SINCLAIR, INC. FORWARD-LOOKING STATEMENTS
This report includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and theU.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things, the following risks:
COVID-19 risks
•The suspension, and possible cancellation, of tennis tournaments; •the need to reimburse Distributors affiliation fees related to canceled professional sporting events; •loss of advertising revenue due to (i) reluctance of advertisers to purchase advertising spots due to reduced consumer spending as a result of shelter in place and stay at home orders, or lower audience engagement, (ii) potential reduced need for advertisers to advertise for certain goods or services with low supply, due to interruptions in the supply chain, and (iii) adverse business conditions affecting our customers, including our advertisers' going out of business; •we may be unable to access debt and equity capital on favorable terms, if at all, or a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions may affect our access to capital necessary to fund business operations, pursue acquisition and development opportunities, refinance existing debt, and increase our future interest expense; •the interruption to global supply chains caused by COVID-19 could impact our ability to acquire and replace equipment necessary for the continuity of our business; •the potential effects of COVID-19 on our workforce, including the impact in our operations because employees either contract COVID-19 or leave the workforce, increased health care cost, increased wages due to wage inflation and an inability to attract and retain a quality workforce; and •cybersecurity and operational risks as a result of work-from-home arrangements.
Industry risks
•The business conditions of our advertisers, particularly in the political,
automotive and service categories;
•the performance of networks and syndicators that provide us with programming
content, as well as the performance of internally originated programming;
•subscriber churn due to the impact of technological changes and the
proliferation of over-the-top ("OTT") direct to consumer platforms;
•the loss of appeal of our local news, network content, syndicated program
content and sports programming, which may be unpredictable;
•the availability and cost of programming from networks and syndicators, as well
as the cost of internally originated programming;
•the availability and cost of rights to air professional tennis tournaments;
•our relationships with networks and their strategies to distribute their
programming via means other than their local television affiliates, such as OTT
or direct-to-consumer content;
•labor disputes and legislation and other union activity associated with film,
acting, writing, and other guilds;
•the broadcasting community's ability to develop and adopt a viable mobile
digital broadcast television ("mobile DTV") strategy and platform, such as the
adoption of a next generation broadcast standard ("NEXTGEN TV"), and the
consumer's appetite for mobile television;
•the impact of programming payments charged by networks pursuant to their
affiliation agreements with broadcasters requiring compensation for network
programming;
•the effects of declining live/appointment viewership as reported through rating
systems and local television efforts to adopt and receive credit for same day
viewing plus viewing on-demand thereafter;
•changes in television rating measurement methodologies that could negatively
impact audience results;
•the ability of local Distributors to coordinate and determine local advertising
rates as a consortium;
•the operation of low power devices in the broadcast spectrum, which could
interfere with our broadcast; and
•the impact of Distributors and OTTs offering "skinny" programming bundles that
may not include television broadcast stations or other programming that we
distribute.
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Regulatory risks
•The effects of the FCC 's National Broadband Plan, the impact of the repacking
of our broadcasting spectrum, as a result of the incentive auction, within a
limited timeframe and funding allocated;
•the potential for additional governmental regulation of broadcasting or changes
in those regulations and court actions interpreting those regulations, including
ownership regulations limiting over-the-air television's ability to compete
effectively (including regulations relating to JSA, SSA, cross ownership rules,
the national ownership cap and the UHF discount), arbitrary enforcement of
indecency regulations, retransmission consent regulations, and political or
other advertising restrictions, such as payola rules;
•the impact of FCC and Congressional efforts which may restrict a television
station's retransmission consent negotiations;
•the impact of FCC rules requiring broadcast stations to publish, among other
information, political advertising rates online;
•the impact of foreign government rules related to digital and online assets;
and
•the potential impact from the elimination of rules prohibiting mergers of the
four major television networks.
Risks specific to us
•The impact of the war inUkraine including related disruption to supply chains and the increased price of energy, all of which affect our operations as well as those of our advertisers; •our ability to attract and maintain local, national, and network advertising and successfully participate in new sales channels such as programmatic and addressable advertising through business partnership ventures and the development of technology; •our ability to service our debt obligations and operate our business under restrictions contained in our financing agreements; •our ability to successfully implement and monetize our own content management system ("CMS") designed to provide our viewers significantly improved content via the internet and other digital platforms; •our ability to successfully renegotiate retransmission consent and distribution agreements for our existing and acquired businesses with favorable terms; •the ability of stations which we consolidate, but do not negotiate on their behalf, to successfully renegotiate retransmission consent and affiliation fees (cable network fees) agreements; •our ability to renew ourFCC licenses; •our ability to obtainFCC approval for any future acquisitions, as well as, in certain cases, customary antitrust clearance for any future acquisitions; •our ability to identify media business investment opportunities and to successfully integrate any acquired businesses, as well as the success of our new content and distribution initiatives in a competitive environment, including CHARGE!, TBD, Comet, STIRR, other original programming, mobile DTV and FAST channels; •our ability to maintain our affiliation and programming service agreements with our networks and program service providers and at renewal, to successfully negotiate these agreements with favorable terms; •our ability to generate synergies and leverage new revenue opportunities; •changes in the makeup of the population in the areas where stations are located; •our ability to effectively respond to technology affecting our industry; •our ability to deploy NEXTGEN TV nationwide; •the strength of ratings for our local news broadcasts including our news sharing arrangements; •the results of prior year tax audits by taxing authorities; and •our ability to monetize our investments in real estate, venture capital and private equity holdings, and direct strategic investments in companies.
General risks
•The impact of changes in national and regional economies and credit and capital markets; •loss of consumer confidence; •the potential impact of changes in tax law; •the activities of our competitors; •terrorist acts of violence or war, such as the war inUkraine , and other geopolitical events; •natural disasters and pandemics that impact our Distributors, advertisers, suppliers, stations and networks; and •cybersecurity incidents, data privacy, and other information technology failures have, and in the future, may, adversely affect us and disrupt our operations. 39 -------------------------------------------------------------------------------- Table of Contents Other matters set forth in this report, including the Risk Factors set forth in Item 1A of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2021 , may also cause actual results in the future to differ materially from those described in the forward-looking statements. However, additional factors and risks not currently known to us or that we currently deem immaterial may also cause actual results in the future to differ materially from those described in the forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In light of these risks, uncertainties, and assumptions, events described in the forward-looking statements discussed in this report might not occur.
The following Management's Discussion and Analysis provides qualitative and quantitative information about our financial performance and condition and should be read in conjunction with our consolidated financial statements and the accompanying notes to those statements. This discussion consists of the following sections:
Summary of Significant Events - financial events during the three months ended
Results of Operations - an analysis of our revenues and expenses for the three
months ended
Liquidity and Capital Resources - a discussion of our primary sources of
liquidity and an analysis of our cash flows from or used in operating
activities, investing activities, and financing activities during the three
months ended
Summary of Significant Events Transactions •OnMarch 1, 2022 , SBG's subsidiaryDiamond Sports Intermediate Holdings, LLC , and certain direct and indirect subsidiaries, completed a series of transactions 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. As a result, DSIH, whose operations were the entirety of our local sports segment, was deconsolidated from the Company's consolidated financial statements effective as ofMarch 1, 2022 . See Deconsolidation ofDiamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements. •InMarch 2022 , Tejas Networks, part of theTata Group , signed a definitive agreement to acquire approximately 65% of the shares ofSaankhya Labs Private Ltd. Bangalore ("Saankhya"), in cash with the approximately 35% balance to be acquired subsequently through a merger process. ONE Media 3.0, LLC, a wholly-owned subsidiary of the Company, owns a 49% interest in Saankhya and will sell the majority of its interest, while retaining a minority interest in Tejas. The acquisition of 65% of Saankhya shares is expected to close within the next 90 days, after which the proceedings for merger with Tejas will be initiated, subject to customary approvals inIndia . •InMarch 2022 , we agreed to defer a portion of our management fees from DSG for the next several years, as part of the Transaction. •InMay 2022 , the Company sold certain assets of Ring ofHonor Entertainment , including the wrestling promotion's extensive video library dating back to 2002, brand assets, intellectual property, production equipment, and more, to an affiliate of AEW.
Television and Digital Content
•InJanuary 2022 , two new programs produced in coordination with Stadium, our 24/7 multi-platform sports network, premiered onBally Sports' 19 regional sports network brands and theBally Sports app. "The Rally" is a discussion-based show presenting a young and diverse talent lineup, authentically debating and analyzing the trending sports topics of the day while harnessing the social media conversation and viewer commentary. The Bally RSN brands' first sports betting program "Live on the Line, Powered by BetMGM" is a partnership with BetMGM, a leading sports betting and iGaming operator. The program highlights national sports betting storylines with a regional appeal, by providing expert picks while looking ahead to the day's matchups. •InJanuary 2022 , Tennis Channel reached a multiyear agreement with theWomen's Tennis Association ("WTA") to telecast year-round WTA matches inGermany ,Austria ,Switzerland , andthe Netherlands through Tennis Channel's subscription service and digital free ad-supported streaming TV ("FAST") channels. •InMarch 2022 , The National Desk, the Company's national news program providing real-time national and regional news from across its television stations, added a weekend edition. 40
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•InMarch 2022 , we announced the launch of our new business development unit,Free State Strategic Services . Free State's mission is to provide the federal government, along with state and local agencies, a full suite of targeted digital marketing and advertising solutions to help government agencies communicate with the American public effectively and efficiently.
Distribution, Network and Teams
•InJanuary 2022 , DSG renewed its extended market and digital distribution rights agreement with the NBA. Under the agreement, the Bally RSNs are permitted to offer streaming content, including live games, on an authenticated and DTC basis, to the local territories of 16 NBA teams. The agreement also includes expanded content and highlight rights as well as access to the distribution of classic games in our local markets. The agreement has a term of one year with three successive one-year renewal offers, subject to compliance with the agreement. •InJanuary 2022 , we entered into multi-year renewals of theNBC affiliations and Fox affiliations in a total of 20 of our markets. Our partners to which we provide sales and other services to under joint sales agreements or master service agreements also renewedNBC affiliations in four markets and Fox affiliations in seven markets. •InApril 2022 , we announced that we and Charter Communications, Inc. reached a comprehensive distribution agreement for continued carriage of our owned local broadcast stations and Tennis Channel.
Environmental, Social, and Governance
•In
•InMarch 2022 , ONE Media held a three-part, virtual webinar series tackling the intricacies of Advanced Emergency Information (AEI) powered by the NextGen Broadcast standard, including the ways in which AEI can strengthen relationships with local emergency managers and public safety professionals, and how AEI can enable TV newsrooms to better serve communities during threats. •InApril 2022 , the Company nominated the renowned Dr.Ben Carson , an experienced board director, former United States Presidential primary candidate and former Secretary of theU.S. Department of Housing and Urban Development , for election to the Company's Board of Directors, as it continues to seek to add diversity to its leadership. •InApril 2022 , Project Baltimore, the special investigative reporting unit of WBFF/Fox 45 News, was honored by Investigative Reporters and Editors ("IRE") for its reporting onBaltimore's failure in its public school system. This was the fourth consecutive year a Sinclair newsroom has been so honored. In addition, KUTV inSalt Lake City was an IRE finalist for their investigation into the systematic failures withinUtah's probation and parole system. Over the last three years, our newsrooms have won a total of over 1,000 journalism awards. •InApril 2022 , the Company launched "Sinclair Green :Battery Recycling ," a promotional campaign which ran throughout the month, in conjunction with Earth Month, encouraging its employees and viewers to recycle household batteries at a Batteries Plus location or through their local municipality. In addition, the Company began a pilot program to reduce the amount of batteries it uses and to recycle its battery waste. •InApril 2022 , the Company raised over$215,000 , including a$50,000 donation from Sinclair, through "Sinclair Cares : Ukraine Relief," a fundraising partnership withGlobal Red Cross to help with their humanitarian relief efforts inUkraine and neighboring countries. •InApril 2022 , the Company's television stations were honored with a total of six National Headliner Awards, including top honors in the Public Service and Health/Science categories.
•To date in 2022, our newsrooms have won a total of 60 journalism awards.
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NEXTGEN TV
• In January 2022 , the NextGen Video Information Systems Alliance ("NVISA")
published new consumer-facing research, sponsored by our subsidiary, ONE Media
3.0, that offered the first insight into which features American consumers want
most in a NextGen Broadcast-enabled emergency information service. These include
a desire for geo-targeted alerts, the ability to screen for only selected
alerts, options for updated alerts, and importantly, a robust/dependable system
that does not crash when the Internet or cell system goes down. All of these
features are embedded in the NextGen Broadcast service.
• In January 2022 , MPEG LA , a pioneer in the formation and management of patent
pools, completed the formation of the ATSC 3.0 Patent Pool , dramatically
simplifying the efficient licensing of the new ATSC 3.0 broadcast technology in
multiple-receive devices, easing the distribution and deployment process.
Included in the ATSC 3.0 Patent Pool are various patents owned by our
subsidiary, ONE Media.
•In April 2022 , the Company and USSI Global announced a partnership to offer the
nation's first commercial datacasting service using the NextGen Broadcast
standard ("ATSC 3.0"). The pilot program will deliver local content,
advertising, and data files to the rapidly growing Electric Vehicle Charging
station market.
•In 2022, we, in coordination with other broadcasters, and led by our joint
venture, BitPath, have deployed NEXTGEN TV, powered by ATSC 3.0, in the seven
additional markets below. This brings the total number of our markets in which
NEXTGEN TV has been deployed to 29:
Month Market Number of Stations Company Stations
January 2022 Green Bay, WI 5 WLUK-TV (FOX), WCWF (CW)
March 2022 West Palm Beach, FL 5 WPEC (CBS), WWHB-CD (Azteca)
March 2022 Charleston, SC 5 WCIV (ABC)
WSMH (FOX), WEYI-TV(a) (NBC), WBSF(a)
March 2022 Flint, MI 5 (CW)
March 2022 Albany, NY 5 WRGB (CBS), WCWN (CW)
April 2022 Richmond-Petersburg, VA 7 WRLH-TV (FOX)
April 2022 Omaha, NE 5 KPTM (FOX), KXVO(b) (TBD)
(a)The license and programming assets for these stations are currently owned by
a third party. We provide certain non-programming related sales, operational,
and administrative services to these stations pursuant to service agreements,
such as JSAs and SSAs.
(b)The license asset for this station is currently owned by a third party. We
provide programming, sales, operational, and administrative services to this
station pursuant to certain service agreements, such as LMAs.
Financing, Capital Allocation, and Shareholder Returns
•For the three months endedMarch 31, 2022 , we repurchased approximately 2 million shares of Class A Common Stock for$68 million . As ofMay 5, 2022 , we repurchased an additional 1 million shares of Class A Common Stock for$26 million sinceMarch 31, 2022 . The shares were repurchased under an SEC Rule 10b5-1 plan. •InApril 2022 , we amended the Bank Credit Agreement to raise Term B-4 Loans in the amount of$750 million in order to refinance all outstanding Term B loans and to redeem STG's outstanding 5.875% Senior Notes due 2026. The amendment also extended the maturity of$612.5 million of revolving commitments toApril 21, 2027 .
•In February and
Other Events
•In
•InMarch 2022 , our Executive Vice President and Chief Financial Officer,Lucy Rutishauser , was named one of "Maryland's Top 100 Women in 2022" byThe Daily Record . 42 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Any references to the second, third, or fourth quarters are to the three months endedJune 30 ,September 30 , orDecember 31 , respectively, for the year being discussed. For the quarter endedMarch 31, 2022 , we have two reportable segments, "broadcast" and, prior to Deconsolidation, "local sports," that are disclosed separately from our other and corporate activities.
Seasonality / Cyclicality
The operating results of our broadcast segment are usually subject to cyclical fluctuations from political advertising. In even numbered years, political spending is usually significantly higher than in odd numbered years due to advertising expenditures preceding local and national elections. Additionally, every four years, political spending is usually elevated further due to advertising expenditures preceding the presidential election. Also, the second and fourth quarter operating results are usually higher than the first and third quarters' because advertising expenditures are increased in anticipation of certain seasonal and holiday spending by consumers.
The operating results of our local sports segment are usually subject to
cyclical fluctuations based on the timing and overlap of the Major
Operating Data
The following table sets forth our consolidated operating data for the periods
presented (in millions):
Three Months Ended
March 31,
2022 2021
Media revenues $ 1,275 $ 1,497
Non-media revenues 13 14
Total revenues 1,288 1,511
Media programming and production expenses 758 1,023
Media selling, general and administrative expenses 220 213
Depreciation and amortization expenses 121 153
Amortization of program contract costs 25 23
Non-media expenses 13 17
Corporate general and administrative expenses 47 61
Gain on deconsolidation of subsidiary (3,357) -
Gain on asset dispositions and other, net of impairment (5) (14)
Operating income $ 3,466 $ 35 Net income (loss) attributable to
$ (12) 43 -------------------------------------------------------------------------------- Table of Contents The Impact of COVID-19 on our Results of Operations
Overview
OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 a pandemic, and by the end of the following day, each of the MLB, NBA, and NHL had suspended their seasons. OnMarch 13, 2020 ,the United States declared a national state of emergency. As ofMarch 31, 2022 , the national state of emergency is still in effect, however states have reopened their economies at various levels and various timing, COVID-19 vaccinations are being distributed in mass quantities and all professional sports leagues are currently playing live games. However, with new variants of COVID-19 being detected across multiple countries, it still remains unclear how the current trends of states reopening their economies will be impacted and what the overall impact of COVID-19 will be on our business.
Business continuity
Withinthe United States , our business has been designated an essential business, which allows us to continue to serve our customers, however, the COVID-19 pandemic has disrupted our operations. Certain of our facilities have experienced temporary disruptions as a result of the COVID-19 pandemic, and we cannot predict whether our facilities will experience more significant disruptions in the future and how long these disruptions will last. The COVID-19 pandemic has heightened the risk that a significant portion of our workforce will suffer illness or otherwise be unable to work. The COVID-19 pandemic has also resulted in some workers leaving the workforce which has caused wage inflation and made it more difficult for us to find qualified employees. Furthermore, additional reductions in our workforce may become necessary as a result of declines in our business caused by the COVID-19 pandemic. If we take such actions, we cannot assure that we will be able to rehire our workforce once our business has recovered. 44 -------------------------------------------------------------------------------- Table of Contents BROADCAST SEGMENT
The following table sets forth our revenue and expenses for our broadcast segment for the periods presented (in millions):
Three Months Ended March 31, Percent Change
2022 2021 Increase / (Decrease)
Revenue:
Distribution revenue $ 392 $ 361 9%
Advertising revenue 282 267 6%
Other media revenues (a) 47 37 27%
Media revenues $ 721 $ 665 8%
Operating Expenses:
Media programming and production expenses $ 350 $ 337 4%
Media selling, general and administrative expenses (b) 156 141 11%
Depreciation and amortization expenses 60 62 (3)%
Amortization of program contract costs 20 21 (5)%
Corporate general and administrative expenses 43 55 (22)%
Gain on asset dispositions and other, net of
impairment (5) (14) (64)%
Operating income $ 97 $ 63 54%
(a)Includes $24 million and $27 million for the three months ended March 31,
2022 and 2021, respectively, of intercompany revenue related to certain services
provided to other and local sports, prior to the Deconsolidation, under
management services agreements, which is eliminated in consolidation, and $5
million of revenue for the three months ended March 31, 2022 for services
provided by broadcast under management services agreements after the
Deconsolidation, which is not eliminated in consolidation.
(b)Includes
Revenue
Distribution revenue. Distribution revenue, which includes payments from Distributors for our broadcast signals, increased$31 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily due to an increase in contractual rates, partially offset by a decrease in subscribers. Advertising revenue. Advertising revenue increased$15 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily due to an increase in political advertising revenue of$13 million , as 2022 is a political year, compared to 2021 which was a non-political year.
The following table sets forth our primary types of programming and their approximate percentages of advertising revenue, excluding digital revenue, for the periods presented:
Percent of Advertising Revenue (Excluding Digital) for the
Three Months Ended March 31,
2022 2021
Local news 34% 32%
Syndicated/Other programming 26% 28%
Network programming 21% 23%
Sports programming 15% 12%
Paid programming 4% 5%
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The following table sets forth our affiliate percentages of advertising revenue
for the periods presented:
Percent of Advertising Revenue for the
Three Months Ended March 31,
# of Channels 2022 2021
ABC 40 30% 29%
FOX 56 23% 25%
CBS 31 21% 22%
NBC 25 16% 13%
CW 46 5% 6%
MNT 40 4% 4%
Other (a) 396 1% 1%
Total 634
(a)We broadcast other programming from the following providers on our channels
including: Antenna TV, Azteca, Bounce, CHARGE!, Comet, Dabl, Decades, Estrella
TV, Get TV, Grit, Me TV, Rewind, Stadium, TBD, Telemundo, This TV, UniMas,
Univision, and Weather.
Other Media Revenue. Other media revenue increased $10 million for the three
months ended March 31, 2022 , when compared to the same period in 2021, primarily
due to $6 million related to revenue recognized under the Bally commercial
agreement that we began performing on in the second quarter of 2021 and a
$2 million increase in intercompany revenue from the local sports segment and
other related to providing certain services under a management services
agreement prior to the Deconsolidation, which are eliminated in our consolidated
results.
Expenses
Media programming and production expenses. Media programming and production
expenses increased $13 million for the three months ended March 31, 2022 , when
compared to the same period in 2021, primarily related to an increase in fees
pursuant to network affiliation agreements.
Media selling, general and administrative expenses. Media selling, general and
administrative expenses increased $15 million for the three months ended March
31, 2022 , when compared to the same period in 2021, primarily due to an $8
million increase in third-party fulfillment costs from our digital business and
a $6 million increase in information technology costs.
Depreciation and amortization expenses. Depreciation and amortization expenses
decreased $2 million for the three months ended March 31, 2022 , when compared to
the same period in 2021, primarily related to assets retired during 2021.
Amortization of program contract costs. The amortization of program contract
costs decreased
Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses.
Gain on asset dispositions and other, net of impairments. For the three months endedMarch 31, 2022 and 2021 we recorded gains of$1 million and$14 million , respectively, related to reimbursements from the spectrum repack. See Note 2. Acquisitions and Dispositions of Assets within the Consolidated Financial Statements for further discussion. For the three months endedMarch 31, 2022 , we recorded a gain on asset disposition of$3 million related to the sale of assets of one our stations. For the three months endedMarch 31, 2021 , we recorded a gain on asset disposition of$12 million related to the sale ofWDKA-TV andKBSI-TV and a loss of$12 million related to the write-down of the carrying value of assets of one of our stations to approximate the estimated selling price to be received in a potential sales transaction. 46 -------------------------------------------------------------------------------- Table of Contents LOCAL SPORTS SEGMENT Our local sports segment reflects the results of our Bally RSNs, Marquee, and a minority interest in the YES Network prior to the Deconsolidation onMarch 1, 2022 . See Deconsolidation ofDiamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements. The Bally RSNs, Marquee and YES Network own the exclusive rights to air, among other sporting events, the games of professional sports teams in designated local viewing areas.
The following table sets forth our revenue and expenses for our local sports segment for the periods presented (in millions):
Three Months Ended March 31, Percent Change
2022 2021 Increase / (Decrease)
Revenue:
Distribution revenue $ 433 $ 698 (38)%
Advertising revenue 44 65 (32)%
Other media revenue 5 5 -%
Media revenue $ 482 $ 768 (37)%
Operating Expenses:
Media programming and production expenses $ 376 $ 657 (43)%
Media selling, general and administrative expenses (a)
55 65 (15)%
Depreciation and amortization expenses 54 84 (36)%
Corporate general and administrative 1 3 (67)%
Operating loss (a) $ (4) $ (41) (90)%
Income from equity method investments $ 10 $ 13 (23)%
(a)Includes $24 million and $26 million for the three months ended March 31,
2022 and 2021, respectively, of intercompany expense related to certain services
provided by the broadcast segment under a management services agreement, which
is eliminated in consolidation.
The decrease in the revenue and expense items noted below for the current period
when compared to the same period in the prior year was primarily due to the
Deconsolidation, as our current period results include only two months of
activity due to the Deconsolidation, versus a full period of activity in the
prior year, therefore the periods are not comparable. See Deconsolidation of
Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and
Summary of Significant Accounting Policies within the Consolidated Financial
Statements for further discussion.
Media revenue. Media revenue was $482 million and $768 million for the three
months ended March 31, 2022 and 2021, respectively, and is primarily derived
from distribution and advertising revenue. Distribution revenue is generated
through fees received from Distributors for the right to distribute our RSNs and
advertising revenue is primarily generated from sales of commercial time within
the RSNs programming.
Media programming and production expenses. Media programming and production
expenses are primarily related to amortization of our sports programming rights
with MLB, NBA, and NHL teams, and the costs of producing and distributing
content for our brands including live games, pre-game and post-game shows, and
backdrop programming. Media programming and production expenses were $376
million and $657 million for the three months ended March 31, 2022 and 2021,
respectively.
Media selling, general, and administrative expenses. Media selling, general, and
administrative expenses were $55 million and $65 million for the three months
ended March 31, 2022 and 2021, respectively, and are primarily related to
management service agreement fees, employee compensation, advertising expenses,
and consulting fees.
Depreciation and amortization expenses. Depreciation and amortization expenses
were $54 million and $84 million for the three months ended March 31, 2022 and
2021, respectively, and are primarily related to the depreciation of
definite-lived assets and other assets.
Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses.
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Income from equity method investments. For the three months ended March 31, 2022
and 2021 income from equity method investments was $10 million and $13 million ,
respectively, and is primarily related to our investment in the YES Network.
OTHER
The following table sets forth our revenues and expenses for our owned networks
and content, non-broadcast digital and internet solutions, technical services,
and non-media investments (collectively, other) for the periods presented (in
millions):
Three Months Ended March 31, Percent Change
2022 2021 Increase / (Decrease)
Revenue:
Distribution revenue $ 48 $ 50 (4)%
Advertising revenue 68 40 70%
Other media revenues 4 2 100%
Media revenues (a) $ 120 $ 92 30%
Non-media revenues (b) $ 14 $ 16 (13)%
Operating Expenses:
Media expenses (c) $ 89 $ 64 39%
Non-media expenses (d) $ 14 $ 18 (22)%
Operating income $ 18 $ 16 13%
Income (loss) from equity method investments $ 2 $ (4) (150)%
(a)Media revenues for the three months ended March 31, 2022 include $21 million
of intercompany revenues related to certain services and sales provided to the
broadcast segment and $1 million of intercompany revenues related to certain
services and sales provided to the local sports segment, which are eliminated in
consolidation.
(b)Non-media revenues for the three months ended March 31, 2022 and 2021 include
$1 million and $2 million , respectively, of intercompany revenues related to
certain services and sales provided to the broadcast segment, which are
eliminated in consolidation.
(c)Media expenses for the three months ended
(d)Non-media expenses for the three months endedMarch 31, 2022 and 2021 include$1 million and$1 million , respectively, of intercompany expenses related to certain services and sales provided to the broadcast segment, which are eliminated in consolidation. Revenue. Media revenue increased$28 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily due to an increase in advertising revenue related to our digital initiatives and owned networks. Non-media revenue decreased$2 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily due to the sale ofTriangle Sign & Service, LLC (Triangle) in the second quarter of 2021. Expenses. Media expenses increased$25 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily related to our digital initiatives. Non-media expenses decreased$4 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily due to the sale of Triangle in the second quarter of 2021. 48 -------------------------------------------------------------------------------- Table of Contents CORPORATE AND UNALLOCATED EXPENSES
The following table presents our corporate and unallocated expenses for the periods presented (in millions):
Three Months Ended March 31, Percent Change
2022 2021 Increase/ (Decrease)
Corporate general and administrative expenses $ 47
$ 61 (23)% Gain on deconsolidation of subsidiary$ (3,357) $ - n/m Interest expense including amortization of debt discount and deferred financing costs$ 115 $ 151 (24)% Other (expense) income, net$ (60) $ 124 (148)% Income tax (provision) benefit$ (687) $ 9 (7733)% Net income attributable to the redeemable noncontrolling interests $ (4)$ (4) -% Net income attributable to the noncontrolling interests$ (25) $ (34) (26)% n/m - not meaningful Corporate general and administrative expenses. The table above and the explanation that follows cover total consolidated corporate general and administrative expenses. Corporate general and administrative expenses decreased in total by$14 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily due to an$11 million decrease in employee compensation cost related to the reduction-in-force severance and termination benefits that occurred in the first quarter of 2021 and due to a$4 million decrease in legal, consulting, and regulatory costs, primarily related to the litigation discussed under Note 6. Commitments and Contingencies within the Consolidated Financial Statements.
We expect corporate general and administrative expenses to decrease in the second quarter of 2022 when compared to the first quarter of 2022.
Gain on deconsolidation of subsidiary. During the first quarter of 2022 we recorded a gain of$3,357 million related to the Deconsolidation, as discussed in Deconsolidation ofDiamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements. Interest expense including amortization of debt discount and deferred financing costs. The table above and explanation that follows cover total consolidated interest expense. Interest expense decreased by$36 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily due to a decrease in DSG interest expense due to the Deconsolidation, as discussed in Deconsolidation ofDiamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements.
We expect interest expense to decrease in the second quarter of 2022 when compared to the first quarter of 2022.
Other (expense) income, net. Other (expense) income, net decreased by$184 million for the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily due to a$78 million decrease in the fair value of certain investments recorded at fair value in the first quarter of 2022 compared to a$122 million increase in the fair value of certain investments recorded at fair value in the first quarter of 2021. See Note 3. Other Assets within the Consolidated Financial Statements for further information. Income tax (provision) benefit. The effective tax rate for the three months endedMarch 31, 2022 was a provision of 20.8% as compared to a benefit of 53.8% during the same period in 2021. The decrease in the effective tax rate for the three months endedMarch 31, 2022 , as compared to the same period in 2021, is primarily due to substantially greater impact of 2021 discrete items as a result of low pre-tax income in 2021. Net income attributable to the redeemable noncontrolling interests. Net income attributable to the redeemable noncontrolling interests remained flat during the three months endedMarch 31, 2022 , when compared to the same period in 2021. 49 -------------------------------------------------------------------------------- Table of Contents Net income attributable to the noncontrolling interests. Net income attributable to the noncontrolling interests decreased$9 million during the three months endedMarch 31, 2022 , when compared to the same period in 2021, primarily as a result of the Deconsolidation, as discussed in Deconsolidation ofDiamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
As ofMarch 31, 2022 , we had net working capital of approximately$864 million , including$521 million in cash and cash equivalent balances. Cash on hand, cash generated by our operations, and borrowing capacity under the Bank Credit Agreement are used as our primary sources of liquidity. 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 ofMarch 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 ofMarch 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 ofMarch 31, 2022 . As ofMarch 1, 2022 , we no longer consolidate the debt of DSIH. See Deconsolidation ofDiamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within the Consolidated Financial Statements. As ofMarch 31, 2022 , our total debt, defined as current and long-term notes payable, finance leases, and commercial bank financing, including finance leases of affiliates, was$4,398 million , including current debt, due within the next 12 months, of$36 million . Other than as a result of the Deconsolidation, there were no other material changes to our contractual cash obligations as ofMarch 31, 2022 . We anticipate that existing cash and cash equivalents, cash flow from our operations, and borrowing capacity under the Bank Credit Agreement will be sufficient to satisfy our debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. However, certain factors, including but not limited to, the severity and duration of the COVID-19 pandemic and the war inUkraine and resulting effect on the economy, our advertisers, Distributors, and their subscribers, could affect our liquidity and our first lien leverage ratio which could affect our ability to access the full borrowing capacity under the Bank Credit Agreement. For our long-term liquidity needs, in addition to the sources described above, we may rely upon various sources, such as but not limited to, the issuance of long-term debt, the issuance of equity or other instruments convertible into or exchangeable for equity, or the sale of Company assets. However, there can be no assurance that additional financing or capital or buyers of our Company assets will be available, or that the terms of any transactions will be acceptable or advantageous to us. 50
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