Sinclair, Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis provides qualitative and quantitative information about Sinclair's and SBG's financial performance and condition and should be read in conjunction with Sinclair's and SBG's 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 September 30, 2023 and through the date this Report on Form 10-Q is filed. Results of Operations — an analysis of Sinclair's and SBG's revenues and expenses for the three and nine months ended September 30, 2023 and 2022. Liquidity and Capital Resources — a discussion of Sinclair's and SBG's primary sources of liquidity and an analysis of Sinclair's and SBG's cash flows from or used in operating activities, investing activities, and financing activities during the three and nine months ended September 30, 2023. SUMMARY OF SIGNIFICANT EVENTS Content and Distribution • In July 2023, Sinclair announced a distribution agreement with Hulu to add carriage of Sinclair's Tennis Channel and T2 and SBG's Comet and CHARGE! to Hulu's service offerings beginning in January 2024. • In August 2023, SBG agreed to expand and extend its network affiliation agreement with The CW. Under the terms of the comprehensive multiyear agreement, SBG will continue carrying The CW’s entertainment and sports programming in 35 of its owned and/or operated markets across the country. The agreement also includes the right to negotiate carriage agreements directly with vMVPDs. In addition, beginning September 1, SBG launched The CW on two new affiliate stations, KOMO-TV/KUNS-TV, in Seattle, Washington, and WPNT-TV in Pittsburgh, Pennsylvania. • In September 2023, DIRECTV, LLC extended its distribution agreement with Sinclair. • In September 2023, Tennis Channel and the Carvana Professional Pickleball Association (PPA Tour) announced a commercial joint venture to further grow pickleball in the US and worldwide. The partnership will see the vast majority of PPA Tour matches appear live on Tennis Channel platforms, integrated advertising-sales efforts for media and tournaments, and the recent launch of a 24-hour pickleball channel. Tennis Channel will produce all events for the PPA Tour. • In October 2023, SBG launched The Nest, a new, free over-the-air national broadcast TV network with programming comprised of home-improvement, true-crime, factual reality series, and celebrity driven family shows. The Nest joins SBG’s lineup of national broadcast networks, Comet, CHARGE!, and TBD. It replaces Stadium network on broadcast stations across the country. At launch, the network was available in more than 50% of all US television households including the major markets of New York, Los Angeles, Philadelphia, Dallas - Ft. Worth, Boston, San Francisco - Oakland - San Jose and Seattle-Tacoma. • In October 2023, SBG and Paramount reached comprehensive, multi-year distribution agreements across all 21 CBS network affiliations for SBG stations, including six top-50 market affiliates, KUTV in Salt Lake City, UT, KEYE in Austin, TX, WKRC in Cincinnati, OH, WPEC in West Palm Beach, FL, WWMT in Grand Rapids, MI and WHP in Harrisburg, PA. Additionally, Paramount reached an agreement to renew the affiliations of WTVH in Syracuse, NY and WGFL in Gainesville, FL, stations to which SBG provides services. Environmental, Social, and Governance • To date in 2023, SBG's newsrooms have won a total of 260 journalism awards, including a RTDNA National Edward R. Murrow award won by Sinclair's Seattle station, KOMO-TV, for Sports Reporting/Large Market Television category. • In July 2023, Sinclair announced a partnership with the National Diaper Bank Network to launch Sinclair Cares: Summer Diaper Drive, a nationwide campaign to create awareness, provide assistance, and build a community to reduce diaper need in the US. • In July 2023, SBG announced that scholarships were awarded to 15 university students as a part of SBG's annual Diversity Scholarship program. 56 Table of Contents • In October 2023, Sinclair launched Sinclair Cares: Humanitarian Relief in Israel, a fundraising partnership in conjunction with Magen David Adom (MDA), an affiliate of the International Federation of Red Cross and Red Crescent Societies, to help with their efforts providing humanitarian relief and emergency medical services for all people in Israel, regardless of religious creed or political belief. • In October 2023, SBG announced the return of SBG's News Reporter and Producer Academies, a series of interactive, virtual workshops for college students interested in pursuing careers in journalism. This year, SBG also added Weather Academy, a workshop for students interested in a career in weather. The 90-minute sessions will run throughout November and assist students seeking to build a career in reporting, producing or weather. NextGen Broadcasting (ATSC 3.0) • In October 2023, Sinclair announced an agreement to expand development of and promote NextGen services in South Korea with the Korea Radio Promotion Association. • In 2023, Sinclair, in coordination with other broadcasters, and led by BitPath, its joint venture with another broadcaster, have deployed NextGen TV, powered by ATSC 3.0, in the 5 additional markets below. This brings the total number of our markets in which NextGen TV has been deployed to 42: Month Market Number of Stations Company Stations March 2023 Rochester, NY 4 WHAM-TV (a) (ABC), WUHF (FOX) March 2023 Des Moines, IA 4 KDSM-TV (FOX) June 2023 South Bend, IN 5 WSBT-TV (CBS and FOX) July 2023 Reno, NV 5 KRXI-TV (FOX), KRNV-DT (a) (NBC), and KNSN-TV (b) (MyNet) August 2023 Minneapolis, MN 5 WUCW-TV (CW) (a) The license and programming assets for this station are currently owned by a third party. SBG provides certain non-programming related sales, operational, and administrative services to this station pursuant to a service agreement, such as a JSA and SSA. (b) The license assets for these stations are currently owned by a third party. SBG provides programming, sales, operational, and administrative services to these stations pursuant to certain service agreements, such as LMAs. Financing, Capital Allocation, and Shareholder Returns • In August 2023, Sinclair declared a quarterly dividend of $0.25 per share and in November 2023, Sinclair declared a quarterly dividend of $0.25 per share. • For the nine months ended September 30, 2023, Sinclair repurchased approximately 8.8 million shares of Class A Common Stock for $151 million, which all occurred through May 2023. All shares were repurchased under an SEC Rule 10b5-1 plan. • Since the beginning of June 2023, STG purchased an aggregate $64 million of principal across multiple tranches of debt in the open market for $49 million. 57 Table of Contents SINCLAIR, INC. RESULTS OF OPERATIONS SINCLAIR, INC. RESULTS OF OPERATIONS Any references to the first, second, or fourth quarters are to the three months ended March 31, June 30, or December 31, respectively, for the year being discussed. For the quarter ended September 30, 2023, we have two reportable segments, local media and tennis, that are disclosed separately from our other and corporate activities. Prior to the Deconsolidation, we had one additional reportable segment, local sports. Seasonality / Cyclicality The operating results of our local media 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 tennis segment are usually subject to cyclical fluctuations due to the amount and significance of tournaments that take place in the respective quarters during the year. The first and fourth quarter operating results are usually higher than the second and third quarters because of the amount and significance of tournaments that are played during the respective quarters. Operating Data The following table sets forth our consolidated operating data for the periods presented (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Media revenues $ 758 $ 836 $ 2,285 $ 2,942 Non-media revenues 9 7 23 26 Total revenues 767 843 2,308 2,968 Media programming and production expenses 400 396 1,211 1,557 Media selling, general and administrative expenses 176 190 557 605 Depreciation and amortization expenses 66 67 204 255 Amortization of program contract costs 18 22 59 68 Non-media expenses 15 12 36 35 Corporate general and administrative expenses 45 30 165 115 Loss (gain) on deconsolidation of subsidiary 10 — 10 (3,357) (Gain) loss on asset dispositions and other, net of impairment — (28) 11 (37) Operating income $ 37 $ 154 $ 55 $ 3,727 Net (loss) income attributable to Sinclair $ (46) $ 21 $ 50 $ 2,597 58 Table of Contents SINCLAIR, INC. RESULTS OF OPERATIONS Local Media Segment The following table sets forth our revenue and expenses for our local media segment for the periods presented (in millions): Three Months Ended September 30, Percent Change Increase / (Decrease) Nine Months Ended September 30, Percent Change Increase / (Decrease) 2023 2022 2023 2022 Revenue: Distribution revenue $ 365 $ 381 (4)% $ 1,118 $ 1,159 (4)% Advertising revenue 292 367 (20)% 881 1,023 (14)% Other media revenues (a) 40 33 21% 102 113 (10)% Media revenues (c) $ 697 $ 781 (11)% $ 2,101 $ 2,295 (8)% Operating Expenses: Media programming and production expenses $ 371 $ 365 2% $ 1,111 $ 1,086 2% Media selling, general and administrative expenses (b) 164 175 (6)% 514 514 —% Depreciation and amortization expenses 59 61 (3)% 185 183 1% Amortization of program contract costs 18 22 (18)% 59 68 (13)% Corporate general and administrative expenses 31 16 94% 109 93 17% Non-media expenses 3 6 (50)% 12 12 —% Gain on asset dispositions and other, net of impairment (2) (7) (71)% (5) (15) (67)% Operating income $ 53 $ 143 (63)% $ 116 $ 354 (67)% Interest expense including amortization of debt discount and deferred financing costs $ 77 $ 59 31% $ 227 $ 158 44% Gain on extinguishment of debt $ 4 $ — n/m $ 15 $ 3 n/m n/m - not meaningful (a) Includes $1 million for the nine months ended September 30, 2023, and $1 million and $26 million for the three and nine months ended September 30, 2022, 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 $15 million and $39 million of revenue for the three and nine months ended September 30, 2023, respectively, and $12 million and $27 million for the three and nine months ended September 30, 2022, respectively, for services provided by local media to local sports under management services agreements after the Deconsolidation, which is not eliminated in consolidation. (b) Includes $2 million and $5 million for the three and nine months ended September 30, 2023, respectively, and $5 million and $8 million for the three and nine months ended September 30, 2022, respectively, of intercompany expense related to certain services provided to local media from other, which is eliminated in consolidation. (c) Includes $2 million and $4 million for the three and nine months ended September 30, 2023, respectively, and $1 million and $3 million for the three and nine months ended September 30, 2022, respectively, of intercompany revenue related to certain services provided by local media to tennis, which is eliminated in consolidation. Revenue Distribution revenue. Distribution revenue, which represents payments from Distributors for our broadcast signals, decreased $16 million and $41 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022, primarily due to a decrease in subscribers, partially offset by increases in contractual rates. Advertising revenue. Advertising revenue decreased $75 million and $142 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022, primarily due to a decrease in political advertising revenue of $77 million for the three-month period and $140 million for the nine-month period, as 2022 was a political year, compared to 2023 which is a non-political year. 59 Table of Contents SINCLAIR, INC. RESULTS OF OPERATIONS 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Local news 37% 37% 35% 36% Syndicated/Other programming 29% 28% 28% 29% Network programming 18% 21% 19% 21% Sports programming 12% 10% 12% 9% Paid programming 4% 4% 6% 5% The following table sets forth our affiliate percentages of advertising revenue for the periods presented: Percent of Advertising Revenue for the Three Months Ended September 30, Nine Months Ended September 30, # of Channels (a) 2023 2022 2023 2022 ABC 40 30% 28% 30% 30% FOX 55 23% 22% 23% 22% CBS 30 19% 18% 20% 19% NBC 25 13% 18% 12% 16% CW 47 5% 5% 5% 5% MNT 39 4% 4% 4% 4% Other 403 6% 5% 6% 4% Total 639 (a) We broadcast other programming from the following providers on our channels including: Antenna TV, Bounce, Catchy Comedy, CHARGE!, Comet, Dabl, Estrella TV, Get TV, Heroes & Icons, Me TV, The Nest, Quest, Rewind, Story Television, TBD, TCN, Telemundo, This TV, UniMas, Univision, and Weather. Other Media Revenues. Other media revenues increased $7 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase related to providing certain services under management services agreements. Other media revenues decreased $11 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to a decrease in revenue from providing certain services under management services agreements. Expenses Media programming and production expenses. Media programming and production expenses increased $6 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase in fees pursuant to network affiliation agreements as a result of increased contractual rates. Media programming and production expenses increased $25 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase in fees pursuant to network affiliation agreements as a result of increased contractual rates and an increase in employee compensation costs. Media selling, general and administrative expenses. Media selling, general and administrative expenses decreased $11 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to a $4 million decrease in both employee compensation and national sales commission, respectively, and a $2 million decrease in information technology costs. Media selling, general and administrative expenses remained flat for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase in third-party fulfillment cost related to our digital business, partially offset by a decrease in national sales commissions. Amortization of program contract costs. The amortization of program contract costs decreased $4 million and $9 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022, primarily related to reduced programming renewal costs. 60 Table of Contents SINCLAIR, INC. RESULTS OF OPERATIONS Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses. Non-media expenses. Non-media expenses decreased $3 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily related to decreased expenses associated with our NextGen TV broadcast intiative. Non-media expenses remained flat for the nine months ended September 30, 2023 when compared to the same period in 2022. Gain on asset dispositions and other, net of impairments. For the three and nine months ended September 30, 2023 we recorded gains of $2 million and $5 million, respectively, and for the three and nine months ended September 30, 2022 we recorded gains of $1 million and $3 million, respectively, related to reimbursements from the spectrum repack. For the nine months ended September 30, 2022, we recorded a gain of $3 million related to the sale of assets of one of our stations. Interest expense including amortization of debt discount and deferred financing costs. Interest expense increased $18 million and $69 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022, primarily due to increased interest expense related to our variable rate debt resulting from higher interest rates. Gain on extinguishment of debt. During the nine months ended September 30, 2023 we purchased a total of $64 million in aggregate principal across multiple tranches of debt and recognized a gain on extinguishment of approximately $4 million and $15 million for the three and nine months ended September 30, 2023, respectively. See Bank Credit Agreement and Notes under Note 3. Notes Payable, Finance Leases, and Commercial Bank Financing within Sinclair's Consolidated Financial Statements . Tennis Segment The following table sets forth our revenue and expenses for our tennis segment for the periods presented (in millions): Three Months Ended September 30, Percent Change Increase / (Decrease) Nine Months Ended September 30, Percent Change Increase / (Decrease) 2023 2022 2023 2022 Revenue: Distribution revenue $ 49 $ 44 11% $ 140 $ 136 3% Advertising revenue 9 9 —% 32 28 14% Other media revenues 1 1 —% 2 4 (50)% Media revenues $ 59 $ 54 9% $ 174 $ 168 4% Operating Expenses: Media programming and production expenses $ 29 $ 26 12% $ 91 $ 81 12% Media selling, general and administrative expenses (a) 11 11 —% 33 36 (8)% Depreciation and amortization expenses 5 6 (17)% 15 16 (6)% Corporate general and administrative expenses 1 — n/m 1 — n/m Operating income $ 13 $ 11 18% $ 34 $ 35 (3)% (a) Includes $ 2 million and $ 4 million for the three and nine months ended September 30, 2023, respectively, and $ 1 million and $ 3 million for the three and nine months ended September 30, 2022, respectively, of intercompany expense related to certain services provided by the local media segment, which is eliminated in consolidation. Revenue Distribution revenue. Distribution revenue, which is generated through fees received from Distributors for the right to distribute Tennis Channel, increased $5 million and $4 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022, primarily due to an increase in subscribers as a result of increased carriage that occurred during the year. Advertising revenue. Advertising revenue is primarily generated from sales of commercial time within Tennis Channel programming. Advertising revenue remained flat for the three months ended September 30, 2023 when compared to the same period in 2022 and increased $4 million for the nine months ended September 30, 2022 when compared to the same period in 2022, primarily due to an increase in the number of tournaments aired in the current period versus the prior period. 61 Table of Contents SINCLAIR, INC. RESULTS OF OPERATIONS Expenses Media programming and production expenses. Media programming and production expenses increased $3 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase in employee compensation costs. Media programming and production expenses increased $10 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to increased programming, including rights fees, and live production expenses related to various tournaments during each period, which was a result of an increase in the number of tournaments aired in the current period versus the prior period. Media selling, general and administrative expenses. Media selling, general and administrative expenses remained flat for the three months ended September 30, 2023 when compared to the same period in 2022. Media selling, general and administrative expenses decreased $3 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to a decrease in expenses related to our online tennis platforms. Corporate general and administrative expenses. See explanation under Corporate and Unallocated Expenses. Local Sports Segment Our local sports segment reflected the results of our Bally RSNs, Marquee, and a minority interest in the YES Network prior to the Deconsolidation on March 1, 2022. See Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within Sinclair's 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 period presented (in millions): Nine Months Ended September 30, 2022 Revenue: (b) Distribution revenue $ 433 Advertising revenue 44 Other media revenue 5 Media revenue $ 482 Operating Expenses: Media programming and production expenses $ 376 Media selling, general and administrative expenses (a) 55 Depreciation and amortization expenses 54 Corporate general and administrative 1 Operating loss (a) $ (4) Income from equity method investments $ 10 (a) Includes $24 million for the nine months ended September 30, 2022 of intercompany expense related to certain services provided by the local media segment under a management services agreement, which is eliminated in consolidation. (b) Represents the activity prior to the Deconsolidation on March 1, 2022. See Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within Sinclair's Consolidated Financial Statements. The revenue and expense items noted above for the nine months ended September 30, 2022 represent activity prior to the Deconsolidation which occurred on March 1, 2022, thus there is no activity presented for periods subsequent to the first quarter of 2022. See Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within Sinclair's Consolidated Financial Statements for further discussion. 62 Table of Contents SINCLAIR, INC. RESULTS OF OPERATIONS Other The following table sets forth our revenues and expenses for our non-broadcast digital and internet solutions, technical services, and non-media investments (collectively, other) for the periods presented (in millions): Three Months Ended September 30, Percent Change Increase / (Decrease) Nine Months Ended September 30, Percent Change Increase/(Decrease) 2023 2022 2023 2022 Revenue: Media revenues (a) $ 6 $ 9 (33)% $ 21 $ 40 (48)% Non-media revenues (b) $ 11 $ 8 38% $ 27 $ 34 (21)% Operating Expenses: Media expenses (c) $ 5 $ 15 (67)% $ 30 $ 57 (47)% Non-media expenses (d) $ 13 $ 8 63% $ 26 $ 28 (7)% Operating loss $ (7) $ 4 n/m $ (31) $ (4) n/m Income from equity method investments $ — $ 33 n/m $ 30 $ 38 (21)% n/m - not meaningful (a) Media revenues for the three and nine months ended September 30, 2023 include $2 million and $5 million, respectively, and for the three and nine months ended September 30, 2022 include $4 million and $14 million, respectively, of intercompany revenue related to certain services and sales provided to the local media segment, which is eliminated in consolidation. (b) Non-media revenues for the three and nine months ended September 30, 2023 include $2 million and $4 million, respectively, and for the three and nine months ended September 30, 2022 include $1 million and $8 million, respectively, of intercompany revenue related to certain services and sales provided to the local media segment, which is eliminated in consolidation. (c) Media expenses for the include $2 million for the nine months ended September 30, 2023, and $6 million for the nine months ended September 30, 2022 of intercompany expense primarily related to certain services provided by the local media segment, which is eliminated in consolidation. (d) Non-media expenses for the three and nine months ended September 30, 2023 include $1 million and $2 million, respectively, and for the three and nine months ended September 30, 2022 include $2 million and $5 million, respectively, of intercompany expense related to certain services and sales provided by the local media segment, which is eliminated in consolidation. Revenue. Media revenues decreased $3 million and $19 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022, primarily due to the sale of one of our businesses. Non-media revenues increased $3 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase in broadcast equipment sales. Non-media revenues decreased $7 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to lower sales within our consolidated real estate investments. Expenses. Media expenses decreased $10 million and $27 million for the three and nine months ended September 30, 2023, respectively, when compared to the same periods in 2022, primarily due to the sale of one of our businesses. Non-media expenses increased $5 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase in expenses related to our technical services business. Non-media expenses decreased $2 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to lower sales within our consolidated real estate investments. Income from equity method investments. During the nine months ended September 30, 2023, we recognized a gain of $33 million on the sale of two of our real estate investments, which is included in income from equity method investments in our consolidated statements of operations. 63 Table of Contents SINCLAIR, INC. RESULTS OF OPERATIONS Corporate and Unallocated Expenses The following table presents our corporate and unallocated expenses for the periods presented (in millions): Three Months Ended September 30, Percent Change Increase/ (Decrease) Nine Months Ended September 30, Percent Change Increase/ (Decrease) 2023 2022 2023 2022 Corporate general and administrative expenses $ 45 $ 30 50% $ 165 $ 115 43% Loss (gain) on deconsolidation of subsidiary $ 10 $ — n/m $ 10 $ (3,357) n/m Other (expense) income, net $ (21) $ 10 n/m $ (48) $ (155) (69)% Income tax benefit (provision) $ 12 $ (109) n/m $ 236 $ (756) n/m 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 increased by $15 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to a $16 million increase in legal, consulting, and regulatory costs, primarily related to the litigation discussed under Note 5. Commitments and Contingencies within Sinclair's Consolidated Financial Statements. Corporate general and administrative expenses increased by $50 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to a $29 million increase in legal, consulting, and regulatory costs, primarily related to the litigation discussed under Note 5. Commitments and Contingencies within Sinclair's Consolidated Financial Statements a $17 million increase in employee compensation costs , and a $3 million increase in insurance expenses, primarily related to our cyber insurance policy. Loss (gain) on deconsolidation of subsidiary. For the nine months ended September 30, 2022, we recorded a gain of $3,357 million related to the Deconsolidation, as discussed in Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within Sinclair's Consolidated Financial Statements . Other (expense) income, net. Other expense, net increased by $31 million for the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to changes in the fair value of certain investments recorded at fair value. Other expense, net decreased by $107 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to changes in the fair value of certain investments recorded at fair value. See Note 2. Other Assets within Sinclair's Consolidated Financial Statements for further information. Income tax benefit (provision). The effective tax rate for the three months ended September 30, 2023 was a benefit of 20.7% as compared to a provision of 78.3% during the same period in 2022. The decrease in the effective tax rate for the three months ended September 30, 2023, as compared to the same period in 2022, is primarily due to a 2022 valuation allowance recorded on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j). The effective tax rate for the nine months ended September 30, 2023 was a benefit of 134.3% compared to a provision of 22.3% during the same period in 2022. The increase in the effective tax rate for the nine months ended September 30, 2023, as compared to the same period in 2022, is primarily due to a 2023 release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j). 64 Table of Contents SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS Any references to the first, second, or fourth quarters are to the three months ended March 31, June 30, or December 31, respectively, for the year being discussed. For the quarter ended September 30, 2023, SBG has one reportable segment, local media that is disclosed separately from SBG's other and corporate activities. Prior to the Deconsolidation, SBG had one additional reportable segment, local sports, that was disclosed separately from SBG's other and corporate activities. Seasonality / Cyclicality The operating results of SBG's local media 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. Operating Data The following table sets forth SBG's consolidated operating data for the periods presented (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Media revenues $ 697 $ 836 $ 2,203 $ 2,942 Non-media revenues — 7 10 26 Total revenues 697 843 2,213 2,968 Media programming and production expenses 371 396 1,166 1,557 Media selling, general and administrative expenses 164 190 539 605 Depreciation and amortization expenses 59 67 194 255 Amortization of program contract costs 18 22 59 68 Non-media expenses 3 12 22 35 Corporate general and administrative expenses 31 30 147 115 Loss (gain) on deconsolidation of subsidiary 10 — 10 (3,357) (Gain) loss on asset dispositions and other, net of impairment (3) (28) 7 (37) Operating income $ 44 $ 154 $ 69 $ 3,727 Net (loss) income attributable to SBG $ (22) $ 21 $ 62 $ 2,597 Local Media Segment Refer to Local Media Segment above under Sinclair, Inc.'s Results of Operations for a discussion of SBG's local media segment, which is the same as Sinclair's local media segment for all of the three and nine months ended September 30, 2023 and 2022. Local Sports Segment Refer to Local Sports Segment above under Sinclair, Inc.'s Results of Operations for a discussion of SBG's local sports segment, which is the same as Sinclair's local sports segment for the nine months ended September 30, 2022, prior to the Deconsolidation. 65 Table of Contents SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS Other The following table sets forth SBG's revenues and expenses for tennis, non-broadcast digital and internet solutions, technical services, and non-media investments (collectively, other) for the periods presented, prior to the Reorganization (in millions): Three Months Ended September 30, Percent Change Increase / (Decrease) Nine Months Ended September 30, Percent Change Increase/(Decrease) 2023 2022 2023 2022 Revenue: (e) (e) Distribution revenue $ — $ 44 n/m $ 76 $ 136 (44)% Advertising revenue — 15 n/m 29 61 (52)% Other media revenues — 4 n/m 3 11 (73)% Media revenues (a) $ — $ 63 n/m $ 108 $ 208 (48)% Non-media revenues (b) $ — $ 8 n/m $ 11 $ 34 (68)% Operating Expenses: Media expenses (c) $ — $ 52 n/m $ 86 $ 174 (51)% Non-media expenses (d) $ — $ 8 n/m $ 10 $ 28 (64)% (Gain) loss on asset dispositions and other, net of impairment $ — $ (11) n/m $ 13 $ (12) n/m Operating income $ — $ 15 n/m $ — $ 31 n/m Income from equity method investments $ — $ 33 n/m $ 31 $ 38 (18)% n/m - not meaningful (a) Media revenues for the nine months ended September 30, 2023 include $3 million, and for the three and nine months ended September 30, 2022 include $ 4 million and $ 14 million, respectively, of intercompany revenue related to certain services and sales provided to the local media segment, which is eliminated in consolidation. (b) Non-media revenues for the nine months ended September 30, 2023 include $1 million, and for the three and nine months ended September 30, 2022 include $1 million and $8 million, respectively, of intercompany revenue related to certain services and sales provided to the local media segment, which is eliminated in consolidation. (c) Media expenses for the nine months ended September 30, 2023 and 2022 include $1 million and $9 million, respectively, of intercompany expense primarily related to certain services provided by the local media segment, which is eliminated in consolidation. (d) Non-media expenses for both the three and nine months ended September 30, 2023 include $1 million, and for the three and nine months ended September 30, 2022 include $2 million and $5 million, respectively, of intercompany expense related to certain services and sales provided by the local media segment, which is eliminated in consolidation. (e) Represents the activity prior to the Reorganization on June 1, 2023. There was no reportable activity for the June through September period in the three and nine months ended September 30, 2023 following the Reorganization on June 1, 2023. See Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolid ated Financial Statements. The decrease in the revenue and expense items noted above for the three and nine months ended September 30, 2023, when compared to the same periods in the 2022, was primarily due to the Reorganization, as the three and nine months ended September 30, 2023 results include only five months of activity. Due to the Reorganization, the Transferred Assets were moved to Ventures effective June 1, 2023, versus a full period of activity in the prior year periods, and therefore the periods are not comparable. See Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements. 66 Table of Contents SINCLAIR BROADCAST GROUP, LLC RESULTS OF OPERATIONS Corporate and Unallocated Expenses The following table presents SBG's corporate and unallocated expenses for the periods presented (in millions): Three Months Ended September 30, Percent Change Increase/ (Decrease) Nine Months Ended September 30, Percent Change Increase/ (Decrease) 2023 2022 2023 2022 Corporate general and administrative expenses $ 31 $ 30 3% $ 147 $ 115 28% Loss (gain) on deconsolidation of subsidiary $ 10 $ — n/m $ 10 $ (3,357) n/m Other income (expense), net $ 2 $ 10 (80)% $ (51) $ (155) (67)% Income tax benefit (provision) $ 6 $ (109) n/m $ 236 $ (756) n/m 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 increased by $1 million for the three months ended September 30, 2023, when compared to the same period in 2022, primarily due to an increase in legal, consulting, and regulatory costs. Corporate general and administrative expenses increased by $32 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to a $29 million increase in legal, consulting, and regulatory costs and a $3 million increase in insurance expenses, primarily related to SBG's cyber insurance policy. Loss (gain) on deconsolidation of subsidiary. For the nine months ended September 30, 2022, SBG recorded a gain of $3,357 million related to the Deconsolidation, as discussed in Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements . Other income (expense), net. Other income, net decreased by $8 million for the three months ended September 30, 2023, when compared to the same period in 2022. Other expense, net decreased by $104 million for the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to changes in the fair value of certain investments recorded at fair value prior to the Reorganization. Income tax benefit (provision). The effective tax rate for the three months ended September 30, 2023 was a benefit of 18.9% as compared to a provision of 78.3% during the same period in 2022. The decrease in the effective tax rate for the three months ended September 30, 2023, as compared to the same period in 2022, is primarily due to 2022 valuation allowance recorded on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j). The effective tax rate for the nine months ended September 30, 2023 was a benefit of 144.6% compared to a provision of 22.3% during the same period in 2022. The increase in the effective tax rate for the nine months ended September 30, 2023, as compared to the same period in 2022, is primarily due to a 2023 release of valuation allowance on deferred tax assets relating to deductibility of interest expense under the IRC Section 163(j). 67 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Liquidity and Capital Resources As of September 30, 2023, Sinclair had net working capital of approximately $830 million, including $643 million in cash and cash equivalent balances, and $650 million of available borrowing capacity. Cash on hand, cash generated by Sinclair's operations, and borrowing capacity under the Bank Credit Agreement are used as Sinclair's primary sources of liquidity. As of September 30, 2023, SBG had net working capital of approximately $432 million, including $279 million in cash and cash equivalent balances, and $650 million of available borrowing capacity. Cash on hand, cash generated by SBG's operations, and borrowing capacity under the Bank Credit Agreement are used as SBG's 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 of September 30, 2023, 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 September 30, 2023, 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 September 30, 2023. During the three months ended September 30, 2023, STG purchased $30 million aggregate principal amount of the Term Loan B-2, due September 30, 2026, for consideration of $26 million. In June 2023, STG purchased $3 million, $15 million, and $13 million aggregate principal amount of the 5.125% Senior Notes due 2027, the 5.500% Senior Notes due 2030, and the 4.125% Senior Secured Notes due 2030, respectively, in open market transactions for consideration of $3 million, $8 million, and $8 million, respectively. During the three months ended September 30, 2023, STG purchased $4 million in aggregate principal amount of the 5.125% Senior Notes due 2027 in open market transactions for consideration of $3 million. The STG Notes acquired in June 2023 and during the three months ended September 30, 2023 were canceled immediately following their acquisition. During the nine months ended September 30, 2023, there were no material changes to Sinclair's or SBG's contractual cash obligations as of September 30, 2023. Sinclair and SBG anticipate that existing cash and cash equivalents, cash flow from the local media segment's operations, and borrowing capacity under the Bank Credit Agreement will be sufficient to satisfy the local media segment's debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. Sinclair anticipates that existing cash and cash equivalents and cash flow from the tennis segment and other's operations will be sufficient to satisfy the tennis segment and other's debt service obligations, capital expenditure requirements, and working capital needs for the next twelve months. However, certain factors, including but not limited to the war in Ukraine, conflict in the Middle East, and other geopolitical matters, natural disasters, and pandemics (such as the outbreak and worldwide spread of COVID-19), and their resulting effect on the economy, Sinclair's and SBG's advertisers, and Sinclair's and SBG's Distributors and their subscribers, could affect Sinclair's and SBG's liquidity and first lien leverage ratio which could affect Sinclair's and SBG's ability to access the full borrowing capacity under the Bank Credit Agreement. In addition to the sources described above, Sinclair and SBG may rely upon various sources for long-term liquidity needs, such as but not limited to, the issuance of long-term debt, the issuance of Sinclair equity, for Sinclair only, the issuance of Ventures equity or debt, or other instruments convertible into or exchangeable for Sinclair equity, or the sale of assets. However, there can be no assurance that additional financing or capital or buyers of assets will be available, or that the terms of any transactions will be acceptable or advantageous to Sinclair or SBG. 68 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Sinclair, Inc. Sources and Uses of Cash The following table sets forth Sinclair's cash flows for the periods presented (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net cash flows from operating activities $ 1 $ 251 $ 143 $ 458 Cash flows (used in) from investing activities: Acquisition of property and equipment $ (30) $ (29) $ (70) $ (74) Purchases of investments (5) (6) (44) (67) Deconsolidation of subsidiary cash — — — (315) Distributions from investments 1 9 205 90 Other, net 2 3 6 14 Net cash flows (used in) from investing activities $ (32) $ (23) $ 97 $ (352) Cash flows used in financing activities: Proceeds from notes payable and commercial bank financing $ — $ — $ — $ 728 Repayments of notes payable, commercial bank financing, and finance leases (38) (9) (76) (854) Dividends paid on Class A and Class B Common Stock (16) (16) (50) (53) Repurchase of outstanding Class A Common Stock — (10) (153) (114) Repurchase of redeemable subsidiary preferred equity — — (190) — Distributions to noncontrolling interests, net (2) (5) (10) (10) Other, net 2 (1) (2) (15) Net cash flows used in financing activities $ (54) $ (41) $ (481) $ (318) Operating Activities Net cash flows from Sinclair's operating activities decreased during the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to a decrease in cash collections related to political revenue and a decrease in cash collections from Distributors. Net cash flows from Sinclair's operating activities decreased during the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to a decrease in cash collections related to political revenue, a decrease in cash collections from Distributors, and an increase in production and overhead costs, as well as the partial period impact related to the Deconsolidation, as discussed in Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within Sinclair's Consolidated Financial Statements. Investing Activities Net cash flows used in Sinclair's investing activities increased during the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to a decrease in distributions from investments. Net cash flows from Sinclair's investing activities increased during the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to the removal of DSIH's cash balance as a result of the Deconsolidation in the first quarter of 2022, as discussed in Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within Sinclair's Consolidated Financial Statements , as well as the $193 million A/R Facility principal payment received from DSPV and a decrease in the purchases of investments. 69 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Financing Activities Net cash flows used in Sinclair's financing activities increased during the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase in the repayment of debt, partially offset by a decrease in the repurchase of outstanding Common Stock. Net cash flows used in Sinclair's financing activities increased during the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to the repurchase of the Redeemable Subsidiary Preferred Equity and an increase in the repurchase of outstanding Common Stock, partially offset by a decrease in the net repayment of debt (repayments less proceeds). Sinclair declared a quarterly dividend of $0.25 per share in August 2023 and $0.25 per share in November 2023. Future dividends on Sinclair's shares of common stock, if any, will be at the discretion of Sinclair's Board of Directors and will depend on several factors including Sinclair's results of operations, cash requirements and surplus, financial condition, covenant restrictions, and other factors that the Board of Directors may deem relevant. 70 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Sinclair Broadcast Group, LLC Sources and Uses of Cash The following table sets forth SBG's cash flows for the periods presented (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net cash flows from operating activities $ 50 $ 251 $ 172 $ 458 Cash flows (used in) from investing activities: Acquisition of property and equipment $ (30) $ (29) $ (71) $ (74) Purchases of investments — (6) (37) (67) Deconsolidation of subsidiary cash — — — (315) Distributions from investments — 9 204 90 Other, net 2 3 6 14 Net cash flows (used in) from investing activities $ (28) $ (23) $ 102 $ (352) Cash flows used in financing activities: Proceeds from notes payable and commercial bank financing $ — $ — $ — $ 728 Repayments of notes payable, commercial bank financing, and finance leases (39) (9) (76) (854) Dividends paid on Old Sinclair Class A and Class B Common Stock — (16) (18) (53) Repurchase of outstanding Old Sinclair Class A Common Stock — (10) (153) (114) Repurchase of redeemable subsidiary preferred equity — — (190) — Distributions to noncontrolling interests, net (3) (5) (10) (10) Distributions to member, net (69) — (429) — Other, net — (1) (3) (15) Net cash flows used in financing activities $ (111) $ (41) $ (879) $ (318) Operating Activities Net cash flows from SBG's operating activities decreased during the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to a decrease in cash collections related to political revenue and a decrease in cash collections from Distributors, as well as the impact related to the Reorganization, as discussed in Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements. Net cash flows from SBG's operating activities decreased during the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to a decrease in cash collections related to political revenue, a decrease in cash collections from Distributors, and an increase in production and overhead costs, as well as the partial period impact related to the Deconsolidation and Reorganization, as discussed in Deconsolidation of Diamond Sports Intermediate Holdings LLC and Company Reorganization , respectively, under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements. Investing Activities Net cash flows used in SBG's investing activities increased during the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to a decrease in distributions from investments, offset by a decrease in purchase of investments during the three months ended September 30, 2023, as a result of the Reorganization as discussed in Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements. 71 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Net cash flows from SBG's investing activities increased during the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to the removal of DSIH's cash balance as a result of the Deconsolidation in the first quarter of 2022, as discussed in Deconsolidation of Diamond Sports Intermediate Holdings LLC under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements; the $193 million A/R Facility principal payment received from DSPV; a decrease in the purchases of investments during the nine months ended September 30, 2023, as a result of the Reorganization; and the partial period impact related to the Reorganization, as discussed in Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements . The A/R Facility payment received from DSPV was transferred to Ventures as part of the Reorganization. Financing Activities Net cash flows used in SBG's financing activities increased during the three months ended September 30, 2023 when compared to the same period in 2022, primarily due to an increase in the repayment of debt during the three months ended September 30, 2023, partially offset by a decrease in the repurchase of outstanding Old Sinclair Common Stock and payments of dividends on Old Sinclair Common Stock as a result of the Reorganization, as discussed in Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements . Net cash flows used in SBG's financing activities increased during the nine months ended September 30, 2023 when compared to the same period in 2022, primarily due to the repurchase of the Redeemable Subsidiary Preferred Equity; an increase in the repurchase of outstanding Old Sinclair Common Stock, prior to the Reorganization; the distribution to member as a result of the Reorganization; and the partial period impact related to the Reorganization, as discussed in Company Reorganization under Note 1. Nature of Operations and Summary of Significant Accounting Policies within SBG's Consolidated Financial Statements , partially offset by a decrease in the net repayment of debt (repayments less proceeds). CRITICAL ACCOUNTING POLICIES AND ESTIMATES There were no changes to the critical accounting policies and estimates from those disclosed in Critical Accounting Policies and Estimates under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations within Old Sinclair's Annual Report on Form 10-K for the year ended December 31, 2022.