and Order and NAL against the licensees of several stations with whom the Company has LMAs, JSAs, and/or SSAs in response to a complaint regarding those stations’ retransmission consent negotiations. The NAL proposed a $0.5 million penalty for each station, totaling $9 million. The licensees filed a response to the NAL on October 15, 2020, asking the Commission to dismiss the proceeding or, alternatively, to reduce the proposed forfeiture to $25,000 per station. On July 28, 2021, the FCC issued a forfeiture order in which the $0.5 million penalty was upheld for all but one station. A Petition for Reconsideration of the forfeiture order was filed on August 7, 2021. On March 14, 2022, the Commission released a Memorandum Opinion and Order and Order on Reconsideration, reaffirming the forfeiture order and dismissing (and in the alternative, denying) the Petition for Reconsideration. The Company is not a party to this forfeiture order; however, our consolidated financial statements include an accrual of additional expenses of $8 million for the above legal matters during the year ended December 31, 2021, as we consolidate these stations as VIEs.

Other Litigation Matters

On November 6, 2018, the Company agreed to enter into a proposed consent decree with the Department of Justice (the "DOJ"). This consent decree resolves the DOJ’s investigation into the sharing of pacing information among certain stations in some local markets. The DOJ filed the consent decree and related documents in the U.S. District Court for the District of Columbia on November 13, 2018. The U.S. District Court for the District of Columbia entered the consent decree on May 22, 2019. The consent decree is not an admission of any wrongdoing by the Company and does not subject the Company to any monetary damages or penalties. The Company believes that even if the pacing information was shared as alleged, it would not have impacted any pricing of advertisements or the competitive nature of the market. The consent decree requires the Company to adopt certain antitrust compliance measures, including the appointment of an Antitrust Compliance Officer, consistent with what the DOJ has required in previous consent decrees in other industries. The consent decree also requires the Company's stations not to exchange pacing and certain other information with other stations in their local markets, which the Company’s management has already instructed them not to do.

19

The Company is aware of twenty-two putative class action lawsuits that were filed against the Company following published reports of the DOJ investigation into the exchange of pacing data within the industry. On October 3, 2018, these lawsuits were consolidated in the Northern District of Illinois. The consolidated action alleges that the Company and thirteen other broadcasters conspired to fix prices for commercials to be aired on broadcast television stations throughout the United States and engaged in unlawful information sharing, in violation of the Sherman Antitrust Act. The consolidated action seeks damages, attorneys’ fees, costs and interest, as well as injunctions against adopting practices or plans that would restrain competition in the ways the plaintiffs have alleged. The Court denied the Defendants’ motion to dismiss on November 6, 2020. Since then, the Plaintiffs have served the Defendants with written discovery requests, and the Court has set a pretrial schedule which now requires discovery to be completed by December 30, 2022 and briefing on class certification to be completed by May 15, 2023. The Company believes the lawsuits are without merit and intends to vigorously defend itself against all such claims.

7.              EARNINGS PER SHARE:
 
The following table reconciles income (numerator) and shares (denominator) used in our computations of basic and diluted earnings per share for the periods presented (in millions, except share amounts which are reflected in thousands):

 Three Months Ended 
 March 31,
 20222021
Income (Numerator)  
Net income (loss)$2,616 $26 
Net income attributable to the redeemable noncontrolling interests(4)(4)
Net loss (income) attributable to the noncontrolling interests(25)(34)
Numerator for basic and diluted earnings (loss) per common share available to common shareholders$2,587 $(12)
Shares (Denominator)  
Basic weighted-average common shares outstanding72,164 74,389 
Dilutive effect of stock-settled appreciation rights and outstanding stock options12  
Diluted weighted-average common and common equivalent shares outstanding72,176 74,389 

The following table shows the weighted-average stock-settled appreciation rights and outstanding stock options (in thousands) that are excluded from the calculation of diluted earnings per common share as the inclusion of such shares would be anti-dilutive: